[Federal Register Volume 59, Number 200 (Tuesday, October 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25645]
[[Page Unknown]]
[Federal Register: October 18, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 20610; 812-9058]
Van Kampen Merritt Equity Opportunity Trust; Notice of
Application
October 11, 1994.
AGENCY: Securities and Exchange Commission (the ``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
APPLICANT: Van Kampen Merritt Equity Opportunity Trust.
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from the
provisions of section 12(d)(3).
SUMMARY OF APPLICATION: Applicant seeks a conditional order on behalf
of itself and certain subsequent series (collectively, the ``Series'')
to permit each Series to invest up to 10% of its 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.
FILING DATES: The application was filed on June 20, 1994, and amended
on September 22, 1994.
HEARING OR NOTIFICATION OF HEARING: Interested persons may request a
hearing on the application 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 November
7, 1994, 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, c/o Van Kampen Merritt Inc., One Parkview Plaza,
Oakbrook Terrace, Illinois 60181.
FOR FURTHER INFORMATION CONTACT:
James J. Dwyer, Staff Attorney, at (202) 942-0581, or C. David Messman,
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.
Applicant's Representations
1. Each Series will be a series of Van Kampen Merritt Equity
Opportunity Trust, a unit investment trust registered under the Act.
Van Kampen Merritt Inc. (``VKM'') is applicant's depositor. VKM
currently intends to offer a new Series at about the time each Series
terminates.
2. Each Series' investment objective is to provide total return
through a combination of potential capital appreciation and current
dividend income. Each Series will invest approximately 10%, but in no
event more than 10.5%,\1\ of the value of such Series' total assets in
the ten common stocks of the Dow Jones Industrial Average (``DJIA'')
having the highest dividend yields. Dividend yields will be calculated
by annualizing the last quarterly or semi-annual ordinary dividend
distributed on that security and dividing the result by the market
value of the security at the close of the New York Stock Exchange no
more than three business days prior to such Series' initial date of
deposit.
---------------------------------------------------------------------------
\1\The objective for each Series is to purchase securities so
that each of the ten common stocks represents approximately 10% of
the value of the Series' total assets on the initial date of
deposit. VKM generally purchases the securities for each Series in
100 share lots, and on occasion in 50 share lots. Buying securities
in this manner permits VKM to obtain the best price for the
securities while allowing each of the 10 stocks to represent close
to 10% of the value of a Series' total assets. To accommodate these
purchase requirements, some stocks may represent up to 10.5% of the
value of the Series' assets, while others may represent less than
10%.
---------------------------------------------------------------------------
3. The DJIA 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 DJIA is the property of Dow Jones & Company, Inc.,
which is not affiliated with VKM or any Series and does 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. VKM will have no discretion
as to which securities are purchased. Securities deposited in a Series
may include securities of issuers that derived more than 15% of their
gross revenues in their most recent year from ``securities related
activities,'' as defined in rule 12d3-(d)(1) under the Act.
5. During the 90-day period following the initial date of deposit,
VKM may deposit additional securities, maintaining to the extent
practicable the original proportionate relationship among the number of
shares of each stock in the portfolio. Subsequent deposits made after
the 90-day period following the initial date of deposit must, subject
to certain limited exceptions set forth in the trust agreement,
replicate exactly the proportionate relationship among the face amounts
of the securities comprising the portfolio at the end of the initial
90-day period, whether or not a stock continues to be among the 10
highest dividend yielding stocks.
6. The Series' portfolios will not be actively managed. Sales of
portfolio securities will be made in connection with redemptions and at
the termination of the trust. VKM will have no discretion as to when
securities will be sold except in certain limited situations specified
in the trust agreement.\2\ The adverse financial condition of an issuer
will not necessarily require the sale of its securities from a Series'
portfolio.
---------------------------------------------------------------------------
\2\For example, the trust agreement provides that VKM may, but
need not, direct the trustee to dispose of an equity security in
certain events such as the issuer having defaulted on the payment on
any of its outstanding obligations or the price of an equity
security has declined to such an extent or other such credit facts
exist so that in the opinion of VKM the retention of such securities
would be detrimental to the Series.
---------------------------------------------------------------------------
Applicant's Legal Analysis
1. Section 12(d)(3) of the Act generally prohibits an investment
company from acquiring any security issued by any person who is a
broker, dealer, underwriter, or investment adviser. Rule 12d3-1 exempts
from section 12(d)(3) purchases by an investment company of securities
of an issuer (except the company's investment adviser, promoter, or
principal underwriter, or any affiliated person of any of the
foregoing) 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. Applicant and each subsequent Series agree
to comply with all the provisions of rule 12d3-1, except for the 5%
limitation imposed by paragraph (b)(3) thereof.
2. Applicant seeks an exemption to permit any 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 an issuer that derives more than 15%
of its gross revenues from securities related activities, provided that
such securities represent one of the ten highest dividend yielding
stocks in the DJIA as determined by the objective formula described
above.
3. Applicant asserts that section 12(d)(3) was intended to prevent
investment companies from exposing their assets to the entrepreneurial
risk of securities related businesses, to prevent potential conflicts
of interest, and to eliminate certain reciprocal practices between
investment companies and securities related businesses.
4. One potential conflict could occur if an investment company
purchased securities of or other interests in a broker-dealer to reward
that broker-dealer for selling shares, rather than solely on investment
merit. Applicant argues that this concern does not arise in connection
with its application because neither applicant nor VKM has discretion
in choosing the securities or percentage amount purchased. The security
must first be included in the DJIA which is unaffiliated with VKM and
applicant, and must also qualify as one of the 10 highest dividend
yielding securities as calculated by the objective formula described
above.
5. Applicant states that the effect of a Series' purchase on the
stock of parents of broker-dealers would be de minimis. Applicant
asserts that the common stocks of securities related issuers
represented in the DJIA are generally widely held, have active markets,
and that potential purchases by any Series would represent an
insignificant amount of the outstanding common stock and the trading
volume of any of these issues. According to applicant, it is highly
unlikely that purchases of these securities by a Series would have any
significant impact on the market value of any such securities.
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 the 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 the portfolio of a Series nor any
affiliated person thereof will act as broker for any Series in the
purchase or sale of any security for its portfolio.
7. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act if and
to the extent 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.
Applicant believes that the requested relief satisfies the standards
set forth in section 6(c).
Applicant's Condition
Applicant and each subsequent Series agree that the requested
exemptive order may be conditioned upon no company held in the Series'
portfolio nor any affiliated person 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. 94-25645 Filed 10-17-94; 8:45 am]
BILLING CODE 8010-01-M
