[Federal Register Volume 60, Number 50 (Wednesday, March 15, 1995)]
[Notices]
[Pages 14047-14048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6357]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20946; 812-9318]
The First Trust Special Situations Trust, et al.; Notice of
Application
March 8, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: The First Trust Special Situations Trust, Target Equity
Trust, Value Ten Series 1 and subsequent series, and Nike Securities
L.P. (``Nike'').
RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 17(b)
from section 17(a).
SUMMARY OF APPLICATION: Applicants request an order to permit a
terminating series of a unit investment trust to sell portfolio
securities to a new series of the trust.
FILING DATE: The application was filed on November 3, 1994, and was
amended on March 3, 1995.
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 April 3, 1995
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 request, the reason
for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants, c/o Nike Securities L.P., 1001 Warrenville Road, Suite
3000, Lisle, Illinois 60532.
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.
Applicants' Representations
1. The First Trust Special Situations Trust (the ``Trust''), a unit
investment trust registered under the Act, consists of a number of
series (``Series''), each of which will be similar but separate and
designated by a different series number. Target Equity Trust, Value Ten
Series 1 is of one of the Series of the Trust. Nike is the sponsor for
each Series (the ``Sponsor''). Applicants request that the relief
sought herein apply to any future Series that has the characteristics
described below and in the application.
2. Each Series will have a portfolio which contains equity
securities (``Equity Securities'') which are (i) actively traded (i.e.,
have had an average daily trading volume in the preceding six months of
at least 500 shares equal in value to at least 25,000 United States
dollars) on an exchange (an ``Exchange'') which is either (a) a
national securities exchange which meets the qualifications of section
6 of the Securities Exchange Act of 1934 or (b) a foreign securities
exchange that meets the qualifications set out in the proposed
amendment to rule 12d3-1(d)(6) under the Act, as proposed by the
Commission,\1\ and that releases daily closing prices, and (ii)
included in a published index (an ``Index'').
\1\Investment Company Act Release No. 17096 (Aug. 3, 1989)
(proposing amendments to rule 12d3-1).
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3. The investment objective of each Series is to seek a greater
total return than the stocks comprising an entire related Index (e.g.,
the Dow Jones Industrial Average (``DJIA''), the Hang Seng Index, or
the Financial Times Industrial Ordinary Share Index). Certain of the
Series will acquire approximately equal values of a designated number
of stocks in the DJIA having the highest dividend yields as of a
specified date and will hold those stocks for a designated period.
Other Series will create their portfolios in a similar manner using
securities that are included in other Indices. The Sponsor of the
Series intends that, as each Series terminates, a new Series (``New
Series'') based on the appropriate Index will be offered for the next
period.
4. Each Series has or will have a contemplated date (a ``Rollover
Date'') on which holders of units in that Series (the ``Rollover
Series'') may at their option redeem their units in the Rollover Series
and receive in return units of a New Series which is created on or
about the Rollover Date.
5. There is normally some overlap from year to year in the stocks
having the highest dividend yields in an Index and, therefore, between
the portfolios of each Rollover Series and the corresponding New
Series. For example, of the ten securities selected for inclusion in
Value Ten Series 5 on September 7, 1994, eight were still among the top
ten dividend yielding stocks in the DJIA as of the date of the amended
application.
6. In connection with its termination, each Rollover Series sells
all of its portfolio securities on an Exchange as quickly as
practicable, but over a period of time so as to minimize any adverse
impact on the market price. Similarly, a New Series acquires its
portfolio securities in purchase transactions on an Exchange. This
procedure creates brokerage commissions on portfolio securities of the
same issue that are borne by the holders of units of both the Rollover
Series and the New Series. Applicants, therefore, request an exemptive
order to permit any Rollover Series to sell portfolio securities to a
New Series and a New Series to purchase those securities.
7. In order to minimize overreaching, the Sponsor will certify to
the trustee of the Rollover Series and the New Series, within five days
of each sale from a Rollover Series to a New Series, (a) 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, (b) the date of such
transaction, and (c) the closing sales price on the Exchange for the
sale date of the securities subject to such sale. 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 any
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
[[Page 14048]] correct price by reference to an independently published
list of closing sales prices for the date of the transaction, the
Sponsor will ensure that the price of units of the New Series, and
distributions to holders of the Rollover Series with regard to
redemption of their units or termination 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.
Applicants' Legal Analysis
1. Section 17(a) of the Act makes it unlawful for an affiliated
person of a registered investment company to sell securities to, or
purchase securities from, the company. Investment companies under
common control may be considered affiliates of one another. Each Series
will have an identical or common Sponsor, Nike. Since the Sponsor of
each Series may be considered to control each Series, it is likely that
each Series would be considered an affiliate of the others.
2. Section 17(b) provides that the SEC shall 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 company involved; and (c) the
proposed transaction is consistent with the general provisions of the
Act. Under section 6(c), the SEC 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 believe that the proposed transactions satisfy the
requirements of sections 6(c) and 17(b).
3. Rule 17a-7 under the Act permits registered investment companies
that might be deemed affiliates solely by reason of common investment
advisers, directors, and/or officers, to purchase securities from, or
sell securities, 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 the
procedures for these transactions to assure compliance with the rule. A
unit investment trust does not have a board of directors and,
therefore, may not rely on the rule. Applicants represent that they
will comply with all of the provisions of rule 17a-7, other than
paragraph (e).
4. Applicants represent that purchases and sales between Series
will be consistent with the policy of each Series, as only securities
that otherwise would be brought and sold on the open market pursuant to
the policy of each Series will be involved in the proposed
transactions. Applicants further believe that the current practice of
buying and selling on the open market leads to unnecessary brokerage
fees and is therefore contrary to the general purposes of the Act.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each sale of Equity Securities by a Rollover Series to a New
Series will be affected at the closing price of the securities sold on
the applicable Exchange 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 future
Rollover Series and New Series.
3. The trustee of each Rollover Series and New Series will (a)
review the procedures discussed in the application relating to the sale
of securities from a Rollover Series to a New Series and (b) 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).
For the Commission, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-6357 Filed 3-14-95; 8:45 am]
BILLING CODE 8010-01-M
