12266 Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Notices

1Prudential-Bache Securities, Inc., Investment

Company Act Release Nos. 14943 (Feb. 18, 1986)

(notice) and 14989 (March 13, 1986) (order).

the results of a statistically valid

number of such simulations, Equitable

was able to determine actuarially the

level cost of providing the benefit.

Based on this analysis, Equitable

determined that the 0.35% charge was

a reasonable charge for providing the

guaranteed minimum death benefit

under the Certificates. Equitable

undertakes to maintain at its home

office a memorandum, available to the

Commission upon request, setting forth

in detail the methodology used in

making that determination.

15. Applicants represent that the

aggregate mortality and expense risk

and guaranteed minimum death benefit

charges under the Certificates are

reasonable in relation to the risks by

Equitable under the Certificates, and

reasonable in amount as determined by

industry practice for comparable

contracts. Applicants represent that they

have reviewed publicly available

information regarding the aggregate

level of the mortality and expense risk

and guaranteed minimum death benefit

charges under comparable variable

annuity contracts currently being

offered in the insurance industry, taking

into consideration such factors as

current charge levels, the manner in

which charges are imposed, the

presence of charge level or annuity rate

guarantees, and the markets in which

the Certificate will be offered.

Applicants will maintain and make

available to the Commission upon

request a memorandum outlining the

methodology underlying the foregoing

representations.

16. Equitable will assess a mortality

and expense risk charge not to exceed

an annual rate of 0.90%, and a

maximum annual charge of 0.35% of the

guaranteed minimum death benefit.

Assuming a hypothetical gross

investment return in the Account of

5.0%, the 0.35% maximum guaranteed

minimum death benefit charge would, if

expressed as a daily charge against

Account assets, add approximately

0.35% to the 0.90% mortality and

expense risk charge, for a total charge,

on an annual basis, of approximately

1.25% of the assets in the Investment

Funds.

17. For higher hypothetical gross

returns, the guaranteed minimum death

benefit charge, when expressed as an

asset-based charge, would be less; for

lower hypothetical gross returns, it

would be more. Applicants assert that

this is because the charge base—which

is essentially contributions plus

interest—is a relative constant in dollar

amount compared to the fluctuating

values of an Investment Fund. Thus, as

a percentage of the assets of an

Investment Fund, which (assets) change

with investment performance, positive

performance results in a reduction of

the guaranteed minimum death benefit

charge when expressed as an assetbased charge; negative performance will

result in an increase in the guaranteed

minimum death charge when expressed

as an asset-based charge.

18. Applicants acknowledge that the

withdrawal charge and distribution fee,

as applicable, may be insufficient to

cover all costs relating to the

distribution of the Certificates.

Applicants further acknowledge that if a

profit is realized from the mortality and

expense risk and guaranteed minimum

death benefit charges, all or a portion of

such profit may be offset by distribution

expenses not reimbursed by the

withdrawal charge and distribution fee.

In such circumstances, a portion of such

charges might be viewed as providing

for costs relating to distribution of the

Certificates.

19. Notwithstanding the foregoing,

Equitable has concluded that there is a

reasonable likelihood that the proposed

distribution financing arrangements

made with respect to the Certificates

will benefit the Account and Certificate

owners and annuitants. Equitable

represents that it will maintain at its

principal office, and make available on

request to the Commission, a

memorandum setting forth the basis for

such conclusion.

20. Equitable represents that the

Account will invest only in an

underlying mutual fund which has

undertaken to have a board of directors,

a majority of the members of which are

not ‘‘interested persons’’ of such fund

within the meaning of Section 2(a)(19)

of the Act, formulate and approve any

plan to finance distribution expenses in

accordance with Rule 12b–1 under the

1940 Act.

Conclusion

Applicants submit that for the reasons

and based upon the facts set forth above,

the requested exemptions from Sections

2(a)(35), 26(a)(2)(C) and 27(c)(2) of the

1940 Act to permit the assessment of a

mortality and expense risk charge, a

guaranteed minimum death benefit

charge, and a distribution fee under the

Account Contracts and Other Contracts

meet the statutory standards of Section

6(c) of the 1940 Act. Accordingly,

Applicants assert that the requested

exemptions are 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 1940 Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–5335 Filed 3–3–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–20922; 812–8846]

Prudential Securities Incorporated, et

al.; Notice of Application

February 27, 1995.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for

exemption under the Investment

Company Act of 1940 (the ‘‘Act’’).

APPLICANTS: Prudential Securities

Incorporated (the ‘‘Sponsor’’); and

National Municipal Trust, Prudential

Unit Trusts, National Equity Trust, and

Government Securities Equity Trust (the

‘‘Trusts’’).

RELEVANT ACT SECTIONS: Order requested

pursuant to section 6(c) for exemptions

from sections 2(a)(32), 2(a)(35), 22(c),

22(d), and 26(a)(2)(C) of the Act and rule

22c–1 thereunder, and pursuant to

section 11(a) to amend a prior order (the

‘‘Prior Order’’) granting relief from

section 11(c).1

SUMMARY OF APPLICATION: Applicants

seek to impose sales charges on a

deferred basis and waive the deferred

sales charge in certain cases, exchange

Trust units having deferred sales

charges, and exchange units of a

terminating series of a Trust for units of

the next available series of that Trust.

FILING DATES: The application was filed

on February 22, 1994 and amended on

July 21, 1994, January 19, 1995, and

February 21, 1995.

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

March 24, 1995, 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 who wish to be notified of the

date of a hearing may request
Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Notices 12267

notification by writing to the SEC’s

Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street NW., Washington, D.C. 20549.

Applicants, 32 Old Slip, New York,

New York 10292.

FOR FURTHER INFORMATION CONTACT: Fran

Pollack-Matz, Senior Attorney, at (202

942–0570 or C. David Messman, 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 is

available for a fee from the SEC’s Public

Reference Branch.

Applicant’s Representations

1. Each of the Trusts is a unit

investment trust sponsored by the

Sponsor. The Trusts are made up of one

or more separate series (‘‘Series’’). Over

four hundred Series of the Trusts are

currently outstanding.

2. Each Series is created by a trust

indenture among the Sponsor, a banking

institution or trust company as trustee,

and an evaluator. The Sponsor acquires

a portfolio of securities and deposits

them with a trustee in exchange for

certificates representing fractional

undivided interests in the portfolio of

securities (‘‘Units’’). Units currently are

offered to the public through the

Sponsor and other underwriters and

dealers at a price based upon the

aggregate offering side evaluation of the

underlying securities plus an up-front

sales charge. The sales charge currently

ranges from 2.00% to 5.50% of the

public offering price. The Sponsor may

offer a discounted sales charge to

unitholders within a Series based on the

quantity of Units purchased. The sales

charge may also vary among Series

depending on the terms of the

underlying securities.

3. Applicants seek an order under

section 6(c) exempting them from

sections 2(a)(32), 2(a)(35), 22(c), 22(d),

and 26(a)(2)(C) and rule 22c–1

thereunder to let them impose sales

charges on Units on a deferred basis and

waive the deferred sales charge in

certain cases. Under applicants’

proposal, the Sponsor will continue to

determine the amount of sales charge

per Unit at the time portfolio securities

are deposited in a Series. The Sponsor

will have the discretion to defer

collection of all or part of this sales

charge over a period (‘‘Collection

Period’’) following the settlement date

for the purchase of Units. The Sponsor

will in no event add to the deferred

amount initially determined any

additional amount for interest or any

similar or related charge to reflect or

adjust for such deferral.

4. The deferred sales charge (‘‘DSC’’)

may be (a) deducted from the proceeds

of a sale, exchange, or redemption of

units or termination of the Series; or (b)

deducted from (i) amounts received on

the sale of portfolio securities, (ii)

amounts received on the maturity of

portfolio securities, (iii) income

distributions on the Units, or (iv) a

combination thereof (‘‘Distribution

Deductions’’). Alternatively, the trustee

may advance the DSC on behalf of the

Series on a periodic basis, in which case

the trustee will be reimbursed from the

income or principal account of the

Series upon the receipt of proceeds from

the maturity or sale of portfolio

securities, until the total amount per

unit is collected. The total of all these

amounts will not exceed the aggregate

DSC per unit.

5. For purposes of calculating the

amount of the deferred sales charge due

upon redemption or sale of Units, it will

be assumed that Units on which the

balance of the sales charge has been

collected from installment payments are

liquidated first. Any Units disposed of

over such amounts will be redeemed in

the order of their purchase, so that Units

held for the longest time are redeemed

first.

6. The Sponsor may adopt a

procedure of waiving the DSC payable

out of net sales, exchange, or

redemption proceeds, if necessary, so as

not to jeopardize the tax-exempt nature

of various investors such as Individual

Retirement Accounts and employee

benefits plans, if otherwise required for

tax purposes, or for such other reasons

as disclosed in the prospectus.

7. The date and amount of each DSC

accrual or payment will be disclosed in

the prospectus. The prospectus for a

Series will disclose that portfolio

securities may be sold to pay the DSC

if amounts in the income account are

insufficient to pay the DSC or proceeds

from portfolio securities are intended to

pay the DSC. The confirmation received

by a holder on the purchase, sale,

exchange, or redemption of a Unit will

indicate the DSC to the extent required

by National Association of Securities

Dealers, Inc. rules. The account

statement of a holder will reflect a value

for a Unit. The account statement,

however, will not reflect the amount a

holder paid for the up-front sales

charge. At the end of every year, the

Series’ annual report will reflect the

aggregate amount of any Distribution

Deductions taken, both on a Series and

per Unit basis.

8. Units received in an exchange are

subject to a fixed dollar sales charge of

$15, $20, or $25 per $1000 of Units for

(a) Units trading in the secondary

market, (b) Units trading in the

secondary market received upon the

exchange of units of a trust not solely

sponsored by the Sponsor, and (c) Units

received during such Series’ initial

offering period, respectively. When

Units held for less than five months are

exchanged for Units with a higher

regular sales charge, the sales charge

will be the greater of (a) the reduced

sales charge or (b) the difference

between the sales charge paid in

acquiring the Units being exchanged

and the regular sales charge for the

quantity of Units being acquired,

determined as of the date of the

exchange.

9. Applicants seek to amend the Prior

Order to permit offers of exchange of

Units subject to a DSC. If a Unit subject

to a DSC is being exchanged, the

proceeds due to the exchanging investor

will be net of the DSC due upon the sale

of a Unit at such time. Units acquired

in the exchange will be subject to the

greater of a sales load of a fixed dollar

amount (currently ranging from $15 to

$25 depending on whether the Series

being acquired is in the initial offering

period or the secondary market) or the

amount of the DSC remaining on the

Units being acquired.

10. The Sponsor may offer certain

Series that have intermediate or shortterm stated maturities. Upon

termination of such Series, the Sponsor

may create a new Series with the same

investment objective, the same type of

portfolio securities as the terminating

Series, and in certain instances some of

the same portfolio securities. Applicants

wish to make Units of the new Series

available to the unitholders of the

terminating Series at the net asset value

of the new Units plus a reduced sales

charge on an up-front and/or deferred

basis (the ‘‘Rollover Option’’). Although

applicants believe that the Prior Order

already permits the Rollover Option,

they request that the Prior Order be

amended to cover the Rollover Option

explicitly.

Applicants’ Legal Analysis

1. Under section 6(c), the SEC may

exempt any person or transaction from

any provision of the Act or any rule

thereunder to the extent that such

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.

2. Section 2(a)(32) defines a

‘‘redeemable security’’ as a security that,

upon its presentation to the issuer,

entitles the holder to receive
12268 Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Notices

2Without an exemption, a trust selling unit

subject to a deferred sales charge could not meet the

definition of a unit investment trust under section

4(2) of the Act. Section 4(2) defines a unit

investment trust as an investment company that

issues only ‘‘redeemable securities.’’

approximately his or her proportionate

share of the issuer’s current net assets,

or the cash equivalent of those assets.2

3. Section 2(a)(35) defines the term

‘‘sales load’’ to be the difference

between the sales price and the

proceeds to the issuer, less any expenses

not properly chargeable to sales or

promotional expenses. Because a DSC is

not charged at the time of purchase, an

exemption from section 2(a)(35) is

necessary.

4. Section 22(c) and rule 22c–1

require that the price of a redeemable

security issued by an investment

company for purposes of sale,

redemption, and repurchase be based on

the investment company’s current net

asset value. Because the imposition of a

DSC may cause a redeeming unit holder

to receive an amount less than the net

asset value of the redeemed Units,

applicants seek an exemption from this

section and rule.

5. Section 22(d) requires an

investment company and its principal

underwriter and dealer to sell securities

only at a current public offering price

described in the investment company’s

prospectus. Because sales charges

traditionally have been a component of

the public offering price, section 22(d)

historically required that all investors be

charged the same load. Rule 22d-1 was

adopted to permit the sale of

redeemable securities ‘‘at prices that

reflect scheduled variations in, or

elimination of, the sales load.’’ Because

rule 22d–1 may not be interpreted as

extending to scheduled variations in

deferred sales charges, applicants seek

relief from section 22(d) to permit each

Series to waive or reduce the DSC in

certain circumstances. Any waiver or

reduction will comply with the

conditions in paragraphs (a) through (d)

of rule 22d–1 under the Act.

6. Section 26(a)(2) in relevant part

prohibits a trustee or custodian of a unit

investment trust from collecting from

the trust as an expense any payment to

a depositor or principal underwriter

thereof. Because of this prohibition,

applicants need an exemption to permit

the trustee to collect the DSC

installments from distribution

deductions or Trust assets.

7. Applicants believe that

implementation of the DSC program in

the manner described above would be

fair and in the best interests of the

unitholders of the Trusts. Thus, granting

the requested order would be

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.

8. Section 11(c) prohibits any offers of

exchange of the securities of a registered

unit investment trust for the securities

of any other investment company,

unless the terms of the offer have been

approved by the SEC. Applicants assert

that the reduced sales charge imposed at

the time of exchange is a reasonable and

justifiable expense to be allocated for

the professional assistance and

operational expenses incurred in

connection with the exchange.

Applicants’ Conditions

Applicants agree that any order

granting the requested relief will be

subject to the following conditions:

1. Whenever the exchange option is to

be terminated or its terms are to be

amended materially, any holder of a

security subject to that privilege will be

given prominent notice of the

impending termination or amendment

at least 60 days prior to the date of

termination or the effective date of the

amendment, provided that: (a) no such

notice need be given if the only material

effect of an amendment is to reduce or

eliminate the sales charge payable at the

time of an exchange, to add one or more

new Series eligible for the exchange

option, or to delete a Series which has

terminated; and (b) no notice need be

given if, under extraordinary

circumstances, either (i) there is a

suspension of the redemption of units of

the Trust under section 22(e) and the

rules and regulations promulgated

thereunder, or (ii) a Trust temporarily

delays or ceases the sale of its Units

because it is unable to invest amounts

effectively in accordance with

applicable investment objectives,

policies, and restrictions.

2. The amount of the sales charge per

Unit collected from a holder at the time

of any exchange or conversion of a Unit

will be lower than the sales charge

collected on the initial purchase of the

same Unit at such time.

3. The prospectus of each Trust

offering exchanges and any sales

literature or advertising that mentions

the existence of the exchange option

will disclose that the exchange option is

subject to modification, termination, or

suspension, without notice except in

certain limited cases.

4. Each Series offering Units subject to

a deferred sales charge will include in

its prospectus the table required by item

2 of Form N–1A (modified as

appropriate to reflect the differences

between unit investment trusts and

open-end management investment

companies) and a schedule setting forth

the number and date of each installment

payment.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–5336 Filed 3–3–95; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

Preferred Lenders Program; FA$TRAK

Pilot Program

AGENCY: Small Business Administration.

ACTION: Notice of pilot program

‘‘FA$TRAK’’.

SUMMARY: the Small Business

Administration (SBA) is establishing a

pilot program in which certain lenders

will be permitted to use their own

documentation and procedures to

approve loans to small businesses using

the Section 7(a) loan program in return

for a reduced percentage of guaranty

and other modifications to SBA’s

normal lending practices. This program

will be called FA$TRAK and will be

considered a part of the Preferred

Lenders Program.

DATES: This pilot will be effective on

February 27, 1995 and will remain in

effect for 2 years.

FOR FURTHER INFORMATION CONTACT:

James W. Hammersley, Deputy Director,

Office of Financing, U.S. Small Business

Administration, 8th floor, 409 3rd St.,

SW., Washington, DC 20416; 202–205–

6493.

SUPPLEMENTARY INFORMATION: The Small

Business Administration (SBA) is

establishing the FA$TRAK pilot

program as part of the existing Preferred

Lenders Program. This program is

designed to streamline the process by

which a lender receives a guaranty from

SBA on a loan made to a qualifying

small business. It is SBA’s goal to

utilize, to the maximum extent possible,

existing documentation of participating

lenders. Therefore, for FA$TRAK loans

lenders will be permitted to use their

own application form(s), internal credit

memoranda, notes, collateral

documents, servicing documentation

and liquidation documentation. The

SBA will limit the use of governmentmandated forms to those forms

necessary to authorize the lender to

disburse the loan with a government

guaranty, record the guaranteed balance

and loan status, and ensure that the

borrower has agreed to those items

required by law and regulation.