[Federal Register Volume 61, Number 105 (Thursday, May 30, 1996)]
[Notices]
[Pages 27118-27120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13456]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21977; 812-10042]
Van Kampen American Capital Comstock Fund, et al.; Notice of
Application
May 23, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANTS: Van Kampen American Capital Comstock Fund (``Comstock
Fund''); Van Kampen American Capital Enterprise Fund (``Enterprise
Fund''); Van Kampen 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
(``Life Investment Trust''); Van Kampen American Capital Pace Fund
(``Pace Fund''); Van Kampen American Capital Equity Trust (``Equity
Trust''); Common Sense Trust (collectively, the ``Van Kampen Funds'');
Smith Barney/Travelers Series Fund Inc. (``Smith Barney Fund'')
(collectively, with the Van Kampen Funds, the ``Public Funds''); Van
Kampen American Capital Foreign Securities Fund (``Foreign Securities
Fund''); Van Kampen American Capital Investment Advisory Corp.
(``Advisory Corp.''); and Van Kampen American Capital Asset Management,
Inc. (``VKACAM'') (collectively with Advisory Corp., the ``Advisers''),
on behalf of themselves and any future registered open-end management
investment companies for which either of the Advisers serves as
investment adviser or subadviser.\1\
\1\ Other existing open-end management investment companies for
which Advisory Corp. or VKACAM serves as investment adviser or
subadviser do not currently intend to rely on the requested relief
and therefore are not named as applicants. These investment
companies may rely on the requested relief in the future under the
terms and conditions set forth in the application.
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RELEVANT ACT SECTIONS: Order requested under section 6(c) for an
exemption from section 12(d)(1), and under sections (c) and 17(b) for
an exemption from section 17(a).
SUMMARY OF APPLICATION: Applicants seek an order to permit the Foreign
Securities Fund to serve as an investment vehicle through which the
Public Funds would invest portions of their assets in a portfolio of
foreign equity securities.
FILING DATES: The application was filed on March 12, 1996, and amended
on May 10, 1996. Applicants have agreed to file an additional amendment
during the notice period, the substance of which is reflected 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 June 17, 1996,
and should be accompanied by proof of service on 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 such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Van Kampen Funds, Foreign Securities Fund, and the
Advisers, One Parkview Plaza, Oakbrook Terrace, Illinois 60181; Smith
Barney Fund, 388 Greenwich Street, New York, New York 10013.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel, at (202) 942-0583, or Alison E.
Baur, 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. The Public Funds are registered open-end management investment
companies. Each of the Public Funds invests part or all of its assets
in equity securities as provided in its investment policies and
restrictions. A common characteristic of the Public Funds is that
limited investment in foreign securities is an appropriate part of
their investment strategies. While the Public Funds differ with respect
to the portions of their respective total assets they might invest in
foreign securities, their investment objectives with respect to such
investments, and their strategies for making them, are identical.
2. The Foreign Securities Fund is a newly formed open-end
investment company that will invest primarily in equity securities of
foreign issuers. The Foreign Securities Fund will invest in securities
of issuers traded on markets of at least three of the world's largest
countries by market capitalization, but securities of issuers traded on
quoted markets of other countries also will be considered for
investment. Although the Foreign Securities Fund is registered under
the Act, it does not intend to make a public offering of its shares,
and has not registered under the Securities Act of 1933. The only
investors in the Foreign Securities Fund will be some or all of the
Public Funds. There will be no sales load or other charges associated
with distribution of the Foreign Securities Fund's shares. Other
expenses incurred by the Foreign Securities Fund will be borne by it,
and thus indirectly by the Public Funds that invest in it.
3. The Advisers are wholly owned subsidiaries of Van Kampen
American Capital, Inc., and are registered as investment advisers under
the Investment Advisers Act of 1940. The Advisers serve as investment
adviser or subadviser to each of the Public Funds, and have investment
discretion over the
[[Page 27119]]
entire portfolio of each of the Public Funds they advise. Advisory
Corp. also acts as investment adviser to the Foreign Securities Fund,
but does not charge any advisory fee for these services.
4. Applicants intend to use the Foreign Securities Fund to pool the
Public Funds' investments in foreign securities. Applicants believe
that the use of a single investment vehicle to invest in a broadly
diversified portfolio of foreign securities will provide the Public
Funds with the most effective exposure to the performance of foreign
markets while at the same time minimizing costs. Applicants state that
the Foreign Securities Fund will be more diversified in foreign markets
than a Public Fund investing on its own. As a result, events that
affect the price of a single foreign issuer or country can be expected
to have less impact on the Foreign Securities Fund than they would have
on the foreign securities holdings of a Public Fund. Applicants
represent that this diversification can be expected to benefit both the
Foreign Securities Fund and the Public Funds by providing greater price
stability and lower volatility, while at the same time capturing the
performance benefits of exposure to foreign markets.
5. Applicants also expect the Public Funds' investments in the
Foreign Securities Fund to increase the efficiency of portfolio
management of the Public Funds. Tracking the performance of various
country markets and issuers in foreign markets in a time-consuming
process and substantially different from tracking the domestic market
and domestic issuers, which would normally be attendant with a Public
Fund's portfolio management. By obtaining most of its exposure to
foreign markets through the Foreign Securities Fund, a Public Fund and
its shareholders would gain the benefit of exposure to this sector
without incurring the penalty attendant upon a Public Fund's portfolio
manager spending a disproportionate amount of his or her time following
these relatively small positions.
6. Applicants anticipate that the efficiencies resulting from use
of the Foreign Securities Fund will result in cost savings to the
Public Funds in three areas: administrative costs, out-of-pocket costs,
and trading costs. Savings of administrative costs will be attributable
to a great reduction in administrative procedures. Savings of out-of-
pocket costs such as audit fees and custodial fees will be
substantially offset by increases in other out-of-pocket costs such as
legal and transfer agency fees. Applicants expect that the major cost
savings will occur because the Foreign Securities Fund will experience
trading costs that will be substantially less than the trading costs
that would be incurred if foreign stocks were purchased separately for
each of the Public Funds. Applicants believe that this cost savings
will increase in direct proportion to the number of foreign stocks over
which the investment in foreign securities is diversified.
7. When the Foreign Securities Fund begins operations, some of the
Public Funds may contribute foreign securities from their own
portfolios (in addition to cash) in return for shares of the Foreign
Securities Fund. All of the portfolio securities contributed will be
appropriate investments for the Foreign Securities Fund, and will be
valued at the time of contribution in accordance with rule 17a-7 under
the Act.
8. Although the majority of the Public Funds' investments in
foreign securities will be through the Foreign Securities Fund, each
Public Fund may have some additional direct investments in foreign
stocks. Applicants state that the Advisers have adopted a procedure to
avoid unnecessary expense that could occur if the Foreign Securities
Fund were to sell a particular stock at the same time a Public Fund
were to purchase it, or vice versa. The Foreign Securities Fund will
generate a list of stocks that it intends to purchase or sell, and will
circulate the list among the portfolio managers of the Public Funds. If
any portfolio manager wishes to sell or buy a stock on the list, the
Foreign Securities 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 by simultaneous redemption or issuance
of shares of the Foreign Securities Fund with an equal value, depending
on whether the Public Fund wishes to alter its investment in the
Foreign Securities Fund. In cases where the payment for the subject
stock is Foreign Securities 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.
9. To minimize the need for the Foreign Securities Fund to maintain
large cash balances, the Advisers will coordinate the Public Funds'
purchases and sales of shares of Foreign Securities Fund shares to
minimize the cash flow into or out of the Foreign Securities Fund, and
attempt to anticipate the Public Funds' cash needs and coordinate net
cash investments or redemptions (on a pro rata basis) to permit the
orderly acquisition or disposition of foreign securities within the
Foreign Securities Fund. The purchase or sale of shares of the Foreign
Securities Fund by the Public Funds also will be coordinated with
rebalancing transactions within the Foreign Securities Fund. The
Advisers will monitor the process over time to ensure that the best
interests of the Public Funds and the Foreign Securities Fund are met.
10. Applicants anticipate that they will be able to follow the
foregoing procedures in virtually all instances. There may be
occasions, however, when a single Public Fund makes an unusually large
purchase or redemption of Foreign Securities Fund shares. Such a large
transaction could cause the Public Funds not involved in the
transaction to bear significant incremental trading costs associated
with the acquisition or disposition of foreign stocks. Accordingly, if
a Public Fund intends to make such an acquisition or disposition, the
Advisers, as fiduciaries to the Public Funds and the Foreign Securities
Fund, may cause the transaction to be executed in kind. In the case of
a purchase, the Public Fund would acquire foreign stocks directly, then
contribute them to the Foreign Securities Fund in exchange for its
shares. In the case of a redemption, the Foreign Securities Fund would
deliver redemption proceeds to the Public Fund in the form of a pro
rata distribution of portfolio securities held by the Foreign
Securities Fund, which the Public Fund could then sell. Such in-kind
transactions will comply with rule 17a-7 (a) through (f) except that
the consideration for the foreign stocks will be Foreign Securities
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 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.
[[Page 27120]]
2. Applicants request an exemption from section 12(d)(1) because
the Public Funds in the aggregate will own 100% of the stock of the
Foreign Securities Fund, thus any one Public Fund's investment in the
Foreign Securities Fund may represent more than 5% of the Public Fund's
total assets. Applicants believe that the requested exemption will not
implicate any of the abuses that section 12(d)(1) was intended to
prevent. For example, the concern that the Public Funds might exercise
undue influence over the management of the Foreign Securities Fund is
not present because all of the Funds are advised by the Advisers.
Moreover, because the Advisers will be paid no advisory fee by the
Foreign Securities Fund and because the Advisers are under common
control, there will be no incentive for any Public Fund to assert undue
control over the Foreign Securities Fund. Furthermore, the concern that
large redemptions could disrupt the orderly management of the Foreign
Securities Fund will not be a problem because the Advisers will be in a
position to anticipate redemption needs, and the costs associated with
large redemptions of Foreign Securities Fund shares would be mitigated
by the ability of the Fund to redeem its shares in kind. In addition,
the Foreign Securities Fund will not cause investors in the Public
Funds to incur two layers of costs. The Foreign Securities Fund will
pay no advisory fee, and its shares will not be subject to any sales
load or rule 12b-1 fee.
3. 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. VKACAM is an affiliated person of each of
the Public Funds its advises, and Advisory Corp, is an affiliated
person of the Foreign Securities Fund and of each Public Fund it
advises. In addition, each of Advisory Corp. and VKACAM is an
affiliated person of the other by reason of being under common control.
To the extent that the Funds may be deemed to be under common control,
each Fund would be an affiliated person of each other Fund.
Accordingly, purchases or sales of securities between the Foreign
Securities Fund and a Public Fund may violate section 17(a).
4. Sections 6(c) and 17(b) of the Act set forth the standards for
exempting a series of transactions from section 17(a). Under section
17(b), the terms of any such transaction must be reasonable and fair
and must not involve overreaching on the part of any person, the
transaction must be consistent with the policy of each investment
company concerned, and the transaction must be consistent with the
general purposes of the Act. In addition, under section 6(c), the
exemption must be necessary or appropriate in the public interest,
consistent with the protection of investors, and consistent with the
purposes fairly intended by the policy and provisions of the Act.
5. Applicants believe that the proposed transactions meet the
standards for relief under sections 6(c) and 17(b). Applicants contend
that the terms of the transactions between the Foreign Securities Fund
and the Public Funds are reasonable and fair and do not involve
overreaching. The consideration paid and received for the purchase and
redemption of Foreign Securities Fund shares will be based on the net
asset value of the Foreign Securities Fund. The Foreign Securities Fund
will not pay an advisory fee, and there will be no sales load or other
charge associated with distribution of its shares. Applicants believe
that the transactions are consistent with the policies of the Public
Funds and the Foreign Securities Fund. The Public Funds' investments in
the Foreign Securities Fund, and the Foreign Securities Fund's issuance
of shares, will be in accordance with each Fund's investment
restrictions and policies. Applicants also believe that the
transactions are consistent with the general purposes of the Act.
Section 17(a) was intended to prohibit affiliated persons from
furthering their own interests by, for example, selling property to an
investment company at less than fair value. Applicants believe that
their proposal does not present those concerns.
Applicants' Conditions
Applicants agree that the following conditions will govern
transactions under the requested order:
1. The Public Funds and the Foreign Securities Fund will be part of
the same ``group of investment companies,'' as defined in rule 11a-3
under the Act.
2. The Foreign Securities 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. Advisory Corp. will not charge any advisory fee for managing the
Foreign Securities 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 Foreign Securities Fund, shall not exceed the limits set forth in
Article III, 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 Foreign Securities Fund's portfolio; monthly
purchases and redemptions (other than by exchange) for each Public
Fund's portfolio and the Foreign Securities Fund's portfolio; annual
expense ratios for each Public Fund's portfolio and the Foreign
Securities Fund's portfolio; and a description of any vote taken by the
shareholders of the Foreign Securities Fund, including a statement of
the percentage of votes cast for and against the proposal by the Public
Funds and by the other shareholders of the Foreign Securities 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 SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13456 Filed 5-29-96; 8:45 am]
BILLING CODE 8010-01-M