[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