The GMS Group, LLC, et al., 67659-67663 [E6-19739]

Download as PDF pwalker on PROD1PC61 with NOTICES Federal Register / Vol. 71, No. 225 / Wednesday, November 22, 2006 / Notices NYSE unilaterally delisted debt securities eligible for trading under this exemption order. To address this concern, we have added a new condition to the order stating that the NYSE will delist a class of debt securities only if the issuer of the class of debt security does not object to the delisting. As the potential loss of covered security status under Section 18 of the Securities Act would be an unintended consequence of this exemption, this additional condition would allow an issuer with listed debt securities to maintain covered security status with respect to its securities at its option. Another commenter, the NASDAQ Stock Market LLC, argued that limiting the bonds eligible to trade pursuant to this exemption exclusively to companies with equity listed on the NYSE, or their wholly-owned subsidiaries, would potentially be anticompetitive to other national securities exchanges. We do not believe this exemption will provide the NYSE with an unfair competitive advantage over other exchanges. Although the unlisted bonds that will trade on the ABS, and any successor bond trading facility pursuant to this exemption will not be eligible to trade on other exchanges pursuant to the unlisted trading privileges of Section 12(f) of the Exchange Act,23 another exchange may petition the Commission for similar relief that would permit that exchange’s members to trade unregistered debt securities on its facilities subject to the conditions imposed by the Commission in this order. In granting this relief, we expect that the NYSE will design and implement all rules related to the relief in a manner that protects investors and the public interest and does not unfairly discriminate between customers, issuers, brokers or dealers. We view the exemptive relief requested by the NYSE as another step to improve the public markets and believe that granting the NYSE’s application will minimize unnecessary regulatory disparity, promote competition and transparency in the public debt markets and is necessary and appropriate in the public interest and consistent with the protection of investors. Accordingly, it is ordered pursuant to Section 36 of the Exchange Act that, under the terms and conditions set forth below, an NYSE member, broker or dealer may effect a transaction on the 23 15 U.S.C. 78l(f). Section 12(f) of the Exchange Act permits a national securities exchange to extend unlisted trading privileges to any security that is listed and registered on a national securities exchange. VerDate Aug<31>2005 22:25 Nov 21, 2006 Jkt 211001 ABS, and any successor bond trading facility, in a debt security that has not been registered under Section 12(b) of the Exchange Act without violating Section 12(a) of the Exchange Act.24 This exemption does not extend to any other section or provision of the Exchange Act. For purposes of this order, a ‘‘debt security’’ is: Any security that, if the class of securities were listed on the NYSE, would be listed under Sections 102.03 or 103.05 of the NYSE’s Listed Company Manual. A debt security does not include any security that, if the class of securities were listed on the NYSE, would be listed under Sections 703.19 or 703.21 of the NYSE’s Listed Company Manual. Provided, however, under no circumstances does a debt security include any security that is defined as an ‘‘equity security’’ under Section 3(a)(11) of the Exchange Act. References to Sections 102.03, 103.05, 703.19, and 703.21 of the NYSE’s Listed Company Manual are to those sections as in effect on January 31, 2005. For purposes of this order, the following conditions must be satisfied: (1) The issuer of the debt security has registered the offer and sale of such security under the Securities Act of 1933;25 (2) The issuer of the debt security, or the issuer’s parent company if the issuer is a wholly-owned subsidiary,26 has at least one class of common or preferred equity securities registered under Section 12(b) of the Exchange Act and listed on the NYSE; (3) The transfer agent of the debt security is registered under Section 17A of the Exchange Act;27 (4) The trust indenture for the debt security is qualified under the Trust Indenture Act of 1939;28 (5) The NYSE has complied with the undertakings set forth in its exemptive application to distinguish between debt securities registered under Section 12(b) of the Exchange Act and listed on the NYSE and debt securities trading pursuant to this order; and (6) The NYSE will delist a class of debt securities that are listed on the NYSE as of the date of this order only if the issuer of that class of debt security does not object to the delisting of those securities. 24 As noted previously, NYSE members will be able to effect transactions on the NYSE in accordance with the terms of this exemption without violating NYSE rules only after SR–NYSE– 2004–69 becomes effective. 25 15 U.S.C. 77a et seq. 26 The terms ‘‘parent’’ and ‘‘wholly-owned’’ have the same meanings as defined in Rule 1–02 of Regulation S–X [17 CFR 210.1–02]. 27 15 U.S.C. 78q–1. 28 15 U.S.C. 77aaa—77bbbb. PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 67659 By the Commission. Nancy M. Morris, Secretary. [FR Doc. E6–19738 Filed 11–21–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27554; 812–13311] The GMS Group, LLC, et al.; Notice of Application November 16, 2006. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application under: (i) Section 6(c) of the Investment Company Act of 1940 (‘‘Act’’) for exemptions from sections 2(a)(32), 2(a)(35), 14(a), 19(b), 22(d), and 26(a)(2)(C) of the Act and from rules 19b–1 and 22c–1 under the Act; (ii) sections 11(a) and 11(c) of the Act for approval of certain exchange and rollover privileges and conversion offers; and (iii) sections 6(c) and 17(b) of the Act for an exemption from section 17(a) of the Act. AGENCY: Applicants request an order to permit certain unit investment trusts (‘‘UITs’’) to: (i) Impose sales charges on a deferred basis and waive the deferred sales charge in certain cases; (ii) offer unitholders certain exchange and rollover privileges and conversion offers; (iii) publicly offer units without requiring the sponsor to take for its own account or place with others $100,000 worth of units; (iv) distribute capital gains resulting from the sale of portfolio securities within a reasonable time after receipt; and (v) sell portfolio securities of a terminating series of a UIT to a new series of that UIT. APPLICANTS: The GMS Group, LLC (‘‘Sponsor’’ or ‘‘The GMS Group’’), the Patriot Trust (including the Patriot Trust, Insured Tax Free Bond Trust), any future registered UIT sponsored or co-sponsored by The GMS Group or an entity controlled by or under common control with The GMS Group (the future UITs, together with the above-specified UITs are ‘‘Trusts’’) and any presently outstanding or subsequently issued series of each Trust (each, a ‘‘Series’’). FILING DATES: The application was filed on June 30, 2006, and amended on November 6, 2006. Applicants have agreed to file an additional amendment during the notice period, the substance of which is reflected in this notice. SUMMARY OF APPLICATION: E:\FR\FM\22NON1.SGM 22NON1 67660 Federal Register / Vol. 71, No. 225 / Wednesday, November 22, 2006 / Notices 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 December 11, 2006, 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, Peter J. DeMarco, c/o The GMS Group, LLC, 5N Regent Street, Suite 513, Livingston, New Jersey 07039. FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior Counsel, at (202) 551–6879, 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 Desk, 100 F Street, NE., Washington DC 20549–0102 (tel. 202–551–5850). HEARING OR NOTIFICATION OF HEARING: pwalker on PROD1PC61 with NOTICES Applicants’ Representations 1. The GMS Group, a broker-dealer registered under the Securities Exchange Act of 1934, is the sponsor of the Trusts. Each Trust is or will be a UIT registered under the Act.1 Each Series is or will be created by a trust indenture (‘‘Indenture’’) among the Sponsor, a banking institution or trust company as trustee (‘‘Trustee’’), and, for those Series that the Trustee does not also serve as evaluator, an evaluator. 2. 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 deposited portfolio (‘‘Units’’). The Units are then offered to the public through the Sponsor, underwriters and dealers at a 1 All presently existing Trusts that currently intend to rely on the requested order have been named as applicants. Any other existing Trust and any Trust organized in the future that rely on the requested order will do so only in accordance with the terms and conditions of the application. VerDate Aug<31>2005 22:25 Nov 21, 2006 Jkt 211001 public offering price which, during the initial offering period, is based upon the aggregate market value (the aggregate offering side evaluation for fixed income securities) of the underlying securities plus a front-end sales charge. The sales charge is expected to range from 1.25% to 5.5% of the public offering price, generally depending upon the terms of the underlying securities. The Sponsor may reduce the sales charge in compliance with rule 22d-1 under the Act in certain circumstances, which are disclosed in the prospectus. 3. The Sponsor maintains a secondary market for Units and continually offers to purchase Units at prices based upon the market value (the bid side evaluation for fixed income securities) of the underlying securities. Investors may purchase Units on the secondary market at the current public offering price plus a front-end sales charge. If the Sponsor discontinues maintaining such a market at any time for any Series, holders of the Units (‘‘Unitholders’’) of that Series may redeem their Units through the Trustee. A. Deferred Sales Charge and Waiver of Deferred Sales Charge Under Certain Circumstances 1. Applicants request an order to the extent necessary to permit them to impose a sales charge on a deferred basis (‘‘deferred sales charge’’ or ‘‘DSC’’). For each Series, the Sponsor will set a maximum sales charge per Unit as a dollar amount and/or as a percentage of the initial offering price, a portion of which may be collected ‘‘up front’’ (i.e., at the time an investor purchases the Units). The DSC would be collected subsequently in installments (‘‘Installment Payments’’) as described in the application. The Sponsor would not add any amount for interest or any similar or related charge to adjust for such deferral. 2. When a Unitholder redeems or sells Units, the Sponsor intends to deduct any unpaid DSC from the redemption or sale proceeds. When calculating the amount due, the Sponsor will assume that Units on which the DSC has been paid in full are redeemed or sold first. With respect to Units on which the DSC has not been paid in full, the Sponsor will assume that the Units held for the longest time are redeemed or sold first. Applicants represent that the DSC collected at the time of redemption or sale, together with the Installment Payments and any amount collected up front, will not exceed the maximum sales charge per Unit. Under certain circumstances, the Sponsor may waive the collection of any unpaid DSC in connection with redemptions or sales of PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 Units. These circumstances will be disclosed in the prospectus for the relevant Series and implemented in accordance with rule 22d-1 under the Act. 3. Each Series offering Units subject to a DSC will state the maximum charge per Unit in its prospectus. In addition, the prospectus for such Series will include the table required by item 3 of Form N–1A (modified as appropriate to reflect the difference between UITs and open-end management investment companies) and a schedule setting forth the number and date of each Installment Payment, along with the duration of the collection period. The prospectus for that Series also will disclose that portfolio securities may be sold to pay an Installment Payment if distribution income is insufficient, and that securities will be sold pro rata or a specific security will be designated for sale. B. Exchange Privilege, Rollover Privilege, and Conversion Offer 1. Applicants propose to offer an exchange privilege to Unitholders of the Trusts at a reduced sales charge (‘‘Exchange Privilege’’). Unitholders would be able to exchange any or all of their Units in a Series of a Trust for Units in one or more available Series of the Trusts (‘‘Exchange Series’’). Applicants also propose a conversion offer at a reduced sales charge (‘‘Conversion Offer’’) pursuant to which Unitholders may elect to redeem Units of any Series in which there is no active secondary market (‘‘Redemption Series’’) and apply the proceeds to the purchase of available Units of one or more Series of the Trusts (‘‘Conversion Series’’). In addition, applicants propose to offer a rollover privilege to Unitholders of the Trusts at a reduced sales charge (‘‘Rollover Privilege’’). Unitholders would be able to ‘‘roll over’’ their Units in a Series which is terminating (‘‘Terminating Series’’) for Units in one or more new Series of the Trusts (‘‘Rollover Series’’). 2. To exercise the Exchange Privilege or Rollover Privilege, a Unitholder must notify the Sponsor. In order to exercise the Conversion Offer, a Unitholder must notify his or her retail broker. The Conversion Offer will be handled entirely through the Unitholder’s retail broker and the retail broker must tender the Units to the Trustee of the Redemption Series for redemption and then apply the proceeds toward the purchase of Units of a Conversion Series. Exercise of the Exchange Privilege or Rollover Privilege is subject to the following conditions: (i) The Sponsor must be maintaining a E:\FR\FM\22NON1.SGM 22NON1 Federal Register / Vol. 71, No. 225 / Wednesday, November 22, 2006 / Notices secondary market in Units of the available Exchange Series or Rollover Series; (ii) at the time of the Unitholder’s election to participate, there must be Units of the Exchange Series or Rollover Series to be acquired available for sale, either under the initial primary distribution or in the Sponsor’s secondary market; (iii) exchanges will be in whole Units only; and (iv) for certain Series, Units may be obtained in blocks of certain sizes only. 3. Unitholders who wish to exchange Units under the Exchange Privilege, the Rollover Privilege or the Conversion Offer within the first five months of purchase will not be eligible for the reduced sales charge. Such Unitholders will be charged a sales load equal to the greater of: (i) The reduced sales charge; or (ii) an amount which, when added to the sales charge paid by the Unitholder upon his or her original purchase of Units of the applicable Series, would equal the sales charge applicable to the direct purchase of the newly acquired Units, determined as of the date of purchase. pwalker on PROD1PC61 with NOTICES C. Purchase and Sale Transactions Between a Terminating Series and a New Series 1. Certain Terminating Series will have a date (‘‘Rollover Date’’) by which Unitholders of that Series may, at their option, redeem their Units and receive in return Units of a subsequent Series of the same type (‘‘New Series’’). The New Series will be created on or about the Rollover Date and will have a portfolio that contains securities, 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 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 Securities Exchange Act of 1934, or (ii) a foreign securities exchange meeting the qualifications set forth in the proposed amendments to rule 12d3– 1(d)(6) under the Act 2 and releasing daily closing prices (securities meeting 2 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.’’ VerDate Aug<31>2005 22:25 Nov 21, 2006 Jkt 211001 the preceding tests are referred to as ‘‘Qualified Securities’’). 2. Applicants anticipate that there will be some overlap in the Qualified Securities selected for the portfolios of a Terminating Series and the related New Series. Absent the requested relief, a Terminating Series would, upon termination, sell its Qualified Securities on the applicable Qualified Exchange. Likewise, a New Series would acquire its Qualified Securities on the applicable Qualified Exchange. This procedure would result in Unitholders of both the Terminating Series and the New Series incurring brokerage commissions on the same Qualified Securities. Applicants accordingly request an order to the extent necessary to permit a Terminating Series to sell its Qualified Securities to a New Series and to permit the New Series to purchases those securities. Applicants’ Legal Analysis A. DSC and Waiver of DSC under Certain Circumstances 1. Section 4(2) of the Act defines a ‘‘unit investment trust’’ as an investment company that issues only redeemable securities. Section 2(a)(32) of the Act defines a ‘‘redeemable security’’ as a security that, upon its presentation to the issuer, enables the holder 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 under the Act requires that the price of a redeemable security issued by a registered investment company for purposes of sale, redemption or repurchase be based on the security’s current net asset value (‘‘NAV’’). Because the collection of any unpaid DSC may cause a redeeming Unitholder to receive an amount less than the NAV of the redeemed Units, applicants request relief from section 2(a)(32) and rule 22c–1. 2. Section 22(d) of the Act and rule 22d–1 under the Act require a registered investment company and its principal underwriter and dealers to sell securities only at the current public offering price described in the investment company’s prospectus, with the exception of sales of redeemable securities at prices that reflect scheduled variations in the sales load. Section 2(a)(35) of the Act 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 permit waivers, deferrals or other scheduled variations of the sales load. PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 67661 3. Under section 6(c) of the Act, the Commission 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 state that their proposal meets the standards of section 6(c). Applicants state that the provisions of section 22(d) are intended to prevent (i) riskless trading in investment company securities due to backward pricing, (ii) disruption of orderly distribution by dealers selling shares at a discount, and (iii) discrimination among investors resulting from different prices charged to different investors. Applicants assert that the proposed DSC program will present none of these abuses. Applicants further state that all scheduled variations in the sales load will be disclosed in the prospectus of each Series and applied uniformly to all investors, and that applicants will comply with all the conditions set forth in rule 22d–1. 4. Section 26(a)(2)(C) of the Act, in relevant part, prohibits a trustee or custodian of a UIT 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 under section 6(c) from section 26(a)(2)(C) to the extent necessary to permit the Trustee to collect Installment Payments and disburse them to the Sponsor. Applicants submit that the relief is appropriate because the DSC is more properly characterized as a sales charge. B. Exchange Privilege, Conversion Offer and Rollover Privilege 1. Sections 11(a) and (c) of the Act prohibit any offer of exchange by a UIT for the securities of another investment company unless the terms of the offer have been approved in advance by the Commission. Applicants request an order under sections 11(a) and 11(c) for Commission approval of the Exchange Privilege, the Conversion Offer and the Rollover Privilege. 2. Applicants state that the Exchange Privilege and Rollover Privilege provide investors with a convenient means of transferring their interests at a reduced sales charge into Exchange Series and Rollover Series which suit their current investment objectives. Further, applicants state that the Conversion Offer provides Unitholders of a Series in which there is no active secondary market to redeem those Units and invest E:\FR\FM\22NON1.SGM 22NON1 67662 Federal Register / Vol. 71, No. 225 / Wednesday, November 22, 2006 / Notices pwalker on PROD1PC61 with NOTICES the proceeds at a reduced sales charge into Units of the Conversion Series in which there is an active secondary market. Applicants state that absent the Exchange Privilege, Rollover Privilege and Conversion Offer, Unitholders would be required to dispose of their Units, either in the secondary market (in the case of the Exchange Privilege and Rollover Privilege) or through redemption, and to reinvest, at the then fully applicable sales charge, into the chosen Series. 3. Applicants represent that Unitholders will not be induced or encouraged to participate in the Exchange Privilege, Rollover Privilege, or Conversion Offer through an active advertising or sale campaign. The Sponsor recognizes its responsibility to its investors against generating excessive commissions through churning and asserts that the sales charge collected will not be a significant economic incentive to salesmen to promote inappropriately the Exchange Privilege, Rollover Privilege or the Conversion Offer. Applicants state that the reduced sales charge will fairly and adequately compensate the Sponsor and the participating underwriters and brokers for their services and expenses in connection with the administration of the programs. Applicants further believe that the Exchange Privilege, Rollover Privilege, and Conversion Offer are 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. C. Purchase and Sale Transactions Between a Terminating Series and a New Series 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 directly or indirectly controlling, controlled by, or under common control with the other person. The GMS Group will be the Sponsor of each Series. Since the Sponsor 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 VerDate Aug<31>2005 22:25 Nov 21, 2006 Jkt 211001 met. Paragraph (e) of the rule 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 fund governance standards. Because UITs do not have Boards, the Series would be unable to comply with these requirements. Applicants represent that they will comply with all of the provisions of rule 17a–7, other than paragraphs (e) and (f). 3. 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 request relief under sections 6(c) and 17(b) to permit a Terminating Series to sell Qualified Securities to a New Series and permit the New Series to purchase the Qualified Securities. 4. Applicants believe that the proposed transactions satisfy the requirements of sections 6(c) and 17(b). Applicants represent that purchases and sales between the Terminating and New 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 Terminating and New Series. 5. Applicants state that the condition that the Qualified Securities must be actively traded on a Qualified Exchange protects against overreaching. In addition, applicants state that the Sponsor will certify to the Trustee, within five days of each sale of Qualified Securities from a Terminating Series to a New Series: (i) that the transaction is consistent with the policy of both the Terminating 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 closing sales price on the Qualified Exchange for the sale date of the Qualified Securities. The Trustee will then 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 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 PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 independently published list of closing sales prices for the date of the transactions, the Sponsor will ensure that the price of the Units of the New Series, and the distributions to Unitholders of the Terminating 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. D. Net Worth Requirement 1. Section 14(a) of the Act requires that registered investment companies have $100,000 of net worth prior to making a public offering. Applicants believe that each Series will comply with this requirement because the Sponsor will deposit substantially more than $100,000 of debt and/or equity securities, depending on the objective of the particular Series. Applicants assert, however, that the Commission has interpreted section 14(a) as requiring that the initial capital investment in an investment company be made without any intention to dispose of the investment. Applicants state that, under this interpretation, a Series would not satisfy section 14(a) because of the Sponsor’s intention to sell all of the Units of the Series. 2. Rule 14a–3 under the Act exempts UITs from section 14(a) if certain conditions are met, including that the UIT invest only in ‘‘eligible trust securities,’’ as defined in the rule. Applicants state that they may not rely on rule 14a–3 because the Series may invest in equity securities which do not satisfy the definition of eligible trust securities. 3. Consequently, applicants seek an exemption under section 6(c) of the Act to exempt the Series from the net worth requirement of section 14(a) of the Act. Applicants state that the Series and the Sponsor will comply in all respects with the requirements of rule 14a-3, except that the Series will not restrict their portfolio investments to ‘‘eligible trust securities.’’ E. Capital Gains Distribution 1. Section 19(b) of the Act and rule 19b–1 under the Act provide that, except under limited circumstances, no registered investment company may distribute long-term gains more than once every twelve months. Rule 19b– 1(c), under certain circumstances, exempts a UIT investing in ‘‘eligible trust securities’’ (as defined in rule 14a– 3(b)) from the requirements of rule 19b– E:\FR\FM\22NON1.SGM 22NON1 Federal Register / Vol. 71, No. 225 / Wednesday, November 22, 2006 / Notices 1. Because the Trusts do not limit their investments to ‘‘eligible trust securities,’’ the Trusts do not qualify for the exemption in paragraph (c) of rule 19b–1. Therefore, applicants request an exemption under section 6(c) from section 19(b) and rule 19b–1 to the extent necessary to permit capital gains earned in connection with the sale of portfolio securities to be distributed to Unitholders along with the Series’ regular distributions. In all other respects, applicants will comply with section 19(b) and rule 19b–1. 2. Applicants state that their proposal meets the standards of section 6(c). Applicants assert that any sale of portfolio securities would be triggered by the need to meet Series’ expenses, Installment Payments or by requests to redeem Units, events over which the Sponsor and the Series have no control. Applicants further state that, because principal distributions must be clearly indicated in accompanying reports to Unitholders as a return of principal and will be relatively small in comparison to normal dividend distributions, there is little danger of confusion from failure to differentiate among distributions. given prominent notice of the impending termination or amendment at least 60 days prior to the date of termination or the effective date of the amendment, provided that: (a) No such notice need be given if the only material effect of an amendment is to reduce or eliminate the sales charge payable at the time of an exchange, to make one or more New Series eligible for the Exchange Privilege, Conversion Offer or Rollover Privilege, or to delete a Series which has terminated; and (b) no notice need be given if, under extraordinary circumstances, either (i) there is a suspension of the redemption of Units of the Series under section 22(e) of the Act and the rules and regulations promulgated under that section, or (ii) a Series temporarily delays or ceases the sale of its Units because it is unable to invest amounts effectively in accordance with applicable investment objectives, policies, and restrictions. 3. An investor who purchases Units under the Exchange Privilege, Conversion Offer or Rollover Privilege will pay a lower sales charge than that which would be paid for the Units by a new investor. Applicants’ Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: C. Net Worth Requirement pwalker on PROD1PC61 with NOTICES A. DSC and Waiver of DSC Under Certain Circumstances 1. 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 UITs and open-end management investment companies, and a schedule setting forth the number and date of each installment payment. 2. Any DSC imposed on Units issued by a Series will comply with the requirements of subparagraphs (1), (2) and (3) of rule 6c–10(a) under the Act. B. Exchange Privilege, Conversion Offer and Rollover Privilege 1. The prospectus of each Series offering exchanges, rollovers, or conversions and any sales literature or advertising that mentions the existence of the Exchange Privilege, Conversion Offer or Rollover Privilege will disclose that the Exchange Privilege, Conversion Offer or Rollover Privilege is subject to modification, termination or suspension without notice, except in limited cases. 2. Whenever the Exchange Privilege, Conversion Offer or Rollover Privilege is to be terminated or its terms are to be amended materially, any holder of a security subject to that privilege will be VerDate Aug<31>2005 22:25 Nov 21, 2006 Jkt 211001 Applicants will comply in all respects with the requirements of rule 14a–3, except that the Series will not restrict their portfolio investments to ‘‘eligible trust securities.’’ D. Purchase and Sale Transactions Between a Terminating Series and a New Series 1. Each sale of Qualified Securities by a Terminating 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 Terminating Series and New Series. 3. The Trustee of each Terminating Series and New Series will review the procedures discussed in the application relating to the sale of securities from a Terminating Series and the purchase of those securities for deposit in a New Series, and 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 this order will be maintained as provided in rule 17a–7(g). PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 67663 For the Commission, by the Division of Investment Management, under delegated authority. Nancy M. Morris, Secretary. [FR Doc. E6–19739 Filed 11–21–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [File No. 500–1] In the Matter of Digital Gas, Inc.; Order of Suspension of Trading November 17, 2006. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Digital Gas, Inc. (‘‘Digital’’), because of questions raised regarding the accuracy and adequacy of publicly disseminated information concerning, among other things, Digital’s announced agreement with Techno Rubber, Inc. and Digital’s assets. The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed company. Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the abovelisted company is suspended for the period from 9:30 a.m. EST, November 17, 2006, through 11:59 p.m. EST, on December 4, 2006. By the Commission. Nancy M. Morris, Secretary. [FR Doc. 06–9332 Filed 11–17–06; 11:31 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54762; File No. SR–CBOE– 2006–93] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change Regarding Quarterly Options Series November 16, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 8, 2006, the Chicago Board Options 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. E:\FR\FM\22NON1.SGM 22NON1

Agencies

[Federal Register Volume 71, Number 225 (Wednesday, November 22, 2006)]
[Notices]
[Pages 67659-67663]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-19739]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27554; 812-13311]


The GMS Group, LLC, et al.; Notice of Application

November 16, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under: (i) Section 6(c) of the 
Investment Company Act of 1940 (``Act'') for exemptions from sections 
2(a)(32), 2(a)(35), 14(a), 19(b), 22(d), and 26(a)(2)(C) of the Act and 
from rules 19b-1 and 22c-1 under the Act; (ii) sections 11(a) and 11(c) 
of the Act for approval of certain exchange and rollover privileges and 
conversion offers; and (iii) sections 6(c) and 17(b) of the Act for an 
exemption from section 17(a) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
unit investment trusts (``UITs'') to: (i) Impose sales charges on a 
deferred basis and waive the deferred sales charge in certain cases; 
(ii) offer unitholders certain exchange and rollover privileges and 
conversion offers; (iii) publicly offer units without requiring the 
sponsor to take for its own account or place with others $100,000 worth 
of units; (iv) distribute capital gains resulting from the sale of 
portfolio securities within a reasonable time after receipt; and (v) 
sell portfolio securities of a terminating series of a UIT to a new 
series of that UIT.

APPLICANTS: The GMS Group, LLC (``Sponsor'' or ``The GMS Group''), the 
Patriot Trust (including the Patriot Trust, Insured Tax Free Bond 
Trust), any future registered UIT sponsored or co-sponsored by The GMS 
Group or an entity controlled by or under common control with The GMS 
Group (the future UITs, together with the above-specified UITs are 
``Trusts'') and any presently outstanding or subsequently issued series 
of each Trust (each, a ``Series'').

Filing Dates: The application was filed on June 30, 2006, and amended 
on November 6, 2006. Applicants have agreed to file an additional 
amendment during the notice period, the substance of which is reflected 
in this notice.

[[Page 67660]]


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 December 11, 2006, 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, Peter J. DeMarco, 
c/o The GMS Group, LLC, 5N Regent Street, Suite 513, Livingston, New 
Jersey 07039.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior 
Counsel, at (202) 551-6879, 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 Desk, 100 F Street, NE., Washington DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. The GMS Group, a broker-dealer registered under the Securities 
Exchange Act of 1934, is the sponsor of the Trusts. Each Trust is or 
will be a UIT registered under the Act.\1\ Each Series is or will be 
created by a trust indenture (``Indenture'') among the Sponsor, a 
banking institution or trust company as trustee (``Trustee''), and, for 
those Series that the Trustee does not also serve as evaluator, an 
evaluator.
---------------------------------------------------------------------------

    \1\ All presently existing Trusts that currently intend to rely 
on the requested order have been named as applicants. Any other 
existing Trust and any Trust organized in the future that rely on 
the requested order will do so only in accordance with the terms and 
conditions of the application.
---------------------------------------------------------------------------

    2. 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 deposited portfolio 
(``Units''). The Units are then offered to the public through the 
Sponsor, underwriters and dealers at a public offering price which, 
during the initial offering period, is based upon the aggregate market 
value (the aggregate offering side evaluation for fixed income 
securities) of the underlying securities plus a front-end sales charge. 
The sales charge is expected to range from 1.25% to 5.5% of the public 
offering price, generally depending upon the terms of the underlying 
securities. The Sponsor may reduce the sales charge in compliance with 
rule 22d-1 under the Act in certain circumstances, which are disclosed 
in the prospectus.
    3. The Sponsor maintains a secondary market for Units and 
continually offers to purchase Units at prices based upon the market 
value (the bid side evaluation for fixed income securities) of the 
underlying securities. Investors may purchase Units on the secondary 
market at the current public offering price plus a front-end sales 
charge. If the Sponsor discontinues maintaining such a market at any 
time for any Series, holders of the Units (``Unitholders'') of that 
Series may redeem their Units through the Trustee.

A. Deferred Sales Charge and Waiver of Deferred Sales Charge Under 
Certain Circumstances

    1. Applicants request an order to the extent necessary to permit 
them to impose a sales charge on a deferred basis (``deferred sales 
charge'' or ``DSC''). For each Series, the Sponsor will set a maximum 
sales charge per Unit as a dollar amount and/or as a percentage of the 
initial offering price, a portion of which may be collected ``up 
front'' (i.e., at the time an investor purchases the Units). The DSC 
would be collected subsequently in installments (``Installment 
Payments'') as described in the application. The Sponsor would not add 
any amount for interest or any similar or related charge to adjust for 
such deferral.
    2. When a Unitholder redeems or sells Units, the Sponsor intends to 
deduct any unpaid DSC from the redemption or sale proceeds. When 
calculating the amount due, the Sponsor will assume that Units on which 
the DSC has been paid in full are redeemed or sold first. With respect 
to Units on which the DSC has not been paid in full, the Sponsor will 
assume that the Units held for the longest time are redeemed or sold 
first. Applicants represent that the DSC collected at the time of 
redemption or sale, together with the Installment Payments and any 
amount collected up front, will not exceed the maximum sales charge per 
Unit. Under certain circumstances, the Sponsor may waive the collection 
of any unpaid 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.
    3. Each Series offering Units subject to a DSC will state the 
maximum charge per Unit in its prospectus. In addition, the prospectus 
for such Series will include the table required by item 3 of Form N-1A 
(modified as appropriate to reflect the difference between UITs and 
open-end management investment companies) and a schedule setting forth 
the number and date of each Installment Payment, along with the 
duration of the collection period. The prospectus for that Series also 
will disclose that portfolio securities may be sold to pay an 
Installment Payment if distribution income is insufficient, and that 
securities will be sold pro rata or a specific security will be 
designated for sale.

B. Exchange Privilege, Rollover Privilege, and Conversion Offer

    1. Applicants propose to offer an exchange privilege to Unitholders 
of the Trusts at a reduced sales charge (``Exchange Privilege''). 
Unitholders would be able to exchange any or all of their Units in a 
Series of a Trust for Units in one or more available Series of the 
Trusts (``Exchange Series''). Applicants also propose a conversion 
offer at a reduced sales charge (``Conversion Offer'') pursuant to 
which Unitholders may elect to redeem Units of any Series in which 
there is no active secondary market (``Redemption Series'') and apply 
the proceeds to the purchase of available Units of one or more Series 
of the Trusts (``Conversion Series''). In addition, applicants propose 
to offer a rollover privilege to Unitholders of the Trusts at a reduced 
sales charge (``Rollover Privilege''). Unitholders would be able to 
``roll over'' their Units in a Series which is terminating 
(``Terminating Series'') for Units in one or more new Series of the 
Trusts (``Rollover Series'').
    2. To exercise the Exchange Privilege or Rollover Privilege, a 
Unitholder must notify the Sponsor. In order to exercise the Conversion 
Offer, a Unitholder must notify his or her retail broker. The 
Conversion Offer will be handled entirely through the Unitholder's 
retail broker and the retail broker must tender the Units to the 
Trustee of the Redemption Series for redemption and then apply the 
proceeds toward the purchase of Units of a Conversion Series. Exercise 
of the Exchange Privilege or Rollover Privilege is subject to the 
following conditions: (i) The Sponsor must be maintaining a

[[Page 67661]]

secondary market in Units of the available Exchange Series or Rollover 
Series; (ii) at the time of the Unitholder's election to participate, 
there must be Units of the Exchange Series or Rollover Series to be 
acquired available for sale, either under the initial primary 
distribution or in the Sponsor's secondary market; (iii) exchanges will 
be in whole Units only; and (iv) for certain Series, Units may be 
obtained in blocks of certain sizes only.
    3. Unitholders who wish to exchange Units under the Exchange 
Privilege, the Rollover Privilege or the Conversion Offer within the 
first five months of purchase will not be eligible for the reduced 
sales charge. Such Unitholders will be charged a sales load equal to 
the greater of: (i) The reduced sales charge; or (ii) an amount which, 
when added to the sales charge paid by the Unitholder upon his or her 
original purchase of Units of the applicable Series, would equal the 
sales charge applicable to the direct purchase of the newly acquired 
Units, determined as of the date of purchase.

C. Purchase and Sale Transactions Between a Terminating Series and a 
New Series

    1. Certain Terminating Series will have a date (``Rollover Date'') 
by which Unitholders of that Series may, at their option, redeem their 
Units and receive in return Units of a subsequent Series of the same 
type (``New Series''). The New Series will be created on or about the 
Rollover Date and will have a portfolio that contains securities, 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 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 Securities Exchange Act of 
1934, or (ii) a foreign securities exchange meeting the qualifications 
set forth in the proposed amendments to rule 12d3-1(d)(6) under the Act 
\2\ and releasing daily closing prices (securities meeting the 
preceding tests are referred to as ``Qualified Securities'').
---------------------------------------------------------------------------

    \2\ 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.''
---------------------------------------------------------------------------

    2. Applicants anticipate that there will be some overlap in the 
Qualified Securities selected for the portfolios of a Terminating 
Series and the related New Series. Absent the requested relief, a 
Terminating Series would, upon termination, sell its Qualified 
Securities on the applicable Qualified Exchange. Likewise, a New Series 
would acquire its Qualified Securities on the applicable Qualified 
Exchange. This procedure would result in Unitholders of both the 
Terminating Series and the New Series incurring brokerage commissions 
on the same Qualified Securities. Applicants accordingly request an 
order to the extent necessary to permit a Terminating Series to sell 
its Qualified Securities to a New Series and to permit the New Series 
to purchases those securities.

Applicants' Legal Analysis

A. DSC and Waiver of DSC under Certain Circumstances

    1. Section 4(2) of the Act defines a ``unit investment trust'' as 
an investment company that issues only redeemable securities. Section 
2(a)(32) of the Act defines a ``redeemable security'' as a security 
that, upon its presentation to the issuer, enables the holder 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 
under the Act requires that the price of a redeemable security issued 
by a registered investment company for purposes of sale, redemption or 
repurchase be based on the security's current net asset value 
(``NAV''). Because the collection of any unpaid DSC may cause a 
redeeming Unitholder to receive an amount less than the NAV of the 
redeemed Units, applicants request relief from section 2(a)(32) and 
rule 22c-1.
    2. Section 22(d) of the Act and rule 22d-1 under the Act require a 
registered investment company and its principal underwriter and dealers 
to sell securities only at the current public offering price described 
in the investment company's prospectus, with the exception of sales of 
redeemable securities at prices that reflect scheduled variations in 
the sales load. Section 2(a)(35) of the Act 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 permit waivers, deferrals or 
other scheduled variations of the sales load.
    3. Under section 6(c) of the Act, the Commission 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 state that their proposal meets 
the standards of section 6(c). Applicants state that the provisions of 
section 22(d) are intended to prevent (i) riskless trading in 
investment company securities due to backward pricing, (ii) disruption 
of orderly distribution by dealers selling shares at a discount, and 
(iii) discrimination among investors resulting from different prices 
charged to different investors. Applicants assert that the proposed DSC 
program will present none of these abuses. Applicants further state 
that all scheduled variations in the sales load will be disclosed in 
the prospectus of each Series and applied uniformly to all investors, 
and that applicants will comply with all the conditions set forth in 
rule 22d-1.
    4. Section 26(a)(2)(C) of the Act, in relevant part, prohibits a 
trustee or custodian of a UIT 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 
under section 6(c) from section 26(a)(2)(C) to the extent necessary to 
permit the Trustee to collect Installment Payments and disburse them to 
the Sponsor. Applicants submit that the relief is appropriate because 
the DSC is more properly characterized as a sales charge.

B. Exchange Privilege, Conversion Offer and Rollover Privilege

    1. Sections 11(a) and (c) of the Act prohibit any offer of exchange 
by a UIT for the securities of another investment company unless the 
terms of the offer have been approved in advance by the Commission. 
Applicants request an order under sections 11(a) and 11(c) for 
Commission approval of the Exchange Privilege, the Conversion Offer and 
the Rollover Privilege.
    2. Applicants state that the Exchange Privilege and Rollover 
Privilege provide investors with a convenient means of transferring 
their interests at a reduced sales charge into Exchange Series and 
Rollover Series which suit their current investment objectives. 
Further, applicants state that the Conversion Offer provides 
Unitholders of a Series in which there is no active secondary market to 
redeem those Units and invest

[[Page 67662]]

the proceeds at a reduced sales charge into Units of the Conversion 
Series in which there is an active secondary market. Applicants state 
that absent the Exchange Privilege, Rollover Privilege and Conversion 
Offer, Unitholders would be required to dispose of their Units, either 
in the secondary market (in the case of the Exchange Privilege and 
Rollover Privilege) or through redemption, and to reinvest, at the then 
fully applicable sales charge, into the chosen Series.
    3. Applicants represent that Unitholders will not be induced or 
encouraged to participate in the Exchange Privilege, Rollover 
Privilege, or Conversion Offer through an active advertising or sale 
campaign. The Sponsor recognizes its responsibility to its investors 
against generating excessive commissions through churning and asserts 
that the sales charge collected will not be a significant economic 
incentive to salesmen to promote inappropriately the Exchange 
Privilege, Rollover Privilege or the Conversion Offer. Applicants state 
that the reduced sales charge will fairly and adequately compensate the 
Sponsor and the participating underwriters and brokers for their 
services and expenses in connection with the administration of the 
programs. Applicants further believe that the Exchange Privilege, 
Rollover Privilege, and Conversion Offer are 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.

C. Purchase and Sale Transactions Between a Terminating Series and a 
New Series

    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 directly 
or indirectly controlling, controlled by, or under common control with 
the other person. The GMS Group will be the Sponsor of each Series. 
Since the Sponsor 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. Paragraph 
(e) of the rule 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 fund governance standards. Because UITs do not have Boards, the 
Series would be unable to comply with these requirements. Applicants 
represent that they will comply with all of the provisions of rule 17a-
7, other than paragraphs (e) and (f).
    3. 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 request relief under sections 6(c) and 
17(b) to permit a Terminating Series to sell Qualified Securities to a 
New Series and permit the New Series to purchase the Qualified 
Securities.
    4. Applicants believe that the proposed transactions satisfy the 
requirements of sections 6(c) and 17(b). Applicants represent that 
purchases and sales between the Terminating and New 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 Terminating and New Series.
    5. Applicants state that the condition that the Qualified 
Securities must be actively traded on a Qualified Exchange protects 
against overreaching. In addition, applicants state that the Sponsor 
will certify to the Trustee, within five days of each sale of Qualified 
Securities from a Terminating Series to a New Series: (i) that the 
transaction is consistent with the policy of both the Terminating 
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 closing sales price on the Qualified 
Exchange for the sale date of the Qualified Securities. The Trustee 
will then 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 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 the Units of the New Series, and the distributions to 
Unitholders of the Terminating 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.

D. Net Worth Requirement

    1. Section 14(a) of the Act requires that registered investment 
companies have $100,000 of net worth prior to making a public offering. 
Applicants believe that each Series will comply with this requirement 
because the Sponsor will deposit substantially more than $100,000 of 
debt and/or equity securities, depending on the objective of the 
particular Series. Applicants assert, however, that the Commission has 
interpreted section 14(a) as requiring that the initial capital 
investment in an investment company be made without any intention to 
dispose of the investment. Applicants state that, under this 
interpretation, a Series would not satisfy section 14(a) because of the 
Sponsor's intention to sell all of the Units of the Series.
    2. Rule 14a-3 under the Act exempts UITs from section 14(a) if 
certain conditions are met, including that the UIT invest only in 
``eligible trust securities,'' as defined in the rule. Applicants state 
that they may not rely on rule 14a-3 because the Series may invest in 
equity securities which do not satisfy the definition of eligible trust 
securities.
    3. Consequently, applicants seek an exemption under section 6(c) of 
the Act to exempt the Series from the net worth requirement of section 
14(a) of the Act. Applicants state that the Series and the Sponsor will 
comply in all respects with the requirements of rule 14a-3, except that 
the Series will not restrict their portfolio investments to ``eligible 
trust securities.''

E. Capital Gains Distribution

    1. Section 19(b) of the Act and rule 19b-1 under the Act provide 
that, except under limited circumstances, no registered investment 
company may distribute long-term gains more than once every twelve 
months. Rule 19b-1(c), under certain circumstances, exempts a UIT 
investing in ``eligible trust securities'' (as defined in rule 14a-
3(b)) from the requirements of rule 19b-

[[Page 67663]]

1. Because the Trusts do not limit their investments to ``eligible 
trust securities,'' the Trusts do not qualify for the exemption in 
paragraph (c) of rule 19b-1. Therefore, applicants request an exemption 
under section 6(c) from section 19(b) and rule 19b-1 to the extent 
necessary to permit capital gains earned in connection with the sale of 
portfolio securities to be distributed to Unitholders along with the 
Series' regular distributions. In all other respects, applicants will 
comply with section 19(b) and rule 19b-1.
    2. Applicants state that their proposal meets the standards of 
section 6(c). Applicants assert that any sale of portfolio securities 
would be triggered by the need to meet Series' expenses, Installment 
Payments or by requests to redeem Units, events over which the Sponsor 
and the Series have no control. Applicants further state that, because 
principal distributions must be clearly indicated in accompanying 
reports to Unitholders as a return of principal and will be relatively 
small in comparison to normal dividend distributions, there is little 
danger of confusion from failure to differentiate among distributions.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

A. DSC and Waiver of DSC Under Certain Circumstances

    1. 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 UITs and open-end management investment companies, and a 
schedule setting forth the number and date of each installment payment.
    2. Any DSC imposed on Units issued by a Series will comply with the 
requirements of subparagraphs (1), (2) and (3) of rule 6c-10(a) under 
the Act.

B. Exchange Privilege, Conversion Offer and Rollover Privilege

    1. The prospectus of each Series offering exchanges, rollovers, or 
conversions and any sales literature or advertising that mentions the 
existence of the Exchange Privilege, Conversion Offer or Rollover 
Privilege will disclose that the Exchange Privilege, Conversion Offer 
or Rollover Privilege is subject to modification, termination or 
suspension without notice, except in limited cases.
    2. Whenever the Exchange Privilege, Conversion Offer or Rollover 
Privilege is to be terminated or its terms are to be amended 
materially, any holder of a security subject to that privilege will be 
given prominent notice of the impending termination or amendment at 
least 60 days prior to the date of termination or the effective date of 
the amendment, provided that: (a) No such notice need be given if the 
only material effect of an amendment is to reduce or eliminate the 
sales charge payable at the time of an exchange, to make one or more 
New Series eligible for the Exchange Privilege, Conversion Offer or 
Rollover Privilege, or to delete a Series which has terminated; and (b) 
no notice need be given if, under extraordinary circumstances, either 
(i) there is a suspension of the redemption of Units of the Series 
under section 22(e) of the Act and the rules and regulations 
promulgated under that section, or (ii) a Series temporarily delays or 
ceases the sale of its Units because it is unable to invest amounts 
effectively in accordance with applicable investment objectives, 
policies, and restrictions.
    3. An investor who purchases Units under the Exchange Privilege, 
Conversion Offer or Rollover Privilege will pay a lower sales charge 
than that which would be paid for the Units by a new investor.

C. Net Worth Requirement

    Applicants will comply in all respects with the requirements of 
rule 14a-3, except that the Series will not restrict their portfolio 
investments to ``eligible trust securities.''

D. Purchase and Sale Transactions Between a Terminating Series and a 
New Series

    1. Each sale of Qualified Securities by a Terminating 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 
Terminating Series and New Series.
    3. The Trustee of each Terminating Series and New Series will 
review the procedures discussed in the application relating to the sale 
of securities from a Terminating Series and the purchase of those 
securities for deposit in a New Series, and 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 this order will be maintained as provided in 
rule 17a-7(g).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-19739 Filed 11-21-06; 8:45 am]
BILLING CODE 8011-01-P