DEFINED ASSET FUNDS--REGISTERED TRADEMARK--
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INSURED TAXABLE FUND
(A UNIT INVESTMENT TRUST)
- PORTFOLIO OF INSURED LONG TERM BONDS
- TAXABLE TO U.S. INVESTORS
- U.S. TAX EXEMPT FOR MANY FOREIGN INVESTORS
- 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 March 31, 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,
DECEMBER 31, 1999.
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CONTENTS
PAGE
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Risk/Return Summary.................. 3
What You Can Expect From Your
Investment......................... 6
Income Twice a Year................ 6
Return Figures..................... 6
Records and Reports................ 6
The Risks You Face................... 7
Interest Rate Risk................. 7
Call Risk.......................... 7
Reduced Diversification Risk....... 7
Liquidity Risk..................... 7
Concentration Risk................. 7
Bond Quality Risk.................. 8
Insurance Related Risk............. 8
Litigation and Legislation Risks... 8
Selling or Exchanging Units.......... 8
Sponsors' Secondary Market......... 8
Selling Units to the Trustee....... 8
Exchange Option.................... 9
How The Fund Works................... 10
Pricing............................ 10
Evaluations........................ 10
Income............................. 10
Expenses........................... 10
Portfolio Changes.................. 11
Fund Termination................... 11
Certificates....................... 12
Trust Indenture.................... 12
Legal Opinion...................... 12
Auditors........................... 13
Sponsors........................... 13
Trustee............................ 13
Underwriters' and Sponsors'
Profits.......................... 13
Public Distribution................ 13
Code of Ethics..................... 13
Year 2000 Issues................... 14
Taxes................................ 14
Supplemental Information............. 15
Financial Statements................. D-1
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RISK/RETURN SUMMARY
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1. WHAT IS THE FUND'S OBJECTIVE?
To provide a high level of current
taxable income by investing in a fixed
portfolio consisting primarily of
insured long-term taxable municipal
bonds with a duration of 15 to 30 years.
2. WHAT ARE TAXABLE MUNICIPAL BONDS?
- Taxable municipal bonds are typically
issued by municipalities or their
agencies for purposes which do not
qualify for federal tax exemption, but
do qualify for state and local tax
exemption. These bonds are issued to
finance the cost of buying, building or
improving various projects, such as
sporting facilities, health care
facilities, housing projects, electric,
water and sewer utilities, and colleges
or universities.
- Generally, payments on these bonds
depend on the revenues generated by the
projects, excise taxes or state
appropriations, or the bonds can be
backed by the government's taxing power.
- Due to federal taxation, taxable
municipal bonds offer yields more
comparable to other taxable sectors such
as corporate bonds or agency bonds than
to other municipal bonds. These bonds
are federally taxable to individuals but
may be exempt from state and local
taxes, depending on where you live.
3. WHAT IS THE FUND'S INVESTMENT STRATEGY?
- The Fund plans to hold to maturity 10
insured long-term taxable municipal
bonds, and some short-term bonds
reserved to pay the deferred sales
charge, with an aggregate face amount of
$10,190,000.
- The Fund is a unit investment trust
which means that, unlike a mutual fund,
the Fund's portfolio is not managed.
- The bonds are rated AAA or Aaa by
Standard & Poor's, Moody's or Fitch.
- Most of the bonds cannot be called for
several years, and after that they can
be called at a premium declining over
time to par value. Some bonds may be
called earlier at par for extraordinary
reasons.
- 100% of the bonds are insured by AAA-
rated insurance companies that 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 taxable
municipal bonds of the following types:
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- General Obligation 29%
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- Lease Rental 10%
- Special Tax 29%
- Transit Authorities 10%
- State/Local Government Supported 12%
- Industrial Development Revenue 10%
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.
- The Fund is concentrated in general
obligation and special tax bonds.
Here are some things you should know about
the Fund's concentration in general
obligation bonds:
-- because these bonds are backed by the
issuer's full faith and credit and taxing
power, any limitation on a government
issuer's taxing power may affect repayment
of the bonds.
-- an issuer's credit can be adversely
affected by, among other things, natural
disasters, a decline in industry and
limited access to capital markets.
Payment on special tax bonds may be
adversely affected by:
-- reduction in revenues resulting from a
decline in local economy or population; or
-- a decline in consumption, cost or use of
goods and services subject to taxation.
- 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.
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5. IS THIS FUND APPROPRIATE FOR YOU?
Yes, if you want taxable semiannual
income. 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 want a tax-advantaged
investment or if you cannot tolerate any
risk.
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DEFINING YOUR INCOME AND ESTIMATING RETURN
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WHAT YOU MAY EXPECT (RECORD DAY: 10th day of
each February and August)
Regular Semi-Annual Income per 1,000 units
on the 25th day of each February and August: $31.93
Annual Income per 1,000 units. $63.86
THESE FIGURES ARE ESTIMATES ON THE EVALUATION DATE;
ACTUAL PAYMENTS MAY VARY.
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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) 2.90%
You will pay an up-front sales fee of 1.714%, as well
as a total deferred sales fee of $11.86 per 1,000
units (paid in quarterly installments November,
February, May and August, through February, 2001).
Employees of some of the Sponsors and their affiliates
may be charged a reduced sales fee of no less than
$5.00 per 1,000 units.
The maximum sales fee is reduced if you invest at
least $100,000, as follows:
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YOUR MAXIMUM
SALES FEE
IF YOU INVEST: WILL BE:
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Less than $100,000 2.90%
$100,000 to $249,999 2.65%
$250,000 to $499,999 2.40%
$500,000 to $999,999 2.15%
$1,000,000 and over 1.90%
Maximum Exchange Fee 1.90%
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ESTIMATED ANNUAL FUND OPERATING EXPENSES
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AMOUNT
PER 1,000
UNITS
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$ 0.63
Trustee's Fee
$ 0.46
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
$ 0.13
Evaluator's Fee
$ 0.21
Other Operating Expenses
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$ 1.43
TOTAL
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The Sponsors historically paid updating
expenses.
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7. IS THE FUND MANAGED?
Unlike a mutual fund, the Fund is not
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.
8. HOW DO I BUY UNITS?
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.
The minimum investment is $250.
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UNIT PRICE PER 1,000 UNITS $889.64
(as of December 31, 1999)
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. Unit price also includes the
estimated organization costs shown on
the previous page. 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.
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9. 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.
10. HOW ARE DISTRIBUTIONS MADE AND TAXED?
The Fund pays income twice a year.
Interest on the bonds in this fund is
subject to federal income taxes for U.S.
investors, but if you are a non-U.S.
investor, your interest may be exempt
from U.S. federal income taxes,
including withholding taxes. A portion
of the income may be exempt from some
state and local 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.
11. WHAT OTHER SERVICES ARE AVAILABLE?
REINVESTMENT
You will receive your semiannual income
in cash unless you choose to compound
your income by reinvesting at no sales
fee in the Corporate Fund Investment
Accumulation Program, Inc. This program
is an open-end mutual fund with a
comparable investment objective, will
generally not be insured.
Income from this program will be subject
to U.S. federal income taxes for BOTH
U.S. and foreign investors. 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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WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
INCOME TWICE A YEAR
The Fund will pay you regular taxable income twice a year. 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):
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Estimated Annual Estimated
Interest Income - Annual Expenses
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Unit Price
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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 INCOME 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.
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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, an issuer might call its bonds if it no longer needs the money for
the original purpose or, during periods of falling interest rates, if the
issuer's bonds have a coupon higher than current market rates. 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.
Here is what you should know about the Fund's concentration in general
obligation bonds:
- general obligation bonds are backed by the issuer's pledge of its full
faith, credit and taxing power;
- but the taxing power of any government issuer may be limited by provisions
of the state constitution or laws as well as political and economic
considerations; and
- an issuer's credit can be negatively affected by various factors, including
population decline that erodes the tax base, natural disasters, decline in
industry, limited access to capital markets or heavy reliance on state or
federal aid.
Here is what you should know about the Fund's concentration in special tax
bonds. Special tax bonds are payable from and secured by the revenues a
municipality derives from a particular tax; for example, a tax on hotel rentals,
on the purchase of food and beverages, car rentals, or liquor consumption. These
bonds are not secured by general tax revenues. Payment on these bonds may be
adversely affected by:
- a reduction in revenues resulting from a decline in the local economy or
population; or
- a decline in the consumption, use or cost of the goods and services that are
subject to taxation.
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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
The bonds are backed by insurance companies (as shown under Defined 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. Although
the federal government does not regulate the insurance business, various state
laws and federal initiatives and tax law 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 fee. 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
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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.
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 1.90%. 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.
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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.
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.
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
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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 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.
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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.
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.
12
<PAGE>
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 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
13
<PAGE>
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. You should
consult your own tax adviser about your particular circumstances.
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.
You will be considered to receive your share of any interest paid (or any
original issue discount accrued) when this interest is received (or original
issue discount is accrued) by the Portfolio. Interest (and original issued
discount, if any) will be taxed at ordinary income rates. You should consult
your tax adviser in this regard.
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. You should consult your tax
adviser in this regard.
YOUR BASIS IN THE BONDS
Your aggregate basis in the bonds and the related insurance contracts will be
equal to the cost of your units, including any sales charges and the
organizational expenses you pay, adjusted to reflect any accruals of "original
issue discount," "acquisition
14
<PAGE>
premium" and "bond premium". You should consult your tax adviser in this regard.
EXPENSES
If you are an individual who itemizes deductions, you may deduct your share of
Fund expenses, but only to the extent that such amount, together with your other
miscellaneous deductions, exceeds 2% of your adjusted gross income. Your ability
to deduct Fund expenses will be limited further if your adjusted gross income
exceeds a specified amount, currently $128,950 ($64,475 for a married person
filing separately).
FOREIGN INVESTORS
If you are a foreign investor and you are not engaged in a U.S. trade or
business, you generally will be subject to U.S. federal income tax, including
withholding tax, on the interest or gain on a bond issued after July 18, 1984 if
you meet certain requirements, including the certification of foreign status and
other matters. You should consult your tax adviser about the possible
application of federal, state and local, and foreign taxes.
STATE AND LOCAL TAXES
Depending on where you live, income on some of the bonds may be exempt from
state and local taxation. You should consult your tax adviser in this regard.
RETIREMENT PLANS
You may wish to purchase units for an Individual Retirement Account (IRA) or
other retirement plan. Generally, capital gains and income received in each of
these plans are exempt from federal taxation. All distributions from such plans
are generally treated as ordinary income but may, in some cases, be eligible for
tax-deferred rollover treatment. You should consult your attorney or tax adviser
about the specific tax rules relating to these plans offered by brokerage firms,
including the Sponsor of this Fund and other financial institutions. Fees and
charges with respect to such plans may vary.
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.
15
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
TAXABLE INSURED SERIES - 1,
DEFINED ASSET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Municipal Investment Trust Fund,
Taxable Insured Series - 1,
Defined Asset Funds:
We have audited the accompanying statement of condition of Municipal
Investment Trust Fund, Taxable Insured Series - 1, Defined Asset
Funds, including the portfolio, as of December 31, 1999 and the
related statements of operations and of changes in net assets for the
period January 30, 1999 to December 31, 1999. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. Securities owned at December 31, 1999, 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, Taxable Insured Series - 01, Defined Asset
Funds at December 31, 1999 and the results of its operations and
changes in its net assets for the above-stated period in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
March 3, 2000
D - 1
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND
TAXABLE INSURED SERIES - 1,
DEFINED ASSET FUNDS
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $10,205,978)(Note 1)..................... $8,743,866
Accrued interest receivable.................... 204,848
Cash........................................... 51,094
_____________
Total trust property............... 8,999,808
LESS LIABILITIES:
Deferred sales charge (Note 5)................. $ 71,400
Accrued expenses............................... 4,893 76,293
_____________ ____________
NET ASSETS, REPRESENTED BY:
10,000,000 units of fractional undivided
interest outstanding (Note 3)................ 8,672,466
Undistributed net investment income............ 251,049
_____________
$8,923,515
=============
UNIT VALUE ($8,923,515/10,000,000 units)......... $0.89
=============
</TABLE>
See Notes to Financial Statements.
D - 2
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
TAXABLE INSURED SERIES - 1,
DEFINED ASSET FUNDS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
January 30,
1999
to
December 31,
1999
_____________
<S> <C>
INVESTMENT INCOME:
Interest income........................... $ 601,133
Trustee's fees and expenses............... (7,719)
Sponsors' fees............................ (3,164)
_____________
Net investment income..................... 590,250
UNREALIZED DEPRECIATION OF INVESTMENTS...... (1,462,112)
_____________
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................... $ (871,862)
=============
</TABLE>
See Notes to Financial Statements.
D - 3
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
TAXABLE INSURED SERIES - 1,
DEFINED ASSET FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
January 30,
1999
to
December 31,
1999
_____________
<S> <C>
OPERATIONS:
Net investment income....................... $ 590,250
Unrealized depreciation of investments...... (1,462,112)
_____________
Net decrease in net assets resulting
from operations........................... (871,862)
INCOME DISTRIBUTIONS TO HOLDERS (Note 2)...... (339,201)
DEFERRED SALES CHARGE (Note 5)................ (71,400)
_____________
NET DECREASE IN NET ASSETS.................... (1,282,463)
NET ASSETS AT BEGINNING OF PERIOD............. 10,205,978
_____________
NET ASSETS AT END OF PERIOD................... $ 8,923,515
=============
PER UNIT:
Income distributions during period.......... $0.03
=============
Net asset value at end of period............ $0.89
=============
TRUST UNITS OUTSTANDING AT END OF PERIOD...... 10,000,000
=============
</TABLE>
See Notes to Financial Statements.
D - 4
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
TAXABLE INSURED SERIES - 1,
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
conformity with generally accepted accounting principles.
(a) Securities are stated at value as determined by the Evaluator
based on bid side evaluations for the securities, except that value
on January 30, 1999 was based upon offer side evaluations at January
28, 1999 the day prior to the Date of Deposit. Cost of securities at
January 30, 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 10,000,000 units at Date of Deposit......... $10,205,978
Deferred sales charge............................... (71,400)
Unrealized depreciation of investments.............. (1,462,112)
______________
Net capital applicable to Holders................... $ 8,672,466
==============
</TABLE>
4. INCOME TAXES
As of December 31, 1999, unrealized depreciation of investments, based
on cost for Federal income tax purposes, aggregated $1,462,112, all of
which related to depreciated securities. The cost of investment
securities for Federal income tax purposes was $10,205,978 at
December 31, 2099.
5. DEFERRED SALES CHARGE
A deferred sales fee of $19.00 per 1,000 Units is payable over a two-
year period ($2.38 per 1,000 Units quarterly in the first year and $2.37
per 1,000 quarterly in the second year).
D - 5
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
TAXABLE INSURED SERIES - 1,
DEFINED ASSET FUNDS
PORTFOLIO
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Rating Optional
Portfolio No. and Title of of Face Redemption
Securities(4) Issues(1) Amount Coupon Maturities(3) Provisions(3) Cost(2) Value(2)
_____________ _________ ______ ______ _____________ _____________ _______ ________
<S> <C> <C> <C> <C> <C> <C> <C>
1 City of Chelsea, MA, G.O. State AAA $1,000,000 6.350% 2019 03/01/09 $1,003,870 $878,410
Qualified Bonds, Ser. 1999 B @ 101.000
(MBIA Ins.)
2 City of Worcester, MA, G.O. Bonds, AAA 1,000,000 6.250 2028 None 986,770 833,660
Pension Funding Loan of 1998
(FSA Ins.)
3 County of Union, PA, G.O. Bonds, Aaa(2) 1,000,000 6.500 2025 11/01/08 1,000,000 838,020
Series 1998 A (AMBAC Ins.) @ 100.000
4 Unified Govt. of Wyandotte Cnty., AAA 1,000,000 6.750 2027 None 987,370 865,810
Kansas City, KS, Taxable Spec.
Oblig. Rev. Bonds (Kansas Intl.
Speedway Corp., Proj.), Ser. 1999
(MBIA Ins.)
5 City of Phoenix, AZ, Civic Imp. AAA 1,000,000 6.000 2019 07/01/08 976,950 836,100
Corp., Excise Tax Rev. Rfdg. Bonds @ 101.000
(Municipal Multipurpose Arena),
Ser. 1998 (MBIA Ins.)
6 San Dieguito, CA, Pub. Fac. Auth., AAA 1,000,000 7.000 2018 08/01/08 1,031,890 893,950
Rev. Bonds, Ser. 1998 B @ 102.000
(AMBAC Ins.)
7 City of Dallas, TX, Spec. Tax and AAA 1,000,000 6.625 2027 08/15/08 1,005,960 855,120
Lease Rev. Bonds, (Sports Arena @ 101.000
Proj.) Ser. 1998 B (AMBAC Ins.)
8 Alameda, CA, Corridor Trans. Auth., AAA 1,000,000 6.500 2019 None 1,005,540 871,430
Taxable Senior Lien Rev. Bonds,
Ser 1999 C (MBIA Ins.)
</TABLE>
D - 6
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
TAXABLE INSURED SERIES - 1,
DEFINED ASSET FUNDS
PORTFOLIO
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Rating Optional
Portfolio No. and Title of of Face Redemption
Securities(4) Issues(1) Amount Coupon Maturities(3) Provisions(3) Cost(2) Value(2)
_____________ _________ ______ ______ _____________ _____________ _______ ________
<S> <C> <C> <C> <C> <C> <C> <C>
9 City of Philadelphia, PA, Auth. For AAA $1,000,000 6.350% 2028 None $1,013,230 $836,280
Ind. Dev., Pension Funding Bonds
(City of Philadelphia Retirement
Sys.), Ser. 1999 A (FSA Ins.)
10 City of Philadelphia, PA, Auth. For AAA 70,000 5.050 2000 None 70,076 69,805
Ind. Dev., Pension Funding Bonds 110,000 5.180 2001 None 110,172 108,134
(City of Philadelphia Retirement
Sys.), Ser. 1999 A (FSA Ins.)(5)
11 Middlesex Cnty. Imp. Auth., NJ, AAA 10,000 5.230 2000 None 10,080 9,927
Util. Sys. Rev. Bonds (Perth Amboy
Franchise Acquisition Proj.),
Ser. C (AMBAC Ins.)(5)
12 Middlesex Cnty. Imp. Auth., NJ, AAA 1,000,000 6.000 2013 09/01/09 1,004,070 847,220
Util. Sys. Rev. Bonds (Perth Amboy @ 101.000
Franchise Acquisition Proj.),
Ser. C (AMBAC Ins.)
______________ ______________ ______________
TOTAL $10,190,000 $10,205,978 $8,743,866
============== ============== ==============
</TABLE>
See Notes to Portfolio.
D - 6
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND,
TAXABLE INSURED SERIES - 1,
DEFINED ASSET FUNDS
NOTES TO PORTFOLIO
AS OF DECEMBER 31, 1999
(1) The ratings of the bonds are by Standard & Poor's Ratings
Group, or by Moody's Investors Service, Inc. if followed by
"(m)", or by Fitch Investors Service, Inc. if followed by
"(f)"; "NR" indicates that this bond is not currently rated by
any of the above-mentioned rating services. 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) All Securities are insured either on an individual basis or by
portfolio insurance, by a municipal bond insurance company
which has been assigned "AAA" claims paying ability by
Standard & Poor's. Accordingly, Standard & Poor's has assigned
"AAA" ratings to the Securities. Securities covered by
portfolio insurance are rated "AAA" only as long as they
remain in this Trust.
(5) It is anticipated that principal received from these bonds will be
applied to the payment of the Trust's deferred sales charges.
D - 7
<PAGE>
DEFINED ASSET FUNDS-SM-
<TABLE>
<S> <C>
HAVE QUESTIONS ? INSURED TAXABLE FUND
Request the most recent free (A Unit Investment Trust)
Information Supplement ---------------------------------------
that gives more details about This Prospectus does not contain
the Fund, by calling: complete information about the
The Bank of New York investment company filed with the
1-800-221-7771 Securities and Exchange Commission in
Washington, D.C. under the:
- Securities Act of 1933 (file no.
333-68827) and
- Investment Company Act of 1940 (file
no. 811-2537).
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.
32741--3/00
</TABLE>
