[Federal Register Volume 61, Number 249 (Thursday, December 26, 1996)]
[Notices]
[Pages 68076-68078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32720]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22407; 812-10258]


Van Kampen American Capital Equity Opportunity Trust, et al.

December 18, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

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

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APPLICANTS: Van Kampen American Capital Equity Opportunity Trust (the 
``Trust''), on behalf of itself and its series, Stepstone Growth Equity 
and Treasury Securities Trust, Series 1, Stepstone Funds on behalf of 
itself and its portfolio, Stepstone Growth Equity Fund (the ``Equity 
Fund''), Van Kampen American Capital Distributions, Inc. (the 
``Sponsor''), Pacific Alliance Capital Management (the ``Adviser''), 
and SEI Financial Services Company (the ``Distributor'').

RELEVANT ACT SECTIONS: Order requested under section 11(a) for an 
exemption from section 11(c).

SUMMARY OF APPLICATION: Applicants request an order to permit certain 
offers of exchange involving the Trust.

FILING DATE: The application was filed on July 22, 1996 and amended on 
November 22, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persona 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 January 13, 1997 
and should be accompanied by proof of service on the applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
request should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicants: The Sponsor and the Trust, One Parkview Plaza, Oak 
Brook Terrace, Illinois 60181; the Adviser, 475 Sansome Street, San 
Francisco, CA 94111; the Funds, 2 Oliver Street, Boston, MA 02109; and 
the Distributor, 680 East Swedesford Road, Wayne, PA 19087-1658.

FOR FURTHER INFORMATION CONTACT: Sarah A. Buescher, Staff Attorney, at 
(202) 942-0573, or Mercer E. Bullard, 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 registered under the Act 
that 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 be created under the 
laws of one of the United States pursuant to a trust agreement which 
will contain information specific to that Trust Series and which 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''), and an evaluator. The trust 
agreement and the master trust indenture are referred to collectively 
as the ``Trust Agreement.''
    2. The Sponsor is a Delaware corporation and a wholly-owned 
subsidiary of Van Kampen American Capital, Inc. The Sponsor is a 
registered broker-dealer and a member of the National Association of 
Securities Dealers, Inc. The Sponsor currently acts as principal 
underwriter for the Van Kampen American Capital of Mutual Funds.
    3. Stepstone Funds is an open-end management investment company 
registered under the Act. Stepstone Funds is not affiliated with the 
Sponsor or the Trust. The Equity Fund is one of fourteen portfolios 
offered by Stepstone Funds (collectively, the ``Funds''). Stepstone 
Funds has entered into an investment advisory agreement with the 
Adviser pursuant to which the Adviser acts an investment adviser for 
the Equity Fund and the other portfolios of Stepstone Funds.
    4. Several of the Funds, including the Equity Fund, offer two 
classes of shares, the Institutional Class and the Investment Class. 
The Institutional Class is offered without a sales charge. The 
Investment Class is offered at net asset value plus a front-end sales 
load. Purchases of the Investment Class shares in the amount of $1 
million or more are not subject to a front-end sales load, but 
redemptions of such amounts, purchased in reliance upon the waiver 
accorded to purchases of $1 million or more, within one year of 
purchase are subject to a contingent deferred sales load (``CDSL'').
    5. Certain Funds, including the Equity Fund, have adopted a 
distribution plan with respect to their Investment Class shares 
pursuant to rule 12b-1 under the Act (``12b-1 Plan''). With respect to 
each portfolio's 12b-1 Plan, Stepstone Funds is authorize to pay the 
Distributor a fee at the annual rate of up to 0.40% of the respective 
portfolio's Investment Class shares average daily net assets, of which 
a maximum of .25% may be used to compensate broker-dealers and service 
providers that provide administrative and/or distribution services to 
Investment Class shareholders of their customers who beneficially own 
Investment Class shares. For the current year, the Distributor has 
agreed to waive any fees payable pursuant to the 12b-1 Plan for several 
of the Funds. The Distributor reserves the right, however, to terminate 
its waiver at any time at its sole discretion. The Distributor is a 
registered broker-dealer and acts as underwriter for the shares of the 
Funds.
    6. Each Trust Series will have a portfolio consisting initially of 
shares of one of the Funds and zero coupon obligations. The Sponsor's 
obligation to purchase any such obligations from third parties in order 
to fulfill contracts to purchase such obligations held by a Trust 
Series will be backed by an irrevocable letter of credit. All zero 
coupon obligations in any one Trust Series will have essentially 
identical maturities.
    7. The Trust Series are intended to be offered to the public 
initially at prices based on the net asset value of the shares of the 
Fund selected for deposit in that Trust Series, plus the offering side 
value of the zero coupon

[[Page 68077]]

obligations contained therein, plus a sales charge. Each Trust Series 
will redeem units representing undivided interests in that Trust Series 
(the ``Units'') at prices based on the aggregate bid side evaluation of 
the zero coupon obligations plus the net asset value of the Fund 
shares.
    8. The Sponsor will deposit the zero coupon obligations in a Trust 
Series at a price determined by an evaluator.\1\ The Trust Agreement 
will govern and the prospectus will fully disclose this procedure. The 
shares of the Funds will be deposited at their net asset value. 
Simultaneously with such deposit, the Trustee will deliver to the 
Sponsor registered certificates for Units which will represent the 
entire ownership of the Trust Series. These Units, in turn, will be 
offered for sale to the public by the Sponsor through the final 
prospectus following the declaration of effectiveness of the 
registration statement.
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    \1\ The Sponsor expects to be deposit substantially more than 
$100,000 aggregate value of zero coupon obligations and Fund shares 
in each Trust Series.
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    9. With the deposit of the securities in the Trust Series on the 
initial date of deposit, the Sponsor will have established a 
proportionate relationship between the principal amounts of zero coupon 
obligations and Fund shares 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. Such Units may be continuously offered for sale to 
the public by means of the prospectus. The Sponsor anticipates that any 
additional securities deposited in the Trust Series subsequent to the 
initial date of deposit in connection with the sale of these additional 
Units will maintain the proportionate relationship between the 
principal amounts of zero coupon obligations and Fund shares in the 
Trust Series.
    10. Each Trust Series will be structured so that it will contain a 
sufficient amount of zero coupon obligations to assure that, at the 
specified maturity date for such Trust Series, the initial investors 
purchasing Units of the Trust Series on the first date they are offered 
for sale will receive back at least the total amount of their original 
investment in the Trust Series, including the sales charge. To the 
extent that the Fund pays dividends or makes capital gains 
distributions during the life of the Trust Series and to the extent 
that Fund shares have any value at the maturity of the Trust Series, 
the value of the purchaser's investment will have increased.
    11. Each Trust Series will be able to acquire no more than 10% of 
the outstanding shares of any Fund.\2\ Shares of only one of the Funds 
will be sold for deposit in any one Trust Series and the sales charge 
or CDSL, if any, on such shares will be waived so that such sales will 
be at net asset value.
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    \2\ Applicants state that they are not requesting relief from 
section 12(d)(1) of the Act because section 12(d)(1)(E) of the Act 
provides that section 12(d)(1) shall not apply to securities 
purchased by a registered unit investment trust if the securities 
are the only ``investment securities'' held by the trust. Applicants 
believe that U.S. Treasury zero coupon obligations are not 
``investment securities'' for purposes of section 12(d)(1)(E) and 
that the Fund shares are the only ``investment securities'' which a 
Trust Series will hold. See Equity Securities Trust (pub. avail. 
Jan. 19, 1994).
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    12. Since the shares of the Funds have their net asset values 
calculated daily and this value will be readily available to the 
Sponsor, no evaluation fee will be charged with respect to determining 
the value of the Fund shares which comprise part of the value of the 
Units. The evaluator will charge an evaluation fee only with respect to 
that portion of the portfolio of a Trust Series which consists of zero 
coupon obligations.
    13. The Sponsor and the Distributor will rebate to the Trustee any 
rule 12b-1 fees they receive on shares of the Funds held by the Trust 
Services. Any rule 12b-1 fees so rebated will be distributed along with 
other Fund income earned by the Trust. Any Fund related distributions, 
including amounts attributable to rebated rule 12b-1 fees, will reflect 
the deduction by the Trust of bona fide Trust expenses. If such Trust 
expenses exceed the amount of distributions from the Fund, excluding 
rebated 12b-1 fees, the deduction of Trust expenses will effectively 
reduce the amount of such rebate that is returned to unitholders.
    14. The Sponsor does not intend to maintain a secondary market for 
the Units of the Initial Trust Series. Although not obligated to do so, 
the Sponsor may maintain a secondary market for Units of subsequent 
Trust Series. In the event 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 until shares of the Fund 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 
and will further provide that zero coupon obligations may not be sold 
to meet Trust expenses. In addition, the Trustee may not redeem Fund 
shares except to the extent necessary to meet redemption of Units by 
unitholders, or to pay Trust expenses should distributions received on 
Fund shares and rebated 12b-1 fees prove insufficient to cover such 
expenses.
    15. Unitholders may redeem their Units at prices based upon the net 
asset value of the Fund shares in the Trust Series plus the aggregate 
bid price of the zero coupon obligations. Unitholders tendering a 
minimum number of shares as disclosed in the prospectus will be able to 
request an in-kind distribution of portfolio securities in lieu of a 
cash distribution. The tendering unitholder will receive the pro rata 
number of Fund shares and the Fund proposes to offer these unitholders 
the option of reinvesting the pro rata portion of zero coupon 
obligations into Fund shares without a sales charge. Unitholders not 
electing to have their portion of the zero coupon obligations 
reinvested in Fund shares will receive cash equal to the pro rata 
portion of the zero coupon obligations to which the tendering 
unitholder is entitled.
    16. Similarly, each Trust Series will provide unitholders still 
holding at termination the minimum number of Units set forth in the 
prospectus the option to receive an in-kind distribution of their pro 
rata number of Fund shares. The Fund also will offer all such 
unitholders the option of reinvesting their pro rata portion of zero 
coupon obligations in Fund shares at net asset value. Proceeds from the 
zero coupon obligations will be paid in cash unless the unitholder 
elects reinvestment. The reinvestment options upon redemption of Units 
and at termination of the Trust Series are collectively referred to 
herein as the ``Reinvestment Options.'' Shares acquired under the 
Reinvestment Options will be subject to any applicable rule 12b-1 fees 
as are all other shares held directly by investors.

Applicants' Legal Analysis

    1. Section 11(a) of the Act makes it unlawful for any registered 
open-end investment company or principal underwriter for such company 
to make or cause to be made certain offers of exchange on any basis 
other than the relative net asset values of the securities to be 
exchanged, unless the terms of the exchange offer have first been 
approved by the SEC. Section 11(c) provides that section 11(a) will be 
applicable to any type of exchange offer involving securities of a 
registered unit investment trust, irrespective of the basis for the 
exchange. Applicants state that the intent of section 11 is to protect

[[Page 68078]]

investors from switching their investment in securities of one 
investment company to another investment company and the consequent 
erosion of their equity.\3\
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    \3\ Applicants state that they are not requesting relief from 
sections 14(a) and 19(b) of the Act and rule 19b-1 thereunder 
because the Trust has received an exemption from such provisions in 
a prior application. See Van Kampen Merritt Equity Opportunity 
Trust, Investment Company Act Release Nos. 20597 (Oct. 4, 1994) 
(notice) and 20672 (Nov. 1, 1994) (order).
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    2. Applicants request relief on behalf of (a) certain existing and 
subsequent Trust Series, (b) existing and future portfolios of the 
Stepstone Funds other than money market or no-load funds (i.e. funds 
that do not impose a sales load, a deferred sales load, or bear 
distribution expenses pursuant to a rule 12b-1 plan), and (c) open-end 
management investment companies, including portfolios and series 
thereof, that may in the future be advised by the Adviser, other than 
money market or no-load funds.\4\
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    \4\ Applicants state in a letter that all existing Trust Series 
or portfolios of the Stepstone Funds that currently intend to rely 
on the requested order are named in the application.
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    3. Applicants note that the Reinvestment Options provide 
unitholders the option of either (a) in-kind distribution of their 
proportionate number of Fund shares or (b) receiving a cash 
distribution. Such unitholders also will have the option of (a) 
reinvesting the proceeds of the zero coupon obligations in Fund shares 
at net asset value (without the imposition of a CDSL or a sales load) 
or (b) receiving a cash distribution.
    4. Applicants believe that the Reinvestment Options give the 
unitholders flexibility of choice. Applicants further believe that the 
Reinvestment Options do not raise the concerns that section 11 was 
designed to address because, although Fund shares have a front-end 
sales load or a CDSL, none will be charged to the unitholders in the 
proposed Reinvestment Options. Applicants note that there will be no 
additional cost, other than the rule 12b-1 fee, to unitholders who 
choose to invest in Fund shares upon redemption of Units or upon 
termination of the Trust.\5\
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    \5\ Applicants note that, if Unitholders choose instead to take 
a cash distribution upon termination of the Trust or upon redemption 
of Units and later decide to invest in Fund shares, they would have 
to pay a front-end sales load or would be subject to the imposition 
of any applicable CDSL.
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Applicants' Conditions

    Applicants agree to the following as conditions to granting the 
requested order:
    1. No sales charge, CDSL, if any, or redemption fee will be imposed 
on any shares of the Fund deposited in any Series of the Trust or on 
any Fund shares acquired by unitholders through the Reinvestment 
Options.
    2. The prospectus of each Trust Series and any sales literature or 
advertising that mentions the existence of the Reinvestment Options 
will disclose that shareholders who elect to invest in Fund shares will 
incur a rule 12b-1 fee.
    3. The Sponsor and the Distributor will immediately rebate to the 
Trustee any rule 12b-1 fees it receives on shares of the Funds acquired 
by the Trust Series.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-32720 Filed 12-24-96; 8:45 am]
BILLING CODE 8010-01-M