DEFINED ASSET FUNDS--REGISTERED TRADEMARK--
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EQUITY PARTICIPATION SERIES
LOW FIVE PORTFOLIO
(A UNIT INVESTMENT TRUST)
- DESIGNED FOR CAPITAL APPRECIATION
SPONSORS:
MERRILL LYNCH,
PIERCE, FENNER & SMITH -----------------------------------------------------
INCORPORATED The Securities and Exchange Commission has not
PRUDENTIAL SECURITIES approved or disapproved these Securities or passed
INCORPORATED upon the adequacy of this prospectus. Any
PAINEWEBBER INCORPORATED representation to the contrary is a criminal offense.
DEAN WITTER REYNOLDS INC. Prospectus dated March 17, 2000.
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Defined Asset Funds--Registered Trademark--
Defined Asset Funds-Registered Trademark- is America's oldest and largest family
of unit investment trusts, with over $160 billion sponsored over the last 28
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,
NOVEMBER 30, 1999.
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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
Sponsors' Secondary Market......... 6
Selling Units to the Trustee....... 6
How The Fund Works................... 7
Pricing............................ 7
Evaluations........................ 7
Expenses........................... 8
Portfolio Changes.................. 8
Portfolio Termination.............. 8
No Certificates.................... 8
Trust Indenture.................... 8
Legal Opinion...................... 9
Auditors........................... 9
Sponsors........................... 9
Trustee............................ 10
Underwriters' and Sponsors'
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
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1. WHAT IS THE PORTFOLIO'S OBJECTIVE?
- The objective of this Defined Fund is
capital appreciation by investing for a
period of about three 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 76% of the value of the
Portfolio consists of U.S. Treasury zero
coupon bonds, and 24% consists of the
call options.
- The Low Five Stocks underlying the call
options will adjust annually each August,
2000-2002, to continue to reflect the Low
Five Strategy. Currently the following
issuers are covered by the call options:
Philip Morris Companies, Inc., Sears,
Roebuck & Co., Goodyear Tire and Rubber
Co., Caterpillar, Inc., and General
Motors Corp.
- 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 three 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 on the
intial date of deposit 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:
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- Oil/Gas-International 20%
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- Machinery/Construction & Mining 20
- Forest Products & Papers 20
- Tobacco/Food Processing 20
- Utility/Telecommunications 20
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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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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 FUND 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 three-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 FUND'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
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AMOUNT
PER
UNIT
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$0.74
Trustee's Fee
$0.70
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
$0.54
Evaluator's Fee
$0.20
Organization Expense
$0.48
Other Operating Expenses
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$2.66
TOTAL
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The Sponsors historically paid 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:
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YOUR
MAXIMUM
SALES FEE
IF YOU INVEST: 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%
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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 $1,125.48
(as of November 30, 1999)
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 or threatened
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 (the most recent suit was filed by the Justice Department on
September 22, 1999) 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. As part of the
Agreement, Philip Morris and the three other major domestic tobacco
manufacturers have agreed to participate in the establishment of a $5.15 billion
trust fund. The trust is to be funded over 12 years beginning in 1999. PM Inc.
has agreed to pay $300 million into the trust in 1999. Philip Morris charged
approximately $3.1 billion as a pretax expense in 1998 as a result of the
settlement, and as of December 31, 1998, had accrued costs of its obligations
under the settlement and to tobacco growers aggregating $1.4 billion, payable
principally before the end of the year 2000. 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
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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
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
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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 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 70 CENTS 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
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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 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 may affect the
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).
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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 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
PRUDENTIAL 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
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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.
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 Portfolio and the Agent for the Sponsors has each adopted a code of ethics
requiring reporting of personal securities transactions by its employees with
access to information on Portfolio transactions. Subject to certain conditions,
the codes permit employees to invest in Portfolio securities for their own
accounts. The codes are designed to prevent fraud, deception and misconduct
against the Portfolio and to provide reasonable standards of conduct. These
codes are on file with the Commission and you may obtain a copy by contacting
the Commission at the address listed on the back cover of this prospectus.
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"). To date we are not aware of any major operational difficulties
resulting from the computer system changes necessary to prepare for the Year
2000. However, there can be no assurance that the Year 2000 Problem will not
adversely affect the issuers of the bonds contained in a Portfolio. We cannot
predict whether any impact will be material to the Fund as a whole.
TAXES
The following summarizes some of the important income tax consequences of
holding Units. It assumes that you are not a dealer, financial institution,
insurance company or other investor with special circumstances or subject to
special rules. You should consult your own tax adviser about your particular
circumstances.
In the opinion of our counsel, under existing law:
GENERAL TREATMENT OF THE TRUST 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.
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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.
GAIN 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.
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 otherwise. Because the
deductibility of capital losses is subject to limitations, you may not be able
to deduct all of your capital losses. You should consult your tax adviser in
this regard.
YOUR TAX 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
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 expenses will be limited further if your adjusted gross income exceeds
a specified amount, currently $128,950 ($64,475 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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EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
DEFINED ASSET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders of Equity Participation Series - Low Five
Portfolio Defined Asset Funds:
We have audited the accompanying statement of condition of Equity Participation
Series - Low Five Portfolio, Defined Asset Funds including the portfolio, as of
November 30, 1999 and the related statements of operations and of changes in net
assets for the periods January 1, 1999 to November 30, 1999, August 1, 1998 to
December 31, 1998 and August 26, 1997 to July 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
November 30, 1999 as shown in such portfolio, 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 Equity Participation Series -
Low Five Portfolio, Defined Asset Funds at November 30, 1999 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 February 4, 2000 New York, N.Y.
D-1
<PAGE>
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
DEFINED ASSET FUNDS
STATEMENT OF CONDITION
AS OF NOVEMBER 30, 1999
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
cost $11,962,794 (Note 1).................................... $11,892,675
Cash........................................................... 95,256
-----------
Total trust property.................................. 11,987,931
LESS LIABILITIES:
Accrued expenses............................................... $ 21,792
Other liabilities (Note 3)..................................... 8,280 30,072
----------- -----------
ASSETS, REPRESENTED BY:
10,950 units of fractional undivided
interest outstanding (Note 3)................................ 10,784,101
Undistributed net investment income............................ 1,173,758 $11,957,859
----------- ===========
UNIT VALUE ($11,957,859/10,950 units)............................ $1,092.04
=========
</TABLE>
See Notes to Financial Statements.
D-2
<PAGE>
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
DEFINED ASSET FUNDS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 1, August 1, August 26,
1999 to 1998 to 1997 to
November 30, December 31, July 31,
1999 1998 1998
<S> <C> <C> <C>
INVESTMENT INCOME:
Accretion income.....................................$ 601,877 $ 323,770 $ 821,127
Trustee's fees and expenses.......................... (21,058) (10,419) (24,645)
Sponsors' fees....................................... (6,768) (3,317) (7,576)
----------- ---------- ----------
Net investment income................................ 574,051 310,034 788,906
----------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold or redeemed......... 615,699 125,284 240,043
Unrealized appreciation (depreciation) of
investments........................................ (2,498,656) 1,083,960 1,344,577
----------- ---------- ----------
Net realized and unrealized gain (loss) on
investments........................................ (1,882,957) 1,209,244 1,584,620
----------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS......................................$(1,308,906) $1,519,278 $2,373,526
=========== ========== ==========
</TABLE>
See Notes to Financial Statements.
D-3
<PAGE>
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
DEFINED ASSET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
January 1, August 1, August 26,
1999 to 1998 to 1997 to
November 30, December 31, July 31,
1999 1998 1998
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................ $ 574,051 $ 310,034 $ 788,906
Realized gain on securities sold or redeemed..... 615,699 125,284 240,043
Unrealized appreciation (depreciation) of
investments.................................... (2,498,656) 1,083,960 1,344,577
----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations........................ (1,308,906) 1,519,278 2,373,526
----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Creation of 20,000 units......................... 19,926,000
Redemptions of 4,825, 1,400 and 3,075
units, respectively............................ (5,808,810) (1,587,959) (3,396,990)
Deferred organization cost....................... (552) (7,728)
----------- ----------- -----------
NET CAPITAL SHARE TRANSACTIONS..................... (5,808,810) (1,588,511) 16,521,282
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS.............. (7,117,716) (69,233) 18,894,808
NET ASSETS AT BEGINNING OF PERIOD.................. 19,075,575 19,144,808 250,000
----------- ----------- -----------
NET ASSETS AT END OF PERIOD........................ $11,957,859 $19,075,575 $19,144,808
=========== =========== ===========
PER UNIT:
Net asset value at end of period....................$1,092.04 $1,209.23 $1,114.69
========= ========= =========
TRUST UNITS OUTSTANDING AT END OF PERIOD.................10,950 15,775 17,175
====== ====== ======
</TABLE>
See Notes to Financial Statements.
D-4
<PAGE>
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
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) Evaluations are determined by an 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 is required.
(c) Accretion income is calculated on a constant yield basis and is shown
on the Statements of Operations.
2. NET CAPITAL
Cost of 10,950 units, at Dates of Deposit................. $11,291,835
Less: sales charge........................................ 381,849
-----------
Net amount applicable to Holders.......................... 10,909,986
Redemption of units - net cost of
9,300 units, redeemed less redemption amounts........... (954,729)
Realized gain on securities sold or redeemed.............. 981,026
Transfer from principal (cover expenses).................. (73,783)
Deferred organization cost (Note 3)....................... (8,280)
Net unrealized depreciation of investments................ (70,119)
-----------
Net capital applicable to Holders......................... $10,784,101
===========
3. DEFERRED ORGANIZATION COSTS
Deferred organization costs were amortized over the first year of the Fund.
Included in "Other liabilities", in the accompanying Statement of Condition
is $8,280 payable to the Trustee at November 30, 1999 for reimbursement of
costs related to the organization of the Trust.
4. INCOME TAXES
As of November 30, 1999, net unrealized depreciation of investments, based
on cost for Federal income tax purpose, aggregated $70,119 of which $51,645
related to appreciated securities and $121,764 related to depreciated
securities. The cost of investment securities for Federal income tax
purposes was $11,962,794 at November 30, 1999.
D-5
<PAGE>
EQUITY PARTICIPATION SERIES - LOW FIVE PORTFOLIO
DEFINED ASSET FUNDS
PORTFOLIO
AS OF NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Port. Exercise
No. Name of Issuer Shares Date Cost Value(1)
------ ---- ---- --------
<S> <C> <C> <C> <C>
Call Options:
- ------------
1 SwissBank Corp. London 1,752 2/20/03 $ 477,805 $ 458,323
Branch
2 Swiss Re Financial Products 9,198 2/20/03
Corp. 2,508,479 2,406,197
----------- -----------
Sub total 2,986,284 2,864,520
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Zero Coupon Bond:
- ----------------
Face Maturity
Amount Date
<S> <C> <C> <C> <C>
3 U.S. Treasury Notes $10,950,000 2/15/03 8,976,510 9,028,155
----------- -----------
Total $11,962,794 $11,892,675
=========== ===========
</TABLE>
(1) See footnote 1(a) to the financial statements.
D-6
<PAGE>
DEFINED ASSET FUNDS-SM-
<TABLE>
<S> <C>
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--3/00
</TABLE>
