DEFINED
ASSET FUNDSSM
EQUITY INCOME
FUND
------------------------------------------------------------
Income Growth FundSM
(1993 Series)
A Unit Investment Trust
(HQS)
/ / Monthly Income
/ / Professional Selection
/ / Diversification
/ / Reinvestment Option
PROSPECTUS DATED
MAY 19, 1995
SPONSORS:
Merrill Lynch,
Pierce, Fenner & Smith Incorporated
Smith Barney Inc.
PaineWebber Incorporated
Prudential Securities Incorporated
Dean Witter Reynolds Inc.
This Defined Fund is a portfolio of preselected securities formed for the
purpose of providing potential for growth in dividend income as well as monthly
current income by investing for approximately five years from the Initial Date
of Deposit in a fixed portfolio consisting of publicly-traded common stocks
issued by companies in a variety of industries. The common stocks included in
the Portfolio were selected for their dividend yields and their history of (i)
increasing dividends, (ii) growth in earnings per share and (iii) growth in
sales. In the opinion of the Sponsors, as of the Initial Date of Deposit, these
stocks have a strong potential for increasing their dividends. Of course, past
performance should not be considered any assurance of future results, and there
is no assurance that the Fund's objective will be met, because the payment of
dividends depends on several factors, including the financial condition of the
issuers of the common stocks in the Portfolio and declaration of dividends by
those issuers. The value of Units of the Fund will fluctuate with the value of
the Portfolio of underlying Securities. Units of the Fund are particularly
designed for purchase by Individual Retirement Accounts, Keogh plans, pension
funds and other tax deferred retirement plans.
Minimum purchase in individual transactions: 1,000 Units
Minimum purchase for Individual Retirement/Keogh Accounts:
250 Units
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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.
------------------------------------------------------------------------
Read and retain this Prospectus for future reference.
<PAGE>
DEFINED ASSET FUNDSSM is America's oldest and largest family of unit investment
trusts with over $95 billion sponsored since 1971. 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.
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CONTENTS
Investment Summary.......................................... A-3
Fund Structure.............................................. 1
Risk Factors................................................ 1
Description of the Fund..................................... 4
Taxes....................................................... 6
Public Sale of Units........................................ 8
Market for Units............................................ 9
Redemption.................................................. 10
Special Redemption, Liquidation and Investment in New
Fund..................................................... 11
Termination................................................. 13
Expenses and Charges........................................ 13
Administration of the Fund.................................. 14
Resignation, Removal and Limitations on Liability........... 17
Miscellaneous............................................... 18
Description of Ratings...................................... 19
Exchange Option............................................. 20
Accountants' Opinion Relating to the Fund................... D-1
Statement of Condition...................................... D-2
Portfolio................................................... D-6
A-2
<PAGE>
DEFINED ASSET FUNDS--EQUITY INCOME FUND,
INCOME GROWTH FUND (1993 SERIES)
INVESTMENT SUMMARY AS OF FEBRUARY 28, 1995 (THE EVALUATION DATE)
INITIAL NUMBER OF UNITS++ 14,779,130
FRACTIONAL UNDIVIDED INTEREST IN FUND REPRESENTED BY EACH
UNIT 1/14,779,130th
CALCULATION OF PUBLIC OFFERING PRICE PER 1,000 UNITS
Aggregate value of Securities in Fund+ $ 14,246,841
----------------
Divided by 14,779,130 Units...............................$ 963.98
(times 1,000)
Plus sales charge of 1.50% of Public Offering Price
(1.523% of aggregate value of Securities*)**........... 14.68
----------------
Public Offering Price per 1,000 Units 978.66
----------------
----------------
(Plus the amount per 1,000 Units in the Income Account and
Capital Account plus applicable commissions*** (see
Administration of the Fund--Accounts and Distributions))
SPONSORS' REPURCHASE PRICE PER
1,000 UNITS AND REDEMPTION PRICE PER 1,000 UNITS (based on
net asset value of the Fund*)** $ 963.98
(Plus the amount per 1,000 Units in the Income Account and
Capital Account plus applicable commissions*** (see
Administration of the Fund--Accounts and Distributions))
MONTHLY INCOME DISTRIBUTIONS
Distributions of income, if any, will be paid on the 25th
day of each month (each a 'Distribution Day') to
Holders of record on the 10th day of each month
(each a 'Record Day').
CAPITAL DISTRIBUTIONS
No distribution (other than distributions of capital
gains) need be made from Capital Account if balance
is less than $5.00 per 1,000 Units (see Administration
of the Fund--Accounts and Distributions).
SPECIAL REDEMPTION AND LIQUIDATION PERIOD
Beginning on March 3, 1998 until no later than March
27, 1998 ('the Special Redemption and Liquidation
Period').
PROCEDURES FOR SPECIAL REDEMPTION, LIQUIDATION AND
INVESTMENT IN NEW FUND
If a Holder (a 'Rollover Holder') so specifies by
March 2, 1998 or another date as determined by the
Sponsors (the 'Rollover Notification Date'), the
Rollover Holder's Units will be redeemed in kind
and the underlying distributed shares will be sold
by the Distribution Agent during the Special
Redemption and Liquidation Period. The proceeds
will be invested as received in the next Income
Growth Fund (the '1998 Series'), if one is then
being offered (see Special Redemption, Liquidation
and Investment in New Fund).
EVALUATION TIME
4:00 P.M., New York Time
TRUSTEE'S ANNUAL FEE AND EXPENSES+++
$1.83 per 1,000 Units (see Expenses and Charges)
PORTFOLIO SUPERVISION FEE++++
Maximum of $.25 per 1,000 Units (see Expenses and
Charges).
MINIMUM VALUE OF FUND
Trust Indenture may be terminated if value of Fund is
less than 40% of the value of the Securities when
deposited in Portfolio. As of the Evaluation Date
the Value of the Fund was 81% of the value of
Securities on the dates of their deposit.
MANDATORY TERMINATION DATE
March 27, 1998. The final distribution will be made
within a reasonable period of time thereafter (see
Termination).
DEFERRED CHARGE PAYMENT DATE
February 10 (or if that day is not a business day, the
next succeeding business day)
------------------
+ On the Initial Date of Deposit (March 4, 1993) the aggregate value of
Securities in the Fund was $283,818.75. Cost of Securities is set forth
under Portfolio.
++ The Sponsors may create additional Units during the life of the Fund.
+++ Of this amount the Trustee receives annually for its services as
Trustee $0.84 per 1,000 Units (calculated monthly based on the
largest number of Units outstanding at anytime during that month)
subject to reduction as the size of the Fund increases. The Trustee's
Annual Fee and Expenses also includes the Portfolio Supervision Fee
set forth herein.
++++ The Sponsors also may be reimbursed for their costs of bookkeeping
and administrative services to the Fund. Portfolio supervision fees
deducted in excess of portfolio supervision expenses may be used for
this reimbursement. Additional deductions for this purpose are
currently estimated not to exceed an annual rate of $0.10 per 1,000
Units.
* Equal to aggregate value of Securities in Fund plus net balance in the
Capital Account deposited for the purchase of Securities.
** The sales charge consists of (i) an initial sales charge at the rate of
1.50% of the Public Offering Price (1.523% of the net amount invested in
the Securities) payable on the date of the purchase of Units and (ii)
deferred sales charges in the amount of $10.00 per 1,000 Units payable
by the Fund on behalf of the Holders out of net asset value of the Fund
on each Deferred Charge Payment Date through 1997. The maximum aggregate
sales charge for a Holder holding Units over the entire life of the Fund
will equal approximately 5.50% of the Public Offering Price (5.820% of
the net amount invested). If a Holder sells or redeems Units before a
Deferred Charge Payment Date, no future deferred sales charges will be
collected from that Holder; this will have the effect of reducing the
rate of sales charges. (See Public Sale of Units.)
*** The amount of applicable commissions (currently estimated to be
approximately $1.04 per 1,000 Units) is added to Units created during a
primary offering period and when Units are created for the Reinvestment
Plan. Any commissions collected by the Sponsors from Holders in excess
of commissions actually incurred will be distributed to Holders. Costs
other than commissions incurred in connection with the acquisition of
Securities not listed on any national securities exchange will be at
the expense of the Fund (see Risk Factors--General). (See Public Sale
of Units--Public Offering Price; Administration of the
Fund--Reinvestment Plan.)
A-3
<PAGE>
INVESTMENT SUMMARY AS OF THE EVALUATION DATE (CONTINUED)
NUMBER OF ISSUES OF COMMON STOCK............................ 27
PERCENTAGE OF AGGREGATE VALUE OF PORTFOLIO CONCENTRATED* IN
CONSUMER PRODUCT
COMPANIES................................................. 25%
NUMBER OF ISSUERS BY INDUSTRY GROUP:
Service Industry Companies.............................. 3
Consumer Product Companies.............................. 7
Medical Technology Companies............................ 3
Manufacturing Companies................................. 3
Retailing Companies..................................... 3
Financial Insitutions................................... 6
Other................................................... 2
OBJECTIVE OF THE FUND--To provide potential for growth in dividend income,
as well as monthly current income, by investing for approximately five years
from the Initial Date of Deposit in a fixed portfolio of common stocks of
companies selected for their dividend yields and history of (i) increasing
dividends, (ii) growth in earnings per share, and (iii) growth in sales. (See
Description of the Fund--Selection Criteria). The Fund is designed for those who
seek income growth to meet increasing personal expenses or to plan for future
income needs, such as retirement or a college education. Income from the Fund,
when received by Holders, will constitute dividends for Federal income tax
purposes and so may be eligible for the dividends-received deduction for
corporations (see Taxes). The Securities may appreciate or depreciate in value
(or pay or fail to pay dividends) depending on the full range of economic and
market influences affecting corporate profitability, the financial condition of
issuers and the prices of equity securities in general and the Securities in
particular. Therefore, there can be no assurance that the objective of the Fund
will be achieved.
FUND PORTFOLIO--The common stocks included in the Portfolio were selected
for their dividend yields and annual growth rates in dividends, earnings per
share and sales, from among approximately 29,000 common stocks (including
multiple classes of common stock issued by individual issuers) listed on the
Factset database. In the opinion of the Sponsors, these stocks have potential
for continued dividend growth based, in part, on the fact that each issuer
increased its common stock dividend every year for at least the last ten years,
and had increased sales and earnings per share in at least eight of the 10
fiscal years prior to the Initial Date of Deposit. (See Description of the
Fund--Selection Criteria.) Of course, past performance should not be considered
any assurance of future results, and there can be no assurance that the current
level of dividends will be increased or not reduced by the issuers.
MARKET FOR UNITS--Although not obligated to do so, the Sponsors intend to
maintain a market for Units based on the aggregate value of the underlying
Securities (see Market for Units). If a market is not maintained, it is unlikely
that a Holder would be able to dispose of his Units other than through
redemption (see Redemption).
RISK FACTORS--Investment in the Fund should be made with an understanding
that the value of the underlying Portfolio may fluctuate in accordance with
changes in the financial condition of the issuers of the Securities in the
Portfolio, the value of stocks generally, the impact of the Sponsors' buying
(especially during the initial offering period of Units of the Fund) and selling
(during the Special Redemption and Liquidation Period--see below) Securities and
other factors. Common stocks may be susceptible to general stock market
fluctuations and to volatile increases and decreases in value as market
confidence in and perceptions about issuers change. Future distributions of
income on the underlying Securities will depend upon the declaration of
dividends by the issuers of the Securities in the Portfolio, which, in turn,
will be affected by several factors including the financial condition of the
issuers and general economic conditions, and there can be no assurance that the
issuers of Securities will pay dividends or that the current level of dividends
can be maintained or increased (see Risk Factors--General).
The Securities may not be listed on a national securities exchange. Whether
or not the Securities are listed, the principal trading market for the
Securities may be in the over-the-counter market. As a result, the existence of
a liquid trading market for the Securities may depend on whether dealers will
make a market in the Securities. There can be no assurance that a market will be
made for any of the Securities, that any market for the Securities will be
maintained or of the liquidity of the Securities in any markets made. In
addition, the Fund may be restricted under the Investment Company Act of 1940
from selling Securities to any Sponsor. The price at which the Securities may be
sold to meet redemptions and the value of the Fund will be adversely affected if
trading markets for the Securities are limited or absent.
Investors should note that additional Units may be offered to the public
during limited annual offering periods and that the creation of additional
Units may have an effect upon the value of previously existing Units. The
Trustee may purchase Additional Securities for the Fund (when funds are
available from reinvestment of Fund distributions) or the Sponsors may deposit
either Additional Securities, contracts to purchase Additional Securities, or
cash (or a bank letter of credit) with instructions to purchase Additional
Securities (when additional Units are to be offered to the public), in each
instance maintaining, as closely as practicable, the proportionate relationship
among the number of shares of each Security
---------------
* A Fund is considered to be 'concentrated' in a particular category when the
Securities in that category constitute 25% or more of the aggregate value of
the Portfolio (see Risk Factors).
A-4
<PAGE>
Defined
Asset Funds
INVESTOR'S GUIDE
EQUITY DEFINED EQUITY INCOME FUND
INCOME FUND Our defined portfolios of common stocks offer
------------------------------investors a simple and convenient way to
INCOME GROWTH FUNDSM participate in the equity markets. By purchasing
(1993 SERIES) defined equity funds, investors not only avoid the
difficulties of selecting securities by
themselves, but also gain the advantage of
diversification by investing in securities of
several different issuers. Spreading your
investment among different securities and issuers
reduces your risk, but does not eliminate it.
INCOME GROWTH FUND (1993 SERIES)
The Income Growth Fund (1993 Series) is a
convenient way to invest in a professionally
selected portfolio of common stocks diversified
among several different industries and earn
monthly dividend income with a potential for
increased future income.
PROFESSIONAL SELECTION AND QUALITY
The companies in the portfolio were carefully
selected based on their dividend yields and
records of increasing dividends, growth in
earnings per share and growth in sales. Each
security was chosen by professional securities
analysts after thorough research into its
financial performance. You don't have to worry
about selecting the stocks yourself. It's all done
for you.
MONTHLY INCOME
Dividend income is paid to you monthly--not
quarterly like the stocks themselves--so you don't
have to juggle dividend dates to budget your cash
flow or structure your own portfolio.
POTENTIAL FOR INCREASING INCOME
Although past performance is not necessarily
indicative of future results, each stock in the
initial portfolio increased its dividend each year
for the ten calendar years prior to the Initial
Date of Deposit. Increasing dividends would
provide you with increasing monthly income.
DIVERSIFICATION
The number of different companies represented in
the Fund's portfolio gives you the broad base that
may be beyond the resources of many individuals.
The stocks represent a variety of issuers within
several major industry groups.
THIS PAGE MAY NOT BE DISTRIBUTED UNLESS INCLUDED IN A CURRENT PROSPECTUS.
INVESTORS SHOULD REFER TO THE PROSPECTUS FOR FURTHER INFORMATION.
<PAGE>
DEFINED SUPERVISION
The Fund is not actively managed. However, each
stock is reviewed regularly and can be sold to
meet redemptions or in the event of developments
that would make their retention detrimental to
holders.
REDUCED RISK
Buying just one or two of these stocks may subject
you to greater investment risk. With this Fund,
your risk is reduced because your capital is
spread among common stocks from various industry
groups. Because the Portfolio will remain
relatively fixed, there are no management fees.
A LIQUID INVESTMENT
Although not legally required to do so, the
Sponsors have maintained a secondary market for
Defined Asset Funds for over 20 years. You can
cash in your Units at any time. Your price is
based on the market value of the Securities in the
Portfolio at that time. Or, you can exchange your
investment for another Defined Fund at a reduced
sales charge. There is never a fee for cashing in
your investment.
DEFERRED SALES CHARGE
With this Fund you defer payment of part of the
sales charge so that more of your money is
invested. The sales charge structure of the Fund
combines initial and deferred sales charges. When
purchasing units, Holders will be charged an
initial sales charge of 1.50% of the Public
Offering Price (approximately $15.00 per 1,000
Units). The Holder's basis in his Units will be
equal to the cost of his Units, including the
initial sales charge. A portion of the sales
charge is deferred until the termination of the
Fund or the redemption of the Units. The proceeds
received by a Holder upon such event will reflect
deduction of the deferred amount (the 'Deferred
Sales Charge'). The annual statement and the
relevant tax reporting forms received by Holders
will reflect the actual amounts paid to them, net
of the Deferred Sales Charge. Accordingly, Holders
should not increase their basis in their Units by
the Deferred Sales Charge amount.
REINVESTMENT OPTION
You can elect to automatically reinvest your
monthly income or any distributions of principal
payments in additional units of the Fund with no
initial sales charge. Reinvestment allows you to
increase your overall investment in the Fund and
compound income for a greater total return.
RISK FACTORS
The value of the Units may fluctuate with changes
in the financial condition of the issuers of
stocks held, changes in the industry sectors
represented, the value of stocks generally and the
impact of the Fund's purchase and sale of stocks
(especially during the primary offering and the
special redemption and liquidation periods).
Dividends are subject to the financial condition
of and declaration by the issuers. There can be no
assurance that the Fund will achieve its
objective. Although the Portfolio is monitored, it
is not actively managed and, given the investment
philosophy of the Fund, it is unlikely that the
Portfolio will change during the life of the Fund.
THIS PAGE MAY NOT BE DISTRIBUTED UNLESS INCLUDED IN A CURRENT PROSPECTUS.
INVESTORS SHOULD REFER TO THE PROSPECTUS FOR FURTHER INFORMATION.
<PAGE>
INVESTMENT SUMMARY AS OF THE EVALUATION DATE (CONTINUED)
in the Fund. If cash (or a bank letter of credit) is deposited with instructions
to purchase Securities, to the extent the price of a Security increases or
decreases between the time of deposit and the time any Security is purchased,
Units will represent less or more of that Security and more or less of the other
Securities in the Fund. These price fluctuations in connection with the creation
of additional Units will affect the value of every Holder's Units and the income
per Unit received by the Fund. (See Fund Structure; Administration of the
Fund--Portfolio Supervision). In order to minimize these effects, the Fund will
try to purchase Securities as near as possible to the Evaluation Time or at
prices as close as possible to the prices used to evaluate the Fund at the
Evaluation Time. In addition, costs incurred in connection with the acquisition
of Securities not listed on any national securities exchange (due to
differentials between bid and offer prices for the Securities) will be at the
expense of the Fund and will affect the value of every Holder's Units.
Unlike a mutual fund, the Portfolio is not actively managed and the
Sponsors receive no management fee. Therefore, the adverse-financial condition
of an issuer will not necessarily require the sale of Securities from the
Portfolio or mean that the Sponsors will not continue to purchase the Security
in order to create additional Units. Although the Portfolio is regularly
reviewed and evaluated and the Sponsors may instruct the Trustee to sell
Securities under certain limited circumstances (see Administration of the
Fund--Portfolio Supervision) Securities will not be sold by the Fund to take
advantage of market fluctuations or changes in anticipated rates of
appreciation. Investors should note in particular that the Securities were
selected on the basis of the criteria set forth above under Objectives of the
Fund and that this selection may have been made without regard for any buy, sell
or hold recommendation by any of the Sponsors. The Fund may continue to purchase
or hold Securities originally selected through this process even though the
yields on the Securities may have changed. In the event a public tender offer is
made for a Security or a merger or acquisition is announced affecting a
Security, the Agent for the Sponsors may instruct the Trustee to tender or sell
the Security on the open market when, in its opinion, it is in the best interest
of the holders of the Units to do so. If Securities are sold from the Fund, the
proceeds may be reinvested in replacement Securities. (See Administration of the
Fund--Portfolio Supervision).
Investors should also be aware that because Securities are sold to pay the
obligations due on the Deferred Charge Payment Dates, they may realize gains or
losses on those sales due to changes in Securities prices between the date on
which the Units are purchased and the Deferred Charge Payment Dates. In
addition, Units purchased shortly before a Deferred Charge Payment Date would
nevertheless incur the full sales charge for that year.
At any time after the date of this prospectus, new litigation, legislation,
regulation or deregulation may be initiated, proposed or enacted which may have
a material adverse effect on the Fund or impair the ability of the issuers of
the Securities to achieve their business goals (for a fuller discussion, see
Risk Factors--Litigation and Legislation).
DISTRIBUTIONS--Monthly distributions of dividends will be made in cash on
or shortly after the twenty-fifth day of each month to Holders of record on the
tenth day of the month (see Administration of the Fund--Accounts and
Distributions). Alternatively, Holders may elect to have their distributions
representing dividends reinvested in whole or fractional Units of the Fund (see
Administration of the Fund--Reinvestment Plan) without incurring an initial
sales charge. Holders electing to reinvest their dividends will receive
additional Units and therefore will own a greater percentage of the Fund than
Holders who receive their distributions in cash. It is anticipated that cash for
monthly distributions, to a certain extent, will be generated by sales of
Securities received by the Fund under reinvestment plans of the issuers of the
Securities. This may result in an increase in the monthly distributions.
Distributions of any capital gain net income (i.e., the excess of capital
gains over capital losses) recognized by the Fund in any taxable year will be
made shortly before or after the end of each year. In order to meet certain tax
requirements the Fund may make a special distribution of income, including
capital gains, to Holders of record as of a date in December.
It is anticipated that the proceeds of sale or redemption of Securities
other than recognized capital gains will not be distributed but will be
reinvested in Additional Securities. To the extent that the proceeds of sale or
redemption of Securities are distributed, they will be distributed on the next
succeeding Distribution Day (see Administration of the Fund--Accounts and
Distributions). Capital gains and principal distributions also may be invested
in additional Units of the Fund.
TAXATION--The Holder's basis in his Units will be equal to the cost of his
Units, including the initial sales charge. A portion of the sales charge is
deferred until the termination of the Fund or the redemption of the Units. The
proceeds received by a Holder upon such event will reflect deduction of the
deferred amount (the 'Deferred Sales Charge'). The annual statement and the
relevant tax reporting forms received by Holders will reflect the actual amounts
paid to them, net of the Deferred Sales Charge. Accordingly, Holders should not
increase their basis in their Units by the Deferred Sales Charge amount.
Distributions which are taxable as ordinary income to Holders will constitute
dividends for Federal income tax purposes but will be eligible for the
dividends-received deduction available to certain corporations only to the
extent of dividends received by the Fund from domestic corporations (see Taxes).
PUBLIC OFFERING PRICE--The Public Offering Price per 1,000 Units is equal
to the aggregate value of the underlying Securities (the price at which they
could be directly purchased by the public assuming they were available) divided
by the number of Units outstanding times 1,000, plus the initial portion of the
sales charge. Units are offered at the Public Offering Price plus a
proportionate share of the amount in the Income Account and the Capital Account
(described under Administration of the Fund--Accounts and Distribution), to the
extent not allocated to the purchase of
A-5
<PAGE>
INVESTMENT SUMMARY AS OF THE EVALUATION DATE (CONTINUED)
specific Securities, on the date of delivery of the Units to the Purchaser, plus
(in connection with the creation of Units) applicable commissions, computed as
of the Evaluation Time for all sales subsequent to the previous evaluation.
The sales charge consists of an initial portion and a deferred portion, the
total of which may equal a maximum of approximately 5.50% of the Public Offering
Price or 5.820% of the net asset value of the Fund, although these percentages
will vary should Units be purchased at a public offering price other than that
set forth on page A-3. For example, a Holder who acquires Units for $1,050.00
(including an initial sales charge of $15.75) and who holds the Units until the
termination of the Fund will pay a total sales charge of $55.75 or 5.31% of the
acquisition price of those Units. At an acquisition price of $950.00 (including
an initial sales charge of $14.25), the Holder would pay a total sales charge of
$54.25 or 5.71% of the acquisition price. The initial portion of the sales
charge is 1.50% of the Public Offering Price (1.523% of the net amount invested
in the Securities), and the deferred portion of the sales charge is $10.00 per
1,000 Units payable on each Deferred Charge Payment Date through 1997. If a
Holder sells or redeems Units before a Deferred Charge Payment Date, no future
deferred sales charges will be collected from that Holder; this will have the
effect of reducing the rate of sales charge.
The Public Offering Price on the date of this prospectus or on any
subsequent date will vary from the Public Offering Price set forth on page A-3.
(See Public Sale of Units--Public Offering Price.) The minimum purchase is 1,000
Units except that Individual Retirement Accounts may purchase as few as 250
Units.
EXCHANGE OPTION; SPECIAL REDEMPTION, LIQUIDATION AND INVESTMENT IN NEW
FUND--Holders of Units have the right, at a reduced sales charge, to exchange
Units of the Fund for units of other funds sponsored by the Sponsors and listed
under Exchange Option. In addition, subject to any necessary regulatory
approval, Holders of Units of the Fund will have the option of specifying by the
Rollover Notification Date (see page A-3) ('Rollover Holders') to have all of
their Units redeemed in kind and the distributed Securities sold by the
Distribution Agent during the Special Redemption and Liquidation Period. The
proceeds of the redemption will then be invested in units of a new series of
Income Growth Fund (the '1998 Series'), if one is offered, at a reduced sales
charge. Since Rollover Holders will be record holders of Units on February 10,
1998, they will receive any February 25, 1998 Monthly Income Distribution. (See
Redemption; Special Redemption, Liquidation and Investment in New Fund; Exchange
Option.)
REPLACEMENT SECURITIES--The Indenture permits the deposit of Replacement
Securities not previously deposited in the Fund under certain circumstances
described under Administration of the Fund--Portfolio Supervision. Replacement
Securities deposited in the Fund will have, in the opinion of the Sponsors,
characteristics sufficiently similar to the characteristics of the other
Securities in the Fund as to be acceptable for acquisition by the Fund. However,
no assurance can be given that such Replacement Securities will meet all of the
criteria used to select the Securities deposited in the Fund on the Initial Date
of Deposit. The Securities on the current list from which these Securities are
to be selected are:
Banc One Corporation
General Electric Corporation
Heinz (H.J.) Company
UNDERWRITING--None of the Sponsors has participated as sole underwriter,
managing underwriter or member of an underwriting syndicate from which any of
the Securities in the Portfolio were acquired.
UNDERWRITING ACCOUNT
The names and addresses of the Underwriters are:
<TABLE><CAPTION>
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith P.O. Box 9051, Princeton, N.J. 08543-9051
Incorporated
Smith Barney Inc. 388 Greenwich Street, 23rd Floor, New York, N.Y. 10013
PaineWebber Incorporated 1285 Avenue of the Americas, New York, N.Y. 10019
Prudential Securities Incorporated One Seaport Plaza, 199 Water Street, New York, N.Y. 10292
Dean Witter Reynolds Inc. Two World Trade Center--59th Floor, New York,N.Y. 10048
</TABLE>
Each Underwriter's interest in the Underwriting Account will depend upon the
number of Units acquired through the issuance of additional Units.
A-6
<PAGE>
DEFINED ASSET FUNDS--EQUITY INCOME FUND
INCOME GROWTH FUND (1993 SERIES)
FUND STRUCTURE
This Series (the 'Fund') of Equity Income Fund is a 'unit investment trust'
created under New York law by a Trust Indenture (the 'Indenture') among the
Sponsors and the Trustee. Unless otherwise indicated, references to the Trustee
in the Prospectus shall be deemed to refer to The Bank of New York. 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. Except as otherwise
indicated under Portfolio (the 'Portfolio'), the Securities so deposited were
represented by purchase contracts assigned to the Trustee together with an
irrevocable letter or letters of credit issued by a commercial bank or banks in
the amount necessary to complete the purchase thereof.
The Portfolio contains different common stocks issued by companies selected
according to a set of financial criteria (see Description of the Fund--Selection
Criteria). As used herein, the term 'Stocks' or 'Securities' means the common
stocks initially deposited in the Fund on the Initial Date of Deposit and
described under Portfolio and any additional common stocks acquired and held by
the Fund pursuant to the provisions of the Indenture.
With the deposit of the Securities in the Fund on the Initial Date of
Deposit, the Sponsors established a proportionate relationship among the number
of shares of each Stock in the Portfolio. Following the Initial Date of Deposit,
the Sponsors deposited either additional Securities ('Additional Securities'),
contracts to purchase Additional Securities or cash with instructions to
purchase Additional Securities (or a bank letter of credit in lieu of cash), in
order to create new Units in connection with the sale of Units to the public
during the initial offering period and subsequent annual limited offering
periods, or in connection with the creation of Units pursuant to the
Reinvestment Plan, maintaining to the extent practicable the original
proportionate relationship among the number of shares of each Stock in the
Portfolio. However, it may not be practicable to maintain the original
proportionate relationship because of, among other reasons, purchase
requirements, changes in prices, restrictions upon those Securities the Sponsors
may purchase or unavailability of the Securities. In that event, replacement
Securities ('Replacement Securities') may be acquired under specified conditions
(see Administration of the Fund--Portfolio Supervision). Units may be offered
for sale to the public by means of this Prospectus during annual offering
periods that are expected to be limited to a duration of four to six months,
resulting in a potential increase in the number of Units outstanding (see Public
Sale of Units--Public Distribution).
The holders of record ('Holders') of Units will have the right to have
their Units redeemed (see Redemption) at a price computed as set forth under
'Computation of Redemption Price per Unit' ('Redemption Price per Unit') if they
cannot be sold in the over-the-counter market which the Sponsors propose to
maintain (see Market for Units). Redemptions will be made in cash or in
Securities ('in kind') (see Redemption). On the Initial Date of Deposit each
Unit represented the fractional undivided interest in the Securities and net
income of the Fund set forth under Investment Summary.
The Fund may be an appropriate medium for investors who desire to
participate in a portfolio of common stocks with greater diversification than
they might be able to acquire individually.
RISK FACTORS
GENERAL
An investment in Units of the Fund should be made with an understanding of
the risks inherent in an investment in equity securities, including the risk
that the financial condition of the issuers of the Securities may become
impaired or that the general condition of the stock market may worsen (both of
which may contribute directly to a decrease in the value of the Securities and
thus in the value of the Units) or those arising from the fact that holders of
common stocks have the right to receive payments from the issuers of those
stocks that are generally inferior to those of creditors of, or holders of debt
obligations issued by the issuers and that the rights of holders of common
stocks generally rank inferior to the rights of holders of preferred stock.
Common stocks are especially susceptible to general stock market movements and
to volatile increases and decreases in value as market confidence in and
perceptions about the issuers change. These perceptions are based on
unpredictable factors including expectations regarding government economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, and global or regional political, economic or
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banking crises. The value of certain equity securities with higher yields may be
more adversely affected by reason of certain legislative enactment such as a
reduction in the dividends-received deduction than equity securities generally.
In addition, holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of the
entity, have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of, or holders of debt obligations or
preferred stocks issued by the issuer. Holders of common stocks of the type held
by the Portfolio have a right to receive dividends only when and if, and in the
amounts, declared by the issuer's Board of Directors and to participate in
amounts available for distribution by the issuer only after all other claims on
the issuer have been paid or provided for. However, common stocks do not
represent an obligation or liability of the issuer and therefore do not offer
any assurance of income or provide the degree of protection of capital of debt
securities. Indeed, the issuance of debt securities (as compared with common
stocks) will create prior claims for payment of principal, interest (in the case
of debt securities) liquidation preferences, which could adversely affect the
ability and inclination of the issuer to declare or pay dividends on its common
stock or the rights of holders of common stock with respect to assets of the
issuer upon liquidation or bankruptcy. Further, unlike debt securities which
typically have a stated principal amount payable at maturity (whose value,
however, will be subject to market fluctuations prior thereto), common stocks
have neither a fixed principal amount or liquidation preference nor a maturity
or redemption date and have values which are subject to market fluctuations for
as long as the stocks remain outstanding. While it may not be likely that any
Stock's dividends would be omitted, no assurances can, of course, be given since
earnings available for dividends, regardless of the size of the company, are
subject to numerous events which are often beyond the issuer's control. The
value of the Stocks in the Portfolio thus may be expected to fluctuate over the
entire life of the Fund to values higher or lower than those prevailing on the
Initial Date of Deposit (see Administration of the Fund--Amendment and
Termination).
The Securities may not be listed on a national securities exchange. Whether
or not the Securities are listed, the principal trading market for the
Securities may be in the over-the-counter market. As a result, the existence of
a liquid trading market for the Securities may depend on whether dealers will
make a market in the Securities. There can be no assurance that a market will be
made for any of the Securities, that any market for the Securities will be
maintained or of the liquidity of the Securities in any markets made. In
addition, the Fund may be restricted under the Investment Company Act of 1940
from selling Securities to any Sponsor. The price at which the Securities may be
sold to meet redemptions and the value of the Fund will be adversely affected if
trading markets for the Securities are limited or absent.
Investors should note that additional Units may be offered to the public
during limited annual offering periods subsequent to the Initial Date of Deposit
and that the creation of additional Units may have an effect upon the value of
previously existing Units. The Trustee may purchase additional Securities
('Additional Securities') for the Fund (where funds are available from
reinvestment of Fund distributions) or the Sponsors may deposit either
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 (where additional Units are to be offered to the public),
in each instance maintaining, as closely as practicable, the original
proportionate relationship, subject to adjustment under certain circumstances,
among the number of shares of each Security in the Fund. If cash (or a bank
letter of credit in lieu of cash) is deposited with instructions to purchase
Securities to the extent the price of a Security increases or decreases between
the time of deposit and the time any Security is purchased, Units will represent
less or more of that Security and more or less of the other Securities in the
Fund. These price fluctuations in connection with the creation of additional
Units will affect the value of every Holder's Units and the income per Unit
received by the Fund. In order to minimize these effects, the Fund will try to
purchase Securities as near as possible to the Evaluation Time or at prices as
close as possible to the prices used to evaluate the Fund at the Evaluation
Time. (See Fund Structure; Administration of the Fund--Portfolio Supervision).
In addition, costs incurred in connection with the acquisition of Securities not
listed on any national securities exchange (due to differentials between bid and
offer prices for the Securities) will be at the expense of the Fund and will
affect the value of every Holder's Units.
Although the Portfolio is not actively managed, the Sponsors may instruct
the Trustee to sell Securities under certain limited circumstances and to
reinvest the proceeds in Replacement Securities (See Fund Structure;
Administration of the Fund--Portfolio Supervision). Securities, however, will
not be sold by the Fund to take advantage of market fluctuations or changes in
anticipated rates of appreciation. Investors should note in particular that the
Securities purchased on the Initial Date of Deposit were selected on the basis
of the criteria set forth under Description of the Fund--Selection Criteria.
However, no assurance can be given that such Replacement Securities will meet
all of those criteria. The Fund may continue to purchase or hold Securities
originally selected through this process even though the evaluation of the
attractiveness of the Securities may have changed and, if the evaluation were
performed again at that time, the Securities would not be selected for the Fund.
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Investors should also be aware that because Securities are sold to pay the
obligations due on the Deferred Charge Payment Dates, they may realize gains or
losses on those sales due to changes in Securities prices between the date on
which the Units are purchased and the Deferred Charge Payment Dates. In
addition, Units purchased shortly before a Deferred Charge Payment Date would
nevertheless incur the full sales charge for that year.
OTHER RISK FACTORS
The Fund is considered to be concentrated in Stocks of the industries
described below. Percentages of concentrations for this Fund are set out under
Investment Summary. An investment in Units of the Fund should be made with an
understanding of the risks which this investment may entail, certain of which
are described below.
Consumer Products Companies. Investment in securities issued by consumer
products companies should be made with an understanding of the many factors
which may have an adverse impact on the credit quality of the particular company
or industry. These include cyclicality of revenues and earnings, changing
consumer demands, regulatory restrictions, products liability litigation and
other litigation resulting from accidents, extensive competition (including that
of low-cost foreign companies), unfunded pension fund liabilities and employee
and retiree benefit costs and financial deterioration resulting from leveraged
buy-outs, takeovers or acquisitions. In general, expenditures on consumer
products will be affected by the economic health of consumers. The recent
recession, collapse of the savings and loan industry and glut in the real estate
market with its consequent effects on consumer credit and spending may have a
continuing adverse effect on the industry. Other factors of particular relevance
to the profitability of the industry are the effects of increasing environmental
regulation on packaging and on waste disposal, the continuing need to conform
with foreign regulations governing packaging and the environment, the outcome of
trade negotiations and their effect on foreign subsidies and tariffs, foreign
exchange rates, the price of oil and its effect on energy costs, inventory
cutbacks by retailers, transportation and distribution costs, health concerns
relating to the consumption of certain products, the effect of demographics on
consumer demand, the availability and cost of raw materials and the ongoing need
to develop new products and to improve productivity.
Manufacturing Companies. Growth in the manufacturing industry is closely
linked to expansion in the domestic and global economies. The recent global
recession with its consequent effect on industrial growth, employment and
consumer spending in addition to any increase in oil prices or in interest rates
may result in a decrease in demand for the products of companies engaged in
manufacturing industrial and automotive products. Also, since the federal
government and many state, local and foreign governments now have a budget
deficit, financial expenditures by these entities on capital improvements may be
extremely limited. The lack of funds currently allocated by public entities to
capital improvement projects may adversely affect manufacturers engaged in the
production of industrial materials used for capital improvements or for the
upgrade of the infrastructure. Indeed, government contracts with certain issuers
may contain unfavorable provisions, including provisions allowing the government
to terminate these contracts without prior notice, or to audit and redetermine
amounts payable to the issuer pursuant to these contracts or to require the
issuer to pay for cost overruns. Additionally, legislation to limit excess
profits on government contracts is introduced in the United States Congress from
time to time. Cutbacks in defense spending by the federal government will also
adversely impact companies engaged in the aerospace and arms/defense sectors of
the manufacturing industry.
Environmental and safety issues increasingly affect the manufacturing
industry. Issuers may experience decreases in profitability as legislative
mandates impose costs associated with compliance with environmental regulations
and manufacturing more environmentally sound and safer equipment. Furthermore,
the cost of product liability insurance and the inability of some manufacturing
companies to obtain this insurance may have an adverse impact on the industry.
Financial Accounting Standard Board regulations with regard to accounting for,
among other things, post retirement benefits may lead to changes in accounting
which could have significant negative effects on reported earnings and reported
long term liabilities and book value of some manufacturing companies. The recent
real estate market glut and the consequent lack of demand for new home and
office construction may have a continuing effect on the demand for certain tools
and industrial machinery products. Inflation, slow growth in personal disposable
income, tighter loan qualification standards, higher downpayments, the lower
rate of job creation, increased cost of vehicle ownership and operation and oil
prices will also affect companies engaged in manufacturing, particularly in the
automotive industry. Shortages of skilled labor, particularly in the machine
tools industry, may become a major problem in the future.
The long-term outlook is largely dependent upon the growth and
competitiveness of the U.S. manufacturing base. Increased consolidation and
merger activity increases competitiveness in general but individual companies
may experience severe financial problems due to this increased competitiveness.
Strong competition from foreign nations, particularly Pacific Rim countries
which have lower labor costs, will severely impact the profitability of the U.S.
manufacturing business. The continuing establishment of manufacturing and sales
facilities abroad to take advantage of international marketing operations is
crucial and the success of these foreign operations will be affected by the
strengthening of the
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dollar which could lead to a decrease in demand for U.S. products, the outcome
of trade negotiations which will affect foreign tariffs on U.S. exports abroad
and U.S. taxes on foreign imports to the U.S. and the ability to provide
attractive financing packages to customers in the current tight credit market.
U.S. manufacturers will also experience increased outlays of capital in
their efforts to manufacture products which comply with foreign standards for
certain manufacturing products. Also, since contracts may often be concluded
with entities or governments of unstable foreign nations in, for example,
Eastern Europe, South America or the Middle East, completion of and payment for
certain products and services will be subject to the risks associated with
political instability such as the risk of insurrection, hostilities from the
local population, government policies against businesses owned by non-nationals
and the possibility of expropriation. Certain of these nations may not honor
obligations under contracts when payments are due. Furthermore, it may be more
difficult to enforce a judgment against a foreign contracting party.
LITIGATION AND LEGISLATION
From time to time Congress considers proposals to reduce the rate of the
dividends-received deduction. Enactment into law of a proposal to reduce the
rate would adversely affect the after-tax return to investors who can take
advantage of the deduction. Holders are urged to consult their own tax advisers.
Further, at any, time litigation may be initiated on a variety of grounds, or
legislation may be enacted, with respect to the Securities in the Fund or the
issuers of the Securities. Changing approaches to regulation with respect to
certain industries may have a negative impact on certain companies represented
in the Fund. There can be no assurance that future litigation, legislation,
regulation or deregulation will not have a material adverse effect on the Fund
or will not impair the ability of the issuers of the Securities to achieve their
business goals.
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio contains different common stocks. As used herein the term
'Stocks' or 'Securities' means the common stocks described under Portfolio and
any Additional Securities or Replacement Securities acquired and held by the
Fund pursuant to the provisions of the Indenture (see Administration of the
Fund--Portfolio Supervision). See Investment Summary for a summary of particular
matters relating to the Portfolio.
The Fund consists of such of the Securities listed under Portfolio as may
continue to be held from time to time in the Fund and any Additional Securities,
Replacement Securities, contracts to purchase Securities or cash deposited with
instructions to purchase Securities (or a bank letter of credit in lieu of cash)
acquired and held by the Fund pursuant to the provisions of the Indenture
(including provisions with respect to the sale of additional Units to the
public) together with undistributed income therefrom and undistributed and
uninvested cash realized from the disposition of Securities (see Administration
of the Fund--Portfolio Supervision). Neither the Sponsors nor the Trustee shall
be liable in any way for any default, failure or defect in any of the
Securities. However, should any contract deposited hereunder (or to be deposited
in connection with the sale of additional Units) fail, 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, unless substantially all of the moneys held in the Fund
to cover such purchase are reinvested in Replacement Securities in accordance
with the Indenture (see Administration of the Fund--Portfolio Supervision).
The Indenture authorizes the Sponsors to increase the size and number of
Units of the Fund by the deposit of Additional Securities, Replacement
Securities, contracts to purchase Additional or Replacement Securities or cash
with instructions to purchase Securities (or a bank letter of credit in lieu of
cash), and the issue of a corresponding number of additional Units subsequent to
the Initial Date of Deposit, provided that to the extent practicable the
percentage relationship among the number of shares of each Stock is maintained.
Investors should note that cash deposited with instructions to purchase
Securities (or a bank letter of credit in lieu of cash) will be in amounts
sufficient to maintain to the extent practicable the percentage relationship
among the number of shares of each Security. To the extent the price of a
Security increases or decreases between the time the cash is deposited with
instructions to purchase the Security and the time the cash is used to purchase
the Security, Units will represent less or more of that Security and more or
less of the other Securities in the Fund. Also, Securities may be sold under
certain circumstances (see Redemption: Administration of the Fund--Portfolio
Supervision). Because the proceeds from these sales received by the Fund (less
certain amounts deducted by the Trustee as described under Expenses and Charges)
will be reinvested in Additional Securities, distributed to Holders or paid out
upon redemptions, and because Additional Securities may be deposited, the
aggregate value of the Securities in the Portfolio will vary over time.
Sales charges on Defined Funds range from under 1.0% to 5.5%. This may be
less than you might pay to buy a comparable fund. Defined Asset Funds can be a
cost-effective way to purchase and hold investments. Annual operating
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expenses are generally lower than for managed funds. Because unit investment
trusts are not actively managed and have limited transactions, costs are
generally less than 0.25% per year. Keeping costs low increases earnings. When
compounded annually, small differences in expense ratios can make a big
difference in earnings. See Public Sale of Units-- Public Offering Price.
Because each Defined Fund is a defined portfolio of preselected securities,
purchasers know in advance what they are investing in. Of course, the portfolio
will change somewhat over time as additional securities are deposited, or
redeemed or as they are sold to meet redemptions and in the limited other
circumstances described below. However, since the portfolio will remain
relatively fixed, there are no management fees.
Our defined portfolios of equities offer investors a simple and convenient
way to participate in the equity markets. Our funds seek to benefit from
opportunities often created by economic changes that affect specific areas of
the economy or by increased demand for the companies' products or services. By
purchasing equity income funds, investors not only avoid the problem of
selecting securities by themselves, but also gain the advantage of reduced risk
by investing in securities of several different issuers selected by experienced
buyers and market analysts.
Each portfolio is divided into units, representing equal shares of
underlying assets. On the Evaluation Date each Unit represented a fractional
undivided interest in the Securities plus net income of the Fund. Thereafter, if
any Units are redeemed by the Trustee, the aggregate value of Securities in the
Fund will be reduced by amounts allocable to redeemed Units, and the fractional
undivided interest represented by each Unit in the balance will be increased.
However, if additional Units are issued by the Fund, the aggregate value of
Securities in the Fund will be increased by amounts allocable to additional
Units and the fractional undivided interest represented by each Unit in the
balance will be decreased. Units will remain outstanding until redeemed upon
tender to the Trustee by any Holder (which may include the Sponsors) or until
the termination of the Indenture. (See Redemption; Administration of the
Fund--Amendment and Termination.)
INCOME AND DISTRIBUTIONS
The net annual income per Unit that is earned by the Fund is determined by
subtracting from the annual dividend income of the Securities in the Portfolio
the annual expenses (total estimated annual Trustee's, Sponsors' and
administrative fees and expenses and certain other regular and recurring
expenses) and dividing by the number of Units outstanding. The net annual income
per Unit will depend upon the amount of dividends declared and paid by the
issuers of the Securities, sales and replacement of Securities and the purchase
of additional Securities (recognizing, however, that the sale or purchase of
Securities by itself should have a minimal effect on income per Unit because, as
much as practicable, each Unit will continue to represent a fractional undivided
interest in the same percentages of Securities of the same issuers) and changes
in the expenses of the Fund.
There is no assurance that any dividends will be declared or paid in the
future on the Stocks in the Fund.
Record Days and Distribution Days are set forth under Investment Summary.
An amount substantially equal to one-twelfth of the estimated annual income to
the Income Account, after deducting estimated expenses, will be distributed on
or shortly after each Distribution Day to the Holders of record on the preceding
Record Day (see Administration of the Fund--Accounts and Distributions). This
avoids the need to structure a portfolio to stagger dividend dates to provide
regular cash flow. In the case of distributions from the Capital Account, the
distributable balance in the Capital Account as of the Record Day must be at
least the minimum amount set forth under Investment Summary except for
distributions of capital gains (see Administration of the Fund--Accounts and
Distributions). Normally, dividends on the Securities in the Fund are paid on a
quarterly basis which may or may not coincide with a Record Day.
Capital gain net income (i.e., the excess of capital gains over capital
losses) recognized by the Fund in any taxable year will be distributed annually
to Holders shortly after the end of the year. In order to meet certain tax
requirements the record date for this distribution may be in December.
SELECTION CRITERIA
In selecting Stocks for deposit into the Fund, the Sponsors through their
agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated ('Merrill Lynch')
screened approximately 29,000 common stocks (including multiple classes of
common stock issued by individual issuers) covered by Factset Data Systems, a
database that specializes in providing financial data to the investment
community. Factset is a privately held company incorporated in Delaware in 1978
with headquarters in Greenwich, Connecticut. These criteria were designed to
identify companies that the Sponsors consider to have a strong potential for
increasing their dividends over the life of the Fund.
The Stocks deposited in the Fund on the Initial Date of Deposit were
selected through a multi-step screening process. First, Merrill Lynch as agent
for the Sponsors ('Agent for the Sponsors'), identified those stocks that met
the following criteria as of five business days prior to the Initial Date of
Deposit: (i) dividend yields equal to or greater than 1.75%;
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(ii) annual growth rates of dividends equal to or greater than 5.00% in each of
the last ten years for which information was available as of the Selection Date;
(iii) positive annual growth rates of earnings per share in eight or more of
those ten years; (iv) positive annual growth rates of sales in eight or more of
those ten years and (v) shareholders equity equal to or greater than
$100,000,000. Second, the stocks were further screened to determine whether they
possessed favorable ratings from the Agent for the Sponsors as well as from
other recognized investment professionals. Third, the Agent for the Sponsors
conducted a fundamental financial analysis of the companies to determine their
underlying creditworthiness. Most of the companies selected have long-term debt
to capital ratios of less than 30%. In the opinion of the Sponsors, this should
result in lower risk than more highly leveraged companies. Finally, the Agent
for the Sponsors reviewed the liquidity of the stocks. In addition, the agent
for the Sponsors verified that the Stocks met the above criteria, other than the
criterion described in (i) above, as of one day prior to the Initial Date of
Deposit (the 'Verification Date'). The companies selected were those having the
most consistent records and believed to have significant potential for future
dividend growth. Because of the considerations discussed under Risk Factors
above, there can be no assurance that subsequent to the Verification Date the
Stocks have continued or will continue to meet all of the criteria described
above. In addition, with respect to Additional or Replacement Securities
deposited in the Fund subsequent to the Initial Date of Deposit, there is no
assurance that exactly the same selection criteria will be used, although the
Agent for the Sponsors will use substantially the same selection criteria as far
as practicable (see Administration of the Fund--Portfolio Supervision).
FUND PERFORMANCE
Information on percentage changes in the dollar value of Units, on the
basis of changes in Unit price plus the amount of dividends and capital gains
distributed or reinvested may be included from time to time in advertisements,
sales literature, reports and other information furnished to current or
prospective Holders. Total return figures are not averaged, and may not reflect
deduction of the sales charge, which would decrease the return. Average
annualized return figures reflect deduction of the maximum sales charge. No
provision is made for any income taxes payable.
Past performance may not be indicative of future results. The Fund is not
actively managed. Unit price and return fluctuate with the value of the common
stocks in the portfolio, so there may be a gain or loss when Units are sold.
Fund performance may be compared to performance on the same basis (with
distributions reinvested) of the Dow Jones Industrial Average, the S&P 500
Composite Price Stock Index, or performance data from publications such as
Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, The New York Times, U.S. News and World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine or Fortune Magazine. As with other
performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.
TAXES
TAXATION OF THE FUND
The Fund intends to qualify for and elect the special tax treatment
applicable to 'regulated investment companies' under Sections 851-855 of the
United States Internal Revenue Code of 1986, as amended (the 'Code').
Qualification and election as a 'regulated investment company' involve no
supervision of investment policy or management by any government agency. If the
Fund qualifies as a 'regulated investment company' and distributes to Holders
90% or more of its taxable income without regard to its net capital gain (net
capital gain is defined as the excess of net long-term capital gain over net
short-term capital loss), it will not be subject to Federal income tax on any
portion of its taxable income (including any net capital gain) distributed to
Holders in a timely manner. In addition, the Fund will not be subject to the 4%
excise tax on certain undistributed income of 'regulated investment companies'
to the extent it distributes to Holders in a timely manner at least 98% of its
taxable income (including any net capital gain). It is anticipated that the Fund
will not be subject to Federal income tax or the excise tax because the
Indenture requires the distribution of the Fund's taxable income (including any
net capital gain) in a timely manner. Although all or a portion of the Fund's
taxable income (including any net capital gain) for a taxable year may be
distributed shortly after the end of the calendar year, such a distribution will
be treated for Federal income tax purposes as having been received by Holders
during the calendar year.
DISTRIBUTIONS
Distributions to Holders of the Fund's dividend income and net short-term
capital gain in any year will be taxable as ordinary income to Holders to the
extent of the Fund's taxable income (without regard to its net capital gain) for
that year. Any excess will be treated as a return of capital and will reduce the
Holder's basis in his Units and, to the extent that such distributions exceed
his basis, will be treated as a gain from the sale of his Units as discussed
below. It is anticipated
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that substantially all of the distributions of the Fund's dividend income and
net short-term capital gain will be taxable as ordinary income to Holders.
Distribution of the Fund's net capital gain (designated as capital gain
dividends by the Fund) will be taxable to Holders as long-term capital gain,
regardless of the length of time the Units have been held by a Holder. A Holder
will recognize a taxable gain or loss if the Holder sells or redeems his Units.
Any gain or loss arising from the sale or redemption of Units will be a capital
gain or loss, except in the case of a dealer in securities. Capital gains are
generally taxed at the same rate as ordinary income. However, the excess of net
long-term capital gains over net short-term capital losses may be taxed at a
lower rate than ordinary income for certain noncorporate taxpayers. A capital
gain or loss is long-term if the asset is held for more than one year and
short-term if held for one year or less. The deduction of capital losses is
subject to limitations.
A distribution of Securities to a Holder upon redemption of his Units will
be a taxable event to such Holder, and that Holder will recognize taxable gain
or loss upon such distribution (equal to the difference between such Holder's
tax basis in his Units and the fair market value of Securities received in
redemption), which will be capital gain or loss except in the case of a dealer
in securities. A Rollover Holder will recognize gains, if any, on the Special
Redemption and Liquidation of the 1993 Series (see Special Redemption,
Liquidation and Investment). However, the Internal Revenue Service may seek to
disallow a loss (or a pro rata portion thereof) if the 1998 Series units are
acquired within 30 days after the Special Redemption and Liquidation of the 1993
Series Units and if the securities underlying the two funds are substantially
the same (i.e., having the same issuers and 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.
Distributions which are taxable as ordinary income to Holders will
constitute dividends for Federal income tax purposes. To the extent that
distributions are appropriately designated by the Fund and are attributable to
dividends received by the Fund from domestic issuers with respect to whose
Securities the Fund satisfies the requirements for the dividends-received
deduction, such distributions will generally be eligible for the
dividends-received deduction for corporations.
The dividends-received deduction generally is 70%. However, Congress from
time to time considers proposals to reduce the rate, and enactment of such a
proposal would adversely affect the after-tax return to investors who can take
advantage of the deduction. Holders are urged to consult their own tax advisers.
Sections 246 and 246A of the Code contain limitations on the eligibility of
dividends for the corporate dividends-received deduction. Depending upon the
corporate Holder's circumstances (including whether it has a 45-day holding
period for its Units and whether its Units are debt financed), these limitations
may be applicable to dividends received by a Holder from the Fund which would
otherwise qualify for the dividends-received deduction under the principles
discussed above. Accordingly, Holders should consult their own tax advisers in
this regard. A corporate Holder should be aware that the receipt of dividend
income for which the dividends-received deduction is available may give rise to
an alternative minimum tax liability (or increase an existing liability) because
the dividend income will be included in the corporation's 'adjusted current
earnings' for purposes of the adjustment to alternative minimum taxable income
required by Section 56(g) of the Code.
The Federal tax status of each year's distributions will be reported to
Holders and to the Internal Revenue Service. The foregoing discussion relates
only to the Federal income tax status of the Fund and to the tax treatment of
distributions by the Fund to U.S. Holders. Holders that are not United States
citizens or residents should be aware that distributions from the Fund will
generally be subject to a withholding tax of 30%, or a lower treaty rate, and
should consult their own tax advisers to determine whether investment in the
Fund is appropriate. Distributions may also be subject to state and local
taxation and Holders should consult their own tax advisers in this regard.
The Holder's basis in his Units will be equal to the cost of his Units,
including the initial sales charge. A portion of the sales charge is deferred
until the termination of the Fund or the redemption of the Units. The proceeds
received by a Holder upon such event will reflect deduction of the deferred
amount (the 'Deferred Sales Charge'). The annual statement and the relevant tax
reporting forms received by Holders will reflect the actual amounts paid to
them, net of the Deferred Sales Charge. Accordingly, Holders should not increase
their basis in their Units by the Deferred Sales Charge amount.
Holders will be taxed in the manner described above regardless of whether
distributions from the Fund are actually received by the Holder or are
reinvested pursuant to the Reinvestment Plan.
RETIREMENT PLANS
This Series of Defined Asset Funds--Equity Income Fund may be well suited
for purchase by Individual Retirement Accounts ('IRAs'), Keogh plans, pension
funds and other qualified retirement plans, certain of which are briefly
described below. Generally, capital gains and income received in each of the
foregoing plans are exempt from Federal taxation. All distributions from such
plans are generally treated as ordinary income but may, in some cases, be
eligible for
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special 5 or 10 year averaging or tax-deferred rollover treatment. Holders of
Units in IRAs, Keogh plans and other tax-deferred retirement plans should
consult their plan custodian as to the appropriate disposition of distributions.
Investors considering participation in any such plan should review specific tax
laws related thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any such plan. Such plans are
offered by brokerage firms, including each of the Sponsors of this Fund, and
other financial institutions. Fees and charges with respect to such plans may
vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units of the Fund may
be purchased by retirement plans established pursuant to the Self-Employed
Individuals Tax Retirement Act of 1962 ('Keogh plans') for self-employed
individuals, partnerships or unincorporated companies. Qualified individuals may
generally make annual tax-deductible contributions up to the lesser of 20% of
annual compensation or $30,000 in a Keogh plan. The assets of the plan must be
held in a qualified trust or other arrangement which meets the requirements of
the Code. Generally, there are penalties for premature distributions from a plan
before attainment of age 59 1/2, except in the case of a participant's death or
disability and certain other related circumstances. Keogh plan participants may
also establish separate IRAs (see below) to which they may contribute up to an
additional $2,000 per year ($2,250 if a spousal account is also established).
Individual Retirement Account--IRA. Any individual (including one covered
by a qualified private or government retirement plan) can establish an IRA or
make use of a qualified IRA arrangement set up by an employer or union for the
purchase of Units of the Fund. Any individual can make a contribution to an IRA
equal to the lesser of $2,000 ($2,250 if a spousal account is also established)
or 100% of earned income; such investment must be made in cash. However, the
deductible amount an individual may contribute will be reduced if the
individual's adjusted gross income exceeds $25,000 (in the case of a single
individual), $40,000 (in the case of married individuals filing a joint return)
or $200 (in the case of a married individual filing a separate return). A
married individual filing a separate return will not be entitled to any
deduction if the individual is covered by an employer-maintained retirement plan
without regard to whether the individual's spouse is an active participant in an
employer retirement plan. Unless nondeductible contributions were made in 1987
or a later year, all distributions from an IRA will be treated as ordinary
income but generally are eligible for tax-deferred rollover treatment. It should
be noted that certain transactions which are prohibited under Section 408 of the
Code will cause all or a portion of the amount in an IRA to be deemed to be
distributed and subject to tax at that time. A participant's entire interest in
an IRA must be, or commence to be, distributed to the participant not later than
the April 1 following the end of the taxable year during which the participant
attains the age of 70 1/2. Taxable distributions made before attainment of age
59 1/2, except in the case of the participant's death or disability, or where
the amount distributed is part of a series of substantially equal periodic (at
least annual) payments that are to be made over the life expectancies of the
participant and his or her beneficiary, are generally subject to a surtax in an
amount equal to 10% of the distribution.
Corporate Pension and Profit-Sharing Plans. An employer who has established
a pension or profit-sharing plan for employees may purchase Units of the Fund
for such a plan.
PUBLIC SALE OF UNITS
PUBLIC OFFERING PRICE
The Public Offering Price of the Units is computed by dividing the
aggregate value of the Securities (as determined by the Trustee), by the number
of Units outstanding, and adding thereto the initial portion of the sales charge
(see Public Sale of Units--Underwriters' and Sponsors' Profits). Units are
offered at the Public Offering Price plus a proportionate share of the amount in
the Income Account and the Capital Account (described under Administration of
the Fund-Accounts and Distribution), to the extent not allocated to the purchase
of specific Securities on the date of delivery of the Units to the Purchaser,
plus (in connection with the creation of Units) applicable commissions computed
as of the Evaluation Time for all sales subsequent to the previous evaluation.
The sales charge consists of an initial portion and a deferred portion, the
total of which may equal a maximum of approximately 5.50% of the Public Offering
Price or 5.820% of the aggregate value of Securities, although these percentages
will vary should Units be purchased at a public offering price other than that
set forth on page A-3. For example, a Holder who acquires Units for $1,050
(including an initial sales charge of $15.75) and who holds the Units until the
termination of the Fund will pay a total sales charge of $55.75 or 5.31% of the
acquisition price on those Units. At an acquisition price of $950 (including an
initial sales charge of $14.25), the Holder would pay a total sales charge of
$54.25 or 5.71% of the acquisition price. The initial portion of the sales
charge is equal to 1.50% of the Public Offering Price (1.523% of the aggregate
value of Securities) and the deferred portion of the sales charge is $10.00 per
1,000 Units payable by the Fund on behalf of the Holders out of net asset value
of the Fund on each Deferred Charge Payment Date through 1997. If a Holder sells
or redeems Units before a Deferred Charge Payment Date, no future deferred sales
charges will be collected from that Holder; this will have the effect of
reducing the rate of sales charge.
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Employees of certain of the Sponsors and their affiliates may purchase
Units of this Fund pursuant to employee benefit plans at a price equal to the
aggregate value of the Securities in the Fund divided by the number of Units
outstanding plus a reduced initial sales charge of not less than $5.00 per 1,000
Units.
The value of the Securities is determined on each business day by the
Trustee based on the last reported closing sale prices at the Evaluation Time on
the day the valuation is made or, if there are no reported sales or if closing
sale prices are not reported or a Security is not listed on a national
securities exchange or if the principal market therefor becomes other than on an
exchange, taking into account the same factors referred to under
Redemption--Computation of Redemption Price per Unit (Section 4.01). The term
'business day', as used herein and under 'Redemption', shall exclude Saturdays,
Sundays and the following holidays as observed by the New York Stock Exchange,
Inc.: New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
PUBLIC DISTRIBUTION
To the extent additional Units are offered for sale to the public during
annual limited offering periods by means of this Prospectus, Units will be
distributed directly to the public by this Prospectus at the Public Offering
Price determined in the manner provided above. It is expected that the initial
offering period and the subsequent annual offering periods will each be of a
four to six month duration.
The Sponsors intend to continue to qualify Units for sale in all states in
the U.S. in which qualification is deemed necessary through the Underwriting
Account and by dealers who are members of the National Association of Securities
Dealers, Inc. The Sponsors do not intend to qualify Units for sale in any
foreign countries and this Prospectus does not constitute an offer to sell Units
in any country where Units cannot lawfully be sold.
UNDERWRITERS' AND SPONSORS' PROFITS
The Underwriters named under Underwriting Account, including the Sponsors,
may receive maximum aggregate sales charges (initial and deferred) per 1,000
Units equal to approximately 5.50% of the Public Offering Price (5.820% of the
net amount invested) (see Public Sale of Units--Public Offering Price). The
initial portion of the sales charge is equal to 1.50% of Public Offering Price
(approximately $15.00 per 1,000) Units payable upon the sale of the Units. The
deferred sales charge will be $10.00 per 1,000 Units payable on each Deferred
Charge Payment Date (set forth under Investment Summary). On each subsequent
deposit of Additional or Replacement Securities (rather than a letter of credit
accompanied by instructions to purchase specified securities) with respect to
the creation of additional Units the Sponsors may realize a profit or loss. This
profit or loss is the difference between the cost of the Securities to the Fund
(which is based on the aggregate value of the Securities on the date of deposit)
and the purchase price of the Securities to the Sponsors. In addition, any
Sponsor or Underwriter may realize profits or sustain losses in respect of
Securities deposited in the Fund which were acquired by the Sponsor or
Underwriter from underwriting syndicates of which the Sponsor or Underwriter was
a member. To the extent additional Units are offered for sale to the public
during the initial offering period and subsequent limited annual offering
periods, the Underwriting Account also may realize profits or sustain losses as
a result of fluctuations in the aggregate value of the Securities and hence in
the Public Offering Price of the Units (see Investment Summary). Cash, if any,
made available by buyers of Units to the Sponsors prior to the settlement date
for purchase of Units may be used in the Sponsors' businesses subject to the
limitations of Rule 15c3-3 under the Securities Exchange Act of 1934 and may be
of benefit to the Sponsors.
The Sponsors also receive an annual fee in the amount set forth under
Investment Summary for portfolio supervision services which they provide during
the life of the Fund (see Expenses and Charges--Fees).
Except as indicated under Portfolio, the Sponsors have not participated as
sole underwriters or managers or members of underwriting syndicates from which
syndicates the Securities in the Portfolio were acquired.
In maintaining a market for the Units (see Market for Units), the Sponsors
will also realize profits or sustain losses in the amount of any difference
between the prices at which they buy Units (based on the aggregate value of the
Securities) and the prices at which they resell these Units (which include the
sales charge) or the prices at which they redeem the Units (based on the
aggregate value of the Securities), as the case may be.
MARKET FOR UNITS
At the present time certain of the Sponsors maintain a secondary market for
units of certain other series of Equity Income Fund and continually offer to
purchase units at prices which are based upon the value of the Securities in the
portfolios of those series. While the Sponsors are not obligated to do so, it is
their intention to maintain a secondary market for Units of this Series and
continuously to offer to purchase Units of this Series at prices subject to
change at any time, which will be computed on the basis of the aggregate value
of the Securities, taking into account the same factors referred to in
determining the Redemption Price per Unit (see Redemption). The Sponsors may
discontinue purchases of Units of this Series at prices based on the aggregate
value of the Securities should the supply of Units exceed demand or
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for other business reasons. The Sponsors, of course, do not in any way guarantee
the enforceability, marketability or price of any Securities in the Portfolio or
of the Units. However, the Sponsors will not repurchase Units in the secondary
market at a price below the aggregate value of the Securities in the Fund.
During the initial public offering period or thereafter, on a given day the
price offered by the Sponsors for the purchase of Units shall be an amount not
less than the Redemption Price per Unit, based on the aggregate value of
Securities in the Fund on the date on which the Units are tendered for
redemption (see Redemption).
The Sponsors may redeem any Units they have purchased in the secondary
market if they determine that it is undesirable to continue to hold these Units
in their inventory. Factors which the Sponsors will consider in making this
determination will include the number of units of all funds which they hold in
their inventory, 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 remaining Holders, see Redemption.
A Holder who wishes to dispose of his Units should inquire of his bank or
broker as to current market prices in order to determine if there exist
over-the-counter prices in excess of the redemption price and the repurchase
price (see Redemption).
REDEMPTION
While it is anticipated that Units in most cases can be sold in the
over-the-counter market for an amount at least equal to the Redemption Price per
Unit (see Market for Units), Units may be redeemed at the office of the Trustee
set forth on the back cover of this Prospectus, upon delivery of a request for
redemption, and payment of any relevant tax, without any other fee (Article V).
In certain instances the Trustee may require additional documents including, but
not limited to, trust instruments, certificates of death, appointments as
executor or administrator or certificates of corporate authority.
On the seventh calendar day following the tender (or if the seventh
calendar day is not a business day on the first business day prior thereto), the
Holder will be entitled to receive the proceeds of the redemption in an amount
per Unit equal to the Redemption Price per Unit (see below) as determined as of
the day of tender. The 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. The Trustee is authorized in its
discretion, if the Sponsors do not elect to repurchase any Units tendered for
redemption or if the Sponsors tender Units for redemption, to sell the Units in
the over-the-counter market at prices which will return to the Holder a net
amount in cash equal to or in excess of the Redemption Price per Unit for the
Units (Article V).
The Trustee is empowered to sell Securities at the expense of the Fund in
order to make funds available for redemption (Article V) if funds are not
otherwise available in the Capital and Income Accounts to meet redemptions (see
Administration of the Fund--Accounts and Distributions). The Securities to be
sold will be selected by the Trustee in order to maintain, to the extent
practicable, the proportionate relationship among the number of shares of each
Stock in the Fund. Provision is made in the Indenture under which the Sponsors
may, but need not, specify minimum amounts in which blocks of Securities are to
be sold in order to obtain the best price for the Fund. While these minimum
amounts may vary from time to time in accordance with market conditions, the
Sponsors believe that the minimum amounts which would be specified would be
approximately 100 shares for readily marketable Securities.
Holders tendering Units for redemption may request distribution in kind
from the Trustee in lieu of cash redemption. A Holder may request distribution
in kind of an amount and value of Securities per Unit equal to the Redemption
Price per Unit as determined as of the Evaluation Time next following the
tender, provided that the Holder is tendering Units with an aggregate value of
not less than $300,000 and the Holder has elected to redeem prior to the
Rollover Notification Date specified on page A-3. If the Holder can tender this
requisite number of Units, the distribution in kind on redemption of Units will
be held by a distribution agent (the 'Distribution Agent') for the account of,
and for disposition in accordance with the instructions of, the tendering
Holder. The tendering Holder shall be entitled to receive whole shares of each
of the Securities comprising the Portfolio and cash from the Capital Account
equal to the fractional shares to which the tendering Holder is entitled. Any
brokerage commissions on sales of the underlying Securities distributed in
connection with in kind redemptions will be borne by the tendering Holder. In
implementing these redemption procedures, the Trustee and Distribution Agent
shall make any adjustments necessary to reflect differences between the
Redemption Price of the Units and the value of the Securities distributed in
kind as of the date of tender. If funds in the Capital Account are insufficient
to cover the required cash distribution to the tendering Holder, the Trustee may
sell Securities according to the criteria discussed above. The in kind
redemption option may be terminated by the Sponsors on a date other than
Rollover Notification Date specified on page A-3 upon notice to the Holders
prior to the specified date.
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To the extent that Securities are redeemed in kind or sold, the size and
diversity of the Fund will be reduced but each remaining Unit will continue to
represent the same proportional interest in each Security. Sales will usually be
required at a time when Securities would not otherwise be sold and may result in
lower prices to the Fund than might otherwise be realized. In addition, because
of the minimum amounts in which Securities are required to be sold, the proceeds
of sale may exceed the amount required at the time to redeem Units; these excess
proceeds will be distributed to Holders unless reinvested in additional
Securities (see Administration of the Fund--Accounts and Distributions).
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange, Inc. is closed other than for
customary weekend and holiday closings or (2) for any period during which, as
determined by the Securities and Exchange Commission ('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 which the SEC may by order permit (Section 5.02).
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit is computed by the Trustee, as of the Evaluation
Time, on each June 30 and December 31 (or the last business day prior thereto),
on any day on which the New York Stock Exchange is open as of the Evaluation
Time next following the tender of any Unit for redemption, and on any other
business day desired by the Trustee or the Sponsors, by adding (a) the aggregate
value of the Securities, (b) cash on hand in the Fund (other than cash covering
contracts to purchase Securities or credited to a reserve account), (c) declared
but unpaid dividends on the Securities and (d) the aggregate value of all other
assets of the Fund; deducting therefrom the sum of (v) taxes or other
governmental charges against the Fund not previously deducted, (w) accrued but
unpaid expenses of the Fund and accrued Deferred Sales Charges declared but not
yet paid, (x) amounts payable for reimbursement of Trustee advances, (y) cash
held for redemption of Units 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 value of the Securities is determined in good faith by the
Trustee in the following manner: if the Securities are listed on a national
securities exchange or the NASDAQ national market system, this evaluation is
generally based on the closing sale prices on that exchange (unless the Trustee
deems these prices inappropriate as a basis for valuation) or, if there is no
closing sale price on that exchange, at the mean between the closing bid and
asked prices. If the Securities are not so listed or, if so listed and the
principal market therefor is other than on the exchange, the evaluation shall
generally be based on the current bid price on the over-the-counter market
(unless the Trustee deems these prices inappropriate as a basis for evaluation).
If current bid prices are unavailable, the evaluation is generally determined
(a) on the basis of current bid prices for comparable securities, (b) by
appraising the value of the Securities on the bid side of the market or (c) by
any combination of the above.
SPECIAL REDEMPTION, LIQUIDATION AND INVESTMENT IN NEW FUND
It is expected that a special redemption and liquidation will be made of
all Units of this Fund held by any Holder (a 'Rollover Holder') who
affirmatively notifies the Trustee in writing that he so desires by the Rollover
Notification Date specified on page A-3.
All Units of Rollover Holders will be redeemed in kind (see Redemption) on
the first day of the Special Redemption and Liquidation Period (as herein
defined) and the underlying Securities will be distributed to the Distribution
Agent on behalf of the Rollover Holders (Article V). During the Special
Redemption and Liquidation Period specified on page A-3, the Distribution Agent
will be required to sell all of the underlying Securities on behalf of Rollover
Holders. The sale proceeds to the Rollover Holders will be net of brokerage
fees, governmental charges or any expenses involved in the sales. The
Distribution Agent will engage the Sponsors as its agents to sell the
distributed Securities.
The Sponsors will attempt to sell the Securities as quickly as is
practicable during the Special Redemption and Liquidation Period without in
their judgment materially adversely affecting the market price of the
Securities, but all of the Securities will in any event be disposed of by the
end of the Special Redemption and Liquidation Period. The Sponsors do not
anticipate that the period will be longer than 20 business days, and it could be
as short as one day, depending upon the liquidity of the Security. The liquidity
of any Security depends on the daily trading volume of the Security and the
amount that the Sponsors have available for sale on any particular day.
It is expected (but not required) that the Sponsors will generally follow
the following guidelines in selling the Securities: for highly liquid
Securities, the Sponsors will generally sell Securities on the first day of the
Special Redemption and Liquidation Period; for less liquid Securities, on each
of the first two days of the Special Redemption and Liquidation Period, the
Sponsors will generally sell any amount of any underlying Securities at a price
no less than 1/2 of one point under the closing sale price of those Securities
on the preceding day. Thereafter, the Sponsors intend to sell without any
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price restrictions at least a portion of the remaining underlying Securities,
the numerator of which is one and the denominator of which is the total number
of days remaining (including that day) in the Special Redemption and Liquidation
Period.
The Rollover Holders' proceeds of the redemption of the underlying
Securities will be invested as they become available in units of the next Income
Growth Fund Series (the '1998 Series'), if one is then being offered, at daily
prices based on the asset value of those units plus a reduced initial sales
charge, the portfolio of the 1998 Series will be selected pursuant to criteria
which are expected to be substantially similar to the selection criteria used to
select the Securities deposited in this Series. The Sponsors intend to create
1998 Series units as quickly as possible, dependent upon the availability and
reasonably favorable price of the securities to be included in the 1998 Series
portfolio, and it is intended that Rollover Holders will be given first priority
to purchase those units. There can be no assurance, however, as to the exact
timing of the creation of 1998 Series units, the aggregate number of 1998 Series
units that the Sponsors will create or the criteria that may be used to select a
portfolio for the 1998 Series. The Sponsors may at any time, in their sole
discretion, stop creating new units (whether permanently or temporarily),
regardless of whether all proceeds of the Special Redemption and Liquidation
have been invested on behalf of Rollover Holders. Cash proceeds of redemption
not invested on behalf of the Rollover Holders in 1998 Series units will be
distributed at the end of the Special Redemption and Liquidation Period.
However, since the Sponsors may create units by depositing cash (or bank letter
of credit) with instructions to buy securities, the Sponsors anticipate that
sufficient units can be created, although moneys in the 1998 Series may not be
fully invested on the next business day.
The Sponsors believe that the gradual redemption, liquidation and
investment in the 1998 Series will help mitigate any negative market price
consequences stemming from the trading of large volumes of Securities and of the
underlying securities in the 1998 Series in a short, publicized period of time.
The above procedures may, however, be insufficient or unsuccessful in avoiding
such price consequences. In fact, market price trends may make it advantageous
to sell or buy more quickly or more slowly than permitted by these procedures.
Rollover Holders could then receive a less favorable average unit price than if
they bought all their units of the 1998 Series on any given day of the period.
Historically, the prices of securities selected by the Sponsors as good
investments have generally risen over the first few days following the
announcement.
It should also be noted that Rollover Holders may realize taxable capital
gains on the Special Redemption and Liquidation but may not be entitled to a
deduction for certain capital losses and, due to the procedures for investing in
the 1998 Series, no cash would be distributed at that time to pay any taxes (see
Taxes).
In addition, during this period a Holder will be at risk to the extent that
Securities are not sold and will not have the benefit of any stock appreciation
to the extent that monies have not been invested; for this reason, the Sponsors
will be inclined to sell and purchase the Securities in as short a period as
they can without materially adversely affecting the price of the Securities.
Holders who do not inform the Trustee by the Rollover Notification Date
that they wish to have their Units so redeemed and liquidated ('Remaining
Holders') will continue to hold Units of the Fund as described in this
Prospectus until the Fund is terminated. These Remaining Holders will not
realize capital gains or losses due to the Special Redemption and Liquidation,
and will not be charged any additional sales charge subsequent to the Rollover
Notification Date. If a large percentage of Holders become Rollover Holders, the
aggregate size of the Fund will be sharply reduced. As a consequence, expenses,
if any, in excess of the amount to be borne by the Trustee would constitute a
higher percentage amount per Unit than prior to the Special Redemption,
Liquidation and Investment in New Fund. The Fund might also reduce to the
Minimum Value of Fund listed on page A-3 because of the lesser number of Units
in the Fund, and possibly also due to a value reduction, however temporary, in
Units caused by the Sponsors' sales of Securities (see Investment
Summary--Special Redemption, Liquidation and Investment in New Fund); if so, the
Sponsors could then choose to liquidate the Fund without the consent of the
remaining Holders (see Termination). The Securities remaining in the Fund after
the Special Redemption and Liquidation Period will be sold by the Sponsors as
quickly as possible without, in their judgment, materially adversely affecting
the market price of the Securities.
Holders will only be permitted to exercise the rollover option described
above if the 1998 Series is qualified for sale under the securities laws of the
state in which the investor resides, unless an exemption from qualification is
available. Although the Sponsors expect that the 1998 Series (if offered for
sale by the Sponsors) will be qualified for sale in all jurisdictions, no
assurances can be given that all qualifications will be obtained.
The Sponsors may for any reason, in their sole discretion, decide not to
sponsor the 1998 Series or any subsequent series of the Fund, without penalty or
incurring liability to any Holder. If the Sponsors so decide, the Sponsors shall
notify the Holders before the Special Redemption and Liquidation Period would
have commenced. All Holders will then be Remaining Holders, with rights to
ordinary redemption as before (see Redemption). The Sponsors may modify the
terms
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of the 1998 Series or any subsequent series of the Fund. The Sponsors may also
modify the terms of the Special Redemption, Liquidation and Investment in New
Fund upon notice to the Holders prior to the Rollover Notification Date
specified on page A-3.
Investors should be aware that the staff of the Division of Investment
Management of the SEC is of the view that the rollover option described in this
Prospectus constitutes an 'exchange offer' for the purposes of Section 11(c) of
the Investment Company Act of 1940, and would therefore be prohibited absent an
exemptive order. The Sponsors have received exemptive orders under Section 11(c)
which they believe permit them to offer the rollover option, but no assurance
can be given that the SEC will concur with the Sponsors' position and additional
regulatory approvals may be required.
TERMINATION
The Indenture will terminate upon the sale, or other disposition of the
last Security held thereunder but in no event is it to continue beyond the
Mandatory Termination Date set forth under the Investment Summary. The Indenture
may be terminated by the Sponsors if the value of the Fund is less than the
Minimum Value of Fund set forth under the Investment Summary, and may be
terminated at any time 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. Within a reasonable period
of time after the termination, the Trustee must sell all of the Securities then
held and distribute to each Holder, after deductions for accrued but unpaid
fees, taxes and governmental and other charges, the 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 the Holder appearing on the record books of the
Trustee.
EXPENSES AND CHARGES
INITIAL EXPENSES
All expenses incurred in establishing the Fund, including the cost of the
initial preparation and printing of documents relating to the Fund, execution of
the Indenture, the initial fees and expenses of the Trustee, advertising and
selling expenses and any other out-of-pocket expenses, are paid by the
Underwriting Account at no charge to the Fund.
FEES
The Trustee's Annual Fee and Expenses and the Sponsors' Portfolio
Supervision Fee are set forth under Investment Summary. Because there is no
management fee, the Fund is expected to have expenses of less than 0.25%
annually, substantially less than might be incurred on a comparable managed
fund. The Sponsors' Portfolio Supervision Fee, which is earned for portfolio
supervisory services, is an annual fee equal to the lesser of the cost to the
Sponsors of supplying the services and the maximum amount per 1,000 Units of the
Fund set forth under Investment Summary, based on the average of the largest
number of Units in the Fund during each month of a calendar year in which
additional Securities are deposited in the Fund, and thereafter based on the
largest number of Units outstanding at any time during the year. The Sponsors'
Portfolio Supervision Fee, which is not to exceed the maximum amount set forth
under Investment Summary, 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
Equity Income Fund in any calendar year exceed the aggregate cost to them of
supplying these services in that year (Article VII). 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 1,000 Units set forth under Investment Summary as
Trustee's Annual Fee and Expenses, which includes the estimated Sponsors'
Portfolio Supervision Fee, estimated reimbursable bookkeeping or other
administrative expenses paid to the Sponsors and certain evaluation, auditing,
printing and mailing expenses. Expenses in excess of the amount so included less
any amounts received by the Trustee relating to reimbursement of applicable
commissions will be borne by the Fund (Section 3.17). The Trustee also receives
benefits to the extent that it holds funds on deposit in the various
non-interest bearing accounts created under the Indenture. The foregoing fees
may be adjusted for inflation in accordance with the terms of the Indenture
without approval of Holders (Articles III, IV and VIII).
OTHER CHARGES
Other charges which may be incurred by the Fund include: (a) fees of the
Trustee for extraordinary services (Article VIII), (b) certain extraordinary
expenses of the Trustee (including legal and auditing expenses) and of counsel
designated by the Sponsors (Article VIII), (c) various governmental charges
(Articles III and VIII), (d) expenses and costs of action taken to protect the
Fund and the rights and interests of Holders (Articles III and VIII), (e)
indemnification of the Trustee
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for any losses, liabilities and expenses incurred without gross negligence, bad
faith or wilful misconduct on its part (Article VIII), (f) indemnification of
the Sponsors for any losses, liabilities and expenses incurred without gross
negligence, bad faith or wilful misconduct (Articles III and VIII) (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 transactions of the Fund, including a
current list of the Securities and a copy of the Indenture, which records are
available to Holders for inspection at the office of the Trustee at reasonable
times during business hours (Articles VII and VIII).
ACCOUNTS AND DISTRIBUTIONS
Dividends payable to the Fund are credited by the Trustee to an Income
Account, as of the date on which the Fund is entitled to receive the dividends
as a Holder of record of the Securities. Other receipts, including amounts
received upon the sale of rights pursuant to Article III of the Indenture, are
credited to a Capital Account (Article III). Subject to the Reinvestment Plan
described below, the Monthly Income Distribution for each Holder as of each
Record Day will be made on the following Distribution Day or shortly thereafter
and shall consist of an amount, computed monthly by the Trustee, substantially
equal to one-twelfth of the Holder's pro rata share of the estimated annual
income to the Income Account, after deducting estimated expenses. There is no
assurance that actual distributions will be made since all dividends received
may be used to pay expenses.
An amount equal to any capital gain net income (i.e., the excess of capital
gains over capital losses) recognized by the Fund in any taxable year will be
distributed to Holders shortly after the end of the year. In order to meet
certain tax requirements the Fund may make a special distribution of income,
including capital gains, to Holders of record as of a date in December. Proceeds
received from the disposition of any of the Securities which are not used to
make the distribution of capital gain net income, for redemption of Units or
reinvested in substitute Securities will be held in the Capital Account to be
distributed on the next succeeding Distribution Day. The first distribution for
persons who purchase Units between a Record Day and a Distribution Day will be
made on the second Distribution Day following their purchase of Units. No
distribution need be made from the Capital Account, other than distributions of
capital gains, if the balance therein is less than the amount set forth under
Investment Summary--Capital Distributions (Section 3.04). A Reserve Account may
be created by the Trustee by withdrawing from the Income or Capital Accounts,
from time to time, those amounts as it deemed necessary to establish a reserve
for any material amounts that may be payable out of the Fund (Article VIII).
Funds held by the Trustee in the various accounts created under the Indenture do
not bear interest (Article VIII).
REINVESTMENT PLAN
Monthly income distributions, annual distributions of any capital gain net
income (i.e., the excess of capital gains over capital losses) and other capital
distributions in respect of the Units may be reinvested by participating in the
Fund's reinvestment plan (the 'Reinvestment Plan'). A Holder (including any
Holder which is a broker or nominee of a bank or other financial institution)
may indicate to the Trustee, by filing the written notice of election
accompanying this Prospectus or by notice to the Holder's account executive or
sales representative, that he wishes such distributions to be automatically
invested in additional Units (or fractions thereof) of the Fund. The Holder's
completed notice of election to participate in the Reinvestment Plan must be
received by the Trustee at least ten days prior to the Record Date applicable to
any distribution in order for the Reinvestment Plan to be in effect as to such
distribution and will remain effective until notice to the contrary is timely
received by the Trustee.
Deposits of Additional Securities in connection with the Reinvestment Plan
will be made so as to maintain, as closely as practicable, the proportionate
relationship (subject to adjustment under certain circumstances) among the
number of shares of each Stock in the Fund (see Administration of the
Fund--Portfolio Supervision). In the event an issuer of a Security has a
shareholder dividend reinvestment plan, a stock purchase plan or a similar plan
under which its shareholders may automatically reinvest their dividends or
invest optional cash payments in additional shares of the issuer's common or
preferred stock without brokerage commission or service charge or otherwise on a
basis favorable to the shareholder in the opinion of the Sponsors, the Fund (as
a shareholder of such issuer) upon the direction of the Sponsors may participate
in such plans to the extent practicable given the other restrictions on the
purchase of Additional Securities even if such participation temporarily results
in the proportionate relationship among the Securities not being maintained.
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Purchases made pursuant to the Reinvestment Plan will be at the applicable
Public Offering Price for Units of the Fund, less any sales charge, on (or as
soon as possible after) the close of business on the Distribution Date. Under
the Reinvestment Plan, the Fund will pay the distributions to the Trustee which
in turn will purchase for the Holder full and fractional Units of the Fund at
the price and time indicated above, will add the Units to the Holder's account,
and will send the Holder an account statement reflecting the reinvestment. These
Units may be Units already held in inventory by the Sponsors (see Market for
Units) or new Units created by the Sponsors' deposit of Additional Securities,
contracts to purchase Additional Securities, or cash (or a bank letter of credit
in lieu of cash) with instructions to purchase additional Securities (see
Description of the Fund--The Portfolio).
The Trustee will credit each Holder's account with the number of units
purchased with such Holder's reinvested distribution. Each Holder receives
account statements both annually and after each Reinvestment Plan transaction to
provide the Holder with a record of the total number of units in his account.
This relieves the Holder of responsibility for safekeeping of certificates and,
should he sell his units, eliminates the need to deliver certificates. The cost
of administering the Reinvestment Plan will be borne by the Fund and thus will
be borne indirectly by all Holders.
Holders of Units held in 'street name' by their broker or dealer should
contact their account executive or sales representative to determine whether or
not participation in the Reinvestment Plan through that broker or dealer is
available. Holders of Units participating in the Reinvestment Plan through their
broker or dealer will receive confirmation of their reinvestments in their
regular account statements or on a quarterly basis.
Certain of the shareholder dividend reinvestment, stock purchase or similar
plans maintained by issuers of the Securities in the Portfolio offer shares
pursuant to such plans at a discount from market value. The Trustee is required
by applicable provisions of the Code to distribute pro rata to all Holders
(i.e., not just to those Holders participating in the Reinvestment Program) the
income attributable to such discounts.
PORTFOLIO SUPERVISION
The Fund is a unit investment trust and is not an actively managed fund.
Traditional methods of investment management for a managed fund typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analyses. The Portfolio of the Fund, however, will not be
actively managed and therefore the adverse financial condition of an issuer will
not necessarily require the sale of its Securities from the Portfolio. However,
Defined Asset Funds research analysts review the Securities regularly and the
Sponsors may direct the disposition of Securities upon default in payment of
amounts due on any of the Securities, institution of certain legal proceedings,
default under certain documents materially and adversely affecting future
declaration or payment of amounts due, or decline in price or the occurrence of
other market or credit factors that in the opinion of the Sponsors would make
the retention of these Securities detrimental to the interest of the Holders, or
if the disposition of these Securities is necessary in order to enable the Fund
to make distributions of the Fund's capital gain net income or desirable in
order to maintain the qualification of the Fund as a regulated investment
company under the Code (Article III). If a default in the payment of amounts due
on any Security occurs and if the Sponsors fail to give instructions to sell or
hold that Security, the Indenture provides that the Trustee, within 30 days of
that failure by the Sponsors, may sell the Security (Article III). In general,
however, therefore the portfolio should remain relatively unchanged for the life
of the Fund.
The Sponsors are also authorized to direct the reinvestment of the proceeds
of the sale of Securities, as well as moneys held to cover the purchase of
Securities pursuant to contracts which have failed, in Replacement Securities
which satisfy certain conditions specified in the Indenture including, among
other conditions, requirements that the Replacement Securities shall be selected
by the Sponsors from a list of securities maintained by them and updated from
time to time; shall be publicly-traded common stocks issued by an issuer subject
to or exempt from the reporting requirements under Section 13 or 15(d) of the
Securities and Exchange Act of 1934 (or similar provisions of law); and shall
have, in the opinion of the Sponsors, characteristics sufficiently similar to
the characteristics of the other Securities in the Fund as to be acceptable for
acquisition by the Fund. However, no assurance can be given that Replacement
Securities will meet the selection criteria used to select the Securities
deposited in the Fund on the Initial Date of Deposit. The Indenture also
requires that the purchase of the Replacement Securities will not (i) disqualify
the Fund as a regulated investment company under the Code, (ii) result in more
than 10% of the Fund consisting of securities of a single issuer (or of two or
more issuers which are Affiliated Persons as this term is defined in the
Investment Company Act of 1940) which are not registered and are not being
registered under the Securities Act of 1933 or (iii) result in the Fund owning
more than 50% of any single issue which has been registered under the Securities
Act of 1933 (Section 3.06). The common stocks on the current list from which
Replacement Securities are to be selected are set forth under Investment
Summary. The Fund will attempt to obtain the most favorable prices and
executions of orders. Accordingly, Securities will generally only be purchased
or sold in round lots (or whatever transaction size that will minimize the
payment of commissions). (See Risk
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Factors.) Transactions in securities of the nature held in the Fund are
generally made in brokerage transactions (as distinguished from principal
transactions) and the Sponsors or any of their affiliates may act as brokers for
the Fund if the Fund expects to obtain the most favorable prices and execution.
The furnishing of statistics and research information to the Trustee by any of
the securities dealers through which transactions are executed will not be
considered in placing securities transactions.
The Indenture also authorizes the Sponsors to increase the size and number
of Units of the Fund by the deposit of Additional Securities, contracts to
purchase Additional Securities or cash or a letter of credit with instructions
to purchase Additional Securities in exchange for the corresponding number of
additional Units subsequent to the Initial Date of Deposit, provided that the
original proportionate relationship among the number of shares of each Security
established on the Initial Date of Deposit is maintained to the extent
practicable.
With respect to deposits of Additional Securities (or cash or a letter of
credit with instructions to purchase Additional Securities), in connection with
creating additional Units of the Fund, the Sponsors may specify the minimum
numbers in which Additional Securities will be deposited or purchased. If a
deposit is not sufficient to acquire minimum amounts of each Security,
Additional Securities may be acquired in the order of the Security most
under-represented immediately before the deposit when compared to the original
proportionate relationship among the Stocks. If Securities of an issue
originally deposited are unavailable at the time of subsequent deposit, or
cannot be purchased at reasonable prices or their purchase is prohibited or
restricted by law, regulation or policies applicable to the Fund or any of the
Sponsors, the Sponsors may (1) deposit cash or a letter of credit with
instructions to purchase the Security when practicable, or (2) deposit (or
instruct the Trustee to purchase) either Securities of one or more other issues
originally deposited or a Replacement Security that satisfies the conditions for
Replacement Securities that are set forth above.
During the life of the Fund the Sponsors, as part of their portfolio
supervisory responsibilities, may make additions and deletions to the list
referred to above and will conduct regular reviews to determine whether or not
to recommend the disposition of Securities pursuant to the procedures under the
Indenture summarized above. In addition, the Sponsors shall undertake to perform
such other reviews and procedures as it may deem necessary for it to make the
reinvestment recommendations and to give the consents and directions required by
the Indenture and to make such changes in the original proportionate
relationship among the numbers of shares of Stock as may be required by any
sales or purchases of Securities provided for thereunder. For the portfolio
supervisory services in making such recommendations and giving such consents and
directions and performing the reviews and procedures called for in connection
therewith, the Sponsors shall receive the Portfolio Supervision Fee referred to
under Expenses and Charges--Fees.
REPORTS TO HOLDERS
With each distribution, the Trustee will furnish Holders a statement of the
amounts of income and the amounts of other receipts, if any, which are being
distributed, expressed in each case as a dollar amount per Unit. After the end
of each calendar year and following the termination of the Fund, the Trustee
will furnish to each person who at any time during the calendar year was a
Holder of record, a statement (i) summarizing transactions for that year in the
Income and Capital Accounts, (ii) identifying Securities redeemed, 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 accountants designated by the Sponsors
and the report of the accountants shall be furnished by the Trustee to Holders
upon request (Article VIII).
UNCERTIFICATED UNITS
All Holders are required to hold their Units in uncertificated form. The
Trustee will credit a Holder's account with the number of Units held by the
Holder. This relieves the Holder of the responsibility for safekeeping of
certificates and of the need to deliver certificates upon sale or redemption of
Units. Units are transferable by the Trustee, who shall treat the person in
whose name the Units are registered as the owner of the Units for all purposes.
AMENDMENT AND TERMINATION
The Sponsors and Trustee may amend the Indenture, without the consent of
the Holders, (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the SEC or any successor governmental agency, (c)
to add or change any provision as may be necessary or advisable for the
continuing qualification of the Fund as a regulated investment company under the
Code or (d) to make any other provisions which do not materially adversely
affect the interest of the Holders (as determined in good faith by the
Sponsors). The Indenture may also be amended in any respect by the Sponsors and
the Trustee, or any
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of the provisions thereof may be waived, with the consent of the Holders of 51%
of the Units, provided that none of these amendments or waivers will reduce the
interest in the Fund of any Holder without the consent of the Holder or reduce
the percentage of Units required to consent to any of these amendments or
waivers without the consent of all Holders (Article VI).
The Indenture will terminate upon the sale or other disposition of the last
Security held thereunder but in no event is it to continue beyond the Mandatory
Termination Date set forth under Investment Summary. 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, and may be terminated at any time 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 then
held and distribute to each Holder, upon surrender for cancellation of his
Certificates and after deductions for accrued but unpaid fees, taxes and
governmental and other charges, the Holder's interest in the Income and Capital
Account (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 the
Holder appearing on the record books of the Trustee.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
TRUSTEE
The Trustee or any successor may resign upon notice to the Sponsors. The
Trustee may be removed upon the direction of the Holders of 51% of the Units at
any time or by the Sponsors without the consent of any of the Holders if the
Trustee becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities. The resignation or removal shall become effective
upon the acceptance of appointment by the successor which may, in the case of a
resigning or removed Co-Trustee, be one or more of the remaining Co-Trustees. In
case of resignation or removal the Sponsors are to use their best efforts to
appoint a successor promptly and if upon resignation of the Trustee no successor
has accepted appointment within thirty days after notification, the Trustee may
apply to a court of competent jurisdiction for the appointment of a successor
(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, nor shall it be liable or responsible in
any way for depreciation or loss incurred by reason of the sale of any Security.
This provision, however, shall not protect the Trustee in cases of wilful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. In the event of the failure of the Sponsors to act, the
Trustee may act under the Indenture and shall not be liable for any of these
actions taken in good faith. The Trustee shall not be personally liable for any
taxes or other governmental charges imposed upon or in respect of the Securities
or upon the interest thereon. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee (Articles VIII and
IX).
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). The Agent for the Sponsors has been appointed by the
other Sponsors as agent for purposes of taking action under the Indenture
(Article VIII). 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
Sponsors shall continue to act as Sponsors, then Merrill Lynch, Pierce, Fenner &
Smith Incorporated shall continue to act as sole Sponsor (Article VIII). 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
Sponsors is automatically discharged and the other Sponsors shall act as
Sponsors (Article VIII). 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 (Article VIII). 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 VIII).
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MISCELLANEOUS
TRUSTEE
The Trustee of the Fund is named on the back cover page of this Prospectus
and is subject to supervision by the Comptroller of the Currency, the Federal
Deposit Insurance Corporation ('FDIC') and the Board of Governors of the Federal
Reserve System.
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors.
AUDITORS
The Statement of Condition, including the Portfolio of the Fund, has been
audited by Deloitte & Touche, independent accountants, as stated in their
opinion appearing in this prospectus and has been so included in reliance upon
that opinion given on the authority of that firm as experts in accounting and
auditing.
SPONSORS
Each Sponsor is a Delaware corporation and is engaged in the underwriting,
securities and commodities brokerage business, and is a member of the New York
Stock Exchange, Inc., other major securities exchanges and commodity exchanges,
and the National Association of Securities Dealers, Inc. Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch Asset Management, a Delaware
corporation, each of which is a subsidiary of Merrill Lynch & Co., Inc., are
engaged in the investment advisory business. Smith Barney 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. PaineWebber Incorporated is engaged
in the investment advisory business and is a wholly-owned subsidiary of
PaineWebber Group Inc. Dean Witter Reynolds Inc., a principal operating
subsidiary of Dean Witter, Discover & Co., is engaged in the investment advisory
business. Each Sponsor has acted as principal underwriter and managing
underwriter of other investment companies. The Sponsors, in addition to
participating as members of various selling groups or as agents of other
investment companies, execute orders on behalf of investment companies for the
purchase and sale of securities of these companies and sell securities to these
companies in their capacities as brokers or dealers in securities.
The Sponsors have maintained secondary markets in 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 simple and convenient investment choices, suited
to fit a wide variety of personal financial goals--a buy and hold strategy for
capital accumulation, such as for children's education or 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 investment trusts are particularly suited for the many
investors who prefer to seek long-term profits by purchasing sound investments
and holding them, rather than through active trading. Few individuals have the
knowledge, resources, 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 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.
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
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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 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 company itself).
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
creditworthiness with respect to the investments held by the fund. This
assessment takes into consideration the financial capacity of the issuers and of
any guarantors, insurers, lessees, or mortgagors with respect to such
investments. The assessment, however, does not take into acount the extent to
which fund expenses will reduce payment to the unit holder of the interest and
principal required to be paid on portfolio assets. In addition, the rating is
not a recommendation to purchase, sell, or hold units, as the rating does not
comment as to market price of the units or suitability for a particular
investor.
AAA--Units rated AAA represent interests in funds composed exclusively of
securities that, together with their credit support, are rated AAA by Standard &
Poor's and/or certain short-term investments. This AAA rating is the highest
rating assigned by Standard & Poor's to a security. Capacity to pay interest and
repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
The ratings may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
A provisional rating, indicated by 'p' following a rating, assumes the
successful completion of the project being financed by the issuance of the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion.
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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.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers
are to give investors a more precise indication of relative debt quality in each
of the historically defined categories.
Conditional ratings, indicated by 'Con.', are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds are given a conditional rating that denotes their
probable credit stature upon completion of that act or fulfillment of that
condition.
EXCHANGE OPTION
ELECTION
Holders may elect to exchange any or all of their Units of a Trust for
units of one or more of the series of Funds listed in the table set forth below
(the 'Exchange Funds'), which normally are sold in the secondary market at
prices which include the sales charge indicated in the table. Certain series of
the Funds listed have lower maximum applicable sales charges than those stated
in the table; also the rates of sales charges may be changed from time to time.
No series with a maximum applicable sales charge of less than 3.50% of the
public offering price is eligible to be acquired under 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 by exchange from any Exchange Fund Series;
units of Select Ten Portfolios may be exchanged only for units of another Select
Ten Series, if available. Units of the Exchange Funds may be acquired at prices
which include the reduced sales charge for Exchange Fund units listed in the
table, subject, however, to these important limitations:
First, there must be a secondary market maintained by the Sponsors in
units of the series being exchanged and a primary or secondary market in
units of the series being acquired and there must be units of the
applicable Exchange Fund lawfully available for sale in the state in which
the Holder is resident. There is no legal obligation on the part of the
Sponsors to maintain a market for any units or to maintain the legal
qualification for sale of any of these units in any state or states.
Therefore, there is no assurance that a market for units will in fact exist
or that any units will be lawfully available for sale on any given date at
which a Holder wishes to sell his Units of this Series and thus there is no
assurance that the Exchange Option will be available to any Holder.
Second, when units 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.
20
<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 or prospectuses relating to each series in which he indicates
interest. The exchange transaction will operate in a manner essentially
identical to any secondary market transaction, i.e., Units will be repurchased
at a price equal to the aggregate bid side evaluation per Unit of the Securities
in the Portfolio plus accrued interest. Units of the Exchange Fund will be sold
to the Holder at a price equal to the bid side evaluation per unit of the
underlying securities in the Portfolio plus interest plus the applicable sales
charge listed in the table below. 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.
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. 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).
THE EXCHANGE FUNDS
The current return from taxable fixed income securities is normally higher
than that available from tax exempt fixed income securities. Certain of the
Exchange Funds do not provide for periodic payments of interest and are best
suited for purchase by IRA's, Keogh plans, pension funds or other tax-deferred
retirement plans. Consequently, some of the Exchange Funds may be inappropriate
investments for some Holders and therefore may be inappropriate exchanges for
Units of this Series. The table below indicates certain characteristics of each
of the Exchange Funds which a Holder should consider in determining whether each
Exchange Fund would be an appropriate investment vehicle and an appropriate
exchange for Units of this Series.
TAX CONSEQUENCES
An exchange of Units pursuant to the Exchange 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
following limitation. The Internal Revenue Service may seek to disallow a loss
(or a pro rata portion thereof) on an exchange of units if the units received by
a Holder in connection with such an exchange represent securities that are not
materially different from the securities that his previous units represented
(e.g., both Funds contain securities issued by the same obligor that have the
same material terms). Holders are urged to consult their own tax advisers as to
the tax consequences to them of exchanging units in particular cases.
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
21
<PAGE>
proceeds for units of a series of an Exchange Fund with a current price of $950
per unit and the same sales charge. The proceeds from the Holder's units will
aggregate $3,300. Since only whole units of an Exchange Fund may be purchased
under the Exchange Option, the Holder would be able to acquire 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).
<TABLE><CAPTION>
MAXIMUM REDUCED
NAME OF APPLICABLE SALES CHARGE FOR INVESTMENT
EXCHANGE FUND SALES CHARGE* SECONDARY MARKET** CHARACTERISTICS
------------------------------------------- --------------- ---------------------- --------------------------------------------
<S> <C> <C> <C>
DEFINED ASSET FUNDS-- GOVERNMENT SECURITIES
INCOME FUND
GNMA Series (other than those below) 4.25% $15 per unit long-term, fixed rate, taxable income,
underlying securities backed by the full
faith and credit of the United States
GNMA Series E or other GNMA Series 4.25% $15 per 1,000 units long-term, fixed rate, taxable income,
having units with an initial face underlying securities backed by the full
value of $1.00 faith and credit of 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
DEFINED ASSET FUNDS-- INTERNATIONAL BOND
FUND
Multi-Currency Series 5.50% $15 per unit intermediate-term, fixed rate, payable in
foreign currencies, taxable income
Australian and New Zealand Dollar Bonds 3.75% $15 per unit intermediate-term, fixed rate, payable in
Series Australian and New Zealand dollars, taxable
income
Australian Dollar Bonds Series 3.75% $15 per unit intermediate-term, fixed rate, payable in
Australian dollars, taxable income
Canadian Dollar Bonds Series 3.75% $15 per unit short intermediate term, fixed rate, payable
in Canadian dollars, taxable income
DEFINED ASSET FUNDS--MUNICIPAL INVESTMENT
TRUST FUND
Monthly Payment, State and Multistate 5.50%+ $15 per unit long-term, fixed-rate, tax-exempt income
Series
Intermediate Term Series 4.75%+ $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 Alternative Minimum Tax.
DEFINED ASSET FUNDS--MUNICIPAL INCOME FUND
Insured Discount Series 5.50%+ $15 per unit long-term, fixed rate, tax-exempt current
income, taxable capital gains
DEFINED ASSET FUNDS--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
</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 1,000 units for Series
for which the Reduced Sales Charge for Secondary Market (above) is $15 per
1,000 units.
+ Subject to reduction depending on the maturities of the underlying
Securities.
22
<PAGE>
<TABLE><CAPTION>
MAXIMUM REDUCED
NAME OF APPLICABLE SALES CHARGE FOR INVESTMENT
EXCHANGE FUND SALES CHARGE* SECONDARY MARKET** CHARACTERISTICS
------------------------------------------- --------------- ---------------------- --------------------------------------------
<S> <C> <C> <C>
DEFINED ASSET FUNDS--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
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
Select Ten Portfolios 2.75% $17.50 per 1,000 units 10 highest dividend yielding stocks in a
(both domestic and international) specified securities Index; seeks higher
total return than that Index; terminates
after one year
</TABLE>
---------------
* As described in the prospectuses relating to certain Exchange Funds, this
sales charge for secondary market sales may be reduced on a graduated scale
in the case of quantity purchases.
** The reduced sales charge for Units acquired during their initial offering
period is: $20 per unit for Series for which the Reduced Sales Charge for
Secondary Market (above) is $15 per unit; $20 per 100 units for Series for
which the Reduced Sales Charge for Secondary Market is $15 per 100 units;
and $20 per 1,000 units for Series for which the Reduced Sales Charge for
Secondary Market is $15 per 1,000 units.
++ The reduced sales charge for Utility Common Stock Series 6 is $15 per 2,000
units and for prior Utility Common Stock Series is $7.50 per unit.
23
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
INCOME GROWTH FUND (1993 SERIES)
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Defined Asset Funds - Equity Income Fund,
Income Growth Fund (1993 Series):
We have audited the accompanying statement of condition of Defined Asset Funds -
Equity Income Fund, Income Growth Fund (1993 Series), including the portfolio,
as of February 28, 1995 and the related statements of operations and of changes
in net assets for the year ended February 28, 1995 and the period March 5, 1993
to February 28, 1994. These financial statements are the responsibility of the
Trustee. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Securities owned at
February 28, 1995, as shown in such portfolio, were confirmed to us by Chase
Manhattan Bank, the Trustee. An audit also includes assessing the accounting
principles used and significant estimates made by the Trustee, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Defined Asset Funds - Equity
Income Fund, Income Growth Fund (1993 Series) at February 28, 1995 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.
April 12, 1995
D-1
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
INCOME GROWTH FUND (1993 SERIES)
STATEMENT OF CONDITION
AS OF FEBRUARY 28, 1995
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $13,523,822) (Note 1) $14,246,841
Dividends receivable 50,282
Proceeds receivable from sales of securities 96,758
Cash 837
Total trust property 14,394,718
LESS LIABILITIES:
Accrued expenses $ 2,785
Advance from Trustee 15,321
Redemptions payable 96,193 114,299
NET ASSETS, REPRESENTED BY:
14,779,130 units of fractional undivided
interest outstanding (Note 3) 14,248,453
Undistributed net investment income 31,966 $14,280,419
UNIT VALUE ($14,280,419 / 14,779,130 units) $.96626
See Notes to Financial Statements.
D-2
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
INCOME GROWTH FUND (1993 SERIES)
STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
March 5,
Year Ended 1993 to
February 28, February 28,
1995 1994
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $470,456 $404,417
Trustee's fees and expenses (28,003) (23,337)
Sponsors' fee (4,139) (3,676)
Net investment income 438,314 377,404
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized loss on securities sold (543,034) (150,538)
Unrealized appreciation (depreciation) of investments 991,945 (268,926)
Net realized and unrealized gain (loss) on investments 448,911 (419,464)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $887,225 $(42,060)
</TABLE>
See Notes to Financial Statements.
D-3
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
INCOME GROWTH FUND (1993 SERIES)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
March 5,
Year Ended 1993 to
February 28, February 28,
1995 1994
<S> <C> <C>
OPERATIONS:
Net investment income $ 438,314 $ 377,404
Realized loss on securities sold (543,034) (150,538)
Unrealized appreciation (depreciation) of investments 991,945 (268,926)
Net increase (decrease) in net assets resulting from
operations 887,225 (42,060)
INCOME DISTRIBUTIONS TO HOLDERS (Note 2) (434,481) (360,354)
CAPITAL SHARE TRANSACTIONS:
Issuance of 18,062,790 additional units 17,395,872
Redemption of 3,571,800 units (3,449,602)
Net capital share transactions (3,449,602) 17,395,872
NET INCREASE (DECREASE) IN NET ASSETS (2,996,858) 16,993,458
NET ASSETS AT BEGINNING OF PERIOD 17,277,277 283,819
NET ASSETS AT END OF PERIOD $14,280,419 $17,277,277
PER UNIT:
Income distributions during period $.02661 $.02303
Net asset value at end of period $.96626 $.94149
TRUST UNITS OUTSTANDING AT END OF PERIOD 14,779,130 18,350,930
</TABLE>
See Notes to Financial Statements.
D-4
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
INCOME GROWTH FUND (1993 SERIES)
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
(a) Securities are stated at market value; for securities listed on a
national securities exchange, value is based on the closing sale price
on such exchange and for securities not so listed, value is based on
the current bid price on the over-the-counter market. See "Redemption
- Computation of Redemption Price Per Unit" in the Prospectus, Part B.
Realized gains or losses on sales of securities are determined using
the first-in, first-out method.
(b) The Fund is not subject to income taxes. Accordingly, no provision for
such taxes is required.
(c) Dividend income is recorded on the ex-dividend date.
2. DISTRIBUTIONS
A distribution of net investment income is made to Holders on the twenty-
fifth day of each month. Receipts other than dividends, after deductions
for redemptions and applicable expenses, are distributed as explained in
"Administration of the Fund - Accounts and Distributions" in this
Prospectus, Part B.
3. NET CAPITAL
Cost of 14,779,130 units at Date of Deposit $14,444,270
Less sales charge 216,686
Net amount applicable to Holders 14,227,584
Net cost of 3,571,800 units redeemed less redemption amounts (8,578)
Realized loss on securities sold (693,572)
Net unrealized appreciation of investments 723,019
Net capital applicable to Holders $14,248,453
4. INCOME TAXES
As of February 28, 1995, net unrealized appreciation of investments, based
on cost for Federal income tax purposes, aggregated $723,019 of which
$1,525,354 related to appreciated securities and $802,335 related to
depreciated securities. The cost of investment securities for Federal
income tax purposes was $13,523,822 at February 28, 1995.
D-5
<PAGE>
DEFINED ASSET FUNDS - EQUITY INCOME FUND,
INCOME GROWTH FUND (1993 SERIES)
PORTFOLIO
AS OF FEBRUARY 28, 1995
<TABLE><CAPTION>
Number of Current
Shares of Percentage Annual Cost of
Portfolio No. and Title Common of Dividend Per Securities
of Securities Stock Fund(3) Share(2) to Fund(1) Value(1)
<S> <C> <C> <C> <C> <C>
1 Abbott Laboratories 16,800 4.19% 0.84 $ 440,115 $ 596,400
2 Air Products & Chemicals, Inc. 5,800 2.01 0.98 248,852 285,650
3 American Business Products, Inc. 5,800 0.95 0.84 149,503 134,850
4 American Home Products Corporation 8,400 4.22 3.00 545,201 600,600
5 Anheuser-Busch Companies, Inc. 5,250 2.08 1.60 258,768 295,969
6 Banc One Corporation 19,545 4.03 1.36 786,827 574,134
7 The Clorox Company 16,700 7.08 1.92 830,884 1,008,263
8 Conagra, Inc. 17,700 4.07 0.83 448,807 579,675
9 Dayton Hudson Corporation, Inc. 5,800 2.87 1.68 423,277 408,900
10 Dean Foods Company 11,400 2.48 0.68 286,870 353,400
11 Deluxe Corporation 17,400 3.42 1.48 744,757 487,200
12 Fifth Third Bancorp 7,700 2.78 1.24 421,892 396,550
13 General Electric Company (4) 31,500 12.13 1.64 1,482,505 1,728,563
14 Heinz (H.J.) Company 16,800 4.64 1.44 629,002 661,500
15 Hubbell Incorporated, Class B (5) 18,600 7.05 1.72 1,000,372 1,004,400
16 Johnson & Johnson 12,000 4.78 1.16 496,600 681,000
17 Loral Corporation 17,700 5.08 0.60 498,709 723,488
18 Marshall & Ilsley Corporation 18,000 2.62 0.60 434,095 373,500
19 Morgan (J.P.) & Co., Inc. 9,800 4.44 3.00 675,365 632,100
20 Ralston-Ralston Purina Group 1,150 0.39 1.20 14,857 54,913
21 Sara Lee Corporation 17,700 3.26 0.68 457,448 464,625
22 Super Valu Stores, Inc. 12,000 2.17 0.94 393,600 309,000
23 Torchmark Corporation 5,900 1.73 1.12 332,707 247,063
24 Wachovia Corporation 27,900 6.81 1.32 891,994 969,525
25 Wallace Computer Services, Inc. 9,150 2.00 0.74 236,426 284,794
26 Weis Markets, Inc. 15,250 2.74 0.76 394,389 390,779
TOTAL $13,523,822 $14,246,841
</TABLE>
(1) See Notes to Financial Statements.
(2) Based on latest quarterly declaration.
(3) Based on Value.
(4) Includes 2-for-1 stock split.
(5) Includes 5% stock dividend.
D-6
<PAGE>
AUTHORIZATION FOR REINVESTMENT
DEFINED ASSET FUNDS--EQUITY INCOME FUND
INCOME GROWTH FUND (1993 SERIES)
/ / Yes, I want to participate in the Fund's Reinvestment Plan and purchase
additional Units of the Fund each month.
I hereby acknowledge receipt of the Prospectus for Defined Asset
Funds--Equity Income Fund, Income Growth Fund (1993 Series) and authorize The
Chase Manhattan Bank, N.A. to pay distributions on my Units as indicated below
(distributions to be reinvested will be paid for my accounts to The Chase
Manhattan Bank, N.A.).
Income distributions
(check one): / / in cash / / reinvested
Capital
distributions (check
one): / / in cash / / reinvested
Please print or type
Name Registered Holder
Address
Registered Holder
(Two signatures required if
joint tenancy)
City State Zip Code
This page is a self-mailer. Please complete the information above, cut
along the dotted line, fold along the lines on the reverse side, tape, and mail
with the Trustee's address displayed on the outside.
12345678
<PAGE>
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 1313 NEW YORK, N.Y. NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
DEFINED ASSET FUNDS--EQUITY INCOME FUND UNITED STATES
INCOME GROWTH FUND (1993 SERIES)
THE CHASE MANHATTAN BANK, N.A.
UNIT TRUST DEPARTMENT
BOX 2051
NEW YORK, N.Y. 10081
--------------------------------------------------------------------------------
(Fold along this line.)
--------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
DEFINED ASSET FUNDS--EQUITY INCOME FUND
PROSPECTUS--PART B
UTILITY STOCK SERIES
CONCEPT SERIES
SECOND EXCHANGE SERIES--AT&T SHARES
S&P 500 INDEX (FIRST MONTHLY PAYMENT SERIES)
S&P 500 TRUST 2
S&P MIDCAP TRUST
INCOME GROWTH FUND
NOTE: PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PART A.
INDEX
PAGE
---------
FUND SUMMARY........................................ 1
RISK FACTORS........................................ 2
GAS AND ELECTRIC PUBLIC UTILITIES................. 3
THE TELECOMMUNICATIONS INDUSTRY................... 5
REGIONAL CONCENTRATIONS--NORTHWEST INVESTMENT
TRUST........................................ 7
NATURAL GAS COMPANIES............................. 8
THE FOOD AND BEVERAGE INDUSTRY.................... 8
FOREIGN ISSUERS................................... 9
S&P 500 INDEX AND S&P MIDCAP TRUST 11
LITIGATION AND LEGISLATION........................ 13
DESCRIPTION OF THE FUND............................. 13
PAGE
---------
TAXES............................................... 18
RETIREMENT PLANS.................................... 21
HOW TO BUY.......................................... 21
HOW TO SELL......................................... 22
EXPENSES AND CHARGES................................ 23
ADMINISTRATION OF THE FUND.......................... 23
TRUST INDENTURE..................................... 26
MISCELLANEOUS....................................... 27
EXCHANGE OPTION..................................... 30
SECONDARY MARKET SALES CHARGE SCHEDULE A-1
EXCHANGE FUNDS...................................... B-1
FUND SUMMARY
RISK FACTORS. Certain Securities from time to time may be sold under
certain circumstances described herein, and additional Securities may be
deposited in the Fund; accordingly, no assurance can be given that the Fund will
retain for any length of time its present size and composition (see Description
of the Fund--The Portfolio; Redemption; Administration of the Fund--Portfolio
Supervision). Investment in the Fund should be made with an understanding that
the value of the underlying Portfolio may fluctuate in accordance with changes
in the financial condition of the issuers of the Securities in the Portfolio,
the value of the Stocks generally, the impact of the Sponsors' buying and
selling of Securities and other factors. Distributions of income will generally
depend upon the declaration of dividends by the issuers of the Securities in the
Portfolio and the declaration of any such dividends depends upon several factors
including the financial condition of such issuers and general economic
conditions; there can be no assurance that the issuers of the Securities will
pay dividends (see Risk Factors).
DISTRIBUTIONS. Holders of Units of UTILITY STOCK SERIES and SECOND EXCHANGE
SERIES--AT&T SHARES may elect to have their distributions representing dividends
reinvested in whole or fractional Units of the Fund (see Administration of the
Fund--Reinvestment Plan). Holders electing to reinvest their dividends will
receive additional Units and therefore will own a greater percentage of the Fund
than Holders who receive their distributions in cash. For UTILITY STOCK SERIES
ONLY, it is anticipated that cash for distributions, to a certain extent, will
be generated by sales of Securities received by the Fund under reinvestment
plans of the issuers of the Securities. This may result in an increase in the
distributions. Distributions of any capital gain net income (i.e., the excess of
capital gains over capital losses) recognized by the Fund in any taxable year
will be made annually and shortly after the end of the year. These distributions
may be invested in additional Units of the Fund. It is anticipated that the
proceeds of sale or redemption of Securities will not be distributed but will be
reinvested in additional Securities (see Administration of the Fund--Accounts
and Distributions).
With respect to SECOND EXCHANGE SERIES--AT&T SHARES, dividend income,
securities received under reinvestment plans of the issuers of Securities and
proceeds from the sale or redemption of Securities (after deducting expenses)
will be distributed to Holders, unless a Holder elects to participate in the
Reinvestment Plan.
THE PUBLIC OFFERING PRICE of the Units is equal to the aggregate value of
the underlying Securities divided by the number of Units outstanding. A sales
charge (set forth under Investment Summary in Part A) and cash adjustments are
added. The Public Offering Price on the date of this Prospectus or on any
subsequent date will vary from the Public Offering Price set forth under
Investment Summary in Part A. (See Public Sale of Units-- Public Offering
Price.) Units offered hereby are issued-and-outstanding Units which have been
purchased by the Sponsors in the secondary market or from the Trustee following
tender for redemption. Any profit or loss resulting from the sale of these Units
will accrue to the Sponsors; no proceeds from the sale will be received by the
Fund.
TAXATION. With the EXCEPTION OF SECOND EXCHANGE SERIES--AT&T SHARES (see
Taxes, Section B.), the Fund intends to qualify as a 'regulated investment
company' under the Internal Revenue Code of 1986, as amended (the 'Code') (see
Taxes). Distributions from the Fund which are taxable as ordinary income to
Holders will
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constitute dividends for Federal income tax purposes but will be eligible for
the dividends-received deduction for many corporations only to the extent of
qualifying dividends received by the Fund (see Taxes, Section A). In the opinion
of special counsel to the Sponsors, each Holder of the SECOND EXCHANGE
SERIES--AT&T SHARES will be considered the owner of a pro rata portion of each
Security in the Fund, and will be considered to have received all the dividends
paid on his pro rata portion of each Security when received by the Fund. (see
Taxes, Section B).
MARKET FOR UNITS. The Sponsors, though not obligated to do so, intend to
maintain a secondary market for Units based for most Series on the aggregate
value of the underlying Securities (see Market for Units). So long as the
Sponsors are maintaining a secondary market at prices not less than the
Redemption Price per Unit, they will repurchase any Units tendered for
redemption. If this market is not maintained, a Holder will be able to dispose
of his Units through redemption at prices also based on the aggregate value of
the underlying Securities (see Redemption). Market conditions may cause the
prices available in the market maintained by the Sponsors or available upon
exercise of redemption rights to be more or less than the amount paid for Units.
TERMINATION--CONCEPT SERIES are structured so that they will terminate no
later than approximately 30 days prior to the Mandatory Termination Date set
forth under Investment Summary in Part A. Securities will begin to be sold in
connection with the termination of the Fund and all Securities will be sold by
the Mandatory Termination Date. The Unit Investment Trusts division of Merrill
Lynch, Pierce, Fenner & Smith, Inc. ('Merrill Lynch'), as Agent for the
Sponsors, will determine the manner, timing and execution of the sales of the
underlying Securities. The Agent for the Sponsors will attempt to sell the
securities as quickly as it can during the Liquidation Period without in its
judgment materially adversely affecting the market price of the Securities, but
all of the Securities will in any event be disposed of by the end of the
Liquidation Period. During the Liquidation Period, Holders will be at risk to
the extent that securities are not sold; for this reason the Agent for the
Sponsors will be inclined to sell the Securities in as short a period as it can
without materially adversely affecting the price of the Securities. (See
Administration of the Fund--Termination--Concept Series.)
RISK FACTORS
An investment in Units of the Fund should be made with an understanding of
the risks inherent in an investment in equity securities, including the risk
that the financial condition of the issuers of the Securities may become
impaired or that the general condition of the stock market may worsen (both of
which may contribute directly to a decrease in the value of the Securities and
thus in the value of the Units) or the risk that holders of common stocks have a
right to receive payments from the issuers of those stocks that is generally
inferior to that of creditors, holders of the issuer's debt obligations or
holders of the issuer's preferred stock. Common stocks are especially
susceptible to general stock market movements and to volatile increases and
decreases in value as market confidence in and perceptions of the issuers
change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises.
Holders of common stocks of the type held by the Portfolio have a right to
receive dividends only when, if and to the extent declared by the issuer's board
of directors. Common stockholders participate in amounts available for
distribution by the issuer only after all other claims on the issuer have been
satisfied. Common stocks thus do not represent an obligation of the issuer, do
not offer any assurance of income and do not provide the degree of protection of
capital of debt securities. Indeed, the issuance of debt securities or even
preferred stock will create prior claims for payment of principal, interest,
liquidation preferences and dividends which could adversely affect the ability
and inclination of the issuer to declare or pay dividends on its common stock or
the rights of holders of common stock with respect to assets of the issuer upon
liquidation or bankruptcy. Holders of
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preferred stocks have the right to receive dividends at a fixed rate when and as
declared by the issuer's board of directors, normally on a cumulative basis, but
do not participate in other amounts available for distribution by the issuing
corporation. Cumulative preferred stock dividends must be paid before common
stock dividends and any cumulative preferred stock dividend omitted is added to
future dividends payable to the holders of cumulative preferred stock. Preferred
stocks are also entitled to rights on liquidation which are senior to those of
common stocks. For that reason, preferred stocks entail less risk than common
stocks. Preferred stocks are, however, equity securities in the sense that they
do not represent a liability of the issuer and therefore do not offer as great a
degree of protection of capital or assurance of continued income as investments
in corporate debt securities. In addition, the issuance of debt securities or
senior issues of preferred stock may create prior claims for payment of
principal, interest and dividends which could adversely affect the ability of
the issuer to pay dividends or the rights of holders of preferred stock with
respect to the assets of the issuer upon liquidation. Further, unlike debt
securities which typically have a stated principal amount payable at maturity
(whose value, however, will be subject to market fluctuations prior thereto),
neither preferred nor common stocks have a fixed principal amount or a maturity,
and both have values which are subject to market fluctuations for as long as the
stocks remain outstanding. The value of the Securities in the Portfolio thus may
be expected to fluctuate over the entire life of the Fund to values higher or
lower than those prevailing on the Initial Date of Deposit.
In addition, certain of the issuers in some Funds may be considered
emerging growth companies. Investors in these Funds should consider and
carefully evaluate the special risk factors inherent in investing in equity
securities of companies characterized by a rapid rate of growth. Emerging growth
companies may be thinly capitalized and, consequently, may be more susceptible
to general market fluctuations than companies with greater capitalization
because the stock of emerging growth companies may trade at higher
price-to-earnings multiples than the stock of more established companies.
Additionally, emerging growth companies may be more likely to reinvest profits
into operations and thus less likely to pay regular dividends than mature
corporations. The lack of a regular dividend may be a factor in inducing
volatility in a stock's trading price.
Whether or not the Securities are listed on a national securities exchange,
the principal trading market for the Securities may be in the over-the-counter
market. As a result, the existence of a liquid trading market for the Securities
may depend on whether dealers will make a market in the Securities. There can be
no assurance that a market will be made for any of the Securities, that any
market for the Securities will be maintained or of the liquidity of the
Securities in any markets made. In addition, the Fund may be restricted under
the Investment Company Act of 1940 from selling Securities to the Sponsors. The
price at which the Securities may be sold to meet redemptions and the value of
the Fund will be adversely affected if trading markets for the Securities are
limited or absent.
Investors should note that additional Units may be offered to the public
subsequent to the Initial Date of Deposit and that the creation of additional
Units may have an effect upon the value of previously existing Units. To create
additional Units the Sponsors may deposit cash with instructions to purchase
Securities (or a bank letter of credit in lieu of cash) in amounts sufficient to
maintain to the extent practicable (exactly, in the case of Second Exchange
Series--AT&T Shares) the percentage relationship among the number of shares of
each Security based on the price of the Securities at the Evaluation Time on the
date the cash is deposited. To the extent the price of a Security increases or
decreases between the time cash is deposited with instructions to purchase the
Security and the time the cash is used to purchase the Security, Units will
represent less or more of that Security and more or less of the other Securities
in the Fund. Holders will therefore bear a price fluctuation risk that they
would not bear if the Security had been purchased on the date cash was deposited
with instructions to purchase the Security.
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In addition, brokerage fees incurred in purchasing Securities with cash
deposited with instructions to purchase the Securities will be an expense of the
Fund. Thus price fluctuations during this period and payment of any brokerage
fees by the Fund will affect the value of every Holder's Units and the income
per Unit received by the Fund. In particular, Holders who purchased Units during
the primary offering period of the Units would experience a dilution of their
investment as a result of any brokerage fees paid by the Fund during subsequent
deposits of additional Securities purchased with cash deposited with
instructions to purchase Securities.
The Fund may be considered to be concentrated in a certain industry. The
percentage of any concentration is set forth under Investment Summary in Part A.
An investment in Units of the Fund should be made with an understanding of the
risks which this investment may entail, certain of which are described below.
GAS AND ELECTRIC PUBLIC UTILITIES
The ability of utilities to pay dividends on their common stock is
dependent on various factors, including the rates they may charge their
customers, the demand for their services and the cost of providing those
services. Utilities, in particular investor-owned utilities, are subject to
extensive regulation relating to the rates which they may charge customers.
Utilities can experience regulatory, political and consumer resistance to rate
increases. Utilities engaged in long-term capital projects are especially
sensitive to regulatory lags and disallowances in granting rate increases. Any
difficulty in obtaining timely and adequate rate increases could adversely
affect a utility's results of operations.
The demand for a utility's services is influenced by , among other
factors, competition, weather conditions and economic conditions. Electric
utilities, for example have experienced increased competition as a result of the
availability of other energy sources, the effects of conservation on the use of
electricity, self-generation by industrial customers, and the generation of
electricity by co-generators and other independent power producers. Also,
increased competition will result if federal regulators determine that utilities
must open their transmission lines to competitors. Utilities which distribute
natural gas also are subject to competition from alternative fuels, including
fuel oil, propane and coal and the impact of deregulation.
The utility industry is an increasing cost business making the cost of
generating electricity more expensive and heightening its sensitivity to
regulation. A utility's costs are influenced by its cost of capital, the
availability and cost of fuel and other factors. There can be no assurance that
a utility will be able to pass on these increased costs to customers through
increased rates. Utilities incur substantial capital expenditures for plant and
equipment. In the future they will also incur increasing capital and operating
expenses to comply with environmental legislation such as the Clean Air Act of
1990, and other energy, licensing and other laws and regulations relating to,
among other things, air emissions, the quality of drinking water, waste water
discharge, solid and hazardous substance handling and disposal, and siting and
licensing of facilities. Environmental legislation and regulations are changing
rapidly and are the subject of current public policy debate and legislative
proposals. It is increasingly likely that many utilities will be subject to more
stringent environmental standards in the future that could result in significant
capital expenditures. Future legislation and regulation could include, among
other things, regulating of so-called electromagnetic fields associated with
electric transmission and distribution lines as well as emissions of carbon
dioxide and other so-called greenhouse gases associated with the burning of
fossil fuels. Compliance with these requirements may limit a utility's
operations or require substantial investments in new equipment and, as a result,
may adversely affect a utility's results of operations.
The electric utility industry in general is subject to various external and
additional factors including (a) the effects of inflation upon the costs of
operation and construction, (b) uncertainties in predicting future load
requirements, (c) increased financing requirements coupled with limited
availability of capital, (d) exposure to
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cancellation and penalty charges on new generating units under construction, (e)
problems of cost and availability of fuel, (f) litigation and proposed
legislation designed to delay or prevent construction of generating and other
facilities, (g) the uncertain effects of conservation on the use of electric
energy, (h) regulatory, political and consumer resistance to rate increases and
(i) increased competition as a result of the availability of other energy
sources and state deregulation efforts. These factors may delay the construction
and increase the cost of new facilities, limit the use of, or necessitate costly
modifications to, existing facilities, impair the access of electric utilities
to credit markets, or substantially increase the cost of credit for electric
generating facilities. The Sponsors cannot predict at this time the ultimate
effect of such factors on the issuers represented in the Fund.
The National Energy Policy Act ('NEPA'), which became law in October, 1992,
makes it mandatory for a utility to permit non-utility generators of electricity
access to its transmission system for wholesale customers, thereby increasing
competition for electric utilities. NEPA also mandated demand-side management
policies to be considered by utilities. NEPA prohibits the Federal Energy
Regulatory Commission from mandating electric utilities to engage in retail
wheeling, which is competition among suppliers of electric generation to provide
electricity to retail customers (particularly industrial retail customers) of a
utility. However, under NEPA, a state can mandate retail wheeling under certain
conditions. California, Michigan, New Mexico and Ohio have instituted
investigations into the possible introduction of retail wheeling within their
respective states which could foster competition among the utilities. Retail
wheeling might result in the issue of stranded investment (investment in assets
previously allowed to be recovered in base rates), thus hampering a utility's
ability to pay.
There is concern by the public, the scientific community, and the U.S.
Congress regarding environmental damage resulting from the use of fossil fuels.
Congressional support for the increased regulation of air, water, and soil
contaminants is building and there are a number of pending or recently enacted
legislative proposals which may affect the electric utility industry. In
particular, on November 15, 1990, legislation was signed into law that
substantially revises the Clean Air Act (the '1990 Amendments'). The 1990
Amendments seek to improve the ambient air quality throughout the United States
by the year 2000. A main feature of the 1990 Amendments is the reduction of
sulphur dioxide and nitrogen oxide emissions caused by electric utility power
plants, particularly those fueled by coal. Under the 1990 Amendments the U.S.
Environmental Protection Agency ('EPA') must develop limits for nitrogen oxide
emissions by 1993. The sulphur dioxide reduction will be achieved in two phases.
Phase I addresses specific generating units named in the 1990 Amendments. In
Phase II the total U.S. emissions will be capped at 8.9 million tons by the year
2000. The 1990 Amendments contain provisions for allocating allowances to power
plants based on historical or calculated levels. An allowance is defined as the
authorization to emit one ton of sulphur dioxide.
The 1990 Amendments also provide for possible further regulation of toxic
air emissions from electric generating units pending the results of several
federal government studies to be presented to Congress by the end of 1995 with
respect to anticipated hazards to public health, available corrective
technologies, and mercury toxicity.
Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various plant
systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants
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could cause a plant to be out of service or on limited service for long periods.
When a nuclear facility owned by an investor-owned utility or a state or local
municipality is out of service or operating on a limited service basis, the
utility operator or its owners may be liable for the recovery of replacement
power costs. Risks of substantial liability also arise from the operation of
nuclear facilities and from the use, handling, and possible radioactive
emissions associated with nuclear fuel. Insurance may not cover all types or
amounts of loss which may be experienced in connection with the ownership and
operation of a nuclear plant and severe financial consequences could result from
a significant accident or occurrence. The Nuclear Regulatory Commission has
promulgated regulations mandating the establishment of funded reserves to assure
financial capability for the eventual decommissioning of licensed nuclear
facilities. These funds are to be accrued from revenues in amounts currently
estimated to be sufficient to pay for decommissioning costs. Since there have
been very few nuclear plants decommissioned to date, these estimates may be
unrealistic.
The Public Utility Holding Company Act of 1935 (the '1935 Act') regulates,
among other things, certain acquisitions of voting securities of electric
utility companies and gas utility companies by any one who is an 'affiliate' of
a public utility company (a person or organized group of persons that directly
or indirectly owns, controls or holds with power to vote 5% or more of the
outstanding voting securities of a public utility company). In addition, the
1935 Act requires a 'holding company' (among other categories, a company which
directly or indirectly owns, controls or holds with power to vote 10% or more of
the outstanding voting securities of a public utility company or a 'holding
company') to register as such with the Securities and Exchange Commission and be
otherwise subject to certain restrictions on the acquisition of securities and
other interests in public utility companies. In order to avoid becoming an
'affiliate', the Fund has adopted an investment restriction that it will not
purchase securities of a public utility company if by reason thereof the Fund
would hold 5% or more of the outstanding voting securities of the issuer.
Nevertheless, if the Fund were considered to be a member of an organized group
of persons, the 1935 Act might limit the Fund's acquisition of the voting
securities of public utility companies by reason of the control by the group of
5% or more of the voting securities of a public utility company. The Sponsors
believe that even if the Fund were appropriately included in a group, it is
unlikely that the holdings of such a group would aggregate as much as 5% of the
voting securities of any public utility company.
THE TELECOMMUNICATIONS INDUSTRY
The telecommunications industry is subject to varying degrees of
regulatory, political and economic risk which may affect the price of the stocks
of companies involved in such industry. Such risks depend on a number of factors
including the country in which a company is located. Telecommunications
companies in both developed and emerging countries are undergoing significant
change due to varying and evolving levels of governmental regulation or
deregulation and technological advances as well as other factors. As a result,
competitive pressures are intense and the securities of such companies may be
subject to rapid price volatility. In addition, companies offering telephone
services are experiencing increasing competition from cellular telephones, and
the cellular telephone industry, because of its limited operating history, faces
uncertainty concerning the future of the industry and demand for cellular
telephones. All telecommunications companies in both developed and emerging
countries are subject to the additional risk that technological innovations will
make their products and services obsolete.
United States. The Portfolio may be concentrated in stocks of companies
that are engaged in providing local, long-distance and cellular services, in the
manufacture of telecommunications products and in a wide range of other
activities including directory publishing, information systems and the operation
of voice, data and video
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telecommunications networks. Technological innovations in fiber optics, cellular
products and services, voice messaging, call waiting and automatic dialing offer
additional potential for significant expansion. Advances like formation of a
national cellular grid should also contribute to the anticipated growth of this
industry. The Fund may contain securities of the Regional Bell Holding Companies
('RBOCs') which were spun off from AT&T in 1984 pursuant to approval of the U.S.
District Court for the District of Columbia (the 'Court'), implementing a
consent decree relating to antitrust proceedings brought by the U.S. Department
of Justice. The RBOCs include: Ameritech Corporation, Bell Atlantic Corporation,
BellSouth Corporation, NYNEX Corporation, Pacific Telesis Group, Southwestern
Bell Corporation and U.S. West, Inc. These companies provide near monopoly local
and intrastate telephone service as well as cellular and other generally
unregulated services. This sector was emphasized in the Portfolio to obtain the
greater yields available relative to the other sectors, as well as a more
predictable but slower earnings growth. The Fund also contains the securities of
certain independent telephone companies which are subject to regulation by the
Federal Communications Commission (the 'FCC') and state utility commissions but
not subject to the consent decree binding the RBOCs and AT&T and of certain
long-distance telecommunications carriers, certain telecommunications equipment
manufacturers and certain non-U.S. companies which provide telecommunications
services or equipment mainly outside the United States. International
communications facilities in the United States are also subject to the
jurisdiction of the FCC, and the provision of service to foreign countries is
subject to the approval of the FCC and the appropriate foreign governmental
agencies.
In accordance with the consent decree, the RBOCs provide local telephone
service, including exchange access for long-distance companies, and may provide
directory advertising and new customer equipment. Many of the RBOCs, pursuant to
waivers, may also engage in a broad range of businesses including foreign
consulting, servicing computers and marketing or leasing office equipment. AT&T
provides interexchange long distance telephone service in competition with
numerous other providers and certain other products, services and customer
equipment.
The Court's order approving the consent decree provided for periodic
reviews of the restrictions imposed by it. In April 1990, a Federal appeals
court directed the Court to review its ruling that restricts RBOC involvement in
the information services business and to determine whether removal of the
information services restriction would be in the public interest. On July 25,
1991, the Court lifted the information services ban. Other portions of the
consent decree are being litigated. As RBOCs are released from the restrictions
of the 1984 divestiture decree, they and other telephone companies are being
freed to create new products, services and businesses. For example, a federal
district court recently permitted Bell Atlantic to enter the cable business.
Bills have been introduced in the U.S. House of Representatives and the Senate
that would require the RBOCs to pass a competitive market test and also allow
them to enter the long-distance market.
The independent telephone companies, like the RBOCs, provide local
telecommunications services, but operate in a more limited area. These companies
are not subject to the consent decree and therefore can provide the full range
of telecommunications services including local exchange services, the
installation of business systems, telephone consulting, the manufacture of
telecommunications equipment, operation of voice and data networks and directory
publishing. Cellular service is providing an increasing component of the
revenues of the RBOCs and independent telephone companies. Both the RBOCs and
independents are subject to regulation by the FCC and state regulatory
authorities. The FCC also has the power to regulate the types of
telecommunications equipment which may be used and therefore may affect the
business of companies in the manufacturing of
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telecommunications equipment. Long-distance companies which provide
long-distance telecommunications services are subject to regulation by the FCC.
The long-distance industry is consolidating into larger carriers.
Certain telecommunications services have in the past been fairly resistant
to recession with the exception of long-distance carriers. The Sponsors believe
that companies in the telephone business may remain resistant to recession in
the next few years and may experience some growth in access lines and message
units. Cellular telephone service should continue to expand, although at lesser
rates of growth than in the recent past. Also, ongoing technological change may
lead to an increase in the development of new services such as voice messaging,
call screening and automatic dialing and the demand for business services such
as the use of fax machines and the movement of data information should continue
to grow.
Business conditions of the telecommunications industry may affect the
ability of the issuers of the Securities in the Fund to meet their obligations.
The FCC and certain state utility regulators have introduced certain incentive
plans such as price-cap regulation which apply to certain portions of the
business of certain local exchange carriers. Price-cap regulation offers local
exchange carriers an opportunity to share in higher earnings provided they
become more efficient. These new approaches to regulation by the FCC and various
state or other regulatory agencies result in increased competition, and could
lead to greater risks as well as greater rewards for operating telephone
companies. Technology has tended to offset the effects of inflation and is
expected to continue to do so. Under traditional regulation, continuing cost
increases, to the extent not offset by improved productivity and revenues from
increased volume of business, would result in a decreasing rate of return and a
continuing need for rate increases. Although allowance is generally made in
ratemaking proceedings for cost increases, delays may be experienced in
obtaining the necessary rate increases and there can be no assurance that the
regulatory commissions in the future will grant rate increases adequate to cover
operating and other expenses and debt service requirements. The long-distance
industry has been increasingly opened to competition over the last number of
years. As a result, the major long-distance companies compete actively for
market share. Indeed, to meet increasing competition, telephone companies will
have to commit substantial capital, technological and marketing resources.
Cellular and cable companies provide wireless services including paging,
dispatch and cellular services throughout the U.S. Most of the RBOCs, as well as
long distance companies, are seeking to increase their share of the cellular
market in view of perceived future growth prospects. It is unclear what effect,
if any, increased competition between wireless and traditional services will
have on the telecommunications industry. Other potential competition for local
service has also developed. The deregulated cellular telephone industry has a
limited operating history and there is significant uncertainty regarding its
future, particularly with regard to increased competition, the continued growth
in the number of customers, the usage and pricing of cellular services, and the
cost of providing cellular services, including the cost of attracting new
customers, developing new technology and the ability to obtain licenses to
provide cellular services. Recent industry developments may provide increased
competition and reduced revenues from cellular service for RBOCs and independent
telephone companies. The uncertain outcomes of future labor agreements and
employee and retiree benefit costs may also have a negative impact on
profitability. Telephone usage, and therefore revenues, could also be adversely
affected by any sustained economic recession. Each of these problems would
adversely affect the profitability of the telecommunications issuers of the
Securities in the Fund and their ability to meet their obligations.
Telecommunications equipment companies design, manufacture, and distribute
telecommunication equipment such as central office switching equipment,
switches, displays, mobile and cellular equipment and systems, network
transmission equipment, PBXs, satellite, microwave, antennas, and digital
communication
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networks. Growth of these companies may result from telephone service industry
expansion, modernization requirements and possible new technology such as
interactive television. As less developed countries modernize their
telecommunications infrastructure, the demand for these products increases. This
segment of the industry is subject to rapidly changing technology and the risk
of technological obsolescence although it is generally not subject to regulation
as other telecommunications services are.
In addition, the portfolio may contain securities issued by telephone
companies which provide telecommunications services or equipment outside the
United States; these companies are subject to regulation by foreign governments
or governmental authorities which have broad authority regulating the provision
of telecommunications services and the use of certain telecommunication
equipment. Consequently, certain Securities in the Fund may be affected by the
rules and regulations adopted by regulatory agencies in other countries from
time to time.
Foreign Telecommunications Issues. Many European and Asian telephone
systems appear to have significant growth potential. The international sector in
the Portfolio consists predominantly of former government-owned
telecommunications systems that have been privatized in stages. Most are similar
to AT&T before 1984 in their dominance of local, long-distance and international
service within their country. As governments privatize their systems by selling
stock to the public, telephone service is likely to expand and, as a result of
greater efficiency, potentially become more profitable. On the other hand, the
countries are allowing more companies to compete with the recently privatized
companies. Many of these companies have expanded into other countries.
The Sponsors believe there is significant potential for expansion of
telephone services in foreign countries. The following chart, from a 1993 Value
Line Investment Survey based on various company reports, shows the number of
telephone lines in comparison to population of selected countries. Of course,
there can be no assurance of whether or when telephone service in these
countries will expand or its effects on the non-U.S. companies represented in a
Portfolio.
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TELEPHONE DENSITY LINES PER 100 INHABITANTS
INSERT CHART
SOURCE: VALUE LINE INVESTMENT SURVEY, COPYRIGHT 1993. ALL RIGHTS RESERVED.
REPRINTED BY PERMISSION.
REGIONAL CONCENTRATIONS--NORTHWEST INVESTMENT TRUST
The information set forth below is based on various governmental and
private publications, but no representation can be made as to its accuracy;
furthermore, no representation is made that any correlation exists among the
local economy of the Pacific Northwest region and the value of any of the
Securities held by the Fund.
The Pacific Northwest region, including the states of Washington, Oregon,
Idaho, Montanta and Alaska, continued its overall economic growth in 1993 and
the first part of 1994. The rate of economic growth, however, varied throughout
the region. Idaho lead the region in wage and salary employment growth in 1993,
ranking as the second fastest growing state in the nation during the year.
Oregon experienced wage and salary growth in 1993 of 2.8 percent, with
especially strong growth in the service and trade sectors. Washington showed
slower growth, particularly in the Seattle metropolitan area, which experienced
one of the lowest rates of wage and salary growth in the state. The employment
reductions at The Boeing Company, the region's largest industrial employer,
indicate continued economic uncertainty in 1994.
Resource sectors of the economy in the Pacific Northwest that historically
were sources of growth are not currently positioned to add to the long-term rate
of growth of the economy, although this sector demonstrated a short-term growth
in employment in the first part of 1994 because of a temporary increase in
timber prices. The timber and forest products industry, the largest industry in
the region, nonetheless showed continuing signs of
---------------
* While the are no securities of Mexican companies represented in the
Portfolio, certain of the RBOCs have significant investments in the Mexican
telecommunications industry.
** Hong Kong Telecommunications, Ltd. has existing business relationships with
adjacent provinces of the Peoples Republic of China ('PRC') and derives a
significant amount of its revenues from the PRC. In addition, the Sponsors view
the company as a gateway to the PRC and expect revenues from the PRC to continue
to grow as the anticipated union with the PRC in 1997 approaches.
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weakness, and reductions in employment earlier in 1993, with the supply of
timber in the region reduced by environmental concerns. Similarly, the
availability of low-cost hydroelectric power may be reduced because of concerns
over the survival of salmon species in the Columbia River Basin. New
hydroelectric dam constructiion has been largely curtailed, and the operation of
existing dams has been restricted.
The region continued to benefit, however, from a number of economic factors
in the last year, including substantial immigration from other areas of the
United States, especially from California, which experienced an economic
decline. Economists project that the well-educated work force and quality of
life available in the Pacific Northwest will remain stronger than in the U.S. as
a whole, continuing the inflow of new residents and business. The aerospace
industry centered in the Puget Sound area suffered from the continued shrinking
backlog of orders at Boeing; this downturn has continued to have an adverse
effect on the economy of the State of Washington in 1994, especially in the
Puget Sound area in the western part of the State. The high-technology companies
based in Seattle, Portland and Boise, saw their markets grow in 1993 and 1994,
led by Microsoft and other computer software companies. The Pacific Northwest,
the region of the United States that depends most heavily on international
trade, is also well positioned for expanding Pacific Rim trade.
NATURAL GAS COMPANIES
The Portfolio may be concentrated in common stocks of companies engaged in
the exploration and production, transmission or distribution of natural gas.
These may include integrated natural gas companies that explore for and produce
natural gas and transport and deliver it to customers; natural gas transmission
companies, commonly called pipelines, that sell at wholesale to other pipelines
and to distribution companies; natural gas distribution companies that service
residential, commercial and industrial customers; natural gas exploration and
production companies; and drilling companies that service natural gas
exploration and production companies. These companies derive or are expected to
derive at least 25% of their sales and operating income from the natural gas
industry. Factors which the Sponsors believe may increase demand for natural gas
include the encouragement of the use of natural gas by the recent amendments to
the Clean Air Act, the cleanliness of natural gas as a fuel coupled with the
increased concern about the environment, use by electric utilities of natural
gas as a primary fuel source as a result of the repeal of the Fuel Use Act in
1987 and the increased use of natural gas in co-generation of electricity. The
profitability of natural gas operations could be enhanced by the 1990 amendments
to the Clean Air Act, which should increase demand for natural gas products by
electric utilities and other energy consumers. The Commerce Department predicts
that natural gas will be a growing source of energy during the 1990s, because of
projected higher costs for oil and because natural gas is a cleaner burning
fuel. The transportation industry may make increased use of natural gas in order
to meet more stringent mileage and emissions requirements. There are significant
constraints on increased use of natural gas, however, including a potential need
for additional pipelines. Additionally, companies involved in natural gas
processing may experience difficulties in the long term if product prices do not
keep pace with potential increases in gas costs.
Natural gas utilities are generally subject to extensive regulation by
state utility commissions or by the Federal Energy Regulatory Commission
('FERC'), in the case of pipeline companies, which, for example, establish the
rates that may be charged and the appropriate rate of return on an approved
asset base. FERC, through Order 636, unbundles natural gas services and allows
for additional competition. Certain natural gas utilities have had difficulty
from time to time in persuading regulators, who are subject to political
pressures, to grant rate increases necessary to maintain an adequate return on
investment and voters in many states have the ability to influence limits on
rate adjustments (for example, through election of utilities commissioners, by
11
<PAGE>
initiative or by referendum). Any unexpected limitations could negatively affect
the profitability of natural gas utilities. In addition, gas pipeline and
distribution companies have had difficulties in adjusting to short and surplus
energy supplies, enforcing or being required to comply with long-term contracts
and avoiding litigation from their customers, on the one hand, or suppliers, on
the other.
General problems of the natural gas utility industry include difficulty in
obtaining timely and adequate rate increases, recovery of take-or-pay costs, the
uncertainty of transmission service costs for both interstate and intrastate
transactions, changes in tax laws which adversely affect a natural gas utility's
ability to operate profitably, reduced demand for natural gas in certain areas
of the country, competition from electricity and oil in the residential and
commercial markets, restrictions on operations and increased insurance premiums
and other costs and delays attributable to environmental considerations,
uncertain availability and increased cost of capital and availability and cost
of natural gas for resale. Pipeline companies may be subject to increased
competition because of approval by FERC of the construction of new pipelines and
delays because of the need to obtain FERC approval of new gas contracts. The
natural gas utility business is highly seasonal and weather sensitive. In
addition, natural gas competes directly with oil for industrial uses and large
industries have retained the flexibility to switch from natural gas to oil;
consequently, a fall in oil prices could prevent natural gas prices from rising
or result in a loss of customers because of conversions to oil. Natural gas
competes with coal in the utility market as a boiler fuel. Exploration and
production companies could be impacted in a period of declining natural gas
prices. Further, any future scientific advances concerning new sources of energy
and fuels or legislative changes with respect to the energy industry or the
environment could have a negative impact on the natural gas industry. And, while
legislation has recently been enacted to deregulate certain aspects of the
natural gas industry, no assurances can be given that new or additional
regulations will not be adopted. Each of the problems referred to could
adversely affect the financial stability of the issuers of any natural gas
stocks in the Trust.
THE FOOD AND BEVERAGE INDUSTRY
The Portfolio may be concentrated in stocks of the food and beverage
industry, including manufacturers of packaged foods, processors of agricultural
products, beverage companies and food distributors. There are many factors that
may have an adverse impact on the value of the stocks of these companies and
their ability to pay dividends. These factors include the sensitivity of
revenues, earnings, and financial condition to economic conditions, changing
consumer demands or preferences, fluctuations in the prices of agricultural
commodities, fluctuations in the cost of other raw materials such as packaging,
and the effects of inflation on pricing flexibility. The revenues and earnings
of these companies can also be affected by extensive competition that can result
in lost sales or in lower margins resulting from efforts to maintain market
share. Food and beverage companies are also subject to regulation under various
federal laws--such as the Food, Drug, and Cosmetic Act--as well as state, local
and foreign laws and regulations. Costs associated with complying with changing
regulatory restrictions, such as food labeling requirements, could adversely
affect earnings. Food and beverage companies are also becoming increasingly
exposed to risk associated with international operation, including foreign
currency fluctuations and future political and economic developments in other
countries. Other risk factors include potential deterioration in financial
condition resulting from litigation related to product liability, accidents, or
trademark or patent disputes; unfunded pension liability; changing accounting
standards, such as Statement of Financial Accounting Standard No. 106, which
requires accrual accounting for postretirement benefits other than pensions; and
leveraged buyouts, takeovers, or recapitalizations.
12
<PAGE>
FOREIGN ISSUERS
Investments in Funds including securities of foreign issuers involve
investment risks that are different in some respects from an investment in a
fund that invests partially or entirely in securities of domestic issuers. Those
investment risks include future political and economic developments and the
possible establishment of exchange controls or other governmental restrictions
which might adversely affect the payment or receipt of payment of dividends on
the relevant Securities. In addition, for the foreign issuers that are not
subject to the reporting requirements of the Securities Exchange Act of 1934,
there may be less publicly available information than is available from a
domestic issuer. Also, foreign issuers are not necessarily subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements such as those applicable to domestic issuers. However, the Sponsors
anticipate that adequate information will be available to allow the Sponsors to
supervise the Portfolio as set forth in Administration of the Fund--Portfolio
Supervision. The percentage of foreign issuers represented in the Fund, if any,
is set forth under Investment Summary in Part A.
Securities issued by non-U.S. issuers whose earnings are stated in foreign
currencies may pay dividends in foreign currencies, and even if purchased by the
Fund in American Depositary Receipt ('ADR') form in the United States, are
principally traded in foreign currencies. Most foreign currencies have
fluctuated widely in value against the United States dollar for many reasons,
including supply and demand of the respective currency, the soundness of the
world economy and the strength of the respective economy as compared to the
economies of the United States and other countries. Therefore, for those
securities of issuers whose earnings are stated in foreign currencies, or which
pay dividends in foreign currencies or which are traded in foreign currencies,
there is a risk that their United States dollar value will vary with
fluctuations in the United States dollar foreign exchange rates for the relevant
currencies. Moreover, for those Securities that are ADRs, currency fluctuations
will affect the U.S. dollar equivalent of the local currency price of the
underlying domestic share and, as a result, are likely to affect the value of
the ADRs and consequently the value of the Securities. In addition, the rights
of holders of ADRs may be different than those of holders of the underlying
shares, and the market for ADRs may be less liquid than that for the underlying
shares.
ADRs evidence American Depositary Shares which, in turn, represent common
stock deposited with a custodian in a depositary. ADRs may be sponsored or
unsponsored. In an unsponsored facility, the depositary initiates and arranges
the facility at the request of market makers and acts as agent for the ADR
holder, while the company itself is not involved in the transaction. In a
sponsored facility, the issuing company initiates the facility and agrees to pay
certain administrative and shareholder-related expenses. Sponsored facilities
use a single depositary and entail a contractual relationship between the
issuer, the shareholder and the depositary; unsponsored facilities involve
several depositaries with no contractual relationship to the company. ADRs are
registered securities pursuant to the Securities Act of 1933 and may be subject
to the reporting requirements of the Securities Exchange Act of 1934.
Foreign Exchange Rates. A Portfolio of non-U.S. dollar denominated
securities 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 United States dollar value of the Portfolio (and hence of the
Units) and of the distributions from the Fund will vary with fluctuations in the
United States dollar foreign exchange rates for the relevant currencies.
Exchange rate fluctuations are partly dependent on a number of economic
factors including economic conditions within countries, the impact of actual and
proposed government policies on the value of currencies, interest rate
differentials between the currencies and the balance of imports and exports of
goods and services and
13
<PAGE>
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.
The Trustee and Evaluator will estimate current exchange rates for the
relevant currencies based on activity in the various currency exchange markets.
However, since these markets are volatile and are constantly changing, depending
on the activity at any particular time of the large international commercial
banks, various central banks, large multi-national corporations, speculators and
other buyers and sellers of foreign currencies, and since actual foreign
currency transactions may not be instantly reported, the exchange rates
estimated by the Trustee or the Evaluator may not be indicative of the amount in
U.S. dollars the Fund would receive had the Trustee sold any particular currency
in the market.
Any foreign exchange transactions of the Fund may be concluded by the
Trustee with foreign exchange dealers acting as principals either on a spot
(i.e., cash) buying basis or on a forward foreign exchange basis on the date the
Fund is entitled to receive the applicable foreign currency. These forward
foreign exchange transactions will generally be of as short a duration as
practicable and will generally settle on the date of receipt of the applicable
foreign currency involving specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio and income received on
the Securities, or the sale and redemption of Units of the Fund. These
transactions are accomplished by contracting to purchase or sell a specific
currency at a future date and price set at the time of the contract. The cost to
the Fund of engaging in these foreign currency transactions varies with such
factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency
exchange are usually conducted on a principal basis, fees or commissions are not
normally involved. Although foreign exchange dealers trade on a net basis they
do realize a profit based upon the difference between the price at which they
are willing to buy a particular currency (bid price) and the price at which they
are willing to sell the currency (offer price). The relevant exchange rate used
for evaluations of the Securities will include the cost of buying or selling, as
the case may be, of a seven-day forward foreign exchange contract in the
relevant currency to correspond to the requirement that Units when purchased
settle on a regular basis and that the Trustee settle redemption requests in
United States dollars within seven days.
Exchange Controls. On the basis of the best information available to the
Sponsors at the present time, none of the Securities, except as indicated under
Investment Summary in Part A, is subject to exchange control restrictions under
existing law which would materially interfere with payment to the Fund of
amounts due on the Securities either because the particular jurisdictions have
not adopted any currency regulations of this type or because the issues qualify
for an exemption or the Fund, as an extraterritorial investor, has qualified its
purchase of the Securities as exempt by following applicable 'validation' or
similar regulatory or exemptive procedures. However, there can be no assurance
that exchange control regulations might not be adopted in the future which might
adversely affect payments to the Fund.
14
<PAGE>
In addition, the adoption of exchange control regulations and other legal
restrictions could have an adverse impact on the marketability of international
securities in the Portfolio and on the ability of the Fund to satisfy its
obligation to redeem Units tendered to the Trustee for redemption (see
Redemption).
Liquidity. Certain of the Securities may have been purchased in ADR form in
United States dollars. However, foreign securities which are not available in
ADR form generally have not been registered under the Securities Act of 1933 and
may not be exempt from the registration requirements of the Act. Sales of
non-exempt Securities by the Fund in United States securities markets are
subject to severe restrictions and may not be practicable. Accordingly, sales of
these Securities by the Fund will generally be effected only in foreign
securities markets. Although the Sponsors do not believe that the Fund will
encounter obstacles in disposing of the Securities, investors should realize
that many of the Securities may be traded in foreign countries where the
securities markets are not as developed or efficient and may not be as liquid as
those in the United States. To the extent the liquidity of these markets becomes
impaired, the value of the Fund could be adversely affected if a substantial
volume of requests for redemption of Units (should redemptions be necessary
despite the market making activities of the Sponsors) are 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 United States
and such foreign country deteriorate markedly. Even though the Securities are
listed, the principal trading market for the Securities may be in the over-the-
counter market. As a result, the existence of a liquid trading market for the
Securities may depend on whether dealers will make a market in the Securities.
There can be no assurance that a market will be made for any of the Securities,
that any market for the Securities will be maintained or of the liquidity of the
Securities in any markets made. In addition, the Fund may be restricted under
the Investment Company Act of 1940 from selling Securities to any Sponsor. The
price at which the Securities may be sold to meet redemptions and the value of
the Fund will be adversely affected if trading markets for the Securities are
limited or absent.
THE S&P 500 INDEX AND THE S&P MIDCAP INDEX
The S&P 500 Index is composed of 500 selected common stocks, most of which
are listed on the New York Stock Exchange. This well-known index, originally
consisting of 233 stocks in 1923, was expanded to 500 stocks in 1957 and was
restructured in 1976 to a composite consisting of industrial, utility, financial
and transportation market sectors. It contains a variety of companies with
diverse capitalization, market-value weighted to represent the overall market.
The index represents approximately 68% of U.S. stock market capitalization. At
present, the mean market capitalization of the companies in the S&P 500 Index is
approximately $3,321 billion.
The following table shows the performance of the S&P 500 Index for 1960
through 1993. Stock prices fluctuated widely during the period and were higher
at the end than at the beginning. The results shown should not be considered as
a representation of the income yield or capital gain or loss which may be
generated by the S&P 500 Index in the future.
<TABLE><CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
YEAR-END INDEX
YEAR-END VALUE DIVIDENDS
YEAR-END INDEX VALUE CHANGE IN INDEX AVERAGE YIELD FOR REINVESTED
YEAR INDEX VALUE* 1960=100 FOR YEAR YEAR* 1960=100**
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1960.......................................... 58.11 100.00 -- % 3.47% 100.00
1961.......................................... 71.55 123.13 23.13 2.98 126.88
1962.......................................... 63.10 108.59 -- 11.81 3.37 115.89
1963.......................................... 75.02 129.10 18.89 3.17 142.27
1964.......................................... 84.75 145.84 12.97 3.01 165.64
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1965.......................................... 92.43 159.06 9.06 3.00 186.28
1966.......................................... 80.33 138.24 -- 13.09 3.40 167.62
1967.......................................... 96.47 166.01 20.09 3.20 207.64
1968.......................................... 103.86 178.73 7.66 3.07 230.57
1969.......................................... 92.06 158.42 -- 11.36 3.24 211.20
1970.......................................... 92.15 158.58 0.10 3.83 219.42
1971.......................................... 102.09 175.68 10.79 3.14 250.62
1972.......................................... 118.05 203.15 15.63 2.84 298.14
1973.......................................... 97.55 167.87 -- 17.37 3.06 254.40
1974.......................................... 68.56 117.98 -- 29.72 4.47 187.47
1975.......................................... 90.19 155.21 31.55 4.31 257.09
1976.......................................... 107.46 184.93 19.15 3.77 318.30
1977.......................................... 95.10 163.66 -- 11.50 4.62 295.42
1978.......................................... 96.11 165.39 1.06 5.28 314.68
1979.......................................... 107.94 185.75 12.31 5.47 372.74
1980.......................................... 135.76 233.63 25.77 5.26 493.76
1981.......................................... 122.55 210.89 -- 9.73 5.20 468.94
1982.......................................... 140.64 242.02 14.76 5.81 569.48
1983.......................................... 164.93 283.82 17.27 4.40 696.93
1984.......................................... 167.24 287.80 1.40 4.64 739.44
1985.......................................... 211.28 363.59 26.33 4.25 972.88
1986.......................................... 242.17 416.75 14.62 3.49 1,153.45
1987.......................................... 247.08 425.19 2.03 3.08 1,212.28
1988.......................................... 277.72 477.92 12.40 3.64 1,413.63
1989.......................................... 353.40 608.15 27.25 3.13 1,604.35
1990.......................................... 330.22 568.27 -- 6.56 3.61 1,553.23
1991.......................................... 417.09 717.78 26.31 3.70 2,034.11
1992.......................................... 435.71 749.79 4.46 2.97 2,189.92
1993.......................................... 466.45 802.70 7.06 2.78 2,721.45
</TABLE>
---------------
*Source: Standard & Poor's Corporation. Yields are obtained by dividing the
aggregate cash dividends by the aggregate market value of the stocks in the
Index.
**Assumes that cash distributions on the securities which comprise the S&P 500
Index are treated as reinvested in the S&P 500 Index as of the end of each
calendar quarter following the payment of the dividend. Because the Fund is
sold to the public, and reinvestment (when elected) is made, at net asset
value plus the applicable sales charge and the expenses of the Fund are
deducted before making distributions to Holders, investment in the Fund would
have resulted in investment performance to Holders somewhat reduced from that
reflected in the above table. In addition certain Holders may not elect to
participate in the Reinvestment Plan and to that extent cash distributions
representing dividends on the Index Stocks may not be reinvested in other Index
Stocks.
The S&P MidCap Index is composed of 400 selected common stocks of which, as
of December 31, 1993, 262 were listed on the New York Stock Exchange, 11 were
listed on the American Stock Exchange and 127 were quoted on the NASDAQ National
Market System. The MidCap Index Stocks were chosen for market size, liquidity
and industry group representation. As of December 31, 1993, industrial stocks
accounted for approximately 66.7% of S&P MidCap Index market capitalization,
utilities approximately 14.7%, financial stocks approximately 15% and
transportation stocks approximately 2.9%. The capitalizations of individual
companies ranged from about $93 million to over $6,936 billion; the mean market
capitalization of the companies in the S&P MidCap Index was approximately $1,128
billion. The S&P MidCap Index was created June 5, 1991 and would have had a
total return, with monthly reinvested dividends, of 50.10% for the year if the
Index had been in existence for the entire year. The total return for 1993 was
13.95%.
The chart below compares the relative total returns of the S&P 500 Index,
the S&P Midcap Index (although the Midcap Index was not created until June 5,
1991) and of over 2,000 small company stocks (as measured by
16
<PAGE>
Ibbotson Associates) for the three years ended December 31, 1993. Of course,
past performance is no indication of future results. Performance of the index
will vary from the Trust because of Trust expenses (including brokers'
commissions), and sales charges, and the fact that the Trust may not be fully
invested or invested in the same weightings as the index at all times. These
figures reflect the reinvestment of dividends on a monthly basis.
<TABLE><CAPTION>
CUMULATIVE RETURNS*, 3 YEARS ENDED DECEMBER 31, 1993
(VALUE OF $5,000 INVESTED AT BEGINNING OF PERIOD)
<S> <C> <C> <C>
SMALL COMPANY
$11,000 -- STOCKS**
10,500 -- $10,791.48
S&P MIDCAP
10,000 -- INDEX
9,500 -- $9,571.32
9,000 --
8,500 --
8,000 -- S&P 500 INDEX
7,500 -- $7,728.27
7,000 --
6,500 -- * Returns for the indices reflect reinvested
dividends but
not commissions or taxes, nor Trust 2.25%
sales charges
or expenses, which could reduce the
performance quoted.
6,000 -- The Trust's average annualized return
(reflecting sales
charges and expenses) were 10.18% for 1993
and 8.82%
since inception.
5,500 -- ** As measured by Ibbotson Associates' index
of 2,000+
stocks
5,000 --
</TABLE>
The weightings of stocks in the S&P 500 Index and the S&P MidCap Index are
primarily based on each stock's relative total market value; that is, its market
price per share times the number of shares outstanding. The S&P 500 Index and
the S&P MidCap Index together represented approximately 78% of the total market
capitalization of stocks traded in the United States, as of March 31, 1994.
Stocks are generally selected for the Portfolios in the order of their
weightings in the relevant Index, beginning with the heaviest-weighted stocks.
The percentage of each Trust's assets invested in each stock is approximately
the same as the percentage it represents in the relevant Index.
17
<PAGE>
Subject to market conditions, the Sponsors may create additional S&P 500 or
S&P MidCap Index Series of the Equity Income Fund. The Fund has entered into
license agreements with Standard & Poor's Corporation (the 'License
Agreements'), under which the Fund is granted licenses to use the trademarks and
tradenames 'S&P 500', 'Standard & Poors MidCap 400 Index' and other trademarks
and tradenames, to the extent the Sponsors deem appropriate and desirable under
federal and state securities laws to indicate the source of the Indices as a
basis for determining the composition of the Fund's investment portfolios. As
consideration for the grant of the license, each Trust will pay to Standard &
Poor's Corporation an annual fee equal to .02% of the average net asset value of
the Trust (or, if greater, $10,000). The License Agreements permit the Fund to
substitute another index for the S&P 500 Index or the S&P MidCap Index in the
event that Standard & Poor's Corporation ceases to compile and publish that
Index. In addition, if either Index ceases to be compiled or made available or
the anticipated correlations between the Trusts and the applicable Index is not
maintained, the Sponsors may direct that the affected Trust continue to be
operated using the S&P 500 Index or the S&P MidCap Index (as the case may be) as
it existed on the last date on which it was available or may direct that the
applicable Indenture be terminated (see Administration of the Fund--Amendment
and Termination).
Neither the Fund nor the Holders is entitled to any rights whatsoever under
the foregoing licensing arrangements or to use any of the covered trademarks or
to use the S&P 500 Index or the S&P MidCap Index, except as specifically
described herein or as may be specified in the Indentures.
Standard and Poor's Corporation's only relationship to the Fund is the
licensing of the right to use the S&P 500 Index and the S&P MidCap Index as
bases for determining the composition of the Fund and to use the related
trademarks and tradenames in the name of the Fund and in the Prospectus and
related sales literature to the extent that the Sponsors deem appropriate or
desirable under Federal and state securities laws and to indicate the source of
the S&P 500 Index or the S&P MidCap Index. The S&P 500 Index and the S&P MidCap
Index are determined, comprised and calculated without regard to the Fund.
Standard and Poor's Corporation shall have no obligation to take the needs of
the Fund or its Holders into consideration in determining, comprising or
calculating the S&P 500 Index or the S&P MidCap Index. Standard and Poor's
Corporation is not responsible for and shall not participate in sales of Units
or in the determination of the timing of, prices at, or quantities and
proportions in which purchases or sales of Securities shall be made.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX AND THE S&P MIDCAP INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE
NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE SPONSORS, THE
FUNDS, ANY PERSON OR ANY ENTITY FROM THE USE OF THE S&P 500 INDEX OR THE S&P
MIDCAP INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE, WITH RESPECT TO THE S&P 500 INDEX OR THE S&P
MIDCAP INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
Information on the S&P 500 Index and the S&P MidCap Index contained in this
Prospectus, as further updated, may also be included from time to time in other
prospectuses or in advertising material. The performance of a Trust or of either
Index (provided information is also given reflecting the performance of the
18
<PAGE>
Trust in comparison to that Index) may also be compared to the performance of
money managers as reported in SEI Fund Evaluation Survey (the leading data base
of tax-exempt assets consisting of over 4,000 portfolios with total assets of
$250 billion) or of mutual funds as reported by Lipper Analytical Services Inc.
(which calculates total return using actual dividends on ex-dates accumulated
for the quarter and reinvested at quarter end), Money Magazine Fund Watch (which
rates fund performance over a specified time period after sales charge and
assuming all dividends reinvested) or Wiesenberger Investment Companies Service
(which states fund performance annually on a total return basis) or of the New
York Stock Exchange Composite Index, the American Stock Exchange Index
(unmanaged indices of stocks traded on the New York and American Stock
Exchanges, respectively), the Dow Jones Industrial Average (an index of 30
widely traded industrial common stocks) or the NASDAQ Composite Index (an
unmanaged index of over-the-counter stocks) or similar measurement standards
during the same period of time.
LITIGATION AND LEGISLATION
From time to time Congress considers proposals to reduce the rate of the
dividends-received deduction. Enactment into law of a proposal to reduce the
rate would adversely affect the after-tax return to investors who can take
advantage of the deduction. Holders are urged to consult their own tax advisers.
Further, at any time after the Initial Date of Deposit, litigation may be
initiated on a variety of grounds, or legislation may be enacted, with respect
to the Securities in the Fund or the issuers of the Securities. There can be no
assurance that future litigation or legislation will not have a material adverse
effect on the Fund or will not impair the ability of issuers to achieve their
business goals.
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio consists of those Stocks listed under Portfolio in Part A. In
addition up to 10 percent of the value of the Portfolio of any UTILITY COMMON
STOCK SERIES may consist of Other Fund Units of previously-issued Utility Common
Stock Series ('Other Funds') sponsored and underwritten by certain of the
Sponsors and acquired by the Sponsors in the secondary market. The Other Fund
Units represent interests in Securities in the portfolios of the Other Funds.
(See Investment Summary in Part A for a summary of particular matters relating
to the Portfolio.) The portfolios underlying any Other Fund Units deposited with
the Trustee (no one of which on the Date of Deposit represented more than 5%,
and all of which represented less than 10%, of the aggregate value of the
Portfolio) are substantially similar to that of the Fund. The percentage of the
Portfolio, if any, represented by Other Fund Units at the Evaluation Date is set
forth under Investment Summary in Part A. The investment objectives of the Other
Funds are similar to the investment objective of the Fund, and the Sponsors and
Trustee of the Other Funds have responsibilities and authority paralleling in
most important respects those described in this Prospectus and receive fees not
greater than those described herein.
The Fund consists of the Securities listed under Portfolio in Part A
(including any Replacement Securities and Additional Securities deposited in the
Fund in connection with the sale of additional Units to the public as described
under Fund Structure above) as long as they may continue to be held from time to
time in the Fund together with accrued and undistributed income therefrom and
undistributed and uninvested cash realized from the disposition of Securities
(see Administration of the Fund--Portfolio Supervision). Neither the Sponsors
nor the Trustee shall be liable in any way for any default, failure or defect in
any of the Securities. However, should any contract to be deposited in
connection with the sale of additional Units fail (a 'Failed Security'), the
Sponsors shall, on or before the next following Distribution Day, cause to be
refunded the attributable sales
19
<PAGE>
charge, plus the attributable Cost of Securities to Fund listed under Portfolio
in Part A, unless substantially all of the moneys held in the Fund to cover such
purchase are reinvested in additional or replacement Securities in accordance
with the Indenture (see Administration of the Fund--Portfolio Supervision).
The Indenture authorizes the Sponsors to increase the size and the number
of Units of the Fund by the deposit of Additional Securities and the issue of a
corresponding number of additional Units subsequent to the Initial Date of
Deposit (see Fund Structure). In addition, Securities may be sold under certain
circumstances (see Redemption; Administration of the Fund--Portfolio
Supervision). As a result, the aggregate value of the Securities in the
Portfolio will vary over time.
On the Evaluation Date each Unit represented the fractional undivided
interest in the Securities plus net income of the Fund set forth under
Investment Summary in Part A. Thereafter, if any Units are redeemed by the
Trustee, the aggregate value of Securities in the Fund will be reduced by
amounts allocable to redeemed Units, and the fractional undivided interest
represented by each Unit in the balance will be increased. However, if
additional Units are issued by the Fund, the aggregate value of Securities in
the Fund will be increased by amounts allocable to additional Units, and the
fractional undivided interest represented by each Unit in the balance will be
decreased. Units will remain outstanding until redeemed upon tender to the
Trustee by any Holder (which may include the Sponsors) or until the termination
of the Indenture (see Redemption; Termination).
SELECTION CRITERIA
In selecting Stocks for deposit into a Fund, Defined Asset Funds research
analysts employed a multi-step screening process which included review of the
fundamental creditworthiness of the particular issuer and liquidity of the issue
and review of the ratings assigned to a particular stock by other investment
professionals. Certain additional factors were considered for each individual
Series type; some of these factors are discussed below. Of course, because of
the considerations discussed above under Risk Factors, there can be no assurance
of the existence or continuance of any trend anticipated by the Sponsors.
UTILITY STOCK SERIES: The Stocks were selected considering the following
factors, among others: (i) the quality of the Stocks (based upon a judgment as
to the possible risk of dividend impairment and as to the potential for dividend
growth), (ii) the yield and price of the Stocks relative to other public utility
stocks of comparable quality and (iii) the variety of the utility Stocks in the
Portfolio, taking into account the availability on the market of utility issues
which met the Fund's criteria. An additional consideration for the Ninth Series
and subsequent Series, was whether the issuers of the Stocks had outstanding
first mortgage or senior debt securities rated investment grade. The yield and
price of utility stocks of the type deposited in the Fund are dependent on a
variety of factors, including money market conditions, general conditions of the
corporate bond and equity markets, size of a particular offering and capital
structure of the issuer. While it may not be likely that any Stocks' dividends
would be omitted, no assurances can, of course, be given since earnings
available for dividends, regardless of the size of the company, are subject to
numerous events which are often beyond the issuer's control.
SECOND EXCHANGE SERIES--AT&T SHARES: The Sponsors selected shares of AT&T
common stock and shares of common stock of the seven RBOCs created pursuant to
AT&T's Plan of Reorganization in 1984 in the same proportion as distributed in
1984 to holders of AT&T common stock. Subsequent to the initial Date of Deposit
adjustments have been made to reflect subsequent stock dividends, stock splits
and similar events.
S&P 500 INDEX (FIRST MONTHLY PAYMENT SERIES), S&P 500 TRUST 2 AND S&P
MIDCAP TRUST: The Index stocks were initially selected based upon computer
programs designed to maintain, within certain limits, the same
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proportionate relationship among the Securities as existed in the relevant
Indexes when the Trusts were created, in order to produce investment results
that generally correspond to the price and yield performance of the relevant
Indexes.
In addition, since the objective of each Trust is to provide investment
results that duplicate substantially the price and yield performance of the
relevant Index, the Portfolio of each Trust will at any time consist of as many
of the Index Stocks as is feasible. Although, at any time, a Trust may fail to
own certain of the Index Stocks, it will be substantially totally invested in
Index Stocks and the Sponsors believe that such investment should result in a
close correlation between the investment performance of the relevant Index and
that derived from ownership of Units. Adjustments will be made in accordance
with the computer program to bring the weightings of the Securities more closely
into line with their weightings on each Index as new Securities are purchased in
connection with the creation of new Units, as companies are dropped from or
added to an Index or as Securities are sold to meet redemptions. These
adjustments will be made on the business day following the relevant transaction
in accordance with computer program output showing which Securities are under-or
over-represented in a Portfolio. Adjustments will also be made at other times to
bring a Portfolio into line with the applicable Index. The proceeds from any
such sale will be invested in those Index Stocks which the computer program
output indicates are most under-represented (see Administration of the
Fund--Portfolio Supervision).
The Sponsors anticipate that the selection of any additional Index Stocks
deposited or purchased in connection with the creation of additional Units will
be those stocks which are most under-represented in the Portfolio based upon the
computer program output and the applicable Index as of the date prior to the
date of such subsequent deposit or purchase. Securities sold in order to meet
redemptions will be those stocks which are most over-represented in the
Portfolio based upon the computer program output and the applicable Index as of
the date prior to the date of such sale.
Finally, from time to time adjustments may be made in the Portfolio because
of changes in the composition of an Index. Based on past history, it is
anticipated that most such changes will occur as a result of merger or
acquisition activity. In such cases, the Fund, as shareholder of a company which
is the object of such merger or acquisition activity, will presumably receive
various offers from would-be acquirers of the company. The Trustee will not be
permitted to accept any such offers until such time as the company has been
deleted from the applicable Index. Since, in most cases, a company is removed
from an Index only after the consummation of a merger or acquisition of the
company, it is anticipated that the Fund will generally acquire, in exchange for
the stock of the deleted company, whatever consideration is being offered to
shareholders of that company who have not tendered their shares prior to such
time. Any cash received in such transactions will be reinvested in the most
under-represented Index Stocks. Any securities received as a part of the
consideration which are not included in the applicable Index will be sold as
soon as practicable and reinvested in the most under-represented Index Stocks.
In attempting to duplicate the proportionate relationship represented by
each Index the Sponsors do not anticipate purchasing or selling shares in
quantities of less than round lots. In addition, certain Index Stocks may at
times not be available in the quantities in which the computer program specifies
that they be purchased. For these reasons, among others, precise duplication of
this proportionate relationship may not ever be possible but nevertheless will
continue to be the goal in connection with all acquisitions or dispositions of
Securities (see Administration of the Fund--Portfolio Supervision). As the
holder of the Securities, the Trustee will have the right to vote all of the
voting stocks in the Portfolio and will vote such stocks in accordance with the
instructions of the Sponsors except that, if the Trustee holds any of the common
stocks of Merrill Lynch & Co., Inc., The
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Travelers Inc. (as long as it remains the parent of Smith Barney Inc.),
Prudential Insurance Company of America (the parent of Prudential Securities
Incorporated) or any other common stock of companies which are affiliates of the
Sponsors, the Trustee will vote such stock in the same proportionate
relationship as all other shares of such companies are voted.
CONCEPT SERIES--TELECOMMUNICATIONS UTILITY TRUST: All of the issuers of the
Securities in the Portfolio were identified by at least one of the Sponsors as
companies that are well placed to benefit from the anticipated growth in demand
for telecommunications services and products. In addition, the Securities
deposited in the Fund were selected by considering the following factors, among
others: (i) the potential for capital appreciation of the Securities in the five
years subsequent to the Initial Date of Deposit, (ii) the number of shares of
the issuer currently outstanding, (iii) the current annual or indicated dividend
rate for certain types of issuers, (iv) the overall credit quality of the
issuers and (v) the variety of the telecommunications Securities in the
Portfolio, taking into account the availability on the market of these issues
which met the Fund's criteria.
CONCEPT SERIES--TELE-GLOBAL TRUST: Defined Asset Funds research analysts
selected telecommunications stocks for the Portfolio which they believe to have
above-average growth potential over the four years subsequent to the Initial
Date of Deposit. Each of the issuers of the Securities in the Portfolio was
identified by at least one of the Sponsors as well positioned to benefit from
the anticipated increased demand for telecommunications services and products.
The Securities were selected for inclusion in the Portfolio without regard to
any buy, sell or hold recommendation by any of the Sponsors. The analysts
reviewed telecommunications stocks available in U.S. equity markets for market
share and timeliness of purchase. The screening process included a thorough
financial analysis of each company, including its operating history, balance
sheet and cash flow. In addition, the Securities deposited in the Fund were
selected by taking into account the following factors, among others: (i) the
liquidity of the Securities as represented by number of shares of the issuer
currently outstanding, (ii) the current annual or indicated dividend rate, (iii)
the overall credit quality of the issuers and the economic outlook and political
stability of the foreign countries represented and (iv) the mix of both domestic
and non-U.S. telecommunications Securities in the Portfolio, taking into account
the availability on the market of the securities which met the Fund's criteria.
CONCEPT SERIES--INCOME GROWTH FUND: The Stocks deposited in the Fund on the
Initial Date of Deposit were selected by considering the following factors,
among others, as of five business days prior to the Initial Date of Deposit: (i)
dividend yields equal to or greater than 1.75%; (ii) annual growth rates of
dividends equal to or greater than 5.00% in each of the last ten years for which
information was available as of the Selection Date; (iii) positive annual growth
rates of earnings per share in eight or more of those ten years; (iv) positive
annual growth rates of sales in eight or more of those ten years and (v)
shareholders equity equal to or greater than $100,000,000. The Stocks were
further screened to determine whether they possessed favorable ratings from
Defined Asset Funds research analysts as well as from other recognized
investment professionals and to determine the underlying creditworthiness of the
companies. Most of the companies selected have long-term debt to capital ratios
of less than 30%. In the opinion of the Sponsors, this should result in lower
risk than more highly leveraged companies. Finally, the analysts reviewed the
liquidity of the Stocks and verified that the Stocks met the above criteria,
other than the criterion described in (i) above, as of one day prior to the
Initial Date of Deposit (the 'Verification Date'). The companies selected were
those having the most consistent records and believed to have significant
potential for future dividend growth. However, there can be no assurance that
subsequent to the Verification Date the Stocks will continue to meet all of the
criteria described above.
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CONCEPT SERIES--NORTHWEST INVESTMENT TRUST: The Securities were selected
through a multi-step screening process. Defined Asset Funds research analysts
identified those companies that were anticipated to appreciate in value and are
headquartered or have operations in the Pacific Northwest area. Second, they
conducted a fundamental analysis of the companies to determine their underlying
creditworthiness. Finally, they reviewed the liquidity of the common stocks.
CONCEPT SERIES--NATURAL GAS TRUST: All of the issuers of the Securities in
the Portfolio were identified by investment professionals as companies that are
well placed to benefit from the anticipated increased demand for natural gas in
excess of existing and expected supply of natural gas which is expected to
result in increased prices, increased sales volume and increased profitability
in the natural gas industry. In addition, the Securities deposited in the Fund
were selected by considering the following factors, among others: (i) the
potential for capital appreciation of the Securities in the five years
subsequent to the Initial Date of Deposit, (ii) the current annual or indicated
dividend rate for certain types of issuers, (iii) the number of shares of the
issuer currently outstanding and (iv) the variety of the Securities issued by
companies in the natural gas industry included in the Portfolio, taking into
account the availability on the market of these issues which met the Fund's
criteria.
CONCEPT SERIES--FOOD FUND: The Securities were selected through a
multi-step screening process. First, Defined Asset Funds research analysts
identified those companies engaged in the manufacturing, processing and
distribution of food and beverages that are anticipated to appreciate in value
over the five years subsequent to the Initial Date of Deposit. Second, they
conducted a fundamental financial analysis of the companies to determine their
underlying creditworthiness. Finally, they reviewed the liquidity of the common
stocks.
CONCEPT SERIES--THE ECOLOGICAL TRUST 1990: All of the issuers of the Stocks
in the Portfolio were selected by the Sponsors from a list prepared by the
Sponsors' environmental advisors, Progressive Asset Management, Inc., The
Council on Economic Priorities, The Data Center and Kinder, Lydenberg, Domini &
Co. Inc. (the 'Environmental Advisors'). The Environmental Advisors prepared a
list of issuers that, in their opinion, are environmentally responsible and are
making contributions to the improvement of the earth's ecosystem. All of the
issuers of the Stocks in the Portfolio were selected from that list and
identified by investment professionals as companies that are well placed to
compete within their respective industries. In addition, the Stocks deposited in
the Fund were selected by taking into account the following factors, among
others: (i) the potential for capital appreciation of the Stocks in the five
years subsequent to the Initial Date of Deposit and (ii) the variety of the
waste management, environmental technology and environmentally responsible
Stocks in the Portfolio, taking into account the market capitalization and
liquidity of these issues which met the Fund's criteria.
Environmental Advisors. The four Environmental Advisors to the Fund were:
Progressive Asset Management, Inc.
Progressive Asset Management, Inc., based in Oakland, California, is a
brokerage firm specializing in environmentally responsible investing. The
corporation is a member of NASD, SIPC, the Social Investment Forum and an
original sponsor of the Valdez Principles. Progressive Asset Management was
the coordinator of the Environmental Advisors and on behalf of all the
Environmental Advisors was compensated by the Underwriters of the Fund.
The Council on Economic Priorities
The Council on Economic Priorities, based in New York, New York, is an
independent, public interest research organization founded in 1969. Its
corporate responsibility research focuses on various issues including the
environment.
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The Data Center
The Data Center is an independent, non-profit public interest research
organization focusing on current economic and political issues. Founded in
1977 and based in Oakland, California, it monitors business ethics,
including the environmental record of companies worldwide, provides a
customized corporate research service, and publishes the monthly Corporate
Responsibility Monitor.
Kinder, Lydenberg, Domini & Co. Inc.
Kinder, Lydenberg, Domini & Co. Inc., based in Boston, Massachusetts, is
a registered investment adviser. Its primary purpose is to provide research
for the Domini Social Index. The firm maintains a database of its research,
consisting of the results of applications of a broad range of environmental
and other screens to over 1,000 publicly traded corporations.
Contributions. The Underwriters of the Fund will make a contribution to The
One Fund for the Environment in the following amounts:
(1) $0.50 per 100 units for the first 2,500,000 units sold in the primary
offering period;
(2) $0.75 per 100 units for the second 2,500,000 units sold in the primary
offering period;
(3) $1.00 per 100 units for the third 2,500,000 units sold in the primary
offering period;
(4) $1.25 per 100 units for the fourth 2,500,000 units sold in the primary
offering period; and
(5) $1.50 per 100 units sold in excess of 10,000,000 units sold in the
primary offering period.
The One Fund for The Environment was established by The Environmental
Federation of America to support the programs of twenty-three national
non-profit and tax-exempt environmental organizations which work to protect
human health and preserve natural resources for the public's welfare including:
African Wildlife Foundation, American Forestry Association, American Rivers,
Center for Marine Conservation, Clean Water Fund, Defenders of Wildlife,
Environmental Action Foundation, Environmental Defense Fund, Environmental and
Energy Study Institute, Environmental Law Institute, Environmental Policy
Institute, Izaak Walton League of America, National Audubon Society, National
Coalition Against Misuse of Pesticides, National Parks and Conservation
Association, National Wildlife Federation, National Resources Defense Council,
The Nature Conservancy, Rails-to-Trails Conservancy, Sierra Club Legal Defense
Fund, The Trust for Public Land, Union of Concerned Scientists and The
Wilderness Society. Each of these organizations has operations in 15 or more
states and each has records of major accomplishments for environmental
protection. They work to safeguard health by reducing toxic wastes, acid rain,
pesticides and other environmental hazards; to protect wildlife and wildlife
habitats; to reduce pollutants in air and water; to save America's forests,
oceans, rivers and wilderness lands; to preserve endangered animal and plant
species; to provide recreational opportunities that depend on the outdoors; to
educate the public in how to enjoy and protect the natural world; to create and
preserve open space, parklands and nature sanctuaries; and to develop
educational programs that promote a sound and balanced use of natural resources.
These organizations have met stringent criteria for acceptance by The
Environmental Federation of America including a prohibition on the advocacy of
any illegal direct action.
The Environmental Federation of America is a tax-exempt non-profit
organization founded in March, 1988, and based in Washington, D.C. Neither the
Environmental Federation of America nor its affiliated agencies have
participated in the establishment of the Fund or the selection of the companies
in the Fund, nor do any of them endorse or promote the activities of any
organizations other than their affiliated agencies. Other than with respect to
information concerning The One Fund for the Environment and The Environmental
Federation of America, none of the information in this prospectus has been
supplied or verified by The Environmental Federation of
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America and The Environmental Federation of America makes no representation,
expressed or implied, as to the accuracy or completeness of this information.
INCOME AND DISTRIBUTIONS
The net annual income per Unit that is earned by the Fund is determined by
subtracting from the annual dividend income of the Securities in the Portfolio
the annual expenses (total estimated annual Trustee's, Sponsors' and
administrative fees and expenses) and dividing by the number of Units
outstanding. The net annual income per Unit will depend upon the amount of
dividends declared and paid by the issuers of the Securities, sales and
substitution of Securities and the purchase of additional Securities
(recognizing, however, that the sale or purchase of Securities by itself should
have a minimal effect on income per Unit because, as much as practicable, each
Unit will continue to represent a fractional undivided interest in the same
percentages of Securities of the same issuers) and changes in the expenses of
the Fund.
There is no assurance that any dividends will be declared or paid in the
future on the Securities in the Fund. The earning of income by the Fund through
dividends paid on the stocks may not be a primary investment objective of the
Fund, and some issuers represented in a Portfolio may not pay dividends on their
Securities. Normally, dividends on the Securities in the Fund are paid on a
quarterly basis which may or may not coincide with a Record Day. Record Days and
Distribution Days are set forth under Investment Summary in Part A.
UTILITY STOCK SERIES, SECOND EXCHANGE SERIES--AT&T SHARES, S&P 500 INDEX
(FIRST MONTHLY PAYMENT SERIES), INCOME GROWTH FUND: An amount substantially
equal to one-twelfth of the estimated annual income to the Income Account, after
deducting estimated expenses, will be distributed on or shortly after each
Distribution Day to Holders of record on the preceding Record Day. This avoids
the need to structure a portfolio to stagger dividend dates to provide regular
cash flow. In the case of distributions from the Capital Account, the
distributable balance in the Capital Account as of the Record Day must be at
least the minimum amount set forth under Investment Summary except for
distributions of capital gains (see Administration of the Fund--Accounts and
Distributions.
ALL OTHER FUNDS: Dividend income per Unit received by the Fund and
available for distribution and the distributable balance in the Capital Account
per Unit (other than capital gains) as of any particular Record Day will be
distributed on or shortly after the related Distribution Day to the Holders of
record on that Record Day, provided that no distribution from the Capital
Account is required unless the distributable balance therein (excluding capital
gains) is at least the minimum amount set forth under Investment Summary in Part
A (see Administration of the Fund--Accounts and Distributions).
Capital gain net income (i.e., the excess of capital gains over capital
losses) recognized by the Fund in any taxable year will generally be distributed
to Holders shortly after the end of the year. In order to meet certain tax
requirements the record date for this distribution may be in December.
FUND PERFORMANCE
Information on percentage changes in the dollar value of Units, on the
basis of changes in Unit price plus the amount of dividends and capital gains
distributed or reinvested 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. This material may also describe
various economic, industry and market factors that
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have affected, or in the opinion of Defined Asset Funds research are expected to
affect, the performance of a Fund's underlying stocks and of Fund Units.
Past performance may not be indicative of future results. The S&P Index
Trusts are adjusted only to conform to changes in the respective indices, and
the other Funds are not actively managed. Unit price and return fluctuate with
the value of the common stocks in the portfolio, so there may be a gain or loss
when Units are sold.
Fund performance may be compared to performance on the same basis
(distributions reinvested or distributed) of the Dow Jones Industrial Average,
the S&P 500 Composite Price Stock Index, the Consumer Price Index, or
performance data from publications such as Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Money Magazine, The New York Times, U.S. News
and World Report, Business Week, CDA Investment Technology, Inc., Forbes
Magazine or Fortune Magazine. As with other performance data, performance
comparisons should not be considered representative of the Fund's relative
performance for any future period.
TAXES
SECTION A. The following describes the tax consequences for ALL FUNDS
except Second Exchange Series-- AT&T Shares.
TAXATION OF THE FUND
The Fund intends to qualify for and elect the special tax treatment
applicable to 'regulated investment companies' under Section 851-855 of the
Internal Revenue Code of 1986, as amended (the 'Code'). Qualification and
election as a 'regulated investment company' involve no supervision of
investment policy or management by any government agency. If the Fund qualifies
as a 'regulated investment company' and distributes to Holders 90% or more of
its taxable income without regard to its net capital gain, (net capital gain is
defined as the excess of net long-term capital gain over net short-term capital
loss), it will not be subject to Federal income tax on any portion of its
taxable income (including any net capital gain) distributed to Holders in a
timely manner. In addition, the Fund will not be subject to the 4% excise tax on
certain undistributed income of 'regulated investment companies' to the extent
it distributes to Holders in a timely manner at least 98% of its taxable income
(including any net capital gain). It is anticipated that the Fund will not be
subject to Federal income tax or the excise tax because the Indenture requires
the distribution of the Fund's taxable income (including any net capital gain)
in a timely manner. Although all or a portion of the Fund's taxable income
(including any net capital gain) for a calendar year may be distributed shortly
after the end of the calendar year, such a distribution will be treated for
Federal income tax purposes as having been received by Holders during the
calendar year.
DISTRIBUTIONS
Distributions to Holders of the Fund's dividend income and net short-term
capital gain in any year will be taxable as ordinary income to Holders to the
extent of the Fund's taxable income (without regard to its net capital gain) for
that year. Any excess will be treated as a return of capital and will reduce the
Holder's basis in his Units and, to the extent that such distributions exceed
his basis, will be treated as a gain from the sale of his Units as discussed
below. It is anticipated that substantially all of the distributions of the
Fund's dividend income and net short-term capital gain will be taxable as
ordinary income to Holders.
Distribution of the Fund's net capital gain (designated as capital gain
dividends by the Fund) will be taxable to Holders as long-term capital gain,
regardless of the length of time the Units have been held by a Holder. A Holder
may recognize a taxable gain or loss if the Holder sells or redeems his Units.
Any gain or loss arising from
26
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(or treated as arising from) the sale or redemption of Units will be a capital
gain or loss, except in the case of a dealer or a financial institution. Capital
gains are generally taxed at the same rate as ordinary income. However, the
excess of net long-term capital gains over net short-term capital losses may be
taxed at a lower rate than ordinary income for certain noncorporate taxpayers. A
capital gain or loss is long-term if the asset is held for more than one year
and short-term if held for one year or less. The deduction of capital losses is
subject to limitations.
A distribution of Securities to a Holder upon redemption of his Units will
be a taxable event to such Holder, and that Holder will recognize taxable gain
or loss upon such distribution (equal to the difference between such Holder's
tax basis in his Units and the fair market value of Securities received in
redemption), which will be capital gain or loss except in the case of a dealer
in securities or a financial institution. Holders should consult their own tax
advisers in this regard.
Distributions which are taxable as ordinary income to Holders will
constitute dividends for Federal income tax purposes. To the extent that
distributions are appropriately designated by the Fund and are attributable to
dividends received by the Fund from domestic issuers with respect to whose
securities the Fund satisfied the requirements for the dividends-received
deduction, such distributions will be eligible for the dividends-received
deduction for corporations (other than corporations such as 'S' corporations
which are not eligible for such deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax).
The dividends-received deduction is generally 70%. However, Congress from
time to time considers proposals to reduce the rate, and enactment of such a
proposal would adversely affect the after-tax return to investors who can take
advantage of the deduction. Holders are urged to consult their own tax advisers.
Sections 246 and 246A of the Code contain additional limitations on the
eligibility of dividends for the corporate dividends-received deduction.
Depending upon the corporate Holder's circumstances (including whether it has a
45-day holding period for its Units and whether its Units are debt financed),
these limitations may be applicable to dividends received by a Holder from the
Fund which would otherwise qualify for the dividends-received deduction under
the principles discussed above. Accordingly, Holders should consult their own
tax advisers in this regard. A corporate Holder should be aware that the receipt
of dividend income for which the dividends-received deduction is available may
give rise to an alternative minimum tax liability (or increase an existing
liability) because the dividend income will be included in the corporation's
'adjusted current earnings' for purposes of the adjustment to alternative
minimum taxable income required by Section 56(g) of the Code.
Holders will be taxed in the manner described above regardless of whether
distributions from the Fund are actually received by the Holder or are
reinvested pursuant to the Reinvestment Plan.
The Federal tax status of each year's distributions will be reported to
Holders and to the Internal Revenue Service. The foregoing discussion relates
only to the Federal income tax status of the Fund and to the tax treatment of
distributions by the Fund to U.S. Holders. Distributions may also be subject to
state and local taxation and Holders should consult their own tax advisers in
this regard.
FOREIGN HOLDERS
A 'Foreign Holder' is a person or entity that, for U.S. Federal income tax
purposes, is a non-resident alien individual, a foreign corporation, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust. If a
distribution of the Fund's taxable income (without regard to its net capital
gain) to a Foreign Holder is not
27
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effectively connected with a U.S. trade or business carried on by the investor,
such distribution will be subject to withholding tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
A Foreign Holder generally will not be subject to Federal income tax with
respect to gain arising from the sale or redemption of Units or distributions of
the Fund's net capital gain (designated as capital gain dividends by the Fund)
unless the gain is effectively connected with a trade or business of such Holder
in the United States. In the case of a Foreign Holder who is a non-resident
alien individual, however, gain arising from the sale or redemption of Units or
distributions of the Trust's net capital gain ordinarily will be subject to
Federal income tax at a rate of 30% if such individual is physically present in
the U.S. for 183 days or more during the taxable year and, in the case of the
gain arising from the sale or redemption of Units, either the gain is
attributable to an office or other fixed place of business maintained by the
Holder in the United States or the Holder has a 'tax home' in the United States.
The tax consequences to a Foreign Holder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
Holders should consult their own tax advisers to determine whether investment in
the Fund is appropriate.
* * *
SECTION B. The following describes the tax consequences for SECOND EXCHANGE
SERIES--AT&T SHARES.
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 Federal income tax 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 income of the
Holders in the manner set forth below.
Each Holder will be considered the owner of a pro rata portion of each
Security in the Fund under the grantor trust rules of Sections 671-679 of the
Internal Revenue Code of 1986, as amended (the 'Code'). The total cost to a
Holder of his Units, including sales charges, is allocated among his pro rata
portion of each Security, in proportion to the fair market values thereof on the
date the Holder purchases his Units, in order to determine his tax cost for his
pro rata portion of each Security.
Each Holder will be considered to have received all of the dividends paid
on his pro rata portion of each Security when such dividends are received by the
Fund, even if the Holder does not actually receive such distributions but rather
reinvests his dividend distributions pursuant to the Reinvestment Plan. If the
Fund participates in any dividend reinvestment plan of the issuer of any of the
Securities and therefore receives dividends in the form of additional shares of
such issuer, each Holder will be considered to have received a dividend equal to
the value of the additional shares of such issuer received by the Fund with
respect to the Holder's pro rata portion of the Securities of such issuer in the
Fund. A Holder will have a tax basis in such additional shares equal to the
value thereof. The sale by a Holder who does not participate in the Fund's
Reinvestment Plan (or by the Distribution Agent on his behalf) of such
additional shares may give rise to a taxable gain or loss. The exchange by a
Holder (or by the Distribution Agent on his behalf) who participates in the
Fund's Reinvestment Plan of such additional shares for additional Units will be
tax free to the extent such additional shares are represented by the additional
Units received; any shares sold to purchase other Securities in order to
maintain the proportionate relationship of Securities represented by the Units
may give rise to taxable gain or loss to the Holder on whose behalf the
transaction was made.
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Dividends considered to have been received by a Holder from domestic
corporations which constitute dividends for Federal income tax purposes will
qualify for the dividends received deduction for corporations (other than
corporations such as 'S' corporations which are not eligible for such deductions
because of their special characteristics and other than for purposes of special
taxes such as the accumulated earnings tax and the personal holding company
tax). Depending upon the individual corporate Holder's circumstances (including
whether it has a 45-day holding period for its Units and whether its Units are
debt financed), the limitations contained in Sections 246 and 246A on the
availability of the dividends-received deduction may be applicable to dividends
received by a Holder from the Fund.
The dividends-received deduction is generally 70%. However, Congress from
time to time considers proposals to reduce the rate, and enactment of such a
proposal would adversely affect the after-tax return to investors who can take
advantage of the deduction. Holders are urged to consult their own tax advisors.
A corporate Holder should be aware that the receipt of dividend income for
which the dividends received deduction is available may give rise to an
alternative minimum tax liability (or increase an existing liability) because
the dividend income will be included in the corporation's 'adjusted current
earnings' for purposes of the adjustment to alternative minimum taxable income
required by Section 56(g) of the Code.
An individual Holder who itemizes deductions will be entitled to deduct his
pro rata share of fees and expenses paid by the Fund only to the extent that
this amount together with the Holder's other miscellaneous deductions exceeds 2%
of his adjusted gross income.
A distribution of Securities by the Trustee to a Holder (or to his agent,
including the Distribution Agent) upon redemption of Units (or an exchange of
Units for Securities by the Holder with the Sponsors) will not be a taxable
event to the Holder or to other Holders. The redeeming or exchanging Holder's
basis for such Securities will be equal to his basis for the same Securities
(previously represented by his Units) prior to such redemption or exchange, and
his holding period for such Securities will include the period during which he
held his Units. However, a Holder may have a taxable gain or loss, which will be
a capital gain or loss when the Holder (or his agent including the Distribution
Agent) sells the Securities so received in redemption for cash, when a redeeming
or exchanging Holder receives cash in lieu of fractional shares, when the Holder
sells his Units for cash or when the Trustee sells the Securities from the Fund.
Capital gains are generally taxed at the same rate as ordinary income, however,
the excess of net long-term capital gains over net short-term capital losses may
be taxed at a lower rate than ordinary income for certain noncorporate
taxpayers. A capital gain or loss is long-term if the asset is held for more
than one year and short-term if held for one year or less. The deduction of
losses is subject to limitations.
Under the income tax laws of the State and City of New York, the Fund is
not an association taxable as a corporation and the income of the Fund will be
treated as the income of the Holders in the same manner as for Federal income
tax purposes.
The foregoing discussion relates only to the tax treatment of U.S. Holders
with regard to Federal and certain aspects of New York State and City income
taxes. Holders that are not U.S. citizens or residents ('Foreign Holders')
should be aware that dividend distributions from the Fund may be subject to a
withholding tax of 30%, or a lower treaty rate. 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.
* * *
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After the end of each calendar year, the Trustee will furnish to each
Holder an annual statement containing information relating to the dividends
received by the Fund on the Securities, the gross proceeds received by the Fund
from the disposition of any Security (resulting from redemption or the sale by
the Fund of any Security), and the fees and expenses paid by the Fund. The
Trustee will also furnish annual information returns to each Holder and to the
Internal Revenue Service.
RETIREMENT PLANS
The Fund may be well suited for purchase by Individual Retirement Accounts
('IRAs'), Keogh plans, pension funds and other qualified retirement plans,
certain of which are briefly described below. Generally, capital gains and
income received in each of the foregoing plans are exempt from Federal taxation.
All distributions from such plans are generally treated as ordinary income but
may, in some cases, be eligible for special 5 or 10 year averaging or
tax-deferred rollover treatment. Holders of Units in IRAs, Keogh plans and other
tax-deferred retirement plans should consult their plan custodian as to the
appropriate disposition of distributions. Investors considering participation in
any of these plans should review specific tax laws related thereto and should
consult their attorneys or tax advisers with respect to the establishment and
maintenance of any of these plans. These plans are offered by brokerage firms,
including each of the Sponsors of this Fund, and other financial institutions.
Fees and charges with respect to such plans may vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units of the Fund may
be purchased by retirement plans established pursuant to Self-Employed
Individuals Tax Retirement Act of 1962 ('Keogh plans') for self-employed
individuals, partnerships or unincorporated companies. Qualified individuals may
generally make annual tax-deductible contributions up to the lesser of 20% of
annual compensation or $30,000 in a Keogh plan. The assets of the plan must be
held in a qualified trust or other arrangement which meets the requirements of
the Code. Generally there are penalties for premature distributions from a plan
before attainment of age 59 1/2, except in the case of a participant's death or
disability. Keogh plan participants may also establish separate IRAs (see below)
to which they may contribute up to an additional $2,000 per year ($2,250 in a
spousal account).
Individual Retirement Account--IRA. Any individual (including one covered
by an employer retirement plan) can establish an IRA or make use of a qualified
IRA arrangement set up by an employer or union for the purchase of Units of the
Fund. Any individual can make a contribution in an IRA equal to the lesser of
$2,000 ($2,250 in a spousal account) or 100%of earned income; such investment
must be made in cash. However, the deductible amount an individual may
contribute will be reduced if the individual's adjusted gross income exceeds
$25,000 (in the case of a single individual), $40,000 (in the case of married
individuals filing a joint return) or $200 (in the case of a married individual
filing a separate return). A married individual filing a separate return will
not be entitled to any deduction if the individual is covered by an
employer-maintained retirement plan without regard to whether the individual's
spouse is an active participant in an employer retirement plan. Unless
nondeductible contributions were made in 1987 or a later year, all distributions
from an IRA will be treated as ordinary income but generally are eligible for
tax-deferred rollover treatment. It should be noted that certain transactions
which are prohibited under Section 408 of the Code will cause all or a portion
of the amount in an IRA to be deemed to be distributed and subject to tax at
that time. A participant's entire interest in an IRA must be, or commence to be,
distributed to the participant not later than the April 1 following the taxable
year during which the participant attains age 70 1/2. Taxable distributions made
before attainment of age 59 1/2, except in the case of the participant's death
or disability or where the amount distributed is part of a series of
substantially equal periodic (at least annual) payments that are to be made over
the life expectancies of the participant and his or her beneficiary, are
generally subject to a surtax in an amount equal to 10% of the distribution.
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Corporate Pension and Profit-Sharing Plan. A pension or profit-sharing plan
established for employees of a corporation may purchase Units of the Funds.
HOW TO BUY
Units are available from any of the Underwriters and other broker-dealers
at the Public Offering Price (including the applicable sales charge) plus a
proportionate share of any cash held by the Fund in the Capital Account (unless
allocated to the purchase of specific securities) and net income in the Income
Account. Because the value of Securities changes, the Public Offering Price
varies each Business Day.
PUBLIC OFFERING PRICE
In the secondary market (after the initial offering period), the Public
Offering Price is based on the next evaluation of the Securities, and includes a
sales charge based (a) on the number of Units of the Fund purchased in the
secondary market on the same day by a single purchaser (see Secondary Market
Sales Charge Schedule in Appendix A). To qualify for a reduced sales charge, the
dealer must confirm that the sale is to a single purchaser or is purchased for
its own account and not for distribution. For these purposes, Units held in the
name of the purchaser's spouse or child under 21 years of age are deemed to be
purchased by a single purchaser. A trustee or other fiduciary purchasing
securities for a single trust estate or single fiduciary account is also
considered a single purchaser.
S&P 500 TRUST 2 AND S&P MIDCAP TRUST. The graduated sales charges shown in
Appendix A will apply on all purchases on any one day (with credit given for
previously purchased Units as described below under Right of Accumulation) by a
single purchaser of Units in one or both Trusts of this Fund only in the amounts
stated. For this purpose purchases will not be aggregated with concurrent
purchases of any other unit trusts sponsored by the Sponsors. However, 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. 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. The sales charge is lower than sales charges on many other equity
investments.
Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase Units
of either Trust at the offering price applicable to the total of (a) the dollar
amount then being purchased plus (b) an amount equal to the then current net
asset value of the purchaser's holdings of Units of both Trusts. To be eligible
either for this right of accumulation or the reduced sales charge applicable to
purchases of both Trusts on the same day, the purchaser or the purchaser's
securities dealer must notify the Sponsors at the time of purchase that such
purchase qualifies under this accumulation provision and supply sufficient
information to permit confirmation of qualification. Acceptance of the purchase
order is subject to such confirmation. These reduced sales charge provisions may
be amended or terminated at any time without notice.
HOW TO SELL
SPONSORS' MARKET FOR UNITS
Holders can cash in Units at any time without a fee. The Sponsors (although
not obligated to do so) normally repurchase any Units offered for sale, at the
repurchase price next computed after receipt of the order. Because of the sales
charge and fluctuations in the market value of the Securities (among other
reasons) the repurchase price
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may be less than the investor's cost for the Units. Holders disposing of Units
should consult their financial professional as to current market prices to
determine if other broker-dealers or banks offer higher prices for those Units.
The Sponsors may discontinue this market without prior notice if the supply
of Units exceeds demand or for other business reasons; in that event, the
Sponsors may still purchase Units at the redemption price as a service to
Holders. Although the Sponsors may reoffer Units repurchased, alternatively they
may redeem those Units; see Redemption for a description of certain consequences
of redemptions to remaining Holders.
REDEMPTION
Holders may redeem Units by tendering to the Trustee Certificates (if
issued) or a request for redemption. Certificates must be properly endorsed or
accompanied by a written transfer instrument. Each Holder must sign the
Certificate, transfer instrument or request exactly as the name appears on the
face of the Certificate; signatures must be guaranteed by an eligible guarantor
institution or in another manner acceptable to the Trustee. In certain
instances, additional documents may be required such as a certificate of death,
trust instrument, certificate of corporate authority or appointment as executor,
administrator or guardian. If the Sponsors are maintaining a market for Units,
they will purchase any Units tendered at the price described in the preceding
section. If the Sponsors do not purchase Units tendered, the Trustee is
authorized in its discretion to sell Units in the over-the-counter market if it
believes it will obtain for the redeeming Holder a higher net price.
Redemptions may be suspended or payment postponed in limited circumstances:
(1) if the New York Stock Exchange is closed other than for customary weekend
and holiday closings; (2) if the SEC determines that trading on that Exchange is
restricted or an emergency exists making disposal or evaluation of the
Securities not reasonably practicable; or (3) for any other period which the SEC
by order permits.
On the seventh calendar day after tender (the preceding Business Day if the
seventh day is not a Business Day), the Holder will be mailed an amount per Unit
equal to the Redemption Price Per Unit at the Evaluation Time next following
receipt of the tender. As noted above, this price may be more or less than the
cost of those Units.
If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee is authorized to sell Securities. Securities to be sold
will be selected by the Agent for the Sponsors in accordance with procedures
specified in the Indenture, based on market and credit factors that they
determine are in the best interests of the Fund. The Sponsors are authorized to
specify minimum blocks in which Securities are sold, to obtain a better price
for the Fund. When Securities are sold, the size and diversity of the Fund is
reduced. Sales to meet redemptions are often made at times when Securities would
not otherwise be sold, and may result in lower prices than might be realized
otherwise.
Redemption in Kind--CONCEPT SERIES, INCOME GROWTH FUND AND SECOND EXCHANGE
SERIES--AT&T SHARES only. Holders tendering Units for redemption may request
distribution in kind from the Trustee in lieu of cash redemption. A Holder may
request distribution in kind of an amount and value of Securities per Unit equal
to the Redemption Price per Unit as determined as of the Evaluation Time next
following the tender, provided that the tendering Holder is entitled to receive
the required number of shares of each Security in the Portfolio as part of his
distribution. If the Holder can receive this requisite number of shares, the
distribution in kind on redemption of Units will be held by a distribution agent
(the 'Distribution Agent') for the account of, and for disposition in accordance
with the instructions of, the tendering Holder. The tendering Holder shall be
entitled to receive whole shares of each of the Securities comprising the
Portfolio and cash from the Capital Account equal to the fractional
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shares to which the tendering Holder is entitled. Any brokerage commissions on
sales of the underlying Securities distributed in connection with in kind
redemptions will be borne by the tendering Holder. In implementing these
redemption procedures, the Trustee and Distribution Agent shall make any
adjustments necessary to reflect differences between the Redemption Price of the
Units and the value of the Securities distributed in kind as of the date of
tender. If funds in the Capital Account are insufficient to cover the required
cash distribution to the tendering Holder, the Trustee may sell Securities
according to the criteria discussed above. For CONCEPT SERIES, a Holder must
have elected to redeem prior to the date specified under Redemption in Kind in
Part A. The in kind redemption option may be terminated by the Sponsors at any
time upon notice to Holders.
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit is computed by the Trustee, as of the Evaluation
Time, on each June 30 and December 31 (or the last business day prior thereto),
on any day on which the New York Stock Exchange is open as of the Evaluation
Time next following the tender of any Unit for redemption, and on any other
business day desired by the Trustee or the Sponsors, by adding (a) the aggregate
value of the Securities as determined by the Trustee and (b) cash on hand in the
Fund (other than cash covering contracts to purchase Securities) including
dividends receivable on stocks trading ex-dividend and deducting therefrom the
sum of (x) taxes or other governmental charges against the Fund not previously
deducted, (y) accrued fees and expenses of the Trustee (including legal and
auditing expenses), the Sponsors and counsel, and certain other expenses and (z)
cash held for distribution to Holders of record as of a date prior to the
evaluation; and dividing the result by the number of Units outstanding as of the
date of computation.
The aggregate value of the Securities is determined in good faith by the
Trustee in the following manner: if the Securities are listed on a national
securities exchange or the NASDAQ national market system, or a foreign
securities exchange, this evaluation is generally based on the closing sale
prices on that exchange or that system (unless the Trustee deems these prices
inappropriate as a basis for valuation) or, if there is no closing sale price on
that exchange or system, at the mean between the closing bid and asked prices.
If the Securities are not so listed or, if so listed and the principal market
therefor is other than on the exchange, the evaluation shall generally be based
on the current bid price on the over-the-counter market (unless the Trustee
deems these prices inappropriate as a basis for evaluation). If current bid
prices are unavailable, the evaluation is generally determined (a) on the basis
of current bid prices for comparable securities, (b) by appraising the value of
the Securities on the bid side of the market or (c) by any combination of the
above.
EXPENSES AND CHARGES
FUND EXPENSES
See Trustee's Annual Fee and Expenses under Investment Summary for
estimated annual Fund expenses; if actual expenses exceed the estimate, the
excess will be borne by the Fund. The Trustee also benefits when it holds cash
for the Fund in non-interest bearing accounts. Possible additional charges
include Trustee fees and expenses for extraordinary services, costs of
indemnifying the Trustee and the Sponsors to the extent permitted by law and the
Indenture, costs of action taken to protect the Fund and other legal fees and
expenses, Fund termination expenses and any governmental charges. The Trustee
has a lien on Fund assets to secure reimbursement of these amounts, and may sell
Securities for this purpose. The Sponsors receive an annual fee for Portfolio
supervisory services at the maximum stated under Investment Summary, based on
the initial face amount in any calendar year. While this may exceed their costs
of providing these services to the Fund, the total supervision fees from all
Equity Income Fund Series will not exceed their costs for these services to all
of those Series during any calendar
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year. The Sponsors may also be reimbursed for their costs of providing
bookkeeping and administrative services to the Fund. The Trustees's and
Sponsors' fees may be adjusted for inflation without Holders' approval.
ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps a register of the names, addresses and holdings of all
Holders. The Trustee also keeps records of transactions of the Fund, including a
current list of the Securities and a copy of the Indenture, which records are
available to Holders for inspection at the office of the Trustee at reasonable
times during business hours (Sections 8.02 and 8.04).
ACCOUNTS AND DISTRIBUTIONS
Dividends payable to the Fund are credited by the Trustee to an Income
Account, as of the date on which the Fund is entitled to receive the dividends
as a Holder of record of the Securities. Other receipts, including amounts
received upon the sale of rights pursuant to Section 3.08 of the Indenture, are
credited to a Capital Account (Sections 3.01 and 3.02).
FOR UTILITY STOCK SERIES, SECOND EXCHANGE SERIES--AT&T SHARES, S&P 500
INDEX (FIRST MONTHLY PAYMENT SERIES) AND INCOME GROWTH FUND: Subject to the
Reinvestment Plan described below, the Monthly Income Distribution for each
Holder as of each Record Day will be made on the following Distribution Day or
shortly thereafter and shall consist of an amount, computed monthly by the
Trustee, substantially equal to one-twelfth of the Holder's pro rata share of
the estimated annual income to the Income Account.
FOR ALL OTHER FUNDS: The Income Distribution for each Holder as of each
Record Day will be made on the following Distribution Day or shortly thereafter
and shall consist of an amount substantially equal to the Holder's pro rata
share of the distributable cash balance in the Income Account, after deducting
estimated expenses. There is no assurance that actual distributions will be made
since all dividends received may be used to pay expenses.
An amount equal to any capital gain net income (i.e., the excess of capital
gains over capital losses) (or, in the case of SECOND EXCHANGE SERIES--AT&T
SHARES, proceeds from the disposition of any of the Securities) recognized by
the Fund in any taxable year will generally be distributed to Holders shortly
after the end of the year. Proceeds received from the disposition of any of the
Securities which are not used to make the distribution of capital gain net
income, for redemption of Units or reinvested in Additional Securities will
generally be held in the Capital Account to be distributed on the next
succeeding Distribution Day. The first distribution for persons who purchase
Units between a Record Day and a Distribution Day will be made on the second
Distribution Day following their purchase of Units. No distribution other than
capital gains need be made from the Capital Account if the balance therein is
less than the amount specified under Investment Summary in Part A (Section
3.04). A Reserve Account may be created by the Trustee by withdrawing from the
Income or Capital Accounts, from time to time, those amounts as it deems
requisite to establish a reserve for any taxes or other governmental charges
that may be payable out of the Fund (Section 3.03). Funds held by the Trustee in
the various accounts created under the Indenture do not bear interest (Section
8.01).
REINVESTMENT PLAN--UTILITY STOCK SERIES, INCOME GROWTH FUND, CONCEPT SERIES,
SECOND EXCHANGE SERIES-- AT&T SHARES AND S&P INDEX TRUSTS ONLY.
Monthly income distributions, annual distributions of any capital gain net
income (i.e., the excess of capital gains over capital losses) and other capital
distributions in respect of the Units may be reinvested by participating in the
Fund's reinvestment plan (the 'Reinvestment Plan'). A Holder (including any
Holder which is a broker or
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nominee of a bank or other financial institution) may indicate to the Trustee,
by filing the written notice of election accompanying this Prospectus or by
notice to the Holder's account executive or sales representative, that he wishes
such distributions to be automatically invested in additional Units (or
fractions thereof) of the Fund. The Holder's completed notice of election to
participate in the Reinvestment Plan must be received by the Trustee at least
ten days prior to the Record Date applicable to any distribution in order for
the Reinvestment Plan to be in effect as to such distribution and will remain
effective until notice to the contrary is timely received by the Trustee.
Such distributions, to the extent reinvested in the Fund, will be used by
the Trustee to purchase additional Securities in proportions sufficient to
maintain the proportionate relationship (subject to adjustment under certain
circumstances) among the number of shares of each Stock and the number of any
Other Fund Units in the Fund (see Administration of the Fund--Portfolio
Supervision). In the event an issuer of a Security has a shareholder dividend
reinvestment plan, a stock purchase plan or a similar plan under which its
shareholders may automatically reinvest their dividends or invest optional cash
payments in additional shares of the issuer's common or preferred stock without
brokerage commission or service charge or otherwise on a basis favorable to the
shareholder in the opinion of the Sponsors, the Fund (as a shareholder of such
issuer) upon the direction of the Sponsors may participate in such plans to the
extent practicable given the other restrictions on the purchase of additional
Securities even if such participation temporarily results in the proportionate
relationship of the Securities not being maintained.
Purchases made pursuant to the Reinvestment Plan will be at the applicable
Public Offering Price for Units of the Fund, less the applicable sales charge,
determined as of the close of business on the Distribution Date. Under the
Reinvestment Plan, the Fund will pay the distributions to the Trustee or
Distribution Agent which in turn will purchase for the Holder full and
fractional Units of the Fund at the price and time indicated above, will add the
Units to the Holder's account, and will send the Holder an account statement
reflecting the reinvestment. These Units may be Units already held in inventory
by the Sponsors (see Market for Units) or new Units created by the Sponsors'
deposit of additional securities, contracts to purchase additional Securities,
or cash (or a bank letter of credit in lieu of cash) with instructions to
purchase additional Securities (see Description of the Fund-- The Portfolio).
The Trustee will issue Certificates for whole units purchased through the
Reinvestment Plan only if the Holder so requests in writing. Certificates will
not be issued for fractional units. When Certificates are not issued the Trustee
will credit each Holder's account with the number of units purchased with such
Holder's reinvested distribution. Each Holder receives account statements both
annually and after each Reinvestment Plan transaction to provide the Holder with
a record of the total number of units in his account. This relieves the Holder
of responsibility for safekeeping of Certificates and, should he sell his units,
eliminates the need to deliver certificates. The Holder may at any time request
the Trustee (at the Fund's cost) to issue Certificates for full units. The cost
of administering the Reinvestment Plan will be borne by the Fund and thus will
be borne indirectly by all Holders.
Certain of the shareholder dividend reinvestment, stock purchase or similar
plans maintained by issuers of the Securities in the Portfolio offer shares
pursuant to such plans at a discount from market value. In all Funds except
Second Exchange Series--AT&T Shares, the Trustee is required by applicable
provisions of the Code to distribute pro rata to all Holders (i.e., not just to
those Holders participating in the Reinvestment Program) the income attributable
to such discounts.
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Holders of Units held in 'street name' by their broker or dealer should
contact their account executive or sales representative to determine whether or
not participation in the Reinvestment Plan through that broker or dealer is
available. Holders of Units participating in the Reinvestment Plan through their
broker or dealer will receive confirmation of their reinvestments in their
regular account statements or on a quarterly basis.
PORTFOLIO SUPERVISION
The Fund is a unit investment trust and is not an actively managed fund.
Traditional methods of investment management for a managed fund typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analyses. The Portfolio of the Fund, however, will not be
actively managed and therefore the adverse financial condition of an issuer will
not necessarily require the sale of its Securities from the Portfolio. In the
event a public tender offer is made for a Security or a merger or acquisition is
announced affecting a Security, the Agent for the Sponsors, may instruct the
Trustee to tender or sell the Security on the open market when in its opinion it
is in the best interest of the Holders of the Units to do so. The proceeds
realized from the tender offer or the sale of any Security will be distributed
to the Holders. The Sponsors may also direct the disposition of Securities upon
institution of certain legal proceedings, default under certain documents
materially and adversely affecting future declaration or payment of amounts due,
or decline in price or the occurrence of other market or credit factors that in
the opinion of the Sponsors would make the retention of these Securities
detrimental to the interest of the Holders, or if the disposition of these
Securities is necessary in order to enable the Fund to make distributions of the
Fund's capital gain net income or desirable in order to maintain the
qualification of the Fund as a 'regulated investment company' under the Code
(Section 3.08). Securities will not be sold solely based on the environmental
performance of the issuers.
For SECOND EXCHANGE SERIES--AT&T SHARES, proceeds of any sale of Securities
may not be reinvested but will be distributed to Holders. For Funds electing to
qualify as 'regulated investment companies' under the Code (see Taxes, Section A
above), the Sponsors are also authorized to direct the reinvestment of the
proceeds of the sale of Securities, as well as moneys held to cover the purchase
of Securities pursuant to contracts which have failed, in Additional Securities
or in Replacement Securities. The Replacement Securities must satisfy certain
conditions specified in the Indenture including, among other conditions,
requirements that the Replacement Securities shall be selected by the Sponsors
from a list of securities maintained by them and updated from time to time;
shall be publicly-traded stocks that meet the original selection criteria of the
Fund; shall be issued by an issuer subject to or exempt from the reporting
requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934
(or similar provisions of law); and have, in the opinion of the Sponsors,
characteristics sufficiently similar to the characteristics of the other
Securities in the Fund as to be acceptable for acquisition by the Fund. The
Indenture also requires that the purchase of the Replacement Securities will not
(i) disqualify the Fund as a regulated investment company under the Code, (ii)
result in more than 10% of the Fund consisting of securities of a single issuer
(or of two or more issuers which are Affiliated Persons as this term is defined
in the Investment Company Act of 1940) which are not registered and are not
being registered under the Securities Act of 1933 or (iii) result in the Fund
owning more than 50% of any single issue which has been registered under the
Securities Act of 1933. Whenever a Security has been eliminated from the
Portfolio, the Trustee shall, within five days thereafter, notify all Holders of
the sale of the Security eliminated and the acquisition of the Replacement
Security. If Replacement Securities are not acquired, the Sponsors will, on or
before the next following Distribution Day, cause to be refunded the
attributable sales charge, plus the attributable Cost of Securities to Fund
listed under Portfolio in Part A, plus income attributable to the Failed
Security.
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The Indenture also authorizes the Sponsors to increase the size and number
of Units of the Fund by the deposit of Additional Securities, contracts to
purchase Additional Securities or cash or a letter of credit with instructions
to purchase Additional Securities in exchange for the corresponding number of
additional Units subsequent to the Initial Date of Deposit, provided that the
original proportionate relationship among the number of shares of each Stock and
of any Other Fund Units established on the Initial Date of Deposit (the
'Original Proportionate Relationship') is maintained to the extent practicable,
except that for SECOND EXHANGE SERIES--AT&T SHARES, deposits of additional
Securities must replicate exactly the proportionate relationship among the
Securities existing at the end of the initial 90-day period subsequent to the
Initial Date of Deposit.
With respect to deposits of Additional Securities (or cash or a letter of
credit with instructions to purchase Additional Securities), in connection with
creating additional Units of the Fund, the Sponsors may specify the minimum
numbers in which Additional Securities will be deposited or purchased. If a
deposit is not sufficient to acquire minimum amounts of each Security,
Additional Securities may be acquired in the order of the Security most
under-represented immediately before the deposit when compared to the Original
Proportionate Relationship. If Securities of an issue originally deposited are
unavailable at the time of subsequent deposit, or cannot be purchased at
reasonable prices or their purchase is prohibited or restricted by law,
regulation or policies applicable to the Fund or any of the Sponsors, the
Sponsors may (1) deposit cash or a letter of credit with instructions to
purchase the Security when practicable, or (2) deposit (or instruct the Trustee
to purchase) either Securities of one or more other issues originally deposited
or a Replacement Security that satisfies the conditions for Replacement
Securities set forth above.
REPORTS TO HOLDERS
With each distribution, the Trustee will furnish Holders with a statement
of the amounts of income and the amounts of other receipts, if any, which are
being distributed, expressed in each case as a dollar amount per Unit. After the
end of each calendar year and following the termination of the Fund, the Trustee
will furnish to each person who at any time during the calendar year was a
Holder of record, a statement (i) summarizing transactions for that year in the
Income and Capital Accounts, (ii) identifying Securities sold and purchased
during the year and listing Securities held and the number of Units outstanding
at the end of that calendar year, (iii) stating the Redemption Price per Unit
based upon the computation thereof made at the end of that calendar year and
(iv) specifying the amounts distributed during that calendar year from the
Income and Capital Accounts. 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.
CERTIFICATES
Certain of the Sponsors may collect additional charges for registering and
shipping certificates to purchasers. These Certificates are transferable or
interchangeable upon presentation at the office of the Trustee, with a payment
of $2.00 if required by the Trustee (or other amounts specified by the Trustee
and approved by the Sponsors) for each new Certificate and any sums payable for
taxes or other governmental charges imposed upon the transaction 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.
TRUST INDENTURE
This Series (the 'Fund' or 'Trust') of Defined Asset Funds--Equity Income
Fund is a 'unit investment trust' created under New York law (or under
Massachusetts law for First through Fourth Series of Utility
37
<PAGE>
Common Stock Series) by a Trust Indenture (the 'Indenture') among the Sponsors
and the Trustee. To the extent that references in this Prospectus are to
articles and sections of the Indenture, which are hereby incorporated by
reference, the statements made herein are qualified in their entirety by this
reference.
The Sponsors and Trustee may amend the Indenture, without the consent of
the Holders, (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the SEC or any successor governmental agency, (c)
to add or change any provision as may be necessary or advisable for the
continuing qualification of a Fund as a regulated investment company under the
Code or (d) to make any other provisions which do not materially adversely
affect the interest of the Holders (as determined in good faith by the
Sponsors). The Indenture may also be amended in any respect by the Sponsors and
the Trustee, or any of the provisions thereof may be waived, with the consent of
the Holders of 51% of the Units, provided that none of these amendments or
waivers will reduce the interest in the Fund of any Holder without the consent
of the Holder or reduce the percentage of Units required to consent to any of
these amendments or waivers without the consent of all Holders (Section 10.01).
TERMINATION--UTILITY STOCK SERIES, INCOME GROWTH FUND, S&P INDEX TRUSTS AND
SECOND EXCHANGE SERIES-- AT&T SHARES
The Indenture will terminate upon the sale, or other disposition of the
last Security held thereunder but in no event is it to continue beyond the
mandatory termination date set forth under Investment Summary in Part A. The
Indenture may be terminated by the Sponsors if the value of the Fund is less
than the minimum value set forth under Investment Summary in Part A, and may be
terminated at any time by Holders of 51% of the Units. The Trustee will deliver
written notice of any termination to each Holder within a reasonable period of
time prior to the termination, specifying the times at which the Holders may
surrender their Certificates for cancellation. Within a reasonable period of
time after the termination, the Trustee must sell all of the Securities then
held and distribute to each Holder, upon surrender for cancellation of his
Certificates and after deductions for accrued but unpaid fees, taxes and
governmental and other charges, the Holder's interest in the Income and Capital
Accounts. This distribution will normally be made by mailing a check in the
amount of each Holder's interest in these accounts to the address of the Holder
appearing on the record books of the Trustee.
TERMINATION--CONCEPT SERIES
No later than the date specified under Liquidation Period under Investment
Summary in Part A the Trustee will begin to sell all of the underlying
Securities on behalf of Holders in connection with the termination of the Fund.
The Sponsor has agreed to perform these sales for the Trustee. The sale proceeds
will be net of any incidental expenses involved in the sales.
The Sponsor will attempt to sell the Securities as quickly as it can during
the Liquidation Period without in its judgment materially adversely affecting
the market price of the Securities, but it is expected that all of the
Securities will in any event be disposed of by the end of the Liquidation
Period. The Sponsor does not anticipate that the period will be longer than one
month, and it could be as short as one day, depending on the liquidity of the
Securities being sold. The liquidity of any Security depends on the daily
trading volume of the Security and the amount that the Sponsor has available for
sale on any particular day.
It is expected (but not required) that the Sponsor will generally follow
the following guidelines in selling the Securities: for highly liquid
Securities, the Sponsor will generally sell Securities on the first day of the
Liquidation Period; for less liquid Securities, on each of the first two days of
the Liquidation Period, the Sponsor will generally sell any amount of any
underlying Securities at a price no less than 1/2 of one point under the last
closing sale price
38
<PAGE>
of those Securities. Thereafter, the price limit will increase to one point
under the last closing sale price. After four days, the Sponsor currently
intends to sell at least a fraction of the remaining underlying Securities, the
numerator of which is one and the denominator of which is the total number of
days remaining (including that day) in the Liquidation Period without any price
restrictions. Of course, no assurances can be given that the market value of the
Securities will not be adversely affected during the Liquidation Period.
The Fund might reduce to the Minimum Value of Fund listed under Investment
Summary in Part A because of the lesser number of Units in the Fund, and
possibly also due to a value reduction, however temporary, in Units caused by
the Sponsor's sales of Securities (see ~Investment Summary--Termination); if so,
the Sponsor could then choose to liquidate the Fund without the consent of the
remaining Holders. (See Fund Structure.)
The Indenture will terminate upon the sale or other disposition of the last
Security held thereunder but in no event is it to continue beyond the mandatory
termination date set forth under Investment Summary in Part A. The Indenture may
be terminated by the Sponsor if the value of the Fund is less than the minimum
value set forth under Investment Summary in Part A, and may be terminated at any
time by Holders of 51% of the Units. The Trustee will deliver written notice of
any termination to each Holder within a reasonable period of time prior to the
termination, specifying the times at which the Holders may surrender their
Certificates for cancellation. Within a reasonable period of time after the
termination, the Trustee must sell all of the Securities then held and
distribute to each Holder, upon surrender for cancellation of his Certificates
and after deductions for accrued but unpaid fees, taxes and governmental and
other charges, the Holder's interest in the Income and Capital Accounts (Section
9.01). This distribution will normally be made by mailing a check in the amount
of each Holder's interest in these accounts to the address of the Holder
appearing on the record books of the Trustee.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
The Trustee may resign upon notice to the Sponsors; it 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 replacement of the Trustee is in
the best interests of the Holders. The resignation or removal shall become
effective upon the acceptance of appointment by the successor. 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.
Any Sponsor may resign if one remaining Sponsor maintains a net worth of
$2,000,000 and is agreeable to the resignation. A new Sponsor may be appointed
by the remaining Sponsors and the Trustee to assume the duties of the resigning
Sponsor. If there is only one Sponsor and it 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. The Sponsors and the Trustee are not liable to any other party
(including Holders) for any act or omission in the conduct of their
responsibilities absent willful misfeasance, bad faith, negligence (gross
negligence in the case of a Sponsor) or reckless disregard of duty. The Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of the Securities or upon the interest thereon. In
addition, the Indenture contains other customary provisions limiting the
liability of the Trustee.
39
<PAGE>
MISCELLANEOUS
TRUSTEE
The Trustee of the Fund is named on the back cover of this Prospectus and
is one of the following: The Bank of New York, a New York banking corporation
with its Unit Investment Trust Department at 101 Barclay Street, New York, New
York 10286 (which is subject to supervision by the New York Superintendent of
Banks, the Federal Deposit Insurance Corporation ('FDIC') and the Board of
Governors of the Federal Reserve System ('Federal Reserve')); Bankers Trust
Company, a New York banking corporation with its corporate trust office at Four
Albany Street, 7th Floor, New York, New York 10015 (which is subject to
supervision by the New York Superintendent of Banks, the FDIC and the Federal
Reserve); The Chase Manhattan Bank, N.A., a national banking association with
its corporate trust office at 1 Chase Manhattan Plaza--3B, New York, New York
10005 (which is subject to supervision by the Comptroller of the Currency, the
FDIC and the Federal Reserve); or (acting as Co-Trustees) Investors Bank & Trust
Company, a Massachusetts trust company with its unit investment trust servicing
group at One Lincoln Plaza, Boston, Massachusetts 02111 (which is subject to
supervision by the Massachusetts Commissioner of Banks, the FDIC and the 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 (which is subject to supervision by the Comptroller
of the Currency, the FDIC and the Federal Reserve). 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.
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors. Emmet, Marvin & Martin, 48 Wall Street, New York, New York 10005, act
as counsel for The Bank of New York, as Trustee. Bingham, Dana & Gould, 150
Federal Street, Boston, Massachusetts 02110, act as counsel for The First
National Bank of Chicago and Investors Bank & Trust Company, as Co-Trustees.
Hawkins Delafield & Wood, 67 Wall Street, New York, New York 10005, act as
counsel for Bankers Trust Company, as Trustee.
AUDITORS
The Statement of Condition, including the Portfolio of the Fund, included
herein has been audited by Deloitte & Touche LLP, independent accountants, as
stated in their opinion appearing herein and has been so included in reliance
upon that opinion given on the authority of that firm as experts in accounting
and auditing.
SPONSORS
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
Inc. 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 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.
Dean Witter Reynolds Inc., a principal operating
40
<PAGE>
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 companies for the purchase and sale of securities of these
companies and sell securities to these companies in their capacities as brokers
or dealers in securities.
PUBLIC DISTRIBUTION
The Sponsors intend to continue to qualify Units for sale in all states in
the U.S. in which qualification is deemed necessary through the Underwriting
Account and by dealers who are members of the National Association of Securities
Dealers, Inc. The Sponsors do not intend to qualify Units for sale in any
foreign countries and this Prospectus does not constitute an offer to sell Units
in any country where Units cannot lawfully be sold. Sales to dealers and to
introducing dealers, if any, will initially be made at prices which represent a
concession in the amount specified in the table above, but the Agent for the
Sponsors reserves the right to change the amount of the concession to dealers
and the concession to introducing dealers from time to time. Any dealer or
introducing dealer may reallow a concession not in excess of the concession to
dealers.
UNDERWRITERS' AND SPONSORS' PROFITS
On each subsequent deposit of Securities with respect to the sale of
additional Units to the public the Sponsors may realize a profit or loss which
will be the difference between the cost of the Securities to the Fund and the
purchase price of the Securities to the Sponsors plus commissions payable by the
Sponsors. In addition, any Sponsor or Underwriter may realize profits or sustain
losses in respect of Securities deposited in the Fund which were acquired by the
Sponsor or Underwriter from underwriting syndicates of which the Sponsor or
Underwriter was a member. To the extent additional Units continue to be offered
for sale to the public, the Underwriting Account also may realize profits or
sustain losses as a result of fluctuations in the aggregate value of the
Securities and hence in the Public Offering Price of the Units (see Investment
Summary in Part A). Cash, if any, made available by buyers of Units to the
Sponsors prior to the settlement date for purchase of Units may be used in the
Sponsors' businesses subject to the limitations of Rule 15c3-3 under the
Securities Exchange Act of 1934 and may be of benefit to the Sponsors. The
Sponsors also receive an annual fee up to the amount set forth under Investment
Summary in Part A to cover the costs of providing administrative and other
services to the Fund (see Expenses and Charges--Fees). In maintaining a market
for the Units (see Market for Units), the Sponsors will also realize profits or
sustain losses in the amount of any difference between the prices at which they
buy Units (based on the aggregate value of the Securities) and the prices at
which they resell these Units (which includes the sales charge) or the prices at
which they redeem the Units (based on the aggregate value of the Securities), as
the case may be.
DEFINED ASSET FUNDS
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.
41
<PAGE>
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 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.
42
<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 income. Defined Government Securities Income Funds
provide a way to participate in markets for U.S.
43
<PAGE>
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.
EXCHANGE OPTION
Holders may exchange Units (except of Short Intermediate Series) at a
reduced sales charge for units of one or more series of the types listed in
Appendix B ('Exchange Funds'). This includes the current maximum sales charge
and exchange fee for each type of Exchange Fund. (If units held less than five
months are exchanged for a series with a higher regular sales charge, the Holder
will pay the difference between the sales charges paid on the units exchanged
and the regular sales charge for the units acquired, if greater than the
exchange fee.)
The current return from taxable fixed income securities is normally higher
than that available from tax exempt fixed income securities. Certain of the
Exchange Funds do not provide for periodic payments of interest and are best
suited for purchase by IRA's, Keogh plans, pension funds or other tax-deferred
retirement plans. Consequently, some of the Exchange Funds may be inappropriate
investments for some Holders. Appendix B lists certain characteristics of each
type of Exchange Fund which a Holder should consider in determining whether it
would be an appropriate investment and therefore an appropriate exchange for
Units of the Fund.
Holders of Exchange Funds can similarly exchange units of those funds for
Units of the Fund. However, units of series offered at a maximum applicable
sales charge below 3.50% of the public offering price (including certain series
of Exchange Funds listed in Appendix B) are not eligible for exchange except
that Holders may exchange Units of the Fund for Freddie Mac or Select Ten Series
during their initial offering periods. Holders of other registered unit
investment trusts originally offered at a maximum applicable sales charge of at
least 3.0% ('Conversion Trusts') may similarly acquire Units at the exchange
fee.
To make an exchange, a Holder should contact his financial professional to
find out what suitable Exchange Funds are available and to obtain a prospectus.
The Holder may only acquire units of an Exchange Fund in which the Sponsors
maintain a secondary market and which are lawfully available for sale in the
state where the Holder resides. Except for the sales charge, an exchange is like
any other purchase and sale of units in the secondary market. An exchange is a
taxable event normally requiring recognition of any gain or loss on the units
exchanged. However, the Internal Revenue Service may seek to disallow a loss if
the portfolio of the units acquired is not materially different from the
portfolio of the units exchanged; Holders should consult their own tax advisers.
If the proceeds of units exchanged is insufficient to acquire a whole number of
Exchange Fund units, the Holder may pay the difference in cash (not exceeding
the price of a single unit acquired).
As the Sponsors are not obligated to maintain a secondary market in any
series, there can be no assurance that units of a desired series will be
available for exchange. The Exchange Option may be amended or terminated by the
Sponsors at any time, without notice to Holders.
44
<PAGE>
APPENDIX A
SECONDARY MARKET SALES CHARGE SCHEDULE
EFFECTIVE SALES CHARGE
<TABLE><CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
----------------------------------
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS
PUBLIC OFFERING NET AMOUNT PERCENT OF PUBLIC
AMOUNT PURCHASED PRICE INVESTED OFFERING PRICE
----------------------------------- ------------------- ------------- ---------------------
<S> <C> <C> <C>
UTILITY STOCK SERIES:
Less than $250,000................. 4.50% 4.712% 2.925%
$250,000 - $499,999................ 3.75 3.359 2.133
$500,000 - $749,999................ 2.50 2.564 1.300
$750,000 - $999,999................ 2.00 2.041 1.300
$1,000,000 or more................. 1.50 1.523 0.975
CONCEPT SERIES: NATURAL GAS TRUST 2:
Less than $25,000.................. 4.00% 4.167% 2.600%
$25,000 - $49,999.................. 3.50 3.627 2.275
$50,000 - $74,999.................. 3.00 3.093 1.950
$75,000 or more.................... 2.50 2.564 1.625
CONCEPT SERIES: FOOD FUND, NORTHWEST TRUST, TELECOMMUNICATIONS TRUST 1:
</TABLE>
The sales charge for Units of these Trusts is 2.00% (2.041% of net amount
invested). There is no reduction for quantity purchases of Units.
CONCEPT SERIES: ECOLOGICAL TRUST 1:
The sales charge for Units of this Trust is 1.00% (1.010% of net amount
invested). There is no reduction for quantity purchases of Units.
<TABLE><CAPTION>
S&P 500 INDEX (FIRST MONTHLY PAYMENT SERIES), S&P 500 TRUST 2, S&P MIDCAP TRUST:
<S> <C> <C> <C>
Less than $25,000.................. 2.25% 2.302% 1.463%
$25,000 - $49,999.................. 2.00 2.041 1.300
$50,000 - $74,999.................. 1.75 1.781 1.138
$75,000 - $99,999.................. 1.50 1.523 0.975
$100,000 - $249,999................ 1.25 1.266 0.813
$250,000 or more................... 1.00 1.010 0.650
</TABLE>
SECOND EXCHANGE SERIES--AT&T SHARES: THE SALES CHARGE IS WAIVED ON UNITS OF THIS
FUND
INCOME GROWTH FUND 1993 SERIES:
The sales charge consists of an initial portion and a deferred portion, the
total of which may equal a maximum of approximately 5.50% of the Public Offering
Price or 5.820% of the aggregate value of Securities, although these percentages
will vary should Units be purchased at a public offering price other than that
set forth on page A-3. For example, a Holder who acquires Units for $1,050
(including an initial sales charge of $15.75) and who holds the Units until the
termination of the Fund will pay a total sales charge of $55.75 or 5.31% of the
acquisition price on those Units. At an acquisition price of $950 (including an
initial sales charge of $14.25), the Holder would pay a total sales charge of
$54.25 or 5.71% of the acquisition price. The initial portion of the sales
charge is equal to 1.50% of the Public Offering Price (1.523% of the aggregate
value of Securities) and the deferred portion of the sales charge is $10.00 per
1,000 Units payable by the Fund on behalf of the Holders out of net asset value
of the Fund on each Deferred Charge Payment Date through 1997. If a Holder sells
or redeems
a-1
<PAGE>
Units before a Deferred Charge Payment Date, no future deferred sales charges
will be collected from that Holder; this will have the effect of reducing the
rate of sales charge.
a-2
<PAGE>
CONCEPT SERIES: TELE-GLOBAL TRUST:
The sales charge consists of an initial portion and a deferred portion, the
total of which may equal a maximum of approximately 5.35% of the Public Offering
Price or 5.501% of the net asset value of the Fund over its expected four-year
life. The initial portion of the sales charge is equal to 2.75% of the Public
Offering Price (2.828%) of the net amount invested in the Securities) and the
deferred portion of the sales charge is $1.625 per 1,000 Units ($6.50 per year)
payable by the Fund on behalf of the Holders out of net asset value of the Fund
on each quarterly Deferred Charge Payment Date until the Fund terminates. If a
Holder sells or redeems Units before a Deferred Charge Payment Date, all future
deductions of deferred sales charges with respect to such Holder will be waived;
this will have the effect of reducing the rate of sales charge as to such
Holder.
The initial portion of the sales charge is reduced on a graduated scale for
sales to any purchaser of at least $250,000 of Units and will be applied on
whichever basis is more favorable to the purchaser.
<TABLE><CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
----------------------------------
AS PERCENT OF AS PERCENT OF MAXIMUM
PUBLIC OFFERING NET AMOUNT DOLLAR AMOUNT DEFERRED
AMOUNT PURCHASED PRICE INVESTED PER 1,000 UNITS
----------------------------------- ------------------- ------------- -----------------------
<S> <C> <C> <C>
Less than $250,000................. 2.75% 2.828% $ 26.00
$250,000 - $499,999................ 2.25 2.302 26.00
$500,000 - $749,999................ 1.75 1.781 26.00
$750,000 - $999,999................ 1.25 1.266 26.00
$1,000,000 or more................. 1.00 1.010 26.00
</TABLE>
a-3
<PAGE>
APPENDIX B
EXCHANGE FUNDS
<TABLE><CAPTION>
REDUCED
MAXIMUM SALES CHARGE
NAME OF APPLICABLE FOR SECONDARY INVESTMENT
EXCHANGE FUND SALES CHARGE(A) MARKET(B) CHARACTERISTICS
--------------------------------------- --------------- ---------------------- --------------------------------------------------
<S> <C> <C> <C>
DEFINED ASSET FUNDS-- MUNICIPAL
INVESTMENT TRUST FUND
Monthly Payment, State and 5.50%(c) $15 per unit long-term, fixed rate, tax-exempt income
Multistate Series
Intermediate Term Series 4.50%(c) $15 per unit intermediate-term, fixed rate, tax-exempt income
Insured Series 5.50%(c) $15 per unit long-term, fixed rate, tax-exempt income,
underlying securities insured by insurance
companies
AMT Monthly Payment Series 5.50%(c) $15 per unit long-term, fixed rate, income exempt from regular
federal income tax but partially subject to AMT
DEFINED ASSET FUNDS-- MUNICIPAL INCOME
FUND
Insured Discount Series 5.50%(c) $15 per unit long-term, fixed rate, insured, tax-exempt current
income, taxable capital gains
DEFINED ASSET FUNDS-- INTERNATIONAL
BOND FUND
Multi-Currency Series 3.75% $15 per unit intermediate-term, fixed rate, payable in foreign
currencies, taxable income
Australian and New Zealand Dollar 3.75% $15 per unit intermediate-term, fixed rate, payable in
Bond Series Australian and New Zealand dollars, taxable income
Australian Dollar Bonds Series 3.75% $15 per unit intermediate-term, fixed rate, payable in
Australian dollars, taxable income
Canadian Dollar Bonds Series 3.75% $15 per unit short intermediate-term, fixed rate, payable in
Canadian dollars, taxable income
DEFINED ASSET FUNDS-- 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 are collateralized compound interest
obligations, taxable income, 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
DEFINED ASSET FUNDS-- 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 3.75% $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>
---------------
(a) 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.
(b) 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 (above) is $15 per 100
units and $20 per 1,000 units for Series for which the Reduced Sales Charge
for Secondary Market is $15 per 1,000 unit.
(c) Subject to reduction depending on the maturities of the underlying
Securities.
(d) 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.
b-1
<PAGE>
<TABLE><CAPTION>
REDUCED
MAXIMUM SALES CHARGE
NAME OF APPLICABLE FOR SECONDARY INVESTMENT
EXCHANGE FUND SALES CHARGE(A) MARKET(B) CHARACTERISTICS
--------------------------------------- --------------- ---------------------- --------------------------------------------------
<S> <C> <C> <C>
DEFINED ASSET FUNDS--EQUITY INCOME FUND
Utility Common Stock Series 4.50% $15 per 1,000 units(d) dividends, taxable income, underlying securities
are common stocks of public utilities
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
Select Ten Portfolios (domestic and 2.75% $17.50 per 1,000 units 10 highest dividend yielding stocks in a
international) designated stock index; seeks higher total return
than that stock index; terminates after one year
</TABLE>
b-2
<PAGE>
14101--11/94
b-3
<PAGE>
DEFINED
ASSET FUNDSSM
SPONSORS: EQUITY INCOME FUND
Merrill Lynch, Income Growth Fund (1993 Series)
Pierce, Fenner & Smith Incorporated A Unit Investment Trust
Defined Asset Funds PROSPECTUS PART A
P.O. Box 9051 This Prospectus does not contain all of
Princeton, NJ 08543-9051 the information with respect to the
(609) 282-8500 investment company set forth in its
Smith Barney Inc. registration statement and exhibits
Unit Trust Department relating thereto which have been filed
388 Greenwich Street--23rd Floor with the Securities and Exchange
New York, NY 10013 Commission, Washington, D.C. under the
1-800-223-2532 Securities Act of 1933 and the
PaineWebber Incorporated Investment Company Act of 1940, and to
1200 Harbor Boulevard which reference is hereby made.
Weehawken, NJ 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, NY 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, NY 10048 solicitation of an offer to buy,
(212) 392-2222 securities in any state to any person to
INDEPENDENT ACCOUNTANTS: whom it is not lawful to make such offer
Deloitte & Touche LLP in such state.
2 World Financial Center
9th Floor
New York, N.Y. 10281-1414
TRUSTEE:
The Chase Manhattan Bank, N.A.
Unit Trust Department
Box 2051
New York, NY 10081
1-800-323-1508
14426--5/95
