Defined Asset Funds (SM)
Concept Series
3
IRA Ideal!
Utility Portfolio
A Defense Strategy
To Generate Income
[ML logo] Merrill Lynch
The power of electric utilities in one convenient portfolio
from Defined Asset Funds (SM)--
Utility Portfolio Series 3
For years, utility stocks have provided a dependable stream of dividend income.
They are also an attractive defensive income investment -- since utility usage
is traditionally steady, stock prices generally are not significantly affected
by changes in general economic conditions. What's more, industry deregulation
and restructuring have emphasized the need for cost containment and improved
cash flow. In addition, many utilities are reinventing themselves through
consolidation, divestiture and the creation of new businesses.
Financial Power
We all want it. The key is attaining it. One approach is through an investment
that seeks current dividend income and potential dividend increases as well as
capital appreciation.
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The Portfolio
The Utility Portfolio seeks to provide monthly income and an opportunity for
rising income and capital appreciation by investing in electric utility common
stocks believed to have the potential to increase future dividends.* It is
powered by the 15 highest dividend-yielding stocks from among a list of
professionally selected electric utility stocks.
The Selection Process
The Utility Portfolio stocks have been selected based on the following
criteria:
o 50-year history of uninterrupted dividend payments.
o No dividend cuts over the past ten years.
o Record of rising dividends during the past ten years.
o Potential for future dividend increases.
o Average or better investment risk ratings.
o Bond agency rating of A or better.
The result is a portfolio diversified within the electric utility sector.
Buy with Knowledge -- Hold with Confidence
This Defined Asset Fund is a convenient way to invest in a diversified
portfolio of utility companies. The Portfolio follows a "buy and hold"
investment strategy of selecting stocks and holding them for a two-year period.
However, each stock is reviewed regularly and can be sold in the event of a
significant adverse development. At the end of two years, we intend to reapply
the screening process to create a new Portfolio. You can choose to reinvest in
a new Portfolio, if available, or redeem your investment.
Defined Advantages
o Diversification among 15 electric utility industry stocks.
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* The value of common stocks fluctuates, and dividends are subject to
declaration by the issuers.
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o A defined two-year term.
o Monthly income -- not quarterly like the stocks themselves.
o Option to reinvest income distributions at a reduced sales charge.
o Low minimum investment of $250.
o Liquidity (at a price based on the then-current net asset value which may be
more or less than your original cost).
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A DEFINED PORTFOLIO
Company Symbol
Ameren Corporation AEE
Formed last year by the merger of Missouri's largest utility, Union Electric
and Illinois' CIPSCO, this holding company is now among the top 20 U.S.
utilities. The merger of American Electric Power and Central & South West could
be favorable to Ameren, as it has the only transmission line connecting those
utilities. Dividends have increased for the past 19 years.
American Electric Power Company, Inc. AEP
One of the largest electric utility holding companies in the U.S. serving
almost seven million people in seven Midwestern states, it is attempting to
establish itself as a national electricity brand name. A proposed merger with
Central & South West will create a utility running from Canada to Mexico and
form an energy trading and marketing subsidiary. It also has a joint venture in
an interstate fiber optic system and utility investments in the U.K., China and
Australia.
Cleco Corporation CNL
Serving customers in Louisiana, Cleco generates, transmits, distributes and
sells electricity. Within the Southeastern region of the U.S., the company has
interests in energy management services and energy asset development.
Central Hudson Gas & Electric Corporation CNH
Providing service to the Hudson Valley region of New York, Central Hudson
generates electricity, and purchases and distributes electricity and gas. With
nine consecutive years of dividend increases, the company is a possible merger
candidate with a neighboring utility provider.
Constellation Energy Group CEG
Constellation is the newly formed holding company for Baltimore Gas and
Electric Company, which provides gas and electric utility services to Baltimore
and Central Maryland, as well as investing in real estate projects, developing
alternative energy projects and selling and servicing gas and electric
appliances. With operations throughout North America and parts of Latin
America, the company is strategically located, offering low electric prices,
efficient nuclear
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operations and a strong financial structure. Constellation Energy showed
dividend increases in eight of the last ten years.
DPL, Inc. DPL
DPL is the holding company for The Dayton Power & Light Company, and sells
electricity and natural gas to residential, commercial and government customers
in West Central Ohio. Well-positioned for competition, DPL has above-average
dividend yield, with a strong cash flow.
Florida Progress Corporation FPC
Providing electric utility services to densely populated Orlando and West
Central Florida, this Corporation is the holding company for Florida Power
Corporation and Electric Fuels Corporation. Florida Progress is also involved
in coal mining, marine transportation and services, and rail services. Its
mining operations include both surface and underground mines in Kentucky and
Virginia, and the company has shown 45 consecutive years of dividend growth.
IDACORP. Inc. IDA
This holding company for Idaho Power has the lowest cost generation in the
entire country, derived primarily from 17 hydroelectric plants along the Snake
River. Idacorp is diversifying into domestic marketing, international expertise
on its renewable energy technology, independent power projects outside Idaho,
joint ventures with four co-ops to provide both satellite TV and combining
power operations, natural gas trading and seeking low cost housing tax credits.
Interstate Energy Corporation LNT
Interstate Energy was recently formed by the three-way merger of WPL Holdings,
IES Industries and Interstate Power that now encompasses four states. The
utility also benefits from a healthy service area and highly competitive rates.
The combined utility has several diversified activities including a $30 million
telecommunications company now worth over $400 million, an energy-marketing
joint venture with the commodity firm Cargill, cogeneration projects in China,
oil and gas business and railroad investments.
LG&E Energy Corporation LGE
LG&E is the holding company for Louisville Gas & Electric Company, Kentucky
Utilities Company and L&G Capital Corporation. With offices in the U.S.,
Canada, Argentina and Spain, LG&E has assets in retail and wholesale power and
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natural gas services and marketing. With 43 years of dividend growth, it has
been a small but meaningful player in this industry.
Minnesota Power, Inc. MPL
This operating public utility has operations in four business areas: electric
utility operations including electric, gas and coal mining; water utility
operations; automobile auctions and investments. Electric sales are heavily
dependent on industrial customers, especially steel. Diversification into
non-utility investments now accounts for 56% of net income.
New Century Energies, Inc. NCE
This holding company was formed in August 1997 with the merger of Public
Service Company of Colorado and Southwestern Public Service Company. New
Century is a non-nuclear low-cost producer of electricity. It has an above
average 3% customer demand growth.
Northern States Power Company NSP
This company and its wholly owned subsidiary, Northern States Power Company-
Wisconsin, provide electric and gas service to customers in Minnesota,
Wisconsin, North Dakota, South Dakota and Michigan. The predominant portion of
the company's sales are in the Minneapolis/St. Paul area. It is one of the
largest Midwestern electric utilities.
Wisconsin Energy Corporation WEC
This holding company for Wisconsin Electric Power is also Wisconsin's largest
electric utility. The dividend has increased for 36 consecutive years. Low-cost
power generation, a long history of supportive regulation, below industry debt
levels and a healthy service-area economy have supported this exceptional
dividend history and likely annual dividend increases.
WPS Resources Corporation WPS
The parent company of Wisconsin Public Service has increased its dividend 39
consecutive years, due to having one of the nation's lowest rates, diversified
fuel mix, healthy service area encompassing Green Bay, conservative finances
and favorable regulatory climate's long history. Future earnings growth should
be helped by diversification into energy trading and marketing, investment in
non-
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regulated independent power projects and restructuring in order to be well
positioned for a competitive marketplace.
Defined Asset Funds -- Our Philosophy
At Defined Asset Funds, we are ever mindful that behind every investment dollar
lies something infinitely more important -- your investment goal. This is why
we offer a full range of defined investments designed to meet a variety of
objectives.
We are committed to providing our investors with some of today's most
attractive equity and fixed-income investments, within the convenient "buy and
hold" structure of a Unit Investment Trust. For income, for growth or for total
return, we believe that time in the market can be an effective strategy for
growing your portfolio.
At Defined Asset Funds, we set the foundation for all of our portfolios in this
way, because we too have an important goal in mind -- yours.
Defined Asset Funds (SM)
Buy With Knowledge . Hold With Confidence
EQUITY INVESTOR FUNDS
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Index Series
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FIXED-INCOME FUNDS
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Turn on the Power of Electric Utilities Today!
You can get started today with the Utility Portfolio for about $250. Call your
financial professional for a free prospectus containing more complete
information, including sales charges, expenses and risks. Please read it
carefully before you invest or send money.
Defining Your Risks
The following are important facts to keep in mind when considering this
investment. Please read them carefully. Your financial professional will be
happy to answer any questions you may have.
o The Portfolio is designed for investors who can assume the risks
associated with equity investments. It may not be appropriate for
investors seeking preservation of capital.
o The Portfolio is concentrated in common stocks of issuers in the
domestic electric utility industry.
o There can be no assurance that the Portfolio will meet its objective,
that dividend rates will be maintained or that stock prices will not
decrease.
o The value of your investment will fluctuate with the prices of the
underlying stocks.
o These stocks may have higher yields because they are experiencing
financial difficulties or are out of favor. There can be no assurance
that the market factors that caused these relatively low prices and
high yields will change.
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A Tax-Efficient Structure
When seeking capital appreciation, managing tax liability on capital gains can
be vital to your overall return. By holding this Fund for more than one year,
individuals may be eligible for favorable federal tax rates on net long-term
capital gains (currently no more than 20%).
Generally, dividends and any gains will be subject to tax each year, whether or
not reinvested. If you purchase this Portfolio during the initial offering
period, you will be eligible for the tax-deferred rollover feature, which
enables you to carry forward your cost basis on stocks transferred to future
portfolios, if available, until you choose to sell your investment. Please
consult your tax advisor concerning state and local taxation.
Defining Your Costs
First-time investors pay an initial sales charge of about 1% when they buy. In
addition, all investors pay a deferred sales charge of seven monthly payments
of $2.50 per 1,000 units, deducted from the Portfolio's net asset value each
year of the Portfolio's two-year life ($45.00 total).
As a % of Est. Amount
Public Offering Price Per 1,000 Units
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Initial Sales Charge 1.00% $10.00
Deferred Sales Charge Year 1 1.75% $17.50
Deferred Sales Charge Year 2 1.75% $17.50
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Maximum Sales Charge 4.50% $45.00
Estimated Annual Operating Expenses
(as a % of net assets) 0.171% $ 1.69
Estimated Organization Costs $ 2.04
If you sell your investments before the final deferred sales charge installment
in either the first or second year, the remaining deferred sales charge for
that year will be deducted, along with the estimated costs of selling Portfolio
securities, from the proceeds you receive. If you roll over to a successor
Portfolio, if available, the initial sales charge will be waived. You will only
pay the deferred charge.
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Volume Purchase Discounts
For larger purchases, the overall sales charges are reduced to put more of your
investment dollars to work for you.
Amount Total Sales Charge as a % of
Purchased Public Offering Price
- --------------------------------- ----------------------------
Less than $50,000 4.50%
$50,000 to $99,999 4.25%
$100,000 to $249,999 3.75%
$250,000 to $999,999 3.50%
$1,000,000 or more 2.75%
32709BR -- 5/99
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[copyright logo] 1999 Merrill Lynch, Pierce, Fenner & Smith Incorporated
Member SPIC.
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