[Federal Register Volume 61, Number 146 (Monday, July 29, 1996)]
[Notices]
[Pages 39490-39491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19119]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22086; International Series Release No. 1009; File No.
812-10192]
The First Trust Special Situations Trust; Notice of Application
July 22, 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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APPLICANT: The First Trust Special Situations Trust.
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from section 12(d)(3) of the Act.
SUMMARY OF APPLICATIONS: Applicant requests an order on behalf of
itself and certain series (the ``Series'') to permit certain Series
(the ``Foreign Target Ten Series'') to invest up to 10.5% and certain
other Series (the ``Foreign Target Five Series'') to invest up to 20.5%
of their respective total assets insecurities of issuers that derived
more than 15% of their gross revenues in their most recent fiscal year
from securities related activities (``Securities Related Issuers'').
FILING DATE: The application was filed on June 5, 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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on August 16, 1996,
and should be accompanied by proof of service on applicant, 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, N.W., Washington, D.C.
20549. Applicant, 1001 Warrenville Road, Lisle, Illinois 60532.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, 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 at the
SEC's Public Reference Branch.
Applicant's Representations
Each Series will be a series of the First Trust Special Situations
Trust (the ``Trust''), a unit investment trust registered under the
Act. Nike Securities L.P. (the ``Sponsor'') is the depositor for the
Trust.
2. Each Series' investment objective is to provide total return
through a combination of potential capital appreciation and current
dividend income. The Foreign Target Ten Series will invest
approximately 10%, but in no event more than 10.5%, of the value of its
total assets in each of the ten common stocks in the Financial Times
Ordinary Share Index (the ``FT Index''), the Hang Seng Index, or the
Nikkei 225 Index, as the case may be, with the highest dividend yields,
and will hold those stocks for approximately one year. The Foreign
Target Five Series will invest approximately 20%, but in no event more
than 20.5% of the value of its total assets in each of the five lowest
dollar price per share stocks of the ten common stocks in the FT Index,
Hang Seng Index or the Nikkei 225 Index, as the case may be, having the
highest dividend yields, and will hold those stocks for approximately
one year. The Sponsor currently intends (but is not obligated) to offer
a new Series at about the time each Series terminates.
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\1\ The Sponsor will attempt to purchase equal values of each of
the common stocks in the portfolio of a Foreign Target Ten Series
and a Foreign Target Five Series. However, it is more efficient if
securities are purchased in 100 share lots and 50 share lots. As a
result, each Foreign Target Ten Series may purchase securities of a
Securities Related Issuer which represent over ten percent, but in
no event more than 10.5 percent, of such Series' assets, and each
Foreign Target Five Series may purchase securities of a Securities
Related Issuer which represent over twenty percent, but in no event
more than 20.5%, of such 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 FT Index comprises 30 common stocks listed on the London
Stock Exchange chosen by the editors of the Financial Times (London) as
representative of British industry and commerce. The companies are
major factors in their industries and their stocks are widely held by
individuals and institutional investors. The Hang Seng Index is a
weighted average of 33
[[Page 39491]]
companies listed on the Hong Kong stock exchange representative of Hong
Kong industry. The Hang Seng Index is a recognized indicator of stock
market performance in Hong Kong. The Nikkei 225 Index is a price-
weighted index comprised of 225 Japanese companies listed on the Tokyo
Stock Exchange. The Nikkei 225 Index is well-known both inside and
outside Japan. The publishers of the FT Index, Hang Seng Index and the
Nikkei 225 Index are not affiliated 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 not have any discretion as to which
securities are purchased. Securities deposited in a Series may include
securities issued by Securities Related Issuers.
5. The Series' portfolios will not be actively managed. Sales of
portfolio securities will be made in connection with redemptions, with
payment of expenses, and at termination of the Series on a date
specified a year in advance. The Sponsor does not have 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 a security, or other such credit factors exist so that,
in the opinion of the Sponsor, the retention of such securities would
be detrimental to the Series. The adverse financial condition of an
issuer will not necessarily require the sale of its securities from a
Series' portfolio.
Applicant's Legal Analysis
1. Section 12(d)(3) 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 purchases of
securities of an issuer that derived more than 15% 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 5% 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 a
person 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. Applicant requests an exemption under section 6(c) from section
12(d)(3) to permit any Foreign Target 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 a Securities Related Issuer and to permit
a Foreign Target Five Series to invest up to 20%, but in no event more
than 20.5% of the value of its total assets in securities of a
Securities Related Issuer. Each Series will 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. Applicant believes that this concern
does not arise in connection with its application because neither it
nor the Sponsor has discretion in choosing the portfolio securities or
amount purchased. The security must first be included in the
appropriate index, which indexes are unaffiliated with applicant or the
Sponsor. In addition, with respect to the Foreign Target Ten Series,
the securities must also qualify as one of the ten highest dividend
yielding securities in the respective index, and with respect to the
Foreign Target Five Series, the securities must qualify as one of the
five lowest dollar price per share stocks of the ten highest dividend
yielding stocks in the respective index.
5. Applicant also believes that the effect of a Series' purchase on
the stock of parents of broker-dealers or other securities companies
would be de minimis. The common stocks of Securities Related Issuers
represented in the FT Index, the Hang Seng Index, or the Nikkei 225
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.
Accordingly, applicant believes 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 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, applicant and each Series agree, as a condition of this
application, that no company held in a Series' portfolio nor any
affiliate thereof will act as a broker for any Series in the purchase
or sale of any security for its portfolio.
7. Applicant believes that the requested relief is 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.
Applicant's Condition
Applicant and each Series agree that any order granted under this
application may be conditioned upon no company held in the Series'
portfolio, nor any affiliate thereof, acting as broker for any Series
in the purchase or sale of any security for the Series' portfolio.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-19119 Filed 7-26-96; 8:45 am]
BILLING CODE 8010-01-M