DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
EQUITY INVESTOR FUND The objective of this Defined Fund is total return
CONCEPT SERIES through a combination of high current income and
REAL ESTATE capital appreciation by investing for
INCOME FUND--2 approximately four years in a diversified
(A UNIT INVESTMENT portfolio of publicly traded equity real estate
TRUST) investment trusts ('REITs').
- ------------------------------The REITs included in the Portfolio were selected
- -- PROFESSIONAL SELECTION for their current dividend yields and potential
- -- MONTHLY INCOME for capital appreciation and increasing dividends.
- -- DIVERSIFICATION The value of units will fluctuate with the value
- -- REINVESTMENT OPTION of the REITs in the Portfolio and there is no
assurance that dividends will be paid or that the
REITs, and therefore the units, will appreciate in
value.
Minimum purchase in individual transactions: $250.
-------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
SPONSORS: HAS THE COMMISSION OR ANY STATE SECURITIES
Merrill Lynch, COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
Pierce, Fenner & Smith OF THIS DOCUMENT. ANY REPRESENTATION TO THE
Incorporated CONTRARY IS A CRIMINAL OFFENSE.
Smith Barney Inc. Inquiries should be directed to the Trustee at
PaineWebber Incorporated 1-800-221-7771.
Prudential Securities Prospectus dated September 30, 1997.
Incorporated INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY
Dean Witter Reynolds Inc. AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
Def ined Asset FundsSM
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $115 billion sponsored in the last 25 years. Each Defined
Asset Fund is a portfolio of preselected securities. The portfolio is divided
into 'units' representing equal shares of the underlying assets. Each unit
receives an equal share of income and principal distributions.
Defined Asset Funds offer several defined 'distinctives'. You know in advance
what you are investing in and that changes in the portfolio are limited - a
defined portfolio. Most defined bond funds pay interest monthly - defined
income. The portfolio offers a convenient and simple way to invest - simplicity
defined.
Your financial professional can help you select a Defined Asset Fund to meet
your personal investment objectives. Our size and market presence enable us to
offer a wide variety of investments. The Defined Asset Funds family offers:
o Municipal bond portfolios
o Corporate bond portfolios
o Government bond portfolios
o Equity portfolios
o International bond and equity portfolios
The terms of Defined Funds are as short as one year or as long as 30 years.
Special defined bond funds are available including: insured funds, double and
triple tax-free funds and funds with 'laddered maturities' to help protect
against changing interest rates. Defined Asset Funds are offered by prospectus
only.
- ----------------------------------------------------------------
Defining Your Portfolio
- ----------------------------------------------------------------
The Portfolio contains 39 equity REITs selected by the Sponsors with research
provided by a professional REIT Consultant, Cohen & Steers Capital Management,
Inc. In the opinion of the Sponsors on the initial date of deposit (June 25,
1996) these REITs had attractive dividend yields and the potential for capital
appreciation and increasing dividends. Investing in the Portfolio, rather than
in only one or two of the underlying REITs, is a way to diversify your
investment, even though 100% of the Portfolio is invested in a single industry.
TYPES OF REITS
The portfolio contains REITs in the following real estate sectors:
APPROXIMATE
PORTFOLIO PERCENTAGE
/ / Regional Mall 13%
/ / Apartment 25%
/ / Office 21%
/ / Shopping Center 23%
/ / Industrial 6%
/ / Healthcare 6%
/ / Diversified 5%
/ / Hotels/Motels 1%
- ----------------------------------------------------------------
Defining Your Investment
- ----------------------------------------------------------------
PUBLIC OFFERING PRICE PER 1,000 UNITS $1,191.18
The Public Offering Price as of May 31, 1997, the evaluation date, is based on
the aggregate value of the underlying securities ($117,351,531) and any cash
held to purchase securities, divided by the number of units outstanding
(101,303,066) times 1,000, plus a maximum initial sales charge. The Public
Offering Price on any subsequent date will vary. The underlying securities are
valued by the Trustee on the basis of their closing sale prices at 4:00 p.m.
Eastern time on every business day.
SALES CHARGE
The total sales charge for this investment combines an initial up-front sales
charge and a deferred sales charge that will be deducted from the net asset
value of the Portfolio quarterly on the 10th of August, November, February and
May of each year.
MONTHLY INCOME DISTRIBUTIONS
The Fund pays monthly income. Monthly distributions of dividends are payable on
the 25th of the month to holders of record on the 10th day of the month. In
order to meet certain tax requirements, a special distribution of income
including capital gains, may be declared for holders of record as of a date in
December, which special distribution will generally be paid after the end of the
year.
LOW MINIMUM INVESTMENT
You can get started with a minimum purchase of $250.
REINVESTMENT OPTION
You can elect to automatically reinvest your distributions into additional units
of the Portfolio subject only to remaining deferred sales charges. Reinvesting
helps to compound your income for a greater total return.
TAXES
Distributions which are taxable as ordinary income to Holders will constitute
dividends for Federal income tax purposes but will not be eligible for the
dividends-received deduction for certain corporations. Under the recently
enacted Taxpayer Relief Act of 1997, investors who are individuals and have held
their units for more than 18 months may be entitled to a 20% maximum federal tax
rate for gains from the sale of these units. It is not clear at the time of
printing this prospectus whether or how the new 20% maximum federal long-term
capital gain rate will apply to distributions from the Portfolio. Foreign
investors should be aware that distributions will generally be subject to
information reporting and 30% withholding tax (or lower applicable treaty rate).
Foreign investors should not be subject to withholding tax under the Foreign
Investors in Real Property Act ('FIRPTA') with respect to gain from the sale or
redemption of units. (See Taxes in Part B.)
A-2
<PAGE>
TAX BASIS REPORTING
The proceeds received when you sell this investment will reflect the deduction
of the deferred sales charge. In addition, the annual statement and the relevant
tax reporting forms you receive at year-end will be based on the amount paid to
you (not including the deferred sales charge). Accordingly, you should not
increase your basis in your units by the deferred sales charge.
LIQUIDATION PERIOD
Beginning on June 26, 2000 until no later than August 18, 2000 (see Life of the
Fund; Fund Termination in Part B).
MANDATORY TERMINATION DATE
The Portfolio will terminate by August 18, 2000. The final distribution will be
made within a reasonable time afterward. The Portfolio may be terminated earlier
if its value is less than 40% of the value of the securities when deposited.
- ----------------------------------------------------------------
Defining Your Risks
- ----------------------------------------------------------------
The Portfolio is considered to be 'concentrated' in the real estate industry and
is subject to certain risks associated with ownership of real estate generally
and the value of REITs in particular (see Risk Factors in Part B).
Unit price fluctuates with the value of the Portfolio, and the value of the
Portfolio will be affected by changes in the financial condition of the issuers,
changes in the real estate industry, general economic conditions, movements in
stock prices generally, the impact of the Sponsors' purchase and sale of the
securities (especially during the primary offering period of units) and other
factors. Further distributions of income on the underlying securities will
generally depend upon the declaration of dividends by the issuers, and there can
be no assurance that the issuers of securities will pay dividends or that the
current level of dividends can be maintained. Therefore, there is no guarantee
that the objective of the Portfolio will be achieved. Certain of the REITs may
be relatively illiquid and some of the issuers may be thinly capitalized or have
a limited operating history and as a result may be especially susceptible to
stock market and real estate fluctuations.
Unlike a mutual fund, the Portfolio is not actively managed and the Sponsors
receive no management fee. Therefore, the adverse financial condition of an
issuer or any market movement in the price of a security will not necessarily
require the sale of securities from the Portfolio or mean that the Sponsors will
not continue to purchase the Security in order to create additional Units.
Although the Portfolio is regularly reviewed and evaluated and Sponsors may
instruct the Trustee to sell securities under certain limited circumstances,
Securities will not be sold to take advantage of market fluctuations or changes
in anticipated rates of appreciation.
- ----------------------------------------------------------------
Defining Your Costs
- ----------------------------------------------------------------
SALES CHARGES
First-time investors pay a 2.75% sales charge when they buy. For example, on a
$1,000 investment, $972.50 is invested in the Portfolio. In addition, a deferred
sales charge of $1.625 per 1,000 units will be deducted from the Portfolio's net
asset value each quarter ($19.50 total). This deferred method of payment keeps
more of your money invested over a longer period of time.
Although the Fund is a unit investment trust rather than a mutual fund, the
following information is presented to permit a comparison of fees and an
understanding of the direct or indirect costs and expenses that you pay.
As a %
of Public Amount per
Offering Price 1,000 Units
----------------- --------------
Maximum Initial Sales Charge 2.75% $ 32.76
Maximum Deferred Sales Charge 1.64% 19.50
----------------- --------------
4.39% $ 52.26
----------------- --------------
----------------- --------------
Maximum Sales Charge Imposed on
Reinvested Dividends 1.64% $ 19.50
ESTIMATED ANNUAL FUND OPERATING EXPENSES
Amount per
1,000 Units
--------------
Trustee's Fee $ 0.81
Portfolio Supervision, Bookkeeping and
Administrative Fees $ 0.45
REIT Consultant's Fee $ 1.50
Organizational Expenses $ 0.59
Other Operating Expenses $ 0.39
--------------
TOTAL $ 3.74
A-3
<PAGE>
The total annual fees are greater for this Fund than for other equity funds of
the Sponsors because most other funds do not pay consultants for ongoing
research.
The Sponsors believe that the research arrangement with the REIT Consultant
(which is not affiliated with any of the Sponsors) is desirable in the present
circumstances due to the complexity of the REIT industry and the REIT
Consultant's expertise in providing equity research on individual REITs and the
REIT industry in general.
COSTS OVER TIME
You would pay the following cumulative expenses on a $1,000 investment, assuming
5% annual return on the investment throughout the indicated periods and
redemption at the end of the period:
1 Year 2 Years 3 Years
$38 $48 $58
The example assumes reinvestment of all dividends and distributions and uses a
5% annual rate of return as mandated by SEC regulations applicable to mutual
funds. For purposes of the example, the deferred sales charge imposed on
reinvestment of dividends is not reflected until the year following payment of
the dividend; the cumulative expenses would be higher if sales charges on
reinvested dividends were reflected in the year of reinvestment.
The example should not be considered a representation of past or future expenses
or annual rates of return; the actual expenses and annual rates of return may be
more or less than the example.
REDEEMING OR SELLING YOUR INVESTMENT
You may sell or redeem your units at any time prior to the termination of the
Portfolio. Your price will be based on the then current net asset value. The
redemption and secondary market repurchase price as of the evaluation date was
$1,158.42 per 1,000 units. ($32.76 per 1,000 units less than the Public Offering
Price).
If you redeem or sell your units before the termination of the Portfolio, no
further deferred sales charges will be deducted.
REDEMPTION IN KIND
You may request redemption in kind from the Trustee if you will be entitled to
receive at least 100 shares of each security in the Portfolio as part of your
distribution (see How To Sell--Trustee's Redemption of Units in Part B).
A-4
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 2,
DEFINED ASSET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Equity Investor Fund - Concept Series,
Real Estate Income Fund - 2, Defined Asset Funds:
We have audited the accompanying statement of condition of Equity Investor
Fund - Concept Series, Real Estate Income Fund - 2, Defined Asset Funds
including the portfolio, as of May 31, 1997 and the related statements of
operations and of changes in net assets for the period June 26,
1996 to May 31, 1997. These financial statements are the responsibility of
the Trustee. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Securities
owned at May 31, 1997, as shown in such portfolio, were
confirmed to us by The Bank of New York, the Trustee. An audit also
includes assessing the accounting principles used and significant
estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Equity Investor
Fund - Concept Series, Real Estate Income Fund - 2, Defined Asset Funds at
May 31, 1997 and the results of its operations and changes in its net assets
for the above-stated period in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
September 18, 1997
D - 1
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 2,
DEFINED ASSET FUNDS
STATEMENT OF CONDITION
AS OF MAY 31, 1997
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $109,247,669) (Note 1)................. $117,351,531
Dividends receivable........................... 264,544
Cash........................................... 474,253
Deferred organization cost..................... 183,230
Receivable for units created.................. 1,788,475
______________
Total trust property................. 120,062,033
LESS LIABILITIES:
Distributions payable.......................... $ 554,380
Payable for securities purchased............... 1,431,976
Accrued Expenses............................... 38,110
Other liabilities.............................. 183,230 2,207,696
____________ _____________
NET ASSETS, REPRESENTED BY:
101,303,066 units of fractional undivided
interest outstanding (Note 3)................ 117,644,781
Undistributed net investment income............ 209,556
____________
$117,854,337
=============
UNIT VALUE ($117,854,337/101,303,066 units)...... $1.16338
=============
</TABLE>
See Notes to Financial Statements.
D - 2
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 2,
DEFINED ASSET FUNDS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
June 26,
1996
to
May 31,
1997
_____________
<S> <C>
INVESTMENT INCOME:
Dividend income................................. $ 3,505,522
Trustee's fees and expenses..................... (60,787)
Sponsors' fees ................................. (29,639)
______________
Net investment income........................... 3,415,096
NET UNREALIZED APPRECIATION
OF INVESTMENTS................................ 8,103,862
______________
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................................. $11,518,958
==============
</TABLE>
See Notes to Financial Statements.
D - 3
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 2,
DEFINED ASSET FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
June 26,
1996
to
May 31,
1997
_____________
<S> <C>
OPERATIONS:
Net investment income........................... $ 3,415,096
Unrealized appreciation of investments.......... 8,103,862
______________
Net increase in net assets resulting
from operations.............................. 11,518,958
______________
INCOME DISTRIBUTIONS TO HOLDERS (Note 2).......... (3,571,325)
______________
CAPITAL SHARE TRANSACTIONS:
Issuance of 101,001,987 units................... 110,127,680
Consulting fees................................. (103,898)
Deferred sales charge........................... (353,383)
Organization expense............................ (55,845)
______________
Net capital share transactions.................. 109,614,554
NET INCREASE IN NET ASSETS...................... 117,562,187
NET ASSETS AT BEGINNING OF PERIOD................. 292,150
______________
NET ASSETS AT END OF PERIOD....................... $117,854,337
==============
PER UNIT:
Income distributions during period.............. $.06169
==============
Net asset value at end of period................ $1.16338
==============
TRUST UNITS OUTSTANDING AT END OF PERIOD.......... 101,303,066
==============
</TABLE>
See Notes to Financial Statements.
D - 4
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 2,
DEFINED ASSET FUNDS
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
(a) Securities are stated at market value; for securities listed on a
national securities exchange, value is based on the closing sale price
on such exchange and for securities not so listed, value is based on
the over-the-counter market. See "How to Sell Units - Trustee's
Redemption of Units" in this Prospectus, Part B. Gains and losses on
sales of securities are determined using the first-in, first-out cost
method.
(b) The Fund is not subject to income taxes. Accordingly, no provision for
such taxes is required.
(c) Dividend income is recorded as earned on the ex-dividend date.
2. DISTRIBUTIONS
A distribution of net investment income is made to Holders each month.
Receipts other than dividends, after deductions for redemptions and
applicable expenses, are distributed as explained in "Income,
Distributions and Reinvestment - Distributions" in this Prospectus,
Part B.
3. NET CAPITAL
Cost of 101,303,066 units at Date of Deposit.............. $110,062,306
Less sales charge......................................... 465,542
_______________
Net amount applicable to Holders.......................... 109,596,764
Net unrealized appreciation of investments................ 8,103,862
Organizational costs...................................... (55,845)
_______________
Net capital applicable to Holders......................... $117,644,781
===============
4. INCOME TAXES
As of May 31, 1997, net unrealized appreciation of investments, based on
cost for Federal income tax purposes, aggregated $8,103,862 of which
$8,139,020 related to appreciated securities and $325,068 related to
depreciated securities. The cost of investment securities for Federal
income tax purposes was $109,247,669 at May 31, 1997.
D - 5
<PAGE>
EQUITY INVESTOR FUND
CONCEPT SERIES
REAL ESTATE INCOME FUND - 2
DEFINED ASSET FUNDS
PORTFOLIO
AS OF MAY 31, 1997
<TABLE><CAPTION>
Current Annual
or Indicated
Portfolio No. and Title of Number of Dividend Per
Securities Shares Share(2) Cost Market Value(1)
---------- ------ -------- ---- ---------------
<S> <C> <C> <C> <C>
1 Avalon Properties 131,200 $1.5200 $ 3,340,829 $ 3,608,000
2 Beacon Properties 131,200 1.8500 4,107,649 4,067,200
3 Cali Realty Corp 98,400 1.8000 2,785,520 2,915,100
4 Camden Property Trust 98,400 1.9600 2,625,070 2,890,500
5 Carramerica Realty Corp. 98,400 1.7500 2,631,533 2,792,100
6 CBL & Associates Properties 164,000 1.7700 3,955,525 3,895,000
7 Centerpoint Properties Corp. 65,600 1.6800 1,893,530 1,968,000
8 Charles E. Smith Residential 65,600 2.0200 1,711,018 1,795,800
9 Chateau Communities 65,751 1.7200 1,686,020 1,725,964
10 Chelsea GCA Realty Inc. 65,600 2.5200 2,133,905 2,386,200
11 Colonial Properties Trust 98,400 2.0800 2,697,200 2,878,200
12 Columbus Realty Trust 65,600 1.5800 1,379,793 1,443,200
13 Cousins Properties Inc. 196,800 1.2400 4,781,068 5,264,400
14 Crescent Real Estate Equities 196,800 1.2200 4,596,228 5,362,800
15 Developers Divers Realty Corp 98,400 2.5200 3,393,383 3,665,400
16 Duke Realty Investments Inc 65,600 2.0400 2,342,430 2,501,000
17 Federal Realty Invs. Trust 131,200 1.6800 3,347,623 3,427,600
18 General Growth Properties 98,400 1.8000 2,798,408 3,173,400
19 Health Care Properties Invest Inc 98,400 2.4400 3,389,333 3,321,000
20 Homestead Common 8,219 81,400 141,778
21 Irvine Apartment Communities 98,400 1.4600 2,419,807 2,767,500
</TABLE>
D - 6
<PAGE>
EQUITY INVESTOR FUND
CONCEPT SERIES
REAL ESTATE INCOME FUND - 2
DEFINED ASSET FUNDS
PORTFOLIO
AS OF MAY 31, 1997
<TABLE><CAPTION>
Current Annual
or Indicated
Portfolio No. and Title of Number of Dividend Per
Securities Shares Share(2) Cost Market Value(1)
---------- ------ -------- ---- ---------------
<S> <C> <C> <C> <C>
22 JP Realty Corp 164,000 $1.7400 $ 3,966,750 $ 4,243,500
23 Kimco Realty Corp. 98,400 1.7200 3,029,618 3,099,600
24 Macerich Company 164,000 1.7600 4,014,375 4,428,000
25 Mills Corp 98,400 1.8600 2,188,458 2,496,900
26 Nationwide Health Properties 164,000 1.5600 3,666,563 3,526,000
27 Post Properties Inc 98,400 2.3800 3,771,520 3,911,400
28 Reckson Assoc Realty Corp 131,200 1.2000 2,590,795 2,952,000
29 Security Cap Industrial 131,200 1.0700 2,563,110 2,640,400
30 Security Capital Pacific Trust 65,600 1.3000 1,451,920 1,459,600
31 Simon DeBartolo Group Inc 164,000 2.0200 4,545,775 4,961,000
32 Spieker Properties Inc 131,200 1.8800 4,243,210 4,838,000
33 Sun Communities Inc 65,600 1.8800 2,081,105 2,140,200
34 United Dominion Realty Trust 164,000 1.0100 2,433,338 2,419,000
35 Urban Shopping Centers 98,400 2.0300 2,687,757 2,853,600
36 Vornado Realty Trust 65,600 2.5600 3,247,380 4,493,600
37 Weeks Corp 65,600 1.7200 1,999,768 2,066,400
38 Weingarten Realty Invst 65,600 2.5600 2,668,955 2,812,600
39 Homestead Warrants 2,411 19,589
_____________ _______________ _______________
Total 4,077,981 $109,247,669 $117,351,531
============== =============== ===============
(1) See Notes to Financial Statements.
(2) Based on the latest quarterly or
Semiannual declaration
</TABLE>
D - 7
<PAGE>
AUTHORIZATION FOR REINVESTMENT
DEFINED ASSET FUNDS--EQUITY INVESTOR FUND
CONCEPT SERIES, REAL ESTATE INCOME FUND--2
/ / Yes, I want to participate in the Fund's Reinvestment Plan and purchase
additional Units of the Fund each month.
I hereby acknowledge receipt of the Prospectus for Defined Asset
Funds--Equity Investor Fund, Concept Series, Real Estate Income Fund--2 and
authorize The Bank of New York to pay distributions on my Units as indicated
below (distributions to be reinvested will be paid for my account to The Bank of
New York).
Income and principal distributions (including capital gains) (check one): / /
in cash / / reinvested
Please print or type
Name Registered Holder
Address
Registered Holder
(Two signatures required if
joint tenancy)
City State Zip Code
This page is a self-mailer. Please complete the information above, cut
along the dotted line, fold along the lines on the reverse side, tape, and mail
with the Trustee's address displayed on the outside.
12345678
<PAGE>
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 1313 NEW YORK, N.Y. NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
DEFINED ASSET FUNDS--EQUITY INVESTOR FUND UNITED STATES
CONCEPT SERIES--REAL ESTATE INCOME FUND--2
THE BANK OF NEW YORK
UNIT INVESTMENT TRUST DEPARTMENT
P.O. BOX 974
WALL STREET STATION
NEW YORK, N.Y. 10268-0974
- --------------------------------------------------------------------------------
(Fold along this line.)
- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
EQUITY INVESTOR FUND CONCEPT SERIES
REAL ESTATE INCOME FUND
FURTHER INFORMATION REGARDING THE FUND MAY BE OBTAINED
WITHIN FIVE DAYS OF WRITING OR CALLING THE TRUSTEE AT THE ADDRESS AND
TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS.
INDEX
PAGE
---------
FUND DESCRIPTION................................. 1
RISK FACTORS..................................... 2
HOW TO BUY UNITS................................. 4
HOW TO SELL UNITS................................ 6
INCOME, DISTRIBUTIONS AND REINVESTMENT........... 7
FUND EXPENSES.................................... 7
TAXES............................................ 8
RECORDS AND REPORTS.............................. 10
TRUST INDENTURE.................................. 10
MISCELLANEOUS.................................... 11
EXCHANGE OPTION.................................. 12
SUPPLEMENTAL INFORMATION......................... 13
FUND DESCRIPTION
PORTFOLIO SELECTION
All of the REITs in the Portfolio were chosen from a list of recommended
REITs provided to the Sponsors by the REIT Consultant, Cohen & Steers. The REIT
Consultant considered the following factors, among others, when recommending the
REITs to the Sponsors: (i) the risk-adjusted potential returns of the REIT, (ii)
whether the management is highly focused and free from conflicts, (iii)
performance under various economic conditions, (iv) the appreciation potential
of the property owned, (v) the financial strength and flexibility of the REIT,
(vi) whether the REIT has access to capital markets and (vii) the cash flow
quality and growth potential of the REIT. The Sponsors considered the following
factors, among others, when selecting the REITs from the recommended list: (i)
liquidity, (ii) yield and (iii) diversification of the Portfolio by REIT type
(e.g. industrial, commercial, healthcare, apartments or retail) and geographic
location to provide both regional expertise and national exposure.
The REIT Consultant, Cohen & Steers, is based in New York City. Cohen &
Steers is a registered investment adviser, organized in 1986, managing $5.3
billion in assets at August 31, 1997, invested almost exclusively in publicly
traded real estate securities. It has extensive investment experience,
substantial research capabilities and strong trading relationships in the real
estate industry. Clients include corporate and public pension plans, endowment
funds and investment companies.
In addition to providing the initial list of recommended REITs to the
Sponsors, the REIT Consultant will periodically provide the Sponsors with
research on individual REITs and the REIT market in general to assist the
Sponsors in supervising the Portfolio (see Portflio Supervision below).
1
<PAGE>
The Fund may be an appropriate medium for investors who desire to
participate in a portfolio of REITs with greater variety than they might be able
to acquire individually. While REIT prices have had a low correlation with price
movements in common stocks generally (and therefore can help to diversify an
investment portfolio), because of substantial past price fluctuations in REITs,
an investment in the Fund should not be considered a complete investment
program.
The deposit of the Securities in the Portfolio on the initial date of
deposit established a proportionate relationship among the number of shares of
each Security. Following the initial date of deposit the Sponsors may deposit
additional Securities in order to create new Units, maintaining to the extent
possible that original proportionate relationship. The ability to acquire each
Security at the same time will generally depend upon the Security's availability
and any restrictions on the purchase of that Security under the federal
securities laws or otherwise.
Additional Units may also be created by the deposit of cash (including a
letter of credit) with instructions to purchase additional Securities. This
practice could cause both existing and new investors to experience a dilution of
their investments and a reduction in their anticipated income because of price
fluctuations in the Securities between the time of the cash deposit and the
actual purchase of the additional Securities and because the associated
brokerage fees will be an expense of the Fund. To minimize these effects, the
Fund will try to purchase Securities as close to the Evaluation Time or at
prices as close to the evaluated prices as possible.
Because each Defined Asset Fund is a preselected portfolio, you know the
securities before you invest. Of course, the Portfolio will change somewhat over
time, as Securities are purchased upon creation of additional Units, as
securities are sold to meet Unit redemptions or in other limited circumstances.
PORTFOLIO SUPERVISION
The Fund follows a buy and hold investment strategy in contrast to the
frequent portfolio changes of a managed fund based on economic, financial and
market analyses. Although the Portfolio is not actively managed, it is regularly
reviewed and evaluated and Securities can be sold in case of certain adverse
developments concerning a Security including the adverse financial condition of
the issuer, the institution of legal proceedings against the issuer, a decline
in the price or the occurrence of other market or credit factors (including a
public tender offer or a merger) that might otherwise make retention of the
Security detrimental to the interest of investors or if the disposition of these
Securities is necessary in order to enable the Fund to make distributions of the
Fund's capital gain net income or desirable in order to maintain the
qualification of the Fund as a regulated investment company under the Internal
Revenue Code. Securities can also be sold to meet redemption of Units. The
Sponsors are also authorized to direct the reinvestment of the proceeds of the
sale of Securities, as well as moneys held to cover the purchase of Securities
pursuant to contracts which have failed, in additional Securities.
RISK FACTORS
An investment in the Fund entails certain risks, including the risk that
the value of your investment will decline if the financial condition of the
issuers of the Securities becomes impaired or if the general condition of the
stock market worsens and the risk that holders of common stocks 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. Moreover, common stocks do not represent an obligation of
the issuer and therefore do not offer any assurance of income or provide the
degree of protection of capital provided by debt securities. Common stocks in
general may be especially susceptible to general stock market movements and to
volatile increases and decreases in 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, and global or regional political, economic or banking crises. The
Sponsors cannot predict the direction or scope of any of these factors.
The Portfolio is concentrated in real estate investment trusts.
Concentration may involve additional risk because of the decreased
diversification of economic, financial and market risks. Set forth below is a
brief description of certain risks associated with the Securities. Additional
information is contained in the Information Supplement which is available from
the Trustee at no charge to the investor.
2
<PAGE>
REAL ESTATE INVESTMENT TRUSTS
Real estate is a traditional investment. REITs are financial vehicles that
have as their objective the pooling of capital from a number of investors in
order to participate directly in real estate ownership or financing and offer a
convenient and cost effective way to diversify your portfolio with real estate
investments. They generally have interests in income-producing real estate.
Equity REITs such as those in the Portfolio emphasize direct property
investment, holding their invested assets primarily in the ownership of real
estate or other equity interests. The objective of an equity REIT is to purchase
income-producing real estate properties in order to generate high levels of cash
flow from rental income and a gradual asset appreciation, and they typically
invest in properties such as office, retail, industrial, hotel and apartment
buildings and health care facilities. The REITs in the Portfolio are not highly
leveraged and generate most of their income from rents on established
properties. Their properties are geographically diversified around the country.
While past experience is no guarantee of the future, REITs historically have
distributed high levels of income through various economic and market cycles.
REITs have grown significantly in recent years and have been a stablizing force
in the U.S. real estate market. The Sponsors believe selected REITs offer an
attractive opportunity over the next four years. Current returns and the
valuation of REITs in today's market may make this a good time to invest.
Many factors can have an adverse impact on the performance of a particular
REIT, its cash available for distribution, the credit quality of a particular
REIT or the real estate industry generally. Risks associated with the direct
ownership of real estate include, among other factors, general and local
economic conditions, decline in real estate values, the financial health of
tenants, overbuilding and increased competition for tenants, oversupply of
properties for sale, changing demographics, changes in interest rates, changes
in government regulations, faulty construction, changes in neighborhood values,
and the unavailability of construction financing or mortgage loans at rates
acceptable to developers. Variations in rental income and space availability and
vacancy rates in terms of supply and demand are additional factors affecting
real estate generally and REITs in particular. Investors should also be aware
that REITs may not be diversified and are subject to the risks of financing
projects. REITs are also subject to defaults by borrowers, self-liquidation and
the market's perception of the REIT industry generally.
Certain REITs in the Fund are structured as UPREITs. This form of REIT owns
an interest in a partnership that owns real estate, which can result in a
potential conflict of interest between shareholders who may want to sell an
asset and partnership interest holders who would be subject to tax liability if
the REIT sells the property. In some cases, REITs have entered into 'no sell'
agreements, which are designed to avoid a taxable event to the holders of
partnership units by preventing the REIT from selling the property. This
arrangement could mean that the REIT would refuse a lucrative offer for an asset
or be forced to hold on to a poor asset. Since 'no sell' agreements are often
undisclosed, the Sponsors are unable to state whether any of the REITs in the
Fund have entered into this kind of arrangement.
REIT Taxation. Each of the REITs in which the Fund invests will generally
state its intention to operate in such manner as to qualify for taxation as a
'real estate investment trust' under Section 850-860 of the Internal Revenue
Code, although, of course, no assurance can be given that each REIT will at all
times so qualify. So long as an issuer qualifies as a REIT, it will, in general,
be subject to Federal income tax only on income that is not distributed to
stockholders. In order to qualify as a REIT for any taxable year, a REIT must,
among other things, hold at least 75% of its local assets in real estate, cash
items and government securities; derive at least 75% of its gross income from
rents and interest on mortgages; and distribute to its stockholders an amount at
least equal to the sum of 95% of its taxable income. Failure to qualify for
taxation as a REIT in any taxable year will subject an issuer to tax on its
taxable income at regular corporate rates. Distributions to stockholders in any
year in which an issuer fails to qualify as a REIT will not be deductible by the
issuer. Unless entitled to relief under specific statutory provisions, the
issuer would not qualify for taxation as a REIT for the next four taxable years
after failing to qualify in any year. Each REIT may also be subject to state,
local or other taxation in various state, local or other jurisdictions.
LIQUIDITY
Whether or not the Securities are listed on a national securities exchange,
the principal trading market for the Securities may be in the over-the-counter
market. As a result, the existence of a liquid trading market for the Securities
may depend on whether dealers will make a market in the Securities. There can be
no assurance that a market will be made for any of the Securities, that any
market for the Securities will be maintained or of the liquidity of the
Securities in any markets made. In addition, the Fund may be restricted under
the Investment Company Act of
3
<PAGE>
1940 from selling Securities to the Sponsors. The price at which the Securities
may be sold to meet redemptions and the value of the Fund will be adversely
affected if trading markets for the Securities are limited or absent.
LITIGATION AND LEGISLATION
The Sponsors do not know of any pending litigation as of the initial date
of deposit that might reasonably be expected to have a material adverse effect
on the Fund, although pending litigation may have a material adverse effect on
the value of Securities in the Fund. In addition, at any time after the initial
date of deposit, litigation may be initiated on a variety of grounds, or
legislation may be enacted, affecting the Securities in the Portfolio or the
issuers of the Securities. Changing approaches to regulation may have a negative
impact on certain companies represented in the Portfolio. There can be no
assurance that future litigation, legislation, regulation or deregulation will
not have a material adverse effect on the Portfolio or will not impair the
ability of the issuers of the Securities to achieve their business goals.
LIFE OF THE FUND; FUND TERMINATION
The size and composition of the Portfolio will be affected by the level of
redemptions of Units that may occur from time to time. Principally, this will
depend upon the number of investors seeking to sell or redeem their Units. The
Portfolio will be terminated no later than the mandatory termination date
specified in Part A of the Prospectus. It will terminate earlier upon the
disposition of the last Security or upon the consent of investors holding 51% of
the Units. The Portfolio may also be terminated earlier by the Sponsors once its
total assets have fallen below the minimum value specified in Part A of the
Prospectus. A decision by the Sponsors to terminate the Portfolio early will be
based on factors such as the size of the Portfolio relative to its original
size, the ratio of Portfolio expenses to income, and the cost of maintaining a
current prospectus.
Notice of impending termination will be provided to investors and
thereafter units will no longer be redeemable. On the date specified under
Liquidation Period in Part A, the Trustee may begin to sell all of the
underlying Securities in connection with the termination of the Fund. The Agent
for the Sponsors has agreed to perform these sales for the Trustee. The sale
proceeds will be net of any incidental expenses involved in the sales. At this
time the Sponsors may offer to investors the option of having their Units
redeemed in kind and the distributed Securities sold by the Distribution Agent;
the proceeds could then be invested in units of a new Series of the Fund, if one
is being offered, at a reduced sales charge. The Sponsors are under no
obligation to create a new Series of the Fund, however, or to offer this kind of
redemption and reinvestment option.
Securities will be sold as quickly as possible during the Liquidation
Period without, in the judgment of the Agent for the Sponsors, materially
adversely affecting the market price of the Securities, but it is expected that
all of the Securities will in any event be disposed of by the end of the
Liquidation Period. It is not expected 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 available for sale on any
particular day.
It is expected (but not required) that the following guidelines will
generally be followed in selling the Securities: highly liquid Securities will
generally be sold on the first day of the Liquidation Period; for less liquid
Securities, on each of the first two days of the Liquidation Period; any amount
of any underlying Securities will generally be sold at a price no less than one
point under the last closing sale price of those Securities. Thereafter, the
price limit will increase to one point under the last closing sale price. After
four days, it is currently intended that at least a fraction of the remaining
underlying Securities will be sold, the numerator of which is one and the
denominator of which is the total number of days remaining (including that day)
in the Liquidation Period without any price restrictions. Of course, no
assurance can be given that the market value of the Securities will not be
adversely affected during the Liquidation Period.
HOW TO BUY UNITS
Units are available from any of the Sponsors, Underwriters and other
broker-dealers at the Public Offering Price. The Public Offering Price varies
each Business Day with changes in the value of the Portfolio and other assets
and liabilities of the Fund.
4
<PAGE>
PUBLIC OFFERING PRICE
Units are charged a combination of Initial and Deferred Sales Charges
equal, in the aggregate, to a maximum charge of 3.95% of the Public Offering
Price, or 4.057% of the net asset value of the Fund over its expected four-year
life. The initial portion of the sales charge is equal to 2.75% of the Public
Offering Price (2.828%) of the net amount invested in the Securities) and the
deferred portion of the sales charge is $1.625 per 1,000 Units ($6.50 per year)
payable by the Fund on behalf of the investors out of net asset value of the
Fund on each quarterly deferred charge payment date until the Fund terminates.
If an investor sells or redeems Units before a deferred charge payment date, all
future deductions of deferred sales charges with respect to such investor will
be waived; this will have the effect of reducing the rate of sales charge as to
that investor.
The initial portion of the sales charge is reduced on a graduated scale for
sales to any purchaser of at least $250,000 of Units and will be applied on
whichever basis is more favorable to the purchaser. To qualify for the reduced
initial sales charge and concession applicable to quantity purchasers, the
dealer must confirm that the sale is to a single purchaser as defined below or
is purchased for its own account and not for distribution. The initial portion
of the sales charge will be reduced as follows:
<TABLE>
<CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
------------------------------------
AS PERCENT OF AS PERCENT OF MAXIMUM DEALER CONCESSION
PUBLIC OFFERING NET AMOUNT DOLLAR AMOUNT DEFERRED AS PERCENT OF
AMOUNT PURCHASED PRICE INVESTED PER 1,000 UNITS PUBLIC OFFERING PRICE
- --------------------------------------------- --------------------- ------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Less than $250,000........................... 2.75% 2.828% $ 26.00 1.788%
250,000 - 499,999............................ 2.25 2.302 26.00 1.463
500,000 - 749,999............................ 1.75 1.781 26.00 1.138
750,000 - 999,999............................ 1.25 1.266 26.00 0.813
1,000,000 or more............................ 1.00 1.010 26.00 0.650
</TABLE>
The above graduated sales charges will apply on all purchases on any one
day by the same purchaser of Units in this Fund only in the amounts stated. For
this purpose purchases during the primary offering period will not be aggregated
with concurrent purchases of any other unit trusts sponsored by the Sponsors.
Purchases in the secondary market of one or more Series sponsored by the
Sponsors which have the same rates of sales charge will be aggregated. Units
held in the name of the spouse of the purchaser or in the name of a child of the
purchaser under 21 years of age are deemed to be registered in the name of the
purchaser. The graduated sales charges are also applicable to a trustee or other
fiduciary purchasing securities for a single trust estate or single fiduciary
account.
The initial portion of the sales charge will be reduced to 2.00% of the
Public Offering Price for purchases after two years from the Initial Date of
Deposit and to 1.50% of the Public Offering Price after three years from the
Initial Date of Deposit.
Employees of certain Sponsors and Sponsor affiliates and non-employee
directors of Merrill Lynch & Co. Inc. may purchase Units at a reduced initial
sales charge of not less than $5.00 per 1,000 Units.
EVALUATIONS
Evaluations are determined by the Trustee on each Business Day. This
excludes Saturdays, Sundays and the following holidays as observed by the New
York Stock Exchange: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. If the Securities are
listed on a national securities exchange or the Nasdaq National Market,
evaluations are generally based on closing sales prices on that exchange or that
system (unless the Trustee deems these prices inappropriate) or, if closing
sales prices are not available, at the mean between the closing bid and offer
prices. If the Securities are not listed or if listed but the principal market
is elsewhere, the evaluation is generally determined based on sales prices of
the Securities on the over-the-counter market or, if sales prices in that market
are not available, on the basis of the mean between current bid and offer prices
for the Securities or for comparable securities or by appraisal or by any
combination of these methods. Neither the Sponsors nor the Trustee guarantee the
enforceability, marketability or price of any Securities.
5
<PAGE>
CERTIFICATES
Certificates for Units are issued upon request and may be transferred by
paying any taxes or governmental charges and by complying with the requirements
for redeeming Certificates (see How To Sell Units--Trustee's Redemption of
Units). Certain Sponsors collect additional charges for registering and shipping
Certificates to purchasers. Lost or mutilated Certificates can be replaced upon
delivery of satisfactory indemnity and payment of costs.
HOW TO SELL UNITS
SPONSORS' MARKET FOR UNITS
You can sell your Units at any time without a fee. The Sponsors (although
not obligated to do so) will normally buy any Units offered for sale at the
repurchase price next computed after receipt of the order. The Sponsors have
maintained secondary markets in Defined Asset Funds for over 20 years. Primarily
because of the sales charge and fluctuations in the market value of the
Securities, the sale price may be less than the cost of your Units. You should
consult your financial professional for current market prices to determine if
other broker-dealers or banks are offering higher prices for Units.
The Sponsors may discontinue this market without prior notice if the supply
of Units exceeds demand or for other business reasons. The Sponsors may reoffer
or redeem Units repurchased.
TRUSTEE'S REDEMPTION OF UNITS
You may redeem your Units by sending the Trustee a redemption request.
Signatures must be guaranteed by an eligible institution. In certain instances,
additional documents may be required such as a certificate of death, trust
instrument, certificate of corporate authority or appointment as executor,
administrator or guardian. If the Sponsors are maintaining a market for Units,
they will purchase any Units tendered at the repurchase price described above.
If they do not purchase Units tendered, the Trustee is authorized in its
discretion to sell Units in the over-the-counter market if it believes it will
obtain a higher net price for the redeeming investor.
By the seventh calendar day after tender you will be mailed an amount equal
to the Redemption Price per Unit. Because of market movements or changes in the
Portfolio, this price may be more or less than the cost of your Units. The
Redemption Price per Unit is computed each Business Day by adding the value of
the Securities, declared but unpaid dividends on the Securities, cash and the
value of any other Fund assets; deducting unpaid taxes or other governmental
charges, accrued but unpaid Fund expenses, unreimbursed Trustee advances, cash
held to redeem Units, for purchase of Securities or for distribution to
investors and the value of any other Fund liabilities; and dividing the result
by the number of outstanding Units.
Any investor may, in lieu of cash redemption, request distribution in kind
of an amount and value of Securities per Unit equal to the otherwise applicable
Redemption Price per Unit, if he would be entitled to receive at least 100
shares of each Security in the Portfolio as part of his distribution. Whole
shares of each Security together with cash from the Capital Account equal to any
fractional shares to which the investor would be entitled will be paid over to a
distribution agent and either held for the account of the investor or disposed
of in accordance with instructions of the investor. Any brokerage commissions on
sales of Securities in connection with in-kind redemptions will be borne by the
redeeming investors. The in-kind redemption option may be terminated by the
Sponsors at any time upon prior notice to investors.
After the initial offering period, the repurchase and cash redemption
prices will be reduced to reflect the cost to the Fund of liquidating Securities
to meet the redemption.
If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee may sell Securities selected by the Agent for the
Sponsors in a manner designed to maintain, to the extent practicable, the
proportionate relationship among the number of shares of each Security. These
sales are often made at times when the Securities would not otherwise be sold
and may result in lower prices than might be realized otherwise and will also
reduce the size and diversity of the Fund.
Redemptions may be suspended or payment postponed if the New York Stock
Exchange is closed other than for customary weekend and holiday closings, if the
SEC determines that trading on that Exchange is restricted or that an
6
<PAGE>
emergency exists making disposal or evaluation of the Securities not reasonably
practicable, or for any other period permitted by the SEC.
INCOME, DISTRIBUTIONS AND REINVESTMENT
INCOME AND DISTRIBUTIONS
The net annual income per Unit will depend primarily upon the amount of
dividends declared and paid by the issuers of the Securities and changes in the
expenses of the Fund and, to a lesser degree, upon the level of purchases of
additional Securities and sales of Securities. There is no assurance that
dividends on the Securities will continue at their current levels or be declared
or paid.
Each Unit receives an equal share of monthly distributions of dividend
income. Because dividends on the Securities are not received at a constant rate
throughout the year, any income distribution may be more or less than the amount
then credited to the Income Account. Dividends payable to the Fund are credited
to an Income Account, as of the date on which the Fund is entitled to receive
the dividends, and other receipts are credited to a Capital Account. A Reserve
Account may be created by withdrawing from the Income and Capital Accounts
amounts considered appropriate by the Trustee to reserve for any material amount
that may be payable out of the Fund. Funds held by the Trustee in the various
accounts do not bear interest. Subject to the Reinvestment Plan, the Monthly
Income Distribution for each investor shall consist of an amount, computed
monthly by the Trustee, substantially equal to one-twelfth of the investor's pro
rata share of the estimated annual income to the Income Account after deducting
estimated expenses. There is no assurance that actual distributions will be made
since all dividends received may be used to pay expenses. The distributable
balance in the Capital Account per Unit (other than capital gains) as of any
particular record day will be distributed on or shortly after the related
distribution day to the holders of record on that record day, provided that no
distribution from the Capital Account is required unless the distributable
balance therein (excluding capital gains) is at least $5.00 per 1,000 Units.
An amount equal to any capital gain net income (i.e. the excess of capital
gains over capital losses recognized by the Fund in any taxable year will be
distributed shortly after the end of the year. In order to meet certain tax
requirements the Fund may make a special distribution of income, including
capital gains, to holders of record as of a date in December. Proceeds received
from the disposition of any of the Securities which are not used to make the
distribution of capital gain net income, for redemption of Units or reinvested
in additional Securities will be held in the Capital Account to be distributed
on the next succeeding distribution day.
REINVESTMENT
Income and principal distributions on Units may be reinvested by
participating in the Fund's reinvestment plan. Under the plan, the Units
acquired for investors will be either Units already held in inventory by the
Sponsors or new Units created by the Sponsors' deposit of additional Securities,
contracts to purchase additional Securities or cash (or a bank letter of credit
in lieu of cash) with instructions to purchase additional Securities. Purchases
made pursuant to the Reinvestment Plan will be made without initial sales charge
at the net asset value for Units of the Fund (but will be subject to
subsequently deducted deferred sales charges). Under the Reinvestment Plan, the
Fund will pay the distributions to the Trustee which in turn will purchase for
the investor full and fractional Units of the Fund at the price determined as of
the close of business on the distribution day and will add the Units to the
investor's account and send the investor an account statement reflecting the
reinvestment. The Sponsors reserve the right to amend, modify or terminate the
reinvestment plan at any time without prior notice. Investors holding Units in
'street name' should contact their broker, dealer or financial institution to
determine whether they may participate in the reinvestment plan.
FUND EXPENSES
INITIAL EXPENSES
The fee to be paid to the REIT Consultant, Cohen & Steers, in connection
with the use of its research in the selection of the initial REITs for the Fund,
will be paid by the Underwriting Account at no charge to the Fund. All or a
portion of certain other expenses incurred in establishing the Fund, including
the cost of the initial preparation of documents relating to the Fund, Federal
and State registration fees, the initial fees and expenses of the Trustee, legal
expenses and other out-of-pocket expenses will be paid by the Fund and amortized
over the life of the Fund. Advertising and selling expenses will be paid from
the Underwriting Account at no charge to the Fund.
7
<PAGE>
FEES
Estimated annual Fund expenses are listed in Part A of the Prospectus; if
actual expenses exceed the estimate, the excess will be borne by the Fund. The
annual fee to be paid by the Fund to the REIT Consultant for performing ongoing
research on the REITs in the Fund and the REIT industry generally shall be the
amount set forth in Part A of the Prospectus, based on the number of units
outstanding approximately five Business Days prior to each date of payment. The
Trustee's annual fee is payable in monthly installments. The Trustee also
benefits when it holds cash for the Fund in non-interest bearing accounts.
Possible additional charges include Trustee fees and expenses for extraordinary
services, costs of indemnifying the Trustee and the Sponsors, costs of action
taken to protect the Fund and other legal fees and expenses, Fund termination
expenses and any governmental charges. The Trustee has a lien on Fund assets to
secure reimbursement of these amounts and may sell Securities for this purpose
if cash is not available. The Sponsors receive an annual fee of a maximum of
$0.35 per 1,000 Units to reimburse them for the cost of providing Portfolio
supervisory services to the Fund. While the fee may exceed their costs of
providing these services to the Fund, the total supervision fees from all Series
of Equity Income Fund will not exceed their costs for these services to all of
those Series during any calendar year. The Sponsors may also be reimbursed for
their costs of providing bookkeeping and administrative services to the Fund,
currently estimated at $0.10 per 1,000 Units. The Trustee's and Sponsors' fees
may be adjusted for inflation without investors' approval.
Defined Asset Funds can be a cost-effective way to purchase and hold
investments. Annual operating expenses are generally lower than for managed
funds. Because Defined Asset Funds have no management fees, limited transaction
costs and no ongoing marketing expenses, operating expenses are generally less
than 0.25% a year. When compounded annually, small differences in expense ratios
can make a big difference in your investment results.
TAXES
TAXATION OF THE PORTFOLIO
The Portfolio intends to qualify for and elect the special tax treatment
applicable to 'regulated investment companies' under Sections 851-855 of the
Internal Revenue Code of 1986, as amended (the 'Code'). Qualification and
election as a 'regulated investment company' involve no supervision of
investment policy or management by any government agency. If the Portfolio
qualifies as a 'regulated investment company' and distributes to investors 90%
or more of its taxable income, excluding its net capital gain (i.e., the excess
of its net long-term capital gain over its net short-term capital loss), it will
not be subject to Federal income tax on the portion of its taxable income
(including any net capital gain) it distributes to investors in a timely manner.
In addition, the Portfolio will not be subject to the 4% excise tax on certain
undistributed income of 'regulated investment companies' to the extent it
distributes to investors in a timely manner at least 98% of its taxable income
(including any net capital gain). It is anticipated that the Portfolio will not
be subject to Federal income tax or the excise tax, because the Indenture
requires the distribution of the Portfolio's taxable income (including any net
capital gain) in a timely manner. Although all or a portion of the Portfolio's
taxable income (including any net capital gain) for any calendar year may be
distributed shortly after the end of the calendar year, such a distribution will
be treated for Federal income tax purposes as having been received by investors
during the calendar year.
DISTRIBUTIONS
Distributions to investors of the Portfolio's dividend income and net
short-term capital gain in any year will generally be taxable as ordinary income
to investors to the extent of the Portfolio's taxable income (other than taxable
income attributable to its net capital gain) for that year. Distributions in
excess of the Portfolio's taxable income will be treated as a return of capital
and will reduce the investor's basis in his Units and, to the extent that such
distributions exceed his basis, will be treated as a gain from the sale of his
Units as discussed below. It is anticipated that substantially all of the
distributions of the Portfolio's net capital gains will be designated as capital
gain dividends and that the Portfolio's dividend income and net short-term
capital gain will be taxable as ordinary income to investors. Distributions that
are taxable as ordinary income to investors will constitute dividends for
Federal income tax purposes but will not be eligible for the dividends-received
deduction.
Under the recently enacted Taxpayer Relief Act of 1997, investors who are
individuals and have held their Units for more than 18 months may be entitled to
a 20% maximum federal tax rate for gains from the sale of their Units. Prior to
the issuance of relevant regulations, it is not certain whether or how the 20%
maximum rate will be available
8
<PAGE>
with respect to capital gain dividends paid by the Portfolio. Investors should
consult their own tax advisers in this regard.
Distributions of the Portfolio's net capital gain that are designed as
capital gain dividends by the Portfolio will be taxable to investors as
long-term capital gain, regardless of the time the investor has held his Units.
However, if the Portfolio were to terminate in less than one year, the Portfolio
would not distribute any capital gain dividends. An investor, other than a
dealer in securities, will generally recognize capital gain or loss when the
investor disposes of his Units (by sale, redemption or otherwise). In the case
of a distribution of Securities to an investor upon redemption of his Units,
gain or loss will generally be recognized in an amount equal to the difference
between the investor's tax basis in his Units and the fair market value of the
Securities received in redemption. Net capital gain may be taxed at a lower rate
than ordinary income for certain individuals and other non-corporate taxpayers.
Any such capital gain or loss asset is long-term if the asset is held for more
than one year and short-term if held one year or less. However, any capital loss
on the sale or redemption of a Unit that an investor has held for six months or
less will be a long-term capital loss to the extent of any capital gain
dividends previously distributed to the investor by the Portfolio. The deduction
of capital loss is subject to limitations.
The investor's basis in his Units will be equal to the cost of his Units,
including the initial sales charge. A portion of the sales charge is deferred
until the termination of the Portfolio or the redemption of the Units. The
proceeds received by an investor upon such event will reflect deduction of the
deferred amount. The relevant tax reporting forms received by investors will
reflect the actual amounts paid to them, net of the deferred sales charge.
Accordingly, investors should not increase their basis in their Units by the
deferred sales charge amount.
Investors will be taxed in the manner described above regardless of whether
distributions from the Portfolio are actually received by the investor or are
reinvested pursuant to the reinvestment plan. The Federal tax status of each
year's distributions will be reported to investors and to the Internal Revenue
Service. The Portfolio intends to report to each investor, no later than January
31, the amount of distributions to that investor. However, the Fund does not
expect to receive until February information from the REITs as to the tax status
of these distributions, after receiving which, the Fund will report the
information as promptly as practicable to investors.
The foregoing discussion summarizes only certain U.S. Federal income tax
consequences of an investment in Units by investors who are U.S. persons, as
defined in the Code. Foreign investors (including nonresident alien individuals
and foreign corporations) not engaged in U.S. trade or business (i) will
generally be subject to 30% withholding tax (or lower applicable treaty rate) on
dividend distributions by the Portfolio (other than capital gain dividends) but
(ii) generally should not be subject to withholding tax under the Foreign
Investment in Real Property Tax Act ('FIRPTA') with respect to gain arising from
the sale or redemption of Units. In addition, based upon advice of counsel as to
existing law, the Trustee does not intend to withhold under FIRPTA on
distributions of the Fund's net capital gain (designated as capital gain by the
Fund). Investors may be subject to taxation in New York or in other U.S. or
foreign jurisdictions and should consult their own tax advisers in this regard.
RETIREMENT PLANS
This Series of Equity Investor Fund may be well suited for purchase by
Individual Retirement Accounts ('IRAs'), Keogh plans, pension funds and other
qualified retirement plans, certain of which are briefly described below.
Generally, capital gains and income received in each of the foregoing plans are
exempt from Federal taxation. All distributions from such plans are generally
treated as ordinary income but may, in some cases, be eligible for special 5 or
10 year averaging (prior to the year 2000) or tax-deferred rollover treatment.
Investors in IRAs, Keogh plans and other tax-deferred retirement plans should
consult their plan custodian as to the appropriate disposition of distributions.
Investors considering participation in any of these plans should review specific
tax laws related thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any of these plans. These plans
are generally offered by brokerage firms, including the Sponsor of this
Portfolio, and other financial institutions. Fees and charges with respect to
such plans may vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units may be purchased
by retirement plans established for self-employed individuals, partnerships or
unincorporated companies ('Keogh plans'). The assets of a Keogh plan must be
held in a qualified trust or other arrangement which meets the requirements of
the Code. Keogh plan participants may also establish separate IRAs (see below)
to which they may contribute up to an additional $2,000 per year ($4,000 in a
spousal account).
9
<PAGE>
Individual Retirement Account--IRA. Any individual can make use of a
qualified IRA arrangement for the purchase of Units. Any individual (including
one covered by an employer retirement plan) can make a contribution in an IRA
equal to the lesser of $2,000 ($4,000 in a spousal account) or 100% of earned
income; such investment must be made in cash. However, the deductible amount of
a contribution by an individual covered by an employer retirement plan will be
reduced if the individual's adjusted gross income exceeds $25,000 (in the case
of a single individual), $40,000 (in the case of a married individual filing a
joint return) or $200 (in the case of a married individual filing a separate
return). Under the recently enacted Taxpayer Relief Act of 1997, these income
threshholds will gradually be increased to $50,000 for a single individual and
$80,000 for a married individual filing jointly by the year 2004. Certain
transactions which are prohibited under Section 408 of the Code will cause all
or a portion of the amount in an IRA to be deemed to the distributed and subject
to tax at that time. Unless nondeductible contributions were made in 1987 or a
later year, all distributions from an IRA will be treated as ordinary income but
generally are eligible for tax-deferred rollover treatment. Taxable
distributions made before attainment of age 59 1/2, except in the case of the
participant's death or disability or where the amount distributed is part of a
series of substantially equal periodic (at least annual) payments that are to be
made over the life expectancies of the participant and his or her beneficiary,
are generally subject to a surtax in an amount equal to 10% of the distribution.
Under the Taxpayer Relief Act of 1997 the 10% surtax will be waived for
withdrawals for certain educational and first-time homebuyers expenses. The
Taxpayer Relief Act also provides, subject to certain income limitations, for a
special type of IRA under which contributions would be non-deductible but
distributions would be tax-free if the account were held for at least five years
and the account holder was aged at least 59 1/2 at the time of distribution.
Corporate Pension and Profit-Sharing Plans. A pension or profit-sharing
plan for employees of a corporation may purchase Units.
RECORDS AND REPORTS
The Trustee keeps a register of the names, addresses and holdings of all
investors. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, which
may be inspected by investors at reasonable times during business hours.
With each distribution, the Trustee includes a statement of the amounts of
income and any other receipts being distributed. Following the termination of
the Fund, the Trustee sends each investor of record a statement summarizing
transactions in the Fund's accounts including amounts distributed from them,
identifying Securities sold and purchased and listing Securities held and the
number of Units outstanding at termination and stating the Redemption Price per
1,000 Units at termination, and the fees and expenses paid by the Fund, among
other matters. Fund accounts will be audited at least annually by independent
accountants selected by the Sponsors and the report of the accountants will be
available from the Trustee on request.
TRUST INDENTURE
The Fund is a 'unit investment trust' created under New York law by a Trust
Indenture among the Sponsors and the Trustee. This Prospectus summarizes various
provisions of the Indenture, but each statement is qualified in its entirety by
reference to the Indenture.
The Indenture may be amended by the Sponsors and the Trustee without
consent by investors to cure ambiguities or to correct or supplement any
defective or inconsistent provision, to make any amendment required by the SEC
or other governmental agency or to make any other change not materially adverse
to the interest of investors (as determined in good faith by the Sponsors). The
Indenture may also generally be amended upon consent of investors holding 51% of
the Units. No amendment may reduce the interest of any investor in the Fund
without the investor's consent or reduce the percentage of Units required to
consent to any amendment without unanimous consent of investors. Investors will
be notified of the substance of any amendment.
The Trustee may resign upon notice to the Sponsors. It may be removed by
investors holding 51% of the Units at any time or by the Sponsors without the
consent of investors if it becomes incapable of acting or bankrupt, its affairs
are taken over by public authorities, or if under certain conditions the
Sponsors determine in good faith that its replacement is in the best interest of
the investors. The resignation or removal becomes effective upon acceptance of
appointment by a successor; in this case, the Sponsors will use their best
efforts to appoint a successor promptly; however, if upon resignation no
successor has accepted appointment within 30 days after notification, the
resigning Trustee may apply to a court of competent jurisdiction to appoint a
successor.
10
<PAGE>
Any Sponsor may resign so long as one Sponsor with a net worth of
$2,000,000 remains. A new Sponsor may be appointed by the remaining Sponsors and
the Trustee to assume the duties of the resigning Sponsor. If there is only one
Sponsor and it fails to perform its duties or becomes incapable of acting or
bankrupt or its affairs are taken over by public authorities, the Trustee may
appoint a successor Sponsor at reasonable rates of compensation, terminate the
Indenture and liquidate the Fund or continue to act as Trustee without a
Sponsor. Merrill Lynch, Pierce, Fenner & Smith Incorporated has been appointed
as Agent for the Sponsors by the other Sponsors.
The Sponsors and the Trustee are not liable to investors or any other party
for any act or omission in the conduct of their responsibilities absent bad
faith, willful misfeasance, negligence (gross negligence in the case of a
Sponsor) or reckless disregard of duty. The Indenture contains customary
provisions limiting the liability of the Trustee.
MISCELLANEOUS
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors.
AUDITORS
The Statement of Condition in Part A of the Prospectus was audited by
Deloitte & Touche LLP, independent accountants, as stated in their opinion. It
is included in reliance upon that opinion given on the authority of that firm as
experts in accounting and auditing.
TRUSTEE
The Trustee and its address are stated on the back cover of the Prospectus.
The Trustee is subject to supervision by the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and either the
Comptroller of the Currency or state banking authorities.
SPONSORS
The Sponsors are listed on the back cover of the Prospectus. They may
include Merrill Lynch, Pierce, Fenner & Smith Incorporated, a wholly-owned
subsidiary of Merrill Lynch Co. Inc.; Smith Barney Inc., an indirect wholly-
owned subsidiary of The Travelers Inc.; PaineWebber Incorporated, a wholly-owned
subsidiary of PaineWebber Group Inc.; Prudential Securities Incorporated, an
indirect wholly-owned subsidiary of the Prudential Insurance Company of America,
and Dean Witter Reynolds, Inc., a principal operating subsidiary of Dean Witter
Discover & Co. Each Sponsor, or one of its predecessor corporations, has acted
as Sponsor of a number of series of unit investment trusts. Each Sponsor has
acted as principal underwriter and managing underwriter of other investment
companies. The Sponsors, in addition to participating as members of various
selling groups or as agents of other investment companies, execute orders on
behalf of investment companies for the purchase and sale of securities of these
companies and sell securities to these companies in their capacities as brokers
or dealers in securities.
PUBLIC DISTRIBUTION
During the initial offering period and thereafter to the extent additional
Units continue to be offered for sale to the public by means of this Prospectus,
Units will be distributed directly to the public by this Prospectus at the
Public Offering Price determined in the manner provided above or to selected
dealers who are members of the National Association of Securities Dealers, Inc.
at a concession not in excess of the maximum sales charge. The Sponsors intend
to qualify Units for sale in all states in which qualification is deemed
necessary through the Underwriting Account and by dealers who are members of the
National Association of Securities Dealers, Inc.. The Sponsors do not intend to
qualify Units for sale in any foreign countries and this Prospectus does not
constitute an offer to sell Units in any country where Units cannot lawfully be
sold.
UNDERWRITERS' AND SPONSORS' PROFITS
Upon sale of the Units, the Underwriters will be entitled to receive sales
charges; each Underwriters' interest in the Underwriting Account will depend on
the number of Units acquired through the issuance of additional Units. The
Sponsors also realize a profit or loss on deposit of the Securities equal to the
difference between the cost of the Securities to the Fund (based on the
aggregate value of the Securities on their date of deposit) and the purchase
price of
11
<PAGE>
the Securities to the Sponsors plus commissions payable by the Sponsors. In
addition, a Sponsor or Underwriter may realize profits or sustain losses on
Securities it deposits in the Fund which were acquired from underwriting
syndicates of which it was a member. During the initial offering period, the
Underwriting Account also may realize profits or sustain losses as a result of
fluctuations after the initial date of deposit in the Public Offering Price of
the Units. In maintaining a secondary market for Units, 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 these Units
(which include the sales charge) or the prices at which they redeem the Units.
Cash, if any, made available by buyers of Units to the Sponsors prior to a
settlement date for the purchase of Units may be used in the Sponsors'
businesses to the extent permitted by Rule 15c3-3 under the Securities Exchange
Act of 1934 and may be of benefit to the Sponsors.
PERFORMANCE INFORMATION
Information on the performance of the Fund for various periods, on the
basis of changes in Unit price plus the amount of dividends and capital gains
reinvested, may be included from time to time in advertisements, sales
literature, reports and other information furnished to current or prospective
Holders. Total return figures are not averaged, and may not reflect deduction of
the sales charge, which would decrease the return. Average annualized return
figures reflect deduction of the maximum sales charge. No provision is made for
any income taxes payable.
Past performance of any series may not be indicative of results of future
series. Fund performance may be compared to the performance of the Dow Jones
Industrial Average, the S&P 500 Composite Price Stock Index, the S&P MidCap 400
Index, or performance data from publications such as Lipper Analytical Services,
Inc., Morningstar Publications, Inc., Money Magazine, The New York Times, U.S.
News and World Report, Barron's, Business Week, CDA Investment Technology, Inc.,
Forbes Magazine or Fortune Magazine. Performance of the Securities may be
compared in sales literature to performance of the S&P 500 Stock Price Composite
Index, to which may be added by year various national and international
political and economic events, and certain milestones in price and market
indicators and in offerings of Defined Asset Funds. This performance may also be
compared for various periods with an investment in short-term U.S. Treasury
securities; however, the investor should bear in mind that Treasury securities
are fixed income obligations, having the highest credit characterisitics, while
the Securities involve greater risk because they have no maturities, and income
thereon is subject to the financial condition of, and declaration by, the
issuers.
DEFINED ASSET FUNDS
For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Defined Asset Funds'
philosophy is to allow investors to 'buy with knowledge' (because, unlike
managed funds, the portfolio is relatively fixed) and 'hold with confidence'
(because the portfolio is professionally selected and regularly reviewed).
Defined Asset Funds offers an array of simple and convenient investment choices,
suited to fit a wide variety of personal financial goals--a buy and hold
strategy for capital accumulation, such as for children's education or
retirement, or attractive, regular current income consistent with the
preservation of principal. Unit investment trusts are particularly suited for
the many investors who prefer to seek long-term profits by purchasing sound
investments and holding them, rather than through active trading. Few
individuals have the knowledge, resources or capital to buy and hold a
diversified portfolio on their own; it would generally take a considerable sum
of money to obtain the breadth and diversity that Defined Asset Funds offer.
Your investment objectives may call for a combination of Defined Asset Funds.
One of the most important investment decisions you face may be how to
allocate your investments among asset classes. Diversification among different
kinds of investments can balance the risks and rewards of each one. Most
investment experts recommend stocks for long-term capital growth. Long-term
corporate bonds offer relatively high rates of interest income. By purchasing
both defined equity and defined bond funds, investors can receive attractive
current income, as well as growth potential, offering some protection against
inflation. From time to time various advertisements, sales literature, reports
and other information furnished to current or prospective investors may present
the average annual compounded rate of return of selected asset classes over
various periods of time, compared to the rate of inflation over the same
periods.
EXCHANGE OPTION
You may be able to exchange Fund Units for units of certain other Defined
Asset Funds subject only to a reduced sales charge or to any of the remaining
deferred sales charges, as applicable.
12
<PAGE>
To make an exchange, you should contact your financial professional to find
out what suitable exchange funds are available and to obtain a prospectus. You
may acquire units of only those exchange funds in which the Sponsors are
maintaining a secondary market and which are lawfully for sale in the state
where you reside. Except for the reduced sales charge, an exchange is a taxable
event normally requiring recognition of any gain or loss on the units exchanged.
However, the Internal Revenue Service may seek to disallow a loss if the
portfolio of the units acquired is not materially different from the portfolio
of the units exchanged; you should consult your own tax advisor. If the proceeds
of units exchanged are insufficient to acquire a whole number of exchange fund
units, you may pay the difference in cash (not exceeding the price of a single
unit acquired).
As the Sponsors are not obligated to maintain a secondary market in any
series, there can be no assurance that units of a desired series will be
available for exchange. The Exchange Option may be amended or terminated at any
time without notice.
SUPPLEMENTAL INFORMATION
Upon writing or calling the Trustee shown on the back cover of this
Prospectus, investors will receive without charge supplemental information about
the Fund, which has been filed with the SEC. The supplemental information
includes more detailed disclosure about the types of securities that may be part
of the Portfolio and general information about the structure and operation of
the Fund.
13
<PAGE>
DEFINED
ASSET FUNDSSM
SPONSORS: EQUITY INVESTOR FUND
Merrill Lynch, CONCEPT SERIES
Pierce, Fenner & Smith IncorporatedREAL ESTATE INCOME FUND--2
Defined Asset Funds PROSPECTUS PART A
P.O. Box 9051 This Prospectus consists of a Part A and a
Princeton, NJ 08543-9051 Part B. This Prospectus does not contain all
(609) 282-8500 of the information with respect to the
Smith Barney Inc. investment company set forth in its
Unit Trust Department registration statement and exhibits relating
388 Greenwich Street--23rd Floor thereto which have been filed with the
New York, NY 10013 Securities and Exchange Commission,
(212) 816-4000 Washington, D.C. under the Securities Act of
Prudential Securities Incorporated 1933 and the Investment Company Act of 1940,
One New York Plaza and to which reference is hereby made. Copies
New York, NY 10292 of filed material can be obtained from the
(212) 778-6164 Public Reference Section of the Commission,
Dean Witter Reynolds Inc. 450 Fifth Street, N.W., Washington, D.C.
Two World Trade Center--59th Floor 20549 at prescribed rates. The Commission
New York, NY 10048 also maintains a Web site that contains
(212) 392-2222 information statements and other information
[PaineWebber Incorporated regarding registrants such as Defined Asset
1200 Harbor Blvd. Funds that file electronically with the
Weehawken, NJ 07087 Commission at http://www.sec.gov.
(201) 902-3000] ------------------------------
TRUSTEE: No person is authorized to give any
The Bank of New York information or to make any representations
(a New York Banking Corporation) with respect to this investment company not
Box 974--Wall Street Station contained in its registration statement and
New York, NY 10268-0974 exhibits relating thereto; and any
1-800-221-7771 information or representation not contained
therein must not be relied upon as having
been authorized. This Prospectus shall not
constitute an offer to sell or the
solicitation of an offer to buy nor shall
there be any sale of these securities in any
State in which such offer solicitation or
sale would be unlawful prior to registration
or qualification under the securities laws of
any such State.
15331--9/97
