DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
EQUITY INCOME FUND The objective of this Defined Fund is capital
SELECT GROWTH appreciation by investing for a period of about
PORTFOLIO-- one year in a portfolio of ten common stocks
1995 SERIES 4 expected to show superior growth in earnings per
(A UNIT INVESTMENT share and having reasonable valuation levels and
TRUST) strong recent price performance. There can be no
- ------------------------------assurance that the Fund will achieve its
objective. Current dividend income is not an
objective of the Fund.
The Portfolio may be subject to higher than
average price volatility and therefore this
investment may only be appropriate for investors
willing and able to assume this risk and for those
who are not seeking either preservation of capital
or current dividend income.
The value of units will fluctuate with the value
of the common stocks in the Portfolio and no
assurance can be given that the underlying common
stocks will show growth in earnings per share or
that the underlying common stocks or the units
will appreciate in value.
Minimum purchase: $1,000.
Minimum purchase for Individual Retirement/Keogh
Accounts: $250.
-------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
SPONSORS: HAS THE COMMISSION OR ANY STATE SECURITIES
Merrill Lynch, COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
Pierce, Fenner & Smith OF THIS DOCUMENT. ANY REPRESENTATION TO THE
Incorporated 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 November 1, 1995.
Incorporated INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY
Dean Witter Reynolds Inc. AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
Defined Asset FundsSM
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $100 billion sponsored in the last 25 years. Each Defined
Asset Fund is a portfolio of preselected securities. The portfolio is divided
into 'units' representing equal shares of the underlying assets. Each unit
receives an equal share of income and principal distributions.
Defined Asset Funds offer several defined 'distinctives'. You know in advance
what you are investing in and that changes in the portfolio are limited - a
defined portfolio. Most defined bond funds pay interest monthly - defined
income. The portfolio offers a convenient and simple way to invest - simplicity
defined.
Your financial professional can help you select a Defined Asset Fund to meet
your personal investment objectives. Our size and market presence enable us to
offer a wide variety of investments. The Defined Asset Funds family offers:
o Municipal portfolios
o Corporate portfolios
o Government portfolios
o Equity portfolios
o International portfolios
The terms of Defined Funds are as short as one year or as long as 30 years.
Special defined bond funds are available including: insured funds, double and
triple tax-free funds and funds with 'laddered maturities' to help protect
against changing interest rates. Defined Asset Funds are offered by prospectus
only.
- ----------------------------------------------------------------
Defined Select Growth Portfolio
- ----------------------------------------------------------------
The Portfolio contains ten common stocks selected through the application of a
quantitative model developed by O'Shaughnessy Capital Management, Inc., designed
to identify those stocks that have a strong potential for capital appreciation.
This Select Growth Series permits investors to buy and hold the Portfolio for
approximately one year. At the end of the year, the Portfolio will be liquidated
and the Model reapplied to select a new portfolio. Each Select Growth Portfolio
is designed to be part of longer term strategy and the Sponsors believe that
more consistent results are likely if the strategy is followed for at least a
three to five year period.
So long as the Sponsors continue to offer new portfolios, investors will have
the option to reinvest into a new portfolio at a reduced sales charge. The
Sponsors reserve the right, however, not to offer a new portfolio.
The Stocks included in the Portfolio were selected for their potential for
growth in earnings per share, reasonable valuation levels and strong recent
price performance, from a database of 1,600 common stocks with capitalizations
averaging $3.97 billion and ranging from about $18.5 million to $107 billion. As
Portfolio Consultant, O'Shaughnessy Capital Management, Inc. applied its Model,
which identifies stocks with the following characteristics, among others: (i)
expected growth rates of earnings per share of at least 20% over the next fiscal
year; (ii) expected annual growth rates of at least 20% over the next three to
five years; (iii) a price to earnings ratio not exceeding the expected earnings
growth rate over the next three to five years; (iv) strong recent price
performance; and (v) a minimum market capitalization of $750 million. The Agent
for the Sponsors then reviewed the identified stocks for liquidity, market
capitalization and other factors. Because there is no active management of the
Portfolio, the Sponsors anticipate that the Portfolio will remain unchanged over
its one-year life despite adverse developments concerning an issuer, an industry
or the economy or stock market generally.
- ----------------------------------------------------------------
Defining Your Portfolio
- ----------------------------------------------------------------
Investing in the Portfolio, rather than in only one or two of the underlying
Stocks, is a way to diversify your investment, although 50% of the Portfolio is
concentrated in companies that manufacture semiconductors and 40% is
concentrated in computer companies. Based upon the principal business of each
issuer and current market values, the following industries are represented in
the Portfolio:
APPROXIMATE
PORTFOLIO PERCENTAGE
/ / Semiconductor Manufacture 50%
/ / Computers 40%
/ / Financial Services 10%
- ----------------------------------------------------------------
Defining Your Risks
- ----------------------------------------------------------------
The Portfolio is considered to be 'concentrated' in stocks of companies deriving
a substantial portion of their income from the semiconductor and computer
industries. Investment in these industries may pose additional risks (see Risk
Factors--Semiconductor and Computer Companies in Part B).
In addition, the Portfolio is not an appropriate investment for those who are
not comfortable with the Model or for those who are unable or unwilling to
assume the risk involved generally with an equity investment. It may be
considered speculative and therefore may not be appropriate for investors
seeking either preservation of capital or current income.
There can be no guarantee that the Portfolio will meet its objectives over its
one-year life or that portfolios selected through re-application of the Model
during consecutive one-year periods will meet their objectives. Current dividend
income is not a criterion for the selection of stocks for the
A-2
<PAGE>
Portfolio. The Portfolio may not reflect any investment recommendations of any
of the Sponsors, and one or more of the stocks in the Portfolio may, from time
to time, be subject to sell recommendations from one or more of the Sponsors.
Unit price fluctuates with the value of the Portfolio, and the value of the
Portfolio could be affected by changes in the financial condition of the
issuers, changes in the various industries represented in the Portfolio,
movements in stock prices generally, the impact of the Sponsors' purchase and
sale of the securities (especially during the primary offering period of units
and during the rollover period) and other factors. Therefore, there is no
guarantee that the objective of the Portfolio will be achieved. In addition, the
Model and the Portfolio Consultant have only a limited track record. There can
be no guarantee that the Model will be effective in achieving the objective of
the Fund.
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 or any market movement in the price of a security will not 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 Sponsors may instruct the Trustee to sell securities under certain limited
circumstances, given the investment philosophy of the Portfolio, the Sponsors
are not likely to do so. The Portfolio may continue to purchase or hold
securities originally selected even though the assessment of their earnings
growth potential may have changed or the Securities may no longer qualify for
selection were the Model to be applied on any later date.
- ----------------------------------------------------------------
Defining Your Investment
- ----------------------------------------------------------------
PUBLIC OFFERING PRICE PER 1,000 UNITS $1,000.00
The Public Offering Price as of October 31, 1995, the business day prior to the
initial date of deposit is based on the aggregate value of the underlying
securities ($393,812.50) and any cash held to purchase securities, divided by
the number of units outstanding (397,790) times 1,000, plus the initial sales
charge. Units offered on the Initial Date of Deposit will also be priced at
$1,000 per 1,000 Units although the aggregate value of the underlying
securities, cash amount and number of Units may vary. The Public Offering Price
on any subsequent date will vary. The underlying securities are valued by the
Trustee on the basis of their closing sale prices at 4:00 p.m. Eastern time on
every business day.
SALES CHARGES
The total sales charge for this investment combines an initial up-front sales
charge and a deferred sales charge that will be deducted from the net asset
value of the Portfolio monthly beginning February 1, 1996 for the remaining ten
months of the Portfolio.
ROLLOVER OPTION
When this Select Growth Portfolio is about to be liquidated, you may have the
option to roll your proceeds into the next Select Growth portfolio. If you
notify your financial professional by November 8, 1996, your units will be
redeemed and your proceeds will be reinvested in units of the next Select Growth
Portfolio. If you decide not to roll over your proceeds, you will receive a cash
distribution after the Fund terminates. Of course you can sell or redeem your
Units at any time prior to termination.
INCOME DISTRIBUTION
The distribution of income, if any, will be paid on September 25, 1996, to
holders of record on September 10, 1996.
REINVESTMENT OPTION
You can elect to automatically reinvest your distributions into additional units
of the Portfolio subject only to the deferred sales charge remaining at the time
of reinvestment. Reinvesting helps to compound your income for a greater total
return.
TAXES
In the opinion of counsel, you will be considered to have received all the
dividends paid on your interest in each security in the Portfolio when those
dividends are received by the Portfolio, regardless of whether you reinvest your
dividends in the Portfolio.
TAX BASIS REPORTING
The proceeds received when you sell this investment will reflect the deduction
of the deferred sales charge and the charge for organizational expenses. In
addition, the annual statement and the relevant tax reporting forms you receive
at year-end will be based upon the amount paid to you (net of the deferred sales
charge and the charge for organizational expenses). Accordingly, you should not
increase your basis in your units by the deferred sales charge and the charge
for organizational expenses.
TERMINATION DATE
The Portfolio will terminate by December 9, 1996. The final distribution will be
made within a reasonable time afterward. The Portfolio may be terminated earlier
if its value is less than 40% of the value of the securities when deposited.
SPONSORS' PROFIT OR LOSS
The Sponsors' profit or loss from the Portfolio will include the receipt of
applicable sales charges, fluctuations in the Public Offering Price or secondary
market price of units, a loss of $70.00 on the initial deposit of the securities
and a gain or loss on subsequent deposits of securities (see Sponsors' and
Underwriters' Profits in Part B).
A-3
<PAGE>
- ----------------------------------------------------------------
Defining Your Costs
- ----------------------------------------------------------------
SALES CHARGE
First-time investors pay a 1% sales charge when they buy. For example, on a
$1,000 investment, $990 is invested in the Portfolio. In addition, a deferred
sales charge of $1.75 per 1,000 units will be deducted from the Portfolio's net
asset value each month over the last ten months of the Portfolio's life ($17.50
total). This deferred method of payment keeps more of your money invested over a
longer period of time. If you roll the proceeds of your investment into a new
portfolio, you will not be subject to the 1% initial charge, just the $17.50
deferred fee. Although this is a unit investment trust rather than a mutual
fund, the following information is presented to permit a comparison of fees and
an understanding of the direct or indirect costs and expenses that you pay.
As a %
of Initial Public Amount per
Offering Price 1,000 Units
----------------- --------------
Maximum Initial Sales Charge 1.00% $ 10.00
Deferred Sales Charge per Year 1.75% 17.50
----------------- --------------
2.75% $ 27.50
----------------- --------------
----------------- --------------
Maximum Sales Charge Imposed per
Year on Reinvested Dividends 0.35% $ 3.50
ESTIMATED ANNUAL FUND OPERATING EXPENSES
As a % Amount per
of Net Assets 1,000 Units
----------------- --------------
Trustee's Fee .085% $ 0.84
Maximum Portfolio Supervision,
Bookkeeping and Administrative
Fees .045% $ 0.45
Organizational Expenses .181% $ 1.79
Other Operating Expenses .022% $ 0.22
----------------- --------------
TOTAL .333% $ 3.30
This Portfolio (and therefore the investors) will bear all or a portion of its
organizational costs--including costs of preparing the registration statement,
the trust indenture and other closing documents, registering units with the SEC
and the states, fees of the Portfolio Consultant and the initial audit of the
Portfolio--as is common for mutual funds. Historically, the sponsors of unit
investment trusts have paid all the costs of establishing those trusts.
COSTS OVER TIME
You would pay the following cumulative expenses on a $1,000 investment, assuming
5% annual return on the investment throughout the indicated periods and
redemption at the end of the period:
1 Year 3 Years 5 Years 10 Years
$31 $75 $122 $251
Although the Portfolio has a term of only one year and is a unit investment
trust rather than a mutual fund, this information is presented to permit a
comparison of fees, assuming the principal amount and distributions are rolled
over each year into a new portfolio subject only to the deferred sales charge
and fund expenses.
The example assumes reinvestment of all dividends and distributions and uses a
5% annual rate of return as mandated by SEC regulations applicable to mutual
funds. For purposes of the example, the deferred sales charge imposed on
reinvestment of dividends is not reflected until the year following payment of
the dividend; the cumulative expenses would be higher if sales charges on
reinvested dividends were reflected in the year of reinvestment.
Reductions to the repurchase and cash redemption prices in the secondary market
to recoup the costs of liquidating securities to meet redemption (described
below) have not been reflected. The example should not be considered a
representation of past or future expenses or annual rates of return; the actual
expenses and annual rates of return may be more or less than the example.
SELLING YOUR INVESTMENT
You may sell or redeem your units at any time prior to the termination of the
Portfolio. Your price will be based on the then current net asset value. The
redemption and secondary market repurchase price as of October 31, 1995 was
$972.50 per 1,000 units ($27.50 per 1,000 units less than the Public Offering
Price). This price reflects deductions of the deferred sales charge which
declines over the last ten months of the Portfolio ($17.50 initially). If you
sell your units before the termination of the Portfolio, you will pay the
remaining balance of the deferred sales charge. After the initial offering
period, the repurchase and cash redemption prices for units will be reduced to
reflect the estimated costs of liquidating securities to meet the redemption,
currently estimated at $0.18 per 1,000 units. If you reinvest in the new
portfolio, you will pay your share of any brokerage commissions on the sale of
underlying securities when your units are liquidated during the rollover.
A-4
<PAGE>
- --------------------------------------------------------------------------------
Defined Portfolio
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
Equity Income Fund
Select Growth Portfolio--1995 Series 4 November 1, 1995
PRICE
TICKER NUMBER OF SHARES PERCENTAGE PER SHARE COST
NAME OF ISSUER SYMBOL OF COMMON STOCK OF FUND (1) TO FUND TO FUND (2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. 3Com Corporation COMS 800 9.55% $ 47.000 $ 37,600.00
2. Applied Materials, Inc. AMAT 800 10.18 50.125 40,100.00
3. Cirrus Logic, Inc. CRUS 900 9.63 42.125 37,912.50
4. Dell Computer Corporation DELL 900 10.66 46.625 41,962.50
5. International Rectifier
Corporation IRF 850 9.74 45.125 38,356.25
6. Kemet Corporation KMET 1,200 10.51 34.500 41,400.00
7. Micron Technology, Inc.* MU 550 9.86 70.625 38,843.75
8. SCI Systems, Inc. SCIS 1,100 9.81 35.125 38,637.50
9. Sun Microsystems, Inc. SUNW 500 9.90 78.000 39,000.00
10. The Money Store, Inc.* MONE 1,000 10.16 40.000 40,000.00
-------------------- -----------------
100.00% $ 393,812.50
-------------------- -----------------
-------------------- -----------------
</TABLE>
- ------------------------------------
* Only these stocks currently pay dividends. The current annual dividends per
share for the Securities in Portfolio Numbers 7 and 10 are $0.20 and $0.21,
respectively, based on the latest quarterly, semi-annual or annual
declaration; there can be no assurance that future dividend payments, if
any, will be maintained in an amount equal to these dividends.
(1) Based on Cost to Fund.
(2) Valuation by the Trustee made on the basis of closing sale prices at the
evaluation time on October 31, 1995.
------------------------------------
The securities were acquired on October 31, 1995 and are represented entirely by
contracts to purchase the securities. Any of the Sponsors may have acted as
underwriters, managers or comanagers of a public offering of the securities in
this Fund during the last three 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 securities or in options on
any of them, 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. A Sponsor may trade for its own
account as an odd-lot dealer, market maker, block positioner and/or arbitrageur
in any of the securities or in options on them. Any Sponsor, its affiliates,
directors, elected officers and employee benefits programs may have either a
long or short position in any securities or in options on them.
A-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders of Equity Income Fund Select Growth
Portfolio--1995 Series 4, Defined Asset Funds (the 'Fund'):
We have audited the accompanying statement of condition and the defined
portfolio included in the prospectus of the Fund as of November 1, 1995. 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. Our procedures included
confirmation of an irrevocable letter of credit deposited for the purchase of
securities, as described in the statement of condition, with 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 the Fund as of November 1, 1995
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
November 1, 1995
STATEMENT OF CONDITION AS OF NOVEMBER 1, 1995
TRUST PROPERTY
Investments--Contracts to purchase Securities(1).........$ 393,812.50
Organizational Costs(2).................................. 134,250.00
--------------------
Total.........................................$ 528,062.50
--------------------
--------------------
LIABILITIES AND INTEREST OF HOLDERS
Liabilities: Payment of deferred portion of sales
charge(3)................................................$ 6,961.33
Accrued Liability(2)................................... 134,250.00
--------------------
Subtotal...............................................$ 141,211.33
--------------------
Interest of Holders of 397,790 Units of fractional
undivided interest outstanding(4):
Cost to investors(5)...................................$ 397,790.00
Gross underwriting commissions(6)...................... (10,938.83)
--------------------
Subtotal...............................................$ 386,851.17
--------------------
Total.........................................$ 528,062.50
--------------------
--------------------
- ---------------
(1) Aggregate cost to the Fund of the securities listed under Defined
Portfolio determined by the Trustee at 4:00 p.m., Eastern time on October 31,
1995. The contracts to purchase securities are collateralized by an irrevocable
letter of credit which has been issued by Development Bank of Singapore, Ltd.,
New York Agency, in the amount of $393,882.50 and deposited with the Trustee.
The amount of the letter of credit includes $393,812.50 for the purchase of
securities.
(2) This represents a portion of the Fund's organizational costs,
which will be deferred and amortized over the life of the Fund. Organizational
costs have been estimated based on projected total assets of $75 million. To the
extent the Fund is larger or smaller, the estimate may vary.
(3) Represents the aggregate amount of mandatory distributions of
$1.75 per 1,000 Units per month payable on the 1st day of each month from
February through November, 1996. Distributions will be made to an account
maintained by the Trustee from which the deferred sales charge obligation of the
investors to the Sponsors will be satisfied. If units are redeemed prior to
November 1, 1996, the remaining portion of the distribution applicable to such
units will be transferred to such account on the redemption date.
(4) Because the value of securities at the evaluation time on the
Initial Date of Deposit may differ from the amounts shown in this statement of
condition, the number of Units offered on the Initial Date of Deposit will be
adjusted from the initial number of Units to maintain the $1,000 per 1,000 Units
offering price.
(5) Aggregate public offering price computed on the basis of the
value of the underlying securities at 4:00 p.m., Eastern time on October 31,
1995.
(6) Assumes the maximum sales charge per 1,000 units of 2.75% of the
Public Offering Price.
A-6
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
EQUITY INCOME FUND SELECT GROWTH PORTFOLIOS
FURTHER INFORMATION REGARDING THE FUND MAY BE OBTAINED
WITHIN FIVE DAYS BY WRITING OR CALLING THE TRUSTEE AT THE ADDRESS AND
TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS.
INDEX
PAGE
---------
FUND DESCRIPTION................................................. 1
RISK FACTORS..................................................... 3
HOW TO BUY UNITS................................................. 5
HOW TO SELL UNITS................................................ 6
INCOME, DISTRIBUTIONS AND REINVESTMENT........................... 7
FUND EXPENSES.................................................... 8
TAXES............................................................ 8
RECORDS AND REPORTS.............................................. 10
TRUST INDENTURE.................................................. 10
MISCELLANEOUS.................................................... 11
EXCHANGE OPTION.................................................. 13
SUPPLEMENTAL INFORMATION......................................... 13
FUND DESCRIPTION
THE SELECT STRATEGY
The Select Series is designed to permit an investor to buy and hold a
portfolio of equity securities for a period of approximately one year based upon
a strategy. At the end of the year the strategy is reapplied and the investor
may reinvest in a new portfolio, if available.
The Fund seeks capital appreciation by acquiring and holding for about one
year 10 common stocks selected by the Sponsors through the application of a
quantitative model (the 'Model') developed by the Portfolio Consultant,
O'Shaughnessy Capital Management, Inc. The Model is designed to identify those
stocks that have a strong potential for capital appreciation. The Model
identifies stocks with the following characteristics, among others: (i) expected
growth rates of earnings per share of at least 20% over the next fiscal year;
(ii) expected annual growth rates of at least 20% over the next three to five
years; (iii) a price to earnings ratio not exceeding the expected earnings
growth rate over the next three to five years; (iv) strong recent price
performance; and (v) a minimum market capitalization of $750 million. (Price to
earnings ratio is calculated by taking the current stock price and dividing it
by the sum of the last two reported quarterly earnings plus the projected
earnings for the next two quarters.)
The Portfolio Consultant is a registered investment adviser, organized in
1988 and based in Greenwich, Connecticut. The Portfolio Consultant is
unaffiliated with any of the Sponsors.
1
<PAGE>
PORTFOLIO SELECTION
The Portfolio Consultant applied the Model to a universe of 1,600 stocks
with capitalization averaging $3.97 billion and ranging from about $18.5 million
to $107 billion, and provided the Sponsors with a list of stocks from which the
Sponsors chose the 10 stocks in the Portfolio.
The following table shows the percentage of stocks from the universe of
1,600 common stocks that passed the Model's expected earnings growth screens.
PERCENTAGE
YEAR OF STOCKS
- ------------------------------------------------------------------- -----------
1985............................................................... 7.56%
1986............................................................... 9.00
1987............................................................... 13.00
1988............................................................... 13.06
1989............................................................... 9.94
1990............................................................... 8.75
1991............................................................... 7.88
1992............................................................... 9.56
1993............................................................... 13.30
1994............................................................... 17.19
1995 (as of October 25, 1995)...................................... 15.18
- ---------------
Copyright 1995. O'Shaughnessy Capital Management, Inc. All Rights Reserved.
The Stocks identified by the Model were next screened for minimum market
capitalization of $750 million. The Agent for the Sponsors further reviewed the
market capitalization, liquidity and other characteristics of the identified
stocks. The Securities selected through this process were those believed to have
significant potential for capital appreciation, without regard to expected
dividend income.
The deposit of the Securities in the Portfolio on the initial date of
deposit established a proportionate relationship among the number of shares of
each Security. During the 90-day period following the initial date of deposit
the Sponsors may deposit additional Securities in order to create new Units,
maintaining to the extent possible that original proportionate relationship.
Deposits of additional Securities subsequent to the 90-day period must generally
replicate exactly the proportionate relationship among the number of shares of
each Security at the end of the initial 90-day period. The ability to acquire
each Security at the same time will generally depend upon the Security's
availability and any restrictions on the purchase of that Security under the
federal securities laws or otherwise.
Additional Units may also be created by the deposit of cash (including a
letter of credit) with instructions to purchase additional Securities. This
practice could cause both existing and new investors to experience a dilution of
their investments and a reduction in their anticipated income because of price
fluctuations in the Securities between the time of the cash deposit and the
actual purchase of the additional Securities and because the associated
brokerage fees will be an expense of the Portfolio. To minimize these effects,
the Portfolio will try to purchase Securities as close to the Evaluation Time or
at prices as close to the evaluated prices as possible.
Because each Defined Asset Fund is a preselected portfolio, you know the
securities before you invest. Of course, the Portfolio will change somewhat over
time, as Securities are purchased upon creation of additional Units, as
securities are sold to meet Unit redemptions or in other limited circumstances.
PORTFOLIO SUPERVISION
The Portfolio follows a buy and hold investment strategy in contrast to the
frequent portfolio changes of a managed fund based on economic, financial and
market analyses. In the event a public tender offer is made for a Security or a
merger or acquisition is announced affecting a Security, the Sponsors may
instruct the Trustee to tender or sell the Security in the open market when in
its opinion it is in the best interests of investors to do so. Otherwise,
although the Portfolio is regularly reviewed and evaluated, because of the
Model, the Portfolio is unlikely to sell any of the Securities, other than to
satisfy redemptions of units, or to cease buying additional shares
2
<PAGE>
in connection with the issuance of Additional Units. More specifically, adverse
developments concerning a Security including the adverse financial condition of
the issuer, the institution of legal proceedings against the issuer, or a
decline in the price or the occurrence of other market or credit factors that
might otherwise make retention of the Security detrimental to the interest of
investors, will generally not cause the Portfolio to dispose of a Security or
cease buying it. Furthermore, the Portfolio will likely continue to hold a
Security and purchase additional shares even though the assessment of a Security
may have changed or subsequent to the initial date of deposit a Security may no
longer satisfy the Portfolio's selection criteria.
RISK FACTORS
An investment in the Fund entails certain risks, including the risk that
the value of your investment will decline if the financial condition of the
issuers of the Securities becomes impaired or if the general condition of the
stock market worsens and the risk that holders of common stocks 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. 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 protection of capital provided by debt securities. Common stocks in
general 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. In
addition, the Model and the Portfolio Consultant have only a limited track
record. There can be no guarantee that the Model will be effective in achieving
the objective of the Fund. The Sponsors cannot predict the direction or scope of
any of these factors.
The Portfolio may be concentrated in one or more of types of issuers.
Concentration may involve additional risk because of the decreased
diversification of economic, financial and market risks. Set forth below is a
brief description of certain risks associated with Securities which may be held
by the Fund. Additional information is contained in the Information Supplement
which is available from the Trustee at no charge to the investor.
SEMICONDUCTOR AND COMPUTER COMPANIES
The semiconductor and computer industries are rapidly developing and highly
competitive, both domestically and internationally, and tend to be relatively
volatile as compared to other types of investments. Certain of these companies
may be smaller and less seasoned companies with limited product lines, markets
or financial resources and limited management or marketing personnel. These
industries are characterized by a high degree of investment to maintain
competitiveness and are affected by worldwide scientific and technological
developments (and resulting product obsolescence) as well as government
regulation, increase in material or labor costs, changes in distribution
channels and the need to manage inventory levels in line with product demand.
Other risk factors include short product life cycles, aggressive pricing and
reduced profit margins, dramatic and often unpredictable changes in growth
rates, frequent new product introduction, the need to enhance existing products,
intense competition from large established companies and potential competition
from small start up companies.
AMERICAN DEPOSITARY SHARES AND RECEIPTS
American Depositary Shares ('ADSs') and receipts therefor ('ADRs') are
issued by an American bank or trust company to evidence ownership of underlying
securities issued by a foreign corporation. These instruments may not
necessarily be denominated in the same currency as the securities into which
they may be converted. Generally, ADSs and ADRs are designed for use in the
United States securities markets. For purposes of this Prospectus, the term ADR
generally includes ADSs.
The securities of any foreign issuers in the Fund may be in ADR form (see
Portfolio). ADRs represent common stock deposited with a custodian in a
depositary. ADRs may be sponsored or unsponsored. In an unsponsored facility,
the depositary initiates and arranges the facility at the request of market
makers and acts as agent for the ADR holder, while the company itself is not
involved in the transaction. In a sponsored facility, the issuing company
initiates the facility and agrees to pay certain administrative and
shareholder-related expenses. Sponsored facilities use a single depositary and
entail a contractual relationship between the issuer, the shareholder and the
depositary; unsponsored facilities involve several depositaries with no
contractual relationship to the
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company. The terms and conditions of depositary facilities may result in less
liquidity or lower market prices for ADRs than for the underlying shares.
For those Securities that are ADRs, currency fluctuations will affect the
U.S. dollar equivalent of the local currency price of the underlying domestic
share and, as a result, are likely to affect the value of the ADRs and
consequently the value of the Securities. The depositary bank that issues an ADR
generally charges a fee, based on the price of the ADR, upon issuance and
cancellation of the ADR. This fee would be in addition to the brokerage
commissions paid upon the acquisition or surrender of the security. The
depositary bank also incurs expenses in connection with the conversion of
dividends or other cash distributions paid in local currency into U.S. dollars
and such expenses are deducted from the amount of the dividend or distribution
paid to holders, resulting in a lower payout per underlying share represented by
the ADR than would be the case if the underlying share were held directly.
Certain tax considerations, including tax rate differentials, arising from
applications of the tax laws of one nation to the nationals of another and from
certain practices in the ADR market may also exist with respect to certain ADRs.
In varying degrees, any or all of these factors may affect the value of the ADR
compared with the value of the underlying shares in the local market. In
addition, the rights of holders of ADRs may be different than those of holders
of the underlying shares, and the market for ADRs may be less liquid than that
for the underlying shares. ADRs are registered securities pursuant to the
Securities Act of 1933 and may be subject to the reporting requirements of the
Securities Exchange Act of 1934.
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
The Sponsors do not know of any pending litigation as of the initial date
of deposit that might reasonably be expected to have a material adverse effect
on the Fund, although pending litigation may have a material adverse effect on
the value of Securities in the Fund. In addition, at any time after the initial
date of deposit, litigation may be initiated on a variety of grounds, or
legislation may be enacted, affecting the Securities in the Portfolio or the
issuers of the Securities. Changing approaches to regulation may have a negative
impact on certain companies represented in the Portfolio. There can be no
assurance that future litigation, legislation, regulation or deregulation will
not have a material adverse effect on the Portfolio or will not impair the
ability of the issuers of the Securities to achieve their business goals. From
time to time Congress considers proposals to reduce the rate of the
dividends-received deduction. This type of legislation, if enacted into law,
would adversely affect the after-tax return to investors who can take advantage
of the deduction. See Taxes.
LIFE OF THE FUND; FUND TERMINATION
The size and composition of the Portfolio will be affected by the level of
redemptions of Units that may occur from time to time. Principally, this will
depend upon the number of investors seeking to sell or redeem their Units or
participating in a rollover. The Portfolio will be terminated no later than the
mandatory termination date specified in Part A of the Prospectus. It will
terminate earlier upon the disposition of the last Security or upon the consent
of investors holding 51% of the Units. The Portfolio may also be terminated
earlier by the Sponsors once its total assets have fallen below the minimum
value specified in Part A of the Prospectus. A decision by the Sponsors to
terminate the Portfolio early, which will likely be made following the rollover,
will be based on factors such as the size of the Portfolio relative to its
original size, the ratio of Portfolio expenses to income, and the cost of
maintaining a current prospectus.
Notice of impending termination will be provided to investors and
thereafter units will no longer be redeemable. On or shortly before termination,
the Trustee will seek to dispose of any Securities remaining in the Portfolio
although any Security unable to be sold at a reasonable price may continue to be
held by the Trustee in a
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liquidating trust pending its final disposition. A proportional share of the
expenses associated with termination, including brokerage costs in disposing of
Securities, will be borne by investors remaining at that time. This may have the
effect of reducing the amount of proceeds those investors are to receive in any
final distribution.
HOW TO BUY UNITS
Units are available from any of the Sponsors, Underwriters and other
broker-dealers at the Public Offering Price. The Public Offering Price varies
each Business Day with changes in the value of the Portfolio and other assets
and liabilities of the Fund.
PUBLIC OFFERING PRICE
Units are charged a combination of Initial and Deferred Sales Charges
equal, in the aggregate, to a maximum charge of 2.75% of the public offering
price or, for quantity purchases of units of all Select Portfolios by an
investor and the investor's spouse and minor children, or by a single trust
estate or fiduciary account, made on a single day, the following percentages of
the public offering price:
<TABLE><CAPTION>
APPLICABLE SALES CHARGE
(GROSS UNDERWRITING PROFIT)
------------------------------------
AS % OF PUBLIC AS % OF NET
AMOUNT PURCHASED OFFERING PRICE AMOUNT INVESTED
- ------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Less than $50,000................................ 2.75% 2.778%
$50,000 to $99,999............................... 2.50 2.519
$100,000 to $249,999............................. 2.00 2.005
$250,000 or more................................. 1.75 1.750
</TABLE>
The Deferred Sales Charge is a monthly charge of $1.75 per 1,000 units and
is accrued in ten monthly installments commencing on the date indicated in part
A of this Prospectus. Units redeemed or repurchased prior to the accrual of the
final Deferred Sales Charge installment will have the amount of any remaining
installments deducted from the redemption or repurchase proceeds or deducted in
calculating an in-kind distribution, although this deduction will be waived in
the event of the death or disability (as defined in the Internal Revenue Code of
1986) of an investor. The Initial Sales Charge is equal to the aggregate sales
charge, determined as described above, less the aggregate amount of any
remaining installments of the Deferred Sales Charge.
It is anticipated that Securities will not be sold to pay the Deferred
Sales Charge until after the date of the last installment. Investors will be at
risk for market price fluctuations in the Securities from the several
installment accrual dates to the dates of actual sale of Securities to satisfy
this liability.
Employees of certain Sponsors and Sponsor affiliates and non-employee
directors of Merrill Lynch & Co. Inc. may purchase Units subject only to the
Deferred Sales Charge.
EVALUATIONS
Evaluations are determined by the Trustee on each Business Day. This
excludes Saturdays, Sundays and the following holidays as observed by the New
York Stock Exchange: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. If the Securities are
listed on a national securities exchange or The Nasdaq National Market,
evaluations are generally based on closing sales prices on that exchange or that
system (unless the Trustee deems these prices inappropriate) or, if closing
sales prices are not available, at the mean between the closing bid and offer
prices. If the Securities are not listed or if listed but the principal market
is elsewhere, the evaluation is generally determined based on sales prices of
the Securities on the over-the-counter market or, if sales prices in that market
are not available, on the basis of the mean between current bid and offer prices
for the Securities or for comparable securities or by appraisal or by any
combination of these methods. Neither the Sponsors nor the Trustee guarantee the
enforceability, marketability or price of any Securities.
NO CERTIFICATES
All investors are required to hold their Units in uncertifcated form and in
'street name' by their broker, dealer or financial institution at the Depository
Trust Company ('DTC').
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HOW TO SELL UNITS
SPONSORS' MARKET FOR UNITS
You can sell your Units at any time without a fee (other than the deduction
after the initial offering period for the costs of liquidating Securities). The
Sponsors (although not obligated to do so) will normally buy any Units offered
for sale at the repurchase price next computed after receipt of the order. The
Sponsors have maintained secondary markets in Defined Asset Funds for over 20
years. Primarily because of the sales charge and fluctuations in the market
value of the Securities, the sale price may be less than the cost of your Units.
You should consult your financial professional for current market prices to
determine if other broker-dealers or banks are offering higher prices for Units.
The Sponsors may discontinue this market without prior notice if the supply
of Units exceeds demand or for other business reasons. The Sponsors may reoffer
or redeem Units repurchased.
TRUSTEE'S REDEMPTION OF UNITS
You may redeem your Units by sending the Trustee a redemption request.
Signatures must be guaranteed by an eligible institution. In certain instances,
additional documents may be required such as a certificate of death, trust
instrument, certificate of corporate authority or appointment as executor,
administrator or guardian. If the Sponsors are maintaining a market for Units,
they will purchase any Units tendered at the repurchase price described above.
If they do not purchase Units tendered, the Trustee is authorized in its
discretion to sell Units in the over-the-counter market if it believes it will
obtain a higher net price for the redeeming investor.
By the seventh calendar day after tender you will be mailed an amount equal
to the Redemption Price per Unit. Because of market movements or changes in the
Portfolio, this price may be more or less than the cost of your Units. The
Redemption Price per Unit is computed each Business Day by adding the value of
the Securities, declared but unpaid dividends on the Securities, cash and the
value of any other Fund assets; deducting unpaid taxes or other governmental
charges, accrued but unpaid Fund expenses and accrued but unpaid Deferred Sales
Charges, unreimbursed Trustee advances, cash held to redeem Units or for
distribution to investors and the value of any other Fund liabilities; and
dividing the result by the number of outstanding Units.
Any investor owning Units representing Securities with a value of at least
$500,000 who redeems those Units prior to the rollover notification date
indicated in Part A of the Prospectus may, in lieu of cash redemption, request
distribution in kind of an amount and value of Securities per Unit equal to the
otherwise applicable Redemption Price per Unit. Whole shares of each Security
together with cash from the Capital Account equal to any fractional shares to
which the investor would be entitled (less any Deferred Sales Charge payable)
will be paid over to a distribution agent and either held for the account of the
investor or disposed of in accordance with instructions of the investor. Any
brokerage commissions on sales of Securities in connection with in-kind
redemptions will be borne by the redeeming investors. The in-kind redemption
option may be terminated by the Sponsors at any time upon prior notice to
investors.
After the initial offering period, the repurchase and cash redemption
prices will be reduced to reflect the cost to the Fund of liquidating Securities
to meet the redemption.
If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee may sell Securities selected by the Agent for the
Sponsors in a manner designed to maintain, to the extent practicable, the
proportionate relationship among the number of shares of each Security. These
sales are often made at times when the Securities would not otherwise be sold
and may result in lower prices than might be realized otherwise and will also
reduce the size and diversity of the Fund.
Redemptions may be suspended or payment postponed if the New York Stock
Exchange is closed other than for customary weekend and holiday closings, if the
SEC determines that trading on that Exchange is restricted or that an emergency
exists making disposal or evaluation of the Securities not reasonably
practicable, or for any other period permitted by the SEC.
ROLLOVER
In lieu of redeeming their Units or receiving liquidation proceeds upon the
termination of the Fund, investors may elect, by written notice to the Trustee
prior to the rollover notification date indicated in Part A, to apply
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their proportional interest in the Securities and other assets of the Fund
toward the purchase of units of a new Select Growth Portfolio (if available). It
is expected that the terms of any new portfolio, including this rollover
feature, will be substantially the same as those of the Fund.
A rollover of an investor's units is accomplished by the in-kind redemption
of his Units of the Fund followed by the sale of the underlying Securities by a
distribution agent on behalf of participating investors and the reinvestment of
the sale proceeds (net of brokerage fees, governmental charges and other sale
expenses) in units of the new Select Growth Portfolio at their net asset value.
The Sponsors intend to sell the distributed Securities, on behalf of the
distribution agent, as quickly as practicable and then to create units of the
new Select Growth Portfolio as quickly as possible, subject in both cases to the
Sponsors' sensitivity that the concentrated sale and purchase of large volumes
of securities may affect market prices in a manner adverse to the interest of
investors. Accordingly, the Sponsors may, in their sole discretion, undertake a
more gradual sale of the distributed Securities and a more gradual creation of
units of the new Select Growth Portfolio to help mitigate any negative market
price consequences caused by this large volume of securities trades. There can
be no assurance, however, that this procedure will be successful or might not
result in less advantageous prices than had this procedure not been practiced at
all. Pending the investment of rollover proceeds in the securities to comprise
the new portfolio, those moneys may be uninvested for up to several days.
Investors participating in the rollover may realize taxable capital gains
from the rollover but will not be entitled to a deduction for certain capital
losses and, because of the rollover procedures, will not receive a cash
distribution with which to pay those taxes. Investors who do not participate
will continue to hold their Units until the termination of the Fund; however,
depending upon the extent of participation in the rollover, the aggregate size
of the Fund may be sharply reduced resulting in a significant increase in per
Unit expenses.
The Sponsors may, in their sole discretion and without penalty or liability
to investors, decide not to sponsor a new Select Growth Portfolio or to modify
the terms of the rollover. Prior notice of any decision would be provided to
investors.
The Division of Investment Management of the SEC is of the view that the
rollover option constitutes an 'exchange offer', for the purposes of Section
11(c) of the Investment Company Act of 1940, and would therefore be prohibited
absent an exemptive order. The Sponsors have received exemptive orders under
Section 11(c) which they believe permit them to offer the rollover, but no
assurance can be given that the SEC will concur with the Sponsors' position and
additional regulatory approvals may be required.
INCOME, DISTRIBUTIONS AND REINVESTMENT
INCOME AND DISTRIBUTIONS
Although current dividend income is not an objective of the Fund, the
annual income per Unit will depend primarily upon the amount of dividends
declared and paid by the issuers of the Securities and changes in the expenses
of the Fund and, to a lesser degree, upon the level of purchases of additional
Securities and sales of Securities. There is no assurance that dividends on the
Securities will continue at their current levels or be declared at all.
Each Unit receives an equal share of distributions of dividend income.
Because dividends on the Securities are not received at a constant rate
throughout the year, the income distribution may be more or less than the amount
then credited to the Income Account. Dividends received are credited to an
Income Account and other receipts to a Capital Account. A Reserve Account may be
created by withdrawing from the Income and Capital Accounts amounts considered
appropriate by the Trustee to reserve for any material amount that may be
payable out of the Fund. Funds held by the Trustee in the various accounts do
not bear interest. In addition, distributions of amounts necessary to pay the
Deferred Sales Charge will be made from the Capital Account to an account
maintained by the Trustee for purposes of satisfying investors' sales charge
obligations. Although the Sponsors may collect the Deferred Sales Charge
monthly, to keep Units more fully invested the Sponsors currently do not
anticipate sales of Securities to pay the deferred sales charge until after the
rollover notification date. Proceeds of the disposition of any Securities not
used to pay Deferred Sales Charge or to redeem Units will be held in the Capital
Account and distributed on the final Distribution Day or following liquidation
of the Fund.
7
<PAGE>
REINVESTMENT
Income and principal distributions on Units may be reinvested by
participating in the Fund's reinvestment plan. Under the plan, the Units
acquired for investors will be either Units already held in inventory by the
Sponsors or new Units created by the Sponsors' deposit of additional Securities,
contracts to purchase additional Securities or cash (or a bank letter of credit
in lieu of cash) with instructions to purchase additional Securities. Deposits
or purchases of additional Securities will generally be made so as to maintain
the then existing proportionate relationship among the number of shares of each
Security in the Fund. Units acquired by reinvestment will not be subject to the
initial sales charge but will be subject to any remaining installments of
Deferred Sales Charge. The Sponsors reserve the right to amend, modify or
terminate the reinvestment plan at any time without prior notice. Investors
holding Units in 'street name' should contact their broker, dealer or financial
institution if they wish to participate in the reinvestment plan.
FUND EXPENSES
Estimated annual Fund expenses are listed in Part A of the Prospectus; if
actual expenses exceed the estimate, the excess will be borne by the Fund. The
Trustee's annual fee is payable in monthly installments. The Trustee also
benefits when it holds cash for the Fund in non-interest bearing accounts.
Possible additional charges include Trustee fees and expenses for extraordinary
services, costs of indemnifying the Trustee and the Sponsors, costs of action
taken to protect the Fund and other legal fees and expenses, Fund termination
expenses and any governmental charges. The Trustee has a lien on Fund assets to
secure reimbursement of these amounts and may sell Securities for this purpose
if cash is not available. The Sponsors receive an annual fee of a maximum of
$0.35 per 1,000 Units to reimburse them for the cost of providing Portfolio
supervisory services to the Fund. While the fee may exceed their costs of
providing these services to the Fund, the total supervision fees from all Series
of Equity Income Fund will not exceed their costs for these services to all of
those Series during any calendar year. The Sponsors may also be reimbursed for
their costs of providing bookkeeping and administrative services to the Fund,
currently estimated at $0.10 per 1,000 Units. The Trustee's and Sponsors' fees
may be adjusted for inflation without investors' approval.
All or a portion of expenses incurred in establishing the Fund, including
the cost of the initial preparation of documents relating to the Fund, Federal
and State registration fees, the initial fees and expenses of the Trustee, legal
expenses and any other out-of-pocket expenses will be paid by the Fund and
amortized over the life of the Fund. Advertising and selling expenses will be
paid from the Underwriting Account at no charge to the 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 Defined Asset Funds
have no management fees, limited transaction costs and no ongoing marketing
expenses, operating expenses are generally less than 0.25% a year. When
compounded annually, small differences in expense ratios can make a big
difference in your investment results.
TAXES
The following discussion addresses only the tax consequences of Units held
as capital assets and does not address the tax consequences of Units held by
dealers, financial institutions or insurance companies.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsors,
under existing law:
The Fund is not an association taxable as a corporation for federal
income tax purposes. Each investor will be considered the owner of a pro
rata portion of each Security in the Fund under the grantor trust rules of
Sections 671-679 of the Internal Revenue Code of 1986, as amended (the
'Code'). Each investor will be considered to have received all of the
dividends paid on his pro rata portion of each Security when such dividends
are received by the Fund, regardless of whether such dividends are used to
pay a portion of the current ongoing expenses or whether they are
automatically reinvested (see Reinvestment Plan).
Dividends considered to have been received by an investor from domestic
corporations which constitute dividends for federal income tax purposes
will generally qualify for the dividends-received deduction, which is
currently 70%, for corporate investors. Depending upon the individual
corporate investor's circumstances, limitations on the availability of the
dividends-received deduction may be applicable. Investors are urged to
consult their own tax advisers.
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An individual investor who itemizes deductions will be entitled to
deduct his pro rata share of current ongoing expenses paid by the Fund only
to the extent that this amount together with the investor's other
miscellaneous deductions exceeds 2% of his adjusted gross income.
The investor's basis in his Units will equal the cost of his Units,
including the initial sales charge. A portion of the sales charge is
deferred until the termination of the Fund or the redemption of the Units.
The proceeds received by an investor upon such event will reflect deduction
of the deferred amount (the 'Deferred Sales Charge' and a charge for
organizational expenses). The annual statement and the relevant tax
reporting forms received by investors will be based upon the amounts paid
to them, net of the Deferred Sales Charge and the charge for organizational
expenses. Accordingly, investors should not increase their basis in their
Units by the Deferred Sales Charge amount or any amount used to pay
organizational expenses.
A distribution of Securities by the Trustee to an investor (or to his
agent) upon redemption of Units will not be a taxable event to the investor
or to other investors. The redeeming or exchanging investor's basis for
such Securities will be equal to his basis for the same Securities
(previously represented by his Units) prior to such redemption or exchange,
and his holding period for such Securities will include the period during
which he held his Units. An investor will have a taxable gain or loss,
which will be a capital gain or loss, when the investor (or his agent)
sells the Securities so received in redemption for cash, when a redeeming
or exchanging investor receives cash in lieu of fractional shares, when the
investor sells his Units for cash or when the Trustee sells the Securities
from the Fund. However, deductions may be disallowed for losses realized by
investors who invest their redemption proceeds in a new Select Growth
Portfolio ('rollover investor') within 30 days of redemption to the extent
that the securities in that series are substantially identical to the old
Securities.
The lower net capital gain tax rate will be unavailable to those
noncorporate investors who, as of the Mandatory Termination Date (or
earlier termination of the Fund), have held their units for less than a
year and a day. Similarly, with respect to noncorporate rollover investors,
this lower rate will be unavailable if, as of the beginning of the rollover
period, those investors have held their shares for less than a year and a
day.
Under the income tax laws of the State and City of New York, the Fund is
not an association taxable as a corporation and the income of the Fund will
be treated as the income of the investors in the same manner as for federal
income tax purposes.
The foregoing discussion relates only to the tax treatment of U.S.
investors with regard to federal and certain aspects of New York State and
City income taxes. Investors may be subject to taxation in New York or in
other jurisdictions and should consult their own tax advisors in this
regard. Investors that are not U.S. citizens or residents ('foreign
investors') should be aware that dividend distributions from the Fund will
generally be subject to a withholding tax of 30%, or a lower treaty rate,
such as 15%, depending on their country of residence. Foreign investors
should consult their tax advisors on their eligibility for the withholding
rate under applicable treaties.
* * * *
At the termination of the Fund, the Trustee will furnish to each investor
an annual statement containing information relating to the dividends received by
the Fund on the Securities, the gross proceeds received by the Fund from the
disposition of any Security (resulting from redemption or the sale by the Fund
of any Security), and the fees and expenses paid by the Fund. The Trustee will
also furnish annual information returns to each investor and to the Internal
Revenue Service.
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 of these plans should review specific tax laws
related thereto
9
<PAGE>
and should consult their attorneys or tax advisors with respect
to the establishment and maintenance of any of these plans. These plans are
offered by brokerage firms, including the Sponsor 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 for self-employed individuals,
partnerships or unincorporated companies ('Keogh plans'). The assets of a Keogh
plan must be held in a qualified trust or other arrangement which meets the
requirements of the Code. 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 can make use of a
qualified IRA arrangement for the purchase of Units of the Fund. Any individual
(including one covered by an employer retirement plan) can make a contribution
in an IRA equal to the lesser of $2,000 ($2,250 in a spousal account) or 100% of
earned income; such investment must be made in cash. However, the deductible
amount an individual may contribute will be reduced if the individual's adjusted
gross income exceeds $25,000 (in the case of a single individual), $40,000 (in
the case of married individuals filing a joint return) or $200 (in the case of a
married individual filing a separate return). 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 the distributed and subject to tax at that
time. 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. Taxable distributions made before
attainment of age 59 1/2, except in the case of the participant's death or
disability or where the amount distributed is part of a series of substantially
equal periodic (at least annual) payments that are to be made over the life
expectancies of the participant and his or her beneficiary, are generally
subject to a surtax in an amount equal to 10% of the distribution.
Corporate Pension and Profit-Sharing Plans. A pension or profit-sharing
plan for employees of a corporation may purchase Units of the Fund.
RECORDS AND REPORTS
The Trustee keeps a register of the names, addresses and holdings of all
investors. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, which
may be inspected by investors at reasonable times during business hours.
With each distribution, the Trustee includes a statement of the amounts of
income and any other receipts being distributed. Following the termination of
the Fund, the Trustee sends each investor of record a statement summarizing
transactions in the Fund's accounts including amounts distributed from them,
identifying Securities sold and purchased and listing Securities held and the
number of Units outstanding at termination and stating the Redemption Price per
1,000 Units at termination, and the fees and expenses paid by the Fund, among
other matters. Fund accounts may be audited by independent accountants selected
by the Sponsors and any report of the accountants will be available from the
Trustee on request.
TRUST INDENTURE
The Fund is a 'unit investment trust' created under New York law by a Trust
Indenture among the Sponsors and the Trustee. This Prospectus summarizes various
provisions of the Indenture, but each statement is qualified in its entirety by
reference to the Indenture.
The Indenture may be amended by the Sponsors and the Trustee without
consent by investors to cure ambiguities or to correct or supplement any
defective or inconsistent provision, to make any amendment required by the SEC
or other governmental agency or to make any other change not materially adverse
to the interest of investors (as determined in good faith by the Sponsors). The
Indenture may also generally be amended upon consent of investors holding 51% of
the Units. No amendment may reduce the interest of any investor in the Fund
without the investor's consent or reduce the percentage of Units required to
consent to any amendment without unanimous consent of investors. Investors will
be notified of the substance of any amendment.
The Trustee may resign upon notice to the Sponsors. It may be removed by
investors holding 51% of the Units at any time or by the Sponsors without the
consent of investors if it becomes incapable of acting or bankrupt, its affairs
are taken over by public authorities, or if under certain conditions the
Sponsors determine in good faith that its replacement is in the best interest of
the investors. The resignation or removal becomes effective
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<PAGE>
upon acceptance of appointment by a successor; in this case, the Sponsors will
use their best efforts to appoint a successor promptly; however, if upon
resignation no successor has accepted appointment within 30 days after
notification, the resigning Trustee may apply to a court of competent
jurisdiction to appoint a successor.
Any Sponsor may resign so long as one Sponsor with a net worth of
$2,000,000 remains. A new Sponsor may be appointed by the remaining Sponsors and
the Trustee to assume the duties of the resigning Sponsor. If there is only one
Sponsor and it fails to perform its duties or becomes incapable of acting or
bankrupt or its affairs are taken over by public authorities, the Trustee may
appoint a successor Sponsor at reasonable rates of compensation, terminate the
Indenture and liquidate the Fund or continue to act as Trustee without a
Sponsor. Merrill Lynch, Pierce, Fenner & Smith Incorporated has been appointed
as Agent for the Sponsors by the other Sponsors.
The Sponsors and the Trustee are not liable to investors or any other party
for any act or omission in the conduct of their responsibilities absent bad
faith, willful misfeasance, negligence (gross negligence in the case of a
Sponsor) or reckless disregard of duty. The Indenture contains customary
provisions limitingthe liability of the Trustee.
MISCELLANEOUS
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors.
AUDITORS
The Statement of Condition in Part A of the Prospectus was audited by
Deloitte & Touche LLP, independent accountants, as stated in their opinion. It
is included in reliance upon that opinion given on the authority of that firm as
experts in accounting and auditing.
TRUSTEE
The Trustee and its address are stated on the back cover of the Prospectus.
The Trustee is subject to supervision by the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and either the
Comptroller of the Currency or state banking authorities.
SPONSORS
The Sponsors are listed on the back cover of the Prospectus. They may
include Merrill Lynch, Pierce, Fenner & Smith Incorporated, a wholly-owned
subsidiary of Merrill Lynch Co. Inc.; Smith Barney Inc., an indirect wholly-
owned subsidiary of The Travelers Inc.; Prudential Securities Incorporated, an
indirect wholly-owned subsidiary of the Prudential Insurance Company of America,
and Dean Witter Reynolds, Inc., a principal operating subsidiary of Dean Witter
Discover & Co. 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.
PUBLIC DISTRIBUTION
During the initial 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 or to selected
dealers who are members of the National Association of Securities Dealers, Inc.
at a concession not in excess of the maximum sales charge. The Sponsors intend
to qualify Units for sale in all states 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.
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<PAGE>
UNDERWRITERS' AND SPONSORS' PROFITS
Upon sale of the Units, the Underwriters will be entitled to receive sales
charges; each Underwriters' interest in the Underwriting Account will depend on
the number of Units acquired through the issuance of additional Units. The
Sponsors also realize a profit or loss on deposit of the Securities equal to the
difference between the cost of the Securities to the Fund (based on the
aggregate value of the Securities on their date of deposit) and the purchase
price of the Securities to the Sponsors plus commissions payable by the
Sponsors. In addition, a Sponsor or Underwriter may realize profits or sustain
losses on Securities it deposits in the Fund which were acquired from
underwriting syndicates of which it was a member. During the initial offering
period, the Underwriting Account also may realize profits or sustain losses as a
result of fluctuations after the initial date of deposit in the Public Offering
Price of the Units. In maintaining a secondary 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 and the prices at which they resell
these Units (which include the sales charge) or the prices at which they redeem
the Units. Cash, if any, made available by buyers of Units to the Sponsors prior
to a settlement date for the purchase of Units may be used in the Sponsors'
businesses to the extent permitted by Rule 15c3-3 under the Securities Exchange
Act of 1934 and may be of benefit to the Sponsors.
PERFORMANCE INFORMATION
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 of any series may not be indicative of results of future
series. Fund performance may be compared to the performance of the DJIA, the S&P
500 Composite Price Stock 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. Performance of the Stocks may be compared in sales
literature to performance of the S&P 500 Stock Price Composite Index, to which
may be added by year various national and international political and economic
events, and certain milestones in price and market indicators and in offerings
of Defined Asset Funds. This performance may also be compared for various
periods with an investment in short-term U.S. Treasury securities; however, the
investor should bear in mind that Treasury securities are fixed income
obligations, having the highest credit characterisitics, while the Stocks
involve greater risk because they have no maturities, and income thereon is
subject to the financial condition of, and declaration by, the issuers.
DEFINED ASSET FUNDS
For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Defined Asset Funds'
philosophy is to allow investors to 'buy with knowledge' (because, unlike
managed funds, the portfolio is relatively fixed) and 'hold with confidence'
(because the portfolio is professionally selected and regularly reviewed).
Defined Asset Funds offers an array of simple and convenient investment choices,
suited to fit a wide variety of personal financial goals--a buy and hold
strategy for capital accumulation, such as for children's education or
retirement, or attractive, regular current income consistent with the
preservation of principal. 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 the breadth and diversity that Defined Asset Funds offer.
Your investment objectives may call for a combination of Defined Asset Funds.
One of the most important investment decisions you face may be how to
allocate your investments among asset classes. Diversification among different
kinds of investments can balance the risks and rewards of each one. Most
investment experts recommend stocks for long-term capital growth. Long-term
corporate bonds offer relatively high rates of interest income. By purchasing
both defined equity and defined bond funds, investors can receive attractive
current income, as well as growth potential, offering some protection against
inflation. From
12
<PAGE>
time to time various advertisements, sales literature, reports
and other information furnished to current or prospective investors may present
the average annual compounded rate of return of selected asset classes over
various periods of time, compared to the rate of inflation over the same
periods.
Investors may pursue investment growth to meet long-term goals such as
children's education or retirement. But they are faced with decisions of
selecting stock groups, choosing individual stocks, determining when to buy and
sell and how to reinvest sales proceeds. Growth stocks--those whose price is
expected to appreciate above average usually because of superior growth in
earnings per share--can be difficult to select successfully because their prices
tend to be more volatile than more established stocks and, by the time they are
discovered by ordinary investors, their prices may have already increased beyond
attractive levels or may be susceptible to dramatic declines if actual
performance is less than anticipated. The Select Growth Portfolio, through the
screening process to identify stocks with superior prospects for earnings
growth, seeks to provide definition and discipline, and to avoid emotional
reactions, in growth stock investing. This approach looks for 'discounted'
growth stocks that may otherwise be overlooked.
EXCHANGE OPTION
You may exchange Fund Units for units of other Select Growth Portfolios or
any Select Ten Portfolios subject only to the remaining deferred sales charge on
the units received. Holders of units of any Select Growth Portfolio, Select Ten
Portfolio, or any other Defined Asset Fund with a regular maximum sales charge
of at least 3.50%, or of any unaffiliated unit trust with a regular maximum
sales charge of at least 3.0%, may exchange those units for Units of this Fund
at their relative net asset values, subject only to the remaining Deferred Sales
Charge on Fund Units.
To make an exchange, you should contact your financial professional to find
out what suitable exchange funds are available and to obtain a prospectus. You
may acquire units of only those exchange funds in which the Sponsors are
maintaining a secondary market and which are lawfully for sale in the state
where you reside. Except for the reduced sales charge, an exchange is a taxable
event normally requiring recognition of any gain or loss on the units exchanged.
However, the Internal Revenue Service may seek to disallow a loss if the
portfolio of the units acquired is not materially different from the portfolio
of the units exchanged; you should consult your own tax advisor. If the proceeds
of units exchanged are insufficient to acquire a whole number of exchange fund
units, you may pay the difference in cash (not exceeding the price of a single
unit acquired).
As the Sponsors are not obligated to maintain a secondary market in any
series, there can be no assurance that units of a desired series will be
available for exchange. The Exchange Option may be amended or terminated at any
time without notice.
SUPPLEMENTAL INFORMATION
Upon written or telephonic request to the Trustee shown on the back cover
of this Prospectus, investors will receive without charge supplemental
information about the Fund, which has been filed with the SEC. The supplemental
information includes more detailed risk factor disclosure about the types of
securities that may be part of the Portfolio and general information about the
structure and operation of the Fund.
13
<PAGE>
Defined
Asset FundsSM
SPONSORS: EQUITY INCOME FUND
Merrill Lynch, SELECT GROWTH PORTFOLIO--
Pierce, Fenner & Smith Incorporated1995 SERIES 4
Defined Asset Funds
P.O. Box 9051
Princeton, N.J. 08543-9051 This Prospectus does not contain all of the
(609) 282-8500 information with respect to the investment
Smith Barney Inc. company set forth in its registration
Unit Trust Department statement and exhibits relating thereto which
388 Greenwich Street--23rd Floor have been filed with the Securities and
New York, NY 10013 Exchange Commission, Washington, D.C. under
1-800-223-2532 the Securities Act of 1933 and the Investment
PaineWebber Incorporated Company Act of 1940, and to which reference
1200 Harbor Blvd. is hereby made.
Weehawken, N.J. 07087 ------------------------------
(201) 902-3000 No person is authorized to give any
Prudential Securities Incorporated information or to make any representations
One Seaport Plaza with respect to this investment company not
199 Water Street contained in its registration statement and
New York, N.Y. 10292 exhibits relating thereto; and any
(212) 776-1000 information or representation not contained
Dean Witter Reynolds Inc. therein must not be relied upon as having
Two World Trade Center--59th Floor been authorized.
New York, N.Y. 10048 ------------------------------
(212) 392-2222 When Units of this Fund are no longer
TRUSTEE: available this Prospectus may be used as a
The Chase Manhattan Bank, N.A. preliminary prospectus for a future series,
(a National Banking Association) and investors should note the following:
Customer Service Retail Department Information contained herein is subject to
770 Broadway--7th Floor amendment. A registration statement relating
New York, N.Y. 10003-9598 to securities of a future series has been
1-800-323-1508 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 or qualification under the
securities laws of any such State.
15157--11/95
