<PAGE>
As filed with the Securities and Exchange Commission on July 31, 2000
Registration No. 33-51937
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SECURITIES AND EXCHANGE COMMISION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 6 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
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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:
NOAH D. SORKIN, 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
It is proposed that this filing will become effective (check appropriate box).
__
/__/ immediately upon filing on (date) pursuant to paragraph (b);
__
/X_/ on July 31, 2000 pursuant to paragraph (b);
__
/__/ 60 days after filing pursuant to paragraph (a);
__
/__/ on (date) pursuant to paragraph (a) of Rule 485.
<PAGE>
CUSIP: 383741709
Government Securities Equity Trust Series 7
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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 Class A shares of the Templeton Developing Markets Trust (the
'Fund'), an open-end, diversified, registered management investment company. The
investment goal of the Fund is long-term capital appreciation. The Fund tries to
achieve its goal by investing, under normal market conditions, at least 65% of
its total assets in equity securities of developing or emerging market
companies. 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)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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Please Read and Retain Prospectus dated
This Prospectus For Future Reference July 31, 2000
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
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This Prospectus does not contain all the information with respect to the
investment company set forth in its registration statement and exhibits relating
thereto which have been filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Act of 1933 and the Investment Company Act
of 1940, and to which reference is hereby made.
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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 Class A 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 in
approximately 7 years.
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 investment goal of the Fund is
long-term capital appreciation. The Fund tries to achieve its investment goal by
investing, under normal market conditions, at least 65% of its total assets in
equity securities of developing or emerging market issuers. 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 and other illiquid
investments, 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. 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 the Summary of
Essential Information. There is no assurance that a purchaser of Units on the
date of the Prospectus or subsequent to such date will receive, upon
termination, the purchase price per Unit. The Fund has not been structured to
generate dividends and therefore dividend distributions by the Trust are likely
to be insignificant. The maximization of dividend income is not an objective of
the Trust. The Trust is 'concentrated' in Fund shares, so investors should be
aware that the potential for capital appreciation is directly related to the
investment performance of the Fund itself.
The 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 investment goal of the Fund is long-term capital appreciation. This goal
is fundamental, which means that it may not be changed without Fund shareholder
approval.
What is the Fund's Investment Strategy?
The Fund tries to achieve its investment goal by investing, under normal
market conditions, at least 65% of its total assets in equity securities of
developing or emerging market companies. The Fund normally will invest in at
least three developing or emerging market countries.
For purposes of the Fund's investments, developing or emerging market
countries include:
- countries that are generally considered low or middle income countries by
the International Bank of Reconstruction and Developing (commonly known as
the World Bank) and the International Finance Corporation; or
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<PAGE>
- countries that are classified by the United Nations or otherwise regarding
by their authorities as developing; or
- countries with a stock market capitalization of less than 3% of the Morgan
Stanley Capital International World Index.
In addition, developing or emerging markets equity securities means those
issued by:
- companies whose principal securities trading markets are in developing or
emerging market countries; or
- companies that derive a significant share of their total revenue from
either goods or services produced or sales made in developing or emerging
market countries; or
- companies that have a significant portion of their assets in developing or
emerging countries; or
- companies that are linked to currencies of developing or emerging market
countries; or
- companies that are organized under the laws of, or with principal offices
in, developing or emerging market countries.
The Fund buys the following types of securities, among others:
An equity security, or stock, represents a proportionate share of the
ownership of a company. Its value is based on the success of the company's
business, any income paid to stockholders, the value of the company's assets,
and general market conditions. Common stocks and preferred stocks are examples
of equity securities. The Fund also invests in American, Global, and European
Depositary Receipts, which are certificates typically issued by a bank or trust
company that give their holders the right to receive securities issued by a
foreign or domestic corporation. The Fund, from time to time, may have
significant investments in one or more countries or in particular sectors such
as technology (including computer hardware and software, electronic, and
telecommunications) and financial institutions.
In addition to its main investments, the Fund may invest a portion of its
assets in the equity securities of issuers in developed market countries. The
Fund may invest up to 10% of its total assets in restricted securities and
securities with a limited trading market.
When choosing equity investments for the Fund, the Fund manager applies a
'bottom up,' value-oriented, long-term approach, focusing on the market prices
of a company's securities relative to its evaluation of the company's long-term
earnings, asset value and cash flow potential. The manager also considers a
company's price/earnings ratio, profit margins and liquidation value. In
choosing investments, the Fund's manager strongly believes in onsite visits to
issuers of prospective investments to assess critical factors such as management
strength and local conditions.
Temporary Investments When the manager believes market or economic
conditions are unfavorable for investors, the manager may invest up to 100% of
the Fund's assets in a temporary defensive manner or hold a substantial portion
of the Fund's portfolio in cash. Temporary defensive investments generally may
include money market securities, short-term and medium-term U.S. and foreign
government securities, short-term corporate obligations, bank obligations, and
repurchase agreements denominated in the currency of any nation. The manager
also may invest in these types of securities or hold cash while looking for
suitable investment opportunities or to maintain liquidity. In these
circumstances, the Fund may be unable to achieve its investment goal.
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.'
While this may not be the case in foreign markets, in the U.S., stocks
historically have outperformed other asset classes over the long term (over the
short term they tend to go up and down more dramatically). These price movements
may result from factors affecting individual companies, industries or the
securities market as a whole. Value stock prices are considered 'cheap' relative
to the company's perceived value. They may not increase in value, as anticipated
by the
A-ii
<PAGE>
manager, if other investors fail to recognize the company's value and bid up the
price or in markets favoring faster-growing companies. The Fund should be
thought of as a long-term investment for the aggressive portion of a well
diversified portfolio.
Foreign securities. Investing in foreign securities, including securities of
foreign governments and depositary receipts, typically involves more risks than
investing in U.S. securities. Certain of those risks also may apply to
securities of U.S. companies with significant foreign operations. These risks
can increase the potential for losses in the Fund and affect its share price.
Currency exchange rates. Foreign securities may be issued and traded in
foreign currencies. As a result, their values may be affected by changes in
exchange rates between foreign currencies and the U.S. dollar, as well as
between currencies of countries other than the U.S. For example, if the value of
the U.S. dollar goes up compared to a foreign currency, an investment traded in
that foreign currency will go down in value because it will be worth less U.S.
dollars. The impact of the euro, a relatively new currently adopted by certain
European countries to replace their national currencies, is unclear at this
time. Restrictions on currency trading that may be imposed by developing market
countries will have an adverse affect on the value of the securities of
companies that trade or operate in such countries.
Political and economic developments. The political, economic and social
structures of some foreign countries may be less stable and more volatile than
those in the U.S. Investments in these countries may be subject to the risks of
internal and external conflicts, currency devaluations, foreign ownership
limitations and tax increases. It is possible that a government may take over
the assets or operations of a company or impose restrictions on the exchange or
export of currency or other assets. Some countries also may have different legal
systems that may make it difficult for the Fund to vote proxies, exercise
shareholder rights, and pursue legal remedies with respect to its foreign
investments.
Trading practices. Brokerage commissions and other fees generally are higher
for foreign securities. Government supervision and regulation of foreign stock
exchanges, currency markets, trading systems and brokers may be less than in the
U.S. The procedures and rules governing foreign transactions and custody
(holding of the Fund's assets) also may involve delays in payment, delivery or
recovery of money or investments.
Availability of information. Foreign companies may not be subject to the
same disclosure, accounting, auditing and financial reporting standards and
practices as U.S. companies. Thus, there may be less information publicly
available about foreign companies than about most U.S. companies.
Limited markets. Certain foreign securities may be less liquid (harder to
sell) and more volatile than many U.S. securities. This means the Fund may at
times be unable to sell foreign securities at favorable prices. In developing
markets, a previously established liquid securities market may become illiquid
(temporarily or for longer periods of time) due to economic or political
conditions.
Developing Markets. The Fund's investments in developing markets are subject
to all of the risks of foreign investing generally, and have additional
heightened risks due to a lack of established legal, political, business, and
social frameworks to support securities markets. Some of the additional
significant risks include:
- Political and social uncertainty (for example, regional conflicts and risk
of war)
- Currency exchange rate volatility
- Pervasiveness of corruption and crime
- Delays in settling portfolio transactions
- Risk of loss arising out of the system of share registration and custody
- Markets that are comparatively smaller and less liquid than developed
markets. Short-term volatility in these markets and declines of more than
50% are not unusual.
- Less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the U.S.
- Currency and capital controls
- Greater sensitivity to interest rate changes
A-iii
<PAGE>
All of these factors make developing market equity securities' prices
generally more volatile than equity securities of companies in developed markets
and increase the risk of loss to the Fund.
COUNTRY, SECTOR OR INDUSTRY FOCUS To the extent the Fund invests a
significant portion of its assets in one or more countries, sectors or
industries at any time, the Fund will face a greater risk of loss due to factors
affecting a single country, sector or industry than if the Fund always
maintained wide diversity among the countries, sectors and industries in which
it invests. For example, technology companies involve risks due to factors such
as the rapid pace of product change, technological developments and new
competition. Their stocks historically have been volatile in price, especially
over the short term, often without regard to the merits of individual companies.
Banks and financial institutions are subject to potentially restrictive
governmental controls and regulations that may limit or adversely affect
profitability and share price. In addition, securities in that sector may be
very sensitive to interest rate changes throughout the world.
LIQUIDITY Reduced liquidity affecting an individual security or an entire
market may have an adverse impact on market price and the Fund's ability to sell
particular securities when necessary to meet the Fund's liquidity needs or in
response to a specific economic event.
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 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
A-iv
<PAGE>
asset value of the Fund shares (see 'Rights of Unit Holders--Redemption'
herein). Market conditions may cause such prices to be greater or less than the
amount paid for Units and may result in a loss to a Unit Holder upon the
disposition of a Unit.
Special Risk Considerations
An investment in Units of the Trust should be made with an understanding of
the risks entailed in an investment in (i) the stripped United States Treasury
issued notes or bonds bearing no current interest (see 'The Trust--Stripped U.S.
Treasury Obligations' on 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'
in Part B of this Prospectus). 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 or loss 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.
Portfolio Summary
$9,600,000 face amount of Treasury Obligations maturing on November 15, 2007
and 237,600 Fund shares were held in the Trust on June 27, 2000. The Treasury
Obligations and the Fund shares represented 66.3% and 33.7%, respectively, of
the total of the aggregate bid side evaluation of Treasury Obligations in the
Trust and the aggregate value of Fund shares on June 27, 2000.
A-v
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
As of June 27, 2000
<TABLE>
<S> <C>
AGGREGATE MATURITY VALUE OF TREASURY OBLIGATIONS DEPOSITED................................. $ 9,600,000.00
AGGREGATE NUMBER OF FUND SHARES DEPOSITED.................................................. 237,600
NUMBER OF UNITS............................................................................ 480,000
FRACTIONAL UNDIVIDED INTEREST IN THE TRUST REPRESENTED BY EACH UNIT........................ 1/480,000th
PUBLIC OFFERING PRICE
Aggregate bid side evaluation of Treasury Obligations in the Trust....................... $ 6,093,984.00
Aggregate value of Fund shares(2)........................................................ 3,091,176.00
Cash value............................................................................... (14,376.74)
Total.................................................................................... 9,170,783.26
Divided by 480,000 Units................................................................. 19.106
Plus sales charge of 5.25% of Public Offering (5.54% of net amount invested)(4).......... 1.058
Public Offering Price per Unit(3)........................................................ 20.164
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, $1.058 less than Public Offering Price per Unit)........................ $ 19.106
QUARTERLY RECORD DATES: February 1, May 1, August 1 and November 1.
QUARTERLY DISTRIBUTION DATES: February 15, May 15, August 15 and November 15.
TRUSTEE'S ANNUAL FEE(5) (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 $13,800,000.
DATE OF DEPOSIT: April 20, 1994(1)
</TABLE>
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(1) 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.
(2) Calculated by multiplying aggregate number of Fund shares by the current
net asset value per share (excluding any sales load on the Fund shares).
(3) This Public Offering Price is computed as of the June 27, 2000 and may
vary from the Public Offering Price on the date of this Prospectus or any
subsequent date.
(4) Certain transactions are entitled to a reduced sales charge. (See
'Public Offering of Units--Volume Discount.')
(5) Based on Trust size of 1,000,000 or fewer Units.
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For an explanation of the management fees paid by the Fund, (as of December
31, 1999, 1.25% of fund average net assets) see page B-12.
A-vi
<PAGE>
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
THE UNIT HOLDERS, SPONSOR AND TRUSTEE
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
We have audited the statement of financial condition, including the schedule
of portfolio securities, of the Government Securities Equity Trust Series 7
as of March 31, 2000, and the related statements of operations and changes
in net assets for the three years in the period then ended. These financial
statements are the responsibility of the Trustee (see Footnote (a)(1)). Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned as of March 31, 2000 as shown in the statement of financial
condition and schedule of portfolio securities by correspondence with The
Chase Manhattan Bank, the Trustee. An audit also includes assessing the
accounting principles used and the significant estimates made by the
Trustee, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Government
Securities Equity Trust Series 7 as of March 31, 2000, and the results of
its operations and the changes in its net assets for the three years in the
period then ended in accordance with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
July 19, 2000
A-1
</AUDIT-REPORT>
<PAGE>
STATEMENT OF FINANCIAL CONDITION
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
March 31, 2000
TRUST PROPERTY
<TABLE>
<S> <C>
Investments in securities at market value (amortized cost $8,756,698)
(Note (a) and Schedule of Portfolio Securities
Notes (4) and (5)) $9,410,976
Other Receivable 4,514
Cash 373,254
Total 9,788,744
LIABILITIES AND NET ASSETS
Less Liabilities:
Redemption Payable 380,832
Accrued Trustee fees and expenses 4,935
Total liabilities 385,767
Net Assets:
Balance applicable to 480,000 Units of fractional
undivided interest issued and outstanding (Note (c)):
Capital plus net unrealized market appreciation
of $654,278 $9,410,976
Excess distribution of net investment
income (Note (b)) (7,999)
Net assets $9,402,977
Net asset value per Unit ($9,402,977 divided by 480,000 Units) $ 19.5895
</TABLE>
See notes to financial statements
A-2
<PAGE>
STATEMENTS OF OPERATIONS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
<TABLE>
<CAPTION>
For the years ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Investment Income:
Interest $428,020 $510,764 $ 620,120
Dividends 12,616 43,758 89,681
Other Income 5,387 11,853 14,405
Total income 446,023 566,375 724,206
Less Expenses:
Trust fees and expenses 13,037 16,970 18,638
Total expenses 13,037 16,970 18,638
Investment income - net 432,986 549,405 705,568
Net gain (loss) on investments:
Realized gain on securities sold or redeemed 158,845 107,328 455,434
Long-term capital gain distributions received - - 351,308
Net unrealized market appreciation (depreciation) 275,809 (763,271) (564,592)
Net gain (loss) on investments 434,654 (655,943) 242,150
Net increase (decrease) in net assets resulting
from operations $867,640 $(106,538) $ 947,718
</TABLE>
See notes to financial statements
A-3
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
<TABLE>
<CAPTION>
For the years ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Operations:
Investment income - net $ 432,986 $ 549,405 $ 705,568
Realized gain on securities sold or
redeemed 158,845 107,328 455,434
Long-term capital gain distributions
received - - 351,308
Net unrealized market appreciation
(depreciation) 275,809 (763,271) (564,592)
Net increase (decrease) in net
assets resulting from operations 867,640 (106,538) 947,718
Less Distributions to Unit Holders:
Principal - - (355,907)
Investment income - net - (61,304) (83,081)
Total distributions - (61,304) (438,988)
Capital Share Transactions:
Redemption of 140,000 Units, 180,000 Units
and 220,000 Units, respectively (2,648,341) (3,205,493) (4,087,417)
Net investment loss (income distribution)
on redemption 2,521 93 (3,183)
Total capital share transactions (2,645,820) (3,205,400) (4,090,600)
Net decrease in net assets (1,778,180) (3,373,242) (3,581,870)
Net assets:
Beginning of year 11,181,157 14,554,399 18,136,269
End of year (including (excess distribution
of) undistributed net investment income
of $(7,999), $(11,083), and $38,631,
respectively) $ 9,402,977 $11,181,157 $14,554,399
</TABLE>
See notes to financial statements
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
March 31, 2000
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of the significant
accounting policies of the Trust, which are in accordance with
accounting principles generally accepted in the United States of
America:
(1) Basis of Presentation
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 Security included in the Trust's Schedule of Portfolio
Securities on the basis set forth in Part B of this Prospectus,
"Public Offering of Units - Public Offering Price". Under the
Securities Act of 1933 ("the Act"), as amended, the Sponsor is
deemed to be an issuer of the Trust Units. As such, the Sponsor
has the responsibility of an issuer under the Act with respect to
financial statements of the Trust included in the Registration
Statement under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations of the Zero Coupon
Treasury Obligations, and by calculations based on the net asset
value per share of the mutual fund, on the last day of trading
during the period. The value on the date of initial deposit (April
20, 1994) represents the cost of investments to the Trust based on
the offering side evaluations and the net asset value per share, of
the Treasury Obligations and mutual fund shares, respectively, as
of the close of business on the date of initial deposit. The cost
of investments purchased subsequent to the date of initial deposit
is based on the offering side evaluations and the net asset value
per share, respectively, at the date of purchase. The difference
between the initial cost and face amount of the Treasury
Obligations at the date of purchase is being amortized over the
period to its maturity date using the interest method.
(3) Income Taxes
As a Unit Investment Trust, the Trust is organized as a Grantor
Trust and is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is required
for such taxes.
A-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
March 31, 2000
(4) Expenses
The Trust pays an annual Trustee's fee, estimated expenses,
Evaluator's fees, and may incur additional charges as explained
under "Expenses and Charges - Fees" and "- Other Charges" in this
Prospectus.
(b) DISTRIBUTIONS
Distributions from the income and principal accounts, if any, received
by the Trust are made to Unit Holders on a quarterly basis and
distributions of any net capital gains received in respect of mutual
fund shares will be made at least annually to Unit Holders of record.
Income from the amortization of original issue discount on the Zero
Coupon Treasury Obligations will not be distributed on a current basis.
Upon termination of the Trust, the Trustee will distribute, upon
surrender of Units for cancellation, to each Unit Holder his pro rata
share of the Trust's assets, less expenses, in the manner set forth
under "Amendment and Termination of the Trust - Termination" herein.
(c) COST TO INVESTORS
The cost to investors represents the aggregate initial public offering
price as of the respective dates of deposit exclusive of accrued
interest.
A reconciliation of the cost of Units to investors to the net amount
applicable to investors as of March 31, 2000 follows:
<TABLE>
<S> <C>
Cost to investors $26,550,721
Less: Gross underwriting commissions (sales charge) 1,324,383
Net cost to investors 25,226,338
Cost of securities sold or redeemed, including
interest accretion of $2,304,599 (20,669,665)
Net unrealized market appreciation 654,278
Accumulated interest accretion 4,200,025
Net amount applicable to investors $ 9,410,976
</TABLE>
A-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
March 31, 2000
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during each year:
<TABLE>
<CAPTION>
For the years ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Principal distributions during year $ - $ - $ .4044
Net investment income distributions
during year $ - $ .0872 $ .0944
Net asset value at end of year $19.5895 $18.0341 $18.1930
Trust Units outstanding at end of
year 480,000 620,000 800,000
</TABLE>
A-7
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
March 31, 2000
<TABLE>
<CAPTION>
Port-
folio Name of Issuer/Title of Face Amount/ Market
No. Portfolio Security <F1> Number of Shares Value <F4><F5>
<C> <S> <C> <C>
1. Stripped United States Treasury
Obligations maturing on November 15, 2007 <F2> $9,600,000 $5,980,032
2. Shares of the Templeton Developing Markets
Trust ($14.44 per Fund Share) <F3> 237,600 3,430,944
$9,410,976
</TABLE>
See notes to schedule of portfolio securities
A-8
<PAGE>
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
GOVERNMENT SECURITIES EQUITY TRUST SERIES 7
March 31, 2000
<F1> None of the Securities is redeemable by operation of optional call
provisions.
<F2> The Zero Coupon Treasury Obligations have been purchased at a
discount from their par value because there is no stated interest
income thereon (such Securities are often referred to as zero
coupon securities). Over the life of the Treasury Obligations such
discount accrues and upon maturity thereof the holders will receive
100% of the Treasury Obligation maturity amount thereof.
<F3> The mutual fund's manager is Templeton Asset Management Ltd. - Hong
Kong branch.
<F4> The market value of the Treasury Obligations as of March 31, 2000
was determined by the Evaluator on the basis of bid side
evaluations for the Securities at such date. The market value of
the mutual fund shares was calculated by multiplying the aggregate
number of shares by the current net asset value per share as of the
same date.
<F5> At March 31, 2000 the unrealized market appreciation of Securities
was comprised of the following:
<TABLE>
<S> <C>
Gross unrealized market appreciation $654,278
Gross unrealized market depreciation -
Unrealized market appreciation $654,278
</TABLE>
The amortized cost of the Securities for Federal income tax purposes
was $8,756,698 at March 31, 2000.
A-9
<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 'predecessor-trustee') and Kenny Information Systems, Inc. (the
'Evaluator'). The Chase Manhattan Bank is the Trustee (the 'Trustee') of the
Trust. 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 Class A 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 goal is long-term capital appreciation. The Fund tries to
achieve its investment goal by investing, under normal market conditions, at
least 65% of its total assets in equity securities of developing or emerging
market issuers. There is of course no guarantee that the Trust's objectives will
be achieved.
Trust Formation
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.'
On a recent date, each Unit represented the fractional undivided interest in
the Securities and net income of the Trust set forth under 'Summary of Essential
Information.' The Trust Portfolio has been structured so that a Unit Holder will
receive, at the Mandatory Termination Date of the Trust, an amount per Unit at
least equal to $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 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.
Neither the Sponsor nor any affiliate of the Sponsor will be liable in any
way for any default, failure or defect in any Securities.
------------
* 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>
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.
Templeton Developing Markets Trust
The portfolio of the Trust also contains Class A shares (the 'Fund shares')
of the Templeton Developing Markets Trust (the 'Fund'). On December 31, 1999,
the net assets of the Fund were approximately $3,548,111,196. The Fund has
retained an investment manager, Templeton Asset Management Ltd. - Hong Kong
Branch ('Asset Management Hong Kong').
The investment goal of the Fund is long-term capital appreciation. This goal
is fundamental, which means that it may not be changed without shareholder
approval. The Fund tries to achieve its investment goal by investing primarily
in the equity securities of developing or emerging market issuers.
Additionally, the Fund may invest in debt securities, which represent an
obligation of the issuer to repay a loan of money to it, and generally, provide
for the payment of interest. The Fund may invest up to 35% of its total assets
in debt securities which are rated C or better by Moody's or S&P or unrated debt
which it determines to be of comparable quality. At present, the Fund does not
intend to invest more than 5% of its total assets in non-investment grade
securities. The Fund may also invest in American, European and Global Depositary
Receipts, which are certificates typically issued by a bank or trust company
that give their holders the right to receive securities issued by a foreign or
domestic corporation.
With respect to 75% of its total assets, the Fund may invest up to 5% of its
total assets in securities issued by any one company or foreign government;
however, it may invest any amount of its assets in U.S. government securities.
The Fund may invest in any industry although it will not invest more than 25% of
its total assets in any one industry. Additionally,
B-2
<PAGE>
the Fund may invest up to 15% of its total assets in foreign securities that are
not listed on a recognized U.S. or foreign securities exchange, including up to
10% of its total assets in restricted securities, securities that are not
readily marketable, repurchase agreements with more than seven days to maturity,
and over-the-counter options bought by the Fund.
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, is the custodian of the Fund's assets. Franklin
Templeton Investor Services, Inc. serves as the Fund's dividend disbursing and
transfer agent. Franklin Templeton Services, Inc. performs certain
administrative functions for the Fund. The Fund's prospectus is available upon
request.
B-3
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the periods indicated)
Shown below for the periods indicated are per share income and capital
changes for a Fund share outstanding throughout the periods indicated ('per
share information').
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------
Class A 19991 1998 1997 1996 1995
----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per share data ($)
Net asset value, beginning of year................... 10.30 12.94 15.40 13.01 13.42
---------- ---------- ---------- ---------- ----------
Net investment income............................... .06 .17 .16 .16 .21
Net realized and unrealized gains (losses).......... 5.25 (2.57) (1.62) 2.75 (.18)
---------- ---------- ---------- ---------- ----------
Total from investment operations..................... 5.31 (2.40) (1.46) 2.91 .03
---------- ---------- ---------- ---------- ----------
Dividends from net investment income................ -- (.19) (.16) (.17) (.20)
In excess of net investment income.................. -- -- -- (.01) --
Dividends from net realized gains................... -- (.05) (.53) (.34) (.24)
In excess of net realized gains..................... -- -- (.31) -- --
---------- ---------- ---------- ---------- ----------
Total distributions.................................. -- (.24) (1.00) (.52) (.44)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year......................... 15.61 10.30 12.94 15.40 13.01
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total return (%)2.................................... 51.55 (18.72) (9.41) 22.51 .36
Net assets, end of year ($ x 1,000).................. 2,958,324 2,172,954 3,444,029 3,308,753 2,147,664
Ratios to average net assets: (%)....................
Expenses............................................ 2.02 2.11 1.96 2.03 2.10
Net investment income............................... .45 1.40 0.99 1.16 1.66
Portfolio turnover rate (%).......................... 48.82 37.51 30.06 12.47 9.76
</TABLE>
---------------
1. Based on average weighted shares outstanding.
2. Total return does not include sales charges, and is not annualized.
Goal and Strategies
General. The Fund may invest up to 100% of its total assets in developing
or emerging markets, including up to 5% of its total assets in Russian
securities. The Fund normally will invest in at least three developing or
emerging market countries. With respect to 75% of its total assets, the Fund may
invest up to 5% of its total assets in securities issued by any one company or
foreign government. The Fund may invest any amount of its assets in U.S.
government securities. The Fund may invest in any industry although it will not
concentrate (invest more than 25% of its total assets) in any one industry. 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 those instruments. The Fund will generally have a portion of its assets
in cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the Fund may enter into repurchase agreements with
certain banks and broker-dealers.
Equity Securities. The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner of
an equity security may participate in a company's success through the receipt of
dividends which are distributions of earnings by the company to its owners.
Equity security owners also may participate in a company's success or lack of
success through increases or decreases in the value of the company's shares as
traded in the public trading market for such shares. Equity securities generally
take the form of common stock or preferred stock. Preferred stockholders
typically receive greater dividends but may receive less appreciation than
common stockholders and may have greater voting rights as well. Equity
securities also may include convertible securities, warrants or rights.
Convertible securities typically are debt securities or preferred stocks which
are convertible into common stock after certain time periods or under certain
circumstances. Warrants or rights give the holder the right to purchase a common
stock at a given time for a specified price.
Depositary Receipts. Depositary receipts are certificates that give their
holders the right to receive securities (a) of a foreign issuer deposited in a
U.S. bank or trust company (American Depositary Receipts or 'ADRs'); or (b) of a
foreign or U.S. issuer deposited in a foreign bank or trust company (Global
Depositary Receipts or 'GDRs' or European Depositary Receipts, 'EDRs').
Debt Securities. A debt security typically has a fixed payment schedule
which obligates the issuer to pay interest to the lender and to return the
lender's money over a certain time period. A company typically meets its payment
B-4
<PAGE>
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bonds, notes,
debentures and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's net asset value.
The Fund may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the financial
soundness of the issuer. Generally, a lower rating indicates higher risk. The
Fund may invest up to 35% of its total assets in debt securities which are rated
C or better by Moody's Investors Services, Inc. (Moody's) or Standard & Poor's
Corporation (S&P) or unrated debt which it determines to be of comparable
quality. At present, the Fund does not intend to invest more than 5% of its
total assets in non-investment grade securities (rated lower than BBB by S&P or
Baa by Moody's).
The Fund may from time to time purchase defaulted debt securities if, in the
opinion of the manager, the issuer may resume interest payments in the near
future. As a fundamental policy, the Fund will not invest more than 10% of its
total assets (at the time of purchase) in defaulted debt securities, which may
be illiquid.
Borrowing. The Fund may borrow up to one-third of the value of its total
assets from banks to increase its holdings of portfolio securities. Under the
1940 Act, the Fund is required to maintain continuous asset coverage of 300%
with respect to such borrowings and to sell (within three days) sufficient
portfolio holdings to restore such coverage if it should decline to less than
300% due to market fluctuations or otherwise, even if such liquidations of the
Fund's holdings may be disadvantageous from an investment standpoint. Leveraging
by means of borrowing may exaggerate the effect of any increase or decrease in
the value of portfolio securities on the Fund's net asset value, and money
borrowed will be subject to interest and other costs (which may include
commitment fees and/or the cost of maintaining minimum average balances) which
may or may not exceed the income received from the securities purchased with
borrowed funds.
To generate additional income, the Fund may lend certain of its portfolio
securities to qualified securities dealers or other institutional investors.
These loans may not exceed 33 1/3% of the value of the Fund's total assets,
measured at the time of the most recent loan. Each loan must be secured with
collateral (consisting of any combination of cash, securities issued by the U.S.
government and its agencies and instrumentalities, or irrevocable letters of
credit) in an amount at least equal (on a daily market to market basis) of the
current market value of the loaned securities. The Fund retains all or a portion
of the interest received on investment of the cash collateral or receives a fee
from the borrower. The Fund also effectively receives any distributions paid on
the loaned securities. The Fund may terminate a loan at any time and obtain the
return of the securities loaned within the normal settlement period for the
security involved.
Where voting rights with respect to the loaned securities pass with the
lending of the securities, the manager intends to call the loaned securities to
vote proxies, or to use other practicable and legally enforceable means to
obtain voting rights, when the manager has knowledge that, in its opinion, a
material event affecting the loaned securities will occur or the manager
otherwise believes it necessary to vote. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral in the
event of default or insolvency of the borrower.
The Fund will loan its securities only to parties who meet creditworthiness
standards approved by the Fund's board of trustees, i.e., banks or
broker-dealers that the manager has determined present no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the loan.
Options on securities or indices. Although the Fund has the authority to
write covered call and put options and purchase call and put options on
securities or stock indices that are traded on U.S. and foreign exchanges and in
the over-the-counter markets, it presently has no intention of entering into
such transactions. An option on a security is a contract that gives 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
gives 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 will limit the sale
of options on its securities to 15% or less of its total net assets. The Fund
may only buy options if the total premiums it paid for such options is 5% or
less of its total assets.
B-5
<PAGE>
The Fund may write a call or put option to generate income only if the
option is 'covered.' A call option on a security written by the Fund is
'covered' if the Fund owns the underlying security covered by the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option on a security is also 'covered' if the Fund holds a
call on the same security and in the same principal amount as the call written
where the exercise price of the call held (1) is equal to or less than the
exercise price of the call written or (2) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash or high
grade U.S. government securities in a segregated account with its custodian. A
put option on a security written by the Fund is 'covered' if the Fund maintains
cash or fixed income securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
and in the same principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
The Fund will cover call options on stock indices that it writes by owning
securities whose price changes, in the opinion of the manager, are expected to
be similar to those of the index, or in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where the Fund covers a call
option on a stock index through ownership of securities, such securities may not
match the composition of the index. In that event, the Fund will not be fully
covered and could be subject to risk of loss in the event of adverse changes in
the value of the index. The Fund will cover put options on stock indices that it
writes by segregating assets equal to the option's exercise price, or in such
other manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of a security or an index on which the
Fund has written a call option falls or remains the same, the Fund will realize
a profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the portfolio securities
being hedged. If the value of the underlying security or index rises, however,
the Fund will realize a loss in its call option position, which will reduce the
benefit of any unrealized appreciation in the Fund's investments. By writing a
put option, the Fund assumes the risk of a decline in the underlying security or
index. To the extent that the price changes of the portfolio securities being
hedged correlate with changes in the value of the underlying security or index,
writing covered put options on indices or securities will increase the Fund's
losses in the event of a market decline, although such losses will be offset in
part by the premium received for writing the option.
The Fund also may purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
correlation between the changes in value of the underlying security or index and
the changes in value of the Fund's security holdings being hedged.
The Fund may purchase call options on individual securities to hedge against
an increase in the price of securities that the Fund anticipates purchasing in
the future. Similarly, the Fund may purchase call options on a securities index
to attempt to reduce the risk of missing a broad market advance, or an advance
in an industry or market segment, at a time when the Fund holds uninvested cash
or short-term debt securities awaiting investment. When purchasing call options,
the Fund will bear the risk of losing all or a portion of the premium paid if
the value of the underlying security or index does not rise.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Trading could be interrupted, for
example, because of supply and demand imbalances arising from a lack of either
buyers or sellers, or the options exchange could suspend trading after the price
has risen or fallen more than the maximum specified by the exchange. Although
the Fund may be able to offset to some extent any adverse effects of being
unable to liquidate an option position, the Fund may experience losses in some
cases as a result of such inability.
Forward currency hedging transactions. To help protect its portfolio against
adverse changes in foreign currency exchange rates, the Fund may: (1) buy and
sell foreign currency at the prevailing rate in the foreign currency exchange
market; (2) enter into forward foreign currency contracts which are agreements
to buy or sell a specific currency at a set price on a future date (generally
within one year); and (3) buy and sell put and call options on foreign
securities. The Fund may only commit up to 20% of its total assets to forward
foreign currency contracts. The Fund may also conduct its
B-6
<PAGE>
foreign currency exchange transactions on a spot (ie., cash) basis at the spot
rate prevailing in the foreign currency exchange market.
The Fund may enter into forward foreign currency exchange contracts
('forward contracts') to attempt to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies. 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 may enter into a
forward contract, for example, when it enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to 'lock in'
the U.S. dollar price of the security. In addition, for example, when the Fund
believes that a foreign currency may suffer or enjoy a substantial movement
against another currency, it may enter into a forward contract to sell an amount
of the former foreign 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.' Because in
connection with the Fund's forward foreign currency transactions an amount of
the Fund's assets equal to the amount of the purchase will be held aside or
segregated to be used to pay for the commitment, the Fund will always have cash,
cash equivalents or high quality debt securities available sufficient to cover
any commitments under these contracts or to limit any potential risk. In
addition, when the Fund sells a forward contract, it will cover its obligation
under the contract by segregating cash, cash equivalents or high quality debt
securities, or by owning securities denominated in the corresponding currency
and with a market value equal to or greater than the Fund's obligation. Assets
used as cover for forward contracts will be marked to market on a daily basis.
While these contracts are not presently regulated by the Commodity Futures
Trading Commission, it may in the future assert authority to regulate forward
contracts. In such event, the Fund's ability to utilize forward contracts in the
manner set forth above may be restricted. Forward contracts may limit potential
gain from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for the Fund than if it had not engaged in such
contracts.
The Fund may purchase and write put and call options on foreign currencies
for the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute 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 foreign currency may
constitute an effective hedge against fluctuation in exchange rates, although,
in the event of rate movements adverse to the Fund's position, the Fund may
forfeit the entire amount of the premium plus related transaction costs. Options
on foreign currencies to be written or purchased by the Fund will be traded on
U.S. and foreign exchanges or over-the-counter.
The Fund may enter into exchange-traded contracts for the purchase or sale
for future delivery of foreign currencies ('foreign currency futures'). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date. The successful use of foreign
currency futures will usually depend on the manager's ability to forecast
currency exchange rate movements correctly. Should exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of foreign
currency futures or may realize losses.
Closed-End Investment Companies. To encourage indirect foreign investment in
their capital markets, some countries, including South Korea, Chile and India,
have permitted the creation of closed-end investment companies. The Fund may
invest up to 10% of its total assets in securities of these companies. 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, shareholders would bear both their
proportionate share of expenses of the Fund (including management and advisory
fees) and, indirectly, the expenses of such closed-end investment companies.
Structured Investments. Included among the issuers of debt securities in
which the Fund may invest are entities organized and operated solely for the
purpose of restructuring the investment characteristics of various securities.
These entities are typically organized by investment banking firms which receive
fees in connection with establishing each entity and arranging for the placement
of its securities. This type of restructuring involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities
('structured investments') backed by, or representing interests in, the
underlying instruments. The cash flows
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<PAGE>
on the underlying instruments may be apportioned among the newly issued
structured investments to create securities with different investment
characteristics such as varying maturities, payment priorities or interest rate
provisions; the extent of the payments made with respect to structured
investments is dependent on the extent of the cash flows on the underlying
instruments. Because structured investments of the type in which the Fund
anticipates investing typically involve no credit enhancement, their credit risk
will generally be equivalent to that of the underlying instruments.
The Fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the Fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leveraged for purposes of the limitations placed on the
extent of the Fund's assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be 'investment
companies' as defined in the 1940 Act. As a result, the Fund's investment in
these structured investments may be limited by the restrictions contained in the
1940 Act. Structured investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
investments. To the extent such investments are illiquid, they will be subject
to the Fund's restrictions on investments in illiquid securities.
Futures Contracts. Although the Fund has the authority to buy and sell
financial futures contracts, it presently has no intention of entering into such
transactions. Although some financial futures contracts call for making or
taking delivery of the underlying securities, in most cases these obligations
are closed out before the settlement date. The closing of a contractual
obligation is accomplished by purchasing or selling an identical offsetting
futures contract. Other financial futures contracts by their terms call for cash
settlements.
The Fund may also buy and sell index futures contracts with respect to any
stock index traded on a recognized stock exchange or board of trade. An index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract. The Fund may not commit more than 5% of its total assets to
initial margin deposits on futures contracts and related options. In addition,
the value of the securities on which the futures contracts are based will not
exceed 25% of the Fund's total assets.
At the time the Fund purchases a futures contract, an amount of cash, U.S.
government securities, or other highly liquid debt securities equal to the
market value of the futures contract will be deposited in a segregated account
with the Fund's custodian. When writing a futures contract, the Fund will
maintain with its custodian liquid assets that, when added to the amounts
deposited with a futures commission merchant or broker as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, the
Fund may 'cover' its position by owning the instruments underlying the contract
(or, in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's custodian).
Repurchase agreements. The Fund generally will have a portion of its assets
in cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the Fund may enter into repurchase agreements. Under
a repurchase agreement, the Fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the Fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the Fund in each repurchase agreement. The manager will
monitor the value of such securities daily to determine that the value equals or
exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or
insolvency of the bank or broker-dealer, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
The Fund will enter into repurchase agreements only with parties who meet
certain creditworthiness standards, i.e., banks or
B-8
<PAGE>
broker-dealers that manager has determined present no serious risk of becoming
involved in bankruptcy proceedings within the time frame contemplated by the
repurchase transaction.
When the manager believe market or economic conditions are unfavorable for
investors, the manager may invest up to 100% of the Fund's assets in a temporary
defensive manner or hold a substantial portion of the Fund's portfolio in cash.
Unfavorable market or economic conditions may include excessive volatility or a
prolonged general decline in the securities markets, the securities in which the
Fund normally invests, or the economies of the countries where the Fund invests.
Temporary defensive investments generally may include:
- short-term (maturities of less than 12 months) and medium-term (maturities
up to 5 years) securities issued or guaranteed by the U.S. or a foreign
government, their agencies or instrumentalities;
- finance company and corporate commercial paper, and other short-term
corporate obligations, rated A by S&P or Prime-1 by Moody's or, if
unrated, determined to be of comparable quality;
- bank obligations (including CDs, time deposits and bankers' acceptances);
and
- repurchase agreements with banks and broker-dealers.
To the extent allowed by exemptions granted under the 1940 Act, and the
Fund's other investment policies and restrictions, the manager also may invest
the Fund's assets in shares of one or more money market Funds managed by the
manager or its affiliates. The manager also may invest in these types of
securities or hold cash while looking for suitable investment opportunities or
to maintain liquidity.
Investment restrictions. The Fund has adopted the following investment
restrictions as fundamental policies. This means they may only be changed if the
changes are approved by (i) more than 50% of the Fund's outstanding shares or
(ii) 67% or more of the Fund's shares present at a shareholder meeting if more
than 50% of the Fund's outstanding shares are represented at the meeting in
person or by proxy, whichever is less.
The Fund may 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. As a non-fundamental policy,
the Fund will not invest more than 10% of its assets in real estate
investment trusts. In addition, the Fund has undertaken 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.
2. Purchase or retain securities of any company in which trustees or
officers of the Fund or of the 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. As a
non-fundamental policy, the Fund will not invest in any company for the
purpose of exercising control or management.
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).
B-9
<PAGE>
5. Loan money, apart from the purchase of a portion of an issue of
publicly distributed bonds, debentures, notes and other evidences of
indebtedness, although the Fund may enter into repurchase agreements and
lend its portfolio securities.
6. Borrow money, except that the Fund may borrow money from banks in an
amount not exceeding 33 1/3% of the value of the Fund's total assets
(including the amount borrowed), or pledge, mortgage or hypothecate its
assets for any purpose, except to secure borrowings and then only to an
extent not greater than 15% of the Fund's total assets. Arrangements with
respect to margin for futures contracts, forward contracts and related
options are not deemed to be a pledge of assets.
7. Invest more than 5% of the value of the Fund's total assets in
securities of issuers, including their predecessors, which have been in
continuous operation less than three years.
8. Invest more than 5% of the Fund's total assets in warrants, whether
or not listed on the New York Stock Exchange or the 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.
The Fund may also be subject to investment limitations imposed by
foreign jurisdictions in which the Fund sells its shares.
If a bankruptcy or other extraordinary event occurs concerning a
particular security the Fund owns, the Fund may receive stock, real estate,
or other investments that the Fund would not, or could not, buy. If this
happens, the Fund intends to sell the investment as soon as practicable
while trying to maximize the return to its shareholders.
Generally, the policies and restrictions discussed in the Fund's SAI and
prospectus apply when the Fund makes an investment. In most cases, the Fund
is not required to sell a security because circumstances change and the
security no longer meets one or more of the Fund's policies or restrictions.
If a percentage restriction or limitation is met at the time of investment,
a later increase or decrease in the percentage due to a change in the value
or liquidity of portfolio securities will not be considered a violation of
the restriction or limitation.
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,
and after announcement 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 per share is determined by dividing the net asset value
of the Fund by the number of shares outstanding. The Fund calculates the NAV per
share of each class each business day at the close of trading on the New York
Stock Exchange (normally 1:00 p.m. Pacific time). The Fund does not calculate
the NAV on days the New York Stock Exchange (NYSE) is closed for trading, which
include New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
When determining its NAV, the Fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, the Fund values those securities at the last quoted sale
B-10
<PAGE>
price of the day or, if there is no reported sale, within the range of the most
recent quoted bid and ask prices. The Fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, the Fund values them according to the broadest and most representative
market as determined by the manager. The Fund values portfolio securities
underlying actively traded call options at their market price as determined
above. The current market value of any option the Fund holds is its last sale
price on the relevant exchange before the Fund values its assets. If there are
no sales that day or if the last sale price is outside the bid and ask prices,
the Fund values options within the range of the current closing bid and ask
prices if the Fund believes the valuation fairly reflects the contract's market
value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the Fund's NAV is not calculated. Thus, the calculation of the Fund's NAV
does not take place contemporaneously with the determination of the prices of
many of the portfolio securities used in the calculation and, if events
materially affecting the values of these foreign securities occur, the
securities will be valued at fair value as determined by management and approved
in good faith by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the close of the NYSE. The value of these securities used in computing the NAV
is determined as of such times. Occasionally, events affecting the values of
these securities may occur between the times at which they are determined and
the close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the board.
Other securities for which market quotations are readily available are
valued at the current market price, which may be obtained from a pricing
service, based on a variety of factors including recent trades, institutional
size trading in similar types of securities (considering yield, risk and
maturity) and/or developments related to specific issues. Securities and other
assets for which market prices are not readily available are valued at fair
value as determined following procedures approved by the board. With the
approval of the board, the Fund may use a pricing service, bank or securities
dealer to perform any of the above described functions.
The Fund's Management
The Board. The Fund's board of trustees oversees the management of the Fund
and elects is officers. The officers are responsible for administering the
Fund's day-to-day operations. The Fund's board also monitors the Fund to ensure
no material conflicts exist among share classes. While none is expected, the
board will act appropriately to resolve any material conflict that may arise.
Investment Manager. Asset Management Hong Kong manages the Fund's assets and
makes its investment decisions. Asset Management Hong Kong also performs similar
services for other funds. It is wholly owned by Franklin Resources, Inc.
('Resources'), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, Asset Management Hong
Kong and its affiliates manage over $225 billion in assets. The Templeton
organization has been investing globally since 1940. Asset Management Hong Kong
and its affiliates have offices in Argentina, Australia, Bahamas, Belgium,
Bermuda, Brazil, Canada, China, Cyprus, France, Germany, Hong Kong, India,
Italy, Japan, Korea, Luxembourg, Mauritius, the Netherlands, Poland, Russia,
Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, United Kingdom,
Venezuela and the U.S.
Portfolio Management. The Fund's lead portfolio manager is Dr. J. Mark
Mobius, Managing Director of Templeton Asset Management Ltd. Dr. Mobius has been
a manager of the Fund since 1991. He joined Franklin Templeton Investments in
1987.
The following individuals have secondary portfolio management
responsibilities. Tom Wu, Director of Templeton Asset Management Ltd. and H.
Allan Lam, Portfolio Manager of Templeton Asset Management Ltd. Mr. Wu has been
a manager of the Fund since 1991. He joined Franklin Templeton Investments in
1987. Mr. Lam has been a manager of the Fund since 1991. He joined Franklin
Templeton Investments in 1987.
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<PAGE>
Management Fees. During the fiscal year ended December 31, 1999, management
fees totaling 1.25% of the average daily net assets of the Fund were paid to
Asset Management Hong Kong. Total expenses, including fees paid to Asset
Management Hong Kong, were 2.02% for Class A Fund shares.
Portfolio Transactions. Asset Management Hong Kong tries to obtain the best
execution on all transactions. If Asset Management Hong Kong believes more than
one broker or dealer can provide the best execution, it may consider research
and related services and the sale of Fund shares, as well as shares of other
funds in the Franklin Templeton Group of Funds, when selecting a broker or
dealer.
Administrative Services. Franklin Templeton Services, Inc. ('FT Services')
provides certain administrative services and facilities for the Fund. During the
fiscal year ended December 31, 1999, administration fees totaling 0.09% of the
average daily net assets of the Fund were paid to FT Services. These fees are
included in the amount of total expenses shown above.
The Fund's Plan of Distribution
The board has adopted a plan pursuant to Rule 12b-1 with respect to the Fund
shares. The plan is designed to benefit the Fund and its shareholders. The plan
is expected to, among other things, increase advertising of the Fund, encourage
sales of the Fund and service to its shareholders, and increase or maintain
assets of the Fund so that certain fixed expenses may be spread over a broader
asset base, resulting in lower per share expense ratios. In addition, a positive
cash flow into the Fund is useful in managing the Fund because the manager has
more flexibility in taking advantage of new investment opportunities and
handling shareholder redemptions.
Under the plan, the Fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others who
have executed a servicing agreement with the Fund, Distributors or its
affiliates who provide service or account maintenance to shareholders (service
fees); the expense of printing prospectuses and reports used for sales purposes,
and of preparing and distributing sales literature and advertisements; and a
prorated portion of Distributors' overhead expenses related to these activities.
Together, these expenses, including the service fees, are 'eligible expenses.'
The distribution and service (12b-1) fees charged to the Fund is based only on
the fees attributable to that particular class. The Fund may pay up to 0.35% per
year of Class A's average daily net assets. The Class A plan is a reimbursement
plan. It allows the Fund to reimburse Distributors for eligible expenses that
Distributors has shown it has incurred. The Fund will not reimburse more than
the maximum amount allowed under the plan. Any unreimbursed expenses from one
year may not be carried over to or reimbursed in later years. Any unreimbursed
expenses from one quarter, however, may be reimbursed in future quarters or
years. This includes expenses not reimbursed because they had exceeded the
applicable limit under the plan. As of December 31, 1999, there were no
unreimbursed expenses under the plan.
For the fiscal year ended December 31, 1999, the amounts paid by the Fund
pursuant to the plan were:
<TABLE>
<S> <C>
Advertising $517,293
Printing and mailing prospectuses other than to
current shareholders 160,927
Payments to underwriters 258,909
Payments to broker-dealers 5,510,462
Other 1,632,878
----------
Total 8,080,469
----------
----------
</TABLE>
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').
DISTRIBUTIONS AND TAXES
Income and Capital Gains Distributions
The Fund intends to pay a dividend at least annually representing
substantially all of its net investment income and any net realized capital
gains. The amount of this distribution will vary and there is no guarantee the
Fund will pay
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dividends. The record date for the Fund's distributions will vary. Please keep
in mind that if you invest in the Fund by purchasing Units shortly before the
record date of a Fund distribution, any distribution will lower the value of the
Fund's shares by the amount of the distribution and you will receive some of
your investment back in the form of a taxable distribution.
Taxes Considerations
In general, Fund distributions are taxable to you as either ordinary income
or capital gains. Any capital gains the Fund distributes are taxable to you as
long-term capital gains no matter how long you have owned your shares.
Distributions declared in December but paid in January are taxable as if
they were paid in December. Fund distributions and gains from the sale or
exchange of Fund shares generally will be subject to state and local taxes.
Any foreign taxes the Fund pays on its investments may be passed through to you
as a foreign tax credit. You should consult your tax advisor about the federal,
state, local or foreign tax consequences of your investment in the Fund shares
by your purchase of Trust Units.
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 manager to act and/or
claims or actions against the Fund by regulatory agencies or other persons or
entities, the value of the Fund shares may decline, thereby causing a decline in
the value of Units. Termination of the Fund prior to the Termination Date of the
Trust may result in the termination of the Trust sooner than anticipated. Prior
to a purchase of Units, investors should determine that the aforementioned risks
and the other risks described elsewhere in this prospectus are consistent with
their investment objectives.
Fund Risk Factors
Foreign Securities. Investors should consider carefully the substantial
risks involved in securities of companies and governments of foreign nations,
which are in addition to the usual risks inherent in domestic investments. There
may be less publicly available information about foreign companies comparable to
the reports and ratings published about companies in the U.S. Foreign companies
are not generally subject to uniform accounting or financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to U.S. companies. The Fund, therefore, may encounter
difficulty in obtaining market quotations for purposes of valuing its portfolio
and calculating its net asset value. Foreign markets have substantially less
volume than the NYSE and securities of some foreign companies are less liquid
and more volatile than securities of comparable U.S. companies. Commission rates
in foreign countries, which are generally fixed rather than subject to
negotiation as in the U.S., are likely to be higher. In many foreign countries
there is less government supervision and regulation of stock exchanges, brokers
and listed companies than in the U.S.
Developing or emerging markets. Investments in companies domiciled in
developing countries may be subject to potentially higher risks than investments
in developed countries. These risks include (i) less social, political and
economic stability; (ii) the small current size of the markets for such
securities and the currently low or nonexistent volume of trading, which result
in a lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict the Fund's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iv) foreign taxation; (v) the absence of developed legal structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (vi) the absence, until recently in many developing
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in some developing
countries may be slowed or reversed by unanticipated political or social events
in such countries.
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In addition, many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Investments in developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, 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 certain developing countries. Finally, even though the
currencies of some developing countries, such as certain Eastern European
countries, may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to Fund shareholders.
Russian securities. Investing in Russian companies involves a high degree of
risk and special considerations not typically associated with investing in the
U.S. securities markets, and should be considered highly speculative. Such risks
include, together with Russia's continuing political and economic instability
and the slow-paced development of its market economy, the following: (a) delays
in settling portfolio transactions and risk of loss arising out of Russia's
system of share registration and custody; (b) the risk that it may be impossible
or more difficult than in other countries to obtain and/or enforce a judgment;
(c) pervasiveness of corruption, insider trading, and crime in the Russian
economic system; (d) currency exchange rate volatility and the lack of available
currency hedging instruments; (e) higher rates of inflation (including the risk
of social unrest associated with periods of hyper-inflation); (f) controls on
foreign investment and local practices disfavoring foreign investors and
limitations on repatriation of invested capital, profits and dividends, and on
the Fund's ability to exchange local currencies for U.S. dollars; (g) the risk
that the government of Russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the Soviet Union and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, a return to the centrally planned economy
that existed prior to the dissolution of the Soviet Union, or the
nationalization of privatized enterprises; (h) the risks of investing in
securities with substantially less liquidity and in issuers having significantly
smaller market capitalizations, when compared to securities and issuers in more
developed markets; (i) the difficulties associated in obtaining accurate market
valuations of many Russian securities, based partly on the limited amount of
publicly available information; (j) the financial condition of Russian
companies, including large amounts of inter-company debt which may create a
payments crisis on a national scale; (k) dependency on exports and the
corresponding importance of international trade; (l) the risk that the Russian
tax system will not be reformed to prevent inconsistent, retroactive and/or
exorbitant taxation or, in the alternative, the risk that a reformed tax system
may result in the inconsistent and unpredictable enforcement of the new tax
laws; (m) possible difficulty in identifying a purchaser of securities held by
the Fund due to the underdeveloped nature of the securities markets; (n) the
possibility that pending legislation could restrict the levels of foreign
investment in certain industries, thereby limiting the number of investment
opportunities in Russia; (o) the risk that pending legislation would confer to
Russian courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes before
an internationally-accepted third-country arbitrator; and (p) the difficulty in
obtaining information about the financial condition of Russian issuers, in light
of the different disclosure and accounting standards applicable to Russian
companies.
There is little long-term historical data on Russian securities markets
because they are relatively new and a substantial proportion of securities
transactions in Russia are privately negotiated outside of stock exchanges.
Because of the recent formation of the securities markets as well as the
underdeveloped state of the banking and telecommunications systems, settlement,
clearing and registration of securities transactions are subject to significant
risks. Ownership of shares (except where shares are held through depositories
that meet the requirements of the 1940 Act) is defined according to entries in
the company's share register and normally evidenced by extracts from the
register or by formal share certificates. However, there is no central
registration system for shareholders and these services are carried out by the
companies themselves or by registrars located throughout Russia. These
registrars are not necessarily subject to effective state supervision nor are
they licensed with any governmental entity and it is possible for the Fund to
lose its registration through fraud, negligence or even mere oversight. While
the Fund will endeavor to ensure that its interest continues to be
B-14
<PAGE>
appropriately recorded either itself or through a custodian or other agent
inspecting the share register and by obtaining extracts of share registers
through regular confirmations, these extracts have no legal enforceability and
it is possible that subsequent illegal amendment or other fraudulent act may
deprive the Fund of its ownership rights or improperly dilute its interests. In
addition, while applicable Russian regulations impose liability on registrars
for losses resulting from their errors, it may be difficult for the Fund to
enforce any rights it may have against the registrar or issuer of the securities
in the event of loss of share registration. Furthermore, although a Russian
public enterprise with more than 500 shareholders is required by law to contract
out the maintenance of its shareholder register to an independent entity that
meets certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. In addition, so-called 'financial-industrial
groups' have emerged in recent years that seek to deter outside investors from
interfering in the management of companies they control. These practices may
prevent the Fund from investing in the securities of certain Russian companies
deemed suitable by the manager. Further, this also could cause a delay in the
sale of Russian company securities by the Fund if a potential purchaser is
deemed unsuitable, which may expose the Fund to potential loss on the
investment.
Currency. The Fund's management endeavors to buy and sell foreign currencies
on as favorable a basis as practicable. Some price spread on currency exchange
(to cover service charges) may be incurred, particularly when the Fund changes
investments from one country to another or when proceeds of the sale of shares
in U.S. dollars are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies which would prevent the Fund from
transferring cash out of the country, withhold portions of interest and
dividends at the source. There is the possibility of cessation of trading on
national exchanges, expropriation, nationalization or confiscatory taxation,
withholding and other foreign tax on income or other amounts, 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 that could affect investments in
securities of issuers in those nations.
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. Some countries in which the Fund may invest also may have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies may not be internationally traded.
Certain currencies have experienced a steady devaluation relative to the
U.S. dollar. Any devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the Fund. 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.
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.
Euro. On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national currencies
of the following member countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the above countries.
The new European Central Bank has control over each country's monetary
policies. Therefore, the participating countries no longer control their own
monetary policies by directing independent interest rates for their currencies.
The national governments of the participating countries, however, have retained
the authority to set tax and spending policies and public debt levels.
It is uncertain how eleven different economies will adjust to a unified
monetary system and the loss of exchange rate flexibility. In the first six
months of the euro's existence, the exchange rates of the euro versus many of
the world's major
B-15
<PAGE>
currencies steadily declined. In this environment, U.S. and other foreign
investors experienced erosion of their investment returns on their
euro-denominated securities. The transition and the elimination of currency risk
among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.
While the implementation of the euro could have a negative effect on the
Fund, the Fund's manager and its affiliated service providers are taking steps
they believe are reasonably designed to address the euro issue.
Interest rate. To the extent the Fund invests in debt securities, changes in
interest rates in any country where the Fund is invested will affect the value
of the Fund's portfolio and, consequently, its share price. Rising interest
rates, which often occur during times of inflation or a growing economy, are
likely to cause the face value of a debt security to decrease, having a negative
effect on the value of the Fund's shares. Of course, interest rates have
increased and decreased, sometimes very dramatically, in the past. These changes
are likely to occur again in the future at unpredictable times.
Low-Rated Securities. Bonds which are rated C by Moody's are the lowest
rated class of bonds, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing. Bonds rated C by
S&P are obligations on which no interest is being paid.
Although they may offer higher yields than do higher rated securities, low
rated and unrated debt securities generally involve greater volatility of price
and risk of principal and income, including the possibility of default by, or
bankruptcy of, the issuers of the securities. In addition, the markets in which
low rated and unrated debt securities are traded are more limited than those in
which higher rated securities are traded. The existence of limited markets for
particular securities may diminish the Fund's ability to sell the securities at
fair value either to meet redemption requests or to respond to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain low rated or unrated debt
securities also may make it more difficult for the Fund to obtain accurate
market quotations for the purposes of valuing the Fund's portfolio. Market
quotations are generally available on many low rated or unrated securities only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment goal may, to the extent of investment in low rated debt
securities, be more dependent upon such creditworthiness analysis than would be
the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses to
seek recovery.
The purchase of defaulted debt securities involves significant additional
risks, such as the possibility of complete loss of the investment in the event
the issuer does not restructure or reorganize to enable it to resume paying
interest and principal to holders.
Derivative Securities. 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. Use of stock index futures and related options for hedging may
involve risks because of imperfect correlations between movements in the prices
of the futures or related options and movements in the prices of the securities
being hedged. Successful use of futures and related options by the Fund for
hedging purposes also depends upon the manager's ability to predict correctly
movements in the direction of the market, as to which no assurance can be given.
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
B-16
<PAGE>
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; for example, to the extent that Units were
purchased with a view to an investment of longer duration, the overall
investment program of the investor may require readjustment; or the overall
return on investment may be less than anticipated, and may result in a loss to a
Unit Holder.
In the event of the early termination of the Trust, the Trustee will cause
the Fund shares to be sold and the proceeds thereof distributed to the Unit
Holders in proportion to their respective interests therein, unless a Unit
Holder elects to receive Fund shares 'in kind' (see 'Amendment and Termination
of the Indenture--Termination'). Proceeds from the sale of the Treasury
Obligations will be paid in cash.
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
The following discussion is a summary of certain material federal income tax
consequences to 'U.S. Holders' of Units (generally U.S. citizens or residents,
corporations formed or organized under U.S. law or trusts or estates that are
considered 'United States persons'). This discussion is based upon laws,
regulations, rulings and decisions currently in effect, all of which are subject
to change, retroactively or prospectively.
This discussion does not apply to persons other than U.S. Holders and may
not apply to certain categories of U.S. Holders subject to special treatment
under the Internal Revenue Code of 1986, as amended (the 'Code'), such as
passthrough entities, dealers or traders in securities or currencies, banks,
insurance companies or other U.S. Holders that do not hold the Units as capital
assets, persons whose 'functional currency' is not the U.S. dollar, tax-exempt
entities, and persons that hold Units as a position in a straddle or as part of
a 'hedging,' 'integrated,' 'constructive sale' or 'conversion' transaction.
Moreover, the discussion summarizes only federal income tax consequences and
does not address any state, local or other tax consequences.
B-17
<PAGE>
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF UNITS TO THEM, INCLUDING ANY TAX
RETURN FILING OR OTHER TAX REPORTING REQUIREMENTS.
In the opinion of 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. Income of the Trust will be treated as income of
the Unit Holders in the manner set forth below. You 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'). You should determine the initial tax basis for each asset represented
by your Units purchased solely for cash by allocating the total cost of the
Units among the assets represented by your Units in proportion to the relative
fair market values of those assets on the date you purchased your Units.
You will be required to include in your gross income, as determined for
federal income tax purposes, original issue discount with respect to your pro
rata portion of the Treasury Obligations held by the Trust at the same time and
in the same manner as though you were the direct owner of such pro rata portion.
You will be considered to have received the distributions paid on your 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. If you itemize
deductions you will be entitled to an itemized deduction for your pro rata share
of fees and expenses paid by the Trust as though such fees and expenses were
paid directly by you, but only to the extent that this amount together with your
other miscellaneous deductions exceeds 2% of your adjusted gross income. A
corporate Unit Holder will not be subject to this 2% floor. The proceeds
actually received by you upon termination of the Trust, redemption of Units or
sale of Fund Shares will reflect the actual amounts paid to you. The relevant
tax reporting forms sent to you will reflect the actual amount paid to you.
Your 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 your interest in the
Treasury Obligation over its cost to you. You 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. 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 his gross income
as determined for federal income tax purposes.
You will have a taxable event when a Security is disposed of (whether by
sale, exchange, redemption, or payment at maturity) or when you redeem for cash
or sell your Units. The total tax cost of each Unit must be allocated among the
assets held in the Trust in proportion to the relative fair market values
thereof on the date you purchase your Units.
The amount of gain recognized by you on a disposition of Fund Shares or
Treasury Obligations by the Trust will be equal to the difference between your
pro rata portion of the gross proceeds realized by the Trust on the disposition
and your tax basis in your pro rata portion of the Fund Shares or Treasury
Obligation 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. Any capital gain or loss arising from the disposition of your pro
rata interest in a Security will be long-term capital gain or loss if you have
held your Units and the Trust has held the Security for more than one year. A
capital loss due to sale or redemption of your 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 you from such interest if you
have held such interest for six months or less. The holding period for this
purpose will be determined by applying the rules of Sections 246(c)(3) and (4)
of the Code. Under the Code, capital gain of individuals, estates and trusts
from Securities held for more than 1 year is subject to a maximum nominal tax
rate of 20%. Net capital gain may result in a disallowance of itemized
deductions and/or affect a personal exemption phase-out.
If you sell or redeem a Unit for cash you are deemed thereby to have
disposed of your entire pro rata interest in all Trust assets represented by the
Unit and will have taxable gain or loss measured by the difference between your
per Unit tax basis for such assets, as described above, and the amount realized.
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
B-18
<PAGE>
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, when the Unit Holder disposes of such Securities in a taxable
transfer.
An exchange of Units pursuant to the Exchange Option will constitute a
'taxable event' under the Code. You will recognize gain or loss at the time of
the exchange. However, if you exchange Units for units of any series of the
Exchange Trusts which are grantor trusts for United States federal income tax
purposes, the Internal Revenue Service may seek to disallow any loss incurred
upon this exchange to the extent that:
- the underlying securities in each trust are substantially identical,
and
- the purchase of units of an Exchange Trust takes place less than
thirty-one days after the sale of the Units.
You are advised to consult your own tax advisor as to the tax consequences
of exchanging Units in your 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.
You will be requested to provide your taxpayer identification number to the
Trustee and to certify that you have not been notified that payments to you are
subject to back-up withholding. If your identification number and an appropriate
certification are not provided as required, a 31% back-up withholding will
apply.
As of the end of each calendar year, the Trustee will furnish to you 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 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.
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 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 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 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.
Public Distribution
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.
B-19
<PAGE>
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.
Secondary Market
While not obligated to do so, it is the Sponsor's present intention to
maintain a secondary market for Units and to continuously offer to repurchase
Units from Unit Holders at the applicable Sponsor's Repurchase Price (see
'Summary of Essential Information'). The Sponsor's Repurchase Price is computed
by adding to the aggregate of the bid side evaluation of the Treasury
Obligations the net asset value of Fund shares in the Trust, and cash on hand in
the Trust and dividends receivable on Fund shares (other than cash deposited by
the Sponsor for the purchase of Securities) deducting therefrom amounts required
to redeem previously tendered Units and amounts required for distribution to
Unit Holders of record as of a date prior to the evaluation, accrued expenses of
the Trustee, Evaluator, and counsel, taxes and governmental charges, if any, and
any Reserve Account and then dividing the resulting sum by the number of Units
outstanding, as of the date of such computation. There is no sales charge
incurred when a Unit Holder sells Units back to the Sponsor. Any Units
repurchased by the Sponsor at the Sponsor's Repurchase Price may be reoffered to
the public by the Sponsor at the then current Public Offering Price. Any profit
or loss resulting from the resale of such Units will be for the account of the
Sponsor.
If the supply of Units exceeds demand (or for any other business reason),
the Sponsor may, at any time, occasionally, from time to time, or permanently,
discontinue the repurchase of Units of this Series at the Sponsor's Repurchase
Price, without notice. In such event, although under no obligation to do so, the
Sponsor may, as a service to Unit Holders, offer to repurchase Units at the
'Redemption Price,' a price based on the current bid prices for the Treasury
Obligations and the net asset value of the Fund shares. Alternatively, Unit
Holders may redeem their Units through the Trustee.
Profit of Sponsor
The Sponsor receives a sales charge on the Units as indicated herein in the
chart below under 'Volume Discount.' 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. 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.
B-20
<PAGE>
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 bid 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 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
B-21
<PAGE>
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)].
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 The Chase Manhattan
Bank, 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.
B-22
<PAGE>
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-23
<PAGE>
Government Securities Equity Trust Series 7
REINVESTMENT APPLICATION
I/We hereby authorize and direct The Chase Manhattan Bank to apply all
distributions that I/we have elected to be reinvested as a registered
unitholder(s) of a Government Securities Equity Trust Series towards the
purchase of additional shares of the Templeton Developing Markets Trust.
I/We hold Government Securities Equity Trust Series 7
(This Series can only reinvest into the Templeton Developing Markets Trust.)
The authorization shall continue in effect until written notice of revocation
is given by the certificate holder or his personal representatives.
Name(s) in Which Unit Trust is Registered
Social Security or Tax Identification Number
Signature DATE
Signature of Joint Tenant (if any) DATE
My/Our Brokerage Firm Is:
My/Our Account Number Is:
Forward application to: The Chase Manhattan Bank
P.O. Box 888--Cooper Station
New York, NY 10276
<PAGE>
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<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').
B-26
<PAGE>
Reports and Records
With each distribution, the Trustee will furnish to the Unit Holders a
statement of the amount of dividends and other receipts, if any, distributed,
expressed in each case as a dollar amount per Unit.
Within a reasonable time after the end of each calendar year, the Trustee
will furnish to each person who was a Unit Holder of record at any time during
the calendar year a statement setting forth: (1) as to the Income Account:
dividends and other cash amounts received, deductions for payment of applicable
taxes and for fees and expenses of the Trust, redemptions of Units, and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each Unit outstanding on the last business day of such calendar year; (2) as to
the Principal Account: the dates of disposition and identity of any Securities
and the net proceeds received therefrom, deductions for payments of applicable
taxes and for fees and expenses of the Trust and redemptions of Units, and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each Unit outstanding on the last business day of such calendar year; (3) a list
of the Securities held and the number of Units outstanding on the last business
day of such calendar year; (4) the Redemption Price per Unit based upon the last
computation thereof made during such calendar year; (5) amounts actually
distributed during such calendar year from the Income Account and from the
Principal Account, separately stated, expressed both as total dollar amounts and
as dollar amounts representing the pro rata share of each Unit outstanding on
the last business day of such calendar year; and (6) an annual report of
original issue discount accrual.
The Trustee shall keep available for inspection by Unit Holders at all
reasonable times during usual business hours books of record and account of its
transactions as Trustee, including records of the names and addresses of Unit
Holders, a current list of Securities in the portfolio and a copy of the
Indenture.
Redemption
Tender of Units
Units may be tendered to the Trustee for redemption at its unit investment
trust office at 4 New York Plaza, New York, New York 10004, 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').
B-27
<PAGE>
Purchase by the Sponsor of Units Tendered for Redemption
The Indenture requires that the Trustee notify the Sponsor of any tender of
Units for redemption. So long as the Sponsor is maintaining a bid in the
secondary market, the Sponsor, prior to the close of business on the second
succeeding business day, may purchase any Units tendered to the Trustee for
redemption at the price so bid by making payment therefor to the Unit Holder in
an amount not less than the Redemption Price and not later than the day on which
the Units would otherwise have been redeemed by the Trustee, i.e., the Unit
Holder will receive the Redemption Price from the Sponsor within 7 days of the
date of tender (see 'Public Offering of Units--Secondary Market'). Units held by
the Sponsor may be tendered to the Trustee for redemption as any other Units.
The price of any Units resold by the Sponsor will be the Public Offering Price
determined in the manner provided in this Prospectus (see 'Public Offering of
Units--Public Offering Price'). Any profit resulting from the resale of such
Units will belong to the Sponsor, which likewise will bear any loss resulting
from a reduction in the offering or redemption price subsequent to its
acquisition of such Units (see 'Public Offering of Units--Profit of Sponsor').
Computation of Redemption Price per Unit
The Redemption Price per Unit is determined as of the Evaluation Time on the
date any such determination is made. The Redemption Price is each Unit's pro
rata share, determined by the Trustee, of the sum of:
(1) the aggregate bid side evaluation of the Treasury Obligations in the
Trust, as determined by the Evaluator, and the net asset value of the Fund
shares in the Trust determined as of the Evaluation Time set forth in the
'Summary of Essential Information'; and
(2) cash on hand in the Trust and dividends receivable on Fund shares
(other than cash deposited by the Sponsor for the purchase of Securities);
less amounts representing (a) accrued taxes and governmental charges payable out
of the Trust, (b) the accrued expenses of the Trust, (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.
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.
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').
B-28
<PAGE>
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 The Chase Manhattan Bank, a New York Bank with its principal
executive office at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 4 New York Plaza, New York, New York 10004. The
Trustee is subject to supervision 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 limited purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System and a clearing agency registered under the Securities
Exchange Act of 1934.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of the disposition of any moneys, Securities or
Certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. In addition, the Indenture provides that the Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of the Trust which the Trustee may be required to pay
under current or future laws of the United States or any other taxing authority
having jurisdiction.
Responsibility
The Trustee shall not be liable for any default, failure or defect in any
Security or for any depreciation or loss by reason of any such sale of Fund
shares or by reason of the failure of the Sponsor to give directions to the
Trustee.
Additionally, the Trustee may sell Securities designated by the Sponsor, or
if not so directed, in its own discretion, for the purpose of redeeming Units
tendered for redemption. Fund shares will be sold first unless the Sponsor is
able to sell Treasury Obligations and Fund shares in the proportionate
relationship between the maturity values of the Treasury Obligations and the
number of Fund shares.
Amounts received by the Trust upon the sale of any Security under the
conditions set forth above will be deposited in the Principal Account when
received and to the extent not used for 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.'
B-29
<PAGE>
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 J.J. Kenny
Co., 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 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
B-30
<PAGE>
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.
LEGAL OPINIONS
The legality of the Units offered hereby has been passed upon by Cahill
Gordon & Reindel, 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 LLP, certified public accountants, as stated in
their report appearing herein, and are included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
B-31
<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.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES EQUITY TRUST
Series 7
Table of Contents
Page
-----
<S> <C>
Summary of Essential Information........................ A-vi
Independent Auditors' Report............................ A-1
Statement of Financial Condition........................ A-2
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-2
Goals and Strategies................................ B-4
Net Asset Value of the Fund Shares.................. B-10
The Fund's Management............................... B-11
The Fund's Plan of Distribution..................... B-12
Risk of Investment in Units......................... B-12
Distributions and Taxes............................. B-12
Income and Capital Gains Distributions.............. B-12
Taxes Considerations................................ B-13
Backup Withholding.................................. B-13
Fund Risk Factors................................... B-13
The Units........................................... B-16
Tax Status of the Trust................................. B-17
Retirement Plans........................................ B-19
Public Offering of Units................................ B-19
Public Offering Price............................... B-19
Public Distribution................................. B-20
Secondary Market.................................... B-20
Profit of Sponsor................................... B-20
Volume Discount..................................... B-21
Employee Discount................................... B-21
Exchange Option......................................... B-22
Reinvestment of Trust Distributions..................... B-22
Expenses and Charges.................................... B-23
Initial Expenses.................................... B-23
Fees................................................ B-23
Other Charges....................................... B-23
Rights of Unit Holders.................................. B-26
Certificates........................................ B-26
Certain Limitations................................. B-26
Distributions....................................... B-26
Reports and Records................................. B-27
Redemption.......................................... B-27
Sponsor................................................. B-28
Limitations on Liability............................ B-28
Responsibility...................................... B-29
Resignation......................................... B-29
Trustee................................................. B-29
Limitations on Liability............................ B-29
Responsibility...................................... B-29
Resignation......................................... B-30
Evaluator............................................... B-30
Limitations on Liability............................ B-30
Responsibility...................................... B-30
Resignation......................................... B-30
Amendment and Termination of the Indenture.............. B-30
Amendment........................................... B-30
Termination......................................... B-30
Legal Opinions.......................................... B-31
Independent Auditors.................................... B-31
</TABLE>
Sponsor
Prudential Securities Incorporated
One Seaport Plaza
199 Water Street
New York, New York 10292
Trustee
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Evaluator
Kenny S&P Evaluation Services
65 Broadway
New York, New York 10006
Fund shares
Templeton Developing Markets Trust
500 East Browand Blvd.
Ft. Lauderdale, FL 33394
<PAGE>
This Post-Effective Amendment to the Registration Statement on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Prospectus.
Signatures.
Consent of independent public accountants and consent of evaluator; all
other consents were previously filed.
The following Exhibits:
****Ex-3.(i) - Certificate of Incorporation of Prudential
Securities Incorporated dated March 29, 1993.
***Ex-3.(ii) - Revised By-Laws of Prudential Securities
Incorporated as amended through September 28,
1998.
******Ex-4.a - Trust Indenture and Agreement dated May 16,
1989.
********Ex-5 - Opinion of Counsel.
*Ex-23 - Consent of Kenny S&P Evaluation Services, a division
of J.J. Kenny Co., Inc. (as evaluator)
**Ex-24 - Powers of Attorney executed by a majority of the
Board of Directors of Prudential Securities
Incorporated.
****Ex-99 - 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 15b-1 and 15b3-1 under the Securities
Exchange Act of 1934 (1934 Act File No. 8-27154).
****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 - Investment Advisory Agreement.
*****Ex-99.A(11) - Code of Ethics
--------------------
* Filed herewith.
** 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
II-1
<PAGE>
National Municipal Trust, Series 172, Registration No. 33-54681 (filed
October 13, 1994), National Equity Trust, Top Ten Portfolio Series 3,
Registration No. 333-15919 (filed January 31, 1997) and National Equity
Trust, Low Five Portfolio Series 17, Registration No. 333-44543 (filed
January 20, 1998).
*** 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 186, Registration No. 33-54697 (filed August 9, 1996) and National
Equity Trust, S&P 500 Strategy Trust Series 2, Registration NO. 333-39521
(filed October 14, 1998).
**** 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 Equity Trust, Low
Five Portfolio Series 31, Registration No. 333-96071 (filed February 3,
2000).
*****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 Equity Trust, Low
Five Portfolio Series 32, Registration No. 333-33450 (filed May 4, 2000).
****** 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 8, Registration No. 33-56297 (filed May 24, 2000).
******* 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 (filed February 28, 2000).
******** Previously filed.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Government Securities Equity Trust Series 7 certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and 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 28th day of July, 2000.
Government Securities Equity Trust Series 7
(Registrant)
By PRUDENTIAL SECURITIES INCORPORATED
(Depositor)
By the following persons,* who
constitute a majority of the
Board of Directors of Prudential
Securities Incorporated
A. Laurence Norton, Jr.
Vincent T. Pica II
James D. Price
Hardwick Simmons
By /s/ Kenneth Swankie
(Kenneth Swankie,
Senior Vice President,
Manager - Unit Investment
Trust Department, as
authorized signatory for
Prudential Securities
Incorporated and Attorney-
in-Fact for the persons
listed above)
______________________________
* Pursuant to Powers of Attorney previously filed.
II-3
<PAGE>
CONSENT OF COUNSEL
The consent of counsel 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-4
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in the Post Effective Amendment No. 6 to Registration
Statement No. 33-51937 of the Government Securities Equity Trust Series 7 of
our report dated July 19, 2000 appearing in the Prospectus, which is a part
of such Registration Statement, and to the reference to our Firm under the
heading "Auditors" in such Prospectus.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
July 28, 2000
II-5
