DEFINED ASSET FUNDS-SM-
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EQUITY INVESTOR FUND
CONCEPT SERIES
REAL ESTATE INCOME FUND--3
(A UNIT INVESTMENT TRUST)
- MONTHLY INCOME
- PROFESSIONAL SELECTION
- REINVESTMENT OPTION
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Sponsor:
Merrill Lynch,[el]
Pierce, Fenner & Smith Incorporated
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The Securities and Exchange Commission has not approved or disapproved
these Securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
Prospectus dated December 17, 1999.
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Defined Asset FundsSM
Defined Asset FundsSM is America's oldest and largest family of unit investment
trusts, with over $160 billion sponsored over the last 28 years. Defined Asset
Funds has been a leader in unit investment trust research and product
innovation. Our family of Funds helps investors work toward their financial
goals with a full range of quality investments, including municipal, corporate
and government bond portfolios, as well as domestic and international equity
portfolios.
Defined Asset Funds offer a number of advantages:
- A disciplined strategy of buying and holding with a long-term view is the
cornerstone of Defined Asset Funds.
- Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
- Defined Portfolios: We choose the stocks or bonds in advance, so you know
what you're investing in.
- Professional research: Our dedicated research team seeks out stocks or bonds
appropriate for a particular fund's objectives.
- Ongoing supervision: We monitor each portfolio on an ongoing basis.
No matter what your investment goals, risk tolerance or time horizon, there's
probably a Defined Asset Fund that suits your investment style. Your financial
professional can help you select a Defined Asset Fund that works best for your
investment portfolio.
THE FINANCIAL INFORMATION IN THIS PROSPECTUS IS AS OF THE EVALUATION DATE,
SEPTEMBER 30, 1999.
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CONTENTS
PAGE
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Risk/Return Summary.................. 3
What You Can Expect From Your
Investment......................... 6
Income............................. 6
Records and Reports................ 6
The Risks You Face................... 6
Concentration Risk................. 6
Litigation and Legislation Risks... 6
Selling Units........................ 6
Sponsor's Secondary Market......... 7
Selling Units to the Trustee....... 7
How The Fund Works................... 7
Pricing............................ 7
Evaluations........................ 7
Income............................. 7
Expenses........................... 8
Portfolio Changes.................. 8
Fund Termination................... 9
Certificates....................... 9
Trust Indenture.................... 9
Legal Opinion...................... 10
Auditors........................... 10
Sponsors........................... 10
Trustee............................ 10
Underwriters' and Sponsor's
Profits.......................... 11
Public Distribution................ 11
Code of Ethics..................... 11
Year 2000 Issues................... 11
Taxes................................ 11
Supplemental Information............. 12
Financial Statements................. D-1
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RISK/RETURN SUMMARY
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1. WHAT IS THE PORTFOLIO'S OBJECTIVE?
The Portfolio seeks total return through
capital appreciation and high current
income by investing for approximately
one year in a fixed portfolio of
publicly traded equity real estate
investment trusts.
You can participate in the Portfolio by
purchasing units. Each unit represents
an equal share of the stocks in the
Portfolio and receives an equal share of
income distributions.
2. WHAT IS THE PORTFOLIO'S INVESTMENT
STRATEGY?
- The Portfolio contains 25 equity REITs
selected by the Sponsor with research
provided by a professional REIT
consultant, Cohen & Steers Capital
Management, Inc. Working with Cohen &
Steers, we selected each REIT stock
based on research including:
-- risk-adjusted potential returns;
-- performance under varying economical
conditions;
-- financial strength and flexibility;
-- cash-flow quality; and
-- growth potential.
- We also considered liquidity, yield and
diversification by category and
geographic location.
- In the opinion of the Sponsor, on the
initial date of deposit, these REITs
have attractive dividend yields and the
potential for capital appreciation and
increasing dividends.
- Over the long-term, REITs tend to be a
hedge against inflation, and have
historically demonstrated a low
correlation to price movements of major
indices.
- Investing in the Portfolio rather than
in only one or two of the underlying
REITs is a way to diversify your
investment, even though 100% of the
Portfolio is invested in a single
industry.
The Portfolio plans to hold the stocks
in the Portfolio for about one year. At
the end of approximately one year, we
will liquidate the Portfolio and select
a new portfolio, if available.
3. WHAT REAL ESTATE SECTORS ARE REPRESENTED
IN THE PORTFOLIO?
The Portfolio contains REITs in the
following real estate sectors:
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- Office/Industrial 33%
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- Apartment 24
- Regional Mall 14
- Healthcare 9
- Shopping Center 12
- Industrial 8
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4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE
PORTFOLIO. THIS CAN HAPPEN FOR VARIOUS
REASONS, INCLUDING:
- The Portfolio is considered to be
"concentrated" in the real estate
industry and is subject to certain risks
associated with ownership of real estate
generally and the value of REITs in
particular.
-- The REIT market has undergone
considerable growth and change in
recent years with the transformation
from private to public ownership of
real estate. Significant developments
affecting REITs, which are generally
disclosed in periodic reports filed
by the REITs under the federal
securities laws, are expected to
continue.
- There can be no assurance that the
issuers of the underlying securities
will pay dividends.
- Stock prices can be volatile.
- Share prices and dividend yields may
decline during the life of the
Portfolio.
- The Portfolio may continue to purchase
or hold the REITs originally selected
even though their market value or yield
may have changed.
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5. IS THIS PORTFOLIO APPROPRIATE FOR YOU?
Yes, if you want total return through
capital appreciation and high dividend
income. You will benefit from a
professionally selected and supervised
portfolio whose risk is reduced by
investing in equity securities of
different issuers.
The Portfolio is NOT appropriate for you
if you are unwilling to take the risk
involved with an equity REIT investment.
It may not be appropriate for you if you
are seeking preservation of capital.
6. WHAT ARE THE PORTFOLIO'S FEES AND
EXPENSES?
This table shows the costs and expenses
you may pay, directly or indirectly,
when you invest in the Portfolio.
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$0.88
Trustee's Fee
$0.70
Portfolio Supervision,
Bookkeeping and
Administrative Fees (including updating
expenses)
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ESTIMATED ANNUAL OPERATING EXPENSES
AMOUNT
PER 1,000
UNITS
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$0.20
Organization Costs
$1.50
REIT Consultant's Fee
$0.51
Other Operation Expenses
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$3.59
TOTAL
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The Sponsor historically paid
organization costs and updating
expenses.
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INVESTOR FEES
4.50%
Maximum Sales Fee (Load) on new
purchases (as a percentage of $1,000
invested)
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You will pay an up-front sales fee of
approximately 1.00%. In addition,
monthly deferred sales charges of $2.50
per 1,000 units will be deducted from
the Portfolio's net asset value
November 1, 1999 through May 1, 2000.
The maximum sales fees are as follows:
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YOUR MAXIMUM
SALES FEE
IF YOU INVEST: WILL BE:
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Less than $50,000 2.75%
$ 50,000 to $99,999 2.50%
$100,000 to $249,999 2.00%
$250,000 to $999,999 1.75%
$1,000,000 or more 1.00%
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Selling dealers will be entitled to a
concession of $11 per 1,000 units ($5
per 1,000 units from purchases of $1
million or more).
7. IS THE PORTFOLIO MANAGED?
Unlike a mutual fund, the Portfolio is
not managed and securities are not sold
because of market changes. The Sponsor
monitors the portfolio and may instruct
the Trustee to sell securities under
certain limited circumstances.
8. HOW DO I BUY UNITS?
You can buy units from the Sponsor and
other broker-dealers. The Sponsor is
listed later in this prospectus. Some
banks may offer units for sale through
special arrangements with the Sponsor,
although certain legal restrictions may
apply. Employees of the Sponsor and
Sponsor affiliates and non-employee
directors of the Sponsor may purchase
Units at a reduced sales charge.
The minimum investment is $250.
UNIT PRICE PER 1,000 UNITS $883.64
(as of September 30, 1999)
Unit price is based on the net asset
value of the Portfolio plus the up-front
sales fee.
The Portfolio stocks are valued by the
Trustee on the basis of their closing
prices at 4:00 p.m. Eastern time every
business day. Unit price changes every
day with changes in the prices of the
stocks.
9. HOW DO I SELL UNITS?
You may sell your units at any time to
the Sponsor or the Trustee for the net
asset value determined at the close of
business on the date of sale, less any
remaining deferred sales fee and the
costs of liquidating securities to meet
the redemption.
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10. HOW ARE DISTRIBUTIONS MADE AND TAXED?
The Fund pays monthly distributions of
any dividend income, net of expenses, on
the 25th of each month if you own units
on the 10th of that month. Distributions
of ordinary income will be dividends for
federal income tax purposes and will not
be eligible for the dividends-received
deduction for corporations. Certain
distributions may be designated as
capital gain dividends, which may be
eligible for the 20% maximum federal tax
rate in the hands of noncorporate
investors. Distributions to foreign
investors will generally be subject to
withholding taxes.
11. WHAT OTHER SERVICES ARE AVAILABLE?
REINVESTMENT
You may choose to reinvest your
distributions into additional units of
the Portfolio. You will pay only the
deferred sales fee remaining at the time
of reinvestment. Unless you choose
reinvestment, you will receive your
distributions in cash.
EXCHANGE PRIVILEGES
You may exchange units of this Portfolio
for units of certain other Defined Asset
Funds. You may also exchange into this
Portfolio from certain other funds. We
charge a reduced sales fee on designated
exchanges.
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WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
INCOME
The Portfolio will pay to you any income it has received monthly during its
life. Because the Portfolio generally pays dividends as they are received,
individual income payments will fluctuate based upon the amount of dividends
declared and paid by each issuer. Other reasons your income may vary are:
- changes in the Portfolio because of additional securities purchases or
sales;
- a change in the Portfolio's expenses; and
- the amount of dividends declared and paid.
There can be no assurance that any dividends will be declared or paid.
RECORDS AND REPORTS
You will receive:
- - a notice from the Trustee if new equity securities are deposited in exchange
or substitution for equity securities originally deposited;
- - annual reports on Portfolio activity; and
- - annual tax information. THIS WILL ALSO BE SENT TO THE IRS. YOU MUST REPORT THE
AMOUNT OF INCOME RECEIVED DURING THE YEAR. PLEASE CONTACT YOUR TAX ADVISOR IN
THIS REGARD.
You may request audited financial statements of the Portfolio from the Trustee.
You may inspect records of Portfolio transactions at the Trustee's office during
regular business hours.
THE RISKS YOU FACE
CONCENTRATION RISK
When stocks in a particular industry make up 25% or more of the Portfolio, the
Portfolio is said to be "concentrated" in that industry, which makes the
Portfolio less diversified.
Many factors can 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, among other factors:
- general and local economic conditions;
- decline in real estate values;
- the financial health of tenants;
- overbuilding and increased competition for tenants;
- oversupply of properties for sale, changing demographics, changes in
interest rates, changes in government regulations, faulty construction;
- changes in neighborhood values;
- 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.
- E-commerce though the internet may have an adverse impact on retail sales of
tenants of retail shopping centers and to a lesser extent, regional malls.
- The financial condition of some tenants of healthcare REITs have been
adversely affected by the balanced budget amendment of 1997 which reduced
medicare reimbursement levels.
- REITs may not be diversified and are subject to;
-- the risks of financing projects;
-- defaults by borrowers;
-- self-liquidation; and
-- the market's perception of the REIT industry generally.
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- Certain REITs in the Portfolio may be structured as UPREITs. This form of
REIT owns an interst in a partnership that owns real estate, which can
result in a potential conflict of interest between shareholders who may want
to sell an asset and partnership interest holders who would be subject to
tax liability if the REIT sells the property.
- In some cases, REITs have entered into "no sell" agreements, which are
designed to avoid a taxable event to the holders of partnership units by
preventing the REIT from selling the property. This kind of arrangement
could mean that the REIT would refuse a lucrative offer for an asset or be
forced to hold on to a poor asset. Because 'no sell' agreements are often
undisclosed, the Sponsor is unable to state whether any of the REITs in the
Portfolio have entered into this kind of arrangement.
REIT TAXATION RISK
Each REIT in which the Portfolio invests will have stated its intention to be
treated as a "real estate investment trust." However, we cannot assure you that
the REITs have complied or will comply with the numerous requirements necessary
for a REIT to qualify as a "real estate investment trust." If a REIT fails to so
qualify, its taxable income will be subject to a regular corporate tax, and it
will not be eligible for a treatment as a REIT for the next four taxable years.
LITIGATION AND LEGISLATION RISKS
We do not know of any pending litigation that might have a material adverse
effect upon the Portfolio.
Future tax legislation could affect the value of the Portfolio by:
- reducing the dividends-received deduction or
- increasing the corporate tax rate resulting in less money available for
dividend payments.
SELLING OR EXCHANGING UNITS
You can sell your units at any time for a price based on their net asset value.
Your net asset value is calculated each business day by:
- ADDING the value of the Portfolio Securities, cash and any other Portfolio
assets;
- SUBTRACTING accrued but unpaid Portfolio expenses, unreimbursed Trustee
advances, cash held to buy back units or for distribution to investors, and
any other Portfolio liabilities; and
- DIVIDING the result by the number of outstanding units.
Your net asset value when you sell may be more or less than your cost because of
sales fees, market movements and changes in the Portfolio.
SPONSOR'S SECONDARY MARKET
While we are not obligated to do so, we will buy back units at net asset value
less any remaining deferred sales fee and the cost of liquidating Securities to
meet the redemption. We may resell the units to other buyers or to the Trustee.
We have maintained a secondary market continuously for more than 28 years, but
we could discontinue it without prior notice for any business reason.
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SELLING UNITS TO THE TRUSTEE
Regardless of whether we maintain a secondary market, you can sell your units to
the Trustee at any time by contacting your broker, dealer or financial
institution that holds your units in street name. Sometimes, additional
documents are needed such as a trust document, certificate of corporate
authority, certificate of death or appointment as executor, administrator or
guardian.
Within seven days after your request and the necessary documents are received,
the Trustee will mail a check to you. Contact the Trustee for additional
information.
As long as we are maintaining a secondary market, the Trustee will sell your
units to us at a price based on net asset value. If there is no secondary
market, the Trustee will sell your units in the over-the-counter market if it
believes it can obtain a higher price. In that case, you will receive the net
proceeds of the sale.
If the Portfolio does not have cash available to pay you for the units you are
selling, the Sponsor will select securities to be sold. These sales could be
made at times when the securities would not otherwise be sold and may result in
your receiving less than you paid for your unit and also reduce the size and
diversity of the Portfolio.
If you sell units with a value of at least $250,000, you may choose to receive
your distribution 'in kind.' If you so choose, you will receive securities and
cash with a total value equal to the price of your units. The Trustee will try
to distribute securities in the portfolio pro rata, but it reserves the right to
distribute only one or a few securities. The Trustee will act as your agent in
an in-kind distribution and will either hold the securities for your account or
transfer them as you instruct. You must pay any transaction costs as well as
transfer and ongoing custodial fees on sales of securities distributed in kind.
There could be a delay in paying you for your units:
- if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
- if the SEC determines that trading on the New York Stock Exchange is
restricted or that an emergency exists making sale or evaluation of the
securities not reasonably practicable; and
- for any other period permitted by SEC order.
ROLLOVER/EXCHANGE OPTION
When this Portfolio is about to terminate, you may have the option to roll your
proceeds into the next Real Estate Income Fund if one is available.
If you hold your units with the Sponsor and notify your financial adviser by
October 27, 2000, your units will be redeemed and the proceeds from the sale of
the securities will be reinvested in units of the new Real Estate Income Fund.
If you decide not to roll over your proceeds, you will receive a cash
distribution (or, if you so choose, an in-kind distribution) after the Portfolio
terminates. The Portfolio will terminate by November 24, 2000.
You may exchange units of this Portfolio for units of another Select or Focus
Series or certain other Defined Asset Funds at a reduced sales fee any time
before this
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Portfolio terminates. To exchange units, you should talk to your financial
professional about what Portfolios are exchangeable, suitable and currently
available.
We may amend or terminate the options to exchange your units or roll your
proceeds at any time without notice.
HOW THE FUND WORKS
PRICING
Units are charged a combination of initial and deferred sales fees.
EVALUATIONS
The Trustee values the securities on each business day (i.e., any day other than
Saturdays, Sundays and the following holidays as observed by the New York Stock
Exchange: New Year's Day, Martin Luther King, Jr. 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 or, if closing sales prices are not available, at the
mean between the closing bid and offer prices.
INCOME
- - The annual income per unit, after deducting estimated annual Portfolio
expenses 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
Portfolio 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 net of
estimated expenses. Each investor's monthly income distribution will equal
approximately one-twelfth of the investor's pro rata share of the estimated
annual income to the Income Account, after deducting estimated expenses.
Because dividends on the securities are not received at a constant rate
throughout the year, any distribution may be more or less than the amount then
credited to the income account. The Trustee credits dividends received to an
Income Account and other receipts to a Capital Account. The Trustee may
establish a reserve account by withdrawing from these accounts amounts it
considers appropriate to pay any material liability. These accounts do not
bear interest.
EXPENSES
The Trustee is paid a fee monthly. It also benefits when it holds cash for the
Portfolio in non-interest bearing accounts. The Trustee may also receive
additional amounts:
- for extraordinary services and costs of indemnifying the Trustee and the
Sponsor;
- costs of actions taken to protect the Portfolio and other legal fees and
expenses;
- expenses for keeping the Portfolio's registration statement current; and
- Portfolio termination expenses and any governmental charges.
The Sponsor is currently reimbursed up to 70 CENTS per 1,000 units annually for
providing portfolio supervisory, bookkeeping and
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administrative services and for any other expenses properly chargeable to the
Portfolio. Legal, typesetting, electronic filing and regulatory filing fees and
expenses associated with updating the Portfolio's registration statement yearly
are also now chargeable to the Portfolio. While this fee may exceed the amount
of these costs and expenses attributable to this Portfolio, the total of these
fees for all Series of Defined Asset Funds will not exceed the aggregate amount
attributable to all of these Series for any calendar year. Certain of these
expenses were previously paid for by the Sponsor.
The Trustee's and Sponsor's fees may be adjusted for inflation without
investors' approval.
The Sponsor will pay advertising and selling expenses at no charge to the
Portfolio. If Portfolio expenses exceed initial estimates, the Portfolio will
owe the excess. The Trustee has a lien on Portfolio assets to secure
reimbursement of Portfolio expenses and may sell securities if cash is not
available.
PORTFOLIO CHANGES
If we maintain a secondary market in units but are unable to sell the units that
we buy in the secondary market, we will redeem units, which will affect the size
and composition of the portfolio.
We decide whether to offer units for sale that we acquire in the secondary
market after reviewing:
- diversity of the Portfolio;
- size of the Portfolio relative to its original size;
- ratio of Portfolio expenses to income; and
- cost of maintaining a current prospectus.
PORTFOLIO TERMINATION
When the Portfolio is about to terminate you will receive a notice, and you will
be unable to sell your units after that time. Unless you choose to receive an
in-kind distribution of securities, we will sell any remaining securities, and
you will receive your final distribution in cash.
You will pay your share of the expenses associated with termination, including
brokerage costs in selling securities. This may reduce the amount you receive as
your final distribution.
NO CERTIFICATES
All investors are required to hold their Units in uncertificated form and in
"street name" by their broker, dealer or financial institution at the Depository
Trust Company.
TRUST INDENTURE
The Portfolio is a "unit investment trust" governed by a Trust Indenture, a
contract between the Sponsor and the Trustee, which sets forth their duties and
obligations and your rights. A copy of the Indenture is available to you on
request to the Trustee. The following summarizes certain provisions of the
Indenture.
The Sponsor and the Trustee may amend the Indenture without your consent:
- to cure ambiguities;
- to correct or supplement any defective or inconsistent provision;
- to make any amendment required by any governmental agency; or
- to make other changes determined not to be materially adverse to your best
interest (as determined by the Sponsor).
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Investors holding 51% of the units may amend the Indenture. Every investor must
consent to any amendment that changes the 51% requirement. No amendment may
reduce your interest in the Portfolio without your written consent.
The Trustee may resign by notifying the Sponsor. The Sponsor may remove the
Trustee without your consent if:
- it fails to perform its duties;
- it becomes incapable of acting or bankrupt or its affairs are taken over by
public authorities; or
- the Sponsor determines that its replacement is in your best interest.
Investors holding 51% of the units may remove the Trustee. The Trustee may
resign or be removed by the Sponsor without the consent of investors. The
resignation or removal of the Trustee becomes effective when a successor accepts
appointment. The Sponsor will try to appoint a successor promptly; however, if
no successor has accepted within 30 days after notice of resignation, the
resigning Trustee may petition a court to appoint a successor.
If the Sponsor it fails to perform its duties or becomes bankrupt the Trustee
may:
- remove it and appoint a replacement Sponsor;
- liquidate the Portfolio; or
- continue to act as Trustee without a Sponsor.
The Trust Indenture contains customary provisions limiting the liability of the
Trustee and the Sponsor.
LEGAL OPINION
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
special counsel for the Sponsor, has given an opinion that the units are validly
issued.
AUDITORS
Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281,
independent accountants, audited the Statement of Condition included in this
prospectus.
SPONSOR
The Sponsor is:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.)
P.O. Box 9051,
Princeton, NJ 08543-9051
The Sponsor is a Delaware corporation and it, or its predecessor, has acted as
sponsor to many unit investment trusts. As a registered broker-dealer the
Sponsor buys and sells securities (including investment company shares) for
others (including investment companies) and participates as an underwriter in
various selling groups.
TRUSTEE
The Bank of New York, Unit Investment Trust Department, Box 974-Wall Street
Station, New York, New York 10268-0974, is the Trustee. It is supervised by the
Federal Deposit Insurance Corporation, the Board of Governors of the Federal
Reserve System and New York State banking authorities.
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UNDERWRITERS' AND SPONSOR'S PROFITS
Underwriters receive sales charges when they sell units. Any cash made available
by you to the Sponsor before the settlement date for those units may be used in
the Sponsor's businesses to the extent permitted by federal law and may benefit
the Sponsor.
The Sponsor or Underwriter may realize profits or sustain losses on stocks in
the Portfolio which were acquired from underwriting syndicates of which it was a
member.
In maintaining a secondary market, the Sponsor 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 or redeem them.
PUBLIC DISTRIBUTION
On units sold or redeemed, dealers will be entitled to a concession of $11 per
1,000 Units ($5 per 1,000 Units for purchases of $1 million or more).
The Sponsor does not intend to qualify units for sale in any foreign countries.
This prospectus does not constitute an offer to sell units in any country where
units cannot lawfully be sold.
CODE OF ETHICS
The Sponsor has adopted a code of ethics requiring reporting of personal
securities transactions by its employees with access to information on portfolio
transactions. The goal of the code is to prevent fraud, deception or misconduct
against the Portfolio and to provide reasonable standards of conduct.
YEAR 2000 ISSUES
Many computer systems were designed in such a way that they may be unable to
distinguish between the year 2000 and the year 1900 (commonly known as the "Year
2000 Problem"). We do not expect that the computer system changes necessary to
prepare for the Year 2000 will cause any major operational difficulties for the
Portfolio. The Year 2000 Problem may adversely affect the issuers of the
securities contained in the Portfolio, but we cannot predict whether any impact
will be material to the Portfolio as a whole.
ADVERTISING AND SALES LITERATURE
Advertising and sales literature may include brief descriptions of the principal
businesses of the companies represented in the Portfolio and the research
analysis of why they were selected.
TAXES
The following summarizes the material income tax consequences of holding Units.
It assumes that you are not a dealer, financial institution, insurance company
or other investor with special circumstances or subject to special rules. You
should consult your own tax adviser about your particular circumstances.
GENERAL TREATMENT OF THE FUND AND YOUR INVESTMENT
The Portfolio intends to qualify for special tax treatment as a regulated
investment company so that it will not be subject to federal income tax on the
portion of its taxable income that it distributes to investors in a timely
manner.
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DISTRIBUTIONS
Distributions to you of the Portfolio's dividend income and of the Portfolio's
gains from Securities it has held for one year or less will generally be taxed
to you as ordinary income, to the extent of the Portfolio's taxable income not
attributable to the Portfolio's net capital gain. Distributions to you in excess
of the Portfolio's taxable income will be treated as a return of capital and
will reduce your basis in your Units. To the extent such distributions exceed
your basis, they will be treated as gain from the sale of your Units.
Distributions to you that are treated as ordinary income will constitute
dividends for federal income tax purposes. Corporate investors will not be
eligible for the 70% dividends-received deduction with respect to these
distributions.
Distributions to you of the Portfolio's net capital gain will generally be
taxable to you as long-term capital gain, regardless of how long you have held
your Units.
GAIN OR LOSS UPON DISPOSITION
You will generally recognize capital gain or loss when you dispose of your
Units. If you receive Securities upon redemption of your Units (including
pursuant to the rollover option), you will generally recognize capital gain or
loss equal to the difference between your basis in your Units and the fair
market value of the Securities received in redemption.
If your net long-term capital gains exceed your net short-term capital losses,
the excess may be subject to tax at a lower rate than ordinary income. Any
capital gain or loss that you recognize on a disposition of your units will be
long-term if you have held you units for more than one year and short-term
otherwise. Because the deductibility of capital losses is subject to
limitations, you may not be able to deduct all of your capital losses. You
should consult your tax adviser in this regard.
YOUR BASIS IN THE SECURITIES
Your aggregate basis in the Units will generally be equal to the cost of your
Units, including the initial sales charge. You should not increase your basis in
your Units by deferred sales charges or organizational expenses, because the tax
reporting form and annual statements you receive will be based on the net
amounts paid to you, from which these expenses will already be deducted. You
should not increase your basis in your Units by deferred sales charges by
organizational expenses.
FOREIGN INVESTORS
If you are a foreign investor and you are not engaged in a U.S. trade or
business, you generally will be subject to 30% withholding tax (or a lower
applicable treaty rate) on distributions. Based on the advice of our special
counsel as to existing law, the Trustee does not intend to withhold from
distributions to you of a Portfolio's net capital gain. Gain from sale or
redemption of your units should not be subject to withholding tax. You should
consult your tax adviser about the possible application of federal, state and
local, and foreign taxes.
RETIREMENT PLANS
You may wish to purchase units for an Individual Retirement Account ('IRAs') or
other retirement plan. Generally, capital gains
13
<PAGE>
and income received in each of these plans are exempt from federal taxation. All
distributions from these types of plans are generally treated as ordinary income
but may, in some cases, be eligible for tax-deferred rollover treatment. You
should consult your attorney or tax adviser about the specific tax rules
relating to these plans. These plans are offered by brokerage firms, including
the Sponsors of this Portfolio, and other financial institutions. Fees and
charges with respect to such plans may vary.
SUPPLEMENTAL INFORMATION
You can receive at no cost supplemental information about the Portfolio by
calling the Trustee. The supplemental information includes more detailed risk
disclosure and general information about the structure and operation of the
Portfolio. The supplemental information is also available from the SEC.
14
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 3,
DEFINED ASSET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Equity Investor Fund - Concept Series,
Real Estate Income Fund - 3, Defined Asset Funds:
We have audited the accompanying statement of condition of Equity Investor Fund
- - Concept Series, Real Estate Income Fund - 3, Defined Asset Funds including the
portfolio, as of September 30, 1999 and the related statements of operations and
of changes in net assets for the period October 31, 1998 to September 30, 1999.
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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Securities owned at
September 30, 1999, as shown in such portfolio, were confirmed to us by The Bank
of New York, 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 Investor Fund - Concept
Series, Real Estate Income Fund - 3, Defined Asset Funds at September 30, 1999
and the results of its operations and changes in its net assets for the
above-stated period in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
November 22, 1999
D - 1
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 3,
DEFINED ASSET FUNDS
STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1999
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $62,182,463) (Note 1)................. $58,481,544
Dividends receivable........................... 465,650
Receivable for securities sold................. 124,922
Cash........................................... 10,995
---------------
Total trust property................. 59,083,111
LESS LIABILITIES:
Redemption Payable............................. $ 168,749
Accrued Expenses............................... 47,036
Deferred sales charge payable.................. 992,239 1,208,024
------------ --------------
NET ASSETS, REPRESENTED BY:
66,099,273 units of fractional undivided
interest outstanding (Note 3)................ 57,445,137
Undistributed net investment income............ 429,950
------------
$57,875,087
==============
UNIT VALUE ($57,875,087/66,099,273 units)........ $0.87558
==============
</TABLE>
See Notes to Financial Statements.
D - 2
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 3,
DEFINED ASSET FUNDS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
October 31,
1998
to
September 30,
1999
-----------------
<S> <C>
INVESTMENT INCOME:
Dividend income................................. $3,630,267
Trustee's fees and expenses..................... (65,932)
Sponsors' fees ................................. (25,511)
-----------------
Net investment income........................... 3,538,824
-----------------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Realized loss on securities sold
or redeemed................................... (258,856)
Unrealized depreciation of investments.......... (3,700,919)
-----------------
Net realized and unrealized loss on
investments................................... (3,959,775)
-----------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS................................. $ (420,951)
=================
</TABLE>
See Notes to Financial Statements.
D - 3
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 3,
DEFINED ASSET FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
October 31,
1998
to
September 30,
1999
-----------------
<S> <C>
OPERATIONS:
Net investment income........................... $ 3,538,824
Realized loss on securities sold
or redeemed................................... (258,856)
Unrealized depreciation of investments.......... (3,700,919)
-----------------
Net decrease in net assets resulting
from operations............................... (420,951)
-----------------
DISTRIBUTIONS TO HOLDERS (Note 2)
Income.......................................... (3,341,996)
Principal....................................... (13,948)
-----------------
Total distributions............................. (3,355,944)
-----------------
CAPITAL SHARE TRANSACTIONS:
Issuance of 70,671,564 units.................... 67,058,084
Redemptions of 4,827,449 units.................. (4,482,545)
Consulting fees................................. (66,575)
Deferred sales charge........................... (992,239)
Organizational expense.......................... (114,192)
-----------------
Net capital share transactions.................. 61,402,533
-----------------
NET INCREASE IN NET ASSETS...................... 57,625,638
NET ASSETS AT BEGINNING OF PERIOD................. 249,449
-----------------
NET ASSETS AT END OF PERIOD....................... $57,875,087
=================
PER UNIT:
Income distributions during period.............. $0.06137
Principal distributions during period........... $0.00059
=================
Net asset value at end of period................ $0.87558
=================
TRUST UNITS OUTSTANDING AT END OF PERIOD.......... 66,099,273
=================
</TABLE>
See Notes to Financial Statements.
D - 4
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES,
REAL ESTATE INCOME FUND - 3,
DEFINED ASSET FUNDS
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
(a) Securities are stated at market value; for securities listed on a
national securities exchange, value is based on the closing sale price
on such exchange and, for securities not so listed, value is based on
the over-the-counter market. Gains and losses on sales of securities
are determined using the first-in, first-out cost method.
(b) The Fund is not subject to income taxes. Accordingly, no provision for
such taxes is required.
(c) Dividend income is recorded as earned on the ex-dividend date.
2. DISTRIBUTIONS
A distribution of net investment income is made to Holders each month.
Receipts other than dividends, after deductions for redemptions and
applicable expenses, are also distributed periodically.
3. NET CAPITAL
<TABLE>
<S> <C>
Cost of 66,099,273 units at Date of Deposit................................. $62,561,743
Less sales charge........................................................... 989,730
--------------
Net amount applicable to Holders............................................ 61,572,013
Redemptions of units - net cost of 4,827,449 units redeemed less
redemption amounts........................................................ 27,615
Principal distribution...................................................... (13,948)
Realized loss on securities sold or redeemed................................ (258,856)
Net unrealized depreciation of investments.................................. (3,700,919)
Consulting fee.............................................................. (66,575)
Organizational expense...................................................... (114,192)
--------------
Net capital applicable to Holders........................................... $57,445,137
==============
</TABLE>
4. INCOME TAXES
As of September 30, 1999, net unrealized depreciation of investments,
based on cost for Federal income tax purposes, aggregated $3,700,919, of
which $759,368 related to appreciated securities and $4,460,287 related to
depreciated securities. The cost of investment securities for Federal
income tax purposes was $62,182,463 at September 30, 1999.
D - 5
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES
REAL ESTATE INCOME FUND - 3
DEFINED ASSET FUNDS
PORTFOLIO
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Current
Portfolio No. and Title of Number of Percentage Dividend
Securities Shares of fund(1) Yield(3) Cost Market Value(2)
---------- ------ ---------- -------- ---- ---------------
<S> <C> <C> <C> <C> <C>
1 Apartment Investment & Management Co. 74,480 4.87% 2.50 $ 2,772,382 $ 2,848,680
2 Archstone Communities Trust 128,300 4.24 1.48 2,595,623 2,477,794
3 Arden Realty 123,536 4.59 1.78 2,853,730 2,686,908
4 Brandywine 143,592 3.99 1.56 2,538,030 2,333,370
5 Cabot Industrial Trust 128,600 4.23 1.36 2,524,208 2,475,550
6 Camden Property Trust 93,480 4.30 2.08 2,405,665 2,512,275
7 CarrAmerica Realty Corporation 120,434 4.52 1.85 2,765,261 2,642,021
8 Charles E. Smith Residential Realty, Inc. 81,424 4.76 2.14 2,456,613 2,783,683
9 Crescent Real Estate Equities Co. 106,744 3.29 2.20 2,412,781 1,921,392
10 Developers Diversified Realty Corporation 138,288 3.31 1.40 2,303,067 1,936,032
11 First Industrial Realty Trust 99,998 4.23 2.40 2,570,824 2,474,951
12 Health Care Property Investors, Inc. 72,888 3.27 2.80 2,167,510 1,913,310
13 Highwoods Properties, Inc. 94,734 4.19 2.22 2,374,275 2,451,242
14 JDN Realty Corporation 120,554 4.23 1.58 2,531,560 2,471,357
15 JP Realty, Inc. 120,920 3.54 1.86 2,420,658 2,070,755
16 Liberty Property Trust 109,266 4.24 2.08 2,548,523 2,478,972
17 Mack-Cali Realty Corporation 87,308 4.00 2.20 2,604,425 2,340,946
18 Nationwide Health Properties, Inc. 112,868 3.21 1.80 2,296,911 1,876,431
19 OMEGA Healthcare Investors, Inc. 82,204 2.95 2.80 2,186,846 1,726,284
20 Post Properties, Inc. 66,942 4.50 2.80 2,512,064 2,631,657
21 Regency Realty Corporation 112,688 4.05 1.84 2,437,955 2,366,448
</TABLE>
D - 6
<PAGE>
EQUITY INVESTOR FUND - CONCEPT SERIES
REAL ESTATE INCOME FUND - 3
DEFINED ASSET FUNDS
PORTFOLIO
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Current
Portfolio No. and Title of Number of Percentage Dividend
Securities Shares of fund(1) Yield(3) Cost Market Value(2)
---------- ------ ---------- -------- ---- ---------------
<S> <C> <C> <C> <C> <C>
22 Simon Property Group, Inc. 86,718 3.33 2.02 $ 2,388,443 $ 1,945,735
23 SL Green Realty Corporation 135,466 4.75 1.40 2,724,403 2,777,053
24 Taubman Centers, Inc. 187,006 3.68 0.96 2,433,769 2,150,569
25 The Macerich Company 94,614 3.74 1.94 2,356,937 2,187,949
------- ----------- -----------
Total 100.00% $62,182,463 $58,481,544
======= =========== ===========
</TABLE>
(1) Based on cost to the fund.
(2) See Notes to the Financial Statements.
(3) Based on the latest quarterly or semiannual declaration
D - 7
<PAGE>
Defined
Asset Funds-SM-
<TABLE>
<S> <C>
HAVE QUESTIONS ? EQUITY INVESTOR FUND
Request the most CONCEPT SERIES
recent free Information REAL ESTATE INCOME FUND--3
Supplement that gives more (A Unit Investment Trust)
details about the Fund, ---------------------------------------
by calling: This Prospectus does not contain
The Bank of New York complete information about the
1-800-221-7771 investment company filed with the
Securities and Exchange Commission in
Washington, D.C. under the:
- Securities Act of 1933 (file no.
333-66087) and
- Investment Company Act of 1940 (file
no. 811-3044).
TO OBTAIN COPIES AT PRESCRIBED RATES--
WRITE: Public Reference Section of the
Commission
450 Fifth Street, N.W., Washington,
D.C. 20549-6009
CALL: 1-800-SEC-0330.
VISIT: http://www.sec.gov.
---------------------------------------
No person is authorized to give any
information or representations about
this Fund not contained in this
Prospectus or the Information
Supplement, and you should not rely on
any other information.
---------------------------------------
When units of this Fund are no longer
available, this Prospectus may be used
as a preliminary prospectus for a
future series, but some of the
information in this Prospectus will be
changed for that series.
UNITS OF ANY FUTURE SERIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
UNTIL THAT SERIES HAS BECOME EFFECTIVE
WITH THE SECURITIES AND EXCHANGE
COMMISSION. NO UNITS CAN BE SOLD IN ANY
STATE WHERE A SALE WOULD BE ILLEGAL.
32690--12/99
</TABLE>
Merrill Lynch, Prospectus dated December 17, 1999.
Pierce, Fenner & Smith Incorporated
15
