[Federal Register Volume 62, Number 197 (Friday, October 10, 1997)]
[Notices]
[Pages 53037-53038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26904]
[[Page 53037]]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22840; 812-10550]
Reich & Tang Distributors L.P., et al., Notice of Application
October 3, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from sections
2(a)(32), 2(a)(35), 22(d), and 26(a)(2) of the Act and rule 22c-1 under
the Act.
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SUMMARY OF APPLICATION: Applicants request an order to permit certain
unit investment trusts to impose sales charges on a deferred basis and
waive the deferred sales charge in certain cases.
APPLICANTS: Reich & Tang Distributors L.P. (the ``Sponsor''), Equity
Securities Trust, Mortgage Securities Trust, Municipal Securities
Trust, New York Municipal Trust, A Corporate Trust, Schwab Trusts, any
future unit investment trust sponsored or co-sponsored by the Sponsor
or an entity controlled by or under common control with the Sponsor
(collectively, the ``Trusts''), and any future series of the Trusts.
FILING DATE: The application was filed on March 7, 1997, and amended on
April 26, 1997, and September 30, 1997.
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 October 28,
1997, 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 request, the
reason for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street N.W., Washington, D.C.
20549. Applicants, c/o Reich & Tang Distributors L.P., 600 Fifth
Avenue, New York, New York 10022, Attention: Peter J. DeMarco.
FOR FURTHER INFORMATION CONTACT:
Lawrence W. Pisto, Senior Attorney, at (202) 942-0527 or Mercer E.
Bullard, 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, 450 Fifth Street N.W., Washington, D.C.
20549, tel. 202-942-8090.
Applicants' Representations
1. Each of the Trusts is a unit investment trust consisting of one
or more series (``Series'') registered under the Act and sponsored, co-
sponsored or to be sponsored by the Sponsor. Each Series is created by
a trust indenture among the Sponsor, a banking institution or trust
company as a trustee, and, as the case may be, an evaluator. The
Sponsor acquires a portfolio of securities which it deposits with the
trustee in exchange for certificates representing units of fractional
undivided interest in the portfolio (``Units''). The Units are offered
to the public by the Sponsor, underwriters, and dealers at a public
offering price which, during the initial offering period, is based upon
the aggregate market value of the underlying securities plus a front-
end sales charge. The sales charge currently ranges from 2.95% to 5.5%
of the public offering price, generally depending on the terms of the
underlying securities. The maximum charge is usually subject to
reduction in compliance with rule 22d-1 under the Act under certain
stated circumstances disclosed in the prospectus, such as for volume
purchases.
2. Applicants request an order to the extent necessary to permit
them to impose a deferred sales charge (``DSC'') instead of a front-end
sales charge, and waive the DSC under certain circumstances. Under
applicants' proposal, a portion of the DSC will be collected ``up-
front,'' i.e., immediately upon purchase of Units, and the balance will
be collected subsequently in equal installments (``Installment
Payments'').\1\ In order to ensure that sufficient cash is available to
make Installment Payments, the Trust may hold securities the proceeds
from the maturity or sale of which may be used to make the Payments.
Installment Payments will be collected from unitholders by withholding
the Payment amount from unitholders' distributions on the Units, from
proceeds of Unit redemptions or sales by the unitholder, or by reducing
the number of Units held by the unitholder. The Installment Payments
will be passed by the trustee to the Sponsor at the time they are
collected. The trustee may advance an Installment Payment if, for
example, it is due immediately before a dividend or interest payment is
due on portfolio securities. The trustee will be reimbursed when the
Installment Payment is collected from the unitholder.
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\1\ For example, assuming a one-year Trust with a $1,000 price
for 100 Units and a 2.95% DSC, the Sponsor would collect $10.00
(1.00%) up-front, and the remaining balance of $19.50 (1.95%) in 10
equal monthly payments of $1.95.
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3. When a unitholder redeems or sells Units, the balance of the
unitholder's Installment Payments on the redeemed Units will be
deducted from the proceeds of the redemption or sale. When calculating
the amount due, it will be assumed that Units on which the DSC has been
paid in full are redeemed first. With respect to Units on which the DSC
has not been fully paid, the DSC will be applied on the assumption that
Units held for the longest time are redeemed or sold first. Under
certain circumstances, the sponsor may waive the DSC in connection with
redemptions or sales of Units. These circumstances will be disclosed in
the prospectus for the relevant Series and implemented in accordance
with rule 22d-1, under the Act.
4. Each Series offering Units subject to a DSC will include in its
prospectus the disclosure required in Form N-1A relating to deferred
sales charges, modified as appropriate to reflect the differences
between unit investment trusts and open-end investment companies. The
prospectus also will disclose any security that may be included in the
portfolio for purposes of paying the DSC from the maturity or sale
proceeds, and that the securities will be sold pro rata or that a
specific security will be designated for sale.
Applicants' Legal Analysis
1. Section 4(2) of the Act defines a ``unit investment trust'' as
an investment company which ``issues only redeemable securities.''
Section 2(a)(32) defines a redeemable security as a security that, upon
its presentation to the issuer, entitles the unitholder to receive
approximately his or her proportionate share of the issuer's current
net assets, or the cash equivalent of those assets. Rule 22c-1,
promulgated under section 22(c) of the Act, requires that the price of
a redeemable security issued by a registered investment company for
purposes of sale, redemption, and repurchase be based on the security's
current net asset value. To the extent that an Installment Payment may
be deemed to cause unitholders to receive less than net asset value
upon
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redemption, applicants request relief from section 2(a)(32) and rule
22c-1.
2. Section 22(d) and rule 22d-1 require 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, with the exeception of sales of redeemable securities at
prices which reflect scheduled variations in the ``sales load.''
Section 2(a)(35) defines the term sales load as the difference between
the sales price and the portion of the proceeds invested by the
depositor or trustee. Applicants request relief from sections 2(a)(35)
and 22(d) to the extent that the DSC may be paid in installements
rather than upon purchase.
3. Applicants believe that the provisions of section 22(d), rule
22d-1 and section 2(a)(35), taken together, are intended to prevent (1)
riskless trading in investment company securities due to backward
pricing, (2) disruption of orderly distribution by dealers selling
shares at a discount, and (3) discrimination among investors resulting
from different prices charged to different investors. Applicants
believe the proposed DSC program will present none of these abuses.
Applicants contend that the deduction of the Installment Payments is
consistent with the policy of forward pricing. Applicants also contend
that the amount, computation and timing of the DSC will promote fair
treatment of all unithholders, while permitting the Trusts to offer
unitholders the advantage of having a larger portion of their purchase
amount invested immediately. Applicants further note that the DSC
program will be disclosed in the prospectus of each Series and
available on the same terms to all investors. Finally, applicants state
that any waiver of the DSC will be disclosed in the prospectus of each
Series and implemented in accordance with rule 22d-1.
4. 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 the trust's depositor or principal
underwriter. Because the trustee's payment of the DSC to the Sponsor
may be deemed to be an expense under section 26(a)(2)(C), applicants
request relief from that section to the extent necessary to permit the
trustee to collect DSC payments and disburse them to the Sponsor.
Applicants believe that the relief is appropriate because the DSC is
more properly characterized as a sales load than as an ``expense.''
5. Section 6(c) authorizes the SEC to exempt any person or
transaction from any provision of the Act or any rule under the Act to
the extent that 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 believe that their proposal meets this standard.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Any DSC imposed on Units issued by a Series will comply with the
requirements of rule 6c-10(a) (1) through (3) under the Act.
2. Each Series offering Units subject to a DSC will include in its
prospectus the disclosure required in Form N-1A relating to deferred
sales charges, modified as appropriate to reflect the differences
between unit investment trusts and open-end investment companies.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-26904 Filed 10-9-97; 8:45 am]
BILLING CODE 8010-01-M
