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Defined Asset Funds® | |
Municipal Investment Trust Fund Insured Series409 (A Unit Investment Trust) |
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Portfolio of Insured Long-Term Municipal Bonds |
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Designed to be Free of Regular Federal Income Tax |
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Monthly Income Distributions |
Sponsors: Merrill Lynch, Pierce, Fenner & Smith Incorporated Salomon Smith Barney Inc. PaineWebber Incorporated Dean Witter Reynolds Inc. |
The Securities and Exchange Commission has not approved or disapproved these Securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. Prospectus dated January 5, 2001. |
Defined Asset Funds®
Defined Asset Funds® is America's oldest and largest family of unit investment trusts with over $195 billion sponsored in the last 30 years. Our family of Defined Funds helps investors work toward their financial goals with a full range of quality investments, including municipal, corporate and government bond portfolios, as well as domestic and international equity portfolios.
Defined Asset Funds offer a number of advantages:
No matter what your investment goals, tolerance for risk or time horizon, there's probably a Defined Asset Fund that suits your investment style. Your financial professional can help you select a Defined Asset Fund that works best for your investment portfolio.
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Approximate Portfolio Percentage |
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| Airports/Ports/Highways | 20 | % | |
| General Obligation | 20 | % | |
| Hospitals/Health Care | 20 | % | |
| Industrial Development Revenue | 10 | % | |
| Municipal Water/Sewer Utilities | 10 | % | |
| Special Tax | 10 | % | |
| Universities/Colleges | 10 | % |
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Defined Portfolio
Insured Series409
Portfolio Title |
Coupon |
Maturity (1) |
Rating of Issues (2) |
Cost To Fund (3) |
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Airports/Ports/Highways (20%): |
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1. | $1,000,000 City of Chicago, IL, Chicago Midway Arpt., Rev. Bonds, Ser. 1998B (MBIA Ins.) | 5.00% | 01/01/35 | AAA | $ | 968,250.00 | |||||
2. | $1,000,000 Massachusetts Tpke. Auth., Metro. Hwy. Sys. Rev. Bonds, Ser. 1999A (AMBAC Ins.) | 5.00 | 01/01/39 | AAA | 975,080.00 | ||||||
General Obligation (20%): |
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3. | $1,000,000 District of Columbia G.O. Rfdg. Bonds, Ser. 1998B (MBIA Ins.) | 5.250 | 06/01/26 | AAA | 1,000,000.00 | ||||||
4. | $90,000 District of Columbia G.O. Rfdg. Bonds. Ser. 1994A-1 (MBIA Ins.)(4) | 4.650 | 06/01/02 | AAA | 91,159.20 | ||||||
5. | $1,000,000 King Cnty., WA, Ltd. Tax Gen. Oblig. Rfdg. Bonds (Payable from Sewer Rev.), Ser. 1998B (MBIA Ins.) | 5.250 | 01/01/34 | AAA | 1,000,000.00 | ||||||
6. | $95,000 Three Village Central Sch. Dist. of Brookhaven and Smithtown, Suffolk Cnty., NY, Sch. Dist. Serial Bonds, Ser. 2000 (FGIC Ins.)(4) | 4.875 | 06/01/03 | Aaa(m) | 97,325.60 | ||||||
Hospitals/Health Care (20%): |
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7. | $1,000,000 St. Joseph Cnty., IN, Hosp. Auth. Hlth. Sys. Rev. Bonds (Memorial Hlth. Sys.), Ser. 2000 (AMBAC Ins.) | 5.625 | 08/15/33 | AAA | 1,033,030.00 | ||||||
8. | $1,000,000 City of Jackson, TN, Hosp. Rev. Bonds (Jackson-Madison Cnty. Gen. Hosp. Proj.), Ser. 1998 (AMBAC Ins.) | 5.000 | 04/01/28 | AAA | 970,950.00 | ||||||
Industrial Development Revenue (10%): |
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9. | $1,000,000 Brazos River Auth., TX, Rev. Rfdg. Bonds (Houston Industries Inc. Proj.), Ser. 1998B (AMBAC Ins.) | 5.125 | 11/01/20 | AAA | 990,710.00 | ||||||
Municipal Water/Sewer Utilities (10%): |
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10. | $1,000,000 City of Chicago, Ill., Second Lien Wastewater Transmission Rev. Bonds, Ser. 1997 (AMBAC Ins.) | 5.250 | 01/01/28 | AAA | 1,003,540.00 | ||||||
Special Tax (10%): |
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11. | $1,000,000 Public Auditorium Auth. of Pittsburgh and Allegheny Cnty., PA (Hotel Room Excise Tax Rev. Bonds), Ser. 1999 (AMBAC Ins.) | 5.125 | 02/01/35 | AAA | 988,040.00 | ||||||
Universities/Colleges (10%): |
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12. | $1,000,000 Tulsa, OK, Indl. Auth. Rev. Bonds (The University of Tulsa), Ser. 2000A (MBIA Ins.) | 5.375 | 10/01/31 | Aaa(m) | 1,016,980.00 | ||||||
$ | 10,135,064.80 | ||||||||||
(1) | Approximately 50% of the long-term bonds are callable in 2008, 30% are callable in 2009, 10% are callable in 2010 and 10% are callable in 2011. Some bonds could be called earlier under extraordinary circumstances. | |
(2) | All ratings are by Standard & Poor's Ratings Group unless followed by "(m)", which indicates a Moody's Investors Service rating. An AAA rating indicates highest quality bonds with a very strong capacity to pay interest and repay principal. | |
(3) | Approximately 31% of the bonds were deposited at a premium, 20% at par and 49% at a discount from par. Sponsors' profit on deposit was $75,844.00. | |
(4) | The interest and principal on these bonds will be used to pay the deferred sales charge obligations of the investors, and these amounts are not included in the calculation of Estimated Current and Long Term Returns. |
Please note that if this prospectus is used as a preliminary prospectus
for a future fund in this Series, the Portfolio will contain different
bonds from those described above.
Risk/Return Summary (Continued)
Defining Your Income and
Estimating Your Return
What You May Expect (Record Day: 10th day of each month) |
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First payment per 1,000 units (2/25/01) | $ | 4.84 | ||
Regular Monthly Income per 1,000 units | ||||
(beginning 3/25/01): | $ | 4.14 | ||
Annual Income per 1,000 units: | $ | 49.79 | ||
These figures are estimates on the business day before the initial date of deposit; actual payments may vary. | ||||
Estimated Current Return | 4.86 | % | ||
Estimated Long Term Return | 4.89 | % | ||
These returns will vary (see page 7) |
Investor Fees |
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Maximum Sales Fee (Load) on new purchases (as a percentage of $1,000 invested) |
2.90 |
% |
If you invest: |
Your maximum sales fee will be: |
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Less than $100,000 | 2.90 | % | |
$100,000 to $249,999 | 2.65 | % | |
$250,000 to $499,999 | 2.40 | % | |
$500,000 to $999,999 | 2.15 | % | |
$1,000,000 and over | 1.90 | % | |
Maximum Exchange Fee |
1.90 |
% |
Estimated Annual Fund Operating Expenses
As a % of $1,000 Invested |
Amount Per 1,000 Units |
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Trustee's Fee | .071 | % | $ | 0.71 | ||
Portfolio Supervision, Bookkeeping and Administrative Fees (including updating expenses) |
.055 | % | $ | 0.55 | ||
Evaluator's Fee | .013 | % | $ | 0.13 | ||
Other Operating Expenses | .037 | % | $ | 0.37 | ||
Total | .176 | % | $ | 1.76 |
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Amount Per 1,000 Units |
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Organization Costs (deducted from Fund assets at the close of the initial offering period) | $ | 2.00 |
Example
1 Year |
3 Years |
5 Years |
10 Years |
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$327 | $365 | $406 | $528 |
1 Year |
3 Years |
5 Years |
10 Years |
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$232 | $365 | $406 | $528 |
Average Annual Compound Total Returns
for Prior Series
Reflecting all expenses. For periods ended 9/30/00.
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With Sales Fee |
No Sales Fee |
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1 Year |
5 Years |
10 Years |
1 Year |
5 Years |
10 Years |
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High | 7.33 | % | 5.34 | % | 6.51 | % | 7.84 | 6.51 | % | 7.04 | % | ||
Average | 3.84 | 4.40 | 6.20 | 6.18 | 5.49 | 6.78 | |||||||
Low | 2.36 | 2.98 | 5.80 | 4.03 | 3.80 | 6.39 | |||||||
Average Sales fee |
2.08 | % | 5.28 | % | 5.69 | % | |||||||
Note: All returns represent changes in unit price with distributions reinvested into the Municipal Fund Investment Accumulation Program.
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Unit Price per 1,000 Units (as of January 4, 2001) |
$ |
1,025.35 |
Unit Par Value |
$ |
1.00 |
Reinvestment
Exchange Privileges
5
Tax-Free vs. Taxable Income: A Comparison Of Taxable and Tax-Free Yields
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Effective % Tax Bracket |
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Taxable Income 2001* |
Tax-Free Yield of Is Equivalent to a Taxable Yield of |
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Single Return |
Joint Return |
3% |
3.5% |
4% |
4.5% |
5% |
5.5% |
6% |
6.5% |
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$ | 0- 27,050 | $ | 0- 45,200 | 15.00 | 3.53 | 4.12 | 4.71 | 5.29 | 5.88 | 6.47 | 7.06 | 7.65 | ||||||||||
$ | 27,051- 65,550 | $ | 45,201-109,250 | 28.00 | 4.17 | 4.86 | 5.56 | 6.25 | 6.94 | 7.64 | 8.33 | 9.03 | ||||||||||
$ | 65,551-136,750 | $ | 109,251-166,450 | 31.00 | 4.35 | 5.07 | 5.80 | 6.52 | 7.25 | 7.97 | 8.70 | 9.42 | ||||||||||
$ | 136,751-297,300 | $ | 166,451-297,300 | 36.00 | 4.69 | 5.47 | 6.25 | 7.03 | 7.81 | 8.59 | 9.38 | 10.16 | ||||||||||
Over $297,300 | Over $297,300 | 39.60 | 4.97 | 5.79 | 6.62 | 7.45 | 8.28 | 9.11 | 9.93 | 10.76 | ||||||||||||
To compare the yield of a taxable security with the yield of a federally tax-free security, find your taxable income and read across. The table incorporates 2001 federal income tax rates and assumes that all income would otherwise be taxed at a U.S. investor's highest tax rate. Yield figures are for example only.
*Based upon net amount subject to federal income tax after deductions and exemptions. This table does not reflect the possible effect of other tax factors, such as alternative minimum tax, personal exemptions, the phase out of exemptions, itemized deductions, the possible partial disallowance of deductions or state or local taxation. Consequently, you should consult your own tax advisers in this regard.
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What You Can Expect From Your Investment
The Fund will pay you regular monthly income. Your income may vary because of:
Changes in interest rates generally will not affect your income because the portfolio is fixed.
Along with your income, you will receive your share of any available bond principal.
We cannot predict your actual return, which will vary with unit price, how long you hold your investment and changes in the portfolio, interest income and expenses.
Estimated Current Return equals the estimated annual cash to be received from the bonds in the Fund less estimated annual Fund expenses, divided by the Unit Price (including the maximum sales fee):
Estimated Annual Interest Income |
- |
Estimated Annual Expenses |
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Unit Price |
Estimated Long Term Return is a measure of the estimated return over the estimated life of the Fund. Unlike Estimated Current Return, Estimated Long Term Return reflects maturities, discounts and premiums of the bonds in the Fund. It is an average of the yields to maturity (or in certain cases, to an earlier call date) of the individual bonds in the portfolio, adjusted to reflect the Fund's maximum sales fee and estimated expenses. We calculate the average yield for the portfolio by weighting each bond's yield by its market value and the time remaining to the call or maturity date.
Yields on individual bonds depend on many factors including general conditions of the bond markets, the size of a particular offering and the maturity and quality rating of the particular issues. Yields can vary among bonds with similar maturities, coupons and ratings.
These return quotations are designed to be comparative rather than predictive.
You will receive:
You may request:
You may inspect records of Fund transactions at the Trustee's office during regular business hours.
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Investing involves risks, including the risk that your investment will decline in value if interest rates rise. Generally, bonds with longer maturities will change in value more than bonds with shorter maturities. Bonds in the Fund are more likely to be called when interest rates decline. This would result in early returns of principal to you and may result in early termination of the Fund. Of course, we cannot predict how interest rates may change.
Many bonds can be prepaid or "called" by the issuer before their stated maturity.
Some bonds may be required to be called incrementally pursuant to mandatory sinking fund provisions.
Also, an issuer might call its bonds during periods of falling interest rates, if the issuer's bonds have a coupon higher than current market rates.
In extraordinary cases, an issuer might be able to call its bonds if, for example:
If the bonds are called, your income will decline and you may not be able to reinvest the money you receive at as high a yield or as long a maturity. An early call at par of a premium bond will reduce your return.
If many investors sell their units, the Fund will have to sell bonds. This could reduce the diversification of your investment and increase your share of Fund expenses.
The bonds will generally trade in the over-the-counter market. We cannot assure you that a liquid trading market will exist, especially since current law may restrict the Fund from selling bonds to any Sponsor. The value of the bonds, and of your investment, may be reduced if trading in bonds is limited or absent.
A reduction in a bond's rating may decrease its value and, indirectly, the value of your investment in the Fund.
The bonds are backed by insurance companies (as shown under Defined Portfolio). Insurance policies generally make payments only according to a bond's original payment schedule and do not make early payments when a bond defaults or becomes taxable. Although the federal government does not regulate the insurance business, various state laws and federal initiatives and tax law changes could significantly affect the insurance business. The claims-paying ability of the insurance companies is generally rated AAA by Standard & Poor's or another nationally recognized rating organization. The insurance company ratings
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are subject to change at any time at the discretion of the rating agencies.
Litigation and Legislation Risks
We do not know of any pending litigation that might have a material adverse effect upon the Fund.
Future tax legislation could affect the value of the portfolio by:
You can sell your units at any time for a price based on net asset value. Your net asset value is calculated each business day by:
Your net asset value when you sell may be more or less than your cost because of sales fees, market movements and changes in the portfolio.
As of the close of the initial offering period, the price you receive will be reduced to reflect estimated organization costs.
If you sell your units before the final deferred sales fee installment, the amount of any remaining installments will be deducted from your proceeds.
While we are not obligated to do so, we will buy back units at net asset value without any other fee or charge other than any remaining deferred sales charge. We may resell the units to other buyers or to the Trustee. You should consult your financial professional for current market prices to determine if other broker-dealers or banks are offering higher prices.
We have maintained a secondary market continuously for over 28 years, but we could discontinue it without prior notice for any business reason.
Regardless of whether we maintain a secondary market, you can sell your units to the Trustee at any time by sending the Trustee a letter (with any outstanding certificates if you hold Unit certificates). You must properly endorse your certificates (or execute a written transfer instrument with signatures guaranteed by an eligible institution). Sometimes, additional documents are needed such as a trust document, certificate of corporate authority, certificate of death or appointment as executor, administrator or guardian.
Within seven days after your request and the necessary documents are received, the Trustee will mail a check to you. Contact the Trustee for additional information.
As long as we are maintaining a secondary market, the Trustee will sell your units to us at a price based on net asset value. If there is no secondary market, the Trustee may sell
9
your units in the over-the-counter market for a higher price, but it is not obligated to do so. In that case, you will receive the net proceeds of the sale.
If the Fund does not have cash available to pay you for units you are selling, the agent for the Sponsors will select bonds to be sold. Bonds will be selected based on market and credit factors. These sales could be made at times when the bonds would not otherwise be sold and may result in your receiving less than the unit par value and also reduce the size and diversity of the Fund.
If you acquire 25% or more of the outstanding units of the Fund and you sell units with a value exceeding $250,000, the Trustee may choose to pay you "in kind" by distributing bonds and cash with a total value equal to the price of those units. The Trustee will try to distribute bonds in the portfolio pro rata, but it reserves the right to distribute only one or a few bonds. The Trustee will act as your agent in an in kind distribution and will either hold the bonds for your account or sell them as you instruct. You must pay any transaction costs as well as transfer and ongoing custodial fees on sales of bonds distributed in kind.
There could be a delay in paying you for your units:
You may exchange units of certain Defined Asset Funds for units of this Fund at a maximum exchange fee of 1.90%. You may exchange units of this Fund for units of certain other funds at a reduced sales fee if your investment goals change. In addition, you may exchange into this Fund from certain other Defined Asset Funds and unit trusts. To exchange units, you should talk to your financial professional about what funds are exchangeable, suitable and currently available.
Normally, an exchange is taxable and you must recognize any gain or loss on the exchange. However, the IRS may try to disallow a loss if the portfolios of the two funds are not materially different; you should consult your own tax adviser.
We may amend or terminate this exchange option at any time without notice.
The price of a unit includes interest accrued on the bonds, less expenses, from the initial date of deposit up to, but not including, the settlement date, which is usually three business days after the purchase date of the unit.
Bonds also carry accrued but unpaid interest up to the initial date of deposit. To avoid having you pay this additional accrued interest (which earns no return) when you buy, the Trustee advances this amount to the Sponsors. The Trustee recovers this
10
advance from interest received on the bonds.
In addition, a portion of the price of a unit consists of cash to pay all or some of the costs of organizing the Fund including:
An independent Evaluator values the bonds on each business day (excluding Saturdays, Sundays and the following holidays as observed by the New York Stock Exchange: New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas). Bond values are based on current bid or offer prices for the bonds or comparable bonds. In the past, the difference between bid and offer prices of publicly offered tax-exempt bonds has ranged from 0.5% of face amount on actively traded issues to 3.5% on inactively traded issues; the difference has averaged between 1 and 2%.
Interest on any bonds purchased on a when-issued basis or for a delayed delivery does not begin to accrue until the bonds are delivered to the Fund. The Trustee may reduce its fee to provide you with tax-exempt income for this non-accrual period. If a bond is not delivered on time and the Trustee's annual fee and expenses do not cover the additional accrued interest, we will treat the contract to buy the bond as failed.
The Trustee credits interest to an Income Account and other receipts to a Capital Account. The Trustee may establish a Reserve Account by withdrawing from these accounts amounts it considers appropriate to pay any material liability. These accounts do not bear interest.
The Trustee is paid monthly. It also benefits when it holds cash for the Fund in non-interest bearing accounts. The Trustee may also receive additional amounts:
The Sponsors are currently reimbursed up to 55¢ per $1,000 face amount annually for providing portfolio supervisory, bookkeeping and administrative services and for any other expenses properly chargeable to the Fund. Legal, typesetting, electronic filing and regulatory filing fees and expenses associated with updating the Fund's registration statement . While this fee may exceed the amount of these costs and expenses attributable to this Fund, the total of these fees for all Series of Defined Asset Funds will not exceed the aggregate amount attributable to all of these Series for any
11
calendar year. The Fund also pays the Evaluator's fees. Certain of these expenses were previously paid for by the Sponsors.
The Trustee's, Sponsors' and Evaluator's fees may be adjusted for inflation without investors' approval.
Quarterly deferred sales fees you owe are paid with interest and principal from certain bonds. If these amounts are not enough, the rest will be paid out of distributions to you from the Fund's Capital and Income Accounts.
The Sponsors will pay advertising and selling expenses at no charge to the Fund. If Fund expenses exceed initial estimates, the Fund will owe the excess. The Trustee has a lien on Fund assets to secure reimbursement of Fund expenses and may sell bonds if cash is not available.
The Sponsors and Trustee are not liable for any default or defect in a bond; if a contract to buy any bond fails in the first 90 days of the Fund, we generally will deposit a replacement tax-exempt bond with a similar yield, maturity, rating and price.
Unlike a mutual fund, the portfolio is designed to remain intact and we may keep bonds in the portfolio even if their credit quality declines or other adverse financial circumstances occur. However, we may sell a bond in certain cases if we believe that certain adverse credit conditions exist or if a bond becomes taxable.
If we maintain a secondary market in units but are unable to sell the units that we buy in the secondary market, we will redeem units, which will affect the size and composition of the portfolio. Units offered in the secondary market may not represent the same face amount of bonds that they did originally.
We decide whether or not to offer units for sale that we acquire in the secondary market after reviewing:
The Fund will terminate following the stated maturity or sale of the last bond in the portfolio. The Fund may also terminate earlier with the consent of investors holding 51% of the units or if total assets of the Fund have fallen below 40% of the face amount of bonds deposited. We will decide whether to terminate the Fund early based on the same factors used in deciding whether or not to offer units in the secondary market.
When the Fund is about to terminate you will receive a notice, and you will be unable to sell your units after that time. On or shortly before termination, we will sell any remaining bonds, and you will receive your final distribution. Any bond that cannot be sold at a reasonable price may continue to be held by the Trustee in a liquidating trust pending its final sale.
You will pay your share of the expenses associated with termination, including
12
brokerage costs in selling bonds. This may reduce the amount you receive as your final distribution.
Certificates for units are issued on request. You may transfer certificates by complying with the requirements for redeeming certificates, described above. You can replace lost or mutilated certificates by delivering satisfactory indemnity and paying the associated costs.
The Fund is a "unit investment trust" governed by a Trust Indenture, a contract among the Sponsors, the Trustee and the Evaluator, which sets forth their duties and obligations and your rights. A copy of the Indenture is available to you on request to the Trustee. The following summarizes certain provisions of the Indenture.
The Sponsors and the Trustee may amend the Indenture without your consent:
Investors holding 51% of the units may amend the Indenture. Every investor must consent to any amendment that changes the 51% requirement. No amendment may reduce your interest in the Fund without your written consent.
The Trustee may resign by notifying the Sponsors. The Sponsors may remove the Trustee without your consent if:
Investors holding 51% of the units may remove the Trustee. The Evaluator may resign or be removed by the Sponsors and the Trustee without the consent of investors. The resignation or removal of either becomes effective when a successor accepts appointment. The Sponsors will try to appoint a successor promptly; however, if no successor has accepted within 30 days after notice of resignation, the resigning Trustee or Evaluator may petition a court to appoint a successor.
Any Sponsor may resign as long as one Sponsor with a net worth of $2 million remains and agrees to the resignation. The remaining Sponsors and the Trustee may appoint a replacement. If there is only one Sponsor and it fails to perform its duties or becomes bankrupt the Trustee may:
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent for the Sponsors.
The Trust Indenture contains customary provisions limiting the liability of the Trustee, the Sponsors and the Evaluator.
13
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as special counsel for the Sponsors, has given an opinion that the units are validly issued.
Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281, independent auditors, audited the Statement of Condition included in this prospectus.
The Sponsors and their underwriting percentages are:
Merrill Lynch, Pierce, Fenner & Smith Incorporated (a wholly-owned subsidiary of Merrill Lynch & Co., Inc.) P.O. Box 9051, |
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Princeton, NJ 08543-9051 | 65.30 | % | ||
Salomon Smith Barney Inc. (an indirectly wholly-owned subsidiary of Citigroup Inc.) 7 World Trade Center40th Floor, |
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New York, NY 10048 | 9.91 | % | ||
Dean Witter Reynolds Inc. (a principal operating subsidiary of Morgan Stanley Dean Witter & Co.) Two World Trade Center59th Floor, |
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New York, NY 10048 | 4.96 | % | ||
PaineWebber Incorporated (a wholly-owned subsidiary of PaineWebber Group Inc.) 1285 Avenue of the Americas, |
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New York, NY 10019 | 19.83 | % | ||
100.00 | % | |||
Each Sponsor is a Delaware corporation and it, or its predecessor, has acted as sponsor to many unit investment trusts. As a registered broker-dealer each Sponsor buys and sells securities (including investment company shares) for others (including investment companies) and participates as an underwriter in various selling groups.
The Chase Manhattan Bank, Unit Trust Department, 4 New York Plaza 6th Floor, New York, NY 10004 is the Trustee. It is supervised by the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and New York State banking authorities.
Underwriters' and Sponsors' Profits
Underwriters receive sales charges when they sell units. Sponsors also realize a profit or loss on deposit of the bonds shown under Defined Portfolio. Any cash made available by you to the Sponsors before the settlement date for those units may be used in the Sponsors' businesses to the extent permitted by federal law and may benefit the Sponsors.
A Sponsor or Underwriter may realize profits or sustain losses on bonds in the Fund which were acquired from underwriting syndicates of which it was a member. None of the bonds in this Fund were purchased from any of the Sponsors.
During the initial offering period, the Sponsors also may realize profits or sustain losses on units they hold due to fluctuations in the price per unit. In maintaining a secondary market, the Sponsors will also realize profits or sustain losses in the amount of any difference between the prices at which they buy units and the prices at which they resell or redeem them.
14
During the initial offering period, units will be distributed to the public by the Sponsors and dealers who are members of the National Association of Securities Dealers, Inc. This period is 30 days or less if all units are sold. The Sponsors may extend the initial period up to 120 days.
The Sponsors do not intend to qualify units for sale in any foreign countries. This prospectus does not constitute an offer to sell units in any country where units cannot lawfully be sold.
In the initial offering period, the concession to dealers will be $21 per 1,000 units. We may change the concession at any time. Dealers may resell units to other dealers with a concession not in excess of the original concession to dealers.
The Fund and the Agent for the Sponsors have each adopted a code of ethics requiring reporting of personal securities transactions by its employees with access to information on Fund transactions. Subject to certain conditions, the codes permit employees to invest in Fund securities for their own accounts. The codes are designed to prevent fraud, deception and misconduct against the Fund and to provide reasonable standards of conduct. These codes are on file with the Commission and you may obtain a copy by contacting the Commission at the address listed on the back cover of this prospectus.
Advertising and Sales Literature
Sales material may discuss developing a long-term financial plan, working with your financial professional; the nature and risks of various investment strategies and Defined Asset Funds that could help you toward your financial goals and the importance of discipline; how securities are selected for these funds, how the funds are created and operated, features such as convenience and costs, and options available for certain types of funds including automatic reinvestment, rollover, exchanges and redemption. It may also summarize some similarities and differences with mutual funds and discuss the philosophy of spending time in the market rather than trying to time the market, including probabilities of negative returns over various holding periods.
The following summary describes some of the important income tax consequences of holding units. It assumes that you are not a dealer, financial institution, insurance company or other investor with special circumstances or subject to special rules. You should consult your own tax adviser about your particular circumstances.
At the date of issue of each bond, counsel for the issuer delivered an opinion to the effect that interest on the bond is exempt from regular federal income tax. However, interest may be subject to state and local taxes and may be taken into account in determining your preference items for alternative minimum tax purposes. Neither we nor our counsel have reviewed the issuance of the bonds, related proceedings or the basis for the opinions of counsel for the issuers. We cannot assure you that the issuers (or other users of bond proceeds) have complied or will comply with any
15
requirements necessary for a bond to be tax-exempt. If any of the bonds were determined not to be tax-exempt, you could be required to pay income tax for current and prior years, and if the Fund were to sell the bond, it might have to sell it at a substantial discount.
In the opinion of our counsel, under existing law:
General Treatment of the Fund and Your Investment
The Fund will not be taxed as a corporation for federal income tax purposes, and you will be considered to own directly your share of each bond in the Fund.
When all or part of your share of a bond is disposed of (for example, when the Fund sells, exchanges or redeems a bond or when you sell or exchange your units), you will generally recognize capital gain or loss. Your gain, however, will generally be ordinary income to the extent of any accrued "market discount". Generally you will have market discount to the extent that your basis in a bond when you purchase a unit is less than its stated redemption price at maturity (or, if it is an original issue discount bond, less than the issue price increased by original issue discount that has accrued on the bond before your purchase). You should consult your tax adviser in this regard.
If your net long-term capital gains exceed your net short-term capital losses, the excess may be subject to tax at a lower rate than ordinary income. Any capital gain from the Fund will be long-term if you are considered to have held your investment in each bond for more than one year and short-term otherwise. Because the deductibility of capital losses is subject to limitations, you may not be able to deduct all of your capital losses. You should consult your tax adviser in this regard.
Your aggregate basis in the bonds will be equal to the cost of your units, including any sales charges and the organizational expenses you pay, adjusted to reflect any accruals of "original issue discount," "acquisition premium" and "bond premium". You should consult your tax adviser in this regard.
Expenses
If you are not a corporate investor, you will not be entitled to a deduction for your share of fees and expenses of the Fund. Also, if you borrowed money in order to purchase or carry your units, you will not be able to deduct the interest on this borrowing for federal income tax purposes. The IRS may treat your purchase of units as made with borrowed money even if the money is not directly traceable to the purchase of units.
Under the income tax laws of the State and City of New York, the Fund will not be taxed as a corporation. If you are a New York taxpayer, your income from the Fund will not be tax-exempt in New York except to the extent that the income is earned on bonds that are tax-exempt for New York purposes. Depending on where you live, your income from the Fund may be subject
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to state and local taxation. You should consult your tax adviser in this regard.
You can receive at no cost supplemental information about the Fund by calling the Trustee. The supplemental information includes more detailed risk disclosure about the types of bonds that may be in the Fund's portfolio, general risk disclosure concerning any insurance securing certain bonds, and general information about the structure and operation of the Fund. The supplemental information is also available from the SEC.
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REPORT OF INDEPENDENT AUDITORS
The Sponsors, Trustee and Holders of Municipal Investment Trust Fund, Insured Series409, Defined Asset Funds (the "Fund"):
We have audited the accompanying statement of condition and the related defined portfolio included in the prospectus of the Fund as of January 5, 2001. This financial statement is the responsibility of the Trustee. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. Our procedures included confirmation of cash, bonds and contracts to purchase bonds with the Trustee and brokers, and an irrevocable letter of credit deposited with the Trustee for the purchase of securities, as described in the statement of condition. An audit also includes assessing the accounting principles used and significant estimates made by the Trustee, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of the Fund as of January 5, 2001 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
NEW YORK, NY
JANUARY 5, 2001
Statement of Condition As of January 5, 2001
Trust Property
InvestmentsBonds and Contracts to purchase Bonds(1)- |
$ |
10,135,064.80 |
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Cash | 108,176.00 | ||||
Accrued interest to Initial Date of Deposit on underlying Bonds | 78,745.85 | ||||
Total | $ | 10,321,986.65 | |||
Liabilities and Interest of Holders |
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Liabilities: Advance by Trustee for accrued interest (2) | $ | 78,745.85 | |||
Reimbursement of Sponsors for organization expenses (3) | 20,176.00 | ||||
Subtotal | 98,921.85 | ||||
Interest of Holders of 10,088,000 Units of fractional undivided interest outstanding: | |||||
Cost to investors (3)(4)(5) | 10,343,717.28 | ||||
Organization expenses (3) and gross underwriting commissions(4) | (120,652.48 | ) | |||
Subtotal | 10,223,064.80 | ||||
Total | $ | 10,321,986.65 | |||
(1) Aggregate cost to the Fund of the bonds listed under Defined Portfolio is based upon the offer side evaluation determined by the Evaluator at the evaluation time on the business day prior to the Initial Date of Deposit. The contracts to purchase the bonds are collateralized by an irrevocable letter of credit which has been issued by San Paolo Bank, New York Branch, in the amount of $10,142,984.73 and deposited with the Trustee. The amount of the letter of credit includes $10,059,220.80 for the purchase of $10,185,000.00 face amount of the bonds, plus $83,763.93 for accrued interest.
(2) Representing a special distribution to the Sponsors by the Trustee of an amount equal to the accrued interest on the bonds.
(3) A portion of the Unit Price consists of cash in an amount sufficient to pay for costs incurred in establishing the Fund. These costs have been estimated at $2.00 per 1,000 Units. A distribution will be made at the close of the initial offering period to an account maintained by the Trustee from which the organization expense obligation of the investors to the Sponsors will be satisfied. If the actual organization costs exceed the estimated amount shown above, the Sponsors will pay for this excess amount.
(4) Assumes the maximum up-front sales fee per 1,000 units of 1.00% of the Unit Price. A deferred sales fee of $19.00 per 1,000 Units is payable over a two-year period ($2.38 per 1,000 Units quarterly in the first year and $2.37 per 1,000 units quarterly in the second year). Distributions will be made to an account maintained by the Trustee from which the deferred sales fee obligation of the investors will be satisfied. If units are redeemed prior to the final deferred sales charge deduction, the remaining portion of the deferred sales fee applicable to such units will be transferred to the account on the redemption date.
(5) Aggregate Unit Price (exclusive of interest) computed on the basis of the offer side evaluation of the underlying bonds as of the evaluation time on the business day prior to the Initial Date of Deposit.
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Defined Asset Funds® |
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Have questions ? Request the most recent free Information Supplement that gives more details about the Fund, by calling: The Chase Manhattan Bank 1-800-323-1508 |
Municipal Investment Trust Fund Insured Series409 (A Unit Investment Trust) This Prospectus does not contain complete information about the investment company filed with the Securities and Exchange Commission in Washington, D.C. under the: Securities Act of 1933 (file no. 333-44552) and Investment Company Act of 1940 (file no. 811-1777). To obtain copies at prescribed rates Write: Public Reference Section of the Commission 450 Fifth Street, N.W., Washington, D.C. 20549-6009 Call: 1-800-SEC-0330. Visit: http://www.sec.gov. No person is authorized to give any information or representations about this Fund not contained in this Prospectus or the Information Supplement, and you should not rely on any other information. When units of this Fund are no longer available, this Prospectus may be used as a preliminary prospectus for a future series, but some of the information in this Prospectus will be changed for that series. Units of any future series may not be sold nor may offers to buy be accepted until that series has become effective with the Securities and Exchange Commission. No units can be sold in any State where a sale would be illegal. |
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100809RR1/01 |
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