Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Notices 26237

1Section 17(b) applies to specific proposed

transactions, rather than an ongoing series of future

transactions. See Keystone Custodian Funds, 21

S.E.C. 295, 298–99 (1945). Section 6(c) frequently

is used to grant relief from section 17(a) to permit

an ongoing series of future transactions.

distribution fees. The Asset Allocation

Series’ Class I shares and Class II shares

will be subject to Rule 12b–1 fees, in

accordance with the normal equity fund

Rule 12b–1 fees for funds in the

Franklin Templeton Group of Funds.

Thus, at all times, there will be no

duplication of distribution fees paid by

shareholders of FTFM.

7. Applicants assert that redemption

threats and a concomitant risk of lost

advisory fees are not a problem in the

context of a fund of funds structure in

which all of the funds are members of

the same fund family. FTFM would be

part of the same fund complex as the

Underlying Funds and will only acquire

shares of the Underlying Funds.

Because the investment advisers to the

Underlying Funds, as well as the Asset

Allocation Series, would be affiliated, a

redemption by an Asset Allocation

Series from one Underlying Fund would

simply lead to the placing of the

proceeds into another Underlying Fund.

8. In addition to not containing the

actual and potential abuses which led to

the enactment of section 12(d)(1),

applicants believe that the structure of

the Asset Allocation Series would

provide a number of benefits to its

shareholders, including: (a) expense

ratios only slightly higher than the

weighted average of the expense ratios

which an investor would pay were he or

she to invest the same amount in a

combination of Underlying Funds; (b)

immediate and broad diversification

resulting from the Asset Allocation

Series’ shareholders access to the

existing investment portfolios of the

Underlying Funds; and (c) efficient

trading practices resulting from the

Underlying Funds’ ability to engage in

block trading, which would enable them

to acquire securities at more favorable

prices than would smaller transactions.

B. Section 17(a)

1. Section 17(a) makes it unlawful for

an affiliated person of a registered

investment company, or an affiliated

person of such person, to sell securities

to, or purchase securities from, the

company. The Asset Allocation Series

and the Underlying Funds may be

considered affiliated persons because

they share common officers and/or

directors/trustees. An Underlying

Fund’s issuance of its shares to the

Asset Allocation Series may be

considered a sale prohibited by section

17(a).

2. Section 17(b) provides that the SEC

shall 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 company involved; and (c)

the proposed transaction is consistent

with the general provisions of the Act.

Applicants believe that the proposed

transactions meet the standards of

sections 6(c) and 17(b).1

Applicants’ Conditions

Applicants agree that the order

granting the requested relief shall be

subject to the following conditions:

1. FTFM and each Underlying Fund

will be part of the same ‘‘group of

investment companies,’’ as defined in

rule 11a–3 under the Act.

2. No Underlying Fund shall acquire

securities of any other investment

company in excess of the limits

contained in section 12(d)(1)(A) of the

Act.

3. A majority of the trustees of FTFM

will not be ‘‘interested persons,’’ as

defined in section 2(a)(19) of the Act.

4. Before approving any advisory

contract under section 15 of the Act, the

Board of Trustees of FTFM, including a

majority of the trustees who are not

‘‘interested persons,’’ as defined in

section 2(a)(19), shall find that advisory

fees charged under such contract are

based on services provided that are in

addition to, rather than duplicative of,

services provided pursuant to any

Underlying Fund’s advisory contact.

Such finding, and the basis upon which

the finding was made, will be recorded

fully in the minute books of FTFM.

5. Any sales charges or service fees

charged with respect to securities of the

Asset Allocation Series, when

aggregated with any sales charges or

service fees paid by the Asset Allocation

Series with respect to shares of the

Underlying Funds, shall not exceed the

limits set forth in Article III, section 26,

of the Rules of Fair Practice of the

National Association of Securities

Dealers, Inc.

6. Applicants agree to provide the

following information, in electronic

format, to the Chief Financial Analyst of

the SEC’s Division of Investment

Management: monthly average total

assets for each FTFM portfolio and each

of its Underlying Funds; monthly

purchases and redemptions (other than

by exchange) for each FTFM portfolio

and each of its Underlying Funds;

monthly exchanges into and out of each

FTFM portfolio and each of its

Underlying Funds; month-end

allocations of each FTFM portfolio’s

assets among its Underlying Funds;

annual expense ratios for each FTFM

portfolio and each of its Underlying

Funds; and a description of any vote

taken by the shareholders of any

Underlying Funds, including a

statement of the percentage of votes cast

for and against the proposal by FTFM

and by the other shareholders of the

Underlying Funds. Such information

will be provided as soon as reasonably

practicable following each fiscal yearend of FTFM (unless the Chief Financial

Analyst shall notify applicants in

writing that such information need no

longer be submitted).

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–13142 Filed 5–23–96; 8:45 am]

BILLING CODE 8010–01–M

[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’’).

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
26238 Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Notices

1The 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.

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.

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
Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Notices 26239

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

[Release No. 34–37223; File No. SR–NASD–

96–17]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to the Definitions

of Bona Fide Independent Market and

Bona Fide Independent Market Maker

May 17, 1996.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on April 24, 1996, the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by the NASD. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

The Proposed Rule Change

The NASD is herewith filing a

proposed rule change to Rule 2720 of

the NASD’s Conduct Rules to amend the

definitions of ‘‘Bona fide independent

market’’ and ‘‘Bona fide independent

market maker.’’ Below is the text of the

proposed rule change. Proposed new

language is italicized; proposed

deletions are in brackets.

Conduct Rules

2000. Business Conduct

* * * * *

2700. Securities Distributions

2720. Distribution of Securities of

Members and Affiliates—Conflicts of

Interest

(a) General

(1) No member or person associated

with a member shall participate in the

distribution of a public offering of debt

or equity securities issued or to be

issued by the member, the parent of the

member, or an affiliate of the member

and no member or parent of a member

shall issue securities except in

accordance with this Rule.

(2) No member or persons associated

with a member shall participate in the

distribution of a public offering of debt

or equity securities issued or to be

issued by a company if the member and/

or its associated persons, parent or

affiliates have a conflict of interest with

the company, as defined herein, except

in accordance with this Rule.

(b) Definitions

For purposes of this Rule, the

following words shall have the stated

meanings:

(1) and (2) No change.

(3) Bona fide independent market—a

market in a security which:

(A) Is registered pursuant to the

provisions of Sections 12(b) or 12(g) of

the Act or issued by a company subject

to Section 15(d) of such Act, unless

exempt from those provisions;

ø(B) Has an aggregate trading volume

for the 12 months immediately

preceding the filing of the registration

statement of at least 100,000 shares;¿

ø(C) Has outstanding for the entire 12

month period immediately preceding

the filing of the registration statement, a

minimum of 250,000 publicly held

shares; and¿

ø(D) In the case of over-the-counter

securities, has had at least three bona

fide independent market makers for a

period of at least 30 days immediately

preceding the filing of the registration

statement and the effective date of the

offering.¿

(B) Has a market price as of the close

of trading on the trade date immediately

preceding filing of the registration

statement or offering circular of five

dollars or more per share, and which

has traded at a price of five dollars or

more per share in at least 20 of the 30

trading days immediately preceding the

filing of the registration statement or

offering circular; and

(C) For at least 90 calendar days

immediately preceding the filing of the

registration statement or offering

circular with the Department:

(i) Has been listed on and is in

compliance with the requirements for

continued listing on a national

securities exchange; or

(ii) Has been listed on and is in

compliance with the requirements for

continued listing on The Nasdaq Stock

Market and has had at least two bona

fide independent market makers for a

period of at least 30 trading days

immediately preceding the filing of the

registration statement and the effective

date of the offering; and

(D) For the 90 calendar day period

immediately preceding the filing of the

registration statement or offering

circular:

(i) Has an aggregate trading volume of

at least 500,000 shares; or

(ii) Has outstanding a minimum of

5,000,000 publicly held shares.

(4) Bona fide independent market

maker—a market maker which:

ø(A) Continually maintains net capital

as determined by Rule 15c3–1 under the

Act, of $50,000 or $5,000 for each

security in which it makes a market,

whichever is less;¿

ø(B) Regularly publishes bona fide

competitive bid and offer quotations in

a recognized interdealer quotation

system;¿

ø(C) Furnishes bona fide competitive

bid and offer quotations to other brokers

and dealers on request; and¿

((D) Stands ready, willing and able to

effect transactions in reasonable

amounts, and at his quoted prices, with

other brokers and dealers.)

(A) Is registered as a Nasdaq market

maker in the security to be distributed

pursuant to this Schedule;

(B) Is not an affiliate of the entity

issuing securities pursuant to paragraph

(c) of this Schedule and, together with

its associated persons, does not in the

aggregate beneficially own, at the time

of the filing of the registration statement

and at the commencement of the

distribution, five percent or more of the

outstanding voting securities of such

entity which is a corporation or

beneficially own a partnership interest