AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1995
REGISTRATION NO. 33-44844
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-6
------------------------------------------
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------------------------------------
A. EXACT NAME OF TRUST:
DEFINED ASSET FUNDS--
EQUITY INCOME FUND
S&P 500 TRUST 2
S&P MIDCAP TRUST
(A UNIT INVESTMENT TRUST)
B. NAMES OF DEPOSITORS:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
DEAN WITTER REYNOLDS INC.
C. COMPLETE ADDRESSES OF DEPOSITORS' PRINCIPAL EXECUTIVE OFFICES:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEFINED ASSET FUNDS
POST OFFICE BOX 9051
PRINCETON, N.J. 08543-9041 SMITH BARNEY INC.
388 GREENWICH STREET--23RD FLOOR
NEW YORK, NY 10013
PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES DEAN WITTER REYNOLDS INC.
1285 AVENUE OF THE INCORPORATED TWO WORLD TRADE
AMERICAS ONE SEAPORT PLAZA CENTER--59TH FLOOR
NEW YORK, N.Y. 10019 199 WATER STREET NEW YORK, N.Y. 10048
NEW YORK, N.Y. 10292
D. NAMES AND COMPLETE ADDRESSES OF AGENTS FOR SERVICE:
TERESA KONCICK, ESQ. THOMAS D. HARMAN ROBERT E. HOLLEY
P.O. BOX 9051 388 GREENWICH STREET 1200 HARBOR BLVD.
PRINCETON, N.J. NEW YORK, N.Y. 10013 WEEHAWKEN, N.J. 07087
08543-9051
COPIES TO:
LEE B. SPENCER, JR. DOUGLAS LOWE, ESQ. PIERRE DE SAINT PHALLE,
ONE SEAPORT PLAZA 130 LIBERTY STREET--29TH ESQ.
199 WATER STREET FLOOR 450 LEXINGTON AVENUE
NEW YORK, N.Y. 10292 NEW YORK, N.Y. 10006 NEW YORK, N.Y. 10017
The issuer has registered an indefinite number of Units under the Securities Act
of 1933 pursuant to Rule 24f-2 and filed the Rule 24f-2 Notice for the most
recent fiscal year on February 17, 1995.
Check box if it is proposed that this filing will become effective on April 7,
1995 pursuant to paragraph (b) of Rule 485. / x /
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<PAGE>
Defined
Asset FundsSM
INDEX SERIES The Defined Fund consists of two separate Trusts,
S&P 500 TRUST 2 designated the S&P 500 Trust 2 (the 'S&P 500
S&P MIDCAP TRUST Trust') and the S&P MidCap Trust, which offer
EQUITY INCOME FUND investors the opportunity to purchase Units
UNIT INVESTMENT TRUSTS representing proportionate interests in defined
PROSPECTUS DATED portfolios of preselected securities consisting of
APRIL 7, 1995 substantially all of the common stocks, in
substantially the same proportions, which comprise
the Standard and Poor's 500 Stock Price Composite
Index and the Standard and Poor's MidCap 400
Index, respectively. The Fund is designed to
produce investment results that generally
correspond to the price and yield performance of
the common stocks represented by these Indices.
There can be no assurance that these objectives
will be met (see Risk Factors). The Fund is not
sponsored by or affiliated with Standard and
Poor's Corporation.
The value of Units in the Fund will fluctuate with
the value of the Portfolios of underlying
Securities and no assurance can be given that
dividends will be paid or that the Units will
appreciate in value.
Minimum purchase: 1,000 Units.
Minimum purchase for Individual Retirement/Keogh
Accounts: unrestricted.
-------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
SPONSORS: DISAPPROVED BY THE SECURITIES AND EXCHANGE
Merrill Lynch, COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
Pierce, Fenner & Smith HAS THE COMMISSION OR ANY STATE SECURITIES
Incorporated COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
Smith Barney Inc. OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
PaineWebber Incorporated CONTRARY IS A CRIMINAL OFFENSE.
Prudential Securities -------------------------------------------------
Incorporated READ AND RETAIN THIS PROSPECTUS FOR FUTURE
Dean Witter Reynolds Inc. 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.
--------------------------------------------------------------------------------
CONTENTS
Investment Summary.......................................... A-3
S&P 500 TRUST 2
Accountants' Opinion Relating to the Fund................... D-1
Statement of Condition of the Fund.......................... D-2
Portfolio................................................... D-6
S&P MIDCAP TRUST
Accountants' Opinion Relating to the Fund................... D-16
Statement of Condition of the Fund.......................... D-17
Portfolio................................................... D-21
Fund Structure.............................................. 1
Risk Factors................................................ 1
Description of the Fund..................................... 3
Taxes....................................................... 8
Public Sale of Units........................................ 9
Market for Units............................................ 11
Redemption.................................................. 11
Expenses and Charges........................................ 12
Administration of the Fund.................................. 12
Resignation, Removal and Limitations on Liability........... 16
Miscellaneous............................................... 17
A-2
<PAGE>
DEFINED ASSET FUNDS--EQUITY INCOME FUND, INDEX SERIES
S&P 500 TRUST 2
S&P MIDCAP TRUST
INVESTMENT SUMMARY AS OF DECEMBER 31, 1994 (THE EVALUATION DATE)
S&P 500 TRUST
------------------------------------------------------------
NUMBER OF UNITS-- 65,445,611
FRACTIONAL UNDIVIDED INTEREST IN FUND REPRESENTED BY EACH
UNIT-- 1/65,445,611th
PUBLIC OFFERING PRICE PER 1,000 UNITS(d)
Trust Property(a).........................................$ 71,324,369
----------------
Divided by Number of Units................................$ 1,089.83
(times 1,000)
Plus sales charge of 2.25% of Public Offering Price
(2.302% of net amount invested in Trust Property)(e).... 25.08
----------------
Public Offering Price per 1,000 Units.....................$ 1,114.91
SPONSORS' REPURCHASE PRICE PER 1,000 UNITS AND REDEMPTION
PRICE PER 1,000 UNITS (based on Trust Property).........$ 1,089.83
($25.08 less
than Public
Offering Price
per 1,000
Units)(f)
TRUSTEE'S ANNUAL FEE AND EXPENSES
$2.02 per 1,000 Units (see Expenses and Charges)(b)
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 that month
(each a 'Record Day').
EVALUATION TIME
4:00 P.M., New York Time
PORTFOLIO SUPERVISION FEE(c)
Maximum of $0.35 per 1,000 Units (see Expenses
and Charges).
MINIMUM VALUE OF TRUST
Trust Indenture may be terminated if the value of the
Trust is less than 40% of the value of the Securities
when deposited in the Portfolio. As of the Evalua-
tion Date the value of the Trust is 100% of the
value of the Securities when deposited in the Port-
folio.
MANDATORY TERMINATION DATE
February 28, 2017
LICENSOR
Standard & Poor's Corporation
S&P MIDCAP TRUST
------------------------------------------------------------
NUMBER OF UNITS-- 32,668,823
FRACTIONAL UNDIVIDED INTEREST IN FUND REPRESENTED BY EACH
UNIT-- 1/32,668,823rd
PUBLIC OFFERING PRICE PER 1,000 UNITS(d)
Trust Property(a).........................................$ 33,580,568
----------------
Divided by Number of Units................................$ 1,027.91
(times 1,000)
Plus sales charge of 2.25% of Public Offering Price
(2.302% of net amount invested in Trust Property)(e).... 23.66
----------------
Public Offering Price per 1,000 Units.....................$ 1,051.57
SPONSORS' REPURCHASE PRICE PER 1,000 UNITS AND REDEMPTION
PRICE PER 1,000 UNITS (based on Trust Property) $ 1,027.91
($23.66 less
than Public
Offering Price
per 1,000
Units)(f)
TRUSTEE'S ANNUAL FEE AND EXPENSES
$2.68 per 1,000 Units (see Expenses and Charges)(b)
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 that month
(each a 'Record Day').
EVALUATION TIME
4:00 P.M., New York Time
PORTFOLIO SUPERVISION FEE(c)
Maximum of $0.35 per 1,000 Units (see Expenses
and Charges).
MINIMUM VALUE OF TRUST
Trust Indenture may be terminated if the value of the
Trust is less than 40% of the value of the Securities
when deposited in the Portfolio. As of the Evaluation
Date the value of the Trust is 101% of the value of
the Securities when deposited in the Portfolio.
MANDATORY TERMINATION DATE
February 28, 2017
LICENSOR
Standard & Poor's Corporation
------------------
(a)On the Initial Date of Deposit (February 19, 1992) the aggregate value
of Securities in each Trust was $2,000,000.00 and 2,046,035 Units of
each Trust were outstanding. Cost of Securities is set forth under
Portfolio.
(b)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.
(c)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.
(d)These figures assume a purchase of 1,000 Units. The price of a single
Unit, or any multiple thereof, is calculated simply by dividing the
Public Offering Price per 1,000 Units, above, by 1,000, and
multiplying by the number of Units.
(e)The sales charge is a maximum of 2.25% of the Public Offering Price,
and is reduced in the case of purchases of $25,000 or more. See Public
Sale of Units--Public Offering Price. There is no sales charge for
purchases pursuant to the Reinvestment Plan.
(f)For Units purchased or redeemed on the Evaluation Date, the amount in
the Income Account is approximately equal to the undistributed net
investment income of the Fund (see Statement of Condition on p. D-2)
divided by the number of outstanding Units, plus any amount per Unit
added to the Income Account to the expected date of settlement (5
business days after purchase or redemption). The amount of the cash
adjustment which is added is equal to the cash per Unit in the Capital
Account not allocated to the purchase of specific Securities (see
Public Sale of Units--Public Offering Price and Redemption).
A-3
<PAGE>
INVESTMENT SUMMARY AS OF THE EVALUATION DATE (CONTINUED)
OBJECTIVE OF THE TRUSTS--To provide investors with the opportunity to
purchase Units representing proportionate interests in a portfolio consisting of
substantially all of the common stocks, in substantially the same proportions,
which comprise the Standard & Poor's 500 Stock Price Composite Index (the 'S&P
500 Index') or the Standard & Poor's MidCap 400 Index (the 'S&P MidCap Index')
in order to produce investment results that generally correspond to the price
and yield performance of the S&P 500 Index and the S&P MidCap Index. There can
be no assurance that this objective will be met because it may be impracticable
for the Fund to duplicate or maintain precisely the relative weightings of the
common stocks which comprise the S&P 500 Index (the '500 Index Stocks') or the
S&P MidCap Index (the 'MidCap Index Stocks') or to purchase all of these stocks.
(See Fund Structure; Description of the Fund--The S&P 500 Index and The S&P
MidCap Index). The payment of dividends and preservation of capital are
dependent on several factors including the financial condition of the issuers of
the Securities in the Portfolios. The value of the underlying Portfolios and
therefore the value of the Units will fluctuate with changes in the values of
common stocks generally and other factors.
It is the Fund's investment policy to have at least 95% of a Trust's assets
invested in the common stocks comprising the S&P 500 Index and the S&P MidCap
Index, respectively. The Sponsors expect to maintain a correlation of between
.97-.99 between each Trust and the applicable Index.
FUND PORTFOLIOS--The Trusts consist of different issues of common stocks of
corporations selected in accordance with the selection and weightings of stocks
established by the S&P 500* Index and the S&P MidCap Index, respectively. The
S&P 500 Index is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P MidCap Index is composed of 400
selected common stocks of which, as of the Evaluation Date, 273 were listed
either on the New York or the American Stock Exchange and 127 were quoted on the
NASDAQ National Market System. (See Description of the Fund--The S&P 500 Index
and The S&P MidCap Index.)
Investors often compare the performance of their equity investments to a
measure of overall market performance--an index. The Trusts are designed to
offer investors an opportunity, with a single, convenient purchase, to
participate in the total return performance of two indices broadly representing
the market. This diversification reduces the risk of selecting individual stocks
or market sectors. Indexing is a strategy that most equity investors can use as
part of their overall investment plan, to seek potential growth in otherwise
conservative portfolios or to hedge an aggressive strategy.
Since common stocks are purchased for the Fund only in round lots, and
because of certain procedural policies of the Fund, the Portfolios may never
precisely duplicate the percentage relationships established for stocks by the
S&P 500 Index and the S&P MidCap Index. For example, brokerage fees incurred in
purchasing Securities with cash deposited with instructions to purchase the
Securities will be an expense of a Trust, and price fluctuations from the time
moneys are received by a Trust and invested will affect the value of the Units,
the income per Unit received by the Trust and the correlations between the
Trusts and the Indices. (See Fund Structure; Administration of the
Fund--Portfolio Supervision.) Additional deposits or purchases of common stocks
in connection with creation of additional Units will be effected in a manner
that will maintain, to the extent practicable, the relative weightings among the
common stocks in the relevant Index.
RISK FACTORS--Investment in the Fund should be made with an understanding
that the value of the underlying Portfolios may fluctuate in accordance with
changes in the financial condition of the issuers of the Securities in the
Portfolios (particularly those that are heavily weighted in the relevant Index),
the value of common stocks generally and other factors. Also the identity and
weighting of the 500 Index Stocks and the MidCap Index Stocks will change from
time to time (see Description of the Fund--The S&P 500 Index and The S&P MidCap
Index). There can be no assurance that the issuers of the Securities will pay
dividends on outstanding shares of common stock. Distributions of income on the
underlying Securities will generally depend upon the declaration of dividends by
the issuers of the Securities
------------------------------------
*'S&P', 'Standard & Poor's', 'S&P 500', 'Standard & Poor's 500', 'S&P MidCap
400 Index' and 'Standard & Poor's MidCap 400 Index' are trademarks of Standard &
Poor's Corporation.
A-4
<PAGE>
Defined
Asset Funds
INVESTOR'S GUIDE DEFINED EQUITY INCOME FUND
INDEX SERIES Our defined portfolios of equities offer investors
S&P 500 TRUST 2 a simple and convenient way to participate in the
S&P MIDCAP TRUST equity markets. By purchasing defined equity
EQUITY INCOME FUND funds, investors not only avoid the problem of
UNIT INVESTMENT TRUSTS 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.
THE INDEX SERIES
One of the greatest benefits of performance is the
total return. After all, total return is why
you're investing in stocks. The tricky part is
keeping the cost of your investments from eating
away at your profits. That's where we can help.
The Index Series was created for investors, like
yourself, who are looking for an opportunity to
reflect the performance of a major market index.
WHY INDEX YOUR INVESTMENT?
Indexing is an investment strategy that allows you
to invest in a portfolio of stocks that is
carefully structured to mirror, as closely as
possible, the total return of a market index. The
chart below illustrates the performance of the S&P
500 Index over the past 10 years and of the S&P
MidCap Index in 1991-1994.
S&P 500 S&P Midcap
Index Performance* Index Performance*
1985 +31.73 --
1986 +18.66 --
1987 +5.25 --
1988 +16.61 --
1989 +31.69 --
1990- 3.10 --
1991 +30.47 +50.1
1992 +7.66 +11.91
1993 +10.08 +13.95
1994 1.31 - 3.57
*Past performance does not guarantee future
results. The figures reflect the reinvestment of
dividends on a monthly basis but not commissions.
Because of sales charges and expenses, actual
returns on the Trusts would be lower. Performance
figures for the S&P MidCap Index reflect the stock
prices since the beginning of 1991, although the
index was created on June 5, 1991.
SIMPLIFIED DECISION-MAKING
When you invest in the Index Series, you don't
have to select individual stocks or market
sectors. You are, in effect, buying the major
portion of the market represented by the index.
Your portfolio is broadly diversified. Of course,
the Trusts may not hold all of the stocks in the
Index at all times, but will seek to reflect the
performance of the respective indices.
------------------
This page may not be distributed unless included in a current prospectus.
Investors should refer to the prospectus for further information.
<PAGE>
MONTHLY INCOME OR
REINVESTMENT
The Trusts pay income
monthly or you can
elect to have any
dividend income and
capital gains
automatically
reinvested into
additional units of
the same Trust at net
asset value. By
reinvesting your
income, you not only
increase your holding
but gain the important
benefits that monthly
compounding can have
on total return
performance.
RISK REDUCTION WITH
DIVERSIFICATION
One of the best
reasons for an
indexing approach to
investing is the fact
that indexing reduces
the volatility of
individual stocks. It
substantially reduces
the risk of investing
in a single stock or
industry through
diversification. By
owning units in a
Trust, you participate
in a broadly
diversified portfolio.
Through one purchase,
you are instantly
diversified among
hundreds of companies
in four industry
sectors. This way,
your exposure to risk
is substantially
reduced, especially
when compared to
buying one, two or
even ten of the
individual stocks.
A LIQUID INVESTMENT
Although not legally
required to do so, we
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. There is never a
fee for cashing in
your investment.
VOLUME PURCHASE
DISCOUNTS
For larger purchases,
the rate of sales
charge is
substantially reduced
to put a greater
percentage of your
investment dollars to
work for you.
<TABLE><CAPTION>
SALES CHARGE
AS A PERCENTAGE OF
AMOUNT PURCHASED THE PUBLIC OFFERING PRICE
---------------------------------------------------------------------------
<S> <C>
Less than $25,000 2.25%
$25,000-$49,999 2.00%
$50,000-$74,999 1.75%
$75,000-$99,999 1.50%
$100,000-$249,999 1.25%
$250,000 or more 1.00%
</TABLE>
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 and the value of stocks generally.
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
will change primarily to replicate the composition
of the index and not because of the financial
condition of stock issuers.
<PAGE>
INVESTMENT SUMMARY AS OF THE EVALUATION DATE (CONTINUED)
and the declaration of any such dividends depends upon several factors including
the financial condition of the issuers and general economic conditions. The
adverse financial condition of a company will not result directly in its
elimination from a Portfolio unless the company is removed from the relevant
Index. Substantially all income distributions from the Fund, when received by
Holders, will constitute dividend income for Federal income tax purposes (see
Taxes).
An investment in Units should also 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 (either of which may
cause a decrease in the value of the Securities and thus in the value of the
Units). Common stocks are susceptible to general stock market fluctuations 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 and regional political, economic and banking crises.
(See Risk Factors.)
The Sponsors may deposit either additional Securities, contracts to
purchase additional Securities or cash (or a bank letter or letters of credit in
lieu of cash) with instructions to purchase additional Securities (where
additional Units are to be offered to the public) (see Administration of the
Fund--Portfolio Supervision), in each case maintaining, as closely as
practicable, the proportionate relationship among the Securities in the S&P 500
Index or S&P MidCap Index, as the case may be. 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 a Trust. Price
fluctuations during the period from the time of deposit of cash (or a bank
letter of credit in lieu of cash) in a Trust to the time the Securities are
purchased will affect the value of the Units and the income per Unit received by
a Trust. In order to minimize these effects, each Trust 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 Trust at the Evaluation Time.
Investors should be aware that the S&P MidCap Trust may not invest more
than 5% of its assets in the stock of any issuer that derives more than 15% of
its revenues from securities-related activities (a 'securities-related issuer')
or invest in a securities-related issuer if its stock is not a marginable
security under Regulation T promulgated by the Board of Governors of the Federal
Reserve System. Because it is believed to be unlikely that any issuer, whether
or not securities-related, will account for more than 5% of the S&P MidCap Index
or that the S&P MidCap Index will include any non-marginable securities-related
issuer, the foregoing restrictions are not expected to have a significant effect
on the correlation between the S&P MidCap Trust and the S&P MidCap Index. The
S&P 500 Trust is not affected by the foregoing restrictions because it is
covered by an SEC exemptive order.
DISTRIBUTIONS AND REINVESTMENT OF INCOME--Monthly distributions of
dividends received will be made by each Trust in cash on the date set forth
under Investment Summary on pA-3 to Holders of record on the Record Day set
forth on pA-3. Distributions of capital gain net income (i.e., the excess of
capital gains over capital losses) recognized, if any, will be made after the
end of each Trust's taxable year. In order to meet certain tax requirements
either Trust may make a special distribution of income, including capital gains,
to Holders of record as of a date in December. (See Taxes.) Holders may elect to
have distributions from a Trust reinvested in additional whole or fractional
Units of the Trust at no sales charge (see Administration of the Fund--
Reinvestment Plan). However, whether or not a distribution is received in cash,
the distribution will be taxable to the Holder.
TAXATION--Distributions which are taxable as ordinary income to Holders
will constitute dividends for Federal income tax purposes. Such dividends will
be eligible for the 70% dividends-received deduction available to certain
corporations to the extent of qualifying dividends received from domestic
corporations. (See Taxes.)
PUBLIC OFFERING PRICE--The Public Offering Price per 1,000 Units is based
on the aggregate value of the underlying Securities divided by the number of
Units outstanding times 1,000 plus the sales charge. A proportionate share of
the amount in the Income Account and the amount in the Capital Account to the
extent not allocated to the purchase of Securities (described under
Administration of the Fund--Accounts and Distributions) on the date of delivery
of the Units to the purchaser is added to the Public Offering Price. The maximum
sales charge is 2.25% of the Public Offering Price.* Units are offered at the
Public Offering Price computed as of the Evaluation Time for all sales
subsequent to the previous evaluation. The Public Offering Prices on the
Investment Summary Date and on subsequent dates, will vary from the Public
Offering Prices set forth on pA3. (See Public Sale of Units--Public Offering
Price.)
------------------------------------
*This sales charge will be reduced on a graduated scale in the case of quantity
purchases. (See Public Sale of Units--Public Offering Price.)
A-5
<PAGE>
INVESTMENT SUMMARY AS OF THE EVALUATION DATE (CONTINUED)
PURCHASE OF UNITS--Units can be purchased by contacting the Sponsors, whose
addresses are listed on the back cover of this Prospectus. The minimum purchase
is 1,000 Units at a purchase price of approximately $1,000, except that
purchases under the Reinvestment Plan and by Individual Retirement Accounts and
certain other tax deferred retirement plans are unrestricted (see Retirement
Plans).
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. 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).
UNDERWRITING ACCOUNT
Certain of the Sponsors may have participated as issuer, sole underwriter,
managing underwriter or member of an underwriting syndicate in a public offering
of some of the Securities in the Portfolios (see Composition of Indices).
The names and addresses of the Underwriters and their several interests in
the Underwriting Account are:
<TABLE>
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith P.O. Box 9051, Princeton, N.J. 08543-9051 76.00%
Incorporated
Smith Barney Inc. 388 Greenwich Street--23rd Floor,
New York, N.Y. 10013 6.00
Prudential Securities Incorporated One Seaport Plaza--199 Water Street,
New York, N.Y. 10292 7.50
PaineWebber Incorporated 1285 Avenue of the Americas, New York, N.Y. 10019 3.00
Dean Witter Reynolds Inc. Two World Trade Center, 59th Floor,
New York, N.Y. 10048 5.50
Broadcort Capital Corp. 100 Church Street, New York, N.Y. 10007 1.00
Gruntal & Co. Incorporated 14 Wall Street, New York, N.Y. 10001 1.00
------
100.00%
------
------
</TABLE>
A-6
<PAGE>
DEFINED ASSET FUNDS--EQUITY INCOME FUND
INDEX SERIES
S&P 500 TRUST 2 AND S&P MIDCAP TRUST
FUND STRUCTURE
This Series (the 'Fund') of Equity Income Fund, consists of two unit
investment trusts, the S&P 500 Trust 2 (the 'S&P 500 Trust') and the S&P MidCap
Trust, created under New York law by Trust Indentures (the 'Indentures')* among
the Sponsors and each Trustee.
On the Evaluation Date each Unit represented the fractional undivided
interest in the Trust set forth under Investment Summary. During the Initial
Deposit Period, the Sponsors deposited additional cash (or bank letters of
credit in lieu of cash) with instructions to continue to purchase Securities (in
order to create new Units) with the goal of gradually purchasing all of the
stocks in each Index. It may not be possible to maintain this exact
proportionate relationship among the Securities because of, among other reasons,
purchase requirements and changes in prices. If additional Units are issued by
either Trust (through deposit of additional Securities by the Sponsors or
purchase of Securities by the Trustee) for purposes of sale or reinvestment, the
aggregate value of Securities in the Trust will be increased and the fractional
undivided interest represented by each Unit in the balance will be decreased. If
any Units of either Trust are redeemed, the aggregate value of Securities in the
Trust will be reduced, and the fractional undivided interest represented by each
remaining Unit in the balance will be increased. Units will remain outstanding
until redeemed upon tender to the Trustee by any Holder (which may include the
Sponsors) or until the termination of the Indenture (see Administration of the
Fund).
In accordance with the Indentures the Sponsors may deposit additional cash
(or a letter of credit accompanied by instructions to buy specified Securities)
in either Trust in connection with the issuance of additional Units, in each
case maintaining, as closely as practicable, the proportionate relationship
among the Securities in the S&P 500 Index or the S&P MidCap Index, as the case
may be. Purchase and sale transactions will be effected in accordance with
computer program output showing which Securities are under-or over-represented
in the Portfolio. Neither the Sponsors nor the Trustee will exercise any
investment discretion in connection therewith. Precise duplication of the
relationship among the Securities in the relevant Index may not be achieved
because it may be economically impracticable or impossible to acquire very small
numbers of shares of certain Index Stocks and because of other procedural
policies of the Fund, but correlation between the relevant Index and the
investment results of each Trust is expected to be between .97 and .99 (see
Description of the Fund--The Portfolios--The S&P 500 Index and The S&P MidCap
Index).
As used herein the terms 'Common Stocks' and 'Securities' refer to the
common stocks (or cash or a letter of credit together with instructions to
purchase common stocks) deposited in the Fund.
RISK FACTORS
An investment in Units should be made with an understanding of the risks
which an investment in common stocks entails including the risk that the
financial condition of the issuers of the Securities may become impaired or that
the general condition of the common stock market may worsen (either may cause a
decrease in the value of Securities and thus in the value of the Units). In
addition, investors should be aware that no attempt is made to 'manage' the
Portfolios in the traditional sense and, as a result, the adverse financial
condition of a company will not result directly in its elimination from a
Portfolio unless the company is removed from the applicable Index.
Holders of common stocks have rights to receive payments from the issuers
of those common stocks that are generally inferior to those of creditors of, or
holders of debt obligations or preferred stocks of, such issuers. Holders of
common stocks of the type held by the Fund have a right to receive dividends
only when and if, and in the amounts, declared by the issuer's board of
directors and have a right to participate in amounts available for distribution
by the issuer only after all other claims on the issuer have been paid or
provided for. By contrast,
------------------------------------
* To the extent references in this Prospectus are to articles and sections
of the Indentures, which are hereby incorporated by reference, the statements
made herein are qualified in their entirety by such reference.
1
<PAGE>
holders of preferred stocks have the right to receive dividends at a fixed rate
when and as declared by the issuer's board of directors, normally on a
cumulative basis, but do not participate in other amounts available for
distribution by the issuing corporation. 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. In addition, 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 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. 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
Securities in the Portfolios thus may be expected to fluctuate over the entire
life of a Trust to values higher or lower than those prevailing on the
Evaluation Date (see Administration of the Fund--Amendment and Termination).
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 Sponsor. The
price at which the Securities may be sold to meet redemptions and the value of a
Trust 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
from time to time and that the creation of additional Units may have an effect
upon the value of previously existing Units. To create additional Units the
Sponsor may deposit cash with instructions to purchase Securities (or a bank
letter of credit in lieu of cash) in amounts sufficient to maintain to the
extent practicable the relative weighting among the Securities as exists among
the Common Stocks in the applicable Index 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 Trust. Holders will be at risk
because of price fluctuations during this period; if the price of shares of a
Security increases, Holders will have an interest in fewer shares of that
Security, and if the price of a Security decreases, Holders will have an
interest in more shares of that Security, than if the Security had been
purchased on the date cash was deposited with instructions to purchase the
Security. In addition, brokerage fees incurred in purchasing Securities of each
Trust will be an expense of the Trust. Thus, price fluctuations during this
period and commissions payable by a Trust in purchasing Securities will affect
the value of the Units of every Holder of that Trust and the income per Unit
received by the Trust. In order to minimize these effects, the Fund will try to
purchase Securities as close as possible to the next Evaluation Time or at
prices as close as possible to the prices used to evaluate the Fund at the next
Evaluation Time (see Public Sale of Units--Public Offering Price).
In connection with the creation of additional Units (for purposes of sale
or reinvestment), the Sponsors may at their option deposit with the Trustee a
letter of credit, accompanied by instructions to buy specified Securities. The
amount of such letter of credit will generally be based on the closing price of
the Securities on the day that the additional Units were created. Since the
actual purchases of the Securities cannot be executed until the following
business day, the relevant Trust will benefit from any decrease, on a net basis,
in the actual prices paid for the Securities and will be subject to a risk that
the price of the Securities, on a net basis, will rise above that used in the
valuation. Amounts not invested because of a decrease in stock prices will be
invested on the following business day and any additional amounts necessary to
purchase the Securities because of an increase in stock prices will be advanced
by the Trustee.
2
<PAGE>
DESCRIPTION OF THE FUND
THE PORTFOLIOS
General--Since the objective of the Fund is to provide investment results
that duplicate substantially the price and yield performance (in other words,
the total return) of the S&P 500 Index, in the case of the S&P 500 Trust, and
the S&P MidCap Index, in the case of the S&P MidCap Trust, the Portfolio of each
Trust will at any time consist of as many of the Index Stocks as is feasible.
Each Trust will at all times be invested in no less than 95% of the Index
Stocks. Although, at any time, a Trust may fail to own certain of the Index
Stocks, each Trust will be substantially totally invested in Index Stocks and
the Sponsors expect to maintain a theoretical correlation of between .97 and .99
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 output to bring the weightings of the Securities more closely into line
with their weightings in the relevant Index as each Trust invests in new
Securities in connection with the creation of new Units, as companies are
dropped from or added to either 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 each Portfolio. Adjustments may also
be made at other times to bring either 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 of a
Trust 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 either Portfolio
because of changes in the composition of the applicable 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 acquirors of the company. The
Trustees 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 relevant
Index will be sold as soon as practicable and reinvested in the most under-
represented Index Stocks.
In attempting to duplicate the proportionate relationships represented by
the S&P 500 Index and the S&P MidCap 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 Trustees 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.,
Prudential Insurance Company of America (the parent of Prudential Securities
Incorporated) or The Travelers Inc. (as long as it remains the parent of Smith
Barney Inc.) 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.
The Fund consists of unit investment trusts and is not a 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 Portfolios of the Fund, however, will not be
managed. Instead, the only purchases and sales that will be made with respect to
the Fund Portfolios will be those necessary to create, to the extent feasible,
Portfolios which will substantially duplicate the S&P 500 Index and the S&P
MidCap Index,
3
<PAGE>
taking into consideration redemptions, sales of additional Units and the other
adjustments referred to above. Since no attempt is made to 'manage' the
Portfolios in the traditional sense, the adverse financial condition of a
company will not be the basis for the sale of its securities from the Portfolio
unless the company is removed from the relevant Index.
The investments of the Holders of Units of the Fund will be liquidated on
the fixed date specified on pA-3. In addition, Holders will have the right to
have their Units redeemed at a price based on the aggregate value of the
Securities in the Trust ('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 and Redemption).
The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's
Corporation and such Corporation makes no representation, express or implied, to
the Fund or the Holders of Fund Units regarding the advisability of investing in
index or unit investment trusts generally or in the Fund particularly or the
ability of the S&P 500 Index or the S&P MidCap Index to track general stock
market performance.
Selection and Acquisition of Securities--The yield and price of common
stocks deposited in the Fund are dependent on a variety of factors, including
money market conditions and general conditions of the corporate equity markets.
As additional Stocks continue to be purchased the Trusts will more closely
approximate (although not exactly duplicate) the proportionate relationships of
such stocks within the S&P 500 Index, in the case of the S&P 500 Trust
Portfolio, and the S&P MidCap Index, in the case of the S&P MidCap Trust
Portfolio.
The Fund consists of such of the Securities as may continue to be held from
time to time in each Trust and any additional Securities acquired and held by
the Fund pursuant to the provisions of the Indentures (including the provisions
with respect to the deposit into the Fund of Securities in connection with the
sale of additional Units to the public and the automatic reinvestment of
distributions to Holders who have elected to participate in the Reinvestment
Plan) together with undistributed income therefrom and undistributed and
uninvested cash realized from the disposition of Securities (see Administration
of the Fund--Accounts and Distributions). It is anticipated that the amount of
such uninvested cash will rarely be significant and that, in any event, such
amount as exists at the time of any valuation of the Fund will almost always be
invested in additional Index Stocks on the following business day. Neither the
Sponsors nor the Trustees shall be liable in any way for any default, failure or
defect in any of the Securities.
Because certain of the Securities from time to time may be sold or their
percentage reduced under certain circumstances described herein, no assurance
can be given that either Trust will retain for any length of time its size and
composition as of any particular date (see Administration of the Fund--Amendment
and Termination). Each Indenture requires the Sponsors, as part of their
administrative function, to instruct the Trustee to reinvest the net proceeds of
the sale of Securities in additional Index Stocks to the extent that such
proceeds are not required for the redemption of Units.
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 69% of U.S. stock market capitalization. At
present, the mean market capitalization of the companies in the S&P 500 Index is
approximately $3,346 billion.
The following table shows the performance of the S&P 500 Index for 1960
through 1994. 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.
4
<PAGE>
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------------------------------------
YEAR-END INDEX
YEAR-END VALUE DIVIDENDS
YEAR-END INDEX VALUE CHANGE IN INDEX AVERAGE YIELD REINVESTED
YEAR INDEX VALUE* 1960=100 FOR YEAR FOR YEAR* 1960=100**
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1960.......................................... 58.11 100.00 -- % 3.47% 100.00
1961.......................................... 71.55 123.13 23.13 2.98 126.79
1962.......................................... 63.10 108.59 -- 11.81 3.37 115.71
1963.......................................... 75.02 129.10 18.89 3.17 141.93
1964.......................................... 84.75 145.84 12.97 3.01 165.09
1965.......................................... 92.43 159.06 9.06 3.00 185.48
1966.......................................... 80.33 138.24 -- 13.09 3.40 165.11
1967.......................................... 96.47 166.01 20.09 3.20 204.54
1968.......................................... 103.86 178.73 7.66 3.07 227.00
1969.......................................... 92.06 158.42 -- 11.36 3.24 207.89
1970.......................................... 92.15 158.58 0.10 3.83 216.06
1971.......................................... 102.09 175.68 10.79 3.14 247.52
1972.......................................... 118.05 203.15 15.63 2.84 294.30
1973.......................................... 97.55 167.87 -- 17.37 3.06 250.83
1974.......................................... 68.56 117.98 -- 29.72 4.47 184.64
1975.......................................... 90.19 155.21 31.55 4.31 253.25
1976.......................................... 107.46 184.93 19.15 3.77 312.94
1977.......................................... 95.10 163.66 -- 11.50 4.62 289.72
1978.......................................... 96.11 165.39 1.06 5.28 308.20
1979.......................................... 107.94 185.75 12.31 5.47 364.29
1980.......................................... 135.76 233.63 25.77 5.26 481.86
1981.......................................... 122.55 210.89 -- 9.73 5.20 457.72
1982.......................................... 140.64 242.02 14.76 5.81 555.84
1983.......................................... 164.93 283.82 17.27 4.40 680.24
1984.......................................... 167.24 287.80 1.40 4.64 721.73
1985.......................................... 211.28 363.59 26.33 4.25 949.59
1986.......................................... 242.17 416.75 14.62 3.49 1,125.83
1987.......................................... 247.08 425.19 2.03 3.08 1,183.25
1988.......................................... 277.72 477.92 12.40 3.64 1,379.78
1989.......................................... 353.40 608.15 27.25 3.13 1,617.04
1990.......................................... 330.22 568.27 -- 6.56 3.61 1,760.71
1991.......................................... 417.09 717.78 26.31 3.70 2,297.20
1992.......................................... 435.71 749.79 4.46 2.97 2,472.25
1993.......................................... 466.45 802.70 7.06 2.78 2,721.45
1994.......................................... 459.27 790.53 -- 1.54 2.42 2,757.25
</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 at the beginning of the period, assuming no reinvestment of dividends.
**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
month following the payment of the dividend. Because the Fund is sold to the
public 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 the Evaluation Date, 279 were listed on the New York Stock Exchange, 9 were
listed on the American Stock Exchange and 112 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, 1994, industrial stocks
accounted for approximately 69.5% of S&P MidCap Index market capitalization,
utilities approximately 14.1%, financial stocks approximately 14.6% and
transportation stocks approximately 1.8%. The capitalizations of individual
companies ranged from about $49 million to over $10,066 million; the mean market
capitalization of the companies in the S&P MidCap Index was approximately $1,156
billion. The S&P MidCap Index was created
5
<PAGE>
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 1994 was -3.57%.
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 Ibbotson
Associates) for the four years ended December 31, 1994. 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.
CUMULATIVE RETURNS*, 4 YEARS ENDED DECEMBER 31, 1994
(VALUE OF $5,000 INVESTED AT BEGINNING OF PERIOD)
SMALL COMPANY
$11,000 -- STOCKS**
10,500 -- $11,126.76
S&P MIDCAP
10,000 -- INDEX
9,500 -- $9,229.50
9,000 --
8,500 --
8,000 -- S&P 500 INDEX
7,500 -- $7,831.30
7,000 --
6,500 -- * Returns for the indices reflect
reinvested dividends but
not commissions, taxes, expenses
or a Trustsales charge
of 2.25% which could reduce the
performance quoted.
6,000 -- The S&P 500 and MidCap Trust
average annualized
return (reflecting sales charges
and expenses) were -
1.06% and -4.72% for 1994 and
5.52% and 4.22%
respectively since inception.
5,500 -- ** As measured by Ibbotson
Associates' index of 2,000+
stocks
5,000 --
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 79% of the total market
capitalization of stocks traded in the United States, as of December 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.
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
6
<PAGE>
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
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.
INCOME
The net annual income per Unit of a Trust is determined by subtracting from
the annual dividend income of the Securities in the Portfolio the estimated
annual expenses (total estimated annual Trustee's, Sponsors', Licensor's, and
administrative fees and expenses) and dividing by the number of Units
outstanding. The net annual income per Unit will change as the issuers of the
Securities change their dividend rate, as the issuers whose securities are
included in each Index change or as the expenses of a Trust change.
Record Days and Distribution Days are set forth under Investment Summary.
Dividend income per Unit received by each Trust and available for distribution
as of the next preceding Record Day will be distributed on or shortly after each
Distribution Day to the Holders of record on the preceding Record Day (see
Administration of
7
<PAGE>
the Fund--Accounts and Distributions). Distributions of net realized capital
gains, if any, will be made after the end of the Fund's taxable year.
TAXES
Each Trust has elected and intends to qualify for the special tax treatment
applicable to 'regulated investment companies' under Sections 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 a Trust 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, a Trust 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 each Trust will not be
subject to Federal income tax or the excise tax because the Indentures require
the distribution of each Trust's taxable income (including any net capital gain)
in a timely manner. Although all or a portion of a Trust's taxable income
(including any net capital gain) for the 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 to Holders of a Trust'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 Trust'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 a Trust's dividend income and net short-term capital gain will be taxable as
ordinary income to Holders.
Distributions of a Trust's net capital gain (designated as capital gain
dividends by the Trust) will be taxable to Holders as long-term capital gain,
regardless of the length of time the Units have been held by a Holder. A Holder
may recognize a taxable gain or loss if the Holder sells or redeems his Units.
Any gain or loss arising from (or treated as arising from) the sale or
redemption of Units will be a capital gain or loss, except in the case of a
dealer or a financial institution. Capital gains are generally taxed at the same
rate as ordinary income. However, the excess of net long-term capital gains over
net short-term capital losses may be taxed at a lower rate than ordinary income
for certain noncorporate taxpayers. A capital 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.
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 Trust and are attributable to
dividends received by the Trust from domestic issuers with respect to whose
securities the Trust satisfied the requirements for the dividends-received
deduction, such distributions will be eligible for the dividends-received
deduction generally available 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 advisors.
Sections 246 and 246A of the Code contain additional limitations on the
eligibility of dividends for the 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 from a Trust by a corporate Holder which
would otherwise qualify for the dividends-received deduction for corporations
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.
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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 Trusts 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. These distributions may also be subject to state and local
taxation and Holders should consult their own tax advisors in this regard.
Holders will be taxed in the manner described above regardless of whether
distributions from the Trust 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 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 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 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 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 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. Any
individual can make an investment 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 are made in
1987 or a later year, all distributions from an IRA will be treated as ordinary
income but generally will be 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 April 1 following the end of 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 beneficiary, are generally subject to a surtax in an amount
equal to 10% of the distribution.
PUBLIC SALE OF UNITS
PUBLIC OFFERING PRICE
The Public Offering Price of the Units of each Trust is computed by adding
to the aggregate value of the Securities in the Trust (as determined by the
Trustee) divided by the number of Units outstanding, a sales charge of 2.302%.
This sales charge is equal to a gross underwriting commission of 2.25% of the
Public Offering Price. A
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proportionate share of the amount in the Income Account (described under
Administration of the Fund-- Accounts and Distributions) on the date of delivery
of the Units to the purchaser is added to the Public Offering Price. The Public
Offering Price on the date of this Prospectus or on any subsequent date will
vary from the Public Offering Price on the Evaluation Date (set forth on pA-3)
in accordance with fluctuations in the aggregate value of the underlying
Securities.
The sales charge applicable to quantity purchases and the concession to
dealers per Unit (referred to below under Public Distribution) is reduced on a
graduated scale for sales to any purchaser of at least $25,000 of Units of a
Trust on any one day as follows:
CURRENTLY PAYABLE SALES
CHARGE DEALER
CONCESSION
AS PERCENT OF
----------------------------------------
AS PERCENT OF OFFERING PRICE
AS PERCENT OF NET AMOUNT --------------------
AMOUNTS PURCHASED OFFERING PRICE INVESTED
------------------------------------------------------------
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
The above graduated sales charges 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.
The value of the Securities is determined on each business day by the
Trustee based on the closing sale prices on the day the valuation is made or, if
there are no such reported sales or a Security is not listed on a national
securities exchange or if the principal market therefor is other than on such an
exchange, taking into account the same factors referred to under
Redemption--Computation of Redemption Price per Unit (Section 4.01).
PUBLIC DISTRIBUTION
The Sponsors intend to qualify Units for sale in all States in which
qualification is necessary through the Sponsors and dealers who are members of
the National Association of Securities Dealers, Inc. Sales to dealers, if any,
will initially be made at prices which represent a concession as set forth above
but Merrill Lynch, Pierce, Fenner & Smith, as Agent for the Sponsors ('Agent for
the Sponsors') reserves the right to change the amount of the concession to
dealers from time to time. The concession to dealers is reduced on a graduated
scale as indicated above.
UNDERWRITERS' AND SPONSORS' PROFITS
Upon sale of the Units, the Underwriters named under Underwriting Account,
including the Sponsors, receive sales charges at the rates set forth in the
table above. In addition, on each deposit of Index Stocks with
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respect to the creation of additional Units (for purposes of sale or
reinvestment) the Sponsors may realize a profit or loss, based on the difference
between the cost of the Securities to the Fund and the purchase price of such
Securities for the Sponsors. The Sponsors or any Underwriter may also realize
profits or sustain losses in respect of Securities deposited in the Fund which
were acquired by the Sponsors or such Underwriter from underwriting syndicates
of which the Sponsors or such Underwriter was a member and they 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. Cash, if any, made
available by buyers of Units to the Sponsors prior to the settlement dates 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.
Other than in the course of deposit transactions, the Sponsors will not be
permitted to derive profit from, or to in any manner deal with, the Fund while
acting as principal (as distinguished from brokerage transactions) (see
Administration of the Fund--Portfolio Supervision).
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 such Units (which include the
sales charge) or the prices at which they redeem such Units (based on the
aggregate value of the Securities), as the case may be.
MARKET FOR UNITS
While the Sponsors are not obligated to do so, it is their intention to
maintain a market for Units of this Fund and continuously to offer to purchase
Units of this series at prices, subject to change at any time, which will be
computed for each Trust by adding (a) the aggregate value of Securities in the
Trust, (b) cash on hand in the Trust including dividends receivable on stocks
trading ex-dividend (other than cash covering contracts to purchase Securities)
and (c) all other assets in the Trust; deducting therefrom the sum of (x) taxes
or other governmental charges against the Trust not previously deducted, (y)
accrued fees and expenses of the Trustee (including legal and auditing
expenses), the Sponsors, the Licensor and counsel, and certain other expenses
and (z) cash held for distribution and any other amounts required to be
distributed (by sale of Securities or otherwise) to Holders of record as of a
date prior to the evaluation; and dividing the result of such computation by the
number or Units outstanding as of the date thereof. The Sponsors may discontinue
purchases of Units of either Trust at prices based on the value of Securities in
the Trust if the supply of Units of this series exceeds demand or for any other
business reason. 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 net value of the Securities in the Trust.
The Sponsors may, of course, redeem any Units that they have purchased in
the secondary market to the extent that they determine that it is undesirable to
continue to hold such Units in their inventory. Factors which the Sponsors will
consider in making such a determination will include the number of Units of all
Series of unit trusts which they have in their inventory, the saleability of
such Units and their estimate of the time required to sell such Units and
general market conditions. For a description of certain consequences of such
redemption for the remaining Holders, see Redemption.
A Holder who wishes to dispose of his Units should inquire of his bank or
broker as to current market prices in order to determine if there exist
over-the-counter prices in excess of the redemption price and the repurchase
price (see Redemption).
REDEMPTION
Units may be redeemed and any Certificates cancelled by the Trustee of each
Trust at the office set forth on the back of this Prospectus upon tender of
Certificates and payment of any relevant tax without any other fee (Section
5.02). Certificates to be redeemed must be properly endorsed or accompanied by a
written instrument or instruments of transfer. Holders must sign exactly as
their name appears on the face of the Certificate with the signature guaranteed
by an eligible guarantor institution or in such other manner as may be
acceptable to the Trustee. In certain instances the Trustee may require
additional documents such as, 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 such 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 in cash an amount per Unit equal to the
Redemption Price per Unit as determined as of the day of tender. The Trustee is
irrevocably authorized in its
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<PAGE>
discretion, if the Sponsors do not elect to repurchase any Unit tendered for
redemption or if the Sponsors tender a Unit for redemption, in lieu of redeeming
such Units, to sell such Units in the over-the-counter market for the account of
the tendering Holder at prices which will return to the Holder an amount in
cash, net after deducting brokerage commissions, transfer taxes and other
charges, equal to or in excess of the Redemption Price for such Units. The
Trustee will pay the net proceeds of any such sale to the Holder on the day he
would otherwise be entitled to receive payment of the redemption price (Section
5.02).
Any amounts paid on redemption representing income received will be
withdrawn from the Income Account to the extent funds are available; all other
amounts paid on redemption will be withdrawn from the Capital Account (an
explanation of such Accounts is set forth in Administration of the
Fund--Accounts and Distributions). The Trustee is empowered to sell Securities
in order to make funds available for redemption (Section 5.02). The Securities
to be sold will be selected by the Trustee in accordance with procedures to be
specified by the Sponsors and on the basis of computer programs so as to
maintain, as closely as practicable, the proportionate relationship between
relative weightings of the Securities in the Portfolio and those of the stocks
in the applicable Index. Provision is made under 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.
To the extent that Securities are sold, the size and the diversity of the
Fund will be reduced. Any such sales may be made at a time when Securities would
not otherwise be sold and may result in lower prices than might otherwise be
realized. In addition, because of the minimum amounts in which Securities may be
required to be sold, the proceeds of sale may exceed the amount required at the
time to redeem Units; such excess proceeds will be distributed to Holders unless
reinvested in substitute Securities in accordance with procedures to be
specified by the Sponsors (see Administration of the Fund--Portfolio
Supervision). The price received upon redemption may be more than 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 right of redemption may be suspended and payment postponed for any
period, determined by the Securities and Exchange Commission ('SEC'), (1) during
which the New York Stock Exchange, Inc. is closed other than for customary
weekend and holiday closings, (2) during which the trading on that Exchange is
restricted or an emergency exists as a result of which disposal or evaluation of
the Securities is not reasonably practicable or (3) for such other periods as
the SEC may by order permit (Section 5.02).
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit is computed for each Trust by the Trustee on each
June 30 and December 31 (or the last business day prior thereto), at the next
evaluation price (determined at the Evaluation Time set forth under Investment
Summary) after a receipt of a redemption request by a Holder and on any other
business day desired by the Trustee or requested by the Sponsors, by adding (a)
the aggregate value of the Securities in the Trust determined by the Trustee and
(b) cash on hand in the Trust including dividends receivable on stocks trading
exdividend (other than cash covering contracts to purchase Securities) 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 Licensor, the Sponsors and counsel,
and certain other expenses and (z) cash held for distribution and any other
amounts required to be distributed (by sale of Securities or otherwise) to
Holders of record as of a date prior to the evalution; and dividing the result
of such computation by the number of Units outstanding as of the date thereof
(Sections 4.01 and 5.01).
The aggregate value of the Securities shall be determined by the Trustee in
good faith in the following manner: if the Securities are listed on a national
securities exchange or the National Market System maintained by NASDAQ, such
evaluation shall generally be based on the closing sale price on such exchange
(unless the Trustee deems such price inappropriate as a basis for evaluation)
or, if there is no closing sale price on such 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 such exchange, such
evaluation shall generally be made by the Trustee in good faith based on the
current bid price on the overthecounter market (unless the Trustee deems such
price inappropriate as a basis for evalution) or if no such current bid price is
available, (a) on the basis of current bid prices for comparable securities, (b)
by the Trustee's appraising the value of the Securities in good faith on the bid
side of the market or (c) by any combination thereof.
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EXPENSES AND CHARGES
Licensor's Fee and Computer Tracking Expenses--The Licensor receives an
annual fee from each Trust of .02% of the average net asset value of the Trust
or, if greater, $10,000 (Section 3.12). This fee covers the license to the Fund
of the use of the trademarks and trade names 'S&P 500', 'Standard & Poors MidCap
400 Index' and other trademarks and trade names, as described above under
'Description of the Fund -- The S&P 500 Index and the S&P MidCap Index'. In
addition, the Fund will pay approximately $45,000 per year for access to
independent computer services that track the S&P 500 Index and the S&P MidCap
Index. Computer expenses will be divided between the Trusts in proportion to
their respective assets during the relevant period.
Trustee's Annual Fee and Expenses--The Trustee receives for its services as
Trustee and for reimbursement of expenses incurred on behalf of the Trust,
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, Licensor's Fee and Computer
Tracking Expenses, estimated reimbursable bookkeeping or other administrative
expenses paid to the Sponsors and certain mailing and printing expenses. There
are no odd-lot premiums in buying Trust Units. There are no management fees and
there are relatively low ongoing expenses. Low costs are essential for an index
fund to approximate the performance of the index, which has no expenses, and
result in more of purchasers' money being invested. The Trustee also receives
benefits to the extent that it holds funds on deposit in the various
non-interest bearing accounts created under the Indenture. The foregoing fees
may be adjusted for inflation in accordance with the terms of the Indenture
without approval of Holders (Sections 4.02, 7.06 and 8.05).
Portfolio Supervision Fee--The Sponsors' 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 set forth under
Investment Summary per 1,000 Units of the Trust based on the average of largest
number of Units outstanding during each month of a calendar year. The Sponsors'
fee may exceed the actual costs of providing portfolio supervisory services for
this Fund, but at no time will the total amount they receive for portfolio
supervisory services rendered to all series of Equity Income Fund in any
calendar year exceed the aggregate cost to them of supplying these services in
that year (Section 7.06). In addition, the Sponsors may be reimbursed for
bookkeeping or other administrative services provided to each Trust in amounts
not exceeding their costs of providing these services (Sections 3.04, 7.06).
Other Charges--These include: (a) fees of the Trustee for extraordinary
services (Section 8.05), (b) expenses of the Trustee (including legal and
auditing expenses) and of counsel designated by the Sponsors (Sections 3.04,
3.10, 8.01[e], 8.03 and 8.05), (c) various governmental charges (Sections 3.03
and 8.01[h]), (d) expenses and costs of any action taken by the Trustee or the
Sponsors to protect the Trust and the rights and interests of the Holders
(Section 7.06 and 8.01[d]), (e) indemnification of the Trustee for any loss,
liabilities and expenses incurred in the administration of the Fund, without
gross negligence, bad faith or wilful misconduct on its part (Section 8.05), (f)
indemnification of the Sponsors for any loss, liabilities and expenses incurred
in acting as Sponsors of the Trust without gross negligence, bad faith or wilful
misconduct (Section 7.05[b]) and (g) expenditures incurred in contacting Holders
upon termination of the Trust (Section 9.02).
The Trustee's fee may be increased without approval of Holders by amounts
not exceeding proportionate increases under the classification 'All Services
Less Rent' in the Consumer Price Index published by the United States Department
of Labor (Sections 7.06 and 8.05).
The fees and expenses set forth herein are payable out of each Trust and
when paid by or owing to the Trustee are secured by a lien on the Trust (Section
8.05). If the balance in the Income Account is insufficient to provide for
amounts payable by the Trust, the Trustee has the power to sell Securities to
pay such amounts (Section 8.05).
ADMINISTRATION OF THE FUND
RECORDS
The Trustee of each Trust keeps records of the transactions of the Trust at
its unit trust office including names, addresses and holdings of all Holders, a
current list of the Securities and a copy of the applicable Indenture. Such
records are available to Holders for inspection at reasonable times during
business hours (Section 8.02 and 8.04).
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ACCOUNTS AND DISTRIBUTIONS
Dividends payable to each Trust are credited by the Trustee to an Income
Account, as of the date on which the Trust is entitled to receive such 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). Subject to the
Reinvestment Plan described below, any 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 equal to such Holder's pro rata share
of the distributable balance in the Income Account as of such Record Date, after
deducting estimated expenses, plus (in the case of the first such distribution
made in each calendar year) such Holder's pro rata share of the distributable
cash balance of the Capital Account computed as of the close of business on such
Record Day. Provision is made for cash generated in respect of each capital
gains transaction to be reinvested in 500 Index Stocks or MidCap Index Stocks
(as the case may be) on a timely basis and for Securities to be sold to make
cash available annually to permit distribution of net capital gains and net
short-term capital gains to Holders. The first distribution for persons who
purchase Units between a Record Day and a Distribution Day will be made on the
second Distribution Day following their purchase of Units. A Reserve Account may
be created by the Trustee by withdrawing from the Income Account, from time to
time, amounts deemed necessary to establish a reserve for any material amounts
that may be payable out of the Fund (Section 3.03). Funds held by the Trustee in
the various accounts created under the Indentures do not bear interest (Section
8.01).
REINVESTMENT PLAN
Monthly income distributions and annual distributions of any net capital
gains in respect of the Units may be reinvested by participating in the Fund's
reinvestment plan (the 'Reinvestment Plan'). A Holder of either Trust (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 Trust.
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 Day
applicable to any distribution in order for the Reinvestment Plan to be in
effect as to such distribution. 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.
Until such time as additional Units cease to be issued by a Trust (see Fund
Structure), Reinvestment Plan distributions will be reinvested in such
additional Units. After the Fund has ceased to issue new Units, Reinvestment
Plan distributions may be reinvested (subject to SEC approval) in new units of
subsequent funds of the Index Series, if any are offered. If no such new units
of subsequent funds are available for reinvestment, distributions will be
reinvested in Units of the Trust or units of such subsequent funds, which are
available for sale in the secondary market maintained by the Sponsors (see
Market for Units). If Units are unavailable in the secondary market,
distributions which would otherwise have been reinvested shall be paid to the
Holder on the applicable Distribution Day.
Purchases made pursuant to the Reinvestment Plan will be made without sales
charge at net asset value on the close of business on the Distribution Day to
take into account that purchases for the Reinvestment Plan result in less
selling expense. Under the Reinvestment Plan, each Trust will pay the
distributions to the Trustee which in turn will purchase for the Holder full and
fractional Units of the Trust (or units of such subsequent funds) at the price
and time indicated above, will add the Units (or such subsequent fund units) to
the Holder's account, and will send the Holder an account statement reflecting
the reinvestment. Reinvesting compounds total return performance.
The Trustee will issue Certificates for whole Units purchased through the
Reinvestment Plan only if the Holder so requests. Certificates will not be
issued for fractional units. 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 Trust's
cost) to issue Certificates for full Units.
14
<PAGE>
During such time as Reinvestment Plan distributions are being reinvested in
new Units of a Trust, 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 stock without
brokerage commission or service charge or otherwise on a basis favorable to the
shareholder in the opinion of the Sponsors, the Trust (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 with the relevant Index not being maintained. In such event the
Sponsors will deposit cash (or a letter of credit) with the Trustee together
with instructions to invest such cash in accordance with such plans in lieu of
depositing Index Stocks.
Certain of the shareholder dividend reinvestment, stock purchase or similar
plans maintained by issuers of the Securities in the Trusts offer shares
pursuant to such plans at a discount from market value. The Trustee is required
by applicable provisions of the Federal Internal Revenue 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 Sponsors may direct the Trustee of either Trust to dispose of
Securities and either to acquire other Securities through the use of proceeds of
such disposition in order to make such changes in the Portfolio or to distribute
the proceeds of such disposition to Holders (i) as may be necessary to reflect
any additions to or deletions from the applicable Index, (ii) as may be
necessary to establish a closer correlation between the weightings of the
Securities in the Portfolio and their weightings in the applicable Index, (iii)
as may be required for purposes of distributing to Holders at least annually
their pro rata share of net realized capital gains or as the Sponsors may
otherwise determine or (iv) as may be required to maintain the qualification of
the Trust as a regulated investment company for Federal income tax purposes or
by applicable law (Section 3.08). The Sponsors may direct the Trustee of either
Trust to sell any property (other than cash) or any Securities other than Index
Stocks received by the Trust as a result of any recapitalization,
reorganization, merger, payment of a dividend or other similar transaction
entered into by any of the companies included in the applicable Index and may
direct the Trustee to invest the proceeds of any such sale in additional Index
Stocks. In accordance with each Indenture, and with procedures to be specified
by the Sponsors or provided therein and on the basis of computer programs, the
Trustee will purchase and sell Securities in a manner that maintains, to the
extent practicable, the same proportionate relationship among the Securities in
the Portfolio as exists among the stocks in the relevant Index (Sections 3.08
and 3.11).
Failure to declare or pay dividends, institution of materially adverse
legal proceedings, defaults materially and adversely affecting future
declaration or payment of dividends, or the occurrence of other materially
adverse credit factors will not be a basis for the disposition of a Security
unless such Security is eliminated from the applicable Index.
The Trustee will follow a policy that it will place securities transactions
with a broker or dealer only if it expects to obtain the most favorable prices
and executions of orders. Transactions in securities of the nature held in the
Fund are generally made in brokerage transactions (as distinguished from
principal transactions--see Public Sale of Units--Underwriters' and Sponsors'
Profits) and the Sponsors or any of their affiliates may act as brokers therein
if the Trustee expects thereby to obtain the most favorable prices and
execution. The furnishing of statistical 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.
REPORTS TO HOLDERS
The Trustee furnishes Holders with each distribution a statement of the
amount of income and the amount of other receipts, if any, which are being
distributed, expressed in each case as a dollar amount per Unit. Within a
reasonable period of time after the end of each calendar year (normally prior to
January 31 of the succeeding year), the Trustee of each Trust will furnish to
each person who at any time during the calendar year was a Holder of record a
statement, in reasonable detail, (i) summarizing transactions for such year in
the Income, Capital and Reserve Accounts, including a list of Securities sold
and purchased during such year, (ii) stating the Redemption Price based upon the
computation thereof made on the 31st day of December of such year, (iii)
specifying the amounts distributed during such year to Holders with respect to
the Income Account and the Capital Gains Account and (iv) if applicable,
summarizing transactions for such year with respect to such person's
participation
15
<PAGE>
in the Reinvestment Plan. The accounts of each Trust shall be audited not less
frequently than annually by independent certified public accountants designated
by the Sponsors, and the report of such accountants shall be furnished by the
Trustee to Holders upon request (Section 8.01[e]).
CERTIFICATES
Certain of the Sponsors may collect additional charges for registering and
shipping Certificates to purchasers of Units. These Certificates are
transferable or interchangeable upon presentation at the office of the relevant
Trustee as set forth on the back of this Prospectus, properly endorsed or
accompanied by an instrument of transfer satisfactory to the Trustee, together
with a payment of $2.00 if required by the Trustee (or such other amount as may
be 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 such transaction (Section 6.01). Mutilated, destroyed, stolen or lost
Certificates will be replaced upon delivery of satisfactory indemnity and
payment of expenses incurred (Section 6.02).
AMENDMENT AND TERMINATION
Each Indenture may be amended by the Trustee and the Sponsors without the
consent of any 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 thereof as may be
necessary or advisable for continuing qualification of the Trust as a regulated
investment company under the Internal Revenue Code or (d) to make such other
provisions as shall not materially adversely affect the interest of the Holders.
Each 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 then outstanding, provided that no such amendment or
waiver will reduce the interest in the Trust of any Holder without the consent
of such Holder or reduce the percentage of Units required to consent to any such
amendment or waiver without the consent of all Holders. The Trustee must
promptly notify Holders of the substance of any such amendment (Section 10.01).
The Fund will be terminated and liquidated on or before the Mandatory
Termination Date set forth under Investment Summary. Either Indenture may be
terminated if the value of the Trust is less than 40% of its value on the
Initial Date of Deposit or if the number of outstanding Units is less than 40%
of the number outstanding on the Initial Date of Deposit (see Investment
Summary), and may be terminated at any time by Holders holding 51% of the
outstanding Units (Sections 8.01[g] and 9.01). In addition, either Indenture may
be terminated if the applicable Index ceases to be compiled or made available.
Written notice of termination of the Indenture must be given to all Holders
(Section 9.01). Within a reasonable period of time after such termination, the
Trustee must sell all of the Securities then held and distribute to Holders,
upon surrender for cancellation of their Certificates, and after deductions of
accrued and unpaid fees, taxes and governmental and other charges, the Holders'
interest in the Income and Capital Accounts (Section 9.01). Such distributions
normally will be made by mailing a check in the amount of each Holder's interest
in such accounts, to the address of such Holder appearing on the record books of
the Trustee. Due to market conditions the amount realized by a Holder on such
distributions may be more or less than the amount paid by such Holder for his
Units.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
THE TRUSTEES--A Trustee or any successor may resign upon notice to the
Sponsors. The Trustee of either Trust may be removed upon the direction of the
Holders of 51% of the Units of the Trust 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 for any reason that the replacement of the
Trustee is in the best interest of the Holders. Such resignation or removal
shall become effective upon the acceptance of appointment by the successor. In
case of such resignation or removal the Sponsors are to use their best efforts
to appoint a successor promptly and if upon resignation of a 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. 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 they be liable or responsible in
any way for depreciation or loss incurred by reason of the sale of any
Securities. This provision, however, shall not protect a 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 of the Trust may act under the Indenture and shall not be liable for any
such action taken in good
16
<PAGE>
faith. The Trustees 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 Indentures contains other customary
provisions limiting the liability of the Trustees.
THE SPONSORS--Any Sponsor may resign if one remaining Sponsor maintains a
net worth of $2,000,000 and is agreeable to such resignation. A new Sponsor may
be appointed for either Trust by the remaining Sponsors and the Trustee to
assume the duties of the resigning Sponsor (Section 7.04). If there is only one
Sponsor of a Trust 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
(Section 8.01[f]). The Agent for the Sponsors has been appointed by the other
Sponsors for purposes of taking action under each Indenture (Section 7.01). If
the Sponsors are unable to agree with respect to action to be taken jointly by
them under an 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 (Section 7.02[b]). If one of
the Sponsors fails to perform its duties or becomes incapable of acting or
becomes bankrupt or its affairs are taken over by public authorities, then such
Sponsor is automatically discharged and the other Sponsors shall act as Sponsor
(Section 7.02[a]). The Sponsors shall be under no liability to the Fund or to
the Holders of Units 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 Securities. 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 (Section 7.05). The Sponsors and their
successors are jointly and severally liable under the Indentures. 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
Indentures and in such event it shall be relieved of all further liability under
the Indentures (Section 7.03).
MISCELLANEOUS
TRUSTEE
The Trustee and its address are named on the back cover page of this
Prospectus. The Trustee is subject to supervision by the Federal Deposit
Insurance Corporation, the Board of Governors of the Federal Reserve System and
either the Comptroller of the Currency or State banking authorities.
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 Statements of Condition, including the Portfolios of the Fund, included
herein have been audited by Deloitte & Touche LLP, independent accountants, as
stated in their opinion appearing herein and have 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 indirectly
wholly-owned subsidiary of the Prudential Insurance Company of America, is
engaged in the investment advisory business. Dean Witter Reynolds Inc., a
principal operating subsidiary of Dean Witter, Discover & Co. is engaged in the
investment advisory business. PaineWebber Incorporated is engaged in the
investment advisory business and is a wholly-owned subsidiary of PaineWebber
Group Inc. Each Sponsor has acted as principal underwriter and managing
underwriter of other investment companies. The Sponsors, in addition to
participating as members of various selling groups or as agents of other
investment companies, execute orders on behalf of investment
17
<PAGE>
companies for the purchase and sale of securities of these companies and sell
securities to these companies in their capacities as brokers or dealers in
securities.
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 plan for your objectives.
One of the most important 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 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 reduces 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 principal 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. 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 US 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 the ten highest yielding stocks on a designated stock index.
18
<PAGE>
Defined
Asset FundsSM
SPONSORS: EQUITY INCOME FUND
Merrill Lynch, INDEX SERIES
Pierce, Fenner & Smith Incorporated S&P 500 Trust 2
Defined Asset Funds S&P MidCap Trust
P.O. Box 9051 Unit Investment Trusts
Princeton, N.J. 08543-9051 PROSPECTUS
(609) 282-8500 This Prospectus does not contain all of
Smith Barney Inc. the information set forth in the
Unit Trust Department registration statements and exhibits
388 Greenwich Street relating thereto, which the Fund has
23rd Floor filed 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 Blvd. which reference is hereby made.
Weehawken, N.J. 07087 No person is authorized to give any
(201) 902-3000 information or to make any
Prudential Securities Incorporated representations with respect to this
One Seaport Plaza investment company not contained in
199 Water Street this Prospectus; and any information or
New York, N.Y. 10292 representation not contained herein
(212) 776-1000 must not be relied upon as having been
Dean Witter Reynolds Inc. authorized. This Prospectus does not
Two World Trade Center constitute an offer to sell, or a
59th Floor solicitation of an offer to buy,
New York, NY 10048 securities in any state to any person
(212) 392-2222 to whom it is not lawful to make such
INDEPENDENT ACCOUNTANTS: offer in such state.
Deloitte & Touche LLP
2 World Financial Center
9th Floor
New York, N.Y. 10281-1414
TRUSTEE FOR THE S&P 500 TRUST 2:
The Chase Manhattan Bank, N.A.
Unit Trust Department
Box 2051
New York, NY 10081
1-800-323-1508
TRUSTEE FOR THE S&P MIDCAP
TRUST:
The Bank of New York
Unit Investment Trust Department
P.O. Box 974
Wall Street Station
New York, N.Y. 10268-0974
1-800-221-7771
14124--4/95
<PAGE>
DEFINED ASSET FUNDS--
EQUITY INCOME FUND
CONTENTS OF REGISTRATION STATEMENT
The Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet of Form S-6.
The Cross-Reference Sheet (incorporated by reference from the
Cross-Reference Sheet of the Registration Statement of The Equity Income Fund,
Sixth Utility Common Stock Series, 1933 Act File No. 2-86836).
The Prospectus.
The Signatures.
The following exhibit:
5.1--Consent of independent public accountants.
R-1
<PAGE>
DEFINED ASSET FUNDS--
EQUITY INCOME FUND
S&P 500 TRUST 2
S&P MIDCAP TRUST
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
DEFINED ASSET FUNDS--EQUITY INCOME FUND, S&P 500 TRUST 2/S&P MIDCAP TRUST (A
UNIT INVESTMENT TRUST), CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS FOR
EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE
SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT OR
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED IN THE CITY OF NEW YORK AND STATE OF NEW
YORK ON THE 31ST DAY OF MARCH, 1995.
SIGNATURES APPEAR ON PAGES R-3, R-4, R-5, R-6 AND R-7.
A majority of the members of the Board of Directors of Merrill Lynch,
Pierce, Fenner & Smith Incorporated has signed this Registration Statement or
Amendment to the Registration Statement pursuant to Powers of Attorney
authorizing the person signing this Registration Statement or Amendment to the
Registration Statement to do so on behalf of such members.
A majority of the members of the Board of Directors of Smith Barney Inc.
has signed this Registration Statement or Amendment to the Registration
Statement pursuant to Powers of Attorney authorizing the person signing this
Registration Statement or Amendment to the Registration Statement to do so on
behalf of such members.
A majority of the members of the Executive Committee of the Board of
Directors of PaineWebber Incorporated has signed this Registration Statement or
Amendment to the Registration Statement pursuant to Powers of Attorney
authorizing the person signing this Registration Statement or Amendment to the
Registration Statement to do so on behalf of such members.
A majority of the members of the Board of Directors of Prudential
Securities Incorporated has signed this Registration Statement or Amendment to
the Registration Statement pursuant to Powers of Attorney authorizing the person
signing this Registration Statement or Amendment to the Registration Statement
to do so on behalf of such members.
A majority of the members of the Board of Directors of Dean Witter Reynolds
Inc. has signed this Registration Statement or Amendment to the Registration
Statement pursuant to Powers of Attorney authorizing the person signing this
Registration Statement or Amendment to the Registration Statement to do so on
behalf of such members.
R-2
<PAGE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DEPOSITOR
By the following persons, who constitute a majority of Powers of Attorney
the Board of Directors of Merrill Lynch, Pierce, have been filed
Fenner & Smith Incorporated: under
Form SE and the
following 1933 Act
File
Number: 33-43466
and 33-51607
HERBERT M. ALLISON, JR.
BARRY S. FREIDBERG
EDWARD L. GOLDBERG
STEPHEN L. HAMMERMAN
JEROME P. KENNEY
DAVID H. KOMANSKY
DANIEL T. NAPOLI
THOMAS H. PATRICK
JOHN L. STEFFENS
DANIEL P. TULLY
ROGER M. VASEY
ARTHUR H. ZEIKEL
By
ERNEST V. FABIO
(As authorized signatory for Merrill Lynch, Pierce,
Fenner & Smith Incorporated and
Attorney-in-fact for the persons listed above)
R-3
<PAGE>
PRUDENTIAL SECURITIES INCORPORATED
DEPOSITOR
By the following persons, who constitute a majority of Powers of Attorney
the Board of Directors of Prudential Securities have been filed
Incorporated: under Form SE and
the following 1933
Act File Number:
33-41631
ARTHUR H. BURTON, JR.
JAMES T. GAHAN
ALAN D. HOGAN
HOWARD A. KNIGHT
LELAND B. PATON
HARDWICK SIMMONS
By
WILLIAM W. HUESTIS
(As authorized signatory for Prudential Securities
Incorporated and Attorney-in-fact for the persons
listed above)
R-4
<PAGE>
SMITH BARNEY INC.
DEPOSITOR
By the following persons, who constitute a majority of Powers of Attorney
the Board of Directors of Smith Barney Inc.: have been filed
under the 1933 Act
File Number:
33-49753 and
33-51607
STEVEN D. BLACK
JAMES BOSHART III
ROBERT A. CASE
JAMES DIMON
ROBERT DRUSKIN
ROBERT F. GREENHILL
JEFFREY LANE
JACK L. RIVKIN
By GINA LEMON
(As authorized signatory for
Smith Barney Inc. and
Attorney-in-fact for the persons listed above)
R-5
<PAGE>
DEAN WITTER REYNOLDS INC.
DEPOSITOR
By the following persons, who constitute Powers of Attorney have been filed
a majority of under Form SE and the following 1933
the Board of Directors of Dean Witter Act File Number: 33-17085
Reynolds Inc.:
NANCY DONOVAN
CHARLES A. FIUMEFREDDO
JAMES F. HIGGINS
STEPHEN R. MILLER
PHILIP J. PURCELL
THOMAS C. SCHNEIDER
WILLIAM B. SMITH
By
MICHAEL D. BROWNE
(As authorized signatory for
Dean Witter Reynolds Inc.
and Attorney-in-fact for the persons listed above)
R-6
<PAGE>
PAINEWEBBER INCORPORATED
DEPOSITOR
By the following persons, who constitute Powers of Attorney have been filed
a majority of under
the Executive Committee of the Board the following 1933 Act File
of Directors of PaineWebber Number: 33-55073
Incorporated:
PAUL B. GUENTHER
DONALD B. MARRON
JOSEPH J. GRANO, JR.
LEE FENSTERSTOCK
By
ROBERT E. HOLLEY
(As authorized signatory for
PaineWebber Incorporated
and Attorney-in-fact for the persons listed above)
R-7
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> S&P 500 TRUST 2
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 67,812,767
<INVESTMENTS-AT-VALUE> 71,324,369
<RECEIVABLES> 693,946
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72,018,315
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 636,958
<TOTAL-LIABILITIES> 636,958
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,813,363
<SHARES-COMMON-STOCK> 65,445,611
<SHARES-COMMON-PRIOR> 55,320,109
<ACCUMULATED-NII-CURRENT> 56,390
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,511,602
<NET-ASSETS> 71,381,357
<DIVIDEND-INCOME> 1,924,809
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 117,566
<NET-INVESTMENT-INCOME> 1,807,243
<REALIZED-GAINS-CURRENT> 494,726
<APPREC-INCREASE-CURRENT> (1,429,745)
<NET-CHANGE-FROM-OPS> 872,224
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,793,155
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 350,938
<NUMBER-OF-SHARES-SOLD> 11,104,169
<NUMBER-OF-SHARES-REDEEMED> 978,667
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,882,443
<ACCUMULATED-NII-PRIOR> 16,044
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> S&P MIDCAP TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 32,697,197
<INVESTMENTS-AT-VALUE> 33,580,568
<RECEIVABLES> 68,303
<ASSETS-OTHER> 17,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,666,312
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,851
<TOTAL-LIABILITIES> 27,851
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,714,638
<SHARES-COMMON-STOCK> 32,668,823
<SHARES-COMMON-PRIOR> 30,239,077
<ACCUMULATED-NII-CURRENT> 40,452
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 883,371
<NET-ASSETS> 33,638,461
<DIVIDEND-INCOME> 739,530
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 104,352
<NET-INVESTMENT-INCOME> 635,178
<REALIZED-GAINS-CURRENT> 919,206
<APPREC-INCREASE-CURRENT> (2,949,727)
<NET-CHANGE-FROM-OPS> (1,395,343)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 633,412
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1,639,322
<NUMBER-OF-SHARES-SOLD> 3,170,819
<NUMBER-OF-SHARES-REDEEMED> 741,073
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (967,081)
<ACCUMULATED-NII-PRIOR> 31,431
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
Exhibit 5.1
DEFINED ASSET FUNDS--
EQUITY INCOME FUND,
INDEX SERIES, S&P 500 TRUST 2 AND S&P MIDCAP TRUST
CONSENT OF INDEPENDENT ACCOUNTANTS
The Sponsors and Trustees of
Defined Asset Funds-Equity Income Fund, Index Series, S&P 500 Trust 2 and S&P
MidCap Trust:
We hereby consent to the use in Post-Effective Amendment No. 3 to Registration
Statement No. 33-44844 of our opinions dated February 27, 1995 and March 9, 1995
relating to the financial statements of Defined Asset Funds-Equity Income Fund
Index Series, S&P 500 Trust 2 and S&P MidCap Trust and to the reference to us
under the heading 'Auditors' in the Prospectus which is a part of this
Registration Statement.
DELOITTE & TOUCHE
New York, N.Y.
March 31, 1995
<PAGE>
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
March 31, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We hereby represent that the Post-Effective Amendments to the registered
unit investment trusts described in Exhibit A attached hereto do not contain
disclosures which would render them ineligible to become effective pursuant to
Rule 485(b) under the Securities Act of 1933.
Very truly yours,
Davis Polk & Wardwell
Attachment
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
1933 ACT 1940 ACT
FUND NAME CIK FILE NO. FILE NO.
--------- --- -------- --------
<S> <C> <C> <C>
DEFINED ASSET FUNDS-- EIF S&P 500 TRUST 2/S&P MIDCAP 882432 33-44844 811-3044
TOTAL: 1 FUNDS
</TABLE>
