[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]
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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'').
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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\
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\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).
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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