[Federal Register Volume 66, Number 3 (Thursday, January 4, 2001)]
[Notices]
[Pages 818-819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-215]



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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24806; 812-11374]


Nike Securities L.P., et al.; Notice of Application

December 28, 2000.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') from section 26(a)(2)(D) 
of the Act.

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Summary of Application: Applicants seek an order to permit certain unit 
investment trusts (``UITs'') to deposit trust assets in the custody of 
foreign banks and securities depositories.

Applicants: Nike Securities L.P. (the ``Sponsor'') and FT Series (the 
``Trust'').

Filing Dates: The application was filed on October 28, 1998 and amended 
on November 17, 2000.

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 January 22, 
2001, 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, 1001 Warrenville Road, Lisle, IL 60532.

FOR FURTHER INFORMATION CONTACT: Sara P. Crovitz, Senior Counsel, at 
(202) 942-0667 or Nadya B. Roytblat, Assistant Director, at (202) 942-
0693 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee at the 
SEC's Public Reference Branch, 450 5th Street, NW., Washington, DC 
20549 (telephone (202) 942-8090).

Applicants' Representations

    1. The Sponsor is a broker-dealer registered under the Securities 
Exchange Act of 1934. The Trust is registered under the Act and 
consists of several UITs registered or to be registered under the 
Securities Act of 1933 (the ``Trust Series''). Each Trust Series is 
created under the laws of the U.S. pursuant to a trust agreement that 
will contain information specific to that Trust Series and which will 
incorporate by reference a master trust indenture (the ``Indenture'') 
among the Sponsor, a bank (as defined in section 2(a)(5) of the Act), 
an evaluator, and a supervisor. Applicants request that any order 
granted pursuant to the application extend to any future UIT sponsored 
by the Sponsor or an entity controlling, controlled by, or under common 
control with the Sponsor (together with the Trust, the ``Trusts'' and 
their series, ``Trust Series'') and any bank which acts as trustee (a 
``Trustee'') for any Trust Series.
    2. Several Trust Series have investment objectives that specify the 
investment of assets in non-United States securities. To date, the 
existing Trust Series that invest in foreign securities have been able 
to deposit those securities in the custody of a foreign branch of a 
U.S. bank or with the securities clearance and depository facilities 
operated by Morgan Guaranty Trust Company of New York, in its capacity 
as operator of the Euroclear System (``Euroclear''), or with Central de 
Livraison de Valeurs Mobilieres, S.A. (``Cedel''), under an exemptive 
order granted to The Chase Manhattan Bank.\1\ Future Trust Series may 
invest in foreign securities traded in countries (such as Australia, 
France, and New Zealand) that either are not eligible for settlement 
through Euroclear or Cedel or for which those depositories are not used 
in the ordinary course of settling transactions. Applicants therefore 
request an order to permit the Trust Series to deposit investments, 
including foreign currencies, for which the primary market is outside 
the United States and such cash and cash equivalents as reasonably 
necessary to effect the Trust Series' transactions in those investments 
(collectively, ``Foreign Investments''), with any foreign bank or 
securities depository subject to the requirements described below.
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    \1\ Investment Company Act Release Nos. 22000 (May 31, 1996) 
(notice) and 23186 (May 14, 1998) (order) and 21673 (Jan. 16, 1996) 
(notice) and 21751 (Feb. 16, 1996) (order).
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Applicants' Legal Analysis

    1. Under sections 2(a)(5) and 26(a)(1) of the Act, the trustee of a 
UIT must be a bank that is subject to regulation by the U.S. government 
or one of the states. Section 26(a)(2)(D) also requires that the trust 
indenture provide that the trustee ``shall have possession of all 
securities and other property in which the funds of the trust are 
invested * * * and shall segregate and hold the same in trust * * * 
until distribution thereof to the security holders of the trust.'' 
Under these provisions, the only foreign entity that qualifies as a UIT 
custodian is an overseas branch of a U.S. bank.
    2. Section 6(c) provides that the SEC may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of persons, securities, or transactions, from any 
provision of the Act or any rule or regulation under the Act 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. Rules 17f-5 and 17f-7 under the Act govern the custody of assets 
of registered management investment companies overseas. Applicants seek 
an order under section 6(c) exempting them and any U.S. bank that acts 
as Trustee for any Trust Series from section 26(a)(2)(D) of the Act to 
the extent necessary to permit a Trustee to deposit Foreign Investments 
with an eligible foreign custodian as that term is defined in rule 17f-
5 under the Act (``Eligible Foreign Custodian''), or eligible 
securities depository, as that term is defined in rule 17f-7 under the 
Act (``Eligible Securities Depository'').\2\
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    \2\ Applicants state that, although the compliance date for rule 
17f-5, as last amended, and rule 17f-7 is July 2, 2001, they will 
comply with amended rule 17f-5 and rule 17f-7 upon the issuance of 
the requested order.
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    4. Under the proposed arrangements, a Trust Series would comply 
with all of the requirements of rule 17f-5, as amended on June 12, 
2000, except that the Trustee would perform the duties that rule 17f-5 
requires to be performed by the foreign custody manager, as that term 
is defined in rule 17f-5 (``Foreign Custody Manager''). Applicants 
state that the Trustee can fulfill the duties of a Foreign Custody 
Manager under rule 17f-5 to select an Eligible Foreign Custodian and 
monitor the foreign custody arrangements. Applicants also assert that 
the Trustee will have the necessary expertise and generally be in the 
best position to make the determinations required by rule 17f-5. Under 
the proposed arrangements, a Trust Series also would comply with all of 
the requirements of rule 17f-7, with the Trustee providing the risk 
analysis to the Sponsor, monitoring the custody risks associated with 
maintaining

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Foreign Investments with an Eligible Securities Depository on a 
continuing basis, and promptly notifying the Sponsor of any material 
change in these risks. Applicants also state that the Sponsor will be 
required to take appropriate action in response to a notification by 
the Trustee.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Indenture will contain provisions under which the Trustee 
agrees to indemnify the Trust Series against the risk of loss of Trust 
Series' Foreign Investments held with an Eligible Foreign Custodian in 
accordance with the foreign custody contract.
    2. The Indenture will contain provisions under which the Trustee 
agrees to exercise reasonable care, prudence, and diligence such as a 
person having responsibility for the safekeeping of Trust Series assets 
would exercise, and to be liable to the Trust Series for any loss 
occurring as a result of the Trustee's failure to do so.
    3. The Indenture will contain provisions under which the Trustee 
agrees to perform all the duties assigned by rule 17f-5, as now in 
effect or as it may be amended in the future, to a Foreign Custody 
Manager. A Trustees' duties under this condition will not be delegated.
    4. The Indenture will contain provisions under which the Trustee 
agrees that it (or the Trustee's agent) will (i) provide the Sponsor 
with an analysis of the custody risks associated with maintaining 
assets with an Eligible Securities Depository; (ii) monitor the custody 
risks associated with maintaining assets with the Eligible Securities 
Depository on a continuing basis and promptly notify the Sponsor of any 
material change in these risks; and (iii) exercise reasonable care, 
prudence and diligence in performing the foregoing duties.
    5. The Sponsor will be required to take appropriate action in 
response to a notification by the Trustee provided pursuant to 
condition 4 above.
    6. The Trust Series' prospectuses will contain such disclosure 
regarding foreign securities and foreign custody as is required for 
management investment companies by Forms N-1A and N-2. The prospectus 
also will contain disclosure concerning the Sponsor's responsibilities 
pursuant to condition 5 above.
    7. The Trustee will maintain and keep current written records 
regarding the basis for the choice or continued use of each foreign 
custodian. These records will be preserved for a period of not less 
than six years from the end of the fiscal year in which the Trust 
Series was terminated, the first two years in an easily accessible 
place. The records will be available for inspection at the Trustee's 
main office during the Trustee's usual business hours, by unitholders 
and by the Commission or its staff.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-215 Filed 1-3-01; 8:45 am]
BILLING CODE 8010-01-M