[Federal Register Volume 59, Number 155 (Friday, August 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19678]
[[Page Unknown]]
[Federal Register: August 12, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20447; 812-8500]
Defined Asset Funds--Equity Income Fund, et al.; Notice of
Application
August 5, 1994.
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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APPLICANTS: Defined Asset Funds--Equity Income Fund, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated (``Merrill Lynch'').
RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 17(b)
from section 17(a).
SUMMARY OF APPLICATION: Applicants request an order to permit a
terminating series of a unit investment trust to sell portfolio
securities to a new series of the trust.
FILING DATE: The application was filed on July 26, 1993 and amended
July 15, 1994.
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 August 30, 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 request, 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 5th Street NW., Washington, DC 20549.
Applicants, c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Unit Investment Trusts, P.O. Box 9051, Princeton, NJ 08543-9051, Attn:
Teresa Koncick, Esq.
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
1. Defined Asset Funds--Equity Income Fund, a unit investment trust
registered under the Act, consists of a number of series (each a
``Series'') that include each of the Select Ten Series. All of the
Series currently outstanding are Select Ten Series. Merrill Lynch is
the agent for the sponsors of the Series. Applicants request that the
relief sought herein apply to future Series for which Merrill Lynch
serves as agent for the sponsors.
2. The investment objective of each Select Ten Series is to seek a
greater total return than the stocks comprising an entire related
published index (e.g., the Dow Jones Industrial Average, the Hang Seng
Index, or the Financial Times Industrial Ordinary Share Index) (each an
``Index''). Certain Series of the Select Ten Series acquire
approximately equal values of the ten stocks in the Dow Jones
Industrial Average having the highest dividend yields as of a specified
date and holds those stocks for approximately one year (each a ``Dow
Series''). The other Select Ten Series create their portfolios in a
similar manner using securities that are included in other Indexes. The
sponsors of the Series intend that, as each Select Ten Series
terminates, a new Series based on the appropriate Index will be offered
for the next year.
3. Each Series has a contemplated date (a ``Rollover Date'') on
which holders of units in that Series (a ``Rollover Series'') may at
their option redeem their units in the Rollover Series and receive in
return units of a subsequent Series of the same type (a ``New Series'')
which is created on or about the Rollover Date, and has a portfolio
which contains securities (``Qualified Securities'') which are (i)
actively traded (i.e., have had an average daily trading volume in the
preceding six months of at least 500 shares equal in value to at least
25,000 United States dollars) on an average (a ``Qualified Exchange'')
which is either (a) A national securities exchange which meets the
qualifications of section 6 of the Securities Exchange Act of 1934 or
(b) a foreign securities exchange that meets the qualifications set out
in the proposed amendment to rule 12d3-1(d)(6) under the Act as
proposed by the Commission and that releases daily closing prices, and
(ii) included in an Index.
4. There is normally some overlap from year to year in the stocks
having the highest dividends yields in an Index and, therefore, between
the portfolios of each Rollover Series and the New Series. In the case
of the 1993 Spring Series of the Dow Series, 7 of the 10 securities
were identical. To date each Rollover Series has, in connection with
its termination, sold all of its portfolio securities on the New York
Stock Exchange as quickly as practicable. Similarly, a New Series
acquires its portfolio securities in purchase transactions on the New
York Stock Exchange. This procedure creates brokerage commissions on
portfolio securities of the same issue that are borne by the holders of
units of both the Rollover Series and the New Series. Applicants,
therefore, request an exemptive order to permit any Rollover Series to
sell portfolio securities to a New Series and a New Series to purchase
those securities.
5. In order to minimize overreaching, Merrill Lynch shall certify
in writing to the trustee of the Rollover Series and the New Series,
following each sale from a Rollover Series to a New Series, (a) That
the transaction is consistent with the policy of both the Rollover
Series and the New Series, as recited in their respective registration
statements and reports filed under the Act, (b) the date of such
transaction, and (c) the closing sales price on the Qualified Exchange
for the sale date of the securities subject to such sale. The trustee
will then countersign the certificate, unless, in the unlikely event
that the trustee disagrees with the closing sales price listed on the
certificate, the trustee immediately informs Merrill Lynch orally of
any such disagreement and returns the certificate within five days to
Merrill Lynch with corrections duly noted. Upon Merrill Lynch's receipt
of a corrected certificate, if Merrill Lynch can verify the correct
price by reference to an independently published list of closing sales
prices for the date of the transaction, Merrill Lynch will ensure that
the price of units of the New Series, and distributions to holders of
the Rollover Series with regard to redemption of their units or
termination of the Rollover Series, accurately reflect the corrected
price. To the extent that Merrill Lynch disagrees with the trustee's
corrected price, Merrill Lynch 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' Legal Analysis
1. Section 17(a) of the Act generally makes it unlawful for an
affiliated person of a registered investment company to sell securities
to or purchase securities from the company. Investment companies under
common control may be considered affiliates of one another. The Series
may be under common control because they have identical or common
sponsors, and Merrill Lynch as agent for the sponsors.
2. Section 17(b) provides that the SEC shall 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 provisions of the
Act. 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.
Applicants believe that the proposed transactions satisfy the
requirements of sections 6(c) and 17(b).
3. Rule 17a-7 under the Act permits registered investment companies
that might be deemed affiliates solely by reason of 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. Paragraph (e) of the rule requires
an investment company's board of directors to adopt and monitor the
procedures for these transactions to assure compliance with the rule. A
unit investment trust does not have a board of directors and,
therefore, may not rely on the rule. Applicants represent that they
will comply with all of the provisions of rule 17a-7, other than
paragraph (e).
4. Applicants represent that purchases and sales between Series
will be consistent with the policy of each Series, as only securities
that otherwise would be bought and sold on the open market pursuant to
the policy of each Series will be involved in the proposed
transactions. Applicants further believe that the current practice of
buying and selling on the open market leads to unnecessary brokerage
fees and is therefore contrary to the general purposes of the Act. In
order to minimize the possibility of overreaching, applicants have
agreed to comply with the conditions discussed below.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each sale of Qualified Securities by a Rollover Series to a New
Series will be effected at the closing price of the securities sold on
a Qualified Exchange on the sale date, without any brokerage charges or
other remuneration except customary transfer fees, if any.
2. The nature and conditions of such transactions will be fully
disclosed to investors in the appropriate prospectus of each future
Rollover Series and New Series.
3. The trustee of each Rollover Series and New Series will (a)
Review the procedures relating to the sale of securities from a
Rollover Series and the purchase of securities for deposit in a New
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 this order will be maintained as provided in
rule 17a-7(f).
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-19678 Filed 8-11-94; 8:45 am]
BILLING CODE 8010-01-M
