[Federal Register Volume 68, Number 27 (Monday, February 10, 2003)]
[Notices]
[Pages 6786-6788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3118]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25924; 812-12886]


Van Kampen Investment Advisory Corp., et al.; Notice of 
Application

February 3, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from sections 18(c) 
and 18(i) of the Act, under sections 6(c) and 23(c)(3) of the Act for 
an exemption from rule 23c-3 under the Act, and pursuant to section 
17(d) of the Act and rule 17d-1 under the Act.

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Summary of Application:  Applicants request an order to permit certain 
registered closed-end management companies to issue multiple classes of 
shares and to impose asset-based distribution fees and early withdrawal 
charges.

Applicants:  Van Kampen Prime Rate Income Trust (``Prime Rate'') and 
Van Kampen Senior Floating Rate Fund (``Senior Floating Rate'') (each a 
``Fund'' and collectively, the ``Funds''), Van Kampen Investment 
Advisory Corp. (``Adviser''), Van Kampen Funds Inc. (``Distributor'') 
and Van Kampen Investments Inc. (``Van Kampen Investments'').

Filing Dates:  The application was filed on September 25, 2002 and 
amended on January 31, 2003.

Hearing or Notification of Hearing:  An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on February 28, 2003, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609; Applicants, c/o A. Thomas Smith III, Van Kampen Investments 
Inc., 1 Parkview Plaza, Oakbrook Terrace, IL 60181-5555.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 942-0527 or Nadya B. Roytblat, Assistant Director, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Funds are closed-end management investment companies 
registered under the Act and organized as Massachusetts business 
trusts. The Adviser is registered as an investment adviser under the 
Investment Advisers Act of 1940 and serves as investment adviser to the 
Funds. The Distributor, a

[[Page 6787]]

broker-dealer registered under the Securities Exchange Act of 1934 
(``1934 Act''), distributes each Fund's shares. The Adviser and the 
Distributor are both wholly-owned subsidiaries of Van Kampen 
Investments. The Distributor and Van Kampen Investments act as 
administrator to Prime Rate and Senior Floating Rate, respectively. Van 
Kampen Investments is an indirect, wholly-owned subsidiary of Morgan 
Stanley.
    2. Applicants request that the order also apply to any other 
registered closed-end management investment company that may be 
organized in the future for which the Adviser, the Distributor or Van 
Kampen Investments or any entity controlling, controlled by, or under 
common control with the Adviser, the Distributor or Van Kampen 
Investments acts as investment adviser, principal underwriter or 
administrator and which provides periodic liquidity with respect to its 
shares pursuant to rule 13e-4 under the 1934 Act or operates as an 
interval fund pursuant to rule 23c-3 under the Act.\1\
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    \1\ Any registered closed-end management investment company 
relying on this relief in the future will do so in a manner 
consistent with the terms and conditions of the application. 
Applicants represent that each entity presently intending to rely on 
the requested relief is listed as an applicant.
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    3. The investment objective of each of the Funds is to provide a 
high level of current income, consistent with the preservation of 
capital. The Funds invest primarily in adjustable rate senior loans. In 
normal market conditions, each Fund plans to invest at least 80% of its 
total assets in adjustable senior rate loans. Each Fund may also invest 
up to 20% of its total assets in any combination of the following: (a) 
warrants, equity securities and junior debt securities, in each case 
that are acquired in connection with the acquisition, restructuring or 
disposition of a senior loan, and (b) high quality short-term debt 
securities.
    4. The Funds continuously offer their shares to the public at net 
asset value. Shares of Prime Rate and shares of Senior Floating Rate 
are currently sold without a front-end sales charge, although they are 
subject to early withdrawal charges (``EWCs'') payable to the 
Distributor if the shareholder redeems his or her shares during the 
first five years or first year, respectively, after purchasing the 
shares. The Funds' shares are not offered or traded in the secondary 
market and are not listed on any exchange or quoted on any quotation 
medium. The Funds consider each quarter to offer to repurchase a 
portion of their outstanding shares at their then current net asset 
value pursuant to rule 13e-4 under the 1934 Act. The Funds may in the 
future operate as ``interval funds'' pursuant to rule 23c-3 under the 
Act and make periodic repurchase offers to their shareholders.
    5. The Funds seek the flexibility to be structured as multiple 
class funds and currently intend to offer three different classes of 
shares. The Funds may offer shares at net asset value, plus a front-end 
sales charge (``Class A Shares''). The Funds may issue shares similar 
to certain classes of shares issued by other funds in the Van Kampen 
group of investment companies in that such shares are offered at net 
asset value with no front-end sales charge and are subject to a 
deferred sales charge. Prime Rate currently offers shares at net asset 
value without a sales charge, but subject to an EWC on shares that are 
repurchased by Prime Rate within five years of the date of purchase 
(``Class B Shares''). Senior Floating Rate currently offers shares at 
net asset value without a sales charge, but subject to an EWC on shares 
that are repurchased within one year of the date of purchase and an 
annual asset-based service fee of up to 0.25% of average daily net 
assets (``Class C Shares''). Prime Rate may add a class of shares, 
designated as Class C Shares, similar to the Class C Shares of Senior 
Floating Rate, and Senior Floating Rate may add a class of shares, 
designated as Class B Shares, similar to Class B Shares of Prime Rate. 
The Funds' shares may become subject to an annual asset-based 
distribution fee of up to 0.75% of average daily net assets, as well as 
to an annual asset-based service fee of up to 0.25% of average daily 
net assets. The Funds may in the future offer additional classes of 
shares with a front-end sales charge, an EWC and/or asset-based service 
or distribution fees.
    6. Applicants represent that any asset-based service and 
distribution fees will comply with the provisions of rule 2830(d) of 
the Conduct Rules of the National Association of Securities Dealers, 
Inc. (``NASD Sales Charge Rule''). Applicants also represent that each 
Fund will disclose in its prospectus, the fees, expenses and other 
characteristics of each class of shares offered for sale by the 
prospectus, as is required for open-end multiple class funds under Form 
N-1A.
    7. Each Fund will allocate all expenses incurred by it among the 
various classes of shares based on the net assets of the Fund 
attributable to each class, except that the net asset value and 
expenses of each class will reflect distribution fees, service fees, 
and any other incremental expenses of that class. Expenses of a Fund 
allocated to a particular class of shares will be borne on a pro rata 
basis by each outstanding share of that class. Each Fund may create 
additional classes of shares in the future that may have different 
terms from Class B and Class C shares. Applicants state that each Fund 
will comply with the provisions of rule 18f-3 under the Act as if it 
were an open-end investment company.
    8. Each Fund may waive the EWC for certain categories of 
shareholders or transactions to be established from time to time. With 
respect to any waiver of, scheduled variation in, or elimination of the 
EWC, each Fund will comply with rule 22d-1 under the Act as if the Fund 
were an open-end investment company.
    9. Each Fund may offer its shareholders an exchange feature under 
which shareholders of the Fund may, during the Fund's periodic 
repurchase periods, exchange their shares for shares of the same class 
of other registered open-end investment companies or registered closed-
end investment companies in the Van Kampen group of investment 
companies. If either Fund operates pursuant to rule 23c-3, Fund shares 
so exchanged will count as part of the repurchase offer amount as 
specified in rule 23c-3 under the Act. Any exchange option will comply 
with rule 11a-3 under the Act as if the Fund were an open-end 
investment company subject to that rule. In complying with rule 11a-3, 
each Fund will treat the EWCs as if they were a contingent deferred 
sales charge (``CDSC'').

Applicants' Legal Analysis

Multiple Classes of Shares

    1. Section 18(c) of the Act provides, in relevant part, that a 
closed-end investment company may not issue or sell any senior security 
if, immediately thereafter, the company has outstanding more than one 
class of senior security. Applicants state that the creation of 
multiple classes of shares of the Funds may be prohibited by section 
18(c).
    2. Section 18(i) of the Act provides that each share of stock 
issued by a registered management investment company will be a voting 
stock and have equal voting rights with every other outstanding voting 
stock. Applicants state that multiple classes of shares of the Funds 
may violate section 18(i) of the Act because each class would be 
entitled to exclusive voting rights with respect to matters solely 
related to that class.
    3. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or any class or classes of persons, 
securities or transactions from any provision of the Act, or from any 
rule thereunder, if and

[[Page 6788]]

to the extent 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. 
Applicants request an exemption under section 6(c) from sections 18(c) 
and 18(i) to permit the Funds to issue multiple classes of shares.
    4. Applicants submit that the proposed allocation of expenses and 
voting rights among multiple classes of the Funds is equitable and will 
not discriminate against any group or class of shareholders. Applicants 
submit that the proposed arrangements would permit the Funds to 
facilitate the distribution of their securities and provide investors 
with a broader choice of shareholder services. Applicants assert that 
their proposal does not raise the concerns underlying section 18 of the 
Act to any greater degree than open-end investment companies' multiple 
class structures that are permitted by rule 18f-3 under the Act. 
Applicants state that each Fund will comply with the provisions of rule 
18f-3 as if it were an open-end investment company.

Early Withdrawal Charges

    1. Section 23(c) of the Act provides, in relevant part, that no 
registered closed-end investment company will purchase securities of 
which it is the issuer, except: (a) On a securities exchange or other 
open market; (b) pursuant to tenders, after reasonable opportunity to 
submit tenders given to all holders of securities of the class to be 
purchased; or (c) under other circumstances as the Commission may 
permit by rules and regulations or orders for the protection of 
investors.
    2. Rule 23c-3 under the Act permits a registered closed-end 
investment company (an ``interval fund'') to make repurchase offers of 
between five and twenty-five percent of its outstanding shares at net 
asset value at periodic intervals pursuant to a fundamental policy of 
the interval fund. Rule 23c-3(b)(1) under the Act provides that an 
interval fund may deduct from repurchase proceeds only a repurchase 
fee, not to exceed two percent of the proceeds, that is reasonably 
intended to compensate the fund for expenses directly related to the 
repurchase.
    3. Section 23(c)(3) provides that the Commission may issue an order 
that would permit a closed-end investment company to repurchase its 
shares in circumstances in which the repurchase is made in a manner or 
on a basis that does not unfairly discriminate against any holders of 
the class or classes of securities to be purchased. As noted above, 
section 6(c) provides that the Commission may exempt any person, 
security or transaction from any provision of the Act, if and to the 
extent that the 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. 
Because the Funds may operate in the future pursuant to rule 23c-3 
under the Act, Applicants request relief under sections 6(c) and 23(c) 
from rule 23c-3 to permit them to impose EWCs on shares of the Funds 
submitted for repurchase that have been held for less than a specified 
period.
    4. Applicants believe that the requested relief meets the standards 
of sections 6(c) and 23(c)(3). Rule 6c-10 under the Act permits open-
end investment companies to impose CDSCs, subject to certain 
conditions. Applicants state that EWCs are functionally similar to 
CDSCs imposed by open-end investment companies under rule 6c-10. 
Applicants state that EWCs may be necessary for the Distributor to 
recover distribution costs. Applicants will comply with rule 6c-10 as 
if that rule applied to closed-end investment companies. The Funds also 
will disclose EWCs in accordance with the requirements of Form N-1A 
concerning CDSCs. Applicants further state that the Funds will apply 
the EWC (and any waivers or scheduled variations of the EWC) uniformly 
to all shareholders in a given class and consistently with the 
requirements of rule 22d-1 under the Act.

Asset-Based Distribution Fees

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company or an 
affiliated person of such person, acting as principal, from 
participating in or effecting any transaction in connection with any 
joint enterprise or joint arrangement in which the investment company 
participates unless the Commission issues an order permitting the 
transaction. In reviewing applications submitted under section 17(d) 
and rule 17d-1, the Commission considers whether the participation of 
the investment company in a joint enterprise or joint arrangement is 
consistent with the provisions, policies and purposes of the Act, and 
the extent to which the participation is on a basis different from or 
less advantageous than that of other participants.
    2. Rule 17d-3 under the Act provides an exemption from section 
17(d) and rule 17d-1 to permit open-end investment companies to enter 
into distribution arrangements pursuant to rule 12b-1 under the Act. 
Applicants request an order under section 17(d) and rule 17d-1 under 
the Act to permit the Funds to impose asset-based distribution fees. 
Applicants have agreed to comply with rules 12b-1 and 17d-3 as if those 
rules applied to closed-end investment companies.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    Applicants will comply with the provisions of rules 6c-10, 11a-3, 
12b-1, 17d-3, 18f-3, and 22d-1 under the Act, as amended from time to 
time, as if those rules applied to closed-end management investment 
companies, and will comply with the NASD Sales Charge Rule, as amended 
from time to time.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
 Deputy Secretary.
[FR Doc. 03-3118 Filed 2-7-03; 8:45 am]
BILLING CODE 8010-01-P