<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1996
REGISTRATION NO. 33-46142
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-6
------------------------------------------
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------------------------------------
A. EXACT NAME OF TRUST:
DEFINED ASSET FUNDS--
GOVERNMENT SECURITIES INCOME FUND
FREDDIE MAC SERIES--10
(A UNIT INVESTMENT TRUST)
B. NAMES OF DEPOSITORS:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SMITH BARNEY INC.
PRUDENTIAL SECURITIES INCORPORATED
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
C. COMPLETE ADDRESSES OF DEPOSITORS' PRINCIPAL EXECUTIVE OFFICES:
MERRILL LYNCH, PIERCE,
FENNER & SMITH
INCORPORATED
DEFINED ASSET FUNDS
POST OFFICE BOX 9051
PRINCETON, N.J.
08543-9051 SMITH BARNEY INC.
388 GREENWICH
STREET--23RD FLOOR
NEW YORK, NY 10013
PRUDENTIAL SECURITIES PAINEWEBBER INCORPORATED DEAN WITTER REYNOLDS INC.
INCORPORATED 1285 AVENUE OF THE TWO WORLD TRADE
ONE SEAPORT PLAZA AMERICAS CENTER--59TH FLOOR
199 WATER STREET NEW YORK, N.Y. 10019 NEW YORK, N.Y. 10048
NEW YORK, N.Y. 10292
D. NAMES AND COMPLETE ADDRESSES OF AGENTS FOR SERVICE:
TERESA KONCICK, ESQ. LAURIE A. HESSLEIN DOUGLAS LOWE, ESQ.
P.O. BOX 9051 388 GREENWICH STREET 130 LIBERTY STREET--29TH
PRINCETON, N.J. NEW YORK, N.Y. 10013 FLOOR
08543-9051 NEW YORK, N.Y. 10006
COPIES TO:
LEE B. SPENCER, JR. ROBERT E. HOLLEY PIERRE DE SAINT PHALLE,
ONE SEAPORT PLAZA 1200 HARBOR BLVD. ESQ.
199 WATER STREET WEEHAWKEN, N.J. 07087 450 LEXINGTON AVENUE
NEW YORK, N.Y. 10292 NEW YORK, N.Y. 10017
The issuer has registered an indefinite number of Units under the Securities Act
of 1933 pursuant to Rule 24f-2 and filed the Rule 24f-2 Notice for the most
recent fiscal year on February 14, 1996.
Check box if it is proposed that this filing will become effective on May 17,
1996 pursuant to paragraph (b) of Rule 485. / x /
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<PAGE>
<PAGE>
DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
GOVERNMENT This Defined Fund was formed for the purpose of
SECURITIES obtaining safety of capital and current monthly
INCOME FUND distributions of payments of interest and
FREDDIE MAC SERIES--10 principal through investment in a fixed portfolio
A UNIT INVESTMENT consisting of Gold Mortgage Participation
TRUST Certificates ('Gold PCs'), representing undivided
- ------------------------------interests in specified fixed rate, first lien
/ / MONTHLY INCOME conventional residential mortgages guaranteed by
/ / MORTGAGE BACKED the Federal Home Loan Mortgage Corporation
SECURITIES ('FHLMC' or 'Freddie Mac'). The estimated life of
/ / INTERMEDIATE TERM the Fund is about 2 years. While Freddie Mac is a
corporate instrumentality of the United States,
the Freddie Mac PCs are not guaranteed by the
United States or by any Federal Home Loan Bank and
do not constitute debts or obligations of the
United States or any Federal Home Loan Bank. The
obligations of FHLMC under its guarantee are
obligations solely of FHLMC and are not backed by,
or entitled to, the full faith and credit of the
United States. (See Risk Factors--GNMA Series and
Freddie Mac Series in Part B.) The value of the
units of the Fund will fluctuate with the value of
the Portfolio of underlying securities, and the
principal amount of underlying securities
represented by each unit will be reduced as
principal is paid on the underlying mortgages.
Minimum Purchase: $250
-------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------------------------
SPONSORS: PART A OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED
Merrill Lynch, UNLESS ACCOMPANIED BY GOVERNMENT SECURITIES
Pierce, Fenner & Smith INCOME FUND PROSPECTUS PART B.
Incorporated INVESTORS SHOULD READ BOTH PARTS OF THIS
Smith Barney Inc. PROSPECTUS CAREFULLY AND RETAIN THEM FOR FUTURE
Prudential Securities REFERENCE.
Incorporated INQUIRIES SHOULD BE DIRECTED TO THE TRUSTEE AT
Dean Witter Reynolds Inc. 1-800-323-1508.
PaineWebber Incorporated PROSPECTUS PART A DATED MAY 17, 1996.
<PAGE>
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Def ined Asset FundsSM
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $100 billion sponsored over the last 25 years. Each Defined
Asset Fund is a portfolio of preselected securities. The portfolio is divided
into 'units' representing equal shares of the underlying assets. Each unit
receives an equal share of income and principal distributions.
Defined Asset Funds offer several defined 'distinctives'. You know in advance
what you are investing in and that changes in the portfolio are limited - a
defined portfolio. Most defined bond funds pay interest monthly - defined
income. The portfolio offers a convenient and simple way to invest - simplicity
defined.
Your financial professional can help you select a Defined Asset Fund to meet
your personal investment objectives. Our size and market presence enable us to
offer a wide variety of investments. The Defined Asset Funds family offers:
o Municipal portfolios
o Corporate portfolios
o Government portfolios
o Equity portfolios
o International portfolios
The terms of Defined Funds are as short as one year or as long as 30 years.
Special defined funds are available including: insured funds, double and triple
tax-free funds and funds with 'laddered maturities' to help protect against
changing interest rates. Defined Asset Funds are offered by prospectus only.
- ----------------------------------------------------------------
Defined GNMA Series
- ----------------------------------------------------------------
Our Defined portfolios of mortgage-backed Freddie Mac Gold PCs offer investors a
simple and convenient way to participate in the FHLMC market while earning an
attractive return. And by purchasing Freddie Mac funds, investors avoid the
problem of selecting securities by themselves.
INVESTMENT OBJECTIVES
To obtain safety of capital and current monthly distributions of interest and
principal through investment in a fixed portfolio of Gold PCs fully guaranteed
as to principal and interest by the FHLMC. All of the Gold PCs in the Fund are
backed by pools of residential mortgages. A further objective of the Fund is to
permit investors to reinvest income or principal distributions in additional
Units of the Fund.
- ----------------------------------------------------------------
Defining Your Portfolio
- ----------------------------------------------------------------
PROFESSIONAL SELECTION AND SUPERVISION
The Portfolio of Securities is selected by experienced buyers and research
analysts. The Fund is not actively managed; however, it is regularly reviewed
and a Security can be sold if retaining it is considered detrimental to
investors' interests.
PORTFOLIO COMPOSITION
Two different issues of Gold PCs representing undivided interests in specified
fixed rate, first lien conventional residential mortgages purchased by Freddie
Mac and guaranteed by it as to timely payment of interest and principal. The
percentage relationship is as follows: 8.00% Freddie Mac Gold PCs maturing
5/01/02 to 3/01/08, 43% and 7.50% Freddie Mac Gold PCs maturing 1/01/07 to
3/01/08, 57%. The Fund was created March 18, 1992. The information in this
prospectus is as of February 29, 1996, the evaluation date.
TAX INFORMATION
Distributions of ordinary income or capital gain from the Fund will be included
in a U.S. investor's gross income, but will not be eligible for the dividends-
received deduction for corporations. Distributions to investors who are not U.S.
citizens or residents will generally be subject to withholding tax at the
statutory rate of 30% (or a lesser treaty rate). (See Taxes in Part B).
- ----------------------------------------------------------------
Defining Your Investment
- ----------------------------------------------------------------
PUBLIC OFFERING PRICE PER 1,000 UNITS $477.24
The Public Offering Price as of February 29, 1996, the evaluation date, is based
on the aggregate bid side value of the underlying Securities in the Fund
($20,868,567), divided by the number of units outstanding (45,313,378) times
1,000 plus a sales charge of 3.50% of the Public Offering Price (3.627% on the
value of the underlying bonds). The Public Offering Price on any subsequent date
will vary. An amount equal to principal cash, if any, as well as net accrued but
undistributed interest on the unit is added to the Public Offering Price. The
underlying Securities are evaluated by an independent evaluator at 3:30 p.m.
Eastern time on every business day.
PREMIUM AND DISCOUNT ISSUES
On the evaluation date, 100% of the bonds were valued at a premium over par (see
Risk Factors in Part B).
LOW MINIMUM INVESTMENT
You can get started with a minimum purchase of about $250. There is no minimum
purchase for payroll deduction plans.
PRINCIPAL DISTRIBUTIONS
Principal from sales, redemptions and maturities of Securities in the Fund will
be distributed to investors periodically when the amount to be distributed is
more than $5.00 per 1,000 units.
A-2
<PAGE>
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REINVESTMENT OPTION
You can elect to automatically reinvest your distributions into additional units
of the Fund at a reduced sales charge. Reinvestment helps to compound your
investment.
TERMINATION DATE
The Fund will generally terminate no later than one year following the maturity
date of the last maturing Security listed in the Portfolio. The Fund may be
terminated earlier if the value is less than 40% of the face amount of
securities deposited. On the evaluation date the value of the fund was 43% of
the face amount of securities deposited.
- ---------------------------------------------------------------
Defining Your Risks
- ---------------------------------------------------------------
RISK FACTORS
An investment in Units of the Fund should be made with an understanding of the
risks which an investment in fixed-rate intermediate-term debt obligations
without prepayment protection may entail, including the risk that the value of
the Portfolio and hence of the Units will decline with increases in interest
rates and that payments of principal may be received sooner than anticipated
especially if interest rates decline. The potential for appreciation, which
could otherwise be expected to result from a decline in interest rates, may be
limited by any prepayments by mortgagors as interest rates decline. Also,
prepayments of principal on Freddie Mac Gold PCs purchased at a premium over par
will result in some loss on investment while prepayments on Freddie Mac Gold PCs
purchased at a discount from par may result in some gain on investment. Also, if
interest rates rise, the prepayment risk of higher yielding, premium Freddie Mac
Gold PCs and the prepayment benefit for lower yielding, discount Freddie Mac PCs
will be reduced. There is no guarantee that the Fund will reach its investment
objective. The Fund may recognize gain on the payment of principal on an
underlying Gold PC or on the sale of a Security. A distribution of such gain
will be taxable to an investor as ordinary income or capital gain even though as
to a particular investor the distribution may economically represent a return of
capital. (See Taxes in Part B).
- ---------------------------------------------------------------
Defining Your Costs
- ---------------------------------------------------------------
SALES CHARGES
Although the Fund is a unit investment trust rather than a mutual fund, the
following information is presented to permit a comparison of fees and an
understanding of the direct or indirect costs and expenses that you pay.
As a %
of Secondary
Market
Public Offering
Price
---------------
Maximum Sales Charges 3.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
Per 1,000
Units
---------------
Trustee's Fee $ 0.72
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees $ 0.11
Evaluator's Fee $ 0.06
Other Operating Expenses $ 0.22
---------------
TOTAL $ 0.71
SELLING YOUR INVESTMENT
You may sell your units at any time. Your price is based on the Fund's then
current net asset value (based on the lower, bid side evaluation of the
Securities, as determined by an independent evaluator), plus principal cash, if
any, as well as accrued interest. The bid side redemption and secondary market
repurchase price per 1,000 units as of the evaluation date was $460.54 ($16.70
less than the Public Offering Price). There is no fee for selling your units.
- ---------------------------------------------------------------
Defining Your Income
- ---------------------------------------------------------------
MONTHLY INTEREST INCOME
The Fund pays monthly income, even though the Securities generally pay interest
semi-annually.
WHAT YOU MAY EXPECT
(PAYABLE ON THE 23RD DAY OF THE MONTH TO HOLDERS OF RECORD ON THE 17TH DAY OF
THE MONTH):
Regular Monthly Income per 1,000 units: $ 2.82
Annual Income per 1,000 units: $ 33.91
These figures are estimates determined as of the evaluation date and actual
payments may vary.
A-3
<PAGE>
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
FREDDIE MAC SERIES - 10
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Defined Asset Funds - Government Securities Income Fund,
Freddie Mac Series - 10:
We have audited the accompanying statement of condition of
Defined Asset Funds - Government Securities Income Fund,
Freddie Mac Series - 10, including the portfolio, as of
February 29, 1996 and the related statements of operations
and of changes in net assets for the years ended February 29,
1996, and February 28, 1995 and 1994. 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 February 29,
1996, as shown in such portfolio, were confirmed to us
by The Chase Manhattan Bank (National Association), 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 Freddie Mac Series - 10 at February 29,
1996 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
New York, N.Y.
April 24, 1996
D - 1.
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
FREDDIE MAC SERIES - 10
STATEMENT OF CONDITION
As of February 29, 1996
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities -
at value (cost $ 20,933,997 )(Note 1)........ $20,868,567
Accrued interest ............................... 130,739
Cash - income .................................. 1,085
Cash - principal ............................... 241
-----------
Total trust property ......................... 21,000,632
LESS LIABILITIES:
Accrued Sponsors' fees ......................... $ 1,418
Trustee's fees and expenses payable ............ 2,282 3,700
----------- -----------
NET ASSETS, REPRESENTED BY:
45,313,378 units of fractional undivided
interest outstanding (Note 3)................ 20,868,808
Undistributed net investment income ............ 128,124 $20,996,932
----------- ===========
UNIT VALUE ($ 20,996,932 / 45,313,378 units )..... $ .46337
===========
</TABLE>
See Notes to Financial Statements.
D - 2.
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
FREDDIE MAC SERIES - 10
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
February 29, Years Ended February 28,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income ........................ $ 1,733,817 $ 2,085,177 $ 3,042,493
Trustee's fees and expenses ............ (32,183) (37,617) (54,864)
Sponsors' fees ......................... (2,839) (3,365) (8,936)
---------------------------------------------------
Net investment income .................. 1,698,795 2,044,195 2,978,693
---------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized loss on
securities sold or redeemed .......... (109,727) (185,559) (461,445)
Unrealized appreciation (depreciation)
of investments ....................... 686,188 (1,015,045) (563,330)
---------------------------------------------------
Net realized and unrealized
gain (loss) on investments ........... 576,461 (1,200,604) (1,024,775)
---------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .............. $ 2,275,256 $ 843,591 $ 1,953,918
===================================================
</TABLE>
See Notes to Financial Statements.
D - 3.
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
FREDDIE MAC SERIES - 10
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended
February 29, Years Ended February 28,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATIONS:
Net investment income .................. $ 1,698,795 $ 2,044,195 $ 2,978,693
Realized loss on
securities sold or redeemed .......... (109,727) (185,559) (461,445)
Unrealized appreciation (depreciation)
of investments ....................... 686,188 (1,015,045) (563,330)
---------------------------------------------------
Net increase in net assets
resulting from operations ............ 2,275,256 843,591 1,953,918
---------------------------------------------------
DISTRIBUTIONS TO HOLDERS (Note 2):
Income ................................ (1,721,745) (2,083,916) (3,059,055)
Principal .............................. (3,488,327) (5,468,975) (14,920,442)
---------------------------------------------------
Total distributions .................... (5,210,072) (7,552,891) (17,979,497)
---------------------------------------------------
SHARE TRANSACTIONS:
Subscription amounts ................... 2,723,840
Redemption amounts - income ............ (4,055) (5,364) (1,325)
Redemption amounts - principal ......... (780,716) (1,002,397) (344,649)
---------------------------------------------------
Total share transactions ............... (784,771) (1,007,761) 2,377,866
---------------------------------------------------
NET DECREASE IN NET ASSETS ............... (3,719,587) (7,717,061) (13,647,713)
NET ASSETS AT BEGINNING OF YEAR .......... 24,716,519 32,433,580 46,081,293
---------------------------------------------------
NET ASSETS AT END OF YEAR ................ $20,996,932 $24,716,519 $32,433,580
===================================================
PER UNIT:
Income distributions during
year ................................. $ .03739 $ .04357 $ .06296
===================================================
Principal distributions during
year ................................. $ .07594 $ .11392 $ .30660
===================================================
Net asset value at end of
year ................................. $ .46337 $ .52743 $ .66673
===================================================
TRUST UNITS:
Issued during year ..................... 2,758,622
Redeemed during year ................... 1,548,737 1,784,000 363,000
Outstanding at end of year ............. 45,313,378 46,862,115 48,646,115
===================================================
</TABLE>
See Notes to Financial Statements.
D - 4.
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
FREDDIE MAC SERIES - 10
<TABLE><CAPTION>
NOTES TO FINANCIAL STATEMENTS
<S> <C>
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.
See "How to Sell Units - Trustee's Redemption of Units"
in this Prospectus, Part B. Cost of securities sold is based
on average cost.
(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 as explained in "Income,
Distributions and Reinvestment - Distributions" in this Prospectus, Part B.
3. NET CAPITAL
Cost of 45,313,378 units at Date of Deposit ................ $46,809,206
Less sales charge .......................................... 1,489,618
-----------
Net amount applicable to Holders ........................... 45,319,588
Redemptions of units - net cost of 3,695,737 units redeemed
less redemption amounts (principal)....................... 1,568,483
Realized loss on securities sold or redeemed ............... (801,251)
Principal distributions .................................... (25,152,582)
Unrealized depreciation of investments ..................... (65,430)
-----------
Net capital applicable to Holders .......................... $20,868,808
===========
4. INCOME TAXES
As of February 29, 1996, unrealized depreciation of investments, based on
cost for Federal income tax purposes, aggregated $ 65,430, all of which
related to depreciated securities. The cost of investment securities for
Federal income tax purposes approximates the amount shown in the accompanying
financial statements at February 29, 1996.
</TABLE>
D - 5.
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
FREDDIE MAC SERIES - 10
<TABLE><CAPTION>
PORTFOLIO
As of February 29, 1996.
Range of
Interest Stated Face
Security Description Rate Maturities(2) Amount Cost Value(1)
--------------------------------- -------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
1 Federal Home Loan Gold Mortgage 7.500% 01/01/07 $ 11,663,406 $ 11,908,842 $ 11,896,674
Participation Certificates to
03/01/08
2 Federal Home Loan Gold Mortgage 8.000 05/01/02 8,676,376 9,025,155 8,971,893
Participation Certificates to
03/01/08
--------------- --------------- ---------------
TOTAL $ 20,339,782 $ 20,933,997 $ 20,868,567
=============== =============== ===============
(1) See Note 1 to Financial Statements.
(2) On The Dates of Deposit, the ranges of stated maturities
were as follows:
7.5% FHLMC - 01/01/07 to 03/01/08
8.0% FHLMC - 05/01/02 to 03/01/08
</TABLE>
D - 6.
<PAGE>
AUTHORIZATION FOR REINVESTMENT
DEFINED ASSET FUNDS--
GOVERNMENT SECURITIES INCOME FUND
FREDDIE MAC SERIES--10
/ / Yes, I want to participate in the Fund's Reinvestment Plan and purchase
additional Units of the Fund each month.
I hereby acknowledge receipt of the Prospectus for Defined Asset
Funds--Government Securities Income Fund, Freddie Mac Series--10 and authorize
The Chase Manhattan Bank, N.A. to pay distributions on my Units as indicated
below (distributions to be reinvested will be paid for my account to The Chase
Manhattan Bank, N.A.).
Income
distributions: reinvested / /
Capital
distributions: reinvested / /
Please print or type
Name Registered Holder
Address
Registered Holder
(Two signatures required if
joint tenancy)
City State Zip Code
This page is a self-mailer. Please complete the information above, cut
along the dotted line, fold along the lines on the reverse side, tape, and mail
with the Trustee's address displayed on the outside.
12345678
<PAGE>
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 644, NEW YORK, N.Y. NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
THE CHASE MANHATTAN BANK, N.A. (FREDDIE MAC 10) UNITED STATES
RETAIL PROCESSING DEPARTMENT
770 BROADWAY--7th FLOOR
NEW YORK, N.Y. 10003-9598
- --------------------------------------------------------------------------------
(Fold along this line.)
- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
GOVERNNMENT SECURITIES INCOME FUND
CORPORATE INCOME FUND FIRST GNMA SERIES
THIS PART B OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED OR
PRECEDED BY PART A.
FURTHER NFORMATION REGARDING THE FUND MAY BE OBTAINED
WITHIN FIVE DAYS BY WRITING OR CALLING THE TRUSTEE, AT THE ADDRESS AND
TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS.
Index
PAGE
---------
Fund Description...................................... 1
Risk Factors.......................................... 2
How to Buy Units...................................... 4
How to Sell Units..................................... 5
Income and Distributions.............................. 6
Fund Expenses......................................... 8
PAGE
---------
Taxes................................................. 8
Records & Reports..................................... 12
Trust Indenture....................................... 12
Miscellaneous......................................... 13
Supplemental Information.............................. 15
Secondary Market Sales................................ A-1
FUND DESCRIPTION
PORTFOLIO SELECTION
Professional buyers and research analysts for Defined Asset Funds, with
access to extensive research, selected the Securities for the Portfolio after
considering the Fund's investment objectives as well as the availability of the
Securities, the price of the Securities compared to similar securities and the
extent to which they were trading at discounts or premiums to par, and the
maturities of the Securities. Only issues meeting these stringent criteria of
the Defined Asset Funds team of dedicated research analysts are included in the
Portfolio. No leverage or borrowing is used nor does the Portfolio contain other
kinds of securities to enhance yield. A summary of the Securities in the
Portfolio appears in Part A of the Prospectus.
Because each Defined Asset Fund is a preselected portfolio of securities,
you know the terms of the Securities before you invest. Of course, the Portfolio
will change somewhat over time, as Securities mature, are redeemed or are sold
to meet Unit redemptions or in other limited circumstances. Because the
Portfolio is not actively managed and principal is returned as the Securities
are disposed of, this principal should be relatively unaffected by changes in
interest rates.
GNMA Series and Freddie Mac Series. Ginnie Maes are mortgage-backed
Securities issued by the Government National Mortgage Association (GNMA), which
is a wholly-owned U.S. government corporation within the Department of Housing
and Urban Development. The Ginnie Maes are of the 'modified pass-through' type,
the terms of which provide for timely monthly payments by the issuers to the
registered holders (including the Fund) of their pro rata shares of the
scheduled principal payments on account of the mortgages backing these Ginnie
Maes, plus any prepayments of principal of such mortgages received, and interest
on the aggregate unpaid principal balance of these Ginnie Maes. Ginnie Maes are
guaranteed by GNMA as to timely payment of principal and interest. The full
faith and credit of the United States is pledged to the payment of all amounts
which may be required to be paid under the guaranty. The GNMA guaranty relates
only to payment of principal of and interest on the Ginnie Maes in the Portfolio
and not to the Units of the Fund. All mortgages in the pools backing the Ginnie
Maes contained in the Portfolio are mortgages on 1-to 4-family dwellings
(amortizing over a period of up to 30 years). In general, the mortgages in these
pools provide for equal monthly payments over the life of the mortgage (aside
from prepayments), designed to repay the principal of the mortgage over this
period, together with interest at a fixed rate on the unpaid balance.
1
<PAGE>
Freddie Macs are mortgage-backed securities issued by the Federal Home Loan
Mortgage Corporation (FHLMC), which is a corporate instrumentality of the United
States, established primarily to increase the availability of mortgage credit
for the financing of urgently needed housing. The common stock of FHLMC is owned
by the Federal Home Loan Banks. FHLMC Mortgage Participation Certificates (PCs)
of the type held by the Portfolios represent an undivided interest in a group of
mortgages purchased by FHLMC. The underlying mortgage loans are fixed-rate
mortgages with original terms to maturity of about 15 years, most of which are
secured by first liens on 1-to 4-family dwellings. FHLMC guarantees the timely
payment of interest, the amount of principal due to be paid on the underlying
mortgage and the ultimate collection of all principal. The FHLMC PCs are not
guaranteed by the United States or by any Federal Home Loan Bank, and they are
not backed by the full faith and credit of the United States.
PORTFOLIO SUPERVISION
The Fund follows a buy and hold investment strategy in contrast to the
frequent portfolio changes of a managed fund based on economic, financial and
market analyses. Experienced financial analysts regularly review the Portfolio
and a Security may be sold in certain circumstances including the occurrence of
a default in payment on the Security, institution of certain legal proceedings,
if the Security becomes inconsistent with the Fund's investment objectives, a
decline in the price of the Security or the occurrence of other market or credit
factors that, in the opinion of Defined Asset Funds research analysts, makes
retention of the Security detrimental to the interests of investors.
The Sponsors and the Trustee are not liable for any default or defect in a
Security. If a contract to purchase any Security fails, the Sponsors may
generally deposit a replacement security so long as it is a security issued by
the same issuer as that of the failed Security and has a fixed maturity date
substantially similar to the failed Security. A replacement security must be
deposited within 110 days after deposit of the failed contract, at a cost that
does not exceed the funds reserved for purchasing the failed Security and at a
yield to maturity and current return substantially equivalent (considering then
current market conditions and relative creditworthiness) to those of the failed
Security, as of the date the failed contract was deposited.
RISK FACTORS
An investment in the Fund entails certain risks, including the risk that
the value of your investment will decline with increases in interest rates.
Generally speaking, securities with longer maturities will fluctuate in value
more than securities with shorter maturities. In recent years there have been
wide fluctuations in interest rates and in the value of fixed-rate bonds
generally. The Sponsors cannot predict the direction or scope of any future
fluctuations.
Certain of the Securities may have been deposited at a market discount or
premium principally because their interest rates are lower or higher than
prevailing rates on comparable debt securities. The current returns of market
discount securities are lower than comparably rated securities selling at par
because discount securities tend to increase in market value as they approach
maturity. The current returns of market premium securities are higher than
comparably rated securities selling at par because premium securities tend to
decrease in market value as they approach maturity. Because part of the purchase
price is returned through current income payments and not at maturity, an early
redemption at par of a premium security will result in a reduction in yield to
the Fund. Market premium or discount attributable to interest rate changes does
not indicate market confidence or lack of confidence in the issue.
U.S. Treasury Series. U.S. Treasury obligations, though backed by the full
faith and credit of the United States, are subject to changes in market value
when interest rates fluctuate. 'Laddered' Series seeks to protect against
declining interest rates by investing a portion of the Portfolio in longer-term
Securities, while if interest rates rise investors will be able to reinvest the
proceeds of principal as it is returned in higher yielding obligations. It is
anticipated that equal portions of principal invested will be returned annually
as Securities mature.
Treasury 'Zero' Series. The value of Stripped Treasury Securities, and
therefore of the Units of these Series, may be subject to greater fluctuations
in response to changing interest rates than in a fund consisting of debt
obligations with comparable maturities that pay interest currently. This risk is
greater when the period to maturity is longer. Furthermore, the stripping of the
interest coupons will cause the Units and therefore the investor's pro rata
portion of each Stripped Treasury Security to be purchased at a deep discount.
The Stripped
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Treasury Securities do not make any periodic payments of interest. Accordingly,
Funds holding primarily Stripped Treasury Securities are not a suitable
investment for persons seeking current cash distributions.
GNMA Series and Freddie Mac Series. Ginnie Maes and FHLMC PCs purchased at
a market discount will increase in value faster than Ginnie Maes and FHLMC PCs
purchased at a market premium if interest rates decrease. Conversely, if
interest rates increase, the value of these Securities purchased at a market
discount will decrease faster than those purchased at a premium. In addition, if
interest rates rise, the prepayment risk of higher yielding, premium Securities
and the prepayment benefit for lower yielding, discount Securities will be
reduced. The potential for appreciation on the Securities, which could otherwise
be expected to result from a decline in interest rates, may tend to be limited
by any increased prepayments by mortgagors as interest rates decline. In
addition, prepayments of principal on Ginnie Maes and FHLMC PCs purchased at a
premium over par will result in some loss on investment while prepayments on
Ginnie Maes and FHLMC PCs purchased at a discount from par will result in some
gain on investment. The Securities in the Portfolio, though backed by GNMA or
FHLMC, are subject to changes in market value when interest rates fluctuate.
LITIGATION AND LEGISLATION
The Sponsors do not know of any pending litigation as of the date of this
Prospectus which might reasonably be expected to have a material adverse effect
upon the Fund. At any time after the initial date of deposit, litigation may be
initiated on a variety of grounds, or legislation may be enacted, affecting the
Securities in the Fund.
PAYMENT OF THE SECURITIES AND LIFE OF THE FUND
The size and composition of the Fund will be affected by the level of
redemptions of Units that may occur from time to time. Principally, this will
depend upon the number of investors seeking to sell or redeem their Units and
whether or not the Sponsors are able to sell the Units acquired by them in the
secondary market. As a result, Units offered in the secondary market may not
represent the same face amount of Securities as on the initial date of deposit.
Factors that the Sponsors will consider in determining whether or not to sell
Units acquired in the secondary market include the size of the Fund relative to
its original size, the ratio of Fund expenses to income, the Fund's current and
long-term returns, the degree to which Units may be selling at a premium over
par and the cost of maintaining a current prospectus for the Fund. These factors
may also lead the Sponsors to seek to terminate the Fund earlier than its
mandatory termination date.
GNMA Series and Freddie Mac Series. Monthly payments and prepayments of
principal are made to the Fund in respect of the mortgages underlying the
Securities. All of the mortgages in the pools relating to the Securities are
subject to prepayment without any significant premium or penalty at the option
of the mortgagors (i.e., the homeowners). While the mortgages on 1-to 4-family
dwellings underlying the Ginnie Maes are amortized over a period of up to 30
years and those underlying the FHLMC PCs are amortized over a period of up to 15
years, it has been the experience of the mortgage industry that the average life
of comparable mortgages, owing to prepayments, is much less, perhaps as little
as nine and 6 years, respectively. Generally speaking, a number of factors,
including mortgage market interest rates and homeowners mobility, will affect
the average life of the Ginnie Maes and FHLMC PSc. Changes in prepayment
patterns which are influenced by changes in housing cycles and mortgage
refinancing could influence yield assumptions used in pricing the securities.
While the value of these mortgage backed securities generally fluctuates
inversely with changes in interest rates, it should be noted that their
potential for appreciation, which could otherwise be expected to result from a
decline in interest rates, may tend to be limited by any increased prepayments
by mortgagors as interest rates decline. Accordingly, the termination of the
Fund might be accelerated as a result of prepayments made as described above.
Early termination of a Fund or early payments of principal may have
important consequences to the investor; e.g., to the extent that Units were
purchased with a view to an investment of longer duration, the overall
investment program of the investor may require readjustment; or the overall
return on investment may be less or greater than anticipated, depending in part
on whether the purchase price paid for Units represented the payment of an
overall premium or a discount, respectively, above or below the stated principal
amounts of the underlying mortgages.
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FUND TERMINATION
The Fund will be terminated no later than the mandatory termination date
specified in Part A of the Prospectus. It will terminate earlier upon the
disposition of the last Security or upon the consent of investors holding 51% of
the Units. The Fund may also be terminated earlier by the Sponsors once the
total assets of the Fund have fallen below the minimum value specified in Part A
of the Prospectus. A decision by the Sponsors to terminate the Fund early will
be based on factors similar to those considered by the Sponsors in determining
whether to continue the sale of Units in the secondary market.
Notice of impending termination will be provided to investors and
thereafter Units will no longer be redeemable. On or shortly before termination,
the Fund will seek to dispose of any Securities remaining in the Portfolio
although any Security unable to be sold at a reasonable price may continue to be
held by the Trustee in a liquidating trust pending its final disposition. A
proportional share of the expenses associated with termination, including
brokerage costs in disposing of Securities, will be borne by investors remaining
at that time. This may have the effect of reducing the amount of proceeds those
investors are to receive in any final distribution.
HOW TO BUY UNITS
PUBLIC OFFERING PRICE
Units are available from any of the Sponsors at the Public Offering Price
plus accrued interest on the Units. The Public Offering Price varies each
Business Day with changes in the value of the Portfolio and other assets and
liabilities of the Fund. In the secondary market (after the initial offering
period), the Public Offering Price is based on the bid side evaluation of the
Securities, and includes a sales charge based on the number of Units of the Fund
purchased in the secondary market on the same day by a single purchaser (see
Secondary Market sales charge schedule in Appendix A). Purchases in the
secondary market of one or more Series sponsored by the Sponsors that have the
same rates of sales charge may be aggregated.
To qualify for a reduced sales charge, the dealer must confirm that the
sale is to a single purchaser or is purchased for its own account and not for
distribution. For these purposes, Units held in the name of the purchaser's
spouse or child under 21 years of age are deemed to be purchased by a single
purchaser. A trustee or other fiduciary purchasing securities for a single trust
estate or single fiduciary account is also considered a single purchaser. This
procedure may be amended or terminated at any time without notice.
Employees of certain Sponsors and Sponsor affiliates and non-employee
directors of Merrill Lynch & Co. Inc. may purchase Units at any time at prices
including a sales charge of not less than $5 per Unit or per 1,000 Units, as
applicable.
Net accrued interest is added to the Public Offering Price, the Sponsors'
Repurchase Price and the Redemption Price per Unit. This represents the interest
accrued on the Securities, net of Fund expenses, from the initial date of
deposit to, but not including, the settlement date for Units (less any prior
distributions of interest income to investors).
EVALUATIONS
Evaluations are determined by the independent Evaluator on each Business
Day. This excludes Saturdays, Sundays and the following holidays as observed by
the New York Stock Exchange: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and the
following Federal holidays: Martin Luther King's Birthday, Columbus Day and
Veterans Day. Securities evaluations are generally determined on the basis of
current bid or offer prices for the Securities or comparable securities or by
appraisal or by any combination of these methods. Under current market
conditions the bid prices for Treasury obligations of the type deposited in the
Portfolio are expected to be approximately .10% less than the offer price. The
bid price for the Ginnie Maes and Freddie Mac PCs of the type deposited in the
Portfolio are expected to be 1/4 to 1/2 of 1% less than the offer price.
Neither the Sponsors, the Trustee or the Evaluator will be liable for errors in
the Evaluator's judgment. The fees of the Evaluator will be borne by the Fund.
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CERTIFICATES
Certificates for Units are issued upon request and may be transferred by
paying any taxes or governmental charges and by complying with the requirements
for redeeming Certificates (see How To Sell Units--Trustee's Redemption of
Units). Certain Sponsors collect additional charges for registering and shipping
Certificates to purchasers. Lost or mutilated Certificates can be replaced upon
delivery of satisfactory indemnity and payment of costs.
HOW TO SELL UNITS
SPONSORS' MARKET FOR UNITS
You can sell your Units at any time without a fee. The Sponsors (although
not obligated to do so) will normally buy any Units offered for sale at the
repurchase price next computed after receipt of the order. The Sponsors have
maintained secondary markets in Defined Asset Funds for over 20 years. Primarily
because of the sales charge and fluctuations in the market value of the
Securities, the sale price may be less than the cost of your Units. You should
consult your financial professional for current market prices to determine if
other broker-dealers or banks are offering higher prices for Units.
The Sponsors may discontinue this market without prior notice if the supply
of Units exceeds demand or for other business reasons; in that event, the
Sponsors may still purchase Units at the redemption price as a service to
investors. The Sponsors may reoffer or redeem Units repurchased.
TRUSTEE'S REDEMPTION OF UNITS
You may redeem your Units by sending the Trustee a redemption request
together with any certificates you hold. Certificates must be properly endorsed
or accompanied by a written transfer instrument with signatures guaranteed by an
eligible institution. In certain instances, additional documents may be required
such as a certificate of death, trust instrument, certificate of corporate
authority or appointment as executor, administrator or guardian. If the Sponsors
are maintaining a market for Units, they will purchase any Units tendered at the
repurchase price described above. The Fund has no back-end load or 12b-1 fees,
so there is never a fee for cashing in your investment. If they do not purchase
Units tendered, the Trustee is authorized in its discretion to sell Units in the
over-the-counter market if it believes it will obtain a higher net price for the
redeeming investor.
By the seventh calendar day after tender you will be mailed an amount equal
to the Redemption Price per Unit. Because of market movements or changes in the
Portfolio, this price may be more or less than the cost of your Units. The
Redemption Price per Unit is computed each Business Day by adding the value of
the Securities, net accrued interest, cash and the value of any other Fund
assets; deducting unpaid taxes or other governmental charges, accrued but unpaid
Fund expenses, unreimbursed Trustee advances, cash held to redeem Units or for
distribution to investors and the value of any other Fund liabilities; and
dividing the result by the number of outstanding Units. Securities are evaluated
on the offer side during the initial offering period and on the bid side
thereafter.
If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee may sell Securities selected by the Agent for the
Sponsors, based on market and credit factors determined to be in the best
interest of the Fund. These sales are often made at times when the Securities
would not otherwise be sold and may result in lower prices than might be
realized otherwise and will also reduce the size and diversity of the Fund.
Redemptions may be suspended or payment postponed if the New York Stock
Exchange is closed other than for customary weekend and holiday closings, if the
SEC determines that trading on that Exchange is restricted or that an emergency
exists making disposal or evaluation of the Securities not reasonably
practicable, or for any other period permitted by the SEC.
Monthly Payment U.S. Treasury Series. You may request distribution in kind
from the Trustee instead of cash redemption, provided that you are tendering
Units with a value of at least $50,000. By the seventh calendar day after
tender, an amount and value of Securities per Unit, together with a pro rata
portion of the cash balance in the Fund, equal to the Redemption Price per Unit,
will be paid over to the Trustee, as distribution agent, and either held for
your account or disposed of in accordance with your instructions. Any brokerage
commissions on
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sales of Securities in connection with in-kind redemptions will be borne by you.
The Sponsors may modify or terminate this redemption in kind option at any time
without notice to investors.
REDEMPTION BY CHECK
Investors in some Funds (identified in Part A of the Prospectus) who have
submitted a properly completed application form and who have elected, by
surrendering any Certificates with this application, to hold their Units in
uncertificated form are entitled to receive upon request without charge checks
which will be drawn upon a special account of the Fund with The Chase Manhattan
Bank, N.A. (the 'Bank'). This election, however, does not create a checking or
other bank account relationship between an investor and the Bank. Checks may be
made payable to the order of any person in amounts of $500 or more. When a check
is presented to the Bank for payment, this shall be treated as a tender for
redemption of a sufficient number of Units to cover the amount of the check. So
long as the Sponsors are maintaining a market at prices in excess of the
Redemption Price per Unit, the Sponsors will repurchase any of the Units that
are tendered at a price computed as set forth under Market for Units. If the
Sponsors are no longer maintaining such a market, Units tendered for redemption
by check will be redeemed at their Redemption Price per Unit, based on the lower
bid side evaluation of the Securities. Units may not be tendered by check within
15 days following their date of purchase.
Investors who choose to utilize the Fund's check writing service are
subject to the procedures, rules and regulations of the Bank governing checking
accounts and redemptions by draft.
The Bank will not honor checks for amounts exceeding the value of the
investor's Units at the time the check is presented to the Bank for payment. If
insufficient Units are in the account, the check will be returned marked
'insufficient funds'. Since the dollar value of the Units may change daily, the
total value of the account may not be determined in advance and, accordingly,
the account may not be entirely redeemed by check. For the same reason, even
checks written for amounts less than the present value of an investor's account
may be dishonored if the value of the Units in the account declines between the
time when the check is written and the time when it is presented for payment.
The Bank will not honor checks personally presented for payment at any office of
the Bank. This checking service may be terminated or modified at any time by the
Bank upon prior notice to the investors.
INCOME, DISTRIBUTIONS AND REINVESTMENT
INCOME
Interest received is credited to an Income Account and other receipts to a
Capital Account. A Reserve Account may be created by withdrawing from the Income
and Capital Accounts amounts considered appropriate by the Trustee to reserve
for any material amount that may be payable out of the Fund.
DISTRIBUTIONS
Each Unit receives an equal share of any distributions of interest income
net of estimated expenses. Along with the income distributions, the Trustee will
distribute the investor's pro rata share of principal received from any
disposition of a Security to the extent available for distribution. As each
Security in the Portfolio matures, the balance in the Capital Account will be
distributed on or about the second business day following the maturity date to
investors of record on the business day immediately preceding the distribution
day. Stripped ('Zero') Treasury Securities pay only at maturity.
The estimated annual income per Unit, after deducting estimated annual Fund
expenses, will change as Securities mature, are called or sold or otherwise
disposed of, as prepayments occur on mortgages underlying any mortgage-backed
Securities, as replacement obligations are deposited and as Fund expenses
change. Because the Portfolio is not actively managed, income distributions will
generally not be affected by changes in interest rates and the amount of income
should be substantially maintained as long as the Portfolio remains unchanged;
however, optional redemptions of Securities, prepayments on mortgage-backed
Securities or other Portfolio changes may occur more frequently when interest
rates decline, which would result in early returns of principal and possibly
earlier termination of the Fund.
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RETURN CALCULATIONS
Estimated Current Return shows the estimated annual cash to be received
from interest-bearing securities in the Portfolio (net of estimated annual
expenses) divided by the Public Offering Price (including the maximum sales
charge). Estimated Long Term Return is a measure of the estimated return over
the estimatd life of the Fund. This represents an average of the yields to
maturity (or in certain cases, to an earlier call date) of the individual
securities in the Portfolio, adjusted to reflect the maximum sales charge and
estimated expenses. The average yield for the Portfolio is derived by weighting
each security's yield by its market value and the time remaining to the call or
maturity date, depending on how the security is priced. Unlike Estimated Current
Return, Estimated Long Term Return takes into account maturities, discounts and
premiums of the underlying securities.
No return estimated can be predictive of your actual return because returns
will vary with purchase price (including sales charges), how long units are
held, changes in Portfolio composition, changes in interest income and changes
in fees and expenses. Therefore, Estimated Current Return and Estimated Long
Term Return are designed to be comparative rather than predictive. A yield
calculation which is more comparable to an individual security may be higher or
lower than Estimated Current Return or Estimated Long Term Return which are more
comparable to return calculations used by other investment products.
GNMA Series and Freddie Mac Series. The estimated long-term return figure
is calculated using an estimated average life for the Securities. Estimated
average life is an essential factor in the calculation of Estimated Long Term
Return. When the Fund has a shorter average life than is estimated, Estimated
Long Term Return will be higher if the Fund contains Securities priced at a
discount and lower if the Securities are priced at premium. Conversely, when the
Fund has a longer average life than is estimated, Estimated Long Term Return
will be lower if the Securities are priced at a discount and higher if the
Securities are priced at a premium. To calculate estimated average life an
assumption of the present average age of available mortgage-backed Securities in
the marketplace with the same coupon is made; the calculation of estimated
average life is based upon actual recent prepayments, industry assumptions about
prepayments and analysis of several factors including, among other things, the
coupon, the housing environment, the present interest rate (no change in
interest rate is assumed) and historical trends. For a more detailed explanation
of the calculation of estimated average life, see Payment of the Securities and
Life of the Fund--GNMA Series and Freddie Mac Series above.
REINVESTMENT --GNMA SERIES 1, 2, J, 1A, 1B, 1C, 1I, 1K, 1V-1Z
Distributions will be paid in cash unless you elect to have your
distributions reinvested in The GNMA Fund Investment Accumulation Program, Inc.
The Program is an open-end management investment company whose primary
investment objective is to obtain a high level of current income through
investment in a portfolio of Ginnie Maes. Investors participating in the Program
will be taxed on their reinvested distributions in the manner described in Taxes
even though distributions are reinvested in the Program. For more complete
information about the Program, including charges and expenses, return the
enclosed form for a prospectus. Read it carefully before you decide to
participate. Notice of election to participate must be received by the Trustee
in writing at least ten days before the Record Day for the first distribution to
which the notice is to apply.
REINVESTMENT --MONTHLY PAYMENT U.S. TREASURY SERIES 1-5, 18, GNMA SERIES 1R, 1S,
1T, 1U; FREDDIE MAC SERIES 10-12
Distributions on Units may be reinvested by participating in the Fund's
reinvestment plan. Under the plan, the Units acquired for investors will be
either Units already held in inventory by the Sponsors or new Units created by
the Sponsors's deposit of additional Securities.
Purchases made pursuant to the Reinvestment Plan will be made at a reduced
sales charge. Unit prices are based on the bid side evaluation of the underlying
Securities. Under the Reinvestment Plan, the Fund will pay the distributions to
the Trustee which in turn will purchase for the Holder full and fractional Units
of the Fund at the price determined as of the close of business on the
distribution day and will add the Units to the Holder's account and send the
Holder an account statement reflecting the reinvestment. The Sponsors reserve
the right to amend, modify or terminate the reinvestment plan at any time
without prior notice. Investors holding Units in 'street name' should contact
their broker, dealer or financial institution if they wish to participate in the
reinvestment plan.
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Monthly Payment Series 1 and 3. Only income distributions may be
reinvested; principal distributions will be paid in cash. Units purchased by
reinvestment of income distributions will be acquired at net asset value; no
sale charge will be deducted.
FUND EXPENSES
Estimated annual Fund expenses are listed in Part A of the Prospectus; if
actual expenses exceed the estimate, the excess will be borne by the Fund. The
Trustee's annual fee is payable in monthly installments. The Trustee also
benefits when it holds cash for the Fund in non-interest bearing accounts.
Possible additional charges include Trustee fees and expenses for maintaining
the Fund's registration statement current with Federal and State authorities,
extraordinary services, costs of indemnifying the Trustee and the Sponsors,
costs of action taken to protect the Fund and other legal fees and expenses,
Fund termination expenses and any governmental charges. The Trustee has a lien
on Fund assets to secure reimbursement of these amounts and may sell Securities
for this purpose if cash is not available. The Sponsors receive an annual fee of
a maximum of $0.25 per $1,000 face amount to reimburse them for the cost of
providing Portfolio supervisory services to the Fund. While the fee may exceed
their costs of providing these services to the Fund, the total supervision fees
from all Series of Government Securities Income Fund will not exceed their costs
for these services to all of those Series during any calendar year. The Sponsors
may also be reimbursed for their costs of providing bookkeeping and
administrative services to the Fund, currently estimated at $0.10 per Unit or
per 1,000 Units as applicable. The Trustee's, Sponsors' and Evaluator's fees may
be adjusted for inflation without investors' approval.
All or some portion of the expenses incurred in establishing the Fund,
including the cost of the initial preparation of documents relating to the Fund,
Federal and State registration fees, the initial fees and expenses of the
Trustee, legal expenses and any other out-of-pocket expenses will be paid by the
Fund and amortized over five years. Any balance of the expenses incurred in
establishing the Fund, as well as advertising and selling expenses will be paid
from the Underwriting Account at no charge to the Fund. Sales charges on Defined
Asset Funds range from under 1.0% to 5.5%. This may be less than you might pay
to buy and hold a comparable managed fund. Defined Asset Funds can be a
cost-effective way to purchase and hold investments. Annual operating expenses
are generally lower than for managed funds. Because Defined Asset Funds have no
management fees, limited transaction costs and no ongoing marketing expenses,
operating expenses are generally less than 0.25% a year. When compounded
annually, small differences in expense ratios can make a big difference in your
investment results.
TAXES -- SECTION A: MONTHLY PAYMENT U.S. TREASURY SERIES 18; GNMA SERIES 1, 2,
1R-1Z; FREDDIE MAC SERIES 10-12
TAXATION OF THE FUND
The Fund intends to qualify for and elect the special tax treatment
applicable to 'regulated investment companies' under Sections 851-855 of the
Internal Revenue Code of 1986, as amended (the 'Code'). Qualification and
election as a 'regulated investment company' involve no supervision of
investment policy or management by any government agency. If the Fund qualifies
as a 'regulated investment company' and distributes to investors 90% or more of
its taxable income without regard to its net capital gain (net capital gain is
defined as the excess of net long-term capital gain over short-term capital
loss), it will not be subject to Federal income tax on the portion of its
taxable income (including any net capital gain) it distributes to investors in a
timely manner. In addition, the Fund will not be subject to the 4% excise tax on
certain undistributed income of 'regulated investment companies' to the extent
it distributes to investors in a timely manner at least 98% of its taxable
income (including any net capital gain). It is anticipated that the Fund will
not be subject to Federal income tax or the excise tax because the Indenture
requires the distribution of the Fund's taxable income (including any net
capital gain) in a timely manner. Although all or a portion of the Fund's
taxable income (including any net capital gain) for a calendar year may be
distributed shortly after the end of the calendar year, such a distribution will
be treated for Federal income tax purposes as having been received by investors
during the calendar year.
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DISTRIBUTIONS
Distributions to investors of the Fund's interest income, gain that is
treated as ordinary income under the market discount rules, and any net
short-term capital gain in any year will be taxable as ordinary income to
investors to the extent of the Fund's taxable income (without regard to any net
capital gain) for that year. Any excess will be treated as a return of capital
and will reduce the investor's basis in his Units and, to the extent that they
exceed his basis, will be treated as a gain from the sale of his Units as
discussed below. It is anticipated that substantially all of the distributions
of the Fund's interest income, ordinary gain and any net short-term capital gain
will be taxable as ordinary income to investors.
Distributions that are taxable as ordinary income to investors will
constitute dividends for Federal income tax purposes but will not be eligible
for the dividends-received deduction for corporations. Distributions of the
Fund's net capital gain (designated as capital gain dividends by the Fund) will
be taxable to investors as long-term capital gain, regardless of the time the
Units have been held by an investor. An investor will recognize taxable gain or
loss if the investor sells or redeems his Units. Any gain or loss arising from
(or treated as arising from) the sale or redemption of Units will be capital
gain or loss, except in the case of a dealer. Capital gains are currently taxed
at the same rate as ordinary income. However, the excess of net long-term
capital gains over net short-term capital losses may be taxed at a lower rate
than ordinary income for certain noncorporate taxpayers. A capital gain or loss
is long-term if the asset is held for more than one year and short-term if held
for one year or less. However, any capital loss on the sale or redemption of a
Unit that an investor has held for six months or less will be a long-term
capital loss to the extent of any capital gain dividends previously distributed
to the investor by the Fund. The deduction of capital losses is subject to
limitations.
Payments of principal on underlying mortgages or sales of Securities by the
Fund (to meet redemptions or otherwise) may give rise to gain (including market
discount) to the Fund. The amount of gain will be based upon the cost of the
Security to the Fund and will be without regard to the value of the Security
when a particular investor purchases his Units. Such gain must be distributed to
Investors to avoid Federal income (or excise) taxation to the Fund. In the case
of sales to meet redemptions, some or all of such gain must be so distributed to
nonredeeming investors. Any such distribution will be taxable to investors as
discussed above (i.e., as ordinary income or long-term capital gain), even if as
to a particular investor the distribution economically represents a return of
capital. Since such distributions do not reduce an investor's tax basis in his
Units, an investor will have a corresponding capital loss (or a reduced amount
of gain) on a subsequent sale or redemption of his Units.
The Federal tax status of each year's distributions will be reported to
investors and to the Internal Revenue Service. The foregoing 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. Investors who are not U.S. citizens
or residents should be aware that distributions from the Fund generally will be
subject to a withholding tax of 30%, or a lower treaty rate, and should consult
their own tax advisers to determine whether investment in the Fund is
appropriate. Distributions may also be subject to state and local taxation and
investors should consult their own tax advisers in this regard.
Investors will be taxed in the manner described above regardless of whether
distributions from the Fund are actually received by the investor or are
automatically reinvested (see Income, Distributions and Reinvestment--
Reinvestment above).
TAXES -- SECTION B: MONTHLY PAYMENT U.S. TREASURY SERIES 1-17, 19-23; U.S.
TREASURY SERIES 7--LADDERED ZERO COUPONS; GNMA SERIES J, 1A, 1B, 1C,
1I, 1K
The following discussion addresses only the tax consequences of Units held
as capital assets and does not address the tax consequences of Units held by
dealers, financial institutions or insurance companies.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsors,
under existing law:
The Fund is not an association taxable as a corporation for federal
income tax purposes. Each investor will be considered the owner of a pro
rata portion of each Security in the Fund under the grantor trust rules of
Sections 671-679 of the Internal Revenue Code of 1986, as amended (the
'Code'). The total cost to an investor of his Units, including sales
charges, is allocated to his pro rata portion of each Security, in
proportion to the fair market values thereof on the date the investor
purchases his Units, in order to determine his tax basis for his pro rata
portion of each Security.
9
<PAGE>
Each investor will be considered to have received the interest or
accrued original issue discount on his pro rata portion of each Security
when interest on the Security is received or original issue discount is
accrued by the Fund. An individual investor who itemizes deductions may
deduct his pro rata share of fees and other expenses of the Fund only to
the extent that such amount together with the investor's other
miscellaneous deductions exceeds 2% of his adjusted gross income.
If an investor's tax basis for his pro rata portion of a Security
exceeds the redemption price at maturity thereof (subject to certain
adjustments), the investor will be considered to have purchased his pro
rata portion of the Security at a 'bond premium'. The investor may elect to
amortize the bond premium prior to the maturity of the Security. The amount
amortized in any year should be applied to offset the investor's interest
from the Security and will result in a reduction of basis for his pro rata
portion of the Security.
An investor will recognize taxable gain or loss when all or part of his
pro rata portion of a Security is disposed of by the Fund or when he sells
or redeems all or some of his Units. Any such taxable gain or loss will be
capital gain or loss, except that any gain from the disposition of an
investor's pro rata portion of a Security acquired by the investor at a
'market discount' (i.e., where the investor's tax basis for his pro rata
portion of the Security (which includes any original issue discount which
will accrue thereon) is less than its stated redemption price at maturity)
will be treated as ordinary income to the extent the gain does not exceed
the accrued market discount.
Under the income tax laws of the State and City of New York, the Fund is
not an association taxable as a corporation and income received by the Fund
will be treated as income of the investors.
Notwithstanding the foregoing, an investor who is a non-resident alien
individual or a foreign corporation (a 'Foreign Investor') will generally
not be subject to U.S. federal income taxes, including withholding taxes,
on the interest income (including any original issue discount) on, or any
gain from the sale or other disposition of, his pro rata portion of any
Security provided that (i) the interest income or gain is not effectively
connected with the conduct by the Foreign Investor of a trade or business
within the United States, (ii) if the interest is United States source
income (which is the case for most Securities issued by United States
issuers), the Security is issued after July 18, 1984 and the Foreign
Investor does not own, actually or constructively, 10% or more of the total
combined voting power of all classes of voting stock of the issuer of the
Security and is not a controlled foreign corporation related (within the
meaning of Section 864(d)(4) of the Code) to the issuer of the Security,
(iii) with respect to any gain, the Foreign Investor (if an individual) is
not present in the United States for 183 days or more during the taxable
year and (iv) the Foreign Investor provides the required certification of
his status and of certain other matters. Withholding agents will file with
the Internal Revenue Service foreign person information returns with
respect to such interest payments accompanied by such certifications.
Foreign Investors should consult their own tax advisers with respect to
United States federal income tax consequences of ownership of Units.
* * *
After the end of each calendar year, the Trustee will furnish to each
investor an annual statement containing information relating to the interest
received by the Fund on the Securities, the gross proceeds received by the Fund
from the disposition of any Security (resulting from redemption or payment at
maturity of any Security or the sale by the Fund of any Security), and the fees
and expenses paid by the Fund. The Trustee will also furnish annual information
returns to each investor and to the Internal Revenue Service. Investors may
request from the Trustee evaluations of the Securities that were furnished by
the Evaluator.
Monthly Payment U.S. Treasury Series (except Series 18) and U.S. Treasury Series
7--Laddered Zero Coupons:
The Sponsors believe that investors who are individuals will not be subject
to any state or local personal income taxes on the interest received by the Fund
and distributed to them. However, investors (including individuals) may be
subject to state and local taxes on any capital gains (or market discount
treated as ordinary income) derived from the Fund and to other state and local
taxes (including corporate income or franchise taxes, personal property or
intangibles taxes, and estate or inheritance taxes) on their Units or the income
derived therefrom. In addition, individual investors (and any other investors
which are not subject to state and local taxes on the interest income derived
from the Fund) will probably not be entitled to a deduction for state and local
tax purposes for their share of the fees and expenses paid by the Fund, for any
amortized bond premium or for any interest on indebtedness incurred to purchase
or carry their Units. Therefore, even though the Sponsors believe
10
<PAGE>
that interest income from the Fund is exempt from state and local personal
income taxes in all states, investors should consult their own tax advisers with
respect to state and local taxation.
A distribution to an investor of Securities upon redemption of Units will
not be a taxable event to the investor or to nonredeeming investors. The
redeeming investor's basis for the Securities will be equal to the basis for the
Securities (previously represented by his Units) prior to the redemption, and
his holding period for the Securities will include the period during which he
held his Units. However, the investor will recognize taxable gain or loss when
he sells the Securities so distributed.
For GNMA Series J, 1A, 1B, 1C, 1I, 1K, an investor may also recognize
ordinary gain or loss as a result of principal payments received on underlying
mortgages issued by natural persons. In addition, any gain recognized by an
investor on the disposition of his pro rata portion of a Ginnie Mae will
constitute ordinary income (which will be treated as interest income for most
purposes) to the extent it does not exceed the accrued market discount on the
Ginnie Mae attributable to underlying mortgages.
For Freddie Mac Series, the information statement relating to Freddie Mac
PCs indicates that the mortgages underlying the Freddie Mac PCs may be subject
to rules for obligations originally issued at a discount or to rules for
stripped bonds and coupons under Section 1286 of the Code. Investors are urged
to consult their tax advisers with respect to the application of these rules to
an investment in Units. Investors may also recognize ordinary gain or loss as a
result of principal payments received on underlying mortgages issued by natural
persons.
For U.S. Treasury Series 7--Laddered Zero Coupons, the Fund consists
primarily of Stripped Treasury Securities. An investor is required to treat its
pro rata portion of each Stripped Treasury Security as a bond that was
originally issued on the date the investor purchased Units and at an original
issue discount equal to the excess of the investor's pro rata portion of the
amount payable on such Stripped Treasury Security over the Stripped Treasury
Security's ratable share of the original bond's purchase price determined on the
basis of the respective fair market values of the stripped bond and the stripped
coupon. An investor in a pro rata portion of a Stripped Treasury Security is
required to include in income annually a portion of such original issue discount
determined under a formula which takes into account the compounding of interest.
Because of the original issue discount rules, investors will be required for
Federal income tax purposes to include amounts in ordinary gross income in
advance of the receipt of the cash attributable to such income. The inclusion of
original issue discount in gross income for Federal income tax purposes may
differ from the accrual for financial accounting purposes to the extent that
generally accepted accounting principles permit or require the inclusion of
interest on the basis of a compounding period other than a semi-annual period.
Therefore, purchase of Units may be appropriate only for Individual Retirement
Accounts, Keogh Plans, pension funds and other tax-deferred retirement plans or
for investors who can have taxable income attributed to them in advance of the
receipt of the cash attributable to such income and prior to the time that such
income is earned. Purchasers of Units should consult their own advisers as to
the tax treatment of original issue discount with respect to their particular
circumstances, including the application of state and local laws, in order to
determine whether an investment in the Fund would be appropriate for them.
* * *
For GNMA Series 1A, 1B, 1C, 1I, 1K, the Sponsors believe that the mortgages
underlying the Ginnie Maes originated after July 18, 1984. In the case of
Monthly Payment U.S. Treasury Series (except Series 1 and 18) and U.S. Treasury
Series 7--Laddered Zero Coupons, the Sponsors believe that the U.S. Treasury
Securities, the interest on which is United States source income (which is the
case for most Securities issued by United States issuers) were issued after July
18, 1984. To the best knowledge of the Sponsors, interest on any Security issued
by a non-United States issuer is not subject to any foreign withholding taxes
under current law.
RETIREMENT PLANS
Certain Series of Government Securities Income Fund may be well suited for
purchase by Individual Retirement Accounts ('IRAs'), Keogh plans, pension funds
and other qualified retirement plans, certain of which are briefly described
below. Generally, capital gains and income received in each of the foregoing
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
special 5 or 10 year averaging or tax-deferred rollover treatment. Investors in
IRAs, Keogh plans and other tax-deferred retirement plans should consult their
plan custodian as to the
11
<PAGE>
appropriate disposition of distributions. Investors considering participation in
any of these plans should review specific tax laws related thereto and should
consult their attorneys or tax advisors with respect to the establishment and
maintenance of any of these plans. These plans are offered by brokerage firms,
including the Sponsor of this Fund, and other financial institutions. Fees and
charges with respect to such plans may vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units of the Fund may be
purchased by retirement plans established for self-employed individuals,
partnerships or unincorporated companies ('Keogh plans'). The assets of a Keogh
plan must be held in a qualified trust or other arrangement which meets the
requirements of the Code. Keogh plan participants may also establish separate
IRAs (see below) to which they may contribute up to an additional $2,000 per
year ($2,250 in a spousal account).
Individual Retirement Account--IRA. Any individual can make use of a
qualified IRA arrangement for the purchase of Units of the Fund. Any individual
(including one covered by an employer retirement plan) can make a contribution
in an IRA equal to the lesser of $2,000 ($2,250 in a spousal account) or 100% of
earned income; such investment must be made in cash. However, the deductible
amount an individual may contribute will be reduced if the individual's adjusted
gross income exceeds $25,000 (in the case of a single individual), $40,000 (in
the case of married individuals filing a joint return) or $200 (in the case of a
married individual filling a separate return). Certain transactions which are
prohibited under Section 408 of the Code will cause all or a portion of the
amount in an IRA to be deemed to be distributed and subject to tax at that time.
Unless nondeductible contributions were made in 1987 or a later year, all
distributions from an IRA will be treated as ordinary income but generally are
eligible for tax-deferred rollover treatment. Taxable distributions made before
attainment of age 59 1/2, except in the case of the participant's death or
disability or where the amount distributed is part of a series of substantially
equal periodic (at least annual) payments that are to be made over the life
expectancies of the participant and his or her beneficiary, are generally
subject to a surtax in an amount equal to 10% of the distribution.
Corporate Pension and Profit-Sharing Plans. A pension or profit-sharing
plan for employees of a corporation may purchase Units of the Fund.
RECORDS AND REPORTS
The Trustee keeps a register of the names, addresses and holdings of all
investors. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, and
supplemental information on the operations of the Fund and the risks associated
with the Securities held by the Fund, which may be inspected by investors at
reasonable times during business hours.
With each distribution, the Trustee includes a statement of the interest
and any other receipts being distributed. Within five days after deposit of
Securities in exchange or substitution for Securities (or contracts) previously
deposited, the Trustee will send a notice to each investor, identifying both the
Securities removed and the replacement Securities deposited. The Trustee sends
each investor of record an annual report summarizing transactions in the Fund's
accounts and amounts distributed during the year and Securities held, the number
of Units outstanding and the Redemption Price at year end, the interest received
by the Fund on the Securities, the gross proceeds received by the Fund from the
disposition of any Security (resulting from redemption or payment at maturity or
sale of any Security), and the fees and expenses paid by the Fund, among other
matters. The Trustee will also furnish annual information returns to each
investor. Investors may obtain copies of Security evaluations from the Trustee
to enable them to comply with federal and state tax reporting requirements. Fund
accounts are audited annually by independent accountants selected by the
Sponsors. Audited financial statements are available from the Trustee on
request.
TRUST INDENTURE
The Fund is a 'unit investment trust' created under New York law by a Trust
Indenture among the Sponsors, the Trustee and the Evaluator. This Prospectus
summarizes various provisions of the Indenture, but each statement is qualified
in its entirety by reference to the Indenture.
The Indenture may be amended by the Sponsors and the Trustee without
consent by investors to cure ambiguities or to correct or supplement any
defective or inconsistent provision, to make any amendment required by the SEC
or other governmental agency or to make any other change not materially adverse
to the interest of investors (as determined in good faith by the Sponsors). The
Indenture may also generally be amended
12
<PAGE>
upon consent of investors holding 51% of the Units. No amendment may reduce the
interest of any investor in the Fund without the investor's consent or reduce
the percentage of Units required to consent to any amendment without unanimous
consent of investors. Investors will be notified on the substance of any
amendment.
The Trustee may resign upon notice to the Sponsors. It may be removed by
investors holding 51% of the Units at any time or by the Sponsors without the
consent of investors if it becomes incapable of acting or bankrupt, its affairs
are taken over by public authorities, or if under certain conditions the
Sponsors determine in good faith that its replacement is in the best interest of
the investors. The Evaluator may resign or be removed by the Sponsors and the
Trustee without the investors' consent. The resignation or removal of either
becomes effective upon acceptance of appointment by a successor; in this case,
the Sponsors will use their best efforts to appoint a successor promptly;
however, if upon resignation no successor has accepted appointment within 30
days after notification, the resigning Trustee or Evaluator may apply to a court
of competent jurisdiction to appoint a successor.
Any Sponsor may resign so long as one Sponsor with a net worth of
$2,000,000 remains and is agreeable to the resignation. A new Sponsor may be
appointed by the remaining Sponsors and the Trustee to assume the duties of the
resigning Sponsor. If there is only one Sponsor and it fails to perform its
duties or becomes incapable of acting or bankrupt or its affairs are taken over
by public authorities, the Trustee may appoint a successor Sponsor at reasonable
rates of compensation, terminate the Indenture and liquidate the Fund or
continue to act as Trustee without a Sponsor. Merrill Lynch, Pierce, Fenner &
Smith Incorporated has been appointed as Agent for the Sponsors by the other
Sponsors.
The Sponsors, the Trustee and the Evaluator are not liable to investors or
any other party for any act or omission in the conduct of their responsibilities
absent bad faith, willful misfeasance, negligence (gross negligence in the case
of a Sponsor or the Evaluator) or reckless disregard of duty. The Indenture
contains customary provisions limiting the liability of the Trustee.
MISCELLANEOUS
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors.
AUDITORS
The Statement of Condition in Part A of the Prospectus was audited by
Deloitte & Touche LLP, independent accountants, as stated in their opinion. It
is included in reliance upon that opinion given on the authority of that firm as
experts in accounting and auditing.
TRUSTEE
The Trustee and its address are stated on the back cover of the Prospectus.
The Trustee is subject to supervision by the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and either the
Comptroller of the Currency or state banking authorities.
SPONSORS
The Sponsors are listed on the back cover of the Prospectus. They may
include Merrill Lynch, Pierce, Fenner & Smith Incorporated, a wholly-owned
subsidiary of Merrill Lynch Co. Inc.; Smith Barney Inc., an indirect
wholly-owned subsidiary of The Travelers Inc.; Prudential Securities
Incorporated, an indirect wholly-owned subsidiary of the Prudential Insurance
Company of America; Dean Witter Reynolds, Inc., a principal operating subsidiary
of Dean Witter Discover & Co. and PaineWebber Incorporated, a wholly-owned
subsidiary of PaineWebber Group Inc. Each Sponsor, or one of its predecessor
corporations, has acted as Sponsor of a number of series of unit investment
trusts. Each Sponsor has acted as principal underwriter and managing underwriter
of other investment companies. The Sponsors, in addition to participating as
members of various selling groups or as agents of other investment companies,
execute orders on behalf of investment companies for the purchase and sale of
securities of these companies and sell securities to these companies in their
capacities as brokers or dealers in securities.
13
<PAGE>
PUBLIC DISTRIBUTION
The Sponsors intend to qualify Units for sale in all states in which
qualification is deemed necessary through the Underwriting Account and by
dealers who are members of the National Association of Securities Dealers, Inc.
The Sponsors do not intend to qualify Units for sale in any foreign countries
and this Prospectus does not constitute an offer to sell Units in any country
where Units cannot lawfully be sold. Sales to dealers and to introducing
dealers, if any, will initially be made at prices which represent a concession
from the Public Offering Price, but the Agent for the Sponsors reserves the
right to change the rate of any concession from time to time. Any dealer or
introducing dealer may reallow a concession up to the concession to dealers.
UNDERWRITERS' AND SPONSORS' PROFITS
In maintaining a secondary market for Units, the Sponsors will 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 these Units (which
include the sales charge) or the prices at which they redeem the Units. Cash, if
any, made available by buyers of Units to the Sponsors prior to a settlement
date for the purchase of Units may be used in the Sponsors' businesses to the
extent permitted by Rule 15c3-3 under the Securities Exchange Act of 1934 and
may be of benefit to the Sponsors.
FUND PERFORMANCE
Information on the performance of the Fund for various periods, on the
basis of changes in Unit price plus the amount of income and principal
distributions reinvested, may be included from time to time in advertisements,
sales literature, reports and other information furnished to current or
prospective investors. Total return figures are not averaged, and may not
reflect deduction of the sales charge, which would decrease the return. Average
annualized return figures reflect deduction of the maximum sales charge. No
provision is made for any income taxes payable.
Past performance may not be indicative of future results. The Fund is not
actively managed. Unit price and return fluctuate with the value of the
Securities in the Portfolio, so there may be a gain or loss when Units are sold.
Fund performance may be compared to performance data from publications such
as Donoghue's Money Fund Report, Lehman Brothers Intermediate Treasury Bond
Index, Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, The New York Times, U.S. News and World Report, Barron's, Business
Week, CDA Investment Technology, Inc., Forbes Magazine or Fortune Magazine. As
with other performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.
DEFINED ASSET FUNDS
For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Defined Asset Funds'
philosophy is to allow investors to 'buy with knowledge' (because, unlike
managed funds, the portfolio of bonds and the return are relatively fixed) and
'hold with confidence' (because the portfolio is professionally selected and
regularly reviewed). Defined Asset Funds offers an array of simple and
convenient investment choices, suited to fit a wide variety of personal
financial goals--a buy and hold strategy for capital accumulation, such as for
children's education or retirement, or attractive, regular current income
consistent with the preservation of principal. Unit investment trusts are
particularly suited for the many investors who prefer to seek long-term income
by purchasing sound investments and holding them, rather than through active
trading. Few individuals have the knowledge, resources or capital to buy and
hold a diversified portfolio on their own; it would generally take a
considerable sum of money to obtain the breadth and diversity that Defined Asset
Funds offer. One's investment objectives may call for a combination of Defined
Asset Funds.
One of the most important investment decisions you face may be how to
allocate your investments among asset classes. Diversification among different
kinds of investments can balance the risks and rewards of each one. Most
investment experts recommend stocks for long-term capital growth. Long-term
corporate bonds offer relatively high rates of interest income. By purchasing
both defined equity and defined bond funds, investors can receive attractive
current income, as well as growth potential, offering some protection against
inflation. From
14
<PAGE>
time to time various advertisements, sales literature, reports and other
information furnished to current or prospective investors may present the
average annual compounded rate of return of selected asset classes over various
periods of time, compared to the rate of inflation over the same periods.
SUPPLEMENTAL INFORMATION
Upon written or telephonic request to the Trustee shown on the back cover
of this Prospectus, investors will receive at no cost to the investor
supplemental information about the Fund, which has been filed with the SEC. The
supplemental information includes more detailed risk factor disclosure about the
types of Securities that may be part of the Fund's Portfolio and general
information about the structure and operation of the Fund.
15
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
APPENDIX A
SECONDARY MARKET SALES
GNMA SERIES 1 AND 2
<TABLE><CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
---------------------------------- PUBLIC
AS PERCENT OF AS PERCENT OF OFFERING PRICE
BID SIDE PUBLIC NET AMOUNT -----------------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- -------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Less than 250....................................................... 4.25% 4.439% 2.763%
250-499............................................................. 3.25 3.359 2.113
500-749............................................................. 2.50 2.564 1.625
750-999............................................................. 2.00 2.041 1.300
1,000 or more....................................................... 1.50 1.523 0.975
<CAPTION>
GNMA SERIES J AND SUBSEQUENT SERIES
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
------------------------------------ PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- -------------------------------------------------------------------------- ------------------- ---------------
<S> <C> <C> <C>
Less than 250,000......................................................... 4.25% 4.439% 2.763%
250,000-499,999........................................................... 3.25 3.359 2.113
500,000-749,999........................................................... 2.50 2.564 1.625
750,000-999,999........................................................... 2.00 2.041 1.300
1,000,000 or more......................................................... 1.50 1.523 0.975
<CAPTION>
FREDDIE MAC SERIES 10, 11 AND 12
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
------------------------------------ PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- -------------------------------------------------------------------------- ------------------- ---------------
<S> <C> <C> <C>
Less than 100,000......................................................... 3.50% 3.627% 2.275%
100,000-499,999........................................................... 3.00 3.093 1.950
500,000-749,999........................................................... 2.25 2.302 1.463
750,000-999,999........................................................... 1.50 1.523 0.975
1,000,000 or more......................................................... 1.25 1.266 0.813
<CAPTION>
MONTHLY PAYMENT U.S. TREASURY SERIES 1 AND 3
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
------------------------------------ PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- -------------------------------------------------------------------------- ------------------- ---------------
<S> <C> <C> <C>
Less than 250,000......................................................... 2.50% 2.564% 1.625%
250,000-499,999........................................................... 2.00 2.041 1.300
500,000-749,999........................................................... 1.50 1.523 0.975
750,000-999,999........................................................... 1.25 1.266 0.813
1,000,000 or more......................................................... 1.00 1.010 0.650
<CAPTION>
MONTHLY PAYMENT U.S. TREASURY SERIES 5
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
------------------------------------ PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- -------------------------------------------------------------------------- ------------------- ---------------
<S> <C> <C> <C>
Less than 250,000......................................................... 2.75% 2.828% 1.788%
250,000-499,999........................................................... 2.25 2.302 1.463
500,000-749,999........................................................... 1.50 1.523 0.975
750,000-999,999........................................................... 1.25 1.266 0.813
1,000,000 or more......................................................... 1.00 1.010 0.650
</TABLE>
a-1
<PAGE>
MONTHLY PAYMENT U.S. TREASURY SERIES 6
<TABLE><CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
------------------------------------ PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- -------------------------------------------------------------------------- ------------------- ---------------
<S> <C> <C> <C>
Less than 1,000,000....................................................... 1.00% 1.010% 0.650%
1,000,000 or more......................................................... 0.50 0.503 0.325
<CAPTION>
U.S. TREASURY SERIES 7--LADDERED ZERO COUPONS
SALES CHARGE DEALER
(GROSS UNDERWRITING PROFIT) CONCESSION
----------------------------------
AS PERCENT OF AS PERCENT OF
PUBLIC OFFERING NET AMOUNT
NUMBER OF UNITS PRICE INVESTED AS PERCENT
- ---------------------------------------------------------------------------------- ----------------- --------------- OF PUBLIC
OFFERING
PRICE
-----------
<S> <C> <C> <C>
ASSURANCE TRUST 1995
Less than 1,000................................................................. 1.25% 1.266% 0.813%
1,000 or more................................................................... 1.00 1.010 0.650
ASSURANCE TRUST 2000
Less than 500................................................................... 2.00% 2.041% 1.300%
500-999......................................................................... 1.50 1.523 0.975
1,000 or more................................................................... 1.00 1.010 0.650
ASSURANCE TRUST 2005
Less than 250................................................................... 3.00% 3.093% 1.950%
250-499......................................................................... 2.50 2.564 1.625
500-749......................................................................... 2.00 2.041 1.300
750-999......................................................................... 1.50 1.523 0.975
1,000 or more................................................................... 1.00 1.010 0.650
<CAPTION>
MONTHLY PAYMENT U.S. TREASURY SERIES 8, 19, 20 AND 23
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
---------------------------------- PUBLIC
AS PERCENT OF AS PERCENT OF OFFERING PRICE
BID SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- ---------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Less than 1,000,000......................................................... 1.50% 1.523% 0.975%
1,000,000 or more........................................................... 1.25 1.266 0.813
<CAPTION>
MONTHLY PAYMENT U.S. TREASURY SERIES 10
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
---------------------------------- PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- ---------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Less than 500,000........................................................... 1.75% 1.781% 1.138%
500,000-999,999............................................................. 1.25 1.266 0.813
1,000,000 or more........................................................... 0.75 0.756 0.488
<CAPTION>
MONTHLY PAYMENT U.S. TREASURY SERIES 12 AND 13
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
---------------------------------- PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- ---------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Less than 1,000,000......................................................... 0.75% 0.756% 0.488%
1,000,000 or more........................................................... 0.50 0.503 0.325
<CAPTION>
MONTHLY PAYMENT U.S. TREASURY SERIES 14
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
---------------------------------- PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- ---------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Less than 1,000,000......................................................... 1.00% 1.010% 0.650%
1,000,000 or more........................................................... 0.75 0.756 0.488
</TABLE>
a-2
<PAGE>
<TABLE><CAPTION>
MONTHLY PAYMENT U.S. TREASURY SERIES 15
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
---------------------------------- PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- ---------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Less than 500,000........................................................... 2.00% 2.041% 1.300%
500,000-999,999............................................................. 1.50 1.523 0.975
1,000,000 or more........................................................... 1.00 1.010 0.650
<CAPTION>
MONTHLY PAYMENT U.S. TREASURY SERIES 16
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
---------------------------------- PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- ---------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Less than 1,000,000......................................................... 1.25% 1.266% 0.813%
1,000,000 or more........................................................... 1.00 1.010 0.650
<CAPTION>
MONTHLY PAYMENT U.S. TREASURY SERIES 17, 18, 21 AND 22
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
---------------------------------- PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- ---------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Less than 500,000........................................................... 2.25% 2.302% 1.463%
500,000-999,999............................................................. 1.75 1.781 1.138
1,000,000 or more........................................................... 1.25 1.266 0.813
<CAPTION>
U.S. TREASURY STRATEGY SERIES 1
SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER
CONCESSION AS
PERCENT OF
---------------------------------- PUBLIC OFFERING
AS PERCENT OF BID AS PERCENT OF PRICE
SIDE PUBLIC NET AMOUNT ---------------
NUMBER OF UNITS OFFERING PRICE INVESTED
- ---------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Less than 1,000,000......................................................... 1.50% 1.523% 0.975%
1,000,000 to 4,999,999...................................................... 1.00 1.010 0.650
5,000,000 or more........................................................... 0.75 0.756 0.490
</TABLE>
The above graduated sales charges will apply on all purchases on any one
day by the same purchaser of Units only in the amounts stated. Concurrent
purchases in the secondary market of one or more Series sponsored by the
Sponsors which have the same rates of sales charge will be aggregated. Units
held in the name of the spouse of the purchaser or in the name of a child of the
purchaser under 21 years of age are deemed to be registered in the name of the
purchaser. The graduated sales charges are also applicable to a trustee or other
fiduciary purchasing securities for a single trust estate or single fiduciary
account.
a-3
<PAGE>
14102--10/95
<PAGE>
<PAGE>
DEFINED
ASSET FUNDSSM
SPONSORS: GOVERNMENT SECURITIES
Merrill Lynch, INCOME FUND
Pierce, Fenner & Smith Incorporated Freddie Mac Series--10
Defined Asset Funds (A Unit Investment Trust)
P.O. Box 9051 PROSPECTUS PART A
Princeton, N.J. 08543-9051 This Prospectus does not contain all of
(609) 282-8500 the information with respect to the
Smith Barney Inc. investment company set forth in its
Unit Trust Department registration statement and exhibits
388 Greenwich Street--23rd Floor relating thereto which have been filed
New York, NY 10013 with the Securities and Exchange
1-800-223-2532 Commission, Washington, D.C. under the
PaineWebber Incorporated Securities Act of 1933 and the
1200 Harbor Boulevard Investment Company Act of 1940, and to
Weehawken, N.J. 07087 which reference is hereby made.
(201) 902-3000 No person is authorized to give any
Prudential Securities Incorporated information or to make any
One Seaport Plaza representations with respect to this
199 Water Street investment company not contained in its
New York, N.Y. 10292 registration statement and exhibits
(212) 776-1000 relating thereto; and any information or
Dean Witter Reynolds Inc. representation not contained therein
Two World Trade Center--59th Floor must not be relied upon as having been
New York, N.Y. 10048 authorized. This Prospectus does not
(212) 392-2222 constitute an offer to sell, or a
EVALUATOR: solicitation of an offer to buy,
Kenny S&P Evaluation Services, securities in any state to any person to
a division of J. J. Kenny Co., Inc. whom it is not lawful to make such offer
65 Broadway in such state.
New York, N.Y. 10006 14152--5/96
TRUSTEE:
The Chase Manhattan Bank, N.A.
(a National Banking Association)
Customer Service Retail Department
770 Broadway--7th Floor
New York, N.Y. 10003-9598
1-800-323-1508
<PAGE>
DEFINED ASSET FUNDS--
GOVERNMENT SECURITIES INCOME FUND
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statement on Form S-6
comprises the following papers and documents:
The facing sheet of Form S-6.
The cross-reference sheet (incorporated by reference to the Registration
Statement on Form S-6 of Defined Asset Funds Municipal Insured Series, 1933 Act
File No. 33-54565).
The Prospectus.
The Signatures.
The following exhibits:
1.1--Form of Standard Terms and Conditions of Trust Effective as of October
21, 1993 (incorporated by reference to Exhibit 1.1.1 to the
Registration Statement of Municipal Investment Trust Fund, Multi-state
Series--48, 1933 Act File No. 33-50247).
4.1 --Consent of the Evaluator.
5.1 --Consent of independent accountants.
9.1 --Information Supplement.
R-1
<PAGE>
DEFINED ASSET FUNDS--
GOVERNMENT SECURITIES INCOME FUND
FREDDIE MAC SERIES--10
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
DEFINED ASSET FUNDS--GOVERNMENT SECURITIES INCOME FUND, FREDDIE MAC SERIES--10
(A UNIT INVESTMENT TRUST), CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS FOR
EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE
SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT OR
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED IN THE CITY OF NEW YORK AND STATE OF NEW
YORK ON THE 8TH DAY OF MAY, 1996.
SIGNATURES APPEAR ON PAGES R-3, R-4, R-5, R-6 AND R-7.
A majority of the members of the Board of Directors of Merrill Lynch,
Pierce, Fenner & Smith Incorporated has signed this Registration Statement or
Amendment to the Registration Statement pursuant to Powers of Attorney
authorizing the person signing this Registration Statement or Amendment to the
Registration Statement to do so on behalf of such members.
A majority of the members of the Board of Directors of Smith Barney Inc.
has signed this Registration Statement or Amendment to the Registration
Statement pursuant to Powers of Attorney authorizing the person signing this
Registration Statement or Amendment to the Registration Statement to do so on
behalf of such members.
A majority of the members of the Executive Committee of the Board of
Directors of PaineWebber Incorporated has signed this Registration Statement or
Amendment to the Registration Statement pursuant to Powers of Attorney
authorizing the person signing this Registration Statement or Amendment to the
Registration Statement to do so on behalf of such members.
A majority of the members of the Board of Directors of Prudential
Securities Incorporated has signed this Registration Statement or Amendment to
the Registration Statement pursuant to Powers of Attorney authorizing the person
signing this Registration Statement or Amendment to the Registration Statement
to do so on behalf of such members.
A majority of the members of the Board of Directors of Dean Witter Reynolds
Inc. has signed this Registration Statement or Amendment to the Registration
Statement pursuant to Powers of Attorney authorizing the person signing this
Registration Statement or Amendment to the Registration Statement to do so on
behalf of such members.
R-2
<PAGE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DEPOSITOR
By the following persons, who constitute a majority of Powers of Attorney
the Board of Directors of Merrill Lynch, Pierce, have been filed
Fenner & Smith Incorporated: under
Form SE and the
following 1933 Act
File
Number: 33-43466
and 33-51607
HERBERT M. ALLISON, JR.
BARRY S. FREIDBERG
EDWARD L. GOLDBERG
STEPHEN L. HAMMERMAN
JEROME P. KENNEY
DAVID H. KOMANSKY
DANIEL T. NAPOLI
THOMAS H. PATRICK
JOHN L. STEFFENS
DANIEL P. TULLY
ROGER M. VASEY
ARTHUR H. ZEIKEL
By
ERNEST V. FABIO
(As authorized signatory for Merrill Lynch, Pierce,
Fenner & Smith Incorporated and
Attorney-in-fact for the persons listed above)
R-3
<PAGE>
PRUDENTIAL SECURITIES INCORPORATED
DEPOSITOR
By the following persons, who constitute a majority of Powers of Attorney
the Board of Directors of Prudential Securities have been filed
Incorporated: under Form SE and
the following 1933
Act File Number:
33-41631
ALAN D. HOGAN
GEORGE A. MURRAY
LELAND B. PATON
HARDWICK SIMMONS
By
WILLIAM W. HUESTIS
(As authorized signatory for Prudential Securities
Incorporated and Attorney-in-fact for the persons
listed above)
R-4
<PAGE>
SMITH BARNEY INC.
DEPOSITOR
By the following persons, who constitute a majority of Powers of Attorney
the Board of Directors of Smith Barney Inc.: have been filed
under the 1933 Act
File Number:
33-49753 and
33-51607
STEVEN D. BLACK
JAMES BOSHART III
ROBERT A. CASE
JAMES DIMON
ROBERT DRUSKIN
JEFFREY LANE
ROBERT H. LESSIN
By GINA LEMON
(As authorized signatory for
Smith Barney Inc. and
Attorney-in-fact for the persons listed above)
R-5
<PAGE>
DEAN WITTER REYNOLDS INC.
DEPOSITOR
By the following persons, who constitute Powers of Attorney have been filed
a majority of under Form SE and the following 1933
the Board of Directors of Dean Witter Act File Number: 33-17085
Reynolds Inc.:
NANCY DONOVAN
CHARLES A. FIUMEFREDDO
JAMES F. HIGGINS
STEPHEN R. MILLER
PHILIP J. PURCELL
THOMAS C. SCHNEIDER
WILLIAM B. SMITH
By
MICHAEL D. BROWNE
(As authorized signatory for
Dean Witter Reynolds Inc.
and Attorney-in-fact for the persons listed above)
R-6
<PAGE>
PAINEWEBBER INCORPORATED
DEPOSITOR
By the following persons, who constitute Powers of Attorney have been filed
a majority of under
the Executive Committee of the Board the following 1933 Act File
of Directors of PaineWebber Number: 33-55073
Incorporated:
JOSEPH J. GRANO, JR.
DONALD B. MARRON
By
ROBERT E. HOLLEY
(As authorized signatory for
PaineWebber Incorporated
and Attorney-in-fact for the persons listed above)
R-7
<PAGE>
EXHIBIT 4.1
KENNY S&P EVALUATION SERVICES
A DIVISION OF J. J. KENNY CO., INC.
65 BROADWAY
NEW YORK, N.Y. 10006-2551
TELEPHONE (212) 770-4422
FAX 212/797-8681
May 8, 1996
Frank A. Ciccotto
Vice President
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Unit Investment Trust Division
P.O. Box 9051
Princeton, New Jersey 08543-9051
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza--3B
New York, New York 10081
RE: DEFINED ASSET FUNDS--GOVERNMENT SECURITIES INCOME FUND,
FREDDIE MAC SERIES--10
Gentlemen:
We have examined the post-effective Amendment to the Registration Statement
File No. 33-46142 for the above-captioned trust. We hereby acknowledge that
Kenny S&P Evaluation Services, a division of J. J. Kenny Co., Inc. is currently
acting as the evaluator for the trust. We hereby consent to the use in the
Amendment of the reference to Kenny S&P Evaluation Services, a division of J. J.
Kenny Co., Inc. as evaluator.
You are hereby authorized to file copies of this letter with the Securities
and Exchange Commission.
Sincerely,
FRANK A. CICCOTTO
<PAGE>
Exhibit 5.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Sponsors and Trustee of
Defined Asset Funds--Government Securities Income Fund--Freddie Mac Series--10
We consent to the use in this Post-Effective Amendment No. 4 to Registration
Statement No. 33-46142 of our opinion dated April 24, 1996 appearing in the
Prospectus, which is part of such Registration Statement, and to the reference
to us under the heading 'Auditors' in such Prospectus.
DELOITTE & TOUCHE LLP
New York, N.Y.
May 8, 1996
DEFINED ASSET FUNDS
GOVERNMENT SECURITIES INCOME FUND
CORPORATE INCOME FUND GNMA SERIES
INFORMATION SUPPLEMENT
This Information Supplement provides additional information concerning the
structure, operations and risks of government securities trusts (each, a Fund )
of Defined Asset Funds not found in the prospectuses for the Funds. This
Information Supplement is not a prospectus and does not include all of the
information that a prospective investor should consider before investing in a
Fund. This Information Supplement should be read in conjunction with the
prospectus for the Fund in which an investor is considering investing (
Prospectus ). Copies of the Prospectus can be obtained by calling or writing the
Trustee at the telephone number and address indicated in Part A of the
Prospectus.
This Information Supplement is dated September 30, 1995. Capitalized terms
have been defined in the Prospectus.
TABLE OF CONTENTS
Description of Portfolio Investments ...................................... 1
Mortgage Backed Securities --GNMA Series and Freddie Mac Series ......... 1
Stripped "Zero" Treasury Securities ..................................... 7
Portfolio Supervision ................................................... 9
Risk Factors .............................................................. 9
U.S. Treasury Series (Laddered Maturities) .............................. 9
GNMA Series and Freddie Mac Series ...................................... 9
Public Offering Price ..................................................... 10
GNMA Series and Freddie Mac Series ...................................... 10
Redemption ................................................................ 11
U.S. Treasury Series Only ............................................... 11
DESCRIPTION OF PORTFOLIO INVESTMENTS
Mortgage Backed Securities -- GNMA Series and Freddie Mac Series
Ginnie Maes. The Portfolios of GNMA Series consist primarily of
mortgage-backed securities of the modified pass-through type fully guaranteed as
to payment of principal and interest by the Government National Mortgage
Association ("GNMA").
GNMA is a wholly-owned U.S. government corporation within the Department
of Housing and Urban Development. GNMA is authorized by Section 306(g) of Title
III of the National Housing Act to guarantee the timely payment of the principal
of, and interest on, certificates which are based on and backed by a pool of
<PAGE>
residential mortgage loans insured or guaranteed by the Federal Housing
Administration ("FHA"), the Farmers' Home Administration ("FMHA") or the
Department of Veteran's Affairs ("VA"). In order to meet its obligation under
its guaranty, GNMA may issue its general obligations to the United States
Treasury. In the event it is called upon at any time to make good its guaranty,
GNMA has the fill power and authority to borrow from the Treasury of the United
States, of necessary, amounts sufficient to make payments of principal and
interest on the GNMA Certificates ("GNMA Pass-throughs" or "Ginnie Maes").
Section 306(g) provides further that the fill faith and credit of the United
States is pledged to the payment of all amounts which may be required to be paid
under any guaranty under that subsection. An opinion of an Assistant Attorney
General of the United States, dated December 9, 1969, states that these
guaranties "constitute general obligations of the United States backed by its
full faith and credit." Any statement in this Prospectus that a particular
Security is backed by the full faith and credit of the United States is based
upon the opinion of an Assistant Attorney General of the United States and
should be so construed.
The Ginnie Maes are of the "modified pass-through" type, the terms of
which provide for timely monthly payments by the issuers to the registered
holders (including the Fund) of their pro rata shares of the scheduled principal
payments, whether or not collected by the issuers, on account of the mortgages
backing these Ginnie Maes, plus any prepayment of principal of such mortgages
received, and interest (net of the servicing and other charges described above)
on the aggregate unpaid principal balance of these Ginnie Maes, whether or not
interest on account of these mortgages has been collected by the issuers. Ginnie
Maes are guaranteed by GNMA as to timely payment of principal and interest.
Funds received by the issuers on account of the mortgages backing the several
-2-
<PAGE>
issues of the Ginnie Maes are intended to be sufficient to make the required
payments of principal and interest on these Ginnie Maes but, if these funds are
insufficient for that purpose, the guaranty agreements between the issuers and
GNMA require the issuers to make advances sufficient for these payments. If the
issuers fail to make these payments GNMA will do so. The full faith and credit
of the United States if pledged to the payment of all amounts which may be
required to be paid under the guaranty. The payment cycle of Ginnie Maes is 45
days between the date of security issuance and the first investor payments.
The pool of mortgages that is to underlie a particular new issue of Ginnie
Maes, such as the Ginnie Maes in the Fund, is assembled by the proposed issuer
of these Ginnie Maes. This issuer is typically a mortgage banking firm, savings
institution or commercial banks and in every instance must be a mortgagee
approved by and in good standing with the FHA. In addition, GNMA imposes its own
criteria on the eligibility of issuers, including a net worth requirement and a
requirement that a principal element of its business operation be the
origination or servicing of mortgage loans.
The mortgages which are to compose the new pool may have been originated
by the issuer itself in its capacity as a mortgage lender, or they may be
acquired by the issuer from a third party, such as another mortgage banker, a
banking institution, the VA, which in certain instances acts as a direct lender
and thus originates its own mortgages, or one of several other governmental
agencies. All mortgages in any given pool will be insured under the National
Housing Act, as amended ("FHA-insured") or Title V of the Housing Act of 1949
("FMHA-insured") or insured or guaranteed under Chapter 37 of Title 38, U.S.C.
("VA-guaranteed"); will have a date for the first scheduled monthly payment of
principal that is not more than 24 months prior to the issue date of the Ginnie
Mae to be issued; will have homogeneity as to interest rate, maturity and type
of dwelling (e.g., project mortgages on apartment projects and hospitals will
not be mixed with 1-to 4-family mortgages); and will meet additional criteria of
GNMA. All mortgages in the pools backing the Ginnie Maes contained in the
Portfolio are mortgages on 1-to 4-family dwellings (amortizing over a period of
up to 30 years). In general, the mortgages in these pools provide for equal
monthly payments over the life of the mortgage (aside from prepayments),
designed to repay the principal of the mortgage over this period, together with
interest at a fixed rate on the unpaid balance.
-3-
<PAGE>
In seeking GNMA approval of a new pool, the issuer files with GNMA an
application containing information concerning itself, describing generally the
pooled mortgages, and requesting that GNMA approve the issue and issue its
commitment (subject to its satisfaction with the mortgage documents and other
relevant documentation) to guarantee the timely payment of principal of and
interest on the Ginnie Mae to be issued by the issuer on the basis of that pool.
If the application is in order, GNMA issues its commitment, assigning a GNMA
pool number to the pool. Upon completion of the required documentation,
including detailed information as to the underlying mortgages, a custodial
agreement with a Federal or state regulated financial institution satisfactory
to GNMA pursuant to which the underlying mortgages will be held in safekeeping,
and a detailed guaranty agreement between GNMA and the issuer, the issuance of
the Ginnie Maes is permitted, and GNMA, upon their issuance, endorses its
guaranty thereon. The aggregate principal amount of Ginnie Maes issued will be
equal to the then aggregate unpaid principal balances of the pooled mortgages.
The interest rate borne by the Ginnie Maes is currently fixed at .5 of 1% below
the interest rate of the pooled 1-to 4-family mortgages, the differential being
applied to the payment of servicing and custodial charges as well as GNMA's
guaranty fee.
The Ginnie Maes are based upon and backed by the aggregate indebtedness
secured by the underlying FHA- insured, FMHA-insured or VA-guaranteed mortgages
and, except to the extent of funds received by the issuers on account of these
mortgages, the Ginnie Maes do not constitute a liability of nor evidence of any
recourse against the issuers, but recourse thereon is solely against GNMA.
Holders of Ginnie Maes have no security interest in or lien on the pooled
mortgages.
The GNMA guaranties referred to herein relate only to payment of principal
of and interest on the Ginnie Maes in the Portfolio and not to the United
offered hereby.
Each group of Ginnie Maes described above as having a specified range of
maturities includes individual Ginnie Maes having varying ranges of maturities
within that mentioned. Each group is described as one category of Securities
with a single range of maturities because of current market conditions that
accord no difference in price among the Securities grouped together on the basis
of the difference in their maturity ranges. Accordingly, as long as this market
-4-
<PAGE>
condition prevails, a purchase of securities with the same coupon rate and a
maturity date within the range mentioned above will be considered as an
acquisition of the same security.
Freddie Macs. The Federal Home Loan Mortgage Corporation ("FHLMC") is a
publicly held government sponsored enterprise created pursuant to the Federal
Home Loan Mortgage Corporation Act, Title III of the Emergency Home Finance Act
of 1970 (the "FHLMC Act"). FHLMC's common stock is owned by the Federal Home
Loan Banks. FHLMC was established primarily for the purpose of increasing the
availability of mortgage credit for the financing of urgently needed housing. It
seeks to provide an enhanced degree of liquidity for residential mortgage
investments primarily by assisting in the development of secondary markets for
conventional mortgages. The principal activity of FHLMC currently consists of
purchasing first lien, conventional residential mortgage loans and participation
interests therein (collectively, "mortgages"), which FHLMC repackages and sells
as guaranteed mortgage securities, primarily FHLMC Certificates. These mortgages
must meet certain mortgage purchase requirements (including mortgage purchase
amount limits) and must be deemed by FHLMC to be of a quality, type and class to
meet generally the purchase standards of private institutional mortgage
investors.
Prior to October 1992, substantially all of the mortgages acquired by
FHLMC had been acquired from mortgagees approved by the Secretary of Housing and
Urban Development ("HUD") for participation in mortgage insurance programs under
the National Housing Act (primarily mortgage bankers) or from federally insured
financial institutions (primarily savings associations, commercial banks and
savings banks). The FHLMC Act was amended in October, 1992 to remove the
restrictions on the types of mortgage sellers from whom FHLMC may purchase
mortgages. Accordingly, mortgage bankers and other mortgage sellers that are not
federally insured financial institutions no longer need to be HUD-approved
mortgagees to be approved to sell mortgages to FHLMC.
-5-
<PAGE>
To minimize interest rate risk FHLMC generally coordinates the volume of
and effective interest rates on mortgage purchase commitments with its
commitments to sell mortgage-related securities. Mortgages retained by FHLMC are
financed with short-term and long-term debt, cash temporarily held pending
disbursement to securities holders (float) and equity capital.
Copies of FHLMC's most recent Offering Circular for FHLMC Certificates,
FHLMC's Information Statement, and the most recent Supplement to the Information
Statement and any quarterly report made available by FHLMC can be obtained by
writing or calling the Investor Inquiry Department at Freddie Mac at 8200 Jones
Branch Drive, McLean, Virginia 22102 (outside the Washington, D.C. metropolitan
area, telephone 800/336-FMPC; within the Washington, D.C. metropolitan area,
telephone 703/759-8160). The Sponsors do not participate in the preparation of
FHLMC's Offering Circulars, Information Statements or Supplements.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. Certain of the mortgages are
insured by the FHA or guaranteed by the VA, both of which are federal agencies.
FHLMC PCs ("FHLMC Certificates"). FHLMC Mortgage Participation
Certificates represent an undivided interest in a group of mortgages (a "FHLMC
Certificate group") purchased by FHLMC. FHLMC Certificates are sold under the
terms of a Mortgage Participation Certificate Agreement. A FHLMC Certificate may
be issued under FHLMC's Cash, Guarantor or Multilender Swap Programs.
Mortgage loans underlying the FHLMC Certificates included in the Portfolio
will consist of fixed-rate mortgages with original terms to maturity of
approximately 15 years, substantially all of which are secured by first liens on
one- to four-family residential properties. Each mortgage loan must meet the
applicable standards set forth in the FHLMC Act. A FHLMC Certificate may be
issued under FHLMC's Cash, Guarantor or Multilender Swap Programs.
-6-
<PAGE>
FHLMC guarantees the timely payment of interest, the payment of the amount
of principal scheduled to be paid by mortgagors due on the underlying mortgage
loans to the extent of the holder's pro rata share of the unpaid principal
balance of such mortgages, whether or not received by FHLMC, and the ultimate
collection of all principal on the underlying mortgage loans, without any offset
or deduction. FHLMC may remit the amount due on account of its guarantee of
collection of principal at any time after default on an underlying mortgage
loan, but not later than 30 days following (i) foreclosure sale, (ii) payment of
the claim by any mortgage insurer or the FHA or payment of the guaranty claim by
the VA, or (iii) the expiration of any right of redemption, whichever occurs
later, but in any event no later than one year after demand has been made upon
the mortgagor for accelerated payment of principal or payment of principal at
maturity of a mortgage. In taking actions regarding the collection of principal
after default on the mortgage loans underlying FHLMC Certificates, including the
timing of demand for acceleration, FHLMC reserves the right to exercise its
judgment in the same manner as for mortgages which it has purchased but not
sold. FHLMC Certificates are not guaranteed by the United States or any Federal
Home Loan Bank and do not constitute debts or obligations of the United States
or any Federal Home Loan Bank. The obligations of FHLMC under its guarantee are
obligations solely of FHLMC and are not backed by, nor entitled to, the full
faith and credit of the United States Certain of the mortgages are insured by
the FHA or guaranteed by the VA, both of which are federal agencies.
The payment cycle of FHLMC Certificates is generally 75 days between month
of issuance of the Security and the first investor payment. As noted above,
FHLMC guarantees the timely payment of interest (adjusted to the certificate
rate), whether or not received, on the unpaid principal balance of mortgage
loans in the FHLMC Certificate group as determined or estimated by FHLMC. For
standard 75-day PCs, FHLMC also guarantees collection of all principal on the
underlying mortgage loans, without any offset or deduction, but does not
guarantee the timely payment of scheduled principal. FHLMC Gold Certificates
("Gold PCs"), however, pay on a 45-day cycle and are also guaranteed as to
-7-
<PAGE>
timely payment of scheduled principal. The portfolios of Freddie Mac Series 10
and 11 consists of Gold PCs.
Holders of FHLMC Certificates are entitled to receive interest at the
FHLMC Certificate rate on their pro rata share of the unpaid principal balance
of the underlying mortgage loans. Holders of FHLMC Certificates are also
entitled to receive (i) their pro rata share of all principal payments on the
underlying mortgage loans received by FHLMC, including any scheduled principal
payments, full and partial prepayments of principal, and principal received by
FHLMC by virtue of condemnation, insurance, liquidation or foreclosure,
including repayments of principal resulting from acquisition by FHLMC of the
real property securing the mortgage and (ii) its pro rata share of the amount of
principal scheduled to be paid by mortgagors due on the underlying mortgage
loans, whether or not received by FHLMC. FHLMC is required to remit to each
registered FHLMC Certificate holders its pro rata share of principal payments on
the underlying mortgage loans, interest at the FHLMC Certificate rate and any
other sums such as prepayment fees, within 60 days of the date on which payments
are received by FHLMC.
Under FHLMC's Cash Program, FHLMC purchases groups of whole mortgage loans
from sellers at specified percentages of their unpaid principal balances,
adjusted for accrued or prepaid interest, which, when applied to the interest
rate of the mortgage loans purchased, results in the yield (expressed as a
percentage) required by FHLMC. The required yield, which includes a minimum
servicing fee retained by the servicer, is calculated using the outstanding
principal balance of the mortgage loans, an assumed term and a prepayment period
as determined by FHLMC. Loans may be purchased by FHLMC at an amount above, at
or below 100% of the outstanding principal balance. The range of interest rates
on the mortgage loans in a FHLMC Certificate group under the Cash Program will
vary since mortgage loans are purchased and identified to a FHLMC Certificate
group based upon their yield to FHLMC rather than on the interest rate on the
mortgage loans. Under FHLMC's Guarantor Program, the interest rate on a FHLMC
Certificate is established based upon the lowest interest rate on the underlying
mortgage loans, minus a minimum servicing fee and the amount of FHLMC's
management and guaranty income as agreed upon between the seller and FHLMC.
-8-
<PAGE>
The Federal Reserve Bank of New York maintains book-entry accounts with
respect to FHLMC Gold Certificates and makes payments of interest and principal
each month to holders in accordance with the holders' instructions. The first
payment to a holder of a FHLMC Gold Certificate will normally be received by the
holder by the 15th day of the first month following the month in which the
person became a holder of the FHLMC Gold Certificate. Thereafter, payments will
normally be received by the 15th day of each month.
The FHLMC guarantees referred to herein relate only to payment of
principal of and interest on the FHLMC Certificates in the Portfolio and not to
the Units offered hereby.
Life of the Securities and of the Fund. Monthly payments and prepayments
of principal are made to the Fund in respect of the mortgages underlying the
Ginnie Maes and Freddie Mac PCs (see Income; Estimated Current Return; Estimated
Long Term Return below). All of the mortgages in the pools relating to the
Ginnie Maes and Freddie Mac PCs are subject to prepayment without any
significant premium or penalty at the option of the mortgagors (i.e., the
homeowners). While the mortgages on 1- to 4-family dwellings underlying the
Ginnie Maes are amortized over a period of up to 30 years, it has been the
experience of the mortgage industry that the average life of comparable
mortgages, owing to prepayments, is much less. Pricing of GNMA Securities has
been based upon yield assumptions grounded in the historical experience of the
FHA relating to 30 year mortgages on 1- to 4- family dwellings at various
interest rates (which, in general, have been lower than the rates of the Ginnie
Maes in the Portfolio). Yield tables for Ginnie Maes utilize a 12-year average
life assumption for Ginnie Mae pools of 30 year mortgages on 1- to 4-family
dwellings. This assumption was derived from the FHA experience relating to
prepayments on such mortgages during the period from the mid 1950's to the mid
1970's. This 12-year average life assumption was calculated in respect of a
period during which mortgage lending rates were fairly stable. That assumption
is probably no longer an accurate measure of the average life of Ginnie Maes or
their underlying single family mortgage pools. Today, research analysts use
-9-
<PAGE>
complex formulae to scrutinize the prepayments of mortgage pools in an attempt
to predict more accurately the average life of Ginnie Maes. The basis for the
calculation of the estimated average life and the relationship of this
calculation to Estimated Long Term Return are more fully described below under
Income; Estimated Current Return; Estimated Long Term Return.
While the mortgages on 1- to 4-family dwellings underlying the FHLMC
Certificates are amortized over a period of up to 15 years, the average life of
comparable mortgages, owing to prepayments, is much less. Freddie Mac's current
estimate of the weighted average life of 30-year conventional mortgages is
approximately 8.5 years. The weighted average life of 15-year conventional
mortgages is approximately 6 years. Pricing of FHLMC Certificates has been based
upon yield assumptions based on this estimate. The principal repayment behavior
of any individual mortgage will likely vary from this estimate. The extent of
this variation will depend on a variety of factors, including the relationship
between the coupon rate on a mortgage and prevailing mortgage origination rates.
As prevailing mortgage origination rates increase in relationship to a mortgage
coupon rate, the likelihood of prepayment of that mortgage decreases.
Conversely, during periods in which prevailing mortgage origination rates are
significantly less than a mortgage coupon rate, prepayment of that mortgage
becomes increasingly likely. Freddie Mac revises its weighted average life
estimate from time to time to better reflect both actual and projected payment
experience.
While the industry estimates that Freddie Mac PCs and Ginnie Maes will
prepay as described herein, it is not possible to predict meaningfully
prepayment levels on those Securities in the Fund. Today, research analysts use
complex formulae to scrutinize the prepayments of mortgage pools in an attempt
to predict more accurately the average life of these mortgage backed securities.
Generally speaking, a number of factors, including mortgage market
interest rates and homeowner's mobility, will affect the average life of these
Securities. Changes in prepayment patterns, as reported by the agencies on a
periodic basis, if generally applicable to the mortgage pools related to
specific mortgage-backed securities, could influence yield assumptions used in
pricing the securities. Shifts in prepayment patterns are influenced by changes
-10-
<PAGE>
in housing cycles and mortgage refinancing and are also subject to certain
limitations on the gathering of the data; it is impossible to predict how new
statistics will affect the yield assumptions that determine mortgage industry
norms and pricing of the Securities. Moreover, there is no assurance that the
pools of mortgage loans relating to these Securities will conform to prepayment
experience as reported by GNMA on a period basis, or the prepayment experience
of other mortgage lenders.
While the value of these mortgage backed securities generally fluctuates
inversely with changes in interest rates, it should be noted that their
potential for appreciation, which could otherwise be expected to result from a
decline in interest rates, may tend to be limited by any increased prepayments
by mortgagors as interest rates decline. Accordingly, the termination of the
Fund might be accelerated as a result of prepayments made as described above. It
is also possible that, in the absence of a secondary market for the Units or
otherwise, redemptions of Units may occur in sufficient numbers to reduce the
Portfolio to a size resulting in termination (termination for this reason would
be delayed if additional Units are issued).
Early termination of a Fund or early payments of principal may have
important consequences to the Holder; e.g., to the extent that Units were
purchased with a view to an investment of longer duration, the overall
investment program of the investor may require readjustment; or the overall
return on investment may be less or greater than anticipated, depending in part
on whether the purchase price paid for Units represented the payment of an
overall premium or a discount, respectively, above or below the stated principal
amounts of the underlying mortgages.
Income; Estimated Current Return; Estimated Long Term Return. In actual
operation, payments received in respect of the mortgages underlying the Ginnie
Maes and Freddie Mac PCs will consist of a portion representing interest and a
portion representing principal. Although the aggregate monthly payment made by
the obligor on each mortgage remains constant (aside from optional prepayments
of principal), in the early years the larger proportion of each payment will
represent interest, while in later years, the proportion representing interest
will decline and the proportion representing principal will increase, although,
of course, the interest rate remains constant. Moreover, by reason of optional
-11-
<PAGE>
prepayments, payments in the earlier years on the mortgages in the pools may be
substantially in excess of those required by the amortization schedules of these
mortgages; conversely, payments in later years may be substantially less since
the aggregate unpaid principal balances of the underlying mortgages may have
been greatly reduced -- ultimately even sufficiently reduced to accelerate
termination of a Fund. To the extent that those underlying mortgages, bearing
the higher interest rates represented in a Portfolio are prepaid faster than the
other underlying mortgages, the net annual interest rate per Unit and the return
on the Units can be expected to decline. Monthly payments to the investor will
reflect all of the foregoing factors.
Estimated Current Return and the Estimated Long Term Return give different
information about the return to investors. Estimated Current Return on a Unit
represents the return based on the Public Offering Price and the maximum
applicable sales charge. Estimated Current Return does not take into account
timing of distributions of income and other amounts (including delays) on units,
and it only partially reflects the effect of premiums paid and discounts
realized in the purchase price of Units.
Unlike Estimated Current Return, Estimated Long Term Return is a measure
of the estimated return to the investor earned over the estimated life of the
Fund. The Estimated Long Term Return represents an average of the yields to
estimated average life of the Securities in the Portfolio and adjusted to
reflect expenses and sales charges. The estimated long-term return figure is
calculated using an estimated average life for the Securities as set forth under
Investment Summary. Estimated average life is an essential factor in the
calculation of Estimated Long Term Return. When the Fund has a shorter average
life than is estimated, Estimated Long Term Return will be higher if the Fund
contains Securities priced at a discount and lower if the Securities are priced
at premium. Conversely, if the Fund has a longer average life than is estimated,
Estimated Long Term Return will be lower when the Securities are priced at a
discount and higher if the Securities are priced at a premium. In order to
calculate estimated average life, an assumption is made about the present
average life of the Securities available in the marketplace with the same
coupon. With this profile, an annualized prepayment rate for the mortgages
underlying the Securities can be estimated using actual prepayment date reported
by the agencies for recent periods. An industry model is also used to make
assumptions about the impact of aging on the prepayment of mortgage pools.
-12-
<PAGE>
Because recent prepayment data and the industry model afford limited assumptions
for calculating estimated average life, analysis of several other factors is
included, among other things, the coupon, the housing environment, the present
interest rate (no change in interest rate is assumed) and historical trends.
Based upon these adjustments, an estimated prepayment rate for the remaining
term of the mortgage pool is determined, which is the basis for calculating the
estimated average life. The estimated average life for the Fund is subject to
change with alterations in the data used in any of the underlying assumptions.
The actual average lives of the Securities and the actual long term returns will
be different from the estimated average lives and the estimated long term
returns. In calculating Estimated Long Term Return, the average yield for the
Portfolio is derived by weighing each Security's yield by the market value of
the Security and by the amount of time remaining to the estimated average life.
Once the average Portfolio yield is computed, this figure is then adjusted for
estimated expenses and the effect of the maximum sales charge paid by investors.
The Estimated Long Term Return calculation does not take into account certain
delays in distributions of income and the timing of other receipts and
distributions on Units and may, depending on maturities, over or understate the
impact of sale charges. Both of these factors may result in a lower figure.
Stripped "Zero" Treasury Securities
Stripped bonds have been stripped of their unmatured interest coupons;
stripped coupons are coupons that have been stripped from an issuer's bonds.
Stripped bonds and stripped coupons are sold at a deep discount because the
buyer of those securities receives only the right to receive a future fixed
payment on the security and not any rights to periodic interest payments
thereon. Purchasers of these securities acquire, in effect, discount obligations
-13-
<PAGE>
that are economically identical to the "zero-coupon bonds" that have been issued
by corporations. Zero coupon bonds are bonds which do not make any periodic
payments of interest prior to maturity and accordingly are issued at a deep
discount.
Stripped Treasury Securities held by any Trust consist solely of one or
more of the following types of securities: (a) U.S. Treasury debt obligations
which have been stripped of their unmatured interest coupons, (b) coupons which
have been stripped from U.S. Treasury bonds, either of which may be held through
the Federal Reserve Bank's book entry system called "Separate Trading of
Registered Interest and Principal of Securities" ("STRIPS"), and (c) receipts or
certificates for stripped U.S. Treasury debt obligations having the following
characteristics. These receipts or certificates evidence ownership of future
interest or principal payments on U.S. Treasury notes or bonds which are direct
obligations of the United States. The receipts or certificates are issued in
registered form by a major bank which acts a custodian and nominal holder of the
underlying stripped U.S. Treasury debt obligation (which may be held by it
either in physical or in book entry form). The terms of custody provide that the
underlying debt obligations will be held separate from the general assets of the
custodian and will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of the custodian or any person claiming through
the custodian, and the custodian will be responsible for applying all payments
received on those underlying debt obligations to the related receipts or
certificates without making any deductions other than applicable tax
withholding. The custodian is required to maintain insurance for the protection
of holders of receipts or certificates in customary amounts against losses
resulting from the custody arrangement due to dishonest or fraudulent action by
the custodian's employees. The holders of receipts or certificates, as the real
parties in interest, are entitled to the rights and privileges of the underlying
debt obligations including the right in the event of default in payment of
principal or interest thereon to proceed individually against the United States
without acting in concert with the other holders of those receipts or
certificates or the custodian.
The Stripped Treasury Securities are debt obligations of the United States
government which are payable in full at maturity at their stated maturity amount
and are not subject to redemption prior to maturity. The Stripped Treasury
Securities do not make any periodic payments of interest.
-14-
<PAGE>
The Stripped Treasury Securities were sold at a substantial discount from
their face amounts payable at maturity. Because interest on Stripped Treasury
Securities and other "zero coupon" obligations is not distributed on a current
basis but in effect compounded, the value of securities of this type, including
the value of accrued and reinvested interest (and of a Fund comprised of these
obligations) is subject to greater fluctuations in response to changing interest
rates than on debt obligations which distribute interest periodically.
Accordingly, while the full faith and credit of the U.S. government provides a
high level of protection against credit risks on the Securities, sale of Units
before maturity of the Securities at a time when interest rates have increased
would involve greater market risk than in a fund which is invested in debt
obligations of comparable maturity which pay interest currently. This risk is
greater when the period to maturity is longer. Furthermore, the stripping of the
interest coupons will cause the Units and therefore the Holder's pro rata
portion of each Stripped Treasury Security to be purchased at a deep discount.
The Stripped Treasury Securities do not make any periodic payments of interest.
Accordingly, Funds holding primarily Stripped Treasury Securities are not a
suitable investment for persons seeking current cash distributions. Sales of
Units in California may be made only to persons who have a minimum net worth
(exclusive of home, home furnishings, and automobiles for personal use) of at
least (i) $75,000 or (ii) $30,000 if the investor has an adjusted gross income
of at least $30,000. A holder of Stripped Treasury Securities will be required
to include annually in gross income an allocable portion of the discount created
by coupon stripping, prior to receipt of the cash attributable to that income.
Accordingly, a Fund or Trust holding Stripped Treasury Securities may be a
suitable investment only if purchased by IRAs, Keogh plans or other tax-deferred
accounts. Stripped Treasury Securities are marketable in substantially the same
manner as other discount Treasury securities.
Under generally accepted accounting principles, a holder of a Security
purchased at a discount normally must report as an item of income for financial
accounting purposes the portion of the discount attributable to the applicable
reporting period. The calculation of this attributable income would be made on
the "interest" method which generally will result in a lesser amount of
includible income in earlier period and a correspondingly larger amount in later
-15-
<PAGE>
periods. For Federal income tax purposes, the inclusion will be on a basis that
reflects the effective semi-annual compounding of accrued but unpaid interest
effectively represented by the discount. Although this treatment is similar to
the "interest" method described above, the "interest" method may differ to the
extent that generally accepted accounting principles permit or require the
inclusion of interest on the basis of a compounding period other than the
semi-annual period (see Taxes in Part B of the Prospectus).
U.S. Treasury Series 7 - Laddered Zero Coupons. The economic effect of
purchasing Units of the Fund is that the investor who holds his Units until
maturity of the underlying Debt Obligations should receive approximately the
offering yield not only on his original investment but on all earned discount
during the life of the Debt Obligations. The assumed or implicit automatic
reinvestment at market rates at the time of purchase of the portion of the yield
represented by earned discount differentiates this Fund from funds comprised of
customary securities on which current periodic interest is paid at market rates
at the time of issue. Accordingly, an investor in the Units, unlike an investor
in the fund comprised of customary securities, lessens his risk of being unable
to invest distributions at a rate as high as the yield on this Fund, but may
forgo the ability to reinvest fully at higher rates in the future.
Portfolio Supervision
Each Fund is a unit investment trust which normally follows a buy and hold
investment strategy and is not actively managed. Traditional methods of
investment management for a managed fund (such as a mutual fund) typically
invoice frequent changes in a portfolio of securities on the basis of economic,
financial and market analyses. Because a Fund is not actively managed, the
adverse financial condition of an issuer will not necessarily require the sale
of its securities from the Fund. Defined Asset Funds investment professionals
are dedicated exclusively to selecting and then monitoring securities held by
the various Defined Funds. On an on-going basis experienced financial analysts
regularly review the Portfolio of a Fund and may direct the disposition of
-16-
<PAGE>
securities under any of the following circumstances: (i) a default in payment of
amounts due to any security, (ii) institution of certain legal proceedings,
(iii) existence of any other legal questions or impediments affecting a security
or the payment of amount due on the security, (iv) default under certain
documents adversely affecting debt service or default in payment of amounts due
on other securities of the same issuer or guarantor, (v) decline in price of the
security or the occurrence of other market or credit factors, including in
advance refunding (i.e. the issuance of refunding bonds and the deposit of the
proceeds thereof in trust or escrow to retire the refunded securities on their
respective redemption dates), that in the opinion of the Sponsors would make the
retention of the security detrimental to the interest of investors, (vi) if a
security is not consistent with the investment objective of the Fund, (vii) if
necessary in order to qualify a Fund as a "regulated investment company" under
the Internal Revenue Code or (viii) if the Trustee has a right to sell or redeem
a security pursuant to any applicable guarantee or other credit support. If a
default in the payment of amounts due on any security occurs and if the Agent
for the Sponsors fails to give instructions to sell or hold the security, the
Indenture provides that the Trustee, within 30 days of the failure, shall sell
the security.
RISK FACTORS
U.S. Treasury Series (Laddered Maturities)
The U.S. Treasury obligations included in the Portfolio of a U.S. Treasury
Series, though backed by the full faith and credit of the United States, are
subject to changes in market value when interest rates fluctuate. The Fund seeks
to protect against declining interest rates by investing a portion of the
Portfolio in longer-term Securities, while if interest rates rise Investors will
be able to reinvest the proceeds of principal returned each year in higher
yielding obligations. It is anticipated that equal portions of principal
invested will be returned annually as Securities mature. In order for the
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<PAGE>
Securities to be eligible for inclusion in a Fund that offers non-U.S. investors
an exemption from U.S. federal income taxes, including withholding taxes, the
Securities must have been issued after July 18, 1984. The Portfolio in Part A of
the Prospectus contains information concerning the coupon rates and maturities
of the Securities in the Fund.
GNMA Series and Freddie Mac Series
An investment in Units of a Fund should be made with an understanding of
the risk which an investment in fixed rate long-term debt obligations without
prepayment protection may entail, including the risk that the value of the
Portfolio and hence of the Units will decline with increases in interest rates
and that payments of principal may be received sooner than anticipated,
especially if interest rates decline. The potential for appreciation on the
Securities which could otherwise be expected to result from a decline in
interest rates, may tend to be limited by any increased prepayments by
mortgagors as interest rates decline. In addition, prepayments on
mortgage-backed Securities purchased at a premium over par will result in some
loss on investment while prepayments on mortgage-backed Securities purchased at
a discount from par will result in some gain on investment. The Sponsors cannot
predict future economic policies or their consequences or, therefore, the course
or extent of interest rate fluctuations in the future.
Special Features of Market Premium Securities. Certain of the Securities
in the Fund may have been valued at a market premium (see Premium and Discount
Issues in Part A of the Prospectus). Securities trade at a premium because the
interest rates on the Securities are higher than interest on comparable debt
securities being issued at currently prevailing interest rates. If currently
prevailing interest rates for newly issued and otherwise comparable securities
increase, the market premium of previously issued securities will decline and if
currently prevailing interest rates for newly issued comparable securities
decline, the market premium of previously issued securities will increase, other
things being equal. The current returns of securities trading at a market
-18-
<PAGE>
premium are higher than the current returns of comparably rated debt securities
of a similar type issued at currently prevailing interest rates because premium
securities tend to decrease in market value as they approach maturity when the
face amount becomes payable. Because part of the purchase price is thus returned
not at maturity but through current income payments, early redemption of a
premium security at par or early prepayments of principal will result in a
reduction in yield. Prepayments of principal on securities purchased at a market
premium are more likely than prepayments on securities purchased at par or at a
market discount and the level of prepayments will generally increase if interest
rates decline (see Life of the Securities and of the Fund above). Market premium
attributable to interest rate changes does not indicate market confidence in the
issue.
Special Features of Market Discount Securities. Certain of the Securities
in the Fund may have been valued at a market discount (see Premium and Discount
Issues in Portfolio under Investment Summary). Securities trade at less than par
value because the interest coupons on these Securities are at lower rates than
interest coupons of comparable debt securities being issued at currently
prevailing interest rates. The current returns of securities trading at a market
discount are lower than the current returns of comparable rated debt securities
of a similar type issued at currently prevailing interest rates. However,
prepayments of principal on securities purchased at a discount will result in an
increase in yield. If currently prevailing interest rates for newly issued and
otherwise comparable securities increase, the market discount of previously
issued securities will become deeper and if currently prevailing interest rates
for newly issued comparable securities decline, the market discount of
previously issued securities will be reduced, other things being equal.
Investors should also note that the value of mortgage-backed Securities
purchased at a market discount will increase in value faster than those
purchased at a market premium if interest rates decrease. Conversely, if
interest rates increase, the value of mortgage-backed Securities purchased at a
market discount will decrease faster than those purchased at a premium. In
addition, if interest rates rise, the prepayment risk of higher yielding,
premium mortgage-backed Securities and the prepayment benefit for lower
yielding, discount mortgage-backed Securities will be reduced. Market discount
attributable to interest rate changes does not indicate a lack of market
confidence in the issue.
-19-
<PAGE>
PUBLIC OFFERING PRICE
GNMA Series and Freddie Mac Series
There is a period of a few days, beginning on the first day of each month,
during which the total amount of payments (including prepayments, if any) of
principal for the preceding month on the various mortgages underlying each of
the Securities in the Portfolio will not yet have been reported by the issuer to
the agency and made generally available to the public. During this period, the
precise principal amount of the underlying mortgages remaining outstanding for
each Security in the Portfolio, and therefore the precise principal amount of
such Security, will not be known, although the precise principal amount
outstanding for the preceding month will be known. Therefore, the precise amount
of principal to be acquired by the Trustee as a holder of these Securities and
distributed to investors with the next monthly distribution will not be known.
The Sponsors do not expect that the amounts of these prepayments and the
differences in principal amounts from month to month will be material in
relation to the Trusts due to the number of mortgages underlying each Security
and the number of these Securities in a Fund. However, there can be no assurance
that they will not be material. For purposes of the determination by the
Evaluator and for purposes of calculations of accrued interest on the Units
during the period in each month prior to the time when the precise amounts of
principal of the Security for the month become publicly available the Evaluator
will base its evaluations and calculations, which are the basis for calculations
of the Public Offering Price, the Sponsors' Repurchase Price and the Redemption
Price per Unit, upon the principal amount outstanding for the preceding month.
The Sponsors expect that the differences in these principal amounts from month
to month will not be material to the Fund. Nevertheless, the Sponsors will adopt
procedures as to pricing and evaluation for Units with such modifications, if
any, deemed necessary by the Sponsors for the protection of the investors, upon
notice to the investors, designed to minimize the impact of these differences
upon the calculation of the Public Offering Price per unit, the Repurchase Price
per Unit in the secondary market or the Redemption Price per Unit.
-20-
<PAGE>
REDEMPTION
U.S. Treasury Series Only
The Trustee will effect all redemptions in kind provided that an investor
is tendering at least $50,000 ($100,000 for U.S. Treasury Series 7-Laddered Zero
Coupons) of Units, except that the investor's pro rata portion of the cash
balance in the Fund will be paid in cash. Thus, on the seventh calendar day
following the tender (or if the seventh calendar day is not a business day, on
the first business day prior thereto), the investor will be entitled to receive
in kind an amount and value of Securities per Unit equal to the Redemption Price
per Unit as determined as of the Evaluation Time next following the tender,
except that if the Sponsors are maintaining a secondary market for Units at a
price which will return to the investor an amount in cash, net after deducting
any commissions or expense, equal to or in excess of the Redemption Price per
Unit, the Trustee will deliver tendered Units for sale to the Sponsors. The
Trustee will then pay the net proceeds of the sale to the investor on the day
the investor would otherwise be entitled to receive the redemption distribution.
The value of Securities received upon redemption and the proceeds received by
the Distribution Agent for the account of the redeeming investor may be more or
less than the amount paid by the investor depending on the value of the
Securities in the Fund at the time of redemption. In an in kind redemption the
investor will receive his pro rata portion of the principal amount of the
Portfolio and the net cash in the Fund.
Distributions in kind on redemption of Units shall be held by the Trustee
as Distribution Agent for the account, and for disposition in accordance with
the instructions of the tendering investor, as follows:
(a) If the tendering investor requests cash payment, the Distribution
Agent shall sell the Securities distributed as of the close of business on the
date of tender and remit to the investor not later than seven calendar days
thereafter the net proceeds of sale after deducting brokerage commissions and
transfer taxes, if any, on the sale.
(b) If the tendering investor requests distribution in kind, the
Distribution Agent shall sell any portion of the Securities distributed
represented by fractional interest in accordance with the foregoing and
distribute net cash proceeds to the tendering investor together with whole
Securities received on the in kind distribution.
-21-
<PAGE>
To the extent that the securities are redeemed in kind, the size of the
Fund will be reduced but each remaining Unit will continue to represent the
identical principal amount of Securities with specified interest rates,
maturities and call provisions, if any.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 20,933,997
<INVESTMENTS-AT-VALUE> 20,868,567
<RECEIVABLES> 130,739
<ASSETS-OTHER> 1,326
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,000,632
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,700
<TOTAL-LIABILITIES> 3,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,934,238
<SHARES-COMMON-STOCK> 45,313,378
<SHARES-COMMON-PRIOR> 46,862,115
<ACCUMULATED-NII-CURRENT> 128,124
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (65,430)
<NET-ASSETS> 20,996,932
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,733,817
<OTHER-INCOME> 0
<EXPENSES-NET> 35,022
<NET-INVESTMENT-INCOME> 1,698,795
<REALIZED-GAINS-CURRENT> (109,727)
<APPREC-INCREASE-CURRENT> 686,188
<NET-CHANGE-FROM-OPS> 2,275,256
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,721,745
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 3,488,327
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 1,548,737
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,719,587)
<ACCUMULATED-NII-PRIOR> 155,129
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
May 8, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We hereby represent that the Post-Effective Amendments to the registered
unit investment trusts described in Exhibit A attached hereto do not contain
disclosures which would render them ineligible to become effective pursuant to
Rule 485(b) under the Securities Act of 1933.
Very truly yours,
Davis Polk & Wardwell
Attachment
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
1933 ACT 1940 ACT
FUND NAME CIK FILE NO. FILE NO.
- --------- --- -------- --------
<S> <C> <C> <C>
DEFINED ASSET FUNDS-MITF AMT MPS-2 858458 33-32654 811-1777
DEFINED ASSET FUNDS-MUNICIPAL INSURED SERIES 2 939797 33-57883 811-2537
DEFINED ASSET FUNDS-EIF UCSS-1 313358 2-65189 811-3044
DEFINED ASSET FUNDS-EIF UCSS-2 317329 2-68016 811-3044
DEFINED ASSET FUNDS-MUNICIPAL FLIS-2 933617 33-56819 811-1777
DEFINED ASSET FUNDS-GSIF FMS 10 797783 33-46142 811-2810
DEFINED ASSET FUNDS-GSIF FMS 11 893019 33-49355 811-2810
DEFINED ASSET FUNDS-GSIF FMS 12 893020 33-56849 811-2810
DEFINED ASSET FUNDS- MPUSTS-18 DAF 893112 33-52583 811-2810
DEFINED ASSET FUNDS-EIF Income Growth Fund 1993 854569 33-46272 811-3044
DEFINED ASSET FUNDS- ITS-226 DAF 910372 33-49501 881-1777
DEFINED ASSET FUNDS- ITS-227 DAF 910373 33-52181 881-1777
DEFINED ASSET FUNDS- ITS-249 DAF 924341 33-57439 811-1777
DEFINED ASSET FUNDS-MITF MSS 29 895616 33-49345 811-1777
DEFINED ASSET FUNDS-MITF MSS 5J 836074 33-25827 811-1777
DEFINED ASSET FUNDS-MITF MSS 6R 847182 33-32760 811-1777
DEFINED ASSET FUNDS-MITF MSS 8J 868141 33-38783 811-1777
DEFINED ASSET FUNDS-MITF MSS 8K 868142 33-39054 811-1777
DEFINED ASSET FUNDS-MITF MSS 8L 868154 33-39157 811-1777
DEFINED ASSET FUNDS-MITF MSS 9W 881821 33-45207 811-1777
DEFINED ASSET FUNDS-MITF NYITS-1 782092 33-31725 811-1777
TOTAL: 21 FUNDS
</TABLE>
