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DEFINED ASSET FUNDSSM
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EQUITY PARTICIPATION SERIES
LOW FIVE PORTFOLIO
(A UNIT INVESTMENT TRUST)
DESIGNED FOR CAPITAL APPRECIATION
SPONSORS:
Merrill Lynch, -------------------------------------------------
Pierce, Fenner & Smith The Securities and Exchange Commission has not
Incorporated approved or disapproved these Securities or
Prudential Securities passed upon the adequacy of this prospectus. Any
Incorporated representation to the contrary is a criminal
PaineWebber Incorporated offense.
Dean Witter Reynolds Inc. Prospectus dated February 25, 1999.
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Defined Asset FundsSM
Defined Asset FundsSM is America's oldest and largest family of unit investment
trusts, with over $115 billion sponsored over the last 25 years. Defined Asset
Funds has been a leader in unit investment trust research and product
innovation. Our family of Funds helps investors work toward their financial
goals with a full range of quality investments, including municipal, corporate
and government bond portfolios, as well as domestic and international equity
portfolios.
Defined Asset Funds offer a number of advantages:
A disciplined strategy of buying and holding with a long-term view is the
cornerstone of Defined Asset Funds.
Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
Defined Portfolios: We choose the stocks or bonds in advance, so you know what
you're investing in.
Professional research: Our dedicated research team seeks out stocks or bonds
appropriate for a particular fund's objectives.
Ongoing supervision: We monitor each portfolio on an ongoing basis.
No matter what your investment goals, risk tolerance or time horizon, there's
probably a Defined Asset Fund that suits your investment style. Your financial
professional can help you select a Defined Asset Fund that works best for your
investment portfolio.
THE FINANCIAL INFORMATION ON THIS PROSPECTUS IS AS OF THE EVALUATION DATE,
DECEMBER 31, 1998.
CONTENTS
PAGE
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Risk/Return Summary..................................... 3
What You Can Expect From Your Investment................ 5
Records and Reports.................................. 5
The Risks You Face...................................... 5
Concentration Risk................................... 5
Litigation and Legislation Risks..................... 5
Selling or Exchanging Units............................. 6
Sponsor's Secondary Market........................... 6
Selling Units to the Trustee......................... 6
Rollover/Exchange Option............................. 6
How The Fund Works...................................... 7
Pricing.............................................. 7
Evaluations.......................................... 7
Expenses............................................. 7
Portfolio Changes.................................... 8
Portfolio Termination................................ 8
No Certificates...................................... 8
Trust Indenture...................................... 8
Legal Opinion........................................ 9
Auditors............................................. 9
Sponsor.............................................. 9
Trustee.............................................. 9
Underwriters' and Sponsor's Profits.................. 10
Public Distribution.................................. 10
Code of Ethics....................................... 10
Year 2000 Issues..................................... 10
Taxes................................................... 10
Supplemental Information................................ 11
Financial Statements.................................... D-1
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RISK/RETURN SUMMARY
1. WHAT IS THE PORTFOLIO'S OBJECTIVE?
The objective of this Defined Fund is capital appreciation
by investing for a period of about four years in a portfolio
consisting of call options on a basket of the five lowest
dollar price per share common stocks in the Dow Jones
Industrial Average, and U.S. Treasury zero coupon bonds.
The Portfolio will not receive any income.
2. WHAT IS THE PORTFOLIO'S INVESTMENT STRATEGY?
This Trust combines options on a basket of the common stocks
comprising the Low Five Strategy (as contrasted with
separate options on each common stock) with principal
protection provided by U.S. Treasury zero coupon bonds.
Approximately 72% of the value of the Portfolio consists of
U.S. Treasury zero coupon bonds, and 28% consists of the
call options.
The Low Five Stocks underlying the call options will adjust
annually each August, 1999-2002, to continue to reflect the
Low Five Strategy. Currently the following issuers are
covered by the call options: AT&T Corporation, Caterpillar,
Inc., Exxon Corporation, International Paper Co. and Philip
Morris Companies, Inc.
The call options held by the Trust will provide each unit
100% of the price appreciation (exclusive of dividends) on
an investment of $1,000 in the Low Five Stocks for about
four years from the date of this prospectus.
The U.S. Treasury zero coupon bonds are designed to return
$1,000 per unit to you if you hold your units until the
termination of the Trust.
Each call option is an obligation of, or guaranteed by, a
financial institution whose long-term debt or financial
strength and claims-paying ability are rated AA or better by
Standard & Poor's and Aa or better by Moody's. The call
options will expire on February 28, 2003.
3. WHAT INDUSTRY SECTORS ARE REPRESENTED IN THE PORTFOLIO?
Based upon the principal business of each issuer and current
market values, the Low Five Stocks underlying the call
options represent the following industry groups:
APPROXIMATE
BASKET
PERCENTAGE
Oil/Gas-International 20%
Machinery/Construction & Mining 20
Forest Products & Paper 20
Tobacco/Food Processing 20
Utility/Telecommunications 20
4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE PORTFOLIO. THIS CAN
HAPPEN FOR VARIOUS REASONS, INCLUDING:
If you redeem or sell your units prior to termination of the
Trust, the amount you will receive will be affected by the
values at that time of the U.S. Treasury zero coupon bonds
and of the options.
You will be required to include original issue discount
relating to the zero coupon bonds in income every year as it
accrues, even prior to receiving any cash payments on the
bonds.
The value of the call options could be adversely affected by
changes in the financial condition of the issuers of the
options and of the issuers of the Low Five Stocks
themselves.
The value of the call options will also be adversely
affected by decreases in the value and dividend rates of the
Low Five Stocks, an increase in interest rates, a reduction
in the perceived volatility of the stock market and the
remaining time to expiration.
The value of a call option does not increase or decrease at
the same rate as the underlying Stocks (although they move
in the same direction). However, as an option approaches its
expiration, its value increasingly moves with the price of
the Low Five Stocks.
The value of the U.S. Treasury zero coupon bonds will be
adversely affected by decreases in bond prices and increases
in interest rates.
Stock prices can be volatile.
The Low Five Stocks generally have attributes that have
caused them to have lower prices or higher dividend yields
than the other DJIA stocks.
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RISK/RETURN SUMMARY (Continued)
For example:
- -- the issuers may be having financial problems:
- -- the stocks may be out of favor with the market because
of weak performance, poor earnings forecasts, negative
publicity or litigation/legislation; and
- -- the stock may be reacting to general market cycles.
The market factors that caused the relatively low prices
and high dividend yields of the stocks may change.
5. IS THIS PORTFOLIO APPROPRIATE FOR YOU?
Yes, if you want capital appreciation and protection from a
market correction with upside participation if domestic
equity markets increase in price.
The Portfolio is not appropriate for you if you are
unwilling to take the risk involved with an equity
investment or are unwilling to commit to a four-year
investment. It is not appropriate for you if you are seeking
current income or if you are not comfortable with the Low
Five Strategy.
6. WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?
This table shows the costs and expenses you may pay,
directly or indirectly, when you invest in the Portfolio.
ESTIMATED ANNUAL OPERATING EXPENSES
AMOUNT
PER
UNIT
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$ 0.72
Trustee's Fee
$ 0.45
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
$ 0.43
Evaluator's Fee
$ 0.42
Other Operating Expenses
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$ 2.02
TOTAL
The Sponsors historically paid organization costs and
updating expenses.
INVESTOR FEES
You will pay an up-front sales fee of approximately 3.50%,
reduced as follows for quantity purchases.
The maximum sales fees are as follows:
YOUR MAXIMUM
SALES FEE
NUMBER OF UNITS: WILL BE:
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Less than 250 3.50%
250 to 749 3.00%
750 to 999 2.75%
1,000 or more 2.50%
7. IS THE PORTFOLIO MANAGED?
Unlike a mutual fund, the Portfolio is not managed and
securities are not sold because of market changes. The
Sponsors monitor the portfolio and may instruct the Trustee
to sell securities under certain limited circumstances.
However, given the investment philosophy of the Portfolio,
the Sponsors are not likely to do so.
8. HOW DO I BUY UNITS?
The minimum investment is one unit.
You can buy units from the Sponsors.
UNIT PRICE PER UNIT $1,252.79
(as of December 31, 1998)
Unit price is based on the net asset value of the Portfolio
plus the sales fee.
The Portfolio securities are valued by the Trustee on the
basis of their closing prices at 4:00 p.m. Eastern time
every business day. Unit price changes every day with
changes in the prices of the securities.
9. HOW DO I SELL UNITS?
You may sell your units at any time to the Sponsors or the
Trustee for the net asset value determined at the close of
business on the date of sale, less the costs of liquidating
securities to meet the redemption.
10. HOW ARE DISTRIBUTIONS MADE AND TAXED?
The Trust will pay no distributions until a reasonable time
after the maturity of the U.S. Treasury bonds and the
settlement date of the call options.
You will be required to include original issue discount
relating to the zero coupon bonds in income every year as it
accrues, prior to the Trust's receipt of cash payments on
the zero coupon bonds. Gain or loss recognized by you on a
sale of Units, or on the Trust's sale of zero coupon bonds
or an interest in the call option, will be capital gain or
loss. Counsel is of the opinion that gain or loss recognized
by you on the cash settlement of the call option will be
capital gain or loss.
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WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
RECORDS AND REPORTS
You will receive:
a notice from the Trustee if new equity securities are deposited in exchange or
substitution for equity securities originally deposited;
annual reports on Portfolio activity; and
annual tax information. This will also be sent to the IRS. You must report the
amount of income received during the year. Please contact your tax advisor in
this regard.
You may inspect records of Portfolio transactions at the Trustee's office during
regular business hours.
THE RISKS YOU FACE
CONCENTRATION RISK
When stocks in a particular industry make up 25% or more of the Portfolio, it is
said to be 'concentrated' in that industry, which makes the Portfolio less
diversified. The Trust is not concentrated in any particular industry.
LITIGATION AND LEGISLATION RISKS
Philip Morris Companies common stock represents approximately 20% of the Low
Five Stocks underlying the call options in the Portfolio. Pending legal
proceedings against Philip Morris cover a wide range of matters including
product liability and consumer protection. Damages claimed in many of the
smoking and health cases alleging personal injury (both individual and class
actions), and in health cost recovery cases brought by governments, unions and
similar entities seeking reimbursement for healthcare expenditures, aggregate
many billions of dollars.
On November 23, 1998, Philip Morris entered into a Master Settlement Agreement
with 46 state governments to settle the asserted and unasserted healthcare cost
recovery and certain other claims against them. The Agreement is subject to
final judicial approval in each of the settling states. It is expected that
Philip Morris will charge approximately $2 billion as a pretax expense in 1998
as a result of the settlement. Philip Morris believes the agreement will likely
materially adversely affect the business, volume, cash flows and/or operating
income and financial position of the company in future years. The degree of the
adverse impact will depend, among other things, on the rates of decline in
United States cigarette sales in the premium and discount segments, the
company's share of the domestic premium and discount cigarette segments, and the
effect of any resulting cost advantage of manufacturers not subject to the
agreement.
The Sponsors cannot predict the outcome of the litigation pending against Philip
Morris or how the current uncertainty concerning the settlement will ultimately
be resolved. The Sponsors cannot predict whether these and other possible
developments will have a material effect on the price of Philip Morris stock
over the term of the Portfolio, which could in turn adversely affect Unit
prices.
Other than as described above we do not know of any pending litigation that
might have a material adverse effect upon the Portfolio.
SELLING OR EXCHANGING UNITS
You can sell your units at any time for a price based on their net asset value.
Your net asset value is calculated each business day by:
adding the value of the Portfolio Securities, cash and any other Portfolio
assets;
subtracting accrued but unpaid Portfolio expenses, unreimbursed Trustee
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advances, cash held to buy back units or for distribution to investors, and
any other Portfolio liabilities; and
dividing the result by the number of outstanding units.
Your net asset value when you sell may be more or less than your cost because of
sales fees, market movements and changes in the Portfolio.
If you sell your units before the final deferred sales fee installment, the
amount of any remaining payments will be deducted from your proceeds.
SPONSORS' SECONDARY MARKET
While we are not obligated to do so, we will buy back units at net asset value
less any remaining deferred sales fee and the cost of liquidating securities to
meet the redemption. We may resell the units to other buyers or to the Trustee.
We have maintained a secondary market continuously for more than 25 years, but
we could discontinue it without prior notice for any business reason.
SELLING UNITS TO THE TRUSTEE
Regardless of whether we maintain a secondary market, you can sell your units to
the Trustee at any time by contacting your broker, dealer or financial
institution that holds your units in street name. Sometimes, additional
documents are needed such as a trust document, certificate of corporate
authority, certificate of death or appointment as executor, administrator or
guardian.
Within seven days after your request and the necessary documents are received,
the Trustee will mail a check to you. Contact the Trustee for additional
information.
As long as we are maintaining a secondary market, the Trustee will sell your
units to us at a price based on net asset value. If there is no secondary
market, the Trustee will sell your units in the over-the-counter market if it
believes it can obtain a higher price. In that case, you will receive the net
proceeds of the sale.
If the Portfolio does not have cash available to pay you for the units you are
selling we will select securities to be sold. These sales could be made at times
when the securities would not otherwise be sold and may result in your receiving
less than you paid for your unit and also reduce the size and diversity of the
Portfolio.
If you sell units with a value of at least $250,000, you may choose to receive
your distribution 'in kind.' If you so choose, you will receive securities and
cash with a total value equal to the price of your units. The Trustee will try
to distribute securities in the portfolio pro rata, but it reserves the right to
distribute only one or a few securities. The Trustee will act as your agent in
an in-kind distribution and will either hold the securities for your account or
transfer them as you instruct. You must pay any transaction costs as well as
transfer and ongoing custodial fees on sales of securities distributed in kind.
There could be a delay in paying you for your units:
if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
if the SEC determines that trading on the New York Stock Exchange is
restricted or
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that an emergency exists making sale or evaluation of the securities not
reasonably practicable; and
for any other period permitted by SEC order.
HOW THE FUND WORKS
PRICING
Units are charged an initial sales fee.
In addition, a portion of the price of a unit also consists of cash to pay all
or some of the costs of organizing the Portfolio including:
cost of initial preparation of legal documents;
federal and state registration fees;
initial fees and expenses of the Trustee;
initial audit; and
legal expenses and other out-of-pocket expenses.
EVALUATIONS
The Trustee values the securities on each business day (i.e., any day other than
Saturdays, Sundays and the following holidays as observed by the New York Stock
Exchange: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas;
and the following federal holidays: Columbus Day and Veterans Day). 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 or, if closing sales prices are not available, at the mean
between the closing bid and offer prices.
EXPENSES
The Trustee is paid a fee monthly. It also benefits when it holds cash for the
Portfolio in non-interest bearing accounts. The Trustee may also receive
additional amounts:
for extraordinary services and costs of indemnifying the Trustee and the
Sponsor;
costs of actions taken to protect the Portfolio and other legal fees and
expenses;
expenses for keeping the Portfolio's registration statement current; and
Portfolio termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 45c per 1,000 units annually for
providing portfolio supervisory, bookkeeping and administrative services and for
any other expenses properly chargeable to the Trust. Legal, typesetting,
electronic filing and regulatory filing fees and expenses associated with
updating the Trust's registration statement yearly are also now chargeable to
the Trust. While this fee may exceed the amount of these costs and expenses
attributable to this Trust, the total of these fees for all Series of Defined
Asset Funds will not exceed the aggregate amount attributable to all of these
Series for any calendar year. Certain of these expenses were previously paid for
by the Sponsors.
The Trustee's, Evaluator's and Sponsors' fees may be adjusted for inflation
without investors' approval.
The Sponsors will pay advertising and selling expenses at no charge to the
Portfolio. If Portfolio expenses exceed initial estimates, the Portfolio will
owe the excess. The Trustee has
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a lien on Portfolio assets to secure reimbursement of Portfolio expenses and may
sell securities if cash is not available.
PORTFOLIO CHANGES
If we maintain a secondary market in units but are unable to sell the units that
we buy in the secondary market, we will redeem units, which will affect the size
and composition of the portfolio.
We decide whether to offer units for sale that we acquire in the secondary
market after reviewing:
diversity of the Portfolio;
size of the Portfolio relative to its original size;
ratio of Portfolio expenses to income; and
cost of maintaining a current prospectus.
PORTFOLIO TERMINATION
When the Portfolio is about to terminate you will receive a notice, and you will
be unable to sell your units after that time. Unless you choose to receive an
in-kind distribution of securities, we will sell any remaining securities, and
you will receive your final distribution in cash.
You will pay your share of the expenses associated with termination, including
brokerage costs in selling securities. This may reduce the amount you receive as
your final distribution.
NO CERTIFICATES
All investors are required to hold their Units in uncertificated form and in
'street name' by their broker, dealer or financial institution at the Depository
Trust Company.
TRUST INDENTURE
The Portfolio is a 'unit investment trust' governed by a Trust Indenture, a
contract among the Sponsors, the Evaluator and the Trustee, which sets forth
their duties and obligations and your rights. A copy of the Indenture is
available to you on request to the Trustee. The following summarizes certain
provisions of the Indenture.
The Sponsors and the Trustee may amend the Indenture without your consent:
to cure ambiguities;
to correct or supplement any defective or inconsistent provision;
to make any amendment required by any governmental agency; or
to make other changes determined not to be materially adverse to your best
interest (as determined by the Sponsors).
Investors holding 51% of the units may amend the Indenture. Every investor must
consent to any amendment that changes the 51% requirement. No amendment may
reduce your interest in the Portfolio without your written consent.
The Trustee may resign by notifying the Sponsors. The Sponsors may remove the
Trustee without your consent if:
it fails to perform its duties;
it becomes incapable of acting or bankrupt or its affairs are taken over by
public authorities; or
the Sponsors determines that its replacement is in your best interest.
Investors holding 51% of the units may remove the Trustee. The Evaluator may
resign or be removed by the Sponsors without your consent. The resignation or
removal of the Trustee or Evaluator becomes effective when a successor accepts
appointment. The Sponsors
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will try to appoint a successor promptly; however, if no successor has accepted
within 30 days after notice of resignation, the resigning Trustee or Evaluator
may petition a court to appoint a successor.
Any Sponsor may resign as long as one Sponsor with a net worth of $2 million
remains and agrees to the resignation. The remaining Sponsors and the Trustee
may appoint a replacement. If there is only one Sponsor and it fails to perform
its duties or becomes bankrupt the Trustee may:
remove it and appoint a replacement Sponsor;
liquidate the Fund; or
continue to act as Trustee without a Sponsor.
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent for the
Sponsors.
The Trust Indenture contains customary provisions limiting the liability of the
Trustee, the Sponsors and the Evaluator.
LEGAL OPINION
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
special counsel for the Sponsor, has given an opinion that the units are validly
issued.
AUDITORS
Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281,
independent accountants, audited the Statement of Condition included in this
prospectus.
SPONSORS:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.)
P.O. Box 9051,
Princeton, NJ 08543-9051
PAINEWEBBER INCORPORATED (a wholly-owned subsidiary of PaineWebber Group Inc.)
1285 Avenue of the Americas,
New York, NY 10019
DEAN WITTER REYNOLDS INC. (a principal operating subsidiary of Morgan Stanley
Dean Witter & Co.)
Two World Trade Center--59th Floor,
New York, NY 10048
PRUDENTICAL SECURITIES INCORPORATED (an indirect wholly-owned subsidiary of the
Prudential Insurance Company of America)
One New York Plaza,
New York, NY 10292
Each Sponsor is a Delaware corporation and it, or its predecessor, has acted as
sponsor to many unit investment trusts. As a registered broker-dealer each
Sponsor buys and sells securities (including investment company shares) for
others (including investment companies) and participates as an underwriter in
various selling groups.
TRUSTEE
The Chase Manhattan Bank, Unit Trust Department, 4 New York Plaza--6th Floor,
New York, New York 10004, is the Trustee. It is supervised by the Federal
Deposit Insurance Corporation, the Board of Governors of the Federal Reserve
System and New York State banking authorities.
UNDERWRITERS' AND SPONSORS' PROFITS
Underwriters receive sales charges when they sell units. Any cash made available
by you to the Sponsors before the settlement date for those units may be used in
the Sponsors' businesses to the extent permitted by federal law and may benefit
the Sponsors.
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In maintaining a secondary market, the Sponsors will also realize profits or
sustain losses in the amount of any difference between the prices at which they
buy units and the prices at which they resell or redeem them.
PUBLIC DISTRIBUTION
The Sponsors do not intend to qualify units for sale in any foreign countries.
This prospectus does not constitute an offer to sell units in any country where
units cannot lawfully be sold.
CODE OF ETHICS
The Agent for the Sponsors has adopted a code of ethics requiring reporting of
personal securities transactions by its employees with access to information on
portfolio transactions. The goal of the code is to prevent fraud, deception or
misconduct against the Portfolio and to provide reasonable standards of conduct.
YEAR 2000 ISSUES
Many computer systems were designed in such a way that they may be unable to
distinguish between the year 2000 and the year 1900 (commonly known as the 'Year
2000 Problem'). We do not expect that the computer system changes necessary to
prepare for the Year 2000 will cause any major operational difficulties for the
Portfolio. The Sponsors are unable to predict what impact, if any, the Year 2000
problem will have on issuers of the Securities in the Portfolio.
TAXES
The following summarizes the material income tax consequences of holding Units.
It assumes that you are not a dealer, financial institution, insurance company
or other investor with special circumstances. You should consult your own tax
adviser about your particular circumstances.
GENERAL TREATMENT OF THE FUND AND YOUR INVESTMENT
The Trust will not be taxed as a corporation for federal income tax purposes,
and you will be considered to own directly your share of each asset in the
Trust.
ORIGINAL ISSUE DISCOUNT
The zero coupon bonds will be considered to have been issued at an 'original
issue discount' for federal income tax purposes. As a result, you will be
required to include original issue discount in respect of the zero coupon bonds
as it accrues, in accordance with a constant yield method based on a compounding
of interest, before the Trust receives cash payments attributable to these
income inclusions. Under the constant yield method, you generally will be
required to include in income increasingly greater amounts of original issue
discount in successive accrual periods. The tax basis of your pro rata share of
zero coupon bonds will be increased by the amount of original issue discount
that you include in income. However, to the extent that your basis in a zero
coupon bond when you purchase a Unit is greater than the bond's original issue
price increased by original issue discount that has already accrued on the bond,
you will have 'acquisition premium,' and your original issue discount inclusions
will be reduced by the acquisition premium. You should consult your tax advisor
in this regard.
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INCOME OR LOSS UPON DISPOSITION
When you sell all or part of your Units, or when the Trust sells zero coupon
bonds or an interest in the call options, you will generally recognize capital
gain or loss. Your gain, however, will generally be ordinary income to the
extent of any accrued 'market discount.' Generally you will have market discount
to the extent that your basis in a zero coupon bond when you purchase a Unit is
less than its issue price increased by original issue discount that has already
accrued on the bond. You should consult your tax adviser in this regard. You
will also recognize gain or loss (if any) upon exercise of the call options by
the Trust, which, in the opinion of our counsel, will be capital gain or loss.
If your net long-term capital gains exceed your net short-term capital losses,
the excess may be subject to tax at a lower rate than ordinary income. Any
capital gain or loss is long-term if you are considered to have held your
investment for more than one year and short-term if you are considered to have
held it for one year or less. Because the deductibility of capital losses is
subject to limitations, you may not be able to deduct all of your capital
losses. You should consult your tax adviser in this regard.
YOUR BASIS IN THE SECURITIES
Your aggregate basis in your pro rata portion of the assets of the Trust will be
equal to the cost of your Units, including any sales charge and organizational
expenses, adjusted to reflect any accruals of original issue discount and
acquisition premium. You should consult your tax adviser in this regard.
EXPENSES
If you are an individual who itemizes deductions, you may deduct your share of
Trust expenses, but only to the extent that such amount, together with your
other miscellaneous deductions, exceeds 2% of your adjusted gross income. Your
ability to deduct Trust expenses will be limited further if your adjusted gross
income exceeds a specified amount (currently $124,500 or $62,250 for a married
person filing separately).
SUPPLEMENTAL INFORMATION
You can receive at no cost supplemental information about the Portfolio by
calling the Trustee. The supplemental information includes more detailed risk
disclosure and general information about the structure and operation of the
Portfolio. The supplemental information is also available from the SEC.
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DEFINED ASSET FUNDS - EQUITY INVESTOR FUND
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Defined Asset Funds - Equity Investor Fund,
Equity Participation Series - Low
Five Portfolio:
We have audited the accompanying statements of condition of Defined Asset Funds
- - Equity Investor Fund, Equity Participation Series - Low Five Portfolio,
including the portfolios, as of July 31 and December 31, 1998 and the related
statements of operations and of changes in net assets for the periods August 26,
1997 to July 31, 1998 and August 1 to December 31, 1998. These financial
statements are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Securities owned at
July 31 and December 31, 1998 as shown in such portfolios, were confirmed to us
by The Chase Manhattan Bank, 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 audits provide 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 Defined Asset Funds - Equity
Investor Fund, Equity Participation Series - Low Five Portfolio at July 31 and
December 31, 1998 and the results of its operations and changes in its net
assets for the above-stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
February 23, 1999
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DEFINED ASSET FUNDS - EQUITY INVESTOR FUND
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
STATEMENTS OF CONDITION
AS OF JULY 31 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
July 31, December 31,
1998 1998
<S> <C> <C> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $17,646,679 and $16,519,746
respectively)(Note 1) $18,991,256 $18,948,283
Cash 174,964 135,572
Total trust property 19,166,220 19,083,855
LESS LIABILITIES:
Accrued expenses.. $ 13,684
Other liabilities 7,728 21,412 8,280
NET ASSETS, REPRESENTED BY:
17,175 and 15,775 units,
respectively, of fractional undivided
interest outstanding (Note 3) 18,420,656 $18,098,937
Undistributed net investment income 724,152 $19,144,808 976,638 $19,075,575
UNIT VALUE ($19,144,808 and $19,075,575/17,175
and 15,775 units, respectively) $1,114.69 $1,209.23
</TABLE>
See Notes to Financial Statements.
D-2
<PAGE>
DEFINED ASSET FUNDS - EQUITY INVESTOR FUND
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
August 26, August 1,
1997 to 1998 to
July 31, December 31,
1998 1998
<S> <C> <C>
INVESTMENT INCOME:
Accretion income $ 821,127 $ 323,770
Trustee's fees and expenses (24,645) (10,419)
Sponsors' fees (7,576) (3,317)
Net investment income 788,906 310,034
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on securities sold or redeemed 240,043 125,284
Unrealized appreciation of investments 1,344,577 1,083,960
Net realized and unrealized gain on investments 1,584,620 1,209,244
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,373,526 $1,519,278
</TABLE>
See Notes to Financial Statements.
D-3
<PAGE>
DEFINED ASSET FUNDS - EQUITY INVESTOR FUND
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
August 26, August 1,
1997 to 1998 to
July 31, December 31,
1998 1998
<S> <C> <C>
OPERATIONS:
Net investment income $ 788,906 $ 310,034
Realized gain on securities sold or redeemed 240,043 125,284
Unrealized appreciation of investments 1,344,577 1,083,960
Net increase in net assets resulting from operations 2,373,526 1,519,278
CAPITAL SHARE TRANSACTIONS:
Creation of 20,000 units 19,926,000
Redemptions of 3,075 and 1,400 units, respectively (3,396,990) (1,587,959)
Deferred organization cost (7,728) (552)
NET CAPITAL SHARE TRANSACTIONS 16,521,282 (1,588,511)
NET INCREASE (DECREASE) IN NET ASSETS 18,894,808 (69,233)
NET ASSETS AT BEGINNING OF PERIOD 250,000 19,144,808
NET ASSETS AT END OF PERIOD $19,144,808 $19,075,575
PER UNIT:
Net asset value at end of period $1,114.69 $1,209.23
TRUST UNITS OUTSTANDING AT END OF PERIOD 17,175 15,775
See Notes to Financial Statements.
</TABLE>
D-4
<PAGE>
DEFINED ASSET FUNDS - EQUITY INVESTOR FUND
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
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) Evaluations are determined by an independent Evaluator on each
business day. Neither the Sponsors, the Trustee nor the Evaluator
guarantee the enforceability, marketability or price of any securities
nor will they be liable for errors in the Evaluator's judgement. The
value of the call options, which have no readily ascertainable market
value, have been determined in good faith.
(b) The fund is not subject to income taxes. Accordingly, no provision
for such taxes was required.
(c) Accretion income is calculated on a constant yield basis and is shown
on the Statements of Operations.
2. NET CAPITAL
July 31, December 31,
1998 1998
Cost of 17,175 and 15,775 units, respectively,
at Dates of Deposit $17,728,302 $16,283,200
Less: sales charge 616,065 565,847
Net amount applicable to Holders 17,112,237 15,717,353
Redemption of units - net cost of 3,075 and
1,400 units, respectively, redeemed less
redemption amounts (236,252) (358,043)
Realized gain on securities sold or redeemed 240,043 365,327
Transfer from principal (cover expenses) (32,221) (45,957)
Deferred organization cost (7,728) (8,280)
Unrealized appreciation of investments 1,344,577 2,428,537
Net capital applicable to Holders $18,420,656 $18,098,937
3. DEFERRED ORGANIZATION COSTS
Deferred organization costs were amortized over the first year of the Fund.
Included in "Other liabilities", in the accompanying Statements of
Condition is $7,728 and $8,280 payable to the Trustee at July 31 and
December 31, 1998, respectively, for reimbursement of costs related to the
organization of the Trust.
D-5
<PAGE>
DEFINED ASSET FUNDS - EQUITY INVESTOR FUND
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
PORTFOLIO
AS OF JULY 31, 1998
<TABLE>
<CAPTION>
Port. Exercise
No. Name of Issuer Shares Date Cost Value(1)
<S> <C> <C> <C> <C> <C>
Call Options:
1 SwissBank Corp. London 2,748 2/20/03 $ 749,435 $ 896,398
Branch
2 Swiss Re Financial Products 14,427 2/20/03 3,934,531 4,706,087
Corp.
Sub total 4,683,966 5,602,485
Zero Coupon Bond:
Face Maturity
Amount Date
3 U.S. Treasury Notes $17,175,000 2/15/03 12,962,713 13,388,771
Total $17,646,679 $18,991,256
(1) See footnote 1(a) to the financial statements.
</TABLE>
D-6
<PAGE>
DEFINED ASSET FUNDS - EQUITY INVESTOR FUND
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
PORTFOLIO
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Port. Exercise
No. Name of Issuer Shares Date Cost Value(1)
<S> <C> <C> <C> <C> <C>
Call Options:
1 SwissBank Corp. London 2,524 2/20/03 $ 688,345 $ 948,519
Branch
2 Swiss Re Financial Products 13,251 2/20/03 3,613,813 4,979,726
Corp.
Sub total 4,302,158 5,928,245
Zero Coupon Bond:
Face Maturity
Amount Date
3 U.S. Treasury Notes $15,775,000 2/15/03 12,217,588 13,020,038
Total $16,519,746 $18,948,283
(1) See footnote 1(a) to the financial statements.
</TABLE>
D-7
<PAGE>
Defined
Asset FundsSM
HAVE QUESTIONS ? EQUITY PARTICIPATION SERIES
Request the most LOW FIVE PORTFOLIO
recent free Information (A Unit Investment Trust)
Supplement that gives more ---------------------------------------
details about the Fund, This Prospectus does not contain
by calling: complete information about the
The Chase Manhattan Bank investment company filed with the
1-800-323-1508 Securities and Exchange Commission in
Washington, D.C. under the:
Securities Act of 1933 (file no.
333-05685) and
Investment Company Act of 1940 (file
no. 811-3044).
TO OBTAIN COPIES AT PRESCRIBED RATES--
WRITE: Public Reference Section of the
Commission
450 Fifth Street, N.W., Washington,
D.C. 20549-6009
CALL: 1-800-SEC-0330.
VISIT: http://www.sec.gov.
---------------------------------------
No person is authorized to give any
information or representations about
this Fund not contained in this
Prospectus or the Information
Supplement, and you should not rely on
any other information.
---------------------------------------
When units of this Fund are no longer
available, this Prospectus may be used
as a preliminary prospectus for a
future series, but some of the
information in this Prospectus will be
changed for that series.
Units of any future series may not be
sold nor may offers to buy be accepted
until that series has become effective
with the Securities and Exchange
Commission. No units can be sold in any
State where a sale would be illegal.
11300--2/99
