[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