[Federal Register Volume 59, Number 87 (Friday, May 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10982]
[[Page Unknown]]
[Federal Register: May 6, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20263; 812-8920]
National Equity Trust; Notice of Application
May 2, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANT: National Equity Trust.
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from the
provisions of section 12(d)(3).
SUMMARY OF APPLICATION: Applicant seeks a conditional order on behalf
of its series (the ``Series'') to permit each Series to invest up to
twenty percent of its total assets in securities of issuers that
derived more than fifteen percent of their gross revenues in their most
recent fiscal year from securities related activities.
FILING DATE: The application was filed on April 1, 1994. By
supplemental letter dated April 29, 1994, counsel, on behalf of
applicant, agreed to file an amendment during the notice period to make
certain technical changes. This notice reflects the changes to be made
to the application by such amendment.
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 May 27, 1994,
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 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 such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicant, c/o Prudential Securities Incorporated, 32 Old Slip, New
York, New York 10292 (Attn: Richard R. Hoffmann).
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Attorney, at (202) 942-0583, or Barry D.
Miller, Senior Special Counsel, 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.
Applicant's Representations
1. Each Series will be a series of applicant, a unit investment
trust registered under the Act. Prudential Securities Incorporated
(``Prudential'') is applicant's depositor. Prudential currently intends
to offer a new Series four times a year 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 20%, but in no
event more than 20.5%,\1\ of the value of such Series' total assets in
each of the five lowest dollar price per share stocks of the ten common
stocks in the Dow Jones Industrial Average (``DJIA'') having the
highest dividend yields. Dividend yields will be calculated by
annualizing the last quarterly or semi-annual ordinary dividend
distributed on that 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\Prudential will attempt to purchase securities so that each
of the five common stocks in a Series portfolio represents twenty
percent of the value of a Series' total assets on the initial date
of deposit. Prudential may purchase the securities for a Series 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, a Series may purchase securities of a securities
related issuer that represent over twenty percent, but in no event
more than 20.5 percent, of a Series' assets on the initial date of
deposit to the extent necessary to enable Prudential 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 Prudential or any Series, 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
Prudential. Prudential will have no discretion as to which securities
are purchased. Securities deposited in a Series may include securities
of issuers that derived more than fifteen percent 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,
Prudential may deposit additional securities, maintaining to the extent
practicable the original proportionate relationship among the number of
shares of each stock in the portfolio. Subsequent deposits made after
the 90-day period following the initial date of deposit must replicate
exactly (subject to certain limited exceptions) the proportionate
relationship among the face amounts 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 five highest dividend yielding stocks.
6. A Series' portfolio will not be actively managed. Sales of
portfolio securities will be made in connection with redemptions and at
the termination of the trust. Prudential will have 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
held by a Series to declare or pay anticipated cash dividends,
institution of certain materially adverse legal proceedings against the
issuer, default by the issuer 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
Prudential, would make retention of such securities by a Series
detrimental to the interests of the unit holders. 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), with limited exceptions, 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 fifteen percent 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 five
percent 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
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 to permit any Series to invest up
to approximately twenty percent, but in no event more than 20.5
percent, 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 five percent
limitation on the amount of assets that may be invested in securities
of issuers that derived more than fifteen percent 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
risk 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, rather
than solely on investment merit. Applicant argues that this concern
does not arise in connection with its application because neither the
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 Prudential and applicant, and must
also qualify as one of the five highest dividend yielding securities as
calculated by the objective formula described above.
5. Applicant also states that the effect of a Series' purchase on
the stock of parents of broker-dealers would be de minmis. 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. According to applicant, it is highly unlikely that
purchases of these securities by a Series would have any significant
impact on the market valuer 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 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. 94-10982 Filed 5-5-94; 8:45 am]
BILLING CODE 8010-01-M