IRA Ideal!
Defined Asset Funds (SM)
Concept Series
Utility Portfolio 2
A DEFENSIVE STRATEGY
TO GENERATE INCOME
MORGAN STANLEY DEAN WITTER
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The Power of Electric Utilities in One Convenient Portfolio --
The Defined Asset Funds (SM) Utility Portfolio 2
THE ATTRACTION OF UTILITIES
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 has emphasized a need for cost
containment and improved cash flow. In addition, many utilities are
reinventing themselves through consolidation, divestitures 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.
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.(1) 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 contains 15 of the highest dividend-yielding utility
stocks which 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.
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(1) The value of common stocks fluctuates and dividends are subject to
declaration by the issuers.
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o Record of raising 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 diversified portfolio within the electric utility sector.
DEFINED ASSET FUNDS -- TIME IN THE MARKET
We believe that the disciplined strategy of buying and holding with a
long-term view can help in meeting our investors' needs. For income, for
growth or for total return, time in the market can be an effective strategy
for growing your portfolio, and this philosophy is the cornerstone of Defined
Asset Funds.
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 these stocks and holding them for a two-year
period. However, each stock is reviewed regularly and can be sold in the
event that its retention is detrimental to investors. At the end of two
years, the screening process is reapplied and a new Portfolio may be selected.
You can choose to reinvest into another Portfolio, if available, or redeem
your investment.
DEFINED ADVANTAGES
o Diversification among 15 electric utility industry stocks.
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 A minimum investment of $250.
o Daily 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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Units of the Trust are not insured by the Federal Deposit Insurance Corp.
(FDIC) and are not obligations of, endorsed by, deposits in or guaranteed by
any bank. Investments in Unit Investment Trusts and other products are
subject to investment risk, including the possible loss of the principal
amount invested.
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A DEFINED PORTFOLIO
<TABLE>
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Company Symbol Research Opinion
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<S> <C> <C>
Allegheny Energy, Inc. AYE Already one of the lowest cost generators in the eastern
U.S. with a diverse customer base among five states, this
utility's 1996 streamlining restructuring should make it a
formidable regional competitor. This holding company
is also branching out into a joint venture to build a
central Pennsylvania fiber optic network. Dividends
have increased for the past 37 years.
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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.
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American Electric AEP One of the largest electric utility holding companies in
Power Company, Inc. 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.
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Baltimore Gas & BGE This electric and gas utility is located in a strategic area
Electric Company of the country to provide power transmission and have
low electric rates, efficient nuclear operations and a solid
financial structure. Baltimore Gas & Electric has
consistently raised the dividend for the past seven years.
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Dominion Resources, D This holding company for Virginia Electric Power
Inc. provides low cost electricity from a diversified fuel mix
to much of Virginia which has one of the most vibrant
and stable economies in the nation. Revenues are
diversified from domestic and international non-utility
electric power generation projects and financial services.
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Empire District Electric EDE Supplies electricity in a 10,000 square mile area
Company encompassing the rural Ozark area of Southwestern
Missouri, Southeastern Kansas, Northeastern Oklahoma
and Northwestern Arkansas. It also provides water
service to three towns in Missouri. Dividends have
increased in five of the last ten years.
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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 venture with four co-ops to provide both satellite
TV and combining power operations, natural gas trading
and seeking low cost housing tax credits.
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Interstate Energy LNT Interstate Energy was recently formed by the three-way
Corporation 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.
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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
account for 56% of net income.
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New Century Energies, NCE This holding company was formed in August, 1997 with
Inc. 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.
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New England Electric NES New England's second largest utility, this holding
System company is undergoing major structural changes ahead
of the industry into a reduced risk, low-cost regional
electric distribution company. It is selling all of its non-
nuclear generation for $1.6 billion (at a 45% premium)
and redeploying the funds into doubling its distribution
system in the region, repurchasing common stock and
acquiring other businesses.
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Northern States Power NSP This company and its wholly owned subsidiary, Northern
Company 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.
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Sempra Energy SRE The holding company for Enova and Pacific Enterprises.
Sempra is in the forefront of the convergence of
electricity and natural gas that is expected to add to its
customer base while increasing earnings growth. The
utility has also benefited from a large concentration of
stable residential customers, limited exposure to stranded
assets, the lowest rates in the state and favorable terms of
California's legislation restructuring the state's utilities.
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Wisconsin Energy WEC This holding company for Wisconsin Electric Power is
Corporation 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.
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WPS Resources WPS The parent company of Wisconsin Public Service has
Corporation increased the 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 & marketing,
investment in non-regulated independent power projects
and restructuring in order to be well positioned for a
competitive marketplace.
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</TABLE>
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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 which
caused these relatively low prices and high yields will
change.
A Tax-Efficient Structure
Dividends and any net capital gains will be subject to tax based on receipt by
the Portfolio. Gains on assets held for over a year are subject to a maximum
federal tax rate of 20% for individuals. 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 ($35.00 total).
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As a % of Est. Amount
Public Offering Price Per 1,000 Units
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Initial Sales Charge 1.00% $10.00
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Deferred Sales Charge Year 1 1.75% $17.50
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Deferred Sales Charge Year 2 1.75% $17.50
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Maximum Sales Charge 4.50% $45.00
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Estimated Annual Operating Expenses
(as a % of net assets) 0.156% $ 1.54
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Estimated Organization Costs $ 1.29
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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. If you roll over to a successor Portfolio, if
available, the initial sales charge of 1% will be waived. You will only pay
the deferred charge and operating expenses on that Portfolio.
Volume Purchase Discounts
For large purchases, the overall sales charges are reduced to put more of your
investment dollars to work for you.
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Amount Total Sales Charge as a % of
Purchased Public Offering Price
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Less than $50,000 4.50%
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$50,000 to $99,999 4.25%
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$100,000 to $249,999 3.75%
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$250,000 to $999,999 3.50%
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$1,000,000 or more 2.75%
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Turn on the Power of Electric Utilities Today!
You can get started today with the Utility Portfolio 2 for about $250. Call
your financial professional for a free prospectus containing more complete
information, including all risks, charges and expenses.
Please read it carefully before you invest or send money.
Defined Asset Funds (SM)
Buy With Knowledge . Hold With Confidence
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CLF #3722, 11/98
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