[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