[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]



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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