[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]
-----------------------------------------------------------------------
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.''
---------------------------------------------------------------------------
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