[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