DEFINED
ASSET FUNDSSM
INTERNATIONAL
BOND FUND
- ------------------------------------------------------------
CANADIAN DOLLAR
BONDS SERIES--11
(A UNIT INVESTMENT TRUST)
PROSPECTUS, PART A
DATED SEPTEMBER 16, 1994
SPONSORS:
Merrill Lynch,
Pierce, Fenner & Smith Inc.
Smith Barney Inc.
PaineWebber Incorporated
Prudential Securities Incorporated
Dean Witter Reynolds Inc.
This Defined Fund was formed to provide current income and the possibility of
capital appreciation through investment in a fixed portfolio of
short-intermediate term interest-bearing debt obligations payable in Canadian
dollars. In the opinion of special counsel to the Sponsors, interest on the Debt
Obligations is taxable for U.S Holders but exempt from U.S. Federal income
taxes, including withholding taxes, for many foreign holders. (See Taxes in Part
B). There is no assurance that this objective will be met because it is subject
to (i) the continuing ability of issuers of the Securities held by the Fund to
meet their principal and interest obligations and (ii) fluctuations in the
exchange rate for the Canadian dollar.
The market value in U.S. dollars of the underlying Securities, and therefore of
the Units, will fluctuate with changes in interest rates and currency exchange
rates and other factors. A decrease in the value of the Canadian dollar relative
to the United States dollar will result in a decrease in the current return and
long-term return and in the value of the Units (See Description of the
Fund--Income; Estimated Current Return; Long-Term Return in Part B). A decision
to invest in Units of the Fund should be made only with a complete understanding
of the currency exchange risk associated with an investment in foreign currency
denominated Securities. Because of this currency exchange risk, no assurance can
be given that an investor's return will not decrease or that Units of the Fund
will not depreciate in value.
Unless otherwise indicated, all amounts herein are stated in U.S. dollars
computed on the basis of the exchange rate for the Canadian dollar on the
Evaluation Date. Moreover, since the portfolio consists primarily of securities
of foreign issuers, an investment in the Fund involves investment risks that are
different in some respects from those attending an investment in a fund which
invests in securities of U.S. domestic issuers (see Risk Factors in Part B).
Minimum Purchase:1 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
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------
NOTE: PART A OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED
UNLESS ACCOMPANIED BY DEFINED ASSET FUNDS-- INTERNATIONAL BOND FUND PROSPECTUS,
PART B.
This Prospectus consists of two parts. The first includes an Investment Summary
and certified financial statements of the Fund, including the related securities
portfolio; the second contains a general summary of the Fund.
- ------------------------------------------------------------------------
Read and retain both parts of this Prospectus for future reference.
<PAGE>
DEFINED ASSET FUNDSSM is America's oldest and largest family of unit investment
trusts with over $90 billion sponsored since 1970. Each Defined Fund is a
portfolio of preselected securities. The portfolio is divided into 'units'
representing equal shares of the underlying assets. Each unit receives an equal
share of income and principal distributions.
With Defined Asset Funds you know in advance what you are investing in and that
changes in the portfolio are limited. Most defined bond funds pay interest
monthly and repay principal as bonds are called, redeemed, sold or as they
mature. Defined equity funds offer preselected stock portfolios with defined
termination dates.
Your financial advisor can help you select a Defined Fund to meet your personal
investment objectives. Our size and market presence enable us to offer a wide
variety of investments. Defined Funds are available in the following types of
securities: municipal bonds, corporate bonds, government bonds, utility stocks,
growth stocks, even international securities denominated in foreign currencies.
Termination dates are as short as one year or as long as 30 years. Special funds
are available for investors seeking extra features: insured funds, double and
triple tax-free funds, and funds with 'laddered maturities' to help protect
against rising interest rates. Defined Funds are offered by prospectus only.
- --------------------------------------------------------------------------------
CONTENTS
Investment Summary.......................................... A-3
Accountants' Opinion Relating to the Fund................... D-1
Statement of Condition...................................... D-2
Portfolio................................................... D-6
A-2
<PAGE>
DEFINED ASSET FUNDS--INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES--11
INVESTMENT SUMMARY AS OF JUNE 30, 1994, THE EVALUATION DATE
U.S. DOLLAR FACE AMOUNT(a) OF SECURITIES(b)..............$ 19,790,951
NUMBER OF UNITS.......................................... 24,014
FACE AMOUNT OF SECURITIES PER UNIT.......................$ 824.14
FRACTIONAL UNDIVIDED INTEREST IN FUND REPRESENTED BY EACH
UNIT................................................... 1/24,014th
PUBLIC OFFERING PRICE
Aggregate bid side evaluation of Securities.........$ 20,276,104
--------------------
Divided by Number of Units..........................$ 844.35
Plus sales charge of 3.000% of Public Offering Price
(3.093% of net amount invested)(c)................ 26.11
--------------------
Public Offering Price per Unit......................$ 870.46
(plus cash
adjustments and
accrued interest)(d)
SPONSORS' REPURCHASE PRICE AND REDEMPTION PRICE PER
UNIT...................................................$ 844.35
(aggregate bid side evaluation of Securities) (plus cash
($26.11 less than Public Offering Price Per Unit) adjustments and
accrued interest)(d)
PREMIUM AND DISCOUNT ISSUES IN PORTFOLIO
U.S. dollar Face Amount of Securities with bid side
evaluation:
Over par.......................................... 87%
At a discount from par............................ 13%
CALCULATION OF ESTIMATED NET ANNUAL U.S. DOLLAR INTEREST
RATE PER UNIT* (based on U.S. dollar Face Amount per
Unit)
Annual U.S. interest rate per Unit.................. 10.301%
Less estimated annual expenses per Unit ($2.59)
expressed as a percentage......................... .314%
--------------------
Estimated net annual U.S. dollar interest rate per
Unit.............................................. 9.987%
--------------------
--------------------
DAILY RATE AT WHICH ESTIMATED ANNUAL U.S. DOLLAR NET
INTEREST ACCRUES PER UNIT(a)........................... .0277%
MONTHLY INCOME DISTRIBUTIONS
Distributions of income, if any, will be
made on the 25th day of each month to
holders of record on the 10th day of
each month.
RECORD DAY
The 10th day of each month.
DISTRIBUTION DAY
The 25th day of each month.
MINIMUM CAPITAL DISTRIBUTION
No distribution need be made from Capital Account if balance in Account is
less than $5.00 per Unit.
TRUSTEE'S ANNUAL FEE AND EXPENSES(e)
$2.59 per Unit (see Expenses and Charges in Part B).
PORTFOLIO SUPERVISION FEE(f)
Maximum of $0.35 per $1,000 Face Amount of underlying Debt Obligations (see
Expenses and Charges in Part B).
EVALUATOR'S FEE FOR EACH EVALUATION
Maximum of $45 (see Expenses and Charges in Part B).
EVALUATION TIME
3:30 P.M. New York Time
MINIMUM VALUE OF FUND
Trust may be terminated if value of Fund is less than 40% of U.S. dollar
Face Amount of Securities on the date of their deposit. As of the Evaluation
Date, the value of the Fund was 73% of the Face Amount of Securities on the
date of their deposit.
- ------------------------------
(a)Based on current exchange rate for the Canadian dollar on the
Evaluation Date. Any change in the Canadian dollar relative to the
United States dollar will affect the current and long-term return.
(See Description of the Fund--Income: Estimated Current Return;
Long-Term Return in Part B.)
(b)On the Initial Date of Deposit (July 17, 1991) the Initial U.S. Dollar
Face Amount of Securities in the Fund was $3,922,555.50. Cost of
Securities is set forth under Portfolio.
(c)See Public Sale of Units--Public Offering Price in Part B.
(d)For Units purchased or redeemed on the Evaluation Date, accrued
interest is approximately equal to the undistributed net investment
income of the Fund (see Statement of Condition on p. D-2) divided by
the number of outstanding Units, plus accrued interest per Unit to the
expected date of settlement (5 business days after purchase or
redemption). The amount of the cash adjustment which is added is equal
to the cash per Unit in the Capital Account not allocated to the
purchase of specific Securities (see Public Sale of Units--Public
Offering Price and Redemption in Part B).
(e)Of this amount, the Trustee receives annually for its services as
Trustee, $1.50 per $1,000 face amount of Securities. The Trustee's
Annual Fee and Expenses also includes the Portfolio Supervision Fee
and Evaluator's Fee set forth herein.
(f)The Sponsors also may be reimbursed for their costs of bookkeeping and
administrative services to the Fund. Portfolio supervision fees
deducted in excess of portfolio supervision expenses may be used for
this reimbursement. Additional deductions for this purpose are
currently estimated not to exceed an annual rate of $0.10 per Unit.
A-3
<PAGE>
DEFINED ASSET FUNDS--INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES--11
INVESTMENT SUMMARY AS OF THE EVALUATION DATE (CONTINUED)
NUMBER OF ISSUES IN PORTFOLIO............................... 9
RANGE OF MATURITIES.................................................1995-1997
NUMBER OF ISSUES BY COUNTRY
OF ORGANIZATION/PRINCIPAL
PLACE OF BUSINESS:
Canada................................................. 7
Japan.................................................. 1
New Zealand............................................ 1
PERCENTAGE OF AGGREGATE FACE AMOUNT OF PORTFOLIO(a)
DENOMINATED IN:
Canadian Dollars....................................... 100%
PERCENTAGE OF AGGREGATE FACE AMOUNT OF PORTFOLIO(a)
COMPRISED OF SECURITIES ISSUED BY:
Non-U.S. Obligors...................................... 100%
Issuers not located in Canada.......................... 27%
Foreign Gov./Mun....................................... 74%
NUMBER OF ISSUERS BY INDUSTRY:
Financial.............................................. 1
Utility................................................ 1
Foreign Gov./Mun....................................... 7
RISK FACTORS; CURRENCY EXCHANGE RISK--
All of the Securities in the Portfolio are denominated in Canadian dollars,
which in the past have fluctuated widely in value against the U.S. dollar for
many reasons, including supply and demand of the currency, the soundness of the
world economy, the rate of inflation in Canada as compared to the rate of
inflation in the United States and the strength of the Canadaian economy as
compared to the economies of the United States and other countries. (See Risk
Factors--Foreign Exchange Rates in Part B.)
The following table supplements the information in Part B and sets forth
recent end-of-month United States dollar exchange rates for the Canadian dollar.
Fluctuations of the rates that have occurred in the past are not necessarily
indicative of fluctuations that may occur over the term of the Fund.
END-OF-MONTH U.S. DOLLAR
EXCHANGE RATES
- ------------------------
1994 U.S.$/CAN$
- ------------------------
January .751664
February .739885
March .722376
April .722945
May .722903
June .722825
- ------------------
Source: Datastream International, Inc.
A weakening of the Canadian dollar relative to the U.S. dollar will
increase or reduce the U.S. dollar value of payments of interest on the
Securities with the effect of increasing or reducing the current return and
long-term return on the Units. See Risk Factors--Foreign Exchange Rates--
Changes in Currency Value--Canadian Dollar Bonds Series in Part B.
PUBLIC SALE OF UNITS--PUBLIC OFFERING PRICE--This information supersedes the
information on pricing (including sales charge and dealer concessions) under
Public Sale of Units--Public Offering Price and Market for Units in Part B. The
sales charges and dealer concessions have been revised and the applicable sales
charge for regular purchases of this Series will be as follows:
- ------------------------------
(a) A Fund is considered to be 'concentrated' in a category when the
Securities in that category constitute 25% or more of the aggregate
Face Amount of Securities in the Portfolio. (See Risk Factors in Part
B for a description of certain investment risks relating to these
types of obligations.)
A-4
<PAGE>
DEFINED ASSET FUNDS--INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES--11
INVESTMENT SUMMARY AS OF THE EVALUATION DATE (CONTINUED)
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
DEALER
------------------------------ CONCESSION AS
AS PERCENT OF AS PERCENT OF PERCENT OF
BID SIDE PUBLIC NET AMOUNT PUBLIC OFFERING
NUMBER OF UNITS OFFERING PRICE INVESTED PRICE
- --------------------------------------------------------------------------------
Less than 250...................... 3.00% 3.093% 1.950%
250 - 499.......................... 2.25 2.302 1.463
500 - 749.......................... 1.50 1.523 0.975
750 - 999.......................... 1.25 1.266 0.813
1,000 or more...................... 1.00 1.010 0.650
Units purchased at these prices will not be eligible for exchange at a
reduced sales charge under the Exchange Option.
A-5
<PAGE>
DEFINED ASSET FUNDS - INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES - 11
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Defined Asset Funds - International Bond Fund,
Canadian Dollar Bonds Series - 11:
We have audited the accompanying statement of condition of Defined Asset Funds -
International Bond Fund, Canadian Dollar Bonds Series - 11, including the
portfolio, as of June 30, 1994 and the related statements of operations and of
changes in net assets for the years ended June 30, 1994 and 1993, and the period
July 18, 1991 to June 30, 1992. These financial statements are the
responsibility of the Trustee. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Securities owned at
June 30, 1994, as shown in such portfolio, were confirmed to us by The Chase
Manhattan Bank, N.A., the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Defined Asset Funds -
International Bond Fund, Canadian Dollar Bonds Series - 11 at June 30, 1994 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.
August 24, 1994
D-1
<PAGE>
DEFINED ASSET FUNDS - INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES - 11
STATEMENT OF CONDITION
AS OF JUNE 30, 1994
<TABLE>
<S> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $24,881,791) (Note 1) $20,276,104
Accrued interest 583,542
Cash 188,298
Proceeds receivable from sale of securities 53,454
Total trust property 21,101,398
LESS LIABILITIES:
Accrued expenses $ 4,403
Redemptions payable 50,629 55,032
NET ASSETS, REPRESENTED BY:
24,014 units of fractional undivided interest
outstanding (Note 3) 20,293,009
Undistributed net investment income 753,357 $21,046,366
UNIT VALUE ($21,046,366 / 24,014 units) $876.42
See Notes to Financial Statements.
</TABLE>
D-2
<PAGE>
DEFINED ASSET FUNDS - INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES - 11
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
July 18,
1991 to
Years Ended June 30, June 30,
1994 1993 1992
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $2,182,816 $2,356,865 $2,338,321
Trustee's fees and expenses (55,435) (59,917) (51,163)
Sponsors' fees (10,061) (10,280) (3,127)
Net investment income 2,117,320 2,286,668 2,284,031
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Realized loss on securities sold (195,047) (23,506)
Unrealized depreciation of investments (2,565,456) (1,635,050) (405,182)
Net realized and unrealized loss on
investments (2,760,503) (1,658,556) (405,182)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (643,183) $ 628,112 $1,878,849
</TABLE>
See Notes to Financial Statements.
D-3
<PAGE>
DEFINED ASSET FUNDS - INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES - 11
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
July 18,
1991 to
Years Ended June 30, June 30,
1994 1993 1992
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 2,117,320 $ 2,286,668 $ 2,284,031
Realized loss on securities sold or redeemed (195,047) (23,506)
Unrealized depreciation of investments (2,565,456) (1,635,050) (405,182)
Net increase (decrease) in net assets
resulting from operations (643,183) 628,112 1,878,849
DISTRIBUTIONS TO HOLDERS (Note 2):
Income (2,136,108) (2,436,941) (1,640,142)
Principal (80,174) (2,181)
Total distributions (2,216,282) (2,439,122) (1,640,142)
CAPITAL SHARE TRANSACTIONS:
Issuance of 23,532 additional units 24,841,175
Redemptions of 3,043 and 397 units (2,876,340) (410,673)
Total capital share transactions (2,876,340) (410,673) 24,841,175
NET INCREASE (DECREASE) IN NET ASSETS (5,735,805) (2,221,683) 25,079,882
NET ASSETS AT BEGINNING OF PERIOD 26,782,171 29,003,854 3,923,972
NET ASSETS AT END OF PERIOD $21,046,366 $26,782,171 $29,003,854
PER UNIT:
Income distributions during period $82.66 $89.40 $60.33
Principal distributions during period $3.18 $.08
Net asset value at end of period $876.42 $989.84 $1,056.45
TRUST UNITS OUTSTANDING AT END OF PERIOD 24,014 27,057 27,454
</TABLE>
See Notes to Financial Statements.
D-4
<PAGE>
DEFINED ASSET FUNDS - INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES - 11
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
(a) Securities are stated at value as determined by the Evaluator based on
bid side evaluations for the securities (see "Redemption - Computation
of Redemption Price Per Unit" in this Prospectus, Part B), except that
value on July 18, 1991 was based upon offering side evaluations at
July 16, 1991, the day prior to the Date of Deposit. Cost of
securities was also based on offering side evaluations at the date of
each respective purchase of securities.
(b) The Fund is not subject to income taxes. Accordingly, no provision for
such taxes is required.
(c) Interest income is recorded as earned.
(d) Cost of securities sold is based on specific identification.
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 "Administration of the
Fund - Accounts and Distributions: in this Prospectus, Part B.
3. NET CAPITAL
Cost of 24,014 units at Date of Deposit $25,656,973
Less sales charge 833,766
Net amount applicable to Holders 24,823,207
Redemptions of units - net cost of 3,440 units redeemed
less redemption amounts 376,397
Realized loss on securities sold or redeemed (218,553)
Principal distributions (82,355)
Net unrealized depreciation of investments (4,605,687)
Net capital applicable to Holders $20,293,009
4. INCOME TAXES
All Fund items of income received, expenses paid, and realized gains and
losses on securities sold are attributable to the Holders, on a pro rata
basis, for Federal income tax purposes in accordance with the grantor trust
rules of the United States Internal Revenue Code.
At June 30, 1994, the cost of investment securities for Federal income tax
purposes was approximately equivalent to the cost as shown in the Fund's
portfolio.
D-5
<PAGE>
DEFINED ASSET FUNDS - INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES - 11
PORTFOLIO
AS OF JUNE 30, 1994
<TABLE>
<CAPTION>
U.S. U.S.
Dollar Dollar
Equiva- Equiva- Cost of Value
Foreign lent at lent at Securities in U.S.
Portfolio No. and Title of Currency July 17, June 30, Maturi- in U.S. Dollars
Securities Face Amount 1991(2) 1994 Coupon ties Dollars(1) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
1 Caisse Centrale des Jardins de Quebec CAN $ 3,720,000 $ 3,242,646 $ 2,688,909 10.125% 12/16/96 $ 3,385,476 $ 2,786,382
2 Government of New Zealand 3,500,000 3,050,877 2,529,888 10.500 6/2/95 3,177,782 2,577,323
3 The Municipality of Metropolitan Toronto 3,485,000 3,037,801 2,519,045 8.750 5/7/97 3,006,285 2,487,557
4 Ontario Hydro, Guaranteed by the 1,750,000 1,525,438 1,264,944 10.875 1/8/96 1,593,206 1,308,426
Province of Ontario
5 Province of Alberta 1,750,000 1,525,438 1,264,944 10.750 1/15/96 1,610,995 1,304,473
6 Province of British Columbia 3,500,000 3,050,877 2,529,888 11.000 6/20/95 3,236,553 2,602,622
7 Province of Ontario 3,500,000 3,050,877 2,529,888 10.750 5/1/96 3,213,577 2,615,271
8 Province of Quebec 2,900,000 2,527,870 2,096,193 10.750 3/12/96 2,659,619 2,161,699
9 Tokyo Electric Power Company, 3,275,000 2,854,749 2,367,252 10.625 12/20/96 2,998,298 2,432,351
Incorporated
TOTAL CAN $27,380,000 $23,866,573 $19,790,951 $24,881,791 $20,276,104
</TABLE>
See Notes to Portfolio.
D-6
<PAGE>
DEFINED ASSET FUNDS - INTERNATIONAL BOND FUND,
CANADIAN DOLLAR BONDS SERIES - 11
NOTES TO PORTFOLIO
AS OF JUNE 30, 1994
(1) See Notes to Financial Statements.
(2) Based on exchange rates for the relevant currencies on July 16, 1991, the
day prior to the Date of Deposit.
D-7
<PAGE>
DEFINED ASSET FUNDS--
INTERNATIONAL BOND FUND
CANADIAN DOLLAR BONDS SERIES
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. (IBF) UNITED STATES
UNIT TRUST DEPARTMENT
BOX 2051
NEW YORK, N.Y. 10081
- --------------------------------------------------------------------------------
(Fold along this line.)
- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
<PAGE>
DEFINED ASSET FUNDS
INTERNATIONAL BOND FUND
MULTI-CURRENCY SERIES
CANADIAN DOLLAR BONDS SERIES
AUSTRALIAN AND NEW ZEALAND DOLLAR BONDS SERIES
AUSTRALIAN DOLLAR BONDS SERIES
FIRST CITIES OF AUSTRALIA-CREDIT LYONNAIS AUSTRALIAN MORTGAGELINK SERIES
NOTE: PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PART A.
Index
PAGE
-----------
Fund Summary......................................... 1
Fund Structure....................................... 3
Risk Factors......................................... 3
Description of the Fund.............................. 9
Taxes................................................ 12
Public Sale of Units................................. 14
Market for Units..................................... 17
Redemption........................................... 18
PAGE
-----------
Expenses and Charges................................. 19
Administration of the Fund........................... 20
Resignation, Removal and Limitations on Liability.... 22
Miscellaneous........................................ 23
Ratings of Corporate Obligations..................... 26
Exchange Option...................................... 26
FUND SUMMARY
RISK FACTORS; CURRENCY EXCHANGE RISK--Achievement of the objectives of the
Fund is subject to (i) fluctuations in the relevant foreign exchange rates which
will affect the U.S. dollar value of the Securities and payments of principal of
and interest on the Securities and therefore the value of the Units, (ii) the
continuing ability of issuers of the Securities to meet their principal and
interest obligations and (iii) yield and possible currency appreciation of the
remaining Securities after the maturity, sale or other disposition of other
Securities in the portfolio. The market value in United States dollars of the
underlying Securities, and therefore the value of the Units, will fluctuate with
changes in interest rates and in foreign exchange rates and other factors.
Moreover, since the Portfolio, based on current exchange rates, consists
primarily of securities of foreign issuers, an investment in the Fund involves
investment risks that are different in some respects from those attending an
investment in a fund which invests in securities of United States domestic
issuers. Foreign currencies in the past have fluctuated widely in value against
the United States dollar for many reasons, including supply and demand of each
currency, the health of the world economy and the relative strength of the
economies of certain countries as compared to the economies of the United States
and other countries. The Portfolio consists primarily of publicly held
securities which, in many cases, do not have the benefit of covenants preventing
the issuer from engaging in capital restructurings or borrowing transactions in
connection with corporate acquisitions, leveraged buyouts or restructurings. The
absence of these covenants could have the effect of reducing the ability of an
issuer to meet its debt obligations and might result in a reduction in the
ratings of the Securities and the value of the underlying Portfolio. (See Risk
Factors.)
A decision to invest in the Units of the Fund should be made only with the
complete understanding of the currency exchange risk associated with an
investment in foreign currency denominated securities. CHANGES IN THE EXCHANGE
RATES OF THE RELEVANT CURRENCIES RELATIVE TO THE UNITED STATES DOLLAR WILL
AFFECT THE UNITED STATES DOLLAR VALUE OF THE FUND'S ASSETS AND THEREFORE THE
VALUE OF THE UNITS.
FUND STRUCTURE--Certain Debt Obligations from time to time may be redeemed
or prepaid pursuant to optional refunding or sinking fund redemption provisions
or may mature according to their terms or be sold under certain circumstances
described herein; accordingly, no assurance can be given that the Fund will
retain for any length of time its present size and composition (see Description
of the Fund--The Portfolio; Redemption; Administration of the Fund--Portfolio
Supervision). Certain Defined Asset Funds provide for deposits of additional
Securities and the creation of additional Units subsequent to the initial Date
of Deposit (see Administration of the Fund--Portfolio Supervision).
Units offered hereby may reflect redemptions, prepayments, defaults or
dispositions of Securities originally deposited in the Fund. A reduction in the
value of a Unit resulting from these events does not mean that a Unit is valued
at a market discount; market discounts or premiums on Units represent the
difference between the face amount of Securities per Unit and the price per
Unit. As they approach maturity, discount securities tend to increase in market
value while premium securities tend to decrease in market value. If currently
prevailing interest rates for newly issued and otherwise comparable securities
decline, the market discount of previously
1
<PAGE>
issued securities will be reduced and the market premium of previously issued
securities will increase. Conversely, if currently prevailing interest rates
increase, the market discount of previously issued securities will become deeper
and the market premium of previously issued securities will decline. The
Investment Summary in Part A sets forth the percentages of the aggregate face
amount of the Portfolio valued at a discount from the par (maturity) value and
at a premium over par and sets forth the face amount of Securities underlying
each Unit and the value of the Unit as of the Evaluation Date. For additional
risk factors depending on the types of securities in particular funds, see Risk
Factors below.
THE PUBLIC OFFERING PRICE of the Units is generally based on the
Evaluator's determination of the aggregate bid side evaluation of the underlying
Securities (computed as of the Evaluation Time for all sales made subsequent to
the previous evaluation) converted into U.S. Dollars at the current exchange
rate, divided by the number of Units outstanding. A sales charge (set forth
under Investment Summary in Part A), accrued interest and cash adjustments are
added. The Public Offering Price on the date of this Prospectus or on any
subsequent date will vary from the Public Offering Price set forth under
Investment Summary in Part A. (See Public Sale of Units--Public Offering Price.)
Units offered hereby are issued and outstanding Units which have been purchased
by the Sponsors in the secondary market or from the Trustee following tender for
redemption. Any profit or loss resulting from the sale of these Units will
accrue to the Sponsors, no proceeds from the sale will be received by the Fund.
MARKET FOR UNITS. The Sponsors, though not obligated to do so, intend to
maintain a secondary market for Units based for most Series on the aggregate bid
side evaluation of the underlying Securities (see Market for Units). So long as
the Sponsors are maintaining a secondary market at prices not less than the
Redemption Price per Unit, they will repurchase any Units tendered for
redemption. If this market is not maintained, a Holder will be able to dispose
of his Units through redemption at prices also based on the aggregate bid side
evaluation of the underlying Securities (see Redemption). Market conditions may
cause the prices available in the market maintained by the Sponsors or available
upon exercise of redemption rights to be more or less than the amount paid for
Units plus accrued interest.
ESTIMATED CURRENT RETURN; ESTIMATED LONG-TERM RETURN. Estimated Current
Return on a Unit represents annual U.S. interest income from coupon-bearing debt
obligations (after estimated expenses) divided by the maximum Public Offering
Price (including the sales charge). 'Current return' provides different
information than 'long-term return', which represents yield to maturity (or
earlier call date) and reflects not only the interest payable on the Securities
but also the amortization or accretion to that date of any premium over or
discount from the par value in the purchase price of the Securities. Long-term
return on Units in the secondary market may be lower, sometimes significantly,
than current return.
Estimated Long-Term Return on a Unit represents a net annual long-term
return to investors holding to maturity based on the yield on the individual
Debt Obligations in the Portfolio weighted to reflect the time to maturity (or
in certain cases to an earlier call date) and market value of each Debt
Obligation in the Portfolio, adjusted to reflect the Public Offering Price
(including the maximum applicable sales charge) and estimated expenses. Unlike
Estimated Current Return, Estimated Long-Term Return takes into account
maturities of the underlying Securities and discounts and premiums. Most
Securities of this Fund pay interest annually or semiannually, and as a result
distributions of income on Units are generally subject to certain delays. If the
Estimated Long-Term Return calculation took these delays into account, the
figure would be lower. The net annual U.S. dollar interest rate per Unit and the
net annual long term return to Holders will vary on a daily basis
2
<PAGE>
with changes in the exchange rates for the relevant currencies and with changes
in the fees and expenses of the Trustee, Sponsors and Evaluator and with the
maturity, exchange, redemption, sale or substitution of underlying Securities.
The Public Offering Price will vary with changes in the evaluation of the
underlying Securities and with changes in the exchange rates for the relevant
currencies as well as with any reduction in sales charges paid in the case of
quantity purchases. Both current return and long-term return may be
substantially lower than originally estimated. (See Description of the
Fund--Income; Estimated Current Return; Estimated Long-Term Return.)
MONTHLY DISTRIBUTIONS. Monthly distributions in U.S. dollars of principal
and interest and redemption proceeds from the Fund will be made to Holders of
record of Units on the days indicated under Investment Summary in Part A.
Distributions of interest income will be made based on estimates made on each
record date of the amount to be distributed, converted into U.S. dollars as of
the record date. Non-U.S. dollar amounts actually received by the Fund will be
converted by the Trustee into U.S. dollars upon receipt. Therefore, each
distribution will be adjusted to reflect any difference between the actual
amount received by the Fund in U.S. dollars and the amount previously
distributed to Holders of Units. (See Administration of the Fund--Accounts and
Distributions.) Holders may elect to reinvest distributions as described below
(see Reinvestment). Holders will be taxed in the manner described under Taxes
regardless of whether these distributions from the Fund are actually received by
the Holders in cash or are automatically reinvested pursuant to a reinvestment
program.
REINVESTMENT. Holders of Units may elect to have distributions
automatically reinvested in The Corporate Fund Accumulation Program, Inc. (which
does not invest in international securities). (See Administration of the
Fund--Reinvestment.)
TAXATION. In the opinion of special counsel to the Sponsors, each Holder
will be considered the owner of a pro rata portion of each Debt Obligation in
the Fund, and will be considered to have received the interest on his pro rata
portion of each Debt Obligation when interest on the Debt Obligation is received
by the Fund. Interest received by the Fund (measured, for cash basis U.S.
Holders, in U.S. dollars based on the exchange rate at the time of receipt by
the Fund) is taxable for U.S. Holders, but may be exempt from U.S. Federal
income taxes, including withholding taxes, for many Holders who are not U.S.
citizens or residents ('Foreign Holders'). (See Taxes herein.)
FUND STRUCTURE
The Fund, one in a series of Defined Asset Funds--International Bond Fund,
is a 'unit investment trust' created under New York law by a Trust Indenture
(the 'Indenture') among the Sponsors, the Trustee and the Evaluator. To the
extent that references in this Prospectus are to articles and sections of the
Indenture, which are hereby incorporated by reference, the statements made
herein are qualified in their entirety by this reference. Unless otherwise
indicated, when Investors Bank & Trust Company and The First National Bank of
Chicago act as Co-Trustees to the Fund, references to the Trustee in this
Prospectus shall be deemed to refer to the Co-Trustees; and with respect to
First Cities of Australia--Credit Lyonnais Australian MortgageLink Series,
references to the Trustee in this Prospectus shall be deemed to refer to the
Custodian. The objective of most Series of the International Bond Fund is to
provide current income and the possibility of capital appreciation through
investment in a fixed portfolio of interest bearing debt obligations payable in
foreign currencies.
The Portfolio contains different issues of debt obligations with fixed
final maturity or disposition dates. As used herein, the terms 'Debt
Obligations' and 'Securities' mean the debt obligations or securities initially
deposited in the Fund and described under Portfolio in Part A and replacement
and additional debt obligations or
3
<PAGE>
securities acquired and held by the Fund pursuant to the provisions of the
Indenture (see Description of the Fund--The Portfolio; Administration of the
Fund--Portfolio Supervision).
The deposit of the Securities in the Fund on the Initial Date of Deposit
established a proportionate relationship among the face amounts of Securities of
specified interest rates and maturities in the Portfolio. For certain Series,
following the Initial Date of Deposit, the Sponsors may deposit additional
Securities ('Additional Securities'), contracts to purchase Additional
Securities or cash (or a bank letter of credit in lieu of cash) with
instructions to purchase Additional Securities in order to create new Units.
Replacement Securities may be acquired under specified conditions (see
Description of the Fund--The Portfolio; Administration of the Fund-- Portfolio
Supervision.)
The holders ('Holders') of units of interest ('Units') will have the right
to have their Units redeemed (see Redemption) at a price based on the aggregate
bid side evaluation in U.S. dollars of the Securities ('Redemption Price per
Unit') if the Units cannot be sold in the over-the-counter market which the
Sponsors propose to maintain at prices determined in the same manner (see Market
for Units). The Fund will not continuously offer Units for sale to the public.
On the Evaluation Date, each Unit represented the fractional undivided interest
in the Securities in the Fund as set forth under Investment Summary in Part A,
plus any cash adjustments and accrued interest. Thereafter, if any Units are
redeemed, the face amount of Securities in the Fund will be reduced and the
fractional undivided interest represented by each remaining Unit in the balance
will be increased. Units will remain outstanding until redeemed upon tender to
the Trustee by any Holder (which may include the Sponsors) or until termination
of the Indenture (see Redemption; Administration of the Fund--Amendment and
Termination).
The Units being offered by this Prospectus are issued and outstanding Units
which have been reacquired by the Sponsors either by purchase in the open market
or by purchase of Units tendered to the Trustee for redemption. No offering is
being made on behalf of the Fund and any profit or loss realized on the sale of
Units will accrue to the Sponsors.
RISK FACTORS
An investment in Units of the Fund should be made with an understanding of
the risks which an investment in fixed-rate securities denominated in foreign
currencies may entail, including the risk that the value of the Portfolio and
hence of the Units will decline with increases in interest rates and declining
values of the relevant foreign currencies as described below. There have been
recent wide fluctuations in interest rates and thus in the value of fixed rate
securities generally, and in currency exchange rates. The Sponsors cannot
predict future economic policies or their consequences or, therefore, the course
or extent of any similar fluctuations in the future. The Portfolio consists
primarily of publicly held Securities which, in many cases, do not have the
benefit of covenants preventing the issuer from engaging in capital
restructurings or borrowing transactions in connection with corporate
acquisitions, leveraged buyouts or restructurings. The absence of these
covenants could have the effect of reducing the ability of an issuer to meet its
debt obligations and might result in reductions in the ratings of the Securities
and the value of the underlying Portfolio.
Units offered in the secondary market may reflect redemptions or
prepayments, in whole or in part, or defaults on, certain of the Securities
originally deposited in the Fund or the disposition of certain Securities
originally deposited in the Fund to satisfy redemptions of Units or pursuant to
the exercise by the Sponsors of their supervisory role over the Fund (see
Description of the Fund--The Portfolio and Administration of the
4
<PAGE>
Fund--Portfolio Supervision). Accordingly, the face amount of Units may be less
than their original face amount at the time of the creation of the Fund. A
reduced value per Unit does not therefore mean that a Unit is necessarily valued
at a market discount; market discounts, as well as market premiums, on Units are
determined solely by a comparison of a Unit's outstanding face amount and its
evaluated price.
Certain of the Securities in the Fund may be valued at a market discount.
Securities trade at less than par value because the interest rates on the
securities are lower than interest on comparable debt securities denominated in
a given currency being issued at currently prevailing interest rates. The
current returns of securities trading at a market discount are lower than the
current returns of comparably rated debt securities of a similar type issued at
currently prevailing interest rates because discount securities tend to increase
in market value as they approach maturity and the full principal amount becomes
payable. If currently prevailing interest rates for newly issued and otherwise
comparable securities increase, the market discount of previously issued
securities will become deeper and if currently prevailing interest rates for
newly issued comparable securities decline, the market discount of previously
issued securities will be reduced, other things being equal. Market discount
attributable to interest rate changes does not indicate a lack of market
confidence in the issue.
Certain of the Securities in the Fund may be valued at a market premium.
Securities trade at a premium because the interest rates on the securities are
higher than interest rates on comparable debt securities denominated in a given
currency being issued at currently prevailing interest rates. The current
returns of securities trading at a market premium are higher than the current
returns of comparably rated debt securities of a similar type issued at
currently prevailing interest rates because premium securities tend to decrease
in market value as they approach maturity when the face amount becomes payable.
Because part of the purchase price is thus returned not at maturity but through
current income payments, an early redemption of a premium security at par will
result in a reduction in yield. If currently prevailing interest rates for newly
issued and other wise comparable securities increase, the market premium of
previously issued securities will decline and if currently prevailing interest
rates for newly issued comparable securities decline, the market premium of
previously issued securities will increase, other things being equal. Market
premium attributable to interest rate changes does not indicate market
confidence in the issue.
A Fund may be concentrated in one or more of the securities classifications
set forth below. A Fund is considered to be 'concentrated' in a particular
classification when the aggregate face amount of securities in that class
constitutes more than 25% of the aggregate face amount of the securities in the
Fund. The types of issuers and the percentage of any concentrations are set
forth under Investment Summary in Part A. An investment in Units should be made
with an understanding of the risks which these investments may entail, certain
of which are described below.
FOREIGN OBLIGORS
The percentage of this Fund invested in securities of non-U.S. obligors is
set forth under Investment Summary in Part A. Investors should consider certain
investment risks that distinguish investments in securities of non-U.S. obligors
from those of domestic issuers. These risks include future adverse political and
economic developments, the possible imposition of withholding taxes on interest
income payable on the Securities held in the Portfolio, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions (including
expropriation, burdensome or confiscatory taxation and moratoriums) which might
adversely affect the payment or receipt of payment of amounts due on the
Securities. Investors should realize that, although the Fund's foreign
currency-denominated
5
<PAGE>
investments are only in Securities denominated in the currencies of those
foreign nations considered by the Fund to have relatively stable governments,
the value of portfolio investments can be adversely affected by political or
social instability and unfavorable diplomatic or other negative developments.
The Fund will also be affected favorably or unfavorably by changes in exchange
rates between the U.S. dollar and the foreign currencies in which its Securities
are denominated. Since the Fund will invest in securities denominated or quoted
in currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the value of Securities in the Portfolio and the unrealized
appreciation or depreciation of investments so far as U.S. investors are
concerned. The rate of exchange between the U.S. dollar and other currencies is
determined by forces of supply and demand in the foreign exchange markets. These
forces are affected by the international balance of payments, the level of
interest and inflation rates and other economic and financial conditions,
government intervention, speculation and other factors. The issuers of some of
these securities, such as foreign banks and other financial institutions, may be
subject to less stringent or different regulations than are U.S. issuers. In
addition, because many foreign issuers are not subject to the reporting
requirements of the Securities Exchange Act of 1934, there may be less publicly
available information about the foreign issuer than a U.S. domestic issuer.
Foreign issuers also are not necessarily subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. domestic issuers. However, the Sponsors anticipate that
adequate information will be available to allow the Sponsors to supervise the
Portfolio as set forth in Administration of the Fund--Portfolio Supervision.
Information concerning the economic and political systems of foreign
countries represented in the Fund is available in registration statements and
periodic reports filed by issuers in these countries with the U.S. Securities
and Exchange Commission (the 'SEC'). These documents are available for
inspection at the SEC at its offices located at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
ISSUERS NOT BASED IN CURRENCY COUNTRY
Certain of the Securities have been issued by issuers which are not
located, or which do not conduct operations, in the country in whose currency
these Securities are denominated. In most cases these issuers have elected to
issue Securities denominated in that currency at yields which are higher than
those of securities denominated in the currency of the country in which the
issuers are based. One reason an issuer may elect to issue securities
denominated in a 'foreign' currency is that it may be able to reduce its cost of
raising capital without incurring additional risk by 'swapping' the 'foreign'
currency for its 'local' currency. To do this an issuer may issue securities
denominated in the currency of a country (Country A) other than the country in
which it is based (Country B) and simultaneously enter into a forward currency
exchange contract with a reliable third party such as an international bank
which will allow the issuer to convert the currency of Country B into the
currency of Country A at a fixed exchange rate. Under certain circumstances, the
cost to the issuer of issuing the 'foreign' denominated securities combined with
the cost (or benefit) of entering into the forward exchange contract may be less
than the cost to the issuer of issuing securities denominated in the currency of
the country in which it is based; under these circumstances it may be less
costly for the issuer to issue 'foreign' denominated securities even if the
coupon rate of the securities is higher than the coupon rates on securities
denominated in the currency of the country in which the issuer is based.
6
<PAGE>
JURISDICTION OVER, AND U.S. JUDGMENTS CONCERNING, FOREIGN OBLIGORS
Non-U.S. issuers of the Securities will generally not have submitted to the
jurisdiction of U.S. courts for purposes of lawsuits relating to those
Securities. If the Portfolio contains Securities of such an issuer, the Fund as
a holder of those obligations may not be able to assert its rights in U.S.
courts under the documents pursuant to which the Securities are issued. Even if
the Fund obtains a U.S. judgment against a foreign obligor, there can be no
assurance that the judgment will be enforced by a court in the country in which
the foreign obligor is located. In addition, a judgment for money damages by a
court in the United States if obtained, including a money judgment based on an
obligation expressed in a foreign currency, will ordinarily be rendered only in
U.S. dollars. It is not clear, however, whether, in granting a judgment, the
rate of conversion of the applicable foreign currency into U.S. dollars would be
determined with reference to the due date or the date the judgment is rendered.
Courts in other countries may have rules that are similar to, or different from,
the rules of U.S. courts.
LIQUIDITY
The Securities in the Fund, including securities purchased in initial
public offerings, will customarily be in bearer form and may not have been
registered under the Securities Act of 1933 and may not be exempt from the
registration requirements of the Act. Sales of non-exempt bearer Securities by
the Fund in U.S. securities markets are subject to severe restrictions and may
well not be practicable. Accordingly, sales of these Securities by the Fund will
generally be effected only in foreign securities markets. Although the Sponsors
do not believe that the Fund will encounter obstacles in disposing of the
Securities, investors should realize that many of the Securities may be traded
in foreign countries where the securities markets are not as developed or
efficient and may not be as liquid as those in the U.S. To the extent the
liquidity of these markets becomes impaired, the value of the Fund could be
adversely affected if a substantial volume of requests for redemption of Units
is received at or about the same time. This might occur, for example, as a
result of economic or political turmoil in a country in whose currency the Fund
had a substantial portion of its assets invested, or should relations between
the U.S. and such foreign country deteriorate markedly. The Securities may not
be listed on a securities exchange. Whether or not the Securities are listed,
the principal trading market for the Securities will generally be in the
over-the-counter market. As a result, the existence of a liquid trading market
for the Securities may depend on whether dealers will make a market in the
Securities. There can be no assurance that a market will be made for any of the
Securities, that any market for the Securities will be maintained, or regarding
the liquidity of the Securities in any markets made. In addition, the Fund may
be restricted under the Investment Company Act of 1940 from selling Securities
to any Sponsor. The price at which the Securities may be sold to meet
redemptions and the value of the Fund will be adversely affected if trading
markets for the Securities are limited or absent. The Fund may also contain non-
exempt Securities in registered form which have been purchased on a private
placement basis. Sales of these Securities may not be practicable outside the
United States, but can generally be made to U.S. institutions in the private
placement market which may not be as liquid as the general U.S. securities
market. Since the private placement market is less liquid, the prices received
may be less than would have been received had the Securities been registered.
DEBT OBLIGATIONS OF FOREIGN BANKS AND THEIR HOLDING COMPANIES
The ability of a foreign bank or its holding company to make payments of
principal and interest on debt may be influenced by general economic conditions
in the home country, supervisory policies of the bank's primary regulator, the
relationship between the bank's average cost of funding and the average yield on
its earning assets
7
<PAGE>
and the bank's exposure to potential credit losses. In some countries, bank
profitability and capital may be adversely impacted by depositor runs, a
monetary policy that requires that banks fund a portion of the public debt,
governmental policies that direct lending to certain sectors of the economy and
any perceived weakness of the foreign country's banking system. Many foreign
countries permit their banks to engage in a wider range of business activities,
such as the holding of large equity investments and the underwriting of
securities and insurance, than that permitted in the United States.
FOREIGN EXCHANGE RATES
Since the Portfolio contains non-U.S. dollar denominated Securities, an
investment in the Fund involves investment risks that are substantially
different from an investment in a fund which invests in U.S. dollar denominated
securities. This is because the U.S. dollar value of the Portfolio (and hence of
the Units) and of the distributions from the Fund will vary with fluctuations in
the U.S. dollar foreign exchange rates for the relevant currencies. Major
industrialized countries have adopted 'floating' exchange rates, under which
daily currency valuations depend on supply and demand in a freely fluctuating
international market. Many smaller or developing countries have continued to
'peg' their currencies to the U.S. dollar although there has been some interest
in recent years in 'pegging' currencies to 'baskets' of other currencies or to a
Special Drawing Right administered by the International Monetary Fund. In Europe
a European Currency Unit ('ECU') has been developed. Currencies are generally
traded by leading international commercial banks and institutional investors
(including corporate treasurers, money managers, pension funds and insurance
companies). From time to time, central banks in a number of countries also are
major buyers and sellers of foreign currencies, mostly for the purpose of
preventing or reducing substantial exchange rate fluctuations.
Exchange rate fluctuations are partly dependent on a number of economic
factors including economic conditions within countries, the impact of actual and
proposed government policies on the value of currencies, interest rate
differentials between currencies and the balance of imports and exports of goods
and services and transfers of income and capital from one country to another.
These economic factors are influenced primarily by a particular country's
monetary and fiscal policies (although the perceived political situation in a
particular country may have an influence as well--particularly with respect to
transfers of capital). Investor psychology may also be an important determinant
of currency fluctuations in the short run. Moreover, institutional investors
trying to anticipate the future relative strength or weakness of a particular
currency may sometimes exercise considerable speculative influence on currency
exchange rates by purchasing or selling large amounts of the same currency or
currencies. However, over the long term, the currency of a country with a low
rate of inflation and a favorable balance of trade should increase in value
relative to the currency of a country with a high rate of inflation and deficits
in the balance of trade.
8
<PAGE>
Some currencies have fluctuated considerably in value relative to the U.S.
dollar in the past ten years, as indicated in the following table:
FOREIGN EXCHANGE RATES
RANGE OF FLUCTUATIONS IN FOREIGN CURRENCY EXPRESSED IN U.S. DOLLARS
<TABLE>
<CAPTION>
UNITED GERMANY THE
KINGDOM DEUTSCHE FRANCE NETHERLANDS SWEDEN
POUND STERLING MARK FRENCH FRANC GUILDER KRONA
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1984 1.494 - 1.159 .3917 - .3175 .1273 - .1038 .3471 - .2812 .1311 - .1114
1985 1.489 - 1.053 .4089 - .2895 .1333 - .0946 .3625 - .2555 .1319 - .1030
1986 1.555 - 1.377 .5197 - .4039 .1569 - .1313 .4565 - .3550 .1480 - .1299
1987 1.879 - 1.471 .6346 - .5182 .1872 - .1557 .5641 - .4565 .1729 - .1477
1988 1.905 - 1.664 .6346 - .5211 .1872 - .1537 .5641 - .4615 .1729 - .1526
1989 1.823 - 1.515 .5927 - .4927 .1734 - .1453 .5251 - .4375 .1645 - .1468
1990 1.976 - 1.594 .6802 - .5808 .2015 - .1701 .6026 - .5148 .1807 - .1598
1991 2.000 - 1.602 .6918 - .5449 .2029 - .1607 .6141 - .4840 .1836 - .1507
1992 2.004 - 1.512 .7189 - .5967 .2111 - .1753 .6382 - .5300 .1967 - .1413
1993 1.586 - 1.418 .6384 - .5745 .1887 - .1650 .5682 - .5099 .1415 - .1177
</TABLE>
<TABLE>
<CAPTION>
ITALY DENMARK CANADA SWITZERLAND NORWAY
LIRA KRONE DOLLAR FRANC KRONE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1984 .0006 - .0005 .1067 - .0881 .805 - .749 .4742 - .3845 .1350 - .1099
1985 .0006 - .0005 .1121 - .0807 .759 - .713 .4854 - .3419 .1320 - .1016
1986 .0007 - .0006 .1371 - .1098 .734 - .693 .6213 - .4747 .1449 - .1278
1987 .0009 - .0007 .1645 - .1366 .771 - .724 .7843 - .6144 .1606 - .1356
1988 .0009 - .0007 .1645 - .1363 .843 - .768 .7843 - .6204 .1630 - .1430
1989 .0008 - .0007 .1520 - .1269 .865 - .826 .6678 - .5575 .1540 - .1360
1990 .0009 - .0008 .1772 - .1496 .884 - .829 .8042 - .6338 .1736 - .1504
1991 .0009 - .0007 .1790 - .1411 .893 - .857 .8097 - .6295 .1764 - .1397
1992 .0009 - .0007 .1859 - .1531 .876 - .777 .8153 - .6462 .1816 - .1445
1993 .0007 - .0006 .1660 - .1414 .805 - .744 .7186 - .6472 .1510 - .1330
</TABLE>
<TABLE>
<CAPTION>
BELGIUM SPAIN AUSTRALIA NEW ZEALAND JAPAN
FRANC PESETA DOLLAR DOLLAR YEN
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1984 .0187 - .0156 .007 - .006 .967 - .819 .674 - .476 .0045 - .0034
1985 .0198 - .0143 .007 - .005 .826 - .631 .589 - .499 .0050 - .0038
1986 .0247 - .0193 .008 - .006 .746 - .596 .590 - .471 .0066 - .0049
1987 .0301 - .0244 .009 - .008 .735 - .647 .668 - .526 .0082 - .0063
1988 .0301 - .0246 .009 - .008 .882 - .699 .723 - .599 .0083 - .0073
1989 .0281 - .0235 .009 - .008 .896 - .739 .638 - .556 .0081 - .0067
1990 .0330 - .0277 .011 - .009 .849 - .767 .632 - .570 .0080 - .0063
1991 .0335 - .0265 .011 - .009 .802 - .752 .607 - .540 .0080 - .0071
1992 .0349 - .0289 .011 - .009 .771 - .682 .554 - .511 .0084 - .0074
1993 .0310 - .0271 .009 - .007 .722 - .645 .562 - .505 .0099 - .0079
</TABLE>
Source: Datastream International, Inc.
CHANGES IN CURRENCY VALUES--THE CANADIAN DOLLAR
A weakening of the Canadian dollar relative to the U.S. dollar will reduce the
U.S. dollar value of payments of interest on Canadian dollar-denominated
Securities with the effect of reducing the yield and current return on the
Units. If the reduction of the U.S. dollar value of principal payments were also
taken into account by amortization
9
<PAGE>
of principal over the life of a Security, there could be a further significant
decline in return. These consequences would be more pronounced for fixed-rate
debt obligations with short-intermediate term maturities, which the Portfolio
contains, than for fixed-rate debt obligations with long-term maturities. The
following table shows the average returns on investment (without regard to sales
charge) of fixed-rate debt obligations with various coupons and maturities after
giving effect to (i) a reduction of the U.S. dollar value of interest payments
prior to the first interest payment date and (ii) amortization of the related
principal loss over the life of the obligation.
AVERAGE RETURNS ON INVESTMENT ASSUMING CURRENCY DEVALUATION
<TABLE>
<CAPTION>
AVERAGE RETURNS ON INVESTMENT FOR DEBT OBLIGATIONS ASSUMING DEVALUATION
----------------------------------------------------------------------------------------------
5.5% COUPON 6.0% COUPON 6.5% COUPON
CHANGES
IN
RELATION
TO
U.S. ---------------------------- ---------------------------- ----------------------------
DOLLAR 3 YRS 4 YRS 5 YRS 3 YRS 4 YRS 5 YRS 3 YRS 4 YRS 5 YRS
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5% 3.56% 3.98% 4.23% 4.03% 4.45% 4.70% 4.51% 4.93% 5.18%
10% 1.62 2.45 2.95 2.07 2.90 3.40 2.52 3.35 3.85
15% - 0.33 0.93 1.68 0.10 1.35 2.10 0.53 1.78 2.53
</TABLE>
To illustrate the effect of a significant decline in the value of the
Canadian dollar relative to the U.S. dollar, assume that the estimated current
return on the Date of Deposit for a five year Fund with a portfolio of
securities denominated in Canadian dollars is 6.5%, that a Holder purchases 1
Unit on the Date of Deposit at a price of $1,000, the value of the Canadian
dollar declines by 15% relative to the U.S. dollar on the day following the Date
of Deposit, the Holder holds his Unit for five years and the Fund is terminated
exactly five years from the Date of Deposit. Following the termination of the
Fund, the Holder will receive a principal payment of $850 representing the
amount of his original investment ($1,000) less the $150 loss related to the
decline in the value of the Canadian dollar. In addition, the Holder will
receive monthly interest payments totaling $221.00 representing the estimated
return on his investment ($260) less the $39.00 loss related to the decline in
the value of the Canadian dollar.
CHANGES IN CURRENCY VALUE--THE AUSTRALIAN DOLLAR AND
NEW ZEALAND DOLLAR
A weakening of the Australian or New Zealand dollar relative to the U.S. dollar
will reduce the U.S. dollar value of payments of interest on the Securities with
the effect of reducing the yield and current return on the Units. If the
reduction of the U.S. dollar value of principal payments resulting from a
devaluation were also taken into account by amortization of principal loss over
the life of a Security, there could be a further significant decline in the
returns. These consequences would be more pronounced for fixed-rate debt
obligations with short intermediate maturities, which the Portfolio contains,
than for fixed-rate debt obligations with long-term maturities. The following
table shows the average returns on investment (without regard to sales charge)
of fixed-rate debt obligations with various coupons and maturities after giving
effect to (i) a reduction of the U.S. dollar value of interest payments
resulting from a devaluation prior to the first interest payment date and (ii)
amortization of the related principal loss over the life of the obligation.
10
<PAGE>
AVERAGE RETURNS ON INVESTMENT ASSUMING CURRENCY DEVALUATION
<TABLE>
<CAPTION>
DEVALUATION
IN
RELATION
TO AVERAGE RETURNS ON INVESTMENT FOR
U.S.
DOLLAR DEBT OBLIGATIONS ASSUMING DEVALUATION
------ --------------------------------------------------
7% COUPON 7.50% COUPON 8% COUPON
---------------------------- ---------------------------- ----------------------------
1 YR 3 YR 5 YR 1 YR 3 YR 5 YR 1 YR 3 YR 5 YR
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5% 1.65% 4.98% 5.65% 2.13% 5.46% 6.13% 2.60% 5.93% 6.60%
10% - 3.70 2.97 4.30 - 3.25 3.42 4.75 - 2.80 3.87 5.20
15% - 9.05 0.95 2.95 - 8.63 1.38 3.38 - 8.20 1.80 3.80
</TABLE>
To illustrate the effect of a significant decline in the value of the
Australian or New Zealand dollar relative to the U.S. dollar, assume that the
estimated current return on the Initial Date of Deposit for a three year Fund
with a portfolio of securities denominated in Australian or New Zealand dollars
is 8%, that a Holder purchases 1 Unit on the Initial Date of Deposit at a price
of $1,000, the value of the Australian or New Zealand dollar declines by 15%
relative to the U.S. dollar on the day following the Initial Date of Deposit,
the Holder holds his Unit for three years and the Fund is terminated exactly
three years from the Initial Date of Deposit. Following the termination of the
Fund, the Holder will receive a principal payment of $850 representing the
amount of his original investment ($1,000) less the $150 loss related to the
decline in the value of the Australian or New Zealand dollar. In addition, the
Holder will receive monthly interest payments totaling $204.00 representing the
estimated return on his investment ($240) less the $36.00 loss related to the
decline in the value of the Australian or New Zealand dollar.
The Trustee and the Evaluator will estimate current exchange rates for the
relevant currencies based on activity in the various currency exchange markets.
However, since these markets are volatile and are constantly changing, depending
on the activity at any particular time of the large international commercial
banks, various central banks, large multi-national corporations, speculators and
other buyers and sellers of foreign currencies, and since actual foreign
currency transactions may not be instantly reported, the exchange rates
estimated by the Trustee or the Evaluator may not be indicative of the amount in
U.S. dollars the Fund would receive had the Trustee sold any particular currency
in the market.
The foreign exchange transactions of the Fund may be concluded by the
Trustee with foreign exchange dealers acting as principals either on a spot
(i.e., cash) buying basis or on a forward foreign exchange basis on the date the
Fund is entitled to receive the applicable foreign currency. These forward
foreign exchange transactions will generally be of as short a duration as
practicable and will generally settle on the date of receipt of the applicable
foreign currency involving specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities and income
received on the Securities, or the sale and redemption of Units of the Fund.
These transactions are accomplished by contracting to purchase or sell a
specific currency at a future date and price set at the time of the contract.
The cost to the Fund of engaging in these foreign currency transactions varies
with such factors as the currency involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currency exchange are usually conducted on a principal basis, fees or
commissions are not normally involved. Although foreign exchange dealers trade
on a net basis they do realize a profit based upon the difference between the
price at which they are willing to buy a particular currency (bid price) and the
price at which they are willing to sell the currency (offer price). The relevant
exchange rate used for evaluations of the Securities will include the cost of
the buying or selling, as the case may be, of a seven-day forward foreign
exchange contract in the relevant currency to correspond to the requirement that
Units
11
<PAGE>
when purchased settle on a regular basis and that the Trustee settle redemption
requests in U.S. dollars within seven days.
EXCHANGE CONTROLS
On the basis of the best information available to the Sponsors at the
present time, none of the Securities, except as indicated under Investment
Summary in Part A, is subject to exchange control restrictions under existing
law which would materially interfere with payment to the Fund of amounts due on
the Securities either because the particular jurisdictions have not adopted any
currency regulations of this type or because the issues qualify for an exemption
or the Fund, as an extraterritorial investor, has qualified its purchase of the
Securities as exempt by following applicable 'validation' or similar regulatory
or exemptive procedures. However, there can be no assurance that exchange
control regulations might not be adopted in the future which might adversely
affect payments to the Fund.
In addition, the adoption of exchange control regulations and other legal
restrictions could have an adverse impact on the marketability of international
securities in the Portfolio and on the ability of the Fund to satisfy its
obligation to redeem Units tendered to the Trustee for redemption (see
Redemption).
WITHHOLDING TAXES
Under existing law there were no withholding taxes applicable to the
Securities, except as stated under Investment Summary in Part A and subject to
the following. On the basis of the best information available to the Sponsors,
under existing German law effective since January 1, 1993, German resident
recipients of interest payments may, under certain circumstances, be subject to
a withholding tax of 30% of the gross amount of interest paid, whether the
obligor under the security is a German or non-German resident. The withholding
tax generally applies to cases in which the interest is paid by a German
financial institution holding the security in custody for a German-resident
recipient. The withholding tax will generally not apply if the interest payment
is made by a German financial institution to a non-German financial institution
holding the security in custody for the German or non-German resident recipient.
Holders are urged to consult their own tax advisors in this regard. If the Fund
obtains a certificate from an issuer evidencing payment of withholding taxes
with respect to a Debt Obligation, the Fund will so notify Holders. A Holder is
required to include in his gross income the entire amount of interest paid on
his pro rata portion of the Debt Obligation including the amount of tax withheld
therefrom. However, if the tax constitutes an income tax for which U.S. foreign
tax credits may be taken, the Holder may be able to obtain applicable foreign
tax credits (subject to statutory limitations) or deductions. (See Taxes.)
LITIGATION AND LEGISLATION
Litigation may be initiated on a variety of grounds with respect to Debt
Obligations in the Fund or the issuers of the Debt Obligations. There can be no
assurance that future litigation will not have a material adverse effect on the
Fund or will not impair the ability of issuers to make payments due on the Debt
Obligations. In addition there can be no assurance that foreign withholding
taxes will not be imposed on interest on Debt Obligations issued by non-United
States issuers in the future.
12
<PAGE>
DESCRIPTION OF THE FUND
OVERVIEW
The rapid growth of foreign capital markets has led to increased
fixed-income opportunities. Bonds denominated in non-U.S. currencies currently
represent more than half of the value of all bonds outstanding. Economies and
financial markets in various countries do not all move in the same direction at
the same time. As one country's economy improves, another's may be in decline.
Countries with stronger economies are likely to have stronger currencies than
those with weaker economic conditions.
Investing in securities from just one country (even the U.S.) leads to risk
from adverse economic or market conditions in that country. Global
diversification of investments can reduce overall portfolio risk. Merrill Lynch,
Pierce, Fenner & Smith, as Agent for the Sponsors ('Agent for the Sponsors')
believes that all but the most conservative investors should normally allocate
some portion of their fixed-income investments to bonds denominated in foreign
currencies. Since 1984, International Bond Fund Series have offered investors an
opportunity to hold professionally selected portfolios of these bonds to provide
current income and possible capital appreciation. Bonds payable in some foreign
currencies pay higher interest rates than available on comparable U.S.-dollar
denominated bonds (although these rates may reflect additional risk of adverse
currency fluctuations). In addition to this current income, both the amount of
income when converted to U.S. dollars and the U.S. dollar equivalent of the
principal amount vary with fluctuations in the exchange rates of the relevant
currencies relative to the U.S. dollar.
The following chart shows the compound annual rates of return on debt
obligations in selected currencies for the period June 1983 through June 1993,
both in terms of U.S. dollars and the local currency. This chart represents past
performance and is no guarantee of future results of these currencies or of any
Series of Defined Asset Funds--International Bond Fund.
U.S. LOCAL
COUNTRY DOLLARS CURRENCY
- ------------------------------------- ----------- -----------
Australia 16.32% 19.51%
France 17.35 14.07
United Kingdom 11.79 12.08
Canada 12.38 12.87
Netherlands 13.74 9.32
Japan 16.59 7.57
Germany 12.73 8.34
Switzerland 8.55 5.04
United States 13.87 --
Source: IBBOTSON
FUND PERFORMANCE
Information on percentage changes in the U.S. dollar value of Units, on the
basis of changes in Unit price plus the amount of income and capital
distributions may be included from time to time in advertisements, sales
literature, reports and other information furnished to current or prospective
Holders. Total return figures are not averaged, and may not reflect deduction of
the sales charge, which would decrease the return. Average annualized return
figures reflect deduction of the maximum sales charge. No provision is made for
any income taxes payable. Information may also be given treating Unit
distributions as reinvested in the Corporate Fund Accumulation
13
<PAGE>
Program Inc., a no-load mutual fund holding a portfolio of U.S. corporate debt
obligations (not denominated in foreign currencies), primarily rated A or better
at the time of purchase.
Fund performance may be compared to the performance data on the same basis
(distributions reinvested or distributed) described in publications such as
Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, The New York Times, U.S. News and World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine or Fortune Magazine. As with other
performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period. Each
country, issuer and security must be approved by Defined Asset Funds' research
analysts.
THE PORTFOLIO
The Portfolio contains different issues of bonds, debentures, notes or
other straight debt obligations (including both senior indebtedness and
indebtedness which is subordinated to other indebtedness) with fixed final
maturity dates, having no conversion or equity features and which are payable in
the foreign currencies specified under Investment Summary in Part A.
Experienced professional buyers and security analysts for Defined Asset
Funds, with access to thousands of different issues and extensive research, who
are in close contact with the markets for suitable securities, select securities
for deposit in the Fund, considering the following factors, among others: (i)
whether the Debt Obligations were either rated in the category AA or better by
Standard & Poor's, Moody's or Fitch Investors Service, Inc. ('Fitch') or were
issued or guaranteed by issuers of other debt obligations rated in the category
AA or better or, in the opinion of Defined Asset Funds research analysts, their
other debt obligations would have credit characteristics comparable to
securities which have been rated in the category AA or better by these rating
agencies (see Ratings of Corporate Obligations); (ii) the yield and price of the
Debt Obligations in a particular currency relative to other debt obligations of
comparable quality and maturity in the same currency; (iii) the diversification
of the Portfolio, taking into account the availability in the market of debt
obligations of foreign issuers in various utility, industrial and governmental
classifications which met the Fund's criteria; (iv) whether the Debt Obligations
were issued after July 18, 1984 if interest thereon is U.S. source income; and
(v) whether any foreign withholding taxes are applicable to the Debt
Obligations.
The yields on debt obligations of the type deposited in the Fund are
dependent on a variety of factors, including international money market
conditions, general conditions of the international bond market, size of a
particular offering, the maturity of the obligation and the credit of the
issuer. In addition, interest rates tend to be lower on securities payable in
strong currencies than on securities payable in weak currencies. As a result,
interest income as a percentage of Fund assets may be significantly lower than
interest income of a fund that invests assets without regard to currency
strength.
Because certain of the Securities from time to time may be redeemed or will
mature in accordance with their terms or may be sold under certain circumstances
described herein, no assurance can be given that the Fund will retain for any
length of time its present size and composition (see Redemption). Many of the
Debt Obligations 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 offering side evaluation is at a premium over par than
when it is at a discount from par. Generally, the offering side evaluation of
Debt Obligations will be at a premium over par when market interest rates fall
below the coupon rate on the Debt Obligations. The percentage of face amount of
Debt Obligations in
14
<PAGE>
the Portfolio which were at a bid side evaluation in excess of par on the
Evaluation Date is set forth under Investment Summary in Part A. Certain Debt
Obligations in the Portfolio may currently be subject to sinking fund provisions
early in the life of the Fund. These provisions are designed to redeem a
significant portion of an issue gradually over the life of the issue;
obligations to be redeemed are generally chosen by lot.
The Fund consists of the Securities listed under Portfolio in Part A
(including any additional or replacement Securities acquired and held by the
Fund pursuant to the terms of the Indenture) as long as they may continue to be
held from time to time in the Fund, together with undistributed income therefrom
and undistributed and uninvested cash realized from the disposition or
redemption of Securities (see Administration of the Fund-- Portfolio
Supervision). Neither the Sponsors nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Securities.
Because each Defined Fund is a portfolio of preselected securities,
purchasers know in advance what they are investing in. A defined portfolio is
listed, so that generally the securities and their maturities are known before
an investor buys. Of course, the portfolio will change somewhat over time as
additional securities are deposited, as securities mature or as they are sold to
meet redemptions and in certain limited other circumstances.
INCOME; ESTIMATED CURRENT RETURN; ESTIMATED LONG-TERM RETURN
The estimated net annual U.S. dollar interest rate per Unit on the
Evaluation Date is set forth under Investment Summary in Part A and was
calculated on the exchange rate basis specified therein. This rate shows the
estimated annual U.S. dollar interest rate per Unit based on the face amount per
Unit after deducting estimated annual fees and expenses expressed as a
percentage. This rate will change on a daily basis as the relevant U.S. dollar
exchange rates fluctuate and as Securities mature, are exchanged, redeemed, paid
or sold, or as the expenses of the Fund change. Interest in U.S. dollars on the
Securities in the Fund, less estimated fees of the Trustee and Sponsors and
certain other expenses, is expected to accrue at the daily rate (based on a
360-day year) shown under Investment Summary in Part A. The actual net annual
U.S. dollar interest rate will vary with changes in the relevant exchange rates
and as Securities are exchanged, redeemed, paid or sold or as the expenses of
the Fund change.
The Estimated Current Return on a Unit represents annual cash receipts from
coupon-bearing Debt Obligations in the Fund's Portfolio (after estimated annual
expenses) divided by the maximum Public Offering Price (including the sales
charge). Any change in either the net annual U.S. dollar interest rate or the
Public Offering Price will result in a change in the current return. 'Current
return' provides different information than 'yield' or 'long-term return'. Under
accepted bond practice, bonds are customarily offered to investors on a 'yield
price' basis, which involves a computation of yield to maturity (or earlier call
date), and which takes into account not only the interest payable on the bonds
but also the amortization or accretion to a specified date of any premium over
or discount from the par (maturity) value in the bond's purchase price. Various
formulas exist for calculating long-term return on a portfolio of debt
obligations. Different assumptions regarding, among other things, reinvestment,
term to maturity or call date, application of sales charge and deduction for
expenses, result in different long-term return figures. Additionally, the
resulting figure may be overstated or understated depending on the manner in
which a formula takes into account delays in distributions of principal and
interest on Units and sales charges. For investors intending to hold Units until
the final maturity of the Fund, both current return and long-term return are
relevant measures of performance. For the investor who redeems Units earlier,
both the current return and the long-term return realized may be diminished,
particularly on a sale shortly
15
<PAGE>
after acquisition of those Units--because the price received will not reimburse
the investor for the sales charge paid.
The Estimated Long Term Return represents an average of the yields to
maturity (or earliest call date for obligations trading at prices above the
particular call price) of the Debt Obligations in the Portfolio, calculated in
accordance with accepted bond practice and adjusted to reflect expenses and
sales charges. In calculating Estimated Long Term Return, the average yield for
the Portfolio is derived by weighting each Debt Obligation's yield by the market
value of the Debt Obligation and by the amount of time remaining to the date to
which the Debt Obligation is priced. Once the average Portfolio yield is
computed, the figure is then adjusted for estimated expenses and the effect of
the maximum sales charge paid by investors. The Estimated Long Term Return
calculation does not take into account certain delays in distributions of income
and the timing of other receipts and distributions on Units and may, depending
on maturities, over or understate the impact of sales charges. Both of these
factors may result in a lower figure.
Both Estimated Current Return and Estimated Long Term Return are subject to
fluctuation with changes in Portfolio composition, (including the redemption,
sale or other disposition of Debt Obligations in the Portfolio), changes in
market value of the underlying Debt Obligations and changes in fees and
expenses, including sales charges, and therefore can vary considerably over
time. The size of any difference between Estimated Current Return and Estimated
Long Term Return can also be expected to fluctuate at least as frequently. In
addition, both return figures may not be directly comparable to yield figures
used to measure other investments, and since the return figures are based on
certain assumptions and variables the actual returns received by a Holder may be
higher or lower.
Defined Asset Funds sales charges range from under 1.0% to 5.5%. This may
be less than you might pay to buy a comparable fund. Defined Funds have no 12b-1
or back-end load fees. While sales charges on certain Defined Funds are
deferred, only the previously accrued but unpaid portion of the sales charge is
deducted from sales proceeds. Defined Funds can be a cost-effective way to
purchase and hold investments. Annual operating expenses are generally lower
than for managed funds. Because Defined Funds have no management fees, limited
transaction costs and no ongoing marketing expenses, operating expenses are
generally less than 0.25% per year. There is no leverage or borrowed money to
increase risk, nor is the Portfolio modified with other kinds of securities to
enhance yields. There is no fee for selling your Units. When compounded
annually, small differences in expense ratios can make a big difference in
earnings.
Accrued Interest. In addition to the Public Offering Price, the price of a
Unit includes accrued interest on the Securities in U.S. dollars (calculated on
the basis of the current exchange rates for the relevant currencies on the date
Holders commit for Units). At the time of the original offering of the Fund and
to avoid having Holders pay accrued interest to the initial Date of Deposit, the
Trustee was responsible for the payment of accrued interest on the Debt
Obligations to the original Date of Deposit and then recovered this amount in
U.S. dollars from the earliest interest payments received by the Fund.
Additionally, interest on the Debt Obligations in the Fund is paid on a
semi-annual (or less frequently, annual) basis. Because interest on the
Securities is not received by the Fund at a constant rate throughout the year,
any Monthly Income Distribution may be more or less than the interest actually
received by the Fund. In order to eliminate fluctuations, the Trustee is
required to advance the amounts in U.S. dollars necessary to provide
approximately equal Monthly Income Distributions, assuming no changes in
currency exchange rates. The Trustee will be reimbursed in U.S. dollars, without
interest, for these advances from interest received on the Securities. Of
course, the amount actually distributed may fluctuate, depending on
16
<PAGE>
changes in the currency exchange rates. Therefore, to account for those factors,
accrued interest in U.S. dollars is always added to the value of the Units. And,
because of the varying interest payment dates of the Securities, accrued
interest at any time will be greater than the amount of interest actually
received by the Fund and distributed to Holders. If a Holder sells all or a
portion of his Units in U.S. dollars, he will receive his proportionate share of
the accrued interest from the purchase of his Units in U.S. dollars to the
settlement date for the sale (calculated on the basis of current exchange rates
on the date the transaction is entered into). Similarly, if a Holder redeems all
or a portion of his Units, the Redemption Price per Unit will include accrued
interest on the Securities in U.S. dollars calculated on the basis of current
exchange rates on the date the Units are tendered for redemption. And if a
Security is sold, redeemed or otherwise disposed of, accrued interest will be
received by the Fund and will be distributed periodically to Holders.
TAXES
The following discussion addresses only the tax consequences of Units held
as capital assets and does not address the tax consequences of Units held by
dealers, financial institutions or insurance companies.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsors,
under existing law:
The Fund is not an association taxable as a corporation for
Federal income tax purposes, and income received by the Fund
will be treated as the income of the Holders in the manner set
forth below.
Each Holder will be considered the owner of a pro rata portion
of each Debt Obligation 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 (in U.S. dollars) to a
Holder of his Units, including sales charges, is allocated to
his pro rata portion of each Debt Obligation, in proportion to
the fair market values thereof on the date the Holder purchases
his Units, in order to determine his tax basis (in U.S. dollars)
for his pro rata portion of each Debt Obligation.
Each Holder will be considered to have received the foreign
currency interest (without reduction for the amount of any
foreign taxes withheld therefrom) on his pro rata portion of
each Debt Obligation when foreign currency interest on the Debt
Obligation is received by the Fund. A Holder who uses the cash
method of accounting will recognize U.S. dollar ordinary income
based on the exchange rate at that time. A Holder using the
accrual method of accounting will generally be required to
translate accrued interest income into U.S. dollars at the
average exchange rate during the accrual period unless such
Holder makes an election to use the spot accrual convention. If
such an election is made, interest income will be translated at
the exchange rate in effect (i) on the last day of an accrual
period (or in the case of a partial accrual period, the spot
rate on the last day of the taxable year), or (ii), if the date
of receipt is within five business days of the last day of the
interest accrual period, the spot rate on the date of receipt.
An accrual basis Holder will have foreign currency gain or loss,
which will be treated as ordinary income or loss, if the U.S.
dollar value of the foreign currency payments received
(determined on the date the foreign currency interest is
received by the Fund) in respect of such accrual period is
greater or less than the amount of U.S. dollars included in
income by the accrual basis Holder with respect to the foreign
currency interest for such accrual period. If any
17
<PAGE>
foreign taxes are withheld from the interest on a Holder's pro
rata portion of a Debt Obligation, and these foreign taxes
constitute income taxes for which U.S. foreign tax credits may
be taken, the Holder may elect to deduct the amount of such
foreign taxes (measured in U.S. dollars based on the exchange
rate used by the Holder in determining his U.S. dollar ordinary
income) if he itemizes deductions or to credit such amount
against his Federal income taxes subject to statutory
limitations. An election to deduct rather than credit such
foreign taxes may increase a Holder's alternative minimum tax
liability.
An individual Holder who itemizes deductions will be able to
deduct his pro rata share of the fees and expenses of the Fund
only to the extent that this amount together with the Holder's
other miscellaneous deductions exceeds 2% of his adjusted gross
income.
The Fund may contain Debt Obligations that were originally
issued at a discount ('original issue discount'). The following
principles will apply to each Holder's pro rata portion of any
Debt Obligation originally issued at a discount. In general,
original issue discount is defined as the difference between the
price at which a debt obligation was issued and its stated
redemption price at maturity. Original issue discount on a debt
obligation issued on or after July 2, 1982 will accrue as
interest over the life of the obligation under a formula based
on the compounding of interest. Original issue discount on a
debt obligation issued prior to July 2, 1982 will accrue as
interest over the life of the debt obligation on a straight line
basis. Each Holder will be required to include in income in each
year the amount of original issue discount which accrues during
the year on his pro rata portion of any Debt Obligation
originally issued at a discount. If a Holder's tax basis for his
pro rata portion of a Debt Obligation issued with original issue
discount is greater than its 'revised issue price' but less than
its stated redemption price at maturity (as may be adjusted for
certain payments), the Holder will be considered to have
purchased his pro rata portion of the Debt Obligation at an
'acquisition premium.' The amount of original issue discount
which must be accrued will be reduced by the amount of such
acquisition premium. The amount of accrued original issue
discount so included in income in respect of a Holder's pro rata
portion of a Debt Obligation is added to the Holder's tax basis
therefor.
The amount and accrual of original issue discount should be
determined in terms of the foreign currency under the original
issue discount rules discussed above, and then translated into
U.S. dollars based on the average exchange rate in effect during
the accrual period unless a Holder makes an election under the
spot accrual convention, described above. A Holder will have
foreign currency gain or loss, which will be treated as ordinary
income or loss, if the U.S. dollar value of the foreign currency
interest received by the Fund in respect of an accrual period
(computed by reference to the exchange rate on date the original
issue discount is received by the Fund) is greater or less than
the amount of U.S. dollars included in income by the Holder for
such accrual period with respect to the foreign currency
original issue discount. Holders should consult their own tax
advisors in this regard.
If a Holder's cost for a Debt Obligation exceeds the
redemption price at maturity thereof (subject to certain
adjustments), the Holder is considered to have purchased the
Debt Obligation with 'amortizable bond premium.' The Holder may
elect to amortize such
18
<PAGE>
premium over the term of the Debt Obligation. Amortizable bond
premium properly taken into account shall reduce the Holder's
interest income in the relevant foreign currency and will result
in a reduction of basis for his pro rata portion of the Debt
Obligation. A Holder who elects to amortize bond premium will
have foreign currency gain or loss, which will be treated as
ordinary income or loss, if the value of the U.S. dollar against
the foreign currency at the time the bond premium is treated as
repaid to the Holder is greater than or less than its value at
the time the Holder purchased the Debt Obligation. With respect
to a Holder who does not elect to amortize bond premium, the
amount of bond premium will constitute a market loss when the
bond matures.
A Holder will recognize taxable gain or loss when all or part
of his pro rata portion of a Debt Obligation is disposed of for
an amount (measured in U.S. dollars based on the exchange rate
at the time of disposition) greater or less than his adjusted
tax basis therefor (in U.S. dollars). Thus, due to exchange rate
fluctuations, a Holder may recognize gain or loss on the
disposition of a Debt Obligation, even if the disposition
proceeds expressed in the foreign currency equal the amount of
that foreign currency paid for the Debt Obligation. Any taxable
gain or loss will be capital gain or loss except as provided in
the next three sentences. To the extent that any gain or loss
recognized is due to exchange rate fluctuations (as determined
under applicable Treasury regulations) such gain or loss will be
treated as ordinary gain or loss. In addition, any gain from the
disposition of a Holder's pro rata portion of a Debt Obligation
acquired by the Holder at a 'market discount' (i.e., if the
Holder's original cost for his pro rata portion of the Debt
Obligation (plus any original issue discount which will accrue
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. The amount of such
market discount should be determined in terms of the foreign
currency, and then translated into U.S. dollars based on the
exchange rate at the time the Debt Obligation is disposed of
(other than market discount which is included in income on a
current basis and is translated into U.S. dollars based on the
average exchange rate in effect during an accrual period).
Capital gains are generally taxed at the same rate as ordinary
income. However, the excess of net long-term capital gains over
net short-term capital losses may be taxed at a lower rate than
ordinary income for certain noncorporate taxpayers. A capital
gain or loss is long-term if the asset is held for more than one
year. The deduction of capital losses is subject to limitations.
A Holder will be considered to have disposed of all or part of
his pro rata portion of each Debt Obligation when he sells or
redeems all or some of his Units. A Holder will also be
considered to have disposed of all or part of his pro rata
portion of a Debt Obligation when all or part of the Debt
Obligation is sold by the Fund or is redeemed or paid at
maturity.
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
Holders in the same manner as for Federal income tax purposes.
Notwithstanding the foregoing, a Holder owner who is a
non-resident alien individual or a foreign corporation (a
'Foreign Holder') will generally not be subject to United States
Federal income taxes, including withholding taxes, on the
interest income (including any original issue discount) on, or
any gain from the sale or other disposition of, his pro rata
portion of any Debt
19
<PAGE>
Obligation provided that (i) the interest income or gain is not
effectively connected with the conduct by the Foreign Holder of
a trade or business within the United States, (ii) if the
interest is United States source income (which is the case on
most Debt Obligations issued by United States issuers), the Debt
Obligation is issued after July 18, 1984 and the Foreign Holder
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 Debt Obligation and is not a controlled
foreign corporation related (within the meaning of Section
864(d)(4) of the Code) to the issuer of the Debt Obligation,
(iii) with respect to any gain, the Foreign Holder (if an
individual) is not present in the United States for 183 days or
more during the taxable year, and (iv) the Foreign Holder
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 Holders should consult their own tax advisors with
respect to United States Federal income tax consequences of
ownership of Units.
Holders will be taxed in the manner described above regardless
of whether such distributions from the Fund are actually
received by the Holder or are automatically reinvested pursuant
to The Corporate Fund Accumulation Program, Inc.
The foregoing discussion relates only to United States Federal
and certain aspects of New York State and City income taxes.
Holders may be subject to taxation in New York or in other
jurisdictions (including a Foreign Holder's country of
residence) and should consult their own tax advisors in this
regard.
* * *
The Sponsors believe that (i) each Debt Obligation the interest on which is
United States source income (which is the case for most Debt Obligations issued
by United States issuers) was or will have been issued after July 18, 1984 and
(ii) interest on any Debt Obligation issued by a non-United States issuer is not
subject to any foreign withholding taxes under current law subject to the
following: On the basis of the best information available to the Sponsors, under
existing German law effective since January 1, 1993, German resident recipients
of interest payments may, under certain circumstances, be subject to a
withholding tax of 30% of the gross amount of interest paid, whether the obligor
under the security is a German or non-German resident. The withholding tax
generally applies to cases in which the interest is paid by a German financial
institution holding the security in custody for a German resident recipient. The
withholding tax will generally not apply if the interest payment is made by a
German financial institution to a non-German financial institution holding the
security in custody for the German or non-German resident recipient. Holders are
urged to consult their own tax advisors in this regard. There can be no
assurance that withholding taxes will not be imposed on interest on Debt
Obligations issued in the future.
After the end of each calendar year, the Trustee will furnish to each
Holder an annual statement containing information relating to the interest
received by the Fund on the Debt Obligations, the gross proceeds received by the
Fund from the disposition of any Debt Obligation (resulting from redemption or
payment at maturity of any Debt Obligation or the sale by the Fund of any Debt
Obligation), and the fees and expensed paid by the Fund. Except as set forth
above with respect to certain Foreign Holders, the Trustee will also furnish
annual information returns to each Holder and to the Internal Revenue Service.
20
<PAGE>
PUBLIC SALE OF UNITS
PUBLIC OFFERING PRICE
Unless otherwise specified below or in Part A, the Public Offering Price of
Units is computed by dividing the aggregate bid side evaluation of the
Securities (as determined by the Evaluator), by the number of the Units
outstanding, and adding thereto the sales charge at the applicable percentage of
the evaluation per Unit (the net amount invested). A proportionate share of any
cash held by the Fund in the Capital Account not allocated to the purchase of
specific Securities and net accrued and undistributed interest (calculated on
the basis of current exchange rates on the date Holders commit for Units) on the
Securities to the date of delivery of the Units to the purchaser is added to the
Public Offering Price. The Public Offering Price of the Units will vary from day
to day in accordance with fluctuations in the evaluations of the underlying
Securities and changes in the relevant currency exchange rates.
The following tables set forth the applicable percentage of sales charge
and the concession to dealers for the Funds specified. These amounts are reduced
on a graduated scale for sales to any purchaser of at least 250 Units and will
be applied on whichever basis is more favorable to the purchaser. To qualify for
the reduced sales charge and concession applicable to quantity purchases, the
dealer must confirm that the sale is to a single purchaser as defined below or
is purchased for its own account and not for distribution. Sales charges and
dealer concessions are as follows:
PRIMARY MARKET SALES
MULTI-CURRENCY SERIES 27
<TABLE>
<CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
------------------------------ DEALER
AS PERCENT OF CONCESSION AS PRIMARY MARKET
OFFER SIDE AS PERCENT OF PERCENT OF CONCESSION TO
PUBLIC OFFERING NET AMOUNT PUBLIC OFFERING INTRODUCING
NUMBER OF UNITS PRICE INVESTED PRICE DEALERS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Less than 250...................... 3.25% 3.359% 2.133% $ 23.40
250 - 499.......................... 2.50 2.564 1,625 18.00
500 - 749.......................... 2.00 2.041 1.300 14.40
750 - 999.......................... 1.50 1.523 0.975 10.80
1,000 or more...................... 1.00 1.010 0.650 7.20
</TABLE>
21
<PAGE>
SECONDARY MARKET SALES
MULTI-CURRENCY SERIES 27
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
DEALER
------------------------------ CONCESSION AS
AS PERCENT OF AS PERCENT OF PERCENT OF
BID SIDE PUBLIC NET AMOUNT PUBLIC OFFERING
OFFERING PRICE INVESTED PRICE
---------------------------------------------
Less than 250...................... 3.00% 3.093% 1.950%
250 - 499.......................... 2.25 2.302 1.463
500 - 749.......................... 1.50 1.523 0.975
750 - 999.......................... 1.25 1.266 0.813
1,000 or more...................... 1.00 1.010 0.650
22
<PAGE>
MULTI-CURRENCY SERIES 25, MULTI-CURRENCY SERIES 26 (CANADIAN AND AUSTRALIAN
DOLLAR BONDS) AND
CANADIAN DOLLAR BONDS SERIES 10 AND 11
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
DEALER
------------------------------ CONCESSION AS
AS PERCENT OF AS PERCENT OF PERCENT OF
BID SIDE PUBLIC NET AMOUNT PUBLIC OFFERING
OFFERING PRICE INVESTED PRICE
---------------------------------------------
Less than 250...................... 3.75% 3.896% 2.438%
250 - 499.......................... 3.00 3.093 1.950
500 - 749.......................... 2.25 2.302 1.463
750 - 999.......................... 1.50 1.523 0.975
1,000 or more...................... 1.00 1.010 0.650
FOR ALL SERIES LISTED BELOW, UNITS WILL NOT BE ELIGIBLE FOR EXCHANGE AT A
REDUCED SALES CHARGE UNDER THE EXCHANGE OPTION. COMMENCING ON THE DATES
INDICATED BELOW, THE APPLICABLE SALES CHARGE FOR REGULAR PURCHASES OF THESE
SERIES WILL BE AS FOLLOWS:
MULTI-CURRENCY SERIES 23 (GERMAN MARK BONDS) AND MULTI-CURRENCY SERIES 24
COMMENCING
- ----------
February 3, 1994................... 2.00% 2.041% 1.300%
August 3, 1994..................... 1.50 1.523 0.975
February 3, 1995................... 1.00 1.010 0.650
August 3, 1995..................... 0.50 0.503 0.325
MULTI-CURRENCY SERIES 21 AND 22
February 3, 1994................... 1.50% 1.523% 0.975%
August 3, 1994..................... 1.00 1.010 0.650
February 3, 1995 0.50 0.503
AUSTRALIAN MORTGAGELINK SERIES 2 AND 3
AUSTRALIAN AND NEW ZEALAND DOLLAR BONDS SERIES 43
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
DEALER
------------------------------ CONCESSION AS
AS PERCENT OF AS PERCENT OF PERCENT OF
PUBLIC OFFERING NET AMOUNT PUBLIC OFFERING
PRICE INVESTED PRICE
---------------------------------------------
February 3, 1994................... 0.50% 0.503% 0.325%
AUSTRALIAN DOLLAR BONDS SERIES 11
October 1, 1993.................... 1.50% 1.523% 0.975%
April 1, 1994...................... 1.00 1.010 0.650
23
<PAGE>
The graduated sales charges above will apply on all purchases on any one
day by the same purchaser of Units only in the amounts stated. Concurrent
purchases in the secondary market of one or more Series sponsored by the
Sponsors will be aggregated. Units held in the name of the spouse of the
purchaser or in the name of a child of the purchaser under 21 years of age are
deemed to be registered in the name of the purchaser. The graduated sales
charges are also applicable to a trustee or other fiduciary purchasing
securities for a single trust estate or single fiduciary account. Employees of
certain of the Sponsors and their affiliates and non-employee directors of
Merrill Lynch & Co. Inc. may purchase Units at prices based on a reduced sales
charge of not less than $5.00 per Unit.
Evaluations of the Securities are determined by the Evaluator taking into
account the same factors referred to under Redemption--Computation of Redemption
Price per Unit. The determinations are made each business day as of the
Evaluation Time set forth under Investment Summary in Part A, (the Evaluation
Time), effective for all sales made since the last of these evaluations (Section
4.01). The term 'business day', as used herein and under 'Redemption', shall
exclude Saturdays, Sundays and the following holidays as observed by the New
York Stock Exchange: New Year's Day, Washington's Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
24
<PAGE>
COMPARISON OF PUBLIC OFFERING PRICE, SPONSORS' REPURCHASE PRICE
AND REDEMPTION PRICE
On the Evaluation Date the Public Offering Price per Unit (which includes
the sales charge) exceeded the Sponsors' Repurchase Price per Unit and the
Redemption Price per Unit (each based on the bid side evaluation of the
Securities in the Fund--see Redemption) by the amounts set forth under
Investment Summary in Part A.
Because of fluctuations in the U.S. dollar value of the underlying
Securities and the current U.S. dollar exchange rates for the currencies in
which the Securities are denominated and the fact that the Public Offering Price
includes the sales charge, among other reasons, the amount realized by a Holder
upon any sale or redemption of Units may be less than the price paid by him for
the Units.
PUBLIC DISTRIBUTION
Units acquired in the secondary market (see Market for Units ) may be
offered directly to the public by this Prospectus at the Public Offering Price
determined in the manner provided above.
The Sponsors intend to continue to qualify Units for sale in certain states
in the U.S. in which qualification is deemed necessary by the Sponsors 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 are currently made at
prices which represent a concession of the applicable rate specified in the
table above, but the Agent for the Sponsors reserves the right to change the
amount of the concession to dealers from time to time. Any dealer may reallow a
concession not in excess of the concession to dealers.
UNDERWRITERS' AND SPONSORS' PROFITS
In maintaining a market for the Units (see below) the Sponsors will realize
profits or sustain losses in the amount of any difference between the prices at
which they buy Units (based on the U.S. dollar bid side evaluation of the
Securities) and the prices at which they resell the Units (which include the
sales charge) or the prices at which they redeem the Units (based on the U.S.
dollar bid side evaluation of the Securities), as the case may be. On any
deposit of additional Securities into the Fund with respect to the sale of
additional Units to the public, the Sponsors may realize a profit or loss. In
addition, any Sponsor or Underwriter may realize profits or sustain losses in
respect of Securities deposited in the Fund which were acquired by the Sponsor
or Underwriter from underwriting syndicates of which the Sponsor or Underwriter
was a member. 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 subject to the limitations of Rule 15c3-3 under the
Securities Exchange Act of 1934 and may be of benefit to the Sponsors.
MARKET FOR UNITS
While the Sponsors are not obligated to do so, it is their intention to
maintain a secondary market for Units of this Series and continually to offer to
purchase those Units at prices, subject to change at any time, which will be
computed based on the U.S. dollar bid side of the market, taking into account
the same factors referred to in determining the bid side evaluation of
Securities for purposes of redemption (see Redemption). The Sponsors also intend
to use their best efforts to maintain a current prospectus for this Series and
subsequent series to the extent required by applicable law in order for them to
dispose of Units held in their inventory. The Sponsors may
25
<PAGE>
discontinue purchases of Units of this Series at prices based on the U.S. dollar
bid side evaluation of the Securities (i) should the supply of Units exceed
demand or for other business reasons, or (ii) if there is no current prospectus
for this Series, or (iii) if, due to any change subsequent to the date of this
Prospectus in conditions imposed by regulatory or legislative action, the
Sponsors cannot at the time lawfully sell Units to the public without incurring
expenses or complying with conditions which they consider unreasonable or
onerous, or (iv) if the right of redemption shall have been suspended, or (v) if
the Indenture shall have been terminated (see Administration of the
Fund--Amendment and Termination) or (vi) at any time when the aggregate purchase
price to the Sponsors of Units of all outstanding series of Defined Asset
Funds--International Bond Fund held by the Sponsors in their inventories exceeds
$3,000,000. In this event the Sponsors may nonetheless under certain
circumstances purchase Units, as a service to Holders, at prices based on the
current redemption prices for these Units (see Redemption). For instance, if it
becomes necessary for the Fund to sell Securities in order to meet redemptions,
and if it is not feasible to dispose of these Securities within seven days due
to conditions in the relevant non-U.S. securities market, the Sponsors intend to
purchase the Units tendered for redemption at prices based upon their current
redemption prices; provided, however that the Sponsors do not intend to make
these purchases if in their judgment, exercised in good faith, the general
market for the Securities is, or will become, unsatisfactory for an extended
period of time or other inhibiting business or regulatory factors exist. The
Sponsors, of course, do not in any way guarantee the enforceability,
marketability or price of any Securities in the Portfolio or of the Units.
Prospectuses relating to certain other unit trusts indicate an intention,
subject to change on the part of the respective sponsors of such trusts, to
purchase units of those trusts on the basis of a price higher than the bid
prices of the bonds in the trusts. Consequently, depending upon the prices
actually paid, the repurchase price of other sponsors for units of their trusts
may be computed on a somewhat more favorable basis than the repurchase price
offered by the Sponsors for Units of this Series in secondary market
transactions. As in this Series, the purchase price per unit of such unit trusts
will depend primarily on the value of the bonds in the portfolio of the trust.
The Sponsors may redeem any Units they have purchased in the secondary
market or through the Trustee in accordance with the procedures described below
if they determine it is undesirable to continue to hold these Units in their
inventory. Factors which the Sponsors will consider in making this determination
will include the number of units of all series of all funds which they have in
their inventories, the saleability of the units and their estimate of the time
required to sell the units and general market conditions. For a description of
certain consequences of any redemption for the remaining Holders, see
Redemption.
A Holder who wishes to dispose of his Units should inquire of his bank or
broker as to current market prices in order to determine if there exist
over-the-counter prices in excess of the repurchase price.
REDEMPTION
While it is anticipated that Units in most cases can be sold in the
over-the-counter market for an amount equal to the Redemption Price per Unit
(see Market for Units), Units may be redeemed at the office of the Trustee upon
tender on any business day, as defined under Public Sale of Units--Public
Offering Price, of Certificates or, in the case of uncertificated Units,
delivery of a request for redemption, and payment of any relevant tax, without
any other fee (Article V). Certificates to be redeemed must be properly endorsed
or accompanied by a written instrument or instruments of transfer. Holders must
sign exactly as their names appear on the face of the Certificate with the
signatures guaranteed by an eligible guarantor institution, or in some other
manner acceptable to the Trustee. In certain instances the Trustee may require
additional documents including, but not limited to,
26
<PAGE>
trust instruments, certificates of death, appointments as executor or
administrator or certificates of corporate authority.
On the seventh calendar day following the tender (or if the seventh
calendar day is not a business day on the first business day prior thereto), the
Holder will be entitled to receive the proceeds of the redemption in an amount
per Unit equal to the Redemption Price per Unit (see below) as determined as of
the Evaluation Time next following the tender. The price received upon
redemption may be more or less than the amount paid by the Holder depending on
the value of the Securities in the Portfolio at the time of redemption. So long
as the Sponsors are maintaining a market at prices not less than the Redemption
Price per Unit, the Sponsors will repurchase any Units tendered for redemption
no later than the close of business on the second business day following the
tender (see Market for Units). The Trustee is authorized in its discretion, if
the Sponsors do not elect to repurchase any Unit tendered for redemption or if a
Sponsor tenders Units for redemption, to sell the Units in the over-the-counter
market at prices which will return to the Holder a net amount in cash equal to
or in excess of the Redemption Price per Unit for these Units (Article V).
Securities are to be sold from the Portfolio in order to make funds
available for redemption (Article V) if funds are not otherwise available in the
Capital and Income Accounts (see Administration of the Fund-- Accounts and
Distributions). The Securities to be sold will be selected by the Sponsors in
accordance with procedures specified in the indenture on the basis of those
market and credit factors as they may determine are in the best interests of the
Fund. Provision is made under the Indenture for the Sponsors to specify minimum
face amounts in which blocks of Securities are to be sold in order to obtain the
best price for the Fund. These minimum amounts may vary from time to time in
accordance with market conditions.
To the extent that Securities are sold, the size and diversity of the Fund
will be reduced. Sales will usually be required at a time when Securities would
not otherwise be sold and may result in lower prices to the Fund than might
otherwise be realized. In addition, because of the minimum face amounts in which
Securities are required to be sold, the proceeds of sale may exceed the amount
required at the time to redeem Units; these excess proceeds will be distributed
to Holders.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange, Inc. is closed other than for
customary weekend and holiday closings, (2) for any period during which, as
determined by the SEC, (i) trading on that Exchange is restricted or (ii) an
emergency exists as a result of which disposal or evaluation of the Securities
is not reasonably practicable, or (3) for any other periods that the SEC may by
order permit (Article V).
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit is computed by the Trustee, as of the Evaluation
Time, on each June 30 and December 31 (or the last business day prior thereto),
on any business day as of the Evaluation Time next following the tender of any
Unit for redemption, and on any other business day desired by the Trustee or the
Sponsors, by adding (a) the aggregate U.S. dollar bid side evaluation of the
Securities, (b) the U.S. dollar equivalent (at the relevant exchange rate) of
cash on hand in the Fund (other than cash covering contracts to purchase
Securities or credited to a reserve account), (c) the U.S. dollar equivalent (at
the relevant exchange rate) of accrued but unpaid interest on the Securities up
to but not including the date of redemption and (d) the aggregate value of all
other assets of the Fund; deducting therefrom the sum of (v) the U.S. dollar
equivalent (at the relevant exchange rate) of taxes or other governmental
charges against the Fund not previously deducted, (w)
27
<PAGE>
accrued but unpaid expenses of the Fund, (x) amounts payable for Trustee
advances, (y) the U.S. dollar equivalent (at the relevant exchange rate) of cash
held for redemption of Units or for distribution to Holders of record as of a
date prior to the evaluation and (z) the aggregate value of all other
liabilities of the Fund, and dividing the result by the number of Units
outstanding as of the date of computation (Article V).
The aggregate current bid or offering side evaluation of the Securities is
determined by the Evaluator in the following manner: if the Securities are
listed on a securities exchange, this evaluation is generally based on the U.S.
dollar equivalent (at the relevant exchange rate) of the closing sale prices on
the exchange (unless the Evaluator deems these prices inappropriate as a basis
for valuation). If the Securities are not so listed or, if so listed and the
principal market therefor is other than on the exchange or there are no closing
sale prices on the exchange, the valuation is generally based on the U.S. dollar
equivalent (at the relevant exchange rate) of the closing sale prices in the
over-the-counter market (unless the Evaluator deems these prices inappropriate
as a basis for valuation). If closing sale prices are unavailable, the
evaluation is generally determined (a) on the basis of the U.S. dollar
equivalent (at the relevant exchange rate) of current bid or offering prices of
the Securities, (b) if bid or offering prices are not available for any
securities, on the basis of the U.S. dollar equivalent (at the relevant exchange
rate) of current bid or offering prices for comparable securities, (c) by
appraising the U.S. dollar value of the Securities on the bid or offering side
of the market or (d) by any combination of the above. The relevant exchange rate
used for evaluations of the Securities will include the cost of a seven-day
forward foreign exchange contract in the relevant currency to correspond to the
requirement that the Trustee settle redemption requests in U.S. dollars within
seven days.
EXPENSES AND CHARGES
FEES
An estimate of the total annual expenses of the Fund are set forth under
Investment Summary in Part A. The Portfolio Supervision Fee is based on the face
amount of Securities in the Fund on the first business day of each calendar
year, except that if in any calendar year additional Securities are deposited
the fee for the balance of the year will be based on the face amounts on each
Record Day. This fee, which is not to exceed the maximum amount set forth under
Investment Summary in Part A, may exceed the actual costs of providing portfolio
supervisory services for this Fund, but at no time will the total amount the
Sponsors receive for portfolio supervisory services rendered to all series of
Defined Asset Funds--International Bond Fund in any calendar year exceed the
aggregate cost to them of supplying these services in that year. In addition,
the Sponsors may also be reimbursed for bookkeeping or other administrative
services provided to the Fund in amounts not exceeding their costs of providing
these services (Articles III and VII). The Trustee receives for its services as
Trustee and for reimbursement of expenses incurred on behalf of the Fund,
payable in monthly installments, the amount per Unit set forth under Investment
Summary in Part A. For its services as Trustee, the Trustee receives annually
$1.50 per $1,000 face amount of Securities at the exchange rate in effect at the
Initial Date of Deposit; for its services as Custodian for First Cities of
Australia--Credit Lyonnais Australian MortgageLink Series, the Custodian
receives annually $.72 per $1,000 face amount of Securities at the exchange rate
in effect at the Initial Date of Deposit. An additional amount representing
certain regular and recurring expenses of the Fund, including the Evaluator's
fee, Portfolio Supervision Fee, estimated reimbursable bookkeeping or other
administrative expenses paid to the Sponsors and certain mailing and printing
expenses, is also included in the amount shown as the Trustee's Annual Fee and
Expenses under Investment Summary in Part A. Expenses in excess of this amount
will be borne by the Fund. The Trustee also receives benefits to the extent that
it holds funds on deposit in the
28
<PAGE>
various non-interest bearing accounts created under the Indenture. The foregoing
fees may be adjusted for inflation in accordance with the terms of the Indenture
without approval of Holders (Articles III, IV and VIII).
OTHER CHARGES
These include: (a) fees of the Trustee for extraordinary services (Article
VIII), (b) certain expenses of the Trustee (including legal and auditing
expenses) and of counsel designated by the Sponsors (Articles III and VIII), (c)
various governmental charges (Articles III and VIII ), (d) expenses and costs of
action taken to protect the Fund (Article VIII), (e) indemnification of the
Trustee for any losses, liabilities and expenses incurred without gross
negligence, bad faith or willful misconduct on its part (Article VIII), (f)
indemnification of the Sponsors for any losses, liabilities and expenses
incurred without gross negligence, bad faith, willful misconduct or reckless
disregard of their duties (Article VII) and (g) expenditures incurred in
contacting Holders upon termination of the Fund (Article IX). The amounts of
these charges and fees are secured by a lien on the Fund and, if the balances in
the Income and Capital Accounts (see below) are insufficient, the Trustee has
the power to sell Securities to pay these amounts (Article VIII).
ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps a register of the names, addresses and holdings of all
Holders. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, which
are available to Holders for inspection at the office of the Trustee at
reasonable times during business hours (Articles VI and VIII).
ACCOUNTS AND DISTRIBUTIONS
Interest received is credited to an Income Account and other receipts to a
Capital Account (after conversion into U.S. dollars at the applicable rates)
(Article III). The Monthly Income Distribution for each Holder as of each Record
Day will be made on the following Distribution Day or shortly thereafter and
shall consist of an amount substantially equal to the Holder's pro rata share of
the estimated annual U.S. dollar net income accrued during the month preceding
the Record Day, after deducting estimated expenses and after any adjustment
necessary to reflect changes in currency exchange rates. The estimated annual
U.S. dollar income is determined initially by assuming no fluctuations in
currency exchange rates. Distributions of interest income will be made based on
currency exchange rates in effect on each record date. However, since non-U.S.
dollar amounts actually received by the Fund will be converted into U.S. dollars
upon receipt, each distribution will be adjusted to reflect any difference
between the actual amount received by the Fund in U.S. dollars as to a
particular Security and the amount previously distributed to Holders with
respect to that Security. At the same time the Trustee will distribute that
Holder's pro rata share of the distributable cash balance of the Capital Account
computed as of the close of business on the preceding Record Day (if at least
equal to the Minimum Capital Distribution set forth under Investment Summary in
Part A). The amount of the Monthly Income Distribution will change with
fluctuations in the relevant exchange rates and as Securities mature, are
exchanged, redeemed, paid or sold, as Replacement Securities are purchased or
Additional Securities are deposited and new Units created and as expenses of the
Fund change. Proceeds received from the disposition, payment or prepayment of
any of the Securities subsequent to a Record Day and prior to the succeeding
Distribution Day which are not used for redemption on the First through Ninth
Multi-Currency Series to purchase substitute Securities, will be held in the
29
<PAGE>
Capital Account to be distributed on the second succeeding Distribution Day. The
first distribution for persons who purchase Units between a Record Day and a
Distribution Day will be made on the second Distribution Day following their
purchase of Units. A Reserve Account may be created by the Trustee by
withdrawing from the Income or Capital Accounts, from time to time, amounts
deemed necessary to establish a reserve for any material amounts that may be
payable out of the Fund (Article III). Funds held by the Trustee in the various
accounts created under the Indenture do not bear interest (Article VIII).
INVESTMENT ACCUMULATION PROGRAM
Monthly Income Distributions of interest and any principal or premium,
received by the Fund will be paid in cash. However, a Holder may elect to have
these distributions reinvested in The Corporate Fund Accumulation Program, Inc.
(the 'Program'). The Program is an open-end management investment company whose
primary investment objective is to obtain a high level of current income through
investment in a diversified portfolio consisting primarily of long-term debt
obligations (denominated in U.S. dollars) of corporations with credit
characteristics comparable to those of securities in this Fund. It should be
noted, however, that interest distributions to foreign Holders from the Program
will be subject to U.S. Federal income taxes, including withholding taxes.
Holders participating in the Program will be taxed on their reinvested
distributions the manner described in Taxes even though distributions are
automatically reinvested in the Program. For more complete information about the
Program, including charges and expenses, return the enclosed form for a
prospectus. Read it carefully before you decide to participate. NOTICE OF
ELECTION TO PARTICIPATE MUST BE RECEIVED BY THE TRUSTEE IN WRITING AT LEAST TEN
DAYS BEFORE THE RECORD DAY FOR THE FIRST DISTRIBUTION TO WHICH THE NOTICE IS TO
APPLY.
PORTFOLIO SUPERVISION
The Fund is a unit investment trust and is not an actively managed fund.
Traditional methods of investment management for a managed fund (such as a
mutual fund) typically involve frequent changes in a portfolio of securities on
the basis of economic, financial and market analyses. The Portfolio of the Fund,
however, will not be actively managed and therefore the adverse financial
condition of an issuer will not necessarily require the sale of its securities
from the Portfolio. Defined Asset Funds investment professionals are dedicated
exclusively to selecting and then monitoring securities held by the various
Defined Funds. On an ongoing basis, experienced financial analysts regularly
review the Portfolios and may direct the disposition of Securities under any of
the following circumstances: (i) a default in payment of amounts due on any
Security, (ii) institution of certain legal proceedings, (iii) existence of any
other legal questions or impediments affecting a Security or the payment of
amounts due on the Security, (iv) default under certain documents adversely
affecting debt service or default in payment of amounts due on other securities
of the same issuer or guarantor, (v) decline in price of the Security or the
occurrence of other market or credit factors, including advance refunding (i.e.,
the issuance of refunding bonds and the deposit of the proceeds thereof in trust
or escrow to retire the refunded Securities on their respective redemption
dates), that in the opinion of the Sponsors would make the retention of the
Security detrimental to the interests of the Holders, (vi) if a Security is not
consistent with the investment objective of the Fund or (vii) if the Trustee has
a right to sell or redeem a Security pursuant to any applicable guarantee or
other credit support. If a default in the payment of amounts due on any Security
occurs and if the Agent for the Sponsors fails to give instructions to sell or
hold the Security, the Indenture provides that the Trustee, within 30 days of
the failure shall sell the Security (Article III).
The Sponsors are required to instruct the Trustee to reject any offer made
by an issuer of any of the Debt Obligations to issue new Debt Obligations in
exchange or substitution for any Debt Obligations pursuant to a
30
<PAGE>
refunding or refinancing plan, except that the Sponsors may instruct the Trustee
to accept or reject any offer to take any other action with respect thereto as
the Sponsors may deem proper if (a) the issuer is in default with respect to
these Debt Obligations or (b) in the written opinion of the Sponsors the issuer
will probably default with respect to these Debt Obligations in the reasonably
foreseeable future. Any Debt Obligations so received in exchange or substitution
will be held by the Trustee subject to the terms and conditions of the Indenture
to the same extent as Debt Obligations originally deposited thereunder. Within
five days after the elimination of a Debt Obligation from the Portfolio and the
deposit of Debt Obligations in exchange or substitution for underlying Debt
Obligations, the Trustee is required to give notice thereof to each Holder,
identifying the Debt Obligations eliminated and the Debt Obligations substituted
therefor.
The Sponsors are also authorized to direct the Trustee to acquire
replacement obligations ('Replacement Securities') to replace any Failed Debt
Obligations. Replacement Securities that are replacing Failed Debt Obligations
will be deposited into the Trust Fund within 110 days of the date of deposit of
the contracts that have failed at a purchase price that does not exceed the
amount of funds reserved for the purchase of the Failed Debt Obligations and
that results in a yield to maturity and in a current return, in each case as of
that date of deposit, that are equivalent (taking into consideration then
current market conditions and the relative creditworthiness of the underlying
obligation) to the yield to maturity and current return of the Failed Debt
Obligations. The Replacement Securities shall be corporate bonds, debentures,
notes or other straight debt obligations, with fixed maturity dates
substantially the same as those of the Failed Debt Obligations, having no
warrants or subscription privileges attached; shall be denominated in the same
currency as the obligations they replace; shall not be when, as and if issued
obligations; shall not be subject to foreign withholding taxes; and shall have
in the opinion of the Sponsors credit characteristics comparable to securities
which have been rated in the category AA or better by Standard & Poor's, Moody's
or Fitch (or by another rating service designated as provided in the Indenture).
The Indenture also requires that the purchase of the Replacement Securities
will not (i) result in more than 25% of the Fund consisting of securities of a
single issuer (or of two or more issuers which are Affiliated Persons as this
term is defined in the Investment Company Act of 1940) which are not registered
and are not being registered under the Securities Act of 1933 or (ii) result in
the Fund owning more than 50% of any single issue which has been registered
under the Securities Act of 1933 (Article III). The Replacement Securities must
have been issued after July 18, 1984 if interest thereon is United States source
income. The Replacement Securities shall be selected by the Sponsors from a list
of Securities maintained by them and updated from time to time.
Whenever a Replacement Security has been acquired for the Fund, the Trustee
shall, on the next monthly distribution date that is more than 30 days
thereafter, make a pro rata distribution of the amount, if any, by which the
cost to the Fund of the Failed Debt Obligation exceeded the cost of the
Replacement Security plus accrued interest. If Replacement Securities are not
acquired, the Sponsors shall, on or before the next following Distribution Day,
cause to be refunded the attributable sales charge, plus the attributable Cost
of Securities to Fund listed under Portfolio in Part A, plus undistributed
income attributable to the failed Security.
In certain Series the Indenture also authorizes the Sponsors to increase
the size and number of Units of the Fund by the deposit of Additional
Securities, contracts to purchase Additional Securities or cash or a letter of
credit with instructions to purchase Additional Securities in exchange for the
corresponding number of additional Units. Deposits of Additional Securities
subsequent to the 90-day period following the Initial Date of Deposit must
replicate exactly the original proportionate relationship among the face amounts
of Securities comprising the Portfolio at the end of the 90-day period
subsequent to the Initial Date of Deposit.
31
<PAGE>
With respect to deposits of Additional Securities (or cash or a letter of
credit with instructions to purchase Additional Securities), in connection with
creating additional Units of the Fund during the 90-day period following the
Initial Date of Deposit, the Sponsors may specify minimum face amounts in which
Additional Securities will be deposited or purchased. If a deposit is not
sufficient to acquire minimum amounts of each Security, Additional Securities
may be acquired in the order of the Security most underrepresented immediately
before the deposit when compared to the original proportionate relationship
among the face amounts of each Security established on the Initial Date of
Deposit. If Securities of an issue originally deposited are unavailable at the
time of subsequent deposit or cannot be purchased at reasonable prices or their
purchase is prohibited or restricted by law, regulation or policies applicable
to the Fund or any of the Sponsors, the Sponsors may (1) deposit cash or a
letter of credit with instructions to purchase the Security when it becomes
available (provided that it becomes available within 110 days after the Initial
Date of Deposit) or (2) deposit (or instruct the Trustee to purchase) either
Securities of one or more other issues originally deposited or which (3) deposit
(or instruct the Trustee to purchase) a Replacement Security which will meet the
conditions described above. Any funds held to acquire Additional or Replacement
Securities which have not been used to purchase Securities at the end of the
90-day period beginning with the Initial Date of Deposit, shall be used to
purchase Securities as described above or shall be distributed to Holders
together with the attributable sales charge.
REPORTS TO HOLDERS
The Trustee furnishes Holders with each distribution a statement of the
amounts of interest and other receipts, if any, which are being distributed,
expressed in each case as a U.S. dollar amount per Unit. After the end of each
calendar year, the Trustee furnishes to each person who at any time during the
calendar year was a Holder of record, a statement (i) summarizing transactions
for that calendar year in the Income, Capital and Reserve Accounts, (ii)
identifying Securities sold and purchased during the year and listing Securities
held and the number of Units outstanding at the end of that calendar year, (iii)
stating the Redemption Price per Unit based upon the computation thereof made at
the end of that calendar year and (iv) specifying the amounts distributed during
that calendar year from the Income and Capital Accounts (Article III). The
accounts of the Fund shall be audited at least annually by independent certified
public accountants designated by the Sponsors and the report of the accountants
shall be furnished by the Trustee to Holders upon request (Article VIII).
In order to enable them to comply with Federal and state tax reporting
requirements, Holders will be furnished upon request to the Trustee with
evaluations of Securities furnished to it by the Evaluator (Article IV).
CERTIFICATES
Each purchaser is entitled to receive, on request, without charge (except
perhaps a small mailing charge) a registered Certificate for his Units. These
Certificates are transferable or interchangeable upon presentation at the office
of the Trustee, with a payment of $2.00 if required by the Trustee (or other
amounts specified by the Trustee and approved by the Sponsors) for each new
Certificate and any sums payable for taxes or other governmental charges imposed
upon the transaction and compliance with the formalities necessary to redeem
Certificates (see Redemption). Mutilated, destroyed, stolen or lost Certificates
will be replaced upon delivery of satisfactory indemnity and payment of expenses
incurred (Article VI).
32
<PAGE>
AMENDMENT AND TERMINATION
The Sponsors and the Trustee may amend the Indenture, without the consent
of the Holders, (a) to cure any ambiguity or to correct or supplement any
provision thereof which may be defective or inconsistent, (b) to change any
provision thereof as may be required by the SEC or any successor governmental
agency or (c) to make any other provisions which do not adversely affect the
interest of the Holders (as determined in good faith by the Sponsors). The
Indenture may not be amended to increase the number of Units issuable thereunder
or to permit, except in accordance with the provisions of the Indenture, the
acquisition of any Securities other than those initially deposited in the Fund.
The Indenture may also be amended in any respect by the Sponsors and the
Trustee, or any of the provisions thereof may be waived, with the consent of the
Holders of 51% of the Units, provided that none of these amendments or waivers
will reduce the interest in the Fund of any Holder without the consent of that
Holder or reduce the percentage of Units required to consent to any of these
amendments or waivers without the consent of all Holders (Article VI).
The Indenture will terminate upon the earlier of the maturity, sale,
redemption or other disposition of the last Security held thereunder or the
mandatory termination date. The Indenture may be terminated by the Sponsors if
the value of the Fund is less than the minimum value set forth under Investment
Summary in Part A, and may be terminated at any time by written instrument
executed by the Sponsors and consented to by Holders of 51% of the Units
(Articles VIII and IX). The Trustee will deliver written notice of any
termination to each Holder within a reasonable period of time prior to the
termination, specifying the times at which the Holders may surrender their
Certificates for cancellation. Within a reasonable period of time after the
termination, the Trustee must sell all of the Securities and distribute to each
Holder, upon surrender for cancellation of his Certificates and after deductions
for accrued but unpaid fees, taxes and governmental and other charges, that
Holder's interest in the Income and Capital Accounts (Article IX). This
distribution will normally be made by mailing a check in the amount of each
Holder's interest in these accounts to the address of that Holder appearing on
the record books of the Trustee.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
TRUSTEE
The Trustee or any successor may resign upon notice to the Sponsors. The
Trustee may be removed upon the direction of the Holders of 51% of the Units at
any time or by the Sponsors without the consent of any of the Holders if the
Trustee becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities or if the Sponsors determine in good faith that the
replacement of the Trustee is in the best interest of the Holders. The
resignation or removal shall become effective upon the acceptance of appointment
by the successor which may, in the case of a resigning or removal Co-Trustee, be
one or more of the remaining Co-Trustees. In case of resignation or removal the
Sponsors are to use their best efforts to appoint a successor promptly and if
upon resignation of the Trustee no successor has accepted appointment within
thirty days after notification, the Trustee may apply to a court of competent
jurisdiction for the appointment of a successor (Article VIII). The Trustee
shall be under no liability for any action taken in good faith in reliance on
prima facie properly executed documents or for the disposition of monies or
Securities under the Indenture. This provision, however, shall not protect the
Trustee in cases of wilful misfeasance, bad faith, negligence or reckless
disregard of its obligations and duties. In the event of the failure of the
Sponsors to act, the Trustee may act under the Indenture and shall not be liable
for any of these actions taken in good faith. The Trustee shall not be
personally
33
<PAGE>
liable for any taxes or other governmental charges imposed upon or in respect of
the Securities or upon the interest thereon. In addition, the Indenture contains
other customary provisions limiting the liability of the Trustee (Articles VIII
and IX).
EVALUATOR
The Evaluator may resign or may be removed, effective upon the acceptance
of appointment by its successor, by the Sponsors, who are to use their best
efforts to appoint a successor promptly. If upon resignation of the Evaluator no
successor has accepted appointment within thirty days after notification, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor (Article IV). Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information available to
it; provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsors or the Holders for errors in judgment. This provision,
however, shall not protect the Evaluator in cases of wilful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
(Article IV). The Trustee, the Sponsors and the Holders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof.
SPONSORS
Any Sponsor may resign if one remaining Sponsor maintains a net worth of
$2,000,000 and is agreeable to the resignation (Article VII). A new Sponsor may
be appointed by the remaining Sponsors and the Trustee to assume the duties of
the resigning Sponsor. If there is only one Sponsor and it shall fail to perform
its duties or becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, then the Trustee may (a) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and as
may not exceed amounts prescribed by the SEC, or (b) terminate the Indenture and
liquidate the Fund or (c) continue to act as Trustee without terminating the
Indenture (Article VIII). Merrill Lynch has been appointed by the other Sponsors
as agent for purposes of taking action under the Indenture (Article VII). If the
Sponsors are unable to agree with respect to action to be taken jointly by them
under the Indenture and they cannot agree as to which Sponsor shall continue to
act as sole Sponsor, then Merrill Lynch shall continue to act as sole Sponsor.
If one of the Sponsors fails to perform its duties or becomes incapable of
acting or becomes bankrupt or its affairs are taken over by public authorities,
then that Sponsor is automatically discharged and the other Sponsors shall act
as sole Sponsors (Article VII). The Sponsors shall be under no liability to the
Fund or to the Holders for taking any action or for refraining from taking any
action in good faith or for errors in judgment and shall not be liable or
responsible in any way for depreciation or loss incurred by reason of the sale
of any Security. This provision, however, shall not protect the Sponsors in
cases of wilful misfeasance, bad faith, gross negligence or reckless disregard
of their obligations and duties. The Sponsors and their successors are jointly
and severally liable under the Indenture. A Sponsor may transfer all or
substantially all of its assets to a corporation or partnership which carries on
its business and duly assumes all of its obligations under the Indenture and in
that event it shall be relieved of all further liability under the Indenture
(Article VII).
34
<PAGE>
MISCELLANEOUS
TRUSTEE
The Trustee of the Fund is named on the back cover of Part A and is one of
the following: (i) (acting as Co-Trustees) Investors Bank & Trust Company, a
Massachusetts trust company with its unit investment trust servicing group at
One Lincoln Plaza, P.O. Box 1537, Boston, Massachusetts 02205-1537 (subject to
supervision by the Massachusetts Commissioner of Banks, the Federal Deposit
Insurance Corporation ('FDIC') and the Board of Governors of the Federal Reserve
System ('Federal Reserve') and the First National Bank of Chicago, a national
banking association with its corporate trust office at One First National Plaza,
Suite 0126, Chicago, Illinois 60670-0126, (subject to supervision by the
Comptroller of the Currency, the FDIC and the Federal Reserve or (ii) The Chase
Manhattan Bank N.A., a banking corporation with its Unit Trust Department at 1
Chase Manhattan Plaza--3B, New York, New York 10081 (subject to supervision by
the Comptroller of the Currency, the FDIC and the Federal Reserve).
LEGAL OPINION
The legality of the Units originally offered has been passed upon by Davis
Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as special
counsel for the Sponsors. Bingham, Dana & Gould, 150 Federal Street, Boston,
Massachusetts 02110, act as counsel for The First National Bank of Chicago and
Investors Bank & Trust Company, as Co-Trustees.
AUDITORS
The financial statements of the Fund included in Part A have been examined
by Deloitte & Touche, independent accountants, as stated in their opinion
appearing therein and have been so included in reliance upon that opinion given
on the authority of that firm as experts in accounting and auditing.
SPONSORS
The Sponsors of this Fund are listed on the cover of Part A. Each Sponsor
is a Delaware corporation and is engaged in the underwriting, securities and
commodities brokerage business, and is a member of the New York Stock Exchange,
Inc., other major securities exchanges and commodity exchanges and the National
Association of Securities Dealers, Inc. Merrill Lynch, Pierce, Fenner and Smith
Incorporated and Merrill Lynch Asset Management, a Delaware corporation, each of
which is a subsidiary of Merrill Lynch & Co., Inc., are engaged in the
investment advisory business. Smith Barney Shearson Inc., an investment banking
and securities broker-dealer firm, is an indirect wholly-owned subsidiary of The
Travelers Inc. Prudential Securities Incorporated, a wholly-owned subsidiary of
Prudential Securities Group Inc. and an indirect wholly-owned subsidiary of the
Prudential Insurance Company of America, is engaged in the investment advisory
business. Prudential Securities Incorporated, a wholly-owned subsidiary of
Prudential Securities Group Inc. and an indirect wholly-owned subsidiary of the
Prudential Insurance Company of America, is engaged in the investment advisory
business. Dean Witter Reynolds Inc., a principal operating subsidiary of Dean
Witter, Discover & Co., is engaged in the investment advisory business.
PaineWebber Incorporated is engaged in the investment advisory business and is a
wholly-owned subsidiary of PaineWebber Group Inc. Each Sponsor 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
35
<PAGE>
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.
Each Sponsor (or a predecessor) has acted as Sponsor of various series of
unit investment trusts now known as Defined Asset Funds. A subsidiary of Merrill
Lynch, Pierce, Fenner & Smith Incorporated succeeded in 1970 to the business of
Goodbody & Co., which had been a co-Sponsor of Defined Asset Funds since 1964.
That subsidiary resigned as Sponsor of each of the Goodbody series in 1971.
Merrill Lynch, Pierce, Fenner & Smith Incorporated has been co-Sponsor and the
Agent for the Sponsors of each series of Defined Asset Funds created since 1971.
Shearson Lehman Brothers Inc. ('Shearson') and certain of its predecessor were
underwriters beginning in 1962 and co-Sponsors from 1965 to 1967 and from 1980
to 1993 of various Defined Asset Funds. As a result of the acquisition of
certain of Shearson's assets by Smith Barney, Harris Upham & Co. Incorporated
and Primerica Corporation (now The Travelers Inc.), Smith Barney Shearson Inc.
now serves as co-Sponsor of various Defined Asset Funds. Prudential Securities
Incorporated and its predecessors have been underwriters of Defined Asset Funds
since 1961 and co-Sponsors since 1964, in which year its predecessor became
successor co-Sponsor to the original Sponsor. Dean Witter Reynolds Inc. and its
predecessors have been underwriters of various Defined Asset Funds since 1964
and co-Sponsors since 1974. PaineWebber Incorporated and its predecessor have
co-Sponsored certain Defined Asset Funds since 1983.
The Sponsors have maintained secondary markets in Defined Asset Funds for
over 20 years. For decades informed investors have purchased unit investment
trusts for dependability and professional selection of investments. Defined
Asset Funds offers an array of investment choices, suited to fit a wide variety
of personal financial goals--a buy and hold strategy for capital accumulation,
such as for children's education or a nest egg for retirement, or attractive,
regular current income consistent with relative protection of capital. There are
Defined Funds to meet the needs of just about any investor. Unit invesment
trusts are particularly suited for the many investors who prefer to seek
long-term profits by purchasing sound investments and holding them, rather than
through active trading. Few individuals have the knowledge, resources, capital
or time 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 offered by
Defined Funds. Sometimes it takes a combination of Defined Funds to to meet an
investor's objectives.
One of the most important investment decisions an investor faces may be how
to allocate his 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.
The following chart shows the average annual compounded rate of return of
selected asset classes over the 10-year and 20-year periods ending December 31,
1993, compared to the rate of inflation over the same periods. Of course, this
chart represents past performance of these investment categories and is no
guarantee of future results either of these categories or of any Defined Fund.
Defined Funds also have sales charges and expenses, which are not reflected in
the chart.
36
<PAGE>
Stocks (S&P 500)
20 yr 12.76%
10 yr 14.94%
Small-company stocks
20 yr 18.82%
10 yr 9.96%
Long-term corporate bonds
20 yr 10.16%
10 yr 14.00%
U.S. Treasury bills (short-term)
20 yr 7.49%
10 yr 6.35%
Consumer Price Index
20 yr 5.92%
10 yr 3.73%
0 2 4 6 8 10
12 14 16 18 20%
Source: Ibbotson Associates (Chicago).
Used with permission. All rights reserved.
Instead of having to select individual securities on their own, purchasers
of Defined Funds benefit from the expertise of Defined Asset Funds' experienced
buyers and research analysts. In addition, they gain the advantage of
diversification by investing in Units of a Defined Fund holding securities of
several different issuers. Such diversification can reduce risk, but does not
eliminate it. While the portfolio of a managed fund, such as a mutual fund,
continually changes, defined bond funds offer a defined portfolio and a schedule
of income distributions identified in the prospectus. Investors know, generally,
when they buy, the issuers, maturities, call dates and ratings of the securities
in the portfolio. Of course, the portfolio may change somewhat over time as
additional securities are deposited, as securities mature or are called or
redeemed or as they are sold to meet redemptions and in certain other limited
circumstances. Investors buy bonds for dependability--they know what they can
expect to earn and that principle is distributed as the bonds mature. Investors
also know at the time of purchase their estimated income and current and
long-term returns, subject to credit and market risks and to changes in the
portfolio or the fund's expenses.
Defined Asset Funds offers a variety of fund types. The tax exemption of
municipal securities, which makes them attractive to high-bracket taxpayers, is
offered by Defined Municipal Investment Trust Funds. Municipal Defined Funds
offer a simple and convenient way for investors to earn monthly income free from
regular Federal income tax. Defined Municipal Investment Trust Funds have
provided investors with tax-free income for more than 30 years. Defined
Corporate Income Funds, with higher current returns than municipal or government
funds, are suitable for Individual Retirement Accounts and other tax-advantaged
accounts and provide monthly
37
<PAGE>
income. Defined Government Securities Income Funds provide a way to participate
in markets for U.S. government securities while earning an attractive current
return. Defined International Bond Funds, invested in bonds payable in foreign
currencies, offer the potential to profit from changes in currency values and
possibly from interest rates higher than paid on comparable U.S. bonds, but
investors incur a higher risk for these potentially greater returns.
Historically, stocks have offered growth of capital, and thus some protection
against inflation, over the long term. Defined Equity Income Funds offer
participation in the stock market, providing current income as well as the
possibility of capital appreciation. The S&P Index Trusts offer a convenient and
inexpensive way to participate in broad market movements. Concept Series seek to
capitalize on selected anticipated economic, political or business trends.
Utility Stock Series, consisting of stocks of issuers with established
reputations for regular cash dividends, seek to benefit from dividend increases.
Select Ten Portfolios seek total return by investing for one year in the ten
highest yielding stocks on a designated stock index.
DESCRIPTION OF RATINGS (as described by the rating companies themselves.)
STANDARD & POOR'S CORPORATION
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
credit quality of the investments held by the trust. 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 or portfolio asset sales for less than the fund's purchase price will
reduce payment to the unit holder of the interest and principal required to be
paid on the portfolio assets. In addition, the rating is not a recommendation to
purchase, sell, or hold units, inasmuch as the rating does not comment as to
market price of the units or suitability for a particular investor. Funds rated
AAA are composed exclusively of assets that are rated AAA by Standard & Poor's
and/or certain short-term investments.
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
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.
MOODY'S INVESTORS SERVICE
Aaa--Bonds which are rated Aaa are judged to be 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.
38
<PAGE>
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.
FITCH INVESTORS SERVICE, INC.
AAA rated 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 rated bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to possible change
over the term of the issue.
A rated 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.
EXCHANGE OPTION
ELECTION
Holders may elect to exchange any or all of their Units of this Series for
units of one or more of the series of Funds listed in the table below (the
'Exchange Funds'), which normally are sold in the secondary market at prices
which include the sales charge indicated in the table. CERTAIN SERIES OF THE
EXCHANGE FUNDS HAVE LOWER MAXIMUM APPLICABLE SALES CHARGES THAN THOSE STATED IN
THE TABLE; ALSO THE RATES OF SALES CHARGES MAY BE CHANGED FROM TIME TO TIME. No
series with a maximum applicable sales charge of less than 3.50% of the public
offering price is eligible for the Exchange Option, with the following
exceptions: (1) Freddie Mac Series may be acquired by exchange during the
initial offering period from any of the Exchange Funds listed in the table and
(2) units of any Select Ten Portfolio, if available, may be acquired during
their initial offering period or thereafter by exchange from any Series; units
of Select Ten Portfolios may be exchanged only for units of other Select Ten
Portfolios, if available. Units of the Exchange Funds may be acquired at prices
which include the reduced sales charge listed in the table, subject, however, to
these important limitations:
First, there must be a secondary market maintained by the Sponsors in
units of the series being exchanged and a primary or secondary market in
units of the series being acquired and there must be units of the
applicable Exchange Fund lawfully available for sale in the state in which
the Holder is resident. There is no legal obligation on the part of the
Sponsors to maintain a market for any units or to maintain the legal
qualification for sale of any of these units in any state or states.
Therefore, there is no assurance that a market for units will in fact exist
or that any units will be lawfully available for sale on any given date at
which a Holder wishes to sell his Units of this Series and thus there is no
assurance that the Exchange Option will be available to any Holder.
Second, when units held for less than five months are exchanged for
units with a higher regular sales charge, the sales charge will be the
greater of (a) the reduced sales charge set forth in the table below or (b)
the difference between the sales charge paid in acquiring the units being
exchanged and the regular sales charge for the quantity of units being
acquired, determined as of the date of the exchange.
39
<PAGE>
Third, exchanges will be effected in whole units only. If the proceeds
from the Units being surrendered are less than the cost of a whole number
of units being acquired, the exchanging Holder will be permitted to add
cash in an amount to round up to the next highest number of whole units.
Fourth, the Sponsors reserve the right to modify, suspend or terminate
the Exchange Option at any time without further notice to Holders. In the
event the Exchange Option is not available to a Holder at the time he
wishes to exercise it, the Holder will be immediately notified and no
action will be taken with respect to his Units without further instruction
from the Holder.
PROCEDURES
To exercise the Exchange Option, a Holder should notify one of the Sponsors
of his desire to use the proceeds from the sale of his Units of this Series to
purchase units of one or more of the Exchange Funds. If units of the applicable
outstanding series of the Exchange Fund are at that time available for sale, the
Holder may select the series or group of series for which he desires his Units
to be exchanged. Of course, the Holder will be provided with a current
prospectus relating to each series in which he indicates interest. The exchange
transaction will operate in a manner essentially identical to any secondary
market transaction, i.e., Units will be repurchased at a price equal to the
aggregate bid side evaluation per Unit of the Securities in the Portfolio plus
accrued interest. Units of the Exchange Fund generally will be sold to the
Holder at a price equal to the bid side evaluation per unit of the underlying
securities in the portfolio plus accrued interest plus the applicable sales
charge listed in the table below. Units of a series acquired during the initial
public offering period will be sold at a price based on the offering side
evaluation of the underlying securities. Units of Equity Income Fund are sold,
and will be repurchased, at a price normally based on the closing sale prices on
the New York Stock Exchange, Inc. of the underlying securities in the portfolio.
The maximum applicable sales charges for units of the Exchange Funds are also
listed in the table. Excess proceeds not used to acquire whole Exchange Fund
units will be paid to the exchanging Holder.
THE EXCHANGE FUNDS
The income from taxable fixed income securities is normally higher than
that available from tax exempt fixed income securities. Certain of the Exchange
Funds do not provide for periodic payments of interest and are best suited for
purchase by IRA's, Keogh plans, pension funds or other tax-deferred retirement
plans. Consequently, some of the Exchange Funds may be inappropriate investments
for some Holders and therefore may be inappropriate exchanges for Units of this
Series. The table below indicates certain characteristics of each of the
Exchange Funds which a Holder should consider in determining whether each
Exchange Fund would be an appropriate investment vehicle and an appropriate
exchange for Units of this Series.
CONVERSION OPTION
Owners of units of any registered unit investment trust sponsored by others
which was initially offered at a maximum applicable sales charge of at least
3.0% ('Conversion Trust') may elect to apply the cash proceeds of sale or
redemption of those units directly to acquire available units of any Exchange
Fund at the reduced sales charge, subject to the terms and conditions applicable
to the Exchange Option (except that no secondary market is required in
Conversion Trust units). To exercise this option, the owner should notify his
retail broker. He will be given a prospectus of each series in which he
indicates interest of which units are available. The broker must sell or redeem
the units of the Conversion Trust. Any broker other than a Sponsor must certify
to the Sponsors that the purchase of units of the Exchange Fund is being made
pursuant to and is eligible for this conversion option.
40
<PAGE>
The broker will be entitled to two thirds of the applicable reduced sales
charge. The Sponsors reserve the right to modify, suspend or terminate the
conversion option at any time without further notice, including the right to
increase the reduced sales charge applicable to this option (but not in excess
of $5 more per unit than the corresponding fee then charged for the Exchange
Option).
TAX CONSEQUENCES
An exchange of Units pursuant to the Exchange or Conversion Option for
units of a series of another Fund should constitute a 'taxable event' under the
Code, requiring a Holder to recognize a tax gain or loss, subject to the
limitation discussed below. The Internal Revenue Service may seek to disallow a
loss (or a pro rata portion thereof) on an exchange of Units if the units
received by a Holder in connection with such an exchange represent securities
that are not materially different from the securities that his previous units
represented (e.g., both Funds contain securities issued by the same obligor that
have the same material terms.) Holders are urged to consult their own tax
advisers as to the tax consequences to them of exchanging units in particular
cases.
EXAMPLE
Assume that a Holder, who has three units of a fund with a 5.50% sales
charge in the secondary market and a current price (based on bid side evaluation
plus accrued interest) of $1,100 per unit, sells his units and exchanges the
proceeds for units of a series of an Exchange Fund with a current price of $950
per unit and the same sales charge. The proceeds from the Holder's units will
aggregate $3,300. Since only whole units of an Exchange Fund may be purchased,
the Holder would be able to acquire four units in the Exchange Fund for a total
cost of $3,860 ($3,800 for units and $60 for the $15 per unit sales charge) by
adding an extra $560 in cash. Were the Holder to acquire the same number of
units at the same time in the regular secondary market maintained by the
Sponsors, the price would be $4,021.16 ($3,800 for the units and $221.16 for the
5.50% sales charge).
41
<PAGE>
<TABLE>
<CAPTION>
REDUCED
MAXIMUM SALES CHARGE
NAME OF APPLICABLE FOR SECONDARY INVESTMENT
EXCHANGE FUND SALES CHARGE* MARKET** CHARACTERISTICS
- --------------------------------------- --------------- ---------------------- --------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL INVESTMENT TRUST FUND
Monthly Payment, State and 5.50%+ $15 per unit long-term, fixed rate, tax-exempt income
Multistate Series
Intermediate Term Series 4.50%+ $15 per unit intermediate-term, fixed rate, tax-exempt income
Insured Series 5.50%+ $15 per unit long-term, fixed rate, tax-exempt current income,
underlying securities insured by insurance
companies
AMT Monthly Payment Series 5.50%+ $15 per unit long-term, fixed rate, income exempt from regular
federal income tax but partially subject to AMT
EQUITY INCOME FUND
Utility Common Stock Series 4.50% $15 per 1,000 units++ dividends, taxable income, underlying securities
are common stocks of public utilities
Select Ten Portfolios 2.75% $17.50 per 1,000 units 10 highest dividend yielding stocks in a specified
(both domestic and international) securities index; as of date of creation of fund
seeks higher total return than that index;
terminates after one year
Concept Series 4.00% $15 per 100 units underlying securities constitute a professionally
selected portfolio of common stocks consistent
with an investment idea or concept
MUNICIPAL INCOME FUND
Insured Discount Series 5.50%+ $15 per unit long-term, fixed rate, tax-exempt current income,
taxable capital gains
CORPORATE INCOME FUND
Monthly Payment Series 5.50% $15 per unit long-term, fixed rate, taxable income
Intermediate Term Series 4.75% $15 per unit intermediate-term, fixed rate, taxable income
Cash or Accretion Bond Series and 3.50% $15 per 1,000 units intermediate-term, fixed rate, underlying
SELECT Series securities composed of compound interest
obligations principally secured by collateral
backed by the full faith and credit of the United
States, taxable return, appropriate for IRA's or
tax-deferred retirement plans
Insured Series 5.50% $15 per unit Long-term, fixed rate, taxable income, underlying
securities are insured
INTERNATIONAL BOND FUND
Multi-Currency Series 3.75% $15 per unit intermediate-term, fixed rate, payable in foreign
currencies, taxable income
Canadian Dollar Bonds Series 3.50% $15 per unit short intermediate term, fixed rate, payable in
Canadian dollars, taxable income
</TABLE>
- ---------------
* As described in the prospectuses relating to certain Exchange Funds, this
sales charge for secondary market sales may be reduced on a graduated scale
in the case of quantity purchases.
** The reduced sales charge for units acquired during their initial offering
period is: $20 per unit for Series for which the Reduced Sales Charge for
Secondary Market (above) is $15 per unit; $20 per 100 units for Series for
which the Reduced Sales Charge for Secondary Market is $15 per 100 units;
$20 per 1,000 units for Series for which the Reduced Sales Charge for
Secondary Market is $15 per 1,000 units.
+ Subject to reduction depending on the maturities of the underlying
obligations.
++ The reduced sales charge for the Sixth Utility Common Stock Series of Equity
Income Fund is $15 per 2,000 units and for prior Utility Common Stock Series
is $7.50 per unit.
42
<PAGE>
<TABLE>
<CAPTION>
REDUCED
MAXIMUM SALES CHARGE
NAME OF APPLICABLE FOR SECONDARY INVESTMENT
EXCHANGE FUND SALES CHARGE* MARKET** CHARACTERISTICS
- --------------------------------------- --------------- ---------------------- --------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT SECURITIES INCOME FUND
GNMA Series (other than those 4.25% $15 per unit long-term, fixed rate, taxable income, underlying
below) securities backed by the full faith and credit of
the United States
GNMA Series E or other GNMA Series 4.25% $15 per 1,000 units long-term, fixed rate, taxable income, underlying
having units with an initial face securities backed by the full faith and credit of
value of $1.00 the United States, appropriate for IRA's or
tax-deferred retirement plans
Freddie Mac Series 3.50% $15 per 1,000 units intermediate term, fixed rate, taxable income,
underlying securities are backed by Federal Home
Loan Mortgage Corporation but not by U.S.
Government
</TABLE>
43
<PAGE>
14100--3/94
<PAGE>
DEFINED
ASSET FUNDSSM
SPONSORS: INTERNATIONAL BOND FUND
Merrill Lynch, Canadian Dollar Bonds Series--11
Pierce, Fenner & Smith Inc. (A Unit Investment Trust)
Unit Investment Trusts 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
Two World Trade Center--101st Floor with the Securities and Exchange
New York, N.Y. 10048 Commission, Washington, D.C. under the
1-800-298-UNIT 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 this
199 Water Street Prospectus; and any information or
New York, N.Y. 10292 representation not contained herein must
(212) 776-1000 not be relied upon as having been
Dean Witter Reynolds Inc. authorized. This Prospectus does not
Two World Trade Center--59th Floor constitute an offer to sell, or a
New York, N.Y. 10048 solicitation of an offer to buy,
(212) 392-2222 securities in any state to any person to
EVALUATOR: whom it is not lawful to make such offer
Interactive Data Services, Inc. in such state.
14 Wall Street
New York, N.Y. 10005
INDEPENDENT ACCOUNTANTS:
Deloitte & Touche LLP
1633 Broadway
3rd Floor
New York, N.Y. 10019
TRUSTEE:
The Chase Manhattan Bank, N.A.
Unit Trust Department
Box 2051
New York, N.Y. 10081
1-800-323-1508
13831--9/94
