Incapital LLC and Incapital Unit Trust; Notice of Application, 4588-4591 [2012-1893]
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emcdonald on DSK29S0YB1PROD with NOTICES
4588
Federal Register / Vol. 77, No. 19 / Monday, January 30, 2012 / Notices
Applicants’ Legal Analysis
1. Section 9(a)(2) of the Act, in
relevant part, prohibits a person who
has been enjoined from engaging in or
continuing any conduct or practice in
connection with the purchase or sale of
a security, or in connection with
activities as an underwriter, broker or
dealer, from acting, among other things,
as an investment adviser or depositor of
any registered investment company or a
principal underwriter for any registered
open-end investment company,
registered UIT, or registered faceamount certificate company or as
investment adviser of an ESC. Section
9(a)(3) of the Act makes the prohibition
in section 9(a)(2) applicable to a
company, any affiliated person of which
has been disqualified under the
provisions of section 9(a)(2). Section
2(a)(3) of the Act defines ‘‘affiliated
person’’ to include, among others, any
person directly or indirectly controlling,
controlled by, or under common
control, with the other person.
Applicants state that GE Funding CMS
is an affiliated person of each of the
other Applicants within the meaning of
section 2(a)(3) of the Act. Applicants
state that, as a result of the Injunction,
they would be subject to the
prohibitions of section 9(a) of the Act.
2. Section 9(c) of the Act provides that
the Commission shall grant an
application for exemption from the
disqualification provisions of section
9(a) of the Act if it is established that
these provisions, as applied to the
Applicants, are unduly or
disproportionately severe or that the
conduct of the Applicants has been such
as not to make it against the public
interest or the protection of investors to
grant the exemption. Applicants have
filed an application pursuant to section
9(c) seeking a temporary and permanent
order exempting them and other
Covered Persons from the
disqualification provisions of section
9(a).
3. Applicants believe they meet the
standard for exemption specified in
section 9(c). Applicants state that the
prohibitions of section 9(a) as applied to
them would be unduly and
disproportionately severe and that the
conduct of the Applicants has been such
as not to make it against the public
interest or the protection of investors to
grant the exemption from section 9(a).
4. Applicants state that the alleged
conduct giving rise to the Injunction did
not involve any of the Applicants
engaging in Fund Service Activities.
Applicants state that to the best of their
knowledge none of the current or former
directors, officers, or employees of the
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Applicants (other than GE Funding
CMS) that were involved in providing
Fund Service Activities had any
knowledge of or had any involvement in
the violative conduct alleged in the
Complaint. Applicants further represent
that the personnel of GE Funding CMS
who had any responsibility for, or
involvement in, the violations alleged in
the Complaint are no longer employed
by GE Funding CMS and have had no,
and in the present or future will not
have any, involvement in providing
Fund Service Activities to the Funds.
5. Applicants state that the inability of
the Applicants to engage in Fund
Service Activities would result in
potentially severe financial hardships
for the Funds they serve and the Funds’
shareholders. Applicants state that they
will distribute written materials,
including an offer to meet in person to
discuss the materials, to the boards of
directors of the Funds (excluding for
this purpose the ESCs) (the ‘‘Boards’’),
including the directors who are not
‘‘interested persons,’’ as defined in
section 2(a)(19) of the Act, of such
Funds, and their independent legal
counsel as defined in rule 0–1(a)(6)
under the Act, if any, describing the
circumstances that led to the Injunction,
any impact on the Funds, and the
application. Applicants state that they
will provide the Boards with the
information concerning the Injunction
and the application that is necessary for
the Funds to fulfill their disclosure and
other obligations under the federal
securities laws.
6. Applicants also state that, if they
were barred from providing Fund
Service Activities to registered
investment companies and ESCs, the
effect on their businesses and
employees would be severe. Applicants
state that they have committed
substantial resources to establish an
expertise in providing Fund Service
Activities. Applicants further state that
prohibiting them from providing Fund
Service Activities would not only
adversely affect their businesses, but
would also adversely affect
approximately 460 employees that are
involved in those activities. Applicants
also state that disqualifying certain
Applicants from continuing to provide
investment advisory services to ESCs is
not in the public interest or in
furtherance of the protection of
investors. Because the ESCs have been
formed for the benefit of key employees,
officers, and directors of GE and its
affiliates, it would not be consistent
with the purposes of the ESC provisions
of the Act to require another entity not
affiliated with GE to manage the ESCs.
In addition, participating employees of
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GE and its affiliates likely subscribed for
interests in the ESCs with the
expectation that the ESCs would be
managed by GEAM.
7. Applicants state that Applicants
and certain other affiliated persons of
the Applicants have previously received
orders under section 9(c) of the Act, as
the result of conduct that triggered
section 9(a), as described in greater
detail in the application.
Applicants’ Condition
Applicants agree that any order
granting the requested relief will be
subject to the following condition:
Any temporary exemption granted
pursuant to the application shall be
without prejudice to, and shall not limit
the Commission’s rights in any manner
with respect to, any Commission
investigation of, or administrative
proceedings involving or against,
Covered Persons, including without
limitation, the consideration by the
Commission of a permanent exemption
from section 9(a) of the Act requested
pursuant to the application or the
revocation or removal of any temporary
exemptions granted under the Act in
connection with the application.
Temporary Order
The Commission has considered the
matter and finds that the Applicants
have made the necessary showing to
justify granting a temporary exemption.
Accordingly,
It is hereby ordered, pursuant to
section 9(c) of the Act, that Applicants
and any other Covered Persons are
granted a temporary exemption from the
provisions of section 9(a), solely with
respect to the Injunction, subject to the
condition in the application, from
January 23, 2012, until the Commission
takes final action on their application
for a permanent order.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–1890 Filed 1–27–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
29924; 812–13921]
Incapital LLC and Incapital Unit Trust;
Notice of Application
January 24, 2012.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application under
(a) section 6(c) of the Investment
AGENCY:
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Federal Register / Vol. 77, No. 19 / Monday, January 30, 2012 / Notices
Company Act of 1940 (‘‘Act’’) for an
exemption from sections 2(a)(32),
2(a)(35), 14(a), 19(b), 22(d) and
26(a)(2)(C) of the Act and rules 19b–1
and 22c–1 thereunder and (b) sections
11(a) and 11(c) of the Act for approval
of certain exchange and rollover
privileges.
Applicants: Incapital LLC
(‘‘Incapital’’) and Incapital Unit Trust
(the ‘‘Incapital Trust’’).1
Summary of Application: Applicants
request an order to permit certain unit
investment trusts to: (a) Impose sales
charges on a deferred basis and waive
the deferred sales charge in certain
cases; (b) offer unitholders certain
exchange and rollover options;
(c) publicly offer units without requiring
the Depositor to take for its own account
$100,000 worth of units; and
(d) distribute capital gains resulting
from the sale of portfolio securities
within a reasonable time after receipt.
DATES: Filing Dates: The application was
filed on July 13, 2011, and amended on
December 2, 2011, and January 13, 2012.
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 February 17, 2012, 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, Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549–1090;
Applicants, 200 South Wacker Drive,
Suite 3700, Chicago, Illinois 60606.
FOR FURTHER INFORMATION CONTACT:
Bruce R. MacNeil, Senior Counsel, at
(202) 551–6817, or Daniele Marchesani,
Branch Chief, at (202) 551–6821 (Office
of Investment Company Regulation,
Division of Investment Management).
emcdonald on DSK29S0YB1PROD with NOTICES
1 Applicants
also request relief for future unit
investment trusts (collectively, with the Incapital
Trust, the ‘‘Trusts’’) and series of the Trusts
(‘‘Series’’) that are sponsored by Incapital or any
entity controlling, controlled by or under common
control with Incapital (together with Incapital, the
‘‘Depositors’’). Any future Trust and Series that
relies on the requested order will comply with the
terms and conditions of the application. All existing
entities that currently intend to rely on the
requested order are named as applicants.
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The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Incapital Trust is a unit
investment trust (‘‘UIT’’) that is
registered under the Act. Any future
Trust will be a registered UIT. Incapital,
an Illinois limited liability company, is
registered under the Securities
Exchange Act of 1934 as a broker-dealer
and is the Depositor of the Incapital
Trusts. Each Series will be created by a
trust indenture between the Depositor
and a banking institution or trust
company 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 interest in the Series’
portfolio (‘‘Units’’). The Units are
offered to the public through the
Depositor and dealers at a price which,
during the initial offering period, is
based upon the aggregate market value
of the underlying securities, or, the
aggregate offering side evaluation of the
underlying securities if the underlying
securities are not listed on a securities
exchange, plus a front-end sales charge.
The maximum sales charge may be
reduced in compliance with rule 22d–
1 under the Act in certain
circumstances, which are disclosed in
the Series’ prospectus.
3. The Depositor may, but is not
legally obligated to, maintain a
secondary market for Units of
outstanding equity Series. Other brokerdealers may or may not maintain a
secondary market for Units of a Series.
If a secondary market is maintained,
investors will be able to purchase Units
on the secondary market at the current
public offering price plus a front-end
sales charge. If such a market is not
maintained 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 one or more
Series to impose a sales charge on a
deferred basis (‘‘DSC’’). For each Series,
the Depositor would set a maximum
sales charge per Unit, a portion of which
may be collected ‘‘up front’’ (i.e., at the
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time an investor purchases the Units).
The DSC would be collected
subsequently in installments
(‘‘Installment Payments’’) as described
in the application. The Depositor 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 Depositor intends to deduct
any unpaid DSC from the redemption or
sale proceeds. When calculating the
amount due, the Depositor 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 Depositor
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 Depositor 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 Form N–
1A (modified as appropriate to reflect
the difference between UITs and openend 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 also
will disclose that portfolio securities
may be sold to pay the DSC if
distribution income is insufficient and
that securities will be sold pro rata, if
practicable, otherwise a specific security
will be designated for sale.
B. Exchange Option and Rollover
Option
1. Applicants request an order to the
extent necessary to permit Unitholders
of a Series to exchange their Units for
Units of another Series (‘‘Exchange
Option’’) and Unitholders of a Series
that is terminating to exchange their
Units for Units of a new Series of the
same type (‘‘Rollover Option’’). The
Exchange Option and Rollover Option
would apply to all exchanges of Units
sold with a front-end sales charge or
DSC.
2. A Unitholder who purchases Units
under the Exchange Option or Rollover
Option would pay a lower sales charge
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Federal Register / Vol. 77, No. 19 / Monday, January 30, 2012 / Notices
than that which would be paid for the
Units by a new investor. The reduced
sales charge will be reasonably related
to the expenses incurred in connection
with the administration of the DSC
program, which may include an amount
that will fairly and adequately
compensate the Depositor and
participating underwriters and brokers
for their services in providing the DSC
program.
emcdonald on DSK29S0YB1PROD with NOTICES
Applicants’ Legal Analysis
A. DSC and Waiver of DSC
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, entitles 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 section 2(a)(35) and section
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
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(a) riskless trading in investment
company securities due to backward
pricing, (b) disruption of orderly
distribution by dealers selling shares at
a discount, and (c) 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 Depositor
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
Depositor. Applicants submit that the
relief is appropriate because the DSC is
more properly characterized as a sales
load.
B. Exchange Option and Rollover
Option
1. Sections 11(a) and 11(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
Option and the Rollover Option.
C. Net Worth Requirement
1. Section 14(a) of the Act requires
that a registered investment company
have $100,000 of net worth prior to
making a public offering. Applicants
state that each Series will comply with
this requirement because the Depositor
will deposit more than $100,000 of
securities. 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 Depositor’s intention to
sell all the Units of the Series.
2. Rule 14a–3 under the Act exempts
UITs from section 14(a) if certain
conditions are met, one of which is that
the UIT invest only in ‘‘eligible trust
securities,’’ as defined in the rule.
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Applicants state that they may not rely
on rule 14a–3 because certain Series
(collectively, ‘‘Equity Series’’) will
invest all or a portion of their assets in
equity securities or shares of registered
investment companies which do not
satisfy the definition of eligible trust
securities.
3. Applicants request an exemption
under section 6(c) of the Act to the
extent necessary to exempt the Equity
Series from the net worth requirement
in section 14(a). Applicants state that
the Series and the Depositor will
comply in all respects with the
requirements of rule 14a–3, except that
the Equity Series will not restrict their
portfolio investments to ‘‘eligible trust
securities.’’
D. 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)
from the requirements of rule 19b–1.
Because the Equity Series do not limit
their investments to eligible trust
securities, however, the Equity Series
will not qualify for the exemption in
paragraph (c) of rule 19b–1. Applicants
therefore 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 Equity 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 Trust expenses,
Installment Payments, or by redemption
requests, events over which the
Depositor and the Equity Series do not
have 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:
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Federal Register / Vol. 77, No. 19 / Monday, January 30, 2012 / Notices
A. DSC Relief and Exchange and
Rollover Options
emcdonald on DSK29S0YB1PROD with NOTICES
1. Whenever the Exchange Option or
the Rollover Option 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 add one or more new
Series eligible for the Exchange Option
or the Rollover Option, 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 thereunder, 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.
2. An investor who purchases Units
under the Exchange Option or the
Rollover Option will pay a lower sales
charge than that which would be paid
for the Units by a new investor.
3. The prospectus of each Series
offering exchanges or rollovers and any
sales literature or advertising that
mentions the existence of the Exchange
Option or Rollover Option will disclose
that the Exchange Option and the
Rollover Option are subject to
modification, termination or suspension
without notice, except in certain limited
cases.
4. Any DSC imposed on a Series’
Units will comply with the
requirements of subparagraphs (1), (2)
and (3) of rule 6c–10(a) under the Act.
5. Each Series offering Units subject to
a DSC will include in its prospectus the
disclosure required by 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.
B. Net Worth Requirement
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
15:09 Jan 27, 2012
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66213; File No. SR–CBOE–
2012–009]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Related to the
Appointments in Hybrid 3.0 Classes
Sunshine Act Meeting
January 23, 2012.
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission Advisory Committee on
Small and Emerging Companies will
hold a public meeting on Wednesday,
February 1, 2012, in Multi-Purpose
Room LL–006 at the Commission’s
headquarters, 100 F Street NE.,
Washington, DC. The meeting will begin
at 10 a.m. (EST) and will be open to the
public. Seating will be on a first-come,
first-served basis. Doors will open at
9:30 a.m. Visitors will be subject to
security checks. The meeting will be
webcast on the Commission’s Web site
at www.sec.gov.
Commissioner Walter, as duty officer,
determined that no earlier notice thereof
was possible.
On January 10, 2012, the Commission
published notice of the Committee
meeting (Release No. 33–9293),
indicating that the meeting is open to
the public and inviting the public to
submit written comments to the
Committee. This Sunshine Act notice is
being issued because a majority of the
Commission may attend the meeting.
The agenda for the meeting includes
consideration of recommendations and
other matters relating to rules and
regulations affecting small and emerging
companies under the federal securities
laws.
For further information, please
contact the Office of the Secretary at
(202) 551–5400.
Dated: January 26, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–2034 Filed 1–26–12; 4:15 pm]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[FR Doc. 2012–1893 Filed 1–27–12; 8:45 am]
1. Applicants will comply in all
respects with the requirements of rule
14a–3 under the Act, except that the
Equity Series will not restrict their
portfolio investments to ‘‘eligible trust
securities.’’
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Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
17, 2012, the Chicago Board Options
Exchange, Incorporated (‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6) thereunder.4
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend its
rules relating to Lead Market-Maker
(‘‘LMM’’) and Supplemental MarketMaker (‘‘SMM’’) appointments in
Hybrid 3.0 classes.5 The text of the
proposed rule change is available on the
Exchange’s Web site (www.cboe.org/
Legal), at the Exchange’s Office of the
Secretary and at the Commission.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
5 ‘‘Hybrid Trading System’’ refers to the
Exchange’s trading platform that allows MarketMakers to submit electronic quotes in their
appointed classes. ‘‘Hybrid 3.0 Platform’’ is an
electronic trading platform on the Hybrid Trading
System that allows one or more quoters to submit
electronic quotes which represent the aggregate
Market-Maker quoting interest in a series for the
trading crowd. Classes authorized by the Exchange
for trading on the Hybrid Trading System are
referred to as ‘‘Hybrid classes.’’ Classes authorized
by the Exchange for trading on the Hybrid 3.0
Platform are referred to as ‘‘Hybrid 3.0 classes.’’
References to ‘‘Hybrid,’’ ‘‘Hybrid System,’’ or
‘‘Hybrid Trading System’’ in the Exchange’s Rules
include all platforms unless otherwise provided by
rule. See Rule 1.1(aaa).
2 17
E:\FR\FM\30JAN1.SGM
30JAN1
]]>Agencies
[Federal Register Volume 77, Number 19 (Monday, January 30, 2012)]
[Notices]
[Pages 4588-4591]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1893]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29924; 812-13921]
Incapital LLC and Incapital Unit Trust; Notice of Application
January 24, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under (a) section 6(c) of the
Investment
[[Page 4589]]
Company Act of 1940 (``Act'') for an exemption from sections 2(a)(32),
2(a)(35), 14(a), 19(b), 22(d) and 26(a)(2)(C) of the Act and rules 19b-
1 and 22c-1 thereunder and (b) sections 11(a) and 11(c) of the Act for
approval of certain exchange and rollover privileges.
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Applicants: Incapital LLC (``Incapital'') and Incapital Unit Trust
(the ``Incapital Trust'').\1\
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\1\ Applicants also request relief for future unit investment
trusts (collectively, with the Incapital Trust, the ``Trusts'') and
series of the Trusts (``Series'') that are sponsored by Incapital or
any entity controlling, controlled by or under common control with
Incapital (together with Incapital, the ``Depositors''). Any future
Trust and Series that relies on the requested order will comply with
the terms and conditions of the application. All existing entities
that currently intend to rely on the requested order are named as
applicants.
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Summary of Application: Applicants request an order to permit
certain unit investment trusts to: (a) Impose sales charges on a
deferred basis and waive the deferred sales charge in certain cases;
(b) offer unitholders certain exchange and rollover options; (c)
publicly offer units without requiring the Depositor to take for its
own account $100,000 worth of units; and (d) distribute capital gains
resulting from the sale of portfolio securities within a reasonable
time after receipt.
DATES: Filing Dates: The application was filed on July 13, 2011, and
amended on December 2, 2011, and January 13, 2012.
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 February 17, 2012, 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, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-1090; Applicants, 200 South Wacker Drive,
Suite 3700, Chicago, Illinois 60606.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 551-6817, or Daniele Marchesani, Branch Chief, at (202) 551-6821
(Office of Investment Company Regulation, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Incapital Trust is a unit investment trust (``UIT'') that is
registered under the Act. Any future Trust will be a registered UIT.
Incapital, an Illinois limited liability company, is registered under
the Securities Exchange Act of 1934 as a broker-dealer and is the
Depositor of the Incapital Trusts. Each Series will be created by a
trust indenture between the Depositor and a banking institution or
trust company 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 interest in the Series' portfolio
(``Units''). The Units are offered to the public through the Depositor
and dealers at a price which, during the initial offering period, is
based upon the aggregate market value of the underlying securities, or,
the aggregate offering side evaluation of the underlying securities if
the underlying securities are not listed on a securities exchange, plus
a front-end sales charge. The maximum sales charge may be reduced in
compliance with rule 22d-1 under the Act in certain circumstances,
which are disclosed in the Series' prospectus.
3. The Depositor may, but is not legally obligated to, maintain a
secondary market for Units of outstanding equity Series. Other broker-
dealers may or may not maintain a secondary market for Units of a
Series. If a secondary market is maintained, investors will be able to
purchase Units on the secondary market at the current public offering
price plus a front-end sales charge. If such a market is not maintained
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
one or more Series to impose a sales charge on a deferred basis
(``DSC''). For each Series, the Depositor would set a maximum sales
charge per Unit, 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 Depositor 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 Depositor intends
to deduct any unpaid DSC from the redemption or sale proceeds. When
calculating the amount due, the Depositor 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
Depositor 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 Depositor 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 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 also will disclose that portfolio
securities may be sold to pay the DSC if distribution income is
insufficient and that securities will be sold pro rata, if practicable,
otherwise a specific security will be designated for sale.
B. Exchange Option and Rollover Option
1. Applicants request an order to the extent necessary to permit
Unitholders of a Series to exchange their Units for Units of another
Series (``Exchange Option'') and Unitholders of a Series that is
terminating to exchange their Units for Units of a new Series of the
same type (``Rollover Option''). The Exchange Option and Rollover
Option would apply to all exchanges of Units sold with a front-end
sales charge or DSC.
2. A Unitholder who purchases Units under the Exchange Option or
Rollover Option would pay a lower sales charge
[[Page 4590]]
than that which would be paid for the Units by a new investor. The
reduced sales charge will be reasonably related to the expenses
incurred in connection with the administration of the DSC program,
which may include an amount that will fairly and adequately compensate
the Depositor and participating underwriters and brokers for their
services in providing the DSC program.
Applicants' Legal Analysis
A. DSC and Waiver of DSC
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, entitles 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 section 2(a)(35) and section 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 (a) riskless trading in
investment company securities due to backward pricing, (b) disruption
of orderly distribution by dealers selling shares at a discount, and
(c) 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 Depositor 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 Depositor. Applicants submit that the relief is appropriate because
the DSC is more properly characterized as a sales load.
B. Exchange Option and Rollover Option
1. Sections 11(a) and 11(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 Option and the Rollover Option.
C. Net Worth Requirement
1. Section 14(a) of the Act requires that a registered investment
company have $100,000 of net worth prior to making a public offering.
Applicants state that each Series will comply with this requirement
because the Depositor will deposit more than $100,000 of securities.
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 Depositor's intention to sell all
the Units of the Series.
2. Rule 14a-3 under the Act exempts UITs from section 14(a) if
certain conditions are met, one of which is 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 certain Series
(collectively, ``Equity Series'') will invest all or a portion of their
assets in equity securities or shares of registered investment
companies which do not satisfy the definition of eligible trust
securities.
3. Applicants request an exemption under section 6(c) of the Act to
the extent necessary to exempt the Equity Series from the net worth
requirement in section 14(a). Applicants state that the Series and the
Depositor will comply in all respects with the requirements of rule
14a-3, except that the Equity Series will not restrict their portfolio
investments to ``eligible trust securities.''
D. 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) from
the requirements of rule 19b-1. Because the Equity Series do not limit
their investments to eligible trust securities, however, the Equity
Series will not qualify for the exemption in paragraph (c) of rule 19b-
1. Applicants therefore 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 Equity 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 Trust expenses, Installment
Payments, or by redemption requests, events over which the Depositor
and the Equity Series do not have 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:
[[Page 4591]]
A. DSC Relief and Exchange and Rollover Options
1. Whenever the Exchange Option or the Rollover Option 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 add one or more new Series eligible for the
Exchange Option or the Rollover Option, 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 thereunder, 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.
2. An investor who purchases Units under the Exchange Option or the
Rollover Option will pay a lower sales charge than that which would be
paid for the Units by a new investor.
3. The prospectus of each Series offering exchanges or rollovers
and any sales literature or advertising that mentions the existence of
the Exchange Option or Rollover Option will disclose that the Exchange
Option and the Rollover Option are subject to modification, termination
or suspension without notice, except in certain limited cases.
4. Any DSC imposed on a Series' Units will comply with the
requirements of subparagraphs (1), (2) and (3) of rule 6c-10(a) under
the Act.
5. Each Series offering Units subject to a DSC will include in its
prospectus the disclosure required by 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.
B. Net Worth Requirement
1. Applicants will comply in all respects with the requirements of
rule 14a-3 under the Act, except that the Equity Series will not
restrict their portfolio investments to ``eligible trust securities.''
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-1893 Filed 1-27-12; 8:45 am]
BILLING CODE 8011-01-P
