DEFINED ASSET FUNDS-REGISTERED TRADEMARK-
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GOVERNMENT SECURITIES INCOME FUND
GNMA SERIES--1S
(A UNIT INVESTMENT TRUST)
- PORTFOLIO OF MORTGAGE BACKED SECURITIES
- MONTHLY INCOME DISTRIBUTIONS
SPONSORS:
MERRILL LYNCH,
PIERCE, FENNER & SMITH
INCORPORATED -----------------------------------------------------
SALOMON SMITH BARNEY INC. The Securities and Exchange Commission has not
PRUDENTIAL SECURITIES approved or disapproved these Securities or passed
INCORPORATED upon the adequacy of this prospectus. Any
PAINEWEBBER INCORPORATED representation to the contrary is a criminal offense.
DEAN WITTER REYNOLDS INC. Prospectus dated October 27, 2000.
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Defined Asset Funds-Registered Trademark-
Defined Asset Funds-Registered Trademark- 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 and 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, tolerance for risk 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, JULY
31, 2000.
CONTENTS
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PAGE
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Risk/Return Summary............................... 3
What You Can Expect From Your Investment.......... 5
Monthly Income.................................. 5
Return Figures.................................. 5
Records and Reports............................. 5
The Risks You Face................................ 6
Interest Rate Risk.............................. 6
Prepayment Risk................................. 6
Reduced Diversification Risk.................... 6
Litigation Risk................................. 6
Selling or Exchanging Units....................... 6
Sponsors' Secondary Market...................... 6
Selling Units to the Trustee.................... 6
Exchange Option................................. 7
How The Fund Works................................ 7
Pricing......................................... 7
Evaluations..................................... 7
Income.......................................... 8
Expenses........................................ 8
Portfolio Changes............................... 8
Fund Termination................................ 9
Certificates.................................... 9
Trust Indenture................................. 9
Legal Opinion................................... 10
Auditors........................................ 10
Sponsors........................................ 10
Trustee......................................... 11
Underwriters' and Sponsors' Profits............. 11
Public Distribution............................. 11
Code of Ethics.................................. 11
Year 2000 Issues................................ 11
Taxes............................................. 11
Supplemental Information.......................... 13
Financial Statements.............................. D-1
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RISK/RETURN SUMMARY
1. WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks safety of capital and current monthly income, by investing in
a portfolio of GNMA securities backed by the full faith and credit of the
United States.
2. WHAT ARE GINNIE MAES?
Ginnie Maes are issued by the Government National Mortgage Association
(GNMA), which is a U.S. government corporation. Ginnie Maes represent
underlying mortgages on one- to four-family houses. GNMA guarantees the
timely monthly payment of principal and interest on the mortgages.
3. WHAT IS THE FUND'S INVESTMENT STRATEGY?
- The Fund plans to hold two issues of Ginnie Maes with a current aggregate
face amount of $4,626,382. The Fund is a unit investment trust which means
that, unlike a mutual fund, the Fund's portfolio is not managed.
- Ginnie Maes are not rated but their credit quality is comparable to AAA-rated
bonds.
- The securities BUT NOT THE FUND OR THE UNITS are backed by the full faith and
credit of the United States.
- The Portfolio consists of two issues of Ginnie Maes, issued and guaranteed by
GNMA, a United States government agency:
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APPROXIMATE
PORTFOLIO
PERCENTAGE
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-8.5% Ginnie Maes
maturing 5/15/16 to 12/15/21 81%
-9.0% Ginnie Maes
maturing 8/15/16 to 12/15/21 19%
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4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN HAPPEN FOR VARIOUS
REASONS, INCLUDING:
- Rising interest rates can reduce the price of your units.
- Assuming no changes in interest rates, when you sell your units, they will
generally be worth less than your cost because your cost included a sales
fee.
- The Fund will receive early returns of principal when homeowners pay down
their mortgages sooner than expected. This happens more often when interest
rates fall. If this happens your income will decline and you may not be able
to reinvest the money you receive at as high a yield or as long a maturity.
5. IS THIS FUND APPROPRIATE FOR YOU?
Yes, if you want safety of capital and current monthly income. You will
benefit from a professionally selected and supervised portfolio of U.S.
government backed securities.
The Fund is NOT appropriate for you if you want a speculative investment that
changes to take advantage of market movements or if you cannot tolerate early
returns of principal.
DEFINING YOUR INCOME
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WHAT YOU MAY EXPECT (Payable on the 23rd day each
month):
Regular Monthly Income per 1,000 units: $0.60
Annual Income per 1,000 units: $7.25
RECORD DAY: 17th day of each month
THESE FIGURES ARE ESTIMATES ON THE EVALUATION DATE; ACTUAL
PAYMENTS MAY VARY.
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6. WHAT ARE THE FUND'S FEES AND EXPENSES?
This table shows the costs and expenses you may pay, directly or indirectly,
when you invest in the Fund.
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INVESTOR FEES
Maximum Sales Fee (Load) on new purchases (as a
percentage of $1,000 invested) 3.00%
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Employees of some of the Sponsors and their affiliates may be charged a
reduced sales fee of no less than $5.00 per 1,000 Units.
The maximum sales fee is reduced if you invest at least $100,000, as follows:
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IF YOU INVEST:
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Less than $100,000 3.00%
$100,000 to $249,999 2.75%
$250,000 to $499,999 2.50%
$500,000 to $999,999 2.25%
$1,000,000 and over 2.00%
Maximum Exchange Fee 2.00%
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ESTIMATED ANNUAL FUND OPERATING EXPENSES
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AMOUNT
PER
1,000 UNITS
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Trustee's Fee $0.08
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses) $0.23
Evaluator's Fee $0.05
Other Operating Expenses $0.13
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TOTAL $0.49
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The Sponsors historically paid updating expenses.
7. IS THE FUND MANAGED?
Unlike a mutual fund, the Fund is not managed and securities are not sold
because of market changes. Rather, experienced Defined Asset Funds financial
analysts regularly review the securities in the Fund. The Fund may sell a
security if certain adverse credit or other conditions exist.
8. HOW DO I BUY UNITS?
The minimum investment is $250.
You can buy units from any of the Sponsors and other broker-dealers. The
Sponsors are listed later in this prospectus. Some banks may offer units for
sale through special arrangements with the Sponsors, although certain legal
restrictions may apply.
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UNIT PRICE PER 1,000 UNITS $95.15
(as of July 31, 2000)
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Unit price is based on the net asset value of the Fund plus the up-front
sales fee. An amount equal to any principal cash, as well as net accrued but
undistributed interest on the unit, is added to the unit price. An
independent evaluator prices the bonds at 3:30 p.m. Eastern time every
business day. Unit price changes every day with changes in the prices of the
bonds in the Fund.
9. HOW DO I SELL UNITS?
You may sell your units at any time to any Sponsor or the Trustee for the net
asset value determined at the close of business on the date of sale. You will
not pay any other fee when you sell your units.
10. HOW ARE DISTRIBUTIONS MADE AND TAXED?
Generally, distributions of income from the Fund will be included in your
gross income as dividends, but will not be eligible for the
dividends-received deduction for corporations. If you have held units for
more than one year you may be entitled to a 20% maximum federal tax rate for
gains from the disposition of these units. The Fund is not likely to be
suitable for foreign investors not engaged in a U.S. trade or business.
11. WHAT OTHER SERVICES ARE AVAILABLE?
REINVESTMENT
You will receive your monthly income in cash unless you choose to compound
your income by reinvesting in additional Units of the Fund at a reduced sales
fee. CONTACT YOUR BROKER, DEALER OR FINANCIAL INSTITUTION.
EXCHANGE PRIVILEGES
You may exchange units of this Fund for units of certain other Defined Asset
Funds. You may also exchange into this Fund from certain other funds. We
charge a reduced sales fee on exchanges.
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WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
MONTHLY INCOME
The Fund will pay you regular monthly income. Your monthly income may vary
because of:
- prepayments on the underlying mortgages;
- elimination of one or more securities from the Fund's portfolio because of
redemptions or sales; or
- a change in the Fund's expenses;
Changes in interest rates generally will not affect your monthly income because
the portfolio is fixed.
Along with your monthly income, you will receive your share of any available
principal.
RETURN FIGURES
We cannot predict your actual return, which will vary with unit price, how long
you hold your investment and changes in the portfolio, interest income and
expenses.
ESTIMATED CURRENT RETURN equals the estimated annual cash to be received from
the securities in the Fund less estimated annual Fund expenses, divided by the
Unit Price (including the maximum sales fee):
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Estimated Annual Estimated
Interest Income - Annual Expenses
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Unit Price
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ESTIMATED LONG TERM RETURN is a measure of the estimated return over the
estimated life of the Fund. Unlike Estimated Current Return, Estimated Long Term
Return reflects maturities, discounts and premiums of the securities in the
Fund. It is an average of the yields to maturity of the individual securities in
the portfolio, adjusted to reflect the Fund's maximum sales fee and estimated
expenses. We calculate the average yield for the portfolio by weighting each
security's yield by its market value and the time remaining to the call or
maturity date.
Yields on individual securities depend on many factors including general
conditions of the bond markets, the size of a particular offering and the
maturity and quality rating of the particular issues. Yields can vary among
bonds with similar maturities, coupons and ratings.
These return quotations are designed to be comparative rather than predictive.
RECORDS AND REPORTS
You will receive:
- a monthly statement of income payments and any principal payments;
- a notice from the Trustee when new securities are deposited in exchange or
substitution for securities originally deposited;
- an annual report on Fund activity; and
- annual tax information. THIS WILL ALSO BE SENT TO THE IRS. YOU MUST REPORT THE
AMOUNT OF INTEREST RECEIVED DURING THE YEAR.
You may request:
- copies of evaluations to enable you to comply with federal and state tax
reporting requirements; and
- audited financial statements of the Fund.
You may inspect records of Fund transactions at the Trustee's office during
regular business hours.
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THE RISKS YOU FACE
INTEREST RATE RISK
Investing involves risks, including the risk that your investment will decline
in value if interest rates rise. Generally, securities with longer maturities
will change in value more than securities with shorter maturities. The mortgages
underlying the Ginnie Maes in the Fund are more likely to be prepaid when
interest rates decline. This would result in early returns of principal to you
and could result in early termination of the Fund. Of course, we cannot predict
how interest rates may change.
PREPAYMENT RISK
You may receive payments of principal sooner than expected if many homeowners
prepay the mortgages that underly the Ginnie Maes. There is no prepayment
protection. Interest payments will also decrease as principal is returned.
REDUCED DIVERSIFICATION RISK
If many investors sell their units, the Fund will have to sell securities. This
could reduce the diversification of your investment and increase your share of
Fund expenses.
LITIGATION RISK
We do not know of any pending litigation that might have a material adverse
effect upon the Fund.
SELLING OR EXCHANGING UNITS
You can sell your units at any time for a price based on net asset value. Your
net asset value is calculated each business day by:
- ADDING the value of the securities, net accrued interest, cash and any other
Fund assets;
- SUBTRACTING accrued but unpaid Fund expenses, unreimbursed Trustee advances,
cash held to buy back units or for distribution to investors and any other
Fund 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.
SPONSORS' SECONDARY MARKET
While we are not obligated to do so, we will buy back units at net asset value
without any other fee or charge. We may resell the units to other buyers or to
the Trustee. You should consult your financial professional for current market
prices to determine if other broker-dealers or banks are offering higher prices.
We have maintained a secondary market continuously for over 28 years, but we
could discontinue it without prior notice for any business reason.
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 sending the Trustee a letter (with any outstanding
certificates if you hold Unit certificates). You must properly endorse your
certificates (or execute a written transfer instrument with signatures
guaranteed by an eligible institution). Sometimes, additional
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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 may sell your units in the over-the-counter market for a
higher price, but it is not obligated to do so. In that case, you will receive
the net proceeds of the sale.
If the Fund does not have cash available to pay you for units you are selling,
the agent for the Sponsors will select securities to be sold. Securities will be
selected based on market and credit factors. These sales could be made at times
when the securities would not otherwise be sold and may result in your receiving
less than the unit par value and also reduce the size and diversity of the Fund.
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
bonds not reasonably practicable; and
- for any other period permitted by SEC order.
EXCHANGE OPTION
You may exchange units of certain Defined Asset Funds for units of this Fund at
a maximum exchange fee of 2.00%. You may exchange units of this Fund for units
of certain other funds at a reduced sales fee if your investment goals change.
In addition, you may exchange into this Fund from certain other Defined Asset
Funds and unit trusts. To exchange units, you should talk to your financial
professional about what funds are exchangeable, suitable and currently
available.
Normally, an exchange is taxable and you must recognize any gain or loss on the
exchange. However, the IRS may try to disallow a loss if the portfolios of the
two funds are not materially different; you should consult your own tax adviser.
We may amend or terminate this exchange option at any time without notice.
HOW THE FUND WORKS
PRICING
The price of a unit includes interest accrued on the securities, less expenses,
from the most recent Record Day up to, but not including, the settlement date,
which is usually three business days after the purchase date of the unit.
A portion of the price of a unit consists of cash so that the Trustee can
provide you with regular monthly income. When you sell your units you will
receive your share of this cash.
EVALUATIONS
An independent Evaluator values the securities on each business day (excluding
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Saturdays, Sundays and the following holidays as observed by the New York Stock
Exchange: New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas;
and the following federal holidays: Columbus Day and Veterans Day). Values are
based on current bid or offer prices for the securities or comparable bonds. In
the past, the difference between bid and offer prices of Ginnie Mae securities
of the type in this Fund has ranged between 0.25% and 0.50%.
INCOME
The Trustee credits interest 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 monthly. It also benefits when it holds cash for the Fund in
non-interest bearing accounts. The Trustee may also receive additional amounts:
- to reimburse the Trustee for the Fund's operating expenses;
- for extraordinary services and costs of indemnifying the Trustee and the
Sponsors;
- costs of actions taken to protect the Fund and other legal fees and
expenses;
- expenses for keeping the Fund's registration statement current; and
- Fund termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 55 CENTS per $1,000 face amount
annually for providing portfolio supervisory, bookkeeping and administrative
services and for any other expenses properly chargeable to the Fund. 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 Fund, 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. The Fund also pays the Evaluator's
fees.
The Trustee's, Sponsors' and Evaluator's fees may be adjusted for inflation
without investors' approval.
The Sponsors will pay advertising and selling expenses at no charge to the Fund.
If Fund expenses exceed initial estimates, the Fund will owe the excess. The
Trustee has a lien on Fund assets to secure reimbursement of Fund expenses and
may sell bonds if cash is not available.
PORTFOLIO CHANGES
The Sponsors and Trustee are not liable for any default or defect in a security.
Unlike a mutual fund, the portfolio is designed to remain intact and we may keep
securities in the portfolio even if their credit quality declines or other
adverse financial circumstances occur. However, we may sell a security in
certain cases if we believe that certain adverse credit or certain other
conditions exist.
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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 may affect the
composition of the portfolio. Units offered in the secondary market may not
represent the same face amount of securities that they did originally.
We decide whether or not to offer units for sale that we acquire in the
secondary market after reviewing:
- diversity of the portfolio;
- size of the Fund relative to its original size;
- ratio of Fund expenses to income;
- current and long-term returns;
- degree to which units may be selling at a premium over par; and
- cost of maintaining a current prospectus.
FUND TERMINATION
The Fund will terminate following the stated maturity or sale of the last
security in the portfolio. The Fund may also terminate earlier with the consent
of investors holding 51% of the units or if total assets of the Fund have fallen
below 40% of the face amount of securities deposited. We will decide whether to
terminate the Fund early based on the same factors used in deciding whether or
not to offer units in the secondary market.
When the Fund is about to terminate you will receive a notice, and you will be
unable to sell your units after that time. On or shortly before termination, we
will sell any remaining securities, and you will receive your final
distribution. Any security that cannot be sold at a reasonable price may
continue to be held by the Trustee in a liquidating trust pending its final
sale.
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.
CERTIFICATES
Certificates for units are issued on request. You may transfer certificates by
complying with the requirements for redeeming certificates, described above. You
can replace lost or mutilated certificates by delivering satisfactory indemnity
and paying the associated costs.
TRUST INDENTURE
The Fund is a "unit investment trust" governed by a Trust Indenture, a contract
among the Sponsors, the Trustee and the Evaluator, 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 Sponsors 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 Sponsors).
Investors holding 51% of the units may amend the Indenture. Every investor must
consent to any amendment that changes the
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51% requirement. No amendment may reduce your interest in the Fund without your
written consent.
The Trustee may resign by notifying the Sponsors. The Sponsors may remove the
Trustee without your consent if:
- it fails to perform its duties and the Sponsors determine that its
replacement is in your best interest; or
- it becomes incapable of acting or bankrupt or its affairs are taken over by
public authorities.
Investors holding 51% of the units may remove the Trustee. The Evaluator may
resign or be removed by the Sponsors and the Trustee without the consent of
investors. The resignation or removal of either becomes effective when a
successor accepts appointment. The Sponsors will try to appoint a successor
promptly; however, if no successor has accepted within 30 days after notice of
resignation, the resigning Trustee or Evaluator may petition a court to appoint
a successor.
Any Sponsor may resign as long as one Sponsor with a net worth of $2 million
remains and agrees to the resignation. The remaining Sponsors and the Trustee
may appoint a replacement. If there is only one Sponsor and it fails to perform
its duties or becomes bankrupt the Trustee may:
- remove it and appoint a replacement Sponsor;
- liquidate the Fund; or
- continue to act as Trustee without a Sponsor.
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent for the
Sponsors.
The Trust Indenture contains customary provisions limiting the liability of the
Trustee, the Sponsors and the Evaluator.
LEGAL OPINION
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
special counsel for the Sponsors, 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.
SPONSORS
The Sponsors are:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.)
P.O. Box 9051,
Princeton, NJ 08543-9051
SALOMON SMITH BARNEY INC. (an indirectly wholly-owned subsidiary of Citigroup
Inc.)
388 Greenwich Street--23rd Floor,
New York, NY 10013
DEAN WITTER REYNOLDS INC. (a principal operating subsidiary of Morgan Stanley
Dean Witter & Co.)
Two World Trade Center--59th Floor,
New York, NY 10048
PRUDENTIAL SECURITIES INCORPORATED (an
indirect wholly-owned subsidiary of the
Prudential Insurance Company of America)
One New York Plaza
New York, NY 10292
PAINEWEBBER INCORPORATED (a wholly-owned subsidiary of PaineWebber Group Inc.)
1285 Avenue of the Americas,
New York, NY 10019
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Each Sponsor is a Delaware corporation and it, or its predecessor, has acted as
sponsor to many unit investment trusts. As a registered broker-dealer each
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 Chase Manhattan Bank, Unit Investment Trust Departament, 4 New York
Plaza--6th Floor, New York, New York 10004, 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.
UNDERWRITERS' AND SPONSORS' PROFITS
Underwriters receive sales charges when they sell units. The Sponsors also
realized a profit or loss on the initial deposit of the securities. Any cash
made available by you to the Sponsors before the settlement date for those units
may be used in the Sponsors' businesses to the extent permitted by federal law
and may benefit the Sponsors.
In maintaining a secondary market, 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 or redeem them.
PUBLIC DISTRIBUTION
The Sponsors do 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 Fund and the Agent for the Sponsors have each adopted a code of ethics
requiring reporting of personal securities transactions by its employees with
access to information on Fund transactions. Subject to certain conditions, the
codes permit employees to invest in Fund securities for their own accounts. The
codes are designed to prevent fraud, deception and misconduct against the Fund
and to provide reasonable standards of conduct. These codes are on file with the
Commission and you may obtain a copy by contacting the Commission at the address
listed on the back cover of this prospectus.
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"). To date we are not aware of any major operational difficulties
resulting from the computer system changes necessary to prepare for the Year
2000. However, there can be no assurance that the Year 2000 Problem will not
adversely affect the issuers of the bonds contained in the Portfolio. We cannot
predict whether any impact will be material to the Fund as a whole.
TAXES
The following summary describes some of the important 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.
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You should consult your own tax adviser about your particular circumstances.
In the opinion of our counsel, under existing law:
TAXATION OF THE FUND
The Fund intends to qualify and elect to be treated as a "regulated investment
company." Qualification and election as a "regulated investment company"
involves no supervision of investment policy or management by any governmental
agency. It is anticipated that the Fund will not be subject to federal income
tax or the 4% excise tax on certain undistributed income of "regulated
investment companies" because the Indenture requires the Fund to distribute in a
timely manner the required percentage of its taxable income to qualify for
exemption from these taxes.
DISTRIBUTIONS
Generally, distributions of the Fund's interest income, ordinary gain and any
net short-term capital gain will be taxable to you as ordinary income.
Distributions that exceed the Fund's taxable income will be treated as a return
of capital and will reduce your basis in your units and, to the extent such
distributions exceed your basis, will be treated as a gain from the sale of your
units (as discussed below). Distributions that are taxable to you as ordinary
income will be treated as dividends for federal income tax purposes but will not
give rise to a dividends-received deduction for corporations.
Although all or part of the Fund's taxable income for a calendar year may be
distributed shortly after the end of the calendar year, you will be treated for
federal income tax purposes as having received this distribution during the
calendar year. Distributions may also be subject to state and local taxation,
and you should consult your tax adviser in this regard.
You will be taxed in the manner described above regardless of whether you
actually receive distributions from the Fund or you elect to have distributions
automatically reinvested.
GAIN OR LOSS UPON DISPOSITION
You will generally recognize capital gain or loss when you dispose of your units
(by sale, redemption or otherwise). If securities are distributed to you when
you redeem your units, you will generally recognize gain or loss in an amount
equal to the difference between your basis in your units and the fair market
value of those securities. Any capital gain or loss that you recognize on a
disposition of your Units will be long-term if you held your Units for more than
one year and short-term otherwise. However, any capital loss on the sale or
redemption of a unit you have held for six months or less will be a long-term
capital loss to the extent of any capital gain dividends previously distributed
to you by the Fund. The deduction for capital losses is subject to limitations.
If you have held your units for more than one year, you may be entitled to a 20%
maximum federal tax rate for gains from the disposition of those units. You
should consult your tax adviser in this regard.
Payments of principal on underlying mortgages or sales of securities by the Fund
may give rise to gain to the Fund. The amount of gain will be based upon the
cost
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of the security to the Fund (without regard to the value of the security when
you purchased your units). Distributions of this gain generally will be taxable
to you and generally will not reduce your basis in your units. Accordingly, you
may have a corresponding capital loss (or a reduced amount of gain) on a
subsequent sale or redemption of your Units.
TAX REPORTING
The federal tax status of each year's distributions will be reported to you and
to the Internal Revenue Service.
FOREIGN INVESTORS
The above discussion relates only to the federal income tax status of the Fund
and to the tax treatment of distributions by the Fund to U.S. investors. If you
are not a U.S. citizen or resident, you should be aware that Fund distributions
generally will be subject to withholding tax at a rate of 30% (or a lower
applicable treaty rate). Because interest income of the type received by the
Fund generally would not have been subject to withholding if you had received it
directly, an investment in the Fund is likely to be appropriate for you only
when you can use a foreign tax credit or corresponding tax benefit in respect of
the withholding taxes. You should consult your tax adviser to determine whether
investment in the Fund is appropriate for you.
RETIREMENT PLANS
You may with to purchase units for an Individual Retirement Account (IRA) or
other retirement plan. Generally, capital gains and income received in each of
these 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
tax-deferred rollover treatment. You should consult your attorney or tax adviser
abou the specific tax rules relating to these plans are offered by brokerage
firms, including ths Sponsors of this Fund, 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 Fund by calling
the Trustee. The supplemental information includes more detailed risk disclosure
about the Ginnie Maes that may be in the Fund's portfolio and general
information about the structure and operation of the Fund. The supplemental
information is also available from the SEC.
13
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 1S
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Defined Asset Funds - Government Securities Income Fund,
GNMA Series - 1S:
We have audited the accompanying statement of condition of
Defined Asset Funds - Government Securities Income Fund,
GNMA Series - 1S, including the portfolio, as of July 31,
2000 and the related statements of operations and of
changes in net assets for the years ended July 31, 2000,
1999 and 1998. These financial statements are the
responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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 July 31,
2000, as shown in such portfolio, were confirmed to us by
The Chase Manhattan Bank, 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
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Defined Asset Funds - Government
Securities Income Fund, GNMA Series - 1S at July 31, 2000
and the results of its operations and changes in its net
assets for the above-stated years in accordance with
accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
New York, N.Y.
September 25, 2000
D - 1
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 1S
STATEMENT OF CONDITION
As of July 31, 2000
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities -
at value (cost $ 4,760,095 )(Note 1)......... $ 4,732,665
Accrued interest ............................... 33,145
Cash - income .................................. 5,306
Cash - principal ............................... 173
-----------
Total trust property ......................... 4,771,289
LESS LIABILITIES:
Accrued Sponsors' fees ......................... $ 6,915
Trustee's fees and expenses payable ............ 1,144 8,059
----------- -----------
NET ASSETS, REPRESENTED BY:
51,279,885 units of fractional undivided
interest outstanding (Note 3)................ 4,732,838
Undistributed net investment income ............ 30,392 $ 4,763,230
----------- ===========
UNIT VALUE ($ 4,763,230 / 51,279,885 units )...... $ .09289
===========
</TABLE>
See Notes to Financial Statements.
D - 2
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 1S
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended July 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income ........................ $ 435,369 $ 622,098 $ 926,516
Trustee's fees and expenses ............ (16,194) (18,388) (22,697)
Sponsors' fees ......................... (12,776) (7,749) (8,927)
------------------------------------------------
Net investment income .................. 406,399 595,961 894,892
------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized loss on
securities sold or redeemed .......... (33,930) (97,462) (72,689)
Unrealized appreciation (depreciation)
of investments ....................... (129,151) (162,473) 23,103
------------------------------------------------
Net realized and unrealized
loss on investments .................. (163,081) (259,935) (49,586)
------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .............. $ 243,318 $ 336,026 $ 845,306
================================================
</TABLE>
See Notes to Financial Statements.
D - 3
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 1S
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended July 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
OPERATIONS:
Net investment income .................. $ 406,399 $ 595,961 $ 894,892
Realized loss on
securities sold or redeemed .......... (33,930) (97,462) (72,689)
Unrealized appreciation (depreciation)
of investments ....................... (129,151) (162,473) 23,103
------------------------------------------------
Net increase in net assets
resulting from operations ............ 243,318 336,026 845,306
------------------------------------------------
DISTRIBUTIONS TO HOLDERS (Note 2):
Income ................................ (415,367) (619,461) (916,362)
Principal .............................. (1,278,408) (3,244,478) (2,954,966)
------------------------------------------------
Total distributions .................... (1,693,775) (3,863,939) (3,871,328)
------------------------------------------------
SHARE TRANSACTIONS:
Redemption amounts - income ............ (1,304)
Redemption amounts - principal ......... (230,590)
------------------------------------------------
Total share transactions ............... (231,894)
------------------------------------------------
NET DECREASE IN NET ASSETS ............... (1,450,457) (3,527,913) (3,257,916)
NET ASSETS AT BEGINNING OF YEAR .......... 6,213,687 9,741,600 12,999,516
------------------------------------------------
NET ASSETS AT END OF YEAR ................ $ 4,763,230 $ 6,213,687 $ 9,741,600
================================================
PER UNIT:
Income distributions during
year ................................. $ .00810 $ .01208 $ .01757
================================================
Principal distributions during
year ................................. $ .02493 $ .06327 $ .05672
================================================
Net asset value at end of
year ................................. $ .09289 $ .12117 $ .18997
================================================
TRUST UNITS:
Redeemed during year ................... 1,123,869
Outstanding at end of year ............. 51,279,885 51,279,885 51,279,885
================================================
</TABLE>
See Notes to Financial Statements.
D - 4
<PAGE>
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 1S
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 in
accordance with accounting principles generally accepted in the United
States of America.
(A) Securities are stated at value as determined by the
Evaluator based on bid side evaluations for the securities.
(B) The Fund is not subject to income taxes. Accordingly, no
provision for such taxes is required.
(C) Interest income is recorded as earned.
2. DISTRIBUTIONS
Distributions of combined interest and principal (plus any prepayments
and redemption proceeds) are made to Holders each month. Receipts
other than interest and principal paydowns, after deductions for
redemptions and applicable expenses, are also distributed
periodically.
3. NET CAPITAL
<TABLE>
<S> <C>
Cost of 51,279,885 units at Date of Deposit ................ $53,785,037
Less sales charge .......................................... 2,151,550
-----------
Net amount applicable to Holders ........................... 51,633,487
Redemptions of units - net cost of 6,054,196 units redeemed
less redemption amounts (principal)....................... 3,477,726
Realized loss on securities sold or redeemed ............... (1,054,172)
Principal distributions .................................... (49,296,773)
Net unrealized depreciation of investment .................. (27,430)
-----------
Net capital applicable to Holders .......................... $ 4,732,838
===========
</TABLE>
4. INCOME TAXES
All Fund items of income received, expenses paid, and realized gains
and losses on securities sold are attributable to the Holders, on a
pro rata basis, for Federal income tax purposes in accordance with the
grantor trust rules of the Internal Revenue Code.
At July 31, 2000 the cost of investment securities for Federal income
tax purposes was the cost as shown in the Fund's portfolio.
D - 5
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 1S
PORTFOLIO
As of July 31, 2000
<TABLE>
<CAPTION>
Range of
Interest Stated Face
Security Description Rate Maturities(2) Amount Cost Value(1)
--------------------------------- -------- ---------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
1 Government National Mortgage Association 8.500% 05/15/16 $ 3,726,679 $ 3,890,909 $ 3,805,483
Modified Pass-Through Mortgage-Backed to
Securities 12/15/21
2 Government National Mortgage Association 9.000 08/15/16 899,703 869,186 927,182
Modified Pass-Through Mortgage-Backed to
Securities 12/15/21
--------------- --------------- ---------------
TOTAL $ 4,626,382 $ 4,760,095 $ 4,732,665
=============== =============== ===============
(1) See Note 1 to Financial Statements.
(2) On the Dates of Deposit, the range of stated maturities
were as follows:
8.50% GNMA - 08/15/14 to 12/15/21
9.00% GNMA - 08/15/14 to 12/15/21
</TABLE>
D - 6
<PAGE>
Defined
Asset Funds-Registered Trademark-
<TABLE>
<S> <C>
HAVE QUESTIONS ? GOVERNMENT SECURITIES INCOME FUND
Request the most recent free GNMA SERIES--1S
Information Supplement (A Unit Investment Trust)
that gives more details about ---------------------------------------
the Fund, by calling: This Prospectus does not contain
The Chase Manhattan Bank complete information about the
1-800-323-1508 investment company filed with the
Securities and Exchange Commission in
Washington, D.C. under the:
- Securities Act of 1933 (file no.
33-31731) and
- Investment Company Act of 1940 (file
no. 811-2810).
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.
13885--10/00
</TABLE>
