<PAGE>
DEFINED ASSET FUNDSSM
- --------------------------------------------------------------------------------
GOVERNMENT 6.14% ESTIMATED CURRENT RETURN shows the estimated
SECURITIES annual cash to be received from interest-bearing
INCOME FUND securities in the Portfolio (net of estimated
GNMA SERIES--2B annual expenses) divided by the Public Offering
(A UNIT INVESTMENT TRUST) Price (including the maximum sales charge).
- ------------------------------5.68% ESTIMATED LONG TERM RETURN is a measure of
/ / MONTHLY INCOME the estimated return over the estimated life of
6.14% the Fund (about 8 years). This represents an
ESTIMATED CURRENT RETURN average of the yields to maturity (or in certain
5.68% cases, to an earlier call date) of the individual
ESTIMATED LONG TERM RETURN securities in the Portfolio, adjusted to reflect
AS OF SEPTEMBER 2, 1998 the maximum sales charge and estimated expenses.
The average yield for the Portfolio is derived by
weighting each security's yield by its market
value and the time remaining to the call or
maturity date, depending on how the security is
priced. Unlike Estimated Current Return, Estimated
Long Term Return takes into account maturities,
discounts and premiums of the underlying bonds.
No return estimate can be predictive of your
actual return because returns will vary with
purchase price (including sales charges), how long
units are held, changes in Portfolio composition,
changes in interest income and changes in fees and
expenses. Therefore, Estimated Current Return and
Estimated Long Term Return are designed to be
comparative rather than predictive. A yield
calculation which is more comparable to an
individual security may be higher or lower than
Estimated Current Return or Estimated Long Term
Return which are more comparable to return
calculations used by other investment products.
-------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
SPONSORS: OF THIS DOCUMENT. ANY REPRESENTATION TO THE
Merrill Lynch, CONTRARY IS A CRIMINAL OFFENSE.
Pierce, Fenner & Smith Inquiries should be directed to the Trustee at
Incorporated 1-800-323-1508.
Smith Barney Inc. Prospectus dated September 3, 1998.
Dean Witter Reynolds Inc. INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY
PaineWebber Incorporated AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
- --------------------------------------------------------------------------------
Defined Asset FundsSM
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $115 billion sponsored over the last 25 years. Each Defined
Asset Fund is a portfolio of preselected securities. The portfolio is divided
into 'units' representing equal shares of the underlying assets. Each unit
receives an equal share of income and principal distributions.
Defined Asset Funds offer several defined 'distinctives'. You know in advance
what you are investing in and that changes in the portfolio are limited - a
defined portfolio. Most defined bond funds pay interest monthly - defined
income. The portfolio offers a convenient and simple way to invest - simplicity
defined.
Your financial professional can help you select a Defined Asset Fund to meet
your personal investment objectives. Our size and market presence enable us to
offer a wide variety of investments. The Defined Asset Funds family offers:
o Municipal bond portfolios
o Corporate bond portfolios
o Government bond portfolios
o Equity portfolios
o International equity and bond portfolios
The terms of Defined Funds are as short as one year or as long as 30 years.
Special defined funds are available including: insured funds, double and triple
tax-free funds and funds with 'laddered maturities' to help protect against
changing interest rates. Defined Asset Funds are offered by prospectus only.
- ----------------------------------------------------------------
Defined GNMA Series
- ----------------------------------------------------------------
Our defined portfolio of mortgage-backed GNMA Securities offers you a simple and
convenient way to participate in the GNMA market and obtain monthly income while
earning an attractive return as well as the assurance of an investment in
securities that are guaranteed by GNMA, a federal agency.
INVESTMENT OBJECTIVES
To obtain safety of capital and current monthly income distributions through
investment in a portfolio of interest-bearing GNMA securities. The full faith
and credit of the United States is pledged to the payment of the Securities but
the units of the Fund, as such, are not directly backed.
- ----------------------------------------------------------------
Defining Your Portfolio
- ----------------------------------------------------------------
PROFESSIONAL SELECTION AND SUPERVISION
The Portfolio of Securities is selected by experienced buyers. The Fund is not
actively managed; however, it is regularly reviewed and a Security can be sold
if retaining it is considered detrimental to investors' interests.
PORTFOLIO COMPOSITION
The Portfolio consists of two different issues of mortgage-backed Securities of
the modified pass-through type guaranteed by the Government National Mortgage
Association (GNMA): 6.0% Ginnie Maes maturing 8/15/14 to 9/15/28, 65%; 7.5%
Ginnie Maes maturing 8/15/14 to 9/15/28, 35%. All of the Ginnie Maes in the Fund
are backed by pools of long term mortgages on 1-to 4-family dwellings. The
Ginnie Maes are fully guaranteed as to payment of principal and interest by
GNMA.
TAX INFORMATION
Distributions of ordinary income or capital gain from the Fund will be included
in a U.S. investor's gross income, but will not be eligible for the dividends-
received deduction for corporations. Noncorporate investors who have held their
units for more than 12 months may be entitled to a 20% maximum federal tax rate
for gains from the sale of these units.
The Fund is not likely to be suitable for foreign investors (including
nonresident alien individuals and foreign corporations) not engaged in U.S.
trade or business, because distributions to foreign investors (if not designated
as capital gain dividends) will generally be subject to 30% U.S. withholding tax
(or a lower applicable treaty rate), whereas interest income of the type
received by the Fund would generally not have been subject to withholding if it
had been received directly by foreign investors. Under certain circumstances,
withholding agents will file with the Internal Revenue Service foreign person
information returns. (See Taxes in Part B.)
- ----------------------------------------------------------------
Defining Your Investment
- ----------------------------------------------------------------
PUBLIC OFFERING PRICE PER 1,000 UNITS $1,039.94
The Public Offering Price as of September 2, 1998, the business day prior to the
Initial Date of Deposit, is based on net asset value of the Fund plus the
up-front sales charge. An amount equal to principal cash, if any, as well as net
accrued but undistributed interest on the unit is added to the Public Offering
Price. The Public Offering Price also includes the estimated organization costs
shown on page A-3. The underlying Securities are evaluated by an independent
evaluator at 3:30 p.m. Eastern time. The Public Offering Price changes every day
with changes in the prices of the Securities.
A-2
<PAGE>
LOW MINIMUM INVESTMENT
You can get started with a minimum purchase of $250.
UNIT PAR VALUE
The par value of your unit--the amount of money you will receive by termination
of the Fund, assuming all the bonds are paid at maturity or are redeemed by the
issuer at par or sold by the Fund at par to meet redemptions--is $1.00.
REINVESTMENT OPTION
You can elect to automatically reinvest your distributions into a separate
portfolio of mortgage-backed securities. Reinvesting helps to compound your
income.
DISTRIBUTIONS
Principal from sales, redemptions and maturities of the Ginnie Maes will be
distributed to investors periodically when the amount to be distributed is more
than $5.00 per 1,000 units. Interest income received on the short-term U.S.
Treasury notes will be distributed at the end of each of the first two years of
the Fund.
TERMINATION DATE
The Fund will generally terminate no later than one year following the maturity
date of the last maturing security listed in the Portfolio. The Fund may be
terminated earlier if the value is less than 40% of the face amount of
securities deposited.
SPONSORS' PROFIT OR LOSS
The Sponsors' profit or loss associated with the Fund will include the receipt
of applicable sales charges, fluctuations in the Public Offering Price or
secondary market price of units, a gain of $1,828.51 on the initial deposit of
the securities and a gain or loss on subsequent deposits of additional
securities (see Underwriters' and Sponsors' Profits in Part B).
- ----------------------------------------------------------------
Defining Your Risks
- ----------------------------------------------------------------
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. Unit price
fluctuates and the value of units will decline if interest rates increase. The
mortgages underlying the Ginnie Maes are amortized, and there is no prepayment
protection. The potential for appreciation that might otherwise result from a
decline in interest rates would be limited by any increase in prepayments by
mortgagors as interest rates decline. Investors may also receive payments of
principal sooner than anticipated, and interest payments will decrease as
principal is returned. Because regular payments of principal will be received
over the life of the Fund and because of the possible maturity, sale or other
disposition of securities, the size, composition and return of the Portfolio may
change at any time. Because of the sales charges, returns of principal and
fluctuations in unit price, among other reasons, the sale price will generally
be less than the cost of your units. There is no guarantee that the Fund will
achieve its investment objective.
The Fund itself is not backed by the full faith and credit of the U.S.
Government (see Risk Factors in Part B).
- ----------------------------------------------------------------
Defining Your Costs
- ----------------------------------------------------------------
SALES CHARGES
You will pay an initial sales charge of 1.0%. In addition, you will pay a total
deferred sales charge of $20.00 in the second year of the fund (four quarterly
payments of $5.00 per 1,000 units). This deferred sales charge will be paid from
principal proceeds from the periodic sale or maturity of the short-term U.S.
Treasury notes in the Portfolio. (See How To Buy Units in Part B.)
Although the Fund is a unit investment trust rather than a mutual fund, the
following information is presented to permit a comparison of fees and an
understanding of the direct or indirect costs and expenses that you pay.
As a %
of $1,000 Amount per
Invested 1,000 Units
----------------- ---------------
Maximum Sales Charges 3.00% $ 30.00
ORGANIZATION COSTS
Investors will bear all or a portion of the expenses incurred in organizing the
Fund--including costs of preparing the registration statement, the trust
indenture and other closing documents, registering units with the SEC and the
states, and the initial audit or the Portfolio--as is commonf or mutual funds.
The estimated organization costs shown below are included in the public offering
price and will be deducted from the assets of the Fund as of the close of the
initial offering period.
Amount
per 1,000
Units
---------------
Organization Costs $ 2.00
ESTIMATED ANNUAL FUND OPERATING EXPENSES
As a %
of Average Per 1,000
Net Assets* Units
----------------- --------------
Trustee's Fee .082% $ 0.84
Portfolio Supervision,
Bookkeeping and Administrative
Fees .044% $ 0.45
Evaluator's Fee .001% $ 0.01
Other Operating Expenses .011% $ 0.12
----------------- --------------
TOTAL .138% $ 1.42
- ------------
* Based on the mean of the bid and offer side evaluations.
A-3
<PAGE>
COSTS OVER TIME
You would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on the investment throughout the indicated periods:
1 Year 3 Years 5 Years 10 Years
$33 $36 $40 $49
The example assumes reinvestment of all distributions into additional units of
the Fund (a reinvestment option not offered by this Fund) and uses a 5% annual
rate of return as mandated by Securities and Exchange Commission regulations
applicable to mutual funds. The Costs Over Time above reflect both sales charges
and operating expenses on an increasing investment (because the net annual
return is reinvested). The example should not be considered a representation of
past or future expenses or annual rate of return; the actual expenses and annual
rate of return may be more or less than the example.
REDEEMING OR SELLING YOUR INVESTMENT
You may redeem or sell your units at any time. Your price is based on the Fund's
then current net asset value plus principal cash, if any, as well as accrued
interest. As of the close of the initial offering period the price you receive
will be reduced to reflect estimated organization costs. If you redeem or sell
your Units before the final deferred sales charge installment deduction, you
will pay the remaining balance of the deferred sales charge. (See How to Buy
Units in Part B.)
- ----------------------------------------------------------------
Defining Your Income
- ----------------------------------------------------------------
MONTHLY INTEREST INCOME
The Fund pays monthly income.
WHAT YOU MAY EXPECT
(PAYABLE ON THE 23RD DAY OF THE MONTH TO HOLDERS OF RECORD ON THE 17TH DAY OF
THE MONTH):
First Distribution per 1,000 units
(October 23, 1998): $ 7.80
Regular Monthly Income per 1,000 units
(Beginning on November 23, 1998): $ 5.31
Annual Income per 1,000 units: $ 63.83
A-4
<PAGE>
- -----------------------------------
Defined GNMA Portfolio
- -----------------------------------
Government Securities Income Fund
GNMA Series--2B September 3, 1998
<TABLE><CAPTION>
FACE RANGE OF STATED
PORTFOLIO NO. AND TITLE AMOUNT COUPON MATURITIES COST TO FUND(2)
----------------------- ------ ------ --------------- ---------------
<S> <C> <C> <C> <C>
1. Government National Mortgage
Association, Modified
Pass-Through Mortgage-Backed Se-
curities $ 325,000 6.000% 8/15/14 to 9/15/28(1) $ 322,868.00
2. Government National Mortgage
Association, Modified
Pass-Through Mortgage-Backed Se-
curities 175,000 7.500 8/15/14 to 9/15/28(1) 180,960.50
3. U.S. State Treasury Notes(3) 10,000 5.125 8/31/00 10,053.13
-------------- ----------------
$ 510,000 $ 513,881.63
-------------- ----------------
-------------- ----------------
</TABLE>
- ------------------------------------
(1) The face amount of securities listed as having the range of maturities
shown is an aggregate of individual Securities having varying ranges of
maturities within that shown. They are listed as one category of Securities with
a single range of maturities because of current market conditions that accord no
difference in price among the Securities grouped together on the basis of the
difference in their maturity ranges. At some time in the future, however, the
difference in maturity ranges could affect the market value of the individual
Securities. In addition to the information as to the GNMA modified pass-through
mortgage-backed Securities set forth above, the Trustee will furnish investors a
statement listing the name of issuer, pool number, interest rate, maturity date
and above amount for each Security in the Portfolio upon written request.
(2) Evaluation of the Securities by the Evaluator is made on the basis of
current offer side evaluation. On this basis, 36% of the Securities were
deposited at a premium and 64% at a discount from par. On the business day prior
to the Initial Date of Deposit, the bid side evaluation was 0.37% lower than the
offer side evaluation.
(3) It is anticipated that principal received upon the sale or maturity of
these securities will be applied to the payment of the investors' deferred sales
charge; the interest income will be distributed at the end of each year. These
amounts have not been included in the calculation of the Fund's Estimated
Current or Long Term Returns.
A-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders of Government Securities Income Fund, GNMA
Series--2B, Defined Asset Funds (the 'Fund'):
We have audited the accompanying statement of condition and the related
portfolio included in the prospectus of the Fund as of September 3, 1998. This
financial statement is the responsibility of the Trustee. Our responsibility is
to express an opinion on this financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation of cash and an irrevocable letter of credit deposited for the
purchase of securities, as described in the statement of condition, with 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 statement referred to above presents fairly, in
all material respects, the financial position of the Fund as of September 3,
1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
NEW YORK, N.Y.
SEPTEMBER 3, 1998
STATEMENT OF CONDITION AS OF SEPTEMBER 3, 1998
TRUST PROPERTY
Investments--Securities and Contracts to purchase
Securities(1) $ 513,881.63
Cash $ 1,000.00
Accrued interest to Initial Date of Deposit on underlying
Securities 181.25
--------------------
Total $ 515,062.88
--------------------
--------------------
LIABILITIES AND INTEREST OF HOLDERS
Liabilities: Advance by Trustee for Accrued interest(2) $ 181.25
Reimbursement of Sponsors for organization expenses(3) 1,000.00
--------------------
Subtotal 1,181.25
--------------------
Interest of Holders of 500,000 Units of fractional
undivided interest outstanding:
Cost to investors(3)(4)(5) 519,971.63
Organization expenses(3)and gross underwriting
commissions(4) (6,090.00)
--------------------
Subtotal $ 513,881.63
--------------------
Total $ 515,062.88
--------------------
--------------------
- ---------------
(1) Aggregate cost to the Fund of the securities under Defined
Portfolio is based upon the offer side evaluation determined by the Evaluator at
the evaluation time on the business day prior to the Initial Date of Deposit.
The contracts to purchase the securities are collateralized by an irrevocable
letter of credit which has been issued by Development Bank of Singapore, New
York Agency, in the amount of $504,100.00 and deposited with the Trustee. The
amount of the letter of credit includes $502,015.63 for the purchase of
$500,000.00 face amount of the securities, plus $2,084.37 for accrued interest.
(2) Representing a special distribution to the Sponsors by the Trustee
of an amount equal to the accrued interest on the securities as of the initial
date of deposit.
(3) A portion of the Public Offering Price consists of cash in an
amount sufficient to pay for costs incurred in establishing the Fund. These
costs have been estimated at $2.00 per 1,000 Units. A distribution will be made
as of the close of the initial offering period to an account maintained by the
Trustee from which the organization expenses obligation of the investors to the
Sponsors will be satisfied.
(4) Assumes the maximum up-front sales charge per 1,000 Units of 1.00%
of the Public Offering Price. A deferred sales charge of $20.00 per 1,000 Units
is payable in the second year of the Fund (four quarterly payments of $5.00 per
1,000 Units). Distributions will be made to an account maintained by the Trustee
from which the deferred sales charge obligation of the investors will be
satisfied. If units are redeemed prior to the final deferred sales charge
deduction, the remaining portion of the distribution applicable to such Units
will be transferred to the account on the redemption date.
(5) Aggregate public offering price (exclusive of interest) computed
on the basis of the offer side evaluation of the underlying securities as of the
evaluation time on the business day prior to the Initial Date of Deposit.
A-6
<PAGE>
GOVERNMENT SECURITIES INCOME FUND
GNMA SERIES--2B
DEFINED ASSET FUNDS
I want to learn more about automatic reinvestment in the GNMA Fund Investment
Accumulation Program, Inc. Please send me information about the Program and a
current Prospectus.
My Name (please print) Registered Holder
My Address, including
Zip Code (please print)
Registered Holder
(Two signatures required if
joint tenancy)
12345678
<PAGE>
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 644, NEW YORK, NY NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
THE CHASE MANHATTAN BANK UNITED STATES
CUSTOMER SERVICE RETAIL DEPARTMENT
BOWLING GREEN STATION
P.O. BOX 5179
NEW YORK, NY 10274-5179
- --------------------------------------------------------------------------------
(Fold along this line.)
- --------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
GOVERNMENT SECURITIES INCOME FUND
GNMA SERIES
THIS PART B OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED OR
PRECEDED BY PART A.
FURTHER INFORMATION REGARDING THE FUND MAY BE OBTAINED
WITHIN FIVE DAYS OF WRITING OR CALLING THE TRUSTEE, AT THE ADDRESS AND
TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS.
Index
PAGE
---------
Fund Description...................................... 1
Risk Factors.......................................... 2
How to Buy Units...................................... 4
How to Redeem or Sell Units........................... 5
Income and Distributions.............................. 6
Fund Expenses......................................... 7
PAGE
---------
Taxes................................................. 7
Records and Reports................................... 9
Trust Indenture....................................... 9
Miscellaneous......................................... 10
Exchange Option....................................... 12
Supplemental Information.............................. 12
FUND DESCRIPTION
PORTFOLIO SELECTION
Professional buyers for Defined Asset Funds, with access to extensive
research, selected the Securities for the Portfolio after considering the Fund's
investment objectives as well as the availability of the Securities, the price
of the Securities compared to similar securities and the extent to which they
were trading at discounts or premiums to par, and the maturities of the
Securities. Only issues meeting these stringent criteria of Defined Asset Funds
are included in the Portfolio. No leverage or borrowing is used nor does the
Portfolio contain other kinds of securities to enhance yield. A summary of the
Securities in the Portfolio appears in Part A of the Prospectus.
The deposit of the Securities in the Fund on the initial date of deposit
established a proportionate relationship between the face amount of the
Securities. Following the initial date of deposit the Sponsors may deposit
additional Securities in order to create new Units, maintaining to the extent
possible that original proportionate relationship.
Yields on GNMA mortgage-backed securities depend on many factors including
general money market conditions, general conditions of the corporate and
mortgage-backed bond markets and prevailing interest rates.
Because each Defined Asset Fund is a preselected portfolio of securities,
you know the terms of the Securities before you invest. Of course, the Portfolio
will change somewhat over time, as additional Securities are deposited in order
to create new Units, and as Securities mature, are redeemed or are sold to meet
Unit redemptions or in other limited circumstances.
GINNIE MAES
The Ginnie Maes in the Portfolio have been issued by the Government
National Mortgage Association (GNMA), which is a wholly-owned U.S. government
corporation within the Department of Housing and Urban Development.
The Ginnie Maes are of the 'modified pass-through' type, the terms of which
provide for timely monthly payment by the issuers to the registered holders
(including the Fund) of their pro rata shares of the scheduled principal
1
<PAGE>
payments on account of the mortgages backing these Ginnie Maes, plus any
prepayments of principal of such mortgages received, and interest on the
aggregate unpaid principal balance of these Ginnie Maes. Ginnie Maes are
guaranteed by GNMA as to timely payment of principal and interst. The full faith
and credit of the United States is pledged to the payment of all amounts which
may be required to be paid under the guaranty.
All mortgages in the pools backing the Ginnie Maes contained in the
Portfolio are mortgages on 1-to 4-family dwellings (amortizing over a period of
up to 30 years). In general, the mortgages in these pools provide for equal
monthly payments over the life of the mortgage (aside from prepayments),
designed to repay the principal of the mortgage over this period, together with
interest at a fixed rate on the unpaid balance.
The GNMA guaranty described above relates only to a payment of principal of
and interest on the Ginnie Maes in the Portfolio and not to the Units of the
Fund.
PORTFOLIO SUPERVISION
The Fund follows a buy and hold investment strategy in contrast to the
frequent portfolio changes of a managed fund based on economic, financial and
market analyses. Experienced financial analysts regularly review the Portfolio
and a Security may be sold in certain circumstances including the occurrence of
a default in payment on the Security or any other securities backed by the full
faith and credit of the United States, institution of certain legal proceedings,
if the Security becomes inconsistent with the Fund's investment objectives, a
decline in the price of the Security or the occurrence of other market or credit
factors that, in the opinion of the Sponsors, makes retention of the Security
detrimental to the interests of investors.
The Sponsors and the Trustee are not liable for any default or defect in a
Security. If a contract to purchase any Security fails, the Sponsors may
generally deposit a replacement security so long as it is a security issued and
guaranteed by GNMA and has a fixed maturity date substantially similar to the
failed Security. A replacement security must be deposited within 110 days after
the deposit of the failed contract, at a cost that does not exceed the funds
reserved for purchasing the failed Security and at a yield to maturity and
current return substantially equivalent (considering then current market
conditions and relative creditworthiness) to those of the failed Security, as of
the date the failed contract was deposited.
RISK FACTORS
An investment in the Fund entails certain risks, including the risk that
the value of your investment will decline with increases in interest rates and
that payments of principal may be received sooner than anticipated, especially
if interest rates decline. Generally speaking, securities with longer maturities
will fluctuate in value more than securities with shorter maturities. In recent
years there have been wide fluctuations in interest rates and in the value of
fixed-rate bonds generally. The Sponsors cannot predict the direction or scope
of any future fluctuations.
Certain of the Securities may have been deposited at a market discount or
premium principally because their interest rates are lower or higher than
prevailing rates on comparable debt securities. The current returns of market
discount securities are lower than comparably rated securities selling at par
because discount securities tend to increase in market value as they approach
maturity. The current returns of market premium securities are higher than
comparably rated securities selling at par because premium securities tend to
decrease in market value as they approach maturity. Because part of the purchase
price is returned through current income payments and not at maturity, an early
redemption at par of a premium security will result in a reduction in yield to
the Fund. The value of Ginnie Maes purchased at a market discount will increase
in value faster than Ginnie Maes purchased at a market premium if interest rates
decrease. Conversely, if intrest rates increase, the value of Ginnie Maes
purchased at a market discount will decrease faster than Ginnie Maes purchased
at a premium. In addition, if interest rates rise, the prepayment risk of higher
yielding, premium Ginnie Maes and the prepayment benefit for lower yielding,
discount Ginnie Maes will be reduced. The potential for appreciation on the
Securities, which could otherwise be expected to result from a decline in
interest rates, may tend to be limited by any increased prepayments by
mortgagors as interest rates decline. In addition, prepayments of principal on
Ginnie Maes purchased at a premium over par will result in some loss on
investment which prepayments on Ginnie Maes purchased at a discount from par
will result in some gain on investment. Market premium or discount attributable
to interest rate changes does not indicate market confidence or lack of
confidence in the issue.
The Securities in the Portfolio, though backed by GNMA, are subject to
changes in market value when interest rates fluctuate. The Fund seeks to protect
against declining interest rates by investing a portion of the Portfolio in
2
<PAGE>
longer-term Securities, while if interest rates rise investors will be able to
reinvest the proceeds of principal returned each year in higher yielding
obligations. It is anticipated that equal portions of principal invested will be
returned annually as Securities mature.
LITIGATION AND LEGISLATION
The Sponsors do not know of any pending litigation as of the date of this
Prospectus which might reasonably be expected to have a material adverse effect
upon the Fund. At any time after the initial date of deposit, litigation may be
initiated on a variety of grounds, or legislation may be enacted, affecting the
Securities in the Fund.
PAYMENT OF THE SECURITIES AND LIFE OF THE FUND
Monthly payments and prepayments of principal are made to the Fund in
respect of the mortgages underlying the Ginnie Maes. All of the mortgages in the
pools relating to the Ginnie Maes in the Portfolio are subject to prepayment
without any significant premium or penalty at the option of the mortgagors
(i.e., the homeowners). While the mortgages on 1-to 4-family dwellings
underlying the Ginnie Maes are amortized over a period of up to 30 years, it has
been the experience of the mortgage industry that the average life of comparable
mortgages, owing to prepayments, is much less. Generally speaking, a number of
factors, including mortgage market interest rates and homeowners mobility, will
affect the average life of the Ginnie Maes in the Portfolio. Changes in
prepayment patterns are influenced by changes in housing cycles and mortgage
refinancing could influence yield assumptions used in pricing the securities.
While the value of these mortgage backed securities generally fluctuates
inversely with changes in interest rates, it should be noted that their
potential for appreciation, which could otherwise be expected to result from a
decline in interest rates, may tend to be limited by any increased prepayments
by mortgagors as interest rates decline. Accordingly, the termination of the
Fund might be accelerated as a result of prepayments made as described above.
The size and composition of the Fund will be affected by the level of
redemptions of Units that may occur from time to time. Principally, this will
depend upon the number of investors seeking to sell or redeem their Units and
whether or not the Sponsors are able to sell the Units acquired by them in the
secondary market. As a result, Units offered in the secondary market may not
represent the same face amount of Securities as on the initial date of deposit.
Factors that the Sponsors will consider in determining whether or not to sell
Units acquired in the secondary market include the size of the Fund relative to
its original size, the ratio of Fund expenses to income, the Fund's current and
long-term returns, the degree to which Units may be selling at a premium over
par and the cost of maintaining a current prospectus for the Fund. These factors
may also lead the Sponsors to seek to terminate the Fund earlier than its
mandatory termination date.
Early termination of a Fund or early payments of principal may have
important consequences to the investor, e.g., to the extent that Units were
purchased with a view to an investment of longer duration, the overall
investment program of the investor may require readjustment; or the overall
return on investment may be less or greater than anticipated, depending in part
on whether the purchase price paid for Units represented the payment of an
overall premium or a discount, respectively, above or below the state principal
amounts of the underlying mortgages.
FUND TERMINATION
The Fund will be terminated no later than the mandatory termination date
specified in Part A of the Prospectus. It will terminate earlier upon the
disposition of the last Security or upon the consent of investors holding 51% of
the Units. The Fund may also be terminated earlier by the Sponsors once the
total assets of the Fund have fallen below the minimum value specified in Part A
of the Prospectus. A decision by the Sponsors to terminate the Fund early will
be based on factors similar to those considered by the Sponsors in determining
whether to continue the sale of Units in the secondary market.
Notice of impending termination will be provided to investors and
thereafter Units will no longer be redeemable. On or shortly before termination,
the Fund will seek to dispose of any Securities remaining in the Portfolio
although any Security unable to be sold at a reasonable price may continue to be
held by the Trustee in a liquidating trust pending its final disposition. A
proportional share of the expenses associated with termination, including
brokerage costs in disposing of Securities, will be borne by investors remaining
at that time. This may have the effect of reducing the amount of proceeds those
investors are to receive in any final distribution.
3
<PAGE>
HOW TO BUY UNITS
PUBLIC OFFERING PRICE
Units are available from any of the Sponsors, Underwriters and other
broker-dealers at the Public Offering Price plus accrued interest on the Units.
The Public Offering Price varies each Business Day with changes in the value of
the Portfolio and other assets and liabilities of the Fund.
Net accrued interest and principal cash, if any, are added to the Public
Offering Price, the Sponsors' Repurchase Price and the Redemption Price per
Unit. This represents the interest accrued on the securities, net of Fund
expenses, from the initial date of deposit to, but not including, the settlement
date for Units (less any prior distributions of interest income to investors).
Securities deposited also carry accrued but unpaid interest up to the initial
date of deposit. To avoid having investors pay this additional accrued interest
(which earns no return) when they purchase Units, the Trustee advances and
distributes this amount to the Sponsors; it recovers this advance from interest
received on the Securities. Because of varying interest payment dates on the
securities, accrued interest at any time will exceed the interest actually
received by the Fund.
Because accrued interest on the Securities is not received by the Fund at a
constant rate throughout the year, any Monthly Income Distribution may be more
or less than the interest actually received by the Fund. To eliminate
fluctuations in the Monthly Income Distribution, a portion of the Public
Offering Price may consist of cash in an amount necessary for the Trustee to
provide approximately equal distributions. Upon the sale or redemption of Units,
investors will receive their proportionate share of this cash. If a Security is
sold, redeemed or otherwise disposed of, the Fund will periodically distribute
to investors the portion of this cash that is attributable to the Security. In
addition, a portion of the Public Offering Price also consists of cash in an
amount sufficient to pay for all or a portion of the costs incurred in
establishing the Fund, including the cost of the initial preparation of
documents relating to the Fund, federal and state registration fees, the initial
fees and expenses of the Trustee, legal expenses and any other out-of-pocket
expenses. The estimated organization costs will be deducted from the assets of
the Fund as of the close of the initial offering period.
The regular Monthly Income Distribution is stated in Part A of the
Prospectus and will change as the composition of the Portfolio changes over
time.
During the initial offering period the Public Offering Price (and the
Initial Repurchase Price) is based on the higher, offer side evaluation of the
Securities at the next Evaluation Time after the order is received. In the
secondary market (after the initial offering period), the Public Offering Price
(and the Sponsors' Repurchase Price and the Redemption Price) is based on the
lower, bid side evaluation of the Bonds.
Units redeemed or repurchased prior to the accrual of the final deferred
sales charge installment will have the amount of any remaining installments
deducted from the redemption or repurchase proceeds, although this deduction
will be waived in the event of the death or disability (as defined in the
Internal Revenue Code of 1986) of an investor. Units purchased after the
deduction of the final deferred sales charge installment will be subject only to
an up-front sales charge.
The maximum sales fee is reduced if you invest at least $100,000, as
follows.
YOUR MAXIMUM
SALES FEE
IF YOU INVEST: WILL BE:
-----------------
Less than $100,000 3.00%
$100,000 to $249,999 2.75%
$250,000 to $499,999 2.50%
$500,000 to $999,999 2.25%
$1,000,000 and over 2.00%
Employees of certain of the Sponsors and their affiliates may buy Units at
prices based on a reduced sales charge of at least $5.00 per 1,000 units.
In the initial offering period the concession to dealers will be the Public
Offering Price less $21.00.
4
<PAGE>
Commercial banks and their securities broker subsidiaries that have
agreements with the Sponsors may make Units available to their customers as
their agents. A portion of the sales charge (equal to the dealer commission
referred to above), will be retained or remitted to the banks. Under the
Glass-Steagall Act, banks are prohibited from underwriting Units; however, the
Glass-Steagall Act permits banks to act as agents of their customers on a
disclosed basis and federal banking regulations have approved similar
arrangements. In addition, state securities laws on this issue may differ from
the interpretation of federal law expressed above and banks and financial
institutions may be required to register as dealers pursuant to state law.
EVALUATIONS
Evaluations are determined by the independent Evaluator on each Business
Day. This excludes Saturdays, Sundays and the following holidays as observed by
the New York Stock Exchange: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and the following Federal holidays: Columbus Day and
Veterans Day. Securities evaluations are generally determined on the basis of
current bid or offer prices for the Securities or comparable securities or by
appraisal or by any combination of these methods. Under current market
conditions the bid prices for Ginnie Maes of the type deposited in the Portfolio
are expected to be 1/4 to 1/2 of 1% less than the offer price. Neither the
Sponsors, the Trustee or the Evaluator will be liable for errors in the
Evaluator's judgment. The fees of the Evaluator will be borne by the Fund.
CERTIFICATES
Certificates for Units are issued upon request and may be transferred by
paying any taxes or governmental charges and by complying with the requirements
for redeeming Certificates (see How To Redeem or Sell Units below). Certain
Sponsors collect additional charges for registering and shipping Certificates to
purchasers. Lost or mutilated Certificates can be replaced upon delivery of
satisfactory indemnity and payment of costs.
HOW TO REDEEM OR SELL UNITS
You can redeem your Units at any time for net asset value. In addition, the
Sponsors have maintained an uninterrupted secondary market for Units for over 20
years and will ordinarily buy back Units at net asset value. The following
describes these two methods to redeem or sell Units in greater detail.
REDEEMING UNITS WITH THE TRUSTEE
You can always redeem your Units directly with the Trustee for net asset
value. This can be done by sending the Trustee a redemption request together
with any Unit certificates you hold, which must be properly endorsed or
accompanied by a written transfer instrument with signatures guaranteed by an
eligible institution. In certain instances, additional documents may be required
such as a trust instrument, certificate of corporate authority, certificate of
death or appointment as executor, administrator or guardian.
Within seven days after the Trustee's receipt of your request containing
the necessary documents, a check will be mailed to you in an amount equal to the
net asset value of your Units. If you redeem or sell your Units before the final
deferred sales charge installment date the remaining deferred sales charges will
be deducted from the net asset value. Because of the sales charge, market
movements or changes in the Portfolio, net asset value at the time you redeem
your Units may be greater or less than the original cost of your Units. Net
asset value is calculated each Business Day by adding the value of the
Securities, net accrued interest, cash and the value of any other Fund assets;
deducting unpaid taxes or other governmental charges, accrued but unpaid Fund
expenses and any remaining deferred sales charges, unreimbursed Trustee
advances, cash held to redeem Units or for distribution to investors and the
value of any other Fund liabilities; and dividing the result by the number of
outstanding Units.
As long as the Sponsors are maintaining a secondary market for Units (as
described below), the Trustee will not actually redeem your Units but will sell
them to the Sponsors for net asset value. If the Sponsors are not maintaining a
secondary market, the Trustee will redeem your Units for net asset value or will
sell your Units in the over-the-counter market if the Trustee believes it will
obtain a higher net price for your Units. If the Trustee is able to sell the
Units for a net price higher than net asset value, you will receive the net
proceeds of the sale.
Securities are evaluated on the offer side during the initial offering
period and on the bid side thereafter.
If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee may sell Securities selected by the Agent for the
Sponsors, based on market and credit factors determined to be in the best
interest
5
<PAGE>
of the Fund. These sales are often made at times when the Securities would not
otherwise be sold and may result in lower prices than might be realized
otherwise and will also reduce the size and diversity of the Fund. If Securities
are being sold during a time when additional Units are being created by the
purchase of additional Securities (as described under Portfolio Selection),
Securities will be sold in a manner designed to maintain, to the extent
practicable, the proportionate relationship among the face amounts of each
Security in the Portfolio.
Redemptions may be suspended or payment postponed (i) if the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (ii) if
the SEC determines that trading on the New York Stock Exchange is restricted or
that an emergency exists making disposal or evaluation of the Securities not
reasonably practicable or (iii) for any other period permitted by SEC order.
SPONSORS' SECONDARY MARKET FOR UNITS
The Sponsors, while not obligated to do so, will buy back Units at net
asset value without any other fee or charge as long as they are maintaining a
secondary market for Units. Because of the sales charge, market movements or
changes in the portfolio, net asset value at the time you sell your Units may be
greater or less than the original cost of your Units. The Sponsors may resell
the Units to other buyers or redeem the Units by tendering them 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 for Units.
The Sponsors may discontinue the secondary market for Units without prior
notice if the supply of Units exceeds demand or for other business reasons.
Regardless of whether the Sponsors maintain a secondary market, you have the
right to redeem your Units for net asset value with the Trustee at any time, as
described above.
INCOME, DISTRIBUTIONS AND REINVESTMENT
INCOME
The terms of the Ginnie Maes provide for payment to the holders thereof
(including the Fund), on the fifteenth day of each month, of amounts collected
by or due to the issuers thereof with respect to the underlying mortgages during
the preceding month, except for the first payment, which is not due until 45
days after the initial issue date of the Security. Interest received is credited
to an Income Account and other receipts to a Capital Account. A Reserve Account
may be created by withdrawing from the Income and Capital Accounts amounts
considered appropriate by the Trustee to reserve for any material amount that
may be payable out of the Fund.
DISTRIBUTIONS
Each Unit receives an equal share of monthly distributions of interest
income net of estimated expenses. Along with the Monthly Income Distributions,
the Trustee will distribute the investor's pro rata share of principal received
from any disposition of a Security to the extent available for distribution. As
each Security in the Portfolio matures, the balance in the Capital Account will
be distributed on or about the second business day following the maturity date
to investors of record on the business day immediately preceding the
distribution day.
A portion of Fund expenses will be deducted from the Income Account and a
portion from the Capital Account. The initial estimated annual income per Unit,
after deducting estimated annual Fund expenses as stated in Part A of the
Prospectus, will change as prepayments occur on the underlying mortgages, as
Securities mature, are called or sold or otherwise disposed of, as replacement
obligations are deposited and as Fund expenses change. Because the Portfolio is
not actively managed, income distributions will generally not be affected by
changes in interest rates and the amount of income should be substantially
maintained as long as the Portfolio remains unchanged; however, optional
prepayments or other Portfolio changes may occur more frequently when interest
rates decline, which would result in early returns of principal and possibly
earlier termination of the Fund.
REINVESTMENT
Distributions will be paid in cash unless you elect to have your
distributions reinvested in The GNMA Fund Investment Accumulation Program, Inc.
The Program is an open-end management investment company whose primary
investment objective is to obtain a high level of current income through
investment in a portfolio of Ginnie Maes. Investors participating in the Program
will be taxed on their reinvested distributions in the manner described in Taxes
even though distributions are reinvested in the Program. For more complete
information about the Program,
6
<PAGE>
including charges and expenses, return the enclosed form for a prospectus. Read
it carefully before you decide to participate. Notice of election to participate
must be received by the Trustee in writing at least ten days before the Record
Day for the first distribution to which the notice is to apply.
FUND EXPENSES
Estimated annual Fund expenses are listed in Part A of the Prospectus; if
actual expenses exceed the estimate, the excess will be borne by the Fund. The
Trustee's fee shown in Part A of this Prospectus assumes that the Fund will
reach a size estimated by the Sponsors and is based on a sliding fee scale that
reduces the per 1,000 units Trustee's fee as the size of the Fund increases. The
Trustee's annual fee is payable in monthly installments. The Trustee also
benefits when it holds cash for the Fund in non-interest bearing accounts.
Possible additional charges include Trustee fees and expenses for maintaining
the Fund's registration statement current with Federal and State authorities,
extraordinary services, costs of indemnifying the Trustee and the Sponsors,
costs of action taken to protect the Fund and other legal fees and expenses,
Fund termination expenses and any governmental charges. The Trustee has a lien
on Fund assets to secure reimbursement of these amounts and may sell Securities
for this purpose if cash is not available. The Sponsors receive an annual fee
currently estimated at $0.45 per $1,000 face amount to reimburse them for the
cost of providing Portfolio supervisory, bookkeeping and administrative services
and for any other expenses properly chargeable to the Fund. While the fee may
exceed the amount of these costs and expenses attributable to the Fund, the
total of these fees from all Series of Defined Asset Funds will not exceed the
aggregate amount attributable to all of those Series during any calendar year.
The Trustee's, Sponsors' and Evaluator's fees may be adjusted for inflation
without investors' approval.
Advertising and selling expenses will be paid from the Underwriting Account
at no charge to the Fund. Defined Asset Funds can be a cost-effective way to
purchase and hold investments. Annual operating expenses are generally lower
than for managed funds. Because Defined Asset Funds have no management fees,
limited transaction costs and no ongoing marketing expenses, operating expenses
are generally less than 0.25% a year. When compounded annually, small
differences in expense ratios can make a big difference in your investment
results.
TAXES
TAXATION OF THE FUND
The Fund intends to qualify for and elect the special tax treatment
applicable to 'regulated investment companies' under Sections 851-855 of the
Internal Revenue Code of 1986, as amended (the 'Code'). Qualification and
election as a 'regulated investment company' involves no supervision of
investment policy or management by any government agency. If the Fund qualifies
as a 'regulated investment company' and distributes to investors 90% or more of
its taxable income excluding its net capital gain (i.e., the excess of its net
long-term capital gain over its short-term capital loss), it will not be subject
to federal income tax on the portion of its taxable income (including any net
capital gain) it distributes to investors in a timely manner. In addition, the
Fund will not be subject to the 4% excise tax on certain undistributed income of
'regulated investment companies' to the extent it distributes to investors in a
timely manner at least 98% of its taxable income (including any net capital
gain). It is anticipated that the Fund will not be subject to federal income tax
or the excise tax, because the Indenture requires the distribution of the Fund's
taxable income (including any net capital gain) in a timely manner. Although all
or a portion of the Fund's taxable income (including any net capital gain) for a
calendar year may be distributed shortly after the end of the calendar year,
such a distribution will be treated for federal income tax purposes as having
been received by investors during the calendar year.
DISTRIBUTIONS
Distributions of the Fund's net capital gain that are designated as capital
gain dividends by the Fund will be taxable to investors as long-term capital
gain, regardless of the time the Units have been held by an investor. However,
if the Fund were to terminate in less than one year, the Fund would not
distribute any capital gain dividends. Distributions to investors of the Fund's
interest income, gain that is treated as ordinary income under the market
discount rules, and any net short-term capital gain in any year will generally
be taxable as ordinary income to investors to the extent of the Fund's taxable
income (other than taxable income attributed to its net capital gain) for that
year. Distributions in excess of the Fund's taxable income will be treated as a
return of capital and will reduce the investor'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 net capital gains will
7
<PAGE>
be designated as capital gain dividends and that the Fund's interest income,
ordinary gain and any net short-term capital gain will be taxable as ordinary
income to investors. Distributions that are taxable as ordinary income to
investors will constitute dividends for federal income tax purposes but will not
be eligible for the dividends-received deduction for corporations.
An investor, other than a dealer in securities, will generally recognize
capital gain or loss when the investor disposes of his Units (by sale,
redemption or otherwise). In the case of a distribution of Securities to an
investor upon redemption of his Units, gain or loss will generally be recognized
in an amount equal to the difference between the investor's tax basis in his
Units and the fair market value of the Securities received in redemption. Net
capital gain may be taxed at a lower rate than ordinary income for certain
individuals and other noncorporate taxpayers. Any such capital gain or loss is
long-term if the asset is held for more than one year and short-term if held for
one year or less. However, any capital loss on the sale or redemption of a Unit
that an investor has held for six months or less will be a long-term capital
loss to the extent of any capital gain dividends previously distributed to the
investor by the Fund. The deduction of capital losses is subject to limitations.
Investors who are individuals and have held their Units for more than 12 months
may be entitled to a 20% maximum federal tax rate for gains from the sale of
these Units.
Payments of principal on underlying mortgages or sales of Securities by the
Fund (to meet redemptions or otherwise) may give rise to gain (including market
discount) to the Fund. The amount of gain will be based upon the cost of the
Security to the Fund and will be without regard to the value of the Security
when a particular investor purchases his Units. Since distributions of this gain
do not generally reduce an investor's tax basis in his Units, an investor may
have a corresponding capital loss (or a reduced amount of gain) on a subsequent
sale or redemption of his Units.
The federal tax status of each year's distributions will be reported to
investors and to the Internal Revenue Service. The foregoing discussion relates
only to the federal income tax status of the Fund and to the tax treatment of
distributions by the Fund to U.S. investors. Investors who are not U.S. citizens
or residents should be aware that distributions from the Fund generally will be
subject to a withholding tax of 30%, or a lower applicable treaty rate. Because
interest income of the type received by the fund would generally not have been
subject to withholding if it had been received directly by the foreign investor,
an investment in the Fund is likely to be appropriate for a foreign investor
only when that foreign investor can utilize a foreign tax credit or
corresponding benefit in respect of such withholding taxes. Foreign investors
should consult their own tax advisers to determine whether investment in the
Fund is appropriate. Distributions may also be subject to state and local
taxation and investors should consult their own tax advisers in this regard.
Investors will be taxed in the manner described above regardless of whether
distributions from the Fund are actually received by the investor or are
automatically reinvested (see Income, Distributions and
Reinvestment--Reinvestment).
RETIREMENT PLANS
Units may be well suited for purchase by Individual Retirement Accounts
('IRAs') and other retirement plans, certain of which are briefly described
below. Generally, capital gains and income received in each of these plans are
exempt from Federal taxation. All distributions from such plans are generally
treated as ordinary income but may, in some cases, be eligible for tax-deferred
rollover treatment. Investors considering purchase of Units by any of these
plans should consult their attorney or tax advisors with respect to the specific
tax rules relating to these plans. These plans are offered by brokerage firms,
including the Sponsors of this Fund, and other financial institutions. Fees and
charges with respect to such plans may vary.
Individual Retirement Account--IRA. Any individual can make use of a
qualified IRA arrangement for the purchase of Units. Any individual (including
one covered by an employer retirement plan) can make a yearly contribution to an
IRA equal to the lesser of $2,000 ($4,000 in a spousal account) or 100% of
earned income; such investment must be made in cash. However, the deductible
amount of a contribution by an individual covered by an employer retirement plan
will be reduced if the individual's adjusted gross income exceeds specified
levels. Certain transactions which are prohibited under Section 408 of the Code
will cause all or a portion of the amount in an IRA to be deemed to be
distributed and subject to tax at that time. Unless nondeductible contributions
were made in 1987 or a later year, all distributions from an IRA will be treated
as ordinary income but generally are eligible for tax-deferred rollover
treatment. In addition, certain taxable distributions made before attainment of
age 59 1/2 are subject to a surtax in an amount equal to 10% of the
distribution. Subject to certain income limitations, under a special type of IRA
8
<PAGE>
(a 'Roth IRA'), contributions would be non-deductible but distributions would be
tax-free if the account were held for at least five years and the account holder
was aged at least 59 1/2 at the time of distribution.
Pension and Profit-Sharing Plans. A pension or profit-sharing plan for
employees of a corporation or a retirement plan established for partnerships or
self-employed individuals may purchase Units.
RECORDS AND REPORTS
The Trustee keeps a register of the names, addresses and holdings of all
investors. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, and
supplemental information on the operations of the Fund and the risks associated
with the Securities held by the Fund, which may be inspected by investors at
reasonable times during business hours.
With each distribution, the Trustee includes a statement of the interest
and any other receipts being distributed. Within five days after deposit of
Securities in exchange or substitution for Securities (or contracts) previously
deposited, the Trustee will send a notice to each investor, identifying both the
Securities removed and the replacement Securities deposited. The Trustee sends
each investor of record an annual report summarizing transactions in the Fund's
accounts and amounts distributed during the year and Securities held, the number
of Units outstanding and the Redemption Price at year end, the interest received
by the Fund on the Securities, the gross proceeds received by the Fund from the
disposition of any Security (resulting from redemption or payment at maturity or
sale of any Security), and the fees and expenses paid by the Fund, among other
matters. The Trustee will also furnish annual information returns to each
investor. Investors may obtain copies of Security evaluations from the Trustee
to enable them to comply with federal and state tax reporting requirements. Fund
accounts are audited annually by independent accountants selected by the
Sponsors. Audited financial statements are available from the Trustee on
request.
TRUST INDENTURE
The Fund is a 'unit investment trust' created under New York law by a Trust
Indenture among the Sponsors, the Trustee and the Evaluator. This Prospectus
summarizes various provisions of the Indenture, but each statement is qualified
in its entirety by reference to the Indenture.
The Indenture may be amended by the Sponsors and the Trustee without
consent by investors to cure ambiguities or to correct or supplement any
defective or inconsistent provision, to make any amendment required by the SEC
or other governmental agency or to make any other change not materially adverse
to the interest of investors (as determined in good faith by the Sponsors). The
Indenture may also generally be amended upon consent of investors holding 51% of
the Units. No amendment may reduce the interest of any investor in the Fund
without the investor's consent or reduce the percentage of Units required to
consent to any amendment without unanimous consent of investors. Investors will
be notified on the substance of any amendment.
The Trustee may resign upon notice to the Sponsors. It may be removed by
investors holding 51% of the Units at any time or by the Sponsors without the
consent of investors if it becomes incapable of acting or bankrupt, its affairs
are taken over by public authorities, or if under certain conditions the
Sponsors determine in good faith that its replacement is in the best interest of
the investors. The Evaluator may resign or be removed by the Sponsors and the
Trustee without the investors' consent. The resignation or removal of either
becomes effective upon acceptance of appointment by a successor; in this case,
the Sponsors will use their best efforts to appoint a successor promptly;
however, if upon resignation no successor has accepted appointment within 30
days after notification, the resigning Trustee or Evaluator may apply to a court
of competent jurisdiction to appoint a successor.
Any Sponsor may resign so long as one Sponsor with a net worth of
$2,000,000 remains and is agreeable to the resignation. A new Sponsor may be
appointed by the remaining Sponsors and the Trustee to assume the duties of the
resigning Sponsor. If there is only one Sponsor and it fails to perform its
duties or becomes incapable of acting or bankrupt or its affairs are taken over
by public authorities, the Trustee may appoint a successor Sponsor at reasonable
rates of compensation, terminate the Indenture and liquidate the Fund or
continue to act as Trustee without a Sponsor. Merrill Lynch, Pierce, Fenner &
Smith Incorporated has been appointed as Agent for the Sponsors by the other
Sponsors.
The Sponsors, the Trustee and the Evaluator are not liable to investors or
any other party for any act or omission in the conduct of their responsibilities
absent bad faith, willful misfeasance, negligence (gross negligence in the case
of
9
<PAGE>
a Sponsor or the Evaluator) or reckless disregard of duty. The Indenture
contains customary provisions limiting the liability of the Trustee.
MISCELLANEOUS
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsors.
AUDITORS
The Statement of Condition in Part A of the Prospectus was audited by
Deloitte & Touche LLP, independent accountants, as stated in their opinion. It
is included in reliance upon that opinion given on the authority of that firm as
experts in accounting and auditing.
TRUSTEE
The Trustee and its address are stated on the back cover of the Prospectus.
The Trustee is subject to supervision by the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and New York
State banking authorities.
SPONSORS
The Sponsors are listed on the back cover of the Prospectus. They may
include Merrill Lynch, Pierce, Fenner & Smith Incorporated, a wholly-owned
subsidiary of Merrill Lynch & Co,. Inc.; Smith Barney Inc., an indirect wholly-
owned subsidiary of The Travelers Inc.; Dean Witter Reynolds Inc., a principal
operating subsidiary of Morgan Stanley Dean Witter & Co. and PaineWebber
Incorporated, a wholly-owned subsidiary of PaineWebber Group Inc. Each Sponsor,
or one of its predecessor corporations, has acted as Sponsor of a number of
series of unit investment trusts. Each Sponsor has acted as principal
underwriter and managing underwriter of other investment companies. The
Sponsors, in addition to participating as members of various selling groups or
as agents of other investment companies, execute orders on behalf of investment
companies for the purchase and sale of securities of these companies and sell
securities to these companies in their capacities as brokers or dealers in
securities.
CODE OF ETHICS
The Agent for the Sponsors has adopted a code of ethics requiring
preclearance and reporting of personal securities transactions by its personnel
who have access to information on Defined Asset Funds portfolio transactions.
The code is intended to prevent any act, practice or course of conduct which
would operate as a fraud or deceit on any Fund and to provide guidance to these
persons regarding standards of conduct consistent with the Agent's
responsibilities to the Funds.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the 'Year 2000 Problem'). Like other investment
companies and financial and business organizations, the Fund could be adversely
affected if the computer systems used by the Agent for the Sponsors or Fund
service providers do not properly address this problem prior to January 1, 2000.
The Agent for the Sponsors has established a dedicated group to analyze these
issues and to implement any systems modifications necessary to prepare for the
Year 2000. Currently, we do not anticipate that the transition to the 21st
century will have any material effect on the Fund. The Agent for the Sponsors
has sought assurances from the Fund's other service providers that they are
taking all necessary steps to ensure that their computer systems will accurately
reflect the Year 2000, and the Agent for the Sponsors will continue to monitor
the situation. At this time, however, no assurance can be given that the Fund's
other service providers have anticipated every step necessary to avoid any
adverse effect on the Fund attributable to the Year 2000 Problem.
PUBLIC DISTRIBUTION
In the initial offering period Units will be distributed to the public
through the Underwriting Account and dealers who are members of the National
Association of Securities Dealers, Inc. The initial offering period is 30 days
or less if
10
<PAGE>
all Units are sold. If some Units initially offered have not been sold, the
Sponsors may extend the initial offering period for up to four additional
successive 30-day periods.
The Sponsors intend to qualify Units for sale in all states in which
qualification is deemed necessary through the Underwriting Account and by
dealers who are members of the National Association of Securities Dealers, Inc.
The Sponsors do not intend to qualify Units for sale in any foreign countries
and this Prospectus does not constitute an offer to sell Units in any country
where Units cannot lawfully be sold. Sales to dealers and to introducing
dealers, if any, will initially be made at prices which represent a concession
from the Public Offering Price, but the Agent for the Sponsors reserves the
right to change the rate of any concession from time to time. Any dealer or
introducing dealer may reallow a concession up to the concession to dealers.
UNDERWRITERS' AND SPONSORS' PROFITS
Upon sale of the Units, the Underwriters will be entitled to receive sales
charges; each Underwriter's interest in the Underwriting Account will depend
upon the number of Units acquired through the issuance of additional Units. The
Sponsors also realize a profit or loss on deposit of the Securities equal to the
difference between the cost of the Securities to the Fund (based on the offer
side evaluation on their date of deposit) and the Sponsors' cost of the
Securities. During the initial offering period, the Underwriting Account also
may realize profits or sustain losses as a result of fluctuations after the
initial date of deposit in the Public Offering Price of the Units. In
maintaining a secondary market for Units, the Sponsors will also realize profits
or sustain losses in the amount of any difference between the prices at which
they buy Units and the prices at which they resell these Units (which include
the sales charge) or the prices at which they redeem the Units. Cash, if any,
made available by buyers of Units to the Sponsors prior to a settlement date for
the purchase of Units may be used in the Sponsors' businesses to the extent
permitted by Rule 15c3-3 under the Securities Exchange Act of 1934 and may be of
benefit to the Sponsors.
FUND PERFORMANCE
Information on the performance of the Fund for various periods, on the
basis of changes in Unit price plus the amount of income and principal
distributions reinvested, may be included from time to time in advertisements,
sales literature, reports and other information furnished to current or
prospective investors. Total return figures are not averaged, and may not
reflect deduction of the sales charge, which would decrease the return. Average
annualized return figures reflect deduction of the maximum sales charge. No
provision is made for any income taxes payable.
Past performance may not be indicative of future results. The Fund is not
actively managed. Unit price and return fluctuate with the value of the
Securities in the Portfolio, so there may be a gain or loss when Units are sold.
Fund performance may be compared to performance data from publications such
as Donoghue's Money Fund Report, Lehman Brothers Intermediate Treasury Bond
Index, Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, The New York Times, U.S. News and World Report, Barron's, Business
Week, CDA Investment Technology, Inc., Forbes Magazine or Fortune Magazine. As
with other performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.
DEFINED ASSET FUNDS
For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Defined Asset Funds'
philosophy is to allow investors to 'buy with knowledge' (because, unlike
managed funds, the portfolio of bonds and the return are relatively fixed) and
'hold with confidence' (because the portfolio is professionally selected and
regularly reviewed). Defined Asset Funds offers an array of simple and
convenient investment choices, suited to fit a wide variety of personal
financial goals--a buy and hold strategy for capital accumulation, such as for
children's education or retirement, or attractive, regular current income
consistent with the preservation of principal. Unit investment trusts are
particularly suited for the many investors who prefer to seek long-term income
by purchasing sound investments and holding them, rather than through active
trading. Few individuals have the knowledge, resources or capital to buy and
hold a diversified portfolio on their own; it would generally take a
considerable sum of money to obtain the breadth and diversity that Defined Asset
Funds offer. One's investment objectives may call for a combination of Defined
Asset Funds.
One of the most important investment decisions you face may be how to
allocate your investments among asset classes. Diversification among different
kinds of investments can balance the risks and rewards of each one. Most
investment experts recommend stocks for long-term capital growth. Long-term
corporate bonds offer relatively high rates of interest income. By purchasing
both defined equity and defined bond funds, investors can receive attractive
11
<PAGE>
current income, as well as growth potential, offering some protection against
inflation. From time to time various advertisements, sales literature, reports
and other information furnished to current or prospective investors may present
the average annual compounded rate of return of selected asset classes over
various periods of time, compared to the rate of inflation over the same
periods.
EXCHANGE OPTION
You may exchange units of certain Defined Asset Funds for units of this
Fund at a maximum exchange fee of 2.00%. You may exchange units of this Fund for
units of certain other Defined Asset Funds at a reduced sales charge if your
investment goals change. To exchange units, you should talk to your financial
professional about what funds are exchangeable, suitable and currently
available, and to obtain a prospectus. You may acquire units of only those
Exchange Funds in which the Sponsors are maintaining a market and which are
lawfully for sale in the state where you reside. An exchange is a taxable event
normally requiring recognition of any gain or loss on the units exchanged.
However, the Internal Revenue Service may seek to disallow a loss if the
portfolio of the units acquired is not materially different from the portfolio
of the units exchanged; you should consult your own tax advisor. If the proceeds
of units exchanged are insufficient to acquire a whole number of Exchange Fund
units, you may pay the difference in cash (not exceeding the price of a single
unit acquired).
As the Sponsors are not obligated to maintain a market in any series, there
can be no assurance that units of a desired series will be available for
exchange. The Exchange Option may be amended or terminated at any time without
notice.
SUPPLEMENTAL INFORMATION
Upon writing or calling the Trustee shown on the back cover of this
Prospectus, investors will receive at no cost to the investor supplemental
information about the Fund, which has been filed with the SEC. The supplemental
information includes more detailed risk factor disclosure about the types of
Securities that may be part of the Fund's Portfolio and general information
about the structure and operation of the Fund.
12
<PAGE>
Defined
Asset FundsSM
SPONSORS/UNDERWRITERS: GOVERNMENT SECURITIES
Merrill Lynch, INCOME FUND
Pierce, Fenner & Smith Incorporated GNMA Series--2B
Defined Asset Funds A Unit Investment Trust
P.O. Box 9051 This Prospectus does not contain all of
Princeton, NJ 08543-9051 the information with respect to the
(609) 282-8500 investment company set forth in its
Smith Barney Inc. registration statement and exhibits
Unit Trust Department relating thereto which have been filed
388 Greenwich Street--23rd Floor with the Securities and Exchange
New York, NY 10013 Commission, Washington, D.C. under the
(212) 816-4000 Securities Act of 1933 and the
PaineWebber Incorporated Investment Company Act of 1940, and to
1200 Harbor Boulevard which reference is hereby made.
Weehawken, NJ 07087 Copies of filed material can be obtained
(201) 902-3000 from the Public Reference Section of the
Dean Witter Reynolds Inc. Commission, 450 Fifth Street, N.W.,
Two World Trade Center--59th Floor Washington, D.C. 20549 at prescribed
New York, NY 10048 rates. The Commission also maintains a
(212) 392-2222 Web site that contains information
EVALUATOR: statements and other information
Interactive Data Corporation regarding registrants such as Defined
14 Wall Street Asset Funds that file electronically
New York, NY 10005 with the Commission at
TRUSTEE: http://www.sec.gov.
The Chase Manhattan Bank ------------------------------
Customer Service Retail Department No person is authorized to give any
Bowling Green Station information or to make any
P.O. Box 5187 representations with respect to this
New York, NY 10274-5187 investment company not contained in this
1-800-323-1508 Prospectus; and any information or
representation not contained herein must
not be relied upon as having been
authorized.
------------------------------
When Units of this Fund are no longer
available, this Prospectus may be used
as a preliminary prospectus for a future
series, and investors should note the
following:
Information contained herein is subject
to amendment. A registration statement
relating to securities of a future
series has been filed with the
Securities and Exchange Commission.
These securities may not be sold nor may
offers to buy be accepted prior to the
time the registration statement becomes
effective.
This Prospectus does not constitute an
offer to sell or a solicitation of an
offer to buy securities in any state in
which such offer, solicitation or sale
would be unlawful prior to registration
or qualification under the securities
laws of any such state.
70113--9/98
