MEMORANDUM OF CHANGES
VAN KAMPEN FOCUS PORTFOLIOS, SERIES 142
The Prospectus filed with Amendment No. 2 of the Registration Statement
on Form S-6 has been revised to reflect information regarding the deposit of Van
Kampen Focus Portfolios, Series 142 on March 18, 1999. An effort has been made
to set forth below each of the major changes and also to reflect the same by
blacklining the marked counterparts of the Prospectus submitted with the
Amendment.
Cover Page. The date of the Prospectus has been completed.
Pages 2-3. "The Summary of Essential Financial Information" section and
"Fee Table" have been completed.
Pages 4-6. Revisions have been made and the portfolio has been completed.
Pages 7-8. The Report of Independent Certified Public Accountants and
Statement of Condition have been completed.
<PAGE>
FILE NO. 333-70895
CIK #1025305
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Amendment No. 2
to
Form S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
A. Exact Name of Trust: VAN KAMPEN FOCUS PORTFOLIOS, SERIES 142
B. Name of Depositor: VAN KAMPEN FUNDS INC.
C. Complete address of Depositor's principal executive offices:
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
D. Name and complete address of agents for service:
CHAPMAN AND CUTLER VAN KAMPEN FUNDS INC.
Attention: Mark J. Kneedy Attention: A. Thomas Smith III, General Counsel
111 West Monroe Street One Parkview Plaza
Chicago, Illinois 60603 Oakbrook Terrace, Illinois 60181
E. Title of securities being registered: Units of proportionate interest
F. Approximate date of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT
/ X / Check box if it is proposed that this filing will become effective at
- ---- 2:00 p.m. on March 18, 1999 pursuant to Rule 487.
Baird
Preferred Income Portfolio, Series 1
- --------------------------------------------------------------------------------
Van Kampen Focus Portfolios, Series 142 includes the unit investment trust
described above (the "Trust"). The Trust seeks to provide a high level of income
by investing in a diversified portfolio of preferred securities selected by
Robert W. Baird & Co. Incorporated. Of course, we cannot guarantee that the
Trust will achieve its objective.
The Units are not deposits or obligations of any bank or government agency and
are not guaranteed.
March 18, 1999
You should read this prospectus and retain it for future reference.
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved
of the Units or passed upon the adequacy or accuracy of this prospectus.
Any contrary representation is a criminal offense.
Summary of Essential Financial Information
March 18, 1999
Public Offering Price
Aggregate value of Securities per Unit (1) $ 9.90
Sales charge 0.40
Less deferred sales charge 0.30
Public offering price per Unit (2) $ 10.00
Trust Information
Initial number of Units (3) 14,965
Aggregate value of Securities (1) $ 148,151
Estimated annual income distribution per Unit (4) $ 0.80281
Redemption price per Unit (5) $ 9.600
General Information
Initial Date of Deposit March 18, 1999
Mandatory Termination Date March 18, 2004
Record Dates Tenth day of each month
Distribution Dates Twenty-fifth day of each month
- --------------------------------------------------------------------------------
(1) Each Security is valued at the opening sale price on its principal trading
exchange or, if not listed, at the opening asked price on the Initial Date
of Deposit. You will bear all or a portion of the expenses incurred in
organizing and offering your Trust. The Public Offering Price includes the
estimated amount of these costs. The Trustee will deduct these expenses
from your Trust at the end of the initial offering period (approximately
one month). The estimated amount is described on the next page.
(2) The Public Offering Price will include any accumulated dividends, interest
or cash in the Income or Capital Accounts.
(3) The number of Units may be adjusted so that the Public Offering Price per
Unit equals $10 at the Evaluation Time on the Initial Date of Deposit. The
number of Units and fractional interest of each Unit will increase or
decrease to the extent of any adjustment.
(4) These estimates are based on the most recently declared dividends or stated
interest payments on the Securities. Actual distributions will vary due to
a variety of factors, including changes in Trust expenses. See "Risk
Factors". The estimated distributions during the first year differ from the
estimated annual distributions during subsequent years because the Trust
pays the organizational costs and deferred sales charge during the Trust's
first year only.
(5) The redemption price is reduced by any remaining deferred sales charge. The
redemption price includes the estimated organizational and offering costs.
The redemption price will not include these costs after the initial
offering period. See "Rights of Unitholders--Redemption of Units".
Fee Table
Transaction Fees (as % of offering price)
Initial sales charge (1)............................. 1.00%
Deferred sales charge (2)............................ 3.00%
----------
Maximum sales charge ................................ 4.00%
==========
Estimated Organizational Costs per Unit (3).......... $ 0.04983
==========
Estimated Annual Expenses per Unit
Trustee's fee and operating expenses................. $ 0.01860
Evaluation fees...................................... $ 0.00250
Supervisory fees..................................... $ 0.00250
----------
Estimated annual expenses per Unit................... $ 0.02360
==========
Estimated Costs Over TIme
One year............................................. $ 47
Three years.......................................... $ 51
Five years........................................... $ 57
Ten years............................................ N/A
This fee table is intended to assist you in understanding the costs that you
will bear and to present a comparison of fees. The "Estimated Costs Over Time"
example illustrates the expenses you would pay on a $1,000 investment assuming a
5% annual return and redemption at the end of each period. This example assumes
that you reinvest distributions at the end of each year. Of course, you should
not consider this example as a representation of actual past or future expenses
or annual rate of return which may differ from those assumed for this example.
The sales charge and expenses are described under "Public Offering" and "Trust
Operating Expenses".
- --------------------------------------------------------------------------------
(1) The initial sales charge is the difference between the maximum sales charge
and the deferred sales charge.
(2) The deferred sales charge is actually equal to $0.30 per Unit. This amount
will exceed the percentage above if the Public Offering Price per Unit
falls below $10 and will be less than the percentage above if the Public
Offering Price per Unit exceeds $10. The deferred sales charge accrues
daily and is assessed from June 18, 1999 through February 17, 2000.
(3) You will bear all or a portion of the expenses incurred in organizing and
offering your Trust. The Trustee will deduct the actual amount of these
expenses from your Trust at the end of the initial offering period.
Preferred Income Portfolio
The Trust seeks to provide a high level of income by investing primarily in a
diversified portfolio of preferred securities. In selecting securities for your
Trust, Robert W. Baird's fixed income research department selected a universe of
preferred securities and then selected the final portfolio using database
screening techniques. Van Kampen then reviewed this list prior to creating the
Trust portfolio. The Trust may be appropriate for investors seeking a high level
of current income.
The portfolio includes trust preferred securities, subordinated corporate
debt, real estate investment trust securities and preferred stock. In this
prospectus, we refer to all of these securities as "preferred securities." While
the structure of each of these security types differs, the securities are
generally similar and combine characteristics of both equity and debt
securities. These securities generally pay a fixed income rate similar to bonds,
but also generally trade on major securities exchanges similar to stocks.
Typical issuers include electric and gas utilities, industrial companies,
insurance companies, banks and other financial institutions. Companies generally
issue these securities because they offer tax and accounting advantages over
other securities. These securities generally have a limited life with a maturity
date ranging between 20 to 49 years from the original issuance (although the
Trust is scheduled to terminate after five years).
As with any investment, we cannot guarantee that the Trust will achieve its
objective. The value of your Units may fall below the price you paid for the
Units. You should read the "Risk Factors" section before you invest.
Approximately 38% of the value of the Trust portfolio consists of securities
that are rated below investment grade by Standard & Poor's, a division of the
McGraw-Hill Companies or Moody's Investors Service Inc. These securities involve
additional risks. We discuss these risks in the "Risk Factors" section under
"Lower-Grade Securities."
About Robert W. Baird & Co. Robert W. Baird & Co. Incorporated is the
Underwriter of your Trust. Baird is one of the nation's largest
regionally-headquartered investment bankers, serving individuals, corporations,
municipalities and institutional investors. Founded in Milwaukee in 1919, Baird
has developed a strong presence in the Midwest and has expanded into major
markets outside America's Heartland. The firm has 76 offices in 14 states.
Baird's research department is widely known and respected for its equity
research providing broad comprehensive coverage for its clients. Baird's special
expertise includes:
o Offering individuals a full range of high-quality investment services.
o Serving as a leading underwriter for corporations and municipalities.
o Offering a broad range of asset management services to individuals,
pension and profit-sharing plans, foundations and others.
o Providing highly-regarded investment research that enjoys an
international reputation.
o Working with institutional investors around the world.
Since 1982, Baird has been a member of the Northwestern Mutual Life Insurance
family of companies. Baird is a member of the New York Stock Exchange and other
principal exchanges, the National Association of Securities Dealers, Inc. and
the Securities Investor Protection Corporation. You can contact Baird at (800)
792-2473 or visit their website at www.rwbaird.com.
<TABLE>
<CAPTION>
Portfolio
- --------------------------------------------------------------------------------
Cost of
Number Name of Issuer, Coupon Redemption Market Value Securities
of Shares and Maturity (1) Rating (2) Provision (3) per Share (4) to Trust (4)
- ------------ ------------------------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
233 Agrium Inc. BBB- 4/22/03 @ 25 $ 24.563 $ 5,723.06
8.00% Due 6/30/2047
239 Aici Cap Trust BB+ 9/30/02 @ 25 $ 24.000 $ 5,736.00
9.00% Due 9/30/207
233 Archstone Communities Trust BBB 8/20/02 @ 25 $ 24.625 $ 5,737.63
8.625%
101 Armstrong World Industries A- 10/28/03 @ 25 $ 25.563 $ 2,581.81
7.45% Due 10/15/2038
218 AT&T Capital Corporation BBB 11/15/03 @ 25 $ 26.375 $ 5,749.75
8.25% Due 11/15/2028
224 Bear Stearns Capital Trust II BBB 12/15/03 @ 25 $ 25.438 $ 5,698.00
7.50% Due 12/15/2028
235 Cameco Corporation BBB 10/14/03 @ 25 $ 24.188 $ 5,684.06
8.75% Due 9/30/2047
225 Canadian Occidental Petroleum BB+ 2/9/04 @ 25 $ 25.375 $ 5,709.38
8.375% Due 3/31/2048
227 Coastal Finance I BB+ 5/13/03 @ 25 $ 25.250 $ 5,731.75
8.375% Due 6/30/2038
223 Conseco Finance Trust VI BB+ 12/31/03 @ 25 $ 25.625 $ 5,714.38
9.00% Due 12/31/2028
232 Dillards Capital Trust I BB+ 8/12/03 @ 25 $ 24.563 $ 5,698.50
7.50% Due 8/1/2038
234 Enterprise Capital Trust I BB+ 3/31/03 @ 25 $ 24.313 $ 5,689.13
7.44% Due 3/31/2047
256 Equity Residential Properties BBB 2/13/03 @ 25 $ 22.250 $ 5,696.00
7.625%
229 Foster Wheeler Preferred
Capital Trust I BBB- 1/15/04 @ 25 $ 24.938 $ 5,710.69
9.00% Due 1/15/2029
105 Hartford Life Capital I A- 6/30/03 @ 25 $ 25.375 $ 2,664.38
7.20% Due 6/30/2038
229 Hercules Trust I BB 3/17/04 @ 25 $ 25.000 $ 5,725.00
9.42% Due 3/31/2029
225 International Paper Capital
Trust III BBB - 9/24/03 @ 25 $ 25.438 $ 5,723.44
7.875% Due 12/01/2038
222 Lehman Brothers Capital Trust I BBB+ 3/31/04 @ 25 $ 25.813 $ 5,730.38
8.00% Due 3/31/2048
219 Mediaone Finance Trust III BB+ 10/28/03 @ 25 $ 26.063 $ 5,707.69
9.04% Due 12/31/2038
221 NB Captial Corporation BBB+ 9/3/07 @ 25 $ 26.000 $ 5,746.00
8.35%
226 Nova Chemicals Corporation BBB- 10/22/03 @ 25 $ 25.313 $ 5,720.63
9.50% Due 12/31/2047
207 RJR Nabisco Holding Capital Trust BB 9/30/03 @ 25 $ 27.563 $ 5,705.44
9.50% Due 9/30/2047
221 Seagrams (Joseph) & Sons BBB- 11/20/03 @ 25 $ 25.875 $ 5,718.38
8.00% Due 12/31/2038
229 Suncor Energy Inc. BBB- 3/15/04 @ 25 $ 25.000 $ 5,725.00
9.125% Due 3/31/2048
228 Talisman Energy Inc. BBB- 2/15/04 @ 25 $ 25.063 $ 5,714.25
9.00% Due 2/15/2048
228 TDS Capital I BB+ 11/18/02 @ 25 $ 24.938 $ 5,685.75
8.50% Due 12/31/2037
229 Vornado Realty Trust BBB- 3/17/04 @ 25 $ 25.000 $ 5,725.00
8.50%
- ------------ ------------
5,898 $ 148,151.48
============ ============
</TABLE>
See "Notes to Portfolio".
Notes to Portfolio
(1) The Securities are initially represented by "regular way" contracts
for the performance of which an irrevocable letter of credit has been
deposited with the Trustee. Contracts to acquire Securities were
entered into on March 17, 1999 and March 18, 1999 and have settlement
dates of March 22, 1999 and March 23, 1999 (see "The Trust").
(2) The ratings are by Standard & Poor's, a Division of the McGraw-Hill
Companies. Standard & Poor's considers securities rated "BB+" or lower
as predominantly speculative with respect to the issuer's capacity to
pay distributions. These securities generally have some quality and
protective characteristics but uncertainties or major risk exposure to
adverse conditions outweigh the quality and protective
characteristics. For a brief description of the ratings, see
"Description of Ratings" in the Information Supplement. You may
request this at no cost from the Trustee.
(3) The issuers of the Securities may redeem them beginning on the date
and at the price listed in this column. Some Securities may also be
subject to extraordinary optional or mandatory redemption prior to the
date shown.
(4) The market value of each Security is based on the opening sale price
on the applicable exchange or, if not listed, the opening asked price
on the Initial Date of Deposit. Other information regarding the
Securities, as of the Initial Date of Deposit, is as follows:
Profit
Cost to (Loss) To
Underwriter Underwriter
-------------- --------------
$ 148,151 $ --
"+" indicates that the security is issued by a foreign issuer and is
traded on a U.S. securities exchange in U.S. dollars.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Funds Inc. and the Unitholders of Van
Kampen Focus Portfolios, Series 142:
We have audited the accompanying statement of condition and the related
portfolio of Van Kampen Focus Portfolios, Series 142 as of March 18, 1999. The
statement of condition and portfolio are the responsibility of the Sponsor. Our
responsibility is to express an opinion on such financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of an irrevocable letter of credit deposited to purchase 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 Van Kampen Focus Portfolios, Series
142 as of March 18, 1999, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Chicago, Illinois
March 18, 1999
STATEMENT OF CONDITION
As of March 18, 1999
INVESTMENT IN SECURITIES
Contracts to purchase Securities (1) $ 148,151
-----------
Total $ 148,151
===========
LIABILITIES AND INTEREST OF UNITHOLDERS
Liabilities--
Organizational costs (2) $ 746
Deferred sales charge liability (3) 4,490
Interest of Unitholders--
Cost to investors (4) 149,650
Less: Gross underwriting commission and
organizational costs (2)(4)(5) 6,735
-----------
Net interest to Unitholders (4) 142,915
-----------
Total $ 148,151
===========
- --------------------------------------------------------------------------------
(1) The value of the Securities is determined by Interactive Data
Corporation on the bases set forth under "Public Offering--Offering
Price". The contracts to purchase Securities are collateralized by an
irrevocable letter of credit which has been deposited with the
Trustee.
(2)A portion of the Public Offering Price represents an amount sufficient
to pay for all or a portion of the costs incurred in establishing the
Trust. The amount of these costs are set forth in the "Fee Table". A
distribution will be made as of the close of the initial offering
period to an account maintained by the Trustee from which this
obligation of the investors will be satisfied.
(3) Represents the amount of mandatory distributions from the Trust on the
bases set forth under "Public Offering".
(4) The aggregate public offering price and the aggregate sales charge are
computed on the bases set forth under "Public Offering--Offering
Price".
(5) Assumes the maximum sales charge.
THE TRUST
- --------------------------------------------------------------------------------
The Trust was created under the laws of the State of New York pursuant to a
Trust Indenture and Trust Agreement (the "Trust Agreement"), dated the date of
this Prospectus (the "Initial Date of Deposit"), among Van Kampen Funds Inc., as
Sponsor, Van Kampen Investment Advisory Corp. as Supervisor, The Bank of New
York, as Trustee, and American Portfolio Evaluation Services, a division of Van
Kampen Investment Advisory Corp., as Evaluator.
The Trust offers the opportunity to purchase Units representing proportionate
interests in a portfolio of preferred securities. The Trust may be an
appropriate medium for investors who desire to participate in a portfolio of
preferred securities with greater diversification than they might be able to
acquire individually.
On the Initial Date of Deposit, the Sponsor deposited delivery statements
relating to contracts for the purchase of the Securities and an irrevocable
letter of credit in the amount required for these purchases with the Trustee. In
exchange for these contracts the Trustee delivered to the Sponsor documentation
evidencing the ownership of Units of the Trust. Unless otherwise terminated as
provided in the Trust Agreement, the Trust will terminate on the Mandatory
Termination Date and any remaining Securities will be liquidated or distributed
by the Trustee within a reasonable time. As used in this Prospectus the term
"Securities" means the securities (including contracts to purchase these
securities) listed in "Portfolio" any additional securities deposited into the
Trust.
Additional Units may be issued at any time by depositing in the Trust (i)
additional Securities, (ii) contracts to purchase Securities together with cash
or irrevocable letters of credit or (iii) cash (or a letter of credit or the
equivalent) with instructions to purchase additional Securities. As additional
Units are issued by the Trust, the aggregate value of the Securities will be
increased and the fractional undivided interest represented by each Unit will be
decreased. The Sponsor may continue to make additional deposits into the Trust
following the Initial Date of Deposit provided that the additional deposits will
be in amounts which will maintain, as nearly as practicable, the same percentage
relationship among the number of shares of each Security in the Trust's
portfolio that existed immediately prior to the subsequent deposit. Investors
may experience a dilution of their investments and a reduction in their
anticipated income because of fluctuations in the prices of the Securities
between the time of the deposit and the purchase of the Securities and because
the Trust will pay the associated brokerage or acquisition fees.
Each Unit initially offered represents an undivided interest in the Trust. To
the extent that any Units are redeemed by the Trustee or additional Units are
issued as a result of additional Securities being deposited by the Sponsor, the
fractional undivided interest in the Trust represented by each unredeemed Unit
will increase or decrease accordingly, although the actual interest in the Trust
will remain unchanged. Units will remain outstanding until redeemed upon tender
to the Trustee by Unitholders, which may include the Sponsor, or until the
termination of the Trust Agreement.
The Trust consists of (a) the Securities (including contracts for the
purchase thereof) listed under the "Portfolio" as may continue to be held from
time to time in the Trust, (b) any additional Securities acquired and held by
the Trust pursuant to the provisions of the Trust Agreement and (c) any cash
held in the related Income and Capital Accounts. Neither the Sponsor nor the
Trustee shall be liable in any way for any failure in any of the Securities.
OBJECTIVES AND SECURITIES SELECTION
- --------------------------------------------------------------------------------
The objective of the Trust is to provide a high level of income by investing
in a portfolio of preferred securities selected by Robert W. Baird & Co.
Incorporated (the "Underwriter"). We cannot guarantee that the Trust will
achieve its objective. In selecting the Securities, the Underwriter considered
the factors described under "Preferred Income Portfolio".
The Underwriter uses the list of Securities in its independent capacity as a
broker-dealer and investment adviser to various individuals and entities. The
Underwriter may also distribute this information to various individuals and
entities. The Underwriter may recommend or effect transactions in the
Securities. This may have an adverse effect on the prices of the Securities.
This also may have an impact on the price the Trust pays for the Securities and
the price received upon Unit redemptions or Trust termination.
The Underwriter acts as agent or principal in connection with the purchase
and sale of equity securities, including the Securities, and may act as a market
maker in the Securities. The Underwriter also issues reports and makes
recommendations on the Securities. The Underwriter's research department may
receive compensation based on commissions generated by research and/or sales of
Units.
You should note that the Underwriter applied the selection criteria to the
Securities for inclusion in the Trust as of the Initial Date of Deposit. After
this date, the Securities may no longer meet the selection criteria. Should a
Security no longer meet the selection criteria, we will generally not remove the
Security from the portfolio.
RISK FACTORS
- --------------------------------------------------------------------------------
The Trust primarily invests in trust preferred securities and subordinated
corporate debt. Accordingly, we describe these securities in detail below. The
Trust also invests in real estate investment trust securities and preferred
stock. In this prospectus, we refer to all of these securities as "preferred
securities." Regardless of the structure, all of the securities involve similar
risks that you should understand before you invest. We discuss these risks
below.
Trust Preferred Securities. The Trust primarily invests in trust preferred
securities. These securities generally have a limited life and are generally
similar to preferred stocks or interest-bearing notes issued by corporations or
affiliated business trusts. While these securities can take different forms,
they are often structured as follows. A company organizes a subsidiary business
trust. The subsidiary trust then issues common stock to its parent company and
issues preferred securities to other investors. Your Trust owns these preferred
securities. Each subsidiary trust uses the proceeds of these securities to
invest in debt of its parent company (loans the proceeds to the parent company).
The parent company makes principal and interest payments on this debt to the
subsidiary trust. The subsidiary trust uses these amounts to pay distributions
on its preferred securities. Issuers often refer to these securities as "trust
preferred securities" because they are preferred securities issued by a business
trust affiliated with the parent company. Many companies use this structure
because it offers a more advantageous way to raise additional capital than
issuing common stock, preferred stock or bonds.
Debt Securities. As an alternative to the "trust preferred" structure, many
companies issue securities directly as debt securities and do not organize
subsidiary trusts to issue the securities. Your Trust also invests in these
securities. Even though the structure of these securities is different, in many
ways they are very similar to trust preferred securities. The main practical
difference is that the operating company itself pays the interest and principal
on the securities instead of a subsidiary trust. Because the securities are debt
securities (not preferred stock), the distributions are interest payments (not
dividends). In the discussion that follows, we discuss the trust preferred
securities structure for ease of reference.
Interest Rate Risk. You will face the risk that the value of securities will
fall if interest rates increase. The securities will typically fall in value
when interest rates rise and rise in value when interest rates fall. Securities
with longer periods before maturity are often more sensitive to interest rate
changes.
Default Risk. If the parent company fails to pay principal or interest on the
underlying debt, the issuer will not have sufficient funds to pay distributions
or the liquidation amount on its preferred securities. Generally, an issuer of
the preferred securities has the right to receive payments from its parent
company on the underlying debt only after the parent company pays all of its
other liabilities (except for dividends on the parent company's common and
preferred stock). The parent company can also generally acquire additional
indebtedness that it must pay before its debt to the issuer of the preferred
securities.
Distribution Deferral. The issuers are generally able to defer payments on
their securities for up to five years. If this happens, your Trust will still
accumulate dividends or interest during the deferral period but you will also
have to include the accumulated payments in your gross income for federal income
tax purposes in the year that the payments accumulate. Any election by an issuer
to defer distributions on its securities is likely to adversely affect the
market price of the securities. If the Trust terminates while an issuer is
deferring distribution payments on its securities, the Trust will sell the
security in connection with the termination at its current market price. Once
the Trust sells a security, it will not recieve any accumulated distribution
payments.
Redemption Risk. The issuers generally may prepay or "redeem" the securities
before their stated maturity. An issuer of trust preferred securities will
redeem a security if the parent company pays off its underlying debt early. An
issuer might redeem a security if interest rates fall and the securities pay a
higher interest or dividend rate. If an issuer redeems a security, your Trust
will distribute the principal to you but your future distributions will fall.
You might not be able to reinvest this principal at as high a yield. The
redemption price could be less than the price your Trust paid for the security.
This means that you could receive less than the amount you paid for your Units.
If enough securities in your Trust are redeemed, your Trust could terminate
early. We list the first date that the issuer can redeem each security in the
portfolio along with the price the issuer would have to pay. An issuer may also
redeem its securities in the event of changes in certain tax laws or other
regulations that adversely affect the securities. This could occur prior to the
date listed in the portfolio.
Liquidation Amount. The Trust will terminate before the scheduled maturity of
the portfolio securities. As a result, the Trust will not receive the
liquidation amount of the portfolio securities. Instead, if the issuers do not
redeem their securities, the Trust will sell the portfolio securities in the
open market at termination. You may receive more or less than your purchase
price at termination.
Premium. The market price of most of the securities is currently above their
liquidation or redemption price (usually $25 per share). As a result, you may
receive less than the price you paid for your Units when you redeem them or the
Trust terminates. You may also realize a capital loss for federal income tax
purposes if an issuer redeems its securities, if you redeem your Units or when
the Trust terminates. We discuss this topic in greater detail in the "Taxation"
section.
Liquidity. Liquidity risk is the risk that the value of a security will fall
if trading in the security is limited or absent. While these securities trade on
national securities exchanges, no one can guarantee that a liquid trading market
will exist for any security.
Lower-Grade Securities. Standard & Poor's, Moody's or other rating agencies
may rate some of the portfolio securities below investment grade (below "BBB").
We list these ratings in the portfolio. Standard & Poor's considers these
securities as predominantly speculative with respect to the issuer's capacity to
pay distributions. These securities generally have some quality and protective
characteristics but uncertainties or major risk exposure to adverse conditions
outweigh the quality and protective characteristics. Lower-rated securities tend
to offer higher yields than higher-rated securities but the risk of default is
also greater. The market prices of lower-rated securities tend to fluctuate more
than prices of higher-rated securities and are more sensitive to interest rate
changes.
Financial Services Issuers. The Trust invests significantly in insurance
companies, consumer and commercial finance companies, investment banking and
brokerage firms and investment management companies. These issuers face risks
related to such factors as general economic conditions, volatile interest rates,
economic recession, competition from other financial services companies and
government regulation.
Insurance companies underwrite, reinsure, sell and distribute property,
casualty, life, health, disability, title and financial guarantee insurance. In
addition, many companies also offer various investment products or services.
Insurance companies face particular risks such as uncertainty in establishing
property-liability loss reserves, catastrophe losses that could have a material
adverse impact on financial condition, the need to maintain appropriate levels
of statutory capital and surplus, the need to maintain acceptable financial
strength or claims-paying ability ratings, extensive government regulation and
supervision, significant legal action, changes in interest rates that could
adversely impact a company's investment portfolio or its investment products,
planning to meet cash flow requirements related to life insurance policies, and
availability of reinsurance and the ability to collect recoverable reinsurance
amounts.
Insurance companies face extensive government regulation and supervision.
Among other things, these regulations set maximum rate levels, require that
companies maintain certain levels of capital and surplus, impose limits on
acceptable investments and require diversification of investments. State and
federal governments re-examine existing regulations from time to time. Any
change in current regulations could negatively impact insurance companies.
Insurance companies often face litigation regarding coverage issues. Certain of
these issues involve clean-up of waste sites under federal and state
environmental laws. The outcome of this or any other litigation could negatively
impact insurance companies.
Utility Issuers. The Trust invests significantly in public utility companies.
These issuers primarily include companies involved in the production and
distribution of electricity, natural gas or water, cable companies and
communications companies. These companies face risks related to obtaining
adequate return on invested capital despite rate increases, financing large
construction programs, restrictions on operations and increased costs and delays
due to governmental regulations, difficulty of the capital markets in absorbing
utility securities, the ability to obtain fuel for power generation at adequate
prices and the effects of energy conservation. The price of these stocks may
fall if interest rates rise.
Utility companies face substantial government regulation concerning rates and
licensing, construction and operation of facilities. Government authorities must
generally approve rate increases and voters in many states have the ability to
impose limits on rate adjustments. Because many utilities plan budgets far in
advance, any unexpected limitations on rates could negatively affect a company's
profits. In addition, this industry has experienced significant deregulation in
the recent past. Deregulation may increase competition which can have a negative
impact on certain companies and result in lower utility rates. Certain utility
companies own or operate nuclear generating facilities. Nuclear facilities have
experienced substantial cost increases, construction delays and licensing
difficulties. These companies face problems associated with the use of
radioactive materials and disposal of radioactive waste. A major accident at a
nuclear plant, such as the accident at a plant in Chernobyl in the former Soviet
Union, would have a significant negative impact on certain issuers.
Year 2000 Readiness Disclosure. The following two paragraphs constitute "Year
2000 Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act of 1998. If computer systems used by the Sponsor,
Evaluator, Supervisor, Trustee or other service providers to the Trust do not
properly process date-related information after December 31, 1999, the resulting
difficulties could adversely impact the Trust. This is commonly known as the
"Year 2000 Problem". The Sponsor, Evaluator, Supervisor and Trustee are taking
steps to address this problem and to obtain reasonable assurances that other
service providers to the Trust are taking comparable steps. We cannot guarantee
that these steps will be sufficient to avoid any adverse impact on the Trust.
This problem may impact corporations to varying degrees based on factors such as
industry sector and degree of technological sophistication. We cannot predict
what impact, if any, this problem will have on the issuers of the Securities.
In addition, computer failures throughout the financial services industry
beginning January 1, 2000 could have a detrimental affect on the markets for the
Securities. Improperly functioning trading systems may result in settlement
problems and liquidity issues. Moreover, corporate and governmental data
processing errors may adversely affect issuers and overall economic
uncertainties. Remediation costs will affect the earnings of individual issuers.
These costs could be substantial. Issuers may report these costs inconsistently
in U.S. and foreign financial markets. All of these issues could adversely
affect the Securities and the Trust.
PUBLIC OFFERING
- --------------------------------------------------------------------------------
General. Units are offered at the Public Offering Price which includes the
underlying value of the Securities, the initial sales charge, and cash, if any,
in the Income and Capital Accounts. The "Fee Table" describes the sales charge
in detail. If any deferred sales charge payment date is not a business day, we
will charge the payment to the Trust on the next business day. If you purchase
Units after the initial deferred sales charge payment, you will only pay the
remaining portion of the deferred sales charge. On March 18, 2000, the secondary
market sales charge will reduce to 3.50% and will not include deferred payments.
This sales charge will reduce by 0.5% on each following March 18 to a minimum of
3.00%. A portion of the Public Offering Price includes an amount of Securities
to pay for all or a portion of the organizational costs incurred in establishing
your Trust. These costs include the cost of preparing documents relating to the
Trust (such as the prospectus, trust agreement and closing documents), federal
and state registration fees, the initial fees and expenses of the Trustee and
legal and audit expenses. The initial offering period sales charge is reduced as
follows:
Aggregate
Dollar Amount
of Units Purchased* Sales Charge
- --------------------- ----------------
$100,000 - $249,999 3.75%
$250,000 - $499,999 3.50
$500,000 - $999,999 3.25
$1,000,000 or more 2.75
- ---------------
*The breakpoint sales charges are also applied on a Unit basis utilizing a
breakpoint equivalent in the above table of $10 per Unit and will be applied on
whichever basis is more favorable to the investor.
Any sales charge reduction is borne by the selling broker, dealer or
agent.The reduced sales charge structure will also apply on all purchases by the
same person from any one dealer of units of Van Kampen-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 the units purchased are of a unit investment trust purchased on
the Initial Purchase Date. In the event units of more than one trust are
purchased on the Initial Purchase Date, the aggregate dollar amount of such
purchases will be used to determine whether purchasers are eligible for a
reduced sales charge. Such aggregate dollar amount will be divided by the public
offering price per unit 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 the amount of
such reduction. To determine the applicable sales charge reduction 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 ("immediate
family members") will be deemed to be additional purchases by the purchaser for
the purposes of calculating the applicable sales charge. 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.
During the initial offering period, unitholders of any Van Kampen-sponsored
unit investment trust may utilize their redemption or termination proceeds to
purchase Units of the Trust at the Public Offering Price per Unit less 1%.
Units may be purchased in the primary or secondary market at the Public
Offering Price less the concession the Sponsor typically allows to brokers and
dealers for purchases by (1) investors who purchase Units through registered
investment advisers, certified financial planners and registered broker-dealers
who in each case either charge periodic fees for financial planning, investment
advisory or asset management service, 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 spouses or children under 21 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.
Employees, officers and directors (including their spouses, children,
grandchildren, parents, grandparents, siblings, mothers-in-law, fathers-in-law,
sons-in-law, daughters-in-law, and trustees, custodians or fiduciaries for the
benefit of such persons) of Van Kampen Funds Inc. and its affiliates, dealers
and their affiliates and vendors providing services to the Sponsor may purchase
Units at the Public Offering Price less the applicable dealer concession.
The minimum purchase is 100 Units (or $1,000) but may vary by selling firm.
However, 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.
Offering Price. The Public Offering Price of 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 the Trust. The
initial price of the Securities was determined by Interactive Data Corporation,
a firm regularly engaged in the business of evaluating, quoting or appraising
comparable securities. The Evaluator will generally determine the value of the
Securities as of the Evaluation Time on each business day and will adjust the
Public Offering Price of Units accordingly. This Public Offering Price will be
effective for all orders received prior to the Evaluation Time on each business
day. The Evaluation Time is the close of the New York Stock Exchange on each
Trust business day. Orders received by the Trustee or Sponsor for purchases,
sales or redemptions after that time, or on a day which is not a business day,
will be held until the next determination of price. The term "business day", as
used herein and under of Unitholders--Redemption of Units", excludes Saturdays,
Sundays and holidays observed by the New York Stock Exchange.
The aggregate underlying value of the Securities during the initial offering
period is determined on each business day by the Evaluator in the following
manner: If the Securities are listed on a national or foreign securities
exchange, this evaluation is generally based on the closing sale prices on that
exchange (unless it is determined that these prices are inappropriate as a basis
for valuation) or, if there is no closing sale price on that exchange, at the
closing ask prices. If the Securities are not listed on a national or foreign
securities exchange or, if so listed and the principal market therefor is other
than on the exchange, the evaluation shall generally be based on the current ask
price on the over-the-counter market (unless it is determined that these prices
are inappropriate as a basis for evaluation). If current ask prices are
unavailable, the evaluation is generally determined (a) on the basis of current
ask prices for comparable securities, (b) by appraising the value of the
Securities on the ask side of the market or (c) by any combination of the above.
The value of any foreign securities is based on the applicable currency exchange
rate in U.S. dollars as of the Evaluation Time. The value of the Securities for
purposes of secondary market transactions and redemptions is described under
"Rights of Unitholders--Redemption of Units".
In offering the Units to the public, neither the Sponsor nor any
broker-dealers are recommending any of the individual Securities but rather the
entire pool of Securities, taken as a whole, which are represented by the Units.
Unit Distribution. Units will be distributed to the public by the Sponsor,
broker-dealers and others at the Public Offering Price. Units repurchased in the
secondary market, if any, may be offered by this Prospectus at the secondary
market Public Offering Price in the manner described above.
The Sponsor intends to qualify Units for sale in a number of states. Brokers,
dealers and others will be allowed a concession or agency commission in
connection with the distribution of Units during the initial offering period as
described below.
Aggregate Concession
Dollar Amount or Agency
of Units Distributed* Commission
- --------------------- ----------------
Up to $49,999 3.00%
$50,000 - $99,999 2.60
$100,000 - $249,999 2.10
$250,000 - $499,999 1.80
$500,000 - $999,999 1.40
$1,000,000 or more 1.00
- ---------------
*The breakpoint concessions or agency commissions are also applied on a Unit
basis using a breakpoint equivalent of $10 per Unit and will be applied on
whichever basis is more favorable to the distributor.
Any discount provided to investors will be borne by the selling dealer or
agent as indicated under "General" above. For transactions involving unitholders
of other Van Kampen unit investment trusts who use their redemption or
termination proceeds to purchase Units of the Trust, the total concession or
agency commission will amount to 2.00% per Unit. For all secondary market
transactions the total concession or agency commission will amount to 70% of the
applicable sales charge. Notwithstanding anything to the contrary herein, in no
case shall the total of any concessions, agency commissions and any additional
compensation allowed or paid to any broker, dealer or other distributor of Units
with respect to any individual transaction exceed the total sales charge
applicable to such transaction. 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.
Broker-dealers of the Trust, banks and/or others may be 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 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 such 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 entities for certain services or
activities which are primarily intended to result in sales of Units of the
Trust. Such payments are made by the Sponsor out of its own assets, and not out
of the assets of the Trust. These programs will not change the price Unitholders
pay for their Units or the amount that the Trust will receive from the Units
sold.
Sponsor and Underwriter Compensation. The Underwriter will receive a gross
sales commission equal to the total sales charge applicable to each transaction.
The Sponsor will receive from the Underwriter the difference between the gross
sales commission and an amount equal to the broker concessions or agency
commissions described under "Unit Distribution". In addition, the Underwriter
will receive additional compensation during the initial offering period of 0.15%
of the Public Offering Price per Unit if it distributes at least $10 million,
0.20% of the Public Offering Price per Unit if it distributes at least $15
million and 0.25% of the Public Offering Price per Unit if it distributes at
least $20 million. Any sales charge discount provided to investors will be borne
by the selling dealer or agent. In addition, the Sponsor will realize a profit
or loss as a result of the difference between the price paid for the Securities
by the Sponsor and the cost of the Securities to the Trust on the Initial Date
of Deposit as well as on subsequent deposits. See "Notes to Portfolio". The
Sponsor has not participated as sole underwriter or as manager or as a member of
the underwriting syndicates or as an agent in a private placement for any of the
Securities. The Sponsor or Underwriter may realize profit or loss as a result of
the possible fluctuations in the market value of the Securities, since all
proceeds received from purchasers of Units are retained by the Sponsor or
Underwriter. In maintaining a secondary market, the Underwriter will realize
profits or losses in the amount of any difference between the price at which
Units are purchased and the price at which Units are resold (which price
includes the applicable sales charge) or from a redemption of repurchased Units
at a price above or below the purchase price. Cash, if any, made available to
the Sponsor or Underwriter prior to the date of settlement for the purchase of
Units may be used in the Sponsor's or Underwriter's business and may be deemed
to be a benefit to the Sponsor, subject to the limitations of the Securities
Exchange Act of 1934.
An affilliate of the Sponsor has participated or is participating in a public
offering of one or more of the Securities. The Sponsor, an affiliate or their
employees may have a long or short position in these Securities. An affiliate
may act as a specialist or market marker for these Securities. An officer,
director or employee of the Sponsor or an affiliate may be an officer or
director for issuers of the Securities.
Market for Units. Although it is not obligated to do so, the Underwriter
currently intends to maintain a market for Units and to purchase Units at the
secondary market repurchase price (which is described under "Right of
Unitholders--Redemption of Units"). The Underwriter may discontinue purchases of
Units or discontinue purchases at this price at any time. In the event that a
secondary market is not maintained, a Unitholder will be able to dispose of
Units by tendering them to the Trustee for redemption at the Redemption Price.
See "Rights of Unitholders--Redemption of Units". Unitholders should contact
their broker to determine the best price for Units in the secondary market.
Units sold prior to the time the entire deferred sales charge has been collected
will be assessed the amount of any remaining deferred sales charge at the time
of sale. The Trustee will notify the Underwriter of any Units tendered for
redemption. If the Underwriter's bid in the secondary market equals or exceeds
the Redemption Price per Unit, it may purchase the Units not later than the day
on which Units would have been redeemed by the Trustee. The Underwriter may sell
repurchased Units at the secondary market Public Offering Price per Unit.
Tax-Sheltered Retirement Plans. Units are available for purchase in
connection with certain types of tax-sheltered retirement plans, including
Individual Retirement Accounts for the individuals, Simplified Employee Pension
Plans for employees, qualified plans for self-employed individuals, and
qualified corporate pension and profit sharing plans for employees. The minimum
purchase for qualified retirement plans is 25 Units but may vary by selling
firm. The purchase of Units may be limited by the plans' provisions and does not
itself establish such plans.
RIGHTS OF UNITHOLDERS
- --------------------------------------------------------------------------------
Distributions. Dividends, interest and any net proceeds from the sale of
Securities received by the Trust will generally be distributed to Unitholders on
each Distribution Date to Unitholders of record on the preceding Record Date.
These dates appear under "Summary of Essential Financial Information". A person
becomes a Unitholder of record on the date of settlement (generally three
business days after Units are ordered). Unitholders may elect to receive
distributions in cash or to have distributions reinvested into additional Units.
You may also reinvest distributions in certain Van Kampen mutual funds. See
"Rights of Unitholders--Reinvestment Option".
Dividends and interest received by the Trust are credited to the Income
Account of the Trust. Other receipts (e.g., capital gains, proceeds from the
sale of Securities, etc.) are credited to the Capital Account. Proceeds received
on the sale of any Securities, to the extent not used to meet redemptions of
Units or pay deferred sales charges, fees or expenses, will be distributed to
Unitholders. Proceeds received from the disposition of any Securities after a
record date and prior to the following distribution date will be held in the
Capital Account and not distributed until the next distribution date. Any
distribution to Unitholders consists of each Unitholder's pro rata share of the
estimated annual income to be received by the Trust and any available amounts in
the Capital Account as of the related Record Date.
Reinvestment Option. Under the Guaranteed Reinvestment Option Unitholders may
elect to have distributions automatically reinvested in certain Van Kampen
mutual funds (the "Reinvestment Funds"). Each Reinvestment Fund has investment
objectives which differ from those of the Trust. The prospectus relating to each
Reinvestment Fund describes its investment policies and how to begin
reinvestment. A Unitholder may obtain a prospectus for the Reinvestment Funds
from the Sponsor. Purchases of shares of a Reinvestment Fund will be made at a
net asset value computed on the Distribution Date. Unitholders with an existing
Guaranteed Reinvestment Option account (whereby a sales charge is imposed on
distribution reinvestments) may transfer their existing account into a new
account which allows purchases of Reinvestment Fund shares at net asset value.
A participant may elect to terminate his or her reinvestment plan and receive
future distributions in cash by notifying the Trustee in writing no later than
five days before a distribution date. The Sponsor, each Reinvestment Fund, and
its investment adviser shall have the right to suspend or terminate the
reinvestment plan at any time.
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. Certificates must be tendered to the
Trustee, duly endorsed or accompanied by proper instruments of transfer with
signature guaranteed (or by providing satisfactory indemnity in connection with
lost, stolen or destroyed certificates) and by payment of applicable
governmental charges, if any. On the seventh day following the tender, the
Unitholder will be entitled to receive in cash an amount for each Unit equal to
the Redemption Price per Unit next computed on the date of tender. The "date of
tender" is deemed to be the date on which Units are received by the Trustee,
except that with respect to Units received by the Trustee after the Evaluation
Time or on a day which is not a Trust business day, the date of tender is deemed
to be the next business day.
The Trustee may sell Securities to satisfy Unit redemptions. To the extent
that Securities are sold, the size of the Trust will be, and the diversity of
the Trust may be, reduced. Sales may be required at a time when Securities would
not otherwise be sold and may result in lower prices than might otherwise be
realized. The price received upon redemption may be more or less than the amount
paid by the Unitholder depending on the value of the Securities at the time of
redemption.
The Redemption Price per Unit and the secondary market repurchase price per
Unit are equal to the pro rata share of each Unit in the Trust determined on the
basis of (i) the cash on hand in the Trust, (ii) the value of the Securities in
the Trust and (iii) dividends and interest receivable on the Securities in the
Trust trading ex-dividend as of the date of computation, less (a) amounts
representing taxes or other governmental charges payable out of the Trust and
(b) the accrued expenses and sales charges of the Trust. During the initial
offering period, the redemption price and the secondary market repurchase price
will also include estimated organizational costs. For these purposes, the
Evaluator may determine the value of the Securities in the following manner: If
the Securities are listed on a national or foreign securities exchange, this
evaluation is generally based on the closing sale prices on that exchange
(unless it is determined that these prices are inappropriate as a basis for
valuation) or, if there is no closing sale price on that exchange, at the
closing bid prices. If the Securities are not so listed or, if so listed and the
principal market therefore is other than on the exchange, the evaluation may be
based on the current bid price on the over-the-counter market. If current bid
prices are unavailable or inappropriate, the evaluation may be determined (a) on
the basis of current bid prices for comparable securities, (b) by appraising the
Securities on the bid side of the market or (c) by any combination of the above.
The value of any foreign securities is based on the applicable currency exchange
rate in U.S. dollars as of the Evaluation Time.
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 any period during which the SEC determines that
trading on that Exchange is restricted or an emergency exists, as a result of
which disposal or evaluation of the Securities is not reasonably practicable, or
for other periods as the SEC may permit.
Certificates. Ownership of Units is evidenced in book entry form unless a
Unitholder makes a written request to the Trustee that ownership be in
certificate form. Units are transferable by making a written request to the
Trustee and, in the case of Units in certificate form, by presentation of the
certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer. A Unitholder must sign the written
request, and certificate or transfer instrument, exactly as his name appears on
the records of the Trustee and on the face of any certificate with the signature
guaranteed by a participant in the Securities Transfer Agents Medallion Program
("STAMP") or a signature guarantee program 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. Fractional Units will not
be issued. The Trustee may require a Unitholder to pay a reasonable fee for each
certificate reissued or transferred and to pay any governmental charge that may
be imposed in connection with each transfer or interchange. Destroyed, stolen,
mutilated or lost certificates will be replaced upon delivery to the Trustee of
satisfactory indemnity, evidence of ownership and payment of expenses incurred.
Mutilated certificates must be surrendered to the Trustee for replacement.
Reports Provided. Unitholders will receive a statement of dividends, interest
and other amounts received by the Trust for each distribution. Within a
reasonable time after the end of each year, each person who was a Unitholder
during that year will receive a statement describing dividends, interest and
capital received, actual Trust distributions, Trust expenses, a list of the
Securities and other Trust information. Unitholders may obtain the Evaluator's
evaluations of the Securities upon request.
TRUST ADMINISTRATION
- --------------------------------------------------------------------------------
Portfolio Administration. The Trust is not a managed fund and, except as
provided in the Trust Agreement, Securities generally will not be sold or
replaced. The Sponsor may, however, direct that Securities be sold in certain
limited circumstances to protect the Trust based on advice from the Supervisor.
These situations may include events such as the issuer having defaulted on
payment of any of its outstanding obligations or the price of a Security has
declined to such an extent or other credit factors exist so that in the opinion
of the Sponsor retention of the Security would be detrimental to the Trust. In
addition, the Trustee may sell Securities to redeem Units or pay Trust expenses
or deferred sales charges. The Trustee must reject any offer for securities or
property in exchange for the Securities. If securities or property are
nonetheless acquired by the Trust, the Sponsor may direct the Trustee to sell
the securities or property and distribute the proceeds to Unitholders or to
accept the securities or property for deposit in the Trust. Should any contract
for the purchase of any of the Securities fail, the Sponsor will (unless
substantially all of the moneys held in the Trust to cover the purchase are
reinvested in substitute Securities in accordance with the Trust Agreement)
refund the cash and sales charge attributable to the failed contract to all
Unitholders on or before the next distribution date.
When your Trust sells Securities, the composition and diversity of the
Securities in the Trust may be altered. In order to obtain the best price for
the Trust, it may be necessary for the Supervisor to specify minimum amounts
(generally 100 shares) in which blocks of Securities are to be sold. In
effecting purchases and sales of the Trust's portfolio securities, the Sponsor
may direct that orders be placed with and brokerage commissions be paid to
brokers, including brokers which may be affiliated with the Trust, the Sponsor
or dealers participating in the offering of Units. In addition, in selecting
among firms to handle a particular transaction, the Sponsor may take into
account whether the firm has sold or is selling units of unit investment trusts
which it sponsors.
Amendment of the Trust Agreement. The Trustee and the Sponsor may amend the
Trust Agreement without the consent of Unitholders to correct any provision
which may be defective or to make other provisions that will not adversely
affect Unitholders (as determined in good faith by the Sponsor and the Trustee).
The Trust Agreement may not be amended to increase the number of Units or permit
acquisition of securities in addition to or substitution for the Securities
(except as provided in the Trust Agreement). The Trustee will notify Unitholders
of any amendment.
Termination. The Trust will terminate on the Mandatory Termination Date or
upon the sale or other disposition of the last Security held in the Trust. The
Trust may be terminated at any time with consent of Unitholders representing
two-thirds of the outstanding Units or by the Trustee when the value of the
Trust is less than $500,000 ($3,000,000 if the value of the Trust has exceeded
$15,000,000) (the "Minimum Termination Value"). Unitholders will be notified of
any termination. The Trustee may begin to sell Securities in connection with a
Trust termination during a period beginning nine business days before, and no
later than, the Mandatory Termination Date. Approximately thirty days before
this date, the Trustee will notify Unitholders of the termination. Unitholders
will receive a final cash distribution within a reasonable time after the
Mandatory Termination Date. All distributions will be net of Trust expenses and
costs. Unitholders will receive a final distribution statement following
termination. The Information Supplement contains further information regarding
termination of the Trust. See "Additional Information".
Limitations on Liabilities. The Sponsor, Evaluator, Supervisor and Trustee
are under no liability for taking any action or for refraining from taking any
action in good faith pursuant to the Trust Agreement, or for errors in judgment,
but shall be liable only for their own willful misfeasance, bad faith or gross
negligence (negligence in the case of the Trustee) in the performance of their
duties or by reason of their reckless disregard of their obligations and duties
hereunder. The Trustee is 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 is not be liable for any action taken by it in good faith under
the Trust Agreement. The Trustee is not liable for any taxes or other
governmental charges imposed on the Securities, on it as Trustee under the Trust
Agreement or on the Trust which the Trustee may be required to pay under any
present or future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Trust Agreement contains other
customary provisions limiting the liability of the Trustee. The Trustee, Sponsor
and Supervisor may rely on any evaluation furnished by the Evaluator and have no
responsibility for the accuracy thereof. Determinations by the Evaluator shall
be made in good faith upon the basis of the best information available to it.
Sponsor. Van Kampen Funds Inc., a Delaware corporation, is the Sponsor of the
Trust. The Sponsor is an indirect subsidiary of Morgan Stanley Dean Witter & Co.
Van Kampen Funds 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,
(630) 684-6000 and 2800 Post Oak Boulevard, Houston, Texas 77056, (713)
993-0500. As of November 30, 1998, the total stockholders' equity of Van Kampen
Funds Inc. was $135,236,000 (audited). The Information Supplement contains
additional information about the Sponsor.
If the Sponsor fails to perform any of its duties under the Trust Agreement
or becomes incapable of acting or declares bankruptcy 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 Trust as provided therein or
(iii) continue to act as Trustee without terminating the Trust Agreement.
Trustee. The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its unit investment trust
division offices at 101 Barclay Street, New York, New York 10286 (800) 221-7668.
The Bank of New York is subject to supervision and examination by the
Superintendent of Banks of the State of New York and the Board of Governors of
the Federal Reserve System, and its deposits are insured by the Federal Deposit
Insurance Corporation to the extent permitted by law. Additional information
regarding the Trustee is set forth in the Information Supplement, including the
Trustee's qualifications and duties, its ability to resign, the effect of a
merger involving the Trustee and the Sponsor's ability to remove and replace the
Trustee. See "Additional Information".
Performance Information. The Sponsor and Underwriter may from time to time in
advertising and sales materials compare the current returns on the Trust and
returns over specified time periods on other similar trusts (which may show
performance net of expenses and charges which the Trust would have charged) with
returns on other investments such as the common stocks comprising the Dow Jones
Industrial Average, the S&P 500, other investment indices, corporate or U.S.
government bonds, bank CDs, money market accounts or money market funds, or with
performance data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc. or various publications, each of which has characteristics
that may differ from those of the Trust. Information on percentage changes in
the dollar value of Units may be included from time to time in advertisements,
sales literature, reports and other information furnished to current or
prospective Unitholders. Total return figures may not be averaged and may not
reflect deduction of the sales charge, which would decrease return. No provision
is made for any income taxes payable. Past performance may not be indicative of
future results. The Trust portfolio is not managed and Unit price and return
fluctuate with the value of the securities in the portfolio, so there may be a
gain or loss when Units are sold. As with other performance data, performance
comparisons should not be considered representative of the Trust's relative
performance for any future period.
TAXATION
- --------------------------------------------------------------------------------
This is a general discussion of certain of the Federal income tax
consequences of the purchase, ownership and disposition of the Units. The
summary is limited to investors who hold the Units as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986 (the "Code"). Unitholders should consult their
tax advisors in determining the Federal, state, local and any other tax
consequences of the purchase, ownership and disposition of Units in the Trust.
The Trust holds (i) preferred stock (the "Preferred Stock"); (ii) interests in
real estate investment trusts (the "REIT Shares") and, together with the
Preferred Stock, the "Equity Securities;" (iii) undivided beneficial interests
(the "Trust Certificates") in affiliated business trusts that are taxed as
grantor trusts for Federal income tax purposes (the "Grantor Trusts") and hold
corporate debt obligations (the "Grantor Trust Debt Obligations"); and (iv)
corporate debt obligations (the "Corporate Debt Obligations") and, together with
the Grantor Trust Debt Obligations, the "Debt Securities." The Equity
Securities, the Trust Certificates and the Corporate Debt Obligations held by
the Trust are referred to collectively as the "Securities."
Neither the Sponsor nor Chapman and Cutler has reviewed the proceedings
relating to the original issuance of the securities to be deposited in the
Trust. However, although no opinion is expressed herein regarding such matters,
for purposes of the opinion set forth below, it is assumed that (i) the Equity
Securities qualify as equity for Federal income tax purposes and that,
accordingly, amounts received by the Trust with respect to the Equity Securities
will qualify as dividends as defined in Section 316 of the Internal Revenue Code
of 1986 (the "Code"); (ii) no Grantor Trust is an association taxable as a
corporation for Federal income tax purposes, but rather each Grantor Trust will
be governed by the provisions of subchapter J (relating to trusts) of Chapter 1,
of the Code; (iii) each holder of a Trust Certificate will be considered the
owner of a pro rata share of each asset of the respective Grantor Trust; (iv)
the Debt Securities qualify as debt for Federal income tax purposes; and (v)
each REIT Share represents a share in an entity treated as a real estate
investment trust for Federal income tax purposes.
In the opinion of Chapman and Cutler, special counsel for the Sponsor, under
existing law:
1. The Trust is not an association taxable as a corporation for Federal
income tax purposes; each Unitholder will be treated as the owner of a pro rata
portion of each of the assets of the Trust under the Code; and the income of the
Trust will be treated as income of the Unitholders thereof under the Code. Each
Unitholder will be considered to have received his pro rata share of the income
derived from each Security when such income is considered to be received by the
Trust. Each Unitholder will also be required to include in taxable income for
Federal income tax purposes, original issue discount with respect to his or her
interest in any Debt Securities held by the Trust at the same time and in the
same manner as though the Unitholder were the direct owner of such interest.
2. Each Unitholder will be considered to have received all of the dividends
and interest paid on his or her pro rata portion of each Security when such
dividends and interests are received by the Trust regardless of whether such
dividends or interest are used to pay a portion of expenses or the deferred
sales charge.
3. Each Unitholder will have a taxable event when the Trust disposes of a
Security (whether by sale, taxable exchange, liquidation, redemption, or
otherwise), an asset held by a Grantor Trust is disposed of by the particular
Grantor Trust, or upon the sale or redemption of Units by such Unitholder. The
price a Unitholder pays for his or her Units, generally including sales charges,
is allocated among his or her pro rata portion of each Security held by the
Trust (in proportion to the fair market values thereof on the valuation date
closest to the date the Unitholder purchases his or her Units) in order to
determine his or her tax basis for his or her pro rata portion of each Security
held by such Trust. Unitholders must reduce the tax basis of their Units for
their share of accrued interest received, if any, on Debt Securities delivered
after the date the Unitholders pay for their Units to the extent that such
interest accrued on such Debt Securities during the period from the Unitholder's
settlement date to the date such Debt Securities are delivered to the Trust or
the Grantor Trusts, as the case may be, and, consequently, such Unitholders may
have an increase in taxable gain or reduction in capital loss upon the
disposition of such Units. Unitholders should consult their own tax advisors
with regard to calculation of basis. For Federal income tax purposes, a
Unitholder's pro rata portion of dividends (other than capital gains dividends
of a REIT, as described below), as defined by Section 316 of the Code, paid by a
corporation with respect to an Equity Security held by the Trust is taxable as
ordinary income to the extent of such corporation's current and accumulated
"earnings and profits." A Unitholder's pro rata portion of dividends paid on
such Equity Security which exceed such current and accumulated earnings and
profits will first reduce a Unitholder's tax basis in such Equity Security, and
to the extent that such dividends exceed a Unitholder's tax basis in such Equity
Security shall generally be treated as capital gain. In general, the holding
period for such capital gain will be determined by the period of time a
Unitholder has held his or her Units. Certain of the issuers of the Equity
Securities intend to qualify under the special Federal income tax rules as "real
estate investment trusts" (a "REIT," shares of such issuer held by the Trust
shall be referred to as the "REIT Shares"). Because Unitholders are deemed to
directly own a pro rata portion of the REIT Shares as discussed above,
Unitholders are advised to consult their tax advisors for information relating
to the tax consequences of owning the REIT Shares. Provided such issuers qualify
as a REIT, certain distributions by such issuers on the REIT Shares may qualify
as "capital gain dividends," taxable to shareholders (and, accordingly, to the
Unitholders as owners of a pro rata portion of the REIT Shares) as long-term
capital gains, regardless of how long a shareholder has owned such shares. In
addition, distributions of income or capital gains declared on REIT Shares in
October, November or December will be deemed to have been paid to shareholders
(and, accordingly, to the Unitholders as owners of a pro rata portion of the
REIT Shares ) on December 31 of the year they are declared, even when paid by
the REIT during the following January and received by shareholders or
Unitholders in such following year.
4. The basis of each Unit and of each Debt Security which was issued with
original issue discount (or which has market discount) must be increased by the
amount of accrued original issue discount (and market discount, if the
Unitholder elects to include market discount in income as it accrues) and the
basis of each Unit and of each Debt Security which was purchased by the Trust or
any Grantor Trust, as the case may be, at a premium must be reduced by the
annual amortization of Debt Security premium which the Unitholder has properly
elected to amortize under Section 171 of the Code. The tax basis reduction
requirements of the Code relating to amortization of Debt Security premium may,
under some circumstances, result in the Unitholder realizing a taxable gain when
his or her Units are sold or redeemed for an amount equal to or less than his or
her original cost. Original issue discount is effectively treated as interest
for Federal income tax purposes and the amount of original issue discount in
this case is generally the difference between the Debt Security's purchase price
and its stated redemption price at maturity. A Unitholder will be required to
include in gross income for each taxable year the sum of his or her daily
portions of any original issue discount attributable to the Debt Securities as
such original issue discount accrues for such year even though the income is not
distributed to the Unitholders during such year unless a Debt Security's
original issue discount is less than a "de minimis" amount as determined under
the Code. To the extent the amount of such discount is less than the respective
"de minimis" amount, such discount shall be treated as zero. In general,
original issue discount accrues daily under a constant interest rate method
which takes into account the semi-annual compounding of accrued interest.
Unitholders should consult their tax advisors regarding the Federal income tax
consequences and accretion of original issue discount.
5. A Unitholder's portion of gain, if any, upon the sale or redemption of
Units or the disposition of Securities held by the Trust will generally be
considered a capital gain (except in the case of a dealer or a financial
institution). A Unitholder's portion of loss, if any, upon the sale or
redemption of Units or the disposition of Securities held by the Trust will
generally be considered a capital loss (except in the case of a dealer or a
financial institution). Unitholders should consult their tax advisors regarding
the recognition of such capital gains and losses for Federal income tax
purposes. In addition, special rules, as described below, apply to a
Unitholder's pro rata portion of the REIT Shares.
The Debt Securities-Premium. If a Unitholder's tax basis of his or her pro
rata portion in any Debt Security exceeds the amount payable by the issuer of
the Debt Security with respect to such pro rata interest upon maturity (or, in
certain cases, the call date) of the Debt Security, such excess would be
considered premium which may be amortized by the Unitholder at the Unitholder's
election as provided in Section 171 of the Code. Unitholders should consult
their tax advisors regarding whether such election should be made and the manner
of amortizing premium.
The Debt Securities-Original Issue Discount. Certain of the Debt Securities
may have been acquired with "original issue discount." In the case of any Debt
Securities acquired with "original issue discount" that exceeds a "de minimis"
amount as specified in the Code, such discount is includable in taxable income
of the Unitholders on an accrual basis computed daily, without regard to when
payments of interest on such Debt Securities are received. The Code provides a
complex set of rules regarding the accrual of original issue discount. These
rules provide that original issue discount generally accrues on the basis of a
constant compound interest rate over the term of the Debt Securities.
Unitholders should consult their tax advisors as to the amount of original issue
discount which accrues.
Special original issue discount rules apply if the purchase price of the Debt
Security by the Trust or any Grantor Trust, as the case may be, exceeds its
original issue price plus the amount of original issue discount which would have
previously accrued based upon its issue price (its "adjusted issue price").
Similarly these special rules would apply to a Unitholder if the tax basis of
his or her pro rata portion of a Debt Security issued with original issue
discount exceeds his or her pro rata portion of its adjusted issue price.
Unitholders should also consult their tax advisors regarding these special
rules.
It is possible that a Debt Security that has been issued at an original
discount may be characterized as a "high-yield discount obligation" within the
meaning of Section 163(e)(5) of the Code. To the extent that such an obligation
is issued at a yield in excess of six percentage points over the applicable
Federal rate, a portion of the original issue discount on such obligation will
be characterized as a distribution on stock (e.g., dividends) for purposes of
the dividends received deduction which is available to certain corporations with
respect to certain dividends received by such corporation.
The Debt Securities-Market Discount. If a Unitholder's tax basis in his or
her pro rata portion of Debt Securities is less than the allocable portion of
such Debt Security's stated redemption price at maturity (or, if issued with
original issue discount, the allocable portion of its "revised issue price"),
such difference will constitute market discount unless the amount of market
discount is "de minimis" as specified in the Code. Market discount accrues daily
computed on a straight line basis, unless the Unitholder elects to calculate
accrued market discount under a constant yield method. Unitholders should
consult their tax advisors as to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Debt Securities, on the sale, maturity or
disposition of such Debt Securities by the Trust, and on the sale by a
Unitholder of Units, unless a Unitholder elects to include the accrued market
discount in taxable income as such discount accrues. If a Unitholder does not
elect to annually include accrued market discount in taxable income as it
accrues, deductions for any interest expense incurred by the Unitholder which is
incurred to purchase or carry his or her Units will be reduced by such accrued
market discount. In general, the portion of any interest expense which was not
currently deductible would ultimately be deductible when the accrued market
discount is included in income. Unitholders should consult their tax advisors
regarding whether an election should be made to include market discount in
income as it accrues and as to the amount of interest expense which may not be
currently deductible.
The Debt Securities-Basis. The tax basis of a Unitholder with respect to his
or her interest in a Debt Security is increased by the amount of original issue
discount (and market discount, if the Unitholder elects to include market
discount, if any, on the Debt Securities in income as it accrues) thereon
properly included in the Unitholder's gross income as determined for Federal
income tax purposes and reduced by the amount of any amortized premium which the
Unitholder has properly elected to amortize under Section 171 of the Code. A
Unitholder's tax basis in his or her Units will equal his or her tax basis in
his or her pro rata portion of all of the assets of the Trust.
Deferred Sales Charge. Generally, the tax basis of a Unitholder includes
sales charges, and such charges are not deductible. A portion of the sales
charge for the Trust is deferred. The income (or proceeds from redemption) a
Unitholder must take into account for Federal income tax purposes is not reduced
by amounts deducted to pay the deferred sales charge. Unitholders should consult
their own tax advisors as to the income tax consequences of the deferred sales
charge.
Dividends Received Deduction. A corporation that owns Units will generally be
entitled to a 70% dividends received deduction with respect to such Unitholder's
pro rata portion of dividends received by the Trust (to the extent such
dividends are taxable as ordinary income, as discussed above, and are
attributable to domestic corporations) in the same manner as if such corporation
directly owned the Equity Securities paying such dividends (other than corporate
Unitholders, such as "S" corporations, which are not eligible for the deduction
because of their special characteristics and other than for purposes of special
taxes such as the accumulated earnings tax and the personal holding corporation
tax). However, a corporation owning Units should be aware that Sections 246 and
246A of the Code impose additional limitations on the eligibility of dividends
for the 70% dividends received deduction. These limitations include a
requirement that stock (and therefore Units) must generally be held at least 46
days (as determined under, and during the period specified in, Section 246(c) of
the Code). Final regulations have been issued which address special rules that
must be considered in determining whether the 46-day holding period requirement
is met. Moreover, the allowable percentage of the deduction will be reduced from
70% if a corporate Unitholder owns certain stock (or Units) the financing of
which is directly attributable to indebtedness incurred by such corporation.
Dividends received on the REIT Shares are not eligible for the dividends
received deduction. Certain special rules may apply with regard to preferred
stock of a public utility. Unitholders should consult their own tax advisors
with regard to these rules.
To the extent dividends received by the Trust are attributable to foreign
corporations, a corporation that owns Units will not be entitled to the
dividends received deduction with respect to its pro rata portion of such
dividends, since the dividends received deduction is generally available only
with respect to dividends paid by domestic corporations.
It should be noted that various legislative proposals that would affect the
dividends received deduction have been introduced. Unitholders should consult
with their tax advisors with respect to the limitations on and possible
modifications to the dividends received deduction.
Limitations on Deductibility of the Trust's Expenses by Unitholders. Each
Unitholder s pro rata share of each expense paid by the Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by such Unitholder. It should be noted that as a result of the Tax Reform Act of
1986, certain miscellaneous itemized deductions, such as investment expenses,
tax return preparation fees and employee business expenses will be deductible by
an individual only to the extent they exceed 2% of such individual's adjusted
gross income. Unitholders may be required to treat some or all of the expenses
of the Trust as miscellaneous itemized deductions subject to this limitation.
Unitholders should consult with their tax advisors regarding limitations on the
deductibility of Trust expenses.
Recognition of Taxable Gain or Loss Upon Disposition of Securities by the
Trust or Disposition of Units. As discussed above, a Unitholder may recognize
taxable gain (or loss) when a Security is disposed of by the Trust, an asset
held by a Grantor Trust is disposed of by the particular Grantor Trust or if the
Unitholder disposes of a Unit. However, any loss realized by a Unitholder with
respect to the disposition of his or her pro rata portion of the REIT Shares, to
the extent such Unitholder has owned his Units for less than six months or the
Trust has held the REIT Shares for less than six months, will be treated as
long-term capital loss to the extent of such Unitholder's pro rata portion of
any capital gain dividends received (or deemed to have been received) with
respect to the REIT Shares. The Internal Revenue Service Restructuring and
Reform Act of 1998 (the "1998 Tax Act") provides that for taxpayers other than
corporations, net capital gain (which is defined as net long-term capital gain
over net short-term capital loss for the taxable year) realized from property
(with certain exclusions) is subject to a maximum marginal stated tax rate of
20% (10% in the case of certain taxpayers in the lowest tax bracket). However,
capital gain realized from assets held more than one year that is considered
unrecaptured Section 1250 gain is taxed at a maximum stated tax rate of 25%.
Capital gain or loss is long-term if the holding period for the asset is more
than one year, and is short-term if the holding period for the asset is one year
or less. The date on which a Unit is acquired (i.e., the "trade date") is
excluded for purposes of determining the holding period of the Unit. Capital
gains realized from assets held for one year or less are taxed at the same rates
as ordinary income. Note, however, that the 1998 Tax Act (and The Taxpayer
Relief Act of 1997 (the "1997 Act")) provides that the application of the rules
described above in the case of pass-through entities such as REITs will be
prescribed in future Treasury Regulations. The Internal Revenue Service has
released preliminary guidance which provides that, in general, pass-through
entities such as REITs may designate their capital gain dividends as either a
20% rate gain distribution, an unrecaptured Section 1250 gain distribution, or a
28% rate gain distribution, depending on the nature of the gain received by the
pass-through entity. Accordingly, Unitholders should consult their own tax
advisors as to the tax rate applicable to capital gain dividends.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult with
their tax advisors regarding the potential effect of this provision on their
investment in Units.
If the Unitholder disposes of a Unit, he or she is deemed thereby to have
disposed of his or her entire pro rata interest in all assets of the Trust
including his or her pro rata portion of all the Securities represented by the
Unit. This may result in a portion of the gain, if any, on such sale being
taxable as ordinary income under the market discount rules (assuming no election
was made by the Unitholder to include market discount in income as it accrues)
as previously discussed. The 1997 Act includes provisions that treat certain
transactions designed to reduce or eliminate risk of loss and opportunities for
gain (e.g., short sales, offsetting notional principal contracts, futures or
forward contracts, or similar transactions) as constructive sales for purposes
of recognition of gain (but not loss) and for purposes of determining the
holding period. Unitholders should consult their own tax advisors with regard to
any such constructive sales rules.
Computation of the Unitholder's Tax Basis. Initially, a Unitholder's tax
basis in his or her Units will generally equal the price paid by such Unitholder
for his or her Units. The cost of the Units is allocated among the Securities
held in the Trust in accordance with the proportion of the fair market values of
such Securities on the valuation date nearest the date the Units are purchased
in order to determine such Unitholder's tax basis for his or her pro rata
portion of each Security.
A Unitholder's tax basis in his or her Units and his or her pro rata portion
of an Equity Security held by the Trust will be reduced to the extent dividends
paid with respect to such Equity Security are received by the Trust which are
not taxable as ordinary income as described above. Unitholder must reduce the
tax basis of their Units for their share of accrued interest received, if any,
on Debt Securities delivered after the date the Unitholders pay for their Units
to the extent that such interest accrued on such Debt Securities during the
period from the Unitholder's settlement date to the date such Debt Securities
are delivered to the Trust or any Grantor Trust, as the case may be, and,
consequently, such Unitholders may have an increase in taxable gain or reduction
in capital loss upon the disposition of such Units.
Foreign Investors. A Unitholder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident or a U.S. corporation, partnership, estate
or trust) will generally be subject to United States Federal income taxes,
including withholding taxes, on distributions from the Trust relating to such
investor's share of dividend income paid on the Equity Securities (other than
those that are not treated as United States source income, if any). However,
interest income (including any original issue discount) on the Debt Securities,
or any gain from the sale or other disposition of, his or her pro rata interest
in any Security or the sale of his or her Units will not be subject to United
States Federal income taxes, including withholding taxes, provided that all of
the following conditions are met: (i) the interest income or gain is not
effectively connected with the conduct by the foreign investor of a trade or
business within the United States, (ii) if the interest is United States source
income and the Debt Security is issued after July 18, 1984, then the foreign
investor does not own, directly or indirectly, 10% or more of the total combined
voting power of all classes of voting stock of the issuer of the Debt Security
and the foreign investor is not a controlled foreign corporation related (within
the meaning of Section 864(d)(4) of the Code) to the issuer of the Debt
Security, (iii) with respect to any gain, the foreign investor (if an
individual) is not present in the United States for 183 days or more during his
or her taxable year and (iv) the foreign investor provides all certification
which may be required of his or her status (foreign investors may contact the
sponsor to obtain a Form W-8 which must be filed with the Trustee and refiled
every three calendar years thereafter). Foreign investors should consult their
tax advisors with respect to United States tax consequences of ownership of
Units.
It should be noted that the interest exemption from United States taxation,
including withholding taxes, is not available for certain "contingent interest"
received after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation or
withholding taxes could be imposed with respect to income derived from the Units
as a result thereof. Unitholders and prospective investors should consult with
their tax advisors regarding the potential effect of this provision on their
investment in Units.
General. Each Unitholder will be requested to provide the Unitholder's
taxpayer identification number to the Trustee and to certify that the Unitholder
has not been notified that payments to the Unitholder are subject to back-up
withholding. If the proper taxpayer identification number and appropriate
certification are not provided when requested, distributions by the Trust to
such Unitholder (including amounts received upon the redemption of Units) will
be subject to back-up withholding.
At the termination of the Trust, the Trustee will furnish to each Unitholder
a statement containing information relating to the dividends received by the
Trust on the Equity Securities, the gross proceeds received by the Trust from
the disposition of any Security (resulting from redemption or the sale of any
Security) and the fees and expenses paid by the Trust. The Trustee will also
furnish annual information returns to Unitholders and to the Internal Revenue
Service.
In general, income that is not effectively connected to the conduct of a
trade or business within the United States that is earned by non-U.S.
Unitholders and derived from interest on debt of foreign corporations and from
dividends of foreign corporations will not be subject to U.S. withholding tax
provided (in the case of dividends) that less than 25% of the gross income of
the foreign corporation for a three-year period ending with the close of its
taxable year preceding payment was not effectively connected to the conduct of a
trade or business within the United States. In addition, such earnings may be
exempt from U.S. withholding pursuant to a specific treaty between the United
States and a foreign country. Non-U.S. Unitholders should consult their own
advisors regarding the imposition of U.S. withholding on distributions from the
Trust.
It should be noted that payments to the Trust of dividends or interest on
Securities that are attributable to foreign corporations may be subject to
foreign withholding taxes and Unitholders should consult their tax advisors
regarding the potential tax consequences relating to the payment of any such
withholding taxes by the Trust. Any dividends or interest withheld as a result
thereof will nevertheless be treated as income to the Unitholders. Because,
under the grantor trust rules, an investor is deemed to have paid directly his
or her share of foreign taxes that have been paid or accrued, if any, an
investor may be entitled to a foreign tax credit or deduction for U.S. income
tax purposes with respect to such taxes. A required holding period is imposed
for such credits. Investors should consult their tax advisors with respect to
foreign withholding taxes and foreign tax credits.
Except as specifically provided above, the foregoing discussion relates only
to the tax treatment of United States Unitholders with regard to United States
Federal income taxes; Unitholders may be subject to foreign, state and local
taxation. As used herein, the term "U.S. Unitholder" means an owner of a Unit in
the Trust that (a) is (i) for United States Federal income tax purposes a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) an estate or trust the income of
which is subject to United States Federal income taxation regardless of its
source or (b) does not qualify as a U.S. Unitholder in paragraph (a) but whose
income from a Unit is effectively connected with such Unitholder's conduct of a
United States trade or business. The term also includes certain former citizens
of the United States whose income and gain on the Units will be taxable.
Unitholders should consult their tax advisors regarding potential foreign, state
or local taxation with respect to the Units.
In the opinion of special counsel to the Trust for New York tax matters,
under the existing income tax laws of the State of New York, the Trust is not an
association taxable as a corporation and the income of such Trust will be
treated as the income of the Unitholders thereof.
TRUST OPERATING EXPENSES
- --------------------------------------------------------------------------------
Compensation of Sponsor, Supervisor and Evaluator. The Sponsor will not
receive any fees in connection with its activities relating to the Trust.
However, the Evaluator, which is an affiliate of the Sponsor, will receive the
annual fee for evaluation services set forth in the "Fee Table". The Supervisor,
which is also an affiliate of the Sponsor, will receive the annual fee described
in the "Fee Table" for portfolio supervisory services for the Trust. These fees
may exceed the actual costs of providing these services to the Trust but at no
time will the total amount received for supervisory and evaluation services
rendered to all Van Kampen unit investment trusts in any calendar year exceed
the aggregate cost of providing these services in that year.
Trustee's Fee. For its services the Trustee will receive the fee from the
Trust set forth in the "Fee Table" (which includes the estimated amount of
miscellaneous Trust expenses). The Trustee benefits to the extent there are
funds in the Capital and Income Accounts since these Accounts are non-interest
bearing to Unitholders and the amounts earned by the Trustee are retained by the
Trustee. Part of the Trustee's compensation for its services to the Trust is
expected to result from the use of these funds.
Miscellaneous Expenses. The following additional charges are or may be
incurred by the Trust: (a) normal expenses (including the cost of mailing
reports to Unitholders) incurred in connection with the operation of the Trust,
(b) fees of the Trustee for extraordinary services, (c) expenses of the Trustee
(including legal and auditing expenses) and of counsel designated by the
Sponsor, (d) various governmental charges, (e) expenses and costs of any action
taken by the Trustee to protect the Trust and the rights and interests of
Unitholders, (f) indemnification of the Trustee for any loss, liability or
expenses incurred in the administration of the Trust without negligence, bad
faith or wilful misconduct on its part, (g) foreign custodial and transaction
fees, (h) costs associated with liquidating the securities held in the Trust
portfolio, (i) any offering costs incurred after the end of the initial offering
period and (j) expenditures incurred in contacting Unitholders upon termination
of the Trust. The Trust may pay the expenses of updating its registration
statement each year. Unit investment trust sponsors have historically paid these
expenses.
General. During the initial offering period, all of the fees and expenses of
the Trust will accrue on a daily basis and will be charged to the Trust at the
end of the initial offering period. After the initial offering period, all of
the fees and expenses of the Trust will accrue on a daily basis and will be
charged to the Trust on a monthly basis.
The deferred sales charge, fees and expenses are generally paid out of the
Capital Account. When these amounts are paid by or owing to the Trustee, they
are secured by a lien on the Trust's portfolio. Securities may be sold to pay
these amounts which will result in capital gains or losses to Unitholders. See
"Taxation". The Supervisor's, Evaluator's and Trustee's 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 or, if this category is not published, in a comparable category.
OTHER MATTERS
- --------------------------------------------------------------------------------
Legal Opinions. The legality of the Units offered hereby has been passed upon
by Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as
counsel for the Sponsor. Winston & Strawn has acted as counsel to the Trustee
and as special counsel for New York tax matters.
Independent Certified Public Accountants. The statement of condition and the
related portfolio 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.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This Prospectus does not contain all the information set forth in the
Registration Statement filed by the Trust with the SEC. The Information
Supplement, which has been filed with the SEC, includes more detailed
information concerning the Securities, investment risks and general information
about the Trust. The Information Supplement may be obtained by contacting the
Trustee at (800) 856-8487 or is available along with other related materials at
the SEC's internet site (http://www.sec.gov).
TABLE OF CONTENTS
- -----------------------------------------------------
Title Page
----- ----
Summary of Essential Financial Information.. 2
Fee Table................................... 3
Preferred Income Portfolio.................. 4
Notes to Portfolio.......................... 6
Report of Independent Certified
Public Accountants....................... 7
Statement of Condition ..................... 8
The Trust................................... A-1
Objectives and Securities Selection......... A-1
Risk Factors................................ A-2
Public Offering............................. A-4
Rights of Unitholders....................... A-8
Trust Administration........................ A-10
Taxation.................................... A-12
Trust Operating Expenses.................... A-18
Other Matters............................... A-19
Additional Information...................... A-19
PROSPECTUS
- --------------------------------------------------------------------------------
March 18, 1999
Preferred Income Portfolio,
Series 1
Baird / (logo)
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
1-800-RW-BAIRD
(1-800-792-2473)
www.rwbaird.com
Please retain this prospectus for future reference.
<PAGE>
Information Supplement
Van Kampen Focus Portfolios, Series 142
This Information Supplement provides additional information concerning the risks
and operations of the Trust which is not described in the Prospectus. This
Information Supplement should be read in conjunction with the Prospectus. This
Information Supplement is not a prospectus, does not include all of the
information that an investor should consider before investing in the Trust and
may not be used to offer or sell Units without the Prospectus. Copies of the
Prospectus can be obtained by contacting the Sponsor at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181 or by contacting your broker. This Information
Supplement is dated as of the date of the Prospectus and all capitalized terms
have been defined in the Prospectus.
Table of Contents
Page
Risk Factors 2
Sponsor Information 8
Trustee Information 9
Trust Termination 9
Description of Preferred Stock Ratings 10
Moody's Preferred Stock Ratings 11
RISK FACTORS
General. An investment in Units should be made with an understanding of
the risks that an investment in fixed rate, corporate debt obligations may
entail, including the risk that the value of the Units will decline with
increases in interest rates. Although in recent years interest rates have been
relatively stable, the high inflation of prior years, together with the fiscal
measures adopted in response to such inflation, have resulted in wide
fluctuations in interest rates and thus in the value of fixed rate debt
obligations generally. Generally, securities with longer maturities will
fluctuate in value more than securities with shorter maturities. A slowdown in
the economy, or a development adversely affecting an issuer's creditworthiness,
may result in the issuer being unable to maintain earnings or sell assets at the
rate and at the prices, respectively, that are required to produce sufficient
cash flow to meet its interest and principal requirements and accordingly such
issuer may not be able to meet its obligations to make principal and income
payments. In addition, a slowdown in the economy or a development adversely
affecting an issuer's creditworthiness may also result in the ratings of the
Securities and the value of the underlying portfolio being reduced. The Trust
consists of securities, that in many cases, do not have the benefit of covenants
that would prevent the issuer from engaging in capital restructuring or
borrowing transactions in connection with corporate acquisitions, leveraged
buyouts or restructuring that could have the effect of reducing the abilty of
the issuer to meet its obligations and might also result in the ratings of the
Securities and the value of the underlying portfolio being reduced.
Should the issuer of any Security default in the payment of principal
or interest, the Trust may incur additional expenses seeking payments on the
defaulted Security. Because amounts recovered by in payment under the defaulted
Security, if any, may not be reflected in the value of the Units until actually
received by the Trust, and depending upon when a Unitholder purchases or sells
his or her Units, it is possible that a Unitholder would bear a portion of the
cost of recovery without receiving a portion of any payment recovered. Utility
Issues. Certain of the Securities may be obligations of utility issuers. In
general, utilities are regulated monopolies engaged in the business of supplying
light, water, power, heat, transportation or means of communication.
Historically, the utilities industry has provided investors in securities issued
by companies in this industry with high levels of reliability, stability and
relative total return on their investments. However, an investment which
contains obligations of utility issuers 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 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
Securities to make payments of principal and/or interest on such Securities.
Utilities are generally subject to extensive regulations by state
utility commissions which, for example, establish the rates which may be charged
and the appropriate rate of return on an approved asset base, which must be
approved by the state commissions. Certain utilities have had difficulty from
time to time in persuading regulators, who are subject to political pressures,
to grant rate increases necessary to maintain an adequate return on investment
and voters in many states have the ability to impose limits on rate adjustments
(for example, by initiative or referendum). Any unexpected limitations could
negatively affect the profitability of utilities whose budgets are planned far
in advance. Also, changes in certain accounting standards currently under
consideration by the Financial Accounting Standards Board could cause
significant write-downs of assets and reductions in earnings for many
investor-owned utilities. In addition, gas pipeline and distribution companies
have had difficulties in adjusting to short and surplus energy supplies,
enforcing or being required to comply with long-term contracts and avoiding
litigation from their customers, on the one hand, or suppliers, on the other.
Finally, utilities may be subject to deregulation and competitive pressures from
alternative providers. In this environment, utilities may face costs which
prevent them from earning a positive rate of return, which will negatively
impact the issues of Securities.
Certain of the issuers may own or operate nuclear generating
facilities. Governmental authorities may from time to time review existing, and
impose additional, requirements governing the licensing, construction and
operation of nuclear power plants. Nuclear generating projects in the electric
utility industry have experienced substantial cost increases, construction
delays and licensing difficulties. These have been caused by various factors,
including inflation, high financing costs, required design changes and rework,
allegedly faulty construction, objections by groups and governmental officials,
limits on the ability to finance, reduced forecasts of energy requirements and
economic conditions. This experience indicates that the risk of significant cost
increases, delays and licensing difficulties remains present through completion
and achievement of commercial operation of any nuclear project. Also, nuclear
generating units in service have experienced unplanned outages or extensions of
scheduled outages due to equipment problems or new regulatory requirements
sometimes followed by a significant delay in obtaining regulatory approval to
return to service. A major accident at a nuclear plant anywhere could cause the
imposition of limits or prohibitions on the operation, construction or licensing
of nuclear units in the United States.
In view of the uncertainties discussed above; there can be no assurance
that any bond issuer's share of the full cost of nuclear units construction
ultimately will be recovered in rates or of the extent to which an issuer could
earn an adequate return on its investment in such units. The likelihood of a
significantly adverse event occurring in any of the areas of concern described
above varies, as does the potential severity of any adverse impact. It should be
recognized, however, that one or more of such adverse events could occur and
individually or collectively could have a material adverse impact on the
financial condition or the results of operations or on an issuer's ability to
make interest and principal payments on its outstanding debt.
Other general problems of the gas, water, telephone and electric
utility industry (including state and local joint action power agencies) include
difficulty in obtaining timely and adequate rate increased, difficulty in
financing large construction programs or provide new or replacement facilities
during an inflationary period, rising costs of rail transportation to transport
fossil fuels, the uncertainty of transmission service costs for both interstate
and intrastate transactions, changes in tax laws which adversely affect a
utility's ability to operate profitably, increases competition in service costs,
reductions in estimates of future demand for electricity and gas in certain
areas of the country, restrictions on operations and increased cost and delays
attributable to environment al considerations, uncertain of availability and
increase cost of capital, unavailability of fuel for electric generation at
reasonable prices, including, the steady rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal, availability
and cost of natural gas for resale; technical and cost factors and other
problems associated with construction, licensing, regulation and operation of
nuclear facilities for electric generation, including among other considerations
the problems associated with the use of radioactive materials and the disposal
of radioactive wastes, and the effects of energy conservation. Each of the
problems referred to could adversely affect the ability of the issuer of any
utility securities in the Trust to make payments due on these securities.
In addition, the ability of state and local joint action power agencies
to make payments on securities they have issued is dependent in large part on
payments made to them pursuant to power supply or similar agreements.
Courts in Washington and Idaho have held that certain agreements
between Washington Public Power Supply System ("WPPSS") and the WPPSS
participants are unenforceable because the participants did not have the
authority to enter into the agreements. While these decisions are not
specifically applicable to agreements entered into by public entities in other
states, they may cause a reexamination of the legal structure and economic
viability of certain projects financed by joint action power agencies, which
might exacerbate some of the problems referred to above and possibly lead to
legal proceedings questioning the enforceability of agreements upon which
payment of these securities may depend.
Business conditions of the telephone industry in general may affect the
performance of the Trust. General problems of telephone companies include
regulation of rates for service by the FCC and various state or other regulatory
agencies. However, over the last several years regulation has been changing,
resulting in increased competition. The new approach is more market oriented,
more flexible and more complicated. For example, Federal and certain state
regulators have instituted "price cap" regulation which couples protection of
rate payers for basic services with flexible pricing for ancillary services.
These new approaches to regulators could lead to greater risks as well as
greater rewards for operating telephone companies such as those that may be
included in the Trust. Inflation has substantially increased the operating
expenses and cost of plant required for growth, service, improvement and
replacement of existing plant. Continuing cost increases, to the extent not
offset by improved productivity and revenues from increased business, would
result in a decrease in rate of return and a continuing need for rate increases.
Although allowances are generally made in rate making proceedings for cost
increases, delays may be experienced in obtaining the necessary rate increases
and there can be no assurance that the regulatory agencies will grant rate
increases adequate to cover operating and other expenses and debt service
requirements. To meet increasing competition, telephone companies will have to
commit substantial capital, technological and marketing resources. Telephone
usage; and therefore revenues, could also be adversely affected by any sustained
economic recession. New technology, such as cellular service and fiber optics,
will require additional capital outlays. The uncertain outcomes of future labor
agreements may also have a negative impact on the telephone companies. Each of
these problems could adversely affect the ability of the telephone company
issuers to make payments on their securities.
General. Certain of the Securities may have been deposited at a market
discount or premium principally because their interest rates are lower or higher
than prevailing rates on comparable securities. The current returns of market
discount securities are lower than comparably rated securities selling at par
because discount securities tend to increase in market value as they approach
maturity. The current returns of market premium securities are higher than
comparably rated securities selling at par because premium securities tend to
decrease in market value as they approach maturity. Because part of the purchase
price is returned through current income payments and not at maturity, an early
redemption at par of a premium security will result in a reduction in yield to
the Trust. Market premium or discount attributable to interest rate changes does
not indicate market confidence or lack of confidence in the issue.
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the issuers
of lower-rated securities may not be as strong as that of other issuers.
Moreover, if a Security is recharacterized as equity by the Internal
Revenue Service for Federal income tax purposes, the issuer's interest deduction
with respect to the Security will be disallowed and this disallowance may
adversely affect the issuer's credit rating. Because investors generally
perceive that there are greater risks associated with lower-rated securities,
the yields and prices of these securities tend to fluctuate more than
higher-rated securities with changes in the perceived quality of the credit of
their issuers. In addition, the market value of certain fixed-income securities
may fluctuate more than the market value of higher-rated securities since
lower-rated, fixed-income securities tend to reflect short-term credit
developments to a greater extent than higher-rated securities. Issuers of
certain securities may possess less creditworthiness characteristics than
issuers of higher-rated securities and, especially in the case of issuers whose
obligations or credit standing have recently been downgraded, may be subject to
claims by debtholders, owners of property leased to the issuer or others which,
if sustained, would make it more difficult for the issuers to meet their payment
obligations. Securities are also affected by variables such as interest rates,
inflation rates and real growth in the economy. Therefore, investors should
consider carefully the relative risks associated with investment in securities
which carry lower ratings.
Foreign Issuers. A portion of the Securities may be securities of
foreign issuers. It is appropriate for investors to consider certain investment
risks that distinguish investments in foreign issuers from those of domestic
issuers. Those investment risks include future political and economic
developments, the possible imposition of withholding taxes on interest income
payable on the Securities, the possible seizure or materialization of foreign
deposits, the possible establishment of exchange controls or the adoption of
other foreign governmental restrictions (including expropriation, burdensome or
confiscatory taxation and moratoriums) which might adversely affect the payments
or receipt of payments of amounts due on the Securities. Investors should
realize that, although the Trust invests in U.S. dollar denominated investments,
the foreign issuers which operate internationally are subject to currency risks.
The value of Securities can be adversely affected by political or social
instability and unfavorable diplomatic or other negative developments. In
addition, because many foreign issuers are not subject to the reporting
requirements of the Securities Exchange Act of 1934, there may be less publicly
available information about the foreign issuer than a U.S. domestic issuers.
Foreign issuers also are not necessarily subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. domestic issuers.
Liquidity. The Securities may nor have been registered under the
Securities Act of 1933 and may not be exempt from the registration requirements
of the Act. Most of the Securities will not be listed on a securities exchange.
Whether or not the Securities are listed, the principal trading market for the
Securities may be in the over-the-counter market. As a result, the existence of
a liquid trading market for the Securities may depend on whether dealers will
make a market in the Securities. There can be no assurance that a market will be
made for any of the Securities, that any market for the Securities will be
maintained or of the liquidity of the Securities in any markets made. The price
at which the Securities may be sold to meet redemptions and the value of the
Trust will be adversely affected if trading markets for the Securities are
limited or absent. The Trust may also contain, non-exempt Securities in
registered form which have been purchased on a private placement basis. Sales of
these Securities may not be practicable outside the United States, but can
generally be made to U.S. institutions in the private placement market which may
not be as liquid as the general U.S. securities market. Since the private
placement market is less liquid, the prices received may be less than would have
been received had the markets been broader.
Exchange Controls. On the basis of the best information available to
the Sponsor at the present time none of the Securities are subject to exchange
control restrictions under existing law which would materially interfere with
payment to the Trust of amounts due on the Securities. However, there can be no
assurance that exchange control regulations might not be adopted in the future
which might adversely affect payments to the Trust. In addition, the adoption of
exchange control regulations and other legal restrictions could have an adverse
impact on the marketability of the Securities and on the ability of the Trust to
satisfy its obligation to redeem Units tendered to the Trustee for redemption.
Jurisdiction Over, and U.S. Judgments Concerning Foreign Obligors.
Non-U.S. issuers of the Securities will generally not have submitted to the
jursidiction of U.S. courts for purposes of lawsuits relating to those
Securities. If the Trust contains Securities of such an issuer, the Trust as a
holder of those obligations may not be able to assert its rights in U.S. courts
under the documents pursuant to which the Securities are issued. Even if the
Trust obtains a U.S. judgment against a foreign obligor, there can be no
assurance that the judgment will be enforced by a court in the country in which
the foreign obligor is located. In addition, a judgment for money damages by a
court in the United States if obtained, will ordinarily be rendered only in U.S.
dollars. It is not clear, however, whether, in granting a judgment, the rate of
conversion of the applicable foreign currency into U.S. dollars would be
determined with reference to the due date or the date the judgment is rendered.
Courts in other countries may have rules that are similar to, or different from,
the rules of U.S. courts.
Financial Services Issuers. The Trust is concentrated in issuers within
the financial services industry. An investment in Units should be made with an
understanding of the problems and risks inherent in the insurance sector.
Companies involved in the insurance industry are engaged in underwriting,
reinsuring, selling, distribution or placing of property and casualty, life or
health insurance. Other growth areas within the insurance industry include
brokerage, reciprocals, claims processors and multiline insurance companies.
Multiline insurance companies provide property and casualty coverage, as well as
life and health insurance. The Trust may also invest in diversified financial
companies with subsidiaries (including insurance brokerage, reciprocals and
claims processors) engaged in underwriting, reinsuring, selling, distributing or
placing insurance with independent third parties.
Insurance company profits are affected by interest rate levels, general
economic conditions, and price and marketing competition. Property and casualty
insurance profits may also be affected by weather catastrophes and other
disasters. Life and health insurance profits may be affected by morality and
morbidity rates. Individual companies may be exposed to material risks including
reserve inadequacy and the inability to collect from reinsurance carriers.
Insurance companies are subject to extensive governmental regulation, including
the imposition of maximum rate levels, which may not be adequate for some lines
of business. Proposed or potential tax law changes may also adversely affect
insurance companies' policy sales, tax obligations, and profitability. In
addition to the foregoing, profit margins of these companies continue to shrink
due to the commoditization of traditional businesses, new competitors, capital
expenditures on new technology and the pressures to compete globally.
In addition to the normal risks of business, companies involved in the
insurance industry are subject to significant risk factors, including those
applicable to regulated insurance companies, such as: (i) the inherent
uncertainty in the process of establishing property-liability loss reserves,
particularly reserves for the cost of environmental, asbestos and mass tort
claims, and the fact that ultimate losses could materially exceed established
loss reserves which could have a material adverse effect on results of
operations and financial condition; (ii) the fact that insurance companies have
experienced, and can be expected in the future to experience, catastrophe losses
which could have a material adverse impact on their financial condition, results
of operations and cash flow; (iii) the inherent uncertainty in the process of
establishing property-liability loss reserves due to changes in loss payment
patterns caused by new claims settlement practices; (iv) the need for insurance
companies and their subsidiaries to maintain appropriate levels of statutory
capital and surplus, particularly in light of continuing scrutiny by rating
organizations and state insurance regulatory authorities, and in order to
maintain acceptable financial strength or claims-paying ability rating; (v) the
extensive regulation and supervision to which insurance companies' subsidiaries
are subject, various regulatory initiatives that may affect insurance companies,
and regulatory and other legal actions; (vi) the adverse impact that increases
in interest rates could have on the value of an insurance company's investment
portfolio and on the attractiveness of certain of its products; (vii) the need
to adjust the effective duration of the assets and liabilities of life insurance
operations in order to meet the anticipated cash flow requirements of its
policyholder obligations; and (viii) the uncertainty involved in estimating the
availability of reinsurance and the collectibility of reinsurance recoverables.
The state insurance regulatory framework has, during recent years, come
under increased federal scrutiny, and certain state legislatures have considered
or enacted laws that alter and, in many cases, increase state authority to
regulate insurance companies and insurance holding company systems. Further, the
National Association of Insurance Commissioners ("NAIC") and state insurance
regulators are re-examining existing laws and regulations, specifically focusing
on insurance companies, interpretations of existing laws and the development of
new laws. In addition, Congress and certain federal agencies have investigated
the condition of the insurance industry in the United States to determine
whether to promulgate additional federal regulation. The Sponsor is unable to
predict whether any state or federal legislation will be enacted to change the
nature or scope of regulation of the insurance industry, or what effect, if any,
such legislation would have on the industry.
All insurance companies are subject to state laws and regulations that
require diversification of their investment portfolios and limit the amount of
investments in certain investment categories. Failure to comply with these laws
and regulations would cause non-conforming investments to be treated as
non-admitted assets for purposes of measuring statutory surplus and, in some
instances, would require divestiture. Environmental pollution clean-up is the
subject of both federal and state regulation. By some estimates, there are
thousands of potential waste sites subject to clean up. The insurance industry
is involved in extensive ligation regarding coverage issues. The Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("Superfund") and
comparable state statutes ("mini-Superfund") govern the clean-up and restoration
by "Potentially Responsible Parties" ("PRP's"). Superfund and the
mini-Superfunds ("Environmental Clean-up Laws or "ECLs") establish a mechanism
to pay for clean-up of waste sites if PRP's fail to do so, and to assign
liability to PRP's. The extent of liability to be allocated to PRP is dependent
on a variety of factors. Further, the number of waste sites subject to clean-up
is unknown. Very few sites have been subject to clean-up to date. The extent of
clean-up necessary and the assignment of liability has not been established. The
insurance industry is disrupting many such claims. Key coverage issues include
whether Superfund response costs are considered damages under the policies, when
and how coverage is triggered, applicability of pollution exclusions, the
potential for joint and several liability and definition of an occurrence.
Similar coverage issues exist for clean up and waste sites not covered under
Superfund. To date, courts have been inconsistent in their rulings on these
issues. An insurer's exposure to liability with regard to its insureds which
have been, or may be, named as PRPs is uncertain. Superfund reform proposals
have been introduced in Congress, but none have been enacted. There can be no
assurance that any Superfund reform legislation will be enacted or that any such
legislation will provide for a fair, effective and cost-efficient system for
settlement of Superfund related claims.
Proposed federal legislation which would permit banks greater
participation in the insurance business could, if enacted, present an increased
level of competition for the sale of insurance products. In addition, while
current federal income tax law permits the tax-deferred accumulation of earnings
on the premiums paid by an annuity owner and holders of certain savings-oriented
life insurance products, no assurance can be given that future tax law will
continue to allow such tax deferrals. If such deferrals were not allowed,
consumer demand for the affected products would be substantially reduced. In
addition, proposals to lower the federal income tax rates through a form of flat
tax or otherwise could have, if enacted, a negative impact on the demand for
such products.
An investment in Units should also be made with an understanding of the
problems and risks of companies engaged in investment banking/brokerage and
investment management. Such companies include brokerage firms, broker/dealers,
investment banks, finance companies and mutual fund companies. Earnings and
share prices of companies in this industry are quite volatile, and often exceed
the volatility levels of the market as a whole. Recently, ongoing consolidation
in the industry and the strong stock market has benefited stocks which investors
believe will benefit from greater investor and issuer activity. Major
determinants of future earnings of these companies are the direction of the
stock market, investor confidence, equity transaction volume, the level and
direction of long-term and short-term interest rates, and the outlook for
emerging markets. Negative trends in any of these earnings determinants could
have a serious adverse effect on the financial stability, as well as the stock
prices, of these companies. Furthermore, there can be no assurance that the
issuers of the Equity Securities will be able to respond in a timely manner to
compete in the rapidly developing marketplace. In addition to the foregoing,
profit margins of these companies continue to shrink due to the commoditization
of traditional businesses, new competitors, capital expenditures on new
technology and the pressures to compete globally.
Additional Units. The Sponsor may create additional Units of the Trust
by depositing into the Trust additional stocks or cash with instructions to
purchase additional stocks. A cash deposit could result in a dilution of your
investment and anticipated income because of fluctuations in the price of the
stocks between the time of the deposit and the purchase of the stocks and
because the Trust will pay brokerage fees.
Voting. Only the Trustee may sell or vote the stocks in the Trust.
While you may sell or redeem your Units, you may not sell or vote the stocks in
the Trust. The Sponsor will instruct the Trustee how to vote the stocks. The
Trustee will vote the stocks in the same general proportion as shares held by
other shareholders if the Sponsor fails to provide instructions.
Year 2000. The Trust could be negatively impacted if computer systems
used by the Sponsor, Evaluator, Supervisor or Trustee or other service providers
to the Trusts do not properly process date-related information after January 1,
2000. This is commonly known as the "Year 2000 Problem". The Sponsor, Evaluator,
Supervisor and Trustee are taking steps to address this problem and to obtain
reasonable assurances that other service providers to the Trust are taking
comparable steps. We cannot guarantee that these steps will be sufficient to
avoid any adverse impact on the Trust. This problem is expected to impact
corporations to varying degrees based on factors such as industry sector and
degree of technological sophistication. We cannot predict what impact, if any,
this problem will have on the issuers of stocks in the Trust.
SPONSOR INFORMATION
Van Kampen Funds Inc., a Delaware corporation, is the Sponsor of the
Trust. The Sponsor is an indirect subsidiary of Van Kampen Investments Inc. Van
Kampen Investments Inc. is a wholly owned subsidiary of MSAM Holdings II, Inc.,
which in turn is a wholly owned subsidiary of Morgan Stanley Dean Witter & Co.
("MSDW").
MSDW, together with various of its directly and indirectly owned
subsidiaries, is engaged in a wide range of financial services through three
primary businesses: securities, asset management and credit services. These
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; asset
management; trading of futures, options, foreign exchange commodities and swaps
(involving foreign exchange, commodities, indices and interest rates); real
estate advice, financing and investing; global custody, securities clearance
services and securities lending; and credit card services.
Van Kampen Funds 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, (630) 684-6000 and 2800 Post Oak Boulevard, Houston, Texas 77056, (713)
993-0500. As of November 30, 1998, the total stockholders' equity of Van Kampen
Funds Inc. was $135,236,000 (audited). (This paragraph relates only to the
Sponsor and not to the Trust or to any other Series thereof. 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 September 30, 1997, the Sponsor and its Van Kampen affiliates
managed or supervised approximately $65.3 billion of investment products, of
which over $10.85 billion is invested in municipal securities. The Sponsor and
its Van Kampen affiliates managed $54 billion of assets, consisting of $34.3
billion for 55 open-end mutual funds (of which 45 are distributed by Van Kampen
Funds Inc.) $14.2 billion for 37 closed-end funds and $5.5 billion for 106
institutional accounts. The Sponsor has also deposited approximately $26 billion
of unit investment trusts. All of Van Kampen's open-end funds, closed-ended
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 private distribution firms.
If the Sponsor fails to perform any of its duties under the Trust
Agreement or becomes incapable of acting or becomes 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 Trust as provided therein or
(iii) continue to act as Trustee without terminating the Trust Agreement.
TRUSTEE INFORMATION
The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its unit investment trust
division offices at 101 Barclay Street, New York, New York 10286 (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 Securities for the Trust portfolio.
In accordance with the Trust Agreement, the Trustee shall keep proper
books of record and account of all transactions at its office for the Trust.
Such records shall include the name and address of, and the number of Units of
the Trust held by, every Unitholder. Such books and records shall be open to
inspection by any Unitholder at all reasonable times during the usual business
hours. The Trustee shall make such annual or other reports as may from time to
time be required under any applicable state or federal statute, rule or
regulation. The Trustee is required to keep a certified copy or duplicate
original of the Trust Agreement on file in its office available for inspection
at all reasonable times during the usual business hours by any Unitholder,
together with a current list of the Securities held in the Trust.
Under the Trust Agreement, the Trustee or any successor trustee may
resign and be discharged of its responsibilities 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 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.
TRUST TERMINATION
The Trust may be liquidated at any time by consent of Unitholders
representing 66 2/3% of the Units of such Trust then outstanding or by the
Trustee when the value of the Securities owned by the Trust, as shown by any
evaluation, is less than $500,000 ($3,000,000 if the value of the Trust has
exceeded $15,000,000). The Trust will be liquidated by the Trustee in the event
that a sufficient number of Units of the Trust not yet sold are tendered for
redemption by the Sponsor, so that the net worth of such Trust would be reduced
to less than 40% of the value of the Securities at the time they were deposited
in the Trust. If the Trust is liquidated because of the redemption of unsold
Units by the Sponsor, the Sponsor will refund to each purchaser of Units the
entire sales charge paid by such purchaser. The Trust Agreement will terminate
upon the sale or other disposition of the last Security held thereunder, but in
no event will it continue beyond the Mandatory Termination Date.
Commencing during the period beginning nine business days prior to, and
no later than, the Mandatory Termination Date, Securities may begin to be sold
in connection with the termination of the Trust. The Sponsor will determine the
manner, timing and execution of the sales of the Securities. The Sponsor shall
direct the liquidation of the Securities in such manner as to effectuate orderly
sales and a minimal market impact. In the event the Sponsor does not so direct,
the Securities shall be sold within a reasonable period and in such manner as
the Trustee, in its sole discretion, shall determine. At least 30 days before
the Mandatory Termination Date the Trustee will provide written notice of any
termination to all Unitholders of the appropriate Trust. Unitholders will
receive a cash distribution from the sale of the remaining Securities within a
reasonable time following the Mandatory Termination Date. The Trustee will
deduct from the funds of the Trust any accrued costs, expenses, advances or
indemnities provided by the Trust Agreement, including estimated compensation of
the Trustee, costs of liquidation and any amounts required as a reserve to
provide for payment of any applicable taxes or other governmental charges. Any
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.
The Trustee will then distribute to each Unitholder of each Trust his pro rata
share of the balance of the Income and Capital Accounts.
Within 60 days of the final distribution Unitholders will be furnished
a final distribution statement of the amount distributable. At such time as the
Trustee in its sole discretion will determine that any amounts held in reserve
are no longer necessary, it will make distribution thereof to Unitholders in the
same manner.
DESCRIPTION OF PREFERRED STOCK RATINGS*
Standard and Poor's. A Standard & Poor's preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations. A preferred stock rating
differs from a bond rating inasmuch as it is assigned to an equity issue, which
issue is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol will
normally not be higher than the bond rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.
The
preferred stock ratings are based on the following considerations:
I. Likelihood of payment-capacity and willingness of the issuer to meet
the timely payment of pre- ferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights. "AAA" This is
the highest rating that may be assigned by Standard & Poor's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations. "AA" A preferred stock issue rated AA also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA. "A" An issued rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
"BBB" An issued rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
"BB," "B," "CCC" Preferred stock issues rated BB, B and CCC are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): 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.
Moody's Preferred Stock Ratings. Because of the fundamental differences
between preferred stocks and bonds, a variation of our familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols,
presented below, are designed to avoid comparison with bond quality in absolute
terms. It should always be borne in mind that preferred stock occupies a junior
position to bonds within a particular capital structure and that these
securities are rated within the universe of preferred stocks.
"aaa" An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
"a" An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater then in the
"aaa" and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
"baa" An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
"ba" An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
"b" An issue which is rated "b" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate
the future status of payments. "ca" An issue which is rated "ca" is speculative
in a high degree and is likely to be in arrears on dividends with little
likelihood of eventual payments.
"c" This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating 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.
CONTENTS OF REGISTRATION STATEMENTS
This Amendment No. 2 of the Registration Statement comprises the following
papers and documents:
The facing sheet
The Prospectus
The signatures
The consents of independent public accountants and legal counsel
The following exhibits:
1.1 Copy of Trust Agreement.
3.1 Opinion and consent of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to the Federal Income tax status of securities being
registered.
3.3 Opinion and consent of counsel as to New York tax status of securities being
registered.
4.1 Consent of Interactive Data Corporation.
4.2 Consent of Independent Certified Public Accountants.
<PAGE>
SIGNATURES
The Registrant, Van Kampen Focus Portfolios, Series 142, hereby
identifies Van Kampen Merritt Equity Opportunity Trust, Series 1, Series 2,
Series 4 and Series 7 and Van Kampen American Capital Equity Opportunity Trust,
Series 13, Series 14, Series 57 and Series 89 for purposes of the
representations required by Rule 487 and represents the following: (1) that the
portfolio securities deposited in the series as to the securities of which this
Registration Statement is being filed do not differ materially in type or
quality from those deposited in such previous series; (2) that, except to the
extent necessary to identify the specific portfolio securities deposited in, and
to provide essential financial information for, the series with respect to the
securities of which this Registration Statement is being filed, this
Registration Statement does not contain disclosures that differ in any material
respect from those contained in the registration statements for such previous
series as to which the effective date was determined by the Commission or the
staff; and (3) that it has complied with Rule 460 under the Securities Act of
1933.
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Van Kampen Focus Portfolios, Series 142 has duly caused this
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago and State of
Illinois on the 18th day of March, 1999.
Van Kampen Focus Portfolios, Series 142
By Van Kampen Funds Inc.
By Gina M. Costello
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed below on March 18,
1999 by the following persons who constitute a majority of the Board of
Directors of Van Kampen Funds Inc.
SIGNATURE TITLE
Richard F. Powers III Chairman and Chief Executive )
Officer )
John H. Zimmerman III President and Chief Operating )
Officer )
William R. Rybak Executive Vice President and )
Chief Financial Officer )
A. Thomas Smith III Executive Vice President, )
General Counsel and Secretary )
Michael H. Santo Executive Vice President )
Gina M. Costello (Attorney-in-fact*)
- --------------------------------------------------------------------------------
*An executed copy of each of the related powers of attorney is filed
herewith or was filed with the Securities and Exchange Commission in connection
with the Registration Statement on Form S-6 of Van Kampen Focus Portfolios,
Series 136 (File No. 333-70897) and the same are hereby incorporated herein by
this reference.
EXHIBIT 1.1
VAN KAMPEN FOCUS PORTFOLIOS
SERIES 142
TRUST AGREEMENT
Dated: March 18, 1999
This Trust Agreement among Van Kampen Funds Inc., as Depositor,
American Portfolio Evaluation Services, a division of Van Kampen Investment
Advisory Corp., as Evaluator, Van Kampen Investment Advisory Corp., as
Supervisory Servicer, and The Bank of New York, as Trustee, sets forth certain
provisions in full and incorporates other provisions by reference to the
document entitled "Van Kampen American Capital Equity Opportunity Trust, Series
87 and Subsequent Series, Standard Terms and Conditions of Trust, Effective
January 27, 1998" (herein called the "Standard Terms and Conditions of Trust")
and such provisions as are set forth in full and such provisions as are
incorporated by reference constitute a single instrument. All references herein
to Articles and Sections are to Articles and Sections of the Standard Terms and
Conditions of Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor, Evaluator, Supervisory Servicer and Trustee agree as
follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the provisions of Part II hereof, all the provisions
contained in the Standard Terms and Conditions of Trust are herein incorporated
by reference in their entirety and shall be deemed to be a part of this
instrument as fully and to the same extent as though said provisions had been
set forth in full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
1. The Securities defined in Section 1.01(24), listed in the Schedule
hereto, have been deposited in trust under this Trust Agreement.
2. The fractional undivided interest in and ownership of each Trust
represented by each Unit is an amount the numerator of which is one and the
denominator of which is the amount set forth under "Summary of Essential
Financial Information - Initial Number of Units" in the Prospectus. Such
fractional undivided interest may be (a) increased by the number of any
additional Units issued pursuant to Section 2.03, (b) increased or decreased in
connection with an adjustment to the number of Units pursuant to Section 2.03,
or (c) decreased by the number of Units redeemed pursuant to Section 5.02.
3. The terms "Capital Account Record Date" and "Income Account Record
Date" shall mean the "Record Dates" set forth under "Summary of Essential
Financial Information" in the Prospectus.
4. The terms "Capital Account Distribution Date" and "Income Account
Distribution Date" shall mean the "Distribution Dates" set forth under "Summary
of Essential Financial Information" in the Prospectus.
5. The term "Mandatory Termination Date" shall mean the "Mandatory
Termination Date" set forth under "Summary of Essential Financial Information"
in the Prospectus.
6. Section 6.01(e) is hereby replaced with the following:
(e) (1) Subject to the provisions of subparagraph (2) of this
paragraph, the Trustee may employ agents, sub-custodians, attorneys,
accountants and auditors and shall not be answerable for the default or
misconduct of any such agents, sub-custodians, attorneys, accountants
or auditors if such agents, sub-custodians, attorneys, accountants or
auditors shall have been selected with reasonable care. The Trustee
shall be fully protected in respect of any action under this Indenture
taken or suffered in good faith by the Trustee in accordance with the
opinion of counsel, which may be counsel to the Depositor acceptable to
the Trustee, provided, however that this disclaimer of liability shall
not excuse the Trustee from the responsibilities specified in
subparagraph (2) below. The fees and expenses charged by such agents,
sub-custodians, attorneys, accountants or auditors shall constitute an
expense of the Trust reimbursable from the Income and Capital Accounts
of the affected Trust as set forth in section 6.04 hereof.
(2) The Trustee may place and maintain in the care of an
Eligible Foreign Custodian (which is employed by the Trustee as a
sub-custodian as contemplated by subparagraph (1) of this paragraph (e)
and which may be an affiliate or subsidiary of the Trustee or any other
entity in which the Trustee may have an ownership interest) any
investments (including foreign currencies) for which the primary market
is outside the United States, and such cash and cash equivalents in
amounts reasonably necessary to effect the Trust's transactions in such
investments, provided that:
(a) The Trustee shall perform all duties assigned to
the Foreign Custody Manager by Rule 17f-5 under the Investment
Company Act of 1940 (17 CFR ss. 270.17f-5) ("Rule 17f-5"), as
now in effect or as such rule may be amended in the future.
The Trustee shall not delegate such duties.
(b) The Trustee shall exercise reasonable care,
prudence and diligence such as a person having responsibility
for the safekeeping of Trust assets would exercise, and shall
be liable to the Trust for any loss occurring as a result of
its failure to do so.
(c) The Trustee shall indemnify the Trust and hold
the Trust harmless from and against any risk of loss of Trust
assets held in accordance with the foreign custody contract.
(d) The Trustee shall maintain and keep current
written records regarding the basis for the choice or
continued use of a particular Eligible Foreign Custodian
pursuant to this subparagraph for a period of not less than
six years from the end of the fiscal year in which the Trust
was terminated, the first two years in an easily accessible
place. Such records shall be available for inspection by
Unitholders and the Securities and Exchange Commission at the
Trustee's offices at all reasonable times during its usual
business hours.
(3) "Eligible Foreign Custodian" shall have the meaning
assigned to it in Rule 17f-5.
(4) "Foreign Custody Manager" shall have the meaning assigned
to it in Rule 17f-5.
7. Section 1.01 (1), (3) and (4) shall be replaced in their entirety
by the following:
(1) "Depositor" shall mean Van Kampen Funds Inc. and its
succesors in interest, or any successor depositor appointed as hereinafter
provided.
(3) "Evaluator" shall mean American Portfolio Evaluation
Services (a division of a Van Kampen Investment Advisory Corp.) and its
successors in interest, or any successor evaluator appointed as hereinafter
provided.
(4) "Supervisory Servicer" shall mean Van Kampen Investment
Advisory Corp. and its successors in interest, or any successor portfolio
supervisor appointed as hereinafter provided.
8. Notwithstanding anything to the contrary in the Standard Terms and
Conditions of Trust and subject to the requirements set forth in this paragraph,
unless the Prospectus otherwise requires, the Sponsor may, on any Business Day
(the "Trade Date"), subscribe for additional Units as follows:
(a) Prior to the Evaluation Time on such Business Day, the
Sponsor shall provide notice (the "Subscription Notice") to the Trustee, by
telephone or by written communication, of the Sponsor's intention to subscribe
for additional Units. The Subscription Notice shall identify the additional
Securities to be acquired (unless such additional Securities are a precise
replication of the then existing portfolio) and shall either (i) specify the
quantity of additional Securities to be deposited by the Sponsor on the
settlement date for such subscription or (ii) instruct the Trustee to purchase
additional Securities with an aggregate value as specified in the Subscription
Notice.
(b) Promptly following the Evaluation Time on such Business Day,
the Sponsor shall verify with the Trustee the number of additional Units to be
created.
(c) Not later than the time on the settlement date for such
subscription when the Trustee is to deliver or assign the additional Units
created hereby, the Sponsor shall deposit with the Trustee (i) any additional
Securities specified in the Subscription Notice (or contracts to purchase such
additional Securities together with cash or a letter of credit in the amount
necessary to settle such contracts) or (ii) cash or a letter of credit in an
amount equal to the aggregate value of the additional Securities specified in
the Subscription Notice, and adding and subtracting the amounts specified in the
first and second sentences of Section 5.01, computed as of the Evaluation Time
on the Business Day preceding the Trade Date divided by the number of Units
outstanding as of the Evaluation Time on the Business Day preceding the Trade
Date, times the number of additional Units to be created.
(d) On the settlement date for such subscription, the Trustee
shall, in exchange for the Securities and cash or letter of credit described
above, deliver to, or assign in the name of or on the order of, the Sponsor the
number of Units verified by the Sponsor with the Trustee.
9. Notwithstanding anything to the contrary in the Standard Terms and
Conditions of Trust, Section 3.05(b)(ii) shall be replaced in its entirety by
the following:
"(ii) For the purposes of this Section 3.05, the Unitholder's
"Income Distribution" shall be equal to such Unitholder's pro rata share of the
balance (other than any amortized discount) in the Income Account computed as of
the close of business on the Income Account Record Date immediately preceding
such Income Distribution on the basis of one-twelfth of the estimated annual
income to the Trust for the ensuing twelve months, after deduction of (1) the
fees and expenses then deductible pursuant to Section 3.05(a) and (2) the
Trustee's estimate of other expenses properly chargeable to the Income Account
pursuant to the Indenture which have accrued, as of such Income Account Record
Date or are otherwise properly attributable to the period to which such Income
Distribution relates."
10. Notwithstanding anything to the contrary in the Standard Terms and
Conditions of Trust, the term "Equity Securities" shall mean any securities
deposited in the Trust which are listed in the schedule to this Trust Agreement
or are deposited in the Trust pursuant to Section 2.01(b) of the Standard Terms
and Conditions of Trust, (b) Replacement Securities acquired pursuant to Section
3.12 of the Standard Terms and Conditions of Trust, as may from time to time to
be construed to be held as part of the Trust and (c) distributions of the same
securities.
IN WITNESS WHEREOF, the undersigned have caused this Trust Agreement to
be executed and their corporate seals to be hereto affixed and attested; all as
of the day, month and year first above written.
Van Kampen Funds Inc.
By James J. Boyne
Vice President
Attest:
By Nicholas Dalmaso
Assistant Secretary
American Portfolio Evaluation Services, a division of Van Kampen
Investment Advisory Corp.
By James J. Boyne
Vice President
Attest
By Nicholas Dalmaso
Assistant Secretary
Van Kampen Investment Advisory Corp.
By James J. Boyne
Vice President
Attest
By Nicholas Dalmaso
Assistant Secretary
The Bank of New York
By Jeffrey Cohen
Vice President
Attest
By Robert Weir
Assistant Treasurer
SCHEDULE A TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
VAN KAMPEN FOCUS PORTFOLIOS, SERIES 142
(Note: Incorporated herein and made a part hereof is the "Portfolio" as set
forth in the Prospectus.)
EXHIBIT 3.1
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
March 18, 1999
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: Van Kampen Focus Portfolios, Series 142
---------------------------------------
Gentlemen:
We have served as counsel for Van Kampen Funds Inc. as Sponsor and
Depositor of Van Kampen Focus Portfolios, Series 142 (hereinafter referred to as
the "Trust"), in connection with the preparation, execution and delivery of a
Trust Agreement dated March 18, 1999, among Van Kampen Funds Inc., as Depositor,
American Portfolio Evaluation Services, a division of Van Kampen Investment
Advisory Corp., as Evaluator, Van Kampen Investment Advisory Corp., as
Supervisory Servicer, and The Bank of New York, as Trustee, pursuant to which
the Depositor has delivered to and deposited the Securities listed in the
Schedule to the Trust Agreement with the Trustee and pursuant to which the
Trustee has provided to or on the order of the Depositor documentation
evidencing ownership of Units of fractional undivided interest in and ownership
of the Trust (hereinafter referred to as the "Units"), created under said Trust
Agreement.
In connection therewith we have examined such pertinent records and
documents and matters of law as we have deemed necessary in order to enable us
to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and
the execution and issuance of certificates evidencing the Units in the
Trust have been duly authorized; and
2. The certificates evidencing the Units in the Trust, when
duly executed and delivered by the Depositor and the Trustee in
accordance with the aforementioned Trust Agreement, will constitute
valid and binding obligations of such Trust and the Depositor in
accordance with the terms thereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-70895) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
EXHIBIT 3.2
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
March 18, 1999
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
The Bank of New York
101 Barclay Street
New York, New York 10286
Re: Van Kampen Focus Portfolios, Series 142
---------------------------------------
Gentlemen:
We have acted as counsel for Van Kampen Funds Inc., Depositor of Van
Kampen Focus Portfolios, Series 142 (the "Fund"), in connection with the
issuance of Units of fractional undivided interest in the Fund, under a Trust
Agreement, dated March 18, 1999 (the "Indenture") among Van Kampen Funds Inc.,
as Depositor, American Portfolio Evaluation Services, a division of Van Kampen
Investment Advisory Corp., as Evaluator, Van Kampen Investment Advisory Corp.,
as Supervisory Servicer, and The Bank of New York, as Trustee. The Fund is
comprised of one unit investment trust, Preferred Income Portfolio, Series 1
(the "Trust").
In this connection, we have examined the Registration Statement, the
form of Prospectus proposed to be filed with the Securities and Exchange
Commission, the Indenture and such other instruments and documents as we have
deemed pertinent. The opinions expressed herein assume that the Trust will be
administered, and investments by the Trust from proceeds of subsequent deposits,
if any, will be made in accordance with the terms of the Indenture. The Trust
may hold (i) preferred stock (the "Preferred Stock"); (ii) interests in real
estate investment trusts (the "REIT Shares"), (iii) undivided beneficial
interests (the "Equity Trust Certificates") in affiliated business trusts that
are taxed as grantor trusts for federal income tax purposes (the "Equity Grantor
Trusts") which hold equity securities (the "Grantor Trust Equity Securities"),
and together with the Preferred Stock and the REIT Shares the "Equity
Securities"); (iv) undivided beneficial interest (the "Debt Trust Certificates",
and together with the Equity Trust Certificates, the "Trust Certificates") in
affiliated business trusts that are taxed as grantor trusts for federal income
tax purposes (the "Debt Grantor Trusts", and together with the Equity Grantor
Trusts, the "Grantor Trusts") which hold corporate debt obligations (the
"Grantor Trust Debt Obligations"); and (v) corporate debt obligations (the
"Corporate Debt Obligations", and together with the Grantor Trust Debt
Obligations, the "Debt Securities"). The Equity Securities, the Trust
Certificates and the Corporate Debt Obligations held by the Trust are referred
to collectively as (the "Securities").
Under certain circumstances, issuers have a right to change certain of
the Securities. If that occurs, Unitholders may be required to recognize income,
and the federal income tax treatment of the Unitholders may be different from
those described herein.
Neither the Sponsor nor its counsel has independently examined the
assets to be deposited in and held by the Trust. However, although no opinion is
expressed herein regarding such matters, for purposes of the opinion set forth
below, it is assumed that (i) the Equity Securities qualify as equity for
Federal income tax purposes and that, accordingly, amounts received by the Trust
with respect to the Equity Securities will qualify as dividends as defined in
Section 316 of the Internal Revenue Code of 1986 (the "Code"); (ii) no Grantor
Trust is an association taxable as a corporation for Federal income tax
purposes, but rather each Grantor Trust will be governed by the provisions of
subchapter J (relating to trusts) of Chapter 1 of the Code; (iii) each holder of
a Trust Certificate will be considered the owner of a pro rata share of each
asset of the respective Grantor Trust; (iv) the Debt Securities qualify as debt
for Federal income tax purposes, and; (v) each REIT Share represents a share in
an entity treated as a real estate investment trust for Federal income tax
purposes.
Based upon the foregoing and upon an investigation of such matters of
law as we consider to be applicable, we are of the opinion that, under existing
United States Federal income tax law:
(i) The Trust is not an association taxable as a corporation for
Federal income tax purposes, but will be governed by the provisions of
subchapter J (relating to trusts) of chapter 1, of the Code.
(ii) Each Unitholder will be considered the owner of a pro rata share of
each Security of the Trust in the proportion that the number of Units held by a
Unitholder bears to the total number of Units outstanding. Under subpart E,
subchapter J of Chapter 1 of the Code, income of the Trust will be treated as
income of each Unitholder in the proportion described above; and an item of
Trust income will have the same character in the hands of a Unitholder as it
would have in the hands of the Trustee. Each Unitholder will be considered to
have received his or her pro rata share of income derived from each Trust asset
when such income is considered to be received by the Trust. Each Unitholder will
also be required to include in taxable income for Federal income tax purposes,
original issue discount with respect to his or her interest in any Debt Security
which was issued with original issue discount at the same time and in the same
manner, as though the Unitholder were the direct owner of such interest.
Original issue discount will be treated as zero with respect to Debt Securities
if it is "de minimis" within the meaning of Section 1273 of the Code. If a Debt
Security is a "high yield discount obligation" within the meaning of Section
163(e)(5) of the Code, certain special rules may apply. A Unitholder may elect
to include in taxable income for Federal income tax purposes market discount as
it accrues with respect to his or her interest in any Debt Security which he or
she is considered to have acquired with market discount at the same time and in
the same manner as though the Unitholder were the direct owner of such interest.
(iii) The price a Unitholder pays for his or her Units, generally
including sales charges, is allocated among his or her pro rata portion of each
Security held by the Trust ( in proportion to the fair market values thereof on
the valuation date closest to the date the Unitholder purchases his or her
Units) in order to determine his or her tax basis for his or her pro rata
portion of each Security held by the Trust. For Federal income tax purposes, a
Unitholder's pro rata portion of distributions of cash or property by a
corporation with respect to an Equity Security ("dividends" as defined by
Section 316 of the Code) is taxable as ordinary income (except in the case of
capital gains dividends of a REIT as discussed below) to the extent of such
corporation's current and accumulated "earnings and profits." A Unitholder's pro
rata portion of dividends paid on such Equity Security which exceeds such
current and accumulated earnings and profits will first reduce a Unitholder's
tax basis in such Equity Security, and to the extent that such dividends exceed
a Unitholder's tax basis in such Equity Security, shall be treated as gain from
the sale or exchange of property. Certain of the issuers of the Equity
Securities intend to qualify under special Federal income tax rules as "real
estate investment trusts" (a "REIT"). Provided such issuer qualifies as a REIT,
certain distributions by such issuer on the REIT Shares may qualify as "capital
gain dividends," taxable to shareholders (and, accordingly, to the Unitholders
as owners of a pro rata portion of the REIT Shares) as long-term capital gain,
regardless of how long a shareholder has owned such shares. In addition,
distributions of income and capital gains declared on REIT Shares in October,
November, or December will be deemed to have been paid to the shareholders (and,
accordingly, to the Unitholders as owners of a pro rata portion of the REIT
Shares) on December 31 of the year they are declared, even when paid by the REIT
during the following January and received by shareholders or Unitholders in such
following year.
(iv) Gain or loss will be recognized to a Unitholder (subject to various
nonrecognition provisions under the Code) upon redemption or sale of his or her
Units. Such gain or loss is measured by comparing the proceeds of such
redemption or sale with the adjusted basis of his or her Units. Before
adjustment, such basis would normally be cost if the Unitholder had acquired his
or her Units by purchase. Such basis will be reduced, but not below zero, by the
Unitholder's pro rata portion of dividends with respect to each Equity Security
which is not taxable as ordinary income. However, any loss realized by a
Unitholder with respect to the deemed disposition of his or her pro rata portion
of the REIT Shares, to the extent such Unitholder has owned his or her Units for
less than six months or the Trust has held the REIT Shares for less than six
months, will be treated as long-term capital loss to the extent of the
Unitholder's pro rata portion of any capital gain dividends received (or deemed
to have been received) with respect to the REIT Shares. In addition, such basis
will be increased by the Unitholder's aliquot share of the accrued original
issue discount with respect to each Debt Security for which there was original
issue discount at the time such Debt Security was issued, and by accrued market
discount which the Unitholder has elected to annually include in income with
respect to each Debt Security, and reduced by the Unitholder's aliquot share of
the amortized premium, if any, which the Unitholder has properly elected to
amortize under Section 171 of the Code on each Debt Security. The tax basis
reduction requirements of the Code relating to amortization of premium may,
under some circumstances, result in the Unitholder realizing a taxable gain when
his or her Units are sold or redeemed for an amount equal to or less than
original cost.
(v) Each Unitholder will also have a taxable event when a Security is
disposed of (whether by sale, exchange, liquidation, redemption, payment on
maturity or otherwise) or an asset held by a Grantor Trust is disposed of by the
particular Grantor Trust. Such gain or loss is measured by comparing the
proceeds of such sale with the Unitholders `s adjusted basis in his or her
fractional interest in each Security held by the Trust. A Unitholder's basis in
his or her fractional interest in each Debt Security must be reduced by the
Unitholder's share of the amortized premium, if any, on the Debt Security which
the Unitholder has properly elected to amortize under Section 171 of the Code,
and must be increased by the Unitholder's share of the accrued original issue
discount with respect to each Debt Security which, at the time the Debt Security
was issued, had original issue discount, and by accrued market discount which
the Unitholder has elected to annually include in income. In addition, as noted
above, a Unitholder's pro rata portion of dividends which exceed the
distributing corporation's current and accumulated earnings and profits will
reduce a Unitholder's tax basis in such Equity Security (and accordingly his or
her basis in such Units), and to the extent that such dividends exceed a
Unitholder's tax basis in such Equity Security shall be treated as gain from the
sale or exchange of property.
A domestic corporation owning Units in the Trust may be eligible for
the 70% dividends received deduction pursuant to section 243(a) of the Code with
respect to such Unitholder's pro rata portion of dividends received (or deemed
to have been received through a Grantor Trust) by the Trust (to the extent such
dividends are taxable as ordinary income, as discussed above, and are
attributable to domestic corporations), subject to the limitations imposed by
Sections 246 and 246A of the Code. However, dividends received on the REIT
Shares are not eligible for the dividends received deduction. In addition,
certain special rules may apply with regard to the dividends received on the
Preferred Stock.
To the extent dividends received by the Trust are attributable to
foreign corporations, a corporation that owns Units will not be entitled to the
dividends received deduction with respect to its pro rata portion of such
dividends since the dividends received deduction is generally available only
with respect to dividends paid by domestic corporations.
Section 67 of the Code provides that certain miscellaneous itemized
deductions, such as investment expenses, tax return preparation fees and
employee business expenses will be deductible by an individual only to the
extent they exceed 2% of such individual's adjusted gross income. Unitholders
may be required to treat some or all of the expenses of a Trust as miscellaneous
itemized deductions subject to this limitation.
The Code provides a complex set of rules governing the accrual of
original issue discount. These rules provide that original issue discount
generally accrues on the basis of a constant compound interest rate. Special
rules apply if the purchase price of a Debt Security by the Trust or any Grantor
Trust, as the case may be exceeds its original issue price plus the amount of
original issue discount which would have previously accrued, based upon its
issue price (its "adjusted issue price"). Similarly, these special rules would
apply to a Unitholder if the tax basis of his or her pro rata portion of a Debt
Security issued with original issue discount exceeds his or her pro rata portion
of its adjusted issue price. It is possible that a Debt Security that has been
issued at an original issue discount may be characterized as a "high-yield
discount obligation" within the meaning of Section 163(e)(5) of the Code. To the
extent that such an obligation is issued at a yield in excess of six percentage
points over the applicable Federal rate, a portion of the original issue
discount on such obligation will be characterized as a distribution on stock
(e.g., dividends) for purposes of the dividends received deduction which is
available to certain corporations with respect to certain dividends received by
such corporations.
If a Unitholder's tax basis in his interest in any Debt Security held
by the Trust is less than his or her allocable portion of such Debt Security's
stated redemption price at maturity (or, if issued with original issue discount,
his or her allocable portion of its revised issue price on the date he or she
buys such Units), such difference will constitute market discount unless the
amount of market discount is "de minimis" as specified in the Code. Market
discount accrues daily computed on a straight line basis, unless the Unitholder
elects to calculate accrued market discount under a constant yield method.
Accrued market discount is generally includible in taxable income of
the Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on Debt Securities, on the sale, maturity or
disposition of such Debt Securities and on the sale of a Unitholder's Units,
unless a Unitholder elects to include the accrued market discount in taxable
income as such discount accrues. If a Unitholder does not elect to annually
include accrued market discount in taxable income as it accrues, deductions of
any interest expense incurred by the Unitholder to purchase or carry his or her
Units will be reduced by such accrued market discount. In general, the portion
of any interest which is not currently deductible is deductible when the accrued
market discount is included in income upon the sale or redemption of the Debt
Securities or the sale of Units.
The tax basis of a Unitholder with respect to his or her interest in an
obligation is increased by the amount of original issue discount (and market
discount, if the Unitholder elects to include market discount, if any, on the
Debt Securities in income as it accrues) thereon properly included in the
Unitholder's gross income as determined for Federal income tax purposes and
reduced by the amount of any amortized premium which the Unitholder has properly
elected to amortize under Section 171 of the Code. A Unitholder's tax basis in
his or her Units will equal his or her tax basis in his or her pro rata portion
of all the assets of the Trust.
A Unitholder will recognize taxable gain (or loss) when all or part of
his or her pro rata interest in a Security or an asset held by any Grantor Trust
is disposed of for an amount greater (or less) than his or her tax basis
therefor in a taxable transaction, subject to various non recognition provisions
of the Code.
As previously discussed, gain attributable to any Debt Security deemed
to have been acquired by the Unitholder with market discount will be treated as
ordinary income to the extent the gain does not exceed the amount of accrued
market discount not previously taken into income. The tax basis reduction
requirements of the Code relating to amortization of bond premium may, under
certain circumstances, result in the Unitholder realizing a taxable gain when
his or her Units are sold or redeemed for an amount equal to or less than his or
her original cost.
If a Unitholder disposes of a Unit, he or she is deemed thereby to have
disposed of his or her entire pro rata interest in all Trust assets including
his or her pro rata portion of all of the Securities represented by the Unit.
This may result in a portion of the gain, if any, on such sale being taxable as
ordinary income under the market discount rules (assuming no election was made
by the Unitholder to include market discount in income as it accrues) as
previously discussed.
It should be noted that payments to the Trust of dividends or interest
on Securities that are attributable to foreign corporations may be subject to
foreign withholding taxes and Unitholders should consult their tax advisers
regarding the potential tax consequences relating to the payment of any such
withholding taxes by the Trust. Any dividends or interest withheld as a result
thereof will nevertheless be treated as income to the Unitholders. Because under
the grantor trust rules, an investor is deemed to have paid directly his share
of foreign taxes that have been paid or accrued, if any, an investor may be
entitled to a foreign tax credit or deduction for United States tax purposes
with respect to such taxes. A required holding period is imposed for such
credits.
A Unitholder who is a foreign investor (i.e., an investor other than a
United States citizen or resident or United States corporation, partnership,
estate or trust) will be subject to United States Federal income taxes,
including withholding taxes on distributions from the Trust relating to such
investor's share of dividend income paid on Equity Securities. A Unitholder who
is a foreign investor will not be subject to United States Federal income taxes,
including withholding taxes on interest income (including any original issue
discount) on the Debt Securities, or any gain from the sale or other disposition
of, his or her pro rata interest in any Security held by the Trust or the sale
of his or her Units provided that all of the following conditions are met:
(i) the interest income or gain is not effectively connected
with the conduct by the foreign investor of a trade or business within
the United States;
(ii) the interest is United States source income (which is the
case for most securities issued by United States issuers), the Debt
Security is issued after July 18, 1984, the foreign investor does not
own, directly or indirectly, 10% or more of the total combined voting
power of all classes of voting stock of the issuer of the Debt Security
and the foreign investor is not a controlled foreign corporation
related (within the meaning of Section 864(d)(4) of the Code) to the
issuer of the Debt Security;
(iii) with respect to any gain, the foreign investor (if an
individual) is not present in the United States for 183 days or more
during his or her taxable year; and
(iv) the foreign investor provides all certification which
may be required of his status.
It should be noted that the 1993 Tax Act includes a provision which
eliminates the exemption from United States taxation, including withholding
taxes, for certain "contingent interest." This provision applies to interest
received after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation or
withholding taxes could be imposed with respect to income derived from the Units
as a result thereof.
The scope of this opinion is expressly limited to the matters set forth
herein, and, except as expressly set forth above, we express no opinion with
respect to any other taxes, including state or local taxes or collateral tax
consequences with respect to the purchase, ownership and disposition of Units.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-70895) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Very truly yours,
CHAPMAN AND CUTLER
EXHIBIT 3.3
WINSTON & STRAWN
200 Park Avenue
New York, New York 10166-4193
March 18, 1999
Van Kampen Focus Portfolios, Series 142
c/o The Bank of New York, As Trustee
101 Barclay Street, 17 West
New York, New York 10286
Dear Sirs:
We have acted as special counsel for the Van Kampen Focus Portfolios,
Series 142 (the "Fund") consisting of Preferred Income Portfolio, Series 1
(individually, a "Trust" and, in the aggregate the "Trusts") for purposes of
determining the applicability of certain New York taxes under the circumstances
hereinafter described.
The Fund is created pursuant to a Trust Agreement (the "Indenture"),
dated as of today (the "Date of Deposit") among Van Kampen Funds Inc. (the
"Depositor"), American Portfolio Evaluation Services, a division of an affiliate
of the Depositor, as Evaluator, Van Kampen Investment Advisory Corp., an
affiliate of the Depositor, as Supervisory Servicer (the "Supervisory
Servicer"), and The Bank of New York, as trustee (the "Trustee"). As described
in the prospectus relating to the Fund dated today to be filed as an amendment
to a registration statement heretofore filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Prospectus") (File
Number 333-70895), the objectives of the Fund are to provide the potential for
dividend income and capital appreciation through investment in a fixed portfolio
of actively traded equity securities of companies engaged in, providing services
to companies in, the industry identified in Trust's name, or are the type of
securities identified in the name of the Trust. It is noted that no opinion is
expressed herein with regard to the Federal tax aspects of the securities, the
Trust, units of the Trust (the "Units"), or any income, gains or losses in
respect thereof.
As more fully set forth in the Indenture and in the Prospectus, the
activities of the Trustee will include the following:
On the Date of Deposit, the Depositor will deposit with the Trustee
with respect to the Trust the securities and/or contracts and cash for the
purchase thereof together with an irrevocable letter of credit in the amount
required for the purchase price of the securities comprising the corpus of the
Trust as more fully set forth in the Prospectus.
The Trustee did not participate in the selection of the securities to
be deposited in the Trust, and, upon the receipt thereof, will deliver to the
Depositor a registered certificate for the number of Units representing the
entire capital of the Trust as more fully set forth in the Prospectus. The
Units, which are represented by certificates ("Certificates"), will be offered
to the public upon the effectiveness of the registration statement.
The duties of the Trustee, which are ministerial in nature, will
consist primarily of crediting the appropriate accounts with cash dividends
received by the Fund and with the proceeds from the disposition of securities
held in the Fund and the proceeds of the treasury obligation on maturity and the
distribution of such cash dividends and proceeds to the Unit holders. The
Trustee will also maintain records of the registered holders of Certificates
representing an interest in the Fund and administer the redemption of Units by
such Certificate holders and may perform certain administrative functions with
respect to an automatic reinvestment option.
Generally, equity securities held in the Trust may be removed therefrom
by the Trustee at the direction of the Depositor upon the occurrence of certain
specified events which adversely affect the sound investment character of the
Fund, such as default by the issuer in payment of declared dividends or of
interest or principal on one or more of its debt obligations.
Prior to the termination of the Fund, the Trustee is empowered to sell
equity securities designated by the Supervisory Servicer only for the purpose of
redeeming Units tendered to it and of paying expenses for which funds are not
available. The Trustee does not have the power to vary the investment of any
Unit holder in the Fund, and under no circumstances may the proceeds of sale of
any equity securities held by the Fund be used to purchase new equity securities
to be held therein.
Article 9-A of the New York Tax Law imposes a franchise tax on business
corporations, and, for purposes of that Article, Section 208(l) defines the term
"corporation" to include, among other things, "any business conducted by a
trustee or trustees wherein interest or ownership is evidenced by certificate or
other written instrument."
The Regulations promulgated under Section 208 provide as follows:
A business conducted by a trustee or trustees in which
interest or ownership is evidenced by certificate or other
written instrument includes, but is not limited to, an
association commonly referred to as a "business trust" or
"Massachusetts trust". In determining whether a trustee or
trustees are conducting a business, the form of the agreement
is of significance but is not controlling. The actual
activities of the trustee or trustees, not their purposes and
powers, will be regarded as decisive factors in determining
whether a trust is subject to tax under Article 9-A. The mere
investment of funds and the collection of income therefrom,
with incidental replacement of securities and reinvestment of
funds, does not constitute the conduct of a business in the
case of a business conducted by a trustee or trustees. 20
NYCRR 1-2.5(b)(2) (July 11, 1990).
New York cases dealing with the question of whether a trust will be
subject to the franchise tax have also delineated the general rule that where a
trustee merely invests funds and collects and distributes the income therefrom,
the trust is not engaged in business and is not subject to the franchise tax.
Burrell v. Lynch, 274 A.D. 347, 84 N.Y.S.2d 171 (3rd Dept. 1948), order
resettled, 274 A.D. 1083, 85 N.Y.S.2d 705 (3rd Dept. 1949).
In an Opinion of the Attorney General of the State of New York, 47 N.Y.
Att'y. Gen. Rep. 213 (Nov. 24, 1942), it was held that where the trustee of an
unincorporated investment trust was without authority to reinvest amounts
received upon the sales of securities and could dispose of securities making up
the trust only upon the happening of certain specified events or the existence
of certain specified conditions, the trust was not subject to the franchise tax.
In the instant situation, the Trustee is not empowered to, and we
assume will not, sell equity securities contained in the corpus of the Fund and
reinvest the proceeds therefrom. Further, the power to sell such equity
securities is limited to circumstances in which the credit-worthiness or
soundness of the issuer of such equity security is in question or in which cash
is needed to pay redeeming Unit holders or to pay expenses, or where the Fund is
liquidated subsequent to the termination of the Indenture. In substance, the
Trustee will merely collect and distribute income and will not reinvest any
income or proceeds, and the Trustee has no power to vary the investment of any
Unit holder in the Fund.
Under Subpart E of Part I, Subchapter J of Chapter 1 of the Internal
Revenue Code of 1986, as amended (the "Code"), the grantor of a trust will be
deemed to be the owner of the trust under certain circumstances, and therefore
taxable on his proportionate interest in the income thereof. Where this Federal
tax rule applies, the income attributed to the grantor will also be income to
him for New York income tax purposes. See TSB-M-78(9)(c), New York Department of
Taxation and Finance, June 23, 1978.
By letter dated today, Messrs. Chapman and Cutler, counsel for the
Depositor, rendered their opinion that each Unit holder will be considered as
owning a share of each asset of the Trust in the proportion that the number of
Units held by such holder bears to the total number of Units outstanding and the
income of a Trust will be treated as the income of each Unit holder in said
proportion pursuant to Subpart E of Part I, Subchapter J of Chapter 1 of the
Code.
Based on the foregoing and on the opinion of Messrs. Chapman and
Cutler, counsel for the Depositor, dated today, upon which we specifically rely,
we are of the opinion that under existing laws, rulings, and court decisions
interpreting the laws of the State and City of New York:
1. The Trust will not constitute an association taxable as a
corporation under New York law, and, accordingly, will not be subject
to tax on its income under the New York State franchise tax or the New
York City general corporation tax.
2. The income of the Trust will be treated as the income of
the Unit holders under the income tax laws of the State and City of New
York.
3. Unit holders who are not residents of the State of New
York are not subject to the income tax laws thereof with respect to any
interest or gain derived from the Fund or any gain from the sale or
other disposition of the Units, except to the extent that such interest
or gain is from property employed in a business, trade, profession or
occupation carried on in the State of New York.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Units and to the use of our name and the
reference to our firm in the Registration Statement and in the Prospectus.
Very truly yours,
WINSTON & STRAWN
EXHIBIT 4.1
Interactive Data
14 Wall Street, 11th Floor
New York, NY 10005
March 18, 1999
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Re: Van Kampen Focus Portfolios
Preferred Income Portfolio, Series 1
(A Unit Investment Trust) Registered Under the Securities Act of 1933,
File No. 333-70895
Gentlemen:
We have examined the Registration Statement for the above captioned
Fund, a copy of which is attached hereto.
We hereby consent to the reference in the Prospectus and Registration
Statement for the above captioned Fund to Interactive Data Corporation, as the
Evaluator, and to the use of the Obligations prepared by us which are referred
to in such Prospectus and Statement.
You are authorized to file copies of this letter with the Securities
and Exchange Commission.
Very truly yours,
James Perry
Vice President
EXHIBIT 4.2
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
We have issued our report dated March 18, 1999 on the statement of
condition and related securities portfolio of Van Kampen Focus Portfolios,
Series 142 as of March 18, 1999 contained in the Registration Statement on Form
S-6 and Prospectus. We consent to the use of our report in the Registration
Statement and Prospectus and to the use of our name as it appears under the
caption "Other Matters-Independent Certified Public Accountants."
Grant Thornton LLP
Chicago, Illinois
March 18, 1999
