[Federal Register Volume 63, Number 215 (Friday, November 6, 1998)]
[Notices]
[Pages 60033-60035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29719]
[[Page 60033]]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 23513; International Series Rel. No.
1166; 812-10558]
Ranson Unit Investment Trusts, et al.; Notice of Application
October 30, 1998.
AGENCY: Securities and Exchange Commission (the ``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section
12(d)(3) of the Act, and under sections 6(c) and 17(b) of the Act for
an exemption from section 17(a) of the Act.
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SUMMARY OF APPLICATION: Order requested to permit: (a) Certain series
of a unit investment trust (``UIT'') to invest up to 10.5% and certain
other series of a UIT to invest up to 20.5% of their respective total
assets in securities of issuers that derived more than 15% of their
gross revenues in their most recent fiscal year from securities related
activities; and (b) a terminating series of a UIT to sell portfolio
securities to a new series of the UIT.
Applicants: Ranson Unit Investment Trusts (the ``Trust'') and certain
subsequent series (each, a ``Series'' or ``Trust Series''), and Ranson
& Associates, Inc. (the ``Sponsor'').
Filing Dates: The application was filed on March 13, 1997. Applicants
have agreed to file an amendment to the application, the substance of
which is incorporated in this notice, during the notice period.
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 November 23,
1998, 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 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 Fifth Street, NW, Washington, DC 20549.
Applicants, 250 N. Rock Road, Suite 150, Wichita, KS 67206-2241.
FOR FURTHER INFORMATION CONTACT:
Lawrence W. Pisto, Senior Counsel, at (202) 942-0527, or Christine Y.
Greenlees, 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, 450 Fifth Street, NW., Washington,
DC 20549 (tell. 202-942-8090).
Applicants' Representations
1. Each Series will be a series of the Trust, a UIT registered
under the Act. The Sponsor is the Trust's depositor. Each Series will
be created under the laws of one of the United States pursuant to a
trust agreement, which will contain information specific to that
Series, and which will incorporate by reference a master trust
agreement between the Sponsor and a financial institution that is a
bank within the meaning of section 2(a)(5) of the Act and that
satisfies the criteria in section 26(a) of the Act (the ``Trustee'').
2. Each Series will hold a portfolio of common stocks which
represents a portion of a specific index (each, an ``Index''). The
investment objective of each Series is to seek a greater total return
than that achieved by the stocks comprising the entire related Index
over the life of the Series.
3. Certain Series (each, a ``Defined Ten Series'') will invest
approximately 10%, but no more than 10.5%, of their total assets in
each of the ten common stocks in the Dow Jones Industrial Average
(``DJIA''), the Financial Times Ordinary Share Index (``FT Index''), or
the Hang Seng Index, as the case may be, having the highest dividend
yields no more than three business days prior to the Defined Ten
Series' initial date of deposit. Certain other Series (each, a
``Defined Five Series'') will invest approximately 20%, but in no event
more than 20.5%, of their total assets in each of the five lowest
dollar price per share stocks of the ten common stocks in the DJIA, the
FT Index, or the Hang Seng Index, as the case may be, having the
highest dividend yields not more than three business days prior to the
Series' initial date of deposit.\1\
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\1\ The Sponsor strives to purchase equal values of each of the
common stocks in a Series' portfolio. However, it is more efficient
to purchase securities in 100 share lots and 50 share lots. As a
result, applicants may choose to purchase securities of a Securities
Related Issuer (as defined below) which represent more than 10%, but
in no event more than 10.5%, of a Defined Ten Series' assets, and
more than 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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4. Each of the DJIA, the FT Index, and the Hang Seng Index is a
recognized indicator of the stock market in its respective country.\2\
The publishers of the Indices 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. The common stocks included in
the Indices may include stocks of issuers that derive more than 15% of
their gross revenues from securities related activities, as that term
is defined in rule 12d3-1 under the Act, discussed below (``Securities
Related Issuers'').
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\2\ The DJIA, which is owned by Dow Jones & Company, Inc.,
comprises 30 widely-held common stocks listed on the New York Stock
Exchange, which are chosen by the editors of The Wall Street
Journal. The FT Index comprises 30 widely-held common stocks listed
on the London Stock Exchange, which are chosen by the editors of The
Financial Times. The Hang Seng Index comprises 33 common stocks
listed on the Stock Exchange of Hong Kong, Ltd.
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5. 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.
6. The Series' portfolios will not be actively managed. Sales of
portfolio securities will be made in connection with redemptions of
units, payment of expenses, and the termination of a 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 when an issuer defaults on the payment of any of
its outstanding obligations, or when the price of a security has
declined to such an extent or other credit factors exist so that in the
opinion of the Sponsor, it would be detrimental to the Series to retain
the securities. The adverse financial condition of an issuer will not
necessarily require the sale of its securities from a Series'
portfolio.
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''). The New Trust Series will be created on or about
the Rollover Date. The securities in each Rollover Trust Series will
be: (a) Actively traded (i.e., have had an average daily trading volume
in
[[Page 60034]]
the preceding six months of at least 500 shares equal in value to at
least U.S. $25,000) on (i) an exchange (an ``Exchange'') which is
either a national securities exchange which meets the qualifications of
section 6 of the Securities Exchange Act of 1934, or a foreign
securities exchange that meets the qualifications set forth in the
proposed amendments to rule 12d3-1(d)(6) under the Act \3\ and that
releases daily closing prices, or (ii) the Nasdaq National Market
System (the ``Nasdaq-NMS''), and (b) included in a published Index,
including but not limited to the DJIA, the FT Index, or the Hang Seng
Index (the securities meeting these requirements are referred to in
this notice as ``Equity Securities'').
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\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
defininig the term ``Qualified Foreign Exchange.''
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8. Applicants anticipate that there will be some overlap in the
Equity Securities selected for the portfolios of a Rollover Trust
Series and the related New Trust Series. Upon termination, absent the
requested relief, a Rollover Trust Series would sell all of its Equity
Securities on the applicable Exchange or Nasdaq-NMS. Likewise, a New
Trust Series would acquire its Equity Securities on the applicable
Exchange or Nasdaq-NMS. This procedure would result in the unitholders
of both the Rollover Trust Series and the New Trust Series incurring
brokerage commissions on the same Equity Securities.
Applicants' Legal Analysis
A. Purchases of Stocks of Securities Related Issuers in Excess of Rule
12d3-1 Limits
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 a Securities
Related Issuer, provided that, among other things, immediately after
the acquisition, the acquiring company has invested not more than five
percent of the value of its total assets in securities of the
Securities Related Issuer.\4\
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\4\ Under rule 12d3-1, a Securities Related Issuer is a person
that derives more than 15% of its gross revenues from activities as
a broker, dealer, underwriter, investment adviser registered under
the Investment Advisers Act of 1940, or investment adviser to a
registered investment company.
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2. As noted above, applicants state that some of the stocks
comprising the DJIA, the FT Index, and the Hang Seng Index include
securities of Securities Related Issuers. Applicants assert that, in
order to comply with rule 12d3-1, absent the requested relief, each
Defined Ten Series and Defined Five Series may be precluded from most
effectively implementing the Series' investment objective.
3. 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.
4. Applicants 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 a Securities Related Issuer, and to permit 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 a
Securities Related Issuer.
5. Applicants state that the proposed transactions satisfy the
requirements of sections 6(c). Applicants state that 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 state that this concern does not arise
in connection with the Defined Five or Defined Ten Series because
neither the Series nor the Sponsor has discretion in choosing the
securities of a Securities Related Issuer or the amount purchased;
rather, the Securities Related Issuer must qualify as either one of the
ten highest dividend yielding stocks or one of the five lowest dollar
price per share stocks of the ten highest dividend yielding stocks in
the DJIA.
6. Applicants also state that the effect of a Defined Five or
Defined Ten Series' purchase on the stock of a Securities Related
Issuer would be de minimis. Applicants assert that the 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 Defined Five or Defined Ten Series would represent an insignificant
amount of the outstanding common stock and the trading volume of any of
these Securities Related Issuers.
7. 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, applicants agree, as a condition to the order, that no
company held in the portfolio of a Defined Ten or Defined Five Series
nor any affiliate of the company will act as a broker for any Series in
the purchase or sale of any security for the Series' portfolio.
B. Purchases and Sales Between Trust Series
1. Section 17(a) of the Act prohibits an affiliated person of a
registered investment company from selling securities to, or purchasing
securities from, the company. Section 2(a)(3) of the Act defines an
``affiliated person'' of another person to include, in pertinent part,
any person directly or indirectly controlling, controlled by, or under
common control with, the other person. Each Trust Series will have a
common sponsor. Since the Sponsor of a Trust Series may be deemed to
control the Trust Series, all of the Trust Series may be deemed to be
under common control and, thus, affiliated persons of each other.
2. Rule 17a-7 under the Act permits registered investment companies
that might be deemed affiliates solely by reason of having 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. Applicants represent that
they will comply with all of the provisions of rule 17a-7, other than
paragraph (e).
3. Paragraph (e) of the rule requires an investment company's board
of directors to adopt and monitor certain procedures to assure
compliance with the rule. Since a UIT does not have a board of
directors, the Trust Series
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would be unable to comply with this requirement.
4. Section 17(b) of the Act provides that the SEC will 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 purposes of
the Act. As noted above, section 6(c) of the Act provides that the SEC
may exempt classes of transactions if 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. Applicants request relief under sections 6(c)
and 17(b) to permit a Rollover Trust Series to sell Equity Securities
to a New Trust Series and to permit the New Trust Series to purchase
the Equity Securities.
5. Applicants state that the proposed transactions satisfy the
standards of sections 6(c) and 17(b). Applicants represent that
purchases and sales between Trust Series will be consistent with the
policy of each Trust Series. Applicants further state that permitting
the proposed transactions would result in savings on brokerage fees for
the Trust Series.
6. Applicants state that the condition that the Equity Securities
must be actively traded on an Exchange or the Nasdaq-NMS protects
against overreaching. In addition, applicants state that the Sponsor
will certify to the Trustee, within five days of each sale of Equity
Securities 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 the transaction, and (c) the closing sales price on the Exchange or
on the Nasdaq-NMS for the sale date of the Equity Securities. The
Trustee will then countersign the certificate, unless, in the unlikely
event that the Trustee disagrees with the closing sales 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 the units of the new Trust Series, and distributions to
holders 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' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
A. Purchases of Stocks of Securities Related Issuers in Excess of Rule
12d3-1 Limits
No company held in a Defined Ten Series portfolio or a Defined Five
Series portfolio, nor any affiliate of the company, will act as broker
for any Defined Ten Series or any Defined Five Series in the purchase
or sale of any security for the Series' portfolio.
B. Purchases and Sales Between Trust Series
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 Equity
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 the transactions will be fully
disclosed to investors in the prospectus of each Rollover Trust Series
and New Trust Series.
3. The Trustee of each Rollover Trust Series and New Trust Series
will: (a) review the procedures 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 the order will be maintained as provided in
rule 17a-7(f).
For the SEC, by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-29719 Filed 11-5-98; 8:45 am]
BILLING CODE 8010-01-M