[Federal Register Volume 59, Number 195 (Tuesday, October 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25042]
[[Page Unknown]]
[Federal Register: October 11, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20597; 812-9178]
Van Kampen Merritt Equity Opportunity Trust, Series 1, et al.;
Notice of Application
October 4, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANT: Van Kampen Merritt Equity Opportunity Trust, Series 1 and
subsequent series (the ``Trust''), and Van Kampen Merritt or a sponsor
controlled by or under common control with Van Kampen Merritt (the
``Sponsor'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from
sections 14(a) and 19(b), and rule 19b-1 thereunder.
SUMMARY OF APPLICATION: Applicants seek an order that would exempt the
Sponsor from having to take for its own account or place with others
$100,000 worth of units in the Trust, and permit the Trust to
distribute capital gains dividends along with the Trust's other
distributions.
FILING DATE: The application was filed on August 19, 1994. Applicants
have agreed to file an additional amendment during the notice period.
This notice reflects the changes to be made by such additional
amendment.
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 October 31,
1994, 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 who wish to
be notified of a hearing may request such notification by writing to
the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants, One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Attorney, at (202) 942-0583, or Barry D.
Miller, Senior Special Counsel, 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. The Trust will consist of a series of unit investment trusts,
each of which will be similar but separate, and designated by a
different series number (``Trust Series''). Each Trust Series will
invest exclusively in equity securities (including common and preferred
stocks) or in equity securities and zero coupon obligations. The
objectives of the Trust series will vary in accordance with the nature
of their respective portfolios. Each Trust Series will be registered
under the Act, and under the Securities Act of 1933 by a registration
statement on Form S-6.
2. Each Trust Series will be created pursuant to a trust agreement
that will contain information specific to that Trust Series and that
will incorporate by reference the master trust indenture 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''). The trust agreement and the
master trust indenture are referred to collectively as the ``Trust
Agreement.''
3. The Sponsor will perform the normal functions of a unit
investment trust sponsor. The Sponsor will deposit the zero coupon
obligations, if any, and equity securities (collectively,
``Securities'') in the Trust Series at the price determined by an
independent evaluator. The Sponsor expects to deposit in each Trust
Series substantially more than $100,000 aggregate value of equity
securities or zero coupon obligations and equity securities. All zero
coupon obligations in any one Trust Series will have essentially
identical maturities, and the Sponsor will purchase all Securities from
third parties.
4. Simultaneously with the deposit of Securities in a Trust Series,
the Trustee will deliver to the Sponsor registered certificates for
units (the ``Units'') that will represent the entire ownership of the
Trust Series (owners of such Units are hereinafter referred to as
``Unitholders''). The Units in turn will be offered for sale to the
public following the effectiveness of the registration statement
relating to the Trust Series and clearance by the securities
authorities of the various states. Applicants intend to offer each
Trust Series to the public initially at prices based on the closing
sale prices of listed equity securities and the asking prices of over-
the-counter traded equity securities selected for deposit in the Trust
Series, plus the offering side value of the zero coupon obligations
contained therein, if any, plus a sales charge.
5. With the deposit of the Securities in the Trust Series
containing zero coupon obligations on the initial date of deposit, the
Sponsor will have established a proportionate relationship between the
zero coupon obligations and equity securities in the Trust Series. The
Sponsor will be permitted under the Trust Agreement to deposit
additional Securities, which may result in a potential corresponding
increase in the number of Units outstanding. The Sponsor anticipates
that any addition Securities deposited in the Trust Series after the
initial date of deposit will maintain the proportionate relationship
between the zero coupon obligations and equity securities in the Trust
Series. The original percentage relationships between zero coupon
obligations and equity securities will be set forth in the prospectus
and in each Trust Agreement.
6. Each Trust Series that contains zero coupon obligations will be
structured to ensure that, at the specified maturity date for that
Trust Series, the initial investors in such Trust Series will receive
back at least the total amount of their original investment in the
Trust Series, including the sales charge. Thus, the principal value of
the maturing zero coupon obligations in each Trust Series will at least
equal the original purchase price of the Units of such Trust Series.
Zero coupon obligations deposited in the Trust Series will be non-
callable or callable at par.
7. The Trust Series will redeem Units at prices based on the
aggregate bid side evaluation of the zero coupon obligations, if any,
and the closing sale prices of listed equity securities and the bid
prices of over-the-counter traded equity securities.
8. Although not obligated to do so, the Sponsor intends to maintain
a secondary market for the Units. 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 that contains
zero coupon obligations until equity securities 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. The Trust Agreement also will provide that
zero coupon obligations may not be sold to meet Trust expenses.
Applicants' Legal Analysis
1. Section 14(a) of the Act generally requires investment companies
to have $100,000 of net worth prior to making a public offering. Rule
14a-3 thereunder exempts unit investment trusts from this provision if
certain conditions are complied with, one of which is that the trust
invest only in ``eligible trust securities'' as defined in the rule.
The Trust may not rely on this rule because equity securities are not
eligible trust securities.
2. The Sponsor will deposit substantially more than $100,000 of
equity securities or zero coupon obligations and equity securities in
each Trust Series. However, applicants acknowledge that the SEC has
interpreted section 14(a) as requiring that the initial capital
investment in an investment company be made without any intention to
dispose of the investment. Under this interpretation, a Trust Series
would not satisfy section 14(a) because of the Sponsor's intention to
sell all the Units thereof. Accordingly, applicants request an
exemption from section 14(a). Applicants will comply in all respects
with the requirements of rule 14a-3, except that the Trust will not
restrict its portfolio investments to ``eligible trust securities.''
3. Section 19(b) and rule 19b-1 thereunder provide that no
registered investment company may distribute long-term gains more than
once every twelve months. Applicants state that these provisions were
designed to remove the temptation to realize capital gains on a
frequent and regular basis, and to eliminate attempts by investment
advisers to time distributions to be advantageous to shareholders.
Applicants also indicate that there was concern that investors would be
confused by a failure to distinguish between regular distributions of
capital gains and distributions of investment income.
4. Rule 19b-1(c), under certain circumstances, excepts a unit
investment trust investing in ``eligible trust securities'' as defined
in rule 14a-3(b) from the requirements of rule 19b-1. Applicants
believe that this exception recognizes the danger of making
manipulative capital gains distributions that would be to the detriment
of Unitholders is largely eliminated for unit investment trusts, as the
conditions under which capital gains are realized are beyond the
control of the Sponsor, and capital gains are clearly identifiable.
However, the Trust does not qualify for the exemption in rule 19b-1(c)
because it does not limit its investments to ``eligible trust
securities.'' Applicants therefore request an exemption from rule 19b-1
to the extent necessary to permit capital gains earned in connection
with the sale of equity securities to be distributed to Unitholders
along with the Trust's regular distributions.
5. Applicants assert that the dangers that section 19(b) and rule
19b-1 are designed to prevent do not exist in the Trust. Any gains from
the sale of equity securities would be triggered by the need to meet
Trust expenses or by requests to redeem Units, events over which the
Sponsor and the Trust have no control. Applicants state that the
Sponsor has control over the actual redemption of Units to the extent
it makes a market in Units. However, applicants also state that the
Sponsor has no incentive to redeem or permit the redemption of Units in
order to generate capital gains for the purpose section 19(b) or rule
19b-1 were designed to protect against. Aside from the fact that the
Sponsor intends to maintain a secondary market and that the current
realization and distribution of gains is not an objective of the Trust,
applicants believe that cash generated from the sale of equity
securities will be used to pay expenses and meet redemptions and will
not generate distributions to Unitholders. Moreover, applicants state
that since principal distributions are clearly indicated in
accompanying reports to Unitholders as a return of principal and are
relatively small in comparison to normal distributions, there is little
danger of confusion from failure to differentiate among distributions.
6. Applicants believe that the requested exemption is consistent
with the purposes and policies of the Act, and would be in the best
interests of the Unitholders.
Applicants' Condition
Applicants agree to the following as a condition to the granting of
the requested relief:
Applicants will comply in all respects with the requirements of
rule 14a-3, except that the Trust will not restrict its portfolio
investments to ``eligible trust securities.''
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-25042 Filed 10-7-94; 8:45 am]
BILLING CODE 8010-01-M
