[Federal Register Volume 62, Number 116 (Tuesday, June 17, 1997)]
[Notices]
[Pages 32844-32846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15832]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 22700; 812-10502]
Reich & Tang Distributors L.P., et al.; Notice of Application
June 11, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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Applicants: Reich & Tang Distributors L.P. (``Reich & Tang'') and
Equity Securities Trust (``Trust'') (Series 1 and Signature Series), on
behalf of themselves and all subsequently issued series (``Subsequent
Series'') (collectively with Series 1 and Signature Series, the
``Series'') containing certain types of securities and sponsored by
Reich & Tang or any entity controlling, controlled by, or under common
control (within the meaning of section 2(a)(9) of the Act) with Reich &
Tang (collectively with Reich & Tang, the ``Sponsor'')
Relevant Act Sections: Order requested under sections 6(c) and 17(b) of
the Act for an exemption from section 17(a) of the Act.
Summary of Application: Applicant requests an order to permit certain
terminating Series of the Trust, a unit investment trust (``UIT''), to
sell portfolio securities to certain new Series of the Trust.
Filing Dates: The application was filed on December 31, 1996, and
amended on April 21, 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 July 7, 1997, and should be accompanied by proof of service on
applicants, in the forms 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 hearing may request such notification by
writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 600 Fifth Avenue, New York, New York 10020,
attention: Peter J. DeMarco.
For Further Information Contact: Courtney S. Thornton, Senior Counsel,
at (202) 942-0583, or Mary Kay Frech, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. Equity Securities Trust (the ``Trust'') is a UIT registered
under the Act that consists of several Series. The Trust is organized
under a trust
[[Page 32845]]
indenture agreement between the Trust, Reich & Tang as sponsor, and
Chase Manhattan Bank as trustee.
2. The investment objective of certain Series of the Trust (each a
``Dow Series'') is to seek a greater total return than the stocks
comprising the DOW Jones Industrial Average (``DJIA''). Each Dow Series
acquires a portfolio from among the ten stocks in the DJIA having the
highest dividend yields as of a specified date, and hold those stocks
for approximately one year. The Sponsor intends that, as each Dow
Series terminates, a new Series based on the DJIA will be offered for
the next year.
3. Certain other Series of the Trust (each a ``Growth Series'')
contain a portfolio of common stocks of aggressive growth companies.
The investment objective of each Growth Series is to seek capital
appreciation. Each Growth Series combines the buy and hold philosophy
of a UIT with an investment in the aggressive end of the stock market.
This approach leads to trusts with shorter terms to take advantage of
the rapid changes in this segment of the stock market.
4. The Dow Series and the Growth Series have a contemplated date (a
``Rollover Date'') on which holders of units in that Series (``Rollover
Series'') may, at their option, redeem their units in the Rollover
Series and receive in return units of a subsequent Series of the same
type (a ``New Series'').\1\ The New Series will be created on or about
the Rollover Date and will have a portfolio that contains securities of
the relevant type, many, if not all, of which are actively traded
(i.e., have had an average daily trading volume in the preceding six
months of at least 500 shares equal in value to at least US$25,000)
(``Qualified Securities'') on an exchange that is either (a) a national
securities exchange that meets the qualifications of section 6 of the
Securities Exchange Act of 1934, (b) a foreign securities exchange that
meets the qualification set out in the proposed amendments to rule
12d3-1(d)(6) under the Act as proposed by the SEC \2\ and that releases
daily closing prices, or (c) the Nasdaq-National Market System (a
``Qualified Exchange'').
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\1\ Applications previously obtained an order exempting them
from sections 11(a) and 11(c) of the Act to permit them to offer
certain exchange and rollover privileges to unitholders of the
Trust. Investment Company Act Release Nos. 2222 (Sept. 19, 1996)
(notice) and 22273 (Oct. 9, 1996) (order).
\2\ 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: (1) trading generally
occurred at least four days a week; (2) there were limited
restrictions on the ability of registered investment companies to
trade their holdings on the exchange; (3) the exchange had a trading
volume in stocks for the previous year of at least U.S. $7.5
billion; and (4) 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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5. There is normally some overlap from one year to the next in the
stocks having the highest dividend yields in the DJIA, and therefore
between the portfolios of each Dow Series that is also a Rollover
Series and the related new Dow Series. Similarly, the Sponsor
anticipates that there will be some overlap from one year to the next
in the aggressive growth stocks selected for each Growth Series, and
therefore between the portfolios of each Growth Series that is also a
Rollover Series and the related new Growth Series. Therefore, since the
New Series may contain securities that duplicate those of the Rollover
Series, substantial brokerage commissions occurring on the purchase and
sale of such securities could be avoided if the Rollover Series had the
ability to sell, and the New Series had the ability to purchase, such
duplicate securities from one another.
6. In order to minimize the possibilities of overreaching in such
transactions, 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 such transaction, and (c) the closing sales price on the Qualified
Exchange for the sale date of the securities subject to such sale. The
trustee then will 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
any such 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 of 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.
Applicants' Legal Analysis
1. Section 17(a) of the Act makes it unlawful for an affiliated
person of a registered investment company to sell securities to or
purchase securities from, the company. Each Series will have an
identical or common Sponsor. Since the Sponsor of each Series may be
considered to control each Series, it is likely that each Series would
be considered an affiliated person of the others.
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. Under section 6(c) the SEC may exempt classes of transactions, if
and 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.
Applicants believe that the proposed transactions satisfy the
requirements of sections 6(c) and 17(b).\3\
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\3\ Section 17(b) applies to a specific proposed transaction,
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, along with section 17(b), to grant relief from
section 17(a) to permit an ongoing series of future transactions.
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3. Rule 17a-7 under the Act permits registered investment companies
that are affiliates solely by reason of 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. Paragraph (e) of the rule requires
an investment company's board of directors to adopt and monitor the
procedures for these transactions to assure compliance with the rule. A
unit investment trust does not have a board of directors and,
therefore, may not rely on the rule. Applicants represent that they
will comply with all of the provisions of rule 17a-7, other than
paragraph (e).
4. Applicants represent that purchases and sales between Series
will be consistent with the policy of the Trust, as only securities
that otherwise would be brought and sold on the open market
[[Page 32846]]
pursuant to the policy of each Series will be involved in the proposed
transactions. Applicants further submit that the current policies of
buying and selling on the open market leads to unnecessary brokerage
fees on sales of securities and is therefore contrary not only to the
policies of the Series, but to the general purposes of the Act.
5. Applicants state that the condition that the securities must be
actively traded on a Qualified Exchange protects against overreaching.
This limitation ensures that there will be current market prices
available and thus an independent basis for determining that the terms
of the transaction are fair and reasonable to each participating
investment company.
6. In order to minimize the possibilities of overreaching in the
proposed transactions, 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 such transaction, and (c) the closing sales price on the
Qualified Exchange for the sale date of the securities subject to such
sale. The trustee will then countersign the certificate unless it is
disagrees with the closing sales price listed on the certificate, and
returns the certificate to the Sponsor for verification and/or
correction. In addition, the trustee of each Series will review the
procedures for sales and make such changes as it deems necessary to
comply with sections (a) through (d) of rule 17a-7.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each sale of Qualified Securities by a Rollover Series to a New
Series will be effected at the closing price of the securities sold on
a Qualified 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 those
securities for deposit in a New Series, and (b) make such changes to
the procedures as the trustee deems necessary to ensure compliance 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(f).
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15832 Filed 6-16-97; 8:45 am]
BILLING CODE 8010-01-M
