<PAGE>
Def ined
Asset FundsSM
GOVERNMENT This Fund was formed for the purpose of providing
SECURITIES safety of capital, as well as current monthly
INCOME FUND income, through an investment in a portfolio of
- ------------------------------interest-bearing U.S. Treasury securities with
U.S. Treasury Strategy maturities of approximately one to five years.
TrustSM--1 These securities are backed by the full faith and
A Unit Investment Trust credit of the United States Government. By
/ / U.S. GOVERNMENT SECURITIESdividing its holdings among securities with
/ / LADDERED MATURITIES staggered maturities, the fund forms a 'ladder' of
/ / MONTHLY INCOME investments. Laddering arranges maturities over
/ / AAA RATED specified periods of time which can reduce risk
/ / REINVESTMENT OPTION from interest rate fluctuations. This strategy is
also designed to produce a higher overall yield
than shorter-term investments. Approximately once
a year until 2007, the proceeds of each maturing
Security in the Portfolio will be reinvested (an
'Extension') automatically into a then available
U.S. Treasury security with a maturity of
approximately five years (an 'Extension
Security'). By continually reinvesting in
five-year treasuries, the Fund is always invested
in these longer-term, usually higher-yielding
securities while maintaining for most of the
fund's life an average weighted maturity of 2 1/2
years for lower price volatility. Interest income
is exempt from state personal income taxes in all
states. The value of Units of the Fund will
fluctuate with the value of the portfolio of
underlying Securities.
Minimum purchase in individual transactions:
$1,000 ($250 for certain retirement accounts).
--------------------------------------------------
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
SPONSORS: ACCURACY
Merrill Lynch, OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
Pierce, Fenner & Smith Inc. TO THE CONTRARY IS A CRIMINAL OFFENSE.
Smith Barney Inc. INQUIRIES SHOULD BE DIRECTED TO THE TRUSTEE AT
PaineWebber Incorporated 1-800-323-1508
Prudential Securities PROSPECTUS DATED AUGUST 5, 1994.
Incorporated READ AND RETAIN THIS PROSPECTUS FOR FUTURE
Dean Witter Reynolds Inc. REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
DEFINED ASSET FUNDSSM is America's oldest and largest family of unit investment
trusts with over $90 billion sponsored since 1970. Each Defined 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 advisor can help you select a Defined Fund to meet your personal
investment objectives. Our size and market presence enable us to offer a wide
variety of investments. Defined 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 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 Funds are offered by prospectus only.
- --------------------------------------------------------------------------------
CONTENTS
Investment Summary.......................................... A-3
Underwriting Account........................................ A-5
Fund Structure.............................................. 1
Risk Factors................................................ 2
Description of the Fund..................................... 2
Taxes....................................................... 4
Public Sale of Units........................................ 7
Market for Units............................................ 9
Redemption.................................................. 10
Extensions.................................................. 11
Expenses and Charges........................................ 11
Administration of the Fund.................................. 12
Resignation, Removal and Limitations on Liability........... 16
Miscellaneous............................................... 17
Description of Standard & Poor's Rating..................... 19
Accounts' Opinion Relating to the Fund...................... D-1
Statements of Condition and Portfolios...................... D-2
A-2
<PAGE>
GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY STRATEGY TRUST--1, DEFINED ASSET FUNDS
INVESTMENT SUMMARY AS OF APRIL 30, 1994
FACE AMOUNT OF SECURITIES-- $ 53,500,000+
NUMBER OF UNITS-- 53,500,000
SPONSORS' REPURCHASE PRICE AND
REDEMPTION PRICE PER 1,000 UNITS* (based on bid side
evaluation) $ 977.90**
BID SIDE EVALUATION LOWER THAN OFFERING SIDE EVALUATION BY
.06% OF FACE AMOUNT OF SECURITIES++
REDEMPTION PRICE PER 1,000 UNITS LESS THAN:
Public Offering Price by $ 13.02
Sponsors' Initial Repurchase Price by $ 0.63
FRACTIONAL UNDIVIDED INTEREST IN FUND REPRESENTED BY EACH
UNIT-- 1/53,500,000TH
CALCULATION OF PUBLIC OFFERING PRICE
Aggregate offering side evaluation of Securities in
Fund..................................................$ 52,351,462
------------------
Divided by Number of Units times 1,000...................$ 978.53
Plus initial sales charge of 1.25% of Public Offering
Price
(1.266% of net amount invested in Securities)***...... 12.39
------------------
Public Offering Price per 1,000
Units................................................. 990.92
(plus cash
adjustments and
accrued interest)
CALCULATION OF ESTIMATED NET ANNUAL INTEREST RATE PER 1,000
UNITS (based on face amount of $1,000 per 1,000 Units)
Annual interest rate per 1,000 Units..................... 4.600%
Less estimated annual expenses per 1,000 Units ($1.70)
expressed as a percentage............................. .170%
------------------
Estimated net annual interest rate per 1,000 Units....... 4.430%
------------------
------------------
DAILY RATE AT WHICH ESTIMATED NET INTEREST ACCRUES PER
1,000 UNITS .0123%
MONTHLY INCOME DISTRIBUTIONS PER 1,000 UNITS
Estimated net annual interest rate per 1,000 Units
times $1,000......................................$ 44.30
Divided by 12........................................$ 3.69
RECORD DAY--The 10th day of each month
DISTRIBUTION DAY--The 25th day of each month
NEXT EXTENSION DATE--July 31, 1994
CAPITAL DISTRIBUTION
No distribution need be made from Capital
Account if balance is less than $5.00 per 1,000
Units.
DEFERRED SALES CHARGE--
$3.75 per 1,000 Units payable on a maximum
of 14 Deferred Charge Payment Dates until
approximately 2007.
- ------------------
* The Sponsors intend to offer to purchase Units at prices generally
based on the offering side evaluation of the underlying Securities. However,
they reserve the right when no new Units are being created to maintain a market
based on the bid side value of the underlying Securities, which will be equal to
the Redemption Price. (See Market for Units.)
** Plus accrued interest.
*** The sales charge consists of (i) an initial sales charge at the rate of
1.25% of the Public Offering Price payable when the Units are purchased and (ii)
a maximum of 14 deferred sales charges of $3.75 per 1,000 Units paid from the
proceeds of maturing Securities on their maturity dates (each a 'Deferred Charge
Payment Date') (see Extensions). The initial sales charge is reduced on quantity
purchases (see Public Sale of Units--Public Offering Price). If a Holder sells
or redeems Units before a Deferred Charge Payment Date, no future deductions of
deferred sales charges will be collected from that Holder; this will have the
effect of reducing the rate of sales charges paid by that Holder (see Public
Sale of Units). The maximum aggregate sales charge (including both the maximum
initial sales charge and all deferred sales charges) for Units held over the
entire life of the Fund will be approximately 6.50% of the Public Offering Price
(approximately 6.952% of the net amount invested in Securities). See the chart
following the Investment Summary for the percentage which the aggregate sales
charge (including both the initial and deferred portions) represents at various
intervals of the Public Offering Price per 1,000 Units.
+ On the Initial Date of Deposit (May 25, 1993) the aggregate value of
Securities in the Fund was $250,000. Cost of Securities is set forth under
Portfolio.
++ The aggregate bid side evaluation of Securities in the Fund was
$52,317,757 on the Evaluation Date.
A-3
<PAGE>
Def ined
Asset Funds
INVESTOR'S GUIDE DEFINED GOVERNMENT SECURITIES INCOME FUNDS
GOVERNMENT Our defined portfolios of U.S. Treasury securities offer
SECURITIES investors a simple and convenient way to participate in
INCOME FUND the U.S. Treasury market.
- --------------------
U.S. TREASURY THE U.S. TREASURY STRATEGY TRUST
STRATEGY The U.S. Treasury Strategy Trust uses a simple strategy
TRUSTSM--1 designed to earn higher rates than money market funds and
certificates of deposit (CDs) with less price movement
than long-term bond investments. The fund holds U.S.
Treasuries maturing each year over the next five years. As
each security matures, proceeds are reinvested into a new
five-year Treasury to extend the ladder and continue your
investment for another year.
THE SAFETY OF U.S. TREASURY SECURITIES
The fund invests exclusively in short-and
intermediate-term U.S. Treasuries. Treasuries are free of
credit risk because return of principal and interest
payments are obligations of the U.S. government. The
securities held by the fund and not the fund itself are
backed by the full faith and credit of the U.S.
government. However, the value of the units will fluctuate
with changes in interest rates.
INVESTMENT FLEXIBILITY
By maintaining an average weighted maturity of about 2 1/2
years for most of the fund's life, the fund seeks to
reduce Unit price fluctuations with changing interest
rates. The fund also seeks to provide an extendable
investment by annually reinvesting, until approximately
2007, the proceeds of maturing securities into new U.S.
Treasuries with maturities of approximately five years.
LADDERING STRATEGY
By dividing its holdings among securities with different
maturities, the fund forms a 'ladder' of investments.
Laddering arranges maturities over specified periods of
time to reduce risk. This reinvestment strategy will
continue until about 2007 and is designed to produce a
higher overall yield than shorter-term investments with
less price volatility than longer-term investments.
A key benefit of laddering is reduced risk from interest
rate fluctuations. If interest rates rise, some of your
investment will be reinvested at higher rates. During
periods of declining interest rates, a laddered portfolio
would reduce the impact of declining rates on your
investment. This way, whatever happens with interest
rates, your investment works for you.
TAX-FREE INCOME
Income from the Fund is exempt from all state personal
income taxes, just as though you owned the securities
directly. These exemptions may increase your after-tax
return, providing a real benefit for investors in high tax
states.
THIS PAGE MAY NOT BE DISTRIBUTED UNLESS INCLUDED IN A CURRENT PROSPECTUS.
<PAGE>
AAA-RATED INVESTMENT QUALITY
Based on the creditworthiness of the U.S. Treasuries in
the portfolio, Standard & Poor's has rated units of the
fund AAA, its highest rating.
MONTHLY DISTRIBUTIONS
Although the securities themselves pay semiannually, the
fund will distribute interest income monthly. Capital
gains, if any, will be distributed annually.
A LIQUID INVESTMENT
Although not legally required to do so, we have maintained
a secondary market for our funds for over 20 years. You
can cash in your units at any time. Your price is based on
the market value of the fund's securities at that time as
determined by an independent evaluator. There is never a
fee for cashing in your investment.
REINVESTMENT OPTION
You may elect to automatically reinvest your monthly
interest payments and any annual capital gains
distributions in additional units of the fund subject only
to the deferred sales charge described below. Reinvestment
allows you to increase your overall investment in the fund
and compound income for a greater total return.
<PAGE>
AUTHORIZATION FOR REINVESTMENT
GOVERNMENT SECURITIES INCOME FUND
U.S. TREASURY STRATEGY TRUST--1
DEFINED ASSET FUNDS
/ / YES, I WANT TO PARTICIPATE IN THE FUND'S REINVESTMENT PLAN AND PURCHASE
ADDITIONAL UNITS OF THE FUND EACH MONTH.
I hereby acknowledge receipt of the Prospectus for Government Securities
Income Fund, U.S. Treasury Strategy Trust--1, Defined Asset Funds and authorize
The Chase Manhattan Bank, N.A. to pay distributions on my Units as indicated
below (distributions to be reinvested will be paid for my accounts to The Chase
Manhattan Bank, N.A.)
Income distributions
(check one): / / in cash / / reinvested
Principal
distributions (check
one): / / in cash / / reinvested
Please print or type
Name Registered Holder
Address
Registered Holder
(Two signatures required if
joint tenancy)
City State Zip Code
This page is a self-mailer. Please complete the information above, cut
along the dotted line, fold along the lines on the reverse side, tape, and mail
with the Trustee's address displayed on the outside.
12345678
<PAGE>
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 644, NEW YORK, N.Y. NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
GOVERNMENT SECURITIES INCOME FUND UNITED STATES
U.S. TREASURY STRATEGY TRUST--1
DEFINED ASSET FUNDS
THE CHASE MANHATTAN BANK, N.A.
UNIT TRUST DEPARTMENT
BOX 2051
NEW YORK, N.Y. 10081
- ------------------------------------------------------------------------------
(Fold along this line.)
- ------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
INVESTMENT SUMMARY AS OF EVALUATION DATE (CONTINUED)
PREMIUM AND DISCOUNT ISSUES IN PORTFOLIO
Face amount of Securities
with offering side evaluation:
at a discount from par--100%
TRUSTEE'S ANNUAL FEE AND EXPENSES+:
$1.70 per 1,000 Units (see Expenses and Charges)
PORTFOLIO SUPERVISION FEE
Maximum of $0.25 per $1,000 face amount of underlying
Securities (see Expenses and Charges)
EVALUATOR'S FEE FOR EACH EVALUATION
Maximum of $10.00 (see Expenses and Charges)
EVALUATION TIME
3:30 P.M. New York Time
MANDATORY TERMINATION DATE
The Trust must be terminated no later than one year
after the maturity date of the last maturing Extension
Security as provided under 'Extensions'.
MINIMUM VALUE OF FUND
Trust may be terminated if value of Fund is less than
40% of the aggregate face amount of Securities as of
their date of deposit.
PORTFOLIO AT A GLANCE
U.S. TREASURY SECURITIES--The Portfolio consists of interest-bearing U.S.
Treasury securities without conversion or equity features.
INVESTMENT QUALITY--Based on the creditworthiness of the Federal government,
the Units of the Fund have been rated AAA by Standard & Poor's.
MATURITIES--The initial issues have fixed final maturity dates ranging from
1994 to 1998. Approximately once a year until 2007, the proceeds of a maturing
Security will automatically be reinvested into other U.S. Treasury securities
having a fixed final maturity date approximately five years from their date of
purchase. For the last five years of the Fund, proceeds of maturing Securities
will be distributed to Holders as they become available, returning approximately
20% of the Portfolio as of the last year in which an Extension occurs on
maturity of each Security.
CALL PROTECTION--None of the issues in the Portfolio is subject to
redemption prior to maturity, but approximately 20% of the Portfolio matures
approximately once a year until 2007.
OBJECTIVES OF THE FUND--To obtain safety of capital as well as current
monthly income through investment in an extendable portfolio initially
consisting of U.S. Treasury securities (the 'Securities') with laddered
maturities of approximately one to five years. The Fund seeks to reduce Unit
price fluctuations with changing interest rates by reinvesting the proceeds of
maturing Securities approximately once a year until 2007 into Extension
Securities with maturities of approximately five years so that the Fund will
maintain a Portfolio of Securities with a weighted average maturity of
approximately 2 1/2 years (see Extensions).
FUND PORTFOLIO--5 different issues of U.S. Treasury securities. The
percentage relationships on the Evaluation Date of Deposit are as follows: 4.25%
coupons maturing 7/31/94, 20%; 3.875% coupons maturing 4/30/95, 20%; 4.25%
coupons maturing 5/15/96, 20%; 5.50% coupons maturing 7/31/97, 20%; 5.125%
coupons maturing 4/30/98, 20%. None of the Securities initially deposited has
been purchased on a when, as and if issued basis. As each U.S. Treasury security
matures, until approximately 2007 the proceeds (minus the deferred sales charge
payable to the Sponsors) will be automatically reinvested into new five-year
U.S. Treasury securities (see Extensions).
The guaranteed payment of principal and interest afforded by U.S. Treasury
securities may make investment in the Fund particularly well suited for purchase
by Individual Retirement Accounts ('IRAs'), Keogh plans, and other tax-deferred
retirement plans. In addition, the ability to buy single Units at a Public
Offering Price per Unit of approximately $1.00 enables these investors to tailor
the dollar amount of their purchases of Units to take maximum possible advantage
of the annual deductions available for contributions to these plans (see
Retirement Plans).
RISK FACTORS--U.S. Government securities are not affected by credit risk but
are subject to changes in market value resulting from changes in interest rates.
Therefore, an investment in Units of the Fund should be made with an
understanding of the risks which an investment in fixed-rate short and
intermediate term debt obligations may entail, including the risk that the value
of the Portfolio and hence of the Units will decline with increases in interest
rates (see Risk Factors). Holders should also understand that while the weighted
average maturity of the Portfolio is approximately 2 1/2 years, until
approximately 2007 it will range from a low of 2 years to a high of 3 years,
depending on the time to the next extension date.
The Sponsors may deposit additional Securities in the Fund (where additional
Units are to be offered to the public) subsequent to the Initial Date of
Deposit, in each instance maintaining to the extent practicable the original
percentage relationship among the principal amounts of Securities (including
Extension Securities) of specified interest rates and maturities in the
Portfolio (see Fund Structure; Description of the Fund--The Portfolio).
- ------------------
+ Of this amount the Trustee receives annually $.48 per $1,000 face
amount of Securities for its services as Trustee, subject to reduction as the
size of the Fund increases. The Trustee's Annual Fee and Expenses also includes
the Sponsors' Portfolio Supervision Fee and the Evaluator's Fee set forth
herein. A portion of the Trustees' Expenses represents compensation for amounts
advanced or to be advanced to the Fund by the Trustee in order to make certain
distributions to Holders in excess of cash available for that purpose, as
required by the Internal Revenue Code of 1986, as amended (see Administration of
the Fund--Accounts and Distributions).
* The initial sales charge will be reduced on a graduated scale in the
case of quantity purchases of Units (see Public Sale of Units-- Public Offering
Price).
A-4
<PAGE>
INVESTMENT SUMMARY AS OF EVALUATION DATE (CONTINUED)
PUBLIC OFFERING PRICE--The minimum purchase is about $1,000, except that the
minimum purchase for Individual Retirement Accounts, Keogh plans and other
tax-deferred retirement plans is about $250. There is no minimum purchase for
payroll deduction plans. (See Public Sale of Units--Public Offering Price).
During the initial offering period, the Public Offering Price per 1,000
Units is equal to the aggregate offering side evaluation of the underlying
Securities (the price at which they could be purchased directly by the public
assuming they were available) divided by the number of Units outstanding times
1,000, plus the initial sales charge of 1.266%* of the offering side evaluation
per 1,000 Units (the net amount invested); this results in an initial sales
charge of 1.25%* of the Public Offering Price. The secondary market Public
Offering Price is based on the bid side evaluation of the underlying Securities,
plus the initial sales charge of 1.01523%* of the bid side evaluation per Unit
(or 1.50%* of the secondary market Public Offering Price). In addition to the
initial sales charge, the Units will be subject to a maximum of 14 deferred
sales charges of $3.75 per 1,000 Units payable from the proceeds of maturing
Securities on their maturity dates (see Extensions). The maximum aggregate sales
charge (including both initial and deferred portions) for Units purchased during
any primary offering period is approximately 6.50% of the Public Offering Price
which is approximately 6.952% of the net amount invested in Securities. See the
chart following this Investment Summary for the percentage which the maximum
aggregate sales charge (including both initial and deferred portions) represents
at various intervals of the Public Offering Price per 1,000 Units. Units are
offered at the Public Offering Price computed as of the Evaluation Time for all
sales made subsequent to the previous evaluation, plus cash per Unit in the
Capital Account not allocated to the purchase of particular Securities and net
interest accrued. The Public Offering Price will vary from the Public Offering
Price set forth on page A-3 (see Public Sale of Units--Public Offering Price and
Redemption).
The figures above assume a purchase of 1,000 Units. The price of a single
Unit, or any multiple thereof, is calculated simply by dividing the Public
Offering Price per 1,000 Units above, by 1,000, and multiplying by the number of
Units purchased.
MONTHLY DISTRIBUTIONS--Monthly income distributions will be made in cash on
or shortly after the 25th day of each month to Holders of record on the 10th day
of the month (see Administration of the Fund--Accounts and Distributions).
Alternatively, Holders may elect to have their monthly income distributions
reinvested in whole or fractional Units of the Fund subject only to deferred
sales charges (see Administration of the Fund--Reinvestment Plan). Holders
electing to reinvest their monthly income distributions will receive additional
Units and therefore will own a greater percentage of the Fund than Holders who
receive their distributions in cash.
Distributions of any capital gain net income (i.e., the excess of capital
gains over capital losses) recognized by the Fund in any taxable year will be
made annually shortly before or after the end of the year. These distributions
may also be reinvested in additional Units of the Fund. This reinvestment option
may be modified or cancelled at the discretion of the Sponsors. (See
Administration of the Fund--Reinvestment Plan).
During approximately the first 15 years of the Fund, the proceeds from
maturing Securities will be automatically reinvested into new Securities if
available with maturities of approximately five years. Thereafter, a
distribution from the Capital Account will be made in cash when each remaining
Security in the Fund matures. (See Administration of the Fund--Accounts and
Distributions).
TAXATION--The Sponsors believe that Holders who are individuals will not be
subject to any state personal income taxes on distributions of the Fund's
interest income. Distributions of ordinary income or capital gain from the Fund
will constitute dividends for Federal income tax purposes, but will not be
eligible for the dividends-received deduction for corporations. Distributions to
Holders who are not U.S. citizens or residents will generally be subject to
withholding tax at the statutory rate of 30% (or a lesser treaty rate). (See
Taxes).
MARKET FOR UNITS--While the Sponsors are not obligated to do so, it is their
intention to maintain a market for Units of this Series and continuously to
offer to purchase those Units at prices, subject to change at any time, which
generally will be computed on the basis of the offering side of the market,
taking into account the same factors referred to in determining the bid side
evaluation of Securities for purposes of redemption (see Redemption). However,
from time to time when no additional Units are expected to be created, the
Sponsors may maintain this market at prices computed on the basis of the bid
side evaluation of the Securities. If this market is not maintained a Holder
will be able to dispose of his Units through redemption at prices also based on
the aggregate bid side evaluation of the underlying Securities (see Redemption).
Market conditions may cause the prices available in the market maintained by the
Sponsors or available upon exercise of redemption rights to be more or less than
the total of the amount paid for Units plus accrued interest.
UNDERWRITING ACCOUNT
The names and addresses of the Underwriters are:
<TABLE>
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith P.O. Box 9051, Princeton, N.J. 08543-9051
Incorporated
Shearson Lehman Brothers Inc. Two World Trade Center--101st Floor, New York, N.Y. 10048
Prudential Securities Incorporated One Seaport Plaza--199 Water Street, New York, N.Y. 10292
Dean Witter Reynolds Inc. Two World Trade Center--69th Floor, New York, N.Y. 10048
PaineWebber Incorporated 1285 Avenue of the Americas, New York, N.Y. 10019
</TABLE>
Each Underwriter's interest in the Underwriting Account will depend upon the
number of Units acquired through the issuance of additional Units.
A-5
<PAGE>
AGGREGATE SALES CHARGES AS A
PERCENTAGE OF PUBLIC OFFERING PRICE PER 1,000 UNITS AT SELECTED INTERVALS*
<TABLE>
<CAPTION>
PUBLIC PUBLIC
PUBLIC
OFFERING PRICE OFFERING OFFERING PRICE
MINUS PRICE PER PLUS
1,000 UNITS
ON
------------------------ APRIL 30, ------------------------
$50 $25 1994 $25 $50
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Public
Offering
Price $ 940.92$ 965.92$ 990.92 $ 1,015.92$ 1,040.92
Aggregate
Sales
Charges $ 64.26$ 64.57$ 64.88 $ 65.19$ 65.51
Aggregate
Sales
charges
as a
percentage
of
Public
Offering
Price 6.83% 6.68% 6.55% 6.42% 6.29%
</TABLE>
- ---------------
* These represent the maximum fees and figures assuming that Units are
purchased on the date stated and are held until maturity of the Fund. Purchases
after the initial Deferred Charge Payment Date or sales before the last Deferred
Charge Payment Date will result in less deductions of deferred sales charges and
therefore have the effect of reducing the aggregate sales charge. The initial
sales charge is reduced on purchases of 1,000,000 Units or more.
A-6
<PAGE>
THE GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY STRATEGY TRUST - 1, DEFINED ASSET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of The Government Securities Income Fund,
U.S. Treasury Strategy Trust - 1, Defined Asset Funds:
We have audited the accompanying statement of condition of The Government
Securities Income Fund, U.S. Treasury Strategy Trust - 1, Defined Asset Funds,
including the portfolio, as of April 30, 1994 and the related statements of
operations and of changes in net assets for the period May 26, 1993 to April 30,
1994. These financial statements are the responsibility of the Trustee. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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
April 30, 1994, as shown in such portfolio, were confirmed to us by The Chase
Manhattan Bank, N.A., 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 audit provides 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 Government Securities
Income fund, Monthly Payment U.S. Treasury Strategy Trust - 1, Defined Asset
Funds at April 30, 1994 and the results of its operations and changes in its net
assets for the above-stated period in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE
New York, N.Y.
August 2, 1994
D-1
<PAGE>
THE GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY STRATEGY TRUST - 1, DEFINED ASSET FUNDS
STATEMENT OF CONDITION
AS OF APRIL 30, 1994
<TABLE>
<S> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $53,754,778) (Note 1) $52,317,757
Accrued interest receivable 950,740
Due from Sponsors 489,469
Total trust property 53,757,966
LESS LIABILITIES:
Advance from Trustee $ 803,871
Purchases payables 489,469
Accrued Sponsors' fees 4,206 1,297,546
NET ASSETS, REPRESENTED BY:
53,500,000 units of fractional undivided interest
outstanding (Note 3) 52,317,757
Undistributed net investment income 142,663 $52,460,420
UNIT VALUE ($52,460,420 / 53,500,000 units) $0.98057
See Notes to Financial Statements.
</TABLE>
D-2
<PAGE>
THE GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY STRATEGY TRUST - 1, DEFINED ASSET FUNDS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
May 26,
1993 to
April 30,
1994
<S> <C>
INVESTMENT INCOME:
Interest income $1,566,522
Trustee's fees and expenses (51,507)
Sponsors' fees (9,264)
Net investment income 1,505,751
UNREALIZED DEPRECIATION OF INVESTMENTS (1,437,021)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 68,730
See Notes to Financial Statements.
</TABLE>
D-3
<PAGE>
THE GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY STRATEGY TRUST - 1, DEFINED ASSET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
May 26,
1993 to
April 30,
1994
<S> <C>
OPERATIONS:
Net investment income $ 1,505,751
Unrealized depreciation of investments (1,437,021)
Net increase in net assets resulting from operations 68,730
INCOME DISTRIBUTIONS TO HOLDERS (Note 2) (1,503,488)
CAPITAL SHARE TRANSACTIONS - Issuances of 53,250,000 units 53,645,163
NET INCREASE IN NET ASSETS 52,210,405
NET ASSETS AT BEGINNING OF PERIOD 250,015
NET ASSETS AT END OF PERIOD $52,460,420
PER UNIT:
Income distributions during period $0.03889
Net asset value at end of period $0.98057
TRUST UNITS OUTSTANDING AT END OF PERIOD 53,500,000
See Notes to Financial Statements.
</TABLE>
D-4
<PAGE>
THE GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY STRATEGY TRUST - 1, DEFINED ASSET FUNDS
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
(a) Securities are stated at value as determined by the Evaluator based on
bid side evaluations for the securities. See "Redemption -
Computation of Redemption Price Per Unit" in this Prospectus, except
that value on May 26, 1993 was based upon offering side evaluations at
May 24, 1993, the day prior to the Date of Deposit. Cost of
securities at May 26, 1993 was also based on such offering side
evaluations. The cost of securities deposited subsequent to the
initial date of deposit are based on offering side evaluations at
dates of purchase. Gains or losses on sales of securities are
computed using the first-in, first-out method.
(b) The Fund is not subject to income taxes. Accordingly, no provision for
such taxes is required.
(c) Interest income is recorded as earned.
2. DISTRIBUTIONS
Net investment income is distributed to Holders each month. Receipts other
than interest, after deductions for redemptions and applicable expenses,
are distributed as explained in "Administration of the Fund" in this
Prospectus.
3. NET CAPITAL
Cost of 53,500,000 units at Dates of Deposit $54,435,313
Less sales charge 680,535
Net amount applicable to Holders 53,754,778
Unrealized depreciation of investments (1,437,021)
Net capital applicable to Holders $52,317,757
4. INCOME TAXES
All fund items of income received, expenses paid, and realized gains and
losses on securities sold are attributable to the Holders, on a pro rata
basis, for Federal income tax purposes in accordance with the grantor trust
rules of the United States Internal Revenue Code.
At April 30, 1994, the cost of investment securities for Federal income tax
purposes was approximately equivalent to the cost as shown in the Fund's
portfolio.
D-5
<PAGE>
THE GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY STRATEGY TRUST - 1, DEFINED ASSET FUNDS
PORTFOLIO
AS OF APRIL 30, 1994
<TABLE>
<CAPTION>
Portfolio No. and Title of Face Interest
Securities Amount Rate Maturities Cost(1) Value(1)
<S> <C> <C> <C> <C> <C>
1. United States Treasury Notes $10,700,000 4.250% 7/31/94(2) $10,768,630 $10,699,786
2. Unite d States Treasury Notes 10,700,000 3.875 4/30/95 10,682,716 10,571,065
3. United States Treasury Notes 10,700,000 4.250 5/15/96 10,655,729 10,387,346
4. United States Treasury Notes 10,700,000 5.500 7/31/97 10,943,109 10,466,312
5. United States Treasury Notes 10,700,000 5.125 4/30/98 10,704,594 10,193,248
TOTAL $53,500,000 $53,754,778 $52,317,757
</TABLE>
(1) See note 1 to Financial Statements.
(2) The securities in Portfolio Number 1 matured on July 31, 1994. After
deduction of a $225,000 deferred sales charge, $11,775,000 of the proceeds
were used to purchase $11,769,000 face amount of 6.75% U. "Extensions" in
this Prospectus.
D-6
<PAGE>
GOVERNMENT SECURITIES INCOME FUND
U.S. TREASURY STRATEGY TRUST--1
DEFINED ASSET FUNDS
FUND STRUCTURE
This Series (the 'Fund') of Government Securities Income Fund, Defined
Asset Funds is a 'unit investment trust' created under New York law by a Trust
Indenture (the 'Indenture') among the Sponsors, the Trustee and the Evaluator.
Unless otherwise indicated, when Investors Bank & Trust Company and The First
National Bank of Chicago act as Co-Trustees to the Fund, reference to the
Trustee in the Prospectus shall be deemed to refer to Investors Bank & Trust
Company and The First National Bank of Chicago, as Co-Trustees. 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 such reference. On the date of this Prospectus
(the 'Evaluation Date') the Sponsors, acting as managers for the underwriters
named under Underwriting Account above, deposited the underlying Securities with
the Trustee at a price equal to the evaluation of the Securities on the offering
side of the market on that date as determined by the Evaluator, and the Trustee
delivered to the Sponsors units of interest ('Units') representing the entire
ownership of the Fund. Except as otherwise indicated under Portfolio (the
'Portfolio'), the Securities so deposited were represented by purchase contracts
assigned to the Trustee together with an irrevocable letter or letters of credit
issued by a commercial bank or banks in the amount necessary to complete the
purchase thereof. The holders ('Holders') of Units will have the right to have
their Units redeemed (see Redemption) at a price based on the aggregate bid side
evaluation of the Securities ('Redemption Price per Unit') if they cannot be
sold in the over-the-counter market which the Sponsors propose to maintain (see
Market for Units).
As used herein, the term 'Securities' means the interest-bearing U.S.
Treasury securities deposited in the Fund and certain additional
interest-bearing U.S. Treasury securities subsequently acquired by the Fund
through the reinvestment of the proceeds of maturing securities (less an amount
for deferred sales charge obligations) to take place approximately once a year
('Extensions'--see Extensions) and any replacement and additional obligations
acquired and held by the Fund pursuant to the provisions of the Indenture.
With the deposit of the Securities in the Fund on the Initial Date of
Deposit, the Sponsors established a proportionate relationship among the face
amounts of each Security in the Portfolio. Following the Initial Date of
Deposit, the Sponsors may deposit additional Securities ('Additional
Securities'), contracts to purchase Additional Securities or cash (or a bank
letter of credit in lieu of cash) with instructions to purchase Additional
Securities, in order to create new Units, maintaining to the extent practicable
the original proportionate relationship among the face amounts of each Security,
including Extension Securities, in the Portfolio. It may not be possible to
maintain this proportionate relationship among the Securities because of, among
other reasons, purchase requirements, changes in prices, or unavailability of
Securities. Substitute Securities, as defined below, may be acquired under
specified conditions (see Description of the Fund--The Portfolio; Administration
of the Fund--Portfolio Supervision). Units may be continuously offered to the
public by means of this Prospectus (see Public Sale of Units--Public
Distribution) resulting in a potential increase in the number of Units
outstanding.
The holders ('Holders') of Units will have the right to have their Units
redeemed (see Redemption) at a price based on the aggregate bid side evaluation
of the Securities ('Redemption Price per Unit') if the Units cannot be sold in
the over-the-counter market which the Sponsors propose to maintain at prices
determined in the same manner (see Market for Units). On the Initial Date of
Deposit each Unit represented the fractional undivided interest in the
Securities and net income of the Fund set forth under the Investment Summary in
the ratio of 1,000 Units for each approximately $1,000 face amount of Securities
initially deposited. Thereafter, if any Units are redeemed, the face amount of
Securities in the Fund will be reduced by amounts allocable to redeemed Units,
and the fractional undivided interest represented by each Unit in the balance
will be decreased. However, if additional Units are issued by the Fund (through
deposit of Securities by the Sponsors in connection with the sale of additional
Units), the aggregate value of Securities in the Fund will be increased by
amounts allocable to additional Units, and the fractional undivided interest
represented by each Unit in the balance will be increased. Units will remain
outstanding until redeemed upon tender to the Trustee by any Holder (which may
include the Sponsors) or until the termination of the Indenture (see Redemption;
Administration of the Fund-- Amendment and Termination.)
1
<PAGE>
RISK FACTORS
An investment in Units of the Fund should be made with an understanding of
the risks which an investment in fixed rate debt obligations may entail,
including the risk that the value of the Portfolio and hence of the Units will
decline with increases in interest rates. There have been recent wide
fluctuations in interest rates and thus in the value of fixed rate debt
obligations generally. The Sponsors cannot predict future economic policies or
their consequences or, therefore, the course or extent of any similar
fluctuations in the future.
The Fund may be an appropriate medium for U.S. investors who desire to
participate in a portfolio of taxable fixed income securities offering the
safety of capital provided by an investment backed by the full faith and credit
of the United States. In addition, many investors may benefit from the exemption
from state personal income taxes that will pass through the Fund to Holders in
all states (see Taxes below).
SPECIAL FEATURES OF MARKET PREMIUM SECURITIES
Certain of the Securities in the Fund may have been valued (and certain
Extension Securities may be valued) at a market premium. Securities trade at a
premium because the interest rates on these Securities are higher than interest
on comparable debt securities being issued at currently prevailing interest
rates. If currently prevailing interest rates for newly issued and otherwise
comparable securities increase, the market premium of previously issued
securities will decline and if currently prevailing interest rates for newly
issued and otherwise comparable securities decline, the market premium of
previously issued securities will increase, other things being equal. The
current returns of securities trading at a market premium are higher than the
current returns of comparably rated debt securities of a similar type issued at
currently prevailing interest rates because premium securities tend to decrease
in market value as they approach maturity when the face amount becomes payable.
Because part of the purchase price is thus returned not at maturity but through
current income payments, an early redemption of a premium security at par will
result in a reduction in yield. Market premium attributable to interest rate
changes does not indicate market confidence in the issue.
SPECIAL FEATURES OF MARKET DISCOUNT SECURITIES
Certain of the Securities in the Fund may have been valued (and certain
Extension Securities may be valued) at a market discount. Securities trade at
less than par value because the interest rates on these Securities are lower
than interest on comparable debt securities being issued at currently prevailing
interest rates. If currently prevailing interest rates for newly issued and
otherwise comparable securities increase, the market discount of previously
issued securities will become deeper and if currently prevailing interest rates
for newly issued and otherwise comparable securities decline, the market
discount of previously issued securities will be reduced, other things being
equal. The current returns of securities trading at a market discount are lower
than the current returns of comparably rated debt securities of a similar type
issued at currently prevailing interest rates because discount securities tend
to increase in market value as they approach maturity when the face amount
becomes payable. Market discount attributable to interest rate changes does not
indicate a lack of market confidence in the issue.
U.S. TREASURY SECURITIES
The U.S. Treasury obligations included in the Portfolio are backed by the
full faith and credit of the United States. The prospectus contains information
concerning the coupon rates and maturities of the Securities in the Fund under
the caption 'Portfolio'.
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio initially consists of contracts to purchase U.S. Treasury
obligations fully secured by the full faith and credit of the United States,
certain of which may have been purchased at a market discount or premium.
Certain Securities may have been purchased on a when, as and if issued basis
(see the Investment Summary). Holders of Units may derive either gain or loss
from fluctuations in the offering side evaluation of the Securities from the
date they purchase Units.
Experienced professional buyers and market analysts in the Unit Investment
Trusts division of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Agent for
the Sponsors, select securities for deposit in the Fund considering the
following factors, among others: (i) the securities available; (ii) the prices
of the securities relative
2
<PAGE>
to other comparable securities and the extent to which certain of these
securities are trading at a discount from, or premium over, par; and (iii) the
maturities of these securities.
The yield to maturity and the discount from, or premium over, par on
securities of the type deposited in the Fund is dependent on a variety of
factors, including general money market conditions, general conditions of the
bond market and prevailing interest rates.
The Fund consists of the U.S. Treasury obligations (or contracts to
purchase U.S. Treasury obligations) listed under Portfolio as may continue to be
held from time to time in the Fund (including any Extension Securities, any
Replacement Securities and any Additional Securities deposited in the Fund in
connection with the sale of additional Units to the public as described under
Fund Structure above and Extensions below), together with the accrued and
undistributed interest thereon and undistributed cash realized from the sale or
redemption of Securities (see Administration of the Fund--Portfolio
Supervision). Neither the Sponsors nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Securities. However, should any
contract for Securities fail ('Failed Securities'), including any Security
purchased on a when, as and if issued basis, the Sponsors are authorized under
the Indenture to direct the Trustee to acquire substitute securities
('Substitute Securities') substantially similar to those originally contracted
for and not delivered (see Administration of the Fund--Portfolio Supervision).
If Substitute Securities are not acquired, the Sponsors will, on or before the
next following Distribution Day, cause to be refunded the attributable sales
charge, plus the attributable Cost of Securities to Fund, plus interest
attributable to the Failed Security) (see Administration of the Fund--Portfolio
Supervision). If Replacement Securities are not acquired, the Sponsors will,
within 30 days after the failure, cause to be refunded the attributable Cost of
Securities to Fund, plus accrued interest (if any) at the coupon rate of the
relevant Security to the date the Sponsors are notified of the failure.
The Indenture authorizes the Sponsors to increase the size of, and the
number of Units in, the Fund by the deposit of Additional Securities and the
issue of a corresponding number of additional Units subsequent to the Initial
Date of Deposit provided that the proportionate relationship among the face
amounts of Securities of specified interest rates and maturities is maintained
to the extent practicable. In addition, through approximately the first 15 years
of the Fund the Indenture authorizes the Sponsors to reinvest the proceeds from
maturing Securities (less an amount necessary to satisfy the Holders' deferred
sales charge obligation) into Extension Securities with maturities of
approximately five years and at prices at or close to par, if possible; if
appropriate Extension Securities are not available in any of those years, and in
each year subsequent to approximately the fourteenth year of the Fund in which a
Security matures, the proceeds will be distributed to the Holder upon maturity
of the security (see Extensions). Also, Securities may be sold under certain
circumstances (see Redemption; Administration of the Fund--Portfolio
Supervision). Because the proceeds from such events received by the Fund (less
certain amounts deducted by the Trustee as described under Expenses and Charges)
will be distributed to Holders or paid out upon redemptions, and because
additional Securities (including Extension Securities) may be deposited
following the Initial Date of Deposit, the aggregate principal amount of the
Securities in the Portfolio will vary over time.
On the Evaluation Date each Unit represented the fractional undivided
interest in the Fund set forth under the Investment Summary. Thereafter, if any
Units are redeemed by the Trustee the face amount of Securities in the Fund will
be reduced by amounts allocable to redeemed Units, and the fractional undivided
interest represented by each Unit in the balance will be increased. However, if
additional Units are issued by the Fund (through deposit of Securities by the
Sponsors in connection with the sale of additional Units), the aggregate value
of Securities in the Fund will be increased by amounts allocable to additional
Units, and the fractional undivided interest represented by each Unit in the
balance will be decreased. Units will remain outstanding until redeemed upon
tender to the Trustee by any Holder (which may include the Sponsors) or until
the termination of the Indenture (see Redemption; Administration of the
Fund--Amendment and Termination).
RATING OF UNITS
Standard & Poor's Corporation ('Standard & Poor's') has rated the Units of
the Fund AAA. This is the highest rating assigned by Standard & Poor's (see
Description of Standard & Poor's Rating). Standard & Poor's has been compensated
by the Underwriting Account for its services in rating Units of the Fund.
INCOME
The estimated net annual interest rate per Unit on the Evaluation Date is
set forth under the Investment Summary. This rate shows the percentage return
based on $1,000 face amount per 1,000 Units. Interest on the Securities in the
Fund, less estimated fees of the Trustee, Sponsors and Evaluator and certain
other expenses, is
3
<PAGE>
expected to accrue at the daily rate (based on a 360-day year) shown under the
Investment Summary. These rates will change as Securities are exchanged,
redeemed, paid or sold, as substitute or additional Securities (including
Extension Securities) are purchased and deposited in the Fund, or as the
expenses of the Fund change.
The accrued interest which is added to the Public Offering Price represents
the amount of accrued but unpaid interest on the underlying Securities from the
Initial Date of Deposit and, with respect to additional Securities (including
Extension Securities) deposited following the Initial Date of Deposit from the
date these additional Securities (including Extension Securities) are deposited
in the Fund to, but not including, the settlement date for Units. However,
Securities deposited in the Fund on the Initial Date of Deposit and additional
Securities (including Extension Securities) deposited following the Initial Date
of Deposit also include an item of accrued but unpaid interest up to the date
when the Securities are deposited in the Fund. To avoid having Holders pay this
additional accrued interest (which earns no return) when they purchase Units,
the Trustee pays this amount of accrued interest. Thus, the Sponsors can sell
the Units at a price which includes interest only from the date when these
Securities are deposited in the Fund. The Trustee will recover the amount of
this distribution from interest received on the Securities in the Fund. Because
of the varying interest payment dates of the Securities comprising the
Portfolio, accrued interest at any time may be greater than the amount of
interest actually received by the Fund and distributed to Holders. Therefore,
accrued interest is normally added to the value of the Units. If a Holder sells
all or a portion of his Units, he will receive his proportionate share of any
accrued interest from the purchaser of his Units. Similarly, if a Holder redeems
all or a portion of his Units, the Redemption Price per Unit will also include
accrued interest, if any, on the Securities. In addition, to the extent that in
any taxable year accrued interest exceeds cash available for the distribution of
income, the Trustee may advance the shortfall to the Fund for the purpose of
distributing to Holders the full amount of interest accrued in that year.
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 unit investment trusts are not actively managed and have limited
transactions, operating expenses are generally less than 0.25% of average net
assets per year. Keeping costs low increases earnings. When compounded annually,
small differences in expense ratios can make a big difference in earnings.
Record Days and Distribution Days are as set forth under the Investment
Summary.
FUND PERFORMANCE
Information on percentage changes in the value of Units, on the basis of
changes in Unit price plus the amount of interest and principal reinvested, may
be included from time to time in advertisements, sales literature, reports and
other information furnished to current or prospective Holders. Total return
figures are not averaged and may not reflect deduction of the sales charge,
which would decrease the yield. Average annualized return figures reflect
deduction of the maximum sales charges. 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, 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.
TAXES
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
United States 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 Holders
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 net
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) distributed to
Holders in a
4
<PAGE>
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 Holders 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 taxable 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 Holders during the
calendar year.
DISTRIBUTIONS
Distributions to Holders 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
Holders to the extent of the Fund's taxable income (without regard to its net
capital gain) for that year. Any excess will be treated as a return of capital
and will reduce the Holder's basis in his Units and, to the extent that such
distributions 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 Holders.
Distributions that are taxable as ordinary income to Holders 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 Holders as long-term capital gain, regardless of the time the
Units have been held by a Holder. A Holder may recognize taxable gain or loss if
the Holder 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. The deduction of capital losses is subject
to limitations.
Each Holder's basis in his Units will be equal to the cost of his Units,
including the initial sales charge. A portion of the sales charge is deferred
(the 'Deferred Sales Charge'). The proceeds received by a Holder upon
termination of the Fund or the redemption of the Units will reflect deduction of
the deferred amount. The annual statement and the relevant tax reporting forms
received by Holders will reflect the actual amounts paid to them, net of the
Deferred Sales Charge. Accordingly, Holders should not increase their basis in
their Units by the Deferred Sales Charge amount.
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 Holder purchases his Units. Such
gain must be distributed to Holders 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 Holders. Any such distribution will be
taxable to Holders as discussed above (i.e., as ordinary income or long-term
capital gain), even if as to a particular Holder the distribution economically
represents a return of capital. Since such distributions do not reduce a
Holder's tax basis in his Units, a Holder will have a corresponding capital loss
(or a reduced amount of gain) on a subsequent sale or redemption of his Units.
A Holder will recognize taxable gain or loss upon the redemption of his
Units, which will be capital gain or loss except in the case of a dealer in
securities. If a Holder requests a distribution in kind, the Holder will
recognize taxable gain or loss equal to the difference between such Holder's tax
basis in his Units and the amount of cash plus the fair market value of
Securities received in redemption. If a Holder requests a cash payment, the
Holder will recognize taxable gain or loss equal to the difference between such
Holder's tax basis in his Units and the amount of cash received. Holders should
consult their tax advisers in this regard.
The Federal tax status of each year's distributions will be reported to
Holders and to the Internal Revenue Service.
The foregoing discussion relates to the tax treatment of distributions by
the Fund to U.S. Holders. Holders who are not U.S. citizens or residents should
be aware that distributions from the Fund (other than distributions designated
as capital gain dividends) generally will be subject to a withholding tax of
30%, or a lower treaty rate, and should consult their own tax advisors to
determine whether investment in the Fund is appropriate.
5
<PAGE>
Holders will be taxed in the manner described above regardless of whether
such distributions from the Fund are actually received by the Holder or are
automatically reinvested into additional Units of the Fund pursuant to the
Reinvestment Plan.
* * *
The Sponsors believe that Holders who are individuals will not be subject
to any state personal income taxes on distributions of the Fund's interest
income. However, Holders (including individuals) may be subject to state taxes
on distributions by the Fund of income other than interest as well as capital
gains from the sale or redemption of Units of a Fund. Other state taxes
(including corporate income or franchise taxes, personal property or intangible
taxes and estate or inheritance taxes) may also be imposed on distributions of
income by the Fund or capital gains from the sale or redemption of Units of a
Fund. In addition, individual Holders (and any other Holders that are not
subject to state taxes on the interest income distributed by the Fund) may not
be entitled to a deduction for state tax purposes for any interest on
indebtedness incurred to purchase or carry their Units. Therefore, even though
the Sponsors believe that interest income distributed by the Fund is exempt from
state personal income taxes in all states, Holders should consult their own tax
advisers with respect to state taxation.
RETIREMENT PLANS
This Series of Defined Asset Funds--Government Securities Income Fund may
be well suited for purchase by 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 these 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. Holders of units in IRAs,
Keogh plans and other tax-deferred retirement plans should consult their plan
custodian as to the 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 advisers with respect
to the establishment and maintenance of any of these plans. These plans are
offered by brokerage firms, including each of the Sponsors of this Fund, and
other financial institutions. Fees and charges with respect to these plans may
vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units of the Fund may
be purchased by retirement plans established pursuant to the Self-Employed
Individuals Tax Retirement Act of 1962 ('Keogh plans') for self-employed
individuals, partnerships or unincorporated companies. Qualified individuals may
generally make annual tax-deductible contributions up to the lesser of 20% of
annual compensation or $30,000 in a Keogh plan. The assets of the plan must be
held in a qualified trust or other arrangement which meets the requirements of
the Code. Generally there are penalties for premature distributions from a plan
to certain participants before attainment of age 59 1/2, except in the case of
the participant's death or disability. 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 (including one covered
by a qualified private or government retirement plan) can establish an IRA or
make use of a qualified IRA arrangement set up by an employer or union for the
purchase of Units of the Fund. Any individual can make a contribution to 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 filing a separate return). A married individual filing a
separate return will not be entitled to any deduction if the individual is
covered by an employer-maintained retirement plan, without regard to whether the
individual's spouse is an active participant in an employer retirement plan.
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. It should be noted that 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. A participant's entire interest in an IRA must be, or
commence to be, distributed to the participant not later than the April 1
following the taxable year during which the participant attains age 70 1/2.
Taxable distributions made before attainment of age 59 1/2, except in the case
of a 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.
6
<PAGE>
PUBLIC SALE OF UNITS
PUBLIC OFFERING PRICE
The Public Offering Price of the Units during the initial offering period
(currently expected to last until approximately 2007), except during the periods
discussed below is computed by dividing the offering side evaluation of the
Securities (as determined by the Evaluator) by the number of Units outstanding
and adding thereto the initial sales charge in effect during the initial
offering period at the applicable percentage of the offering side evaluation per
Unit (the net amount invested). From time to time when no additional Units are
expected to be created for a period of time, the Sponsors may maintain a market
at prices computed on the basis of the bid side evaluation of the Securities.
During these periods, the Public Offering Price of the Units will be equal to
the Evaluator's determination of the aggregate bid side evaluation of the
Securities in the Fund, adding thereto the applicable sales charge in effect for
the secondary market and dividing the sum by the number of the Units outstanding
(see Market for Units). A proportionate share of any cash not allocated to the
purchase of specific Securities and net accrued and undistributed interest on
the Securities to the date of delivery of the Units to the purchaser is added to
the Public Offering Price. The Public Offering Price of Units will vary from day
to day in accordance with fluctuations in the evaluations of the underlying
Securities. The minimum purchase will be the greatest number of whole Units
having the aggregate value less than the dollar amounts stated under the caption
Public Offering Price in the Investment Summary.
Purchase of Units is subject to (i) an initial sales charge at the rates
set forth in the table below and (ii) a maximum of 14 deferred sales charges of
$3.75 per 1,000 Units subsequent to the Initial Date of Deposit, payable from
the proceeds of maturing Securities on their maturity date (each a 'Deferred
Charge Payment Date'). (See Extensions). The percentages which the aggregate
sales charges represent of the Public Offering Price per 1,000 Units at various
intervals are shown in the chart following the Investment Summary. If a Holder
sells or redeems Units before the final Deferred Charge Payment Date, no
deferred sales charge deduction will be made from the proceeds, and this will
have the effect of reducing the aggregate sales charges. Similarly, if Units are
purchased after any Deferred Charge Payment Date, the purchaser will not pay
charges previously deducted and this will also have the effect of reducing the
aggregate sales charges.
The following tables set forth (for both the initial offering period and
for secondary market sales) the applicable percentages of the initial sales
charge and the concessions to dealers and introducing dealers (i.e., dealers
that buy and clear directly through a Sponsor or an Underwriter who is an
affiliate of a Sponsor). These amounts are reduced for sales to any purchaser of
at least 1,000,000 Units and will be applied on whichever basis is more
favorable to the purchaser. To qualify for the reduced sales charge and
concession applicable to quantity purchases, the dealer must confirm that the
sale is to a single purchaser as defined below or is purchased for its own
account and not for distribution. The initial sales charges and dealer
concessions are as follows:
INITIAL OFFERING PERIOD
INITIAL SALES CHARGE
(GROSS UNDERWRITING PROFIT) DEALER PRIMARY
CONCESSION MARKET
AS PERCENT OF CONCESSION
PUBLIC TO INTRODUCING
OFFERING PRICE DEALERS
--------------------------------
--------------------------------
AS PERCENT OF
OFFER SIDE AS PERCENT OF
OF PUBLIC NET AMOUNT
UNITS OFFERING PRICE INVESTED
- ------------------------------------------------
Less than
1,000,000....... 1.25% 1.266% 0.813% $ 9.00
1,000,000 to
4,999,999....... 1.00 1.010 0.650 7.20
5,000,000 or
more............ .75 .756 0.490 5.40
SECONDARY MARKET SALES
<TABLE>
<CAPTION>
INITIAL SALES CHARGE
(GROSS UNDERWRITING PROFIT)
--------------------------------
AS PERCENT OF AS PERCENT OF
BID SIDE PUBLIC NET AMOUNT
NUMBER OF UNITS OFFERING PRICE INVESTED
- -------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Less than 1,000,000....................................................... 1.50% 1.523%
1,000,000 to 4,999,999.................................................... 1.00 1.010
5,000,000 or more......................................................... .75 .756
DEALER
CONCESSION
AS PERCENT OF
PUBLIC
OFFERING PRICE
-----------------------
NUMBER OF UNITS
- --------------------------------------------------------------------------
Less than 1,000,000....................................................... 0.975%
1,000,000 to 4,999,999.................................................... 0.650
5,000,000 or more......................................................... 0.490
</TABLE>
The graduated sales charges set forth above will apply to all purchases on
any one day by the same purchaser of Units only in the amounts stated. Purchases
will not be aggregated with concurrent purchases of any other unit trusts
sponsored by the Sponsors. Units held in the name of the spouse of the purchaser
or in the name of a child
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<PAGE>
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.
Employees of certain of the Sponsors and their affiliates may purchase
Units of this Fund at a price based on a reduced sales charge of not less than
$5.00 per 1,000 Units.
The following chart sets forth the estimated maximum dollar amount payable
on account of the deferred sales charge assuming that Holders hold their Units
through the following numbers of maturities of the Securities in the portfolio
(approximately annually), as follows:
MAXIMUM DOLLAR AMOUNT PER 1,000 UNITS
PAYABLE ON ACCOUNT OF DEFERRED SALES CHARGES
CUMULATIVE
DEFERRED
MATURITIES SALES CHARGE
- ---------- -------------
1 $ 3.75
2 7.50
3 11.25
4 15.00
5 18.75
6 22.50
7 26.25
8 30.00
9 33.75
10 37.50
11 41.25
12 45.00
13 48.75
14 52.50
COMPARISON OF PUBLIC OFFERING PRICE, SPONSORS' INITIAL REPURCHASE PRICE,
SECONDARY MARKET REPURCHASE PRICE AND REDEMPTION PRICE
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 each business day as of the
Evaluation Time set forth under Investment Summary, effective for all sales made
since the last evaluation (Section 4.01). The term 'business day', as used
herein and under 'Redemption', shall exclude Saturdays and Sundays; 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.
While the Sponsors are not obligated to do so, it is their intention to
maintain a market for Units of this Series and continuously to offer to purchase
those Units at prices, subject to change at any time, which until approximately
2007 generally will be computed on the basis of the offering side of the market,
taking into account the same factors referred to in determining the bid side
evaluation of Securities for purposes of redemption (see Redemption). However,
from time to time when no additional Units are expected to be created for a
period of time, the Sponsors may maintain this market at prices computed on the
basis of the bid side evaluation of the Securities. Under current market
conditions the bid prices for Treasury obligations of the type deposited in the
Fund are expected to be approximately .10% lower than the offering prices
thereof. On the Evaluation Date, the bid side evaluation was lower than the
offering side evaluation by the amount set forth under Investment Summary. For
this reason, among others (including fluctuations in the market prices of these
Securities and the fact that a Holder pays initial and deferred sales charges),
the amount realized by a Holder upon any sale or redemption of Units may be less
than the price paid by him for those Units.
PUBLIC DISTRIBUTION
Units are easy to purchase. During any primary offering period Units will
be distributed to the public at a price based on the Public Offering Price
through the Underwriting Account set forth above and dealers. Upon the
completion of any primary offering period, Units which remain unsold or which
may be acquired in the
8
<PAGE>
secondary market (see Market for Units) may be offered directly to the public by
this Prospectus at the secondary market Public Offering Price determined in the
manner provided above.
The Sponsors intend to continue to qualify Units for sale in any states in
the U.S. 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 of the applicable rate specified in the table above, but the Agent
for the Sponsors reserves the right to change the rate of the concession to
dealers and the amount of concession to introducing dealers from time to time.
Any dealer or introducing dealer may reallow a concession not in excess of the
concession to dealers.
UNDERWRITERS' AND SPONSORS' PROFITS
Upon sale of the Units, the Underwriters named under the Underwriting
Account, including the Sponsors, will receive the initial sales charges at the
rates set forth in the tables above. In addition, the Sponsors will receive
deferred sales charges through deductions from the proceeds of maturing
Securities before the proceeds are reinvested pursuant to an Extension in the
amounts set forth under Investment Summary. On each subsequent deposit of
Securities with respect to the sale of additional Units to the public, the
Sponsors may realize a profit or loss which is the difference between the cost
of the Securities to the Fund (which is based on the offering side evaluation of
the Securities on the date of deposit) and the purchase price of the Securities
paid by the Sponsors. During any primary offering period the Underwriting
Account also may realize profits or sustain losses as a result of fluctuations
after the date of deposit of Securities in the Public Offering Price of the
Units (see Investment Summary). Cash, if any, made available to the Sponsors by
investors prior to the settlement dates for purchases of Units may be used in
the Sponsors' businesses subject to the limitations of Rule 15c3-3 under the
Securities Exchange Act of 1934 and may be of benefit to the Sponsors.
In maintaining a market for the Units (see Market for Units), the Sponsors
may also realize profits or sustain losses in the amount of any difference
between the prices at which they buy Units (based on the bid side evaluation of
the Securities) and the prices at which they resell the Units (which include
sales charges) or the prices at which they redeem the Units (based on the bid
side evaluation of the Securities), as the case may be.
MARKET FOR UNITS
While the Sponsors are not obligated to do so, it is their intention to
maintain a market for Units of this Series and continuously to offer to purchase
those Units at prices, subject to change at any time, which until approximately
2007 generally will be computed on the basis of the offering side of the market,
taking into account the same factors referred to in determining the bid side
evaluation of Securities for purposes of redemption (see Redemption). However,
from time to time when no additional Units are expected to be created for a
prolonged period of time, the Sponsors may maintain this market at prices
computed on the basis of the bid side evaluation of the Securities. This market
provides Holders with a fully liquid investment. They can cash in Units at any
time without a fee. The Sponsors may discontinue purchases of Units of this
Series should the supply of Units of this Series exceed demand, or for other
business reasons. In this event the Sponsors may nonetheless under certain
circumstances purchase Units, as a service to Holders, at prices based on the
current redemption prices for those Units (see Redemption). The Sponsors, of
course, do not in any way guarantee the enforceability, marketability or price
of any Securities in the Portfolio or of the Units. On any given day on which
this market is maintained the price offered by the Sponsors for the purchase of
Units shall be an amount not less than the Redemption Price per Unit, based on
the aggregate bid side evaluation of the Securities on the date on which the
Units are tendered for redemption (see Redemption). Prospectuses relating to
certain other unit trusts indicate an intention, subject to change on the part
of the respective sponsors of such trusts, to purchase units of those trusts on
the basis of a price higher than the bid prices of the Securities in the trusts.
Consequently, depending upon the prices actually paid, the repurchase price of
other sponsors for units of their trusts may be computed on a somewhat more
favorable basis than the repurchase price offered by the Sponsors for Units of
this Series. As in this Series, the purchase price per unit of such unit trusts
will depend primarily on the value of the Securities in the portfolio of the
trust.
The Sponsors may redeem any Units they have purchased in accordance with
the procedures described below if they determine it is undesirable to continue
to hold these Units in their inventory. Factors which the Sponsors will consider
in making such a determination will include the number of units of all series of
all funds which they hold in their inventory, the saleability of the units and
their estimate of the time required to sell the units and general market
conditions. For a description of certain consequences of any redemption for
remaining Holders, see Redemption.
9
<PAGE>
A Holder who wishes to dispose of his Units should inquire of his bank or
broker as to current market prices in order to determine if there exist
over-the-counter prices in excess of the redemption price.
REDEMPTION
The Trustee will effect all redemptions in kind, except that the portion of
the Redemption Price representing accrued interest on the Securities and the
Holder's pro rata portion of the cash balance in the Fund will be paid in cash.
Thus, on the seventh calendar day following the tender (or if the seventh
calendar day is not a business day, on the first business day prior thereto),
the Holder will be entitled to receive in kind an amount and value of Securities
per Unit equal to the Redemption Price per Unit as determined as of the
Evaluation Time next following the tender, except that if the Sponsors are
maintaining a market for Units at a price which will return to the Holder an
amount in cash, net after deducting any commissions or expenses, equal to or in
excess of the Redemption Price per Unit, the Trustee will deliver tendered Units
for sale to the Sponsors. The Trustee will then pay the net proceeds of any such
sale to the Holder on the day the Holder would otherwise be entitled to receive
the redemption distribution. In an in kind redemption the Holder will receive
his pro rata portion of the principal amount of the Portfolio and of the net
cash in the Fund (Section 5.02).
Distributions in kind on redemption of Units shall be held by the Trustee,
as Distribution Agent, for the account of, and for disposition in accordance
with the instructions of, the tendering Holder, as follows:
(a) If the tendering Holder requests cash payment, the Distribution Agent
shall sell the Securities distributed as of the close of business on the date of
tender and remit to the Holder not later than seven calendar days thereafter the
net proceeds of sale after deducting brokerage commissions and transfer taxes,
if any, on the sale.
(b) If the tendering Holder requests distribution in kind, the Distribution
Agent shall sell any portion of the Securities distributed represented by
fractional interests in accordance with the foregoing and distribute net cash
proceeds to the tendering Holder together with certificates representing whole
Securities received on the in kind distribution.
In order to prevent the Fund from receiving cash on the disposition of less
than a whole Security, the Sponsors will, even if they are not maintaining a
market for Units, purchase any Units tendered at the cash equivalent of the
Redemption Price per Unit and tender those Units for redemption only when a
whole Security can be received in exchange therefor.
Any amounts paid on redemption representing income received will be
withdrawn from the Income Account (see Administration of the Fund--Accounts and
Distributions) to the extent funds are available. 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.
To the extent that securities are redeemed in kind, the size of the Fund
will be reduced but each remaining Unit will continue to represent the identical
principal amount of Securities with specified interest rates, maturities and
call provisions, if any. The value of Securities received upon redemption and
the proceeds received by the Distribution Agent for the account of the redeeming
Holder may be more or less than the amount paid by the Holder depending on the
value of the Securities in the Fund at the time of redemption.
The right of redemption may be suspended and payment postponed for any
period (1) during which the New York Stock Exchange, Inc. is closed other than
for customary weekend and holiday closings or (2) during which, as determined by
the Securities and Exchange Commission ('SEC'), (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 SEC may by order permit (Section 5.02).
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit 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
Sponsors, by adding (a) the aggregate bid side evaluation of the Securities, (b)
cash on hand in the Fund (other than cash covering contracts to purchase
Securities), (c) accrued and unpaid interest on the Securities up to but not
including the date of redemption and (d) all other assets of the Fund; deducting
therefrom the sum of (x) taxes or other governmental charges against the Fund
not previously deducted, (y) accrued fees and expenses of the Trustee (including
legal and auditing expenses), the Evaluator and counsel, and certain other
expenses, and (z)
10
<PAGE>
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 aggregate current bid or offering price evaluation of the Securities is
determined by the Evaluator in the following manner: (a) on the basis of current
bid or offering prices for the Securities, (b) if bid or offering prices are not
available for any Securities, on the basis of current bid or offering prices for
comparable securities, (c) by determining the value of the Securities on the bid
or offering side of the market by appraisal or (d) by any combination thereof.
The Evaluator may obtain current price information as to the Securities from
investment dealers or brokers (including the Sponsors) which customarily deal in
this type of security.
While Securities of the type included in the Portfolio involve minimal risk
of loss of principal, due to variations in interest rates the market value of
these Securities and the Redemption Price per Unit can be expected to fluctuate
during the period of an investment in the Fund.
EXTENSIONS
The Portfolio consists of U.S. Treasury obligations with 'laddered'
maturities of approximately one to five years. Therefore, approximately 20% of
the initial Portfolio matures approximately once a year. The Sponsors are
authorized to direct the reinvestment of the proceeds of each maturing Security
(less an amount necessary to satisfy the Holders' deferred sales charge
obligation) into Extension Securities. Extensions of approximately 20% of the
Portfolio at each maturity of Securities will continue through approximately
2007 and, assuming the Fund does not terminate prior thereto, it is anticipated
that there will be 14 Extensions.
'Extension Securities' means Securities (i) issued by the U.S. Treasury;
(ii) with a fixed maturity date that is within three months of the fifth
anniversary of the maturity date of the Security the proceeds of which are being
reinvested in the Extension Security; (iii) purchased at par or, in order of
preference, at a discount to, or premium over, par as close to par as
practicable; (iv) that would not cause the Fund to cease to be rated in the
category AAA by Standard & Poor's; and (v) that are not when, as and if issued
obligations. The Indenture requires that the purchase of Extension Securities
will not disqualify the Fund as a 'regulated investment company' under the Code.
The guidelines under which the Fund will purchase Extension Securities are
straightforward; they take into account price and maturity date. Whenever a U.S.
Treasury security in the Fund's portfolio matures, the Fund's buyers will
purchase the most currently available 5-year U.S. Treasury security at par. If
no obligations are available at par, the buyer will select obligations with a
price as close as possible to par. To preserve the Fund's par values, there will
be a bias favoring discounts, when available. Therefore, discounted obligations
will be selected so long as the discount is not more than three times the
smaller premium available. That is, assuming no maturity date differences, if
there is an obligation available at a price of $100.125, no alternative
obligation will be selected at less than $99.625. If obligations mature at
different dates within the three months permissible, in determining which
obligation to purchase the Fund's buyers will increase the premium or discount
of the bond by 25 cents ( 1/4 point) for every month away from the precise five
year maturity date of the original obligation being extended. There will be no
attempt to delay the purchase of the Extension Securities to take advantage of
market movements.
EXPENSES AND CHARGES
SALES CHARGES
In addition to the initial sales charge set forth under Investment Summary,
a deferred sales charge at the rate set forth under Investment Summary will be
deducted from the proceeds of maturing Securities received by the Fund before
the proceeds are reinvested pursuant to an Extension and will be distributed to
the Sponsors on the Deferred Charge Payment Date in each of the years in which
an Extension is anticipated to occur (see Public Sale of Units--Public Offering
Price).
FEES
An estimate of the total annual expenses of the Fund is set forth under the
Investment Summary. The Portfolio Supervision fee, which is earned for portfolio
supervisory services is based on the largest face amount of Securities in the
Fund at any time during the annual period. This fee, which is not to exceed the
maximum amount set forth under the Investment Summary, may exceed the actual
costs of providing portfolio supervisory services for this Fund, but at no time
will the total amount the Sponsors receive for supervisory services rendered to
all series of Government Securities Income Fund, Defined Asset Funds, in any
calendar year exceed the
11
<PAGE>
aggregate cost to them of supplying these services in that year (Section 7.06).
In addition, the Sponsors may also be reimbursed for bookkeeping or other
administrative services provided to the Fund in amounts not exceeding their
costs of providing these services (Sections 3.04, 7.06). The Trustee receives
for its services as Trustee and for reimbursement of expenses incurred on behalf
of the Fund, payable in monthly installments, the amount per 1,000 Units set
forth under the Investment Summary as Trustee's Annual Fee and Expenses, which
includes the Evaluator's fee, the estimated Sponsor's Portfolio Supervision fee,
estimated reimbursable bookkeeping or other adminstrative expenses paid to the
Sponsors and certain mailing and printing expenses. A portion of the Trustee's
Expenses represents compensation for amounts advanced or to be advanced to the
Fund by the Trustee in order to make certain distributions to Holders required
by the United States Internal Revenue Service Code of 1986, as amended, in
excess of cash available for that purpose (see Administration of the
Fund--Accounts and Distributions). 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. In addition, the foregoing fees may be
adjusted for inflation in accordance with the terms of the Indenture without
approval of Holders (Sections 4.02, 7.06 and 8.05).
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 Sponsors (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 the Fund
(Section 8.01(d)), (e) indemnification of the Trustee for any losses,
liabilities and expenses incurred without gross negligence, bad faith or wilful
misconduct on its part (Section 8.05), (f) indemnification of the Sponsors for
any losses, liabilities and expenses incurred without gross negligence, bad
faith, wilful misconduct or reckless disregard of their duties (Section 7.05(b))
and (g) expenditures incurred in contacting Holders upon termination of the Fund
(Section 9.02). The amounts of these charges and fees are secured by a lien on
the Fund and, if the balances in the Income and Capital Accounts (see below) are
insufficient to provide for amounts payable by the Fund, the Trustee has the
power to sell Securities to pay such amounts (Section 8.05).
ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps a register of the names, addresses and holdings of all
Holders. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, which
are available to Holders for inspection at reasonable times during business
hours (Sections 6.01, 8.02 and 8.04).
12
<PAGE>
ACCOUNTS AND DISTRIBUTIONS
Interest received is credited to an Income Account and other receipts to a
Capital Account (Sections 3.01 and 3.02). Distributions for each Holder as of
each Record Day will be made on the following Distribution Day or shortly
thereafter and shall consist of an amount substantially equal to one-twelfth of
the Holder's pro rata share of the distributable annual income. The first
distribution for persons who purchase Units between a Record Day and a
Distribution Day will be made on the second Distribution Day following their
purchase of Units. Unlike other similar funds, the Fund will pay out a full 12
months of income in its first year. In approximately the first 14 years of the
Fund, all principal from maturing Securities (less an amount necessary to
satisfy the Holders' deferred sales charge obligation) will be reinvested in
Extension Securities (see Extensions). Thereafter, the balance in the Capital
Account shall be distributed on or about the second business day following the
maturity of each of the Securities in the Portfolio; the Record Day for that
distribution shall be the business day immediately preceding the distribution
day. A Reserve Account may be created by the Trustee by withdrawing from the
Income or Capital Accounts, from time to time, such amounts as it deems
requisite to establish a reserve for any taxes or other governmental charges
that may be payable out of the Fund (Section 3.03). To the extent that in any
taxable year accrued interest exceeds cash available for the distribution of
income, the Trustee will advance the shortfall to the Fund for the purpose of
distributing to Holders the full amount of interest accrued in that year. Funds
held by the Trustee in the various accounts created under the Indenture do not
bear interest (Section 8.01).
REINVESTMENT PLAN
Unless otherwise instructed, the Trustee distributes interest and any
principal, redemption or prepayment proceeds on the Units to Holders in cash.
However, Holders may now elect to have their distributions reinvested by
participating in the Fund's reinvestment plan (the 'Plan'). A Holder (including
a broker or nominee of a bank or other financial institution) may indicate to
the Trustee, by completing and mailing the form included in this prospectus,
that he wishes distributions of income, of principal or both to be automatically
invested in additional Units of the Fund at applicable Public Offering Price
(less the initial sales charge). For Units held in 'street name' by a broker or
dealer, Holders should contact their account executive or sales representative
to determine whether or not participation in the Plan through that broker or
dealer is available. Holders of Units in IRAs, Keogh plans and other
tax-deferred retirement plans should consult with their plan custodian as to the
appropriate disposition of distributions (see Taxes--Retirement Plans). The
Holder's completed notice of election to participate in the Plan must be
received by the Trustee at least ten days before the Record Day for the first
distribution to which the election is to apply and will remain in effect until
notice to the contrary is timely received by the Trustee. Elections may be
modified or revoked on similar notice.
Distributions for Holders participating in the Plan will be paid to the
Trustee or Distribution Agent, 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. These may be Units already held in inventory
by the Sponsors (see Market for Units) or new Units created by the Sponsors'
deposit of additional Securities in the Fund (see Fund Structure). Unit prices
are based on the offering side evaluation of underlying Securities while the
Fund is in the primary market, and will be based on the bid side evaluation when
the Fund is in the secondary market.
Certificates for whole Units acquired under the Plan will be issued only if
the Holder so requests; fractional Units may only be held in uncertificated
form. When Certificates are not issued the Trustee will credit the Holder's
account with the number of Units purchased with the reinvested distribution.
This relieves Holders of the responsibility for safekeeping Certificates and,
should the Units be sold, eliminates the need to deliver Certificates. The
Holder may at any time request the Trustee (at the Fund's cost) to issue
Certificates for Units. Each Holder with an account at the Trustee receives
account statements after each distribution reinvested, including the number and
price of the Units acquired and the total number of Units in the account, and an
annual statement of transactions in the account during the year. For Units held
in 'street name' with a broker or dealer, Holders will receive confirmation of
their reinvestments in their regular account statements or on a quarterly basis.
The cost of administering the Plan will be borne by the Fund and thus
indirectly by all Holders. Holders who elect to reinvest their distributions
will receive additional Units and therefore will increase their proportionate
ownership of the Fund relative to the proportionate ownership of Holders who
receive distributions in cash. The Sponsors, in their sole discretion, may
modify or cancel the Plan at any time without prior notice. After that time, all
Holders participating in the Plan will receive all distributions in cash unless
the Sponsors make available another reinvestment alternative.
13
<PAGE>
PORTFOLIO SUPERVISION
The Fund is a unit investment trust and is 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. While principal from maturing Securities will be
reinvested into Extension Securities as described above, the Portfolio of the
Fund will not be actively managed. However, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as Agent for the Sponsors, maintains a staff of investment
professionals dedicated exclusively to selecting and then monitoring securities
held by the unit trusts they sponsor. It regularly reviews the Portfolio and may
direct the disposition of Securities upon default in payment of principal or of
interest, institution of certain legal proceedings, default in payment of
principal or of interest on other securities backed by the full faith and credit
of the United States, or decline in price or the occurrence of other market or
credit factors that in the opinion of the Sponsors would make the retention of
such Securities detrimental to the interest of the Holders or if the disposition
of these Securities is necessary in order to enable the Fund to make
distributions of the Fund's net capital gain income, or desirable in order to
maintain the qualification of the Fund as a 'regulated investment company' under
the Code (Section 3.08). If a default in the payment of principal or interest on
any Security occurs and if within 30 days of notification to the Sponsors by the
Trustee of such default the Sponsors have failed to instruct the Trustee to sell
or hold such Security or to take other action with respect to the Security, the
Indenture provides that the Trustee shall sell such Security (Section 3.10).
The Sponsors are authorized to direct the Trustee to acquire replacement
obligations ('Substitute Securities') to replace any Failed Debt Obligations. In
connection with the deposit of Additional Securities or Extension Securities,
when Securities of an issue originally deposited are unavailable at the time of
subsequent deposit 'Replacement Securities' may be acquired, as described more
fully below. Substitute Securities that are replacing Failed Debt Obligations
will be deposited into a Trust at a purchase price that does not exceed the
amount of funds reserved for the purchase of Failed Debt Obligations and that
results in a yield to maturity as of that date of deposit, that is substantially
equivalent (taking into consideration then current market conditions and the
relative creditworthiness of the underlying obligation) to the yield to maturity
of the Failed Debt Obligations. The Substitute Securities shall (i) be
Securities issued by the U.S. Treasury; (ii) have a fixed maturity date
substantially the same as that of the Failed Debt Obligation; (iii) not cause
the Fund to cease to be rated in the category AAA by Standard & Poor's; and (iv)
not be when, as and if issued obligations. The Indenture also requires that the
purchase of Substitute Securities will not disqualify the Fund as a 'regulated
investment company' under the Code. Whenever a Substitute Security has been
acquired for a Trust, the Trustee shall, on the next Distribution Date that is
more than 30 days thereafter, make a pro rata distribution of the amount, if
any, by which the cost to the Fund of the Failed Debt Obligation exceeded the
cost of the Substitute Security plus any accrued interest. If Substitute
Securities are not acquired, the Sponsors will, on or before the next following
Distribution Day, cause to be refunded the attributable sales charge, plus the
attributable Cost of Securities to Fund listed under Portfolio, plus interest
attributable to the relevant Security.
The Indenture also authorizes the Sponsors to increase the size of, and
number of Units in, the Fund by the deposit of Additional Securities, contracts
to purchase Additional Securities or cash or a letter of credit with
instructions to purchase Additional Securities in exchange for the corresponding
number of additional units subsequent to the Initial Date of Deposit, provided
that the proportionate relationship among the face amounts of each Security
established on the Initial Date of Deposit (the 'Original Proportionate
Relationship') is maintained to the extent practicable. With respect to deposits
of Additional Securities (or cash or a letter of credit with instructions to
purchase Additional Securities), in connection with creating additional Units of
the Fund subsequent to the Initial Date of Deposit, the Sponsors may specify
minimum face amounts in which Additional Securities will be deposited or
purchased. If a deposit is not sufficient to acquire minimum amounts of each
Security, Additional Securities may be aquired in the order of the Security most
under-represented immediately before the deposit when compared to the Original
Proportionate Relationship. If Securities of an issue originally deposited are
unavailable at the time of subsequent deposit, or cannot be purchased at
reasonable prices or their purchase is prohibited or restricted by law,
regulation or policies applicable to the Fund or any of the Sponsors, the
Sponsors may (1) deposit cash or letter of credit with instructions to purchase
the Security when it becomes available (provided that it becomes available
within 110 days after the Initial Date of Deposit) or (2) deposit (or instruct
the Trustee to purchase) Securities of one or more other issues originally
deposited or (3) deposit (or instruct the trustee to purchase) a Replacement
Security which will meet the conditions described above except that it must have
a rating at least equal to that of the Security it replaces (or, in the opinion
of the Sponsors, have comparable credit characteristics, if not rated).
14
<PAGE>
REPORTS TO HOLDERS
The Trustee will furnish Holders 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. Within a reasonable period of time after
the end of each calendar year, the Trustee will furnish to each person who at
any time during the calendar year was a Holder of record a statement (i)
summarizing transactions for the year in the Income, Capital and Reserve
Accounts, (ii) identifying Securities sold and purchased during, and listing
Securities (including Extension Securities) held and the number of Units
outstanding at the end of, that calendar year, (iii) stating the Redemption
Price per Unit based upon the computation thereof made on the thirty-first day
of December (or the last business day prior thereto) of such calendar year, and
(iv) specifying amounts actually distributed during such calendar year from the
Income Account and from the Capital Account, separately expressed both as total
dollar amounts and as dollar amounts per Unit outstanding on the record dates
for such distributions (Section 3.06). The accounts of the Fund shall be audited
not less frequently than annually by independent certified public accountants
designated by the Sponsors, and the report of such 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).
CERTIFICATES
Certain of the Sponsors may collect additional charges for registering and
shipping Certificates to purchasers. These Certificates are transferable or
interchangeable upon presentation at the office of 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 Sponsors) for each new Certificate and any sums
payable for taxes or other governmental charges imposed upon such transaction
(Section 6.01) and compliance with the formalities necessary to redeem
Certificates (see Redemption). Mutilated, destroyed, stolen or lost Certificates
will be replaced upon delivery of satisfactory indemnity and payment of expenses
incurred (Section 6.02).
Alternatively, Holders may elect to hold their Units in uncertificated
form. The Trustee will credit each such Holder's account with the number of
Units purchased by such Holder. This relieves the Holder of the responsibility
of safekeeping of Certificates and of the need to deliver Certificates upon sale
of Units. Uncertificated Units are transferable through the same procedures
applicable to Units evidenced by Certificates (see above), except that no
Certificate need be presented to the Trustee and none will be issued upon
transfer unless requested by the Holder. A Holder may at any time request the
Trustee (at the Fund's cost) to issue Certificates for Units.
AMENDMENT AND TERMINATION
The Sponsors and Trustee may amend the Indenture, without the consent of
the 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 SEC or any successor governmental agency or
(c) to make such other provisions as shall not materially adversely affect the
interest of the Holders (as determined in good faith by the Sponsors). The
Indenture may also be amended in any respect by the Sponsors 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 no such amendment or waiver will
reduce the interest in the Fund of any Holder without the consent of such Holder
or reduce the percentage of Units required to consent to any such amendment or
waiver without the consent of all Holders (Section 10.01).
The Indenture will terminate upon the maturity, sale, redemption or other
disposition of the last Security held thereunder but in no event is it to
continue beyond the Mandatory Termination Date set forth under the Investment
Summary. The Indenture may be terminated by the Sponsors if the value of the
Fund is less than the Minimum Value of Fund set forth under the Investment
Summary, and may be terminated at any time by written instrument executed by the
Sponsors and consented to by the 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 such termination, specifying
the times at which the Holders may surrender their Certificates for
cancellation. Within a reasonable period of time after such 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
15
<PAGE>
of accrued and unpaid fees, taxes and governmental and other charges (including
any deferred sales charges), such Holder's interest in the Income and Capital
Accounts (Section 9.01). Such distribution will normally be made by mailing a
check in the amount of each Holder's interest in such accounts to the address of
such 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 Sponsors. The
Trustee may be removed upon the direction of the Holders of 51% of the Units at
any time or by the Sponsors 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 Sponsors determine that the
replacement of the Trustee is in the best interest of the Holders. Such
resignation or removal shall become effective upon the acceptance of appointment
by the successor which may, in the case of the resigning or removed Co-Trustee,
be one or more of the remaining Co-Trustees. In case of such resignation or
removal the Sponsors are to use their 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(b)). 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 Sponsors to act, the
Trustee may act under the Indenture and shall not be liable for any such action
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 3.04, 3.10 and 8.01).
THE EVALUATOR
The Evaluator may resign or may be removed, effective upon the acceptance
of appointment by its successor, by the Sponsors, who are to use their 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 4.05). 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 Sponsors or the Holders for errors in judgment. This provision,
however, shall not protect the Evaluator in cases of wilful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
(Section 4.04). The Trustee, the Sponsors and the Holders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof.
THE SPONSORS
Any Sponsor may resign if one remaining Sponsor maintains a net worth of
$2,000,000 and is agreeable to such resignation (Section 7.04). 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 shall fail 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 SEC, or (b) terminate
the Indenture and liquidate the Fund or (c) continue to act as Trustee without
terminating the Indenture (Section 8.01(f)). Merrill Lynch has been appointed by
the other Sponsors as agent for purposes of taking action under the Indenture
(Section 7.01). If the Sponsors are unable to agree with respect to action to be
taken jointly by them under the Indenture and they cannot agree as to which
Sponsor shall continue to act as sole Sponsor, then Merrill Lynch shall continue
to act as sole Sponsor (Section 7.02(b)). If one of the Sponsors fails to
perform its duties or becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, then such Sponsor is automatically
discharged and the other Sponsors shall act as sole Sponsors (Section 7.02(a)).
The Sponsors shall be under no liability to the Fund or to the Holders for
taking any action or for refraining from 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
16
<PAGE>
Security. This provision, however, shall not protect the Sponsors in cases of
wilful misfeasance, bad faith, gross negligence or reckless disregard of their
obligations and duties (Section 7.05). The Sponsors and their successors are
jointly and severally liable under the Indenture. A 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
such event it shall be relieved of all further liability under the Indenture
(Section 7.03).
MISCELLANEOUS
TRUSTEE
The Trustee of the Fund is named on the back cover page of this Prospectus
and is either Bankers Trust Company, a New York banking corporation with its
corporate trust office at 4 Albany Street, 7th Floor, New York, New York 10015
(which is subject to supervision by the New York Superintendent of Banks, the
Federal Deposit Insurance Corporation ('FDIC') and the Board of Governors of the
Federal Reserve System ('Federal Reserve')); The Chase Manhattan Bank, N.A., a
national banking association with its Unit Trust Department at 1 Chase Manhattan
Plaza-3B, New York, New York 10081 (which is subject to supervision by the
Comptroller of the Currency, the FDIC and the Federal Reserve) or (acting as
Co-Trustees) Investors Bank & Trust Company, a Massachusetts trust company with
its unit investment trust servicing group at One Lincoln Plaza, Boston
Massachusetts 02111 (which is subject to supervision by the Massachusetts
Commissioner of Banks, the FDIC and the Federal Reserve) and The First National
Bank of Chicago, a national banking association with its corporate trust office
at One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126 (which is
subject to supervision by the Comptroller of the Currency, the FDIC and the
Federal Reserve).
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. Emmet Marvin, Martin, 48 Wall Street, New York, New York 10005, act as
counsel for the Bank of New York, as Trustee. Bingham, Dana & Gould, 150 Federal
Street, Boston, Massachusetts 02110, act as counsel for The First National Bank
of Chicago and Investors Bank & Trust Company, as Co-Trustees. Hawkins,
Delafield & Wood, 67 Wall Street, New York, New York 10005, act as counsel for
Bankers Trust Company, as Trustee.
AUDITORS
The Statement of Condition, including the Portfolio of the Fund, included
herein has been audited by Deloitte & Touche, independent accountants, as stated
in their opinion appearing herein, and has been included in reliance upon that
opinion given on the authority of that firm as experts in accounting and
auditing.
SPONSORS
Each 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. Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch Asset Management, a Delaware
corporation, each of which is a subsidiary of Merrill Lynch & Co., Inc., are
engaged in the investment advisory business. Smith Barney Inc., an investment
banking and securities broker-dealer firm, is an indirect wholly-owned
subsidiary of The Travelers Inc. Prudential Securities Incorporated, a
wholly-owned subsidiary of Prudential Securities Group Inc. and an indirect
wholly-owned subsidiary of the Prudential Insurance Company of America, is
engaged in the investment advisory business. PaineWebber Incorporated is engaged
in the investment advisory business and is a wholly-owned subsidiary of
PaineWebber Group Inc. Dean Witter Reynolds Inc., a principal operating
subsidiary of Dean Witter, Discover & Co., is engaged in the investment advisory
business. 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.
Each Sponsor (or a predecessor) has acted as Sponsor of various series of
Defined Asset Funds. A subsidiary of Merrill Lynch, Pierce, Fenner & Smith
Incorporated succeeded in 1970 to the business of Goodbody & Co., which had been
a co-Sponsor of Defined Asset Funds since 1964. That subsidiary resigned as
Sponsor of each of
17
<PAGE>
the Goodbody series in 1971. Merrill Lynch, Pierce, Fenner & Smith Incorporated
has been co-Sponsor and the Agent for the Sponsors of each series of Defined
Asset Funds created since 1971. Shearson Lehman Brothers Inc. ('Shearson') and
certain of its predecessors were underwriters beginning in 1962 and co-Sponsors
from 1965 to 1967 and from 1980 to 1993 of various Defined Asset Funds. On July
31, 1993, Smith Barney, Harris Upham & Co. Incorporated ('SBHU'), together with
certain of its affiliates and The Travelers Inc. (formerly Primerica
Corporation) acquired the domestic retail brokerage and asset management
businesses of Shearson Lehman Brothers Holdings Inc. and its subsidiaries.
Shearson was combined with the operations of SBHU and its affiliates and SBHU
was renamed Smith Barney Shearson Inc. and more recently Smith Barney Inc. Smith
Barney Inc. now serves as co-Sponsor of various Defined Asset Funds. Prudential
Securities Incorporated and its predecessors have been underwriters of Defined
Asset Funds since 1961 and co-Sponsors since 1964, in which year its predecessor
became successor co-Sponsor to the original Sponsor. Dean Witter Reynolds Inc.
and its predecessors have been underwriters of various Defined Asset Funds since
1964 and co-Sponsors since 1974. PaineWebber Incorporated and its predecessor
have co-Sponsored certain Defined Asset Funds since 1983.
The Sponsors have maintained secondary markets in Defined Asset Funds for
over 20 years. For decades informed investors have purchased unit investment
trusts for dependability and professional selection of investments. 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 a nest egg for
retirement, or attractive, regular current income consistent with relative
protection of capital. There are Defined Funds to meet the needs of just about
any investor. Unit investment trusts are particularly suited for the many
investors who prefer to seek long-term profits by purchasing sound investments
and holding them, rather than through active trading. Few individuals have the
knowledge, resources, capital or time 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 offered by Defined Funds. Sometimes it takes a combination
of Defined Funds to plan for your objectives.
One of the most important decisions an investor faces may be how to
allocate his 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.
The following chart shows the average annual compounded rate of return of
selected asset classes over the 10-year and 20-year periods ending December 31,
1993, compared to the rate of inflation over the same periods. Of course, this
chart represents past performance of these investment categories and there is no
guarantee of future results, either of these categories or of Defined Funds.
Defined Funds also have sales charges and expenses, which are not reflected in
the chart.
Stocks (S&P 500)
20 yr 12.76%
10 yr 14.94%
Small-company stocks
20 yr 18.82%
10 yr 9.96%
Long-term corporate bonds
20 yr 10.16%
10 yr 14.00%
U.S. Treasury bills (short-term)
20 yr 7.49%
10 yr 6.35%
Consumer Price Index
20 yr 5.92%
10 yr 3.73%
0 2 4 6 8 10
12 14 16 18
20%
Source: Ibbotson Associates (Chicago).
Used with permission. All rights reserved.
18
<PAGE>
Instead of having to select individual securities on their own, purchasers
of Defined Funds benefit from the expertise of Defined Asset Funds' experienced
buyers and research analysts. In addition, they gain the advantage of
diversification by investing in Units of a Defined Fund holding securities of
several different issuers. Such diversification can reduce risk, but does not
eliminate it. While the portfolio of a managed fund, such as a mutual fund,
continually changes, defined bond funds offer a defined portfolio and a schedule
of income distributions identified in the prospectus. Investors know, generally,
when they buy, the issuers, maturities, call dates and ratings of the securities
in the portfolio. Of course, the portfolio may change somewhat over time as
additional securities are deposited, as securities mature or are called or
redeemed or as they are sold to meet redemptions and in certain other limited
circumstances. Investors buy bonds for dependability--they know what they can
expect to earn and that principle is distributed as the bonds mature. Investors
also know at the time of purchase their estimated income and current and
long-term returns, subject to credit and market risks and to changes in the
portfolio or the fund's expenses.
Defined Asset Funds offers a variety of fund types. The tax exemption of
municipal securities, which makes them attractive to high-bracket taxpayers, is
offered by Defined Municipal Investment Trust Funds. Municipal Defined Funds
offer a simple and convenient way for investors to earn monthly income free from
regular Federal income tax. Defined Municipal Investment Trust Funds have
provided investors with tax-free income for more than 30 years. Defined
Corporate Income Funds, with higher current returns than municipal or government
funds, are suitable for Individual Retirement Accounts and other tax-advantaged
accounts and provide monthly income. Defined Government Securities Income Funds
provide a way to participate in markets for U.S. government securities while
earning an attractive current return. Defined International Bond Funds, invested
in bonds payable in foreign currencies, offer the potential to profit from
changes in currency values and possibly from interest rates higher than paid on
comparable U.S. bonds, but investors incur a higher risk for these potentially
greater returns. Historically, stocks have offered growth of capital, and thus
some protection against inflation, over the long term. Defined Equity Income
Funds offer participation in the stock market, providing current income as well
as the possibility of capital appreciation. The S&P Index Trusts offer a
convenient and inexpensive way to participate in broad market movements. Concept
Series seek to capitalize on selected anticipated economic, political or
business trends. Utility Stock Series, consisting of stocks of issuers with
established reputations for regular cash dividends, seek to benefit from
dividend increases. Select Ten Portfolios seek total return by investing for one
year in the ten highest yielding stocks on a designated stock index.
DESCRIPTION OF STANDARD & POOR'S RATING (AS DESCRIBED BY STANDARD & POOR'S)
A Standard & Poor's rating on the units of an investment trust (hereinafter
referred to respectively as 'units' and 'fund') is a current assessment of
creditworthiness with respect to the investments held by the fund. This
assessment takes into consideration the financial capacity of the issuers and of
any guarantors, insurers, lessees, or mortgagors with respect to such
investments. The assessment, however, does not take into account the extent to
which fund expenses or portfolio asset sales for less than the fund's purchase
price will reduce payment to the unit holder of the interest and principal
required to be paid on the portfolio assets. In addition, the rating is not a
recommendation to purchase, sell, or hold units, inasmuch as the rating does not
comment as to market price of the units or suitability for a particular
investor.
Funds rated AAA are composed exclusively of assets that are rated AAA by
Standard & Poor's and/or certain short-term investments. Standard & Poor's
defines its AAA rating for such assets as the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
19
<PAGE>
Def ined
Asset FundsSM
SPONSORS: GOVERNMENT
Merrill Lynch, SECURITIES INCOME FUND
Pierce, Fenner & Smith IncorporatedU.S. TREASURY STRATEGY TRUST--1
Unit Investment Trusts A UNIT INVESTMENT TRUST
P.O. Box 9051 PROSPECTUS
Princeton, N.J. 08543-9051 This Prospectus does not contain all of the
(609) 282-8500 information with respect to the investment
Smith Barney Inc. company set forth in its registration
Unit Trust Department statement and exhibits relating thereto which
Two World Trade Center have been filed with the Securities and
101st Floor Exchange Commission, Washington, D.C. under
New York, N.Y. 10048 the Securities Act of 1933 and the Investment
(212) 298-UNIT Company Act of 1940, and to which reference
Prudential Securities Incorporated is hereby made.
One Seaport Plaza No person is authorized to give any
199 Water Street information or to make any representations
New York, N.Y. 10292 with respect to this investment company not
(212) 776-1000 contained in this Prospectus; and any
Dean Witter Reynolds Inc. information or representation not contained
Two World Trade Center herein must not be relied upon as having been
59th Floor authorized. This Prospectus does not
New York, N.Y. 10048 constitute an offer to sell, or a
(212) 392-2222 solicitation of an offer to buy, securities
PaineWebber Incorporated in any state to any person to whom it is not
1200 Harbor Blvd. lawful to make such offer in such state.
Weehawken, N.J. 07087
(201) 902-3000
EVALUATOR:
Kenny S&P Evaluation Services
65 Broadway
New York, N.Y. 10006
INDEPENDENT ACCOUNTANTS:
Deloitte & Touche
1633 Broadway
3rd Floor
New York, N.Y. 10019
TRUSTEE:
The Chase Manhattan Bank, N.A.
Unit Trust Department
Box 2051
New York, NY 10081
1-800-323-1508
14493--8/94
