[Federal Register Volume 60, Number 78 (Monday, April 24, 1995)]
[Notices]
[Pages 20139-20141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9982]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21014; 812-9478]
Van Kampen American Capital Distributors Inc., et al.; Notice of
Application
April 17, 1995.
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 Distributors Inc. (the
``Sponsor''); Insured Municipals Income Trust, California Insured
Municipals Income Trust, New York Insured Municipals Income Trust,
Pennsylvania Insured Municipals Income Trust, Insured Municipals Income
Trust, Insured Multi-Series, Insured Tax Free Bond Trust, Investors'
Quality Tax-Exempt Trust, Insured Municipals Income Trust and
Investors' Quality Tax [[Page 20140]] Exempt Trust, Multi-Series
Investors' Governmental Securities--Income Trust, Van Kampen American
Capital Insured Income Trust, Van Kampen Merritt Utility Income Trust,
Van Kampen Merritt Emerging Markets Income Trust, Van Kampen Merritt
Equity Opportunity Trust, California Investors' Quality Tax-Exempt
Trust, and Pennsylvania Investors' Quality Tax-Exempt Trust (each an
``Existing Trust''); and any other future unit investment trust
sponsored by the Sponsor (collectively, with the Existing Trusts, the
``Trusts'').
Relevant Act Sections: Order requested pursuant to section 6(c) for
exemptions from sections 2(a)(32), 2(a)(35), 22(d), and 26(a)(2) of the
Act, and rule 22c-1 thereunder, and pursuant to section 11(a) to amend
a prior order (the ``Prior Order'') granting relief from section
11(c).\1\
\1\Investment Company Act Release Nos. 11514 (Dec. 24, 1980)
(notice) and 11589 (Jan. 28, 1981) (order).
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SUMMARY OF APPLICATION: Applicants seek to impose sales charges on a
deferred basis and waive the deferred sales charge in certain cases,
exchange Trust units having deferred sales charges, and exchange units
of a terminating series of a Trust for units of the next available
series of that Trust.
FILING DATES: The application was filed on February 7, 1995, and
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 15, 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, c/o Mark J. Kneedy, Esq., Chapman and Cutler, 111
West Monroe Street, Chicago, Illinois 60603-4080.
FOR FURTHER INFORMATION CONTACT: James J. Dwyer, Staff Attorney, at
(202) 942-0581, or C. David Messman, 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 of the Trusts is or will be a unit investment trust
sponsored by the Sponsor and is or will be registered under the Act.
The Trusts are made up of one or more separate series (``Series'').
Each Series is created by a trust indenture among the Sponsor, a
banking institution or trust company as trustee, and an evaluator. The
Sponsor acquires a portfolio of securities and deposits them with the
trustee of the Series in exchange for certificates representing
fractional undivided interests (``Units'') in the deposited portfolio.
The Units will be registered under the Securities Act of 1933 and
offered to the public through the Sponsor, underwriters, and dealers at
a price based upon the aggregate offering side evaluation of the
underlying securities plus an up-front sales charge. The maximum sales
charge currently ranges from 5.5% to 1.9% of the public offering price,
and is subject to reduction as permitted by rule 22d-1. In addition,
although not legally obligated to do so, the Sponsor maintains a
secondary market for Units of outstanding Series and continually offers
to purchase such Units. The sales charge imposed for sales in the
secondary market typically is 1% higher than it is during the initial
offering period, and decreases over time.
2. Applicants seek an order under section 6(c) exempting the Trusts
from sections 2(a)(32), 2(a)(35), 22(d), and 26(a)(2), and rule 22c-1,
to let the Trusts impose sales charges on Units on a deferred basis and
waive the deferred sales charge in certain cases. Under applicants'
proposal, the Sponsor will determine the amount of sales charge per
Unit at the time portfolio securities are deposited in a Series. The
Sponsor also may defer collection of all or part of this sales charge
over a period following the purchase of Units. In no event, however,
will the Sponsor 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. Deferred sales charges, if any, generally will be paid in
regular installments over a period of time. To the extent a particular
Series provides distribution income, the trustee of the Series will
withdraw the appropriate amount of the deferred sales charge from such
distribution income. If the distribution income is insufficient to pay
the deferred sales charge, the trustee may sell portfolio securities in
an amount necessary to provide the requisite payments.
4. Although the Sponsor does not presently intend to do so, a sales
charge may be deducted from the proceeds of any redemption of Units or
of any sale of Units to the Sponsor. 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 no sales charge is due
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. If any deferred sales charge is
collected upon sale or redemption of Units, the Sponsor may, and
intends to, waive payment of the balance of the deferred sales charge
on such redemptions or sales in certain cases. Any such waiver will be
disclosed in the prospectus and will satisfy the other conditions of
rule 22d-1.
5. The Sponsor believes that the operation and implementation of
the deferred sales charge program will be disclosed adequately to
potential investors and unitholders. The prospectus for each Trust will
describe the operation of the deferred sales charge, including the
amount of and date of each installment payment. The prospectus also
will describe 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 to each
purchaser will state the amount of any initial sales charge, 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 Series and per Unit basis.
6. Applicants seek an order under section 11(a) to approve certain
exchange transactions subject to section 11(c). The Prior Order permits
applicants covered thereunder to allow unitholders to exchange Units of
one Series for Units of another Series generally subject to a flat fee
of $25 per Unit. The requested order would amend the Prior Order to
create an expanded exchange option that would apply to all exchanges of
Units sold with a sales charge imposed either at the time of purchase
or on a deferred basis, and to include all Series. The sales charge
imposed on the exchange of Units is [[Page 20141]] calculated as the
greater of (a) $25 per Unit, or (b) if Units of any Series are
exchanged within five months of their acquisition for Units of a Series
with a higher sales charge, or if Units subject to a deferred sales
charge are exchanged for Units sold with an initial sales charge, an
amount that, together with the sales charge already paid on the Units
being exchanged, equals the normal sales charge on the acquired Units.
7. If Units subject to a deferred sales charge are exchanged for
Units of a Series not having such a 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 without such a charge,
installment payments will continue to be deducted from the
distributions on the acquired Units until the original balance of the
sales charge owed on the initial investment 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.
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 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.\2\
\2\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 the 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 let them waive or reduce their deferred
sales charge in certain 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 let the
trustee collect the deferred sales charge installments from
distribution deductions or Trust assets.
7. Applicants believe that implementation of the deferred sales
charge program in the manner described above would be fair and
equitable and consistent with all provisions of the Act. Thus, granting
the requested order would be 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.
8. Section 11(c) prohibits 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.
Applicants' Conditions
Applicants agree that any relief granted 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: (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) 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 that 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 SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-9982 Filed 4-21-95; 8:45 am]
BILLING CODE 8010-01-M