[Federal Register Volume 59, Number 159 (Thursday, August 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20233]
[[Page Unknown]]
[Federal Register: August 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20473; File No. 812-9050]
Van Kampen Merritt Trust, et al.
August 11, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Noticer of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Van Kampen Merritt Advantage Municipal Income Trust, Van
Kampen Merritt Advantage Municipal Income Trust II, Van Kampen Merritt
Advantage Pennsylvania Municipal Income Trust, Van Kampen Merritt
California Value Municipal Income Trust, Van Kampen Merritt California
Municipal Trust, Van Kampen Merritt California Quality Municipal Trust,
Van Kampen Merritt Equity Trust, Van Kampen Merritt Florida Quality
Municipal Trust, Van Kampen Merritt Florida Municipal Opportunity
Trust, Van Kampen Merritt Intermediate Term High Income Trust, Van
Kampen Merritt Investment Grade Municipal Trust, Van Kampen Merritt
Limited Term High Income Trust, Van Kampen Merritt Massachusetts Value
Municipal Income Trust, Van Kampen Merritt Money Market Trust, Van
Kampen Merritt Municipal Opportunity Trust II, Van Kampen Merritt
Municipal Opportunity Trust, Van Kampen Merritt Municipal Income Trust,
Van Kampen Merritt Municipal Trust, Van Kampen Merritt New Jersey Value
Municipal Income Trust, Van Kampen Merritt New York Value Municipal
Income Trust, Van Kampen Merritt New York Quality Municipal Trust, Van
Kampen Merritt Ohio Quality Municipal Trust, Van Kampen Merritt Ohio
Value Municipal Income Trust, Van Kampen Merritt Pennsylvania Quality
Municipal Trust, Van Kampen Merritt Pennsylvania Value Municipal Income
Trust, Van Kampen Merritt Pennsylvania Tax Free Income Fund, Van Kampen
Merritt Prime Rate Income Trust, Van Kampen Merritt Select Sector
Municipal Trust, Van Kampen Merritt Strategic Sector Municipal Trust,
Van Kampen Merritt Tax Free Money Fund, Van Kampen Merritt Tax Free
Fund, Van Kampen Merritt Trust for Investment Grade California
Municipals, Van Kampen Merritt Trust for Investment Grade Municipals,
Van Kampen Merritt Trust for Investment Grade New York Municipals, Van
Kampen Merritt Trust for Insured Municipals, Van Kampen Merritt Trust
for Investment Grade Florida Municipals, Van Kampen Merritt Trust for
Investment Grade Pennsylvania Municipals, Van Kampen Merritt Trust for
Investment Grade New Jersey Municipals, Van Kampen Merritt Trust, Van
Kampen Merritt U.S. Government Trust, Van Kampen Merritt Value
Municipal Income Trust (collectively, the ``Funds'') on behalf of
themselves and any series thereof, and Van Kampen Merritt Investment
Advisory Corp. (the ``Adviser'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from sections 13(a)(2), 13(a)(3), 17(a)(1), 18(a),
18(c), 18(f)(1), (22f), 22(g), and 23(a) of the Act and rule 2a-7
thereunder; under sections 6(c) and 17(b) of the Act for an exemption
from section 17(a)(1); and pursuant to section 17(d) of the Act and
rule 17d-1 thereunder approving certain joint transactions.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Funds to enter into deferred compensation agreements with certain
of their trustees.
FILING DATES: The Application was filed on June 10, 1994, and amended
on July 28, 1994. Applicants have agreed to file an additional
amendment, the substance of which is incorporated herein, during the
notice period.
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 September 6,
1994, 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, NW., Washington, DC 20549.
Applicants: One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
FOR FURTHER INFORMATION CONTACT: Bradley W. Paulson, Staff Attorney, at
(202) 942-0147 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.
Applicants' Representations
1. Each of the Funds is a registered management investment company
advised by the Adviser, a registered investment adviser and wholly-
owned subsidiary of The Van Kampen Merritt Companies, Inc. The Funds
request relief on behalf of themselves and any existing series thereof,
including each applicant's successor in interest\1\ and any
subsequently registered investment companies advised by the Adviser or
by a registered investment adviser controlling, controlled by, or under
common control with the Adviser. Any relief granted from section
13(a)(3) of the Act would extend only to named applicants.
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\1\The term ``successors in interest'' is limited to entities
resulting from a reorganization into another jurisdiction or a
change in the type of business organization.
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2. Trustees who are not `'affiliated persons'' as defined by
section 2(a)(3) of the Act of the Adviser, Van Kampen Merritt, Inc., or
The Van Kampen Merritt Companies, Inc. receive annual fees from the
Funds for their services (the ``Eligible Trustees''). Applicants
propose to implement a deferred compensation plan (the ``Plan'') by
means of a deferred fee agreement (the ``Agreement'') entered into
between an Eligible Trustee and the respective Fund. The plan would
permit an Eligible Trustee to elect to defer to a later date the
receipt of all or part of the trustee's fees, so that the trustee could
defer payment of income taxes on such fees or for other reasons.
3. Under the Agreement, the deferred fees payable by a Fund to a
particular Eligible Trustee will be credited to a book reserve account
established by the Fund (the ``Deferred Fee Account''). The deferred
fees will be accrued in an amount equal to that which would have been
earned had such fees (and all income earned thereon) been invested and
reinvested in shares of the underlying Fund or in shares of one or more
other Funds that may be designated from time to time by the respective
boards of trustees as eligible investments under the Plan (the
``Investment Funds''). Under the Agreement, the Eligible Trustee
selects from among available Investment Funds. The return on an
Eligible Trustee's Deferred Fee Account will be based upon the return
of the Investment Funds selected by the particular trustee, provided
that, to the extent one or more of the Investment Funds selected for
investment are no longer in existence, the return will be based upon a
recognized measure of prevailing market interest rates (e.g., the
Treasury Bill rate).
4. By deferring the fees paid to its Eligible Trustees, a Fund will
retain assets that it otherwise would not have if such fees were paid
on a current basis. As a matter of prudent risk management, to the
extent an Eligible Trustee selects Funds other than the underlying
Fund, it is intended that the Fund will purchase and hold shares in
amounts equal to the deemed investment in the Funds (such shares are
referred to as the ``Underlying Securities''). All such investments
will continue to be a part of the general assets and property of the
Funds. Thus, in cases where Funds purchase shares of Underlying
Securities, the amount of Underlying Securities is expected to match
the liability created by credits to such Deferred Fee Accounts.
5. The obligations of each Fund to make payments from the Deferred
Fee Account will be general unsecured obligations of each such Fund and
payments made pursuant to the Agreement will be made from such Fund's
general assets and property. The Agreement provides that the Fund is
under no obligation to purchase, hold, or dispose of any investments;
and if the Fund chooses to purchase securities to cover its obligation
under the Plan, then all such securities will continue to be part of
the general assets and property of the Fund. In addition, the Plan does
not obligate any Fund to retain a trustee in such capacity, nor does it
obligate any Fund to pay any particular level of fees to any trustee.
6. Under the Agreement, deferred trustees' fees (including earnings
accrued thereon) will generally become payable in cash in equal annual
installments over a period of five years upon the Eligible Trustee's
retirement or disability. In the event of the Eligible Trustee's death,
amounts payable to the trustee under the Agreement will be paid to such
trustee's designated beneficiary or estate. The Eligible Trustee's
right to receive payments will not be transferable.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act to
exempt applicants 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
to the extent necessary to permit the Funds to offer certain deferred
compensation Plans; sections 6(c) and 17(b) to exempt applicants from
section 17(a)(1) to permit the Funds to sell securities issued by them
to participating Funds; and section 17(d) of the Act and rule 17d-1
thereunder to permit the Funds to effect certain joint transactions
incident to such Plans. The finding required by section 17(b)(2) is
predicated on the assumption that relief is granted from section
13(a)(3).
2. Sections 18(a) and 18(c) restrict the ability of a registered
closed-end investment company to issue senior securities. Section
18(f)(1) restricts the ability of a registered open-end investment
company to issue senior securities. Section 13(a)(2) requires that an
investment company obtain shareholder authorization before issuing any
senior securities 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
these sections. Applicants believe that the Agreement would not induce
speculative investments or provide opportunities for manipulative
allocation of the expenses and profits of any Fund, affect control of
any Fund, confuse investors, convey a false impression of safety, or be
inconsistent with the theory of mutuality of risk. All liabilities
created by credits to the Deferred Fee Account are expected to be
offset by essentially 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. All such restrictions would be clearly
set forth in the Agreement.
4. Sections 22(g) and 23(a) prohibit registered open-end investment
companies and registered close-end investment companies, respectively,
from issuing any of their securities for services or for property other
than cash or securities. These provisions are primarily concerned with
the dilutive effect on the equity and voting power that can result when
securities are issued for consideration that is not readily valued.
Applicants believe that the Plan will not have this effect, but merely
provides for deferral of payment of fees and not for payment in
securities for services.
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 Fund has
adopted an investment policy regarding the purchase of shares of other
investment companies, which policy could prohibit or restrict the Fund
from purchasing shares of other investment companies. Applicants state
that it is appropriate to grant an exemption from section 13(a)(3) to
enable the Funds to invest in Underlying Securities without a
shareholder vote to achieve the matching of Underlying Securities with
the deemed investment of the Deferred Fee Accounts. The value of the
Underlying Securities will be de minimis in relation to the total net
assets of a Fund, and will match the value of the Fund's obligations to
pay deferred fees. Because investment companies that might exist in the
future could establish fundamental policies that would accommodate
purchases of shares of investment companies in connection with the
Plan, the relief requested from section 13(a)(3) would extend to named
applicants only.
6. Rule 2a-7 requires a registered investment company to limit its
portfolio to securities meeting certain standards of maturity, quality,
and diversification as a condition to adopting the term ``money
market'' as part of its name and holding itself out to investors as a
money market fund. Rule 2a-7 limits the extent to which the net asset
value of a money market fund as determined pursuant to a method
prescribed in rule 2a-7 can deviate from its net asset value as
determined by the mark-to-market method. The rule imposes conditions
that reduce the likelihood that a money market fund will hold
securities that will substantially decline in value and cause such
fund's net asset value to deviate from one dollar per share. Any money
market Fund that values its assets using a method prescribed by rule
2a-7 will buy and hold Underlying Securities in an amount that would
achieve an exact match between the Fund's liability to pay deferred
fees and the assets that offset that liability.
7. Section 17(a)(1) prohibits an affiliated person of a registered
investment company from selling any security to such company, except in
limited circumstances. Each Fund may be an affiliate of each other
Fund. Section 17(a)(1) was designated to prevent sponsors of investment
companies from using investment company assets as capital for
enterprises with which they were associated. Applicants believe that
the Funds' purchase and sale of Underlying Securities pursuant to the
Plan does not implicate these concerns, but merely facilitates the
matching of the Fund's liabilities.
8. 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 by the
SEC. Rule 17d-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 such transaction. Deferral of an Eligible Trustee's fees in
accordance with the Plan essentially would 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' Conditions
Applicants agree that any 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 in 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 Fund's liability to pay deferred
fees and the assets that offset that liability.
2. If a Fund purchase shares issued by an affiliated Fund, the Fund
will vote such shares in the same proportion as the votes of all other
shareholders of such affiliated fund.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20233 Filed 8-17-94; 8:45 am]
BILLING CODE 8010-01-M