[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