DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
EQUITY INVESTOR FUND The objective of this Defined Fund is total return
UTILITY PORTFOLIO through a combination of capital appreciation and
(A UNIT INVESTMENT current dividend income by investing for a period
TRUST) of about two years in a diversified portfolio of
- ------------------------------publicly traded common stocks issued by domestic
- -- TOTAL RETURN companies in the electric utility sector. There is
- -- MONTHLY INCOME no assurance that the Fund's objective will be
- -- PROFESSIONAL SELECTION met.
- -- DIVERSIFICATION The value of units will fluctuate with the value
- -- REINVESTMENT OPTION of the common stocks in the Portfolio and no
assurance can be given that the underlying common
stocks will continue to pay dividends 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 June 18, 1998.
PaineWebber Incorporated INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY
Dean Witter Reynolds Inc. AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
Def ined Asset FundsSM
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $115 billion sponsored in the last 25 years. Each Defined
Asset Fund is a portfolio of preselected securities. The portfolio is divided
into 'units' representing equal shares of the underlying assets. Each unit
receives an equal share of income and principal distributions.
Defined Asset Funds offer several defined 'distinctives'. You know in advance
what you are investing in and that changes in the portfolio are limited - a
defined portfolio. Most defined bond funds pay interest monthly - defined
income. The portfolio offers a convenient 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 equity and bond portfolios
The terms of Defined Funds are as short as one year or as long as 30 years.
Special defined bond funds are available including: insured funds, double and
triple tax-free funds and funds with 'laddered maturities' to help protect
against changing interest rates. Defined Asset Funds are offered by prospectus
only.
- ----------------------------------------------------------------
Defining Your Portfolio
- ----------------------------------------------------------------
The 15 stocks represented in the Fund are issued by companies that have been
identified by Defined Asset Funds Research. The common stocks included in the
Portfolio were selected for their current dividend yields from among stocks with
an established record of maintaining quarterly dividends and the potential for
increasing them. In the opinion of the Sponsors, these stocks have potential for
dividend growth based on the fact that each of the companies represented in the
Portfolio have raised their common stock dividend payments at least once during
the 10 years prior to the initial date of deposit and have a record of
uninterrupted dividend payments since 1947 or earlier. The 15 top dividend
yielding stocks will be selected from among the companies that fit the research
profile. Of course, past performance should not be considered an indication of
future results, and there can be no assurance that the current level of
dividends will be maintained or increased by the issuers. Investing in the
Portfolio, rather than in only one or two of the underlying common stocks, is a
way to diversify your investment in the electric utility sector.
- ----------------------------------------------------------------
Defining Your Risks
- ----------------------------------------------------------------
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 electric utility industry, 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 other factors.
Therefore, there is no guarantee that the objective of the Portfolio will be
achieved.
Unlike a mutual fund, the Portfolio is not actively managed and the Sponsors
receive no management fee. Therefore, the adverse financial condition of an
issuer or any market movement in the price of a security will not necessarily
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 Portfolio is regularly reviewed and evaluated and Sponsors may
instruct the Trustee to sell securities under certain limited circumstances,
securities will not be sold to take advantage of market fluctuations or changes
in anticipated rates of appreciation.
In addition, the Fund is concentrated in common stocks of domestic electric
utility companies and therefore is dependent to a significant extent on revenues
generated from those particular activities. (See Risk Factors--Electric
Utilities in Part B.)
A-2
<PAGE>
- ----------------------------------------------------------------
Defining Your Investment
- ----------------------------------------------------------------
PUBLIC OFFERING PRICE PER 1,000 UNITS $1,000.00
The Public Offering Price as of June 17, 1998, the business day prior to the
initial date of deposit, is based on the aggregate value of the underlying
securities ($120,462.50) and any cash held to purchase securities, divided by
the number of units outstanding (121,679) times 1,000, plus the initial sales
charge. 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 in seven monthly payments each year of the Portfolio. If
you redeem or exchange your units prior to July 1, 1999, you will not pay the
deferred sales charge for the second year.
EXCHANGE/ROLLOVER OPTION
You may exchange your units of this Portfolio for units of Select, Focus or
certain other Equity Investor Series, any time prior to termination of this
Portfolio. If you continue to hold your units, when this Portfolio is about to
terminate, you may have the option to roll your proceeds into the next Series,
if one is available. If you hold your Units with one of the Sponsors and notify
your financial advisor by June 23, 2000, your units will be redeemed and certain
distributed securities plus the proceeds from the sale of the remaining
distributed securities will be reinvested in units of the next Portfolio, if
available. 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
Distributions of income will be paid on the 25th day of each month to Holders of
record on the 10th day of those months, commencing August 25, 1998, through
April 25, 2000.
REINVESTMENT OPTION
You can elect to automatically reinvest your distributions into additional units
of the Portfolio subject only to the deferred sales charge remaining at the time
of reinvestment. Reinvesting helps to compound your income for a greater total
return.
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 and regardless of
whether you reinvest your dividends in the Portfolio. Noncorporate investors may
be entitled to the new 20% maximum federal tax rate for capital gains derived
from the Portfolio. (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 or 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.
TERMINATION DATE
The Portfolio will terminate by July 21, 2000. 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 $180.00 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
You will pay an initial sales charge of about 1.0%. In addition, seven monthly
deferred sales charges of $2.50 per 1,000 units ($17.50 annually) will be
deducted from the Portfolio's net asset value each year of the Portfolio's
two-year life (December 1 and December 15, 1998 and thereafter on the 1st of
each month through May 1, 1999 and July 1, 1999 through January, 2000). This
deferred method of payment keeps more of your money invested over a longer
period of time. The sales charge is reduced on purchases of $50,000 or more as
shown in Part B. If you exchange units of a Select, Focus or certain other
Equity Investor Series for units of this Portfolio, or roll the proceeds of your
investment into this portfolio, you will not be subject to the 1.0% initial
charge. However, you will be required to pay the balance of the deferred sales
charge for the first portfolio for the year in which you exchange your Units, in
addition to the deferred sales charge for this Portfolio. (See How To Buy
Units--Public Offering Price.)
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. On a
$1,000 investment for 1,000 Units, you will pay the following charges:
As a %
of Initial Public
Offering Price
-----------------
Initial Sales Charge 1.00%
Deferred Sales Charge per Year 1.75%
Maximum Sales Charge 4.50%
Maximum Sales Charge Imposed on Reinvested
Dividends 3.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
As a % Amount per
of Net Assets 1,000 Units
----------------- --------------
Trustee's Fee .091% $ 0.90
Maximum Portfolio Supervision,
Bookkeeping and Administrative
Fees .045% $ 0.45
Organizational Expenses .164% $ 1.62
Other Operating Expenses .033% $ 0.33
----------------- --------------
TOTAL .333% $ 3.30
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
$31 $75 $122 $251
Although the Portfolio has a term of only two years 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 into a new Portfolio
subject only to the deferred sales charge and Portfolio expenses.
The example assumes reinvestment of all dividends and distributions and uses a
5% annual rate of return as mandated by SEC regulations applicable to mutual
funds. 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 sell or redeem 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 June 17, 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 annual deferred sales charge which
declines over each year of the Portfolio ($17.50 initially). If you sell your
units before July 1, 1999, you will pay only the balance of any deferred sales
charge remaining for the first year. If you redeem or sell your units on or
after July 1, 1999, you will pay the remaining balance of the deferred sales
charge for the second year. After the initial offering period, the repurchase
and cash redemption prices for units may be reduced to reflect the estimated
costs of liquidating securities to meet the redemption, currently estimated at
$1.52 per 1,000 units. If you reinvest in a 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
Utility Portfolio June 18, 1998
<TABLE>
<CAPTION>
PERCENTAGE CURRENT PRICE
TICKER OF DIVIDEND PER SHARE COST
NAME OF ISSUER SYMBOL PORTFOLIO (1) YIELD (2) TO PORTFOLIO TO PORTFOLIO (3)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Interstate Energy Corporation LNT 7.72% 6.45% $ 31.0000 $ 9,300.00
2. Ameren Corporation AEE 9.85 6.42 39.5625 11,868.75
3. Dominion Resources, Inc. D 10.09 6.37 40.5000 12,150.00
4. Allegheny Energy, Inc. AYE 7.26 5.91 29.1250 8,737.50
5. WPS Resources Corporation WPS 8.34 5.79 33.5000 10,050.00
6. Enova Corporation ENA 6.77 5.74 27.1875 8,156.25
7. New England Electric System NES 7.24 5.41 43.6250 8,725.00
8. Cleco Corporation CNL 5.02 5.36 30.2500 6,050.00
9. Idaho Power Company IDA 5.79 5.33 34.8750 6,975.00
10. Baltimore Gas and Electric
Company BGE 5.23 5.33 31.5000 6,300.00
11. SCANA Corporation SCG 4.94 5.18 29.7500 5,950.00
12. DPL Inc. DPL 3.04 5.13 18.3125 3,662.50
13. American Electric Power Company AEP 7.78 5.12 46.8750 9,375.00
14. Wisconsin Energy Corporation WEC 5.07 5.11 30.5000 6,100.00
15. Cinergy Corporation CIN 5.86 5.10 35.3125 7,062.50
-------------- -----------------
100.00% $ 120,462.50
-------------- -----------------
-------------- -----------------
</TABLE>
- ------------------------------------
(1) Based on Cost to Fund.
(2) Current Dividend Yield was calculated by annualizing the last monthly,
quarterly or semi-annual ordinary dividend declared on the security and
dividing the result by its market value as of the close of trading on June
17, 1998.
(3) Valuation by the Trustee made on the basis of closing sale prices at the
evaluation time on June 17, 1998.
------------------------------------
The securities were acquired on June 17, 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, Utility Portfolio
(the 'Fund'):
We have audited the accompanying statement of condition and the defined
portfolio included in the prospectus of the Fund as of June 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 June 18, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
June 18, 1998
STATEMENT OF CONDITION AS OF JUNE 18, 1998
TRUST PROPERTY
Investments--Contracts to purchase Securities(1).........$ 120,462.50
Organizational Costs(2).................................. 81,000.00
--------------------
Total.........................................$ 201,462.50
--------------------
--------------------
LIABILITY AND INTEREST OF HOLDERS
Accrued Liability(2)...................................$ 81,000.00
Interest of Holders of 121,679 Units of fractional
undivided interest outstanding:(3)
Cost to investors(4)...................................$ 121,679.00
Gross underwriting commissions(5)...................... (1,216.50)
--------------------
Subtotal...............................................$ 120,462.50
--------------------
Total.........................................$ 201,462.50
--------------------
--------------------
- ---------------
(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 June 17, 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
$120,642.50 and deposited with the Trustee. The amount of the letter of credit
includes $120,462.50 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 amounts may vary.
(3) Because the value of securities at the evaluation time on the
Initial Date of Deposit may differ from the amounts shown in this statement of
condition, the number of Units offered on the Initial Date of Deposit will be
adjusted from the initial number of Units to maintain the $1,000 per 1,000 Units
offering price only for that day. The Public Offering Price on any subsequent
Business Day will vary.
(4) Aggregate public offering price computed on the basis of the value
of the underlying securities at 4:00 p.m., Eastern time on June 17, 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 $17.50 per 1,000 Units
is payable each year ($2.50 per 1,000 Units December 1 and December 15, 1998 and
January 1, 1999-May 1, 1999 and July 1, 1999-January 1, 2000). 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.
A-6
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
EQUITY INVESTOR FUND
UTILITY PORTFOLIO
FURTHER INFORMATION REGARDING THE FUND MAY BE OBTAINED
WITHIN FIVE DAYS BY WRITING OR CALLING THE TRUSTEE AT THE ADDRESS AND
TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS.
INDEX
PAGE
------
FUND DESCRIPTION.............................. 1
RISK FACTORS.................................. 2
HOW TO BUY UNITS.............................. 4
HOW TO REDEEM OR SELL UNITS................... 5
TRUST TERMINATION............................. 6
ROLLOVER...................................... 7
EXCHANGE OPTION............................... 8
INCOME, DISTRIBUTIONS AND REINVESTMENT........ 8
FUND EXPENSES................................. 9
TAXES......................................... 9
RECORDS AND REPORTS........................... 11
TRUST INDENTURE............................... 12
MISCELLANEOUS................................. 12
SUPPLEMENTAL INFORMATION...................... 14
FUND DESCRIPTION
PORTFOLIO SELECTION
Utility stocks as a group tend to pay regular dividends and may be
appropriate as defensive investments. This industry is experiencing deregulation
and restructuring, which may offer opportunities for selected companies,
including through consolidation and new businesses. Professional buyers and
research analysts for Defined Asset Funds, with access to extensive research,
selected the Securities for the Portfolio after considering the Fund's
investment objective as well as the investment merits of the common stocks, the
earning and dividend payment records of the issuers, the capitalization of the
issuers and the prices of the common stocks. In selecting Securities for deposit
in the Fund the following factors, among others were considered: (i) the quality
and risk of the Securities (including whether their record of dividend payments
has been uninterrupted over a period of 50 or more years and whether they had
raised their dividend payments at least once, and never lowered them, during the
past ten years); (ii) whether the issuers of the Securities had outstanding
first mortgage or senior debt securities rated investment grade; (iii) the yield
and price of the Securities relative to other public utility stocks of
comparable quality and (iv) the variety of the Securities in the Portfolio,
taking into account the availability on the market of utility issues which met
the Fund's criteria. The top 15 dividend yielding stocks will be selected from
among the companies that fit the research profile. This Fund is invested in
electric utility stocks believed to be well positioned to take advantage of
market conditions over the next two years. Advertising and sales literature may
contain brief descriptions of the businesses of each of the companies in the
Portfolio and Defined Asset Funds research analysis of why they were selected.
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
1
<PAGE>
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 Fund. To minimize these effects, the
Fund will try to purchase Securities as close to the Evaluation Time or at
prices as close to the evaluated prices as possible.
Because each Defined Asset Fund is a preselected portfolio, you know the
securities before you invest. Of course, the Portfolio will change somewhat over
time, as Securities are purchased upon creation of additional Units, as
securities are sold to meet Unit redemptions or in other limited circumstances.
PORTFOLIO SUPERVISION
The Portfolio follows a buy and hold investment strategy that buys stocks
and generally holds them for two years, in contrast to the frequent portfolio
changes of a managed fund based on economic, financial and market analyses.
Although the Portfolio is regularly reviewed, the Portfolio is unlikely to sell
any of the Securities other than to satisfy redemptions of units, or to cease
buying additional shares in connection with the issuance of additional Units.
More specifically, adverse developments concerning a Security including the
adverse financial condition of the issuer, a failure to maintain a current
dividend rate, the institution of legal proceedings against the issuer, a
default under certain documents materially and adversely affecting the future
declaration of dividends, or a decline in the price or the occurrence of other
market or credit factors (including a public tender offer or a merger or
acquisition transaction) that might otherwise make retention of the Security
detrimental to the interest of investors, will generally not cause the Portfolio
to dispose of a Security or cease buying it.
RISK FACTORS
An investment in the Portfolio 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. The rights of holders of common stocks to receive payments
from the issuer are generally inferior to the rights of creditors of, or holders
of debt obligations or preferred stocks issued by, the issuer. Moreover, because
common stocks do not represent an obligation of the issuer they do not offer any
assurance of income or provide the degree of protection of capital provided by
debt securities. Common stocks in general are susceptible to general stock
market movements and to volatile increases and decreases in value as market
confidence in and perceptions of the issuers change. Equity markets can be
affected by unpredictable factors including expectations regarding government,
economic, monetary and fiscal policies, inflation and interest rates, economic
expansion or contraction, and global or regional political, economic or banking
crises. The Sponsors cannot predict the direction or scope of any of these
factors. Additionally, equity markets have been at historically high levels and
no assurance can be given that these levels will continue. There can be no
assurance that the Portfolio will be effective in achieving its objective over
the life of the Portfolio or that any future portfolios selected through this
process during consecutive two-year periods will meet their objectives. The
Portfolio is not designed to be a complete investment program.
ELECTRIC UTILITIES
Payments on utility stocks are dependent on various factors, including the
rates the utilities may charge, the demand for their services and their
operating costs, including expenses to comply with environmental legislation and
other energy and licensing laws and regulations. Utilities are particularly
sensitive to, among other things, the effects of inflation on operating and
construction costs, the unpredictability of future usage requirements, the costs
and availability of fuel and, with certain electric utilities, the risks
associated with the nuclear industry. The largest value risk to the electric
utility industry over the next 10 years may be environmental compliance costs,
as well as the effects of competition. The difference between recent
environmental proposals from the Environmental Protection Agency and the modest
effect of the 1990 Clean Air Act amendments is the extent of the compliance
costs and the much higher risk of non-recovery in a competitive marketplace.
Investors should focus on whether utility competitive transition plans include
special environmental clauses or clauses allowing renegotiation of the utility's
cost structure to allow for the increase of rates to offset increased costs
('re-openers'). Utilities with the greatest coal-fired generation will feel the
greatest impact. With coal currently 55 percent of utility generation this could
have a drastic impact on electricity prices and the economy.
2
<PAGE>
Utilities also face risks inherent in diversification into other business
lines or other countries. Many utilities are investing in businesses outside
their traditional expertise of electricity generation and distribution in order
to raise earnings growth rates. Some domestic utilities have also purchased
utilities in foreign countries or invested in building generating plants for
countries, thereby exposing them to political and currency risks. Generally,
utility management has met with limited success in managing unregulated
activities.
Looking ahead, coal generators which were thought to have been favorably
positioned for a competitive market owing to low costs may be disadvantaged --
particularly if states do not view future environmental costs as stranded and
include them in transition plans. Finally, the effect of new air pollution rules
could be the most critical value risk to industry fundamentals, particularly for
coal-fired generators, over the next 10 years.
Another issue facing utilities is a fundamental structural change in the
separation of generation from the transmission and distribution functions
affecting the traditional vertically integrated electric utilities. This is part
of a plan to increase competition in the utility industry from its historical
monopoly interest. This action is being taken on a state-by-state basis with the
most decisions being taken in states with high electric rates. Most generation
is being ordered to be sold along with customer rate cuts in exchange for
recouping of most of the utility's unrecovered generation costs that are no
longer economically viable in a competitive environment (stranded costs). Risks
facing the utilities are the extent of the rate reductions and ability to
recover all the stranded costs before competition becomes effective.
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 who 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. The
Portfolio will be terminated no later than the mandatory termination date
specified in Part A of the Prospectus. It will terminate earlier upon the
disposition of the last Security or upon the consent of investors holding 51% of
the Units. The Portfolio may also be terminated earlier by the Sponsors once its
total assets have fallen below the minimum value specified in Part A of the
Prospectus. A decision by the Sponsors to terminate the Portfolio early will be
based on factors such as the size of the Portfolio relative to its original
size, the ratio of Portfolio expenses to income, and the cost of maintaining a
current prospectus.
Notice of impending termination will be provided to investors and
thereafter units will no longer be redeemable. On or shortly before termination,
the Trustee will seek to dispose of any Securities remaining in the Portfolio
although any Security unable to be sold at a reasonable price may continue to be
held by the Trustee in a liquidating trust pending its final disposition. A
proportional share of the expenses associated with termination, including
brokerage costs in disposing of Securities, will be borne by investors remaining
at that time. This may have the effect of reducing the amount of proceeds those
investors are to receive in any final distribution.
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HOW TO BUY UNITS
Units are available from any of the Sponsors at the Public Offering Price.
The Public Offering Price varies each Business Day with changes in the value of
the Portfolio and other assets and liabilities of the Portfolio.
PUBLIC OFFERING PRICE
Units are charged a combination of Initial and Deferred Sales Charges which
will aggregate 2.75% of the public offering price for the first year ($17.50
Deferred Sales Charge plus an Initial Sales Charge of about 1.0%, totaling 2.75%
of the public offering price) and approximately 1.75% for the second year.
Because the annual Deferred Sales Charge is $17.50 per 1,000 Units in the second
year regardless of the price you pay, the maximum sales charges expressed as a
percentage of the public offering price will vary with the price you pay. For
example, if you buy 1,000 Units for $1,050 (including an initial sales charge of
$11.38) and hold the Units until termination, you will pay a total sales charge
of $46.38 or 4.42% of the acquisition price on those Units. At an acquisition
price of $950 (including an initial sales charge of $8.63), you would pay a
total sales charge of $43.63 or 4.59% of the acquisition price.
For quantity purchases of units of this Fund and all Focus and Select
Series and certain other selected Equity Investor Series, 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 will apply (assuming a
$1,000 public offering price for 1,000 Units):
<TABLE>
<CAPTION>
INITIAL OFFER PERIOD SALES CHARGES CUMULATIVE SALES
DEALER CONCESSION CHARGES
-------------------------------------------------------------------
AS % OF
PUBLIC OFFERING
PRICE -------------------
AS % OF PUBLIC AS % OF NET ----------------------- AS % OF PUBLIC
AMOUNT PURCHASED OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- -------------------------- ----------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Less than $50,000 2.75% 2.778% 2.00% 4.50%
$50,000 to $99,999 2.50 2.519 1.80 4.25
$100,000 to $249,999 2.00 2.005 1.45 3.75
$250,000 to $999,999 1.75 1.750 1.25 3.50
$1,000,000 or more 1.00 1.000 .50 2.75
<CAPTION>
AS % OF PUBLIC
AMOUNT PURCHASED OFFERING PRICE
- -------------------------- ---------------------
<S> <C>
Less than $50,000 4.712%
$50,000 to $99,999 4.439
$100,000 to $249,999 3.896
$250,000 to $999,999 3.627
$1,000,000 or more 2.828
</TABLE>
The annual Deferred Sales Charge is a charge of $17.50 per 1,000 units and
is accrued in seven monthly installments each year of the Portfolio, in the
months indicated in part A of this Prospectus. Units redeemed or repurchased
prior to the accrual of the final Deferred Sales Charge installment in the first
or second year will have the amount of any remaining installments deducted from
the redemption or repurchase proceeds or deducted in calculating an in-kind
redemption, although this deduction will be waived in the event of the death or
disability (as defined in the Internal Revenue Code) of an investor.
It is anticipated that Securities will not be sold to pay the Deferred
Sales Charge until after the date of the last installment in each year of the
Portfolio. 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. In selling Securities the
Portfolio will attempt to minimize any current tax liability for current
investors.
Selling dealers will be entitled to the concession stated in the table
above on Units sold or redeemed during the first year. On Units held in the
second year of the Portfolio, the selling dealer will be entitled to an
additional concession of $11 per 1,000 Units ($5 per 1,000 Units for purchases
of $1 million or more). Employees of certain Sponsors and Sponsor affiliates and
non-employee directors of certain of the Sponsors may purchase Units at a
reduced 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 regulations have approved similar
arrangements. In addition, state securities laws on this issue may differ from
the interpretation 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, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. If the Securities are listed on a national securities exchange or the
Nasdaq National Market, evaluations are generally based on
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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
You can always redeem your Units for net asset value. This can be done by
contacting your broker, dealer or financial institution that holds your Units in
street name. In certain instances, additional documents may be required such as
a trust instrument, certificate of corporate authority, certificate of death or
appointment as executor, administrator or guardian.
Within seven days after the receipt of your request (and any necessary
documents), a check will be mailed to you in an amount equal to the net asset
value of your Units. Because of the sales charge, market movements or changes in
the Portfolio, net asset value at the time you redeem your Units may be greater
or less than the original cost of your Units. Net asset value is calculated each
Business Day by adding the value of the Securities, declared but unpaid
dividends on the Securities, cash and the value of any other Portfolio assets;
deducting unpaid taxes or other governmental charges, accrued but unpaid
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio'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 Portfolio. 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
Portfolio. If Securities are being sold during a time when additional Units are
being created by the purchase of additional Securities (as described under Fund
Description--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
$250,000 who redeems those Units prior to the rollover notification date
indicated in Part A of the Prospectus may, in lieu of cash redemption, request
distribution in kind of an amount and value of Securities per Unit equal to the
otherwise applicable Redemption Price per Unit. Generally, whole shares of each
Security together with cash from the Capital Account equal to any fractional
shares to which the investor would be entitled (less any Deferred Sales Charge
payable) will be paid over to a distribution agent and either held for the
account of the investor or disposed of in accordance with instructions of the
investor. Any brokerage commissions on sales of Securities in connection with
in-kind redemptions will be borne by the redeeming investors. The in-kind
redemption option is subject to all applicable legal restrictions and may be
terminated by the Sponsors at any time upon prior notice to investors.
Redemptions may be suspended or payment postponed (i) if the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (ii) if
the SEC determines that trading on the New York Stock Exchange is
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<PAGE>
restricted or that an emergency exists making disposal or evaluation of the
Securities not reasonably practicable or (iii) for any other period permitted by
SEC order.
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 receive 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 a new Utility 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.
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.
6
<PAGE>
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 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.
EXCHANGE OPTION
You may exchange Units for units of any Select or Focus Series or certain
other Equity Investor 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 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).
As the Sponsors are not obligated to maintain a market in any series or to
offer successor portfolios, there can be no assurance that units can be
exchanged. The Exchange Option may be amended or terminated at any time without
notice.
INCOME, DISTRIBUTIONS AND REINVESTMENT
INCOME AND DISTRIBUTIONS
The net annual income per Unit that is earned by the Fund is determined by
subtracting from the annual dividend income of the Securities in the Portfolio
the annual expenses (total estimated annual Trustee's, Sponsors' and
administrative fees and expenses) and dividing by the number of Units
outstanding. The net annual income per Unit will depend upon the amount of
dividends declared and paid by the issuers of the Securities, sales and
replacement of Securities and the purchase of additional Securities
(recognizing, however, that the sale or purchase of Securities by itself should
have a minimal effect on income per Unit because, as much as practicable, each
Unit will continue to represent a fractional undivided interest in the same
percentages of Securities of the same issuers) and changes in the expenses of
the Fund.
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<PAGE>
There is no assurance that any dividends will be declared or paid in the
future on the Stocks in the Fund.
An amount substantially equal to one-twelfth of the estimated annual income
to the Income Account, after deducting estimated expenses, will be distributed
on or shortly after the 25th day of each month (a 'Distribution Day') to the
Holders of record on the 10th day of each month (a 'Record Day'). This avoids
the need to structure a portfolio to stagger dividend dates to provide regular
cash flow. Normally, dividends on the Securities in the Fund are paid on a
quarterly basis which may or may not coincide with a Record Day. Therefore, to
the extent dividends are paid, it may take several months after the Initial Date
of Deposit for the Trustee to receive sufficient dividends on the Securities to
be able to begin distributions to Holders.
Capital gain net income (i.e., the excess of capital gains over capital
losses) recognized by the Fund in any taxable year will be distributed annually
to Holders shortly after the end of the year. In order to meet certain tax
requirements the record date for this distribution may be in December.
From time to time Congress considers proposals to reduce the rate of the
dividends-received deduction. Congress is currently considering a proposal which
may be included in a technical corrections bill to the Internal Revenue Code of
1986, as amended, to reduce the rate of the dividends-received deduction.
Enactment into law of a proposal to reduce the rate would adversely affect the
after-tax return to investors who can take advantage of the deduction. Holders
are urged to consult their own tax advisers.
REINVESTMENT
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. Purchases
made pursuant to the Reinvestment Plan will be made without initial sales charge
at the net asset value for Units of the Fund (but will be subject to
subsequently deducted deferred sales charges). Under the Reinvestment Plan, the
Fund will pay the distributions to the Trustee which in turn will purchase for
the investor full and fractional Units of the Fund at the price determined as of
the close of business on the distribution day and will add the Units to the
investor's account and send the investor an account statement reflecting the
reinvestment. The 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. 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 Defined Asset Funds 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.
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.
8
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TAXES
TAXATION OF THE FUND
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 Portfolio is not an association taxable as a corporation for federal
income tax purposes. Each investor will be considered the owner of a pro
rata portion of each Security in the Portfolio under the grantor trust
rules of Sections 671-679 of the Internal Revenue Code of 1986, as amended
(the 'Code'). Each investor will be considered to have received all of the
dividends paid on his pro rata portion of each Security when such dividends
are received by the Portfolio, regardless of whether such dividends are
used to pay a portion of Portfolio expenses or whether they are
automatically reinvested (see Reinvestment).
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, under the Taxpayer
Relief Act of 1997, 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.
An individual investor who itemizes deductions will be entitled to
deduct his pro rata share of current Portfolio expenses only to the extent
that this amount together with the investor's other miscellaneous
deductions exceeds 2% of his adjusted gross income. The Code further
restricts the ability of an individual investor with an adjusted gross
income in excess of a specified amount (for 1998, $124,500 or $62,250 for a
married person filing a separate return) to claim itemized deductions
(including his pro rata share of Portfolio expenses).
The investor's basis in his Units will equal the cost of his Units,
including 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, 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.
Noncorporate investors who have held their Units for more than 18 months
may be entitled to a 20% maximum Federal tax rate for gains from the sale
of Securities or corresponding Units. A rollover investor's holding period
for the contributed Duplicated Securities will include the period during
which he held an
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interest in the same Duplicated Securities through an investment in the
Portfolio and in prior years' corresponding 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 foregoing discussion summarizes only certain U.S. federal and New
York State and City income tax consequences of an investment in Units by
investors who are U.S. persons, as defined in the Code. Foreign investors
(including nonresident alien individuals and foreign corporations) not
engaged in U.S. trade or business will generally be subject to 30%
withholding tax (or lower applicable treaty rate) on dividend
distributions. Investors may be subject to taxation in New York or in other
U.S. or foreign jurisdictions and should consult their own tax advisers in
this regard.
* * * *
The Trustee will furnish to each investor an annual statement containing
information relating to the dividends received by the Portfolio on the
Securities, the cash proceeds received by the Portfolio from the disposition of
any Security (resulting from redemption or the sale by the Portfolio of any
Security), and the fees and expenses paid by the Portfolio. The Trustee will
also furnish annual information returns to each investor and to the Internal
Revenue Service.
RETIREMENT PLANS
This Series of Equity Investor Fund may be well suited for purchase by
Individual Retirement Accounts ('IRAs'), Keogh plans, pension funds and other
qualified retirement plans, certain of which are briefly described below.
Generally, capital gains and income received in each of the foregoing plans are
exempt from federal taxation. All distributions from such plans are generally
treated as ordinary income but may, in some cases, be eligible for special 5 or
10 year averaging (prior to the year 2000) or tax-deferred rollover treatment.
Holders of Units in IRAs, Keogh plans and other tax-deferred retirement plans
should consult their plan custodian as to the appropriate disposition of
distributions. Investors considering participation in any of these plans should
review specific tax laws related thereto and should consult their attorneys or
tax advisers with respect to the establishment and maintenance of any of these
plans. These plans are generally offered by brokerage firms, including the
Sponsors of this Portfolio, and other financial institutions. Fees and charges
with respect to such plans may vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units 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. 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
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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 aged at least 59 1/2 at the time of the distribution.
Corporate Pension and Profit-Sharing Plans. A pension or profit-sharing
plan for employees of a corporation may purchase Units.
RECORDS AND REPORTS
The Trustee keeps a register of the names, addresses and holdings of all
investors. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, which
may be inspected by investors at reasonable times during business hours.
With each distribution, the Trustee includes a statement of the amounts of
income and any other receipts being distributed. The Trustee sends each investor
of record an annual report summarizing transactions in the Fund's accounts
including amounts distributed from them during the year, identifying Securities
sold and purchased and listing Securities held and the number of Units
outstanding at year end and stating the Redemption Price per 1,000 Units at year
end, and the fees and expenses paid by the Fund, among other matters. Fund
accounts are audited annually by independent accountants selected by the
Sponsors and audited financial statements are 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.
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AUDITORS
The Statement of Condition in Part A of the Prospectus was audited by
Deloitte & Touche LLP, independent accountants, as stated in their opinion. It
is included in reliance upon that opinion given on the authority of that firm as
experts in accounting and auditing.
TRUSTEE
The Trustee and its address are stated on the back cover of the Prospectus.
The Trustee is subject to supervision by the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and New York
State banking authorities.
SPONSORS
The Sponsors are listed on the back cover of the Prospectus. They may
include Merrill Lynch, Pierce, Fenner & Smith Incorporated, a wholly-owned
subsidiary of Merrill Lynch & Co., Inc.; Smith Barney Inc., an indirect wholly-
owned subsidiary of The Travelers Inc.; 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 Portfolio and to provide guidance to
these persons regarding standards of conduct consistent with the Agent's
responsibilities to the Defined Asset Funds.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the 'Year 2000 Problem'). Like other investment
companies and financial and business organizations, the Fund could be adversely
affected if the computer systems used by the Agent for the Sponsors or Fund
service providers do not properly address this problem prior to January 1, 2000.
The Agent for the Sponsors has established a dedicated group to analyze these
issues and to implement any systems modifications necessary to prepare for the
Year 2000. Currently, we do not anticipate that the transition to the 21st
century will have any material effect on the Fund. The Agent for the Sponsors
has sought assurances from the Fund's other service providers that they are
taking all necessary steps to ensure that their computer systems will accurately
reflect the Year 2000, and the Agent for the Sponsors will continue to monitor
the situation. At this time, however, no assurance can be given that the Fund's
other service providers have anticipated every step necessary to avoid any
adverse effect on the Fund attributable to the Year 2000 Problem.
PUBLIC DISTRIBUTION
During the initial offering period and thereafter to the extent additional
Units continue to be offered for sale to the public by means of this Prospectus,
Units will be distributed directly to the public by this Prospectus at the
Public Offering Price determined in the manner provided above or to selected
dealers who are members of the National Association of Securities Dealers, Inc.
at a concession not in excess of the maximum sales charge. The Sponsors intend
to qualify Units for sale in all states in which qualification is deemed
necessary through the Underwriting Account and by dealers who are members of the
National Association of Securities Dealers, Inc.. The Sponsors do not intend to
qualify Units for sale in any foreign countries and this Prospectus does not
constitute an offer to sell Units in any country where Units cannot lawfully be
sold.
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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
Information on the performance of the Fund for various periods, on the
basis of changes in Unit price plus the amount of dividends and capital gains
reinvested, may be included from time to time in advertisements, sales
literature, reports and other information furnished to current or prospective
investors. Total return figures are not averaged, and may not reflect deduction
of the sales charge, which would decrease the return. Average annualized return
figures reflect deduction of the maximum sales charge. No provision is made for
any income taxes payable.
Past performance of any series may not be indicative of results of future
series. 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. Performance of the Stocks may be compared in sales
literature to performance of the S&P 500 Stock Price Composite Index, to which
may be added by year various national and international political and economic
events, and certain milestones in price and market indicators and in offerings
of Defined Asset Funds. This performance may also be compared for various
periods with an investment in short-term U.S. Treasury securities; however, the
investor should bear in mind that Treasury securities are fixed income
obligations, having the highest credit characterisitics, while the Stocks
involve greater risk because they have no maturities, and income thereon is
subject to the financial condition of, and declaration by, the issuers.
DEFINED ASSET FUNDS
For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Defined Asset Funds'
philosophy is to allow investors to 'buy with knowledge' (because, unlike
managed funds, the portfolio is relatively fixed) and 'hold with confidence'
(because the portfolio is professionally selected and regularly reviewed).
Defined Asset Funds offers an array of simple and convenient investment choices,
suited to fit a wide variety of personal financial goals--a buy and hold
strategy for capital accumulation, such as for children's education or
retirement, or 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.
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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, UTILITY PORTFOLIO
Pierce, Fenner & Smith Incorporated
Defined Asset Funds This Prospectus does not contain all of the
P.O. Box 9051 information with respect to the investment
Princeton, N.J. 08543-9051 company set forth in its registration
(609) 282-8500 statement and exhibits relating thereto which
Smith Barney Inc. have been filed with the Securities and
Unit Trust Department Exchange Commission, Washington, D.C. under
388 Greenwich Street--23rd Floor the Securities Act of 1933 and the Investment
New York, NY 10013 Company Act of 1940, and to which reference
(212) 816-4000 is hereby made.
PaineWebber Incorporated ------------------------------
1200 Harbor Blvd. No person is authorized to give any
Weehawken, N.J. 07087 information or to make any representations
(201) 902-3000 with respect to this investment company not
Dean Witter Reynolds Inc. contained in its registration statement and
Two World Trade Center--59th Floor exhibits relating thereto; and any
New York, N.Y. 10048 information or representation not contained
(212) 392-2222 therein must not be relied upon as having
TRUSTEE: been authorized.
The Bank of New York ------------------------------
Unit Investment Trust Department When Units of this Fund are no longer
P.O. Box 974 available this Prospectus may be used as a
Wall Street Division preliminary prospectus for a future series,
New York, N.Y. 10268-0974 in which case investors should note the
1-800-221-7771 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.
70093--6/98
