<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1997
REGISTRATION NO. 33-26716
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 8
TO
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
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A. EXACT NAME OF TRUST:
DEFINED ASSET FUNDS--
GOVERNMENT SECURITIES INCOME FUND
U.S. GOVERNMENT ZERO COUPON BOND SERIES 3
(A UNIT INVESTMENT TRUST)
B. NAMES OF DEPOSITORS:
MERRILL LYNCH, PIERCE, FENNER & SMITH 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
D. NAMES AND COMPLETE ADDRESSES OF AGENTS FOR SERVICE:
TERESA KONCICK, ESQ.
P.O. BOX 9051
PRINCETON, N.J.
08543-9051 COPIES TO:
PIERRE DE SAINT PHALLE,
ESQ.
450 LEXINGTON AVENUE
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 13, 1997.
Check box if it is proposed that this filing will become effective on July 18,
1997 pursuant to paragraph (b) of Rule 485. / x /
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<PAGE>
DEFINED
ASSET FUNDSSM
GOVERNMENT SECURITIES
INCOME FUND
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U.S. GOVERNMENT
ZERO COUPON BOND
SERIES 3
(A UNIT INVESTMENT TRUST)
PROSPECTUS
DATED JULY 18, 1997
SPONSOR:
Merrill Lynch,
Pierce, Fenner & Smith Incorporated
This Series (the 'Fund') was formed to provide safety of capital and a high
yield to maturity through investment in fixed portfolios consisting primarily of
stripped debt obligations of the United States of America ('Stripped Treasury
Securities'). There is no assurance that these objectives will be met if Units
are sold before the underlying Securities mature because market prices of the
Securities before maturity and therefore the value of the Units will vary with
changes in interest rates and other factors. Stripped Treasury Securities do not
make any periodic payments of interest prior to maturity; accordingly, each
Trust's portfolio as a whole is priced at a deep discount from face amount and
Unit prices may be subject to greater fluctuations in response to changing
interest rates than a fund consisting of debt obligations of comparable
maturities that pay interest currently. This risk is greater when the period to
maturity is longer. See Risk Factors. The Fund consists of the 1999 and 2009
Trusts, each a separate unit investment trust ('Trust'), designated by the year
in which its Stripped Treasury Securities mature. Each Trust also contains an
interest-bearing Treasury security (the 'Treasury Note') to provide income to
pay the expenses of the Trust and the Sponsor's administrative fee.
Units of interest ('Units') in the Trusts will be sold only to employee benefit
plans (the 'Plans') as an investment alternative for Plan allocations to help
participants meet their personal retirement needs and goals. The choice of
maturities is offered to enable Plan allocations to be tailored to participants'
retirement planning objectives and financial requirements. Each Plan will invest
in Units of the Trusts in accordance with allocation instructions received from
employees pursuant to the Plan. Accordingly, the interest of an employee in the
Units is subject to the terms of the Plan. The rights of a Plan as a Holder of
Units should be distinguished from the rights of an employee. The term 'Holder'
in this Prospectus shall refer to the Plans, to the Sponsor if it holds Units
(see Market for Units) and to any employee who holds Units distributed from a
Plan.
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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
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Read and retain this Prospectus for future reference.
<PAGE>
DEFINED ASSET FUNDSSM is America's oldest and largest family of unit investment
trusts, with over $115 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.
With Defined Asset Funds you know in advance what you are investing in and that
changes in the portfolio are limited. Most defined bond funds pay interest
monthly and repay principal as bonds are called, redeemed, sold or as they
mature. Defined equity funds offer preselected stock portfolios with defined
termination dates.
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. Defined Asset Funds are available in the
following types of securities: municipal bonds, corporate bonds, government
bonds, utility stocks, growth stocks, even international securities denominated
in foreign currencies.
Termination dates are as short as one year or as long as 30 years. Special
defined funds are available for investors seeking extra features: insured funds,
double and triple tax-free funds, and funds with 'laddered maturities' to help
protect against rising interest rates. Defined Asset Funds are offered by
prospectus only.
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CONTENTS
Investment Summary.......................................... 3
Fund Structure.............................................. 6
Risk Factors................................................ 6
Description of the Fund..................................... 7
Taxes....................................................... 9
Sale of Units............................................... 10
Market for Units............................................ 11
Redemption.................................................. 11
Expenses and Charges........................................ 13
Administration of the Fund.................................. 13
Resignation, Removal and Limitations on Liability........... 15
Miscellaneous............................................... 16
Accountants' Opinion Relating to the Fund................... D-1
Statements of Condition..................................... D-2
Portfolios.................................................. D-8
2
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INVESTMENT SUMMARY AS OF MARCH 31, 1997 THE EVALUATION DATE+
This Series consists of separate unit investment trusts, each designated for
the maturity of its underlying Securities (see Portfolios).
1999 2009
TRUST TRUST
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FACE AMOUNT OF SECURITIES..............$ 50,780,689 $ 138,304,698
NUMBER OF UNITS........................ 507,233.904 1,377,963.324
FACE AMOUNT OF SECURITIES PER UNIT.....$ 100.113 $ 100.369
FRACTIONAL UNDIVIDED INTEREST IN FUNDth
REPRESENTED BY EACH UNIT............... 1/507,233.904th 1/1,377,963.324
OFFER PRICE PER UNIT
Net Assets of Trust*...............$ 43,093,108 $ 60,067,989
Divided by Number of Units.........$ 84.957 $ 43.592
Plus Adjustment Factor**........... 0.127 0.131
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Total++............................ 85.084 43.123
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REDEMPTION PRICE PER UNIT
(net of Adjustment Factor**)++.......$ 84.830 $ 43.461
REDEMPTION PRICE PER UNIT LESS
THAN OFFER PRICE BY..................$ 0.254 $ 0.262
CALCULATION OF ESTIMATED NET ANNUAL
CASH INTEREST INCOME PER 1,000 FACE
AMOUNT
Gross annual cash income........... 1.81 1.38
Less estimated annual expenses..... 0.70 0.64
Less annual Sponsor's
administrative fee***................ 1.11 0.74
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Estimated net annual cash income...$ 0.00 $ 0.00
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ESTIMATED YIELD TO MATURITY (based on
Price per Unit)........................ 6.258% 6.943%
ESTIMATED MAXIMUM DOLLAR AMOUNT PER 10
UNITS PAYABLE ON ACCOUNT OF SPONSOR'S
ADMINISTRATIVE FEE****...............$ 2.91 $ 8.97
INCOME ACCOUNT DISTRIBUTIONS
Although no periodic distributions
of income should be expected, the
Sponsor may direct the Trustee to
distribute any accumulated net
interest income on the business day
in June or December of any year
which immediately precedes the
investment date in that month for
Merrill Lynch's Savings &
Investment Plan ('SIP'), as defined
in the benefits handbook, to
Holders of record at the close of
business on the third day prior to
that distribution date.
CAPITAL ACCOUNT DISTRIBUTIONS
Distributions from the Capital
Account will be made on the first
business day following the maturity
of the Stripped Treasury Securities
in a Trust to holders of record on
the business day immediately
preceding the date of the
distribution.
TRUSTEE'S ANNUAL FEE AND EXPENSES*****
Per 10 Units (see Expenses and
Charges)...........................$ 0.70 $ 0.64
EVALUATOR'S FEE FOR EACH EVALUATION
Minimum of $5.00 plus $0.25 for
each issue of underlying Securities
in excess of 50 issues, treating
separate maturities as separate
issues (see Expenses and Charges).
EVALUATION TIME
3:30 P.M. New York Time
MANDATORY TERMINATION DATE
Each Trust must be terminated no
later than one year after the
maturity date of the last maturing
Security in that Trust listed under
Portfolio (see Portfolio).
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+ The Indenture was signed and the initial deposit was made as of
February 2, 1989.
++ Plus any net cash.
+++ During the last 12 months of the 1999 Trust, and for up to 60 months
in the 2009 Trust in the event the Treasury Note is called at its earliest call
date, the Trustee's Annual Fee and Expenses will be reduced, and the estimated
net annual income per Unit should remain the same (see Expenses and
Charges--Fees).
* The net assets of the Trust represent the aggregate value of Securities
(including amortization of discount) plus other assets less accrued liabilities,
determined as described under Redemption--Computation of Redemption Price per
Unit.
** The net asset value per Unit is adjusted by adding to the Offer Price
and subtracting from the Redemption Price, an amount (the 'Adjustment Factor'),
currently .0015 times the net assets per Unit for the 1999 Trust and .003 for
the 2009 Trust. See Sale of Units--Unit Offer Price.
***There is no sales charge on purchases of Units. Income on the Units
will be subject to a Sponsor's administrative fee accrued at the annual rate
shown. This fee will be calculated on a daily basis and will accrue from the
settlement date for Units purchased on the Initial Date of Deposit. This fee
will be deducted from interest income on the U.S. Treasury Notes semi-annually
(see Expenses and Charges). For Units that are tendered for redemption, a pro
rata portion of the accrued administrative fee will be deducted at the time of
redemption (see Redemption). See the chart at the end of this Investment Summary
for the percentage which the present value of the Sponsor's administrative fee
represents at various intervals of the Price per 10 Units.
**** This amount assumes that each Holder holds his Units until termination
of the Trust. This amount may differ from actual payments on account of the
Sponsor's administrative fee as a result of the length of time a Holder holds
his Units and other factors.
***** Of this amount, the Trustee receives annually for its services as
Trustee, $0.50 per 10 Units, payable in semi-annual installments.
3
<PAGE>
INVESTMENT SUMMARY AS OF MARCH 31, 1997 THE EVALUATION DATE
TRUST PORTFOLIOS (SEE PORTFOLIOS)
SECURITIES--Each Trust consists primarily of issues of Stripped Treasury
Securities purchased at a deep discount. The Securities are not rated but, in
the opinion of the Sponsor, have credit characteristics comparable to those of
Securities rated 'AAA' by nationally recognized rating agencies. Each Trust also
contains one interest-bearing Treasury Security (the 'Treasury Note') deposited
in order to provide cash income with which to pay the expenses, including the
Sponsor's administrative fee, of the Trust.
RISK FACTORS--An investment in Units of a Trust should be made with an
understanding of the risks which an investment in debt obligations, most of
which were purchased at a deep discount, may entail, including the risk that the
value of a Trust and hence of the Units will decline with increases in interest
rates. The market value of Stripped Treasury Securities, and therefore the value
of the Units, may be subject to greater fluctuations in response to changing
interest rates than debt obligations of comparable maturities which pay interest
currently. The risk is greater when the period to maturity is longer. (See pages
6-7.) For each 10 Units of a Trust purchased, a Holder will receive total
distributions of approximately $1,000 for Units held until maturity of the
underlying Securities of that Trust. Furthermore, the price per Unit will vary
in accordance with fluctuations in the values of the Securities and the
distributions could change if the Securities are paid or sold, or if the
expenses or Sponsor's administrative fee of the Trust change. For a discussion
of the economic differences between the Trusts and a fund consisting of
customary securities, see Description of the Fund--Income and Estimated Yield to
Maturity.
Additional Units may be offered subsequent to the Initial Date of Deposit,
which may have an effect upon the value of previously existing Units. Additional
Units may be created by depositing Securities (or contracts to purchase
Securities accompanied by cash, or a bank letter of credit in an amount
sufficient to complete the contracts) or cash (or a bank letter of credit) to
purchase additional Securities, in each instance maintaining precisely the
original proportionate relationship between the face amounts of Stripped
Treasury Securities and the Treasury Notes of identical maturities. If cash (or
a letter of credit) is deposited to purchase Securities, the value of existing
Units will change to the extent the price of a Security increases or decreases
between the time of deposit and the time the Security is purchased. See Fund
Structure. The Adjustment Factor, which is added to the Offer Price and
subtracted from the Redemption Price, is intended to cover the costs of
acquiring and disposing of securities so that they are not borne by the Trust.
See Sale of Units--Unit Offer Price.
ML PLANS--Units may be purchased by or with respect to certain employee
benefit plans established for employees of Merrill Lynch & Co., Inc. and its
affiliates ('ML Plans'). A ML Plan may buy Units only directly from the Trustee
and may realize the value of Units only by tendering them for redemption. See
FUND STRUCTURE--ML Plans.
DISTRIBUTIONS--There will be no payments of interest on the Securities other
than on the Treasury Note in each Trust, which will be used to pay the expenses
of and Sponsor's administrative fee on the Trust. Consequently, no distributions
of interest income should be expected; however, the Sponsor may direct the
Trustee to distribute any accumulated net interest income to Holders of a Trust
in June or December of any year (see 'Income Account Distributions' on page 3).
Nevertheless, the gross interest income on all Securities in the Trust is
taxable to Holders. Each Stripped Treasury Security will be treated for Federal
income tax purposes as having 'original issue discount,' which must be amortized
over the term of the Stripped Treasury Security and included in a Holder's
ordinary gross income before the Holder receives the cash attributable to that
income. These tax consequences would apply to an employee only if he becomes a
Holder by taking Units upon terminating participation in the Plan. See Taxes.
The final distribution will be made in cash following the maturity of the
Stripped Treasury Securities in the Trust, and may include any amount received
upon the sale of Securities to meet redemptions of Units which exceeds the
amount necessary to meet those redemptions and any accumulated net interest
income. Principal from maturity of the Treasury Note will not be distributed
until disposition of the Stripped Treasury Security in the Trust. See
Administration of the Fund--Accounts and Distributions.
ESTIMATED YIELD TO MATURITY ON UNITS--The yield to maturity on the Units of
each Trust is the annual percentage return to the investor based on amortization
of discount, compounded semi-annually, divided by the Offer Price per Unit. It
is assumed that interest income will equal expenses and other deductions. The
value of the Units will fluctuate with the value of the portfolio of underlying
Securities. The yield to maturity will change with changes in the price per Unit
(including the Adjustment Factor) and any change in the Trust's expenses or the
Sponsor's administrative fee.
UNIT PRICE--The price of the Units is based on the net asset value per Unit,
determined as described under Redemption--Computation of Redemption Price per
Unit. The Adjustment Factor, at current rates described under Sale of
Units--Unit Offer Price, is added in computing the Offer Price of Units and
deducted in computing the Redemption Price or sale price. Units are subject to a
Sponsor's administrative fee calculated on a daily basis at the annual rate of
$1.11 per 10 Units of the 1999 Trust; and $.74 per 10 Units of the 2009 Trust.
The following chart states these administrative fees as percentages of the
prices at various intervals. It is assumed that Trust expenses and the accrued
Sponsor's administrative fee will exactly offset any accrued interest. There is
no minimum purchase.
4
<PAGE>
INVESTMENT SUMMARY AS OF MARCH 31, 1997 THE EVALUATION DATE
PRESENT VALUE OF SPONSOR'S ADMINISTRATIVE FEE AS
PERCENT OF PRICE PER 10 UNITS AT SELECTED INTERVALS*
<TABLE><CAPTION>
PRICE PER
$10
UNITS AS
OF
MARCH 31,
1997,
THE
EVALUATION
$25 LESS DATE $25 MORE $50 MORE $100 MORE
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1999 TRUST Public Offering Price $ 825.84 $ 850.84 $ 875.84 $ 900.84 $ 950.84
2.56 2.61 2.66 2.77 2.81
Present value of Sponsor's
administrative fee
0.31% 0.31% 0.30% 0.30% 0.30%
Sponsor's Fee
2009 TRUST Public Offering Price $ 412.23 $ 437.23 $ 462.23 $ 487.23 $ 537.23
5.78 5.93 6.09 6.24 6.54
Present value of Sponsor's
administrative fee
1.40% 1.36% 1.32% 1.28% 1.22%
Sponsor's Fee
</TABLE>
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* These represent the maximum fees and figures assume that Units are
purchased on the Evaluation Date and are held until maturity of the Trust.
Purchase after the Evaluation Date or sale before maturity will result in lesser
deductions and therefore a lesser rate of administrative fee. The present value
is computed at the same interest rate as the estimated yield to maturity at each
purchase price.
MARKET FOR UNITS--The Sponsor, though not obligated to do so, intends to
maintain a market for Units at the Redemption Price per Unit. See Page 12. If
that market is not maintained, a Holder will be able to dispose of Units through
redemption at prices computed on the same basis. See Redemption. Market
conditions and the Adjustment Factor may cause the prices available in the
market maintained by the Sponsor or upon exercise of redemption rights to be
more or less than the amount paid for Units. The market prices of Stripped
Treasury Securities, and hence of the Units, are subject to greater fluctuations
than the prices of securities making current payments of interest.
5
<PAGE>
FUND STRUCTURE
This Series (the 'Fund') consists of a number of separate unit investment
trusts (each a 'Trust') created under New York law by one Trust indenture (the
'Indenture') among the Sponsor, the Trustee and the Evaluator. To the extent
that references in the Prospectus are to articles and sections of the Indenture,
which are hereby incorporated by reference, the statements made herein are
qualified in their entirety by this reference. The record holders ('Holders') of
Units of interest ('Units') in a Trust will have the right to have their Units
redeemed (see Redemption) if the Units cannot be sold in the market which the
Sponsor intends to maintain (see Market for Units). Redemption will be made in
securities ('in kind') or in cash at the option of the Holder.
With the initial deposit in each Trust, a proportionate relationship was
established between the face amounts of Stripped Treasury Securities and the
Treasury Note therein. Additional Units may be issued on deposit of additional
Securities by the Sponsor or on deposit of cash (or a bank letter of credit) to
purchase Securities. In either case, the additional Securities will have
maturities identical to those in the Trust and maintain precisely the original
proportionate relationship among the face amounts of each type of Security.
Units will to the extent practicable continue to represent the identical face
amount of each Security. However, it may not be practicable to maintain this
identical face amount per Unit because of, among other reasons, changes in
prices. Units in the Trusts may be continuously offered for sale by means of
this Prospectus (see Sale of Units--Distribution), resulting in a potential
increase in the number of outstanding Units of each Trust (see Selection and
Acquisition of Securities).
As used herein, 'Securities' includes the Stripped Treasury Securities and
interest-bearing Treasury Note deposited in the Trusts and described under
Portfolios and any additional Treasury Securities deposited thereafter or
contracts for the purchase thereof together with an irrevocable letter or
letters of credit sufficient to perform such contracts. As used herein, the term
'Units,' unless the context otherwise indicates, means the units of interest in
all Trusts of the Fund.
ML PLANS
As the Sponsor is a 'party in interest' with respect to certain ML Plans,
it is prohibited by ERISA from selling Units to or buying them from these Plans.
Accordingly, these ML Plans will purchase Units directly from the Trustee and
may only tender Units to the Trustee for redemption. The Sponsor is also
prohibited from acting as dealer, and from charging for its services as broker,
for the Trust in acquiring Securities with monies paid for Units, and in selling
Securities to pay redemptions of Units, by ML Plans. In addition, ERISA
prohibits the Sponsor from receiving compensation or other consideration except
for reimbursement of its direct expenses. Therefore, the proceeds of the
Sponsor's administrative fee paid by any ML Plan will be used to reimburse the
Sponsor for these expenses, and the Sponsor will not collect the administrative
fee on Units held by ML Plans at any time when it has no unreimbursed expenses.
RISK FACTORS
An investment in Units should be made with an understanding of the risks
which an investment in deep discount debt obligations may entail, including the
risk that the value of the Trust's portfolio (the 'Portfolio') and hence of the
Units will decline with increases in interest rates. High inflation and
recession, together with the fiscal and monetary measures adopted to attempt to
deal with those and other economic problems, have contributed to recent wide
fluctuations in interest rates and thus in the value of fixed-rate debt
obligations generally. The Sponsor cannot predict future economic policies or
their consequences or, therefore, the course or extent of any similar
fluctuations in the future. Furthermore, a Holder (but not employees before they
terminate Plan participation--see Taxes) will have significant amounts of
taxable income attributable to it before the receipt of the cash attributable to
that income.
SPECIAL CHARACTERISTICS OF STRIPPED TREASURY SECURITIES
Stripped Treasury Securities are sold at a deep discount from their face
amounts payable at maturity 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 that are economically identical to the
'zero-coupon bonds' that have been issued by corporations. Zero coupon bonds are
debt obligations which do not make any periodic payments of interest prior to
maturity and accordingly are issued at a deep discount. Accordingly, the Trusts
are not a suitable investment to persons seeking current cash distributions.
6
<PAGE>
Because interest on 'zero coupon' debt 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 than on obligations
which distribute income regularly. 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.
Stripped Treasury Securities held by any Trust shall consist solely of
registered U.S. Treasury debt obligations which may be held through the Federal
Reserve Bank's book entry system called 'Separate Trading of Registered Interest
and Principal of Securities' ('STRIPS'). STRIPS, while direct obligations of the
United States and issued under programs introduced by the U.S. Treasury, are not
issued directly by the U.S. government. The STRIPS program facilitates secondary
market stripping of selected Treasury notes and bonds into individual principal
and interest components by purchasers with access to a book-entry account at a
Federal Reserve bank. Those obligations may be maintained in the book-entry
system operated by the Federal Reserve in a manner that permits separate trading
and ownership of interest and principal payments. The Federal Reserve does not
charge a fee for this service, but book-entry transfers of interest and
principal components are subject to the same fee schedule generally applicable
to transfers of Treasury securities. The Stripped Treasury Securities are
payable in full at maturity at their stated maturity amount, and are not subject
to redemption prior to maturity. In addition, the Stripped Treasury Securities
do not make any periodic payments of interest.
Sales of Units in California may be made only to persons which 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
deemed original issue discount, prior to receipt of the cash attributable to
that income. However, a qualified retirement plan is not taxed on income.
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 periods and a correspondingly larger amount in
later 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).
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio of each Trust consists of different issues of Stripped
Treasury Securities, with fixed maturity dates and not having any equity or
conversion features, that do not pay interest before maturity and as such were
purchased at a deep discount (see above) and of the Treasury Note deposited in
order to provide cash income with which to pay the expenses of the Trust and the
Sponsor's administrative fee.
SELECTION AND ACQUISITION OF SECURITIES
In selecting Securities for deposit in a Trust, the following factors,
among others, were considered by the Unit Investment Trusts of Merrill Lynch,
Pierce, Fenner & Smith Incorporated: (i) the types of securities available; (ii)
the prices of those securities relative to other comparable securities; (iii)
the extent to which those securities trade at a discount from par once the
interest coupons are stripped; (iv) the yield to maturity of those securities;
and (v) the maturities of those securities.
The yield to maturity and discount from par on securities of the type
deposited in the Trusts are dependent on a variety of factors, including general
money market conditions, general conditions of the bond market, prevailing
interest rates and the maturities of the securities.
Each Trust consists of the Securities (or contracts to purchase the
Securities) listed under Portfolios and any additional Securities acquired
pursuant to the terms of the Indenture (including provisions with respect to
deposit
7
<PAGE>
of Securities in connection with the sale of additional Units) as long as they
may continue to be held from time to time in the Trust together with accrued and
undistributed interest on any interest-bearing securities deposited in order to
pay the expenses of the Trust and the Sponsor's administrative fee,
undistributed cash representing payments of principal and cash realized from the
disposition of Securities.
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Securities. In the event of a failure
to deliver any Security that has been purchased for a Trust under a contract
('Failed Security'), the Sponsor is authorized under the Indenture to direct the
Trustee to acquire substitute securities ('Replacement Securities') to make up
the portfolio of the Trust. Replacement Securities for Securities initially
deposited must be deposited into the Trust within 110 days after the Initial
Date of Deposit; Replacement Securities for Securities deposited thereafter must
be deposited within 20 days after delivery of notice of the Failed Security; the
purchase price may not exceed the amount of funds reserved for the purchase of
the Failed Security. The Replacement Securities must be Securities issued by the
U.S. Treasury, that (i) make no periodic payments of interest (or, in the case
of an interest-bearing Treasury Note used to pay expenses, are of the same
issue), (ii) have a fixed maturity identical to that of the Failed Security,
(iii) are purchased at a price that results in a yield to maturity as of the
date of deposit of the Failed Security which is equivalent (taking into
consideration then-current market conditions) to the yield to maturity of the
Failed Security and (iv) are not when, as and if issued obligations. If this
right of substitution is not utilized to acquire Replacement Securities in the
event of a failed contract, the Sponsor will cause to be refunded any
attributable sales charge plus the attributable Cost of Securities to Trust,
plus accrued interest and amortization attributable to the relevant Security.
Because certain of the Securities from time to time may be sold under
certain circumstances described herein, each Trust is not expected to retain its
present size and composition (see Redemption). The Indenture also authorizes the
increase of the size and number of Units of any Trust by the deposit of
additional Securities or cash and the issue of a corresponding number of
additional Units, provided that the maturity of any additional Securities so
acquired is identical to the maturity of the Securities initially deposited in
the Trust.
THE UNITS
On the date of the Investment Summary of each Trust each Unit represented
the fractional undivided interest in the Securities held in the Trust and net
income of the Trust set forth under Investment Summary. Thereafter, if Units of
any Trust are redeemed the face amount of Securities in that Trust will be
reduced by amounts allocable to redeemed Units, and the fractional undivided
interest represented by each remaining Unit in the balance will be increased.
However, if additional Units are issued by any Trust, the aggregate face amount
of Securities in the Trust will be increased by amounts allocable to the
additional Units, and the fractional undivided interest represented by each Unit
in the balance of the Trust will be decreased. Units will remain outstanding
until redeemed upon tender to the Trustee by a Holder (which may include the
Sponsor) or until the termination of the Indenture (see Redemption and
Administration of the Fund--Amendment and Termination).
INCOME AND ESTIMATED YIELD TO MATURITY
The estimated yield to maturity per Unit of each Trust is the annual
percentage return to the investor based on amortization of discount, compounded
semi-annually, divided by the Unit Offer Price. It is assumed that interest
income on the Treasury Note will equal expenses and other deductions. If the
price of the Units is less than stated in the Investment Summary, the yield to
maturity will be greater, if the price is greater (other than additional accrued
original discount), the yield to maturity will be less.
The economic effect of purchasing Units of a Trust is that the investor who
holds his Units until maturity of the underlying Securities should receive
approximately a fixed yield, not only on his original investment but on all
earned discount during the life of the Securities. 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 the Trusts from funds
consisting 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 a fund comprised of customary securities, virtually eliminates
his risk of being unable to invest distributions at a rate as high as the yield
on his Trust, but will forego the ability to reinvest at higher rates in the
future.
The price per Unit of each Trust will vary in accordance with fluctuations
in the prices of the Securities held by the Trust. Changes in the Offer and
Redemption Price per Unit or in a Trust's expenses will result in changes in the
yields to maturity.
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TAXES
While Units are held by a Plan, neither it nor any participating employee
will be taxable on income from the Trust. An employee who elects to receive his
pro rata portion of Units held by a Plan that is qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the 'Code') when he terminates
participation in such Plan and does not roll over those Units to an eligible
retirement plan as described in Section 402(c) of the Code, will be taxable
under rules applicable to qualified plan distributions as described in Section
402 of the Code. Thereafter, the employee will be taxable as a Holder as
described below.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsor,
under existing law:
Each Trust is not an association taxable as a corporation for Federal
income tax purposes, and income received by the Trust will be treated as
the income of the Holders of the Trust in the manner set forth below.
Each Holder will be considered the owner of a pro rata portion of each
Security in its Trust under the grantor trust rules of Sections 671-679 of
the Code. The total cost to a Holder for its Units (i.e., for an individual
Holder, the fair market value of his Units on the date the Plan distributes
them to him) is allocated among the Holder's pro rata portion of each
Security in its Trust (in proportion to the fair market values thereof on
that date) in order to determine its tax cost for the pro rata portion of
each Security. A Holder will be entitled to add to its tax cost of its pro
rata portion of each Security that portion of the administrative fee which
is not characterized as imputed interest (see below).
Each Trust consists primarily of Stripped Treasury Securities. A Holder
is required to treat its pro rata portion of each Stripped Treasury
Security in its Trust as a bond that was originally issued on the date the
Holder purchased its Units (for an individual Holder, the date of
distribution) at an original issue discount equal to the excess of the
stated redemption price at maturity over the Holder's tax cost therefor as
discussed above, and to include annually in income a portion of such
original issue discount determined under a formula which takes into account
the compounding of interest. The amount of accrued original issue discount
so included in income in respect of a Holder's pro rata portion of a
Security is added to the Holder's tax basis therefor.
Each Holder will be considered to have received the income on its pro
rata portion of the Treasury Note in its Trust when interest on the Note is
received by its Trust. An individual Holder who itemizes deductions may
deduct his pro rata share of the fees and expenses of his Trust, but only
to the extent that this amount together with the Holder's other
miscellaneous deductions exceeds 2% of his adjusted gross income.
Except with respect to Units held in a Plan, a Holder will recognize
taxable gain or loss when all or part of its pro rata portion of a Security
in its Trust is disposed of (by sale, exchange or redemption of the
Security or its Units) for an amount greater or less than its original tax
cost therefor, increased by the amount of original issue discount included
in the Holder's gross income as discussed above. This resulting gain or
loss generally will be capital gain or loss (except in the case of a dealer
or financial institution), and will be long-term if the Holder has held its
Units for more than one year. 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 non-corporate taxpayers. The deduction of
capital losses is subject to limitations.
Under the income tax laws of the State and City of New York, each Trust
is not an association taxable as a corporation and income received by the
Trust will be treated as income of the Holders.
Holders 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. Therefore, direct holding of Units may be
appropriate only for a tax-deferred account that will not be adversely
affected by the attribution of income in advance of the receipt of the cash
attributable to such income.
The foregoing discussion relates only to Federal and certain aspects of
New York income taxes. Depending on their state of residence, Holders may
be subject to state and local taxation and should consult their own tax
advisers in this regard.
* * *
After the end of each calendar year, the Trustee will furnish to each
Holder an income report, including the Holder's pro rata portion of the fees and
expenses paid by its Trust. In order to enable them to comply with Federal and
state tax reporting requirements, Holders will be furnished upon request to the
Trustee with
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evaluations of Securities furnished to it by the Evaluator (Section 4.02). The
Trustee will also furnish to each Holder and the Internal Revenue Service all
required information returns (including a return with respect to original issue
discount).
SALE OF UNITS
UNIT OFFER PRICE
Units may be purchased by a Plan at the Offer Price by means of this
Prospectus. The Offer Price per Unit of a Trust is computed as of the Evaluation
Time by adding the evaluation of the underlying Securities, as determined by the
Evaluator as described under Redemption--Computation of Redemption Price per
Unit, plus the Adjustment Factor, divided by the number of Units outstanding.
The Adjustment Factor is currently .0015 for the 1999 Trust and .003 for the
2009 Trust. The Adjustment Factor (as determined by the Sponsor) may be changed
for each calendar quarter but in no event will it exceed .007 for the 1999 Trust
or .0175 for the 2009 Trust. This factor is designed to cover the Trust's costs,
without profit, of buying and selling securities in connection with sales and
redemptions of Units, and is intended to ensure that the prices for purchases or
sales of Units more closely match the market value of the underlying Securities.
A proportionate share of any cash in the Capital Account not allocated to the
purchase of specific Securities is added. Because the income on the Treasury
Note is designed to exactly equal the Trust expenses, accrued interest on the
Note is not reflected in the offering, repurchase or redemption prices of Units.
In practice, as determined on an accrual basis by the auditors, accumulated
expenses have been slightly higher or lower than the interest on the Treasury
Notes. These differences are immaterial and may change over time. If there is an
expense deficit at termination of a Trust, either the Trustee will waive part of
its fee or the Sponsor will bear sufficient expenses to eliminate the deficit.
If a surplus remains at termination, the amount will be distributed to Holders.
The Offer Price per Unit of a Trust will vary after the Evaluation Date (set
forth under Investment Summary) in accordance with fluctuations in the
evaluations of the underlying Securities. Amortization of discount will have the
effect of increasing at any particular time the evaluation of the Securities.
No sales charge is payable when Units are purchased. Instead, Units are
subject to a Sponsor's administrative fee at the annual rates set forth under
Investment Summary. The percentage which their present values represent of the
Offer Price per Unit at various intervals is shown in the chart at the end of
the Investment Summary. If a Holder sells or redeems Units before the maturity
of a Trust, except for the Adjustment Factor only the administrative fees
accrued to the date of sale or redemption will be payable, and this will have
the effect of reducing the rate of administrative fees. Similarly, if Units are
purchased after the Evaluation Date, the purchaser will not pay fees previously
accrued and this will also have the effect of reducing the rate of
administrative fees.
Evaluations of the Securities are determined by the Evaluator taking into
account the same factors referred to under Redemption--Computation of Redemption
Price per Unit. The determinations are made on each business day, effective for
all sales made since the last of these evaluations (Section 4.01). The term
'business day', as used herein and under 'Redemption', shall exclude Saturdays,
Sundays and the following holidays as observed by the New York Stock Exchange:
New Year's Day, Washington's birthday, 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.
Because of fluctuations in the market prices of these Securities and the
fact that the Adjustment Factor and the accrued portion of the administrative
fee will be deducted from amounts paid to Holders upon redemption, among other
reasons, the amount realized by a Holder upon any sale or redemption of Units
may be less than the price paid for these Units.
SPONSOR'S PROFITS
The Sponsor receives the administrative fee through periodic deductions at
the rates set forth above and through deduction of a pro rata portion of the
accrued administrative fee at the time of any redemption.
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The following chart sets forth the estimated maximum dollar amount payable
on account of the Sponsor's administrative fee assuming that Holders hold their
Units for the following periods of time from March 31, 1997:
MAXIMUM DOLLAR AMOUNT PER 10 UNITS
PAYABLE ON ACCOUNT OF SPONSOR'S ADMINISTRATIVE FEE
YEARS HELD 1999 TRUST 2009 TRUST
- ------------------------------------------------------------
1 $ 1.11$ 0.74
2 2.22 1.48
3 2.91 2.22
4 2.96
5 3.70
6 4.44
7 5.18
8 5.92
9 6.66
10 7.40
11 8.14
12 8.88
13 8.97
The Sponsor may also realize a profit or loss on each deposit of Securities
in a Trust. This is the difference between the cost of the Securities to the
Trusts (which is based on the mean between the bid and offering side evaluation
of the Securities on the date of deposit) and the purchase price of those
Securities to the Sponsor. To the extent additional Units continue to be offered
for sale, the Sponsor also may realize profits or sustain losses as a result of
fluctuations after the date of deposit in the Offer Price of the Units.
Employees may incur an annual account maintenance fee after termination of Plan
participation--see Expenses and Charges below. Cash, if any, made available by
buyers of Units to the Sponsor prior to the settlement dates for purchase of
Units may be used in the Sponsor's business, subject to the limitations of Rule
15c3-3 under the Securities Exchange Act of 1934, and may be of benefit to the
Sponsor.
In maintaining a market for the Units the Sponsor will also realize profits
or sustain losses in the amount of any difference between the prices at which it
buys Units and the prices at which it resells or redeems those Units, as the
case may be.
MARKET FOR UNITS
While the Sponsor is not obligated to do so, it intends to maintain a
secondary market for Units of each Trust and continuously to offer to purchase
Units of each Trust. The Sponsor, of course, does not in any way guarantee the
enforceability, marketability or price of any Securities in the Trusts or of the
Units. The Sponsor may discontinue purchases of Units of any Trust should the
supply of Units exceed demand or for other business reasons.
The Sponsor may redeem any Units it has purchased in the secondary market
or through the Trustee in accordance with the procedures described below if it
determines it is undesirable to continue to hold those Units in its inventory.
REDEMPTION
Units may be redeemed at the office of the Trustee upon delivery on any
business day, as defined under Sale of Units--Unit Price, of a request for
redemption, and payment of any relevant tax, without any other fee (Section
5.02). Holders' signatures must be guaranteed by an eligible guarantor
institution or in some other manner acceptable to the Trustee. In certain
instances the Trustee may require additional documents including, but not
limited to, trust instruments, certificates of death, appointments as executor
or administrator or certificates of corporate authority.
The Trustee will redeem Units either in cash or, at the option of certain
qualified Holders as specified in writing to the Trustee, in kind. Unless
otherwise specified, redemptions will be made in cash. On the seventh
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calendar day following the tender (or if the seventh calendar day is not a
business day on the first business day prior thereto), the Holder will be
entitled to receive the proceeds of the redemption in an amount and value of
Securities per Unit equal to the Redemption Price per Unit (see below) as
determined as of the Evaluation Time next following the tender.
The Trustee is empowered to sell Securities from a Trust in order to make
funds available for cash redemptions (Section 5.02). The Securities to be sold
so as to maintain, as closely as practicable, the percentage relationship
between the face amounts of Stripped Treasury Securities and the Treasury Note
in the Trust at the time of sale. Provision is made under the Indenture for the
Sponsor to specify minimum face amounts in which blocks of Securities are to be
sold in order to obtain the best price for the Trust. While these minimum
amounts may vary from time to time in accordance with market conditions, the
Sponsor believes that the minimum face amounts which would be specified would
range from $25,000 to $100,000.
Holders tendering Units for redemption may, in lieu of receiving cash,
request the Trustee to distribute 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. The distribution in kind on redemption of Units
will be held by a Distribution Agent (the 'Distribution Agent') for the account
of, and for disposition in accordance with the instructions of, the tendering
Holder. If a qualified tendering Holder requests redemption in kind, the Trustee
as Distribution Agent for the account of the redeeming Holder will sell the
Securities and distribute the net cash proceeds to the Holder (unless he
requests that the in kind redemption be held on a book entry system for his
account). In implementing these redemption procedures, the Trustee and
Distribution Agent shall make any adjustments necessary to reflect differences
between the Redemption Price of the Units and the value of the Securities
distributed in kind as of the date of tender. If funds in the Capital Account
are insufficient to cover the required cash distribution to the tendering
Holder, the Trustee may sell Securities according to the criteria discussed
above. (Section 5.02)
To the extent that Securities in a Trust are redeemed in kind or sold, the
size of the relevant Trust will be reduced. Sales will usually be required at a
time when Securities would not otherwise be sold and may result in lower prices
than might otherwise be realized. In addition, because of the minimum face
amounts in which Securities are required to be sold, the proceeds of sale may,
if the Sponsor fails to purchase Units tendered for redemption, exceed the
amount required at the time to redeem Units; any excess proceeds will be
deposited in the Capital Account. See Administration of the Fund--Accounts and
Distributions. The price received upon redemption may be more than or less than
the amount paid by the Holder depending on the value of the Securities in the
Trust at the time of redemption.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange, Inc. is closed other than for
customary weekend and holiday closings or (2) for any period during which, as
determined by the Securities and Exchange Commission, (i) trading on that
Exchange is restricted or (ii) an emergency exists as a result of which disposal
or evaluation of the Securities is not reasonably practicable, or (3) for any
other periods which the Commission may by order permit (Section 5.02).
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit of a Trust is computed by the Trustee as of the
Evaluation Time on each June 30 and December 31 (or the last business day prior
thereto), on any business day, as of the Evaluation Time next following the
tender of any Unit for redemption, and on any other business day desired by the
Trustee or the Sponsor, by adding (a) the value of the Securities in the Trust,
(b) cash on hand in the Trust (other than cash covering contracts to purchase
Securities), (c) accrued and unpaid interest on these Securities up to but not
including the date of redemption and (d) all other assets of the Trust;
deducting therefrom the sum of (v) taxes or other governmental charges against
the Trust not previously deducted, (w) accrued fees and expenses of the Trustee
(including legal and auditing expenses), the Evaluator and counsel, and certain
other expenses, (x) the Adjustment Factor at the applicable rate, (y) accrued
administrative fees payable and (z) any cash held for distribution to Holders of
record as of a date prior to the evaluation; and dividing the result by the
number of Units outstanding as of the date of computation (Sections 4.01 and
5.01). The Adjustment Factor will not be deducted from a redemption in kind nor
from the distribution when the Trust terminates.
The value of the Securities is determined by the Evaluator in the following
manner: (a) on the basis of the mean between the current bid and offering prices
for the Securities, (b) if bid and offering prices are not available for any
Securities, on the basis of current bid and offering prices for comparable
securities, (c) by appraising the
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value of the Securities, or (d) by any combination of the above. The Evaluator
may obtain current price information as to the Securities from investment
dealers or brokers (including the Sponsor) which customarily deal in that type
of securities. On the day on which a Holder is entitled to receive the
Redemption Price, the accrued but unpaid administrative fee will be deducted
from the accrued interest on the Securities to provide funds to meet such
redemption and will be distributed to the Sponsor.
While Securities of the type included in the Trusts' Portfolios involve
minimal risk of loss of principal when held to maturity, due to variations in
interest rates the market value of the Securities and Redemption Price per Unit
can be expected to fluctuate during the period of an investment in a Trust.
EXPENSES AND CHARGES
SPONSOR'S ADMINISTRATIVE FEE
An administrative fee, to reimburse the Sponsor for certain expenses
described under Fund Structure--ML Plans, at the rates set forth under
Investment Summary, calculated on a daily basis, will be deducted from interest
income received by the Fund semi-annually and will be distributed to the Sponsor
upon certification of its reimbursable expenses.
FEES
The Trustee's and Evaluator's fees are set forth under Investment Summary.
The Trustee's fees for its services as Trustee, payable in semi-annual
installments, are accrued daily based on the number of Units in a Trust. Certain
regular and recurring expenses of each Trust, including the Evaluator's fee and
certain mailing and printing expenses, are also included in the amount set forth
under Investment Summary as Trustee's Annual Fee and Expenses (Section 3.14).
Expenses in excess of the amount included for these expenses in the Trustee's
Annual Fee and Expenses under Investment Summary will be borne by the Trust. The
Trustee also receives benefits to the extent that it holds funds on deposit in
the various non-interest bearing accounts created under the Indenture.
The interest bearing Securities in the 1999 Trust mature several months
before the Stripped Treasury Securities therein and in the 2009 Trust, may be
called up to five years before maturity (see Portfolio). The Trustee will reduce
its fees and expenses for these Trusts in the amount of interest that would have
accrued on these Securities between their maturity date and the maturity date of
the Stripped Treasury Securities in the Trust. This reduction will eliminate the
necessity of charging the Capital Account for the Trust expenses during this
period.
When an employee receives Units from a Plan, he may establish an individual
account or deposit the Units in an existing account with Merrill Lynch. Merrill
Lynch currently charges annual maintenance fees on some types of accounts. The
individual Holder would be responsible for any such charge. The fee is not
payable if the employee is the record holder of the Units.
OTHER CHARGES
These include: (a) fees of the Trustee for extraordinary services (Section
8.05), (b) certain expenses of the Trustee (including legal and auditing
expenses) and of counsel designated by the Sponsor (Sections 3.04, 3.09,
8.01[e], 8.03 and 8.05), (c) various governmental charges (Sections 3.03 and
8.01[h]), (d) expenses and costs of any action taken to protect any Trust
(Section 8.01[d]), (e) indemnification of the Trustee for any loss, liabilities
and expenses incurred without gross negligence, bad faith or wilful misconduct
on its part (Section 8.05), (f) indemnification of the Sponsor for any losses,
liabilities and expenses incurred without gross negligence, bad faith, wilful
misconduct or reckless disregard of its duties (Section 7.05[b]) and (g)
expenditures incurred in contacting Holders upon termination of the Trust
(Section 9.02). The amounts of these charges and fees are secured by a lien on
the relevant Trust and, if the balances in the Income and Capital Accounts (see
below) are insufficient, the Trustee has the power to sell Securities to pay
these amounts (Section 8.05).
ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps a register of the names, address and holdings of all
Holders of each Trust. The Trustee also keeps records of the transactions of
each Trust, including a current list of the Securities and a copy of the
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Indenture, which are available to record Holders for inspection at the office of
the Trustee at reasonable times during business hours (Sections 8.02 and 8.04).
ACCOUNTS AND DISTRIBUTIONS
The terms of the Securities provide for payment to the holders thereof
(including the Trusts) upon their maturities. Interest received on any
Securities in a Trust which bear current interest, including that part of the
proceeds of any disposition of any such Security which represents accrued
interest and any late payment penalties, is credited to an Income Account for
the applicable Trust and other receipts to a Capital Account for the Trust
(Sections 3.01 and 3.02). While income distributions are not anticipated, the
Sponsor is authorized in its discretion to direct the Trustee to distribute any
accumulated net income in June or December of any year. Distributions for
Holders as of the Record Day normally will be made by mail on the following
Distribution Day and shall consist of an amount substantially equal to each
Holder's pro rata share of the distributable cash balance of the Income Account
of the Trust computed as of the close of business on the Record Day. The balance
in the Capital Account shall be distributed on the business day following the
maturity of the Stripped Treasury Securities in the Trust Portfolio; the Record
Day for that distribution shall be the business day immediately preceding the
distribution day. The Trustee will acquire additional Securities as directed by
the Sponsor, in the original proportionate relationship between face amounts, if
there is a sufficient cash balance in the Capital Account.
The amount to be distributed may change as Securities are exchanged, paid
or sold. A Reserve Account may be created by the Trustee by withdrawing from the
Income or Capital Accounts, from time to time, amounts which it deems requisite
to establish a reserve for any taxes or other governmental charges that may be
payable out of the Trust (Section 3.03). Funds held by the Trustee in the
various accounts created under the Indenture do not bear interest (Section
8.01).
PORTFOLIO SUPERVISION
Each Trust is part of a unit investment trust and its not an actively
managed fund. Traditional methods of investment management for a managed fund
typically involve frequent changes in a portfolio of securities on the basis of
economic, financial and market analyses. The Portfolios of the Trusts, however,
will not be actively managed and therefore the adverse financial condition of an
issuer will not necessarily require the sale of its securities from a Trust.
However, the Sponsor may direct the disposition of Securities upon default in
payment of amounts due on any Securities which is not promptly cured,
institution of certain legal proceedings, default in payment of amounts due on
other Treasury Securities, or decline in price or the occurrence of other market
or credit factors that in the opinion of the Sponsor would make the retention of
these Securities in any Trust detrimental to the interest of the Holders of that
Trust. If a default in payment of amounts due on any Security occurs and if the
Sponsor fails to give instructions to sell or hold the Security the Indenture
provides that the Trustee, within 30 days of that failure by the Sponsor, may
sell the Security (Sections 3.07 and 3.10).
REPORTS TO HOLDERS
The Trustee will furnish Holders of record with each distribution a
statement of the amounts of interest and other receipts which are being
distributed, expressed in each case as a dollar amount per Unit. After the end
of each calendar year (usually within twenty to sixty days), the Trustee will
furnish to Holders of record a statement (i) summarizing transactions for the
year in the Income, Capital and Reserve Accounts of the Trust, (ii) indentifying
Securities sold and purchased during the year and listing Securities held and
the number of Units oustanding at the end of the year by the Trust, (iii)
stating the Trust's Redemption Price per Unit based upon the computation thereof
made at the end of that year and (iv) specifying the amounts distributed during
that year from the Trust's Income and Capital Accounts (Section 3.06). The
accounts of each Trust shall be audited at least annually by independent
certified public accountants designated by the Sponsor, and the report of the
accountants shall be furnished by the Trustee to Holders upon request (Section
8.01[e]).
In order to enable them to comply with Federal and state tax reporting
requirements, Holders will be furnished upon request to the Trustee with
evaluations of Securities furnished to it by the Evaluator (Section 4.02).
UNCERTIFICATED UNITS
All Holders are required to hold their Units in uncertificated form. The
Trustee will credit a Holder's account with the number of Units held by the
Holder. This relieves the Holder of the responsibility of safekeeping of
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certificates and the need to deliver certificates upon sale or redemption of
Units. Units are transferable by the Trustee, with a payment of $2.00 if
required by the Trustee (or such other amount as may be specified by the Trustee
and approved by the Sponsor) for each transfer and any sums payable for taxes or
other governmental charges imposed upon these transactions and compliance with
the formalities necessary to redeem Units (Section 6.02).
AMENDMENT AND TERMINATION
The Sponsor and Trustee may amend the Indenture without the consent of
Holders (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the Securities and Exchange Commission or any
successor governmental agency, or (c) to make any other provisions which do not
adversely affect the interest of the Holders (as determined in good faith by the
Sponsor). The Indenture may also be amended in any respect by the Sponsor and
Trustee, or any of the provisions thereof may be waived, with the consent of the
Holders of 51% of the Units then outstanding, provided that none of these
amendments or waivers will reduce the interest in any Trust of any Holder
without the consent of the Holder or reduce the percentage of Units required to
consent to any of these amendments or waivers without the consent of all Holders
(Section 10.01).
The Indenture will terminate upon the earlier of the disposition of the
last Security held thereunder or the mandatory termination date. The Indenture
as to any Trust may be terminated at any time by written instrument executed by
the Sponsor and consented to by Holders of 51% of the Units (Sections 8.01[g]
and 9.01). The Trustee will deliver written notice of any termination to each
Holder within a reasonable period of time prior to the termination, specifying
the times at which the Holders may surrender their Certificates for
cancellation. Within a reasonable period of time after the termination, the
Trustee must sell all of the Securities then held and distribute to each Holder,
upon surrender for cancellation of his Certificates, and after deductions for
accrued but unpaid fees, taxes and governmental and other charges, the Holder's
interest in the Income and Capital Accounts (Section 9.01). This distribution
will normally be made by mailing a check in the amount of each Holder's interest
in these accounts to the address of the Holder appearing on the record books of
the Trustee.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
THE TRUSTEE
The Trustee or any successor may resign upon notice to the Sponsor. The
Trustee may be removed upon the direction of the Holders of 51% of the Units at
any time or by the Sponsor without the consent of any of the Holders, if the
Trustee becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities or if for any reason the Sponsor determines in good
faith that the replacement of the Trustee is in the best interests of the
Holders. The resignation or removal shall become effective upon the acceptance
of appointment by the successor. In case of resignation or removal the Sponsor
is to use its best efforts to appoint a successor promptly and if upon
resignation of the Trustee no successor has accepted appointment within thirty
days after notification, the Trustee may apply to a court of competent
jurisdiction for the appointment of a successor (Section 8.06). The Trustee
shall be under no liability for any action taken in good faith in reliance on
prima facie properly executed documents or for the disposition of monies or
Securities, nor shall it be liable or responsible in any way for depreciation or
loss incurred by reason of the sale of any Security. This provision, however,
shall not protect the Trustee in cases of wilful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties. In the event of
the failure of the Sponsor to act, the Trustee may act under the Indenture and
shall not be liable for any of these actions taken in good faith. The Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of the Securities or upon the interest thereon. In
addition, the Indenture contains other customary provisions limiting the
liability of the Trustee (Sections 3.07, 3.10, 8.01 and 8.05).
THE EVALUATOR
The Evaluator may resign or may be removed, effective upon the acceptance
of appointment by its successor, by the Sponsor, who is to use its best efforts
to appoint a successor promptly. If upon resignation of the Evaluator no
successor has accepted appointment within thirty days after notification, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor (Section 4.40). Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information available to
it; provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsor or the Holders for errors in judgment. This provision,
however, shall not protect the Evaluator in cases of wilful misfeasance, bad
faith, gross
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negligence or reckless disregard of its obligations and duties (Section 4.03).
The Trustee, the Sponsor and the Holders may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof.
THE SPONSOR
If the Sponsor fails to perform its duties or becomes incapable of acting
or becomes bankrupt or its affairs are taken over by public authorities, then
the Trustee may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and as may not exceed amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and liquidate
the Trusts or (c) continue to act as Trustee without terminating the Indenture
(Section 8.01[f]). The Sponsor shall be under no liability to the Trusts or to
the Holders for taking any action or for refraining from the taking any action
in good faith or for errors in judgment and shall not be liable or responsible
in any way for depreciation or loss incurred by reason of the sale of any
Security. This provision, however, shall not protect the Sponsor in cases of
wilful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties (Section 7.02). The Sponsor may transfer all or
substantially all of its assets to a corporation or partnership which carries on
its business and duly assumes all of its obligations under the Indenture and in
that event shall be relieved of all futher liability under the Indenture
(Section 7.01)
MISCELLANEOUS
TRUSTEE
The Trustee of the Fund is The Bank of New York, a New York banking
corporation with its Unit Investment Trust Department address at P.O. Box 974,
Wall Street Station, New York, New York 10268-0974 (which is subject to
supervision by the New York Superintendent of Banks, the Federal Deposit
Insurance Corporation and the Board of Governors of the Federal Reserve System).
The Bank of New York was appointed successor Trustee effective February 28,
1995.
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
Sponsor.
AUDITORS
The financial statements, including the Portfolios of the Trusts, included
herein have been audited by Deloitte & Touche LLP, independent accountants, as
stated in their opinion appearing herein and have been so included in reliance
upon that opinion given on the authority of that firm as experts in accounting
and auditing.
SPONSOR
The Sponsor is a Delaware corporation and is engaged in the underwriting,
securities and commodities brokerage business, and is a member of the New York
Stock Exchange, Inc., other major securities exchanges and commodity exchanges,
and the National Association of Securities Dealers, Inc. The Sponsor and Merrill
Lynch Asset Management, Inc., a Delaware corporation and subsidiary of Merrill
Lynch & Co., Inc., the parent of the Sponsor, are engaged in the investment
advisory business. The Sponsor has acted as sponsor of a number of series of
unit investment trusts. The Sponsor has acted as principal underwriter and
managing underwriter of other investment companies. The Sponsor, in addition to
participating as a member of various selling groups or as an agent of other
investment companies, executes orders on behalf of investment companies for the
purchase and sale of securities of these companies and sells securities to these
companies in its capacity as a broker or dealer in securities.
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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
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Fund Description...................................... 1
Risk Factors.......................................... 2
How to Buy Units...................................... 4
How to Sell Units..................................... 5
Income and Distributions.............................. 6
Fund Expenses......................................... 8
PAGE
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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.
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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
2
<PAGE>
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.
3
<PAGE>
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.
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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.
8
<PAGE>
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
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<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
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<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
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<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>
DEFINED
ASSET FUNDSSM
SPONSOR: GOVERNMENT SECURITIES
Merrill Lynch, INCOME FUND
Pierce, Fenner & Smith Incorporated U.S. Government Zero Coupon
Defined Asset Funds Bond Series 3
P.O. Box 9051 (A Unit Investment Trust)
Princeton, N.J. 08543-9051
(609) 282-8500 This Prospectus does not contain all of
EVALUATOR: the information with respect to the
Kenny S&P Evaluation Services, investment company set forth in its
a division of J. J. Kenny Co., Inc. registration statement and exhibits
65 Broadway relating thereto which have been filed
New York, N.Y. 10006 with the Securities and Exchange
INDEPENDENT ACCOUNTANTS: Commission, Washington, D.C. under the
Deloitte & Touche LLP Securities Act of 1933 and the
2 World Financial Center Investment Company Act of 1940, and to
9th Floor which reference is hereby made. Copies
New York, N.Y. 10281-1414 of filed material can be obtained from
TRUSTEE: the Public Reference Section of the
The Bank of New York Commission, 450 Fifth Street, N.W.,
Unit Investment Trust Department Washington, D.C. 20549 at prescribed
P.O. Box 974 rates. The Commission also maintains a
Wall Street Station Web site that contains information
New York, N.Y. 10268-0974 statements and other information
1-800-221-7771 regarding registrants such as Defined
Asset Funds that file electronically
with the Commission at
http://www.sec.gov.
------------------------------------
No person is authorized to give any
information or to make any
representations with respect to this
investment company not contained in this
Prospectus; and any information or
representation not contained herein must
not be relied upon as having been
authorized.
------------------------------------
When Units of this Fund are no longer
available, this Prospectus may be used
as a preliminary prospectus for a future
series, and investors should note the
following:
Information contained herein is subject
to amendment. A registration statement
relating to securities of a future
series has been filed with the
Securities and Exchange Commission.
These securities may not be sold nor may
offers to buy be accepted prior to the
time the registration statement becomes
effective.
This Prospectus does not constitute an
offer to sell or a solicitation of an
offer to buy securities in any state in
which such offer, solicitation or sale
would be unlawful prior to registration
or qualification under the securities
laws of any such state.
11879--7/97
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. GOVERNMENT ZERO COUPON BOND SERIES - 3
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsor, Trustee and Holders
of Defined Asset Funds - Government Securities Income Fund,
U.S. Government Zero Coupon Bond Series - 3:
We have audited the accompanying statements of condition of the 1999 Trust and
the 2009 Trust of Defined Asset Funds - Government Securities Income Fund, U.S.
Government Zero Coupon Bond Series - 3, including the portfolios, as of
March 31, 1997 and the related statements of operations and of changes in net
assets for the years ended March 31, 1997, 1996 and 1995. These financial
statements are the responsibility of the Trustee. (See Note 6.) 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
March 31, 1997, as shown in such portfolios, were confirmed to us by The Bank of
New York, the Trustee. An audit also includes assessing the accounting
principles used and significant estimates made by the Trustee, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the above-mentioned Trusts of
Defined Asset Funds - Government Securities Income Fund, U.S. Government Zero
Coupon Bond Series - 3 at March 31, 1997 and the results of their operations and
changes in their net assets for the above-stated years in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
June 25, 1997
D-1
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. GOVERNMENT ZERO COUPON BOND SERIES - 3
STATEMENTS OF CONDITION
AS OF MARCH 31, 1997
<TABLE><CAPTION>
1999
TRUST
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $42,821,947) (Note 1) $43,079,140
Accrued interest receivable 34,825
Cash 116,835
Total trust property 43,230,800
LESS LIABILITIES:
Accrued expenses $ 74,014
Redemptions payable 99,479 173,493
NET ASSETS (Note 2) $43,057,307
UNITS OUTSTANDING 507,233.904
UNIT VALUE $84.89
2009
TRUST
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $62,036,254) (Note 1) $60,026,477
Receivable for units created 508,725
Accrued interest receivable 70,485
Cash 374,326
Total trust property 60,980,013
LESS LIABILITIES:
Payable for securities purchased $630,908
Accrued expenses 139,685
Redemptions payable 87,701 858,294
NET ASSETS (Note 2) $60,121,719
UNITS OUTSTANDING 1,377,963.324
UNIT VALUE $43.63
</TABLE>
See Notes to Financial Statements.
D-2
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. GOVERNMENT ZERO COUPON BOND SERIES - 3
STATEMENTS OF OPERATIONS
1999 TRUST
<TABLE><CAPTION>
Years Ended March 31,
1997 1996 1995
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 89,339 $ 85,460 $ 76,068
Accretion of original issue discount 2,713,976 2,173,668 2,147,882
Trustees' fees and expenses (24,566) (23,036) (34,821)
Sponsors' fees (54,327) 5,373 42,900
Net investment income 2,724,422 2,241,465 2,232,029
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold or redeemed 511,081 697,767 64,553
Unrealized appreciation (depreciation) of
investments (1,452,946) 698,863 (951,890)
Net realized and unrealized gain (loss) on
investments (941,865) 1,396,630 (887,337)
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,782,557 $3,638,095 $1,344,692
2009 TRUST
Years Ended March 31,
1997 1996 1995
INVESTMENT INCOME:
Interest income $ 176,420 $ 114,902 $ 115,175
Accretion of original issue discount 3,714,088 2,138,839 1,944,176
Trustees' fees and expenses (69,167) (24,234) (60,786)
Sponsors' fees (95,167) 2,349 90,688
Net investment income 3,726,174 2,231,856 2,089,253
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold or
redeemed 3,157,757 2,019,043 441,568
Unrealized appreciation (depreciation) of
investments (5,311,064) 1,482,212 (636,414)
Net realized and unrealized gain (loss) on
investments (2,153,307) 3,501,255 (194,846)
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,572,867 $5,733,111 $1,894,407
See Notes to Financial Statements.
</TABLE>
D-3
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. GOVERNMENT ZERO COUPON BOND SERIES - 3
STATEMENTS OF CHANGES IN NET ASSETS
1999 TRUST
<TABLE><CAPTION>
Years Ended March 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 2,724,422 $ 2,241,465 $ 2,232,029
Realized gain on securities sold or redeemed 511,081 697,767 64,553
Unrealized appreciation (depreciation) of
investments (1,452,946) 698,863 (951,890)
Net increase in net assets resulting from
operations 1,782,557 3,638,095 1,344,692
INCOME DISTRIBUTIONS (88,524)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 7,886,095 5,702,807 10,368,975
Redemptions of units (4,987,254) (6,306,811) (3,173,145)
Net capital share transactions 2,898,841 (604,004) 7,195,830
NET INCREASE IN NET ASSETS 4,681,398 3,034,091 8,451,998
NET ASSETS AT BEGINNING OF YEAR 38,375,909 35,341,818 26,889,820
NET ASSETS AT END OF YEAR $43,057,307 $38,375,909 $35,341,818
PER UNIT:
Net asset value at end of year. $84.89 $81.42 $73.38
Income distribution $0.19
TRUST UNITS OUTSTANDING AT END OF YEAR 507,233.904 471,311.471 481,627.298
See Notes to Financial Statements.
</TABLE>
D-4
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. GOVERNMENT ZERO COUPON BOND SERIES - 3
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
2009 TRUST
Years Ended March 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,726,174 $ 2,231,856 $ 2,089,253
Realized gain on securities sold or
redeemed 3,157,757 2,019,043 441,568
Unrealized appreciation (depreciation) of
investments (5,311,064) 1,482,212 (636,414)
Net increase in net assets resulting
from operations 1,572,867 5,733,111 1,894,407
INCOME DISTRIBUTIONS (151,971)
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of additional units 34,673,281 17,356,728 11,990,965
Redemptions of units (19,221,804) (13,106,171) (5,353,303)
Net capital share transactions 15,451,477 4,250,557 6,637,662
NET INCREASE IN NET ASSETS 17,024,344 9,983,668 8,380,098
NET ASSETS AT BEGINNING OF YEAR 43,097,375 33,113,707 24,733,609
NET ASSETS AT END OF YEAR $60,121,719 $43,097,375 $33,113,707
PER UNIT:
Net asset value at end of year $43.63 $42.76 $35.93
Income distribution $0.17
TRUST UNITS OUTSTANDING AT END OF YEAR 1,377,963.324 1,007,900.355 921,699.307
</TABLE>
See Notes to Financial Statements.
D-5
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. GOVERNMENT ZERO COUPON BOND SERIES - 3
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The Fund consists of the 1999 and 2009 Trusts, each a
separate 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
the mean between bid and offering prices for the securities (see
"Redemption - Computation of Redemption Price Per Unit" in this
Prospectus).
(b) Cost of securities has been adjusted to include the accretion of
original issue discount on the Stripped Treasury Securities.
(c) Each Trust is not subject to income taxes. Accordingly, no provision
for such taxes is required.
2. NET ASSETS, MARCH 31, 1997
1999 TRUST
Cost of 507,233.904 units at Dates of Deposit $30,336,231
Redemption of units - Net cost of 492,759.724 units
redeemed less redemption amounts (1,222,114)
Realized gain on securities sold or redeemed 2,945,069
Unrealized appreciation of investments 257,193
Net capital applicable to Holders 32,316,379
Undistributed net investment income - accretion of
original issue discount ($10,660,996) plus excess
($79,932) of interest income over fees and expenses 10,740,928
Net assets $43,057,307
2009 TRUST
Cost of 1,377,963.324 units at Dates of Deposit $43,632,207
Redemption of units - Net cost of 2,100,058.667 units
redeemed less redemption amounts 84,387
Realized gain on securities sold or redeemed 8,289,610
Unrealized depreciation of investments (2,009,777)
Net capital applicable to Holders 49,996,427
Undistributed net investment income - accretion of
original issue discount ($10,028,674) plus excess
($96,618) of interest income over fees and expenses 10,125,292
Net assets $60,121,719
D-6
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. GOVERNMENT ZERO COUPON BOND SERIES - 3
NOTES TO FINANCIAL STATEMENTS
3. CAPITAL SHARE TRANSACTIONS
Additional units were issued by the Trusts as follows:
Year Ended Year Ended Year Ended
Trust March 31, 1997 March 31, 1996 March 31, 1995
1999 94,493.000 71,418.382 147,198.417
2009 803,841.810 403,075.764 360,097.229
Units were redeemed as follows:
Year Ended Year Ended Year Ended
Trust March 31, 1997 March 31, 1996 March 31, 1995
1999 58,572.000 81,734.209 45,624.792
2009 433,776.222 316,874.716 161,686.876
Units may be redeemed at the office of the Trustee upon tender thereof
generally on any business day or, in the case of uncertificated units, upon
delivery of a request for redemption and payment of any relevant tax. The
Trustee may redeem units either in cash or in kind at the option of the
Holder as specified in writing to the Trustee.
4. INCOME TAXES
All Trust items of income received, accretion of original issue discount,
expenses paid, and realized gains and losses on securities sold are
attributable to the Holders, on a pro rata basis, for Federal income tax
purposes in accordance with the grantor trust rules of the United States
Internal Revenue Code.
At March 31, 1997, the cost of investment securities for Federal income tax
purposes was approximately equivalent to the adjusted cost as shown in each
Trust's portfolio.
5. DISTRIBUTIONS
It is anticipated that the Trusts will make distributions on the first
business day following the maturity of their holdings in the Stripped
Treasury Securities which are non-interest bearing. Any excess of interest
income over fees and expenses may be distributed periodically.
6. CHANGE OF TRUSTEE
On March 1, 1995, The Bank of New York assumed all of the Trustee
responsibilities from Investors Bank & Trust Company.
D-7
<PAGE>
DEFINED ASSET FUNDS - GOVERNMENT SECURITIES INCOME FUND,
U.S. GOVERNMENT ZERO COUPON BOND SERIES - 3
PORTFOLIOS
AS OF MARCH 31, 1997
<TABLE><CAPTION>
Portfolio No. and Title Interest Face Adjusted
of Securities Rates Maturities Amount Cost(1) Value(1)
<S> <C> <C> <C> <C> <C>
1999 TRUST
1 Stripped Treasury Securities(2) 0.000% 11/15/99 $ 49,742,000 $41,718,007 $42,000,597
2 U.S. Treasury Notes 8.875 11/15/98 1,038,689 1,103,940 1,078,543
Total $ 50,780,689 $42,821,947 $43,079,140
2009 TRUST
1 Stripped Treasury Notes Securities 0.000% 5/15/09 $136,223,000 $59,679,638 $57,705,425
2 U.S. Treasury Bonds 9.125 5/15/09(3) 2,081,698 2,356,616 2,321,052
Total $138,304,698 $62,036,254 $60,026,477
(1) See Notes to Financial Statements.
(2) See "Risk Factors - Special Characteristics of Stripped Treasury Securities" in this Prospectus.
(3) Callable beginning 5/15/04 at par.
</TABLE>
D-8
<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 Post-Effective
Amendment No. 2 to the Registration Statement on Form S-6 of The Government
Securities Income Fund, GNMA Series E, 1933 Act File No. 2-74993).
The Prospectus.
The Signatures.
The following exhibits:
1.1.1--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, Multistate
Series--48, 1933 Act File No. 33-50247).
4.1 --Consent of the Evaluator.
5.1 --Consent of independent accountants.
R-1
<PAGE>
DEFINED ASSET FUNDS--
GOVERNMENT SECURITIES INCOME FUND
U.S. GOVERNMENT ZERO COUPON BOND SERIES 3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
DEFINED ASSET FUNDS--GOVERNMENT SECURITIES INCOME FUND, U.S. GOVERNMENT ZERO
COUPON BOND SERIES 3 (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 9TH DAY OF JULY, 1997.
SIGNATURES APPEAR ON PAGE R-3.
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.
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>
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
July 9, 1997
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 Bank of New York
101 Barclay Street
New York, New York 10286
RE: DEFINED ASSET FUNDS--GOVERNMENT SECURITIES INCOME FUND,
U.S. GOVERNMENT ZERO COUPON BOND SERIES 3 (SEC Reg. Pound33-26716)
Gentlemen:
We have examined the post-effective Amendment to the Registration Statement
File No. 33-26716 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,
U.S. Government Zero Coupon Bond Series--3
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-26716 of our opinion dated June 25, 1997 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.
July 9, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> 1999 TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 42,821,947
<INVESTMENTS-AT-VALUE> 43,079,140
<RECEIVABLES> 34,825
<ASSETS-OTHER> 116,835
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,230,800
<PAYABLE-FOR-SECURITIES> 99,479
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,014
<TOTAL-LIABILITIES> 173,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 507,233
<SHARES-COMMON-PRIOR> 471,311
<ACCUMULATED-NII-CURRENT> 10,740,928
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 257,193
<NET-ASSETS> 43,057,307
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 89,339
<OTHER-INCOME> 2,713,976
<EXPENSES-NET> (78,893)
<NET-INVESTMENT-INCOME> 2,724,422
<REALIZED-GAINS-CURRENT> 511,081
<APPREC-INCREASE-CURRENT> (1,452,946)
<NET-CHANGE-FROM-OPS> 1,782,557
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 7,886,095
<NET-CHANGE-IN-ASSETS> 4,681,398
<ACCUMULATED-NII-PRIOR> 8,122,651
<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>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> 2009 TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 62,036,254
<INVESTMENTS-AT-VALUE> 60,026,477
<RECEIVABLES> 579,210
<ASSETS-OTHER> 374,326
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,980,013
<PAYABLE-FOR-SECURITIES> 718,609
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 139,685
<TOTAL-LIABILITIES> 858,294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,377,963
<SHARES-COMMON-PRIOR> 1,007,900
<ACCUMULATED-NII-CURRENT> 10,125,292
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,009,777)
<NET-ASSETS> 60,121,719
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 176,420
<OTHER-INCOME> 3,714,088
<EXPENSES-NET> (164,334)
<NET-INVESTMENT-INCOME> 3,726,174
<REALIZED-GAINS-CURRENT> 3,157,757
<APPREC-INCREASE-CURRENT> (5,311,064)
<NET-CHANGE-FROM-OPS> 1,572,867
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 34,673,281
<NET-CHANGE-IN-ASSETS> 17,024,344
<ACCUMULATED-NII-PRIOR> 6,665,377
<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
July 9, 1997
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- GNMA SERIES 1W DAF 893060 33-53181 811-2810
DEFINED ASSET FUNDS-MITF IS-178 803845 33-45958 811-1777
DEFINED ASSET FUNDS- IS-191 DAF 803874 33-49447 811-1777
DEFINED ASSET FUNDS- IS-233 DAF 804058 333-0157 811-1777
DEFINED ASSET FUNDS-MITF PUT-5 750011 2-92276 811-1777
DEFINED ASSET FUNDS-MITF ITS-151 780799 33-34135 811-1777
DEFINED ASSET FUNDS-MITF ITS-190 868095 33-46843 811-1777
DEFINED ASSET FUNDS- ITS-205 DAF 868112 33-49425 811-1777
DEFINED ASSET FUNDS- ITS-206 DAF 868113 33-49501 811-1777
DEFINED ASSET FUNDS- ITS-230 DAF 910376 33-53167 811-1777
DEFINED ASSET FUNDS- ITS-231 DAF 910377 33-53281 811-1777
DEFINED ASSET FUNDS- ITS-253 DAF 924345 33-58435 811-1777
DEFINED ASSET FUNDS- MPS-527 DAF 892745 33-49389 811-1777
DEFINED ASSET FUNDS-MITF MSS-4 881828 33-47649 811-1777
DEFINED ASSET FUNDS- MSS-205 DAF 924303 333-0157 811-1777
DEFINED ASSET FUNDS- MSS-33 DAF 895620 33-49427 811-1777
DEFINED ASSET FUNDS- MSS-60 DAF 910006 33-52755 811-1777
DEFINED ASSET FUNDS-GSIF USGZCBS 3 845859 33-26716 811-2810
TOTAL: 18 FUNDS
</TABLE>
