[Federal Register Volume 62, Number 88 (Wednesday, May 7, 1997)]
[Notices]
[Pages 24999-25002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11840]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22653; 812-10406]
Bond Fund Series, et al.; Notice of Application
April 30, 1997.
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: Bond Fund Series, Centennial America Fund, L.P., Centennial
California Tax Exempt Trust, Centennial Government Trust, Centennial
Money Market Trust, Centennial New York Tax Exempt Trust, Centennial
Tax Exempt Trust, Oppenheimer California Municipal Fund, Oppenheimer
Capital Appreciation Fund, Oppenheimer Cash Reserves, Oppenheimer
Champion Income Fund, Oppenheimer Developing Markets Fund, Oppenheimer
Discovery Fund, Oppenheimer Enterprise Fund, Oppenheimer Equity Income
Fund, Oppenheimer Fund, Oppenheimer Global Emerging Growth Fund,
Oppenheimer Global Fund, Oppenheimer Global Growth & Income Fund,
Oppenheimer Gold & Special Minerals Fund, Oppenheimer Growth Fund,
Oppenheimer High Yield Fund, Oppenheimer Integrity Funds, Oppenheimer
International Bond Fund, Oppenheimer International Growth Fund,
Oppenheimer Limited-Term Government Fund, Oppenheimer Multi-State
Municipal Trust, Oppenheimer Multiple Strategies Fund, Oppenheimer
Municipal Bond Fund, Oppenheimer Municipal Fund, Oppenheimer New York
Municipal Fund, Oppenheimer Quest Capital Value Fund, Inc., Oppenheimer
Quest for Value Funds, Oppenheimer Real Asset Fund, Oppenheimer
Strategic Income & Growth Fund, Oppenheimer Strategic Income Fund,
Oppenheimer U.S. Government Trust, Oppenheimer Variable Account Funds,
Panorama Series Fund, Inc., Rochester Fund Municipals, Rochester
Portfolio Series, Daily Cash Accumulation Fund, Inc., Oppenheimer Main
Street Funds, Inc., Oppenheimer Money Market Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Value
Fund, Inc., Oppenheimer Series Fund, Inc., and Oppenheimer Total Return
Fund, Inc. (collectively, the ``Open-End Funds''); The New York Tax
Exempt Income Fund, Inc., Oppenheimer Multi-Sector Income Trust, and
Oppenheimer World Bond Fund (collectively, the ``Closed-End Funds,''
together with the Open-End Funds, the ``Funds''); OppenheimerFunds,
Inc. (the ``Adviser''), Centennial Asset Management Corporation
(``CAMC''), and Oppenheimer Real Asset Management, Inc. (``ORAM'').
RELEVANT ACT SECTIONS: Order requested (a) 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) of the Act and rule 2a-7 thereunder;
(b) under sections 6(c) and 17(b) of the Act for an exemption from
section 17(a)(1) of the Act; and (c) pursuant to section 17(d) and rule
17(d)(1) thereunder to permit certain
[[Page 25000]]
transactions incident to deferred fee arrangements.
SUMMARY OF APPLICATION: Applicants request an order that would permit
each Fund to enter into deferred fee arrangements with certain of their
trustees, directors, and general partners who are not interested
persons of the Fund.
FILING DATES: The application was filed on October 17, 1996 and amended
on April 11, 1997.
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 27, 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
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, Two World Trade Center, New York, NY 10048-0203.
FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney,
at (202) 942-0517, 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. Each of the Open-End Funds is registered under the Act as an
open-end management investment company and organized as a Maryland
corporation, a Massachusetts business trust or a Delaware limited
partnership. Several of the Open-End Funds are organized as series
companies. Each Closed-End Fund is registered under the Act as a close-
end management investment company and organized as a Massachusetts
business trust or a Minnesota corporation. The Adviser, or its
subsidiaries, CAMC or ORAM serves as the investment adviser for, and
provides other services to, the Funds. SEC records show that the
Adviser, CAMC, and ORAM are all registered under the Investment
Advisers Act of 1940. Either OppenheimerFunds Distributor, Inc.
(``OFDI''), a wholly-owned subsidiary of the Adviser, or CAMC serves as
each Fund's principal underwriter.
2. The majority of directors of each Fund are not ``interested
persons'' of such Fund within the meaning of section 2(a)(19) of the
Act (``Independent Directors''). Under the deferred fee arrangements
proposed by applicants (the ``Arrangements''), Independent Directors
who receive directors fees from one or more of the Funds (the
``Eligible Directors'') will be entitled to defer to a later date the
receipt of all or part of such fees.
3. The proposed deferred fee arrangements would be implemented by
means of a deferred fee agreement (the ``Agreement'') entered into
between an Eligible Director and the appropriate Fund. The Agreement
would permit an Eligible Director to elect to defer receipt of all or a
portion of his or her fees, in order to enable deferred payment of
income taxes on such fees, and for other reasons. The Agreement may be
amended from time to time, provided that any amendments to the
Agreement will be limited to amendments which are not material
(consistent with the terms of the Application) amendments made to
conform to any applicable laws, or amendments that are approved by the
SEC pursuant to an amendment of the order granted pursuant to the
Application.
4. The deferred fees will be credited to bookkeeping accounts
(``Deferred Fee Accounts'') maintained by the Funds liable for the
payment of such deferred fees and accrued 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 one or more of the Funds (the ``Investment
Funds''). Under the Agreement, the deferred fees payable by a Fund with
respect to a particular Eligible Director will be credited to the
Deferred Fee Account as of the first business day following the date
that such fees would have been paid to such Director.
5. Shares will not be designated as Underlying Securities, and
Underlying Securities will not be purchased, if the purchase of such
Underlying Securities would result in a violation of section 12(d)(1)
of the Act.\1\ Each Fund will vote shares of any affiliated Fund held
pursuant to the Arrangements in proportion to the votes of all other
holders of shares of such Fund.
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\1\ The Agreement provides that the management of the
participating Funds may designate new securities as the Underlying
Securities if it reasonably believes the acquisition of the
Underlying Securities would result in a violation by, or the
objective and policies of, the participating Funds.
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6. Any participating money market series of the Funds that values
its assets using the amortized cost method or penny rounding method
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. Applicants intend that the
participating Funds will purchase and hold shares of Underlying
Securities in amounts equal to the deemed investment of the deferred
fee accounts of its Eligible Directors. If the participating Funds
purchase shares of the Underlying Securities, the shares will be held
solely in the name of the Funds. Thus, in cases where the Funds
purchase shares of the Underlying Securities, liabilities created by
the credits to the Deferred Fee Accounts under the Agreement are
expected to be matched by an equal amount of assets (i.e., a direct
investment in the Underlying Securities), which assets would not be
held by the Fund if fees were paid on a current basis.
7. The Agreement provides that the obligations of each Fund to make
payments of the Deferred Fee Accounts will be general obligations of
each such Fund and payments made pursuant to the Agreement will be made
from such Fund's general assets and property. With respect to the
obligations created under the Agreement, the relationship of the
Eligible Directors to the applicable Funds will be only that of general
unsecured creditors. A Fund will be under no obligation to purchase,
hold or dispose of any investment under the Agreement, but, if one or
more of the Funds choose to purchase investments to cover its
obligations under the Agreement, then any and all such investments will
continue to be a part of the general assets and property of the Funds.
8. Under the Agreement, deferred director's fees (as determined by
the adjusted value of the Deferred Fee Account) will become payable in
cash upon the Eligible Director's retirement or disability in generally
equal quarterly installments over a period of five years (unless the
participating Fund has agreed to a longer payment period) beginning on
the date of retirement or disability. Any one or more of the Funds may
in the future establish a retirement plan for the Eligible Directors
and amend the Agreement to permit payment of deferred director's fees
[[Page 25001]]
beginning on the date payments of retirement benefits to the Director
commence under such retirement plan established by such Funds. In the
event of the Eligible Director's death, remaining amounts payable to
him or her under the Agreement will thereafter be payable to his or her
designated beneficiary; in all other events, the Director's right to
receive payments will be nontransferable. The Agreement provides that
the Funds, in their sole discretion, have reserved the right to
accelerate payment of amounts in the Deferred Fee Account at any time
after the termination of the Eligible Director's service as director.
In the event of the liquidation, dissolution or winding up of the
appropriate Fund, the distribution of all or substantially all of the
Fund's assets and property to its shareholders (unless such Fund's
obligations under the Agreement have been assumed by a financially
responsible party purchasing such assets), or a merger or
reorganization of a Fund (unless prior to such merger or
reorganization, the Fund's Directors determine that the Agreement shall
survive the merger or reorganization), all unpaid amounts in the
Deferred Fee Account maintained by such Fund shall be paid in a lump
sum to the Directors on the effective date thereof.\2\
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\2\ Applicants acknowledge that the requested order would not
permit a party acquiring a Fund's assets to assume a Fund's
obligations under the Agreement if such obligations would constitute
a violation of the 1940 Act by the assuming party. Applicants
further acknowledge that if, and to the extent that, any such
assumption would be prohibited by section 17 of the 1940 Act, any
such assumption would be consummated only after the parties involved
obtained exemptive relief, if any, which may be necessary.
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9. Applicants request an order under section 6(c) of the Act
granting relief from sections 13(a)(2), 13(a)(3), 18(a), 18(c),
18(f)(1), 22(g), and 23(a) of the Act and rule 2a-7 thereunder to the
extent necessary to permit the Funds to enter into deferred fee
arrangements with Eligible Directors; under sections 6(c) and 17(b) of
the Act granting relief from section 17(a)(1) to the extent necessary
to permit the Funds to sell securities issued by them to participating
Funds in connection with such arrangements; and pursuant to section
17(d) of the Act and rule 17d-1 thereunder to permit the Funds and
Eligible Directors to effect certain transactions incident to such
arrangements.\3\
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\3\ Applicants also request relief for all subsequently
registered investment companies advised by the Adviser (``Future
Funds'') or entities controlling, controlled or under common control
with the Adviser.
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Applicants' Legal Analysis
1. Section 18(a) generally prohibits a closed-end investment
company, and section 18(f)(1) generally prohibits a registered open-end
investment company, from issuing senior securities. Section 18(c)
prohibits any registered closed-end investment company from issuing or
selling any senior security representing indebtedness if immediately
thereafter such company will have outstanding more than one class or
senior security representing indebtedness. Section 13(a)(2) requires
that a registered investment company obtained shareholder authorization
before issuing any senior security not contemplated by the recitals of
policy in its registration statement. Applicants state that the
Agreement possesses none of the characteristics of senior securities
that led to Congress's enactment of the restrictions on the issuance of
such securities in these sections. Applicants contend that the
Agreement will not: (a) Induce speculative investments by a Fund or
provide opportunities for manipulative allocation of any Fund's
expenses or profits; (b) affect control of any Fund; (c) be
inconsistent with the theory of mutuality of risk; or, (d) given the
existence of similar deferred compensation agreements, confuse
investors or convey a false impression as to the safety of their
investments. Applicants state that all liabilities created by credits
to the Deferred Fee Account under the Agreement are expected to be
offset by essentially equal amounts of each Fund that would not
otherwise exist if the fees were paid on a current basis. Applicants
note that benefits payable under the Agreement are unsecured and their
payment will not have preference or priority over the lawful claims of
other creditors. Applicants state that the Agreement will not obligate
any Fund to retain a Director in such capacity, nor will it obligate
any Fund to pay any (or any particular level of) Director's fees to any
Director. Rather, applicants submit it will merely permit an Eligible
Director to elect to defer receipt of Director's fees which would
otherwise be received on a current basis from the appropriate Fund or
Funds.
2. 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. Applicants state
that certain of the Funds have an investment policy prohibiting the
purchase of investment company shares without shareholder approval,
which would prevent such Funds from purchasing shares of any other of
the Funds without such approval. Further, it is possible that one or
more of the Future Funds may have similar investment policies.
Applicants request an exemption form section 13(a)(3) to permit the
Funds to invest in Underlying Securities without a shareholder vote.
Applicants state that any relief granted from section 13(a)(3) of the
Act would extend only to existing Funds that have an investment policy
prohibiting or restricting investments in investment companies and to
Future Funds that, at the time that the Adviser, or entities
controlling, controlled by, or under common control with the Adviser,
became their investment adviser, had an investment policy prohibiting
or restricting investments in investment companies. Applicants state
that they will provide notice of the Arrangements to shareholders in
the registration statement of each affected Fund. Applicants submit
that it is appropriate to exempt the affected Fund from the provisions
of 13(a)(3) as to enable the affected Fund to invest in Underlying
Securities pursuant to the Agreement without a shareholder vote.
Applicants state that the value of the Underlying Securities will be de
minimis in relation to the total net assets of the Funds. Applicants
also note that, if they are prevented from investing in investment
company shares, they will not be able to achieve the matching of
Underlying Securities with the deemed investment of the Deferred Fee
Accounts. Applicants believe that such matching is highly desirable
because it will ensure that the deferred fee arrangements will not
affect the net asset value of any Oppenheimer Fund's shares.
3. Rule 2a-7 imposes certain restrictions on the investments of
money market funds that use the amortized cost method or the penny-
rounding method of computing their per share price. Applicants believe
that these restrictions would prohibit a Fund that is a money market
fund from investing in the shares of any other Fund that is not a money
market fund. Applicants state that any money market series of a Fund
that values its assets using the amortized cost method will buy and
hold the Underlying Securities that determine the performance of the
Deferred Fee Account to achieve an exact match between such series'
liability to pay deferred fees and the assets that offset that
liability. Applicants contend that, under the circumstances, the
underlying concerns that have led the SEC to prescribe
[[Page 25002]]
strictly the permissible characteristics of a money market Fund's
portfolio securities are not present.
4. Sections 22(f) prohibits undisclosed restrictions on the
transferability or negotiability of redeemable securities issued by
open-end investment companies. Applicants state that the Agreement
would set forth any restrictions on transferability or negotiability of
the Eligible Director's benefits, and such restrictions are included
primarily to benefit the Eligible Directors and would not adversely
affect the interests of any shareholder of any Fund.
5. Sections 22(g) and 23(a) generally prohibit registered open-end
investment companies and registered closed-end investment companies,
respectively, from issuing any of their securities for services or for
property other than cash or securities. Applicants believe that these
provisions are primarily concerned with the dilative effect on the
equity and voting power of the common stock of, or shares of beneficial
interest in, an investment company if securities are issued for
consideration not readily valued. Applicants assert that interests
under the Agreement will not entitle Eligible Directors to any vote as
shareholders or to participate in the profits and gains of any of the
Funds. Applicants also submit that the Agreement would provide for
deferral of payment of fees that would be payable independent of the
Agreement, 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.
6. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company, or any affiliated person of such person,
from selling any security to such registered investment company.
Applicants state that the Funds that are advised by the same entity may
be ``affiliated persons'' of one another under section 2(a)(3)(C) of
the Act. Applicants assert that section 17(a)(1) was designed to
prevent sponsors of investment companies from using investment company
assets as capital for enterprises with which they were associated or to
acquire controlling interests in such enterprises. Applicants contend
that, as a result of the Funds' undertaking to vote the shares of an
affiliated Fund in proportion to the votes of all other holders of such
shares, control of the issuer of the Underlying Securities will remain
unchanged. Applicants further submit that permitting the proposed
transactions would facilitate the matching of each Fund's liability for
deferred Director's fees with the Underlying Securities that would
determine the amount of such Fund's liability.
7. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) The
terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching; (b)
the transaction is consistent with the policy of each registered
investment company concerned; and (c) the transaction is consistent
with the general purposes of the Act. Applicants assert that the
proposed transactions satisfy the criteria of section 17(b).
8. Applicants note that sales of shares of the Funds made available
for deemed investment under the Agreement will be made on the same
terms and conditions as are applicable to sales of the same securities
to unaffiliated parties, and the Agreement provides that management may
change the designation of Underlying Securities if the purchase of such
securities would violate the policies of the participating Fund.
9. Section 6(c) provides that the SEC may exempt any person,
security, or transaction from any provision of the Act, if and 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 policy and provisions of the Act.
Applicants assert that the proposed transactions satisfy this standard.
10. Section 17(d) of the Act and rule 17d-1 thereunder make 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. Rule 17d-1 under the Act
provides that the SEC may, by order upon application, grant exemptions
from the prohibitions of section 17(d) and rule 17d-1. Rule 17d-1(b)
further provides that, in passing upon such an application, the SEC
will consider whether the participation of the registered investment
company in such enterprise, arrangement, or plan is consistent with the
policies and purposes of the Act and the extent to which such
participation is on a basis different from or less advantageous than
that of other participants.
11. Applicants contend that the participating Eligible Director
will neither directly nor indirectly receive benefits which would
otherwise inure to the Funds or their shareholders. Applicants state
that deferral of an Eligible Director's fees in accordance with the
Agreement would essentially maintain the parties, viewed both
separately and in their relationship to one another, in the same
position as if the fees were paid on a current basis. Applicants submit
that when all payments have been made to a participating Eligible
Director, the Director will be in a position relative to the Funds no
better than if any deferred fees had been paid to such Director on a
current basis and invested in shares of the Underlying Securities.
Applicants believe that the Agreement will not constitute a joint or
joint and several participation by any Fund with an affiliated person
on a basis different from or less advantageous than that of the
affiliated person.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. With respect to the requested relief from rule 2a-7, any money
market series of a Fund that values its assets using the amortized cost
method or the penny-rounding method will buy and hold Underlying
Securities that determine the performance of Deferred Fee Accounts to
achieve an exact match between such series' liability to pay deferred
fees and the assets that offset the liability.
2. If a Fund purchases Underlying Securities issued by an
affiliated Fund, the purchasing Fund will vote such shares in
proportion to the votes of all other holders of shares of such
affiliated Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-11840 Filed 5-6-97; 8:45 am]
BILLING CODE 8010-01-M
