[Federal Register Volume 66, Number 154 (Thursday, August 9, 2001)]
[Notices]
[Pages 41919-41923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19977]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25101; 812-11160]


Legg Mason Wood Walker, Inc., et al. Notice of Application

August 3, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under: (i) Section 6(c) of the Investment 
Company Act of 1940 (``Act'') for exemptions from sections 2(a)(32), 
2(a)(35), 12(d)(3), 14(a), 19(b), 22(d), and 26(a)(2) of the Act and 
from rules 19b-1 and 22c-1 under the Act; (ii) section 11(a) of the Act 
for an exemption from section 11(c) of the Act; 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 the Application: Applicants request an order to permit 
certain unit investment trusts to: (i) Impose sales charges on a 
deferred basis and waive the deferred sales charge in certain cases; 
(ii) often unitholders certain exchange options; (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 receiopt; (v) sell portfolio securities of a 
terminating series of the trust to a new series of the trust; and (vi) 
invest up to 10.5%, and in other cases up to 20.5%, of a series' assets 
in securities of issuers that derive more than 15% of their gross 
revenues from securities-related activities.
    Applicants: Legg Mason Wood Walker, Incorporated (``Legg Mason'' or 
``Sponsor''); Legg Mason Unit Investment Trust (``Legg Mason Trust''); 
any future registered unit investment trusts sponsored by the Sponsor 
(together with the Legg Mason Trust, ``Trust''); and the series of each 
Trust (each a ``Series'').\1\
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    \1\ Any future Series that relies on the requested order will 
comply with the terms and conditions of the application.
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    Filing Dates: The application was filed on May 27, 1998, and was 
amended on July 24, 2001.
    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 August 30, 2001 and should be accompanied by proof of 
service on application in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549-0609. Applicants, 100 Light 
Street, P.O. Box 1476, Baltimore, MD 21203-1476.

FOR FURTHER INFORMATION CONTACT: Karen L. Goldstein, Senior Counsel, at 
202-942-0646 or Nadya B. Roytblat,l Assistant Director, at (202) 942-
0564 (Division of Investment Mangement, 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 Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C 20549-0102 (telephone (202) 942-8090).

Applicant's Representations

    1. Each Series will be a series of a Trust and will be a unit 
investment trust (``UIT'') registered under the Act. The Sponsor, a 
wholly-owned subsidiary of Legg Mason, Inc., will be the sponsor of 
each Series. Each Series will be created by a trust indenture between 
the Sponsor and a banking institution or trust company as trustee 
(``Trusteee'').
    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 portfolio (``Units''). 
The Units are offered to the public by the Sponsor and dealers at a 
price which, during the initial offering period, is based upon the 
aggregate market value of the underlying securities plus a front-end 
sales charge. 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 Unit and 
continually offers to purchase these Units at prices based upon the bid 
side evaluation of 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 Units (``Unitholders'') of that 
Series may redeem their Units through the Trustee.

[[Page 41920]]

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 sales charges on a deferred basis. For 
each Series, the Sponsor 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 Units). The deferred portion of the sales charge 
(``DSC'') would be collected subsequently in equal installments 
(``Installment Payments'') from Unitholders' distributions on the 
Units. The Sponsor would not add any amount for interest or any similar 
or related charge to adjust for such deferral.
    2. The Trustee would withdraw the Installment Payment from 
distribution income and pay the amount directly to the Sponsor. If 
distribution income is insufficient to pay an Installment Payment or if 
a Series' portfolio consists of non-income producing securities, the 
Trustee will have the authority to sell portfolio securities in an 
amount necessary to pay the Installment Payment.
    3. 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 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 redemption 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.
    4. Each Series offering Units subject to a DSC will state the 
maximum sales charge per Unit in its prospectus. The prospectus also 
will disclose that portfolio securities may be sold to pay an 
Installment Payment if distribution income is insufficient, and that 
the securities will be sold pro rata or 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 (``Rollover Series'') 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 a DSC.
    2. A Unitholder who purchases Units under the Exchange Option or 
Rollover Option would pay a lower sales charge 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 Sponsor and participating 
underwriters and brokers for their services in providing the DSC 
program.
    3. Pursuant to the Exchange Option, an adjustment would be made if 
Units of any Series are exchanged within five months of their 
acquisition for Units of a Series with a higher sales charge (``Five 
Months Adjustment''). An adjustment also would be made if Units on 
which a DSC is collected are exchanged for Units of a Series that 
imposes a front-end sales charge and the exchange occurs before the DSC 
collected (plus any amount collected up front on the exchanged Units) 
at least equals the per Unit sales charge on the acquired Units (``DSC 
Front-end Exchange Adjustment''). If an exchange involves either the 
Five Months Adjustment or the DSC Front-End Exchange Adjustment, the 
Unitholder would pay the greater of the reduced sales charge or an 
amount which, together with the sale charge already paid on the 
exchanged Units, equals the normal sales charge on the acquired Units 
on the date of the exchange. With appropriate disclosures, the Sponsor 
may waive such payment. Further, the Sponsor would reserve the right to 
vary the sales charge normally applicable to a Series and the charge 
applicable to exchanges, as well as to modify, suspend, or terminate 
the Exchange Options set forth in the conditions to the application.

C. Investments in Securities-Related Issuers on Certain Indices

    1. Each Rollover Series will hold a portfolio of common stocks that 
represents a portion of a specific index (``Index''). The investment 
objective of each Rollover Series is to seek a greater total return 
than that achieved by the stocks comprising the entire relevant Index 
over the life of the Series.
    2. Certain Rollover Series (each a ``Ten Series'') will invest 
approximately 10%, but in no event more than 10.5%, of their total 
assets in each of the ten common stocks in the Dow Jones Industrial 
Average (``DJIA''), the Financial Times Industrial Ordinary Share Index 
(``FT Index''), or the Hang Seng Index having the highest dividend 
yields no more than three business days prior to the Ten Series' 
initial date of deposit. Certain other Rollover Series (each a ``Five 
Series'') will invest approximately 20%, but in no event more than 
20.5%, of their total assets in each of the five lowest dollar price 
per share stocks of the ten common stocks in the DJIA, the FT Index, or 
the Hang Seng Index having the highest dividend yields no more than 
three business days prior to the Five Series' initial date of 
deposit.\2\
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    \2\ The Sponsor strives to purchase equal values of each of the 
common stocks in a Rollover Series' portfolio. However, it is more 
efficient to purchase securities in 100-share lots and 50-share 
lots. As a result, applicants may choose to purchase securities of a 
Securities-Related Issuer (as defined below) that represent more 
than 10%, but in no event more than 10.5%, of a Ten Series' assets, 
and more than 20%, but in no event more than 20.5%, of a Five 
Series' assets, on the initial date of deposit to the extent 
necessary to enable the Sponsor to meet its purchase requirements 
and to obtain the best price for the securities.
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    3. Each of the DJIA, the FT Index, and the Hang Seng Index is a 
recognized indicator of the stock market in its respective country.\3\ 
The publishers of the Indices are not affiliated with any Rollover 
Series or the Sponsor, and do not participate in any way in the 
creation of any Rollover Series or the selection of its stocks. The 
common stocks included in the Indices may include stocks of issuers 
that derive more than 15% of their gross revenues from securities-
related activities, as that term is defined in rule 12d3-1 under the 
Act (``Securities-Related Issuers''). Applicants accordingly request an 
order to the extent necessary to permit each Ten Series and Five Series 
to invest in the stocks of Securities Related Issuers.
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    \3\ The DJIA, which is owned by Dow Jones & Company, Inc., 
comprises 30 widely-held common stocks listed on the New York Stock 
Exchange that are chosen by the editors of The Wall Street Journal. 
The FT Index comprises 30 widely-held common stocks listed on the 
London Stock Exchange that are chosen by the editors of The 
Financial Times. The Hang Seng Index comprises 33 common stocks 
listed on the Stock Exchange of Hong Kong, Ltd.
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    4. The securities deposited in each rollover Series will be chosen 
solely according to the formula described above and will not 
necessarily reflect

[[Page 41921]]

the research opinions or buy or sell recommendations of the Sponsor. 
The Sponsor is authorized to determine the date of deposit, to purchase 
securities for deposit in the Rollover Series, and to supervise each 
Rollover Series' portfolio. The Sponsor will have no discretion as to 
which securities are purchased.
    5. The portfolios of the Rollover Series will not be actively 
managed. Sales of portfolio securities will be made in connection with 
redemption of Units, payment of expenses, and the termination of a 
Rollover Series. The Sponsor has no discretion as to when securities 
will be sold except that it authorized to sell securities in extremely 
limited circumstances, such as when an issuer defaults on the payment 
of any of its outstanding obligations, or when the price of a security 
has declined to such an extent or other credit factors exist so that, 
in the opinion of the Sponsor, retaining the securities would be 
detrimental to the Series. The adverse financial condition of an issuer 
will not necessarily require the sale of its securities from a Rollover 
Series' portfolio.

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

    1. Each Rollover Series will have a date (``Rollover Date'') by 
which Unitholders of that Series may elect to 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 after the Rollover 
Date. The securities in each Rollover Series will be: (a) actively 
traded (i.e., have had an average daily trading volume in the preceding 
six months of at least 500 shares, with a value equal to at least U.S. 
$25,000) on (i) an exchange (``Exchange'') that is either a national 
securities exchange meeting the qualifications of section 6 of the 
Securities Exchange Act of 1934, or a foreign securities exchange 
meeting the qualifications set forth in the proposed amendments to rule 
12d3-1(d)(6) under the Act \4\ and releasing daily closing prices or 
(ii) the Nasdaq-National Market System (``Nasdaq-NMS''); and (b) 
included in a published Index, including but not limited to the DJIA, 
and FT Index, or the Hang Seng Index (`Equity Securities'').
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    \4\ Investment Company Rel. No. 17096 (Aug. 3, 1989) (proposing 
amendments to rule 12d3-1). The proposed amendment rule defined a 
``Qualified Foreign Exchange'' as a stock exchange in a country 
other than the United States where: (1) Trading generally occurred 
at least four days per week, (ii) there were limited restrictions on 
the ability of acquiring companies to trade their holdings on the 
exchange, (iii) the exchange had a trading volume in stocks for the 
previous year of at least U.S. $7.5 billion, and (iv) the exchange 
had a turnover ratio for the preceding year of at least 20% of its 
market capitalization. The version of the amended rule that was 
adopted did not include the part of the proposed amendment defining 
the term ``Qualified Foreign Exchange.''
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    2. Applicants anticipate that there will be some overlap in the 
Equity Securities selected for the portfolios of a Rollover Series and 
the related New Series. Absent the requested relief, a Rollover Series 
would, upon termination, sell all of its Equity Securities on the 
applicable Exchange or Nasdaq-NMS. Likewise, a New Series would acquire 
its Equity Securities on the applicable Exchange or Nasdaq-NMS. This 
procedure would result in the Unitholders of both the Rollover Series 
and the New Series incurring brokerage commissions on the same Equity 
Securities. Applicants accordingly request an order to the extent 
necessary to permit a Rollover Series to sell its portfolio securities 
to a New Series and to permit the New Series to purchase those 
securities.

Applicants' Legal Analysis

A. DSC and Waiver or 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, 
and 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 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 
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 of the conditions set forth in 
rule 22d-1.
    4. Section 26(a)(2) 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 expensed under section 26(a)(2)(C), applicants request relief 
under section 6(c) from section 26(a)(2) 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 load.

B. Exchange Option and Rollover Option

    Sections 11(a) and (c) of the Act prohibit any offer or exchange by 
a UIT for the securities of any other investment company unless the 
terms of the offer have been approved in advance by the Commission. 
Applicants request an order under section 11(a) for an exemption from 
section 11(c) to permit the Exchange Option and the Rollover Option. 
Applicants state that the Five Months Adjustment and the DSC Front-End 
Exchange Adjustment in certain circumstances are appropriate in order 
to maintain the equitable treatment of various investors in each 
Series.

[[Page 41922]]

C. Investments in Securities-Related Issuers on Certain Indices

    1. Section 12(d)(3) of the Act, with limited exceptions, prohibits 
a registered investment company from acquiring any security issued by a 
person who is a broker, dealer, underwriter, or investment adviser. 
Rule 12d3-1 under the Act, in relevant part, exempts the purchase of 
securities of a Securities-Related Issuer, provided that, immediately 
after the acquisition, the acquiring company has invested not more than 
5% of the value of its total assets of the Securities-Related Issuer.
    2. As noted above, applicants state that some of the stocks 
comprising the DJIA, the FT Index, and the Hang Seng Index include 
securities of Securities-Related Issuers. Applicants assert that, 
absent the requested relief, each Ten Series and Five Series may be 
precluded from implementing most effectively the Series' investment 
objective. Applicants accordingly request an exemption under section 
under section 6(c) from section 12(d)(3) to permit each Ten Series to 
invest up to approximately 10%, but in no event more than 10.5%, of the 
value of its total assets in securities of a Securities-Related Issuer, 
and to permit each Five Series to invest up to approximately 20%, but 
in no event more than 20.5%, of the value of its total assets in 
securities of a Securities-Related Issuer.
    3. Applicants state that the proposed transactions satisfy the 
requirements of section 6(c). Applicants state that section 12(d)(3) 
was intended to prevent investment companies from exposing their assets 
to the entrepreneurial risks of securities-related businesses, to 
prevent potential conflicts of interest and to eliminate certain 
reciprocal practices between investment companies and securities-
related businesses, and to ensure that investment companies maintain 
adequate liquidity in their portfolios. One potential conflict could 
occur if an investment company purchased securities or other interests 
in a broker-dealer to reward that broker-dealer for selling fund 
shares, rather than solely on investment merit. Applicants state that 
this concern does not arise in connection with the Ten Series or Five 
Series because neither the Series nor the Sponsor has discretion in 
choosing the securities of a Securities-Related Issuer or the amount 
purchased; rather, the Securities Related Issuer must qualify as either 
one of the ten highest dividend yielding stocks or one of the five 
lowest dollar price per share stocks of the ten highest dividend 
yielding stocks in the relevant Index.
    4. Applicants also state that the effect of a Ten Series' or Five 
Series' purchase of the stock of a Securities-Related Issuer would be 
de minimis. Applicants assert that the Securities-Related Issuers 
represented in the DJIA, the FT Index, and the Hang Seng Index are 
widely held and have active markets, and that potential purchases by 
any Ten Series or Five Series would represent an insignificant amount 
of the outstanding common stock and trading volume of any of these 
Securities-Related Issuers.
    5. Another potential conflict of interest could occur if an 
investment company directed brokerage to a broker-dealer in which the 
company has invested to enhance the broker-dealer's profitability or to 
assist it during financial difficulty, even though that broker dealer 
may not offer the best price and execution. To preclude this type of 
conflict, applicants agree, as a condition to the order, that no 
company held in the portfolio of a Ten Series or Five Series, nor any 
affiliate of the company, will act as a broker for any Series in the 
purchase or sale of any security for the Series' portfolio.

D. Purchase and Sale Transactions Between a Rollover 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. Each Series will have a common sponsor. 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 permits registered investment companies 
that may be deemed affiliated persons solely by reason of having common 
investment advisers, directors, and/or officers, to sell securities to, 
or purchase securities from, 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 procedures to assure compliance with the rule. Because UITs do 
not have boards of directors, the Series would be unable to comply with 
this requirement. Applicants represent that they will comply with all 
of the provisions of rule 17a-7, other than paragraph (e).
    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 Rollover Series to sell Equity Securities to a New 
Series and to permit the New Series to purchase the Equity Securities.
    4. Applicants state that the proposed transactions satisfy the 
standards of sections 6(b) and 17(b). Applicants represent that 
purchases and sales between Series will be consistent with the policies 
of each Series. Applicants further state that permitting the proposed 
transactions would result in savings on brokerage fees for the Series.
    5. Applicants state that the condition that the Equity Securities 
must be actively traded on an Exchange or the Nasdaq-NMS protects 
against overreaching. In addition, applicants state that the Sponsor 
will certify to the Trustee, within five days of each sale of Equity 
Securities from a Rollover Series to a New Series: (i) 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; (ii) the date of the 
transaction; and (iii) the closing sales price on the Exchange or on 
the Nasdaq-NMS for the sale date of the Equity 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 distribution to 
Unitholders 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.

[[Page 41923]]

E. 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 state 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 the Units of the Series.
    2. Rule 14a-3 under the Act exempts UITs from section 14(a) if 
certain conditions are met, including the trust invest only in 
``eligible trust securities,'' as defined in the rule. Applicants state 
that they may not rely on rule 14a-3 because certain future Series 
(collectively, ``Equity Series'') will invest all or a portion of their 
assets in equity securities, which do not satisfy the definition of 
eligible trust securities.
    3. Applicants request an exemption under section 6(c) from section 
14(a) to the extent necessary to exempt the Equity Series from the net 
worth requirement in section 14(a). Applicants state that they will 
comply in all respects with rule 14a-3, except that the Equity Series 
will not restrict their portfolio investments to eligible trust 
securities.

F. 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, such trusts 
will not qualify for that exemption. Applicants therefore request 
relief 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 Series' expenses, Installment 
Payments, or by redemption requests, events over which the Sponsor 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 the order granting the requested relief will 
be subject to the following conditions:

A. DSC 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 make 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 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.
    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 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.

B. Investments in Securities-Related Issuers

    No company held in the portfolio of a Ten Series or Five Series, 
nor any affiliated person thereof, will act as broker for any Ten 
Series or Five Series in the purchase or sale of any security for the 
Series' portfolio.

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

    1. Each sale of Equity Securities by a Rollover Series to a New 
Series will be effected at the closing price of the securities sold on 
the applicable Exchange or the Nasdaq NMS 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 (i) 
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 (ii) make such changes to 
the procedures as the Trustee deems necessary that are reasonably 
designed to comply 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(f).

D. Net Worth Requirement

    Applicants 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''.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-19977 Filed 8-8-01; 8:45 am]
BILLING CODE 8010-01-M