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

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Start Preamble August 21, 2002.


Securities and Exchange Commission (“Commission”).


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.


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.


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”).


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


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.


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.

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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).

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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]

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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”).

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. Start Printed 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).

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For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

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

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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.

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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.”

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[FR Doc. 02-21778 Filed 8-26-02; 8:45 am]