[Federal Register Volume 60, Number 173 (Thursday, September 7, 1995)]
[Notices]
[Pages 46678-46679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22195]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21331/812-9662]
Van Kampen Merritt Equity Trust et al.; Notice of Application
August 31, 1995.
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 Merritt Equity Trust (the ``VK Trust''),
American Capital Utilities Income Fund, Inc. (the ``AC Fund''), Van
Kampen American Capital Investment Advisory Corp. (the ``VK Adviser''),
Van Kampen American Capital Asset Management, Inc. (the ``AC
Adviser''), and Van Kampen American Capital Distributors, Inc. (the
``Distributor'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) granting an
exemption from section 17(a).
SUMMARY OF APPLICATION: Applicants request an order to permit the VK
Fund, a sub-trust of the VK Trust, to acquire all of the assets of the
AC Fund. Because of certain affiliations, the two funds may not rely on
rule 17a-8 under the Act.
FILING DATE: The application was filed on July 12, 1995. Applicants
have agreed to file an amendment during the notice period, the
substance of which is included in this notice.
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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on September 25,
1995, and should be accompanied by proof of service on applicant, 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: Sarah A. Wagman, Staff Attorney, at
(202) 942-0654, or Alison E. Baur, 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.
Applicants' Representations
1. The Van Kampen Merritt Utility Fund (the ``VK Fund'') is a sub-
trust of the VK Trust, an open-end management investment company
organized as a Massachusetts business trust. The AC Fund is an open-end
management investment company organized as a Maryland corporation (the
VK Fund and the AC Fund are collectively referred to as the ``Funds'').
The VK Adviser advises the VK Fund, and the AC Adviser advises the AC
Fund. As of May 31, 1995, the AC Adviser owned 9.25% of the outstanding
voting shares of the AC Fund.
2. On December 20, 1994, The Van Kampen Merritt Companies, Inc.
acquired from The Travelers Inc. all of the outstanding capital stock
of American Capital Management & Research, Inc., which at that time was
the parent company of the AC Adviser. Immediately following this
acquisition, American Capital Management & Research, Inc. was merged
into The Van Kampen Merritt Companies, Inc. and the combined entity was
renamed Van Kampen American Capital, Inc. The VK Adviser, the AC
Adviser, and the Distributor are wholly-owned subsidiaries of Van
Kampen American Capital, Inc., and are organized as Delaware
corporations.
3. Van Kampen American Capital, Inc. is a wholly-owned subsidiary
of VK/AC Holding, Inc. VK/AC Holding, Inc., in turn, is controlled by
The Clayton & Dubilier Private Equity Fund IV Limited Partnership
(``C&D L.P.''), which owned, as of August 29, 1995, approximately 86
percent of the common stock of VK/AC Holding, Inc. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York-based private investment
firm. The general partner of C&D L.P. is Clayton & Dubilier Associates
IV Limited Partnership.
4. The investment objectives of the Funds are essentially the same.
The investment objective of the VK Fund is to provide its shareholders
with capital appreciation and current income. The VK Fund seeks to
achieve its objective by investing in a diversified portfolio of common
stocks and income securities issued by companies engaged in the
utilities industry. Under normal market conditions, at least 80% of the
VK fund's assets are invested in securities issued by companies engaged
in the utilities industry. As of May 31, 1995, the net assets of the VK
Fund were $134,753,821.
5. The primary investment objective of the AC Fund is to provide
its shareholders with current income. Capital appreciation is a
secondary objective which is sought only when consistent with the
primary objective. The AC Fund seeks to achieve its investment
objective by investing in a diversified portfolio of common stocks and
income securities issued by companies engaged in the utilities
industry. Under normal market conditions, at least 65% of the AC Fund's
assets are invested in securities issued by companies engaged in the
utilities industry. As of May 31, 1995, the net assets of the AC Fund
were $26,996,393.
6. Each fund offers three classes of shares. Class A shares of the
Funds generally are sold with a front-end sales charge. Purchases of
Class A shares in excess of $1,000,000 are not subject to a front-end
sales charge but are subject to a contingent deferred sales charge
(``CDSC'') of 1.00% if redeemed within one year from the date of
purchase. Class B shares of the Funds are sold without a front-end
sales charge but are subject to a CDSC payable upon redemption. Class C
shares of the Funds are sold without a front-end sales charge and are
subject to a CDSC of 1.00% if redeemed within one year of purchase.
7. The VK Fund proposes to acquire all of the assets of the AC
Fund, in exchange for shares of beneficial interest in the VK Fund and
the assumption by the VK Fund of all of the liabilities of
[[Page 46679]]
the AC Fund. The number of shares of each class of the VK Fund to be
issued to shareholders of the AC Fund will be determined on the basis
of the Funds' relative net asset values for each class of shares,
computed as of 5:00 p.m. Eastern time on the closing date. Class A,
Class B, and Class C shareholders of the AC Fund will receive,
respectively, Class A, Class B, and Class C shares of the VK Fund.
After this distribution and the AC Fund's winding up of its affairs,
the AC Fund will be terminated.
8. In anticipation of the proposed reorganization, on April 7,
1995, the board of trustees of the VK Trust (the ``VK Board'')
unanimously approved a consolidation plan (the ``Consolidation Plan'')
which provided for: (a) merging certain funds advised by the VK Adviser
and the AC Adviser, including the Funds, in order to achieve certain
economies of scale and efficiency; (b) permitting exchangeability of
shares between funds advised by the VK Adviser and the AC Adviser; (c)
selecting a common transfer agent; (d) consolidating the VK Board and
the board of directors of the AC Fund (the ``AC Board'') into a
combined board;\1\ and (e) reorganizing most of the funds advised by
the VK Adviser and the AC Adviser, including the Funds, as Delaware
business trusts. On May 11, 1995, the AC Board unanimously approved the
Consolidation Plan. Shareholder approval of the actions proposed in the
Consolidation Plan was obtained, or will be obtained, where necessary.
\1\ The AC Fund will comply with section 15(f) of the Act with
respect to the composition of the AC Board. Section 15(f) provides,
in relevant part, that an investment adviser of a registered
investment company may receive a benefit in connection with a sale
of an interest in such investment company which results in an
assignment of the investment company's advisory contract if, for a
three-year period following the sale, 75% of the directors of the
investment company are not interested persons of the adviser or its
predecessor.
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9. In anticipation of the proposed reorganization, the VK Board and
the AC Board, including the non-interested trustees/directors,
unanimously approved an agreement and plan of reorganization (the
``Reorganization Agreement''). Applicants intend that the
Reorganization Agreement will be submitted to the shareholders of the
AC Fund for approval at a meeting to be held on or about September 15,
1995. A registration statement on Form N-14 containing a combined proxy
statement/prospectus was filed with the Commission on May 25, 1995. The
AC Fund began mailing the proxy statement/prospectus to its
shareholders on August 4, 1995. Assuming that the required shareholder
vote is obtained at the AC Fund's shareholder meeting, the closing of
the proposed reorganization is expected to be shortly thereafter, but
not before applicants' receipt of the requested order.
10. In considering the Reorganization Agreement, the VK Board and
the AC Board, including the non-interested trustees/directors of each
board, considered a number of factors in concluding that the Funds'
participation in the reorganization is in the best interests of each
fund and that the interests of existing shareholders of the Funds will
not be diluted. The factors considered by the boards included: (a) the
capabilities and the resources of the VK Adviser and other service
providers to the VK Fund; (b) the advisory fees and expenses of the
Funds, the expense ratios of the Funds, and the anticipated expense
ratio of the combined fund; (c) comparative investment performance of
the VK Fund and the AC Fund; (d) the terms and conditions of the
reorganization; (e) the potential benefits of the reorganization to
affiliates of the Funds; (f) the similarity of the Funds; (g) the costs
of the reorganization to the Funds; and (h) the fact that the
reorganization will be effected on a tax-free basis. The VK Fund, as
the surviving fund after the reorganization and merger of the VK Fund
and the AC Fund, will be responsible for the expenses incurred by the
AC Fund and the VK Fund in connection with the reorganization, and the
VK Adviser, the AC Adviser, and the Distributor will be responsible for
their respective expenses incurred in connection with the
reorganization.
11. The consummation of the reorganization is subject to a number
of conditions set forth in the Reorganization Agreement, including: (a)
The shareholders of the AC Fund shall have approved the Reorganization
Agreement; and (b) the parties shall have received all necessary
approvals, registrations, and exemptions (including the requested
order) under federal and state securities laws with respect to the
proposed reorganization. Any provision of the Reorganization Agreement
may be waived, amended, modified, or supplemented by the mutual written
agreement of the parties; provided, however, that the parties will not
make any material changes to the Reorganization Agreement that affect
the application without the prior approval of the SEC. Applicants also
agree not to waive, amend, or modify any provision of the
Reorganization Agreement that is required by state or Federal law to
effect the reorganization.
Applicants' Legal Analysis
1. Section 17(a) of the Act, in pertinent part, prohibits an
affiliated person of a registered investment company, or any affiliated
person of such a person, acting as principal, from selling to or
purchasing from such registered company, any security or other
property. Section 17(b) provides that the SEC may exempt a transaction
from section 17(a) if evidence establishes that the terms of the
proposed transaction, including the consideration to be paid, are
reasonable and fair and do not involve overreaching on the part of any
person concerned, and that the proposed transaction is consistent with
the policy of each registered investment company concerned and with the
general purposes of the Act.
2. Rule 17a-8 under the Act exempts from the prohibitions of
section 17(a) mergers, consolidations, or purchases or sales of
substantially all the assets of registered investment companies that
may be affiliated persons, or affiliated persons of an affiliated
person, solely by reason of having a common investment adviser, common
directors/trustees, and/or common officers provided that certain
conditions are satisfied. The proposed reorganization may not be exempt
from the prohibitions of section 17(a) by reason of rule 17a-8 because
the AC Adviser owns more than 5% of the outstanding voting securities
of the AC Fund.
3. Applicants believe that the terms of the proposed reorganization
satisfy the standards of section 17(b). The AC Board and the VK Board,
respectively, including their disinterested trustees and directors,
have reviewed the terms of the proposed reorganization, including the
consideration to be paid or received, and have found that participation
in the proposed reorganization as contemplated by the Reorganization
Agreement is in the best interests of the VK Fund and the AC Fund, and
that the interests of existing shareholders of the Funds will not be
diluted as a result of the reorganization. In addition, the AC Board
and the VK Board found that the proposed reorganization is consistent
with the Funds' policies and the general purposes of the Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-22195 Filed 9-6-95; 8:45 am]
BILLING CODE 8010-01-M
