DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
EQUITY INVESTOR FUND The objective of this Defined Fund is capital
SELECT GROWTH appreciation by investing for a period of about
PORTFOLIO one year in a portfolio of ten common stocks
1998 SERIES B believed to have potential for superior growth in
(A UNIT INVESTMENT earnings per share and having reasonable valuation
TRUST) levels and strong price performance in the six
- ------------------------------months prior to the selection of the stocks. There
can be no assurance that the Fund will achieve its
objective. Current dividend income is not an
objective of the Fund.
The Portfolio is composed of aggressive growth
stocks which are subject to extreme price
volatility. Therefore the Portfolio should be
considered speculative and should be acquired only
by investors willing and able to assume this risk
and by those who are not seeking either
preservation of capital or current dividend
income. The Portfolio should be considered as a
vehicle for investing a portion of your assets
rather than as a complete equity investment
program.
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 will show growth in earnings per share or
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
HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
SPONSORS: OF THIS DOCUMENT. ANY REPRESENTATION TO THE
Merrill Lynch, CONTRARY IS A CRIMINAL OFFENSE.
Pierce, Fenner & Smith Inquiries should be directed to the Trustee at
Incorporated 1-800-221-7771.
Smith Barney Inc. Prospectus dated May 18, 1998.
PaineWebber 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 Growth Portfolio
- ----------------------------------------------------------------
The Portfolio contains ten common stocks selected through the application of a
quantitative model developed by O'Shaughnessy Capital Management, Inc., designed
to identify those stocks that have a strong potential for capital appreciation.
This Select Growth 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 Select Growth Portfolio
is designed to be part of longer term strategy and the Sponsors believe that
more consistent results are likely if the strategy is followed for at least a
three to five year period.
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 in earnings per share, reasonable valuation levels and strong recent
price performance, from a database of 1,507 common stocks with capitalizations
averaging $6.7 billion and ranging from about $30.4 million to $251.5 billion.
As Portfolio Consultant, O'Shaughnessy Capital Management, Inc. applied its
Model, which identifies stocks with the following characteristics, among others,
as of six business days prior to the date of this Prospectus: (i) expected
growth rates of earnings per share of at least 20% over the next fiscal year;
(ii) expected annual growth rates of at least 20% over the next three to five
years; (iii) a price to earnings ratio not exceeding the expected earnings
growth rate over the next three to five years; (iv) strong price performance in
the six months prior to the application of the Model; and (v) a minimum market
capitalization of $750 million. The Agent for the Sponsors then reviewed the
identified stocks for liquidity, market capitalization and other factors, and
made a final selection of ten stocks. 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
/ / Computer Software 20%
/ / Medical-Drugs 20
/ / Auto/Truck Equipment 10
/ / Office Supplies 10
/ / Retail 10
/ / Employment Services 10
/ / Commerical Bank 10
/ / Construction 10
- ----------------------------------------------------------------
Defining Your Risks
- ----------------------------------------------------------------
The Portfolio is not considered to be 'concentrated' in any particular industry.
The Select Growth Strategy is likely to identify stocks that are subject to
extreme price volatility. Therefore, the Portfolio should be considered
speculative and should be acquired only by investors who are comfortable with
the Strategy. The Portfolio is not an appropriate investment for investors
seeking either preservation of capital or current income or who are unable or
unwilling to assume the risks generally involved with speculative equity
investing. This Portfolio is not designed to be a complete equity investment
program.
There can be no guarantee 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 and no
distributions of income are expected to be made by the Portfolio. The Portfolio
may not reflect any investment recommendations of any of the Sponsors,
A-2
<PAGE>
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. In addition,
the Model and the Portfolio Consultant have only a limited track record, which
since February 1995 has generally underperformed the S&P 500 Index and other
equity indexes.
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.
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 or mean that the Sponsors will not
continue to purchase the security in order to create additional Units. 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 earnings
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 May 15, 1998, the business day prior to the
initial date of deposit is based on the aggregate value of the underlying
securities ($337,862.50) and any cash held to purchase securities, divided by
the number of units outstanding (341,275) 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 on August 1 and August 15, 1998 and thereafter on the 1st
of each month through April 1, 1999.
ROLLOVER OPTION
When this Select Growth Portfolio is about to be liquidated, you may have the
option to roll your proceeds into the next Select Growth portfolio. If you
notify your financial professional by May 25, 1999, your units will be redeemed
and certain distributed securities plus the proceeds from the sale of the
remaining securities will be reinvested in units of the next Select Growth
Portfolio. If you decide not to roll over your proceeds, you will receive a cash
distribution (or, if you so elect, an in-kind distribution) after the Fund
terminates. Of course you can sell or redeem your Units at any time prior to
termination.
DISTRIBUTIONS
Any income will be distributed to investors upon termination of the Portfolio.
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 a portion of the
dividend payments may be used to pay expenses of the Portfolio. (See Taxes in
Part B.)
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 or the charge for
organizational expenses.
MANDATORY TERMINATION DATE
The Portfolio will terminate by June 18, 1999. 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 $320.00 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 you buy, and the
remaining $990 is invested in the Portfolio. 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 nine 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
----------------- --------------
----------------- --------------
ESTIMATED ANNUAL FUND OPERATING EXPENSES
As a % Amount per
of Net Assets 1,000 Units
----------------- --------------
Trustee's Fee .091% $ 0.90
Portfolio Supervision,
Bookkeeping and Administrative
Fees .046% $ 0.45
Organizational Expenses .226% $ 2.24
Other Operating Expenses .029% $ 0.29
----------------- --------------
TOTAL .392% $ 3.88
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
$32 $77 $125 $257
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 investment is 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 May 15, 1998 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 nine months of the Portfolio ($17.50 initially). If you redeem or 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 $0.97 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 Growth Portfolio 1998 Series B May 18, 1998
Defined Asset Funds
<TABLE>
<CAPTION>
PRICE
TICKER NUMBER OF SHARES PERCENTAGE PER SHARE COST
NAME OF ISSUER SYMBOL OF COMMON STOCK OF PORTFOLIO (1) TO PORTFOLIO TO PORTFOLIO (2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. AccuStaff Inc. ASI 1,000 9.88% $ 33.3750 $ 33,375.00
2. Barr Laboratories, Inc. BRL 800 10.36 43.7500 35,000.00
3. Biogen, Inc. BGEN 750 9.67 43.5625 32,671.87
4. Federal-Mogul Corporation* FMO 550 10.06 61.8125 33,996.88
5. Gartner Group, Inc. GART 1,100 10.30 31.6250 34,787.50
6. General Nutrition Companies,
Inc. GNCI 1,000 10.16 34.3125 34,312.50
7. Kaufman and Broad Home
Corporation* KBH 1,200 9.59 27.0000 32,400.00
8. MBNA Corporation* KRB 1,000 10.04 33.9375 33,937.50
9. Network Associates, Inc. NETA 500 10.15 68.6250 34,312.50
10. OfficeMax, Inc. OMX 1,850 9.79 17.8750 33,068.75
-------------------- -----------------
100.00% $ 337,862.50
-------------------- -----------------
-------------------- -----------------
</TABLE>
- ------------------------------------
* Only these stocks currently pay dividends. The current annual dividends per
share for the Securities in Portfolio Numbers 4, 7 and 8 are $0.01, $0.30 and
$0.36, respectively, based on the latest quarterly, semi-annual or annual
declaration; there can be no assurance that future dividend payments, if any,
will be maintained in an amount equal to these dividends.
(1) Based on Cost to Portfolio.
(2) Valuation by the Trustee made on the basis of closing sale prices at the
evaluation time on May 15, 1998.
------------------------------------
The securities were acquired on May 15, 1998 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 Growth
Portfolio 1998 Series B, 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 May 18, 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 May 18, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
May 18, 1998
STATEMENT OF CONDITION AS OF MAY 18, 1998
TRUST PROPERTY
Investments--Contracts to purchase Securities(1).........$ 337,862.50
Organizational Costs(2).................................. 112,000.00
--------------------
Total.........................................$ 449,862.50
--------------------
--------------------
LIABILITY AND INTEREST OF HOLDERS
Accrued Liability(2)...................................$ 112,000.00
--------------------
Subtotal...............................................$ 112,000.00
--------------------
Interest of Holders of 341,275 Units of fractional
undivided interest outstanding(3):
Cost to investors(4)...................................$ 341,275.00
Gross underwriting commissions(5)...................... (3,412.50)
--------------------
Subtotal...............................................$ 337,862.50
--------------------
Total.........................................$ 449,862.50
--------------------
--------------------
- ---------------
(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 May 15, 1998.
The contracts to purchase securities are collateralized by an irrevocable letter
of credit which has been issued by DBS Bank, New York Branch, in the amount of
$338,182.50 and deposited with the Trustee. The amount of the letter of credit
includes $337,862.50 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 $50 million. To the
extent the Fund is larger or smaller, the amount 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.
(4) Aggregate public offering price computed on the basis of the
value of the underlying securities at 4:00 p.m., Eastern time on May 15, 1998.
(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
is payable on August 1 and August 15, 1998, and thereafter on the 1st day of
each month through April 1, 1999. Distributions will be made 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
April 1, 1999, 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
EQUITY INVESTOR FUND SELECT GROWTH PORTFOLIOS
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
TRUST TERMINATION............................ 6
ROLLOVER..................................... 6
INCOME, DISTRIBUTIONS AND REINVESTMENT....... 7
FUND EXPENSES................................ 8
TAXES........................................ 8
RECORDS AND REPORTS.......................... 11
TRUST INDENTURE.............................. 11
MISCELLANEOUS................................ 12
EXCHANGE OPTION.............................. 14
SUPPLEMENTAL INFORMATION..................... 14
FUND DESCRIPTION
THE SELECT STRATEGY
The 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 10 common stocks selected by the Sponsors through the application of a
quantitative model (the 'Model') developed by the Portfolio Consultant,
O'Shaughnessy Capital Management, Inc. The Model is designed to identify those
stocks that have a strong potential for capital appreciation. The Model
identifies stocks with the following characteristics, among others, as of the
date the Model is applied (two business days prior to the date of this
Prospectus): (i) expected growth rates of earnings per share of at least 20%
over the next fiscal year; (ii) expected annual growth rates of at least 20%
over the next three to five years; (iii) a price to earnings ratio not exceeding
the expected earnings growth rate over the next three to five years; (iv) strong
price performance over the past six months; and (v) a minimum market
capitalization of $750 million. (Price to earnings ratio is calculated by taking
the current stock price and dividing it by the sum of the last two reported
quarterly earnings plus the projected earnings for the next two quarters.)
The Portfolio Consultant is a registered investment adviser, organized in
1988 and based in Greenwich, Connecticut. The Portfolio Consultant is
unaffiliated with any of the Sponsors.
1
<PAGE>
PORTFOLIO SELECTION
The Portfolio Consultant applied the Model to a universe of 1,507 stocks
with capitalization averaging $6.7 billion and ranging from about $30.4 million
to $251.5 billion, and provided the Sponsors with a list of stocks from which
the Sponsors chose the 10 stocks in the Portfolio.
The following table shows the percentage of stocks from the universe of
1,500 common stocks that passed the Model's expected earnings growth screens.
PERCENTAGE
YEAR OF STOCKS
- ---------------------------- -----------
1985........................ 7.56%
1986........................ 9.00
1987........................ 13.00
1988........................ 13.06
1989........................ 9.94
1990........................ 8.75
1991........................ 7.88
1992........................ 9.56
1993........................ 13.30
1994........................ 17.19
1995........................ 14.57
1996........................ 12.19
1997........................ 13.73
- ---------------
Copyright 1995. O'Shaughnessy Capital Management, Inc. All Rights Reserved.
The Stocks identified by the Model were next screened for minimum market
capitalization of $750 million. The Agent for the Sponsors further reviewed the
market capitalization, liquidity and other characteristics of the identified
stocks and made a final selection of ten stocks. The Securities selected through
this process were those believed to have significant potential for capital
appreciation, without regard to expected dividend income.
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 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.
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 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
2
<PAGE>
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. 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. These perceptions are based on 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 are at historically high levels and no assurance
can be given that these levels will continue. The Portfolio is composed of
aggressive growth stocks which are subject to extreme price volatility.
Therefore there can be no guarantee that the Model will be effective in
achieving its objective over the one-year life of the Fund or that portfolios
selected through re-application of the Model during consecutive one-year periods
will meet their objectives. In addition, the Model and the Portfolio Consultant
have only a limited track record. Select Growth Portfolios have been offered
only since February, 1995; the Portfolios that have been offered to date have
generally underperformed the S&P 500 Index and other equity indexes.
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.
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 that can take advantage
of the deduction. See Taxes.
LIFE OF THE PORTFOLIO
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
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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. See Trust Termination.
HOW TO BUY UNITS
Units are available from any of the Sponsors, Underwriters 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
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:
<TABLE>
<CAPTION>
APPLICABLE SALES CHARGE
(GROSS UNDERWRITING PROFIT)
------------------------------------ DEALER CONCESSION
AS % OF PUBLIC AS % OF NET AS % OF PUBLIC
AMOUNT PURCHASED OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ----------------------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $50,000.................. 2.75% 2.778% 2.00%
$50,000 to $99,999................. 2.50 2.519 1.80
$100,000 to $249,999............... 2.00 2.005 1.45
$250,000 to 999,999................ 1.75 1.750 1.25
$1,000,000 or more................. 1.00 1.000 .50
</TABLE>
Prudential Securities Incorporated, which will participate only in rollover
sales, will receive a preferred dealer concession of $13.00 per 1,000 Units.
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 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. Rollover investors will pay
only the Deferred Sales Charge (see Rollover below).
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.
Selling dealers will be entitled to the concession stated in the table
above. On rollover purchases, the concession will be $11.00 per 1,000 Units
($5.00 per 1,000 Units on purchases of $1,000,000 or more). 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.
Commercial banks and their securities broker subsidiaries that have
agreements with the Sponsors may make Units available to their customers as
their agents. A portion of the sales charge (equal to the dealer commission
referred to above) will be retained or remitted to the banks. Under the
Glass-Steagall Act, banks are prohibited from underwriting Units; however, the
Glass-Steagall Act permits banks to act as agents of their customers on a
disclosed basis and federal banking regulators have approved similar
arrangements. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed above and banks and financial
institutions may be required to register as dealers pursuant to state law.
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, Martin Luther King, Jr.
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
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<PAGE>
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 containing the
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.
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. 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 may be terminated by the Sponsors at any time upon prior notice to
investors.
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<PAGE>
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. The Sponsors 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 Sponsors 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 Sponsors maintain a secondary market, you have the
right to redeem your Units for net asset value with the Trustee at any time, as
described above.
TRUST TERMINATION
Notice of impending termination of the Portfolio will be provided to
investors. A proportional share of the expenses associated with termination,
including brokerage costs incurred in disposing of Securities, will be borne by
investors remaining at that time. These expenses will reduce the amount of cash
or Securities those investors are to receive in any final distribution.
Upon termination of the Portfolio, the Trustee will distribute the
Securities and any cash in the Portfolio to a distribution agent that will act
as agent for the investors. Unless an investor elects to receive an in-kind
distribution of Securities, as discussed below, the distribution agent will, as
promptly as practicable, sell the investor's pro rata share of the Securities
and distribute to the investor the proceeds of the sale, less brokerage and
other related expenses, and the investor's pro rata share of any cash from the
Portfolio.
Any investor holding units at the termination of the Portfolio may, by
written notice to the Trustee at least ten business days prior to termination,
elect to received an in kind distribution of the investor's pro rata share of
the Securities remaining in the Portfolio at that time (net of the investor's
share of expenses). Fractional shares of Securities will be sold by the
distribution agent and the net proceeds distributed to investors. Investors
subsequently selling Securities received in kind will incur brokerage costs at
that time which may exceed the value of any tax deferral obtained through the
in-kind distribution. Securities received in an in-kind termination distribution
may not be contributed to acquire units of another Series.
ROLLOVER
In lieu of redeeming their units or receiving liquidation proceeds in cash
or in kind upon termination of the Portfolio, 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 exchange their Units
in the Portfolio for units of next year's corresponding Select Growth Portfolio
(if available). No election to roll over may be made prior to 30 days before the
date of the rollover, and any rollover election will be revocable at any time
prior to the date of the rollover. It is expected that the terms of the new
portfolio will be substantially the same as those of the Portfolio.
The rollover of an investor's Units is intended to be effected in a manner
that will not result in the recognition of either gain or loss for U.S. federal
income tax purposes with respect to Securities that are included in the new
portfolio ('Duplicated Securities'). Units held by an investor who elects the
rollover option will be redeemed through an in-kind distribution to a
distribution agent of the investor's pro rata share of Securities. The
distribution agent will then adjust the Securities distributed to the investor
so that its composition matches the investment profile of the new portfolio.
This adjustment will involve the sale of non-Duplicated Securities and,
possibly, of a portion of certain Duplicated Securities in order to rebalance
the portfolio, and the purchase of replacement Securities. Any excess sales
proceeds, net of sales related expenses, will be distributed to the investor.
After this adjustment the distribution agent will make an in-kind contribution
of the adjusted Securities to the new portfolio. Upon receipt of the in-kind
contribution, the trustee of the new portfolio will issue the appropriate number
of units in the new portfolio to the investor.
6
<PAGE>
An investor who elects the rollover option will recognize capital gain or
loss with respect to the Securities, including fractional Securities, sold by
the distribution agent, but will not recognize gain or loss with respect to the
Duplicated Securities that are contributed in kind to the new portfolio. The
Sponsors intend to provide investors with information that will assist them in
determining their tax liability on an eventual sale of the Duplicated
Securities.
The Sponsors intend to cause the distribution agent to sell those
Securities that will not be contributed to the new portfolio, and then to create
units of the new portfolio, in each case as quickly as possible subject 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 Securities and a more gradual creation of units of the new
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 may 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 securities to comprise the new portfolio,
those moneys may be uninvested for several days.
Investors who participate in the rollover will not be entitled to receive a
cash distribution with which to pay any taxes incurred as a result of the
rollover procedure. Investors who do not participate in the rollover or
otherwise redeem their Units will continue to hold their Units until the
termination of the Portfolio; however, depending upon the extent of
participation in the rollover, the aggregate size of the Portfolio will be
reduced which could result in an 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 Select Growth 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
Although current dividend income is not an objective of the Fund, and it is
anticipated that expenses will exceed available income, the annual income 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 any distributions of dividend income.
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 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
7
<PAGE>
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.
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).
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 Taxpayer Relief
Act of 1997 requires that the 46-day holding period for the
dividends-received deduction must begin before and include each ex-dividend
date and excludes the purchase date and any days during which the
investor's investment is hedged. Investors are urged to consult their own
tax advisers in this regard.
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<PAGE>
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 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 Portfolio 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 for cash (by sale or redemption) or when the
Trustee disposes of the 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 or upon termination of the Fund, except to
the extent of cash received in lieu of fractional shares. The redeeming
investor's basis for the Securities will be equal to his basis for the same
Securities (previously represented by his Units) prior to the redemption,
and his holding period for the Securities will include the period during
which he held his Units.
An investor who elects to roll over into a new portfolio (a 'rollover
investor') will not recognize gain or loss either upon the distribution of
Securities by the Trustee to the distribution agent or upon the
contribution of Duplicated Securities (as defined under Rollover) to the
new portfolio. The rollover investor will generally recognize capital gain
or loss as a consequence of the distribution agent's sale of non-Duplicated
Securities. The rollover investor's basis for the Duplicated Securities
that are contributed in kind to the new portfolio will be equal to his
basis for the same Duplicated Securities prior to the rollover.
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 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 rates will be unavailable to those
noncorporate investors who, as of the mandatory termination date (or
earlier termination of the Fund), have held their units for a year or less.
The lower net capital gain tax rates will also be unavailable to
noncorporate rollover investors for gains on non-Duplicated Securities if,
as of the beginning of the rollover period, those investors have held their
Units for a year or less. Similarly, investors will not be entitled to the
new 20% maximum federal tax rate for capital gains derived from the Fund
because they will not have held their Units for more than 18 months.
However, a rollover investor's holding period for the contributed
Duplicated Securities will include the period during which he held an
interest in the same Duplicated Securities through an investment in the
Portfolio and in prior years' corresponding Select Growth Portfolios.
Investors should consult their tax advisers regarding these matters.
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.
The Portfolio will report as gross income earned by investors their pro
rata share of dividends received by the Portfolio 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 Portfolio 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
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<PAGE>
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 Portfolio, 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
Fund from the disposition of any Security (resulting from redemption or the sale
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 advisors with
respect to the establishment and maintenance of any of these plans. These plans
are offered by brokerage firms, including the Sponsors 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
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 individual filing a
separate return). These income threshholds 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 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. 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 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.
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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
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 limitingthe 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.
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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.; 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.
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. 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 Growth 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.
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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, 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 generally 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 attractive, regular current income consistent with the
preservation of principal. Unit investment trusts are particularly suited for
the many investors who prefer to seek long-term profits by purchasing sound
investments and holding them, 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 such as
children's education or retirement. 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 Select Growth 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 and Focus Series and
certain Equity Investor Fund series with one-or two-year terms and a combination
of initial and deferred sales charges. Select and Focus Portfolios have a sales
charge for first-time investors of 1% initially and annual deferred sales
charges of $17.50 per 1,000 units. On exchanges, the initial sales charge is
waived and units are acquired subject to any remaining deferred sales charges.
Investors can also exchange units of those Portfolios and similar series of
unaffiliated equity unit investment trusts for Fund Units, subject only to the
Fund's remaining deferred sales charges. In the future, the Exchange Option may
be extended to other series and types of trusts with similar sales charge
structures.
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 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 adviser. 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).
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As the Sponsors are not obligated to maintain a market in any series, there
can be no assurance that units 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 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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Defined
Asset FundsSM
SPONSORS: EQUITY INVESTOR FUND
Merrill Lynch, SELECT GROWTH PORTFOLIO
Pierce, Fenner & Smith Incorporated1998 SERIES B
Defined Asset Funds
P.O. Box 9051
Princeton, NJ 08543-9051 This Prospectus does not contain all of the
(609) 282-8500 information with respect to the investment
Smith Barney Inc. company set forth in its registration
Unit Trust Department statement and exhibits relating thereto which
388 Greenwich Street--23rd Floor have been filed with the Securities and
New York, NY 10013 Exchange Commission, Washington, D.C. under
(212) 816-4000 the Securities Act of 1933 and the Investment
PaineWebber Incorporated Company Act of 1940, and to which reference
1200 Harbor Blvd. is hereby made. Copies of filed material can
Weehawken, NJ 07087 be obtained from the Public Reference Section
(201) 902-3000 of the Commission, 450 Fifth Street, N.W.,
Dean Witter Reynolds Inc. Washington, D.C. 20549 at prescribed rates.
Two World Trade Center--59th Floor The Commission also maintains a Web site that
New York, NY 10048 contains information statements and other
(212) 392-2222 information regarding registrants such as
TRUSTEE: Defined Asset Funds that file electronically
The Bank of New York with the Commission at http://www.sec.gov.
Unit Investment Trust Department ------------------------------
Box 974 No person is authorized to give any
Wall Street Station 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 Select Growth 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 registration or qualification under the
securities laws of any such State.
70081--5/98
