<PAGE>
As filed with the Securities and Exchange Commission on January 18, 1994
Registration No. 33-
___________________________________________________________________________
___________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
_____________________
A. Exact Name of Trust:
GOVERNMENT SECURITIES
EQUITY TRUST SERIES 7
B. Name of depositor:
PRUDENTIAL SECURITIES INCORPORATED
C. Complete address of depositor's principal executive office:
One Seaport Plaza
199 Water Street
New York, New York 10292
D. Name and complete address of agent for service:
Copy to:
LEE B. SPENCER, JR., ESQ. KENNETH W. ORCE, ESQ.
PRUDENTIAL SECURITIES INCORPORATED CAHILL GORDON & REINDEL
One Seaport Plaza 80 Pine Street
199 Water Street New York, New York 10005
New York, New York 10292
E. Title and amount of securities being registered:
An indefinite number of Units of GOVERNMENT SECURITIES
EQUITY TRUST SERIES 7
Pursuant to Rule 24f-2 promulgated under
the Investment Company Act of 1940 as amended.
F. Proposed maximum aggregate offering price to the public of the
securities being registered:
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Indefinite
G. Amount of filing fee:
$500 (as required by Rule 24f-2)
H. Approximate date of proposed sale to public:
As soon as practicable after the effective date
of the registration statement.
__
/__/ Check box if it is proposed that this filing will become effective
on , 1994 immediately upon filing pursuant to Rule 487.
___________________________________________________________________________
___________________________________________________________________________
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this registration statement shall hereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
CROSS-REFERENCE SHEET
Pursuant to Rule 404 of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
Form N-8B-2 Form S-6
Item Number Heading In Prospectus
I. Organization and General Information
1. (a) Name of Trust..................... Prospectus front cover
(b) Title of securities issued........ Prospectus front cover
2. Name and address of each depositor.... Sponsor, Prospectus back cover
3. Name and address of trustee........... Trustee
4. Name and address of each principal
underwriter......................... Sponsor
5. State of organization of trust........ The Trust
6. Execution and termination of trust
agreement........................... Summary of Essential
Information; The Trust;
Amendment and Termination of
the Indenture - Termination
7. Changes of Name....................... *
8. Fiscal year........................... *
9. Litigation............................ *
II. General Description of the Trust and
Securities of the Trust
10. (a) Registered or bearer securities... *
(b) Cumulative or distributive
securities........................ *
________________
* Inapplicable, answer negative or not required.
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(c) Redemption........................ Rights of Unit Holders --
Redemption
(d) Conversion, transfer, etc......... Rights of Unit Holders --
Redemption
(e) Periodic payment plan............. *
(f) Voting rights..................... *
(g) Notice to certificateholders...... The Trust; Rights of Unit
Holders -- Reports and
Records; Sponsor --
Responsibility; Sponsor --
Resignation; Trustee --
Resignation; Amendment and
Termination of the Indenture
(h) Consents required................. The Trust; Amendment and
Termination of the Indenture
(i) Other provisions.................. Tax Status
11. Type of securities comprising units... Prospectus front cover; The
Trust
12. Certain information regarding
periodic payment certificates....... *
13. (a) Load, fees, expenses, etc......... Summary of Essential
Information; Public Offering
of Units -- Public Offering
Price; Public Offering of
Units -- Profit of Sponsor;
Public Offering of Units --
Volume Discount; Public
Offering of Units -- Employee
Discount; Exchange Option;
Reinvestment Program;
Expenses and Charges
(b) Certain information regarding
periodic payment certificates... *
(c) Certain percentages............... Summary of Essential
Information; Public Offering
of Units -- Public Offering
Price; Public Offering of
Units -- Profit of Sponsor;
Public Offering of Units --
Volume Discount; Public
Offering of Units -- Employee
Discount; Exchange Option
(d) Price differentials............... Public Offering of Units --
Employee Discount
________________
* Inapplicable, answer negative or not required.
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(e) Certain other fees, etc.
payable by holders.............. Rights of Unit Holders --
Certificates
(f) Certain other profits
receivable by depositor,
principal underwriter, trustee
or affiliated persons........... Rights of Unit Holders --
Redemption -- Purchase by the
Sponsor of Units Tendered for
Redemption
(g) Ratio of annual charges to
income.......................... *
14. Issuance of trust's securities........ The Trust; Rights of Unit
Holders -- Certificates
15. Receipt and handling of payments
from purchasers....................... *
16. Acquisition and disposition of
underlying securities................. The Trust -- Trust Formation;
The Trusts -- Securities
Selection; Rights of Unit
Holders -- Redemption;
Sponsor -- Responsibility
17. Withdrawal or redemption.............. Rights of Unit Holders --
Redemption
18. (a) Receipt, custody and
disposition of income........... Rights of Unit Holders --
Distributions; Rights of Unit
Holders -- Reports and
Records
(b) Reinvestment of distributions..... Reinvestment Program
(c) Reserves or special funds......... Expenses and Charges; Rights of
Unit Holders -- Distributions
(d) Schedule of distributions......... *
19. Records, accounts and reports......... Rights of Unit Holders --
Distributions; Rights of Unit
Holders -- Reports and
Records
20. Certain miscellaneous provisions
________________
* Inapplicable, answer negative or not required.
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of trust agreement.................. Sponsor -- Limitations on
Liability;
(a) Amendment......................... Sponsor -- Resignation;
(b) Termination....................... Trustee -- Limitations on
Liability;
(c) and (d) Trustee, removal and
successor......................... Trustee -- Resignation;
(e) and (f) Depositor, removal and
successor......................... Amendment and Termination of
the Indenture
21. Loans to security holders............. *
22. Limitation on liability............... The Trust; Sponsor --
Limitations on Liability;
Trustee -- Limitations on
Liability; Evaluator --
Limitations on Liability
23. Bonding arrangements.................. Additional Information --
Item A
24. Other material provisions of
trust agreement..................... *
III. Organization, Personnel and
Affiliated Persons of Depositor
25. Organization of depositor............. Sponsor
26. Fees received by depositor............ *
27. Business of depositor................. Sponsor
28. Certain information as to
officials and affiliated
persons of depositor................ Contents of Registration
Statement -- Part II
29. Companies controlling depositor....... Sponsor
30. Persons controlling depositor......... *
31. Payments by depositor for certain
services rendered to trust.......... *
32. Payments by depositor for
________________
* Inapplicable, answer negative or not required.
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certain other services rendered
to trust............................ *
33. Remuneration of employees of
depositor for certain services
rendered to trust................... *
34. Remuneration of other persons
for certain services rendered
to trust............................ *
35. Distribution of trust's securities
in states........................... Public Offering of Units --
Public Distribution
36. Suspension of sales of trust's
securities.......................... *
37. Revocation of authority to
distribute.......................... *
38. (a) Method of distribution............ Public Offering of Units
(b) Underwriting agreements........... Public Offering of Units
(c) Selling agreements................ Public Offering of Units
39. (a) Organization of principal
underwriter..................... Sponsor
(b) N.A.S.D. membership of
principal underwriter........... Sponsor
40. Certain fees received by
principal underwriter............... *
41. (a) Business of principal
underwriter..................... Sponsor
(b) Branch offices of principal
underwriter..................... Sponsor
(c) Salesmen of principal
underwriter..................... *
42. Ownership of trust's securities by
certain persons..................... *
43. Certain brokerage commissions
received by principal underwriter... *
________________
* Inapplicable, answer negative or not required.
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44. (a) Method of valuation............... Summary of Essential
Information; Public Offering
of Units -- Public Offering
Price; Public Offering of
Units -- Public Distribution;
Public Offering of Units --
Secondary Markets
(b) Schedule as to offering price..... *
(c) Variation in offering price
to certain persons.............. Public Offering of Units --
Public Distribution; Public
Offering of Units -- Volume
Discount; Public Offering of
Units -- Employee Discount;
Exchange Option
45. Suspension of redemption rights....... *
46. (a) Redemption Valuation.............. Summary of Essential
Information; Rights of Unit
Holders -- Redemption -
Computation of Redemption
Price per Unit
(b) Schedule as to redemption
price........................... *
47. Maintenance of position in
underlying securities............... Public Offering of Unit --
Secondary Market; Rights of
Unit Holders -- Redemption --
Computation of Redemption
Price per Unit; Rights of
Unit Holders -- Redemption --
Purchase by the Sponsor of
Units Tendered for Redemption
IV. Information Concerning
the Trustee or Custodian
48. Organization and regulation
of trustee.......................... Trustee
49. Fees and expenses of trustee.......... Expenses and Charges
50. Trustee's lien........................ Expenses and Charges -- Other
Charges
________________
* Inapplicable, answer negative or not required.
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V. Information Concerning Insurance of
Holders of Securities
51. Insurance of holders of trust's
securities.......................... *
VI. Policy of Registrant
52. (a) Provisions of trust agreement
with respect to selection
or elimination of underlying
securities...................... Prospectus front cover; The
Trust -- Trust Formation; The
Trust -- Objectives and
Securities Selection; Sponsor
-- Responsibility
(b) Transactions involving
elimination of underlying
securities...................... *
(c) Policy regarding substitution
or elimination of underlying
securities...................... Sponsor -- Responsibility
(d) Fundamental policy not other-
wise covered.................... *
53. Tax status of trust................... Prospectus front cover; Tax
Status
VII. Financial and Statistical Information
54. Trust's securities during last
ten years........................... *
55.
56. Certain information regarding
periodic payment certificates....... *
57.
58.
59. Financial statements
(Instruction 1(c) to Form S-6)...... Statement of Financial
Condition
________________
* Inapplicable, answer negative or not required.
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Information contained herein is subject to completion or
amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers to
buy them be accepted prior to the time the registration
statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any
State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of such state.
Subject to Completion Dated January 18, 1994
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
[LOGO]
_______________________________________________________________
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 Templeton Developing Markets Trust (the "Fund"),
an open-end, diversified, registered management investment
company. The objective of the Fund is long-term capital
appreciation by investing in securities of issuers of countries
having developing markets. Units of the Trust may be suited
for purchase by Individual Retirement Accounts, Keogh Plans and
other tax-deferred retirement plans.
_______________________________________________________________
Sponsor:
Prudential Securities [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.
_______________________________________________________________
Please Read and Retain Prospectus dated , 1994
This Prospectus for Future
Reference.
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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.
_______________________________________________________________
The Trust
Government Securities Equity Trust Series 7 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 ("Fund Shares") of the
Templeton Developing Markets Trust (the "Fund"), an open-end
diversified, registered 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 years from the Date of
Deposit 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. The objective of the Fund is
long-term capital appreciation by investing in securities of
issuers in countries having developing markets. 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 insure that an investor will
receive, at the maturity of such Trust, $15.00 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 $15.00 since the capital protection is limited to
the aggregate maturity value per Unit of Treasury obligations.
On the Date of Deposit, the Public Offering Price, including
the sales charge, will be approximately $12.50 per Unit and
consequently Unit Holders purchasing Units on such date can
anticipate realizing proceeds at maturity of the Treasury
Obligations greater than their initial investment of
approximately $12.50 per Unit. 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
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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 subsequent to the Date of
Deposit. 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.
Subsequent to the Date of Deposit the Sponsor may,
from time to time, deposit additional Treasury Obligations and
Fund Shares in the Trust while maintaining the proportionate
relationship between the maturity amount of the Treasury
Obligations and the number of Fund Shares immediately prior to
such deposit. Any additional Treasury Obligations added to the
Trust will be United States Treasury notes or bonds
substantially identical to those then held in the Trust.
The Fund
The objective of the Fund is long-term capital
appreciation by investing in securities of issuers of countries
having developing markets.
The Fund considers countries having developing
markets to be all countries that are generally considered to be
developing or emerging countries by the International Bank for
Reconstruction and Development (more commonly referred to as
the World Bank) and the International Finance Corporation, as
well as countries that are classified by the United Nations or
otherwise regarded by their authorities as developing.
Currently, the countries not included in this category are
Ireland, Spain, New Zealand, Australia, the United Kingdom,
Italy, the Netherlands, Belgium, Austria, France, Canada,
Germany, Denmark, the United States, Sweden, Finland, Norway,
Japan and Switzerland. In addition, as used in connection with
the Fund, developing market equity securities means (i) equity
securities of companies the principal securities trading market
for which is a developing market country, as defined above,
(ii) equity securities, traded in any market, of companies that
derive 50% or more of their total revenue from either goods or
services produced in such developing market countries or sales
made in such developing market countries or (iii) equity
securities of companies organized under the laws of, and with a
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principal office in, a developing country. "Equity
securities," as used in connection with the Fund, refers to
common stock, preferred stock, warrants or rights to subscribe
to or purchase such securities and sponsored or unsponsored
American Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs"). Determinations as to eligibility will be
made by the Templeton Investment Management (Hong Kong) Limited
(the "Investment Manager" of the Fund) based on publicly
available information and inquiries made to the companies.
(See "The Trust-Fund Risk Factors" for a discussion of the
nature of information publicly available for non-U.S.
companies.) The Fund will at all times, except during
defensive periods, maintain investments in at least three
countries having developing markets.
The Fund seeks to benefit from economic and other
developments in developing markets. The investment objective
of the Fund reflects the belief that investment opportunities
may result from an evolving long-term international trend
favoring more market-oriented economies, a trend that may
especially benefit certain countries having developing markets.
This trend may be facilitated by local or international
political, economic or financial developments that could
benefit the capital markets of such countries. Certain such
countries, particularly the emerging market countries (such as
Malaysia, Mexico and Thailand) which may be in the process of
developing more market-oriented economies, may experience
relatively high rates of economic growth. Other countries
(such as Portugal and Hong Kong), although having relatively
mature developing markets, may also be in a position to benefit
from local or international developments encouraging greater
market orientation and diminishing governmental intervention in
economic affairs.
The Fund may write covered put and call options and
purchase put and call options on securities and securities
indices that are traded on United States and foreign exchanges
or in the over-the-counter markets; may invest up to 5% of its
total assets in put or call options; may purchase and sell
financial futures contracts, stock index futures contracts,
foreign currency futures contracts and options on any of the
foregoing up to an aggregate amount not exceeding 25% of its
total assets but may not at any time commit more than 5% of its
total assets to initial margin deposits on futures contracts
and related options; may invest in preferred stocks and certain
debt securities, rated or unrated, such as convertible bonds
and bonds selling at a discount. The Fund may invest in junk
bonds (see "The Trust - Fund Risk Factors" on pages B-20
through B-24). Any income realized will be incidental.
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Although the Fund generally invests in common stock
it may also invest in preferred stocks and certain debt
securities, rated or unrated, such as convertible bonds and
bonds selling at a discount. Whenever, in the judgment of the
Investment Manager, market or economic conditions warrant, the
Fund may, for temporary defensive purposes, invest without
limit in money market securities denominated in U.S. dollars or
in the currency of any foreign country. See "The Trust -
Investment Strategies and Restrictions of the Fund."
Although the Fund will constantly strive to attain
the objective of long-term capital appreciation, there can be
no assurance it will be attained. The objective of the Fund
may not be changed without shareholder approval. 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." The Fund invests in
securities of issuers of countries having developing markets.
Investment in such securities involves certain considerations
which are not normally involved in investment in securities of
U.S. companies, and an investment in Fund Shares may be
considered speculative. The Fund may borrow money for
investment purposes, which may involve greater risk and
additional costs to the Fund. In addition, the Fund may invest
up to 10% of its assets in restricted securities, which may
involve greater risk and increase Fund expenses. See "The
Trust -- Fund Risk Factors." Although the Trust is structured
to return to an initial Unit Holder his purchase cost of a Unit
through the distribution of the Treasury Obligations' maturity
value on the mandatory termination date of the Trust, an
investor will have included the accrual of original issue
discount on such Treasury Obligations in income for federal
income tax purposes and will have paid federal income tax on
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such accrual. An investor holding his Units to Trust maturity
may suffer a loss to the extent the investor's purchase cost of
a Unit exceeds $15.00 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.
Distributions
Distributions, if any, of dividends, 12b-1 fee
amounts received by the Trust from the Sponsor 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"). 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 during the
initial offering period is equal to the aggregate offering side
evaluation of the underlying Treasury Obligations and the net
asset value of the Fund Shares (excluding any sales charge),
divided by the number of Units outstanding plus a sales charge
equal to 5.25% of the Public Offering Price (5.541% of the net
amount invested) per Unit. Any cash held by the Trust will be
added to the Public Offering Price. After the initial public
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offering period, 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, 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). Any
money in the Income and Principal Accounts other than money
required to redeem tendered Units will be added to the Public
Offering Price. The sales charge is reduced on a graduated
scale for sales involving at least 2,000 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 Risk 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 (see "The Trust -- Stripped U.S.
Treasury Obligations" on pages B-4 and B-5) and (ii) a mutual
fund which invests in the type of securities in which the Fund
invests (see "The Trust -- Fund Risk Factors" on pages B-20
through B-24). 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
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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 as of Date of Deposit
$ face amount of Treasury Obligations
maturing on , 200_ and Fund Shares were held
in the Trust on the Date of Deposit. The Treasury Obligations
and the Fund Shares represented % and %, respectively, of
the total of the aggregate offering side evaluation of Treasury
Obligations in the Trust and the aggregate value of Fund Shares
on the Date of Deposit.
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SUMMARY OF ESSENTIAL INFORMATION
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
As of , 1994+
AGGREGATE MATURITY VALUE OF TREASURY OBLIGATIONS
INITIALLY DEPOSITED.................................. $
AGGREGATE NUMBER OF FUND SHARES INITIALLY
DEPOSITED............................................
INITIAL NUMBER OF UNITS................................
FRACTIONAL UNDIVIDED INTEREST IN THE TRUST
REPRESENTED BY EACH UNIT............................. 1/ th
PUBLIC OFFERING PRICE
Aggregate offering side evaluation of Treasury
Obligations in the Trust............................. $
Aggregate value of Fund Shares++.....................
Total................................................
Divided by Units.........................
Plus sales charge of 5.25% of Public Offering
Price (5.541% of net amount invested)*...............
Public Offering Price per Unit+++....................
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,++ $ less than Public Offering
Price per Unit)...................................... $
QUARTERLY RECORD DATES: February 1, May 1, August
1, November 1.
QUARTERLY DISTRIBUTION DATES: February 15, May
15, August 15, November 15.
TRUSTEE'S ANNUAL FEE** (including estimated
expenses and Evaluator's fee) $ per 100
Units outstanding.
EVALUATOR'S FEE FOR EACH EVALUATION OF TREASURY
OBLIGATIONS: $5.00
EVALUATION TIME: 4:00 P.M. New York Time (i.e.
the close of regular trading on the New York
Stock Exchange)
MANDATORY TERMINATION DATE: , 200
MINIMUM VALUE OF TRUST: The Trust may be
terminated if the value of 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.
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<PAGE>
___________
+ The Date of Deposit. 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.
++ Calculated by multiplying aggregate number of Fund Shares by
the current net asset value per share (excluding any sales
load on the Fund Shares).
+++ This Public Offering Price is computed as of the Date of
Deposit and may vary from the Public Offering Price on the
date of this Prospectus or any subsequent date.
* Certain transactions are entitled to a reduced sales charge.
(See "Public Offering of Units -- Volume Discount.")
** Based on Trust size of 1,000,000 or fewer Units.
__________
For an explanation of the management fees paid by the Fund
(as of December 31, 1993, 1.25% of Fund average net assets),
see page B-18.
A-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE UNIT HOLDERS, SPONSOR AND TRUSTEE
OF THE GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
We have audited the Statement of Financial Condition
and Schedule of Portfolio Securities of the Government
Securities Equity Trust Series 7 as of , 1994.
These financial statements are the responsibility of the
Trustee and Sponsor (see note (d) to the statement of financial
condition). Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
the irrevocable letter of credit for the purchase of
securities, as shown in the Statement of Financial Condition
and Schedule of Portfolio Securities as of ,
1994, by correspondence with United States Trust Company of New
York, the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by
the Trustee, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of Government Securities Equity Trust Series 7 as of
, 1994, in conformity with generally accepted
accounting principles.
New York, N.Y.
, 1994
A-10
<PAGE>
STATEMENT OF FINANCIAL CONDITION
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
As of Date of Deposit, , 1994
TRUST PROPERTY
Sponsor's Contracts to Purchase underlying
Securities backed by an irrevocable
letter of credit(a).......................... $
INTEREST OF UNIT HOLDERS
Units of fractional undivided interest
outstanding:
Cost to investors(b)...................... $
Gross underwriting commission(c).......... ____________
Total................................... $
(a) The aggregate value of the Securities
represented by Contracts to Purchase listed under "Schedule of
Portfolio Securities" included herein and their cost to the
Trust are the same. An irrevocable letter of credit drawn on
Mellon Bank, N.A. in the amount of $ has been
deposited with the Trustee for the purchase of Securities
pursuant to contracts to purchase such Securities.
(b) The aggregate Public Offering Price is computed
on the basis set forth under "Public Offering of Units --
Public Offering Price."
(c) The aggregate sales charge of 5.25% of the
Public Offering Price per Unit is computed on the basis set
forth under "Public Offering of Units -- Public Offering
Price."
(d) The Trustee has custody of and responsibility
for all accounting 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 Treasury Obligation included in the Trust's Schedule
of Portfolio Securities on the basis set forth in "Public
Offering of Units -- Public Offering Price." Under the
Securities Act of 1933, as amended (the "Act"), the Sponsor is
A-11
<PAGE>
deemed to be an issuer of the Trust's 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.
A-12
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
On Date of Deposit, , 1994
Name of
Issuer and Cost of
Title of Securities Represented by Securities
____Contracts to Purchase (1)_____ to Trust(2)
$ Maturity Amount of
Stripped United States Treasury
Obligations maturing on ,
200 ........................................... $ .00
Shares of the Templeton Developing
Markets Trust ($ per Fund Share).......... ____________
$____________
__________________
(1) The Treasury Obligations have been purchased at
a discount from their maturity 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
holder receives 100% of the Treasury Obligation maturity
amount.
Shares in the Fund have been valued at their net
asset value as of the Evaluation Time on the Date of Deposit.
The Fund's investment manager is Templeton Investment
Management (Hong Kong) Limited.
All Securities are represented by contracts to
purchase such Securities. The Securities are represented by
regular way contracts for the performance of which an
irrevocable letter of credit has been deposited with the
Trustee. The contracts to purchase Securities were entered
into by the Sponsor on , 1994.
(2) Offering prices of Treasury Obligations are
determined by the Evaluator on the basis stated under "Public
Offering of Units -- Public Offering Price" herein. The
offering side evaluation is greater than the current bid
evaluation of the Treasury Obligations, which is the basis on
which Redemption Price per Unit is determined (see: "Rights of
A-13
<PAGE>
Unit Holders -- Redemption -- Computation of Redemption Price
per Unit" ). The aggregate value of the Treasury Obligations
based on the bid side evaluation of the Treasury Obligations on
the Date of Deposit was $ (which is $ lower than
the aggregate cost of the Treasury Obligations to the Trust
based on the offering side evaluation). The Profit to Sponsor
on deposit totals $ .
A-14
<PAGE>
GOVERNMENT SECURITIES EQUITY TRUST
SERIES 7
THE TRUST
The Government Securities Equity Trust Series 7 (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")1
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 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 ("Fund Shares") of
Templeton Developing Markets Trust (the "Fund"), an open-end,
diversified, registered management investment company (the
Treasury Obligations and Fund Shares hereinafter, collectively,
referred to as "Securities"). The Fund's investment objective
is long-term capital appreciation by investing in securities of
issuers of countries having developing markets. There is of
course no guarantee that the Trust's objectives will be
achieved.
Trust Formation
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"). 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
_________________________
1 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>
"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."
With the deposit of the Securities in the Trust on
the Date of Deposit, the Sponsor established a percentage
relationship between the maturity amounts of Treasury
Obligations and the number of Fund Shares in the Portfolio.
Subsequent to the initial deposit of Securities on the Date of
Deposit, the Sponsor may, but is not obligated to, deposit
additional Securities (including contracts together with an
irrevocable letter of credit for the purchase thereof) in the
Trust, to receive in exchange therefor additional Units and to
offer such Units to the public by means of this Prospectus. A
subsequent deposit by the Sponsor of Treasury Obligations and
Fund Shares will maintain the proportionate relationship
between the maturity amount of Treasury Obligations and the
number of Fund Shares immediately prior to such deposit; the
deposited Treasury Obligations will be substantially identical
to those held in the Trust immediately prior to the subsequent
deposit. Each Unit owned by each Unit Holder will represent
the same proportionate interest in the Trust. As additional
Units are issued by the Trust as a result of the deposit of
additional Securities by the Sponsor, the aggregate value of
the Securities in the Trust will be increased and the
fractional undivided interest in the Trust represented by each
Unit will be decreased.
On the Date of Deposit, 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 $15.00 even
if the value of the Fund Shares were to decline to zero. Of
course, whether or not a Unit Holder makes a profit or suffers
B-2
<PAGE>
a loss depends on whether his purchase price was less than or
exceeded $15.00 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 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.
Notwithstanding the availability of the above-
mentioned irrevocable letter(s) of credit, it is expected that
the Sponsor will pay for the Securities as the contracts for
their purchase become due. A substantial portion of such
contracts have not become due by the date of this Prospectus.
To the extent Units are sold prior to the settlement of such
contracts, the Sponsor will receive the purchase price of such
Units prior to the time at which it pays for Securities
pursuant to such contracts and have the use of such funds
during this period.
Units will be sold to investors at the Public
Offering Price next computed after receipt of the investor's
order to purchase Units, if Units are available to fill orders
on the day that such price is set. If Units are not available
or are insufficient to fill the order (e.g., if demand for
Units exceeds the Units available for sale and the Sponsor is
not yet able to create additional Units) the investor's order
will be rejected by the Sponsor. The number of Units available
may be insufficient to meet demand because of the Sponsor's
inability to or decision not to purchase and deposit Treasury
Obligations of the required type and/or Fund Shares in amounts
sufficient to maintain the proportionate relationship between
maturity values of Treasury Obligations and numbers of Fund
Shares of the Fund required to create additional Units. The
Sponsor may, if unable to accept orders on any given day, offer
to execute the order as soon as sufficient Units can be
created. An investor will be deemed to place a new order for
that number of Units each day until that order is accepted.
The investor's order will then be executed, when Units are
available, at the Public Offering Price next calculated after
such continuing order is accepted. The investor will, of
B-3
<PAGE>
course, be able to revoke his purchase offer at any time prior
to acceptance by the Sponsor. The Sponsor will execute orders
to purchase in the order it determines that they are received,
i.e., orders received first will be filled first except that
indications of interest prior to the effectiveness of the
registration of the offering of Trust Units which become orders
upon effectiveness will be accepted according to the order in
which the indications of interest were received.
On the Date of Deposit the Trust consisted of the
Securities listed under "Schedule of Portfolio Securities"
herein or contracts to acquire such Securities together with a
letter of credit to provide the amount necessary to complete
the purchase of such Securities. Neither the Sponsor nor any
affiliate of the Sponsor will be liable in any way for any
default, failure or defect in any Securities.
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.
The Trust consists of such of the Securities listed
under "Schedule of Portfolio Securities" herein as may continue
to be held from time to time in the Trust, newly deposited
Securities meeting requirements for creation of additional
Units 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
B-4
<PAGE>
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 the Fund and its
affiliates has been provided by Franklin/Templeton
Distributors, 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.
Templeton Developing Markets Trust
The portfolio of the Trust also contains shares (the
"Fund Shares") of the Templeton Developing Markets Trust (the
"Fund"). On December 31, 1993, the net assets of the Fund were
approximately $1,396,387,000. The Fund has retained an
investment manager, Templeton Investment Management (Hong Kong)
Limited (the "Investment Manager").
The investment objective of the Fund is long-term
capital appreciation. The Fund seeks to achieve this objective
by investing primarily in equity securities of issuers in
countries having developing markets. The investment objective
of the Fund described above is a fundamental policy of the Fund
and may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940 (the "1940 Act").
It is currently expected that under normal conditions at least
B-5
<PAGE>
65% of the Fund's total assets will be invested in developing
market equity securities. The Fund and the Investment Manager
may, from time to time, use various methods of selecting
securities for the Fund's portfolio, and may also employ and
rely on independent or affiliated sources of information and
ideas in connection with management of the Fund's portfolio.
The Investment Manager generally will provide three portfolio
managers for the Fund, and such portfolio management
assignments may, from time to time, be changed or improved.
There can be no assurance that the Fund's investment objective
will be achieved.
For capital appreciation, the Fund may invest up to
35% of its total assets in debt securities (defined as bonds,
notes, debentures, commercial paper, certificates of deposit,
time deposits and bankers' acceptances) which are rated at
least C by Moody's Investors Service, Inc. ("Moody's") or C by
Standard & Poor's Corporation ("S&P") or unrated debt
securities deemed to be of comparable quality by the Investment
Manager. See "The Trust-Fund Risk Factors." As an operating
policy, which may be changed by the Board of Trustees of the
Fund, the Fund will not invest more than 5% of its total assets
in debt securities rated Baa or lower by Moody's or BBB or
lower by S&P. Certain debt securities can provide the
potential for capital appreciation based on various factors
such as changes in interest rates, economic and market
conditions, improvement in an issuer's ability to repay
principal and pay interest, and ratings upgrades.
Additionally, convertible bonds offer the potential for capital
appreciation through the conversion feature, which enables the
holder of the bond to benefit from increases in the market
price of the securities into which they are convertible.
The Fund may also lend its portfolio securities and
borrow money for investment purposes (i.e., "leverage" its
portfolio). In addition, the Fund may enter into transactions
in options on securities, securities indices and foreign
currencies, forward foreign currency contracts, and futures
contracts and related options. When deemed appropriate by the
Investment Manager, the Fund may invest cash balances in
repurchase agreements and other money market investments to
maintain liquidity in an amount to meet expenses or for day-to-
day operating purposes. See "Investment Strategies and
Restrictions."
The Fund invests in securities of issuers of
countries having developing markets. Investment in such
securities involves certain considerations which are not
normally involved in investment in securities of U.S.
B-6
<PAGE>
companies, and an investment in Fund Shares may be considered
speculative. The Fund may borrow money for investment
purposes, which may involve greater risk and additional costs
to the Fund. In addition, the Fund may invest up to 10% of its
assets in restricted securities, which may involve greater risk
and increase Fund expenses. See "The Trust -- Fund Risk
Factors."
The Fund may be suitable for the patient investor
interested in long-term capital appreciation. The investor
should be willing to accept the risks associated with
investments in international securities. The Fund is designed
primarily for capital appreciation. Providing current income
is not an objective of the Fund. Any income produced is
expected to be minimal. An investor should not consider a
purchase of Fund Shares as equivalent to a complete investment
program.
The Chase Manhattan Bank, N.A. is the custodian of
the Fund's assets. Franklin/Templeton Investor Services, Inc.
serves as the Fund's dividend disbursing and transfer agent.
Templeton Global Investors, Inc. performs certain
administrative functions for the Fund. The Fund's prospectus
is available upon request.
General Information Regarding the Fund
The Fund intends normally to pay a dividend at least
once annually representing substantially all of its net
investment income (which includes, among other items, dividends
and interest) and to distribute at least annually any realized
capital gains. By so doing and meeting certain diversification
of assets and other requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), the Fund intends to qualify
annually as a regulated investment company under the Code. The
status of the Fund as a regulated investment company does not
involve government supervision of management or of its
investment practices or policies. As a regulated investment
company, the Fund generally will be relieved of liability for
United States Federal income tax on that portion of its net
investment income and net realized capital gains which it
distributes to its Fund shareholders. Amounts not distributed
on a timely basis in accordance with a calendar year
distribution requirement also are subject to a nondeductible 4%
excise tax. To prevent application of the excise tax, the Fund
intends to make distributions in accordance with the calendar
year distribution requirement. 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").
B-7
<PAGE>
SELECTED PER SHARE DATA AND RATIOS
(for a share outstanding throughout the periods indicated)
Shown below for the periods indicated are per share
income and capital changes for a share outstanding throughout
the periods indicated ("per share information") of the Fund.
Year ended December 31,
1993* 1992 1991**
Net asset value, beginning of period $ 8.86 $10.02 $10.00
Income from investment operations:
Net investment income*** 0.13 0.08 0.01
Net realized and unrealized gain (loss) 6.45 (1.06) _0.03
Total from investment operations 6.58 (0.98) _0.04
Distributions:
Dividends from net investment income (0.05) (0.07) (0.01)
Distributions from net realized gains (0.12) (0.11) --
Distributions from other sources __--_ __--_ (0.01)
Total distributions (0.17) (0.18) (0.02)
Change in net asset value for period 6.41 (1.16) _0.02
Net asset value, end of period $15.27 $8.86 $10.02
Total Return+ 74.26% (9.75)% 0.40%++
Ratios/supplemental data
Net assets, end of period (000) $1,396,387 $180,189 $23,743
Ratio of expenses to average net assets 2.20% 2.52% 3.78%++
Ratio of expenses, net of reimbursement,
to average net assets 2.20% 2.25% 2.25%++
Ratio of net investment income to
average net assets 0.57% 1.30% 0.86%++
Portfolio turnover rate 15.95% 21.98% --
________________________________
* Unaudited
** Period from October 17, 1991 (commencement of operations) to December
31, 1991.
*** Net of expense reimbursement of $0.02 for periods ended in 1992 and
1991.
+ Total return does not reflect sales commissions.
++ Annualized.
B-8
<PAGE>
Investment Strategies and Restrictions of the Fund
Strategies
In pursuit of its objective and policies, the Fund
may employ one or more of the following investment strategies.
The application of the Fund's investment policy will be
dependent upon the judgment of the Investment Manager. In
accordance with the judgment of the Investment Manager, the
proportions of the Fund's assets invested in particular
industries and countries will vary from time to time.
In addition, from time to time, the Fund may also
engage in the following investment techniques:
Temporary Investments. For temporary defensive
purposes, the Fund may invest up to 100% of its total assets in
the following money market securities, denominated in U.S.
dollars or in the currency of any foreign country, issued by
entities organized in the United States or any foreign country:
short-term (less than twelve months to maturity) and medium-
term (not greater than five years to maturity) obligations
issued or guaranteed by the U.S. Government or the governments
of foreign countries, their agencies or instrumentalities;
finance company and corporate commercial paper, and other
short-term corporate obligations, in each case rated Prime-1 by
Moody's or A or better by S&P or, if unrated, of comparable
quality as determined by the Investment Manager, obligations
(including certificates of deposit, time deposits and bankers'
acceptances) of banks; and repurchase agreements with banks and
broker-dealers with respect to such securities.
Borrowing. The Fund may borrow up to one-third of
the value of its total assets from banks to increase its
holdings of portfolio securities. Under the 1940 Act, the Fund
is required to maintain continuous asset coverage of 300% with
respect to such borrowings and to sell (within three days)
sufficient portfolio holdings to restore such coverage if it
should decline to less than 300% due to market fluctuations or
otherwise, even if such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint. Leveraging
by means of borrowing may exaggerate the effect of any increase
or decrease in the value of portfolio securities on the Fund's
net asset value, and money borrowed will be subject to interest
and other costs (which may include commitment fees and/or the
cost of maintaining minimum average balances) which may or may
not exceed the income received from the securities purchased
with borrowed funds.
B-9
<PAGE>
Loans of Portfolio Securities. The Fund may lend to
broker-dealers portfolio securities with an aggregate market
value of up to one-third of its total assets to generate
income. Such loans must be secured by collateral (consisting
of any combination of cash, U.S. Government securities or
irrevocable letters of credit) in an amount at least equal (on
a daily marked-to-market basis) to the current market value of
the securities loaned. The Fund may terminate the loans at any
time and obtain the return of the securities loaned within five
business days. The Fund will continue to receive any interest
or dividends paid on the loaned securities and will continue to
retain any voting rights with respect to the securities. In
the event that the borrower defaults on its obligation to
return borrowed securities, because of insolvency or otherwise,
the Fund could experience delays and costs in gaining access to
the collateral and could suffer a loss to the extent that the
value of the collateral falls below the market value of the
borrowed securities.
Options on Securities or Indices. The Fund may write
(i.e., sell) covered put and call options and purchase put and
call options on securities or securities indices that are
traded on United States and foreign exchanges or in the over-
the-counter markets. An option on a security is a contract
that permits the purchaser of the option, in return for the
premium paid, the right to buy a specified security (in the
case of a call option) or to sell a specified security (in the
case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a
securities index permits the purchaser of the option, in return
for the premium paid, the right to receive from the seller cash
equal to the difference between the closing price of the index
and the exercise price of the option. The Fund may write a
call or put option to generate income, and will do so only if
the option is "covered." This means that so long as the Fund
is obligated as the writer of a call option, it will own the
underlying securities subject to the call, or hold a call at
the same or lower exercise price, for the same exercise period,
and on the same securities as the written call. A put is
covered if the Fund maintains liquid assets with a value at
least equal to the exercise price in a segregated account, or
holds a put on the same underlying securities at an equal or
greater exercise price. The value of the underlying securities
on which options may be written at any one time will not exceed
15% of the total assets of the Fund. The Fund will not
purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its total assets at the time of
purchase.
B-10
<PAGE>
Forward Foreign Currency Contracts and Options on
Foreign Currencies. The Fund will normally conduct its foreign
currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward contracts to
purchase or sell foreign currencies. The Fund will generally
not enter into a forward contract with a term of greater than
one year. A forward contract is an obligation to purchase or
sell a specific currency for an agreed price at a future date
which is individually negotiated and privately traded by
currency traders and their customers.
The Fund will generally enter into forward contracts
only under two circumstances. First, when the Fund enters into
a contract for the purchase or sale of a security denominated
in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security in relation to another currency by
entering into a forward contract to buy the amount of foreign
currency needed to settle the transaction. Second, when the
Investment Manager believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement
against another currency, it may enter into a forward contract
to sell or buy the former foreign currency (or another currency
which acts as a proxy for that currency) approximating the
value of some or all of the Fund's portfolio securities
denominated in such foreign currency. This second investment
practice is generally referred to as "cross-hedging." The Fund
will not enter into forward contracts if, as a result, the Fund
will have more than 20% of its total assets committed to the
consummation of such contracts. Although forward contracts
will be used primarily to protect the Fund from adverse
currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted.
The Fund may purchase put and call options and write
covered put and call options on foreign currencies for the
purpose of protecting against decreases in the U.S. dollar
value of foreign currency denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to
be acquired. As in the case of other kinds of options,
however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on a
foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate
movements adverse to the Fund's position, it may forfeit the
entire amount of the premium plus related transaction costs.
B-11
<PAGE>
Options on foreign currencies to be written or purchased by the
Fund are traded on U.S. and foreign exchanges or over-the-
counter.
Closed-End Investment Companies. Some countries,
such as South Korea, Chile and India, have authorized the
formation of closed-end investment companies to facilitate
indirect foreign investment in their capital markets. In
accordance with the 1940 Act, the Fund may invest up to 10% of
its total assets in securities of closed-end investment
companies. This restriction on investments in securities of
closed-end investment companies may limit opportunities for the
Fund to invest indirectly in certain developing markets.
Shares of certain closed-end investment companies may at times
be acquired only at market prices representing premiums to
their net asset values. If the Fund acquires shares of closed-
end investment companies, Fund shareholders would bear both
their proportionate share of expenses of the Fund (including
management and advisory fees) and, indirectly, the expenses of
such closed-end investment companies.
Futures Contracts. For hedging purposes only, the
Fund may buy and sell financial futures contracts, stock index
futures contracts, foreign currency futures contracts and
options on any of the foregoing. A financial futures contract
is an agreement between two parties to buy or sell a specified
debt security at a set price on a future date. An index
futures contract is an agreement to take or make delivery of an
amount of cash based on the difference between the value of the
index at the beginning and at the end of the contract period.
A futures contract on a foreign currency is an agreement to buy
or sell a specified amount of a currency for a set price on a
future date.
When the Fund enters into a futures contract, it must
make an initial deposit, known as "initial margin," as a
partial guarantee of its performance under the contract. As
the value of the security, index or currency fluctuates, either
party to the contract is required to make additional margin
payments, known as "variation margin," to cover any additional
obligation it may have under the contract. In addition, when
the Fund enters into a futures contract, it will segregate
assets or "cover" its position in accordance with the 1940 Act.
The Fund may not commit more than 5% of its total assets to
initial margin deposits on futures contracts and related
options. The value of the underlying securities on which
futures contracts will be written at any one time will not
exceed 25% of the total assets of the Fund.
B-12
<PAGE>
Repurchase Agreements. For temporary defensive
purposes and for cash management purposes, the Fund may enter
into repurchase agreements with U.S. banks and broker-dealers.
Under a repurchase agreement the Fund acquires a security from
a U.S. bank or a registered broker-dealer who simultaneously
agrees to repurchase the security at a specified time and
price. The repurchase price is in excess of the purchase price
by an amount which reflects an agreed-upon rate of return,
which is not tied to the coupon rate on the underlying
security. Under the 1940 Act, repurchase agreements are
considered to be loans collateralized by the underlying
security and therefore will be fully collateralized. However,
if the seller should default on its obligation to repurchase
the underlying security, the Fund may experience delay or
difficulty in exercising its rights to realize upon the
security and might incur a loss if the value of the security
declines, as well as disposition costs in liquidating the
security.
Investment Restrictions. The Fund has imposed upon
itself certain Investment Restrictions, which together with the
investment objective and policies are fundamental policies
except as otherwise indicated. No changes in the Fund's
investment objective and policies or Investment Restrictions
(except those which are not fundamental policies) can be made
without approval of the Shareholders. For this purpose, the
provisions of the 1940 Act require the affirmative vote of the
lesser of either (A) 67% or more of the Shares present at a
Fund shareholders' meeting at which more than 50% of the
outstanding Shares are present or represented by proxy or
(B) more than 50% of the outstanding Shares of the Fund.
In accordance with these Restrictions, the Fund will
not:
1. Invest in real estate or mortgages on real
estate (although the Fund may invest in marketable
securities secured by real estate or interests therein or
issued by companies or investment trusts which invest in
real estate or interests therein); invest in interests
(other than debentures or equity stock interests) in oil,
gas or other mineral exploration or development programs;
purchase or sell commodity contracts (except futures
contracts as described above); or invest in other open-end
investment companies except as permitted by the 1940 Act.
2. Purchase or retain securities of any company in
which trustees or officers of the Fund or of its
Investment Manager, individually owning more than 1/2 of
B-13
<PAGE>
1% of the securities of such company, in the aggregate own
more than 5% of the securities of such company.
3. Purchase any security (other than obligations of
the U.S. Government, its agencies and instrumentalities)
if, as a result, as to 75% of the Fund's total assets
(i) more than 5% of the Fund's total assets would be
invested in securities of any single issuer, or (ii) the
Fund would then own more than 10% of the voting securities
of any single issuer.
4. Act as an underwriter; issue senior securities
except as set forth in Investment Restriction 6 below; or
purchase on margin or sell short (but the Fund may make
margin payments in connection with options on securities
or securities indices, foreign currencies, futures
contracts and related options, and forward contracts and
related options).
5. Loan money, apart from the purchase of a portion
of an issue of publicly distributed bonds, debentures,
notes and other evidences of indebtedness, although the
Fund may enter into repurchase agreements and lend its
portfolio securities.
6. Borrow money, except that the Fund may borrow
money from banks in an amount not exceeding 33-1/3% of the
value of the Fund's total assets (including the amount
borrowed), or pledge, mortgage or hypothecate its assets
for any purpose, except to secure borrowings and then only
to an extent not greater than 15% of the Fund's total
assets. Arrangements with respect to margin for futures
contracts, forward contracts and related options are not
deemed to be a pledge of assets.
7. Invest more than 5% of the value of the Fund's
total assets in securities of issuers, including their
predecessors, which have been in continuous operation less
than three years.
8. Invest more than 5% of the Fund's total assets
in warrants, whether or not listed on the New York or
American Stock Exchange, including no more than 2% of its
total assets which may be invested in warrants that are
not listed on those exchanges. Warrants acquired by the
Fund in units or attached to securities are not included
in this Restriction.
B-14
<PAGE>
9. Invest more than 25% of the Fund's total assets
in a single industry.
10. Participate on a joint or a joint and several
basis in any trading account in securities except as
permitted by the 1940 Act.
11. Invest more than 15% of the Fund's total assets
in securities of foreign issuers that are not listed on a
recognized United States or foreign securities exchange,
including no more than 10% of its total assets in
restricted securities, securities that are not readily
marketable, repurchase agreements having more than seven
days to maturity, and over-the-counter options purchased
by the Fund. Assets used as cover for over-the-counter
options written by the Fund are considered not readily
marketable.
As a non-fundamental policy, the Fund will not invest
more than 10% of its assets in real estate investment trusts.
As a non-fundamental policy, the Fund will not invest more than
10% of its total assets in restricted securities, securities
that are not readily marketable, securities of issuers,
including their predecessors, that have been in continuous
operation less than three years, repurchase agreements having
more than seven days to maturity, and over-the-counter options
purchased by the Fund. Assets used as cover for over-the-
counter options written by the Fund are considered not readily
marketable. In addition, the Fund has undertaken with a state
securities commission that (1) the Fund will invest in other
open-end investment companies only (a) for short term
investment of cash balances in money market funds, or (b) for
investment in securities in the portfolios of such other open-
end investment companies, direct investment in which is
unavailable to the Fund; and (2) the Fund will not pay an
investment management fee with respect to any portion of its
portfolio comprising shares of other open-end investment
companies. The Fund has also undertaken with a state
securities commission that, with respect to 100% of its assets,
the Fund will not purchase more than 10% of a company's
outstanding voting securities.
Whenever any investment policy or Investment
Restriction states a maximum percentage of the Fund's assets
which may be invested in any security or other property, it is
intended that such maximum percentage limitation be determined
immediately after and as a result of the Fund's acquisition of
such security or property. The value of the Fund's assets is
calculated as described below under the heading "Net Asset
B-15
<PAGE>
Value of the Fund Shares." If the Fund receives from an issuer
of securities held by the Fund subscription rights to purchase
securities of that issuer, and if the Fund exercises such
subscription rights at a time when the Fund's portfolio
holdings of securities of that issuer would otherwise exceed
the limits set forth in investment restrictions 3 or 9 above,
it will not constitute a violation if, prior to receipt of
securities upon exercise of such rights, the Fund has sold at
least as many securities of the same class and value as it
would receive on exercise of such rights. The Fund may borrow
up to 5% of the value of its total assets to meet redemptions
and for other temporary purposes.
Net Asset Value of the Fund Shares
The net asset value of the Fund Shares is computed as
of the close of trading on each day the New York Stock Exchange
is open for trading, by dividing the value of the Fund's
securities plus any cash and other assets (including accrued
interest and dividends receivable) less all liabilities
(including accrued expenses) by the number of Fund Shares
outstanding, adjusted to the nearest whole cent. A security
listed or traded on a recognized stock exchange or NASDAQ is
valued at its last sale price on the principal exchange on
which the security is traded. The value of a foreign security
is determined in its national currency as of the close of
trading on the foreign exchange on which it is traded, or as of
4:00 p.m., New York time, if that is earlier, and that value is
then converted into its U.S. dollar equivalent at the foreign
exchange rate in effect at noon, New York time, on the day the
value of the foreign security is determined. If no sale is
reported at that time, the mean between the current bid and
asked price is used. Occasionally, events which affect the
values of such securities and such exchange rates may occur
between the times at which they are determined and the close of
the New York Stock Exchange, and will therefore not be
reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities occur
during such period, then these securities will be valued at
fair value as determined by the management and approved in good
faith by the Board of Trustees of the Fund. All other
securities for which over-the-counter market quotations are
readily available are valued at the mean between the current
bid and asked price. Securities for which market quotations
are not readily available and other assets are valued at fair
value as determined by the management and approved in good
faith by the Board of Trustees of the Fund.
B-16
<PAGE>
The Fund's Investment Manager
The Fund is managed by its Board of Trustees and all
powers are exercised by or under authority of the Board.
The Investment Manager of the Fund is Templeton
Investment Management (Hong Kong) Limited, a corporation
located at Two Exchange Square, Hong Kong. The Investment
Manager is an indirect wholly owned subsidiary of Franklin
Resources, Inc. ("Franklin"). Through its subsidiaries,
Franklin is engaged in various aspects of the financial
services industry.
The Investment Manager furnishes the Fund with
investment research, advice and supervision. The Investment
Manager does not furnish any overhead items or facilities for
the Fund, although such expenses are paid by some investment
advisers of other investment companies. As compensation for
its services, the Fund pays the Investment Manager a fee, equal
on an annual basis to 1.25% of its average daily net assets.
This fee is higher than advisory fees paid by most other U.S.
investment companies, primarily because investing in equity
securities of companies in developing markets, which are not
widely followed by professional analysts, requires the
Investment Manager to invest additional time and incur added
expense in developing specialized resources, including research
facilities. During the fiscal year ended December 31, 1992,
the Fund paid the Investment Manager and, prior to October 30,
1992, Templeton, Galbraith & Hansberger Ltd., the Fund's
previous investment manager, fees representing 1.25% of its
average daily net assets during the year.
The Investment Manager and its affiliates serve as
advisers for a wide variety of public investment mutual funds
and private clients in many nations. The Templeton
organization has been investing globally over the past 51 years
and, with its affiliates, provides investment management and
advisory services to a worldwide client base, including over
2.9 million mutual fund shareholders, foundations and
endowments, employee benefit plans and individuals. The
Investment Manager and its affiliates have approximately 3,200
employees in ten different countries and a global network of
over 50 investment research sources. Many different selection
methods are used for different funds and clients and are
changed and improved by the Investment Manager's research on
superior selection methods. Among the Investment Manager's
portfolio managers worldwide, usually three are selected as
advisers for each fund and such portfolio management
assignments are often changed or improved.
B-17
<PAGE>
Templeton Global Investors, Inc. (the "Business
Manager") provides certain administrative facilities and
services for the Fund, including payment of salaries of
officers, preparation and maintenance of books and records,
preparation of tax returns and financial reports, monitoring
compliance with regulatory requirements and monitoring tax
deferred retirement plans. For its services, the Business
Manager receives a fee equivalent to 0.15% of the average daily
net assets of the Fund during the year, reduced to 0.135% of
such net assets in excess of $200 million, to 0.10% of such
assets in excess of $700 million, and to 0.075% of such assets
in excess of $1,200 million.
The Fund's Plan of Distribution
The Fund, pursuant to Rule 12b-1 under the 1940 Act,
has adopted a Distribution Plan (the "Plan"). Under the Plan,
the Fund may reimburse the principal underwriter monthly
(subject to a limit of 0.35% per annum of the Fund's average
daily net assets) for Franklin/Templeton Distributors, Inc.'s
("Templeton Distributor") costs and expenses in connection with
any activity which is primarily intended to result in the sale
of Fund Shares. Payments to Templeton Distributor could be for
various types of activities, including (1) payments to broker-
dealers who provide certain services of value to the Fund's
shareholders (sometimes referred to as a "trail fee");
(2) reimbursement of expenses relating to selling and servicing
efforts or of organizing and conducting sales seminars;
(3) payments to employees or agents of the principal
underwriter who engage in or support distribution of Fund
Shares; (4) payments of the costs of preparing, printing and
distributing prospectuses and reports to prospective investors
and of printing and advertising expenses; (5) payment of dealer
commissions and wholesaler compensation in connection with
sales of Fund Shares exceeding $1 million (on which the Fund
imposes no initial sales charge) and interest or carrying
charges in connection therewith; and (6) such other similar
services as the Fund's Board of Directors determines to be
reasonably calculated to result in the sale of Shares. Under
the Plan, the costs and expenses not reimbursed in any one
given month (including costs and expenses not reimbursed
because they exceed the limit of 0.35% per annum of the Fund's
average daily net assets) may be reimbursed in subsequent
months or years. As of December 31, 1993, the Fund had a 12b-1
fee carryforward of $410,405 (0.08% of its average daily net
assets). Pursuant to an exemptive order issued by the
Securities and Exchange Commission the Sponsor has agreed to
pay to the Trust the 12b-1 fees it receives from Templeton
Distributor with respect to the Fund Shares held by the Trust.
B-18
<PAGE>
Fund Shares held directly by an investor (other than the Trust)
including Fund Shares purchased pursuant to "Reinvestment of
Trust Distributions" will, however, be subject to 12b-1 fees
(see "Reinvestment of Trust Distributions").
Risk of Investment in Units
The Securities and Exchange Commission has issued an
exemptive order pursuant to which Fund Shares will be deposited
by the Sponsor in the Trust. In the application for such
order, the Sponsor has agreed to take certain steps to ensure
that the Trust's investment in Fund Shares is equitable to all
parties and particularly that the interests of the Unit Holders
are protected. Accordingly, any sales charges which would
otherwise be applicable will be 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 the Investment Manager to act 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.
Fund Risk Factors
All Fund Investments involve risk and there can be no
guarantee against loss resulting from an investment in the
Fund, nor can there be any assurance that the Fund's investment
objective will be attained. As with any investment in
securities, the value of, and income from, an investment in the
Fund can decrease as well as increase, depending on a variety
of factors which may affect the values and income generated by
the Fund's portfolio securities, including general economic
conditions, market factors and currency exchange rates.
Additionally, investment decisions made by the Investment
B-19
<PAGE>
Manager will not always be profitable or prove to have been
correct. The Fund is not intended as a complete investment
program.
The Fund has the right to purchase securities in any
foreign country, developed or underdeveloped. Investors should
consider carefully the substantial risks involved in investing
in securities issued by companies and governments of foreign
nations, which are in addition to the usual risks inherent in
domestic investments. There is the possibility of
expropriation, nationalization or confiscatory taxation,
taxation of income earned in foreign nations (including, for
example, withholding taxes on interest and dividends) or other
taxes imposed with respect to investments in foreign nations,
foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in
foreign government securities, political or social instability
or diplomatic developments which could affect investment in
securities of issuers in foreign nations. In addition, in many
countries there is less publicly available information about
issuers than is available in reports about companies in the
United States. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards,
and auditing practices and requirements may not be comparable
to those applicable to United States companies. Further, the
Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgments in foreign courts.
Brokerage commissions, custodial services, and other
costs relating to investment in developing markets are
generally more expensive than in the United States. Such
markets have different clearance and settlement procedures and
in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions.
The inability of the Fund to make intended security purchases
due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a
portfolio security due to settlement problems could result
either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered
into a contract to sell the security, could result in possible
liability to the purchaser.
In many developing markets, there is less government
supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the
United States. The foreign securities markets of many of the
countries in which the Fund may invest may also be smaller,
B-20
<PAGE>
less liquid, and subject to greater price volatility than those
in the United States. As an open-end investment company, the
Fund is limited in the extent to which it may invest in
illiquid securities.
Investments in Eastern European countries may involve
risks of nationalization, expropriation and confiscatory
taxation. The Communist governments of a number of Eastern
European countries expropriated large amounts of private
property in the past, in many cases without adequate
compensation, and there can be no assurance that such
expropriation will not occur in the future. In the event of
such expropriation, the Fund could lose a substantial portion
of any investments it has made in the affected countries.
Further, no accounting standards exist in Eastern European
countries. Finally, even though certain Eastern European
currencies may be convertible into United States dollars, the
conversion rates may be artificial to the actual market values
and may be adverse to Fund shareholders.
The Fund considers at least annually the likelihood
of the imposition by any foreign government of exchange control
restrictions which would affect the liquidity of the Fund's
assets maintained with custodians in foreign countries, as well
as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Fund also
considers the degree of risk involved through the holding of
portfolio securities in domestic and foreign securities
depositories. No assurance can be given that the Fund's
appraisal of the risks will always be correct or that such
exchange control restrictions or political acts of foreign
governments might not occur.
The Fund usually effects currency exchange
transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market. However, some price
spread on currency exchange (to cover service charges) will be
incurred when the Fund converts assets from one currency to
another.
The Fund may be affected either unfavorably or
favorably by fluctuations in the relative rates of exchange
between the currencies of different nations, by exchange
control regulations and by indigenous economic and political
developments. Through the Fund's flexible policy, management
endeavors to avoid unfavorable consequences and to take
advantage of favorable developments in particular nations
where, from time to time, it places the Fund's investments.
B-21
<PAGE>
The exercise of this flexible policy may include
decisions to purchase securities with substantial risk
characteristics and other decisions such as changing the
emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later
prove profitable and others may not. No assurance can be given
that profits, if any, will exceed losses.
ADRs and EDRs may not necessarily be denominated in
the same currency as the underlying securities into which they
may be converted. Ownership of unsponsored ADRs and EDRs may
not entitle the Fund to financial or other reports from the
issuer, to which it would be entitled as owner of sponsored
ADRs or EDRs. ADRs and EDRs also involve the risks of other
investments in foreign securities, as discussed above.
The Fund is authorized to invest in medium quality or
high risk, lower quality debt securities that are rated between
BBB and as low as C by Standard & Poor's Corporation ("S&P")
and between Baa and as low as C by Moody's Investors Service,
Inc. ("Moody's") or, if unrated, are of equivalent investment
quality as determined by the Investment Manager. As an
operating policy, which may be changed by the Board of
Directors without shareholder approval, the Fund will not
invest more than 5% of its total assets in debt securities
rated BBB or lower by S&P or Baa or lower by Moody's. The
Board may consider a change in this operating policy if, in its
judgment, economic conditions change such that a higher level
of investment in high risk, lower quality debt securities would
be consistent with the interests of the Fund and its
shareholders. High risk, lower quality debt securities,
commonly referred to as "junk bonds," are regarded, on balance,
as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with
the terms of the obligation and may be in default. Unrated
debt securities are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers.
Regardless of rating levels, all debt securities considered for
purchase (whether rated or unrated) will be carefully analyzed
by the Investment Manager to insure, to the extent possible,
that the planned investment is sound. The Fund may, from time
to time, purchase defaulted debt securities if, in the opinion
of the Investment Manager, the issuer may resume interest
payments in the near future. The Fund will not invest more
than 10% of its total assets in defaulted debt securities,
which may be illiquid.
Leveraging by means of borrowing may exaggerate the
effect of any increase or decrease in the value of the
B-22
<PAGE>
portfolio securities on the Fund's net asset value, and money
borrowed will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income
received from the securities purchased with borrowed funds.
Successful use of futures contracts and related
options by the Fund is subject to certain special risk
considerations. A liquid secondary market for and futures or
options contracts may not be available when a futures or
options position is sought to be closed. The Fund's ability to
reduce or eliminate its futures and related options positions
will depend upon the liquidity of the secondary markets for
such futures and options. The Fund intends to purchase or sell
futures and related options only on exchanges or boards of
trade where there appears to be an active secondary market, but
there is no assurance that a liquid secondary market will exist
for any particular contract or at any particular time. In
addition, there may be an imperfect correlation between
movements in the securities or foreign currency on which the
futures or options contract is based and movements in the
securities or currency in the Fund's portfolio. Successful use
of futures or options contracts is further dependent on the
Investment Manager's ability to predict correctly movements in
the securities or foreign currency markets and no assurance can
be given that its judgment will be correct. Successful use of
options on securities or stock indices is subject to similar
risk considerations. In addition, by writing covered call
options, the Fund gives up the opportunity, while the option is
in effect, to profit from any price increase in the underlying
security above the option exercise price.
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 Fund Shares. However, the Sponsor believes that,
upon termination of the Trust on the mandatory termination
date, even if the Fund Shares are worthless, the Treasury
Obligations will provide sufficient cash at maturity to equal
$15.00 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.
B-23
<PAGE>
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. In
addition, the Trust may be terminated if the net aggregate
value of the Trust is less than 40% of the aggregate maturity
values of the Treasury Obligations calculated immediately after
the most recent deposit of Treasury Obligations in the Trust
(see "Amendment and Termination -- 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 than anticipated,
and may result in a loss to a Unit Holder.
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 the event of a notice that any Treasury Obligation
will not be delivered ("Failed Treasury Obligations"), the
Sponsor is authorized under the Indenture to direct the Trustee
to acquire other Treasury Obligations ("Replacement Treasury
Obligations") within a period ending on the earlier of the
first distribution of cash to Trust Unit Holders or 90 days
after the Date of Deposit. The cost of the Replacement
Treasury Obligations may not exceed the cost of the Treasury
Obligations which they replace. Any Replacement Treasury
Obligation deposited in the Trust will be substantially
identical to every Treasury Obligation then in the Trust.
Whenever a Replacement Treasury Obligation has been acquired
for the Trust, the Trustee shall, within 5 days thereafter,
notify Unit Holders of the acquisition of the Replacement
Treasury Obligation.
In the event a contract to purchase Securities fails
and Replacement Treasury Obligations are not acquired, the
Trustee will distribute to Unit Holders the funds attributable
to the failed contract. The Sponsor will, in such case, refund
the sales charge applicable to the failed contract. If less
than all the funds attributable to a failed contract are
B-24
<PAGE>
applied to purchase Replacement Treasury Obligations, the
remaining money will be distributed to Unit Holders.
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
adverse 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.
The Units
On the Date of Deposit, 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").
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
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<PAGE>
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 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 an itemized
deduction for 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
assets held in the Trust in proportion to the relative
fair market values thereof on the date the Unit Holder
purchases his Units.
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 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
B-26
<PAGE>
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, net 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 net capital gain may, however, result in a
disallowance of itemized deductions and/or affect a personal
exemption phase-out.
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.
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.
A Unit Holder who is neither a citizen nor a resident
of the United States and is not 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
B-27
<PAGE>
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 gain retained by the Fund and
designated by the Fund to be taken into account by its
shareholders or any 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.
Fund distributions paid to foreign Unit Holders either directly
or through the Trust and not constituting income effectively
connected with the conduct of a trade or business within the
United States by the distributee will be subject to United
States federal withholding taxes at a 30% rate or a lesser rate
established by treaty unless the Fund distribution is a capital
gain dividend. Foreign Unit Holders should consult their own
tax 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.
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<PAGE>
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
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 include 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 gains 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 capital gains 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 so retain any net capital gains
for investment, its shareholders (including Trust Unit Holders)
(a) would be required to include in gross income for tax
purposes, as long-term capital gains, 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 gain, 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 the circumstances, be eligible for such
dividends received deduction, in whole or in part.
B-29
<PAGE>
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 preceding year.
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.
Income received by the Fund may be subject to
withholding and other taxes imposed by foreign jurisdictions.
In some instances, these taxes are limited by treaty between
the United States and the relevant foreign jurisdiction.
Treaty benefits may be available to the Fund to the same extent
as they would be to individual U.S. shareholders. However, in
some situations the Fund will be eligible for such benefits
only if it can establish that a minimum specified percentage of
the capital of the Fund is owned directly or indirectly by
individual residents or citizens of the United States.
If more than 50% of the value of the Fund's total
assets at the close of a taxable year for which the Fund
qualifies as a regulated investment company consists of stock
or securities in foreign corporations and the Fund so elects,
the Fund will forego any claim to a deduction or credit for any
foreign income taxes paid or accrued during the taxable year by
the Fund but the amount of such taxes will be allowed as an
addition to the Fund's dividends paid deduction for such year.
In such a case, each Fund shareholder (including a Trust Unit
Holder) is required to include in gross income and treat as
paid by him his proportionate share of such taxes and to treat
as gross income from sources within the respective foreign
countries the sum of his proportionate share of such taxes and
the portion of any dividend paid by the Fund which represents
income derived from sources within foreign countries. The Fund
expects to qualify for and intends to make this election.
Each Fund shareholder (including a Trust Unit Holder)
who is a citizen or resident of the United States will be
entitled either to (i) deduct the amount of such foreign taxes
(if in the case of a Fund shareholder who is an individual, he
B-30
<PAGE>
itemizes deductions), or (ii) subject to applicable
limitations, credit the amount of such taxes against the Fund
shareholder's United States federal income tax liability. A
Fund shareholder (including a Trust Unit Holder) who is a
non-resident alien individual or which is a foreign corporation
will be entitled to a deduction or credit of the foreign tax
only if the income received from the Fund is effectively
connected with the conduct of a trade or business within the
United States. Fund shareholders should be aware that, for
purposes of computing applicable limitations on the foreign tax
credit, dividends and interest received by the Fund in respect
of securities of foreign issuers are expected to give rise to
foreign source income but that gains from the sale or exchange
of such securities will be treated as U.S. source income.
Because availability of the foreign tax credit and application
of the foreign tax credit limitation depend on the particular
circumstances of each Fund shareholder (including a Trust Unit
Holder), each Unit Holder should consult his own tax adviser in
this regard.
The Code places a floor of 2% of adjusted gross
income on miscellaneous itemized deductions, including
investment expenses, of individuals (and estates and trusts
other than grantor trusts, to the extent provided in
regulations). The Code also directs the Secretary of the
Treasury to issue regulations prohibiting indirect deductions
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 indirect deductions through 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 will file its 1993 information returns 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,
B-31
<PAGE>
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 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 the otherwise allowable
affected 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 this 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 on
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 year ending on
or before the close of the calendar year but designated as
undistributed capital gains taxable to shareholders as
described above is treated as if distributed to the Fund's
shareholders.
The Fund may invest in passive foreign investment
companies, various options and futures contracts and hedging
transactions and may be subject to foreign currency
fluctuations, all of which have unique Federal income tax
consequences. Such investments and currency fluctuations may
affect the character, timing and amount of gain or ordinary
income to be recognized by persons holding Fund Shares.
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 from the Sponsor, discount accrued on the Securities,
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<PAGE>
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 income taxes. Unit Holders may be subject to
state, local or foreign taxation.
Investors should consult their tax counsel for advice
with respect to their own particular tax situations.
RETIREMENT PLANS
Units in the Trust may be suitable 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 tax advisers 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 during the
initial offering period is computed by adding to the aggregate
offering side evaluation of the Treasury Obligations the
aggregate net asset value of Fund Shares in the Trust, 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). Money in the Income and Principal
Accounts other than money required to redeem previously
tendered Units will be added to the Public Offering Price.
After the initial public offering period, 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, 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). Money in the Income and Principal
Accounts other than money required to redeem previously
tendered Units will be added to the Public Offering Price.
The Public Offering Price on the date of this
Prospectus or on any subsequent date will vary from the Public
Offering Price as of the Date of Deposit set forth in the
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<PAGE>
"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 in the following manner: the aggregate
value of the Units shall be determined during the initial
offering period on the basis of the offering prices of the
Treasury Obligations (determined by the Evaluator) and the net
asset value of the Fund Shares as determined by Templeton
Developing Markets Trust, and following the initial offering
period 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 Templeton Developing
Markets Trust.
On the Date of Deposit, the Public Offering Price per
Unit (based on the offering 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
During the initial public offering period (i) for
Units issued on the Date of Deposit and (ii) for additional
Units issued after such date in respect of additional deposits
of Securities, Units will be distributed to the public by the
Sponsor and through dealers at the Public Offering Price,
calculated on each business day. The initial offering period
is 30 days unless all Units are sold prior thereto, whereupon
the initial public offering period will terminate. The initial
public offering period may be extended by the Sponsor so long
as additional deposits are being made or Units remain unsold.
Upon termination of the initial offering period, in each case,
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 of 68% per Unit, but subject
to change from time to time at the discretion of the Sponsor
B-34
<PAGE>
(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.
A dealer will receive a concession of 75% of the
sales charge per Unit upon a sale to such dealer of 40,000 or
more Units and such dealer will continue to receive a
concession of 75% on all other purchases from the Sponsor
during the initial offering period. In addition, a dealer who
purchases 40,000 or more Units on the initial date of the
offering, for such initial purchase only, will receive a dealer
concession of 78% of the sales charge.
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
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<PAGE>
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."
Templeton Distributor will reimburse the Sponsor for expenses
incurred by the Sponsor in connection with the creation of the
Trust and the offering of units of the Trust in an amount not
to exceed $300,000. On the sale of Units to dealers, the
Sponsor will retain the difference between the dealer
concession and the sales charge (see "Public Distribution").
The Sponsor may have also realized a profit (or
sustained a loss) on the deposit of the Treasury Obligations in
the Trust representing the difference between the cost of the
Treasury Obligations to the Sponsor and the cost of the
Treasury Obligations to the Trust. The Sponsor will deposit
all Fund Shares into the Trust at net asset value. (For a
description of such profit (or loss) and the amount of such
difference, see "Schedule of Portfolio Securities.") During
the initial offering period, to the extent additional Units
continue to be issued and offered for sale to the public, the
Sponsor may realize additional profit (or sustain a loss) due
to daily fluctuations in the offering prices of the Treasury
Obligations and in the net asset value of the Fund Shares 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 or prior to the payment for Securities upon their
delivery 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
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<PAGE>
sales charge is reduced, or may discontinue the discount
altogether.
The sales charges for the Trust in the primary and
secondary market will be reduced pursuant to the following
graduated scale for sales to any person of at least 2,000
Units.
Sales Charge
Primary and Secondary Market
Percent Percent
of Public of Net
Offering Amount
Number of Units Price Invested
Less than 2,000 Units 5.25% 5.541%
2,000-7,999 Units 5.00% 5.263%
8,000-19,999 Units 4.50% 4.712%
20,000-39,999 Units 4.00% 4.167%
40,000-79,999 Units 3.00% 3.092%
80,000 Units or more 2.00% 2.041%
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 its 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.
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<PAGE>
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 (except Series of Government Securities Equity Trust) 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 investment
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
or group of series for which he desires his Units to be
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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 of the Exchange Trust.
The reduced sales charge for units of any Exchange Trust
acquired during the initial offering period for such units will
result in a price for such units equal to the offering side
evaluation per unit of the securities in the Exchange Trust's
portfolio plus accrued interest plus a reduced sales charge of
$25 per Exchange Trust unit. The reduced sales charge for a
unit holder of an Exchange Trust exchanging into this series of
Government Securities Equity Trust will be $.20 per Unit for
Units purchased in the secondary market and $.30 per Unit for
Units purchased during the initial offering period. 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 Exchange
Trust 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 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 an 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 an Exchange Trust with a current price
of $950 per unit and an ordinary sales charge of 4.25%. The
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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 and $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 the Exchange Trusts which are grantor trusts for
United States 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, Unit Holders who exchange Units of this Series
of the Government Securities Equity Trust for units of any
other series of Exchange Trusts within 91 days of acquisition
of the Units should consult their tax advisors as to the
possible application of Section 852(f) of the Code to the
exchange.
REINVESTMENT OF TRUST DISTRIBUTIONS
Distributions by the Trust, if any, of dividend
income received by the Trust, 12b-1 fee amounts paid by the
Sponsor, 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.
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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 and
Templeton Distributor.
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.
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
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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 made by the Sponsor
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 dividends, capital gains
distributions and 12b-1 fee payments made by the Sponsor 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.
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GOVERNMENT SECURITIES EQUITY TRUST
REINVESTMENT APPLICATION
I/We hereby authorize and direct United States Trust
Company of New York to apply all distributions that I/we have
elected to be reinvested as a registered unitholder(s) of a
Government Securities Equity Trust Series towards the purchase
of additional shares of the Templeton Developing Markets Trust.
I/We hold Government Securities Equity Trust Series 7
(This Series can only reinvest into the Templeton Developing
Markets Trust.)
The authorization shall continue in effect until
written notice of revocation is given by the certificate holder
or his personal representatives.
Name(s) in Which Unit Trust is Registered
Social Security or Tax Identification Number
Signature DATE
Signature of Joint Tenant (if any) DATE
My/Our Brokerage Firm Is:
My/Our Account Number Is:
Forward application to: United States Trust Company
of New York
P.O. Box 888 - Cooper Station
New York, NY 10276
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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"). 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,
distributions and/or 12b-1 fee payments from the Sponsor 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 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
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Record Date will be made on the next following Quarterly
Distribution 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 distribution 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 funds in 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").
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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 unit investment trust office at 770 Broadway, New York,
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New York 10003, upon delivery of a request for redemption and
the Certificates for the Units requested to be redeemed and
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 cancelled.
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 the Evaluation 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
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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
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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 (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.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE
While the Public Offering Price of Units during the
initial offering period is determined on the basis of the
current offering prices of the Treasury Obligations and the net
asset value of Fund Shares, the Public Offering Price of Units
in the secondary market and the Redemption Price of Units is
determined on the basis of the current bid prices of the
Treasury Obligations and the net asset value of the Fund
Shares. On the Date of Deposit, the Public Offering Price
(which includes a sales charge) exceeded the Redemption Price
by the amount indicated under "Summary of Essential
Information." The bid prices for the Securities are expected
to be less than the offering prices. The amount realized by a
Unit Holder upon any redemption of Units may be less than the
price paid by him for such Units.
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
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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 Security Fund, Inc.,
Prudential California Municipal Fund (California Series),
Prudential Equity Fund, Prudential Equity Income Fund,
Prudential FlexiFund, Prudential Global Fund, Prudential Global
Genesis Fund, Prudential Global Natural Resources Fund,
Prudential GNMA Fund, Prudential Government Plus Fund,
Prudential Growth Opportunity Fund, Prudential High Yield Fund,
Prudential IncomeVertible\ Plus Fund, Inc., Prudential
Intermediate Global Income Fund, Inc., Prudential MultiSector
Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential National Municipals Fund,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Prudential Strategic Income Fund,
Prudential Total Return 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 taking any action in good
faith or for errors in judgment or be 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
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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 to perform 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.
TRUSTEE
The Trustee is United States Trust Company of New
York, with its principal place of business at 114 West 47th
Street, New York, New York 10036 and a unit investment 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
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
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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 the redemption of Units will be distributable by the
Trustee to Unit Holders of record on the Quarterly Record Date
next prior to a Quarterly Distribution 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
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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 is 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.
Limitations on 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 be 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
B-53
<PAGE>
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 evidencing 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 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 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 values of the Treasury Obligations deposited
in the Trust on the Date of Deposit and subsequent thereto
B-54
<PAGE>
calculated after the most recent deposit of Treasury
Obligations in the Trust 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 thereof 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
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 shall 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.
B-55
<PAGE>
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 audited by Deloitte &
Touche, 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.
B-56
<PAGE>
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 7
Table of Contents Page
Summary of Essential Information A-8
Independent Auditors' Report A-10
Statement of Financial Condition A-11
Schedule of Portfolio Securities A-13 [LOGO]
The Trust B-1
Trust Formation B-1
Securities Selection B-4
Stripped U.S. Treasury Obligations B-4
Templeton Developing Markets Trust B-5
General Information Regarding the Fund B-7
Investment Strategies and Restrictions
of the Fund B-10 Sponsor
Net Asset Value of the Fund Shares B-17
The Fund's Investment Manager B-18 Prudential Securities
The Fund's Plan of Distribution B-19 Incorporated
Risk of Investment in Units B-20 One Seaport Plaza
Fund Risk Factors B-20 199 Water Street
The Units B-26 New York, New York 10292
Tax Status of the Trust B-26
Retirement Plans B-34
Public Offering of Units B-34 Trustee
Public Offering Price B-34
Public Distribution B-35 United States Trust
Secondary Market B-36 Company of New York
Profit of Sponsor B-37
Volume Discount B-37 114 West 47th Street
Employee Discount B-38 New York, New York 10036
Exchange Option B-39
Federal Income Tax Consequences B-41
Reinvestment of Trust Distributions B-41 Evaluator
Expenses and Charges B-42
Initial Expenses B-42 Kenny Information
Fees B-42 Systems, Inc.
Other Charges B-42
Rights of Unit Holders B-45 65 Broadway
Certificates B-45 New York, New York 10006
Certain Limitations B-45
<PAGE>
Distributions B-45 Fund Shares
Reports and Records B-47
Redemption B-47 Templeton Developing
Comparison of Public Offering Price and Markets Trust
Redemption Price B-50 700 Central Avenue
Sponsor B-50 St. Petersburg, Florida
Limitations on Liability B-51 33701-3628
Responsibility B-51
Resignation B-52
Trustee B-52
Limitations on Liability B-52
Responsibility B-53
Resignation B-53
Evaluator B-54
Limitations on Liability B-54
Responsibility B-54
Resignation B-54
Amendment and Termination of the Indenture B-55
Amendment B-55
Termination B-55
Tax Impact of In Kind Distribution
Upon Termination B-56
Legal Opinions B-57
Independent Auditors B-57
<PAGE>
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
Item A-Bonding Arrangements
The employees of Prudential Securities Incorporated
are covered under Broker's Blanket Policies, Standard Form No.
14 in the aggregate amount of $62,500,000.
Item B-Contents of Registration Statement
This Registration Statement on Form S-6 comprises the
following papers and documents:
The cross-reference sheet.
The Prospectus.
Signatures.
Written consents of the following persons:
Cahill Gordon & Reindel (included in
Exhibit 5).
Deloitte & Touche.**
Kenny S&P Evaluation Services, a division
of Kenny Information Systems, Inc. (as
Evaluator) (included in Exhibit 23).
The following Exhibits:
****Ex-3.(i) - Certificate of Incorporation of
Prudential Securities Incorporated dated
March 29, 1993.
****Ex-3.(ii) - Revised By-Laws of Prudential Securities
Incorporated as amended through March 5,
1993.
*****Ex-4.a - Trust Indenture and Agreement dated May
16, 1989.
*Ex-4.b - Draft of Reference Trust Agreement.
**Ex-5 - Opinion of counsel as to the legality of
the securities being registered.
**Ex-23 - Consent of Kenny S&P Evaluation Services,
a division of Kenny Information Systems,
Inc. (as Evaluator).
******Ex-24 - Powers of Attorney executed by a majority
of the Board of Directors of Prudential
Securities Incorporated.
Ex-99.1 - Information as to Officers and Directors
of Prudential Securities Incorporated is
incorporated by reference to Schedules A
and D of Form BD filed by Prudential
Securities Incorporated, pursuant to
Rules 15b1-1 and 15b3-1 under the
II-1
<PAGE>
Securities Exchange Act of 1934 (1934 Act
File No. 8-16267).
***Ex-99.2 - Affiliations of Sponsor with other
investment companies.
***Ex-99.3 - Broker's Blanket Policies, Standard Form
No. 14 in the aggregate amount of
$62,500,000.
*Ex-99.4 - Agreement between Prudential Securities
Incorporated and Templeton, Galbraith &
Hansberger Ltd., Franklin/Templeton
Distributors, Inc., and Templeton
Developing Markets Trust.
__________________________
* Filed herewith.
** To be filed by Amendment.
*** Incorporated by reference to exhibit of same
designation filed with the Securities and Exchange
Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of
Prudential Unit Trusts, Insured Tax-Exempt Series 1,
Registration No. 2-89263.
**** Incorporated by reference to exhibit of same
designation filed with the Securities and Exchange
Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of
Government Securities Equity Trust Series 5,
Registration No. 33-57992.
***** Incorporated by reference to exhibit of same
designation filed with the Securities and Exchange
Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of
Government Securities Equity Trust Series 1,
Registration No. 33-25710.
****** Incorporated by reference to exhibits of same
designation filed with the Securities and Exchange
Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of
National Municipal Trust Series 162, Registration No.
33-64254 and National Municipal Trust Series 164,
Registration No. 33-66108.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the registrant, Government Securities Equity Trust Series
7, has duly caused this Registration Statement or amendment
thereto to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of New York, and State of New York
on the 18th day of January, 1994.
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
(Registrant)
By PRUDENTIAL SECURITIES INCORPORATED
(Depositor)
By /s/ RICHARD R. HOFFMANN______________
Richard R. Hoffmann
First Vice President
By the following persons,* who constitute a
majority of the Board of Directors of
Prudential Securities Incorporated
ALAN D. HOGAN
HOWARD A. KNIGHT
GEORGE A. MURRAY
JOHN P. MURRAY
LELAND B. PATON
RICHARD REDEKER
HARDWICK SIMMONS
By /s/ RICHARD R. HOFFMANN______________
(Richard R. Hoffmann, First Vice
President, As Authorized Signatory for
Prudential Securities Incorporated and
Attorney-in-Fact for the persons listed
above)
_________________
* Pursuant to Powers of Attorney previously filed.
II-3
<PAGE>
CONSENT OF COUNSEL
The consent of Cahill Gordon & Reindel to the use of
its name in the Prospectus included in this Registration
Statement will be contained in its opinion to be filed as
Exhibit 5 to this Registration Statement.
II-4
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
To be filed by Amendment.
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Index
****Ex-3.(i) - Certificate of Incorporation of Prudential
Securities Incorporated dated March 29,
1993.
****Ex-3.(ii) - Revised By-Laws of Prudential Securities
Incorporated as amended through March 5,
1993.
*****Ex-4.a - Trust Indenture and Agreement dated May 16,
1989.
*Ex-4.b - Reference Trust Agreement.
**Ex-5 - Opinion of counsel as to the legality of
the securities being registered.
**Ex-23 - Consent of Kenny S&P Evaluation Services, a
division of Kenny Information Systems, Inc.
(as Evaluator).
******Ex-24 - Powers of Attorney executed by a majority
of the Board of Directors of Prudential
Securities Incorporated.
Ex-99.1 - Information as to Officers and Directors of
Prudential Securities Incorporated is
incorporated by reference to Schedules A
and D of Form BD filed by Prudential
Securities Incorporated, pursuant to Rules
15b1-1 and 15b3-1 under the Securities
Exchange Act of 1934 (1934 Act File No.
8-16267).
***Ex-99.2 - Affiliations of Sponsor with other invest-
ment companies.
***Ex-99.3 - Broker's Blanket Policies, Standard Form
No. 14 in the aggregate amount of
$62,500,000
*Ex-99.4 - Agreement between Prudential Securities
Incorporated and Templeton, Galbraith &
Hansberger Ltd., Franklin/Templeton
Distributors, Inc., and Templeton
Developing Markets Trust.
__________________________
* Filed herewith.
** To be filed by Amendment.
*** Incorporated by reference to exhibit of same
designation filed with the Securities and Exchange
Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of
<PAGE>
Prudential Unit Trusts, Insured Tax-Exempt Series 1,
Registration No. 2-89263.
**** Incorporated by reference to exhibit of same
designation filed with the Securities and Exchange
Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of
Government Securities Equity Trust Series 5,
Registration No. 33-57992.
***** Incorporated by reference to exhibit of same
designation filed with the Securities and Exchange
Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of
Government Securities Equity Trust Series 1,
Registration No. 33-25710.
****** Incorporated by reference to exhibits of same
designation filed with the Securities and Exchange
Commission as an exhibit to the Registration
Statement under the Securities Act of 1933 of
National Municipal Trust Series 162, Registration No.
33-64254 and National Municipal Trust Series 164,
Registration No. 33-66108.
<PAGE>
<PAGE>
EX-4.B
Executed in 7 Parts
Counterpart No. ( )
GOVERNMENT SECURITIES EQUITY TRUST
SERIES 7
REFERENCE TRUST AGREEMENT
This Reference Trust Agreement dated , 1994
among Prudential Securities Incorporated, as Depositor, United
States Trust Company of New York, as Trustee, and Kenny
Information Systems, Inc., as Evaluator, sets forth certain
provisions in full and incorporates other provisions by
reference to the document entitled "Government Securities
Equity Trust, Trust Indenture and Agreement" (the "Basic
Agreement") dated May 16, 1989. Such provisions as are
incorporated by reference constitute a single instrument (the
"Indenture").
WITNESSETH THAT :
In consideration of the premises and of the mutual
agreements herein contained, the Depositor, the Trustee, and
the Evaluator agree as follows:
Part I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the provisions of Part II hereof, all the
provisions contained in the Basic Agreement are herein
incorporated by reference in their entirety and shall be deemed
to be a part of this instrument as fully and to the same extent
as though said provisions had been set forth in full in this
instrument except that the Basic Agreement is hereby amended in
the following manner:
<PAGE>
(a) Reference to Standard & Poor's Corporation in its
capacity as Evaluator is replaced by Kenny S&P
Evaluation Services, a division of Kenny Information
Systems, Inc., throughout the Basic Agreement.
(b) Reference to Prudential-Bache Securities Inc. in its
capacity as Depositor is replaced by Prudential
Securities Incorporated throughout the Basic
Agreement.
(c) Article I, entitled "Definitions", Section 1.01,
paragraph (8) "Evaluation Time" shall be amended by
replacing "4:15 P.M. New York Time" with "as of the
close of regular trading on the New York Stock
Exchange (ordinarily 4:00 P.M. New York Time)" and
all references to "4:15 p.m." and "4:15 p.m. New York
Time" will be replaced by "the Evaluation Time" (as
defined in Article I, Section 1.01, paragraph (8))
throughout the Basic Agreement.
(d) Article II, entitled "Administration of Trust",
Section 2.05 Deposit of Additional Securities shall
be amended by adding the following sentence after the
third sentence:
"The parties hereto agree that a Supplementary
Schedule to the Reference Trust Agreement may be
delivered by telecopier and that such delivery shall
have the same force and effect as the delivery of an
original executed document."
(e) Article III, entitled "Administration of Trust",
Section 3.04 Reserve Account shall be amended by
adding "(a)" at the beginning of the first sentence
and by adding the following paragraph:
"(b) The Trustee also shall be entitled from
time to time to withdraw from the cash on deposit in
the Principal Account such amounts as it and the
Depositor shall jointly deem necessary to establish a
reserve for any applicable expenses that may be or
become payable out of the Trust. Such amounts so
withdrawn shall be credited to a separate account
which shall be known as the "Reserve Expense
Account". The Trustee shall not be required to
distribute to the Unit Holders any of the amounts in
the Reserve Expense Account; provided, however, that
if it shall, in its sole discretion, determine that
such amounts are no longer necessary to reserve for
payment of any applicable expenses, then it shall
<PAGE>
promptly deposit such amounts in the account from
which withdrawn or if the Trust shall have terminated
or shall be in the process of termination, the
Trustee shall distribute the same in accordance with
Section 9.03 to each Unit Holder according to such
Holder's interest in the Reserve Expense Account."
(f) Article VI, entitled "Trustee", Section 6.04
Compensation shall be amended by deleting the
following sentence from the text:
"In the event the proceeds of such sale are
insufficient to pay ordinary expenses of the Trust,
such deficit shall be paid by the distributor of Fund
Shares without right to reimbursement for such
amounts paid"
(g) Article IX, entitled "Additional Covenants;
Miscellaneous Provisions", Section 9.03 Termination
shall be amended by adding the words "and any amounts
which the Trustee and Depositor have jointly agreed
to deposit in the Reserve Expense Account" after the
words "other governmental charges" in paragraph
(a)(iii), and by adding the words ", Reserve Expense"
after the word "Reserve" in the paragraph immediately
following paragraph (e).
(h) The last sentence of the second paragraph of Section
3.05 is amended to add the following after the word
"Date"
"and, if so directed by the Depositor, on one
additional date in following receipt by the
Trustee of a distribution on the Fund
Shares, such date to be designated by the Depositor,
to Unit Holders of record on a date designated by the
Depositor"
* * * * *
Part II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are
hereby agreed to:
(a) The Trust is denominated Government
Securities Equity Trust Series 7.
<PAGE>
(b) The term "Fund" shall mean shares ("Fund
Shares") of the Templeton Developing Markets Trust.
(c) The contracts for the purchase of Treasury
Obligations and Fund Shares listed in Schedule A
hereto are those which, subject to the terms of this
Indenture, have been or are to be deposited in trust
under this Indenture as of the date hereof.
(d) The term "Depositor" shall mean Prudential
Securities Incorporated.
(e) The aggregate number of Units referred to
in Sections 2.03 and 9.01 of the Basic Agreement is
as of the date hereof.
(f) A Unit of the Trust is hereby declared
initially equal to 1/ th of the Trust.
(g) The term "First Settlement Date" shall mean
, 1994.
(h) The terms "Quarterly Computation Date" and
"Quarterly Record Date" shall mean February 1, May 1,
August 1 and November 1.
(i) The term "Quarterly Distribution Date"
shall mean February 15, May 15, August 15 and
November 15.
(j) The term "Termination Date" shall mean
, 200_.
(k) The Trustee's Annual Fee shall be: $0.
(per 100 Units) for 5,000,000 and above units
outstanding; $0. (per 100 Units) for 3,000,000 -
4,999,999 units outstanding; $0. (per 100 Units)
for 1,500,000 - 2,999,999 units outstanding; $
(per 100 Units) for 1,499,999 and below units
outstanding. In calculating the Trustee's Annual
Fee, the fee applicable to the number of units
outstanding shall apply to all units outstanding.
(l) For purposes of this Series -- Government
Securities Equity Trust Series 7 -- the form of
Certificate set forth in this Indenture shall be
appropriately modified to reflect the title of this
Series and such of the Special Terms and Conditions
of Trust set forth herein as may be appropriate.
<PAGE>
[Signatures and acknowledgments on separate pages]
<PAGE>
<PAGE>
AGREEMENT
THIS AGREEMENT, made this 29 day of December, 1993,
by and among, Prudential Securities Incorporated (the
"Sponsor"), Templeton Investment Management (Hong Kong) Limited
("Templeton Management"), Franklin/Templeton Distributors, Inc.
("Templeton Distributor") and Templeton Developing Markets
Trust, an open-end, diversified management investment company
for which Templeton Distributor acts as principal underwriter.
WHEREAS, the Sponsor proposes to organize and sponsor
unit investment trusts to be known as Government Securities
Equity Trust ("GSET) or such other name as the Sponsor shall
determine (the "Trust"); and Templeton Distributor proposes to
provide shares (the "Mutual Fund Shares") for deposit in the
Trust of series of Templeton Developing Markets Trust or such
other mutual funds that are managed or advised by Templeton
Management, its successor or any of its affiliates ("Fund") as
the Sponsor and Templeton Distributor shall mutually agree on
and as shall have been approved by the Board of Trustees of the
Fund, and, if so agreed by the Sponsor and Templeton
Distributor, and as shall have been approved by the Board of
Trustees of the Fund, to provide Mutual Fund Shares for
inclusion in the respective portfolios of successive series of
the Trust subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual
undertakings and agreements of the parties contained herein,
the parties hereby agree as follows:
1. Condition Precedent. The obligations of the
parties hereto are subject to the Sponsor obtaining exemptive
relief from the Commission (the "Commission") for operation of
the Trust, based upon an Application to the Securities and
Exchange Commission for an Exemptive Order pursuant to Sections
6(c), 17(d) and Rule 17(d)(1) and pursuant to such other
sections of the Investment Company Act of 1940 (the "Act") as
deemed necessary by the Sponsor (the "Application"), including
as applicants the Trust, the Sponsor, Templeton, Galbraith &
Hansberger, Ltd. ("TGH") or any entity under common control
<PAGE>
with TGH, Templeton Distributor and any fund having Templeton
Distributor as its distributor and/or such other affiliates or
entities as the Commission may require, and to request relief
from such other sections of the Investment Company Act of 1940
("1940 Act") as mutually agreed upon by the parties or as
requested by the staff of the Commission.
2. Creation of the Trust: Obligations of the
Sponsor. In connection with the creation of the Trust, the
Sponsor shall perform all the ordinary and regular duties of a
sponsor of a unit investment trust, including, but not limited
to:
a. Filing with the Commission a Notification of
Registration on Form N-8A and a Registration Statement on
Form N-8B-2 for the Trust under the 1940 Act and for each
series, a registration statement on Form S-6
("Registration Statement"), containing a prospectus, for
registration of the units of the Trust under the
Securities Act of 1933, as well as other documents
necessary to complete registration requirements under
applicable federal securities laws; and preparation and
filing of all documents necessary to comply with
registration requirements of the Blue Sky authorities of
various states;
b. The selection of a trustee, auditors, and an
evaluator for the Trust; and execution and delivery of a
Trust Indenture and Agreement (the "Indenture") and all
other documents necessary for the creation and operation
of the Trust. Only the Sponsor, except to the extent
restricted by the Indenture, shall have the authority to
replace any of the above parties;
c. Selection of securities for inclusion in the
portfolio of the first series created after the date of
the Agreement and each subsequent series of the Trust,
including the purchase and inclusion of Mutual Fund
Shares, or shares of any mutual fund for which Templeton
Management or successor or an affiliate is acting as
investment adviser, the identity of the mutual fund as
mutually agreed to by Templeton Management, Templeton
Distributor and the Sponsor and as shall be approved by
the Board of Trustees of the Fund and the number of such
shares of such Fund to be determined by the Sponsor in its
sole discretion;
d. Determination of the size of each series,
subject to applicable regulatory limitations, and the
frequency and timing of offering of such series;
<PAGE>
e. Paying certain expenses of the Trust related to
sales and promotional activities, legal costs and
administrative expenses, as provided for in Section 6.b
hereof; and
f. Using its best efforts to market units of the
Trust in the same manner and to the same degree as it
markets other unit investment trusts for which it acts as
sponsor.
3. Creation of the Trust: Obligations of Templeton
Distributor and Templeton Management. In connection with the
creation of the Trust, Templeton Management and Templeton
Distributor agree to act as follows:
a. To provide, at their own expense, for inclusion
in the Registration Statement on Form S-6 and Form N-8B-2
(collectively referred to hereinafter as the "Registration
Statements") for each series of the Trust, any and all
information regarding the Fund, the Mutual Fund Shares,
Templeton Management, Templeton Distributor, and their
respective affiliates as may be necessary to make each
Registration Statement accurate and complete as to all
material matters;
b. To use their best efforts to cooperate with and
assist the Sponsor in obtaining any exemptive relief
necessary to create and register the Trust and in the
creation of each series of the Trust and the
advertisement, marketing and sale of units of each such
series; and
c. To pay certain amounts to the Sponsor of the
Trust as provided for in Section 6.b hereof.
4. Exclusive Dealing; Termination. Templeton
Management and Templeton Distributor agree that the Trust will
constitute an exclusive arrangement among them and the Sponsor
and that neither Templeton Management, Templeton Distributor
nor any of their respective U.S. affiliates will enter into an
agreement or in any way act with an entity not a party to this
Agreement to create, market, otherwise promote or permit Mutual
Fund Shares to be included in a potentially competitive unit
investment trust or other product consisting of zero coupon
treasury bonds and mutual fund shares of any entity for a
period of nine (9) months from the effective date hereof.
After the expiration of such nine (9) month period, any party
may, upon the delivery of forty-five (45) days written notice
to other parties, (i) terminate the provisions of this
Agreement which provide for exclusive dealing or (ii) terminate
<PAGE>
the entire Agreement, in either case, the termination to be
effective on the forty-fifth day after delivery of such notice,
provided, however, that in the case of (i), the parties may
agree to continue to do business pursuant to this Agreement on
a non-exclusive basis. The termination of this Agreement
pursuant to this Section 4 shall in no way affect the rights
and responsibilities of the parties with respect to any series
of the Trust previously created pursuant to this Agreement.
The notice provided for herein may be tendered by any party
prior to the expiration of the (9) month period, but shall not
become effective until the expiration of such period.
In the event of the termination of this Agreement,
the parties agree that all expenses incurred in connection with
the creation of a Trust, regardless of whether or not an
Indenture for such Trust was executed or units of such Trust
were offered for sale, shall be borne by the parties in
accordance with the provisions of Section 6.b hereof. If,
after the effective date of this Agreement, Templeton
Distributor is unable or unwilling to consumate the transaction
contemplated by this Agreement, Templeton Distributor agrees to
pay the Sponsor the amount set forth in Section 6.(b)(i)
hereof. Payment shall be made within seven (7) Business Days
after the sending of written notice to the party from whom
payment is sought and shall be made by check drawn on a New
York clearing house bank or by wire transfer, provided that the
parties shall notify each other of the method of payment to be
used prior to the payment date. Anything in this Section 4 to
the contrary notwithstanding, this Agreement does not in any
way restrict the ability of the Sponsor to offer and/or sell
competing products and/or other unit investment trusts.
5. Sale of Mutual Fund Shares to the Trust. As
long as this Agreement remains in effect, Templeton Management
and Templeton Distributor and the Fund agree as follows with
respect to the sale of Mutual Fund Shares to the Trust:
a. To make available to the Sponsor, from time to
time, as requested by the Sponsor, information regarding
the size of the Fund in order to enable the Sponsor to
comply with terms and conditions of the exemptive order
issued by the Commission concerning limitations on the
number of Mutual Fund Shares or other shares to be
included in each series;
b. To waive any and all sales loads and sales fees
on the sale of Mutual Fund Shares or other shares to the
Trust and any sales load on the sale by the Trust of
Mutual Fund Shares; and
<PAGE>
c. On the date of deposit of Mutual Fund Shares
into the portfolio ("Date of Deposit") for each series of
the Trust, Templeton Distributor to enter into and deliver
to the Trust a contract for sale of Mutual Fund Shares or
other shares, in such amounts as the Sponsor shall
request, such request to be made within a reasonable
period of time prior to each Date of Deposit; and, if
requested by the Sponsor, to enter into supplemental
contracts for the sale of Mutual Fund Shares or other
shares to the Trust subsequent to the Date of Deposit, as
the Sponsor, in its sole discretion, may determine.
d. To comply with such conditions as may be imposed
by the Commission in connection with the Application to
the Commission.
6. Continuing Obligations. During the life of the
Trust, the parties hereto shall have the following obligations:
a. (i) The Sponsor, Templeton Distributor and the
Fund shall mutually agree upon the designation of shares
of any Fund for inclusion in each series of the Trust.
The Sponsor shall determine the procedures for the
marketing and sales of units of each series of the Trust.
The Sponsor will allow the sale of units of the Trust
through unaffiliated dealers and will offer such dealers
sales load concessions, both as it may determine in its
sole discretion.
(ii) The names "Prudential Securities Incorporated"
and Government Securities Equity Trust ("GSET") or such
other name as the parties hereto shall mutually determine
or any name or title derived therefrom or intended to be
similar thereto and the logo for the Trust and any logo
customarily used by the Sponsor or any of its affiliates
shall be the sole property of the Sponsor. The Fund,
Templeton Management and Templeton Distributor shall have
no right to use said names or logos in any manner, for any
product without the prior written permission of the
Sponsor. The name of the Fund or any name or title
derived therefrom or intended to be similar thereto and
any logo customarily used by any Templeton entity or
Templeton Fund shall be the sole property of the
particular Templeton entity or Fund. The Sponsor shall
have no rights to use said names or logos in any manner
for any product without the prior written permission of
such entity or Fund other than in connection with the
Trust.
<PAGE>
b. The Sponsor, Templeton Management and Templeton
Distributor agree as follows:
(i) Upon the effectiveness of the Registration
Statement relating to the Trust, Templeton Distributor
agrees to pay the Sponsor $150,000, in immediately
available funds;
(ii) Upon the sale by the Sponsor of $10
million aggregate public offering price of Units,
Templeton Distributor agrees to pay the Sponsor $100,000,
such amount to be paid within thirty business days after
notice is given that such sale(s) have occurred.
(iii) Upon the sale by the Sponsor of $65
million aggregate public offering price of units
(including the sales of units referred to in b(ii) above),
Templeton Distributor agrees to pay to the Sponsor
$50,000, such amount to be paid within thirty (30)
business days after notice is given that such event has
occurred;
(iv) The Sponsor will bear the expenses related
to (x) preparation and printing of the initial and
subsequent prospectus and (y) all advertising, marketing,
sales and promotional material for the Trust. Templeton
Distributor will bear the expenses related to prospectuses
and all advertising, marketing, sales and promotional
material relating to the Fund which material and/or
prospectuses may be used by the Sponsor as part of
promotional material for the Trust;
(v) The Sponsor shall bear all costs incurred
in connection with the Trust, to the extent not paid for
by the Trust, including legal fees and expenses, auditing
costs and evaluator's fees incurred during the initial
offering periods of any series and federal and state
securities laws filing fees; and
(vi) The Sponsor shall be responsible for all
its costs and expenses associated with the administration
of the Trust, including the cost of maintaining a
secondary market in units of the Trust, except for those
costs incurred because of actions of Templeton
Distributor, Templeton Management, or the Fund which costs
shall be payable by Templeton Distributor or Templeton
Management. The Sponsor shall not be responsible for the
costs of Templeton Distributor or affiliates incurred in
connection with activities of its "wholesalers" including
<PAGE>
salaries and travel and entertainment expenses of such
entities and individuals.
(vii) In the event the Sponsor is unable or
reasonably unwilling to consummate the transaction
contemplated hereby resulting from actions taken or failed
to be taken or other events relating to Templeton
Management, Templeton Distributor, the Fund or affiliates
thereof, Templeton Distributor agrees to reimburse the
Sponsor for its costs incurred relating to the Trust but
such reimbursement shall not exceed $250,000. In the
event the Sponsor is unable or unwilling to consummate the
transaction contemplated hereby for reasons not relating
to actions taken or failed to be taken or other events
relating to Templeton Management, Templeton Distributor,
the Fund or affiliates thereof, neither Templeton
Distributor, Templeton Management or the Fund shall have
any obligation to reimburse the Sponsor for any expenses
incurred by the Sponsor.
c. This Agreement shall not prevent Templeton
Distributor and its "wholesalers" from promoting any
investment products to sales representatives of the
Sponsor provided promotion of such products has been
approved by Prudential Securities Incorporated.
d. Templeton Distributor and the Fund agree to
obtain evaluations of the Mutual Fund Shares daily on the
basis of their net asset value as of the close of regular
trading on the New York Stock Exchange (ordinarily 4:00
p.m. New York time) and to provide such evaluations to the
evaluator for the Trust daily as soon as possible
thereafter but no later than the time after which the
Sponsor would not be able to execute and mail
confirmations of Trust units on such date or as otherwise
reasonably requested by the evaluator and agreed to by
Templeton Distributor and the Sponsor.
e. Templeton Management, Templeton Distributor and
the Fund will use their best efforts to comply with all
applicable regulatory and disclosure requirements under
the federal securities laws concerning the Fund.
f. No advertising material containing the name of
Templeton Management, Templeton Distributor or the Fund
will be used by the Sponsor in connection with the Trust
without the written consent of such entity. Similarly, no
advertising material containing the name of the Sponsor or
any of its affiliates or funds will be used by Templeton
<PAGE>
Management or Templeton Distributor or the Fund or
affiliates thereof without the Sponsor's written consent.
g. Templeton Distributor and Templeton Management
agree, at their own expense, to provide the Sponsor, from
time to time, any information consistent with that
originally provided pursuant to Section 3.a hereof as may
be necessary in order to update the information concerning
Templeton Management, Templeton Distributor, affiliates
thereof, the Fund and the Mutual Fund Shares contained in
the Registration Statement on Form S-6 and any post-
effective amendments or supplements thereto and related
prospectus and advertisements.
h. Templeton Management and Templeton Distributor
will provide the Sponsor from time to time with all
information in their possession concerning the sale of
units of the Trust that may be necessary in order for the
Sponsor to comply with applicable Blue Sky requirements in
the various states.
i. In connection with investment in Fund shares, if
any, by unit holders of the Trust of distributions
received from the Trust, Templeton Distributor agrees to
deliver the amount of Fund shares necessary to satisfy
such investment requests by Trust unit holders and, to
waive any and all sales loads and fees which would
otherwise be paid or payable upon a purchase of such Fund
shares. Notwithstanding the termination of this
Agreement, the Fund agrees not to terminate Trust unit
holders' reinvestment accounts during the life of the
Trust.
j. Templeton Management and Templeton Distributor
and the Fund and their affiliates agree to keep
confidential the names and identification of all Trust
unit holders participating in the reinvestment of Trust
distributions in Fund shares, to make no use of such names
or identification, not to solicit in any manner such Trust
unit holders, and not to sell, assign, convey or otherwise
transfer such list of Trust unit holders without the prior
written approval of the Sponsor provided however that
routine shareholder communications made by Templeton
Distributor or the Fund shall be permitted.
k. Templeton Distributor and the Fund agree to pay
to the Trust for as long as such series remains
outstanding, the 12b-1 fees received with respect to the
Mutual Fund Shares contained in each series of the Trust.
<PAGE>
Such rebate shall be made to the Trust on the payment date
of such fees.
7. Indemnifications. a. Templeton Management and
Templeton Distributor agree jointly and severally to indemnify
and hold harmless the Sponsor from and against any and all
losses, claims, damages and liabilities of the Sponsor and
expenses related thereto arising from or relating to this
Agreement, as follows:
(i) Any untrue statement or alleged untrue statement
of a material fact contained in the prospectus of the Fund
or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading;
(ii) Any untrue statement or alleged untrue statement
of a material fact contained in the Registration
Statement, prospectus or sales literature of a particular
series of the Trust or any omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, in each case to the extent that such untrue
statement or alleged untrue statement or omission or
alleged omission was made in reliance upon or in
conformity with information furnished to the Sponsor by
Templeton Management, Templeton Distributor or the Fund
for use in the Trust's Registration Statement, prospectus
or sales literature, or any amendment or supplement
thereto;
(iii) Any action of Templeton Management, Templeton
Distributor or the Fund which is illegal or which
constitutes a breach of this Agreement;
(iv) Templeton Distributor's and the Fund's failure to
provide, on a timely basis, accurate net asset value
determinations relating to the Mutual Funds Shares as
provided for in Section 6.d hereof;
(v) The inability of Templeton Management and its
affiliates to continue to act as investment adviser to the
Fund, or in any other capacity presently contemplated with
respect to the Fund or the Trust, for any reason
whatsoever, including but not limited to sanctions imposed
upon Templeton Management or any of its affiliates by the
Commission pursuant to provisions of the Investment
Advisers Act or other applicable federal securities laws;
and
<PAGE>
(vi) The voluntary or involuntary termination and
liquidation of the Fund.
If any action is brought against the Sponsor alleging
claims described in subsections (i) through (vi) hereof, the
Sponsor shall promptly notify Templeton Management or Templeton
Distributor in writing of the institution of such action and
Templeton Management or Templeton Distributor shall assume the
defense of such action, including the employment of counsel and
payment of expenses. The Sponsor shall have the right to
employ its own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the Sponsor
unless (1) the employment of such counsel shall have been
authorized in writing by Templeton Management or Templeton
Distributor in connection with the defense of such action, or
(2) Templeton Management or Templeton Distributor shall not
have employed counsel to have charge of the defense of such
action or (3) the Sponsor shall have concluded that there are
defenses available to it which are different from or additional
to those available to Templeton Management or Templeton
Distributor (in which case neither Templeton Management nor
Templeton Distributor shall have the right to direct the
defense of such action on behalf of the Sponsor), in any of
which three events such fees and expenses shall be borne by
Templeton Management or Templeton Distributor (it being
understood, however, that neither Templeton Management nor
Templeton Distributor shall be liable for the expenses of more
than one separate counsel in any one action or series of
related actions in the same jurisdiction representing the
Sponsor).
b. The Sponsor agrees to indemnify and hold
harmless Templeton Management and Templeton Distributor from
and against any and all losses, claims, damages and liabilities
of Templeton Management or Templeton Distributor and expenses
relating thereto arising from or related to this Agreement as
follows:
(i) Any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or
the prospectus of a particular series of the Trust or any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, except to the extent that
such an untrue statement or alleged untrue statement or alleged
omission was made in reliance upon and in conformity with
information furnished to the Sponsor by Templeton Management,
Templeton Distributor, the Fund, any other Templeton entity or
affiliate or a party unrelated to the Sponsor for use in the
<PAGE>
Registration Statement or the prospectus, or any amendment or
supplement thereto;
(ii) Any action of the Sponsor in connection with
consummation of the transactions contemplated by this Agreement
which is illegal or which constitutes a material breach of this
Agreement or of the trust indenture.
If any action is brought against Templeton
Management, Templeton Distributor or the Fund alleging claims
described in subsections (i) and (ii) hereof, Templeton
Management or Templeton Distributor or the Fund shall promptly
notify the Sponsor in writing of the institution of such action
and the Sponsor shall assume the defense of such action,
including the employment of counsel and payment of expenses.
Templeton Management or Templeton Distributor or the Fund shall
have the right to employ their own counsel in any such case,
but the fees and expenses of such counsel shall be at the
expense of Templeton Management or Templeton Distributor or the
Fund unless (1) the employment of such counsel shall have been
authorized in writing by the Sponsor in connection with the
defense of such action, or (2) the Sponsor shall not have
employed counsel to have charge of the defense of such action
or (3) Templeton Management or Templeton Distributor or the
Fund shall have reasonably concluded that there are defenses
available to them which are different from or additional to
those available to the Sponsor (in which case the Sponsor shall
not have the right to direct the defense of such action on
behalf of Templeton Management or Templeton Distributor or the
Fund), in any of which three events such fees and expenses
shall be borne by the Sponsor (it being understood, however,
that the Sponsor shall not be liable for the expenses of more
than one separate counsel in any one action or series of
related actions in the same jurisdiction representing Templeton
Management or Templeton Distributor or the Fund). Anything in
this paragraph to the contrary notwithstanding, the Sponsor
shall not be liable for any settlement of any such claim of
action effected without its written consent.
c. If the indemnification provided for in this
Section 7 is unavailable to the indemnified party under
subsections a(i), a(ii) or b(i) of this Section 7 in respect of
any losses, expenses, liabilities or claims referred to
therein, then each party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses,
expenses, liabilities or claims (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnified party on one hand and the indemnifying party on the
other from the offering of the Units of the Trust or (ii) if
the allocation provided by clause (i) above is not permitted by
<PAGE>
applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above
but also the relative fault of the indemnified party on one
hand and of the indemnifying party on the other in connection
with the statements or omissions that resulted in such losses,
expenses, liabilities or claims, as well as any other relevant
equitable considerations. The relative fault of the
indemnified party on the one hand and of the indemnifying party
on the other shall be determined by reference to, among other
things, whether the untrue statement or alleged untrue
statement of a material fact or omission or alleged omission
relates to information supplied by the indemnified party or by
the indemnifying party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable
by a party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any claim
or action.
8. Representations and Warranties of Templeton
Management, Templeton Distributor and the Fund. Templeton
Management, Templeton Distributor and the Fund hereby represent
and warrant, respectively, to the Sponsor that:
a. The Fund is a diversified, open-end management
investment company validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and
properly registered under the 1940 Act; Templeton
Management is a corporation duly organized, validly
existing and in good standing under the laws of Hong Kong
and Templeton Distributor is a corporation duly organized,
validly existing and in good standing under the laws of
the State of California. Each of the Fund, Templeton
Management and Templeton Distributor is qualified to do
business in each jurisdiction where it is legally required
to be, except where failure to qualify is not material;
b. Each of Templeton Management, Templeton
Distributor and the Fund has full power, authority and
legal right to execute and deliver this Agreement and have
each authorized the execution and delivery of this
Agreement and the performance thereof and such Agreement
is legally binding on each such entity;
c. There is no provision of any existing contract,
agreement or indenture binding on Templeton Management or
Templeton Distributor or the Fund or to which either of
them is a party, which would be contravened by the
<PAGE>
execution and delivery on the part of either of them of
this Agreement or by the performance or observance of any
of the terms thereof;
d. The officers executing and delivering this
Agreement and all documents and certificates connected
therewith have proper authority therefor and no consent of
the holders of any obligations of Templeton Management,
Templeton Distributor or the Fund is required for the due
execution, delivery or performance of this Agreement; and
e. To the best of their knowledge and belief, no
consent, authorization or approval of any governmental
agency or commission or any other public or quasi-public
body is necessary to the due execution and performance by
the Fund, Templeton Management or Templeton Distributor of
this Agreement, the validity or enforceability hereof or
the consummation of the transactions contemplated hereby,
other than obtaining an exemptive order from the
Commission as set forth in Section 1 hereof.
9. Representations and Warranties of the Sponsor.
The Sponsor hereby represents and warrants to Templeton
Management, Templeton Distributor and the Fund that:
a. The Sponsor is a corporation, duly formed,
existing and in good standing under the laws of the State
of Delaware, and is duly qualified to do business as a
foreign corporation in each jurisdiction where it is
legally required to be except where failure to qualify is
not material;
b. The Sponsor has full corporate power, authority
and legal right to execute and deliver this Agreement and
to perform and observe the terms thereof;
c. There is no provision of any existing contract,
agreement or indenture binding on the Sponsor or to which
it is a party which would be contravened by the execution
and delivery on the part of the Sponsor of this Agreement
or by the performance or observance of any of the terms
thereof;
d. The officers executing and delivering this
Agreement and all documents and certificates connected
therewith have proper authority therefor and no consent of
the holders of any obligations of the Sponsor is required
for the due execution, delivery or performance of this
Agreement; and
<PAGE>
e. No consent, authorization or approval of any
governmental agency or commission or any other public or
quasi-public body is necessary for the due execution and
performance by the Sponsor of this Agreement, the validity
or enforceability thereof or the consummation of the
transactions contemplated thereby, other than the
registration of the Trust under the 1940 Act, the
registration of Units of the Trust under the Securities
Act of 1933 and the approval of the Blue Sky authorities
of the various states and the obtaining of the exemptive
order from the Commission as set forth in Section 1
hereof.
10. Miscellaneous.
a. In cases where the approval of the Board of
Trustees of the Fund is required in order for the
transactions contemplated by this Agreement to be
effectuated, Templeton Management agrees to use its best
efforts to recommend and obtain such approval. Anything
in this Agreement to the contrary notwithstanding, the
Fund shall not be held jointly or severally liable for an
obligation of Templeton Management or Templeton
Distributor pursuant to this Agreement if such joint
liability would constitute a violation of the Investment
Company Act of 1940.
b. As a condition precedent to the effectiveness of
this Agreement, counsel for each of Templeton Distributor
and Templeton Management and the Fund shall deliver
opinions to the Sponsor as to the matters set forth in
sections 8.a through 8.e hereof as well as such other
matters as the Sponsor may reasonably request.
c. As a condition precedent to the effectiveness of
this Agreement, Templeton Management, Templeton
Distributor and the Fund agree to provide such documents
for review by the Sponsor or its counsel, as counsel for
the Sponsor may reasonably request. Following completion
of the due diligence review of such documents, the Sponsor
shall be permitted, in its sole discretion, for a period
of up to seven days, to terminate this Agreement upon
written notice to the other parties.
d. The indemnity agreements and the representations
and warranties contained herein shall remain operative and
in full force and effect regardless of the termination or
expiration of this Agreement.
<PAGE>
e. In addition to the termination of this Agreement
provided for in Section 4 hereof, the Sponsor may
terminate this Agreement at its discretion upon written
notice if the Board of Trustees and/or the shareholders,
as the case may be, of the Fund, shares of which have been
deposited in any series of the Trust, approve material
changes in the investment objectives or basic
characteristics of such fund, the determination as to
materiality being in the sole discretion of the Sponsor;
provided, however, that the respective rights and
responsibilities of the Sponsor, Templeton Management,
Templeton Distributor and the Fund with the respect to any
series of the Trust already created pursuant to this
Agreement shall be as described in this Agreement.
Templeton Management and the Fund agree to notify the
Sponsor in writing on a timely basis of any changes made
in investment objectives or other characteristics of any
of its affiliated mutual funds shares of which have been
deposited in any series of the Trust.
f. This Agreement may not be changed orally, but
only by an agreement in writing and signed by the party
against whom enforcement of any waiver, change,
modification or discharge is sought.
g. Neither the Sponsor, Templeton Management,
Templeton Distributor nor the Fund may assign, convey or
transfer (by way of merger, sale, gift or otherwise) its
rights or obligations under this Agreement, without the
express prior written permission of the other parties. In
the event that a party does purport to assign its rights
hereunder without the prior written permission of the
other parties, the purported assignment shall be deemed to
have terminated this Agreement unilaterally.
h. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York.
i. The parties hereto covenant and agree that they
will execute any further instruments and they will perform
any acts which are or may become necessary to effectuate
and carry out this Agreement.
j. Nothing in this Agreement shall be construed to
create an agency, partnership, joint trading or other
similar relationship between the parties hereto.
k. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original and
all of which together shall constitute one and same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed the day and year first above
written.
PRUDENTIAL SECURITIES INCORPORATED
By: William W. Huestis
Title: First Vice President
TEMPLETON INVESTMENT MANAGEMENT
(HONG KONG) LIMITED
By: Martin L. Flanagan
Title: Director
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: Thomas M. Mistele
Title: Vice President
TEMPLETON DEVELOPING MARKETS TRUST
By: Thomas M. Mistele
Title: Secretary
<PAGE>
