DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
CORPORATE This Defined Fund is a portfolio of preselected
INCOME FUND bonds formed to provide a high level of current
MONTHLY PAYMENT income through investment in a fixed portfolio of
SERIES--312 long-term corporate bonds. This income is taxable
(A UNIT INVESTMENT to U.S. investors, but in the opinion of counsel
TRUST) is exempt from U.S. Federal income taxes,
- ------------------------------including withholding taxes, for many foreign
/ / DESIGNED FOR HIGH CURRENT investors. There is no assurance that this
INCOME objective will be met because it is subject to the
/ / DEFINED PORTFOLIO OF continuing ability of issuers of the bonds to meet
LONG-TERM CORPORATE their principal and interest requirements.
BONDS Furthermore, the market value of the bonds, and
/ / MONTHLY INCOME therefore the value of the Units, will fluctuate
/ / TAX EXEMPT TO with changes in interest rates and other factors.
FOREIGN HOLDERS Minimum Purchase: One Unit
-------------------------------------------------
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 DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------------------------
SPONSORS: PART A OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED
Merrill Lynch, UNLESS ACCOMPANIED BY CORPORATE INCOME FUND
Pierce, Fenner & Smith PROSPECTUS PART B.
Incorporated INVESTORS SHOULD READ BOTH PARTS OF THIS
Smith Barney Inc. PROSPECTUS CAREFULLY AND RETAIN THEM FOR FUTURE
Prudential Securities REFERENCE.
Incorporated INQUIRIES SHOULD BE DIRECTED TO THE TRUSTEE AT
Dean Witter Reynolds Inc. 1-800-323-1508.
PaineWebber Incorporated PROSPECTUS PART A DATED JUNE 28, 1996.
<PAGE>
- --------------------------------------------------------------------------------
Def ined Asset FundsSM
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $100 billion sponsored over the last 25 years. Each Defined
Asset Fund is a portfolio of preselected securities. The portfolio is divided
into 'units' representing equal shares of the underlying assets. Each unit
receives an equal share of income and principal distributions.
Defined Asset Funds offer several defined 'distinctives'. You know in advance
what you are investing in and that changes in the portfolio are limited--a
defined portfolio. Most defined bond funds pay interest monthly--defined income.
The portfolio offers a convenient and simple way to invest-- simplicity defined.
Your financial professional can help you select a Defined Asset Fund to meet
your personal investment objectives. Our size and market presence enable us to
offer a wide variety of investments. The Defined Asset Funds family offers:
o Municipal portfolios
o Corporate portfolios
o Government portfolios
o Equity portfolios
o International portfolios
The terms of Defined Funds are as short as one year or as long as 30 years.
Special defined bond funds are available including: insured funds, double and
triple tax-free funds and funds with 'laddered maturities' to help protect
against changing interest rates. Defined Asset Funds are offered by prospectus
only.
- ----------------------------------------------------------------
Defined Monthly Payment Series
- ----------------------------------------------------------------
Our defined portfolio of long-term corporate bonds offers you a simple and
convenient way to earn a high level of current monthly income. And by purchasing
Defined Asset Funds, you not only receive professional selection but also gain
the advantage of reduced risk by investing in bonds of several different
issuers.
INVESTMENT OBJECTIVE
To provide a high level of current income through investment in a fixed
portfolio consisting primarily of long-term corporate bonds.
DIVERSIFICATION
The Portfolio contains 15 bonds. Spreading your investment among different
issuers reduces your risk, but does not eliminate it. Because of maturities,
sales or other dispositions of bonds, the size, composition and return of the
Portfolio will change over time. The information in this prospectus is as of
March 31, 1996, the evaluation date.
- ----------------------------------------------------------------
Defining Your Portfolio
- ----------------------------------------------------------------
PROFESSIONAL SELECTION AND SUPERVISION
The Portfolio contains a variety of bonds selected by experienced buyers and
research analysts. The Fund is not actively managed; however, it is regularly
reviewed and a bond can be sold if retaining it is considered detrimental to
investors' interests.
TYPES OF BONDS
The Portfolio consists of bonds issued by 15 different corporate issuers:
APPROXIMATE
ISSUERS PORTFOLIO PERCENTAGE
/ / Oil/Gas 9%
/ / Consumer Goods 6%
/ / Natural Resources 14%
/ / Retailing 12%
/ / Corporate Utilities 59%
PREMIUM AND DISCOUNT ISSUES
On the evaluation date, 9% of the bonds were valued at a premium over par and
91% at a discount from par (see Risk Factors in Part B.)
BOND CALL FEATURES
It is possible that during periods of falling interest rates, a bond with a
coupon higher than current market rates will be prepaid or 'called', at the
option of the bond issuer, before its expected maturity. When bonds are
initially callable, the price is usually at a premium to par which then declines
to par over time. Bonds may also be subject to a mandatory sinking fund or have
extraordinary redemption provisions. For example, if the bond's proceeds are not
able to be used as intended the bond may be redeemed. This redemption and the
sinking fund are often at par.
CALL PROTECTION
Many bonds are subject to optional refunding or call provisions. However, we
selected bonds with call protection. This call protection means that most bonds
in the Portfolio generally cannot be called for several years after the initial
date of deposit of the Fund (which was April 21, 1993) and thereafter at a
declining premium over par.
On the evaluation date, 11% of the Portfolio was currently callable.
TAX INFORMATION
In the opinion of special counsel to the Sponsors, each investor will be
considered to have received the interest on his pro rata portion of each bond
when interest on the bond is received by the Fund. This interest is taxable for
U.S. investors but exempt from U.S. Federal income taxes, including withholding
taxes, for many foreign investors. (See Taxes in Part B.)
A-2
<PAGE>
- ---------------------------------------------------------------
Defining Your Investment
- ---------------------------------------------------------------
PUBLIC OFFERING PRICE PER UNIT $1,001.21
The Public Offering Price as of March 31, 1996, the evaluation date, is based on
the aggregate bid side value of the underlying bonds in the Fund ($31,931,427),
divided by the number of units outstanding (33,749) plus a sales charge of 5.50%
of the Public Offering Price (5.820% of the value of the underlying bonds). The
Public Offering Price on any subsequent date will vary. An amount equal to
principal cash, if any, as well as net accrued but undistributed interest on the
unit is added to the Public Offering Price. The underlying bonds are evaluated
by an independent evaluator at 3:30 p.m. Eastern time on every business day.
REINVESTMENT OPTION
You can elect to automatically reinvest your distributions into a separate
portfolio of corporate bonds. Reinvesting helps to compound your income.
PRINCIPAL DISTRIBUTIONS
Principal from sales, redemptions and maturities of bonds in the Fund will be
distributed to investors periodically when the amount to be distributed is more
than $5.00 per unit.
TERMINATION DATE
The Fund will generally terminate following the maturity date of the last
maturing bond listed in the Portfolio. The Fund may be terminated earlier if the
value is less than 40% of the face amount of bonds deposited. On the evaluation
date the value of the Fund was 67% of the face amount of bonds deposited.
- ---------------------------------------------------------------
Defining Your Risks
- ---------------------------------------------------------------
RISK FACTORS
Unit price fluctuates and could be adversely affected by increasing interest
rates as well as the financial condition of the issuers of the bonds. Because of
the possible maturity, sale or other disposition of securities, the size,
composition and return of the portfolio may change at any time. Because of the
sales charges, returns of principal and fluctuations in unit price, among other
reasons, the sale price will generally be less than the cost of your units. Unit
prices could also be adversely affected if a limited trading market exists in
any Security to be sold. There is no guarantee that the Fund will achieve its
investment objective.
The Fund is concentrated in bonds issued by Corporate Utilities and is therefore
dependent to a significant degree on revenues generated from those particular
activities (see Risk Factors in Part B).
- ---------------------------------------------------------------
Defining Your Costs
- ---------------------------------------------------------------
SALES CHARGES
Although the Fund is a unit investment trust rather than a mutual fund, the
following information is presented to permit a comparison of fees and an
understanding of the direct or indirect costs and expenses that you pay.
As a %
of Secondary Market
Public Offering
Price
-------------------
Maximum Sales Charge 5.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
Per Unit
--------------
Trustee's Fee $ 0.60
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees $ 0.31
Evaluator's Fee $ 0.10
Other Operating Expenses $ 0.14
--------------
TOTAL $ 1.15
SELLING YOUR INVESTMENT
You may sell your units at any time. Your price is based on the Fund's then
current net asset value (based on the lower, bid side evaluation of the bonds,
as determined by an independent evaluator), plus principal cash, if any, as well
as accrued interest. The per unit bid side redemption and secondary market
repurchase price as of the evaluation date was $946.14 ($55.07 less than the
Public Offering Price). There is no fee for selling your units.
- ---------------------------------------------------------------
Defining Your Income
- ---------------------------------------------------------------
MONTHLY INTEREST INCOME
The Fund pays monthly income, even though the bonds generally pay interest
semi-annually.
WHAT YOU MAY EXPECT
(PAYABLE ON THE 25TH DAY OF THE MONTH TO HOLDERS OF RECORD ON THE 10TH DAY OF
THE MONTH):
Regular Monthly Income per unit $ 6.14
Annual Income per unit: $ 73.75
These figures are estimates determined as of the evaluation date and actual
payments may vary.
A-3
<PAGE>
CORPORATE INCOME FUND, MONTHLY PAYMENT
SERIES - 312, DEFINED ASSET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Corporate Income Fund, Monthly Payment
Series - 312, Defined Asset Funds:
We have audited the accompanying statement of condition
of Corporate Income Fund, Monthly Payment Series - 312,
Defined Asset Funds, including the portfolio, as of March
31, 1996 and the related statements of operations and of
changes in net assets for the years ended March 31, 1996 and
1995 and the period April 22, 1993 to March 31, 1994. 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 March 31,
1996, as shown in such portfolio, were confirmed to us by
The Chase Manhattan Bank (National Association), 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 Corporate Income Fund, Monthly Payment
Series - 312, Defined Asset Funds, at March 31, 1996
and the results of its operations and changes in its net
assets for the above-stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
June 6, 1996
D - 1.
<PAGE>
CORPORATE INCOME FUND, MONTHLY PAYMENT
SERIES - 312, DEFINED ASSET FUNDS
STATEMENT OF CONDITION
As of March 31, 1996
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities -
at value (cost $ 33,295,018 )(Note 1)........ $31,931,427
Accrued interest ............................... 401,953
Cash - income .................................. 164,818
Cash - principal ............................... 21,376
-----------
Total trust property ......................... 32,519,574
LESS LIABILITY - Accrued Sponsors' fees .......... 2,656
-----------
NET ASSETS, REPRESENTED BY:
33,749 units of fractional undivided
interest outstanding (Note 3)................ $31,952,803
Undistributed net investment income ............ 564,115 $32,516,918
----------- ===========
UNIT VALUE ($ 32,516,918 / 33,749 units )......... $ 963.49
===========
</TABLE>
See Notes to Financial Statements.
D - 2.
<PAGE>
CORPORATE INCOME FUND, MONTHLY PAYMENT
SERIES - 312, DEFINED ASSET FUNDS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
April 22, 1993
to
Years Ended March 31, March 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income ........................ $ 2,622,410 $ 2,741,127 $ 2,457,720
Trustee's fees and expenses ............ (30,459) (35,534) (31,527)
Sponsors' fees ......................... (12,902) (11,045) (8,533)
------------------------------------------------
Net investment income .................. 2,579,049 2,694,548 2,417,660
------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) on
securities sold or redeemed .......... (21,353) (90,698) 26,865
Unrealized appreciation (depreciation)
of investments ....................... 1,545,291 (913,708) (1,995,174)
------------------------------------------------
Net realized and unrealized
gain (loss) on investments ........... 1,523,938 (1,004,406) (1,968,309)
------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .............. $ 4,102,987 $ 1,690,142 $ 449,351
================================================
</TABLE>
See Notes to Financial Statements.
D - 3.
<PAGE>
CORPORATE INCOME FUND, MONTHLY PAYMENT
SERIES - 312, DEFINED ASSET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
April 22, 1993
to
Years Ended March 31, March 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATIONS:
Net investment income .................. $ 2,579,049 $ 2,694,548 $ 2,417,660
Realized gain (loss) on
securities sold or redeemed .......... (21,353) (90,698) 26,865
Unrealized appreciation (depreciation)
of investments ....................... 1,545,291 (913,708) (1,995,174)
------------------------------------------------
Net increase in net assets
resulting from operations ............ 4,102,987 1,690,142 449,351
------------------------------------------------
DISTRIBUTIONS TO HOLDERS (Note 2):
Income ................................ (2,585,427) (2,698,094) (1,988,094)
Principal .............................. (54,275) (30,734) (4,478)
------------------------------------------------
Total distributions .................... (2,639,702) (2,728,828) (1,992,572)
------------------------------------------------
SHARE TRANSACTIONS:
Subscription amounts ................... 28,404,753
Redemption amounts - income ............ (37,742) (11,977) (17,436)
Redemption amounts - principal ......... (2,355,727) (619,821) (1,217,760)
------------------------------------------------
Total share transactions ............... (2,393,469) (631,798) 27,169,557
------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS .... (930,184) (1,670,484) 25,626,336
NET ASSETS AT BEGINNING OF PERIOD ........ 33,447,102 35,117,586 9,491,250
------------------------------------------------
NET ASSETS AT END OF PERIOD .............. $32,516,918 $33,447,102 $35,117,586
================================================
PER UNIT:
Income distributions during
period ............................... $ 73.90 $ 74.00 $ 52.98
================================================
Principal distributions during
period ............................... $ 1.57 $ 0.85 $ 0.12
================================================
Net asset value at end of
period ............................... $ 963.49 $ 926.05 $ 953.74
================================================
TRUST UNITS:
Issued during period ................... 28,500
Redeemed during period ................. 2,369 703 1,179
Outstanding at end of period ........... 33,749 36,118 36,821
================================================
</TABLE>
See Notes to Financial Statements.
D - 4.
<PAGE>
CORPORATE INCOME FUND, MONTHLY PAYMENT
SERIES - 312, DEFINED ASSET FUNDS
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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 value as determined by the
Evaluator based on bid side evaluations for the securities.
See "How to Sell Units - Trustee's Redemption of Units"
in this Prospectus, Part B, except that value on April 22,
1993 was based upon offering side evaluations at April 20,
1993, the day prior to the Date of Deposit. Cost of
securities at April 22, 1993 was also based on such offering
side evaluations. The cost of securities deposited subsequently
is based upon offering side evaluations at the subsequent date
of deposit. Realized gains and losses on sales are determined
using the First-in, First-out method.
(B) The Fund is not subject to income taxes. Accordingly, no
provision for such taxes is required.
(C) Interest income is recorded as earned.
2. DISTRIBUTIONS
A distribution of net investment income is made to Holders each month.
Receipts other than interest, after deductions for redemptions and applicable
expenses, are distributed as explained in "Income, Distibutions and
Reinvestment - Distibutions" in this Prospectus, Part B.
3. NET CAPITAL
Cost of 33,749 units at Date of Deposit .................... $35,097,849
Less sales charge .......................................... 1,579,193
-----------
Net amount applicable to Holders ........................... 33,518,656
Redemptions of units - net cost of 4,251 units redeemed
less redemption amounts (principal)....................... (27,589)
Realized loss on securities sold or redeemed ............... (85,186)
Principal distributions .................................... (89,487)
Unrealized depreciation of investments ..................... (1,363,591)
-----------
Net capital applicable to Holders .......................... $31,952,803
===========
4. INCOME TAXES
As of March 31, 1996, unrealized depreciation of investments, based on
cost for Federal income tax purposes, aggregated $1,363,591, all of which
related to depreciated securities. The cost of investment securities for
Federal income tax purposes was $33,295,018 at March 31, 1996.
</TABLE>
D - 5.
<PAGE>
CORPORATE INCOME FUND, MONTHLY PAYMENT
SERIES - 312, DEFINED ASSET FUNDS
PORTFOLIO
As of March 31, 1996
<TABLE>
<CAPTION>
Rating of Issues(1)
--------------------
Standard
Moody's & Poor's Optional
Portfolio No. and Title of Investors Corpora- Face Redemption
Securities Service tion Amount Coupon % Maturities(3) Provisions(3) Cost(2)Value(2)
---------- --------- --------- ----------- ----------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Alabama Power Company, First A1 A+ $ 1,900,000 7.750 % 2023 Currently $ 1,920,375 $ 1,865,234
Mortgage Bonds
2 Baltimore Gas and Electric A1 A+ 2,000,000 7.500 2023 04/15/98 1,980,000 1,929,346
Company, First and Refunding @ 105.300
Mortgage Bonds
3 Dow Chemical Company, A1 A 2,000,000 7.375 2023 None 1,971,250 1,874,142
Debentures
4 Florida Power and Light A1 AA- 3,785,000 7.750 2023 02/01/98 3,825,969 3,768,323
Company, First Mortgage Bonds @ 104.780
5 Georgia Power Company, First A1 A+ 1,735,000 7.750 2023 Currently 1,734,888 1,693,077
Mortgage Bonds
6 International Paper Company, A3 A- 2,790,000 7.625 2023 03/01/03 2,776,775 2,735,639
Debentures @ 103.430
7 The Limited Incoporated, Baa2 BBB+ 3,940,000 7.500 2023 03/15/03 3,849,650 3,187,913
Debentures @ 103.160
8 Pacific Bell, Debentures Aa3 AA- 1,965,000 7.125 2026 None 1,908,825 1,890,884
</TABLE>
D - 6.
<PAGE>
CORPORATE INCOME FUND, MONTHLY PAYMENT
SERIES - 312, DEFINED ASSET FUNDS
PORTFOLIO
As of March 31, 1996
<TABLE>
<CAPTION>
Rating of Issues(1)
--------------------
Standard
Moody's & Poor's Optional
Portfolio No. and Title of Investors Corpora- Face Redemption
Securities Service tion Amount Coupon % Maturities(3) Provisions(3) Cost(2) Value(2)
---------- --------- --------- ----------- ----------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9 Pacific Gas and Electric A2 A $ 2,000,000 7.250 % 2026 06/01/03 $ 1,936,250 $ 1,847,500
Company, First and Refunding @ 102.020
Mortgage Bonds, Ser. 93A
10 Philadelphia Electric Baa1 BBB+ 955,000 7.750 2023 03/01/98 942,206 926,676
Company, First and Refunding @ 104.950
Mortgage Bonds
11 Procter and Gamble Company, Aa2 AA 1,940,000 7.375 2023 03/01/03 1,934,000 1,914,091
Debentures @ 103.610
12 Public Service Electric and A3 A- 1,911,000 7.500 2023 03/01/98 1,874,099 1,797,345
Gas Company, First and @ 105.380
Refunding Mortgage Bonds,
Ser. OO
13 Southern California Edison A2 A+ 1,665,000 7.250 2026 03/01/03 1,612,956 1,550,531
Company, First and Refunding @ 102.430
Mortgage Bonds
14 Texaco Capital Incorporated, A1 A+ 3,045,000 7.750 2033 02/15/03 3,072,150 3,067,974
Guaranteed Debentures @ 104.640
15 Virginia Electric and Power A2 A 2,000,000 7.250 2023 02/01/03 1,955,625 1,882,752
Company, First and Rfdg. @ 100.440
Mtge. Bonds
---------- ---------- ----------
TOTAL $33,631,000 $33,295,018 $31,931,427
========== ========== ==========
See Notes to Portfolio.
</TABLE>
D - 7.
<PAGE>
CORPORATE INCOME FUND, MONTHLY PAYMENT
SERIES - 312, DEFINED ASSET FUNDS
NOTES TO PORTFOLIO
As of March 31, 1996
<TABLE>
<S> <C>
(1) A description of the rating symbols and their meanings appears under "Description
of Ratings" in this Prospectus, Part B. "NR", if applicable, indicates that this
security is not currently rated by the indicated rating service. These ratings
have been furnished by the Evaluator but not confirmed with the rating agencies.
(2) See Notes to Financial Statements.
(3) Optional redemption provisions, which may be exercised in whole or in part,
are initially at prices of par plus a premium, then subsequently at prices
declining to par. Certain securities may provide for redemption at par prior
or in addition to any optional or mandatory redemption dates or maturity, for
example, through the operation of a maintenance and replacement fund, if
proceeds are not able to be used as contemplated, the project is condemned or
sold or the project is destroyed and insurance proceeds are used to redeem
the securities. Many of the securities are also subject to mandatory sinking
fund redemption commencing on dates which may be prior to the date on which
securities may be optionally redeemed. Sinking fund redemptions are at par
and redeem only part of the issue. Some of the securities have mandatory
sinking funds which contain optional provisions permitting the issuer to
increase the principal amount of securities called on a mandatory redemption
date. The sinking fund redemptions with optional provisions may, and optional
refunding redemptions generally will, occur at times when the redeemed
securities have an offering side evaluation which represents a premium over
par. To the extent that the securities were acquired at a price higher than
the redemption price, this will represent a loss of capital when compared
with the Public Offering Price of the Units when acquired. Distributions will
generally be reduced by the amount of the income which would otherwise have
been paid with respect to redeemed securities and there will be distributed
to Holders any principal amount and premium received on such redemption after
satisfying any redemption requests for Units received by the Fund. The
estimated current return may be affected by redemptions. The tax effect on
Holders of redemptions and related distributions is described under "Taxes"
in this Prospectus, Part B.
</TABLE>
D - 8.
<PAGE>
CORPORATE INCOME FUND
MONTHLY PAYMENT SERIES
DEFINED ASSET FUNDS
I want to learn more about automatic reinvestment in the Investment Accumulation
Program. Please send me information about participation in the Corporate Fund
Accumulation Program, Inc. and a current Prospectus.
My name (please
print) ________________________________________________________________________
My address (please print):
Street and Apt.
No. ___________________________________________________________________________
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. 644, NEW YORK, N.Y. NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
THE CHASE MANHATTAN BANK, N.A. (CIF) UNITED STATES
RETAIL PROCESSING DEPARTMENT
770 BROADWAY--7th FLOOR
NEW YORK, N.Y. 10003-9598
- --------------------------------------------------------------------------------
(Fold along this line.)
- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
CORPORATE INCOME FUND
CASH OR ACCRETION SERIES
INTERMEDIATE TERM SERIES
INSURED SERIES
MONTHLY PAYMENT SERIES
PREFERRED STOCK PUT SERIES
SELECT SERIES
THIS PART B OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED OR
PRECEDED BY PART A.
FURTHER INFORMATION REGARDING THE FUND MAY BE OBTAINED
WITHIN FIVE DAYS BY WRITING OR CALLING THE TRUSTEE, AT THE ADDRESS AND
TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS.
Index
PAGE
Fund Description...................................... 1
Risk Factors.......................................... 2
How to Buy Units...................................... 6
How to Sell Units..................................... 7
Income, Distributions and Reinvestment................ 8
Fund Expenses......................................... 9
Taxes................................................. 9
PAGE
Records and Reports................................... 11
Trust Indenture....................................... 12
Miscellaneous......................................... 12
Exchange Option....................................... 14
Supplemental Information.............................. 14
Appendix A--Description of Ratings.................... a-1
Appendix B--Sales Charge Schedules.................... b-1
FUND DESCRIPTION
BOND PORTFOLIO SELECTION
Professional buyers and research analysts for Defined Asset Funds, with
access to extensive research, generally selected the Bonds for the Portfolio
after considering the Fund's investment objective as well as the quality of
the Bonds (the Bonds were initially rated in the category A or better by at
least one nationally recognized rating organization or had comparable credit
characteristics), the yield and price of the Bonds compared to similar
securities, the maturities of the Bonds and the diversification of the
Portfolio. No leverage or borrowing is used nor does the Portfolio contain
other kinds of securities to enhance yield. A summary of the Bonds in the
Portfolio appears in Part A of the Prospectus. (For Preferred Stock Put
Series, see page 4.)
Yields on bonds depend on many factors including general conditions of
the bond markets, the size of a particular offering and the maturity and
quality rating of the particular issues. Yields can vary among bonds with
similar maturities, coupons and ratings. Ratings represent opinions of the
rating organizations as to the quality of the bonds rated, based on the credit
of the issuer or any guarantor, insurer or other credit provider, but these
ratings are only general standards of quality (see Appendix A).
After the initial date of deposit, the ratings of some Bonds may be
reduced or withdrawn, or the credit characteristics of the Bonds may no longer
be comparable to bonds rated A or better. Bonds rated BBB or Baa (the lowest
investment grade rating) or lower may have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than is the
case with higher grade bonds. Bonds rated below investment grade or unrated
bonds with similar credit characteristics are often subject to greater market
fluctuations and risk of loss of principal and income than higher grade bonds
and their value may decline precipitously in response to rising interest
rates.
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Because each Defined Asset Fund is a preselected portfolio of Bonds, you
know the securities, maturities, call dates and ratings before you invest. Of
course, the Portfolio will change somewhat over time as Bonds mature, are
redeemed or are sold to meet Unit redemptions or in other limited
circumstances. Because the Portfolio is not actively managed and principal is
returned as the Bonds are disposed of, this principal should be relatively
unaffected by changes in interest rates.
BOND PORTFOLIO SUPERVISION
The Fund follows a buy and hold investment strategy in contrast to the
frequent portfolio changes of a managed fund based on economic, financial and
market analyses. The Fund may retain an issuer's bonds despite adverse
financial developments. Experienced financial analysts regularly review the
Portfolio and a Bond may be sold in certain circumstances including the
occurrence of a default in payment or other default on the Bond, institution
of certain legal proceedings, if the Bond becomes inconsistent with the Fund's
investment objectives, a decline in the price of the Bond or the occurrence of
other market or credit factors that, in the opinion of Defined Asset Funds
research analysts, makes retention of the Bond detrimental to the interests of
investors. The Trustee must generally reject any offer by an issuer of a Bond
to exchange another security pursuant to a refunding or refinancing plan. The
Sponsors and the Trustee are not liable for any default or defect in a Bond.
RISK FACTORS
An investment in the Fund entails certain risks, including the risk that
the value of your investment will decline with increases in interest rates.
Generally speaking, bonds with longer maturities will fluctuate in value more
than bonds with shorter maturities. In recent years there have been wide
fluctuations in interest rates and in the value of fixed-rate bonds generally.
The Sponsors cannot predict the direction or scope of any future fluctuations.
Certain of the Bonds may have been deposited at a market discount or
premium principally because their interest rates are lower or higher than
prevailing rates on comparable debt securities. The current returns of market
discount bonds are lower than comparably rated bonds selling at par because
discount bonds tend to increase in market value as they approach maturity. The
current returns of market premium bonds are higher than comparably rated bonds
selling at par because premium bonds tend to decrease in market value as they
approach maturity. Because part of the purchase price is returned through
current income payments and not at maturity, an early redemption at par of a
premium bond will result in a reduction in yield to the Fund. Market premium
or discount attributable to interest rate changes does not indicate market
confidence or lack of confidence in the issue.
The Fund may be concentrated in one or more of types of bonds. Set forth
below is a brief description of certain risks associated with bonds which may
be held by the Fund. Additional information is contained in the Information
Supplement which is available from the Trustee at no charge to the investor.
UTILITIES
Payments on utility bonds are dependent on various factors, including the
rates the utilities may charge, the demand for their services and their
operating costs, including expenses to comply with environmental legislation
and other energy and licensing laws and regulations. Utilities are
particularly sensitive to, among other things, the effects of inflation on
operating and construction costs, the unpredictability of future usage
requirements, the costs and availability of fuel and, with certain electric
utilities, the risks associated with the nuclear industry.
HOSPITAL AND HEALTH CARE FACILITIES
Payments on hospital and health care facility bonds are dependent upon
revenues of hospitals and other health care facilities. These revenues come
from private third-party payors and government programs, including the
Medicare and Medicaid programs, which have generally undertaken cost
containment measures to limit paymentsto health care facilities. Hospitals and
health care facilities are subject to various legal claims by patients and
others and are adversely affected by increasing cost of insurance.
BANKS AND OTHER FINANCIAL INSTITUTIONS
The profitability of a financial institution is largely dependent upon
the credit quality of its loan portfolio which, in turn, is affected by the
institution's underwriting criteria, concentrations within the portfolio and
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specific industry and general economic conditions. The operating performance
of financial institutions is also impacted by changes in interest rates, the
availability and cost of funds, the intensity of competition and the degree of
governmental regulation.
TELECOMMUNICATIONS
Payments on bonds of companies in the telecommunications industry,
including local, long-distance and cellular service, the manufacture of
telecommunications equipment, and other ancillary services, are generally
dependant upon the amount and growth of customer demand, the level of rates
permitted to be charged by regulatory authorities and the ability to obtain
periodic rate increases, the effects of inflation on the cost of providing
services and the rate of technological innovation. The industry is
characterized by increasing competition in all sectors and extensive
regulation by the Federal Communications Commission and various state
regulatory authorities.
FOREIGN OBLIGORS
On the basis of the best information available to the Sponsors, except as
indicated in Prospectus Part A, under existing law there are no withholding
taxes applicable to any foreign Securities in the Portfolio. Issues of foreign
obligors may involve investment risks that are different from those of
domestic issues, including currency rate fluctuations, future political and
economic developments and the possible imposition of withholding taxes,
exchange controls or other foreign governmental restrictions which might
adversely affect the Fund.
INSURED SERIES
Portfolio Insurance. The Fund has obtained portfolio insurance
('Portfolio Insurance') from either MBIA Insurance Corporation or Financial
Security Assurance Inc. (each referred to as an 'Insurer' or the 'Insurers')
(see The Insurers below) that guarantees the scheduled payments of the
principal of and interest on the Bonds ('Portfolio-Insured Bonds') while they
are owned by the Fund, but does not guarantee the market value of the Bonds or
the value of the Units. Although all Bonds are individually insured, neither
the Fund, the Units nor the Portfolio are insured directly.
Since Portfolio Insurance applies to the Bonds only while they are owned
by the Fund, the value of Portfolio-Insured Bonds (and therefore the value of
the Units) may decline if the credit quality of any Portfolio-Insured Bond is
reduced. Premiums for Portfolio Insurance are payable monthly in advance by
the Trustee on behalf of the Fund. Upon the sale of a Portfolio-Insured Bond
from the Fund, the Trustee has the right, pursuant to an irrevocable
commitment obtained from the Insurer, to obtain insurance to maturity
('Permanent Insurance') on the Bond upon the payment of a single,
predetermined insurance premium from the proceeds of the sale. Accordingly,
any Bond in the Fund is eligible to be sold on an insured basis. The Public
Offering Price does not reflect any element of value for Portfolio Insurance.
The Evaluator will attribute a value to the Portfolio Insurance (including the
right to obtain Permanent Insurance) for the purpose of computing the price or
redemption value of Units only if the Portfolio-Insured Bonds are in default
in the payment of principal or interest or, in the opinion of Defined Asset
Funds research analysts, in significant risk of default.
The Insurers. The claims-paying ability of each Insurer is rated AAA by
Standard & Poor's. Ratings of insurance companies are subject to change at any
time at the discretion of the rating agency. In the event that the rating of
an Insurer is reduced, the Sponsors are authorized to direct the Trustee to
obtain other insurance on behalf of the Fund.
The following summary information relating to the listed insurance
companies has been obtained from publicly available information:
<TABLE><CAPTION>
FINANCIAL INFORMATION
AS OF JUNE 30, 1995
(IN MILLIONS OF DOLLARS)
----------------------------------------
NAME DATE ESTABLISHED ADMITTED ASSETS POLICYHOLDERS' SURPLUS
---- ---------------- --------------- ----------------------
<S> <C> <C> <C>
Financial Security Assurance Inc............. 1984 $ 776 $ 344
MBIA Insurance Corporation................... 1986 3,623 1,165
</TABLE>
Insurance companies are subject to extensive regulation and supervision
where they do business by state insurance commissioners who regulate the
standards of solvency which must be maintained, the nature of and
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limitations on investments, reports of financial condition, and requirements
regarding reserves for unearned premiums, losses and other matters. A
significant portion of the assets of insurance companies are required by law to
be held in reserve against potential claims on policies and is not available to
general creditors. Although the federal government does not regulate the
business of insurance, federal initiatives including pension regulation,
controls on medical care costs, minimum standards for no-fault automobile
insurance, national health insurance, tax law changes affecting life insurance
companies and repeal of the antitrust exemption for the insurance business can
significantly impact the insurance business.
CASH OR ACCRETION BOND SERIES AND SELECT SERIES
The Bonds in these Funds are Compound Interest Bonds that initially do
not pay interest. Instead, these Bonds accrue interest until a certain date
(the Payment Commencement Date). Prior to that date, the accrued but unpaid
interest on each Compound Interest Bond is added to principal and compounded,
and additional Units of the Fund are issued and added to the investor's
account on the quarterly or semi-annual Unit Accretion Distribution Days
stated in Part A of the Prospectus. Investors may elect automatic unit
accretion distributions which will return to them cash substantially
equivalent to the accrued but unpaid interest on the Compound Interest Bonds.
Notice of your election to have unit accretion distributions liquidated must
be received by the Trustee at least ten days prior to the first Record Day for
Unit Accretion Distribution as to which your election will apply. Compound
Interest Bonds are treated for federal income tax purposes as having original
issue discount, and investors must report as taxable income each year a
portion of the original issue discount prior to receiving the cash
attributable to that income (see Taxes in Part A of the Prospectus). In
addition, the value of the Compound Interest Bonds and of the Units may be
subject to greater fluctuations in response to changing interest rates than
bonds that make current interest payments.
The Compound Interest Bonds are backed by collateral primarily composed
of mortgage-backed securities guaranteed as to payment of interest and
principal by U.S. government agencies, including the Government National
Mortgage Association (GNMA), the Federal Home Loan Mortgage Corporation
(FHLMC) and the Federal National Mortgage Association (FNMA). The issuers of
the Compound Interest Bonds are generally limited purpose corporations
organized solely to issue the Bonds.
PREFERRED STOCK PUT SERIES
Preferred stocks present less risk than common stocks since dividends
must be paid before holders of common stock of that issuer may receive a
dividend. Preferred stocks do not, however, 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 corporate bonds.
The preferred stocks in the Fund were acquired from a savings bank or
savings and loan association (the Seller) that had held the preferred stocks
in its portfolio prior to sale to the Sponsors (see Banks and Other Financial
Institutions above). In order to provide liquidity, the Seller has committed
to repurchase any of the preferred stocks on any semi-annual Purchase Date (as
stated in Part A of the Prospectus) (a Liquidity Purchase). The Seller will
also repurchase any preferred stocks if the issuer fails to make any
redemption payments or fails to declare and pay a dividend at the prescribed
dividend rate (a Default Purchase) or if the Seller becomes or is deemed to be
bankrupt or insolvent (an Insolvency Purchase). Investors should realize that
they may have all or part of the principal amount of their investment in Units
returned prior to termination of the Fund if any of these situations occurs.
The Seller will also purchase all the preferred stocks remaining in the Fund
on the Final Disposition Date stated in Part A of the Prospectus (a
Disposition Purchase). These purchase commitments are
backed by collateral which may include mortgage-backed securities, municipal
and corporate bonds, U.S. government securities and cash.
LITIGATION AND LEGISLATION
The Sponsors do not know of any pending litigation as of the date of this
Prospectus which might reasonably be expected to have a material adverse
effect upon the Fund. At any time litigation may be initiated on a variety of
grounds, or legislation may be enacted, affecting the Bonds in the Fund. In
addition, there can be no assurance that foreign withholding taxes will not be
imposed on interest on Bonds issued by non-U.S. issuers in the future.
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PAYMENT OF THE BONDS AND LIFE OF THE FUND
The size and composition of the Portfolio will change over time. Certain
of the Bonds may be subject to redemption prior to their stated maturity dates
pursuant to optional refunding or sinking fund redemption provisions or
otherwise. In general, optional refunding redemption provisions are more
likely to be exercised when the value of a Bond is at a premium over par than
when it is at a discount from par. Some Bonds may be subject to sinking fund
and extraordinary redemption provisions which may commence early in the life
of the Fund. Additionally, the size and composition of the Fund will be
affected by the level of redemptions of Units that may occur from time to
time. Principally, this will depend upon the number of investors seeking to
sell or redeem their Units and whether or not the Sponsors are able to sell
the Units acquired by them in the secondary market. As a result, Units offered
in the secondary market may not represent the same face amount of Bonds as on
the initial date of deposit. Factors that the Sponsors will consider in
determining whether or not to sell Units acquired in the secondary market
include the diversity of the Portfolio, the size of the Fund relative to its
original size, the ratio of Fund expenses to income, the Fund's current and
long-term returns, the degree to which Units may be selling at a premium over
par and the cost of maintaining a current prospectus for the Fund. These
factors may also lead the Sponsors to seek to terminate the Fund earlier than
its mandatory termination date.
Cash or Accretion Bond Series and Select Series. As periodic payments of
interest and principal and any prepayments of principal are made on the Ginnie
Maes, Freddie Macs and Fannie Maes (the Collateral) backing the Compound
Interest Bonds, all or a portion of the amounts received will be used first to
make principal and interest payments on other bonds issued by the issuers of
the Compound Interest Bonds, until those bonds are fully paid, and then to
make principal and interest payments on the Compound Interest Bonds.
Therefore, the prepayment rates on the mortgages underlying the Collateral
will affect the principal amount of the Compound Interest Bonds in the Fund
and the ultimate life of the Fund.
All of the mortgages in the pools relating to the Collateral are subject
to prepayment without any significant premium or penalty at the option of the
mortgagors (i.e., the homeowners). While the mortgages underlying the
Collateral may be amortized over a period from 30 to 15 years, it has been the
experience of the mortgage industry that the average life of comparable
mortgages, owing to prepayments, is much less, perhaps as little as nine and
six years, respectively. Generally speaking, a number of factors, including
mortgage market interest rates and homeowners' mobility, will affect the
average life of the Collateral. Changes in prepayment patterns which are
influenced by changes in housing cycles and mortgage refinancing could
influence yield assumptions used in pricing the securities.
While the value of these mortgage backed securities generally fluctuates
inversely with changes in interest rates, it should be noted that their
potential for appreciation, which could otherwise be expected to result from a
decline in interest rates, may tend to be limited by any increased prepayments
by mortgagors as interest rates decline. Accordingly, the termination of the
Fund might be accelerated as a result of prepayments made as described above.
Early termination of a Fund or early payments of principal may have
important consequences to the investor; e.g., to the extent that Units were
purchased with a view to an investment of longer duration, the overall
investment program of the investor may require readjustment; or the overall
return on investment may be less or greater than anticipated, depending in
part on whether the purchase price paid for Units represented the payment of
an overall premium or a discount, respectively, above or below the stated
principal amounts of the underlying mortgages.
FUND TERMINATION
The Fund will be terminated no later than the mandatory termination date
specified in Part A of the Prospectus. It will terminate earlier upon the
disposition of the last Bond or upon the consent of investors holding 51% of
the Units. The Fund may also be terminated earlier by the Sponsors once the
total assets of the Fund have fallen below the minimum value specified in Part
A of the Prospectus. A decision by the Sponsors to terminate the Fund early
will be based on factors similar to those considered by the Sponsors in
determining whether to continue the sale of Units in the secondary market.
Notice of impending termination will be provided to investors and
thereafter Units will no longer be redeemable. On or shortly before
termination, the Fund will seek to dispose of any Bonds remaining in the
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Portfolio although any Bond unable to be sold at a reasonable price may
continue to be held by the Trustee in a liquidating trust pending its final
disposition. A proportional share of the expenses associated with termination,
including brokerage costs in disposing of Bonds, will be borne by investors
remaining at that time. This may have the effect of reducing the amount of
proceeds those investors are to receive in any final distribution.
LIQUIDITY
Up to 40% of the value of the Portfolio may consist of Bonds acquired in
private placements or otherwise that may constitute restricted securities that
cannot be sold publicly by the Trustee without registration under the
Securities Act of 1933, as amended. The Sponsors nevertheless believe that,
should a sale of these Bonds be necessary in order to meet redemption of
Units, the Trustee should be able to consummate a sale with institutional
investors.
The principal trading market for the Bonds will generally be in the
over-the-counter market and the existence of a liquid trading market for the
Bonds may depend on whether dealers will make a market in them. There can be
no assurance that a liquid trading market will exist for any of the Bonds,
especially since the Fund may be restricted under the Investment Company Act
of 1940 from selling Bonds to any Sponsor. The value of the Portfolio will be
adversely affected if trading markets for the Bonds are limited or absent.
HOW TO BUY UNITS
PUBLIC OFFERING PRICE
Units are available from any of the Sponsors, Underwriters and other
broker-dealers at the Public Offering Price plus accrued interest on the
Units. The Public Offering Price varies each Business Day with changes in the
value of the Portfolio and other assets and liabilities of the Fund. In the
secondary market (after the initial offering period), the Public Offering
Price is generally based on the bid side evaluation of the Bonds and includes
a sales charge based on the number of Units of the Fund purchased in the
secondary market on the same day by a single purchaser (see Secondary Market
sales charge schedule in Appendix B). Purchases in the secondary market of one
or more Series sponsored by the Sponsors that have the same rates of sales
charge may be aggregated. To qualify for a reduced sales charge, the dealer
must confirm that the sale is to a single purchaser or is purchased for its
own account and not for distribution. For these purposes, Units held in the
name of the purchaser's spouse or child under 21 years of age are deemed to be
purchased by a single purchaser. A trustee or other fiduciary purchasing
securities for a single trust estate or single fiduciary account is also
considered a single purchaser. This procedure may be amended or terminated at
any time without notice. For Preferred Stock Put Series there is no sales
charge and the Public Offering Price is based on the offer side evaluation of
the preferred stocks.
Employees of certain Sponsors and Sponsor affiliates and non-employee
directors of Merrill Lynch & Co. Inc. may purchase Units at any time at prices
including a sales charge of not less than $5 per Unit.
Net accrued interest is added to the Public Offering Price, the Sponsors'
Repurchase Price and the Redemption Price per Unit. This represents the
interest accrued on the Bonds, net of Fund expenses, from the initial date of
purchase of Units to, but not including, the settlement date for Units (less
any prior distributions of interest income to investors). Because of varying
interest payment dates on the Bonds, accrued interest at any time will exceed
the interest actually received by the Fund.
EVALUATIONS
Evaluations are determined by the independent Evaluator on each Business
Day. This excludes Saturdays, Sundays and the following holidays as observed
by the New York Stock Exchange: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. For
Cash or Accretion Bond Series and Select Series, the following Federal
holidays are also not Business Days: Columbus Day, Veteran's Day and Martin
Luther King's birthday. Bond evaluations are based on closing sales prices
(unless the Evaluator deems these prices inappropriate). If closing sales
prices are not available, the evaluation is generally determined on the basis
of current bid or offer prices for the Bonds or comparable securities or by
appraisal or by any combination of these methods. In the past, the bid prices
of publicly offered issues have been lower than the offer prices by as much as
1 1/2 or more of face amount in the case of inactively traded issues and as
little as 1/4 of 1% in the case of actively traded issues, but the difference
between the offer and bid prices has
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averaged between 1/2 of 1% and 1% of face amount. Neither the Sponsors, the
Trustee or the Evaluator will be liable for errors in the Evaluator's
judgment. The fees of the Evaluator will be borne by the Fund.
CERTIFICATES
Certificates for Units are issued upon request and may be transferred by
paying any taxes or governmental charges and by complying with the
requirements for redeeming Certificates (see How To Sell Units--Trustee's
Redemption of Units). Certain Sponsors collect additional charges for
registering and shipping Certificates to purchasers. Lost or mutilated
Certificates can be replaced upon delivery of satisfactory indemnity and
payment of costs.
HOW TO SELL UNITS
SPONSORS' MARKET FOR UNITS
You can sell your Units at any time without a fee. The Sponsors (although
not obligated to do so) will normally buy any Units offered for sale at the
repurchase price next computed after receipt of the order. The Sponsors have
maintained secondary markets in Defined Asset Funds for about 25 years.
Primarily because of the sales charge and fluctuations in the market value of
the Bonds, the sale price may be less than the cost of your Units. You should
consult your financial professional for current market prices to determine if
other broker-dealers or banks are offering higher prices for Units.
The Sponsors may discontinue this market without prior notice if the
supply of Units exceeds demand or for other business reasons; in that event,
the Sponsors may still purchase Units at the redemption price as a service to
investors. The Sponsors may reoffer or redeem Units repurchased.
TRUSTEE'S REDEMPTION OF UNITS
You may redeem your Units by sending the Trustee a redemption request
together with any certificates you hold. Certificates must be properly
endorsed or accompanied by a written transfer instrument with signatures
guaranteed by an eligible institution. In certain instances, additional
documents may be required such as a certificate of death, trust instrument,
certificate of corporate authority or appointment as executor, administrator
or guardian. If the Sponsors are maintaining a market for Units, they will
purchase any Units tendered at the repurchase price described above. The Fund
has no back-end load or 12b-1 fees, so there is never a fee for cashing in
your investment (see Appendix B). If they do not purchase Units tendered, the
Trustee is authorized in its discretion to sell Units in the over-the-counter
market if it believes it will obtain a higher net price for the redeeming
investor.
By the seventh calendar day after tender you will be mailed an amount
equal to the Redemption Price per Unit. Because of market movements or changes
in the Portfolio, this price may be more or less than the cost of your Units.
The Redemption Price per Unit is computed each Business Day by adding the
value of the Bonds, net accrued interest, cash and the value of any other Fund
assets; deducting unpaid taxes or other governmental charges, accrued but
unpaid Fund expenses, unreimbursed Trustee advances, cash held to redeem Units
or for distribution to investors and the value of any other Fund liabilities;
and dividing the result by the number of outstanding Units. Bonds are
evaluated on the offer side during the initial offering period and on the bid
side thereafter.
If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee may sell Bonds selected by the Agent for the Sponsors
based on market and credit factors determined to be in the best interest of
the Fund. These sales are often made at times when the Bonds would not
otherwise be sold and may result in lower prices than might be realized
otherwise and will also reduce the size and diversity of the Fund.
Redemptions may be suspended or payment postponed if the New York Stock
Exchange is closed other than for customary weekend and holiday closings, if
the SEC determines that trading on that Exchange is restricted or that an
emergency exists making disposal or evaluation of the Bonds not reasonably
practicable, or for any other period permitted by the SEC.
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INCOME, DISTRIBUTIONS AND REINVESTMENT
INCOME
Interest or dividends received are credited to an Income Account and
other receipts to a Capital Account. A Reserve Account may be created by
withdrawing from the Income and Capital Accounts amounts considered
appropriate by the Trustee to reserve for any material amount that may be
payable out of the Fund.
RETURN CALCULATIONS
Estimated Current Return shows the estimated annual cash to be received
from interest-bearing Bonds in the Portfolio (net of estimated annual
expenses) divided by the Public Offering Price (including the maximum sales
charge). Estimated Long Term Return is a measure of the estimated return over
the estimated life of the Fund. This represents an average of the yields to
maturity (or in certain cases, to an earlier call date) of the individual
bonds in the Portfolio, adjusted to reflect the maximum sales charge and
estimated expenses. The average yield for the Portfolio is derived by weighing
each Bond's yield by its market value and the time remaining to the call or
maturity date, depending on how the Bond is priced. Unlike Estimated Current
Return, Estimated Long Term Return takes into account maturities, discounts
and premiums of the underlying Bonds.
No return estimate can be predictive of your actual return because
returns will vary with purchase price (including sales charges), how long
Units are held, changes in Portfolio composition, changes in interest income
and changes in fees and expenses. Therefore, Estimated Current Return and
Estimated Long Term Return are designed to be comparative rather than
predictive. A yield calculation which is more comparable to an individual bond
may be higher or lower than Estimated Current Return or Estimated Long Term
Return which are more comparable to return calculations used by other
investment products.
ESTIMATED RATE TO PROJECTED TO MATURITY (CASH OR ACCRETION BONDS SERIES
AND SELECT SERIES). Estimated Rate to Projected Maturity of the Compound
Interest Bonds is calculated assuming that the mortgages underlying the Ginnie
Mae, Fannie Mae or Freddie Mac collateral for the Compound Interest Bonds are
prepaid at a certain percentage of a standard prepayment model, that payment
on any Compound Interest Bond is not accelerated due to the default of an
issuer, that the principal amount of the interest-bearing Bonds included in
the Portfolio is distributed when it matures, that interest received on the
interest-bearing Bonds will precisely cover the expenses of the Fund, that
investors do not redeem or sell any Units (including new Units credited in
respect of the aggregate increase in Accreted Principal Amount of the Compound
Interest Bonds) prior to projected maturity of the Fund. If the mortgages
underlying the Ginnie Mae, Fannie Mae or Freddie Mac collateral prepay more
slowly than the specified assumed rates of the prepayment model, the actual
return will be less.
PREFERRED STOCK PUT SERIES. Estimated Current Return shows the
anticipated net annual income rate times the face amount or par or stated
value of the preferred stock, divided by the Public Offering Price. The
estimated net annual income rate per Unit shows the percentage return based on
the face amount or par or stated value per Unit after deducting estimated
annual fees and expenses. The Estimated After-Tax Return assumes that
investors are taxed at the highest current corporate tax rate and that all
dividends distributed to investors will be eligible for the dividends-received
deduction for corporations, and is determined without regard to any capital
gains that may be distributed to investors.
DISTRIBUTIONS
Each Unit receives an equal share of any distributions of income net of
estimated expenses. Interest on the Bonds is generally received by the Fund on
a semi-annual or annual basis; dividends on the preferred stocks are
usually paid quarterly. Because interest and dividends are not received at a
constant rate throughout the year, any Income Distribution may be more or less
than the income actually received. To eliminate fluctuations in the Income
Distribution, the Trustee will advance amounts necessary to provide
approximately equal distributions; it will be reimbursed, without interest,
from income received on the Bonds or preferred stocks, as the case may be, but
the Trustee is compensated, in part, by holding the Fund's cash balances in
non-interest bearing accounts. Along with the Income Distributions, the
Trustee will distribute the investor's pro rata share of any principal
received from any disposition of a Bond to the extent available for
distribution.
The estimated annual income per Unit, after deducting estimated annual
Fund expenses as stated in Part A of the Prospectus, will change as Bonds
mature, are called or sold or otherwise disposed of, as replacement bonds
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are deposited and as Fund expenses change. Because the Portfolio is not
actively managed, income distributions will generally not be affected by
changes in interest rates. Depending on the financial conditions of the
issuers of the Bonds, the amount of income should be substantially maintained as
long as the Portfolio remains unchanged; however, optional bond
redemptions or other Portfolio changes may occur more frequently when interest
rates decline, which would result in early returns of principal and possibly
earlier termination of the Fund.
REINVESTMENT
Distributions will be paid in cash unless the investor elects to have
distributions reinvested without sales charge in The Corporate Fund
Accumulation Program, Inc., which is available to investors in certain Series.
The Program is an open-end management investment company whose investment
objective is to obtain a high level of current income by investing in a
diversified portfolio consisting primarily of long-term corporate bonds rated
A or better or with comparable credit characteristics. It should be noted,
however, that interest distributions to foreign investors from this Program
will be subject to U.S. Federal income taxes, including withholding taxes.
Investors participating in the Program will be taxed on their reinvested
distributions in the manner described in Taxes even though distributions are
automatically reinvested. For more complete information about the Program,
including charges and expenses, request the Program's prospectus from the
Trustee. Read it carefully before you decide to participate. Written notice of
election to participate must be received by the Trustee at least ten days
before the Record Day for the first distribution to which the election is to
apply. REINVESTMENT IS NOT AVAILABLE TO INVESTORS IN CASH OR ACCRETION BOND
SERIES, PREFERRED STOCK PUT SERIES OR SELECT SERIES.
FUND EXPENSES
Estimated annual Fund expenses are listed in Part A of the Prospectus; if
actual expenses exceed the estimate, the excess will be borne by the Fund. The
Trustee's annual fee is payable in monthly installments. The Trustee also
benefits when it holds cash for the Fund in non-interest bearing accounts.
Possible additional charges include Trustee fees and expenses for maintaining
the Fund's registration statement current with Federal and State authorities,
extraordinary services, costs of indemnifying the Trustee and the Sponsors,
costs of action taken to protect the Fund and other legal fees and expenses,
Fund termination expenses and any governmental charges. The Trustee has a lien
on Fund assets to secure reimbursement of these amounts and may sell Bonds for
this purpose if cash is not available. The Sponsors receive an annual fee of a
maximum of $0.35 per $1,000 face amount to reimburse them for the cost of
providing Portfolio supervisory services to the Fund. While the fee may exceed
their costs of providing these services to the Fund, the total supervision
fees from all Series of Corporate Income Fund will not exceed their costs for
these services to all of those Series during any calendar year. The Sponsors
may also be reimbursed for their costs of providing bookkeeping and
administrative services to the Fund. The Trustee's, Sponsors' and Evaluator's
fees may be adjusted for inflation without investors' approval.
Sales charges on Defined Asset Funds range from under 1.0% to 5.5%. This
may be less than you might pay to buy and hold a comparable managed fund.
Defined Asset Funds can be a cost-effective way to purchase and hold
investments. Annual operating expenses are generally lower than for managed
funds. Because Defined Asset Funds have no management fees, limited
transaction costs and no ongoing marketing expenses, operating expenses are
generally less than 0.25% a year. When compounded annually, small differences
in expense ratios can make a big difference in your investment results.
TAXES--For all Funds except Preferred Stock Put Series and Monthly Payment
Series structured as regulated investment companies as specified in Part A of
the Prospectus.
The following discussion addresses only the tax consequences of Units
held as capital assets and does not address the tax consequences of Units held
by dealers, financial institutions or insurance companies. Certain Funds may
contain units of previously issued series of Corporate Income Fund; reference
here to the Fund should be understood to include those previously issued
Series.
In the opinion of Davis Polk & Wardwell, special counsel for the
Sponsors, under existing law:
The Fund is not an association taxable as a corporation for federal
income tax purposes. Each investor will be considered the owner of a pro
rata portion of each Bond in the Fund under the grantor trust rules of
Sections 671-679 of the Internal Revenue Code of 1986, as amended (the
'Code'). The total cost to an investor of his Units, including sales
charges, is allocated to his pro rata portion of each Bond, in proportion
9
<PAGE>
to the fair market values thereof on the date the investor purchases his
Units, in order to determine his tax basis for his pro rata portion of
each Bond.
Each investor will be considered to have received the interest and
accrued the original issue discount, if any, on his pro rata portion of
each Bond when interest on the Bond is received or original issue
discount is accrued by the Fund regardless of whether it is automatically
reinvested in the Fund. An individual investor who itemizes deductions
may deduct his pro rata share of fees and other expenses of the Fund only
to the extent that such amount together with the investor's other
miscellaneous deductions exceeds 2% of his adjusted gross income.
If an investor's tax basis for his pro rata portion of a Bond exceeds
the redemption price at maturity thereof (subject to certain
adjustments), the investor will be considered to have purchased his pro
rata portion of the Bond at a 'bond premium'. The investor may elect to
amortize the bond premium prior to the maturity of the Bond. The amount
amortized in any year should be applied to offset the investor's interest
from the Bond and will result in a reduction of basis for his pro rata
portion of the Bond.
An investor will recognize taxable gain or loss when all or part of
his pro rata portion of a Bond is disposed of by the Fund or when he
sells or redeems all or some of his Units. Any such taxable gain or loss
will be capital gain or loss, except that any gain from the disposition
of an investor's pro rata portion of a Bond acquired by the investor at a
'market discount' (i.e., where the investor's tax basis for his pro rata
portion of the Bond (which includes any original issue discount accrued
thereon) is less than its stated redemption price at maturity) will be
treated as ordinary income to the extent the gain does not exceed the
accrued market discount.
Under the income tax laws of the State and City of New York, the Fund
is not an association taxable as a corporation and income received by the
Fund will be treated as the income of the investors in the same manner as
for federal income tax purposes.
Notwithstanding the foregoing, an investor who is a non-resident alien
individual or a foreign corporation (a 'Foreign Investor') will generally
not be subject to U.S. federal income taxes, including withholding taxes,
on the interest income on, or any gain from the sale or other disposition
of, his pro rata portion of any Bond provided that (i) the interest
income or gain is not effectively connected with the conduct by the
Foreign Investor of a trade or business within the United States, (ii) if
the interest is United States source income (which is the case on most
Bonds issued by United States issuers), the Bond is issued after July 18,
1984 and the Foreign Investor does not own, actually or constructively,
10% or more of the total combined voting power of all classes of voting
stock of the issuer of the Bond and is not a controlled foreign
corporation related (within the meaning of Section 864 (d)(4) of the
Code) to the issuer of the Bond, (iii) with respect to any gain, the
Foreign Investor (if an individual) is not present in the United States
for 183 days or more during the taxable year and (iv) the Foreign
Investor provides the required certification of his status and of certain
other matters. Withholding agents will file with the Internal Revenue
Service foreign person information returns with respect to such interest
payments accompanied by such certifications. Foreign Investors should
consult their own tax advisers with respect to United States federal
income tax consequences of ownership of Units.
The foregoing discussion relates only to U.S. federal and certain
aspects of New York State and City income taxes. Investors may be subject
to taxation in New York and other jurisdictions (including a Foreign
Investor's country of residence) and should consult their own tax
advisers in this regard.
* * *
Neither the Sponsors nor Davis Polk & Wardwell have made or will make a
review of the facts and circumstances relating to the issuance of any Bonds.
To the best knowledge of the Sponsors, each Bond will be treated as debt for
tax purposes by the respective issuers. The Internal Revenue Service, however,
is not bound by an issuer's treatment and may take the position that a Bond
has more equity than debt features and, accordingly, should be treated as
equity. In the event of such a recharacterization, a withholding tax at the
statutory rate of 30% (or a lesser treaty rate) would apply on distributions
to Foreign Investors in respect of that Bond.
Unless otherwise stated in Part A of the Prospectus, the Sponsors believe
that (i) each of the Bonds, the interest on which is United States source
income (which is the case for most Bonds issued by United States
10
<PAGE>
issuers), was or will have been issued after July 18, 1984 and (ii) interest
on any Bond issued by a non-United States issuer is not subject to any foreign
withholding taxes under current law. There can be no assurance, however,
that foreign withholding taxes will not be imposed on interest on
Bonds issued by non-United States issuers in the future.
After the end of each calendar year, the Trustee will furnish to each
investor an annual statement containing information relating to the interest
received by the Fund on the Bonds, the gross proceeds received by the Fund
from the disposition of any Bond (resulting from redemption or payment at
maturity of any Bond or the sale by the Fund of any Bond), and the fees and
expenses paid by the Fund. The Trustee will also furnish annual information
returns to each investor and to the Internal Revenue Service.
RETIREMENT PLANS--CASH AND ACCRETION BOND SERIES AND SELECT SERIES
These Series 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. Investors in IRAs, Keogh plans and other
tax-deferred retirement plans should consult their plan custodian as to the
appropriate disposition of distributions. Investors considering participation
in any of these plans should review specific tax laws related thereto and
should consult their attorneys or tax advisors with respect to the
establishment and maintenance of any of these plans. These plans are offered
by brokerage firms, including the Sponsor of this Fund, and other financial
institutions. Fees and charges with respect to such plans may vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units of the Fund
may be purchased by retirement plans established for self-employed
individuals, partnerships or unincorporated companies ('Keogh plans'). The
assets of a Keogh plan must be held in a qualified trust or other arrangement
which meets the requirements of the Code. Keogh plan participants may also
establish separate IRAs (see below) to which they may contribute up to an
additional $2,000 per year ($2,250 in a spousal account).
Individual Retirement Account--IRA. Any individual can make use of a
qualified IRA arrangement for the purchase of Units of the Fund. Any
individual (including one covered by an employer retirement plan) can make a
contribution in an IRA equal to the lesser of $2,000 ($2,250 in a spousal
account) or 100% of earned income; such investment must be made in cash.
However, the deductible amount an individual may contribute will be reduced if
the individual's adjusted gross income exceeds $25,000 (in the case of a
single individual), $40,000 (in the case of married individuals filing a joint
return) or $200 (in the case of a married individual filling a separate
return). 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. Unless nondeductible
contributions were made in 1987 or a later year, all distributions from an IRA
will be treated as ordinary income but generally are eligible for tax-deferred
rollover treatment. Taxable distributions made before attainment of age
59 1/2, except in the case of the participant's death or disability or where
the amount distributed is part of a series of substantially equal periodic (at
least annual) payments that are to be made over the life expectancies of the
participant and his or her beneficiary, are generally subject to a surtax in
an amount equal to 10% of the distribution.
Corporate Pension and Profit-Sharing Plans. A pension or profit-sharing
plan for employees of a corporation may purchase Units of the Fund.
RECORDS AND REPORTS
The Trustee keeps a register of the names, addresses and holdings of all
investors. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Bonds and a copy of the Indenture, and
supplemental information on the operations of the Fund and the risks
associated with the Bonds held by the Fund, which may be inspected by
investors at reasonable times during business hours.
With each distribution, the Trustee includes a statement of the interest
and any other receipts being distributed. Within five days after deposit of
Bonds in exchange or substitution for Bonds (or contracts) previously
deposited, the Trustee will send a notice to each investor, identifying both
the Bonds removed and the replacement bonds deposited. The Trustee sends each
investor of record an annual report summarizing
11
<PAGE>
transactions in the Fund's accounts and amounts distributed during the year
and Bonds held, the number of Units outstanding and the Redemption Price at
year end, the interest received by the Fund on the Bonds, the gross proceeds
received by the Fund from the disposition of any Bond (resulting from
redemption or payment at maturity or sale of any Bond), and the fees and
expenses paid by the Fund, among other matters. The Trustee will also
furnish annual information returns to each investor. Investors may obtain
copies of Bond evaluations from the Trustee to enable them to comply
with federal and state tax reporting requirements. Fund accounts are audited
annually by independent accountants selected by the Sponsors. Audited
financial statements are available from the Trustee on request.
TRUST INDENTURE
The Fund is a 'unit investment trust' created under New York law by a
Trust Indenture among the Sponsors, the Trustee and the Evaluator. This
Prospectus summarizes various provisions of the Indenture, but each statement
is qualified in its entirety by reference to the Indenture.
The Indenture may be amended by the Sponsors and the Trustee without
consent by investors to cure ambiguities or to correct or supplement any
defective or inconsistent provision, to make any amendment required by the SEC
or other governmental agency or to make any other change not materially
adverse to the interest of investors (as determined in good faith by the
Sponsors). The Indenture may also generally be amended upon consent of
investors holding 51% of the Units. No amendment may reduce the interest of
any investor in the Fund without the investor's consent or reduce the
percentage of Units required to consent to any amendment without unanimous
consent of investors. Investors will be notified on the substance of any
amendment.
The Trustee may resign upon notice to the Sponsors. It may be removed by
investors holding 51% of the Units at any time or by the Sponsors without the
consent of investors if it becomes incapable of acting or bankrupt, its
affairs are taken over by public authorities, or if under certain conditions
the Sponsors determine in good faith that its replacement is in the best
interest of the investors. The Evaluator may resign or be removed by the
Sponsors and the Trustee without the investors' consent. The resignation or
removal of either becomes effective upon acceptance of appointment by a
successor; in this case, the Sponsors will use their best efforts to appoint a
successor promptly; however, if upon resignation no successor has accepted
appointment within 30 days after notification, the resigning Trustee or
Evaluator may apply to a court of competent jurisdiction to appoint a
successor.
Any Sponsor may resign so long as one Sponsor with a net worth of
$2,000,000 remains and is agreeable to the resignation. A new Sponsor may be
appointed by the remaining Sponsors and the Trustee to assume the duties of
the resigning Sponsor. If there is only one Sponsor and it fails to perform
its duties or becomes incapable of acting or bankrupt or its affairs are taken
over by public authorities, the Trustee may appoint a successor Sponsor at
reasonable rates of compensation, terminate the Indenture and liquidate the
Fund or continue to act as Trustee without a Sponsor. Merrill Lynch, Pierce,
Fenner & Smith Incorporated has been appointed as Agent for the Sponsors by
the other Sponsors.
The Sponsors, the Trustee and the Evaluator are not liable to investors
or any other party for any act or omission in the conduct of their
responsibilities absent bad faith, willful misfeasance, negligence (gross
negligence in the case of a Sponsor or the Evaluator) or reckless disregard of
duty. The Indenture contains customary provisions limiting the liability of
the Trustee.
MISCELLANEOUS
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors.
AUDITORS
The Statement of Condition was audited by Deloitte & Touche LLP,
independent accountants, as stated in their opinion. It is included in
reliance upon that opinion given on the authority of that firm as experts in
accounting and auditing.
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<PAGE>
TRUSTEE
The Trustee and its address are stated on the back cover of Part A of the
Prospectus. The Trustee is subject to supervision by the Federal Deposit
Insurance Corporation, the Board of Governors of the Federal Reserve System
and either the Comptroller of the Currency or state banking authorities.
SPONSORS
The Sponsors are listed on the back cover of Part A of the Prospectus.
They may include Merrill Lynch, Pierce, Fenner & Smith Incorporated, a
wholly-owned subsidiary of Merrill Lynch Co. Inc.; Smith Barney Inc., an
indirect wholly-owned subsidiary of The Travelers Inc.; Prudential Securities
Incorporated, an indirect wholly-owned subsidiary of the Prudential Insurance
Company of America; Dean Witter Reynolds, Inc., a principal operating
subsidiary of Dean Witter Discover & Co. and PaineWebber Incorporated, a
wholly-owned subsidiary of PaineWebber Group Inc. Each Sponsor, or one of its
predecessor corporations, has acted as Sponsor of a number of series of unit
investment trusts. Each Sponsor has acted as principal underwriter and
managing underwriter of other investment companies. The Sponsors, in addition
to participating as members of various selling groups or as agents of other
investment companies, execute orders on behalf of investment companies for the
purchase and sale of securities of these companies and sell securities to
these companies in their capacities as brokers or dealers in securities.
PUBLIC DISTRIBUTION
The Sponsors intend to qualify Units for sale in all states in which
qualification is deemed necessary through the Underwriting Account and by
dealers who are members of the National Association of Securities Dealers,
Inc. The Sponsors do not intend to qualify Units for sale in any foreign
countries and this Prospectus does not constitute an offer to sell Units in
any country where Units cannot lawfully be sold. Sales to dealers and to
introducing dealers, if any, will initially be made at prices which represent
a concession from the Public Offering Price, but the Agent for the Sponsors
reserves the right to change the rate of any concession from time to time. Any
dealer or introducing dealer may reallow a concession up to the concession to
dealers.
UNDERWRITERS' AND SPONSORS' PROFITS
Upon sale of the Units, the Underwriters will be entitled to receive
sales charges. The Sponsors also realize a profit or loss on deposit of the
Bonds equal to the difference between the cost of the Bonds to the Fund (based
on the offer side evaluation on the initial date of deposit) and the Sponsors'
cost of the Bonds. In addition, a Sponsor or Underwriter may realize profits
or sustain losses on Bonds it deposits in the Fund which were acquired from
underwriting syndicates of which it was a member. During the initial offering
period, the Underwriting Account also may realize profits or sustain losses as
a result of fluctuations after the initial date of deposit in the Public
Offering Price of the Units. In maintaining a secondary market for Units, the
Sponsors will also realize profits or sustain losses in the amount of any
difference between the prices at which they buy Units and the prices at which
they resell these Units (which include the sales charge) or the prices at
which they redeem the Units. Cash, if any, made available by buyers of Units
to the Sponsors prior to a settlement date for the purchase of Units may be
used in the Sponsors' businesses to the extent permitted by Rule 15c3-3 under
the Securities Exchange Act of 1934 and may be of benefit to the Sponsors. On
Preferred Stock Put Series, the Sponsors received an initial placement fee
from the Seller and receive an annual placement fee equal to a percentage of
the price at which the Seller has committed to purchase the preferred stocks
(the Put Price).
FUND PERFORMANCE
Information on the performance of the Fund for various periods, on the
basis of changes in Unit price plus the amount of income and principal
distributions reinvested, may be included from time to time in advertisements,
sales literature, reports and other information furnished to current or
prospective investors. Total return figures are not averaged, and may not
reflect deduction of the sales charge, which would decrease the return.
Average annualized return figures reflect deduction of the maximum sales
charge. No provision is made for any income taxes payable.
Past performance may not be indicative of future results. The Fund is not
actively managed. Unit price and return fluctuate with the value of the Bonds
in the Portfolio, so there may be a gain or loss when Units are sold.
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<PAGE>
Fund performance may be compared to performance data from publications
such as Lipper Analytical Services, Inc., Morningstar Publications, Inc.,
Money Magazine, The New York Times, U.S. News and World Report, Barron's
Business Week, CDA Investment Technology, Inc., Forbes Magazine or Fortune
Magazine. As with other performance data, performance comparisons should not
be considered representative of the Fund's relative performance for any future
period.
DEFINED ASSET FUNDS
For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Defined Asset Funds'
philosophy is to allow investors to 'buy with knowledge' (because, unlike
managed funds, the portfolio of municipal bonds and the return are relatively
fixed) and 'hold with confidence' (because the portfolio is professionally
selected and regularly reviewed). Defined Asset Funds offers an array of
simple and convenient investment choices, suited to fit a wide variety of
personal financial goals--a buy and hold strategy for capital accumulation,
such as for children's education or retirement, or attractive, regular current
income consistent with the preservation of principal. Unit investment trusts
are particularly suited for the many investors who prefer to seek long-term
income by purchasing sound investments and holding them, rather than through
active trading. Few individuals have the knowledge, resources or capital to
buy and hold a diversified portfolio on their own; it would generally take a
considerable sum of money to obtain the breadth and diversity that Defined
Asset Funds offer. One's investment objectives may call for a combination of
Defined Asset Funds.
One of the most important investment decisions you face may be how to
allocate your investments among asset classes. Diversification among different
kinds of investments can balance the risks and rewards of each one. Most
investment experts recommend stocks for long-term capital growth. Long-term
corporate bonds offer relatively high rates of interest income. By purchasing
both defined equity and defined bond funds, investors can receive attractive
current income, as well as growth potential, offering some protection against
inflation. From time to time various advertisements, sales literature, reports
and other information furnished to current or prospective investors may
present the average annual compounded rate of return of selected asset classes
over various periods of time, compared to the rate of inflation over the same
periods.
EXCHANGE OPTION
You may exchange Fund Units for units of certain other Defined Asset
Funds subject only to a reduced sales charge. You may exchange your units of
any Select Ten Portfolio, of any other Defined Asset Fund with a regular
maximum sales charge of at least 3.50%, or of any unaffiliated unit trust with
a regular maximum sales charge of at least 3.0%, for Units of this Fund at
their relative net asset values, subject only to a reduced sales charge.
To make an exchange, you should contact your financial professional to
find out what suitable Exchange Funds are available and to obtain a
prospectus. You may acquire units of only those Exchange Funds in which the
Sponsors are maintaining a secondary market and which are lawfully for sale in
the state where you reside. Except for the reduced sales charge, an exchange
is a taxable event normally requiring recognition of any gain or loss on the
units exchanged. However, the Internal Revenue Service may seek to disallow a
loss if the portfolio of the units acquired is not materially different from
the portfolio of the units exchanged; you should consult your own tax advisor.
If the proceeds of units exchanged are insufficient to acquire a whole number
of Exchange Fund units, you may pay the difference in cash (not exceeding the
price of a single unit acquired).
As the Sponsors are not obligated to maintain a secondary market in any
series, there can be no assurance that units of a desired series will be
available for exchange. The Exchange Option may be amended or terminated at
any time without notice.
SUPPLEMENTAL INFORMATION
Upon writing or calling the Trustee shown on the back cover of this
Prospectus, investors will receive at no cost to the investor supplemental
information about the Fund, which has been filed with the SEC. The
supplemental information includes more detailed risk factor disclosure about
the types of Bonds that may be part of the Fund's Portfolio, general risk
disclosure concerning any insurance securing certain Bonds, and general
information about the structure and operation of the Fund.
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APPENDIX A
DESCRIPTION OF RATINGS (AS DESCRIBED BY THE RATING COMPANIES THEMSELVES)
STANDARD & POOR'S RATINGS GROUP, A DIVISION OF MCGRAW-HILL, INC.
A Standard & Poor's rating on the units of an investment trust
(hereinafter referred to collectively as 'units' and 'funds') is a current
assessment of creditworthiness with respect to the investments held by the
fund. This assessment takes into consideration the financial capacity of the
issuers and of any guarantors, insurers, lessees, or mortgagors with respect
to such investments. The assessment, however, does not take into account the
extent to which fund expenses will reduce payment to the Holder of the
interest and principal required to be paid on portfolio assets. In addition,
the rating is not a recommendation to purchase, sell, or hold units, as the
rating does not comment as to market price of the units or suitability for a
particular investor.
AAA--Units rated AAA represent interests in funds composed exclusively of
securities that, together with their credit support, are rated AAA by Standard
& Poor's and/or certain short-term investments. This AAA rating is the highest
rating assigned by Standard & Poor's to a security. Capacity to pay interest
and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
The ratings may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A provisional rating, indicated by 'p' following a rating, assumes the
successful completion of the project being financed by the issuance of the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of, such completion.
*Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement during documentation confirming
investments and cash flows.
NR--Indicates that no rating has been requested, that there is
insufficient information on which to base rating or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge'. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
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A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers
of rating symbols are to give investors a more precise indication of relative
debt quality in each of the historically defined categories.
Conditional ratings, indicated by 'Con.', are sometimes given when the
security for the bond depends upon the completion of some act or the
fulfillment of some condition. Such bonds are given a conditional rating that
denotes their probable credit stature upon completion of that act or
fulfillment of that condition.
FITCH INVESTORS SERVICES, INC.
AAA--These bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--These bonds are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal, which very
strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue.
A--These bonds are considered to be investment grade and of good quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--These bonds are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however are more likely to weaken this ability than bonds
with higher ratings.
A 'I' or a 'J' sign after a rating symbol indicates relative standing in
its rating.
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA--High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic stress.
A--Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
A 'I' or a 'J' sign after a rating symbol indicates relative standing in
its rating.
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APPENDIX B
SECONDARY MARKET SALES CHARGE SCHEDULE
<TABLE><CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
--------------------------------
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS
BID SIDE PUBLIC NET AMOUNT PERCENT OF PUBLIC
NUMBER OF UNITS OFFERING PRICE INVESTED OFFERING PRICE
--------------- --------------- ------------- --------------------
MONTHLY PAYMENT SERIES AND INSURED
SERIES:
<S> <C> <C> <C>
Less than 250...................... 5.50% 5.820% 3.575%
250 - 499.......................... 4.50 4.712 2.925
500 - 749.......................... 3.50 3.627 2.275
750 - 999.......................... 2.50 2.564 1.625
1,000 or more...................... 2.00 2.041 1.300
INTERMEDIATE SERIES:
Less than 250...................... 4.75% 4.987% 3.088%
250 - 499.......................... 3.75 3.896 2.438
500 - 749.......................... 2.75 2.828 1.788
750 - 999.......................... 2.00 2.041 1.300
1,000 or more...................... 1.50 1.523 0.975
CASH OR ACCRETION BOND SERIES AND
SELECT SERIES::
Less than 250,000.................. 3.50% 3.627% 2.275%
250,000 - 499,999.................. 2.75 2.828 1.788
500,000 - 749,999.................. 2.00 2.040 1.300
750,000 - 999,999.................. 1.50 1.523 0.975
1,000,000 or more.................. 1.00 1.010 0.650
PREFERRED STOCK PUT SERIES: Units are sold at no sales charge.
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14100--11/95
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DEFINED
ASSET FUNDSSM
SPONSORS: CORPORATE INCOME FUND
Merrill Lynch, Monthly Payment Series--312
Pierce, Fenner & Smith Incorporated (A Unit Investment Trust)
Defined Asset Funds PROSPECTUS PART A
P.O. Box 9051 This Prospectus does not contain all of
Princeton, N.J. 08543-9051 the information with respect to the
(609) 282-8500 investment company set forth in its
Smith Barney Inc. registration statement and exhibits
Unit Trust Department relating thereto which have been filed
388 Greenwich Street--23rd Floor with the Securities and Exchange
New York, NY 10013 Commission, Washington, D.C. under the
1-800-223-2532 Securities Act of 1933 and the
PaineWebber Incorporated Investment Company Act of 1940, and to
1200 Harbor Boulevard which reference is hereby made.
Weehawken, N.J. 07087 No person is authorized to give any
(201) 902-3000 information or to make any
Prudential Securities Incorporated representations with respect to this
One Seaport Plaza investment company not contained in its
199 Water Street registration statement and exhibits
New York, N.Y. 10292 thereto; and any information or
(212) 776-1000 representation not contained therein
Dean Witter Reynolds Inc. must not be relied upon as having been
Two World Trade Center--59th Floor authorized. This Prospectus does not
New York, N.Y. 10048 constitute an offer to sell, or a
(212) 392-2222 solicitation of an offer to buy,
EVALUATOR: securities in any state to any person to
Interactive Data Services Inc. whom it is not lawful to make such offer
14 Wall Street in such state.
New York, N.Y. 10005
TRUSTEE:
The Chase Manhattan Bank, N.A.
(a National Banking Association)
Customer Service Retail Department
770 Broadway--7th Floor
New York, N.Y. 10003-9598
1-800-323-1508
14473--6/96
