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DEFINED ASSET FUNDSSM
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GOVERNMENT SECURITIES INCOME FUND
U.S. TREASURY STRATEGY TRUST--1
(LADDERED MATURITIES)
A UNIT INVESTMENT TRUST
O PORTFOLIO OF U.S. TREASURY NOTES
O LADDERED MATURITIES
O MONTHLY INCOME DISTRIBUTIONS
SPONSORS:
Merrill Lynch,
Pierce, Fenner & Smith -------------------------------------------------
Incorporated The Securities and Exchange Commission has not
Salomon Smith Barney Inc. approved or disapproved these Securities or
PaineWebber Incorporated passed upon the adequacy of this prospectus. Any
Dean Witter Reynolds Inc. representation to the contrary is a criminal
Prudential Securities offense.
Incorporated Prospectus dated September 3, 1999.
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Defined Asset FundsSM
Defined Asset FundsSM is America's oldest and largest family of unit investment
trusts, with over $160 billion sponsored over the last 28 years. Defined Asset
Funds has been a leader in unit investment trust research and product
innovation. Our family of Funds helps investors work toward their financial
goals with a full range of quality investments, including municipal, corporate
and government bond portfolios, as well as domestic and international equity
portfolios.
Defined Asset Funds offer a number of advantages:
o A disciplined strategy of buying and holding with a long-term view is the
cornerstone of Defined Asset Funds.
o Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
o Defined Portfolios: We choose the stocks and bonds in advance, so you know
what you're investing in.
o Professional research: Our dedicated research team seeks out stocks or bonds
appropriate for a particular fund's objectives.
o Ongoing supervision: We monitor each portfolio on an ongoing basis.
No matter what your investment goals, tolerance for risk or time horizon,
there's probably a Defined Asset Fund that suits your investment style. Your
financial professional can help you select a Defined Asset Fund that works best
for your investment portfolio.
THE FINANCIAL INFORMATION IN THIS PROSPECTUS IS AS OF THE EVALUATION DATE, APRIL
30, 1999.
CONTENTS
PAGE
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Risk/Return Summary..................................... 3
What You Can Expect From Your Investment................ 5
Monthly Income....................................... 5
Return Figures....................................... 5
Records and Reports.................................. 5
The Risks You Face...................................... 6
Interest Rate Risk................................... 6
Reduced Diversification Risk......................... 6
Litigation Risk...................................... 6
Selling Units........................................... 6
Sponsors' Secondary Market........................... 6
Selling Units to the Trustee......................... 6
How The Fund Works...................................... 7
Pricing.............................................. 7
Evaluations.......................................... 7
Income............................................... 7
Expenses............................................. 7
Portfolio Changes.................................... 8
Fund Termination..................................... 8
Certificates......................................... 9
Trust Indenture...................................... 9
Legal Opinion........................................ 10
Auditors............................................. 10
Sponsors............................................. 10
Trustee.............................................. 10
Underwriters' and Sponsors' Profits.................. 10
Public Distribution.................................. 11
Code of Ethics....................................... 11
Year 2000 Issues..................................... 11
Taxes................................................... 11
Supplemental Information................................ 12
Financial Statements.................................... D-1
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RISK/RETURN SUMMARY
1. WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks current interest income, safety of capital
and flexibility by investing for approximately 3 years in
an extendable, laddered portfolio of U.S. Treasury notes
maturing each year 1999-2003.
The Fund seeks to reduce price fluctuations with changing
interest rates by reinvesting the proceeds of maturing
securities into a new five-year Treasury to extend the
ladder and continue your investment for another year.
2. WHAT ARE U.S. TREASURY NOTES?
These are directly issued by the U.S. Treasury and are
similar to corporate bonds in that they pay interest
semi-annually. They are issued to fund various government
activities. In return, they pay a fixed rate of interest
and principal at maturity.
3. WHAT IS THE FUND'S INVESTMENT STRATEGY?
O The Fund plans to hold to maturity 5 short-and
intermediate-term U.S. Treasury notes with a current
aggregate face amount of $126,083,000. The Fund is a unit
investment trust which means that, unlike a mutual fund,
the Fund's portfolio is not managed.
o You will periodically receive your share of the principal
received as each Treasury note matures.
o The securities but not the Fund or the units are backed by
the full faith and credit of the United States.
o 100% of the Portfolio consists of United States government
Treasury notes.
The Portflio contains 5 difference issues of U.S. Treasury
Securities with fixed annual maturity dates ranging from
1999 to 2003.
APPROXIMATE
PORTFOLIO
PERCENTAGE
o 6.750% coupons maturing 6/30/99
o 6.875% coupons maturing 3/31/00
o 6.375% coupons maturing 3/31/01
o 6.00% coupons maturing 7/31/02
o 5.50% coupons maturing 3/31/03
o 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. For the last five-years
of the Fund, proceeds of maturing securities will be
distributed to investors 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.
4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN HAPPEN
FOR VARIOUS REASONS, INCLUDING:
o Rising interest rates can reduce the price of your units.
o Assuming no changes in interest rates, when you sell your
units, they will generally be worth less than your cost
because your cost included a sales fee.
o The Fund will receive early returns of principal if
securities are sold before they mature. If this happens your
income will decline and you may not be able to reinvest the
money you receive at as high a yield or as long a maturity.
o While the weighted average maturity of the Portfolio is
about 2 1/2 years, until approximately 2007 it will range
from a low of one year to a high of five years, depending on
the time to the next extension date.
5. IS THIS FUND APPROPRIATE FOR YOU?
Yes, if you want current monthly income. You will benefit
from a professionally selected and supervised portfolio of
U.S. government backed securities.
The Fund is not appropriate for you if you want a
speculative investment that changes to take advantage of
market movements.
DEFINING YOUR INCOME
WHAT YOU MAY EXPECT (Payable on the 25th day each month):
Regular Monthly Income per 1,000 units: $ 4.98
Annual Income per 1,000 units: $ 57.79
RECORD DAY: 10th day of each month
These figures are estimates on the evaluation date; actual
payments may vary.
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6. WHAT ARE THE FUND'S FEES AND EXPENSES?
This table shows the costs and expenses you may pay,
directly or indirectly, when you invest in the Fund.
INVESTOR FEES
Maximum Sales Fee (Load) on new purchases (as a
percentage of $1,000
invested) 1.25%
You will pay an up-front sales fee of approximately 1.25%,
as well as a deferred sales charge of $3.75 per 1,000 units
payable from the proceeds of maturing Securities on their
maturity dates until 2007.
Employees of some of the Sponsors and their affiliates may
be charged a reduced sales fee of no less than $5.00 per
1,000 Units.
The maximum sales fee is reduced if you invest at least
$1,000,000, as follows:
YOUR MAXIMUM
SALES FEE
IF YOU INVEST: WILL BE:
----------------------------------- -------------------------
Less than $1,000,000 1.50%
$1,000,000 to $4,999,999 1.00%
$5,000,000 and over 0.75%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
AMOUNT
PER
1,000 UNITS
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$ 0.35
Trustee's Fee
$ 0.37
Portfolio Supervision,
Bookkeeping and
Administrative Fees (including updating
expenses)
$ 0.02
Evaluator's Fee
$ 0.55
Other Operating Expenses
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$ 1.29
TOTAL
The Sponsors historically paid updating expenses.
7. IS THE FUND MANAGED?
Unlike a mutual fund, the Fund is not managed and securities
are not sold because of market changes. Rather, experienced
Defined Asset Funds financial analysts regularly review the
securities in the Fund. The Fund may sell a security if
certain adverse credit or other conditions exist.
8. HOW DO I BUY UNITS?
The minimum investment is $250.
You can buy units from any of the Sponsors and other
broker-dealers. The Sponsors are listed later in this
prospectus. Some banks may offer units for sale through
special arrangements with the Sponsors, although certain
legal restrictions may apply.
UNIT PRICE PER 1,000 UNITS $998.32
(as of April 30, 1999)
Unit price is based on the net asset value of the Fund plus
the up-front sales fee. An amount equal to any principal
cash, as well as net accrued but undistributed interest on
the unit, is added to the unit price. An independent
evaluator prices the bonds at 3:30 p.m. Eastern time every
business day. Unit price changes every day with changes in
the prices of the bonds in the Fund.
9. HOW DO I SELL UNITS?
You may sell your units at any time to any Sponsor or the
Trustee for the net asset value determined at the close of
business on the date of sale. You will not pay any other fee
when you sell your units.
10. HOW ARE DISTRIBUTIONS MADE AND TAXED?
In addition, to monthly income distributions, distributions
of any capital gain will be made annually shortly before or
after the end of the year. Distributions of ordinary income
will be dividends for federal income tax purposes but will
not be eligible for the dividends-received deduction for
corporations. Distributions to foreign investors will
generally be subject to withholding taxes.
Until 2007, the proceeds from maturity Securities will be
automatically reinvested into new Securities if available
with maturities of about five years. Thereafter, a
distribution will be made in cash when each remaining
Security in the Fund matures. You will be subject to tax on
any gain realized by the Fund on the disposition of bonds.
11. WHAT OTHER SERVICES ARE AVAILABLE?
EXCHANGE PRIVILEGES
You may exchange units of this Fund for units of certain
other Defined Asset Funds. You may also exchange into this
Fund from certain other funds. We charge a reduced sales fee
on exchanges.
REINVESTMENT
You will receive your monthly income in cash unless you
choose to compound your income by reinvesting into
additional units of the Fund at a reduced sales fee. Contact
your broker, dealer or financial institution.
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WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
MONTHLY INCOME
The Fund will pay you regular monthly income. Your monthly income may vary
because of:
o elimination of one or more securities from the Fund's portfolio because of
redemptions or sales; or
o a change in the Fund's expenses;
Changes in interest rates generally will not affect your monthly income because
the portfolio is fixed.
Along with your monthly income, you will receive your share of any available
principal. Capital gains, if any, will be distributed annually.
RETURN FIGURES
We cannot predict your actual return, which will vary with unit price, how long
you hold your investment and changes in the portfolio, interest income and
expenses.
Yield to Next Extension Date shows the net annual yield to investors from the
date of purchase of units until the Next Extension Date. It is an average of the
yields to maturity of the individual securities in the portfolio, adjusted to
reflect the Fund's maximum sales fee and estimated expenses. We calculate the
average yield for the portfolio by weighting each security's yield by its market
value.
The Estimated Yield to Next Extension Date calculation does not take into
account certain delays in distributions of income and the timing of other
receipts and distributions on units and may, depending on maturities, overstate
or understate the impact of sales fees. All of these factor may result in a
lower figure.
Estimated Yield to Next Extension Date will vary with the purchase price of your
units (including sales fees), changes in Fund income and expenses and changes in
Portfolio composition (including dispositions and Extensions of Securities) and
the date of purchase of the units and therefore can be materially different than
any figure quoted. In addition this figure, may not be directly comparable to
yield figures used to measure other investments, and since it is based on
certain assumptions and variables the actual return you receive may be higher or
lower.
RECORDS AND REPORTS
You will receive:
o a monthly statement of income payments and any principal payments;
o a notice from the Trustee when new securities are deposited in exchange or
substitution for securities originally deposited;
o an annual report on Fund activity; and
o annual tax information. This will also be sent to the IRS. You must report the
amount of interest received during the year.
You may request:
o copies of evaluations to enable you to comply with federal and state tax
reporting requirements; and
o audited financial statements of the Fund.
You may inspect records of Fund transactions at the Trustee's office during
regular business hours.
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THE RISKS YOU FACE
INTEREST RATE RISK
Investing involves risks, including the risk that your investment will decline
in value if interest rates rise. Generally, securities with longer maturities
will change in value more than securities with shorter maturities. Of course, we
cannot predict how interest rates may change.
REDUCED DIVERSIFICATION RISK
If many investors sell their units, the Fund will have to sell securities. This
could reduce the diversification of your investment and increase your share of
Fund expenses.
LITIGATION RISK
We do not know of any pending litigation that might have a material adverse
effect upon the Fund.
SELLING UNITS
You can sell your units at any time for a price based on net asset value. Your
net asset value is calculated each business day by:
o adding the value of the securities, net accrued interest, cash and any
other Fund assets;
o subtracting accrued but unpaid Fund expenses, unreimbursed Trustee
advances, cash held to buy back units or for distribution to investors and
any other Fund liabilities; and
o dividing the result by the number of outstanding units.
Your net asset value when you sell may be more or less than your cost because of
sales fees, market movements and changes in the portfolio.
SPONSORS' SECONDARY MARKET
While we are not obligated to do so, we will buy back units at net asset value
without any other fee or charge. We may resell the units to other buyers or to
the Trustee. You should consult your financial professional for current market
prices to determine if other broker-dealers or banks are offering higher prices.
We have maintained a secondary market continuously for over 25 years, but we
could discontinue it without prior notice for any business reason.
SELLING UNITS TO THE TRUSTEE
Regardless of whether we maintain a secondary market, you can sell your units to
the Trustee at any time by sending the Trustee a letter (with any outstanding
certificates if you hold Unit certificates). You must properly endorse your
certificates (or execute a written transfer instrument with signatures
guaranteed by an eligible institution). Sometimes, additional documents are
needed such as a trust document, certificate of corporate authority, certificate
of death or appointment as executor, administrator or guardian.
As long as we are maintaining a secondary market, the Trustee will sell your
units to us at a price based on net asset value. If there is no secondary
market, the Trustee will effect all distributions in kind, and you will receive
securities and cash with a total value equal to the price of your units. The
Trustee will act as your agent in an in-kind distribution and will either hold
the securities for your account or transfer them as you instruct. You must pay
any transaction costs as well as transfer and ongoing custodial fees on sales of
securities distributed in kind.
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If the Fund does not have cash available to pay you for units you are selling,
the agent for the Sponsors will select securities to be sold. Securities will be
selected based on market and credit factors. These sales could be made at times
when the securities would not otherwise be sold and may result in your receiving
less than the unit par value and also reduce the size and diversity of the Fund.
There could be a delay in paying you for your units:
o if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
o if the SEC determines that trading on the New York Stock Exchange is
restricted or that an emergency exists making sale or evaluation of the
bonds not reasonably practicable; and
o for any other period permitted by SEC order.
HOW THE FUND WORKS
PRICING
The price of a unit includes interest accrued on the securities, less expenses,
from the most recent Record Day up to, but not including, the settlement date,
which is usually three business days after the purchase date of the unit.
A portion of the price of a unit consists of cash so that the Trustee can
provide you with regular monthly income. When you sell your units you will
receive your share of this cash.
In addition, as with mutual funds, the Fund (and therefore the investors) pay
all or some of the costs of organizing the Fund including:
o cost of initial preparation of legal documents;
o federal and state registration fees;
o initial fees and expenses of the Trustee;
o initial audit; and
o legal expenses and other out-of-pocket expenses.
EVALUATIONS
An independent Evaluator values the securities on each business day (excluding
Saturdays, Sundays and the following holidays as observed by the New York Stock
Exchange: New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas;
and the following federal holidays: Columbus Day and Veterans Day). Values are
based on current bid or offer prices for the securities or comparable bonds. In
the past, the difference between bid and offer prices of U.S. Treasury
securities of the type in this Fund has been about 0.10%.
INCOME
The Trustee credits interest to an Income Account and other receipts to a
Capital Account. The Trustee may establish a Reserve Account by withdrawing from
these accounts amounts it considers appropriate to pay any material liability.
These accounts do not bear interest.
EXPENSES
The Trustee is paid monthly. It also benefits when it holds cash for the Fund in
non-interest bearing accounts. The Trustee may also receive additional amounts:
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o to reimburse the Trustee for the Fund's operating expenses;
o for extraordinary services and costs of indemnifying the Trustee and the
Sponsors;
o costs of actions taken to protect the Fund and other legal fees and
expenses;
o expenses for keeping the Fund's registration statement current; and
o Fund termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 45 cents per $1,000 face amount
annually for providing portfolio supervisory, bookkeeping and administrative
services and for any other expenses properly chargeable to the Fund. Legal,
typesetting, electronic filing and regulatory filing fees and expenses
associated with updating the Portfolio's registration statement yearly are also
now chargeable to the Portfolio. While this fee may exceed the amount of these
costs and expenses attributable to this Fund, the total of these fees for all
Series of Defined Asset Funds will not exceed the aggregate amount attributable
to all of these Series for any calendar year. The Fund also pays the Evaluator's
fees.
The Trustee's, Sponsors' and Evaluator's fees may be adjusted for inflation
without investors' approval.
The Sponsors will pay advertising and selling expenses at no charge to the Fund.
If Fund expenses exceed initial estimates, the Fund will owe the excess. The
Trustee has a lien on Fund assets to secure reimbursement of Fund expenses and
may sell bonds if cash is not available.
PORTFOLIO CHANGES
The Sponsors and Trustee are not liable for any default or defect in a security.
Unlike a mutual fund, the portfolio is designed to remain intact and we may keep
securities in the portfolio even if their credit quality declines or other
adverse financial circumstances occur. However, we may sell a security in
certain cases if we believe that certain adverse credit or certain other
conditions exist.
If we maintain a secondary market in units but are unable to sell the units that
we buy in the secondary market, we will redeem units, which will affect the size
and composition of the portfolio. Units offered in the secondary market may not
represent the same face amount of securities that they did originally.
We decide whether or not to offer units for sale that we acquire in the
secondary market after reviewing:
o diversity of the portfolio;
o size of the Fund relative to its original size;
o ratio of Fund expenses to income;
o current and long-term returns;
o degree to which units may be selling at a premium over par; and
o cost of maintaining a current prospectus.
FUND TERMINATION
The Fund will terminate following the stated maturity or sale of the last
security in the portfolio. The Fund may also terminate earlier with the consent
of investors holding 51% of the units or if total assets of the Fund have fallen
below 40% of the face amount of securities deposited. We will decide whether to
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terminate the Fund early based on the same factors used in deciding whether or
not to offer units in the secondary market.
When the Fund is about to terminate you will receive a notice, and you will be
unable to sell your units after that time. On or shortly before termination, we
will sell any remaining securities, and you will receive your final
distribution. Any security that cannot be sold at a reasonable price may
continue to be held by the Trustee in a liquidating trust pending its final
sale.
You will pay your share of the expenses associated with termination, including
brokerage costs in selling securities. This may reduce the amount you receive as
your final distribution.
CERTIFICATES
Certificates for units are issued on request. You may transfer certificates by
complying with the requirements for redeeming certificates, described above. You
can replace lost or mutilated certificates by delivering satisfactory indemnity
and paying the associated costs.
TRUST INDENTURE
The Fund is a 'unit investment trust' governed by a Trust Indenture, a contract
among the Sponsors, the Trustee and the Evaluator, which sets forth their duties
and obligations and your rights. A copy of the Indenture is available to you on
request to the Trustee. The following summarizes certain provisions of the
Indenture.
The Sponsors and the Trustee may amend the Indenture without your consent:
o to cure ambiguities;
o to correct or supplement any defective or inconsistent provision;
o to make any amendment required by any governmental agency; or
o to make other changes determined not to be materially adverse to your best
interest (as determined by the Sponsors).
Investors holding 51% of the units may amend the Indenture. Every investor must
consent to any amendment that changes the 51% requirement. No amendment may
reduce your interest in the Fund without your written consent.
The Trustee may resign by notifying the Sponsors. The Sponsors may remove the
Trustee without your consent if:
o it fails to perform its duties and the Sponsors determine that its
replacement is in your best interest; or
o it becomes incapable of acting or bankrupt or its affairs are taken over by
public authorities.
Investors holding 51% of the units may remove the Trustee. The Evaluator may
resign or be removed by the Sponsors and the Trustee without the consent of
investors. The resignation or removal of either becomes effective when a
successor accepts appointment. The Sponsors will try to appoint a successor
promptly; however, if no successor has accepted within 30 days after notice of
resignation, the resigning Trustee or Evaluator may petition a court to appoint
a successor.
Any Sponsor may resign as long as one Sponsor with a net worth of $2 million
remains and agrees to the resignation. The remaining Sponsors and the Trustee
may appoint a replacement. If there is only one Sponsor and it fails to perform
its duties or becomes bankrupt the Trustee may:
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o remove it and appoint a replacement Sponsor;
o liquidate the Fund; or
o continue to act as Trustee without a Sponsor.
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent for the
Sponsors.
The Trust Indenture contains customary provisions limiting the liability of the
Trustee, the Sponsors and the Evaluator.
LEGAL OPINION
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
special counsel for the Sponsors, has given an opinion that the units are
validly issued.
AUDITORS
Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281,
independent accountants, audited the Statement of Condition included in this
prospectus.
SPONSORS
The Sponsors are:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.)
P.O. Box 9051,
Princeton, NJ 08543-9051
SALOMON SMITH BARNEY INC. (an indirectly wholly-owned subsidiary of Citigroup
Inc.)
388 Greenwich Street--23rd Floor,
New York, NY 10013
DEAN WITTER REYNOLDS INC. (a principal operating subsidiary of Morgan Stanley
Dean Witter & Co.)
Two World Trade Center--59th Floor,
New York, NY 10048
PRUDENTIAL SECURITIES INCORPORATED (an
indirect wholly-owned subsidiary of the
Prudential Insurance Company of America)
One New York Plaza
New York, NY 10292
PAINEWEBBER INCORPORATED (a wholly-owned subsidiary of PaineWebber Group Inc.)
1285 Avenue of the Americas,
New York, NY 10019
Each Sponsor is a Delaware corporation and it, or its predecessor, has acted as
sponsor to many unit investment trusts. As a registered broker-dealer each
Sponsor buys and sells securities (including investment company shares) for
others (including investment companies) and participates as an underwriter in
various selling groups.
TRUSTEE
The Chase Manhattan Bank, Unit Investment Trust Departament, 4 New York
Plaza--6th Floor, New York, New York 10004, is the Trustee. It is supervised by
the Federal Deposit Insurance Corporation, the Board of Governors of the Federal
Reserve System and New York State banking authorities.
UNDERWRITERS' AND SPONSORS' PROFITS
Underwriters receive sales charges when they sell units. The Sponsors also
realized a profit or loss on the initial deposit of the securities. Any cash
made available by you to the Sponsors before the settlement date for those units
may be used in the Sponsors' businesses to the extent permitted by federal law
and may benefit the Sponsors.
In maintaining a secondary market, the Sponsors will also realize profits or
sustain losses in the amount of any difference between
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the prices at which they buy units and the prices at which they resell or redeem
them.
PUBLIC DISTRIBUTION
The Sponsors do not intend to qualify units for sale in any foreign countries.
This prospectus does not constitute an offer to sell units in any country where
units cannot lawfully be sold.
CODE OF ETHICS
Merrill Lynch, as agent for the Sponsors, has adopted a code of ethics requiring
preclearance and reporting of personal securities transactions by its employees
with access to information on portfolio transactions. The goal of the code is to
prevent fraud, deception or misconduct against the Fund and to provide
reasonable standards of conduct.
YEAR 2000 ISSUES
Many computer systems were designed in such a way that they may be unable to
distinguish between the year 2000 and the year 1900 (commonly known as the 'Year
2000 Problem'). We do not expect that the computer system changes necessary to
prepare for the Year 2000 will cause any major operational difficulties for the
Fund. The Year 2000 Problem may adversely affect the issuers of the securities
contained in the Portfolio, but we cannot predict whether any impact will be
material to the Portfolio as a whole.
TAXES
The following summarizes the material income tax consequences of holding Units.
It assumes that you are not a dealer in securities, financial institution,
insurance company or other investor with special circumstances. You should
consult your own tax adviser about your particular circumstances.
GENERAL TREATMENT OF THE FUND AND YOUR INVESTMENT
The Fund intends to quality for special tax treatment as a regulated investment
company so that it will not be subject to federal income tax on the portion of
its taxable income that it distributes to investors in a timely manner.
DISTRIBUTIONS
Distributions to you of the Fund's interest income and of the Fund's gains from
Securities it has held for one year or less will generally be taxed to you as
ordinary income, to the extent of the Fund's taxable income not attributable to
the Fund's net capital gain. Distributions to you in excess of the Fund's
taxable income will be treated as a return of capital and will reduce your basis
in your Units. To the extent such distributions exceed your basis, they will be
treated as gain from the sale of your Units.
Distributions to you that are treated as ordinary income will constitute
dividends for federal income tax purposes. However, corporate investors will not
be eligible for the dividends-received deduction with respect to these
distributions. You should consult your tax adviser in this regard.
Distributions to you of the Portsolio's net capital gain will generally be
taxable to you as long-term capital gain, regardless of how long you have held
your Units.
GAIN OR LOSS UPON DISPOSITION
You will generally recognize capital gain or loss when you dispose of your
Units. If you receive Securities upon redemption of your
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Units, you will generally recognize capital gain or loss equal to the difference
between your basis in your Units and the fair market value of the Securities
received in redemption.
If you net long-term capital gains exceed your net short-term capital losses,
the excess may be subject to tax at a lower rate than ordinary income. Any
capital gain or loss that you recognize on a disposition of your units will
generally be long-term if you have held your Units for more than one year and
short-term otherwise. Because the deductibility of capital losses is subject to
limitations, you may not be able to deduct all of your capital losses. You
should consult your tax adviser in this regard.
YOUR BASIS IN THE SECURITIES
Your aggregate basis in the Units will generally be equal to the cost of your
Units, including the initial sales charge. You should not increase your basis in
your Units by deferred sales charges or organizational expenses.
FOREIGN INVESTORS
If you are a foreign investor and you are not engaged in a U.S. trade or
business, you generally will not be subject to 30% withholding tax (or a lower
applicable treaty rate) on distributions. You should consult your tax adviser
about the possible application of federal, state and local, and foreign taxes.
RETIREMENT PLANS
You may wish to purchase units for an Individual Retirement Account ('IRAs') or
other retirement plan. Generally, capital gains and income received in each of
these plans are exempt from federal taxation. All distributions from these types
of plans are generally treated as ordinary income but may, in some cases, be
eligible for tax-deferred rollover treatment. You should consult your attorney
or tax adviser about the specific tax rules relating to these plans. These plans
are offered by brokerage firms, including the Sponsors of this Portfolio, and
other financial institutions. Fees and charges with respect to such plans may
vary.
SUPPLEMENTAL INFORMATION
You can receive at no cost supplemental information about the Fund by calling
the Trustee. The supplemental information includes more detailed risk disclosure
about the securities that may be in the Fund's portfolio and general information
about the structure and operation of the Fund. The supplemental information is
also available from the SEC.
12
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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, 1999 and the related statements of
operations and of changes in net assets for the years ended April 30, 1999, 1998
and 1997. These financial statements are the responsibility of the Trustee. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Securities owned at
April 30, 1999, as shown in such portfolio, were confirmed to us by The Chase
Manhattan Bank, the Trustee. An audit also includes assessing the accounting
principles used and significant estimates made by the Trustee, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Government Securities
Income Fund, U.S. Treasury Strategy Trust - 1, Defined Asset Funds at April 30,
1999 and the results of its operations and changes in its net assets for the
above-stated years in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
August 4, 1999
D-1
<PAGE>
THE GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY STRATEGY TRUST - 1, DEFINED ASSET FUNDS
<TABLE>
STATEMENT OF CONDITION
AS OF APRIL 30, 1999
<S> <C>
TRUST PROPERTY:
Investment in marketable securities - at value
(cost $127,491,105) (Note 1) $127,964,648
Accrued interest receivable 1,361,561
Total trust property 129,326,209
LESS LIABILITIES:
Redemptions payable $ 494,785
Advance from Trustee 399,938
Accrued Sponsors' fees 11,747 906,470
NET ASSETS, REPRESENTED BY:
130,042,013 units of fractional undivided interest
outstanding (Note 3) 127,968,968
Undistributed net investment income 450,771 $128,419,739
UNIT VALUE ($128,419,739/130,042,013 units) $0.98753
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>
Years Ended April 30,
1999 1998 1997
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $7,766,764 $7,230,871 $5,818,631
Trustee's fees and expenses (113,300) (115,877) (110,386)
Sponsors' fees (42,357) (40,135) (13,770)
Net investment income 7,611,107 7,074,859 5,694,475
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold or redeemed 853,491 581,339 208,200
Unrealized appreciation (depreciation) of
investments (497,721) 754,842 (379,893)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS 355,770 1,336,181 (171,693)
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $7,966,877 $8,411,040 $5,522,782
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>
Years Ended April 30,
1999 1998 1997
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 7,611,107 $ 7,074,859 $ 5,694,475
Realized gain on securities sold
or redeemed 853,491 581,339 208,200
Unrealized appreciation (depreciation)
of investments (497,721) 754,842 (379,893)
Net increase in net assets resulting
from operations 7,966,877 8,411,040 5,522,782
DISTRIBUTIONS TO HOLDERS (Note 2):
Income (7,554,329) (6,978,858) (5,639,744)
Principal (1,106,995) (279,233) (123,807)
Total distributions (8,661,324) (7,258,091) (5,763,551)
DEFERRED SALES CHARGES (Note 5) (894,892) (321,330)
CAPITAL SHARE TRANSACTIONS:
Issuances of 36,980,327, 35,978,331 and
20,332,658 units, respectively 37,106,433 35,827,867 20,214,589
Redemptions of 27,186,998 and 21,750,258
units, respectively (27,449,075) (21,866,956)
Net capital share transactions 9,657,358 13,960,911 20,214,589
NET INCREASE IN NET ASSETS 8,962,911 14,218,968 19,652,490
NET ASSETS AT BEGINNING OF YEAR 119,456,828 105,237,860 85,585,370
NET ASSETS AT END OF YEAR $128,419,739 $119,456,828 $105,237,860
PER UNIT:
Income distributions during year $0.06011 $0.05955 $0.05877
Principal distributions during year $0.00858 $0.00221 $0.00124
Net asset value at end of year $0.98753 $0.99341 $0.99262
TRUST UNITS OUTSTANDING AT END OF YEAR 130,042,013 120,248,684 106,020,611
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. The cost of securities
deposited subsequent to the initial date of deposit is 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 also distributed periodically.
3. NET CAPITAL
Cost of 130,042,013 units at Dates of Deposit $130,556,539
Less sales charges (including deferred sales charges paid) 3,332,033
Net amount applicable to Holders 127,224,506
Redemption of units - net cost of 52,705,349 units
redeemed less redemption amounts 182,303
Realized gain on securities sold or redeemed 1,598,651
Principal distributions (1,510,035)
Net unrealized appreciation of investments 473,543
Net capital applicable to Holders $127,968,968
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, 1999, 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
NOTES TO FINANCIAL STATEMENTS
5. DEFERRED SALES CHARGES
Deferred sales charges are paid to the Sponsors.
D-6
<PAGE>
THE GOVERNMENT SECURITIES INCOME FUND,
U.S. TREASURY STRATEGY TRUST - 1, DEFINED ASSET FUNDS
PORTFOLIO
AS OF APRIL 30, 1999
<TABLE>
<CAPTION>
Portfolio No. and Title of Face Interest
Securities Amount Rate Maturities Cost(1) Value(1)
<C> <S> <C> <C> <C> <C> <C>
1. United States Treasury Notes $ 25,289,000 6.750% 6/30/99 $ 25,494,599 $ 25,368,028
2. United States Treasury Notes 25,269,000 6.875 3/31/00 25,673,151 25,711,207
3. United States Treasury Notes 25,231,000 6.375 3/31/01 25,630,638 25,822,364
4. United States Treasury Notes 25,072,000 6.000 7/31/02 25,433,950 25,636,120
5. United States Treasury Notes 25,222,000 5.500 3/31/03 25,258,767 25,426,929
TOTAL $126,083,000 $127,491,105 $127,964,648
(1) See note 1 to Financial Statements.
</TABLE>
D-7
<PAGE>
Defined
Asset FundsSM
HAVE QUESTIONS ? GOVERNMENT SECURITIES INCOME FUND
Request the most recent free U.S TREASURY STRATEGY TRUST--1
Information Supplement (LADDERED MATURITIES)
that gives more details about (A Unit Investment Trust)
the Fund, by calling: ---------------------------------------
The Chase Manhattan Bank This Prospectus does not contain
1-800-323-1508 complete information about the
investment company filed with the
Securities and Exchange Commission in
Washington, D.C. under the:
o Securities Act of 1933 (file no.
33-48915) and
o Investment Company Act of 1940 (file
no. 811-2810).
TO OBTAIN COPIES AT PRESCRIBED RATES--
WRITE: Public Reference Section of the
Commission
450 Fifth Street, N.W., Washington,
D.C. 20549-6009
CALL: 1-800-SEC-0330.
VISIT: http://www.sec.gov.
---------------------------------------
No person is authorized to give any
information or representations about
this Fund not contained in this
Prospectus or the Information
Supplement, and you should not rely on
any other information.
---------------------------------------
When units of this Fund are no longer
available, this Prospectus may be used
as a preliminary prospectus for a
future series, but some of the
information in this Prospectus will be
changed for that series.
Units of any future series may not be
sold nor may offers to buy be accepted
until that series has become effective
with the Securities and Exchange
Commission. No units can be sold in any
State where a sale would be illegal.
14493--9/99
