<PAGE>
Defined Asset FundsSM
<TABLE>
<CAPTION>
<S> <C>
GOVERNMENT 5.52% ESTIMATED CURRENT RETURN shows the estimated annual cash to be
SECURITIES received from interest-bearing bonds in the Portfolio (net of
INCOME FUND estimated annual expenses) divided by the Public Offering Price
MONTHLY PAYMENT (including the maximum sales charge).
U.S. TREASURY
SERIES--26 5.28% ESTIMATED LONG TERM RETURN is a measure of the estimated
(LADDERED MATURITIES) return over the estimated average life of the Fund (about three
A UNIT INVESTMENT years). This represents an average of the yields to maturity (or in
TRUST certain cases, to an earlier call date) of the individual bonds in
the Portfolio, adjusted to reflect the maximum sales charge and
estimated expenses. The average yield for the Portfolio is derived
- ----------------------------------- by weighting each bond's yield by its market value and the time
/ / MONTHLY INCOME remaining to the call or maturity date, depending on how the bond is
/ / AAA-RATED BONDS priced. Unlike Estimated Current Return, Estimated Long Term Return
/ / FOREIGN HOLDERS takes into account maturities, discounts and premiums of the
TAX EXEMPT underlying bonds.
No return estimate can be predictive of your actual return because
returns will vary with purchase price (including sales charges), how
5.52% long units are held, changes in Portfolio composition, changes in
ESTIMATED CURRENT RETURN interest income and changes in fees and expenses. Therefore,
Estimated Current Return and Estimated Long Term Return are designed
to be comparative rather than predictive. A yield calculation which
5.28% is more comparable to an individual bond may be higher or lower than
ESTIMATED LONG TERM RETURN Estimated Current Return or Estimated Long Term Return which are
more comparable to return calculations used by other investment
products.
AS OF NOVEMBER 12, 1996
------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADE-
QUACY OF THIS DOCUMENT. ANY REPRESENTATION TO
SPONSORS: THE CONTRARY IS A CRIMINAL OFFENSE.
Merrill Lynch, Inquiries should be directed to the Trustee at 1-800-323-1508.
Pierce, Fenner & Smith Incorporated Prospectus dated November 13, 1996.
Smith Barney Inc.
Prudential Securities Incorporated INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR
Dean Witter Reynolds Inc. FUTURE REFERENCE.
PaineWebber Incorporated
</TABLE>
<PAGE>
Defined Asset FundsSM
Defined Asset Funds is America's oldest and largest family of unit investment
trusts, with over $115 billion sponsored in the last 25 years. Each Defined
Asset Fund is a portfolio of preselected securities. The portfolio is divided
into "units" representing equal shares of the underlying assets. Each unit
receives an equal share of income and principal distributions.
Defined Asset Funds offer several defined "distinctives". You know in advance
what you are investing in and that changes in the portfolio are limited -- a
defined portfolio. Most defined bond funds pay interest monthly -- defined
income. The portfolio offers a convenient and simple way to invest -- simplicity
defined.
Your financial professional can help you select a Defined Asset Fund to meet
your personal investment objectives. Our size and market presence enable us to
offer a wide variety of investments. The Defined Asset Funds family offers:
- Municipal bond portfolios
- Corporate bond portfolios
- Government bond portfolios
- Equity portfolios
- International bond and equity portfolios
The terms of Defined Funds are as short as one year or as long as 30 years.
Special defined bond funds are available including: insured funds, double and
triple tax-free funds and funds with "laddered maturities" to help protect
against changing interest rates. Defined Asset Funds are offered by prospectus
only.
- --------------------------------------------------------------------------
Defined U.S. Treasury Series
- --------------------------------------------------------------------------
Our defined portfolio of U.S. Treasury securities offers you a simple and
convenient way to participate in the U.S. Treasury market and obtain monthly
income while earning an attractive return.
INVESTMENT OBJECTIVES
To obtain safety of capital and investment flexibility as well as current
monthly income distributions through investment in a fixed, laddered portfolio
of interest- bearing U.S. Treasury obligations with maturities of approximately
one to five years. By utilizing an investment strategy called laddering, the
Fund seeks to protect against changes in interest rates by investing a portion
of the Portfolio in longer-term Securities, while if interest rates rise
investors will be able to reinvest the proceeds of principal returned each year
in higher yielding obligations.
- --------------------------------------------------------------------------
Defining Your Portfolio
- --------------------------------------------------------------------------
PROFESSIONAL SELECTION AND SUPERVISION
The Portfolio of Securities is selected by experienced buyers. The Fund is not
actively managed; however it is regularly reviewed and a Security can be sold if
retaining it is considered detrimental to investors' interests.
PORTFOLIO COMPOSITION
The Portfolio consists of 5 different issues of short intermediate term U.S.
Treasury obligations without conversion or equity features with an aggregate
face amount of $500,000.
CALL PROTECTION
100% of the aggregate face amount of the Portfolio is not subject to redemption
prior to maturity but is payable in full at the stated maturity amounts.
TAX INFORMATION
In the opinion of special counsel to the Sponsors, each investor will be
considered to have received the interest on his pro rata portion of each
Security when interest on the Security is received by the Fund. This interest is
subject to U.S. Federal income taxes for U.S. investors but exempt from state
and local personal income taxes in all states. For many foreign investors,
income from the Fund will be exempt from Federal income taxes.
- --------------------------------------------------------------------------
Defining Your Investment
- --------------------------------------------------------------------------
PUBLIC OFFERING PRICE
PER 1,000 UNITS $1,013.40
The Public Offering Price as of November 12, 1996, the business day prior to the
Initial Date of Deposit, is based on the aggregate offer side value of the
underlying Securities in the Fund ($500,430.00), plus a maximum sales charge of
1.266% of the value of the Securities, plus cash ($4,900.00), divided by the
number of units outstanding (504,900) times 1,000. The Public Offering Price on
any subsequent date will vary. An amount equal to principal cash, if any, as
well as net accrued but undistributed interest on the unit is added to the
Public Offering Price. The underlying Securities are evaluated by an independent
evaluator at 3:30 p.m. Eastern time.
A-2
<PAGE>
UNIT PAR VALUE
The par value of your units--the amount of money you will receive at termination
of the Fund, assuming all the bonds are paid at maturity or are redeemed by the
issuer at par or sold by the Fund at par to meet redemptions--is $1,000 per
1,000 units.
LOW MINIMUM INVESTMENT
You can get started with a minimum purchase of about $250. There is no minimum
purchase for payroll deduction plans.
PRINCIPAL DISTRIBUTIONS
Principal from sales, redemptions and maturities of Securities in the Fund will
be distributed to investors periodically when the amount to be distributed is
more than $5.00 per 1,000 units.
REINVESTMENT OPTION
You can elect to automatically reinvest your income distributions into
additional units of the Fund. Reinvesting helps to compound your income.
TERMINATION DATE
The Fund will generally terminate no later than one year following the maturity
date of the last maturing Security listed in the Portfolio. The Fund may be
terminated earlier if the value is less than 40% of the face amount of
Securities deposited.
SPONSORS' PROFIT OR LOSS
The Sponsors' profit or loss associated with the Fund will include the receipt
of applicable sales charges, fluctuations in the Public Offering Price or
secondary market price of units, a gain of $742.50 on the initial deposit of the
Securities and a gain or loss on subsequent deposits of additional Securities
(see Underwriters' and Sponsors' Profits in Part B).
- --------------------------------------------------------------------------
Defining Your Costs
- --------------------------------------------------------------------------
SALES CHARGES
Although the Fund is a unit investment trust rather than a mutual fund, the
following information is presented to permit a comparison of fees and an
understanding of the direct or indirect costs and expenses that you pay.
<TABLE>
<CAPTION>
As a %
As a % of Secondary
of Initial Offering Market
Period Public Public Offering
Offering Price Price
------------------- ----------------
<S> <C> <C>
Maximum Sales Charges 1.25% 1.50%
</TABLE>
ESTIMATED ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
As a %
of Average Per
Net Assets* 1,000 Units
------------- ------------------
<S> <C> <C>
Trustee's Fee .060% $0.60
Portfolio Supervision and
Administrative Fees .025% $0.25
Organizational Expenses .020% $0.20
Evaluator's Fee .003% $0.03
Other Operating Expenses .014% $0.14
------------ ---------------
TOTAL .122% $ 1.22
------------ ---------------
------------ ---------------
</TABLE>
- ---------
*Based on the mean of the bid and offer side evaluations.
COSTS OVER TIME
You would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on the investment throughout the indicated periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years
<S> <C> <C> <C>
$14 $16 $19
</TABLE>
The example assumes reinvestment of all distributions into additional units of
the Fund and uses a 5% annual rate of return as mandated by Securities and
Exchange Commission regulations applicable to mutual funds. The Costs Over Time
above reflect both sales charges and operating expenses on an increasing
investment (because the net annual return is reinvested). The example should not
be considered a representation of past or future expenses or annual rate of
return; the actual expenses and annual rate of return may be more or less than
the example.
The Fund (and therefore the investors) will bear all or a portion of its
organizational costs--including costs of preparing the registration statement,
the trust indenture and other closing documents, registering units with the SEC
and the states and the initial audit of the Portfolio--as is common for mutual
funds.
REDEEMING OR SELLING YOUR INVESTMENT
You may redeem or sell your units at any time. Your price is based on the Fund's
then current net asset value (generally based on the lower bid side evaluation,
as determined by an independent evaluator), plus principal cash, if any, as well
as accrued interest. The bid side redemption and secondary market repurchase
price per 1,000 units as of November 12, 1996 was $1,000.23 ($13.17 less than
the Public Offering Price). There is no fee for redeeming or selling your units.
A-3
<PAGE>
- --------------------------------------------------------------------------
Defining Your Risks
- --------------------------------------------------------------------------
RISK FACTORS
U.S. Government securities are not affected by credit risk but are subject to
changes in market value resulting from changes in interest rates. Unit price
fluctuates and the value of units will decline if interest rates increase.
Because of deposits of additional Securities and the maturity, possible sale or
other disposition of Securities, the size, composition and return of the
Portfolio may change at any time. Because of the sales charges, returns of
principal and fluctuations in unit price, among other reasons, the sale price
will generally be less than the cost of your units. There is no guarantee that
the Fund will achieve its investment objective.
The Fund itself is not backed by the full faith and credit of the U.S.
Government (see Risk Factors in Part B).
- --------------------------------------------------------------------------
Defining Your Income
- --------------------------------------------------------------------------
MONTHLY INTEREST INCOME
The Fund pays monthly income, even though the Securities generally pay interest
semi-annually.
WHAT YOU MAY EXPECT
(PAYABLE ON THE 25TH DAY OF THE MONTH TO HOLDERS OF RECORD ON THE 10TH DAY OF
THE MONTH):
<TABLE>
<CAPTION>
<S> <C>
First Distribution per 1,000 units
(December 25, 1996): $4.19
Regular Monthly Income per 1,000 units
(Beginning on January 25, 1997): $4.66
Annual Income per 1,000 units: $55.96
</TABLE>
These figures are estimates determined as of the business day prior to the
Initial Date of Deposit and actual payments may vary.
Estimated cash flows are available upon request from the Sponsors at no charge.
A-4
<PAGE>
- --------------------------------------------------------------------------
Defined Portfolio
- --------------------------------------------------------------------------
Government Securities Income Fund
Monthly Payment U.S. Treasury Series--26
November 13, 1996
(Laddered Maturities)
<TABLE>
<CAPTION>
S&P
PORTFOLIO NO. AND TITLE RATING FACE AMOUNT COUPON MATURITY COST TO FUND(1)
- -------------------------------- ------ -------------- ------ -------- ------------------
<S> <C> <C> <C> <C> <C>
1. United States Treasury Notes AAA $ 100,000 6.000% 11/30/97 $ 100,665.00
2. United States Treasury Notes AAA 100,000 5.125 11/30/98 99,055.00
3. United States Treasury Notes AAA 100,000 6.000 10/15/99 100,773.00
4. United States Treasury Notes AAA 100,000 5.500 12/31/00 98,586.00
5. United States Treasury Notes AAA 100,000 6.250 10/31/01 101,351.00
-------------- ------------------
$ 500,000 $ 500,430.00
-------------- ------------------
-------------- ------------------
</TABLE>
- ---------
(1) Evaluation of the Securities by the Evaluator is made on the basis of
current offer side evaluation. On this basis, 60% of the Securities were
deposited at a premium and 40% at a discount from par.
A-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders of Government Securities Income Fund, Monthly
Payment U.S. Treasury Series--26 (Laddered Maturities), 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 13, 1996. 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 13,
1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
NEW YORK, N.Y.
November 13, 1996
Statement of Condition as of November 13, 1996
<TABLE>
<CAPTION>
<S> <C>
TRUST PROPERTY
Investments--Securities and Contracts to Purchase Securities(1) $500,430.00
Cash 4,900.00
Accrued interest to initial date of deposit on underlying Securities 7,780.84
Organizational Costs(2) 50,000.00
-------------
Total $563,110.84
-------------
-------------
LIABILITIES AND INTEREST OF HOLDERS
Liabilities: Advance by the Trustee for accrued interest(3) $ 7,780.84
Accrued Liability(2) 50,000.00
-------------
Subtotal 57,780.84
-------------
Interest of Holders of 504,900 Units of fractional undivided interest outstanding:
Cost to investors(4) 511,666.49
Gross underwriting commissions(5) (6,336.49)
-------------
Subtotal 505,330.00
-------------
Total $563,110.84
-------------
-------------
</TABLE>
- ---------
(1) Aggregate cost to the Fund of the securities listed 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 DBS Bank, New York Agency, in the amount of
$507,468.34 and deposited with the Trustee. The amount of the letter of credit
includes $ 499,687.50 for the purchase of $500,000 face amount of the
securities, plus $7,780.84 for accrued interest.
(2) This represents a portion of the Fund's organizational costs which will be
deferred and amortized over five years.
Organizational costs have been estimated based on a projected Fund size of
$50,000,000. To the extent the Fund is larger or smaller, the amount paid may
vary.
(3) Representing a special distribution by the Trustee to the Sponsors of an
amount equal to the accrued interest on the securities as of the initial date of
deposit.
(4) 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.
(5) Assumes the maximum sales charge of 1.25% of the Public Offering Price
(1.266% of the value of the securities).
A-6
<PAGE>
EFFECT OF STATE PERSONAL INCOME TAX EXEMPTION
The following chart shows what the return on a security that is subject to state
personal income taxes would have to be in order to equal 5.52% Estimated Current
Return and 5.28% Estimated Long Term Return on a Monthly Payment U.S. Treasury
Series. This Trust is free from state personal income taxes in all states; the
comparable security would be subject to deduction of state personal income taxes
at the maximum state rate. Of course, if you are not in the maximum state
personal income tax bracket, the fully taxable equivalent return would be less.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FULLY TAXABLE RETURN FULLY TAXABLE RETURN
EQUIVALENT TO 5.52% EQUIVALENT TO 5.28%
ESTIMATED CURRENT ESTIMATED LONG
MAXIMUM STATE RETURN ON MONTHLY TERM RETURN ON
PERSONAL INCOME PAYMENT MONTHLY PAYMENT
STATE TAX RATE (1) U.S. TREASURY SERIES U.S. TREASURY SERIES
- ---------------------------------------------------------------------------------
Alabama 5.000%(2) 5.81% 5.56%
- ---------------------------------------------------------------------------------
Alaska 0.000 5.52 5.28
- ---------------------------------------------------------------------------------
Arizona 5.600(2) 5.85 5.59
- ---------------------------------------------------------------------------------
Arkansas 7.000 5.94 5.68
- ---------------------------------------------------------------------------------
California 9.300 6.09 5.82
- ---------------------------------------------------------------------------------
Colorado 5.000 5.81 5.56
- ---------------------------------------------------------------------------------
Connecticut 4.500 5.78 5.53
- ---------------------------------------------------------------------------------
Delaware 7.100 5.94 5.68
- ---------------------------------------------------------------------------------
Florida 0.000 5.52 5.28
- ---------------------------------------------------------------------------------
Georgia 6.000 5.87 5.62
- ---------------------------------------------------------------------------------
Hawaii 10.000 6.13 5.87
- ---------------------------------------------------------------------------------
Idaho 8.200 6.01 5.75
- ---------------------------------------------------------------------------------
Illinois 3.000 5.69 5.44
- ---------------------------------------------------------------------------------
Indiana 3.400 5.71 5.47
- ---------------------------------------------------------------------------------
Iowa 9.980(2) 6.13 5.87
- ---------------------------------------------------------------------------------
Kansas 7.750 5.98 5.72
- ---------------------------------------------------------------------------------
Kentucky 6.000 5.87 5.62
- ---------------------------------------------------------------------------------
Louisiana 6.000 5.87 5.62
- ---------------------------------------------------------------------------------
Maine 8.500 6.03 5.77
- ---------------------------------------------------------------------------------
Maryland 5.000 5.81 5.56
- ---------------------------------------------------------------------------------
Massachusetts 12.000 6.27 6.00
- ---------------------------------------------------------------------------------
Michigan 4.470 5.78 5.53
- ---------------------------------------------------------------------------------
Minnesota 8.500 6.03 5.77
- ---------------------------------------------------------------------------------
Mississippi 5.000 5.81 5.56
- ---------------------------------------------------------------------------------
Missouri 6.000 5.87 5.62
- ---------------------------------------------------------------------------------
Montana 11.000 6.20 5.93
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FULLY TAXABLE RETURN FULLY TAXABLE RETURN
EQUIVALENT TO 5.52% EQUIVALENT TO 5.28%
ESTIMATED CURRENT ESTIMATED LONG
MAXIMUM STATE RETURN ON MONTHLY TERM RETURN ON
PERSONAL INCOME TAX PAYMENT MONTHLY PAYMENT
STATE RATE (1) U.S. TREASURY SERIES U.S. TREASURY SERIES
- -------------------------------------------------------------------------------------
Nebraska 6.990% 5.93% 5.68%
- -------------------------------------------------------------------------------------
Nevada 0.000 5.52 5.28
- -------------------------------------------------------------------------------------
New Hampshire 5.000 5.81 5.56
- -------------------------------------------------------------------------------------
New Jersey 6.370 5.90 5.64
- -------------------------------------------------------------------------------------
New Mexico 8.500 6.03 5.77
- -------------------------------------------------------------------------------------
New York 7.000 5.94 5.68
- -------------------------------------------------------------------------------------
North Carolina 7.750 5.98 5.72
- -------------------------------------------------------------------------------------
North Dakota 12.000(7) 6.27 6.00
- -------------------------------------------------------------------------------------
Ohio 7.500 5.97 5.71
- -------------------------------------------------------------------------------------
Oklahoma 10.000(2)(4) 6.13 5.87
- -------------------------------------------------------------------------------------
Oregon 9.000(2) 6.07 5.80
- -------------------------------------------------------------------------------------
Pennsylvania 2.800 5.68 5.43
- -------------------------------------------------------------------------------------
Puerto Rico 36.000(8) 8.63 8.25
- -------------------------------------------------------------------------------------
Rhode Island 10.890(5) 6.19 5.93
- -------------------------------------------------------------------------------------
South Carolina 7.000 5.94 5.68
- -------------------------------------------------------------------------------------
South Dakota 0.000 5.52 5.28
- -------------------------------------------------------------------------------------
Tennessee 6.000 5.87 5.62
- -------------------------------------------------------------------------------------
Texas 0.000 5.52 5.28
- -------------------------------------------------------------------------------------
Utah 7.200(3) 5.95 5.69
- -------------------------------------------------------------------------------------
Vermont 9.900(5)(6) 6.13 5.86
- -------------------------------------------------------------------------------------
Virginia 5.750 5.86 5.60
- -------------------------------------------------------------------------------------
Washington 0.000 5.52 5.28
- -------------------------------------------------------------------------------------
West Virginia 6.500 5.90 5.65
- -------------------------------------------------------------------------------------
Wisconsin 6.930 5.93 5.67
- -------------------------------------------------------------------------------------
Wyoming 0.000 5.52 5.28
- -------------------------------------------------------------------------------------
Dist. of Columbia 9.500 6.10 5.83
- -------------------------------------------------------------------------------------
</TABLE>
This Chart incorporates current applicable State income tax rates and assumes
that all income would otherwise be taxed at the investor's highest tax rate. If
you live in a locality which imposes local personal income taxes, the fully
taxable equivalent return may be greater than as shown on this chart. Yield
figures are for example only.
(1) Based upon net amount subject to State income tax after deductions and
exemptions. This Chart does not reflect other possible tax factors, such as
the alternative minimum tax, personal exemptions, the phase out of exemptions,
itemized deductions and the possible partial disallowance of deductions.
Consequently, Holders are urged to consult their own tax advisors in this
regard.
(2) This state allows in any taxable year, the deduction from gross income of
payments of federal tax liability in that year.
(3) This state allows in any taxable year, the deduction from gross income of
50% of amounts paid on federal tax liability in that year.
(4) The maximum applicable rate may be 7% if the taxpayer chooses not to deduct
payments of federal tax liability.
(5) This rate is calculated as a percentage of the highest federal personal
income tax rate of 39.6%.
(6) The rate shown includes the maximum surtax imposed by this state of 6% of
federal personal income tax liability.
(7) The maximum applicable rate may be 14% of adjusted federal personal income
tax liability if the state tax calculated on that basis is less than the state
tax calculated on the basis of the rate shown above.
(8) An alternate basic tax may be assessed if greater than the tax calculated on
the basis of the rate shown above.
A-7
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
AUTHORIZATION FOR REINVESTMENT
GOVERNMENT SECURITIES INCOME FUND
MONTHLY PAYMENT U.S. TREASURY SERIES 26
DEFINED ASSET FUNDS
/ / Yes, I want to participate in the Fund's Reinvestment
Plan and purchase additional Units or fractions of
additional Units of the Fund.
I hereby acknowledge receipt of the Prospectus for
Government Securities Income Fund Monthly Payment U.S.
Treasury Series 26, Defined Asset Funds and authorize Chase
Manhattan Bank to pay distributions on my Units as
indicated below (distributions to be reinvested will be
paid for my account to Chase Manhattan Bank.
/ / I want to reinvest all monthly income distributions
(including capital gains) in additional Units of the Fund.
Please print or type Name
Registered Holder
Address
Registered Holder
City State Zip (Two signatures required
if joint tenancy)
Unless you complete and return this form, all
distributions to you from the Monthly Payment U.S.
Treasury Series 26 will be paid in cash.
This page is a self-mailer. Please complete the
information above, cut along the dotted line, fold along
the lines on the reverse side, tape, and mail with the
Trustee's address displayed on the outside.
1 2 3 4 5 6 7 8
<PAGE>
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST CLASS PERMIT NO. 644 NEW YORK, NY
POSTAGE WILL BE PAID BY ADDRESSEE
THE CHASE MANHATTAN BANK
RETAIL PROCESSING DEPARTMENT
770 BROADWAY--7TH FLOOR
NEW YORK, NY 10003-9598
(Fold along this line.)
(Fold along this line.)
<PAGE>
DEFINED ASSET FUNDSSM
PROSPECTUS--PART B
GOVERNMENT SECURITIES INCOME FUND
THIS PART B OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED OR
PRECEDED BY PART A.
FURTHER INFORMATION REGARDING THE FUND MAY BE OBTAINED
WITHIN FIVE DAYS OF WRITING OR CALLING THE TRUSTEE, AT THE ADDRESS AND
TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS.
Index
<TABLE>
<CAPTION>
PAGE PAGE
---- -----
<S> <C> <C> <C>
Fund Description. . . . . . 1 Taxes. . . . . . . . . . . . . . 6
Risk Factors. . . . . . . . 2 Records & Reports. . . . . . . . 7
How to Buy Units. . . . . . 3 Trust Indenture. . . . . . . . . 8
How to Redeem or Sell Units 4 Miscellaneous. . . . . . . . . . 8
Income and Distributions. . 4 Supplemental Information. . . . . 10
Reinvestment. . . . . . . . 5 Description of Ratings. . . . . . 10
Fund Expenses. . . . . . . 5 Appendix A--Sales Charge Schedules a-1
</TABLE>
FUND DESCRIPTION
PORTFOLIO SELECTION
Professional buyers and research analysts for Defined Asset Funds, with access
to extensive research, selected the Securities for the Portfolio after
considering the Fund's investment objectives as well as the availability of the
Securities (all Securities in the Portfolio were issued after July 18, 1984),
the price of the Securities compared to similar securities and the extent to
which they were trading at discounts or premiums to par, and the maturities of
the Securities. Only issues meeting these stringent criteria of Defined Asset
Funds dedicated research analysts are included in the Portfolio. No leverage or
borrowing is used nor does the Portfolio contain other kinds of securities to
enhance yield. A summary of the Securities in the Portfolio appears in Part A of
the Prospectus.
The deposit of the Securities in the Fund on the initial date of deposit
established a proportionate relationship among the face amounts of the
Securities. During the 90-day period following the initial date of deposit the
Sponsors may deposit additional Securities in order to create new Units,
maintaining to the extent possible that original proportionate relationship.
Deposits of additional Securities subsequent to the 90-day period must generally
replicate exactly the proportionate relationship among the face amounts of the
Securities at the end of the initial 90-day period.
Yields on U.S. Government securities depend on many factors including general
money market conditions, general conditions of the bond markets and prevailing
interest rates.
Because each Defined Asset Fund is a preselected portfolio of securities, you
know the terms of the Securities before you invest. Of course, the Portfolio
will change somewhat over time, as additional Securities are deposited in order
to create new Units, and as Securities mature, are redeemed or are sold to meet
Unit redemptions or in other limited circumstances. Because the Portfolio is not
actively managed and principal is returned as the Securities are disposed of,
this principal should be relatively unaffected by changes in interest rates.
PORTFOLIO SUPERVISION
The Fund follows a buy and hold investment strategy in contrast to the
frequent portfolio changes of a managed fund based on economic, financial and
market analyses. Experienced financial analysts regularly review the Portfolio
and a Security may be sold in certain circumstances including the occurrence of
a default in payment on the Security or any other securities backed by the full
faith and credit of the United States, institution of certain legal proceedings,
if the Security becomes inconsistent with the Fund's investment objectives, a
decline in the price of the Security or the occurrence of other market or credit
factors that, in the opinion of the Sponsors, makes retention of the Security
detrimental to the interests of investors.
1
<PAGE>
The Sponsors and the Trustee are not liable for any default or defect in a
Security. If a contract to purchase any Security fails, the Sponsors may
generally deposit a replacement security so long as it is a security issued by
the U.S. Treasury and has a fixed maturity date substantially similar to the
failed Security. A replacement security must be deposited within 110 days after
deposit of the failed contract, at a cost that does not exceed the funds
reserved for purchasing the failed Security and at a yield to maturity and
current return substantially equivalent (considering then current market
conditions and relative creditworthiness) to those of the failed Security, as of
the date the failed contract was deposited.
RISK FACTORS
An investment in the Fund entails certain risks, including the risk that the
value of your investment will decline with increases in interest rates.
Generally speaking, securities with longer maturities will fluctuate in value
more than securities with shorter maturities. In recent years there have been
wide fluctuations in interest rates and in the value of fixed-rate bonds
generally. The Sponsors cannot predict the direction or scope of any future
fluctuations.
Certain of the Securities may have been deposited at a market discount or
premium principally because their interest rates are lower or higher than
prevailing rates on comparable debt securities. The current returns of market
discount securities are lower than comparably rated securities selling at par
because discount securities tend to increase in market value as they approach
maturity. The current returns of market premium securities are higher than
comparably rated securities selling at par because premium securities tend to
decrease in market value as they approach maturity. Because part of the purchase
price is returned through current income payments and not at maturity, an early
redemption at par of a premium security will result in a reduction in yield to
the Fund. Market premium or discount attributable to interest rate changes does
not indicate market confidence or lack of confidence in the issue.
The U.S. Treasury obligations included in the Portfolio, though backed by the
full faith and credit of the United States, are subject to changes in market
value when interest rates fluctuate. The Fund seeks to protect against declining
interest rates by investing a portion of the Portfolio in longer-term
Securities, while if interest rates rise investors will be able to reinvest the
proceeds of principal returned each year in higher yielding obligations. It is
anticipated that equal portions of principal invested will be returned annually
as Securities mature.
LITIGATION AND LEGISLATION
The Sponsors do not know of any pending litigation as of the date of this
Prospectus which might reasonably be expected to have a material adverse effect
upon the Fund. At any time after the initial date of deposit, litigation may be
initiated on a variety of grounds, or legislation may be enacted, affecting the
Securities in the Fund.
PAYMENT OF THE SECURITIES AND LIFE OF THE FUND
The size and composition of the Fund will be affected by the level of
redemptions of Units that may occur from time to time. Principally, this will
depend upon the number of investors seeking to sell or redeem their Units and
whether or not the Sponsors are able to sell the Units acquired by them in the
secondary market. As a result, Units offered in the secondary market may not
represent the same face amount of Securities as on the initial date of deposit.
Factors that the Sponsors will consider in determining whether or not to sell
Units acquired in the secondary market include the size of the Fund relative to
its original size, the ratio of Fund expenses to income, the Fund's current and
long-term returns, the degree to which Units may be selling at a premium over
par and the cost of maintaining a current prospectus for the Fund. These factors
may also lead the Sponsors to seek to terminate the Fund earlier than its
mandatory termination date.
FUND TERMINATION
The Fund will be terminated no later than the mandatory termination date
specified in Part A of the Prospectus. It will terminate earlier upon the
disposition of the last Security or upon the consent of investors holding 51% of
the Units. The Fund may also be terminated earlier by the Sponsors once the
total assets of the Fund have fallen below the minimum value specified in Part A
of the Prospectus. A decision by the Sponsors to terminate the Fund early will
be based on factors similar to those considered by the Sponsors in determining
whether to continue the sale of Units in the secondary market.
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Notice of impending termination will be provided to investors and thereafter
Units will no longer be redeemable. On or shortly before termination, the Fund
will seek to dispose of any Securities remaining in the Portfolio although any
Security unable to be sold at a reasonable price may continue to be held by the
Trustee in a liquidating trust pending its final disposition. A proportional
share of the expenses associated with termination, including brokerage costs in
disposing of Securities, will be borne by investors remaining at that time. This
may have the effect of reducing the amount of proceeds those investors are to
receive in any final distribution.
HOW TO BUY UNITS
PUBLIC OFFERING PRICE
Units are available from any of the Sponsors, Underwriters and other
broker-dealers at the Public Offering Price plus accrued interest on the Units.
The Public Offering Price varies each Business Day with changes in the value of
the Portfolio and other assets and liabilities of the Fund. In the initial
offering period, the Public Offering Price is based on the next offer side
evaluation of the Securities, and includes a sales charge based on the number of
Units of the Fund and any other Monthly Payment U.S. Treasury Series of
Government Securities Income Fund purchased on any one day by a single purchaser
(see Initial Offering sales charge schedule in Appendix A). In the secondary
market (after the initial offering period), the Public Offering Price is based
on the bid side evaluation of the Bonds, and includes a sales charge based on
the number of Units of the Fund purchased in the secondary market on the same
day by a single purchaser (see Secondary Market sales charge schedule in
Appendix A). Purchases in the secondary market of one or more Series sponsored
by the Sponsors that have the same rates of sales charge may be aggregated.
To qualify for a reduced sales charge, the dealer must confirm that the sale
is to a single purchaser or is purchased for its own account and not for
distribution. For these purposes, Units held in the name of the purchaser's
spouse or child under 21 years of age are deemed to be purchased by a single
purchaser. A trustee or other fiduciary purchasing securities for a single trust
estate or single fiduciary account is also considered a single purchaser. This
procedure may be amended or terminated at any time without notice.
Employees of certain Sponsors and Sponsor affiliates and non-employee
directors of Merrill Lynch & Co. Inc. may purchase Units at any time at prices
including a sales charge of not less than $5 per 1,000 Units.
Net accrued interest and principal cash, if any, are added to the Public
Offering Price, the Sponsors' Repurchase Price and the Redemption Price per
Unit. This represents the interest accrued on the Securities, net of Fund
expenses, from the initial date of deposit to, but not including, the settlement
date for Units (less any prior distributions of interest income to investors).
Securities deposited also carry accrued but unpaid interest up to the initial
date of deposit. To avoid having investors pay this additional accrued interest
(which earns no return) when they purchase Units, the Trustee advances and
distributes this amount to the Sponsors; it recovers this advance from interest
received on the Securities. Because of varying interest payment dates on the
Securities, accrued interest at any time will exceed the interest actually
received by the Fund.
EVALUATIONS
Evaluations are determined by the independent Evaluator on each Business Day.
This excludes Saturdays, Sundays and the following holidays as observed by the
New York Stock Exchange: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas, and the following
Federal holidays: Martin Luther King's Birthday, Columbus Day and Veterans Day.
Securities evaluations are generally determined on the basis of current bid or
offer prices for the Securities or comparable securities or by appraisal or by
any combination of these methods. Under current market conditions the bid prices
for Treasury obligations of the type deposited in the Portfolio are expected to
be approximately .10% less than the offer price. Neither the Sponsors, the
Trustee or the Evaluator will be liable for errors in the Evaluator's judgment.
The fees of the Evaluator will be borne by the Fund.
CERTIFICATES
Certificates for Units are issued upon request and may be transferred by
paying any taxes or governmental charges and by complying with the requirements
for redeeming Certificates (see How To Redeem or Sell Units below). Certain
Sponsors collect additional charges for registering and shipping Certificates to
purchasers. Lost or mutilated Certificates can be replaced upon delivery of
satisfactory indemnity and payment of costs.
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HOW TO REDEEM OR SELL UNITS
You can redeem your Units at any time for net asset value. In addition, the
Sponsors have maintained an uninterrupted secondary market for Units for over 20
years and will ordinarily buy back Units at net asset value. The following
describes these two methods to redeem or sell Units in greater detail.
REDEEMING UNITS WITH THE TRUSTEE
You can always redeem your Units directly with the Trustee for net asset
value. This can be done by sending the Trustee a redemption request together
with any Unit certificates you hold, which must be properly endorsed or
accompanied by a written transfer instrument with signatures guaranteed by an
eligible institution. In certain instances, additional documents may be required
such as a trust instrument, certificate of corporate authority, certificate of
death or appointment as executor, administrator or guardian.
Within seven days after the Trustee's receipt of your request containing the
necessary documents, a check will be mailed to you in an amount equal to the net
asset value of your Units. Because of the sales charge, market movements or
changes in the Portfolio, net asset value at the time you redeem your Units may
be greater or less than the original cost of your Units. Net asset value is
calculated each Business Day by adding the value of the Securities, net accrued
interest, cash and the value of any other Fund assets; deducting unpaid taxes or
other governmental charges, accrued but unpaid Fund expenses, unreimbursed
Trustee advances, cash held to redeem Units or for distribution to investors and
the value of any other Fund liabilities; and dividing the result by the number
of outstanding Units.
As long as the Sponsors are maintaining a secondary market for Units (as
described below), the Trustee will not actually redeem your Units but will sell
them to the Sponsors for net asset value. If the Sponsors are not maintaining a
secondary market, the Trustee will redeem your Units for net asset value or will
sell your Units in the over-the-counter market if the Trustee believes it will
obtain a higher net price for your Units. If the Trustee is able to sell the
Units for a net price higher than net asset value, you will receive the net
proceeds of the sale.
Securities are evaluated on the offer side during the initial offering period
and on the bid side thereafter.
If cash is not available in the Fund's Income and Capital Accounts to pay
redemptions, the Trustee may sell Securities selected by the Agent for the
Sponsors, based on market and credit factors determined to be in the best
interest of the Fund. These sales are often made at times when the Securities
would not otherwise be sold and may result in lower prices than might be
realized otherwise and will also reduce the size of the Fund. If Securities are
being sold during a time when additional Units are being created by the purchase
of additional Securities (as described under Portfolio Selection), Securities
will be sold in a manner designed to maintain, to the extent practicable, the
proportionate relationship among the face amounts of each Security in the
Portfolio.
Redemptions may be suspended or payment postponed (i) if the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (ii) if
the SEC determines that trading on the New York Stock Exchange is restricted or
that an emergency exists making disposal or evaluation of the Securities not
reasonably practicable or (iii) for any other period permitted by SEC order.
SPONSORS' SECONDARY MARKET FOR UNITS
The Sponsors, while not obligated to do so, will buy back Units at net asset
value without any other fee or charge as long as they are maintaining a
secondary market for Units. Because of the sales charge, market movements or
changes in the portfolio, net asset value at the time you sell your Units may be
greater or less than the original cost of your Units. The Sponsors may resell
the Units to other buyers or redeem the Units by tendering them to the Trustee.
You should consult your financial professional for current market prices to
determine if other broker-dealers or banks are offering higher prices for Units.
The Sponsors may discontinue the secondary market for Units without prior
notice if the supply of Units exceeds demand or for other business reasons.
Regardless of whether the Sponsors maintain a secondary market, you have the
right to redeem your Units for net asset value with the Trustee at any time, as
described above.
INCOME AND DISTRIBUTIONS
INCOME
Interest received is credited to an Income Account and other receipts to a
Capital Account. A Reserve Account may be created by withdrawing from the Income
and Capital Accounts amounts considered appropriate by the Trustee to reserve
for any material amount that may be payable out of the Fund.
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DISTRIBUTIONS
Each Unit receives an equal share of monthly distributions of interest income
net of estimated expenses. Interest on the Securities is generally received by
the Fund on a semi-annual or annual basis. Because interest on the Securities is
not received at a constant rate throughout the year, any Monthly Income
Distribution may be more or less than the interest actually received. To
eliminate fluctuations in the Monthly Income Distribution, a portion of the
Public Offering Price may consist of cash in an amount necessary for the Trustee
to provide approximately equal interest distributions. Upon the sale or
redemption of Units, investors will receive their proportionate share of this
cash. In addition, if a security is sold, redeemed or otherwise disposed of, the
Fund will periodically distribute to investors the portion of this cash that is
attributable to the Security, as well their share of principal received from the
disposition of the Security, to the extent available for distribution. As each
Security in the Portfolio matures, the balance in the Capital Account will be
distributed on or about the second business day following the maturity date to
investors of record on the business day immediately preceding the distribution
day.
The initial estimated annual income per Unit, after deducting estimated annual
Fund expenses as stated in Part A of the Prospectus, will change as Securities
mature, are called or sold or otherwise disposed of, as replacement obligations
are deposited and as Fund expenses change. Because the Portfolio is not actively
managed, income distributions will generally not be affected by changes in
interest rates and the amount of income should be substantially maintained as
long as the Portfolio remains unchanged; however, optional redemptions of
Securities or other Portfolio changes may occur more frequently when interest
rates decline, which would result in early returns of principal and possibly
earlier termination of the Fund.
REINVESTMENT
Distributions of income may be reinvested by participating in the Fund's
reinvestment plan.
Purchases made pursuant to the Reinvestment Plan will be made without a sales
charge. Unit prices are based on the offer side evaluation in the primary
market, and the bid side evaluation in the secondary market. Under the
Reinvestment Plan, the Fund will pay the distributions to the Trustee which in
turn will purchase for the investor full and fractional Units of the Fund at the
price determined as of the close of business on the distribution day and will
add the Units to the investor's account and send the investor an account
statement reflecting the reinvestment. The Sponsors reserve the right to amend,
modify or terminate the reinvestment plan at any time without prior notice.
Investors holding Units in "street name" should contact their broker, dealer or
financial institution if they wish to participate in the reinvestment plan. Only
income distributions may be reinvested; principal distributions will be paid in
cash.
FUND EXPENSES
Estimated annual Fund expenses are listed in Part A of the Prospectus; if
actual expenses exceed the estimate, the excess will be borne by the Fund. The
Trustee's fee shown in Part A of this Prospectus assumes that the Fund will
reach a size estimated by the Sponsors and is based on a sliding fee scale that
reduces the per 1,000 units Trustee's fee as the size of the Fund increases. The
Trustee's annual fee is payable in monthly installments. The Trustee also
benefits when it holds cash for the Fund in non-interest bearing accounts.
Possible additional charges include Trustee fees and expenses for maintaining
the Fund's registration statement current with Federal and State authorities,
extraordinary services, costs of indemnifying the Trustee and the Sponsors,
costs of action taken to protect the Fund and other legal fees and expenses,
Fund termination expenses and any governmental charges. The Trustee has a lien
on Fund assets to secure reimbursement of these amounts and may sell Securities
for this purpose if cash is not available. The Sponsors receive an annual fee of
a maximum of $0.25 per $1,000 face amount to reimburse them for the cost of
providing Portfolio supervisory services to the Fund. While the fee may exceed
their costs of providing these services to the Fund, the total supervision fees
from all Series of Government Securities Income Fund will not exceed their costs
for these services to all of those Series during any calendar year. The Sponsors
may also be reimbursed for their costs of providing bookkeeping and
administrative services to the Fund, currently estimated at $0.10 per 1,000
Units. The Trustee's, Sponsors' and Evaluator's fees may be adjusted for
inflation without investors' approval.
All or some portion of the expenses incurred in establishing the Fund,
including the cost of the initial preparation of documents relating to the Fund,
Federal and State registration fees, the initial fees and expenses of the
Trustee, legal expenses and any other out-of-pocket expenses will be paid by the
Fund and amortized over five years. Any balance of the expenses incurred in
establishing the Fund, as well as advertising and selling expenses will be paid
from the Underwriting Account at no charge to the Fund. Sales charges on Defined
Asset Funds range from under 1.0% to 5.5%. This may be less than you might pay
to buy and hold a comparable managed fund.
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Defined Asset Funds can be a cost-effective way to purchase and hold
investments. Annual operating expenses are generally lower than for managed
funds. Because Defined Asset Funds have no management fees, limited transaction
costs and no ongoing marketing expenses, operating expenses are generally less
than 0.25% a year. When compounded annually, small differences in expense ratios
can make a big difference in your investment results.
TAXES
The following discussion addresses only the tax consequences of Units held as
capital assets and does not address the tax consequences of Units held by
dealers, financial institutions or insurance companies.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsors,
under existing law:
The Fund is not an association taxable as a corporation for federal income
tax purposes. Each investor will be considered the owner of a pro rata portion
of each Security in the Fund under the grantor trust rules of Sections 671-679
of the Internal Revenue Code of 1986, as amended (the "Code"). The total cost
to an investor of his Units, including sales charges and organizational
expenses borne by the investor, is allocated to his pro rata portion of each
Security, in proportion to the fair market values thereof on the date the
investor purchases his Units, in order to determine his tax basis for his pro
rata portion of each Security.
Each investor will be considered to have received the interest on his pro
rata portion of each Security when interest on the Security is received by the
Fund regardless of whether it is automatically reinvested in the fund or used
to pay current ongoing expenses or organizational expenses. An individual
investor who itemizes deductions may deduct his pro rata share of fees and
other expenses of the Fund only to the extent that such amount together with
the investor's other miscellaneous deductions exceeds 2% of his adjusted gross
income.
If an investor's tax basis for his pro rata portion of a Security exceeds
the redemption price at maturity thereof (subject to certain adjustments), the
investor will be considered to have purchased his pro rata portion of the
Security at a "bond premium". The investor may elect to amortize the bond
premium prior to the maturity of the Security. The amount amortized in any
year should be applied to offset the investor's interest from the Security and
will result in a reduction of basis for his pro rata portion of the Security.
An investor will recognize taxable gain or loss when all or part of his pro
rata portion of a Security is disposed of by the Fund or when he sells or
redeems all or some of his Units. Any such taxable gain or loss will be
capital gain or loss, except that any gain from the disposition of an
investor's pro rata portion of a Security acquired by the investor at a
"market discount" (i.e., where the investor's tax basis for his pro rata
portion of the Security is less than its stated redemption price at maturity)
will be treated as ordinary income to the extent the gain does not exceed the
accrued market discount.
A distribution to an investor of Securities upon redemption of Units will
not be a taxable event to the investor or to nonredeeming investors. The
redeeming investor's basis for the Securities will be equal to the basis for
the Securities (previously represented by his Units) prior to the redemption,
and his holding period for the Securities will include the period during which
he held his Units. However, the investor will recognize taxable gain or loss
when he sells the Securities so distributed.
Under the income tax laws of the State and City of New York, the Fund is
not an association taxable as a corporation and income received by the Fund
will be treated as the income of the investors.
Notwithstanding the foregoing, an investor who is a non-resident alien
individual or a foreign corporation (a "Foreign Investor") will generally not
be subject to U.S. federal income taxes, including withholding taxes, on the
interest income on, or any gain from the sale or other disposition of, his pro
rata portion of any Security provided that (i) the interest income or gain is
not effectively connected with the conduct by the Foreign Investor of a trade
or business within the United States, (ii) with respect to any gain, the
Foreign Investor (if an individual) is not present in the United States for
183 days or more during the taxable year and (iii) the Foreign Investor
provides the required certification of his status and of certain other
matters. Withholding agents will file with the Internal Revenue Service
foreign person information returns with respect to such interest payments
accompanied by such certifications. Foreign Investors should consult their own
tax advisers with respect to United States federal income tax consequences of
ownership of Units.
* * *
After the end of each calendar year, the Trustee will furnish to each investor
an annual statement containing information relating to the interest received by
the Fund on the Securities, the gross proceeds received by the Fund from the
disposition of any Security (resulting from redemption or payment at maturity of
any Security or the sale
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by the Fund of any Security), and the fees and expenses paid by the Fund. The
Trustee will also furnish annual information returns to each investor and to the
Internal Revenue Service.
The Sponsors believe that investors who are individuals will not be subject to
any state or local personal income taxes on the interest received by the Fund
and distributed to them. However, investors (including individuals) may be
subject to state and local taxes on any capital gains (or market discount
treated as ordinary income) derived from the Fund and to other state and local
taxes (including corporate income or franchise taxes, personal property or
intangibles taxes, and estate or inheritance taxes) on their Units or the income
derived therefrom. In addition, individual investors (and any other investors
which are not subject to state and local taxes on the interest income derived
from the Fund) will probably not be entitled to a deduction for state and local
tax purposes for their share of the fees and expenses paid by the Fund, for any
amortized bond premium or for any interest on indebtedness incurred to purchase
or carry their Units. Therefore, even though the Sponsors believe that interest
income from the Fund is exempt from state and local personal income taxes in all
states, investors should consult their own tax advisers with respect to state
and local taxation.
RETIREMENT PLANS
This Series of Government Securities Income Fund may be well suited for
purchase by Individual Retirement Accounts ("IRAs"), Keogh plans, pension funds
and other qualified retirement plans, certain of which are briefly described
below. Generally, capital gains and income received in each of the foregoing
plans are exempt from Federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible for
special 5 or 10 year averaging or tax-deferred rollover treatment. Investors in
IRAs, Keogh plans and other tax-deferred retirement plans should consult their
plan custodian as to the appropriate disposition of distributions. Investors
considering participation in any of these plans should review specific tax laws
related thereto and should consult their attorneys or tax advisors with respect
to the establishment and maintenance of any of these plans. These plans are
offered by brokerage firms, including the Sponsor of this Fund, and other
financial institutions. Fees and charges with respect to such plans may vary.
Retirement Plans for the Self-Employed--Keogh Plans. Units of the Fund may be
purchased by retirement plans established for self-employed individuals,
partnerships or unincorporated companies ("Keogh plans"). The assets of a Keogh
plan must be held in a qualified trust or other arrangement which meets the
requirements of the Code. Keogh plan participants may also establish separate
IRAs (see below) to which they may contribute up to an additional $2,000 per
year ($2,250 in a spousal account).
Individual Retirement Account--IRA. Any individual can make use of a qualified
IRA arrangement for the purchase of Units of the Fund. Any individual (including
one covered by an employer retirement plan) can make a contribution in an IRA
equal to the lesser of $2,000 ($2,250 in a spousal account) or 100% of earned
income; such investment must be made in cash. However, the deductible amount an
individual may contribute will be reduced if the individual's adjusted gross
income exceeds $25,000 (in the case of a single individual), $40,000 (in the
case of married individuals filing a joint return) or $200 (in the case of a
married individual filling a separate return). Certain transactions which are
prohibited under Section 408 of the Code will cause all or a portion of the
amount in an IRA to be deemed to be distributed and subject to tax at that time.
Unless nondeductible contributions were made in 1987 or a later year, all
distributions from an IRA will be treated as ordinary income but generally are
eligible for tax-deferred rollover treatment. Taxable distributions made before
attainment of age 591/2, except in the case of the participant's death or
disability or where the amount distributed is part of a series of substantially
equal periodic (at least annual) payments that are to be made over the life
expectancies of the participant and his or her beneficiary, are generally
subject to a surtax in an amount equal to 10% of the distribution.
Corporate Pension and Profit-Sharing Plans. A pension or profit-sharing plan
for employees of a corporation may purchase Units of the Fund.
RECORDS AND REPORTS
The Trustee keeps a register of the names, addresses and holdings of all
investors. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, and
supplemental information on the operations of the Fund and the risks associated
with the Securities held by the Fund, which may be inspected by investors at
reasonable times during business hours.
With each distribution, the Trustee includes a statement of the interest and
any other receipts being distributed. Within five days after deposit of
Securities in exchange or substitution for Securities (or contracts) previously
deposited, the Trustee will send a notice to each investor, identifying both the
Securities removed and the replace-
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ment Securities deposited. The Trustee sends each investor of record an annual
report summarizing transactions in the Fund's accounts and amounts distributed
during the year and Securities held, the number of Units outstanding and the
Redemption Price at year end, the interest received by the Fund on the
Securities, the gross proceeds received by the Fund from the disposition of any
Security (resulting from redemption or payment at maturity or sale of any
Security), and the fees and expenses paid by the Fund, among other matters. The
Trustee will also furnish annual information returns to each investor. Investors
may obtain copies of Security evaluations from the Trustee to enable them to
comply with federal and state tax reporting requirements. Fund accounts are
audited annually by independent accountants selected by the Sponsors. Audited
financial statements are available from the Trustee on request.
TRUST INDENTURE
The Fund is a "unit investment trust" created under New York law by a Trust
Indenture among the Sponsors, the Trustee and the Evaluator. This Prospectus
summarizes various provisions of the Indenture, but each statement is qualified
in its entirety by reference to the Indenture.
The Indenture may be amended by the Sponsors and the Trustee without consent
by investors to cure ambiguities or to correct or supplement any defective or
inconsistent provision, to make any amendment required by the SEC or other
governmental agency or to make any other change not materially adverse to the
interest of investors (as determined in good faith by the Sponsors). The
Indenture may also generally be amended upon consent of investors holding 51% of
the Units. No amendment may reduce the interest of any investor in the Fund
without the investor's consent or reduce the percentage of Units required to
consent to any amendment without unanimous consent of investors. Investors will
be notified on the substance of any amendment.
The Trustee may resign upon notice to the Sponsors. It may be removed by
investors holding 51% of the Units at any time or by the Sponsors without the
consent of investors if it becomes incapable of acting or bankrupt, its affairs
are taken over by public authorities, or if under certain conditions the
Sponsors determine in good faith that its replacement is in the best interest of
the investors. The Evaluator may resign or be removed by the Sponsors and the
Trustee without the investors' consent. The resignation or removal of either
becomes effective upon acceptance of appointment by a successor; in this case,
the Sponsors will use their best efforts to appoint a successor promptly;
however, if upon resignation no successor has accepted appointment within 30
days after notification, the resigning Trustee or Evaluator may apply to a court
of competent jurisdiction to appoint a successor.
Any Sponsor may resign so long as one Sponsor with a net worth of $2,000,000
remains and is agreeable to the resignation. A new Sponsor may be appointed by
the remaining Sponsors and the Trustee to assume the duties of the resigning
Sponsor. If there is only one Sponsor and it fails to perform its duties or
becomes incapable of acting or bankrupt or its affairs are taken over by public
authorities, the Trustee may appoint a successor Sponsor at reasonable rates of
compensation, terminate the Indenture and liquidate the Fund or continue to act
as Trustee without a Sponsor. Merrill Lynch, Pierce, Fenner & Smith Incorporated
has been appointed as Agent for the Sponsors by the other Sponsors.
The Sponsors, the Trustee and the Evaluator are not liable to investors or any
other party for any act or omission in the conduct of their responsibilities
absent bad faith, willful misfeasance, negligence (gross negligence in the case
of a Sponsor or the Evaluator) or reckless disregard of duty. The Indenture
contains customary provisions limiting the liability of the Trustee.
MISCELLANEOUS
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell, 450
Lexington Avenue, New York, New York 10017, as special counsel for the Sponsors.
AUDITORS
The Statement of Condition in Part A of the Prospectus was audited by Deloitte
& Touche LLP, independent accountants, as stated in their opinion. It is
included in reliance upon that opinion given on the authority of that firm as
experts in accounting and auditing.
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TRUSTEE
The Trustee and its address are stated on the back cover of the Prospectus.
The Trustee is subject to supervision by the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System and New York
State banking authorities.
SPONSORS
The Sponsors are listed on the back cover of the Prospectus. They may include
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a wholly-owned subsidiary of
Merrill Lynch Co. Inc.; Smith Barney Inc., an indirect wholly-owned subsidiary
of The Travelers Inc.; Prudential Securities Incorporated, an indirect
wholly-owned subsidiary of the Prudential Insurance Company of America; Dean
Witter Reynolds, Inc., a principal operating subsidiary of Dean Witter Discover
& Co. and PaineWebber Incorporated, a wholly-owned subsidiary of PaineWebber
Group Inc. Each Sponsor, or one of its predecessor corporations, has acted as
Sponsor of a number of series of unit investment trusts. Each Sponsor has acted
as principal underwriter and managing underwriter of other investment companies.
The Sponsors, in addition to participating as members of various selling groups
or as agents of other investment companies, execute orders on behalf of
investment companies for the purchase and sale of securities of these companies
and sell securities to these companies in their capacities as brokers or dealers
in securities.
CODE OF ETHICS
The Agent for the Sponsors has adopted a code of ethics requiring preclearance
and reporting of personal securities transactions by its personnel who have
access to information on Defined Asset Funds portfolio transactions. The code is
intended to prevent any act, practice or course of conduct which would operate
as a fraud or deceit on any Fund and to provide guidance to these persons
regarding standards of conduct consistent with the Agent's responsibilities to
the Funds.
PUBLIC DISTRIBUTION
In the initial offering period Units will be distributed to the public through
the Underwriting Account and dealers who are members of the National Association
of Securities Dealers, Inc. The initial offering period is 30 days or less if
all Units are sold. If some Units initially offered have not been sold, the
Sponsors may extend the initial offering period for up to four additional
successive 30-day periods.
The Sponsors intend to qualify Units for sale in all states in which
qualification is deemed necessary through the Underwriting Account and by
dealers who are members of the National Association of Securities Dealers, Inc.
The Sponsors do not intend to qualify Units for sale in any foreign countries
and this Prospectus does not constitute an offer to sell Units in any country
where Units cannot lawfully be sold. Sales to dealers and to introducing
dealers, if any, will initially be made at prices which represent a concession
from the Public Offering Price, but the Agent for the Sponsors reserves the
right to change the rate of any concession from time to time. Any dealer or
introducing dealer may reallow a concession up to the concession to dealers.
UNDERWRITERS' AND SPONSORS' PROFITS
Upon sale of the Units, the Underwriters will be entitled to receive sales
charges; each Underwriter's interest in the Underwriting Account will depend
upon the number of Units acquired through the issuance of additional Units. The
Sponsors also realize a profit or loss on deposit of the Securities equal to the
difference between the cost of the Securities to the Fund (based on the offer
side evaluation on the initial date of deposit) and the Sponsors' cost of the
Securities. During the initial offering period, the Underwriting Account also
may realize profits or sustain losses as a result of fluctuations after the
initial date of deposit in the Public Offering Price of the Units. In
maintaining a secondary market for Units, the Sponsors will also realize profits
or sustain losses in the amount of any difference between the prices at which
they buy Units and the prices at which they resell these Units (which include
the sales charge) or the prices at which they redeem the Units. Cash, if any,
made available by buyers of Units to the Sponsors prior to a settlement date for
the purchase of Units may be used in the Sponsors' businesses to the extent
permitted by Rule 15c3-3 under the Securities Exchange Act of 1934 and may be of
benefit to the Sponsors.
9
<PAGE>
FUND PERFORMANCE
Information on the performance of the Fund for various periods, on the basis
of changes in Unit price plus the amount of income and principal distributions
reinvested, may be included from time to time in advertisements, sales
literature, reports and other information furnished to current or prospective
investors. Total return figures are not averaged, and may not reflect deduction
of the sales charge, which would decrease the return. Average annualized return
figures reflect deduction of the maximum sales charge. No provision is made for
any income taxes payable.
Past performance may not be indicative of future results. The Fund is not
actively managed. Unit price and return fluctuate with the value of the
Securities in the Portfolio, so there may be a gain or loss when Units are sold.
Fund performance may be compared to performance data from publications such as
Donoghue's Money Fund Report, Lehman Brothers Intermediate Treasury Bond Index,
Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, The New York Times, U.S. News and World Report, Barron's, Business
Week, CDA Investment Technology, Inc., Forbes Magazine or Fortune Magazine. As
with other performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.
DEFINED ASSET FUNDS
For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Defined Asset Funds'
philosophy is to allow investors to "buy with knowledge" (because, unlike
managed funds, the portfolio of bonds and the return are relatively fixed) and
"hold with confidence" (because the portfolio is professionally selected and
regularly reviewed). Defined Asset Funds offers an array of simple and
convenient investment choices, suited to fit a wide variety of personal
financial goals--a buy and hold strategy for capital accumulation, such as for
children's education or retirement, or attractive, regular current income
consistent with the preservation of principal. Unit investment trusts are
particularly suited for the many investors who prefer to seek long-term income
by purchasing sound investments and holding them, rather than through active
trading. Few individuals have the knowledge, resources or capital to buy and
hold a diversified portfolio on their own; it would generally take a
considerable sum of money to obtain the breadth and diversity that Defined Asset
Funds offer. One's investment objectives may call for a combination of Defined
Asset Funds.
One of the most important investment decisions you face may be how to allocate
your investments among asset classes. Diversification among different kinds of
investments can balance the risks and rewards of each one. Most investment
experts recommend stocks for long-term capital growth. Long-term corporate bonds
offer relatively high rates of interest income. By purchasing both defined
equity and defined bond funds, investors can receive attractive current income,
as well as growth potential, offering some protection against inflation. From
time to time various advertisements, sales literature, reports and other
information furnished to current or prospective investors may present the
average annual compounded rate of return of selected asset classes over various
periods of time, compared to the rate of inflation over the same periods.
SUPPLEMENTAL INFORMATION
Upon writing or calling the Trustee shown on the back cover of this
Prospectus, investors will receive at no cost to the investor supplemental
information about the Fund, which has been filed with the SEC. The supplemental
information includes more detailed risk factor disclosure about the types of
Securities that may be part of the Fund's Portfolio and general information
about the structure and operation of the Fund.
DESCRIPTION OF RATING (AS DESCRIBED BY STANDARD & POOR'S RATINGS GROUP,
A DIVISION OF MCGRAW HILL, INC.)
Debt: rated AAA has the highest rating assigned by Standard & Poor's to a
security. Capacity to pay interest and repay principal is extremely strong.
10
<PAGE>
APPENDIX A
ONE TO FIVE YEAR MATURITIES
INITIAL OFFERING SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
-------------------------------
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS PRIMARY MARKET
OFFER SIDE PUBLIC NET AMOUNT PERCENT OF PUBLIC CONCESSION TO
NUMBER OF UNITS OFFERING PRICE INVESTED OFFERING PRICE INTRODUCING DEALERS
- ----------------------------- ----------------- ------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Less than 1,000,000. . . . . 1.25% 1.266% 0.813% $9.00
1,000,000 or more. . . . . . 1.00 1.010 0.650 7.20
</TABLE>
SECONDARY MARKET SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
------------------------------
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS
BID SIDE PUBLIC NET AMOUNT PERCENT OF PUBLIC
NUMBER OF UNITS OFFERING PRICE INVESTED OFFERING PRICE
- ----------------------------------- --------------- ------------- ---------------------
<S> <C> <C> <C>
Less than 1,000,000. . . . . . . . 1.50% 1.523% 0.975%
1,000,000 or more. . . . . . . . . 1.25 1.266 0.813
</TABLE>
SIX TO TEN YEAR MATURITIES
INITIAL OFFERING SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
-------------------------------
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS PRIMARY MARKET
OFFER SIDE PUBLIC NET AMOUNT PERCENT OF PUBLIC CONCESSION TO
NUMBER OF UNITS OFFERING PRICE INVESTED OFFERING PRICE INTRODUCING DEALERS
- ----------------------------- ----------------- ------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Less than 500,000. . . . . . 2.00% 2.041% 1.300% $14.40
500,000 - 999,999. . . . . . 1.50 1.523 0.975 10.80
1,000,000 or more. . . . . . 1.00 1.010 0.650 7.20
</TABLE>
SECONDARY MARKET SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
SALES CHARGE
(GROSS UNDERWRITING PROFIT)
------------------------------
AS PERCENT OF AS PERCENT OF DEALER CONCESSION AS
BID SIDE PUBLIC NET AMOUNT PERCENT OF PUBLIC
NUMBER OF UNITS OFFERING PRICE INVESTED OFFERING PRICE
- ----------------------------------- --------------- ------------- ---------------------
<S> <C> <C> <C>
Less than 500,000. . . . . . . . . 2.25% 2.302% 1.463%
500,000 - 999,999. . . . . . . . . 1.75 1.781 1.138
1,000,000 or more. . . . . . . . . 1.25 1.266 0.813
</TABLE>
a-1
<PAGE>
Defined
Asset FundsSM
<TABLE>
<CAPTION>
<S> <C>
SPONSORS/UNDERWRITERS: GOVERNMENT SECURITIES INCOME FUND
Merrill Lynch,
Pierce, Fenner & Smith Incorporated
Defined Asset Funds Monthly Payment
P.O. Box 9051 U.S. Treasury Series--26
Princeton, NJ 08543-9051 (Laddered Maturities)
(609) 282-8500 A Unit Investment Trust
Smith Barney Inc. This Prospectus does not contain all of the information with
Unit Trust Department respect to the investment company set forth in its registration
388 Greenwich Street--23rd Floor statement and exhibits relating thereto which have been filed with
New York, NY 10013 the Securities and Exchange Commission, Washington, D.C. under the
(212) 816-4000 Securities Act of 1933 and the Investment Company Act of 1940, and
to which reference is hereby made. Copies of filed material can be
PaineWebber Incorporated obtained from the Public Reference Section of the Commission, 450
1200 Harbor Blvd. Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Weehawken, NJ 07087 The Commission also maintains a Web site that contains information
(201) 902-3000 statements and other information regarding registrants such as
Defined Asset Funds that file electronically with the Commission
Prudential Securities Incorporated at http://www.sec.gov.
One New York Plaza ---------------------
New York, NY 10292
(212) 778-6164 No person is authorized to give any information or to make
any representations with respect to this investment company not
Dean Witter Reynolds Inc. contained in this Prospectus; and any information or
Two World Trade Center representation not contained herein must not be relied upon as
59th Floor having been authorized.
New York, NY 10048 ---------------------
(212) 392-2222
When Units of this Fund are no longer available, this Prospectus
ADDITIONAL UNDERWRITERS: may be used as a preliminary prospectus for a future series, and
Gruntal & Co. Incorporated investors should note the following:
14 Wall Street
New York, NY 10005 Information contained herein is subject to amendment. A
(212) 267-8800 registration statement relating to securities of a future series
has been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior
to the time the registration statement becomes effective.
This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy securities in any state in which
such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any
such state.
EVALUATOR:
Kenny S & P Evaluation Services
65 Broadway
New York, NY 10006
TRUSTEE:
The Chase Manhattan Bank
Customer Service Retail Department
770 Broadway--7th Floor
New York, NY 10003-9598
1-800-323-1508
15380-11/96
</TABLE>
<PAGE>
