[Federal Register Volume 61, Number 69 (Tuesday, April 9, 1996)]
[Notices]
[Pages 15840-15843]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8707]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21871; 812-10024]
EVEREN Unit Investment Trusts, Series 44, et al.
April 3, 1996.
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: EVEREN Unit Investment Trusts, Series 44 and EVEREN
Securities Inc.
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from section 12(d)(3) of the Act, and under sections
6(c) and 17(a) of the Act for an exemption from section 17(a) of the
Act.
SUMMARY OF APPLICATION: EVEREN Unit Investment Trusts, Series 44
requests an order on behalf of itself and certain subsequent series
(collectively, the ``Series'') to permit (a) certain Series (the
``Defined Ten Series'') to invest up to 10.5% and other Series (the
``Defined Five Series'') to invest up to 20.5% of their respective
total assets in securities of issuers that derived more than fifteen
percent of their gross revenues in their most recent fiscal year from
securities related activities; and (b) certain terminating Series to
sell portfolio securities to new Series.
FILING DATE: The application was filed on March 1, 1996.
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 29, 1996
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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, D.C. 20549.
Applicants, 70 West Wacker, 29th Floor, Chicago, Illinois 60601.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Staff Attorney, at (202) 942-0573, 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.
Applicants' Representations
1. Each Series will be a series of EVEREN Unit Investment Trusts
(the ``Trust''), a unit investment trust registered under the Act.
EVEREN Securities Inc. is the Trust's depositor (the ``Sponsor'').
2. The Defined Ten Series will invest approximately 10%, but in no
event more than 10.5%, of the value of the Series' total assets in each
of the ten common stocks in the Dow Jones Industrial Average (the
``DJIA''), the Financial Times Index (the ``FT Index'') or the Hang
Seng Index with the highest dividend yields as of no more than three
days prior to the Series' initial date of deposit, and hold those
stocks for a specified period (approximately two years). The Defined
Five Series will invest approximately 20%, but in no event more than
20.5%,\1\ of the value of the Series' total assets in each of the five
lowest dollar price per share stocks of the ten common stocks in the
DJIA having the highest dividend yields no more than three business
days prior to the Series' initial date of deposit, and hold those
stocks for a specified period (approximately two years).
\1\ The Sponsor will attempt to purchase equal values of each of
the common stocks in a Series' portfolio. However, it is more
efficient if securities are purchased in 100 share lots and 50 share
lots. As a result, applicants may choose to purchase securities of a
securities related issuer which represent over 10%, but in no event
more than 10.5% of a Defined Ten Series' assets and over 20%, but in
no event more than 20.5%, of a Defined Five Series' assets on the
initial date of deposit to the extent necessary to enable the
Sponsor to meet its purchase requirements and to obtain the best
price for the securities.
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3. The DJIA comprises 30 common stocks chosen by the editors of The
Wall Street Journal. The DJIA is the property of the Dow Jones &
Company, Inc., which is not affiliated with any Series or the Sponsor
and does not participate in any way in the creation of any Series or
the selection of its stocks. The FT Index comprises 30 common stocks
chosen by the editors of The Financial Times (London) as representative
of British industry and commerce. The Hang Seng Index comprises 33 of
the stocks listed on the Hong Kong stock exchange and includes
companies intended to represent four major market sectors: commerce and
industry, finance, properties, and utilities. The Hang Seng Index is a
recognized indicator of stock market performance in Hong Kong. The
publishers of the FT Index and the Hang Seng Index are unaffiliated
with any Series or the Sponsor and do not participate in any way in the
creation of any Series or the selection of its stocks.
4. The securities deposited in each Series will be chosen solely
according to the formula described above, and will not necessarily
reflect the research opinions or buy or sell recommendations of the
Sponsor. The Sponsor is authorized to determine the date of deposit, to
purchase securities for deposit in the Series and to supervise each
Series' portfolio. The Sponsor will have no discretion as to which
securities are purchased. Securities deposited in a Series may include
securities of issuers that derived more than fifteen percent of their
gross revenues in their most recent fiscal year from securities related
activities.
5. During the 90-day period following the initial date of deposit,
the Sponsor may deposit additional securities while maintaining to the
extent practicable the original proportionate relationship among the
number of shares of each stock in the portfolio. Deposits made after
this 90-day period must replicate exactly (subject to certain limited
exceptions) the proportionate relationship among the face amounts of
the securities comprising the portfolio at the end of the initial 90-
day period.
6. The Series' portfolios will not be actively managed. Sales of
portfolio securities will be made in connection with redemptions of
units issued by a Series, payment of expenses and at termination of the
Series. The Sponsor has no discretion as to when securities will be
sold except that it is authorized to sell securities in extremely
limited circumstances, such as a default by the issuer in the payment
of any of its outstanding obligations, a decrease in the price of the
security or other credit factors so that in the opinion of the Sponsor,
the retention of the securities would be detrimental to the Series.
7. Each Series will have a contemplated date (a ``Rollover Date'')
on which holders of units in that Series (a ``Rollover Trust Series'')
may at their option redeem their units in the Rollover Trust Series and
receive in return units of a subsequent Series of the same type (a
``New Trust Series'') which is created on or about the Rollover
Date.\2\ Each Rollover Trust Series will have a portfolio that contains
securities (``Equity Securities'') that are
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(a) 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 U.S. $25,000) on an exchange (an ``Exchange'') which is either
(i) a national securities exchange which meets the qualifications of
section 6 of the Securities Exchange Act of 1934, (ii) 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 SEC \3\ and that releases daily closing prices, or (iii) the Nasdaq
National Market System (the ``Nasdaq-NMS'') and (b) included in a
published index.
\2\ Applicants previously received an order under section 11(a)
of the Act for an exemption from section 11(c) of the Act to permit
certain offers of exchange involving the Trust. See Investment
Company Act Release Nos. 20991 (Apr. 6, 1995) (notice) and 21043
(May 5, 1995) (order).
\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 acquiring 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.''
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8. There is normally some overlap from one year to the next in the
stocks having the highest dividend yields in an index or the lowest
priced per share stocks of the highest dividend yielding stocks in the
DJIA and, therefore, between the portfolios of a Rollover Trust Series
and the related New Trust Series. Upon termination, a Rollover Trust
Series will sell all of its portfolio securities on the applicable
Exchange or Nasdaq-NMS. In addition, a New Trust Series will acquire
its portfolio securities in purchase transactions on an applicable
Exchange or Nasdaq-NMS. Because the New Trust Series will likely
contain duplicate securities, there may be substantial brokerage
commissions on the purchase and sale of portfolio securities of the
same issuer that would be borne by the holders of units of both the
Rollover Trust Series and the New Trust Series. Applicants therefore
request an exemption from section 17(a) to permit a Rollover Trust
Series to sell Equity Securities to a New Trust Series and a New Trust
Series to purchase those Equity Securities at the closing sales prices
of such Equity Securities on the applicable Exchange or Nasdaq-NMS on
the sale date, provided applicants comply with rule 17a-7 under the Act
(other than certain provisions of paragraph (e) described herein).
9. In order to minimize overreaching, applicants agree that the
Sponsor will certify to the trustee, within five days of each sale 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 such
transaction, and (c) the closing sales price on the Exchange or Nasdaq-
NMS for the sale date of the securities subject to such sale. The
trustee then will 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 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 sales prices for the date of
the transaction.
Applicants' Legal Analysis
1. Section 12(d)(3) of the Act, with limited exceptions, prohibits
an investment company from acquiring any security issued by any person
who is a broker, dealer, underwriter, or investment adviser. Rule 12d3-
1 under the Act exempts the purchase of securities of an issuer that
derived more than fifteen percent of its gross revenues in its most
recent fiscal year from securities related activities, provided that,
among other things, immediately after such acquisition, the acquiring
company has invested not more than five percent of the value of its
total assets in securities of the issuer.
2. Section 6(c) of the Act provides that the SEC may exempt any
person, transaction, or class of transactions from any provision of the
Act or any rule thereunder, if and to the extent that 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.
3. The Series request an exemption under section 6(c) from section
12(d)(3) to permit a Defined Ten Series to invest up to approximately
10%, but in no event more than 10.5%, of the value of its total assets
in securities of an issuer that derives more than fifteen percent of
its gross revenues from securities related activities. Applicants also
request an exemption from section 12(d)(3) to permitted a Defined Five
Series to invest up to approximately 20%, but in no event more than
20.5%, of the value of its total assets in securities of an issuer that
derives more than fifteen percent of its gross revenues from securities
related activities. Each Series undertakes to comply with all of the
conditions of rule 12d3-1, except the condition prohibiting an
investment company from investing more than 5% of the value of its
total assets in securities of a securities related issuer.
4. Section 12(d)(3) was intended to prevent investment companies
from exposing their assets to the entrepreneurial risks of securities
related businesses, to prevent potential conflicts of interest, and to
eliminate certain reciprocal practices between investment companies and
securities related businesses. One potential conflict could occur if an
investment company purchased securities or other interests in a broker-
dealer to reward that broker-dealer for selling fund shares, rather
than solely on investment merit. Applicants believe that this concern
does not arise in connection with its application because neither the
Series nor the Sponsor have discretion in choosing the portfolio
securities or amount purchased. The security must first be included in
the appropriate index, which are each unaffiliated with the applicants,
and must also qualify as either one of the ten highest dividend
yielding stocks or one of the five lowest dollar price per share stocks
in the ten highest dividend yielding stocks in the DJIA.
5. Applicants also believe that the effect of a Series' purchase on
the stock of parents of broker-dealers would be de minimis. The common
stocks of securities related issuers represented in the DJIA, the FT
Index and the Hang Seng Index are widely held, have active markets, and
potential purchases by any Series would represent an insignificant
amount of the outstanding common stock and the trading volume of any of
these issues. Therefore, applicants believe that it is highly unlikely
that purchases of these securities by a Series would have any
significant impact on the securities' market value.
6. Another potential conflict of interest could occur if an
investment company directed brokerage to a broker-dealer in which the
company has invested to enhance the broker-dealer's
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profitability or to assist it during financial difficulty, even though
that broker-dealer may not offer the best price and execution. To
preclude this type of conflict, applicants agree, as a condition of
this application, that no company held in the portfolio of a Defined
Ten or Defined Five Series nor any affiliate thereof will act as a
broker for any Series in the purchase or sale of any security for such
Series' portfolio. In light of the above, applicants believe that their
proposal meets the section 6(c) standards.
7. Section 17(a) of the Act generally 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. The Series
may be under common control because they have a common sponsor.
8. Pursuant to section 17(b), the SEC may 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 policy of each registered investment company concerned; and (c) the
proposed transaction is consistent with the general purposes of the
Act. Under section 6(c), the SEC may exempt classes of transactions
from the Act. Applicants believe that the proposed sales of Equity
Securities from a Rollover Trust Series to a New Trust Series satisfy
the requirements of sections 6(c) and 17(b).
9. 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 to 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
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).
10. Applicants represent that purchases and sales between Series
will be consistent with the policy of a Rollover Trust Series and a New
Trust Series, as only securities that would otherwise be bought 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 on sales of securities and is therefore
contrary not only to the policies of a Series but to the general
purposes of the Act.
Applicants' Conditions
Applicants and each Series agree that any order granting the
application will be made subject to the following conditions:
A. Condition with respect to exemption from section 12(d)(3):
No company held in the Defined Ten Series' portfolio or the Defined
Five Series' portfolio, nor any affiliate thereof, will act as broker
for any Defined Ten Series or any Defined Five Series in the purchase
or sale of any security for such Series' portfolio.
B. Conditions with respect to exemption from section 17(a):
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
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 such transactions will be fully
disclosed to investors in the appropriate prospectus of each future
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 this application relating
to the sale of securities from a Rollover Trust Series and the purchase
of those securities for deposit in a New Trust 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,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-8707 Filed 4-8-96; 8:45 am]
BILLING CODE 8010-01-M
