<PAGE>
Defined
Asset FundsSM
<TABLE>
<S> <C>
This Defined Fund is a portfolio of preselected
securities formed for the purpose of providing safety of
Corporate principal and a high level of current income through
Income Fund investment in an insured, fixed portfolio
consisting primarily of long-term debt obligations of
domestic public utility companies issued after July 18,
1984. This income is taxable for U.S. Holders but in the
opinion of counsel is exempt from U.S. Federal income
taxes, including withholding taxes, for many foreign
Holders. Municipal Bond Investors Assurance Corporation
guarantees scheduled payments of principal and interest
on all Debt Obligations for as long as the Debt
Obligations are retained in the Fund but does not
guarantee the market value of the Debt Obligations or the
value of the Units. The value of Units of the Fund will
fluctuate with the value of the Portfolio of underlying
Securities which will fluctuate with changes in interest
rates,
changes in the credit rating of the issuers and other
factors. Units of the Fund are rated AAA by Standard &
- -------------------- Poor's because all Debt
INSURED SERIES--23
A UNIT INVESTMENT Obligations in the Fund are insured for as long as they
TRUST are held in the Fund.
The Estimated Current Return and Estimated Long Term
Return
figures shown give different information about the return
to investors. Estimated Current Return on a Unit shows a
/ /INSURED net annual
current cash return based on the initial Public Offering
/ /MONTHLY INCOME Price and
the maximum applicable sales charge and is computed by
multiplying the estimated net annual interest rate per
Unit by $1,000 and dividing the result by the Public
Offering Price per Unit (including the sales charge but
/ /AAA-RATED not including accrued interest).
Estimated Long Term Return shows a net annual long-term
return
to investors holding to maturity based on the yield on
the individual bonds in the Portfolio, weighted to
reflect the time to maturity (or in certain cases to an
earlier call date) and market value of each bond in the
Portfolio, adjusted to reflect the Public Offering Price
6.84% (including the sales charge) and estimated expenses.
ESTIMATED CURRENT Unlike Estimated Current Return, Estimated Long Term
RETURN AS OF Return takes into account maturities of the underlying
MARCH 8, 1994 Securities and discounts and
premiums. Distributions of income on Units are generally
subject to certain delays; if the Estimated Long Term
Return figures shown took these delays into account, it
would be lower. Both Estimated Current Return and
Estimated Long Term Return are subject to fluctuations
6.90% with changes in Portfolio composition (including the
ESTIMATED LONG TERM redemption, sale or other disposition of Securities in
RETURN AS OF the Portfolio), changes in the market value of the
MARCH 8, 1994 underlying Securities and
U.S. TAX EXEMPT FOR
FOREIGN
INVESTORS WHEN changes in fees and expenses. Estimated cash flows for
CERTAIN the Fund are available upon request from the Sponsors at
CONDITIONS ARE MET no charge.
Minimum purchase: 1 Unit.
</TABLE>
<TABLE>
<S> <C>
SPONSORS:
Merrill Lynch, ---------------------------------------------------------
Pierce, Fenner & THESE SECURITIES HAVE NOT BEEN APPROVED OR
Smith Inc. DISAPPROVED BY THE SECURITIES AND EXCHANGE
Smith Barney COMMISSION OR ANY STATE SECURITIES COMMISSION
Shearson Inc. NOR HAS THE COMMISSION OR ANY STATE SECURITIES
PaineWebber COMMISSION PASSED UPON THE ACCURACY OR ADE-
Incorporated QUACY OF THIS PROSPECTUS. ANY REPRESENTATION
Prudential TO THE CONTRARY IS A CRIMINAL OFFENSE.
Securities Inquiries should be directed to the Trustee at
Incorporated 1-800-735-7777.
Dean Witter Reynolds Prospectus dated March 9, 1994.
Inc. Read and retain this Prospectus for future reference.
</TABLE>
<PAGE>
<PAGE>
Defined Asset Fundssm is America's oldest and largest family of unit investment
trusts, with over $90 billion sponsored since 1970. Each Defined Fund is a
portfolio of preselected securities. The portfolio is divided into 'units'
representing equal shares of the underlying assets. Each unit receives an equal
share of income and principal distributions.
With Defined Asset Funds you know in advance what you are investing in and that
changes in the portfolio are limited. Most defined bond funds pay interest
monthly and repay principal as bonds are called, redeemed, sold or as they
mature. Defined equity funds offer preselected stock portfolios with defined
termination dates.
Your financial advisor can help you select a Defined Fund to meet your personal
investment objectives. Our size and market presence enable us to offer a wide
variety of investments. Defined Funds are available in the following types of
securities: municipal bonds, corporate bonds, government bonds, utility stocks,
growth stocks, even international securities denominated in foreign currencies.
Termination dates are as short as one year or as long as 30 years. Special funds
are available for investors seeking extra advantages: 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
<TABLE>
<S> <C>
Investment Summary..................................... A-3
Underwriting Account................................... A-6
Report of Independent Accountants...................... A-7
Statement of Condition................................. A-7
Portfolio.............................................. A-8
Fund Structure......................................... 1
Risk Factors........................................... 4
Description of the Fund................................ 8
Taxes.................................................. 11
Public Sale of Units................................... 13
Market for Units....................................... 15
Redemption............................................. 15
Expenses and Charges................................... 17
Administration of the Fund............................. 18
Resignation, Removal and Limitations on Liability...... 21
Miscellaneous.......................................... 22
Description of Ratings................................. 24
Exchange Option........................................ 25
</TABLE>
A-2
<PAGE>
<PAGE>
INVESTMENT SUMMARY AS OF MARCH 8, 1994 (THE BUSINESS DAY PRIOR TO THE INITIAL
DATE OF DEPOSIT)+
<TABLE>
<S> <C>
ESTIMATED CURRENT RETURN*
(based on Public Offering Price) 6.84%
ESTIMATED LONG TERM RETURN*
(based on Public Offering Price) 6.90%
PUBLIC OFFERING PRICE PER UNIT
(including 4.50% sales charge) $ 954.62**
FACE AMOUNT OF SECURITIES-- $ 6,000,000
INITIAL NUMBER OF UNITS***-- 6,000
SPONSORS' REPURCHASE PRICE AND
REDEMPTION PRICE PER UNIT****
(based on bid side evaluation) $ 906.67**
FRACTIONAL UNDIVIDED INTEREST IN
FUND REPRESENTED BY EACH UNIT-- 1/6,000TH
CALCULATION OF PUBLIC OFFERING
PRICE
Aggregate offering side
evaluation of Securities in
Fund....................... $ 5,470,000.00
--------------
Divided by 6,000 Units........ $ 911.67
Plus sales charge of 4.50% of
Public Offering Price
(4.712% of net amount
invested in
Securities)++.............. 42.95
--------------
Public Offering Price per
Unit....................... $ 954.62
Plus accrued interest+++...... 1.27
--------------
Total...................... $ 955.89
--------------
--------------
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CALCULATION OF ESTIMATED NET
ANNUAL INTEREST RATE PER UNIT
(based on face amount of $1,000 per
Unit)
Annual interest rate per Unit....... 6.895%
Less estimated annual expenses per
Unit ($1.56) expressed as a
percentage++++ .156%
Less annual insurance premium per
Unit ($2.05 per Unit or $12,310
in the aggregate) expressed as a
percentage....................... .205%
---------
Estimated net annual interest rate
per Unit......................... 6.534%
---------
---------
DAILY RATE AT WHICH ESTIMATED NET
INTEREST ACCRUES PER UNIT.............. .0181%
</TABLE>
<TABLE>
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PREMIUM AND DISCOUNT ISSUES IN PORTFOLIO
Face amount of Securities
with offering side evaluation:
at a discount from par--100%
</TABLE>
<TABLE>
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MONTHLY INCOME DISTRIBUTIONS
First distribution to be paid on the
25th day of June, 1994 to Holders
of record on the 10th day of
June, 1994....................... $ 5.01
Calculation of second and following
distributions, to be paid on the
25th day of each month:
Estimated net annual interest
rate per Unit times $1,000.... $ 65.34
Divided by 12................. $ 5.44
REDEMPTION PRICE PER UNIT LESS THAN:
Public Offering Price by......... $ 47.95
Sponsors' Initial Repurchase
Price by...................... $ 5.00
RECORD DAY--The 10th day of each month
DISTRIBUTION DAY--The 25th day of each month
MINIMUM CAPITAL DISTRIBUTION--No distribution need be
made from Capital Account if balance is less
than $5.00 per Unit.
SPONSORS' PROFIT ON DEPOSIT............ $ 24,665.00
TRUSTEE'S ANNUAL FEE AND EXPENSES+++++
$1.56 per Unit (see Expenses and Charges)
PORTFOLIO SUPERVISION FEE++++++
Maximum of $0.25 per $1,000 face amount of
underlying Debt Obligations (see Expenses and
Charges)
EVALUATOR'S FEE FOR EACH EVALUATION
Minimum of $14.00 (see Expenses and Charges)
EVALUATION TIME
3:30 P.M. New York Time
MANDATORY TERMINATION DATE
Trust must be terminated no later than one year
after the maturity date of the last maturing
Debt Obligation listed under Portfolio (see
Portfolio)
MINIMUM VALUE OF FUND
Trust may be terminated if value of Fund is less
than 40% of the value of the Securities in the
Portfolio on their date of deposit.
</TABLE>
- ------------
* Estimated Current Return represents annual interest income after
estimated annual expenses divided by the maximum public offering price including
a 4.50% maximum sales charge. Estimated Long Term return is the net annual
percentage return based on the yield on each underlying Debt Obligation weighted
to reflect market value and time to maturity or earlier call date. Estimated
Long Term return is adjusted for estimated expenses and the maximum offering
price but not for delays in the Fund's distribution of income. Estimated Current
Return shows current annual cash return to investors while Estimated Long Term
Return shows the return on Units held to maturity, reflecting maturities,
discounts and premiums on underlying Debt Obligations. Each figure will vary
with purchase price including sales charge, changes in Fund income and the
redemption, sale or other disposition of Debt Obligations in the Portfolio.
** Plus accrued interest.
*** The Sponsors may create additional Units during the offering period of
the Fund.
**** During the initial offering period, the Fund's Sponsors intend to offer
to purchase Units at prices based on the offer side value of the underlying
Securities. Thereafter, the Sponsors intend to maintain such a market based on
the bid side value of the underlying Securities which will be equal to the
Redemption Price. (See Market for Units.)
+ The Indenture was signed and the initial deposit was made on the date of
this Prospectus.
++ The sales charge during the initial offering period and in the secondary
market will be reduced on a graduated scale in the case of quantity purchases
(see Public Sale of Units--Public Offering Price). The resulting reduction in
the Public Offering Price will increase the effective current and long term
returns on a Unit.
+++ Figure shown represents interest accrued on underlying Securities from
the Initial Date of Deposit to expected date of settlement (normally five
business days after purchase) for Units purchased on the Initial Date of Deposit
(see Description of the Fund--Income; Estimated Current Return; Estimated Long
Term Return).
++++ Assumes the Fund will reach a size estimated by the Sponsors; expenses
will vary with the size of the Fund.
+++++ Of this amount the Trustee receives annually $0.70 per $1,000 face
amount of Securities for its services as Trustee, subject to reduction as the
size of the Fund increases. The Trustee's Annual Fee and Expenses also includes
the Portfolio Supervision Fee and Evaluator's Fee set forth herein.
++++++ In addition to this amount the Sponsors may be reimbursed for
bookkeeping or other administrative expenses not exceeding their actual costs,
currently at a maximum annual rate of $0.10 per Unit.
A-3
<PAGE>
<PAGE>
INVESTMENT SUMMARY AS OF MARCH 8, 1994 (CONTINUED)
OBJECTIVE OF THE FUND--To provide safety of principal and a high level of
current income which, while taxable to U.S. Holders, is in the opinion of
counsel exempt from U.S. Federal income taxes, including withholding taxes, for
many foreign Holders through investment in an insured fixed portfolio consisting
primarily of fixed income long-term debt obligations of public utilities issued
after July 18, 1984. There is no assurance that this objective will be met
because it is subject to the continuing ability of issuers and the Insurer of
the Debt Obligations held by the Fund to meet their obligations as to the
payment of principal and interest. Furthermore, the market value of the
underlying Debt Obligations, and therefore the value of the Units, will
fluctuate with changes in interest rates, changes in the credit quality of the
Debt Obligations and other factors. However, because the Debt Obligations are
insured for as long as they are retained in the Fund, Units of the Fund are
rated AAA by Standard & Poor's.
PORTFOLIO AT A GLANCE--
DIVERSIFICATION--The Portfolio contains obligations of 10 issuers representing
10 public utility companies. Because of possible maturity, sale or other
disposition of Securities, the size, composition and return of the Portfolio may
change at any time.
INVESTMENT QUALITY--Units of the Fund are rated AAA by Standard & Poor's.
LONG-TERM MATURITIES--The issues have maturity dates ranging from 2023 to
2034.
CALL PROTECTION--Issuers are usually able to redeem bonds under optional
refunding and sinking fund provisions. Optional refunding redemptions, which may
redeem all or part of an issue, are in most cases initially at a premium, and
then in subsequent years at declining prices, but typically not below par value.
Approximately 8% of the aggregate face amount of the Debt Obligations are
currently subject to optional refunding redemptions at prices initially not less
than 105.82% of par; approximately 92% of the Debt Obligations are subject to
optional refunding redemptions but not before 1998, at prices initially not less
than 101.12% of par (see Portfolio). Bonds are also generally subject to
mandatory sinking fund redemptions at par over the life of the issue and may
also provide for redemption at par prior or in addition to any optional or
mandatory redemption dates or maturity, for example, through operation of a
maintenance and replacement fund, if proceeds are not able to be used as
contemplated, the project is condemned or sold or the project is destroyed and
insurance proceeds are used to redeem the bonds.
DEBT OBLIGATIONS--The 10 issues were issued by 10 public utility companies.
(See Risk Factors for a brief summary of certain investment risks pertaining to
the obligations held by the Fund.)
Insurance has been obtained by the Fund from the Municipal Bond Investors
Assurance Corporation ('MBIA' or the 'Insurer') guaranteeing the scheduled
payment of principal and interest on the Debt Obligations. This insurance
('Portfolio Insurance') relates only to the Debt Obligations and not to the
Units offered hereby and applies only while those Debt Obligations are retained
in the Fund. However, pursuant to an irrevocable commitment obtained from MBIA,
in the event of the sale of a Debt Obligation, the Trustee has the right to
obtain permanent insurance ('Permanent Insurance') for the Debt Obligation upon
payment of a single predetermined premium from the proceeds of the sale of the
Debt Obligation. Therefore, any Debt obligation is eligible to be sold from the
Fund as an insured obligation. No representation is made as to the ability of
the Insurer to meet its commitments. If the Trustee had exercised on the Date of
Deposit the right to obtain Permanent Insurance with respect to all of the Debt
Obligations, the aggregate premium payable therefor would have been about
$148,772.00, or $24.80 per Unit. (See Fund Structure--Insurance.)
The Sponsors may deposit additional Securities in the Fund (where additional
Units are to be offered to the public) subsequent to the Initial Date of Deposit
(see Fund Structure).
RISK FACTORS--Investment in the Fund should be made with an understanding
that the value of the underlying Portfolio may decline with increases in
interest rates. In recent years, there have been wide fluctuations in interest
rates and thus in the value of fixed-rate, long term debt obligations generally.
The Sponsors cannot predict whether these fluctuations will continue in the
future. In addition, since the Portfolio Insurance only applies to Debt
Obligations while they are retained in the Fund, the value of the Debt
Obligations in the Portfolio (and hence the value of the Units) may decline if
the credit quality of any of the Debt Obligations is reduced (see Fund
Structure--Insurance). In addition, 100% of the aggregate face amount of the
Portfolio consists of Debt Obligations of public utility companies (including
telecommunications companies)*.
- ---------------
* A Fund is considered to be 'concentrated' in a particular category when the
Debt Obligations in that category constitute 25% or more of the aggregate face
amount of the Portfolio.
A-4
<PAGE>
<PAGE>
Defined
Asset Funds
Defined
Corporate
Income
Funds
Investor's Guide
Our defined portfolios of corporate bonds offer investors
a simple and convenient way to earn monthly income. And
by purchasing corporate Defined Funds, investors not only
avoid the problem of selecting corporate bonds by
themselves, but also gain the advantage of
diversification by investing in bonds of several
different issuers.
Corporate
Income Fund Monthly Income
Even though the securities in the portfolio pay interest
semi-annually or annually, the Fund will make monthly
distributions of net interest income.
- --------------------
Reinvestment Option
You can elect to automatically reinvest your
distributions into a
INSURED SERIES separate portfolio of corporate bonds. Reinvesting helps
to compound your income and keeps your capital
continuously working for you.
AAA Rated and Insured
Each bond in the Fund is unconditionally and irrevocably
insured as to payment of interest and principal for as
long as the bond is retained in the Fund. As a result the
units of the Fund have received Standard & Poor's highest
rating of AAA, which indicates a Fund holding securities
with an extremely strong capacity to pay interest and
repay principal. Insurance guarantees payment of
scheduled principal and interest but not market value,
which fluctuates with changes in interest rates, changes
in the credit quality of the underlying bonds and other
factors.
Professional Selection and Supervision
Each bond in the Fund has been selected by experienced
buyers and market analysts. Spreading your investment
among different securities and issuers reduces your risk,
but does not eliminate it. The Fund is not actively
managed. However, the bonds in the portfolio and/or their
Insurer are regularly reviewed and a security can be sold
if retaining it would be detrimental to investors'
interests.
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 Fund's
securities at that time as determined by an independent
evaluator. Or, you can exchange your investment for
another Defined Fund at a reduced sales charge. There is
never a fee for cashing in your investment.
Principal Distributions
Principal from sales, redemptions and maturities of bonds
in the Fund is distributed to investors periodically.
Risk Factors
Unit price fluctuates and is affected by interest rates
as well as the financial condition of the issuers and the
insurer of the bonds.
This page may not be distributed unless included in a current prospectus.
Investors should refer to the prospectus for further information.
<PAGE>
<PAGE>
INVESTMENT SUMMARY AS OF MARCH 8, 1994 (CONTINUED)
The Portfolio consists primarily of publicly held Securities which, in many
cases, do not have the benefit of covenants which would prevent the issuer from
engaging in capital restructurings or borrowing transactions in connection with
corporate acquisitions, leveraged buy outs or restructurings which could have
the effect of reducing the ability of the issuer to meet its debt obligations
and might result in the ratings of the Securities and the value of the
underlying Portfolio being reduced. (See Risk Factors for a brief summary of
certain investment risks pertaining to the obligations held by the Fund.)
The Securities are generally not listed on a national securities exchange.
Whether or not the Securities are listed, the principal trading market for the
Securities will generally be in the over-the-counter market. As a result, the
existence of a liquid trading market for the Securities may depend on whether
dealers will make a market in the Securities. There can be no assurance that a
market will be made for any of the Securities, that any market for the
Securities will be maintained or of the liquidity of the Securities in any
markets made. In addition, the Fund may be restricted under the Investment
Company Act of 1940 from selling Securities to any Sponsor. The price at which
the Securities may be sold to meet redemptions and the value of the Fund will be
adversely affected if trading markets for the Securities are limited or absent.
MONTHLY DISTRIBUTIONS--Monthly distributions of interest and any principal
or premium received by the Fund will be made in cash on or shortly after the
25th day of each month to Holders of record on the tenth day of such month
commencing with the first distribution on the date indicated on p A-3 (see
Administration of the Fund--Accounts and Distributions). Alternatively, Holders
may elect to have their monthly distributions reinvested in The Corporate Fund
Accumulation Program, Inc. It should be noted, however, that interest
distributions to foreign Holders from the program will be subject to U.S.
Federal income taxes, including withholding taxes. Further information about the
program, including a current prospectus, may be obtained by returning the
enclosed form.
PUBLIC OFFERING PRICE--During the initial offering period and any offering
of additional units, the Public Offering Price of the Units is based on the
aggregate offering side evaluation of the underlying Securities (the price at
which they could be directly purchased by the public assuming they were
available), divided by the number of Units outstanding, plus a sales charge of
4.712%* of such offering side evaluation per Unit (the net amount invested);
this results in a sales charge of 4.50%* of the Public Offering Price. The
secondary market Public Offering Price is based on the bid side evaluation of
the underlying Securities, plus a sales charge of 5.820%* of the bid side
evaluation per Unit; this results in a sales charge of 5.50%* of the secondary
market Public Offering Price. Units are offered at the Public Offering Price
computed as of the Evaluation Time for all sales made subsequent to the previous
evaluation plus cash per Unit in the Capital Account not allocated to the
purchase of specific Securities and net interest accrued. The Public Offering
Price on the Initial Date of Deposit, and on subsequent dates, will vary from
the Public Offering Price set forth on p A-3. (See Public Sale of Units--Public
Offering Price; Redemption.)
ESTIMATED CURRENT RETURN; ESTIMATED LONG TERM RETURN--Estimated Current
Return on a Unit shows the return based on the Public Offering Price and the
maximum applicable sales charge of 4.50%* and is computed by multiplying the
estimated net annual interest rate per Unit (which shows the return per Unit
based on $1,000 face amount) by $1,000 and dividing the result by the Public
Offering Price per Unit (not including accrued interest). Estimated Long Term
Return on a Unit of the Fund shows a net annual long-term return to investors
holding to maturity based on the yield on the individual Debt Obligations in the
Portfolio weighted to reflect the time to maturity (or in certain cases to an
earlier call date) and market value of each Debt Obligation in the Portfolio,
adjusted to reflect the Public Offering Price (including the maximum applicable
sales charge of 4.50%*) and estimated expenses. The net annual interest rate per
Unit and the net annual long-term return to investors will vary with changes in
the fees and expenses of the Trustee and Sponsors and the fees of the Evaluator
which are paid by the Fund, and with the maturity, exchange, redemption, sale,
prepayment or maturity of the underlying Securities; the Public Offering Price
will vary with any reduction in sales charges paid in the case of quantity
purchases, as well as with fluctuations in the offering side evaluation of the
underlying Securities. Therefore, it can be expected that the Estimated Current
Return and Estimated Long Term Return will fluctuate in the future. (See
Description of the Fund--Income; Estimated Current Return; Estimated Long Term
Return.)
- ---------------
* The sales charge during the initial offering period and in the secondary
market will be reduced on a graduated scale in the case of purchases of 250 or
more Units (see Public Sale of Units--Public Offering Price).
A-5
<PAGE>
<PAGE>
CORPORATE INCOME FUND
INSURED SERIES
DEFINED ASSET FUNDS
I want to learn more about automatic reinvestment in the
Investment Accumulation Program. Please send me information
about participation in the Corporate Fund Accumulation
Program, Inc. and a current Prospectus.
My name (please print) _____________________________________
My address (please print):
Street and Apt. No. ____________________
City, State, Zip Code ______________________________________
This page is a self-mailer. Please complete the information
above, cut along the dotted line, fold along the lines on
the reverse side, tape, and mail with the Trustee's address
displayed on the outside.
<PAGE>
<PAGE>
<TABLE>
<S> <C>
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST CLASS PERMIT NO. 6665 NEW YORK, NY
POSTAGE WILL BE PAID BY ADDRESSEE
BANKERS TRUST COMPANY
UNIT INVESTMENT TRUST
FOUR ALBANY STREET
7TH FLOOR
NEW YORK, NY 10015
</TABLE>
- --------------------------------------------------------------------------------
(Fold along this line.)
- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
<PAGE>
INVESTMENT SUMMARY AS OF MARCH 8, 1994 (CONTINUED)
TAXATION--In the opinion of special counsel to the Sponsors, each Holder
will be considered to have received the interest on his pro rata portion of each
Debt Obligation when interest on the Debt Obligation is received by the Fund.
This interest is taxable for U.S. Holders but exempt from U.S. Federal income
taxes, including withholding taxes, for many foreign Holders. None of the Debt
Obligations has been issued at an original issue discount. (See Taxes.)
MARKET FOR UNITS--The Sponsors, though not obligated to do so, intend to
maintain a secondary market for Units based on the aggregate bid side evaluation
of the underlying Securities (see Market for Units). If such market is not
maintained, a Holder will be able to dispose of his Units through redemption at
prices also based on the aggregate bid side evaluation of the underlying
Securities (see Redemption). There is no fee for selling Units. Market
conditions may cause the prices available in the market maintained by the
Sponsors or available upon exercise of redemption rights to be more or less than
the total amount paid for Units plus accrued interest.
PRIVATE PLACEMENTS; UNDERWRITING--None of the Sponsors has participated as
sole underwriter, managing underwriter or member of an underwriting syndicate
from which the Securities in the Portfolio were acquired.
REPLACEMENT SECURITIES--The Indenture permits the deposit of Replacement
Securities under certain circumstances described under Administration of the
Fund--Portfolio Supervision. The Securities on the current list from which these
Securities are to be selected are:
Pennsylvania Power & Light Company, First Mortgage Bonds, 7.3%
due 3/1/24
Consolidated Edison Company of New York, Incorporated,
Debentures, 7.5% due 6/15/23
UNDERWRITING ACCOUNT
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 Incorporated P.O. Box 9051, Princeton, N.J. 08543-9051 70.84%
Smith Barney Shearson Inc. Two World Trade Center--101st Floor, 8.33
New York, N.Y. 10048
PaineWebber Incorporated 1285 Avenue of the Americas, New York, N.Y. 10019 3.33
Prudential Securities Incorporated One Seaport Plaza--199 Water Street, 6.67
New York, N.Y. 10292
Dean Witter Reynolds Inc. Two World Trade Center, 59th Floor, 8.33
New York, N.Y. 10048
Gruntal & Co. Incorporated 14 Wall Street, New York, N.Y. 10001 1.67
Mabon Securities Corporation 165 Broadway, New York, N.Y. 10006 .83
------
100.00%
------
------
</TABLE>
A-6
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsor, Trustee and Holders of Corporate Income Fund,
Insured Series--23, Defined Asset Funds:
We have audited the accompanying statement of condition, including the
portfolio, of Corporate Income Fund, Insured Series--23, Defined Asset Funds as
of March 9, 1994. This financial statement is the responsibility of the Trustee.
Our responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. The deposit on March 9,
1994 of an irrevocable letter or letters of credit for the purchase of
securities, as described in the statement of condition, was confirmed to us by
Bankers Trust Company, the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Corporate Income Fund, Insured
Series--23, Defined Asset Funds at March 9, 1994 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE
New York, N.Y.
March 9, 1994
CORPORATE INCOME FUND
INSURED SERIES--23
DEFINED ASSET FUNDS
STATEMENT OF CONDITION AS OF INITIAL DATE OF DEPOSIT, MARCH 9, 1994
<TABLE>
<S> <C> <C>
TRUST PROPERTY
Investment in Securities(1):
Contracts to purchase Securities...................... $ 5,470,000.00
Accrued interest to Initial Date of Deposit on underlying
Securities...................................................... 101,329.86
--------------
Total........................................................... $ 5,571,329.86
--------------
--------------
LIABILITY AND INTEREST OF HOLDERS
Liability--Accrued interest to Initial Date of Deposit on
underlying Securities(2)................................... $ 101,329.86
Interest of Holders--
6,000 Units of fractional undivided interest
outstanding:
Cost to investors(3).................................. $ 5,727,700.00
Gross underwriting commissions(4)..................... (257,700.00)
--------------
Net amount applicable to investors.............................. 5,470,000.00
--------------
Total........................................................... $ 5,571,329.86
--------------
--------------
</TABLE>
- ------------
(1) Aggregate cost to the Fund of the Securities listed under Portfolio is based
on the offering side evaluation determined by the Evaluator at the
Evaluation Time on the business day prior to the Initial Date of Deposit as
set forth under Public Sale of Units--Public Offering Price. See also the
column headed Cost of Securities to Fund under Portfolio. An irrevocable
letter or letters of credit in the amount of $5,553,560.69 has been
deposited with the Trustee. The amount of such letter or letters of credit
includes $5,445,335.00 (equal to the purchase price to the Sponsors) for the
purchase of $6,000,000 face amount of Securities in connection with
contracts to purchase Securities, plus $108,225.69 covering accrued interest
to the earlier of the date of settlement for the purchase of Units or the
date of delivery of the Securities. The letter or letters of credit has been
issued by Banca Nazionale Dell'Agricoltura, New York Branch.
(2) Representing, as set forth under Description of the Fund--Income; Estimated
Current Return; Estimated Long Term Return, a special distribution by the
Trustee of an amount equal to accrued interest on the Securities as of the
Initial Date of Deposit.
(3) Aggregate public offering price (exclusive of interest) computed on the
basis of the offering side evaluation of the underlying Securities as of the
Evaluation Time on the Business Day prior to the Initial Date of Deposit.
(4) Assumes sales charge of 4.50% on all Units computed on the basis set forth
under Public Sale of Units--Public Offering Price.
A-7
<PAGE>
<PAGE>
PORTFOLIO OF CORPORATE INCOME FUND, ON THE INITIAL DATE OF DEPOSIT,
INSURED SERIES--23 March 9, 1994
DEFINED ASSET FUNDS
<TABLE>
<CAPTION>
RATINGS OF
ISSUES(1)
STANDARD MOODY'S OPTIONAL
PORTFOLIO NO. AND & POOR'S INVESTORS FACE REFUNDING
SECURITIES CONTRACTED FOR CORP. SERVICE AMOUNT COUPON MATURITIES REDEMPTIONS (2)
<C> <S> <C> <C> <C> <C> <C> <C>
--------- ---------- ------------ ------ ----------- ---------------------
1. Atlantic City Electric Company, A- A3 $ 500,000 7.000 % 8/01/28 Currently@ 105.82
First Mortgage Bonds
2. Jersey Central Power & Light A- A3 1,000,000 6.750 11/01/25 10/27/03@ 102.82
Company, First Mortgage Bonds
3. New York Telephone Company, A A2 500,000 7.000 8/15/25 8/15/03@ 102.34
Debentures
4. Pacific Bell Telephone, AA- Aa3 1,000,000 6.625 10/15/34 10/15/13@ 101.12
Debentures
5. Pacific Gas & Electric Company, A A1 500,000 6.750 10/01/23 12/01/03@ 102.74
First and Refunding Mortgage
Bonds, Series 93F
6. PECO Energy, First and Refunding BBB+ Baa1 500,000 7.250 11/01/24 11/01/98@ 104.71
Mortgage Bonds
7. Public Service Electric & Gas A- A2 500,000 7.000 9/01/24 9/01/03@ 102.74
Company, First and Refunding
Mortgage Bonds, Series SS
8. Southwestern Bell Telephone A+ A1 500,000 6.625 9/01/24 9/01/03@ 102.19
Company, Debentures
9. Texas Utilities Company, First BBB Baa2 500,000 7.375 10/01/25 10/01/03@ 103.35
Mortgage Bonds
10. Virginia Electric & Power A A2 500,000 7.000 1/01/24 1/01/04@ 102.82
Company, First and Refunding
Mortgage Bonds, Series A
------------
$ 6,000,000
------------
------------
<CAPTION>
YIELD TO
SINKING COST OF MATURITY
FUND SECURITIES ON INITIAL DATE OF
REDEMPTIONS (2) TO FUND (3) DEPOSIT (3)
<C> <<C> <C> <C>
---------------- --------------- ------------------
1. -- $ 460,000.00 7.660%
2. -- 896,250.00 7.620
3. -- 460,000.00 7.670
4. -- 885,000.00 7.530
5. -- 453,750.00 7.530
6. -- 465,625.00 7.840
7. -- 463,125.00 7.620
8. -- 446,250.00 7.520
9. -- 473,750.00 7.820
10. -- 466,250.00 7.570
---------------
$ 5,470,000.00
---------------
---------------
</TABLE>
(See Notes on following page)
A-8
<PAGE>
<PAGE>
- ------------
NOTES
(1) These ratings do not reflect the fact that the scheduled principal and
interest payments for all the Debt Obligations, while retained in the Fund,
will be insured by MBIA. The MBIA Insurance is effective only while the
Debt Obligations are retained in the Fund. Any rating followed by '*' is
subject to submission and review of final documentation. Any rating
followed by 'p' is provisional and assumes the successful completion of the
project being financed.
(2) Bonds are first subject to optional redemptions (which may be exercised in
whole or in part) on the dates and at the prices indicated under the
Optional Refunding Redemptions column in the table. In subsequent years
bonds are redeemable at declining prices, but typically not below par
value. Some issues may be subject to sinking fund redemption or
extraordinary redemption without premium prior to the dates shown.
Certain Debt Obligations may provide for redemption at par prior or in
addition to any optional or mandatory redemption dates or maturity, for
example, through the operation of a maintenance and replacement fund, if
proceeds are not able to be used as contemplated, the project is condemned,
sold or the project is destroyed and insurance proceeds are used to redeem
the Debt Obligations or in other special circumstances.
Sinking fund redemptions are all at par and generally redeem only part of
an issue. Some of the Securities have mandatory sinking funds which contain
optional provisions permitting the issuer to increase the principal amount
of bonds called on a mandatory redemption date. The sinking fund
redemptions with optional provisions may, and optional refunding
redemptions generally will, occur at times when the redeemed Securities
have an offering side evaluation which represents a premium over par. To
the extent that the Securities were acquired at a price higher than the
redemption price, this will represent a loss of capital when compared with
the original Public Offering Price of the Units. Monthly distributions will
generally be reduced by the amount of the income which would otherwise have
been paid with respect to redeemed Securities and there will be distributed
to Holders any principal amount and premium received on such redemption
after satisfying any redemption requests received by the Fund. The
estimated current return and estimated long term return in this event may
be affected by redemptions. The tax effect on Holders of redemptions and
related distributions is described under Taxes.
(3) Evaluation of Securities by the Evaluator made on the basis of current
offering side evaluation. The offering side evaluation is greater than the
current bid side evaluation of the Securities, which is the basis on which
Redemption Price per Unit is determined (see Redemption herein). The
aggregate value based on the bid side evaluation at the Evaluation Time on
the business day prior to the Initial Date of Deposit was $5,440,000.00
which is $30,000.00 (0.5% of the aggregate face amount) lower than the
aggregate Cost of Securities to Fund based on the offering side evaluation.
Yield to Maturity on the Initial Date of Deposit of Securities was computed
on the basis of the offering side evaluation at the Evaluation Time on the
business day prior to the Initial Date of Deposit. Percentages in this
column represent Yield to Maturity on Initial Date of Deposit unless
followed by '+' which indicates yield to an earlier redemption date. (See
Description of the Fund--Income; Estimated Current Return; Estimated Long
Term Return for a description of the computation of yield price.)
------------------------------------
All Debt Obligations are represented entirely by contracts to purchase such
Debt Obligations, which were entered into by the Sponsors on March 8, 1994.
All contracts are expected to be settled by the initial settlement date for
the purchase of Units. All Debt Obligations have been insured by MBIA for
the period that they are retained by the Fund (see Fund
Structure--Insurance).
A-9
<PAGE>
<PAGE>
CORPORATE INCOME FUND
INSURED SERIES
DEFINED ASSET FUNDS
FUND STRUCTURE
This Series (the 'Fund') is a 'unit investment trust' created under New
York law by a Trust Indenture (the 'Indenture') among the Sponsors, the Trustee
and the Evaluator. Unless otherwise indicated, when Investors Bank & Trust
Company and The First National Bank of Chicago act as Co-Trustees to the Fund,
reference to the Trustee in the Prospectus shall be deemed to refer to Investors
Bank & Trust Company and The First National Bank of Chicago, as Co-Trustees. To
the extent that references in this Prospectus are to articles and sections of
the Indenture, which are hereby incorporated by reference, the statements made
herein are qualified in their entirety by this reference. On the date of this
Prospectus (the 'Initial Date of Deposit') the Sponsors, acting as managers for
the underwriters named under Underwriting Account, deposited the underlying
Securities with the Trustee at a price equal to the evaluation of the Securities
on the offering side of the market on that date as determined by the Evaluator,
and the Trustee delivered to the Sponsors units of interest ('Units')
representing the entire ownership of the Fund. Except as otherwise indicated
under Portfolio (the 'Portfolio'), the Securities so deposited were represented
by purchase contracts assigned to the Trustee together with an irrevocable
letter or letters of credit issued by a commercial bank or banks in the amount
necessary to complete the purchase thereof.
The Portfolio contains different issues of debt obligations with fixed
final maturity dates. As used herein, the terms 'Debt Obligations' and
'Securities' mean the long-term debt obligations initially deposited in the Fund
and described under Portfolio and replacement and additional Debt Obligations
acquired and held by the Fund pursuant to the provisions of the Indenture (see
Description of the Fund--The Portfolio; Administration of the Fund--Portfolio
Supervision).
With the deposit of the Securities in the Fund on the Initial Date of
Deposit, the Sponsors established a proportionate relationship among the face
amounts of Securities of specified interest rates and maturities in the
Portfolio. During the 90-day period following the Initial Date of Deposit, the
Sponsors may deposit additional Securities ('Additional Securities'), contracts
to purchase Additional Securities or cash (or a bank letter of credit in lieu of
cash) with instructions to purchase Additional Securities in order to create new
Units, maintaining to the extent practicable the original proportionate
relationship among the face amounts of each Security in the Portfolio. It may
not be possible to maintain the exact original proportionate relationship among
the Securities deposited on the Initial Date of Deposit because of, among other
reasons, purchase requirements, changes in prices, or unavailability of
Securities. Replacement Securities may be acquired under specified conditions
(see Description of the Fund--The Portfolio; Administration of the
Fund--Portfolio Supervision). Units may be continuously offered for sale to the
public by means of this Prospectus (see Public Sale of Units) resulting in a
potential increase in the number of Units outstanding. Deposit of Additional
Securities subsequent to the 90-day period following the Initial Date of Deposit
must replicate exactly the proportionate relationship among the face amounts of
Securities comprising the Portfolio at the end of the initial 90-day period,
subject to certain events as discussed under Administration of the
Fund--Portfolio Supervision.
Certain of the Securities in the Fund may have been valued at a market
discount. Securities trade at less than par value because the interest rates on
the Securities are lower than interest on comparable debt securities being
issued at currently prevailing interest rates. The current returns of securities
trading at a market discount are lower than the current returns of comparably
rated debt securities of a similar type issued at currently prevailing interest
rates because discount securities tend to increase in market value as they
approach maturity and the full principal amount becomes payable. If currently
prevailing interest rates for newly issued and otherwise comparable securities
increase, the market discount of previously issued securities will become deeper
and if currently prevailing interest rates for newly issued comparable
securities decline, the market discount of previously issued securities will be
reduced, other things being equal. Market discount attributable to interest rate
changes does not indicate a lack of market confidence in the issue.
Certain of the Securities in the Fund may have been valued at a market
premium. Securities trade at a premium because the interest rates on the
Securities are higher than interest on comparable debt securities being issued
at currently prevailing interest rates. The current returns of securities
trading at a market premium are higher than the current returns of comparably
rated debt securities of a similar type issued at currently prevailing interest
rates because premium securities tend to decrease in market value as they
approach maturity when the face amount becomes payable. Because part of the
purchase price is thus returned not at maturity but through current income
payments, an early redemption of a premium security at par will result in a
reduction in yield. If currently prevailing interest rates for newly issued and
otherwise comparable securities increase, the market premium of previously
issued securities will decline and if currently prevailing interest rates for
newly issued comparable securities decline, the market premium of previously
issued securities will increase, other things being equal. Market premium
attributable to interest rate changes does not indicate market confidence in the
issue.
1
<PAGE>
<PAGE>
The holders ('Holders') of Units will have the right to have their Units
redeemed (see Redemption) at a price based on the aggregate bid side evaluation
of the Securities ('Redemption Price per Unit') if the Units cannot be sold in
the over-the-counter market which the Sponsors propose to maintain at prices
determined in the same manner (see Market for Units). On the Initial Date of
Deposit each Unit represented the fractional undivided interest in the
Securities and net income of the Fund set forth under Investment Summary in the
ratio of one Unit for each approximately $1,000 face amount of Securities
initially deposited. Thereafter, if any Units are redeemed, the face amount of
Securities in the Fund will be reduced by amounts allocable to redeemed Units,
and the fractional undivided interest represented by each Unit in the balance
will be increased. However, if additional Units are issued by the Fund (through
deposit of Securities by the Sponsors in connection with the sale of additional
Units), the aggregate value of Securities in the Fund will be increased by
amounts allocable to additional Units, and the fractional undivided interest
represented by each Unit in the balance will be decreased. Units will remain
outstanding until redeemed upon tender to the Trustee by any Holder (which may
include the Sponsors) or until the termination of the Indenture (see Redemption;
Administration of the Fund--Amendment and Termination).
INSURANCE
Portfolio insurance ('Portfolio Insurance') has been obtained from the
Municipal Bond Investors Assurance Corporation ('MBIA' or the 'Insurer')(See The
Insurer below) that guarantees the scheduled payment of the principal of and
interest on the Debt Obligations ('Portfolio-Insured Debt Obligations') while
they are owned by the Fund. Since the Portfolio Insurance applies to Debt
Obligations only while they are owned by the Fund, the value of
Portfolio-Insured Debt Obligations (and hence the value of the Units) may
decline if the credit quality of any Portfolio-Insured Debt Obligation is
reduced. Premiums for Portfolio Insurance are payable monthly in advance by the
Trustee on behalf of the Fund. The Municipal Bond Investors Assurance
Corporation insurance obtained by the Fund is only effective as to Debt
Obligations owned by and held in the Fund and, consequently, does not cover Debt
Obligations for which the contract for purchase fails. A 'when issued' bond will
be covered under the Municipal Bond Investors Assurance Corporation policy upon
the settlement date of the 'when issued' bond. The Municipal Bond Investors
Assurance Corporation policy shall continue in force only with respect to Debt
Obligations held in and owned by the Fund, and the Insurer shall not have any
liability under the policy with respect to any Debt Obligations which do not
constitute part of the Fund.
By the terms of its policy, the Insurer will unconditionally guarantee to
the Fund the payment, when due, required of the issuer of the Debt Obligations
of an amount equal to the principal of (either at the stated maturity or by any
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on the Bonds as the payments shall become due but not paid except that
in the event of any acceleration of the due date of principal by reason of
mandatory or optional redemption (other than mandatory sinking fund redemption),
default or otherwise, the payments guaranteed will be made in the amounts and at
the times as would have been due had there not been an acceleration by reason of
mandatory or optional redemption (other than a mandatory sinking fund
redemption), default or otherwise. The Insurer will be responsible for those
payments less any amounts received by the Fund from any trustee for the bond
issuers or from any other source. In the event the due date of the principal of
any Debt Obligation is accelerated, the payments required by the acceleration
are received by the Fund, and the Debt Obligation is cancelled, the Portfolio
Insurance will terminate with respect to that Debt Obligation. The Municipal
Bond Investors Assurance Corporation policy does not guarantee payment on an
accelerated basis, the payment of any redemption premium or the value of the
Units. The Municipal Bond Investors Assurance Corporation policy also does not
insure against nonpayment of principal of or interest on the Debt Obligations
resulting from the insolvency, negligence or any other act or omission of the
trustee or other paying agent for the Debt Obligations.
The Municipal Bond Investors Assurance Corporation insurance policy is
non-cancellable and will continue in force so long as the Fund is in existence
and the Securities described in the policy continue to be held in and owned by
the Fund (see Portfolio). The Municipal Bond Investors Assurance Corporation
policy shall terminate as to any Debt Obligation which has been redeemed from
the Fund or sold by the Trustee on the date of the redemption or on the
settlement date of the sale, and the Insurer shall not have any liability under
the policy as to that Debt Obligation thereafter. If the date of the redemption
or the settlement date of the sale occurs between a record date and a date of
payment of any Debt Obligation, the Municipal Bond Investors Assurance
Corporation policy will terminate as to that Debt Obligation on the business day
next succeeding the date of payment. The termination of the Municipal Bond
Investors Assurance Corporation policy as to any Debt Obligation shall not
affect the Insurer's obligations regarding any other Debt Obligation in the Fund
or any other fund which has obtained a Municipal Bond Investors Assurance
Corporation insurance policy. The Municipal Bond Investors Assurance Corporation
policy will terminate as to all Debt Obligations on the date on which the last
of the Debt Obligations matures, is redeemed or is sold by the Fund. As
Portfolio-Insured Debt Obligations are redeemed by their respective issuers or
are sold by the Trustee, the amount of the premium payable for the Portfolio
Insurance will be correspondingly reduced. Nonpayment of premiums on the policy
obtained by the Fund will not result in the cancellation of insurance but will
permit the Insurer to take action
2
<PAGE>
<PAGE>
against the Trustee to recover premium payments due it. The Trustee in turn will
be entitled to recover the payments from the Fund.
Upon the sale of a Portfolio-Insured Debt Obligation from the Fund, the
Trustee has the right, pursuant to an irrevocable commitment obtained from the
Insurer, to obtain insurance to maturity ('Permanent Insurance') on the Debt
Obligation upon the payment of a single predetermined insurance premium from the
proceeds of the sale. Accordingly, any Debt Obligation in the Fund is eligible
to be sold on an insured basis. It is expected that the Trustee will exercise
the right to obtain Permanent Insurance upon instructions from the Sponsors only
if the Fund would receive net proceeds from the sale of the Debt Obligation
(sale proceeds less the insurance premium attributable to the Permanent
Insurance and the related custodial and rating agency fees) in excess of the
sale proceeds that would be received if the Debt Obligation were sold on an
uninsured basis. The aggregate premium that would be payable for Permanent
Insurance if Permanent Insurance were obtained for all of the Portfolio-Insured
Debt Obligations on the Date of Deposit is set forth under Investment Summary.
The premiums for Permanent Insurance for each Portfolio-Insured Debt Obligation
will decline over the life of the Debt Obligation. The predetermined Permanent
Insurance premium with respect to each Debt Obligation is based upon the
insurability of each Debt Obligation as of the Date of Deposit and will not be
increased for any change in the creditworthiness of such Debt Obligation unless
such Debt Obligation is in default as to payment of principal and/or interest.
In such event, the Permanent Insurance premium shall be subject to an increase
predetermined at the Date of Deposit and payable from the proceeds of the sale
of such Debt Obligation.
Although all Debt Obligations are individually insured, neither the Fund,
the Units nor the Portfolio is insured directly or indirectly by the insurer.
The Public Offering Price does not reflect any element of value for
Portfolio Insurance. The Evaluator will attribute a value to the Portfolio
Insurance (including the right to obtain Permanent Insurance) for the purpose of
computing the price or redemption value of Units only if the Portfolio-Insured
Debt Obligations are in default in payment of principal or interest or, in the
opinion of the Agent for the Sponsors, in significant risk of default. In making
this determination the Agent for the Sponsors has established as a general
standard that a Portfolio-Insured Debt Obligation which is rated less than BB by
Standard & Poor's or Ba by Moody's will be deemed in significant risk of default
although the Agent for the Sponsors retains the discretion to conclude that a
Portfolio-Insured Debt Obligation is in significant risk of default even though
at the time it has a higher rating, or not to reach that conclusion even if it
has a lower rating. (See Description of Ratings.) The value of the insurance
will be equal to the difference between (i) the market value of the
Portfolio-Insured Debt Obligation assuming the exercise of the right to obtain
Permanent Insurance (less the insurance premium attributable to the purchase of
Permanent Insurance and the related custodial and rating agency fees) and (ii)
the market value of the Portfolio-Insured Debt Obligation not covered by
Permanent Insurance.
In the event that interest on or principal of a Debt Obligation is due for
payment but is unpaid by reason of nonpayment by the issuer thereof, the Insurer
will make payments to its fiscal agent, State Street Bank and Trust Company,
N.A., New York, New York (the 'Fiscal Agent'), equal to the unpaid amounts of
principal and interest not later than one business day after the Insurer has
been notified by the Trustee that the nonpayment has occurred (but not earlier
than the date such payment is due). The Fiscal Agent will disburse to the
Trustee the amount of principal and interest which is then due for payment but
is unpaid upon receipt by the Fiscal Agent of (i) evidence of the Trust's right
to receive payment of the principal and interest and (ii) evidence, including
any appropriate instruments of assignment, that all of the rights to payment of
the principal or interest then due for payment shall thereupon vest in the
Insurer. Upon payment by the Insurer of any principal or interest payments with
respect to any Debt Obligation, the Insurer shall succeed to the rights of the
owner of such Debt Obligation with respect to that payment.
The policies of insurance are not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
Ratings of Units. Standard & Poor's has rated the Units of the Fund AAA
because of the Portfolio Insurance on the Debt Obligations. The assignment of
the AAA rating is due to Standard & Poor's assessment of the creditworthiness of
the Insurer and of its ability to pay claims on its policies of insurance. In
the event that Standard & Poor's reassesses the creditworthiness of the Insurer
which would result in the Fund's rating being reduced, the Sponsors are
authorized to direct the Trustee to obtain additional insurance in order to
maintain the AAA rating on the Units (see Expenses and Charges).
The Insurer. The Insurer is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated to
pay the debts of or claims against the Insurer. The Insurer is a limited
liability corporation rather than a several liability association. The Insurer
is domiciled in the State of New York and licensed to do business in all 50
states, the District of Columbia and Commonwealth of Puerto Rico.
3
<PAGE>
<PAGE>
As of December 31, 1992 the Insurer had admitted assets of $2.6 billion
(audited), total liabilities of $1.7 billion (audited), and total capital and
surplus of $896 million (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of September 30, 1993, MBIA had admitted assets of $3 billion
(unaudited), total liabilities of $2 billion (unaudited) and total capital and
surplus of $951 million (unaudited).
The above financial information has been obtained from publicly available
information. No representation is made as to the accuracy or adequacy of the
information or as to the absence of material adverse changes since the
information was made available to the public.
Moody's rates all bond issues insured by the Insurer 'Aaa' and short term
loans 'MIG 1,' both designated to be of the highest quality. Standard and Poor's
rates all new issues insured by the Insurer 'AAA' Prime Grade. The Moody's
rating of the Insurer should be evaluated independently of the Standard & Poor's
rating of the Insurer. No application has been made to any other rating agency
in order to obtain additional ratings on the Debt Obligations. The ratings
reflect the respective agency's current assessment of the creditworthiness of
the Insurer and its ability to pay claims on its policies of insurance. Any
further explanation as to the significance of the above ratings may be obtained
only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Debt
Obligations, and those ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of either or
both ratings may have an adverse effect on the market price of the Debt
Obligations. No representation is made herein as to the accuracy or adequacy of
the above information relating to the Insurer or as to the absence of material
adverse changes in such information subsequent to the date thereof. The Sponsors
are not aware that the information herein is inaccurate or incomplete as of the
date hereof.
REGULATION OF INSURANCE COMPANIES
Insurance companies are subject to regulation and supervision in the
jurisdictions in which they do business under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. This regulation, supervision and administration relate, among
other things, to: the standards of solvency which must be met and maintained;
the licensing of insurers and their agents; the nature of and limitations on
investments; deposits of securities for the benefit of policyholders; approval
of policy forms and premium rates; periodic examinations of the affairs of
insurance companies; annual and other reports required to be filed on the
financial condition of insurers or for other purposes; and requirements
regarding reserves for unearned premiums, losses and other matters. Regulatory
agencies require that premium rates not be excessive, inadequate or unfairly
discriminatory. Insurance regulation in many states also includes 'assigned
risk' plans, reinsurance facilities, and joint underwriting associations, under
which all insurers writing particular lines of insurance within the jurisdiction
must accept, for one or more of those lines, risks unable to secure coverage in
voluntary markets. A significant portion of the assets of insurance companies is
required by law to be held in reserve against potential claims on policies and
is not available to general creditors.
Although the Federal government does not regulate the business of
insurance, Federal initiatives can significantly impact the insurance business.
Current and proposed Federal measures which may significantly affect the
insurance business include pension regulations (ERISA), controls on medical care
costs, minimum standards for no-fault automobile insurance, national health
insurance, personal privacy protection, tax law changes affecting life insurance
companies or the relative desirability of various personal investment vehicles
and repeal of the current antitrust exemption for the insurance business. (If
this exemption is eliminated, it will substantially affect the way premium rates
are set by all property-liability insurers.) In addition, the Federal government
operates in some cases as a co-insurer with the private sector insurance
companies.
Insurance companies are also affected by a variety of state and Federal
regulatory measures and judicial decisions that define and extend the risks and
benefits for which insurance is sought and provided. These include judicial
redefinitions of risk exposure in areas such as products liability and state and
Federal extension and protection of employees benefits, including pension,
workers' compensation, and disability benefits. These developments may result in
short-term adverse effects on the profitability of various lines of insurance.
Longer-term adverse effects can often be minimized through prompt repricing of
coverages and revision of policy terms. In some instances these developments may
create new opportunities for business growth. All insurance companies write
policies and set premiums based on actuarial assumptions about mortality,
injury, the occurrence of accidents and other insured events. These assumptions,
while well supported by past experience, necessarily do not take account of
future events. The occurrence in the future of unforeseen circumstances could
affect the financial condition of one or more insurance companies. The insurance
business is highly competitive and with the deregulation of financial service
businesses, it should become more competitive. In addition, insurance companies
may expand into non-traditional lines of business, which may involve different
types of risks.
RISK FACTORS
An investment in Units of the Fund should be made with an understanding of
the risks which an investment in fixed rate long-term debt obligations may
entail, including the risk that the value of the Portfolio and hence of
4
<PAGE>
<PAGE>
the Units will decline with increases in interest rates. In recent years there
have been wide fluctuations in interest rates and thus in the value of fixed
rate debt obligations generally. The Sponsors cannot predict future economic
policies or their consequences or, therefore, the course or extent of any
similar fluctuations in the future. The Portfolio consists primarily of publicly
held Securities which, in many cases, do not have the benefit of covenants which
would prevent the issuer from engaging in capital restructurings or borrowing
transactions in connection with corporate acquisitions, leveraged buy outs or
restructurings which could have the effect of reducing the ability of the issuer
to meet its debt obligations and might result in the ratings of the Securities
and the value of the underlying Portfolio being reduced.
The Securities are generally not listed on a national securities exchange.
Whether or not the Securities are listed, the principal trading market for the
Securities will generally be in the over-the-counter market. As a result, the
existence of a liquid trading market for the Securities may depend on whether
dealers will make a market in the Securities. There can be no assurance that a
market will be made for any of the Securities, that any market for the
Securities will be maintained or of the liquidity of the Securities in any
markets made. In addition, the Fund may be restricted under the Investment
Company Act of 1940 from selling Securities to any Sponsor. The price at which
the Securities may be sold to meet redemptions and the value of the Fund will be
adversely affected if trading markets for the Securities are limited or absent.
As set forth under Investment Summary and Portfolio, the Fund may be
concentrated in the classification of Debt Obligations referred to below.
Percentages of any concentrations for this Fund are set forth under Investment
Summary. An investment in Units of the Fund should be made with an understanding
of the risks that these investments may entail, certain of which are described
below.
UTILITIES
The ability of utilities to meet their obligations with respect to debt
obligations issued on their behalf is dependent on various factors, including
the rates they may charge their customers, the demand for a utility's services
and the cost of providing those services. Utilities, in particular
investor-owned utilities, are subject to extensive regulation relating to the
rates which they may charge customers. Utilities can experience regulatory,
political and consumer resistance to rate increases. Utilities engaged in
long-term capital projects are especially sensitive to regulatory lags in
granting rate increases. Any difficulty in obtaining timely and adequate rate
increases could adversely affect a utility's results of operations.
The demand for a utility's services is influenced by, among other factors,
competition, weather conditions and economic conditions. Electric utilities, for
example, have experienced increased competition as a result of the availability
of other energy sources, the effects of conservation on the use of electricity,
self-generation by industrial customers and the generation of electricity by
co-generators and other independent power producers. Also, increased competition
will result if federal regulators determine that utilities must open their
transmission lines to competitors. Utilities which distribute natural gas also
are subject to competition from alternative fuels, including fuel oil, propane
and coal.
The utility industry is an increasing cost business making the cost of
generating electricity more expensive, heightening its sensitivity to
regulation. A utility's costs are influenced by the utility's cost of capital,
the availability and cost of fuel and other factors. In addition, natural gas
pipeline and distribution companies have incurred increased costs as a result of
long term natural gas purchase contracts containing 'take or pay' provisions
which require that they pay for natural gas even if natural gas is not taken by
them. There can be no assurance that a utility will be able to pass on these
increased costs to customers through increased rates. Utilities incur
substantial capital expenditures for plant and equipment. In the future they
will also incur increasing capital and operating expenses to comply with
environmental legislation such as the Clean Air Act of 1990 and other laws and
regulations relating to, among other things, air emissions, energy, the quality
of drinking water, waste water discharge, solid and hazardous substance handling
and disposal, and siting and licensing of facilities. Environmental legislation
and regulations are changing rapidly and are the subject of current public
policy debate and legislative proposals. It is increasingly likely that some or
many utilities will be subject to more stringent environmental standards in the
future that could result in significant capital expenditures. Future legislation
and regulation could include, among other things, regulation of so-called
electromagnetic fields associated with electric transmission and distribution
lines as well as emissions of carbon dioxide and other so-called greenhouse
gases associated with the burning of fossil fuels. Compliance with these
requirements may limit a utility's operations or require substantial investments
in new equipment and, as a result, may adversely affect a utility's results of
operations.
The electric utility industry in general is subject to various external
factors including (a) the effects of inflation upon the costs of operation and
construction, (b) substantially increased capital outlays and longer
construction periods for larger and more complex new generating units, (c)
uncertainties in predicting future load requirements, (d) increased financing
requirements coupled with limited availability of capital, (e) exposure to
cancellation and penalty charges on new generating units under construction, (f)
problems of cost and
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availability of fuel, (g) compliance with rapidly changing and complex
environmental, safety and licensing requirements, (h) litigation and proposed
legislation designed to delay or prevent construction of generating and other
facilities, (i) the uncertain effects of conservation on the use of electric
energy, (j) uncertainties associated with the development of a national energy
policy, (k) regulatory, political and consumer resistance to rate increases and
(l) increased competition as a result of the availability of other energy
sources. These factors may delay the construction and increase the cost of new
facilities, limit the use of, or necessitate costly modifications to, existing
facilities, impair the access of electric utilities to credit markets, or
substantially increase the cost of credit for electric generating facilities.
The Sponsors cannot predict at this time the ultimate effect of such factors on
the ability of any issuers to meet their obligations with respect to the
Securities in the Fund.
The National Energy Policy Act ('NEPA'), which became law in October, 1992,
makes it mandatory for a utility to permit non-utility generators of electricity
access to its transmission system for wholesale customers, thereby increasing
competition for electric utilities. NEPA also mandated demand-side management
policies to be considered by utilities. NEPA prohibits the Federal Energy
Regulatory Commission from mandating electric utilities to engage in retail
wheeling, which is competition among suppliers of electric generation to provide
electricity to retail customers (particulary industrial retail customers) of a
utility. However, under NEPA, a state can mandate retail wheeling under certain
conditions.
There is concern by the public, the scientific community, and the U.S.
Congress regarding environmental damage resulting from the use of fossil fuels.
Congressional support for the increased regulation of air, water, and soil
contaminants is building and there are a number of pending or recently enacted
legislative proposals which may affect the electric utility industry. In
particular, on November 15, 1990, legislation was signed into law that
substantially revises the Clean Air Act (the '1990 Amendments'). The 1990
Amendments seek to improve the ambient air quality throughout the United States
by the year 2000. A main feature of the 1990 Amendments is the reduction of
sulphur dioxide and nitrogen oxide emissions caused by electric utility power
plants, particularly those fueled by coal. Under the 1990 Amendments the U.S.
Environmental Protection Agency ('EPA') must develop limits for nitrogen oxide
emissions by 1993. The sulphur dioxide reduction will be achieved in two phases.
Phases I addresses specific generating units named in the 1990 Amendments. In
Phase II the total U.S. emissions will be capped at 8.9 million tons by the year
2000. The 1990 Amendments contain provisions for allocating allowances to power
plants based on historical or calculated levels. An allowance is defined as the
authorization to emit one ton of sulphur dioxide.
The 1990 Amendments also provide for possible further regulation of toxic
air emissions from electric generating units pending the results of several
federal government studies to be conducted over the next three to four years
with respect to anticipated hazards to public health, available corrective
technologies, and mercury toxicity.
Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substanital capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various plant
systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an investor-owned utility or
a state or local municipality is out of service or operating on a limited
service basis, the utility operator or its owners may be liable for the recovery
of replacement power costs. Risks of substantial liability also arise from the
operation of nuclear facilities and from the use, handling, and possible
radioactive emissions associated with nuclear fuel. Insurance may not cover all
types or amounts of loss which may be experienced in connection with the
ownership and operation of a nuclear plant and severe financial consequences
could result from a significant accident or occurrence. The Nuclear Regulatory
Commission has promulgated regulations mandating the establishment of funded
reserves to assure financial capability for the eventual decommissioning of
licensed nuclear facilities. These funds are to be accrued from revenues in
amounts currently estimated to be sufficient to pay for decommissioning costs.
TELECOMMUNICATIONS. The Portfolio may contain obligations of companies engaged
in providing local, long-distance and cellular services, in the manufacture of
telecommunications products and in a wide range of other activities including
directory publishing, information systems and the operation of voice, data and
video telecommunications networks. Technological innovations in fiber optics,
cellular products and services, voice messaging, call waiting and automatic
dialing offer additional potential for significant expansion. Advances like
formation of a national cellular grid should also contribute to the anticipated
growth of this industry. The Fund may contain obligations of the Regional Bell
Holding Companies ('RBOCs') which were spun off from AT&T in 1984 pursuant to
approval of the U.S. District Court for the District of Columbia (the 'Court'),
implementing a consent decree relating to antitrust proceedings brought by the
U.S. Department of Justice. The RBOCs
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include: Ameritech Corporation, Bell Atlantic Corporation, BellSouth
Corporation, NYNEX Corporation, Pacific Telesis Group, Southwestern Bell
Corporation and U.S. West, Inc. These companies provide near monopoly local and
intrastate telephone service as well as cellular and other generally unregulated
services. The Fund may contain obligations of certain independent telephone
companies which are subject to regulation by the Federal Communications
Commissions (the 'FCC') and state utility commissions but not subject to the
consent decree binding the RBOCs and AT&T or of certain long-distance
telecommunications carriers, certain telecommunications equipment manufacturers
or of U.S. companies which provide telecommunitions services or equipment mainly
outside the United States. International communications facilities in the United
States are also subject to the jurisdiction of the FCC, and the provision of
service to foreign countries is subject to the approval of the FCC and the
appropriate foreign governmental agencies.
In accordance with the consent decree, the RBOCs provide local telephone
service, including exchange access for long-distance companies, and may provide
directory advertising and new customer equipment. Many of the RBOCs, pursuant to
waivers, may also engage in a broad range of businesses including foreign
consulting, servicing computers and marketing or leasing office equipment. AT&T
provides interexchange long distance telephone service in competition with
numerous other providers and certain other products, services and customer
equipment.
The Court's order approving the consent decree provided for periodic
reviews of the restrictions imposed by it. In April 1990, a Federal appeals
court directed the Court to review its ruling that restricts RBOC involvement in
the information services business and to determine whether removal of the
information services restriction would be in the public interest. On July 25,
1991, the Court lifted the information services ban. Other portions of the
consent decree are being litigated. As RBOCs are released from the restrictions
of the 1984 divestiture decree, they and other telephone companies are being
freed to create new products, services and businesses. Bills have been
introduced in the U.S. House of Representatives and the Senate that would
require the RBOCs to pass a competitive market test that would block them from
offering information services in the near future.
The independent telephone companies, like the RBOCs, provide local
telecommunications services, but operate in a more limited area. These companies
are not subject to the consent decree and therefore can provide the full range
of telecommunications services including local exchange services, the
installation of business systems, telephone consulting, the manufacture of
telecommunications equipment, operation of voice and data networks and directory
publishing. Cellular service is providing an increasing component of the
revenues of the RBOCs and independent telephone companies. Both the RBOCs and
independents are subject to regulation by the FCC and state regulatory
authorities. The FCC also has the power to regulate the types of
telecommunications equipment which may be used and therefore may affect the
business of companies in the manufacturing of telecommunications equipment.
Long-distance companies which provide long-distance telecommunications services
are subject to regulation by the FCC. The long-distance industry is
consolidating into larger carriers.
Certain telecommunications services have in the past been fairly resistant
to recession with the exception of long-distance carriers. The Sponsors believe
that companies in the telephone business may remain resistant to recession the
next few years and may experience some growth in access lines and message units.
Cellular telephone service should continue to expand, although at lesser rates
of growth than in the recent past. Also, ongoing technological change may lead
to an increase in the development of new services such as voice messaging, call
screening and automatic dialing and the demand for business services such as the
use of fax machines and the movement of data information should continue to
grow.
Business conditions in the telecommunications industry may affect the
ability of the issuers of the Securities in the Fund to meet their obligations.
The FCC and certain state utility regulators have introduced certain incentive
plans such as price-cap regulation which apply to certain portions of the
business of certain local exchange carriers. Price-cap regulation offers local
exchange carriers an opportunity to share in higher earnings provided they
become more efficient. These new approaches to regulation by the FCC and various
state or other regulatory agencies result in increased competition and could
lead to greater risks as well as greater rewards for operating telephone
companies. Technology has tended to offset the effects of inflation and is
expected to continue doing so. Under traditional regulation, continuing cost
increases, to the extent not offset by improved productivity and revenues from
increased volume of business, would result in a decreasing rate of return and a
continuing need for rate increases. Although allowance is generally made in
ratemaking proceedings for cost increases, delays may be experienced in
obtaining the necessary rate increases through these proceedings and there can
be no assurance that these regulatory commissions in the future will grant rate
increases adequate to cover operating and other expenses and debt service
requirements. The long-distance industry has been increasingly opened to
competition over the last number of years. As a result, the major long distance
companies compete actively for market share. Indeed, to meet increasing
competition, telecommunications companies will have to commit substantial
capital, technological and marketing resources.
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Cellular and cable companies provide wireless services including paging,
dispatch and cellular services throughout the U.S. Most of the RBOCs, as well as
long distance companies, are seeking to increase their share of the cellular
market in view of perceived future growth prospects. It is unclear what effect,
if any, increased competition between wireless and traditional services will
have on the telecommunications industry. Other potential competition for local
service has also developed. The deregulated cellular telephone industry has a
limited operating history and there is significant uncertainty regarding its
future, particularly with regard to increased competition, the continued growth
in the number of customers, the usage and pricing of cellular services, and the
cost of providing cellular services, including the cost of attracting new
customers, developing new technology and the ability to obtain licenses to
provide cellular services. Recent industry developments, such as the proposed
purchase of McCaw Cellular Communications Inc., the largest U.S. cellular
carrier, by AT&T, may provide increased competition and reduced revenues from
cellular service for RBOCs and independent telephone companies. The uncertain
outcomes of future labor agreements and employee and retiree benefit costs may
also have a negative impact on profitability. Telephone usage, and therefore
revenues, could also be adversely affected by any sustained economic recession.
Each of these problems would adversely affect the profitability of the
telecommunications issuers of the Securities in the Fund and their ability to
meet their obligations.
PAYMENT OF THE DEBT OBLIGATIONS AND LIFE OF THE FUND
Because certain of the Debt Obligations from time to time may be redeemed
or prepaid or will mature in accordance with their terms or may be sold under
certain circumstances described herein, no assurance can be given that the Fund
will retain for any length of time its present size and composition (see
Redemption). Many of the Debt Obligations may be subject to redemption prior to
their stated maturity dates pursuant to optional refunding or sinking fund
redemption provisions or otherwise. In general, optional refunding redemption
provisions are more likely to be exercised when the offering side evaluation is
at a premium over par than when it is at a discount from par. Generally, the
offering side evaluation of Debt Obligations will be at a premium over par when
market interest rates fall below the coupon rate on the Debt Obligations. The
percentage of the face amount of Debt Obligations in the Portfolio which were
acquired on the Initial Date of Deposit at an offering side evaluation in excess
of par is set forth under Investment Summary.
Certain Debt Obligations in the Portfolio may be subject to sinking fund
provisions early in the life of the Fund. These provisions are designed to
redeem a significant portion of an issue gradually over the life of the issue;
obligations to be redeemed are generally chosen by lot. The Portfolio contains a
listing of the sinking fund and optional redemption provisions with respect to
the Debt Obligations. Additionally, the size and composition of the Fund will be
affected by the level of redemptions of Units that may occur from time to time
and the consequent sale of Debt Obligations (see Redemption). Principally, this
will depend upon the number of Holders seeking to sell or redeem their Units and
whether or not the Sponsors continue to reoffer Units acquired by them in the
secondary market. Factors that the Sponsors will consider in the future in
determining to cease offering Units acquired in the secondary market include,
among other things, the diversity of the portfolio remaining at the time, the
size of the Fund relative to its original size, the ratio of Fund expenses to
income, the Fund's current and long-term returns and the degree to which Units
may be selling at a premium over par relative to other funds sponsored by the
Sponsors, and the cost of maintaining a current prospectus for the Fund. These
factors may also lead the Sponsors to seek to terminate the Fund earlier than
would otherwise be the case (see Administration of the Fund--Amendment and
Termination).
LITIGATION AND LEGISLATION
At any time after the Date of Deposit, litigation may be initiated on a
variety of grounds with respect to Debt Obligations in the Fund or the issuers
of the Debt Obligations. There can be no assurance that future litigation will
not have a material adverse effect on the Fund or will not impair the ability of
issuers to make payments due on the Debt Obligations. In addition, there can be
no assurance that foreign withholding taxes will not be imposed on interest on
Debt Obligations issued by non-United States issuers in the future.
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio contains different issues of Debt Obligations with fixed
final maturity dates. On the Initial Date of Deposit up to 40 percent of the
value of the Portfolio may consist of Debt Obligations which were acquired in
private placements or otherwise and which at the time cannot, in the opinion of
counsel designated by the Sponsors and satisfactory to the Trustee, be sold
publicly by the Trustee without registration under the Securities Act of 1933,
as amended, or similar provisions of law subsequently enacted ('Restricted
Securities') (see Redemption; Administration of the Fund--Portfolio
Supervision). See Investment Summary for a summary of particular matters
relating to the Portfolio.
Each new security and issuer must be approved by the Sponsors' own
dedicated research group. The Sponsors have purchased more than $90 billion of
securities for Defined Asset Funds. Experienced professional
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buyers and market analysts in the Unit Investment Trusts division of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Agent for the Sponsors, with access
to thousands of different issues and extensive research, who are in close
contact with the markets for suitable securities, select securities for deposit
in the Fund considering the following factors, among others: (i) the
insurability of the Debt Obligations (ii) the yield and price of the Debt
Obligations relative to other comparable debt securities, (iii) the
diversification of the Portfolio, taking into account the availability in the
market of issues which meet the Fund's criteria and (iv) whether the Debt
Obligations were issued after July 18, 1984, if interest thereon is U.S. source
income. Subsequent to the Initial Date of Deposit, a Debt Obligation may cease
to be rated or its rating may be reduced. Neither event requires an elimination
of that Debt Obligation from the Portfolio, but may be considered in the
Sponsors' determination to direct the disposal of the Debt Obligation (see
Administration of the Fund--Portfolio Supervision). There is no leverage or
borrowing to increase risk. Nor are the portfolios modified with other kinds of
securities to enhance yields.
Bonds such as those held by the Fund are issued by corporations in order to
borrow money for various business purposes. These may include funding new
capital projects, for expansion into new lines of business, to modernize
operations, or to improve the balance sheet through lower-cost financing. For
investors, corporate bonds can offer a high rate of regular income with
correspondingly higher risk. They generally pay higher interest than lower-risk
passbook savings, certificates of deposit or U.S. government securities.
Although they are not FDIC-insured or government backed, and price and yield may
vary, they are backed by the financial credit of the issuing corporation.
Because of the generally higher rates of interest, corporate bonds can be
especially appropriate for IRAs and other tax-advantaged retirement accounts.
The yields on debt obligations of the type deposited in the Fund are
dependent on a variety of factors, including general money market conditions,
general conditions of the corporate bond market, size of a particular offering,
the maturity of the obligation and rating of the issue. The ratings represent
the opinions of the rating organizations as to the quality of the debt
obligations which they undertake to rate. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
debt obligations with the same maturity, coupon and rating may have different
yields, while debt obligations of the same maturity and coupon with different
ratings may have the same yield.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Agent for the
Sponsors, has made arrangements with a number of different issuers which create
a framework within which debt obligations may be acquired for deposit in various
series of The Corporate Income Fund on a private placement basis. Under these
arrangements Merrill Lynch may make bids to purchase debt obligations for
deposit in a particular series on the basis of a price and other terms
determined by Merrill Lynch for the particular bid. Merrill Lynch, however, is
not obligated to make any bids to purchase debt obligations under these
arrangements and the issuers are not obligated to accept any bid which Merrill
Lynch may choose to make. See Investment Summary for the percentage of the
Securities in the Portfolio, if any, acquired pursuant to bids made under these
arrangements.
The Fund consists of the Securities (or contracts to purchase the
Securities) listed under Portfolio (including any replacement debt obligations
('Replacement Securities') and Additional Securities deposited in the Fund in
connection with the sale of additional units to the public as described below)
as long as they may continue to be held from time to time in the Fund together
with the accrued and undistributed interest thereon and undistributed and
univested cash realized from the disposition or redemption of Securities (see
Administration of the Fund--Portfolio Supervision).
The Indenture authorizes the Sponsors to increase the size and the number
of Units of the Fund by the deposit of Additional Securities and the issue of a
corresponding number of additional Units subsequent to the Initial Date of
Deposit provided that the identical original relationship among the face amounts
of Securities of specified issuers, interest rates, maturities and call
provisions, if any, is maintained. Also, Securities may be sold under certain
circumstances (see Redemption, Administration of the Fund--Portfolio
Supervision). As a result, the aggregate face amount of the Securities in the
Portfolio will vary over time.
Each portfolio is divided into units, representing equal shares of
underlying assets. On the Initial Date of Deposit each Unit represented by the
fractional undivided interest in the Fund set forth under Investment Summary.
Thereafter, if any Units are redeemed by the Trustee the face amount of
Securities in the Fund will be reduced by amounts allocable to redeemed Units,
and the fractional undivided interest represented by each Unit in the balance
will be increased. However, if additional units are issued by the Fund (through
deposit of Securities by the Sponsor in connection with the sale of additional
Units or reinvestment), the aggregate value of Securities in the Fund will be
increased by amounts allocable to additional Units, and the fractional undivided
interest represented by each Unit in the balance will be decreased. Units will
remain outstanding until redeemed upon tender to the Trustee by any Holder
(which may include the Sponsor) or until the termination of the Indenture (see
Redemption: Administration of the Fund--Amendment and Termination).
Neither the Sponsors nor the Trustee shall be liable in any way for any
default, failure or defect in any Security. In the event of a failure to deliver
any Debt Obligation that has been purchased for the Fund under a
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contract ('Failed Debt Obligation'), including any Debt Obligation purchased on
a when, as and if issued basis, the Sponsors are authorized under the Indenture
to direct the Trustee to acquire replacement obligations substantially similar
to those originally contracted for and not delivered to make up the original
Portfolio of the Fund. If replacement obligations are not acquired, the Sponsors
will, on or before the next following Distribution Day, cause to be refunded the
attributable sales charge, plus the attributable Cost of Securities to Fund
listed under Portfolio, plus interest attributable to the Failed Debt
Obligations (see Administration of the Fund--Portfolio Supervision).
INCOME; ESTIMATED CURRENT RETURN; ESTIMATED LONG TERM RETURN
Generally. Each unit receives an equal share of monthly distributions of
interest income and of any principal distributions as bonds mature or are
called, redeemed or sold. The estimated net annual interest rate per Unit on the
business day prior to the date of this Prospectus is set forth under Investment
Summary. This rate shows the percentage return based on $1,000 face amount per
Unit, after deducting estimated annual fees and expenses expressed as a
percentage. This rate will change as Securities mature, are exchanged, redeemed,
paid or sold, as replacement Securities are purchased, as Additional Securities
are deposited and new Units created and as the expenses of the Fund change.
Because the Portfolio is not actively managed, the Fund's income distributions
would not necessarily be affected by changes in interest rates. Depending on the
financial condition of the issuers, the amount of monthly income from fixed
income obligations in the Portfolio would be substantially maintained as long as
the Portfolio remains unchanged. However, optional bond redemptions or other
Portfolio changes may occur more frequently when interest rates decline, which
would result in early return of principal.
The Sponsors deliver to the Trustee on the Initial Date of Deposit and each
subsequent date of deposit a letter or letters of credit in the amount of the
cost (plus accrued interest) of securities to be acquired pursuant to contracts
deposited in the Fund. The Trustee may draw down on this letter of credit at any
time and deposit the cash so drawn in a non-interest bearing account for the
Fund. The Trustee has the use of these funds, on which it pays no interest, for
the period prior to its purchase of when-issued and delayed-delivery securities.
Interest on the Securities in the Fund, less estimated fees of the Trustee
and Sponsors and certain other expenses, is expected to accrue at the daily rate
(based on a 360-day year) shown under Investment Summary. The actual daily rate
will vary as Securities are exchanged, redeemed, paid or sold or as the expenses
of the Fund change.
The Estimated Current Return and the Estimated Long Term Return on the
business day prior to the date of this Prospectus are set forth under Investment
Summary and give different information about the return to investors. Estimated
Current Return on a Unit represents annual cash receipts from coupon-bearing
debt obligations in the Fund's Portfolio (after estimated annual expenses)
divided by the Public Offering Price (including the sales charge).
Unlike Estimated Current Return, Estimated Long Term Return is a measure of
the estimated return to the investor earned over the estimated life of the Fund.
The Estimated Long Term Return represents an average of the yields to maturity
(or earliest call date for obligations trading at prices above the particular
call price) of the Debt Obligations in the Portfolio, calculated in accordance
with accepted bond practice and adjusted to reflect expenses and sales charges.
Under accepted bond practice, bonds are customarily offered to investors on a
'yield price' basis, which involves computation of yield to maturity (or earlier
call date), and which takes into account not only the interest payable on the
bonds but also the amortization or accretion to a specified date of any premium
over or discount from the par (maturity) value in the bond's purchase price. In
calculating Estimated Long Term Return, the average yield for the Portfolio is
derived by weighting each Debt Obligation's yield by the market value of the
Debt Obligation and by the amount of time remaining to the date to which the
Debt Obligation is priced. Once the average Portfolio yield is computed, this
figure is then adjusted for estimated expenses and the effect of the maximum
sales charge paid by investors. The Estimated Long Term Return calculation does
not take into account certain delays in distributions of income and the timing
of other receipts and distributions on Units and may, depending on maturities,
over or understate the impact of sales charges. Both of these factors may result
in a lower figure.
While relatively fixed at the time of purchase, both Estimated Current
Return and Estimated Long Term Return are subject to fluctuation with changes in
Portfolio composition (including the redemption, sale or other disposition of
Debt Obligations in the Portfolio), changes in market value of the underlying
Debt Obligations and changes in fees and expenses, including sales charges, and
therefore can be materially different than the figures set forth under
Investment Summary. The size of any difference between Estimated Current Return
and Estimated Long Term Return can also be expected to fluctuate at least as
frequently. In addition, both return figures may not be directly comparable to
yield figures used to measure other investments, and since the return figures
are based on certain assumptions and variables the actual return received by a
Unitholder may be higher or lower.
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Sales charges on Defined Asset Funds range from 5.5% to less than 0.5%.
This may be less than you might pay to buy a comparable fund. Defined Funds have
no 12b-1 or back-end load fees. While sales charges on certain Defined Funds are
deferred, only the previously accrued but unpaid portion of the sales charge is
deducted from sales proceeds. Defined Funds can be a cost-effective way to
purchase and hold investments. Annual operating expenses are generally lower
than managed funds. Because Defined Funds have no management fees, limited
transaction costs and no ongoing marketing expenses, operating expenses
(exclusive of insurance premiums on Insured Series) are generally less than
0.25% per year. When compounded annually, small differences in expense ratios
can make a big difference in earnings.
Accrued Interest. In addition to the Public Offering Price, the price of a
Unit includes accrued interest on the Securities from the Initial Date of
Deposit. The accrued interest that is added to the Public Offering Price
represents the amount of accrued interest on the Securities from the Initial
Date of Deposit to, but not including, the settlement date for Units. However,
Securities deposited in the Fund also include an item of accrued but unpaid
interest up to the Initial Date of Deposit. To avoid having Holders pay this
additional accrued interest (which earns no return) when they purchase Units,
the Trustee is responsible for the payment of accrued interest on the Debt
Obligations to the Initial Date of Deposit and then recovers this amount from
the earliest interest payments received by the Fund. Thus, the Sponsors can sell
the Units at a price that includes interest from the Initial Date of Deposit to
the settlement date for the Units. Additionally, interest on the Debt
Obligations in the Fund is paid on a semi-annual (or, less frequently, annual)
basis. Therefore, it may take several months after the Initial Date of Deposit
for the Trustee to receive sufficient interest payments on the Securities to
begin distributions to Holders (see Investment Summary for estimates of the
amounts of the first and following Monthly Income Distributions). Further,
because interest on the Securities is not received by the Fund at a constant
rate throughout the year, any Monthly Income Distribution may be more or less
than the interest actually received by the Fund. In order to eliminate
fluctuations, the Trustee is required to advance the amounts necessary to
provide approximately equal Monthly Income Distributions. The Trustee will be
reimbursed, without interest, for these advances from interest received on the
Securities. Therefore, to account for those factors, accrued interest is always
added to the value of the Units. And, because of the varying interest payment
dates of the Securities, accrued interest at any time will be greater than the
amount of interest actually received by the Fund and distributed to Holders. If
a Holder sells all or a portion of his Units, he will receive his proportionate
share of the accrued interest from the purchaser of his Units. Similarly, if a
Holder redeems all or a portion of his Units, the Redemption Price per Unit will
include accrued interest on the Securities. And if a Security is sold, redeemed
or otherwise disposed of, accrued interest will be received by the Fund and will
be distributed periodically to Holders.
Certain Debt Obligations may have been purchased on a when, as and if
issued basis or may have a delayed delivery (see Investment Summary). Holders of
Units will be 'at risk' with respect to these Debt Obligations (i.e., may derive
either gain or loss from fluctuations in the offering side evaluation of the
Debt Obligations) from the date they commit for Units. Since interest on
when-issued and delayed-delivery Debt Obligations does not begin accruing to the
benefit of Holders until their respective dates of delivery, in order to provide
income to the Holders for this non-accrual period, the Trustee will advance
funds to the Fund in an amount equal to the amount of interest that would have
accrued on these Debt Obligations between the date of settlement for the Units
and the dates of delivery of the Debt Obligations. These advances eliminate the
necessity of reducing Monthly Income Distributions until when-issued or
delayed-delivery Debt Obligations are delivered and sufficient interest payments
are received to begin distributions to Holders.
TAXES
The following discussion addresses only the tax consequences of Units held
as capital assets and does not address the tax consequences of Units held by
dealers, financial institutions, or insurance companies.
In the opinion of Davis Polk & Wardwell, special counsel for the
Sponsors, under existing law:
The Fund is not an association taxable as a corporation for Federal
income tax purposes, and income received by the Fund will be treated as the
income of the Holders in the manner set forth below.
Each Holder will be considered the owner of a pro rata portion of each
Debt Obligation in the Fund under the grantor trust rules of Sections
671-679 of the Internal Revenue Code of 1986, as amended (the 'Code'). In
order to determine the face amount of a Holder's pro rata portion of each
Debt Obligation on the Initial Date of Deposit, see Face Amount under
Portfolio. The total cost to a Holder of his Units, including sales
charges, is allocated to his pro rata portion of each Debt Obligation in
proportion to the fair market values thereof on the date the Holder
purchases his Units in order to determine his tax basis for his pro rata
portion of each Debt Obligation. In order for a Holder who purchases his
Units on the Initial Date of Deposit to determine the fair market value of
his pro rata portion of each Security on such date, see Cost of Securities
to Fund under Portfolio.
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Each Holder will be considered to have received the interest on his pro
rata portion of each Debt Obligation when interest on the Debt Obligation
is received by the Fund. An individual Holder who itemizes deductions may
deduct his pro rata share of fees and other expenses of the Fund only to
the extent that such amount together with the Holder's other miscellaneous
deductions exceeds 2% of his adjusted gross income.
If a Holder's tax cost for his pro rata portion of a Debt Obligation
exceeds the redemption price at maturity thereof (subject to certain
adjustments), the Holder will be considered to have purchased his pro rata
portion of the Debt Obligation at a 'bond premium'. The Holder may elect to
amortize the bond premium prior to the maturity of the Debt Obligation. The
amount amortized in any year should be applied to offset the Holder's
interest from the Debt Obligation and will result in a reduction of basis
for his pro rata portion of the Debt Obligation.
A Holder will recognize taxable gain or loss when all or part of his pro
rata portion of a Debt Obligation is disposed of by the Fund for an amount
greater or less than his adjusted tax basis. Any such taxable gain or loss
will be capital gain or loss, except that any gain from the disposition of
a Holder's pro rata portion of a Debt Obligation acquired by the Holder at
a 'market discount' (i.e., where the Holder's original cost for his pro
rata portion of the Debt Obligation is less than its stated redemption
price at maturity) will be treated as ordinary income to the extent the
gain does not exceed the accrued market discount. 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 non-corporate taxpayers. A
capital gain or loss is long-term if the asset is held for more than one
year and short-term if held for one year or less. The deduction of capital
losses is subject to limitations. A Holder will also be considered to have
disposed of all or part of his pro rata portion of each Debt Obligation
when he sells or redeems all or some of his Units.
Under the income tax laws of the State and City of New York, the Fund is
not an association taxable as a corporation and income received by the Fund
will be treated as the income of the Holders in the same manner as for
Federal income tax purposes.
Notwithstanding the foregoing, a Holder who is a non-resident alien
individual or a foreign corporation (a 'Foreign Holder') will generally not
be subject to U.S. Federal income taxes, including withholding taxes, on
the interest income on, or any gain from the sale or other disposition of,
his pro rata portion of any Debt Obligation provided that (i) the interest
income or gain is not effectively connected with the conduct by the Foreign
Holder of a trade or business within the United States, (ii) if the
interest is United States source income (which is the case on most Debt
Obligations issued by United States issuers), the Foreign Holder does not
own, actually or constructively, 10% or more of the total combined voting
power of all classes of voting stock of the issuer of the Debt Obligation
and is not a controlled foreign corporation related (within the meaning of
Section 864 (d)(4) of the Code) to the issuer of the Debt Obligation, (iii)
with respect to any gain, the Foreign Holder (if an individual) is not
present in the United States for 183 days or more during the taxable year
and (iv) the Foreign Holder provides the required certification of his
status and of certain other matters. Withholding agents will file with the
Internal Revenue Service foreign person information returns with respect to
such interest payments accompanied by such certifications. Foreign Holders
should consult their own tax advisers with respect to United States Federal
income tax consequences of ownership of Units.
Holders will be taxed in the manner described above regardless of
whether distributions from the Fund are actually received by the Holder or
are automatically reinvested pursuant to the investment accumulation
program. (See Administration of the Fund--Investment Accumulation Program).
The foregoing discussion relates only to United States Federal and
certain aspects of New York State and City income taxes. Holders may be
subject to taxation in New York or in other jurisdictions (including a
Foreign Holder's country of residence) and should consult their own tax
advisers in this regard.
* * *
Neither the Sponsors nor Davis Polk & Wardwell has made or will make a
review of the facts and circumstances relating to the issuance of any Debt
Obligation. To the best knowledge of the Sponsors, each Debt Obligation will be
treated as debt for tax purposes by the respective issuers. The Internal Revenue
Service, however, is not bound by an issuer's treatment and may take the
position that a Debt Obligation has more equity than debt features and,
accordingly, should be treated as equity. In the event of such a
recharacterization, a withholding tax at the statutory rate of 30% (or a lesser
treaty rate) would apply on distributions to Foreign Holders in respect of that
Debt Obligation.
After the end of each calendar year, the Trustee will furnish to each
Holder an annual statement containing information relating to the interest
received by the Fund on the Debt Obligations, the gross proceeds received by the
Fund from the disposition of any Debt Obligation (resulting from redemption or
payment at maturity of
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any Debt Obligation or the sale by the Fund of any Debt Obligation), and the
fees and expenses paid by the Fund. The Trustee will also furnish annual
information returns to each Holder and to the Internal Revenue Service.
PUBLIC SALE OF UNITS
PUBLIC OFFERING PRICE
The Public Offering Price of the Units during the initial offering period
and any offering of additional Units is computed by dividing the offering side
evaluation of the Securities (as determined by the Evaluator), by the number of
Units outstanding and adding thereto the sales charge in effect during the
initial offering period at the applicable percentage of the offering side
evaluation per Unit (the net amount invested). For 'secondary market' sales the
Public Offering Price of the Units will be equal to the Evaluator's
determination of the aggregate bid side evaluation of the Securities in the
Fund, adding thereto the applicable sales charge in effect for the secondary
market and dividing the sum by the number of the Units outstanding. A
proportionate share of any cash held by the Fund in the Capital Account not
allocated to the purchase of specific Securities and net accrued and
undistributed interest on the Securities to the date of delivery of the Units to
the purchaser is added to the Public Offering Price. The Public Offering Prices
of the Units will vary from day to day in accordance with fluctuations in the
evaluations of the underlying Securities.
The following tables set forth, where applicable, for both the initial
offering period and for secondary market sales the applicable percentage of
sales charge, the concession to dealers and the concession to introducing
dealers (i.e., dealers that buy and clear directly through a Sponsor or an
Underwriter who is an affiliate of a Sponsor). These amounts are reduced on a
graduated scale for sales to any purchaser of at least 250 Units and will be
applied on whichever basis is more favorable to the purchaser. To qualify for
the reduced sales charge and concession applicable to quantity purchases, the
dealer must confirm that the sale is to a single purchaser as defined below or
is purchased for its own account and not for distribution. Sales charges and
dealer concessions are as follows:
INITIAL OFFERING PERIOD
<TABLE>
<CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
<S> <C> <C> <C> <C>
----------------------------------
<CAPTION>
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS PRIMARY MARKET
OFFER SIDE PUBLIC NET AMOUNT PERCENT OF PUBLIC CONCESSION TO
NUMBER OF UNITS OFFERING PRICE INVESTED OFFERING PRICE INTRODUCING DEALERS
----------------- ------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Less than 250.............. 4.50% 4.712% 2.925% $ 32.40
250 - 499.................. 3.50 3.627 2.275 25.20
500 - 749.................. 3.00 3.093 1.950 21.60
750 - 999.................. 2.50 2.564 1.625 18.00
1,000 or more.............. 2.00 2.041 1.300 14.40
</TABLE>
SECONDARY MARKET SALES
<TABLE>
<CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
<S> <C> <C> <C>
--------------------------------
<CAPTION>
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS
BID SIDE PUBLIC NET AMOUNT PERCENT OF PUBLIC
NUMBER OF UNITS OFFERING PRICE INVESTED OFFERING PRICE
--------------- ------------- --------------------
<S> <C> <C> <C>
Less than 250................................ 5.50% 5.820% 3.575%
250 - 499.................................... 4.50 4.712 2.925
500 - 749.................................... 3.50 3.627 2.275
750 - 999.................................... 2.50 2.564 1.625
1,000 or more................................ 2.00 2.041 1.300
</TABLE>
The above graduated sales charges will apply on all purchases on any one
day by the same purchaser of Units only in the amounts stated. For this purpose
purchases during the initial offering period will not be aggregated with
concurrent purchases of any other unit trusts sponsored by the Sponsors.
Purchases in the secondary market of one or more Series sponsored by the
Sponsors which have the same rates of sales charge will be aggregated. Units
held in the name of the spouse of the purchaser or in the name of a child of the
purchaser under 21 years of age are deemed to be registered in the name of the
purchaser. The graduated sales charges are also applicable to a trustee or other
fiduciary purchasing securities for a single trust estate or single fiduciary
account.
Employees of certain of the Sponsors and their affiliates and non-employee
directors of Merrill Lynch & Co., Inc. may purchase Units of this Fund at prices
based on a reduced sales charge of not less than $5.00 per Unit.
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Evaluations of the Securities are determined by the Evaluator taking into
account the same factors referred to under Redemption--Computation of Redemption
Price per Unit. The determinations are made each business day as of the
Evaluation Time set forth under Investment Summary, effective for all sales made
since the last of these evaluations (Section 4.01). With respect to the
evaluation of Debt Obligations during their initial syndicate offering period,
the 'current offering price', as determined by the Evaluator, will normally be
equal to the syndicate offering price as of the Evaluation Time, unless the
Evaluator determines that a material event has occurred which it believes may
result in the syndicate offering price not accurately reflecting the market
value of the Debt Obligations, in which case the Evaluator, in making its
determination, will consider not only the syndicate offering price but also the
factors described in (b) and (c) in the description of how the bid side
evaluation of the Securities is determined for purposes of redemption of Units
(see Redemption). The term 'business day', as used herein and under
'Redemption', shall exclude Saturdays, Sundays and the following holidays as
observed by the New York Stock Exchange: New Year's Day, Washington's Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
COMPARISON OF PUBLIC OFFERING PRICE, SPONSORS' INITIAL REPURCHASE PRICE,
SECONDARY MARKET REPURCHASE PRICE, AND REDEMPTION PRICE
On the business day prior to the Initial Date of Deposit the Public
Offering Price per Unit (which includes the sales charge) and the Sponsors'
Initial Repurchase Price per Unit (each based on the offering side evaluation of
the Securities in the Fund--see above) exceeded the Sponsors' Repurchase Price
per Unit and Redemption Price per Unit (each based on the bid side evaluation
thereof--see Redemption) by the amounts set forth under Investment Summary.
The initial Public Offering Price per Unit of the Trust and the initial
Repurchase Price are based on the offering side evaluations of the Securities.
The secondary market Public Offering Price and the Sponsors' Repurchase Price in
the secondary market are based on bid side evaluations of the Securities. In the
past, the bid prices of publicly offered issues have been lower than the
offering prices by as much as 1 1/2% or more of face amount in the case of
inactively traded issues and as little as 1/4% in the case of actively traded
issues, but the difference between the offering and bid prices has averaged
about 1/2% to 1% of face amount; the amount of this difference as of the
Evaluation Time on the business day prior to the Initial Date of Deposit, as
determined by the Evaluator, is set forth under Portfolio. For this and other
reasons (including fluctuations in the market prices of the Securities and the
fact that the Public Offering Price includes the sales charge), the amount
realized by a Holder upon any sale or redemption of Units may be less than the
price paid by him for the Units.
PUBLIC DISTRIBUTION
During the initial offering period and thereafter to the extent that
additional Units continue to be offered for sale to the public by means of this
Prospectus, the Units will be distributed to the public at the Public Offering
Price through the Underwriting Account and dealers. Upon the completion of the
initial offering or of the offering period for additional Units, Units which
remain unsold or which may be acquired in the secondary market (see Market for
Units) may be offered directly to the public by this Prospectus at the secondary
market Public Offering Price determined in the manner described above as of the
close of business on the last business day of each week.
The Sponsors intend to qualify Units for sale in all states in the U.S. in
which qualification is deemed necessary through the Underwriting Account and by
dealers who are members of the National Association of Securities Dealers, Inc.
The Sponsors do not intend to qualify Units for sale in any foreign countries
and this Prospectus does not constitute an offer to sell Units in any country
where Units cannot lawfully be sold. Sales to dealers and to introducing
dealers, if any, will initially be made at prices which represent a concession
of the applicable rate specified in the table above, but the Agent for the
Sponsors reserves the right to change the rate of the concession to dealers and
the concession to introducing dealers from time to time. Any dealer or
introducing dealer may reallow a concession not in excess of the concession to
dealers.
UNDERWRITERS' AND SPONSORS' PROFITS
Upon sale of the Units, the Underwriters named under Underwriting Account,
including the Sponsors, will receive sales charges at the rates set forth in the
table above. The Sponsors also realized a profit or loss on deposit of the
Securities in the Fund on the Initial Date of Deposit in the amount set forth
under Investment Summary. This is the difference between the cost of the
Securities to the Fund (which is based on the offering side evaluation of the
Securities on the Initial Date of Deposit) and the purchase price of the
Securities to theSponsors. On each subsequent deposit of Securities with respect
to the sale of additional Units to the public the Sponsors may realize a profit
or loss. The amount of any additional fees received in connection with the
direct placement of certain Debt Obligations deposited in the Portfolio is also
set forth under Investment Summary. In addition, any Sponsor or Underwriter may
realize profits or sustain losses in respect of Debt Obligations deposited in
the Fund which were acquired by the Sponsor or Underwriter from underwriting
syndicates of which the Sponsor or Underwriter was a member. During the offering
period, the Underwriting Account also may realize profits or sustain losses as a
result of fluctuations after the Initial Date of Deposit in the Public
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Offering Price of the Units (see Investment Summary). Cash, if any, made
available by buyers of Units to the Sponsors prior to a settlement date for the
purchase of Units may be used in the Sponsors' businesses subject to the
limitations of Rule 15c3-3 under the Securities Exchange Act of 1934 and may be
of benefit to the Sponsors.
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 bid side evaluation of
the Securities) and the prices at which they resell these Units (which include
the sales charge) or the prices at which they redeem the Units (based on the bid
side evaluation of the Securities), as the case may be.
MARKET FOR UNITS
During the initial offering period the Sponsors intend to offer to purchase
Units of this Series at prices based upon the offering side evaluation of the
Securities. Thereafter, while the Sponsors are not obligated to do so, it is
their intention to maintain a secondary market for Units of this Series and
continuously to offer to purchase Units of this Series at prices, subject to
change at any time, which will be computed based on the bid side of the market,
taking into account the same factors referred to in determining the bid side
evaluation of Securities for purposes of redemption (see Redemption). This
secondary market provides Holders with a fully liquid investment. They can cash
in units at any time without a fee. The Sponsors also intend to use their best
efforts to maintain a current prospectus for this Series and subsequent series
for a period of approximately six years after initial distribution of the
respective series, the anticipated period of active trading in units of these
series, to the extent required by applicable law in order for them to dispose of
Units held in their inventories. The Sponsors may discontinue purchases of Units
of this Series at prices based on the bid side evaluation of the Securities (i)
should the supply of Units exceed demand or for other business reasons, or (ii)
if there is no current prospectus for this Series, or (iii) if, due to any
change subsequent to the date of this Prospectus in conditions imposed by
regulatory or legislative action, the Sponsors cannot at the time lawfully sell
Units to the public without incurring expenses or complying with conditions
which they consider unreasonable or onerous, or (iv) if the right of redemption
shall have been suspended (see Redemption), or (v) if the Indenture shall have
been terminated (see Administration of the Fund--Amendment and Termination) or
(vi) at any time when the aggregate purchase price to the Sponsors of units of
all outstanding series of Corporate Income Fund held by the Sponsors in their
inventories exceeds an aggregate amount equal to $3,000,000. In this event the
Sponsors may nonetheless under certain circumstances purchase Units, as a
service to Holders, at prices based on the current redemption prices for those
Units (see Redemption). For instance, if it becomes necessary for the Fund to
sell Restricted Securities in order to meet redemptions, and if it is not
feasible to dispose of these Restricted Securities within seven days, the
Sponsors intend to purchase the Units tendered for redemption at prices based
upon their current redemption prices; provided, that the Sponsors do not intend
to make these purchases if in their judgment, exercised in good faith, the
general market for corporate securities is, or will become, unsatisfactory for
an extended period of time or other inhibiting business or regulatory factors
exist. The Sponsors, of course, do not in any way guarantee the enforceability,
marketability or price of any Securities in the Portfolio or of the Units.
Prospectuses relating to certain other unit trusts indicate an intention,
subject to change on the part of the respective sponsors of such trusts, to
purchase units of those trusts on the basis of a price higher than the bid
prices of the bonds in the trusts. Consequently, depending upon the prices
actually paid, the repurchase price of other sponsors for units of their trusts
may be computed on a somewhat more favorable basis than the repurchase price
offered by the Sponsors for Units of this Series in secondary market
transactions. As in this Series, the purchase price per unit of such unit trusts
will depend primarily on the value of the bonds in the portfolio of the trust.
The Sponsors may redeem any Units they have purchased in the secondary
market or through the Trustee in accordance with the procedures described below
if they determine it is undesirable to continue to hold these Units in their
inventories. Factors which the Sponsors will consider in making this
determination will include the number of units of all series of all funds which
they hold in their inventories, the saleability of the units and their estimate
of the time required to sell the units and general market conditions. For a
description of certain consequences of any redemption for remaining Holders, see
Redemption.
A Holder who wishes to dispose of his Units should inquire of his bank or
broker as to current market prices in order to determine if there exist
over-the-counter prices in excess of the repurchase price.
REDEMPTION
While it is anticipated that Units in most cases can be sold in the
over-the-counter market for an amount at least equal to the Redemption Price per
Unit (see Market for Units), Units may be redeemed at the office of the Trustee
set forth on the back cover of this Prospectus, upon tender on any business day,
as defined under Public Sale of Units--Public Offering Price, of Certificates
or, in the case of uncertificated Units, delivery of a request for redemption,
and payment of any relevant tax, without any other fee (Section 5.02).
Certificates to be redeemed must be properly endorsed or accompanied by a
written instrument or instruments of transfer. Holders must sign exactly as
their names appear on the face of the Certificate with the signatures guaranteed
by an
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eligible guarantor institution, or in some other manner acceptable to the
Trustee. In certain instances the Trustee may require additional documents
including, but not limited to, trust instruments, certificates of death,
appointments as executor or administrator or certificates of corporate
authority.
On the seventh calendar day following the tender (or if the seventh
calendar day is not a business day on the first business day prior thereto), the
Holder will be entitled to receive the proceeds of the redemption in an amount
per Unit equal to the Redemption Price per Unit (see below) as determined as of
the Evaluation Time next following the tender. The price received upon
redemption may be more or less than the amount paid by the Holder depending on
the value of the Securities in the Portfolio at the time of redemption.
Principal is normally distributed as bonds mature, or are called, redeemed or
sold. Except for sales of Securities (which would be at then current market
prices) and subject to the bond issuers paying the amounts due, return of
principal to Holders who retain their Units until termination of the Fund should
be relatively unaffected by changes in interest rates. Of course, a gain or loss
could be recognized if Units are sold before then. So long as the Sponsors are
maintaining a market at prices not less than the Redemption Price per Unit, the
Sponsors will repurchase any Units tendered for redemption no later than the
close of business on the second business day following the tender (see Market
for Units). The Trustee is authorized in its discretion, if the Sponsors do not
elect to repurchase any Units tendered for redemption or if a Sponsor tenders
Units for redemption, to sell the Units in the over-the-counter market at prices
which will return to the Holder a net amount in cash equal to or in excess of
the Redemption Price per Unit for the Units (Section 5.02).
Securities are to be sold from the Portfolio in order to make funds
available for redemption (Section 5.02) if funds are not otherwise available in
the Capital and Income Accounts to meet redemptions (see Administration of the
Fund--Accounts and Distributions). The Securities to be sold will be selected by
the Sponsors in accordance with procedures specified in the Indenture on the
basis of those market and credit factors as they may determine are in the best
interests of the Fund. Provision is made under the Indenture for the Sponsors to
specify minimum face amounts in which blocks of Securities are to be sold in
order to obtain the best price for the Fund. While these minimum amounts may
vary from time to time in accordance with market conditions, the Sponsors
believe that the minimum face amounts which would be specified would range from
$25,000 for readily marketable Securities to $250,000 for certain Restricted
Securities which can be distributed on a short notice only by private sale,
usually to institutional investors. Provision is also made under the Indenture
that sales of Securities may not be made so as to (i) result in the Fund owning
less than $250,000 of any Restricted Security or (ii) result in more than 50% of
the Fund consisting of Restricted Securities. In addition, the Sponsors will use
their best efforts to see that these sales of Securities are carried out in such
a way that no more than 40% in face amount of the Fund is invested in Restricted
Securities, provided that sales of unrestricted Securities may be made if the
Sponsors' best efforts with regard to the timely sales of Restricted Securities
at prices they deem reasonable are unsuccessful and if as a result of these
sales more than 50% of the Fund does not consist of Restricted Securities. Thus
the redemption of Units may require the sale of larger amounts of Restricted
Securities than of unrestricted Securities.
To the extent that Securities are sold, the size and diversity of the Fund
will be reduced. Sales will usually be required at a time when Securities would
not otherwise be sold and may result in lower prices to the Fund than might
otherwise be realized. In addition, because of the minimum face amounts in which
Securities are required to be sold, the proceeds of sale may exceed the amount
required at the time to redeem Units; these excess proceeds will be distributed
to Holders (see Administration of the Fund--Portfolio Supervision).
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange, Inc. is closed other than for
customary weekend and holiday closings or (2) for any period during which, as
determined by the Securities and Exchange Commission ('SEC'), (i) trading on
that Exchange is restricted or (ii) an emergency exists as a result of which
disposal or evaluation of the Securities is not reasonably practicable, or (3)
for any other periods which the SEC may by order permit (Section 5.02).
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit is computed by the Trustee, as of the Evaluation
Time, on each June 30 and December 31 (or the last business day prior thereto),
on any business day as of the Evaluation Time next following the tender of any
Unit for redemption, and on any other business day desired by the Trustee or the
Sponsors, by adding (a) the aggregate bid side evaluation of the Securities, (b)
cash on hand in the Fund (other than cash covering contracts to purchase
Securities), (c) accrued and unpaid interest on the Securities up to but not
including the date of redemption and (d) all other assets of the Fund; deducting
therefrom the sum of (x) taxes or other governmental charges against the Fund
not previously deducted, (y) accrued fees and expenses of the Trustee (including
legal and auditing expenses), the Sponsors, the Evaluator and counsel, and
certain other expenses and (z) cash held for distribution to Holders of record
as of a date prior to the evaluation; and dividing the result by the number of
Units outstanding as of the date of computation (Section 5.01).
The aggregate current bid or offering side evaluation of the Securities is
determined by the Evaluator in the following manner: if the Securities are
listed on a national securities exchange, this evaluation is generally based
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on the closing sale prices on that exchange (unless the Evaluator deems these
prices inappropriate as a basis for valuation). If the Securities are not so
listed or, if so listed and the principal market therefor is other than on the
exchange or there are no closing sale prices on the exchange, the evaluation
shall generally be based on the closing sale prices on the over-the-counter
market (unless the Evaluator deems these prices inappropriate as a basis for
evaluation). If closing sale prices are unavailable, the evaluation is generally
determined (a) on the basis of current bid or offering prices for the
Securities, (b) if bid or offering prices are not available for any Securities,
on the basis of current bid or offering prices for comparable securities, (c) by
appraising the value of the Securities on the bid or offering side of the market
or (d) by any combination of the above. Among the factors which will be
considered in determining the value of any Restricted Securities are (i) an
estimate of the existence and extent of any available market therefor, (ii) the
extent of any discount at which these Securities were acquired by the Fund,
(iii) the estimated period of time during which these Securities will not be
freely marketable, (iv) the estimated expenses of qualifying these Securities
for public sale, (v) estimated underwriting commissions, if any, and (vi) any
credit or other factors affecting the issuer or the guarantor of these
Securities. In making evaluations, opinions of counsel may be relied upon as to
whether any Securities are Restricted Securities.
The value of the Portfolio Insurance (including the right to obtain
Permanent Insurance) will be considered by the Evaluator in its evaluation of
Portfolio-Insured Debt Obligations only when they are in default in payment of
principal or interest or in significant risk of default. No value has been
attributed to this insurance as of the date of this Prospectus. It is the
position of the Sponsors that this is a fair method of valuing the Portfolio
Insured Debt Obligations and the insurance and reflects a proper valuation
method in accordance with the provisions of the Investment Company Act of 1940.
EXPENSES AND CHARGES
INITIAL EXPENSES
All expenses incurred in establishing the Fund, including the cost of the
initial preparation and printing of documents relating to the Fund, cost of the
initial evaluation, the initial fees and expenses of the Trustee, legal
expenses, advertising and selling expenses and any other out-of-pocket expenses,
will be paid by the Underwriting Account at no charge to the Fund.
FEES
Estimates of the annual expenses of the Fund and the premiums for the
Portfolio Insurance are set forth under Investment Summary. The Sponsors' fee
which is earned for portfolio supervisory services, is based on the average of
the largest face amount of Debt Obligations in the Fund during each month of a
calendar year in which additional Debt Obligations are deposited and thereafter,
on the largest face amount of Debt Obligations in the Fund at any time during
the year. This fee, which is not to exceed the maximum amount set forth under
Investment Summary, may exceed the actual costs of providing portfolio
supervisory services for this Fund, but at no time will the total amount the
Sponsors receive for portfolio supervisory services rendered to all series of
Corporate Income Fund in any calendar year exceed the aggregate cost to them of
supplying these services in that year (Section 7.05). In addition, the Sponsors
may be reimbursed for bookkeeping or other administrative services provided to
the Fund in amounts not exceeding their costs of providing these services
(Section 7.06). The Trustee (or Co-Trustees in the case of Investors Bank &
Trust Company and The First National Bank of Chicago) receives for its services
as Trustee and for reimbursement of expenses incurred on behalf of the Fund,
payable in monthly installments, the amount per Unit set forth under Investment
Summary as Trustee's Annual Fee and Expenses, which includes the Evaluator's
Fee, the estimated Portfolio Supervision Fee, estimated reimbursable bookkeeping
or other administrative expenses paid to the Sponsors and certain mailing and
printing expenses. 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
3.04, 4.03 and 8.05).
OTHER CHARGES
These include: (a) fees of the Trustee for extraordinary services (Section
8.05), (b) certain expenses of the Trustee (including legal and auditing
expenses) and of counsel designated by the Sponsors (Sections 3.04, 3.09, 8.01
and 8.05), (c) various governmental charges (Sections 3.03 and 8.01 (h)), (d)
expenses and costs of action taken to protect the Fund (Section 8.01 (d)), (e)
indemnification of the Trustee for any losses, liabilities and expenses incurred
without gross negligence, bad faith or wilful misconduct on its part (Section
8.05), (f) indemnification of the Sponsors for any losses, liabilities and
expenses incurred without gross negligence, bad faith, wilful misconduct or
reckless disregard of their duties (Section 7.05(b)) and (g) expenditures
incurred in contacting Holders upon termination of the Fund (Section 9.02). The
amounts of these charges and fees are secured by a lien on the Fund and, if the
balances in the Income and Capital Accounts (see below) are insufficient, the
Trustee has the power to sell Securities to pay these amounts (Section 8.05).
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ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps a register of the names, addresses and holdings of all
Holders. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, which
are available to Holders for inspection at the office of the Trustee at
reasonable times during business hours (Sections 6.01, 8.02 and 8.04).
ACCOUNTS AND DISTRIBUTIONS
Interest received is credited to an Income Account and other receipts to a
Capital Account (Sections 3.01 and 3.02). The Monthly Income Distribution for
each Holder as of each Record Day will be made on the following Distribution Day
or shortly thereafter and shall consist of an amount substantially equal to the
Holder's pro rata share of the estimated net income accrued during the month
preceding the Record Day, after deducting estimated expenses. Estimates of the
amounts of the first and subsequent Monthly Income Distributions are set forth
under Investment Summary. The amount of the Monthly Income Distributions will
change as Securities are redeemed, paid or sold. At the same time the Trustee
will distribute the Holder's pro rata share of the distributable cash balance of
the Capital Account computed as of the close of business on the preceding Record
Day (if at least equal to the Minimum Capital Distribution set forth under
Investment Summary). Principal proceeds received from the disposition, payment
or prepayment of any of the Securities subsequent to a Record Day and prior to
the succeeding Distribution Day will be held in the Capital Account to be
distributed on the second succeeding Distribution Day. The first distribution
for persons who purchase Units between a Record Day and a Distribution Day will
be made on the second Distribution Day following their purchase of Units. A
Reserve Account may be created by the Trustee by withdrawing from the Income or
Capital Accounts, from time to time, amounts deemed necessary to reserve for any
material amount that may be payable out of the Fund (Section 3.03). Funds held
by the Trustee in the various accounts created under the Indenture do not bear
interest (Section 8.01).
INVESTMENT ACCUMULATION PROGRAM
Monthly Income Distributions of interest and any principal or premium
received by the Fund will be paid in cash. However, a Holder may elect to have
these monthly distributions reinvested in The Corporate Fund Accumulation
Program, Inc. (the 'Program'). The Program is an open-end management investment
company whose primary investment objective is to obtain a high level of current
income through investment in a diversified portfolio consisting primarily of
long-term debt obligations of corporations with credit characteristics
comparable to those of securities in this Series of Corporate Income Fund. It
should be noted, however, that interest distributions to foreign Holders from
this Program will be subject to U.S. Federal income taxes, including withholding
taxes. Holders participating in the Program will be taxed on their reinvested
distributions in the manner described in Taxes even though distributions are
automatically reinvested. For more complete information about the Program,
including charges and expenses, return the enclosed form for a prospectus. Read
it carefully before you decide to participate. Notice of election to participate
must be received by the Trustee in writing at least ten days before the Record
Day for the first distribution to which the notice is to apply.
PORTFOLIO SUPERVISION
The Fund is a unit investment trust and is not an actively managed fund.
Traditional methods of investment management for a managed fund (such as a
mutual fund) typically involve frequent changes in a portfolio of securities on
the basis of economic, financial and market analyses. The Portfolio of the Fund,
however, will not be actively managed and therefore the adverse financial
condition of an issuer will not necessarily require the sale of its securities
from the Portfolio. Defined Asset Funds investment professionals are dedicated
exclusively to selecting and then monitoring securities held by the various
Defined Funds. On an ongoing basis, experienced financial analysts regularly
review the Portfolios and may direct the disposition of Securities under any of
the following circumstances: (i) a default in payment of amounts due on any
Security, (ii) institution of certain legal proceedings, (iii) existence of any
other legal questions or impediments affecting a Security or the payment of
amounts due on the Security, (iv) default under certain documents adversely
affecting debt service or default in payment of amounts due on other securities
of the same issuer or guarantor, (v) decline in projected income pledged for
debt service on revenue bond issues, (vi) decline in price of the Security or
the occurrence of other market or credit factors, including advance refunding
(i.e, the issuance of refunding bonds and the deposit of the proceeds thereof in
trust or escrow to retire the refunded Securities on their respective redemption
dates), that in the opinion of the Sponsors would make the retention of the
Security detrimental to the interests of the Holders, (vii) if a Security is not
consistent with the investment objective of the Fund or (viii) if the Trustee
has a right to sell or redeem a Security pursuant to any applicable guarantee or
other credit support. If a default in the payment of amounts due on any Security
occurs and if the Agent for the Sponsors fails to give instructions to sell or
hold the Security, the Indenture provides that the Trustee, within 30 days of
the failure shall sell the Security (Section 3.08).
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The Sponsors are required to instruct the Trustee to reject any offer made
by an issuer of any of the Debt Obligations to issue new Debt Obligations in
exchange or substitution for any Debt Obligations pursuant to a refunding or
refinancing plan, except that the Sponsors may instruct the Trustee to accept or
reject any offer or to take any other action with respect thereto as the
Sponsors may deem proper if (a) the issuer is in default with respect to these
Debt Obligations or (b) in the written opinion of the Sponsors the issuer will
probably default with respect to these Debt Obligations in the reasonably
foreseeable future. Any Debt Obligations so received in exchange or substitution
will be held by the Trustee subject to the terms and conditions of the Indenture
to the same extent as Debt Obligations originally deposited thereunder. Within
five days after the deposit of Debt Obligations in exchange or substitution for
existing Debt Obligations, the Trustee is required to give notice thereof to
each Holder, identifying the Debt Obligations removed from the Portfolio and the
Debt Obligations substituted therefor (Section 3.07).
The Sponsors are authorized to direct the Trustee to deposit replacement
securities ('Replacement Securities') into the Portfolio to replace any Failed
Debt Obligations or, in connection with the deposit of Additional Securities,
when Securities of an issue originally deposited are unavailable at the time of
subsequent deposit as described more fully below.
Replacement Securities that are replacing Failed Debt Obligations will be
deposited into the Trust Fund within 110 days of the Initial Date of Deposit of
the contracts that have failed at a purchase price that does not exceed the
amount of funds reserved for the purchase of the Failed Debt Obligations and
that results in a yield to maturity and in a current return, in each case as of
that date of deposit, that are equivalent (taking into consideration then
current market conditions and the relative creditworthiness of the underlying
obligation) to the yield to maturity and current return of the Failed Debt
Obligations. The Replacement Securities shall (i) be corporate bonds,
debentures, notes or other straight debt obligations (whether secured or
unsecured and whether senior or subordinated) without equity or other conversion
features, with fixed maturity dates substantially the same as those of the
Failed Debt Obligations, having no warrant or subscription privileges attached;
(ii) be payable in United States currency; (iii) shall not constitute Restricted
Securities or be when, as and if issued obligations or Restricted Securities;
(iv) be issued after July 18, 1984 if interest thereon is United States source
income; (v) be issued or guaranteed by an issuer subject to or exempt from the
reporting requirements under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (or similar provisions of law) or in effect guaranteed, directly or
indirectly, by means of a lease agreement, agreement to buy securities, services
or products, or other similar commitment of the credit of such an issuer to the
payment of the substitute Securities; (vi) be insured by the Insurer and have
the benefit of such insurance under terms equivalent to the insurance of the
Insurer with respect to the Failed Debt Obligation and (vii) not cause the Units
of the Fund to cease to be rated AAA by Standard & Poor's. The Replacement
Securities shall be selected by the Sponsors from a list of Securities
maintained by them and updated from time to time. The Securities on the current
list are set forth under Investment Summary. Whenever a Replacement Security has
been acquired for the Fund, the Trustee shall, on the next monthly distribution
date that is more than 30 days thereafter, make a pro rata distribution of the
amount, if any, by which the cost to the Fund of the Failed Debt Obligation
exceeded the cost of the Replacement Security plus accrued interest. If
Replacement Securities are not acquired, the Sponsors will, on or before the
next following Distribution Day, cause to be refunded to Holders the
attributable sales charge, plus the attributable Cost of Securities to the Fund
listed under Portfolio, plus interest attributable to the Failed Debt
Obligation. The portion of interest paid to a Holder which accrued after the
expected date of settlement for purchase of his Units will be paid by the
Sponsors.
The Indenture also requires that the purchase of Replacement Securities
will not (i) result in more than 40% of the aggregate face amount of the
Securities held in the Fund being Restricted Securities, (ii) result in more
than 10% of the Fund consisting of securities of a single issuer (or of two or
more issuers which are Affiliated Persons as this term is defined in the
Investment Company Act of 1940) which are not registered and are not being
registered under the Securities Act of 1933, (iii) result in the Fund owning
more than 50% of any single issue which has been registered under the Securities
Act of 1933 (Section 3.10).
Whenever a Replacement Security has been acquired for the Fund, the Trustee
shall, on the next monthly distribution date which is more than 30 days
thereafter, make a pro rata distribution of the amount, if any, by which the
cost to the Fund of the Failed Debt Obligation exceeded the cost of the
Replacement Security plus accrued interest. If Replacement Securities are not
acquired, the Sponsors shall, on or before the next following Distribution Day,
cause to be refunded the attributable sales charge, plus the attributable Cost
of Securities to Fund listed under Portfolio, plus undistributed income
attributable to the Failed Debt Obligation.
The Indenture also authorizes the Sponsors to increase the size and number
of Units of the Fund by the deposit of Additional Securities, contracts to
purchase Additional Securities or cash or a letter of credit with instructions
to purchase Additional Securities, in exchange for the corresponding number of
additional Units during the 90-day period subsequent to the Initial Date of
Deposit provided that the original proportionate relationship among the face
amounts of each Security established on the Initial Date of Deposit (the
'Original
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Proportionate Relationship') is maintained to the extent practicable. (Deposits
of Additional Securities subsequent to the 90-day period following the Initial
Date of Deposit must replicate exactly the original proportionate relationship
among the face amounts of Securities comprising the Portfolio at the end of the
90-day period.)
With respect to deposits of Additional Securities (or cash or a letter of
credit with instructions to purchase Additional Securities), in connection with
creating additional Units of the Fund during the 90-day period following the
Initial Date of Deposit, the Sponsors may specify minimum face amounts in which
Additional Securities will be deposited or purchased. If a deposit is not
sufficient to acquire minimum amounts of each Security, Additional Securities
may be acquired in the order of the Security most under-represented immediately
before the deposit when compared to the Original Proportionate Relationship. If
Securities of an issue originally deposited are unavailable at the time of
subsequent deposit, or cannot be purchased at reasonable prices or their
purchase is prohibited or restricted by law, regulation or policies applicable
to the Fund or any of the Sponsors, the Sponsors may (1) deposit cash or a
letter of credit with instructions to purchase the Security when it becomes
available (provided that it becomes available within 110 days after the Initial
Date of Deposit), (2) deposit (or instruct the Trustee to purchase) Securities
of one or more other issues originally deposited or (3) deposit (or instruct the
Trustee to purchase) a Replacement Security which will meet the conditions
described above except that it must have a rating at least equal to the rating
of the Security it replaces (or in the opinion of the Sponsors have comparable
credit characteristics, if not rated). Any funds held to acquire Additional or
Replacement Securities which have not been used to purchase Securities at the
end of the 90-day period beginning with the Initial Date of Deposit, shall be
used to purchase Securities at the end of the 90-day period beginning with the
Initial Date of Deposit, shall be used to purchase Securities as described above
or shall be distributed to Holders together with the attributable sales charge.
REPORTS TO HOLDERS
The Trustee will furnish Holders with each distribution a statement of the
amounts of interest and the amounts of other receipts, if any, which are being
distributed, expressed in each case as a dollar amount per Unit. After the end
of each calendar year during which a Monthly Income Distribution was made to
Holders, the Trustee will furnish to each person who at any time during the
calendar year was a Holder of record, a statement (i) summarizing transactions
for that year in the Income and Capital Accounts, (ii) identifying Securities
sold and purchased during the year and listing Securities held and the number of
Units outstanding at the end of that calendar year, (iii) stating the Redemption
Price per Unit based upon the computation thereof made at the end of that
calendar year and (iv) specifying the amounts distributed during that calendar
year from the Income and Capital Accounts (Section 3.07). The accounts of the
Fund shall be audited at least annually by independent certified public
accountants designated by the Sponsors and the report of the accountants shall
be furnished by the Trustee to Holders upon request (Section 8.01 (e)).
In order to enable them to comply with Federal and state tax reporting
requirements, Holders will be furnished upon request to the Trustee with
evaluations of Securities furnished to it by the Evaluator. (Section 4.02)
CERTIFICATES
Each purchaser is entitled to receive, on request without charge, a
registered Certificate for his Units. Certain of the Sponsors may collect
charges for registering and shipping certificates to purchasers. These
Certificates are transferable or interchangeable upon presentation at the office
of the Trustee, with a payment of $2.00 if required by the Trustee (or other
amounts specified by the Trustee and approved by the Sponsors) for each new
Certificate and any sums payable for taxes or other governmental charges imposed
upon the transaction (Section 6.01) and compliance with the formalities
necessary to redeem Certificates (see Redemption). Mutilated, destroyed, stolen
or lost Certificates will be replaced upon delivery of satisfactory indemnity
and payment of expenses incurred (Section 6.02).
AMENDMENT AND TERMINATION
The Sponsors and Trustee may amend the Indenture, without the consent of
the Holders, (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the SEC or any successor governmental agency or
(c) to make any other provisions which do not materially adversely affect the
interest of the Holders (as determined in good faith by the Sponsors). The
Indenture may also be amended in any respect by the Sponsors and the Trustee, or
any of the provisions thereof may be waived, with the consent of the Holders of
51% of the Units, provided that none of these amendments or waivers will reduce
the interest in the Fund of any Holder without the consent of the Holder or
reduce the percentage of Units required to consent to any of these amendments or
waivers without the consent of all Holders (Section 10.01).
The Fund will terminate and be liquidated upon the maturity, sale,
redemption or other disposition of the last Security held thereunder but in no
event is it to continue beyond the mandatory termination date set forth under
Investment Summary. The Indenture may be terminated by the Sponsors if the value
of the Fund is less
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than the minimum value set forth under Investment Summary. A Fund may be
terminated at any time by Holders of 51% of the then outstanding Units (Sections
8.01 (g) and 9.01). The Trustee will deliver written notice of any termination
to each Holder within a reasonable period of time prior to the termination,
specifying the times at which the Holders may surrender their Certificates for
cancellation. Within a reasonable period of time after the termination, the
Trustee must sell all of the Securities then held and distribute to each Holder,
upon surrender for cancellation of his Certificates and after deductions for
accrued but unpaid fees, taxes and governmental and other charges, the Holder's
interest in the Income and Capital Accounts (Section 9.01). This distribution
will normally be made by mailing a check in the amount of each Holder's interest
in these accounts to the address of the Holder appearing on the record books of
the Trustee.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
TRUSTEE
The Trustee or any successor may resign upon notice to the Sponsors. The
Trustee may be removed upon the direction of the Holders of 51% of the Units at
any time or by the Sponsors without the consent of any of the Holders if the
Trustee becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities or if for any reason the Sponsors determine in good
faith that the replacement of the Trustee is in the best interest of the
Holders. The resignation or removal shall become effective upon the acceptance
of appointment by the successor which may, in the case of a resigning or removed
Co-Trustee, be one or more of the remaining Co-Trustees. In case of resignation
or removal the Sponsors are to use their best efforts to appoint a successor
promptly and if upon resignation of the Trustee no successor has accepted
appointment within thirty days after notification, the Trustee may apply to a
court of competent jurisdiction for the appointment of a successor (Section
8.06). The Trustee shall be under no liability for any action taken in good
faith in reliance on prima facie properly executed documents or for the
disposition of monies or Securities under the Indenture. This provision,
however, shall not protect the Trustee in cases of wilful misfeasance, bad
faith, negligence or reckless disregard of its obligations and duties. In the
event of the failure of the Sponsors to act, the Trustee may act under the
Indenture and shall not be liable for any of these actions taken in good faith.
The Trustee shall not be personally liable for any taxes or other governmental
charges imposed upon or in respect of the Securities or upon the interest
thereon. In addition, the Indenture contains other customary provisions limiting
the liability of the Trustee (Sections 8.01 and 8.05).
EVALUATOR
The Evaluator may resign or may be removed, effective upon the acceptance
of appointment by its successor, by the Sponsors, who are to use their best
efforts to appoint a successor promptly. If upon resignation of the Evaluator no
successor has accepted appointment within thirty days after notification, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor (Section 4.04). Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information available to
it; provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsors or the Holders for errors in judgment. This provision,
however, shall not protect the Evaluator in cases of wilful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
(Section 4.04). The Trustee, the Sponsors and the Holders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof.
SPONSORS
Any Sponsor may resign if one remaining Sponsor maintains a net worth of
$2,000,000 and is agreeable to the resignation (Section 7.04). A new Sponsor may
be appointed by the remaining Sponsors and the Trustee to assume the duties of
the resigning Sponsor. If there is only one Sponsor and it fails 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(e)). The Agent for the Sponsors has been appointed by
the other Sponsors for purposes of taking action under the Indenture (Section
7.01). If the Sponsors are unable to agree with respect to action to be taken
jointly by them under the Indenture and they cannot agree as to which 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 that
Sponsor is automatically discharged and the other Sponsors shall act as Sponsors
(Section 7.02(a)). The Sponsors shall be under no liability to the Fund or to
the Holders for taking any action or for refraining from taking any action in
good faith or for errors in judgment and shall not be liable or responsible in
any way for depreciation or loss incurred by reason of the sale of any Security.
This provision, however, shall not protect the Sponsors in cases of 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 Indenture. A Sponsor may transfer all or
substantially all of its assets to a corporation or partnership which carries on
its
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business and duly assumes all of its obligations under the Indenture and in that
event it shall be relieved of all further liability under the Indenture (Section
7.03).
MISCELLANEOUS
TRUSTEE
The Trustee of the Fund is named on the back cover page of this Prospectus
and is either The Bank of New York, a New York banking corporation with its Unit
Investment Trust Department at 101 Barclay Street, New York, New York 10286
(which is subject to supervision by the New York Superintendent of Banks, the
Federal Deposit Insurance Corporation and the Board of Governors of the Federal
Reserve System); Bankers Trust Company, a New York banking corporation with its
corporate trust office at 4 Albany Street, 7th Floor, New York, New York 10015
(which is subject to supervision by the New York Superintendent of Banks, the
Federal Deposit Insurance Corporation and the Board of Governors of the Federal
Reserve System); The Chase Manhattan Bank N.A., a national banking association
with its Unit Trust Department at 1 Chase Manhattan Plaza, 3B, New York, New
York 10081 (which is subject to supervision by the Comptroller of the Currency,
the Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System) or (acting as Co-Trustees) Investors Bank & Trust
Company, a Massachusetts trust company with its unit investment trust servicing
group at One Lincoln Plaza, Boston, Massachusetts 02111 (which is subject to
supervision by the Massachusetts Commissioner of Banks, the Federal Deposit
Insurance Corporation and the Board of Governors of the Federal Reserve System)
and The First National Bank of Chicago, a national banking association with its
corporate trust office at One First National Plaza, Suite 0126, Chicago,
Illinois 60670-0126 (which is subject to supervision by the Comptroller of the
Currency, the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System).
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors. Emmet, Marvin & Martin, 48 Wall Street, New York, New York 10005, act
as counsel for The Bank of New York, as Trustee. Bingham, Dana & Gould, 150
Federal Street, Boston, Massachusetts 02110, act as counsel for The First
National Bank of Chicago and Investors Bank & Trust Company, as Co-Trustees.
Hawkins, Delafield & Wood, 67 Wall Street, New York, New York act as counsel for
Bankers Trust Company, as Trustee.
AUDITORS
The Statement of Condition, including the Portfolio of the Fund, included
herein has been audited by Deloitte & Touche, independent accountants, as stated
in their opinion appearing herein and has been so included in reliance upon that
opinion given on the authority of that firm as experts in accounting and
auditing.
SPONSORS
Each Sponsor is a Delaware corporation and is engaged in the underwriting,
securities and commodities brokerage business, and is a member of the New York
Stock Exchange, Inc., other major securities exchanges and commodity exchanges,
and the National Association of Securities Dealers, Inc. Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch Asset Management, a Delaware
corporation, each of which is a subsidiary of Merrill Lynch & Co., Inc., are
engaged in the investment advisory business. Smith Barney Shearson Inc., an
investment banking and securities broker-dealer firm, is an indirect
wholly-owned subsidiary of The Travelers Inc. Prudential Securities
Incorporated, a wholly-owned subsidiary of Prudential Securities Group Inc. and
an indirect wholly-owned subsidiary of the Prudential Insurance Company of
America, is engaged in the investment advisory business. 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 companies for the
purchase and sale of securities of these companies and sell securities to these
companies in their capacities as brokers or dealers in securities.
Each Sponsor (or a predecessor) has acted as Sponsor of various series of
Defined Asset Funds. A subsidiary of Merrill Lynch, Pierce, Fenner & Smith
Incorporated succeeded in 1970 to the business of Goodbody & Co., which has been
a co-Sponsor of Defined Asset Funds since 1964. That subsidiary resigned as
Sponsor of each of the Goodbody series in 1971. Merrill Lynch, Pierce, Fenner &
Smith Incorporated has been co-Sponsor and the Agent for the Sponsors of each
series of Defined Asset Funds created since 1971. Shearson Lehman Brothers Inc.
('Shearson') and certain of its predecessors have been underwriters beginning in
1962 and co-Sponsors from 1965 to 1967 and from 1980 to 1993 of various Defined
Asset Funds. As a result of the acquisition of certain of Shearson's assets by
Smith Barney, Harris Upham & Co. Incorporated and Primerica Corporation (now the
Travelers Inc.), Smith Barney Shearson Inc. now serves as co-Sponsor of various
Defined Asset Funds. Prudential Securities Incorporated and its predecessors
have been underwriters of Defined Asset Funds since
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1961 and co-Sponsors since 1964, in which year its predecessor became successor
co-Sponsor to the original Sponsor. Dean Witter Reynolds Inc. and its
predecessors have been underwriters of various Defined Asset Funds since 1964
and co-Sponsors since 1974. PaineWebber Incorporated and its predecessor have
co-Sponsored certain Defined Asset Funds since 1983.
The Sponsors have maintained secondary markets in Defined Asset Funds for
over 20 years. For decades informed investors have purchased unit investment
trusts for dependability and professional selection of investments. Different
Defined Asset Funds offer an array of investment choices, suited to fit a wide
variety of personal financial goals--a buy and hold strategy for capital
accumulation, such as for children's education or a nest egg for retirement, or
attractive, regular current income consistent with relative protection of
capital. There are Defined Asset Funds to meet the needs of just about any
investor. Unit investment trusts are particularly suited for the many investors
who prefer to seek long-term profits by purchasing sound investments and holding
them, rather than through active trading. Few individuals have the knowledge,
resources, capital or time to buy and hold a diversified portfolio on their own;
it would generally take a considerable sum of money to obtain comparable breadth
and diversity. Sometimes it takes a combination of Defined Asset Funds to plan
for your objectives.
One of your most important investment decisions may be how you divide your
money among asset classes. Spreading your money among different kinds of
investments can balance the risks and rewards of each one. Most investment
experts recommend stocks for long-term capital growth. For attractive income
consider long-term corporate bonds. By purchasing both defined equity and
defined bond funds, investors can receive attractive current income and growth
potential, offering some protection against inflation.
This chart shows the average annual compounded rate of return of selected
asset classes over the 10-year and 20-year periods ending December 31, 1993, as
well as to the rate of inflation over the same periods. Of course, this chart
represents past performance of these investment categories and there is no
guarantee of future results, either of these categories or of Defined Funds.
Defined Funds also have sales charges and expenses, which are not reflected in
this chart.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stocks (S&P 500)
20 yr. 12.76%
10 yr. 14.94%
Small-company stocks
20 yr. 18.82%
10 yr. 9.96%
Long-term corporate bonds
20 yr. 10.16%
10 yr. 14.00%
U.S. Treasury bills (short-term)
20 yr. 7.49%
10 yr. 6.35%
Consumer Price Index
20 yr. 5.92%
10 yr. 3.73%
0 2 4 6 8 10 12 14 16 18 20 %
</TABLE>
Source: Ibbotson Associates (Chicago)
Used with permission. All rights reserved.
By purchasing Defined Funds investors not only avoid the responsibility of
selecting individual securities on their own, they benefit from the expertise of
Defined Asset Funds' experienced buyers and research analysts. In addition, they
gain the advantage of diversification by investing in Units of a Defined Fund
holding securities of several different issuers. Such diversification can reduce
risk, but does not eliminate it. While the portfolio of a managed fund, such as
a mutual fund, continually changes, defined bond funds offer a defined portfolio
and a schedule of income distributions identified in the prospectus. Investors
know, generally, when they buy, the issuers, maturities, call dates and ratings
of the Securities in the portfolio. Of course, the portfolio may change somewhat
over time as Additional Securities are deposited, as Securities mature or are
called or redeemed or as they are sold to meet redemptions and in certain other
limited circumstances. Investors 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 expenses.
23
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<PAGE>
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
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 offer investors a simple and convenient way to earn monthly income. Defined
Corporate Income Funds have provided investors with monthly income for more than
20 years. Defined Government Securities Income Funds offer investors a simple
and convenient way to participate in markets for Government securities while
earning an attractive current return. Defined International Bond Funds, invested
in bonds payable in foreign currencies, offer 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 a potential for growth of
capital, and thus some protection against inflation, over the long term. Defined
Equity Income Funds offer participation in the stock market providing current
income as well as the possibility of capital appreciation. The S&P Index Trusts
offer a convenient and inexpensive way to participate in broad market movements.
Concept Series seek to capitalize on selected anticipated economic, political or
business trends. Utility Stock Series, consisting of stocks of issuers with
established reputations for regular cash dividends, seek to benefit from
dividend increases. Select Ten Portfolios seek total return by investing for one
year in the ten highest yielding stocks on a designated stock index.
DESCRIPTION OF RATINGS (AS DESCRIBED BY THE RATING COMPANIES THEMSELVES)
STANDARD & POOR'S CORPORATION
A Standard & Poor's rating on the units of an investment trust (hereinafter
referred to collectively as 'units' and 'funds') is a current assessment of
creditworthiness with respect to the investments held by the fund. This
assessment takes into consideration the financial capacity of the issuers and of
any guarantors, insurers, lessees, or mortgagors with respect to such
investments. The assessment, however, does not take into account the extent to
which fund expenses will reduce payment to the Holder of the interest and
principal required to be paid on portfolio assets. In addition, the rating is
not a recommendation to purchase, sell, or hold units, as the rating does not
comment as to market price of the units or suitability for a particular
investor.
AAA--Units rated AAA represent interests in funds composed exclusively of
securities that, together with their credit support, are rated AAA by Standard &
Poor's and/or certain short-term investments. This AAA rating is the highest
rating assigned by Standard & Poor's to a security. Capacity to pay interest and
repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
The ratings may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
A provisional rating, indicated by 'p' following a rating, assumes the
successful completion of the project being financed by the issuance of the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion.
MOODY'S INVESTORS SERVICE
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge'. Interest payments are protected by a large or by an
24
<PAGE>
<PAGE>
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers of
rating symbols are to give investors a more precise indication of relative debt
quality in each of the historically defined categories.
Conditional ratings, indicated by 'Con.', are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds are given a conditional rating that denotes their
probable credit stature upon completion of that act or fulfillment of that
condition.
EXCHANGE OPTION
ELECTION
Holders may elect to exchange any or all of their Units of this Series for
units of one or more of the series of Funds listed in the table set forth below
(the 'Exchange Funds'), which normally are sold in the secondary market at
prices which include the sales charge indicated in the table. Certain series of
the Funds listed have lower maximum applicable sales charges than those stated
in the table; also the rates of sales charges may be changed from time to time.
No series with a maximum applicable sales charge of less than 3.50% of the
public offering price is eligible to be acquired under the Exchange Option, with
the following exceptions: (1) Freddie Mac Series may be acquired by exchange
during the initial offering period from any of the Exchange Funds listed in the
table and (2) Units of any Select Ten Portfolio, if available, may be acquired
during their initial offering period or thereafter by exchange from any Exchange
Fund Series; units of Select Ten Portfolios may be exchanged only for units of
another Select Ten Series, if available. Units of the Exchange Funds may be
acquired at prices which include the reduced sales charge for Exchange Fund
units listed in the table, subject, however, to these important limitations:
First, there must be a secondary market maintained by the Sponsors in
units of the series being exchanged and a primary or secondary market in
units of the series being acquired and there must be units of the
applicable Exchange Fund lawfully available for sale in the state in which
the Holder is resident. There is no legal obligation on the part of the
Sponsors to maintain a market for any units or to maintain the legal
qualification for sale of any of these units in any state or states.
Therefore, there is no assurance that a market for units will in fact exist
or that any units will be lawfully available for sale on any given date at
which a Holder wishes to sell his Units of this Series and thus there is no
assurance that the Exchange Option will be available to any Holder.
Second, when units held for less than five months are exchanged for
units with a higher regular sales charge, the sales charge will be the
greater of (a) the reduced sales charge set forth in the table below or (b)
the difference between the sales charge paid in acquiring the units being
exchanged and the regular sales charge for the quantity of units being
acquired, determined as of the date of the exchange.
Third, exchanges will be effected in whole units only. If the proceeds
from the Units being surrendered are less than the cost of a whole number
of units being acquired, the exchanging Holder will be permitted to add
cash in an amount to round up to the next highest number of whole units.
25
<PAGE>
<PAGE>
Fourth, the Sponsors reserve the right to modify, suspend or terminate
the Exchange Option at any time without further notice to Holders. In the
event the Exchange Option is not available to a Holder at the time he
wishes to exercise it, the Holder will be immediately notified and no
action will be taken with respect to his Units without further instruction
from the Holder.
PROCEDURES
To exercise the Exchange Option, a Holder should notify one of the Sponsors
of his desire to use the proceeds from the sale of his Units of this Series to
purchase units of one or more of the Exchange Funds. If units of the applicable
outstanding series of the Exchange Fund are at that time available for sale, the
Holder may select the series or group of series for which he desires his Units
to be exchanged. Of course, the Holder will be provided with a current
prospectus or prospectuses relating to each series in which he indicates
interest. The exchange transaction will generally operate in a manner
essentially identical to any secondary market transaction, i.e., Units will be
repurchased at a price equal to the aggregate bid side evaluation per Unit of
the Securities in the Portfolio plus accrued interest. Units of the Exchange
Fund will be sold to the Holder at a price equal to the bid side evaluation per
unit of the underlying securities in the Portfolio plus interest plus the
applicable sales charge listed in the table below. (Units of Equity Income Fund
are sold, and will be repurchased, at a price normally based on the closing sale
price on the New York Stock Exchange, Inc. of the underlying securities in the
Portfolio.) The maximum applicable sales charges for units of the Exchange Funds
are also listed in the table. Excess proceeds not used to acquire whole Exchange
Fund units will be paid to the exchanging Holder.
CONVERSION OPTION
Owners of units of any registered unit investment trust sponsored by others
which was initially offered at a maximum applicable sales charge of at least
3.0% ('Conversion Trust') may elect to apply the cash proceeds of sale or
redemption of those units directly to acquire available units of any Exchange
Fund at the reduced sales charge, subject to the terms and conditions applicable
to the Exchange Option (except that no secondary market is required in
Conversion Trust units). To exercise this option, the owner should notify his
retail broker. He will be given a prospectus of each series in which he
indicates interest of which units are available. The broker must sell or redeem
the units of the Conversion Trust. Any broker other than a Sponsor must certify
to the Sponsors that the purchase of units of the Exchange Fund is being made
pursuant to and is eligible for this conversion option. The broker will be
entitled to two-thirds of the applicable reduced sales charge. The Sponsors
reserve the right to modify, suspend or terminate the conversion option at any
time without further notice, including the right to increase the reduced sales
charge applicable to this option (but not in excess of $5 more per unit than the
corresponding fee then charged for the Exchange Option).
THE EXCHANGE FUNDS
The current return from taxable fixed income securities is normally higher
than that available from tax exempt fixed income securities. Certain of the
Exchange Funds do not provide for periodic payments of interest and are best
suited for purchase by IRA's, Keogh Plans, pension funds or other tax-deferred
retirement plans. Consequently, some of the Exchange Funds may be inappropriate
investments for some Holders and therefore may be inappropriate exchanges for
Units of this Series. The table below indicates certain characteristics of each
of the Exchange Funds which a Holder should consider in determining whether each
Exchange Fund would be an appropriate investment vehicle and an appropriate
exchange for Units of this Series.
TAX CONSEQUENCES
An exchange of Units pursuant to the Exchange or Conversion Option for
units of a series of another Fund should constitute a 'taxable event' under the
Code, requiring a Holder to recognize a tax gain or loss subject to the
following limitation. The Internal Revenue Service may seek to disallow a loss
(or a pro rata portion thereof) on an exchange of units if the units received by
a Holder in connection with such an exchange represent securities that are not
materially different from the securities that his previous units represented
(e.g. both Funds contain securities issued by the same obligor that have the
same material terms). Holders are urged to consult their own tax advisers as to
the tax consequences to them of exchanging units in particular cases.
EXAMPLE
Assume that a Holder, who has three units of a fund with a 5.50% sales
charge in the secondary market and a current price (based on the bid side
evaluation plus accrued interest) of $1,100 per unit, sells his units and
exchanges the proceeds for units of a series of an Exchange Fund with a current
price of $950 per unit and the same sales charge. The proceeds from the Holder's
units will aggregate $3,300. Since only whole units of an Exchange Fund may be
purchased, the Holder would be able to acquire four units in the Exchange Fund
for a total cost of $3,860 ($3,800 for units and $60 for the $15 per unit sales
charge) by adding an extra $560 in cash. Were the Holder to acquire the same
number of units at the same time in the regular secondary market maintained by
the Sponsors, the price would be $4,021.16 ($3,800 for the units and $221.16 for
the 5.50% sales charge).
26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM REDUCED
NAME OF APPLICABLE SALES CHARGE FOR INVESTMENT
EXCHANGE FUND SALES CHARGE* SECONDARY MARKET** CHARACTERISTICS
<S> <C> <C> <C>
DEFINED ASSET FUNDS--
GOVERNMENT SECURITIES INCOME FUND
GNMA Series (other than those below) 4.25% $15 per unit long-term, fixed rate, taxable income,
underlying securities backed by the
full faith and credit of the United
States
GNMA Series E or other GNMA Series having 4.25% $15 per 1,000 units long-term, fixed rate, taxable income,
units with an initial face value of $1.00 underlying securities backed by the
full faith and credit of the United
States, appropriate for IRA's or
tax-deferred retirement plans
Freddie Mac Series 3.50% $15 per 1,000 units intermediate term, fixed rate, taxable
income, underlying securities are
backed by Federal Home Loan Mortgage
Corporation but not by U.S. Government
DEFINED ASSET FUNDS--MUNICIPAL INVESTMENT
TRUST FUND
Monthly Payment, State and Multistate Series 5.50%+ $15 per unit long-term, fixed rate, tax-exempt
income
Intermediate Term Series 4.50%+ $15 per unit intermediate-term, fixed rate,
tax-exempt income
Insured Series 5.50%+ $15 per unit long-term, fixed rate, tax-exempt
income, underlying securities insured
by insurance companies
AMT Monthly Payment Series 5.50%+ $15 per unit long-term, fixed rate, income exempt
from regular federal income tax but
partially subject to Alternative
Minimum Tax
DEFINED ASSET FUNDS--MUNICIPAL INCOME FUND
Insured Discount Series 5.50%+ $15 per unit long-term, fixed rate insured,
tax-exempt income, taxable capital
gains
DEFINED ASSET FUNDS--
CORPORATE INCOME FUND
Monthly Payment Series 5.50% $15 per unit long-term, fixed rate, taxable income
Intermediate Term Series 4.75% $15 per unit intermediate-term, fixed rate, taxable
income
Cash or Accretion Bond Series and SELECT 3.50% $15 per 1,000 units intermediate-term, fixed rate,
Series underlying securities composed of
collateralized compound interest
obligations, taxable income,
appropriate for IRA's or tax-deferred
retirement plans
Select High Yield Series 5.50% $15 per unit non-investment grade intermediate and
long-term, fixed rate, taxable income
Insured Series 5.50% $15 per unit long-term, fixed-rate, taxable income,
underlying securities are insured.
DEFINED ASSET FUNDS--
INTERNATIONAL BOND FUND
Multi-Currency Series 3.75% $15 per unit intermediate-term, fixed rate, payable
in foreign currencies, taxable income
Australian and New Zealand Dollar Bonds 3.75% $15 per unit intermediate-term, fixed rate, payable
Series in Australian and New Zealand dollars,
taxable income
Australian Dollar Bonds Series 3.75% $15 per unit intermediate-term, fixed rate, payable
in Australian dollars, taxable income
Canadian Dollar Bonds Series 3.50% $15 per unit short intermediate term, fixed rate,
payable in Canadian dollars, taxable
income
DEFINED ASSET FUNDS--EQUITY INCOME FUND
Utility Common Stock Series 4.50% $15 per 1,000 units++ dividends, taxable income, underlying
securities are common stocks of public
utilities
Concept Series 4.00% $15 per 100 units underlying securities constitute a
professionally selected portfolio of
common stocks consistent with an
investment idea or concept
Select Ten Portfolios 2.75% $17.50 per 1,000 units 10 highest dividend yielding stocks in
(domestic and international) a designated stock index; seeks higher
total return than that stock index;
terminates after one year
</TABLE>
- ----------------------
* As described in the prospectuses relating to certain Exchange Funds, this
sales charge for secondary market sales may be reduced on a graduated scale in
the case of quantity purchases.
** The reduced sales charge for Units acquired during their initial offering
period is: $20 per unit for Series for which the Reduced Sales Charge for
Secondary Market (above) is $15 per unit; $20 per 100 units for Series for
which the Reduced Sales Charge for Secondary Market is $15 per 100 units and
$20 per 1,000 units for Series for which the Reduced Sales Charge for
Secondary Market is $15 per 1,000 units.
+ Subject to reduction depending on the maturities of the underlying
Securities.
++ The reduced sales charge for the Sixth Utility Common Stock Series of The
Equity Income Fund is $15 per 2,000 units and for prior Utility Common Stock
Series is $7.50 per unit.
27
<PAGE>
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Defined
Asset FundsSM
<TABLE>
<S> <C>
Sponsors: Corporate Income Fund
Merrill Lynch, Insured Series--23
Pierce, Fenner & Prospectus
Smith Inc.
Unit Investment
Trusts
P.O. Box 9051
Princeton, NJ
08543-9051
(609) 282-8500
This Prospectus does not contain all of the information
with respect to the investment company set forth in its
registration
Smith Barney statement and exhibits relating thereto which have been
Shearson Inc. filed with the Securities and Exchange Commission,
Unit Trust Washington, D.C. under the Securities Act of 1933 and the
Department Investment Company Act of 1940, and to which reference is
Two World Trade hereby made.
Center
101st Floor
New York, NY 10048
1-800-298-UNIT
No person is authorized to give any information or to
make
PaineWebber any representations with respect to this investment
Incorporated company not contained in this Prospectus; and any
1200 Harbor information or representation not contained herein must
Boulevard not be relied upon as having been authorized. This
Weehawken, NJ 07087 Prospectus does not
(201) 902-3000
Prudential constitute an offer to sell, or a solicitation of an
Securities offer to buy, securities in any state to any person to
Incorporated whom it is not lawful to make such offer in such state.
One Seaport Plaza
199 Water Street
New York, NY 10292
(212) 776-1000
Dean Witter Reynolds
Inc.
Two World Trade
Center
59th Floor
New York, NY 10048
(212) 392-2222
Evaluator:
Interactive Data
Services, Inc.
14 Wall Street
New York, NY 10005
Independent
Accountants:
Deloitte & Touche
1633 Broadway
3rd Floor
New York, NY 10019
Trustee:
Bankers Trust
Company
Unit Investment
Trust
Four Albany Street
7th Floor
New York, NY 10015
1-800-735-7777
</TABLE>
14756-3/94
<PAGE>
<PAGE>
