[Federal Register Volume 61, Number 149 (Thursday, August 1, 1996)]
[Notices]
[Pages 40266-40268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19528]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22099; 812-10140]
Van Eck Funds, et al.; Notice of Application
July 25, 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 Eck Funds, Van Eck Worldwide Insurance Trust
(collectively, the ``Funds''), and Van Eck Associates Corporation
(``Van Eck Associates'').
RELEVANT ACT SECTIONS: Order requested under sections 6(c) of the Act
for an exemption from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f), and
22(g), 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.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Funds to enter into deferred compensation arrangements with their
independent trustees.
FILING DATES: The application was filed on May 9, 1996, and amended on
July 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 August 19, 1996
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, 99 Park Avenue, New York, N.Y. 10016.
FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenlees, Senior Counsel, at (202) 942-0581, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. Each of the Funds is a registered open-end management investment
company comprised of several investment portfolios. Van Eck Associates
serves as the investment adviser to each series of the Funds.
Applicants request that the exemption also apply to any registered
investment companies that in the future are advised by Van Eck
Associates or any entity under common control with or controlled by Van
Eck Associates. (Such future funds are also referred to as the
``Funds.'')
2. Each Fund has a board of trustees, a majority of whom are not
``interested persons'' within the meaning of section 2(a)(19) of the
Act (``independent trustees''). Each independent trustee receives
annual fees from the Funds. No trustee who is an affiliated person of
Van Eck Associates receives any remuneration from any Fund.
3. Effective January 1, 1996, certain independent trustees entered
into a deferred fee agreement (each an ``Agreement''), an unfunded,
nonqualified deferred compensation arrangement, with each of the Funds.
Under the Agreement, an independent trustee may elect to defer receipt
of all or a portion of his or her fees earned on or after the effective
date of the Agreement through December 31, 1996.
4. Each of the Funds has established a book reserve account on
behalf of each electing independent trustee (each a ``Deferred Fee
Account''). On the dates that each such Fund would otherwise pay these
deferred fees, the Fund credits such amounts into the Deferred Fee
Account. Interest on each Deferred Fee Account is credited each
quarter, calculated based on the balance of the Deferred Fee Account as
of the first day of each quarter. The interest rate that has been used
to date is based on the prevailing rate for 90-day U.S. Treasury bills
in effect as of the prior quarter end or as close to that date as is
possible.
5. Each of the Funds now proposes to adopt a formal deferred
compensation plan (the ``Plan''). The Plan would permit independent
trustees to elect to defer receipt of all or a portion of their fees,
thereby also enabling them to defer payment of income taxes on such
fees.
6. An independent trustee will be able to defer fees with respect
to one, several or all of the Funds for which he or she serves as an
independent trustee. The election is to be made by execution of a
notice of election to defer compensation (``Notice of Election''). A
Notice or Election generally must be made prior to January 1 of each
calendar year for which compensation is to be deferred.
7. Each Fund now proposes to use returns on certain Funds and other
investment companies that are not affiliated with Van Eck Associates
designated from time to time by the trustees (the ``Eligible Funds'')
to determine the amount of earnings and gains or losses allocated to an
independent trustee's Deferred Fee Account. If the requested relief is
granted, the value of the Deferred Fee Account as of any date would be
periodically adjusted by treating the Deferred Fee Account as though an
equivalent dollar amount had been invested and reinvested in certain
designated securities (the ``Underlying Securities''). The underlying
Securities for a Deferred Fee Account will be shares of any of the
Eligible Funds as the participating independent trustee shall have
designated in his or her Notice of Election. Each Deferred Fee Account
shall be credited or charged with book adjustments representing all
interest, dividends and other earnings and all gains and losses which
would have been realized had such account been invested in such
Underlying Securities.
8. The Plan provides that a participating Fund's obligation to make
payments from a Deferred Fee Account will be a general obligation of
the Fund and payments made pursuant to the Plan will be made from such
Fund's general assets and property. With respect to the obligations
created under the Plan, the relationship of an
[[Page 40267]]
independent trustee to the participating Fund will be only that of a
general unsecured creditor.
9. The Plan also provides that the participating Fund will be under
no obligation to the independent trustee to purchase, hold or dispose
of any investments but, if the Fund chooses to purchase investments to
cover its obligations under such Plan, then any and all such
investments will continue to be a part of the general assets and
property of the Fund.
10. As a matter of prudent risk management, each Fund intends
generally, and with respect to any money market Fund that values its
assets by the amortized cost method hereby undertakes, to purchase and
maintain Underlying Securities in an amount equal to the deemed
investments of the Deferred Fee Accounts of its independent trustees.
11. Under the Plan, the independent trustee's deferred fees
generally will be distributed commencing on a date specified in the
independent trustee's Notice of Election, which may not be sooner than
the earlier of the termination of the independent trustee's service as
a trustee or one year following the deferral election. Payments will be
made in a lump sum or in installments as shall be elected by the
independent trustee. In the event of the independent trustee's death,
amounts payable to him or her under the Plan will thereafter be payable
to his or her designated beneficiary; in all other events, the
independent trustee's right to receive payments generally will be
nontransferable.
12. The Plan will not obligate any Fund to retain the services of
an independent trustee, nor will it obligate any Fund to pay any (or
any particular level of) trustee's fees to any trustee.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f), 22(g), and
rule 2a-7 thereunder to permit the Funds to offer the Plans; under
sections 6(c) and 17(b) of the Act for an exemption from section
17(a)(1) to permit the Funds to sell securities issued by them to
participating Funds; and pursuant to section 17(d) of the Act and rule
17d-1 thereunder to permit the Funds to effect joint transactions
incident to the Plans.
2. 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 the policy and provisions of the Act.
3. Section 18(f)(1) generally prohibits a registered open-end
investment company from issuing senior securities. 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 would possess none of the characteristics of the
instruments which led to Congress's concerns in this area. In all
cases, the liabilities for deferred fees are expected to be de minimis
in relation to Fund net assets. The Plan would not induce speculative
investment by any Fund or provide opportunity for manipulative
allocation of a Fund's expenses and profits; control of each Fund would
not be affected; and the Plan would not confuse investors or convey a
false impression of safety.
4. Section 22(f) prohibits undisclosed restrictions on the
transferability or negotiability of redeemable securities issued by
open-end investment companies. The Plan would clearly set forth any
restriction on transferability or negotiability. Such restriction would
be included primarily to benefit the participating independent trustee,
and would not adversely affect the interests of the independent
trustee, the Fund or any shareholder of the Fund.
5. Section 22(g) prohibits registered open-end investment companies
from issuing any of their securities for services or for property other
than cash or securities. These provisions prevent 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 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.
6. 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. Existing series of
Van Eck Funds have limitations on their ability to purchase securities
issued by other investment companies (collectively, the ``Restriction
Series'). Any relief granted from section 13(a)(3) would apply only to
the Restriction Series. Applicants believe that an exemption is
appropriate to enable the Restriction Series to invest in Underlying
Securities without a shareholder vote. Applicants will provide notice
to shareholders of the deferred compensation plan in their statements
of additional information.\1\ The value of the Underlying Securities is
expected to be de minimis in relation to the total net assets of each
Restriction Series. Changes in the value of the Underlying Securities
will not affect the value of shareholders' investments in the
Restriction Series. Applicants believe that permitting the Restriction
Series to invest in Underlying Securities without obtaining the
shareholder approval would thus not cause harm to the Restriction
Series or their shareholders, and would in fact benefit them by
enhancing their ability to attract and retain qualified trustees
without incurring the considerable costs of holding a shareholder
meeting and soliciting proxies to approve a change in the investment
policy in question.
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\1\ The Division notes that other funds have disclosed their
deferred compensation arrangements in a similar manner. See John
Hancock Funds, Inc. (pub. avail. Jun. 28, 1996).
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7. 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 submit that the requested exemption would permit
the Funds in question to achieve an exact matching of Underlying
Securities with the deemed investments of the Deferred Fee Accounts,
thereby ensuring that the deferred fee arrangements will not affect net
asset value.
8. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company from selling any security to such
registered investment company. Funds that are advised by the same
entity may be ``affiliated persons'' of one another by reason of being
under the common control of their adviser. Applicants request an
exemption from 17(a)(1) for transactions between Eligible Funds that
are affiliated with Van Eck Associates. Applicants believe that an
exemption from this provision would not implicate Congress's concerns
in enacting the section, but would merely facilitate the matching of a
Fund's liability for deferred trustees' fees with the Underlying
Securities that would determine the amount of such Fund's liability.
9. 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
[[Page 40268]]
of each registered investment company concerned; and (c) the
transaction is consistent with the general purposes of the Act. Because
section 17(b) may apply only to a specific proposed transaction,
applicants also request an order under section 6(c) so that the relief
will apply to a series of transactions. Applicants believe that the
proposed transactions satisfy the criteria of sections 6(c) and 17(b).
The findings required by section 17(b)(2) are premised on the
assumption that the relief requested from section 13(a)(3) is granted.
10. Section 17(d) of the Act prohibits affiliated persons from
participating in joint transactions with a registered investment
company in contravention of rules and regulations prescribed in the
SEC. Rule 17s-1 under the Act prohibits affiliated persons of a
registered investment company from entering into joint transactions
with the investment company unless the SEC has granted an order
permitting the transaction after considering whether the participation
of such investment company is consistent with the provisions, 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. Applicants request relief under section 17(d) and rule
17d-1 for transactions with Eligible Funds that are affiliated with Van
Eck Associates. As an affiliated person, the participating independent
trustee would neither directly nor indirectly receive a benefit which
would otherwise inure to the Funds or any of their shareholders.
Deferral of an independent trustee's fees in accordance with the Plan
would essentially maintain the parties, viewed both separately and in
their relationship to one another, in the same position (apart from tax
effects) as if the fees were paid on a current basis. The effect of the
Plan would merely be to defer the payment of fees that the applicants
would otherwise be obligated to pay on a current basis.
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 Fund that values its assets by 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 Fund's liability to pay deferred fees and the assets
that offset that 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 SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-19528 Filed 7-31-96; 8:45 am]
BILLING CODE 8010-01-M
