[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Notices]
[Pages 26237-26239]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13141]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21965; 812-10094]
National Equity Trust; Notice of Application
May 20, 1996.
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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APPLICANT: National Equity Trust.
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from section 12(d)(3) of the Act.
SUMMARY OF APPLICATION: Applicant requests an order on behalf of itself
and subsequently established series (the ``Series'') to permit each
Series to invest up to 10% of its total assets in securities of an
issuer that derives more than 15% of its gross revenues in its most
recent fiscal year from securities related activities.
FILING DATE: The application was filed on April 22, 1996.
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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 14, 1996,
and should be accompanied by proof of service on applicant, in the form
of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature
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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.
Applicant, c/o Prudential Securities Incorporated, One New York Plaza,
New York, New York 10292, Attn: Richard R. Hoffmann.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or David M.
Goldenberg, 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 at the
SEC's Public Reference Branch.
Applicant's Representations
1. Each Series will be a series of applicant, a unit investment
trust registered under the Act. Prudential Securities Incorporated is
applicant's depositor (the ``Sponsor''). The Sponsor currently intends
(but is not obligated) to offer a new Series at about the beginning of
each calendar quarter.
2. Each Series' investment objective is to provide total return
through a combination of potential capital appreciation and current
dividend income. Each Series will invest approximately 10%, but in no
event more than 10.5%,\1\ of the value of its total assets in each of
the ten common stocks in the Dow Jones Industrial Average (the
``DJIA'') with the highest dividend yields (the ``Selected Ten'').
Dividend yields will be calculated by annualizing the last quarterly or
semiannual ordinary dividend distributed on a security and dividing the
result by the market value of the security at the close of the New York
Stock Exchange either on or shortly before such Series' initial date of
deposit.
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\1\ The Sponsor will attempt to purchase equal values of each of
the ten common stocks for a Series' portfolio and may purchase the
securities in odd lots in order to achieve this goal. However, it is
more efficient if securities are purchased in 100 share lots and 50
share lots. As a result, the Sponsor may choose to purchase
securities of a securities related issuer which represent over 10%,
but in no event more than 10.5%, of a Series' assets on the initial
date of deposit to the extent necessary to enable the Sponsor to
meet its purchase requirements and to obtain the best price for the
securities.
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3. The DJIA comprises 30 widely-held common stocks listed on the
New York Stock Exchange which are chosen by the editors of The Wall
Street Journal. The DJIA is the property of Dow Jones & Company, Inc.,
which is not affiliated with any Series or the Sponsor, and does not
participate in any way in the creation of any series or the selection
of its stocks.
4. The securities deposited in each Series will be chosen solely
according to the formula described above, and will not necessarily
reflect the research opinions or buy or sell recommendations of the
Sponsor. The Sponsor has no discretion as to which securities are
purchased. Securities deposited in a Series may include securities of
issuers that derived more than 15% of their gross revenues in their
most recent fiscal year from securities related activities.
5. During the 90-day period following the initial date of deposit,
the Sponsor may deposit additional securities while maintaining to the
extent practicable the original proportionate relationship among the
number of shares of each stock in the portfolio. Deposits made after
this 90-day period must replicate exactly (subject to certain limited
exceptions) the proportionate relationship among the number of shares
of the securities comprising the portfolio at the end of the initial
90-day period, whether or not a stock continues to be among the
Selected Ten.
6. A Series' portfolio will not be actively managed. Sales of
portfolio securities will be made in connection with redemptions and at
termination of the trust. The Sponsor has no discretion as to when
securities will be sold except that it is authorized to direct the
trustee to sell securities upon failure of the issuer of a security in
the trust to declare or pay anticipated cash dividends, institution of
certain materially adverse legal proceedings, default under certain
documents materially and adversely affecting future declaration or
payment of dividends, or the occurrence of other market or credit
factors that, in the opinion of the Sponsor, would make retention of
such securities in the trust detrimental to the interests of the unit
holders, and to pay any deferred sales charge. The adverse financial
condition of an issuer will not necessarily require the sale of its
securities from a Series' portfolio.
Applicant's Legal Analysis
1. Section 12(d)(3) prohibits an investment company from acquiring
any security issued by any person who is a broker, dealer, underwriter,
or investment adviser. Rule 12d3-1(b) exempts from section 12(d)(3)
purchases by an investment company of securities of an issuer that
derived more than 15% of its gross revenues in its most recent fiscal
year from securities related activities, provided that, among other
things, immediately after such acquisition, the acquiring company has
invested not more than 5% of the value of its total assets in
securities of the issuer. Notwithstanding the above, rule 12d3-1(c)
prohibits any registered investment company from acquiring any security
issued by that company's investment adviser, promoter, or principal
underwriter, or any affiliated person of such investment adviser,
promoter, or principal underwriter.
2. Applicant seeks an exemption under section 6(c) from the
provisions of section 12(d)(3) to permit any Series to invest up to
approximately 10%, but in no event more than 10.5%, of the value of its
total assets in securities of an issuer that derives more than fifteen
percent of its gross revenues from securities related activities.
Applicant and each Series will comply with all of the provisions of
rule 12d3-1, except for the 5% limitation on the amount of assets that
may be invested in securities of issuers that derived more than 15% of
their gross revenues from securities related activities in their most
recent fiscal year.
3. Applicant asserts that section 12(d)(3) was intended to prevent
investment companies from exposing their assets to the entrepreneurial
risks of securities related businesses, to prevent potential conflicts
of interest, and to eliminate certain reciprocal practices between
investment companies and securities related businesses.
4. One potential conflict discussed by applicant could occur if an
investment company purchased securities or other interests in a broker-
dealer to reward that broker-dealer for selling fund shares. Applicant
believes that this concern does not arise in connection with its
application because neither applicant nor the Sponsor has discretion in
choosing the securities or percentage amount purchased. The security
must first be included in the DJIA, which is unaffiliated with
applicant or the Sponsor, and must also qualify as one of the Selected
Ten as calculated by the objective formula.
5. Applicant also states that the effect of a Series' purchase on
the stock of parents of broker-dealers would be de minimis. Applicant
asserts that the common stocks of securities related issuers
represented in the DJIA are widely held, have active markets, and that
potential purchases by any Series would represent an insignificant
amount of the outstanding common stock and the trading volume of any of
these issues. Accordingly, applicant
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believes that it is highly unlikely that purchases of these securities
by a Series would have any significant impact on the market value of
any such securities.
6. Another potential conflict of interest discussed by applicant
could occur if an investment company directed brokerage to a broker-
dealer in which the company has invested to enhance the broker-dealer's
profitability or to assist it during financial difficulty, even though
the broker-dealer may not offer the best price and execution. To
preclude this type of conflict, applicant and each Series agree, as a
condition of this application, that no company held in the portfolio of
a Series nor any affiliate thereof will act as broker for any Series in
the purchase or sale of any security for its portfolio.
7. Applicant states that the requested relief is appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Applicant's Condition
Applicant agrees that the requested exemptive order may be
conditioned upon no company held in the portfolio of a Series nor any
affiliate thereof, acting as broker for any Series in the purchase or
sale of any security for the Series' portfolio.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13141 Filed 5-23-96; 8:45 am]
BILLING CODE 8010-01-M
