[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
