SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED MARCH 25, 1998
DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
EQUITY INVESTOR FUND The objective of this Defined Fund is total return
COHEN & STEERS through a combination of high current income and
REALTY MAJORSSM the potential for capital appreciation by
PORTFOLIO investing for approximately three years in a
(A UNIT INVESTMENT diversified portfolio of publicly traded equity
TRUST) real estate investment trusts ('REITs').
- ------------------------------The REITs included in the Portfolio were selected
- -- NO SALES CHARGE DURING for their current dividend yields and potential
INITIAL OFFERING PERIOD for capital appreciation and increasing dividends.
- -- PROFESSIONAL SELECTION The value of units will fluctuate with the value
- -- MONTHLY INCOME of the REITs in the Portfolio and there is no
- -- DIVERSIFICATION assurance that dividends will be paid or that the
- -- REINVESTMENT OPTION REITs, and therefore the units, will appreciate in
value.
Due to potential withholding and tax return filing
requirements, the Fund may not be suitable for
foreign investors.
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
HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Inquiries should be directed to the Trustee at
SPONSOR: 1-800-323-1508.
Merrill Lynch, Prospectus dated , 1998.
Pierce, Fenner & Smith INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY
Incorporated AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. 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 STATE.
<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 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 portfolios
o Corporate portfolios
o Government portfolios
o Equity portfolios
o International 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 equity REITs selected by the Sponsor with research
provided by a professional REIT Consultant, Cohen & Steers Capital Management,
Inc. In the opinion of the Sponsor these REITs have 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. (See Fund Description--Portfolio Selection in Part B.)
The REITs will be purchased from the Sponsor in transactions in which the
Sponsor acts as sole underwriter to the issuers or in private placements (see
Portfolio Acquisition in Part B).
TYPES OF REITS
The portfolio contains REITs in the following real estate sectors:
APPROXIMATE
PORTFOLIO PERCENTAGE
/ / Apartment %
/ / Retail %
/ / Office %
/ / Office/Industrial %
/ / Health Care %
/ / Hotel %
/ / Industrial %
/ / Diversified %
/ / Manufactured Home %
/ / Net Lease %
- ----------------------------------------------------------------
Defining Your Investment
- ----------------------------------------------------------------
PUBLIC OFFERING PRICE PER 1,000 UNITS $1,000.00
The Public Offering Price as of , 1998, the business day prior to the
initial date of deposit, is based on the aggregate value of the underlying
securities ($ ) and any cash held to purchase securities, divided by
the number of units outstanding ( ) times 1,000. The Public Offering
Price on any subsequent date will vary and will include a sales charge after the
initial offering period. 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.
NO SALES CHARGE DURING INITIAL OFFERING PERIOD
There is no sales charge paid by investors who buy Units during the initial
offering period. It is expected that the initial offering period will
end on , 1998. Investors who buy Units after the initial offering
period will pay a maximum up-front sales charge of 3.50% (see How To Buy Units
in part B).
MONTHLY INCOME DISTRIBUTIONS
The Fund pays monthly income. Monthly distributions of dividends are payable on
the 25th of the month beginning in , 1998 to holders of record on the
10th day of the month.
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 at no sales charge. Reinvesting helps to compound your income
for a greater total return.
A-2
<PAGE>
TAXES
In the opinion of counsel, you will be considered to have received all dividends
when those dividends are received by the Portfolio, even though a portion of the
dividend payments may be used to pay expenses of the Portfolio and regardless of
whether you reinvest your dividends in the Portfolio. Noncorporate investors may
be entitled to the new 20% maximum federal tax rate for capital gains derived
from the Portfolio.
Because of withholding tax requirements and the possibility that a foreign
investor will be required to file a U.S. federal income tax return pursuant to
the Foreign Investors in Real Property Tax Act of 1980, the Fund may not be
suitable for foreign investors. (See Taxes in Part B.)
TAX BASIS REPORTING
The proceeds received when you sell this investment will reflect the charge for
organizational expenses. In addition, the annual statement and the relevant tax
reporting forms you receive at year-end will be based upon the amount paid to
you (net of the charge for organizational expenses). Accordingly, you should not
increase your basis in your units by the charge for organizational expenses.
TERMINATION DATE
The Portfolio will terminate by , 2001. 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.
SPONSOR'S PROFIT OR LOSS
The Sponsor's profit from the Portfolio will include fluctuations in the Public
Offering Price or secondary market price of units (including applicable sales
charges), a profit of $ on the initial deposit of the securities and a
gain or loss on subsequent deposits of securities (see Sponsor's and
Underwriters' Profits in Part B).
The Sponsor has participated as sole underwriter, managing underwriter or member
of an underwriting syndicate from which % of the REITs in the Portfolio were
acquired.
- ----------------------------------------------------------------
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 Sponsor's 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.
Unlike a mutual fund, the Portfolio is not actively managed. Therefore, the
adverse financial condition of an issuer or any market movement in the price of
a security will not require the sale of securities from the Portfolio. Although
the Portfolio is regularly reviewed and evaluated and the Sponsor 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
- ----------------------------------------------------------------
NO SALES CHARGE DURING INITIAL OFFERING PERIOD
There is no sales charge during the initial offering period. Subsequent to the
initial offering period investors will pay a 3.50% sales charge subject to
reduction for quantity purchases (see How To Buy Units in Part B).
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. It
assumes a $1,000 investment.
As a %
of Public Amount per
Offering Price 1,000 Units
--------------- --------------
Maximum Sales Charge During Initial
Offering Period None None
Maximum Sales Charge After the
Initial Offering Period 3.50% $ 35.00
Maximum Sales Charge Imposed on
Reinvested Dividends None None
A-3
<PAGE>
ESTIMATED ANNUAL FUND OPERATING EXPENSES
As a % of Amount per
Net Assets 1,000 Units
----------------- --------------
Trustee's Fee % $
Maximum Portfolio Supervision,
Bookkeeping and Administrative
Fees % $
REIT Consultant's Fee % $
Organizational Expenses % $
Other Operating Expenses % $
----------------- --------------
TOTAL % $
Investors will bear all or a portion of its organizational costs--including
costs of preparing the registration statement, the trust indenture and other
closing documents, registering units with the SEC and the states, and the
initial audit of the Portfolio--as is common for mutual funds.
Unlike a mutual fund, the Sponsor receives no management fee. The total annual
fees may be greater for this Fund than for other equity funds of the Sponsor
because most other funds do not pay consultants for ongoing research.
The Sponsor believes that the research arrangement with the REIT Consultant
(which is not affiliated with the Sponsor) 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:
Investors Purchasing During the Initial Offering Period
1 Year 2 Years 3 Years
$ $ $
Investors Purchasing After the Initial Offering Period
1 Year 2 Years 3 Years
$ $ $
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.
Reductions to the repurchase and cash redemption prices in the secondary market
to recoup the costs of liquidating securities to meet redemption (described
below) have not been reflected. 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 redeem or sell 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 , 1998 was
$ per 1,000 units. After the initial offering period, the repurchase and
cash redemption prices for units may be reduced to reflect the estimated costs
of liquidating securities to meet the redemption, currently estimated at $
per 1,000 units.
REDEMPTION IN KIND
You may request redemption in kind from the Trustee if you are redeeming
Securities with a value of at least $1 million (see How To Redeem or Sell
Units-- Redeeming Units in Part B).
A-4
<PAGE>
- --------------------------------------------------------------------------------
Defined Portfolio
- --------------------------------------------------------------------------------
Equity Investor Fund
Cohen & Steers
Realty MajorsSM Portfolio
Defined Asset Funds , 1998
<TABLE>
<CAPTION>
PRICE PER CURRENT
TICKER PERCENTAGE SHARE TO COST DIVIDEND
NAME OF ISSUER SYMBOL OF PORTFOLIO (1) PORTFOLIO TO PORTFOLIO (2) YIELD (3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-------------------- -----------------
100.00% $
-------------------- -----------------
-------------------- -----------------
</TABLE>
- ------------------------------------
(1) Based on Cost to Portfolio.
(2) Valuation by the Trustee made on the basis of closing sale prices at the
evaluation time on , 1998, the business day prior to the initial
date of deposit. The value of the Securities on any subsequent business day
will vary.
(3) Calculated by annualizing the latest quarterly or semi-annual ordinary
dividend declared on the Security and dividing the result by its market
value as of the close of trading on , 1998.
------------------------------------
The securities were acquired on , 1998 and are represented entirely by
contracts to purchase the securities. The Sponsor may have acted as underwriter,
manager or co-manager of a public offering of the securities in this Fund during
the last three years. Affiliates of the Sponsor may serve as specialists in the
securities in this Fund on one or more stock exchanges and may have a long or
short position in any of these securities or in options on any of them, and may
be on the opposite side of public orders executed on the floor of an exchange
where the securities are listed. An officer, director or employee of the Sponsor
may be an officer or director of one or more of the issuers of the securities in
the Fund. The Sponsor may trade for its own account as an odd-lot dealer, market
maker, block positioner and/or arbitrageur in any of the securities or in
options on them. The Sponsor, its affiliates, directors, elected officers and
employee benefits programs may have either a long or short position in any
securities or in options on them.
A-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsor, Trustee and Holders of Equity Investor Fund, Cohen & Steers Realty
MajorsSM Portfolio, Defined Asset Funds (the 'Fund'):
We have audited the accompanying statement of condition and the defined
portfolio included in the prospectus of the Fund as of , 1998. This
financial statement is the responsibility of the Trustee. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation of an irrevocable letter of credit deposited for the purchase of
securities, as described in the statement of condition, with 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 statement referred to above presents fairly, in
all material respects, the financial position of the Fund as of , 1998
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
, 1998
STATEMENT OF CONDITION AS OF , 1998
TRUST PROPERTY
Investments--Contracts to purchase Securities(1).........$
Organizational Costs(2)..................................
--------------------
Total.........................................$
--------------------
--------------------
LIABILITY AND INTEREST OF HOLDERS
Accrued Liability(2)...................................$
--------------------
Subtotal............................................$
--------------------
Interest of Holders of Units of fractional
undivided interest outstanding (3):
Cost to investors(4)...................................$
Gross underwriting commissions(5)...................... ()
--------------------
Subtotal............................................$
--------------------
Total.........................................$
--------------------
--------------------
- ---------------
(1) Aggregate cost to the Portfolio of the securities listed under
Defined Portfolio determined by the Trustee at 4:00 p.m., Eastern time on
, 1998. The contracts to purchase securities are collateralized by an
irrevocable letter of credit which has been issued by Bank, New York
Branch, in the amount of $ and deposited with the Trustee. The
amount of the letter of credit includes $ for the purchase of
securities.
(2) This represents a portion of the Portfolio's organizational
costs, which will be deferred and amortized over the life of the Portfolio.
Organizational costs have been estimated based on projected total assets of
$million. To the extent the Portfolio is larger or smaller, the estimate may
vary.
(3) Because the value of Securities at the evaluation time on the
Initial Date of Deposit may differ from the amounts shown in this statement of
condition, the number of Units offered on the Initial Date of Deposit will be
adjusted from the initial number of Units to maintain the $1,000 per 1,000 Units
offering price only for that day. The Public Offering Price on any subsequent
day will vary.
(4) Aggregate public offering price computed on the basis of the
value of the underlying securities at 4:00 p.m., Eastern time on ,
1998.
(5) Assumes no sales charge during the initial offering period.
A-6
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
EQUITY INVESTOR FUND COHEN & STEERS
REALTY MAJORSSM PORTFOLIO
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
---------
PORTFOLIO DESCRIPTION........................................ 1
RISK FACTORS................................................. 2
HOW TO BUY UNITS............................................. 4
HOW TO REDEEM OR SELL UNITS.................................. 5
INCOME, DISTRIBUTIONS AND REINVESTMENT....................... 6
PORTFOLIO EXPENSES........................................... 7
TAXES........................................................ 8
RECORDS AND REPORTS.......................................... 10
TRUST INDENTURE.............................................. 10
MISCELLANEOUS................................................ 11
EXCHANGE OPTION.............................................. 13
SUPPLEMENTAL INFORMATION..................................... 13
PORTFOLIO DESCRIPTION
PORTFOLIO SELECTION
All of the REITs in the Portfolio were chosen from a list of REITs provided
to the Sponsor by the REIT Consultant, Cohen & Steers. In selecting those REITs
it identified as leading companies in the industry, the REIT Consultant
considered the following factors, among others: (i) market capitalization, (ii)
debt to equity ratios and (iii) trading volume. The REIT consultant also
evaluated the REITs for potential growth in funds from operations and dividends.
The Sponsor 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. retail, office, apartment,
office/industrial, hotel, industrial, health care, diversified, manufactured
home, and net lease) 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 $5.8
billion in assets at December 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
Sponsor, the REIT Consultant will periodically provide the Sponsor with research
on individual REITs and the REIT market in general to assist the Sponsor in
supervising the Portfolio (see Portfolio Supervision below).
The Portfolio 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
1
<PAGE>
of substantial past price fluctuations in REITs, an investment in the Portfolio
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. During the 90-day period following the initial date of deposit
the Sponsors may deposit additional Securities in order to create new Units,
maintaining to the extent practicable that original proportionate relationship.
Deposits of additional Securities subsequent to the 90 day period must generally
replicate exactly the proportionate relationship among the number of shares of
each Security at the end of the initial 90-day period. 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 Portfolio. To minimize these effects,
the Portfolio 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 ACQUISITION
On the Initial Date of Deposit all of the REITs deposited in the Portfolio
were purchased from the Sponsor in transactions in which the Sponsor will act as
sole underwriter to the issuers of the REITs or in private placements. These
transactions will be effected to the Sponsor at prices below the current market
value of the REITs due to various factors, including the size of the purchase,
expectation of holding period and cost of issuance. All of the REITs will be
deposited in the Portfolio based upon their market value as of the dates of
deposit. As a result of the Sponsor's ability to purchase the REITs below market
value, the Sponsor will offer Units with no sales charge during the initial
offering period. By virtue of buying stocks at below market prices, the Sponsor
will realize a profit on the deposit of the REITs to the Portfolio in an amount
of up to % of the market value of these Stocks. The Sponsor may also create
Units by depositing REITs acquired in the secondary market on the applicable
national stock exchanges.
PORTFOLIO SUPERVISION
The Portfolio follows a buy and hold investment strategy that buys stocks
and generally holds them for three years, in contrast to the frequent portfolio
changes of a managed fund based on economic, financial and market analyses.
Although the Portfolio is regularly reviewed, the Portfolio is unlikely to sell
any of the Securities other than to satisfy redemptions of units, or to cease
buying additional shares in connection with the issuance of Additional Units.
More specifically, adverse developments concerning a Security including the
adverse financial condition of the issuer, a failure to maintain a current
dividend rate, the institution of legal proceedings against the issuer, a
default under certain documents materially and adversely affecting the future
declaration of dividends, or a decline in the price or the occurrence of other
market or credit factors (including a public tender offer or a merger or
acquisition transaction) that might otherwise make retention of the Security
detrimental to the interest of investors, will generally not cause the Portfolio
to dispose of a Security or cease buying it.
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
2
<PAGE>
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. Additionally, equity markets have
been at historically high levels and no assurance can be given that these levels
will continue. There can be no assurance that the Portfolio will be effective in
achieving its objective. The Portfolio is not designed to be a complete
investment program.
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.
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 Sponsor believes selected REITs offer an
attractive opportunity over the next three years.
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 may be 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 kind of
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
Portfolio have entered into this kind of arrangement.
REIT Taxation. Each of the REITs in which the Portfolio invests will
generally state its intention to operate in such manner as to qualify for
taxation as a 'real estate investment trust' under Sections 850-860 of the
Internal Revenue Code of 1986, as amended, although 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 assets
in real estate, cash items and government securities; derive at least 75% of its
gross income from rents, interest on mortgages, gain from disposition of real
property that is not inventory, distributions from other REITs, and certain
other types of real estate related income; and distribute to its stockholders an
amount at least equal to 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. Unless entitled to relief under
specific statutory provisions, the
3
<PAGE>
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 Portfolio may be restricted
under the Investment Company Act of 1940 from selling Securities to the Sponsor.
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 Portfolio, although pending litigation may have a material adverse effect
on the value of Securities in the Portfolio. 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 PORTFOLIO; 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 Sponsor once its
total assets have fallen below the minimum value specified in Part A of the
Prospectus. A decision by the Sponsor 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 or shortly before termination,
the Trustee will seek to dispose of any Securities remaining in the Portfolio
although any Security unable to be sold at a reasonable price may continue to be
held by the Trustee in a liquidating trust pending its final disposition. A
proportional share of the expenses associated with termination, including
brokerage costs in disposing of Securities, will be borne by investors remaining
at that time. This may have the effect of reducing the amount of proceeds those
investors are to receive in any final distribution.
HOW TO BUY UNITS
Units are available from the Sponsor 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.
PUBLIC OFFERING PRICE
During the initial offering period, Units will be sold with no sales
charge. Sales initially will be made to dealers at prices which represent a
concession of 2.75% of the Public Offering Price for sales of Units created on
the Initial Date of Deposit and 2.75% of the Public Offering Price for primary
market sales of Units created subsequent to the Initial Date of Deposit and
secondary market sales (or % of the then current maximum sales charge after
, 1999). In addition, dealers and other selling agents who meet
minimum sales volume thresholds may receive additional concessions. The Sponsor
reserves the right to change the amount of the concession from time to time. The
Sponsor has adopted a policy whereby concessions paid to dealers will be
withheld or reversed if Units are tendered for redemption or sold within 90 days
of the Initial Date of Deposit. After the initial offering period, Units are
charged an up-front sales charge of 3.50% of the Public Offering Price (3.627%
of the net amount invested in the Securities).
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Employees of the Sponsor and Sponsor affiliates and non-employee directors
of Merrill Lynch & Co. Inc. may purchase Units after the initial offering period
at a reduced 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, Martin Luther King, Jr. 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
Sponsor nor the Trustee guarantee the enforceability, marketability or price of
any Securities.
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 Redeem or Sell Units-- Trustee's
Redemption of Units). The Sponsor collects 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 REDEEM OR SELL UNITS
You can redeem your Units at any time for net asset value. In addition, the
Sponsor has maintained an uninterrupted secondary market for Units for over 20
years and will ordinarily buy back Units at net asset value. The following
describes these two methods to redeem or sell Units in greater detail.
REDEEMING UNITS
You can always redeem your Units directly with the Trustee for net asset
value. This can be done by sending the Trustee a redemption request together
with any Unit certificates you hold, which must be properly endorsed or
accompanied by a written transfer instrument with signatures guaranteed by an
eligible institution. In certain instances, additional documents may be required
such as a trust instrument, certificate of corporate authority, certificate of
death or appointment as executor, administrator or guardian.
Within seven days after the receipt of your request (and any necessary
documents), a check will be mailed to you in an amount equal to the net asset
value of your Units. Because of the sales charge, market movements or changes in
the Portfolio, net asset value at the time you redeem your Units may be greater
or less than the original cost of your Units. Net asset value is calculated 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 or for
distribution to investors and the value of any other Fund liabilities; and
dividing the result by the number of outstanding Units. After the initial
offering period, net asset value will be reduced to reflect the cost to the Fund
of liquidating Securities to meet the redemption price.
As long as the Sponsor is maintaining a secondary market for Units (as
described below), the Trustee will not actually redeem your Units but will sell
them to the Sponsor for net asset value. If the Sponsor is not maintaining a
secondary market, the Trustee will redeem your Units for net asset value or will
sell your Units in the over-the-counter market if the Trustee believes it will
obtain a higher net price for your Units. If the Trustee is able to sell the
Units for a net price higher than net asset value, you will receive the net
proceeds of the sale.
If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee may sell Securities selected by the Sponsor based on
market and credit factors determined to be in the best interest of the Fund.
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 may
also reduce the size and diversity of the Fund. If Securities are being sold
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during a time when additional Units are being created by the purchase of
additional Securities (as described under Portfolio Selection), Securities will
be sold in a manner designed to maintain, to the extent practicable, the
proportionate relationship among the number of shares of each Security in the
Portfolio.
Any investor owning Units representing Securities with a value of at least
$1 million 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. Generally, 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 is subject to all applicable legal restrictions
and may be terminated by the Sponsor at any time upon prior notice to investors.
Redemptions may be suspended or payment postponed (i) if the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (ii) if
the SEC determines that trading on the New York Stock Exchange is restricted or
that an emergency exists making disposal or evaluation of the Securities not
reasonably practicable or (iii) for any other period permitted by SEC order.
SPONSOR'S SECONDARY MARKET FOR UNITS
The Sponsor, while not obligated to do so, will buy back Units at net asset
value without any other fee or charge as long as they are maintaining a
secondary market for Units. After the initial offering period, the repurchase
and cash redemption prices for Units may be reduced to reflect the estimated
costs of liquidating Securities to meet the redemption. Because of the sales
charge, market movements or changes in the portfolio, net asset value at the
time you sell your Units may be greater or less than the original cost of your
Units. The Sponsor may resell the Units to other buyers or redeem the Units by
tendering them to the Trustee. You should consult your financial professional
for current market prices to determine if other broker-dealers or banks are
offering higher prices for Units.
The Sponsor may discontinue the secondary market for Units without prior
notice if the supply of Units exceeds demand or for other business reasons.
Regardless of whether the Sponsor maintains a secondary market, you have the
right to redeem your Units for net asset value with the Trustee at any time, as
described above.
INCOME, DISTRIBUTIONS AND REINVESTMENT
INCOME AND DISTRIBUTIONS
The annual income per Unit, after deducting estimated annual Fund expenses
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 net of estimated expenses. Because dividends on the Securities are not
received at a constant rate throughout the year, any distribution may be more or
less than the amount then credited to the Income Account. Dividends received are
credited to an Income Account 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.
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REINVESTMENT
Income and principal distributions on Units may be reinvested by
participating in the Portfolio's Reinvestment Plan. Under the plan, the Units
acquired for investors will be either Units already held in inventory by the
Sponsor or new Units created by the Sponsor's 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 sales charge at the
net asset value for Units. Under the Reinvestment Plan, the Portfolio will pay
the distributions to the Trustee which in turn will purchase for the investor
full and fractional Units of the Portfolio 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 Sponsor reserves 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.
PORTFOLIO 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
Portfolio, will be paid by the Sponsor at no charge to the Portfolio. All or a
portion of certain other expenses incurred in establishing the Portfolio,
including the cost of the initial preparation of documents relating to the
Portfolio, 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
Portfolio and amortized over the life of the Portfolio. Advertising and selling
expenses will be paid from the Sponsor at no charge to the Portfolio.
FEES
Estimated annual Portfolio expenses are listed in Part A of the Prospectus;
if actual expenses exceed the estimate, the excess will be borne by the
Portfolio. The annual fee paid by the Portfolio to the REIT Consultant, which
includes a fee to cover the license by Cohen & Steers to the Sponsor of the use
of the service mark 'Cohen & Steers Realty MajorsSM,' and a fee for performing
ongoing research on the REITs in the Portfolio and the REIT industry generally,
shall be the amount set forth in Part A of the Prospectus, based on average
daily net assets. The Trustee also benefits when it holds cash for the Portfolio
in non-interest bearing accounts. Possible additional charges include Trustee
fees and expenses for extraordinary services, costs of indemnifying the Trustee
and the Sponsor, costs of action taken to protect the Portfolio and other legal
fees and expenses, termination expenses and any governmental charges. The
Trustee has a lien on Portfolio assets to secure reimbursement of these amounts
and may sell Securities for this purpose if cash is not available. The Sponsor
receives an annual fee currently estimated at $0.35 per 1,000 Units to reimburse
them for the cost of providing Portfolio supervisory services. While the fee may
exceed their costs of providing these services to the Portfolio, the total
supervision fees from all Series of Equity Investor Fund will not exceed their
costs for these services to all of those Series during any calendar year. The
Sponsor may also be reimbursed for its costs of providing bookkeeping and
administrative services to Defined Asset Funds, currently estimated at $0.10 per
1,000 Units. The Trustee's and Sponsor's fees may be adjusted for inflation
without investors' approval.
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 all 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. Defined Asset Funds can be a
cost-effective way to purchase and hold investments. Annual operating expenses
are generally lower than for managed funds.
TAXES
The following discussion addresses only the tax consequences of Units held
as capital assets and does not address the tax consequences of Units held by
dealers, financial institutions or insurance companies.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsor,
under existing law:
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The Portfolio is not an association taxable as a corporation for federal
income tax purposes. Each investor will be considered the owner of a pro
rata portion of each security in the Portfolio under the grantor trust
rules of Sections 671-679 of the Internal Revenue Code of 1986, as amended
(the 'Code'). Each investor will be considered to have received all of the
dividends paid on his pro rata portion of each Security when such dividends
are received by the Portfolio, regardless of whether such dividends are
used to pay a portion of Portfolio expenses or whether they are
automatically reinvested (see Reinvestment Plan).
Distributions by a REIT to the Portfolio that are made out of the REIT's
earnings and profits will be taxable as ordinary income to investors except
to the extent that the REIT designates any distribution as a capital gain
dividend. The portion of any REIT distribution that is designated as a
capital gain dividend will be taxable to an investor as long-term capital
gain, regardless of the time the investor has held his Units. The Internal
Revenue Service has issued a notice (with interim guidance) of forthcoming
temporary regulations to permit a REIT to designate its dividends, subject
to certain limitations, as 20%, 25% or 28% gain distributions, which
individual investors would be entitled to treat as long-term capital gains
subject to tax at the rates of 20%, 25% or 28%, respectively. The Trustee
will provide information in this regard to investors, who should consult
their tax advisers concerning these matters. To the extent that any REIT
distribution exceeds the REIT's earnings and profits, the distribution will
be treated as a return of capital and will reduce the investor's basis in
his Units and, to the extent that such distribution exceeds his basis, will
be treated as gain from the disposition of the relevant REIT stock. Amounts
considered to have been received by a corporate investor from a REIT will
not qualify for the dividends-received deduction.
An individual investor who itemizes deductions will be entitled to
deduct his pro rata share of current Portfolio expenses only to the extent
that this amount together with the investor's other miscellaneous
deductions exceeds 2% of his adjusted gross income. The Code further
restricts the ability of an individual investor with an adjusted gross
income in excess of a specified amount (for 1998, $124,500 or $62,250 for a
married person filing a separate return) to claim itemized deductions
(including his pro rata share of Portfolio expenses).
The investor's basis in his Units will equal the cost of his Units,
including any sales charge. The proceeds received by an investor upon the
termination of the Portfolio or the redemption of the Units will reflect a
charge for organizational expenses. The annual statement and the relevant
tax reporting forms received by investors will be based upon the amounts
paid to them, net of the charge for organizational expenses. Accordingly,
investors should not increase their basis in their Units by any amount used
to pay organizational expenses.
An investor will generally recognize capital gain or loss when the
investor disposes of his Units (by sale, redemption or otherwise) or when
the Trustee disposes of any securities from the Portfolio. An investor will
generally not recognize gain or loss upon the distribution of a pro rata
amount of each of the securities by the Trustee to an investor (or to his
agent) in redemption of Units, except to the extent of cash received in
lieu of fractional shares. The redeeming investor's basis for such
securities will be equal to his basis for the same securities (previously
represented by his Units) prior to such redemption, and his holding period
for such securities will include the period during which he held his Units.
Net capital gain (the excess of net long-term capital gains over net
short-term capital losses) may be taxed at lower rates than ordinary income
for certain individual and other noncorporate taxpayers. The lower net
capital gain tax rates will therefore be unavailable for capital gains from
the dispositions of Units or securities from the Portfolio to those
noncorporate investors who, as of the date of the relevant disposition,
have held their Units for less than a year and a day. Noncorporate
investors who have held their Units for more than 18 months as of the date
of the relevant disposition may be entitled to the new 20% maximum federal
tax rate. In general, capital gain or loss is long-term if the asset is
held for more than one year and short-term if held for one year or less. If
an investor has held his Units for six months or less at the time of his
disposition of Units or of the disposition of a REIT stock from the
Portfolio, any capital loss in respect of the REIT stock will be long-term
capital loss to the extent of any capital gains dividends previously
distributed to the investor in respect of the REIT stock. The deduction of
capital losses is subject to limitations. Investors should consult their
tax advisers in this regard.
Under the income tax laws of the State and City of New York, the
Portfolio is not an association taxable as a corporation and the income of
the Portfolio will be treated as the income of the investors in the same
manner as for federal income tax purposes.
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The foregoing discussion summarizes only certain U.S. federal and New
York State and City income tax consequences of an investment in Units by
investors who are U.S. persons, as defined in the Code. 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.
Foreign investors (including nonresident alien individuals and foreign
corporations) not engaged in U.S. trade or business will generally be
subject to a 30% withholding tax (or lower applicable treaty rate) on the
portion of any distribution that constitutes ordinary income. Under the
Foreign Investors in Real Property Tax Act of 1980 ('FIRPTA'), foreign
investors will be subect to a 35% withholding tax on the portion of any
distribution that is designated as a capital gain dividend. A foreign
investor will also be required to file a U.S. tax return in respect of
capital gain dividends and to pay U.S. income tax on capital gain dividends
(against which the 35% withholding tax may be credited). Subject to treaty
exemptions, capital gain dividends paid to corporate investors will also be
subject to a 30% branch profits tax. The portion of any distribution that
constitutes a return of capital will not be subject to U.S. income or
withholding tax. Because the Trustee may not have sufficient information to
determine at the time of the receipt of a distribution the portions of that
distribution that will constitute ordinary income, capital gain and return
of capital, it is likely that the Trustee will withhold more than the
amount of tax actually due. Foreign investors may seek a refund from the
Internal Revenue Service of any excess withholding tax. Foreign investors
generally should not be subject to withholding tax under FIRPTA with
respect to gain from the sale or redemption of Units or from the
Portfolio's sale of securities.
In view of the withholding tax and return filing requirements described
above, the Fund may not be a suitable investment for foreign investors.
Investors should consult their tax advisers with respect to the U.S.
federal income tax consequences of ownerhip of Units, including any
possible entitlement to refunds, credits or reduced tax rates under any
applicable tax treaty.
* * * *
The Trustee will furnish to each investor an annual statement containing
information relating to the dividends received by the Portfolio on the
Securities, the cash proceeds received by the Portfolio from the disposition of
any Security (resulting from redemption or the sale by the Portfolio of any
Security), and the fees and expenses paid by the Portfolio. The Trustee will
also furnish annual information returns to each investor and to the Internal
Revenue Service.
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 of the Portfolio
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).
Individual Retirement Account--IRA. Any individual can make use of a
qualified IRA arrangement for the purchase of Units of the Portfolio. Any
individual (including one covered by an employer retirement plan) can make a
contribution to 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
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individual filing a separate return). These income thresholds will gradually be
increased by the year 2004 to $50,000 for a single individual and $80,000 for a
married individual filing jointly. 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 be 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. The 10% surtax will be waived for
withdrawals for certain educational and first-time homebuyer expenses. The
Taxpayer Relief Act of 1997 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 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 of the Porfolio.
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 Portfolio,
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. The Trustee sends each investor
of record an annual report summarizing transactions in the Portfolio's accounts
including amounts distributed from them during the year, identifying Securities
sold and purchased and listing Securities held and the number of Units
outstanding and stating the Redemption Price per 1,000 Units at year end, and
the fees and expenses paid by the Portfolio, among other matters. Portfolio
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 Portfolio is a 'unit investment trust' created under New York law by a
Trust Indenture between the Sponsor 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 Sponsor 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 Sponsor). 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 Portfolio
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 Sponsor. It may be removed by
investors holding 51% of the Units at any time or by the Sponsor 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 Sponsor
determines 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 Sponsor will use its 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.
If the Sponsor 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 Portfolio or continue to act as Trustee without a
Sponsor.
The Sponsor 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 the
Sponsor) or reckless disregard of duty. The Indenture contains customary
provisions limitingthe liability of the Trustee.
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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
Sponsor.
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 New York
State banking authorities.
SPONSOR
The Sponsor is a wholly-owned subsidiary of Merrill Lynch Co. Inc. The
Sponsor, or one of its predecessor corporations, has acted as Sponsor of a
number of series of unit investment trusts and as principal underwriter and
managing underwriter of other investment companies. The Sponsor, in addition to
participating as a member of various selling groups or as agent of other
investment companies, executes orders on behalf of investment companies for the
purchase and sale of securities of these companies and sells securities to these
companies in its capacities as broker or dealer in securities.
CODE OF ETHICS
The Sponsor has adopted a code of ethics requiring preclearance and
reporting of personal securities transactions by its personnel who have access
to information on Defined Asset Funds portfolio transactions. The code is
intended to prevent any act, practice or course of conduct which would operate
as a fraud or deceit on any Defined Asset Fund and to provide guidance to these
persons regarding standards of conduct consistent with the Sponsor's
responsibilities to Defined Asset Funds.
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 by Merrill Lynch as sole Sponsor and Underwriter
directly to the public by this Prospectus at the Public Offering Price
determined in the manner provided above or to selected dealers (some of whom may
be named on the cover of this Prospectus) who are members of the National
Association of Securities Dealers, Inc. at a concession not in excess of the
amounts referred to above. The Sponsor intends 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 Sponsor does 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 SPONSOR'S PROFITS
Upon a sale of Units after the initial offering period, 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 Sponsor also realizes a profit or loss on
deposit of the Securities equal to the difference between the cost of the
Securities to the Portfolio (based on the aggregate value of the Securities on
their date of deposit) and the purchase price of the Securities to the Sponsor
plus commissions payable by the Sponsor. In addition, the Sponsor or an
Underwriter may realize profits or sustain losses on Securities it deposits in
the Portfolio 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 Sponsor will also realize profits or sustain
losses in the amount of any difference between the prices at which they buy
Units and the
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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 Sponsor prior to a settlement date for the purchase of Units may be
used in the Sponsor's business to the extent permitted by Rule 15c3-3 under the
Securities Exchange Act of 1934 and may be of benefit to the Sponsor. The
Sponsor has adopted an internal policy whereby concessions or agency commissions
paid to dealers or other selling agents or an allocation of sales credit to a
financial consultant may be withheld or reversed if Units are sold or redeemed
within 90 days of the effective date of the Trust.
PERFORMANCE INFORMATION
Information on the performance of the Portfolio 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. Portfolio performance may be compared to the performance of the National
Association of Real Estate Investment Trusts Index, 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 regular current income consistent with the preservation of
principal. Unit investment trusts are particularly suited for investors who
prefer to seek long-term profits by purchasing and holding investments, 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
Five months after the close of the initial offering period you may be able
to exchange 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.
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 Sponsor is
maintaining a market and which are lawfully for sale in the state where you
reside. Except for the reduced sales charge,
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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 Sponsor is not obligated to maintain a market in any series, there
can be no assurance that units of a desired series can be exchanged. 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 Portfolio, 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 Portfolio.
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Defined
Asset FundsSM
SPONSOR: EQUITY INVESTOR FUND
Merrill Lynch, COHEN & STEERS
Pierce, Fenner & Smith IncorporatedREALTY MAJORSSM PORTFOLIO
Defined Asset Funds
P.O. Box 9051 This Prospectus does not contain all of the
Princeton, NJ 08543-9051 information with respect to the investment
(609) 282-8500 company set forth in its registration
TRUSTEE: statement and exhibits relating thereto which
The Chase Manhattan Bank have been filed with the Securities and
Customer Service Retail Department Exchange Commission, Washington, D.C. under
Bowling Green Station the Securities Act of 1933 and the Investment
P.O. Box 5187 Company Act of 1940, and to which reference
New York, NY 10274-5187 is hereby made.
1-800-323-1508 ------------------------------
No person is authorized to give any
information or to make any representations
with respect to this investment company not
contained in its registration statement and
exhibits relating thereto; and any
information or representation not contained
therein must not be relied upon as having
been authorized.
------------------------------
When Units of this Portfolio are no longer
available this Prospectus may be used as a
preliminary prospectus for a future series,
and investors should note the following:
Information contained herein is subject to
amendment. A registration statement relating
to securities of a future series has been
filed with the Securities and Exchange
Commission. These securities may not be sold
nor may offers to buy be accepted prior to
the time the registration statement becomes
effective.
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.
-- /98
