[Federal Register Volume 61, Number 41 (Thursday, February 29, 1996)]
[Notices]
[Pages 7836-7838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4665]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21773; 812-9882]
Van Kampen American Capital, Inc. et al.; Notice of Application
February 23, 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 Trust, Van Kampen
American Capital Pennsylvania Tax Free Income Fund, Van Kampen American
Capital Tax Free Trust, Van Kampen American Capital Tax Free Money
Fund, Van Kampen American Capital Trust, Van Kampen American Capital
U.S. Government Trust, Van Kampen American Capital Comstock Fund, Van
Kampen American Capital Corporate Bond Fund, Van Kampen American
Capital Emerging Growth Fund, Van Kampen American Capital Enterprise
Fund, Van Kampen American Capital Equity Income Fund, Van Kampen
American Capital Global Managed Assets Fund, Van Kampen American
Capital Government Securities Fund, Van Kampen American Capital
Government Target Fund, Van Kampen American Capital Growth and Income
Fund, Van Kampen American Capital Harbor Fund, Van Kampen American
Capital High Income Corporate Bond Fund, Van Kampen American Capital
Life Investment Trust, Van Kampen American Capital Limited Maturity
Government Fund, Van Kampen American Capital Pace Fund, Van Kampen
American Capital Real Estate Securities Fund, Van Kampen American
Capital Reserve Fund, Van Kampen American Capital Small Capitalization
Fund, Van Kampen American Capital Tax-Exempt Fund, Van Kampen American
Capital Texas Tax Free Income Fund, Van Kampen American Capital U.S.
Government Trust for Income, and Van Kampen American Capital World
Portfolio Series Trust (collectively, the ``Open-End Funds''); Van
Kampen American Capital Municipal Income Trust, Van Kampen American
Capital California Municipal Trust, Van Kampen American Capital
Intermediate Term High Income Trust, Van Kampen American Capital
Limited Term High Income Trust, Van Kampen American Capital Prime Rate
Income Trust, Van Kampen American Capital Investment Grade Municipal
Trust, Van Kampen American Capital Municipal Trust, Van Kampen American
Capital California Quality Municipal Trust, Van Kampen American Capital
Florida Quality Municipal Trust, Van Kampen American Capital New York
Quality Municipal Trust, Van Kampen American Capital Ohio Quality
Municipal Trust, Van Kampen American Capital Pennsylvania Quality
Municipal Trust, Van Kampen American Capital Trust for Investment Grade
Municipals, Van Kampen American Capital Trust for Insured Municipals,
Van Kampen American Capital Trust for Investment Grade California
Municipals, Van Kampen American Capital Trust for Investment Grade
Florida Municipals, Van Kampen American Capital Trust for Investment
Grade New Jersey Municipals, Van Kampen American Capital Trust for
Investment Grade New York Municipals, Van Kampen American Capital Trust
for Investment Grade Pennsylvania Municipals, Van Kampen American
Capital Municipal Opportunity Trust, Van Kampen American Capital
Advantage Municipal Income Trust, Van Kampen American Capital Advantage
Pennsylvania Municipal Income Trust, Van Kampen American Capital
Strategic Sector Municipal Trust, Van Kampen American Capital Value
Municipal Income Trust, Van Kampen American Capital California Value
Municipal Income Trust, Van Kampen American Capital Massachusetts Value
Municipal Income Trust, Van Kampen American Capital New Jersey Value
Municipal Income Trust, Van Kampen American Capital New York Value
Municipal Income Trust, Van Kampen American Capital Ohio Value
Municipal Income Trust, Van Kampen American Capital Pennsylvania Value
Municipal Income Trust, Van Kampen American Capital Municipal
Opportunity Trust II, Van Kampen American Capital Florida Municipal
Opportunity Trust, Van Kampen American Capital Advantage Municipal
Income Trust II, and Van Kampen American Capital Select Sector
Municipal Trust (collectively, the ``Closed-End Funds,'' together the
Open-End and Closed-End Funds are the ``Funds''); and Van Kampen
American Capital Investment Advisory Corp. and Van Kampen American
Capital Asset Management, Inc. (collectively, the last two entities are
the ``Advisers'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from sections 13(a)(2), 13(a)(3), 18(a), 18(c),
18(f)(1), 22(f), 22(g), and 23(a) and rule 2a-7 thereunder, under
sections 6(c) and 17(b) of the Act for an exemption from section
17(a)(1), and under section 17(d) of the Act and rule 17d-1 thereunder
to permit certain joint arrangements.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Funds to enter into deferred compensation arrangements with their
independent trustees. The requested order would supersede a prior order
(the ``Merritt Order'').\1\
\1\ Van Kampen Merritt Trust, Investment Company Act Release
Nos. 20473 (Aug. 11, 1994) (notice) and 20530 (Sept. 6, 1994)
(order).
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FILING DATES: The application was filed on December 8, 1995, and
amended on January 19, 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
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 March 19, 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 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: Elaine M. Boggs, Staff Attorney, at
(202) 942-0572, or Robert A. Robertson, 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 at the
SEC's Public Reference Branch.
[[Page 7837]]
Applicants' Representations
1. Each of the Open-End Funds is a Delaware business trust
registered under the Act as an open-end management investment company,
except for one which is a Pennsylvania trust. Several of the Open-End
Funds are organized as series companies. The Closed-End Funds are
either Massachusetts or Pennsylvania trusts and are closed-end
management investment companies registered under the Act. The Advisers,
wholly-owned subsidiaries of Van Kampen American Capital, Inc., serve
as each Fund's investment adviser and are registered under the
Investment Advisers Act of 1940.
2. Each Fund has a board of trustees, a majority of the members of
which are not ``interested persons'' of such Fund within the meaning of
section 2(a)(19) of the Act. Each of the trustees who is not an
``interested person'' receives annual fees which collectively are, and
are expected to continue to be, insignificant in comparison to the
total net assets of the Funds. Applicants request an order to permit
the trustees who are not interested persons and who receive trustee
fees from one or more of the Funds (the ``Eligible Trustees'') to elect
to defer receipt of all or a portion of their fees pursuant to a
deferred compensation plan (the ``Plan''). Under the Plan, the Eligible
Trustees could defer payment of trustees' fees (the ``Deferred
Compensation'') in order to defer payment of income taxes or for other
reasons. Applicants request that relief be extended to any existing or
subsequently registered investment company advised by an Adviser or a
registered investment adviser under common control or controlled by an
Adviser. (Such future funds are also referred to as the ``Funds''.)
3. Certain of the Funds already have deferred compensation plans in
effect for their Eligible Trustees pursuant to an existing SEC order
\2\ (the ``Comstock Order'') while others are relying on the Merritt
Order. Funds with existing deferred compensation plans established
under the Comstock Order will retain the cash for trustees who elect to
defer their compensation and the deferred amounts will earn a return
based upon the return of the underlying Fund or the return on such
Fund's investment of cash reserves in money market instruments. The
proposed Plan, however, is broader and provides for the return on
deferred amounts to be based upon the return of the underlying Fund or
the return of other Funds in the fund complex and allows Funds to hedge
the deferred obligation by purchasing shares of other Funds. Applicants
would like all the Funds to be able to rely on the same order and to be
subject to the same terms and conditions. The requested order would
supersede the Merritt Order but have no effect on the Comstock Order.
Each participant in the plans established under the Comstock Order will
be given a one-time election to have his or her existing deferred
account balance roll over into new accounts established under the
requested order.
\2\ American Capital Comstock Fund, Inc., Investment Company Act
Release Nos. 18098 (Apr. 15, 1991) (notice) and 18144 (May 14, 1991)
(order).
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4. Under the Plan, the deferred fees payable by a Fund to a
participating Eligible Trustee will be credited to a book reserve
account established by the Fund (a ``Deferred Fee Account''), as of the
first business day following the date such fees would have been paid to
the Eligible Trustee. The deferred fees will accrue income from and
after the date of credit in an amount equal to the amount that would
have been earned had such fees (and all income earned thereon) been
invested and reinvested in shares of the Funds designated by the
respective board of trustees as eligible investments under the Plan
(the ``Investment Funds''). In the case of trustees of the Open-End
Funds, Investment Funds will be Open-End Funds, and in the case of
trustees of the Closed-End Funds, Investment Funds will be Closed-End
Funds.
5. The Funds' respective obligations to make payments of amounts
accrued under the Plan will be general unsecured obligations, payable
solely from their respective general assets and property. The Plan
provides that the Funds will be under no obligation to purchase, hold
or dispose of any investments under the Plan, but, if one or more of
the Funds choose to purchase investments to cover their obligations
under the Plan, then any and all such investments will continue to be a
part of the respective general assets and property of such Funds.
6. Any participating money market series of a Fund that values its
assets in accordance with a method prescribed by rule 2a-7 will buy and
hold the Underlying Securities that determine the performance of the
Deferred Fee Accounts in order to achieve an exact match between such
series' liability to pay deferred fees and the assets that offset such
liability. In addition, as a matter of prudent risk management, to the
extent an Eligible Trustee selects Investment Funds other than the Fund
that pays that trustee's fees, it is intended that the Fund responsible
for the Trustee's fees will purchase and hold shares in an amount equal
to the designated investment in such Investment Funds (the ``Underlying
Securities''). Thus, in cases where a Fund purchases Underlying
Securities, the amount of Underlying Securities is expected to match
the liability created by credits to the Fund's Deferred Fee Accounts.
7. Payments under the Plan will be made in generally equal annual
installments over a five year period beginning on the first day of the
year following the year in which the Eligible Trustee's termination of
service occurred. In the event of death prior to any distribution, such
trustee's Deferred Fee Account will become payable in cash to the
trustee's designated beneficiary in equal installments over a five year
period. In the event of death after the commencement of the
distribution, the balance of such account will be distributed to the
designated beneficiary over the remaining portion of the five-year
period. The Plan will not obligate any participating Fund to retain a
trustee in such a capacity, nor will it obligate any Fund to pay any
(or any particular level of) trustees' fees to any director.
Applicants' Legal Analysis
1. Applicants request an order which would exempt the Funds: (a)
Under section 6(c) of the Act from sections 13(a)(2), 13(a)(3), 18(a),
18(c), 18(f)(1), 22(f), 22(g), 23(a) and rule 2a-7 thereunder, to the
extent necessary to permit the Funds to adopt and implement the Plan;
(b) under sections 6(c) and 17(b) of the Act from section 17(a)(1) to
permit the Funds to sell securities for which they are the issuer to
participating Funds in connection with the Plan; and (c) under section
17(d) of the Act and rule 17d-1 thereunder to permit the Funds to
effect certain joint transactions incident to the Plan.
2. Sections 18(a) and 18(f)(1) generally prohibit registered
closed-end and open-end investment companies, respectively, from
issuing senior securities. Section 18(c) of the Act generally provides
that registered closed-end investment companies may not have
outstanding more than one class of senior security representing
indebtedness. Section 13(a)(2) requires that a registered investment
company obtain shareholder authorization before issuing any senior
security not contemplated by the recitals of policy in its registration
statement. Applicants state that the Plan possesses none of the
characteristics of senior securities that led Congress to enact section
18. The Plan would not induce speculative investments, affect control
of any Fund,
[[Page 7838]]
confuse investors, or convey a false impression as to the safety of
their investments. All liabilities created under the Plan would be
offset by equal amounts of assets that would not otherwise exist if the
fees were paid on a current basis.
3. Section 22(f) prohibits undisclosed restrictions on
transferability or negotiability of redeemable securities issued by
open-end investment companies. The Plan would set forth all such
restrictions, which would be included primarily to benefit the Eligible
Trustees and would not adversely affect the interests of the
shareholders of the Open-End Funds.
4. Section 22(g) and 23(a) prohibit registered open-end and closed-
end investment companies, respectively, from issuing any of their
securities for services or for property other than cash or securities.
This provision prevents the dilution of equity and voting power that
may result when securities are issued for consideration that is not
readily valued. Applicants believe that the Plan would merely provide
for deferral of payment of such fees and thus should be viewed as being
issued not in return for services but in return for a Fund not being
required to pay such fees on a current basis.
5. Section 13(a)(3) provides that no registered investment company
shall, unless authorized by the vote of a majority of its outstanding
voting securities, deviate from any investment policy that is
changeable only if authorized by shareholder vote. Each of the Funds
named in the application adopted an investment policy regarding the
purchase of shares of other investment companies, which policy could
prohibit or restrict such Funds from purchasing shares of other
investment companies. The relief requested from section 13(a)(3) would
extend only to the named applicants. Applicants believe that relief
from section 13(a)(3) is appropriate to enable the affected Funds to
invest in Underlying Securities without a shareholder vote. Each Fund
will disclose the existence of the Plan in its registration statement.
The value of the Underlying Securities will be de minimis in relation
to the total net assets of the respective Fund, and will at all times
equal the value of the Fund's obligations to pay deferred fees (plus
any increase in value thereof.)
6. Rule 2a-7 imposes certain restrictions on the investments of
``money market funds,'' as defined under the rule that would prohibit a
Fund that is a money market Fund from investing in the shares of any
other Fund. Applicants believe that the requested exemption would
permit the Fund to achieve an exact matching of Underlying Securities
with the deemed investments of the Deferred Fee Accounts, thereby
ensuring that the deferred fees would not affect net asset value.
7. Section 6(c) provides, in relevant part, that the SEC may by
order, exempt any person or class of persons from any provision of the
Act or from any rule thereunder, if such exemption is necessary or
appropriate in the public interest, consistent with the protection of
investors, and consistent with the purposes fairly intended by the
policy and provisions of the Act. Applicants believe that the relief
requested satisfies this standard.
8. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company from selling any security to such
registered investment company.\3\ Applicants assert that section
17(a)(1) was designed to prevent, among other things, sponsors of
investment companies from using investment company assets as capital
for enterprises with which they were associated or to acquire
controlling interest in such enterprises. Applicants believe that the
sale of securities issued by the Funds pursuant to the Plan does not
implicate the concerns of Congress in enacting this section, but merely
would facilitate the matching of each Fund's liability for deferred
trustees' fees.
\3\ Section 2(a)(3)(C) of the Act defines the term ``affiliated
person'' of another person to include any person directly or
indirectly controlling, controlled by, or under common control with
such other person. Thus, the Funds may be subject to the
prohibitions of section 17(a)(1).
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9. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(a) if evidence establishes that the terms
of the transaction, including the consideration to be paid or received,
are reasonable and fair and do not involve overreaching on the part of
any person concerned, the transaction is consistent with the policies
of the registered investment company, and the general purposes of the
Act. Applicants believe that the proposed transaction satisfies the
criteria of section 17(b). The finding that the terms of the
transaction are consistent with the policies of the registered
investment company is predicated on the assumption that relief is
granted from section 13(a)(3). Applicants also request relief from
section 17(a)(1) under section 6(c) to the extent necessary to
implement the Deferred Compensation under the Plan on an ongoing
basis.\4\
\4\ Section 17(b) may permit only a single transaction, rather
than a series of on-going transactions, to be exempted from section
17(a). See Keystone Custodian Funds, Inc., 21 S.E.C. 295 (1945).
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10. Section 17(d) of the Act makes it unlawful for any affiliated
person of a registered investment company, acting as principal, to
effect any transaction in which the company is a joint or joint and
several participant in contravention of such rules and regulations as
the SEC may prescribe. Rule 17d-1 permits an affiliated person to
engage in a joint transaction if the SEC issues an order approving the
arrangements. Eligible Trustees will not receive a benefit, directly or
indirectly, that would otherwise inure to a Fund or its shareholders.
Eligible Trustees will receive tax deferral but the Plan otherwise will
maintain the parties, viewed both separately and in their relationship
to one another, in the same position as if the deferred fees were paid
on a current basis. When all payments have been made to a Eligible
Trustee, the Eligible Trustee will be no better off, relative to the
Funds, than if he or she had received trustees fees on a current basis
and invested them in Underlying Securities.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Any money market Fund that values its assets in accordance with
a method prescribed by rule 2a-7 will buy and hold any Underlying
Securities that determine performance of the Deferred Fee Accounts to
achieve an exact match between such Funds' liability to pay deferred
fees and the assets that offset that liability.
2. If a Fund purchases shares issued by an affiliated Fund, the
Fund will vote such shares in the same proportion as the shares of all
other shareholders of such affiliated Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-4665 Filed 2-28-96; 8:45 am]
BILLING CODE 8010-01-M
