[Federal Register Volume 60, Number 71 (Thursday, April 13, 1995)]
[Notices]
[Pages 18869-18871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9074]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20991; File No. 812-9490]


Kemper Securities, Inc., et al.; Notice of Application

April 6, 1995.
Agency: Securities and Exchange Commission (``SEC'').

Action: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

Applicants: Kemper Securities, Inc. (``Sponsor''); Kemper Tax-Exempt 
Insured Income Trust, Kemper Tax-Exempt Income Trust, Ohio Tax-Exempt 
Bond Trust, Kemper Insured Corporate Trust, Kemper Government 
Securities Trust (U.S. Treasury Portfolio), Kemper Government 
Securities Trust (GNMA Portfolio), Kemper Bond Enhanced Securities 
Trust, Kemper Equity Portfolio Trusts, Kemper Defined Funds U.S. 
Treasury Portfolio, Kemper Defined Funds GNMA Portfolio, Kemper Defined 
Funds Insured Corporate, Kemper Defined Funds Corporate Income, Kemper 
Defined Funds Insured National, Kemper Defined Funds Insured State, 
Kemper Defined Funds (the ``Trusts'').

Relevant Act Sections: Order requested under section 6(c) for 
exemptions from sections 2(a)(32), 2(a)(35), 22(d), and 26(a)(2)(C) of 
the Act and rule 22c-1 thereunder, and under section 11(a) for relief 
from section 11(c).

Summary of Application: Applicants request an order that would permit 
the Trusts to impose deferred sales charges, waive the deferred sales 
charge in certain cases, and exchange units with deferred sales 
charges.

Filing Dates: The application was filed on February 21, 1995, and was 
amended on March 31, 1995.

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 May 1, 1995, 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 the date 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. Applicants, 77 West Wacker Dr., Chicago, IL 60601; cc: Mark J. 
Kneedy, Chapman and Cutler, 111 West Monroe St., Chicago, IL 60603.

For further Information Contact: Bradley W. Paulson, Staff Attorney, at 
(202) 942-0147, or Robert A. Robertson, 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 is available for a fee from the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Each Trust is a unit investment trust sponsored by the Sponsor. 
Each Trust has one or more separate series (``Series'') created by a 
trust indenture among the Sponsor, an evaluator, and a banking 
institution or trust company serving as trustee. The Sponsor acquires a 
portfolio of securities and deposits them with the trustee in exchange 
for certificates representing fractional undivided interests in the 
portfolio of securities (``Units''). Units currently are offered to the 
public through the Sponsor and other underwriters and dealers at a 
price based upon the aggregate offering side evaluation of the 
underlying securities plus an up-front sales charge. The sales charge 
currently ranges from 5.5 percent to 1 percent of the public offering 
price, and is subject to reduction as permitted by rule 22d-1.
    2. Applicants request an order permitting them, future series of 
the Trusts, and future trusts sponsored by the sponsor to impose sales 
charges on Units on a deferred basis and waive the deferred sales 
charge in certain cases. Under applicants' proposal, the Sponsor will 
continue to determine the amount of sales charge per Unit at the time 
portfolio securities are deposited in a Series. The Sponsor will have 
the discretion to defer collection of all or part of this sales charge 
over a period following the purchase of Units. The Sponsor will in no 
event add to the deferred amount initially determined any additional 
amount for interest or any similar or related charge to reflect or 
adjust for such deferral.
    3. The Sponsor anticipates collecting a portion of the total sales 
charge immediately upon purchase of Units. A portion of the outstanding 
balance will be deducted periodically by the trustee from distributions 
on the Units and paid to the Sponsor until the total amount of the 
sales charge is collected. If distribution income is insufficient to 
pay a deferred sales charge installment, 

[[Page 18870]]
the trustee will have the ability under the trust indenture to sell 
portfolio securities in an amount necessary to provide the requisite 
payments. These securities will be sold on a pro rata basis, to the 
extent practicable, so that the remaining composition of the Trust will 
be similar to its composition prior to the sale. If a unitholder 
redeems or sells to the Sponsor his or her Units before the total sales 
charge has been collected from installment payments, the balance of the 
sales charge may be collected at the time of such redemption or sale.
    4. For purposes of calculating the amount of the deferred sales 
charge due upon redemption or sale of Units, it will be assumed that 
Units on which the balance of the sales charge has been collected from 
installment payments are liquidated first. Any Units disposed of over 
such amounts will be redeemed in the order of their purchase so that 
Units held for the longest time are redeemed first.
    5. The Sponsor intends to waive collection of the unpaid balance of 
the deferred sales charge upon any sale or redemption of Units. If 
applicants later decide to collect the unpaid balance of the deferred 
sales charge upon sale or redemption, they may nonetheless waive 
payment of the balance of the deferred sales charge on redemptions or 
sales of Units in certain specific cases. Any such waiver will be 
disclosed in the prospectus and will satisfy the other conditions of 
rule 22d-1.
    6. The Sponsor believes that the operation and implementation of 
the deferred sales charge program will be disclosed adequately to 
potential investors as well as unitholders. The prospectus for each 
Series will describe the operation of the deferred sales charge, 
including the amount and date of each installment payment. The 
prospectus also will contain disclosure pertaining to the trustee's 
ability to sell portfolio securities if the income generated by a 
Series' portfolio is insufficient to pay an installment. The securities 
confirmation statement sent by the Sponsor to each purchaser will state 
the amount of the ``up-front'' sales charge, if any, and the amount of 
the deferred sales charge to be deducted in regular installments. The 
annual report of each Series will state the amount of annual 
installment payments deducted during the previous fiscal year on both a 
per Trust and per Unit basis.
    7. The maximum sales charge on Units acquired in the secondary 
market normally ranges from 5.5 percent to 1.0 percent of the public 
offering price of the Units. Applicants request that the order also 
permit them to allow unitholders to exchange Units of one Series for 
Units of another subject to an additional sales charge not to exceed 
2.5 percent of the public offering price of the acquired Units. This 
sales charge is calculated as the greater of (a) 2.5 percent per Unit, 
or (b) an amount that together with the sales charge already paid on 
the exchanged Units equals the normal sales charge on the acquired 
Units if either Units are exchanged within five months of their 
acquisition for Units of another Series with a higher sales charge, or 
Units with a deferred sales charge are exchanged for Units of another 
Series with an ``up-front'' charge before the deferred sales charge on 
the exchanged Units has been collected.
    8. If Units subject to a deferred sales charge are exchanged for 
Units of a Series not having a deferred sales charge, the deferred 
sales charge will be collected at the time of the exchange. If Units 
subject to a deferred sales charge are exchanged for Units of a Series 
with a deferred sales charge, installment payments will continue to be 
deducted from the distributions on the acquired Units until the balance 
of the sales charge owed on the exchanged Units has been collected. In 
either case, the additional sales charge will be imposed at the time of 
the exchange.

Applicants' Legal Analysis

    1. Under section 6(c), the SEC may exempt any person or transaction 
from any provision of the Act or any rule thereunder 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 implementation of the deferred sales charge program in the manner 
described above would be fair and in the best interests of the 
unitholders of the Trusts.
    2. Section 2(a)(32) defines a ``redeemable security'' as a security 
that, upon its presentation to the issuer, entitles the holder to 
receive approximately his or her proportionate share of the issuer's 
current net assets or the cash equivalent of those assets. Because the 
imposition of a deferred sales charge may cause a redeeming unitholder 
to receive an amount less than the net asset value of the redeemed 
Units, applicants seek an exemption from section 2(a)(32) so that Units 
subject to a deferred sales charge are considered redeemable securities 
for purposes of the Act.\1\

    \1\Without an exemption, a trust selling Units subject to a 
deferred sales charge could not meet the definition of a unit 
investment trust under section 4(2) of the Act. Section 4(2) defines 
a unit investment trust as an investment company that issues only 
``redeemable securities.''
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    3. Section 2(a)(35) defines the term ``sales load'' to be the 
difference between the sales price and the proceeds to the issuer, less 
any expenses not properly chargeable to sales or promotional expenses. 
Because a deferred sales charge is not charged at the time of purchase, 
an exemption from section 2(a)(35) is necessary.
    4. Rule 22c-1 requires that the price of a redeemable security 
issued by an investment company for purposes of sale, redemption, and 
repurchase be based on the investment company's current net asset 
value. Because the imposition of a deferred sales charge may cause a 
redeeming unitholder to receive an amount less than the net asset value 
of the redeemed Units, applicants seek an exemption from this rule.
    5. Section 22(d) requires an investment company and its principal 
underwriter and dealer to sell securities only at a current public 
offering price described in the investment company's prospectus. 
Because sales charges traditionally have been a component of the public 
offering price, section 22(d) historically required that all investors 
be charged the same load. Rule 22d-1 was adopted to permit sale of 
redeemable securities ``at prices that reflect scheduled variations in, 
or elimination of, the sales load.'' Because rule 22d-1 does not extend 
to scheduled variations in deferred sales charges, applicants seek 
relief from section 22(d) to permit them to waive or reduce their 
deferred sales charge in certain specified instances.
    6. Section 26(a)(2) in relevant part prohibits a trustee or 
custodian of a unit investment trust from collecting from the trust as 
an expense any payment to a depositor or principal underwriter thereof. 
Because of this prohibition, applicants need an exemption to permit the 
trustee to collect the deferred sales charge installments from 
distribution deductions or Trust assets.
    7. Paragraphs (a) and (c) of section 11 prohibit any offers of 
exchange of the securities of a registered unit investment trust for 
the securities of any other investment company, unless the terms of the 
offer have been approved by the SEC. Applicants assert that the reduced 
sales charge imposed at the time of exchange is a reasonable and 
justifiable expense to be allocated for the professional assistance and 
operational expenses incurred in connection with the exchange.

[[Page 18871]]


Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Whenever the exchange option is to be terminated or its terms 
are to be amended materially, any holder of a security subject to that 
privilege will be given prominent notice of the impending termination 
or amendment at least 60 days prior to the date of termination or the 
effective date of the amendment, provided that: (a) No such notice need 
be given if the only material effect of an amendment is to reduce or 
eliminate the sales charge payable at the time of an exchange, to add 
one or more new Series eligible for the exchange option, or to delete a 
Series that has terminated; and (b) No notice need be given if, under 
extraordinary circumstances, either (i) there is a suspension of the 
redemption of Units of the Trust under section 22(e) of the Act and the 
rules and regulations promulgated thereunder, or (ii) a Trust 
temporarily delays or ceases the sale of its Units because it is unable 
to invest amounts effectively in accordance with applicable investment 
objectives, policies and restrictions.
    2. An investor who purchases Units under the exchange option will 
pay a lower aggregate sales charge than that which would be paid for 
the Units by a new investor.
    3. The prospectus of each Trust offering exchanges and any sales 
literature or advertising that mentions the existence of the exchange 
option will disclose that the exchange option is subject to 
modification, termination or suspension, without notice except in 
certain limited cases.
    4. Each Series offering Units subject to a deferred sales charge 
will include in its prospectus the table required by item 2 of Form N-
1A (modified as appropriate to reflect the differences between unit 
investment trusts and open-end management investment companies) and a 
schedule setting forth the number and date of each installment payment.

    For the Commission, by the Division of Investment Management, 
pursaunt to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-9074 Filed 4-12-95; 8:45 am]
BILLING CODE 8010-01-M