DEFINED ASSET FUNDS-SM-
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GOVERNMENT SECURITIES INCOME FUND
GNMA SERIES 2B
(A UNIT INVESTMENT TRUST)
- PORTFOLIO OF MORTGAGE BACKED SECURITIES
- MONTHLY INCOME DISTRIBUTIONS
SPONSORS:
MERRILL LYNCH, -----------------------------------------------------
PIERCE, FENNER & SMITH The Securities and Exchange Commission has not
INCORPORATED approved or disapproved these Securities or passed
SALOMON SMITH BARNEY INC. upon the adequacy of this prospectus. Any
PAINEWEBBER INCORPORATED representation to the contrary is a criminal offense.
DEAN WITTER REYNOLDS INC. Prospectus dated January 3, 2000.
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Defined Asset Funds-SM-
Defined Asset Funds-Registered Trademark- 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:
- A disciplined strategy of buying and holding with a long-term view is the
cornerstone of Defined Asset Funds.
- Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
- Defined Portfolios: We choose the stocks and bonds in advance, so you know
what you're investing in.
- Professional research: Our dedicated research team seeks out stocks or bonds
appropriate for a particular fund's objectives.
- 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,
AUGUST 31, 1999.
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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
Prepayment Risk..................... 6
Expense Risk........................ 6
Litigation Risk..................... 6
Selling or Exchanging Units........... 6
Sponsors' Secondary Market.......... 6
Selling Units to the Trustee........ 6
Exchange Option..................... 7
How The Fund Works.................... 7
Pricing............................. 7
Evaluations......................... 8
Income.............................. 8
Expenses............................ 8
Portfolio Changes................... 8
Fund Termination.................... 9
Certificates........................ 9
Trust Indenture..................... 9
Legal Opinion....................... 10
Auditors............................ 10
Sponsors............................ 10
Trustee............................. 11
Underwriters' and Sponsors'
Profits........................... 11
Public Distribution................. 11
Code of Ethics...................... 11
Year 2000 Issues.................... 11
Taxes................................. 11
Supplemental Information.............. 13
Financial Statements.................. D-1
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RISK/RETURN SUMMARY
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1. WHAT IS THE FUND'S OBJECTIVE?
The Fund seeks safety of capital and
current monthly income, by investing in
a portfolio of GNMA securities backed by
the full faith and credit of the United
States.
2. WHAT ARE GINNIE MAES?
Ginnie Maes are mortgage-backed
securities guaranteed by the Government
National Mortgage Association (GNMA), a
U.S. government corporation. Ginnie Maes
represent underlying mortgages on one-
to four-family houses. GNMA guarantees
timely monthly payments of principal and
interest on the Ginnie Maes.
3. WHAT IS THE FUND'S INVESTMENT STRATEGY?
- The Fund plans to hold to maturity two
issues of Ginnie Maes with a current
aggregate face amount of $87,724,026.
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- 6.00% Ginnie Maes 66%
maturing 9/15/13 to 7/15/29
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32%
- 7.50% Ginnie Maes
maturing 2/15/26 to 8/15/29
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- It also holds a short-term U.S. Treasury
Note reserved to pay the deferred sales
fee. The Fund is a unit investment trust
which means that, unlike a mutual fund,
the Fund's portfolio is not managed.
- Ginnie Maes are not rated but their
credit quality is comparable to AAA-rated
bonds.
- The securities BUT NOT THE FUND OR THE
UNITS are backed by the full faith and
credit of the United States.
4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE
FUND. THIS CAN HAPPEN FOR VARIOUS
REASONS, INCLUDING:
- Rising interest rates can reduce the
price of your units.
- 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.
- The Fund will receive early returns of
principal when homeowners pay down their
mortgages sooner than expected. This
happens more often when interest rates
fall. 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.
5. IS THIS FUND APPROPRIATE FOR YOU?
Yes, if you want safety of capital and
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 or if you cannot tolerate early
returns of principal.
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DEFINING YOUR INCOME
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WHAT YOU MAY EXPECT (Payable on the 23rd day of each
month):
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Regular Monthly Income per 1,000 units: $ 4.92
Annual Income per 1,000 units: $59.12
RECORD DAY: 17th 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.
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INVESTOR FEES
3.00%
Maximum Sales Fee (Load) on new
purchases (as a percentage of
$1,000 invested)
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You will pay an up-front sales fee of 1.00%, as
well as a total deferred sales fee of $15.00
(three payments of $5.00 per 1,000 units payable
February, May and August of 2000). This deferred
sales charge will be paid from principal
proceeds from the sale or maturity of the
short-term Treasury Note in the Portfolio.
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.
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The maximum sales fee is reduced if you invest
at least $100,000, as follows:
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YOUR MAXIMUM
SALES FEE
IF YOU INVEST: WILL BE:
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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%
$1,000,000 and over 2.00%
Maximum Exchange Fee 2.00%
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ESTIMATED ANNUAL FUND OPERATING EXPENSES
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AMOUNT
PER
1,000 UNITS
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$ 0.80
Trustee's Fee
$ 0.34
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
$ 0.01
Evaluator's Fee
$ 0.37
Other Operating Expenses
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$ 1.52
TOTAL
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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 $910.79
(as of August 31, 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, less any remaining deferred sales fee.
You will not pay any other fee when you sell
your units.
10. HOW ARE DISTRIBUTIONS MADE AND TAXED?
Distributions of ordinary income or capital gain
from the Fund will be included in your gross
income, but will not be eligible for the
dividends-received deduction for corporations.
If you have held units for more than one year
you may be entitled to a 20% maximum federal tax
rate for gains from the disposition of these
units. The Fund is not likely to be suitable for
foreign investors not engaged in a U.S. trade or
business. (See Taxes).
11. WHAT OTHER SERVICES ARE AVAILABLE?
REINVESTMENT
You will receive your monthly income in cash
unless you choose to compound your income by
reinvesting in the GNMA Fund Investment
Accumulation Program, Inc. This Program is an
open-end mutual fund with a comparable
investment objective. Income from this program
will be subject to U.S. federal income taxes for
both U.S. and foreign investors. FOR MORE
COMPLETE INFORMATION ABOUT THE PROGRAM,
INCLUDING CHARGES AND FEES, ASK THE TRUSTEE FOR
THE PROGRAM'S PROSPECTUS. READ IT CAREFULLY
BEFORE YOU INVEST. THE TRUSTEE MUST RECEIVE YOUR
WRITTEN ELECTION TO REINVEST AT LEAST 10 DAYS
BEFORE THE RECORD DAY OF AN INCOME PAYMENT.
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.
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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:
- prepayments on the underlying mortgages;
- elimination of one or more securities from the Fund's portfolio because of
redemptions or sales; or
- 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.
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.
ESTIMATED CURRENT RETURN equals the estimated annual cash to be received from
the securities in the Fund less estimated annual Fund expenses, divided by the
Unit Price (including the maximum sales fee):
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Estimated Annual Estimated
Interest Income - Annual Expenses
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Unit Price
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ESTIMATED LONG TERM RETURN is a measure of the estimated return over the
estimated life of the Fund. Unlike Estimated Current Return, Estimated Long Term
Return reflects maturities, discounts and premiums of the securities in the
Fund. 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 and the time remaining to the call or
maturity date.
Yields on individual securities depend on many factors including general
conditions of the bond markets, the size of a particular offering and the
maturity and quality rating of the particular issues. Yields can vary among
bonds with similar maturities, coupons and ratings.
These return quotations are designed to be comparative rather than predictive.
RECORDS AND REPORTS
You will receive:
- - a monthly statement of income payments and any principal payments;
- - a notice from the Trustee when new securities are deposited in exchange or
substitution for securities originally deposited;
- - an annual report on Fund activity; and
- - 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:
- - copies of evaluations to enable you to comply with federal and state tax
reporting requirements; and
- - 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. The mortgages
underlying the Ginnie Maes in the Fund are more likely to be prepaid when
interest rates decline. This would result in early returns of principal to you
and could result in early termination of the Fund. Of course, we cannot predict
how interest rates may change.
PREPAYMENT RISK
You may receive payments of principal sooner than expected if many homeowners
prepay the mortgages that underly the Ginnie Maes. There is no prepayment
protection. Interest payments will also decrease as principal is returned.
EXPENSE RISK
If many investors sell their units, the Fund will have to sell securities. This
could 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 OR EXCHANGING 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:
- ADDING the value of the securities, net accrued interest, cash and any other
Fund assets;
- 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
- 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 fee or charge other than any remaining deferred sales fee. 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 28 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.
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Within seven days after your request and the necessary documents are received,
the Trustee will mail a check to you. Contact the Trustee for additional
information.
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 may sell your units in the over-the-counter market for a
higher price, but it is not obligated to do so. In that case, you will receive
the net proceeds of the sale.
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:
- if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
- 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
- for any other period permitted by SEC order.
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 funds at a reduced sales fee if your investment goals change.
To exchange units, you should talk to your financial professional about what
funds are exchangeable, suitable and currently available.
Normally, an exchange is taxable and you must recognize any gain or loss on the
exchange. However, the IRS may try to disallow a loss if the portfolios of the
two funds are not materially different; you should consult your own tax adviser.
We may amend or terminate this exchange option at any time without notice.
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:
- cost of initial preparation of legal documents;
- federal and state registration fees;
- initial fees and expenses of the Trustee;
- initial audit; and
- legal expenses and other out-of-pocket expenses.
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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 Ginnie Mae securities
of the type in this Fund has ranged between 0.25% and 0.50%.
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:
- to reimburse the Trustee for the Fund's operating expenses;
- for extraordinary services and costs of indemnifying the Trustee and the
Sponsors;
- costs of actions taken to protect the Fund and other legal fees and
expenses;
- expenses for keeping the Fund's registration statement current; and
- Fund termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 55 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 Fund's registration statement yearly are also now
chargeable to the Fund. 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.
Quarterly deferred sales charges are paid with principal from certain bonds. If
these amounts are not enough, the rest will be paid out of distributions to you
from the Fund's Capital and Income Accounts.
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
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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 may affect the
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:
- diversity of the portfolio;
- size of the Fund relative to its original size;
- ratio of Fund expenses to income;
- current and long-term returns;
- degree to which units may be selling at a premium over par; and
- 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
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:
- to cure ambiguities;
- to correct or supplement any defective or inconsistent provision;
- to make any amendment required by any governmental agency; or
- 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
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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:
- it fails to perform its duties and the Sponsors determine that its
replacement is in your best interest; or
- 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:
- remove it and appoint a replacement Sponsor;
- liquidate the Fund; or
- 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
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
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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 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 Fund as a whole.
TAXES
The following summary describes some of the important income tax consequences of
holding units. It assumes that you are not a dealer, financial institution,
insurance company or other investor with special circumstances or subject to
special rules. You should consult your own tax adviser about your particular
circumstances.
In the opinion of our counsel, under existing law:
TAXATION OF THE FUND
The Fund intends to qualify and elect to be treated as a "regulated investment
company." Qualification and election as a "regulated investment company"
involves no supervision of investment policy or management by any governmental
agency. It
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is anticipated that the Fund will not be subject to federal income tax or the 4%
excise tax on certain undistributed income of "regulated investment companies"
because the Indenture requires the Fund to distribute in a timely manner the
required percentage of its taxable income to qualify for exemption from these
taxes.
DISTRIBUTIONS
Generally, distributions of the Fund's income will be taxable to you as ordinary
income. Distributions that exceed the Fund's taxable income will be treated as a
return of capital and will reduce your basis in your units and, to the extent
such distributions exceed your basis, will be treated as a gain from the sale of
your units (as discussed below). Distributions that are taxable to you as
ordinary income will be treated as dividends for federal income tax purposes but
will not give rise to a dividends-received deduction for corporations.
Although all or part of the Fund's taxable income for a calendar year may be
distributed shortly after the end of the calendar year, you will be treated for
federal income tax purposes as having received this distribution during the
calendar year. Distributions may also be subject to state and local taxation and
you should consult your tax adviser in this regard.
You will be taxed in the manner described above regardless of whether you
actually receive distributions from the Fund or you elect to have distributions
automatically reinvested.
GAIN OR LOSS UPON DISPOSITION
You will generally recognize capital gain or loss when you dispose of your units
(by sale, redemption or otherwise). If securities are distributed to you when
you redeem your units, you will generally recognize gain or loss in an amount
equal to the difference between your basis in your units and the fair market
value of those securities. Any capital gain or loss that you recognize on a
disposition of your units will be long-term if you held your units for more than
one year and short-term otherwise. However, any capital loss on the sale or
redemption of a unit you have held for six months or less will be a long-term
capital loss to the extent of any capital gain dividends previously distributed
to you by the Fund. The deduction for capital losses is subject to limitations.
If you have held your units for more than one year, you may be entitled to a 20%
maximum federal tax rate for gains from the disposition of those units. You
should consult your tax adviser in this regard.
Payments of principal on underlying mortgages or sales of securities by the Fund
may give rise to gain to the Fund. The amount of gain will be based upon the
cost of the security to the Fund (without regard to the value of the security
when you purchased your units). Distributions of this gain generally will be
taxable to you and generally will not reduce your basis in your units.
Accordingly, you may have a corresponding capital loss (or a reduced amount of
gain) on a subsequent sale or redemption of your units.
TAX REPORTING
The federal tax status of each year's distributions will be reported to you and
to the Internal Revenue Service.
12
<PAGE>
FOREIGN INVESTORS
The above discussion relates only to the federal income tax status of the Fund
and to the tax treatment of your share of dividends received by the Portfolio.
If you are not a U.S. citizen or resident, you should be aware that Fund
distributions 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 generally would not have been subject to withholding if you had received it
directly, an investment in the Fund is likely to be appropriate for you only
when you can use a foreign tax credit or corresponding tax benefit in respect of
the withholding taxes. You should consult your tax adviser to determine whether
investment in the Fund is appropriate for you.
RETIREMENT PLANS
You may with to purchase units for an Individual Retirement Account (IRA) or
other retirement plan. 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. You should consult your attorney or tax adviser
abou the specific tax rules relating to these plans are offered by brokerage
firms, including ths Sponsors of this Fund, 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 Ginnie Maes 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.
13
<PAGE>
<PAGE>
GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 2B,
DEFINED ASSET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders
of Government Securities Income Fund,
GNMA Series - 2B,
Defined Asset Funds:
We have audited the accompanying statement of condition of Government Securities
Income Fund, GNMA Series - 2B, Defined Asset Funds, including the portfolio, as
of August 31, 1999 and the related statements of operations and of changes in
net assets for the period September 4, 1998 to August 31, 1999. These financial
statements are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Securities owned at
August 31, 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Government Securities Income
Fund, GNMA Series - 2B, Defined Asset Fund at August 31, 1999 and the results of
its operations and changes in its net assets for the above-stated period in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
December 10, 1999
D - 1.
<PAGE>
GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 2B,
DEFINED ASSET FUNDS
STATEMENT OF CONDITION
As of August 31, 1999
<TABLE>
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities -
at value (cost $ 89,181,591 )(Note 1)........ $84,391,420
Accrued interest ............................... 474,970
Accrued interest on Segregated Bonds (Note 5)... 264
Income payments receivable ..................... 21,750
Cash - income on Segregated Bonds .............. 80,979
Cash - principal ............................... 374,125
Income payments receivable on Segregated Bonds.. 1,340
-----------
Total trust property ......................... 85,344,848
LESS LIABILITIES:
Income advance from trustee .................... $ 2,928
Principal payments payable ..................... 181,747
Principal payments payable on Segregated Bonds.. 3,721
Income payments payable on Segregated Bonds .... 20,454
Accrued Sponsors' fees ......................... 22,599
Income payments payable ........................ 164
Trustee's fees and expenses payable ............ 7,209 238,822
----------- -----------
NET ASSET, REPRESENTED BY:
93,962,434 units of fractional undivided
interest outstanding (Note 3)................ 84,642,206
Undistributed net investment income ............ 463,820 $85,106,026
----------- ===========
UNIT VALUE ($ 85,106,026 / 93,962,434 units )..... $ .90575
===========
</TABLE>
See Notes to Financial Statements.
D - 2.
<PAGE>
GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 2B,
DEFINED ASSET FUNDS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
September 4, 1998
to
August 31,
1999
----
<S> <C>
INVESTMENT INCOME:
Interest income ........................ $ 3,652,344
Interest income on Segregated Bonds .... 74,657
Trustee's fees and expenses ............ (54,856)
Sponsors' fees ......................... (25,761)
-----------
Net investment income .................. 3,646,384
-----------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Realized loss on
securities sold or redeemed .......... (76,203)
Unrealized depreciation
of investments ....................... (4,790,171)
-----------
Net realized and unrealized
loss on investments ................. (4,866,374)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS .............. $(1,219,990)
============
</TABLE>
See Notes to Financial Statements.
D - 3.
<PAGE>
GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 2B,
DEFINED ASSET FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
September 4, 1998
to
August 31,
1999
----
<S> <C>
OPERATIONS:
Net investment income .................. $ 3,646,384
Realized loss on
securities sold or redeemed .......... (76,203)
Unrealized depreciation
of investments ....................... (4,790,171)
------------
Net decrease in net assets
resulting from operations ............ (1,219,990)
------------
DISTRIBUTIONS TO HOLDERS (Note 2):
Income ................................ (3,107,907)
Income on Segregated Bonds ............. (12,528)
Principal .............................. (3,658,583)
------------
Total distributions .................... (6,779,018)
------------
SHARE TRANSACTIONS:
Subscription amount:
Principal .............................. 92,590,152
------------
Total share transactions ............... 92,590,152
------------
NET INCREASE IN NET ASSETS ............... 84,591,144
NET ASSETS AT BEGINNING OF PERIOD ........ 514,882
------------
NET ASSETS AT END OF PERIOD .............. $85,106,026
============
PER UNIT:
Income distributions during
period ............................... $ .05689
============
Principal distributions during
period ............................... $ .06605
============
Net asset value at end of
period ............................... $ .90575
============
TRUST UNITS:
Issued during period ................... 93,462,434
Outstanding at end of period ........... 93,962,434
============
</TABLE>
See Notes to Financial Statements.
D - 4.
<PAGE>
GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 2B,
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,
except that value on September 4, 1998 was based upon
offering side evaluations at September 2, 1998, the day
prior to the Date of Deposit. Cost of securities at
September 4, 1998 was also based on such offering side
evaluations.
(B) The Fund is not subject to income taxes. Accordingly, no
provision for such taxes is required.
(C) Interest income is recorded as earned.
2. DISTRIBUTIONS
Distributions of combined interest and principal (plus any prepayments
and redemption proceeds) are made to Holders each month. Receipts
other than interest and principal paydowns, after deductions for
redemptions and applicable expenses, are also distributed
periodically.
3. NET CAPITAL
<TABLE>
<S> <C>
Cost of 93,962,434 units at Date of Deposit ................ $94,045,489
Less sales charge .......................................... 940,455
-----------
Net amount applicable to Holders ........................... 93,105,034
Transfer to capital of interest on Segregated Bonds (Note 5) 74,657
Realized loss on securities sold or redeemed ............... (76,203)
Principal distributions .................................... (3,658,583)
Income distribution on Segregated Bonds .................... (12,528)
Unrealized depreciation of investments...................... (4,790,171)
-----------
Net capital applicable to Holders .......................... $84,642,206
===========
</TABLE>
4. INCOME TAXES
As of August 31, 1999, unrealized depreciation of investments,
aggregated $4,790,171, all of which related to depreciated securities.
The cost of investment securities for Federal income tax purposes
approximates the amount shown in the accompanying financial
statements.
D - 5.
<PAGE>
GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 2B,
DEFINED ASSET FUNDS
NOTES TO FINANCIAL STATEMENTS
5. DEFERRED SALES CHARGE
$1,878,000 face amount of United States Treasury Notes have been
segregated to fund the deferred sales charges. The sales charges are being
paid for by the maturity of these bonds, as well as principal proceeds
received in conjunction with the disposition of the unsegregated bonds in
the portfolio. A deferred sales charge of $20.00 per 1000 Units is charged
in the second year, and paid to the Sponsors in quarterly payments by the
Trustee on behalf of the Holders. Should a Holder redeem units prior to
the second anniversary of the Funds, the remaining balance of the deferred
sales charge will be charged.
D - 6.
<PAGE>
GOVERNMENT SECURITIES INCOME FUND,
GNMA SERIES - 2B,
DEFINED ASSET FUNDS
<TABLE>
<CAPTION>
PORTFOLIO
As of August 31, 1999 Range of
Interest Stated Face
Security Description Rate Maturities(2) Amount Cost Value(1)
--------------------------------- ------ ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
1 Government National Mortgage 6.000% 09/15/13 $ 58,801,988 $ 57,476,592 $ 53,807,818
Association, Modified Pass-through to
Mortgage-Backed Securiies 07/15/29
2 Government National Mortgage 7.500 02/15/26 28,953,575 29,813,496 28,713,231
Association, Modified Pass-through to
Mortgage-Backed Securities 08/15/29
3 United States Treasury Notes (3) 5.125 08/31/00 1,878,000 1,891,503 1,870,371
--------------- --------------- ---------------
TOTAL $ 89,633,563 $ 89,181,591 $ 84,391,420
=============== =============== ===============
</TABLE>
(1) See Note 1 to Financial Statements.
(2) On the Date of Deposit, the ranges of the stated maturities were as
follows:
6.00% GNMA - 8/15/14 to 9/15/28
7.50% GNMA - 8/15/14 to 9/15/28
(3) These bonds have been segregated to fund the deferred sale charges.
D - 7.
<PAGE>
Defined
- -SM- Asset Funds
<TABLE>
<S> <C>
HAVE QUESTIONS ? GOVERNMENT SECURITIES INCOME FUND
Request the most recent free GNMA SERIES 2B
Information Supplement (A Unit Investment Trust)
that gives more details about ---------------------------------------
the Fund, by calling: This Prospectus does not contain
The Chase Manhattan Bank complete information about the
1-800-323-1508 investment company filed with the
Securities and Exchange Commission in
Washington, D.C. under the:
- Securities Act of 1933 (file no.
333-57371) and
- 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.
70113--1/00
</TABLE>
