Document ID: SEC-2009-0206-0001
Agency: sec
Document Type: Notice
Title: Applications: Advisors Asset Management, Inc. and Advisors Disciplined Trust
Posted Date: 2009-02-12T05:00Z

[Federal Register: February 12, 2009 (Volume 74, Number 28)]
[Notices]               
[Page 7082-7084]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12fe09-78]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28613; 812-13536]

 
Advisors Asset Management, Inc. and Advisors Disciplined Trust; 
Notice of Application

February 6, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under sections 6(c) and 17(b) of the 
Investment Company Act of 1940 (``Act'') for an exemption from section 
17(a) of the Act.

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    Summary of Application: Applicants request an order to permit 
transactions in certain securities between series of certain registered 
unit investment trusts (``UITs'').
    Applicants: Advisors Asset Management, Inc. (``AAM'') and any 
entity controlling, controlled by or under common control with AAM 
(collectively, the ``Depositor''); Advisors Disciplined Trust 
(``ADT''); any future registered UITs sponsored by the Depositor 
(together with ADT, the ``Trusts'') and the future and existing series 
of each Trust (each a ``Series'').\1\
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    \1\ All existing Trusts that currently intend to rely on the 
requested order have been named as applicants. Any other Trust that 
relies on the requested order in the future will comply with the 
terms and conditions of the application.
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    Filing Dates: The application was filed on May 28, 2008, and 
amended on November 24, 2008. Applicants have agreed to file an 
amendment during the notice period, the substance of which is reflected 
in this notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on March 3, 2009, and should be accompanied by proof of 
service on the 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 who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, 18925 Base Camp 
Road, Monument, CO 80132.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 551-6811, or Julia Kim Gilmer, Branch Chief, at (202) 551-6821 
(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 
Commission's Public Reference Room, 100 F Street, NE., Washington DC 
20549-1520 (tel. 202-551-5850).

Applicants' Representations

    1. ADT is a UIT registered under the Act. Each Series will be a 
series of a

[[Page 7083]]

Trust, each a UIT, which is or will be registered under the Act. AAM, a 
broker-dealer registered under the Securities Exchange Act of 1934 
(``Exchange Act''), is the depositor of each Series. Each Series is or 
will be created by a trust indenture (``Indenture'') between the 
Depositor and a banking institution satisfying the requirements of 
Section 26(a) of the Act and unaffiliated with the Depositor, as 
trustee (``Trustee'').
    2. The Depositor acquires a portfolio of securities, which it 
deposits with the Trustee in exchange for certificates representing 
units of fractional undivided beneficial interest in the deposited 
portfolio (``Units''). As UITs, the Series are not actively managed. A 
Series generally holds securities until the Series terminates or until 
the securities mature. A Series may sell portfolio securities 
(``Selling Series'') in connection with termination of the Series, to 
fund redemptions of its Units, or under certain extraordinary 
circumstances specified in the Series Indenture.\2\ At the same time, 
another Series (``Purchasing Series'') holding one or more of the same 
securities as the Selling Series may be issuing additional units and 
may need to purchase the same securities that are being sold by the 
Selling Series. In addition, when certain Selling Series holding U.S. 
Treasury securities (``Treasuries'') terminate, the Depositor may offer 
successor Series (``New Series'') that will hold the same Treasuries.
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    \2\ The Depositor maintains a secondary market for the Units and 
applicants state that as a practical matter redemptions are 
initiated primarily by the Depositor because, with the exception of 
redemptions in kind, the Indenture requires the Trustee to sell 
units tendered for redemption to the Depositor as long as it 
maintains a secondary market for the units. Securities also may be 
sold by a Series: (a) to pay deferred sales charges or expenses or 
(b) if the Series has elected to be taxed as a ``regulated 
investment company'' as defined in subchapter M of the Internal 
Revenue Code of 1986, as amended, and either (i) the sale is 
necessary or advisable to maintain the qualification of the Series 
as a regulated investment company or (ii) to provide funds to make 
any distribution for a taxable year to avoid imposition of any 
income or excise taxes on the Series or on undistributed income in 
the Series. The Indenture also authorizes but does not require the 
Depositor to direct the Trustee to sell securities from a Series' 
portfolio in certain other circumstances, but any sale made under 
those circumstances will not be made in reliance on the requested 
relief.
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    3. Applicants request relief to permit purchases and sales of 
Qualified Securities, as defined below, between different Series acting 
as principal.\3\ Applicants also seek relief to allow a terminating 
Series (``Rollover Series'') that holds U.S. Treasury securities 
(``Treasuries'') to sell Treasuries to a New Series.
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    \3\ Rollovers are conducted in accordance with a prior order of 
the Commission. See Fixed Income Securities, L.P. and Advisor's 
Disciplined Trust, Investment Company Act Rel. Nos. 26529 (Aug. 9, 
2004) (notice) and 26593 (Sept. 3, 2004) (order).
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    4. Qualified Securities are limited to those securities that 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 
U.S. $25,000) on an exchange (a ``Qualified Exchange'') that is either 
(i) a national securities exchange that meets the qualifications of 
section 6 of the Exchange Act, or (ii) a foreign securities exchange 
meeting the qualifications set forth in the proposed amendments to rule 
12d3-1(d)(6) under the Act \4\ and releasing daily closing prices, and 
included in a published index (securities meeting the preceding tests 
are referred to as ``Qualified Securities'').
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    \4\ Investment Company Act Rel. No. 17096 (Aug. 3, 1989) 
(proposing amendments to rule 12d3-1). The proposed amended rule 
defined a ``Qualified Foreign Exchange'' as a stock exchange in a 
country other than the United States where: (i) trading generally 
occurred at least four days per week; (ii) there were limited 
restrictions on the ability of acquiring companies to trade their 
holdings on the exchange; (iii) the exchange had a trading volume in 
stocks for the previous year of at least U.S. $7.5 billion; and (iv) 
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. Purchases and sales of securities are effected under the 
direction of the Depositor's professional traders. Pursuant to 
procedures to be adopted by the Depositor and the Trustee upon the 
granting of the requested order, the Depositor will make an initial 
determination that two Series are on opposite sides of a transaction in 
Qualified Securities. The Depositor will certify in writing to the 
Trustee of each affected Series, no later than the close of business on 
the business day following each sale pursuant to the requested order: 
(a) That the transaction is consistent with the investment objective 
and policies of each Series as recited in their respective registration 
statements and reports filed under the Act, (b) the reason that the 
Selling Series is selling the Qualified Securities, (c) the date of the 
transaction, (d) how the securities being sold meet the definition of 
Qualified Securities set forth in the requested order, and (e) the 
closing sale price of the Qualified Securities on the Qualified 
Exchange for the date the Qualified Securities are sold. The 
certificate will be forwarded to the Trustee of each Series for its 
approval. The Trustee will then countersign the certificate, unless, in 
the event that the Trustee disagrees with the price listed on the 
certificate, the Trustee immediately informs the Depositor orally of 
any such disagreement and returns the certificate within five days with 
the corrections duly noted. Upon receipt by the Depositor of the 
corrected certificate, if the Depositor can verify the correct price by 
reference to any independent published list of prices for the date of 
the transaction, the Depositor will ensure that the price of Units of 
each of the Purchasing Series and the Selling Series accurately 
reflects the corrected price. To the extent that the Depositor 
disagrees with the Trustee's corrected price, the Depositor and the 
Trustee will jointly determine the correct sales price by reference to 
a mutually agreeable, independently published list of prices for the 
date of the transaction.
    6. In connection with the purchase of Treasuries by a New Series 
from a Rollover Series, sales would be effected at the offer-side 
evaluation of the Treasuries as of the evaluation time on the sale 
date, as determined by an independent evaluator that will be a 
``qualified evaluator'' as defined in rule 22c-1(b)(2) under the Act 
(an ``Independent Evaluator''). To minimize the potential for 
overreaching in these situations, the Depositor will certify in writing 
to the Trustee of both the Rollover Series and the New Series, within 
five days of each sale of Treasuries from a Rollover Series to a New 
Series: (i) That the transaction is consistent with the policies of 
both the Rollover Series and the New Series, as recited in their 
respective registration statements and reports filed under the Act; 
(ii) the date of the transaction; and (iii) the price determined by the 
Independent Evaluator for the sale date of the Treasuries. The Trustee 
will then countersign the certificate, unless, in the event that the 
Trustee disagrees with the price listed on the certificate, the Trustee 
immediately informs the Depositor orally of such disagreement and 
returns the certificate within five days to the Depositor with 
corrections duly noted. Upon the Depositor's receipt of a corrected 
certificate, the Depositor and the Trustee will jointly determine the 
correct sales price by reference to a mutually agreeable, published 
list of prices for the date of the transaction.

Applicants' Legal Analysis

    1. Section 17(a) of the Act prohibits an affiliated person of a 
registered investment company from selling securities to, or purchasing 
securities from, the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include, any person

[[Page 7084]]

directly or indirectly controlling, controlled by, or under common 
control with the other person. The Depositor will sponsor each Series. 
Because the Depositor of a Series may be deemed to control the Series, 
all of the Series may be deemed to be affiliated persons of each other.
    2. Rule 17a-7 under the Act was designed to permit registered 
investment companies which might be deemed affiliated persons 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 that certain conditions are met. With 
respect to a sale of Qualified Securities by a Selling Series to a 
Purchasing Series, Applicants represent that they will comply with all 
the provisions of rule 17a-7, other than paragraphs (e) and (f). With 
respect to a sale of Treasuries by a Rollover Series to a New Series, 
Applicants represent that they will comply with all the provisions of 
rule 17a-7, other than paragraphs (b), (e) and (f).
    3. Paragraph (e) of rule 17a-7 requires an investment company's 
board of directors (``Board'') to adopt and monitor procedures to 
assure compliance with the rule. Paragraph (f) of the rule requires 
that the Board satisfy certain corporate governance requirements. 
Because the Trusts do not have Boards, the Series would be unable to 
comply with these requirements. Paragraph (b) of rule 17a-7 requires 
that the transactions be effected at the independent current market 
price of a security. The Treasuries would fall within the paragraph 
(b)(4) category of ``all other securities,'' for which the current 
market price under rule 17a-7(b) is the average of the highest current 
independent bid and lowest current independent offer determined on the 
basis of reasonable inquiry.
    4. Section 17(b) of the Act provides that the Commission will 
exempt a proposed transaction from section 17(a) if evidence 
establishes that: (i) The terms of the transaction are reasonable and 
fair and do not involve overreaching; (ii) the transaction is 
consistent with the policies of each registered investment company 
involved; and (iii) the transaction is consistent with the general 
purposes of the Act. Applicants believe that the proposed transactions 
satisfy the requirements of sections 6(c) and 17(b).
    5. Applicants state that the condition that the Qualified 
Securities must be actively traded on a Qualified Exchange protects 
against overreaching. Applicants further state that a sale of Qualified 
Securities by a Selling Series to a Purchasing Series will satisfy each 
of the requirements of rule 17a-7 other than paragraphs (e) and (f). 
Applicants note that the requirements in rule 17a-7(e) that the board 
of directors adopt and monitor certain procedures was adopted, among 
other things, because transactions permitted by rule 17a-7 may involve 
entities that are not registered investment companies. The requested 
relief would extend only to transactions between registered UITs. 
Applicants represent that purchases and sales between the Selling and 
Purchasing Series will be consistent with the policies of each Series. 
Applicants further state that permitting the proposed transactions 
would result in savings on brokerage fees for the Series.
    6. With respect to Treasuries, applicants state that sales by a 
Rollover Series to a New Series will comply with all of the provisions 
of rule 17a-7 other than paragraph (b), (e) and (f). Applicants state 
that the Treasuries would be sold by a Rollover Series to a New Series 
at the Treasuries' offer-side evaluation as determined by the 
Independent Evaluator. Other Treasuries acquired by the Purchasing 
Series will be acquired at the offer-side evaluation and the Purchasing 
Series would be valued during its initial offering period based on the 
Treasuries' offer-side evaluation. Applicants state that all 
unitholders of the New Series, both unitholders from a Rollover Series 
and new unitholders, will acquire Units with a value based on the 
offer-side evaluation of the Treasuries. Applicants state that the 
sales of Treasuries between Series will reduce transaction costs to 
unitholders of the Rollover Series. In addition, Applicants state that 
transactions will be consistent with the policy of each Series.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each sale of Qualified Securities between the Series will be 
effected at the closing price of the Qualified Securities sold on the 
applicable Qualified Exchange on the sale date. Each sale of Treasuries 
between the Series will be effected at the Treasuries' offer-side 
evaluation as determined by an Independent Evaluator as of the 
evaluation time on the sale date. Sales of Qualified Securities and 
Treasuries will be effected 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 of each participating Series.
    3. The Trustee of each Series will (a) review the procedures 
relating to the sale of Qualified Securities and Treasuries from one 
Series to another and (b) make any changes to those procedures as the 
Trustee considers necessary as reasonably designed to comply with 
paragraphs (a), (b) (except for transactions in Treasuries), (c) and 
(d) of rule 17a-7.
    4. A written copy of these procedures and a written record of each 
transaction pursuant to this order will be maintained as provided in 
rule 17a-7(g).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-2966 Filed 2-11-09; 8:45 am]

BILLING CODE 8011-01-P