<PAGE>
RULE 497 (B)
REG. NO. 33-29274
CUSIP: 383741204R
Government Securities Equity Trust Series 2
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The objectives of the Trust are to attempt to obtain safety of capital through
investment in stripped United States Treasury issued notes or bonds paying no
current interest and to attempt to provide for capital appreciation through
investment in shares of the Retail Class of AIM Weingarten Fund, one portfolio
in a series comprising AIM Equity Funds, Inc., an open-end, series, management
investment company. AIM Weingarten Fund invests primarily in common stocks of
seasoned and better capitalized U.S. companies. Units of the Trust may be suited
for purchase by individual Retirement Accounts, Keogh Plans and other
tax-deferred retirement plans.
- --------------------------------------------------------------------------------
Sponsor:
Prudential Securites (LOGO)
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Please read and retain Prospectus dated
this Prospectus for future reference October 31, 1994
<PAGE>
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This Prospectus does not contain all the information with respect to the
investment company set forth in its registration statement and exhibits relating
thereto which have been filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Act of 1933 and the Investment Company Act
of 1940, and to which reference is hereby made.
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SUMMARY
The Trust
Government Securities Equity Trust Series 2 consists of one underlying unit
investment trust, (the ``Trust'' or ``GSET'' as the context requires), composed
of stripped United States Treasury issued notes or bonds bearing no current
interest (the ``Treasury Obligations'') and shares of the Retail Class (the
``Fund Shares'') of the AIM Weingarten Fund (the ``Fund''), one portfolio in a
series of AIM Equity Funds, Inc., and open-end, series, management investment
company, or contracts and funds for the purchase thereof (the Treasury
Obligations and the Fund Shares, collectively, the ``Securities''). The Trust
contains Treasury Obligations maturing approximately ten years from the Date of
Deposit (July 19, 1989) and Fund Shares.
The objectives of the Trust are to attempt to obtain safety of capital
through investment in stripped United States Treasury issued notes or bonds
paying no current interest and to attempt to provide for capital appreciation
through investment in shares of the Fund. AIM Weingarten Fund invests primarily
in common stocks of seasoned and better capitalized U.S. companies. There is, of
course, no assurance that the Trust's objectives will be achieved.
The Trust is structured to contain a sufficient amount of Treasury
Obligations to ensure that an investor will receive, at the maturity of such
Trust, $10.00 per unit. However, an investor holding his Units to Trust maturity
may suffer a loss to the extent the investor's purchase cost of a Unit exceeds
$10.00 since the capital protection is limited to the aggregate maturity value
per Unit of Treasury obligations. Similarly, an investor who sells his Units
prior to Trust maturity may suffer a loss to the extent that the price he
receives upon the sale of his Units is less than the purchase price of his
Units. The price paid for a Unit may differ from that set forth herein due to
changes in the value of the Securities in the portfolio. There is no assurance
that a purchaser of Units on the date of the Prospectus or subsequent to such
date will receive, upon termination, the purchase price per Unit. The Fund has
not been structured to generate dividends and therefore dividend distributions
by the Trust are likely to be insignificant. The maximization of dividend income
is not an objective of the Trust. The Trust is ``concentrated'' in Fund Shares,
so investors should be aware that the potential for capital appreciation is
directly related to the investment performance of the Fund itself.
The Fund
The investment objective of the Fund is to seek growth of capital
principally through investment in common stocks of seasoned and better
capitalized companies. Current income will not be an important criterion of
investment selection, and any such income should be considered incidental. It is
anticipated that common stocks will be the principal form of investment by the
Fund. The Fund's portfolio is comprised of two basic categories of companies:
(1) ``core'' companies, which management considers to have experienced rapid and
consistent long-term growth in earnings and to have excellent prospects for
outstanding future growth, and (2) ``timely cyclical'' companies, which
management believes are currently enjoying a dramatic increase in earnings. The
Fund may also engage in the writing of covered call option contracts. There is,
of course, no guarantee that the Fund's investment objective will be achieved.
Investment Risks
Investors should be aware of the risks which an investment in Units of the
Trust may entail. During the life of the Trust, the value of the portfolio
Securities and hence the Units may fluctuate and therefore the Public Offering
Price and Redemption Price per Unit may be more or less than the price paid by
the investor. The value of the Treasury Obligations will fluctuate inversely
with changes in interest rates and the value of Fund Shares will vary as the
value of the underlying portfolio securities of the Fund increases or decreases.
The Treasury Obligations are subject to substantially greater price fluctuations
during periods of changing interest rates than securities of comparable quality
which make periodic interest payments. See ``The Trust--Stripped U.S. Treasury
Obligations.'' An investor holding his Units to Trust maturity may suffer a loss
to the extent the investor's purchase cost of a Unit exceeds $10.00 since the
capital protection is limited to the aggregate maturity value per Unit of
Treasury Obligations. Similarly, an investor who sell his Units prior to Trust
maturity may suffer a loss to the extent that the price he receives upon the
sale of his Units is less than the purchase price of his Units.
A-i
<PAGE>
<PAGE>
Distributions
Distributions, if any, of dividends and 12b-1 fee amounts received by the
Trust in respect of Fund Shares (net of Trust expenses), distributions of any
net capital gains received in respect of Fund Shares and proceeds of the sale of
Fund Shares not used to redeem Units will be made quarterly on or shortly after
the Quarterly Distribution Date to Unit Holders of record on the Quarterly
Record Date immediately preceding such Quarterly Distribution Date. No
distribution will be made if the amount available for distribution is less than
$2.50 per 100 Units (see ``Rights of Unit Holders-- Distributions'').
Alternatively, Unit Holders may have their distributions reinvested (see
``Reinvestment of Trust Distributions''). Accrual of original issue discount on
the Treasury Obligations will not be distributed on a current basis, although
Unit Holders will be subject to income tax at ordinary income rates as if a
current distribution of such amounts had been made (see ``Tax Status of the
Trust'' herein). Upon termination of the Trust, the Trustee will distribute,
upon surrender of Units for cancellation, to each Unit Holder, his pro rata
share of such Trust's net assets including the proceeds of Fund Shares sold
unless a Unit Holder elects to receive Fund Shares pursuant to an ``in kind''
distribution of the number of Fund Shares attributable to his Units, in the
manner set forth under ``Amendment and Termination of the
Indenture--Termination'' herein. Upon termination, a Unit Holder may invest the
proceeds from the Treasury Obligations in Fund Shares at such shares' net asset
value.
Public Offering Price
The Public Offering Price of the Units is computed by adding to the
aggregate bid side evaluation of the Treasury Obligations the aggregate net
asset value of Fund Shares in the Trust, any money in the Income and Principal
Accounts other than money required to redeem tendered Units, dividing such sum
by the number of Units outstanding and then adding a sales charge of 5.25% of
the Public Offering Price (5.541% of the net amount invested). The sales charge
is reduced on a graduated scale for sales involving at least 2,500 Units (see
``Public Offering of Units--Volume Discount''). The minimum purchase is 100
Units except the minimum purchase is 25 Units in the case of Individual
Retirement Accounts, Keogh Plans and other tax-deferred retirement plans.
Secondary Market
The Sponsor, although not obligated to do so, presently intends to maintain
a secondary market to repurchase the Units based on the aggregate bid side
evaluation of the Treasury Obligations and the net asset value of the Fund
Shares (excluding any sales charge on Fund Shares). If such market is not
maintained, a Unit Holder will be able to dispose of his Units through
redemption at prices based on the aggregate bid side evaluation of the Treasury
Obligations and the net asset value of the Fund Shares (see ``Rights of Unit
Holders--Redemption'' herein). Market conditions may cause such prices to be
greater or less than the amount paid for Units and may result in a loss to a
Unit Holder upon the disposition of a Unit.
Special Considerations
An investment in Units of the Trust should be made with an understanding of
the risks entailed in an investment in (i) the stripped United States Treasury
issued notes or bonds bearing no current interest and (ii) a mutual fund which
invests in equity securities. The Trust's objectives are to attempt to obtain
safety of capital through investment in the stripped United States Treasury
issued notes or bonds paying no current interest and to attempt to provide for
capital appreciation through an investment in Fund Shares. The Trust is
``concentrated'' in Fund Shares so investors should be aware that the potential
for capital appreciation is directly related to the investment performance of
the Fund itself. Additionally, changes in the price of the Treasury Obligations
and changes in the net asset value of the Fund Shares will affect the price of
the Trust's Units.
California Investors Only--Sales to individuals in California are restricted
to persons who have (i) annual income of at least $30,000 and a net worth of at
least $30,000, exclusive of home, home furnishings and automobiles or (ii) net
worth of at least $75,000, exclusive of home, home furnishings and automobiles.
Portfolio Summary
GSET
As of September 23, 1994, $32,900,000 face amount of Treasury Obligations
maturing on May 15, 1999 and 1,412,003 Fund Shares were contained in the Trust.
The Treasury Obligations and the Fund Shares represented 49.3% and 50.7%,
respectively, of the total of the aggregate bid side evaluation of Treasury
Obligations in the Trust and the aggregate value of the Fund Shares on September
23, 1994.
A-ii
<PAGE>
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
As of September 23, 1994
<TABLE>
<S> <C>
AGGREGATE MATURITY VALUE OF TREASURY OBLIGATIONS........................................... $32,900,000.00
AGGREGATE NUMBER OF FUND SHARES............................................................ 1,412,003
NUMBER OF UNITS............................................................................ 3,290,000
FRACTIONAL UNDIVIDED INTEREST IN THE TRUST REPRESENTED BY EACH UNIT........................ 1/3,290,000
PUBLIC OFFERING PRICE
Aggregate bid side evaluation of Treasury Obligations in the Trust....................... $23,656,416.00
Aggregate value of Fund Shares(2)........................................................ 24,286,451.60
Aggregate cash value..................................................................... 39,391.90
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Total............................................................................... $47,982,259.50
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---------------
Divided by 3,290,000 Units............................................................... $14.584
Plus sales charge of 5.249% of Public Offering Price (5.540% of net amount
invested)(4).......................................................................... .808
---------------
Public Offering Price per Unit(3)........................................................ $15.392
---------------
---------------
REDEMPTION AND SPONSOR'S REPURCHASE PRICE PER UNIT (based on bid side evaluation of
underlying Treasury Obligations and net asset value of the Fund Shares, $.808 less than
Public Offering Price per Unit)(2)....................................................... $14.584
QUARTERLY RECORD DATES: January 1, April 1, July 1, October 1.
QUARTERLY DISTRIBUTION DATES: January 15, April 15, July 15, October 15.
TRUSTEE'S ANNUAL FEE (including estimated expenses and Evaluator's fee) $1.40 per 100 Units
outstanding.
EVALUATOR'S FEE FOR EACH EVALUATION OF TREASURY OBLIGATIONS: $12.00
EVALUATION TIME: 4:15 P.M. New York time
MANDATORY TERMINATION DATE: June 15, 1999
MINIMUM VALUE OF TRUST: The Trust may be terminated if the value of the Trust assets at any
time is less than 40% of the aggregate maturity values of Treasury Obligations calculated
after the most recent deposit of Treasury Obligations
DATE OF DEPOSIT: July 19, 1989(1)
</TABLE>
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(1) The Date of Deposit is the date on which the Trust Indenture and
Agreement was signed and the initial deposit of Securities with the Trustee was
made.
(2) Calculated by multiplying aggregate number of Fund Shares by the current
net asset value per share (excluding any sales load on the Fund Shares).
(3) This Public Offering Price is computed as of September 23, 1994 and may
vary from the Public Offering Price on the date of this Prospectus or any
subsequent date.
(4) Certain transactions are entitled to a reduced sales charge. (See
``Public Offering of Units--Volume Discount''.)
A-iii
<PAGE>
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
THE UNIT HOLDERS, SPONSOR AND TRUSTEE
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
We have audited the statement of financial condition and schedule of
portfolio securities of the Government Securities Equity Trust Series 2 as
of June 30, 1994, and the related statements of operations and changes in
net assets for each of the three years in the period then ended. These
financial statements are the responsibility of the Trustee (see Footnote
(a)(1)). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of the securities owned as of
June 30,1994 as shown in the statement of financial condition and schedule
of portfolio securities by correspondence with United States Trust Company
of New York, the Trustee. An audit also includes assessing the accounting
principles used and the significant estimates made by the Trustee, as well
as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Government
Securities Equity Trust Series 2 as of June 30, 1994, and the results of its
operations and the changes in its net assets for each of the three years in
the period then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
October 4, 1994
New York, New York
</AUDIT-REPORT>
A-1
<PAGE>
STATEMENT OF FINANCIAL CONDITION
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
June 30, 1994
<TABLE>
TRUST PROPERTY
<S> <C>
Investments in securities at market value (amortized cost
$40,595,247 including accreted interest of $10,488,736)
(Note (a) and Schedule of Portfolio Securities
Notes (4) and (5)) $47,759,543
Accrued income receivable 15,224
Cash 26,864
Total 47,801,631
LIABILITY AND NET ASSETS
Less Liability:
Accrued Trust fees and expenses 7,092
Net Assets:
Balance applicable to 3,390,000 Units of fractional
undivided interest issued and outstanding (Note (c)):
Capital plus unrealized market appreciation
of $7,164,296 $47,759,543
Undistributed principal and net investment
income (Note (b)) 34,996
Net assets $47,794,539
Net asset value per Unit ($47,794,539 divided by 3,390,000 Units) $ 14.0987
See notes to financial statements
</TABLE>
A-2
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
<CAPTION>
For the years ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Investment income - (Note (a)) $2,213,347 $2,550,719 $ 2,826,321
Less Expenses:
Trust fees and expenses 51,618 49,382 59,193
Total expenses 51,618 49,382 59,193
Investment income - net 2,161,729 2,501,337 2,767,128
Net (loss) gain on investments:
Capital gain distributions received 541,386 - 219,687
Realized gain on securities sold
or redeemed 2,872,867 2,405,412 2,643,857
[ta]
Unrealized market (depreciation)
appreciation (5,936,381) 3,188,735 4,663,443
Net (loss) gain on investments (2,522,128) 5,594,147 7,526,987
Net (decrease) increase in net assets
resulting from operations $ (360,399) $8,095,484 $10,294,115
See notes to financial statements
</TABLE>
A-3
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
<CAPTION>
For the years ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Operations:
Investment income - net $ 2,161,729 $ 2,501,337 $ 2,767,128
Capital gain distributions received 541,386 - 219,687
Realized gain on securities sold
or redeemed 2,872,867 2,405,412 2,643,857
Unrealized market (depreciation)
appreciation (5,936,381) 3,188,735 4,663,443
Net (decrease) increase in
net assets resulting from
operations (360,399) 8,095,484 10,294,115
Less Distributions to Unit Holders:
Principal Distributions (549,504) - (209,960)
Income Distributions (208,897) (246,380) (216,341)
Total distributions (758,401) (246,380) (426,301)
Less Capital Share Transactions:
Redemption of 910,000 Units, 900,000
Units and 1,250,000 Units, respec-
tively (13,521,245) (12,501,998) (15,924,950)
Income distribution on redemption (6,155) (20,001) -
Total capital share trans-
actions (13,527,400) (12,521,999) (15,924,950)
Net decrease in net assets (14,646,200) (4,672,895) (6,057,136)
Net assets:
Beginning of year 62,440,739 67,113,634 73,170,770
End of year (including undistributed
principal and net investment income
of $34,996, $48,495 and $704,206,
respectively) $47,794,539 $62,440,739 $67,113,634
See notes to financial statements
</TABLE>
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
June 30, 1994
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of the significant
accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting a
and financial books, records, financial statements and related
data of the Trust and is responsible for establishing and
maintaining a system of internal controls directly related to, and
designed to provide reasonable assurance as to the integrity and
reliability of, financial reporting of the Trust. The Trustee is
also responsible for all estimates and accruals reflected in the
Trust's financial statements. The Evaluator determines the price
for each underlying Security included in the Trust's Schedule of
Portfolio Securities on the basis set forth in Part B of this
Prospectus, "Public Offering of Units - Public Offering Price".
Under the Securities Act of 1933 ("the Act"), as amended, the
Sponsor is deemed to be an issuer of the Trust Units. As such,
the Sponsor has the responsibility of an issuer under the Act with
respect to financial statements of the Trust included in the
Registration Statement under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations of the Zero Coupon
Treasury Obligations, and by calculations based on the net asset
value per share of the Fund, on the last day of trading during the
period. The value on the date of initial deposit (July 19, 1989)
represents the cost of investments to the Trust based on the
offering side evaluations and the net asset value per share, of
the Treasury Obligations and Fund Shares, respectively, as of the
date of initial deposit. The cost of investments purchased
subsequent to the date of initial deposit is based on the offering
side evaluations and the net asset value per share, respectively,
at the date of purchase. The difference between the initial cost
and face amount of the Treasury Obligations at the date of
purchase is being amortized over the period to its maturity date
using the interest method.
(3) Income Taxes
As a Unit Investment Trust, the Trust is organized as a Grantor
Trust and is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is required
for such taxes.
A-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
June 30, 1994
(4) Expenses
The Trust pays an annual Trustee's fee, estimated expenses and
Evaluator's fees, and may incur additional charges as explained
under "Expenses and Charges - Fees" and "- Other Charges" in this
Prospectus.
(b) DISTRIBUTIONS
Distributions from the income and principal accounts, if any, received
by the Trust are made to Unit Holders on a quarterly basis and
distributions of any net capital gains received in respect of Fund
Shares will be made at least annually to Unit Holders of record.
Income from the amortization of original issue discount on the Zero
Coupon Treasury Obligations will not be distributed on a current basis.
Upon termination of the Trust, the Trustee will distribute, upon
surrender of Units for cancellation, to each Unit Holder his pro rata
share of the Trust's assets, less expenses, in the manner set forth
under "Amendment and Termination of the Trust - Termination" herein.
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the respective dates of deposit exclusive of
accrued interest.
<TABLE>
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of June 30, 1994 follows:
<S> <C>
Cost of 100,000 Units at initial deposit $ 1,000,004
Less: Gross underwriting commissions (sales charge) (52,500)
Net cost of initial deposit to investors 947,504
Net cost of subsequent deposits to investors 63,678,982
Cost of securities sold or redeemed (34,519,975)
Unrealized market appreciation 7,164,296
Accumulated interest accretion 10,488,736
Net amount applicable to investors $47,759,543
</TABLE>
A-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
June 30, 1994
(d) OTHER INFORMATION
<TABLE>
Selected data for a Unit of the Trust during each year:
<CAPTION>
For the years ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Capital gain distributions
received during year $ .1597 $ - $ .0422
Principal distributions during year $ .1431 $ - $ .0382
Net investment income distributions
during year $ .0544 $ .0508 $ .0383
Net asset value at end of year $14.0987 $14.5211 $12.9065
Trust Units outstanding at end
of year 3,390,000 4,300,000 5,200,000
</TABLE>
A-7
<PAGE>
<TABLE>
SCHEDULE OF PORTFOLIO SECURITIES
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
June 30, 1994
<CAPTION>
Port-
folio Name of Issuer/Title of Face Amount/ Market
No. Portfolio Security <F1> Number of Shares Value<F4><F5>
<C> <S> <C> <C>
1. Stripped United States Treasury Obligations
Maturing on 5/15/99 <F2> 33,900,000 $24,262,569
2. Shares of AIM Weingarten Fund ($16.15 per
Fund Share) <F3> 1,454,921 23,496,974
$47,759,543
See notes to schedule of portfolio securities
</TABLE>
A-8
<PAGE>
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
GOVERNMENT SECURITIES EQUITY TRUST SERIES 2
June 30, 1994
<F1> None of the Securities are redeemable by operation of optional call
provisions.
<F2> The Zero Coupon Treasury Obligations have been purchased at a
discount from their par value because there is no stated interest
income thereon (such Securities are often referred to as zero
coupon Securities). Over the life of the Treasury Obligations
such discount accrues and upon maturity thereof the holders will
receive 100% of the Treasury Obligation maturity amount thereof.
<F3> The Fund's investment advisor is AIM Advisors, Inc. and the Fund's
Sub-advisor is AIM Capital Management, Inc.
<F4> The market value of the Zero Coupon Treasury Obligations as of June
30, 1994 was determined by the Evaluator on the basis of bid side
evaluations for the Securities at such date. The market value of
the Fund Shares was calculated by multiplying the aggregate number
of shares by the current net asset value per share as of the same
date.
<F5> At June 30, 1994 the unrealized market appreciation of Securities
was comprised of the following:
Gross unrealized market appreciation $7,164,296
Gross unrealized market depreciation -
Unrealized market appreciation $7,164,296
The amortized cost of the Securities for Federal income tax
purposes was $40,595,247 at June 30, 1994.
A-9
<PAGE>
GOVERNMENT SECURITIES EQUITY TRUST
SERIES 2
------------------------
THE TRUST
The Government Securities Equity Trust Series 2 (the ``Trust'' or ``GSET''
as the context requires) was created under the laws of the State of New York,
pursuant to a Trust Indenture and Agreement and a related Reference Trust
Agreement dated the Date of Deposit (collectively, the ``Indenture'')* among
Prudential Securities Incorporated (the ``Sponsor''), United States Trust
Company of New York (the ``Trustee'') and Kenny Information Systems, Inc. (the
``Evaluator''). The Sponsor, Prudential Securities Incorporated, is a
wholly-owned, indirect subsidiary of The Prudential Insurance Company of
America.
The initial public offering of Units in the Trust has been completed. The
Units offered hereby are issued and outstanding Units which have been acquired
by the Sponsor either by purchase of Units tendered for redemption or in the
secondary market.
The objectives of the Trust are to attempt to obtain safety of capital
through investment in stripped United States Treasury issued notes or bonds
paying no current interest (the ``Treasury Obligations'') and to attempt to
provide for capital appreciation through investment in shares of the Retail
Class (``Fund Shares'') of AIM Weingarten Fund (the ``Fund''), one portfolio in
a series comprising AIM Equity Funds, Inc., an open-end, series, management
investment company. AIM Weingarten Fund invests primarily in common stocks of
seasoned and better capitalized U.S. companies (the Treasury Obligations and
Fund Shares hereinafter, collectively, referred to as ``Securities''). There is
of course no guarantee that the Trust's objectives will be achieved.
Trust Information
On the Date of Deposit, the Sponsor deposited with the Trustee the
underlying Securities or confirmations of contracts for the purchase of such
Securities at prices equal to the evaluation of the Treasury Obligations on the
offering side of the market on the Date of Deposit as determined by the
Evaluator and the net asset value of the Fund Shares (see ``Schedule of
Portfolio Securities,'' herein). The Trust was created simultaneously with the
deposit of the Securities with the Trustee and the execution of the Indenture.
The Trustee then immediately delivered to the Sponsor certificates of beneficial
interest (the ``Certificates'') representing the units (the ``Units'')
comprising the entire ownership of the Trust. Through this Prospectus, the
Sponsor is offering the Units for sale to the Public. The holders of Units (the
``Unit Holder'' or ``Unit Holders'' as the context requires) will have the right
to have their Units redeemed at a price based on the aggregate bid side
evaluation of the Treasury Obligations as determined by the Evaluator and the
net asset value of the Fund Shares (the ``Redemption Price''), if the Units
cannot be sold in the secondary market which the Sponsor, although not obligated
to, presently intends to maintain. The Trust has a mandatory termination date
set forth under ``Summary of Essential Information,'' but may be terminated
prior thereto upon the occurrence of certain events (see ``Amendment and
Termination of the Indenture--Termination''), including a reduction in the value
of the Trust below the value set forth under ``Summary of Essential
Information.''
On a recent date, each Unit represented the fractional undivided interest in
the Securities and net income of the Trust set forth under ``Summary of
Essential Information.'' The Trust Portfolio has been structured so that a Unit
Holder will receive, at the Mandatory Termination Date of the Trust, an amount
per Unit at least equal to $10.00 even if the value of the Fund Shares were to
decline to zero, although the Unit Holder would forego any earnings on amounts
invested. Of course, whether or not a Unit Holder makes a profit or suffers a
loss depends on whether his purchase price was less than or exceeded $10.00 per
Unit. A Unit Holder selling his Units prior to the Mandatory Termination Date
may suffer a loss to the extent the sale price of his Units is less than the
purchase price. Because certain of the Securities from time to time may be sold
under circumstances described herein and because additional Securities may be
deposited into the Trust from time to time, the Trust is not expected to retain
its present size and composition. If any Units are redeemed by the Trustee, the
number of Securities in the Trust will be reduced by an amount allocable to
redeemed Units and the fractional undivided interest in such Trust represented
by each unredeemed Unit will be increased. Units will remain
- ------------
* Reference is hereby made to said Indenture and any statements contained
herein are qualified in their entirety by the provisions of said Indenture.
B-1
<PAGE>
<PAGE>
outstanding until redeemed upon tender to the Trustee by any Unit Holder (which
may include the Sponsor) or until the termination of the Trust pursuant to the
Indenture.
Securities Selection
In selecting Treasury Obligations for deposit in the Trust, the following
factors, among others, were considered by the Sponsor: (i) the prices and yields
of such securities and (ii) the maturities of such securities. In selecting the
Fund Shares for deposit in the Trust, the following factors, among others, were
considered by the Sponsor: (i) the historical performance of the Fund and (ii)
the nature of the underlying Fund portfolio.
On a recent date the Trust consisted of the Securities listed under
``Schedule of Portfolio Securities,'' herein and undistributed cash receipts
from the Fund and proceeds realized from the disposition of Securities.
Stripped U.S. Treasury Obligations
The Treasury Obligations in the portfolio consist of United States Treasury
Obligations which have been stripped by the United States Treasury of their
unmatured interest coupons or such stripped coupons or receipts or certificates
evidencing such obligations or coupons. The obligor with respect to the Treasury
Obligations is the United States Government. Such Treasury Obligations may
include certificates that represent rights to receive the payments that comprise
a U.S. Government bond.
U.S. Treasury bonds evidence the right to receive a fixed payment at a
future date from the U.S. Government, and are backed by the full faith and
credit of the U.S. Government. The Treasury Obligations can be purchased at a
deep discount because the buyer receives only the right to receive one fixed
payment at a specific date in the future and does not receive any periodic
interest payments. The effect of owning deep discount obligations which do not
make current interest payments is that a fixed yield is earned not only on the
original investment but also, in effect, on all discount earned during the life
of the discount obligation. This implicit reinvestment of earnings at the same
rate eliminates the risk of being unable to reinvest the income on such
obligations at a rate as high as the implicit yield on the discount obligation,
but at the same time eliminates the holder's ability to reinvest at higher rates
in the future. For this reason, the Treasury Obligations are subject to
substantially greater price fluctuations during periods of changing market
interest rates than are securities of comparable quality which pay interest on a
current basis. Investors should be aware that income in respect of the accrual
of original issue discount on the Treasury Obligations, although not distributed
on a current basis, will be subject to income tax on a current basis at ordinary
income tax rates (see ``Tax Status of the Trust'').
The following disclosure concerning AIM Weingarten Fund, AIM Equity Funds,
Inc. and its affiliates has been provided by AIM Equity Funds, Inc. While the
Sponsor has not independently verified this information, it has no reason to
believe that such information is not correct in all material respects. No
representation is made herein as to the accuracy or adequacy of such
information.
AIM Weingarten Fund
The portfolio also contains Shares of the Retail Class (the ``Fund Shares'')
of AIM Weingarten Fund (the ``Fund'') (formerly Weingarten Equity Fund, Inc.).
Weingarten Equity Fund, Inc. was organized in 1966, and reincorporated in 1982
as a Maryland corporation. AIM Weingarten Fund is one of four funds, or
investment portfolios, comprising AIM Equity Funds, Inc. (``AIM'') which is an
open-end, series, management investment company (commonly known as a mutual
fund) organized as a Maryland series corporation in 1988. On October 14, 1994,
the net assets of the Fund were $3,964,900,055. The Fund's investment objective
is to seek growth of capital principally through investment in common stocks of
seasoned and better capitalized companies. Current income is not an important
criterion of investment selection and any such income should be considered
incidental. It is anticipated that common stocks will be the principal form of
investment by the Fund. The Fund's portfolio is comprised of two basic
categories of companies: (1) ``core'' companies, which management considers to
have experienced rapid and consistent long-term growth in earnings and to have
excellent prospects for outstanding future growth, and (2) ``timely cyclical''
companies, which management believes are currently enjoying a dramatic increase
in earnings. The Fund may also engage in the writing of covered call option
contracts. The Fund has retained an Investment Advisor, A I M Advisors, Inc.
(``AIM Advisors''), pursuant to an investment advisory agreement dated October
18, 1993, whose responsibility it is to supervise all aspects of the Fund's
operation and provide investment advisory services to the Fund. A I M Capital
Management, Inc. (``AIM Capital''), a wholly-owned subsidiary of AIM Advisors,
serves as sub-advisor to the Fund pursuant to a sub-advisory agreement dated
October 18, 1993. State Street Bank and Trust Company is the custodian of the
Fund's assets. The Shareholder Services
B-2
<PAGE>
<PAGE>
Group, Inc. serves as the Fund's transfer agent and dividend paying agent. The
Fund's prospectus is available upon request.
General Information Regarding the Fund
The Fund has qualified and intends to continue to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. As long as the Fund qualifies for this treatment, it is not
subject to Federal income taxes on amounts distributed to shareholders. The
Fund, for purposes of determining taxable income, distribution requirements and
other requirements of Subchapter M, is treated as a separate corporation. The
Fund's current policy is to pay dividends from net investment income, if any,
and to make distributions of realized capital gains before the end of each
calendar year. Any dividend or distribution by the Fund has the effect of
reducing the net asset value per share on the ex-dividend date by the amount of
the dividend or distribution (see ``Net Asset Value of the Fund Shares'').
The following table shows per share income and capital changes for the
periods indicated for a share of capital stock outstanding (``per share
information'') of the Fund.
B-3
<PAGE>
<PAGE>
<TABLE>
(Per Share Data and Ratios for a Share Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------------------------------------------------------
AIM WEINGARTEN FUND
<CAPTION>
October 31,
April 30, ------------------------------------------------------------------
1994 1993 1992 1991
---------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 17.62 $ 16.68 $ 15.76 $ 11.15
Income from investment operations:
Net investment income.............. 0.03 0.10 0.10 0.11
Net gains (losses) on securities
(both realized and unrealized)... (0.29) 0.93 0.98 4.80
---------------- ------------------ ------------------ ------------------
Total from investment operations... (0.26) 1.03 1.08 4.91
---------------- ------------------ ------------------ ------------------
Less distributions:
Dividends from net investment
income........................... (0.11) (0.09) (0.07) (0.09)
Distributions from net realized
capital gains.................... (0.33) -- (0.09) (0.21)
---------------- ------------------ ------------------ ------------------
Total distributions................ (0.44) (0.09) (0.16) (0.30)
---------------- ------------------ ------------------ ------------------
Net asset value, end of period..... $ 16.92 $ 17.62 $ 16.68 $ 15.76
---------------- ------------------ ------------------ ------------------
---------------- ------------------ ------------------ ------------------
Total return(c)...................... (1.48)% 6.17% 6.85% 44.88%
---------------- ------------------ ------------------ ------------------
---------------- ------------------ ------------------ ------------------
Ratios/supplemental data:
Net assets, end of period (000's
omitted)......................... $ 4,137,293(d) $4,999,983 $5,198,835 $2,534,331
---------------- ------------------ ------------------ ------------------
---------------- ------------------ ------------------ ------------------
Ratio of expenses to average net
assets........................... 1.2%(d) 1.1% 1.1% 1.2%
---------------- ------------------ ------------------ ------------------
---------------- ------------------ ------------------ ------------------
Ratio of net investment income to
average net assets............... 0.4%(d) 0.6% 0.6% 0.7%
---------------- ------------------ ------------------ ------------------
---------------- ------------------ ------------------ ------------------
Portfolio turnover rate.............. %61 109% 37% 46%
---------------- ------------------ ------------------ ------------------
---------------- ------------------ ------------------ ------------------
Borrowings for the period:
Amount of debt outstanding at end
of period (000's omitted)........ -- -- -- --
Average amount of debt outstanding
during the period(f)............. -- -- -- --
Average number of shares
outstanding during the period
(000's omitted)(f)............... 264,188 314,490 246,273 102,353
Average amount of debt per share
during the period................ -- -- -- --
<CAPTION>
(Per Share
- -------------------------------------
AIM WEINGARTEN FUND
December
31,(a)
--------------
1990 1989 1988(b) 1987
------------------ ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 12.32 $ 9.23 $ 8.36 $ 8.82
Income from investment operations:
Net investment income.............. 0.09 0.10 0.07 0.07
Net gains (losses) on securities
(both realized and unrealized)... (0.56) 3.10 0.80 0.83
-------- ------------------ -------------- --------------
Total from investment operations... (0.47) 3.20 0.87 0.90
-------- ------------------ -------------- --------------
Less distributions:
Dividends from net investment
income........................... (0.06) (0.11) -- (0.09)
Distributions from net realized
capital gains.................... (0.64) -- -- (1.27)
-------- ------------------ -------------- --------------
Total distributions................ (0.70) (0.11) -- (1.36)
-------- ------------------ -------------- --------------
Net asset value, end of period..... $ 11.15 $ 12.32 $ 9.23 $ 8.36
-------- ------------------ -------------- --------------
-------- ------------------ -------------- --------------
Total return(c)...................... (4.03)% 35.13% 10.41% 9.75%
-------- ------------------ -------------- --------------
-------- ------------------ -------------- --------------
Ratios/supplemental data:
Net assets, end of period (000's
omitted)......................... $632,522 $ 393,320 $ 297,284 $ 286,453
-------- ------------------ -------------- --------------
-------- ------------------ -------------- --------------
Ratio of expenses to average net
assets........................... 1.3% 1.2% 1.1%(e) 1.0%
-------- ------------------ -------------- --------------
-------- ------------------ -------------- --------------
Ratio of net investment income to
average net assets............... 0.8% 1.0% 0.9%(e) 0.7%
-------- ------------------ -------------- --------------
-------- ------------------ -------------- --------------
Portfolio turnover rate.............. 79% 87% %93 108%
-------- ------------------ -------------- --------------
-------- ------------------ -------------- --------------
Borrowings for the period:
Amount of debt outstanding at end
of period (000's omitted)........ -- $3,781,000 -- $ 355,000
Average amount of debt outstanding
during the period(f)............. $485,359 $1,082,551 $ 228,587 $ 509,259
Average number of shares
outstanding during the period
(000's omitted)(f)............... 44,770 31,275 33,031 25,825
Average amount of debt per share
during the period................ $ .011 $ .035 $ .007 $ .020
<CAPTION>
(Per Share
- -------------------------------------
AIM WEINGARTEN FUND
1986(b) 1985
-------- --------
<S> <C> <C>
Net asset value, beginning of
period............................. $ 9.10 $ 6.73
Income from investment operations:
Net investment income.............. 0.09 0.08
Net gains (losses) on securities
(both realized and unrealized)... 2.11 2.34
-------- --------
Total from investment operations... 2.20 2.42
-------- --------
Less distributions:
Dividends from net investment
income........................... (0.09) (0.05)
Distributions from net realized
capital gains.................... (2.39) --
-------- --------
Total distributions................ (2.48) (0.05)
-------- --------
Net asset value, end of period..... $ 8.82 $ 9.10
-------- --------
-------- --------
Total return(c)...................... 25.06% 36.12%
-------- --------
-------- --------
Ratios/supplemental data:
Net assets, end of period (000's
omitted)......................... $171,138 $168,492
-------- --------
-------- --------
Ratio of expenses to average net
assets........................... 1.0% 1.0%
-------- --------
-------- --------
Ratio of net investment income to
average net assets............... 0.8% 1.0%
-------- --------
-------- --------
Portfolio turnover rate.............. 113% 99%
-------- --------
-------- --------
Borrowings for the period:
Amount of debt outstanding at end
of period (000's omitted)........ -- --
Average amount of debt outstanding
during the period(f)............. $ 56,307 $ 23,917
Average number of shares
outstanding during the period
(000's omitted)(f)............... 18,519 18,598
Average amount of debt per share
during the period................ $ .003 $ .001
</TABLE>
- ------------
(a) Per share information and shares outstanding have been restated to
reflect 2 for 1 stock split, effected in the form of dividends, on
September 29, 1987.
(b) The Fund changed investment advisors on May 1, 1986 and on September
30, 1988.
(c) Does not include sales charges and, for periods less than one year,
total returns are not annualized.
(d) After waiver of advisory fees. Annualized ratios of expenses and net
investment income to average net assets prior to waiver of advisory
fees were 1.22% and 0.35%, respectively. Ratios are based on average
net assets of $4,592,933,580.
(e) Annualized.
(f) Averages computed on a daily basis.
B-4
<PAGE>
<PAGE>
Investment Strategies and Restrictions
Strategies
In pursuit of its objectives and policies, the Fund may employ one or more
of the following strategies in order to enhance investment results:
Rule 144A Securities. The Fund may invest in securities that are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933 (the ``1933 Act''). These securities are sometimes
referred to as private placements. Although securities which may be resold only
to ``qualified institutional buyers'' in accordance with the provisions of Rule
144A under the 1933 Act are technically considered ``restricted securities,''
the Fund may purchase Rule 144A securities without regard to the limitation on
investments in illiquid securities described under ``Illiquid Securities,''
provided that a determination is made that such securities have a readily
available trading market. AIM Advisors will determine the liquidity of Rule 144A
securities under the supervision of AIM's Board of Directors. The liquidity of
Rule 144A securities will be monitored by AIM Advisors and, if as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities will be reviewed to determine
what, if any, action is required to assure that the Fund does not exceed its
applicable percentage limitation for investments in illiquid securities.
Stock Index Futures Contracts. The Fund may purchase and sell stock index
futures contracts as a hedge against changes in market conditions. A stock index
futures contract is a bilateral agreement pursuant to which two parties agree to
take delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
The Fund will only enter into domestic stock index futures. No physical delivery
of the underlying stocks in the index is made. The Fund will only enter into
futures contracts as a hedge against changes resulting from market conditions in
the values of the securities held or which the Fund intends to purchase.
Generally, the Fund may elect to close a position in a futures contract by
taking an opposite position which will operate to terminate the Fund's position
in the futures contract. The Fund may purchase or sell futures contracts if,
immediately thereafter, the sum of the amount of margin deposits and premiums on
open positions with respect to futures contracts would not exceed 5% of the
market value of the Fund's total assets.
Foreign Securities. To the extent consistent with its investment objective,
the Fund may invest in foreign securities. Such securities may be payable in
U.S. currency or in foreign currency. It is not anticipated that such foreign
securities will constitute more than 20% of the value of the Fund's total
assets. These securities will be marketable equity securities (including common
and preferred stock, depositary receipts for stock and fixed income or equity
securities exchangeable for or convertible into stock) of foreign companies
which, with their predecessors, have been in continuous operation for three
years or more and which generally are listed on a recognized foreign securities
exchange or traded in a foreign over-the-counter market. The Fund may also
invest in foreign securities listed on recognized U.S. securities exchanges or
traded in the U.S. over-the-counter market. Such foreign securities may be
issued by foreign companies located in developing countries in various regions
of the world. A ``developing country'' is a country in the initial stages of its
industrial cycle. As compared to investment in the securities markets of
developed countries, investment in the securities markets of developing
countries involves exposure to markets that may have substantially less trading
volume and greater price volatility, economic structures that are less diverse
and mature, and political systems that may be less stable. For a discussion of
the risks pertaining to investments in foreign obligations, see ``Risk Factors''
in this Prospectus. For purposes of computing the Fund's limitation on
investments, American Depository Receipts, European Depository Receipts and
other securities representing underlying securities of foreign issuers shall be
treated as foreign securities.
Risk Factors. Investments by the Fund in foreign securities, including
Eurodollar, Yankee dollar and other foreign obligations, may entail the
following risks. Investments by the Fund in American Depository Receipts may
entail certain political and economic risks and regulatory risks as set forth
below.
Currency Risk. The value of the Fund's foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of
a foreign security decreases when the value of the U.S. dollar rises
against the foreign currency in which the security is denominated, and
increases when the value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries
in which the Fund may invest are not as developed as the United States
economy and may be subject to significantly different forces. Political
or social
B-5
<PAGE>
<PAGE>
instability, expropriations or confiscatory taxation, and limitations on
the removal of funds or other assets could also adversely affect the
value of the Fund's investments.
Regulatory Risk. Foreign companies are not registered with the
Securities and Exchange Commission and are generally not subject to the
regulatory controls imposed on United States issuers and, as a
consequence, there is generally less publicly available information
about foreign securities than is available about domestic securities.
Foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities
owned by the Fund may be reduced by a withholding tax at the source,
which tax would reduce dividend income payable to the Fund's
shareholders.
Market Risk. The securities markets in many of the countries in which
the Fund invests will have substantially less trading volume than the
major United States markets. As a result, the securities of some foreign
companies may be less liquid and experience more price volatility than
comparable domestic securities. Increased custodian costs as well as
administrative costs (such as the need to use foreign custodians) may be
associated with the maintenance of assets in foreign jurisdictions.
There is generally less government regulation and supervision of foreign
stock exchanges, brokers and issuers which may make it difficult to
enforce contractural obligations. In addition, transaction costs in
foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in
the United States.
Repurchase Agreements. The Fund may enter into repurchase agreements. A
repurchase agreement is an instrument under which the Fund acquires ownership of
a debt security and the seller agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby determining the
yield during the Fund's holding period. With regard to repurchase transactions,
in the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (a) a possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
Borrowing. The Fund may borrow money to a limited extent from banks
(including the Fund's custodian bank) for temporary or emergency purposes as
described below (see ``Investment Restrictions''). Thus the Fund may borrow
amounts of up to 10% of its total assets and may pledge amounts of up to 20% of
its total assets to secure such borrowings. Currently, the Fund has a committed
credit facility with Morgan Guaranty Trust Company of New York.
Short Sales. The Fund may, but does not currently intend to make short sales
``against the box.'' A short sale is a transaction in which a party sells a
security it does not own in anticipation of a decline in the market value of
that security. A short sale is ``against the box'' to the extent that the Fund
contemporaneously owns or has the right to obtain securities identical to those
sold short. Such sales may be used by the Fund to defer the realization of gain
or loss for Federal income tax purposes on securities then owned by the Fund.
Writing Call Options. The Fund may engage in the writing of call option
contracts from time to time. Such options shall be written solely as covered
call options (options on securities which the Fund owns) and such options must
be listed on a national securities exchange.
Illiquid Securities. The Fund will not invest more than 15% of its net
assets in illiquid securities, including repurchase agreements with maturities
in excess of seven days.
Lending of Fund Securities. The Fund may also lend its portfolio securities
in amounts up to 33 1/3% of its total assets. Such loans could involve risks of
delay in receiving additional collateral in the event the value of the
collateral decreased below the value of the securities loaned or of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans will be made
only to borrowers deemed by AIM Advisors to be of good standing and only when,
in AIM Advisors' judgment, the income to be earned from the loans justifies the
attendant risks.
B-6
<PAGE>
<PAGE>
Investment Restrictions. The Fund has adopted a number of investment
restrictions which, except as noted below, may be changed only with the
approval, by vote, of a majority of the outstanding voting securities of the
Fund, as defined by the Investment Company Act of 1940, as amended (the ``1940
Act''). The Fund may not:
(a) issue bonds, debentures or senior equity securities;
(b) underwrite securities of other companies or purchase restricted
securities (``letter stock'');
(c) invest in real estate, except that the Fund may purchase
securities of real estate investment trusts;
(d) lend money, except in connection with the acquisition of a
portion of an issue of publicly distributed bonds, debentures, or other
corporate or governmental obligations, provided that the Fund may lend
its portfolio securities provided the value of such loaned securities
does not exceed 33 1/3% of its total assets;
(e) purchase securities on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities;
(f) purchase shares in order to control management of a company;
(g) invest in commodities or commodity contracts or in puts or calls
except as set forth above under ``Writing Call Options'';
(h) invest in securities of other investment companies;
(i) invest more than 25% of the value of its total assets in
securities of issuers all of which conduct their principal business
activities in the same industry; or
(j) borrow money or pledge its assets, except that, as a temporary
measure for extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks (including the Fund's custodian
bank) amounts of up to 10% of the value of its total assets, and may
pledge amounts of up to 20% of its total assets to secure such
borrowings.
In addition, the Fund may not (a) purchase warrants, valued at the
lower of cost or market, to exceed 5% of the value of the Fund's net
assets, and no more than 2% of such value may be warrants which are not
listed on the New York or American Stock Exchanges; (b) purchase or
retain the securities of any issuer, if the officers and directors of
the Fund, its advisors or distributor who own individually more than
1/2 of 1% of the securities of such issuer, together own more than 5% of
the securities of such issuer; (c) invest more than 5% of the total
assets of the Fund (valued at market) in securities of any one issuer
(other than obligations of the United States Government and its
instrumentalities); (d) purchase more than 10% of the outstanding
securities of any one issuer or more than 10% of any class of securities
of an issuer; (e) deal in foreign currencies; (f) invest in interests in
oil, gas or other mineral exploration or development programs or invest
in securities which are not readily marketable; or (g) invest in
securities of companies which have a record of less than three years of
continuous operation if such purchase at the time thereof would cause
more than 5% of the total assets of the Fund to be invested in the
securities of such companies (with such period of three years to include
the operation of any predecessor company or companies, partnership or
individual enterprise if the company whose securities are proposed for
investment by the Fund has come into existence as the result of a
merger, consolidation, reorganization or purchase of substantially all
of the assets of such predecessor company or companies, partnership or
individual enterprise). These additional restrictions are not
fundamental, and may be changed by the AIM Board of Directors without
shareholder approval.
If a percentage restriction is adhered to at the time of investment,
a later change in percentage resulting from changes in values or assets
will not be considered a violation of the restriction.
In order to permit the sale of the Fund's shares in certain states,
the Fund may from time to time make commitments that are more
restrictive than the restrictions described above. For example, the Fund
has agreed that the restriction on investments in ``oil, gas and other
mineral exploration or development programs'' shall include mineral
leases and the restriction on investments; ``real estate or other
interests in real estate'' shall include real estate limited
partnerships. These restrictions are not matters of fundamental policy,
and should the Fund determine that any such commitment is no longer in
the best interests of the Fund and its shareholders, it will revoke the
commmitment by terminating sales of its shares in the states involved.
B-7
<PAGE>
<PAGE>
Net Asset Value of the Fund Shares
The net asset value per share of Fund Shares is determined as of 4:15 P.M.
New York Time on each ``business day,'' defined as any day the New York Stock
Exchange is open for business, by subtracting the Fund Shares' liabilities from
its assets, and then dividing the result by the total number of Fund Shares
outstanding.
The determination of the Fund Shares' net asset value per share is made in
accordance with generally accepted accounting principles. Among other items, the
Fund's liabilities include accrued expenses and dividends payable, and its total
assets include portfolio securities valued at their market value as well as
income accrued but not yet received. Securities for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the supervision of AIM's officers and in accordance with methods which are
specifically authorized by the Board of Directors of AIM. Short-term obligations
with maturities of 60 days or less are valued at amortized cost as reflecting
fair value.
The Fund's Investment Advisor and Sub-Advisor
Pursuant to a master investment advisory agreement (the ``Advisory
Agreement''), dated October 18, 1993, A I M Advisors, Inc. (``AIM Advisors'')
serves as the Fund's Investment Advisor. AIM Advisors was organized in 1976, and
together with its affiliates, manages or advises 38 investment company
portfolios (including the Fund). As of October 14, 1994, the total assets of the
investment company portfolios managed, advised or administered by AIM Advisors
or its affiliates were approximately $26.9 billion.
Under the terms of the Fund's Advisory Agreement, AIM Advisors supervises
all aspects of the Fund's operation and provides investment advisory services to
the Fund. AIM Advisors obtains and evaluates economic, statistical and financial
information to formulate and implement investment programs for the Fund. AIM
Advisors will not be liable to the Fund or its shareholders except in the case
of AIM Advisors' willful misfeasance, bad faith, gross negligence or reckless
disregard of duty; provided, however, that AIM Advisors may be liable for
certain breaches of duty under the 1940 Act.
AIM has entered into a master administrative services agreement (the
``Administrative Services Agreement'') effective as of October 18, 1993 with AIM
Advisors, pursuant to which AIM Advisors has agreed to provide or arrange for
the provision of certain accounting, shareholder services and other
administrative services to the Fund, including the services of a principal
financial officer of the Fund and related staff. As compensation to AIM Advisors
for its services under the Administrative Services Agreement, the Fund
reimburses AIM Advisors for expenses incurred by AIM Advisors or its affiliates
in connection with such services.
In addition, AIM Advisors and A I M Fund Services, Inc. (``AFS'') have
entered into a sub-contract pursuant to which AFS is reimbursed by AIM Advisors
for its costs in providing shareholder services for the Fund's Retail Class.
A I M Capital Management, Inc. (``AIM Capital''), a wholly-owned subsidiary
of AIM Advisors, serves as sub-advisor to the Fund pursuant to a sub-advisory
agreement between AIM Advisors and AIM Capital, dated October 18, 1993. Under
the terms of the sub-advisory agreement, AIM Advisors has appointed AIM Capital
to provide certain investment advisory services to the Fund, subject to overall
supervision by AIM Advisors and AIM's Board of Directors.
As compensation for its services AIM Advisors is paid an investment advisory
fee at an annual rate of 1.0% of the first $30 million of the Fund's average
daily net assets plus 0.75% of the Fund's average daily net assets in excess of
$30 million up to and including $350 million plus 0.625% of the Fund's average
daily net assets in excess of $350 million. The advisory fees paid by the Fund
are at a higher rate than those paid by most other investment companies of
varying sizes and investment objectives. For the fiscal year ended October 31,
1993, AIM Advisors received total fees from the Fund representing 0.60% of the
Fund's average daily net asseets. As compensation for its services, AIM Capital
receives a fee from AIM Advisors equal to 50% of the fee received by AIM
Advisors pursuant to the Advisory Agreement. For the fiscal year ended October
31, 1993, AIM Advisors received reimbursement of administrative services costs
from the Fund representing 0.06% of the Fund's average daily net assets. AIM
Advisors' reimbursed AFS for providing shareholder servicing for the Fund for
the period October 18, 1993 through October 31, 1993 which represented 0.06% of
the Fund's average daily net assets.
AIM Advisors may from time to time waive or reduce its fee. Fee waivers or
reductions, other than those set forth in the Advisory Agreement, may be
rescinded, however, at any time without further notice to investors, provided,
however, that the discontinuance of each fee waiver described below will be
approved by the Board of Directors of AIM.
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<PAGE>
On June 6, 1991, AIM Advisors initiated a voluntary reduction of advisory
fees at net asset levels higher than those currently incorporated in the
advisory fee schedule. Accordingly, AIM Advisors will be paid an investment
advisory fee at an annual rate of 0.625% of the Fund's average daily net assets
in excess of $350 million up to and including $2 billion plus 0.60% of the
Fund's average daily net assets in excess of $2 billion up to and including $3
billion plus 0.575% of the Fund's average daily net assets in excess of $3
billion up to and including $4 billion plus 0.55% of the Fund's average daily
net assets in excess of $4 billion.
Portfolio Managers
AIM Advisors uses a team approach and a disciplined investment process in
providing investment advisory services to all of its accounts, including the
Fund. AIM Advisors' investment staff consists of 79 individuals. While
individual members of AIM Advisors' investment staff are assigned primary
responsibility for the day-to-day management of each of AIM Advisors' accounts,
all accounts are reviewed on a regular basis by AIM Advisors' Investment Policy
Committee to ensure that they are being invested in accordance with the
account's and AIM Advisors' investment policies.
Jonathan C. Schoolar and David P. Barnard are primarily responsible for the
day-to-day management of the Fund. Mr. Schoolar, a chartered financial analyst,
is Senior Vice President and Director of AIM Capital, Vice President of AIM
Advisors and Senior Vice President of AIM and has been responsible for the Fund
since 1987. He currently serves as Chief Equity Officer and has been associated
with AIM Advisors and/or its affiliates for more than the past five years and
has 10 years of experience as an investment professional. Mr. Barnard is Vice
President of AIM Capital and Vice President of AIM and has been responsible for
the Fund since 1982. Mr. Barnard has been associated with AIM Advisors and/or
its affiliates for more than the past five years and has 20 years of experience
as an investment professional.
The Fund's Plan of Distribution
The Fund Shares have adopted a Distribution Plan (the ``Plan'') pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, AIM may compensate A I M
Distributors, Inc. (``AIM Distributions'') an aggregate amount of 0.30% of the
average daily net assets of the Fund Shares on an annualized basis for the
purpose of financing any activity that is intended to result in the sale of
shares of the Fund Shares. The Plan is designed to compensate AIM Distributors,
on a quarterly basis, for certain promotional and other sales-related costs, and
to implement a dealer incentive program which provides for periodic payments by
the Fund to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own shares of the Fund Shares.
Payments can be directed by AIM Distributors to selected insurance companies who
have entered into Variable Group Annuity Contractholder Service Agreements with
respect to the Fund and who provide the services pursuant to such agreements to
its Variable Group Annuity Contractholders who have selected the Fund as an
investment vehicle for their qualified retirement plan. In addition, certain
banks who have entered into a Bank Shareholder Service Agreement and who sells
shares of the Fund Shares on an agency basis, may receive payments pursuant to
the Plan. AIM will obtain a representation from financial institutions that they
will be licensed as dealers as required under applicable state law, or that they
will not engage in activities which would constitute acting as a ``dealer'' as
defined under applicable state law. Activities appropriate for financing under
the Plan include, but are not limited to, the following: preparation and
distribution of advertising material and sales literature; expenses of
organizing and conducting sales seminars; overhead of AIM Distributors; printing
of prospectuses and statements of additional information (and supplements
thereto) and reports for other than existing shareholders; supplemental payments
to dealers under a dealer incentive program, and costs of administering the
Plan. The fees payable to selected dealers who participate in the program are
calculated at the annual rate of 0.25% of the average daily net asset value of
the Fund Shares that are held in such dealers' customers' accounts which were
purchased on or after a prescribed date set forth in the Plan.
The Plan became effective on September 5, 1991, and was most recently
amended on September 27, 1993. The Plan conforms to the amended rules of the
National Association of Securities Dealers, Inc., by providing that, of the
aggregate amount payable under the Plan, payments to dealers and other financial
institutions that provide continuing personal shareholder services to their
customers who purchase and own shares of the Fund Shares, in amounts of up to
0.25% of the average net assets of the Fund attributable to the customers of
such dealers or financial institutions may be characterized as a service fee,
and that payments to dealers and other financial institutions in excess of such
amount and payments to AIM Distributors would be characterized as an asset-based
sales charge pursuant to the Plan. The Plan also imposes a cap on the total
amount of sales charges, including asset-based sales charges, that may be paid
by AIM with respect to the Fund. The Plan does not obligate the Fund to
reimburse AIM Distributors for the actual expenses AIM Distributors may incur in
fulfilling its obligations under the Plan on behalf of the Fund. Thus, under the
Plan, even if AIM
B-9
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<PAGE>
Distributors' actual expenses exceed the fee payable to AIM Distributors
thereunder at any given time, the Fund will not be obligated to pay more than
that fee. If AIM Distributors' expenses are less than the fee it receives, AIM
Distributors will retain the full amount of the fee.
Risk of Investment in Units
Fund Shares have been deposited in the Trust pursuant to an exemptive order
of the Securities and Exchange Commission. Under the terms of the exemptive
order, the Sponsor agreed to take certain steps to ensure that the Trust's
investment in Fund Shares was equitable to all parties and particularly that the
interests of the Unit Holders were protected. Accordingly, any sales charges
which would otherwise have been applicable were waived on Fund Shares sold to
the Trust, since the Sponsor is receiving the sales charge on all Units sold. In
addition, the Indenture requires the Trustee to vote all Fund Shares held in the
Trust in the same manner and ratio on all proposals as the vote of owners of
Fund Shares not held by the Trust.
The Fund's Shares may appreciate or depreciate in value (or pay dividends)
depending on the full range of economic and market influences affecting the
securities in which the Fund is invested and the success of the Fund's
management in anticipating or taking advantage of such opportunities as may
occur. In addition, in the event of the inability of AIM Advisors to act as Fund
advisor and/or claims or actions against the Fund by regulatory agencies or
other persons or entities, the value of the Fund Shares may decline thereby
causing a decline in the value of Units. Termination of the Fund prior to the
Termination Date of the Trust may result in the termination of the Trust sooner
than anticipated. Prior to a purchase of Units, investors should determine that
the aforementioned risks are consistent with their investment objectives.
The net asset value of the Fund's Shares, like the value of the Treasury
Obligations, will fluctuate over the life of the Trust and may be more or less
than the price paid therefor by the Trust. An investment in Units of the Trust
should be made with an understanding of the risks inherent in ownership of
common stock since the portfolio of the Fund is invested in common stock of U.S.
corporations. However, the Sponsor believes that, upon termination of the Trust,
even if the Fund Shares are worthless, the Treasury Obligations will provide
sufficient cash at maturity to equal $10.00 per Unit. Part of such cash will,
however, represent the accrual of taxable original issue discount on the
Treasury Obligations.
A UNIT HOLDER PURCHASING A UNIT ON THE DATE OF THIS PROSPECTUS OR THEREAFTER
MAY RECEIVE TOTAL DISTRIBUTIONS, INCLUDING DISTRIBUTIONS MADE UPON TERMINATION
OF THE TRUST, THAT ARE LESS THAN THE AMOUNT PAID FOR A UNIT.
Sales of Securities in the Portfolio under certain permitted circumstances
may result in an accelerated termination of the Trust. It is also possible that,
in the absence of a secondary market for the Units or otherwise, redemptions of
Units may occur in sufficient numbers to reduce the portfolio to a size
resulting in such termination. Early termination of the Trust may have important
consequences to the Unit Holder; e.g., to the extent that Units were purchased
with a view to an investment of longer duration, the overall investment program
of the investor may require readjustment; or the overall return on investment
may be less or greater than anticipated.
In the event of the early termination of the Trust, the Trustee will cause
the Fund Shares to be sold and the proceeds thereof distributed to the Unit
Holders in proportion to their respective interests therein, unless a Unit
Holder elects to receive Fund Shares ``in kind.'' (See ``Amendment and
Termination of the Indenture--Termination.'') Proceeds from the sale of the
Treasury Obligations will be paid in cash.
In addition, the Trust may be terminated if the aggregate value of the Trust
is less than 40% of the aggregate of the maturity amounts of the Treasury
Obligations calculated immediately after the most recent deposit of Treasury
Obligations in the Trust (see ``Amendment and Termination--Termination'').
The Trustee will have no power to vary the investments of the Trust, i.e.,
the Trustee will have no managerial power to take advantage of market variations
to improve a Unit Holder's investment but may dispose of Securities only under
limited circumstances. (See ``Sponsor--Responsibility'').
To the best of the Sponsor's knowledge there was no litigation pending as of
the Date of Deposit in respect of any Security which might reasonably be
expected to have a material effect on the Trust. At any time after the Date of
Deposit, litigation may be instituted on a variety of grounds with respect to
the Securities. The Sponsor is unable to predict whether any such litigation may
be instituted, or if instituted, whether such litigation might have a material
adverse effect on the Trust.
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<PAGE>
The Units
On a recent date, each Unit represented a fractional undivided interest in
the Securities and the net income of the Trust set forth under ``Summary of
Essential Information.'' Thereafter, if any Units are redeemed by the Trustee,
the amount of Securities in the Trust will be reduced by amounts allocable to
redeemed Units, and the fractional undivided interest represented by each Unit
in the balance will be increased, although the actual interest in the Trust
represented by each Unit will remain unchanged. Units will remain outstanding
until redeemed upon tender to the Trustee by any Unit Holder (which may include
the Sponsor) or until the termination of the Trust itself (see ``Rights of Unit
Holders-- Redemption'' and ``Amendment and Termination of the
Indenture--Termination,'' herein).
TAX STATUS OF THE TRUST
In the opinion of Messrs. Cahill Gordon & Reindel, counsel for the Sponsor,
under existing law:
The Trust is not an association taxable as a corporation for United
States Federal income tax purposes and income of the Trust will be
treated as income of the Unit Holders in the manner set forth below.
Each Unit Holder will be considered the owner of a pro rata portion of
each asset of the Trust under the grantor trust rules of Sections
671-678 of the Internal Revenue Code of 1986, as amended (the ``Code'').
Each Unit Holder will be required to include in his gross income, as
determined for Federal income tax purposes, original issue discount with
respect to his pro rata portion of the Treasury Obligations held by the
Trust at the same time and in the same manner as though the Unit Holder
were the direct owner of such pro rata portion. Each Unit Holder will be
considered to have received the distributions as is paid on his pro rata
portion of the Fund Shares held in the Trust (including such portion of
such distributions used to pay fees and expenses of the Trust) when such
distributions are received or deemed to be received by the Trust. An
individual Unit Holder who itemizes deductions will be entitled to
deduct his pro rata share of fees and expenses paid by the Trust as
though such fees and expenses were paid directly by the Unit Holder, but
only to the extent that this amount together with the Unit Holder's
other miscellaneous deductions exceeds 2% of his adjusted gross income.
A corporate Unit Holder will not be subject to this 2% floor.
Each Unit Holder will have a taxable event when a Security is
disposed of (whether by sale, exchange, redemption, or payment at
maturity) or when the Unit Holder redeems or sells his Units. The total
tax cost of each Unit to a Unit Holder must be allocated among the Fund
Shares and the Treasury Obligations held in the Trust in accordance with
the relative fair market values on the date the Unit Holder purchases
his Units in order to determine his per Unit tax basis for the Fund
Shares and the Treasury Obligations represented thereby.
The tax basis of a Unit Holder with respect to his interest in a Treasury
Obligation will be increased by the amount of original issue discount thereon
properly included in the Unit Holder's gross income as determined for Federal
income tax purposes. The Sponsor has agreed to pay to the Trust, for the benefit
of the Unit Holders, an amount equal to the 12b-1 fees received by the Sponsor
with regard to the Fund Shares held in the Trust. Such amounts may be treated as
reductions in tax basis.
The amount of gain recognized by a Unit Holder on a disposition of Fund
Shares or Treasury Obligations by the Trust will be equal to the difference
between such Unit Holder's pro rata portion of the gross proceeds realized by
the Trust on the disposition and the Unit Holder's tax basis in his pro rata
portion of the Fund Shares or Treasury Obligations disposed of, determined as
described in the preceding paragraphs. Any such gain recognized on a sale or
exchange and any such loss will be capital gain or loss, except that gain or
loss recognized by a financial institution with respect to a Treasury Obligation
or by a dealer with respect to Fund Shares or Treasury Obligations will be
ordinary income or loss. Any capital gain or loss arising from the disposition
of a Unit Holder's pro rata interest in a Security will be long-term capital
gain or loss if the Unit Holder has held his Units and the Trust has held the
Security for more than one year. A capital loss due to sale or redemption of a
Unit Holder's interest with respect to Fund Shares held in the Trust will be
treated as a long-term capital loss to the extent of any long term capital gains
derived by the Unit Holder from such interest if the Unit Holder has held such
interest for six months or less. The holding period for this purpose will be
determined by applying the rules of Sections 246(c)(3) and (4) of the Code.
Under the Code, capital gain (i.e., the excess of net long-term capital gain
over net short-term capital loss) of individuals, estates and trusts is subject
to a maximum nominal tax rate of 28%. Such capital gain may, however, result in
a disallowance of itemized deductions and/or affect a personal exemption
phase-out.
B-11
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<PAGE>
If the Unit Holder sells or redeems a Unit for cash he is deemed thereby to
have disposed of his entire pro rata interest in all Trust assets represented by
the Unit and will have taxable gain or loss measured by the difference between
his per Unit tax basis for such assets, as described above, and the amount
realized.
Under the personal income tax laws of the State and City of New York, the
income of the Trust will be treated as the income of the Unit Holders.
Each Unit Holder's interest in each Treasury Obligation is treated as an
interest in an original issue discount obligation. The original issue discount
on each Treasury Obligation will be taxed as ordinary income for Federal income
tax purposes and will be equal to the excess of the maturity value of the Unit
Holder's interest in the Treasury Obligation over its cost to the Unit Holder. A
Unit Holder will be required to include in gross income for each taxable year a
portion of this original issue discount and will be subject to income tax
thereon even though the income is not distributed. Original issue discount is
treated for Federal income tax purposes as income earned under a constant
interest formula which takes into account the semi-annual compounding of accrued
interest, resulting in an increasing amount of original issue discount accruing
in each year.
An individual Unit Holder who is neither a citizen nor a resident of the
United States and a corporate Unit Holder other than a United States domestic
corporation (a ``foreign Unit Holder'') will not generally be subject to United
States Federal income taxes, including withholding taxes, on his pro rata share
of the original issue discount on the Treasury Obligations held in the Trust,
any gain from the sale or other disposition of his, her or its pro rata interest
in a Treasury Obligation or Fund Share held in the Trust, any undistributed
capital gain retained by the Fund and designated by the Fund as to be taken into
account by its shareholders, or a capital gain dividend received by the Trust
from the Fund which original issue discount is not effectively connected with
the conduct by the foreign Unit Holder of a trade or business within the United
States and which gain is either (I) not from sources within the United States or
(II) not so effectively connected, provided that:
(a) with respect to original issue discount (i) the Treasury
Obligations are in registered form and were issued after July 18, 1984,
and (ii) the foreign Unit Holder is not a controlled foreign corporation
related (within the meaning of Section 864(d)(4) of the Code) to The
Prudential Insurance Company of America;
(b) with respect to any U.S.-source capital gain, the foreign Unit
Holder (if an individual) is not present in the United States for 183
days or more during his or her taxable year in which the gain was
realized and so certifies; and
(c) the foreign Unit Holder provides the required certifications
regarding (i) his, her or its status, (ii) in the case of U.S.-source
income, the fact that the original issue discount or gain is not
effectively connected with the conduct by the foreign Unit Holder of a
trade or business within the United States, and (iii) if determined to
be required, the controlled foreign corporation matter mentioned in
clause (a)(ii) above.
United States Federal withholding taxes at a 30% rate or a lesser rate
established by treaty will generally apply to Fund distributions (other than
distributions designated by the Fund as capital gain distributions) made to
foreign Unit Holders either directly or through the Trust unless the
distributions are effectively connected with the conduct of a trade or business
within the United States by the distributee. A foreign Unit Holder is not
subject to United States federal withholding tax with respect to capital gain
dividends paid by the Fund. Foreign Unit Holders should consult their own
counsel with respect to United States tax consequences of ownership of Units.
Each Unit Holder (other than a foreign Unit Holder who has properly provided
the certifications described in the preceding paragraph) will be requested to
provide the Unit Holder's taxpayer identification number to the Trustee and to
certify that the Unit Holder has not been notified that payments to the Unit
Holder are subject to back-up withholding. If the taxpayer identification number
and an appropriate certification are not provided when requested, a 31% back-up
withholding will apply.
The Fund has elected to qualify for and intends to continue to remain
qualified for the special tax treatment afforded regulated investment companies
under the Code and to meet applicable requirements with respect to its gross
income, diversification of holdings and distributions so that the Fund (but not
the Trust Unit Holders) will be relieved of Federal income tax on the amounts
distributed by the Fund to the Trust. Such distributions may be attributable to
taxable net investment income, net capital gain and the unreinvested proceeds of
sales of securities held by the Fund. It is also possible for the Fund to retain
net capital gain for investment, in which event the Fund will be subject to
Federal income tax on the retained amount; but may, as a regulated investment
company, designate the retained amount as undistributed
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<PAGE>
capital gain in a notice to those persons who were its shareholders (including
the Trust and thus its Unit Holders) at the close of the Fund's taxable year.
If the Fund were to retain any net capital gain for investment, its
shareholders (including Trust Unit Holders) (a) would be required to take into
account for tax purposes, as long-term capital gain, their proportionate shares
of the undistributed net capital gain of the Fund, and (b) would be deemed to
have paid their proportionate shares of the tax paid by the Fund on the
undistributed net capital gain so that the amount of tax deemed paid by each
such shareholder would be credited against the shareholder's United States
Federal income tax liability and a refund could be claimed to the extent that
credits exceeded such liability. For United States Federal income tax purposes,
the basis of shares of the Fund owned by a shareholder of the Fund (including a
Trust Unit Holder) would be increased by an amount equal to 66% of the amount of
undistributed capital gains required to be so included in computing such Fund
shareholder's long-term capital gains.
Capital gain distributions, if any, made by the Fund, as a regulated
investment company, are taxable as long-term capital gains, regardless of how
long the Fund shareholder (including a Trust Unit Holder) has held the Fund's
shares, and are not eligible for the dividends received deduction available to
corporations. Other dividend distributions by the Fund may, depending upon
circumstances, be eligible for such dividends received deduction, in whole or in
part.
Generally, dividends paid by the Fund, as a regulated investment company,
are treated as received by the Trust, and thus its Unit Holders, in the taxable
year in which the distribution is made by the Fund; however, any dividend
declared by the Fund in October, November or December of any calendar year,
payable to shareholders of record on a specified date in such a month and
actually paid during January of the following year, will be treated as received
on December 31 of the year in which declared.
Non-dividend Fund distributions reduce the Unit Holder's tax cost basis with
respect to his interest in Fund Shares held by the Trust and are treated as a
gain from the sale of such interest if and to the extent that such distributions
exceed the tax cost basis of the Unit Holder with respect to his interest in
Fund Shares held by the Trust.
The Code places a floor of 2% of adjusted gross income on miscellaneous
itemized deductions (including investment expenses) of individuals and of
estates, and trusts other than grantor trusts, to the extent provided in the
regulations. The Code directs the Secretary of the Treasury to prescribe
regulations prohibiting indirect deduction through a mutual fund or other
pass-through entity of amounts not allowable as a deduction under this rule if
paid or incurred directly by such an investor, but such regulations are not to
apply to a ``publicly offered regulated investment company'', which the Fund is
believed to be. The 2% floor rule will, however, apply in any event to
investment expenses of the Trust, as opposed to the Fund, and affected Unit
Holders should aggregate such expenses with their other miscellaneous deductions
in applying the 2% rule.
The Fund has filed its 1993 information return as a ``publicly offered
regulated investment company.'' The Trust cannot predict whether or not the Fund
will qualify as a ``publicly offered regulated investment company'' for 1994 or
any later year. The term ``publicly offered regulated investment company'' is
defined as meaning a regulated investment company the shares of which are
``continuously offered'' or regularly traded on an established securities market
or ``held by or for no fewer than 500 persons at all times during the taxable
year.''
In addition, under the Code, the allowable amount of certain itemized
deductions claimed by individual taxpayers, including investment expenses, is
subject to an overall limitation applicable to individual taxpayers with
adjusted gross income in excess of a $111,800 threshold amount ($55,900 for a
married taxpayer filing separately). The $111,800 (or $55,900) threshold amount
will be further indexed for inflation after 1994. The overall limitation reduces
the otherwise allowable amount of the affected itemized deductions by the lesser
of (i) 3% of the adjusted gross income in excess of the threshold amount or (ii)
80% of the amount of otherwise allowable itemized deductions. The other
limitations contained in the Code on the deduction of itemized expenses,
including the 2% floor described above, are applied prior to the overall
limitation.
The Code also imposes a 4% excise tax on untaxed undistributed income of
regulated investment companies. If the Fund distributes in each calendar year an
amount equal to the sum of at least 98% of its ordinary income for such calendar
year and 98% of its capital gain net income for the 12 month period ended on
October 31 of each calendar year (or December 31 if the Fund qualifies to so
elect and does so) and distributes an amount equal to the 2% balances not later
than the close of the succeeding calendar year, the Fund will not be subject to
this 4% excise tax. For purposes of this excise tax, any net long-term capital
gain in excess of net short-term capital loss retained by the Fund for any
fiscal
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<PAGE>
year ending on or before the close of the calendar year but designated as
undistributed capital gain taxable to shareholders as described above is treated
as if distributed to the Fund's shareholders.
Further information with respect to the Federal income tax consequences of
investment in Fund Shares may be found in the most recently available prospectus
with respect to the Fund Shares, a copy of which will be provided upon request
to the Trustee or Sponsor.
Interest paid by a Unit Holder other than a corporation on indebtedness
properly allocable to Units will be deductible as investment interest to the
extent permitted by Section 163(d) of the Code.
As of the end of each calendar year, the Trustee will furnish to each Unit
Holder an annual statement containing information relating to the dividends
(including capital gain dividends) received or deemed received, rebated 12b-1
fees received, discount accrued on the Securities, the gross proceeds received
by the Trust from the disposition of any Security (resulting from redemption or
payment at maturity of any Security or the sale by the Trust of any Security),
and the fees and expenses paid by the Trust.
The foregoing discussion relates only to United States Federal and New York
State and City income taxes. Unit Holders may also be subject to state, local or
foreign taxation in other jurisdictions.
Investors should consult their tax counsel for advice with respect to their
own particular tax situations.
RETIREMENT PLANS
Units in the Trust may be suited for purchase by Individual Retirement
Accounts, Keogh Plans, pension funds and other qualified retirement plans.
Investors considering participation in any such plan should review the laws
specifically related thereto and should consult their attorneys or other tax
advisors with respect to the establishment and maintenance of any such plan.
PUBLIC OFFERING OF UNITS
Public Offering Price
The Public Offering Price of the Units will be computed by adding to the
aggregate bid side evaluation of the Treasury Obligations the aggregate net
asset value of Fund Shares in the Trust, any money in the Income and Principal
Accounts other than money required to redeem previously tendered Units, dividing
such sum by the number of Units outstanding and then adding a sales charge of
5.25% of the Public Offering Price (5.541% of the net amount invested).
The Public Offering Price on a date subsequent to the date stated in the
``Summary of Essential Information'' will vary from the Public Offering Price
set forth in the ``Summary of Essential Information'' in accordance with
fluctuations in the value of the Treasury Obligations and net asset value of the
Fund Shares in the Trust.
The Public Offering Price shall be determined for the Trust by the Evaluator
on the basis of the bid prices for the Treasury Obligations (determined by the
Evaluator) and the net asset value of the Fund Shares as determined by AIM
Advisors.
On a recent date, the Public Offering Price per Unit (based on the bid side
evaluation of the Treasury Obligations and the net asset value of Fund Shares in
the Trust) exceeded the Redemption Price and the Sponsor's Secondary Market
Repurchase Price per Unit (each based upon the bid side evaluation of the
Treasury Obligations and the net asset value of Fund Shares in the Trust) by the
amounts set forth in ``Summary of Essential Information''.
Public Distribution
Unsold Units or Units acquired by the Sponsor in the secondary market
referred to below may be offered to the public by this Prospectus at the then
current Public Offering Price calculated daily.
The Sponsor intends to qualify Units in states selected by the Sponsor for
sale by the Sponsor and through dealers who are members of the National
Association of Securities Dealers, Inc. Sales to dealers will be made at prices
which include a concession per Unit as shown in the table below, but subject to
change from time to time at the discretion of the Sponsor. (Such price does not
include volume purchase discounts, which are available only to non-dealer
purchasers). The Sponsor reserves the right to reject, in whole or in part, any
order for the purchase of Units.
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<PAGE>
<TABLE>
<CAPTION>
Dealer Percent of
Concession Sales Charge
Number of Units Per 100 Units Per Unit
- ----------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Less than 2,500 Units.................................................................... $42.50 80%
2,500-9,999 Units........................................................................ $40.00 80%
10,000-24,999............................................................................ $35.00 77%
25,000-49,999............................................................................ $30.00 75%
50,000-99,999............................................................................ $22.50 75%
100,000 Units or more.................................................................... $15.00 75%
</TABLE>
Secondary Market
While not obligated to do so, it is the Sponsor's present intention to
maintain a secondary market for Units and to continuously offer to repurchase
Units from Unit Holders at the applicable Sponsor's Repurchase Price (see
``Summary of Essential Information''). The Sponsor's Repurchase Price is
computed by adding to the aggregate of the bid side evaluation of the Treasury
Obligations the net asset value of Fund Shares in the Trust, and cash on hand in
the Trust and dividends receivable on Fund Shares (other than cash deposited by
the Sponsor for the purchase of Securities) deducting therefrom amounts required
to redeem previously tendered Units and amounts required for distribution to
Unit Holders of record as of a date prior to the evaluation, accrued expenses of
the Trustee, Evaluator, and counsel, taxes and governmental charges, if any, and
any Reserve Account and then dividing the resulting sum by the number of Units
outstanding, as of the date of such computation. There is no sales charge
incurred when a Unit Holder sells Units back to the Sponsor. Any Units
repurchased by the Sponsor at the Sponsor's Repurchase Price may be reoffered to
the public by the Sponsor at the then current Public Offering Price. Any profit
or loss resulting from the resale of such Units will be for the account of the
Sponsor.
If the supply of Units exceeds demand (or for any other business reason),
the Sponsor may, at any time, occasionally, from time to time, or permanently,
discontinue the repurchase of Units of this Series at the Sponsor's Repurchase
Price, without notice. In such event, although under no obligation to do so, the
Sponsor may, as a service to Unit Holders, offer to repurchase Units at the
``Redemption Price,'' a price based on the current bid prices for the Treasury
Obligations and the net asset value of the Fund Shares. Alternatively, Unit
Holders may redeem their Units through the Trustee.
Profit of Sponsor
The Sponsor receives a sales charge on the Units as indicated herein in the
chart below under ``Volume Discount.'' On the sale of Units to dealers, the
Sponsor will retain the difference between the dealer concession and the sales
charge (see ``Public Distribution,'' herein).
The Sponsor may realize profits (or sustain losses) due to daily
fluctuations in the prices of the Securities in the Trust and thus in the Public
Offering Price of Units received by the Sponsor. Cash, if any, received by the
Sponsor from the Unit Holders prior to the settlement date for purchase of Units
may be used in the Sponsor's business to the extent permitted by applicable
regulations and may be of benefit to the Sponsor.
The Sponsor may also realize profits (or sustain losses) while maintaining a
secondary market in the Units, in the amount of any difference between the
prices at which the Sponsor buys Units and the prices at which the Sponsor
resells such Units or the prices at which the Sponsor redeems such Units, as the
case may be.
Volume Discount
Although under no obligation to do so, the Sponsor intends to permit volume
purchasers of Units to purchase Units at a reduced sales charge. The Sponsor may
at any time upon prior notice to Unit Holders change the amount by which the
sales charge is reduced, or may discontinue the discount altogether.
The sales charge per Unit will be reduced pursuant to the following
graduated scale for sales to any person of at least 2,500 units.
<TABLE>
<CAPTION>
Percent Percent
of Public of Net
Offering Amount
Number of Units Price Invested
- ------------------------------------------------------------------------------------------------ ---------- --------
<S> <C> <C>
Less than 2,500 Units........................................................................... 5.25% 5.541%
2,500-9,999 Units............................................................................... 5.00% 5.263%
10,000-24,999 Units............................................................................. 4.50% 4.712%
25,000-49,999 Units............................................................................. 4.00% 4.167%
50,000-99,999 Units............................................................................. 3.00% 3.092%
100,000 or more Units........................................................................... 2.00% 2.041%
</TABLE>
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The reduced sales charges as shown on the chart above will apply to such
purchases of Units in any fourteen-day period which qualify for the volume
discount by the same person, including a partnership or corporation, other than
a dealer, in the amounts stated herein, and for this purpose, purchases of Units
of this Trust will be aggregated with concurrent purchases of Units of any other
trust that may be offered by the Sponsor.
Units held in the name of the purchaser's spouse or in the name of a
purchaser's child under the age of 21 are deemed for the purposes hereof to be
registered in the name of the purchaser. The reduced sales charges are also
applicable to a trustee or other fiduciary, including a partnership or
corporation, purchasing Units for a single trust estate or single fiduciary
account.
Employee Discount
The Sponsor intends, at the discretion of the Sponsor, to permit employees
of Prudential Securities Incorporated and AIM Management and their respective
subsidiaries and affiliates to purchase Units of the Trust at a price based on
the offering side evaluation of the Treasury Obligations and the net asset value
of Fund Shares in the Trust plus a reduced sales charge of $5.00 per 100 Units,
subject to a limit of 5% of the Units.
EXCHANGE OPTION
Unit Holders may elect to exchange any or all of their Units of this Series
of the Government Securities Equity Trust for units of one or more of any other
series in the Prudential Securities Incorporated family of unit investment
trusts or for any Units of any additional trusts that may from time to time be
made available for such exchange by the Sponsor (collectively referred to as the
``Exchange Trusts''). Such Units may be acquired at prices based on reduced
sales charges per Unit. The purpose of such reduced sales charge is to permit
the Sponsor to pass on to the Unit Holder who wishes to exchange Units the cost
savings resulting from such exchange of Units. The cost savings result from
reductions in the time and expense related to advice, financial planning and
operational expense required for the Exchange Option.
Exchange Trusts may have different objectives; a Unit Holder should read the
prospectus for the applicable Exchange Trust carefully to determine its
investment objective prior to exercise of this option.
This option will be available provided the Sponsor maintains a secondary
market in both the Units of this series and units of the applicable Exchange
Trust and provided that units of the applicable Exchange Trust are available for
sale and are lawfully qualified for sale in the jurisdiction in which the Unit
Holder is a resident. While it is the Sponsor's present intention to maintain a
secondary market for the units of all such trusts, there is no obligation on its
part to do so. Therefore, there is no assurance that a market for units will in
fact exist on any given date on which a Unit Holder wishes to sell or exchange
his Units; thus there is no assurance that the Exchange Option will be available
to any Unit Holder. The Sponsor reserves the right to modify, suspend or
terminate this option at any time without further notice to Unit Holders. In the
event the Exchange Option is not available to a Unit Holder at the time he
wishes to exercise it, the Unit Holder will be immediately notified and no
action will be taken with respect to his Units without further instruction from
the Unit Holder.
To exercise the Exchange Option, a Unit Holder should notify the Sponsor of
his desire to exchange his Units for one or more units of the Exchange Trusts.
If units of the applicable outstanding series of the Exchange Trust are at that
time available for sale, the Unit Holder may select the series for which he
desires his Units to be exchanged. The Unit Holder will be provided with a
current prospectus or prospectuses relating to each series in which he indicates
interest.
Units of the Exchange Trust trading in the secondary market maintained by
the Sponsor, if so maintained, will be sold to the Unit Holder at a price equal
to the evaluation price per unit of the securities in that portfolio and the
applicable sales charge of $15 per Unit. Exchange transactions will be effected
only in whole units; thus, any proceeds not used to acquire whole units will be
paid to the exchanging Unit Holder unless the Unit Holder adds the amount of
cash necessary to purchase one additional whole Unit.
Owners of units of any registered unit investment trust, other than
Prudential Securities Incorporated sponsored trusts, which was initially offered
at a minimum applicable sales charge of 3.0% of the public offering price
exclusive of any applicable sales charge discounts, may elect to apply the cash
proceeds of sale or redemption of those units directly to acquire units of any
Exchange Trust trading in the secondary market at the reduced sales charge of
$20 per Unit, subject to the terms and conditions applicable to the Exchange
Option. To exercise this option, the owner should notify his retail broker. He
will be given a prospectus of each series in which he indicates interest, units
of which are available. The Sponsor reserves the right to modify, suspend or
terminate the option at any time without further notice, including the
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right to increase the reduced sales charge applicable to this option (but not in
excess of $5 more per unit than the corresponding fee then charged for a unit of
any Exchange Trust which is being exchanged).
For example, assume that a Unit Holder, who has three units of a Trust with
a 4.25% sales charge and a current price of $1,100 per unit, sells his units and
exchanges the proceeds for units of a series of any Exchange Trust with a
current price of $950 per unit and an ordinary sales charge of 4.25%. The
proceeds from the Unit Holder's units will aggregate $3,300. Since only whole
units of an Exchange Trust may be purchased under the Exchange Option, the
Holder would be able to acquire four units in the Exchange Trust for a total
cost of $3,860 ($3,800 for units for $60 for the $15 per unit sales charge) by
adding an extra $560 in cash. Were the Unit Holder to acquire the same number of
units at the same time in the regular secondary market maintained by the
Sponsor, the price would be $3,968.68 [$3,800 for the units and $168.68 for the
4.25% sales charge (4.439% of the net amount invested)].
Federal Income Tax Consequences
An exchange of Units pursuant to the Exchange Option will generally
constitute a ``taxable event'' under the Code, i.e., a Unit Holder will
recognize gain or loss at the time of the exchange. However, an exchange of
Units of this series of the Government Securities Equity Trust for units of any
other series of Exchange Trusts which are grantor trusts for U.S. federal income
tax purposes will not constitute a taxable event to the extent that the
underlying securities in each trust do not differ materially in kind or extent.
Unit Holders are advised to consult their own tax advisors as to the tax
consequences of exchanging Units in their particular case. In particular, if the
Exchange Option is exercised by a Unit Holder before the 91st day after the
Exchanged Units were acquired, the Unit Holder should consult his own tax
advisor as to the tax treatment of the load charge incurred to acquire the Units
exchanged.
REINVESTMENT OF TRUST DISTRIBUTIONS
Distributions by the Trust, if any, of dividend income and 12b-1 fee amounts
received by the Trust, distributions of any net capital gains received in
respect of Fund Shares and proceeds of the sale of Fund Shares not used to
redeem Units will be made quarterly on or shortly after the Quarterly
Distribution Date to Unit Holders of record on the Quarterly Record Date
immediately preceding such Quarterly Distribution Date. A Unit Holder will
receive such amounts in cash unless such Unit Holder directs United States Trust
Company of New York, acting as distribution agent, to invest such amounts on
behalf of the participating Unit Holder in Fund Shares at such shares' net asset
value, which shares will be subject to 12b-1 expenses. Investment in Fund Shares
is conditioned upon their lawful qualification for sale in the jurisdiction in
which the Unit Holder resides. There can be no assurance, however, that such
qualification will be obtained.
The appropriate prospectus will be sent to the Unit Holder. A Unit Holder's
election to participate in a reinvestment program will apply to all Units of the
Trust owned by such Unit Holder. The Unit Holder should read the prospectus for
the reinvestment program carefully before deciding to participate.
EXPENSES AND CHARGES
Initial Expenses
All expenses and charges incurred prior to or in the establishment of the
Trust were incurred by the Sponsor, AIM Distributors and AIM Management.
Fees
The Trustee will receive for its services under the Indenture an annual fee
in the amount set forth in the ``Summary of Essential Information.''
For each evaluation of the Treasury Obligations in the Trust, the Evaluator
shall receive a fee as set forth in the ``Summary of Essential Information.''
The Trustee's fees and the Evaluator's fees are payable quarterly on or
before each Distribution Date from the Income Account, to the extent funds are
available therein and thereafter from the Principal Account. Any of such fees
may be increased without approval of the Unit Holders in proportion to increases
under the classification ``All Services Less Rent'' in the Consumer Price Index
published by the United States Department of Labor. The Trustee also receives
benefits to the extent that it holds funds on deposit in various non-interest
bearing accounts created under the Agreement.
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Other Charges
The following additional charges are or may be incurred by the Trust as more
fully described in the Indenture: (a) fees of the Trustee for extraordinary
services, (b) expenses of the Trustee (including legal and auditing expenses)
and of counsel designated by the Sponsor, (c) various governmental charges, (d)
expenses and costs of any action taken by the Trustee to protect the Trust and
the rights and interests of the Unit Holders, (e) indemnification of the Trustee
for any loss, liability or expenses incurred by it in the administration of the
Trust without gross negligence, bad faith, willful misfeasance or willful
misconduct on its part or reckless disregard of its obligations and duties, (f)
indemnification of the Sponsor for any losses, liabilities and expenses incurred
in acting as Sponsor or Depositor under the Indenture without gross negligence,
bad faith, willful misfeasance or willful misconduct or reckless disregard of
its obligations and duties, (g) expenditures incurred in contacting Unit Holders
upon termination of the Trust and (h) to the extent then lawful, expenses
(including legal, auditing and printing expenses) of maintaining registration or
qualification of the Units and/or the Trust under Federal or State securities
laws subsequent to initial registration so long as the Sponsor is maintaining a
market for the Units. The accounts of the Trust will be audited not less
frequently than annually by independent public accountants selected by the
Sponsor. The cost of such audit will be an expense of the Trust.
The fees and expenses set forth herein are payable out of the Trust and when
paid by or owing to the Trustee are secured by a lien on the Trust. If the cash
dividend, capital gains distributions and 12b-1 fee payments to the Trust are
insufficient to provide for amounts payable by the Trust, the Trustee has the
power to sell Fund Shares (not Treasury Obligations) to pay such amounts. To the
extent Fund Shares are sold, the size of the Trust will be reduced and the
proportions of the types of Securities will change. Such sales might be required
at a time when Fund Shares would not otherwise be sold and might result in lower
prices than might otherwise be realized. Moreover, due to the minimum amount in
which Fund Shares may be required to be sold, the proceeds of such sales may
exceed the amount necessary for the payment of such fees and expenses. If the
cash dividend, capital gains distributions and 12b-1 fee payments to the Trust
and proceeds of Fund Shares sold are insufficient to pay the ordinary expenses
of the Trust, AIM Management or AIM Distributors shall relieve the Trust of such
obligations to the extent of such deficit. If the cash dividends, capital gains
distribution and 12b-1 fee payments to the Trust and proceeds of Fund Shares
sold after deducting the ordinary expenses are insufficient to pay the
extraordinary expenses of the Trust the Trustee has the power to sell Treasury
Obligations to pay such extraordinary expenses.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units is evidenced by registered certificates executed by the
Trustee and the Sponsor. Certificates are transferable or interchangeable upon
presentation at the corporate trust office of the Trustee, properly endorsed or
accompanied by an instrument of transfer satisfactory to the Trustee and
executed by the Unit Holder or his authorized attorney, together with the
payment of $2.00, if required by the Trustee (not currently required), or such
other amount as may be determined by the Trustee and approved by the Sponsor,
and any other tax or governmental charge imposed upon the transfer of
Certificates. The Trustee will replace any mutilated, lost, stolen or destroyed
Certificate upon proper identification, satisfactory indemnity and payment of
charges incurred. Any mutilated Certificate must be presented to the Trustee
before any substitute Certificate will be issued.
Certain Limitations
The death or incapacity of any Unit Holder will not operate to terminate the
Trust nor entitle the legal representatives or heirs of such Unit Holder to
claim an accounting or to take any other action or proceeding in any court for a
partition or winding up of the Trust.
No Unit Holder shall have the right to vote except with respect to removal
of the Trustee or amendment and termination of the Trust as prescribed in the
Indenture (see ``Administration of the Trust--Amendment'' and ``Administration
of the Trust--Termination,'' herein). Unit Holders shall have no right to
control the operation or administration of the Trust in any manner.
Distributions
The terms of the Treasury Obligations do not provide for periodic payment to
the holders thereof of the annual accrual of discount. To the extent that
dividends and/or 12b-1 fee payments become payable with respect to the Fund
Shares held in the Trust, the Trustee will collect such amounts as they become
payable and credit such amounts to a
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separate Income Account created pursuant to the Indenture. All other moneys
received by the Trustee with respect to the Fund Shares shall be credited to the
Principal Account. Quarterly distributions to each Unit Holder of record as of
the immediately preceding Quarterly Record Date will be made on the next
following Quarterly Distributon Date and shall consist of an amount
substantially equal to such Unit Holder's pro rata share of the distributable
cash balances in the Income Account and the Principal Account, if any, computed
as of the close of business on such Quarterly Record Date. No quarterly
distributions will be made if the amount available for distribution is less than
$2.50 per 100 Units except that, no less than once a year, on a Quarterly
Distribution Date, the Trustee shall distribute the entire cash balances in the
Principal and Income Accounts. All funds collected or received will be held by
the Trustee in trust without interest to Unit Holders as part of the Trust until
required to be disbursed in accordance with the provisions of the Indenture.
Such funds will be segregated by separate recordation on the trust ledger of the
Trustee so long as such practice preserves a valid preference of Unit Holders
under the bankruptcy laws of the United States, or if such preference is not
preserved, the Trustee shall handle such other manner as shall constitute the
segregation and holding thereof in trust within the meaning of the Investment
Company Act of 1940, as the same may be from time to time amended. To the extent
permitted by the Indenture and applicable banking regulations, such funds are
available for use by the Trustee pursuant to normal banking procedures.
The Trustee is authorized by the Indenture to withdraw from the Principal
Account to the extent funds are not sufficient in the Income Account such
amounts as it deems necessary to establish a reserve for any taxes or other
governmental charges that may be payable out of the Trust, which amounts will be
credited to a separate Reserve Account. If the Trustee determines that the
amount in the Reserve Account is greater than the amount necessary for payment
of any taxes or other governmental charges, it will promptly recredit the excess
to the Account from which it was withdrawn. In addition, the Trustee may
withdraw from the Income Account, to the extent available, that portion of the
Redemption Price which represents income. The balance paid on any redemption,
including income, if any, shall be withdrawn from the Principal Account of the
Trust to the extent that funds are available. If such available balance is
insufficient, the Trustee is empowered to sell Securities in order to provide
moneys for redemption of Units tendered. (See ``Rights of Unit
Holders--Redemption'').
Reports and Records
With each distribution, the Trustee will furnish to the Unit Holders a
statement of the amount of dividends and other receipts, if any, distributed,
expressed in each case as a dollar amount per Unit.
Within a reasonable time after the end of each calendar year, the Trustee
will furnish to each person who was a Unit Holder of record at any time during
the calendar year a statement setting forth: (1) as to the Income Account:
dividends and other cash amounts received, deductions for payment of applicable
taxes and for fees and expenses of the Trust, redemptions of Units, and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each Unit outstanding on the last business day of such calendar year; (2) as to
the Principal Account: the dates of disposition and identity of any Securities
and the net proceeds received therefrom, deductions for payments of applicable
taxes and for fees and expenses of the Trust and redemptions of Units, and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each Unit outstanding on the last business day of such calendar year; (3) a list
of the Securities held and the number of Units outstanding on the last business
day of such calendar year; (4) the Redemption Price per Unit based upon the last
computation thereof made during such calendar year; (5) amounts actually
distributed during such calendar year from the Income Account and from the
Principal Account, separately stated, expressed both as total dollar amounts and
as dollar amounts representing the pro rata share of each Unit outstanding on
the last business day of such calendar year; and (6) an annual report of
original issue discount accrual.
The Trustee shall keep available for inspection by Unit Holders at all
reasonable times during usual business hours, books of record and account of its
transactions as Trustee, including records of the names and addresses of Unit
Holders, a current list of Securities in the portfolio and a copy of the
Indenture.
Redemption
Tender of Units
Units may be tendered to the Trustee for redemption at its corporate trust
office at 770 Broadway, New York, New York 10003, upon delivery of a request for
redemption and the Certificates for the Units requested to redeemed and
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payment of any relevant tax. At the present time there are no specific taxes
related to the redemption of the Units. No redemption fee will be charged by the
Sponsor or the Trustee. Units redeemed by the Trustee will be canceled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer, although redemptions without
the necessity of Certificate presentation will be effected for record Unit
Holders for whom Certificates have not been issued. Unit Holders must sign
exactly as their name appears on the face of the Certificate with the signature
guaranteed by an officer of a national bank or trust company or by a member firm
of either the New York, Midwest or Pacific Stock Exchanges or other financial
institution acceptable to the Trustee, if any. In certain instances the Trustee
may require additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority.
Within seven calendar days following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto, the Unit
Holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in the ``Summary of Essential Information'' on the date of tender (see
``Redemption--Computation of Redemption Price per Unit''). The ``date of
tender'' is deemed to be the date on which Units are received by the Trustee,
except that as regards Units received after 4:15 P.M. New York time, the date of
tender is the next day on which such Exchange is open for trading, and such
Units will be deemed to have been tendered to the Trustee on such day for
redemption at the Redemption Price computed on that day.
There is no sales charge incurred when a Unit Holder tenders his Units to
the Trustee for redemption. All amounts paid on redemption representing Income
will be withdrawn from the Income Account to the extent moneys are available;
all other amounts will be paid from the Principal Account. The Trustee is
required by the Indenture to sell Fund Shares and Treasury Obligations, to the
extent possible in the same ratio as the ratio of Fund Shares and Treasury
Obligations then held in the Trust, in order to provide moneys for redemption of
Units tendered. To the extent Securities are sold, the size of the Trust will be
reduced. Such sales could result in a loss to the Trust. The redemption of a
Unit for cash will constitute a taxable event for the Unit Holder under the Code
(see ``Tax Status of the Trust'').
Purchase by the Sponsor of Units Tendered for Redemption
The Indenture requires that the Trustee notify the Sponsor of any tender of
Units for redemption. So long as the Sponsor is maintaining a bid in the
secondary market, the Sponsor, prior to the close of business on the second
succeeding business day, may purchase any Units tendered to the Trustee for
redemption at the price so bid by making payment therefor to the Unit Holder in
an amount not less than the Redemption Price and not later than the day on which
the Units would otherwise have been redeemed by the Trustee, i.e., the Unit
Holder will receive the Redemption Price from the Sponsor within 7 days of the
date of tender (see ``Public Offering of Units--Secondary Market''). Units held
by the Sponsor may be tendered to the Trustee for redemption as any other Units.
The price of any Units resold by the Sponsor will be the Public Offering Price
determined in the manner provided in this Prospectus (see ``Public Offering of
Units-- Public Offering Price''). Any profit resulting from the resale of such
Units will belong to the Sponsor which likewise will bear any loss resulting
from a reduction in the offering or redemption price subsequent to its
acquisition of such Units (see ``Public Offering of Units--Profit of Sponsor'').
Computation of Redemption Price per Unit
The Redemption Price per Unit is determined as of the Evaluation Time on the
date any such determination is made.
The Redemption Price is each Unit's pro rata share, determined by the Trustee,
of the sum of:
(1) the aggregate bid side evaluation of the Treasury Obligations in
the Trust, as determined by the Evaluator and the net asset value of the Fund
Shares in the Trust determined as of the Evaluation Time set forth in the
``Summary of Essential Information''; and
(2) cash on hand in the Trust and dividends receivable on Fund Shares
(other than cash deposited by the Sponsor for the purchase of Securities);
less amounts representing (a) accrued taxes and governmental charges payable out
of the Trust, (b) the accrued expenses of the Trust, and (c) cash held with
respect to previously tendered Units or for distribution to Unit Holders of
record as of a date prior to the evaluation, and (d) any Reserve Account
(``Redemption Price'').
The right of redemption may be suspended and payment of the Redemption
Price per Unit postponed for more than seven calendar days following a tender of
Units for redemption for any period during which the New York Stock Exchange is
closed, other than for weekend and holiday closing, or trading on that Exchange
is restricted or during which
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(as determined by the Securities and Exchange Commission) an emergency exists as
a result of which disposal or evaluation of the Securities is not reasonably
practicable, or for such other periods as the Securities and Exchange Commission
may by order permit. Neither the Trustee nor the Sponsor is liable to any person
or in any way for any loss or damage that may result from any such suspension or
postponement.
SPONSOR
Prudential Securities Incorporated is a Delaware corporation and is engaged
in the underwriting, securities and commodities brokerage business and is a
member of the New York Stock Exchange, Inc., other major securities exchanges
and commodity exchanges and the National Association of Securities Dealers, Inc.
Prudential Securities Incorporated, a wholly-owned subsidiary of Prudential
Securities Group Inc. and an indirect wholly-owned subsidiary of The Prudential
Insurance Company of America, is engaged in the investment advisory business.
Prudential Securities Incorporated has acted as principal underwriter and
managing underwriter of other investment companies. In addition to participating
as a member of various selling groups or as an agent of other investment
companies, Prudential Securities Incorporated executes orders on behalf of
investment companies for the purchase and sale of securities of such companies
and sells securities to such companies in its capacity as a broker or dealer in
securities.
Prudential Securities Incorporated is distributor for Prudential Government
Securities Trust (Intermediate Term Series), The Target Portfolio Trust and for
Class B Shares of The BlackRock Government Income Trust, Global Utility Fund,
Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Adjustable Rate Securities Fund, Inc., Prudential
Allocation Fund, Prudential California Municipal Fund (California Income
and California Series), Prudential Europe Growth, Prudential Equity Fund,
Prudential Equity Income Fund, Prudential Global Fund, Prudential Global
Genesis Fund, Prudential Global Natural Resources Fund, Prudential GNMA Fund,
Prudential Government Income Fund, Prudential Growth Opportunity Fund,
Prudential High Yield Fund, Prudential IncomeVertible(R)Plus Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (except
Connecticut Money Market Series, Massachusetts Money Market Series,
New York Money Market Series and New Jersey Money Market Series, Prudential
National Municipals Fund, Prudential Pacific Growth Fund, Inc., Prudential
Short-Term Global Income Fund, Prudential Strategist Income Fund, Prudential
Structured Maturity Fund, Prudential U.S. Government Fund and Prudential
Utility Fund.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising from
its responsibilities under the Indenture, but will be under no liability to Unit
Holders for taking any action or refraining from any action in good faith or for
errors in judgment or responsible in any way for any default, failure or defect
in any Security or for depreciation or loss incurred by reason of the sale of
any Securities, except in cases of willful misfeasance, bad faith, gross
negligence or reckless disregard for its obligations and duties (see
``Sponsor--Responsibility'').
Responsibility
The Trust is not a managed registered investment company. Securities will
not be sold by the Trustee to take advantage of ordinary market fluctuations.
Although the Sponsor and Trustee do not presently intend to dispose of
Securities, the Indenture permits the Sponsor to direct the Trustee to dispose
of any Security in the Trust for the purpose of redeeming Units tendered for
redemption and to dispose of Fund Shares to pay Trust expenses.
The proceeds resulting from the disposition of any Security in the Trust
will be distributed as set forth under ``Rights of Unit Holders--Distributions''
to the extent such proceeds are not utilized for the purpose of redeeming Units
or paying Trust expenses.
Resignation
If at any time the Sponsor shall resign under the Indenture or shall fail or
be incapable of performing its duties thereunder or shall become bankrupt or its
affairs are taken over by public authorities, the Indenture directs the Trustee
to either (1) appoint a successor Sponsor or Sponsors at rates of compensation
deemed reasonable by the Trustee not exceeding amounts prescribed by the
Securities and Exchange Commission, (2) act as Sponsor itself without
terminating the Trust or (3) terminate the Trust. The Trustee will promptly
notify Unit Holders of any such action.
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TRUSTEE
The Trustee is United States Trust Company of New York, with its principal
place of business and a corporate trust office at 114 West 47th Street, New
York, New York 10036 and a corporate trust office at 770 Broadway, New York, New
York 10003. United States Trust Company has, since its establishment in 1853,
engaged primarily in the management of trust and agency accounts for individuals
and corporations. The Trustee is a member of the New York Clearing House
Association and is subject to supervision and examination by the Superintendent
of Banks of the State of New York, the Federal Deposit Insurance Corporation and
the Board of Governors of the Federal Reserve System. In connection with the
storage and handling of certain of certain Securities deposited in the Trust,
the Trustee may use the services of The Depository Trust Company. These services
may include safekeeping of the Securities and coupon-clipping, computer
book-entry transfer and institutional delivery services. The Depository Trust
Company is a limited purpose trust company organized under the Banking Law of
the State of New York, a member of the Federal Reserve System and a clearing
agency registered under the Securities Exchange Act of 1934.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of the disposition of any moneys, Securities or
Certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. In addition, the Indenture provides that the Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of the Trust which the Trustee may be required to pay
under current or future laws of the United States or any other taxing authority
having jurisdiction.
Responsibility
The Trustee shall not be liable for any default, failure or defect in any
Security or for any depreciation or loss by reason of any such sale of Fund
Shares or by reason of the failure of the Sponsor to give directions to the
Trustee.
Additionally, the Trustee may sell Securities designated by the Sponsor, or
if not so directed, in its own discretion, for the purpose of redeeming Units
tendered for redemption. Fund Shares will be sold first unless the Sponsor is
able to sell Treasury Obligations and Fund Shares in the proportionate
relationship between the maturity values of the Treasury Obligations and the
number of Fund Shares.
Amounts received by the Trust upon the sale of any Security under the
conditions set forth above will be deposited in the Principal Account when
received and to the extent not used for redemption of Units will be
distributable by the Trustee to Unit Holders of record on the Quarterly Record
Date next prior to a Quarterly Distibution Date.
For information relating to the responsibilities of the Trustee under the
Indenture, reference is also made to the material set forth under ``Rights of
Unit Holders'' and ``Sponsor--Resignation.''
Resignation
By executing an instrument in writing and filing the same with the Sponsor,
the Trustee and any successor may resign. In such an event the Sponsor is
obligated to appoint a successor trustee as soon as possible. If the Trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint a successor
as provided in the Indenture. The Sponsor may also remove the Trustee for any
other reason that the Sponsor determines to be in the best interest of the Unit
Holders. Such resignation or removal shall become effective upon the acceptance
of appointment by the successor trustee. If upon resignation of a trustee no
successor has been appointed and has accepted the appointment within thirty days
after notification, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of a
trustee becomes effective only when the successor trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor trustee. A successor trustee has the same rights and duties as the
original trustee except to the extent, if any, that the Indenture modified as
permitted by its terms.
EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of Kenny
Information Systems, Inc., with main offices located at 65 Broadway, New York,
New York 10006.
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Limitations and Liability
The Trustee, Sponsor and Unit Holders may rely on any evaluation furnished
by the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Indenture shall by made in good faith
upon the basis of the best information available to it; provided, however, that
the Evaluator shall be under no liability to the Trustee, Sponsor or Unit
Holders for errors in judgment. The Evaluator shall, however, be liable for its
own willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties under the Indenture.
Responsibility
The Indenture requires the Evaluator to evaluate the Treasury Obligations on
the basis of their bid prices on the last business day of June and December in
each year, on the day on which any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsor. For information relating to the responsibility of the Evaluator to
evaluate the Treasury Obligations, see ``Public Offering of Units--Public
Offering Price.''
Resignation
The Evaluator may resign or may be removed by the Sponsor, and the Sponsor
is to use its best efforts to appoint a satisfactory successor. Such resignation
or removal shall become effective upon the acceptance of appointment by the
successor Evaluator. If upon resignation of the Evaluator no successor accepts
appointment within thirty days after notice of resignation, the Evaluator may
apply to a court of competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE INDENTURE
Amendment
The Indenture may be amended by the Trustee and the Sponsor without the
consent of Unit Holders (a) to cure any ambiguity or to correct or supplement
any provision thereof which may be defective or inconsistent, (b) to change any
provision thereof as may be required by the Securities and Exchange Commission
or any successor governmental agency, and (c) to make such other provisions as
shall not adversely affect the interest of the Unit Holders; provided that the
Indenture may also be amended by the Sponsor and the Trustee with the consent of
Unit Holders owning 51% of the Units at the time outstanding for the purposes of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of modifying in any manner the rights of Unit
Holders. In no event shall the Indenture be amended, so as to increase the
number of Units issuable thereunder except as the result of the additional
deposits of Securities, to permit the deposit of Securities after the initial
date of deposit except in accordance with the terms and conditions of the
Indenture as initially adopted, to permit any other acquisition of securities or
other property by the Trustee either in addition to or in substitution for any
of the Securities on hand in the Trust or to permit the Trustee to vary the
investment of the Unit Holders or to empower the Trustee to engage in business
or to engage in investment activities not specifically authorized in the
Indenture as originally adopted; or so as to adversely affect the
characterization of the Trust as a grantor trust for Federal income tax
purposes. In the event of any amendment the Trustee is obligated to promptly
notify all Unit Holders of the substance of any such amendment.
Termination
The Trust may be terminated at any time by the consent of the holders of 51%
of the Units or by the Trustee upon the direction of the Sponsor when the
aggregate net value of all Trust assets as shown by an evaluation made as
described under ``Evaluator-Responsibility'' is less than 40% of the aggregate
maturity amounts of the Treasury Obligations deposited in the Trust on the Date
of Deposit and subsequent thereto calculated after the most recent deposit of
Treasury Obligations in the Trust (without reduction for Treasury Obligations
deposed of) or if there has been a material change in the Fund's objectives or
if Replacement Treasury Obligations are not acquired. However in no event may
the Trust continue beyond the Mandatory Termination Date set forth under
``Summary of Essential Information.'' In the event of termination, written
notice therof will be sent by the Trustee to all Unit Holders.
Within a reasonable period after termination, the Trustee will sell any
Securities remaining in the Trust (other than Fund Shares for which an in kind
distribution has been requested), and, after paying all expenses and charges
incurred by a Trust, will distribute to each Unit Holder, upon surrender for
cancellation of his Certificate for Units, his pro rata share of: (i) the amount
realized upon disposition of the Fund Shares unless the Unit Holder notifies the
Trustee in writing of his preference for distribution ``in kind,'' (ii) the
amount realized upon the disposition or maturity of the Treasury
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Obligations and (iii) any other assets of the Trust. A Unit Holder may invest
the proceeds of the Treasury Obligations in Fund Shares at such shares' net
asset value, which Fund Shares will be subject to 12b-1 expenses. The sale of
the Securities in the Trust upon termination may result in a lower amount than
might otherwise be realized if such sale were not required at such time and,
therefore, the amount realized by a Unit Holder on termination may be less than
the principal amount of Treasury Obligations represented by the Units held by
such Unit Holder.
Tax Impact of In Kind Distribution Upon Termination
Under the position taken by the Internal Revenue Service in Revenue Ruling
90-7, a distribution by the Trustee to a Unit Holder (or to his agent) of his
pro rata share of the Fund Shares in kind upon termination of the Trust will not
be a taxable event to the Unit Holder. Such Unit Holder's basis for Fund Shares
so distributed (other than any Fund Shares purchased with his pro rata share of
the proceeds of Treasury Obligations) will be equal to his basis for the same
Fund Shares (previously represented by his Units) prior to such distribution and
his holding period for such Fund Shares will be the shorter of the period during
which he held his Units and the period for which the Securities were held in the
Trust. A Unit Holder will have a taxable gain or loss, which will be a capital
gain or loss except in the case of a dealer or a financial institution, when the
Unit Holder disposes of such Securities in a taxable transfer.
LEGAL OPINIONS
The legality of the Units offered hereby has been passed upon by Messrs.
Cahill Gordon & Reindel, a partnership including a professional corporation, 80
Pine Street, New York, New York 10005, as special counsel for the Sponsor.
INDEPENDENT AUDITORS
The Statement of Financial Condition and Schedule of Portfolio Securities of
the Government Securities Equity Trust included in this Prospectus have been
examined by Deloitte & Touche LLP, certified public accountants, as stated in
their report appearing herein, and are included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
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No person is authorized to give any information or to make any
representations with respect to this investment company not contained in this
Prospectus; and any information or representation not contained herein must not
be relied upon as having been authorized. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state to
any person to whom it is not lawful to make such offer in such state.
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES EQUITY TRUST
Series 2
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Summary of Essential Information........................ A-iii
Independent Auditors' Report............................ A-1
Statement of Financial Condition........................ A-2
Schedule of Portfolio Securities........................ A-8
The Trust............................................... B-1
Trust Information................................... B-1
Securities Selection................................ B-2
Stripped U.S. Treasury Obligations............... B-2
AIM Weingarten Fund.............................. B-2
General Information Regarding the Fund.............. B-3
Investment Strategies and Restrictions.............. B-5
Net Asset Value of the Fund Shares.................. B-8
The Fund's Investment Advisor and Sub-Advisor....... B-8
Portfolio Managers.................................. B-9
The Fund's Plan of Distribution..................... B-9
Risk of Investment in Units......................... B-10
The Units........................................... B-11
Tax Status of the Trust................................. B-11
Retirement Plans........................................ B-14
Public Offering of Units................................ B-14
Public Offering Price............................... B-14
Public Distribution................................. B-14
Secondary Market.................................... B-15
Profit of Sponsor................................... B-15
Volume Discount..................................... B-15
Employee Discount................................... B-16
Exchange Option......................................... B-16
Federal Income Tax Consequences..................... B-17
Reinvestment of Trust Distributions..................... B-17
Expenses and Charges.................................... B-17
Initial Expenses.................................... B-17
Fees................................................ B-17
Other Charges....................................... B-18
Rights of Unit Holders.................................. B-18
Certificates........................................ B-18
Certain Limitations................................. B-18
Distributions....................................... B-18
Reports and Records................................. B-19
Redemption.......................................... B-19
Sponsor................................................. B-21
Limitations on Liability............................ B-21
Responsibility...................................... B-21
Resignation......................................... B-21
Trustee................................................. B-22
Limitations on Liability............................ B-22
Responsibility...................................... B-22
Resignation......................................... B-22
Evaluator............................................... B-22
Limitations on Liability............................ B-23
Responsibility...................................... B-23
Resignation......................................... B-23
Amendment and Termination of the Indenture.............. B-23
Amendment........................................... B-23
Termination......................................... B-23
Tax Impact of In Kind Distribution Upon
Termination......................................... B-24
Legal Opinions.......................................... B-24
Independent Auditors.................................... B-24
</TABLE>
Sponsor
Prudential Securities Incorporated
One Seaport Plaza
199 Water Street
New York, New York 10292
Trustee
United States Trust
Company of New York
114 West 47th Street
New York, New York 10036
Evaluator
Kenny Information Systems, Inc.
65 Broadway
New York, New York 10004
Fund Shares
AIM Weingarten Fund Retail Class
Eleven Greenway Plaza
Suite 1919
Houston, Texas 77046
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