[Federal Register Volume 62, Number 116 (Tuesday, June 17, 1997)]
[Notices]
[Pages 32844-32846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15832]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Rel. No. 22700; 812-10502]


Reich & Tang Distributors L.P., et al.; Notice of Application

June 11, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (``Act'').

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Applicants: Reich & Tang Distributors L.P. (``Reich & Tang'') and 
Equity Securities Trust (``Trust'') (Series 1 and Signature Series), on 
behalf of themselves and all subsequently issued series (``Subsequent 
Series'') (collectively with Series 1 and Signature Series, the 
``Series'') containing certain types of securities and sponsored by 
Reich & Tang or any entity controlling, controlled by, or under common 
control (within the meaning of section 2(a)(9) of the Act) with Reich & 
Tang (collectively with Reich & Tang, the ``Sponsor'')

Relevant Act Sections: Order requested under sections 6(c) and 17(b) of 
the Act for an exemption from section 17(a) of the Act.

Summary of Application: Applicant requests an order to permit certain 
terminating Series of the Trust, a unit investment trust (``UIT''), to 
sell portfolio securities to certain new Series of the Trust.

Filing Dates: The application was filed on December 31, 1996, and 
amended on April 21, 1997.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the SEC orders a hearing.
    Interested persons may request a hearing by writing to the SEC's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the SEC by 5:30 p.m. 
on July 7, 1997, and should be accompanied by proof of service on 
applicants, in the forms 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 hearing may request such notification by 
writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, 600 Fifth Avenue, New York, New York 10020, 
attention: Peter J. DeMarco.

For Further Information Contact: Courtney S. Thornton, Senior Counsel, 
at (202) 942-0583, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

Supplementary Information: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. Equity Securities Trust (the ``Trust'') is a UIT registered 
under the Act that consists of several Series. The Trust is organized 
under a trust

[[Page 32845]]

indenture agreement between the Trust, Reich & Tang as sponsor, and 
Chase Manhattan Bank as trustee.
    2. The investment objective of certain Series of the Trust (each a 
``Dow Series'') is to seek a greater total return than the stocks 
comprising the DOW Jones Industrial Average (``DJIA''). Each Dow Series 
acquires a portfolio from among the ten stocks in the DJIA having the 
highest dividend yields as of a specified date, and hold those stocks 
for approximately one year. The Sponsor intends that, as each Dow 
Series terminates, a new Series based on the DJIA will be offered for 
the next year.
    3. Certain other Series of the Trust (each a ``Growth Series'') 
contain a portfolio of common stocks of aggressive growth companies. 
The investment objective of each Growth Series is to seek capital 
appreciation. Each Growth Series combines the buy and hold philosophy 
of a UIT with an investment in the aggressive end of the stock market. 
This approach leads to trusts with shorter terms to take advantage of 
the rapid changes in this segment of the stock market.
    4. The Dow Series and the Growth Series have a contemplated date (a 
``Rollover Date'') on which holders of units in that Series (``Rollover 
Series'') may, at their option, redeem their units in the Rollover 
Series and receive in return units of a subsequent Series of the same 
type (a ``New Series'').\1\ The New Series will be created on or about 
the Rollover Date and will have a portfolio that contains securities of 
the relevant type, 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 US$25,000) 
(``Qualified Securities'') on an exchange that is either (a) a national 
securities exchange that meets the qualifications of section 6 of the 
Securities Exchange Act of 1934, (b) a foreign securities exchange that 
meets the qualification set out in the proposed amendments to rule 
12d3-1(d)(6) under the Act as proposed by the SEC \2\ and that releases 
daily closing prices, or (c) the Nasdaq-National Market System (a 
``Qualified Exchange'').
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    \1\ Applications previously obtained an order exempting them 
from sections 11(a) and 11(c) of the Act to permit them to offer 
certain exchange and rollover privileges to unitholders of the 
Trust. Investment Company Act Release Nos. 2222 (Sept. 19, 1996) 
(notice) and 22273 (Oct. 9, 1996) (order).
    \2\ Investment Company Act Release No. 17096 (Aug. 3, 1989) 
(proposing amendments to rule 12d3-1). The proposed amended rule 
defined a ``Qualified Foreign Exchange'' to mean a stock exchange in 
a country other than the United States where: (1) trading generally 
occurred at least four days a week; (2) there were limited 
restrictions on the ability of registered investment companies to 
trade their holdings on the exchange; (3) the exchange had a trading 
volume in stocks for the previous year of at least U.S. $7.5 
billion; and (4) the exchange had a turnover ratio for the preceding 
year of at least 20% of its market capitalization. The version of 
the amended rule that was adopted did not include the part of the 
proposed amendment defining the term ``Qualified Foreign Exchange.''
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    5. There is normally some overlap from one year to the next in the 
stocks having the highest dividend yields in the DJIA, and therefore 
between the portfolios of each Dow Series that is also a Rollover 
Series and the related new Dow Series. Similarly, the Sponsor 
anticipates that there will be some overlap from one year to the next 
in the aggressive growth stocks selected for each Growth Series, and 
therefore between the portfolios of each Growth Series that is also a 
Rollover Series and the related new Growth Series. Therefore, since the 
New Series may contain securities that duplicate those of the Rollover 
Series, substantial brokerage commissions occurring on the purchase and 
sale of such securities could be avoided if the Rollover Series had the 
ability to sell, and the New Series had the ability to purchase, such 
duplicate securities from one another.
    6. In order to minimize the possibilities of overreaching in such 
transactions, applicants agree that the Sponsor will certify to the 
trustee, within five days of each sale from a Rollover Series to a new 
Series, (a) that the transaction is consistent with the policy of both 
the Rollover Series and the New Series, as recited in their respective 
registration statements and reports filed under the Act, (b) the date 
of such transaction, and (c) the closing sales price on the Qualified 
Exchange for the sale date of the securities subject to such sale. The 
trustee then will 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 
any 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 units of the New Series, and distributions to holders of the 
Rollover Series with regard to redemption of their units of termination 
of the Rollover 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.

Applicants' Legal Analysis

    1. Section 17(a) of the Act makes it unlawful for an affiliated 
person of a registered investment company to sell securities to or 
purchase securities from, the company. Each Series will have an 
identical or common Sponsor. Since the Sponsor of each Series may be 
considered to control each Series, it is likely that each Series would 
be considered an affiliated person of the others.
    2. Section 17(b) provides that the SEC shall exempt a proposed 
transaction from section 17(a) if evidence establishes that: (a) the 
terms of the proposed transaction are reasonable and fair and do not 
involve overreaching; (b) the proposed transaction is consistent with 
the policies of the registered investment company involved; and (c) the 
proposed transaction is consistent with the general provisions of the 
Act. Under section 6(c) the SEC 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 believe that the proposed transactions satisfy the 
requirements of sections 6(c) and 17(b).\3\
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    \3\ Section 17(b) applies to a specific proposed transaction, 
rather than an ongoing series of future transactions. See Keystone 
Custodian Funds, 21 S.E.C. 295, 298-99 (1945). Section 6(c) 
frequently is used, along with section 17(b), to grant relief from 
section 17(a) to permit an ongoing series of future transactions.
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    3. Rule 17a-7 under the Act permits registered investment companies 
that are affiliates solely 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 certain conditions are met. Paragraph (e) of the rule requires 
an investment company's board of directors to adopt and monitor the 
procedures for these transactions to assure compliance with the rule. A 
unit investment trust does not have a board of directors and, 
therefore, may not rely on the rule. Applicants represent that they 
will comply with all of the provisions of rule 17a-7, other than 
paragraph (e).
    4. Applicants represent that purchases and sales between Series 
will be consistent with the policy of the Trust, as only securities 
that otherwise would be brought and sold on the open market

[[Page 32846]]

pursuant to the policy of each Series will be involved in the proposed 
transactions. Applicants further submit that the current policies of 
buying and selling on the open market leads to unnecessary brokerage 
fees on sales of securities and is therefore contrary not only to the 
policies of the Series, but to the general purposes of the Act.
    5. Applicants state that the condition that the securities must be 
actively traded on a Qualified Exchange protects against overreaching. 
This limitation ensures that there will be current market prices 
available and thus an independent basis for determining that the terms 
of the transaction are fair and reasonable to each participating 
investment company.
    6. In order to minimize the possibilities of overreaching in the 
proposed transactions, applicants agree that the Sponsor will certify 
to the trustee, within five days of each sale from a Rollover Series to 
a New Series, (a) that the transaction is consistent with the policy of 
both the Rollover Series and the New Series, as recited in their 
respective registration statements and reports filed under the Act, (b) 
the date of such transaction, and (c) the closing sales price on the 
Qualified Exchange for the sale date of the securities subject to such 
sale. The trustee will then countersign the certificate unless it is 
disagrees with the closing sales price listed on the certificate, and 
returns the certificate to the Sponsor for verification and/or 
correction. In addition, the trustee of each Series will review the 
procedures for sales and make such changes as it deems necessary to 
comply with sections (a) through (d) of rule 17a-7.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each sale of Qualified Securities by a Rollover 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 Rollover 
Series and New Series.
    3. The trustee of each Rollover Series and New Series will (a) 
review the procedures discussed in the application relating to the sale 
of securities from a Rollover Series and the purchase of those 
securities for deposit in a New Series, and (b) 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 the order will be maintained as provided in 
rule 17a-7(f).

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15832 Filed 6-16-97; 8:45 am]
BILLING CODE 8010-01-M