<PAGE>
DEFINED
ASSET FUNDSSM
EQUITY INCOME
FUND
- ------------------------------------------------------------
UTILITY STOCK SERIES--9
(COMMON AND PREFERRED STOCKS)
A UNIT INVESTMENT TRUST
PROSPECTUS, PART A
DATED JULY 29, 1994
SPONSORS:
Merrill Lynch,
Pierce, Fenner & Smith Inc.
Smith Barney Inc.
Prudential Securities Incorporated
Dean Witter Reynolds Inc.
This Defined Fund (the 'Fund') was formed for the purpose of obtaining current
income through investment in a fixed portfolio consisting primarily of
publicly-traded common stocks and, to a lesser extent, cumulative preferred
stocks issued by domestic gas and electric public utility companies (the
'Securities'). The value of all Portfolio Securities and therefore the value of
units of fractional undivided interest in the Fund ('Units') may be expected to
fluctuate with changes in the values of stocks in general and of public utility
stocks in particular. The common stocks included in the Portfolio were selected
for their high current dividend yields and, in the opinion of Defined Asset
Funds research analysts, these stocks have a limited potential for dividend
growth in the intermediate term. The payment of dividends and preservation of
capital depends upon several factors including the financial condition of these
issuers and general economic conditions. Therefore, there is no assurance that
the past rate of income per Unit will be maintained in the future. Units of the
Fund are particularly designed for purchase by Individual Retirement Accounts,
Keogh Plans, pension funds and other tax deferred retirement plans.
MINIMUM PURCHASE: 1,000 UNITS
- ------------------------------------------------------------------------
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 OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------
NOTE: PART A OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED
UNLESS ACCOMPANIED BY DEFINED ASSET FUNDS--EQUITY INCOME FUND PROSPECTUS, PART
B.
This Prospectus consists of two parts. The first includes an Investment Summary
and certified financial statements of the Fund, including the related securities
portfolio; the second contains a general summary of the Fund.
- ------------------------------------------------------------------------
Read and retain both parts of this Prospectus for future reference.
<PAGE>
DEFINED ASSET FUNDSSMis America's oldest and largest family of unit investment
trusts with over $90 billion sponsored since 1970. Each Defined 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.
With Defined Asset Funds you know in advance what you are investing in and that
changes in the portfolio are limited. Most defined bond funds pay interest
monthly and repay principal as bonds are called, redeemed, sold or as they
mature. Defined equity funds offer preselected stock portfolios with defined
termination dates.
Your financial advisor can help you select a Defined Fund to meet your personal
investment objectives. Our size and market presence enable us to offer a wide
variety of investments. Defined Funds are available in the following types of
securities: municipal bonds, corporate bonds, government bonds, utility stocks,
growth stocks, even international securities denominated in foreign currencies.
Termination dates are as short as one year or as long as 30 years. Special funds
are available for investors seeking extra features: insured funds, double and
triple tax-free funds, and funds with 'laddered maturities' to help protect
against rising interest rates. Defined Funds are offered by prospectus only.
- --------------------------------------------------------------------------------
CONTENTS
Investment Summary.......................................... A-3
Accountants' Opinion Relating to the Fund................... D-1
Statement of Condition...................................... D-2
Portfolio................................................... D-6
A-2
<PAGE>
DEFINED ASSET FUNDS--EQUITY INCOME FUND, UTILITY STOCK SERIES--9
INVESTMENT SUMMARY AS OF APRIL 30, 1994, THE EVALUATION DATE
NUMBER OF UNITS............................................. 36,421,791
FRACTIONAL UNDIVIDED INTEREST IN FUND PER UNIT.............. 1/36,421,791st
PUBLIC OFFERING PRICE PER 1,000 UNITS*
Aggregate value of Securities in Fund+.................$ 20,953,355
-----------------
Divided by 36,421,791 Units times 1,000................$ 575.30
Plus sales charge of 4.50% of Public Offering Price
(4.712% of net amount invested)**.................... 27.11
-----------------
Public Offering Price per 1,000 Units..................$ 602.41
(plus cash
adjustments and
the amount per
1,000 Units in
the Income
Account***)
SPONSORS' REPURCHASE PRICE AND REDEMPTION PRICE PER 1,000
UNITS (based on value of underlying Securities) ($27.11
less than Public Offering Price per 1,000 Units)..........$ 575.30
(plus cash
adjustments and
the amount per
1,000 Units in
the Income
Account***)
RECORD DAY
The 10th day of each month.
DISTRIBUTION DAY
The 25th day of each month.
MINIMUM CAPITAL DISTRIBUTION
No distribution (other than capital gains distributions) need be made from
Capital Account if balance is less than $5.00 per 1,000 Units.
TRUSTEE'S ANNUAL FEE AND EXPENSES****
$1.44 per 1,000 Units (see Expenses and Charges--Fees in Part B).
PORTFOLIO SUPERVISION FEE++
Maximum of $0.35 per $1,000 Units (see Expenses and Charges in Part B).
EVALUATION TIME
4:00 P.M. New York Time
MINIMUM VALUE OF FUND
Trust Indenture may be terminated if value of Fund is less than 40% of the
value of Securities deposited in the Fund. As of the Evaluation Date, the
value of the Fund is 49% of the value of the Securities deposited in the
Fund.
NUMBER OF ISSUES OF COMMON STOCK............................ 9
NUMBER OF ISSUES OF PREFERRED STOCK......................... 1
NUMBER OF GAS AND ELECTRIC PUBLIC UTILITY ISSUERS........... 10
PERCENTAGE OF AGGREGATE VALUE OF PORTFOLIO+++ REPRESENTING:
Gas and Electric Public Utility
Industry............................................. 100%
Common Stock........................................... 95%
Preferred Stock........................................ 5%
Issuers associated with nuclear generating
facilities........................................... 77%
- ------------------------------
*These figures assume a purchase of 1,000 Units. The price of a single
Unit, or any multiple thereof, is calculated simply by dividing the
Public Offering Price per 1,000 Units, above, by 1,000, and multiplying
by the number of Units.
**The sales charge will be reduced on a graduated scale in the case of
quantity purchases (see Public Sale of Units-- Public Offering Price in
Part B).
***For Units purchased or redeemed on the Evaluation Date, the amount in
the Income Account is approximately equal to the undistributed net
investment income of the Fund (see Statement of Condition on p. D-2)
divided by the number of outstanding Units, plus any amount per Unit
added to the Income Account to the expected date of settlement (5
business days after purchase or redemption). The amount of the cash
adjustment which is added is equal to the cash per Unit in the Capital
Account not allocated to the purchase of specific Securities (see
Public Sale of Units--Public Offering Price and Redemption in Part B).
****Of this amount, the Trustee receives annually for its services as
Trustee $0.72 per 1,000 Units. The Trustee's Annual Fee and Expenses
also includes the Portfolio Supervision Fee set forth herein.
+On the date of Deposit (January 15, 1987) the aggregate value of
Securities was $1,929,825. Cost of Securities is set forth under
Portfolio.
++The Sponsors also may be reimbursed for their costs of bookkeeping and
administrative services to the Fund. Portfolio supervision fees
deducted in excess of portfolio supervision expenses may be used for
this reimbursement. Additional deductions for this purpose are
currently estimated not to exceed an annual rate of $0.10 per 1,000
Units.
+++A Fund is considered to be 'concentrated' in a particular category
when the Securities in that category constitute 25% or more of the
aggregate value of the Portfolio. (See Risk Factors in Part B for a
brief summary of certain investment risks pertaining to the types of
issues held by the Fund.)
A-3
<PAGE>
DEFINED ASSET FUNDS--EQUITY INCOME FUND, UTILITY STOCK SERIES--9
DISTRIBUTIONS--The following replaces the second sentence of the third paragraph
appearing under Description of the Fund--Income and Distributions in Part B.
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 each Distribution Day to Holders of record on the preceding
Record Day. This avoids the need to structure a portfolio to stagger dividend
dates to provide regular cash flow. In the case of distributions from the
Capital Account, the distributable balance in the Capital Account as of the
Record Day must be at least the minimum amount set forth under Investment
Summary except for distributions of capital gains (see Administration of the
Fund-- Accounts and Distributions in Part B and Accounts and Distributions
below).
ACCOUNTS AND DISTRIBUTIONS--The following replaces the third sentence of the
first paragraph appearing under Administration of the Fund--Accounts and
Distributions in Part B:
Subject to the Reinvestment Plan described below, the Monthly Income
Distribution for each Holder as of each Record Day will be made on the following
Distribution Day or shortly thereafter and shall consist of an amount, computed
monthly by the Trustee, substantially equal to one-twelfth of the Holder's pro
rata share of the estimated annual income to the Income Account.
SPONSORS--
The following information supplements that appearing under Sponsors in Part B:
Smith Barney Inc., an investment banking and securities broker-dealer firm,
is an indirect wholly-owned subsidiary of The Travelers Inc. In July, 1993,
Smith Barney, Harris Upham & Co. Incorporated ('Smith Barney') and certain of
its affiliates acquired the assets of the domestic retail brokerage and asset
management businesses of Shearson Lehman Brothers Inc. ('Shearson'), previously
a Sponsor of various Defined Asset Funds.
Shearson and certain of its predecessors were underwriters beginning in
1962 and co-Sponsors from 1965 to 1967 and from 1980 to 1993 of various Defined
Asset Funds. As a result of the acquisition of certain of Shearson's assets, as
described above, Smith Barney Inc. now serves as co-Sponsor of various Defined
Asset Funds.
A-4
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Defined Asset Funds - Equity Income Fund,
Utility Stock Series - 9:
We have audited the accompanying statement of condition of Defined
Asset Funds - Equity Income Fund, Utility Stock Series - 9, including
the portfolio, as of April 30, 1994 and the related statements of
operations and of changes in net assets for the years ended April 30,
1994, 1993 and 1992. 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 April 30, 1994, 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 - Equity Income Fund, Utility Stock Series - 9 at April
30, 1994 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
New York, N.Y.
July 1, 1994
D - 1
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
STATEMENT OF CONDITION
AS OF APRIL 30, 1994
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $15,706,102) (Note 1)................... $20,953,355
Receivable from securities sold or redeemed..... 28,324
Dividends receivable............................ 193,508
______________
Total trust property.................. 21,175,187
LESS LIABILITIES:
Advance from Trustee............................ $ 44,350
Redemptions payable............................. 45,190 89,540
____________ ____________
NET ASSETS, REPRESENTED BY:
36,421,791 units of fractional undivided
interest outstanding (Note 4)................. 20,938,370
Undistributed net investment income............. 147,277
____________
$21,085,647
==============
UNIT VALUE ( $21,085,647/36,421,791 units)........ $0.57893
==============
</TABLE>
See Notes to Financial Statements.
D - 2
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
............Years Ended April 30,.........
1994 1993 1992
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income................................. $1,751,961 $2,315,311 $2,888,536
Trustee's fees and expenses..................... (43,879) (45,350) (57,436)
Sponsors' fees ................................. (11,830) (14,417) (17,790)
__________________________________________
Net investment income........................... 1,696,252 2,255,544 2,813,310
__________________________________________
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (loss) on securities sold or
redeemed (Note 6)............................. (259,738) 784,770 1,626,538
Unrealized appreciation (depreciation)
of investments................................ (2,184,069) 2,684,335 1,568,412
__________________________________________
Net realized and unrealized gain (loss) on
investments................................... (2,443,807) 3,469,105 3,194,950
__________________________________________
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. $ (747,555) $5,724,649 $6,008,260
==========================================
</TABLE>
See Notes to Financial Statements.
D - 3
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
............Years Ended April 30,.........
1994 1993 1992
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income........................... $ 1,696,252 $ 2,255,544 $ 2,813,310
Realized gain (loss) on securities sold
or redeemed.................................. (259,738) 784,770 1,626,538
Unrealized appreciation (depreciation) of
investments.................................. (2,184,069) 2,684,335 1,568,412
__________________________________________
Net increase (decrease) in net assets resulting
from operations.............................. (747,555) 5,724,649 6,008,260
__________________________________________
DISTRIBUTIONS TO HOLDERS (Note 2):
Income.......................................... (1,708,852) (2,258,629) (2,807,061)
Principal....................................... (3,979,760) (4,789,623) (2,051,814)
__________________________________________
Total distributions............................. (5,688,612) (7,048,252) (4,858,875)
__________________________________________
CAPITAL SHARE TRANSACTIONS:
Reinvestment of distributions - 119,143 units
issued (Note 3)............................... 88,160
Redemptions of 4,217,902, 4,314,681 and
9,376,047 units, respectively.................. (2,982,602) (3,320,133) (7,130,334)
__________________________________________
Net capital share transactions.................. (2,982,602) (3,320,133) (7,042,174)
__________________________________________
NET DECREASE IN NET ASSETS........................ (9,418,769) (4,643,736) (5,892,789)
NET ASSETS AT BEGINNING OF YEAR................... 30,504,416 35,148,152 41,040,941
__________________________________________
NET ASSETS AT END OF YEAR......................... $21,085,647 $30,504,416 $35,148,152
==========================================
PER UNIT:
Income distributions during year................ $0.04403 $0.05232 $0.05654
==========================================
Principal distributions during year............. $0.10573 $0.11261 $0.03823
==========================================
Net asset value at end of year.................. $0.57893 $0.75060 $0.78186
==========================================
TRUST UNITS OUTSTANDING AT END OF YEAR............ 36,421,791 40,639,693 44,954,374
==========================================
</TABLE>
See Notes to Financial Statements.
D - 4
<TABLE>
<S> <C>
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
(a) Securities are stated at market value; for securities listed on a
national securities exchange, value is based on the closing sale price
on such exchange and for securities not so listed, value is based on
the current bid price on the over-the-counter market. See "Redemption
- Computation of Redemption Price Per Unit" in this Prospectus, Part
B. Gains and losses on sales of securities are determined using the
first-in, first-out cost method.
(b) The Fund is not subject to income taxes. Accordingly, no provision for
such taxes is required.
(c) Dividend income is recorded as earned on the ex-dividend date.
2. DISTRIBUTIONS
A distribution of net investment income is made to Holders each month.
Receipts other than dividends, after deductions for redemptions and
applicable expenses, are distributed as explained in "Administration of
the Fund - Accounts and Distributions" in this prospectus, Part B.
3. REINVESTMENT PROGRAM
Holders may reinvest in the Fund any monthly distibutions and distri-
butions of net realized capital gains by participating in the Fund's
reinvestment program. See "Reinvestment Plan" in this Prospectus, Part B.
4. NET CAPITAL
</TABLE>
<TABLE>
<S> <C>
Cost of 36,421,791 units at Dates of Deposit....................................... $35,314,282
Less sales charge.................................................................. 1,589,129
_______________
Net amount applicable to Holders................................................... 33,725,153
Redemptions of units - net cost of 69,194,924 units redeemed less redemption
amounts.......................................................................... 14,219,640
Realized loss on securities sold or redeemed....................................... (11,464,094)
Principal distributions............................................................ (20,789,582)
Net unrealized appreciation of investments......................................... 5,247,253
_______________
Net capital applicable to Holders.................................................. $20,938,370
===============
</TABLE>
D - 5
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
NOTES TO FINANCIAL STATEMENTS
5. INCOME TAXES
As of April 30, 1994, net unrealized appreciation of investments, based on
cost for Federal income tax purposes, aggregated $5,247,253, of which
$5,256,774 related to appreciated securities and $9,521 related to
depreciated securities. The cost of investment securities for Federal
income tax purposes was $15,706,102 at April 30, 1994.
6. REALIZED LOSS
Realized loss is net of proceeds of $86,006, representing litigation
settlement from Public Service Company of New Mexico received in October
1993.
D - 6
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
PORTFOLIO
AS OF APRIL 30, 1994
<TABLE>
<CAPTION>
Par(P)
Stated(S) or
Liquidated(L)
Value
Number _______________
Portfolio No. and Title of of Per
Securities Shares Share Total
__________ ________ _____ ________
<S> <C> <C> <C>
COMMON STOCKS:
1 American Elec. Power Co. 42,300
2 Central Hudson Gas & Electric Co. 111,504
3 The Cincinatti Gas & Electric Co. 92,700
4 DPL Inc. 35,412
5 Kansas City Power and Light Co. 136,000
6 Rochester Gas & Electric Co. 109,800
7 Southern Co. (4) 239,600
8 Southwestern Public Service Co. 11,900
9 Washington Water and Power Co. (5) 93,300
D - 7
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
PORTFOLIO
AS OF APRIL 30, 1994
</TABLE>
<TABLE>
<CAPTION>
Current Annual
or Indicated Optional
Portfolio No. and Title of Dividend Per Redemption
Securities Share(2) Provisions(3) Cost(1) Value(1)
_________________ ________ _____ _________ __________
<S> <C> <C> <C> <C>
COMMON STOCKS:
1 American Elec. Power Co. $2.40 $ 1,164,513 $ 1,374,750
2 Central Hudson Gas & Electric Co. 2.06 2,853,924 3,247,554
3 The Cincinatti Gas & Electric Co. 1.72 1,682,264 2,120,513
4 DPL Inc. 1.18 396,646 756,931
5 Kansas City Power and Light Co. 1.48 2,298,400 3,111,000
6 Rochester Gas & Electric Co. 1.76 1,919,038 2,703,825
7 Southern Co. (4) 1.18 2,887,635 4,672,200
8 Southwestern Public Service Co. 2.20 350,158 340,637
9 Washington Water and Power Co. (5) 1.24 1,265,244 1,656,075
___________ __________
14,817,822 19,983,485
___________ __________
D - 8
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
PORTFOLIO
AS OF APRIL 30, 1994
</TABLE>
<TABLE>
<CAPTION>
Par(P)
Stated(S) or
Liquidated(L)
Value
Number _______________
Portfolio No. and Title of of Per
Securities Shares Share Total
__________ ________ _____ ________
<S> <C> <C> <C>
PREFERRED STOCKS:
10 Louisiana Power & Light Company, 12.64% 32,329 25(P) $808,225
Cumulative Preferred Stock
___________
TOTAL $808,225
===========
See Notes to Portfolio.
D - 9
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
PORTFOLIO
AS OF APRIL 30, 1994
</TABLE>
<TABLE>
<CAPTION>
Current Annual
or Indicated Optional
Portfolio No. and Title of Dividend Per Redemption
Securities Share(2) Provisions(3) Cost(1) Value(1)
_________________ ________ _____ _________ __________
<S> <C> <C> <C> <C>
PREFERRED STOCKS:
10 Louisiana Power & Light Company, 12.64% 3.16 Currently 888,280 969,870
Cumulative Preferred Stock
___________ ___________
TOTAL $15,706,102 $20,953,355
=========== ===========
See Notes to Portfolio.
D - 10
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
UTILITY STOCK SERIES - 9
NOTES TO PORTFOLIO
AS OF APRIL 30, 1994
(1) See Notes to Financial Statements.
(2) Based on the latest quarterly or semi-annual declaration.
(3) Optional redemption provisions, which may be exercised in whole or in
part, are initally at prices of par plus a premium, then subsequently
at prices declining to par. Certain securities may provide for
redemption at par prior or in addition to any optional or mandatory
redemption dates or maturity, for example, through the operation of a
maintenance and replacement fund, if proceeds are not able to be used
as contemplated, the project is condemned or sold or the project is
destroyed and insurance proceeds are used to redeem the securities.
Many of the securities are also subject to mandatory sinking fund
redemption commencing on dates which may be prior to the date on which
securities may be optionally redeemed. Sinking fund redemptions are
at par and redeem only part of the issue. Some of the securities have
mandatory sinking funds which contain optional provisions permitting
the issuer to increase the principal amount of securities called on a
mandatory redemption date. The sinking fund redemptions with optional
provisions may, and optional refunding redemptions generally will,
occur at times when the redeemed securities have an offering side
evaluation which represents a premium over par. To the extent that
the securities were acquired at a price higher than the redemption
price, this will represent a loss of capital when compared with the
Public Offering Price of the Units when acquired. Distributions will
generally be reduced by the amount of income which would otherwise
have been paid with respect to redeemed securities and there will be
distributed to Holders any principal amount and premium received on
such redemption after satisfying any redemption requests for Units
received by the Fund. The estimated current return may be affected by
redemptions. The tax effect on Holders of redemptions and related
distributions is described under "Taxes" in this Prospectus, Part B.
(4) Includes 2 for 1 stock split distributed in 1994.
(5) Includes 2 for 1 stock split distributed in 1993.
D - 11
<PAGE>
AUTHORIZATION FOR REINVESTMENT
DEFINED ASSET FUNDS--EQUITY INCOME FUND
UTILITY STOCK SERIES--9
/ / Yes, I want to participate in the Fund's Reinvestment Plan and purchase
additional Units of the Fund each month.
I hereby acknowledge receipt of the Prospectus for Defined Asset
Funds--Equity Income Fund, Utility Stock Series--9 and authorize The Bank of New
York to pay distributions on my Units as indicated below (distributions to be
reinvested will be paid for my account to The Bank of New York).
Income distributions
(check one): / / in cash / / reinvested
Capital
distributions (check
one): / / in cash / / reinvested
Please print or type
Name Registered Holder
Address
Registered Holder
(Two signatures required if
joint tenancy)
City State Zip Code
This page is a self-mailer. Please complete the information above, cut
along the dotted line, fold along the lines on the reverse side, tape, and mail
with the Trustee's address displayed on the outside.
12345678
<PAGE>
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 1313 NEW YORK, N.Y. NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
DEFINED ASSET FUNDS--EQUITY INCOME FUND UNITED STATES
UTILITY STOCK SERIES--9
THE BANK OF NEW YORK
UNIT INVESTMENT TRUST DEPARTMENT
P.O. BOX 974
WALL STREET STATION
NEW YORK, N.Y. 10268-0974
- ------------------------------------------------------------------------------
(Fold along this line.)
- ------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
<PAGE>
DEFINED ASSET FUNDS--EQUITY INCOME FUND
UTILITY STOCK SERIES
CONCEPT SERIES
MERRILL LYNCH EQUITY TRUST
PROSPECTUS--PART B
NOTE: PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PART A.
INDEX
PAGE
-----------
FUND SUMMARY......................................... 1
FUND STRUCTURE....................................... 2
RISK FACTORS......................................... 2
GAS AND ELECTRIC PUBLIC UTILITIES.................. 3
THE TELECOMMUNICATIONS UTILITY INDUSTRY 5
ENERGY COMPANIES................................... 6
THE HEALTH CARE INDUSTRY........................... 7
REGIONAL CONCENTRATIONS--MERRILL LYNCH EQUITY
TRUST......................................... 9
REGIONAL CONCENTRATIONS--NORTHWEST INVESTMENT
TRUST......................................... 10
WESTERN EUROPE--THE NEW EUROPE TRUST 10
REBUILDING TRUST................................... 15
REBUILDING AMERICA TRUST........................... 16
NATURAL GAS COMPANIES.............................. 17
THE FOOD AND BEVERAGE INDUSTRY..................... 17
PAGE
-----------
WASTE MANAGEMENT COMPANIES AND ENVIRONMENTAL
TECHNOLOGY COMPANIES 18
LITIGATION AND LEGISLATION......................... 18
DESCRIPTION OF THE FUND.............................. 19
TAXES................................................ 23
RETIREMENT PLANS..................................... 24
PUBLIC SALE OF UNITS................................. 25
MARKET FOR UNITS..................................... 27
REDEMPTION........................................... 27
EXPENSES AND CHARGES................................. 28
ADMINISTRATION OF THE FUND........................... 29
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY.... 32
MISCELLANEOUS........................................ 33
EXCHANGE OPTION...................................... 36
FUND SUMMARY
RISK FACTORS. Certain Securities from time to time may be sold under
certain circumstances described herein, and additional Securities may be
deposited in the Fund; accordingly, no assurance can be given that the Fund will
retain for any length of time its present size and composition (see Description
of the Fund--The Portfolio; Redemption; Administration of the Fund--Portfolio
Supervision). Investment in the Fund should be made with an understanding that
the value of the underlying Portfolio may fluctuate in accordance with changes
in the financial condition of the issuers of the Securities in the Portfolio,
the value of the Stocks generally, the impact of the Sponsors' buying and
selling of Securities and other factors. Distributions of income will generally
depend upon the declaration of dividends by the issuers of the Securities in the
Portfolio and the declaration of any such dividends depends upon several factors
including the financial condition of such issuers and general economic
conditions; there can be no assurance that the issuers of the Securities will
pay dividends (see Risk Factors).
DISTRIBUTIONS. Holders of Units of Utility Stock Series and Merrill Lynch
Equity Trust may elect to have their distributions representing dividends
reinvested in whole or fractional Units of the Fund (see Administration of the
Fund--Reinvestment Plan). Holders electing to reinvest their dividends will
receive additional Units and therefore will own a greater percentage of the Fund
than Holders who receive their distributions in cash. It is anticipated that
cash for distributions, to a certain extent, will be generated by sales of
Securities received by the Fund under reinvestment plans of the issuers of the
Securities. This may result in an increase in the distributions. Distributions
of any capital gain net income (i.e., the excess of capital gains over capital
losses) recognized by the Fund in any taxable year will be made annually and
shortly after the end of the year. These distributions may be invested in
additional Units of the Fund. It is anticipated that the proceeds of sale or
redemption of Securities will not be distributed but will be reinvested in
additional Securities (see Administration of the Fund--Accounts and
Distributions).
THE PUBLIC OFFERING PRICE of the Units is equal to the aggregate value of
the underlying Securities divided by the number of Units outstanding. A sales
charge (set forth under Investment Summary in Part A) and cash adjustments are
added. The Public Offering Price on the date of this Prospectus or on any
subsequent date will vary from the Public Offering Price set forth under
Investment Summary in Part A. (See Public Sale of Units-- Public Offering
Price.) Units offered hereby are issued-and-outstanding Units which have been
purchased by the Sponsors in the secondary market or from the Trustee following
tender for redemption. Any profit or loss resulting from the sale of these Units
will accrue to the Sponsors; no proceeds from the sale will be received by the
Fund.
TAXATION. The Fund intends to qualify as a 'regulated investment company'
under the Internal Revenue Code of 1986, as amended (the 'Code') (see Taxes).
Distributions from the Fund which are taxable as ordinary income to Holders will
constitute dividends for Federal income tax purposes but will be eligible for
the dividends-received deduction for many corporations only to the extent of
qualifying dividends received by the Fund.
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MARKET FOR UNITS. The Sponsors, though not obligated to do so, intend to
maintain a secondary market for Units based for most Series on the aggregate
value of the underlying Securities (see Market for Units). So long as the
Sponsors are maintaining a secondary market at prices not less than the
Redemption Price per Unit, they will repurchase any Units tendered for
redemption. If this market is not maintained, a Holder will be able to dispose
of his Units through redemption at prices also based on the aggregate value of
the underlying Securities (see Redemption). Market conditions may cause the
prices available in the market maintained by the Sponsors or available upon
exercise of redemption rights to be more or less than the amount paid for Units.
TERMINATION--Concept Series and Merrill Lynch Equity Trust are structured
so that they will terminate no later than approximately 30 days prior to the
Mandatory Termination Date set forth under Investment Summary in Part A.
Securities will begin to be sold in connection with the termination of the Fund
and all Securities will be sold by the Mandatory Termination Date. The Unit
Investment Trusts division of Merrill Lynch, Pierce, Fenner & Smith, Inc.
('Merrill Lynch'), as Agent for the Sponsors, will determine the manner, timing
and execution of the sales of the underlying Securities.
Merrill Lynch will attempt to sell the securities as quickly as it can
during the Liquidation Period without in its judgment materially adversely
affecting the market price of the Securities, but all of the Securities will in
any event be disposed of by the end of the Liquidation Period. During the
Liquidation Period, Holders will be at risk to the extent that securities are
not sold; for this reason Merrill Lynch will be inclined to sell the Securities
in as short a period as it can without materially adversely affecting the price
of the Securities. (See Administration of the Fund--Termination--Concept Series
and Merrill Lynch Equity Trust.)
FUND STRUCTURE
This Series (the 'Fund') of The Equity Income Fund is a 'unit investment
trust' created under New York law (or under Massachusetts law for First through
Fourth Series of Utility Common Stock Series) by a Trust Indenture (the
'Indenture') among the Sponsors and the Trustee. Unless otherwise indicated,
when Investors Bank & Trust Company and The First National Bank of Chicago act
as Co-Trustees to the Fund, references to the Trustee in this prospectus shall
be deemed to refer to the Co-Trustees. To the extent that references in this
Prospectus are to articles and sections of the Indenture, which are hereby
incorporated by reference, the statements made herein are qualified in their
entirety by this reference.
The Portfolio contains different common stocks and, in some Utility Stock
Series, preferred stocks. In addition, the Portfolio of certain Utility Common
Stock Series may contain units ('Other Fund Units') of previously issued Utility
Common Stock Series ('Other Funds') (see Description of the Fund--The
Portfolio). On the Evaluation Date each Unit represented the fractional
undivided interest in the Securities and net income of the Fund set forth under
Investment Summary in Part A. As used herein, the term 'Stocks' means the common
and preferred stocks initially deposited in the Fund and described under
Portfolio in Part A and any replacement and additional stocks acquired and held
by the Fund pursuant to the provisions of the Indenture and the term
'Securities' means the Stocks and any Other Fund Units (see Description of the
Fund--The Portfolio; Administration of the Fund--Portfolio Supervision).
The deposit of the Securities in the Fund on the Initial Date of Deposit
established a proportionate relationship among the number of shares of each
Stock and of any Other Fund Units deposited in the Portfolio. Following the
Initial Date of Deposit, the Sponsors may deposit additional Securities
('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 in order to create new Units. Replacement Securities may
be acquired under
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specified conditions (see Description of the Fund--The Portfolio; Administration
of the Fund--Portfolio Supervision).
The holders of record ('Holders') of Units will have the right to have
their Units redeemed (see Redemption) at a price computed as set forth under
'Computation of Redemption Price per Unit' ('Redemption Price per Unit') if they
cannot be sold in the over-the-counter market which the Sponsors propose to
maintain (see Market for Units; Redemption).
RISK FACTORS
An investment in Units of the Fund should be made with an understanding of
the risks inherent in an investment in equity securities, including the risk
that the financial condition of the issuers of the Securities may become
impaired or that the general condition of the stock market may worsen (both of
which may contribute directly to a decrease in the value of the Securities and
thus in the value of the Units) or the risk that holders of common stocks have a
right to receive payments from the issuers of those stocks that is generally
inferior to that of creditors, holders of the issuer's debt obligations or
holders of the issuer's preferred stock. Common stocks are especially
susceptible to general stock market movements and to volatile increases and
decreases in value as market confidence in and perceptions of the issuers
change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises.
Holders of common stocks of the type held by the Portfolio have a right to
receive dividends only when, if and to the extent declared by the issuer's board
of directors. Common stockholders participate in amounts available for
distribution by the issuer only after all other claims on the issuer have been
satisfied. Common stocks thus do not represent an obligation of the issuer, do
not offer any assurance of income and do not provide the degree of protection of
capital of debt securities. Indeed, the issuance of debt securities or even
preferred stock will create prior claims for payment of principal, interest,
liquidation preferences and dividends which could adversely affect the ability
and inclination of the issuer to declare or pay dividends on its common stock or
the rights of holders of common stock with respect to assets of the issuer upon
liquidation or bankruptcy. Holders of preferred stocks have the right to receive
dividends at a fixed rate when and as declared by the issuer's board of
directors, normally on a cumulative basis, but do not participate in other
amounts available for distribution by the issuing corporation. Cumulative
preferred stock dividends must be paid before common stock dividends and any
cumulative preferred stock dividend omitted is added to future dividends payable
to the holders of cumulative preferred stock. Preferred stocks are also entitled
to rights on liquidation which are senior to those of common stocks. For that
reason, preferred stocks entail less risk than common stocks. Preferred stocks
are, however, equity securities in the sense that they do not represent a
liability of the issuer and therefore do not offer as great a degree of
protection of capital or assurance of continued income as investments in
corporate debt securities. In addition, the issuance of debt securities or
senior issues of preferred stock may create prior claims for payment of
principal, interest and dividends which could adversely affect the ability of
the issuer to pay dividends or the rights of holders of preferred stock with
respect to the assets of the issuer upon liquidation. Further, unlike debt
securities which typically have a stated principal amount payable at maturity
(whose value, however, will be subject to market fluctuations prior thereto),
neither preferred nor common stocks have a fixed principal amount or a maturity,
and both have values which are subject to market fluctuations for as long as the
stocks remain outstanding. The value of the Securities in the Portfolio thus may
be expected to fluctuate over the entire life of the Fund to values higher or
lower than those prevailing on the Initial Date of Deposit.
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In addition, certain of the issuers in some Funds may be considered
emerging growth companies. Investors in these Funds should be mindful of and
carefully evaluate the special risk factors inherent in investing in equity
securities of companies characterized by a rapid rate of growth. Emerging growth
companies may be thinly capitalized and, consequently, may be more susceptible
to general market fluctuations than companies with greater capitalization
because the stock of emerging growth companies may trade at higher
price-to-earnings multiples than the stock of more established companies.
Additionally, emerging growth companies may be more likely to reinvest profits
into operations and thus less likely to pay regular dividends than mature
corporations. The lack of a regular dividend may be a factor in inducing
volatility in a stock's trading price.
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.
Investors should note that additional Units may be offered to the public
subsequent to the Initial Date of Deposit and that the creation of additional
Units may have an effect upon the value of previously existing Units. To create
additional Units the Sponsors may deposit cash with instructions to purchase
Securities (or a bank letter of credit in lieu of cash) in amounts sufficient to
maintain to the extent practicable the percentage relationship among the number
of shares of each Security based on the price of the Securities at the
Evaluation Time on the date the cash is deposited. To the extent the price of a
Security increases or decreases between the time cash is deposited with
instructions to purchase the Security and the time the cash is used to purchase
the Security, Units will represent less or more of that Security and more or
less of the other Securities in the Fund. Holders will therefore bear a price
fluctuation risk that they would not bear if the Security had been purchased on
the date cash was deposited with instructions to purchase the Security. In
addition, brokerage fees incurred in purchasing Securities with cash deposited
with instructions to purchase the Securities will be an expense of the Fund.
Thus price fluctuations during this period and payment of any brokerage fees by
the Fund will affect the value of every Holder's Units and the income per Unit
received by the Fund. In particular, Holders who purchased Units during the
primary offering period of the Units would experience a dilution of their
investment as a result of any brokerage fees paid by the Fund during subsequent
deposits of additional Securities purchased with cash deposited with
instructions to purchase Securities.
The Fund may be considered to be concentrated in a certain industry. The
percentage of any concentration is set forth under Investment Summary in Part A.
An investment in Units of the Fund should be made with an understanding of the
risks which this investment may entail, certain of which are described below.
GAS AND ELECTRIC PUBLIC UTILITIES
The ability of utilities to pay dividends on their common stock is
dependent on various factors, including the rates they may charge, the demand
for their services and the costs of providing those services. Utilities, in
particular investor-owned utilities, are subject to extensive regulation
relating to the rates which they may charge customers. Utilities can experience
regulatory, political and consumer resistance to rate increases. Utilities
engaged in long-term capital projects are especially sensitive to regulatory
lags in granting rate increases. Any difficulty in obtaining timely and adequate
rate increases could adversely affect a utility's results of operations.
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The demand for a utility's services is influenced by, among other factors,
competition, weather conditions and economic conditions. Electric utilities, for
example, have experienced increased competition as a result of the availability
of other energy sources, the effects of conservation on the use of electricity,
self-generation by industrial customers and the generation of electricity by
co-generators and other independent power producers. The National Energy Policy
Act ('NEPA'), which became law in October, 1992, makes it mandatory for a
utility to permit non-utility generators of electricity access to its
transmission system for wholesale customers, thereby increasing competition for
investor-owned electric utilities. NEPA also mandated demand-side management
policies to be considered by utilities. NEPA prohibits the Federal Energy
Regulatory Commission ('FERC') from mandating electric utilities to engage in
retail wheeling, which is competition among suppliers of electric generation to
provide electricity to retail customers (particularly industrial retail
customers) of a utility. However, under NEPA, a state can mandate retail
wheeling under certain conditions. Utilities which distribute natural gas also
are subject to competition from alternative fuels, including fuel oil, propane
and coal.
The utility industry is an increasing cost business making the cost of
generating electricity more expensive and heightening its sensitivity to
regulation. A utility's costs are influenced by the utility's cost of capital,
the availability and cost of fuel and other factors. In addition, natural gas
pipeline and distribution companies have incurred increased costs as a result of
long-term natural gas purchase contracts containing 'take or pay' provisions
which require that they pay for natural gas even if natural gas is not taken by
them. There can be no assurance that a utility will be able to pass on these
increased costs to customers through increased rates. Utilities incur
substantial capital expenditures for plant and equipment. In the future they
will also incur increasing capital and operating expenses to comply with
environmental legislation such as the Clean Air Act of 1990, and other energy,
licensing and other laws and regulations relating to, among other things, air
emissions, the quality of drinking water, waste water discharge, solid and
hazardous substance handling and disposal, and siting and licensing of
facilities. Environmental legislation and regulations are changing rapidly and
are the subject of current public policy debate and legislative proposals. It is
increasingly likely that some or many utilities will be subject to more
stringent environmental standards in the future that could result in significant
capital expenditures. Future legislation and regulation could include, among
other things, regulation of so-called electromagnetic fields associated with
electric transmission and distribution lines as well as emissions of carbon
dioxide and other so-called greenhouse gases associated with the burning of
fossil fuels. Compliance with these requirements may limit a utility's
operations or require substantial investments in new equipment and, as a result,
may adversely affect a utility's results of operations.
Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various plant
systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an investor-owned utility or
a state or local municipality is out of service or operating on a limited
service basis, the utility operator or its owners may be liable for the recovery
of replacement power costs. Risks of substantial liability also arise from the
operation of nuclear facilities and from the use, handling, and possible
radioactive emissions associated with nuclear fuel. Insurance may not cover all
types or amounts of loss which may be experienced in connection with the
ownership and operation of a nuclear plant and severe financial consequences
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could result from a significant accident or occurrence. Also, there are risks of
recovering costs of decommissioning nuclear units.
The Public Utility Holding Company Act of 1935 (the '1935 Act') regulates,
among other things, certain acquisitions of voting securities of electric
utility companies and gas utility companies by any one who is an 'affiliate' of
a public utility company (a person or organized group of persons that directly
or indirectly owns, controls or holds with power to vote 5% or more of the
outstanding voting securities of a public utility company). In addition, the
1935 Act requires a 'holding company' (among other categories, a company which
directly or indirectly owns, controls or holds with power to vote 10% or more of
the outstanding voting securities of a public utility company or a 'holding
company') to register as such with the Securities and Exchange Commission and be
otherwise subject to certain restrictions on the acquisition of securities and
other interests in public utility companies. In order to avoid becoming an
'affiliate', the Fund has adopted an investment restriction that it will not
purchase securities of a public utility company if by reason thereof the Fund
would hold 5% or more of the outstanding voting securities of the issuer.
Nevertheless, if the Fund were considered to be a member of an organized group
of persons, the 1935 Act might limit the Fund's acquisition of the voting
securities of public utility companies by reason of the control by the group of
5% or more of the voting securities of a public utility company. The Sponsors
believe that even if the Fund were appropriately included in a group, it is
unlikely that the holdings of such a group would aggregate as much as 5% of the
voting securities of any public utility company.
THE TELECOMMUNICATIONS UTILITY INDUSTRY
The Portfolio may be concentrated in common stocks of companies engaged in
providing local, long-distance and cellular services, in the manufacture of
telecommunications products and in a wide range of other activities including
directory publishing, information systems and the operation of voice and data
networks. These may include securities of certain of the Regional Bell Holding
Companies ('RBOCs') which were spun off from AT&T in 1984 pursuant to approval
of the U.S. District Court for the District of Columbia (the 'Court'),
implementing a consent decree relating to antitrust proceedings brought by the
U.S. Department of Justice. The Fund may also contain the securities of certain
independent telephone companies which are subject to regulation by the Federal
Communications Commission (the 'FCC') and state utility commissions but not
subject to the consent decree binding the RBOCs and AT&T and of certain
long-distance telecommunications carriers, certain telecommunications equipment
manufacturers and certain foreign companies which provide telecommunications
services or equipment mainly outside the United States. Some of the securities
of foreign issuers in the Fund may be purchased by the Fund in ADR form in the
United States. ADRs evidence American Depository Shares which represent common
stock deposited with a custodian in a depositary.
In accordance with the consent decree, the RBOCs provide local telephone
service, including exchange access for long-distance companies, and may provide
directory advertising and new customer equipment. Many of the RBOCs, pursuant to
waivers, may also engage in a broad range of businesses including foreign
consulting, servicing computers and marketing or leasing office equipment. AT&T
provides interexchange long distance telephone service in competition with
numerous other providers and certain other products, services and customer
equipment. Independent telephone companies are not subject to the consent decree
and therefore can provide the full range of telecommunications services
including local exchange services, the installation of business systems,
telephone consulting, the manufacture of telecommunications equipment, operation
of voice and data networks and directory publishing. Cellular service is
providing an increasing component of the revenues of the RBOCs and independent
telephone companies. Both the RBOCs and independents are subject to
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regulation by the FCC and state regulatory authorities. The FCC also has the
power to regulate the types of telecommunications equipment which may be used
and therefore may affect the business of companies in the manufacturing of
telecommunications equipment. Long-distance companies which provide
long-distance telecommunications services are subject to regulation by the FCC,
and the provision of service to foreign countries is subject to the approval of
the FCC and the appropriate foreign governmental agencies.
Certain telecommunications services have in the past been fairly resistant
to recession with the exception of long-distance carriers. During the recession
of 1982-83, growth in access lines simply slowed down for the independent
telephone companies and only one of the predecessor Bell operating companies
experienced such a downturn. Also, many of these companies have demonstrated
dividend growth in the last six years. Most of these companies or their
predecessors have paid dividends over the last ten years and have increased
their common stock dividends during the past six years. The Sponsors believe
that companies in the telephone business may remain resistant to recession in
the next five years and may experience some growth in access lines and message
units. Cellular telephone service should continue to expand, although at lesser
rates of growth than in the recent past. Also, ongoing technological change may
lead to an increase in the development of new services such as voice messaging,
call screening and automatic dialing and the demand for business services such
as the use of fax machines and the movement of data information should continue
to grow.
Business conditions in the telecommunications industry may affect the
performance of the Fund. The FCC and certain state utility regulators have
introduced certain incentive plans such as price-cap regulation which apply to
certain portions of the business of certain local exchange carriers. Price-cap
regulation offers local exchange carriers an opportunity to share in higher
earnings provided they become more efficient. These new approaches to regulation
by the FCC and various state or other regulatory agencies result in increased
competition and could lead to greater risks as well as greater rewards for
operating telephone companies such as those in the Fund. Technology has tended
to offset the effects of inflation and is expected to continue doing so. Under
traditional regulation, continuing cost increases, to the extent not offset by
improved productivity and revenues from increased volume of business, would
result in a decreasing rate of return and a continuing need for rate increases.
Although allowance is generally made in ratemaking proceedings for cost
increases, delays may be experienced in obtaining the necessary rate increases
through these proceedings and there can be no assurance that these regulatory
commissions in the future will grant rate increases adequate to cover operating
and other expenses and debt service requirements. The long-distance industry has
been increasingly opened to competition over the last number of years. As a
result, the major long-distance companies compete actively for market share.
Indeed, to meet increasing competition, telecommunications companies will have
to commit substantial capital, technological and marketing resources.
Also, it is unclear what effect increased competition between wireless and
wireline services will have on the telecommunications industry. Also, there has
developed some other potential competition for local service. In the deregulated
cellular telephone industry has a limited operating history and there is
significant uncertainty regarding its future, particularly with regard to
increased competition, the continued growth in the number of customers, the
usage and pricing of cellular services, and the cost of providing cellular
services, including the cost of attracting new customers, developing new
technology and the ability to obtain licenses to provide cellular services. The
uncertain outcomes of future labor agreements and employee and retiree benefit
costs may also have a negative impact on profitability. Telephone usage, and
therefore revenues, could also be adversely affected by any sustained economic
recession. Each of these problems would adversely affect the profitability of
the
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telecommunications utility issuers of the Securities, the value of the
Securities and the ability of the issuers of the Securities to make payments of
dividends.
In addition, the portfolio may contain securities issued by telephone
companies which provide telecommunications services or equipment outside the
United States; these companies are subject to regulation by foreign governments
or governmental authorities which have broad authority regulating the provision
of telecommunications services and the use of certain telecommunication
equipment. Consequently, certain Securities in the Fund may be affected by the
rules and regulations adopted by regulatory agencies in other countries from
time to time. In addition, foreign telecommunications companies state earnings
and pay dividends in a non-United States currency. Therefore, the United States
dollar value of the stock and dividends of these companies will vary with
fluctuations in the United States dollar foreign exchange rates for the relevant
currencies. Also, investment risks will include future political and economic
development, the establishment of exchange controls or other governmental
restrictions that might adversely affect the payment or receipt of payment of
dividend on, or the value of, the relevant securities.
ENERGY COMPANIES
The Portfolio may be concentrated in common stocks of companies engaged in
the exploration, drilling and production, refining and marketing, transmission
or distribution of natural gas, oil and other minerals. These include integrated
oil and natural gas companies that explore for and produce oil and natural gas
and transport it to customers; natural gas transmission companies, commonly
called pipelines, that sell at wholesale to other pipelines and to distribution
companies; natural gas distribution companies that service residential,
commercial and industrial customers; and oil service and other energy-related
companies. According to the U.S. Department of Commerce, the factors which will
most likely shape the industry to 1996 and beyond include the price and
availability of oil from the Middle East, changes in United States environmental
policies and the continued decline in U.S. production of crude oil. Possible
effects of these factors may be increased U.S. and world dependence on oil from
the Organization of Petroleum Exporting Countries (OPEC), highly uncertain and
potentially more volatile oil prices and a higher rate of growth for natural gas
production than for other fuels.
Factors which the Sponsors believe may increase the profitability of
natural gas operations include increased demand for natural gas due to the
cleanliness of natural gas as a fuel coupled with the increased concern about
the environment, use by electric utilities of natural gas as a primary fuel
source as a result of the repeal of the Fuel Use Act in 1987 and the increased
use of natural gas in co-generation of electricity. The profitability of natural
gas operations could be enhanced by the 1990 amendments to the Clean Air Act,
which should increase demand for natural gas used for electric generation by
electric utilities. The Commerce Department predicts that natural gas will be a
growing source of energy during the 1990s, because of projected higher costs for
oil and because natural gas is a cleaner burning fuel. The transportation
industry may make increased use of natural gas in order to meet more stringent
mileage and emissions requirements. It has been suggested that if policymakers
in the United States continue to look to natural gas as a potential answer to
several different problems--environmental concerns, electric utility capacity
concerns, concern about dependence on foreign oil--then the price of natural gas
may have to rise in order to ensure adequate supplies. There are significant
constraints on increased use of natural gas, however, including a potential need
for additional pipelines. Additionally, companies involved in natural gas
processing may experience difficulties in the long term if product prices do not
keep pace with potential increases in gas costs.
Factors which the Sponsors believe may increase the profitability of oil
and petroleum operations include increasing demand for oil and petroleum
products as a result of the continued increases in annual miles driven
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and the improvement in refinery operating margins caused by increases in average
domestic refinery utilization rates. The existence of surplus crude oil
production capacity and the willingness to adjust production levels are the two
principal requirements for stable crude oil markets. Without excess capacity,
supply disruptions in some countries cannot be compensated for by others.
Surplus capacity in Saudi Arabia and a few other countries and the utilization
of that capacity prevented during the Persian Gulf crisis continue to prevent
severe market disruption. Although unused capacity can contribute to market
stability, it ordinarily creates pressure to overproduce and contributes to
market uncertainty. The likely restoration of a large portion of Kuwait and
Iraq's production and export capacity over the next few years could lead to such
a development in the absence of substantial growth in world oil demand.
Formerly, OPEC members attempted to exercise control over production levels in
each country through a system of mandatory production quotas. Because of the
crisis in the Middle East, the mandatory system has since been replaced with a
voluntary system. Production under the new system has had to be curtailed on at
least one occasion as a result of weak prices, even in the absence of supplies
from Kuwait and Iraq. The pressure to deviate from mandatory quotas, if they are
reimposed, is likely to be substantial and could lead to a weakening of prices.
In the longer term, additional capacity and production will be required to
accommodate the expected large increases in world oil demand and to compensate
for expected sharp drops in U.S. crude oil production and exports from the
former Soviet Union. Only a few OPEC countries, particularly Saudi Arabia, have
the petroleum reserves that will allow the required increase in production
capacity to be attained. Given the large-scale financing that is required, the
prospect that such expansion will occur soon enough to meet the increased demand
is uncertain. Moreover, lower consumer demand due to increases in energy
efficiency and conservation, due to gasoline reformulations that call for less
crude oil, due to warmer winters or due to a general slowdown in economic growth
in this country and abroad, could negatively affect the price of oil and the
profitability of oil companies. Cheaper oil could also decrease demand for
natural gas. However, no assurance can be given that the demand for or prices of
oil will increase or that if the anticipated increase does take place, that it
will not be marked by great volatility.
Declining U.S. crude oil production will likely lead to increased
dependence on OPEC oil, putting refiners at risk of continued and unpredictable
supply disruptions. Increasing sensitivity to environmental concerns will also
pose serious challenges to the industry over the coming decade. Refiners are
likely to be required to make heavy capital investments and make major
production adjustments in order to comply with increasingly stringent
environmental legislation, such as the 1990 amendments to the Clear Air Act. If
the cost of these changes is substantial enough to cut deeply into profits,
smaller refiners may be forced out of the industry entirely.
Energy companies are subject to numerous risks. Natural gas utilities are
generally subject to extensive regulation by state utility commissions (or by
the Federal Energy Regulatory Commission ('FERC'), in the case of pipeline
companies) which, for example, establish the rates that may be charged and the
appropriate rate of return on an approved asset base. Certain natural gas
utilities have had difficulty from time to time in persuading regulators, who
are subject to political pressures, to grant rate increases necessary to
maintain an adequate return on investment. Any unexpected limitations could
negatively affect the profitability of natural gas utilities. In addition, gas
pipeline and distribution companies have had difficulties in adjusting to short
and surplus energy supplies, enforcing or being required to comply with
long-term contracts and avoiding litigation from their customers, on the one
hand, or suppliers, on the other. General problems of the natural gas utility
industry include difficulty in obtaining timely and adequate rate increases,
recovery of take-or-pay costs, the uncertainty of transmission service costs for
both interstate and intrastate transactions, changes in tax laws which adversely
9
<PAGE>
affect a natural gas utility's ability to operate profitably, reduced demand for
natural gas in certain areas of the country, competition from electricity in the
residential and commercial markets, restrictions on operations and increased
insurance premiums and other costs and delays attributable to environmental
considerations, uncertain availability and increased cost of capital and
availability and cost of natural gas for resale. Pipeline companies may be
subject to increased competition because of approval by FERC of the construction
of new pipelines and delays because of the need to obtain FERC approval for new
gas contracts. Moreover, the natural gas utility business is highly seasonal and
weather sensitive.
Oil production and refining operations are subject to extensive federal,
state and local environmental laws and regulations governing air emissions and
the disposal of hazardous materials. Increasingly stringent environmental laws
and regulations are expected to require companies with oil production and
refining operations to devote significant financial and managerial resources to
pollution control. However, to the extent that environmental concerns render the
construction or expansion of refining capacity too costly, prices of refined
products should continue to reflect increasing pressures upon supply. General
problems of the oil and petroleum products industry include the ability of a few
influential producers significantly to affect production, the concomitant
volatility of crude oil prices and increasing public and government concern over
air emissions, waste product disposal, fuel quality and the environmental
effects of fossil-fuel use in general. Exploration and production companies
could be negatively affected in a period of declining crude oil or natural gas
prices.
In addition, any future scientific advances concerning new sources of
energy and fuels or legislative changes relating to the energy industry or the
environment could have a negative impact on the petroleum product or natural gas
industry. While legislation has been enacted to deregulate certain aspects of
the oil and natural gas industry, no assurances can be given that new or
additional regulations will not be adopted. Each of the problems referred to
could adversely affect the financial stability of the issuers of any energy
stocks in the Fund.
The Energy Trust may be concentrated in securities of foreign issuers
paying dividends in foreign currencies or trading principally in foreign
currencies. (See Western Europe--The New Europe Trust--Foreign Exchange
Rates;--Foreign Issuers below.)
THE HEALTH CARE INDUSTRY
The Fund may be concentrated in common stocks of companies representing the
major sectors of the health care industry--drugs and pharmaceuticals,
biotechnology, medical technology and services companies and health maintenance
organizations. Companies in the health care industry may have a strong
appreciation potential over the five years subsequent to the Initial Date of
Deposit because of anticipated growth in demand for their products and services.
It is expected that the issuers in the Portfolio will be able to benefit from
the health care demands of a population that is increasingly elderly and
health-conscious. The challenges of critical or terminal illnesses also create a
demand for new health care products and services. It is anticipated that certain
issuers will benefit from the commercial potential of innovative medical
technology and that other issuers will benefit from their ability to provide
consumers with health care products and services on a cost-effective basis.
According to statistics published by the U.S. Department of Commerce, the
nation's health care sector expenditures approached 13% of the gross national
product in 1991, rising an estimated 11% from 1990 levels to $738 billion.
According to the Commerce Department, expenditures on health care in the United
States were expected to rise another 11% to $817 billion in 1992, and to
increase 12 to 13% annually during the next five years. The Commerce Department
estimated that drug industry shipments increased 9% between 1990 and 1991, to
$59 billion, that drug industry shipments would increase approximately 9% in
1992, while medical and dental
10
<PAGE>
instruments and supplies were expected to increase approximately 7%. Of course,
there can be no assurance that the value of the particular stocks in the
Portfolio will necessarily appreciate in value as a result of these trends.
The drug and pharmaceutical companies in the Portfolio produce prescription
and over-the-counter drugs and a wide array of other products ranging from
vitamins to vaccines. The biotechnology companies are among the more established
in their field and have developed various pharmaceuticals and diagnostics from
genetic engineering and recombinant DNA technology. The medical technology and
services companies design and market diagnostic and therapeutic devices
including detibrillators, replacement joints and artificial heart valves. The
health maintenance organizations ('HMOs') market cost-effective health care
plans to corporations and individuals and contract with medical practitioners
for the provision of specific services.
Companies in the health care industry face several risks. Most health care
companies are extensively regulated. All are subject to extreme cost-containment
pressures. Most are subject to intensive competition and are required to spend
vast amounts of capital to keep pace with technological innovation. In addition,
there exists the risk that the health care system will be forced to undergo
major structural changes, which could seriously affect profitability, in
response to public and government concern over ever-increasing health care
costs. For example, the Clinton administration may impose regulations which
could limit price increases for drugs. These constraints affect the four health
care sectors in the Portfolio in specific ways.
Many problems faced by drug companies and medical technology companies
typify those faced by the health care industry in general. Drug and medical
equipment companies are regulated by the federal Food and Drug Administration
(the 'FDA'). The FDA regulates the development, manufacture and marketing of all
drugs and medical products. Before a product can be sold it must receive FDA
approval, a long and very costly process. Although the FDA has in recent years
experimented with procedures to streamline and shorten the testing and approval
process, particularly with respect to drugs with applications in treating
HIV-related illnesses, there can be no assurance that the FDA will continue the
use of such procedures or broaden their applicability. Governments and large,
private health care consumers are exerting strenuous efforts to contain health
care costs. The federal government and increasing numbers of insurance companies
reimburse health care providers on a 'prospective payment basis'. This means the
physician or hospital are only paid a predetermined amount depending upon the
patient's diagnosis. If the cost of treatment exceeds the predetermined amount,
the physician or hospital will lose money, if it is less, money will be made.
This creates an incentive to prescribe cheaper, generic substitutes for
brand-name drugs and causes significant profit erosion for drug companies. Some
states have laws requiring pharmacists to dispense generic drugs unless
precluded by the prescribing physician. Other states set up auctions among drug
companies to determine which company will agree to meet their needs at the
lowest price. Therefore, the cost of marketing a drug is increasing while at the
same time it is becoming increasingly difficult to recoup that cost.
Drug companies must devote large amounts of risk capital to research and
development in order to develop new and unique drugs with patent protection from
generic substitutes. Drug companies also face the risk of large product
liability suits and consequently must secure expensive liability insurance.
Finally, technological change is becoming increasingly rapid and products tend
to become obsolete more quickly than before.
While the biotechnology companies in the Portfolio are among the more
established in their field, the biotechnology industry in general is an emerging
growth industry. Biotechnology companies are regulated by the FDA to the same
extent as traditional drug companies. They are also subject to the same risks as
drug companies are, as to potential restrictions on price increases which may be
imposed by the Clinton administration. As emerging growth companies, they may be
thinly capitalized and more susceptible to general market fluctuations
11
<PAGE>
than companies with greater capitalization. Also, the stocks of emerging growth
companies trade at higher price-to-earnings multiples than the stocks of more
established companies because the price is more influenced by investor
confidence in future earnings than recorded historic earnings. Therefore, the
stock prices can be extremely volatile as investor confidence rises or ebbs or
as the issuer or its competitors announce new products. In addition, the
liquidity of the stocks of young companies can be limited and therefore subject
to greater price fluctuations when large numbers of shares are bought and sold.
These companies often have a limited operating history with inexperienced but
highly motivated management, who may retain effective control over the voting
stock of the company. Earnings are generally retained to finance the company's
expansion and thus no dividends may be paid and additional capital may be
required to market new products on a commercial basis. The biotechnology
companies may also be dependent for their revenues upon only a few products and
upon larger drug companies (who may be their competitors) to produce and market
their products. This dependence upon a limited range of products increases the
damage that would be caused by product obsolescence, a risk that is greater in a
rapidly developing area like biotechnology. There exists doubt as to the extent
of patent protection that will be afforded products developed through
biotechnology. At its simplest, biotechnology involves the identification of
genes that produce proteins useful in the combat of disease. Once identified,
the gene can be separated and used to produce commercial quantities of the
protein. As the protein production processes are broadly similar, patent
protection has generally been extended only to the identified gene. This allows
the identified gene to be used offshore to produce the drug for sale in the
United States, without any infringement of U.S. patent law. If this practice
were to become widespread it would significantly affect the revenues of
biotechnology companies. The application of patent law to biotechnology in
general is the subject of much academic and legislative attention which may
result in changes in the law.
HMOs are subject to federal and state regulation. Most states require HMOs
to provide periodic financial reports and some even require the HMOs to maintain
minimum reserve requirements. HMOs are paid a fixed membership fee and are not
reimbursed if the costs of treatment are greater than the prepaid fee. HMOs run
the risk that inflation, epidemics, lack of financial discipline among
professional staff and the need to acquire new technology will increase
treatment costs and erode profits. In addition, a significant number of an HMO's
enrollees may be Medicare beneficiaries whose membership fees are paid by the
Health Care Financing Administration ('HCFA') under so-called 'Senior Plans'.
Thus, for a fixed fee, HMOs are exposed to higher and more expensive health care
utilization by the elderly. The HCFA also regulates the profit an HMO can make
on a Senior Plan and the quality of care provided by a Senior Plan.
REGIONAL CONCENTRATIONS--MERRILL LYNCH EQUITY TRUST
The information set forth below has been extracted from various
governmental and private publications, but no representation can be made as to
its accuracy. It should be noted that the following figures are not seasonally
adjusted; furthermore, no representation is made that any correlation exists
among the local economies of the Washington, D.C., Maryland and Virginia areas
and the value of any of the Securities held by the Fund.
Washington, D.C. While the District of Columbia is primarily known as the
nation's capital, it is also an international city, a tourism and cultural
center and the central city of the ninth largest metropolitan area in the United
States. In 1990, the population of the District of Columbia was 606,000. The
1988 metropolitan area population of 3.734 million encompasses 15 additional
jurisdictions in Maryland and Northern Virginia.
The Washington metropolitan area has developed into a diverse economic
entity with Federal government employment providing a stable base for
significant expansions in services, aerospace, high technology and
communications and a site for corporate headquarters.
12
<PAGE>
Total employment in the metropolitan area was 2,154,600 in September 1992.
As of September 1992, government jobs provided 42.0% of employment in the
District and 27.7% in the metropolitan area. Private employment in the District
constituted 58.0% of jobs divided between services (37.7%), wholesale/retail
sales (8.3%), finance, real estate and insurance (4.9%), transportation and
public utilities (3.4%) and construction, manufacturing and mining (3.5%). The
metropolitan area as a whole follows a similar pattern. Total employment as of
September 1992 was 672,500 for the District of Columbia. Unemployment ran at
8.3% as of September 1992 for the District of Columbia, but ran at 5.1% for the
metropolitan area. Per capita income for the District of Columbia as of 1991 was
$24,063, approximately 126% of the United States average.
Maryland. In 1990, the population of Maryland was 4,781,468. The leading
areas of employment in Maryland are services (including mining), wholesale and
retail trade, government and manufacturing (primarily electric and electronic
equipment, printing and publishing, food and kindred products, non-electrical
machinery, primary metals, transportation equipment, chemicals and allied
products). As of September 1992, the most significant sources of personal income
were services (including mining) (30.2%), wholesale and retail trade (24.1%),
government (19.6%) and manufacturing (9.0%). In contrast to the nation as whole,
more people in Maryland are employed in government than manufacturing. Total
employment as of October 1990 was 2,051,000 for Maryland, and unemployment ran
at 6.9% as of September 1992. Per capita income for Maryland as of 1991 was
$22,189, approximately 116% of the United States average.
Virginia. In 1990, the population of The Commonwealth of Virginia (the
'Commonwealth') was 6,187,358. Among the 50 states, it ranked twelfth in
population. Total employment in Virginia as of September 1992 was 3,109,600 and
unemployment ran at 6.4% as of September 1992. Per capita income for Virginia as
of 1991 was $20,082, approximately 105% of the United States average. The
economy of Virginia is based primarily on manufacturing, the government sector,
agriculture, mining and tourism.
Like the nation, the Commonwealth has a high percentage of its citizens
living in urban areas. Virtually all of the Commonwealth's population growth
between 1950 and 1970 occurred in these areas. During the 1970's, however,
non-metropolitan areas grew at a slightly faster rate than the metropolitan
areas. Since 1980, this trend has been reversed with the metropolitan areas
growing at three times the rate of the rest of the Commonwealth. Seventy-two
percent of the Commonwealth's population lives in eight metropolitan areas.
The Commonwealth has maintained a high level of fiscal stability for many
years due in large part to conservative financial operations and diverse sources
of revenue. As a result of recessionary conditions, the Commonwealth has
experienced and is projecting severe revenue shortfalls, which have necessitated
revision of the budget for the 1990-92 biennium. Matching expenditure cuts have
kept the budget in balance. No significant new taxes or increases in the scope
or amount of existing taxes were passed at the 1992 session of the General
Assembly.
The Commonwealth has a Standard & Poor's rating of AAA and a Moody's rating
of Aaa on its general obligation bonds. There can be no assurance that the
economic conditions on which these ratings are based will continue or that
particular bond issues may not be adversely affected by changes in economic or
political conditions.
More than 3 million residents of the Commonwealth are in the civilian labor
force. Industries providing the largest number of jobs are services, wholesale
and retail trade, government and manufacturing.
13
<PAGE>
REGIONAL CONCENTRATIONS--NORTHWEST INVESTMENT TRUST
The information set forth below is based on various governmental and
private publications, but no representation can be made as to its accuracy;
furthermore, no representation is made that any correlation exists among the
local economy of the Pacific Northwest region and the value of any of the
Securities held by the Fund.
The Pacific Northwest region, including the states of Washington, Oregon,
Idaho, Montana and Alaska, continued to grow in 1992 at growth rates that were
approximately the same as in 1991. The rate of growth varied throughout the
region, however, and the employment reductions at The Boeing Company, the
region's largest industrial employer, indicate economic uncertainty in 1993.
Resource sectors of the economy in the Pacific Northwest that historically
were sources of growth are not currently positioned to add to the rate of growth
of the economy. The timber and forest products industry, for example, the
largest industry in the region, showed continuing signs of weakness, and
reductions in employment in 1992, with the supply of timber in the region
reduced by environmental concerns. Similarly, the availability of low-cost
hydroelectric power may be reduced because of concerns over the survival of
salmon species in the Columbia River Basin. New hydroelectric dam construction
has been largely curtailed, and the operation of existing dams has been
restricted.
The region continued to benefit, however, from a number of economic factors
in the last year, including substantial immigration from other areas of the
United States, especially from California, which experienced an economic
decline. Economists project that the well-educated work force and quality of
life available in the Pacific Northwest will remain stronger than in the U.S. as
a whole, continuing the inflow of new residents and business. Agriculture and
food processing, another significant Pacific Northwest industry, experienced
modest growth in 1992, limited in part by the drought that was not relieved
until the end of the year. The aerospace industry centered in the Puget Sound
area suffered from the continued shrinking backlog of orders at Boeing; this
downturn could adversely affect the economy of the State of Washington in 1993,
especially in the Puget Sound area in the western part of the State. The
high-technology companies based in Seattle, Portland and Boise, saw their
markets grow in 1992, led by Microsoft and other computer software companies.
The Pacific Northwest, the region of the United States that depends most heavily
on international trade, is also well positioned for expanding Pacific Rim trade,
however to the extent that there are trade frictions between the United States
and the Pacific Rim, the Pacific Northwest may be more adversely affected than
other parts of the country.
The economic performance in the region differs from state to state. In
1992, Idaho, Eastern Washington and Montana experienced greater growth rates
than elsewhere in the region; notwithstanding the national recession, however,
every state in the region had positive growth, although at much slower rates
than in 1990 and 1989.
WESTERN EUROPE--THE NEW EUROPE TRUST
By the end of 1992, it had been planned that many remaining barriers to
free trade among the 12 member nations of the European Economic Community (the
'EEC') would be removed, making Europe one of the largest common markets in the
world. Certain barriers to trade, notably barriers in the agricultural industry,
have proven more difficult to remove and thus slow considerably the process of
market integration. The future pace and extent of the removal of these trade
barriers is uncertain. The EEC member countries are: Belgium, France, Germany,
Luxembourg, Italy, The Netherlands, Portugal, Spain, Greece, Ireland, Denmark
and the United Kingdom. The Fund contains Securities issued by large
multi-national companies that are organized or have a principal place of
business in one of four EEC member countries and are organized or have a
principal place of business in one of two non-EEC member countries. (See
Portfolio in Part A.)
14
<PAGE>
The recent rapid political and social change throughout Europe, including
the reunification of Germany on October 3, 1990, the Persian Gulf Crisis, the
dissolution of the Soviet Union and the turmoil in the currency markets in 1992
make the extent and nature of future economic development in Europe and the
impact of such development upon the value of the Securities in the Fund
impossible to predict at present. The German economy, traditionally one of
Western Europe's strongest, could be hampered by the problems encountered in
absorbing the centrally planned economy of the former East Germany into the
market-oriented economy of the former West Germany. Volatility in oil prices
could slow economic development throughout Western Europe; moreover, it is not
possible accurately to predict the effect of the current political and economic
situation upon the long-term inflation and balance of trade cycles and how these
changes would affect the currency exchange rate between the U.S. Dollar and
Western European currencies. It should also be noted that the business
performance of a multi-national corporation may be subject to the political and
economic climates of each of the countries in which it does business. These
countries may be located outside of Europe. In addition, the economic activity
in Germany in the final months of 1992 and 1993 will be slower than previously
expected. It appears that there is continuing weakness in the United Kingdom and
other Anglo-Saxon economies despite earlier expectations that recoveries would
be underway by now and despite the generally sizeable reduction in interest
rates. European growth is likely to be below potential in 1993, with weak
confidence, tightening of fiscal policy and real estate problems the three key
factors depressing growth prospects. Lower short-term interest rates should
materialize during the course of the year, however, and the single european
market will finally prove to be a reality. Moreover, the Maastricht Treaty which
paves the way for a deeper union in Europe is expected to be ratified and the
situation in eastern Europe should start to improve. In this light, economic
prospects should improve in the later years of the 1990s.
United Kingdom. The New Europe Trust may be concentrated in Securities of
companies in the United Kingdom. The information set forth below has been
extracted from various governmental and private publications, but no
representation can be made as to its accuracy; furthermore, no representation is
made that any correlation exists between the state of the economy of the U.K.
and the value of any Securities held by the Fund. The economy of the United
Kingdom is focused upon the private services sector, which includes the
wholesale and retail sector, banking, finance, insurance, and tourism. Services
as a whole account for a majority of the United Kingdom's gross national product
and make a significant contribution to the country's balance of payments. London
is one of the world's major financial centers, with a substantial part of the
business international in nature. The continuance of London as an international
financial center is dependent on, among other things, a favorable regulatory
regime and its success against foreign competition.
Currently, it appears that there are signs of economic recovery in the
United Kingdom. Interest rate reductions have begun to have some effect in
boosting the domestic economy and monetary growth has started to improve. The
weakening of sterling against other European currencies will help exports in the
context of weak continental European markets. However, the scope for further
reductions in interest rates is limited and relative sluggish growth in 1993 may
not be sufficient to prevent the unemployment rate from rising further.
Foreign Issuers. Investments in Funds consisting partially or entirely of
securities of foreign issuers involve investment risks that are different in
some respects from an investment in a fund that invests partially or entirely in
securities of domestic issuers. Those investment risks include future political
and economic developments and the possible establishment of exchange controls or
other governmental restrictions which might adversely affect the payment or
receipt of payment of dividends on the relevant Securities. In addition, for the
foreign issuers that are not subject to the reporting requirements of the
Securities Exchange Act of 1934, there may be less publicly
15
<PAGE>
available information than is available from a domestic issuer. Also, foreign
issuers are not necessarily subject to uniform accounting, auditing and
financial reporting standards, practices and requirements such as those
applicable to domestic issuers. However, the Sponsors anticipate that adequate
information will be available to allow the Sponsors to supervise the Portfolio
as set forth in Administration of the Fund--Portfolio Supervision. The
percentage of foreign issuers represented in the Fund, if any, is set forth
under Investment Summary in Part A.
Securities issued by non-U.S. issuers whose earnings are stated in foreign
currencies may pay dividends in foreign currencies, and even if purchased by the
Fund in American Depositary Receipt ('ADR') form in the United States, are
principally traded in foreign currencies. Most foreign currencies have
fluctuated widely in value against the United States dollar for many reasons,
including supply and demand of the respective currency, the soundness of the
world economy and the strength of the respective economy as compared to the
economies of the United States and other countries. Therefore, for those
securities of issuers whose earnings are stated in foreign currencies, or which
pay dividends in foreign currencies or which are traded in foreign currencies,
there is a risk that their United States dollar value will vary with
fluctuations in the United States dollar foreign exchange rates for the relevant
currencies. Moreover, for those Securities that are ADRs, currency fluctuations
will affect the U.S. dollar equivalent of the local currency price of the
underlying domestic share and, as a result, are likely to affect the value of
the ADRs and consequently the value of the Securities. In addition, the rights
of holders of ADRs may be different than those of holders of the underlying
shares, and the market for ADRs may be less liquid than that for the underlying
shares.
ADRs evidence American Depositary Shares which, in turn, represent common
stock deposited with a custodian in a depositary. ADRs may be sponsored or
unsponsored. In an unsponsored facility, the depositary initiates and arranges
the facility at the request of market makers and acts as agent for the ADR
holder, while the company itself is not involved in the transaction. In a
sponsored facility, the issuing company initiates the facility and agrees to pay
certain administrative and shareholder-related expenses. Sponsored facilities
use a single depositary and entail a contractual relationship between the
issuer, the shareholder and the depositary; unsponsored facilities involve
several depositaries with no contractual relationship to the company. ADRs are
registered securities pursuant to the Securities Act of 1933 and may be subject
to the reporting requirements of the Securities Exchange Act of 1934.
Foreign Exchange Rates. A Portfolio of securities that are principally
traded in foreign currencies involves investment risks that are substantially
different from an investment in a fund which invests in securities that are
principally traded in United States dollars. This is because the United States
dollar value of the Portfolio (and hence of the Units) and of the distributions
from the Fund will vary with fluctuations in the United States dollar foreign
exchange rates for the relevant currencies.
The post-World War II international monetary system was, until 1973,
dominated by the Bretton Woods Treaty, which established a system of fixed
exchange rates and the convertibility of the United States dollar into gold
through foreign central banks. Starting in 1971, growing volatility in the
foreign exchange markets caused the United States to abandon gold convertibility
and to effect a small devaluation of the United States dollar. In 1973, the
system of fixed exchange rates between a number of the most important industrial
countries of the world, among them the United States and most Western European
countries, was completely abandoned. Subsequently, major industrialized
countries have adopted 'floating' exchange rates, under which daily currency
valuations depend on supply and demand in a freely fluctuating international
market. Many smaller or developing countries have continued to 'peg' their
currencies to the United States dollar although there has been
16
<PAGE>
some interest in recent years in 'pegging' currencies to 'baskets' of other
currencies or to a Special Drawing Right administered by the International
Monetary Fund. In Europe a European Currency Unit ('ECU') has been developed.
Currencies are generally traded by leading international commercial banks and
institutional investors (including corporate treasurers, money managers, pension
funds and insurance companies). From time to time, central banks in a number of
countries also are major buyers and sellers of foreign currencies, mostly for
the purpose of preventing or reducing substantial exchange rate fluctuations.
Certain of the countries represented in the Fund may be members of the
European Monetary System ('EMS'), which started operating in 1979. The aim was
to create 'a zone of monetary stability in Europe' centered around the Exchange
Rate Mechanism ('ERM') and the ECU. In addition, one of the EMS' aims was to
coordinate exchange rate policies vis-a-vis third currencies, principally the
U.S. dollar. The creation of a 'zone of monetary stability', to help member
countries reduce exchange rate volatility and to control inflation, was a prime
objective of EMS. The exchange rate mechanism was devised to limit the
fluctuations of participating currencies to agreed bands. The currencies have a
central rate against the ECU which is determined by the central bank of each
participating country, and the currencies are permitted to fluctuate within
certain limits against their ECU central rates. The degree to which a currency
fluctuates about this central rate is measured as a divergence indicator. Thus
if a currency moves by the full extent of its limit, the divergence indicator
would register 100%. A threshold divergence of 75% has been set as an early
warning indicator and if the divergence indicator reaches this 75% threshold,
there is a presumption that action will be taken. This was designed to encourage
the monetary authorities to take remedial action before the full fluctuation
margin is reached. Such action will normally take the form of official
intervention in the foreign exchange markets reinforced, if necessary, by other
policy measures. The system also allows for an adjustment for realignment of
central rates, subject to mutual agreement between participating members, if
economic circumstances make such action unavoidable.
During September 1992, the weaker currencies in the ERM came under pressure
against the D-mark and demonstrated the limited ability of a government or
central bank to manage the relative value of their currency. A modest cut in
short-term German interest rates and a 7% devaluation of the Italian lira failed
to stabilize European foreign exchange markets. The British pound came under
pressure and measures which included heavy central bank intervention and a
substantial increase in short-term interest rates failed to halt the pound's
decreasing relative value. The U.K. eventually 'suspended' the pound from the
ERM and allowed it to float. The lira came under further pressure and efforts
which included central bank intervention and a proposed austerity budget
designed to reduce Italy's burgeoning budget deficit failed to halt the lira's
decreasing relative value. The lira was 'temporarily withdrawn' from the ERM.
The Spanish peseta was devalued by 5% and the government of Spain reinstituted
capital controls which had been lifted only eight months before. Among other
events that caused uncertainty in the foreign exchange markets were a narrow
approval of the Maastricht Treaty in a French referendum, the defeat of that
same treaty in a Danish referendum, the German unification and German interest
rates, as well as the continued growth of the German money supply well in excess
of the Bundesbank's targets. Other European currencies have also come under
pressure and approached ERM floors. The Bundesbank joined the Bank of France in
market intervention efforts in the defense of the franc. The ERM is no longer
functioning in the manner that was intended. It cannot be determined what form
the ERM will take in the future, should it survive.
Exchange rate fluctuations are partly dependent on a number of economic
factors including economic conditions within countries, the impact of actual and
proposed government policies on the value of currencies, interest rate
differentials between the currencies and the balance of imports and exports of
goods and services and transfers of income and capital from one country to
another. These economic factors are influenced primarily by a
17
<PAGE>
particular country's monetary and fiscal policies (although the perceived
political situation in a particular country may have an influence as
well--particularly with respect to transfers of capital). Investor psychology
may also be an important determinant of currency fluctuations in the short run.
Moreover, institutional investors trying to anticipate the future relative
strength or weakness of a particular currency may sometimes exercise
considerable speculative influence on currency exchange rates by purchasing or
selling large amounts of the same currency or currencies. However, over the long
term, the currency of a country with a low rate of inflation and a favorable
balance of trade should increase in value relative to the currency of a country
with a high rate of inflation and deficits in the balance of trade.
Some currencies have fluctuated considerably in value relative to the
United States dollar in the past ten years, as indicated in the following table:
FOREIGN EXCHANGE RATES
RANGE OF FLUCTUATIONS IN FOREIGN CURRENCY EXPRESSED IN UNITED STATES DOLLARS
</TABLE>
<TABLE>
<CAPTION>
UNITED GERMANY THE
KINGDOM DEUTSCHE FRANCE NETHERLANDS
POUND STERLING MARK FRENCH FRANC GUILDER
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1981 2.429 - 1.771 .5177 - .3891 .2235 - .1627 .4756 - .3502
1982 1.927 - 1.584 .4459 - .3816 .1759 - .1365 .4101 - .3475
1983 1.625 - 1.414 .4286 - .3598 .1514 - .1180 .3878 - .3206
1984 1.494 - 1.159 .3917 - .3175 .1273 - .1038 .3471 - .2812
1985 1.489 - 1.053 .4089 - .2895 .1333 - .0946 .3625 - .2555
1986 1.555 - 1.377 .5197 - .4039 .1569 - .1313 .4565 - .3550
1987 1.879 - 1.471 .6346 - .5182 .1872 - .1557 .5641 - .4565
1988 1.905 - 1.664 .6346 - .5211 .1872 - .1537 .5641 - .4615
1989 1.823 - 1.515 .5927 - .4927 .1734 - .1453 .5251 - .4375
1990 1.976 - 1.594 .6802 - .5808 .2015 - .1701 .6026 - .5148
1991 2.000 - 1.602 .6918 - .5449 .2029 - .1607 .6141 - .4840
1992 2.004 - 1.512 .7189 - .5967 .2111 - .1753 .6382 - .5300
</TABLE>
<TABLE>
<CAPTION>
ITALY DENMARK SWITZERLAND NORWAY
LIRA KRONE FRANC KRONE
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1981 .0011 - .0008 .1677 - .1239 .5731 - .4533 .1955 - .1591
1982 .0008 - .0007 .1370 - .1089 .5580 - .4469 .1730 - .1363
1983 .0007 - .0006 .1210 - .0996 .5204 - .4503 .1439 - .1281
1984 .0006 - .0005 .1067 - .0881 .4742 - .3845 .1350 - .1099
1985 .0006 - .0005 .1121 - .0807 .4854 - .3419 .1320 - .1016
1986 .0007 - .0006 .1371 - .1098 .6213 - .4747 .1449 - .1278
1987 .0009 - .0007 .1645 - .1366 .7843 - .6144 .1606 - .1356
1988 .0009 - .0007 .1645 - .1363 .7843 - .6204 .1630 - .1430
1989 .0008 - .0007 .1520 - .1269 .6678 - .5575 .1540 - .1360
1990 .0009 - .0008 .1772 - .1496 .8042 - .6338 .1736 - .1504
1991 .0009 - .0007 .1790 - .1411 .8097 - .6295 .1764 - .1397
1992 .0009 - .0007 .1859 - .1531 .8153 - .6462 .1816 - .1445
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SPAIN SWEDEN BELGIUM
PESETA KRONA FRANC
---------------------------------------------------------------------
<S> <C> <C> <C>
1981 .013 - .010 .2314 - .1770 .0320 - .0219
1982 .010 - .008 .1812 - .1294 .0239 - .0189
1983 .008 - .006 .1387 - .1231 .0210 - .0174
1984 .007 - .006 .1311 - .1114 .0187 - .0156
1985 .007 - .005 .1319 - .1030 .0198 - .0143
1986 .008 - .006 .1480 - .1299 .0247 - .0193
1987 .009 - .008 .1729 - .1477 .0301 - .0244
1988 .009 - .008 .1729 - .1526 .0301 - .0246
1989 .009 - .008 .1645 - .1468 .0281 - .0235
1990 .011 - .009 .1807 - .1598 .0330 - .0277
1991 .011 - .009 .1836 - .1507 .0335 - .0265
1992 .011 - .009 .1967 - .1413 .0349 - .0289
</TABLE>
Source: Datastream International, Inc.
19
<PAGE>
The Trustee and Evaluator will estimate current exchange rates for the
relevant currencies based on activity in the various currency exchange markets.
However, since these markets are volatile and are constantly changing, depending
on the activity at any particular time of the large international commercial
banks, various central banks, large multi-national corporations, speculators and
other buyers and sellers of foreign currencies, and since actual foreign
currency transactions may not be instantly reported, the exchange rates
estimated by the Trustee or the Evaluator may not be indicative of the amount in
United States dollars the Fund would receive had the Trustee sold any particular
currency in the market.
The foreign exchange transactions of the Fund may be concluded by the
Trustee with foreign exchange dealers acting as principals either on a spot
(i.e., cash) buying basis or on a forward foreign exchange basis on the date the
Fund is entitled to receive the applicable foreign currency. These forward
foreign exchange transactions will generally be of as short a duration as
practicable and will generally settle on the date of receipt of the applicable
foreign currency involving specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio and income received on
the Securities, or the sale and redemption of Units of the Fund. These
transactions are accomplished by contracting to purchase or sell a specific
currency at a future date and price set at the time of the contract. The cost to
the Fund of engaging in these foreign currency transactions varies with such
factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency
exchange are usually conducted on a principal basis, fees or commissions are not
normally involved. Although foreign exchange dealers trade on a net basis they
do realize a profit based upon the difference between the price at which they
are willing to buy a particular currency (bid price) and the price at which they
are willing to sell the currency (offer price). The relevant exchange rate used
for evaluations of the Securities will include the cost of buying or selling, as
the case may be, of a seven-day forward foreign exchange contract in the
relevant currency to correspond to the requirement that Units when purchased
settle on a regular basis and that the Trustee settle redemption requests in
United States dollars within seven days.
Exchange Controls. On the basis of the best information available to the
Sponsors at the present time none of the Securities, except as indicated under
Investment Summary in Part A, is subject to exchange control restrictions under
existing law which would materially interfere with payment to the Fund of
amounts due on the Securities either because the particular jurisdictions have
not adopted any currency regulations of this type or because the issues qualify
for an exemption or the Fund, as an extraterritorial investor, has qualified its
purchase of the Securities as exempt by following applicable 'validation' or
similar regulatory or exemptive procedures. However, there can be no assurance
that exchange control regulations might not be adopted in the future which might
adversely affect payments to the Fund.
In addition, the adoption of exchange control regulations and other legal
restrictions could have an adverse impact on the marketability of international
securities in the Portfolio and on the ability of the Fund to satisfy its
obligation to redeem Units tendered to the Trustee for redemption (see
Redemption).
Liquidity. Certain of the Securities may have been purchased in ADR form in
United States dollars. However, foreign securities which are not available in
ADR form generally have not been registered under the Securities Act of 1933 and
may not be exempt from the registration requirements of the Act. Sales of
non-exempt Securities by the Fund in United States securities markets are
subject to severe restrictions and may not be practicable. Accordingly, sales of
these Securities by the Fund will generally be effected only in foreign
securities markets. Although the Sponsors do not believe that the Fund will
encounter obstacles in disposing of the Securities, investors should realize
that many of the Securities may be traded in foreign countries where the
20
<PAGE>
securities markets are not as developed or efficient and may not be as liquid as
those in the United States. To the extent the liquidity of these markets becomes
impaired, however, the value of the Fund when responding to a substantial volume
of requests for redemption of Units (should redemptions be necessary despite the
market making activities of the Sponsors) received at or about the same time
could be adversely affected. This might occur, for example, as a result of
economic or political turmoil in a country in whose currency the Fund had a
substantial portion of its assets invested, or should relations between the
United States and such foreign country deteriorate markedly. Even though the
Securities are listed, 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
any Sponsor. 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.
Foreign Securities Markets. Differences may exist between trading patterns
on and the behavior of foreign securities markets, as compared with the trading
patterns on and the behavior of United States securities markets. The following
table sets forth price earnings ratios for some of the countries in the
Portfolio:
<TABLE>
<CAPTION>
UNITED THE
KINGDOM GERMANY FRANCE SWITZERLAND ITALY NETHERLANDS SPAIN
----------- ----------- ----------- ------------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1985-89 average 11.7 16.9 13.4 18.6 22.5 10.4 13.6
1989 11.0 17.0 13.5 14.6 18.8 10.2 14.0
1990 10.9 19.9 14.4 14.0 18.7 12.3 10.6
January 24, 1991 9.5 15.2 10.9 11.0 13.4 8.9 8.1
December 23, 1992 17.5 15.1 11.4 12.4 21.1 12.0 8.7
SWEDEN
-----------
1985-89 average 11.9
1989 12.3
1990 11.8
January 24, 1991 8.7
December 23, 1992 23.3
</TABLE>
- ------------------
Source: Merrill Lynch & Co. Global Securities Research & Economics Group
International Research Department
Because of the increasing globalization of securities markets and other factors,
the price earnings ratios of certain Securities included in the Portfolio may
decline and so negatively affect the value of Units. Of course, such factors as
book value of the Securities, dividend yield of the Securities and the industry
of the issuer of the Securities will also affect the value of the Securities and
thus the value of Units.
REBUILDING TRUST
The Industrial Machinery Manufacturing Industry. The Portfolio may be
concentrated in common stocks of companies engaged in the industrial machinery
industry. These include companies that manufacture industrial machinery such as
industrial tools, automotive products, oil and gas measuring devices, compressor
pumps, mining equipment and other processes used in the upgrading of plant and
equipment.
Growth in the industrial machinery industry is closely linked to expansion
in the domestic and global economies and to lower interest rates. Investors
should therefore be aware that because of the continuing threat of recession and
higher interest rates, among other factors, global conditions otherwise favoring
increased demand for the products of issuers engaged in the industrial machinery
industry may not actually result in increases in the demand for these products.
Moreover, even if anticipated increases in the demand for the products of
issuers engaged in this industry do in fact materialize, continuing recessionary
pressure in the U.S. and global economies and securities markets could have the
effect of decreasing the value of stocks of the issuers.
21
<PAGE>
Some analysts have predicted that world oil prices would fall as a result
of the cessation of hostilities in the Persian Gulf in the beginning of 1992 and
the increasing ineffectiveness of the OPEC cartel in maintaining high prices. A
fall in the price of oil could lead to a decrease in demand for industrial
machinery products as companies engaged in oil exploration, drilling, refining
or marketing businesses find it less profitable to expand capacity. Moreover,
expansion in these businesses could be hampered by decreases in profit margins
as a result of stricter environmental regulation domestically and abroad, also
with the effect of decreasing the demand for the products of issuers in the
industrial machinery industry. Conversely, higher energy costs in general could
have the effect of slowing the pace of economic development with a resulting
decrease in demand for industrial machinery.
Certain of these industrial machinery manufacturing companies may derive
substantial revenues from government contracts or may incur risks with respect
to the provision of capital goods and services abroad (see below). Environmental
and safety issues increasingly affect the industrial machinery industry. Issuers
engaged primarily in the industrial machinery industry may experience decreases
in profitability as legislative mandates impose costs associated with
manufacturing more environmentally sound and safer equipment.
Foreign Operations. Certain of the issuers may provide products and
services abroad; some may maintain manufacturing and sales facilities offshore
to take advantage of international market opportunities or engage in joint
ventures with foreign entities. Some of these corporations may experience
short-term increases in demand for their products in connection with the
rebuilding effort in Kuwait although there can be no assurance that the
intermediate or long term prospects for these issuers will be favorable as
outlays for the rebuilding effort increase over time. Also, since contracts may
often be concluded with entities or governments of unstable foreign nations in,
for example, Eastern Europe, South America or the Middle East, completion of and
payment for certain products and services will be subject to the risks
associated with political instability such as the risk of insurrection,
hostilities from the local population, government policies against businesses
owned by non-nationals and the possibility of expropriation. Certain of these
nations may not honor obligations under contracts when payments are due.
Furthermore, it may be more difficult to enforce a judgment against a foreign
contracting party. Also, certain of the United States issuers whose securities
may be contained in the Fund may be required to compete with foreign companies
that benefit from foreign governmental assistance.
Government Contracts. Certain of the issuers may derive substantial
revenues from government contracts. Government contracts may contain unfavorable
provisions, including provisions allowing the government to terminate these
contracts without prior notice, or to audit and redetermine amounts payable to
the issuer pursuant to these contracts or to require the issuer to pay for cost
overruns. Additionally, legislation to limit excess profits on government
contracts is introduced in the United States Congress from time to time.
Due to the fact that the federal government and many state, local and
foreign governments now have a budget deficit, financial expenditures by these
entities on capital structure improvements may be severely limited. This could
have an adverse effect on the revenues of the companies contained in the Fund.
Foreign Issues. Since certain of the Securities in the Trust are securities
of foreign issuers, an investment in the Fund involves some investment risks
that are different in some respects from an investment in a fund that invests
entirely in securities of domestic issuers. Some of the securities of foreign
issuers are purchased in ADR form in the United States. Certain of the
Securities in the Portfolio may have been issued by non-U.S. issuers whose
earnings are stated in foreign currencies. (See Western Europe--The New Europe
Trust--Foreign Issuers; Foreign Exchange Rates; and Liquidity above)
22
<PAGE>
REBUILDING AMERICA TRUST
Manufacturing Industry. The Fund may be concentrated in stocks of the
manufacturing industry. Growth in the manufacturing industry is closely linked
to expansion in the domestic and global economies. The ongoing global recession
with its consequent effect on industrial growth, employment and consumer
spending in addition to any increase in oil prices or in interest rates may lead
to a decrease in demand for the products of companies engaged in manufacturing
industrial and automotive products. Also, since the federal government and many
state, local and foreign governments now have a budget deficit, financial
expenditures by these entities on capital improvements may be extremely limited.
The lack of funds allocated by public entities to capital improvement projects
may adversely affect manufacturers engaged in the production of industrial
materials used for capital improvements or for the upgrade of the
infrastructure. Indeed, government contracts with certain issuers may contain
unfavorable provisions, including provisions allowing the government to
terminate these contracts without prior notice, or to audit and redetermine
amounts payable to the issuer pursuant to these contracts or to require the
issuer to pay for cost overruns. Additionally, legislation to limit excess
profits on government contracts is introduced in the United States Congress from
time to time. Cutbacks in defense spending by the federal government will also
adversely impact companies engaged in the aerospace and arms/defense sectors of
the manufacturing industry.
Environmental and safety issues increasingly affect the manufacturing
industry. Issuers may experience decreases in profitability as legislative
mandates impose costs associated with compliance with environmental regulations
and manufacturing more environmentally sound and safer equipment. Furthermore,
the cost of product liability insurance and the inability of some manufacturing
companies to obtain this insurance may have an adverse impact on the industry.
Financial Accounting Standard Board regulations with regard to accounting for,
among other things, post retirement benefits may lead to changes in accounting
which could have significant negative effects on reported earnings and reported
long term liabilities and book value of some manufacturing companies. The real
estate market glut and the consequent lack of demand for new home and office
construction will affect the demand for certain tools and industrial machinery
products. Inflation, slow growth in personal disposable income, tighter loan
qualification standards, higher downpayments, the lower rate of job creation,
increased cost of vehicle ownership and operation and oil prices will also
affect companies engaged in manufacturing, particularly in the automotive
industry. Shortages of skilled labor, particularly in the machine tools
industry, may become a major problem in the future.
The long-term outlook is largely dependent upon the growth and
competitiveness of the U.S. manufacturing base. Increased consolidation and
merger activity increases competitiveness in general but individual companies
may experience severe financial problems due to this increased competitiveness.
Strong competition from foreign nations, particularly Pacific Rim countries
which have lower labor costs, will severely impact the profitability of the U.S.
manufacturing business. The continuing establishment of manufacturing and sales
facilities abroad to take advantage of international marketing operations is
crucial and the success of these foreign operations will be affected by the
strengthening of the dollar which could lead to a decrease in demand for U.S.
products, the outcome of trade negotiations which will affect foreign tariffs on
U.S. exports aborad and U.S. taxes on foreign imports to the U.S. and the
ability to provide attractive financing packages to customers in the current
tight credit market.
Common stocks of companies engaged in manufacturing or providing capital
goods or services for the construction, repair or improvement of industrial
plant and equipment or the nation's infrastructure may be especially susceptible
to general stock market fluctuations and to volatile increases and decreases of
value as
23
<PAGE>
market confidence in and perception of the issuers change and to changes in the
U.S. economy. Investors should be aware that the Securities were not chosen on
the basis of income-producing potential and the issuers of the securities may
not even pay dividends on outstanding common shares. Any distributions of income
will generally depend upon the declaration of dividends by the issuers of the
Securities in the Portfolio and the declaration of any dividends depends upon
several factors including the financial condition of the issuers and general
economic conditions. In addition, the common stocks of certain of these issuers
may be relatively illiquid and, therefore, the Sponsors' purchases may tend to
raise their market prices and sales may tend to decrease their prices.
24
<PAGE>
NATURAL GAS COMPANIES.
The Portfolio may be concentrated in common stocks of companies engaged in
the exploration and production, transmission or distribution of natural gas.
(See Risk Factors--Energy Companies.) These may include integrated natural gas
companies that explore for and produce natural gas and transport and deliver it
to customers; natural gas transmission companies, commonly called pipelines,
that sell at wholesale to other pipelines and to distribution companies; natural
gas distribution companies that service residential, commercial and industrial
customers; natural gas exploration and production companies; and drilling
companies that service natural gas exploration and production companies. These
companies derive or are expected to derive at least 25% of their sales and
operating income from the natural gas industry. Factors which the Sponsors
believe may increase demand for natural gas include the encouragement of the use
of natural gas by the recent amendments to the Clean Air Act, the cleanliness of
natural gas as a fuel coupled with the increased concern about the environment,
use by electric utilities of natural gas as a primary fuel source as a result of
the repeal of the Fuel Use Act in 1987 and the increased use of natural gas in
co-generation of electricity. The profitability of natural gas operations could
be enhanced by the 1990 amendments to the Clean Air Act, which should increase
demand for natural gas products by electric utilities and other energy
consumers. The Commerce Department predicts that natural gas will be a growing
source of energy during the 1990s, because of projected higher costs for oil and
because natural gas is a cleaner burning fuel. The transportation industry may
make increased use of natural gas in order to meet more stringent mileage and
emissions requirements. There are significant constraints on increased use of
natural gas, however, including a potential need for additional pipelines.
Additionally, companies involved in natural gas processing may experience
difficulties in the long term if product prices do not keep pace with potential
increases in gas costs.
Natural gas utilities are generally subject to extensive regulation by
state utility commissions or by the Federal Energy Regulatory Commission
('FERC'), in the case of pipeline companies, which, for example, establish the
rates that may be charged and the appropriate rate of return on an approved
asset base. Certain natural gas utilities have had difficulty from time to time
in persuading regulators, who are subject to political pressures, to grant rate
increases necessary to maintain an adequate return on investment and voters in
many states have the ability to influence limits on rate adjustments (for
example, through election of utilities commissioners, by initiative or by
referendum). Any unexpected limitations could negatively affect the
profitability of natural gas utilities. In addition, gas pipeline and
distribution companies have had difficulties in adjusting to short and surplus
energy supplies, enforcing or being required to comply with long-term contracts
and avoiding litigation from their customers, on the one hand, or suppliers, on
the other.
General problems of the natural gas utility industry include difficulty in
obtaining timely and adequate rate increases, recovery of take-or-pay costs, the
uncertainty of transmission service costs for both interstate and intrastate
transactions, changes in tax laws which adversely affect a natural gas utility's
ability to operate profitably, reduced demand for natural gas in certain areas
of the country, competition from electricity and oil in the residential and
commercial markets, restrictions on operations and increased insurance premiums
and other costs and delays attributable to environmental considerations,
uncertain availability and increased cost of capital and availability and cost
of natural gas for resale. Pipeline companies may be subject to increased
competition because of approval by FERC of the construction of new pipelines and
delays because of the need to obtain FERC approval of new gas contracts. The
natural gas utility business is highly seasonal and weather sensitive. In
addition, natural gas competes directly with oil for industrial uses and large
industries have retained the flexibility to switch from natural gas to oil;
consequently, a fall in oil prices could prevent natural gas prices from rising
or result in a loss of customers because of conversions to oil. Natural gas
competes with coal in the utility market as a boiler fuel. Exploration and
production companies could be impacted in a period of declining natural gas
prices.
25
<PAGE>
Further, any future scientific advances concerning new sources of energy and
fuels or legislative changes with respect to the energy industry or the
environment could have a negative impact on the natural gas industry. And, while
legislation has recently been enacted to deregulate certain aspects of the
natural gas industry, no assurances can be given that new or additional
regulations will not be adopted. Each of the problems referred to could
adversely affect the financial stability of the issuers of any natural gas
stocks in the Trust.
THE FOOD AND BEVERAGE INDUSTRY.
The Portfolio may be concentrated in stocks of the food and beverage
industry, including manufacturers of packaged foods, processors of agricultural
products, beverage companies and food distributors. There are many factors that
may have an adverse impact on the value of the stocks of these companies and
their ability to pay dividends. These factors include the sensitivity of
revenues, earnings, and financial condition to economic conditions, changing
consumer demands or preferences, fluctuations in the prices of agricultural
commodities, fluctuations in the cost of other raw materials such as packaging,
and the effects of inflation on pricing flexibility. The revenues and earnings
of these companies can also be affected by extensive competition that can result
in lost sales or in lower margins resulting from efforts to maintain market
share. Food and beverage companies are also subject to regulation under various
federal laws--such as the Food, Drug, and Cosmetic Act--as well as state, local
and foreign laws and regulations. Costs associated with complying with changing
regulatory restrictions, such as food labeling requirements, could adversely
affect earnings. Food and beverage companies are also becoming increasingly
exposed to risk associated with international operation, including foreign
currency fluctuations and future political and economic developments in other
countries. Other
26
<PAGE>
risk factors include potential deterioration in financial condition resulting
from litigation related to product liability, accidents, or trademark or patent
disputes; unfunded pension liability; changing accounting standards, such as
Statement of Financial Accounting Standard No. 106, which requires accrual
accounting for postretirement benefits other than pensions; and leveraged
buyouts, takeovers, or recapitalizations.
WASTE MANAGEMENT COMPANIES AND ENVIRONMENTAL TECHNOLOGY COMPANIES.
The Portfolio may be concentrated in common stocks of companies engaged in
many aspects of pollution control or abatement. These include waste disposal
services (municipal, industrial and hazardous), environmental engineering and
consulting services (including asbestos removal, hazardous site remediation and
water resource management), manufacture of environmental supplies and equipment
or more energy efficient equipment or equipment using cleaner sources of energy,
and recycling. Waste management companies and environmental technology companies
may have a strong appreciation potential over the next five years because they
are engaged in providing a cleaner environment in response to growing public and
political demand and to legislative regulation both on the state level and the
federal level, such as the recent amendments to the Clean Air Act.
The Environmental Protection Agency (the 'EPA') considers the solid waste
disposal problem to present a crisis. 160 million tons of municipal solid waste
are produced each year in the United States and the country is running out of
solid waste disposal capacity. The EPA expects that by the year 2000, 190
million tons of solid waste will be produced annually.
Notwithstanding the above, however, waste management companies and
environmental technology companies are subject to extensive regulation. Among
the risks associated with the establishment, continued ownership and operation
of hazardous waste treatment, processing and disposal facilities are substantial
opposition by groups and governmental officials to the location and operation of
waste treatment and disposal facilities, the possible adverse effects on public
health and the environment that may be caused by wastes disposed of at the
sites, exposure to adverse publicity concerning alleged improper operating
activities, increased costs related to compliance with frequently changing
regulatory requirements, increased costs of obtaining required insurance
coverage, fines and civil damage liabilities, complex, costly, restrictive and
changing legislation at federal, state and local levels involving, among other
things, the securing of permits, groundwater monitoring requirements and
demonstrating financial responsibility, costs of conforming to prescribed or
changing standards and required methods of operation and judicial and
administrative proceedings initiated by federal, state and local governmental
bodies and private litigants regarding the location, operation or alleged
adverse environmental and health effects of treatment and disposal facilities.
The business of environmental technology companies benefits from the
strictness and degree of enforcement of laws for the protection of the
environment. Any relaxation of these laws or their enforcement could cause a
decline in the demand for services performed by these companies. In addition,
general problems of the environmental technology industry include difficulty in
financing the high costs of technological development, uncertainties in
developing technology, increasing pressure to diversify, high capital costs,
increased competition due to low barriers to entry, lack of experienced
management personnel and changing public and political opinion. Further, there
is a risk that political pressures may be asserted in the legislative process
resulting in mandated use of certain technologies that may be inefficient or may
not ultimately provide a cleaner environment.
Waste management companies and environmental technology companies are
generally characterized by intense competition with respect to many if not all
operations and thus may face losses generated by some of the following
27
<PAGE>
causes: large product development or expansion costs, unperfected marketing or
distribution systems, uneven revenue flows and lean profit margins. Therefore,
the results of operations may fluctuate widely from quarter to quarter and may
contribute to greater stock price volatility as investor confidence waxes or
ebbs. These companies often have a limited operating history with inexperienced
but highly motivated management, who may retain effective control over the
voting stock of the company. Because all earnings are generally retained to
finance the development and expansion of operations, certain waste management
companies and environmental technology companies may not pay dividends on common
stock. The lack of a dividend may induce volatility in the price of the stock.
In addition, the liquidity of common stock of waste management companies and
environmental technology companies may be limited and therefore subject to
greater price fluctuations when large numbers of shares are purchased or sold.
Investors should carefully review the objective of the Fund and consider their
ability to assume the risks involved before making an investment in the Fund.
LITIGATION AND LEGISLATION
From time to time Congress considers proposals 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.
Further, at any time after the Initial Date of Deposit, litigation may be
initiated on a variety of grounds, or legislation may be enacted, with respect
to the Securities in the Fund or the issuers of the Securities. There can be no
assurance that future litigation or legislation will not have a material adverse
effect on the Fund or will not impair the ability of issuers to achieve their
business goals.
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio consists of those Stocks listed under Portfolio in Part A. In
addition up to 10 percent of the value of the Portfolio of any Utility Common
Stock Series may consist of Other Fund Units of previously-issued Utility Common
Stock Series ('Other Funds') sponsored and underwritten by certain of the
Sponsors and acquired by the Sponsors in the secondary market. The Other Fund
Units represent interests in Securities in the portfolios of the Other Funds. As
used herein the term 'Stocks' means the stocks initially deposited in the Fund
and described under Portfolio in Part A and any additional stocks acquired and
held by the Fund pursuant to the provisions of the Indenture, and the term
'Securities' means the Stocks and any Other Fund Units. See Investment Summary
in Part A for a summary of particular matters relating to the Portfolio.
The portfolios underlying any Other Fund Units deposited with the Trustee
(no one of which represents more than 5%, and all of which represent less than
10%, of the aggregate value of the Portfolio) are substantially similar to that
of the Fund. The percentage of the Portfolio, if any, represented by Other Fund
Units at the Date of Deposit is set forth under Investment Summary in Part A.
The investment objectives of the Other Funds are similar to the investment
objective of the Fund, and the Sponsors and Trustee of the Other Funds have
responsibilities and authority paralleling in most important respects those
described in this Prospectus and receive fees not greater than those described
herein.
The Fund consists of the Securities listed under Portfolio in Part A
(including any Replacement Securities and Additional Securities deposited in the
Fund in connection with the sale of additional Units to the public as described
under Fund Structure above) as long as they may continue to be held from time to
time in the Fund
28
<PAGE>
together with accrued and undistributed income therefrom and undistributed and
uninvested cash realized from the disposition of Securities (see Administration
of the Fund--Portfolio Supervision). Neither the Sponsors nor the Trustee shall
be liable in any way for any default, failure or defect in any of the
Securities. However, should any contract to be deposited in connection with the
sale of additional Units fail (a 'Failed Security'), the Sponsors shall, on or
before the next following Distribution Day, cause to be refunded the
attributable sales charge, plus the attributable Cost of Securities to Fund
listed under Portfolio in Part A, unless substantially all of the moneys held in
the Fund to cover such purchase are reinvested in additional or replacement
Securities in accordance with the Indenture (see Administration of the
Fund--Portfolio Supervision).
The Indenture authorizes the Sponsors to increase the size and the number
of Units of the Fund by the deposit of Additional Securities and the issue of a
corresponding number of additional Units subsequent to the Initial Date of
Deposit (see Fund Structure). In addition, Securities may be sold under certain
circumstances (see Redemption; Administration of the Fund--Portfolio
Supervision). As a result, the aggregate value of the Securities in the
Portfolio will vary over time.
On the Evaluation Date each Unit represented the fractional undivided
interest in the Securities plus net income of the Fund set forth under
Investment Summary in Part A. Thereafter, if any Units are redeemed by the
Trustee, the aggregate value of Securities in the Fund will be reduced by
amounts allocable to redeemed Units, and the fractional undivided interest
represented by each Unit in the balance will be increased. However, if
additional Units are issued by the Fund, the aggregate value of Securities in
the Fund will be increased by amounts allocable to additional Units, and the
fractional undivided interest represented by each Unit in the balance will be
decreased. Units will remain outstanding until redeemed upon tender to the
Trustee by any Holder (which may include the Sponsors) or until the termination
of the Indenture (see Redemption; Termination).
SELECTION CRITERIA
In selecting Stocks for deposit into a Fund, the Sponsors (through their
agent, the Unit Investment Trusts division of Merrill Lynch) employed a
multi-step screening process which included review of the fundamental
creditworthiness of the particular issuer and liquidity of the issue and review
of the ratings assigned to a particular stock by other investment professionals.
Certain additional factors were considered for each individual Series type; some
of these factors are discussed below. Of course, because of the considerations
discussed in Part B-- Risk Factors, there can be no assurance of the existence
or continuance of any trend anticipated by the Sponsors.
UTILITY STOCK SERIES: The Sponsors considered (i) the quality of the Stocks
(based upon a judgment as to the possible risk of dividend impairment and as to
the potential for dividend growth), (ii) the yield and price of the Stocks
relative to other public utility stocks of comparable quality and (iii) the
variety of the utility Stocks in the Portfolio, taking into account the
availability on the market of utility issues which meet the Fund's criteria. An
additional consideration for the Ninth Series and subsequent Series, was whether
the issuers of the Stocks had outstanding first mortgage or senior debt
securities rated investment grade. The yield and price of utility stocks of the
type deposited in the Fund are dependent on a variety of factors, including
money market conditions, general conditions of the corporate bond and equity
markets, size of a particular offering and capital structure of the issuer.
While it may not be likely that any Stocks' dividends would be omitted, no
assurances can, of course, be given since earnings available for dividends,
regardless of the size of the company, are subject to numerous events which are
often beyond the issuer's control.
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MERRILL LYNCH EQUITY TRUST: The Sponsors identified those companies that
are anticipated to appreciate in value and are headquartered or have a
significant presence (e.g., a large plant, office complex or significant portion
of their revenue base) in the Washington, D.C., Maryland, Virginia area.
CONCEPT SERIES--TELECOMMUNICATIONS UTILITY TRUST: All of the issuers of the
Securities in the Portfolio were identified by at least one of the Sponsors as
companies that are well placed to benefit from the anticipated growth in demand
for telecommunications services and products. In addition, the Securities
deposited in the Fund were selected by taking into account the following
factors, among others: (i) the potential for capital appreciation of the
Securities in the five years subsequent to the Initial Date of Deposit, (ii) the
number of shares of the issuer currently outstanding, (iii) the current annual
or indicated dividend rate for certain types of issuers, (iv) the overall credit
quality of the issuers and (v) the variety of the telecommunications Securities
in the Portfolio, taking into account the availability on the market of these
issues which meet the Fund's criteria.
CONCEPT SERIES--ENERGY TRUST: All of the issuers of the Securities in the
Portfolio were identified by investment professionals as companies that are well
placed to benefit from the anticipated increased demand for oil, natural gas and
other minerals which may result in increased prices, increased sales volume and
increased profitability in the energy industry. In addition, the Securities
deposited in the Fund were selected by taking into account the following
factors, among others: (i) the potential for capital appreciation of the
Securities in the five years subsequent to the Initial Date of Deposit, (ii) the
number of shares of the issuer currently outstanding, (iii) the current annual
or indicated dividend rate for certain types of issuers and (iv) the variety of
the Securities issued by companies in the energy industry included in the
Portfolio, taking into account the availability on the market of these issues
which meet the Fund's criteria.
CONCEPT SERIES--HEALTH CARE TRUST: All of the issuers of the Stocks in the
Portfolio were identified by investment professionals as companies that are well
placed to benefit from the anticipated growth in demand for health care products
and services. In addition, the Stocks deposited in the Fund were selected by
taking into account the following factors, among others: (i) the potential for
capital appreciation of the Stocks in the five years subsequent to the Initial
Date of Deposit, (ii) the number of shares of the issuer currently outstanding
and (iii) the variety of the health care Stocks in the Portfolio, taking into
account the market capitalization and liquidity of these issues which meet the
Fund's criteria.
CONCEPT SERIES--NORTHWEST INVESTMENT TRUST: The Securities were selected
through a multi-step screening process. First, Merrill Lynch, as agent for the
Sponsors, identified those companies that are anticipated to appreciate in value
and are headquartered or have operations in the Pacific Northwest area. Second,
it conducted a fundamental analysis of the companies to determine their
underlying creditworthiness. Finally, the agent for the Sponsors reviewed the
liquidity of the common stocks.
CONCEPT SERIES--THE NEW EUROPE TRUST: All of the issuers of the Securities
in the Portfolio were identified by investment professionals as large
multi-national companies that are well placed to benefit from the anticipated
increased demand for products and services as a result of reductions in trade
and other barriers and changes in government or regulatory policy, consumer
preferences or demographics in Europe. In addition, the Securities deposited in
the Fund were selected by taking into account the following factors, among
others: (i) the potential for capital appreciation of the Securities in the five
years subsequent to the Initial Date of Deposit, (ii) the number of shares of
the issuer currently outstanding and (iii) the variety of large multi-national
European companies
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situated to take advantage of regulatory and policy changes in Europe included
in the Portfolio, taking into account the availability on the market of these
issues which meet the Fund's criteria.
CONCEPT SERIES--ENVIRONMENTAL TECHNOLOGY TRUST: All of the issuers of the
Stocks in the Portfolio were identified by investment professionals as companies
that are well placed to compete in the waste management and environmental
technology industry. In addition, the Stocks deposited in the Fund were selected
by taking into account the following factors, among others: (i) the potential
for capital appreciation of the Stocks in the five years subsequent to the
Initial Date of Deposit and (ii) the variety of the waste management and
environmental technology Stocks in the Portfolio, taking into account the market
capitalization and liquidity of these issues which meet the Fund's criteria.
CONCEPT SERIES--REBUILDING TRUST: All of the issuers of the Securities in
the Portfolio were identified by investment professionals as companies that are
well placed to benefit from the anticipated growth in demand for capital goods
or services required for the construction or improvement of industrial plants
and equipment, energy facilities or telecommunications or transportation
facilities. In addition, the securities deposited in the Fund were selected by
taking into account the following factors, among others: (i) the potential for
capital appreciation of the Securities in the five years subsequent to the
Initial Date of Deposit, (ii) the number of shares of the issuer currently
outstanding, (iii) the overall credit quality of the issuers and (iv) the
diversification of the Securities in the Portfolio, taking into account the
availability on the market of these issues which meet the Fund's criteria.
CONCEPT SERIES--REBUILDING AMERICA TRUST: All of the issuers of the
Securities in the Portfolio were identified by at least one of the Sponsors as
companies that are well placed to benefit from the financial expenditures needed
to improve productivity in American industry and to strengthen the nation's
infrastructure. In addition, the Securities deposited in the Fund were selected
by taking into account the following factors, among others: (i) the potential
for capital appreciation of the Securities in the five years subsequent to the
Initial Date of Deposit, (ii) the number of shares of the issuer currently
outstanding and (iii) the variety of the Securities issued by companies that
manufacture or provide capital goods or services included in the Portfolio,
taking into account the availability on the market of these issues which meet
the Fund's criteria.
CONCEPT SERIES--NATURAL GAS TRUST: All of the issuers of the Securities in
the Portfolio were identified by investment professionals as companies that are
well placed to benefit from the anticipated increased demand for natural gas in
excess of existing and expected supply of natural gas which is expected to
result in increased prices, increased sales volume and increased profitability
in the natural gas industry. In addition, the Securities deposited in the Fund
were selected by taking into account the following factors, among others: (i)
the potential for capital appreciation of the Securities in the five years
subsequent to the Initial Date of Deposit, (ii) the current annual or indicated
dividend rate for certain types of issuers, (iii) the number of shares of the
issuer currently outstanding and (iv) the variety of the Securities issued by
companies in the natural gas industry included in the Portfolio, taking into
account the availability on the market of these issues which meet the Fund's
criteria.
CONCEPT SERIES--FOOD FUND: The Securities were selected through a
multi-step screening process. First, the Unit Investment Trusts Research
Department of Merrill Lynch, as agent for the Sponsors, identified those
companies engaged in the manufacturing, processing and distribution of food and
beverages that are anticipated to appreciate in value over the five years
subsequent to the Initial Date of Deposit. Second, it conducted a fundamental
financial analysis of the companies to determine their underlying
creditworthiness. Finally, it reviewed the liquidity of the common stocks.
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CONCEPT SERIES--THE ECOLOGICAL TRUST 1990: All of the issuers of the Stocks
in the Portfolio were selected by the Sponsors from a list prepared by the
Sponsor's environmental advisors, Progressive Asset Management, Inc., The
Council on Economic Priorities, The Data Center and Kinder, Lydenberg, Domini &
Co. Inc. (the 'Environmental Advisors'). The Environmental Advisors prepared a
list of issuers that, in their opinion, are environmentally responsible and are
making contributions to the improvement of the earth's ecosystem. All of the
issuers of the Stocks in the Portfolio were selected from that list and
identified by investment professionals as companies that are well placed to
compete within their respective industries. In addition, the Stocks deposited in
the Fund were selected by taking into account the following factors, among
others: (i) the potential for capital appreciation of the Stocks in the five
years subsequent to the Initial Date of Deposit and (ii) the variety of the
waste management, environmental technology and environmentally responsible
Stocks in the Portfolio, taking into account the market capitalization and
liquidity of these issues which met the Fund's criteria.
Environmental Advisors. The four Environmental Advisors to the Fund were:
Progressive Asset Management, Inc.
Progressive Asset Management, Inc., based in Oakland, California, is a
brokerage firm specializing in environmentally responsible investing. The
corporation is a member of NASD, SIPC, the Social Investment Forum and an
original sponsor of the Valdez Principles. Progressive Asset Management was
the coordinator of the Environmental Advisors and on behalf of all the
Environmental Advisors was compensated by the Underwriters of the Fund.
The Council on Economic Priorities
The Council on Economic Priorities, based in New York, New York, is an
independent, public interest research organization founded in 1969. Its
corporate responsibility research focuses on various issues including the
environment.
The Data Center
The Data Center is an independent, non-profit public interest research
organization focusing on current economic and political issues. Founded in
1977 and based in Oakland, California, it monitors business ethics,
including the environmental record of companies worldwide, provides a
customized corporate research service, and publishes the monthly Corporate
Responsibility Monitor.
Kinder, Lydenberg, Domini & Co. Inc.
Kinder, Lydenberg, Domini & Co. Inc., based in Boston, Massachusetts, is
a registered investment adviser. Its primary purpose is to provide research
for the Domini Social Index. The firm maintains a database of its research,
consisting of the results of applications of a broad range of environmental
and other screens to over 1,000 publicly traded corporations.
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Contributions. The Underwriters of the Fund will make a contribution to The
One Fund for the Environment in the following amounts:
(1) $0.50 per 100 units for the first 2,500,000 units sold in the primary
offering period;
(2) $0.75 per 100 units for the second 2,500,000 units sold in the primary
offering period;
(3) $1.00 per 100 units for the third 2,500,000 units sold in the primary
offering period;
(4) $1.25 per 100 units for the fourth 2,500,000 units sold in the primary
offering period; and
(5) $1.50 per 100 units sold in excess of 10,000,000 units sold in the
primary offering period.
The One Fund for The Environment was established by The Environmental
Federation of America to support the programs of twenty-three national
non-profit and tax-exempt environmental organizations which work to protect
human health and preserve natural resources for the public's welfare including:
African Wildlife Foundation, American Forestry Association, American Rivers,
Center for Marine Conservation, Clean Water Fund, Defenders of Wildlife,
Environmental Action Foundation, Environmental Defense Fund, Environmental and
Energy Study Institute, Environmental Law Institute, Environmental Policy
Institute, Izaak Walton League of America, National Audubon Society, National
Coalition Against Misuse of Pesticides, National Parks and Conservation
Association, National Wildlife Federation, National Resources Defense Council,
The Nature Conservancy, Rails-to-Trails Conservancy, Sierra Club Legal Defense
Fund, The Trust for Public Land, Union of Concerned Scientists and The
Wilderness Society. Each of these organizations has operations in 15 or more
states and each has records of major accomplishments for environmental
protection. They work to safeguard health by reducing toxic wastes, acid rain,
pesticides and other environmental hazards; to protect wildlife and wildlife
habitats; to reduce pollutants in air and water; to save America's forests,
oceans, rivers and wilderness lands; to preserve endangered animal and plant
species; to provide recreational opportunities that depend on the outdoors; to
educate the public in how to enjoy and protect the natural world; to create and
preserve open space, parklands and nature sanctuaries; and to develop
educational programs that promote a sound and balanced use of natural resources.
These organizations have met stringent criteria for acceptance by The
Environmental Federation of America including a prohibition on the advocacy of
any illegal direct action.
The Environmental Federation of America is a tax-exempt non-profit
organization founded in March, 1988, and based in Washington, D.C. Neither the
Environmental Federation of America nor its affiliated agencies have
participated in the establishment of the Fund or the selection of the companies
in the Fund, nor do any of them endorse or promote the activities of any
organizations other than their affiliated agencies. Other than with respect to
information concerning The One Fund for the Environment and The Environmental
Federation of America, none of the information in this prospectus has been
supplied or verified by The Environmental Federation of America and The
Environmental Federation of America makes no representation, expressed or
implied, as to the accuracy or completeness of this information.
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
substitution 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
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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.
There is no assurance that any dividends will be declared or paid in the
future on the Securities in the Fund. The earning of income by the Fund through
dividends paid on the stocks may not be a primary investment objective of the
Fund, and some issuers represented in a Portfolio may not pay dividends on their
Securities.
Record Days and Distribution Days are set forth under Investment Summary in
Part A. Dividend income per Unit received by the Fund and available for
distribution and the distributable balance in the Capital Account per Unit
(other than capital gains) as of any particular Record Day will be distributed
on or shortly after the related Distribution Day to the Holders of record on
that Record Day, provided that no distribution from the Capital Account is
required unless the distributable balance therein (excluding capital gains) is
at least the minimum amount set forth under Investment Summary in Part A (see
Administration of the Fund--Accounts and Distributions). Normally, dividends on
the Securities in the Fund are paid on a quarterly basis which may or may not
coincide with a Record Day.
Capital gain net income (i.e., the excess of capital gains over capital
losses) recognized by the Fund in any taxable year will generally be distributed
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.
FUND PERFORMANCE
Information on percentage changes in the dollar value of Units, on the
basis of changes in Unit price plus the amount of dividends and capital gains
distributed (reinvested on S&P Index Trusts, Utility Common Stock Series and
Concept Series, Food Fund and Northwest Investment Trust), may be included from
time to time in advertisements, sales literature, reports and other information
furnished to current or prospective Holders. 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 may not be indicative of future results. The S&P Index
Trusts are adjusted only to conform to changes in the respective indices, and
the other Funds are not actively managed. Unit price and return fluctuate with
the value of the common stocks in the portfolio, so there may be a gain or loss
when Units are sold.
Fund performance may be compared to performance on the same basis
(distributions reinvested or distributed) of the Dow Jones Industrial Average,
the S&P 500 Composite Price Stock 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, Business Week, CDA
Investment Technology, Inc., Forbes Magazine or Fortune Magazine. As with other
performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.
TAXES
TAXATION OF THE FUND
The Fund intends to qualify for and elect the special tax treatment
applicable to 'regulated investment companies' under Section 851-855 of the
Internal Revenue Code of 1986, as amended (the 'Code'). Qualification and
election as a 'regulated investment company' involve no supervision of
investment policy or
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management by any government agency. If the Fund qualifies as a 'regulated
investment company' and distributes to Holders 90% or more of its taxable income
without regard to its net capital gain, (net capital gain is defined as the
excess of net long-term capital gain over net short-term capital loss), it will
not be subject to Federal income tax on any portion of its taxable income
(including any net capital gain) distributed to Holders in a timely manner. In
addition, the Fund will not be subject to the 4% excise tax on certain
undistributed income of 'regulated investment companies' to the extent it
distributes to Holders in a timely manner at least 98% of its taxable income
(including any net capital gain). It is anticipated that the Fund will not be
subject to Federal income tax or the excise tax because the Indenture requires
the distribution of the Fund's taxable income (including any net capital gain)
in a timely manner. Although all or a portion of the Fund's taxable income
(including any net capital gain) for a calendar year may be distributed shortly
after the end of the calendar year, such a distribution will be treated for
Federal income tax purposes as having been received by Holders during the
calendar year.
DISTRIBUTIONS
Distributions to Holders of the Fund's dividend income and net short-term
capital gain in any year will be taxable as ordinary income to Holders to the
extent of the Fund's taxable income (without regard to its net capital gain) for
that year. Any excess will be treated as a return of capital and will reduce the
Holder's basis in his Units and, to the extent that such distributions exceed
his basis, will be treated as a gain from the sale of his Units as discussed
below. It is anticipated that substantially all of the distributions of the
Fund's dividend income and net short-term capital gain will be taxable as
ordinary income to Holders.
Distribution of the Fund's net capital gain (designated as capital gain
dividends by the Fund) will be taxable to Holders as long-term capital gain,
regardless of the length of time the Units have been held by a Holder. A Holder
may recognize a taxable gain or loss if the Holder sells or redeems his Units.
Any gain or loss arising from (or treated as arising from) the sale or
redemption of Units will be a capital gain or loss, except in the case of a
dealer or a financial institution. Capital gains are generally taxed at the same
rate as ordinary income. However, the excess of net long-term capital gains over
net short-term capital losses may be taxed at a lower rate than ordinary income
for certain 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.
A distribution of Securities to a Holder upon redemption of his Units will
be a taxable event to such Holder, and that Holder will recognize taxable gain
or loss upon such distribution (equal to the difference between such Holder's
tax basis in his Units and the fair market value of Securities received in
redemption), which will be capital gain or loss except in the case of a dealer
in securities or a financial institution. Holders should consult their own tax
advisers in this regard.
Distributions which are taxable as ordinary income to Holders will
constitute dividends for Federal income tax purposes. To the extent that
distributions are appropriately designated by the Fund and are attributable to
dividends received by the Fund from domestic issuers with respect to whose
securities the Fund satisfied the requirements for the dividends-received
deduction, such distributions will be eligible for the dividends-received
deduction for corporations (other than corporations such as 'S' corporations
which are not eligible for such deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax).
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The dividends-received deduction is generally 70%. However, Congress from
time to time considers proposals to reduce the rate, and enactment of such a
proposal 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.
Sections 246 and 246A of the Code contain additional limitations on the
eligibility of dividends for the corporate dividends-received deduction.
Depending upon the corporate Holder's circumstances (including whether it has a
45-day holding period for its Units and whether its Units are debt financed),
these limitations may be applicable to dividends received by a Holder from the
Fund which would otherwise qualify for the dividends-received deduction under
the principles discussed above. Accordingly, Holders should consult their own
tax advisers in this regard. A corporate Holder should be aware that the receipt
of dividend income for which the dividends-received deduction is available may
give rise to an alternative minimum tax liability (or increase an existing
liability) because the dividend income will be included in the corporation's
'adjusted current earnings' for purposes of the adjustment to alternative
minimum taxable income required by Section 56(g) of the Code.
Holders will be taxed in the manner described above regardless of whether
distributions from the Fund are actually received by the Holder or are
reinvested pursuant to the Reinvestment Plan.
The Federal tax status of each year's distributions will be reported to
Holders and to the Internal Revenue Service. The foregoing discussion relates
only to the Federal income tax status of the Fund and to the tax treatment of
distributions by the Fund to U.S. Holders. Distributions may also be subject to
state and local taxation and Holders should consult their own tax advisers in
this regard.
FOREIGN HOLDERS
A 'Foreign Holder' is a person or entity that, for U.S. Federal income tax
purposes, is a non-resident alien individual, a foreign corporation, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust. If a
distribution of the Fund's taxable income (without regard to its net capital
gain) to a Foreign Holder is not effectively connected with a U.S. trade or
business carried on by the investor, such distribution will be subject to
withholding tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
A Foreign Holder generally will not be subject to Federal income tax with
respect to gain arising from the sale or redemption of Units or distributions of
the Fund's net capital gain (designated as capital gain dividends by the Fund)
unless the gain is effectively connected with a trade or business of such Holder
in the United States. In the case of a Foreign Holder who is a non-resident
alien individual, however, gain arising from the sale or redemption of Units or
distributions of the Trust's net capital gain ordinarily will be subject to
Federal income tax at a rate of 30% if such individual is physically present in
the U.S. for 183 days or more during the taxable year and, in the case of the
gain arising from the sale or redemption of Units, either the gain is
attributable to an office or other fixed place of business maintained by the
Holder in the United States or the Holder has a 'tax home' in the United States.
The tax consequences to a Foreign Holder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
Holders should consult their own tax advisers to determine whether investment in
the Fund is appropriate.
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RETIREMENT PLANS
The Fund may be well suited for purchase by Individual Retirement Accounts
('IRAs'), Keogh plans, pension funds and other qualified retirement plans,
certain of which are briefly described below. Generally, capital gains and
income received in each of the foregoing plans are exempt from Federal taxation.
All distributions from such plans are generally treated as ordinary income but
may, in some cases, be eligible for special 5 or 10 year averaging or
tax-deferred rollover treatment. Holders of Units in IRAs, Keogh plans and other
tax-deferred retirement plans should consult their plan custodian as to the
appropriate disposition of distribution. Investors considering participation in
any such plan should review specific tax laws related thereto and should consult
their attorneys or tax advisers with respect to the establishment and
maintenance of any such plan. Such plans are offered by brokerage firms,
including each of the Sponsors of this Fund, and other financial institutions.
Fees and charges with respect to such plans may vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units of the Fund may
be purchased by retirement plans established pursuant to Self-Employed
Individuals Tax Retirement Act of 1962 ('Keogh plans') for self-employed
individuals, partnerships or unincorporated companies. Qualified individuals may
generally make annual tax-deductible contributions up to the lesser of 20% of
annual compensation or $30,000 in a Keogh plan. The assets of the plan must be
held in a qualified trust or other arrangement which meets the requirements of
the Code. Generally there are penalties for premature distributions from a plan
to certain participants before attainment of age 59 1/2, except in the case of a
participant's death or disability. Keogh plan participants may also establish
separate IRAs (see below) to which they may contribute up to an additional
$2,000 per year ($2,250 in a spousal account).
Individual Retirement Account--IRA. Any individual (including one covered
by an employer retirement plan) can establish an IRA or make use of a qualified
IRA arrangement set up by an employer or union for the purchase of Units of the
Fund. Any individual can make a contribution in an IRA equal to the lesser of
$2,000 ($2,250 in a spousal account is also established) or 100%of earned
income; such investment must be made in cash. However, no deduction is permitted
for an individual over the age of 70 1/2 and the deductible amount an individual
under the age of 70 1/2 may contribute will be reduced if the individual or the
individual's spouse is covered by an employer retirement plan and the
individual's adjusted gross income exceeds $25,000 (in the case of a single
individual) or $40,000 (in the case of married individuals filing a joint
return). For a married individual who files a separate return, the deductible
contribution is limited to $200 if the individual or the individual's spouse is
covered by a retirement plan, unless the individual's adjusted gross income
exceeds $10,000 in which case the deductible contribution is zero. A married
individual who did not live with a spouse for any part of the year and files a
separate return is treated as a single person for purposes of these rules.
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. It should be noted that 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 be distributed and subject
to tax at that time. A participant's entire interest in an IRA must be, or
commence to be, distributed to the participant not later than the April 1
following the taxable year during which he attains age 70 1/2. 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.
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PUBLIC SALE OF UNITS
PUBLIC OFFERING PRICE
The Public Offering Price of the Units is computed by dividing the
aggregate value of the Securities (as determined by the Trustee), by the number
of Units outstanding and adding to the quotient the sales charge at the
applicable percentage of the aggregate value per Unit (the net amount invested).
A proportionate share of any cash held by the Fund in the Capital Account not
allocated to the purchase of specific Securities and net income in the Income
Account (described under Administration of the Fund--Accounts and Distributions)
on the date of delivery of the Units to the purchaser is added to the Public
Offering Price. The Public Offering Price on the date of this Prospectus or on
any subsequent date will vary from the Public Offering Price on the business day
prior to the date of this Prospectus (set forth under Investment Summary in Part
A) in accordance with fluctuations in the aggregate value of the underlying
Securities.
Employees of certain of the Sponsors and their affiliates may purchase
Units of this Fund pursuant to employee benefit plans at a price equal to the
aggregate value of the Securities in the Fund divided by the number of Units
outstanding plus a reduced sales charge of not less than $5.00 per Unit or per
1,000 Units, as appropriate.
The value of the Securities is determined on each business day by the
Trustee based on the last reported closing prices at the Evaluation Time on the
day the evaluation is made or, if there are no reported sales or if closing sale
prices are not reported or a Security is not listed on a national securities
exchange or if the principal market therefor becomes other than on an exchange,
taking into account the same factors referred to under Redemption--Computation
of Redemption Price per Unit (Section 4.01). The term 'business day', as used
herein and under 'Redemption', shall exclude Saturdays, Sundays and the
following holidays as observed by the New York Stock Exchange, Inc.: New Year's
Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
The applicable percentage of sales charge and the concession to dealers and
to introducing dealers (i.e., dealers that buy and clear directly through a
Sponsor or an Underwriter who is an affiliate of a Sponsor) referred to below
under Public Distribution is reduced on a graduated scale as shown below and
will be applied on whichever basis is more favorable to the purchaser. To
qualify for the reduced sales charge and concession applicable to quantity
purchasers, the dealer must confirm that the sale is to a single purchaser as
defined below or is purchased for its own account and not for distribution.
These graduated sales charges will apply on all purchases on any one day by
the same purchaser of Units in this Fund only in the amounts stated. For this
purpose purchases in the secondary market will be aggregated with concurrent
purchases of any other unit trusts sponsored by the Sponsors which have the same
rates of sales charge. Units held in the name of the spouse of the purchaser or
in the name of a child of the purchaser under 21 years of age are deemed to be
registered in the name of the purchaser. The graduated sales charges are also
applicable to a trustee or other fiduciary purchasing securities for a single
trust estate or single fiduciary account.
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<PAGE>
Sales charges and concessions are as follows:
<TABLE>
<CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
----------------------------------
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS
PUBLIC OFFERING NET AMOUNT PERCENT OF PUBLIC
NUMBER OF UNITS PRICE INVESTED OFFERING PRICE
- ----------------------------------- ------------------- ------------- ---------------------
(UTILITY STOCK SERIES 1-5)
<S> <C> <C> <C>
Less than 250...................... 4.50% 4.712% 2.925%
250 - 499.......................... 3.25 3.359 2.113
500 - 749.......................... 2.50 2.564 1.625
750 - 999.......................... 2.00 2.041 1.300
1,000 or more...................... 1.50 1.523 0.975
(UTILITY STOCK SERIES 6-14)
Less than 250,000.................. 4.50% 4.712% 2.925%
250,000 - 499,999.................. 3.75 3.359 2.133
500,000 - 749,999.................. 2.50 2.564 1.300
750,000 - 999,999.................. 2.00 2.041 1.300
1,000,000 or more.................. 1.50 1.523 0.975
(CONCEPT SERIES)
Less than 25,000................... 4.00% 4.167% 2.600%
25,000 - 49,999.................... 3.50 3.627 2.275
50,000 - 74,999.................... 3.00 3.093 1.950
75,000 or more..................... 2.50 2.564 1.625
(MERRILL LYNCH EQUITY TRUST)
Less than 10,000................... 4.00% 4.167%
10,000 - 24,999.................... 3.50 3.627
25,000 - 49,999.................... 3.00 3.093
50,000 - 74,999.................... 2.50 2.564
75,000 or more..................... 2.00 2.041
</TABLE>
PUBLIC DISTRIBUTION
The Sponsors intend to continue to qualify Units for sale in all states in
the U.S. 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. Sales to dealers and to
introducing dealers, if any, will initially be made at prices which represent a
concession in the amount specified in the table above, but the Agent for the
Sponsors reserves the right to change the amount of the concession to dealers
and the concession to introducing dealers from time to time. Any dealer or
introducing dealer may reallow a concession not in excess of the concession to
dealers.
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<PAGE>
UNDERWRITERS' AND SPONSORS' PROFITS
On each subsequent deposit of Securities with respect to the sale of
additional Units to the public the Sponsors may realize a profit or loss which
will be the difference between the cost of the Securities to the Fund and the
purchase price of the Securities to the Sponsors plus commissions payable by the
Sponsors. In addition, any Sponsor or Underwriter may realize profits or sustain
losses in respect of Securities deposited in the Fund which were acquired by the
Sponsor or Underwriter from underwriting syndicates of which the Sponsor or
Underwriter was a member. To the extent additional Units continue to be offered
for sale to the public, the Underwriting Account also may realize profits or
sustain losses as a result of fluctuations in the aggregate value of the
Securities and hence in the Public Offering Price of the Units (see Investment
Summary in Part A). Cash, if any, made available by buyers of Units to the
Sponsors prior to the settlement date for purchase of Units may be used in the
Sponsors' businesses subject to the limitations of Rule 15c3-3 under the
Securities Exchange Act of 1934 and may be of benefit to the Sponsors. The
Sponsors also receive an annual fee up to the amount set forth under Investment
Summary in Part A to cover the costs of providing administrative and other
services to the Fund (see Expenses and Charges--Fees). In maintaining a market
for the Units (see 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 (based on the aggregate value of the Securities) and the prices at
which they resell these Units (which includes the sales charge) or the prices at
which they redeem the Units (based on the aggregate value of the Securities), as
the case may be.
MARKET FOR UNITS
While the Sponsors are not obligated to do so, they intend to maintain a
secondary market for Units of this Series and continuously to offer to purchase
Units of this Series at prices, subject to change at any time, which will be
computed on the basis of the aggregate value of the Securities, taking into
account the same factors referred to in determining the Redemption Price per
Unit (see Redemption). The Sponsors may discontinue purchases of Units of this
Series at prices based on the aggregate value of the Securities should the
supply of Units exceed demand or for other business reasons. The Sponsors, of
course, do not in any way guarantee the enforceability, marketability or price
of any Securities in the Portfolio or of the Units. However, the Sponsors will
not repurchase Units in the secondary market at a price below the aggregate
value of the Securities in the Fund. During the primary public offering period
or thereafter, on a given day the price offered by the Sponsors for the purchase
of Units shall be an amount not less than the Redemption Price per Unit, based
on the aggregate value of Securities in the Fund on the date on which the Units
are tendered for redemption (see Redemption).
The Sponsors may redeem any Units they have purchased in the secondary
market if they determine that it is undesirable to continue to hold these Units
in their inventories. Factors which the Sponsors will consider in making this
determination will include the number of units of all series of all funds which
they hold in their inventories, the salability of the units and their estimate
of the time required to sell the units and general market conditions. For a
description of certain consequences of any redemption for remaining Holders, see
Redemption.
A Holder who wishes to dispose of his Units should inquire of his bank or
broker as to current market prices in order to determine if there exist
over-the-counter prices in excess of the redemption price and the repurchase
price (see Redemption).
40
<PAGE>
REDEMPTION
While it is anticipated that Units in most cases can be sold in the
over-the-counter market for an amount at least equal to the Redemption Price per
Unit (see Market for Units), Units may be redeemed at the office of the Trustee
upon tender on any business day, as defined under Public Sale of Units--Public
Offering Price, of Certificates or, in the case of uncertificated Units,
delivery of a request for redemption, and payment of any relevant tax, without
any other fee (Section 5.02). Certificates to be redeemed must be properly
endorsed or accompanied by a written instrument or instruments of transfer.
Holders must sign exactly as their names appear on the face of the Certificate
with the signatures guaranteed by an eligible guarantor institution or in some
other manner acceptable to the Trustee. In certain instances the Trustee may
require additional documents including, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority.
On the seventh calendar day following the tender (or if the seventh
calendar day is not a business day on the first business day prior thereto), the
Holder will be entitled to receive the proceeds of the redemption in an amount
per Unit equal to the Redemption Price per Unit (see below) as determined as of
the day of tender. The Trustee is authorized in its discretion, if the Sponsors
do not elect to repurchase any Units tendered for redemption or if the Sponsors
tender Units for redemption, to sell the Units in the over-the-counter market at
prices which will return to the Holder a net amount in cash equal to or in
excess of the Redemption Price per Unit for the Units (Section 5.02).
The Trustee is empowered to sell Securities at the expense of the Fund in
order to make funds available for redemption (Section 5.02) if funds are not
otherwise available in the Capital and Income Accounts to meet redemptions (see
Administration of the Fund--Accounts and Distributions). The Securities to be
sold will be selected by the Trustee in order to maintain, to the extent
practicable, the proportionate relationship among the number of shares of each
Security and of any Other Fund Units. Provision is made in the Indenture under
which the Sponsors may, but need not, specify minimum amounts in which blocks of
Securities are to be sold in order to obtain the best price for the Fund. While
these minimum amounts may vary from time to time in accordance with market
conditions, the Sponsors believe that the minimum amounts which would be
specified would be approximately 100 shares for readily marketable Securities.
To the extent that Securities are redeemed or sold, the size and diversity
of the Fund will be reduced but each remaining Unit will continue to represent
approximately the same proportional interest in each Security. Sales will
usually be required at a time when Securities would not otherwise be sold and
may result in lower prices than might otherwise be realized. The price received
upon redemption may be more or less than the amount paid by the Holder depending
on the value of the Securities in the Portfolio at the time of redemption. In
addition, because of the minimum amounts in which Securities are required to be
sold, the proceeds of sale may exceed the amount required at the time to redeem
Units; these excess proceeds will be distributed to Holders unless reinvested in
Additional Securities (see Administration of the Fund--Accounts and
Distributions).
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange, Inc. is closed other than for
customary weekend and holiday closings or (2) for any period during which, as
determined by the Securities and Exchange Commission, (i) trading on that
Exchange is restricted or (ii) an emergency exists as a result of which disposal
or evaluation of the Securities is not reasonably practicable, or (3) for any
other periods which the Commission may by order permit (Section 5.02).
41
<PAGE>
Redemption in Kind--CONCEPT SERIES AND MERRILL LYNCH EQUITY TRUST only.
Holders tendering Units for redemption may request distribution in kind from the
Trustee in lieu of cash redemption. A Holder may request distribution in kind of
an amount and value of Securities per Unit equal to the Redemption Price per
Unit as determined as of the Evaluation Time next following the tender, provided
that the tendering Holder is entitled to receive at least 10 shares of each
Security in the Portfolio as part of his distribution. If the Holder can receive
this requisite number of shares, the distribution in kind on redemption of Units
will be held by a distribution agent (the 'Distribution Agent') for the account
of, and for disposition in accordance with the instructions of, the tendering
Holder. The tendering Holder shall be entitled to receive whole shares of each
of the Securities comprising the Portfolio and cash from the Capital Account
equal to the fractional shares to which the tendering Holder is entitled. Any
brokerage commissions on sales of the underlying Securities distributed in
connection with in kind redemptions will be borne by the tendering Holder. In
implementing these redemption procedures, the Trustee and Distribution Agent
shall make any adjustments necessary to reflect differences between the
Redemption Price of the Units and the value of the Securities distributed in
kind as of the date of tender. If funds in the Capital Account are insufficient
to cover the required cash distribution to the tendering Holder, the Trustee may
sell Securities according to the criteria discussed above. For Concept Series, a
Holder must have elected to redeem prior to the date specified under Redemption
in Kind in Part A. The in kind redemption option may be terminated by the
Sponsors at any time upon notice to Holders.
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit is computed by the Trustee, as of the Evaluation
Time, on each June 30 and December 31 (or the last business day prior thereto),
on any day on which the New York Stock Exchange is open as of the Evaluation
Time next following the tender of any Unit for redemption, and on any other
business day desired by the Trustee or the Sponsors, by adding (a) the aggregate
value of the Securities as determined by the Trustee and (b) cash on hand in the
Fund (other than cash covering contracts to purchase Securities) including
dividends receivable on stocks trading ex-dividend and deducting therefrom the
sum of (x) taxes or other governmental charges against the Fund not previously
deducted, (y) accrued fees and expenses of the Trustee (including legal and
auditing expenses), the Sponsors and counsel, and certain other expenses and (z)
cash held for distribution to Holders of record as of a date prior to the
evaluation; and dividing the result by the number of Units outstanding as of the
date of computation (Section 5.01).
The aggregate value of the Securities is determined in good faith by the
Trustee in the following manner: if the Securities are listed on a national
securities exchange or the NASDAQ national market system, or a foreign
securities exchange, this evaluation is generally based on the closing sale
prices on that exchange or that system (unless the Trustee deems these prices
inappropriate as a basis for valuation) or, if there is no closing sale price on
that exchange or system, at the mean between the closing bid and asked prices.
If the Securities are not so listed or, if so listed and the principal market
therefor is other than on the exchange, the evaluation shall generally be based
on the current bid price on the over-the-counter market (unless the Trustee
deems these prices inappropriate as a basis for evaluation). If current bid
prices are unavailable, the evaluation is generally determined (a) on the basis
of current bid prices for comparable securities, (b) by appraising the value of
the Securities on the bid side of the market or (c) by any combination of the
above.
42
<PAGE>
EXPENSES AND CHARGES
FEES
An estimate of the total annual expenses of the Fund is set forth under
Investment Summary in Part A. The Sponsors' Portfolio Supervision Fee, which is
an annual fee equal to the lesser of the cost to the Sponsors of supplying
supervisory services and the maximum amount set forth under Investment Summary
in Part A, is based on the average of the largest number of Units outstanding at
any time during each month of a calendar year in which additional Securities are
deposited in the Fund and, thereafter on the largest number of Units outstanding
at any time during each annual period. The Sponsors' Portfolio Supervision Fee,
which is not to exceed the maximum amount set forth under Investment Summary in
Part A, may exceed the actual costs of providing portfolio supervisory services
for this Fund, but at no time will the total amount they receive for portfolio
supervisory services rendered to all series of Defined Asset Funds--Equity
Income Fund in any calendar year exceed the aggregate cost to them of supplying
these services in that year (Section 7.06). In addition, the Sponsors may also
be reimbursed for bookkeeping or other administrative services provided to the
Fund in amounts not exceeding their costs of providing these services (Sections
3.04 and 7.06). The Trustee receives for its services as Trustee, and for
reimbursement of expenses incurred on behalf of the Fund, payable in monthly
installments, the amount shown as the Trustee's Annual Fee and Expenses under
Investment Summary in Part A which includes the Sponsors' Portfolio Supervision
Fee, estimated reimbursable bookkeeping or other administrative expenses paid to
the Sponsors and including certain auditing, printing and mailing expenses.
Expenses in excess of the amount so included will be borne by the Fund. The
Trustee also receives benefits to the extent that it holds funds on deposit in
the various non-interest bearing accounts created under the Indenture. The
foregoing fees may be adjusted for inflation in accordance with the terms of the
Indenture without approval of Holders (Sections 4.02, 7.06 and 8.05).
OTHER CHARGES
Other charges which may be incurred by the Fund include: (a) fees of the
Trustee for extraordinary services (Section 8.05), (b) certain extraordinary
expenses of the Trustee (including legal and auditing expenses) and of counsel
designated by the Sponsors (Sections 3.04, 3.10, 8.01[e], 8.03 and 8.05), (c)
various governmental charges (Sections 3.03 and 8.01[h]), (d) expenses and costs
of action taken to protect the Fund and the rights and interests of Holders
(Sections 7.06 and 8.01[d]), (e) indemnification of the Trustee for any losses,
liabilities and expenses incurred without gross negligence, bad faith or willful
misconduct on its part (Section 8.05), (f) indemnification of the Sponsors for
any losses, liabilities and expenses incurred without gross negligence, bad
faith or willful misconduct (Section 7.05[b]) and (g) expenditures incurred in
contacting Holders upon termination of the Fund (Section 9.02). The amounts of
these charges and fees are secured by a lien on the Fund and, if the balances in
the Income and Capital Accounts (see below) are insufficient, the Trustee has
the power to sell Securities to pay these amounts (Section 8.05).
ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps a register of the names, addresses and holdings of all
Holders. The Trustee also keeps records of transactions of the Fund, including a
current list of the Securities and a copy of the Indenture, which
43
<PAGE>
records are available to Holders for inspection at the office of the Trustee at
reasonable times during business hours (Sections 8.02 and 8.04).
ACCOUNTS AND DISTRIBUTIONS
Dividends payable to the Fund are credited by the Trustee to an Income
Account, as of the date on which the Fund is entitled to receive the dividends
as a Holder of record of the Securities. Other receipts, including amounts
received upon the sale of rights pursuant to Section 3.08 of the Indenture, are
credited to a Capital Account (Sections 3.01 and 3.02). The Income Distribution
for each Holder as of each Record Day will be made on the following Distribution
Day or shortly thereafter and shall consist of an amount substantially equal to
the Holder's pro rata share of the distributable cash balance in the Income
Account, after deducting estimated expenses. There is no assurance that actual
distributions will be made since all dividends received may be used to pay
expenses.
An amount equal to any capital gain net income (i.e., the excess of capital
gains over capital losses) recognized by the Fund in any taxable year will
generally be distributed to Holders shortly after the end of the year. Proceeds
received from the disposition of any of the Securities which are not used to
make the distribution of capital gain net income, for redemption of Units or
reinvested in Additional Securities will generally be held in the Capital
Account to be distributed on the next succeeding Distribution Day. The first
distribution for persons who purchase Units between a Record Day and a
Distribution Day will be made on the second Distribution Day following their
purchase of Units. No distribution other than capital gains need be made from
the Capital Account if the balance therein is less than the amount specified
under Investment Summary in Part A (Section 3.04). A Reserve Account may be
created by the Trustee by withdrawing from the Income or Capital Accounts, from
time to time, those amounts as it deems requisite to establish a reserve for any
taxes or other governmental charges that may be payable out of the Fund (Section
3.03). Funds held by the Trustee in the various accounts created under the
Indenture do not bear interest (Section 8.01).
REINVESTMENT PLAN--UTILITY STOCK SERIES AND MERRILL LYNCH EQUITY TRUST
Monthly income distributions, annual distributions of any capital gain net
income (i.e., the excess of capital gains over capital losses) and other capital
distributions in respect of the Units may be reinvested by participating in the
Fund's reinvestment plan (the 'Reinvestment Plan'). A Holder (including any
Holder which is a broker or nominee of a bank or other financial institution)
may indicate to the Trustee, by filing the written notice of election
accompanying this Prospectus or by notice to the Holder's account executive or
sales representative, that he wishes such distributions to be automatically
invested in additional Units (or fractions thereof) of the Fund. The Holder's
completed notice of election to participate in the Reinvestment Plan must be
received by the Trustee at least ten days prior to the Record Date applicable to
any distribution in order for the Reinvestment Plan to be in effect as to such
distribution and will remain effective until notice to the contrary is timely
received by the Trustee.
Such distributions, to the extent reinvested in the Fund, will be used by
the Trustee to purchase additional Securities in proportions sufficient to
maintain, as closely as practicable, the proportionate relationship (subject to
adjustment under certain circumstances) among the number of shares of each Stock
and the number of any Other Fund Units in the Fund (see Administration of the
Fund--Portfolio Supervision). In the event an issuer of a Security has a
shareholder dividend reinvestment plan, a stock purchase plan or a similar plan
under which its shareholders may automatically reinvest their dividends or
invest optional cash payments in additional shares of the issuer's common or
preferred stock without brokerage commission or service charge or otherwise on a
basis
44
<PAGE>
favorable to the shareholder in the opinion of the Sponsors, the Fund (as a
shareholder of such issuer) upon the direction of the Sponsors may participate
in such plans to the extent practicable given the other restrictions on the
purchase of additional Securities even if such participation temporarily results
in the proportionate relationship of the Securities not being maintained.
Purchases made pursuant to the Reinvestment Plan will be at the applicable
Public Offering Price for Units of the Fund, less the applicable sales charge,
determined as of the close of business on the Distribution Date. Under the
Reinvestment Plan, the Fund will pay the distributions to the Trustee or
Distribution Agent which in turn will purchase for the Holder full and
fractional Units of the Fund at the price and time indicated above, will add the
Units to the Holder's account, and will send the Holder an account statement
reflecting the reinvestment. These Units may be Units already held in inventory
by the Sponsors (see Market for Units) 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 (see Description of the Fund-- The Portfolio).
The Trustee will issue Certificates for whole units purchased through the
Reinvestment Plan only if the Holder so requests in writing. Certificates will
not be issued for fractional units. When Certificates are not issued the Trustee
will credit each Holder's account with the number of units purchased with such
Holder's reinvested distribution. Each Holder receives account statements both
annually and after each Reinvestment Plan transaction to provide the Holder with
a record of the total number of units in his account. This relieves the Holder
of responsibility for safekeeping of Certificates and, should he sell his units,
eliminates the need to deliver certificates. The Holder may at any time request
the Trustee (at the Fund's cost) to issue Certificates for full units. The cost
of administering the Reinvestment Plan will be borne by the Fund and thus will
be borne indirectly by all Holders.
Certain of the shareholder dividend reinvestment, stock purchase or similar
plans maintained by issuers of the Securities in the Portfolio offer shares
pursuant to such plans at a discount from market value. The Trustee is required
by applicable provisions of the Code to distribute pro rata to all Holders
(i.e., not just to those Holders participating in the Reinvestment Program) the
income attributable to such discounts.
Holders of Units held in 'street name' by their broker or dealer should
contact their account executive or sales representative to determine whether or
not participation in the Reinvestment Plan through that broker or dealer is
available. Holders of Units participating in the Reinvestment Plan through their
broker or dealer will receive confirmation of their reinvestments in their
regular account statements or on a quarterly basis.
PORTFOLIO SUPERVISION
The Fund is a unit investment trust and is not an actively managed fund.
Traditional methods of investment management for a managed fund typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analyses. The Portfolio of the Fund, however, will not be
actively managed and therefore the adverse financial condition of an issuer will
not necessarily require the sale of its Securities from the Portfolio. In the
event a public tender offer is made for a Security or a merger or acquisition is
announced affecting a Security, Merrill Lynch, as agent for the Sponsors, may
instruct the Trustee to tender or sell the Security on the open market when in
its opinion it is in the best interest of the Holders of the Units to do so. The
proceeds realized from the tender offer or the sale of any Security will be
distributed to the Holders. The Sponsors may also direct the disposition of
Securities upon institution of certain legal proceedings, default under certain
45
<PAGE>
documents materially and adversely affecting future declaration or payment of
amounts due, or decline in price or the occurrence of other market or credit
factors that in the opinion of the Sponsors would make the retention of these
Securities detrimental to the interest of the Holders, or if the disposition of
these Securities is necessary in order to enable the Fund to make distributions
of the Fund's capital gain net income or desirable in order to maintain the
qualification of the Fund as a 'regulated investment company' under the Code
(Section 3.08). Securities will not be sold solely based on the environmental
performance of the issuers.
The Sponsors are also authorized to direct the reinvestment of the proceeds
of the sale of Securities, as well as moneys held to cover the purchase of
Securities pursuant to contracts which have failed, in Additional Securities or
in Replacement Securities. The Replacement Securities must satisfy certain
conditions specified in the Indenture including, among other conditions,
requirements that the Replacement Securities shall be selected by the Sponsors
from a list of securities maintained by them and updated from time to time;
shall be publicly-traded stocks that meet the original selection criteria of the
Fund; shall be issued by an issuer subject to or exempt from the reporting
requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934
(or similar provisions of law); and have, in the opinion of the Sponsors,
characteristics sufficiently similar to the characteristics of the other
Securities in the Fund as to be acceptable for acquisition by the Fund. The
Indenture also requires that the purchase of the Replacement Securities will not
(i) disqualify the Fund as a regulated investment company under the Code, (ii)
result in more than 10% of the Fund consisting of securities of a single issuer
(or of two or more issuers which are Affiliated Persons as this term is defined
in the Investment Company Act of 1940) which are not registered and are not
being registered under the Securities Act of 1933 or (iii) result in the Fund
owning more than 50% of any single issue which has been registered under the
Securities Act of 1933 (Section 3.11). Whenever a Security has been eliminated
by the Fund, the Trustee shall, within five days thereafter, notify all Holders
of the sale of the Security eliminated and the acquisition of the Replacement
Security. If Replacement Securities are not acquired, the Sponsors will, on or
before the next following Distribution Day, cause to be refunded the
attributable sales charge, plus the attributable Cost of Securities to Fund
listed under Portfolio in Part A, plus income attributable to the Failed
Security.
The Indenture also authorizes the Sponsors to increase the size and number
of Units of the Fund by the deposit of Additional Securities, contracts to
purchase Additional Securities or cash or a letter of credit with instructions
to purchase Additional Securities in exchange for the corresponding number of
additional Units subsequent to the Initial Date of Deposit, provided that the
original proportionate relationship among the number of shares of each Stock and
of any Other Fund Units established on the Initial Date of Deposit (the
'Original Proportionate Relationship') is maintained to the extent practicable.
With respect to deposits of Additional Securities (or cash or a letter of
credit with instructions to purchase Additional Securities), in connection with
creating additional Units of the Fund, the Sponsors may specify the minimum
numbers in which Additional Securities will be deposited or purchased. If a
deposit is not sufficient to acquire minimum amounts of each Security,
Additional Securities may be acquired in the order of the Security most
under-represented immediately before the deposit when compared to the Original
Proportionate Relationship. If Securities of an issue originally deposited are
unavailable at the time of subsequent deposit, or cannot be purchased at
reasonable prices or their purchase is prohibited or restricted by law,
regulation or policies applicable to the Fund or any of the Sponsors, the
Sponsors may (1) deposit cash or a letter of credit with instructions to
purchase the Security when practicable, or (2) deposit (or instruct the Trustee
to purchase) either Securities of one or more other issues originally deposited
or a Replacement Security that satisfies the conditions for Replacement
Securities set forth above.
46
<PAGE>
REPORTS TO HOLDERS
With each distribution, the Trustee will furnish Holders with a statement
of the amounts of income and the amounts of other receipts, if any, which are
being distributed, expressed in each case as a dollar amount per Unit. After the
end of each calendar year and following the termination of the Fund, the Trustee
will furnish to each person who at any time during the calendar year was a
Holder of record, a statement (i) summarizing transactions for that year in the
Income and Capital Accounts, (ii) identifying Securities sold and purchased
during the year and listing Securities held and the number of Units outstanding
at the end of that calendar year, (iii) stating the Redemption Price per Unit
based upon the computation thereof made at the end of that calendar year and
(iv) specifying the amounts distributed during that calendar year from the
Income and Capital Accounts (Section 3.07). The accounts of the Fund shall be
audited at least annually by independent certified public accountants designated
by the Sponsors and the report of the accountants shall be furnished by the
Trustee to Holders upon request (Section 8.01[e]).
CERTIFICATES
Certain of the Sponsors may collect additional charges for registering and
shipping certificates to purchasers. These Certificates are transferable or
interchangeable upon presentation at the office of the Trustee, with a payment
of $2.00 if required by the Trustee (or other amounts specified by the Trustee
and approved by the Sponsors) for each new Certificate and any sums payable for
taxes or other governmental charges imposed upon the transaction (Section 6.01)
and compliance with the formalities necessary to redeem Certificates (see
Redemption). Mutilated, destroyed, stolen or lost Certificates will be replaced
upon delivery of satisfactory indemnity and payment of expenses incurred
(Section 6.02).
AMENDMENT
The Sponsors and Trustee may amend the Indenture, without the consent of
the Holders, (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the Securities and Exchange Commission or any
successor governmental agency, (c) to add or change any provision as may be
necessary or advisable for the continuing qualification of the Fund as a
regulated investment company under the Code or (d) to make any other provisions
which do not materially adversely affect the interest of the Holders (as
determined in good faith by the Sponsors). The Indenture may also be amended in
any respect by the Sponsors and the Trustee, or any of the provisions thereof
may be waived, with the consent of the Holders of 51% of the Units, provided
that none of these amendments or waivers will reduce the interest in the Fund of
any Holder without the consent of the Holder or reduce the percentage of Units
required to consent to any of these amendments or waivers without the consent of
all Holders (Section 10.01).
TERMINATION--UTILITY STOCK SERIES
The Indenture will terminate upon the sale, or other disposition of the
last Security held thereunder but in no event is it to continue beyond the
mandatory termination date set forth under Investment Summary in Part A. The
Indenture may be terminated by the Sponsors if the value of the Fund is less
than the minimum value set forth under Investment Summary in Part A, and may be
terminated at any time by Holders of 51% of the Units (Sections 8.01[g] and
9.01). The Trustee will deliver written notice of any termination to each Holder
within a reasonable period of time prior to the termination, specifying the
times at which the Holders may surrender their
47
<PAGE>
Certificates for cancellation. Within a reasonable period of time after the
termination, the Trustee must sell all of the Securities then held and
distribute to each Holder, upon surrender for cancellation of his Certificates
and after deductions for accrued but unpaid fees, taxes and governmental and
other charges, the Holder's interest in the Income and Capital Accounts (Section
9.01). This distribution will normally be made by mailing a check in the amount
of each Holder's interest in these accounts to the address of the Holder
appearing on the record books of the Trustee.
TERMINATION--CONCEPT SERIES AND MERRILL LYNCH EQUITY TRUST
No later than the date specified under Liquidation Period under Investment
Summary in Part A the Trustee will begin to sell all of the underlying
Securities on behalf of Holders in connection with the termination of the Fund.
The Sponsor has agreed to perform these sales for the Trustee. The sale proceeds
will be net of any incidental expenses involved in the sales.
The Sponsor will attempt to sell the Securities as quickly as it can during
the Liquidation Period without in its judgment materially adversely affecting
the market price of the Securities, but it is expected that all of the
Securities will in any event be disposed of by the end of the Liquidation
Period. The Sponsor does not anticipate that the period will be longer than one
month, and it could be as short as one day, depending on the liquidity of the
Securities being sold. The liquidity of any Security depends on the daily
trading volume of the Security and the amount that the Sponsor has available for
sale on any particular day.
It is expected (but not required) that the Sponsor will generally follow
the following guidelines in selling the Securities: for highly liquid
Securities, the Sponsor will generally sell Securities on the first day of the
Liquidation Period; for less liquid Securities, on each of the first two days of
the Liquidation Period, the Sponsor will generally sell any amount of any
underlying Securities at a price no less than 1/2 of one point under the last
closing sale price of those Securities. Thereafter, the price limit will
increase to one point under the last closing sale price. After four days, the
Sponsor currently intends to sell at least a fraction of the remaining
underlying Securities, the numerator of which is one and the denominator of
which is the total number of days remaining (including that day) in the
Liquidation Period without any price restrictions. Of course, no assurances can
be given that the market value of the Securities will not be adversely affected
during the Liquidation Period.
The Fund might reduce to the Minimum Value of Fund listed on pA-2 because
of the lesser number of Units in the Fund, and possibly also due to a value
reduction, however temporary, in Units caused by the Sponsor's sales of
Securities (see ~Investment Summary--Termination); if so, the Sponsor could then
choose to liquidate the Fund without the consent of the remaining Holders. (See
Fund Structure.)
The Indenture will terminate upon the sale or other disposition of the last
Security held thereunder but in no event is it to continue beyond the mandatory
termination date set forth under Investment Summary in Part A. The Indenture may
be terminated by the Sponsor if the value of the Fund is less than the minimum
value set forth under Investment Summary in Part A, and may be terminated at any
time by Holders of 51% of the Units (Sections 8.01[g] and 9.01). The Trustee
will deliver written notice of any termination to each Holder within a
reasonable period of time prior to the termination, specifying the times at
which the Holders may surrender their Certificates for cancellation. Within a
reasonable period of time after the termination, the Trustee must sell all of
the Securities then held and distribute to each Holder, upon surrender for
cancellation of his Certificates and after deductions for accrued but unpaid
fees, taxes and governmental and other charges, the Holder's interest in the
Income and Capital Accounts (Section 9.01). This distribution will normally be
made by mailing a check in the
48
<PAGE>
amount of each Holder's interest in these accounts to the address of the Holder
appearing on the record books of the Trustee.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
TRUSTEE
The Trustee or any successor may resign upon notice to the Sponsors. The
Trustee may be removed upon the direction of the Holders of 51% of the Units at
any time or by the Sponsors without the consent of any of the Holders if the
Trustee becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities. The resignation or removal shall become effective
upon the acceptance of appointment by the successor which may, in the case of a
resigning or removed Co-Trustee, be one or more of the remaining Co-Trustees. In
case of resignation or removal the Sponsors are to use their best efforts to
appoint a successor promptly and if upon resignation of the Trustee no successor
has accepted appointment within thirty days after notification, the Trustee may
apply to a court of competent jurisdiction for the appointment of a successor
(Section 8.06). The Trustee shall be under no liability for any action taken in
good faith in reliance on prima facie properly executed documents or for the
disposition of monies or Securities, nor shall it be liable or responsible in
any way for depreciation or loss incurred by reason of the sale of any Security.
This provision, however, shall not protect the Trustee in cases of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. In the event of the failure of the Sponsors to act, the
Trustee may act under the Indenture and shall not be liable for any of these
actions taken in good faith. The Trustee shall not be personally liable for any
taxes or other governmental charges imposed upon or in respect of the Securities
or upon the interest thereon. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee (Sections 3.07, 3.10,
8.01 and 8.05).
SPONSORS
Any Sponsor may resign if one remaining Sponsor maintains a net worth of
$2,000,000 and is agreeable to the resignation (Section 7.04). 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 shall fail to perform
its duties or becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, then the Trustee may (a) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and as
may not exceed amounts prescribed by the Securities and Exchange Commission, or
(b) terminate the Indenture and liquidate the Fund or (c) continue to act as
Trustee without terminating the Indenture (Section 8.01[f]). Merrill Lynch has
been appointed by the other Sponsors as agent for purposes of taking action
under the Indenture (Section 7.01). If the Sponsors are unable to agree with
respect to action to be taken jointly by them under the Indenture and they
cannot agree as to which Sponsor shall continue to act as sole Sponsor, then
Merrill Lynch shall continue to act as sole Sponsor (Section 7.02[b]). If one of
the Sponsors fails to perform its duties or becomes incapable of acting or
becomes bankrupt or its affairs are taken over by public authorities, then that
Sponsor is automatically discharged and the other Sponsors shall act as sole
Sponsors (Section 7.02[a]). The Sponsors shall be under no liability to the Fund
or to the Holders for taking any action or for refraining from taking any action
in good faith or for errors in judgment and shall not be liable or responsible
in any way for depreciation or loss incurred by reason of the sale of any
Security. This provision, however, shall not protect the Sponsors in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard of their
obligations and duties (Section 7.05). The Sponsors and their successors are
jointly and severally liable under the Indenture. A
49
<PAGE>
Sponsor may transfer all or substantially all of its assets to a corporation or
partnership which carries on its business and duly assumes all of its
obligations under the Indenture and in that event it shall be relieved of all
further liability under the Indenture (Section 7.03).
MISCELLANEOUS
TRUSTEE
The Trustee of the Fund is named on the back cover of this Prospectus and
is either The Bank of New York, a New York banking corporation with its Unit
Investment Trust Department at 101 Barclay Street, New York, New York 10286
(which is subject to supervision by the New York Superintendent of Banks, the
Federal Deposit Insurance Corporation and the Board of Governors of the Federal
Reserve System); Bankers Trust Company, a New York banking corporation with its
corporate trust office at Four Albany Street, 7th Floor, New York, New York
10015 (which is subject to supervision by the New York Superintendent of Banks,
the Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System); The Chase Manhattan Bank, N.A., a national banking
association with its corporate trust office at 1 Chase Manhattan Plaza--3B, New
York, New York 10005 (which is subject to supervision by the Comptroller of the
Currency, the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System); or (acting as Co-Trustees) Investors Bank &
Trust Company, a Massachusetts trust company with its unit investment trust
servicing group at One Lincoln Plaza, Boston, Massachusetts 02111 (which is
subject to supervision by the Massachusetts Commissioner of Banks, The Federal
Deposit Insurance Corporation and the Board of Governors of the Federal Reserve
System) and The First National Bank of Chicago, a national banking association
with its corporate trust office at One First National Plaza, Suite 0126,
Chicago, Illinois 60670-0126 (which is subject to supervision by the Comptroller
of the Currency, the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System).
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. Emmet, Marvin & Martin, 48 Wall Street, New York, New York 10005, act
as counsel for The Bank of New York, as Trustee. Bingham, Dana & Gould, 150
Federal Street, Boston, Massachusetts 02110, act as counsel for The First
National Bank of Chicago and Investors Bank & Trust Company, as Co-Trustees.
Hawkins Delafield & Wood, 67 Wall Street, New York, New York 10005, act as
counsel for Bankers Trust Company, as Trustee.
AUDITORS
The Statement of Condition, including the Portfolio of the Fund, included
herein has been audited by Deloitte & Touche, independent accountants, as stated
in their opinion appearing herein and has been so included in reliance upon that
opinion given on the authority of that firm as experts in accounting and
auditing.
SPONSORS
Each Sponsor is a Delaware corporation and is engaged in the underwriting,
securities and commodities brokerage business and is a member of the New York
Stock Exchange, Inc., other major securities exchanges and commodity exchanges,
and the National Association of Securities Dealers, Inc. Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch Asset Management, Inc., a Delaware
corporation and subsidiary of Merrill
50
<PAGE>
Lynch & Co., Inc., the parent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are engaged in the investment advisory business. Shearson Lehman
Brothers Inc. is a wholly-owned subsidiary of Shearson Lehman Brothers Holdings
Inc. ('Holdings'). American Express Company owns 100 percent of Holdings' issued
and outstanding Common Stock, which represents approximately 92 percent of
Holdings' issued and outstanding voting stock. The remainder of Holdings' issued
and outstanding voting stock is owned by Nippon Life Insurance Company.
Prudential Securities Incorporated, a wholly-owned subsidiary of Prudential
Securities Group Inc. and an indirect wholly-owned subsidiary of the Prudential
Insurance Company of America, is engaged in the investment advisory business.
Dean Witter Reynolds Inc., a wholly owned subsidiary of Dean Witter Financial
Services and an indirectly wholly-owned subsidiary of Sears, Roebuck and Co., is
engaged in the investment advisory business. PaineWebber Incorporated is engaged
in the investment advisory business and is a wholly owned subsidiary of
PaineWebber Group Inc. Each Sponsor, or one of its predecessor corporations, has
acted as a 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.
The Sponsors have maintained secondary markets in these funds for over 20
years. For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Different Defined Asset
Funds offer an array of 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 a nest egg for retirement, or attractive, regular
current income consistent with relative protection of capital. There are Defined
Asset Funds to meet the needs of just about any investor. 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 comparable breadth and diversity. Sometimes
it takes a combination of Defined Asset Funds to plan for your objectives.
One of your most important investment decisions may be how you divide your
money among asset classes. Spreading your money among different kinds of
investments can balance the risks and rewards of each one. Most investment
experts recommend stocks for long-term capital growth. For attractive income
consider long-term corporate bonds. By combining both stock and bond funds,
investors can receive attractive current income and growth potential, offering
some protection against inflation.
51
<PAGE>
This chart shows the average annual compounded rate of return of selected
asset classes over the 10-year and 20-year periods ending December 31, 1991,
compared to the rate of inflation over the same periods. Of course, this chart
represents past performance of these investments and is no guarantee of future
results of the Funds. Funds also have sales charges and expenses.
Stocks (S&P 500)
20 yr 11.89%
10 yr 17.59%
Small-company stocks
20 yr 14.58%
10 yr 11.97%
Long-term corporate bonds
20 yr 9.43%
10 yr 16.27%
U.S. Treasury bills (short-term)
20 yr 7.72%
10 yr 7.65%
Consumer Price Index
20 yr 6.24%
10 yr 3.91%
0 2 4 6 8 10
12 14 16 18%
Source: Ibbotson Associates
By purchasing Defined Asset Funds, investors not only avoid the
responsibility of selecting individual securities by themselves, but also gain
the advantage of a higher degree of safety by holding interests in securities of
several different issuers. Spreading your investment among different securities
and issuers reduces your risk, but does not eliminate it. Defined Municipal Bond
Funds offer a simple and convenient means for investors to earn monthly income
free from regular Federal income tax. When individual bonds are called or
mature, investors might consider reinvesting their proceeds in Defined Municipal
Bond Funds. The securities in managed funds continually change. In Defined Asset
Funds, the portfolio is defined, so that generally the securities, maturities,
call dates and rating are known before you buy. The defined portfolio of
securities listed in the prospectus and regular income distributions make
Defined Bond Funds a dependable investment. Investors know when they buy what
their estimated income, current and long-term returns will be, subject to credit
and market risks on the bonds or if the fund portfolio or expenses change.
Investors buy bonds for dependability--they know what they can expect to
earn and that principal is distributed as the bonds mature. Defined Bond Funds
can offer most of these benefits, with steady income and a yield and maturity
similar to owning bonds directly. The tax exemption of municipal securities,
which makes them attractive to high-bracket taxpayers, is offered by Defined
Municipal Investment Trusts. Defined Corporate
52
<PAGE>
Income Funds, with higher current returns than municipal or government funds,
are suitable for IRAs and other tax-advantaged accounts and offer investors a
simple and convenient way to earn monthly income. Defined Government Securities
Income Funds offer investors a simple and convenient way to participate in
markets for Government securities while earning an attractive current return.
Defined International Bond Funds, invested in bonds payable in foreign
currencies, offer a potential to profit from changes in currency values and
possibly from interest rates higher than paid on comparable US bonds, but
investors incur a higher risk for these potentially greater returns.
Historically, stocks have offered a potential for growth of capital, and thus
some protection against inflation, over the long term. Defined Equity Income
Funds offer a smart, sensible way to participate in the stock market. The S&P
Index Trusts offer a convenient and inexpensive way to participate in broad
market movements. Concept Series seek to capitalize on selected anticipated
economic, political or business trends. Utility Series, consisting of issuers
with established reputations for regular cash dividends, seek to benefit from
dividend increases.
53
<PAGE>
EXCHANGE OPTION
ELECTION
Holders may elect to exchange any or all of their Units of this Series for
units of one or more of the series of Funds listed in the table set forth below
(the 'Exchange Funds'), which normally are sold at prices which include the
sales charge indicated in the table. Certain series of the Funds listed have
lower maximum applicable sales charges than those stated in the table; also the
rates of sales charges may be changed from time to time. No series with a
maximum applicable sales charge of less than 3.50% of the public offering price
is eligible to be acquired under Exchange Option, with the following exceptions:
(1) Freddie Mac Series may be acquired by exchange during the initial offering
period from any of the Exchange Funds listed in the table. (2) Units of this
Fund may be acquired at the exchange fee listed in the table by holders of
Defined Asset Funds--Equity Income Fund, Investment Philosophy Series, which
units normally have a sales charge of 3.25%. Units of the Exchange Funds may be
acquired at prices which include the reduced sales charge for Exchange Fund
units listed in the table, subject, however, to these important limitations:
First, there must be a secondary market maintained by the Sponsors in
units of the series being exchanged and a primary or secondary market in
units of the series being acquired and there must be units of the
applicable Exchange Fund lawfully available for sale in the state in which
the Holder is resident. There is no legal obligation on the part of the
Sponsors to maintain a market for any units or to maintain the legal
qualification for sale of any of these units in any state or states.
Therefore, there is no assurance that a market for units will in fact exist
or that any units will be lawfully available for sale on any given date at
which a Holder wishes to sell his Units of this Series and thus there is no
assurance that the Exchange Option will be available to any Holder.
Second, when units subject to a deferred sales charge are exchanged for
units subject to a front-end sales charge, the sales charge will be the
greater of (a) the reduced sales charge set forth in the table below or (b)
the difference between sales charges paid with respect to the units being
exchanged and the regular sales charge for the quantity of units being
acquired, determined as of the date of the exchange. When units held for at
least eight months are exchanged for units of a fund with a deferred sales
charge, the exchange fee of $15 per 1,000 Units will be collected from the
proceeds of the exchange and the units acquired will be subject to any
continuing deferred sales charge.
Third, exchanges will be effected in whole units only. If the proceeds
from the Units being surrendered are less than the cost of a whole number
of units being acquired, excess cash insufficient to purchase an additional
whole unit will be returned to the exchanging Holder.
Fourth, the Sponsors reserve the right to modify, suspend or terminate
the Exchange Option at any time without further notice to Holders. In the
event the Exchange Option is not available to a Holder at the time he
wishes to exercise it, the Holder will be immediately notified and no
action will be taken with respect to his Units without further instruction
from the Holder.
PROCEDURES
To exercise the Exchange Option, a Holder should notify one of the Sponsors
of his desire to use the proceeds from the sale of his Units of this Series to
purchase units of one or more of the Exchange Funds. If units of the applicable
outstanding series of the Exchange Fund are at that time available for sale, the
Holder may select the
54
<PAGE>
series or group of series for which he desires his Units to be exchanged. Of
course, the Holder will be provided with a current prospectus or prospectuses
relating to each series in which he indicates interest. The exchange transaction
will operate in a manner essentially identical to any secondary market
transaction, i.e., Units will be repurchased at a price equal to the aggregate
bid side evaluation per Unit of the Securities in the Portfolio plus accrued
interest. Units of the Exchange Fund will be sold to the Holder at a price equal
to the bid side evaluation per 1.000 units of the underlying securities in the
Portfolio plus interest plus the applicable sales charge listed in the table
below. Units of Defined Asset Funds--Equity Income Fund are sold, and will be
repurchased, at a price normally based on the closing sale prices on the New
York Stock Exchange, Inc. of the underlying securities in the Portfolio. The
maximum applicable sales charges for units of the Exchange Funds are also listed
in the table. Excess proceeds not used to acquire whole Exchange Fund units will
be paid to the exchanging Holder.
THE EXCHANGE FUNDS
The current return from taxable fixed income securities is normally higher
than that available from tax exempt fixed income securities. Certain of the
Exchange Funds do not provide for periodic payments of interest and are best
suited for purchase by IRA's, Keogh plans, pension funds or other tax-deferred
retirement plans. Consequently, some of the Exchange Funds may be inappropriate
investments for some Holders and therefore may be inappropriate exchanges for
Units of this Series. The table below indicates certain characteristics of each
of the Exchange Funds which a Holder should consider in determining whether each
Exchange Fund would be an appropriate investment vehicle and an appropriate
exchange for Units of this Series.
TAX CONSEQUENCES
An exchange of Units pursuant to the Exchange Option for units of a series
of another Fund should constitute a 'taxable event' under the Code, requiring a
Holder to recognize a tax gain or loss subject to the following limitation. The
Internal Revenue Service may seek to disallow a loss (or a pro rata portion
thereof) on an exchange of Units if the units received by a Holder in connection
with such an exchange represent securities that are not materially different
from the securities that his previous units represented (e.g., both Funds
contain securities issued by the same obligor that have the same material
terms). Holders are urged to consult their own tax advisers as to the tax
consequences to them of exchanging units in particular cases.
In addition, if the exchange of units is made within 90 days of the
purchase of the units originally held by the Holder ('Original Units'), a
Holder's gain recognized on such exchange will be increased (or loss, if
recognized, will be decreased) by the lesser of (a) the sales charge applicable
to the Original Units or (b) the reduction in the sales charge on the units
received in the exchange ('New Units'). The amount of such increase (or
decrease) will be added to the Holder's basis in his New Units and, accordingly,
will result in a decreased tax gain or increased tax loss) when the Holder sells
his New Units.
EXAMPLE
Assume that a Holder, who has three units of a fund with a 5.50% sales
charge and a current price (offering side evaluation plus accrued interest) of
$1,100 per unit, sells his units and exchanges the proceeds for units of a
series of an Exchange Fund with a current price of $950 per unit and the same
sales charge. The proceeds from the Holder's units will aggregate $3,300. Since
only whole units of an Exchange Fund may be purchased under the Exchange Option,
the Holder would be able to acquire three units in the Exchange Fund for a total
cost of $2,895 ($2,850 for units and $45 for the $15 per unit sales charge) and
would receive $405 in cash. Were the Holder to
55
<PAGE>
acquire the same number of units at the same time in the regular secondary
market maintained by the Sponsors, the price would be $3,006.75 ($2,850 for the
units and $156.75 for the 5.50% sales charge).
<TABLE>
<CAPTION>
MAXIMUM REDUCED
NAME OF APPLICABLE SALES CHARGE FOR
EXCHANGE FUND SALES CHARGE* SECONDARY MARKET**
- ------------------------------------------- ----------------- -----------------------
<S> <C> <C>
DEFINED ASSET FUNDS--MUNICIPAL INVESTMENT
TRUST FUND
Monthly Payment, State and Multistate 5.50%+ $15 per unit
Series
Intermediate Term Series 4.50%+ $15 per unit
Insured Series 5.50%+ $15 per unit
AMT Monthly Payment Series 5.50%+ $15 per unit
DEFINED ASSET FUNDS--EQUITY INCOME FUND
Utility Common Stock Series 4.50% $15 per 1,000 units++
Investment Philosophy Series and Select 2.75% $17.50 per 1,000 units
10 Portfolios
Concept Series 4.00% $15 per 100 units
DEFINED ASSET FUNDS--GOVERN-
MENT SECURITIES INCOME FUND
GNMA Series (other than those below) 4.25% $15 per unit
GNMA Series E or other GNMA Series 4.25% $15 per 1,000 units
having units with an initial face
value of $1.00
Freddie Mac Series 3.50% $15 per 1,000 units
</TABLE>
<TABLE>
<CAPTION>
NAME OF INVESTMENT
EXCHANGE FUND CHARACTERISTICS
- ------------------------------------------- ---------------------------------------------------
<S> <C>
DEFINED ASSET FUNDS--MUNICIPAL INVESTMENT
TRUST FUND
Monthly Payment, State and Multistate long-term, fixed-rate, tax-exempt
Series income
Intermediate Term Series intermediate-term, fixed rate, tax-exempt income
Insured Series long-term, fixed-rate, tax-exempt income,
underlying securities insured by insurance
companies
AMT Monthly Payment Series long-term, fixed rate, income exempt from regular
income tax but partially subject to Alternative
Minimum Tax
DEFINED ASSET FUNDS--EQUITY INCOME FUND
Utility Common Stock Series dividends, taxable income, underlying securities
are common stocks of public utilities
Investment Philosophy Series and Select underlying securities represent 10 of Dow Jones
10 Portfolios Industrial Average stocks with highest dividend
yield as of date of creation of fund
Concept Series underlying securities constitute a professionally
selected portfolio of common stocks consistent with
an investment idea or concept
DEFINED ASSET FUNDS--GOVERN-
MENT SECURITIES INCOME FUND
GNMA Series (other than those below) long-term, fixed rate, taxable income, underlying
securities backed by the full faith and credit of
the United States
GNMA Series E or other GNMA Series long-term, fixed rate, taxable income, underlying
having units with an initial face securities backed by the full faith and credit of
value of $1.00 the United States, appropriate for IRA's or
tax-deferred retirement plans
Freddie Mac Series intermediate term, fixed rate, taxable income,
underlying securities are backed by Federal Home
Loan Mortgage Corporation but not by U.S.
Government
</TABLE>
- ---------------
* As described in the prospectuses relating to certain Exchange Funds, this
sales charge for secondary market sales may be reduced on a graduated scale
in the case of quantity purchases.
** The reduced sales charge for Units acquired during their initial offering
period is: $20 per unit for Series for which the Reduced Sales Charge for
Secondary Market (above) is $15 per unit; $20 per 100 units for Series for
which the Reduced Sales Charge for Secondary Market is $15 per 100 Units and
$20 per 1,000 units for Series for which the Reduced Sales Charge for
Secondary Market is $15 per 1,000 units.
+ Subject to reduction depending on the maturities of the underlying
Securities.
++ The reduced sales charge for the Sixth Utility Common Stock Series of The
Equity Income Fund is $15 per 2,000 units and for prior Utility Common Stock
Series is $7.50 per unit.
56
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM REDUCED
NAME OF APPLICABLE SALES CHARGE FOR
EXCHANGE FUND SALES CHARGE* SECONDARY MARKET**
- ------------------------------------------- ----------------- -----------------------
<S> <C> <C>
DEFINED ASSET FUNDS--MUNICIPAL INCOME FUND
Insured Discount Series 5.50% $15 per unit
DEFINED ASSET FUNDS--CORPORATE INCOME FUND
Monthly Payment Series 5.50% $15 per unit
Intermediate Term Series 4.00% $15 per unit
Cash or Accretion Bond Series and 5.50% $15 per 1,000 units
SELECT Series
Select High Yield Series 5.50% $15 per unit
Insured Series 5.50% $15 per unit
DEFINED ASSET FUNDS-- INTERNATIONAL BOND
FUND
Multi-Currency Series 5.50% $15 per unit
Australian and New Zealand Dollar Bonds 3.75% $15 per unit
Series
Australian Dollar Bonds Series 3.75% $15 per unit
Canadian Dollar Bonds Series 3.50% $15 per unit
</TABLE>
<TABLE>
<CAPTION>
NAME OF INVESTMENT
EXCHANGE FUND CHARACTERISTICS
- ------------------------------------------- ---------------------------------------------------
<S> <C>
DEFINED ASSET FUNDS--MUNICIPAL INCOME FUND
Insured Discount Series long-term, fixed rate, insured, tax-exempt income,
taxable capital gains
DEFINED ASSET FUNDS--CORPORATE INCOME FUND
Monthly Payment Series long-term, fixed rate, taxable income
Intermediate Term Series intermediate-term, fixed rate, taxable income
Cash or Accretion Bond Series and intermediate-term, fixed rate, underlying
SELECT Series securities composed of compound interest
obligations principally secured by collateral
backed by the full faith and credit of the United
States, taxable income, current distributions of
new units in lieu of principal or interest with
option to sell new units for cash income,
appropriate for IRA's or tax-deferred retirement
plans
Select High Yield Series non-investment grade, intermediate and long-term,
fixed rate, taxable income
Insured Series long-term, fixed rate, taxable income, underlying
securities are insured
DEFINED ASSET FUNDS-- INTERNATIONAL BOND
FUND
Multi-Currency Series intermediate-term, fixed rate, payable in foreign
currencies, taxable income
Australian and New Zealand Dollar Bonds intermediate-term, fixed rate, payable in
Series Australian and New Zealand dollars, taxable income
Australian Dollar Bonds Series intermediate-term, fixed rate, payable in
Australian dollars, taxable income
Canadian Dollar Bonds Series short intermediate term, fixed rate, payable in
Canadian dollars, taxable income
</TABLE>
- ---------------
* As described in the prospectuses relating to certain Exchange Funds, this
sales charge for secondary market sales may be reduced on a graduated scale
in the case of quantity purchases.
** The reduced sales charge for Units acquired during their initial offering
period is: $20 per unit for Series for which the Reduced Sales Charge for
Secondary Market (above) is $15 per unit; $20 per 100 units for Series for
which the Reduced Sales Charge for Secondary Market is $15 per 100 Units and
$20 per 1,000 units for Series for which the Reduced Sales Charge for
Secondary Market is $15 per 1,000 units.
2/93
57
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DEFINED
ASSET FUNDSSM
SPONSORS: EQUITY INCOME FUND
Merrill Lynch, Utility Stock Series--9
Pierce, Fenner & Smith Inc. (Common and Preferred Stocks)
Unit Investment Trusts A Unit Investment Trust
P.O. Box 9051 PROSPECTUS PART A
Princeton, NJ 08543-9051 This Prospectus does not contain all of
(609) 282-8500 the information with respect to the
Smith Barney Inc. investment company set forth in its
Unit Trust Department registration statement and exhibits
Two World Trade Center--101st Floor relating thereto which have been filed
New York, NY 10048 with the Securities and Exchange
1-800-298-UNIT Commission, Washington, D.C. under the
Prudential Securities Incorporated Securities Act of 1933 and the
One Seaport Plaza Investment Company Act of 1940, and to
199 Water Street which reference is hereby made.
New York, NY 10292 No person is authorized to give any
(212) 776-1000 information or to make any
Dean Witter Reynolds Inc. representations with respect to this
Two World Trade Center--59th Floor investment company not contained in this
New York, NY 10048 Prospectus; and any information or
(212) 392-2222 representation not contained herein must
INDEPENDENT ACCOUNTANTS: not be relied upon as having been
Deloitte & Touche authorized. This Prospectus does not
1633 Broadway constitute an offer to sell, or a
3rd Floor solicitation of an offer to buy,
New York, NY 10019 securities in any state to any person to
TRUSTEE: whom it is not lawful to make such offer
The Bank of New York in such state.
Unit Investment Trust Department
P.O. Box 974
Wall Street Station
New York, NY 10268-0974
1-800-221-7771
11828--7/94
