File No. 333-70895 CIK #1025305
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-6
For Registration under the Securities Act of 1933 of
Securities of Unit Investment Trusts Registered on
Form N-8B-2
VAN KAMPEN FOCUS PORTFOLIOS, SERIES 142
(Exact Name of Trust)
VAN KAMPEN FUNDS INC.
(Exact Name of Depositor)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Complete address of Depositor's principal executive offices)
VAN KAMPEN FUNDS INC. CHAPMAN AND CUTLER
Attention: A. Thomas Smith III, General Counsel Attention: Mark J. Kneedy
One Parkview Plaza 111 West Monroe Street
Oakbrook Terrace, Illinois 60181 Chicago, Illinois 60603
(Name and complete address of agents for service)
( X ) Check if it is proposed that this filing will become effective on June
26, 2000 pursuant to paragraph (b) of Rule 485.
PREFERRED INCOME PORTFOLIO, SERIES 1
Van Kampen Focus Portfolios, Series 142
--------------------------------------------------------------------------------
PROSPECTUS PART ONE
NOTE: Part I of this Prospectus may not be distributed unless accompanied by
Part II. Please retain both parts of this Prospectus for future reference.
--------------------------------------------------------------------------------
THE TRUST
Van Kampen Focus Portfolios, Series 142 is comprised of one unit
investment trust, Preferred Income Portfolio, Series 1 (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. The
Units are not deposits or obligations of any bank of government agency and are
not guaranteed.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THE
UNITS OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is June 26, 2000
Baird/
PREFERRED INCOME PORTFOLIO, SERIES 1
Van Kampen Focus Portfolios, Series 142
Summary of Essential Financial Information
As of April 13, 2000
Sponsor: Van Kampen Funds Inc.
Supervisor: Van Kampen Investment Advisory Corp.
(An affiliate of the Sponsor)
Evaluator: American Portfolio Evaluation Services
(A division of an affiliate of the Sponsor)
Trustee: The Bank of New York
<TABLE>
<CAPTION>
Preferred
Income
Portfolio
----------------
General Information
<S> <C>
Number of Units 893,411
Fractional Undivided Interest in Trust per Unit 1/893,411
Public Offering Price:
Aggregate Value of Securities in Portfolio (1) $ 6,759,640.72
Aggregate Value of Securities per Unit (including accumulated dividends) $ 7.5661
Sales charge 3.5% (3.627% of Aggregate Value of Securities excluding
principal cash) per Unit(3) $ .2713
Public Offering Price per Unit (2)(3) $ 7.8374
Redemption Price per Unit $ 7.5661
Secondary Market Repurchase Price per Unit $ 7.5661
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ .2713
</TABLE>
Supervisor's Annual Supervisory Fee Maximum of $.0025 per Unit
Evaluator's Annual Fee Maximum of $.0025 per Unit
Evaluation Time Close of the New York Stock Exchange
Initial Date of Deposit March 18, 1999
Mandatory Termination Date March 18, 2004
Minimum Termination Value The Trust may be terminated if the net asset value of
such Trust is less than $500,000 unless the net asset value of such Trust
deposits has exceeded $15,000,000, then the Trust Agreement may be terminated if
the net asset value of such Trust is less than $3,000,000.
Estimated Annual Dividends per Unit $.79063
Trustee's Annual fee $.008 per Unit
Distribution Record Date TENTH day of each month.
Distribution Date TWENTY-FIFTH day of each month.
--------------------------------------------------------------------------------
(1) Equity Securities are valued at the closing sale price, or if no such price
exists, at the closing bid price thereof.
(2) Anyone ordering Units will have added to the Public Offering Price a pro
rata share of any cash in the Income and Capital Accounts.
(3) Effective on each March 18, the secondary sales charge will decrease by .5
of 1% to a minimum sales charge of 3.0%.
<TABLE>
<CAPTION>
PER UNIT INFORMATION
2000 (1)
------------
<S> <C>
Net asset value per Unit at beginning of period........................................................ $ 9.90
============
Net asset value per Unit at end of period.............................................................. $ 7.74
============
Distributions to Unitholders of investment income including accumulated dividends paid
on Units redeemed (average Units outstanding for entire period)..................................... $ 0.74
============
Distributions to Unitholders from Equity Security redemption proceeds (average Units
outstanding for entire period)...................................................................... $ --
============
Unrealized appreciation (depreciation) of Equity Securities (per Unit outstanding at end of period).... $ (1.77)
============
Units outstanding at end of period..................................................................... 893,411
</TABLE>
--------------------------------------------------------------------------------
(1) For the period from March 18, 1999 (date of deposit) through February 29,
2000.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Funds Inc. and the Unitholders of
Preferred Income Portfolio, Series 1 (Van Kampen Focus Portfolios, Series 142):
We have audited the accompanying statement of condition (including the
analysis of net assets) and the related portfolio of Preferred Income Portfolio,
Series 1 (Van Kampen Focus Portfolios, Series 142) as of February 29, 2000 and
the related statements of operations and changes in net assets for the period
from March 18, 1999 (date of deposit) through February 29, 2000. These
statements are the responsibility of the Trustee and the Sponsor. Our
responsibility is to express an opinion on such statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurances 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 securities owned at February 29, 2000 by
correspondence with the Trustee. An audit also includes assessing the accounting
principles used and significant estimates made by the Trustee and 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 Preferred Income Portfolio,
Series 1 (Van Kampen Focus Portfolios, Series 142) as of February 29, 2000 and
the results of operations and changes in net assets for the period from March
18, 1999 (date of deposit) through February 29, 2000, in conformity with
accounting principles generally accepted in the United States.
GRANT THORNTON LLP
Chicago, Illinois
April 28, 2000
<TABLE>
<CAPTION>
PREFERRED INCOME PORTFOLIO, SERIES 1
Statements of Condition
February 29, 2000
Preferred
Income
Portfolio
---------------
Trust property
<S> <C>
Cash $ --
Securities at market value, (cost $8,595,249) (note 1) 7,015,769
Accumulated dividends 6,313
Receivable for securities sold --
---------------
$ 7,022,082
===============
Liabilities and interest to Unitholders
Cash overdraft $ 105,509
Redemptions payable --
Interest to Unitholders 6,916,573
---------------
$ 7,022,082
===============
Analyses of Net Assets
Interest of Unitholders (893,411 Units of fractional undivided interest outstanding)
Cost to original investors of 906,967 Units (note 1) $ 9,361,726
Less initial underwriting commission (note 3) 421,325
---------------
8,940,401
Less redemption of 13,556 Units 118,544
---------------
8,821,857
Undistributed net investment income
Net investment income 605,446
Less distributions to Unitholders 619,614
---------------
(14,168)
Realized gain (loss) on Security sale (44,253)
Unrealized appreciation (depreciation) of Securities (note 2) (1,579,480)
Distributions to Unitholders of Security sale proceeds --
Deferred sales charge (267,383)
---------------
Net asset value to Unitholders $ 6,916,573
===============
Net asset value per Unit (893,411 Units outstanding) $ 7.74
===============
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
PREFERRED INCOME PORTFOLIO, SERIES 1
Statements of Operations
Period from March 18, 1999 (date of deposit) through February 29, 2000
2000
--------------
Investment income
<S> <C>
Dividend income.................................................................................. $ 648,616
Expenses
Trustee fees and expenses..................................................................... 7,620
Evaluator fees................................................................................ 1,948
Organizational fees........................................................................... 31,654
Supervisory fees.............................................................................. 1,948
--------------
Total expenses................................................................................ 43,170
--------------
Net investment income......................................................................... 605,446
Realized gain (loss) for Securities sale
Proceeds......................................................................................... 314,971
Cost............................................................................................. 359,224
--------------
Realized gain (loss).......................................................................... (44,253)
Net change in unrealized appreciation (depreciation) of Securities.................................. (1,579,480)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................... $ (1,018,287)
==============
Statements of Changes in Net Assets
Period from March 18, 1999 (date of deposit) through February 29, 2000
2000
--------------
Increase (decrease) in net assets Operations:
Net investment income............................................................................ $ 605,446
Realized gain (loss) on Securities............................................................... (44,253)
Net change in unrealized appreciation (depreciation) of Securities............................... (1,579,480)
--------------
Net increase (decrease) in net assets resulting from operations............................... (1,018,287)
Distributions to Unitholders from:
Net investment income............................................................................ (619,614)
Security sale proceeds........................................................................... --
Redemption of Units.............................................................................. (118,544)
Deferred sales charge............................................................................ (267,383)
--------------
Total increase (decrease)..................................................................... (2,023,828)
Net asset value to Unitholders
Beginning of period.............................................................................. 142,915
Additional Securities purchased from the proceeds of Unit Sales.................................. 8,797,486
--------------
End of period (including overdistributed net investment income of $(14,168))..................... $ 6,916,573
==============
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
PREFERRED INCOME PORTFOLIO, SERIES 1 PORTFOLIO as of February 29, 2000
------------------------------------------------------------------------------------------------------------------------------------
Market Valuation
Number of Redemption Value per of
Shares Name of Issuer, Coupon and Maturity Rating Provision (1) Share Securities
--------------- --------------------------------------------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
13,607 Agrium Inc.
8.00% Due 6/30/2047 BB+ 4/23/03 @ 25 $ 16.0000 $ 217,712
13,506 Aici Capital Trust
9.00% Due 9/30/2027 B- 9/30/02 @ 25 11.0000 148,566
13,514 Archstone Communities Trust
8.635% BBB 8/20/02 @ 25 20.9375 282,949
5,821 Armstrong World Industries
7.45% Due 10/15/2038 A- 10/28/03 @ 25 19.8750 115,692
13,461 AT & T Capital Corporation
8.25% Due 11/15/2028 A+ 11/15/03 @ 25 23.7500 319,699
12,893 Bear Stearns Capital Trust II
7.50% Due 12/15/2028 BBB 12/15/03 @ 25 21.4375 276,394
13,677 Cameco Corporation
8.75% Due 9/30/2047 BBB 10/14/03 @ 25 21.3125 291,491
13,172 Canadian Occidental Petroleum
9.375% Due 3/31/2048 BB+ 2/9/04 @ 25 22.5000 296,370
12,982 Coastal Finance I
8.375% Due 6/30/2038 BBB- 5/13/03 @ 25 22.2500 288,850
13,262 Conseco Finance Trust VI
9.00% Due 12/31/2028 BBB- 12/31/03 @ 25 19.0000 251,978
13,133 Dillard Capital Trust I
7.50% Due 8/1/2038 BB+ 8/12/03 @ 25 16.1250 211,770
12,823 Enterprise Capital Trust I
7.44% Due 3/31/2047 BB+ 3/31/03 @ 25 19.0625 244,438
14,318 Equity Residential Properties
7.625% BBB 2/13/03 @ 25 19.7500 282,781
13,248 Foster Wheeler Preferred Capital Trust I
9.00% Due 1/15/2029 BB 1/15/04 @ 25 14.3750 190,440
5,986 Hartford Life Capital I
7.20% Due 6/30/2038 A- 6/30/03 @ 25 20.7500 124,210
13,136 Hercules Trust I
9.42% Due 3/31/2029 BB 3/17/04 @ 25 21.9375 288,171
12,828 International Paper Capital Trust III
7.875% Due 12/1/2038 BBB- 9/24/03 @ 25 21.6875 278,207
13,014 Lehman Brothers Capital Trust I
8.00% Due 3/31/2048 BBB+ 3/31/04 @ 25 21.8750 284,681
12,550 Mediaone Finance Trust III
9.04% Due 12/31/2038 BB+ 10/28/03 @ 25 25.0000 313,750
12,594 NB Capital Corporation
8.35% BBB+ 9/3/07 @ 25 22.4375 282,578
12,898 Nova Chemicals Corporation
9.50% Due 12/31/2047 BB+ 10/22/03 @ 25 21.9375 282,950
12,312 RJR Nabisco Holding Capital Trust
9.50% Due 9/30/2047 BB+ 9/30/03 @ 25 24.4375 300,875
12,728 Seagrams (Joseph) & Sons
8.00% Due 12/31/2038 BBB- 11/20/03 @ 25 22.2500 283,198
13,280 Suncor Energy Inc.
9.125% Due 3/31/2048 BBB- 3/15/04 @ 25 23.3125 309,590
13,289 Talisman Energy Inc.
9.00% Due 2/15/2048 BBB- 2/15/04 @ 25 21.2500 282,391
13,290 TDS Capital I
8.50% Due 12/31/2037 BB+ 11/18/02 @ 25 21.6875 288,227
13,429 Vornado Realty Trust
8.50% BBB- 3/17/04 @ 25 20.6875 277,811
------------- -------------
340,751 $ 7,015,769
============= =============
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
(1) The issuer of each Security may redeem the security 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.
PREFERRED INCOME PORTFOLIO, SERIES 1
Notes to Financial Statements
February 29, 2000
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation - Securities are valued at the last closing sales price
or, if no such price exists, at the closing bid price thereof.
Security Cost - The original cost to the Trust of the Securities was based,
for Securities listed on a national securities exchange on the closing sale
prices on the exchange or the closing asked prices if not listed. The cost was
determined on the day of the various Dates of Deposit.
Unit Valuation - The redemption price per Unit is the pro rata share of each
Unit based upon (1) the cash on hand in the Trust or monies in the process of
being collected, (2) the Securities in the Trust based on the value as described
in Note 1 and (3) accumulated dividends thereon, less accrued expenses of the
Trust, if any.
Federal Income Taxes - Each Unitholder is considered to be the owner of a pro
rata portion of the trust and, accordingly, no provision has been made for
Federal Income Taxes.
Other - The financial statements are presented on the accrual basis of
accounting. Any realized gains or losses from securities transactions are
reported on an identified cost basis.
NOTE 2 - PORTFOLIO
Unrealized Appreciation and Depreciation - An analysis of net unrealized
appreciation (depreciation) at February 29, 2000 is as follows:
Unrealized Appreciation $ --
Unrealized Depreciation (1,579,480)
------------
$(1,579,480)
============
NOTE 3- OTHER
Marketability - Although it is not obligated to do so, the Sponsor or the
Managing Underwriter intends to maintain a market for Units and to continuously
offer to purchase Units at prices, subject to change at any time, based upon the
value of the Securities in the portfolio of the Trust valued as described in
Note 1, plus accumulated dividends to the date of settlement. If the supply of
Units exceeds demand, or for other business reasons, the Sponsor or the Managing
Underwriter may discontinue purchases of Units at such prices. In the event that
a market is not maintained for the Units, a Unitholder desiring to dispose of
his Units may be able to do so only by tendering such units to the Trustee for
redemption at the redemption price.
Cost to Investors - The cost to original investors was based on adding to the
underlying value of the Securities per Unit on the date of an investor's
purchase, plus an amount equal to the maximum sales charge of 4.0% of the public
offering price which is equivalent to 4.167% of the aggregate underlying value
of the Securities. Effective on each March 18, commencing March 18, 2000, the
secondary sales charge will decrease by .5 of 1% to a minimum sales charge of
3.0%.
Compensation of Evaluator and Supervisor - The Supervisor receives a fee for
providing portfolio supervisory services for the Trust ($.0025 per Unit, not to
exceed the aggregate cost of the Supervisor for providing such services to all
applicable Trusts). The Evaluator receives and annual fee for regularly
evaluating the Trust's portfolio. Both fees may be adjusted for increases under
the category "All Services Less Rent of Shelter" in the Consumer Price Index.
NOTE 4 - REDEMPTION OF UNITS
During the period ended February 29, 2000, 13,556 Units were presented for
redemption.
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.
Prospectus Part II
The Units are not deposits or obligations of any
bank or government agency and are not guaranteed.
This prospectus
contains two parts.
No one may use this Prospectus Part II
unless accompanied by Prospectus Part I.
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.
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 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" in Part One and 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
proportionate relationship among the value 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" in Part One 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 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. A
significant amount 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.
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.
PUBLIC OFFERING
--------------------------------------------------------------------------------
General. Units are offered at the Public Offering Price which includes the
underlying value of the Securities, the sales charge, and cash, if any, in the
Income and Capital Accounts. The "Summary of Financial Information" in Part One
describes the sales charge in detail. On March 18, 2000, the secondary market
sales charge will be 3.50%. This sales charge will reduce by 0.5% on each
following March 18 to a minimum of 3.00%.
Any sales charge reduction is borne by the selling broker, dealer or agent.
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 brokerage services, 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 Part One 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 "Rights 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 or the Nasdaq Stock Market, Inc., this evaluation is generally based on
the closing sale prices on that exchange or market (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 or market, at the closing asked prices. If
the Securities are not listed on a national or foreign securities exchange or
the Nasdaq Stock Market, Inc. or, if so listed and the principal market therefor
is other than on the exchange or market, the evaluation shall generally be based
on the current asked price on the over-the-counter market (unless it is
determined that these prices are inappropriate as a basis for evaluation). If
current asked prices are unavailable, the evaluation is generally determined (a)
on the basis of current asked prices for comparable securities, (b) by
appraising the value of the Securities on the asked 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 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 will amount to 70% of the applicable
sales charge.
Any discount provided to investors will be borne by the selling dealer or
agent as indicated under "General" above. 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". 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.
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. 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" in Part
One. 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 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 each 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 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, (b) the accrued
expenses of the Trust and (c) any unpaid deferred sales charge payments. During
the initial offering period, the redemption price and the secondary market
repurchase price will include estimated organizational and offering 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 or the Nasdaq Stock Market, Inc., this evaluation is
generally based on the closing sale prices on that exchange or market (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 or market, at the closing bid
prices. If the Securities are not so listed or, if so listed and the principal
market therefor is other than on the exchange or market, 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 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 its principal offices at 1 Parkview Plaza, P.O. Box 5555, Oakbrook
Terrace, Illinois 60181-5555, (630) 684-6000. As of November 30, 1999, the total
stockholders' equity of Van Kampen Funds Inc. was $141,554,861 (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 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 to REIT Shares, the "Equity
Securities;" (iv) undivided beneficial interests (the "Debt Trust Certificates",
and together with the Equity 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 Chapman and Cutler has reviewed the assets 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 (or deemed to have been received through a Grantor
Trust) 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
(a "REIT") 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 (or deemed to have been received through a
Grantor Trust) 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. 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 REITs,
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 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 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 (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) 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. In addition, certain special rules may apply with regard to dividends
received on Preferred Stock. Unitholders should consult their own tax advisors
with regard to these rules.
To the extent dividends received (or deemed to have been received through a
Grantor Trust) 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 (or deemed held through a Grantor Trust) 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. 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
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 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 under "Summary of Essential
Financial Information" in Part One. The Supervisor, which is also an affiliate
of the Sponsor, will receive the annual fee described under "Summary of
Essential Financial Information" in Part One 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 under "Summary of Essential Financial Information" in Part One
(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. The fees and expenses of the Trust will accrue on a daily basis. The
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. Information about your Trust (including the Information
Supplement) can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. You may obtain information about the Public Reference Room by
calling 1-202-942-8090. Reports and other information about your Trust are
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplication fee, by electronic request at the following e-mail address:
[email protected] or by writing the SEC's Public Reference Section, Washington,
D.C. 20549-0102.
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Title Page
----- ----
The Trust................................... A-2
Objectives and Securities Selection......... A-2
Risk Factors................................ A-3
Public Offering............................. A-6
Rights of Unitholders....................... A-8
Trust Administration........................ A-10
Taxation.................................... A-12
Trust Operating Expenses.................... A-19
Other Matters............................... A-20
Additional Information...................... A-20
PROSPECTUS
PART II
--------------------------------------------------------------------------------
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.
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 1 Parkview Plaza, P.O.
Box 5555, Oakbrook Terrace, Illinois 60181-5555 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 8
Trust Termination 9
Description of Preferred Stock Ratings 10
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.
Discounts and Premiums. 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. 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.
SPONSOR INFORMATION
Van Kampen Funds Inc., a Delaware corporation, is the Sponsor of your
Portfolio. 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.
Morgan Stanley Dean Witter & Co., 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; credit services; asset management; trading of futures, options,
foreign exchange commodities and swaps (involving foreign exchange, commodities,
indices and interest rates); and real estate advice, financing and investing.
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 its principal offices at 1 Parkview Plaza, P.O. Box 5555,
Oakbrook Terrace, Illinois 60181-5555, (630) 684-6000. As of November 30, 1999,
the total stockholders' equity of Van Kampen Funds Inc. was $141,554,861
(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 March 31, 2000, the Sponsor and its Van Kampen affiliates managed or
supervised more than $100 billion of investment products. The Sponsor and its
Van Kampen affiliates managed $84.2 billion of assets for more than 63 open-end
mutual funds, 39 closed-end funds and more than 2,700 unit trusts as of March
31, 2000. All of Van Kampen's open-end funds, closed-ended funds and unit
investment trusts are professionally distributed by leading financial firms
nationwide. Since 1976, the Sponsor has serviced over two million investor
accounts, opened through retail 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.
EMSPRO142
CONTENTS OF POST-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statement comprises
the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Van Kampen Focus Portfolios, Series 142, certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Chicago and State of Illinois on the 26th day of
June, 2000.
VAN KAMPEN FOCUS PORTFOLIOS, SERIES 142
(Registrant)
By VAN KAMPEN FUNDS INC.
(Depositor)
By: Christine K. Putong
Assistant Secretary
(SEAL)
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below on June 26, 2000 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 )
Christine K. Putong ______________
(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.
