[Federal Register Volume 63, Number 219 (Friday, November 13, 1998)]
[Notices]
[Pages 63516-63518]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30404]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23528; 812-11204]
Nike Securities L.P., et al.; Notice of Application
November 6, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 6(c) and 17(b) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
section 17(a) of the Act.
-----------------------------------------------------------------------
Summary of Application: The requested order would supersede a prior
order and permit a terminating series of a unit investment trust
(``UIT'') to sell portfolio securities to a new series of the UIT.
Applicants: Nike Securities L.P. (the ``Sponsor''), First Trust Special
Situations Trust (the ``Trust''), any future UIT sponsored by the
Sponsor (together with the Trust, the ``Trusts'')
[[Page 63517]]
and certain series of the Trusts (each, a ``Series'' or ``Trust
Series'').\1\
---------------------------------------------------------------------------
\1\ Any future Trust that relies on the relief will comply with
the terms and conditions of the application.
---------------------------------------------------------------------------
Filing Dates: The application was filed on June 29, 1998. Applicants
have agreed to file an amendment to the application, the substance of
which is incorporated in this notice, during the notice period.
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. December 1, 1998,
and should be accompanied by proof of service on 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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549.
Applicants, 1001 Warrenville Road, Lisle, Illinois 60532.
FOR FURTHER INFORMATION CONTACT:
Mary T. Geffroy, Senior Counsel, at (202) 942-0553, or Christine Y.
Greenlees, 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 at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, DC
20549 (tel. (202) 942-8090).
Applicants' Representations
1. Each Trust Series will be a series of one of the Trusts, each a
UIT registered under the Act.\2\ The Sponsor will be the sponsor of the
Trusts. Each Trust Series will be created under the laws of one of the
United States pursuant to a trust agreement, which will contain
information specific to that Trust Series, and which will incorporate
by reference a master trust indenture between the Sponsor and a
financial institution that is a bank within the meaning of section
2(a)(5) of the Act and that satisfies the criteria in section 26(a) of
the Act (the ``Trustee'').
---------------------------------------------------------------------------
\2\ The requested order would supersede a prior order.
Investment Company Act Release Nos. 20946 (Mar. 8, 1995) (notice)
and 20985 (Apr. 4, 1995) (order).
---------------------------------------------------------------------------
2. Each Trust Series will hold a portfolio of equity securities of
domestic and/or foreign companies. The Trust Series generally are
designed so seek above-average total return through capital
appreciation, dividend income, or both.
3. Applicants anticipate that many, if not all, of the securities
in each Trust Series will be actively traded (i.e., have had an average
daily trading volume in the preceding six months of at least 500 shares
and equal in value to at least U.S. $25,000) on (a) an exchange (an
``Exchange'') which is either a national securities exchange which
meets the qualifications of section 6 of the Securities Exchange Act of
1934, or a foreign securities exchange (a ``Foreign Exchange'') which
meets the qualifications set forth in the proposed amendments to rule
12d3-1(d)(6) under the Act \3\ and that releases daily closing prices,
or (b) the Nasdaq-National Market System (``Nasdaq-NMS'') (the
securities meeting these requirements are referred to in this notice as
``Equity Securities'').
---------------------------------------------------------------------------
\3\ 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.''
---------------------------------------------------------------------------
4. Each Trust Series will terminate on a date after a specified
period, generally one or two years. The Sponsor intends that, as each
Trust Series terminates, a new Trust Series (``New Trust Series'')
having the same or a similar investment objective or investment
strategy, will be offered for the next period.
5. Each Trust Series has or will have a contemplated date (the
``Rollover Date'') on which holders of units in that Trust Series (the
``Rollover Trust Series'') may at their option redeem their units in
the Rollover Trust Series and receive in return units of the New Trust
Series, which will be created on or about the Rollover Date.
6. Applicants anticipate that there will be some overlap in the
Equity Securities selected for the portfolios of each Rollover Trust
Series and the related New Trust Series. In connection with its
termination, absent the requested relief, each Rollover Trust Series
would sell all of its Equity Securities on the applicable Exchange or
Nasdaq-NMS. Likewise, a New Trust Series would acquire its Equity
Securities on the applicable Exchange or on Nasdaq-NMS. This procedure
would result in the unitholders of both the Rollover Trust Series and
the New Trust Series incurring brokerage commissions on the same Equity
Securities.
Applicants' Legal Analysis
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, in pertinent part,
any person directly or indirectly controlling, controlled by or under
common control with, such other person. Each Trust Series will have a
common sponsor. Since the sponsor of a Trust Series may be deemed to
control the Trust Series, all of the Trust Services may be deemed to be
under common control and, thus, affiliated persons of each other.
2. Rule 17a-7 under the Act permits registered investment companies
that might be deemed affiliates solely by reason of having 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. Applicants represent that
they will comply with all of the provisions of rule 17a-7, other than
paragraph (e).
3. Paragraph (e) of the rule requires an investment company's board
of directors to adopt and monitor certain procedures to assure
compliance with the rule. Since a UIT does not have a board of
directors, the Trust Series would be unable to comply with this
requirement.
4. Section 17(b) of the Act provides that the SEC will 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 companies involved; and
(c) the proposed transaction is consistent with the general provisions
of the Act. Section 6(c) of the Act provides that the SEC may exempt
classes of transactions 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. Applicants request relief under section 6(c) and 17(b) to permit a
[[Page 63518]]
Rollover Trust Series to sell Equity Securities to a New Trust Series
and to permit the New Trust Series to purchase the Equity Securities.
5. Applicants state that the terms of the proposed transactions
meet the standards of sections 6(c) and 17(b). Applicants represent
that purchases and sales between Trust Series will be consistent with
the policy of each Trust Series. Applicants further state that
permitting the proposed transactions would result in savings on
brokerage fees for the Trust Series.
6. 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 Trust Series to a New Trust Series: (a) that
the transaction is consistent with the policy of both the Rollover
Trust Series and the New Trust Series, as recited in their respective
registration statements and reports filed under the Act, (b) the date
of the transaction, and (c) 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
the 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 Trust Series, and distributions to holders of
the Rollover Trust Series with regard to redemption of their units or
termination of the Rollover Trust 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 prices for the date of the
transaction.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Each sale of Equity Securities by a Rollover Trust Series to a
New Trust Series will be effected at the closing price of the Equity
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 the transactions will be fully
disclosed to investors in the prospectus of each Rollover trust Series
and New Trust Series.
3. The Trustee of each Rollover Trust Series and New Trust Series
will (a) review the procedures discussed in the application relating to
the sale of Equity Securities from a Rollover Trust Series and the
purchase of those securities for deposit in a New Trust Series, and (b)
make any 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 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. 98-30404 Filed 11-12-98; 8:45 am]
BILLING CODE 8010-01-M
