[Federal Register Volume 63, Number 19 (Thursday, January 29, 1998)]
[Notices]
[Pages 4502-4504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2135]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23007; 812-10932]
American Century Capital Investment Management, Inc., et al.;
Notice of Application
January 22, 1998.
Agency: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
Action: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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Applicants: American Century Capital Portfolios, Inc. (the
``Company''), on behalf of its series American Century Real Estate Fund
(the ``Fund''), American Century Investment Management, Inc. (the
``Advisor''), RREEF Real Estate Securities Adviser, L.P. (the
``Subadvisor''), and ROMEO America. L.L.C. (the ``New Subadvisor'').
Relevant Act Sections: Order requested under section 6(c) of the Act to
exempt applicants from the provisions of section 15 (a) of the Act.
Summary of Application: Applicants seek an order to permit the
implementation, without prior shareholder approval, of an investment
subadvisory agreement (``New Subadvisory Agreement'') among the Fund,
the Advisor and the New Subadvisor for a period of up to 120 days
following the later of the acquisition of substantially all the assets
of the Subadvisor by the New Subadvisor or the date on which the order
is issued, but in no event later than May 27, 1998 (the ``Interim
Period''). The order would also permit the New Subadvisor to receive
from the Advisor fees earned under the New Subadvisory Agreement
following approval by the Fund's shareholders.
Filing Dates: The application was filed on December 29, 1997. Applicant
has agreed to file an amendment, the substance of which is incorporated
in this notice, during the notice period.
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 February 13,
1998, 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Skadden, Arps, Slate, Meagher & Flom (Illinois),
333 West Wacker Drive, Suite 2300, Chicago, Illinois 60606, Attn: Peter
C. Krupp.
For Further Information Contact: Lawrence W. Pisto, 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
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC
20549 (tel. (202) 942-8090).
Applicants' Representations
1. The Company is a Maryland corporation registered under the Act
as an open-end management investment company. The Fund is a series of
the Company. The Advisor, a Delaware corporation and an investment
adviser registered under the Investment Advisers Act of 1940
(``Advisers Act''), acts as the Fund's investment adviser. The
Subadvisor, a California limited partnership and an investment adviser
registered under the Advisers Act, acts as subadviser to the Fund under
the terms of a subadvisory agreement (the ``Existing Subadvisory
Agreement''). The New Subadvisor is a Delaware limited liability
company and an indirect, wholly-owned subsidiary of ROMEO U.S. Group,
Inc. (``ROMEO''). The applicants represent that the New Subadvisor will
be a duly registered investment adviser under the Advisers Act because
either (i) the New Subadvisor shall have filed a Form ADV with the SEC
that has become effective on or before the Closing Date (as defined
below), or (ii) in reliance on section 203(g) of the Advisers Act.
2. The New Subadvisor has agreed to acquire and purchase
substantially all of the assets of the Subadvisor pursuant to an
acquisition agreement dated December 14, 1997 (the ``Acquisition''). In
connection with the Acquisition, the Subadvisor will transfer all of
the investment advisory agreements to which the Subadvisor is a party,
including the Existing Subadvisory Agreement, to ROMEO. Applicants
expect that the Acquisition will be consummated on January 27, 1998.
3. The consummation of the Acquisition will result in an assignment
of the Existing Subadvisory Agreement within the meaning of section
2(a)(4) of the Act, terminating such agreement according to its terms
and the Act. Applicants seek an exemption to permit: (i) The
implementation, without prior shareholder approval, of the New
Subadvisory Agreement; and (ii) the New Subadvisor to receive from the
Advisor, subject to shareholder approval, any and all fees earned under
the New Subadvisory Agreement during the Interim Period. The requested
exemption would cover an Interim Period of not more than 120 days
beginning on the later of the day the Acquisition is consummated (the
``Closing Date''), or the issuance of the requested order and
continuing through the date the New Subadvisory Agreement is approved
by the shareholders of the Fund (and in any event no later than May 27,
1998).\1\ The
[[Page 4503]]
New Subadvisory Agreement will contain substantially the same terms and
conditions as the Existing Subadvisory Agreement, except for the dates
of execution and termination and the inclusion of escrow arrangements.
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\1\ Applicants state that if the Closing Date precedes issuance
of the requested order, the New Subadvisor will serve as subadviser
to the Fund after the Closing Date and until the issuance of the
order in a manner consistent with its fiduciary duty. Applicants
also state that the Advisor will be required to pay to the New
Subadvisor, with respect to the period from the Closing Date until
the issuance of the order, no more than the actual out-of-pocket
cost to the New Subadvisor for providing investment subadvisory
services to the Fund.
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4. Applicants state that prior to the Closing Date, the Board of
Directors of the Company (the ``Board'') will meet, in accordance with
Section 15(c) of the Act to consider the New Subadvisory Agreement and
to evaluate whether the terms of the New Subadvisory Agreement are in
the best interests of the Fund and its shareholders. The Board intends
to hold such a meeting on January 23, 1998. To the extent that the
Board cannot meet prior to the Closing Date, applicants acknowledge
that they may not rely on the exemptive relief requested in the
application.
5. Applicants propose to enter into escrow arrangements with an
unaffiliated financial institution as escrow agent. The arrangements,
in substance, would provide that: (i) The portion of the investment
subadvisory fees earned by the New Subadvisor during the Interim Period
under the New Subadvisory Agreement would be paid into an interest-
bearing escrow account maintained by the escrow agent; and (ii) the
amounts in the escrow account (including interest earned on such
amounts) would be paid to the New Subadvisor only upon approval by the
Fund's shareholders of the New Subadvisory Agreement or, in the absence
of such approval, to the Fund. Before any such release is made, the
Board will be notified.
Applicants' Legal Analysis
1. Section 15(a) of the Act prohibits an investment adviser from
providing investment advisory services to a registered investment
company except under a written contract that has been approved by a
majority of the voting securities of the investment company. Section
15(a) of the Act further requires that the written contract provide for
automatic termination in event of its assignment. Section 2(a)(4) of
the Act defines ``assignment'' to include any direct or indirect
transfer of a contract by the assignor or of a controlling block of the
assignor's outstanding voting securities by a security holder of the
assignor.
2. Applicants represent that the Acquisition will result in an
``assignment,'' within the meaning of section 2(a)(4) of the Act, of
the Existing Subadvisory Agreement, terminating the Agreement according
to its terms.
3. Rule 15a-4 provides, in pertinent part, that if an investment
adviser's investment advisory contract with a registered investment
company is terminated by assignment, the adviser may continue to act as
such for 120 days under a written contract that has not been approved
by the investment company's shareholders, if the new contract is
approved by the board of directors of the investment company (including
a majority of the noninterested directors), the compensation to be paid
under the new contract does not exceed the compensation which would
have been paid under the contract most recently approved by
shareholders of the investment company, and neither the investment
adviser nor any controlling person of the investment adviser ``directly
or indirectly receive money or other benefit'' in connection with the
assignment. Applicants cannot rely on rule 15a-4 because of the
benefits to the members, partners and shareholders of the Subadviser
arising from the Acquisition.
4. Section 6(c) of the Act permits the SEC to conditionally or
unconditionally exempt any person, security, or transaction from any
provision of the Act or any rule or regulation thereunder, 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 believe that the requested relief meets this standard.
5. Applicants note that the terms and timing of the Acquisition
were determined by the New Subadvisor and the Subadvisor in response to
a number of factors beyond the scope of the Act and substantially
unrelated to the Fund. The Acquisition contemplates the sale of the
assets of four entities, including the Subadvisor, and the assignment
of more than 200 investment advisory and property management contracts.
The assignment of the Existing Subadvisory Agreement constitutes a
relatively small part of the Acquisition.
6. During the Interim Period, the New Subadvisor will render
investment subadvisory services to the Fund under the New Subadvisory
Agreement, which will be substantially the same as the Existing
Subadvisory Agreement. The applicants represent that during the Interim
Period the Fund will receive the same scope and quality of investment
subadvisory services provided by essentially the same personnel under
the New Subadvisory Agreement as it receives under the Existing
Subadvisory Agreement, in the same manner and at the same fee levels.
Although the Subadvisor does not anticipate any change in the personnel
providing services to the Fund, if such personnel change materially,
the New Subadvisor will apprise and consult with the Board to make sure
that the Board, including a majority of the noninterested Board
members, is satisfied that the services provided during the Interim
Period will not be diminished in scope and quality.
7. Applicants believe that the requested relief is consistent with
the protection of investors because it will permit continuity of
investment subadvisory services to the Fund. Applicants submit that to
deprive the New Subadvisor of investment advisory fees earned during
the Interim Period would be an unduly harsh and unreasonable penalty.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by this application that:
1. The New Subadvisory Agreement will contain substantially the
same terms and conditions as the Existing Subadvisory Agreement, except
for the dates of execution and termination and the inclusion of escrow
arrangements.
2. That portion of the investment subadvisory fee earned by the New
Subadvisor during the Interim Period will be maintained in an interest-
bearing escrow account, and amounts in the account (including interest
earned on such amounts) will be paid (a) to the New Subadvisor in
accordance with the New Subadvisory Agreement, only upon approval of
the Fund's shareholders, or (b) in the absence of such approval prior
to the expiration of the Interim Period, to the Fund.
3. The Fund will promptly schedule a meeting of shareholders to
vote on the approval of the New Subadvisory Agreement to be held within
120 days following the commencement of the Interim Period (but in no
event later than May 27, 1998).
4. The Subadvisor or the New Subadvisor will pay the costs of
preparing and filing the application. The Subadvisor or the New
Subadvisor will pay the costs relating to the solicitation and approval
of Fund shareholders of the New Subadvisory Agreement necessitated by
the Acquisition.
5. The New Subadvisor will take all appropriate actions to ensure
that the scope and quality of subadvisory and other services provided
to the Fund by the New Subadvisor during the Interim Period will be at
least equivalent, in the
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judgment of the Board, including a majority of the noninterested Board
members, to the scope and quality of services previously provided. In
the event of any material change in personnel providing material
services pursuant to the New Subadvisory Agreement, the New Subadvisor
will apprise and consult with the Board to make sure that the Board,
including a majority of the noninterested members, is satisfied that
the services provided will not be diminished in scope or quality.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2135 Filed 1-28-98; 8:45 am]
BILLING CODE 8010-01-M
