[Federal Register Volume 67, Number 166 (Tuesday, August 27, 2002)]
[Notices]
[Pages 55046-55048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21778]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25714; 812-11794]


National Equity Trust and Prudential Investment Management 
Services LLC; Notice of Application

August 21, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under sections 6(c) and 17(b) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 17(a) of the Act.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION:  The requested order would supersede a prior 
order \1\ and permit a terminating series of a unit investment trust to 
sell portfolio securities to a new series of the unit investment trust.
---------------------------------------------------------------------------

    \1\ National Equity Trust, et al., Investment Company Act 
Release Nos. 21135 (June 14, 1995) (notice) and 21197 (July 11, 
1995) (order).

APPLICANTS:  National Equity Trust (the ``Trust''), Prudential 
Investment Management Services LLC (the ``Sponsor''), and certain 
current or future unit investment trusts sponsored by the Sponsor 
(together with the Trust, the ``Trusts,'' and their series, the 
---------------------------------------------------------------------------
``Series'').

FILING DATES:  The application was filed on October 6, 1999, and 
amended on August 19, 2002.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on September 16, 2002, and should be accompanied by proof of 
service on 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 5th Street, NW., Washington, DC 
20549-0609. Applicants, c/o Richard Hoffman, Prudential Investment 
Management Services LLC, 100 Mulberry Street, Newark, NJ 07102.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 942-0527 or Nadya B. Roytblat, Assistant Director, 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 
Commission's Public Reference Branch, 450 5th Street, NW., Washington, 
DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Trust is a unit investment trust registered under the Act 
and sponsored by the Sponsor. Each Series will be created under the 
laws of one of the United States pursuant to a trust agreement, which 
will contain information specific to that Series, and which will 
incorporate by reference a master trust indenture between the Sponsor 
and a financial institution that is a bank within the meaning of 
section 2(a)(5) of the Act and that satisfies the criteria in section 
26(a) of the Act (the ``Trustee''). Applicants also request relief for 
any future Series sponsored by the Sponsor.\2\
---------------------------------------------------------------------------

    \2\ All entities that currently intend to rely on the order are 
named as applicants. Any existing or future Series that relies on 
the order will comply with the terms and conditions of the 
application.

---------------------------------------------------------------------------

[[Page 55047]]

    2. Each Series will hold a portfolio of equity securities of 
domestic and/or foreign companies. The Series generally are designed to 
seek either capital appreciation and/or dividend income.
    3. Applicants state that many, if not all, securities in each 
Series' portfolio will be either (a) securities listed by the Sponsor 
on a ``top picks'' list disseminated to customers and the general 
public as securities recommended for purchase (``Top Picks 
Securities'') and have (i) a minimum market capitalization of U.S. $1 
billion and (ii) had an average daily trading volume in the preceding 
60 trading days of at least 50,000 shares equal in value to at least 
U.S. $250,000 on an Exchange, as defined below, or (b) other securities 
that are actively traded (i.e., have had an average daily trading 
volume in the preceding six months of at least 500 shares and equal in 
value to at least U.S. $25,000) on an Exchange which is: (i) A national 
securities exchange which meets the qualifications of section 6 of the 
Securities Exchange Act of 1934, (ii) a foreign securities exchange 
which meets the qualifications set forth in the proposed amendments to 
rule 12d3-1(d)(6) under the Act \3\ and that releases daily closing 
prices, or (iii) the Nasdaq-National Market System (the securities 
meeting these requirements are referred to in this notice as 
``Securities'').
---------------------------------------------------------------------------

    \3\ See Investment Company Act Release No. 17096 (Aug. 3, 1989) 
(proposing amendments to rule 12d3-1). The proposed amended rule 
defined a ``Qualified Foreign Exchange'' to mean a stock exchange in 
a country other than the United States where: (a) Trading generally 
occurred at least four days a week; (b) there were limited 
restrictions on the ability of registered investment companies to 
trade their holdings on the exchange; (c) the exchange had a trading 
volume in stocks for the previous year of at least U.S. $ 7.5 
billion; and (d) the exchange had a turnover ratio for the preceding 
year of at least 20% of its market capitalization. The version of 
the amended rule that was adopted did not include the part of the 
proposed amendment defining the term ``Qualified Foreign Exchange.''
---------------------------------------------------------------------------

    4. Each Series will terminate on a date after a specified period, 
generally one or two years. The Sponsor intends that, as each Series 
terminates, a new Series (``New Series'') having the same or a similar 
investment objective or investment strategy, will be offered for the 
next period.
    5. Each Series has a date or dates (the ``Rollover Date'') on which 
unitholders in that Series (the ``Rollover Series'') may at their 
option redeem their units in the Rollover Series and receive in return 
units of the New Series, which will be created on or about the Rollover 
Date. Applicants anticipate that there will be some overlap in the 
Securities selected for the portfolios of each Rollover Series and the 
related New Series.
    6. Applicants request an order to permit a Rollover Series to sell 
to a New Series, and a New Series to purchase from a Rollover Series, 
Securities at the closing sales prices of the Securities on an Exchange 
on the dates the Securities are sold (each a ``Sale Date''). Absent the 
requested relief, Securities common to both Series must be purchased or 
sold in the securities markets rather than purchased or sold between 
the Series. This would result in both Series, and thus the unitholders, 
incurring brokerage commissions on Securities.

Applicants' Legal Analysis

    1. Section 17(a) of the Act prohibits an affiliated person of a 
registered investment company from selling securities to, or purchasing 
securities from, the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include, in pertinent part, 
any person directly or indirectly controlling, controlled by or under 
common control with, such other person. Each Series will be sponsored 
by the Sponsor. Because the Sponsor may be deemed to control a Series, 
each Series may be deemed to be under common control and an affiliated 
person of all the other Series.
    2. Rule 17a-7 under the Act permits registered investment companies 
that might be deemed affiliated persons solely by reason of having 
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. Applicants 
represent that they will comply with all of the provisions of rule 17a-
7, other than paragraphs (e) and (f).
    3. Paragraph (e) of rule 17a-7 requires an investment company's 
board of directors to adopt and monitor certain procedures to assure 
compliance with the rule. Paragraph (f) of the rule requires that a 
majority of the investment company's board of directors not be 
interested persons, as defined in section 2(a)(19) of the Act 
(``disinterested directors''), of the company and that the 
disinterested directors have independent legal counsel. Because a unit 
investment trust does not have a board of directors, the Trust would be 
unable to comply with these requirements.
    4. Section 17(b) of the Act provides that the Commission will 
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 policies of the registered 
investment companies involved; and (c) the proposed transaction is 
consistent with the general purposes of the Act. Section 6(c) of the 
Act provides that the Commission may exempt classes of transactions if 
the 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 request 
relief under sections 6(c) and 17(b) to permit a Rollover Series to 
sell Securities to a New Series and to permit the New Series to 
purchase the Securities.
    5. Applicants state that the terms of the proposed transactions 
meet the standards of sections 6(c) and 17(b). Applicants represent 
that purchases and sales of Securities between Series will be 
consistent with the policy of each Series. Applicants state that to 
minimize the possibilities of overreaching, applicants agree that the 
Sponsor 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 the transaction, and (c) 
the closing sales price on the Exchange for Securities on the Sale 
Date. 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 the Sponsor 
orally of the disagreement and returns the certificate within five days 
to the Sponsor with corrections duly noted. Upon the Sponsor's receipt 
of a corrected certificate, if the Sponsor can verify the corrected 
price by reference to an independently published list of closing sales 
prices for the date of the transactions, the Sponsor 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 the Sponsor disagrees with the Trustee's 
corrected price, the Sponsor 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.

[[Page 55048]]

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each sale of Securities by a Rollover Series to a New Series 
will be effected at the closing price of the Securities sold on the 
applicable Exchange on the Sale Date, without any brokerage charges or 
other remuneration except customary transfer fees, if any.
    2. The nature and conditions of such transactions will be fully 
disclosed to investors in the appropriate prospectus of each Rollover 
Series and New Series.
    3. The Trustee of each Rollover Series and New Series will (a) 
review the procedures discussed in the application 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 these procedures and a written record of each 
transaction pursuant to the order will be maintained as provided in 
rule 17a-7(g).

For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21778 Filed 8-26-02; 8:45 am]
BILLING CODE 8010-01-P