[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

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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