```
[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]

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

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'').

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

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).
---------------------------------------------------------------------------

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.''
---------------------------------------------------------------------------

    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
```