<PAGE>
As filed with the Securities and Exchange Commission on May 22, 1996
Registration No. 33-56297
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
___________________
A. Exact Name of Trust:
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
B. Name of depositor:
PRUDENTIAL SECURITIES INCORPORATED
C. Complete address of depositor's principal executive office:
One Seaport Plaza
199 Water Street
New York, New York 10292
D. Name and complete address of agent for service:
Copy to:
LEE B. SPENCER, JR., ESQ. KENNETH W. ORCE, ESQ.
PRUDENTIAL SECURITIES INCORPORATED CAHILL GORDON & REINDEL
One Seaport Plaza 80 Pine Street
199 Water Street New York, New York 10005
New York, New York 10292
It is proposed that this filing will become effective (check appropriate box).
___
/ _/ immediately upon filing on (date) pursuant to paragraph (b);
___
/x_/ on May 31, 1996 pursuant to paragraph (b);
___
/__/ 60 days after filing pursuant to paragraph (a);
___
/__/ on (date) pursuant to paragraph (a) of Rule 485.
__________________________
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities. On March 27,
1996, the Registrant filed the Rule 24f-2 Notice for the Registrant's
most recent fiscal year.
<PAGE>
Government Securities Equity Trust Series 8
(LOGO)
- --------------------------------------------------------------------------------
The objectives of the Trust are to attempt to obtain safety of capital through
investment in stripped United States Treasury issued notes or bonds paying no
current interest and to attempt to provide for capital appreciation through
investment in Class A shares of the Prudential Equity Fund, Inc. (the ``Fund''),
an open-end, diversified, registered management investment company. The
objective of the Fund is long-term growth of capital. The Fund will seek to
achieve this objective by investing primarily in common stocks of major,
established corporations which, in the opinion of the Fund's investment adviser,
are believed to be in sound financial condition and to have prospects of price
appreciation greater than broadly based stock indices. The Fund may invest up to
30% of its assets in foreign securities. The Fund may also invest in
derivatives, including options on stocks and stock indices and foreign currency
contracts and options. There can be no assurance that the Fund or the Trust will
achieve its objectives. Units of the Trust may be suited for purchase by
Individual Retirement Accounts, Keogh Plans and other tax-deferred retirement
plans.
- --------------------------------------------------------------------------------
Sponsor:
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Please read and retain Prospectus dated
this Prospectus for future reference May 31, 1996
<PAGE>
- --------------------------------------------------------------------------------
This Prospectus does not contain all the information with respect to the
investment company set forth in its registration statement and exhibits relating
thereto which have been filed with the Securities and Exchange Commission,
Washington D.C. under the Securities Act of 1933 and the Investment Company Act
of 1940, and to which reference is hereby made.
- --------------------------------------------------------------------------------
The Trust
Government Securities Equity Trust Series 8 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 Prudential Equity Fund, Inc. (the ``Fund''), an open-end, diversified,
registered management investment company, or contracts and funds for the
purchase thereof (the Treasury Obligations and the Fund Shares, collectively,
the ``Securities''). The Trust contains Treasury Obligations maturing
approximately 11.7 years from the Date of Deposit and Fund Shares.
The objectives of the Trust are to attempt to obtain safety of capital
through investment in stripped United States Treasury issued notes or bonds
paying no current interest and to attempt to provide for capital appreciation
through investment in shares of the Fund. The objective of the Fund is long-term
growth of capital. The Fund will seek to achieve this objective by investing
primarily in common stocks of major, established corporations which, in the
opinion of the Fund's investment adviser, are believed to be in sound financial
condition and to have prospects of price appreciation greater than broadly based
stock indices. There can be no assurance that the Fund will achieve its
investment objective. The Fund may also invest in options on stocks and stock
indices. The Fund's purchase and sale of put and call options and related
short-term trading may result in a high portfolio turnover rate. The Fund may
also buy and sell futures and options on futures, forward foreign currency
exchange contracts, options on foreign currencies and futures contracts on
foreign currencies and options thereon pursuant to limits describes herein.
These various hedging and income enhancement strategies, including the use of
derivatives, are considered speculative and may result in higher risks and costs
to the Fund. The Fund may invest up to 30% of its total assets in foreign
securities. Investing in securities of foreign companies and countries involves
certain risk considerations not typically associated with investing in
securities of domestic companies. In addition, the Fund may invest up to 5% of
its net assets in illiquid securities. There is, of course, no assurance that
the Trust's objectives will be achieved.
The Trust is structured to contain a sufficient amount of Treasury
Obligations to insure that an investor will receive, at the maturity of such
Trust, $15.00 per unit. However, an investor holding his Units to Trust maturity
may suffer a loss to the extent the investor's purchase cost of a Unit exceeds
$15.00 since the capital protection is limited to the aggregate maturity value
per Unit of Treasury Obligations. 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 objective of the Fund is long-term growth of capital. The Fund seeks to
achieve this objective by investing primarily in common stocks of major,
established corporations which, in the opinion of the Fund's investment adviser,
are believed to be in sound financial condition and to have prospects of price
appreciation greater than broadly based stock indices. The Fund may also invest
in preferred stocks and bonds, which have either attached warrants or a
conversion privilege into common stocks, and in unattached warrants. At times
when economic conditions or general levels of common stock prices are such that
the investment adviser deems it prudent to adopt a temporary defensive position
by
A-i
<PAGE>
reducing or curtailing investments in common stocks, a larger proportion of the
Fund's assets than usual may be invested in preferred stocks or short-term or
long-term debt instruments (either convertible or non-convertible). The shares
of the Fund are subject to the risks of common stock investment, and there can
be no assurance that the Fund will achieve its investment objective. The Fund
may invest up to 30% of its assets in foreign securities, which involve
additional risks. Such investment risks include future adverse political and
economic developments, possible seizure or nationalization of the company in
whose securities the Fund has invested, currency risk and possible establishment
of exchange controls or other foreign governmental laws that might adversely
affect the payment of dividends.
The Fund may also engage in various portfolio strategies, including
utilizing derivatives, to attempt to reduce certain risks of its investments and
to attempt to enhance income. These strategies include (1) the purchase and
writing (i.e., sale) of put options and call options on equity securities, (2)
the purchase and sale of put and call options on indices, (3) the purchase and
sale of exchange traded stock index futures and options thereon and (4) the
purchase and sale of options on foreign currencies and futures contracts on
foreign currencies and options thereon. The Fund may engage in these
transactions on securities or commodities exchanges or, in the case of equity,
stock index and foreign currency options, also in the over-the-counter market.
The Fund may also purchase and sell forward foreign currency exchange contracts.
The Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations and there can be no assurance that any
of these strategies will succeed. New financial products and risk management
techniques continue to be developed and the Fund may use these new investments
and techniques to the extent they are consistent with its investment objective
and policies.
Although the Fund will seek the objective of long-term growth of capital,
there can be no assurance it will be attained. The objective of the Fund may not
be changed without shareholder approval.
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 will 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.''
In addition, the Fund may invest in foreign securities and derivatives. See
``The Trust--Investment Policies and Restrictions of the Fund.'' FOR ADDITIONAL
RISK FACTORS RELATING TO INVESTMENT IN THE FUND, SEE PAGES B-5 TO B-10 AND B-15
OF THIS PROSPECTUS.
Although the Trust is structured to return $15.00 per unit to a Unit Holder
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 $15.00 since the
capital protection is limited to the aggregate maturity value per Unit of
Treasury Obligations. Similarly, an investor who sells his Units prior to Trust
maturity may suffer a loss to the extent that the price he receives upon the
sale of his Units is less than the purchase price of his Units.
Distributions
Distributions, if any, of dividends, 12b-1 fee amounts received by the Trust
from the Sponsor in respect of Fund Shares (net of Trust expenses),
distributions of any net capital gains and net investment income 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
A-ii
<PAGE>
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.'' Upon termination, a Unit Holder may invest the
proceeds from the Treasury Obligations in Fund Shares at such Shares' net asset
value.
Public Offering Price
The Public Offering Price of the Units during the initial offering period is
equal to the aggregate offering side evaluation of the underlying Treasury
Obligations and the net asset value of the Fund Shares (excluding any sales
charge), divided by the number of Units outstanding plus a sales charge equal to
5.00% of the Public Offering Price (5.263% of the net amount invested) per Unit.
Any cash held by the Trust will be added to the Public Offering Price. After the
initial public offering period, the Public Offering Price of the Units is
computed by adding to the aggregate bid side evaluation of the Treasury
Obligations the aggregate net asset value of Fund Shares in the Trust, dividing
such sum by the number of Units outstanding and then adding a sales charge of
5.00% of the Public Offering Price (5.263% 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
reduce on a graduated scale for sales involving at least 2,000 Units (see
``Public Offering of Units--Volume Discount''). The minimum purchase is 100
Units except the minimum purchase is 20 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. If such market is not maintained, a Unit Holder will be able to dispose
of his Units through redemption at prices based on the aggregate bid side
evaluation of the Treasury Obligations and the net asset value of the Fund
Shares (see ``Rights of Unit Holders--Redemption''). Market conditions may cause
such prices to be greater or less than the amount paid for Units and may result
in a loss to a Unit Holder upon the disposition of a Unit.
Special Risk Considerations
An investment in Units of the Trust should be made with an understanding of
the risks entailed in an investment in (i) the stripped United States Treasury
issued notes or bonds bearing no current interest (see ``The Trust--Stripped
U.S. Treasury Obligations'' on pages B-2 and B-3) and (ii) a mutual fund which
invests in the type of securities in which the Fund invests (see ``The
Trust--Investment Policies and Restrictions of the Fund'' on pages B-5 through
B-12 and ``The Trust--Funds Risk Factors'' on page B-15). The Trust's objectives
are to attempt to obtain safety of capital through investment in the stripped
United States Treasury issued notes or bonds paying no current interest and to
attempt to provide for capital appreciation through an investment in Fund
Shares. The Trust is ``concentrated'' in Fund Shares so investors should be
aware that the potential for capital appreciation is directly related to the
investment performance of the Fund itself. Additionally, changes in the price of
the Treasury Obligations and changes in the net asset value of the Fund Shares
will affect the price of the Trust's Units.
California Investors Only--Sales to individuals in California are restricted
to persons who have (i) annual income of at least $30,000 and a net worth of at
least $30,000, exclusive of home, home furnishings and automobiles or (ii) net
worth of at least $75,000, exclusive of home, home furnishings and automobiles.
Portfolio Summary
$32,250,000.00 face amount of Treasury Obligations maturing on November 15,
2006 and 862,795 Fund Shares were held in the Trust on April 9, 1996. The
Treasury Obligations and the Fund Shares represented 51.5% and 48.5%,
respectively, of the total of the aggregate offering side evaluation of Treasury
Obligations in the Trust and the aggregate value of Fund Shares on April 9,
1996.
A-iii
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
As of April 9, 1996(1)
<TABLE>
<S> <C>
AGGREGATE MATURITY VALUE OF TREASURY OBLIGATIONS........................................... $32,250,000.00
AGGREGATE NUMBER OF FUND SHARES............................................................ 862,795
NUMBER OF UNITS............................................................................ 2,150,000
FRACTIONAL UNDIVIDED INTEREST IN THE TRUST REPRESENTED BY EACH UNIT........................ 1/2,150,000th
PUBLIC OFFERING PRICE
Aggregate offering side evaluation of Treasury Obligations in the Trust.................. $15,781,860.00
Aggregate value of Fund Shares(2)........................................................ 14,865,957.85
Cash value............................................................................... 4,201.65
Total.................................................................................... --------------
$30,652,019.50
--------------
--------------
Divided by 2,150,000 Units............................................................... $ 14.256
Plus sales charge of 5.00% of Public Offering Price (5.263% of net amount invested)(4)... .7503
--------------
Public Offering Price per Unit(3)........................................................ $ 15.006
--------------
--------------
REDEMPTION AND SPONSOR'S REPURCHASE PRICE PER UNIT (based on bid side evaluation underlying
Treasury Obligations and net asset value of the Fund Shares, $.7503 less than Public
Offering Price per Unit)(2).............................................................. $ 14.256
QUARTERLY RECORD DATES: February 1, May 1, August 1, November 1.
QUARTERLY DISTRIBUTION DATES: February 15, May 15, August 15, November 15.
TRUSTEE'S ANNUAL FEE (including estimated expenses and Evaluator's fee) $1.67 per 100 Units
outstanding.
EVALUATOR'S FEE FOR EACH EVALUATION OF TREASURY OBLIGATIONS: $5.00
EVALUATION TIME: 4:15 P.M. New York Time
MANDATORY TERMINATION DATE: November 15, 2006
MINIMUM VALUE OF TRUST: The Trust may be terminated if the value of Trust assets at any
time is less than 40% of the aggregate maturity values of Treasury Obligations calculated
after the most recent deposit of Treasury Obligations.
DATE OF DEPOSIT; February 22, 1995(1)
</TABLE>
- ------------
(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 the 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 April 9, 1996 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.'')
- ------------
For an explanation of the management fees paid by the Fund (as of December
31, 1995, 0.47% of Fund average net assets), see pages B-12 to B-13.
A-iv
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
THE UNIT HOLDERS, SPONSOR AND TRUSTEE
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
We have audited the statement of financial condition and schedule of
portfolio securities of the Government Securities Equity Trust Series 8 as
of January 31, 1996 and the related statements of operations and changes in
net assets for the period from February 22, 1995 (date of deposit) to
January 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of the securities owned as of
January 31, 1996 as shown in the statement of financial condition and
schedule of portfolio securities by correspondence with The Chase Manhattan
Bank, N.A. (formerly United States Trust Company of New York), the Trustee.
An audit also includes assessing the accounting principles used and the
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Government
Securities Equity Trust Series 8 as of January 31, 1996, and the results of
its operations and the changes in its net assets for the period from
February 22, 1995 (date of deposit) to January 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
May 6, 1996
New York, New York
</AUDIT-REPORT>
A-1
<PAGE>
STATEMENT OF FINANCIAL CONDITION
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
January 31, 1996
<TABLE>
TRUST PROPERTY
<S> <C>
Investments in Securities at market value
(amortized cost $26,967,373 including
accretion of $1,017,997) (Note (a) and
Schedule of Portfolio Securities
Notes (4) and (5)) $31,961,900
Accrued income receivable 20,286
Cash 8,960
Total 31,991,146
LIABILITY AND NET ASSETS
Less Liability:
Accrued Trust fees and expenses 4,732
Net Assets:
Balance applicable to 2,150,000 Units of fractional
undivided interest outstanding (Note (c)):
Capital, plus unrealized market
appreciation of $4,994,527 $31,961,900
Undistributed principal and net
investment income (Note (b)) 24,514
Net assets $31,986,414
Net asset value per Unit ($31,986,414 divided by 2,150,000 Units) $ 14.8774
See notes to financial statements
</TABLE>
A-2
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
<CAPTION>
For the period from
February 22, 1995
(date of deposit) to
January 31, 1996
<S> <C>
Investment income:
Interest $1,018,855
Dividends 222,722
Other income 30,185
Total income 1,271,762
Less expenses:
Trust fees and expenses 20,044
Total expenses 20,044
Investment income - net 1,251,718
Net gain on investments:
Long-term capital gain distributions received 568,843
Unrealized market appreciation 4,994,527
Net gain on investments 5,563,370
Net increase in net assets resulting from operations $6,815,088
See notes to financial statements
</TABLE>
A-3
<PAGE>
<TABLE>
STATEMENT OF NET ASSETS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
<CAPTION>
For the period from
February 22, 1995
(date of deposit) to
January 31, 1996
<S> <C>
Operations:
Investment income - net $ 1,251,718
Long-term capital gain distributions received 568,843
Unrealized market appreciation 4,994,527
Net increase in net assets resulting from operations 6,815,088
Less distributions to Unit Holders:
Principal (568,680)
Investment income - net (209,370)
Total distributions (778,050)
Capital Share Transactions:
Creation of 2,050,000 additional Units 24,761,865
Net increase in net assets 30,798,903
Net assets:
Beginning of period 1,187,511
End of period (including undistributed principal and net
investment income of $24,514) $31,986,414
See notes to financial statements
</TABLE>
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
January 31, 1996
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of the significant
accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting
and financial books, records, financial statements and related
data of the Trust and is responsible for establishing and
maintaining a system of internal controls directly related to, and
designed to provide reasonable assurance as to the integrity and
reliability of, financial reporting of the Trust. The Trustee is
also responsible for all estimates and accruals reflected in the
Trust's financial statements. The Evaluator determines the price
for each underlying Security included in the Trust's Schedule of
Portfolio Securities on the basis set forth in Part B of this
Prospectus, "Public Offering of Units - Public Offering Price".
Under the Securities Act of 1933 ("the Act"), as amended, the
Sponsor is deemed to be an issuer of the Trust Units. As such,
the Sponsor has the responsibility of an issuer under the Act with
respect to financial statements of the Trust included in the
Registration Statement under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations of the Zero Coupon
Treasury Obligations, and by calculations based on the net asset
value per share of the Fund, on the last day of trading during the
period. The value on the date of initial deposit (February 22,
1995) represents the cost of investments to the Trust based on the
offering side evaluations and the net asset value per share, of
the Treasury Obligations and Fund Shares, respectively, as of the
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 of its maturity date using the interest method.
(3) Income Taxes
The Trust is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is required
for such taxes.
(4) Expenses
The Trust pays an annual Trustee's fee, estimated expenses,
Evaluator's fees, and an annual Sponsor's portfolio supervision
fee, and may incur additional charges as explained under "Expenses
and Charges" in Part B of this Prospectus.
A-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
January 31, 1996
(b) DISTRIBUTIONS
Distributions from the income and principal accounts, if any, received
by the Trust are made to Unit Holders on a quarterly basis and
distributions of any net capital gains received in respect of Fund
Shares will be made at least annually to Unit Holders of record.
Income from the amortization of original issue discount on the Zero
Coupon Treasury Obligations will not be distributed on a current basis.
Upon termination of the Trust, the Trustee will distribute, upon
surrender of Units for cancellation, to each Unit Holder his pro rata
share of the Trust's assets, less expenses, in the manner set forth
under "Amendment and Termination of the Trust - Termination" herein.
(c) 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.
<TABLE>
A reconciliation of the cost of Units to investors to the net amount
applicable to investors as of January 31, 1996 follows:
<S> <C>
Cost to investors $27,246,845
Less: Gross underwriting commissions (sales charge) (1,297,469)
Net cost to investors 25,949,376
Unrealized market appreciation 4,994,527
Accumulated interest accretion 1,017,997
Net amount applicable to investors $31,961,900
(d) OTHER INFORMATION
</TABLE>
<TABLE>
Selected data for a Unit of the Trust during the period:
<CAPTION>
<S> <C>
Principal distributions during period $ .2718
Net investment income distributions during period $ .1018
Net asset value at end of period $14.8774
Trust Units outstanding at end of period 2,150,000
</TABLE>
A-6
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
January 31, 1996
<TABLE>
<CAPTION>
Port-
folio Name of Issuer/ Face Amount/ Market Value
No. Title of Portfolio Security <F1> Number of Shares <F4><F5>
<C> <S> <C> <C>
1. Stripped United States Treasury Obligations maturing
on November 15, 2006 <F2> 32,250,000 $17,294,385
2. Class A shares of the Prudential Equity Fund, Inc.
($17.00 per Fund Share) <F3> 862,795 14,667,515
$31,961,900
See notes to schedule of portfolio securities
</TABLE>
A-7
<PAGE>
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
January 31, 1996
<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 Fund's investment manager is Prudential Mutual Fund Management
Inc.
<F4> The market value of the Treasury Obligations as of January 31, 1996
was determined by the Evaluator on the basis of bid side
evaluations for the Securities at such date. The market value of
the Fund Shares was calculated by multiplying the aggregate number
of shares by the current net asset value per share as of the same
date.
<F5> At January 31, 1996, the unrealized market appreciation of
Securities was comprised of the following:
Gross unrealized market appreciation $4,944,527
Gross unrealized market depreciation -
Unrealized market appreciation $4,944,527
The amortized cost of the Securities for Federal income tax
purposes was $26,967,373 at January 31, 1996.
A-8
<PAGE>
GOVERNMENT SECURITIES EQUITY TRUST
SERIES 8
------------------------
THE TRUST
The Government Securities Equity Trust Series 8 (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'' or ``Prudential
Securities''), United States Trust Company of New York the predecessor trustee
to The Chase Manhattan Bank (National Association) (the ``Trustee'') and Kenny
Information Systems, Inc. (the ``Evaluator''). The Sponsor 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 Prudential Equity Fund, Inc. (the ``Fund''), an open-end,
diversified, registered management investment company (the Treasury Obligations
and Fund Shares hereinafter, collectively, referred to as ``Securities''). The
Fund's investment objective is long-term growth of capital. The Fund seeks to
achieve this objective by investing primarily in common stocks of major,
established corporations which, in the opinion of the Fund's investment adviser,
are believed to be in sound financial condition and to have prospects of price
appreciation greater than broadly based stock indices. The Fund may also invest
in preferred stocks and bonds, which have either attached warrants or a
conversion privilege into common stocks and in options on stocks and stock
indices. The Fund may invest up to 30% of its assets in foreign securities.
There is of course no assurance that the Trust's or the Fund's objectives will
be achieved.
Trust Formation
On the Date of Deposit, the Sponsor deposited with the Trustee the
underlying Securities or confirmations of contracts for the purchase of such
Securities at prices equal to the evaluation of the Treasury Obligations on the
offering side of the market on the Date of Deposit as determined by the
Evaluator and the net asset value of the Fund Shares (see ``Schedule of
Portfolio Securities''). The Trust was created simultaneously with the deposit
of the Securities with the Trustee and the execution of the Indenture. The
Trustee then immediately delivered to the Sponsor certificates of beneficial
interest (the ``Certificates'') representing the units (the ``Units'')
comprising the entire ownership of the Trust. Through this Prospectus, the
Sponsor is offering the Units for sale to the Public. The holders of Units (the
``Unit Holder'' or ``Unit Holders'' as the context requires) will have the right
to have their Units redeemed at a price based on the aggregate bid side
evaluation of the Treasury Obligations as determined by the Evaluator and the
net asset value of the Fund Shares (the ``Redemption Price''), if the Units
cannot be sold in the secondary market which the Sponsor, although not obligated
to, presently intends to maintain. The Trust has a mandatory termination date
set forth under ``Summary of Essential Information,'' but may be terminated
prior thereto upon the occurrence of certain events (see ``Amendment and
Termination of the Indenture--Termination''), including a reduction in the value
of the Trust below the value set forth under ``Summary of Essential
Information.''
With the deposit of the Securities in the Trust on the Date of Deposit, the
Sponsor established a proportionate relationship between the maturity amounts of
Treasury Obligations and the number of Fund Shares in the Portfolio. Subsequent
to the initial deposit of Securities on the Date of Deposit, the Sponsor may,
but is not obligated to, deposit additional Securities (including contracts
together with an irrevocable letter of credit for the purchase thereof) in the
Trust, to receive in exchange therefor additional Units and to offer such Units
to the public by means of this Prospectus. A subsequent deposit by the Sponsor
of Treasury Obligations and Fund Shares will maintain the proportionate
relationship between the maturity amount of Treasury Obligations and the number
of Fund Shares immediately prior to such deposit; the deposited Treasury
Obligations will be substantially identical to those held in the Trust
immediately prior to the subsequent deposit. Each Unit owned by each Unit Holder
will represent the same proportionate interest in the Trust. As additional Units
are issued by the Trust as a result of the deposit of additional Securities by
the Sponsor, the aggregate
- ------------
* 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>
value of the Securities in the Trust will be increased and the fractional
undivided interest in the Trust represented by each Unit will be decreased.
On 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 $15.00 even if the value of the Fund Shares were to
decline to zero. Of course, whether or not a Unit Holder makes a profit or
suffers a loss depends on whether his purchase price was less than or exceeded
$15.00 per Unit. A Unit Holder selling his Units prior to the Mandatory
Termination Date may suffer a loss to the extent the sale price of his Units is
less than the purchase price. Because certain of the Securities from time to
time may be sold under circumstances described herein and because additional
Securities may be deposited into the Trust from time to time, the Trust is not
expected to retain its present size and composition. If any Units are redeemed
by the Trustee, the number of Securities in the Trust will be reduced by an
amount allocable to redeemed Units and the fractional undivided interest in such
Trust represented by each unredeemed Unit will be increased. Units will remain
outstanding until redeemed upon tender to the Trustee by any Unit Holder (which
may include the Sponsor) or until the termination of the Trust pursuant to the
Indenture.
Notwithstanding the availability of the above-mentioned irrevocable
letter(s) of credit, it is expected that the Sponsor will pay for the Securities
as the contracts for their purchase become due. To the extent Units are sold
prior to the settlement of such contracts, the Sponsor will receive the purchase
price of such Units prior to the time at which it pays for Securities pursuant
to such contracts and have the use of such funds during this period.
Units will be sold to investors at the Public Offering Price next computed
after receipt of the investor's order to purchase Units, if Units are available
to fill orders on the day that such price is set. If Units are not available or
are insufficient to fill the order (e.g., if demand for Units exceeds the Units
available for sale and the Sponsor is not yet able to create additional Units)
the investor's order will be rejected by the Sponsor. The number of Units
available may be insufficient to meet demand because of the Sponsor's inability
to or decision not to purchase and deposit Treasury Obligations of the required
type and/or Fund Shares in amounts sufficient to maintain the proportionate
relationship between maturity values of Treasury Obligations and numbers of Fund
Shares of the Fund required to create additional Units. The Sponsor may, if
unable to accept orders on any given day, offer to execute the order as soon as
sufficient Units can be created. An investor will be deemed to place a new order
for that number of Units each day until that order is accepted. The investor's
order will then be executed, when Units are available, at the Public Offering
Price next calculated after such continuing order is accepted. The investor
will, of course, be able to revoke his purchase offer at any time prior to
acceptance by the Sponsor. The Sponsor will execute orders to purchase in the
order it determines that they are received, i.e., orders received first will be
filled first except that indications of interest prior to the effectiveness of
the registration of the offering of Trust Units which become orders upon
effectiveness will be accepted according to the order in which the indications
of interest were received.
On a recent date the Trust consisted of the Securities listed under
``Schedule of Portfolio Securities'' or contracts to acquire such Securities
together with a letter of credit to provide the amount necessary to complete the
purchase of such Securities. Neither the Sponsor nor any affiliate of the
Sponsor will be liable in any way for any default, failure or defect in any
Securities.
Securities Selection
In selecting Treasury Obligations for deposit in the Trust, the following
factors, among others, were considered by the Sponsor: (i) the prices and yields
of such securities and (ii) the maturities of such securities. In selecting the
Fund Shares for deposit in the Trust, the following factors, among others, were
considered by the Sponsor: (i) the historical performance of the Fund and (ii)
the nature of the underlying Fund portfolio.
The Trust consists of such of the Securities listed under ``Schedule of
Portfolio Securities'' herein as may continue to be held from time to time in
the Trust, newly deposited Securities meeting requirements for creation of
additional Units and undistributed cash receipts from the Fund and proceeds
realized from the disposition of Securities.
Stripped U.S. Treasury Obligations
The Treasury Obligations in the portfolio consist of United States Treasury
Obligations which have been stripped by the United States Treasury of their
unmatured interest coupons or such stripped coupons or receipts or certificates
evidencing such obligations or coupons. The obligor with respect to the Treasury
Obligations is the United States
B-2
<PAGE>
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 Prudential Mutual Fund Management, Inc. While the Sponsor has not
independently verified this information, it has no reason to believe that such
information is not current in all material respects. No representation is made
herein as to the accuracy or adequacy of such information.
Prudential Equity Fund, Inc.
The portfolio of the Trust also contains Class A shares (the ``Fund
Shares'') of Prudential Equity Fund, Inc. (the ``Fund''). On December 31, 1995,
the net assets of the Fund were approximately $3,322,899,190. The manager of the
Fund is Prudential Mutual Fund Management, Inc. (``PMF''). The subadviser to the
Fund is The Prudential Investment Corporation (``PIC''), generally referred to
throughout this prospectus as the Fund's investment adviser.
The investment objective of the Fund is long-term growth of capital.
Providing current income is not an objective of the Fund. Any income produced is
expected to be minimal. An investor should not consider purchase of Fund Shares
as equivalent to a complete investment program.
The State Street Bank and Trust Company (the ``Custodian'') is the custodian
of the Fund's assets. Prudential Mutual Fund Services, Inc. (the ``Transfer and
Dividend Disbursing Agent'') serves as the Fund's dividend disbursing and
transfer agent. The Fund's prospectus is available to persons interested in
purchasing Units of the Trust upon request.
General Information Regarding the Fund
The Fund intends normally to pay semi-annual dividends representing
substantially all of its net investment income (which includes, among other
items, dividends and interest), if any, and to distribute at least annually any
net realized capital gains. By so doing and meeting certain diversification of
assets and other requirements of the Internal Revenue Code of 1986, as amended
(the ``Code''), the Fund intends to qualify annually as a regulated investment
company under the Code. The status of the Fund as a regulated investment company
does not involve government supervision of management or of its investment
practices or policies. As a regulated investment company, the Fund generally
will be relieved of liability for United States federal income tax on that
portion of its net investment income and net realized capital gains which it
distributes to its Fund shareholders. Amounts not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirement. Any dividend or distribution by the Fund has the effect of reducing
the net asset value per share on the ex-dividend date by the amount of the
dividend or distribution (see ``Net Asset Value of the Fund Shares'').
B-3
<PAGE>
FINANCIAL HIGHLIGHTS OF THE FUND
(for a share outstanding throughout the periods indicated)
The following financial highlights highlights contain selected data for a
Class A share of common stock of the Fund, total return, ratios to average net
assets and other supplemental data for the periods indicated.
<TABLE>
<CAPTION>
January 22,
1990D
Year ended December 31, through
------------------------------ December 31,
1995 1994 1993 1992 1991 1990
---------- -------- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period........ $ 13.24 $ 13.80 $ 12.07 $ 11.39 $ 9.84 11.25DD
Income from investment operations
Net investment income..................... .27 .22 0.23 0.24 0.27 .31
Net realized and unrealized gain (loss) on
investment transactions................ 3.88 .09 2.42 1.30 2.09 (.15)DD
Total from investment operations.......... 4.15 .31 2.65 1.54 2.36 .16DD
Less distributions
Dividends from net investment income...... (.27) (.22) (.22) (.23) (.24) (.35)
Distributions from net realized capital
gains.................................. (.68) (.65) (.70) (.63) (.57) (1.22)
Total distributions.................. (.95) (.87) (.92) (.86) (.81) (1.57)
---------- -------- -------- -------- ------- ------------
Net asset value, end of period.............. $ 16.44 $ 13.24 $ 13.80 $ 12.07 $ 11.39 $ 9.84
Total Return#:.............................. 31.58% 2.38% 22.14% 13.65% 24.55% .29%DD
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............. $1,158,111 $276,412 $232,535 $136,834 $82,845 $ 30,264
Average net assets (000).................... $ 908,365 $254,596 $190,778 $111,489 57,845 $ 27,371
Ratios to average net assets:
Expenses, including distribution fees..... .91% 1.00% .91% .94% .97% 1.01%*
Expenses, excluding distribution fees..... .66% .75% .71% .74% .77% .84%*
Net investment income..................... 1.82% 1.62% 1.71% 1.91% 2.36% 2.86%*
Portfolio turnover.......................... 18% 12% 21% 22% 19% 76%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
DD Restated.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
B-4
<PAGE>
Investment Policies and Restrictions of the Fund
The Fund's investment objective is long-term growth of capital. The Fund
will seek to achieve this objective by investing primarily in common stocks of
major, established corporations which, in the opinion of the Fund's investment
adviser, are believed to be in sound financial condition and have prospects of
price appreciation greater than broadly based stock indices. The Fund may also
invest in preferred stocks and bonds, which have either attached warrants or a
conversion privilege into common stocks, and in unattached warrants. At times
when economic conditions or general levels of common stock prices are such that
the investment adviser deems it prudent to adopt a defensive position by
reducing or curtailing investments in common stocks, a larger proportion of the
Fund's assets than usual may be invested in preferred stocks or short-term or
long-term debt instruments (either convertible or non-convertible). The shares
of the Fund are subject to the risks of common stock investment, and there can
be no assurance that the Fund will achieve its investment objective. The Fund
may invest up to 30% of its assets in foreign securities, which may involve
additional investment risks. Such risks include future adverse political and
economic developments, possible seizure or nationalization of the company in
whose securities the Fund has invested and possible establishment of exchange
controls or other foreign governmental laws that might adversely affect the
payment of dividends.
Hedging and Return Enhancement Strategies
The Fund may also engage in various portfolio strategies, including
utilizing derivatives, to reduce certain risks of its investments and to attempt
to enhance return. These strategies include (1) the purchase and writing (i.e.,
sale) of put options and call options on equity securities, (2) the purchase and
sale of put and call options on indices, (3) the purchase and sale of exchange
traded stock index futures and options thereon and (4) the purchase and sale of
options on foreign currencies and futures contracts on foreign currencies and
options thereon. The Fund may engage in these transactions on securities or
commodities exchanges or, in the case of equity, stock index and foreign
currency options, also in the over-the-counter market. The Fund may also
purchase and sell forward foreign currency exchange contracts. The Fund's
ability to use these strategies may be limited by market conditions, regulatory
limits and tax considerations and there can be no assurance that any of these
strategies will succeed. New financial products and risk management techniques
continue to be developed and the Fund may use these new investments and
techniques to the extent they are consistent with its investment objective and
policies.
Options Transactions
Options on Equity Securities. The Fund intends to purchase and write (i.e.,
sell) put and call options on equity securities that are traded on securities
exchanges, on NASDAQ (``NASDAQ options'') or in the over-the-counter market (OTC
options). A call option is a short-term contract (having a duration of nine
months or less) pursuant to which the purchaser, in return for a premium paid,
has the right to buy the security underlying the option at a specified exercise
price at any time during the term of the option or, in the case of a
European-style option, at the expiration of the option. The writer of the call
option receives a premium and has the obligation, if the option is exercised, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract which gives the purchaser, who pays a premium, the
right to sell the underlying security at a specified price during the term of
the option. The writer of the put, who receives the premium, has the obligation
to buy the underlying security upon exercise at the exercise price. The Fund
will purchase put options only when its investment adviser perceives significant
short-term risk, but substantial long-term appreciation, in the underlying
security.
The Fund will write call options only if they are covered. A call option is
covered if the Fund holds on a share-for-share basis a call on the same security
as the call written by the Fund where the exercise price of the call held is
equal to or less than the exercise price of the call written provided the
difference is maintained by the Fund in cash, Treasury bills or other high grade
short-term obligations in a segregated account with its Custodian. The premium
paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand and
interest rates.
If the writer of an option wishes to terminate the obligation, he or she may
effect a ``closing purchase transaction.'' This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she has been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a ``closing sale transaction.'' This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call
B-5
<PAGE>
option, the writer of an exchange-traded option or a NASDAQ option is required
to pledge for the benefit of the broker the underlying security or other assets
in accordance with the rules of The Options Clearing Corporation (``OCC''), an
institution created to interpose itself between buyers and sellers of options.
Technically, the OCC assumes the other side of every purchase and sale
transaction on an exchange and, by doing so, guarantees the transaction.
In the case of OTC options, it is not possible to effect a closing
transaction in the same manner as exchange-traded options because a clearing
corporation is not interposed between the buyer and seller of the option. In
order to terminate the obligation represented by an OTC option, the Fund would
need to agree to the termination of the obligation represented by an OTC option
with the counterparty thereto. Any such cancellation, if agreed to, may require
the Fund to pay a premium to the counterparty. Alternatively, the Fund could
write an OTC put option in effect to close its position on an OTC call option or
write a call option to close its position on an OTC put option. However, the
Fund would remain exposed to each counterparty's credit risk on the call or put
option until such option is exercised or expires. There is no guarantee that the
Fund will be able to write put or call options, as the case may be, that will
effectively close an existing position.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less that the premium received from writing the option or is
more than the premium paid to purchase the option; conversely, the Fund will
realize a loss from a closing transaction if the price of the transaction is
more than the premium received from writing the option or is less than the
premium paid to purchase the option. Because increases in the market price of a
call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
The Fund may also purchase a ``protective put'' i.e., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value. The
loss to the Fund is limited to the premium paid for, and transaction costs in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
the security underlying the put rises, the profit the Fund realizes on the sale
of the security will be reduced by the premium paid for the put option less any
amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on stock indices, as described below.
Option on Stock Indices. The Fund may also purchase and write (i.e., sell)
put and call options on stock indices traded on securities exchanges, on NASDAQ
or in the over-the-counter market. Options on stock indices are similar to
options on stock except that, rather than the right to take or make delivery of
stock at a specified price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the ``multiplier''). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
The value of an index option depends upon movements in the level of the
index rather than the price of a particular stock. Therefore, whether the Fund
will realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of stock prices in the stock market
generally or in an industry or market segment rather than movements in the price
of a particular stock. Accordingly, successful use by the Fund of options on
indices would be subject to the investment adviser's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. The Fund's investment
adviser currently uses these techniques in conjunction with the management of
other mutual funds.
Unlike stock options, all settlements are in cash, with the result that a
call writer cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. In addition, unless the Fund has other
B-6
<PAGE>
liquid assets which are sufficient to satisfy the exercise of a call, the Fund
would be required to liquidate portfolio securities or borrow in order to
satisfy the exercise.
The Fund's successful use of options on indices depends upon the investment
adviser's ability to predict the direction of the market and is subject to
various additional risks. The correlation between movements in the index and the
price of the securities being written against is imperfect and the risk from
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the composition of the relevant index. Accordingly, a decrease in
the value of the securities being written against may not be wholly offset by a
gain on the exercise of a stock index put option held by the Fund. Likewise, if
a stock index call option written by the Fund is exercised, the Fund may incur a
loss on the transaction which is not offset, wholly or in part, by an increase
in the value of the securities being written against, which securities may,
depending on market circumstances, decline in value.
Option Position Limits. Transactions by the Fund in options on securities
and on stock indices will be subject to limitations, if any, established by each
of the exchanges, boards of trade or other trading facilities (including NASDAQ)
governing the maximum number of options in each class which may be written or
purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written on the same or different
exchanges, boards of trade or other trading facilities or are held or written in
one or more accounts or through one or more brokers. Thus, the number of options
which the Fund may write or purchase may be affected by options written or
purchased by other investment advisory clients of the Fund's investment adviser.
An exchange, board of trade or other trading facility may order the liquidation
of positions found to be in excess of these limits, and it may impose certain
other sanctions.
Options on Foreign Currencies. The Fund is permitted to purchase and write
put and call options on foreign currencies and on futures contracts on foreign
currencies traded on securities exchanges or boards of trade (foreign and
domestic) for hedging purposes in a manner similar to that in which forward
foreign currency exchange contracts and futures contracts on foreign currencies
will be employed. Options on foreign currencies and on futures contracts on
foreign currencies are similar to options on stock, except that the Fund has the
right to take or make delivery of a specified amount of foreign currency, rather
that stock.
The Fund may purchase and write options to hedge the Fund's portfolio
securities denominated in foreign currencies. If there is a decline in the
dollar value of a foreign currency in which the Fund's portfolio securities are
denominated, the dollar value of such securities will decline even though the
foreign currency value remains the same. To hedge against the decline of the
foreign currency, the Fund may purchase put options on futures contracts on such
foreign currency. If the value of the foreign currency declines, the gain
realized on the put option would offset, in whole or in part, the adverse effect
such decline would have on the value of the portfolio securities. Alternatively,
the Fund may write a call option on a futures contract on the foreign currency.
If the value of the foreign currency declines, the option would not be exercised
and the decline in the value of the portfolio securities denominated in such
foreign currency would be offset in part by the premium the Fund received for
the option.
If, on the other hand, the investment adviser anticipates purchasing a
foreign security and also anticipates a rise in the value of such foreign
currency (thereby increasing the cost of such security), the Fund may purchase
call options on the foreign currency. The purchase of such options could offset,
at least partially, the effects of the adverse movements of the exchange rates.
Alternatively, the Fund could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.
Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts to
protect the value of its portfolio against future changes in the level of
currency exchange rates. A forward contract on foreign currency is an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days agreed upon by the parties from the date of the contract at a
price set on the date of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (typically large
commercial banks) and their customers. A forward contract generally has no
deposit requirements, and no commissions are charged for such trades.
The Fund may not use forward contracts to generate income, although the use
of such contracts may incidentally generate income. There is no limitation of
the value of forward contracts into which the Fund may enter. However, the
Fund's dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of a forward contract with respect to specific receivables or
payables of the Fund generally arising in connection with the purchase or sale
of its portfolio securities and accruals of interest or
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<PAGE>
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency. The Fund will not speculate in forward contracts. The
Fund may not position hedge with respect to a particular currency for an amount
greater than the aggregate market value (determined at the time of making any
sale of a forward contract) of securities held in its portfolio denominated or
quoted in, or currently convertible into, such currency.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when the Fund anticipates the receipt in a
foreign currency of dividends or interest payments on a security which it holds,
the Fund may desire to ``lock in'' the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as the case may be.
By entering into a forward contract for a fixed amount of dollars for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, the Fund will be able to protect itself against possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract, for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the portfolio securities of the Fund denominated in such foreign
currency. Requirements under the Code for qualification as a regulated
investment company may limit the Fund's ability to engage in transactions in
forward contracts.
Futures Transactions
Stock Index Futures. The Fund may use stock index futures traded on a
commodities exchange or board of trade for hedging, income enhancement and risk
reduction purposes.
A stock index futures contract is an agreement in which the writer (or
seller) of the contract agrees to deliver to the buyer an amount of cash equal
to a specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made. No physical delivery of the underlying stocks in
the index is made. When the futures contract is entered into, each party
deposits with a broker or in a segregated custodial account approximately 5% of
the contract amount, called the ``initial margin.'' Subsequent payments to and
from the broker, called ``variation margin,'' will be made on a daily basis as
the price of the underlying stock index fluctuates, making the long and short
positions in the futures contracts more or less valuable, a process known as
``marked to market.''
Options on Stock Index Futures. The Fund may also purchase and write options
on stock index futures for hedging, income enhancement and risk reduction
purposes. In the case of options on stock index futures, the holder of the
option pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to assume a position in a stock index
futures contract (a long position if the option is a call and a short position
if the option is a put). If the option is exercised by the holder before the
last trading day during the option period, the option writer delivers the
futures position, as well as any balance in the writer's futures margin account,
which represents the amount by which the market price of the stock index futures
contract at exercise exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the stock index future. If it
is exercised on the last trading day, the option writer delivers to the option
holder cash in an amount equal to the difference between the option exercise
price and the closing level of the relevant index on the date the option
expires.
Futures Contracts on Foreign Currencies. The Fund may buy and sell futures
contracts on foreign currencies (futures contracts) such as the European
Currency Unit and purchase and write options thereof for hedging and risk
reduction purposes. A European Currency Unit is a basket of specified amounts of
the currencies of certain member states of the European Economic Community, a
Western European economic cooperative organization including, inter alia,
France, Germany, The Netherlands and the United Kingdom. The Fund will engage in
transactions in only those futures contracts and options thereon that are traded
on a commodities exchange or a board of trade. A ``sale'' of a futures contract
on foreign currency means the assumption of a contractual obligation to deliver
the specified amount of foreign currency at a specified price in a specified
future month. A ``purchase'' of a futures contract means the assumption of a
contractual obligation to acquire the currency called for by the contract at a
specified price in a specified future month. At the time a futures contract is
purchased or sold, the Fund must allocate cash or securities as a deposit
payment (initial margin). Thereafter, the futures contract is valued daily and
the payment of ``variation margin'' may be required, resulting in the
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Fund's paying or receiving cash that reflects any decline or increase,
respectively, in the contract's value, a process known as ``marked to market.''
Limitations on Purchases and Sales of Futures Contracts and Options
Thereon. Under the regulations of the Commodity Exchange Act, an investment
company registered under the Investment Company Act of 1940 (the ``Investment
Company Act'') is exempt from the definition of ``commodity pool operator,''
subject to compliance with certain conditions. The exemption is conditioned upon
the Fund's purchasing and selling futures contracts and options thereon for bona
fide hedging transactions, except that the Fund may purchase and sell futures
contracts and options thereon for any other purpose to the extent that the
aggregate initial margin and option premiums do not exceed 5% of the liquidation
value of the Fund's total assets. The Fund intends to engage in futures
transactions and options thereon in accordance with the regulations of the
Commodity Futures Trading Commission. The Fund intends to purchase and sell
stock index futures and options thereon as a hedge against changes, resulting
from market conditions, in the value of securities which are held in the Fund's
portfolio or which the Fund intends to purchase. The Fund intends to purchase
and sell futures contracts on foreign currencies and options thereon as a hedge
against changes in the value of the currencies to which the Fund is subject or
to which the Fund expects to be subject in connection with future purchases. The
Fund also intends to purchase and sell stock index futures and options thereon
and futures contracts on foreign currencies and options thereon when they are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund. The Fund also intends to purchase and sell stock index
futures and options thereon for income enhancement.
The Fund's successful use of futures contracts and options thereon depends
upon the investment adviser's ability to predict the direction of the market and
is subject to various additional risks. The correlation between movements in the
price of a futures contract and the price of the securities being hedged is
imperfect and there is a risk that the value of the securities being hedged may
increase or decrease at a greater rate than the related futures contract,
resulting in losses to the Fund. The use of these instruments will hedge only
the currency risks associated with investments in foreign securities, not market
risks. Certain futures exchanges or boards of trade have established daily
limits on the amount that the price of a futures contract or option thereon may
vary, either up or down, from the previous day's settlement price. These daily
limits may restrict the Fund's ability to purchase or sell certain futures
contracts or options thereon on any particular day. In addition, if the Fund
purchases futures to hedge against market advances before it can invest in
common stock in an advantageous manner and the market declines, the Fund might
experience a loss on the futures contract. In addition, the ability of the Fund
to close out a futures position or an option depends on a liquid secondary
market. There is no assurance that at any particular time liquid secondary
markets will exist for any particular futures contract or option thereon.
The Fund's ability to enter into futures contracts and options thereon may
also be limited by the requirements of the Code for qualification as a regulated
investment company.
Risks of Hedging and Return Enhancement Strategies
Participation in the options or futures market and in currency exchange
transactions involves investment risks and transaction costs to which the Fund
would not be subject absent the use of these strategies. If the investment
adviser's prediction of movements in the direction of the securities, foreign
currency and interest rate markets is inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were not
used. Risks inherent in the use of options, foreign currency and futures
contracts and options on futures contracts include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; (5) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences: and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain ``cover'' or to
segregate securities in connection with hedging transactions.
Other Investments and Policies
Foreign Investments. The Fund may invest up to 30% of its total assets in
securities of foreign issuers. Investing in securities of foreign companies and
countries involves certain considerations and risks which are not typically
associated with investing in securities of domestic companies. Foreign companies
are not generally subject to uniform accounting,
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auditing and financial standards or other requirements comparable to those
applicable to U.S. companies. There may also be less government supervision and
regulation of foreign securities exchanges, brokers and public companies than
exists in the United States. Dividends and interest paid by foreign issuers may
be subject to withholding and other foreign taxes which may decrease the net
return on such investments as compared to dividends and interest paid to the
Fund by domestic companies. There may be the possibility of expropriations,
confiscatory taxation, political, economic or social instability or diplomatic
developments which could affect assets of the Fund held in foreign countries. In
addition, a portfolio of foreign securities may be adversely affected by
fluctuations in the relative rates of exchange between the currencies of
different nations and by exchange control regulations.
There may be less publicly available information about foreign companies and
governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than, for example, the
New York Stock Exchange and securities of some foreign companies are less liquid
and more volatile than securities of comparable U.S. companies. Brokerage
commissions and other transaction costs of foreign securities exchanges are
generally higher than in the United States.
Repurchase Agreements. The Fund may on occasion enter into repurchase
agreements, whereby the seller of a security agrees to repurchase that security
from the Fund at a mutually agreed-upon time and price. The repurchase date is
usually quite short, possibly overnight or a few days, although it may extend
over a number of months. The resale price is in excess of the purchase price,
reflecting an agreed-upon rate of return effective for the period of time the
Fund's money is invested in the repurchase agreement. The Fund's repurchase
agreements will at all times be fully collateralized in an amount at least equal
to the resale prices, including accrued interest earned on the underlying
securities. The instruments held as collateral are valued daily, and if the
value of the instruments declines, the Fund will require additional collateral
in order to maintain its fully collateralized position. If the seller defaults
and the value of the collateral securing the repurchase agreement declines, the
Fund may incur a loss. The Fund participates in a joint repurchase account with
other investment companies managed by PMF pursuant to an order of the Securities
and Exchange Commission (``SEC'').
When-Issued and Delayed Delivery Securities. The Fund may purchase or sell
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions arise when securities are purchased or sold by the Fund
with payment and delivery taking place as much as a month or more in the future
in order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. The Fund's Custodian will
maintain, in a segregated account of the Fund, cash, U.S. Government securities
or other liquid high-grade debt obligations having a value equal to or greater
than the Fund's purchase commitments. The securities so purchased are subject to
market fluctuation and no interest accrues to the purchaser during the period
between purchase and settlement. At the time of delivery of the securities the
value may be more or less than the purchase price and an increase in the
percentage of the Fund's assets committed to the purchase of securities on a
when-issued or delayed delivery basis may increase the volatility of the Fund's
net asset value.
Borrowing and Securities Lending. The Fund may borrow an amount equal to no
more than 20% of the value of its total assets (calculated when the loan is
made) for temporary, extraordinary or emergency purposes or for the clearance of
transactions. The Fund may pledge up to 20% of its total assets to secure these
borrowings.
The Fund does not presently intend to lend securities, except to the extent
that the entry into repurchase agreements may be considered securities lending.
Short Sales Against-the-Box. The Fund may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further consideration, an equal
amount of the securities of the same issuer as the securities sold short (a
short sale ``against-the-box''), and that not more than 25% of the Fund's net
assets (determined at the time of the short sale) may be subject to such sales.
Short sales will be made primarily to defer realization of gain or loss for
federal tax purposes; a gain or loss in the Fund's long position will be offset
by a gain or loss in its short position. The Fund does not intend to have more
than 5% of its net assets (determined at the time of the short sale) subject to
short sales against-the-box.
Illiquid Securities. The Fund may hold up to 5% of its net assets in
illiquid securities including repurchase agreements which have a maturity of
longer than seven days, securities with legal or contractual restrictions on
resale (restricted securities) and securities that are not readily marketable.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended, and privately placed commercial paper that
have a readily available market
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are not considered illiquid for purposes of this limitation. Investing in Rule
144A securities could, however, have the effect of increasing the level of Fund
illiquidity to the extent that qualified institutional buyers become, for a
limited time, uninterested in purchasing these securities. The Fund intends to
comply with any applicable state blue sky laws restricting the Fund's
investments in illiquid securities. The investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Fund's
Board of Directors. Repurchase agreements subject to demand are deemed to have a
maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased OTC options and
the assets used as ``cover'' for written OTC options are illiquid securities
unless the Fund and the counterparty have provided for the Fund, at the Fund's
option, to unwind the OTC option. The exercise of such an option ordinarily
would involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does not allow the
Fund to treat the assets used as ``cover'' as ``liquid.''
Investment Restrictions
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A ``majority of the Fund's
outstanding voting securities'' means the lesser of (1) 67% of the Fund's voting
shares represented at a meeting at which more than 50% of the outstanding voting
shares are present in person or represented by proxy, or (2) more than 50% of
the Fund's outstanding voting shares.
The Fund may not:
1. Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result with respect
to 75% of the Fund's total assets, more than 5% of the Fund's total assets
(taken at current value) would then be invested in securities of a single
issuer.
2. Make short sales of securities except short sales against-the-box
(but the Fund may obtain such short-term credits as may be necessary for the
clearance of transactions).
3. Concentrate its investments in any one industry (no more than 25% of
the Fund's total assets will be invested in any one industry).
4. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow up to 20% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20%
of the value of its total assets to secure such borrowings. For the purpose
of this restriction, obligations of the Fund to Directors pursuant to
deferred compensation arrangements, the purchase or sale of securities on a
when-issued or delayed delivery basis, the purchase and sale of options,
futures contracts and forward foreign currency exchange contracts and
collateral arrangements with respect to the purchase and sale of options,
futures contracts, options on futures contracts and forward foreign currency
exchange contracts are not deemed to be the issuance of a senior security or
a pledge of assets.
5. Purchase any security if as a result the Fund would then hold more
than 10% of the outstanding voting securities of any one issuer.
6. Purchase any security if as a result the Fund would then have more
than 5% of its total assets (taken at current value) invested in securities
of companies (including predecessors) less than three years old.
7. Buy or sell commodities of commodity contracts or real estate or
interests in real estate except that the Fund may purchase and sell stock
index futures contracts, options thereon and forward foreign currency
exchange contracts and securities which are secured by real estate and
securities of companies which invest or deal in real estate.
8. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
9. Make investments for the purpose of exercising control or
management.
10. Invest in securities of other investment companies, except by
purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 10% of its total assets (taken at
current value) would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.
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11. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stock of
companies which invest in or sponsor such programs.
12. Make loans, except through (i) repurchase agreements and (ii) loans
of portfolio securities (such loans being limited to 10% of the Fund's total
assets). (The purchase of a portion of an issue of securities distributed
publicly, whether or not the purchase is made on the original issuance, is
not considered the making of a loan.)
In order to comply with certain state ``blue sky'' restrictions, the Fund
will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases.
2. Purchase warrants if as a result the Fund would then have more than
5% of its net assets (determined at the time of investment) invested in
warrants. Warrants will be valued at the lower of cost or market and
investments in warrants which are not listed on the New York Stock Exchange
or American Stock Exchange will be limited to 2% of the Fund's net assets
(determined at the time of investments). For the purpose of this limitation,
warrants acquired in units or attached to securities are deemed to be
without value.
3. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or Director of the Fund or PMF or the subadviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers
and directors who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer.
4. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or
securities of issuers which are restricted as to disposition, if more than
15% of its total assets would be invested in such securities. This
restriction shall not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
5. Invest more than 5% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, and in equity securities of issuers which are not readily
marketable.
The Fund may not purchase securities on margin, except for such short-term
credits as are necessary for the clearance of purchases and sales of portfolio
securities.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowing falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
Net Asset Value of the Fund Shares
The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. The value of investments listed on national securities
exchanges and NASDAQ equity securities is based on the last sale price as of the
close of the New York Stock Exchange (which is currently 4:00 P.M., New York
time) or, in the absence of recorded sales, at the average of readily available
closing bid and asked prices on such exchanges. Unlisted securities are valued
at the average of the quoted bid and asked prices in the over-the-counter
market. Securities or other assets for which market quotations are not readily
available are valued by appraisal at their fair value as determined in good
faith by PMF under procedures established by and under the general supervision
of the Fund's Board of Directors. Options on stocks and stock indices traded on
national securities exchanges are valued as of the close of options trading on
such exchanges (which is currently 4:10 P.M., New York time) and stock index
futures and options thereon, which are traded on commodities exchanges, are
valued at their last sale price as of the close of such commodities exchanges
(which is currently 4:15 P.M., New York time). If there were no sales on the
applicable options or commodities exchange, options on stocks and stock indices
and stock index futures and options thereon are valued at the average of the
quoted bid and asked prices as of the close of the respective exchange.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost, if their term to maturity from the date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their term to maturity from date of purchase exceeded 60 days,
unless this is determined not to represent fair value by the Board of Directors.
The Fund will compute its net asset value once daily at 4:15 P.M., New York
time, using prices obtained at the time indicated above on each day the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem Fund shares have been received or days on which changes
in the value of the Fund's portfolio securities do not affect the net
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asset value. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
In the event that the New York Stock Exchange or the national securities
exchanges on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Board of Directors of the Fund will
reconsider the time at which net asset value is computed. In addition, the Fund
may compute its net asset value as of any time permitted pursuant to any
exemption, order or statement of the SEC or its staff.
The Fund's Investment Manager
The Fund has a Board of Directors which, in addition to overseeing the
actions of PMF, PIC and the Distributor (as defined below), decides upon matters
of general policy. PMF conducts and supervises the daily business operations of
the Fund. PIC furnishes daily investment advisory services.
The manager of the Fund is Prudential Mutual Fund Management, Inc.
(``PMF''), a corporation located at One Seaport Plaza, New York, NY. PMF is an
indirect wholly owned subsidiary of The Prudential Insurance Company of America
(``Prudential Insurance''). Through its subsidiaries, Prudential Insurance is
engaged in various aspects of the insurance and financial services industry.
For its services, PMF receives, pursuant to the Management Agreement with
the Fund (the ``Management Agreement''), a fee at an annual rate of .50 of 1% of
the Fund's average daily net assets up to and including $500 million, .475 of
1% of the Fund's average daily net assets from $500 million to $1 billion and
.45 of 1% of the Fund's average daily net assets in excess of $1 billion. The
fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of PMF,
but excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PMF will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PMF will be paid by PMF to the Fund. No such reductions
were required during the fiscal year ended December 31, 1995. Currently, the
Fund believes that the most restrictive expense limitation of state securities
commissions is 2.5% of the Fund's average daily net assets up to $30 million, 2%
of the next $70 million of such assets and 1.5% of such assets in excess of $100
million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of Directors who are not affiliated persons of
PMF or PIC;
(b) all expenses incurred by PMF or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those
assumed by the Fund as described below; and
(c) the costs and expenses payable to PIC pursuant to the subadvisory
agreement between PMF and PIC (the ``Subadvisory Agreement'').
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to PMF, (b) the fees and
expenses of Directors who are not affiliated persons of PMF or PIC, (c) the fees
and certain expenses of the Custodian and Transfer and Dividend Disbursing
Agent, including the cost of providing records to PMF in connection with its
obligation of maintaining required records of the Fund and of pricing the Fund's
shares, (d) the charges and expenses of legal counsel and independent
accountants for the Fund, (e) brokerage commissions and any issue or transfer
taxes chargeable to the Fund in connection with its securities transactions, (f)
all taxes and corporate fees payable by the Fund to governmental agencies, (g)
the fees of any trade associations of which the Fund may be a member, (h) the
cost of stock certificates representing shares of the Fund, (i) the cost of
fidelity and liability insurance, (j) the fees and expenses involved in
registering and maintaining registration of the Fund and of its shares with the
SEC and in registering the Fund and qualifying its shares under state securities
laws, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders' and
Directors' meetings and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders in the amount necessary for
distribution to shareholders, (1) litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees. The Management Agreement provides that PMF
will not be liable for any
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error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
PMF has entered into the Subadvisory Agreement with PIC. The Subadvisory
Agreement provides that PIC will furnish investment advisory services in
connection with the management of the Fund. In connection therewith, PIC is
obligated to keep certain books and records of the Fund. PMF continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises PIC's performance of such services. PIC is reimbursed
by PMF for the reasonable costs and expenses incurred by PIC in furnishing those
services. Investment advisory services are provided to the Fund by a unit of the
Subadviser, known as Prudential Mutual Fund Investment Management.
The current portfolio manager of the Fund is Thomas R. Jackson, a Managing
Director of Prudential Mutual Fund Investment Management, a unit of PIC. Mr.
Jackson has responsibility for daily portfolio management and securities
selection for the Fund. Mr. Jackson also serves as the portfolio manager of the
Common Stock Portfolio of the Prudential Series Fund, which is one of the
investment options in a Prudential Insurance variable life and annuity product.
Mr. Jackson joined PIC in 1990 and has over twenty-five years of professional
equity investment management experience. He was formerly co-chief investment
officer of Red Oak Advisers and Century Capital Associates, each a private money
management firm, where he managed pension and other accounts for institutions
and individuals. He was also with The Dreyfus Corporation where he managed and
served as president of the Dreyfus Fund. Mr. Jackson also managed an equity
pension investment group at Chase Manhattan Bank.
Mr. Jackson primarily utilizes a ``value'' investing style in managing the
Fund. Value investing is a disciplined approach which attempts to identify
strong companies selling at a discount from their perceived true worth. Mr.
Jackson selects stocks for the Fund's portfolio at prices which in his view are
temporarily low relative to the company's earnings, assets, cash flow and
dividends.
The Fund's Plan of Distribution
Under a Distribution and Service Plan (the ``Plan'') adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the ``Distribution Agreement''), Prudential Securities Incorporated (the
``Distributor'') incurs the expenses of distributing the Fund's Class A shares.
Prior to January 2, 1996, Prudential Mutual Fund Distributors, Inc. (PMFD), One
Seaport Plaza, New York, New York 10292, acted as distributor for the Class A
shares of the Fund. These expenses include commissions and account servicing
fees paid to, or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation, an affiliated broker-dealer,
commissions and account servicing fees paid to, or on account of, other
broker-dealers or financial institutions (other than national banks) which have
entered into agreements with the Distributor, advertising expenses, the cost of
printing and mailing prospectuses to potential investors and indirect and
overhead costs of Prudential Securities associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses.
Under the Plan, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
Under the Plan, the Fund may pay the Distributor for its
distribution-related activities with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. The
Plan provides that (i) up to .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1% of the average daily net
assets of the Class A shares. The Distributor agreed to limit its
distribution-related fees payable under the Plan to .25 of 1% of the average
daily net assets of the Class A shares for the fiscal year ending December 31,
1996.
For the fiscal year ended December 31, 1995, the Distributor received
payments of $2,270,912 under the Plan. This amount was primarily expended for
payment of account servicing fees to financial advisers and other persons who
sell Class A shares. For the fiscal year ended December 31, 1995, the
Distributor also received approximately $2,251,200 in initial sales charges.
B-14
<PAGE>
For the fiscal year ended December 31, 1995, the Fund paid distribution
expenses of .25% of the average daily net assets of the Class A shares. The Fund
records all payments made under the Plan as expenses in the calculation of net
investment income.
The Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not ``interested persons'' of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the ``Rule 12b-1 Directors''), vote annually to continue the Plan. The
Plan may be terminated at any time by vote of a majority of the Rule 12b-1
Directors or of a majority of the outstanding Class A shares of the Fund. The
Fund will not be obligated to pay expenses incurred under the Plan if it is
terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Plan, PMF (or one of its affiliates) may make payments out of its own resources
to dealers and other persons who distribute shares of the Fund. Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.
The Distributor is subject to the rule of the National Association of
Securities Dealers, Inc., governing maximum sales charges.
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 with respect to Fund Shares held by the Trust. Fund Shares held
directly by an investor (other than the Trust) including Fund Shares purchased
pursuant to ``Reinvestment of Trust Distributions'' will, however, be subject to
12b-1 fees (see ``Reinvestment of Trust Distributions'').
Risk of Investment in Units
The Securities and Exchange Commission 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 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. The Sponsor will receive a 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 they may
occur. In addition, in the event of the inability of the investment adviser to
act and/or claims or actions against the Fund by regulatory agencies or other
persons or entities, the value of the Fund Shares may decline thereby causing a
decline in the value of Units. Termination of the Fund prior to the Termination
Date of the Trust may result in the termination of the Trust sooner than
anticipated. Prior to a purchase of Units, investors should determine that the
aforementioned risks are consistent with their investment objectives.
Fund Risk Factors
All Fund investments involve risk and there can be no guarantee against loss
resulting from an investment in the Fund, nor can there be any assurance that
the Fund's investment objective will be attained. As with any investment in
securities, the value of, and income from, an investment in the Fund can
decrease as well as increase, depending on a variety of factors which may affect
the values and income generated by the Fund's portfolio securities, including
general economic conditions, market factors and currency exchange rates.
Additionally, investment decisions made by the Fund's investment adviser will
not always be profitable or prove to have been correct. The Fund is not intended
as a complete investment program.
The net asset value of the Fund's Shares, like the value of the Treasury
Obligations, will fluctuate over the life of the Trust and may be more or less
than the price paid therefor by the Trust. An investment in Units of the Trust
should be made with an understanding of the risks inherent in ownership of Fund
Shares. However, the Sponsor believes that, upon termination of the Trust on the
mandatory termination date, even if the Fund Shares are worthless, the Treasury
Obligations will provide sufficient cash at maturity to equal $15.00 per Unit.
Part of such cash will, however, represent the accrual of taxable original issue
discount on the Treasury Obligations.
B-15
<PAGE>
A UNIT HOLDER PURCHASING A UNIT ON THE DATE OF THIS PROSPECTUS OR THEREAFTER
MAY RECEIVE TOTAL DISTRIBUTIONS, INCLUDING DISTRIBUTIONS MADE UPON TERMINATION
OF THE TRUST, THAT ARE LESS THAN THE AMOUNT PAID FOR A UNIT.
Sales of Securities in the Portfolio under certain permitted circumstances
may result in an accelerated termination of the Trust. It is also possible that,
in the absence of a secondary market for the Units or otherwise, redemptions of
Units may occur in sufficient numbers to reduce the portfolio to a size
resulting in such termination. In addition, the Trust may be terminated if the
net aggregate value of the Trust is less than 40% of the aggregate maturity
values of the Treasury Obligations calculated immediately after the most recent
deposit of Treasury Obligations in the Trust (see ``Amendment and
Termination--Termination''). Early termination of the Trust may have important
consequences to the Unit Holder; e.g., to the extent that Units were purchased
with a view to an investment of longer duration, the overall investment program
of the investor may require readjustment; or the overall return on investment
may be less than anticipated, and may result in a loss to a Unit Holder.
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 a recent date, each Unit represented a fractional undivided interest in
the Securities and the net income of the Trust set forth under ``Summary of
Essential Information.'' Thereafter, if any Units are redeemed by the Trustee,
the amount of Securities in the Trust will be reduced by amounts allocable to
redeemed Units, and the fractional undivided interest represented by each Unit
in the balance will be increased, although the actual interest in the Trust
represented by each Unit will remain unchanged. Units will remain outstanding
until redeemed upon tender to the Trustee by any Unit Holder (which may include
the Sponsor) or until the termination of the Trust itself (see ``Rights of Unit
Holders--Redemption'' and ``Amendment and Termination of the
Indenture--Termination'').
TAX STATUS OF THE TRUST
In the opinion of Messrs. Cahill Gordon & Reindel, counsel for the Sponsor,
under existing law:
The Trust is not an association taxable as a corporation for United
States federal income tax purposes and income of the Trust will be treated
as income of the Unit Holders in the manner set forth below. Each Unit
Holder will be considered the owner of a pro rata portion of each asset of
the Trust under the grantor trust rules of Sections 671-678 of the Internal
Revenue Code of 1986, as amended (the ``Code'').
Each Unit Holder will be required to include in his gross income, as
determined for federal income tax purposes, original issue discount with
respect to his pro rata portion of the Treasury Obligations held by the
Trust at the same time and in the same manner as though the Unit Holder were
the direct owner of such pro rata portion. Each Unit Holder will be
considered to have received the distributions paid on his pro rata portion
of the Fund Shares held in the Trust (including such portion of such
distributions used to pay fees and expenses of the Trust) when such
distributions are received or deemed to be received by the Trust. An
individual Unit Holder who itemizes deductions will be entitled to an
itemized deduction for his pro rata share of fees and expenses paid by the
Trust as though such fees and expenses were paid directly by the Unit
Holder, but only to the extent that this amount together with the Unit
Holder's other miscellaneous deductions exceeds 2% of his adjusted gross
income. A corporate Unit Holder will not be subject to this 2% floor.
B-16
<PAGE>
Each Unit Holder will have a taxable event when a Security is disposed
of (whether by sale, exchange, redemption, or payment at maturity) or when
the Unit Holder redeems or sells his Units. The total tax cost of each Unit
to a Unit Holder must be allocated among the assets held in the Trust in
proportion to the relative fair market values thereof on the date the Unit
Holder purchases his Units.
The tax basis of a Unit Holder with respect to his interest in a Treasury
Obligation will be increased by the amount of original issue discount thereon
properly included in the Unit Holder's gross income as determined for Federal
income tax purposes.
The amount of gain recognized by a Unit Holder on a disposition of Fund
Shares or Treasury Obligations by the Trust will be equal to the difference
between such Unit Holder's pro rata portion of the gross proceeds realized by
the Trust on the disposition and the Unit Holder's tax basis in his pro rata
portion of the Fund Shares or Treasury Obligations disposed of, determined as
described in the preceding paragraphs. Any such gain recognized on a sale or
exchange and any such loss will be capital gain or loss, except that gain or
loss recognized by a financial institution with respect to a Treasury Obligation
or by a dealer with respect to Fund Shares or Treasury Obligations will be
ordinary income or loss. Any capital gain or loss arising from the disposition
of a Unit Holder's pro rata interest in a Security will be long-term capital
gain or loss if the Unit Holder has held his Units and the Trust has held the
Security for more than one year. A capital loss due to sale or redemption of a
Unit Holder's interest with respect to Fund Shares held in the Trust will be
treated as a long-term capital loss to the extent of any long-term capital gains
derived by the Unit Holder from such interest if the Unit Holder has held such
interest for six months or less. The holding period for this purpose will be
determined by applying the rules of Sections 246(c)(3) and (4) of the Code.
Under the Code, net capital gain (i.e., the excess of net long-term capital gain
over net short-term capital loss) of individuals, estates and trusts is subject
to a maximum nominal tax rate of 28%. Such net capital gain may, however, result
in a disallowance of itemized deductions and/or affect a personal exemption
phase-out.
If the Unit Holder sells or redeems a Unit for cash he is deemed thereby to
have disposed of his entire pro rata interest in all Trust assets represented by
the Unit and will have taxable gain or loss measured by the difference between
his per Unit tax basis for such assets, as described above, and the amount
realized.
Each Unit Holder's interest in each Treasury Obligation is treated as an
interest in an original issue discount obligation. The original issue discount
on each Treasury Obligation will be taxed as ordinary income for Federal income
tax purposes and will be equal to the excess of the maturity value of the Unit
Holder's interest in the Treasury Obligation over its cost to the Unit Holder. A
Unit Holder will be required to include in gross income for each taxable year a
portion of this original issue discount and will be subject to income tax
thereon even though the income is not distributed. Original issue discount is
treated for Federal income tax purposes as income earned under a constant
interest formula which takes into account the semi-annual compounding of accrued
interest, resulting in an increasing amount of original issue discount accruing
in each year.
A Unit Holder who is neither a citizen nor a resident of the United States
and is not a United States domestic corporation (a ``foreign Unit Holder'') will
not generally be subject to United States federal income taxes, including
withholding taxes, on his pro rata share of the original issue discount on the
Treasury Obligations held in the Trust, any gain from the sale or other
disposition of his, her or its pro rata interest in a Treasury Obligation or
Fund Share held in the Trust, any undistributed gain retained by the Fund and
designated by the Fund to be taken into account by its shareholders or any
capital gain dividend received by the Trust from the Fund, which original issue
discount is not effectively connected with the conduct by the foreign Unit
Holder of a trade or business within the United States and which gain is either
(I) not from sources within the United States or (II) not so effectively
connected, provided that:
(a) with respect to original issue discount (i) the Treasury Obligations
are in registered form and were issued after July 18, 1984, and (ii) the
foreign Unit Holder is not a controlled foreign corporation related (within
the meaning of Section 864(d)(4) of the Code) to The Prudential Insurance
Company of America;
(b) with respect to any U.S.-source capital gain, the foreign Unit
Holder (if an individual) is not present in the United States for 183 days
or more during his or her taxable year in which the gain was realized and so
certifies; and
(c) the foreign Unit Holder provides the required certifications
regarding (i) his, her or its status, (ii) in the case of U.S.-source
income, the fact that the original issue discount or gain is not effectively
connected with the conduct by the foreign Unit Holder of a trade or business
within the United States, and (iii) if determined to be required, the
controlled foreign corporation matter mentioned in clause (a)(ii) above.
B-17
<PAGE>
Fund distributions paid to foreign Unit Holders either directly or through
the Trust and not constituting income effectively connected with the conduct of
a trade or business within the United States by the distributee will be subject
to United States federal withholding taxes at a 30% rate or a lesser rate
established by treaty unless the Fund distribution is a capital gain dividend.
Foreign Unit Holders should consult their own tax counsel with respect to United
States tax consequences of ownership of Units.
Each Unit Holder (other than a foreign Unit Holder who has properly provided
the certifications described in the preceding paragraph) will be requested to
provide the Unit Holder's taxpayer identification number to the Trustee and to
certify that the Unit Holder has not been notified that payments to the Unit
Holder are subject to back-up withholding. If the taxpayer identification number
and an appropriate certification are not provided when requested, a 31% back-up
withholding will apply.
The Fund has elected to qualify for and intends to remain qualified as a
regulated investment company under the Code and to meet applicable requirements
with respect to its gross income, diversification of holdings and distributions
so that the Fund (but not the Trust Unit Holders) will be relieved of Federal
income tax on the amounts distributed by the Fund to the Trust. Such
distributions may include taxable net investment income and net capital gain
from sales of securities held by the Fund. It is also possible for the Fund to
retain net capital gains for investment, in which event the Fund will be subject
to Federal income tax on the retained amount; but may, as a regulated investment
company, designate the retained amount as undistributed capital gains in a
notice to those persons who were its shareholders (including the Trust and thus
its Unit Holders) at the close of the Fund's taxable year.
If the Fund were to so retain any net capital gains for investment, its
shareholders (including Trust Unit Holders) (a) would be required to include in
gross income for tax purposes, as long-term capital gains, their proportionate
shares of the undistributed net capital gain of the Fund, and (b) would be
deemed to have paid their proportionate shares of the tax paid by the Fund on
the undistributed net capital gain so that the amount of tax deemed paid by each
such shareholder would be credited against the shareholder's United States
federal income tax liability and a refund could be claimed to the extent that
credits exceeded such liability. For United States federal income tax purposes,
the basis of shares of the Fund owned by a shareholder of the Fund (including a
Trust Unit Holder) would be increased by an amount equal to 65% of the amount of
undistributed capital gains required to be so included in computing such Fund
shareholder's long-term capital gains.
Capital gain distributions, if any, made by the Fund, as a regulated
investment company, are taxable as long-term capital gain, regardless of how
long the Fund shareholder (including a Trust Unit Holder) has held the Fund's
shares, and are not eligible for the dividends received deduction available to
corporations. Other dividend distributions by the Fund may, depending upon the
circumstances, be eligible for such dividends received deduction, in whole or in
part.
Generally, dividends paid by the Fund, as a regulated investment company,
are treated as received by the Trust, and thus its Unit Holders, in the taxable
year in which the distribution is made by the Fund; however, any dividend
declared by the Fund in October, November or December of any calendar year,
payable to shareholders of record on a specified date in such a month and
actually paid during January of the following year, will be treated as received
on December 31 of the preceding year.
Non-taxable Fund distributions reduce the Unit Holder's tax cost basis with
respect to his interest in Fund Shares held by the Trust and are treated as a
gain from the sale of such interest if and to the extent that such distributions
exceed the tax cost basis of the Unit Holder with respect to his interest in
Fund Shares held by the Trust.
Income received by the Fund may be subject to withholding and other taxes
imposed by foreign jurisdictions. In some instances, these taxes are limited by
treaty between the United States and the relevant foreign jurisdiction. Treaty
benefits may be available to the Fund to the same extent as they would be to
individual U.S. shareholders. However, in some situations the Fund will be
eligible for such benefits only if it can establish that a minimum specified
percentage of the capital of the Fund is owned directly or indirectly by
individual residents or citizens of the United States.
The Code places a floor of 2% of adjusted gross income on miscellaneous
itemized deductions, including investment expenses, of individuals (and estates
and trusts other than grantor trusts, to the extent provided in the
regulations). The Code also directs the Secretary of the Treasury to issue
regulations prohibiting indirect deductions through a mutual fund or other
pass-through entity of amounts not allowable as a deduction under this rule if
paid or incurred directly by such an investor, but such regulations are not to
apply to indirect deductions through a ``publicly offered regulated investment
company,'' which the Fund is believed to be. The 2% floor rule will, however,
apply in any event to investment expenses
B-18
<PAGE>
of the Trust, as opposed to the Fund, and affected Unit Holders should aggregate
such expenses with their other miscellaneous deductions in applying the 2% rule.
The Fund will file its 1994 information returns as a ``publicly offered
regulated investment company.'' The Trust cannot predict whether or not the Fund
will qualify as a ``publicly offered regulated investment company'' for 1994 or
any later year. The term ``publicly offered regulated investment company'' is
defined as meaning a regulated investment company the shares of which are
``continuously offered'' or regularly traded on an established securities market
or ``held by or for no fewer than 500 persons at all times during the taxable
year.''
In addition, under the Code, the allowable amount of certain itemized
deductions claimed by individual taxpayers, including investment expenses, is
subject to an overall limitation applicable to individual taxpayers with
adjusted gross income in excess of a $114,700 threshold amount ($57,350 for a
married taxpayer filing separately). The $114,700 (or $57,350) threshold amount
will be indexed for inflation after 1995. The overall limitation reduces the
otherwise allowable amount of the affected itemized deductions by the lesser of
(i) 3% of the adjusted gross income in excess of the threshold amount or (ii)
80% of the amount of otherwise allowable affected itemized deductions. The other
limitations contained in the Code on the deduction of itemized expenses,
including the 2% floor described above, are applied prior to this overall
limitation.
The Code also imposes a 4% excise tax on untaxed undistributed income of
regulated investment companies. If the Fund distributes in each calendar year an
amount equal to the sum of a least 98% of its ordinary income for such calendar
year and 98% of its capital gain net income for the 12 month period ended on
October 31 of each calendar year (or on December 31 if the Fund qualifies to so
elect and does so) and distributes an amount equal to the 2% balances not later
than the close of the succeeding calendar year, the Fund will not be subject to
this 4% excise tax. For purposes of this excise tax, any net long-term capital
gain in excess of net short-term capital loss retained by the Fund for any
fiscal year ending on or before the close of the calendar year but designated as
undistributed capital gains taxable to shareholders as described above is
treated as if distributed to the Fund's shareholders.
The Fund may invest in passive foreign investment companies, various options
and futures contracts and hedging transactions and may be subject to foreign
currency fluctuations, all of which have unique Federal income tax consequences.
Such investments and currency fluctuations may affect the character, timing and
amount of gain or ordinary income to be recognized by persons holding Fund
Shares.
Interest paid by a Unit Holder other than a corporation on indebtedness
properly allocable to Units will be deductible as investment interest to the
extent permitted by Section 163(d) of the Code.
As of the end of each calendar year, the Trustee will furnish to each Unit
Holder an annual statement containing information relating to the dividends
(including capital gain dividends) received or deemed received, rebated 12b-1
fees received from the Sponsor, discount accrued on the Securities, the gross
proceeds received by the Trust from the disposition of any Security (resulting
from redemption or payment at maturity of any Security or the sale by the Trust
of any Security), and the fees and expenses paid by the Trust.
The foregoing discussion relates only to United States federal income taxes.
Unit Holders may be subject to state, local or foreign taxation.
Investors should consult their tax counsel for advice with respect to their
own particular tax situations.
RETIREMENT PLANS
Units in the Trust may be suitable for purchase by Individual Retirement
Accounts, Keogh Plans, pension funds and other qualified retirement plans.
Investors considering participation in any such plan should review the laws
specifically related thereto and should consult their attorneys or tax advisers
with respect to the establishment and maintenance of any such plan.
PUBLIC OFFERING OF UNITS
Public Offering Price
The Public Offering Price of the Units during the initial offering period is
computed by adding to the aggregate offering side evaluation of the Treasury
Obligations the aggregate net asset value of Fund Shares in the Trust, dividing
such sum by the number of Units outstanding and then adding a sales charge of
5.00% of the Public Offering Price
B-19
<PAGE>
(5.263% of the net amount invested). Money in the Income and Principal Accounts
other than money required to redeem previously tendered Units will be added to
the Public Offering Price.
After the initial public offering period, the Public Offering Price of the
Units will be computed by adding to the aggregate bid side evaluation of the
Treasury Obligations the aggregate net asset value of Fund Shares in the Trust,
dividing such sum by the number of Units outstanding and then adding a sales
charge of 5.00% of the Public Offering Price (5.263% 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
during the initial offering period on the basis of the offering prices of the
Treasury Obligations (determined by the Evaluator) and the net asset value of
the Fund Shares as determined by the Fund, and following the initial offering
period on the basis of the bid prices for the Treasury Obligations (determined
by the Evaluator) and the net asset value of the Fund Shares as determined by
the Fund.
On a recent date, the Public Offering Price per Unit (based on
the offering side evaluation of the Treasury Obligations and the net asset
value of the Fund Shares in the Trust) exceeded the Redemption Price and the
Sponsor's Secondary Market Repurchase Price per Unit (each based upon the bid
side evaluation of the Treasury Obligations and the net asset value of Fund
Shares in the Trust) by the amounts set forth in ``Summary of Essential
Information.''
Public Distribution
During the initial public offering period (i) for Units issued on the Date
of Deposit and (ii) for additional Units issued after such date in respect of
additional deposits of Securities, Units will be distributed to the public by
the Sponsor and through dealers at the Public Offering Price, calculated on each
business day. The initial offering period is 30 days unless all Units are sold
prior thereto, whereupon the initial public offering period will terminate. The
initial public offering period may be extended by the Sponsor so long as
additional deposits are being made or Units remain unsold. Upon termination of
the initial offering period, in each case, unsold Units or Units acquired by the
Sponsor in the secondary market referred to below may be offered to the public
by this Prospectus at the then current Public Offering Price calculated daily.
The Sponsor intends to qualify Units in states selected by the Sponsor for
sale by the Sponsor and through dealers who are members of the National
Association of Securities Dealers, Inc. Sales to dealers will be made at prices
which include a concession of 68% of the sales charge 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 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.
B-20
<PAGE>
If the supply of Units exceeds demand (or for any other business reason),
the Sponsor may, at any time, occasionally, from time to time, or permanently,
discontinue the repurchase of Units of this Series at the Sponsor's Repurchase
Price, without notice. In such event, although under no obligation to do so, the
Sponsor may, as a service to Unit Holders, offer to repurchase Units at the
``Redemption Price,'' a price based on the current bid prices for the Treasury
Obligations and the net asset value of the Fund Shares. Alternatively, Unit
Holders may redeem their Units through the Trustee.
Profit of Sponsor
The Sponsor receives a sales charge on the Units as indicated herein in the
chart below under ``Volume Discount.'' On the sale of Units to dealers, the
Sponsor will retain the difference between the dealer concession and the sales
charge (see ``Public Distribution'').
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. During the initial offering period, to the extent
additional Units continue to be issued and offered for sale to the public, the
Sponsor may realize additional profit (or sustain a loss) due to daily
fluctuations in the offering prices of the Treasury Obligations and in the net
asset value of the Fund Shares in the Trust and thus in the Public Offering
Price of Units received by the Sponsor. Cash, if any, received by the Sponsor
from the Unit Holders prior to the settlement date for purchase of Units or
prior to the payment for Securities upon their delivery may be used in the
Sponsor's business to the extent permitted by applicable regulations and may be
of benefit to the Sponsor.
The Sponsor may also realize profits (or sustain losses) while maintaining a
secondary market in the Units, in the amount of any difference between the
prices at which the Sponsor buys Units and the prices at which the Sponsor
resells such Units or the prices at which the Sponsor redeems such Units, as the
case may be.
Volume Discount
Although under no obligation to do so, the Sponsor intends to permit volume
purchasers of Units to purchase Units at a reduced sales charge. The Sponsor may
at any time upon prior notice to Unit Holders change the amount by which the
sales charge is reduced, or may discontinue the discount altogether.
The sales charges for the Trust in the primary and secondary market will be
reduced pursuant to the following graduated scale for sales to any person of at
least 2,000 Units.
<TABLE>
<CAPTION>
Sales Charge
Primary and Secondary Market
-----------------------------------------
Percent Percent
of Public of Net
Offering Amount Dealer
Number of Units Price Invested Concession
- -------------------------------------------------------------------- ---------- -------- ----------
<S> <C> <C> <C>
Less than 2,000 Units............................................... 5.00% 5.263% 65%
2,000-7,999 Units................................................... 4.75% 4.986% 65%
8,000-19,999 Units.................................................. 4.25% 4.358% 70%
20,000-39,999 Units................................................. 3.75% 3.896% 73%
40,000-79,999 Units................................................. 3.00% 3.092% 75%
80,000 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.
B-21
<PAGE>
Employee Discount
The Sponsor intends, at the discretion of the Sponsor, to permit employees
of Prudential Securities Incorporated and its subsidiaries and affiliates to
purchase Units of the Trust at a price based on the offering side evaluation of
the Treasury Obligations and the net asset value of Fund Shares in the Trust
plus a reduced sales charge of $5.00 per 100 Units, subject to a limit of 5% of
the Units.
EXCHANGE OPTION
Unit Holders may elect to exchange any or all of their Units of this Series
of the Government Securities Equity Trust for units of one or more of any other
series in the Prudential Securities Incorporated family of unit investment
trusts (except Series of Government Securities Equity Trust) or for any units of
any additional trusts that may from time to time be made available for such
exchange by the Sponsor (collectively referred to as the ``Exchange Trusts'').
Such units may be acquired at prices based on reduced sales charges per unit.
The purpose of such reduced sales charge is to permit the Sponsor to pass on to
the Unit Holder who wishes to exchange Units the cost savings resulting from
such exchange of Units. The cost savings result from reductions in the time and
expense related to advice, financial planning and operational expense required
for the Exchange Option.
Exchange Trusts may have different investment objectives; a Unit Holder
should read the prospectus for the applicable Exchange Trust carefully to
determine its investment objective prior to exercise of this option.
This option will be available provided the Sponsor maintains a secondary
market in both the Units of this Series and units of the applicable Exchange
Trust and provided that units of the applicable Exchange Trust are available for
sale and are lawfully qualified for sale in the jurisdiction in which the Unit
Holder is a resident. While it is the Sponsor's present intention to maintain a
secondary market for the units of all such trusts, there is no obligation on its
part to do so. Therefore, there is no assurance that a market for units will in
fact exist on any given date on which a Unit Holder wishes to sell or exchange
his Units; thus there is no assurance that the Exchange Option will be available
to any Unit Holder. The Sponsor reserves the right to modify, suspend or
terminate this option at any time without further notice to Unit Holders. In the
event the Exchange Option is not available to a Unit Holder at the time he
wishes to exercise it, the Unit Holder will be immediately notified and no
action will be taken with respect to his Units without further instruction from
the Unit Holder.
To exercise the Exchange Option, a Unit Holder should notify the Sponsor of
his desire to exchange his Units for one or more units of the Exchange Trusts.
If units of the applicable outstanding series of the Exchange Trust are at that
time available for sale, the Unit Holder may select the series or group of
series for which he desires his Units to be exchanged. The Unit Holder will be
provided with a current prospectus or prospectuses relating to each series in
which he indicates interest.
Units of the Exchange Trust trading in the secondary market maintained by
the Sponsor, if so maintained, will be sold to the Unit Holder at a price equal
to the evaluation price per unit of the securities in that portfolio and the
applicable sales charge of $15 per unit of the Exchange Trust. The reduced sales
charge for units of any Exchange Trust acquired during the initial offering
period for such units will result in a price for such units equal to the
offering side evaluation per unit of the securities in the Exchange Trust's
portfolio plus accrued interest plus a reduced sales charge of $25 per Exchange
Trust unit. The reduced sales charge for a unit holder of an Exchange Trust
exchanging into this series of Government Securities Equity Trust will be $.23
per Unit for Units purchased in the secondary market and $.37 per Unit for Units
purchased during the initial offering period. Exchange transactions will be
effected only in whole units; thus, any proceeds not used to acquire whole units
will be paid to the exchanging Unit Holder unless the Unit Holder adds the
amount of cash necessary to purchase one additional whole Exchange Trust unit.
Owners of units of any registered unit investment trust, other than
Prudential Securities Incorporated sponsored trusts, which was initially offered
at a minimum applicable sales charge of 3.0% of the public offering price
exclusive of any applicable sales charge discounts, may elect to apply the cash
proceeds of sale or redemption of those units directly to acquire units of any
Exchange Trust trading in the secondary market at the reduced sales charge of
$20 per Unit, subject to the terms and conditions applicable to the Exchange
Option. To exercise this option, the owner should notify his retail broker. He
will be given a prospectus of each series in which he indicates interest, units
of which are available. The Sponsor reserves the right to modify, suspend or
terminate the option at any time without further notice, including the right to
increase the reduced sales charge applicable to this option (but not in excess
of $5 more per unit than the corresponding fee then charged for a unit of an
Exchange Trust which is being exchanged).
B-22
<PAGE>
For example, assume that a Unit Holder, who has three units of a Trust with
a 4.25% sales charge and a current price of $1,100 per unit, sells his units and
exchanges the proceeds for units of a series of an Exchange Trust with a current
price of $950 per unit and an ordinary sales charge of 4.25%. The proceeds from
the Unit Holder's units will aggregate $3,300. Since only whole units of an
Exchange Trust may be purchased under the Exchange Option, the Holder would be
able to acquire four units in the Exchange Trust for a total cost of $3,860
($3,800 for units and $60 for the $15 per unit sales charge) by adding an extra
$560 in cash. Were the Unit Holder to acquire the same number of units at the
same time in the regular secondary market maintained by the Sponsor, the price
would be $3,968.68 [$3,800 for the units and $168.68 for the 4.25% sales charge
(4.439% of the net amount invested)].
Federal Income Tax Consequences
An exchange of Units pursuant to the Exchange Option will constitute a
``taxable event'' under the Code, i.e., a Unit Holder will recognize gain or
loss at the time of the exchange except that upon an exchange of Units of this
Series of the Government Securities Equity Trust for units of any other series
of the Exchange Trusts which are grantor trusts for United States federal income
tax purposes the Internal Revenue Service may seek to disallow any loss incurred
upon such 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. Unit Holders are
advised to consult their own tax advisors as to the tax consequences of
exchanging Units in their particular case. In particular, Unit Holders who
exchange Units of this Series of the Government Securities Equity Trust for
units of any other series of Exchange Trusts within 91 days of acquisition of
the Units should consult their tax advisors as to the possible application of
Section 852(f) of the Code to the exchange.
REINVESTMENT OF TRUST DISTRIBUTIONS
Distributions by the Trust, if any, of dividend income received by the
Trust, 12b-1 fee amounts paid by the Sponsor, distributions of any net capital
gains received in respect of Fund Shares and proceeds of the sale of Fund Shares
not used to redeem Units will be made quarterly on or shortly after the
Quarterly Distribution Date to Unit Holders of record on the Quarterly Record
Date immediately preceding such Quarterly Distribution Date. A Unit Holder will
receive such amounts in cash unless such Unit Holder directs The Chase Manhattan
Bank (National Association), 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 the Distributor.
Fees
The Trustee will receive for its services under the Indenture an annual fee
in the amount set forth in the ``Summary of Essential Information.''
For each evaluation of the Treasury Obligations in the Trust, the Evaluator
shall receive a fee as set forth in the ``Summary of Essential Information.''
The Trustee's fees and the Evaluator's fees are payable quarterly on or
before each Distribution Date from the Income Account, to the extent funds are
available therein and thereafter from the Principal Account. Any of such fees
may be increased without approval of the Unit Holders in proportion to increases
under the classification ``All Services Less Rent'' in the Consumer Price Index
published by the United States Department of Labor. The Trustee also receives
benefits to the extent that it holds funds on deposit in various non-interest
bearing accounts created under the Agreement.
B-23
<PAGE>
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-24
<PAGE>
Government Securities Equity Trust
REINVESTMENT APPLICATION
I/We hereby authorize and direct The Chase Manhattan Bank (National Association)
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 Prudential Equity Fund, Inc.
I/We hold Government Securities Equity Trust Series 8
(This Series can only reinvest into the Prudential Equity Fund, Inc.)
The authorization shall continue in effect until written notice of revocation is
given by the certificate holder or his personal representatives.
<TABLE>
<S> <C>
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:
- ---------------------------------------------------------------------
</TABLE>
Forward application to: The Chase Manhattan Bank
(National Association)
P.O. Box 834
New York, NY 10003
<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-25
<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
balances 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 of 770 Broadway, New York, New York 10003, upon delivery of a
request for redemption and the Certificates for the Units requested to be
redeemed and payment of any relevant tax. At the present time there are no
specific taxes related to the redemption of the Units. No redemption fee will be
charged by the Sponsor or the Trustee. Units redeemed by the Trustee will be
cancelled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer, although redemptions without
the necessity of Certificate presentation will be effected for record Unit
Holders for whom Certificates have not been issued. Unit Holders must sign
exactly as their name appears on the face of the Certificate with the signature
guaranteed by an officer of a national bank or trust company or by a member firm
of either the New York, Midwest or Pacific Stock Exchanges or other financial
institution acceptable to the Trustee, if any. In certain instances the Trustee
may require additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority.
Within seven calendar days following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto, the Unit
Holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in the ``Summary of Essential Information'' on the date of tender (see
``Redemption--Computation of Redemption Price per Unit''). The ``date of
tender'' is deemed to be the date on which Units are received by the Trustee,
except that as regards Units received after the Evaluation Time, the date of
tender is the next day on which such Exchange is open for trading, and such
Units will be deemed to have been tendered to the Trustee on such day for
redemption at the Redemption Price computed on that day.
There is no sales charge incurred when a Unit Holder tenders his Units to
the Trustee for redemption. All amounts paid on redemption representing income
will be withdrawn from the Income Account to the extent moneys are available;
all other amounts will be paid from the Principal Account. The Trustee is
required by the Indenture to sell Fund Shares and Treasury Obligations, to the
extent possible in the same ratio as the ratio of Fund Shares and Treasury
Obligations then held in the Trust, in order to provide moneys for redemption of
Units tendered. To the extent Securities are sold, the size of the Trust will be
reduced. Such sales could result in a loss to the Trust. The redemption of a
Unit for cash will constitute a taxable event for the Unit Holder under the Code
(see ``Tax Status of the Trust'').
B-26
<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, and (c) cash held with
respect to previously tendered Units or for distribution to Unit Holders of
record as of a date prior to the evaluation, and (d) any Reserve Account
(``Redemption Price'').
The right of redemption may be suspended and payment of the Redemption Price
per Unit postponed for more than seven calendar days following a tender of Units
for redemption for any period during which the New York Stock Exchange is
closed, other than for weekend and holiday closing, or trading on that Exchange
is restricted or during which (as determined by the Securities and Exchange
Commission) an emergency exists as a result of which disposal or evaluation of
the Securities is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit. Neither the Trustee nor
the Sponsor is liable to any person or in any way for any loss or damage that
may result from any such suspension or postponement.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE
While the Public Offering Price of Units during the initial offering period
is determined on the basis of the current offering price of the Treasury
Obligations and the net asset value of Fund Shares, the Public Offering Price of
Units in the secondary market and the Redemption Price of Units are determined
on the basis of the current bid prices of the Treasury Obligations and the net
asset value of the Fund Shares. The bid prices for the Securities are expected
to be less than the offering prices. The amount realized by a Unit Holder upon
any redemption of Units may be less than the price paid by him for such Units.
SPONSOR
Prudential Securities Incorporated (``Prudential Securities'') 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, 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 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 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.
B-27
<PAGE>
Prudential Securities is distributor for Prudential Government Securities
Trust (Intermediate Term Series), The Target Portfolio Trust, and for Class B
shares of Prudential Adjustable Rate Securities Fund, Inc., and for Class B and
C shares of The Blackrock Government Income Trust, Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Allocation Fund, Prudential California Municipal Fund (California
Income Series and California Series), Prudential Diversified Bond Fund, Inc.,
Prudential Europe Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Global Fund, Inc., Prudential Global Genesis
Fund, Inc., Prudential Global Natural Resources Fund, Inc., Prudential GNMA
Fund, Inc., Prudential Government Income Fund, Inc., Prudential Growth
Opportunity Fund, Inc., Prudential High Yield Fund, Inc., Prudential
IncomeVertible(R) Fund, Inc., Prudential Intermediate Global Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund (except Connecticut Money Market Series, Massachusetts
Money Market Series, New York Money Market Series and New Jersey Money Market
Series), Prudential National Municipals Fund, Inc., Prudential Pacific Growth
Fund, Inc., Prudential Short-Term Global Income Fund, Inc., Prudential
Strategist Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential
U.S. Government Fund, Prudential Equity Fund, Inc. and Prudential Utility Fund,
Inc.
On October 21, 1993, Prudential Securities entered into an omnibus
settlement with the Securities and Exchange Commission (the ``SEC''), state
securities regulators (with the exception of the Texas Securities Commissioner
who joined the settlement on January 18, 1994) and the National Association of
Securities Dealers, Inc. (the ``NASD'') to resolve allegations that from 1980
through 1990 Prudential Securities sold certain limited partnership interests in
violation of securities laws to persons for whom such securities were not
suitable and misrepresented the safety, potential returns and liquidity of these
investments. Without admitting or denying the allegations asserted against it,
Prudential Securities consented to the entry of an SEC Administrative Order
which stated that Prudential Securities conduct violated the federal securities
laws, directed Prudential Securities to cease and desist from violating the
federal securities laws, pay civil penalties, and adopt certain remedial
measures to address the violations.
Pursuant to the terms of the SEC settlement, Prudential Securities agreed to
the imposition of $10,000,000 civil penalty, established a settlement fund in
the amount of $300,000,000 and procedures to resolve legitimate claims for
compensatory damages by purchasers of the partnership interests. Prudential
Securities settlement with the state securities regulators included an agreement
to pay a penalty of $500,000 per jurisdiction. Prudential Securities consented
to a censure and to the payment of a $5,000,000 fine in settling the NASD
action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that Prudential
Securities committed fraud in connection with the sale of certain limited
partnership interests in violation of federal securities laws. An agreement was
simultaneously filed to defer prosecution of these charges for a period of three
years from the signing of the agreement, provided that Prudential Securities
complies with the terms of the agreement. If, upon completion of the three year
period, Prudential Securities has complied with the terms of the agreement, no
prosecution will be instituted by the United States for the offenses charged in
the complaint. If on the other hand, during the course of the three year period,
Prudential Securities violates the terms of the agreement, the U.S. Attorney can
then elect to pursue these charges. Under the terms of the agreement, Prudential
Securities agreed, among other things, to pay an additional $300,000,000 into
the fund established by the SEC to pay restitution to investors who purchased
certain Prudential Securities limited partnership interests.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising from
its responsibilities under the Indenture, but will be under no liability to Unit
Holders for taking any action or refraining from taking any action in good faith
or for errors in judgment and will not be responsible in any way for any
default, failure or defect in any Security or for depreciation or loss incurred
by reason of the sale of any Securities, except in cases of willful misfeasance,
bad faith, gross negligence or reckless disregard for its obligations and duties
(see ``Sponsor--Responsibility'').
Responsibility
The Trust is not a managed registered investment company. Securities will
not be sold by the Trustee to take advantage of ordinary market fluctuations.
Although the Sponsor and Trustee do not presently intend to dispose of
Securities, the Indenture permits the Sponsor to direct the Trustee to dispose
of any Security in the Trust for the purpose of redeeming Units tendered for
redemption and to dispose of Fund Shares to pay Trust expenses.
B-28
<PAGE>
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 (National Association), a national
banking association with its principal executive office at 1 Chase Manhattan
Plaza, New York, New York, 10081 and its unit investment trust office at 770
Broadway, New York, New York 10003. The Trustee is subject to supervision by the
Comptroller of the Currency, the Federal Deposit Insurance Corporation and the
Board of Governors of the Federal Reserve System. In connection with the storage
and handling of certain Securities deposited in the Trust, the Trustee may use
the services of The Depository Trust Company. These services may include
safekeeping of the Securities and coupon-clipping, computer book-entry transfer
and institutional delivery services. The Depository Trust Company is a limited
purpose trust company organized under the Banking Law of the State of New York,
a member of the Federal Reserve System and a clearing agency registered under
the Securities Exchange Act of 1934.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of the disposition of any moneys, Securities or
Certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. In addition, the Indenture provides that the Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of the Trust which the Trustee may be required to pay
under current or future laws of the United States or any other taxing authority
having jurisdiction.
Responsibility
The Trustee shall not be liable for any default, failure or defect in any
Security or for any depreciation or loss by reason of any such sale of Fund
Shares or by reason of the failure of the Sponsor to give directions to the
Trustee.
Additionally, the Trustee may sell Securities designated by the Sponsor, or
if not so directed, in its own discretion, for the purpose of redeeming Units
tendered for redemption. Fund Shares will be sold first unless the Sponsor is
able to sell Treasury Obligations and Fund Shares in the proportionate
relationship between the maturity values of the Treasury Obligations and the
number of Fund Shares.
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 the information relating to the responsibilities of the Trustee under
the Indenture, reference is also made to the material set forth under ``Rights
of Unit Holders'' and ``Sponsor--Resignation.''
Resignation
By executing an instrument in writing and filing the same with the Sponsor,
the Trustee and any successor may resign. In such an event the Sponsor is
obligated to appoint a successor trustee as soon as possible. If the Trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint a successor
as provided in the Indenture. The Sponsor may also remove the Trustee for any
other reason that the Sponsor determines to be in the best interest of the Unit
Holders. Such resignation or removal shall become effective upon the acceptance
of appointment by the successor trustee. If upon resignation of a trustee no
successor has been appointed and has accepted the appointment within thirty days
after notification, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of a
trustee becomes effective only when the successor trustee accepts its
appointment as such or when a court of competent
B-29
<PAGE>
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 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.
B-30
<PAGE>
Within a reasonable period after termination, the Trustee will sell any
Securities remaining in the Trust (other than Fund Shares for which an in kind
distribution has been requested) and, after paying all expenses and charges
incurred by the Trust, will distribute to each Unit Holder, upon surrender for
cancellation of his Certificate for Units, his pro rata share of: (i) the amount
realized upon disposition of the Fund Shares unless the Unit Holder notifies the
Trustee in writing of his preference for distribution ``in kind,'' (ii) the
amount realized upon the disposition or maturity of the Treasury Obligations and
(iii) any other assets of the Trust. A Unit Holder may invest the proceeds of
the Treasury Obligations in Fund Shares at such shares' net asset value, which
shall be subject to 12b-1 expenses. The sale of the Securities in the Trust upon
termination may result in a lower amount than might otherwise be realized if
such sale were not required at such time and, therefore, the amount realized by
a Unit Holder on termination may be less than the principal amount of Treasury
Obligations represented by the Units held by such Unit Holder.
Tax Impact of In Kind Distribution Upon Termination
Under the position taken by the Internal Revenue Service in Revenue Ruling
90-7, a distribution by the Trustee to a Unit Holder (or to his agent) of his
pro rata share of the Fund Shares in kind upon termination of the Trust will not
be a taxable event to the Unit Holder. Such Unit Holder's basis for Fund Shares
so distributed (other than any Fund Shares purchased with his pro rata share of
the proceeds of Treasury Obligations) will be equal to his basis for the same
Fund Shares (previously represented by his Units) prior to such distribution and
his holding period for such Fund Shares will be the shorter of the period during
which he held his Units and the period for which the Securities were held in the
Trust. A Unit Holder will have a taxable gain or loss, which will be a capital
gain or loss except in the case of a dealer or a financial institution, when the
Unit Holder disposes of such Securities in a taxable transfer.
LEGAL OPINIONS
The legality of the Units offered hereby has been passed upon by Messrs.
Cahill Gordon & Reindel, a partnership including a professional corporation, 80
Pine Street, New York, New York 10005, as special counsel for the Sponsor.
INDEPENDENT AUDITORS
The Statement of Financial Condition and Schedule of Portfolio Securities of
the Government Securities Equity Trust included in this Prospectus have been
audited by Deloitte & Touche 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 8
Table of Contents
Page
-----
<S> <C>
Summary of Essential Information........................ A-iv
Independent Auditors' Report............................
Statement of Financial Condition........................
Schedule of Portfolio Securities........................
The Trust............................................... B-1
Trust Formation..................................... B-1
Securities Selection................................ B-2
Stripped U.S. Treasury Obligations.................. B-2
Prudential Equity Fund, Inc......................... B-3
General Information Regarding the Fund.............. B-3
Investment Policies and Restrictions of the Fund.... B-5
Net Asset Value of the Fund Shares.................. B-12
The Fund's Investment Manager....................... B-13
The Fund's Plan of Distribution..................... B-14
Risk of Investment in Units......................... B-15
Fund Risk Factors................................... B-15
The Units........................................... B-16
Tax Status of the Trust................................. B-16
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-21
Volume Discount..................................... B-21
Employee Discount................................... B-22
Exchange Option......................................... B-22
Federal Income Tax Consequences..................... B-23
Reinvestment of Trust Distributions..................... B-23
Expenses and Charges.................................... B-23
Initial Expenses.................................... B-23
Fees................................................ B-23
Other Charges....................................... B-24
Rights of Unit Holders.................................. B-25
Certificates........................................ B-25
Certain Limitations................................. B-25
Distributions....................................... B-25
Reports and Records................................. B-26
Redemption.......................................... B-26
Comparison of Public Offering Price and Redemption
Price................................................... B-27
Sponsor................................................. B-27
Limitations on Liability............................ B-28
Responsibility...................................... B-28
Resignation......................................... B-29
Trustee................................................. B-29
Limitations on Liability............................ B-29
Responsibility...................................... B-29
Resignation......................................... B-29
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
Tax Impact of In Kind Distribution Upon
Termination......................................... B-31
Legal Opinions.......................................... B-31
Independent Auditors.................................... B-31
</TABLE>
(LOGO)
Sponsor
Prudential Securities Incorporated
One Seaport Plaza
199 Water Street
New York, New York 10292
Trustee
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Evaluator
Kenny S&P Evaluation Services,
a division of
J.J. Kenny Co., Inc.
65 Broadway
New York, New York 10006
Fund Shares
Prudential Equity Fund, Inc.
One Seaport Plaza
199 Water Street
New York, New York 10292
<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 March 31, 1995.
**Ex-4.a - Trust Indenture and Agreement dated
May 16, 1989.
*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-27 - Financial Data Schedule.
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 l5b1-1 and l5b3-1 under the
Securities Exchange Act of 1934
(1934 Act File No. 8-16267).
*****Ex-99.2 - Affiliations of Sponsor with other
investment companies.
*****Ex-99.3 - Broker's Blanket Policies, Standard
Form No. 14 in the aggregate amount
of $62,500,000.
******Ex-99.4 - Investment Advisory Agreement.
_________________________
* 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
Government Securities Equity Trust Series 1, Registration
No. 33-25710.
II-1
<PAGE>
*** Incorporated by reference to exhibit of same designation filed
with the Securities and Exchange Commission as an exhibit to
the Registration Statement under the Securities Act of 1933 of
Government Securities Equity Trust Series 5, Registration
No. 33-57992.
**** Incorporated by reference to exhibit of same designation filed
with the Securities and Exchange Commission as an exhibit to
the Registration Statement under the Securities Act of 1933 of
National Municipal Trust, Series 172, Registration
No. 33-54681.
***** Incorporated by reference to exhibit of same designation filed
with the Securities and Exchange Commission as an exhibit to
the Registration Statement under the Securities Act of 1933 of
Prudential Unit Trusts, Insured Tax-Exempt Series 1,
Registration No. 2-89263.
****** Incorporated by reference to exhibit of same designation filed
with the Securities and Exchange Commission as an exhibit to
the Registration Statement under the Securities Act of 1933 of
National Municipal Trust, Insured Series 43, Registration No.
33-29314.
******* 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 177, Registration
No. 33-57845.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Government Securities Equity Trust Series 8 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 21st day of May, 1996.
Government Securities Equity Trust Series 8
(Registrant)
By PRUDENTIAL SECURITIES INCORPORATED
(Depositor)
By the following persons,* who
constitute a majority of the
Board of Directors of Prudential
Securities Incorporated
Alan D. Hogan
George A. Murray
Leland B. Paton
Vincent T. Pica
Richard A. Redeker
Hardwick Simmons
Lee B. Spencer, Jr.
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 of our report dated May 6, 1996, accompanying the
financial statements of the Government Securities Equity Trust Series 8
included herein and to the reference to our Firm as experts under the
heading "Auditors" in the prospectus which is a part of this registration
statement.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
May 20, 1996
New York, New York
II-5
<PAGE>
Exhibit 23
Letterhead of Kenny S&P Evaluation Services
(a division of J.J. Kenny Co., Inc.)
May 22, 1996
Prudential Securities Incorporated
1 New York Plaza
New York, NY 10292
Re: Government Securities Equity Trust Series 8
Post-Effective Amendment No. 1
Gentlemen:
We have examined the post-effective Amendment to the
Registration Statement File No. 33-56297 for the above-
captioned trust. We hereby acknowledge that Kenny S&P
Evaluation Services, a division of J.J. Kenny Co., Inc. is
currently acting as the evaluator for the trust. We hereby
consent to the use in the Registration Statement of the
references to Kenny S&P Evaluation Services, a division of J.J.
Kenny Co., Inc. as evaluator.
In addition, we hereby confirm that the ratings
indicated in the above-referenced Amendment to the Registration
Statement for the respective bonds comprising the trust
portfolio are the ratings currently indicated in our KENNYBASE
database as of the date of the evaluation report.
You are hereby authorized to file a copy of this
letter with the Securities and Exchange Commission.
Sincerely,
Frank A. Ciccotto
Frank A. Ciccotto
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR GSET SERIES 8 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<CIK> 0000907011
<NAME> GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
<SERIES>
<NAME> GOVERNMENT SECURITIES EQUITY TRUST SERIES 8
<NUMBER> 1
<MULTIPLIER> 1
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-22-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 26,967,373
<INVESTMENTS-AT-VALUE> 31,961,900
<RECEIVABLES> 20,286
<ASSETS-OTHER> 8,960
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31,991,146
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,732
<TOTAL-LIABILITIES> 4,732
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,967,535
<SHARES-COMMON-STOCK> 2,150,000
<SHARES-COMMON-PRIOR> 100,000
<ACCUMULATED-NII-CURRENT> 24,352
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,994,527
<NET-ASSETS> 31,986,414
<DIVIDEND-INCOME> 222,722
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,617,883
<EXPENSES-NET> 20,044
<NET-INVESTMENT-INCOME> 1,251,718
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 4,994,527
<NET-CHANGE-FROM-OPS> 6,815,088
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 209,370
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 568,680
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 30,798,903
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
