[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