SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JUNE 3, 1994.
DEFINED
ASSET FUNDSSM
EQUITY This Fund is formed to obtain total return through
INCOME FUND a combination of high current income and potential
- ------------------------------for appreciation over the intermediate term by
CONCEPT SERIES investing for approximately four years in a
REAL ESTATE INCOME FUND diversified portfolio of publicly traded real
A UNIT INVESTMENT TRUST estate investment trusts ('REITs').
/ / PROFESSIONAL SELECTION The value of Units in the Fund will fluctuate with
/ / MONTHLY INCOME the value of the Portfolio of underlying
/ / CAPITAL APPRECIATION Securities and no assurance can be given that the
Units will appreciate in value.
Minimum purchase: $1,000 of Units in individual
transactions; $250 of Units minimum purchase for
Individual Retirement/Keogh Accounts (purchases
under the Reinvestment Plan are not restricted).
-------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES
SPONSORS: COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
Merrill Lynch, OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
Pierce, Fenner & Smith Inc. CONTRARY IS A CRIMINAL OFFENSE.
Smith Barney Inc. Inquiries should be directed to the Trustee at
PaineWebber Incorporated 1-800-323-1508.
Prudential Securities Prospectus dated , 1994.
Incorporated READ AND RETAIN THIS PROSPECTUS FOR FUTURE
Dean Witter Reynolds Inc. REFERENCE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
DEFINED ASSET FUNDSSM is America's oldest and largest family of unit investment
trusts, with over $90 billion sponsored since 1970. Each fund is a defined
portfolio of preselected securities 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're 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, real estate investment trusts, even international securities
denominated in foreign currencies.
Termination dates are as short as one year or as long as 30 years. Special funds
are available for investors seeking extra features: insured funds, double and
triple tax-free funds, and funds with 'laddered maturities' to help protect
against rising interest rates. Defined funds are offered by prospectus only.
- --------------------------------------------------------------------------------
CONTENTS
Investment Summary.......................................... A-3
Fee Table................................................... A-4
Underwriting Account........................................ A-7
Report of Independent Accountants........................... A-8
Statement of Condition...................................... A-9
Portfolio................................................... A-10
Fund Structure.............................................. 1
Risk Factors................................................ 1
Description of the Fund..................................... 4
Taxes....................................................... 6
Public Sale of Units........................................ 9
Market for Units............................................ 10
Redemption.................................................. 11
Termination................................................. 12
Expenses and Charges........................................ 13
Administration of the Fund.................................. 14
Resignation, Removal and Limitations on Liability........... 17
Miscellaneous............................................... 18
Exchange Option............................................. 20
A-2
<PAGE>
INVESTMENT SUMMARY AS OF , 1994 (THE BUSINESS DAY PRIOR TO THE
INITIAL DATE OF DEPOSIT)(a)
INITIAL NUMBER OF UNITS(b) --
FRACTIONAL UNDIVIDED INTEREST IN FUND
REPRESENTED BY EACH UNIT--TH
PUBLIC OFFERING PRICE PER 1,000 UNITS
Aggregate value of Securities in
Fund.............................. $
------------------
Divided by Number of Units (times
1,000)............................ $
Plus initial sales charge of 2.75% of
Public Offering Price (2.828% of
net amount invested in
Securities)(c)....................
Plus the amount per 1,000 Units in
the Income and Capital
Accounts (see Administration of
the Fund--Accounts and
Distributions)....................
------------------
Public Offering Price per 1,000
Units............................. $
------------------
------------------
SPONSORS' REPURCHASE PRICE PER 1,000
UNITS AND REDEMPTION PRICE PER
1,000 UNITS
(based on net asset value of the
Fund)(d).......................... $
LIQUIDATION PERIOD
Beginning on , 1998
until no later than the Mandatory
Termination Date (the 'Liquidation
Period').
MONTHLY INCOME DISTRIBUTIONS
Distributions of income, if any, will be paid on the
25th day of each month commencing on the 25th
day of 1994 to Holders of record on the
10th day of each month. In order to meet certain tax
requirements, the Fund may make a special
distribution of income including capital gains to
Holders of record as of a date in December.
CAPITAL DISTRIBUTIONS
No distribution (other than distributions of capital
gains) need be made from Capital Account if the
balance is less than $5.00 per 1,000 Units (see
Administration of the Fund--Accounts and
Distributions).
EVALUATION TIME
4:00 P.M., New York Time
SPONSORS' PROFIT OR (LOSS) ON DEPOSIT--
TRUSTEE'S ANNUAL FEE AND EXPENSES(e)
$ per 1,000 Units
ANNUAL PORTFOLIO SUPERVISION FEE(f)
Maximum of $.25 per 1,000 Units
REIT CONSULTANT'S ANNUAL FEE
$1.50 per 1,000 Units (see Expenses and Charges)
MINIMUM VALUE OF FUND
Trust Indenture may be terminated if value of Fund
is less than 40% of the value of the Securities when
deposited in the Portfolio.
MANDATORY TERMINATION DATE
, 1998.
DEFERRED CHARGE AND CONSULTANT'S FEE PAYMENT DATES
The 10th day of February, May, August and
November, commencing August 10, 1994.
- ------------------------------------
- ------------
(a) The Indenture was signed and the initial deposit was made on the date
of this Prospectus.
(b) The Sponsors may create additional Units during the life of the Fund.
(c) The sales charge consists of (i) an initial sales charge at the rate of
2.75% of the Public Offering Price (2.828% of the net amount invested
in the Securities) payable on the date of the purchase of Units and
(ii) deferred sales charges in the amount of $1.625 per 1,000 Units
payable by the Fund on behalf of the Holders out of net asset value of
the Fund on each quarterly Deferred Charge Payment Date ($6.50 per
year) until the Fund terminates. The maximum aggregate sales charge for
a Holder holding Units over the entire expected life of the Fund will
equal approximately 5.35% of the Public Offering Price (5.501% of the net
amount invested). If a Holder sells or redeems Units before a Deferred
Charge Payment Date, all future deductions of deferred sales charges
with respect to such Units will be waived; this will have the effect of
reducing the rate of sales charges for that Holder. The initial portion
of the sales charge will be reduced on a graduated basis for quantity
purchases. (See Public Sale of Units--Public Offering Price.)
(d) Equal to aggregate value of Securities in Fund plus net balance in the
Capital Account.
(e) Assumes the Fund will reach a size estimated by the Sponsors; expenses
will vary with the size of the Fund. The Trustee receives annually for
its services as Trustee $0.84 per 1,000 Units (computed monthly based
on the largest number of Units outstanding during the month), subject
to reduction as the size of the Fund increases. (See Expenses and
Charges.)
(f) 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 $.10 per 1,000 Units. (See
Expenses and Charges.)
A-3
<PAGE>
INVESTMENT SUMMARY AS OF , 1994 (CONTINUED)
FEE TABLE
THIS FEE TABLE IS INTENDED TO ASSIST INVESTORS IN UNDERSTANDING THE COSTS
AND EXPENSES THAT AN INVESTOR IN THE FUND WILL BEAR DIRECTLY OR INDIRECTLY. SEE
PUBLIC SALE OF UNITS AND EXPENSES AND CHARGES. ALTHOUGH THE FUND IS A UNIT
INVESTMENT TRUST RATHER THAN A MUTUAL FUND, THIS INFORMATION IS PRESENTED TO
PERMIT A COMPARISON OF FEES.
<TABLE>
<S> <C>
UNITHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Charge Imposed on Purchases (as a percentage of Public Offering Price).............. 2.75%
Maximum Deferred Sales Charge (as a
percentage of original purchase price)................................................................. 2.60%
---------
5.35%
---------
---------
Maximum Sales Charge Imposed per year on Reinvested Dividends............................................. 2.60%
---------
---------
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Trustee's Fee............................................................................................. %
Portfolio Supervision, Bookkeeping and Administrative Fees................................................ %
Other Operating Expenses.................................................................................. %
---------
Total.................................................................................................. %
---------
---------
UNITHOLDER TRANSACTION EXPENSES
AMOUNT PER
1,000 UNITS
--------------
Maximum Initial Sales Charge Imposed on Purchases (as a percentage of Public Offering Price).............. $ 27.50
Maximum Deferred Sales Charge (as a
percentage of original purchase price)................................................................. $ 26.00*
--------------
$ 53.50
--------------
--------------
Maximum Sales Charge Imposed per year on Reinvested Dividends............................................. $ 26.00*
--------------
--------------
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Trustee's Fee............................................................................................. $
Portfolio Supervision, Bookkeeping and Administrative Fees................................................ $
Other Operating Expenses.................................................................................. $
--------------
Total..................................................................................................
--------------
--------------
</TABLE>
EXAMPLE
<TABLE><CAPTION>
CUMULATIVE EXPENSES PAID FOR PERIOD
OF:
-------------------------------------
1 YEAR 3 YEARS 5 YEARS
----------- ----------- -----------
<S> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment, assuming the
Fund's estimated operating expense ratio of % and a 5% annual return on the
investment throughout the periods............................................... $ $ $
10 YEARS
-----------
An investor would pay the following expenses on a $1,000 investment, assuming the
Fund's estimated operating expense ratio of % and a 5% annual return on the
investment throughout the periods............................................... $
</TABLE>
The Example assumes reinvestment of all dividends and distributions and utilizes
a 5% annual rate of return as mandated by Securities and Exchange Commission
regulations applicable to mutual funds. For purposes of the Example, the
Deferred Sales Change imposed on reinvestment of dividends is not reflected
until the year following payment of the dividend; the accumulative expenses
would be higher if sales charges on reinvested dividends were reflected in the
year of reinvestment. The Example should not be considered a representation of
past or future expenses or annual rate of return; the actual expenses and annual
rate of return may be more or less than those assumed for purposes of the
Example.
* The actual fee is $1.625 per 1,000 Units per quarter, irrespective of the
purchase price. If a Holder sells Units before a Deferred Charge Deduction Date,
no additional deductions are made. Thus the Deferred Sales Charge varies with
the length of time Units are held. Also, if Unit price exceeds $1 per Unit or
Units are purchased after the initial Deferred Charge Deduction Date, the
Deferred Sales Charges would be less than 2.60%; if Unit price is less than $1
per Unit, the Deferred Sales Charge may exceed 2.60%.
A-4
<PAGE>
INVESTMENT SUMMARY AS OF , 1994 (CONTINUED)
OBJECTIVES OF THE FUND--The Fund seeks a high level of current dividend
income and long term capital appreciation through investment in a fixed
portfolio of publicly traded real estate investment trusts ('REITs'). There can
be no assurance that the Fund will achieve its objectives. The REITs in the
portfolio were selected for their current dividend yields and potential for
capital appreciation among REITs that are expected to continue to make dividend
payments. Selection criteria include extensive analysis of historical financial
data, operating cash flow, management expertise, and performance.
PORTFOLIO AT A GLANCE--
DIVERSIFICATION--The Portfolio contains different publicly traded REITs
representing the following real estate sectors: residential ( % of the
aggregate value of the Portfolio), retail ( % of the aggregate value of the
Portfolio), hospital/health care facilities ( % of the aggregate value of the
Portfolio).
FUND PORTFOLIO--100% of the Portfolio consists of equity REITs. The Fund is
considered to be 'concentrated' in stocks in the real estate industry and in
REITs and is subject to certain risks similar to those associated with ownership
of real estate generally.* For a brief summary of some of the risks associated
with REITs, see Risk Factors--Real Estate Investments Trusts.
REIT CONSULTANT'S ANNUAL FEE--The REIT Consultant, Cohen & Steers Capital
Management, Inc. ('Cohen & Steers' or the 'REIT Consultant'), which is
unaffiliated with any of the Sponsors, will provide ongoing research to Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as agent for the Sponsors ('Agent
for the Sponsors') for which it will be compensated by the Fund as set forth
under Investment Summary. The total annual fees are greater for this Fund than
for other Equity Income Fund, Concept Series because those other funds do not
generally pay consultants for ongoing research. The Sponsors believe that the
research arrangement is desirable in the present circumstances due to the
complexity of the REIT industry and Cohen & Steers' expertise in providing
equity research on individual REITs and the REIT industry in general. (See
Administration of the Fund--Portfolio Supervision.)
RISK FACTORS--The Securities in the Portfolio have been chosen for current
income and their potential to appreciate in value within approximately four
years. Of course, there can never be a guarantee that the stocks in the
Portfolio will appreciate in value or that dividends will be paid by the REITs
in the Fund. The Securities were selected for inclusion in the Portfolio without
regard to any buy, sell or hold recommendation by any of the Sponsors.
Investment in the Fund should be made with an understanding that the value of
the underlying Portfolio may fluctuate in accordance with changes in the
financial condition of the issuers of the Securities in the Portfolio,
conditions in the real estate industry, the value of stocks generally and of
REITs in particular, the impact of the Sponsors' buying Securities (especially
during the primary offering period of Units of the Fund) and other factors.
REITs may be susceptible to general stock market and interest rate fluctuations
and to volatile increases and decreases of value as market confidence in and
perceptions of the issuers change. Any distributions of income will generally
depend upon the declaration of dividends by the issuers of the Securities in the
Portfolio and the declaration of any dividends depends upon several factors
including the financial condition of the issuers and general economic
conditions. In addition, the common stocks of certain of these issuers may be
relatively illiquid and, therefore, the Sponsors' purchases may tend to raise
their market prices and sales may tend to decrease their prices. Certain of the
issuers of the Securities in the Portfolio may be thinly capitalized or have a
limited operating history and, consequently, may be more susceptible to stock
market and real estate fluctuations than companies with greater capitalization
or more established companies. (See Risk Factors).
Whether or not the Securities are listed on a national securities exchange,
the principal trading market for the Securities may be in the over-the-counter
market. As a result, the existence of a liquid trading market for the Securities
may depend on whether dealers will make a market in the Securities. There can be
no assurance that a market will be made for any of the Securities, that any
market for the Securities will be maintained or of the liquidity of the
Securities in any markets made. In addition, the Fund may be restricted under
the Investment Company Act of 1940 from selling Securities to 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.
Unlike a mutual fund, the Portfolio is not actively managed and the Sponsors
receive no management fee. Therefore, the adverse-financial condition of an
issuer will not necessarily require the sale of Securities from the Portfolio or
mean that the Sponsors will not continue to purchase the Security in order to
create additional Units. Although the Portfolio is regularly reviewed and
evaluated and the Sponsors may instruct the Trustee to sell Securities under
certain limited circumstances (see Administration of the Fund--Portfolio
Supervision) Securities will not be sold by the Fund to take advantage of market
fluctuations or changes in anticipated rates of appreciation. Investors should
note in particular that the Securities were selected on the basis of the
criteria set forth above under Objectives of the Fund and that this selection
may have been made without regard for any buy, sell or hold recommendation by
any of the Sponsors. The Fund may continue to purchase or hold Securities
originally selected through this process even though the yields on the
Securities may have changed. In the event a public tender offer is made for a
Security or a merger or acquisition is announced affecting a Security, the Agent
for the Sponsors may instruct the Trustee to tender or sell the Security on the
open market when, in its opinion, it is in the best interest of the holders of
the Units to do so.
- ---------------
* A Fund is considered to be 'concentrated' in a particular category when
the Securities in that category constitute 25% or more of the aggregate value of
the Portfolio (see Risk Factors--Real Estate Investment Trusts).
A-5
<PAGE>
INVESTMENT SUMMARY AS OF , 1994 (CONTINUED)
If Securities are sold from the Fund, the proceeds may be reinvested in
replacement Securities. (See Administration of the Fund--Portfolio Supervision).
Subsequent to the Initial Date of Deposit, the Sponsors may deposit either
additional Securities, contracts to purchase additional Securities or cash (or a
bank letter or letters of credit in lieu of cash) with instructions to purchase
additional Securities (where additional Units are to be offered to the public or
to Holders pursuant to the Reinvestment Plan), in each instance maintaining, as
closely as practicable, the original proportionate relationship, subject to
adjustment under certain circumstances, among the number of shares of each
Security in the Fund. If cash (or a letter of credit in lieu of cash) is
deposited with instructions to purchase Securities, to the extent the price of a
Security increases or decreases between the time of deposit and the time any
Security is purchased, Units will represent less or more of that Security and
more or less of the other Securities in the Fund. Price fluctuations during the
period from the time of deposit of cash (or a bank letter of credit in lieu of
cash) to the time the Securities are purchased will affect the value of every
Holder's Units and the income per Unit received by the Fund. In order to
minimize these effects, the Fund will try to purchase Securities as near as
possible to the Evaluation Time or at prices as close as possible to the prices
used to evaluate the Fund at the Evaluation Time. In addition, brokerage fees
incurred in purchasing Securities with cash deposited with instructions to
purchase the Securities will be an expense of the Fund. Thus, price fluctuations
during this period and payment of any brokerage fees by the Fund will affect the
value of every Holder's Units and the income per Unit received by the Fund. In
particular, Holders who purchase Units during the primary offering period of the
Units would experience a dilution of their investment as a result of any
brokerage fees paid by the Fund during subsequent deposits of additional
Securities purchased with cash deposited with instructions to purchase
Securities. (See Fund Structure; Administration of the Fund--Portfolio
Supervision.)
Investors should also be aware that because Securities are sold to pay the
obligations due on the Deferred Charge Payment Dates, they may realize gains or
losses on those sales due to changes in Securities prices between the date on
which the Units are purchased and the Deferred Charge Payment Dates. In
addition, Units purchased shortly before a Deferred Charge Payment Date would
nevertheless incur the full sales charge for that period.
At any time after the date of this prospectus, new litigation, legislation,
regulation or deregulation may be initiated, proposed or enacted which may have
a material adverse effect on the Fund or impair the ability of the issuers of
the Securities to achieve their business goals (for a fuller discussion, see
Risk Factors--Litigation and Legislation).
DISTRIBUTIONS--Monthly distributions of dividends, if any, will be made in
cash on the dates set forth under Investment Summary on page A-3 to Holders of
record on the record days set forth on page A-3 (see Administration of the
Fund--Accounts and Distributions). Any capital gain net income (i.e., the excess
of capital gains over capital losses) recognized by the Fund in any taxable year
will generally be distributed after the end of the year. In order to meet
certain tax requirements the Fund may make a special distribution of income,
including capital gains, to Holders of record as of a date in December. (See
Taxes.) Holders may elect to have distributions reinvested in additional whole
or fractional Units of the Fund at no initial sales charge (see Administration
of the Fund--Reinvestment Plan). However, whether or not a distribution is
received in cash, the distribution will be taxable to the Holder.
TAXATION--Distributions which are taxable as ordinary income to Holders will
constitute dividends for Federal income tax purposes but will not be eligible
for the dividends-received deduction for corporations. Foreign holders should be
aware that distributions from the Fund will generally be subject to information
reporting and withholding taxes. (See Taxes.)
REDEMPTION IN KIND--Upon redemption of Units prior to the Mandatory
Termination Date, a Holder generally may choose to receive cash or, if he would
be entitled to receive at least 100 shares of each underlying Security and he
has tendered for redemption prior to the date specified under Liquidation Period
on page A-3, his share of the Securities (see Redemption). However, a Holder
will recognize a taxable gain or loss if the Holder sells or redeems his Units
even if he redeems his Units in kind. (See Taxes.)
PUBLIC OFFERING PRICE--The Public Offering Price per 1,000 Units is equal to
the aggregate value of the underlying Securities (the price at which they could
be directly purchased by the public assuming they were available) divided by the
number of Units outstanding times 1,000, plus 2.75% (the initial portion of the
sales charge). Units are offered at the Public Offering Price plus a
proportionate share of the amount in the Income Account and the Capital Account
(described under Administration of the Fund--Accounts and Distribution), to the
extent not allocated to the purchase of specific Securities, on the date of
delivery of the Units to the purchaser computed as of the Evaluation Time for
all sales subsequent to the previous evaluation.
The sales charge consists of an initial portion and a deferred portion, the
total of which may equal a maximum of approximately 5.35% of the Public Offering
Price or 5.501% of the initial net asset value per 1,000 Units. The initial
portion of the sales charge is 2.75% of the Public Offering Price* (2.828% of
the net amount invested in the Securities), and the deferred portion of the
sales charge is $1.625 per 1,000 Units payable on each quarterly Deferred Charge
Payment Date ($6.50 per year) until the Fund terminates. If a Holder sells or
redeems Units before a Deferred Charge Payment Date, no future deferred sales
charges will be collected from that Holder; this will have the effect of
reducing the rate of sales charge to that Holder.
- ---------------
* The initial portion of the sales charge will be reduced on a graduated
scale in the case of quantity purchases of $250,000 or more (see Public Sale of
Units--Public Offering Price). There is no initial sales charge for purchases
pursuant to the Reinvestment Plan (see Administration of the Fund--Reinvestment
Plan).
A-6
<PAGE>
AUTHORIZATION FOR REINVESTMENT
EQUITY INCOME FUND CONCEPT SERIES
REAL ESTATE INCOME FUND
DEFINED ASSET FUNDS
/ / Yes I want to participate in the Fund's Reinvestment Plan and
purchase additional Units or fractions of additional Units of the
Fund.
I hereby acknowledge receipt of the Prospectus for Equity Income Fund
Concept Series, Real Estate Income Fund, Defined Asset Funds and
authorize The Chase Manhattan Bank, N.A. to pay distributions on my
Units as indicated below (distributions to be reinvested will be paid
for my account to The Chase Manhattan Bank, N.A.).
/ / I want to reinvest all distributions of Income and Principal (including
capital gains) in additional Units of the Fund.
<TABLE>
<S> <C>
Please print or type Name Registered Holder
Address
Registered Holder
City State Zip (Two signatures required if joint tenancy)
</TABLE>
Unless you complete and return this form, all distributions to you
from the Real Estate Income Fund will be paid in cash.
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>
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 644 NEW YORK, NY NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY IN THE
DEFINED ASSET FUNDS--EQUITY INCOME FUND UNITED STATES
CONCEPT SERIES
REAL ESTATE INCOME FUND
THE CHASE MANHATTAN BANK, N.A.
UNIT TRUST DEPARTMENT
BOX 2051
NEW YORK, NY 10081
- --------------------------------------------------------------------------------
(Fold along this line.)
- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
INVESTMENT SUMMARY AS OF , 1994 (CONTINUED)
TERMINATION--On the date specified under Liquidation Period on page A-3,
Securities may begin to be sold in connection with the termination of the Fund
and it is expected that all Securities will be sold by the Mandatory Termination
Date. The Agent for the Sponsors, will determine the manner, timing and
execution of the sales of the underlying Securities. At this time the Sponsors
may offer to Holders the option of having their Units redeemed in kind and the
proceeds of this redemption invested in units of a new series of the Fund, if
one is offered, at a reduced sales charge. The Sponsors are under no obligation
to create a new Series of the Fund, however, or to offer Holders this kind of
redemption and reinvestment option.
The Agent for the Sponsors will attempt to sell the securities as quickly as
it can during the Liquidation Period without in its judgment materially
adversely affecting the market price of the Securities, but it is expected that
all of the Securities will in any event be disposed of by the end of the
Liquidation Period. It is expected that the period will not be longer than one
month, and it could be as short as one day, depending on the liquidity of the
Securities being sold. The liquidity of any Security depends on the daily
trading volume of the Security and the amount available for sale on any
particular day.
It is expected (but not required) that the following guidelines will
generally be followed in selling the Securities: highly liquid Securities will
generally be sold on the first day of the Liquidation Period; on each of the
first two days of the Liquidation Period, an amount of any underlying less
liquid Securities will generally be sold at a price no less than 1/2 point less
than the last closing sale price of those Securities. Thereafter, the price
limit will increase to one point less than the last closing sale price. After
four days, the Agent for the Sponsors intends to sell at least a fraction of the
remaining underlying Securities, the numerator of which is one and the
denominator of which is the total number of days remaining (including that day)
in the Liquidation Period without any price restrictions.
PURCHASE OF UNITS--Units can be purchased by contacting any of the Sponsors,
whose addresses are listed on the back cover of this Prospectus. The minimum
purchase is $1,000 of Units, except that Individual Retirement Accounts and
certain other tax deferred retirement plans may purchase as few as $250 of Units
(see Retirement Plans). There is no minimum purchase requirement for shares
purchased pursuant to the Reinvestment Plan (see Reinvestment Plan.)
MARKET FOR UNITS--Although not obligated to do so, the Sponsors intend to
maintain a market for Units based on the aggregate value of the underlying
Securities. If a market is not maintained, it is unlikely that a Holder would be
able to dispose of his Units other than through redemption (see Redemption).
REPLACEMENT SECURITIES--The Indenture permits the deposit of Replacement
Securities in the Fund under certain circumstances described under
Administration of the Fund--Portfolio Supervision. The Securities on the current
list from which Replacement Securities are to be selected are:
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
Smith Barney Inc. Two World Trade Center--101st Floor, New York, N.Y. 10048
PaineWebber Incorporated 1285 Avenue of the Americas, New York, N.Y. 10019
Prudential Securities Incorporated One Seaport Plaza--199 Water Street, New York, N.Y. 10292
Dean Witter Reynolds Inc. Two World Trade Center--59th Floor, New York, N.Y. 10048
</TABLE>
Each Underwriter's interest in the Underwriting Account will depend upon the
number of Units acquired through the issuance of additional Units.
A-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders of Equity Income Fund Concept Series, Real
Estate Income Fund, Defined Asset Funds:
We have audited the accompanying statement of condition, including the
portfolio, of Equity Income Fund Concept Series, Real Estate Income Fund,
Defined Asset Funds as of , 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
, 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 The Chase Manhattan Bank, N.A., the Trustee. An audit also
includes assessing the accounting principles used and significant estimates made
by the Trustee, as well as evaluating the overall financial statement
presentation. We believe that our 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 Equity Income Fund Concept
Series, Real Estate Income Fund, Defined Asset Funds at , 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
New York, N.Y.
, 1994
A-8
<PAGE>
EQUITY INCOME FUND CONCEPT SERIES
REAL ESTATE INCOME FUND, DEFINED ASSET FUNDS
STATEMENT OF CONDITION AS OF INITIAL DATE OF DEPOSIT, , 1994
<TABLE>
<S> <C>
TRUST PROPERTY
Investment in Securities:
Contracts to purchase underlying Securities(1)............................................... $
--------------
--------------
INTEREST OF HOLDERS
Units of fractional undivided interest outstanding:
Cost to Holders(2)........................................................................... $
Gross underwriting commissions(3)............................................................
--------------
Net amount applicable to Holders....................................................................... $
--------------
--------------
</TABLE>
- ------------
(1) Aggregate cost to the Fund of the Securities listed under Portfolio is
determined by the Trustee on the basis set forth above under Public Sale of
Units--Public Offering Price. See also the column headed Cost of Securities
to Fund under Portfolio. In connection with contracts to purchase
Securities, an irrevocable letter or letters of credit in the amount of
$ has been deposited with the Trustee for the purchase of
$ aggregate value of Securities. The letter or letters of credit
has been issued by .
(2) Aggregate public offering price computed on the basis of the value of the
underlying Securities as of the Evaluation Time on the Business Day prior to
the Initial Date of Deposit plus an initial sales charge at a rate of 2.75%
of the Public Offering Price (2.828% of the aggregate value of Securities).
In addition, Units are subject to deferred sales charges of $1.625 per 1,000
Units payable on each quarterly Deferred Charge Payment Date ($6.50 per
year). If a Holder sells or redeems Units before a Deferred Charge Payment
Date, all future deductions of deferred sales charges with respect to such
Holder will be waived.
(3) Assumes the initial sales charge at a rate of 2.75% of the Public Offering
Price (2.828% of the net amount invested in the Securities) computed on the
basis set forth under Public Sale of Units--Public Offering Price and
Underwriters' and Sponsors' Profits.
A-9
<PAGE>
<TABLE><CAPTION>
NUMBER OF
PORTFOLIO NO. AND SHARES OF PERCENTAGE
NAME OF STOCK COMMON OF
ISSUER OF SECURITIES CONTRACTED FOR SYMBOL STOCK FUND(1)
------------------------------------------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
<CAPTION>
PRICE CURRENT COST OF CURRENT
PER SHARE DIVIDEND SECURITIES DIVIDEND
TO FUND PER SHARE(2) TO FUND(3) YIELD(4)
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
</TABLE>
A-10
<PAGE>
PORTFOLIO OF EQUITY INCOME FUND CONCEPT SERIES,
REAL ESTATE INCOME FUND, DEFINED ASSET FUNDS
ON THE INITIAL DATE OF DEPOSIT, , 1994
<TABLE><CAPTION>
NUMBER OF
PORTFOLIO NO. AND SHARES OF PERCENTAGE
NAME OF STOCK COMMON OF
ISSUER OF SECURITIES CONTRACTED FOR SYMBOL STOCK FUND(1)
------------------------------------------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
100.000%
-----------
-----------
<CAPTION>
PRICE CURRENT COST OF CURRENT
PER SHARE DIVIDEND SECURITIES DIVIDEND
TO FUND PER SHARE(2) TO FUND(3) YIELD(4)
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
$
--------------
--------------
</TABLE>
- ------------
NOTES
(1) Based on Cost of Securities to Fund.
(2) Based on latest quarterly or semi-annual declaration.
(3) Valuation by the Trustee made on the basis of closing sale prices at the
Evaluation Time on the Business Day prior to the Initial Date of Deposit.
(4) Current Yield for each Security was calculated by annualizing the last
quarterly or semi-annual ordinary dividend declared on that Security and
dividing the result by that Security's market value as of the close of
trading on the Business Day prior to the Initial Date of Deposit.
------------------------------
The Securities were acquired on , 1994 and are represented entirely
by contracts to purchase the Securities. One or more of the Sponsors may have
acted as an underwriter, manager or co-manager of a public offering of the
Securities in this Fund during the last 3 years. Affiliates of the Sponsors may
serve as specialists in the Securities in this Fund on one or more stock
exchanges and may have a long or short position in any of these stocks or in
options on any of these stocks, and may be on the opposite side of public orders
executed on the floor of an exchange where the Securities are listed. An
officer, director or employee of any of the Sponsors may be an officer or
director of one or more of the issuers of the Securities in the Fund. The
Sponsors may trade for their own account as odd-lot dealers, market makers,
block positioners and/or arbitrageurs in any securities or options relating to
the common stock of the issuers of the Securities. In addition, the Sponsors,
their affiliates, directors, elected officers and employee benefit programs may
have either a long or short position in any security or option of the issuers.
A-11
<PAGE>
EQUITY INCOME FUND
CONCEPT SERIES
REAL ESTATE INCOME FUND
DEFINED ASSET FUNDS
FUND STRUCTURE
This Series (the 'Fund') of the Equity Income Fund is a 'unit investment
trust' created under New York law by a Trust Indenture (the 'Indenture') among
the Sponsors and the Trustee. 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 aggregate value of the Securities on that date as determined by the
Trustee, 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 publicly traded real estate investment trusts
('REITs'). As used herein, the term 'Securities' or 'Stocks' means the REIT
shares initially deposited in the Fund and described under Portfolio and any
replacement and additional REIT shares 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 number
of shares of each stock deposited in the Portfolio. 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 number of shares of each stock
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 to the public by means of this Prospectus (see Public Sale of
Units--Public Distribution) resulting in a potential increase in the number of
Units outstanding. In addition, new Units may be created under the Reinvestment
Plan (see Reinvestment Plan).
The holders of record ('Holders') of Units will have the right to have
their Units redeemed (see Redemption) at a price computed as set forth under
Computation of Redemption Price per Unit ('Redemption Price per Unit') if they
cannot be sold in the over-the-counter market which the Sponsors propose to
maintain (see Market for Units). Redemptions will be made in cash or in
Securities ('in kind') (see Redemption). On the Initial Date of Deposit each
Unit represented the fractional undivided interest in the Securities and net
income of the Fund set forth under Investment Summary.
The Fund may be an appropriate medium for investors who desire to
participate in a portfolio of publicly traded REITs with greater diversification
than they might be able to acquire individually. It is suggested that
prospective investors who consider investing in the Fund should reach an
investment decision only after carefully considering the suitability of the
Securities in the light of each investor's particular circumstances.
RISK FACTORS
An investment in Units of the Fund should be made with an understanding of
the risks inherent in an investment in equity securities, including the risk
that the financial condition of the issuers of the Securities may become
impaired or that the general condition of the stock market may worsen (both of
which may contribute directly to a decrease in the value of the Securities and
thus in the value of the Units) or the risk that holders of common stocks have a
right to receive payments from the issuers of those stocks that is generally
inferior to that of creditors of, or holders of debt obligations issued by, the
issuers and that the rights of holders of common stocks generally rank inferior
to the rights of holders of preferred stock. Common stocks may be especially
susceptible to general stock market movements and to volatile increases and
decreases in value as market confidence in and perceptions of the issuers
change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises.
Holders of common stocks incur more risk than holders of preferred stocks
and debt obligations because common stockholders, as owners of the company, have
generally inferior rights to receive payments from the issuer in comparison with
the rights of creditors of, or holders of debt obligations or preferred stocks
issued by the issuer. Holders of common stocks of the type held by the Portfolio
have a right to receive dividends only when and if, and in the amounts, declared
by the issuer's Board of Directors and to participate in amounts available for
1
<PAGE>
distribution by the issuer only after all other claims on the issuer have been
paid or provided for. By contrast, holders of preferred stocks have the right to
receive dividends at a fixed rate when and as declared by the issuer's Board of
Directors, normally on a cumulative basis, but do not participate in other
amounts available for distribution by the issuer. Cumulative preferred stock
dividends must be paid before common stock dividends and any cumulative
preferred stock dividend omitted is added to future dividends payable to the
holders of cumulative preferred stock. Preferred stocks are also entitled to
rights on liquidation which are senior to those of common stocks. Moreover,
common stocks do not represent an obligation of the issuer and therefore do not
offer any assurance of income or provide the degree of capital protection
offered by debt securities. Indeed, the issuance of debt securities or even
preferred stock will create prior claims for payment of principal, interest,
liquidation preferences and dividends which could adversely affect the ability
and inclination of the issuer to declare or pay dividends on its common stock or
the rights of holders of common stock with respect to assets of the issuer upon
liquidation or bankruptcy. Further, unlike debt securities which typically have
a stated principal amount payable at maturity (whose value, however, will be
subject to market fluctuations prior thereto), common stocks have neither a
fixed principal amount nor a maturity and have values which are subject to
market fluctuations for as long as the stocks remain outstanding. The value of
the Securities in the Portfolio thus may be expected to fluctuate over the
entire life of the Fund to values higher or lower than those prevailing on the
Initial Date of Deposit.
Investors should note that additional Units may be offered to the public
(or to Holders pursuant to the Reinvestment Plan) subsequent to the Initial Date
of Deposit and that the creation of additional Units may have an effect upon the
value of previously existing Units. To create additional Units the Sponsors may
deposit cash with instructions to purchase Securities (or a bank letter of
credit in lieu of cash) in amounts sufficient to maintain to the extent
practicable the percentage relationship among the number of shares of each
Security based on the price of the Securities at the Evaluation Time on the date
the cash is deposited. To the extent the price of a Security increases or
decreases between the time cash is deposited with instructions to purchase the
Security and the time the cash is used to purchase the Security, Units will
represent less or more of that Security and more or less of the other Securities
in the Fund. Holders will be at risk because of price fluctuations during this
period since if the price of shares of a Security increases, Holders will have
an interest in fewer shares of that Security, and if the price of a Security
decreases, Holders will have an interest in more shares of that Security, than
if the Security had been purchased on the date cash was deposited with
instructions to purchase the Security. In order to minimize these effects, the
Fund will try to purchase Securities as close as possible to the Evaluation Time
or at prices as close as possible to the prices used to evaluate the Fund at the
Evaluation Time. Furthermore, brokerage fees incurred in purchasing Securities
with cash deposited with instructions to purchase the Securities will be an
expense of the Fund. Thus price fluctuations during this period and payment of
any brokerage fees by the Fund will affect the value of every Holder's Units and
the income per Unit received by the Fund. In particular, Holders who purchase
Units during the primary offering period of the Units would experience a
dilution of their investment as a result of any brokerage fees paid by the Fund
during subsequent deposits of additional Securities purchased with cash
deposited with instructions to purchase Securities. In addition, costs incurred
in connection with the acquisition of Securities not listed on any national
securities exchange (due to differentials between bid and offer prices for the
Securities) will be at the expense of the Fund and will affect the value of
every Holder's Units.
Investors should also be aware that because Securities are sold on the
Deferred Charge Payment Dates, purchasers may realize gains or losses on those
sales due to changes in Securities prices between the date on which the Units
are purchased and the Deferred Charge Payment Dates. In addition, Units
purchased shortly before a quarterly Deferred Charge Payment Date would
nevertheless incur the full sales charge for that period.
The Fund is concentrated in the real estate industry*. Of course, a
portfolio concentrated in a single industry may present more risks than a
portfolio broadly invested over several industries. An investment in Units of
the Fund should be made with an understanding of the risks which this investment
may entail, certain of which are summarized below.
REAL ESTATE INVESTMENT TRUSTS
In General. REITs are financial vehicles that have as their objective the
pooling of capital from a number of investors in order to participate directly
in real estate ownership or financing. REITs are generally fully integrated
operating companies that have interests in income-producing real estate. REITs
are differentiated by the types of real estate properties held and the actual
geographic location of properties and fall into two major categories: equity
REITs emphasize direct property investment, holding their invested assets
primarily in the ownership of real estate or other equity interests, while
mortgage REITs concentrate on real estate financing, holding their assets
primarily in mortgages secured by real estate. As of the Initial Date of
Deposit, the Fund contains only equity REITs. REITs obtain capital funds for
investment in underlying real estate assets by selling debt or equity
- ------------------------------------
* A fund is considered to be 'concentrated' in a particular category when
the securities in that category constitute 25% or more of the aggregate value of
the Portfolio.
2
<PAGE>
securities on the public or institutional capital markets or by bank borrowings.
Thus, the returns on common equities of the REITs in which the Fund invests will
be significantly affected by changes in costs of capital and, particularly in
the case of highly 'leveraged' REITs, i.e. those with large amounts of
borrowings outstanding, by changes in the level of interest rates. Since all the
REITs in the Fund will be purchased in the secondary market, their purchase
price will generally not reflect high initial sales charges.
The objective of an equity REIT is to purchase income-producing real estate
properties in order to generate high levels of cash flow from rental income and
a gradual asset appreciation, and they typically invest in properties such as
office, retail, industrial, hotel and apartment buildings and health care
facilities.
Investment in the Fund should be made with an understanding of the many
factors that may have an adverse impact on the performance of a particular REIT,
its cash available for distribution, the credit quality of a particular REIT or
the real estate industry generally. Risks associated with the direct ownership
of real estate include general and local economic conditions, decline in real
estate values, the financial health of tenants, e.g. consolidation and increased
competition in the retail industry, dependency on the management skill of both
the officers of the REITs and the managers of the underlying properties,
dependency on heavy capital requirements, unpredictability of timing and amount
of cash flow, overbuilding and increased competition for tenants, oversupply of
properties for sale, unusually adverse weather conditions, changing
demographics, changes in interest rates, changes in government regulations
(including tax laws and environmental, building, zoning and sales regulations by
various federal, state and local authorities), increases in real estate taxes,
operating expenses or costs of material and labor, uninsured losses,
environmental clean-up costs, liability to third parties for damages resulting
from environmental problems, casualty or condemnation losses, natural disasters,
limitation on rents, faulty construction, changes in neighborhood values, the
appeal of properties to tenants, the inability to secure performance guarantees
as required and the unavailability of construction financing or mortgage loans
at rates acceptable to developers. Variations in rental income and space
availability and vacancy rates in terms of supply and demand are additional
factors affecting real estate generally and REITs in particular. Potential
conflicts of interest often exist with a founding developer or outside manager.
Performance by individual REITs is dependent on the types of real estate
investments held. For example, the effect of interest rate fluctuations will be
less on equity REITs than on mortgage REITs and the nature of the underlying
assets of an equity REIT may be considered more tangible than that of a mortgage
REIT. In addition, equity REITs may be affected by changes in the value of the
underlying property it owns.
REIT investment managers may concentrate investments in specific geographic
areas, depending on their proximity to and knowledge of local real estate
conditions; the impact of economic conditions on REITs can also be expected to
vary with geographic location. Investors should also be aware that REITs may not
be diversified and are subject to the risks of financing projects. REITs are
also subject to defaults by borrowers, self-liquidation, the market's perception
of the REIT industry generally, and the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended (the 'Code'), and to maintain exemption from the Investment Company Act
of 1940. In the event of a default by a borrower or lessee, the REIT may
experience delays in enforcing its rights as a mortgagee or lessor and may incur
substantial costs associated with protecting its investments.
REIT Taxation. Each of the REITs in which the Fund invests will generally
state its intention to operate in such manner as to qualify for taxation as a
'real estate investment trust' under Sections 856-860 of the Code, although, of
course, no assurance can be given that each REIT will at all times so qualify.
3
<PAGE>
The REIT provisions of the Code contain three gross income requirements:
1. At least 75% of the REIT's gross income must be derived directly or
indirectly from statutorily specified investments in real property or mortgages
on real property.
2. At least 95% of the REIT's gross income must be of the type meeting the
75% requirement or must be derived from dividends, interest, or gains from the
sale or disposition of stock or securities.
3. Short-term gains from the disposition of stock or securities, gains from
the disposition of property where the property was held primarily for sale to
customers in the ordinary course of business, and gains from the disposition of
real property held for less then 4 years must total less than 30% of the REIT's
gross income.
At the close of each quarter of a REIT's taxable year, it also must satisfy
three tests relating to the nature if its assets. First, at least 75% of the
value of its total assets must be represented by real estate assets, cash, cash
items, and government securities. In addition, not more than 25% of its total
assets may be represented by securities (other than those includible in the 75%
asset class). Also, of the investments included in the 25% asset class, the
value of any one issuer's securities owned may not exceed 5% of the value of its
total assets, nor can it own more than 10% of any one issuer's outstanding
voting securities.
So long as an issuer qualifies as a REIT, it will, in general, be subject
to Federal income tax only on income that is not distributed to stockholders. In
order to qualify as a REIT for any taxable year, a REIT must, among other
things, distribute to its stockholders an amount at least equal to the sum of
95% of its taxable income.
Failure to qualify for taxation as a REIT in any taxable year will subject
an issuer to tax on its taxable income at regular corporate rates. Distributions
to stockholders in any year in which an issuer fails to qualify as a REIT will
not be deductible by the issuer. Unless entitled to relief under specific
statutory provisions, the issuer would not qualify for taxation as a REIT for
the next four taxable years after failing to qualify in any year.
Each REIT may also be subject to state, local or other taxation in various
state, local or other jurisdictions.
LIQUIDITY
Whether or not the Securities are listed on a national securities exchange,
the principal trading market for the Securities may be in the over-the-counter
market. As a result, the existence of a liquid trading market for the Securities
may depend on whether dealers will make a market in the Securities. There can be
no assurance that a market will be made for any of the Securities, that any
market for the Securities will be maintained or of the liquidity of the
Securities in any markets made. In addition, the Fund may be restricted under
the Investment Company Act of 1940 from selling Securities to the Sponsors. The
price at which the Securities may be sold to meet redemptions and the value of
the Fund will be adversely affected if trading markets for the Securities are
limited or absent.
LITIGATION AND LEGISLATION
At any time after the Initial Date of Deposit, litigation may be initiated
on a variety of grounds, or legislation may be enacted, with respect to the
Securities in the Fund or the issuers of the Securities. There can be no
assurance that future litigation or legislation will not have a material adverse
effect on the Fund or will not impair the ability of issuers of the Securities
to achieve their business goals.
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio consists of those REITs listed under Portfolio in Part A.
All of the issuers of the REITs in the Portfolio were recommended by the
Sponsors' consultants, Cohen & Steers as part of a list of potential REITs
provided to the Sponsors and from which the REITs in the Portfolio were selected
by the Sponsors. The REIT Consultant considered the following factors, among
others, when recommending the REITs to the Sponsors: (i) the risk-adjusted
potential returns of the REIT, (ii) whether the management is highly focused and
free from conflicts, (iii) the appreciation potential of the property owned,
(iv) the financial strength and flexibility of the REIT, (v) whether the REIT
has access to capital markets and (vi) the cash flow quality and growth
potential of the REIT. The Sponsors considered the following factors, among
others, when selecting the REITs: (i) liquidity, (ii) yield of the REITs, (iii)
diversification by REIT type (e.g. industrial, commercial, healthcare,
apartments or retail).
The Fund consists of the Securities (or contracts to purchase the
Securities) listed under Portfolio (including any Replacement Securities and
Additional Securities deposited in the Fund in connection with the sale of
additional Units to the public as described under Fund Structure above or to
Holders pursuant to the Reinvestment Plan) as long as they may continue to be
held from time to time in the Fund together with undistributed income therefrom
and undistributed and uninvested cash realized from the disposition of
Securities (see Administration of the Fund--Portfolio Supervision). Neither the
Sponsors nor the Trustee shall be liable in any way for any default, failure or
defect in any of the Securities. However, should any contract deposited
hereunder (or to be deposited in connection with the sale of additional Units)
fail (a 'Failed Security'), the Sponsors shall, on or before the next following
Distribution Day, cause to be refunded the attributable sales
4
<PAGE>
charge, plus the attributable Cost of Securities to Fund listed under Portfolio,
unless substantially all of the moneys held in the Fund to cover such purchase
are reinvested in additional or replacement Securities in accordance with the
Indenture (see Administration of the Fund--Portfolio Supervision).
The Indenture authorizes the Sponsors to increase the size and number of
Units of the Fund by the deposit of Additional Securities, Replacement
Securities, contracts to purchase Additional or Replacement Securities or cash
with instructions to purchase Securities (or a bank letter of credit in lieu of
cash), and the issue of a corresponding number of additional Units subsequent to
the Initial Date of Deposit, provided that to the extent practicable the
percentage relationship among the number of shares of each Stock is maintained.
Investors should note that cash deposited with instructions to purchase
Securities (or a bank letter of credit in lieu of cash) will be in amounts
sufficient to maintain to the extent practicable the percentage relationship
among the number of shares of each Security. To the extent the price of a
Security increases or decreases between the time the cash is deposited with
instructions to purchase the Security and the time the cash is used to purchase
the Security, Units will represent less or more of that Security and more or
less of the other Securities in the Fund. Also, Securities may be sold under
certain circumstances (see Redemption: Administration of the Fund--Portfolio
Supervision). Because the proceeds from these sales received by the Fund (less
certain amounts deducted by the Trustee as described under Expenses and Charges)
will be reinvested in Additional Securities, distributed to Holders or paid out
upon redemptions, and because Additional Securities may be deposited following
the Initial Date of Deposit, the aggregate value of the Securities in the
Portfolio will vary over time.
Sales charges on Defined Asset Funds range from under 1.0% to 5.5%. This
may be less than you might pay to buy a comparable fund. Defined Asset Funds can
be a cost-effective way to purchase and hold investments. Annual operating
expenses are generally lower than for managed funds. Because unit investment
trusts are not actively managed and have limited transactions, costs are
generally less than 0.25% per year. Keeping costs low increases earnings. When
compounded annually, small differences in expense ratios can make a big
difference in earnings. See Public Sale of Units--Public Offering Price.
Because each Defined Asset Fund is a defined portfolio of preselected
securities, purchasers know in advance what they are investing in. Of course,
the portfolio will change somewhat over time as additional securities are
deposited, or redeemed or as they are sold to meet redemptions and in the
limited other circumstances described below.
Our defined portfolios of equities offer investors a simple and convenient
way to participate in the equity markets. Our funds seek to benefit from
opportunities often created by economic changes that affect specific areas of
the economy or by increased demand for the companies' products or services. By
purchasing equity income funds, investors not only avoid the problem of
selecting securities by themselves, but also gain the advantage of reduced risk
by investing in securities of several different issuers selected by experienced
buyers and market analysts.
Each portfolio is divided into units, representing equal shares of
underlying assets. On the Initial Date of Deposit each Unit represented the
fractional undivided interest in the Securities plus net income of the Fund set
forth under Investment Summary. Thereafter, if any Units are redeemed by the
Trustee, the aggregate value of Securities in the Fund will be reduced by
amounts allocable to redeemed Units, and the fractional undivided interest
represented by each Unit in the balance will be increased. However, if
additional Units are issued by the Fund, the aggregate value of Securities in
the Fund will be increased by amounts allocable to additional Units, and the
fractional undivided interest represented by each Unit in the balance will be
decreased. Units will remain outstanding until redeemed upon tender to the
Trustee by any Holder (which may include the Sponsors) or until the termination
of the Indenture (see Redemption; Termination).
The REIT Consultant to the Sponsors, Cohen & Steers, is based in New York
City. Cohen & Steers is a registered investment adviser, organized in 1986,
managing $752 million in assets at March 31, 1994, invested almost exclusively
in publicly traded real estate securities.
In addition to providing the initial recommended list of REITs to the
Sponsors, the REIT Consultant will periodically provide the Sponsors with
research on individual REITs and the REIT market in general to assist the
Sponsors in supervising the portfolio (see Administration of the Fund--Portfolio
Supervision).
INCOME AND DISTRIBUTION
Any net annual income per Unit that is earned by the Fund is determined by
subtracting from the annual dividend income of the Securities in the Portfolio
the annual expenses (total estimated annual Trustee's, Sponsors' and
administrative fees and expenses) and dividing by the number of Units
outstanding. The net annual income per Unit will depend upon the amount of
dividends declared and paid by the issuers of the Securities, sales and
substitution of Securities and the purchase of additional Securities
(recognizing, however, that the sale or purchase of Securities by itself should
not have a substantial effect on income per Unit because, as much as
practicable, each Unit will continue to represent a fractional undivided
interest in the same percentages of Securities of the same issuers) and changes
in the expenses of the Fund.
There is no assurance that any dividends will be declared or paid in the
future on the Securities in the Fund.
5
<PAGE>
Record Days and Distribution Days are set forth under Investment Summary.
Dividend income per Unit received by the Fund and available for distribution and
the distributable balance in the Capital Account per Unit (other than capital
gains) as of any particular Record Day will be distributed on or shortly after
the related Distribution Day to the Holders of record on that Record Day,
provided that no distribution from the Capital Account is required unless the
distributable balance therein (excluding capital gains) is at least the minimum
amount set forth under Investment Summary (see Administration of the
Fund--Accounts and Distributions). Normally, dividends on the Securities in the
Fund are paid on a quarterly basis which may or may not coincide with a Record
Day. Therefore, to the extent dividends are paid, it may take up to two months
after the Initial Date of Deposit for the Trustee to receive sufficient
dividends on the Securities to be able to begin distributions to Holders.
Net capital gain income (i.e., the excess of capital gains over capital
losses) recognized by the Fund in any taxable year will generally be distributed
to Holders shortly after the end of the year. In order to meet certain tax
requirements the record date for this distribution may be in December.
The Fund can be a simple and cost-effective way to invest in selected
REITs. The initial portion of the sales charge is reduced on purchases of
$250,000 or more (see Public Sale of Units--Public Offering Price). With no
management fees, the Fund's estimated annual operating expenses are less than
for most comparable managed funds, which can increase income to investors.
FUND PERFORMANCE
Information on the performance of the Fund for various periods, on the
basis of changes in Unit price plus the amount of dividends and capital gains
reinvested, may be included from time to time in advertisements, sales
literature, reports and other information furnished to current or prospective
Holders. Total return figures are not averaged, and may not reflect deduction of
the sales charge, which would decrease the return. Average annualized return
figures reflect deduction of the maximum sales charge. No provision is made for
any income taxes payable.
Past performance may not be indicative of future results. The Fund is not
actively managed. Unit price and return fluctuate with the value of the common
stocks in the portfolio, so there may be a gain or loss when Units are sold.
Fund performance may be compared to performance on the same basis (with
distributions reinvested) of the Dow Jones Industrial Average, the S&P 500 Stock
Price Composite Index, the S&P MidCap 400 Index, or performance data from
publications such as Lipper Analytical Services, Inc., Morningstar Publications,
Inc., Money Magazine, The New York Times, U.S. News and World Report, Barron's,
Business Week, CDA Investment Technology, Inc., Forbes Magazine or Fortune
Magazine. As with other performance data, performance comparisons should not be
considered representative of the Fund's relative performance for any future
period.
TAXES
TAXATION OF THE FUND
The Fund intends to qualify for and elect the special tax treatment
applicable to 'regulated investment companies' under Sections 851-855 of the
United States Internal Revenue Code of 1986, as amended (the 'Code').
Qualification and election as a 'regulated investment company' involve no
supervision of investment policy or management by any government agency. If the
Fund qualifies as a 'regulated investment company' and distributes to Holders
90% or more of its taxable income without regard to its net capital gain (net
capital gain is defined as the excess of net long-term capital gain over net
short-term capital loss), it will not be subject to Federal income tax on any
portion of its taxable income (including any net capital gain) distributed to
Holders in a timely manner. In addition, the Fund will not be subject to the 4%
excise tax on certain undistributed income of 'regulated investment companies'
to the extent it distributes to Holders in a timely manner at least 98% of its
taxable income (including any net capital gain). It is anticipated that the Fund
will not be subject to Federal income tax or the excise tax because the
Indenture requires the distribution of the Fund's taxable income (including any
net capital gain) in a timely manner. Although all or a portion of the Fund's
taxable income (including any net capital gain) for a taxable year may be
distributed shortly after the end of the calendar year, such a distribution will
be treated for Federal income tax purposes as having been received by Holders
during the calendar year.
6
<PAGE>
DISTRIBUTIONS
Distributions to Holders of the Fund's dividend income and net short-term
capital gain in any year will be taxable as ordinary income to Holders to the
extent of the Fund's taxable income (without regard to its net capital gain) for
that year. Any excess will be treated as a return of capital and will reduce the
Holder's basis in his Units and, to the extent that such distributions exceed
his basis, will be treated as a gain from the sale of his Units as discussed
below. It is likely that some portion of the Fund's distributions will be
treated as a return of capital.
Distribution of the Fund's net capital gain (designated as capital gain
dividends by the Fund) will be taxable to Holders as long-term capital gain,
regardless of the length of time the Units have been held by a Holder. A Holder
may recognize a taxable gain or loss if the Holder sells or redeems his Units.
Any gain or loss arising from (or treated as arising from) the sale or
redemption of Units will be a capital gain or loss, except in the case of a
dealer in securities. Capital gains are generally taxed at the same rate as
ordinary income, however, the excess of net long-term capital gains over net
short-term capital losses may be taxed at a lower rate than ordinary income for
certain noncorporate taxpayers. A capital gain or loss is long-term if the asset
is held for more than one year and short-term if held for one year or less. The
deduction of capital losses is subject to limitations.
A distribution of Securities to a Holder upon redemption of his Units will
be a taxable event to such Holder, and that Holder will recognize taxable gain
or loss upon such distribution (equal to the difference between such Holder's
tax basis in his Units and the fair market value of Securities received in
redemption), which will be capital gain or loss except in the case of a dealer
in securities. Holders are urged to consult their own tax advisers as to the tax
consequences to them of exchanging units in particular cases.
Distributions that are taxable as ordinary income to Holders will
constitute dividends for Federal income tax purposes but will not be eligible
for the dividends-received deduction for corporations.
The Holder's basis in his Units will be equal to the cost of his Units,
including the initial sales charge. When the Fund pays the deferred sales charge
on behalf of a Holder, the Holder will be treated as if the Fund had actually
distributed to the Holder the amount of the deferred sales charge and as if the
Holder had paid such charge directly. A portion of the deferred sales charge
deemed paid by the Holder may be treated as interest, which would be deductible
by a Holder subject to limitations on the deduction of investment interest.
Those Holders who hold Units on the Deferred Charge Payment Date should increase
their tax basis in their Units by the amount of the deferred sales charge not
treated as interest. Holders should consult their tax advisors as to the income
tax consequences of the deferred sales charge.
Holders will be taxed in the manner described above regardless of whether
distributions from the Fund are actually received by the Holder or are
reinvested pursuant to the Reinvestment Plan.
The Federal tax status of each year's distributions will be reported to
Holders and to the Internal Revenue Service. The Fund intends to report to each
Holder in mid-January the amount of Distributions to that Holder. However, the
Fund does not expect to receive information from the REITs as to the tax status
of those Distributions until early February, at which time it will promptly
report that information to Holders. The foregoing discussion relates only to the
Federal income tax status of the Fund and to the tax treatment of distributions
by the Fund to U.S. Holders. Distributions may also be subject to state and
local taxation and Holders should consult their own tax advisers in this regard.
FOREIGN HOLDERS
A 'Foreign Holder' is a person or entity that, for U.S. Federal income tax
purposes, is a non-resident alien individual, a foreign corporation, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust. If a
distribution of the Fund's taxable income (without regard to its net capital
gain) to a Foreign Holder is not effectively connected with a U.S. trade or
business carried on by the investor, such distribution will be subject to
withholding tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. In addition, distributions from the Fund will
generally be subject to information reporting.
If at least 50% of the value of the Fund is represented by shares of REITs
that are 'domestically controlled' within the meaning of Section 897(h) of the
Code, or is represented by shares of classes of REIT stock that (i) represent
not more than 5% of such classes and (ii) are 'regularly traded on an
established securities market' within the meaning of Section 897(c)(3) of the
Code, a Foreign Holder should not be subject to withholding tax under the
Foreign Investment in Real Property Tax Act ('FIRPTA') with respect to gain
arising from the sale or redemption of Units. In addition, based upon advice of
counsel as to existing law, the Trustee does not intend to withhold under FIRPTA
on distributions of the Fund's net capital gain (designated as capital gain by
the Fund). Such income generally will not be subject to Federal income tax
unless the income is effectively connected with a
7
<PAGE>
trade or business of such Holder in the United States. In the case of a Foreign
Holder who is a non-resident alien individual, however, gain arising from the
sale or redemption of Units or distributions of the Fund's net capital gain
ordinarily will be subject to Federal income tax at a rate of 30% if such
individual is physically present in the U.S. for 183 days or more during the
taxable year and, in the case of the gain arising from the sale or redemption of
Units, either the gain is attributable to an office or other fixed place of
business maintained by the Holder in the United States or the Holder has a 'tax
home' in the United States. In addition, a Unit held by an individual who is not
a citizen or resident of the United States at the time of his death will
generally be subject to United States federal estate tax.
The tax consequences to a Foreign Holder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
Holders should consult their own tax advisers to determine whether investment in
the Fund is appropriate.
RETIREMENT PLANS
This Series of Equity Income Fund may be well suited for purchase by
Individual Retirement Accounts ('IRAs'), Keogh plans, pension funds and other
qualified retirement plans, certain of which are briefly described below.
Generally, capital gains and income received in each of the foregoing plans are
exempt from Federal taxation. All distributions from such plans are generally
treated as ordinary income but may, in some cases, be eligible for special 5 or
10 year averaging or tax-deferred rollover treatment. Holders of Units in IRAs,
Keogh plans and other tax-deferred retirement plans should consult their plan
custodian as to the appropriate disposition of distributions. Investors
considering participation in any such plan should review specific tax laws
related thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan. Such plans are offered by
brokerage firms, including each of the Sponsors of this Fund, and other
financial institutions. Fees and charges with respect to such plans may vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units of the Fund may
be purchased by retirement plans established pursuant to Self-Employed
Individuals Tax Retirement Act of 1962 ('Keogh plans') for self-employed
individuals, partnerships or unincorporated companies. Qualified individuals may
generally make annual tax-deductible contributions up to the lesser of 20% of
annual compensation or $30,000 to Keogh plans. The assets of the plan must be
held in a qualified trust or other arrangement which meets the requirements of
the Code. Generally, there are penalties for premature distributions from a plan
before attainment of age 59, except in the case of a participant's death or
disability and certain other related circumstances. Keogh plan participants may
also establish separate IRAs (see below) to which they may contribute up to an
additional $2,000 per year ($2,250 in a spousal account).
Individual Retirement Account--IRA. Any individual (including one covered
by a qualified private or government retirement plan) can establish an IRA or
make use of a qualified IRA arrangement set up by an employer or union for the
purchase of Units of the Fund. Any individual can make a contribution to an IRA
equal to the lesser of $2,000 ($2,250 in a spousal account) or 100% of earned
income; such investment must be made in cash. However, the deductible amount an
individual may contribute will be reduced if the individual's adjusted gross
income exceeds $25,000 (in the case of a single individual), $40,000 (in the
case of married individuals filing a joint return) or $200 (in the case of a
married individual filing a separate return). A married individual filing a
separate return will not be entitled to any deduction if the individual is
covered by an employer-maintained retirement plan, without regard to whether the
individual's spouse is an active participant in an employer retirement plan.
Unless nondeductible contributions were made in 1987 or a later year, all
distributions from an IRA will be treated as ordinary income but generally are
eligible for tax-deferred rollover treatment. It should be noted that certain
transactions which are prohibited under Section 408 of the Code will cause all
or a portion of the amount in an IRA to be deemed to be distributed and subject
to tax at that time. A participant's entire interest in an IRA must be, or
commence to be, distributed to the participant not later than the April 1
following the taxable year during which the participant attains age 70-1/2.
Taxable distributions made before attainment of age 59-1/2, except in the case
of a participant's death or disability, or where the amount distributed is part
of a series of substantially equal periodic (at least annual) payments that are
to be made over the life expectancies of the participant and his or her
beneficiary, are generally subject to a surtax in an amount equal to 10% of the
distribution.
Corporate Pension and Profit-Sharing Plans. An employer who has established
a pension or profit-sharing plan for employees may purchase Units of the fund
for such a plan.
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<PAGE>
PUBLIC SALE OF UNITS
PUBLIC OFFERING PRICE
The Public Offering Price of the Units is computed by dividing the
aggregate value of the Securities (as determined by the Trustee), by the number
of Units outstanding and adding to the quotient the sales charge at the
applicable percentage of the aggregate value per Unit (the net amount invested).
A proportionate share of any cash held by the Fund in the Capital Account not
allocated to the purchase of specific Securities and net income in the Income
Account (described under Administration of the Fund--Accounts and Distributions)
on the date of delivery of the Units to the purchaser is added to the Public
Offering Price. The Public Offering Price on the date of this Prospectus or on
any subsequent date will vary from the Public Offering Price on the business day
prior to the date of this Prospectus (set forth under Investment Summary) in
accordance with fluctuations in the aggregate value of the underlying
Securities.
The sales charge consists of an initial portion and a deferred portion, the
total of which may equal a maximum of approximately 5.35% of the Public Offering
Price or 5.501% of the net asset value of the Fund over its expected four-year
life. The initial portion of the sales charge is equal to 2.75% of the Public
Offering Price (2.828%) of the net amount invested in the Securities) and the
deferred portion of the sales charge is $1.625 per 1,000 Units ($6.50 per year)
payable by the Fund on behalf of the Holders out of net asset value of the Fund
on each quarterly Deferred Charge Payment Date until the Fund terminates. If a
Holder sells or redeems Units before a Deferred Charge Payment Date, all future
deductions of deferred sales charges with respect to such Holder will be waived;
this will have the effect of reducing the rate of sales charge as to such
Holder.
The initial portion of the sales charge is reduced on a graduated scale for
sales to any purchaser of at least $250,000 of Units and will be applied on
whichever basis is more favorable to the purchaser. To qualify for the reduced
initial sales charge and concession applicable to quantity purchasers, 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. The initial portion
of the sales charge will be reduced as follows:
<TABLE><CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
---------------------------------
AS PERCENT OF AS PERCENT OF MAXIMUM DEALER CONCESSION
PUBLIC OFFERING NET AMOUNT DOLLAR AMOUNT DEFERRED AS PERCENT OF
AMOUNT PURCHASED PRICE INVESTED PER 1,000 UNITS PUBLIC OFFERING PRICE
----------------- -------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
Less than $250,000................ 2.75% 2.828% $ 26.00 1.788%
$250,000 - $499,999............... 2.25 2.302 26.00 1.463
$500,000 - $749,999............... 1.75 1.781 26.00 1.138
$750,000 - $999,999............... 1.25 1.266 26.00 0.813
$1,000,000 and more............... 1.00 1.010 26.00 0.650
<CAPTION>
CONCESSION TO
INTRODUCING
AMOUNT PURCHASED DEALERS
--------------
<S> <C>
Less than $250,000................ $ 19.80
$250,000 - $499,999............... 16.20
$500,000 - $749,999............... 12.60
$750,000 - $999,999............... 9.00
$1,000,000 and more............... 7.20
</TABLE>
The above graduated sales charges will apply on all purchases on any one
day by the same purchaser of Units in this Fund only in the amounts stated. For
this purpose purchases during the primary 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 pursuant
to employee benefit plans at a price equal to the aggregate value of the
Securities in the Fund divided by the number of Units outstanding plus a reduced
initial sales charge of not less than $5.00 per 1,000 Units.
The value of the Securities is determined on each business day by the
Trustee based on the closing sale prices at the Evaluation Time on the day the
evaluation is made or, if there are no reported sales or if closing sale prices
are not reported or a Security is not listed on a national securities exchange
or if the principal market therefor becomes other than on an exchange, taking
into account the same factors referred to under Redemption-- Computation of
Redemption Price per Unit (Section 4.01). The term 'business day', as used
herein and under 'Redemption', shall exclude Saturdays, Sundays and the
following holidays as observed by the New York Stock Exchange, Inc.: New Year's
Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
9
<PAGE>
PUBLIC DISTRIBUTION
During the primary offering period and thereafter to the extent additional
Units continue to be offered for sale to the public by means of this Prospectus,
Units will be distributed directly to the public by this Prospectus at the
Public Offering Price determined in the manner provided above. 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.
UNDERWRITERS' AND SPONSORS' PROFITS
The Underwriters named under Underwriting Account, including the Sponsors,
may receive maximum aggregate sales charges (initial and deferred) per 1,000
Units equal to approximately 5.35% of the Public Offering Price (5.501% of the
net amount invested). The initial portion of the sales charge is equal to $27.50
per 1,000 Units payable upon the sale of the Units. The deferred sales charge
will be $1.625 per 1,000 Units payable on each quarterly Deferred Charge Payment
Date (set forth under Investment Summary). The Sponsors also realized a profit
or loss on deposit of the Securities in the Fund in the amount set forth under
Investment Summary. This profit or loss is the difference between the cost of
the Securities to the Fund (which is based on the aggregate value of the
Securities on the Initial Date of Deposit) and the purchase price of the
Securities to the Sponsors plus commissions payable by the Sponsors. 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. In addition, any Sponsor
or Underwriter may realize profits or sustain losses in respect of Securities
deposited in the Fund which were acquired by the Sponsor or Underwriter from
underwriting syndicates of which the Sponsor or Underwriter was a member. During
the primary offering period and thereafter to the extent additional Units
continue to be offered for sale to the public, the Underwriting Account also may
realize profits or sustain losses as a result of fluctuations after the Initial
Date of Deposit in the aggregate value of the Securities and hence in the Public
Offering Price of the Units (see Investment Summary). Cash, if any, made
available by buyers of Units to the Sponsors prior to the settlement date for
purchase of Units may be used in the Sponsors' businesses subject to the
limitations of Rule 15c3-3 under the Securities Exchange Act of 1934 and may be
of benefit to the Sponsors.
Except as indicated under Portfolio, the Sponsors have not participated as
sole underwriter or manager or member of underwriting syndicates from which
syndicates the Securities in the Portfolio were acquired.
In maintaining a market for the Units (see Market for Units), the Sponsors
will also realize profits or sustain losses in the amount of any difference
between the prices at which they buy Units (based on the aggregate value of the
Securities) and the prices at which they resell these Units (which includes the
sales charge) or the prices at which they redeem the Units (based on the
aggregate value of the Securities), as the case may be.
MARKET FOR UNITS
While the Sponsors are not obligated to do so, they intend to maintain a
secondary market for Units of this Series and continuously to offer to purchase
Units of this Series at prices, subject to change at any time, which will be
computed on the basis of the aggregate value of the Securities, taking into
account the same factors referred to in determining the Redemption Price per
Unit (see Redemption). The Sponsors may discontinue purchases of Units of this
Series at prices based on the aggregate value of the Securities should the
supply of Units exceed demand or for other business reasons. The Sponsors, of
course, do not in any way guarantee the enforceability, marketability or price
of any Securities in the Portfolio or of the Units. However, the Sponsors will
not repurchase Units in the secondary market at a price below the aggregate
value of the Securities in the Fund. During the primary public offering period
or thereafter, on a given day the price offered by the Sponsors for the purchase
of Units shall be an amount not less than the Redemption Price per Unit, based
on the aggregate value of Securities in the Fund on the date on which the Units
are tendered for redemption (see Redemption).
The Sponsors may redeem any Units they have purchased in the secondary
market if they determine that it is undesirable to continue to hold these Units
in their 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.
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<PAGE>
A Holder who wishes to dispose of his Units should inquire of his bank or
broker as to current market prices in order to determine if there exist
over-the-counter prices in excess of the redemption price and the repurchase
price (see Redemption).
REDEMPTION
While it is anticipated that Units in most cases can be sold in the
over-the-counter market for an amount at least equal to the Redemption Price per
Unit (see Market for Units), Units may be redeemed at the office of the Trustee
set forth on the back cover of this Prospectus, upon 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 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 day of tender. The Trustee is authorized in its discretion, if the Sponsors
do not elect to repurchase any Units tendered for redemption or if the Sponsors
tender Units for redemption, to sell the Units in the over-the-counter market at
prices which will return to the Holder a net amount in cash equal to or in
excess of the Redemption Price per Unit for the Units (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 in order
to maintain, to the extent practicable, the proportionate relationship among the
number of shares of each Stock. Provision is made in the Indenture under which
the Sponsors may, but need not, specify minimum amounts in which blocks of
Securities are to be sold in order to obtain the best price for the Fund. While
these minimum amounts may vary from time to time in accordance with market
conditions, the Sponsors believe that the minimum amounts which would be
specified would be approximately 100 shares for readily marketable Securities.
Holders tendering Units for redemption may request distribution in kind
from the Trustee in lieu of cash redemption. A Holder may request distribution
in kind of an amount and value of Securities per Unit equal to the Redemption
Price per Unit as determined as of the Evaluation Time next following the
tender, provided that the tendering Holder is entitled to receive at least 100
shares of each Security in the Portfolio as part of his distribution and the
Holder has elected to redeem prior to the date specified under Investment
Summary-- Redemption In Kind. If the Holder can receive this requisite number of
shares, the distribution in kind on redemption of Units will be held by a
distribution agent (the 'Distribution Agent') for the account of, and for
disposition in accordance with the instructions of, the tendering Holder. The
tendering Holder shall be entitled to receive whole shares of each of the
Securities comprising the Portfolio and cash from the Capital Account equal to
the fractional shares to which the tendering Holder is entitled. Any brokerage
commissions on sales of the underlying Securities distributed in connection with
in kind redemptions will be borne by the tendering Holder. In implementing these
redemption procedures, the Trustee and Distribution Agent shall make any
adjustments necessary to reflect differences between the Redemption Price of the
Units and the value of the Securities distributed in kind as of the date of
tender. If funds in the Capital Account are insufficient to cover the required
cash distribution to the tendering Holder, the Trustee may sell Securities
according to the criteria discussed above. The in kind redemption option may be
terminated by the Sponsors on a date other than that specified under Redemption
In Kind upon notice to the Holders prior to the specified date.
To the extent that Securities are redeemed in kind or sold, the size and
diversity of the Fund will be reduced but each remaining Unit will continue to
represent approximately the same proportional interest in each Security. Sales
will usually be required at a time when Securities would not otherwise be sold
and may result in lower prices than might otherwise be realized. 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. In addition, because of the minimum amounts in which Securities are
required to be sold, the proceeds of sale may exceed the
11
<PAGE>
amount required at the time to redeem Units; these excess proceeds will be
distributed to Holders unless reinvested in Additional Securities (see
Administration of the Fund--Accounts and Distributions).
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange, Inc. is closed other than for
customary weekend and holiday closings or (2) for any period during which, as
determined by the Securities and Exchange Commission ('SEC'), (i) trading on
that Exchange is restricted or (ii) an emergency exists as a result of which
disposal or evaluation of the Securities is not reasonably practicable, or (3)
for any other periods which the SEC may by order permit (Section 5.02).
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit is computed by the Trustee, as of the Evaluation
Time, on each June 30 and December 31 (or the last business day prior thereto),
on any day on which the New York Stock Exchange is open as of the Evaluation
Time next following the tender of any Unit for redemption, and on any other
business day desired by the Trustee or the Sponsors, by adding (a) the aggregate
value of the Securities as determined by the Trustee and (b) cash on hand in the
Fund (other than cash covering contracts to purchase Securities) including
dividends receivable on stocks trading ex-dividend and deducting therefrom the
sum of (x) taxes or other governmental charges against the Fund not previously
deducted, (y) accrued fees and expenses of the Trustee (including legal and
auditing expenses), the Sponsors and counsel, and certain other expenses and (z)
cash held for distribution to Holders of record as of a date prior to the
evaluation; and dividing the result by the number of Units outstanding as of the
date of computation (Section 5.01).
The aggregate value of the Securities is determined in good faith by the
Trustee in the following manner: if the Securities are listed on a national
securities exchange or the NASDAQ national market system this evaluation is
generally based on the closing sale prices on that exchange or that system
(unless the Trustee deems these prices inappropriate as a basis for valuation)
or, if there is no closing sale price on that exchange or system, at the mean
between the closing bid and asked prices. If the Securities are not so listed
or, if so listed and the principal market therefor is other than on the
exchange, the evaluation shall generally be based on the current bid price on
the over-the-counter market (unless the Trustee deems these prices inappropriate
as a basis for evaluation). If current bid prices are unavailable, the
evaluation is generally determined (a) on the basis of current bid prices for
comparable securities, (b) by appraising the value of the Securities on the bid
side of the market or (c) by any combination of the above.
TERMINATION
On the date specified under Liquidation Period under Investment Summary the
Trustee may begin to sell all of the underlying Securities on behalf of Holders
in connection with the termination of the Fund. The Agent for the Sponsors has
agreed to perform these sales for the Trustee. The sale proceeds will be net of
any incidental expenses involved in the sales. At this time the Sponsors may
offer to Holders the option of having their Units redeemed in kind and the
distributed Securities sold by the Distribution Agent; the proceeds would then
be invested in units of a new Series of the Fund, if one is being offered, at a
reduced sales charge. The Sponsors are under no obligation to create a new
Series of the Fund, however, or to offer Holders this kind of redemption and
reinvestment option.
Securities will be sold as quickly as possible during the Liquidation
Period without in the judgment of the Agent for the Sponsors materially
adversely affecting the market price of the Securities, but it is expected that
all of the Securities will in any event be disposed of by the end of the
Liquidation Period. It is not expected that the period will be longer than one
month, and it could be as short as one day, depending on the liquidity of the
Securities being sold. The liquidity of any Security depends on the daily
trading volume of the Security and the amount available for sale on any
particular day.
It is expected (but not required) that the following guidelines will
generally be followed in selling the Securities: highly liquid Securities will
generally be sold on the first day of the Liquidation Period; for less liquid
Securities, on each of the first two days of the Liquidation Period, any amount
of any underlying Securities will generally be sold at a price no less than one
point under the last closing sale price of those Securities. Thereafter, the
price limit will increase to one point under the last closing sale price. After
four days, it is currently intended that at least a fraction of the remaining
underlying Securities will be sold, the numerator of which is one and the
denominator of which is the total number of days remaining (including that day)
in the Liquidation Period without any price restrictions. Of course, no
assurances can be given that the market value of the Securities will not be
adversely affected during the Liquidation Period.
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The Fund might reduce to the Minimum Value of Fund listed on p A-3 because
of the lesser number of Units in the Fund, and possibly also due to a value
reduction, however temporary, in Units caused by Merrill Lynch's sales of
Securities (see Investment Summary--Termination); if so, the Sponsors could then
choose to liquidate the Fund without the consent of the remaining Holders (see
Fund Structure).
The Indenture will terminate upon the sale, or other disposition of the
last Security held thereunder but in no event is it to continue beyond the
mandatory termination date set forth under Investment Summary. The Indenture may
be terminated by the Sponsors if the value of the Fund is less than the minimum
value set forth under Investment Summary, and may be terminated at any time by
Holders of 51% of the Units (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.
EXPENSES AND CHARGES
INITIAL EXPENSES
The fee to be paid to the REIT Consultant, Cohen & Steers, in connection
with the use of its research in the selection of the initial REITs for the Fund,
will be paid from the Underwriting Account at no charge to the Fund. In
addition, all other expenses incurred in establishing the Fund, including the
cost of the initial preparation and printing of documents relating to the Fund,
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
An estimate of the total annual expenses of the Fund is set forth under
Investment Summary. The annual fee to be paid by the Fund to the REIT Consultant
for performing ongoing research on the REITs in the Fund and the REIT industry
generally shall be the amount set forth under Investment Summary, based on the
number of Units outstanding on each date of payment. The Annual Portfolio
Supervision Fee is based on the number of Units in the Fund on the Initial Date
of Deposit and on the first business day of each calendar year thereafter,
except that if in any calendar year Additional Securities are deposited, the fee
for the balance of the year will be based on the number of Units on each Record
Day. (Section 3.04). 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 they receive for portfolio supervisory services rendered to all series of
Defined Asset Funds--Equity Income Fund in any calendar year exceed the
aggregate cost to them of supplying these services in that year (Section 7.06).
In addition, the Sponsors may also be reimbursed for bookkeeping or other
administrative services provided to the Fund in amounts not exceeding their
costs of providing these services (Sections 3.04 and 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 1,000 Units set forth under Investment Summary as
Trustee's Annual Fee and Expenses, which includes the estimated Annual Portfolio
Supervision Fee, estimated reimbursable bookkeeping or other administrative
expenses paid to the Sponsors and certain auditing, printing and mailing
expenses. (Section 3.17). Expenses in excess of the amount so included will be
borne by the Fund. The Trustee also receives benefits to the extent that it
holds funds on deposit in the various non-interest bearing accounts created
under the Indenture. The foregoing fees may be adjusted for inflation in
accordance with the terms of the Indenture without approval of Holders (Sections
4.02, 7.06 and 8.05). That portion of the Annual REIT Consultant's Fee to be
paid by Holders is $1.50 per 1,000 Units payable in quarterly installments.
OTHER CHARGES
Other charges which may be incurred by the Fund include: (a) fees of the
Trustee for extraordinary services (Section 8.05), (b) certain extraordinary
expenses of the Trustee (including legal and auditing expenses) and of counsel
designated by the Sponsors (Sections 3.04, 3.10, 8.01(e), 8.03 and 8.05), (c)
various governmental charges (Sections 3.03 and 8.01 (h)), (d) expenses and
costs of action taken to protect the Fund and the rights and interests of
Holders (Sections 7.06 and 8.01(d)), (e) indemnification of the Trustee for any
losses, liabilities and expenses
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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 or wilful misconduct
(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).
ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps a register of the names, addresses and holdings of all
Holders. The Trustee also keeps records of transactions of the Fund, including a
current list of the Securities and a copy of the Indenture, which records are
available to Holders for inspection at the office of the Trustee at reasonable
times during business hours (Sections 8.02 and 8.04).
ACCOUNTS AND DISTRIBUTIONS
Dividends payable to the Fund are credited by the Trustee to an Income
Account, as of the date on which the Fund is entitled to receive the dividends
as a Holder of record of the Securities. Other receipts, including amounts
received upon the sale of rights pursuant to Section 3.08 of the Indenture, are
credited to a Capital Account (Sections 3.01 and 3.02). Subject to the
Reinvestment Plan described below, the Monthly Income Distribution for each
Holder as of each Record Day will be made on the following Distribution Day or
shortly thereafter and shall consist of an amount, computed monthly by the
Trustee, substantially equal to one-twelfth of the Holder's pro rata share of
the estimated annual income to the Income Account, after deducting estimated
expenses. There is no assurance that actual distributions will be made since all
dividends received may be used to pay expenses.
An amount equal to any capital gain net income (i.e., the excess of capital
gains over capital losses) recognized by the Fund in any taxable year will be
distributed to Holders shortly after the end of the year. In order to meet
certain tax requirements the Fund may make a special distribution of income,
including capital gains, to Holders of record as of a date in December. Proceeds
received from the disposition of any of the Securities which are not used to
make the distribution of capital gain net income, for redemption of Units or
reinvested in substitute Securities will be held in the Capital Account to be
distributed on the next succeeding Distribution Day. The first distribution for
persons who purchase Units between a Record Day and a Distribution Day will be
made on the second Distribution Day following their purchase of Units. No
distribution need be made from the Capital Account, other than distributions of
capital gains, if the balance therein is less than the amount set forth under
Investment Summary--Capital Distributions (Section 3.04). A Reserve Account may
be created by the Trustee by withdrawing from the Income or Capital Accounts,
from time to time, those amounts as it deems requisite to establish a reserve
for any taxes or other governmental charges that may be payable out of the Fund
(Section 3.03). Funds held by the Trustee in the various accounts created under
the Indenture do not bear interest (Section 8.01).
REINVESTMENT PLAN
Monthly income distributions, annual distributions of any net capital gain
net income (i.e. the excess of capital gains over capital losses) and other
capital distributions in respect of the Units may be reinvested by participating
in the Fund's reinvestment plan (the 'Reinvestment Plan'). Reinvesting helps to
compound your income. A Holder (including any Holder which is a broker or
nominee of a bank or other financial institution) may indicate to the Trustee,
by filing the written notice of election accompanying this Prospectus or by
notice to the Holder's account executive or sales representative, that he wishes
such distributions to be automatically invested in additional Units (or
fractions thereof) of the Fund. The Holder's completed notice of election to
participate in the Reinvestment Plan must be received by the Trustee at least
ten days prior to the Record Date applicable to any distribution in order for
the Reinvestment Plan to be in effect as to such distribution and will remain
effective until notice to the contrary is timely received by the Trustee.
Holders who elect to reinvest their distributions will receive additional Units
and therefore will increase their proportionate ownership of the Fund relative
to the proportionate ownership of those Holders who receive their distributions
in cash. Any such election will not reduce the income per Unit distributed to
Holders. Elections may be modified or revoked on similar notice.
Reinvestment Plan distributions may be reinvested in Units already held in
inventory by the Sponsors (see Market for Units) or, until such time as
additional Units cease to be issued by the Fund (see Description of the
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Fund--Structure), distributions may be reinvested in such additional Units. If
Units are unavailable in the secondary market, distributions which would
otherwise have been reinvested shall be paid to the Holder on the applicable
Distribution Day.
Purchases made pursuant to the Reinvestment Plan will be made without
initial sales charge at the net asset value for Units of the Fund (but will be
subject to subsequently deducted deferred sales charges). Under the Reinvestment
Plan, the Fund will pay the distributions to the Trustee which in turn will
purchase for the Holder full and fractional Units of the Fund at the price
determined as of the close of business on the Distribution Day and will add the
Units to the Holder's account and send the Holder an account statement
reflecting the reinvestment.
The Trustee will issue Certificates for whole units purchased through the
Reinvestment Plan only if the Holder so requests. Certificates will not be
issued for fractional units. The Trustee will credit each Holder's account with
the number of units purchased with such Holder's reinvested distribution. Each
Holder receives account statements at least annually or after each Reinvestment
Plan transaction to provide the Holder with a record of the total number of
units in his account. This relieves the Holder of responsibility for safekeeping
of Certificates and, should he sell his units, eliminates the need to deliver
certificates. The Holder may at any time request the Trustee (at the Fund's
cost) to issue Certificates for full Units. The cost of administering the
Reinvestment Plan will be borne by the Fund and thus indirectly by all Holders.
The Sponsors may at any time cease to offer the Reinvestment Plan. After
that time, all Holders of the Fund, including those who participate in the
Reinvestment Plan, will receive all Monthly Distributions in cash unless the
Sponsors provide another reinvestment alternative at this time.
Holders of Units in IRA's, Keogh plans, and other tax-deferred retirement
plans should consult with their plan custodian as to the appropriate disposition
of distributions (see Taxes--Retirement Plans).
PORTFOLIO SUPERVISION
The Fund is a unit investment trust which normally follows a buy and hold
investment strategy and is not actively managed. However, the Portfolio is
regularly reviewed. 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. In the event a public tender offer is made
for a Security or a merger or acquisition is announced affecting a Security,
Merrill Lynch, as agent for the Sponsors, may instruct the Trustee to tender or
sell the Security on the open market when in its opinion it is in the best
interest of the Holders of the Units to do so. The proceeds realized from the
tender or sale of any Security will be distributed to Holders unless reinvested
in Replacement Securities in accordance with provisions of the Indenture. The
Sponsors may also direct the disposition of Securities upon default in payment
of amounts due on any of the Securities, institution of certain legal
proceedings, default under certain documents materially and adversely affecting
future declaration or payment of amounts due, or decline in price or the
occurrence of other market or credit factors that in the opinion of the Sponsors
would make the retention of these Securities detrimental to the interest of the
Holders, or if the disposition of these Securities is necessary in order to
enable the Fund to make distributions of the Fund's capital gain net income or
desirable in order to maintain the qualification of the Fund as a regulated
investment company under the Code (Section 3.08). If a default in the payment of
amounts due on any Security occurs and if the Sponsors fail to give instructions
to sell or hold that Security, the Indenture provides that the Trustee, within
30 days of that failure by the Sponsors, may sell the Security (Section 3.12).
The Sponsors are authorized to direct the reinvestment of the proceeds of
the sale of Securities, as well as moneys held to cover the purchase of
Securities pursuant to contracts which have failed, in Additional Securities or
in Replacement Securities which satisfy certain conditions specified in the
Indenture including, among other conditions, requirements that the Replacement
Securities shall be selected by the Sponsors from a list of securities
maintained by them and updated from time to time and shall be publicly traded
REITs having, in the opinion of the Sponsors, characteristics sufficiently
similar to the characteristics of the other Securities in the Fund as to be
acceptable for acquisition by the Fund. The Securities on the current list
maintained by the Sponsors and updated from time to time from which Replacement
Securities are to be selected are set forth under Investment Summary. Whenever a
Security has been eliminated by the Fund, the Trustee shall, within five days
thereafter, notify all Holders of the sale of the Security eliminated and the
acquisition of the Replacement Security. If Replacement Securities are not
acquired with respect to a Failed Security, the Sponsors will, on or before the
next following
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Distribution Day, cause to be refunded the attributable sales charge, plus the
attributable Cost of Securities to Fund listed under Portfolio, plus income
attributable to the Failed Security.
The Indenture also requires that the purchase of the Replacement Securities
will not (i) disqualify the Fund as a regulated investment company under the
Code, (ii) result in more than 10% of the Fund consisting of securities of a
single issuer (or of two or more issuers which are Affiliated Persons as this
term is defined in the Investment Company Act of 1940) which are not registered
and are not being registered under the Securities Act of 1933 or (iii) result in
the Fund owning more than 50% of any single issue which has been registered
under the Securities Act of 1933 (Section 3.06).
The Indenture also authorizes the Sponsors to increase the size and number
of Units of the Fund by the deposit of Additional Securities, contracts to
purchase Additional Securities or cash or a letter of credit with instructions
to purchase Additional Securities in exchange for the corresponding number of
additional Units subsequent to the Initial Date of Deposit, provided that the
original proportionate relationship among the number of shares of each Security
established on the Initial Date of Deposit (the 'Original Proportionate
Relationship') is maintained to the extent practicable.
With respect to deposits of Additional Securities (or cash or a letter of
credit with instructions to purchase Additional Securities), in connection with
creating additional Units of the Fund, the Sponsors may specify the minimum
numbers in which Additional Securities will be deposited or purchased. If a
deposit is not sufficient to acquire minimum amounts of each Security,
Additional Securities may be acquired in the order of the Security most
under-represented immediately before the deposit when compared to the Original
Proportionate Relationship. If Securities of an issue originally deposited are
unavailable at the time of subsequent deposit, or cannot be purchased at
reasonable prices or their purchase is prohibited or restricted by law,
regulation or policies applicable to the Fund or any of the Sponsors, the
Sponsors may (1) deposit cash or a letter of credit with instructions to
purchase the Security when practicable, or (2) deposit (or instruct the Trustee
to purchase) either Securities of one or more other issues originally deposited
or a Replacement Security that satisfies the conditions for Replacement
Securities that are set forth above.
REPORTS TO HOLDERS
With each distribution, the Trustee will furnish Holders with a statement
of the amounts of income and the amounts of other receipts, if any, which are
being distributed, expressed in each case as a dollar amount per Unit. After the
end of each calendar year during which a Monthly Income Distribution was made
and following the termination of the Fund, the Trustee will furnish to each
person who at any time during the calendar year was a Holder of record, a
statement (i) summarizing transactions for that year in the Income and Capital
Accounts, (ii) identifying Securities sold and purchased during the year and
listing Securities held and the number of Units outstanding at the end of that
calendar year, (iii) stating the Redemption Price per Unit based upon the
computation thereof made at the end of that calendar year and (iv) specifying
the amounts distributed during that calendar year from the Income and Capital
Accounts (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)).
CERTIFICATES
Certain of the Sponsors may collect additional charges for registering and
shipping Certificates to purchasers. These Certificates are transferable or
interchangeable upon presentation at the office of the Trustee, with a payment
of $2.00 if required by the Trustee (or other amounts specified by the Trustee
and approved by the Sponsors) for each new Certificate and any sums payable for
taxes or other governmental charges imposed upon the transaction (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
The Sponsors and Trustee may amend the Indenture, without the consent of
the Holders, (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the SEC or any successor governmental agency, (c)
to add or change any provision as may be necessary or advisable for the
continuing qualification of the Fund as a regulated investment company under the
Code or (d) to make any other provisions which do not materially adversely
affect the interest of the Holders (as determined in good faith by the
Sponsors). The Indenture may also be amended in
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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).
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, gross negligence or reckless disregard of its obligations and duties. In
the event of the failure of the Sponsors to act, the Trustee may act under the
Indenture and shall not be liable for any of these actions taken in good faith.
The Trustee shall not be personally liable for any taxes or other governmental
charges imposed upon or in respect of the Securities or upon the interest
thereon. In addition, the Indenture contains other customary provisions limiting
the liability of the Trustee (Sections 8.01 and 8.05).
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 shall fail to perform
its duties or becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, then the Trustee may (a) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and as
may not exceed amounts prescribed by the SEC, or (b) terminate the Indenture and
liquidate the Fund or (c) continue to act as Trustee without terminating the
Indenture (Section 8.01(e)). The Agent for Sponsors has been appointed by the
other Sponsors as agent 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 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 Bankers Trust Company, a New York banking corporation with its
corporate trust office at 4 Albany Street, New York, New York 10015 (which is
subject to supervision by the New York Superintendent of Banks, the Federal
Deposit Insurance Corporation ('FDIC') and the Board of Governors of the Federal
Reserve System ('Federal Reserve')); The Chase Manhattan Bank, N.A., a national
banking association with its Unit Trust Department at
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1 Chase Manhattan Plaza-3B, New York, New York 10081 (which is subject to
supervision by the Comptroller of the Currency, the FDIC and the Federal
Reserve); or (acting as Co-Trustees) Investors Bank & Trust Company, a
Massachusetts trust company with its unit investment trust servicing group at
One Lincoln Plaza, Boston, Massachusetts 02111 (which is subject to supervision
by the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve)
and The First National Bank of Chicago, a national banking association with its
corporate trust office at One First National Plaza, Suite 0126, Chicago,
Illinois 60670-0126 (which is subject to supervision by the Comptroller of the
Currency, the FDIC and the Federal Reserve).
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. Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts
02110, act as counsel for The First National Bank of Chicago and Investors Bank
& Trust Company, as Co-Trustees. Hawkins, Delafield & Wood, 67 Wall Street, New
York, New York 10005, act as counsel for Bankers Trust Company, as Trustee.
AUDITORS
The Statement of Condition, including the Portfolio of the Fund, included
herein, has been audited by Deloitte & Touche, 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, Inc., a Delaware
corporation and subsidiary of Merrill Lynch & Co., Inc., the parent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, are engaged in the investment
advisory business. Smith Barney Inc., an investment banking and securities
broker-dealer firm, is an indirect wholly-owned subsidiary of The Travelers Inc.
PaineWebber Incorporated is engaged in the investment advisory business and is a
wholly owned subsidiary of PaineWebber Group 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. Each Sponsor or one of its predecessor
corporations, has acted as Sponsor of a number of series of unit investment
trusts. Each Sponsor has acted as principal underwriter and managing underwriter
of other investment companies. The Sponsors, in addition to participating as
members of various selling groups or as agents of other investment companies,
execute orders on behalf of investment companies for the purchase and sale of
securities of these companies and sell securities to these companies in their
capacities as brokers or dealers in securities.
Each Sponsor (or a predecessor) has acted as Sponsor of series of Defined
Asset Funds. A subsidiary of Merrill Lynch, Pierce, Fenner & Smith Incorporated
succeeded in 1970 to the business of Goodbody & Co., which had been a co-Sponsor
of Defined Asset Funds since 1964. That subsidiary resigned as Sponsor of each
of the Goodbody series in 1971. Merrill Lynch, Pierce, Fenner & Smith
Incorporated has been co-Sponsor and the Agent for the Sponsors of each series
of Defined Asset Funds created since 1971. Shearson Lehman Brothers Inc.
('Shearson') and certain of its predecessors were underwriters beginning in 1962
and co-Sponsors from 1965 to 1967 and from 1980 to 1993 of various Defined Asset
Funds. As a result of the acquisition of certain of Shearson's assets by Smith
Barney, Harris Upham & Co. and Primerica (now The Travelers Inc.), Smith Barney
Inc. now serves as co-Sponsor of various Defined Asset Funds. Prudential
Securities Incorporated and its predecessors have been underwriters of Defined
Asset Funds since 1961 and co-Sponsors since 1964, in which year its predecessor
became successor co-Sponsor to the original Sponsor. Dean Witter Reynolds Inc.
and its predecessors have been underwriters of various Defined Asset Funds since
1964 and co-Sponsors since 1974. PaineWebber Incorporated and its predecessor
have co-Sponsored certain Defined Asset Funds since 1983.
The Sponsors have maintained secondary markets in these 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
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<PAGE>
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 or capital 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.
The following chart shows the average annual compounded rate of return of
selected asset classes over the 10-year and 20-year periods ending December 31,
1993, compared to the rate of inflation over the same periods. Of course, this
chart represents past performance of these investments and is no guarantee of
future results of the Funds. Funds also have sales charges and expenses.
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 %
Source: Ibbotson Associates (Chicago).
Used with permission. All rights reserved.
Instead of having to select individual securities on their own, purchasers
of Defined Funds benefit from the expertise in 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 fund expenses.
Defined Asset Funds offers a variety of fund types. The tax exemption of
municipal securities, which makes them attractive to high-bracket taxpayers, is
offered by Defined Municipal Investment Trust Funds. Municipal Defined Funds
offer a simple and convenient way for investors to earn monthly income free from
regular Federal income tax. Defined Municipal Investment Trust Funds have
provided investors with tax-free income for more than 30 years. Defined
Corporate Income Funds, with higher current returns than municipal or government
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funds, are suitable for Individual Retirement Accounts and other tax-advantaged
accounts and provide monthly income. Defined Government Securities Income Funds
provide a way to participate in markets for U.S. government securities while
earning an attractive current return. Defined International Bond Funds, invested
in bonds payable in foreign currencies, offer the potential to profit from
changes in currency values and possibly from interest rates higher than paid on
comparable US bonds, but investors incur a higher risk for these potentially
greater returns. Historically, stocks have offered growth of capital, and thus
some protection against inflation, over the long term. Defined Equity Income
Funds offer participation in the stock market, providing current income as well
as the possibility of capital appreciation. The S&P Index Trusts offer a
convenient and inexpensive way to participate in broad market movements. Concept
Series seek to capitalize on selected anticipated economic, political or
business trends. Utility Stock Series, consisting of stocks of issuers with
established reputations for regular cash dividends, seek to benefit from
dividend increases. Select Ten Portfolios seek total return by investing for one
year in the ten highest yielding stocks on a designated stock index.
EXCHANGE OPTION
It is expected that exchanges at a reduced sales charge will be offered
with future Concept Series of Equity Income Fund having deferred sales charges
as those Series become available.
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DEFINED
ASSET FUNDSSM
SPONSORS: EQUITY INCOME FUND
Merrill Lynch, Concept Series
Pierce, Fenner & Smith Inc. Real Estate Income Fund
Unit Investment Trusts A Unit Investment Trust
P.O. Box 9051 PROSPECTUS
Princeton, N.J. 08543-9051 THIS PROSPECTUS DOES NOT CONTAIN ALL OF
(609) 282-8500 THE INFORMATION WITH RESPECT TO THE
Smith Barney Inc. INVESTMENT COMPANY SET FORTH IN ITS
Unit Trust Department REGISTRATION STATEMENT AND EXHIBITS
Two World Trade Center RELATING THERETO WHICH HAVE BEEN FILED
101st Floor WITH THE SECURITIES AND EXCHANGE
New York, N.Y. 10048 COMMISSION, WASHINGTON, D.C. UNDER THE
(800) 298-UNIT SECURITIES ACT OF 1933 AND THE
PaineWebber Incorporated INVESTMENT COMPANY ACT OF 1940, AND TO
1200 Harbor Blvd. WHICH REFERENCE IS HEREBY MADE.
Weehawken, N.J. 07087 NO PERSON IS AUTHORIZED TO GIVE ANY
(201) 902-3000 INFORMATION OR TO MAKE ANY
Prudential Securities Incorporated REPRESENTATIONS WITH RESPECT TO THE
One Seaport Plaza FUND NOT CONTAINED IN THIS PROSPECTUS;
199 Water Street AND ANY INFORMATION OR REPRESENTATION
New York, N.Y. 10292 NOT CONTAINED HEREIN MUST NOT BE RELIED
(212) 776-1000 UPON AS HAVING BEEN AUTHORIZED. THIS
Dean Witter Reynolds Inc. PROSPECTUS DOES NOT CONSTITUTE AN OFFER
Two World Trade Center--59th Floor TO SELL, OR A SOLICITATION OF AN OFFER
New York, N.Y. 10048 TO BUY, SECURITIES IN ANY STATE TO ANY
(212) 392-2222 PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
INDEPENDENT ACCOUNTANTS: SUCH OFFER IN SUCH STATE.
Deloitte & Touche
1633 Broadway
3rd Floor
New York, N.Y. 10048
TRUSTEE:
The Chase Manhattan Bank, N.A.
Unit Trust Department
Box 2051
New York, NY 10048
1-800-323-1508
-- /94
