<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1994
REGISTRATION NO. 33-51937
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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:
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 APRIL
21, 1994 IMMEDIATELY UPON FILING PURSUANT TO RULE 487.
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* This amount was previously paid.
<PAGE>
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)
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
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I. ORGANIZATION AND GENERAL INFORMATION
<S> <C> <C>
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................................................. *
<CAPTION>
II. GENERAL DESCRIPTION OF THE TRUST AND
SECURITIES OF THE TRUST
<S> <C> <C>
10. (a) Registered or bearer securities........................ *
(b) Cumulative or distributive securities.................. *
(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.......................................... *
</TABLE>
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* Inapplicable, answer negative or not required.
i
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
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<S> <C> <C>
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
(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 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
</TABLE>
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* Inapplicable, answer negative or not required.
ii
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
- ---------------------------------------------------------------------- --------------------------------------------
<S> <C> <C>
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............... *
<CAPTION>
III. ORGANIZATION, PERSONNEL AND
AFFILIATED PERSONS OF DEPOSITOR
<S> <C> <C>
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 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........................................... *
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
</TABLE>
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* Inapplicable, answer negative or not required.
iii
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
- ---------------------------------------------------------------------- --------------------------------------------
<S> <C> <C>
(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 Units--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
<CAPTION>
IV. INFORMATION CONCERNING
THE TRUSTEE OR CUSTODIAN
- ---------------------------------------------------------------------- --------------------------------------------
<S> <C> <C>
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
<CAPTION>
V. INFORMATION CONCERNING INSURANCE OF
HOLDERS OF SECURITIES
- ---------------------------------------------------------------------- --------------------------------------------
<S> <C> <C>
51. Insurance of holders of trust's securities................. *
<CAPTION>
VI. POLICY OF REGISTRANT
- ---------------------------------------------------------------------- --------------------------------------------
<S> <C> <C>
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 otherwise covered............... *
53. Tax status of trust........................................ Prospectus front cover; Tax Status
<CAPTION>
VII. FINANCIAL AND STATISTICAL INFORMATION
- ---------------------------------------------------------------------- --------------------------------------------
<S> <C> <C>
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
</TABLE>
- ------------
* Inapplicable, answer negative or not required.
iv
<PAGE>
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
[LOGO]
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The objectives of the Trust are to attempt to obtain safety of capital through
investment in stripped United States Treasury issued notes or bonds paying no
current interest and to attempt to provide for capital appreciation through
investment in shares of the Templeton Developing Markets Trust (the 'Fund'), an
open-end, diversified, registered management investment company. The objective
of the Fund is long-term capital appreciation. The Fund seeks to achieve this
objective 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.
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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 April 21, 1994
THIS PROSPECTUS FOR FUTURE REFERENCE.
<PAGE>
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This Prospectus does not contain all the information with respect to the
investment company set forth in its registration statement and exhibits relating
thereto which have been filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Act of 1933 and the Investment Company Act
of 1940, and to which reference is hereby made.
- --------------------------------------------------------------------------------
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 13.5 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. The Fund seeks to achieve this objective by investing in
securities of issuers in 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 the Fund 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 increased Fund expenses. 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, $20.00 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
$20.00 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 $14.908 per Unit and consequently
Unit Holders purchasing Units on the date of this Prospectus, can anticipate
realizing proceeds at maturity of the Treasury Obligations greater than their
initial investment of approximately $15.00 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 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. The Fund seeks
to achieve this objective 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 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
A-1
<PAGE>
Receipts ('EDRs'). Determinations as to eligibility will be made by 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-9 and B-10). Any income
realized will be incidental.
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.
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 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
A-2
<PAGE>
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. 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.' FOR ADDITIONAL RISK FACTORS RELATING TO INVESTMENT IN
THE FUND SEE PAGES B-9 AND B-10 OF THIS PROSPECTUS.
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 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
$20.00 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 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 1,667 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.
A-3
<PAGE>
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 page B-2) 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-9 and B-10). The Trust's objectives are to attempt to obtain safety
of capital through investment in the stripped United States Treasury issued
notes or bonds paying no current interest and to attempt to provide for capital
appreciation through an investment in Fund Shares. The Trust is 'concentrated'
in Fund Shares so investors should be aware that the potential for capital
appreciation is directly related to the investment performance of the Fund
itself. Additionally, changes in the price of the Treasury Obligations and
changes in the net asset value of the Fund Shares will affect the price of the
Trust's Units.
California Investors Only--Sales to individuals in California are
restricted to persons who have (i) annual income of at least $30,000 and a net
worth of at least $30,000, exclusive of home, home furnishings and automobiles
or (ii) net worth of at least $75,000, exclusive of home, home furnishings and
automobiles.
PORTFOLIO SUMMARY AS OF DATE OF DEPOSIT
$2,000,000 face amount of Treasury Obligations maturing on November 15,
2007 and 49,500 Fund Shares were held in the Trust on the Date of Deposit. The
Treasury Obligations and the Fund Shares represented 51% and 49%, 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.
A-4
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
GOVERNMENT SECURITIES EQUITY TRUST
SERIES 7
AS OF APRIL 20, 1994+
<TABLE>
<S> <C>
AGGREGATE MATURITY VALUE OF TREASURY OBLIGATIONS INITIALLY DEPOSITED............................................... $2,000,000.00
AGGREGATE NUMBER OF FUND SHARES INITIALLY DEPOSITED................................................................ 49,500
INITIAL NUMBER OF UNITS............................................................................................ 100,000
FRACTIONAL UNDIVIDED INTEREST IN THE TRUST REPRESENTED BY EACH UNIT................................................ 1/100,000th
PUBLIC OFFERING PRICE
Aggregate offering side evaluation of Treasury Obligations in the Trust.......................................... $ 726,960.00
Aggregate value of Fund Shares++................................................................................. 685,575.00
Total............................................................................................................ 1,412,535.00
Divided by 100,000 Units......................................................................................... 14.125
Plus sales charge of 5.25% of Public Offering Price (5.541% of net amount invested)*............................. .783
Public Offering Price per Unit+++................................................................................ 14.908
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,++ $.811
less than Public Offering Price per Unit)..................................................................... $ 14.097
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): $1.67 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: November 15, 2007
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.
</TABLE>
- ------------
+ 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-8.
A-5
<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
April 20, 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 April 20, 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 April 20, 1994, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE
New York, N.Y.
April 20, 1994
A-6
<PAGE>
STATEMENT OF FINANCIAL CONDITION
GOVERNMENT SECURITIES EQUITY TRUST
SERIES 7
AS OF DATE OF DEPOSIT, APRIL 20, 1994
<TABLE>
<CAPTION>
TRUST PROPERTY
<S> <C>
Sponsor's Contracts to Purchase underlying Securities backed by an irrevocable letter of credit(a)................. $ 1,412,535.00
<CAPTION>
INTEREST OF UNIT HOLDERS
<S> <C>
Units of fractional undivided interest outstanding:
Cost to investors(b)..................................................................................... $ 1,490,800.00
Gross underwriting commission(c)......................................................................... (78,265.00)
--------------
Total.................................................................................................... $ 1,412,535.00
--------------
--------------
</TABLE>
- ------------------
(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 $50,000,000 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 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-7
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
GOVERNMENT SECURITIES EQUITY TRUST
SERIES 7
ON DATE OF DEPOSIT, APRIL 20, 1994
<TABLE>
<CAPTION>
NAME OF
ISSUER AND COST OF
TITLE OF SECURITIES REPRESENTED BY SECURITIES
CONTRACTS TO PURCHASE(1) TO TRUST(2)
------------------------------------ ----------------
<S> <C>
$2,000,000 Maturity Amount of Stripped United States Treasury Obligations
maturing on November 15, 2007....................................................................... $ 726,960.00
49,500 Shares of the Templeton Developing Markets Trust ($13.85 per Fund Share)....................... 685,575.00
----------------
$ 1,412,535.00
----------------
</TABLE>
- ------------------
(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
April 20, 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 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 $724,120.00 (which is $2,840.00 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
$1,260.00.
A-8
<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')* 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. The Fund seeks to
achieve this objective 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 '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 $20.00 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 a loss depends on whether his purchase price was less than or
exceeded $20.00 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
- ------------------
* 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>
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 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 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.
B-2
<PAGE>
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 $1,396,392,000. 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
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. 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-3
<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.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 17, 1991
DECEMBER 31 (COMMENCEMENT
----------------------- OF OPERATIONS) TO
1993 1992 DECEMBER 31, 1991
------------ --------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period............................................... $ 8.86 $ 10.02 $ 10.00
------------ --------- -----------------
Income from investment operations:
Net investment income............................................................ 0.04 0.08 0.01
Net realized and unrealized gain (loss).......................................... 6.55 (1.06) 0.03
------------ --------- -----------------
Total from investment operations.............................................. 6.59 (0.98) 0.04
------------ --------- -----------------
Distributions:
Dividends from net investment income............................................. (0.05) (0.07) (0.01)
Distributions from net realized gains............................................ (0.13) (0.11) --
Distributions from other sources................................................. -- -- (0.01)
------------ --------- -----------------
Total distributions........................................................... (0.18) (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*................................................................. 74.50% (9.75)% 0.40%**
Ratios/supplemental data
Net assets, end of period (000).................................................... $ 1,396,392 $ 180,189 $ 23,744
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............................................................ 16.01% 21.98% --
</TABLE>
- ------------------
* Total return does not reflect sales commissions.
** Annualized.
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
B-4
<PAGE>
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.
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.
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. 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
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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.
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 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.
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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.
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 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.
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.
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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.
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. 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
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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 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, 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.
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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 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 $20.00 per Unit.
Part of such cash will, however, represent the accrual of taxable original issue
discount on the Treasury Obligations.
A UNIT HOLDER PURCHASING A UNIT ON THE DATE OF THIS PROSPECTUS OR
THEREAFTER MAY RECEIVE TOTAL DISTRIBUTIONS, INCLUDING DISTRIBUTIONS MADE UPON
TERMINATION OF THE TRUST, THAT ARE LESS THAN THE AMOUNT PAID FOR A UNIT.
Sales of Securities in the Portfolio under certain permitted circumstances
may result in an accelerated termination of the Trust. It is also possible that,
in the absence of a secondary market for the Units or otherwise, redemptions of
Units may occur in sufficient numbers to reduce the portfolio to a size
resulting in such termination. 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.
B-10
<PAGE>
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 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 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.
B-11
<PAGE>
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 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 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. 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
B-12
<PAGE>
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.
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 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
B-13
<PAGE>
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, 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, 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.
B-14
<PAGE>
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 '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 (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 the sales charge per Unit as set
forth under Volume Discount herein. Sales by a dealer will be aggregated with
the dealer receiving the greatest concession level for all Units sold by such
dealer up to a maximum of 75% of the sales load. In addition, a dealer who
purchases 33,334 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 Shares. Alternatively, Unit
Holders may redeem their Units through the Trustee.
B-15
<PAGE>
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
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 1,667 Units.
<TABLE>
<CAPTION>
SALES CHARGE
PRIMARY AND SECONDARY MARKET
--------------------------------------
PERCENT OF PUBLIC PERCENT OF NET DEALER
NUMBER OF UNITS OFFERING PRICE AMOUNT INVESTED CONCESSION
- ----------------------------------- ------------------- ---------------- ---------------
<S> <C> <C> <C>
Less than 1,667 Units.............. 5.25% 5.541% 65%
1,667-6,666 Units.................. 5.00% 5.263% 65%
6,667-16,666 Units................. 4.50% 4.712% 70%
16,667-33,333 Units................ 4.00% 4.167% 73%
33,334-66,666 Units................ 3.00% 3.092% 75%
66,667 Units or more............... 2.00% 2.041% 75%
</TABLE>
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.
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
B-16
<PAGE>
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 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 $.23
per Unit for Units purchased in the secondary market and $.37 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 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.
B-17
<PAGE>
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.
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 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.
B-18
<PAGE>
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.
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| Name(s) in Which Unit Trust is Registered |
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| Social Security or Tax Identification Number |
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| Signature | DATE |
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| Signature of Joint Tenant (if any) | DATE |
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| My/Our Brokerage Firm Is: |
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| My/Our Account Number Is: |
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Forward application to: United States Trust Company of New York
P.O. Box 888 -- Cooper Station
New York, NY 10276
<PAGE>
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 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').
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
B-19
<PAGE>
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, 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 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').
B-20
<PAGE>
Computation of Redemption Price per Unit
The Redemption Price per Unit is determined as of the Evaluation Time on
the date any such determination is made. The Redemption Price is each Unit's pro
rata share, determined by the Trustee, of the sum of:
(1) the aggregate bid side evaluation of the Treasury Obligations in
the Trust, as determined by the Evaluator, and the net asset value of the
Fund Shares in the Trust determined as of the Evaluation Time set forth in
the 'Summary of Essential Information'; and
(2) cash on hand in the Trust and dividends receivable on Fund Shares
(other than cash deposited by the Sponsor for the purchase of Securities);
less amounts representing (a) accrued taxes and governmental charges payable out
of the Trust, (b) the accrued expenses of the Trust, and (c) cash held with
respect to previously tendered Units or for distribution to Unit Holders of
record as of a date prior to the evaluation, and (d) any Reserve Account
('Redemption Price').
The right of redemption may be suspended and payment of the Redemption
Price per Unit postponed for more than seven calendar days following a tender of
Units for redemption for any period during which the New York Stock Exchange is
closed, other than for weekend and holiday closing, or trading on that Exchange
is restricted or during which (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 are 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 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(Registered) 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.
B-21
<PAGE>
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 and will not 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 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 of New York 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 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.
B-22
<PAGE>
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 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 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
B-23
<PAGE>
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 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 the 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.
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-24
<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
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Summary of Essential Information.......................... A - 5
Independent Auditors' Report.............................. A - 6
Statement of Financial Condition.......................... A - 7
Schedule of Portfolio Securities.......................... A - 8
The Trust................................................. B - 1
Trust Formation....................................... B - 1
Securities Selection.................................. B - 2
Stripped U.S. Treasury Obligations.................... B - 2
Templeton Developing Markets Trust.................... B - 3
General Information Regarding the Fund................ B - 3
Investment Strategies and Restrictions of the Fund.... B - 4
Net Asset Value of the Fund Shares.................... B - 7
The Fund's Investment Manager......................... B - 7
The Fund's Plan of Distribution....................... B - 8
Risk of Investment in Units........................... B - 8
Fund Risk Factors..................................... B - 9
The Units............................................. B -11
Tax Status of the Trust................................... B -11
Retirement Plans.......................................... B -14
Public Offering of Units.................................. B -14
Public Offering Price................................. B -14
Public Distribution................................... B -15
Secondary Market...................................... B -15
Profit of Sponsor..................................... B -16
Volume Discount....................................... B -16
Employee Discount..................................... B -16
Exchange Option........................................... B -16
Federal Income Tax Consequences....................... B -17
Reinvestment of Trust Distributions....................... B -18
Expenses and Charges...................................... B -18
Initial Expenses...................................... B -18
Fees.................................................. B -18
Other Charges......................................... B -18
Rights of Unit Holders.................................... B -19
Certificates.......................................... B -19
Certain Limitations................................... B -19
Distributions......................................... B -19
Reports and Records................................... B -19
Redemption............................................ B -20
Comparison of Public Offering Price and Redemption
Price................................................... B -21
Sponsor................................................... B -21
Limitations on Liability.............................. B -22
Responsibility........................................ B -22
Resignation........................................... B -22
Trustee................................................... B -22
Limitations on Liability.............................. B -22
Responsibility........................................ B -22
Resignation........................................... B -23
Evaluator................................................. B -23
Limitations on Liability.............................. B -23
Responsibility........................................ B -23
Resignation........................................... B -23
Amendment and Termination of the Indenture................ B -23
Amendment............................................. B -23
Termination........................................... B -24
Tax Impact of In Kind Distribution Upon Termination... B -24
Legal Opinions............................................ B -24
Independent Auditors...................................... B -24
</TABLE>
[LOGO]
SPONSOR
PRUDENTIAL SECURITIES INCORPORATED
ONE SEAPORT PLAZA
199 WATER STREET
NEW YORK, NEW YORK 10292
TRUSTEE
UNITED STATES TRUST
COMPANY OF NEW YORK
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
EVALUATOR
KENNY INFORMATION SYSTEMS, INC.
65 BROADWAY
NEW YORK, NEW YORK 10006
FUND SHARES
TEMPLETON DEVELOPING MARKETS TRUST
700 CENTRAL AVENUE
ST. PETERSBURG, FLORIDA 33701-3628
- --------------------------------------------------------------------------------
<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).
THE FOLLOWING EXHIBITS:
<TABLE>
<S> <C> <C> <C>
**** 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 dated April 20, 1994.
* 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 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 Investment Management (Hong
Kong) Limited, Franklin/Templeton Distributors, Inc., and Templeton Developing Markets Trust.
</TABLE>
- ------------
* Filed herewith.
** Previously filed.
*** 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 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 National Municipal Trust
Series 164, Registration No. 33-66108.
II-1
<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
20TH DAY OF APRIL, 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-2
<PAGE>
CONSENT OF COUNSEL
The consent of Cahill Gordon & Reindel to the use of its name in the
Prospectus included in this Registration Statement is contained in its opinion
filed as Exhibit 5 to this Registration Statement.
------------------------
II-3
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated April 20, 1994, accompanying the
financial statements of the Government Securities Equity Trust Series 7,
included herein and to the reference to our Firm as experts under the heading
'Auditors' in the prospectus which is a part of this registration statement.
DELOITTE & TOUCHE
April 20, 1994
New York, New York
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX PAGE NO.
- -------------------- ---------------------------------------------------------------------------------- ---------
<S> <C> <C> <C> <C>
**** 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 dated April 20, 1994.
* 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 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 Investment
Management (Hong Kong) Limited, Franklin/Templeton Distributors, Inc., and
Templeton Developing Markets Trust.
</TABLE>
- ------------
* Filed herewith.
** Previously filed.
*** 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 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 National Municipal Trust,
Series 164, Registration No. 33-66108.
EX-4.B
<PAGE>
EX-4.B
Executed in 7 Parts
Counterpart No. ( )
GOVERNMENT SECURITIES EQUITY TRUST
SERIES 7
REFERENCE TRUST AGREEMENT
This Reference Trust Agreement dated April 20, 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 December following receipt by the
Trustee of a November or December 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
100,000 as of the date hereof.
(f) A Unit of the Trust is hereby declared
initially equal to 1/100,000th of the Trust.
(g) The term "First Settlement Date" shall mean
April 28, 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
November 15, 2007.
(k) The Trustee's Annual Fee shall be: $0.60
(per 100 Units) for 5,000,000 and above units
outstanding; $0.75 (per 100 Units) for 3,000,000 -
4,999,999 units outstanding; $0.90 (per 100 Units)
for 1,500,000 - 2,999,999 units outstanding; $1.00
(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]
The "Schedule of Portfolio Securities" included in
Part A of the prospectus included in this registration
statetment is hereby incorporated herein as Schedule A hereto.
Exhibit 5
<PAGE>
Exhibit 5
(Letterhead of Cahill Gordon & Reindel)
April 20, 1994
Prudential Securities Incorporated
One Seaport Plaza
New York, New York 10292
Re: Government Securities
Equity Trust Series 7
Gentlemen:
We have acted as special counsel for you as
Depositor of the Government Securities Equity Trust Series
7 (the "Trust"), in connection with the issuance under the
Trust Indenture and Agreement, dated May 16, 1989, and
related Reference Trust Agreement, dated April 20, 1994
(such Trust Indenture and Agreement and Reference Trust
Agreement collectively referred to as the "Indenture"),
among you, as Depositor, United States Trust Company of New
York, as Trustee, and Kenny Information Systems, Inc., as
Evaluator, of units of fractional undivided interest in
said Trust (the "Units") comprising the Units of Government
Securities Equity Trust Series 7. In rendering our opinion
expressed below, we have relied in part upon the opinions
and representations of your officers and upon opinions of
counsel to Prudential Securities Incorporated.
Based upon the foregoing, we advise you that, in
our opinion, when the Indenture has been duly executed and
delivered on behalf of the Depositor and the Trustee and
when the certificate evidencing the Units has been duly
executed and delivered by the Depositor and the Trustee in
<PAGE>
accordance with the Indenture, the Units will be legally
issued, fully paid and nonassessable by the Trust,
and will constitute valid and binding obligations
of the Trust and the Depositor in accordance with their
terms, except that enforceability of certain provisions
thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar
laws affecting creditors generally and by general equitable
principles.
We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement (File
No. 33-51937) relating to the Units referred to above and
to the use of our name and to the reference to our firm in
said Registration Statement and the related Prospectus.
Very truly yours,
CAHILL GORDON & REINDEL
Exhibit 23
<PAGE>
Exhibit 23
[Letterhead of Kenny S&P Evaluation Services]
April 20, 1994
Prudential Securities Incorporated
32 Old Slip
Financial Square
New York, NY 10292
RE: Government Securities Equity Trust Series 7
Gentlemen:
We have examined Registration Statement File No.
33-51937 for the above-captioned trust. We hereby
acknowledge that Kenny S&P Evaluation Services, a division
of Kenny Information Systems, Inc. is currently acting as
the evaluator for the trust. We hereby consent to the use
in the Registration Statement of the reference to Kenny S&P
Evaluation Services, a division of Kenny Information
Systems, Inc. as evaluator.
You are hereby authorized to file a copy of this
letter with the Securities and Exchange Commission.
Sincerely,
F.A. Shinal
F.A. Shinal
Senior Vice President
