[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