DEFINED ASSET FUNDS--REGISTERED TRADEMARK--
-------------------------------
---------------------
GOVERNMENT SECURITIES INCOME FUND
U.S. TREASURY SERIES--7
(LADDERED ZERO COUPONS)
(A UNIT INVESTMENT TRUST)
- PORTFOLIO OF U.S. TREASURY SECURITIES
- LADDERED MATURITIES
- U.S. TAX EXEMPT FOR MANY FOREIGN HOLDERS
SPONSOR:
MERRILL LYNCH, -----------------------------------------------------
PIERCE, FENNER & SMITH The Securities and Exchange Commission has not
INCORPORATED approved or disapproved these Securities or passed
SALOMON SMITH BARNEY INC. upon the adequacy of this prospectus. Any
PAINEWEBBER INCORPORATED representation to the contrary is a criminal offense.
DEAN WITTER REYNOLDS INC. Prospectus dated March 17, 2000.
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Defined Asset Funds--Registered Trademark--
Defined Asset Funds-Registered Trademark- is America's oldest and largest family
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,
NOVEMBER 30, 1999.
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CONTENTS
PAGE
---
Risk/Return Summary.................. 3
What You Can Expect From Your
Investment......................... 5
Periodic Distributions at
Maturity......................... 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................ 11
Code of Ethics..................... 11
Year 2000 Issues................... 11
Taxes................................ 11
Supplemental Information............. 12
Financial Statements................. D-1
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2
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RISK/RETURN SUMMARY
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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?
- The Fund plans to hold to maturity 6
intermediate-term stripped U.S. Treasury
securities with a current aggregate face
amount of $8,700,000. The Fund is a unit
investment trust which means that, unlike
a mutual fund, the Fund's portfolio is
not managed.
- 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.
- 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.
- The securities BUT NOT THE FUND OR THE
UNITS are backed by the full faith and
credit of the United States.
- 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:
- Rising interest rates can reduce the
value 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 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:
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<CAPTION>
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%
$1,000,000 and over 1.00%
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ESTIMATED ANNUAL FUND OPERATING EXPENSES
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<CAPTION>
AMOUNT
PER
UNIT
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$ 0.35
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
$ 0.11
Evaluator's Fee
$ 0.05
Other Operating Expenses
------
$ 0.51
TOTAL
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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 $638.81
(as of November 30, 1999)
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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4
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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):
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Estimated Annual Estimated
Interest Income - Annual Expenses
- -------------------------------------
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 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:
- - with each distribution, a statement of income 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. 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:
- 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 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
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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.
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:
- 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.
7
<PAGE>
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 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 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
8
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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 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.
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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
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.
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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. 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 Stripped U.S. Treasury securities will be considered to have been issued at
an "original issue discount" for federal income tax purposes. As a result, you
will be
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required to include original issue discount in respect of the Stripped U.S.
Treasury securities as it accrues, in accordance with a constant yield method
based on a compounding of interest, before the Fund 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 Stripped U.S. Treasury securities when you purchase a Unit is greater
than the security's original issue price increased by original issue discount
that has already accrued on the security's, you will have "acquisition premium,"
and your original issue discount inclusions will be reduced by acquisition
premium. You should consult your tax adviser in this regard.
GAIN 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
otherwise. 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 TAX 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 $128,950 ($64,475 for a married person
filing separately).
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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.
13
<PAGE>
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, 1999 and the related statements of operations and of changes in net
assets for the years ended November 30, 1999, 1998 and 1997. 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, 1999, 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, 1999 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 17, 2000
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, 1999
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(see Portfolio and Note 1) $5,390,946
Accrued interest receivable 1,950
Receivable from securities sold 153,574
----------
Total trust property 5,546,470
LESS LIABILITIES:
Accrued expenses $ 4,406
Advance from Trustee 34,391
Redemptions payable 153,574 192,371
-------- ----------
NET ASSETS (Note 2) $5,354,099
==========
UNITS OUTSTANDING 8,700
=====
UNIT VALUE 615.41
======
</TABLE>
See Notes to Financial Statements.
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,
1999 1998 1997
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 7,984 $ 7,216 $ 7,710
Accretion of original issue discount 378,522 354,733 388,239
Trustee's fees and expenses (6,297) (6,647) (8,141)
Sponsors' fees (236) (6,504) (4,768)
--------- -------- --------
Net investment income 379,973 348,798 383,040
--------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 71,449 482,259 28,783
Unrealized appreciation (depreciation) of
investments (841,081) 133,245 117,061
--------- -------- --------
Net realized and unrealized gain (loss) on
investments (769,632) 615,504 145,844
--------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $(389,659) $964,302 $528,884
========= ======== ========
</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,
1999 1998 1997
<S> <C> <C> <C>
OPERATIONS:
Net investment income $379,973 $348,798 $383,040
Realized gain on securities sold 71,449 482,259 28,783
Unrealized appreciation (depreciation) of
investments (841,081) 133,245 117,061
---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations (389,659) 964,302 528,884
---------- ---------- ----------
INCOME DISTRIBUTION (1,276)
----------
CAPITAL SHARE TRANSACTIONS (Note 3):
Redemption of units (620,495) (1,354,906) (125,740)
---------- ---------- ----------
NET DECREASE (INCREASE) IN NET ASSETS (1,010,154) (390,604) 401,868
NET ASSETS AT BEGINNING OF YEAR 6,364,253 6,754,857 6,352,989
---------- ---------- ----------
NET ASSETS AT END OF YEAR $5,354,099 $6,364,253 $6,754,857
========== ========== ==========
PER UNIT:
Income distribution during the year $0.1068
=======
Net asset value at end of year $615.41 $656.11 $565.26
======= ======= =======
TRUST UNITS OUTSTANDING AT END OF YEAR 8,700 9,700 11,950
===== ===== ======
</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, 1999
ASSURANCE TRUST 2005(C)
Cost of 8,700 units at Dates of Deposit $3,399,645
Less sales charges 130,765
----------
Net amount applicable to Holders 3,268,880
Net cost of units redeemed less redemption amounts (1,250,430)
Realized gain on securities sold 1,250,430
Unrealized appreciation of investments 98,575
----------
Net capital applicable to Holders 3,367,455
Overdistributed net investment income (including $2,023,491
of accretion of original issue discount) 1,986,644
----------
Net assets $5,354,099
==========
3. CAPITAL SHARE TRANSACTIONS
Units were redeemed as follows:
Years Ended November 30,
Trust 1999 1998 1997
Assurance Trust 2005(C) 1,000 2,250 250
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.
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, 1999, 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, 1999
<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 $1,740,000 $1,214,935 $1,217,250
2. Stripped Treasury Securities(2) 0.000 8/15/06 1,740,000 1,128,122 1,141,160
3. Stripped Treasury Securities(2) 0.000 8/15/07 1,740,000 1,043,864 1,065,992
4. Stripped Treasury Securities(2) 0.000 8/15/08 1,740,000 965,759 995,278
5. Stripped Treasury Securities(2) 0.000 8/15/09 1,671,000 858,629 891,377
6. U.S. Treasury Bond 9.375 2/15/06 69,000 81,062 79,889
---------- ---------- ----------
Total $8,700,000 $5,292,371 $5,390,946
========== ========== ==========
</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 Funds-Registered Trademark->
<TABLE>
<S> <C>
HAVE QUESTIONS ? GOVERNMENT SECURITIES INCOME FUND
Request the most U.S. TREASURY SERIES--7
recent free Information (LADDERED ZERO COUPONS)
Supplement that gives more (A Unit Investment Trust)
details about the Fund, ---------------------------------------
by calling: This Prospectus does not contain
The Bank of New York complete information about the
1-800-221-7771 investment company filed with the
Securities and Exchange Commission in
Washington, D.C. under the:
- Securities Act of 1933 (file no.
33-228452) 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.
12960--3/00
</TABLE>
