[Federal Register Volume 68, Number 202 (Monday, October 20, 2003)]
[Notices]
[Pages 59954-59956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26389]



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SECURITIES AND EXCHANGE COMMISSION

[Release. No. IC-26207; 812-12971]


Hennion & Walsh, Inc., et al.; Notice of Application

October 14, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under: (i) Section 6(c) of the 
Investment Company Act of 1940 (``Act'') for exemptions from sections 
14(a) and 19(a) of the Act and from rule 19b-1 thereunder; (ii) 
sections 6(c) and 17(b) of the Act for an exemption from section 17(a) 
of the Act; and (iii) section 12(d)(1)(J) of the Act for an exemption 
from section 12(d)(1)(F)(ii) of the Act.

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Summary of Application: Applicants Hennion & Walsh, Inc. (``Sponsor''), 
Smart Trust, Equity Securities Trust, Symphony Series, and EST Symphony 
Trust, as well as any other registered unit investment trust (``UIT'') 
for which the Sponsor serves as the sponsor in the future 
(collectively, ``Trusts'') and any presently outstanding or 
subsequently issued series of the Trusts (each, a ``Trust Series'') 
request an order: (a) Under section 12(d)(1)(J) of the Act to permit 
each Trust Series to offer and sell to the public units (``Units'') 
with a sales load that exceeds the 1.5 % limit in section 
12(d)(1)(F)(ii) of the Act; (b) under sections 6(c) and 17(b) for an 
exemption from section 17(a) of the Act to permit the Trust Series to 
invest in affiliated registered investment companies within the limits 
of section 12(d)(1)(F) of the Act; and (c) under section 6(c) of the 
Act for exemptions from sections 14(a) and 19(b) of the Act and rule 
19b-1 under the Act to permit Units to be publicly offered without 
requiring the Sponsor to take for its own account or place with others 
$100,000 worth of Units, and to permit the Trust Series to distribute 
capital gains resulting from the sale of portfolio securities within a 
reasonable time after receipt.

Filing Dates: The application was filed on May 1, 2003 and amended on 
October 2, 2003.

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 November 7, 2003 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, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609; Applicants: Peter J. DeMarco, c/o Hennion & Walsh, Inc., 
2002 Route 46, Waterview Plaza, Parisppany, New Jersey 07054.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714 or Nadya B. Roytblat, Assistant Director, 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 at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. The Sponsor, a broker-dealer registered under the Securities 
Exchange Act of 1934, will serve as the sponsor for the Trusts.\1\ Each 
Trust Series is or will be a UIT registered under the Act and organized 
under a trust indenture that incorporates or will incorporate by 
reference a master trust agreement between the Sponsor and a qualified 
bank as trustee (``Trustee''). Pursuant to the trust indenture, the 
Sponsor will deposit into each Trust Series shares of existing 
registered investment companies (``Funds''), or contracts and monies 
for the purchase of shares of the Funds. The Funds will be closed-end 
or open-end investment companies or UITs. Certain of the Funds are 
open-end investment companies or UITs that have received exemptive 
relief under the Act to sell their shares at negotiated prices on an 
exchange (``Exchange Traded Funds'').
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    \1\ All existing Trusts that currently intend to rely on the 
requested order have been named as applicants. Any other existing or 
future Trust that may rely on the order in the future will do so 
only in accordance with the terms and conditions of the application.
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    2. The purpose of each Trust Series is to provide retail investors 
(1) an investment with a professionally selected asset allocation model 
or investment theme based upon the Sponsor's assessment of the overall 
economic climate and financial markets, and (2) the opportunity for 
income and/or capital appreciation through a diversified fixed 
portfolio of Funds professionally selected by the Sponsor from the 
total population of available Funds within the various market sectors 
of the Sponsor's asset allocation model or consistent with the 
enunciated investment theme. Applicants anticipate that certain of the 
Funds selected may be advised and/or distributed by the Sponsor or one 
of its affiliates (``Affiliated Funds''). Applicants anticipate that 
most of the Funds selected will be unaffiliated with the Sponsor 
(``Unaffiliated Funds''). Applicants state that the Trust Series'' 
investments in Affiliated Funds and Unaffiliated Funds will comply with 
section 12(d)(1)(F) in all respects except for the sales load 
restriction of section 12(d)(1)(F)(ii).
    3. The only Funds that will be eligible for inclusion in a Trust 
Series are either no load Funds or Funds which, although they offer 
shares with a front-end sales charge to the public, agree to waive any 
otherwise applicable front-end sales load with respect to all shares 
sold or deposited in any Trust Series. Shares of each of the Funds 
(except closed-end Funds and Exchange Traded Funds), therefore, will be 
sold for deposit into any Trust Series at net asset value. Shares of 
closed-end Funds and Exchange Traded Funds will be purchased by a Trust 
Series at market prices. Investors in the Trust Series 
(``Unitholders'') will pay a specified sales load to the Sponsor in 
connection with the purchase of their Units.
    4. No evaluation fee will be charged with respect to determining 
the value of the Funds' shares that comprise the Trust Series' 
portfolio. The Trustee will receive service fees under a rule 12b-1 
plan from certain Funds to compensate it for providing servicing and 
sub-accounting functions with respect to Fund shares held by a Trust 
Series. In such cases, the Trustee will reduce its regular fee to a 
Trust Series directly by the fees it receives from the Funds and rebate 
any excess fees it receives to the Trust Series. Any fees so rebated 
will be utilized by the Trust Series to absorb other bona fide Trust 
Series expenses. To the extent that these fees exceed the total Trust 
Series' expenses, the excess will be distributed along with other 
income earned by the Trust Series.

Applicants' Legal Analysis

A. Section 12(d)(1) of the Act

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if those securities represent more than 3% of the

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acquired company's total outstanding voting stock, more than 5% of the 
acquiring company's total assets, or if the securities, together with 
the securities of any other acquired investment companies, represent 
more than 10% of the acquiring company's total assets.
    2. Section 12(d)(1)(F) of the Act provides that section 12(d)(1) 
does not apply to an acquiring company if the company and its 
affiliated persons own no more than 3% of an acquired company's total 
outstanding securities, provided that the acquiring company does not 
impose a sales load of more than 1.5%. In addition, the section 
provides that no acquired company may be obligated to honor any 
acquiring company's redemption request in excess of 1% of the acquired 
company's securities during any period of less than 30 days, and the 
acquiring company must vote its acquired company shares either in 
accordance with instructions from its shareholders or in the same 
proportion as all other shareholders of the acquired company.
    3. A Trust Series will invest in Affiliated and Unaffiliated Funds 
in reliance on section 12(d)(1)(F) of the Act. If the requested relief 
is granted, the Trust Series will offer Units to the public with a 
sales load that exceeds the 1.5% limit in section 12(d)(1)(F)(ii).
    4. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt persons or transactions from any provision of section 12(d)(1), 
if and to the extent that such exemption is consistent with the public 
interest and the protection of investors.
    5. Applicants have agreed, as a condition to the requested relief, 
that any sales charges and/or service fees with respect to Units of a 
Trust Series will not exceed the limits set forth in rule 2830 of the 
National Association of Securities Dealers, Inc. (``NASD'') Conduct 
Rules applicable to a fund of funds. Applicants believe that it is 
appropriate to apply the NASD's rule to the proposed arrangement 
instead of the sales load limitation in section 12(d)(1)(F)(ii) because 
the proposed limit would cap the aggregate sales charges that may be 
imposed by a fund of funds. Applicants assert that the NASD's rule more 
accurately reflects today's regulatory environment with respect to the 
methods by which investment companies finance sales expenses.
    6. Applicants state that, with respect to shares of closed-end 
Funds or Exchange Traded Funds held by a Trust Series, no front-end 
sales load, contingent deferred sales charges, rule 12b-1 fees, or 
other distribution fees or redemption fees will be charged in 
connection with the sale or purchase of Fund shares by a Trust Series. 
Applicants state that although the Trust Series likely will incur 
brokerage commissions in connection with its market purchases of shares 
of closed-end Funds or Exchange Traded Funds, these commissions will 
not differ from commissions otherwise incurred in connection with the 
purchase or sale of comparable securities.
    7. Applicants also agree, as a condition to the requested relief, 
that each Trust Series will not invest in any underlying Fund which 
owns securities of any other investment company in excess of the limits 
contained in section 12(d)(1)(A) of the Act.

B. Section 17(a) of the Act

    1. With regard to the Trust Series' investments in Affiliated 
Funds, applicants request relief from section 17(a) of the Act under 
sections 6(c) and 17(b). Section 17(a) of the Act generally prohibits 
an affiliated person, or an affiliated person of 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. Applicants submit that the Trust 
Series and Affiliated Funds may be deemed to be affiliated persons of 
one another by virtue of being under common control of the Sponsor. 
Applicants state that purchases and redemptions of shares of the 
Affiliated Funds by a Trust Series could be deemed to be principal 
transactions between affiliated persons under section 17(a).
    2. Section 6(c) of the Act provides that the Commission may exempt 
persons or transactions from any provisions of the Act if the 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. Section 17(b) of the Act provides 
that the Commission will exempt a proposed transaction from section 
17(a) if evidence establishes that: (a) The terms of the proposed 
transaction, including the consideration to be paid or received, 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 purposes of the Act.
    3. Applicants state that shares of Affiliated Funds will be sold to 
the Trust Series at net asset value, or, in the case of closed-end 
Affiliated Funds, at market prices. As a result, applicants believe 
that the proposed terms and conditions of the Trust Series' 
transactions in Affiliated Fund shares, including the consideration to 
be paid or received, will be reasonable and fair and will not involve 
overreaching on the part of any person concerned. Furthermore, 
applicants state that the proposed transactions will be consistent with 
the policies of the Trust Series as recited in their registration 
statements.

C. Section 14(a) of the Act

    1. Section 14(a) of the Act requires in substance that a registered 
investment company have $100,000 of net worth prior to making a public 
offering. Applicants believe that each Trust Series will comply with 
this requirement because the Sponsor will deposit substantially more 
than $100,000 of Fund shares in each Trust 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 Trust Series would not satisfy 
section 14(a) because of the Sponsor's intention to sell all of the 
Units of the Trust 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 
submit that the Trust Series cannot rely on the rule because Fund 
shares are not eligible trust securities. Consequently, applicants seek 
an exemption under section 6(c) from the net worth requirement of 
section 14(a) of the Act. Applicants state that the Trust Series and 
the Sponsor will comply in all respects with the requirements of rule 
14a-3, except that the Trust Series will not restrict their portfolio 
investments to ``eligible trust securities.''

D. Section 19(b) of the Act

    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, excepts a UIT investing in 
``eligible trust securities'' (as defined in rule 14a-3) from the 
requirements of rule 19b-1. Because the Trust Series do not limit

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their investments to ``eligible trust securities,'' the Trust Series do 
not qualify for the exemption in paragraph (c) of rule 19b-1. 
Therefore, applicants request an exemption under section 6(c) from 
section 19(b) and rule 19b-1 to the extent necessary to permit capital 
gains earned in connection with the redemption and sale of Fund shares 
to be distributed to Unitholders along with the Trust Series' regular 
distributions. Applicants state that, in all other respects, the Trust 
Series will comply with section 19(b) and rule 19b-1. Applicants assert 
that the abuses that section 19(b) and rule 19b-1 were designed to 
prevent do not exist with regard to the Trust Series. Applicants state 
that any gains from the redemption or sale of Fund shares would be 
triggered by the need to meet Trust Series' expenses or by requests to 
redeem Units, events over which the Sponsor and the Trust Series have 
no control.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each Trust Series will comply with section 12(d)(1)(F) in all 
respects except for the sales load limitation of section 
12(d)(1)(F)(ii).
    2. Any sales charges and/or service fees (as those terms are 
defined in NASD Conduct Rule 2830) charged with respect to Units of a 
Trust Series will not exceed the limits set forth in NASD Conduct Rule 
2830 applicable to a fund of funds (as defined in NASD Conduct Rule 
2830).
    3. No Fund will acquire securities of any other investment company 
in excess of the limits contained in section 12(d)(1)(A) of the Act.
    4. The Trust Series and the Sponsor will comply in all respects 
with the requirements of rule 14a-3, except that the Trust 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. 03-26389 Filed 10-17-03; 8:45 am]
BILLING CODE 8010-01-P