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DEFINED ASSET FUNDSSM
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GOVERNMENT SECURITIES INCOME FUND
GNMA SERIES 2C
(A UNIT INVESTMENT TRUST)
O PORTFOLIO OF MORTGAGE BACKED SECURITIES
O MONTHLY INCOME DISTRIBUTIONS
SPONSORS: -------------------------------------------------
Merrill Lynch, The Securities and Exchange Commission has not
Pierce, Fenner & Smith approved or disapproved these Securities or
Incorporated passed upon the adequacy of this prospectus. Any
Salomon Smith Barney Inc. representation to the contrary is a criminal
PaineWebber Incorporated offense.
Dean Witter Reynolds Inc. Prospectus dated November 10, 1999.
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Defined Asset FundsSM
Defined Asset FundsSM is America's oldest and largest family of unit investment
trusts, with over $160 billion sponsored over the last 28 years. Defined Asset
Funds has been a leader in unit investment trust research and product
innovation. Our family of Funds helps investors work toward their financial
goals with a full range of quality investments, including municipal, corporate
and government bond portfolios, as well as domestic and international equity
portfolios.
Defined Asset Funds offer a number of advantages:
o A disciplined strategy of buying and holding with a long-term view is the
cornerstone of Defined Asset Funds.
o Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
funds are not managed and portfolio changes are limited.
o Defined Portfolios: We choose the stocks and bonds in advance, so you know
what you're investing in.
o Professional research: Our dedicated research team seeks out stocks or
bonds appropriate for a particular fund's objectives.
o Ongoing supervision: We monitor each portfolio on an ongoing basis.
No matter what your investment goals, tolerance for risk or time horizon,
there's probably a Defined Asset Fund that suits your investment style. Your
financial professional can help you select a Defined Asset Fund that works best
for your investment portfolio.
CONTENTS
PAGE
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Risk/Return Summary..................................... 3
What You Can Expect From Your Investment................ 6
Monthly Income....................................... 6
Return Figures....................................... 6
Records and Reports.................................. 6
The Risks You Face...................................... 7
Interest Rate Risk................................... 7
Prepayment Risk...................................... 7
Expense Risk......................................... 7
Litigation Risk...................................... 7
Selling or Exchanging Units............................. 7
Sponsors' Secondary Market........................... 7
Selling Units to the Trustee......................... 7
Exchange Option...................................... 8
How The Fund Works...................................... 8
Pricing.............................................. 8
Evaluations.......................................... 8
Income............................................... 9
Expenses............................................. 9
Portfolio Changes.................................... 9
Fund Termination..................................... 10
Certificates......................................... 10
Trust Indenture...................................... 10
Legal Opinion........................................ 11
Auditors............................................. 11
Sponsors............................................. 11
Trustee.............................................. 11
Underwriters' and Sponsors' Profits.................. 12
Public Distribution.................................. 12
Code of Ethics....................................... 12
Year 2000 Issues..................................... 12
Taxes................................................... 12
Supplemental Information................................ 14
Financial Statements.................................... 15
Report of Independent Accounts....................... 15
Statement of Condition............................... 15
2
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RISK/RETURN SUMMARY
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?
o The Fund plans to hold to maturity primarily two issues of
Ginnie Maes:
APPROXIMATE
PRINCIPAL
PERCENTAGE
o 6.0% Ginnie Maes 50%
maturing 2014-2029
50%
o 7.0% Ginnie Maes
maturing 2014-2029
It also holds a short-term 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.
o Ginnie Maes are not rated but their credit quality is
comparable to AAA-rated bonds.
o 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:
o Rising interest rates can reduce the price of your units.
o Assuming no changes in interest rates, when you sell your
units, they will generally be worth less than your cost
because your cost included a sales fee.
o The Fund will receive early returns of principal 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.
DEFINING YOUR INCOME AND ESTIMATING YOUR RETURN
WHAT YOU MAY EXPECT (Payable on the 23rd day of each
month):
First Distribution per 1,000 units
(December 23, 1999): $ 3.69
Regular Monthly Income per 1,000 units:
(Beginning on January 23, 2000): $ 5.28
Annual Income per 1,000 units: $ 63.43
RECORD DAY: 17th day of each month
These figures are estimates on the evaluation date; actual
payments may vary.
Estimated Current Return 6.39%
Estimated Long Term Return 6.53%
These returns will vary (see page 6).
3
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Defined GNMA Portfolio
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Government Securities Income Fund
GNMA Series--2C
<TABLE>
<CAPTION>
RANGE OF STATED
PORTFOLIO NO. AND TITLE FACE AMOUNT COUPON MATURITIES(1) COST TO FUND(2)
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<S> <C> <C> <C> <C>
1. Government National Mortgage
Association, Modified
Pass-Through Mortgage-Backed
Securities $ 200,000 6.000% 8/15/14 to 11/15/29 $ 186,881.20
2. Government National Mortgage
Association, Modified
Pass-Through Mortgage-Backed
Securities 200,000 7.000 8/15/14 to 11/15/29 197,323.00
3. U.S. Treasury Notes(3) 8,000 5.875 11/30/01 8,030.00
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$ 408,000 $ 392,234.20
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(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, 2% of the Securities were
deposited at a premium and 98% at a discount from par. On the business day prior
to the Initial Date of Deposit, the bid side evaluation was 0.32% lower than the
offer side evaluation. Sponsors' Profit on Deposit was $954.20.
(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 and Long Term Returns.
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WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
MONTHLY INCOME
The Fund will pay you regular monthly income. Your monthly income may vary
because of:
o prepayments on the underlying mortgages;
o elimination of one or more securities from the Fund's portfolio because of
redemptions, prepayments or sales; or
o a change in the Fund's expenses;
Changes in interest rates generally will not affect your monthly income directly
because the portfolio is fixed, but could result in increased payments on the
mortgages underlying the Ginnie Maes in the Fund.
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):
Estimated Annual Estimated
Interest Income - Annual Expenses
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Unit Price
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:
o a monthly statement of income payments and any principal payments;
o a notice from the Trustee when new securities are deposited in exchange or
substitution for securities originally deposited;
o an annual report on Fund activity; and
o annual tax information. This will also be sent to the IRS. You must report the
amount of interest received during the year.
You may request:
o copies of evaluations to enable you to comply with federal and state tax
reporting requirements; and
o audited financial statements of the Fund.
You may inspect records of Fund transactions at the Trustee's office during
regular business hours.
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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.
ESTIMATED ANNUAL FUND OPERATING EXPENSES
AS A % OF AMOUNT
NET PER 1,000
ASSETS* UNITS
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0.86% $ 0.84
Trustee's Fee
.056% $ 0.55
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
.002% $ 0.02
Evaluator's Fee
.016% $ 0.16
Other Operating Expenses
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.160% $ 1.57
TOTAL
* Based on the mean of bid and offering side evaluations.
INVESTOR FEES
3.00%
Maximum Sales Fee (Load) on new purchases (as a
percentage of $1,000 invested)
You will pay an up-front sales fee of 1.00%, as well as a
total deferred sales fee of $20.00 (four quarterly
payments of $5.00 per 1,000 units payable February, May,
August and November of 2001). This deferred sales charge
will be paid from principal proceeds from the sale or
maturity of the short-term Treasury Notes 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.
The maximum sales fee is reduced if you invest at least
$100,000, as follows:
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%
ORGANIZATION COSTS per 1,000 units $ 2.00
(deducted from Fund assets at the
close of the initial offering
period)
The Sponsors historically paid organization costs and
updating expenses.
EXAMPLE
This example may help you compare the cost of investing in
the Fund to the cost of investing in other funds.
The example assumes that you invest $10,000 in the Fund
for the periods indicated and sell all your units at the
end of those periods. The example also assumes a 5% return
on your investment each year and that the Fund's operating
expenses stay the same. Although your actual costs may be
higher or lower, based on these assumptions your costs
would be:
1 Year 3 Years 5 Years 10 Years
$336 $371 $409 $523
You will pay the following expenses if you do not sell your
units:
1 Year 3 Years 5 Years 10 Years
$136 $371 $409 $523
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 $992.29
(as of November 9, 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 securities in the Fund.
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UNIT PAR VALUE $1.00
Unit par value means the total amount of money you should
generally receive on each unit by the termination of the
Fund (other than interest and premium on the bonds). This
total amount assumes that all bonds in the Fund are either
paid at maturity or called by the issuer at par or are sold
by the Fund at par. If you sell your units before the Fund
terminates, you may receive more or less than the unit par
value.
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?
Generally, distributions of income or from the Fund will be
included in your gross income as dividends, 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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THE RISKS YOU FACE
INTEREST RATE RISK
Investing involves risks, including the risk that your investment will decline
in value if interest rates rise. Generally, securities with longer maturities
will change in value more than securities with shorter maturities. Of course, we
cannot predict how interest rates may change.
PREPAYMENT RISK
You may receive payments of principal sooner than expected if many homeowners
prepay the mortgages that underly the Ginnie Maes. This is more likely to occur
when interest rates decline. There is no prepayment protection. Prepayment would
result in early returns of principal to you and could result in early
termination of the Fund. 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:
o adding the value of the securities, net accrued interest, cash and any
other Fund assets;
o subtracting accrued but unpaid Fund expenses, unreimbursed Trustee
advances, cash held to buy back units or for distribution to investors and
any other Fund liabilities; and
o dividing the result by the number of outstanding units.
Your net asset value when you sell may be more or less than your cost because of
sales fees, market movements and changes in the portfolio.
SPONSORS' SECONDARY MARKET
While we are not obligated to do so, we will buy back units at net asset value
without any other fee or charge, 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 25 years, but we
could discontinue it without prior notice for any business reason.
SELLING UNITS TO THE TRUSTEE
Regardless of whether we maintain a secondary market, you can sell your units to
the Trustee at any time by sending the Trustee a letter (with any outstanding
certificates if you hold Unit certificates). You must properly endorse your
certificates (or execute a written transfer instrument with signatures
guaranteed by an eligible institution). Sometimes, additional documents are
needed such as a trust document, certificate of corporate authority, certificate
of death or appointment as executor, administrator or guardian.
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.
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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:
o if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
o if the SEC determines that trading on the New York Stock Exchange is
restricted or that an emergency exists making sale or evaluation of the
bonds not reasonably practicable; and
o for any other period permitted by SEC order.
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.
In addition, as with mutual funds, the Fund (and therefore the investors) pay
all or some of the costs of organizing the Fund including:
o cost of initial preparation of legal documents;
o federal and state registration fees;
o initial fees and expenses of the Trustee;
o initial audit; and
o legal expenses and other out-of-pocket expenses.
EVALUATIONS
An independent Evaluator values the securities on each business day (excluding
Saturdays, Sundays and the following holidays as observed by the New York Stock
Exchange: New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas;
and the following federal holidays: Columbus Day and Veterans Day). Values are
based on current bid or offer prices for the securities or comparable bonds. In
the past, the difference between bid and offer prices
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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:
o to reimburse the Trustee for the Fund's operating expenses;
o for extraordinary services and costs of indemnifying the Trustee and the
Sponsors;
o costs of actions taken to protect the Fund and other legal fees and
expenses;
o expenses for keeping the Fund's registration statement current; and
o Fund termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 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 Portfolio's registration statement yearly are also
now chargeable to the Portfolio. While this fee may exceed the amount of these
costs and expenses attributable to this Fund, the total of these fees for all
Series of Defined Asset Funds will not exceed the aggregate amount attributable
to all of these Series for any calendar year. The Fund also pays the Evaluator's
fees. Certain of these expenses were historically paid by the Sponsors.
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 quality declines or other
adverse financial circumstances occur. However, we may sell a security in
certain cases if we believe that certain adverse credit or certain other
conditions exist.
If we maintain a secondary market in units but are unable to sell the units that
we buy in the secondary market, we will redeem units, which will affect the size
and composition of the portfolio. Units offered in the secondary market may not
represent the same face amount of securities that they did originally.
We decide whether or not to offer units for sale that we acquire in the
secondary market after reviewing:
9
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o diversity of the portfolio;
o size of the Fund relative to its original size;
o ratio of Fund expenses to income;
o current and long-term returns;
o degree to which units may be selling at a premium over par; and
o cost of maintaining a current prospectus.
FUND TERMINATION
The Fund will terminate following the stated maturity or sale of the last
security in the portfolio. The Fund may also terminate earlier with the consent
of investors holding 51% of the units or if total assets of the Fund have fallen
below 40% of the face amount of securities deposited. We will decide whether to
terminate the Fund early based on the same factors used in deciding whether or
not to offer units in the secondary market.
When the Fund is about to terminate you will receive a notice, and you will be
unable to sell your units after that time. On or shortly before termination, we
will sell any remaining securities, and you will receive your final
distribution. Any security that cannot be sold at a reasonable price may
continue to be held by the Trustee in a liquidating trust pending its final
sale.
You will pay your share of the expenses associated with termination, including
brokerage costs in selling securities. This may reduce the amount you receive as
your final distribution.
CERTIFICATES
Certificates for units are issued on request. You may transfer certificates by
complying with the requirements for redeeming certificates, described above. You
can replace lost or mutilated certificates by delivering satisfactory indemnity
and paying the associated costs.
TRUST INDENTURE
The Fund is a 'unit investment trust' governed by a Trust Indenture, a contract
among the Sponsors, the Trustee and the Evaluator, which sets forth their duties
and obligations and your rights. A copy of the Indenture is available to you on
request to the Trustee. The following summarizes certain provisions of the
Indenture.
The Sponsors and the Trustee may amend the Indenture without your consent:
o to cure ambiguities;
o to correct or supplement any defective or inconsistent provision;
o to make any amendment required by any governmental agency; or
o to make other changes determined not to be materially adverse to your best
interest (as determined by the Sponsors).
Investors holding 51% of the units may amend the Indenture. Every investor must
consent to any amendment that changes the 51% requirement. No amendment may
reduce your interest in the Fund without your written consent.
The Trustee may resign by notifying the Sponsors. The Sponsors may remove the
Trustee without your consent if:
o it fails to perform its duties and the Sponsors determine that its
replacement is in your best interest; or
o it becomes incapable of acting or bankrupt or its affairs are taken over by
public authorities.
Investors holding 51% of the units may remove the Trustee. The Evaluator may
resign or be removed by the Sponsors and the Trustee without the consent of
investors. The resignation or removal of either becomes effective when a
successor accepts appointment. The Sponsors will try to appoint a successor
promptly; however, if no successor
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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:
o remove it and appoint a replacement Sponsor;
o liquidate the Fund; or
o continue to act as Trustee without a Sponsor.
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent for the
Sponsors.
The Trust Indenture contains customary provisions limiting the liability of the
Trustee, the Sponsors and the Evaluator.
LEGAL OPINION
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
special counsel for the Sponsors, has given an opinion that the units are
validly issued.
AUDITORS
Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281,
independent accountants, audited the Statement of Condition included in this
prospectus.
SPONSORS
The Sponsors are:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.)
P.O. Box 9051,
Princeton, NJ 08543-9051
SALOMON SMITH BARNEY INC. (an indirectly wholly-owned subsidiary of Citigroup,
Inc.)
388 Greenwich Street--23rd Floor,
New York, NY 10013
DEAN WITTER REYNOLDS INC. (a principal operating subsidiary of Morgan Stanley
Dean Witter & Co.)
Two World Trade Center--59th Floor,
New York, NY 10048
PAINEWEBBER INCORPORATED (a wholly-owned subsidiary of PaineWebber Group Inc.)
1285 Avenue of the Americas,
New York, NY 10019
Each Sponsor is a Delaware corporation and it, or its predecessor, has acted as
sponsor to many unit investment trusts. As a registered broker-dealer each
Sponsor buys and sells securities (including investment company shares) for
others (including investment companies) and participates as an underwriter in
various selling groups.
TRUSTEE
The Chase Manhattan Bank, Unit Investment Trust Department, 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.
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During the initial offering period, the Sponsors also may realize profits or
sustained losses on units they hold. 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
During the initial offering period, units will be distributed to the public by
the Sponsors and 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.
This prospectus does not constitute an offer to sell units in any country where
units cannot lawfully be sold.
In the initial offering period, the concession to dealers will be $21 per 1,000
units. We may change the concession at any time. Dealers may resell units to
other dealers with a concession not in excess of the original concession to
dealers.
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 bonds
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 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
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(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 have 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.
FOREIGN INVESTORS
The above 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. 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
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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.
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REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders of Government Securities Income Fund, GNMA
Series--2C, 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 November 10, 1999. 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 November 10,
1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
NEW YORK, N.Y.
NOVEMBER 10, 1999
STATEMENT OF CONDITION AS OF NOVEMBER 10, 1999
TRUST PROPERTY
Investments--Securities and Contracts to purchase
Securities(1) $ 392,234.20
Cash 800.00
Accrued interest to Initial Date of Deposit on underlying
Securities 859.32
--------------------
Total $ 393,893.52
--------------------
--------------------
LIABILITIES AND INTEREST OF HOLDERS
Liabilities: Advance by Trustee for Accrued interest(2) $ 859.32
Reimbursement of Sponsors for organization expenses(3) 800.00
--------------------
Subtotal 1,659.32
--------------------
Interest of Holders of 400,000 Units of fractional
undivided interest outstanding:
Cost to investors(3)(4)(5) 396,914.20
Organization expenses(3)and gross underwriting
commissions(4) (4,680.00)
--------------------
Subtotal $ 392,234.20
--------------------
Total $ 393,893.52
--------------------
--------------------
- ---------------
(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 San Paolo Bank, New York Agency, in
the amount of $393,078.21 and deposited with the Trustee. The amount of the
letter of credit includes $391,280.00 for the purchase of $408,000 face amount
of the securities, plus $1,798.21. 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. If the actual organization costs exceed the
estimated aggregate amount shown above, the Sponsors will pay for this excess
amount.
(4) Assumes the maximum up-front sales charge per 1,000 Units of 1.00%
of the Public Offering Price. A total deferred sales charge of $20.00 per 1,000
Units is also payable (four quarterly payments of $5.00 per 1,000 Units
commencing February, 2001). 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.
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Defined
Asset FundsSM
HAVE QUESTIONS ? GOVERNMENT SECURITIES INCOME FUND
Request the most recent free GNMA SERIES--2C
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:
o Securities Act of 1933 (file no.
333-90387) and
o Investment Company Act of 1940 (file
no. 811-2810).
TO OBTAIN COPIES AT PRESCRIBED RATES--
WRITE: Public Reference Section of the
Commission
450 Fifth Street, N.W., Washington,
D.C. 20549-6009
CALL: 1-800-SEC-0330.
VISIT: http://www.sec.gov.
---------------------------------------
No person is authorized to give any
information or representations about
this Fund not contained in this
Prospectus or the Information
Supplement, and you should not rely on
any other information.
---------------------------------------
When units of this Fund are no longer
available, this Prospectus may be used
as a preliminary prospectus for a
future series, but some of the
information in this Prospectus will be
changed for that series.
Units of any future series may not be
sold nor may offers to buy be accepted
until that series has become effective
with the Securities and Exchange
Commission. No units can be sold in any
State where a sale would be illegal.
100448RR--11/99
