DEFINED ASSET FUNDS--REGISTERED TRADEMARK--
----------------------------------------------------
MUNICIPAL INVESTMENT TRUST FUND
INTERMEDIATE TERM SERIES--406
(A UNIT INVESTMENT TRUST)
- PORTFOLIO OF SHORT-INTERMEDIATE TERM MUNICIPAL
BONDS
- DESIGNED FOR INCOME FREE FROM REGULAR FEDERAL
INCOME TAX
- INCOME DISTRIBUTIONS TWICE A YEAR
SPONSORS:
MERRILL LYNCH, -----------------------------------------------------
PIERCE, FENNER & SMITH The Securities and Exchange Commission has not
INCORPORATED approved or disapproved these Securities or passed
SALOMON SMITH BARNEY INC. upon the adequacy of this prospectus. Any
PAINEWEBBER INCORPORATED representation to the contrary is a criminal offense.
DEAN WITTER REYNOLDS INC. Prospectus dated June 23, 2000.
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Defined Asset Funds--Registered Trademark--
Defined Asset Funds-Registered Trademark- is America's oldest and largest family
of unit investment trusts, with over $160 billion sponsored over the last 28
years. Defined Asset Funds has been a leader in unit investment trust research
and product innovation. Our family of Funds helps investors work toward their
financial goals with a full range of quality investments, including municipal,
corporate and government bond portfolios, as well as domestic and international
equity portfolios.
Defined Asset Funds offer a number of advantages:
- A disciplined strategy of buying and holding with a long-term view is the
cornerstone of Defined Asset Funds.
- Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
- Defined Portfolios: We choose the stocks and bonds in advance, so you know
what you're investing in.
- Professional research: Our dedicated research team seeks out stocks or bonds
appropriate for a particular fund's objectives.
- Ongoing supervision: We monitor each portfolio on an ongoing basis.
No matter what your investment goals, tolerance for risk or time horizon,
there's probably a Defined Asset Fund that suits your investment style. Your
financial professional can help you select a Defined Asset Fund that works best
for your investment portfolio.
THE FINANCIAL INFORMATION IN THIS PROSPECTUS IS AS OF THE EVALUATION DATE,
FEBRUARY 29, 2000.
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CONTENTS
PAGE
----
Risk/Return Summary.................. 3
What You Can Expect From Your
Investment......................... 7
Income Twice A Year................ 7
Return Figures..................... 7
Records and Reports................ 7
The Risks You Face................... 8
Interest Rate Risk................. 8
Call Risk.......................... 8
Reduced Diversification Risk....... 8
Liquidity Risk..................... 8
Concentration Risk................. 8
Bond Quality Risk.................. 8
Insurance Related Risk............. 8
Litigation and Legislation Risks... 9
Selling or Exchanging Units.......... 9
Sponsors' Secondary Market......... 9
Selling Units to the Trustee....... 9
Exchange Option.................... 10
How The Fund Works................... 10
Pricing............................ 10
Evaluations........................ 11
Income............................. 11
Expenses........................... 11
Portfolio Changes.................. 11
Fund Termination................... 12
Certificates....................... 12
Trust Indenture.................... 12
Legal Opinion...................... 13
Auditors........................... 13
Sponsors........................... 13
Trustee............................ 13
Underwriters' and Sponsors'
Profits.......................... 14
Public Distribution................ 14
Code of Ethics..................... 14
Year 2000 Issues................... 14
Taxes................................ 15
Supplemental Information............. 16
Financial Statements................. D-1
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2
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RISK/RETURN SUMMARY
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1. WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks interest income that is
exempt from regular federal income taxes
by investing in a fixed portfolio
consisting primarily of municipal
revenue bonds with an estimated average
life of 5 years.
2. WHAT ARE MUNICIPAL REVENUE BONDS?
Municipal revenue bonds are bonds issued
by states, municipalities and public
authorities to finance the cost of
buying, building or improving various
projects intended to generate revenue,
such as airports, health care
facilities, housing and municipal
electric, water and sewer utilities.
Generally, payments on these bonds
depend solely on the revenues generated
by the projects, excise taxes or state
appropriations, and are not backed by
the government's taxing power.
3. WHAT IS THE FUND'S INVESTMENT STRATEGY?
- The Fund plans to hold to maturity 15
short-intermediate term tax-exempt
municipal bonds, and some short-term
bonds reserved to pay the deferred sales
fee, with a current aggregate face
amount of $11,060,000.
- The Fund is a unit investment trust
which means that, unlike a mutual fund,
the Fund's portfolio is not managed.
- When the bonds were initially deposited
(March 18, 1999), they were rated A or
better by Standard & Poor's, Moody's or
Fitch, or in the opinion of the agent
for the Sponsors had similar credit
quality to bonds rated A or better. THE
CREDIT QUALITY OF THE BONDS MAY
CURRENTLY BE LOWER.
- Many of the bonds can be called at a
premium declining over time to par
value. Some bonds may be called earlier
at par for extraordinary reasons.
- 14% of the bonds are backed by bank
letters of credit.
- 22% of the bonds are insured by
insurance companies.
Letters of credit and insurance
guarantee timely payments of principal
and interest on the bonds (but not Fund
units or the market value of the bonds
before they mature).
The Portfolio consists of municipal
bonds of the following types:
</TABLE>
<TABLE>
- Financial Institutions 9%
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- General Obligation 18%
- Hospitals/Health Care 19%
- Housing 19%
- Industrial Development Revenue 5%
- Lease Rental 3%
- Miscellaneous 10%
- State/Local Government Supported 10%
- Universities/Colleges 7%
</TABLE>
<TABLE>
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4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE
FUND. THIS CAN HAPPEN FOR VARIOUS
REASONS, INCLUDING:
- Rising interest rates, an issuer's
worsening financial condition or a drop
in bond ratings can reduce the price of
your units.
- Assuming no changes in interest rates,
when you sell your units, they will
generally be worth less than your cost
because your cost included a sales fee.
- The Fund will receive early returns of
principal if bonds are called or sold
before they mature. If this happens your
income will decline and you may not be
able to reinvest the money you receive
at as high a yield or as long a
maturity.
5. IS THIS FUND APPROPRIATE FOR YOU?
Yes, if you want income free from
regular federal income tax. You will
benefit from a professionally selected
and supervised portfolio whose risk is
reduced by investing in bonds of several
different issuers.
The Fund is NOT appropriate for you if
you want a speculative investment that
changes to take advantage of market
movements, if you do not want a
tax-advantaged investment, if you are
subject to AMT or if you cannot tolerate
any risk.
</TABLE>
3
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DEFINING YOUR INCOME
</TABLE>
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WHAT YOU MAY EXPECT (PAYABLE ON THE 25TH DAY
OF EACH APRIL AND OCTOBER):
Regular Monthly Income per 1,000 units $20.87
Annual Income per 1,000 units $41.75
RECORD DAY: 10th day of each April and
October
THESE FIGURES ARE ESTIMATES ON THE EVALUATION DATE;
ACTUAL PAYMENTS MAY VARY.
</TABLE>
<TABLE>
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6. WHAT ARE THE FUND'S FEES AND EXPENSES?
This table shows the costs and expenses
you may pay, directly or indirectly,
when you invest in the Fund.
INVESTOR FEES
Maximum Sales Fee (Load) on new
purchases (as a percentage of $1,000
invested) 2.50%
You will pay an up-front sales fee of
1.564% as well as a total deferred sales
fee of $9.36 per unit (paid in quarterly
installments November, February, May and
August, through May, 2001).
Employees of some of the Sponsors and
their affiliates may be charged a
reduced sales fee of no less than $5.00
per unit.
The maximum sales fee is reduced if you
invest at least $100,000, as follows:
</TABLE>
<TABLE>
<CAPTION>
YOUR MAXIMUM
SALES FEE
IF YOU INVEST: WILL BE:
-------------- ------------
<C> <S> <C>
Less than $100,000 2.50%
$100,000 to $249,999 2.25%
$250,000 to $499,999 2.00%
$500,000 to $999,999 1.75%
$1,000,000 and over 1.50%
Maximum Exchange Fee 1.50%
</TABLE>
<TABLE>
$0.63
Trustee's Fee
$0.45
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
<CAPTION>
ESTIMATED ANNUAL FUND OPERATING EXPENSES
AMOUNT
PER UNIT
--------
<C> <S> <C>
$0.11
Evaluator's Fee
$0.21
Other Operating Expenses
-----
$1.40
TOTAL
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The Sponsors historically paid updating
expenses.
</TABLE>
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7. HOW HAVE SIMILAR FUNDS PERFORMED IN THE
PAST?
IN THE FOLLOWING CHART WE SHOW PAST
PERFORMANCE OF PRIOR SHORT-INTERMEDIATE
SERIES, WHICH HAD THE SAME INVESTMENT
OBJECTIVES, STRATEGIES AND TYPES OF
BONDS AS THIS FUND. These prior
Short-Intermediate Series were offered
after 1987 and were outstanding on March
31, 2000. OF COURSE, PAST PERFORMANCE OF
PRIOR SERIES IS NO GUARANTEE OF FUTURE
RESULTS OF THIS FUND.
AVERAGE ANNUAL COMPOUND TOTAL RETURNS
FOR PRIOR SERIES
REFLECTING ALL EXPENSES. FOR PERIODS
ENDED 3/31/00.
</TABLE>
<TABLE>
<CAPTION>
WITH SALES FEE NO SALES FEE
1 YEAR 5 YEARS 1 YEAR 5 YEARS
<S> <C> <C> <C> <C>
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High 3.68 4.58% 4.65% 5.30%
Average 0.85 3.93 2.25 4.60
Low -3.58 3.46 -1.15 4.10
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managed and bonds are not sold because of market
changes. Rather, experienced Defined Asset Funds
financial analysts regularly review the bonds in
the Fund. The Fund may sell a bond if certain
adverse credit or other conditions exist.
9. HOW DO I BUY UNITS?
The minimum investment is one unit.
<C> <S>
You can buy units from any of the Sponsors and
other broker-dealers. The Sponsors are listed
later in this prospectus. Some banks may offer
units for sale through special arrangements with
the Sponsors, although certain legal
restrictions may apply.
</TABLE>
4
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<TABLE>
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UNIT PRICE PER 1,000 UNITS $964.67
(as of February 29, 2000)
Unit price is based on the net asset value of
the Fund plus the sales fee. An amount equal to
any principal cash, as well as net accrued but
undistributed interest on the unit, is added to
the unit price. An independent evaluator prices
the bonds at 3:30 p.m. Eastern time every
business day. Unit price changes every day with
changes in the prices of the bonds in the Fund.
10. HOW DO I SELL UNITS?
You may sell your units at any time to any
Sponsor or the Trustee for the net asset value
determined at the close of business on the date
of sale, less any remaining deferred sales fee.
You will not pay any other fee when you sell
your units.
11. HOW ARE DISTRIBUTIONS MADE AND TAXED?
The Fund pays income twice a year. In the
opinion of bond counsel when each bond was
issued, interest on the bonds in this Fund is
generally 100% exempt from regular federal
income tax.
Interest on approximately 33% of the bonds will
be taken into account in determining your
preference items for alternative minimum tax
purposes. A portion of the income may also be
exempt from state and local personal income
taxes, depending on where you live.
You will also receive principal payments if
bonds are sold or called or mature, when the
cash available is more than $10.00 per 1,000
units. You will be subject to tax on any gain
realized by the Fund on the disposition of
bonds.
12. WHAT OTHER SERVICES ARE AVAILABLE?
REINVESTMENT
You will receive your income in cash unless you
choose to compound your income by reinvesting
with no sales fee in the Municipal Fund
Investment Accumulation Program, Inc. This
program is an open-end mutual fund with a
comparable investment objective. Income from
this program will generally be subject to state
and local income taxes. FOR MORE COMPLETE
INFORMATION ABOUT THE PROGRAM, INCLUDING CHARGES
AND FEES, ASK THE TRUSTEE FOR THE PROGRAM'S
PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST.
THE TRUSTEE MUST RECEIVE YOUR WRITTEN ELECTION
TO REINVEST AT LEAST 10 DAYS BEFORE THE RECORD
DAY OF AN INCOME PAYMENT.
EXCHANGE PRIVILEGES
You may exchange units of this Fund for units of
certain other Defined Asset Funds. You may also
exchange into this Fund from certain other
funds. We charge a reduced sales fee on
exchanges.
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5
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TAX-FREE VS. TAXABLE INCOME: A COMPARISON OF TAXABLE AND TAX-FREE YIELDS
<TABLE>
EFFECTIVE
TAXABLE INCOME 2000* % TAX TAX-FREE YIELD OF
SINGLE RETURN JOINT RETURN BRACKET 3% 3.5% 4% 4.5% 5% 5.5% 6%
IS EQUIVALENT TO A TAXABLE YIELD OF
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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$ 0- 26,250 $ 0- 43,850 15.00 3.53 4.12 4.71 5.29 5.88 6.47 7.06
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$ 26,251- 63,550 $ 43,851-105,950 28.00 4.17 4.86 5.56 6.25 6.94 7.64 8.33
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$ 63,551-132,600 $105,951-161,450 31.00 4.35 5.07 5.80 6.52 7.25 7.97 8.70
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$132,601-288,350 $161,451-288,350 36.00 4.69 5.47 6.25 7.03 7.81 8.59 9.38
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OVER $288,350 OVER $288,350 39.60 4.97 5.79 6.62 7.45 8.28 9.11 9.93
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<S> <C>
TAXABLE INCOME 20
SINGLE RETURN 6.5%
IS
EQUIVALENT
TO A
TAXABLE
YIELD OF
-----------------
$ 0- 26,250 7.65
-----------------
$ 26,251- 63,550 9.03
-----------------
$ 63,551-132,600 9.42
--------
-----------------
$132,601-288,350 10.16
--------
-----------------
OVER $288,350 10.76
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-----------------
</TABLE>
To compare the yield of a taxable security with the yield of a federally
tax-free security, find your taxable income and read across. The table
incorporates 2000 federal income tax rates and assumes that all income would
otherwise be taxed at a U.S. investor's highest tax rate. Yield figures are for
example only.
*Based upon net amount subject to federal income tax after deductions and
exemptions. This table does not reflect the possible effect of other tax
factors, such as alternative minimum tax, personal exemptions, the phase-out of
exemptions, itemized deductions, the possible partial disallowance of deductions
or state and local taxation. Consequently, investors are urged to consult their
own tax advisers in this regard.
MUNICIPAL BONDS AND THE ALTERNATIVE MINIMUM TAX
<TABLE>
INCOME+ MAXIMUM "PREFERENCE" INCOME
WITHOUT TRIGGERING AMT
(STATE INCOME TAX RATES)
SINGLE ++ JOINT ++ 0% 7% 11%
<S> <C> <C> <C> <C>
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$50,000 $20,000 $15,000 $13,000
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$30,000 $19,000 $16,000 $14,000
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$100,000 $24,000 $15,000 $11,000
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$55,000 $21,000 $16,000 $13,000
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$225,000 $30,000 $12,000 $ 3,000
----------------------------------------------------------
$205,000 $30,000 $14,000 $ 6,000
----------------------------------------------------------
</TABLE>
NOTES:
+ Regular taxable income plus state income taxes
and personal exemptions.
++ Assuming no dependents.
Under federal tax law, interest income on certain municipal bonds, although
exempt from regular income tax, is treated as a "preference" item for purposes
of AMT. The table above shows amounts of such municipal bond "preference"
interest income, assuming no other "preference" or similar items apply, that
individual taxpayers could receive in 2000 without becoming subject to the AMT.
The table gives information for single and joint returns of U.S. individuals
having no dependents. The table provides three income levels and three
hypothetical state income tax rates. The table further assumes that the stated
amount of municipal bond 'preference' interest income is subject to state income
taxes.
6
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WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
INCOME TWICE A YEAR
The Fund will pay you regular semi-annual income. Your income may vary because
of:
- elimination of one or more bonds from the Fund's portfolio because of calls,
redemptions or sales;
- a change in the Fund's expenses; or
- the failure by a bond's issuer to pay interest.
Changes in interest rates generally will not affect your income because the
portfolio is fixed.
Along with your income, you will receive your share of any available bond
principal.
RETURN FIGURES
We cannot predict your actual return, which will vary with unit price, how long
you hold your investment and changes in the portfolio, interest income and
expenses.
ESTIMATED CURRENT RETURN equals the estimated annual cash to be received from
the bonds in the Fund less estimated annual Fund expenses, divided by the Unit
Price (including the maximum sales fee):
<TABLE>
<S> <C> <C>
Estimated Annual Estimated
Interest Income - Annual Expenses
-------------------------------------
Unit Price
</TABLE>
ESTIMATED LONG TERM RETURN is a measure of the estimated return over the
estimated life of the Fund. Unlike Estimated Current Return, Estimated Long Term
Return reflects maturities, discounts and premiums of the bonds in the Fund. It
is an average of the yields to maturity (or in certain cases, to an earlier call
date) of the individual bonds in the portfolio, adjusted to reflect the Fund's
maximum sales fee and estimated expenses. We calculate the average yield for the
portfolio by weighting each bond's yield by its market value and the time
remaining to the call or maturity date.
Yields on individual bonds depend on many factors including general conditions
of the bond markets, the size of a particular offering and the maturity and
quality rating of the particular issues. Yields can vary among bonds with
similar maturities, coupons and ratings.
These return quotations are designed to be comparative rather than predictive.
RECORDS AND REPORTS
You will receive:
- a statement of income payments and any principal payments;
- a notice from the Trustee when new bonds are deposited in exchange or
substitution for bonds originally deposited;
- an annual report on Fund activity; and
- annual tax information. THIS WILL ALSO BE SENT TO THE IRS. YOU MUST REPORT THE
AMOUNT OF TAX-EXEMPT INTEREST RECEIVED DURING THE YEAR.
You may request:
- copies of bond evaluations to enable you to comply with federal and state tax
reporting requirements; and
- audited financial statements of the Fund.
You may inspect records of Fund transactions at the Trustee's office during
regular business hours.
7
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THE RISKS YOU FACE
INTEREST RATE RISK
Investing involves risks, including the risk that your investment will decline
in value if interest rates rise. Generally, bonds with longer maturities will
change in value more than bonds with shorter maturities. Bonds in the Fund are
more likely to be called when interest rates decline. This would result in early
returns of principal to you and may result in early termination of the Fund. Of
course, we cannot predict how interest rates may change.
CALL RISK
Many bonds can be prepaid or "called" by the issuer before their stated
maturity. For example, some bonds may be required to be called pursuant to
mandatory sinking fund provisions.
Also, an issuer might call its bonds during periods of falling interest rates,
if the issuer's bonds have a coupon higher than current market rates.
An issuer might call its bonds in extraordinary cases, including if:
- it no longer needs the money for the original purpose;
- the project is condemned or sold;
- the project is destroyed and insurance proceeds are used to redeem the
bonds;
- any related credit support expires and is not replaced; or
- interest on the bonds become taxable.
If the bonds are called, your income will decline and you may not be able to
reinvest the money you receive at as high a yield or as long a maturity. An
early call at par of a premium bond will reduce your return.
REDUCED DIVERSIFICATION RISK
If many investors sell their units, the Fund will have to sell bonds. This could
reduce the diversification of your investment and increase your share of Fund
expenses.
LIQUIDITY RISK
The bonds will generally trade in the over-the-counter market. We cannot assure
you that a liquid trading market will exist, especially since current law may
restrict the Fund from selling bonds to any Sponsor. The value of the bonds, and
of your investment, may be reduced if trading in bonds is limited or absent.
CONCENTRATION RISK
When a certain type of bond makes up 25% or more of the portfolio, the Fund is
said to be "concentrated" in that bond type, which makes the Fund less
diversified. However, this Fund is not concentrated in any particular type of
bond.
Changes to the portfolio from bond redemptions, maturities and sales may affect
the Fund's concentration over time.
BOND QUALITY RISK
A reduction in a bond's rating may decrease its value and, indirectly, the value
of your investment in the Fund.
INSURANCE RELATED RISK
Some bonds may be backed by insurance companies (as shown under Portfolio).
Insurance policies generally make payments only according to a bond's original
payment schedule and do not make early payments when a bond defaults or becomes
taxable. Although the federal government does not regulate the insurance
business, various state laws and federal initiatives and tax law
8
<PAGE>
changes could significantly affect the insurance business. The claims-paying
ability of the insurance companies is generally rated A or better by Standard &
Poor's or another nationally recognized rating organization. The insurance
company ratings are subject to change at any time at the discretion of the
rating agencies.
LITIGATION AND LEGISLATION RISKS
We do not know of any pending litigation that might have a material adverse
effect upon the Fund.
Future tax legislation could affect the value of the portfolio by:
- limiting real property taxes,
- reducing tax rates,
- imposing a flat or other form of tax, or
- exempting investment income from tax.
SELLING OR EXCHANGING UNITS
You can sell your units at any time for a price based on net asset value. Your
net asset value is calculated each business day by:
- ADDING the value of the bonds, net accrued interest, cash and any other Fund
assets;
- SUBTRACTING accrued but unpaid Fund expenses, unreimbursed Trustee advances,
cash held to buy back units or for distribution to investors and any other
Fund liabilities; and
- DIVIDING the result by the number of outstanding units.
Your net asset value when you sell may be more or less than your cost because of
sales fees, market movements and changes in the portfolio.
If you sell your units before the final deferred sales fee installment, the
amount of any remaining installments will be deducted from your proceeds.
SPONSORS' SECONDARY MARKET
While we are not obligated to do so, we will buy back units at net asset value
without any other fee or charge other than any remaining deferred sales charge.
We may resell the units to other buyers or to the Trustee. You should consult
your financial professional for current market prices to determine if other
broker-dealers or banks are offering higher prices.
We have maintained a secondary market continuously for over 28 years, but we
could discontinue it without prior notice for any business reason.
SELLING UNITS TO THE TRUSTEE
Regardless of whether we maintain a secondary market, you can sell your units to
the Trustee at any time by sending the Trustee a letter (with any outstanding
certificates if you hold unit certificates). You must properly endorse your
certificates (or execute a written transfer instrument with signatures
guaranteed by an eligible institution). Sometimes, additional documents are
needed such as a trust document, certificate of corporate authority, certificate
of death or appointment as executor, administrator or guardian.
Within seven days after your request and the necessary documents are received,
the Trustee will mail a check to you. Contact the Trustee for additional
information.
As long as we are maintaining a secondary market, the Trustee will sell your
units to us at a price based on net asset value. If there is no secondary
market, the Trustee may sell your units in the over-the-counter market for a
higher price, but it is not obligated to do so. In that case, you will receive
the net proceeds of the sale.
9
<PAGE>
If the Fund does not have cash available to pay you for units you are selling,
the agent for the Sponsors will select bonds to be sold. Bonds will be selected
based on market and credit factors. These sales could be made at times when the
bonds would not otherwise be sold and may result in your receiving less than the
unit par value and also reduce the size and diversity of the Fund.
If you acquire 25% or more of the outstanding units of the Fund and you sell
units with a value exceeding $250,000, the Trustee may choose to pay you "in
kind" by distributing bonds and cash with a total value equal to the price of
those units. The Trustee will try to distribute bonds in the portfolio pro rata,
but it reserves the right to distribute only one or a few bonds. The Trustee
will act as your agent in an in kind distribution and will either hold the bonds
for your account or sell them as you instruct. You must pay any transaction
costs as well as transfer and ongoing custodial fees on sales of bonds
distributed in kind.
There could be a delay in paying you for your units:
- if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
- if the SEC determines that trading on the New York Stock Exchange is
restricted or that an emergency exists making sale or evaluation of the
bonds not reasonably practicable; and
- for any other period permitted by SEC order.
EXCHANGE OPTION
You may exchange units of certain Defined Asset Funds for units of this Fund at
a maximum exchange fee of 1.50%. You may exchange units of this Fund for units
of certain other funds at a reduced sales fee if your investment goals change.
To exchange units, you should talk to your financial professional about what
funds are exchangeable, suitable and currently available.
Normally, an exchange is taxable and you must recognize any gain or loss on the
exchange. However, the IRS may try to disallow a loss if the portfolios of the
two funds are not materially different; you should consult your own tax adviser.
We may amend or terminate this exchange option at any time without notice.
HOW THE FUND WORKS
PRICING
The price of a unit includes interest accrued on the bonds, less expenses, from
the most recent Record Day up to, but not including, the settlement date, which
is usually three business days after the purchase date of the unit.
A portion of the price of a unit consists of cash so that the Trustee can
provide you with regular monthly income. When you sell your units you will
receive your share of this cash.
In addition, as with mutual funds, the Fund (and therefore the investors) pay
all or some of the costs of organizing the Fund including:
- cost of initial preparation of legal documents;
- federal and state registration fees;
- initial fees and expenses of the Trustee;
- initial audit; and
- legal expenses and other out-of-pocket expenses.
These costs are amortized over the first five years of the Fund.
10
<PAGE>
EVALUATIONS
An independent Evaluator values the bonds on each business day (excluding
Saturdays, Sundays and the following holidays as observed by the New York Stock
Exchange: New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas).
Bond values are based on current bid or offer prices for the bonds or comparable
bonds. In the past, the difference between bid and offer prices of publicly
offered tax-exempt bonds has ranged from 0.5% of face amount on actively traded
issues to 3.5% on inactively traded issues; the difference has averaged between
1 and 2%.
INCOME
The Trustee credits interest to an Income Account and other receipts to a
Capital Account. The Trustee may establish a Reserve Account by withdrawing from
these accounts amounts it considers appropriate to pay any material liability.
These accounts do not bear interest.
EXPENSES
The Trustee is paid monthly. It also benefits when it holds cash for the Fund in
non-interest bearing accounts. The Trustee may also receive additional amounts:
- to reimburse the Trustee for the Fund's operating expenses;
- for extraordinary services and costs of indemnifying the Trustee and the
Sponsors;
- costs of actions taken to protect the Fund and other legal fees and
expenses;
- expenses for keeping the Fund's registration statement current; and
- Fund termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 55 CENTS per $1,000 face amount
annually for providing portfolio supervisory, bookkeeping and administrative
services and for any other expenses properly chargeable to the Fund. Legal,
typesetting, electronic filing and regulatory filing fees and expenses
associated with updating the Portfolio's registration statement yearly are also
now chargeable to the Portfolio. While this fee may exceed the amount of these
costs and expenses attributable to this Fund, the total of these fees for all
Series of Defined Asset Funds will not exceed the aggregate amount attributable
to all of these Series for any calendar year. The Fund also pays the Evaluator's
fees.
The Trustee's, Sponsors' and Evaluator's fees may be adjusted for inflation
without investors' approval.
Any quarterly deferred sales charges you owe are paid with interest and
principal from certain bonds. If these amounts are not enough, the rest will be
paid out of distributions to you from the Fund's Capital and Income Accounts.
The Sponsors will pay advertising and selling expenses at no charge to the Fund.
If Fund expenses exceed initial estimates, the Fund will owe the excess. The
Trustee has a lien on Fund assets to secure reimbursement of Fund expenses and
may sell bonds if cash is not available.
PORTFOLIO CHANGES
The Sponsors and Trustee are not liable for any default or defect in a bond.
Unlike a mutual fund, the portfolio is designed to remain intact and we may keep
bonds in the portfolio even if their credit quality declines or other adverse
financial circumstances occur. However, we may sell a bond in certain cases if
we believe that
11
<PAGE>
certain adverse credit conditions exist or if a bond becomes taxable.
If we maintain a secondary market in units but are unable to sell the units that
we buy in the secondary market, we will redeem units, which may affect the
composition of the portfolio. Units offered in the secondary market may not
represent the same face amount of bonds that they did originally.
We decide whether or not to offer units for sale that we acquire in the
secondary market after reviewing:
- diversity of the portfolio;
- size of the Fund relative to its original size;
- ratio of Fund expenses to income;
- current and long-term returns;
- degree to which units may be selling at a premium over par; and
- cost of maintaining a current prospectus.
FUND TERMINATION
The Fund will terminate following the stated maturity or sale of the last bond
in the portfolio. The Fund may also terminate earlier with the consent of
investors holding 51% of the units or if total assets of the Fund have fallen
below 40% of the face amount of bonds deposited. We will decide whether to
terminate the Fund early based on the same factors used in deciding whether or
not to offer units in the secondary market.
When the Fund is about to terminate you will receive a notice, and you will be
unable to sell your units after that time. On or shortly before termination, we
will sell any remaining bonds, and you will receive your final distribution. Any
bond that cannot be sold at a reasonable price may continue to be held by the
Trustee in a liquidating trust pending its final sale.
You will pay your share of the expenses associated with termination, including
brokerage costs in selling bonds. This may reduce the amount you receive as your
final distribution.
CERTIFICATES
Certificates for units are issued on request. You may transfer certificates by
complying with the requirements for redeeming certificates, described above. You
can replace lost or mutilated certificates by delivering satisfactory indemnity
and paying the associated costs.
TRUST INDENTURE
The Fund is a "unit investment trust" governed by a Trust Indenture, a contract
among the Sponsors, the Trustee and the Evaluator, which sets forth their duties
and obligations and your rights. A copy of the Indenture is available to you on
request to the Trustee. The following summarizes certain provisions of the
Indenture.
The Sponsors and the Trustee may amend the Indenture without your consent:
- to cure ambiguities;
- to correct or supplement any defective or inconsistent provision;
- to make any amendment required by any governmental agency; or
- to make other changes determined not to be materially adverse to your best
interest (as determined by the Sponsors).
Investors holding 51% of the units may amend the Indenture. Every investor must
consent to any amendment that changes the 51% requirement. No amendment may
reduce your interest in the Fund without your written consent.
12
<PAGE>
The Trustee may resign by notifying the Sponsors. The Sponsors may remove the
Trustee without your consent if:
- it fails to perform its duties and the Sponsors determine that its
replacement is in your best interest; or
- it becomes incapable of acting or bankrupt or its affairs are taken over by
public authorities.
Investors holding 51% of the units may remove the Trustee. The Evaluator may
resign or be removed by the Sponsors and the Trustee without the consent of
investors. The resignation or removal of either becomes effective when a
successor accepts appointment. The Sponsors will try to appoint a successor
promptly; however, if no successor has accepted within 30 days after notice of
resignation, the resigning Trustee or Evaluator may petition a court to appoint
a successor.
Any Sponsor may resign as long as one Sponsor with a net worth of $2 million
remains and agrees to the resignation. The remaining Sponsors and the Trustee
may appoint a replacement. If there is only one Sponsor and it fails to perform
its duties or becomes bankrupt the Trustee may:
- remove it and appoint a replacement Sponsor;
- liquidate the Fund; or
- continue to act as Trustee without a Sponsor.
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent for the
Sponsors.
The Trust Indenture contains customary provisions limiting the liability of the
Trustee, the Sponsors and the Evaluator.
LEGAL OPINION
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
special counsel for the Sponsors, has given an opinion that the units are
validly issued.
AUDITORS
Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281,
independent accountants, audited the Statement of Condition included in this
prospectus.
SPONSORS
The Sponsors are:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.)
P.O. Box 9051,
Princeton, NJ 08543-9051
SALOMON SMITH BARNEY INC. (an indirectly wholly-owned subsidiary of Citigroup
Inc.)
388 Greenwich Street--23rd Floor,
New York, NY 10013
DEAN WITTER REYNOLDS INC. (a principal operating subsidiary of Morgan Stanley
Dean Witter & Co.)
Two World Trade Center--59th Floor,
New York, NY 10048
PAINEWEBBER INCORPORATED (a wholly-owned subsidiary of PaineWebber Group Inc.)
1285 Avenue of the Americas,
New York, NY 10019
Each Sponsor is a Delaware corporation and it, or its predecessor, has acted as
sponsor to many unit investment trusts. As a registered broker-dealer each
Sponsor buys and sells securities (including investment company shares) for
others (including investment companies) and participates as an underwriter in
various selling groups.
TRUSTEE
The Bank of New York, 101 Barclay Street,
17 W, New York, New York 10268, is the Trustee. It is supervised by the Federal
Deposit Insurance Corporation, the Board
13
<PAGE>
of Governors of the Federal Reserve System and New York State banking
authorities.
UNDERWRITERS' AND SPONSORS' PROFITS
Underwriters receive sales charges when they sell units. The Sponsors also
realized a profit or loss on the initial deposit of the bonds. Any cash made
available by you to the Sponsors before the settlement date for those units may
be used in the Sponsors' businesses to the extent permitted by federal law and
may benefit the Sponsors.
A Sponsor or Underwriter may realize profits or sustain losses on bonds in the
Fund which were acquired from underwriting syndicates of which it was a member.
In maintaining a secondary market, the Sponsors will also realize profits or
sustain losses in the amount of any difference between the prices at which they
buy units and the prices at which they resell or redeem them.
PUBLIC DISTRIBUTION
The Sponsors do not intend to qualify units for sale in any foreign countries.
This prospectus does not constitute an offer to sell units in any country where
units cannot lawfully be sold.
CODE OF ETHICS
The Fund and the Agent for the Sponsors have each adopted a code of ethics
requiring reporting of personal securities transactions by its employees with
access to information on Fund transactions. Subject to certain conditions, the
codes permit employees to invest in Fund securities for their own accounts. The
codes are designed to prevent fraud, deception and misconduct against the Fund
and to provide reasonable standards of conduct. These codes are on file with the
Commission and you may obtain a copy by contacting the Commission at the address
listed on the back cover of this prospectus.
YEAR 2000 ISSUES
Many computer systems were designed in such a way that they may be unable to
distinguish between the year 2000 and the year 1900 (commonly known as the "Year
2000 Problem"). To date we are not aware of any major operational difficulties
resulting from the computer system changes necessary to prepare for the Year
2000. However, there can be no assurance that the Year 2000 Problem will not
adversely affect the issuers of the bonds contained in the Portfolio. We cannot
predict whether any impact will be material to the Fund as a whole.
TAXES
The following summary describes some of the important income tax consequences of
holding units. It assumes that you are not a dealer, financial institution,
insurance company or other investor with special circumstances or subject to
special rules. You should consult your own tax adviser about your particular
circumstances.
At the date of issue of each bond, counsel for the issuer delivered an opinion
to the effect that interest on the bond is exempt from regular federal income
tax. However, interest may be subject to state and local taxes and may be taken
into account in determining your preference items for alternative minimum tax
purposes. Neither we nor our counsel have reviewed the issuance of the bonds,
related proceedings or the basis for the opinions of counsel for the issuers. We
cannot assure you that the issuers (or other users of bond proceeds) have
complied or will comply with any
14
<PAGE>
requirements necessary for a bond to be tax-exempt. If any of the bonds were
determined not to be tax-exempt, you could be required to pay income tax for
current and prior years, and if the Fund were to sell the bond, it might have to
sell it at a substantial discount.
In the opinion of our counsel, under existing law:
GENERAL TREATMENT OF THE FUND AND YOUR INVESTMENT
The Fund will not be taxed as a corporation for federal income tax purposes, and
you will be considered to own directly your share of each bond in the Fund.
GAIN OR LOSS UPON DISPOSITION
When all or part of your share of a bond is disposed of (for example, when the
Fund sells, exchanges or redeems a bond or when you sell or exchange your
units), you will generally recognize capital gain or loss. Your gain, however,
will generally be ordinary income to the extent of any accrued "market
discount". Generally you will have market discount to the extent that your basis
in a bond when you purchase a unit is less than its stated redemption price at
maturity (or, if it is an original issue discount bond, the issue price
increased by original issue discount that has accrued on the bond before your
purchase). You should consult your tax adviser in this regard.
If your net long-term capital gains exceed your net short-term capital losses,
the excess may be subject to tax at a lower rate than ordinary income. Any
capital gain from the Fund will be long-term if you are considered to have held
your investment on each bond for more than one year and short-term otherwise.
Because the deductibility of capital losses is subject to limitations, you may
not be able to deduct all of your capital losses. Consult your tax adviser in
this regard.
YOUR BASIS IN THE BONDS
Your aggregate basis in the bonds will be equal to the cost of your units,
including any sales charges you pay, adjusted to reflect any accruals of
"original issue discount," "acquisition premium" and "bond premium". You should
consult your tax adviser in this regard.
EXPENSES
If you are not a corporate investor, you will not be entitled to a deduction for
your share of fees and expenses of the Fund. Also, if you borrowed money in
order to purchase or carry your units, you will not be able to deduct the
interest on this borrowing for federal income tax purposes. The IRS may treat
your purchase of units as made with borrowed money even if the money is not
directly traceable to the purchase of units.
NEW YORK TAXES
Under the income tax laws of the State and City of New York, the Fund will not
be taxed as a corporation. If you are a New York taxpayer, your income from the
Fund will not be tax-exempt in New York except to the extent that the income is
earned on bonds that are tax-exempt for New York purposes. Depending on where
you live, your income from the Fund may be subject to state and local taxation.
You should consult your tax adviser in this regard.
15
<PAGE>
SUPPLEMENTAL INFORMATION
You can receive at no cost supplemental information about the Fund by calling
the Trustee. The supplemental information includes more detailed risk disclosure
about the types of bonds that may be in the Fund's portfolio, general risk
disclosure concerning any insurance securing certain bonds, and general
information about the structure and operation of the Fund. The supplemental
information is also available from the SEC.
16
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE TERM SERIES - 406,
DEFINED ASSET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Municipal Investment Trust Fund,
Intermediate Term Series - 406,
Defined Asset Funds:
We have audited the accompanying statement of condition of Municipal
Investment Trust Fund, Intermediate Term Series - 406, Defined Asset
Funds, including the portfolio, as of February 29, 2000 and the
related statements of operations and of changes in net assets for the
period March 19, 1999 to February 29, 2000. These financial
statements are the responsibility of the Trustee. Our responsibility
is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Securities owned at February 29, 2000, as shown in such portfolio,
were confirmed to us by The Bank of New York, the Trustee. An audit
also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the
overall financial statement presentation. We believe that 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 Municipal
Investment Trust Fund, Intermediate Term Series - 406, Defined Asset
Funds at February 29, 2000 and the results of its operations and
changes in its net assets for the above-stated period in accordance
with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
New York, N.Y.
May 19, 2000
D - 1
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
STATEMENT OF CONDITION
AS OF FEBRUARY 29, 2000
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $11,067,720)(Note 1)..................... $10,384,169
Accrued interest receivable...................... 164,132
Accrued interest on segregated bonds............. 1,638
Cash............................................. 19,090
_____________
Total trust property................. 10,569,029
LESS LIABILITIES:
Deferred sales charge payable.................. $ 38,165
Accrued expenses............................... 6,237 44,402
_____________ _____________
NET ASSETS, REPRESENTED BY:
10,935,475 units of fractional undivided
interest outstanding (Note 3).................. 10,347,641
Undistributed net investment income.............. 176,986
_____________
$10,524,627
=============
UNIT VALUE ($10,524,627/10,935,475 units).......... $0.96243
=============
</TABLE>
See Notes to Financial Statements.
D - 2
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
March 19,
1999
to
February 29,
2000
_____________
<S> <C>
INVESTMENT INCOME:
Interest income........................... $446,543
Interest income on segregated bonds....... 5,909
Trustee's fees and expenses............... (5,849)
Sponsors' fees............................ (4,958)
_____________
Net investment income..................... 441,645
_____________
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized loss on securities sold
or redeemed............................. (3,264)
Unrealized depreciation of investments.... (683,551)
_____________
Net realized and unrealized loss on
investments............................. (686,815)
_____________
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................... $(245,170)
=============
</TABLE>
See Notes to Financial Statements.
D - 3
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
March 19,
1999
to
February 29,
2000
_____________
<S> <C>
OPERATIONS:
Net investment income....................... $ 441,645
Realized loss on securities sold
or redeemed............................... (3,264)
Unrealized depreciation of investments...... (683,551)
_____________
Net decrease in net assets resulting
from operations........................... (245,170)
INCOME DISTRIBUTIONS TO HOLDERS (Note 2)...... (258,281)
DEFERRED SALES CHARGE (Note 5)................ (62,644)
CAPITAL SHARE TRANSACTIONS - Redemptions of
64,525 units................................ (62,012)
_____________
NET DECREASE IN NET ASSETS.................... (628,107)
NET ASSETS AT BEGINNING OF PERIOD............. 11,152,734
_____________
NET ASSETS AT END OF PERIOD................... $10,524,627
=============
PER UNIT:
Income distributions during period.......... $0.02348
=============
Net asset value at end of period............ $0.96243
=============
TRUST UNITS OUTSTANDING AT END OF PERIOD...... 10,935,475
=============
</TABLE>
See Notes to Financial Statements.
D - 4
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as
a Unit Investment Trust. The following is a summary of significant
accounting policies consistently followed by the Fund in the
preparation of its financial statements. The policies are in
accordance with accounting principles generally accepted in the
United States of America.
(a) Securities are stated at value as determined by the Evaluator
based on bid side evaluations for the securities, except that
value on March 19, 1999 was based upon offer side evaluations
at March 17, 1999, the day prior to the Date of Deposit. Cost
of securities at March 19, 1999 was also based on such offer
side evaluations.
(b) The Fund is not subject to income taxes. Accordingly, no
provision for such taxes is required.
(c) Interest income is recorded as earned.
2. DISTRIBUTIONS
Distributions of net investment income are made semi-annually.
Receipts other than interest, after deductions for redemptions
and applicable expenses, are also distributed periodically.
3. NET CAPITAL
<TABLE>
<S> <C>
Cost of 10,935,475 units at Date of Deposit......... $11,087,313
Redemptions of units - net cost of 64,525 units
redeemed less redemption amounts.................. 3,878
Realized loss on securities sold or redeemed........ (3,264)
Deferres sales charge............................... (62,644)
Interest income on segregated bonds................. 5,909
Unrealized depreciation of investments.............. (683,551)
______________
Net capital applicable to Holders................... $10,347,641
==============
</TABLE>
4. INCOME TAXES
As of February 29, 2000, unrealized depreciation of investments, based
on cost for Federal income tax purposes, aggregated $683,551, all of
which related to depreciated securities. The cost of investment
securities for Federal income tax purposes was $11,067,720 at
February 29, 2000.
D - 5
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
NOTES TO FINANCIAL STATEMENTS
5. DEFERRED SALES CHARGE
A deferred sales charge fee of $15.00 per 1,000 Units is payable over
a two-year period ($1.88 per 1,000 Units quarterly in the first six
quarters and $1.87 per 1,000 units quarterly in the next two quarters).
D - 6
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
PORTFOLIO
AS OF FEBRUARY 29, 2000
<TABLE>
<CAPTION>
Rating Optional
Portfolio No. and Title of of Face Redemption
Securities Issues(1) Amount Coupon Maturities(3) Provisions(3) Cost(2) Value(2)
__________ _________ ______ ______ _____________ _____________ _______ ________
<S> <C> <C> <C> <C> <C> <C> <C>
1 Baltimore County, MD, Econ. Dev. A1(m)(a) $ 50,000 5.500% 2000 None $ 50,000 $ 50,000
Rev. Bonds (E. John Schmitz & Sons,
Inc.) Ser. 1988 (First National
Bank of Maryland, Baltimore,
Maryland, - Letter of Credit) (AMT))
(6)(7)(8)
2 Massachusetts Educ. Fin. Auth., AAA 1,000,000 4.300 2006 None 1,000,000 922,310
Educ. Loan Rev. Rfdg. Bonds, Issue
E, Ser. 1999 A (AMBAC Ins.)(AMT)
(4)(8)
3 City of David City, NE, Industrial A2(m)(a) 500,000 5.000 2005 None 512,525 470,180
Dev. Rev. Bonds (Henningsen Foods,
Inc. Proj.), Ser. 1998 (The Bank of
Tokyo-Mitsubishi, Ltd., Chicago,
Illinois Branch-Letter of
Credit)(AMT)(6)(8)
4 City of David City, NE, Industrial A2(m)(a) 35,000 4.000 2000 None 35,075 34,783
Dev. Rev. Bonds (Henningsen Foods,
Inc. Proj.), Ser. 1998 (The Bank of
Tokyo-Mitsubishi, Ltd., Chicago
Illinois Branch-Letter of
Credit)(AMT)(6)(7)(8)
5 Boweles Metro. Dist., Jefferson A+ 1,000,000 4.250 2005(5) 12/01/05 1,000,000 929,160
Cnty. and the City and Cnty. of @ 100.000
Denver, CO, G.O. Variable Rate
Rfdg. Bonds, Ser. 1998 (U.S. Bank,
N.A., Denver, Colorado - Letter of
Credit)(6)
6 The City of New York, NY, G.O. A(f) 1,000,000 4.250 2006 None 1,000,000 928,160
Bonds, Fiscal Ser. 1999 H
7 Indiana Hlth. Fac. Fin. Auth., A+(f) 100,000 4.250 2003 None 100,178 95,489
Rev. Bonds (Deaconess Hosp. Oblig. 465,000 4.350 2004 None 466,018 436,714
Grp.) Ser. 1999 A 485,000 4.450 2005 None 486,246 448,950
</TABLE>
D - 7
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
PORTFOLIO
AS OF FEBRUARY 29, 2000
<TABLE>
<CAPTION>
Rating Optional
Portfolio No. and Title of of Face Redemption
Securities Issues(1) Amount Coupon Maturities(3) Provisions(3) Cost(2) Value(2)
__________ _________ ______ ______ _____________ _____________ _______ ________
<S> <C> <C> <C> <C> <C> <C> <C>
8 Wisconsin Health & Educ. Fac. Auth. A(f $ 250,000 4.200% 2003 None $ 249,100 $ 237,755
Revenue Bonds (The Monroe Clinic, 750,000 4.300 2004 None 746,693 700,807
Inc.), Ser. 1999
9 The Indl. Dev. Auth. of the Cnty. AAA 95,000 4.000 2002 None 95,000 93,337
of Pima, AZ, Multi-Family Hsg. Rev. 100,000 4.000 2002 None 100,000 97,857
Rfdg. Bonds (La Jolla de Tucson 100,000 4.100 2003 None 100,000 97,366
Apts. Proj.), Ser. 1999 (AMT)(8) 100,000 4.100 2003 None 100,000 96,977
105,000 4.200 2004 None 105,000 101,585
110,000 4.200 2004 None 110,000 106,033
115,000 4.300 2005 None 115,000 110,171
115,000 4.300 2005 None 115,000 109,763
120,000 4.400 2006 None 120,000 114,137
125,000 4.400 2006 None 125,000 118,474
10 Nevada Hsg. Division, Single Fam. Aaa(m 105,000 4.300 2004 None 105,000 100,615
Mtge. Bonds, Senior Ser. 1999 B-2 90,000 4.400 2005 None 90,000 85,553
(AMT)(8) 95,000 4.500 2006 None 95,000 89,526
11 Pennsylvania Hsg. Fin. Agy., Single AA+ 535,000 4.400 2006 None 535,000 507,153
Fam. Mtge. Rev. Bonds, Ser. 1999 150,000 4.400 2006 None 150,000 141,659
65A (AMT)(8)
12 Shawnee County, KS Cert. of Part. (b) 110,000 4.200 2002 None 109,826 106,411
(Shawnee Cmnty. Mental Hlth. Ctr. 115,000 4.300 2003 None 114,770 109,349
Inc., Proj.), Ser. 1998 125,000 4.500 2005 None 124,654 115,339
13 Hammond Multi-Sch. Bldg. Corp., AAA 20,000 4.500 2001 None 20,397 19,979
Lake Cnty., IN, First Mtge. Rfdg.
Bonds, Ser. 1997 (MBIA Ins.)(4)(7)
14 New York Energy Research and Dev. A(f) 585,000 4.125 2004 None 583,017 553,521
Auth., State Service Contract Rev. 555,000 4.250 2005 None 553,524 522,666
Bonds (Western New York Nuclear
Service Ctr. Proj.), Ser. 1999 A
</TABLE>
D - 8
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
PORTFOLIO
AS OF FEBRUARY 29, 2000
<TABLE>
<CAPTION>
Rating Optional
Portfolio No. and Title of of Face Redemption
Securities Issues(1) Amount Coupon Maturities(3) Provisions(3) Cost(2) Value(2)
__________ _________ ______ ______ _____________ _____________ _______ ________
<S> <C> <C> <C> <C> <C> <C> <C>
15 Illinois Development Finance (b) $ 280,000 4.550% 2005 None $ 284,024 $ 260,834
Authority Revenue Bonds (Illinois
Assoc. of Sch. Bus. Officials
Proj.), Ser. 1998
16 Illinois Dev. Fin Auth. Rev. Bonds (b) 20,000 3.800 2000 None 20,048 19,824
(Illinois Assoc. of Sch. Bus.
Officials Proj.), Ser. 1998 (7)
17 Illinois Educ. Fac. Auth., Rev. AAA 270,000 5.000 2005 None 283,295 267,983
Rfdg. Bonds (Illinois Inst. of
Tech.), Ser. 1999 (AMBAC Ins.)(4)
18 Illinois Educ. Fac. Auth. Rev. A+ 145,000 4.650 2005(5) 03/01/05 148,403 141,282
Bonds (The Art Inst. of Chicago,) @ 100.000
Ser. 1998 A
19 Oneida Cnty., NY, Ind. Dev. Agy., A 210,000 4.000 2003 None 209,231 200,372
Civic Fac. Rev. Bonds (Mohawk 225,000 4.000 2004 None 222,991 209,427
Valley Handicapped Svc., Inc. 225,000 4.000 2005 None 221,465 205,655
Proj.), Ser. 1999 (ACA Ins.)(4) 235,000 4.000 2006 None 229,391 211,126
245,000 4.000 2007 None 236,849 215,887
============== ============== ==============
TOTAL $11,060,000 $11,067,720 $10,384,169
============== ============== ==============
</TABLE>
See Notes to Portfolio.
D - 9
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
NOTES TO PORTFOLIO
AS OF FEBRUARY 29, 2000
(1) These ratings are ratings of the bonds themselves by Standard &
Poor's Ratings group, or by Moody's Investor's Service, Inc. if
followed by "(m)", or by Fitch Investors Service, Inc. if
followed by "(f)"; "(a)" indicates that it is a rating of the
outstanding debt obligations of the institution providing the
letter of credit or guarantee; "(b)" indicates that while there
is no such available rating, in the opinion of Defined Asset Funds
research analysts, the bond has credit characteristics comparable
to bonds rated "A" or better; "(c)" indicates that while there is no
such available rating, in the opinion of Defined Asset Funds research
analysts, the bond does not have credit characteristics comparable to
bonds rated "A" or better. These ratings have been furnished by the
Evaluator but not confirmed with the rating agencies.
(2) See Notes to Financial Statements.
(3) Optional redemption provisions, which may be exercised in whole
or in part, are initially at prices of par plus a premium, then
subsequently at prices declining to par. Certain securities may
provide for redemption at par prior or in addition to any
optional or mandatory redemption dates or maturity, for
example, through the operation of a maintenance and replacement
fund, if proceeds are not able to be used as contemplated, the
project is condemned or sold or the project is destroyed and
insurance proceeds are used to redeem the securities. Many of
the securities are also subject to mandatory sinking fund
redemption commencing on dates which may be prior to the date
on which securities may be optionally redeemed. Sinking fund
redemptions are at par and redeem only part of the issue. Some
of the securities have mandatory sinking funds which contain
optional provisions permitting the issuer to increase the
principal amount of securities called on a mandatory redemption
date. The sinking fund redemptions with optional provisions
may, and optional refunding redemptions generally will, occur
at times when the redeemed securities have an offering side
evaluation which represents a premium over par. To the extent
that the securities were acquired at a price higher than the
redemption price, this will represent a loss of capital when
compared with the Public Offering Price of the Units when
acquired. Distributions will generally be reduced by the amount
of the income which would otherwise have been paid with respect
to redeemed securities and there will be distributed to Holders
any principal amount and premium received on such redemption
after satisfying any redemption requests for Units received by
the Fund. The estimated current return may be affected by
redemptions.
(4) Insured by the indicated municipal bond insurance company.
(5) Bonds with aggregate face amounts of $1,145,000 have been
pre-refunded and are expected to be called for redemption on
the optional redemption provision dates shown.
D - 10
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
INTERMEDIATE SERIES - 406,
DEFINED ASSET FUNDS
NOTES TO PORTFOLIO
AS OF FEBRUARY 29, 2000
(6) Certain bonds are covered by letters of credit which may
expire prior to maturity dates of the bonds. Upon expiration
of a letter of credit, the issuer of the bond is obligated to
obtain a replacement letter of credit or call the bond.
(7) It is anticipated that interest and principal received from
these bonds will be applied to the payment of the Trust's
deferred sales charges.
(8) Securities that are tax preference items for purposes of the
Alternative Minimum Tax are indicated by "(AMT)".
D - 11
<PAGE>
DEFINED ASSET FUNDS--REGISTERED TRADEMARK--
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<S> <C>
HAVE QUESTIONS ? MUNICIPAL INVESTMENT TRUST FUND
Request the most recent free INTERMEDIATE TERM SERIES--406
Information Supplement (A Unit Investment Trust)
that gives more details about ---------------------------------------
the Fund, by calling: This Prospectus does not contain
The Bank of New York complete information about the
1-800-221-7771 investment company filed with the
Securities and Exchange Commission in
Washington, D.C. under the:
- Securities Act of 1933 (file no.
333-73253) and
- Investment Company Act of 1940 (file
no. 811-1777).
TO OBTAIN COPIES AT PRESCRIBED RATES--
WRITE: Public Reference Section of the
Commission
450 Fifth Street, N.W., Washington,
D.C. 20549-6009
CALL: 1-800-SEC-0330.
VISIT: http://www.sec.gov.
---------------------------------------
No person is authorized to give any
information or representations about
this Fund not contained in this
Prospectus or the Information
Supplement, and you should not rely on
any other information.
---------------------------------------
When units of this Fund are no longer
available, this Prospectus may be used
as a preliminary prospectus for a
future series, but some of the
information in this Prospectus will be
changed for that series.
UNITS OF ANY FUTURE SERIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
UNTIL THAT SERIES HAS BECOME EFFECTIVE
WITH THE SECURITIES AND EXCHANGE
COMMISSION. NO UNITS CAN BE SOLD IN ANY
STATE WHERE A SALE WOULD BE ILLEGAL.
32760--6/00
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