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[LOGO] Rule 497(b)
Registration No. 33-51009
EQUITY SECURITIES TRUST SERIES 4
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GABELLI VALUE FUND AND U.S. TREASURIES
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EquiT 's
The Trust is a unit investment trust designated Equity Securities Trust, Series
4, EquiT's ('Trust'). The Sponsor is Bear, Stearns & Co. Inc. The objectives of
the Trust are to seek to achieve safety of capital through investment in
stripped United States Treasury issued notes or bonds paying no current interest
('Treasury Obligations') and to attempt to provide for capital appreciation
through investment in shares of The Gabelli Value Fund Inc. (the 'Fund'), a
non-diversified, open-end Management Investment Company (the Treasury
Obligations and Fund Shares collectively, the 'Securities'). The objective of
the Fund is long-term capital appreciation which the Fund attempts to achieve by
investing primarily in equity securities of companies that the Fund's investment
adviser, Gabelli Funds, Inc., believes are undervalued and that by virtue of
anticipated developments or catalysts particularly applicable to such companies
may, in the adviser's judgement, achieve significant appreciation. The
allocation between the Treasury Obligations and the Fund would seek to assure
that an investor purchasing units in the Trust at inception would at least
receive back the original unit purchase price at the termination of the Trust
from the maturity value of the Treasury Obligations. The Sponsor can not give
assurance that the Trust's objectives can be achieved. There are certain risks
inherent in an investment in the Fund and Treasury Obligations. See 'Special
Risk Considerations' in Part A and 'Risk Factors' in Part B of this Prospectus.
Minimum Purchase: 100 Units
This Prospectus consists of two parts. Part A contains the Summary of Essential
Information including descriptive material relating to the Trust, and the
Statement of Condition of the Trust. Part B contains general information about
the Trust. Part A may not be distributed unless accompanied by Part B.
PLEASE READ AND RETAIN BOTH PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS PART A DATED JANUARY 21, 1994
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EQUITY SECURITIES TRUST, SERIES 4, EQUIT'S
SUMMARY OF ESSENTIAL INFORMATION AS OF JANUARY 20, 1994*
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INITIAL DATE OF DEPOSIT: JANUARY 21, 1994
AGGREGATE MATURITY VALUE OF TREASURY
OBLIGATIONS INITIALLY DEPOSITED......... $300,000
AGGREGATE NUMBER OF FUND SHARES INITIALLY
DEPOSITED............................... 9,896
INITIAL NUMBER OF UNITS................... 20,000
FRACTIONAL UNDIVIDED INTEREST IN TRUST.... 1/20,000
PUBLIC OFFERING PRICE**
Aggregate offering side evaluation of
Treasury Obligations in Trust......... $118,101
Aggregate Net Asset Value of Fund Shares
in Trust.............................. $119,643
Total................................... $237,744
Divided By 20,000 Units (times 100)..... $1,188.72
Plus Sales Charge of 4.9% of Public
Offering Price per 100 Units.......... $61.24
Public Offering Price per 100 Units++... $1,249.96
REDEMPTION PRICE PER 100 UNITS+++......... $1,185.51
SPONSOR'S INITIAL REPURCHASE PRICE PER 100
UNITS................................... $1,188.72
EXCESS OF PUBLIC OFFERING PRICE OVER
REDEMPTION PRICE PER 100 UNITS.......... $64.45
EXCESS OF SPONSOR'S INITIAL REPURCHASE
PRICE OVER REDEMPTION PRICE PER 100
UNITS................................... $3.21
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EVALUATION TIME: 4:00 p.m. New York Time.
MINIMUM PRINCIPAL DISTRIBUTION: $1.00 per 100 Units
LIQUIDATION PERIOD: Beginning 60 days prior to the
Mandatory Termination Date.
MINIMUM VALUE OF TRUST: The Trust may be terminated if
the value of the Trust is less than 40% of the
aggregate value of the Securities at the completion
of the Deposit Period.
MANDATORY TERMINATION DATE: The earlier of August 15,
2008 or the disposition of the last Security in the
Trust.
TRUSTEE: United States Trust Company of New York.
TRUSTEE'S ANNUAL FEE***: $.93 per 100 Units
outstanding.
SPONSOR: Bear, Stearns & Co. Inc.
EVALUATOR: Kenny S&P Evaluation Services
EVALUATOR'S FEE FOR EACH EVALUATION OF TREASURY
OBLIGATIONS: $5.00 per evaluation.
RECORD DATE+: First of January, Annually.
DISTRIBUTION DATE+: Fifteenth of January, Annually.
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* The business day prior to the Initial Date of Deposit. The Initial Date of
Deposit is the date on which the Trust Agreement was signed and the initial
deposit of Securities with the Trustee made.
** Per 100 Units.
*** Any Rule 12b-1 fees paid by the Fund's distributor to the Trustee for
performing servicing functions with respect to the Fund Shares will be used to
reduce directly the expenses and fees otherwise payable by the Trust to the
Trustee.
+ The first distribution will be made on January 15, 1995 (the 'First
Distribution Date') to all Certificateholders of record on January 1, 1995 (the
'First Record Date').
++ On the Initial Date of Deposit there will be no cash in the Income or
Principal Accounts. Anyone purchasing Units after such date will have included
in the Public Offering Price a pro rata share of any cash in such Accounts.
+++ Based on bid side evaluations of underlying Treasury Obligations and net
asset value of the Fund Shares.
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THE TRUST
The Trust is a unit investment trust designated Equity Securities Trust, Series
4, EquiT's. The Sponsor is Bear, Stearns & Co. Inc. The Trust consists of
stripped United States Treasury issued notes or bonds bearing no current
interest (the 'Treasury Obligations') and shares (the 'Fund Shares') of The
Gabelli Value Fund Inc. (the 'Fund'), a non-diversified, open-end Management
Investment Company, or contracts and funds for the purchase thereof (the
Treasury Obligations and Fund Shares, collectively, the 'Securities'). The Trust
contains Treasury Obligations maturing approximately 14 years from the Date of
Deposit. The objectives of the Trust are to attempt to obtain safety of capital
through investment in Treasury Obligations and to attempt to provide for capital
appreciation through investment in shares of the Fund. The objective of the Fund
is long-term capital growth which the Fund attempts to achieve by investing
primarily in equity securities of companies that the Fund's investment adviser,
Gabelli Funds, Inc., believes are undervalued and that by virtue of anticipated
developments or catalysts particularly applicable to such companies may, in the
adviser's judgment, achieve significant appreciation. The Fund may invest in,
among other things, unregistered convertible securities, securities of issuers
involved in corporate reorganizations, warrants, rights, securities of foreign
issuers and forward commitments for securities purchased on a 'when issued' or
'delayed delivery' basis. While the Fund may offer its shareholders an ability
to reinvest distributions that are payable to such shareholders, the Trust will
elect to receive all distributions declared by the Fund in cash. 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 initial investor will receive, at the maturity of the Trust,
$15.00 per Unit. On the Initial Date of Deposit, the Public Offering Price,
including the sales charge, will be approximately $12.50 per Unit and
consequently, Certificateholders purchasing Units on such date can anticipate
realizing proceeds at maturity of the Treasury Obligations greater than their
initial investment of approximately $12.50 per Unit. 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, or all investors if the
Trust is terminated before the Treasury Obligations mature, may suffer a loss to
the extent that the price he receives upon the sale or redemption of his Units
is less than the purchase price of his Units. The price paid for a Unit may
differ from that set forth herein due to changes in the value of the Securities
in the portfolio subsequent to the Date of Deposit. There is no assurance that a
purchaser of Units on the date of the Prospectus or subsequent to such date will
receive, upon termination, his 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. There are
certain risks inherent in an investment in a portfolio of Fund Shares and
Treasury Obligations. See 'Special Risk Considerations' in this Part A and 'Risk
Factors' in Part B. The Trust will terminate approximately 14 years after the
Initial Date of Deposit. Upon termination, Certificateholders may elect to
receive their terminating distributions of the Trust's Securities in cash, in
the form of an in-kind distribution of the Certificateholder's proportionate
share of Fund Shares held by the Trust and cash representing a
Certificateholder's proportionate share of Treasury Obligations or may utilize
their terminating distributions to purchase units of a future series of the
Trust at a reduced sales charge. Any election made by a Certificateholder may
result in the current taxation of all or a portion of the gain, if any, realized
by a Certificateholder upon the receipt of the terminating distribution. See
'Termination' in this Part A and 'Trust Administration--Trust Termination' in
Part B. All of the Securities are represented by the Sponsor's contracts to
purchase such Securities, which are expected to settle on or about January 28,
1994.
With the deposit of the Securities in the Trust on the Initial Date of Deposit,
the Sponsor established a proportionate relationship between the maturity
amounts of Treasury Obligations and the number of Fund Shares
in the Trust. During the 90 days subsequent to the Initial Date of Deposit, the
Sponsor may, but is not obligated to, deposit from time to time additional
Securities in the Trust ('Additional Securities') or contracts to purchase
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Additional Securities, maintaining to the extent practicable, an undivided
interest in the same number and type of securities of identical issuers as are
represented by Units issued on the Initial Date of Deposit. It may not be
possible to maintain the exact original proportionate relationship between the
Fund Shares and Treasury Obligations in the Trust portfolio on the Initial Date
of Deposit with the deposit of Additional Securities, because of, among other
reasons, purchase requirements, changes in prices, or the unavailability of
Securities. Deposits of Additional Securities in the Trust subsequent to the
90-day period following the Initial Date of Deposit must replicate exactly the
proportionate relationship between the Fund Shares and Treasury Obligations in
the Trust Portfolio at the end of the initial 90-day period. The number and
identity of Securities in the Trust will be adjusted to reflect the disposition
of Securities and/or the distribution with respect to such Securities or the
reinvestment of the proceeds distributed to Certificateholders. The portfolio of
the Trust may change slightly based on such disposition and reinvestment.
Securities received in exchange for Securities will be similarly treated.
Substitute Treasury Obligations may be acquired under specified conditions when
Treasury Obligations originally deposited in the Trust are unavailable (see 'The
Trust--Substitution of Securities' in Part B). As additional Units are issued by
the Trust as a result of the deposit of Additional Securities by the Sponsor,
the aggregate value of the Securities in the Trust will be increased and the
fractional undivided interest in the Trust represented by each unit will be
decreased. As of the Date of Deposit, Units in the Trust represent an undivided
interest in the principal and net income of the Trust in the ratio of one
hundred Units for the indicated initial aggregate value of Securities in the
Trust on the Initial Date of Deposit as is set forth in the Summary of Essential
Information (See 'The Trust--Organization' in Part B) (For the specific number
of Units in the Trust as of the Initial Date of Deposit, see 'Summary of
Essential Information' in this Part A).
The Sponsor does not act as an underwriter, manager or co-manager of a public
offering of the securities of any of the issuers in the Trust portfolio.
THE FUND
The Fund's investment objective is long-term capital appreciation. The Fund
seeks to achieve its objective by investing primarily in equity securities of
companies that the Fund's investment adviser believes are undervalued and that
by virtue of anticipated developments or catalysts particularly applicable to
such companies may, in the investment adviser's judgment, achieve significant
appreciation.
The Fund may invest in, among other things, unregistered convertible securities,
securities of issuers involved in corporate reorganizations, warrants, rights,
securities of foreign issuers and forward commitments for securities purchased
on a 'when issued' or 'delayed delivery' basis. Convertible securities are not
typically rated within the four highest categories by the rating agencies and
are, therefore, not generally considered investment grade. There is no minimum
rating that is acceptable for investment by the Fund; however, it is the Fund's
current operating policy that not more than 35% of the Fund's portfolio will
consist of debt securities considered by the rating agencies, or, if unrated,
judged by the investment adviser to be predominantly speculative and involving
major risk exposure to adverse conditions, including securities of issuers in
default. The Fund will, however, limit its investments in securities of issuers
in default, which are included within the 35% limitation, to not more than 5% of
its total assets. These investments may involve special risks. See 'Risks of
Investing in Lower Rated Securities' and 'Description of Corporate Bond Ratings'
in Part B. The Fund may also purchase or sell exchange traded options, engage in
short sales of securities it owns or has the right to acquire, enter into
repurchase agreements, lend its portfolio securities to securities
broker-dealers or financial institutions and borrow money for short-term credits
from banks as may be necessary for the clearance of portfolio transactions and
for temporary or emergency purposes. Although the Fund will consistently seek to
attain the objective of long-term capital appreciation, there can be no
assurance it will be attained. The objective of the Fund may not be changed
without shareholder approval. There is, of course, no guarantee that the Fund's
investment objective will be achieved.
A-4
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SPECIAL RISKS CONSIDERATIONS
Investors should be aware of the risks which an investment in Units of the Trust
may entail. During the life of the Trust, the value of the portfolio Securities
and hence the Units may fluctuate and therefore the Public Offering Price and
Redemption Price per Unit may be more or less than the price paid by the
investor. The value of the Treasury Obligations will fluctuate inversely with
changes in interest rates and the value of Fund Shares will vary as the value of
the underlying portfolio securities of the Fund increases or decreases. The
Treasury Obligations are subject to substantially greater price fluctuations
during periods of changing interest rates than securities of comparable quality
which make periodic interest payments. See 'The Trust--Stripped U.S. Treasury
Obligations.' Although the Trust is structured to return to an initial
Certificateholder his purchase cost of a Unit through the distribution of the
Treasury Obligations maturity value on the mandatory termination date of the
Trust, an investor will have included the accrual of original issue discount on
such Treasury Obligations in income for Federal income tax purposes and will
have paid Federal income tax on such accrual. An investor holding his Units to
Trust maturity may suffer a loss to the extent the investor's purchase cost of a
Unit exceeds $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, or all investors if the Trust is
terminated before the Treasury Obligations mature, may suffer a loss to the
extent that the price he receives upon the sale or redemption of his Units is
less than the purchase price of his Units.
PUBLIC OFFERING PRICE
The Public Offering Price per 100 Units of the Trust is equal to the aggregate
offering side evaluation during the initial offering period, and the aggregate
bid side evaluation thereafter, 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 times 100 plus a sales charge of 4.9% of the Public
Offering Price per 100 Units or 5.152% of the net amount invested in Securities
per 100 Units. (See 'Summary of Essential Information.') Any cash held by the
Trust will be added to the Public Offering Price. For additional information
regarding the Public Offering Price, the descriptions of dividend and principal
distributions, repurchase and redemption of Units and other essential
information regarding the Trust, see the 'Summary of Essential Information' for
the Trust. During the initial offering period orders involving at least 10,000
Units will be entitled to a volume discount from the Public Offering Price. The
Public Offering Price per Unit may vary on a daily basis in accordance with
fluctuations in the aggregate value of the underlying Securities. (See 'Public
Offering' in Part B.) The figures above assume a purchase of 100 Units. The
price of a single Unit, or any multiple thereof, is calculated by dividing the
Public Offering Price per 100 Units by 100 and multiplying by the number of
Units.
DISTRIBUTIONS
Distributions of net income (other than amortized discount) and long-term
capital gains distributions received in respect to any of the Securities by the
Trust will be made by the Trust annually. The first dividend distributions will
be made on the First Distribution Date to all Certificateholders of record on
the First Record Date and thereafter distributions will be made annually on the
15th day of January (the 'Distribution Date'). (See 'Rights of
Certificateholders--Distributions' in Part B. For the specific dates
representing the First Distribution Date and the First Record Date, see 'Summary
of Essential Information.') Although Certificateholders will be required to
include in income amounts of original issue discount that have accrued during
the taxable year on the Treasury Obligations, no income will be currently
distributed to the Certificateholders. (See 'Tax Status' in Part B.)
A-5
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MARKET FOR UNITS
The Sponsor, although not obligated to do so, intends to maintain a secondary
market for the Units of the Trust after the initial public offering has been
completed. The secondary market repurchase price will be based on the aggregate
bid side evaluation of the Treasury Obligations and the net asset value of the
Fund Shares (excluding any sales charge on Fund Shares). (See
'Liquidity--Sponsor Repurchase' for a description on how the secondary market
repurchase price will be determined.) If a market is not maintained a
Certificateholder will be able to redeem his Units with the Trustee. (See
'Liquidity--Trustee Redemption' in Part B.) There can be no assurance of the
making or the maintenance of a market for any of the Securities contained in the
Trust portfolio. Notwithstanding the foregoing, the Sponsor undertakes to
maintain the secondary market during the initial public offering period. In
addition, the Trust may be restricted under the Investment Company Act of 1940
from selling Securities to the Sponsor. The price at which the Securities may be
sold to meet redemptions and the value of the Units will be adversely affected
if trading markets for the Securities are limited or absent.
TOTAL REINVESTMENT PLAN
Distributions from the Trust are made to Certificateholders annually. The
Certificateholder has the option, however, of either receiving his distribution
check from the Trustee or participating in a reinvestment program offered by the
Sponsor in shares of GOC Fund, Inc. (formerly The Manager's Fund, Inc.), U.S.
Treasury Money Market Portfolio (the 'GOC Fund'). Gabelli-O'Connor Fixed Income
Mutual Funds Management Co. serves as the investment adviser of the GOC Fund and
GOC Fund Distributors, Inc. serves as distributor for the GOC Fund.
Participation in the reinvestment option is conditioned on the GOC Fund's lawful
qualification for sale in the state in which the Certificateholder is a
resident. The Plan is not designed to be a complete investment program. See
'Total Reinvestment Plan' in Part B for details on how to enroll in the Total
Reinvestment Plan and how to obtain a GOC Fund prospectus.
TERMINATION
During the 60 day period prior to the Mandatory Termination Date (approximately
14 years after the Initial Date of Deposit) (the 'Liquidation Period'),
Securities will begin to be sold in connection with the termination of the Trust
and all Securities will be sold by the Mandatory Termination Date. The Trustee
may utilize the services of the Sponsor for the sale of all or a portion of the
Securities in the Trust. The Sponsor will determine the manner, timing and
execution of the sales of the underlying Securities. Certificateholders may
elect one of the three options in receiving their terminating distributions.
Certificateholders may elect: (1) to receive their pro rata share of the
underlying Fund Shares in kind and the maturity value of Treasury Obligations in
cash, if they own at least 2,500 Units, (2) to receive cash upon the liquidation
of their pro rata share of the underlying Securities or (3) subject to the
receipt by the Trust of an appropriate exemptive order from the Securities and
Exchange Commission, to invest the amount of cash they would have received upon
the liquidation of their pro rata share of the underlying Securities in units of
a future series of the Trust (if one is offered) at a reduced sales charge. See
'Trust Administration--Trust Termination' in Part B for a description of how to
select a termination distribution option. Any election made by a
Certificateholder may result in the current taxation of all or a portion of the
gain, if any, realized upon the Certificateholder's receipt of the terminating
distribution. See 'Tax Status of the Trust' in Part B for further discussion.
The Sponsor will attempt to sell the Securities as quickly as they can during
the Liquidation Period without, in its judgment, materially adversely affecting
the market price of the Securities, but all of the Securities will in any event
be disposed of by the end of the Liquidation Period. The Sponsor does not
anticipate that the period will be as long as 60 days, and it could be as short
as one day, depending on the liquidity of the Securities being sold. The
liquidity of any Security depends on the daily trading volume of the Security
and the amount that the Sponsor has available for sale on any particular day.
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During the Liquidation Period, Certificateholders who have not chosen to receive
distributions-in-kind will be at risk to the extent that Fund Shares are not
sold; for this reason the Sponsor will be inclined to sell the Securities in as
short a period as they can without materially adversely affecting the price of
the Securities. Fund Shares, as more fully described in the prospectus for the
Fund, will be redeemed through certain broker-dealers and the Fund's transfer
agent at the net asset value next computed after the redemption request is
received.
DESCRIPTION OF PORTFOLIO AS OF INITIAL DATE OF DEPOSIT
$300,000 face amount of Treasury Obligations maturing on August 15, 2008 and
9,896 Fund Shares were held in the Trust on the Initial Date of Deposit. The
Treasury Obligations and the Fund Shares represent 49.68% and 50.32%,
respectively, of the total of the aggregate offering side evaluation of Treasury
Obligations in the Trust and the aggregate value of Fund Shares on the Initial
Date of Deposit.
A-7
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INDEPENDENT AUDITORS' REPORT
The Sponsor, Trustee, and Certificateholders,
Equity Securities Trust, Series 4, EquiT's
We have audited the accompanying Statement of Condition and Portfolio (the
'financial statements') of the Equity Securities Trust, Series 4, EquiT's as of
January 21, 1994. These financial statements are the responsibility of the
Sponsor. Our responsibility is to express an opinion on the 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. An audit also includes
assessing the accounting principles used and significant estimates made, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The irrevocable letter of
credit deposited in connection with the securities owned as of January 21, 1994,
pursuant to contracts to purchase, as shown in the Statement of Condition, was
confirmed to us by United States Trust Company of New York, the Trustee.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Equity Securities Trust, Series 4,
EquiT's at January 21, 1994, in conformity with generally accepted accounting
principles.
New York, New York KPMG PEAT MARWICK
January 21, 1994
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EQUITY SECURITIES TRUST, SERIES 4, EQUIT'S
STATEMENT OF CONDITION
AS OF THE INITIAL DATE OF DEPOSIT, JANUARY 21, 1994
TRUST PROPERTY
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SERIES 4
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Investment in Securities--Sponsor's Contracts to Purchase Underlying
Securities Backed by Letter of Credit(1)............................. $ 237,744
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INTEREST OF CERTIFICATEHOLDERS
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Interest of Certificateholders--Units of Fractional Undivided Interest
Outstanding
(Series 4: 20,000 Units):
Cost to Certificateholders(2)..................................... 249,994
Less-Gross Underwriting Commissions(3)............................ 12,250
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Net Amount Applicable to Certificateholders....................... $ 237,744
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(1) Aggregate cost to the Trust of the Securities listed in the Portfolio
is determined by the Evaluator on the basis set forth under 'Public
Offering--Offering Price' as of 4:00 p.m. on January 20, 1994. An irrevocable
letter of credit issued by Morgan Guaranty Trust Company in an aggregate amount
of $5,000,000 has been deposited with the Trustee to cover the purchase of
$237,744 of Securities pursuant to contracts to purchase such Securities.
(2) Aggregate public offering price computed on 20,000 Units of Series 4 on
the basis set forth under 'Public Offering--Offering Price' in Part B.
(3) Sales charge of 4.9% computed on 20,000 Units of Series 4 on the basis
set forth under 'Public Offering--Offering Price' in Part B.
A-9
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SCHEDULE OF PORTFOLIO SECURITIES
EQUITY SECURITIES TRUST
SERIES 4
EQUIT'S
PORTFOLIO
AS OF JANUARY 21, 1994
AN ANNUAL PAYMENT SERIES
<TABLE>
<CAPTION>
PORTFOLIO NAME OF ISSUER AND TITLE OF SECURITIES COST OF SECURITIES
NO. REPRESENTED BY CONTRACTS TO PURCHASE(1) PERCENTAGE OF FUND TO TRUST(2)
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<S> <C> <C> <C>
1 $300,000 Zero Coupon U.S. Treasury Bonds Maturing August 15, 2008 49.68% $118,101
2 9,896 Shares of The Gabelli Value Fund Inc. ($12.09 per Fund
Share) 50.32% 119,643
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100.00% $237,744
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</TABLE>
FOOTNOTES TO PORTFOLIO
(1) The Treasury Obligations have been purchased at a discount from the maturity
value because there is no stated interest income thereon (such securities
are often referred to as zero coupon securities). Over the life of the
Treasury Obligations such discount accrues and upon maturity thereof the
holder receives 100% of the Treasury Obligation maturity amount.
The Fund Shares have been valued at their net asset value as of the
Evaluation Time on the day prior to the Date of Deposit. The Fund's
investment adviser is Gabelli Funds, Inc.
All Securities are represented by contracts to purchase such Securities.
Forward contracts to purchase the Securities were entered into from January
19, 1994 to January 20, 1994. All such contracts are expected to be settled
on or about the First Settlement Date of the Trust which is expected to be
January 28, 1994.
(2) Offering prices of Treasury Obligations are determined by the Evaluator on
the basis stated under 'Public Offering--Offering Price' herein. The
offering side evaluation is greater than the current bid side evaluation of
the Treasury Obligations, which is the basis on which Redemption Price per
Unit is determined (see 'Liquidity--Trustee Redemption' herein). The
aggregate value of the Treasury Obligations based on the bid side evaluation
of the Treasury Obligations on the day prior to the Date of Deposit was
$117,459 (which is $642 lower than the aggregate cost of the Treasury
Obligations to the Trust based on the offering side evaluation). The profit
to Sponsor on deposit totals $171.
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UNDERWRITING SYNDICATE
The names and addresses of the Underwriters of the Units and their
participation in the offering of Equity Securities Trust, Series 4 are as
follows:
<TABLE>
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% OF
UNDERWRITER EST SERIES 4
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BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, NY 10167.................................................................................. 14.10%
J.C. BRADFORD & CO.
330 Commerce Street
Nashville, TN 37201................................................................................. 12.13
RAYMOND JAMES & ASSOCIATES, INC.
The Raymond James Financial Center
880 Carillon Parkway
St. Petersburg, FL 33716............................................................................ 12.13
RODMAN & RENSHAW, INC.
120 South LaSalle Street
Chicago, IL 60603................................................................................... 6.07
GIBRALTAR SECURITIES CO.
Ten James Street
Florham Park, NJ 07932.............................................................................. 3.04
GRUNTAL & CO., INCORPORATED
14 Wall Street
New York, NY 10005.................................................................................. 3.04
JOSEPHTHAL, LYON & ROSS, INC.
45 Broadway
New York, NY 10006.................................................................................. 3.04
DAVID LERNER ASSOCIATES, INC.
477 Jericho Turnpike
Syosset, NY 11791................................................................................... 3.04
NEW ENGLAND SECURITIES
399 Boylston Street, 8th Floor
Boston, MA 02116.................................................................................... 3.04
QUICK & REILLY, INC.
26 Broadway, 12th Floor
New York, NY 10004.................................................................................. 3.04
SAMUEL A. RAMIREZ & CO., INC.
61 Broadway, Room 2924
New York, NY 10006.................................................................................. 3.04
M.L. STERN & CO., INC.
8350 Wilshire Boulevard
Beverly Hills, CA 90211............................................................................. 3.04
THOMAS JAMES ASSOCIATES, INC.
1895 Mount Hope Avenue
Rochester, NY 14620................................................................................. 3.04
</TABLE>
A-11
<PAGE>
UNDERWRITING SYNDICATE
<TABLE>
<CAPTION>
% OF
UNDERWRITER EST SERIES 4
- ---------------------------------------------------------------------------------------------------- ------------
H.C. WAINWRIGHT & CO., INC.
One Boston Place
Boston, MA 02108.................................................................................... 3.04%
<S> <C>
WHEAT FIRST, BUTCHER & SINGER CAPITAL MARKETS
901 East Byrd Street
Richmond, VA 23219.................................................................................. 3.04
FIRST MONTAUK SECURITIES CORP.
328 Newman Springs Road
Red Bank, NJ 07701.................................................................................. 1.52
LPL FINANCIAL SERVICES
155 Federal Street, 14th Floor
Boston, MA 02110.................................................................................... 1.52
NORI, HENNION, WALSH, INC.
3799 Route 46, Suite 102
Parsippany, NJ 07054................................................................................ 1.52
THE PRINCIPAL/EPPLER, GUERIN & TURNER, INC.
1445 Ross Avenue
Dallas, TX 75202.................................................................................... 1.52
BARRON CHASE SECURITIES
One Arin Park
1715 U.S. Highway 35, Suite 301
Middletown, NJ 07748................................................................................ .75
BUELL SECURITIES CORP.
1310 Silas Deane Highway
Wethersfield, CT 06109.............................................................................. .75
B.C. CHRISTOPHER
DIV. OF FAHNESTOCK & CO. INC.
4717 Grand Avenue
Kansas City, MO 64112............................................................................... .75
EMANUEL AND COMPANY
110 Wall Street
New York, NY 10005.................................................................................. .75
FIDELITY CAPITAL MARKETS, A DIVISION OF
NATIONAL FINANCIAL SERVICES CORPORATION
161 Devonshire Street D4
Boston, MA 02110.................................................................................... .75
FINANCIAL NETWORK INVESTMENT CORPORATION
2780 Skypark Drive, Suite 300
Torrance, CA 90505.................................................................................. .75
FIRST AFFILIATED SECURITIES, INC.
4225 Executive Square, Suite 500
La Jolla, CA 92037.................................................................................. .75
GILMORE SECURITIES & CO.
21-00 Route 208 South
Fair Lawn, NJ 07410................................................................................. .75
</TABLE>
A-12
<PAGE>
UNDERWRITING SYNDICATE
<TABLE>
<CAPTION>
% OF
UNDERWRITER EST SERIES 4
- ---------------------------------------------------------------------------------------------------- ------------
J.W. CHARLES/CSG
SUBSIDIARIES OF CORPORATE MANAGEMENT GROUP, INC.
980 North Federal Highway, Suite 210
Boca Raton, FL 33432................................................................................ .75%
<S> <C>
LEGG MASON WOOD WALKER, INCORPORATED
Legg Mason Tower
111 South Calvert Street
Baltimore, MD 21202................................................................................. .75
McDONALD & COMPANY SECURITIES, INC.
800 Superior Avenue
Cleveland, OH 44114................................................................................. .75
MORGAN KEEGAN & COMPANY INCORPORATED
Morgan Keegan Tower
Fifty North Front Street
Memphis, TN 38103................................................................................... .75
SOUTHWEST SECURITIES INC.
1201 Elm Street, Suite 4300
Dallas, TX 75270.................................................................................... .75
DAIN BOSWORTH INCORPORATED
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, MN 55402............................................................................... .30
FIXED INCOME SECURITIES, INC.
7220 Trade Street, Suite 315
San Diego, CA 92121................................................................................. .30
HAMILTON INVESTMENTS, INC.
Two North LaSalle Street
Chicago, IL 60602................................................................................... .30
J.B. HANAUER & CO.
Four Gate Hall Drive
Parsippany, NJ 07054................................................................................ .30
HORWITZ & ASSOCIATES
630 Dundee Road, Suite 345
Northbrook, IL 60062................................................................................ .30
HUNTLEIGH SECURITIES CORPORATION
222 South Central Avenue
St. Louis, MO 63105................................................................................. .30
JANNEY MONTGOMERY SCOTT INC.
1801 Market Street
Philadelphia, PA 19103.............................................................................. .30
JURAN & MOODY, INC.
400 North Robert Street, Suite 800
St. Paul, MN 55101.................................................................................. .30
LADENBURG, THALMANN & CO. INC.
540 Madison Avenue
New York, NY 10022.................................................................................. .30
</TABLE>
A-13
<PAGE>
UNDERWRITING SYNDICATE
<TABLE>
<CAPTION>
% OF
UNDERWRITER EST SERIES 4
- ---------------------------------------------------------------------------------------------------- ------------
LAIDLAW EQUITIES INC.
275 Madison Avenue
New York, NY 10016.................................................................................. .30%
<S> <C>
LEW LIEBERBAUM & CO., INC.
600 Old Country Road, Suite 518
Garden City, NY 11530............................................................................... .30
MEYERS, POLLOCK, ROBBINS INC.
One World Trade Center, Suite 9151
New York, NY 10048.................................................................................. .30
NATHAN & LEWIS SECURITIES, INC.
119 West 40th Street
New York, NY 10018.................................................................................. .30
THE OHIO COMPANY
155 East Broad Street
Columbus, OH 43215.................................................................................. .30
OPPENHEIMER & CO., INC.
Oppenheimer Tower
World Financial Center
New York, NY 10281.................................................................................. .30
RAUSCHER PIERCE REFSNES, INC.
Plaza of the Americas
2500 RPR Tower
Dallas, TX 75201.................................................................................... .30
STATEWIDE SECURITIES GROUP, INC.
7820 South Holiday Drive, Suite 300
Sarasota, FL 34231.................................................................................. .30
STIFEL, NICOLAUS & COMPANY, INCORPORATED
500 North Broadway
St. Louis, MO 63102................................................................................. .30
STUART, COLEMAN & CO., INC.
11 West 42nd Street, 15th Floor
New York, NY 10036.................................................................................. .30
SUTRO & CO.
350 Sansome Street
San Francisco, CA 94104............................................................................. .30
WEDBUSH MORGAN SECURITIES INC.
1000 Wilshire Boulevard
Los Angeles, CA 90017............................................................................... .30
------------
Total.......................................................................................... 100%
------------
------------
</TABLE>
A-14
<PAGE>
[LOGO] EQUITY SECURITIES TRUST SERIES 4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GABELLI VALUE FUND AND U.S. TREASURIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTRODUCING EQUIT'S
EquiT's has been designed to combine the upside growth potential and inflation
protection of a value oriented equity portfolio with the capital preservation
afforded by zero coupon U.S. Treasury obligations held to maturity.
EquiT's is a unit investment trust with an approximate maturity of fourteen
years. The dual objective of this trust is long term capital appreciation with
capital preservation. The twin objectives of the Trust will be reflected in its
two components.
The Equity component of EquiT's units will consist of shares in The Gabelli
Value Fund, an open end equity mutual fund managed by Gabelli Funds Inc.
The fixed income component will be structured so that the maturity value of zero
coupon Treasuries will provide a minimum value for each EquiT's unit of $15.00
at the scheduled maturity of the Trust.
The combined value of an EquiT's unit at the scheduled termination of the Trust
will be the $15.00 per unit minimum provided by the U.S. Treasury securities
plus the value of the unit's proportional interest in shares of The Gabelli
Value Fund.
The relative proportions of Gabelli Value Fund shares and U.S. Treasury zero
coupon obligations in the Trust will depend upon the scheduled maturity of the
EquiT's trust and the level of zero coupon Treasury yields at the time of
deposit of the Trust.
THE GABELLI VALUE FUND
The Fund's investment objective is long term capital appreciation. The Fund
seeks to achieve its objective by investing primarily in equity securities of
companies that the fund's investment adviser believes are undervalued, and that
by virtue of anticipated developments or catalysts particularly applicable to
such companies may, in the adviser's judgement, achieve significant
appreciation. These include macro trends such as globalization of the market in
filmed entertainment, and telecommunications, and micro trends such as,
increased focus on productivity enhancing goods and services.
INVESTMENT PHILOSOPHY
Creating Wealth Through Research 'We view fundamental research as a three
pronged approach: free cash flow, earnings per share, and private market value
(PMV). We blend our intrinsic value analysis with the search for a catalyst that
will surface and attract investor attention.'
'We do what is described as bottoms-up research: we read annual reports; visit
the competition; talk to customers; go belly to belly with management. We are
stock pickers. We look at earnings per share trends, but we do not try to
forecast earnings with accounting precision and then trade stocks based on
quarterly expectations and realities. We want to know everything and anything
that will add to or detract from our private market value estimates. We look for
a catalyst; something happening in the companies' industries or indigenous to
the companies themselves that will surface value.'
'When we identify stocks that qualify as bargains, based on these fundamental
and conceptual considerations, we become patient long term investors. This has
been a proven long term method for creating wealth in the stock market.'
- MARIO J. GABELLI, C.F.A.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GABELLI VALUE FUND AND U.S. TREASURIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTING IN ZERO COUPON
U.S. TREASURY OBLIGATIONS
AAA rated U.S. Treasury obligations are considered the most secure fixed income
investments in the U.S. capital markets and are among the most secure
investments in the world.
Zero coupon securities are deeply discounted debt obligations which pay no
periodic cash interest. If held to maturity, zero coupon bonds produce an
investment return which is 'locked in,' determined solely by the original
discounted price at purchase and the number of years to maturity, irrespective
of interim interest rate movements.
Since the return on zero coupon bonds held to maturity does not depend upon the
reinvestment of periodic interest payments, but rather depends upon a lump sum
paid at maturity, they are recommended for investment programs targeted toward
events such as retirement or the beginning of college.
In addition, the steady appreciation toward a predetermined sum provided by zero
coupon bonds held to maturity makes them an ideal investment vehicle to provide
the minimum $15 per unit valuation floor for EquiT's units at the scheduled
termination of the Trust.
Because zero coupon investments provide a one time lump sum cash payment, rather
than a series of cash interest payments over time with a final payment of
principal, their interim price movements before maturity tend to be more
volatile than those of interest bearing bonds. The annual accretion of interest
income on taxable zero coupon bonds such as the U.S. Treasury obligations which
will be held in the Trust is includable in gross income for federal income tax
purposes.
HEDGING YOUR BETS /A BALANCED
APPROACH TO INVESTING
EquiT's has been developed to offer individuals the best of both worlds in an
uncertain investment environment.
The stock market has produced superior investment results with excellent
inflation protection for most of this century. It is a key component of long
term financial planning for individual investors, and it can be an important
component of investment programs for individuals nearing retirement age and even
for retired investors.
U.S. Treasury Zero's held to maturity provide safety of capital, but on average,
over long periods, they have not provided as generous returns as have common
stocks.
WITH EQUIT'S YOU HAVE
THE BEST OF ALL WORLDS:
o Zero coupon U.S. Treasuries will provide a floor valuation of $15.00 per unit
at the scheduled termination of the Trust, a value above the original purchase
price of EquiT's units.
o An Equity portfolio which seeks to keep pace with inflation and capture growth
as the economy recovers from recession.
o An equity value orientation, focusing on stocks which trade at discounts to
the 'private market value' detected by Gabelli research. A value orientation
provides its own hedge against the possibility that current stock market
levels are unsustainable.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GABELLI VALUE FUND AND U.S. TREASURIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL FEATURES OF EQUIT'S
CONVENIENCE
EquiT's provides an easy, low cost way to start an investment program which
provides upside potential with downside safeguards. A minimum purchase
denomination of 100 units makes EquiT's affordable to a wide range of investors,
and could be used to meet a number of financial objectives including:
- Retirement needs
- Various educational costs
- Conservative long-term capital appreciation
LIQUIDITY
The trust's units may be sold at any time during its life at the then market
value, which may be more or less than the original offering price.
REINVESTMENT OPTIONS
Any income and capital gains distributed by the trust can be reinvested in GOC
Fund, Inc., U.S. Treasury Money Market Portfolio.
OPTIONS AT TERMINATION
Unitholders have the choice at the time of termination to receive the value of
their U.S. Treasury zero coupon bonds and The Gabelli Value Fund shares paid in
cash or, if preferred, may receive shares of The Gabelli Value Fund at no
additional charge.
<PAGE>
[LOGO] EQUITY SECURITIES TRUST SERIES 4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GABELLI VALUE FUND AND U.S. TREASURIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EquiT 's
PROSPECTUS PART B
PART B OF THIS PROSPECTUS MAY NOT BE
DISTRIBUTED UNLESS ACCOMPANIED BY
PART A
THE TRUST
ORGANIZATION
'Equity Securities Trust, Series 4, EquiT's' consists of a 'unit investment
trust' designated as set forth in Part A. The Trust was created under the laws
of the State of New York pursuant to a Trust Indenture and Agreement (the 'Trust
Agreement'), dated the Initial Date of Deposit, among Bear, Stearns & Co. Inc.,
as Sponsor, United States Trust Company of New York, as Trustee and Kenny S&P
Evaluation Services, as Evaluator.
On the Initial Date of Deposit, the Sponsor deposited with the Trustee
stripped United States Treasury issued notes or bonds paying no current return
(the 'Treasury Obligations') and shares of Gabelli Value Fund Inc., a
non-diversified, open-end Management Investment Company (the 'Fund Shares')
including funds and delivery statements relating to contracts for the purchase
of certain such securities (collectively, the 'Securities') with an aggregate
value as set forth in Part A and cash or an irrevocable letter of credit issued
by a major commercial bank in the amount required for such purchases. Thereafter
the Trustee, in exchange for the Securities so deposited, delivered to the
Sponsor the Certificates evidencing the ownership of all Units of the Trust. The
Sponsor has a limited right to substitute other securities in the Trust
portfolio in the event of a failed contract ('Substitute Securities'). See 'The
Trust--Substitution of Securities'. The Sponsor may also, in certain
circumstances, direct the Trustee to dispose of certain Securities if the
Sponsor believes that, because of market or credit conditions, or for certain
other reasons, retention of the Security would be detrimental to
Certificateholders. (See 'Trust Administration--Portfolio Supervision.')
As of the day prior to the Initial Date of Deposit, a 'Unit' represents an
undivided interest or pro rata share in the Securities of the Trust in the ratio
of one hundred Units for the indicated amount of the aggregate market value of
the Securities initially deposited in the Trust as is set forth in the 'Summary
of Essential Information'. To the extent that any Units are redeemed by the
Trustee, the fractional undivided interest or pro rata share in such Trust
represented by each unredeemed Unit will increase, although the actual interest
in such Trust represented by such fraction will remain unchanged. Units will
remain outstanding until redeemed upon tender to
1
<PAGE>
the Trustee by Certificateholders, which may include the Sponsor or the
Underwriters, or until the termination of the Trust Agreement.
With the deposit of the Securities in the Trust on the Initial 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. During the 90 days subsequent to the Initial Date of Deposit, the
Sponsor may deposit additional Securities in the Trust that are substantially
similar to the Securities already deposited in the Trust ('Additional
Securities') or contracts to purchase Additional Securities, in order to create
additional Units, maintaining to the extent practicable the original
proportionate relationship between the Securities in the Trust portfolio on the
Initial Date of Deposit. These additional Units will each represent, to the
extent practicable, an undivided interest in the same number and type of
securities of identical issuers as are represented by Units issued on the
Initial Date of Deposit. It may not be possible to maintain the exact original
proportionate relationship between the Treasury Obligations and the Fund Shares
deposited on the Initial Date of Deposit because of, among other reasons,
purchase requirements, changes in prices, or unavailability of Securities.
Deposits of Additional Securities in the Trust subsequent to the 90-day period
following the Initial Date of Deposit must replicate exactly the proportionate
relationship between the Treasury Obligations and the Fund Shares in the Trust
Portfolio at the end of the initial 90-day period. The number and identity of
Securities in the Trust will be adjusted to reflect the disposition of
Securities and/or the receipt of a distribution with respect to shares or the
reinvestment of the proceeds distributed to Certificateholders. The portfolio of
the Trust may change slightly based on such disposition and reinvestment.
Securities received in exchange for Securities will be similarly treated.
Substitute Treasury Obligations may be acquired under specified conditions when
Treasury Obligations originally deposited in the Trust are unavailable (see 'The
Trust--Substitution of Securities'). Units may be continuously offered to the
public by means of this Prospectus (see 'Public Offering--Distribution of
Units') resulting in a potential increase in the number of Units outstanding. As
additional Units are issued by the Trust as a result of the deposit of
Additional Securities, the aggregate value of the Securities in the Trust will
be increased and the fractional undivided interest in the Trust represented by
each Unit will be decreased.
OBJECTIVES
The objectives of the Trust are to seek to achieve safety of capital and to
attempt to provide capital appreciation. In addition, it is the Trust's
objective to achieve growth in income with the growth in capital. The Trust
seeks to achieve these objectives by investing primarily in a portfolio of
stripped United States Treasury issued notes or bonds paying no current interest
and shares of The Gabelli Value Fund Inc., a non-diversified, open-end
Management Investment Company. The Fund's objective is long-term capital
appreciation which the Fund attempts to achieve by investing primarily in equity
securities companies that the Fund's investment adviser believes are undervalued
and that by virtue of anticipated developments or catalysts particularly
applicable to such companies may, in the adviser's judgment, achieve significant
appreciation, and contracts to purchase such Securities. The allocation between
the Treasury Obligations and the Fund Shares would seek to assure that an
investor purchasing units in the Trust at inception would at least receive back
the original unit purchase price at the termination of the Trust from the
maturity value of the Treasury Oblications. There can be no assurance that the
Trust's investment objectives can be achieved.
THE SECURITIES
In selecting Treasury Obligations for the Trust, the Sponsor normally will
consider the following factors, among others: (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
2
<PAGE>
of additional Units, undistributed cash receipts from the Fund and proceeds
realized from the disposition of Securities.
Stripped U.S. Treasury Obligations
The Treasury Obligations in the portfolio consist of United States Treasury
Obligations which have been stripped by the United States Treasury of their
unmatured interest coupons or such stripped coupons or receipts or certificates
evidencing such obligations or coupons. The obligor with respect to the Treasury
Obligations is the United States Government. Such Treasury Obligations may
include certificates that represent rights to receive the payments that comprise
a U.S. Government bond.
Stripped 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 obligations. 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 includable by a Certificateholder as income and will
be subject to income tax on a current basis at ordinary income tax rates (see
'Tax Status').
The Gabelli Value Fund Inc.
The following disclosure concerning the Fund and its affiliates has been
derived from the prospectus, semi-annual report and proxy statement of The
Gabelli Value Fund Inc. While the Sponsor has not independently verified its
information, it has no reason to believe that such information is not correct in
all material respects. No representation is made herein as to the accuracy or
adequacy of such information.
The Portfolio contains shares of The Gabelli Value Fund Inc. (the 'Fund').
On June 30, 1993, the net assets of the Fund were $447,920,911. The Fund has
retained an Investment Adviser, Gabelli Funds, Inc. (herein referred to as
'Gabelli' or the 'Adviser').
The Fund's investment objective is long-term capital appreciation. The Fund
regards its receipt of income as an incidental consideration. The investment
objective is fundamental and may not be changed without the approval of the
holders of a majority of the Fund's shares. There is, of course, no guarantee
that the Fund will achieve its investment objective. As a 'non-diversified'
investment company, the Fund is not subject to the provisions of the 1940 Act
that otherwise would limit the proportion of its assets that may be reinvested
in obligations of a single issuer. Consequently, because the Fund may hold a
relatively high proportion of its assets in a limited number of portfolio
companies, an investment in the Fund may, under certain circumstances, present
greater risk to an investor than an investment in a diversified investment
company. The Fund intends, however, to comply with the diversification
requirements imposed by the Internal Revenue Code of 1986, as amended (the
'Code').
In pursuing the Fund's investment objective, the Adviser seeks companies
that it believes are undervalued and that by virtue of anticipated developments
or catalysts particularly applicable to such companies may, in the Adviser's
judgment, achieve significant capital appreciation. In identifying such
companies, the Adviser seeks to
3
<PAGE>
invest in companies that, in the public market, are selling at a significant
discount to their private market value, the value the Adviser believes informed
industrialists would be willing to pay to acquire companies with similar
characteristics. If investor attention is focused on the underlying asset values
of these companies through an emerging or anticipated development or other
catalyst, an investment opportunity to realize this private market value may
exist. Undervaluation of a company can result from a variety of factors, such as
a lack of investor recognition of (1) the underlying value of a company's fixed
assets, (2) the value of a consumer or commercial franchise, (3) changes in the
economic or financial environment particularly affecting a company, (4) new,
improved or unique products or services, (5) new or rapidly expanding markets,
(6) technological developments or advancements affecting a company or its
products, or (7) changes in governmental regulations, political climate or
competitive conditions. The actual developments or catalysts particularly
applicable to a given company that may, in the Adviser's judgment, lead to
significant appreciation of that company's securities include: a change in
management or management policies; the acquisition of a significant equity
position by an investor or group of investors acting in concert; a merger,
reorganization, sale of a division, or a third-party or issuer tender offer; the
spin-off to shareholders of a subsidiary, division or other substantial assets;
or a recapitalization, an internal reorganization or the retirement or death of
a senior officer or substantial shareholder. In addition to the foregoing
factors, developments and catalysts, the Adviser, in selecting investments, also
considers the market price of the issuer's securities, its balance sheet
characteristics and the perceived strength of its management.
The Fund seeks to achieve its objective by investing primarily in a
portfolio of common stocks, preferred stocks and other securities convertible
into, or exchangeable for, common stocks. When the Adviser believes that a
defensive investment posture is warranted or when opportunities for capital
appreciation do not appear attractive, the Fund may temporarily invest all or a
portion of its assets in short-term money market instruments, such as
obligations of the U.S. Government and its agencies and instrumentalities,
high-quality commercial paper and bank certificates of deposit and time
deposits, repurchase agreements with respect to such instruments, and money
market mutual funds not affiliated with the Fund, Lehman Brothers Inc. ('Lehman
Brothers') or Gabelli & Company, Inc. ('Gabelli & Company').
Boston Safe Deposit and Trust Company is the custodian of the Fund's
assets. State Street Bank and Trust Company, Inc. acts as the Fund's transfer
agent and dividend disbursing agent for its shares. The Fund's prospectus is
available upon request.
General Information Regarding the Fund
Shown below for the periods indicated are per share income and capital
changes for a share of capital stock outstanding ('per share information') of
the Fund.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/92 12/31/91(C) 12/31/90 12/31/89(A)
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Investment income................................................ $ 0.28 $ 0.27 $ 0.59 $ 0.20
Expenses......................................................... (0.19) (0.14) (0.14) (0.04)
--------- ----------- --------- -----------
Net Investment income............................................ $ 0.09 $ 0.13 $ 0.45 $ 0.16
Net realized and unrealized gain/(loss) or investments........... 1.11 1.17 (0.98) 0.04
Distributions from:
Net investment income.......................................... (0.09) (0.19) (0.54) (0.06)
Net realized gains............................................. (0.46) (0.14) -- (0.01)
--------- ----------- --------- -----------
Net increase/(decrease) in net asset value....................... 0.65 0.97 (1.07) 0.13
NET ASSET VALUE:
Beginning of year.............................................. 9.48 8.51 9.58 9.45
--------- ----------- --------- -----------
End of year.................................................... $ 10.13 $ 9.48 $ 8.51 $ 9.58
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/92 12/31/91(C) 12/31/90 12/31/89(A)
--------- ----------- --------- -----------
RATIOS TO AVERAGE NET ASSETS:
<S> <C> <C> <C> <C>
Net investment income.......................................... 0.75% 1.43% 4.45% 6.06%(b)
Operating expenses............................................. 1.52% 1.45% 1.39% 1.48%(b)
Portfolio turnover rate.......................................... 0.1% 16.2% 58.6% 73.3%
Number of shares outstanding at end of year (000's).............. 41,790 60,638 99,944 117,588
</TABLE>
- ------------------
(a) The Fund commenced operations on September 29, 1989.
(b) Annualized.
(c) Per share amounts have been calculated using the monthly average shares
outstanding method, which more appropriately presents the per share data for
the year.
Investment Strategies and Restrictions
From time to time, the Fund may engage in the following investment
techniques:
The Fund, consistent with its investment objective and policies of seeking
long-term capital appreciation from securities of companies that, in the public
market, are selling at a significant discount to their private market value, may
invest up to 50% of its total assets in securities for which a tender or
exchange offer has been made or announced and in securities of companies for
which a merger, consolidation, liquidation or similar reorganization proposal
has been announced ('reorganization securities'). Frequently the holders of
securities of companies involved in such transactions will receive new
securities ('substituted securities') in exchange therefor. No more than 30% of
the Fund's total assets, however, may be invested in reorganization securities
where the Adviser anticipates selling the reorganization securities or the
substituted securities within six months or less of the initial purchase of the
reorganization securities, except that this limitation will not apply to
reorganization securities that have been purchased to supplement a position in
such securities held by the Fund for more than six months. The principal risk of
this type of investing is that the anticipated offers or proposals may not be
consummated within the time and under the terms contemplated at the time of the
investment, in which case, unless replaced by an equivalent or increased offer
or proposal that is consummated, the Fund may sustain a loss on its investments.
The Fund has adopted the following investment restrictions for the
protection of shareholders that may not be changed without the approval of a
majority of the Fund's shareholders, defined as the lesser of (1) 67% of the
Fund's shares present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the Fund's outstanding shares. Under these restrictions, the Fund may not:
1. Invest more than 25% of the value of its total assets in any
particular industry (this restriction does not apply to obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities);
2. Purchase securities on margin, but it may obtain short-term credits
from banks as may be necessary for the clearance of purchase and sales of
portfolio securities;
3. Make loans of its assets except for: (a) purchasing debt
securities, (b) engaging in repurchase agreements as set forth in the
Fund's prospectus, and (c) lending its portfolio securities consistent with
applicable regulatory requirements and as set forth in the Fund's
prospectus;
4. Borrow money except subject to the restrictions set forth in the
Fund's prospectus;
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5. Mortgage, pledge or hypothecate any of its assets except that, in
connection with permissible borrowings mentioned in restriction (4) above,
not more than 20% of the assets of the Fund (not including amounts
borrowed) may be used as collateral and that collateral arrangements with
respect to the writing or options or any other hedging activity are not
deemed to be pledges of assets and these arrangements are not deemed to be
the issuance of a senior security as set forth below in restriction (11);
6. Except to the extent permitted by restriction (14) below, invest in
any investment company affiliated with the Fund, Lehman Brothers or Gabelli
& Company, invest more than 5% of its total assets in the securities of any
one investment company, own more than 3% of the securities of any
investment company or invest more than 10% of its total assets in the
securities of all other investment companies;
7. Engage in the underwriting of securities, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, in disposing of a portfolio security;
8. Invest, in the aggregate more than 10% of the value of its net
assets in securities for which market quotations are not readily available,
securities which are restricted for public sale, in repurchase agreements
maturing or terminable in more than seven days and all other illiquid
securities;
9. Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral exploration or
development programs;
10. Purchase or acquire commodities or commodity contracts except that
the Fund may purchase or sell futures contracts and related options thereon
if thereafter no more than 5% of its total assets are invested in margin
and premiums;
11. Issue senior securities, except insofar as the Fund may be deemed
to have issued a senior security in connection with: (a) borrowing money in
accordance with restriction (4) above, (b) lending portfolio securities,
(c) entering into repurchase agreements, (d) purchasing or selling options
contracts, (e) purchasing or selling futures contracts and related options
thereon, or (f) acquiring when issued or delayed delivery securities and
forward commitments;
12. Sell securities short, except transactions involving selling
securities 'short against the box;'*
13. Purchase warrants if, thereafter, more than 5% of the value of the
Fund's net assets would consist of such warrants, but warrants attached to
other securities or acquired in units by the Fund are not subject to this
restriction; or
14. Invest in companies for the purpose of exercising control, except
transactions involving investments in investment companies for the purpose
of effecting mergers and other corporate reorganizations involving the Fund
and such other investment companies.
If any percentage limitation is adhered to at the time of an investment, a
later increase or decrease in the percentage of assets resulting from a change
in the values of portfolio securities or in the amount of the Fund's assets will
not constitute a violation of such restriction. In order to permit the sale of
the Fund's shares in certain states, the Fund may make commitments more
restrictive than the investments restrictions described above.
- ------------------
* The Board of Directors of the Fund has approved, subject to shareholder
approval, the elimination of this fundamental investment limitation. (See
'Short Sales Against the Box'.)
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Convertible and Nonconvertible Corporate Obligations
Corporate obligations include securities such as bonds, debentures, notes
or other similar securities issued by corporations. These obligations can be
further subdivided into convertible and nonconvertible securities. Unlike a
nonconvertible corporate obligation, a convertible corporate obligation may be
converted into or exchanged for a prescribed amount of common stock or other
equity security of the same or different issuer within a particular period of
time at a specified price or formula.
The Fund believes that investing in convertible and nonconvertible
corporate obligations is consistent with the Fund's investment objective of
seeking securities of companies that, in the public market, can provide
significant long-term capital appreciation. Due to a variety of factors, it is
possible that the potential for capital gain on a convertible security may be
less than that of the underlying common stock. Convertible securities, however,
are senior to common stock in an issuer's capital structure and are consequently
of higher quality and entail less risk than the issuer's common stock, although
the extent to which the risk is reduced depends in large measure upon a variety
of factors, including the creditworthiness of the issuer and its overall capital
structure.
The Fund may purchase convertible securities or nonconvertible debt
securities without limitation, except that no more than 35% of the Fund's total
assets may be invested in convertible securities or nonconvertible debt
securities having a rating lower than a Standard & Poor's Corporation ('S&P')
rating of 'CCC', a Moody's Investor Service, Inc. ('Moody's') rating of 'Caa'
or, if unrated, judged by the Adviser to be of comparable quality. However, as a
matter of current operating policy, the Adviser and the Fund have agreed that
the Fund will not invest more than 35% of the Fund's total assets in debt
securities rated less than S&P's BBB or the equivalent by other major rating
agencies or, if unrated, judged by the Adviser to be of comparable quality.
These debt securities are predominantly speculative and involve major risk
exposure to adverse conditions, and are often referred to in the financial press
as 'junk bonds.' (See 'Risks of Investing in Lower Rated Securities'.)
The ratings of Moody's and S&P generally represent the opinions of those
organizations as to the quality of the securities that they rate. Such ratings,
however, are relative and subjective, are not absolute standards of quality and
do not evaluate the market risk of the securities. Although the Adviser uses
these ratings as a criterion for the selection of securities for the Fund, the
Adviser also relies on its independent analysis to evaluate potential
investments for the Fund.
Within the Fund's limitation on the purchase of lower-rated and unrated
securities, the Fund may invest up to 5% of its total assets in securities of
issuers in default.
Warrants and Rights
The Fund may invest up to 5% of its net assets in warrants or rights (other
than those acquired in units or attached to other securities) that entitle the
holder to buy equity securities at a specific price for a specific period of
time but will do so only if the equity securities are deemed appropriate by the
Adviser for inclusion in the Fund's portfolio. It is the current intention of
the Fund not to invest more than 2% of its net assets in warrants or rights that
are not listed on the New York or American Stock Exchange, although the Board of
Directors in the future may permit up to 5% of the Fund's net assets to be
invested in such unlisted warrants and rights.
Foreign Securities
The Fund may invest up to 25% of its total assets in foreign securities.
Investing in securities of foreign companies and foreign governments, which
generally are denominated in foreign currencies, may involve certain risk and
opportunity considerations not typically associated with investing in domestic
companies and could cause the Fund to be affected favorably or unfavorably by
changes in currency exchange rates and revaluations of currencies. In addition,
less information may be available about foreign companies than about domestic
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<PAGE>
companies, and foreign companies and foreign governments generally are not
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic companies. Foreign securities and their markets may not be as liquid as
United States securities and their markets. Securities of some foreign companies
may involve greater market risk than securities of United States companies.
Investment in foreign securities may result in higher expenses than investing in
domestic securities because of the payment of fixed brokerage commissions on
foreign exchanges, which generally are higher than commissions on United States
exchanges, and the imposition of transfer taxes or transaction charges
associated with foreign exchanges. Investment in foreign securities also may be
subject to local economic or political risks, including instability of some
foreign governments, the possibility of currency blockage or the imposition of
withholding taxes on dividend or interest payments, and the potential for
expropriation, nationalization or confiscatory taxation and limitations on the
use or removal of funds or other assets.
Among the foreign securities in which the Fund may invest are those issued
by companies located in developing countries, which are countries in the initial
stages of their industrialization cycles. Investing in the equity and debt
markets of developing countries involves exposure to economic structures that
are generally less diverse and less mature, and to political systems that can be
expected to have less stability, than those of developed countries. The markets
of developing countries historically have been more volatile than the markets of
the more mature economies of developed countries, but often have provided higher
rates of return to investors. The Fund may also invest in debt securities of
foreign governments.
The Fund may purchase American Depositary Receipts ('ADRs') or U.S.
dollar-denominated securities of foreign issuers that are not included in the
25% foreign securities limitation. ADRs are receipts issued by U.S. banks or
trust companies in respect of securities of foreign issuers held on deposit for
use in the U.S. securities markets. While ADRs may not necessarily be
denominated in the same currency as the securities into which they may be
converted, many of the risks associated with foreign securities may also apply
to ADRs.
Short-Term Investments
As noted above, in certain circumstances the Fund may invest in short-term
money market instruments such as obligations of the U.S. Government and its
agencies and instrumentalities, high quality commercial paper (rated 'A-1' or
better by S&P or 'P-1' or better by Moody's) and bank certificates of deposit
and time deposits, and may engage in repurchase agreement transactions with
respect to those instruments.
In addition, the Fund may invest in money market mutual funds not
affiliated with the Fund, Lehman Brothers or Gabelli & Company. The investment
policy with respect to investment companies generally is set forth below under
'Other Investment Companies.'
Other Investment Companies
The Fund reserves the right to invest up to 10% of its total assets in the
securities of money market mutual funds, which are open-end investment
companies, and closed-end investment companies, including small business
investment companies, none of which are affiliated with the Fund, Lehman
Brothers or Gabelli & Company. Not more than 5% of the Fund's total assets may
be invested in the securities of any one investment company and the Fund may not
own more than 3% of the securities of any investment company.
Investment in Small, Unseasoned Companies and Other Illiquid Securities
The Fund may invest up to 5% of its net assets in small, less well-known
companies which (including predecessors) have operated less than three years.
The securities of these kinds of companies may have limited liquidity.
8
<PAGE>
The Fund will not, in the aggregate, invest more than 10% of its net assets
in small, unseasoned companies, securities that are restricted for public sale,
securities for which market quotations are not readily available, repurchase
agreements maturing or terminable in more than seven days and all other illiquid
securities. Securities freely salable among qualified institutional investors
under special rules adopted by the Securities and Exchange Commission ('Rule
144A') may be treated as liquid if they satisfy liquidity standards established
by the Board of Directors. The continued liquidity of such securities is not as
well assured as that of publicly traded securities, and accordingly, the Board
of Directors will monitor their liquidity.
Borrowing
The Fund may not borrow money except for (1) short-term credits from banks
as may be necessary for the clearance of portfolio transactions, and (2)
borrowings from banks for temporary or emergency purposes, including the meeting
of redemption requests, that would otherwise require the untimely disposition of
the Fund's portfolio securities. Borrowing for any purpose, including
redemptions, may not, in the aggregate, exceed 15% of the value of the Fund's
total assets, and borrowing for purposes other than meeting redemptions may not
exceed 5% of the value of the Fund's total assets, and borrowing for purposes
other than meeting redemptions may not exceed 5% of the value of the Fund's
total assets at the time borrowing is made. The Fund will not borrow (leverage)
to make additional investment when any borrowing remains unpaid. The Fund will
not mortgage, pledge or hypothecate any of its assets except that, in connection
with the borrowings described above, not more than 20% of the total assets of
the Fund may be used as collateral.
Repurchase Agreements
The Fund may enter into repurchase agreements with primary government
securities dealers recognized by the Federal Reserve Bank of New York and member
banks of the Federal Reserve System that furnish collateral at least equal in
value or market price to the amount of their repurchase obligation. In a
repurchase agreement, the Fund purchases a debt security from a seller which
undertakes to repurchase the security at a specified resale price on an agreed
future date. Repurchase agreements are generally for one business day and
generally will not have a duration of longer than one week. The SEC has taken
the position that, in economic reality, a repurchase agreement is a loan by the
Fund to the other party to the transaction secured by securities transferred to
the Fund. The resale price generally exceeds the purchase price by an amount
which reflects an agreed upon market interest rate for the term of the
repurchase agreement. The primary risk is that, if the seller defaults, the Fund
might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by the Fund are less than the
repurchase price. The Board of Directors will monitor the creditworthiness of
the other parties to the repurchase agreements.
The Fund may not enter into repurchase agreements which would cause more
than 5% of the value of its total asset to be so invested. This percentage
limitation does not apply to repurchase agreements involving U.S. Government
obligations, or obligations of its agencies or instrumentalities, for a period
of a week or less. The term of each of the Fund's repurchase agreements will
always be less than one year and the Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together with all
other illiquid securities in the Fund's portfolio, more than 10% of its net
assets would be so invested.
Short Sales Against the Box
Currently, the Fund may from time to time make short sales of securities it
owns or has the right to acquire through conversion or exchange of other
securities its owns. A short sale is 'against the box' to the extent that the
Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short. In a short sale, the Fund does not
immediately deliver the Securities sold or receive the proceeds from the sale.
The Fund may not make short sales or maintain a short position if it would cause
more than 25% of the Fund's total assets, taken at market value, to be held as
collateral for the sales.
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<PAGE>
The Fund may make a short sale in order to hedge against market risks when
it believes that the price of a security may decline, causing in the value of a
security owned by the Fund or security convertible into, or exchangeable for,
the security, or when the Fund does not want to sell the security it owns,
because, among other reasons, it wishes to defer recognition of gain or loss for
U.S. Federal income tax purposes.
If approved by the Fund's shareholders, the Board of Directors of the Fund
intends to replace the current fundamental limitation with a non-fundamental
limitation that could be changed by the Fund's Directors without a vote of
shareholders. The proposed non-fundamental limitation would allow the Fund to
make short sales of securities so long as the market value of the securities
sold short of any one issuer will not exceed either 5% of the Fund's total
assets or 5% of such issuer's voting securities. The Fund will not make a short
sale if, after giving effect to such sale, the market value of all securities
sold short by the Fund exceeds 25% of the value of its total assets or the
Fund's aggregate short sales of a particular class of securities exceeds 25% of
the outstanding securities of that class. However, the Fund may make short sales
against the box without regard to such limitations.
Options
The Fund may purchase or sell (that is, write) listed options on securities
as a means of achieving additional return or of hedging the value of the Fund's
portfolio. The Fund may write covered call options on common stocks that it owns
or has an immediate right to acquire through conversion or exchange of other
securities in an amount not to exceed 25% of total assets; or invest up to 10%
of its total assets in the purchase of put options on common stocks that the
Fund owns or may acquire through the conversion or exchange of other securities
that it owns. The Fund may only buy options that are listed on a national
securities exchange.
A call option is a contract that gives the holder of the option the right
to buy from the writer (seller) of the call option, in return for a premium
paid, the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option has the
obligation upon exercise of the option to deliver the underlying security upon
payment of the exercise price during the option period.
A put option is a contract that, in return for the premium, gives the
holder of the option the right to sell to the writer (seller) 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 during the option period.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. There can be no
assurance that a closing purchase transaction can be effected when the Fund so
desires.
An option may be closed out only on an exchange that provides a secondary
market for an option of the same series. Although the Fund will generally
purchase or write only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option. The Fund will not purchase
options if, as a result, the aggregate cost of all outstanding options exceeds
10% of the Fund's total assets.
The Fund may write put and call options on stock indexes for the purposes
of increasing its gross income and to protect its portfolio against declines in
the value of the securities it owns or increases in the value of securities to
be acquired. In addition, the Fund may purchase the put and all options on stock
indexes in order to hedge its investments against a decline in value or to
attempt to reduce the risks of missing a market or industry segment advance.
Options on stock indexes are similar to options on specific securities. However,
because options on stock indexes do not involve the delivery of an underlying
security, the option represents the holder's right to obtain from the writer
cash in an amount equal to a fixed multiple of the amount by which the exercise
price exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying stock
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index on the exercise date. Therefore, while one purpose of writing such options
is to generate additional income for the Fund, the Fund recognizes that it may
be required to deliver an amount of cash in excess of the market value of a
stock index at such time as an option written by the Fund is exercised by the
holder. The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The successful use of
protective puts for hedging purposes depends in part on the Adviser's ability to
predict future price fluctuations and the degree of correlation between the
options and securities markets.
When Issued, Delayed Delivery Securities and Forward Commitments
The Fund may enter into forward commitments for the purchase of securities.
Such transactions may include purchase on a 'when issued' or 'delayed delivery'
basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization of debt restructuring, i.e., a when, as and if issued
security. When such transactions are negotiated, the price is fixed at the time
of the commitment, with payment and delivery taking place in the future,
generally a month or more after the date of the commitment. While the Fund will
only enter into a forward commitment with the intention of actually acquiring
the security, the Fund may sell the security before the settlement date if it is
deemed advisable. Securities purchased under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the Fund prior to the
settlement date.
Lending of Portfolio Securities
The Fund may lend securities from its portfolio to brokers, dealers and
other financial organizations. This practice is expected to help the Fund
generate revenue to defray certain operating expenses. Loans by the Fund, if and
when made, (1) will be collateralized in accordance with applicable regulatory
requirements and (2) will be limited so that the value of all loaned securities
does not exceed 33% of the value of the Fund's total assets. The current
intention of the Fund, however, is to limit the value of all loaned securities
to no more than 5% of the Fund's total assets. Under extreme circumstances,
there may be a restriction on the Fund's ability to sell the collateral and the
Fund could suffer a loss.
Futures Contracts and Options on Futures
Depending upon market conditions prevailing at such time and its perceived
investment needs, the Fund may enter into futures contracts and options on
futures contracts that are traded on a U.S. exchange or board of trade. These
investments, if any, may be made by the Fund solely for the purpose of hedging
against changes in the value of its portfolio securities and the aggregate
initial margins and premiums thereon would not constitute more than 5% of the
Fund's total assets.
Futures and options on futures entail certain risks, including but not
limited to the following: no assurance that futures contacts or options on
futures can be offset at favorable prices, possible reduction of the Fund's
yield due to the use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due to
daily limits on price fluctuation, imperfect correlation between the contracts
and the securities being hedged, and potential losses in excess of the amount
invested in the futures contracts themselves.
Net Asset Value of the Fund Shares
The Fund's net asset value per share is calculated on each day, Monday
through Friday, except days on which the New York Stock Exchange ('NYSE') is
closed. The NYSE is currently scheduled to be closed on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving
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and Christmas and on the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday, respectively.
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE, currently 4:00 p.m., New York time, and is computed
by dividing the value of the Fund's net assets by the total number of its shares
outstanding. The Fund uses market quotations in valuing its portfolio
securities. Short-term investments that mature in 60 days or less are valued at
amortized cost whenever the Fund's Board of Directors determines that amortized
cost reflects fair value of these investments.
The Fund's Investment Manager
Gabelli Funds, Inc. was organized in 1980 and serves as investment adviser
to the Fund. Gabelli Funds, Inc. also serves as the investment adviser to The
Gabelli Small Cap Growth Fund; The Gabelli Equity Income Fund; The Gabelli
Growth Fund; The Gabelli Asset Fund; The Gabelli Convertible Securities Fund;
The Gabelli ABC Fund; The Gabelli Global Telecommunications Fund; and The
Gabelli US Treasury Money Market Fund, open-end investment companies having
assets as of December 31, 1993 in excess of $200 million, $50 million, $675
million, $925 million, $105 million, $9 million, $45 million and $180 million,
respectively, and The Gabelli Equity Trust Inc., a closed-end investment company
having assets in excess of $925 million. Another subsidiary of Gabelli Funds,
Inc. is GAMCO Investors, Inc. ('GAMCO'), an investment adviser for individuals,
pension trusts, profit-sharing trusts and endowments, having aggregate assets in
excess of $4.2 billion under its management. The current business address of
Gabelli Funds, Inc. is One Corporate Center, Rye, New York 10580-1434.
The Adviser and its affiliates act as investment advisers to the other
clients that may invest in the same securities. As a result, clients of the
Adviser and its affiliates hold substantial positions in the same issuers of
securities. If a substantial position in an issuer is held, liquidity and
concentration considerations may limit the ability of the Adviser to add to the
position on behalf of the Fund or other clients or to readily dispose of the
position. Although the availability at acceptable prices of such securities may
from time to time be limited, it is the policy of the Adviser and its affiliates
to allocate purchases and sales of such securities in a manner believed by the
Adviser to be equitable to all clients, including the Fund. The Adviser may on
occasion give advice or take action with respect to other clients from the
actions taken with respect to the Fund.
Mr. Mario J. Gabelli is Chairman of the Board, President and Chief
Investment Officer of the Adviser and of the Fund. He acts as Chairman of the
Board of GAMCO. Mr. Gabelli is also the Chief Executive Officer of GAMCO and
various other companies owned or controlled by Gabelli Funds, Inc. Except for
The Gabelli Growth Fund, accounts under the management of the Adviser and GAMCO
will tend, subject to differences in investment objectives and authorized
investment practices, to hold many of the same securities because all the
accounts are under the overall direction of Mr. Gabelli. In addition to his
positions with Gabelli Funds, Inc. and its subsidiaries, Mr. Gabelli serves as
an officer and/or director of various other companies. Owing to the diverse
nature of Mr. Gabelli's responsibilities with respect to Gabelli Funds, Inc.,
its subsidiaries and other companies with which he is affiliated, he will devote
less than substantially all of his time to the Fund, although this is not
expected to affect adversely the operations or management of the Fund. There is
no contract of employment between Mr. Gabelli and Gabelli Funds, Inc. or any of
its subsidiaries and there can be no assurance that a suitable replacement could
be found for him in the event of his death, disability or resignation.
As compensation for its services and the related expenses borne by the
Adviser, the Adviser is paid a fee, computed and payable monthly, equal, on an
annual basis, to 0.75% of the value of the Fund's average daily net assets,
which is higher than that paid by most mutual funds. By its agreement with the
Fund, the Adviser has undertaken certain expense reimbursement obligations.
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The Fund's Plan of Distribution
Pursuant to a Distribution Plan (the 'Plan') adopted by the Fund pursuant
to Rule 12b-1 under the 1940 Act, the Fund will make monthly payments to
registered broker-dealers, including the underwriters, who enter into agreements
with the Fund (each, a 'Designated Dealer') calculated at the annual rate of
0.25% of the value of the average daily net assets of the Fund attributable to
outstanding shares of the Fund sold by the Designated Dealer (including
additional shares acquired by reinvestment of dividends). Gabelli & Company also
will be reimbursed annually by other Designated Dealers (pro rata based on the
amounts paid to such Designated Dealers under the Plan) for out-of-pocket
distribution expenses incurred in respect of the Fund in an amount equal to the
excess, if any, of (i) $150,000 over (ii) the amounts otherwise paid to Gabelli
& Company as a Designated Dealer during such year. Such reimbursements, however,
will not increase the amounts payable under the Plan by the Fund to Gabelli &
Company or other Designated Dealers. Gabelli & Company may in turn enter into
selling agreements with Soliciting Broker-Dealers whereby all or a portion of
the monthly payments paid to Gabelli & Company pursuant to the Plan will be paid
by Gabelli & Company to a Soliciting Broker-Dealer for activities intended to
result in the distribution of Fund shares.
Payments under the Plan are not tied exclusively to the distribution
expenses actually incurred by Designated Dealers and such payments may exceed
their distribution expenses. Expenses incurred in connection with the offering
and sale of shares may include, but are not limited to, payments to the
Designated Dealer's (or its affiliates') sales personnel for selling shares of
the Fund; costs of printing and distributing the other Designated Dealer branch
office distribution-related expenses; payments to and expenses of persons who
provide support services in connection with the distribution of shares of the
Fund; and financing costs on the amount of the foregoing expenses.
The Fund's Board of Directors will evaluate the appropriateness of the Plan
and its payment terms on a continuing basis and in doing so will consider all
relevant factors, including expenses borne by Designated Dealers in the current
year and in prior years and amounts received under the Plan.
The Sponsor will not receive any Rule 12b-1 fees from the Fund. Any Rule
12b-1 fees paid by the Fund's distributor to the Trustee for performing
servicing functions with respect to the Fund Shares will be used to reduce
directly the expenses and fees otherwise payable by the Trust to the Trustee.
There can be no assurance that the Trustee will receive any Rule 12b-1 fees in
the future.
PORTFOLIO
The Trust consists of the Securities (or contracts to purchase such
Securities together with an irrevocable letter or letters of credit for the
purchase of such contracts) and Additional Securities deposited upon the
creation of additional Units as set forth above and Substitute Securities
acquired by the Trust as long as such Securities may continue to be held from
time to time in the Trust together with uninvested cash realized from the
disposition of Securities. Because certain of the Securities from time to time
may be sold under certain circumstances, as described herein, no assurance can
be given that the Trust will retain for any length of time its present size and
composition. The Trustee has not participated and will not participate in the
selection of Securities for the Trust, and neither the Sponsor nor the Trustee
will be liable in any way for any default, failure or defect in any Securities.
Some of the Securities are publicly traded in the over-the-counter market.
The contracts to purchase Securities deposited initially in the Trust are
expected to settle in five business days, in the ordinary manner for such
Securities. Settlement of the contracts for Securities is thus expected to take
place prior to the settlement of purchase of Units on the Initial Date of
Deposit.
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SUBSTITUTION OF SECURITIES
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Securities. In the event of a failure
to deliver any Security that has been purchased for the Trust under a contract
('Failed Securities'), the Sponsor is authorized under the Trust Agreement to
direct the Trustee to acquire other securities ('Substitute Securities') to make
up the original corpus of the Trust.
The Substitute Securities must be purchased within 20 days after the sale
of the portfolio Security or delivery of the notice of the failed contract.
Where the Sponsor purchases Substitute Securities in order to replace Failed
Securities, (i) the purchase price may not exceed the purchase price of the
Failed Securities and (ii) the Substitute Securities must be substantially
similar to the Securities originally contracted for and not delivered. Where the
Sponsor purchases Substitute Securities in order to replace Securities they
sold, the Sponsor will endeavor to select Securities which are securities that
possess characteristics that are consistent with the objectives of the Trust as
set forth above. Such selection may include or be limited to Securities
previously included in the portfolio of the Trust.
Whenever a Substitute Security has been acquired for the Trust, the Trustee
shall, within five days thereafter, notify all Certificateholders of the Trust
of the acquisition of the Substitute Security and the Trustee shall, on the next
Distribution Date which is more than 30 days thereafter, make a pro rata
distribution of the amount, if any, by which the cost to the Trust of the Failed
Security exceeded the cost of the Substitute Security plus accrued interest, if
any.
In the event no reinvestment is made, the proceeds of the sale of
Securities will be distributed to Certificateholders as set forth under 'Rights
of Certificateholders--Distributions.' In addition, if the right of substitution
shall not be utilized to acquire Substitute Securities in the event of a failed
contract, the Sponsor will cause to be refunded the sales charge attributable to
such Failed Securities to all Certificateholders of the Trust, and distribute
the principal and accrued interest attributable to such Failed Securities on the
next Distribution Date.
Because certain of the Securities from time to time may be substituted (see
'Trust Administration-- Portfolio Supervision') or may be sold under certain
circumstances, no assurance can be given that the Trust will retain its present
size and composition for any length of time. The proceeds from the sale of a
Security or the exercise of any redemption or call provision will be distributed
to Certificateholders except to the extent such proceeds are applied to meet
redemptions of Units. (See 'Liquidity--Trustee Redemption.')
RISK FACTORS
FIXED PORTFOLIO
The value of the Units will fluctuate depending on all the factors that
have an impact on the economy and the equity markets. These factors similarly
impact on the ability of an issuer to distribute dividends. The Trust is not a
'managed registered investment company' and Securities will not be sold by the
Trustee as a result of ordinary market fluctuations. Additionally, the Trust
will not elect to reinvest any distributions it is entitled to as a result of
its ownership of shares on the Fund. Unlike a managed investment company in
which there may be frequent changes in the portfolio of securities based upon
economic, financial and market analyses, securities of a unit investment trust,
such as the Trust, are not subject to such frequent changes based upon
continuous analysis. However, the Sponsor may direct the disposition by the
Trustee of Securities upon the occurrence of certain events. (See 'Trust
Administration--Portfolio Supervision' below.)
14
<PAGE>
FUND SHARES AND TREASURY OBLIGATIONS
The Sponsor has taken steps to ensure that an investment in Fund Shares is
equitable to all parties and particularly that the interest of the
Certificateholders are protected. Accordingly, any sales charges which would
otherwise be applicable will be waived on Fund Shares sold to the Trust, since
the Sponsor is receiving the sales charge on all Units sold. In addition, the
Trust Agreement 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 or 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 or such opportunities as may
occur. In addition, in the event of the inability of the Fund's 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.
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
equity securities since the Portfolio of the Fund is invested in equity
securities which the Fund's Adviser believes are undervalued and that by virtue
of anticipated developments or catalysts particularly applicable to such
companies may, in the Adviser's judgment, achieve significant appreciation.
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 an amount of taxable original issue
discount of the Treasury Obligations which was previously accrued and included
in the income of the Certificateholders.
A CERTIFICATEHOLDER 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 SUCH 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 value of the
Securities calculated immediately after the most recent deposit of Securities in
the Trust. Early termination of the Trust may have important consequences to the
Certificateholder; 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 Certificateholder.
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
Certificateholders in proportion to their respective interests therein, unless a
Certificateholder elects to receive Fund Shares 'in kind.' (See 'Trust
Administration--Trust Termination.') Proceeds from the sale of the Treasury
Obligations will be paid in cash.
In the event of a notice that any Treasury Obligation will not be delivered
('Failed Treasury Obligations'), the Sponsor is authorized under the Indenture
to direct the Trustee to acquire other Treasury Obligations ('Replacement
Treasury Obligations') within a period ending on the earlier of the first
distribution of cash to the Trust Certificateholders or 90 days after the Date
of Deposit. The cost of the Replacement Treasury Obligations may not exceed the
cost of the Treasury Obligations which they replace. Any Replacement Treasury
15
<PAGE>
Obligation deposited in the Trust will be substantially identical to every
Treasury Obligation then in the Trust. Whenever a Replacement Treasury
Obligation has been acquired for the Trust, the Trustee shall, within 5 days
thereafter, notify Certificateholders of the acquisition of the Replacement
Treasury Obligation.
In the event a contract to purchase Securities fails and Replacement
Treasury Obligations are not acquired, the Trustee will distribute to
Certificateholders the funds attributable to the failed contract. The Sponsor
will, in such case, refund the sales charge applicable to the failed contract.
If less than all the funds attributable to a failed contract are applied to
purchase Replacement Treasury Obligations, the remaining money will be
distributed to Certificateholders.
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 Certificateholder's investment but may dispose of Securities only
under limited circumstances.
To the best of the Sponsor's knowledge there was no litigation pending as
of the Initial 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 Initial 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.
Investors should consult with their own financial advisers prior to
investing in the Trust to determine its suitability. (See 'Trust
Administration--Portfolio Supervision.') All the Securities in the Trust are
liquidated during a 60 day period prior to the termination of the Trust. Since
the Trust will not sell Securities in response to ordinary market fluctuation,
but only at the Trust's termination, the amount realized upon the sale of the
Securities may not be the highest price attained by an individual Security
during the life of the Trust.
There is no assurance that any dividends will be declared or paid in the
future on the Fund Shares. Investors should be aware that there is no assurance
that the Trust's objectives will be achieved.
RISKS OF INVESTING IN LOWER RATED SECURITIES
As a matter of current operating policy, the Fund will not invest more than
35% of its total assets in lower rated securities (Baa by Moody's or BBB by S&P)
and comparable unrated securities (collectively commonly known as 'junk bonds').
No minimum rating standard is required by the Fund. These lower rated securities
are considered speculative and, while generally providing greater income than
investments in higher rated securities, will involve greater risk of principal
and income (including the possibility of default or bankruptcy of the issuers of
such securities) and may involve greater volatility of price (especially during
periods of economic uncertainty or change) than securities in the higher rating
categories and because yields vary over time, no specific level of income can
ever be assured. These lower rated securities generally tend to reflect economic
changes (and the outlook for economic growth) short-term corporate and industry
developments and the market's perception of their credit quality (especially
during times of adverse publicity) to a greater extent than during times of
adverse publicity) to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates (although these
lower rated securities are also affected by changes in interest rates). In the
past, economic downturns or an increase in interest rates have, under certain
circumstances, caused a higher incidence of default by the issuers of these
securities and may do so in the future, especially in the case of highly
leveraged issuers. The prices for these securities may be affected by
legislative and regulatory developments. For example, federal rules require that
savings and loan associations gradually reduce their holdings of securities. An
effect of such legislation may be to depress the prices of outstanding lower
rated securities. In addition, investment in these lower rated securities may
involve greater liquidity and valuation risks than those for investment grade
securities. To the extent there is no established secondary market for these
securities, there could be thin trading of such securities which could adversely
impact the Board of Directors' ability to accurately value such securities and
the Fund's assets. Furthermore, the liquidity of these lower rated securities
may be affected by the market's
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<PAGE>
perception of their credit quality. Therefore, the judgment of the Fund's
Adviser may at times play a greater role in valuing these securities than in the
case of investment grade securities, and it also may be more difficult during
times of certain adverse market conditions to dispose of these lower rated
securities to meet redemption requests or to respond to changes in the market.
PUBLIC OFFERING
OFFERING PRICE
The Public Offering Price per 100 Units of the Trust is equal to the
aggregate value of the underlying Securities (the price at which they could be
directly purchased by the public assuming they were available) in the Trust
divided by the number of Units outstanding times 100 plus a sales charge of 4.9%
of the Public Offering Price per 100 Units (excluding any transaction fees) or
5.152% of the net amount invested in Securities per 100 Units. In addition, the
net amount invested in Securities will involve a proportionate share of amounts
in the Income Account and Principal Account, if any. The Public Offering Price
can vary on a daily basis from the amount stated on the cover of this Prospectus
in accordance with fluctuations in the market value of the Securities and the
price to be paid by each investor will be computed as of the date the Units are
purchased.
The aggregate value of the Securities is determined in good faith by the
Evaluator on each 'Business Day' as defined in the Trust Agreement in the
following manner: during the initial offering period on the basis of the net
asset value of the Fund Shares and the offering side evaluation of the Treasury
Obligations and following the initial offering period on the basis of the net
asset value of the Fund Shares and the bid side evaluation of the Treasury
Obligations. The evaluation generally shall be based on the closing purchase
price in the over-the-counter market (unless the Evaluator deems these prices
inappropriate as a basis for evaluation) or if there is no such closing purchase
price, then the Evaluator may ascertain the values of the Treasury Obligations
using any of the following methods, or a combination thereof, which it deems
appropriate: (a) on the basis of current offering prices for the Treasury
Obligations as obtained from investment dealers or brokers who customarily deal
in securities comparable to those held in the Trust, (b) if offering prices are
not available for the Treasury Obligations, on the basis of current offering
prices for comparable securities, (c) by appraising the value of the Treasury
Obligations on the offering side of the market or by such other appraisal deemed
appropriate by the Evaluator or (d) by any combination of the above, each as of
the Evaluation Time.
VOLUME AND OTHER DISCOUNTS
Units of the Trust are available at a volume discount from the Public
Offering Price during the initial public offering. This volume discount will
result in a reduction of the sales charge applicable to such purchases. The
amount of the volume discount and the approximate reduced sales charge on the
Public Offering Price applicable to such purchases are as follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS APPROXIMATE REDUCED SALES CHARGE
- ------------------------------ -------------------------------------
<S> <C>
10,000 but less than 25,000 4.7%
25,000 but less than 50,000 4.5%
50,000 but less than 75,000 4.3%
75,000 but less than 100,000 4.1%
100,000 or more 3.7%
</TABLE>
These discounts will apply to all purchases of Units by the same purchaser
during the initial public offering period. Units purchased by the same
purchasers in separate transactions during the initial public offering period
will be aggregated for purposes of determining if such purchaser is entitled to
a discount provided that such purchaser must own at least the required number of
Units at the time such determination is made. Units held in
17
<PAGE>
the name of the spouse of the purchaser or in the name of a child of the
purchaser under 21 years of age are deemed for the purposes hereof to be
registered in the name of the purchaser. The discount is also applicable to a
trustee or other fiduciary purchasing securities for a single trust estate or
single fiduciary account.
Employees (and their immediate families) of Bear, Stearns & Co. Inc.,
Gabelli Funds, Inc., and of any underwriter of the Trust may, pursuant to
employee benefit arrangements, purchase Units of the Trust at a price equal to
the then market value of the underlying securities in the Trust during the
initial offering period, divided by the number of Units outstanding plus a
reduced sales charge of up to a maximum of 1.75% per Unit. Such arrangements
result in less selling effort and selling expenses than sales to employee groups
of other companies. Resales or transfers of Units purchased under the employee
benefit arrangements may only be made through the Sponsor's secondary market, so
long as it is being maintained.
DISTRIBUTION OF UNITS
During the initial offering period (i) Units issued on the Initial Date of
Deposit and (ii) additional Units issued after such date in respect of deposits
of Additional Securities, will be distributed by the Sponsor, the Underwriters
and dealers at the Public Offering Price. (See 'Underwriting Syndicate' in Part
A.) The initial offering period in each case is thirty days unless extended by
the Sponsor for Units specified in (i) and (ii) in the preceding sentence.
Certain banks and thrifts will make Units of the Trust available to their
customers on an agency basis. A portion of the sales charge paid by their
customers is retained by or remitted to the banks. Under the Glass-Steagall Act,
banks are prohibited from underwriting Units; however, the Glass-Steagall Act
does permit certain agency transactions and the banking regulators have
indicated that these particular agency transactions are permitted under such
Act. In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
The Sponsor intends to qualify the Units for sale in substantially all
States through the Underwriters and through dealers who are members of the
National Association of Securities Dealers, Inc. Units may be sold to dealers at
prices which represent a concession of up to 3% per Unit, subject to the
Sponsor's right to change the dealers' concession from time to time. In
addition, for transactions of 100,000 Units or more, the Sponsor intends to
negotiate the applicable sales charge and such charge will be disclosed to any
such purchaser. Such Units may then be distributed to the public by the dealers
at the Public Offering Price then in effect. The Sponsor reserves the right to
reject, in whole or in part, any order for the purchase of Units. In addition,
any dealer, underwriter or firm who purchases Units on the Initial Date of
Deposit will be paid an additional concession of $1.00 per 100 Units purchased
that day. The Sponsor reserves the right to reject, in whole or in part, any
order for the purchase of Units. The Sponsor reserves the right to change the
discounts from time to time.
Underwriters and broker-dealers of the Trust, banks and/or others are
eligible to participate in a program in which such firms receive from the
Sponsor a nominal award for each of their registered representatives who have
sold a minimum number of units of unit investment trusts created by the Sponsor
during a specified time period. In addition, at various times the Sponsor may
implement other programs under which the sales forces of underwriters, brokers,
dealers, banks and/or others may be eligible to win other nominal awards for
certain sales efforts, or under which the Sponsor will reallow to any such
underwriters, brokers, dealers, banks and/or others that sponsor sales contests
or recognition programs conforming to criteria established by the Sponsor, or
participate in sales programs sponsored by the Sponsor, an amount not exceeding
the total applicable sales charges on the sales generated by such person at the
public offering price during such programs. Also, the Sponsor in its discretion
may from time to time pursuant to objective criteria established by the Sponsor
pay fees to qualifying underwriters, brokers, dealers, banks and/or others for
certain services or activities which are primarily intended to result in sales
of Units of the Trust. Such payments are made by the Sponsor out of its own
assets and not out of the assets of the Trust. These programs will not change
the price Certificateholders pay for their Units or the amount that the Trust
will receive from the Units sold.
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<PAGE>
FREQUENT BUYER PROGRAM
Any dealer, underwriter, or firm whose total combined purchases of the
Trust and other unit investment trusts sponsored by Bear, Stearns & Co. Inc.
('MST/EST Units') from Bear, Stearns & Co. Inc. in a single calendar month fall
in any of the levels listed below, will be paid an additional concession.
<TABLE>
<CAPTION>
AGGREGATE MONTHLY ADDITIONAL
AMOUNTS OF MST/EST CONCESSION
UNITS SOLD AT (PER $1,000.00)
PUBLIC OFFERING PRICE SOLD
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
$1,000,000 but less than $2,000,000.................................................... $ 0.50
$2,000,000 but less than $4,500,000.................................................... $ 1.00
$4,500,000 but less than $7,000,000.................................................... $ 1.50
$7,000,000 or more..................................................................... $ 2.00
</TABLE>
SPONSOR'S AND UNDERWRITERS' PROFITS
The Sponsor and the Underwriters will receive a gross underwriting
commission equal to 4.9% of the Public Offering Price per 100 Units (equivalent
to 5.152% of the net amount invested in the Securities). Additionally, the
Sponsor may realize a profit on the deposit of the Securities in the Trust
representing the difference between the cost of the Securities to the Sponsor
and the cost of the Securities to the Trust (See 'Portfolio.') The Sponsor or
any Underwriter may realize profits or sustain losses with respect to Securities
deposited in the Trust which were acquired from underwriting syndicates of which
they were a member.
The Sponsor may have participated as an underwriter or manager, co-manager
or member of underwriting syndicates from which some of the aggregate principal
amount of the Securities were acquired for the Trust. All or a portion of the
Securities deposited in the Trust may have been acquired through the Sponsor.
During the initial offering period and thereafter to the extent additional
Units continue to be offered by means of this Prospectus, the underwriting
syndicate may also realize profits or sustain losses as a result of fluctuations
after the Initial Date of Deposit in the aggregate value of the Securities and
hence in the Public Offering Price received by the Sponsor and the Underwriters
for the Units. Cash, if any, made available to the Sponsor prior to settlement
date for the purchase of Units may be used in the Sponsor's business subject to
the limitations of 17 CFR 240.15c3-3 under the Securities Exchange Act of 1934
and may be of benefit to the Sponsor.
Upon termination of the Trust, the Trustee may utilize the services of the
Sponsor for the sale of all or a portion of the Securities in the Trust.
In maintaining a market for the Units (see 'Sponsor Repurchase') the
Sponsor will realize profits or sustain losses in the amount of any difference
between the price at which they buy Units and the price at which they resell
such Units.
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<PAGE>
RIGHTS OF CERTIFICATEHOLDERS
CERTIFICATES
Ownership of Units of the Trust is evidenced by registered Certificates
executed by the Trustee and the Sponsor. Certificates may be issued in
denominations of one hundred or more Units. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed and/or accompanied
by a written instrument or instruments of transfer. Although no such charge is
presently made or contemplated, the Trustee may require a Certificateholder to
pay $2.00 for each Certificate reissued or transferred and any governmental
charge that may be imposed in connection with each such transfer or interchange.
Mutilated, destroyed, stolen or lost Certificates will be replaced upon delivery
of satisfactory indemnity and payment of expenses incurred.
DISTRIBUTIONS
Dividends and interest received by the Trust are credited by the Trustee to
an Income Account for the Trust. Other receipts, including the proceeds of
Securities disposed of, are credited to a Principal Account for the Trust.
Distributions to each Certificateholder from the Income Account are
computed as of the close of business on the Record Date for the Distribution
Date. Distributions from the Principal Account of the Trust (other than amounts
representing failed contracts, as previously discussed) will be computed as of
the Record Date, and will be made to the Certificateholders of the Trust on or
shortly after the Distribution Date. Proceeds representing principal received
from the disposition of any of the Securities between a Record Date and a
Distribution Date which are not used for redemptions of Units will be held in
the Principal Account and not distributed until the next Distribution Date. No
distributions will be made to Certificateholders electing to participate in the
Total Reinvestment Plan. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the Distribution Date
following the first Record Date on which they are a Certificateholder of record.
As of each Record Date, the Trustee will deduct from the Income Account of
the Trust, and, to the extent funds are not sufficient therein, from the
Principal Account of the Trust, amounts necessary to pay the expenses of the
Trust (as determined on the basis set forth under 'Trust Expenses and Charges').
The Trustee also may withdraw from said accounts such amounts, if any, as it
deems necessary to establish a reserve for any applicable taxes or other
governmental charges that may be payable out of the Trust. Amounts so withdrawn
shall not be considered a part of such Trust's assets until such time as the
Trustee shall return all or any part of such amounts to the appropriate
accounts. In addition, the Trustee may withdraw from the Income and Principal
Accounts such amounts as may be necessary to cover redemptions of Units by the
Trustee.
The dividend distribution per 100 Units cannot be estimated and will change
and may be reduced as Securities are redeemed, exchanged or sold, or as expenses
of the Trust fluctuate. No distribution need be made from the Principal Account
until the balance therein is an amount sufficient to distribute $1.00 per 100
Units.
RECORDS
The Trustee shall furnish Certificateholders in connection with each
distribution a statement of the amount of dividends and interest, if any, and
the amount of other receipts, if any, which are being distributed, expressed in
each case as a dollar amount per 100 Units. Within a reasonable time after the
end of each calendar year the Trustee will furnish to each person who at any
time during the calendar year was a Certificateholder of record, a statement
showing (a) as to the Income Account: dividends, interest and other cash amounts
received, amounts paid for purchases of Substitute Securities and redemptions of
Units, if any, deductions for applicable taxes and fees and expenses of the
Trust, and the balance remaining after such distributions and deductions,
expressed both
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<PAGE>
as a total dollar amount and as a dollar amount representing the pro rata share
of each 100 Units outstanding on the last business day of such calendar year;
(b) as to the Principal Account: the dates of disposition of any Securities and
the net proceeds received therefrom, deductions for payments of applicable taxes
and fees and expenses of the Trust, amounts paid for purchases of Substitute
Securities and redemptions of Units, if any, 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 100 Units outstanding
on the last business day of such calendar year; (c) a list of the Securities
held, a list of Securities purchased, sold or otherwise disposed of during the
calendar year and the number of Units outstanding on the last business day of
such calendar year; (d) the Redemption Price per 100 Units based upon the last
computation thereof made during such calendar year; and (e) amounts actually
distributed to Certificateholders during such calendar year from the Income and
Principal Accounts, separately stated, of the Trust, expressed both as total
dollar amounts and as dollar amounts representing the pro rata share of each 100
Units outstanding on the last business day of such calendar year.
The Trustee shall keep available for inspection by Certificateholders 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
Certificateholders, Certificates issued or held, a current list of Securities in
the portfolio and a copy of the Trust Agreement.
TAX STATUS
The following is a general discussion of certain of the Federal income tax
consequences of the purchase, ownership and disposition of the Units. The
summary is limited to investors who hold the Units as 'capital assets'
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the 'Code'). Certificateholders
should consult their tax advisers in determining the Federal, state, local and
any other tax consequences of the purchase, ownership and disposition of Units.
In rendering the opinion set forth below, Battle Fowler has examined the
Trust Agreement, the final form of Prospectus dated the date hereof (the
'Prospectus') and the documents referred to therein, among others, and has
relied on the validity of said documents and the accuracy and completeness of
the facts set forth therein. In the Opinion of Battle Fowler, special counsel
for the Sponsor, under existing law:
1. The Trust will be classified as a grantor trust for Federal income
tax purposes and not as a partnership or association taxable as a
corporation. Classification of the Trust as a grantor trust will cause the
Trust not to be subject to Federal Income tax, and will cause the
Certificateholders of the Trust to be treated for Federal income tax
purposes as the owners of a pro rata portion of the assets of the Trust.
All income received by the Trust will be treated as income of the
Certificateholders in the manner set forth below.
2. The Trust is not subject to the New York Franchise Tax on Business
Corporations or the New York City General Corporation Tax. For a
Certificateholder who is a New York resident, however, a pro rata portion
of all or part of the income of the Trust will be treated as the income of
the Certificateholder under the income tax laws of the State and City of
New York. Similar treatment may apply in other states.
3. During the 90-day period subsequent to the initial issuance date,
the Sponsor reserves the right to deposit Additional Securities that are
substantially similar to those establishing the Trust. This retained right
falls within the guidelines promulgated by the Internal Revenue Service
('IRS') and should not affect the taxable status of the Trust.
A taxable event will generally occur with respect to each Certificateholder
when the Trust disposes of a Security (whether by sale, exchange or redemption)
or upon the sale, exchange or redemption of Units by such Certificateholder. The
price a Certificateholder pays for his Units, including sales charges, is
allocated among his
21
<PAGE>
pro rata portion of each Security held by the Trust (in proportion to the fair
market values thereof on the date the Certificateholder purchases his Units) in
order to determine his initial cost for his pro rata portion of each Security
held by the Trust.
For Federal income tax purposes, a Certificateholder's pro rata portion of
dividends paid with respect to a Fund Shares held by a Trust are taxable as
ordinary income to the extent of such payor corporation's current and
accumulated 'earnings and profits' as defined by Section 316 of the Code. A
Certificateholder's pro rata portion of dividends paid on such Security that
exceed such current and accumulated earnings and profits will first reduce a
Certificateholder's tax basis in such Security, and to the extent that such
dividends exceed a Certificateholder's tax basis in such Security will generally
be treated as capital gain. In instances where a Certificateholder acquires his
Units shortly before the Fund declares a dividend, such Certificateholder may
realize taxable income upon the receipt of the dividend, even though the payment
is, in effect, a return of capital.
The Trust will contain Treasury Obligations which were originally issued at
a discount ('original issue discount'). In general, original issue discount can
be defined as the difference between the price at which a security was issued
and its stated redemption price at maturity. In the case of a Treasury
Obligation issued after July 2, 1982, original issue discount is deemed to
accrue on a constant interest method, which corresponds in general to the
economic accrual of interest (adjusted to eliminate proportionately on a
elapsed-time basis any excess of the amount paid for the Treasury Obligation
over the sum of the issue price and the accrued original issue discount on the
acquisition date).
Each Certificateholder will be required to include in his gross income,
original issue discount with respect to his interest in a Treasury Obligation
held by the Trust at the same time and in the same manner as though the
Certificateholder was the direct holder of such interest. The tax basis of a
Certificateholder with respect to his interest in a Treasury Obligation will be
increased by the amount of original issue discount thereon properly included in
the Certificateholder's gross income as determined for federal income tax
purposes.
The amount of gain recognized by a Certificateholder on a disposition of a
Treasury Obligation by the Trust will be equal to the difference between such
Certificateholder's pro rata portion of the gross proceeds realized by the Trust
on the disposition and the Certificateholder's tax basis in his pro rata portion
of the Treasury Obligation disposed of. Any gain recognized on a sale or
exchange of a Certificateholder's pro rata interest in a Treasury Obligation,
and not constituting a realization of accrued 'market discount' in the case of a
Treasury Obligation issued after July 18, 1984, will be capital gain. Gain
realized on the disposition of the interest of a Certificateholder in a market
discount Treasury Obligation is treated as ordinary income to the extent the
gain does not exceed the accrued market discount. A Certificateholder has an
interest in a market discount Treasury Obligation when the Certificateholder's
tax cost for his pro rata interest in the Treasury Obligation is less than the
stated redemption price thereof at maturity (or the issue price plus original
issue discount accrued up to the acquisition date, in the case of an original
issue discount Treasury Obligation). If a Certificateholder has an interest in a
market discount Treasury Obligation and has incurred debt to acquire Units, the
deductibility of a portion of the interest incurred on such debt may be
deferred.
The Trust will also own shares in the Fund, an entity that has elected and
qualified for the special tax treatment applicable to 'regulated investment
companies.' If the Fund distributes 90% or more of its investment company
taxable income to its shareholders, it will not be subject to Federal income tax
on the amounts so distributed. Moreover, if the Fund distributes at least 98% of
its investment company taxable income (including any net capital gain) it will
not be subject to the 4% excise tax on certain undistributed income of
'regulated investment companies.' Distributions by the Fund of its taxable
income to its shareholders will be taxable as ordinary income to such
shareholders. Distributions of the Fund's net capital gain, which are designated
as capital gain dividends by the Fund, will be taxable to its shareholders as
long-term capital gain, regardless of the length of time the shareholders have
held their investment in the Fund.
A Certificateholder's portion of gain, if any, upon the sale, exchange or
redemption of Units or the disposition of Securities held by the Trust will
generally be considered a capital gain and will be long-term if the
Certificateholder has held his Units for more than one year. Long-term capital
gains are generally taxed at the same rates applicable to ordinary income,
although individuals who realize long-term capital gains will be subject to a
maximum tax rate of 28% on such gains, rather than the 'regular' maximum tax
rate of 39.6%. Tax rates may increase prior to the time when Certificateholders
may realize gains from the sale, exchange or redemption of the Units or
Securities.
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A Certificateholder's portion of loss, if any, upon the sale or redemption
of Units or the disposition of Securities held by the Trust will generally be
considered a capital loss and will be long-term if the Certificateholder has
held his Units for more than one year. Capital losses are deductible to the
extent of capital gains; in addition, up to $3,000 of capital losses recognized
by non-corporate Certificateholders may be deducted against ordinary income.
A Certificateholder who itemizes his deductions may also deduct his pro
rata share of the fees and expenses of the Trust, but only to the extent that
such amounts, together with the Certificateholder's other miscellaneous itemized
deductions, exceed 2% of his adjusted gross income. The deduction of fees and
expenses may also be limited by Section 68 of the Code, which reduces the amount
of itemized deductions that are allowed for individuals with incomes in excess
of certain thresholds.
After the end of each calendar year, the Trustee will furnish to each
Certificateholder an annual statement containing information relating to the
dividends received by the Trust on the Securities, the gross proceeds received
by the Trust from the disposition of any Security, and the fees and expenses
paid by the Trust. The Trustee will also furnish annual information returns to
each Certificateholder and to the Internal Revenue Service.
A corporation that owns Units will generally be entitled to a 70% dividends
received deduction with respect to such Certificateholder's pro rata portion of
dividends that are taxable as ordinary income to Certificateholders which are
received by the Trust from a domestic corporation under section 243 of the Code
or from a qualifying foreign corporation under section 245 of the Code (to the
extent the dividends are taxable as ordinary income, as discussed above) in the
same manner as if such corporation directly owned the Securities paying such
dividends. However, a corporation owning Units should be aware that Section 246
and 246A of the Code impose additional limitations on the eligibility of
dividends for the 70% dividends received deduction. These limitations include a
requirement that stock (and therefore Units) must generally be held at least 46
days (as determined under Section 246(c) of the Code). Moreover, the allowable
percentage of the deduction will be reduced from 70% if a corporate
Certificateholder owns certain stock (or Units) the financing or which is
directly attributable to indebtedness incurred by such corporation. Accordingly,
corporate Certificateholders should consult their tax adviser in this regard.
As discussed in the section 'Trust Termination,' each Certificateholder may
have three options in receiving their termination distributions, which are (i)
to receive their pro rata share of the underlying Fund Shares in kind, and the
maturity value of the Treasury Obligations in cash, if the Certificateholder
owns at least 2,500 Units (ii) to receive cash upon liquidation of their pro
rata share of the underlying Securities, or (iii) to invest the amount of cash
they would receive upon the liquidation of their pro rata share of the
underlying Securities in units of a future series of the Trust (if one is
offered).
There are special tax consequences should a Certificateholder choose
option (i), the exchange of the Certificateholder's pro rata portion of
the Securities held by the Trust for a proportionate number of Fund
Shares plus cash equal to the Certificateholder's proportionate share of
Treasury Obligations. Treasury Regulations provide that gain or loss is
recognized when there is a conversion of property into property that is
materially different in kind or extent. In this instance, the
Certificateholder may be considered the owner of an undivided interest
in all of the Trusts's assets, and by accepting the proportionate number
of Fund Shares of the Trust in partial exchange for his Unit, the
Certificateholder should be treated as merely exchanging his undivided
pro rata ownership of Fund Shares held by the Trust into sole ownership
of a proportionate share of Fund Shares. As such, there should be no
material difference in the Certificateholder's ownership, and therefore
the transaction should be tax free to the extent the Fund Shares are
received. Alternatively, the transaction may be treated as an exchange
that would qualify for nonrecognition treatment to the extent the
Certificateholder is exchanging his undivided interest in all of the
Trust's Fund Shares for his proportionate number of shares of the
underlying Fund Shares. In either instance, the transaction should
result in a non-taxable event for the Certificateholder to the extent
Fund Shares are received. However, there is no specific authority
addressing the income tax consequences of an in-kind distribution from a
grantor trust, and investors are urged to consult their tax advisers in
this regard.
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Entities that generally qualify for an exemption from Federal income tax,
such as many pension trusts, are nevertheless taxed under Section 511 of the
Code on 'unrelated business taxable income.' Unrelated business taxable income
is income from a trade or business regularly carried on by the tax-exempt entity
that is unrelated to the entity's exempt purpose. Unrelated business taxable
income generally does not include dividend or interest income or gain from the
sale of investment property, unless such income is derived from property that is
debt-financed or is dealer property. A tax-exempt entity's dividend income from
the Trust and gain from the sale of Units in the Trust or the Trust's sale of
Securities is not expected to constitute unrelated business taxable income to
such tax-exempt entity unless the acquisition of the Unit itself is
debt-financed or constitutes dealer property in the hands of the tax-exempt
entity.
Before investing in the Trust, the trustee or investment manager of an
employee benefit plan (e.g., a pension or profit sharing retirement plan) should
consider among other things (a) whether the investment is prudent under the
Employee Retirement Income Security Act of 1974 ('ERISA'), taking into account
the needs of the plan and all of the facts and circumstances of the investment
in the Trust; (b) whether the investment satisfies the diversification
requirement of Section 404(a)(1)(C) of ERISA; and (c) whether the assets of the
Trust are deemed 'plan assets' under ERISA and the Department of Labor
regulations regarding the definition of 'plan assets.'
Prospective tax-exempt investors are urged to consult their own tax
advisers prior to investing in the Trust.
LIQUIDITY
SPONSOR REPURCHASE
The Sponsor, although not obligated to do so, intends to maintain a
secondary market for the Units and continuously to offer to repurchase the
Units. The Sponsor's secondary market repurchase price will be based on the
aggregate value of the Securities in the Trust portfolio and will be the same as
the redemption price. The aggregate value of the Securities will be determined
by the Trustee on a daily basis and computed on the basis set forth under
'Trustee Redemption.' The Sponsor does not guarantee the enforceability,
marketability or price of any Securities in the Portfolio or of the Units.
Certificateholders who wish to dispose of their Units should inquire of the
Sponsor as to current market prices prior to making a tender for redemption. The
Sponsor may discontinue repurchase of Units if the supply of Units exceeds
demand, or for other business reasons. The date of repurchase is deemed to be
the date on which Certificates representing Units are physically received in
proper form, i.e., properly endorsed, by Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York 10167. Units received after 4 P.M., New York Time,
will be deemed to have been repurchased on the next business day. In the event a
market is not maintained for the Units, a Certificateholder may be able to
dispose of Units only by tendering them to the Trustee for redemption.
Units purchased by the Sponsor in the secondary market may be reoffered
for sale by the Sponsor at a price based on the aggregate value of the
Securities in the Trust plus a 4.9% sales charge (of 5.152% of the net
amount invested) plus a pro rata portion of amounts, if any, in the
Income Account. Any Units that are purchased by the Sponsor in the
secondary market also may be redeemed by the Sponsor if it determines
such redemption to be in its best interest.
The Sponsor may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee for
redemption (see 'Trustee Redemption'). Factors which the Sponsor will consider
in making a determination will include the number of Units of all Trusts which
it has in inventory, its estimate of the salability and the time required to
sell such Units and general market conditions. For example, if in order to meet
redemptions of Units the Trustee must dispose of Securities, and if such
disposition cannot be made by the redemption date (seven calendar days after
tender), the Sponsor may elect to purchase such Units. Such purchase shall be
made by payment to the Certificateholder not later than the close of business on
the redemption date of an amount equal to the Redemption Price on the date of
tender. Notwithstanding the foregoing, the Sponsor undertakes to maintain the
secondary market during the initial public offering period.
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TRUSTEE REDEMPTION
Units may also be tendered to the Trustee for redemption at its corporate
trust office at 770 Broadway, New York, New York 10003, upon proper delivery of
Certificates representing such Units and payment of any relevant tax. At the
present time there are no specific taxes, other than the income taxes discussed
above, related to the redemption of Units. No redemption fee will be charged by
the Sponsor or the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates representing Units to be redeemed must be delivered to the
Trustee and must be properly endorsed or accompanied by proper instruments of
transfer with signature guaranteed (or by providing satisfactory indemnity, as
in the case of lost, stolen or mutilated Certificates). Thus, redemptions of
Units cannot be effected until Certificates representing such Units have been
delivered by the person seeking redemption. (See 'Certificates.')
Certificateholders must sign exactly as their names appear on the faces of their
Certificates. 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 a tender for redemption, or, if such
seventh day is not a business day, on the first business day prior thereto, the
Certificateholder will be entitled to receive an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth under 'Summary of Essential Information' in Part A on the date of tender.
The 'date of tender' is deemed to be the date on which Units are received by the
Trustee, except that with respect to Units received after the close of trading
on the New York Stock Exchange (4:00 p.m. Eastern 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.
A Certificateholder will receive his redemption proceeds in cash and
amounts paid on redemption shall be withdrawn from the Income Account, or, if
the balance therein is insufficient, from the Principal Account. All other
amounts paid on redemption shall be withdrawn from the Principal Account. The
Trustee is empowered to sell Securities in order to make funds available for
redemptions. Such sales, if required, could result in a sale of Securities by
the Trustee at a loss. To the extent Securities are sold, the size and diversity
of the Trust will be reduced. The Securities to be sold will be selected by the
Trustee in order to maintain, to the extent practicable, the proportionate
relationship between the Treasury Obligations and Fund Shares. Treasury
Obligations will not be sold, however, to the extent that the aggregate maturity
value per Unit of the Treasury Obligations remaining after such sale would be
less than the aggregate maturity value per Unit of the Treasury Obligations as
of the Initial Date of Deposit.
The Redemption Price per Unit is the pro rata share of the Unit in the
Trust determined by the Trustee on the basis of (i) the cash on hand in the
Trust or moneys in the process of being collected, (ii) the value of the
Securities in the Trust as determined by the Evaluator, less (a) amounts
representing taxes or other governmental charges payable out of the Trust, (b)
the accrued expenses of the Trust and (c) cash allocated for the distribution to
Certificateholders of record as of the business day prior to the evaluation
being made. The Evaluator may determine the value of the Securities in the Trust
in the following manner: the net asset value of the Fund Shares and the bid side
evaluation of the Treasury Obligations. The evaluation shall generally be based
on the closing purchase price in the over-the-counter market (unless the
Evaluator deems these prices inappropriate as a basis for evaluation) or if
there is no such closing purchase price, then the Evaluator may ascertain the
values of the Treasury Obligations using any of the following methods, or a
combination thereof, which it deems appropriate: (a) on the basis of the current
bid prices for the Treasury Obligations as obtained from investment dealers or
brokers who customarily deal in securities comparable to those held in the
Trust, (b) if bid prices are not available for the Treasury Obligations, on the
basis of current bid prices for comparable securities, (c) by appraising the
value of the Treasury Obligations on the bid side of the market or (d) by any
combination of the above.
The Trustee is irrevocably authorized in its discretion, if the Sponsor
does not elect to purchase a Unit tendered for redemption or if the Sponsor
tenders a Unit for redemption, in lieu of redeeming such Unit, to sell
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such Unit in the over-the-counter market for the account of the
tendering Certificateholder at prices which will return to the
Certificateholder an amount in cash, net after deducting brokerage
commissions, transfer taxes and other charges, equal to or in excess of
the Redemption Price for such Unit. The Trustee will pay the net
proceeds of any such sale to the Certificateholder on the day he would
otherwise be entitled to receive payment of the Redemption Price.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than customary weekend
and holiday closings, 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. The Trustee and the Sponsor is not liable to any person or
in any way for any loss or damage which may result from any such suspension or
postponement.
A Certificateholder who wishes to dispose of his Units should inquire of
his bank or broker in order to determine if there is a current secondary market
price in excess of the Redemption Price.
TOTAL REINVESTMENT PLAN
Distributions of dividend income and capital gain, if any, from the Trust
are made to Certificateholders annually. The Certificateholder has the option,
however, of either receiving his distribution check, together with any other
payments, from the Trustee or participating in a reinvestment program offered by
the Sponsor in shares of GOC Fund, Inc. (formerly The Manager's Fund, Inc.),
U.S. Treasury Money Market Portfolio (the 'GOC Fund'). Participation in the
reinvestment option is conditioned on the GOC Fund's lawful qualification for
sale in the state in which the Certificateholder is a resident. For income tax
purposes, however, Certificateholders who participate in the Total Reinvestment
Plan are taxed in the same manner as those Certificateholders who do not
participate in the plan.
Upon enrollment in the reinvestment option, the Trustee will direct
dividend and/or other distributions, if any, to the GOC Fund. The GOC Fund seeks
to maximize current income and to maintain liquidity and a stable net asset
value by investing in short term U.S. Treasury Obligations which have effective
maturities of 397 days or less. For more complete information concerning the GOC
Fund, including charges and expenses, the Certificateholder should fill out and
mail the card attached to the inside back cover of the Prospectus. The
prospectus for the GOC Fund will be sent to Certificateholders. The
Certificateholder should read the prospectus for the GOC Fund carefully before
deciding to participate.
TRUST ADMINISTRATION
PORTFOLIO SUPERVISION
The Trust is a unit investment trust and is not a managed fund. Traditional
methods of investment management for a managed fund typically involve frequent
changes in a portfolio of securities on the basis of economic, financial and
market analyses. The Portfolio of the Trust, however, will not be managed and
therefore the adverse financial condition of an issuer will not necessarily
require the sale of its Securities from the Portfolio. However, the Sponsor may
direct the disposition of Securities upon the occurrence of certain events
including:
1. default in payment of amounts due on any of the Securities;
2. institution of certain legal proceedings;
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3. default under certain documents materially and adversely affecting
future declaration or payment of amounts due or expected; or
4. decline in price as a direct result of serious adverse credit
factors affecting the issuer of a Security which, in the opinion of the
Sponsor, would make the retention of the Security detrimental to the Trust
or the Certificateholders.
If a default in the payment of amounts due on any Security occurs and if
the Sponsor fails to give immediate instructions to sell or hold that Security,
the Trust Agreement provides that the Trustee, within 30 days of that failure by
the Sponsor, may sell the Security.
The Trust Agreement provides that it is the responsibility of the Sponsor
to instruct the Trustee to reject any offer made by an issuer of any of the
Securities to issue new securities in exchange and substitution for any Security
pursuant to a recapitalization or reorganization, except that the Sponsor may
instruct the Trustee to accept such an offer or to take any other action with
respect thereto as the Sponsor may deem proper if the issuer failed to declare
or pay, or the Sponsor anticipates such issuer will fail to declare or pay,
anticipated dividends with respect thereto.
The Trust Agreement also authorizes the Sponsor to increase the size and
number of Units of the Trust by the deposit of Additional Securities, contracts
to purchase Additional Securities or cash or a letter of credit with
instructions to purchase Additional Securities in exchange for the corresponding
number of additional Units within 90 days subsequent to the Initial Date of
Deposit, provided that the original proportionate relationship between the Fund
Shares and Treasury Obligations established on the Initial Date of Deposit is
maintained to the extent practicable. Deposits of Additional Securities in the
Trust subsequent to the Initial Date of Deposit must replicate exactly the
proportionate relationship between the Fund Shares and Treasury Obligations in
the Trust portfolio at the end of the initial 90-day period.
With respect to deposits of Additional Securities (or cash or a letter of
credit with instructions to purchase Additional Securities), in connection with
creating additional Units of the Trust, the Sponsor may specify the minimum
numbers in which Additional Securities will be deposited or purchased. If a
deposit is not sufficient to acquire minimum amounts of each Security,
Additional Securities may be acquired in the order of the Security most
under-represented immediately before the deposit when compared to the original
proportionate relationship. If Securities of an issue originally deposited are
unavailable at the time of the subsequent deposit, the Sponsor may (1) deposit
cash or a letter of credit with instructions to purchase the Security when it
becomes available, or (2) deposit (or instruct the Trustee to purchase) either
Securities of one or more other issues originally deposited or a Substitute
Security.
TRUST AGREEMENT AND AMENDMENT
The Trust Agreement may be amended by the Trustee and the Sponsor without
the consent of any of the Certificateholders: (1) to cure any ambiguity or to
correct or supplement any provision which may be defective or inconsistent; (2)
to change any provision thereof as may be required by the Securities and
Exchange Commission or any successor governmental agency; or (3) to make such
other provisions in regard to matters arising thereunder as shall not adversely
affect the interests of the Certificateholders.
The Trust Agreement may also be amended in any respect, or performance of
any of the provisions thereof may be waived, with the consent of the holders of
Certificates evidencing 66 2/3% of the Units then outstanding for the purpose of
modifying the rights of Certificateholders; provided that no such amendment or
waiver shall reduce any Certificateholder's interest in the Trust without his
consent or reduce the percentage of Units required to consent to any such
amendment or waiver without the consent of the holders of all Certificates. The
Trust Agreement may not be amended, without the consent of the holders of all
Certificates in the Trust then outstanding, to increase the number of Units
issuable or to permit the acquisition of any Securities in addition to or in
substitution for those initially deposited in such Trust, except in accordance
with the provisions of the Trust
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Agreement. The Trustee shall promptly notify Certificateholders, in
writing, of the substance of any such amendment.
TRUST TERMINATION
The Trust Agreement provides that the Trust shall terminate upon the
maturity, redemption or other disposition, as the case may be, of the last of
the Securities held in such Trust but in no event is it to continue beyond the
Mandatory Termination Date. If the value of the Trust shall be less than the
minimum amount set forth under 'Summary of Essential Information' in Part A, the
Trustee may, in its discretion, and shall, when so directed by the Sponsor,
terminate the Trust. The Trust may also be terminated at any time with the
consent of the holders of Certificates representing 100% of the Units then
outstanding. The Trustee may utilize the services of the Sponsor for the sale of
all or a portion of the Securities in the Trust. In the event of termination,
written notice thereof will be sent by the Trustee to all Certificateholders.
Such notice will provide Certificateholders with three options by which to
receive their pro rata share of the net asset value of the Trust.
1. A Certificateholder who owns at least 2,500 units and who so elects
by notifying the Trustee prior to the commencement of the Liquidation
Period by returning a properly completed election request (to be supplied
to Certificateholders at least 20 days prior to such date) (see Part
A--'Summary of Essential Information' for the date of the commencement of
the Liquidation Period) will have his Units redeemed on commencement of the
Liquidation Period by distribution of the Certificateholder's pro rata
share of the net asset value of the Trust on such date distributed in kind
to the extent represented by Fund Shares and the balance in cash to the
extent represented by Treasury Obligations, within 7 calendar days next
following the commencement of the Liquidation Period. Certificateholders
subsequently selling such distributed Fund Shares will incur brokerage
costs when disposing of such Fund Shares. An election of this option will
not prevent the Certificateholder from recognizing taxable gain or loss as
a result of the liquidation of the Treasury Obligations. Certificateholders
should consult their own tax adviser in this regard.
A Certificateholder may also elect prior to the Mandatory Termination Date
by so specifying in a properly completed election request, the following two
options with regard to the termination distribution of such Certificateholder's
interest in the Trust as set forth below:
2. to receive in cash such Certificateholder's pro rata share of the
net asset value of the Trust derived from the sale by the Sponsor as the
agent of the Trustee of the underlying Securities over a period not to
exceed 60 days immediately following the commencement of the Liquidation
Period. The Certificateholder's Redemption Price per Unit on the settlement
date of the last trade of a Security in the Trust will be distributed to
such Certificateholder within 7 days of the settlement of the trade of the
last Security to be sold; and/or
3. upon the receipt by the Trust of an appropriate exemptive order
from the Securities and Exchange Commission, to invest such
Certificateholder's pro rata share of the net asset value of the Trust
derived from the sale by the Sponsor as agent of the Trustee of the
underlying Securities over a period not to exceed 60 days immediately
following the commencement of the Liquidation Period, in units of a
subsequent series of Equity Securities Trust, Signature Series (the 'New
Series'). The Units of a New Series will be purchased by the
Certificateholder within 7 days of the settlement of the trade for the last
Security to be sold. Such purchaser will be entitled to a reduced sales
load of approximately 2.5% of the Public Offering Price upon the purchase
of units of the New Series. It is expected that the terms of the New Series
will be substantially the same as the terms of the Trust described in this
Prospectus, and that similar options with respect to the termination of
such New Series will be available. The availability of this option does not
constitute a solicitation of an offer to purchase Units of a New Series or
any other security. A Certificateholder's election to participate in this
option will be treated as an indication of interest only. At any time prior
to the purchase by the Certificateholder of units of a New Series such
Certificateholder may change his investment strategy and receive, in cash,
the proceeds of the sale of the Securities. An election of this option will
not prevent the Certificateholder from recognizing taxable gain or loss
(except in the case of a loss, if the New
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Series is treated as substantially identical to the Trust) as a result of
the liquidation, even though no cash will be distributed to pay any taxes.
Certificateholders should consult their own tax advisers in this regard.
Depending on the amount of proceeds to be invested in Units of the New
Series and the amount of other orders for Units in the New Series, the Sponsor
may purchase a large amount of securities for the New Series in a short period
of time. The actual market impact of the Sponsor's purchases, however, is
currently unpredictable because the actual amount of securities to be purchased
and the supply and price of those securities is unknown. A similar problem may
occur in connection with the sale of Securities during the 60 day period
immediately following the commencement of the Liquidation Period. The Sponsor
believes that the sale of underlying Securities over a 60 day period as
described above is in the best interest of a Certificateholder and may mitigate
the negative market price consequences stemming from the trading of large
amounts of Securities. The Securities may be sold in fewer than 60 days if, in
the Sponsor's judgment, such sales are in the best interest of
Certificateholders. The Sponsor, in implementing such sales of securities on
behalf of the Trustee, will seek to maximize the sales proceeds and will act in
the best interests of the Certificateholders. There can be no assurance,
however, that any adverse price consequences of heavy trading will be mitigated.
Certificateholders who do not make any election will be deemed to have
elected to receive the Redemption Price per Unit in cash (option number 2).
The Sponsor may for any reason, in its sole discretion, decide not to
sponsor any subsequent series of the Trust, without penalty or incurring
liability to any Certificateholder. If the Sponsor so decides, the Sponsor will
notify the Trustee of that decision, and the Trustee will notify the
Certificateholders before the Termination Date. All Certificateholders will then
elect either option 1 or option 2.
By electing to reinvest in the New Series, the Certificateholder indicates
his interest in having his terminating distribution from the Trust invested only
in the New Series created following termination of the Trust; the Sponsor
expects, however, that a similar reinvestment program will be offered with
respect to all subsequent series of the Trust, thus giving Certificateholders a
yearly opportunity to elect to 'rollover' their terminating distributions into a
New Series. The availability of the reinvestment privilege does not constitute a
solicitation of offers to purchase units of a New Series or any other security.
A Certificateholder's election to participate in the reinvestment program will
be treated as an indication of interest only. The Sponsor intends to coordinate
the date of deposit of a future series so that the terminating trust will
terminate contemporaneously with the creating of a New Series.
The Sponsor reserves the right to modify, suspend or terminate the
reinvestment privilege at any time.
THE SPONSOR
The Sponsor, Bear, Stearns & Co. Inc., a Delaware corporation, is engaged
in the underwriting, investment banking and brokerage business and is a member
of the National Association of Securities Dealers, Inc. and all principal
securities and commodities exchanges, including the New York Stock Exchange, the
American Stock Exchange, the Midwest Stock Exchange and the Pacific Stock
Exchange. Bear Stearns maintains its principal business offices at 245 Park
Avenue, New York, New York 10167 and, since its reorganization from a
partnership to a corporation in October, 1985 has been a wholly-owned subsidiary
of The Bear Stearns Companies Inc. Bear Stearns, through its predecessor
entities, has been engaged in the investment banking and brokerage business
since 1923. Bear Stearns is the sponsor for numerous series of unit investment
trusts, including, A Corporate Trust, Series 1 (and Subsequent Series), New York
Municipal Trust, Series 1 (and Subsequent Series), New York Discount and Zero
Coupon Fund, 1st Series (and Subsequent Series), Municipal Securities Trust,
Series 1 (and Subsequent Series), 1st Discount Series (and Subsequent Series),
Multi-State Series 1 (and Subsequent Series), High Income Series 1 (and
Subsequent Series), Short-Intermediate Term Series 1 (and Subsequent Series),
Mortgage Securities Trust, Series 1 (and Subsequent Series), Insured Municipal
Securities Trust, Series 1 (and Subsequent Series) and 5th Discount Series (and
Subsequent Series) and Equity Securities Trust, Series 1, Signature Series,
Gabelli Communications Income Trust (and Subsequent Series).
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The information included herein is only for the purpose of informing
investors as to the financial responsibility of the Sponsor and its ability to
carry out their contractual obligations.
The Sponsor will be under no liability to Certificateholders for taking any
action, or refraining from taking any action, in good faith pursuant to the
Trust Agreement, or for errors in judgment except in cases of their own willful
misfeasance, bad faith, gross negligence or reckless disregard of their
obligations and duties.
The Sponsor may resign at any time by delivering to the Trustee an
instrument of resignation executed by the Sponsor.
If at any time the Sponsor shall resign or fail to perform any of its
duties under the Trust Agreement or becomes incapable of acting or becomes
bankrupt or its affairs are taken over by public authorities, then the Trustee
may either (a) appoint a successor Sponsor; (b) terminate the Trust Agreement
and liquidate the Trust; or (c) continue to act as Trustee without terminating
the Trust Agreement. Any successor Sponsor appointed by the Trustee shall be
satisfactory to the Trustee and, at the time of appointment, shall have a net
worth of at least $1,000,000.
THE TRUSTEE
The Trustee is United States Trust Company of New York, with its principal
place of business at 770 Broadway, New York, New York 10003. United States Trust
Company of New York has, since its establishment in 1853, engaged primarily in
the management of trust and agency accounts for individuals and corporations.
The Trustee is a member of the New York Clearing House Association and is
subject to supervision and examination by the Superintendent of Banks of the
State of New York, the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System.
The Trustee shall not be liable or responsible in any way for taking any
action, or for refraining from taking any action, in good faith pursuant to the
Trust Agreement, or for errors in judgment; or for any disposition of any
moneys, Securities or Certificates in accordance with the Trust Agreement,
except in cases of its own willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties; provided, however, that the
Trustee shall not in any event be liable or responsible for any evaluation made
by any independent evaluation service employed by it. In addition, the Trustee
shall not be liable for any taxes or other governmental charges imposed upon or
in respect of the Securities or the Trust which it may be required to pay under
current or future law of the United States or any other taxing authority having
jurisdiction. The Trustee shall not be liable for depreciation or loss incurred
by reason of the sale by the Trustee of any of the Securities pursuant to the
Trust Agreement.
For further information relating to the responsibilities of the Trustee
under the Trust Agreement, reference is made to the material set forth under
'Rights of Certificateholders.'
The Trustee may resign by executing an instrument in writing and filing the
same with the Sponsor, and mailing a copy of a notice of resignation to all
Certificateholders. In such an event the Sponsor is obligated to appoint a
successor Trustee as soon as possible. In addition, 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 Trust Agreement. Notice of such removal and appointment shall be
mailed to each Certificateholder by the Sponsor. If upon resignation of the
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 the Trustee becomes effective only when the successor Trustee accepts
its appointment as such or when a court of competent jurisdiction appoints a
successor Trustee. Upon execution of a written acceptance of such appointment by
such successor Trustee, all the rights, powers, duties and obligations of the
original Trustee shall vest in the successor.
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Any corporation into which the Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Trustee shall be a party, shall be the successor Trustee. The
Trustee must always be a banking corporation organized under the laws of the
United States or any State and have at all times an aggregate capital, surplus
and undivided profits of not less than $2,500,000.
THE EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of Kenny
Information Systems, Inc., with its main offices located at 65 Broadway, New
York, New York 10006. The Evaluator is a wholly-owned subsidiary of McGraw-Hill,
Inc. The Evaluator is a registered investment advisor and also provides
financial information services.
The value of the Securities in the Trust portfolio is determined in good
faith by the Evaluator on the basis set forth under 'Public Offering--Offering
Price.' The Sponsor, the Trustee and the Certificateholders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Trust Agreement
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
Sponsor, the Trustee or Certificateholders for errors in judgment, except in
cases of its own willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The Evaluator may resign or may be removed by the Sponsor and Trustee, and
the Sponsor and the Trustee are to use their 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 has accepted appointment within the thirty days after
notice of resignation, the Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor.
TRUST EXPENSES AND CHARGES
At no cost to the Trust, the Sponsor has borne all the expenses of creating
and establishing the Trust, including the cost of initial preparation and
execution of the Trust Agreement, registration of the Trust and the Units under
the Investment Company Act of 1940 and the Securities Act of 1933, the initial
preparation and printing of the Certificates, legal expenses, advertising and
selling expenses, expenses of the Trustee, initial fees and other out-of-pocket
expenses.
The Sponsor will not charge the Trust a fee for their services as such.
(See 'Sponsor's and Underwriters' Profits.')
The Trustee will receive, for its ordinary recurring services to the Trust
an annual fee in the amount set forth under 'Summary of Essential Information'
in Part A. Such fee shall be reduced directly by any Rule 12b-1 fees paid by the
Fund's distributor to the Trustee for performing servicing functions with
respect to the Fund Shares. There can be no assurance that the Trustee will
receive any Rule 12b-1 fees in the future. For a discussion of the services
performed by the Trustee pursuant to its obligations under the Trust Agreement,
see 'Trust Administration' and 'Rights of Certificateholders.'
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 applicable to a Trust are
payable annually as of the Record Date from the Income Account of the Trust to
the extent funds are available and then from the Principal Account. Both fees
may be increased without approval of the Certificateholders by amounts not
exceeding proportionate
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increases in consumer prices for services as measured by the United
States Department of Labor's Consumer Price Index entitled 'All Services
Less Rent.'
The following additional charges are or may be incurred by the Trust: all
expenses (including counsel fees) of the Trustee incurred and advances made in
connection with its activities under the Trust Agreement, including the expenses
and costs of any action undertaken by the Trustee to protect the Trust and the
rights and interests of the Certificateholders; fees of the Trustee for any
extraordinary services performed under the Trust Agreement; indemnification of
the Trustee for any loss or liability accruing to it without gross negligence,
bad faith or willful misconduct on its part, arising out of or in connection
with its acceptance or administration of the Trust; indemnification of the
Sponsor for any losses, liabilities and expenses incurred in acting as sponsors
of the Trust without gross negligence, bad faith or willful misconduct on its
part; and all taxes and other governmental charges imposed upon the Securities
or any part of the Trust (no such taxes or charges are being levied, made or, to
the knowledge of the Sponsor, contemplated). The above expenses, including the
Trustee's fees, when paid by or owing to the Trustee are secured by a first lien
on the Trust to which such expenses are charged. In addition, the Trustee is
empowered to sell the Securities in order to make funds available to pay all
expenses.
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 Rule 12b-1 fees paid to the
Trustee by the Fund's distributor 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, Rule 12b-1 fees paid to the Trustee by the Fund's
distributor 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.
The accounts of the Trust shall be audited not less than annually by
independent public accountants selected by the Sponsor. The expenses of the
audit shall be an expense of the Trust. So long as the Sponsor maintains a
secondary market, the Sponsor will bear any audit expense which exceeds 50cents
per Unit. Certificateholders covered by the audit during the year may receive a
copy of the audited financials upon request.
EXCHANGE PRIVILEGE AND CONVERSION OFFER
Upon receipt by the Trust of an appropriate exemptive order from the
Securities and Exchange Commission, Certificateholders will be able to elect to
exchange any or all of their Units of this Trust for Units of one or more of any
available series of Equity Securities Trust, Mortgage Securities Trust, Insured
Municipal Securities Trust, Municipal Securities Trust, New York Municipal
Trust, Mortgage Securities Trust or A Corporate Trust (the 'Exchange Trusts') at
a reduced sales charge as set forth below. Under the Exchange Privilege, the
Sponsor's repurchase price during the initial offering period of the Units being
surrendered will be based on the market value of the Securities in the Trust
portfolio or on the aggregate offer price of the securities in the other Trust
Portfolios; and, after the initial offering period has been completed, will be
based on the aggregate bid price of the securities in the particular Trust
portfolio. Units in an Exchange Trust then will be sold to the Certificateholder
at a price based on the aggregate offer price of the Bonds in the Exchange Trust
portfolio during the initial public offering period of the Exchange Trust; or
based on the aggregate bid price of the securities in the Exchange Trust
Portfolio if its initial offering has been completed plus accrued interest and a
reduced sales charge as set forth below.
Except for unitholders who wish to exercise the Exchange Privilege within
the first five months of their purchase of Units of the Trust, the sales charge
applicable to the purchase of units of an Exchange Trust shall be approximately
1.5% of the price of each Exchange Trust unit (or 1,000 Units for the Mortgage
Securities Trust or 100 Units for the Equity Securities Trust). For unitholders
who wish to exercise the Exchange Privilege within
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the first five months of their purchase of Units of the Trust, the sales
charge applicable to the purchase of units of an Exchange Trust shall be
the greater of (i) approximately 1.5% of the price of each Exchange
Trust unit (or 1,000 Units for the Mortgage Securities Trust or 100
Units for the Equity Securities Trust), or (ii) an amount which when
coupled with the sales charge paid by the unitholder upon his original
purchase of Units of the Trust at least equals the sales charge
applicable in the direct purchase of units of an Exchange Trust. The
Exchange Privilege is subject to the following conditions:
1. The Sponsor must be maintaining a secondary market in both the
Units of the Trust held by the Certificateholder and the Units of the
available Exchange Trust. While the Sponsor has indicated its intention to
maintain a market in the Units of all Trusts sponsored by it, the Sponsor
is under no obligation to continue to maintain a secondary market and
therefore there is no assurance that the Exchange Privilege will be
available to a Certificateholder at any specific time in the future. At the
time of the Certificateholder's election to participate in the Exchange
Privilege, there also must be Units of the Exchange Trust available for
sale, either under the initial primary distribution or in the Sponsor's
secondary market.
2. Exchanges will be effected in whole units only. Any excess proceeds
from the Units surrendered for exchange will be remitted and the selling
Certificateholder will not be permitted to advance any new funds in order
to complete an exchange. Units of the Mortgage Securities Trust may only be
acquired in blocks of 1,000 Units. Units of the Equity Securities Trust may
only be acquired in blocks of 100 Units.
3. The Sponsor reserves the right to suspend, modify or terminate the
Exchange Privilege. The Sponsor will provide unitholders of the Trust with
60 days prior written notice of any termination or material amendment to
the Exchange Privilege, provided that, no notice need be given if (i) the
only material effect of an amendment is to reduce or eliminate the sales
charge payable at the time of the exchange, to add one or more series of
the Trust eligible for the Exchange Privilege or to delete a series which
has been terminated from eligibility for the Exchange Privilege, (ii)
there is a suspension of the redemption of units of an Exchange Trust
under Section 22(e) of the Investment Company Act of 1940, or (iii) an
Exchange Trust temporarily delays or ceases the sale of its units because
it is unable to invest amounts effectively in accordance with its
investment objectives, policies and restrictions. During the 60 day
notice period prior to the termination or material amendment of the
Exchange Privilege described above, the Sponsor will continue to maintain
a secondary market in the units of all Exchange Trusts that could be
acquired by the affected unitholders. Unitholders may, during this 60 day
period, exercise the Exchange Privilege in accordance with its terms then
in effect. In the event the Exchange Privilege is not available to a
Certificateholder at the time he wishes to exercise it, the
Certificateholder will immediately be notified and no action will be taken
with respect to his Units without further instructions from the
Certificateholder.
To exercise the Exchange Privilege, a Certificateholder should notify the
Sponsor of his desire to exercise his Exchange Privilege. If Units of a
designated, outstanding series of an Exchange Trust are at the time available
for sale and such Units may lawfully be sold in the state in which the
Certificateholder is a resident, the Certificateholder will be provided with a
current prospectus or prospectuses relating to each Exchange Trust in which he
indicates an interest. He may then select the Trust or Trusts into which he
desires to invest the proceeds from his sale of Units. The exchange transaction
will operate in a manner essentially identical to a secondary market transaction
except that units may be purchased at a reduced sales charge.
EXAMPLE: Assume that after the initial public offering has been completed, a
Certificateholder has five units of a Trust with a current value of $700 per
unit which he has held for more than 5 months and the Certificateholder wishes
to exchange the proceeds for units of a secondary market Exchange Trust with a
current price of $725 per unit. The proceeds from the Certificateholder's
original units will aggregate $3,500. Since only whole units of an Exchange
Trust may be purchased under the Exchange Privilege, the Certificateholder would
be able to acquire four units (or 4,000 Units of the Mortgage Securities Trust
or 400 Units of the Equity Securities Trust) for a total cost of $2,960 ($2,900
for units and $60 for the sales charge). The remaining $540 would be remitted to
the Certificateholder in cash. If the Certificateholder acquired the same number
of units at the same time in a regular
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secondary market transaction, the price would have been $3,068.80 ($2,900 for
units and $168.80 for the sales charge, assuming a 5 1/2% sales charge times
the public offering price).
THE CONVERSION OFFER
Upon receipt by the Trust of an appropriate exemptive order from the
Securities and Exchange Commission, Unit owners of any registered unit
investment trust for which there is no active secondary market in the units of
such trust (a 'Redemption Trust') will be able to elect to redeem such units and
apply the proceeds of the redemption to the purchase of available Units of one
or more series of Mortgage Securities Trust, A Corporate Trust, Municipal
Securities Trust, Insured Municipal Securities Trust, Mortgage Securities Trust,
New York Municipal Trust or Equity Securities Trust (the 'Conversion Trusts') at
the Public Offering Price for units of the Conversion Trust based on a reduced
sales charge as set forth below. Under the Conversion Offer, units of the
Redemption Trust must be tendered to the trustee of such trust for redemption at
the redemption price, which is based upon the market value of the underlying
securities in the Trust portfolio or the aggregate bid side evaluation of the
underlying bonds in other Trust portfolios and is generally about 1 1/2% to 2%
lower than the offering price for such bonds. The purchase price of the units
will be based on the aggregate offer price of the underlying bonds in the
Conversion Trust portfolio during its initial offering period; or, at a price
based on the aggregate bid price of the underlying bonds if the initial public
offering of the Conversion Trust has been completed, plus accrued interest and a
sales charge as set forth below.
Except for unitholders who wish to exercise the Conversion Offer within
the first five months of their purchase of units of a Redemption Trust,
the sales charge applicable to the purchase of Units of the Conversion
Trust shall be approximately 1.5% of the price of each Unit (or per
1,000 Units for the Mortgage Securities Trust or 100 Units for the
Equity Securities Trust). For unitholders who wish to exercise the
Conversion Offer within the first five months of their purchase of units
of a Redemption Trust, the sales charge applicable to the purchase of
Units of a Conversion Trust shall be the greater of (i) approximately
1.5% of the price of each Unit (or per 1,000 Units for the Mortgage
Securities Trust or 100 Units for the Equity Securities Trust) or (ii)
an amount which when coupled with the sales charge paid by the
unitholder upon his original purchase of units of the Redemption Trust
at least equals the sales charge applicable in the direct purchase of
Units of a Conversion Trust. The Conversion Offer is subject to the
following limitations:
1. The Conversion Offer is limited only to unit owners of any
Redemption Trust, defined as a unit investment trust for which there is no
active secondary market at the time the Certificateholder elects to
participate in the Conversion Offer. At the time of the unit owner's
election to participate in the Conversion Offer, there also must be
available units of a Conversion Trust, either under a primary distribution
or in the Sponsor's secondary market.
2. Exchanges under the Conversion Offer will be effected in whole
units only. Unit owners will not be permitted to advance any new funds in
order to complete an exchange under the Conversion Offer. Any excess
proceeds from units being redeemed will be returned to the unit owner.
Units of the Mortgage Securities Trust may only be acquired in blocks of
1,000 units. Units of the Equity Securities Trust may only be acquired in
blocks of 100 Units.
3. The Sponsor reserves the right to modify, suspend or terminate the
Conversion Offer at any time without notice to unit owners of Redemption
Trusts. In the event the Conversion Offer is not available to a unit owner
at the time he wishes to exercise it, the unit owner will be notified
immediately and no action will be taken with respect to his units without
further instruction from the unit owner. The Sponsor also reserves the
right to raise the sales charge based on actual increases in the Sponsor's
costs and expenses in connection with administering the program, up to a
maximum sales charge of 2% per unit (or per 1,000 units for the Mortgage
Securities Trust or 100 Units for the Equity Securities Trust).
To exercise the Conversion Offer, a unit owner of a Redemption Trust should
notify his retail broker of his desire to redeem his Redemption Trust Units and
use the proceeds from the redemption to purchase Units of one
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or more of the Conversion Trusts. If Units of a designated, outstanding
series of a Conversion Trust are at that time available for sale and if
such Units may lawfully be sold in the state in which the unit owner is
a resident, the unit owner will be provided with a current prospectus or
prospectuses relating to each Conversion Trust in which he indicates an
interest. He then may select the Trust or Trusts into which he decides
to invest the proceeds from the sale of his Units. The transaction will
be handled entirely through the unit owner's retail broker. The retail
broker must tender the units to the trustee of the Redemption Trust for
redemption and then apply the proceeds to the redemption toward the
purchase of units of a Conversion Trust at a price based on the
aggregate offer or bid side evaluation per Unit of the Conversion Trust,
depending on which price is applicable, plus accrued interest and the
applicable sales charge. The certificates must be surrendered to the
broker at the time the redemption order is placed and the broker must
specify to the Sponsor that the purchase of Conversion Trust Units is
being made pursuant to the Conversion Offer. The unit owner's broker
will be entitled to retain $5 of the applicable sales charge.
EXAMPLE: Assume a unit owner has five units of a Redemption Trust which has held
for more than 5 months with a current redemption price of $675 per unit based on
the aggregate bid price of the underlying bonds and the unit owner wishes to
participate in the Conversion Offer and exchange the proceeds for units of a
secondary market Conversion Trust with a current price of $750 per Unit. The
proceeds for the unit owner's redemption of units will aggregate $3,375. Since
only whole units of a Redemption Trust may be purchased under the Conversion
Offer, the unit owner will be able to acquire four units of the Conversion Trust
(or 4,000 units of the Mortgage Securities Trust or 400 Units of the Equity
Securities Trust) for a total cost of $2,860 ($2,800 for units and $60 for the
sales charge). The remaining $515 would be remitted to the unit owner in cash.
If the unit owner acquired the same number of Conversion Trust units at the same
time in a regular secondary market transaction, the price would have been
$2,962.96 ($2,800 for units and $162.96 sales charge, assuming a 5 1/2% sales
charge times the public offering price).
TAX CONSEQUENCES OF THE EXCHANGE PRIVILEGE AND THE CONVERSION OFFER
A surrender of units pursuant to the Exchange Privilege or the Conversion
Offer will constitute a 'taxable event' to the Certificateholder under the
Internal Revenue Code. The Certificateholder will realize a tax gain or loss
that will be of a long-or short-term capital or ordinary income nature depending
on the length of time the units have been held and other factors. (See 'Tax
Status'.) A Certificateholder's tax basis in the Units acquired pursuant to the
Exchange Privilege or Conversion Offer will be equal to the purchase price of
such Units. Investors should consult their own tax advisers as to the tax
consequences to them of exchanging or redeeming units and participating in the
Exchange Privilege or Conversion Offer.
OTHER MATTERS
LEGAL OPINIONS
The legality of the Units offered hereby and certain matters relating to
federal tax law have been passed upon by Messrs. Battle Fowler, 280 Park Avenue,
New York, New York 10017 as counsel for the Sponsor. Messrs. Carter, Ledyard &
Milburn, Two Wall Street, New York, New York 10005 have acted as counsel for the
Trustee.
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INDEPENDENT AUDITORS
The Statement of Condition and Portfolio are included herein in reliance
upon the report of KPMG Peat Marwick, independent auditors, and upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The Investment Company Act of 1940 (the 'Act') limits the amounts that
registered investment companies (such as the Trust) can own of other registered
investment companies (such as the Fund). However, Section 12(d)(1)(E) of the Act
would exempt the Trust from these limitations if the Fund is the only
'investment security' held by the Trust. While the term 'investment security' is
not defined in Section 12(d) of the Act, it is defined in another section of the
Act to exclude government securities (such as the Treasury Obligations) from its
scope. Therefore, since the Trust only owns shares of the Fund and Treasury
Obligations it complies with the exception of Section 12(d)(1)(E). Further, the
Office of Chief Counsel of the Division of Investment Management of the
Securities and Exchange Commission granted the Sponsor 'no action' assurance on
this issue.
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as Aaa securities or fluctuations of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
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Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other market
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately based, in which case the rating is not
published in Moody's Investors Service, Inc.'s publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa-l,
A-l, Baa-l, and B-l.
STANDARD & POOR'S CORPORATION
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's
Corporation ('S&P'). Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
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Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
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I am the owner of ______ units of Equity Securities Trust, Series ______.
I would like to learn more about GOC Fund, Inc. (formerly The Manager's
Fund), Inc., U.S. Treasury Money Market Portfolio including charges and
expenses. I understand that my request for more information about this
fund in no way obligates me to participate in the reinvestment option,
and that this request form is not an offer to sell. Please send me more
information, including a copy of the current prospectus of GOC Fund,
Inc., U.S. Treasury Money Market Portfolio.
Date ______________________________, 199___
_________________________________ _________________________________
Registered Holder (Print) Registered Holder (Print)
_________________________________ _________________________________
Registered Holder top Signature Registered Holder Signature
(Two signatures if joint tenancy)
My Brokerage Firm's Name ___________________________________________________
Street Address _____________________________________________________________
City, State and Zip Code ___________________________________________________
Broker's Name __________________________ Broker's No. ______________________
MAIL TO
GOC FUND, INC.
8 SOUND SHORE DRIVE
GREENWICH, CONNECTICUT 06830
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN PARTS A AND B OF THIS PROSPECTUS; AND ANY
INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST, THE TRUSTEE OR THE SPONSOR. THE TRUST IS
REGISTERED AS A UNIT INVESTMENT TRUST UNDER THE INVESTMENT COMPANY ACT OF 1940.
SUCH REGISTRATION DOES NOT IMPLY THAT THE TRUST OR ANY OF ITS UNITS HAVE BEEN
GUARANTEED, SPONSORED, RECOMMENDED OR APPROVED BY THE UNITED STATES OR ANY STATE
OR ANY AGENCY OR OFFICER THEREOF.
------------------
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>
TABLE OF CONTENTS
Title Page
- ----- ----
<S> <C>
PART A
Summary of Essential Information............ A-2
Independent Auditors' Report................ A-8
Statement of Condition...................... A-9
Portfolio................................... A-10
Underwriting Syndicate...................... A-11
PART B
The Trust................................... 1
Risk Factors................................ 14
Public Offering............................. 17
Rights of Certificateholders................ 20
Tax Status.................................. 21
Liquidity................................... 24
Total Reinvestment Plan..................... 26
Trust Administration........................ 26
Trust Expenses and Charges.................. 31
Exchange Privilege and Conversion Offer..... 32
Other Matters............................... 35
Description of Corporate Bond Ratings....... 36
</TABLE>
PARTS A AND B OF THIS PROSPECTUS DO NOT CONTAIN ALL OF THE INFORMATION SET
FORTH IN THE REGISTRATION STATEMENT AND EXHIBITS RELATING THERETO, 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
MADE.
[LOGO] EQUITY SECURITIES TRUST SERIES 4
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GABELLI VALUE FUND AND U.S. TREASURIES
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EquiT's
(UNIT INVESTMENT TRUST)
PROSPECTUS
DATED: JANUARY 21, 1994
SPONSOR:
BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, N.Y. 10167
212-272-2500
TRUSTEE:
UNITED STATES TRUST COMPANY
OF NEW YORK
770 BROADWAY
NEW YORK, N.Y. 10003
EVALUATOR:
KENNY S&P EVALUATION SERVICES
65 BROADWAY
NEW YORK, N.Y. 10006
