[Federal Register Volume 60, Number 118 (Tuesday, June 20, 1995)]
[Notices]
[Pages 32191-32193]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15043]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21135; 812-9616]
National Equity Trust, et al.; Notice of Application
June 14, 1995.
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: National Equity Trust and Prudential Securities
Incorporated (``Prudential'').
RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 17(b) of
the Act that would exempt applicants from section 17(a) of the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit a
terminating series of a unit investment trust to sell portfolio
securities to a new series of the trust.
FILING DATE: The application was filed on May 26, 1995.
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 July 10, 1995
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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants, c/o Prudential Securities Incorporated, Unit Trust
Department, One New York Plaza, New York, New York 10292, Attn.:
Kenneth Swankie.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Robert A.
Robertson, [[Page 32192]] 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. National Equity Trust, a unit investment trust registered under
the Act, consists of several series (each a ``Series''). All of the
Series currently outstanding are Low 5 Series (``Low 5 Series'').
Prudential is the Series' sponsor. Applicants request that the relief
sought herein apply to future Series for which Prudential serves as
sponsor.
2. The investment objective of each Low 5 Series is total return
through investment in certain stocks from among those comprising the
entire related index (``Index'') (e.g., the Dow Jones Industrial
Average). Each Low 5 Series acquires approximately equal values of the
five lowest dollar price per share stocks of the ten stocks in the
Index having the highest dividend yields as of a specified date
(``Select Five'') and holds those stocks for approximately one year.
Prudential intends that, as each Low 5 Series terminates, a new Series
based on the appropriate Index will be offered for the next year.
3. Each Series has or will have a date (a ``Rollover Date'') on
which holders of units in that Series (a ``Rollover Series'') may at
their option redeem their units in the Rollover Series and receive in
return units of a subsequent Series of the same type (a ``New Series'')
which is created on or about the Rollover Date, and has a portfolio
which contains securities (``Qualified Securities''). Qualified
Securities are securities that are (a) actively traded (i.e., have had
an average daily trading volume in the preceding six months of at least
500 shares equal in value to at least 25,000 United States dollars) on
an exchange (a ``Qualified Exchange'') which is either (i) a national
securities exchange which meets the qualifications of section 6 of the
Securities Exchange Act of 1934 or (ii) a foreign securities exchange
which meets the qualifications set out in the proposed amendment to
rule 12d3-1(d)(6) under the Act as proposed by the SEC and which
releases daily closing prices, and (b) included in an Index.
4. There is normally some overlap from one year to the next in the
stocks having the highest dividend yields in an Index and, therefore,
between the portfolio of a Rollover Series and the New Series. In the
case of the Select 5 on January 1, 1994 as compared to the Select 5 on
January 1, 1995, two of the five securities were the same. Prudential
estimates that the brokerage charge on a purchase or sale transaction
averages approximately 5 cents a share. Prudential anticipates that
substantial savings of commissions can be realized if a Series can
purchase securities directly from a prior Series rather than using the
open market as an intermediary between the two Series. Applicants,
therefore, request an exemptive order to permit any Rollover Series to
sell portfolio securities to a New Series and a New Series to purchase
those securities.
5. In order to minimize overreaching, applicants agree that
Prudential will certify to the trustee, within five days of each sale
from a Rollover Series to a New Series, (a) that the transaction is
consistent with the policy of both the Rollover Series and the New
Series, as recited in their respective registration statements and
reports filed under the Act, (b) the date of such transaction, and (c)
the closing sales price on the Qualified Exchange for the sale date of
the securities subject to such sale. The trustee will then countersign
the certificate, unless, in the unlikely event that the trustee
disagrees with the closing sales price listed on the certificate, the
trustee immediately informs Prudential orally of any such disagreement
and returns the certificate within five days to Prudential with
corrections duly noted. Upon Prudential's receipt of a corrected
certificate, if Prudential can verify the corrected price by reference
to an independently published list of closing prices for the date of
the transactions, Prudential will ensure that the price of units of the
New Series, and distributions to holders of the Rollover Series with
regard to redemption of their units or termination of the Rollover
Series, accurately reflect the corrected price. To the extent that
Prudential disagrees with the trustee's corrected price, Prudential and
the trustee will jointly determine the correct sales price by reference
to a mutually agreeable, independently published list of closing sales
prices for the date of the transaction.
Applicants' Legal Analysis
1. Section 17(a) of the Act generally makes it unlawful for an
affiliated person of a registered investment company to sell securities
to or purchase securities from the company. Investment companies under
common control may be considered affiliates of one another. The Series
may be under common control because they have Prudential as a sponsor.
2. Pursuant to section 17(b), the SEC may exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) The
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policy of each registered investment company concerned; and (c) the
proposed transaction is consistent with the general purposes of the
Act. Under section 6(c), the SEC may exempt classes of transactions if
and to the extent that such exemption is necessary or 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.
Applicants believe that the proposed transactions satisfy the
requirements of sections 6(c) and 17(b).
3. Rule 17a-7 under the Act permits registered investment companies
that might be deemed affiliates solely by reason of common investment
advisers, directors, and/or officers, to purchase securities from or
sell securities to one another at an independently determined price,
provided certain conditions are met. Paragraph (e) of the rule requires
an investment company's board of directors to adopt and monitor
procedures for these transactions to assure compliance with the rule. A
unit investment trust does not have a board of directors and,
therefore, may not rely on the rule. Applicants represent that they
will comply with all of the provisions of rule 17a-7, other than
paragraph (e).
4. Applicants represent that purchases and sales between Series
will be consistent with the policy of the Series, as only securities
that would otherwise be bought and sold on the open market pursuant to
the policy of each Series will be involved in the proposed
transactions. Applicants further believe that the practice of buying
and selling on the open market leads to unnecessary brokerage fees on
sales of securities and is therefore contrary not only to the policies
of the Series but to the general purposes of the Act.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each sale of Qualified Securities by a Rollover Series to a New
Series will be effected at the closing price of the securities sold on
a Qualified Exchange on the sale date, without any brokerage charges or
other remuneration except customary transfer fees, if
any. [[Page 32193]]
2. The nature and conditions of such transactions will be fully
disclosed to investors in the appropriate prospectus of each future
Rollover Series and New Series.
3. The trustee of each Rollover Series and New Series will (a)
review the procedures relating to the sale of securities from a
Rollover Series and the purchase of securities for deposit in a New
Series and (b) make such changes to the procedures as the trustee deems
necessary that are reasonably designed to comply with paragraphs (a)
through (d) of rule 17a-7.
4. A written copy of the procedures and a written record of each
transaction will be maintained as provided in rule 17a-7(f).
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-15043 Filed 6-19-95; 8:45 am]
BILLING CODE 8010-01-M
