federal register - U.S. Government Printing Office

6286 Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Noticesapproximately 20%, but in no eventmore than 20.5%, of the value of thatFive Series’ total assets as of its initialdate of deposit.2. As noted above, the Ten Series andthe Five Series will contain a portfolioof Equity Securities which represents aportion of the DJIA, the FT Index, or theHang Seng Index. The DJIA comprises30 widely-held common stocks listed onthe New York Stock Exchange that arechosen by the editors of The Wall StreetJournal. The FT Index compriseswidely-held common stocks listed onthe London Stock Exchange that arechosen by the editors of the TheFinancial Times (London). The FTIndex is an unweighted average of 30companies representative of Britishindustry and commerce. The Hang SengIndex is a weighted average of 33companies representative of Hong Kongindustry. The publishers of the DowJones & Company, Inc. (owner of theDJIA), the FT Index, and the Hang SengIndex are unaffiliated with any Series orthe Sponsor and do not participate inany way in the creation of any Series orthe selection of its stocks.3. Certain of the stocks currentlycomprising the DJIA, the FT Index, andthe Hang Seng Index are issued bycompanies with subsidiaries engaged in‘‘securities related activities’’ (asdefined in rule 12d3–1(d)(1)), revenuesof which may from time to timerepresent more than 15% of the issuer’sgross revenues. It also is possible thatadditional companies in the DJIA, theFT Index, and the Hang Seng Index mayacquire companies engaged in or enterinto those business in the future.Applicants’ Legal Analysis1. Applicants request an exemptionunder section 6(c) granting relief fromsections 2(a)(32), 2(a)(35), 22(d),26(a)(2), and rule 22c–1 to permit themto assess a DSC, and to waive the DSCunder certain circumstances. Applicantsalso request an exemption under section11(a) granting relief from section 11(c)to enable them to implement theExchange and Rollover Options. Inaddition, applicants request anexemption under sections 6(c) and 17(b)granting relief from section 17(a) topermit a terminating Series of a Trust tosell portfolio securities to a new Seriesof the Trust. Finally, applicants seek anexemption under section 6(c) grantingrelief from sections 12(d)(3), 14(a),19(b), and rule 19b–1 to the extentdescribed below.2. Section 2(a)(32) of the Act definesa ‘‘redeemable security’’ as a securitythat, upon its presentation to the issuer,entities the holder to receiveapproximately his or her proportionateshare of the issuer’s current net assets.or the cash equivalent of those assets.Because the imposition of a DSC maycause a redeeming Unitholder to receivean amount less than the net asset valueof the redeemed Units, applicantsrequest an exemption from section2(a)(32) so that Units subject to a DSCare considered redeemable securities forpurposes of the Act. 23. Section 2(a)(35) of the Act, inrelevant part, defines the term ‘‘salesload’’ to be the difference between thepublic selling price of a security andthat portion of the sale proceedsinvested or held for investment by thedepositor or trustee. Because a DSC isnot charged at the time of purchase,applicants request an exemption fromsection 2(a)(35).4. Rule 22c–1, in relevant part,prohibits a registered investmentcompany issuing a redeemable securityfrom selling, redeeming, or repurchasingany such security, except at a pricebased on the current net asset value ofsuch security. Because the imposition ofa DSC may cause a redeemingUnitholder to receive an amount lessthan the net asset value of the redeemedUnits, applicants request an exemptionfrom rule 22c–1.5. Section 22(d) of the Act requires aninvestment company and its principalunderwriter and dealers to sellsecurities issued by such investmentcompany only at the current publicoffering price as described in theinvestment company’s prospectus.Because sales charges traditionally havebeen a component of the public offeringprice, section 22(d) historically requiredthat all investors be charged the sameload. Rule 22d–1 was adopted to permitthe sale of redeemable securities withscheduled variations in the sales load.Applicants submit that waivers,deferrals or other scheduled variations,if disclosed in the relevant prospectus,would be consistent with section 22(d),and that rule 22d–1 contemplates andpermits such waivers, deferrals or otherscheduled variations if disclosed in therelevant prospectus. In the interest ofclarity, however, applicants seek relieffrom section 22(d) to permit scheduledvariations or waivers of the DSC undercertain circumstances.6. Section 26(a)(2) of the Act, inrelevant part, prohibits a trustee orcustodian of a unit investment trustfrom collecting from the trust as anexpense any payment to a depositor or2 Without an exemption, a Trust selling Unitssubject to a DSC could not meet the definition ofa unit investment trust under section 4(2) of theAct. As here relevant, section 4(2) defines a unitinvestment trust as an investment company thatissues only ‘‘redeemable securities.’’principal underwriter thereof. Becauseof this prohibition, applicants requestan exemption to permit the trustee tocollect the charge from incomedistributions on the Units and disbursethem to the Sponsor as contemplate bythe DSC program.7. Section 6(c) of the Act provides, inrelevant part, that the SEC, by orderupon application may exempt anyperson or transaction, or any class orclasses of persons or transactions, fromany provision of the Act or any rulethereunder if such exemption isappropriate in the public interest andconsistent with the protection ofinvestors and the purposes fairlyintended by the policy and provisions ofthe Act. Applicants believe that grantingthe requested relief from sections2(a)(32), 2(a)(35), 22(d), 26(a)(2), andrule 22c–1 would meet the requirementsfor an exemption established by section6(c).8. Section 11(c) of the Act prohibitsany offer of exchange of the securities ofa registered unit investment trust for thesecurities of any other investmentcompany, unless the terms of the offerhave been approved by the SEC.Applicants request an exemption undersection 11(a) from the provisions ofsection 11(c) to permit exchanges ofUnits of Trust Series sold with front-endor deferred sales charges at reducedsales charges, and to permit exchangetransactions made in connection withthe termination of a Series at a reducedsales charge. Applicants believe that thereduced sales charge imposed at thetime of exchange is a reasonable andjustifiable expense to be allocated forthe professional assistance andoperational expenses which arecontemplated in connection with theExchange and the Rollover Option.Applicants further believe that therequirement that a person who hasacquired Units at a lower sales chargepay the difference, if greater than thereduced fixed charge, upon exercisingthe Exchange Option when the FiveMonths Adjustment or the DSC FrontendExchange Adjustment applies isappropriate in order to maintain theequitable treatment of various investorsin each Trust Series.9. Section 14(a) of the Act requires insubstance that investment companieshave $100,000 of net worth prior tomaking a public offering. Applicantsbelieve that each Series will complywith this requirement because theSponsor will deposit substantially morethan $100,000 of debt or equitysecurities or a combination thereof,depending on the objective of theparticular Series. Applicants assert,however, that the SEC has interpreted