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DEFINED ASSET FUNDSSM
- --------------------------------------------
- ----------------------------------
EQUITY INVESTOR FUND
SECOND EXCHANGE SERIES
AT&T SHARES
(A UNIT INVESTMENT TRUST)
O MONTHLY INCOME
O PROFESSIONAL SELECTION
O OPTIONAL REINVESTMENT OF CASH DISTRIBUTIONS
SPONSORS:
Merrill Lynch, -------------------------------------------------
Pierce, Fenner & Smith The Securities and Exchange Commission has not
Incorporated approved or disapproved these Securities or
Salomon Smith Barney Inc. passed upon the adequacy of this prospectus. Any
Prudential Securities representation to the contrary is a criminal
Incorporated offense.
Dean Witter Reynolds Inc. Prospectus dated September 24, 1999.
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Defined Asset FundsSM
Defined Asset FundsSM 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:
o A disciplined strategy of buying and holding with a long-term view is the
cornerstone of Defined Asset Funds.
o Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
o Defined Portfolios: We choose the stocks or bonds in advance, so you know what
you're investing in.
o Professional research: Our dedicated research team seeks out stocks or bonds
appropriate for a particular fund's objectives.
o Ongoing supervision: We monitor each portfolio on an ongoing basis.
No matter what your investment goals, risk tolerance 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 ON THIS PROSPECTUS IS AS OF THE EVALUATION DATE, JUNE
30, 1999.
CONTENTS
PAGE
-----------
Risk/Return Summary..................................... 3
What You Can Expect From Your Investment................ 5
Income............................................... 5
Records and Reports.................................. 5
The Risks You Face...................................... 5
Concentration Risk................................... 5
Litigation and Legislation Risks..................... 6
Selling Units........................................... 6
Sponsors' Secondary Market........................... 6
Selling Units to the Trustee......................... 6
Exchange Option...................................... 7
How The Fund Works...................................... 7
Pricing.............................................. 7
Evaluations.......................................... 7
Income............................................... 7
Expenses............................................. 8
Portfolio Changes.................................... 8
Fund Termination..................................... 8
Certificates......................................... 9
Trust Indenture...................................... 9
Legal Opinion........................................ 10
Auditors............................................. 10
Sponsors............................................. 10
Trustee.............................................. 10
Underwriters' and Sponsors' Profits.................. 10
Public Distribution.................................. 11
Code of Ethics....................................... 11
Year 2000 Issues..................................... 11
Taxes................................................... 11
Supplemental Information................................ 12
Financial Statements.................................... D-1
2
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RISK/RETURN SUMMARY
1. WHAT IS THE PORTFOLIO'S OBJECTIVE?
O The objective of this Defined Fund is current income by
investing in a fixed portfolio consisting of shares of AT&T
common stock and shares of common stock of the regional
Bell operating companies created following its 1983 Plan of
Reorganization.
2. WHAT IS THE FUND'S INVESTMENT STRATEGY?
O The Portfolio contains 10 common stocks in the
telecommunications sector originally selected by the
Sponsors for current income.
- -- The Fund is designed for investors who want to invest a
portion of their equity portfolio in the
telecommunications sector.
- -- Since all of the Portfolio stocks are in the
telecommunications sector, this Fund is not designed to
be a complete equity investment program.
O The Fund plans to hold the stocks in the Portfolio for
approximately nine years. The Fund will terminate by August
1, 2008.
3. WHAT INDUSTRY SECTORS ARE REPRESENTED IN THE PORTFOLIO?
100% of the Portfolio represents the telecommunmications
industry.
Each issuer represents the following percentages of the
Fund:
APPROXIMATE
PORTFOLIO
PERCENTAGE
SBC Communications 16%
14%
Ameritech
14%
Bell Atlantic Corporation
14%
Lucent Technologies
13%
AT&T
13%
Bell South Corporation
6%
Airtouch Communications
5%
U.S. West Media Group
4%
U.S. West Communications
1%
NCR Corporation
4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN
HAPPEN FOR VARIOUS REASONS, INCLUDING:
o Stock prices can be volatile.
o Dividend rates on the stocks or share prices may decline
during the life of the Fund.
o Because the Portfolio is concentrated in the
telecommunications sector, adverse developments in this
industry may affect the value of your units.
o The Fund may continue to hold the stocks originally
selected even though their market value or yield may have
changed.
5. IS THIS FUND APPROPRIATE FOR YOU?
Yes, if you want current monthly income. You will benefit
from a professionally selected and supervised portfolio
whose risk is reduced by investing in equity securities of
different issuers.
The Fund is not appropriate for you if you are unwilling to
take the risk involved with an equity investment.
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.
ESTIMATED ANNUAL OPERATING EXPENSES
AMOUNT
PER UNIT
----------
$ .0024
Trustee's Fee
$ .0008
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
$ .0078
Other Operating Expenses
----------
$ 0.011
TOTAL
The Sponsors historically paid updating expenses.
INVESTOR FEES
You will pay an up-front sales fee of 2.50%. The fee will
be reduced for quantity purchases, as follows:
7. IS THE FUND MANAGED?
Unlike a mutual fund, the Fund is not managed and stocks
are not sold because of market changes. The Sponsors
monitor the portfolio and may instruct the Trustee to sell
securities under certain limited circumstances.
3
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8. HOW DO I BUY UNITS?
The minimum investment is one unit.
You can buy units from the Sponsors.
UNIT PRICE PER UNIT $25.83
(as of June 30, 1999)
Unit price is based on the net asset value of the Fund plus
the up-front sales fee.
The Portfolio stocks are valued by the Trustee on the basis
of their closing prices at 4:00 p.m. Eastern time every
business day. Unit price changes every day with changes in
the prices of the stocks.
9. HOW DO I SELL UNITS?
You may sell your units at any time to the Sponsors or the
Trustee for the net asset value determined at the close of
business on the date of sale.
10. HOW ARE DISTRIBUTIONS MADE AND TAXED?
The Fund pays monthly distributions of any dividend income,
net of expenses, on the 1st of each month, if you own units
on the 15th of the preceding month. For tax purposes, 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
regardless of whether you reinvest your dividends in the
Portfolio. A portion of the dividend payments may be used
to pay expenses of the Portfolio. Foreign investors' shares
of dividends will generally be subject to withholding
taxes.
11. WHAT OTHER SERVICES ARE AVAILABLE?
REINVESTMENT
You may choose to reinvest your distributions into
additional units of the Fund. Unless you choose
reinvestment, you will receive your distributions in cash.
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 designated exchanges.
4
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WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
INCOME
Because the Fund generally pays dividends as they are received, individual
income payments will fluctuate based upon the amount of dividends declared and
paid by each issuer. Other reasons your income may vary are:
o changes to the Portfolio because of sales of securities;
o changes in the Fund's expenses; and
o the amount of dividends declared and paid.
There can be no assurance that any dividends will be declared or paid.
RECORDS AND REPORTS
You will receive:
o a notice from the Trustee if new equity securities are deposited in exchange
or substitution for equity securities originally deposited;
o annual reports on Fund activity; and
o annual tax information. This will also be sent to the IRS. You must report the
amount of income received during the year. Please contact your tax advisor in
this regard.
You may inspect records of Portfolio transactions at the Trustee's office during
regular business hours.
THE RISKS YOU FACE
CONCENTRATION RISK
When stocks in a particular industry make up 25% or more of the Portfolio, it is
said to be 'concentrated' in that industry, which makes the Portfolio less
diversified.
Here is what you should know about the Portfolio's concentration in stocks of
the telecommunications industry.
These companies:
o provide local, long-distance, wireless, cable television and internet services
and information systems;
o manufacture of telecommunications products; and
o operate voice, data and video telecommunications networks.
Payment on common stocks of companies in this industry generally depends upon:
o the amount and growth of customer demand;
o the level of rates they are allowed to charge; and
o the effects of inflation on the cost of providing services and the rate of
technological innovation.
The domestic telecommunications industry is characterized by increasing
competition in all sectors and regulation by the Federal Communications
Commission and various state regulatory authorities. To meet increasing
competition, companies may have to commit substantial capital, particularly in
the formulation of new products and services using new technology.
Telecommunications companies in both developed and emerging countries are
undergoing significant change due to varying and evolving levels of governmental
regulation or deregulation and other factors. As a result, competitive pressures
are intense and the securities of such companies may be subject to significant
price volatility.
In addition, all telecommunications companies in both developed and emerging
countries are subject to the additional risk that technological innovations will
make their products and services obsolete.
While the worldwide market for telecommunications equipment is expected to
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grow, we cannot predict the overall effect on the Portfolio of factors such as:
o competing technologies;
o increasing capital requirements;
o protectionist actions by foreign governments; and
o demand for new technologies.
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 Fund by:
o reducing the dividends-received deduction or
o increasing the corporate tax rate resulting in less money available for
dividend payments.
SELLING UNITS
You can sell your units at any time for a price based on their net asset value.
Your net asset value is calculated each business day by:
o adding the value of the Portfolio securities, cash and any other Fund
assets;
o 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
o 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.
We may resell the units to other buyers or to the Trustee.
We have maintained a secondary market continuously for more than 28 years, but
we could discontinue it 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 contacting your broker, dealer or financial
institution that holds your units in street name. Sometimes, additional
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 will sell your units in the over-the-counter market if it
believes it can obtain a higher price. In that case, you will receive the net
proceeds of the sale.
If the Fund does not have cash available to pay you for the units you are
selling we will select securities to be sold. These sales could be made at times
when the securities would not otherwise be sold and may result in your receiving
less than you paid for your unit and also reduce the size and diversity of the
Fund.
You may choose to receive your distribution 'in kind.' If you so choose, you
will receive
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securities and cash with a total value equal to the price of your units. The
Trustee will try to distribute securities in the portfolio pro rata, but it
reserves the right to distribute only one or a few securities. The Trustee will
act as your agent in an in-kind distribution and will either hold the securities
for your account or transfer them as you instruct. You must pay any transaction
costs as well as transfer and ongoing custodial fees on sales of securities
distributed in kind.
There could be a delay in paying you for your units:
o if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
o 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
securities not reasonably practicable; and
o for any other period permitted by SEC order.
EXCHANGE OPTION
You may exchange units of certain Defined Asset Funds for units of this Fund or
you may exchange units of this Fund for units of certain other 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
Units are charged an initial sales fee.
EVALUATIONS
The Trustee values the securities on each business day (i.e., any day other than
Saturdays, Sundays and the following holidays as observed by the New York Stock
Exchange: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas).
If the securities are listed on a national securities exchange or the Nasdaq
National Market, evaluations are generally based on closing sales prices on that
exchange or that system or, if closing sales prices are not available, at the
mean between the closing bid and offer prices.
INCOME
o The annual income per unit, after deducting estimated annual Fund expenses per
unit, will depend primarily upon the amount of dividends declared and paid by
the issuers of the securities and changes in the expenses of the Fund and, to
a lesser degree, upon the level of sales of securities. There is no assurance
that dividends on the securities will continue at their current levels or be
declared at all.
o Each unit receives an equal share of monthly distributions of dividend income
net of estimated expenses. Because dividends on the securities are not
received at a constant rate throughout the year, any distribution may be more
or less than the
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amount then credited to the Income Account. The Trustee credits dividends
received 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.
o Subject to the reinvestment plan, your monthly income distribution will be
substantially equal to 1/12 of your share of the estimated annual income, net
of estimated expenses.
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:
o for extraordinary services and costs of indemnifying the Trustee and the
Sponsors;
o costs of actions taken to protect the Fund and other legal fees and
expenses;
o expenses for keeping the Fund's registration statement current; and
o Fund termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 7 cents per 100 units 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 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. Certain of these expenses were previously paid for
by the Sponsors.
The Trustee's and Sponsors' 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 securities if cash is not available.
PORTFOLIO CHANGES
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 units, which will affect the size
and composition of the portfolio.
We decide whether to offer units for sale that we acquire in the secondary
market after reviewing:
o diversity of the Portfolio;
o size of the Fund relative to its original size;
o ratio of Fund expenses to income; and
o cost of maintaining a current prospectus.
FUND TERMINATION
When the Fund is about to terminate you will receive a notice, and you will be
unable to sell your units after that time. Unless you choose to receive an
in-kind distribution of securities, we will sell any remaining securities, and
you will receive your final distribution in cash.
You will pay your share of the expenses associated with termination, including
brokerage costs in selling securities. This may
8
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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 deliverying 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 and the Trustee, 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:
o to cure ambiguities;
o to correct or supplement any defective or inconsistent provision;
o to make any amendment required by any governmental agency; or
o 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.
The Trustee may resign by notifying the Sponsors. The Sponsors may remove the
Trustee without your consent if:
o it fails to perform its duties and the Sponsors determine that its
replacement is in your best interest; or
o 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 Trustee may
resign or be removed by the Sponsors without the consent of investors. The
resignation or removal of the Trustee 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 may petition a court to appoint a successor.
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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:
o remove it and appoint a replacement Sponsor;
o liquidate the Fund; or
o 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 and the Sponsors.
LEGAL OPINION
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
special counsel for the Sponsor, 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:
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
PRUDENTIAL SECURITIES INCORPORATED (an
indirect wholly-owned subsidiary of the
Prudential Insurance Company of America)
One New York Plaza
New York, NY 10292
DEAN WITTER REYNOLDS INC. (a principal operating subsidiary of Morgan Stanley
Dean Witter & Co.)
Two World Trade Center--59th Floor,
New York, NY 10048
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.
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. Any cash made available
by you to the Sponsors before the settlement date for your units may be used in
the Sponsors'
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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
Merrill Lynch, as agent for the Sponsors, has adopted a code of ethics requiring
reporting of personal securities transactions by its employees with access to
information on portfolio transactions. The goal of the code is to prevent fraud,
deception or misconduct against the Fund and to provide reasonable standards of
conduct.
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'). We do not expect that the computer system changes necessary to
prepare for the Year 2000 will cause any major operational difficulties for the
Fund. The Year 2000 Problem may adversely affect the issuers of the securities
contained in the Fund, but 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. You should
consult your own tax adviser about your particular circumstances.
In the opinion of our counsel, under existing law:
GENERAL TREATMENT OF THE FUND AND YOUR INVESTMENT
The Portfolio will not be taxed as a corporation for federal income tax
purposes, and you will be considered to own directly your share of each Security
in the Portfolio.
You will be considered to receive your share of any dividends paid when those
dividends are received by the Portfolio. Income from dividends will be taxed at
ordinary income rates. If you are a corporate investor, you may be eligible for
the dividends received deduction if you satisfy the applicable holding period
and other requirements. You should consult your tax adviser in this regard.
GAIN OR LOSS UPON DISPOSITION
You will generally recognize gain or loss when you dispose of your units for
cash (by sale or redemption) or when the Trustee disposes of the Securities in
the Portfolio. You generally will not recognize gain or loss on an 'in-kind'
distribution to you of your proportional share of the Portfolio Securities,
whether it is in redemption of your units or upon termination of the Portfolio.
Your holding period for the
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distributed Securities will include your holding period in your units.
If your net long-term capital gains exceed your short-term capital losses, the
excess may be subject to tax at a lower rate than ordinary income. Any capital
gain or loss from the Portfolio sill be long-term if you are considered to have
held your investment which produces the gain or loss 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 your capital losses. You should
consult your tax adviser in this regard.
YOUR TAX BASIS IN THE SECURITIES
Your aggregate tax basis in units that you have purchased for cash will be equal
to the cost of the units, including the sales fee. You should not increase your
basis in your units by deferred sales charges or organizational expenses. The
tax reporting form and annual statements you receive will be based on the net
amounts paid to you, from which these expenses will already be deducted. Your
basis for Securities distributed to you will be the same as the portion of your
basis in your units that is attributable to the distributed Securities.
EXPENSES
If you are an individual who itemizes deductions, you may deduct your share of
Portfolio expenses, but only to the extent that your share of the expenses,
together with your other miscellaneous deductions, exceeds 2% of your adjusted
gross income. Your ability to deduct Portfolio expenses will be limited further
if your adjusted gross income exceeds a specified amount (for 1999, $126,600 or
$63,300 for a married person filing separately).
STATE AND LOCAL TAXES
Under the income tax laws of the State and City of New York, the Portfolio will
not be taxed 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.
FOREIGN INVESTORS
If you are a foreign investor and you are not engaged in a U.S. trade or
business, you generally will be subject to 30% withholding tax (or a lower
applicable treaty rate) on distributions. You should consult your tax adviser
about the possible aplication of federal, state and local, and foreign taxes.
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
and general information about the structure and operation of the Fund. The
supplemental information is also available from the SEC.
12
DEFINED ASSET FUNDS - THE EQUITY INCOME FUND,
SECOND EXCHANGE SERIES - AT&T SHARES
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders of
Defined Asset Funds - Equity Income Fund,
Second Exchange Series - AT&T Shares:
We have audited the accompanying statement of condition of Defined Asset
Funds - The Equity Income Fund, Second Exchange Series - AT&T Shares as
of June 30, 1999 and the related statements of operations and of changes
in net assets for the years ended June 30, 1999, 1998 and 1997. 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 generally accepted
auditing standards. 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 June 30, 1999, 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 Defined
Asset Funds - The Equity Income Fund, Second Exchange Series - AT&T
Shares, at June 30, 1999 and the results of its operations and changes
in its net assets for the above-stated years in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
August 30, 1999
D - 1
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
SECOND EXCHANGE SERIES - AT&T SHARES
STATEMENT OF CONDITION
AS OF JUNE 30, 1999
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $17,384,194) (Notes 1 and 2)............ $94,196,796
Dividends receivable............................ 48,872
Cash............................................ 556,934
____________
Total trust property.................. 94,802,602
Less Liabilities:
Distribution payable............................ $ 109,007
Accrued expenses................................ 6,989 115,996
____________ ____________
NET ASSETS, REPRESENTED BY:
3,758,875 units of fractional undivided
interest outstanding (Notes 6 and 8).......... 94,730,040
Excess of income distributed over net
investment income............................. (43,434)
____________
$94,686,606
==============
UNIT VALUE ($94,686,606/3,758,875 units).......... $25.19
==============
</TABLE>
See Notes to Financial Statements.
D - 2
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DEFINED ASSET FUNDS - EQUITY INCOME FUND,
SECOND EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
............Years Ended June 30,..........
1999 1998 1997
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income................................. $ 1,281,286 $ 1,317,253 $1,291,827
Trustee's fees and expenses..................... (38,935) (41,410) (36,123)
Sponsors' fees ................................. (3,052) (1,578) (1,894)
__________________________________________
Net investment income........................... 1,239,299 1,274,265 1,253,810
__________________________________________
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT:
Realized gain on securities sold
or redeemed............................. 927,416 332,829 623,593
Unrealized appreciation (depreciation)
of investments.......................... 31,141,094 20,314,553 4,010,191
__________________________________________
Net realized and unrealzed gain (loss) on
investments. ............................. 32,068,510 20,647,382 4,633,784
__________________________________________
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS............................... $33,307,809 $21,921,647 $5,887,594
==========================================
</TABLE>
See Notes to Financial Statements.
D - 3
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
SECOND EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
............Years Ended June 30,..........
1999 1998 1997
<S> <C> <C> <C>
OPERATIONS:
Net investment income........................... $ 1,239,299 $ 1,274,265 $ 1,253,810
Realized gain on securities sold
or redeemed................................. 927,416 332,829 623,593
Unrealized appreciation (depreciation) of
investments.................................. 31,141,094 20,314,553 4,010,191
__________________________________________
Net increase in net assets resulting
from operations.............................. 33,307,809 21,921,647 5,887,594
__________________________________________
INCOME DISTRIBUTIONS TO HOLDERS (Note 3)........ (1,288,801) (1,270,679) (1,253,189)
__________________________________________
CAPITAL SHARE TRANSACTIONS:
Issuences of 3,608,520, 774 and 1,665 additional
units, respectively (Note 4)................. 253,918 401,814
Redemtpions of 1,158, 1,395 and 4,166 units,
respectively (Note 5)........................ (548,574) (484,391) (1,037,745)
_________________________________________
Net capital share transactions.................... (548,574) (230,473) (635,931)
_________________________________________
NET INCREASE (DECREASE) IN NET ASSETS............. 31,470,434 20,420,495 3,998,474
NET ASSETS AT BEGINNING OF YEAR................... 63,216,172 42,795,677 38,797,203
__________________________________________
NET ASSETS AT END OF YEAR......................... $94,686,606 $63,216,172 $42,795,677
==========================================
PER UNIT, (Note 8):
Income distributions during year................ $5.79 $8.36 $8.14
==========================================
Net asset value at end of year.................. $25.19 $417.23 $281.30
==========================================
TRUST UNITS OUTSTANDING AT END OF YEAR (Note 8)... 3,758,875 151,513 152,134
==========================================
</TABLE>
See Notes to Financial Statements.
D - 4
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
SECOND EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. A summary of the significant accounting policies, which
are in conformity with generally accepted accounting principles, followed
by the Fund in the preparation of its financial statements since
December 7, 1983, it's initial date of deposit, is as follows:
(a) Securities are stated at market value based on the last sales prices
reported at the close of business on the New York Stock Exchange. The
aggregate cost of securities represents the market value of the
securities on the dates they were acquired by the Fund; the
appropriate portion of such aggregate cost was allocated among the
portfolio holdings in shares of AT&T and seven regional holding
companies following their divestiture by AT&T in accordance with its
Plan of Reorganization. Realized gains or losses on sales of
securities are determined using the first-in first-out cost basis.
(b) The Fund is not subject to income taxes. Accordingly, no provision for
such taxes is required.
(c) Dividend income has been recognized on the ex-dividend date.
2. PORTFOLIO - JUNE 30, 1999
<TABLE>
<CAPTION>
Number
Shares
Common Market
Name of Issuer Stock Cost Value
________________ ________ _______ _________
<S> <C> <C> <C>
AT&T (2) 222,147 $ 2,954,520 $12,398,580
Ameritech 177,718 2,023,445 13,062,273
Bell Atlantic Corporation 209,470 3,578,247 13,694,101
BellSouth Corporation (1) 266,577 2,450,851 12,495,797
Lucent Technologies (1) 191,936 1,207,069 12,943,684
NCR Corp. 9,257 146,762 451,857
SBC Communications 264,380 2,829,051 15,334,040
U.S. West Inc 60,857 914,463 3,575,349
Vodafone Airtouch (3) 29,620 711,971 5,835,140
Mediaone Group 59,240 567,815 4,405,975
__________ __________
Total $17,384,194 $94,196,796
=========== ===========
</TABLE>
(1) Stock Split 2 for 1
(2) Soock Split 3 for 2
(3) Rec. 0.5 share for each share of Airtouch Communication, Inc.
D - 5
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
SECOND EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
3. DISTRIBUTIONS
Any monthly distributions to Holders, who have not elected to participate
in the Fund's Reinvestment Plan, are made on or about the first day of
each month. Receipts other than interest, after deductions for redemptions
and applicable expenses, are also distibuted periodically. The
income distribution payable at June 30, 1999 was at the rate of $0.704
per unit.
4. REINVESTMENT PROGRAM
Holders may reinvest any distibutions in the Fund by executing an
appropriate notice of election to participate in the Fund's Reinvestment
Plan. The Sponsors (Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan
Stanley Dean Witter Inc., Prudential Securities Inc. and Smith Barney
Inc.) may, in their sole discretion, cancel the Fund's Reinvestment Plan
at any time. Subsequent to March 31, 1984, Holders of The Equity Income
Fund, First Exchange Series - AT&T Shares could, by executing an
appropriate notice of election, reinvest any of their distributions from
that Fund into this Fund.
5. REDEMPTIONS
Holders may request redemptions of units by presentation thereof to the
Trustee, The Bank of New York. The Trustee has the option of redeeming
units in kind or in cash.
6. NET CAPITAL
<TABLE>
<S> <C>
Cost, including reinvested distributions, of 3,758,875 units at Dates
of Deposit............................................................ $17,716,065
Less sales charge....................................................... 796,894
____________
Net amount applicable to Holders........................................ 16,919,171
Redemptions of units - net cost of 8,239 units redeemed less redemption
amounts............................................................... (1,421,736)
Realized gain on securities sold or redeemed............................ 2,420,003
Unrealized appreciation of investments.................................. 76,812,602
____________
Net capital applicable to Holders....................................... $94,730,040
============
</TABLE>
D - 6
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
SECOND EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
7. INCOME TAXES
All Fund items of income received, expenses paid, and realized gains and
losses on securities sold are attributable to the Holder's on a pro rata
basis, for Federal income tax purposes in accordance with the grantor
trust rules of the United States Internal Revenue Code.
At June 30, 1999, the cost of investment securities for Federal income tax
purposes was approximately equivalent to the cost as shown in the Fund's
portfolio.
8. FUND UNITS
Fund units were split 25 for 1 effective March 4, 1999.
D - 7
<PAGE>
Defined
Asset FundsSM
HAVE QUESTIONS ? EQUITY INVESTOR FUND
Request the most SECOND EXCHANGE SERIES
recent free Information AT&T SHARES
Supplement that gives more (A Unit Investment Trust)
details about the Fund, ---------------------------------------
by calling: This Prospectus does not contain
The Bank of New York complete information about the
1-800-221-7771 investment company filed with the
Securities and Exchange Commission in
Washington, D.C. under the:
o Securities Act of 1933 (file no.
2-87566) and
o Investment Company Act of 1940 (file
no. 811-3044).
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.
11820--9/99
