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DEFINED ASSET FUNDSSM
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GOVERNMENT SECURITIES INCOME FUND
U.S. TREASURY SERIES--7
(LADDERED ZERO COUPONS)
ASSURANCE TRUST 2005 (C)
A UNIT INVESTMENT TRUST
O PORTFOLIO OF U.S. TREASURY SECURITIES
O LADDERED MATURITIES
O U.S. TAX EXEMPT FOR MANY FOREIGN HOLDERS
SPONSORS:
Merrill Lynch,
Pierce, Fenner & Smith -------------------------------------------------
Incorporated The Securities and Exchange Commission has not
Salomon Smith Barney Inc. approved or disapproved these Securities or
PaineWebber Incorporated passed upon the adequacy of this prospectus. Any
Dean Witter Reynolds Inc. representation to the contrary is a criminal
Prudential Securities offense.
Incorporated Prospectus dated March 26, 1999.
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Def ined 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:
o A disciplined strategy of buying and holding with a long-term view is the
cornerstone of Defined Asset Funds.
o Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
o Defined Portfolios: We choose the stocks and bonds in advance, so you know
what you're investing in.
o Professional research: Our dedicated research team seeks out stocks or bonds
appropriate for a particular fund's objectives.
o 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,
NOVEMBER 30, 1998.
CONTENTS
PAGE
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Risk/Return Summary..................................... 3
What You Can Expect From Your Investment................ 5
Return Figures....................................... 5
Records and Reports.................................. 5
The Risks You Face...................................... 6
Interest Rate Risk................................... 6
Reduced Diversification Risk......................... 6
Litigation Risk...................................... 6
Selling or Exchanging Units............................. 6
Sponsors' Secondary Market........................... 6
Selling Units to the Trustee......................... 6
How The Fund Works...................................... 7
Pricing.............................................. 7
Evaluations.......................................... 7
Income............................................... 7
Expenses............................................. 7
Portfolio Changes.................................... 8
Fund Termination..................................... 8
Certificates......................................... 9
Trust Indenture...................................... 9
Legal Opinion........................................ 10
Auditors............................................. 10
Sponsors............................................. 10
Trustee.............................................. 10
Underwriters' and Sponsors' Profits.................. 10
Public Distribution.................................. 10
Code of Ethics....................................... 10
Year 2000 Issues..................................... 11
Taxes................................................... 11
Supplemental Information................................ 12
Financial Statements.................................... D-1
2
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RISK/RETURN SUMMARY
1. WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks safety of capital and a high yield to
maturity by investing in a fixed, laddered portfolio of
stripped U.S. Treasury securities maturing each year
2005-2009.
2. WHAT ARE STRIPPED U.S. TREASURY SECURITIES?
These are directly issued by the U.S. Treasury and are
issued to fund various government activities. They do not
make any periodic payments of interest before maturity and
are priced at a deep discount from face amount. They pay a
fixed rate of interest and principal at maturity.
3. WHAT IS THE FUND'S INVESTMENT STRATEGY?
O The Fund plans to hold to maturity 6 intermediate-term
stripped U.S. Treasury securities with a current aggregate
face amount of $9,700,000. The Fund is a unit investment
trust which means that, unlike a mutual fund, the Fund's
portfolio is not managed.
o The Fund was designed to accumulate income for a fixed
period and then distribute that income in approximately
equal amounts over a five-year period. Income is
accumulated at a predictable yield to maturity, because
income is not distributed on a current basis but in effect
reinvested and compounded.
o For each unit of the Fund purchased, an investor will
receive a total distribution of approximately $1,000 for
units held until maturity of all the underlying securities.
o The securities but not the Fund or the units are backed by
the full faith and credit of the United States.
o 100% of the Portfolio consists of U.S. Treasury securities.
4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN HAPPEN
FOR VARIOUS REASONS, INCLUDING:
o Rising interest rates can reduce the value of your units.
o 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.
o The Fund will receive early returns of principal if
securities are sold before they mature. If this happens 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 a high yield to
maturity. You will benefit from a professionally selected
and supervised portfolio of U.S. government securities.
Because of tax considerations the Fund may be most
appropriate for tax-advantaged accounts such s IRAs, pension
funds, Keogh plans or for foreign investors.
The Fund is not appropriate for you if you want current
income or a speculative investment that changes to take
advantage of market movements, or if you do not wish to have
taxable income attributed to you before you actually receive
any cash.
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.
INVESTOR FEES
Maximum Sales Fee (Load) on new
purchases (as a percentage of $1,000
invested) 3.00%
Employees of some of the Sponsors and their affiliates may
be charged a reduced sales fee of no less than $5.00 per
Unit.
The maximum sales fee is reduced if you invest at least
$250,000, as follows:
YOUR MAXIMUM
SALES FEE
IF YOU INVEST: WILL BE:
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Less than $250,000 3.00%
$250,000-$499,999 2.50%
$500,000-$749,999 2.00%
$750,000-$999,999 1.50%
$1,000,000 and over 1.00%
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ESTIMATED ANNUAL FUND OPERATING EXPENSES
AMOUNT
PER
UNIT
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$ 0.35
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
$ 0.11
Evaluator's Fee
$ 0.05
Other Operating Expenses
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$ 0.51
TOTAL
The Sponsor 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 one unit.
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.
UNIT PRICE $680.47
(as of November 30, 1998)
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?
There will be no payments of interest on the Stripped
Treasury Securities; consequently, there should be no
distributions of interest income. Nevertheless, the Fund's
gross income is taxable to investors, as explained under
Taxes. As each stripped Treasury security matures, the
proceeds will be distributed to investors, returning
approximately equal portions of principal each year during
the maturity period. Distributions will be made in cash two
business days following the maturity of each security.
You will have significant amounts of income attributed to
you annually as original issue discount is accrued on the
non-maturing securities, but there will be no distributions
of cash with which to pay those taxes. Interest income is
exempt from state and local personal income taxes in all
states, and from federal withholding taxes for qualifying
foreign investors.
11. WHAT OTHER SERVICES ARE AVAILABLE?
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
PERIODIC DISTRIBUTIONS AT MATURITY
The Fund will accumulate income for a fixed period and then distribute it in
approximately equal amounts over a five-year period 2005-2009.
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):
Estimated Annual Estimated
Interest Income - Annual Expenses
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Unit Price
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 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:
o with each distribution, a statement of income payments;
o a notice from the Trustee when new securities are deposited in exchange or
substitution for securities originally deposited;
o an annual report on Fund activity; and
o 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:
o copies of evaluations to enable you to comply with federal and state tax
reporting requirements; and
o 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. Of course, we
cannot predict how interest rates may change.
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:
o adding the value of the securities, net accrued interest, cash and any
other Fund assets;
o 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
o 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 25 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 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.
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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:
o if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
o 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
o for any other period permitted by SEC order.
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.
EVALUATIONS
An independent Evaluator values the securities on each business day (excluding
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 U.S. Treasury
securities of the type in this Fund has been about 0.04%.
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:
o to reimburse the Trustee for the Fund's operating expenses;
o for extraordinary services and costs of indemnifying the Trustee and the
Sponsors;
o costs of actions taken to protect the Fund and other legal fees and
expenses;
o expenses for keeping the Fund's registration statement current; and
o Fund termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 45 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
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regulatory filing fees and expenses associated with updating the Fund's
registration statement yearly are now chargeable to the Fund. 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.
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. 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:
o diversity of the portfolio;
o size of the Fund relative to its original size;
o ratio of Fund expenses to income;
o current and long-term returns;
o degree to which units may be selling at a premium over par; and
o 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.
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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:
o to cure ambiguities;
o to correct or supplement any defective or inconsistent provision;
o to make any amendment required by any governmental agency; or
o 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 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:
o it fails to perform its duties and the Sponsors determine that its
replacement is in your best interest; or
o 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:
o remove it and appoint a replacement Sponsor;
o liquidate the Fund; or
o 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.
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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
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 Bank of New York,101 Barclay Street-- 17W, New York, New York 10268, 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
Merrill Lynch, as agent for the Sponsors, has adopted a code of ethics requiring
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preclearance and 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 Fund 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
Fund. The Year 2000 Problem may adversely affect the U.S. Treasury, as issuer of
the securities contained in the Fund, but 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 in securities, financial
institution, insurance company or other investor with special circumstances. You
should consult your own tax adviser about your particular circumstances.
The Sponsors believe that individual investors will not be subject to any state
or local personal income taxes on interest received by the Fund. However, you
may be subject to state and local taxes on capital gains (or 'market discount'),
and possibly other state and local taxes on your units. Also, you probably will
not be entitled to a deduction for state and local tax purposes for your share
of fees and expenses paid by the Fund, for any amortized 'bond premium' or for
any interest on money borrowed to purchase your units. You should consult your
tax adviser in this regard.
In the opinion of our counsel, under existing law:
GENERAL TREATMENT OF THE FUND AND YOUR INVESTMENT
The Fund will not be taxed as a corporation for federal income tax purposes, and
you
will be considered to own directly your share of each security in the Fund.
ORIGINAL ISSUE DISCOUNT
The zero coupon bonds will be considered to have been issued at an 'original
issue discount' for federal income tax purposes. As a result, you will be
required to include original issue discount in respect of the zero coupon bonds
as it accrues, in accordance with a constant yield method based on a compounding
of interest, before the Trust receives cash payments attributable to these
income inclusions. Under the constant yield method, you generally will be
required to include in income increasingly greater amounts of original issue
discount in successive accrual periods. The tax basis of your pro rata share of
zero coupon bonds will be increased by the amount of original issue discount
that you include in income. However, to the extent that your basis in a zero
coupon bond when you purchase a Unit is greater than the bond's original issue
price increased by original issue discount that has already accrued on the bond,
you will have
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'acquisition premium,' and your original issue discount inclusions will be
reduced by acquisition premium. You should consult your tax advisor in this
regard.
INCOME OR LOSS UPON DISPOSITION
When all or part of your share of a security is disposed of (for example, when
the Fund sells, exchanges or redeems a security or when you sell or exchange
your units), you will generally recognize capital gain or loss. Your gain,
however, will generally be ordinary income to the extent of any accrued 'market
discount'. Generally you will have market discount to the extent that the issue
price of a security, increased by original issue discount that has accrued on
the security before your purchase, is greater than your basis in the security
when you purchase a unit. You should consult your tax adviser in this regard.
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 from the Fund will be long-term if you are considered to have held
your investment on each security for more than one year and short-term if you
held it for one year or less. 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 securities will be equal to the cost of your units,
including any sales charges you pay, adjusted to reflect any accruals of
'original issue discount,' 'acquisition premium' and 'bond premium'. You should
consult your tax adviser in this regard.
EXPENSES
If you are an individual who itemizes deductions, you may deduct your share of
Fund expenses, but only to the extent that such amount, together with your other
miscellaneous deductions, exceeds 2% of your adjusted gross income. Your ability
to deduct Fund expenses will be limited further if your adjusted gross income
exceeds a specified amount (currently, $126,600 or $63,300 for a married person
filing separately).
FOREIGN INVESTORS
If you are a foreign investor and you are not engaged in a U.S. trade or
business, you generally will not be subject to U.S. federal income tax,
including withholding tax, on the interest or gain on a security issued after
July 18, 1984 if you meet certain requirements, including the certification of
foreign status and other matters. You should consult your tax adviser about the
possible application of federal, state and local, and foreign taxes.
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 securities 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.
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DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY SERIES 7 - LADDERED ZERO COUPONS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Defined Asset Funds - Government Securities Income Fund,
U.S. Treasury Series 7 - Laddered Zero Coupons:
We have audited the accompanying statements of condition of the Assurance Trust
2005 (C) of Defined Asset Funds - Government Securities Income Fund, U.S.
Treasury Series 7 - Laddered Zero Coupons, including the portfolio, as of
November 30, 1998 and the related statements of operations and of changes in net
assets for the years ended November 30, 1998, 1997 and 1996. 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 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
November 30, 1998, 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
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 the above-mentioned Trust of
Defined Asset Funds - Government Securities Income Fund, U.S. Treasury Series 7
- - Laddered Zero Coupons at November 30, 1998 and the results of its operations
and changes in its net assets for the above-stated years in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 3, 1999
New York, N.Y.
D-1
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY SERIES 7 - LADDERED ZERO COUPONS
STATEMENTS OF CONDITION
AS OF NOVEMBER 30, 1998
<TABLE>
<CAPTION>
ASSURANCE
TRUST
2005(C)
<S> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(see Portfolio and Note 1) $6,402,551
Accrued interest receivable 2,034
Total trust property 6,404,585
LESS LIABILITIES:
Accrued expenses $ 8,852
Advance from Trustee 31,480 40,332
NET ASSETS (Note 2) $6,364,253
UNITS OUTSTANDING 9,700
UNIT VALUE 656.11
See Notes to Financial Statements.
</TABLE>
D-2
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY SERIES 7 - LADDERED ZERO COUPONS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ASSURANCE TRUST
2005(C)
Years Ended November 30,
1998 1997 1996
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 7,216 $ 7,710 $ 8,129
Accretion of original issue discount 354,733 388,239 393,165
Trustee's fees and expenses (6,647) (8,141) (31,813)
Sponsors' fees (6,504) (4,768) (2,202)
Net investment income 348,798 383,040 367,279
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 482,259 28,783 189,447
Unrealized appreciation (depreciation) of
investments 133,245 117,061 (392,021)
Net realized and unrealized gain (loss) on
investments 615,504 145,844 (202,574)
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 964,302 $528,884 $164,705
</TABLE>
See Notes to Financial Statements.
D-3
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY SERIES 7 - LADDERED ZERO COUPONS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ASSURANCE TRUST
2005(C)
Years Ended November 30,
1998 1997 1996
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 348,798 $ 383,040 $ 367,279
Realized gain on securities sold 482,259 28,783 189,447
Unrealized appreciation (depreciation) of
investments 133,245 117,061 (392,021)
Net increase in net assets resulting from
operations 964,302 528,884 164,705
INCOME DISTRIBUTION (1,276)
CAPITAL SHARE TRANSACTIONS (Note 3):
Redemption of units (1,354,906) (125,740) (965,100)
NET DECREASE (INCREASE) IN NET ASSETS (390,604) 401,868 (800,395)
NET ASSETS AT BEGINNING OF YEAR 6,754,857 6,352,989 7,153,384
NET ASSETS AT END OF YEAR $6,364,253 $6,754,857 $6,352,989
PER UNIT:
Income distribution during the year $0.1068
Net asset value at end of year $656.11 $565.26 $520.74
TRUST UNITS OUTSTANDING AT END OF YEAR 9,700 11,950 12,200
</TABLE>
See Notes to Financial Statements.
D-4
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY SERIES 7 - LADDERED ZERO COUPONS
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 value as determined by the Evaluator based on
bid side evaluations for the securities.
(b) Cost of securities purchased is based on offering side evaluations at
dates of purchases and has been adjusted to include the accretion of
original issue discount on the Stripped Treasury Securities.
(c) The Trust is not subject to income taxes. Accordingly, no provision
for such taxes is required.
2. NET ASSETS, NOVEMBER 30, 1998
ASSURANCE TRUST 2005(C)
Cost of 9,700 units at Dates of Deposit $3,786,878
Less sales charges 145,660
Net amount applicable to Holders 3,641,218
Net cost of units redeemed less redemption amounts (1,178,981)
Realized gain on securities sold 1,178,981
Unrealized appreciation of investments 939,656
Net capital applicable to Holders 4,580,874
Overdistributed net investment income (including $1,821,677
of accretion of original issue discount) 1,783,379
Net assets $6,364,253
3. CAPITAL SHARE TRANSACTIONS
Units were issued as follows:
Years Ended November 30,
Trust 1998 1997 1996
Assurance Trust 2005(C) - - 4,750
Units were redeemed as follows:
Years Ended November 30,
Trust 1998 1997 1996
Assurance Trust 2005(C) 2,250 250 2,000
Units may be redeemed at the office of The Bank of New York, the Trustee,
upon tender thereof generally on any business day or, in the case of
uncertified units, upon delivery of a request for redemption and payment of
any relevant tax. The Trustee will redeem units either in cash or in kind
at the option of the Holder as specified in writing to the Trustee. See
"Redemption" in this Prospectus, Part B.
D-5
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY SERIES 7 - LADDERED ZERO COUPONS
NOTES TO FINANCIAL STATEMENTS
4. INCOME TAXES
All Trust items of income received, accretion of original issue discount,
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 United States
Internal Revenue Code.
At November 30, 1998, the cost of investment securities for Federal income
tax purposes was approximately equivalent to the adjusted cost as shown in
the Trust's portfolio.
5. DISTRIBUTIONS
It is anticipated that the Trust will make distributions two business days
following the maturity of each security in that Trust to Holders of record
five business days prior to the date of such distribution.
D-6
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY SERIES 7 - LADDERED ZERO COUPONS
PORTFOLIOS
AS OF NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Portfolio No. and Interest Face Adjusted
Title of Securities Rates Maturities Amount Cost(1) Value(1)
ASSURANCE TRUST 2005(C)
<S> <C> <C> <C> <C> <C>
1 Stripped Treasury Securities(2) 0.000% 8/15/05 $1,940,000 $1,254,839 $1,408,613
2 Stripped Treasury Securities(2) 0.000 8/15/06 1,940,000 1,164,494 1,338,928
3 Stripped Treasury Securities(2) 0.000 8/15/07 1,940,000 1,076,593 1,273,860
4 Stripped Treasury Securities(2) 0.000 8/15/08 1,940,000 995,276 1,202,352
5 Stripped Treasury Securities(2) 0.000 8/15/09 1,867,000 885,933 1,085,472
6 U.S. Treasury Bond 9.375 2/15/06 73,000 85,760 93,326
Total $9,700,000 $5,462,895 $6,402,551
</TABLE>
(1) See Notes to Financial Statements.
(2) See "Risk Factors - Special Characteristics of Stripped Treasury
Securities" in this Prospectus, Part B.
D-7
<PAGE>
Defined
Asset FundsSM
HAVE QUESTIONS ? GOVERNMENT SECURITIES INCOME FUND
Request the most recent free U.S TREASURY SERIES--7
Information Supplement (LADDERED ZERO COUPONS)
that gives more details about (A Unit Investment Trust)
the Fund, by calling: ---------------------------------------
The Bank of New York This Prospectus does not contain
1-800-221-7771 complete information about the
investment company filed with the
Securities and Exchange Commission in
Washington, D.C. under the:
o Securities Act of 1933 (file no.
33-28452) and
o 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.
12960--3/99
