corresp
[Letterhead
of Skadden, Arps, Slate, Meagher & Flom LLP]
August 1, 2011
Mr. Vincent DiStefano
Senior Counsel
Securities and Exchange Commission
Office of Investment Management
100 F Street, N.E.
Washington, DC 20549
|
|
|
RE: |
|
Invesco Van Kampen Senior Loan Fund
N-14 Registration Statement
(File Number 333-175232) |
Dear Mr. DiStefano:
Thank you for your telephonic comments received on July 27, 2011 regarding the Registration
Statement on Form N-14 filed on June 30, 2011 by Invesco Van Kampen Senior Loan Fund (the
Acquiring Fund) under the Securities Act of 1933, as amended (Securities Act) (File No.
333-175232) (the Registration Statement). On behalf of the Acquiring Fund, we have articulated
your comments to the best of our understanding and provided our responses to your comments below.
Changed pages containing revisions to the Proxy Statement/Prospectus in response to your comments
are attached hereto. Such revisions will be reflected in the final Proxy Statement/Prospectus,
which will be filed via EDGAR pursuant to Rule 497.
|
|
|
Comment 1
|
|
Please explain supplementally why Target Fund
shareholders will receive Class IB Shares of the
Acquiring Fund, as compared to shares of other
classes of the Acquiring Fund, in connection with the
Reorganization. |
|
|
|
Response 1
|
|
The Target Fund currently offers one class of shares,
whereas the Acquiring Fund offers five classes of
shares. The Reorganization has been structured so
that Target Fund shareholders will receive Class IB
Shares of the Acquiring Fund because Class IB Shares
are most similar to the shares of the Target Fund.
In particular, neither Target Fund shares nor
Acquiring Fund Class IB Shares are subject to
distribution and/or service fees, whereas each other
class of shares of the Acquiring Fund is subject to
distribution and/or service fees. In addition,
neither Target Fund shares nor Acquiring Fund Class
IB Shares are subject to a front end sales charge.
One difference between Target Fund shares and
Acquiring Fund Class IB Shares is that Target Fund
shares are subject to an early withdrawal charge and
Acquiring Fund Class IB Shares are not. Acquiring
Fund Class IB Shares received by
Target Fund shareholders in connection with the Reorganization will remain
subject to the same early withdrawal charge schedule as is applicable to |
Securities and Exchange Commission
August 1, 2011
Page 2
|
|
|
|
|
Target Fund shares and Target Fund shareholders will receive credit for the
length of time that they held shares of the Target Fund in the calculation of
such early withdrawal charge. |
|
|
|
Comment 2
|
|
Under the heading Comparison of Principal Risks of
Investing in the FundsCertain Investment
Practices, please specify the derivative instruments
utilized by the Acquiring Fund and the Target Fund
and disclose any risks related to such derivative
instruments. |
|
|
|
Response 2
|
|
The Acquiring Fund respectfully notes that the
disclosure under Comparison of Principal Risks of
Investing in the Fund is intended to provide a
comparison of the Acquiring Fund and Target Fund, as
required by Item 3(c) of Form N-14, so that
shareholders can make a meaningful evaluation of the
proposed Reorganization. The derivative instruments
that may be used by the Acquiring Fund and the Target
Fund are substantially similar. The Acquiring Fund
acknowledges the Staffs letter, dated July 30, 2010,
to the Investment Company Institute regarding
Derivatives-Related Disclosures by Investment
Companies. However, the Acquiring Fund respectfully
submits that additional disclosure detailing the
particular derivative instruments that the funds may
utilize is inappropriate in comparing the two funds,
the risks associated with which are substantially
similar. Additional details regarding the particular
derivative instruments that the Target Fund and the
Acquiring Fund may utilize are set forth in their
respective Prospectuses and Statements of Additional
Information, which are incorporated by reference in
the Proxy Statement/Prospectus and Statement of
Additional Information relating to the
Reorganization, respectively. In order to address
the staff's concern, the Acquiring Fund has included a
statement under the heading Comparison of Principal
Risks of Investing in the FundsCertain Investment
Practices that for additional information about the
derivative instruments which the Acquiring Fund may
utilize, investors should consult the Prospectus and
Statement of Additional Information of the Acquiring
Fund. |
|
|
|
Comment 3
|
|
Under the heading Comparison of Principal Risks of
Investing in the Funds please highlight the
differences between the risk factors affecting the
Acquiring Fund and the Target Fund. |
|
|
|
Response 3
|
|
The Acquiring Fund respectfully notes that in
response to a similar comment from the Staff in
connection with the prior Registration Statement on
Form N-14 relating to the proposed transaction,
initially filed on December 23, 2010, the referenced
disclosure was revised as requested. The Acquiring
Fund has reviewed the disclosure and respectfully
submits that differences
between the risk factors affecting the Acquiring Fund and the Target Fund have
been fairly and adequately disclosed. |
Securities and Exchange Commission
August 1, 2011
Page 3
|
|
|
Comment 4
|
|
Under the heading The Proposed Reorganization Board
Considerations in Approving the Reorganization please revise
item (iii) to clarify that before fee waivers, the total annual
operating expenses for the Target Fund would increase. |
|
|
|
Response 4
|
|
The Acquiring Fund respectfully submits that the disclosure
contained in the paragraph preceding the bullet points, which
states that The Board also considered that the total annual
operating expenses for the Target Fund shareholders before fee
waivers and expense reimbursements, including interest
expenses, is expected to increase, adequately explains that
total annual operating expenses before fee waivers would
increase and therefore addresses the Staffs comment. |
* * *
In connection with the effectiveness of the Registration Statement, the Acquiring Fund
acknowledges that the disclosure included in the Registration Statement is the responsibility of
the Acquiring Fund. The Acquiring Fund further acknowledges that the action of the Commission or
the staff acting pursuant to delegated authority in reviewing the Registration Statement does not
relieve the Acquiring Fund from its full responsibility for the adequacy and accuracy of the
disclosures in the Registration Statement; and that the Acquiring Fund will not assert this action
as a defense in any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Should you have any additional comments or concerns, please do not hesitate to contact me at
(212) 735-3406 or Kevin Hardy at (312) 407-0641.
Sincerely,
/s/ Michael K. Hoffman
Michael K. Hoffman
affected. Moreover, this may force a Fund to sell assets it
would not otherwise sell, and a Fund may be forced to dispose of
assets that may have declined in value. A Fund may borrow money
to, among other things, finance repurchases of shares. The
rights of any lenders to a Fund to receive payments of interest
on and repayments of principal of any borrowings will be senior
to the rights of shareholders. The loan agreement for any
borrowing likely will limit certain activities of a Fund,
including the payment of dividends to holders of shares in
certain circumstances. Interest payments and fees incurred in
connection with borrowings to finance repurchases of shares will
reduce the amount of net income available for payment to
shareholders and may increase volatility of the net asset value
of each Funds shares.
Financial leverage. Both the Acquiring Fund
and the Target Fund may utilize financial leverage in the form
of borrowing or issuing preferred shares to the maximum amount
allowable under the Investment Company Act of 1940, as amended
(the 1940 Act). There are risks associated with
borrowing or issuing preferred shares in an effort to increase
the yield and distributions on a Funds common shares,
including that the costs of the financial leverage exceed the
income from investments made with such leverage, the higher
volatility of the net asset value of the common shares, and that
fluctuations in the interest rates on the borrowing or dividend
rates on preferred shares may affect the yield and distributions
to the common shareholders. A Funds use of leverage also
may impair the ability of such Fund to maintain its
qualification for federal income taxes as a regulated investment
company.
As long as a Fund is able to invest the proceeds of any
financial leverage in Senior Loans or other investments that
provide a higher net return than the then cost of such financial
leverage (i.e., the current interest rate on any borrowing or
dividend rate of any preferred shares after taking into account
the expenses of any borrowing or preferred shares offering) and
such Funds operating expenses, the effect of leverage will
be to cause the common shareholders to realize a higher current
rate of return than if such Fund were not leveraged. However, if
the current costs of financial leverage were to exceed the
return on such proceeds after expenses (which the investment
adviser believes to be an unlikely scenario), the common
shareholders would have a lower rate of return than if such Fund
had an unleveraged capital structure.
During any annual period when a Fund has a net payable on the
interest due on borrowings or the dividends due on any
outstanding preferred shares, the failure to pay on such amounts
would preclude such Fund from paying dividends on the common
shares. The rights of lenders to each Fund to receive interest
on and repayment of principal on any borrowings will be senior
to those of the holders of the common shares, and the terms of
any such borrowings may contain provisions which limit certain
activities of such Fund, including the payment of dividends to
holders of common shares in certain circumstances, and may
require a Fund to pledge assets to secure such borrowings.
Further, the terms of such borrowings may, and the 1940 Act does
(in certain circumstances), grant to the lenders to a Fund
certain voting rights in the event of default in the payment of
interest on or repayment of principal. In addition, under the
1940 Act, a Fund is not permitted to declare any cash dividend
or other distribution on its common shares unless, at the time
of such declaration and after deducting the amount of such
dividend or distribution, such Fund is in compliance with the
asset coverage requirements of the 1940 Act. Such prohibition on
the payment of dividends or distributions might impair the
ability of a Fund to maintain its qualification, for federal
income tax purposes, as a regulated investment company. Each
Fund intends, however, to the extent possible, to repay
borrowings or redeem any outstanding preferred securities from
time to time if necessary, which may involve the payment by such
Fund of a premium and the sale by such Fund of portfolio
securities at a time when it may be disadvantageous to do so, to
maintain compliance with such asset coverage requirements.
If there are preferred shares issued and outstanding, holders of
the preferred shares of a Fund will elect two Trustees of such
Fund. In addition, the terms of any preferred shares or
borrowing may entitle holders of the preferred shares or
lenders, as the case may be, to elect a majority of the Board of
Trustees of such Fund in certain other circumstances.
Structured products. The Acquiring Fund and
the Target Fund also may invest up to 10% of its total assets in
certain structured products. Generally, investments in
structured products are interests in entities organized and
operated for the purpose of restructuring the investment
characteristics of underlying investment interests or
securities. This type of restructuring generally involves the
deposit with or purchase by an entity of the underlying
investments (such as Senior Loan interests) and the issuance by
that entity of one or more classes of securities backed by, or
representing interests in, the underlying investments or
referencing an indicator related to such investments. The cash
flow or rate of return on a structured product may be determined
by applying a multiplier to the rate of total return on the
underlying investments or referenced indicator. Application of a
multiplier is comparable to the use of financial leverage, a
speculative technique. Leverage magnifies the potential for gain
and the risk of loss. As a result, a relatively small decline in
the value of the underlying investments or referenced indicator
could result in a relatively large loss in the value of a
structured product. Holders of structured products bear risks of
the underlying index or reference obligation and are subject to
counterparty risk.
Certain investment practices. Both the
Acquiring Fund and the Target Fund may use various investment
practices that involve special risks, including engaging in
interest rate and other hedging and risk management
transactions. Certain of these interest rate hedging and risk
management transactions may be considered to involve derivative
instruments. A derivative is a financial instrument whose
performance is derived at least in part from the performance of
an underlying index, security or asset. The values of certain
derivatives can be affected dramatically by even small market
movements, sometimes in ways that are difficult to predict. The
successful utilization of these types of transactions for
hedging and risk management purposes requires skills different
from those needed in the selection of the Funds portfolio
securities and, in part, depends on the Funds investment
advisers ability to predict correctly the direction and
extent of movements in interest rates. If a default occurs by
the other party to such transaction, a Fund will have
contractual remedies pursuant to the agreements related to the
transaction, but such remedies may be subject to bankruptcy and
insolvency laws which could affect a Funds rights as a
creditor. There can be no assurance, however, that a Fund will
be able to enter into transactions or on terms the Adviser
believes are advantageous to a Fund. In addition, although the
terms of certain transactions may provide for
7
termination, there can be no assurance that a Fund will be able
to terminate an interest rate swap or to sell or offset interest
rate caps or floors that it has purchased. A Fund will incur
brokerage and other costs in connection with its hedging
transactions. For more information regarding the types of
derivatives transactions the Acquiring Fund may utilize, see the
Acquiring Funds prospectus, which accompanies this Proxy
Statement/Prospectus, and the Acquiring Funds SAI.
Anti-takeover provisions. The Declaration of
Trust of each of the Acquiring Fund and the Target Fund includes
provisions that could limit the ability of other persons to
acquire control of each Fund or to change the composition of its
Board of Trustees.
ADDITIONAL
INFORMATION ABOUT THE FUNDS
Investment
Objective
The Funds have the same investment objective. Each Funds
investment objective is to provide a high level of current
income, consistent with preservation of capital. Each
Funds investment objective is a fundamental policy of such
Fund and cannot be changed without shareholder approval.
Comparison
of Principal Investment Strategies
The following section compares the principal investment
strategies of the Target Fund with the principal investment
strategies of the Acquiring Fund and highlights any key
differences. In addition to the principal investment strategies
described below, each Fund is also subject to certain additional
investment policies and limitations, which are described in each
Funds prospectus and SAI. The cover page of this Proxy
Statement/Prospectus describes how you can obtain copies of
these documents. A comparison of the principal risks associated
with the Funds investment strategies is described above
under Comparison of Principal Risks of Investing in the
Funds.
Principal Investment Strategies. The
investment strategies of the Acquiring Fund and the Target Fund
are substantially similar. Under normal market conditions, the
Acquiring Fund invests at least 80% of its net assets (plus any
borrowings for investment purposes) in Senior Loans. The
Acquiring Funds policy may be changed by such Funds
Board of Trustees upon 60 days written notice to
shareholders, although there is no current intention to do so.
Under normal market conditions, the Target Fund invests at least
80% of its total assets in Senior Loans. The Target Funds
policy is a fundamental policy and may not be changed without
shareholder approval.
Senior Loans are business loans made to Borrowers that may be
corporations, partnerships or other entities. The interest rates
on Senior Loans adjust periodically. Senior Loans have the most
senior position in a Borrowers capital structure or share
the senior position with other senior debt securities of the
Borrower. This capital structure position generally gives
holders of Senior Loans a priority claim on some or all of the
Borrowers assets in the event of default.
Other Important Strategies. Under normal
market conditions, the Acquiring Fund may invest up to 20% of
its total assets in Senior Loans that are not secured by any
specific collateral; and may invest up to 20% of its total
assets in Senior Loans made to
non-U.S. Borrowers
provided that no more than 5% of these Senior Loans or other
assets are
non-U.S. dollar
denominated; and the Acquiring Fund may invest up to 20% of its
total asset in any combination of (1) warrants and equity
securities, in each case the Acquiring Fund must own or acquire
a Senior Loan of the same issuer, (2) junior debt
securities or securities with a lien on collateral lower than a
senior claim on collateral (collectively, junior debt
securities), (3) high quality short-term debt
securities, (4) credit-linked deposits and
(5) Treasury Inflation Protected Securities
(U.S. TIPS) and other inflation-indexed bonds
issued bonds issued by the U.S. government, its agencies or
instrumentalities. The Acquiring Fund may also enter into
various interest rate hedging and risk management transactions.
Similarly, under normal market conditions, the Target Fund may
invest up to 20% of its total assets in cash or short-term high
quality money-market instruments, credit-linked deposits, junior
debt securities, and in loans that hold the most senior position
in a Borrowers capital structure, but that are not secured
by any specific collateral. The Target Fund may invest without
limitation in Senior Loans made to
non-U.S. Borrowers
that are U.S. dollar denominated and may invest up to 20%
of its total assets in any combination of
non-U.S. dollar
denominated Senior Loans or other debt securities. The Target
Fund may also enter into various interest rate hedging and risk
management transactions, including interest rate swaps, caps and
floors, credit default swaps, financial futures and options; and
may invest in forward foreign currency exchange contracts. The
Target Fund may invest up to 10% of its total assets in
structured notes, credit default swaps or other types of
structured investments.
Both the Acquiring Fund and the Target Fund may purchase and
sell interests in Senior Loans and other securities on a
when-issued or delayed delivery basis. Both Funds may also enter
into repurchase agreements and reverse repurchase agreements. In
addition, the Target Fund may lend its portfolio securities to
brokers, dealers, banks and other institutional investors. The
Acquiring Fund does not lend its portfolio securities.
Both the Acquiring Fund and the Target Fund may utilize
financial leverage in the form of borrowings
and/or
preferred shares to the maximum extent allowable under the 1940
Act. Each of the Acquiring Fund and the Target Fund have entered
into credit facilities. Each Funds Board of Trustees and
Adviser regularly reviews each Funds use of financial
leverage (i.e., the relative costs and benefits of leverage on
such Funds common shares) and reviews the alternative
means to leverage (i.e., the relative benefits and costs of
borrowing versus issuing preferred shares). If Target Fund
shareholders approve the Reorganization, it is anticipated that
in connection with the Closing, the Acquiring Fund will seek to
amend the terms of its current credit facility, which will
likely increase the amount of such facility, and then use the
proceeds of such increase to pay off the credit facility assumed
from the Target Fund upon the Closing or as soon
8