[Federal Register Volume 62, Number 88 (Wednesday, May 7, 1997)]
[Notices]
[Pages 24999-25002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11840]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22653; 812-10406]


Bond Fund Series, et al.; Notice of Application

April 30, 1997.
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: Bond Fund Series, Centennial America Fund, L.P., Centennial 
California Tax Exempt Trust, Centennial Government Trust, Centennial 
Money Market Trust, Centennial New York Tax Exempt Trust, Centennial 
Tax Exempt Trust, Oppenheimer California Municipal Fund, Oppenheimer 
Capital Appreciation Fund, Oppenheimer Cash Reserves, Oppenheimer 
Champion Income Fund, Oppenheimer Developing Markets Fund, Oppenheimer 
Discovery Fund, Oppenheimer Enterprise Fund, Oppenheimer Equity Income 
Fund, Oppenheimer Fund, Oppenheimer Global Emerging Growth Fund, 
Oppenheimer Global Fund, Oppenheimer Global Growth & Income Fund, 
Oppenheimer Gold & Special Minerals Fund, Oppenheimer Growth Fund, 
Oppenheimer High Yield Fund, Oppenheimer Integrity Funds, Oppenheimer 
International Bond Fund, Oppenheimer International Growth Fund, 
Oppenheimer Limited-Term Government Fund, Oppenheimer Multi-State 
Municipal Trust, Oppenheimer Multiple Strategies Fund, Oppenheimer 
Municipal Bond Fund, Oppenheimer Municipal Fund, Oppenheimer New York 
Municipal Fund, Oppenheimer Quest Capital Value Fund, Inc., Oppenheimer 
Quest for Value Funds, Oppenheimer Real Asset Fund, Oppenheimer 
Strategic Income & Growth Fund, Oppenheimer Strategic Income Fund, 
Oppenheimer U.S. Government Trust, Oppenheimer Variable Account Funds, 
Panorama Series Fund, Inc., Rochester Fund Municipals, Rochester 
Portfolio Series, Daily Cash Accumulation Fund, Inc., Oppenheimer Main 
Street Funds, Inc., Oppenheimer Money Market Fund, Inc., 
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Value 
Fund, Inc., Oppenheimer Series Fund, Inc., and Oppenheimer Total Return 
Fund, Inc. (collectively, the ``Open-End Funds''); The New York Tax 
Exempt Income Fund, Inc., Oppenheimer Multi-Sector Income Trust, and 
Oppenheimer World Bond Fund (collectively, the ``Closed-End Funds,'' 
together with the Open-End Funds, the ``Funds''); OppenheimerFunds, 
Inc. (the ``Adviser''), Centennial Asset Management Corporation 
(``CAMC''), and Oppenheimer Real Asset Management, Inc. (``ORAM'').

RELEVANT ACT SECTIONS: Order requested (a) under section 6(c) of the 
Act for an exemption 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; 
(b) under sections 6(c) and 17(b) of the Act for an exemption from 
section 17(a)(1) of the Act; and (c) pursuant to section 17(d) and rule 
17(d)(1) thereunder to permit certain

[[Page 25000]]

transactions incident to deferred fee arrangements.

SUMMARY OF APPLICATION: Applicants request an order that would permit 
each Fund to enter into deferred fee arrangements with certain of their 
trustees, directors, and general partners who are not interested 
persons of the Fund.

FILING DATES: The application was filed on October 17, 1996 and amended 
on April 11, 1997.

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 May 27, 1997 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, Two World Trade Center, New York, NY 10048-0203.

FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney, 
at (202) 942-0517, or Mercer E. Bullard, 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 Open-End Funds is registered under the Act as an 
open-end management investment company and organized as a Maryland 
corporation, a Massachusetts business trust or a Delaware limited 
partnership. Several of the Open-End Funds are organized as series 
companies. Each Closed-End Fund is registered under the Act as a close-
end management investment company and organized as a Massachusetts 
business trust or a Minnesota corporation. The Adviser, or its 
subsidiaries, CAMC or ORAM serves as the investment adviser for, and 
provides other services to, the Funds. SEC records show that the 
Adviser, CAMC, and ORAM are all registered under the Investment 
Advisers Act of 1940. Either OppenheimerFunds Distributor, Inc. 
(``OFDI''), a wholly-owned subsidiary of the Adviser, or CAMC serves as 
each Fund's principal underwriter.
    2. The majority of directors of each Fund are not ``interested 
persons'' of such Fund within the meaning of section 2(a)(19) of the 
Act (``Independent Directors''). Under the deferred fee arrangements 
proposed by applicants (the ``Arrangements''), Independent Directors 
who receive directors fees from one or more of the Funds (the 
``Eligible Directors'') will be entitled to defer to a later date the 
receipt of all or part of such fees.
    3. The proposed deferred fee arrangements would be implemented by 
means of a deferred fee agreement (the ``Agreement'') entered into 
between an Eligible Director and the appropriate Fund. The Agreement 
would permit an Eligible Director to elect to defer receipt of all or a 
portion of his or her fees, in order to enable deferred payment of 
income taxes on such fees, and for other reasons. The Agreement may be 
amended from time to time, provided that any amendments to the 
Agreement will be limited to amendments which are not material 
(consistent with the terms of the Application) amendments made to 
conform to any applicable laws, or amendments that are approved by the 
SEC pursuant to an amendment of the order granted pursuant to the 
Application.
    4. The deferred fees will be credited to bookkeeping accounts 
(``Deferred Fee Accounts'') maintained by the Funds liable for the 
payment of such deferred fees and accrued income from and after the 
date of credit in an amount equal to the amount that would have been 
earned had such fees (and all income earned thereon) been invested and 
reinvested in shares of one or more of the Funds (the ``Investment 
Funds''). Under the Agreement, the deferred fees payable by a Fund with 
respect to a particular Eligible Director will be credited to the 
Deferred Fee Account as of the first business day following the date 
that such fees would have been paid to such Director.
    5. Shares will not be designated as Underlying Securities, and 
Underlying Securities will not be purchased, if the purchase of such 
Underlying Securities would result in a violation of section 12(d)(1) 
of the Act.\1\ Each Fund will vote shares of any affiliated Fund held 
pursuant to the Arrangements in proportion to the votes of all other 
holders of shares of such Fund.
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    \1\ The Agreement provides that the management of the 
participating Funds may designate new securities as the Underlying 
Securities if it reasonably believes the acquisition of the 
Underlying Securities would result in a violation by, or the 
objective and policies of, the participating Funds.
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    6. Any participating money market series of the Funds that values 
its assets using the amortized cost method or penny rounding method 
will buy and hold the Underlying Securities that determine the 
performance of the Deferred Fee Accounts in order to achieve an exact 
match between such series' liability to pay deferred fees and the 
assets that offset such liability. Applicants intend that the 
participating Funds will purchase and hold shares of Underlying 
Securities in amounts equal to the deemed investment of the deferred 
fee accounts of its Eligible Directors. If the participating Funds 
purchase shares of the Underlying Securities, the shares will be held 
solely in the name of the Funds. Thus, in cases where the Funds 
purchase shares of the Underlying Securities, liabilities created by 
the credits to the Deferred Fee Accounts under the Agreement are 
expected to be matched by an equal amount of assets (i.e., a direct 
investment in the Underlying Securities), which assets would not be 
held by the Fund if fees were paid on a current basis.
    7. The Agreement provides that the obligations of each Fund to make 
payments of the Deferred Fee Accounts will be general obligations of 
each such Fund and payments made pursuant to the Agreement will be made 
from such Fund's general assets and property. With respect to the 
obligations created under the Agreement, the relationship of the 
Eligible Directors to the applicable Funds will be only that of general 
unsecured creditors. A Fund will be under no obligation to purchase, 
hold or dispose of any investment under the Agreement, but, if one or 
more of the Funds choose to purchase investments to cover its 
obligations under the Agreement, then any and all such investments will 
continue to be a part of the general assets and property of the Funds.
    8. Under the Agreement, deferred director's fees (as determined by 
the adjusted value of the Deferred Fee Account) will become payable in 
cash upon the Eligible Director's retirement or disability in generally 
equal quarterly installments over a period of five years (unless the 
participating Fund has agreed to a longer payment period) beginning on 
the date of retirement or disability. Any one or more of the Funds may 
in the future establish a retirement plan for the Eligible Directors 
and amend the Agreement to permit payment of deferred director's fees

[[Page 25001]]

beginning on the date payments of retirement benefits to the Director 
commence under such retirement plan established by such Funds. In the 
event of the Eligible Director's death, remaining amounts payable to 
him or her under the Agreement will thereafter be payable to his or her 
designated beneficiary; in all other events, the Director's right to 
receive payments will be nontransferable. The Agreement provides that 
the Funds, in their sole discretion, have reserved the right to 
accelerate payment of amounts in the Deferred Fee Account at any time 
after the termination of the Eligible Director's service as director. 
In the event of the liquidation, dissolution or winding up of the 
appropriate Fund, the distribution of all or substantially all of the 
Fund's assets and property to its shareholders (unless such Fund's 
obligations under the Agreement have been assumed by a financially 
responsible party purchasing such assets), or a merger or 
reorganization of a Fund (unless prior to such merger or 
reorganization, the Fund's Directors determine that the Agreement shall 
survive the merger or reorganization), all unpaid amounts in the 
Deferred Fee Account maintained by such Fund shall be paid in a lump 
sum to the Directors on the effective date thereof.\2\
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    \2\ Applicants acknowledge that the requested order would not 
permit a party acquiring a Fund's assets to assume a Fund's 
obligations under the Agreement if such obligations would constitute 
a violation of the 1940 Act by the assuming party. Applicants 
further acknowledge that if, and to the extent that, any such 
assumption would be prohibited by section 17 of the 1940 Act, any 
such assumption would be consummated only after the parties involved 
obtained exemptive relief, if any, which may be necessary.
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    9. Applicants request an order under section 6(c) of the Act 
granting relief from sections 13(a)(2), 13(a)(3), 18(a), 18(c), 
18(f)(1), 22(g), and 23(a) of the Act and rule 2a-7 thereunder to the 
extent necessary to permit the Funds to enter into deferred fee 
arrangements with Eligible Directors; under sections 6(c) and 17(b) of 
the Act granting relief from section 17(a)(1) to the extent necessary 
to permit the Funds to sell securities issued by them to participating 
Funds in connection with such arrangements; and pursuant to section 
17(d) of the Act and rule 17d-1 thereunder to permit the Funds and 
Eligible Directors to effect certain transactions incident to such 
arrangements.\3\
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    \3\ Applicants also request relief for all subsequently 
registered investment companies advised by the Adviser (``Future 
Funds'') or entities controlling, controlled or under common control 
with the Adviser.
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Applicants' Legal Analysis

    1. Section 18(a) generally prohibits a closed-end investment 
company, and section 18(f)(1) generally prohibits a registered open-end 
investment company, from issuing senior securities. Section 18(c) 
prohibits any registered closed-end investment company from issuing or 
selling any senior security representing indebtedness if immediately 
thereafter such company will have outstanding more than one class or 
senior security representing indebtedness. Section 13(a)(2) requires 
that a registered investment company obtained shareholder authorization 
before issuing any senior security not contemplated by the recitals of 
policy in its registration statement. Applicants state that the 
Agreement possesses none of the characteristics of senior securities 
that led to Congress's enactment of the restrictions on the issuance of 
such securities in these sections. Applicants contend that the 
Agreement will not: (a) Induce speculative investments by a Fund or 
provide opportunities for manipulative allocation of any Fund's 
expenses or profits; (b) affect control of any Fund; (c) be 
inconsistent with the theory of mutuality of risk; or, (d) given the 
existence of similar deferred compensation agreements, confuse 
investors or convey a false impression as to the safety of their 
investments. Applicants state that all liabilities created by credits 
to the Deferred Fee Account under the Agreement are expected to be 
offset by essentially equal amounts of each Fund that would not 
otherwise exist if the fees were paid on a current basis. Applicants 
note that benefits payable under the Agreement are unsecured and their 
payment will not have preference or priority over the lawful claims of 
other creditors. Applicants state that the Agreement will not obligate 
any Fund to retain a Director in such capacity, nor will it obligate 
any Fund to pay any (or any particular level of) Director's fees to any 
Director. Rather, applicants submit it will merely permit an Eligible 
Director to elect to defer receipt of Director's fees which would 
otherwise be received on a current basis from the appropriate Fund or 
Funds.
    2. 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. Applicants state 
that certain of the Funds have an investment policy prohibiting the 
purchase of investment company shares without shareholder approval, 
which would prevent such Funds from purchasing shares of any other of 
the Funds without such approval. Further, it is possible that one or 
more of the Future Funds may have similar investment policies. 
Applicants request an exemption form section 13(a)(3) to permit the 
Funds to invest in Underlying Securities without a shareholder vote. 
Applicants state that any relief granted from section 13(a)(3) of the 
Act would extend only to existing Funds that have an investment policy 
prohibiting or restricting investments in investment companies and to 
Future Funds that, at the time that the Adviser, or entities 
controlling, controlled by, or under common control with the Adviser, 
became their investment adviser, had an investment policy prohibiting 
or restricting investments in investment companies. Applicants state 
that they will provide notice of the Arrangements to shareholders in 
the registration statement of each affected Fund. Applicants submit 
that it is appropriate to exempt the affected Fund from the provisions 
of 13(a)(3) as to enable the affected Fund to invest in Underlying 
Securities pursuant to the Agreement without a shareholder vote. 
Applicants state that the value of the Underlying Securities will be de 
minimis in relation to the total net assets of the Funds. Applicants 
also note that, if they are prevented from investing in investment 
company shares, they will not be able to achieve the matching of 
Underlying Securities with the deemed investment of the Deferred Fee 
Accounts. Applicants believe that such matching is highly desirable 
because it will ensure that the deferred fee arrangements will not 
affect the net asset value of any Oppenheimer Fund's shares.
    3. Rule 2a-7 imposes certain restrictions on the investments of 
money market funds that use the amortized cost method or the penny-
rounding method of computing their per share price. Applicants believe 
that these restrictions would prohibit a Fund that is a money market 
fund from investing in the shares of any other Fund that is not a money 
market fund. Applicants state that any money market series of a Fund 
that values its assets using the amortized cost method will buy and 
hold the Underlying Securities that determine the performance of the 
Deferred Fee Account to achieve an exact match between such series' 
liability to pay deferred fees and the assets that offset that 
liability. Applicants contend that, under the circumstances, the 
underlying concerns that have led the SEC to prescribe

[[Page 25002]]

strictly the permissible characteristics of a money market Fund's 
portfolio securities are not present.
    4. Sections 22(f) prohibits undisclosed restrictions on the 
transferability or negotiability of redeemable securities issued by 
open-end investment companies. Applicants state that the Agreement 
would set forth any restrictions on transferability or negotiability of 
the Eligible Director's benefits, and such restrictions are included 
primarily to benefit the Eligible Directors and would not adversely 
affect the interests of any shareholder of any Fund.
    5. Sections 22(g) and 23(a) generally prohibit registered open-end 
investment companies and registered closed-end investment companies, 
respectively, from issuing any of their securities for services or for 
property other than cash or securities. Applicants believe that these 
provisions are primarily concerned with the dilative effect on the 
equity and voting power of the common stock of, or shares of beneficial 
interest in, an investment company if securities are issued for 
consideration not readily valued. Applicants assert that interests 
under the Agreement will not entitle Eligible Directors to any vote as 
shareholders or to participate in the profits and gains of any of the 
Funds. Applicants also submit that the Agreement would provide for 
deferral of payment of fees that would be payable independent of the 
Agreement, 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 17(a)(1) generally prohibits an affiliated person of a 
registered investment company, or any affiliated person of such person, 
from selling any security to such registered investment company. 
Applicants state that the Funds that are advised by the same entity may 
be ``affiliated persons'' of one another under section 2(a)(3)(C) of 
the Act. Applicants assert that section 17(a)(1) was designed to 
prevent sponsors of investment companies from using investment company 
assets as capital for enterprises with which they were associated or to 
acquire controlling interests in such enterprises. Applicants contend 
that, as a result of the Funds' undertaking to vote the shares of an 
affiliated Fund in proportion to the votes of all other holders of such 
shares, control of the issuer of the Underlying Securities will remain 
unchanged. Applicants further submit that permitting the proposed 
transactions would facilitate the matching of each Fund's liability for 
deferred Director's fees with the Underlying Securities that would 
determine the amount of such Fund's liability.
    7. 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 of each registered 
investment company concerned; and (c) the transaction is consistent 
with the general purposes of the Act. Applicants assert that the 
proposed transactions satisfy the criteria of section 17(b).
    8. Applicants note that sales of shares of the Funds made available 
for deemed investment under the Agreement will be made on the same 
terms and conditions as are applicable to sales of the same securities 
to unaffiliated parties, and the Agreement provides that management may 
change the designation of Underlying Securities if the purchase of such 
securities would violate the policies of the participating Fund.
    9. 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 policy and provisions of the Act. 
Applicants assert that the proposed transactions satisfy this standard.
    10. Section 17(d) of the Act and rule 17d-1 thereunder make it 
unlawful for any affiliated person of a registered investment company, 
acting as principal, to effect any transaction in which the company is 
a joint or joint and several participant. Rule 17d-1 under the Act 
provides that the SEC may, by order upon application, grant exemptions 
from the prohibitions of section 17(d) and rule 17d-1. Rule 17d-1(b) 
further provides that, in passing upon such an application, the SEC 
will consider whether the participation of the registered investment 
company in such enterprise, arrangement, or plan is consistent with the 
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.
    11. Applicants contend that the participating Eligible Director 
will neither directly nor indirectly receive benefits which would 
otherwise inure to the Funds or their shareholders. Applicants state 
that deferral of an Eligible Director's fees in accordance with the 
Agreement would essentially 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 submit 
that when all payments have been made to a participating Eligible 
Director, the Director will be in a position relative to the Funds no 
better than if any deferred fees had been paid to such Director on a 
current basis and invested in shares of the Underlying Securities. 
Applicants believe that the Agreement will not constitute a joint or 
joint and several participation by any Fund with an affiliated person 
on a basis different from or less advantageous than that of the 
affiliated person.

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 series of a Fund that values its assets using 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 series' liability to pay deferred 
fees and the assets that offset the 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 Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-11840 Filed 5-6-97; 8:45 am]
BILLING CODE 8010-01-M