[Federal Register Volume 61, Number 92 (Friday, May 10, 1996)]
[Notices]
[Pages 21515-21517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11671]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21937; 812-9854]
Van Kampen American Capital Comstock Fund, et al.; Notice of
Application
May 3, 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 Kampen American Capital Comstock Fund (``Comstock
Fund''), Van Kampen American Capital Enterprise Fund (``Enterprise
Fund''), Van Kampen American Capital Equity Income Fund (``Equity
Income Fund''), Van Kampen American Capital Growth and Income Fund
(``Growth and Income Fund''), Van Kampen American Capital Life
Investment Trust on behalf of its series Common Stock Fund and Multiple
Strategy Fund (``Life Trust''), Van Kampen American Capital Pace Fund
(``Pace Fund''), Common Sense Trust (``Common Sense Trust'') on behalf
of its series: Common Sense Growth Fund, Common Sense Growth and Income
Fund, Common Sense II Growth Fund, Common Sense II Growth and Income
Fund, Common Sense II International Equity Fund, Smith Barney/Travelers
Series Fund, Inc. (``Smith Barney Fund'') on behalf of its series
American Capital Enterprise Portfolio, Van Kampen American Capital
Equity Trust (``Equity Trust'') on behalf of its series: Van Kampen
American Capital Growth Fund, Van Kampen American Capital Prospector
Fund, Van Kampen American Capital Value Fund (collectively, the
``Public Funds''); Van Kampen American Capital Small Capitalization
Fund (``Small Cap Fund''); and Van Kampen American Capital Asset
Management, Inc. (``VKACAM'') and Van Kampen American Capital
Investment Advisory Corp. (``Advisory Corp.,'' together with VKACAM,
the ``Advisers'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) granting and
exemption from section 12(d)(1), and under sections 6(c) and 17(b)
granting an exemption from section 17(a).
SUMMARY OF APPLICATION; Applicants request an order amending a prior
order that permits the Small Cap Fund to serve exclusively as an
investment vehicle through which certain Public Funds may invest a
portion of their assets in a portfolio of small capitalization stocks.
The requested order would add certain parties as applicants and revise
the conditions to the requested relief.
FILING DATES: The application was filed on November 17, 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
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 28, 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. Person 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: Comstock Fund, Enterprise Fund, Equity Income Fund,
Growth and Income Fund, Life Trust, Peace Fund, Small Cap Fund, VKACAM,
and Common Sense Trust, 2800 Post Oak Boulevard, Houston, Texas 77056;
Smith Barney Fund, 388 Greenwich Street, New York, New York 10013; and
Equity Trust and Advisory Corp., One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
FOR FURTHER INFORMATION CONTRACT: Sarah A. Wagman, Staff Attorney, at
(202) 942-0654, or Robert A. Robertson, Branch Chief, at (202) 942-0564
(Office of Investment Company Regulation, Division of Investment
Management).
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 Small Cap Fund is an open-end management investment company
for which VKACAM serves as investment adviser. The Small Cap Fund
invests at least 80% of its assets in equity securities of companies
with a market capitalization less than that of the largest 500
publicly-traded companies. Although the Small Cap Fund is registered
under the Act, it does not intend to make a public offering of its
shares, and has not registered its shares under the Securities Act of
1933.
2. VKACAM will not charge any advisory fee for managing the Small
Cap Fund, and there is no sales load or other charges associated with
distribution of the Small Cap Fund's shares. The Small Cap Fund will
bear the other expenses it incurs, and such expenses thus will be borne
indirectly by the public Funds that invest in the Small Cap Fund.
3. The Public Funds are open-end management investment companies
for which Advisory Corp. or VKACAM serves as investment companies for
which Advisory Corp. or VKACAM serves as investment adviser with
investment discretion over the entire portfolio. Advisory Corp. and
VKACAM are both wholly-owned subsidiaries of Van Kampen American
Capital, Inc. In addition to the funds named in the application, the
Public Funds may include any open-end management investment company or
portfolio thereof for which Advisory Corp. or VKACAM may in the future
become investment
[[Page 21516]]
adviser with investment discretion over the entire investment
portfolio.\1\
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\1\ The Public Funds may also include other existing open-end
investment management companies advised by VKACAM or Advisory Corp.
that currently do not intend to rely on the requested order, but may
do so in the future in accordance with the terms and conditions
thereto.
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4. Limited investment in the small capitalization sector of the
securities markets is an appropriate part of the investment strategy of
each of the Public Funds. Under a prior order,\2\ certain of the Public
Funds may achieve this aspect of their investment strategy by investing
in the Small Cap Fund.
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\2\ Investment Company Act Release Nos. 19660 (Aug. 26, 1993)
(notice) and 19730 (Sept. 21, 1993) (order).
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The requested order would amend the prior order by adding certain
parties as applicants and revising the conditions to the requested
relief.
5. The Advisers believe that providing the Public Funds with a
single investment vehicle to invest in a broadly diversified portfolio
of small capitalization stocks will provide the Public Funds with the
most effective exposure to the performance of that sector of the stock
market while at the same time minimizing costs. The Small Cap Fund will
hold a larger number of small capitalization issues, and thus be more
diversified, than would a Public Fund if it were investing directly in
small capitalization stocks. The Advisers expect that the Small Cap
Fund's diversification will benefit both the Small Cap Fund and the
Public Funds by providing greater price stability and lower volatility.
6. Each Public Fund may have, in addition to its holdings in the
Small Cap Fund, some direct investments in small capitalization stocks.
The advisers have adopted procedures to avoid the unnecessary expense
that could occur if the Small Cap Fund were to sell a particular stock
at the same time a Public Fund were to purchase it, or vice versa. The
Small Cap Fund will circulate among the portfolio managers of the
Public Funds a list of stocks it intends to purchase or sell. If any
Public Fund's portfolio manager wishes to buy or sell a stock on the
list, the Small Cap Fund will effect the transaction directly with that
Public Fund. The value of the stock will be the current market price,
determined in accordance with rule 17a-7. Payment will be made by
simultaneous transfer of cash or, if the Public Fund wishes to alter
its investment in the Small Cap Fund, or Small Cap Fund shares with an
equal value. In cases where the payment for the subject stock is Small
Cap Fund shares rather than cash, the transactions will comply with the
provisions of rule 17a-7(a) through (f) in all respects other than the
requirement that purchases and sales be made only for cash
consideration.
7. The Advisers believe that they will be able to coordinate
purchases and redemptions of Small Cap Fund shares in virtually all
instances. There may be occasions, however, when a single Public Fund
purchases or redeems an unusually large number of Small Cap Fund
shares. Such a large transaction could cause the Small Cap Fund, and
thus the Public Funds not involved in the transaction, to bear
significant incremental trading costs associated with the acquisition
or disposition of small capitalization stocks. Accordingly, if a Public
Fund plans to make an unusually large purchase or redemption of Small
Cap Fund shares, the Advisers in their sole discretion may cause the
transaction to be executed in kind. In the case of a purchase, the
Public Fund would acquire small capitalization stocks and exchange them
for Small Cap Fund shares. For a redemption, the Small Cap Fund would
deliver small capitalization stocks to the Public Fund, which the
Public Fund could then sell. These redemptions will be made on a pro
rata basis, whereby the redeeming Public Fund will receive its
proportionate share of each portfolio security. Such in-kind
transactions will comply with rule 17a-7(a) through (f) except that the
consideration for the small capitalization stocks will be Small Cap
Fund shares rather than cash.
Applicants' Legal Analysis
1. Section 12(d)(1)(A) of the Act provides that no registered
investment company may acquire securities of another investment company
representing more than 3% of the acquired company's outstanding voting
stock, more than 5% of the acquiring company's total assets or,
together with the securities of other investment companies, more than
10% of the acquiring company's total assets. Section 12(d)(1)(B)
provides that no registered open-end management investment company may
sell its securities to another investment company if the sale will
cause the acquiring company to own more than 3% of the acquired
company's voting stock, or if the sale will cause more than 10% of the
acquired company's voting stock to be owned by investment companies.
2. Applicants request an exemption from section 12(d)(1) because,
among other holdings, the Public Funds will own 100% of the stock of
the Small Cap Fund, and a Public Fund's investment in the Small Cap
fund may represent more than 5% of that Public Fund's total assets.
Section 6(c) of the Act provides that the SEC may exempt persons or
transactions 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.
Applicants request an order under section 6(c) exempting them from
section 12(d)(1) (A) and (B) to permit the Public Funds to invest in
shares of the Small Cap Fund in excess of the percentage limitations of
section 12(d)(1).
3. Applicants believe that the proposed arrangement does not
implicate the concerns underlying section 12(d)(1). For instance,
because the Advisers are under common control, there will be no
incentive for any Public Fund to assert undue control over the Small
Cap Fund. Applicants believe that the proposed arrangement will not
result in disruptive redemptions because the Advisers will coordinate
the Public Funds' purchases and sales of Small Cap Fund shares to
minimize the cash flow into or out of the Small Cap Fund. In addition,
the Small Cap fund will not cause investors in the Public Funds to bear
two layers of fees. The Small Cap Fund will pay no advisory fee, and
its shares will not be subject to any sales load. Accordingly,
applicants believe that the proposed arrangement meets the standards of
section 6(c).
4. Applicants also request an exemption from section 17(a) of the
Act, which prohibits certain purchases and sales of securities between
investment companies and their affiliated persons, as defined in
section 2(a)(3) of the Act. The Public Funds and the Small Cap Fund may
be deemed to be under common control because each Public Fund is
advised by the Advisers, and the Advisers are under the common control
of Van Kampen American Capital, Inc. Each of the Public Funds and the
Small Cap Fund would therefore be an affiliated person of each other
within the meaning of section 2(a)(3). Thus, purchases or sales of
securities between the Small Cap Fund and a Public Fund may be
prohibited by section 17(a).
5. Section 17(b) of the Act provides that the SEC shall exempt a
proposed transaction from section 17(a) if evidence establishes that:
(a) The terms of the proposed transaction are reasonable and fair and
do not involve overreaching; (b) the proposed transaction is consistent
with the policies of the registered investment
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company involved; and (c) the proposed transaction is consistent with
the general provisions of the Act. Applicants request an exemption
under sections 6(c) and 17(b) to permit the Public Funds to purchase
shares of the Small Cap Fund, and the Small Cap Fund to redeem such
shares.\3\ Applicants believe that the proposed transactions meet the
standards of sections 6(c) and 17(b).
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\3\ Section 17(b) applies to a specific proposed transaction,
rather than an ongoing series of future transactions. See Keystone
Custodian Funds, 21 S.E.C. 295, 298-99 (1945). Section 6(c), along
with section 17(b), is frequently used to grant relief from section
17(a) to permit an ongoing series of transactions.
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Applicants' Conditions
Applicants agree that any order of the SEC granting the requested
relief shall be subject to the following conditions:
1. The Public Funds and the Small Cap Fund will be part of the same
``group of investment companies,'' as defined in rule 11a-3 under the
Act.
2. The Small Cap Fund shall not acquire securities of any other
investment company in excess of the limits contained in section
12(d)(1)(A) of the Act.
3. A majority of the trustees of the Public Funds will not be
``interested persons,'' as defined in section 2(a)(19) of the Act.
4. VKACAM will not charge any advisory fee for managing the Small
cap Fund.
5. Any sales charges or service fees charged with respect to
securities of the Public Funds, when aggregated with any sales charges
or service fees paid by the Public Funds with respect to securities of
the Small Cap Fund, shall not exceed the limits set forth in Article
II, section 26, of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
6. Applicants agree to provide the following information, in
electronic format, to the Chief Financial Analyst of the SEC's Division
of Investment Management: monthly average total assets for each Public
Fund's portfolio and the Small Cap Fund's portfolio; monthly purchases
and redemptions (other than by exchange) for each Public Fund's
portfolio and the Small Cap Fund's portfolio; annual expense ratios for
each Public Fund's portfolio and the Small Cap fund's portfolio; and a
description of any vote taken by the shareholders of the Small Cap
Fund, including a statement of the percentage of votes cast for and
against the proposal by the Public funds and by any other shareholders
of the Small Cap Fund if any. Such information will be provided as soon
as reasonably practicable following each fiscal year-end of each of the
Public Funds (unless the Chief Financial Analyst shall notify
applicants in writing that such information need no longer be
submitted).
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-11671 Filed 5-9-96; 8:45 am]
BILLING CODE 8010-01-M