Defined Asset Funds
SELECT GROWTH PORTFOLIO
A disciplined approach to growth stock investing.
Merrill Lynch
SELECT GROWTH PORTFOLIO
Growth of your investment can be particularly important for long-term
goals. Which investments are likely to provide enough growth relative to the
level of risk can be difficult -- especially if you're interested in
aggressive growth stocks. While many mutual funds and money managers follow a
"growth stock" investment style, there is no generally accepted definition of
a growth stock and no easy way to select them. That's why we developed the
Select Growth Portfolio to provide definition and discipline to aggressive
growth stock investing.
Individual investors face a number of difficult decisions when it
comes to equity investing. These include:
(1) Selecting stock groups
(2) Choosing the stocks in those groups to buy
(3) Determining when to buy the stocks
(4) Determining when to sell the stocks
(5) Deciding how to reinvest the proceeds
The Strategy behind the Select Growth Portfolio simplifies these
decisions with a disciplined approach and screening process.
*One of the primary determinants of stock performance is earnings.
Strong earnings growth projections are an important element for a stock to be
deemed a "growth" stock. Stock selection can be a complex issue, particularly
in growth stock investing. Today's darling may be out of favor tomorrow. Or
the latest "hot" growth stock may bring a negative surprise.
For example, a stock's price can be bid up to a high multiple of its
projected earnings by eager investors. But it may only take one disappointing
earnings report to send that same stock's price tumbling downward.
Is there a way to systematically search for value with growth stocks?
The Select Growth Portfolio uses a quantitative model to identify
attractively priced aggressive growth stocks with strong earnings potential
that otherwise may be overlooked. This approach to aggressive growth stock
investing looks for "discounted" aggressive growth stocks with strong growth
projections.
Investor Profile
This Portfolio is targeted to investors whose primary objective is long-term
growth. The investor should have the willingness and ability to withstand
extreme price volatility from aggressive growth stocks for the potential of
greater rewards over time. Investors are encouraged to follow the Strategy
for at least a three to five year period.
Defined Strategy
The Select Growth Portfolio is based on the simple Strategy of buying ten
screened growth stocks and holding them for one year. At the end of the year,
we expect to select a new portfolio through reapplication of the Strategy and
you may reinvest in the new portfolio, if available. This is a one year
portfolio, but like all equity investing a longer-term view is appropriate.
To reduce the effect of short-term volatility, an investor should plan to
follow the Strategy for at least a three to five year period. There can be no
guarantee that the Portfolio will achieve its objective over its one year life
or over consecutive one year periods.
Risk Factors
The Portfolio consists of aggressive growth stocks which are subject to
extreme price volatility. Therefore, the Portfolio should be considered
speculative and not a complete equity investment program nor appropriate for
investors seeking preservation of capital or current income. The model and
the Portfolio Consultant have only a limited track record. Since February
1995, when the first Portfolio was offered, the model has underperformed the
S&P 500 Index and certain other equity indexes. The Portfolio may be
concentrated in one or more industries, which may involve additional specific
risks. It is unlikely that the Portfolio will change over its one year life,
even if the stock market decreases in value or there are adverse developments
affecting stocks held.
The P/E Factor
The Price/Earnings Ratio is determined by dividing a stock's market price by
the issuer's earnings per share. Generally, the higher the P/E Ratio, the
more earnings growth investors are expecting. A growth stock will normally
have a high P/E ratio. At the time of selection each stock in the Portfolio
will have a P/E ratio which is less than its projected earnings growth rate.
How the Portfolio Was Selected
A quantitative selection model developed by O'Shaughnessy Capital Management,
Inc., a registered investment advisor (the Portfolio Consultant) was used to
screen a universe of 1600 stocks and identify growth stocks believed to be
reasonably priced and have attractive growth potential.
Here's how it worked:
First, growth was defined by selecting stocks with consensus earnings per share
growth of 20% for the next year. Then to give a longer-term view and to avoid
short-term run ups, the Portfolio Consultant screened for a 20% estimated
consensus earnings per share growth for the next 3 to 5 years.
Second, value was considered by selecting growth stocks with Price to Earnings
Ratios not exceeding their estimated 3 to 5 year earnings growth rates. This
was to remove expensive stocks.
Third, relative strength was determined by separating out stocks with strong
price performance over the prior six months.
Fourth, the Portfolio Consultant weeded out the smaller companies with market
capitalization below $750 million.
Finally, the 10 stocks considered most attractive were selected by the
Sponsors.
The securities will be selected and held without regard to any buy or sell
recommendations of any of the Sponsors.
DEFINED ADVANTAGES
Defined Portfolio
You are investing in a known, pre-selected portfolio, that will remain
relatively fixed throughout the one year life of the Portfolio. You will
always know how your dollars are invested.
Simplicity Defined
One advantage of our fixed portfolio of growth stocks is its simplicity; the
convenience of acquiring a portfolio of securities through one purchase. The
Portfolio invests in 10 stocks but makes it simple with only one price to
track. Prices are quoted weekly in Barron's.
Reinvestment Option
Although current income is not an objective of the Portfolio, you may choose to
reinvest the annual distribution, if any.
No sell decisions
The Portfolio will follow a disciplined strategy of buying and holding for one
year. You may also have the option of reinvesting after a year to continue
with the Strategy.
Low Initial Sales Charge/
Reduced Charge for Rollovers
Investors pay a 1% maximum sales charge when they buy. For example, on a
$1,000 investment, $990 is invested in growth stocks. In addition, a deferred
sales charge of $1.75 per 1,000 units will be deducted from the Portfolio's
net asset value each month over the last ten months of the Portfolio's life
($17.50 total). This deferred method keeps more of your money invested over a
longer period of time.
When you roll the proceeds of your investment into a new portfolio, if
available, you will not be subject to an additional 1% charge, just the 1.75%
deferred fee. If you sell your investment before maturity, the remaining
deferred sales charge will be deducted.
Liquidity
Your units may be redeemed or sold at any time at the then-current market
value, which may be more or less than the original cost.
Volume Purchase Discounts
For larger purchases, the overall sales charges are reduced to put a greater
percentage of your investment dollars to work for you.
Total Sales Charge
as a Percentage of
Amount Purchased the Public Offering Price
Less than $50,000 2.75%
$50,000 to $99,999 2.50
$100,000 to $249,999 2.00
$250,000 or more 1.75
Tax Reporting
The annual statement and the relevant tax reporting forms you receive at
year-end will reflect the actual amount paid to you plus your pro rata share
of any amounts not paid to you but instead used to cover expenses of the
Portfolio, net of any proceeds used to pay deferred sales charges.
Accordingly, you should not increase your basis of your units by the deferred
sales charge.
Select Now
Call your financial professional to see how the Select Growth Portfolio can
fit into your financial plan. A free prospectus containing more information,
including all charges and expenses, is available. Read the prospectus
carefully before you invest.
Select Ten Series
Select Ten Portfolios (DJIA)
Japan Portfolio (Nikkei Index)
Hong Kong Portfolio (Hang Seng Index)
United Kingdom Portfolio (Financial Times Index)
Other Defined Asset Funds
Municipal Investment Trust Funds
Corporate Income Funds
International Bond Funds
Government Securities Income Funds
Other Equity Income Funds
15th Utility Common Stock Series
Health Care Trust II
Natural Gas Trust 2
S&P 500 Index Trust 2
S&P MidCap Trust 2
Tele-Global Trust 2
Real Estate Income Fund 2
