[Federal Register Volume 62, Number 239 (Friday, December 12, 1997)]
[Notices]
[Pages 65453-65457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32487]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22927; 812-10704]


Diamonds Trust, DJIA Trust Receipts Series, PDR Services 
Corporation and ALPS Mutual Funds, Inc.; Notice of Application

December 5, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 4(2), 14(a), 22(d), 24(d), and 26(a)(2)(C) of the Act and rule 
22c-1; under sections 6(c) and 17(b) of the Act for an exemption from 
sections 17(a) (1) and (2) of the Act; and under rule 17d-1 to permit 
certain joint transactions.

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APPLICANTS: Diamonds Trust, DJIA Trust Receipts Series (the ``Trust''), 
PDR Services Corporation (together with its ``successors in interest'' 
\1\ and with any person directly or indirectly controlling, controlled 
by, or under common control with, PDR Service Corporation, the 
``Sponsor'') and ALPS Mutual Funds, Inc. (the ``Distributor'').
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    \1\ ``Successors in interest'' is limited to entities that 
result from a reorganization into another jurisdiction or a change 
in the type of business organization, e.g., a partnership or a 
corporation.

SUMMARY OF APPLICATION: Applicants request an order that would (i) 
permit the Trust, a unit investment trust whose portfolio will consist 
of the component stocks of the Dow Jones Industrial Average (``DJIA''), 
to issue non-redeemable securities (``DJIA Trust Receipts''); (ii) 
permit secondary market transactions in DJIA Trust Receipts at 
negotiated prices; (iii) permit dealers to sell DJIA Trust Receipts to 
purchasers in the secondary market unaccompanied by a prospectus, when 
prospectus delivery is not required by the Securities Act of 1933 (the 
``Securities Act''); (iv) permit certain expenses associated with the 
creation and maintenance of the Trust to be borne by the Trust rather 
than the Sponsor; (v) exempt the Sponsor from the Act's requirement 
that it purchase, or place with others, $100,000 worth of DJIA Trust 
Receipts; (vi) permit affiliated persons of the Trust to deposit 
securities into, and receive securities from, the Trust in connection 
with the purchase and redemption of DJIA Trust Receipts; and (vii) 
permit the Trust to reimburse the Sponsor and/or the American Stock 
Exchange, Inc. (``AMEX'') for payment of an annual licensing fee to Dow 
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Jones & Company, Inc. (``Dow Jones'').

FILING DATES: The application was filed on June 17, 1997, and an 
amendment to the application was filed on December 3, 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 December 29, 
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 interest, 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, NW., Washington, DC 20549. 
Applicants, c/o James F. Duffy, Executive Vice President and General 
Counsel, American Stock Exchange, Inc., 86 Trinity Place, New York, NY 
10006.

FOR FURTHER INFORMATION CONTACT: Brian T. Hourihan, Senior Counsel, at 
(202) 942-0526, or Nadya B. Roytblat, Assistant Director, 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, 450 Fifth Street, N.W., Washington 
D.C. 20549 (tel. (202) 942-8090).

Applicant's Representations

    1. The Trust is a unit investment trust (``UIT'') organized under 
the laws of the state of New York. The Sponsor is a wholly-owned 
subsidiary of AMEX. State Street Bank and Trust Company will act as 
trustee of the Trust (``Trustee''). The Distributor, a registered 
broker-dealer, will serve as underwriter of the DJIA Trust Receipts on 
an agency basis.
    2. The Trust will hold a portfolio of securities consisting of all 
of the component common stocks of the DJIA. The DJIA is a price-
weighted index of thirty stocks. Issuers of the component stocks are 
all leaders in their respective industries, and the component stocks 
represent approximately one-fifth of the market value of all U.S. 
stocks. Applicants represent that the DJIA is the oldest continuous 
barometer of the U.S. stock market, and the most widely quoted 
indicator of U.S. stock market activity. DJIA Trust Receipts, units of 
beneficial interest in the Trust, are designed to provide investors 
with an instrument that closely tracks the DJIA, that trades like a 
share of common stock, and pays periodic dividends proportionate to 
those paid by the portfolio of stocks held by the Trust.\2\ Applicants 
believe that DJIA Trust Receipts will afford significant benefits in 
the public interest. Applicants expect the Trust to be able to track 
the DJIA more closely than certain other index products and, unlike 
open-end index funds, trade at negotiated prices throughout the 
business day. Applicants also state that DJIA Trust Receipts will 
compete with comparable products available on foreign exchanges and 
attract capital to the U.S. equity market.
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    \2\ The Trust will make monthly distributions of an amount 
representing the dividends accumulated on portfolio securities 
during each month, net of fees and expenses.
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    3. The composition of the Trust's portfolio will be adjusted 
periodically to conform to changes in the DJIA resulting from corporate 
actions such as stock

[[Page 65454]]

splits or changes in the identity of the DJIA component stocks.\3\ All 
adjustments to the Trust's portfolio will be made by the Trustee as set 
forth in the trust agreement and will be nondiscretionary.
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    \3\ Changes in the composition of the DJIA are made entirely by 
the editors of the Wall Street Journal.
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    4. The Trustee will be paid a ``Trustee's Fee'' ranging between 11/
100 of 1% to 15/100 of 1% of the Trust's net asset value (``NAV'') on 
an annualized basis. The Trustee's Fee will be adjusted to reflect the 
costs that the Trustee incurs in connection with the issuance and 
redemption of DJIA Trust Receipts (as discussed below). The Sponsor and 
the AMEX are paying the Trust's organizational expenses. The Trust will 
reimbuse the Sponsor and the AMEX for these expenses ratably over a 
five-year period. Should the Trust terminate prior to its fifth 
anniversary, the remaining unamortized organizational expenses will 
continue to be borne by the Sponsor and the AMEX, and will not be 
charged against the Trust. The Trust also will reimburse the Sponsor 
and/or the AMEX up to a maximum of 20 basis points of the Trust's NAV 
on an annualized basis, for the following expenses: (i) annual 
licensing fees for the use of the ``DJIA'' trademark; (ii) federal and 
state annual registration fees for the issuance of DJIA Trust Receipts; 
and (iii) expenses of the Sponsor relating to the marketing of DJIA 
Trust Receipts and the Trust (including, but not limited to, related 
legal, consulting, and advertising expenses). The Sponsor will pay the 
Distributor a flat annual fee. The Sponsor will not seek reimbursement 
for payment of this annual fee from the Trust without obtaining prior 
exemptive relief from the Commission.
    5. DJIA Trust Receipts will be issued in aggregations of 50,000 
(``Creation Units''). The price of each Creation Unit will be 
approximately $4,007,000 (based on the value of the DJIA on November 
28, 1997). To be eligible to purchase a Creation Unit, an investor must 
either be a participant in the Continuous Net Settlement (``CNS'') 
System of the National Securities Clearing Corporation (``NSCC''), or a 
Depository Trust Company (``DTC'') participant, but is not required to 
be an AMEX member. An investor wishing to purchase a Creation Unit from 
the Trust will have to transfer to the Trust a ``Portfolio Deposit'' 
consisting of: (i) a portfolio of securities that is substantially 
similar in composition and weighting to the DJIA component securities 
(``Index Securities''); (ii) a cash payment equal to the dividends 
accrued on the Trust's portfolio securities since the last dividend 
payment by the Trust, net of expenses and liabilities; and (iii) a cash 
payment or credit to equalize any differences between the Portfolio 
Deposit Amount and the NAV per Creation Unit (which may be required, 
for example, if a portion of the Trust's assets is held in cash).\4\ An 
investor making a Portfolio Deposit will be charged a service fee 
(``Transaction Fee''), paid to the Trustee, to defray the Trustee's 
costs in processing securities deposited into the Trust.\5\
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    \4\ At the close of the market on each business day, the Trustee 
will calculate the NAV of the Trust and then divide the NAV by the 
number of outstanding DJIA Trust Receipts in Creation Unit size 
aggregations, resulting in an NAV per Creation Unit. The Trustee 
will then calculate the required number of shares of the Index 
Securities, and the amount of cash, comprising a Portfolio Deposit 
for the following business day. The Sponsor will make available a 
list of the names of each of the Index Securities in the current 
Portfolio Deposit and the required number of shares. The cash 
equivalent of an Index Security may be included in the cash 
component of a Portfolio Deposit in lieu of the Security if (i) the 
Trustee determines that an Index Security is likely to be 
unavailable or available in insufficient quantity for inclusion in a 
Portfolio Deposit (for example, when the security is subject to a 
trading halt or stop order, or the subject of a tender offer), or 
(ii) a particular investor is restricted from investing or engaging 
in transactions in the Index Security (for example, when the 
investor is a broker-dealer restricted by regulation or internal 
policy from investing in securities issued by a company on whose 
board of directors one of its principals serves, or when the 
investor is a broker-dealer and the security is on its ``restricted 
list''). In the latter situation, the Trustee will use the cash 
equivalent payment to purchase the appropriate number of shares of 
the Index Security that the investor was unable to purchase.
    \5\ The Transaction Fee will be $1,000 per day regardless of the 
number of Creation Units purchased on that day by the investor. An 
additional amount not to exceed three times the Transaction Fee will 
be charged to investors who purchase Creation Units via DTC rather 
than via the NSCC, to cover increased expense associated with 
settlement outside the CNS system. To the extent the Transaction Fee 
exceeds the Trustee's actual settlement costs, and subject to 
certain limitations, the excess will be subtracted from the 
Trustee's Fee. The Trustee's Fee also will be reduced by the amounts 
earned by the Trustee in respect of cash held for the benefit of the 
Trust and not otherwise expended on behalf of the Trust. The amount 
of the Transaction Fee (including any variation in the amount) will 
be disclosed in the prospectus for the Trust.
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    6. Orders to purchase Creation Units will be placed with the 
Distributor, who will be responsible for transmitting the orders to the 
Trustee.\6\ The Distributor will maintain records of these orders, 
issue confirmations of acceptance, and issue delivery instructions to 
the Trustee to implement the delivery of DJIA Trust Receipts. The 
Distributor will be responsible for delivering prospectuses to 
purchasers of the Creation Units and may provide certain other 
administrative services, such as those related to state securities law 
compliance.
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    \6\ The procedures for processing a purchase order will depend 
upon whether the transaction is settled through NSCC or DTC.
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    7. Person purchasing DJIA Trust Receipts from the Trust in Creation 
Unit aggregations may hold those Receipts or sell some or all of them 
in the secondary market. DJIA Trust Receipts will be listed on the AMEX 
and traded in the secondary market as individual units (i.e., in less 
than Creation Unit size aggregations) in the same manner as other 
equity securities. An AMEX specialist will be assigned to make a market 
in DJIA Trust Receipts. The price of DJIA Trust Receipts on the AMEX 
will be based on a current bid/offer market and will be in the range of 
$80 per Receipt (based on the value of the DJIA on November 28, 1997). 
Transactions involving the sale of DJIA Trust Receipts will be subject 
to customary brokerage commissions and charges. Applicants expect that 
the price at which DJIA Trust Receipts trade will be disciplined by 
arbitrage opportunities created by the ability to continually purchase 
or redeem Creation Unit-size aggregations at NAV, which should ensure 
that DJIA Trust Receipts will not trade at a material discount or 
premium in relation to NAV.
    8. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs (which could include 
institutional investors). The AMEX specialist, in providing for a fair 
and orderly secondary market for DJIA Trust Receipts, also may purchase 
Receipts for use in its market-making activities on the AMEX. 
Applicants expect that secondary market purchasers of DJIA Trust 
Receipts will include both institutional and retail investors.\7\
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    \7\ DJIA Trust Receipts will be registered in book-entry form 
only. DTC or its nominee will be the registered owner of all 
outstanding DJIA Trust Receipts. Records reflecting the beneficial 
owners of DJIA Trust Receipts will be maintained by DTC or its 
participants.
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    9. Applicants will make available a standard DJIA Trust Receipt 
product description (``Product Description'') to AMEX members and 
member organizations for distribution to investors purchasing DJIA 
Trust Receipts in accordance with AMEX Rule 1000. The purpose of the 
Product Description is to provide a brief and readily understandable 
description of the salient aspects of DJIA Trust Receipts. The Product 
Description will advise investors that a prospectus for DJIA Trust 
Receipts is available without charge upon request from the investor's 
account executive. Applicants expect

[[Page 65455]]

that customer purchases of DJIA Trust Receipts through a non-member 
broker-dealer in a transaction away from the AMEX floor will be rare.
    10. DJIA Trust Receipts will not be individually redeemable, except 
upon termination of the Trust. DJIA Trust Receipts will only be 
redeemable in Creation Unit-size aggregations through the Trust. To 
redeem, an investor will have to accumulate enough DJIA Trust Receipts 
to constitute a Creation Unit. An investor redeeming a Creation Unit 
amount of DJIA Trust Receipts will receive a portfolio of securities 
identical in weighting and composition to the securities portion of a 
Portfolio Deposit as of the date the redemption request was made. An 
investor may receive the cash equivalent of a portfolio security (i) 
when the Trustee determines that an Index Security is likely to be 
unavailable or available in insufficient quantity, (ii) upon the 
request of the redeeming investor, or (iii) upon notice of the 
termination of the Trust. A redeeming investor will also receive an 
amount of cash equal to the dividends accrued on the portfolio 
securities since the last dividend payment by the Trust, net of 
expenses and liabilities, and may also receive an amount of cash to 
equalize any differences between the Portfolio Deposit Amount and the 
NAV per Creation Unit. A redeeming investor will pay a Transition Fee 
calculated in the same manner as a Transaction Fee payable in 
connection with the purchase of a Creation Unit.\8\ The Trustee will 
transfer the cash and securities to the redeeming investor on the third 
business day after the redemption request date.
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    \8\ See note 5, supra.
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    11. Because a redeeming Creation Unit holder will ordinarily 
receive a Portfolio Deposit in exchange for its Unit, the Trustee will 
not have to maintain large cash reserves for redemptions. This will 
allow the Trust's assets to be committed as fully as possible to 
tracking the DJIA, enabling the Trust to track the index more closely 
than certain other investment products that must allocate a greater 
portion of their assets for cash redemptions.
    12. The Trust will terminate on the earlier of (i) January 30, 
2122, or (ii) the date 20 years after the death of the last survivor of 
eleven persons named in the trust agreement. The Trust also will 
terminate: (i) if DJIA Trust Receipts are de-listed from the AMEX; (ii) 
by agreement of the holders of 66\2/3\% of outstanding DJIA Trust 
Receipts; (iii) if the DTC is unable or unwilling to continue to 
perform its functions and a comparable replacement is unavailable; and 
(iv) if NSCC no longer provides clearance services with respect to DJIA 
Trust Receipts, or if the Trustee is no longer a participants in NSCC. 
In addition, the Sponsor will have the discretionary right to terminate 
the Trust if (i) at any time after six months following and prior to 
three years following the initial receipt of Portfolio Deposits by the 
Trust the NAV of the Trust falls below $150,000,000, and (ii) after 
three years the NAV is less than $350,000,000. The Sponsor also may 
direct the Trustee to terminate the Trust if within 90 days from the 
initial receipt of Portfolio Deposits the NAV of the Trust is less than 
$100,000.
    13. Within a reasonable period after the Trust's termination, the 
Trustee will use its best efforts to sell all portfolio securities not 
previously distributed to investors redeeming Creation Units. DJIA 
Trust Receipts not redeemed prior to termination will be redeemed in 
cash at NAV based on the proceeds from the sale of portfolio 
securities.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act 
granting an exemption from sections 4(2), 14(a), 22(d), 24(d), and 
26(a)(2)(C) of the Act and rule 22c-1; under sections 6(c) and 17(b) of 
the Act granting an exemption from sections 17(a)(1) and (2) of the 
Act; and under rule 17d-1 to permit certain joint transactions.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction, or any class of persons, 
securities, or 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.

Section 4(2) of the Act

    1. Section 4(2) of the Act defines a UIT as an investment company 
that, among other things, issues only redeemable securities. Because 
DJIA Trust Receipts will not be individually redeemable, applicants 
request an order that would permit the Trust to register and operate as 
a UIT. Applicants state that investors may purchase DJIA Trust Receipts 
in Creation Units from the Trust and redeem Creation Units. Applicants 
further state that, because the market price of DJIA Trust Receipts 
will be disciplined by arbitrage opportunities, investors should be 
able to sell DJIA Trust Receipts in the secondary market at 
approximately their NAV.

Section 14(a) of the Act

    1. Section 14(a) provides, in pertinent part, that no registered 
investment company may make an initial public offering of its 
securities unless it has a net worth of at least $100,000, or provision 
is made in connection with the registration of its securities that (i) 
firm agreements to purchase $100,000 worth of its securities will have 
been made by not more than 25 persons, and (ii) all proceeds, including 
sales loads, will be refunded to investors if the investment company's 
net worth is less than $100,000 within 90 days after the effective date 
of the registration statement. Applicants state that section 14(a) was 
designed to address the formation of undercapitalized investment 
companies.
    2. Rule 14a-3 under the Act exempts from section 14(a) UIT's that 
invest only in ``eligible trust securities,'' which do not include 
equity securities, subject to certain safeguards, including the refund 
of any sales load collected from investors. Applicants will comply in 
all respects with rule 14a-3, except that the Trust will not restrict 
its investments to eligible trust securities and the Trustee will not 
refund the Transaction Fee. Applicants contend that the Trust's 
investment in equity securities does not negate the effectiveness of 
the rule's safeguards nor subject investors to any greater risk of loss 
due to investment in an undercapitalized investment company. With 
respect to the Transaction Fee, applicants assert that it is not a 
sales load, and therefore is not covered by the rule's refund 
provision. Applicants not that the Transaction Fee will be paid note by 
retail investors, but by institutional and other sophisticated, well-
capitalized investors who can afford the approximately $4,007,000 
purchase price of a Creation Unit and who do not require the 
protections of section 14(a).

Section 22(d) of the Act

    1. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security that is being currently offered to 
the public by or through an underwriter, except at a current public 
offering price described in the prospectus. Rule 22c-1 under the Act 
generally requires that a dealer selling, redeeming, or repurchasing a 
redeemable security do so only at a price based on its NAV. Applicants 
state that secondary market trading in DJIA Trust Receipts will take 
place at negotiated prices, not a current offering price described in 
the prospectus, and not at a price based on NAV. Thus, purchases and 
sales of DJIA Trust

[[Page 65456]]

Receipts in the secondary market will not comply with section 22(d) and 
rule 22c-1. Applicants request an exemption from these provisions.
    2. Applicants assert that the concerns sought to be addressed by 
section 22(d) and rule 22c-1 with respect to pricing are equally 
satisfied by the proposed method of pricing DJIA Trust Receipts. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (i) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (ii) prevent unjust discrimination or preferential treatment 
among buyers resulting from sales at different prices, and (iii) assure 
an orderly distribution investment company shares by eliminating price 
competition from dealers offering shares at less than the published 
sales price and repurchasing shares at more than the published 
redemption price.
    3. Applicants believe that none of these purposes will be thwarted 
by permitting DJIA Trust Receipts to trade in the secondary market at 
negotiated prices. Applicants state (i) that secondary market trading 
in DJIA Trust Receipts does not involve the Trust as a party and cannot 
result in dilution of an investment in DJIA Trust Receipts; and (ii) to 
the extent different prices exist during a given trading day, or from 
day to day, such variances occur as a result of third-party market 
forces, such as supply and demand, not as a result of unjust or 
discriminary manipulation. Therefore, applicants assert that secondary 
market transactions in DJIA Trust Receipts will not lead to 
discrimination or preferential treatment among purchasers. Finally, 
applicants contend that the proposed distribution system will be 
orderly because arbitrage activity will ensure that the difference 
between the market price of DJIA Trust Receipts and their NAV remains 
narrow.

Section 24(d) of the Act

    1. Section 24(d) of the Act provides, in relevant part, that the 
prospectus delivery exemption provided to dealer transactions by 
section 4(3) of the Securities Act does not apply to any transaction in 
a redeemable security issued by a UIT. Applicants request an exemption 
from section 24(d) to permit dealers in DJIA Trust Receipts to rely on 
the prospectus delivery exemption provided by section 4(3) of the 
Securities Act.\9\ Applicants state that the imposition of prospectus 
delivery requirements on dealers in the secondary market will 
materially impede the success of DJIA Trust Receipts.
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    \9\ Applicants state that persons purchasing Creation Units will 
be cautioned in the prospectus that some activities on their part 
may, depending on the circumstances, result in their being deemed 
statutory underwriters and subject them to the prospectus delivery 
and liability provisions of the Securities Act. For example, a 
broker-dealer firm or its client may be deemed a statutory 
underwriter if it takes Creation Units after placing a creation 
order with the Distributor, breaks them down to the constituents 
DJIA Trust Receipts, and sells DJIA Trust Receipts directly to its 
customers; or if it chooses to couple the creation of a supply of 
new DJIA Trust Receipts with an active selling effort involving 
solicitation of secondary market demand for DJIA Trust Receipts. The 
prospectus will state that whether a person is an underwriter 
depends upon all the facts and circumstances pertaining to that 
person's activities. The prospectus also will state that broker-
dealer firms should also note that dealers who are not 
``underwriters'' but are participating in a distribution (as 
contrasted to ordinary secondary trading transactions), and thus 
dealing with DJIA Trust Receipts that are part of an ``unsold 
allotment'' within the meaning of section 4(3)(C) of the Securities 
Act, would be unable to make advantage of the prospectus delivery 
exemption provided by section 4(3) of the Securities Act.
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    2. Applicants state that the secondary market for DJIA Trust 
Receipts is significantly different from the typical secondary market 
for UIT securities, which is usually maintained by the sponsor. DJIA 
Trust Receipts will be listed on a national securities exchange and 
will be traded in a manner similar to the shares of common stock issued 
by operating companies and closed-end investment companies. Dealers 
selling shares of operating companies and closed-end investment 
companies in the secondary market generally are not required to deliver 
a prospectus to the purchaser.
    3. Applicants contend that DJIA Trust Receipts, as a listed 
security, merit a reduction in the compliance costs and regulatory 
burdens resulting from the imposition of prospectus delivery 
obligations in the secondary market. Because DJIA Trust Receipts will 
be exchange-listed, prospective investors will have access to several 
types of market information about the product. Applicants state that 
quotations, last sale price and volume information will be continually 
available on a real time basis through the consolidated tape and will 
be available throughout the day on brokers' computer screens and other 
electronic services, such as Quotron. The previous day's price and 
volume information also will be published daily in the financial 
section of newspapers. The Sponsor also will publish daily, on a per 
DJIA Trust Receipt basis, the amount of accumulated dividends, net of 
accrued expenses.
    4. Investors also will receive the Product Description. Applicants 
state that, while not intended as a substitute for a prospectus, the 
Product Description will contain pertinent information about DJIA Trust 
Receipts. Applicants also note that DJIA Trust Receipts will be readily 
understandable to retail investors as a product that tracks the DJIA, 
which is well known to most investors and widely recognized.

Section 26(a)(2)(C) of the Act

    1. Section 26(a)(2)(C) requires, among other things, that a UIT's 
trust indenture prohibit payments to the trust's depositor (in the case 
of the Trust, the Sponsor), and any affiliated person of the depositor, 
except payments for performing certain administrative services. 
Applicants request an exemption from section 26(a)(2)(C) to permit the 
Trust to reimburse the Sponsor and/or the AMEX for certain licensing, 
registration, marketing, and organizational expenses.
    2. Applicants state that, ordinarily, a sponsor of a UIT has 
several sources of income in connection with the creation of the trust. 
Applicants assert, however, that under the proposed structure of the 
Trust, the usual sources of income are not available because the 
Sponsor will not impose a sales load, maintain a secondary market, or 
deposit Index Securities into the Trust. Although the Sponsor's parent 
company, the AMEX, will earn some income on the trading fees imposed on 
transactions occurring on the AMEX, applicants expect that the fees 
will generate substantially less revenue than what would have been 
generated by a normal sales charge on secondary market trades of DJIA 
Trust Receipts. Applicants contend that the abuse sought to be remedied 
by section 26(a)(2)(C)--``double dipping'' by UIT sponsors collecting 
money from their captive trusts as well as the profits already 
generated by sales charges and other sources--will not be present if 
the requested exemption is granted.
    3. Applicants contend that permitting the Trust to reimburse the 
Sponsor for the Trust's expenses (discussed above) would be no more 
disadvantageous to the holders of DJIA Trust Receipts than allowing the 
expenses to be imposed indirectly as offsets to sales loads and other 
charges, as is done by typical UITs. Applicants also state that the 
Trust will pay the Sponsor only its actual out-of-pocket expenses and 
no component of profit will be included. Finally, applicants state that 
the payment is capped at 20 basis points of the Trust's NAV on an 
annualized basis, with any expenses in excess of that amount absorbed 
by the Sponsor.

[[Page 65457]]

Section 17(a) of the Act

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such person, from selling any security to or purchasing any security 
from the company. Because purchases and redemptions of Creation Units 
will be ``in-kind'' rather than cash transactions, section 17(a) may 
prohibit affiliated persons of the Trust from purchasing or redeeming 
Creation Units. Because the definition of ``affiliated person'' of 
another person in section 2(a)(3) of the Act includes any person owning 
five percent or more of an issuer's outstanding voting securities, 
every purchaser of a Creation Unit will be affiliated with the Trust so 
long as fewer than twenty Creation Units are extant. Applicants request 
an exemption from section 17(a) under sections 6(c) and 17(b), to 
permit affiliated persons of the Trust to purchase and redeem Creation 
Units.
    2. Section 17(b) authorizes the Commission to exempt a proposed 
transaction from section 17(a) if evidence establishes that the terms 
of the transaction, including the consideration to be paid or received, 
are reasonable and fair and do not involve overreaching, and the 
proposed transaction is consistent with the policies of the registered 
investment company and the general provisions of the Act. Applicants 
contend that no useful purpose would be served by prohibiting 
affiliated persons of the Trust from purchasing or redeeming Creation 
Units. The composition of a Portfolio Deposit made by a purchaser or 
given to a redeeming unitholder will be the same regardless of the 
investor's identity, and will be valued under the same objective 
standards applied to valuing the Trust's portfolio securities. 
Therefore, applicants state that ``in kind'' purchases and redemptions 
will afford no opportunity for an affiliated person of the Trust to 
effect a transaction detrimental to the other holders of DJIA Trust 
Receipts. Applicants also believe that ``in kind'' purchases and 
redemptions will not result in abusive self-dealing or overreaching by 
affiliated persons of the Trust.

Rule 17d-1

    1. Applicants request an order under rule 17d-1 that would permit 
the Trust to reimburse the Sponsor and/or the AMEX for the payment by 
either party to Dow Jones of the annual fee required under a license 
agreement. The license agreement allows applicants to use the DJIA as a 
basis for DJIA Trust Receipts and to use certain of Dow Jones' 
trademark rights. Applicants believe that relief is necessary because 
the Trust's undertaking to reimburse the Sponsor and/or the AMEX (each 
an affiliated person of the Trust) might be deemed a joint enterprise 
or joint arrangement in which the Trust is a participant, in 
contravention of section 17(d) of the Act and rule 17d-1.
    2. Applicants assert that the terms and provisions of the license 
agreement were negotiated at arm's length and that the annual license 
fee is for fair value, bargained for in good faith, and, to the best of 
their knowledge, is an amount comparable to that charged for similar 
arrangements. Applicants submit that the proposed transaction will 
result in an arrangement in which the participants deal with each other 
in a manner similar to, and no less advantageous than, others who might 
be similarly situated.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Applicants will not register a new series of the Trust, whether 
identical or similar to the DJIA Trust Receipts Series, by means of 
filing a post-effective amendment to the Trust's registration statement 
or by any other means, unless applicants have requested and received 
with respect to such new series, either exemptive relief from the 
Commission or a no-action position from the Division of Investment 
Management of the Commission.
    2. The Trust's prospectus and the Product Description will clearly 
disclose that, for purposes of the Act, DJIA Trust Receipts are issued 
by the Trust and that the acquisition of DJIA Trust Receipts by 
investment companies is subject to the restrictions of section 12(d)(1) 
of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-32487 Filed 12-11-97; 8:45 am]
BILLING CODE 8010-01-M