[Federal Register Volume 61, Number 208 (Friday, October 25, 1996)]
[Notices]
[Pages 55333-55336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27436]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 22293; 812-10256]


Van Kampen American Capital Equity Opportunity Trust, et al.; 
Notice of Application

October 21, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').


[[Page 55334]]


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

-----------------------------------------------------------------------

APPLICANTS: Van Kampen American Capital Equity Opportunity Trust (the 
``Trust''), on behalf of itself and certain subsequent series (each a 
``Series''), and Van Kampen American Capital Distributors, Inc. (the 
``Sponsor'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
for an exemption from section 12(d)(1)(F)(ii) of the Act.

SUMMARY OF APPLICATION: Applicants seek an order that would permit each 
Series of the Trust to offer units (``Units'') with a sales load in 
excess of the 1.5% limit contained in section 12(d)(1)(F)(ii) of the 
Act.

FILING DATES: The application was filed on July 22, 1996, and amended 
on September 5, 1996.

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 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on November 15, 
1996, 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, N.W., Washington, D.C. 
20549. Applicants, One Parkview Plaza, Oakbrook Terrace, Illinois 
60181.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 942-0583, or Alison E. Baur, 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 may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. The Trust is a unit investment trust (``UIT'') registered under 
the Act. Each Series also will be a UIT, and will be similar but 
separate and designated by a different Series number. The Sponsor, a 
registered broker-dealer and member of the National Association of 
Securities Dealers, Inc. (``NASD''), is the sponsor for each Series. 
Each Series will be created under state law pursuant to a trust 
agreement that will contain information specific to that Series, and 
will incorporate by reference a master trust agreement between the 
Sponsor and a financial institution that satisfies the criteria in 
section 26(a) of the Act (the ``Trustee''). The trust agreement and the 
master trust agreement are referred to collectively as the ``Trust 
Agreement.''
    2. Each Series will contain a portfolio of shares of investment 
companies or series thereof (the ``Funds'') that are not affiliated 
with any of the applicants. Each Series may invest either in only one 
type of investment company or in a combination of the various types of 
investment companies. The shares of the Funds will be deposited in each 
Series at net asset value, or, if the Fund shares are listed on a 
national securities exchange or traded on the Nasdaq National Market 
System (``Nasdaq-NMS''), at their ``market value.'' Market value will 
be determined by an evaluator, and generally will be based on the 
closing sale prices (or, if unavailable, the closing ask prices) for 
the securities traded on an exchange, and on the closing ask prices for 
the securities traded on the Nasdaq-NMS.
    3. Each of the Funds will be registered as a closed-end investment 
company (``Closed-End Funds''), an open-end investment company (``Open-
End Funds''), or a UIT. In addition, certain of the Funds may be either 
an Open-End Fund or a UIT that has received exemptive relief to sell 
its shares at ``negotiated prices'' on an exchange in the same manner 
as other equity securities.\1\
---------------------------------------------------------------------------

    \1\ See, e.g., Foreign Fund Inc., Investment Company Act Release 
Nos. 21737 (Feb. 6, 1996) (notice) and 21803 (Mar. 5, 1996) (order), 
and SPDR Trust, Investment Company Act Release Nos. 18959 (Sept. 17, 
1992) (notice) and 19055 (Oct. 26, 1992) (order).
---------------------------------------------------------------------------

    4. Simultaneously with the deposit of Fund shares into a Series, 
the Trustee will deliver to the Sponsor registered certificates for 
Units that represent the entire ownership of the Series. During the 
initial public offering, these Units will be offered at prices based on 
the aggregate underlying value of the Fund shares, plus a sales charge. 
The sales charge (either a front end or a deferred sales load, or a 
combination thereof) shall not, when aggregated with any sales charge 
or service fees paid by the Series with respect to shares of the Funds, 
exceed the limits set forth in Rule 2830(d) of the NASD's Conduct 
Rules. No Series will invest in a Fund with a rule 12b-1 plan, unless 
the Fund limits the plan fees to a maximum annual rate of .25% of the 
Fund's average daily net assets.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities issued by another investment 
company if such securities represent more than 3% of the total 
outstanding voting stock of the acquired company, more than 5% of the 
value of the total assets of the acquiring company, or if securities 
issued by the acquired company and all other investment companies have 
an aggregate value in excess of 10% of the value of the total assets of 
the acquiring company.
    2. Section 12(d)(1)(F) provides that section 12(d)(1) shall not 
apply to securities purchased or otherwise acquired by a registered 
investment company if, immediately after the purchase or acquisition, 
not more than 3% of the total outstanding stock of the acquired company 
is owned by the acquiring company, and the acquiring company does not 
offer or sell any security issued by it at a price that includes a 
sales load of more than 1.5%. In addition, no issuer of any security 
purchased or acquired by such registered investment company shall be 
obligated to redeem such security in an amount exceeding 1% of such 
issuer's total outstanding securities during any period of less than 30 
days.
    3. Section 6(c) provides that the SEC may exempt any series of 
transactions from any provision of the Act or any rule or regulation 
thereunder if and to the extent that such exemption is necessary of 
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 therefore request an exemption under 
section 6(c) to permit a Series to offer Units with a sales load in 
excess of the 1.5% limitation, subject to the conditions set forth 
herein. Applicants believe the requested relief meets the standards for 
an exemption set forth in section 6(c).
    4. Applicants argue that section 12(d)(1) is intended to mitigate 
or eliminate actual or potential abuses that might arise when one 
investment company acquires shares of another investment company. These 
abuses include: (a) the layering of sales charges, advisory fees, and 
administrative costs; (b) the imposition of undue influence by the 
acquiring fund over the management of the acquired funds through threat 
of large scale redemptions; (c) the acquisition by the acquiring 
company of voting control of the acquired company;

[[Page 55335]]

and (d) the creation of a complex pyramidal structure that may be 
confusing to investors. Applicants do not believe that any of these 
potential or actual abuses are present in their proposed trust of funds 
structure.
    5. Applicants assert that the structure of the Series will not 
result in excessive fees. Each Series, as a UIT, has an unmanaged 
portfolio and, therefore, does not assess advisory fees. Unitholders of 
a Series, however, would bear their portion of the advisory fees 
charged the underlying Funds, if any, for services rendered by the 
Fund's respective investment adviser. Applicants also contend that 
there will be no overlapping of sales charges or distribution fees. 
While each Series will charge a sales load, the Sponsor will deposit 
the Fund shares in the Series at net asset value (i.e., without any 
sales charge), or, if the shares of the Funds are traded on an exchange 
or Nasdaq-NMS, at their market value. In addition, each Series, as a 
UIT, does not charge a rule 12b-1 fee, and no Series would invest in a 
Fund with a rule 12b-1 plan unless the Fund limits its rule 12b-1 fee 
to a maximum annual rate of .25% of the Fund's average daily net 
assets. Finally, applicants have agreed as a condition to the relief 
that any sales charge assessed with respect to the Units of a Series, 
when aggregated with any sales charges and service fees paid by the 
Series with respect to securities of the underlying Funds, shall not 
exceed the limits set forth in Rule 2830(d) of the Conduct Rules of the 
NASD. As a result, the aggregate sales charges will not exceed the 
limit that otherwise lawfully could be charged at any single level.
    6. Administrative fees may be charged at both the Series and 
underlying Fund levels. However, applicants believe that certain Trust 
expenses may be reduced under the proposed arrangement. For example, 
when a Series invests in shares of Open-End Funds, whose net asset 
value is readily available, applicants anticipate that the evaluator 
would charge a lower fee, if any at all. A Series may incur customary 
brokerage commissions with respect to the purchase of Fund shares 
traded on an exchange or Nasdaq-NMS, but applicants represent that the 
Sponsor will purchase these shares in the secondary market and thus 
avoid payment of any underwriting spreads common during the initial 
offering of such shares.
    7. Applicants argue that the concern of large-scale redemptions is 
not applicable with respect to a Fund that is a Closed-End Fund, 
because such Funds do not issue redeemable securities. Section 
12(d)(1)(F) addresses this concern with respect to Funds issuing 
redeemable securities by providing that the Fund will not be obligated 
to redeem its securities in an amount exceeding 1% of its total 
outstanding securities during any period of less than 30 days, and 
applicants will comply with this provision. Applicants believe that the 
unmanaged nature of UITs precludes the concern of large scale 
redemptions or sales during the life of a Series because each Series is 
limited as to when it may sell its portfolio securities.
    8. Applicants do not believe that pyramiding of control is a 
concern with respect to the proposed trust of funds structure because 
each Series will comply with section 12(d)(1)(F) (other than the sales 
load limitation therein), which requires the Series to exercise the 
voting rights with respect to any acquired securities in the manner 
prescribed by section 12(d)(1)(E). Section 12(d)(1)(E) requires the 
acquiring investment company either to seek instructions from its 
security holders with regard to the voting of all proxies with respect 
to any acquired security and to vote such proxies only in accordance 
with such instructions, or to vote the shares held by it in the same 
proportion as the vote of all other holders of such security.
    9. Applicants represent that the proposed trust of funds structure 
is unlikely to give rise to concerns of undue complexity because they 
have agreed that no Series will invest in any Fund that, at the time of 
acquisition, owns securities in excess of the limits contained in 
section 12(d)(1)(A). However, if a Fund subsequently acquires 
securities of other investment companies in excess of the limits in 
section 12(d)(1), the Series will not be required to divest itself of 
its holdings. Applicants argue that, because the Funds are not 
affiliated with the Trust, the Series cannot bind or control the Funds.
    10. Applicants believe that the proposed trust of funds structure 
will be adequately disclosed and explained to investors in each Series' 
prospectus. Applicants state that they will fully disclose in each 
prospectus all loads, fees, expenses, and charges incurred with an 
investment in the respective Series. The prospectus also will include 
disclosure that investors will pay indirectly a portion of the expenses 
of the underlying Funds. In addition, the prospectus for each Series 
will include the table required by item 2 of Form N-1A (modified to 
reflect the differences between UITs and Open-End Funds) to set forth 
the Series' operating expenses and unitholders' transaction costs.
    11. Applicants believe that it is appropriate to apply the NASD's 
rules to the proposed arrangement instead of the sales load limitation 
in section 12(d)(1)(F)(ii). Applicants argue that the NASD's specific 
sales charge rules, which recently were amended to limit asset-based 
sales charges and service fees, more accurately reflect the current 
methods used by funds to finance sales expenses, while section 
12(d)(1)(F), adopted more than 25 years ago, does not reflect the 
changes in the industry's pricing practices.
    12. Applicants assert that the trust of funds proposal will benefit 
potential unitholders as well as shareholders of the Funds. Applicants 
believe that, given the number and variety of funds now available for 
investment, a Series provides a simple means through which investors 
can obtain a professionally selected and maintained mix of investment 
company shares for a relatively small initial investment. Applicants 
also believe that each Series will provide potential investors with the 
opportunity to participate in a diversified portfolio of investment 
company shares in one package and at one sales load. Applicants 
anticipate that purchasing shares in large quantities will enable a 
Series to obtain certain economies of scale, and will benefit certain 
Funds by permitting them to carry a Series on their books as a single 
shareholder account, even though there are numerous unitholders, and by 
providing them with a stable asset base.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Each Series will comply with section 12(d)(1)(F) in all respects 
except for the sales load limitation of section 12(d)(1)(F)(ii).
    2. Any sales charges or service fees charged with respect to Units 
of Series, when aggregated with any sales charges or services paid by 
the Series with respect to securities of the underlying Funds, shall 
not exceed the limits set forth in rule 2830(d) of the NASD's Conduct 
Rules.
    3. No Series will acquire securities of an underlying Fund that, at 
the time of acquisition, owns securities of any other investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
Act.


[[Page 55336]]


    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27436 Filed 10-24-96; 8:45am]
BILLING CODE 8010-01-M