[Federal Register Volume 59, Number 214 (Monday, November 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27488]
[[Page Unknown]]
[Federal Register: November 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20674; 812-9240]
Government Securities Equity Trust, et al.; Notice of Application
November 1, 1994.
agency: Securities and Exchange Commission (``SEC'').
action: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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applicants: Government Securities Equity Trust (the ``Trust''),
Prudential Securities Incorporated (the ``Sponsor''), Prudential Equity
Fund, Inc., Prudential Mutual Fund Management, Inc. (``PMF''),
Prudential Mutual Fund Distributors, Inc. (``PMFD''), and any open-end
management investment companies (including any portfolios or series
thereof), other than money market or no-load funds, presently advised
by PMF or having as their distributor PMFD or the sponsor, or that may
in the future be advised by PMF or have as their distributor PMFD or
the Sponsor or any entity controlling, controlled by, or under common
control with PMF or PMFD or the Sponsor (the ``Funds'').
relevant act sections: Order requested under section 6(c) of the Act to
grant an exemption from sections 14(a) and 19(b) of the Act and rule
19b-1 thereunder; under sections 11(a) and (c) to permit certain offers
of exchange; and under section 17(d) and rule 17d-1 to permit certain
affiliated transactions.
summary of application: Applicants request an order: (a) Permitting the
respective Series to invest in shares of an open-end investment company
and U.S. Treasury zero coupon obligations; (b) exempting the Sponsor
from having to take for its own account or place with others $100,000
worth of units in the Trust; (c) permitting the Trust to distribute
capital gains resulting from redemptions of Fund shares within a
reasonable time after receipt; (d) permitting certain offers of
exchange involving the Trust; and (e) permitting certain affiliated
transactions involving the Trust.
filing dates: The application was filed on September 22, 1994.
Applicants have agreed to file an additional amendment, the substance
of which is incorporated herein, during the notice period.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on November 28,
1994, and should be accompanied by proof of service on the applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
addresses: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants: Prudential Securities Incorporated, Prudential Equity Fund,
Inc., Prudential Mutual Fund Management, Inc., and Prudential Mutual
Fund Distributors, Inc., One Seaport Plaza, 199 Water Street, New York,
New York, 10292.
for further information contact: Sarah A. Buescher, Law Clerk, at (202)
942-0573, or Robert A. Robertson, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
Supplementary Information: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Funds are open-end management investment companies
registered under the Act. Each Fund has entered into an investment
advisory or management agreement with PMF, and distribution agreements
with PMFD and the Sponsor under which PMFD acts as principal
underwriter for Class A Shares of the Fund and the Sponsor acts as
principal underwriter for Class B and Class C Shares of the Fund.
Shares of the Funds are offered with front-end sales loads and, in
certain instances, with contingent deferred sales charges (``CDSC'')
imposed in accordance with the terms of an exemptive order (the ``CDSC
Order'').\1\ Each of the existing Funds has adopted a rule 12b-1 plan.
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\1\Investment Company Act Release Nos. 19400 (Apr. 12, 1993)
(notice) and 19464 (May 10, 1993) (order).
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2. The Trust will be registered under the Act as a unit investment
trust and will offer units in series (``Trust Series''), each of which
will contain shares of one Fund that is normally offered with a sales
load, and U.S. Government zero coupon obligations. The Trust's
objective is to provide protection of capital while providing for
capital appreciation through investments in zero coupon obligations and
shares of the Funds. Each Trust Series will be organized pursuant to a
reference trust agreement that will incorporate a trust indenture and
agreement relating to the entire Trust (collectively, the ``Trust
Agreement'') and that will name a qualified bank as trustee
(``Trustee'').
3. Each Trust Series will be sponsored by the Sponsor, which will
perform the functions typical of unit investment trust sponsors. These
functions will include depositing Fund shares in the Trust; acquiring
zero coupon obligations and depositing them in the Trust; arranging for
the evaluation of the zero coupon obligations; offering units to the
public; and maintaining a secondary market in units. The Sponsor
expects to deposit in the Trust substantially more than $100,000
aggregate value of zero coupon obligations and Fund shares.
4. Trust units will be offered for sale to the public through the
final prospectus by the Sponsor. Trust Series are intended to be
offered to the public initially at prices based on the net asset value
of the Fund shares selected for deposit in that Trust Series, plus the
offering side value of the zero coupon obligations contained therein,
plus a sales charge. The Trust will redeem units at prices based on the
aggregate bid side evaluation of the zero coupon obligations and the
net asset value of the Fund shares.
5. With the deposit of the securities in the Trust Series on the
initial date of deposit, the Sponsor will have established a
proportionate relationship between the principal amounts of zero coupon
obligations and Fund shares in the Trust Series. The Sponsor will be
permitted under the Trust Agreement to deposit additional securities,
which may result in a corresponding increase in the number of units
outstanding. Such units may be continuously offered for sale to the
public by means of the prospectus.
6. The Trust will be structured so that each Trust Series will
contain a sufficient amount of zero coupon obligations to assure that,
at the specified maturity date for such Trust Series, the purchaser of
a unit would receive back the approximate total amount of the original
investment in the Trust, including the sales charge. Such investor
would receive more than the original investment to the extent that the
underlying Fund made any distributions during the life of the Trust
and/or had any value at the maturity of the Trust Series.
7. The Sponsor intends to maintain a secondary market for Trust
units, but is not obligated to do so. The existence of such a secondary
market will reduce the number of units tendered to the Trustee for
redemption and thus alleviate the necessity of selling portfolio
securities to raise the cash necessary to meet such redemptions. In the
event that the Sponsor does not maintain a secondary market, the Trust
Agreement will provide that the Sponsor will not instruct the Trustee
to sell zero coupon obligations from any Trust Series until shares of
the Fund have been liquidated in order not to impair the protection
provided by the zero coupon obligations, unless the Trustee is able to
sell such zero coupon obligations and still maintain at least the
original proportionate relationship to unit value. The Trust Agreement
also provides that zero coupon obligations cannot be sold to meet Trust
expenses.
8. The Trust has taken certain steps to reduce the impact of the
termination of a Trust Series on the Fund deposited therein. First, the
Trust will, with respect to all unitholders still holding units at
scheduled termination and to the extent desired by such unitholders,
transfer the registration of their proportionate number of Fund shares
from the Trust to a registration in the investor's name in lieu of
redeeming such shares. Second, the Fund will offer all such unitholders
the option of investing the proceeds from the zero coupon obligations
in Fund shares at net asset value (i.e., without the imposition of the
normal sales load). The Fund also will offer unitholders the option of
investing all distributions from the Trust during the life of the Trust
Series in Fund shares at net asset value. Thus, it is anticipated that
many of the unitholders will become and remain direct shareholders of
the Fund and that many will elect to invest their proceeds of the Trust
Series in an account of the Fund.
9. The sales load that normally would be applicable on sales of
underlying Fund shares will be waived, whether an upfront or deferred
sales charge. In accordance with the CDSC Order, applicants will waive
any otherwise applicable CDSC where: (a) the Sponsor has purchased such
shares in connection with the sale of units; (b) the proceeds of zero-
coupon obligations upon termination of a Trust, and distributions from
a Trust made during the existence of the Trust, have been reinvested by
a unitholder in additional Fund shares; and (c) a Trust at maturity has
transferred a unitholder's proportionate number of Fund shares from the
Trust to a registration in the unitholder's name in lieu of redeeming
such shares. Any waiver will comply with the conditions in paragraphs
(a) through (d) of rule 22d-1 of the Act. Moreover, the Sponsor will
rebate to the Trustee any payments it receives in respect of units
under any rule 12b-1 plans adopted by the Funds.
Applicants' Legal Analysis:
1. Section 14(a) of the Act requires that investment companies have
$100,000 of net worth prior to making a public offering. The Trust will
have an initial net worth in excess of $100,000 invested in zero coupon
obligations and Fund shares. Applicants recognize, however, that by
withdrawing certificates representing the entire beneficial ownership
of the Trust, the Sponsor may be deemed to be reducing the Trust's net
worth below the requirements of section 14(a). Applicants believe that
an exemption is appropriate. Applicants also intend to comply in all
respects with the requirements of rule 14a-3, which provides an
exemption from section 14(a), except that the Trust would not restrict
its portfolio to ``eligible trust securities.''
2. Section 19(b) of the Act and rule 19b-1 thereunder provide that,
except under limited circumstances, no registered investment company
may distribute long-term capital gains more than once every twelve
months. Applicants request an exemption from section 19(b) and rule
19b-1 to the extent necessary to permit capital gains earned in
connection with the redemption of Fund shares to be distributed to
unitholders along with the Trust's regular distributions. Applicants
believe that the requested exemption is consistent with the purposes of
section 19(b) and rule 19b-1 because the dangers of manipulation of
capital gains and confusion between capital gains and regular income
distributions does not exist in the Trust. The Trust and its Sponsor
have substantially no control over events, other than the selection of
the portfolio, which might trigger capital gains (i.e., the tendering
of units for redemption). Moreover, because principal distributions are
clearly indicated in accompanying reports to unitholders as a return of
principal, applicants believe that the danger of confusion is not
present in the operations of the Trust.
3. Section 11(a) of the Act makes it unlawful for any registered
open-end investment company or principal underwriter for such company
to make certain offers of exchange on any basis other than the relative
net asset value of the securities to be exchanged, unless the terms of
the exchange offer have first been approved by the SEC. Section 11(c)
provides that section 11(a) will be applicable to any type of exchange
offer involving securities of a registered unit investment trust,
irrespective of the basis of exchange. Applicants request an order
pursuant to section 11 (a) and (c) approving the termination option. At
the termination of the Trust, unitholders still holding units at
maturity will have the option of either transferring the registration
of their proportionate number of Fund shares from the Trust to a
registration in the investor's name, or receiving a cash distribution.
Such unitholders also will have the option of either reinvesting the
proceeds of the zero-coupon obligations in additional shares of the
Fund (without imposition of the normal sales load), or receiving a cash
distribution. The exchange will be made on the basis of the net asset
value of the Fund shares.
4. Section 17(d) of the Act and rule 17d-1 thereunder make it
unlawful for any affiliated person of, or principal underwriter for, a
registered investment company, or any affiliated person of either of
them, acting as a principal, to engage in a joint transaction with the
investment company unless the joint transaction has been approved by
the SEC. Applicants' proposed arrangements may be a joint transaction
under these provisions. Applicants believe that the proposed
arrangements are consistent with the provisions, policies, and purposes
of the Act, and the participation by each registered investment company
is not on a basis less advantageous than that of other participants.
5. Applicants do not request relief under section 12(d)(1) of the
Act. Section 12(d)(1) limits purchases by registered investment
companies of securities issued by other investment companies. Section
12(d)(1)(E) provides, however, that section 12(d)(1) shall not apply to
securities purchased by a registered unit investment trust if the
securities are the only ``investment securities'' held by the trust.
Applicants believe that the U.S. Treasury zero coupon obligations are
not ``investment securities'' for purposes of section 12(d)(1)(E)\2\
and that the Fund shares are the only ``investment securities'' which
the Trust will hold. Accordingly, they do not believe relief from
section 12(d)(1) is necessary.
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\2\Equity Securities Trust, (pub. avail. Jan. 19, 1994).
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Applicants' Conditions
Applicants agree to the following as conditions to the granting of
the requested order:
1. The Trustee will not redeem Fund shares except to the extent
necessary to meet redemptions of units by unitholders, or to pay Trust
expenses should distributions received on Fund shares and rebated rule
12b-1 fees prove insufficient to cover such expenses.
2. Any rule 12b-1 fees received by the Sponsor in connection with
the distribution of Fund shares to the Trust will be immediately
rebated by the Sponsor to the Trustee.
3. All Trust Series will be structured so that their maturity dates
will be at least thirty days apart from one another.
4. Applicants will comply in all respects with the requirements of
rule 14a-3, except that the Trust will not restrict its portfolio
investments to ``eligible trust securities.''
5. Shares of a Fund which are held by a Series of the Trust will be
voted by the Trustee of the Trust, and the Trustee will vote all shares
of a Fund held in a Trust Series in the same proportion as all other
shares of that Fund not held by the Trust are voted.
6. Any shares of the Funds deposited in any Trust Series or any
shares acquired by unitholders through reinvestment of dividends or
distributions or through reinvestment at termination will be made
without imposition of any otherwise applicable sales load and at net
asset value.
7. The prospectus of each Trust Series and any sales literature or
advertising that mentions the existence of a reinvestment option will
disclose that shareholders who elect to invest in Fund shares will
incur a rule 12b-1 fee.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-27488 Filed 11-4-94; 8:45 am]
BILLING CODE 8010-01-M
