[Federal Register Volume 59, Number 211 (Wednesday, November 2, 1994)] [Notices] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-27164] [[Page Unknown]] [Federal Register: November 2, 1994] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Rel. No. IC-20664; 812-8166] Equity Securities Trust (Series 1, Signature Series, Gabelli Communications Income Trust and Subsequent Series), et al.; Notice of Application October 27, 1994. AGENCY: Securities and Exchange Commission (``SEC''). ACTION: Notice of application for exemption under the Investment Company Act of 1940 (``ACT''). ----------------------------------------------------------------------- APPLICANTS: Equity Securities Trust (Series 1, Signature Series, Gabelli Communications Income Trust and Subsequent Series), Mortgage Securities Trust (CMO Series 1 and Subsequent Series), Municipal Securities Trust (Series 1 and Subsequent Series) (including Insured Municipal Securities Trust, Series 1 and Subsequent Series, and 5th Discount Series and Subsequent Series), New York Municipal Trust (Series 1 and Subsequent Series), A Corporate Trust (Series 1 and Subsequent Series) (collectively, the ``Trusts''); Bear, Stearns & Co. Inc. (``Bear Stearns''); and Gruntal & Co., Incorporated (``Gruntal''). RELEVANT ACT SECTIONS: Sections 11(a) and 11(c). SUMMARY OF APPLICATION: Applicants request an order to permit unitholders of the Trusts of exchange their units for units in other Trusts at a reduced sales charge. The order would supersede a prior order and include the Equity Securities Trust in the exchange program. FILING DATES: The application was filed on November 12, 1992, and amended on January 26, 1994 and October 19, 1994. 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 November 21, 1994, 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 reasons for the request, and the issues contested. Persons who wish to be notified of a hearing may request such notification by writing to the SEC's Secretary. ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, D.C. 20549; Bear, Sterns & Co. Inc. and the Trusts, 245 Park Avenue, New York, New York 10167; Gruntal & Co. Incorporated, 14 Wall Street, New York, New York 10005. FOR FURTHER INFORMATION CONTACT: Mary Kay Frech, Senior Attorney, at (202) 942-0579, or Robert A. Robertson, 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. Applicant's Representations 1. The Trusts are registered under the Act as unit investment trust, and their units of interest are registered under the Securities Act of 1933. Bear Stearns, one of the cosponsors of the Equity Securities Trust, sponsors the Trusts and numerous other unit investment trusts. Gruntal, also a cosponsor of the Equity Securities Trust, sponsors various other unit investment trusts with Bear Stearns (Bear Stearns and Gruntal are collectively referred to as the ``Sponsors''). Each Trust is organized under a Trust Indenture and Agreement between the Trust, the Sponsors, and United States Trust Company of New York or Bank of New York, as trustee, which varies from Trust to Trust. 2. On August 28, 1991, the SEC issued an order (the ``Prior Order'')\1\ permitting unitholders of the Trusts, except the Equity Securities Trust, to exchange their units for units in another available Trust or Trusts, except the Equity Securities Trust, upon payment of a reduced sales charge. The Prior order also permits a conversion offer in which the unitholders of any registered unit investment trust for which there is no active secondary market may redeem their units with their respective trustees and apply the proceeds to the purchase of units of one or more of the Trusts, except the Equity Securities Trust, upon payment of the same reduced sales charge. \1\Investment Company Act Release Nos. 18254 (Aug. 1, 1991) (notice) and 18290 (Aug. 28, 1991) (order). The Prior Order amended two previous orders: Investment Company Act Release Nos. 11143 (Apr. 29, 1980) (notice) and 11184 (May 23, 1980) (order); and Investment Company Act Release Nos. 11715 (Apr. 1, 1981) (notice) and 11754 (Apr. 29, 1981) (order). 3. The Equity Securities Trust is a newly formed unit investment trust consisting of a portfolio of common stock, convertible securities, American Depository Receipts, and contracts and funds for the purchase of such securities. The Equity Securities Trust deposits its securities with the trustee, in exchange for certificates representing undivided interests or units in the principal and net income of the Equity Securities Trust in the ratio of one hundred units for the indicated initial aggregate value of securities of the Equity Securities Trust. 4. During the initial public offering period, units of the Trust are sold at a sales charge ranging from 3.5% to 5.5%, depending on the Trust, subject to certain specified volume discounts for purchases exceeding a certain number of units. 5. The Sponsors, although not obligated to do so, maintain a secondary market for the units of all the existing Trusts after the initial public offering has been completed. The Sponsors also intend to maintain a secondary market for any new Trusts after the initial public offering has been completed. The secondary market repurchase and reoffer price, both during and after the initial public offering period, will be based on the bid prices of the Trust's portfolio securities. Any units repurchased by the Sponsors in the secondary market may be redeemed by the Sponsors if the Sponsors deem such redemption to be in their best interest. If a market for the units is not maintained, unitholders will be able to redeem their units with the trustee at a price based on the aggregate bid side evaluation of the Trust's portfolio securities. 6. Applicants propose to offer unitholders of the Trusts the ability to exchange any or all of their units for units in one or more available series of the Trusts at a reduced sales charge (the ``Exchange Privilege''). Pursuant to the Exchange Privilege, the Sponsors' repurchase price during the initial offering period of the units being surrendered will be based on the aggregate offer price of the Trust's portfolio securities, and, if the initial offering period has been completed, will be based on the aggregate bid price of the Trust's portfolio securities. Units in a Trust then will be sold to the unitholder at a price based on the aggregate offer price of the securities in the Trust portfolio during the initial public offering period of the Trust (or based on the aggregate bid price of the securities in the Trust portfolio if the initial public offering period has been completed) plus accrued interest and a reduced sales charge. 7. The Sponsors reserve the right to suspend, modify, or terminate the Exchange Privilege. The Sponsors will provide unitholders with 60 days prior written notice of any termination or material amended to the Exchange Privilege, except as provided in condition 3 below. 8. Applicants also propose to offer a conversion offer (the ``Conversion Offer'') to all unitholders of any registered unit investment trust in which there is no active secondary market (a ``Redemption Trust''). Pursuant to the Conversion Offer, unitholders may elect to redeem units of a Redemption Trust at the redemption drive determined as set forth in the relevant Redemption Trust's prospectus and apply the proceeds of the redemption to the purchase of available units of one or more series of the Trust. The purchase price for units of a series of a Trust will be based on the aggregate offer of the Trust's portfolio securities during its initial offering period, or at a price based on the aggregate bid price of the Trust's portfolio securities if the initial public offering period of the Trust has been completed, and will include accrued interest and a reduced sales charge. 9. The Sponsors reserve the right to modify, suspend, or terminate the Conversion Offer at any time without prior notice to unitholders of a Redemption Trust. 10. The Exchange Privilege and Conversion Offer are substantially similar in all respects to the exchange privilege and conversion offer already approved by the SEC in the Prior Order, except the Equity Securities Trust, as a newly formed Trust, was not in existence at the time that order was issued. The requested relief is necessary to enable the Equity Securities Trust to offer the same exchange privilege to its unitholders as is already permitted to unitholders of the other Trusts pursuant to the Prior Order, and to revise the reduced sales charge under the Exchange Privilege and Conversion Offer to be an amount equal to a percentage of the public offering price for each unit (or per 1,000 units for Mortgage Securities Trust or per 100 units for Equity Securities Trust). The requested relief will supersede the Prior Order in its entirety. Applicants' Legal Analysis 1. Section 11(a) of the Act requires SEC approval of an offer to exchange securities between open-end investment companies of the exchange occurs on any basis other than the relative net asset values of the Securities to be exchanged. Section 11(c) of the Act makes section 11(a) applicable to any type of exchange offer of securities of registered unit investment trusts for the securities of any other investment company, irrespective of the basis of exchange. 2. Applicants believe that the Exchange Privilege provides investors with a convenient means of transferring their interests at a reduced sales charge, as their individual investment objectives change, into series of the Trust that are better suited to meet these changing investment objectives. Applicants also state that the Conversion Offer provides investors with a means by which unitholders of a unit investment trust in which there is no active secondary market can redeem those units and invest the proceeds therefrom, at a reduced sales charge, into units of the trusts. Applicants' Conditions The Applicants agree to the following conditions in any order granting the requested relief: 1. Participants in the Exchange Privilege and Conversion Offer for the Trusts will, in the purchase and sale of units of the Trusts, be subject to the same portfolio pricing terms as are set forth in the prospectus for each Trust and will purchase and sell units of the Trusts based on the same portfolio pricing terms as all other investors who purchase and sell units of the Trusts through the Sponsors or the underwriters in regular transactions. 2. The prospectus for each Trust and any sales literature or advertisement that mentions the existence of the Exchange Privilege will disclose that the Exchange Privilege is subject to termination and that its terms are subject to change. 3. Whenever the Exchange Privilege 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 last 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 Privilege, 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 a Trust under section 22(e) of the Act and the rules and regulations thereunder, or (ii) A Trust 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. 4. During the 60 day period described in condition 3 above, the Sponsors will maintain a secondary market in units that could be acquired by affected unitholders. 5. The applicable sales charge for the purchase of units of a Trust for Trust unitholders who wish to exercise the Exchange Privilege within the first five months from the date of their purchase of units of a Trust, where the applicable public offering price for the Trust units being purchased includes higher sales charges than the sales charges applicable to the units being exchanged, will be the greater of the reduced sales charge (up to 1.5% of the public offering price of each unit (or per 1,000 units for Mortgage Securities Trust or per 100 units for the Equity Securities Trust)), or an amount which, when coupled with the sales charge actually paid on purchase of the units being exchanged, would equal the sales charge applicable to direct purchases of the quantity of Trust units being acquired, determined as of the date of the exchange. 6. The applicable sales charge for the purchase of units of a Trust for Redemption Trust unitholders who wish to exercise the Conversion Offer within the first five months from the date of their purchase of units of a Redemption Trust, where the applicable public offering price for the Trust units being purchased includes higher sales charges than the sales charges applicable to the units being converted, will be the greater of the reduced sales charge (up to 1.5% of the price of each unit (or per 1,000 units for Mortgage Securities Trust or per 100 units for the Equity Securities Trust)), or an amount which, when coupled with the sales charge actually paid on purchase of the units being converted, would equal the sales charge applicable to direct purchases of the quantity of Trusts units being acquired, determined as of the date of the conversion. For the Commission, by the Division of Investment Management, under delegated authority. Jonathan G. Katz, Secretary. [FR Doc. 94-27164 Filed 11-1-94; 8:45 am] BILLING CODE 8010-01-M