<PAGE>
DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
EQUITY INVESTOR FUND The objective of this Defined Fund is capital
SELECT SERIES appreciation by investing for a period of about
STANDARD & POOR'S one year in a portfolio of common stocks believed
INTRINSIC VALUE to have attractive potential for growth. These
PORTFOLIO stocks were selected through the application of a
1997 SERIES B quantitative Model developed by Standard & Poor's,
(A UNIT INVESTMENT a Division of The McGraw-Hill Companies, Inc.
TRUST) There can be no assurance that the Fund will
- ------------------------------achieve its objective. Current dividend income is
not an objective of the Fund.
The Fund holds growth stocks that may be subject
to above-average price volatility, and is
concentrated in companies in the computer
industry. The Fund is not an appropriate
investment for investors seeking either
preservation of capital or current dividend
income.
The value of units will fluctuate with the value
of the common stocks in the Portfolio and no
assurance can be given that the underlying common
stocks or the units will appreciate in value.
Minimum purchase: $250.
-------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
SPONSORS: HAS THE COMMISSION OR ANY STATE SECURITIES
Merrill Lynch, COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
Pierce, Fenner & Smith OF THIS DOCUMENT. ANY REPRESENTATION TO THE
Incorporated CONTRARY IS A CRIMINAL OFFENSE.
Smith Barney Inc. Inquiries should be directed to the Trustee at
PaineWebber Incorporated 1-800-221-7771.
Prudential Securities Prospectus dated August 6, 1997.
Incorporated INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY
Dean Witter Reynolds Inc. AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
Defined Asset FundsSM
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $115 billion sponsored in the last 25 years. Each Defined
Asset Fund is a portfolio of preselected securities. The portfolio is divided
into 'units' representing equal shares of the underlying assets. Each unit
receives an equal share of income and principal distributions.
Defined Asset Funds offer several defined 'distinctives'. You know in advance
what you are investing in and that changes in the portfolio are limited - a
defined portfolio. Most defined bond funds pay interest monthly - defined
income. The portfolio offers a convenient and simple way to invest - simplicity
defined.
Your financial professional can help you select a Defined Asset Fund to meet
your personal investment objectives. Our size and market presence enable us to
offer a wide variety of investments. The Defined Asset Funds family offers:
o Municipal bond portfolios
o Corporate bond portfolios
o Government bond portfolios
o Equity portfolios
o International bond and equity portfolios
The terms of Defined Funds are as short as one year or as long as 30 years.
Special defined bond funds are available including: insured funds, double and
triple tax-free funds and funds with 'laddered maturities' to help protect
against changing interest rates. Defined Asset Funds are offered by prospectus
only.
- ----------------------------------------------------------------
Defined Select Standard & Poor's
Intrinsic Value Portfolio
- ----------------------------------------------------------------
The Portfolio contains 25 common stocks selected through the application of a
quantitative Model developed by Standard & Poor's, designed to identify stocks
with a strong potential for capital appreciation. This Intrinsic Value Series
permits investors to buy and hold the Portfolio for approximately one year. At
the end of the year, the Portfolio will be liquidated and the Model reapplied to
select a new portfolio. Each Intrinsic Value Portfolio is designed to be part of
a longer term strategy and the Sponsors believe that more consistent results are
likely if the strategy is followed for at least three to five years.
So long as the Sponsors continue to offer new portfolios, investors will have
the option to reinvest into a new portfolio at a reduced sales charge. The
Sponsors reserve the right, however, not to offer a new portfolio.
The Stocks included in the Portfolio were selected for their potential for
growth from Standard & Poor's Compustat database of over 10,286 common stocks.
As Portfolio Consultant, Standard & Poor's applied its Model, which identified
stocks with the following characteristics, among others, as of July 25, 1997:
(i) free cash flow exceeding $20 million for the most recent four quarters for
which data are available;
(ii) net profit margin exceeding 15%;
(iii) return on equity exceeding 20% for the most recent four quarters for
which data are available;
(iv) issuer's growth in market capitalization exceeding growth in retained
earnings over the last five years; and
(v) current stock price at a discount to its current value as calculated by
Standard & Poor's.
The Agent for the Sponsors then reviewed the identified stocks for market
capitalization, liquidity, marketing and other factors, and made a final
selection of the Portfolio. (See Fund Description in Part B.) Because there is
no active management of the Portfolio, the Sponsors anticipate that the
Portfolio will remain unchanged over its one-year life despite adverse
developments concerning an issuer, an industry or the economy or stock market
generally.
- ----------------------------------------------------------------
Defining Your Portfolio
- ----------------------------------------------------------------
Based upon the principal business of each issuer and current market values, the
following industries are represented in the Portfolio:
APPROXIMATE
PORTFOLIO PERCENTAGE
/ / Electronic Components/Semiconductors 19%
/ / Software 16%
/ / Medical/Healthcare 12%
/ / Memory Devices 9%
/ / Oil & Gas Drilling 8%
/ / Financial Services 8%
/ / Networking Products 4%
/ / Building Products 4%
/ / Transportation 4%
/ / Chemical - Diversified 4%
/ / Printers & Related Products 4%
/ / Golf 4%
/ / Insurance 4%
- ----------------------------------------------------------------
Defining Your Risks
- ----------------------------------------------------------------
The Portfolio is 'concentrated' in Technology stocks (48% of the Portfolio). Two
issuers are foreign issuers. (See Risk Factors in Part B.)
There can be no assurance that the Portfolio will meet its objectives over its
one-year life or that portfolios selected through re-application of the Model
during consecutive one-year periods will meet their objectives. Current dividend
income is not a criterion for the selection of stocks for the Portfolio. The
Portfolio may not reflect any investment recommendations of any of the Sponsors
or the Portfolio Consultant, and one or more of the stocks in the Portfolio may,
from time to time, be subject to sell recommendations from one or more of the
Sponsors or the Portfolio Consultant. The Portfolio is not designed to be a
complete equity investment program.
A-2
<PAGE>
Unit price fluctuates with the value of the Portfolio, and the value of the
Portfolio could be affected by changes in the financial condition of the
issuers, changes in the various industries represented in the Portfolio,
movements in stock prices generally, the impact of the Sponsors' purchase and
sale of the securities (especially during the primary offering period of units
and during the rollover period) and other factors. Additionally, equity markets
have been at historically high levels and no assurance can be given that these
levels will continue. Therefore, there is no guarantee that the objective of the
Portfolio will be achieved.
Unlike a mutual fund, the Portfolio is not actively managed and the Sponsors
receive no management fee. Therefore, the adverse financial condition of an
issuer or any market movement in the price of a security will not require the
sale of securities from the Portfolio. Although the Sponsors may instruct the
Trustee to sell securities under certain limited circumstances, given the
investment philosophy of the Portfolio, the Sponsors are not likely to do so.
The Portfolio generally will continue to purchase or hold securities originally
selected even though the assessment of their growth potential may change and
even if the securities would no longer qualify for selection were the Model to
be applied on a later date.
- ----------------------------------------------------------------
Defining Your Investment
- ----------------------------------------------------------------
PUBLIC OFFERING PRICE PER 1,000 UNITS $1,000.00
The Public Offering Price as of August 5, 1997, the business day prior to the
initial date of deposit is based on the aggregate value of the underlying
securities ($289,043.75) and any cash held to purchase securities, divided by
the number of units outstanding (291,963) times 1,000, plus the initial sales
charge. Units offered on the Initial Date of Deposit will also be priced at
$1,000 per 1,000 Units although the aggregate value of the underlying
securities, cash amount and number of Units may vary. The Public Offering Price
on any subsequent date will vary. The underlying securities are valued by the
Trustee on the basis of their closing sale prices at 4:00 p.m. Eastern time on
every business day.
SALES CHARGES
The total sales charge for this investment combines an initial up-front sales
charge and a deferred sales charge that will be deducted from the net asset
value of the Portfolio monthly beginning November 1, 1997 and thereafter on the
1st of each month through August 1, 1998.
ROLLOVER OPTION
When this Intrinsic Value Portfolio is about to terminate, you may have the
option to roll your proceeds into the next Intrinsic Value Portfolio at a
reduced sales charge. If you notify your financial professional by August 7,
1998, your units will be redeemed and your proceeds will be reinvested in units
of the next Portfolio. If you decide not to roll over your proceeds, you will
receive a cash distribution after the Fund terminates. Of course you can sell or
redeem your Units at any time prior to termination.
SEMI-ANNUAL DISTRIBUTIONS
You will receive distributions of any dividend income, net of expenses, on the
25th of December, 1997 and June, 1998, if you own units on the 10th of those
months.
REINVESTMENT OPTION
You can elect to automatically reinvest your distributions into additional units
of the Portfolio subject only to the deferred sales charge remaining at the time
of reinvestment.
TAXES
In the opinion of counsel, you will be considered to have received all the
dividends paid on your pro rata portion of each security in the Portfolio when
those dividends are received by the Portfolio, even though the dividend payments
may be used to pay expenses of the Portfolio and regardless of whether you
reinvest your dividends in the Portfolio. Investors will not be entitled under
the Taxpayer Relief Act of 1997 to the new 20% maximum federal tax rate for
capital gains derived from the Fund and should consult their tax advisers in
this regard.
TAX BASIS REPORTING
The proceeds received when you sell this investment will reflect the deduction
of the deferred sales charge and 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 deferred sales
charge and the charge for organizational expenses). Accordingly, you should not
increase your basis in your units by the deferred sales charge and the charge
for organizational expenses.
TERMINATION DATE
The Portfolio will terminate by September 2, 1998. 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.
SPONSORS' PROFIT OR LOSS
The Sponsors' profit or loss from the Portfolio will include the receipt of
applicable sales charges, fluctuations in the Public Offering Price or secondary
market price of units, a loss of $167.50 on the initial deposit of the
securities and a gain or loss on subsequent deposits of securities (see
Sponsors' and Underwriters' Profits in Part B).
A-3
<PAGE>
- ----------------------------------------------------------------
Defining Your Costs
- ----------------------------------------------------------------
SALES CHARGE
First-time investors pay a maximum sales charge of 2.75% of the offering price,
of which $17.50 per 1,000 units is deferred. For example, on a $1,000
investment, 2.75% less $17.50 (or about 1%) is deducted when they buy and the
remaining $990 is invested in the Strategy Stocks. The initial sales charge is
reduced on purchases of $50,000 or more, as described in Part B. In addition, a
deferred sales charge of $1.75 per 1,000 units will be deducted from the
Portfolio's net asset value each month over the last ten months of the
Portfolio's life ($17.50 total). This deferred method of payment keeps more of
your money invested over a longer period of time. If you roll the proceeds of
your investment into a new portfolio, you will not be subject to the 1% initial
charge, just the $17.50 deferred fee. Although this is a unit investment trust
rather than a mutual fund, the following information is presented to permit a
comparison of fees and an understanding of the direct or indirect costs and
expenses that you pay.
As a %
of Initial Public Amount per
Offering Price 1,000 Units
----------------- --------------
Initial Sales Charge 1.00% $ 10.00
Deferred Sales Charge per Year 1.75% 17.50
----------------- --------------
Maximum Sales Charge 2.75% $ 27.50
----------------- --------------
----------------- --------------
Maximum Sales Charge Imposed per
Year on Reinvested Dividends 1.40% $ 14.00
ESTIMATED ANNUAL FUND OPERATING EXPENSES
As a % Amount per
of Net Assets 1,000 Units
----------------- --------------
Trustee's Fee .085% $ 0.84
Portfolio Supervision,
Bookkeeping and Administrative
Fees .045% $ 0.45
Organizational Expenses .343% $ 3.40
Other Operating Expenses .053% $ 0.52
----------------- --------------
TOTAL .526% $ 5.21
These estimates do not include the costs of purchasing and selling the
underlying Strategy Stocks.
This Portfolio (and therefore the 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.
COSTS OVER TIME
You would pay the following cumulative expenses on a $1,000 investment, assuming
5% annual return on the investment throughout the indicated periods and
redemption at the end of the period:
1 Year 3 Years 5 Years 10 Years
$33 $81 $131 $270
Although the Portfolio has a term of only one year and is a unit investment
trust rather than a mutual fund, this information is presented to permit a
comparison of fees, assuming the principal amount and distributions are rolled
over each year into a new portfolio subject only to the deferred sales charge
and fund expenses.
The example assumes reinvestment of any dividends and distributions and uses a
5% annual rate of return as mandated by SEC regulations applicable to mutual
funds. For purposes of the example, the deferred sales charge imposed on
reinvestment of dividends is not reflected until the year following payment of
the dividend; the cumulative expenses would be higher if sales charges on
reinvested dividends were reflected in the year of reinvestment.
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 August 5, 1997 was
$972.50 per 1,000 units ($27.50 per 1,000 units less than the Public Offering
Price). This price reflects deductions of the deferred sales charge which
declines over the last ten months of the Portfolio ($17.50 initially). If you
sell your units before the termination of the Portfolio, you will pay the
remaining balance of the deferred sales charge. After the initial offering
period, the repurchase and cash redemption prices for units will be reduced to
reflect the estimated costs of liquidating securities to meet the redemption,
currently estimated at $0.61 per 1,000 units. If you reinvest in the new
portfolio, you will pay your share of any brokerage commissions on the sale of
underlying securities when your units are liquidated during the rollover.
A-4
<PAGE>
- --------------------------------------------------------------------------------
Defined Portfolio
- --------------------------------------------------------------------------------
Equity Investor Fund Select Series
Standard & Poor's Intrinsic Value Portfolio 1997 Series B August 6, 1997
Defined Asset Funds
<TABLE><CAPTION>
PRICE
TICKER NUMBER OF SHARES PERCENTAGE PER SHARE COST
NAME OF ISSUER SYMBOL OF COMMON STOCK OF FUND (1) TO FUND TO FUND (2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Adobe Systems, Inc. ADBE 300 4.07% $ 39.25000 $ 11,775.00
2. Altera Corporation ALTR 200 4.43 64.00000 12,800.00
3. Amgen, Inc. AMGN 200 3.97 57.31250 11,462.50
4. Applied Magnetics Corporation APM 350 4.21 34.75000 12,162.50
5. Bio-Technology General
Corporation BTGC 900 4.01 12.87500 11,587.50
6. BMC Software, Inc. BMCS 200 4.35 62.90625 12,581.25
7. Callaway Golf Company ELY 350 4.26 35.18750 12,315.63
8. Cisco Systems Inc. CSCO 150 4.25 81.93750 12,290.63
9. Cognos, Inc.+ COGNF 350 3.57 29.50000 10,325.00
10. EMC Corporation EMC 250 4.48 51.81250 12,953.12
11. Exel Limited++ XL 200 3.85 55.68750 11,137.50
12. Global Marine, Inc. GLM 400 4.00 28.87500 11,550.00
13. Green Tree Financial
Corporation GNT 250 4.04 46.75000 11,687.50
14. Healthcare Compare Corporation HCCC 200 3.87 55.87500 11,175.00
15. Hercules, Inc. HPC 200 3.71 53.56250 10,712.50
16. Intel Corporation INTC 100 3.45 99.68750 9,968.75
17. Kansas City Southern
Industries, Inc. KSU 150 4.11 79.12500 11,868.75
18. Maxim Integrated Products, Inc. MXIM 150 3.70 71.31250 10,696.88
19. Medusa Corporation MSA 250 3.96 45.75000 11,437.50
20. Novellus Systems, Inc. NVLS 100 3.86 111.62500 11,162.50
21. Parametric Technology Company PMTC 250 4.24 49.06250 12,265.62
22. Union Texas Petroleum Holdings,
Inc. UTH 550 3.94 20.68750 11,378.12
23. United Companies Financial
Corporation UC 400 3.96 28.62500 11,450.00
24. Xilinx, Inc. XLNX 200 3.90 56.37500 11,275.00
25. Zebra Technologies Corporation ZBRA 350 3.81 31.50000 11,025.00
--------------------- -----------------
100.00% $ 289,043.75
--------------------- -----------------
--------------------- -----------------
</TABLE>
- ------------------------------------
(1) Based on Cost to Fund. On this basis, 48% of the Portfolio consists of
Technology stocks (see Risk Factors in Part B).
(2) Valuation by the Trustee made on the basis of closing sale prices at the
evaluation time on August 5, 1997.
+ This is a Canadian corporation. The current annual dividends per share, if
any, will be subject to Canadian withholding tax.
++ This is a Bermuda corporation. The current annual dividends per share, if
any, will not be subject to Bermuda withholding tax.
------------------------------------
The securities were acquired on August 5, 1997 and are represented entirely by
contracts to purchase the securities. Any of the Sponsors may have acted as
underwriters, managers or comanagers of a public offering of the securities in
this Fund during the last three years. Affiliates of the Sponsors 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 any of the Sponsors may be an officer or director of one or more of
the issuers of the securities in the Fund. A 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. Any 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 Sponsors, Trustee and Holders of Equity Investor Fund Select Series,
Standard & Poor's Intrinsic Value Portfolio 1997 Series B, Defined Asset Funds
(the 'Fund'):
We have audited the accompanying statement of condition and the related defined
portfolio included in the prospectus of the Fund as of August 6, 1997. 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 August 6, 1997
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
August 6, 1997
STATEMENT OF CONDITION AS OF AUGUST 6, 1997
TRUST PROPERTY
Investments--Contracts to purchase Securities(1).........$ 289,043.75
Organizational Costs(2).................................. 102,000.00
--------------------
Total.........................................$ 391,043.75
--------------------
--------------------
LIABILITY AND INTEREST OF HOLDERS
Accrued Liability(2)...................................$ 102,000.00
--------------------
Subtotal...............................................$ 102,000.00
--------------------
Interest of Holders of 291,963 Units of fractional
undivided interest outstanding(3):
Cost to investors(4)...................................$ 291,963.00
Gross underwriting commissions(5)...................... (2,919.25)
--------------------
Subtotal...............................................$ 289,043.75
--------------------
Total.........................................$ 391,043.75
--------------------
--------------------
- ---------------
(1) Aggregate cost to the Fund of the securities listed under Defined
Portfolio determined by the Trustee at 4:00 p.m., Eastern time on August 5,
1997. The contracts to purchase securities are collateralized by an irrevocable
letter of credit which has been issued by BNA Bank, New York Branch, in the
amount of $289,211.25 and deposited with the Trustee. The amount of the letter
of credit includes $289,043.75 for the purchase of securities.
(2) This represents a portion of the Fund's organizational costs,
which will be deferred and amortized over the life of the Fund. Organizational
costs have been estimated based on projected total assets of $30 million. To the
extent the Fund 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
business 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 August 5, 1997.
(5) Assumes the maximum initial sales charge per 1,000 units of 1.00%
of the Public Offering Price. A deferred sales charge of $1.75 per 1,000 Units
per month is payable on November 1, 1997 and thereafter on the 1st day of each
month through August 1, 1998. Distributions will be made on behalf of investors
to an account maintained by the Trustee from which the deferred sales charge
obligation of the investors to the Sponsors will be satisfied. If units are
redeemed prior to August 1, 1998, the remaining portion of the distribution
applicable to such units will be transferred to such account on the redemption
date.
A-6
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
EIF SELECT SERIES STANDARD & POOR'S INTRINSIC VALUE PORTFOLIO
FURTHER INFORMATION REGARDING THE FUND MAY BE OBTAINED
WITHIN FIVE DAYS BY WRITING OR CALLING THE TRUSTEE AT THE ADDRESS AND
TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS.
INDEX
PAGE
---------
FUND DESCRIPTION.............................. 1
RISK FACTORS.................................. 3
HOW TO BUY UNITS.............................. 4
HOW TO REDEEM OR SELL UNITS................... 5
INCOME, DISTRIBUTIONS AND REINVESTMENT........ 7
FUND EXPENSES................................. 8
TAXES......................................... 8
RECORDS AND REPORTS........................... 10
TRUST INDENTURE............................... 11
MISCELLANEOUS................................. 11
EXCHANGE OPTION............................... 13
SUPPLEMENTAL INFORMATION...................... 14
FUND DESCRIPTION
THE SELECT STANDARD & POOR'S INTRINSIC VALUE STRATEGY
This Select Series is designed to permit an investor to buy and hold a
portfolio of equity securities for a period of approximately one year based upon
a strategy. At the end of the year the strategy is reapplied and the investor
may reinvest in a new portfolio, if available.
The Fund seeks capital appreciation by acquiring and holding for about one
year certain common stocks selected by the Sponsors through the application of a
quantitative model (the 'Model') developed by the Portfolio Consultant, Standard
& Poor's, a Division of The McGraw-Hill Companies, Inc. Standard & Poor's has
provided investors with financial information since 1860. It developed various
benchmarks for equity securities including the 500 Stock Price Composite Index
and the MidCap 400 Index and its publications include the weekly Outlook
investment newsletter. Its Compustat database includes over 10,286 common
stocks. The Model is designed to identify those stocks that have a strong
potential for capital appreciation based on a combination of fundamental and
valuation measurements. This approach to selecting stocks seeks to determine
each stock's intrinsic value, based on current worth and future earnings
potential, as contrasted to traditional more objective measurements like book or
liquidation value. The Model then identifies stocks whose estimated intrinsic
value exceeds their current market price. The Model identified stocks with the
following characteristics, among others, as of the date the Model was applied,
which is indicated in Part A:
(i) Free cash flow exceeding $20 million for the most recent four
quarters for which data are available. For purposes of this screen, 'free
cash flow' is defined as net income minus capital expenditures plus
depreciation and amortization. This screen is intended to identify
companies with high positive cash flow. The $20 million requirement tends
to identify relatively highly capitalized companies whose stock is
relatively liquid.
(ii) Net profit margin exceeding 15%, with net profit margin defined as
net income from the most recent four quarters for which data are available,
divided by sales. This is intended to measure franchise value.
(iii) Return on equity exceeding 20% for the most recent four quarters
for which data are available. Return on equity is net income expressed as a
percentage of common equity.
(iv) Growth in market capitalization exceeding the growth in the
issuer's retained earnings over the last five years, so that each dollar of
retained earnings results in more than a one dollar increase in market
capitalization. This is intended to measure market acceptance/momentum.
1
<PAGE>
(v) Current stock price at a discount to its current value as calculated
by the Portfolio Consultant. To estimate this current value, the Portfolio
Consultant assumes that free cash flow (as described above) will grow at
the same rate as consensus earnings per share over the next five years, and
then discounting estimated free cash flow by the yield on the 30-year U.S.
Treasury bond. This screen is intended to eliminate overpriced stocks by
identifying stocks with a relatively attractive ratio of price to free cash
flow.
Once the Portfolio Consultant has applied the foregoing screens to the Compustat
database, it will seek to eliminate anomalous situations and special gains and
consider the companies' latest earnings announcements.
'Standard & Poor'sR' is a trademark of The McGraw-Hill Companies, Inc. and
has been licensed for use by the Agent for the Sponsors. The Fund is not
sponsored, managed, sold or promoted by Standard & Poor's. Standard & Poor's is
unaffiliated with any of the Sponsors.
PORTFOLIO SELECTION
The Portfolio Consultant applied the Model to its Compustat database, a
universe of over 10,286 active stocks including, among others, all stocks listed
on the New York Stock Exchange, the American Stock Exchange or traded over the
National Association of Securities Dealers Automated Quotation (Nasdaq National
Market) system, with capitalization averaging about $1 billion and ranging from
under $1 million to $150 billion, and provided the Sponsors with a list of
stocks from which the Sponsors chose the Portfolio stocks.
The Agent for the Sponsors reviewed the stocks identified by the Model for
market capitalization, liquidity, marketing and other factors, limiting
selections to mid-cap and large-cap stocks. The Agent for the Sponsors then made
a final selection of stocks for the Portfolio. The Securities selected through
this process were those believed to have significant potential for capital
appreciation, without regard to expected dividend income.
Investors should be aware that the Fund may not be able to buy each
Security at the same time because of availability of the Security, any
restrictions applicable to the Fund relating to the purchase of the Security by
reason of the federal securities laws or otherwise. Any monies allocated to the
purchase of a Security will generally be held for the purchase of the Security.
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 possible 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 the risk of
price fluctuations when purchasing Securities, the Portfolio will try to
purchase Securities as close to the evaluation time or at prices as close to the
evaluated prices as possible. The Portfolio may also enter into program trades
with unaffiliated broker/dealers, which may have the effect of increasing
brokerage commissions, while reducing market risk.
PORTFOLIO SUPERVISION
The Portfolio follows an investment strategy that buys and holds stocks for
one year, in contrast to the frequent portfolio changes of a managed fund based
on economic, financial and market analyses. In the event a public tender offer
is made for a Security or a merger or acquisition is announced affecting a
Security, the Sponsors may instruct the Trustee to tender or sell the Security
in the open market when in its opinion it is in the best interests of investors
to do so. Otherwise, although the Portfolio is regularly reviewed and evaluated,
because of the Model, 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, the institution of legal proceedings against the issuer, or a
decline in the price or the occurrence of other market or credit factors 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.
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Furthermore, the Portfolio will likely continue to hold a Security and purchase
additional shares even though the assessment of a Security may have changed or
subsequent to the initial date of deposit a Security may no longer satisfy the
Portfolio's selection criteria.
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. Equity markets can be affected by
unpredictable factors including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, and global or regional political, economic or banking crises.
The Sponsors cannot predict the direction or scope of any of these factors.
Additionally, equity markets have been at historically high levels and no
assurance can be given that these levels will continue. The Portfolio holds
growth stocks that may be subject to above-average price volatility. Therefore
there can be no assurance that the Model will be effective in achieving its
objective over the one-year life of the Fund or that future portfolios selected
through re-application of the Model during consecutive one-year periods will
meet their objectives. The Portfolio is not designed to be a complete equity
investment program.
TECHNOLOGY STOCKS
The Fund is concentrated in stocks of issuers that manufacture
semiconductors, electronic components, software, integrated systems and other
related products. These kinds of companies are rapidly developing and highly
competitive, both domestically and internationally, and tend to be relatively
volatile as compared to other types of investments. Certain of these companies
may be smaller and less seasoned companies with limited product lines, markets
or financial resources and limited management or marketing personnel. These
companies are characterized by a high degree of investment to maintain
competitiveness and are affected by worldwide scientific and technological
developments (and resulting product obsolescence) as well as government
regulation, increase in material or labor costs, changes in distribution
channels and the need to manage inventory levels in line with product demand.
Other risk factors include short product life cycles, aggressive pricing and
reduced profit margins, dramatic and often unpredictable changes in growth
rates, frequent new product introduction, the need to enhance existing products,
intense competition from large established companies and potential competition
from small start up companies. These companies are also dependent to a
substantial degree upon skilled professional and technical personnel and there
is considerable competition for the services of qualified personnel in the
industry.
FOREIGN ISSUERS
Investing in securities of foreign issuers involves risks that are
different from investments in securities of domestic issuers. These risks may
include future political and economic developments, the possibility of
withholding taxes, exchange controls or other governmental restrictions on the
payment of dividends, less publicly available information and the absence of
uniform accounting, auditing and financial reporting standards, practices and
requirements.
LIQUIDITY
Whether or not the Securities are listed on a national securities exchange,
the principal trading market for the Securities may be in the over-the-counter
market. As a result, the existence of a liquid trading market for the Securities
may depend on whether dealers will make a market in the Securities. There can be
no assurance that a market will be made for any of the Securities, that any
market for the Securities will be maintained or of the liquidity of the
Securities in any markets made. In addition, the Fund may be restricted under
the Investment Company Act of 1940 from selling Securities to the Sponsors. The
price at which the Securities may be sold to meet redemptions and the value of
the Fund will be adversely affected if trading markets for the Securities are
limited or absent.
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LITIGATION AND LEGISLATION
The Sponsors do not know of any pending litigation as of the initial date
of deposit that might reasonably be expected to have a material adverse effect
on the Fund, although pending litigation may have a material adverse effect on
the value of Securities in the Fund. In addition, at any time after the initial
date of deposit, litigation may be initiated on a variety of grounds, or
legislation may be enacted, affecting the Securities in the Portfolio or the
issuers of the Securities. Changing approaches to regulation may have a negative
impact on certain companies represented in the Portfolio. There can be no
assurance that future litigation, legislation, regulation or deregulation will
not have a material adverse effect on the Portfolio or will not impair the
ability of the issuers of the Securities to achieve their business goals. From
time to time Congress considers proposals to reduce the rate of the
dividends-received deduction. This type of legislation, if enacted into law,
would adversely affect the after-tax return to investors who can take advantage
of the deduction. See Taxes.
LIFE OF THE FUND; FUND TERMINATION
The size and composition of the Portfolio will be affected by the level of
redemptions of Units that may occur from time to time. Principally, this will
depend upon the number of investors seeking to sell or redeem their Units or
participating in a rollover. The Portfolio will be terminated no later than the
mandatory termination date specified in Part A of the Prospectus. It will
terminate earlier upon the disposition of the last Security or upon the consent
of investors holding 51% of the Units. The Portfolio may also be terminated
earlier by the Sponsors once its total assets have fallen below the minimum
value specified in Part A of the Prospectus. A decision by the Sponsors to
terminate the Portfolio early, which will likely be made following the rollover,
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 any of the Sponsors 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
Units are charged a combination of Initial and Deferred Sales Charges
equal, in the aggregate, to a maximum charge of 2.75% of the public offering
price or, for quantity purchases of units of all Select Portfolios by an
investor and the investor's spouse and minor children, or by a single trust
estate or fiduciary account, made on a single day, the following percentages of
the public offering price:
APPLICABLE SALES CHARGE
(GROSS UNDERWRITING PROFIT)
------------------------------------
AS % OF PUBLIC AS % OF NET
AMOUNT PURCHASED OFFERING PRICE AMOUNT INVESTED
- ----------------------------- ----------------- -----------------
Less than $50,000............ 2.75% 2.778%
$50,000 to $99,999........... 2.50 2.519
$100,000 to $249,999......... 2.00 2.005
$250,000 to $999,999......... 1.75 1.750
$1,000,000 or more........... 1.00 1.010
The Deferred Sales Charge is a monthly charge of $1.75 per 1,000 units and
is accrued in ten monthly installments commencing on the date indicated in part
A of this Prospectus. Units redeemed or repurchased prior to the accrual of the
final Deferred Sales Charge installment will have the amount of any remaining
installments deducted
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from the redemption or repurchase proceeds or deducted in calculating an in-kind
distribution, although this deduction will be waived in the event of the death
or disability (as defined in the Internal Revenue Code of 1986) of an investor.
The Initial Sales Charge is equal to the aggregate sales charge, determined as
described above, less the aggregate amount of any remaining installments of the
Deferred Sales Charge.
It is anticipated that Securities will not be sold to pay the Deferred
Sales Charge until after the date of the last installment. Investors will be at
risk for market price fluctuations in the Securities from the several
installment accrual dates to the dates of actual sale of Securities to satisfy
this liability.
Employees of certain Sponsors and Sponsor affiliates and non-employee
directors of Merrill Lynch & Co. Inc. may purchase Units subject only to the
Deferred Sales Charge.
EVALUATIONS
Evaluations are determined by the Trustee on each Business Day. This
excludes Saturdays, Sundays and the following holidays as observed by the New
York Stock Exchange: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. If the Securities are
listed on a national securities exchange or The Nasdaq National Market,
evaluations are generally based on closing sales prices on that exchange or that
system (unless the Trustee deems these prices inappropriate) or, if closing
sales prices are not available, at the mean between the closing bid and offer
prices. If the Securities are not listed or if listed but the principal market
is elsewhere, the evaluation is generally determined based on sales prices of
the Securities on the over-the-counter market or, if sales prices in that market
are not available, on the basis of the mean between current bid and offer prices
for the Securities or for comparable securities or by appraisal or by any
combination of these methods. Neither the Sponsors nor the Trustee guarantee the
enforceability, marketability or price of any Securities.
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 ('DTC').
HOW TO REDEEM OR SELL UNITS
You can redeem your Units at any time for net asset value. In addition, the
Sponsors have 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 WITH THE TRUSTEE
You can always redeem your Units for net asset value. This can be done by
contacting your broker, dealer or financial institution that holds your Units in
street name. 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 and any remaining deferred sales charges, 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 pay the
redemption price.
As long as the Sponsors are maintaining a secondary market for Units (as
described below), the Trustee will not actually redeem your Units but will sell
them to the Sponsors for net asset value. If the Sponsors are 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.
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If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee may sell Securities selected by the Agent for the
Sponsors 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 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
$100,000 who redeems those Units prior to the rollover notification date
indicated in Part A of the Prospectus 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 (less any Deferred Sales Charge
payable) 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 Sponsors 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 Bonds not
reasonably practicable or (iii) for any other period permitted by SEC order.
SPONSORS' SECONDARY MARKET FOR UNITS
The Sponsors, 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. 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. You should consult your
financial professional for current market prices to determine if other broker-
dealers or banks are offering higher prices for Units.
The Sponsors may discontinue the secondary market for Units without prior
notice. Regardless of whether the Sponsors maintain a secondary market, you have
the right to redeem your Units for net asset value, as described above.
ROLLOVER
In lieu of redeeming their Units or receiving liquidation proceeds upon the
termination of the Fund, investors who hold their Units with one of the Sponsors
may elect, by contacting their financial adviser prior to the rollover
notification date indicated in Part A, to apply their proportional interest in
the Securities and other assets of the Fund toward the purchase of units of a
new Intrinsic Value Portfolio (if available). It is expected that the terms of
any new portfolio, including this rollover feature, will be substantially the
same as those of the Fund.
A rollover of an investor's units is accomplished by the in-kind redemption
of his Units of the Fund followed by the sale of the underlying Securities by a
distribution agent on behalf of participating investors and the reinvestment of
the sale proceeds (net of brokerage fees, governmental charges and other sale
expenses) in units of the new Intrinsic Value Portfolio at their net asset
value.
The Sponsors intend to sell the distributed Securities, on behalf of the
distribution agent, as quickly as practicable and then to create units of the
new Intrinsic Value Portfolio as quickly as possible, subject in both cases to
the Sponsors' sensitivity that the concentrated sale and purchase of large
volumes of securities may affect market prices in a manner adverse to the
interest of investors. Accordingly, the Sponsors may, in their sole discretion,
undertake a more gradual sale of the distributed Securities and a more gradual
creation of units of the new Intrinsic Value Portfolio to help mitigate any
negative market price consequences caused by this large volume of securities
trades. In order to minimize potential losses caused by market movement during
the rollover period, the Sponsors may enter into program trades, which might
increase brokerage commissions payable by investors. There can be no assurance,
however, that any trading procedures will be successful or might not result in
less advantageous prices. Pending the investment of rollover proceeds in the
securities to comprise the new portfolio, those moneys may be uninvested for up
to several days. For any Securities in the Portfolio that will also be in the
Portfolio of the new Series, a direct sale of those
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securities between the two funds is now permitted pursuant to an SEC exemptive
order. These sales will be effected at the securities' closing sales prices on
the exchanges where they are principally traded, free of any brokerage costs.
Investors participating in the rollover may realize taxable capital gains
from the rollover but will not be entitled to a deduction for certain capital
losses and, because of the rollover procedures, will not receive a cash
distribution with which to pay those taxes. Investors who do not participate
will continue to hold their Units until the termination of the Fund; however,
depending upon the extent of participation in the rollover, the aggregate size
of the Fund may be sharply reduced resulting in a significant increase in per
Unit expenses.
The Sponsors may, in their sole discretion and without penalty or liability
to investors, decide not to sponsor a new Intrinsic Value Portfolio or to modify
the terms of the rollover. Prior notice of any decision would be provided to
investors.
The Division of Investment Management of the SEC is of the view that the
rollover option constitutes an 'exchange offer', for the purposes of Section
11(c) of the Investment Company Act of 1940, and would therefore be prohibited
absent an exemptive order. The Sponsors have received exemptive orders under
Section 11(c) which they believe permit them to offer the rollover, but no
assurance can be given that the SEC will concur with the Sponsors' position and
additional regulatory approvals may be required.
INCOME, DISTRIBUTIONS AND REINVESTMENT
INCOME AND DISTRIBUTIONS
The annual income per Unit, after deducting 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 at all.
Each Unit receives an equal share of 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 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. In addition, distributions of amounts necessary
to pay the Deferred Sales Charge will be made from the Capital Account to an
account maintained by the Trustee for purposes of satisfying investors' sales
charge obligations. Although the Sponsors may collect the Deferred Sales Charge
monthly, to keep Units more fully invested the Sponsors currently do not
anticipate sales of Securities to pay the Deferred Sales Charge until after the
rollover notification date. Proceeds of the disposition of any Securities not
used to pay Deferred Sales Charge or to redeem Units will be held in the Capital
Account and distributed on the final Distribution Day or following liquidation
of the Fund.
REINVESTMENT
Any income and principal distributions on Units may be reinvested by
participating in the Fund's reinvestment plan. Under the plan, the Units
acquired for investors will be either Units already held in inventory by the
Sponsors or new Units created by the Sponsors' deposit of additional Securities,
contracts to purchase additional Securities or cash (or a bank letter of credit
in lieu of cash) with instructions to purchase additional Securities. Deposits
or purchases of additional Securities will generally be made so as to maintain
the then existing proportionate relationship among the number of shares of each
Security in the Fund. Units acquired by reinvestment will not be subject to the
initial sales charge but will be subject to any remaining installments of
Deferred Sales Charge. The Sponsors reserve the right to amend, modify or
terminate the reinvestment plan at any time without prior notice. Investors
holding Units in 'street name' should contact their broker, dealer or financial
institution if they wish to participate in the reinvestment plan.
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FUND EXPENSES
Estimated annual Fund expenses are listed in Part A of the Prospectus; if
actual expenses exceed the estimate, the excess will be borne by the Fund. To
the extent that expenses exceed the amount available in the Income Account, the
Trustee is authorized to sell Securities and pay the excess expenses from the
Capital Account. The estimated expenses do not include the brokerage commissions
payable by the Fund in purchasing and selling Securities. The Trustee's Fee
shown in Part A of this Prospectus assumes that the Portfolio will reach a size
estimated by the Sponsors and is based on a sliding scale that reduces the
Trustee's fee as the size of the Portfolio increases. The Trustee's annual fee
is payable in monthly installments. The Trustee also benefits when it holds cash
for the Fund in non-interest bearing accounts. Possible additional charges
include Trustee fees and expenses for extraordinary services, costs of
indemnifying the Trustee and the Sponsors, costs of action taken to protect the
Fund and other legal fees and expenses, Fund termination expenses and any
governmental charges. The Trustee has a lien on Fund assets to secure
reimbursement of these amounts and may sell Securities for this purpose if cash
is not available. The Sponsors receive an annual fee currently estimated at
$0.35 per 1,000 Units to reimburse them for the cost of providing Portfolio
supervisory services to the Fund. While the fee may exceed their costs of
providing these services to the Fund, the total supervision fees from all Series
of Equity Investor Fund will not exceed their costs for these services to all of
those Series during any calendar year. The Sponsors may also be reimbursed for
their costs of providing bookkeeping and administrative services to Defined
Asset Funds, currently estimated at $0.10 per 1,000 Units. The Trustee's and
Sponsors' fees may be adjusted for inflation without investors' approval.
All or a portion of 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 any 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. Because Defined Asset Funds
have no management fees, limited transaction costs and no ongoing marketing
expenses, operating expenses are generally less than 0.25% a year. When
compounded annually, small differences in expense ratios can make a big
difference in your investment results.
TAXES
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 Sponsors,
under existing law:
The Fund 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 Fund 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 Fund, regardless of whether such dividends are used to
pay a portion of Fund expenses or whether they are automatically reinvested
(see Reinvestment Plan).
Amounts considered to have been received by a corporate investor from
domestic corporations that constitute dividends for federal income tax
purposes will generally qualify for the dividends-received deduction, which
is currently 70%. Depending upon the particular corporate investor's
circumstances, limitations on the availability of the dividends-received
deduction may be applicable. Further, Congress from time to time considers
proposals that would adversely affect the after-tax return to investors
that can take advantage of the deduction. For example, the recently enacted
Taxpayer Relief Act of 1997 requires the holding period for the
dividends-received deduction (during which the investor's position may not
be hedged) to be satisfied immediately proximate to each ex-dividend date.
Investors are urged to consult their own tax adviser in this regard.
An individual investor who itemizes deductions will be entitled to
deduct his pro rata share of current ongoing expenses paid by the Fund only
to the extent that this amount together with the investor's other
miscellaneous deductions exceeds 2% of his adjusted gross income. In
addition, the Code further restricts the
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ability of an individual investor with an adjusted gross income in excess
of a specified amount (for 1997, $121,200 or $60,600 for a married person
filing a separate return) to claim itemized deductions (including his pro
rata share of Fund expenses).
The investor's basis in his Units will equal the cost of his Units,
including the initial sales charge. A portion of the sales charge is
deferred until the termination of the Fund or the redemption of the Units.
The proceeds received by an investor upon such event will reflect deduction
of the deferred amount (the 'Deferred Sales Charge') and 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 Deferred Sales Charge and the charge for organizational
expenses. Accordingly, investors should not increase their basis in their
Units by the Deferred Sales Charge amount or 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 the Securities from the Fund. However, deductions
will be disallowed for such losses realized by investors who invest in a
new Intrinsic Value Portfolio ('rollover investor') within 30 days after
incurring such losses to the extent that the securities in that series are
substantially identical to the old Securities. Furthermore, 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 a lower rate than ordinary
income for certain individuals and other noncorporate taxpayers. A 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. The deduction of capital losses is
subject to limitations. The lower net capital gain tax rate will be
unavailable to those noncorporate investors who, as of the Termination Date
(or earlier termination of the Fund), have held their units for less than a
year and a day. Similarly, with respect to noncorporate rollover investors,
this lower rate will be unavailable if, as of the beginning of the rollover
period, those investors have held their units for less than a year and a
day. Investors will not be entitled under the Taxpayer Relief Act of 1997
to the new 20% maximum federal tax rate for capital gains derived from the
Fund and should consult their tax advisers in this regard.
Under the income tax laws of the State and City of New York, the Fund is
not an association taxable as a corporation and the income of the Fund will
be treated as the income of the investors in the same manner as for federal
income tax purposes.
The Fund will report as gross income earned by investors their pro rata
share of dividends received by the Fund from a foreign corporation in which
the Fund holds stock, if any, as well as their pro rata share of any amount
withheld with respect to such dividends. (See Defined Portfolio in Part A.)
Those investors who hold Units on the relevant record date for dividends on
any such underlying foreign stock held by the Fund should be entitled,
subject to applicable limitations, to either a credit or a deduction for
foreign taxes payable with respect to such dividend payments. Capital gain
on a disposition of foreign stock (or a proportionate share of Units), if
any, will generally be U.S. source income. Investors should consult their
own tax advisers regarding these matters.
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. Foreign investors
(including nonresident alien individuals and foreign corporations not
engaged in U.S. trade or business) will generally be subject to 30%
withholding tax (or lower applicable treaty rate) on dividend
distributions. 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.
* * * *
At the termination of the Fund, the Trustee will furnish to each investor
an annual statement containing information relating to the dividends received by
the Fund on the Securities, the cash proceeds received by the
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Fund on the Securities, the cash proceeds received by the Fund from the
disposition of any Security (resulting from redemption or the sale by the Fund
of any Security), and the fees and expenses paid by the Fund. The Trustee will
also furnish annual information returns to each investor and to the Internal
Revenue Service.
RETIREMENT PLANS
This Series of Equity Income 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 or tax-deferred rollover treatment. Holders of Units 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
offered by brokerage firms, including the Sponsor of this Fund, 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 Fund 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 Fund. Any individual
(including one covered by an employer retirement plan) can make a contribution
in an IRA equal to the lesser of $2,000 ($4,000 in a spousal account) or 100% of
earned income; such investment must be made in cash. However, the deductible
amount of a contribution by an individual covered by an employer retirement plan
will be reduced if the individual's adjusted gross income exceeds $25,000 (in
the case of a single individual), $40,000 (in the case of a married individual
filing a joint return) or $200 (in the case of a married individual filing a
separate return). Certain transactions which are prohibited under Section 408 of
the Code will cause all or a portion of the amount in an IRA to be deemed to the
distributed and subject to tax at that time. Unless nondeductible contributions
were made in 1987 or a later year, all distributions from an IRA will be treated
as ordinary income but generally are eligible for tax-deferred rollover
treatment. Taxable distributions made before attainment of age 59 1/2, except in
the case of the participant's death or disability or where the amount
distributed is part of a series of substantially equal periodic (at least
annual) payments that are to be made over the life expectancies of the
participant and his or her beneficiary, are generally subject to a surtax in an
amount equal to 10% of the distribution.
Corporate Pension and Profit-Sharing Plans. A pension or profit-sharing
plan for employees of a corporation may purchase Units of the Fund.
RECORDS AND REPORTS
The Trustee keeps a register of the names, addresses and holdings of all
investors. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, which
may be inspected by investors at reasonable times during business hours.
With each distribution, the Trustee includes a statement of the amounts of
income and any other receipts being distributed. Following the termination of
the Fund, the Trustee sends each investor of record a statement summarizing
transactions in the Fund's accounts including amounts distributed from them,
identifying Securities sold and purchased and listing Securities held and the
number of Units outstanding at termination and stating the Redemption Price per
1,000 Units at termination, and the fees and expenses paid by the Fund, among
other matters. Fund accounts may be audited by independent accountants selected
by the Sponsors and any report of the accountants will be available from the
Trustee on request.
TRUST INDENTURE
The Fund is a 'unit investment trust' created under New York law by a Trust
Indenture among the Sponsors and the Trustee. This Prospectus summarizes various
provisions of the Indenture, but each statement is qualified in its entirety by
reference to the Indenture.
The Indenture may be amended by the Sponsors and the Trustee without
consent by investors to cure ambiguities or to correct or supplement any
defective or inconsistent provision, to make any amendment required by the SEC
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<PAGE>
or other governmental agency or to make any other change not materially adverse
to the interest of investors (as determined in good faith by the Sponsors). The
Indenture may also generally be amended upon consent of investors holding 51% of
the Units. No amendment may reduce the interest of any investor in the Fund
without the investor's consent or reduce the percentage of Units required to
consent to any amendment without unanimous consent of investors. Investors will
be notified of the substance of any amendment.
The Trustee may resign upon notice to the Sponsors. It may be removed by
investors holding 51% of the Units at any time or by the Sponsors without the
consent of investors if it becomes incapable of acting or bankrupt, its affairs
are taken over by public authorities, or if under certain conditions the
Sponsors determine in good faith that its replacement is in the best interest of
the investors. The resignation or removal becomes effective upon acceptance of
appointment by a successor; in this case, the Sponsors will use their best
efforts to appoint a successor promptly; however, if upon resignation no
successor has accepted appointment within 30 days after notification, the
resigning Trustee may apply to a court of competent jurisdiction to appoint a
successor.
Any Sponsor may resign so long as one Sponsor with a net worth of
$2,000,000 remains. A new Sponsor may be appointed by the remaining Sponsors and
the Trustee to assume the duties of the resigning Sponsor. If there is only one
Sponsor and it fails to perform its duties or becomes incapable of acting or
bankrupt or its affairs are taken over by public authorities, the Trustee may
appoint a successor Sponsor at reasonable rates of compensation, terminate the
Indenture and liquidate the Fund or continue to act as Trustee without a
Sponsor. Merrill Lynch, Pierce, Fenner & Smith Incorporated has been appointed
as Agent for the Sponsors by the other Sponsors.
The Sponsors and the Trustee are not liable to investors or any other party
for any act or omission in the conduct of their responsibilities absent bad
faith, willful misfeasance, negligence (gross negligence in the case of a
Sponsor) or reckless disregard of duty. The Indenture contains customary
provisions limiting the liability of the Trustee.
MISCELLANEOUS
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors.
AUDITORS
The Statement of Condition in Part A of the Prospectus was audited by
Deloitte & Touche LLP, independent accountants, as stated in their opinion. It
is included in reliance upon that opinion given on the authority of that firm as
experts in accounting and auditing.
TRUSTEE
The Trustee and its address are stated on the back cover of the Prospectus.
The Trustee is subject to supervision by the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and New York
State banking authorities.
SPONSORS
The Sponsors are listed on the back cover of the Prospectus. They may
include Merrill Lynch, Pierce, Fenner & Smith Incorporated, a wholly-owned
subsidiary of Merrill Lynch Co. Inc.; Smith Barney Inc., an indirect wholly-
owned subsidiary of The Travelers Inc.; Prudential Securities Incorporated, an
indirect wholly-owned subsidiary of the Prudential Insurance Company of America;
PaineWebber Incorporated, a wholly-owned subsidiary of PaineWebber Group, Inc.;
and Dean Witter Reynolds, Inc., a principal operating subsidiary of Morgan
Stanley, Dean Witter, Discover & Co. Each Sponsor, or one of its predecessor
corporations, has acted as Sponsor of a number of series of unit investment
trusts. Each Sponsor has acted as principal underwriter and managing underwriter
of other investment companies. The Sponsors, in addition to participating as
members of various selling groups or as agents of other investment companies,
execute orders on behalf of investment companies for the purchase and sale of
securities of these companies and sell securities to these companies in their
capacities as brokers or dealers in securities.
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<PAGE>
CODE OF ETHICS
The Agent for the Sponsors 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 Fund and to provide guidance to these
persons regarding standards of conduct consistent with the Agent's
responsibilities to the 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 directly to the public by this Prospectus at the
Public Offering Price determined in the manner provided above or to selected
dealers who are members of the National Association of Securities Dealers, Inc.
at a concession not in excess of the maximum sales charge. The Sponsors intend
to qualify Units for sale in all states in which qualification is deemed
necessary through the Underwriting Account and by dealers who are members of the
National Association of Securities Dealers, Inc.. The Sponsors do not intend to
qualify Units for sale in any foreign countries and this Prospectus does not
constitute an offer to sell Units in any country where Units cannot lawfully be
sold.
UNDERWRITERS' AND SPONSORS' PROFITS
Upon sale of the Units, the Underwriters will be entitled to receive sales
charges; each Underwriters' interest in the Underwriting Account will depend on
the number of Units acquired through the issuance of additional Units. The
Sponsors also realize a profit or loss on deposit of the Securities equal to the
difference between the cost of the Securities to the Fund (based on the
aggregate value of the Securities on their date of deposit) and the purchase
price of the Securities to the Sponsors plus commissions payable by the
Sponsors. In addition, a Sponsor or Underwriter may realize profits or sustain
losses on Securities it deposits in the Fund which were acquired from
underwriting syndicates of which it was a member. During the initial offering
period, the Underwriting Account also may realize profits or sustain losses as a
result of fluctuations after the initial date of deposit in the Public Offering
Price of the Units. In maintaining a secondary market for Units, the Sponsors
will also realize profits or sustain losses in the amount of any difference
between the prices at which they buy Units and the prices at which they resell
these Units (which include the sales charge) or the prices at which they redeem
the Units. Cash, if any, made available by buyers of Units to the Sponsors prior
to a settlement date for the purchase of Units may be used in the Sponsors'
businesses to the extent permitted by Rule 15c3-3 under the Securities Exchange
Act of 1934 and may be of benefit to the Sponsors.
PERFORMANCE INFORMATION
Total returns, average annualized returns or cumulative returns for various
periods of the current or one or more prior Select Intrinsic Value Portfolios
may be included from time to time in advertisements, sales literature and
reports to current and prospective investors. Total return shows changes in unit
price during the period plus reinvestment of dividends and capital gains,
divided by the maximum public offering price. Average annualized returns show
the average return for stated periods for longer than a year. Figures reflect
deduction of all Portfolio expenses and, unless otherwise stated, the maximum
sales charge. No provision is made for any income taxes payable. Investors
should bear in mind that this represents past performance and is no assurance of
the future results of any current or future Portfolio.
Past performance of any series may not be indicative of results of future
series. Fund performance may be compared to the performance of the DJIA, the S&P
500 Composite Price Stock Index, the S&P MidCap 400 Index, the S&P 500/Barra
Growth Index, the average growth mutual fund 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.
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
12
<PAGE>
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.
Investors may pursue investment growth to meet long-term goals. But they
are faced with decisions of selecting stock groups, choosing individual stocks,
determining when to buy and sell and how to reinvest sales proceeds. Growth
stocks--those whose price is expected to appreciate above average usually
because of superior growth in earnings per share--can be difficult to select
successfully because their prices tend to be more volatile than more established
stocks and, by the time they are discovered by ordinary investors, their prices
may have already increased beyond attractive levels or may be susceptible to
dramatic declines if actual performance is less than anticipated. The Standard &
Poor's Intrinsic Value Portfolio, through the screening process to identify
stocks with superior prospects for earnings growth, seeks to provide definition
and discipline, and to avoid emotional reactions, in growth stock investing.
This approach looks for 'discounted' growth stocks that may otherwise be
overlooked.
EXCHANGE OPTION
You may exchange Fund Units for units of other Select Series subject only
to the remaining deferred sales charge on the units received. You may exchange
your units of any Select Portfolio or any other Defined Asset Fund with a
regular maximum sales charge of at least 3.50%, or of any unaffiliated unit
trust with a regular maximum sales charge of at least 2.70%, for Units of this
Fund at their relative net asset values, subject only to a reduced sales charge,
or to any remaining Deferred Sales Charge, as applicable. There is no minimum
number of Units for an exchange.
To make an exchange, you should contact your financial professional to find
out what suitable exchange funds are available and to obtain a prospectus. You
may acquire units of only those exchange funds in which the Sponsors are
maintaining a secondary market and which are lawfully for sale in the state
where you reside. An exchange is a taxable event normally requiring recognition
of any gain or loss on the units exchanged. However, the Internal Revenue
Service may seek to disallow a loss if the portfolio of the units acquired is
not materially different from the portfolio of the units exchanged; you should
consult your own tax advisor. If the proceeds of units exchanged are
insufficient to acquire a whole number of exchange fund units, you may pay the
difference in cash (not exceeding the price of a single unit acquired).
As the Sponsors are not obligated to maintain a secondary market in any
series, there can be no assurance that units of a desired series will be
available for exchange. The Exchange Option may be amended or terminated at any
time without notice.
SUPPLEMENTAL INFORMATION
Upon writing or calling the Trustee shown on the back cover of this
Prospectus, investors will receive without charge supplemental information about
the Fund, which has been filed with the SEC. The supplemental information
includes more detailed risk factor disclosure about the types of securities that
may be part of the Portfolio and general information about the structure and
operation of the Fund.
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<PAGE>
Defined
Asset FundsSM
SPONSORS:
Merrill Lynch, EQUITY INVESTOR FUND
Pierce, Fenner & Smith IncorporatedSELECT SERIES
Defined Asset Funds STANDARD & POOR'S
P.O. Box 9051 INTRINSIC VALUE PORTFOLIO
Princeton, NJ 08543-9051 1997 SERIES B
(609) 282-8500
Smith Barney Inc.
Unit Trust Department This Prospectus does not contain all of the
388 Greenwich Street--23rd Floor information with respect to the investment
New York, NY 10013 company set forth in its registration
(212) 816-4000 statement and exhibits relating thereto which
PaineWebber Incorporated have been filed with the Securities and
1200 Harbor Blvd. Exchange Commission, Washington, D.C. under
Weehawken, NJ 07087 the Securities Act of 1933 and the Investment
(201) 902-3000 Company Act of 1940, and to which reference
Prudential Securities Incorporated is hereby made. Copies of filed material can
One New York Plaza be obtained from the Public Reference Section
New York, NY 10292 of the Commission, 450 Fifth Street, N.W.,
(212) 778-6164 Washington, D.C. 20549 at prescribed rates.
Dean Witter Reynolds Inc. The Commission also maintains a Web site that
Two World Trade Center--59th Floor contains information statements and other
New York, NY 10048 information regarding registrants such as
(212) 392-2222 Defined Asset Funds that file electronically
TRUSTEE: with the Commission at http://www.sec.gov.
The Bank of New York ------------------------------
Unit Investment Trust Department No person is authorized to give any
Box 974--Wall Street Division information or to make any representations
New York, NY 10268-0974 with respect to this investment company not
1-800-221-7771 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 Fund are no longer
available or for investors who may reinvest
into subsequent Intrinsic Value Portfolios,
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 qualification under the securities laws of
any such State.
11309--8/97
