At Defined Asset Funds, we set the foundation for each of our portfolios in this way, because we have a very important goal in mind—yours.

What will shape the next decade of the Internet era? Will today's star performers continue to be industry leaders? Which companies will emerge as tomorrow's stars?

The rapid evolution of this industry has left many investors wondering which trends will dominate in the coming years. Although day-to-day market performance can vary widely, we believe certain trends have begun to emerge. While there can be no guarantee of results, the industry and its investors may potentially benefit from:

• Universal Access—The ability to access any information, over any network, from any device, is on the way and will affect the system worldwide.

• Internet Appliances—These products go beyond desktop PCs, to include Internet-connected telephones, televisions, pagers, hand-held games, personal planners and other devices, as well as the software, hardware, content and service providers to support them.

• e-Commerce—Many individuals and businesses purchase goods and services online and new providers are springing up to meet this demand.

The Portfolio

The Internet Portfolio seeks capital appreciation by investing in 32 leading companies from the Internet industry. Selected by the Defined Asset Funds Research Group, these companies are significant in this industry, providing computers, peripheral components, software and hardware to support Internet-related commerce and communications. Portfolio stocks come from companies with market capitalizations of at least $1 billion

and each reported positive earnings in its latest fiscal year. Of course, there can be no assurance of future earnings.

The Portfolio will hold its stocks for about one year. At the end of that time, you can choose to either redeem your investment, or roll your proceeds into the next Portfolio, if available, at a reduced sales charge.

The Sectors

Internet Equipment/Network firms are gearing up to meet the rising demand for faster and better Internet connectivity and the technologies that support it. Network companies will benefit from the need to link geographically dispersed networks to a single infrastructure and computer makers will continue to refine their products to become more user-friendly and economical.

Internet Software producers will likely experience strong earnings growth as Internet Service Providers (ISPs) continually upgrade their services, new applications improve accessibility and companies outsource data-intensive operations.

Internet/Web Service Providers derive the bulk of their revenue from customers' monthly fees for Internet access and from online advertising fees. As the Internet experiences exceptional growth, it is changing the lives of millions of users and creating opportunities for creative service providers around the globe.

e-Commerce/Business-to-Business (B2B) is still in its infancy, but is expected to grow enormously over the next two years as individuals and corporations increasingly buy and sell products and services online. Improved transaction security has added to this remarkable growth potential.

Generally, dividends and any net capital gains will be subject to tax each year, whether or not reinvested. By holding this Fund for more than one year, certain investors may be eligible for favorable federal tax rates on net long-term capital gains (currently no more than 20%). Please consult your tax advisor concerning state and local taxation.