DEFINED ASSET FUNDS-REGISTERED TRADEMARK-
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MUNICIPAL DEFINED FUND
(A UNIT INVESTMENT TRUST)
- PORTFOLIO OF LONG TERM MUNICIPAL BONDS
- DESIGNED TO BE FREE OF REGULAR FEDERAL INCOME TAX
- DISTRIBUTIONS TWICE A YEAR
SPONSORS:
MERRILL LYNCH, -----------------------------------------------------
PIERCE, FENNER & SMITH The Securities and Exchange Commission has not
INCORPORATED approved or disapproved these Securities or passed
SALOMON SMITH BARNEY INC. upon the adequacy of this prospectus. Any
PAINEWEBBER INCORPORATED representation to the contrary is a criminal offense.
DEAN WITTER REYNOLDS INC. Prospectus dated November 17, 2000.
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Defined Asset Funds-Registered Trademark-
Defined Asset Funds-Registered Trademark- is America's oldest and largest family
of unit investment trusts, with over $160 billion sponsored over the last 28
years. Defined Asset Funds has been a leader in unit investment trust research
and product innovation. Our family of Funds helps investors work toward their
financial goals with a full range of quality investments, including municipal,
corporate and government bond portfolios, as well as domestic and international
equity portfolios.
Defined Asset Funds offer a number of advantages:
- A disciplined strategy of buying and holding with a long-term view is the
cornerstone of Defined Asset Funds.
- Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
- Defined Portfolios: We choose the stocks and bonds in advance, so you know
what you're investing in.
- Professional research: Our dedicated research team seeks out stocks or
bonds appropriate for a particular fund's objectives.
- Ongoing supervision: We monitor each portfolio on an ongoing basis.
No matter what your investment goals, tolerance for risk or time horizon,
there's probably a Defined Asset Fund that suits your investment style. Your
financial professional can help you select a Defined Asset Fund that works best
for your investment portfolio.
THE FINANCIAL INFORMATION IN THIS PROSPECTUS IS AS OF THE EVALUATION DATE, JULY
31, 2000.
CONTENTS
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PAGE
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Risk/Return Summary............................... 3
What You Can Expect From Your Investment.......... 6
Income Twice A Year............................. 6
Return Figures.................................. 6
Records and Reports............................. 6
The Risks You Face................................ 6
Interest Rate Risk.............................. 6
Call Risk....................................... 7
Reduced Diversification Risk.................... 7
Liquidity Risk.................................. 7
Concentration Risk.............................. 7
Bond Quality Risk............................... 8
Insurance Related Risk.......................... 8
Litigation and Legislation Risks................ 8
Selling or Exchanging Units....................... 8
Sponsors' Secondary Market...................... 8
Selling Units to the Trustee.................... 8
Exchange Option................................. 9
How The Fund Works................................ 9
Pricing......................................... 9
Evaluations..................................... 10
Income.......................................... 10
Expenses........................................ 10
Portfolio Changes............................... 10
Fund Termination................................ 11
Certificates.................................... 11
Trust Indenture................................. 11
Legal Opinion................................... 12
Auditors........................................ 12
Sponsors........................................ 12
Trustee......................................... 13
Underwriters' and Sponsors' Profits............. 13
Public Distribution............................. 13
Code of Ethics.................................. 13
Year 2000 Issues................................ 13
Taxes............................................. 13
Supplemental Information.......................... 15
Financial Statements.............................. D-1
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RISK/RETURN SUMMARY
1. WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks interest income that is exempt from regular federal income
taxes by investing in a fixed portfolio consisting primarily of long-term
municipal revenue bonds.
2. WHAT ARE MUNICIPAL REVENUE BONDS?
Municipal revenue bonds are bonds issued by states, municipalities and public
authorities to finance the cost of buying, building or improving various
projects intended to generate revenue, such as airports, health care
facilities, housing and municipal electric, water and sewer utilities.
Generally, payments on these bonds depend solely on the revenues generated by
the projects, excise taxes or state appropriations, and are not backed by the
government's taxing power.
3. WHAT IS THE FUND'S INVESTMENT STRATEGY?
- The Fund plans to hold to maturity 22 long-term tax-exempt municipal bonds
with an aggregate face amount of $11,585,000. The Fund is a unit investment
trust which means that, unlike a mutual fund, the Fund's portfolio is not
managed.
- The bonds are rated A or better by Standard & Poor's, Moody's or Fitch or in
the opinion of the agent for the Sponsors have similar credit quality to
other bonds in the portfolio.
- Most of the bonds cannot be called for several years, and after that they can
be called at a premium declining over time to par value. Some bonds may be
called earlier at par for extraordinary reasons.
- 35% of the bonds are insured by insurance companies that guarantee timely
payments of principal and interest on the bonds (but not Fund units or the
market value of the bonds before they mature).
The Portfolio consists of municipal bonds of the following types:
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APPROXIMATE
PORTFOLIO
PERCENTAGE
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-Airports/Ports/Highways 9%
-General Obligation 2%
-Hospital/Health Care 45%
-Housing 11%
-Lease Rental Appropriation 19%
-Parking, Stadiums/Recreational Facilities,
Convention Centers 1%
-University/College 13%
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4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN HAPPEN FOR VARIOUS
REASONS, INCLUDING:
- Rising interest rates, an issuer's worsening financial condition or a drop in
bond ratings can reduce the price of your units.
- Because the Fund is concentrated in hospital/health care bonds, adverse
developments in this industry may affect the value of your units.
- Assuming no changes in interest rates, when you sell your units, they will
generally be worth less than your cost because your cost included a sales
fee.
- The Fund will receive early returns of principal if bonds are called or sold
before they mature. If this happens your income will decline and you may not
be able to reinvest the money you receive at as high a yield or as long a
maturity.
5. IS THIS FUND APPROPRIATE FOR YOU?
Yes, if you want federally tax-free income. You will benefit from a
professionally selected and supervised portfolio whose risk is reduced by
investing in bonds of several different issuers.
The Fund is NOT appropriate for you if you want a speculative investment that
changes to take advantage of market movements, if you do not want a
tax-advantaged investment or if you cannot tolerate any risk.
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DEFINING YOUR INCOME
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WHAT YOU MAY EXPECT (RECORD DAY: 10TH DAY OF EACH
AUGUST AND FEBRUARY):
Regular Semi-Annual Income per 1,000 units
(each August and February): $25.82
Annual Income per 1,000 units: $51.64
THESE FIGURES ARE ESTIMATES ON THE BUSINESS DAY BEFORE THE
INITIAL DATE OF DE
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6. WHAT ARE THE FUND'S FEES AND EXPENSES?
This table shows the costs and expenses you may pay, directly or indirectly,
when you invest in the Fund.
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INVESTOR FEES
Maximum Sales Fee (Load) on new
purchases (as a percentage of
$1,000 invested) 2.90%
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Employees of some of the Sponsors and their affiliates may be charged a
reduced sales fee of no less than $5.00 per 1,000 units.
The maximum sales fee is reduced if you invest at least $100,000, as follows:
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YOUR MAXIMUM
SALES FEE
IF YOU INVEST: WILL BE:
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$100,000 to $249,999 2.65%
$250,000 to $499,999 2.40%
$500,000 to $999,999 2.15%
$1,000,000 and over 1.90%
Maximum Exchange Fee 1.90%
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ESTIMATED ANNUAL FUND OPERATING EXPENSES
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AMOUNT
PER 1,000 UNITS
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Trustee's Fee $0.51
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses) $0.40
Evaluator's Fee $0.09
Other Operating Expenses $0.29
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TOTAL $1.29
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The Sponsors historically paid updating expenses.
7. IS THE FUND MANAGED?
Unlike a mutual fund, the Fund is not managed and bonds are not sold because
of market changes. Rather, experienced Defined Asset Funds financial analysts
regularly review the bonds in the Fund. The Fund may sell a bond if certain
adverse credit or other conditions exist.
8. HOW DO I BUY UNITS?
The minimum investment is $250.
You can buy units from any of the Sponsors and other broker-dealers. The
Sponsors are listed later in this prospectus. Some banks may offer units for
sale through special arrangements with the Sponsors, although certain legal
restrictions may apply.
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UNIT PRICE PER 1,000 UNITS $ 902.49
(as of July 31, 2000)
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Unit price is based on the net asset value of the Fund plus the up-front
sales fee. An amount equal to any principal cash, as well as net accrued but
undistributed interest on the unit, is added to the unit price. An
independent evaluator prices the bonds at 3:30 p.m. Eastern time every
business day. Unit price changes every day with changes in the prices of the
bonds in the Fund.
9. HOW DO I SELL UNITS?
You may sell your units at any time to any Sponsor or the Trustee for the net
asset value determined at the close of business on the date of sale. You will
not pay any other fee when you sell your units.
10. HOW ARE DISTRIBUTIONS MADE AND TAXED?
The Fund pays income twice a year. In the opinion of bond counsel when each
bond was issued, interest on the bonds in this Fund is generally 100% exempt
from regular federal income tax. A portion of the income may also be exempt
from state and local personal income taxes, depending on where you live.
You will also receive principal payments if bonds are sold or called or
mature, when the cash available is more than $10.00 per 1,000 units. You will
be subject to tax on any gain realized by the Fund on the disposition of
bonds.
11. WHAT OTHER SERVICES ARE AVAILABLE?
REINVESTMENT
You will receive your semi-annual income in cash unless you choose to
compound your income by reinvesting at no sales fee in the Municipal Fund
Investment Accumulation Program, Inc. This Program is an open-end mutual fund
with a comparable investment objective. Income from this Program will
generally be subject to state and local income
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taxes. FOR MORE COMPLETE INFORMATION ABOUT THE PROGRAM, INCLUDING CHARGES AND
FEES, ASK THE TRUSTEE FOR THE PROGRAM'S PROSPECTUS. READ IT CAREFULLY BEFORE YOU
INVEST. THE TRUSTEE MUST RECEIVE YOUR WRITTEN ELECTION TO REINVEST AT LEAST 10
DAYS BEFORE THE RECORD DAY OF AN INCOME PAYMENT.
EXCHANGE PRIVILEGES
You may exchange units of this Fund for units of certain other Defined Asset
Funds. You may also exchange into this Fund from certain other funds. We
charge a reduced sales fee on exchanges.
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TAX-FREE VS. TAXABLE INCOME: A COMPARISON OF TAXABLE AND TAX-FREE YIELDS
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EFFECTIVE
TAXABLE INCOME 2000* % TAX TAX-FREE YIELD OF
SINGLE RETURN JOINT RETURN BRACKET 3% 3.5% 4% 4.5% 5% 5.5% 6% 6.5%
IS EQUIVALENT TO A TAXABLE YIELD OF
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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$ 0- 26,250 $ 0- 43,850 15.00 3.53 4.12 4.71 5.29 5.88 6.47 7.06 7.65
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$ 26,251- 63,550 $ 43,851-105,950 28.00 4.17 4.86 5.56 6.25 6.94 7.64 8.33 9.03
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$ 63,551-132,600 $105,951-161,450 31.00 4.35 5.07 5.80 6.52 7.25 7.97 8.70 9.42
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$132,601-288,350 $161,451-288,350 36.00 4.69 5.47 6.25 7.03 7.81 8.59 9.38 10.16
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OVER $288,350 OVER $288,350 39.60 4.97 5.79 6.62 7.45 8.28 9.11 9.93 10.76
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To compare the yield of a taxable security with the yield of a federally
tax-free security, find your taxable income and read across. The table
incorporates 2000 federal income tax rates and assumes that all income would
otherwise be taxed at a U.S. investor's highest tax rate. Yield figures are for
example only.
*Based upon net amount subject to federal income tax after deductions and
exemptions. This table does not reflect the possible effect of other tax
factors, such as alternative minimum tax, personal exemptions, the phase-out of
exemptions, itemized deductions, the possible partial disallowance of deductions
or state and local taxation. Consequently, investors are urged to consult their
own tax advisers in this regard.
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WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
INCOME TWICE A YEAR
The Fund will pay you regular income twice a year. Your income may vary because
of:
- elimination of one or more bonds from the Fund's portfolio because of calls,
redemptions or sales;
- a change in the Fund's expenses; or
- the failure by a bond's issuer to pay interest.
Changes in interest rates generally will not affect your income because the
portfolio is fixed.
Along with your income, you will receive your share of any available bond
principal.
RETURN FIGURES
We cannot predict your actual return, which will vary with unit price, how long
you hold your investment and changes in the portfolio, interest income and
expenses.
ESTIMATED CURRENT RETURN equals the estimated annual cash to be received from
the bonds in the Fund less estimated annual Fund expenses, divided by the Unit
Price (including the maximum sales fee):
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Estimated Annual Estimated
Interest Income - Annual Expenses
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Unit Price
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ESTIMATED LONG TERM RETURN is a measure of the estimated return over the
estimated life of the Fund. Unlike Estimated Current Return, Estimated Long Term
Return reflects maturities, discounts and premiums of the bonds in the Fund. It
is an average of the yields to maturity (or in certain cases, to an earlier call
date) of the individual bonds in the portfolio, adjusted to reflect the Fund's
maximum sales fee and estimated expenses. We calculate the average yield for the
portfolio by weighting each bond's yield by its market value and the time
remaining to the call or maturity date.
Yields on individual bonds depend on many factors including general conditions
of the bond markets, the size of a particular offering and the maturity and
quality rating of the particular issues. Yields can vary among bonds with
similar maturities, coupons and ratings.
These return quotations are designed to be comparative rather than predictive.
RECORDS AND REPORTS
You will receive:
- a statement of income payments twice a year;
- a notice from the Trustee when new bonds are deposited in exchange or
substitution for bonds originally deposited;
- an annual report on Fund activity; and
- annual tax information. THIS WILL ALSO BE SENT TO THE IRS. YOU MUST REPORT THE
AMOUNT OF TAX-EXEMPT INTEREST RECEIVED DURING THE YEAR.
You may request:
- copies of bond evaluations to enable you to comply with federal and state tax
reporting requirements; and
- audited financial statements of the Fund.
You may inspect records of Fund transactions at the Trustee's office during
regular business hours.
THE RISKS YOU FACE
INTEREST RATE RISK
Investing involves risks, including the risk that your investment will decline
in value if
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interest rates rise. Generally, bonds with longer maturities will change in
value more than bonds with shorter maturities. Bonds in the Fund are more likely
to be called when interest rates decline. This would result in early returns of
principal to you and may result in early termination of the Fund. Of course, we
cannot predict how interest rates may change.
CALL RISK
Many bonds can be prepaid or "called"by the issuer before their stated maturity.
For example, an issuer might call its bonds if it no longer needs the money for
the original purpose or, during periods of falling interest rates, if the
issuer's bonds have a coupon higher than current market rates. If the bonds are
called, your income will decline and you may not be able to reinvest the money
you receive at as high a yield or as long a maturity. An early call at par of a
premium bond will reduce your return.
REDUCED DIVERSIFICATION RISK
If many investors sell their units, the Fund will have to sell bonds. This could
reduce the diversification of your investment and increase your share of Fund
expenses.
LIQUIDITY RISK
The bonds will generally trade in the over-the-counter market. We cannot assure
you that a liquid trading market will exist, especially since current law may
restrict the Fund from selling bonds to any Sponsor. The value of the bonds, and
of your investment, may be reduced if trading in bonds is limited or absent.
CONCENTRATION RISK
When a certain type of bond makes up 25% or more of the portfolio, the Fund is
said to be "concentrated"in that bond type, which makes the Fund less
diversified.
Here is what you should know about the Fund's concentration in hospital and
health care bonds.
- payment for these bonds depends on revenues from private third-party payors
and government programs, including Medicare and Medicaid, which have
generally undertaken cost containment measures to limit payments to health
care providers;
- hospitals face increasing competition resulting from hospital mergers and
affiliations;
- hospitals need to reduce costs as HMOs increase market penetration and
hospital supply and drug companies raise prices; and
- hospitals and health care providers are subject to various legal claims by
patients and others and are adversely affected by increasing costs of
insurance.
- many hospitals are aggressively buying physician practices and assuming risk
contracts to gain market share. If revenues do not increase accordingly,
this practice could reduce profits.
- Medicare is changing its reimbursement system for nursing homes. Many
nursing home providers are not sure how they will be treated. In many cases,
the providers may receive lower reimbursements and these would have to cut
expenses to maintain profitability.
- most retirement/nursing home providers rely on entrance fees for operating
revenues. If people live longer than expected and turnover is lower than
budgeted, operating revenues would be
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adversely affected by less than expected entrance fees.
Changes to the portfolio from bond redemptions, maturities and sales may affect
the Fund's concentration over time.
BOND QUALITY RISK
A reduction in a bond's rating may decrease its value and, indirectly, the value
of your investment in the Fund.
INSURANCE RELATED RISK
Some bonds are backed by insurance companies (as shown under Portfolio).
Insurance policies generally make payments only according to a bond's original
payment schedule and do not make early payments when a bond defaults or becomes
taxable. Although the federal government does not regulate the insurance
business, various state laws and federal initiatives and tax law changes could
significantly affect the insurance business. The claims-paying ability of the
insurance companies is generally rated A or better by Standard & Poor's or
another nationally recognized rating organization. The insurance company ratings
are subject to change at any time at the discretion of the rating agencies.
LITIGATION AND LEGISLATION RISKS
We do not know of any pending litigation that might have a material adverse
effect upon the Fund.
Future tax legislation could affect the value of the portfolio by:
- limiting real property taxes,
- reducing tax rates,
- imposing a flat or other form of tax, or
- exempting investment income from tax.
SELLING OR EXCHANGING UNITS
You can sell your units at any time for a price based on net asset value. Your
net asset value is calculated each business day by:
- ADDING the value of the bonds, net accrued interest, cash and any other Fund
assets;
- SUBTRACTING accrued but unpaid Fund expenses, unreimbursed Trustee advances,
cash held to buy back units or for distribution to investors and any other
Fund liabilities; and
- DIVIDING the result by the number of outstanding units.
Your net asset value when you sell may be more or less than your cost because of
sales fees, market movements and changes in the portfolio.
SPONSORS' SECONDARY MARKET
While we are not obligated to do so, we will buy back units at net asset value
without any other fee or charge. We may resell the units to other buyers or 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.
We may discontinue the secondary market without prior notice for any business
reason.
SELLING UNITS TO THE TRUSTEE
Regardless of whether we maintain a secondary market, you can sell your units to
the Trustee at any time by sending the Trustee a letter (with any outstanding
certificates if you hold Unit certificates). You must properly endorse your
certificates (or execute a written transfer instrument with signatures
guaranteed by an eligible institution). Sometimes, additional
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documents are needed such as a trust document, certificate of corporate
authority, certificate of death or appointment as executor, administrator or
guardian.
Within seven days after your request and the necessary documents are received,
the Trustee will mail a check to you. Contact the Trustee for additional
information.
As long as we are maintaining a secondary market, the Trustee will sell your
units to us at a price based on net asset value. If there is no secondary
market, the Trustee may sell your units in the over-the-counter market for a
higher price, but the Trustee is not required to do so. In that case, you will
receive the net proceeds of the sale.
If the Fund does not have cash available to pay you for units you are selling,
the agent for the Sponsors will select bonds to be sold. Bonds will be selected
based on market and credit factors. These sales could be made at times when the
bonds would not otherwise be sold and may result in your receiving less than the
unit par value and also reduce the size and diversity of the Fund.
If you acquire 25% or more of the outstanding units of the Fund and you sell
units with a value exceeding $250,000, the Trustee may choose to pay you "in
kind"by distributing bonds and cash with a total value equal to the price of
those units. The Trustee will try to distribute bonds in the portfolio pro rata,
but it reserves the right to distribute only one or a few bonds. The Trustee
will act as your agent in an in kind distribution and will either hold the bonds
for your account or sell them as you instruct. You must pay any transaction
costs as well as transfer and ongoing custodial fees on sales of bonds
distributed in kind.
There could be a delay in paying you for your units:
- if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
- if the SEC determines that trading on the New York Stock Exchange is
restricted or that an emergency exists making sale or evaluation of the
bonds not reasonably practicable; and
- for any other period permitted by SEC order.
EXCHANGE OPTION
You may exchange units of certain Defined Asset Funds for units of this Fund at
a maximum exchange fee of 1.90%. You may exchange units of this Fund for units
of certain other Defined Asset Funds at a reduced sales fee if your investment
goals change. To exchange units, you should talk to your financial professional
about what funds are exchangeable, suitable and currently available.
Normally, an exchange is taxable and you must recognize any gain or loss on the
exchange. However, the IRS may try to disallow a loss if the portfolios of the
two funds are not materially different; you should consult your own tax adviser.
We may amend or terminate this exchange option at any time without notice.
HOW THE FUND WORKS
PRICING
The price of a unit includes interest accrued on the bonds, less expenses, from
the initial date of deposit up to, but not including, the settlement date, which
is usually three business days after the purchase date of the unit.
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EVALUATIONS
An independent Evaluator values the bonds on each business day (excluding
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).
Bond values are based on current bid or offer prices for the bonds or comparable
bonds. In the past, the difference between bid and offer prices of publicly
offered tax-exempt bonds has ranged from 0.5% of face amount on actively traded
issues to 3.5% on inactively traded issues; the difference has averaged between
1 and 2%.
INCOME
The Trustee credits interest to an Income Account and other receipts to a
Capital Account. The Trustee may establish a Reserve Account by withdrawing from
these accounts amounts it considers appropriate to pay any material liability.
These accounts do not bear interest.
EXPENSES
The Trustee is paid a fee monthly. It also benefits when it holds cash for the
Fund in non-interest bearing accounts. The Trustee may also receive additional
amounts:
- for extraordinary services and costs of indemnifying the Trustee and the
Sponsors;
- costs of actions taken to protect the Fund and other legal fees and
expenses;
- expenses for keeping the Fund's registration statement current; and
- Fund termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 55 CENTS per $1,000 face amount
annually for providing portfolio supervisory, bookkeeping and administrative
services and for any other expenses properly chargeable to the Fund. Legal,
typesetting, electronic filing and regulatory filing fees and expenses
associated with updating the Fund's registration statement yearly are also now
chargeable to the Fund. While this fee may exceed the amount of these costs and
expenses attributable to this Fund, the total of these fees for all Series of
Defined Asset Funds will not exceed the aggregate amount attributable to all of
these Series for any calendar year. The Fund also pays the Evaluator's fees.
The Trustee's, Sponsors' and Evaluator's fees may be adjusted for inflation
without investors' approval.
The Sponsors will pay advertising and selling expenses at no charge to the Fund.
If Fund expenses exceed initial estimates, the Fund will owe the excess. The
Trustee has a lien on Fund assets to secure reimbursement of Fund expenses and
may sell bonds if cash is not available.
PORTFOLIO CHANGES
The Sponsors and Trustee are not liable for any default or defect in a bond.
Unlike a mutual fund, the portfolio is designed to remain intact and we may keep
bonds in the portfolio even if their credit quality declines or other adverse
financial circumstances occur. However, we may sell a bond in certain cases if
we believe that certain adverse credit conditions exist or if a bond becomes
taxable.
If we maintain a secondary market in units but are unable to sell the units that
we buy in the secondary market, we will redeem
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units, which will affect the size and composition of the portfolio. Units
offered in the secondary market may not represent the same face amount of bonds
that they did originally.
We decide whether or not to offer units for sale that we acquire in the
secondary market after reviewing:
- diversity of the portfolio;
- size of the Fund relative to its original size;
- ratio of Fund expenses to income;
- current and long-term returns;
- degree to which units may be selling at a premium over par; and
- cost of maintaining a current prospectus.
FUND TERMINATION
The Fund will terminate following the stated maturity or sale of the last bond
in the portfolio. The Fund may also terminate earlier with the consent of
investors holding 51% of the units or if total assets of the Fund have fallen
below 40% of the face amount of bonds deposited. We will decide whether to
terminate the Fund early based on the same factors used in deciding whether or
not to offer units in the secondary market.
When the Fund is about to terminate you will receive a notice, and you will be
unable to sell your units after that time. On or shortly before termination, we
will sell any remaining bonds, and you will receive your final distribution. Any
bond that cannot be sold at a reasonable price may continue to be held by the
Trustee in a liquidating trust pending its final sale.
You will pay your share of the expenses associated with termination, including
brokerage costs in selling bonds. This may reduce the amount you receive as your
final distribution.
CERTIFICATES
Certificates for units are issued on request. You may transfer certificates by
complying with the requirements for redeeming certificates, described above. You
can replace lost or mutilated certificates by delivering satisfactory indemnity
and paying the associated costs.
TRUST INDENTURE
The Fund is a "unit investment trust"governed by a Trust Indenture, a contract
among the Sponsors, the Trustee and the Evaluator, which sets forth their duties
and obligations and your rights. A copy of the Indenture is available to you on
request to the Trustee. The following summarizes certain provisions of the
Indenture.
The Sponsors and the Trustee may amend the Indenture without your consent:
- to cure ambiguities;
- to correct or supplement any defective or inconsistent provision;
- to make any amendment required by any governmental agency; or
- to make other changes determined not to be materially adverse to your best
interest (as determined by the Sponsors).
Investors holding 51% of the units may amend the Indenture. Every investor must
consent to any amendment that changes the 51% requirement. No amendment may
reduce your interest in the Fund without your written consent.
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The Trustee may resign by notifying the Sponsors. The Sponsors may remove the
Trustee without your consent if:
- it fails to perform its duties and the Sponsors determine that its
replacement is in your best interest; or
- it becomes incapable of acting or bankrupt or its affairs are taken over by
public authorities.
Investors holding 51% of the units may remove the Trustee. The Evaluator may
resign or be removed by the Sponsors and the Trustee without the consent of
investors. The resignation or removal of either becomes effective when a
successor accepts appointment. The Sponsors will try to appoint a successor
promptly; however, if no successor has accepted within 30 days after notice of
resignation, the resigning Trustee or Evaluator may petition a court to appoint
a successor.
Any Sponsor may resign as long as one Sponsor with a net worth of $2 million
remains and agrees to the resignation. The remaining Sponsors and the Trustee
may appoint a replacement. If there is only one Sponsor and it fails to perform
its duties or becomes bankrupt the Trustee may:
- remove it and appoint a replacement Sponsor;
- liquidate the Fund; or
- continue to act as Trustee without a Sponsor.
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent for the
Sponsors.
The Trust Indenture contains customary provisions limiting the liability of the
Trustee, the Sponsors and the Evaluator.
LEGAL OPINION
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
special counsel for the Sponsors, has given an opinion that the units are
validly issued.
AUDITORS
Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281,
independent accountants, audited the Statement of Condition included in this
prospectus.
SPONSORS
The Sponsors are:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.)
P.O. Box 9051,
Princeton, NJ 08543-9051
SALOMON SMITH BARNEY INC. (an indirectly wholly-owned subsidiary of Citigroup
Inc.)
388 Greenwich Street--23rd Floor,
New York, NY 10013
DEAN WITTER REYNOLDS INC. (a principal operating subsidiary of Morgan Stanley
Dean Witter & Co.)
Two World Trade Center--59th Floor,
New York, NY 10048
PAINEWEBBER INCORPORATED (a wholly-owned subsidiary of PaineWebber Group Inc.)
1285 Avenue of the Americas,
New York, NY 10019
Each Sponsor is a Delaware corporation and it, or its predecessor, has acted as
sponsor to many unit investment trusts. As a registered broker-dealer each
Sponsor buys and sells securities (including investment company shares) for
others (including investment companies) and participates as an underwriter in
various selling groups.
12
<PAGE>
TRUSTEE
The Bank of New York, 101 Barclay Street, 17W, New York, New York 10268 is the
Trustee. It is supervised by the Federal Deposit Insurance Corporation, the
Board of Governors of the Federal Reserve System and New York State banking
authorities.
UNDERWRITERS' AND SPONSORS' PROFITS
Underwriters receive sales charges when they sell units. The Sponsors also
realized a profit or loss on the initial deposit of the bonds. Any cash made
available by you to the Sponsors before the settlement date for those units may
be used in the Sponsors' businesses to the extent permitted by federal law and
may benefit the Sponsors.
In maintaining a secondary market, the Sponsors will also realize profits or
sustain losses in the amount of any difference between the prices at which they
buy units and the prices at which they resell or redeem them.
PUBLIC DISTRIBUTION
The Sponsors do not intend to qualify units for sale in any foreign countries.
This prospectus does not constitute an offer to sell units in any country where
units cannot lawfully be sold.
CODE OF ETHICS
The Fund and the Agent for the Sponsors have each adopted a code of ethics
requiring reporting of personal securities transactions by its employees with
access to information on Fund transactions. Subject to certain conditions, the
codes permit employees to invest in Fund securities for their own accounts. The
codes are designed to prevent fraud, deception and misconduct against the Fund
and to provide reasonable standards of conduct. These codes are on file with the
Commission and you may obtain a copy by contacting the Commission at the address
listed on the back cover of this prospectus.
YEAR 2000 ISSUES
Many computer systems were designed in such a way that they may be unable to
distinguish between the year 2000 and the year 1900 (commonly known as the "Year
2000 Problem"). To date we are not aware of any major operational difficulties
resulting from the computer system changes necessary to prepare for the Year
2000. However, there can be no assurance that the Year 2000 Problem will not
adversely affect the issuers of the bonds contained in the Portfolio. We cannot
predict whether any impact will be material to the Fund as a whole.
TAXES
The following summary describes some of the important income tax consequences of
holding units. It assumes that you are not a dealer, financial institution,
insurance company or other investor with special circumstances or subject to
special rules. You should consult your own tax adviser about your particular
circumstances.
At the date of issue of each bond, counsel for the issuer delivered an opinion
to the effect that interest on the bond is exempt from regular federal income
tax. However, interest may be subject to state and local taxes and may be taken
into account in determining your preference items for alternative minimum tax
purposes. Neither we nor our counsel have reviewed the issuance of the bonds,
related proceedings or the basis for the opinions of counsel for the issuers. We
cannot assure you that the
13
<PAGE>
issuers, (or other users) have complied or will comply with any requirements
necessary for a bond to be tax-exempt. If any of the bonds were determined not
to be tax-exempt, you could be required to pay income tax for current and prior
years, and if the Fund were to sell the bond, it might have to sell it at a
substantial discount.
In the opinion of our counsel, under existing law:
GENERAL TREATMENT OF THE FUND AND YOUR INVESTMENT
The Fund will not be taxed as a corporation for federal income tax purposes, and
you will be considered to own directly your share of each bond in the Fund.
GAIN OR LOSS UPON DISPOSITION
When all or part of your share of a bond is disposed of (for example, when the
Fund sells, exchanges or redeems a bond or when you sell or exchange your
units), you will generally recognize capital gain or loss. Your gain, however,
will generally be ordinary income to the extent of any accrued "market
discount'. Generally you will have market discount to the extent that your basis
in a bond when you purchase a unit is less than its stated redemption price at
maturity (or, if it is an original issue discount bond, the issue price
increased by original issue discount that has accrued on the bond before your
purchase). You should consult your tax adviser in this regard.
If your net long-term capital gains exceed your net short-term capital losses,
the excess may be subject to tax at a lower rate than ordinary income. Any
capital gain from the Fund will be long-term if you are considered to have held
your investment on each bond for more than one year and short-term otherwise.
Because the deductibility of capital losses is subject to limitations, you may
not be able to deduct all of your capital losses. Consult your tax adviser in
this regard.
YOUR BASIS IN THE BONDS
Your aggregate basis in the bonds will be equal to the cost of your units,
adjusted to reflect any accruals of "original issue discount,""acquisition
premium"and "bond premium'. You should consult your tax adviser in this regard.
EXPENSES
If you are not a corporate investor, you will not be entitled to a deduction for
your share of fees and expenses of the Fund. Also, if you borrowed money in
order to purchase or carry your units, you will not be able to deduct the
interest on this borrowing for federal income tax purposes. The IRS may treat
your purchase of units as made with borrowed money even if the money is not
directly traceable to the purchase of units.
STATE AND LOCAL TAXES
Under the income tax laws of the State and City of New York, the Fund will not
be taxed as a corporation. If you are a New York taxpayer, your income from the
Fund will not be tax-exempt in New York except to the extent that the income is
earned on bonds that are tax-exempt for New York purposes. Depending on where
you live, your income from the Fund may be subject to state and local taxation.
You should consult your tax adviser in this regard.
14
<PAGE>
SUPPLEMENTAL INFORMATION
You can receive at no cost supplemental information about the Fund by calling
the Trustee. The supplemental information includes more detailed risk disclosure
about the types of bonds that may be in the Fund's portfolio, general risk
disclosure concerning any insurance securing certain bonds, and general
information about the structure and operation of the Fund. The supplemental
information is also available from the SEC.
15
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Municipal Defined Fund,
Defined Asset Funds:
We have audited the accompanying statement of condition of Municipal Defined
Fund, Defined Asset Funds, including the portfolio, as of July 31, 2000 and the
related statements of operations and of changes in net assets for the year ended
July 31, 2000 and the period August 15, 1998 to July 31, 1999. These financial
statements are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Securities owned at July 31, 2000, as shown in such portfolio, were
confirmed to us by The Bank of New York, the Trustee. An audit also includes
assessing the accounting principles used and significant estimates made by the
Trustee, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Municipal, Defined Fund,
Defined Asset Funds at July 31, 2000 and the results of its operations and
changes in its net assets for the above-stated periods in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
New York, N.Y.
October 23, 2000
D - 1
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
STATEMENT OF CONDITION
AS OF JULY 31, 2000
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $11,409,112)(Note 1)..................... $10,113,833
Accrued interest receivable...................... 144,192
Accrued interest on segregated bonds............. 466
Cash............................................. 162,252
-------------
Total trust property................. 10,420,743
LESS LIABILITIES:
Deferred sales charge............................ $ 6,430
Accrued expenses................................. 28,624 35,054
------------- -------------
NET ASSETS, REPRESENTED BY:
11,485,171 units of fractional undivided
interest outstanding (Note 3).................. 10,100,920
Undistributed net investment income.............. 284,769
-------------
$10,385,689
=============
UNIT VALUE ($10,385,689/11,485,171 units).......... $0.90427
=============
</TABLE>
See Notes to Financial Statements.
D - 2
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
August 15,
1998
Year Ended to
July 31, July 31,
2000 1999
---------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest income........................... $ 665,917 $ 761,274
Interest income on segregated bonds....... 7,712 10,670
Trustee's fees and expenses............... (10,277) (3,150)
Sponsors' fees............................ (1,312) (5,271)
---------------------------
Net investment income..................... 662,040 763,523
---------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized loss on securities sold
or redeemed............................. (400,949) (13,821)
Unrealized depreciation of investments.... (555,705) (739,574)
---------------------------
Net realized and unrealized loss on
investments............................. (956,654) (753,395)
---------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. $(294,614) $ 10,128
===========================
</TABLE>
See Notes to Financial Statements.
D - 3
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
August 15,
1998
Year Ended to
July 31, July 31,
2000 1999
--------------------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 662,040 $ 763,523
Realized loss on securities sold
or redeemed................................... (400,949) (13,821)
Unrealized depreciation of investments.......... (555,705) (739,574)
--------------------------
Net increase (decrease) in net assets
resulting from operations..................... (294,614) 10,128
--------------------------
INCOME DISTRIBUTIONS TO HOLDERS (Note 2).......... (693,711) (382,199)
DEFERRED SALES CHARGE (Note 5).................... (155,658) (74,902)
CAPITAL SHARE TRANSACTIONS - Redemptions of
3,268,916 and 245,913 units, respectively....... (2,875,285) (238,557)
--------------------------
NET DECREASE IN NET ASSETS........................ (4,019,268) (685,530)
NET ASSETS AT BEGINNING OF PERIOD................. 14,404,957 15,090,487
--------------------------
NET ASSETS AT END OF PERIOD....................... $10,385,689 $14,404,957
==========================
PER UNIT:
Income distributions during period.............. $0.05199 $0.02548
==========================
Net asset value at end of period................ $0.90427 $0.97634
==========================
TRUST UNITS OUTSTANDING AT END OF PERIOD.......... 11,485,171 14,754,087
==========================
</TABLE>
See Notes to Financial Statements.
D - 4
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with accounting
principles generally accepted in the United States of America.
(a) Securities are stated at value as determined by the Evaluator based on
bid side evaluations for the securities, except that value on August
15, 1998, was based upon offer side evaluations at August 13, 1998 the
day prior to the Date of Deposit. Cost of securities at August 15,
1998 was also based on such offer side evaluations.
(b) The Fund is not subject to income taxes. Accordingly, no
provision for such taxes is required.
(c) Interest income is recorded as earned.
2. DISTRIBUTIONS
A distribution of net investment income is made to Holders semiannually.
Receipts other than interest, after deductions for redemptions and
applicable expenses, are also distributed periodically.
3. NET CAPITAL
<TABLE>
<S> <C>
Cost of 11,485,171 units at Date of Deposit......... $11,554,455
Redemptions of units - net cost of 3,514,829 units
redeemed less redemption amounts.................. 468,692
Realized loss on securities sold or redeemed........ (414,770)
Interest income on segregated bonds................. 18,382
Deferred sales charge............................... (230,560)
Unrealized depreciation of investments.............. (1,295,279)
--------------
Net capital applicable to Holders................... $10,100,920
==============
</TABLE>
4. INCOME TAXES
As of July 31, 2000, unrealized depreciation of investments, based on cost
for Federal income tax purposes, aggregated $1,295,279, all of which
related to depreciated securities. The cost of investment securities for
Federal income tax purposes was $11,409,112 at July 31, 2000.
D - 5
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
NOTES TO FINANCIAL STATEMENTS
5. DEFERRED SALES CHARGE
A deferred sales fee of $19.00 per 1,000 units is payable over a two-year
period ($2.38 per 1,000 units quaterly in the first year and $2.37 per 1,000
units quaterly in the second year.)
D - 6
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
PORTFOLIO
AS OF JULY 30, 2000
<TABLE>
<CAPTION>
Rating Optional
Portfolio No. and Title of of Face Redemption
Securities Issues(1) Amount Coupon Maturities(3) Provisions(3) Cost(2) Value(2)
---------- --------- ------ ------ ------------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 City of Gulf Breeze, FL, Cap. AAA $ 1,125,000 4.500% 2027 06/01/08 1,015,223 $934,931
Funding Rev. Bonds, Ser. 1997 B @ 100.000
(MBIA Ins.)(4)
2 Illinois Din. Auth., Rev. Bonds AA- 1,000,000 5.500 2028 10/01/08 1,008,740 941,770
(Steppenwolf Theatre Co.) Ser. 1998 @ 102.000
(LaSalle National Bank, Chicago, IL
- Letter of Credit)(6)
3 City of Del Rio, TX (Val Verde AA 50,000 5.700 2014 04/01/08 51,263 47,766
Cnty.), Combination Tax and Rev. @ 100.000
Certs. of Oblig., Ser. 1998 (Asset 75,000 5.750 2016 04/01/08 76,894 71,066
Guaranty Ins.)(4) @ 100.000
95,000 5.750 2017 04/01/08 97,399 89,366
@ 100.000
50,000 5.750 2018 04/01/08 51,263 46,736
@ 100.000
4 Indiana Hlth. Fac. Financing Auth., A-(F) 500,000 5.125 2017 02/15/08 486,885 400,615
Hosp. Rev. Rfdg. Bonds (Jackson @ 102.000
Cnty., Schneck Mem. Hosp. Proj.)
Ser. 1998
5 County of Franklin, OH, Hlth. Care NR 110,000 5.500 2021 07/01/08 108,583 87,533
Facs. Rfdg. Rev. Bonds (Ohio @ 101.000
Presbyterian Retirement Svcs.),
Ser. 1997
6 Duluth Econ. Dev. Auth., MN, Hlth. NR 250,000 5.875 2028 06/01/05 252,813 201,790
Care Facs. Rev. Bonds (BSM @ 102.000
Properties, Inc. Proj.), Ser. 1998A 375,000 5.625 2018 06/01/05 379,219 304,234
@ 102.000
7 Michigan State Hosp. Fin. Auth., AA-(F) 500,000 4.500 2021 10/15/03 443,895 374,525
Rev. and Rfdg. Bonds (McLaren Oblig . @ 102.000
Group), Ser. 1993 A
</TABLE>
D - 7
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
PORTFOLIO
AS OF JULY 30, 2000
<TABLE>
<CAPTION>
Rating Optional
Portfolio No. and Title of of Face Redemption
Securities Issues(1) Amount Coupon Maturities(3) Provisions(3) Cost(2) Value(2)
---------- --------- ------ ------ ------------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
8 Madison Cnty., MO, Hosp. Rfdg. Rev. NR $ 350,000 5.750% 2018 10/01/08 $ 357,217 $ 290,633
Bonds, Ser. 1998 @ 101.000
375,000 5.875 2026 10/01/08 382,732 305,539
@ 101.000
9 New Jersey Econ. Dev. Auth., First A 445,000 5.500 2028 07/01/08 446,896 403,597
Mtge. Rev. Fixed Rate Bonds (Cadbury @ 102.000
Corp. Proj.), Ser. 1998 A (ACA
Ins.)(4)
10 Wisconsin Hlth. and Educl. Facs. A- 340,000 5.500 2028 02/15/08 342,883 267,757
Auth., Rev. Bonds (Franciscan Sister @ 101.000
of Christian Charity Health Care
Ministry, Inc.), Ser. 1998 A
11 Wisconsin Hlth. and Educl. Facs. A 750,000 5.375 2028 06/01/08 741,690 639,285
Auth. Rev. Bonds (The Richland Hosp. @ 100.000
Inc. Proj.), Ser. 1998 A (ACA Ins.)
(4)
12 Virginia Hsg. Dev. Auth. Multi- AA+ 65,000 5.600 2018 01/01/08 66,145 63,829
Family Housing Bonds, Ser. 1998-1 @ 102.000
13 Wyoming Cmnty. Dev. Auth. Hsg. Rev. AA 550,000 5.450 2029 06/01/08 554,718 505,325
Bonds, Ser. 1998-1 @ 101.500
14 Illinois Hsg. Dev. Auth., Section 8 AAA 710,000 5.250 2021 01/01/08 710,000 641,570
Elderly Hsg. Rfdg. Rev. Bonds @ 101.500
(Morningside North Dev.), Ser. 1998
(FSA Ins.)(4)
15 Illinois Hsg. Dev. Auth., Section 8 AAA 140,000 4.000 2001 None 140,000 139,647
Elderly Hsg. Rfdg. Rev. Bonds
(Morningside North Dev.), Ser. 1998
(FSA Ins.)(4)(5)
</TABLE>
D - 8
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
PORTFOLIO
AS OF JULY 30, 2000
<TABLE>
<CAPTION>
Rating Optional
Portfolio No. and Title of of Face Redemption
Securities Issues(1) Amount Coupon Maturities(3) Provisions(3) Cost(2) Value(2)
---------- --------- ------ ------ ------------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
16 City of Mishawaka Multi-School Bldg. A $ 590,000 5.625% 2023 01/15/08 $ 608,797 $ 556,641
Corp., IN, First Mtge. Bonds (St. @ 102.000
Joseph Cnty., Indiana), Ser. 1998
17 Anoka Cnty., MN, Certs. of Part. A3(m) 535,000 5.400 2028 06/01/08 541,040 485,486
(Norwest Bank Minnesota, N.A.) Ser. @ 100.000
1998
18 Dormitory Auth. of the State of New A 885,000 4.750 2028 05/15/08 824,970 749,471
York, NY, State Univ. Educl. Facs. @ 101.000
Rev. Bonds, Ser. 1998 B
19 New York State Urban Dev. Corp., A 200,000 5.000 2028 01/01/08 192,540 175,676
Corr., Facs. Svc. Contract, Rev. @ 102.000
Bonds, Ser. 1998 A
20 New Hampshire Higher Educl. and Aaa(m) 210,000 5.450 2025 06/01/05 212,174 202,782
Hlth. Facs. Auth., Rev. Bonds, @ 102.000
Dartmouth Educl. Loan Corp. Issues,
Ser. 1985
21 New Hampshire Higher Educl. and A 560,000 5.300 2028 04/01/08 555,789 495,723
Hlth. Facs. Auth., Rev. Bonds, @ 102.000
Franclin Pierce Coll. Issue, Ser.
1998 (ACA Ins.)(4)
22 Skagit Valley Coll. Foundation, WA, NR 375,000 5.625 2017 11/01/08 379,672 347,820
Stud. Hsg. Rev. and Rfdg. Bonds, @ 100.000
Ser. 1998 375,000 5.750 2017 11/01/08 379,672 342,720
@ 100.000
-------------- -------------- --------------
TOTAL $11,585,000 $11,409,112 $10,113,833
============== ============== ==============
</TABLE>
See Notes to Portfolio.
D - 9
<PAGE>
MUNICIPAL DEFINED FUND,
DEFINED ASSET FUNDS
NOTES TO PORTFOLIO
AS OF JULY 31, 2000
(1) The ratings of the bonds are by Standard & Poor's Ratings Group, or by
Moody's Investors Service, Inc. if followed by "(m)", or by Fitch
Investors Service, Inc. if followed by "(f)"; "NR" indicates that this
bond is not currently rated by any of the above-mentioned rating
services. These ratings have been furnished by the Evaluator but not
confirmed with the rating agencies.
(2) See Notes to Financial Statements.
(3) Optional redemption provisions, which may be exercised in whole or in
part, are initially at prices of par plus a premium, then subsequently at
prices declining to par. Certain securities may provide for redemption at
par prior or in addition to any optional or mandatory redemption dates or
maturity, for example, through the operation of a maintenance and
replacement fund, if proceeds are not able to be used as contemplated,
the project is condemned or sold or the project is destroyed and
insurance proceeds are used to redeem the securities. Many of the
securities are also subject to mandatory sinking fund redemption
commencing on dates which may be prior to the date on which securities
may be optionally redeemed. Sinking fund redemptions are at par and
redeem only part of the issue. Some of the securities have mandatory
sinking funds which contain optional provisions permitting the issuer to
increase the principal amount of securities called on a mandatory
redemption date. The sinking fund redemptions with optional provisions
may, and optional refunding redemptions generally will, occur at times
when the redeemed securities have an offering side evaluation which
represents a premium over par. To the extent that the securities were
acquired at a price higher than the redemption price, this will represent
a loss of capital when compared with the Public Offering Price of the
Units when acquired. Distributions will generally be reduced by the
amount of the income which would otherwise have been paid with respect to
redeemed securities and there will be distributed to Holders any
principal amount and premium received on such redemption after satisfying
any redemption requests for Units received by the Fund. The estimated
current return may be affected by redemptions.
(4) Insured by the indicated municipal bond insurance company.
(5) It is anticipated that interest and principal received from these bonds
will be applied to the payment of the Trust's deferred sales charges.
(6) Certain bonds are covered by letters of credit which may expire prior to
maturity dates of the bonds. Upon expiration of a letter of a credit, the
issuer of the bond is obligated to obtain a replacement letter of credit
or call the bond
D - 10
<PAGE>
Defined
Asset Funds-Registered Trademark-
<TABLE>
<S> <C>
HAVE QUESTIONS ? MUNICIPAL DEFINED FUND
Request the most recent free (A Unit Investment Trust)
Information Supplement ---------------------------------------
that gives more details about This Prospectus does not contain
the Fund, by calling: complete information about the
The Bank of New York investment company filed with the
1-800-221-7771 Securities and Exchange Commission in
Washington, D.C. under the:
- Securities Act of 1933 (file no.
333-58397) and
- Investment Company Act of 1940 (file
no. 811-2537).
TO OBTAIN COPIES AT PRESCRIBED RATES--
WRITE: Public Reference Section of the
Commission
450 Fifth Street, N.W., Washington,
D.C. 20549-6009
CALL: 1-800-SEC-0330.
VISIT: http://www.sec.gov.
---------------------------------------
No person is authorized to give any
information or representations about
this Fund not contained in this
Prospectus or the Information
Supplement, and you should not rely on
any other information.
---------------------------------------
When units of this Fund are no longer
available, this Prospectus may be used
as a preliminary prospectus for a
future series, but some of the
information in this Prospectus will be
changed for that series.
UNITS OF ANY FUTURE SERIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
UNTIL THAT SERIES HAS BECOME EFFECTIVE
WITH THE SECURITIES AND EXCHANGE
COMMISSION. NO UNITS CAN BE SOLD IN ANY
STATE WHERE A SALE WOULD BE ILLEGAL.
70104--11/00
</TABLE>
