File No. 333-10897 CIK #897008
Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 3 to
Form S-6
For Registration under the Securities Act of 1933 of
Securities of Unit Investment Trusts Registered on
Form N-8B-2
Van Kampen American Capital Equity Opportunity Trust, Series 42
(Exact Name of Trust)
Van Kampen Funds Inc.
(Exact Name of Depositor)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Complete address of Depositor's principal executive offices)
VAN KAMPEN FUNDS INC. CHAPMAN AND CUTLER
Attention: A. Thomas Smith III, General Counsel Attention: Mark J. Kneedy
One Parkview Plaza 111 West Monroe Street
Oakbrook Terrace, Illinois 60181 Chicago, Illinois 60603
(Name and complete address of agents for service)
( X ) Check if it is proposed that this filing will become effective
on November 23, 1999 pursuant to paragraph (b) of Rule 485.
MICHIGAN SELECT TRUST, SERIES 1
Van Kampen American Capital Equity Opportunity Trust, Series 42
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PROSPECTUS PART ONE
NOTE: Part One of this Prospectus may not be distributed unless accompanied by
Part Two. Please retain both parts of this Prospectus for future reference.
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THE TRUST
Michigan Select Trust, Series 1 (the "Trust") is a unit investment
trust of Van Kampen American Capital Equity Opportunity Trust, Series 42. The
Trust offers investors the opportunity to purchase Units representing
proportionate interests in a fixed, diversified portfolio of actively traded
equity securities primarily issued by companies based or headquartered in
Michigan. Unless terminated earlier, the Trust will terminate on April 23, 2001
("Mandatory Termination Date") and any securities then held will, within a
reasonable time thereafter, be liquidated or distributed by the Trustee. Any
Securities liquidated at termination will be sold at the then current market
value for such Securities; therefore, the amount distributable in cash to a
Unitholder upon termination may be more or less than the amount such Unitholder
paid for his Units.
PUBLIC OFFERING PRICE
The Public Offering Price per Unit is equal to the aggregate underlying
value of the Equity Securities plus or minus cash, if any, in the Capital and
Income Accounts plus the applicable sales charge as described herein, divided by
the number of Units outstanding. See "Summary of Essential Financial
Information" in this Part One.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is November 23, 1999
First of Michigan, Division of Fahnestock & Co., Inc.
MICHIGAN SELECT TRUST, SERIES 1
Van Kampen American Capital Equity Opportunity Trust, Series 42
Summary of Essential Financial Information
As of September 3, 1999
Managing Underwriter and Supervisor First of Michigan,
Division of Fahnestock & Co., Inc.
Sponsor: Van Kampen Funds Inc.
Evaluator: American Portfolio Evaluation Services
(A division of an affiliate of the Sponsor)
Trustee: The Bank of New York
<TABLE>
<CAPTION>
Michigan
Select
Trust
-----------------
General Information
<S> <C>
Number of Units 237,518
Fractional Undivided Interest in Trust per Unit 1/237,518
Public Offering Price:
Aggregate Value of Securities in Portfolio (1) $ 2,401,598.99
Aggregate Value of Securities per Unit (including accumulated dividends) $ 10.11
Sales Charge 3.5% (3.627% of the Aggregate Value of Securities excluding
principal cash per Unit) (3) $ .37
Public Offering Price per Unit (2)(3) $ 10.48
Redemption Price per Unit $ 10.11
Secondary Market Repurchase Price per Unit $ 10.11
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ .37
</TABLE>
Supervisor's Annual Supervisory Fee Maximum of $.0025 per Unit
Evaluator's Annual Fee Maximum of $.0025 per Unit
Evaluation Time Close of the New York Stock Exchange
Initial Date of Deposit September 24, 1996
Mandatory Termination Date April 23, 2001
Minimum Termination Value The Trust may be terminated if the net asset value of
such Trust is less than $500,000 unless the net asset value of such Trust
deposits has exceeded $15,000,000, then the Trust Agreement may be terminated if
the net asset value of such Trust is less than $3,000,000.
Estimated Annual Dividends per Unit $.16357
Trustee's Annual fee $.008 per Unit
Estimated Annual Organizational Expenses (4) $.02586 per Unit
Income Distribution Record Date.....................TENTH day of June and
December.
Income Distribution Date............................TWENTY-FIFTH day of June and
December.
Capital Account Record Date.........................TENTH day of December.
Capital Account Distribution Date...................TWENTY-FIFTH day of
December.
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(1) Equity Securities listed on a national securities exchange are valued at
the closing sale price, or if no such price exists, or if the Equity
Securities are not listed, at the closing bid price thereof.
(2) Anyone ordering Units will have added to the Public Offering Price a pro
rata share of any cash in the Income and Capital Accounts.
(3) The secondary sales charge will decrease by .5 of 1% to a minimum sales
charge of 3.5% on each September 24. See "Public Offering-Offering Price"
in Part Two.
(4) The Trust (and therefore Unitholders) will bear all or a portion of its
organizational costs (including costs of preparing the registration
statement, the trust indenture and other closing documents, registering
Units with the Securities and Exchange Commission and states, the initial
audit of the portfolio and the initial fees and expenses of the Trustee but
not including the expenses incurred in the preparation and printing of
brochures and other advertising materials and any other selling expenses)
as is common for mutual funds. Total organizational expenses will be
amortized over the life of the Trust. See "Expenses of the Trust" in Part
Two and "Statement of Condition." Historically, the sponsors of unit
investment trusts have paid all the costs of establishing such trusts.
PORTFOLIO
The Michigan Select Trust, Series 1 consists of 23 different issues of Equity
Securities which are primarily actively traded equity securities issued by
companies based or headquartered in Michigan. All of the Equity Securities are
listed on a national securities exchange, or are traded in the over-the-counter
market as of the Initial Date of Deposit.
<TABLE>
<CAPTION>
PER UNIT INFORMATION
1997 (1) 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value per Unit at beginning of period........................... $ 9.75 $ 11.94 $ 11.73
============ ============ =============
Net asset value per Unit at end of period................................. $ 11.94 $ 11.73 $ 10.86
============ ============ =============
Distributions to Unitholders of investment income including accumulated
dividends paid on Units redeemed (average Units outstanding for
entire period)......................................................... $ 0.27 $ 0.18 $ 0.17
============ ============ =============
Distributions to Unitholders from Equity Security redemption proceeds
(average Units outstanding for entire period).......................... $ 0.54 $ 1.24 $ --
============ ============ =============
Unrealized appreciation (depreciation) of Equity Securities (per Unit
outstanding at end of period).......................................... $ 2.41 $ 0.18 $ (2.25)
============ ============ =============
Distributions of investment income by frequency of payment
Semiannual.......................................................... $ 0.13 $ 0.17 $ 0.16
Units outstanding at end of period........................................ 557,222 427,172 243,016
</TABLE>
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(1) For the period from September 24, 1996 (date of deposit) through July 31,
1997.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Funds Inc. and the Unitholders of
Michigan Select Trust, Series 1 (Van Kampen American Capital Equity Opportunity
Trust, Series 42):
We have audited the accompanying statements of condition (including the
analyses of net assets) and the related portfolio of Michigan Select Trust,
Series 1 (Van Kampen American Capital Equity Opportunity Trust, Series 42) as of
July 31, 1999 and the related statements of operations and changes in net assets
for the period from September 24, 1996 (date of deposit) through July 31, 1997
and the years ended July 31, 1998 and 1999. These statements are the
responsibility of the Trustee and the Sponsor. Our responsibility is to express
an opinion on such statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at July 31, 1999 by correspondence with the
Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee and the Sponsor, as well as evaluating
the overall financial statement presentation. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Michigan Select Trust,
Series 1 (Van Kampen American Capital Equity Opportunity Trust, Series 42) as of
July 31, 1999 and the results of operations and changes in net assets for the
period from September 24, 1996 (date of deposit) through July 31, 1997 and the
years ended July 31, 1998 and 1999, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
September 17, 1999
<TABLE>
<CAPTION>
MICHIGAN SELECT TRUST, SERIES 1
Statements of Condition
July 31, 1999
Michigan
Select
Trust
---------------
Trust property
<S> <C>
Cash $ 2,128
Securities at market value, (cost $ 1,747,939) (note 1) 2,623,246
Accumulated dividends 3,598
Organizational costs 11,199
---------------
$ 2,640,171
===============
Liabilities and interest to Unitholders
Interest to Unitholders $ 2,640,171
---------------
$ 2,640,171
===============
Analyses of Net Assets
Interest of Unitholders (243,016 Units of fractional undivided interest outstanding)
Cost to original investors of 577,222 Units (note 1) $ 5,960,809
Less initial underwriting commission (note 3) 265,653
---------------
5,695,156
Less redemption of 334,206 Units 3,725,006
---------------
1,970,150
Undistributed investment income
Net investment income 184,719
Less distributions to the Unitholders 289,838
---------------
(105,119)
Realized gain (loss) on Security Sale or redemption 799,624
Unrealized appreciation (depreciation) of Securities 875,307
Distributions to Unitholders of Security sale proceeds (899,791)
---------------
Net asset value to Unitholders $ 2,640,171
===============
Net asset value per Unit (243,016 Units outstanding) $ 10.86
===============
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
MICHIGAN SELECT TRUST, SERIES 1
Statements of Operations
Period from September 24, 1996 (date of deposit) through July 31, 1997
and the years ended July 31, 1998 and 1999
1997 1998 1999
------------ ------------ ------------
Investment income
<S> <C> <C> <C>
Dividend income...................................................... $ 95,741 $ 75,428 $ 48,101
Expenses
Trustee fees and expenses......................................... 4,407 11,776 6,019
Evaluator fees.................................................... 1,097 1,363 1,028
Organizational fees............................................... 4,351 -- 4,510
------------ ------------ ------------
Total expenses................................................. 9,855 13,139 11,557
------------ ------------ ------------
Net investment income............................................. 85,886 62,289 36,544
Realized gain (loss) from Securities sale
Proceeds............................................................. 637,202 2,173,590 1,936,055
Cost................................................................. 428,374 1,702,856 1,815,993
------------ ------------ ------------
Realized gain (loss).............................................. 208,828 470,734 120,062
Net change in unrealized appreciation (depreciation) of Securities...... 1,344,218 78,321 (547,232)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................................ $ 1,638,932 $ 611,344 $ (390,626)
============ ============ ============
Statements of Changes in Net Assets
Period from September 24, 1996 (date of deposit) through July 31, 1997
and the years ended July 31, 1998 and 1999
1997 1998 1999
------------ ------------ ------------
Increase (decrease) in net assets Operations:
Net investment income................................................ $ 85,886 $ 62,289 $ 36,544
Realized gain (loss) on Securities sales............................. 208,828 470,734 120,062
Net change in unrealized appreciation (depreciation) of Securities... 1,344,218 78,321 (547,232)
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations... 1,638,932 611,344 (390,626)
Distributions to Unitholders from:
Net investment income................................................ (150,383) (86,858) (52,597)
Security sale or redemption proceeds................................. (299,018) (600,773) --
Redemption of Units..................................................... (232,717) (1,563,309) (1,928,980)
------------ ------------ ------------
Total increase (decrease)......................................... 956,814 (1,639,596) (2,372,203)
Net asset value to Unitholders
Beginning of period.................................................. 146,315 6,651,970 5,012,374
Additional Securities purchased from the proceeds of Unit Sales... 5,548,841 -- --
------------ ------------ ------------
End of period (including undistributed net investment income of
$(361,464), $(439,649) and $(105,119), respectively).............. $ 6,651,970 $ 5,012,374 $ 2,640,171
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
MICHIGAN SELECT TRUST, SERIES 1 PORTFOLIO as of July 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Valuation of
Number Market Value Securities
of Shares Name of Issuer Per Share (Note 1)
- --------------- ------------------------------------------------------------------------------------ ---------------
<S> <C> <C> <C>
3,840 Borders Group, Incorporated $ 13.2500 $ 50,880
- --------------------------------------------------------------------------------------------------------------------------
4,031 Champions Enterprises, Incorporated 13.6875 55,174
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3,165 CMS Energy Corporation 37.3750 118,292
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6,131 CVS Corporation 49.7500 305,017
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1,694 DaimlerChrysler AG 72.2500 122,392
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281 Dow Chemical Company 124.0000 34,844
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2,519 DTE Energy Corporation 39.1250 98,556
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7,307 Gentex Corporation 26.0625 190,439
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5,686 Herman Miller, Incorporated 26.1250 148,547
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10,025 Kmart Corporation 14.5000 145,362
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1,985 Lear Corporation 47.7500 94,784
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6,206 Masco Corporation 29.7500 184,628
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6,293 Masco Tech, Incorporated 16.7500 105,408
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2,230 MCN Corporation 21.3125 47,527
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2,048 Meadowbrook Insurance Group, Incorporated 12.8750 26,368
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76 Perceptron, Incorporated 5.2500 399
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4,084 Professional Insurance Company Management Group 30.0000 122,520
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23,684 Republic Bancorp, Incorporated 13.8750 328,615
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2,791 Stryker Corporation 61.0000 170,251
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2,981 Sun Communities, Incorporated 34.1250 101,727
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7,061 Universal Forest Products, Incorporated 18.4375 130,187
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2,160 Wolverine World Wide, Incorporated 11.7500 25,380
- --------------------------------------------------------------------------------------------------------------------------
2,109 X-Rite, Incorporated 7.5625 15,949
- --------------- ----------------
108,387 $ 2,623,246
=============== ================
</TABLE>
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The accompanying notes are an integral part of these statements.
MICHIGAN SELECT TRUST, SERIES 1
Notes to Financial Statements
July 31, 1997, 1998 and 1999
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation - Securities listed on a national securities exchange are
valued at the last closing sales price or, if no such price exists, or if the
Equity Securities are not listed at the closing bid price thereof.
Security Cost - The original cost to the Trust of the Securities was based,
for Securities listed on a national or foreign securities exchange or the
relevant stock exchanges on the closing sale prices on the exchange. The cost
was determined on the day of the various Dates of Deposit.
Unit Valuation - The redemption price per Unit is the pro rata share of each
Unit based upon (1) the cash on hand in the Trust or monies in the process of
being collected, (2) the Securities in the Trust based on the value determined
in Note 1 and (3) accumulated dividends thereon, less accrued expenses of the
Trust, if any.
Federal Income Taxes - Each Unitholder is considered to be the owner of a pro
rata portion of the Trust and , accordingly, no provision has been made for
Federal Income Taxes.
Organizational Costs - The trust will bear all or a portion of its
organizational costs, which will be deferred and amoritized over the life of the
Trust.
NOTE 2 - PORTFOLIO
Unrealized Appreciation and Depreciation - An analysis of net unrealized
appreciation (depreciation) at July 31, 1999 is as follows:
Unrealized Appreciation $ 1,006,809
Unrealized Depreciation (131,502)
--------------
$ 875,307
==============
NOTE 3 - OTHER
Cost to Investors - The cost to original investors was based on the
underlying value of the Securities per Unit on the date of an investor's
purchase, plus an amount equal to the difference between the maximum sales
charge of 4.5% of the Public Offering Price which is equivalent to 4.712% of the
aggregate underlying value of the Securities and the maximum sales charge of
($.20 per Unit) and was assessed a deferred sales charge. Effective on each
September 24, commencing September 24, 1997, the secondary sales charge will
decrease by .5 of 1% to a minimum sales charge of 3.5%.
Compensation of Evaluator and Supervisor - The Supervisor receives a fee for
providing portfolio supervisory services for the Trust ($.0025 per Unit, not to
exceed the aggregate cost of the Supervisor for providing such services to all
applicable Trusts). The Evaluator receives an annual fee for regularly
evaluating the Trust's portfolio. Both fees may be adjusted for increases under
the category "All Services Less Rent or Shelter" in the Consumer Price Index.
NOTE 4 - REDEMPTION OF UNITS
During the period from September 24, 1996 (date of deposit) through July 31,
1997 and the years ended July 31, 1998 and 1999, 20,000 Units, 130,050 Units and
184,156 Units, respectively, were presented for redemption.
First of Michigan
Michigan Select Trust Prospectus Part Two
- --------------------------------------------------------------------------------
The Fund. Michigan Select Trust (the "Trust" ) is a separate and distinct
unit investment trust included in a series of the Van Kampen American Capital
Equity Opportunity Trust (the "Fund" ). The Trust offers investors the
opportunity to purchase Units representing proportionate interests in a fixed
portfolio of equity securities issued by companies based or headquartered in
Michigan ("Equity Securities" or "Securities" ). See "Trust Portfolio" . Unless
terminated earlier, the Trust will terminate on the Mandatory Termination Date
set forth under "Summary of Essential Information" in Part One and any
Securities then held will, within a reasonable time thereafter, be liquidated or
distributed by the Trustee. Any Securities liquidated at termination will be
sold at the then current market value for such Securities; therefore, the amount
distributable in cash to a Unitholder upon termination may be more or less than
the amount such Unitholder paid for his Units.
Attention Foreign Investors. If you are not a United States citizen or
resident, distributions from the Trust will generally be subject to U.S.Federal
withholding taxes; however, under certain circumstances treaties between the
United States and other countries may reduce or eliminate such withholding tax.
See "Federal Taxation." Such investors should consult their tax advisers
regarding the imposition of U.S. withholding on distributions.
Objectives of the Trust. The objectives of the Trust are to provide the
potential for capital appreciation and income by investing in a portfolio of
equity securities of companies based or headquartered in Michigan. See
"Objectives and Securities Selection." There is, of course, no guarantee that
the objectives of the Trust will be achieved.
Public Offering Price. The Public Offering Price of the Units of the Trust
includes the aggregate underlying value of the Securities in the Trust's
portfolio, the sales charge described herein, and cash, if any, in the Income
and Capital Accounts held or owned by the Trust. For sales charges in the
secondary market, see "Public Offering." The minimum purchase is 200 Units (100
Units for a tax-sheltered retirement plan). See "Public Offering" .
Dividend and Capital Distributions. Distributions of dividends and capital,
if any, received by the Trust will be paid in cash on the applicable
Distribution Date to Unitholders of record on the record date as set forth in
the "Summary of Essential Financial Information" in Part One. Gross dividends
received by the Trust will be distributed to Unitholders. Expenses of the Trust
will be paid with proceeds from the sale of Securities. For the consequences of
such sales, see "Federal Taxation" . Additionally, upon termination of the
Trust, the Trustee will distribute, upon surrender of Units for redemption, to
each Unitholder his pro rata share of the Trust's assets, less expenses, in the
manner set forth under "Rights of Unitholders--Distributions of Income and
Capital."
Secondary Market for Units. Although not obligated to do so, the Managing
Underwriter intends to maintain a market for Units of the Trust and offer to
repurchase such Units at prices which are based on the aggregate underlying
value of Equity Securities in the Trust (generally determined by the closing
sale or bid prices of the Securities) plus or minus cash, if any, in the Capital
and Income Accounts of the Trust. If a secondary market is not maintained, a
Unitholder may redeem Units through redemption at prices based upon the
aggregate underlying value of the Equity Securities in the Trust plus or minus a
pro rata share of cash, if any, in the Capital and Income Accounts of the Trust.
Termination. Commencing nine business days before, but beginning no later
than the Mandatory Termination Date Equity Securities will begin to be sold in
connection with the termination of the Trust. The Sponsor will determine the
manner, timing and execution of the sale of the Equity Securities. Written
notice of any termination of the Trust specifying the time or times at which
Unitholders may surrender their certificates for cancellation shall be given by
the Trustee to each Unitholder at his address appearing on the registration
books of the Trust maintained by the Trustee. At least 30 days prior to the
Mandatory Termination Date the Trustee will provide written notice thereof to
all Unitholders and will include with such notice a form to enable Unitholders
to elect a distribution of shares of Equity Securities if such Unitholder owns
at least 2,500 Units of the Trust, rather than to receive payment in cash for
such Unitholder's pro rata share of the amounts realized upon the disposition by
the Trustee of Equity Securities. All Unitholders will receive cash in lieu of
any fractional shares. To be effective, the election form, together with
surrendered certificates if issued, and other documentation required by the
Trustee, must be returned to the Trustee at least five business days prior to
the Mandatory Termination Date. Unitholders not electing a distribution of
shares of Equity Securities will receive a cash distribution from the sale of
the remaining Securities within a reasonable time after the Trust is terminated.
See "Trust Administration--Amendment or Termination."
Reinvestment Option. Unitholders have the opportunity to have their
distributions reinvested into an open-end management investment company as
described herein. See "Rights of Unitholders--Reinvestment Option."
Risk Factors. An investment in the Trust should be made with an understanding
of the risks associated therewith, including the possible deterioration of the
financial condition of the issuers, the general condition of the stock market
and the economy, volatile interest rates and economic conditions in the state of
Michigan. See "Risk Factors."
Units of the Trust are not deposits or obligations of, or guaranteed or
endorsed by, any bank and are not federally insured or otherwise protected by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency and involve investment risk, including the possible loss of
principal.
NOTE: THIS PROSPECTUS MAY BE USED ONLY WHEN ACCOMPANIED BY PART ONE.
Both parts of this Prospectus should be retained for future reference. This
Prospectus is dated as of the date of the Prospectus Part I accompanying this
Prospectus Part II.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE TRUST
Van Kampen American Capital Equity Opportunity Trust is comprised of separate
and distinct unit investment trusts, including series of the Michigan Select
Trust. The Trust was created under the laws of the State of New York pursuant to
a Trust Indenture and Agreement (the "Trust Agreement" ), dated the Initial Date
of Deposit, among Van Kampen Funds Inc., as Sponsor, American Portfolio
Evaluation Services, a division of Van Kampen Investment Advisory Corp., as
Evaluator, First of Michigan Division of Fahnestock & Co., Inc., as Supervisor,
and The Bank of New York, as Trustee or their predecessors.
The Trust may be an appropriate medium for investors who desire to
participate in a diversified portfolio of common stocks issued by companies
based or headquartered in Michigan. Diversification of assets in the Trust will
not eliminate the risk of loss always inherent in the ownership of securities.
On the Initial Date of Deposit, the Sponsor deposited with the Trustee the
Securities including delivery statements relating to contracts for the purchase
of certain such Securities and an irrevocable letter of credit issued by a
financial institution in the amount required for such purchases. Thereafter, the
Trustee, in exchange for such Securities (and contracts) so deposited, delivered
to the Sponsor documentation evidencing the ownership of Units of the Trust.
Unless otherwise terminated as provided in the Trust Agreement, the Trust will
terminate on the Mandatory Termination Date, and Securities then held will
within a reasonable time thereafter be liquidated or distributed by the Trustee.
Each Unit of the Trust initially offered represents an undivided interest in
the Trust. To the extent that any Units are redeemed by the Trustee, the
fractional undivided interest in the Trust represented by each unredeemed Unit
will increase, although the actual interest in the Trust represented by such
fraction will remain unchanged. Units will remain outstanding until redeemed
upon tender to the Trustee by Unitholders, which may include the Managing
Underwriter, or until the termination of the Trust Agreement.
OBJECTIVES AND SECURITIES SELECTION
The objectives of the Trust are to provide the potential for capital
appreciation and income. The portfolio is described under "Trust Portfolio" and
in "Portfolio" in Part One. The Securities were selected by First of Michigan
Division of Fahnestock & Co., Inc., the Managing Underwriter and Supervisor. In
selecting the Securities, the Managing Underwriter considered the following
factors, among others: (a) diversification by industry and market
capitalization, (b) valuation in terms of growth potential and other factors and
(c) the relative standing of the issuer within its sector. The Trust is
diversified by market capitalization, including both large, established
companies and smaller, more entrepreneurial firms. The Trust also targets
several industries including auto manufacturers, auto suppliers, basic
materials, consumer products and services, financial services, insurance,
manufacturing, medical technology, real estate investment trusts, retail,
technology and utilities/energy.
The Managing Underwriter believes that Michigan is showing strong economic
growth. The State has benefited from the revitalization of the automobile
industry but there is much more to the State's economic strength than a single
industry. Michigan has cut taxes approximately 20 times in recent years, the
unemployment rate has generally been below the national average in recent years
and Michigan's Gross Domestic Product growth has outpaced national averages for
the last several years. The Trust seeks to benefit from this positive economic
climate.
Michigan's unique business-friendly environment has helped attract, retain
and strengthen companies across the State, from the Big Three automotive firms
to smaller cutting-edge technology companies. Michigan's largest city, Detroit,
appears to be showing signs of the beginning of new business development and
growth. In addition to the three major auto manufacturers, more than 11,000
companies supply technology or parts to the auto industry. With more than 500
auto-related research and development facilities in Michigan, the Managing
Underwriter believes that the State is likely to remain a business innovator.
Michigan's business prominence also stretches much farther than the automobile
industry. The State's growing leadership in healthcare, technology and financial
services is apparent throughout the State. Fourteen of the Fortune 500 companies
are headquartered in Michigan and five of the top 50 are Michigan companies. In
addition, the strength of Michigan companies reaches outside of the State's
borders and nearly 1,000 foreign-owned companies do business in the State.
General. An investor will be subject to taxation on the dividend income
received from the Trust and on gains from the sale or liquidation of Securities
(see "Federal Taxation" ). Investors should be aware that there is not any
guarantee that the objectives of the Trust will be achieved because they are
subject to the continuing ability of the respective Security issuers to continue
to declare and pay dividends and because the market value of the Securities can
be affected by a variety of factors. Common stocks may be especially susceptible
to general stock market movements and to volatile increases and decreases of
value as market confidence in and perceptions of the issuers change. Investors
should be aware that there can be no assurance that the value of the underlying
Securities will increase or that the issuers of the Equity Securities will pay
dividends on outstanding common shares. Any distributions of income will
generally depend upon the declaration of dividends by the issuers of the
Securities and the declaration of any dividends depends upon several factors
including the financial condition of the issuers and general economic
conditions.
Investors should be aware that the Trust is not a "managed" fund, and as a
result, the adverse financial condition of a company under extraordinary
circumstances may result in its elimination from the portfolio (see "Trust
Administration--Portfolio Administration" ). In addition, Securities will not be
sold by the Trust to take advantage of market fluctuations or changes in
anticipated rates of appreciation. Investors should note in particular that the
Securities were selected by the Managing Underwriter prior to the Initial
Date of Deposit. The Trust may continue to purchase or hold Securities
originally selected through this process even though the evaluation of the
attractiveness of the Securities may have changed and, if the evaluation were
performed again at that time, the Securities would not be selected for the
Trust.
TRUST PORTFOLIO
The Trust consists of Equity Securities which are primarily issued by
companies based or headquartered in Michigan. All of the Equity Securities are
listed on a national securities exchange, the NASDAQ National Market System or
are traded in the over-the-counter market. Each of the Securities included in
the portfolio were selected based upon those factors referred to under
"Objectives and Securities Selection" above.
General. The Trust consists of (a) the Securities listed under " Portfolio"
in Part One as may continue to be held from time to time in the Trust, (b) any
additional Securities acquired and held by the Trust pursuant to the provisions
of the Trust Agreement and (c) any cash held in the Income and Capital Accounts.
Neither the Sponsor nor the Trustee shall be liable in any way for any failure
in any of the Securities. However, should any contract for the purchase of any
of the Securities initially deposited hereunder fail, the Sponsor will, unless
substantially all of the moneys held in the Trust to cover such purchase are
reinvested in substitute Securities in accordance with the Trust Agreement,
refund the cash and sales charge attributable to such failed contract to all
Unitholders on the next distribution date.
Because certain of the Equity Securities from time to time may be sold under
certain circumstances described herein, and because the proceeds from such
events will in most cases be distributed to Unitholders and will not be
reinvested, no assurance can be given that the Trust will retain for any length
of time its present size and composition. Although the portfolio is not managed,
the Sponsor may instruct the Trustee to sell Equity Securities under certain
limited circumstances. Pursuant to the Trust Agreement and with limited
exceptions, the Trustee may sell any securities or other property acquired in
exchange for Securities such as those acquired in connection with a merger or
other transaction. If offered such new or exchanged securities or property, the
Trustee shall reject the offer. However, in the event such securities or
property are nonetheless acquired by the Trust, they may be accepted for deposit
in the Trust and either sold by the Trustee or held in the Trust pursuant to the
direction of the Sponsor (who may rely on the advice of the Supervisor). See
"Trust Administration--Portfolio Administration." Equity Securities, however,
will not be sold by the Trust to take advantage of market fluctuations or
changes in anticipated rates of appreciation or depreciation.
Unitholders will be unable to dispose of any of the Equity Securities in the
portfolio, as such, and will not be able to vote the Equity Securities. As the
holder of the Equity Securities, the Trustee will have the right to vote all of
the voting stocks in the Trust and will vote such stocks in accordance with the
instructions of the Sponsor. In the absence of any such instructions by the
Sponsor, the Trustee will vote such stocks so as to insure that the stocks are
voted as closely as possible in the same manner and the same general proportion
as are shares held by owners other than the Trust.
The Managing Underwriter will acquire the Securities for the Sponsor. The
Managing Underwriter in its general securities business acts as agent or
principal in connection with the purchase and sale of securities, including the
Securities in the Trust, acts as a market maker in certain of the Securities and
participates in underwriting syndicates for equity and debt securities, which
may include the Securities. The Managing Underwriter may also, from time to
time, issue reports on and make recommendations relating to securities, which
may include the Securities. From time to time the Managing Underwriter may act
as investment banker or an employee or affiliate may be a director of a company
whose shares are included among the Securities; non-public information
concerning such a company would not be disclosed to the Managing Underwriter or
for the benefit of the Trust under such circumstances.
RISK FACTORS
Equity Securities. An investment in Units should be made with an
understanding of the risks which an investment in common stocks entails,
including the risk that the financial condition of the issuers of the Equity
Securities or the general condition of the common stock market may worsen and
the value of the Equity Securities and therefore the value of the Units may
decline. Common stocks are especially susceptible to general stock market
movements and to volatile increases and decreases of value as market confidence
in and perceptions of the issuers change. These perceptions are based on
unpredictable factors including expectations regarding government economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, global or regional political, economic or banking crises.
Shareholders of common stocks have rights to receive payments from the issuers
of those common stocks that are generally subordinate to those of creditors of,
or holders of debt obligations or preferred stocks of, such issuers.
Shareholders of common stocks of the type held by the Trust have a right to
receive dividends only when and if, and in the amounts, declared by the issuer's
board of directors and have a right to participate in amounts available for
distribution by the issuer only after all other claims on the issuer have been
paid or provided for. Common stocks do not represent an obligation of the issuer
and, therefore, do not offer any assurance of income or provide the same degree
of protection of capital as do debt securities. The issuance of additional debt
securities or preferred stock will create prior claims for payment of principal,
interest and dividends which could adversely affect the ability and inclination
of the issuer to declare or pay dividends on its common stock or the rights of
holders of common stock with respect to assets of the issuer upon liquidation or
bankruptcy. The value of common stocks is subject to market fluctuations for as
long as the common stocks remain outstanding, and thus the value of the Equity
Securities in the portfolio may be expected to fluctuate over the life of the
Trust to values higher or lower than those prevailing on the Initial Date of
Deposit or at the time a Unitholder purchases Units.
Holders of common stocks incur more risk than holders of preferred stocks and
debt obligations because common stockholders, as owners of the entity, have
generally inferior rights to receive payments from the issuer in comparison with
the rights of creditors of, or holders of debt obligations or preferred stocks
issued by, the issuer. Cumulative preferred stock dividends must be paid before
common stock dividends and any cumulative preferred stock dividend omitted is
added to future dividends payable to the holders of cumulative preferred stock.
Preferred stockholders are also generally entitled to rights on liquidation
which are senior to those of common stockholders.
Whether or not the Equity Securities are listed on a national securities
exchange, the principal trading market for the Equity Securities may be in the
over-the-counter market. As a result, the existence of a liquid trading market
for the Equity Securities may depend on whether dealers will make a market in
the Equity Securities. There can be no assurance that a market will be made for
any of the Equity Securities, that any market for the Equity Securities will be
maintained or of the liquidity of the Equity Securities in any markets made. In
addition, the Trust may be restricted under the Investment Company Act of 1940
from selling Equity Securities to the Sponsor. The price at which the Equity
Securities may be sold to meet redemptions, and the value of the Trust, will be
adversely affected if trading markets for the Equity Securities are limited or
absent.
As described under "Trust Operating Expenses," all of the expenses of the
Trust will be paid from the sale of Securities from the Trust. It is expected
that such sales will be made at the end of the initial offering period and each
month thereafter through termination of the Trust. Such sales will result in
capital gains and losses and may be made at times and prices which adversely
affect the Trust. For a discussion of the tax consequences of such sales, see
"Federal Taxation."
The principal trading market for certain of the Equity Securities may be in
the over-the-counter market. As a result, the existence of a liquid trading
market for the Equity Securities may depend on whether dealers will make a
market in the Equity Securities. There can be no assurance that a market will be
made for any of the Equity Securities, that any market for the Equity Securities
will be maintained or of the liquidity of the Equity Securities in any markets
made. In addition, the Trust may be restricted under the Investment Company Act
of 1940 from selling Equity Securities to the Managing Underwriter or the
Sponsor. The price at which the Equity Securities may be sold to meet
redemptions, and the value of the Trust, will be adversely affected if trading
markets for the Equity Securities are limited or absent.
In the opinion of the Managing Underwriter, certain of the Equity Securities
included in the Trust which may have the highest potential for capital
appreciation also from time to time may experience limited purchase or sale
availability in the market place. In anticipation of this possibility, the
Managing Underwriter may make a market in said Equity Securities to facilitate
the creation of subsequent deposits for this Trust which may have an impact on
the price at which Units are valued during the initial offering period. In
addition, upon termination of the Trust, this potential limited daily trading
volume may result in negative market price consequences for the Trust stemming
from the liquidation of a significant amount of these Equity Securities. The
Sponsor will attempt to mitigate these consequences with a longer liquidation
period (not to exceed 30 days) for these Equity Securities at the Trust's
termination than might be required for the other Equity Securities included in
the Trust. However, these procedures may be insufficient or unsuccessful in
avoiding such negative price consequences.
Year 2000 Readiness Disclosure. These two paragraphs constitute "Year 2000
Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act of 1998. If computer systems used by the Sponsor,
Evaluator, Supervisor, Trustee or other service providers to the Trusts do not
properly process date-related information after December 31, 1999, the resulting
difficulties could adversely impact the Trusts. This is commonly known as the
"Year 2000 Problem." The Sponsor, Evaluator, Supervisor and Trustee are taking
steps to address this problem and to obtain reasonable assurances that other
service providers to the Trusts are taking comparable steps. We cannot guarantee
that these steps will be sufficient to avoid any adverse impact on the Trusts.
This problem may impact corporations to varying degrees based on factors such as
industry sector and degree of technological sophistication. We cannot predict
what impact, if any, this problem will have on the issuers of the Securities.
In addition, computer failures throughout the financial services industry
beginning January 1, 2000 could have a detrimental effect on the markets for the
Securities. Improperly functioning trading systems may result in settlement
problems and liquidity issues. Moreover, corporate and governmental data
processing errors may adversely affect issuers and overall economic
uncertainties. Remediation costs will affect the earnings of individual issuers.
These costs could be substantial. Issuers may report these costs inconsistently
in U.S. and foreign financial markets. All of these issues could adversely
affect the Securities and the Trusts.
FEDERAL TAXATION
The following is a general discussion of certain of the federal income tax
consequences of the purchase, ownership and disposition of the Units of your
Trust. The summary is limited to investors who hold the Units as "capital
assets" (generally, property held for investment within the meaning of Section
1221 of the Internal Revenue Code of 1986 (the "Code")). Unitholders should
consult their tax advisers in determining the federal, state, local and any
other tax consequences of the purchase, ownership and disposition of Units in
the Trust. For purposes of the following discussion and opinion, it is assumed
that each Security in the Trust is equity for federal income tax purposes.
In the opinion of Chapman and Cutler, special counsel for the Sponsor, under
existing law:
1. The Trust is not an association taxable as a corporation for federal
income tax purposes; each Unitholder will be treated as the owner of a pro rata
portion of each of the assets of the Trust under the Code; and the income of the
Trust will be treated as income of the Unitholders thereof under the Code. Each
Unitholder will be considered to have received his pro rata share of income
derived from each Security asset when such income is considered to be received
by the Trust.
2. A Unitholder will be considered to have received all of the dividends paid
on his pro rata portion of each Security when such dividends are considered to
be received by the Trust regardless of whether such dividends are used to pay a
portion of any deferred sales charge imposed. Unitholders will be taxed in this
manner regardless of whether distributions from the Trust are actually received
by the Unitholder or are automatically reinvested (see "Rights of
Unitholders--Reinvestment Option").
3. Each Unitholder will have a taxable event when the Trust disposes of a
Security (whether by sale, exchange, liquidation, redemption, or otherwise) or
upon the sale or redemption of Units by such Unitholder (except to the extent an
in kind distribution of stock is received by such Unitholder as described
below). The price a Unitholder pays for his Units, generally including sales
charges, is allocated among his pro rata portion of each Security held by the
Trust (in proportion to the fair market values thereof on the valuation date
nearest the date the Unitholder purchase his Units) in order to determine his
initial tax basis for his pro rata portion of each Security held by the Trust.
Unitholders should consult their own tax advisers with regard to calculation of
basis. For federal income tax purposes, a Unitholder's pro rata portion of
dividends as defined by Section 316 of the Code paid by a corporation with
respect to a Security held by the Trust are taxable as ordinary income to the
extent of such corporation's current and accumulated "earnings and profits". A
Unitholder's pro rata portion of dividends paid on such Security which exceeds
such current and accumulated earnings and profits will first reduce a
Unitholder's tax basis in such Security, and to the extent that such dividends
exceed a Unitholder's tax basis in such Equity Security shall generally be
treated as capital gain. In general, the holding period for such capital gain
will be determined by the period of time a Unitholder has held his Units.
4. A Unitholder's portion of gain, if any, upon the sale or redemption of
Units or the disposition of Securities held by the Trust will generally be
considered a capital gain, except in the case of a dealer or a financial
institution. A Unitholder's portion of loss, if any, upon the sale or redemption
of Units or the disposition of Securities held by the Trust will generally be
considered a capital loss (except in the case of a dealer or a financial
institution). Unitholders should consult their tax advisers regarding the
recognition of such capital gains and losses for federal income tax purposes.
Dividends Received Deduction. A corporation that owns Units will generally be
entitled to a 70% dividends received deduction with respect to such Unitholder's
pro rata portion of dividends received by the Trust (to the extent such
dividends are taxable as ordinary income, as discussed above, and are
attributable to domestic corporations) in the same manner as if such corporation
directly owned the Securities paying such dividends (other than corporate
Unitholders, such as "S" corporations, which are not eligible for the deduction
because of their special characteristics and other than for purposes of special
taxes such as the accumulated earnings tax and the personal holding corporation
tax). However, a corporation owning Units should be aware that Sections 246 and
246A of the Code impose additional limitations on the eligibility of dividends
for the 70% dividends received deduction. These limitations include a
requirement that stock (and therefore Units) must generally be held at least 46
days (as determined under Section 246(c) of the Code). Final regulations have
been issued which address special rules that must be considered in determining
whether the 46 day holding requirement is met. Moreover, the allowable
percentage of the deduction will be reduced from 70% if a corporate Unitholder
owns certain stock (or Units) the financing of which is directly attributable to
indebtedness incurred by such corporation. To the extent dividends received by
the Trust are attributable to foreign corporations, a corporation that owns
Units will not be entitled to the dividends received deduction with respect to
its pro rata portion of such dividends, since the dividends received deduction
is generally available only with respect to dividends paid by domestic
corporations. Unitholders should consult with their tax advisers with respect to
the limitations on and possible modifications to the dividends received
deduction.
Limitations on Deductibility of Trust Expenses by Unitholders. Each
Unitholder's pro rata share of each expense paid by the Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by him. As a result of the Tax Reform Act of 1986, certain miscellaneous
itemized deductions, such as investment expenses, tax return preparation fees
and employee business expenses will be deductible by an individual only to the
extent they exceed 2% of such individual's adjusted gross income. Unitholders
may be required to treat some or all of the expenses of the Trust as
miscellaneous itemized deductions subject to this limitation. Unitholders should
consult with their own tax advisers regarding the deductibility of Trust
expenses.
Recognition of Taxable Gain or Loss Upon Disposition of Securities by the
Trust or Disposition of Units. As discussed above, a Unitholder may recognize
taxable gain (or loss) when a Security is disposed of by the Trust or if the
Unitholder disposes of a Unit. The Internal Revenue Service Restructing and
Reform Act of 1998 (the "1998 Tax Act") provides that for taxpayers other than
corporations, net capital gain (which is defined as net long-term capital gain
over net short-term capital loss for the taxable year) realized from property
(with certain exclusions) is subject to a maximum marginal stated tax rate of
20% (10% in the case of certain taxpayers in the lowest tax bracket). Capital
gain or loss is long-term if the holding period for the asset is more than one
year, and is short-term if the holding period for the asset is one year or less.
The date on which a Unit is acquired (i.e., the "trade date") is excluded for
purposes of determining the holding period of the Unit. Capital gains realized
from assets held for one year or less are taxed at the same rates as ordinary
income.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult with
their tax advisers regarding the potential effect of this provision on their
investment in Units.
If a Unitholder disposes of a Unit he is deemed thereby to have disposed of
his entire pro rata interest in all assets of the Trust including his pro rata
portion of all Securities represented by a Unit.
The Taxpayer Relief Act of 1997 (the "1997 Tax Act") includes provisions that
treat certain transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g., short sales, offsetting notional principal
contracts, futures or forward contracts or similar transactions) as constructive
sales for purposes of recognition of gain (but not of loss) and for purposes of
determining the holding period. Unitholders should consult their own tax
advisers with regard to any such constructive sales rules.
Special Tax Consequences of In Kind Distributions Upon Redemption of Units or
Termination of the Trust. As discussed in "Rights of Unitholders--Redemption of
Units", under certain circumstances a Unitholder tendering Units for redemption
may request an in kind distribution. A Unitholder may also under certain
circumstances request an in kind distribution upon the termination of the Trust.
See "Rights of Unitholders--Redemption of Units. As previously discussed, prior
to the redemption of Units or the termination of the Trust, a Unitholder is
considered as owning a pro rata portion of each of the Trust's assets for
federal income tax purposes. The receipt of an in kind distribution will result
in a Unitholder receiving an undivided interest in whole shares of stock plus,
possibly, cash.
The potential tax consequences that may occur under an in kind distribution
with respect to each Security held by the Trust will depend on whether or not a
Unitholder receives cash in addition to Securities. A "Security" for this
purpose is a particular class of stock issued by a particular corporation. A
Unitholder will not recognize gain or loss if a Unitholder only receives
Securities in exchange for his or her pro rata portion in the Securities held by
the Trust. However, if a Unitholder also receives cash in exchange for a
fractional share of such Security held by the Trust, such Unitholder will
generally recognize gain or loss based upon the difference between the amount of
cash received by the Unitholder and his tax basis in such fractional share of a
Security held by the Trust.
Because the Trust will own many Securities, a Unitholder who requests an in
kind distribution will have to analyze the tax consequences with respect to each
Security owned by the Trust. The amount of taxable gain (or loss) recognized
upon such exchange will generally equal the sum of the gain (or loss) recognized
under the rules described above by such Unitholder with respect to each Security
owned by the Trust. Unitholders who request an in kind distribution are advised
to consult their tax advisers in this regard.
Computation of the Unitholder's Tax Basis. Initially, a Unitholder's tax
basis in his Units will generally equal the price paid by such Unitholder of his
Units. The cost of the Units is allocated among the Securities held in the Trust
in accordance with the proportion of the fair market values of such Securities
on the valuation date nearest the date the Units are purchased in order to
determine such Unitholder's tax basis for his pro rata portion of each Security.
A Unitholder's tax basis in his Units and his pro rata portion of a Security
held by the Trust will be reduced to the extent dividends paid with respect to
such Security are received by the Trust which are not taxable as ordinary income
as described above.
General. Each Unitholder will be requested to provide the Unitholder's
taxpayer identification number to the Trustee and to certify that the Unitholder
has not been notified that payments to the Unitholder are subject to back-up
withholding. If the proper taxpayer identification number and appropriate
certification are not provided when requested, distributions by the Trust to
such Unitholder (including amounts received upon the redemption of Units) will
be subject to back-up withholding. Distributions by the Trust (other than those
that are not treated as United States source income, if any) will generally be
subject to United States income taxation and withholding in the case of Units
held by non-resident alien individuals, foreign corporations or other non-United
States persons. Such persons should consult their tax advisers.
In general, income that is not effectively connected to the conduct of a
trade or business within the United States that is earned by non-U.S.
Unitholders and derived from dividends of foreign corporations will not be
subject to U.S. withholding tax provided that less than 25 percent of the gross
income of the foreign corporations for a three-year period ending with the close
of its taxable year preceding payment was effectively connected to the conduct
of a trade or business within the United States. In addition, such earnings may
be exempt from U.S. withholding pursuant to a specific treaty between the United
States and a foreign country. Non-U.S. Unitholders should consult their own tax
advisers regarding the imposition of U.S. withholding on distributions from the
Trust.
It should be noted that payments to the Trust of dividends on Securities that
are attributable to foreign corporations may be subject to foreign withholding
taxes and Unitholders should consult their tax advisers regarding the potential
tax consequences relating to the payment of any such withholding taxes by the
Trust. Any dividends withheld as a result thereof will nevertheless be treated
as income to the Unitholders. Because, under the grantor trust rules, an
investor is deemed to have paid directly his share of foreign taxes that have
been paid or accrued, if any, an investor may be entitled to a foreign tax
credit or deduction for United States tax purposes with respect to such taxes.
The 1997 Tax Act imposes a required holding period for such credits. Investors
should consult their tax advisers with respect to foreign withholding taxes and
foreign tax credits.
At the termination of the Trust, the Trustee will furnish to each Unitholder
of the Trust a statement containing information relating to the dividends
received by the Trust on the Securities, the gross proceeds received by the
Trust from the disposition of any Security (resulting from redemption or the
sale of any Security), and the fees and expenses paid by the Trust. The Trustee
will also furnish annual information returns to Unitholders and to the Internal
Revenue Service.
In the opinion of special counsel to the Trust for New York tax matters, the
Trust is not an association taxable as a corporation and the income of the Trust
will be treated as the income of the Unitholders under the existing income tax
laws of the State and City of New York.
The foregoing discussion relates only to the tax treatment of U.S.
Unitholders ("U.S. Unitholders") with regard to federal and certain aspects of
New York State and City income taxes. Unitholders may be subject to taxation in
New York or in other jurisdictions and should consult their own tax advisers in
this regard. As used herein, the term "U.S. Unitholder" means an owner of a Unit
of the Trust that (a) is (i) for United States federal income tax purposes a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source or (b) does not qualify as a U.S. Unitholder in paragraph (a) but whose
income from a Unit is effectively connected with such Unitholder's conduct of a
United States trade or business. The term also includes certain former citizens
of the United States whose income and gain on the Units will be taxable.
Unitholders should consult their tax advisers regarding potential foreign, state
or local taxation with respect to the Units.
TRUST OPERATING EXPENSES
Compensation of Sponsor, Evaluator and Managing Underwriter. The Sponsor will
not receive any fees in connection with its activities relating to the Trust.
However, the Evaluator, which is a division of Van Kampen Investment Advisory
Corp., shall receive the annual per Unit evaluation fee set forth under "Summary
of Essential Financial Information" in Part One (which amount is based on the
number of Units outstanding on January 1 of each year for which such
compensation relates) for regularly evaluating the Trust portfolio. The Managing
Underwriter, in its capacity as Supervisor, will receive an annual supervisory
fee, which is not to exceed the amount set forth under "Summary of Essential
Financial Information" in Part One (which is based on the number of Units
outstanding on January 1 of each year for which such compensation relates) for
providing portfolio supervisory services for the Trust. Such fee may exceed the
actual cost of providing such supervision services for this Trust, but at no
time will the total amount paid to the Supervisor for providing supervision
services to unit investment trusts for which the Managing Underwriter is the
principal underwriter in any calendar year exceed the aggregate cost to the
Supervisor of supplying such services in such year. The foregoing fees are
payable as described under "General" below. Both of the foregoing fees may be
increased without approval of the Unitholders by amounts not exceeding
proportionate increases under the category "All Services Less Rent of Shelter"
in the Consumer Price Index published by the United States Department of Labor
or, if such category is no longer published, in a comparable category. The
Sponsor and Managing Underwriter will receive sales commissions and may realize
other profits (or losses) in connection with the sale of Units and the deposit
of the Securities as described under "Public Offering--Sponsor and Managing
Underwriter Compensation."
Trustee's Fee. For its services the Trustee will receive the annual per Unit
fee from the Trust set forth under "Summary of Essential Financial Information"
in Part One (which amount is based on the number of Units outstanding on January
1 of each year for which such compensation relates). The Trustee's fees are
payable as described under "General" below. The Trustee benefits to the extent
there are funds for future distributions, payment of expenses and redemptions in
the Capital and Income Accounts since these Accounts are non-interest bearing
and the amounts earned by the Trustee are retained by the Trustee. Part of the
Trustee's compensation for its services to the Trust is expected to result from
the use of these funds. Such fees may be increased without approval of the
Unitholders by amounts not exceeding proportionate increases under the category
"All Services Less Rent of Shelter" in the Consumer Price Index published by the
United States Department of Labor or, if such category is no longer published,
in a comparable category. For a discussion of the services rendered by the
Trustee pursuant to its obligations under the Trust Agreement, see "Rights of
Unitholders--Reports Provided" and "Trust Administration."
Miscellaneous Expenses. Expenses incurred in establishing the Trust,
including the cost of the initial preparation of documents relating to the Trust
(including the Prospectus, Trust Agreement and certificates), federal and state
registration fees, the initial fees and expenses of the Trustee, legal and
accounting expenses, payment of closing fees and any other out-of-pocket
expenses, will be paid by the Trust and amortized over the life of the Trust.
The following additional charges are or may be incurred by the Trust: (a) normal
expenses (including the cost of mailing reports to Unitholders) incurred in
connection with the operation of the Trust, (b) fees of the Trustee for
extraordinary services, (c) expenses of the Trustee (including legal and
auditing expenses) and of counsel designated by the Sponsor, (d) various
governmental charges, (e) expenses and costs of any action taken by the Trustee
to protect the Trust and the rights and interests of Unitholders, (f)
indemnification of the Trustee for any loss, liability or expenses incurred in
the administration of the Trust without negligence, bad faith or wilful
misconduct on its part, (g) accrual of costs of liquidating securities and (h)
expenditures incurred in contacting Unitholders upon termination of the Trust.
Each Trust may pay the expenses of updating its registration statement each
year. Unit investment trust sponsors have historically paid these expenses. The
expenses set forth herein are payable as described under "General" below.
General. The fees and expenses of the Trust will accrue on a daily basis. The
fees and expenses are payable out of the Capital Account. When such fees and
expenses are paid by or owing to the Trustee, they are secured by a lien on the
Trust's portfolio. It is expected that the balance in the Capital Account will
be insufficient to provide for amounts payable by the Trust and that Equity
Securities will be sold from the Trust to pay such amounts. These sales will
result in capital gains or losses to Unitholders. See "Federal Taxation" .
PUBLIC OFFERING
General. Units are offered at the Public Offering Price. The Public Offering
Price is based on the aggregate underlying value of the Securities in the
Trust's portfolio, the sales charge described below, and cash, if any, in the
Income and Capital Accounts held or owned by the Trust. The sales charge for
secondary market transactions is described under "Summary of Essential Financial
Information" in Part One and will be reduced by .5 of 1% annually to a minimum
sales charge of 3.5%.
Offering Price. The Public Offering Price of the Units will vary from the
amounts stated under "Summary of Essential Financial Information" in Part One in
accordance with fluctuations in the prices of the underlying Securities in the
Trust.
As indicated above, the price of the Units was established by adding to the
determination of the aggregate underlying value of the Securities an amount
equal to the total sales charge and dividing the sum so obtained by the number
of Units outstanding. The Public Offering Price shall also include the
proportionate share of any cash held in the Income and Capital Accounts. This
computation produced a gross underwriting profit equal to the total sales
charge. Such price determination as of the close of business on the day before
the Initial Date of Deposit was made on the basis of an evaluation of the
Securities in the Trust prepared by Interactive Data Corporation, a firm
regularly engaged in the business of evaluating, quoting or appraising
comparable securities. After the close of business on the day before the Initial
Date of Deposit, the Evaluator will appraise or cause to be appraised daily the
value of the underlying Securities as of the Evaluation Time on days the New
York Stock Exchange is open and will adjust the Public Offering Price of the
Units commensurate with such valuation. Such Public Offering Price will be
effective for all orders received prior to the Evaluation Time on each such day.
Orders received by the Trustee, Sponsor or Managing Underwriter for purchases,
sales or redemptions after that time, or on a day when the New York Stock
Exchange is closed, will be held until the next determination of price. The
Managing Underwriter currently does not intend to maintain a secondary market
during the final seven months of the Trust's life.
The value of the Equity Securities is determined on each business day by the
Evaluator in the following manner: if the Equity Securities are listed on a
national securities exchange this evaluation is generally based on the closing
sale prices on that exchange (unless it is determined that these prices are
inappropriate as a basis for valuation) or, if there is no closing sale price on
that exchange, at the closing bid prices. If the Equity Securities are not so
listed or, if so listed and the principal market therefor is other than on the
exchange, the evaluation shall generally be based on the current bid price on
the over-the-counter market (unless it is determined that these prices are
inappropriate as a basis for evaluation). If current bid prices are unavailable,
the evaluation is generally determined (a) on the basis of current bid prices
for comparable securities, (b) by appraising the value of the Equity Securities
on the bid side of the market or (c) by any combination of the above.
In offering the Units to the public, neither the Sponsor, the Managing
Underwriter nor any broker-dealers are recommending any of the individual
Securities in the Trust but rather the entire pool of Securities, taken as a
whole, which are represented by the Units.
Unit Distribution. Units will be distributed to the public by the Managing
Underwriter, broker-dealers and others at the Public Offering Price. Units
repurchased in the secondary market, if any, may be offered by this Prospectus
at the secondary market Public Offering Price in the manner described above.
The Sponsor intends to qualify the Units for sale in a number of states.
To facilitate the handling of transactions, sales of Units shall normally be
limited to transactions involving a minimum of 200 Units (100 Units for a
tax-sheltered retirement plan). The Managing Underwriter reserves the right to
reject, in whole or in part, any order for the purchase of Units and to change
the amount of the concession or agency commission to dealers and others from
time to time.
Sponsor and Managing Underwriter Compensation. The Managing Underwriter will
receive a gross sales commission equal to the total sales charge imposed on
Units. In addition, the Managing Underwriter realized a profit or sustained a
loss, as the case may be, as a result of the difference between the price paid
for the Securities by the Managing Underwriter and the cost of such Securities
to the Trust on the Initial Date of Deposit as well as on subsequent deposits.
The Managing Underwriter may further realize additional profit or loss as a
result of the possible fluctuations in the market value of the Securities in the
Trust after a date of deposit, since all proceeds received from purchasers of
Units (excluding dealer concessions and agency commissions allowed, if any) will
be retained by the Managing Underwriter.
A person will become the owner of Units on the date of settlement provided
payment has been received. Cash, if any, made available to the Sponsor and
Managing Underwriter prior to the date of settlement for the purchase of Units
may be used in the Sponsor's or Managing Underwriter's business and may be
deemed to be a benefit to the Sponsor or Managing Underwriter, subject to the
limitations of the Securities Exchange Act of 1934.
As stated under "Public Market" below, the Managing Underwriter intends to
maintain a secondary market for Units of the Trust for the period indicated. In
so maintaining a market, the Managing Underwriter will also realize profits or
sustain losses in the amount of any difference between the price at which Units
are purchased and the price at which Units are resold (which price includes the
applicable sales charge). In addition, the Managing Underwriter will also
realize profits or sustain losses resulting from a redemption of such
repurchased Units at a price above or below the purchase price for such Units,
respectively.
Public Market. Although it is not obligated to do so, the Managing
Underwriter intends to maintain a market for the Units offered hereby and offer
continuously to purchase Units at prices, subject to change at any time, based
upon the aggregate underlying value of the Equity Securities in the Trust. If
the supply of Units exceeds demand or if some other business reason warrants it,
the Managing Underwriter may either discontinue all purchases of Units or
discontinue purchases of Units at such prices. It is the current intention of
the Managing Underwriter not to maintain a market for Units during the final
seven months of the Trust's life. In the event that a market is not maintained
for the Units and the Unitholder cannot find another purchaser, a Unitholder
desiring to dispose of his Units may be able to dispose of such Units only by
tendering them to the Trustee for redemption at the Redemption Price. See
"Rights of Unitholders--Redemption of Units." A Unitholder who wishes to dispose
of his Units should inquire of his broker as to current market prices in order
to determine whether there is in existence any price in excess of the Redemption
Price and, if so, the amount thereof. Units sold prior to such time as the
entire deferred sales charge on such Units has been collected will be assessed
the amount of the remaining deferred sales charge at the time of sale.
Tax-Sheltered Retirement Plans. Units of the Trust are available for purchase
in connection with certain types of tax-sheltered retirement plans, including
Individual Retirement Accounts for individuals, Simplified Employee Pension
Plans for employees, qualified plans for self-employed individuals, and
qualified corporate pension and profit sharing plans for employees. The purchase
of Units of the Trust may be limited by the plans' provisions and does not
itself establish such plans. The minimum purchase in connection with a
tax-sheltered retirement plan is 100 Units.
RIGHTS OF UNITHOLDERS
Units. The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee. Ownership of
Units of the Trust will be evidenced by book entry unless a Unitholder or the
Unitholder's registered broker-dealer makes a written request to the Trustee
that ownership be evidenced by certificates. Units are transferable by making a
written request to the Trustee and, in the case of Units evidenced by a
certificate, by presentation and surrender of such certificate to the Trustee
properly endorsed or accompanied by a written instrument or instruments of
transfer. A Unitholder must sign such written request, and such certificate or
transfer instrument, exactly as his name appears on the records of the Trustee
and on the face of any certificate representing the Units to be transferred with
the signature guaranteed by a participant in the Securities Transfer Agents
Medallion Program ("STAMP" ) or such other signature guarantee program in
addition to, or in substitution for, STAMP as may be accepted by the Trustee. In
certain instances the Trustee may require additional documents such as, but not
limited to, trust instruments, certificates of death, appointments as executor
or administrator or certificates of corporate authority. Certificates will be
issued in denominations of one Unit or any whole multiple thereof.
Although no such charge is now made or contemplated, the Trustee may require
a Unitholder to pay a reasonable fee for each certificate reissued or
transferred and to pay any governmental charge that may be imposed in connection
with each such transfer or interchange. Destroyed, stolen, mutilated or lost
certificates will be replaced upon delivery to the Trustee of satisfactory
indemnity, evidence of ownership and payment of expenses incurred. Mutilated
certificates must be surrendered to the Trustee for replacement.
Distributions of Income and Capital. Any dividends received by the Trust with
respect to the Equity Securities therein are credited by the Trustee to the
Income Account. Other receipts (e.g., capital gains, proceeds from the sale of
Securities, etc.) are credited to the Capital Account of the Trust. Proceeds
from the sale of Securities to meet redemptions of Units shall be segregated
within the Capital Account from proceeds from the sale of Securities made to
satisfy the fees, expenses and charges of the Trust.
The Trustee will distribute any income received with respect to any of the
Securities in the Trust on or about the Income Distribution Dates to Unitholders
of record on the preceding Income Record Dates. See "Summary of Essential
Financial Information" in Part One. Proceeds received on the sale of any
Securities in the Trust, to the extent not used to meet redemptions of Units, or
pay fees and expenses, will be distributed annually on the Capital Account
Distribution Date to Unitholders of record on the preceding Capital Account
Record Date. Proceeds received from the disposition of any of the Securities
after a record date and prior to the following distribution date will be held in
the Capital Account and not distributed until the next distribution date
applicable to such Capital Account. Proceeds received on the sale of any
Securities in the Trust, to the extent not used to meet redemptions of Units or
pay expenses or charges of the Trust, will, however, be distributed on the
twenty-fifth day of each month to holders of record on the tenth day of such
month if the amount available for distribution equals or exceeds at least $0.01
per Unit. The Trustee is not required to pay interest on funds held in the
Capital or Income Accounts (but may itself earn interest thereon and therefore
benefits from the use of such funds).
The distribution to Unitholders as of each record date will be made on the
following distribution date or shortly thereafter and shall consist of each
Unitholder's pro rata share of the cash in the Income Account. Because dividends
are not received by the Trust at a constant rate throughout the year, such
distributions to Unitholders are expected to fluctuate from distribution to
distribution. Persons who purchase Units will commence receiving distributions
only after such person becomes a record owner. Notification to the Trustee of
the transfer of Units is the responsibility of the purchaser, but in the normal
course of business such notice is provided by the selling broker-dealer.
The Trustee will deduct from the Capital Account amounts necessary to pay the
expenses of the Trust (as determined on the basis set forth under "Trust
Operating Expenses" ). The Trustee also may withdraw from the Income and Capital
Accounts such amounts, if any, as it deems necessary to establish a reserve for
any governmental charges payable out of the Trust. Amounts so withdrawn shall
not be considered a part of the Trust's assets until such time as the Trustee
shall return all or any part of such amounts to the appropriate accounts. In
addition, the Trustee may withdraw from the Income and Capital Accounts such
amounts as may be necessary to cover redemptions of Units.
Reinvestment Option. Unitholders may elect to have each distribution of
income, capital gains and/or capital on their Units automatically reinvested in
shares of certain Van Kampen mutual funds which are registered in the
Unitholder's state of residence. Such mutual funds are hereinafter collectively
referred to as the "Reinvestment Funds" .
Each Reinvestment Fund has investment objectives which differ in certain
respects from those of the Trust. The prospectus relating to each Reinvestment
Fund describes the investment policies of such fund and sets forth the
procedures to follow to commence reinvestment. A Unitholder may obtain a
prospectus for the respective Reinvestment Funds from Van Kampen Funds Inc. at
One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Texas residents who desire
to reinvest may request that a broker-dealer registered in Texas send the
prospectus relating to the respective fund.
After becoming a participant in a reinvestment plan, each distribution of
income, capital gains and/or capital on the participant's Units will, on the
applicable distribution date, automatically be applied, as directed by such
person, as of such distribution date by the Trustee to purchase shares (or
fractions thereof) of the applicable Reinvestment Fund at a net asset value as
computed as of the close of trading on the New York Stock Exchange on such date.
Unitholders with an existing Guaranteed Reinvestment Option (GRO) Program
account (whereby a sales charge is imposed on distribution reinvestments) may
transfer their existing account into a new GRO account which allows purchases of
Reinvestment Fund shares at net asset value as described above. Confirmations of
all reinvestments by a Unitholder into a Reinvestment Fund will be mailed to the
Unitholder by such Reinvestment Fund.
A participant may at any time prior to five days preceding the next
succeeding distribution date, by so notifying the Trustee in writing, elect to
terminate his or her reinvestment plan and receive future distributions on his
or her Units in cash. There will be no charge or other penalty for such
termination. The Sponsor, each Reinvestment Fund, and its investment adviser
shall have the right to suspend or terminate the reinvestment plan at any time.
Reports Provided. The Trustee shall furnish Unitholders in connection with
each distribution a statement of the amount of income and the amount of other
receipts (received since the preceding distribution), if any, being distributed,
expressed in each case as a dollar amount representing the pro rata share of
each Unit outstanding. For as long as the Sponsor deems it to be in the best
interest of the Unitholders, the accounts of the Trust shall be audited, not
less frequently than annually, by independent certified public accountants, and
the report of such accountants shall be furnished by the Trustee to Unitholders
upon request. Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each person who at any time during the
calendar year was a registered Unitholder a statement (i) as to the Income
Account: income received, deductions for applicable taxes and for fees and
expenses of the Trust, for redemptions of Units, if any, and the balance
remaining after such distributions and deductions, expressed in each case both
as a total dollar amount and as a dollar amount representing the pro rata share
of each Unit outstanding on the last business day of such calendar year; (ii) as
to the Capital Account: the dates of disposition of any Securities and the net
proceeds received therefrom, deductions for payment of applicable taxes, fees
and expenses of the Trust held for distribution to Unitholders of record as of a
date prior to the determination and the balance remaining after such
distributions and deductions expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (iii) a list of the Securities held and
the number of Units outstanding on the last business day of such calendar year;
(iv) the Redemption Price per Unit based upon the last computation thereof made
during such calendar year; and (v) amounts actually distributed during such
calendar year from the Income and Capital Accounts, separately stated, expressed
as total dollar amounts.
In order to comply with federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Securities in the Trust furnished to it by the Evaluator.
Redemption of Units. A Unitholder may redeem all or a portion of his Units by
tender to the Trustee at its unit investment trust division office at 101
Barclay Street, 20th Floor, New York, New York 10286 and, in the case of Units
evidenced by a certificate, by tendering such certificate to the Trustee, duly
endorsed or accompanied by proper instruments of transfer with signature
guaranteed (or by providing satisfactory indemnity, as in connection with lost,
stolen or destroyed certificates) and by payment of applicable governmental
charges, if any. No redemption fee will be charged. On the third business day
following such tender, the Unitholder will be entitled to receive in cash an
amount for each Unit equal to the Redemption Price per Unit next computed after
receipt by the Trustee of such tender of Units. The "date of tender" is deemed
to be the date on which Units are received by the Trustee, except that as
regards Units received after the Evaluation Time the date of tender is the next
day on which the New York Stock Exchange is open for trading and such Units will
be deemed to have been tendered to the Trustee on such day for redemption at the
redemption price computed on that day.
The Trustee is empowered to sell Securities in order to make funds available
for redemption if funds are not otherwise available in the Capital and Income
Accounts to meet redemptions. The Securities to be sold will be selected by the
Trustee from those designated on a current list provided by the Supervisor for
this purpose. Units so redeemed shall be cancelled.
To the extent that Securities are sold, the size of the Trust will be, and
the diversity of the Trust may be, reduced. Sales may be required at a time when
Securities would not otherwise be sold and may result in lower prices than might
otherwise be realized. The price received upon redemption may be more or less
than the amount paid by the Unitholder depending on the value of the Securities
in the portfolio at the time of redemption.
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the aggregate underlying
value of the Equity Securities in the Trust, plus or minus cash, if any, in the
Income and Capital Accounts. On the Initial Date of Deposit, the Public Offering
Price per Unit (which includes the sales charge) exceeded the values at which
Units could have been redeemed by the amounts shown under "Summary of Essential
Financial Information" in Part One. While the Trustee has the power to determine
the Redemption Price per Unit when Units are tendered for redemption, such
authority has been delegated to the Evaluator which determines the price per
Unit on a daily basis. The Redemption Price per Unit is the pro rata share of
each Unit in the Trust determined on the basis of (i) the cash on hand in the
Trust, (ii) the value of the Securities in the Trust and (iii) dividends
receivable on the Equity Securities trading ex-dividend as of the date of
computation, less (a) amounts representing taxes or other governmental charges
payable out of the Trust and (b) the accrued sales charges or expenses of the
Trust. The Evaluator may determine the value of the Equity Securities in the
Trust in the following manner: if the Equity Securities are listed on a national
securities exchange this evaluation is generally based on the closing sale
prices on that exchange (unless it is determined that these prices are
inappropriate as a basis for valuation) or, if there is no closing sale price on
that exchange, at the closing bid prices. If the Equity Securities are not so
listed or, if so listed and the principal market therefore is other than on the
exchange, the evaluation shall generally be based on the current bid price on
the over-the-counter market (unless these prices are inappropriate as a basis
for evaluation). If current bid prices are unavailable, the evaluation is
generally determined (a) on the basis of current bid prices for comparable
securities, (b) by appraising the value of the Equity Securities on the bid side
of the market or (c) by any combination of the above.
The right of redemption may be suspended and payment postponed for any period
during which the New York Stock Exchange is closed, other than for customary
weekend and holiday closings, or any period during which the Securities and
Exchange Commission determines that trading on that Exchange is restricted or an
emergency exists, as a result of which disposal or evaluation of the Securities
in the Trust is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit.
TRUST ADMINISTRATION
Managing Underwriter Purchases of Units. The Trustee shall notify the
Managing Underwriter of any tender of Units for redemption. If the Managing
Underwriter's bid in the secondary market at that time equals or exceeds the
Redemption Price per Unit, it may purchase such Units by notifying the Trustee
before the close of business on the next succeeding business day and by making
payment therefor to the Unitholder not later than the day on which the Units
would otherwise have been redeemed by the Trustee. Units held by the Managing
Underwriter may be tendered to the Trustee for redemption as any other Units.
The offering price of any Units acquired by the Managing Underwriter will be
in accord with the Public Offering Price described in the then currently
effective prospectus describing such Units. Any profit resulting from the resale
of such Units will belong to the Managing Underwriter which likewise will bear
any loss resulting from a lower offering or redemption price subsequent to its
acquisition of such Units.
Portfolio Administration. The portfolio of the Trust is not "managed" by the
Sponsor, Supervisor or the Trustee; their activities described herein are
governed solely by the provisions of the Trust Agreement. Traditional methods of
investment management for a managed fund typically involve frequent changes in a
portfolio of securities on the basis of economic, financial and market analyses.
While the Trust will not be managed, the Trust Agreement does provide that the
Sponsor may (but need not) direct the Trustee to dispose of an Equity Security
in certain events such as the issuer having defaulted on the payment on any of
its outstanding obligations or the price of an Equity Security has declined to
such an extent or other such credit factors exist so that in the opinion of the
Sponsor, the retention of such Securities would be detrimental to the Trust.
Pursuant to the Trust Agreement and with limited exceptions, the Trustee may
sell any securities or other properties acquired in exchange for Equity
Securities such as those acquired in connection with a merger or other
transaction. If offered such new or exchanged securities or property, the
Trustee shall reject the offer. However, in the event such securities or
property are nonetheless acquired by the Trust, they may be accepted for deposit
in the Trust and either sold by the Trustee or held in the Trust pursuant to the
direction of the Sponsor (who may rely on the advice of the Supervisor).
Therefore, except as stated under "Trust Portfolio" for failed securities and as
provided in this paragraph, the acquisition by the Trust of any securities other
than the Securities is prohibited. Proceeds from the sale of Securities (or any
securities or other property received by the Trust in exchange for Equity
Securities), unless held for reinvestment as herein provided, are credited to
the Capital Account for distribution to Unitholders, to meet redemptions or to
pay charges and expenses of the Trust.
As indicated under "Rights of Unitholders--Redemption of Units" above, the
Trustee may also sell Securities designated by the Supervisor, or if not so
directed, in its own discretion, for the purpose of redeeming Units of the Trust
tendered for redemption and the payment of expenses.
When your Trust sells Securities, the composition and diversity of the
Securities in the Trust may be altered. In order to obtain the best price for a
Trust, it may be necessary for the Supervisor to specify minimum amounts
(generally 100 shares) in which blocks of Securities are to be sold. In
effecting purchases and sales of a Trust's portfolio securities, the Sponsor may
direct that orders be placed with and brokerage commissions be paid to brokers,
including brokers which may be affiliated with the Trusts, the Sponsor or
dealers participating in the offering of Units. In addition, in selecting among
firms to handle a particular transaction, the Sponsor may take into account
whether the firm has sold or is selling units of unit investment trusts which it
sponsors.
Amendment or Termination. The Trust Agreement may be amended by the Trustee
and the Sponsor without the consent of any of the Unitholders (1) to cure any
ambiguity or to correct or supplement any provision thereof which may be
defective or inconsistent, or (2) to make such other provisions as shall not
adversely affect the Unitholders (as determined in good faith by the Sponsor and
the Trustee), provided, however, that the Trust Agreement may not be amended to
increase the number of Units (except as provided in the Trust Agreement). The
Trust Agreement may also be amended in any respect by the Trustee and Sponsor,
or any of the provisions thereof may be waived, with the consent of the holders
of 51% of the Units then outstanding, provided that no such amendment or waiver
will reduce the interest in the Trust of any Unitholder without the consent of
such Unitholder or reduce the percentage of Units required to consent to any
such amendment or waiver without the consent of all Unitholders. The Trustee
shall advise the Unitholders of any amendment promptly after execution thereof.
The Trust may be liquidated at any time by consent of Unitholders
representing 66 2/3% of the Trust Units then outstanding or by the Trustee when
the value of the Trust, as shown by any evaluation, is less than that amount set
forth under Minimum Termination Value in "Summary of Essential Financial
Information" in Part One. The Trust Agreement will terminate upon the sale or
other disposition of the last Security held thereunder, but in no event will it
continue beyond the Mandatory Termination Date stated under " Summary of
Essential Financial Information" in Part One.
Commencing nine days before, but no later than, the Mandatory Termination
Date, the Trustee may begin to sell Securities in connection with the
termination of the Trust. The Sponsor will determine the manner, timing and
execution of the sales of the Equity Securities. The Sponsor shall direct the
liquidation of the Securities in such manner as to effectuate orderly sales and
a minimal market impact. In the event the Sponsor does not so direct, the
Securities shall be sold within a reasonable period and in such manner as the
Trustee, in its sole discretion, shall determine. Written notice of any
termination specifying the time or times at which Unitholders may surrender
their certificates for cancellation, if any are then issued and outstanding,
shall be given by the Trustee to each Unitholder so holding a certificate at his
address appearing on the registration books of the Trust maintained by the
Trustee. At least 30 days before the Mandatory Termination Date the Trustee will
provide written notice thereof to all Unitholders and will include with such
notice a form to enable Unitholders owning 2,500 or more Units to request an In
Kind Distribution rather than payment in cash upon the termination of the Trust.
To be effective, this request must be returned to the Trustee at least five
business days prior to the Mandatory Termination Date. On the Mandatory
Termination Date (or on the previous business day if a holiday) the Trustee will
deliver each requesting Unitholder's pro rata number of whole shares of each of
the Equity Securities in the portfolio to the account of the broker-dealer or
bank designated by the Unitholder at Depository Trust Company. The value of the
Unitholder's fractional shares of the Equity Securities will be paid in cash.
Unitholders with less than 2,500 Units and those not requesting an In Kind
Distribution will receive a cash distribution from the sale of the remaining
Equity Securities within a reasonable time following the Mandatory Termination
Date. Regardless of the distribution involved, the Trustee will deduct from the
funds of the Trust any accrued costs, expenses, advances or indemnities provided
by the Trust Agreement, including estimated compensation of the Trustee, costs
of liquidation and any amounts required as a reserve to provide for payment of
any applicable taxes or other governmental charges. Any sale of Equity
Securities in the Trust upon termination may result in a lower amount than might
otherwise be realized if such sale were not required at such time. The Trustee
will then distribute to each Unitholder his pro rata share of the balance of the
Income and Capital Accounts.
The Sponsor will attempt to sell Securities as quickly as possible commencing
on the Mandatory Termination Date without in the judgement of the Sponsor
materially adversely affecting the market price of the Securities. The Sponsor
does not anticipate that the period will be longer than one month, and it could
be as short as one day, depending on the liquidity of the Securities being sold.
The liquidity of any Security depends on the daily trading volume of the
Security and the amount that the Sponsor has available on any particular day.
It is expected (but not required) that the Sponsor will generally follow the
following guidelines in selling the Securities; for highly liquid Securities,
the Securities will generally be sold on the Mandatory Termination Date; for
less liquid Securities, on each of the first two days subsequent to the
Mandatory Termination Date, the amount of any underlying Securities will
generally be sold at a price no less than 1/2 of one point under the closing
sale price of those Securities on the preceding day. Thereafter, the Sponsor
intends to sell without any price restrictions at least a portion of the
remaining underlying Securities, the numerator of which is one and the
denominator of which is the total number of days remaining (including that day)
in the one month period following the Mandatory Termination Date.
Within 60 days of the final distribution Unitholders will be furnished a
final distribution statement, in substantially the same form as the annual
distribution statement, of the amount distributable. At such time as the Trustee
in its sole discretion will determine that any amounts held in reserve are no
longer necessary, it will make distribution thereof to Unitholders in the same
manner.
Limitations on Liabilities. The Sponsor, the Evaluator, the Supervisor and
the Trustee shall be under no liability to Unitholders for taking any action or
for refraining from taking any action in good faith pursuant to the Trust
Agreement, or for errors in judgment, but shall be liable only for their own
willful misfeasance, bad faith or gross negligence (negligence in the case of
the Trustee) in the performance of their duties or by reason of their reckless
disregard of their obligations and duties hereunder. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the Trustee of
any of the Securities. In the event of the failure of the Sponsor to act under
the Trust Agreement, the Trustee may act thereunder and shall not be liable for
any action taken by it in good faith under the Trust Agreement.
The Trustee shall not be liable for any taxes or other governmental charges
imposed upon or in respect of the Securities or upon the interest thereon or
upon it as Trustee under the Trust Agreement or upon or in respect of the Trust
which the Trustee may be required to pay under any present or future law of the
United States of America or of any other taxing authority having jurisdiction.
In addition, the Trust Agreement contains other customary provisions limiting
the liability of the Trustee.
The Trustee, Sponsor, Supervisor and Unitholders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. Determinations by the Evaluator under the Trust Agreement shall be made
in good faith upon the basis of the best information available to it, provided,
however, that the Evaluator shall be under no liability to the Trustee, Sponsor
or Unitholders for errors in judgment. This provision shall not protect the
Evaluator in any case of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
Managing Underwriter. First of Michigan, Division of Fahnestock & Co., Inc.,
a member of the New York Stock Exchange, is Michigan's largest full-service
securities firm. Founded in 1933, First of Michigan, Division of Fahnestock &
Co., Inc. specializes in a wide range of financial services that include
investment banking; investment products such as stocks, bonds, unit trusts and
mutual funds; and investment services such as retirement plans, money
management, underwriting and trading. First of Michigan is a wholly owned
subsidiary of Fahnestock Viner Holdings Corp.
Sponsor. Van Kampen Funds Inc., a Delaware corporation, is the Sponsor of the
Trust. The Sponsor is an indirect subsidiary of Van Kampen Investments Inc. Van
Kampen Investments Inc. is a wholly owned subsidiary of MSAM Holdings II, Inc.,
which in turn is a wholly owned subsidiary of Morgan Stanley Dean Witter & Co.
("MSDW").
MSDW, together with various of its directly and indirectly owned
subsidiaries, is engaged in a wide range of financial services through three
primary businesses: securities, asset management and credit services. These
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; asset
management; trading of futures, options, foreign exchange commodities and swaps
(involving foreign exchange, commodities, indices and interest rates); real
estate advice, financing and investing; global custody, securities clearance
services and securities lending; and credit card services.
Van Kampen Funds Inc. specializes in the underwriting and distribution of
unit investment trusts and mutual funds with roots in money management dating
back to 1926. The Sponsor is a member of the National Association of Securities
Dealers, Inc. and has offices at One Parkview Plaza, Oakbrook Terrace, Illinois
60181, (630) 684-6000 and 2800 Post Oak Boulevard, Houston, Texas 77056, (713)
993-0500. As of November 30, 1998, the total stockholders' equity of Van Kampen
Funds Inc. was $135,236,000 (audited). (This paragraph relates only to the
Sponsor and not to the Trust or to any other Series thereof. The information is
included herein only for the purpose of informing investors as to the financial
responsibility of the Sponsor and its ability to carry out its contractual
obligations. More detailed financial information will be made available by the
Sponsor upon request.)
As of March 31, 1999, the Sponsor and its Van Kampen affiliates managed or
supervised approximately $75 billion of investment products. The Sponsor and its
Van Kampen affiliates managed $64 billion of assets, consisting of $36.6 billion
for 50 open-end mutual funds, $19.5 billion for 39 closed-end funds and $8.2
billion for 106 institutional accounts. The Sponsor has also deposited more than
3,200 unit trusts amounting to approximately $35.4 billion of assets. All of Van
Kampen's open-end funds, closed-ended funds and unit investment trusts are
professionally distributed by leading financial firms nationwide. Based on
cumulative assets deposited, the Sponsor believes that it is the largest sponsor
of insured municipal unit investment trusts, primarily through the success of
its Insured Municipals Income Trust(R) or the IM-IT(R) trust. The Sponsor also
provides surveillance or evaluation services at cost for approximately $13.4
billion of unit investment trust assets outstanding. Since 1976, the Sponsor has
serviced over two million investor accounts, opened through retail distribution
firms.
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or shall become bankrupt or its affairs
are taken over by public authorities, then the Trustee may (i) appoint a
successor Sponsor at rates of compensation deemed by the Trustee to be
reasonable and not exceeding amounts prescribed by the Securities and Exchange
Commission, (ii) terminate the Trust Agreement and liquidate the Trust as
provided therein or (iii) continue to act as Trustee without terminating the
Trust Agreement.
Trustee. The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its unit investment trust
division offices at 101 Barclay Street, New York, New York 10286 (800) 221-7668.
The Bank of New York is subject to supervision and examination by the
Superintendent of Banks of the State of New York and the Board of Governors of
the Federal Reserve System, and its deposits are insured by the Federal Deposit
Insurance Corporation to the extent permitted by law.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of Securities for the Trust portfolio.
In accordance with the Trust Agreement, the Trustee shall keep proper books
of record and account of all transactions at its office for the Trust. Such
records shall include the name and address of, and the number of Units of the
Trust held by, every Unitholder of the Fund. Such books and records shall be
open to inspection by any Unitholder at all reasonable times during the usual
business hours. The Trustee shall make such annual or other reports as may from
time to time be required under any applicable state or federal statute, rule or
regulation (see "Rights of Unitholders--Reports Provided" ). The Trustee is
required to keep a certified copy or duplicate original of the Trust Agreement
on file in its office available for inspection at all reasonable times during
the usual business hours by any Unitholder, together with a current list of the
Securities held in the Trust.
Under the Trust Agreement, the Trustee or any successor trustee may resign
and be discharged of its responsibilities created by the Trust Agreement by
executing an instrument in writing and filing the same with the Sponsor. The
Trustee or successor trustee must mail a copy of the notice of resignation to
all Unitholders then of record, not less than 60 days before the date specified
in such notice when such resignation is to take effect. The Sponsor upon
receiving notice of such resignation is obligated to appoint a successor trustee
promptly. If, upon such resignation, no successor trustee has been appointed and
has accepted the appointment within 30 days after notification, the retiring
Trustee may apply to a court of competent jurisdiction for the appointment of a
successor. The Sponsor may remove the Trustee and appoint a successor trustee as
provided in the Trust Agreement at any time with or without cause. Notice of
such removal and appointment shall be mailed to each Unitholder by the Sponsor.
Upon execution of a written acceptance of such appointment by such successor
trustee, all the rights, powers, duties and obligations of the original trustee
shall vest in the successor. The resignation or removal of a Trustee becomes
effective only when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which a Trustee shall be a party, shall be the successor trustee. The Trustee
must be a banking corporation organized under the laws of the United States or
any state and having at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
OTHER MATTERS
Legal Opinions. The legality of the Units offered hereby has been passed upon
by Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as
counsel for the Sponsor. Winston and Strawn has acted as counsel for the
Trustee.
Independent Certified Public Accountants. The financial statements included
in this Prospectus have been audited by Grant Thornton LLP, independent
certified public accountants, as set forth in their report in this Prospectus,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing.
Contents of Post-Effective Amendment
to Registration Statement
This Post-Effective Amendment to the Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Van Kampen American Capital Equity Opportunity Trust, Series 42,
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Chicago and State
of Illinois on the 23rd day of November, 1999.
Van Kampen American Capital Equity Opportunity
Trust, Series 42
(Registrant)
By Van Kampen Funds Inc.
(Depositor)
By Gina Costello
Assistant Secretary
(Seal)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below on November 23,
1999 by the following persons who constitute a majority of the Board of
Directors of Van Kampen Funds Inc.:
SIGNATURE TITLE
Richard F. Powers III Chairman and Chief Executive )
Officer )
John H. Zimmerman III President and Chief Operating )
Officer )
William R. Rybak Executive Vice President and )
Chief Financial Officer )
A. Thomas Smith III Executive Vice President, )
General Counsel and Secretary )
Michael H. Santo Executive Vice President )
Gina M. Costello______________
(Attorney in Fact)*
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* An executed copy of each of the related powers of attorney is filed herewith
or was filed with the Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 of Van Kampen Focus Portfolios, Series 136
(File No. 333-70897) and the same are hereby incorporated herein by this
reference.
Consent of Independent Certified Public Accountants
We have issued our report dated September 17, 1999 accompanying the
financial statements of Van Kampen American Capital Equity Opportunity Trust,
Series 42 as of July 31, 1999, and for the period then ended, contained in this
Post-Effective Amendment No. 3 to Form S-6.
We consent to the use of the aforementioned report in the Post-
Effective Amendment and to the use of our name as it appears under the caption
"Auditors".
Grant Thornton LLP
Chicago, Illinois
November 23, 1999
