[Federal Register Volume 59, Number 94 (Tuesday, May 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11884]
[[Page Unknown]]
[Federal Register: May 17, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20285; 812-8810]
First Trust Special Situations Trust, First Investors Blue Chip
and Treasury Securities Trust, et al.; Application
May 10, 1994.
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: First Trust Special Situations Trust, First Investors Blue
Chip and Treasury Securities Trust, Series 1 and Subsequent Series (the
``Trust''); First Investors Series Fund on behalf of itself and its
series, First Investors Blue Chip Series, First Investors Special
Situations Series, and First Investors Total Return Series (the
``Funds''); First Investors Corporation (``FIC''); First Investors
Management Company, Inc. (``FIMCO''); and Nike Securities L.P. or a
sponsor controlled by or under common control with Nike Securities L.P.
(``Nike'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act to
grant exemptions from sections 12(d)(1), 14(a), 19(b), and 22(d) of the
Act and rule 19b-1 thereunder; under sections 11(a) and (c) to permit
certain offers of exchange; and under section 17(d) and rule 17d-1 to
permit certain affiliated transactions.
SUMMARY OF APPLICATION: Applicants seek an order: (a) Permitting series
of the Trust to invest in shares of one of the Funds and zero coupon
obligations; (b) exempting the sponsor from having to take for its own
account or place with others $100,000 worth of units in the Trust; (c)
permitting the Trust to distribute capital gains resulting from
redemptions of Fund shares within a reasonable time after receipt; (d)
permitting waiver of any contingent deferred sales charge (``CDSC'')
otherwise applicable on Fund shares that the Trust has purchased; (e)
permitting certain offers of exchange involving the Trust; and (f)
permitting certain affiliated transactions involving the Trust.
FILING DATES: The application was filed on February 2, 1994 and amended
on April 29, 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 June 6, 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 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: Nike and the Trust, 1001 Warrenville Road, Lisle, Illinois
60532; the Funds, FIMCO and FIC, 95 Wall Street, New York, New York
10005.
FOR FURTHER INFORMATION CONTACT: Felice R. Foundos, Senior Attorney, at
(202) 942-0571, 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 of the Funds is a series of First Investors Series Fund, an
open-end management investment company registered under the Act. FIMCO
serves as the Funds' investment adviser, and FIC serves as the Funds'
principal underwriter. Each of the Funds offers its shares subject to a
rule 12b-1 plan and a front-end sales load. None of the Funds charge,
or currently proposes to charge, a CDSC. Applicants request that any
relief granted herein apply to any mutual fund other than money market
or no-load funds or portfolios thereof that may in the future be
advised by FIMCO or an adviser under common control with FIMCO.
2. The Trust will consist of a series of unit investment trusts
(the ``Trust Series''). Each Trust Series will have a portfolio
consisting of shares of one Fund and U.S. Government zero coupon
obligations. The Trust's objective is to provide protection of capital
while providing for capital appreciation. Each Trust Series will be
organized pursuant to a trust agreement that will contain information
specific to that Trust Series and will incorporate a master trust
indenture between Nike, the sponsor for each Trust Series (the
``Sponsor''), and a qualified bank as trustee (the ``Trustee'').
3. The Sponsor will deposit zero coupon obligations in the Trust at
a price determined by an independent evaluator and shares of the Funds
at net asset value. The Sponsor expects to deposit substantially more
than $100,000 aggregate value of zero coupon obligations and Fund
shares in each Trust Series.
4. Trust units will be offered for sale to the public through the
final prospectus by the Sponsor. Trust Series will be offered to the
public initially at prices based on the net asset value of the Fund
shares selected for deposit in that Trust Series, plus the offering
side value of the zero coupon obligations contained therein, plus a
sales charge. The Trust will redeem units at prices based on the
aggregate bid side evaluation of the zero coupon obligations and the
net asset value of the Fund shares.
5. With the deposit of the securities in the Trust Series on the
initial date of deposit, the Sponsor will have established a
proportionate relationship between the principal amounts of zero coupon
obligations and Fund shares in the Trust Series. The Sponsor will be
permitted under the Trust Agreement to deposit additional securities,
which may result in a corresponding increase in the number of units
outstanding. Such units may be continuously offered for sale to the
public by means of the prospectus. The Sponsor anticipates that any
additional securities deposited in the Trust Series subsequent to the
initial date of deposit in connection with the sale of these additional
units will maintain the proportionate relationship between the
principal amounts of zero coupon obligations and Fund shares in the
Trust Series.
6. The sales load that normally would be applicable on sales of
underlying Fund shares will be waived. Moreover, the Sponsor and FIC
will rebate to the Trustee any rule 12b-1 fees they receive on shares
of the Funds held by the Trust.
7. Each Trust Series will be structured so that it will contain a
sufficient amount of zero coupon obligations to ensure that, at the
specified maturity date for such Trust Series, the initial purchasers
of units on the first date they are offered would receive back at least
the total amount of their original investment in the Trust, including
the sales charge. Such investors would receive more than their original
investment to the extent that the underlying Fund made any
distributions during the life of the Trust and/or had any value at the
maturity of the Trust Series.
8. The Sponsor intends to maintain a secondary market for Trust
units, but is not obligated to do so. The existence of such a secondary
market will reduce the number of units tendered to the Trustee for
redemption and thus alleviate the necessity of selling portfolio
securities to raise the cash necessary to meet such redemptions. In the
event that the Sponsor does not maintain a secondary market, the Trust
Agreement will provide that the Sponsor will not instruct the Trustee
to sell zero coupon obligations from any Trust Series until shares of
the Fund have been liquidated in order not to impair the protection
provided by the zero coupon obligations, unless the Trustee is able to
sell such zero coupon obligations and still maintain at least the
original proportional relationship to unit value and, further, that
zero coupon obligations may not be sold to meet Trust expenses.
9. The Trust has taken certain steps to reduce the impact of the
termination of a Trust Series of the Fund deposited therein. First, the
Trust will, with respect to all unitholders still holding units at
scheduled termination and to the extent desired by such unitholders,
transfer the registration of their proportionate number of Fund shares
from the Trust to a registration in the investor's name in lieu of
redeeming such shares. Second, the Fund will offer all such unitholders
the option of investing the proceeds from the zero coupon obligations
in Fund shares at net asset value. Thus, it is anticipated that many of
the unitholders will elect to invest their proceeds of the Trust Series
in an account of the Fund and become direct shareholders of the Fund.
The Fund also will offer unitholders the option of investing all
distributions from the Trust during the life of the Trust Series in
Fund shares at net asset value.
Applicants' Legal Analysis
1. Section 12(d)(1) of the Act generally limits acquisition by an
investment company, such as the Trust, of shares of a registered
investment company, such as a Fund. The section is intended to prevent
the duplication of costs, concentration of control and other adverse
consequences to investors incident to the pyramiding of investment
companies. Applicants' proposal is structured to eliminate duplicative
costs. Each of the Funds will sell shares to the Trust at net asset
value. The Sponsor and FIC will rebate any rule 12b-1 fees they receive
on Fund shares held by the Trust. Since the Trust has an unmanaged
portfolio, there will be no duplicative advisory fees charged. Further,
no evaluation fee will be charged with respect to Fund shares in the
Trust. To address the concern of the concentration of voting power,
applicants have agreed that shares of a Fund that are held by a Trust
will be voted by the Trustee in the same proportion as all other shares
of that Fund not held by the Trust are voted. Lastly, another concern
underlying section 12(d)(1) is the possibility of large-scale
redemptions of shares of the underlying fund. Applicants believe that
the requirements of the Trust Agreement which permit the Trust to sell
shares only when necessary to meet the redemptions or pay Trust
expenses will greatly limit redemptions of Fund shares.
2. Section 14(a) of the Act requires that investment companies have
$100,000 of net worth prior to making a public offering. The Sponsor
will deposit substantially more than $100,000 invested in zero coupon
obligations and Fund shares in each Trust Series. Applicants recognize,
however, that section 14(a) has been interpreted to require that the
initial capital investment in an investment company be made without an
intent to dispose of the investment. Under this interpretation, the
Trust Series would not satisfy section 14(a) because of the Sponsor's
intention to sell the units. Consequently, applicants request an
exemption from section 14(a). To satisfy the objectives of section
14(a), applicants will comply in all respects with the requirements of
rule 14a-3 except that the Trust would not restrict its portfolio
investments to ``eligible trust securities.''
3. Section 19(b) of the Act and rule 19b-1 thereunder provide that,
except under limited circumstances, no registered investment company
may distribute long-term gains more than once every twelve months.
Applicants request an exemption from rule 19b-1 to the extent necessary
to permit capital gains earned in connection with the redemption of
Fund shares to be distributed to unitholders along with the Trust's
regular distributions.
4. Section 22(d) of the Act generally prohibits a registered
investment company from selling its shares except at a current offering
price described in the prospectus. While none of the Funds currently
impose a CDSC, applicants request an exemption from section 22(d) to
the extent necessary to permit the waiver of any CDSC that may be
imposed in the future on: (a) redemptions by the Trust of any of its
holdings of the Funds; and (b) redemptions by investors of their
holdings of the Funds attributable to their (i) reinvestment of
proceeds of the zero coupon obligations at maturity of the Trust, (ii)
transfer of registration at maturity of the Trust of the proportionate
number of Fund shares from the Trust to the investor, and (iii)
reinvestment, if any, of Trust distributions made during the life of a
Trust.
5. Section 11(a) of the Act makes it unlawful for any registered
open-end investment company or principal underwriter for such company
to make certain offers of exchange on any basis other than the relative
net asset value of the securities to be exchanged, unless the terms of
the exchange offer have first been approved by the Commission. Section
11(c) provides that section 11(a) will be applicable to any type of
exchange offer involving securities of a registered unit investment
trust, irrespective of the basis of exchange. Applicants seek approval
of a termination option. At the termination of the Trust, unitholders
still holding units at maturity will have the option of either (a)
transferring the registration of their proportionate number of Fund
shares from the Trust to a registration in the investor's name, or (b)
receiving a cash distribution. Such unitholders also will have the
option of either (a) reinvesting the proceeds of the zero-coupon
obligations in Fund Shares at net asset value, or (b) receiving a cash
distribution. The exchanges will be made on the basis of the net asset
value of the Funds shares.
6. Section 17(d) of the Act and rule 17d-1 thereunder make it
unlawful for any affiliated person of, or principal underwriter for, a
registered investment company, acting as a principal, to engage in a
joint transaction with the investment company unless the joint
transaction has been approved by the Commission. Applicants' proposed
arrangements may be a joint transaction under these provisions.
Applicants believe that the proposed arrangements are consistent with
the provisions, policies, and purposes of the Act.
Applicants' Conditions
Applicants agree to the following as conditions to the granting of
the requested order:
1. The Trustee will not redeem Fund shares except to the extent
necessary to meet redemptions of units by unitholders, or to pay Trust
expenses should distributions and rebated 12b-1 fees received on Fund
shares prove insufficient to cover such expenses.
2. Any rule 12b-1 fees received by the Sponsor or FIC in connection
with the distribution of Fund shares to the Trust will be immediately
rebated to the Trustee.
3. No one Series of the Trust will, at the time of any deposit of
any Fund shares, hold as a result of that deposit, more than 10% of the
then-outstanding shares of a Fund.
4. All Trust Series investing in shares of the same Fund will be
structured so that their maturity dates will be at least thirty days
apart from one another.
5. Applicants will comply in all respects with the requirements of
rule 14a-3, except that the Trusts will not restrict their portfolio
investments to ``eligible trust securities.''
6. Shares of a fund which are held by a Series of the Trust will be
voted by the Trustee of the Trust, and the Trustee will vote all shares
of a Fund held in a Trust in the same proportion as all other shares of
that Fund not held by the Trust are voted.
7. No sales charge or redemption fee will be imposed on any shares
of the Funds deposited in any Series of the Trust or on any shares
acquired by unitholders through reinvestment of dividends or
distributions or through reinvestment at termination.
8. In the event any CDSC is imposed by any Fund, applicants agree
to comply with rule 6c-10 as currently proposed, and as it may be
reproposed, adopted or amended.
9. The prospectus of each Trust Series and any sales literature or
advertising that mentions the existence of a reinvestment option will
disclose that shareholders who elect to invest in Fund shares will
incur a rule 12b-1 fee.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-11884 Filed 5-16-94; 8:45 am]
BILLING CODE 8010-01-M
