[Federal Register Volume 82, Number 243 (Wednesday, December 20, 2017)]
[Notices]
[Pages 60426-60429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27337]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32939; 812-14785]


Ausdal Financial Partners, Inc. and Ausdal Unit Investment Trust

December 14, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application under (a) section 6(c) of the Investment 
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 rule 22c-1 thereunder and (b) sections 11(a) and 11(c) of the Act 
for approval of certain exchange and rollover privileges.
    Applicants: Ausdal Financial Partners, Inc. (``Ausdal'') and Ausdal 
Unit Investment Trust.\1\
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    \1\ Applicants also request relief for future registered unit 
investment trusts (collectively, with Ausdal Unit Investment Trust, 
the ``Trusts'') and series of the Trusts (``Series'') that are 
sponsored by Ausdal or any entity controlling, controlled by or 
under common control with Ausdal (together with Ausdal, the 
``Depositor''). 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 (``UIT'') 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.
    Filing Dates: The application was filed on June 20, 2017, and 
amended on October 27, 2017.
    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may

[[Page 60427]]

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 January 
8, 2018, and should be accompanied by proof of service on applicants, 
in the form of an affidavit, or for lawyers, a certificate of service. 
Pursuant to rule 0-5 under the Act, hearing requests should state the 
nature of the writer's interest, any facts bearing upon the 
desirability of a hearing on the matter, 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, 3250 Lacey Road, Suite 130, 
Downers Grove, IL 60515, and Morrison C. Warren, Walter L. Draney and 
Suzanne M. Russell, Chapman and Cutler LLP, 111 West Monroe Street, 
Chicago, IL 60603.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or David J. Marcinkus, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.
    Applicants' Representations:
    1. Ausdal Unit Investment Trust and any future Trust will be a UIT 
registered under the Act. Ausdal, an Iowa corporation, is registered 
under the Securities Exchange Act of 1934 as a broker-dealer and will 
be the Depositor of Ausdal Unit Investment Trust. Each Series will be 
created by a trust indenture between the Depositor and a banking 
institution or trust company as trustee.
    2. The Depositor acquires a portfolio of securities, which it 
deposits with the series trustee (``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, a deferred 
sales charge or both. 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 an outstanding 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, a DSC or both.
    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 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.

[[Page 60428]]

    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, ``Structured Series'') will invest all or a portion of 
their assets in equity securities, certain debt securities, shares of 
registered investment companies, Flexible Exchange[supreg] Options 
(``FLEX Options''),\2\ or other assets which do not satisfy the 
definition of eligible trust securities.
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    \2\ Applicants state that a Structured Series will invest in 
FLEX Options with expiration dates that coincide with the Structured 
Series' maturity date and any relief granted from the provisions of 
sections 14(a) and 19(b) of the Act and rule 19b-1 under the Act 
included in the requested order will not extend to any Series that 
intends to hold a derivative security other than FLEX Options.
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    3. Applicants request an exemption under section 6(c) of the Act to 
the extent necessary to exempt the Structured 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 Structured 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 Structured Series do not 
limit their investments to eligible trust securities, however, the 
Structured 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 Structured 
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 Structured 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:

A. DSC Relief and Exchange and Rollover Options

    1. Whenever the Exchange Option or 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

[[Page 60429]]

applicable investment objectives, policies and restrictions.
    2. An investor who purchases Units under the Exchange Option or 
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

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

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27337 Filed 12-19-17; 8:45 am]
BILLING CODE 8011-01-P