[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