[Federal Register Volume 61, Number 196 (Tuesday, October 8, 1996)]
[Notices]
[Pages 52816-52819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25684]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22258; 812-9474]
Benham Manager Funds, et al.; Notice of Application
October 1, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
[[Page 52817]]
APPLICANTS: Benham Manager Funds on behalf of Benham Capital Manager
Fund (``Capital Manager Fund''), Benham International Funds on behalf
of Benham European Government Bond Fund (``European Bond Fund''); and
Benham Management Corporation (``BMC'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) granting an
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 that would permit
the Capital Manager Fund to purchase shares of particular funds advised
by BMC in excess of the percentage limitations of section 12(d)(1).
FILING DATES: The application was filed on February 10, 1995, and was
amended on March 8, 1996, and on August 9, 1996. Applicants agree to
file an amendment, the substance of which is incorporated herein,
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 October 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. Persons 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: 1665 Charleston Road, Mountain View, California
94043.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Staff Attorney, at (202) 942-0573, or Mercer E.
Bullard, 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 Capital Manager Fund is currently the sole series of the
Benham Manager Funds, a registered open-end management investment
company. The Capital Manager Fund allocates its assets among U.S.
equity securities, U.S. fixed-income securities, money market
instruments, foreign equity and fixed-income securities, and securities
of companies with substantial gold related assets and other investments
related to natural resources.
2. The European Bond Fund is a series of the Benham International
Funds, a registered open-end management investment company. The
European Bond Fund invests primarily in bonds issued or guaranteed by
European governments and their political subdivisions. Under normal
market conditions, the European Bond Fund invests at least 65% of its
total assets in European government bonds.
3. BMC serves an investment adviser to the Funds. J.P. Morgan
Investment Management Inc. serves an subadviser to the European Bond
Fund. BMC is registered under the Investment Advisers Act of 1940, and
is a wholly-owned subsidiary of Twentieth Century Companies, Inc.
Applicants request relief to permit the Capital Manager Fund to
purchase shares of the European Bond Fund or any other registered
investment companies or series thereof advised by BMC, or any entity
controlling, controlled by, or under common control with BMC that may
invest internationally (collectively, the ``International Funds'').\1\
---------------------------------------------------------------------------
\1\ Applicants previously received an exemption from section
17(a) of the Act and an order pursuant to section 17(d) of the Act
and rule 17d-1 thereunder to permit investment companies created,
managed, and distributed by BMC to invest in affiliated money market
funds within the limits of section 12(d)(1). See Investment Company
Act Release Nos. 16981 (June 5, 1989) (notice) and 17041 (June 30,
1989) (order).
---------------------------------------------------------------------------
4. Applicants believe that in order for the Capital Manager Fund to
gain international investment exposure in furtherance of its investment
objective, it would be advantageous to the Capital Manager Fund and its
shareholders to invest in the International Funds. Although there will
be no numerical limits on the percentage of any of the International
Funds that the Capital Manager Fund may acquire, applicants expect that
the Capital Manager Fund ordinarily would not hold shares of any
International Fund representing in the aggregate more than 20% of the
outstanding voting securities of such International Fund.
5. BMC and the board of Benham Manager Funds will determine
annually whether investment in the International Funds continues to be
in the best interests of the shareholders of the Capital Manager Fund.
If BMC or the Benham Manager Funds' board believes that the investment
would no longer be advantageous, the Capital Manager Fund would redeem
its shares of the International Funds and invest directly in the
international securities markets. Such redemptions would be effected in
cash or in-kind. In-kind redemptions would comply with the provisions
of rule 17a-7 (a) through (f) under the Act, except for the requirement
under subparagraph (a) that the transaction be for no consideration
other than cash payment. In addition, in the case of an in-kind
redemption, the Capital Manager Fund would receive its pro rata share
of each portfolio security of the International Fund. Applicants state
that in-kind redemptions would be effected in order to prevent the
International Funds from having to sell portfolio securities at
disadvantageous prices, and to prevent the Funds from incurring
unnecessary brokerage and other transactional costs on sales and
purchases of portfolio securities that the Capital Manager Fund intends
to hold in its portfolio.
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
if such securities represent more than 3% of the acquired company's
outstanding voting stock, more than 5% of the acquiring company's total
assets, or if such securities, together with the securities of other
acquired investment companies, represent 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.
2. Section 6(c) of the Act provides that the SEC may exempt persons
or transactions from any provision of the Act if the 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) to permit the Capital Manager
Fund to acquire shares of the International Funds in excess of the
percentage limitations of section 12(d)(1).
3. Applicants believe the restrictions in section 12(d)(1) were
intended to prevent unregulated pyramiding of investment companies, and
the negative
[[Page 52818]]
effects which are perceived to arise from such pyramiding. For the
following reasons, applicants believe that the limited investment of
the Capital Manager Fund in the International Funds does not entail the
type of abusive fund of funds arrangement that Congress adopted and
amended section 12(d) to prevent.
4. The proposed arrangement will contain no improper layering of
fees. The proposed arrangement will not involve the layering of
advisory fees since, before approving any advisory contract under
section 15(a) of the Act, the board of trustees of Benham Manager
Funds, including a majority of the trustees who are not ``interested
persons,'' as defined in section 2(a)(19) of the Act, will find that
the advisory fees charged under the contract are based on services
provided that are in addition to, rather than duplicative of, services
provided under any International Fund advisory contract.
5. Applicants also state that neither the Capital Manager Fund nor
any International Fund currently intend to impose a sales load or a
12b-1 fee. Certain International Funds may impose a redemption price
adjustment on shares redeemed within 180 days of purchase. Any sales
charges or service fees relating to the shares of the Capital Manager
Fund will not exceed the limits set forth in Rule 2830 of the NASD's
Conduct Rules when aggregated with any sales charges or service fees
that the Capital Manager Fund pays relating to the International Fund
shares.
6. Applicants represent that, if the Capital Manager Fund were to
invest directly in international securities markets, it would have to
pay a minimum fee to a subcustodian in each country where it invests
and, spread over a small amount of assets, these fees could be
prohibitive. Applicants believe that permitting the Capital Manager
Fund to invest in the International Funds would lead to a lesser number
of minimum fees and result in lower custodial fees for all of the
Funds, because the fees would be spread out over a larger amount of
assets. In addition, applicants argue that investing through the
International Funds, rather than investing small amounts of assets
directly in the international markets, will result in lower brokerage
fees for the Capital Manager Fund, because brokerage fees are typically
reduced for larger orders.
7. Applicants note that another concern behind section 12(d)(1) is
the pressure on the management of underlying funds from a large
redemption accompanied by a loss of advisory fees. Applicants argue
that this concern does not apply in the case of the Capital Manager
Fund and International Funds. Because BMC is investment adviser to the
International Funds and the Capital Manager Fund, it will earn its
advisory fee whether the Capital Manager Fund's assets are invested in
the International Funds or in the international securities markets
directly. Applicants argue that, if the Capital Manager Fund invests in
the International Funds, BMC currently intends to waive its advisory
fee at the Capital Manager Fund level to the extent attributable to the
net assets of the International Funds held by the Capital Manager Fund,
but would receive an advisory fee based on the assets of the
International Funds. Applicants note that, if the Capital Manager Fund
invests directly in the international securities markets, it will
receive its advisory fee at the Capital Manager Fund level. Thus,
applicants believe the loss of advisory fees at one level is offset by
the advisory fees received at the other level.
8. Applicants also believe that the proposed arrangement will not
result in disruptive redemptions. Because the Capital Manager Fund and
the International Funds will all have BMC as their investment adviser,
applicants believe that BMC will be in a position to anticipate
redemption needs. In times of market stress or extreme volatility,
applicants argue that BMC would be mindful of the impact of selling
securities to meet Capital Manager Fund redemptions. In addition, the
Capital Manager Fund may limit, with certain exceptions, its
redemptions from any International Fund in excess of 3% of that
International Fund's shares in any period of less than 30 days.
9. Section 17(a) makes it unlawful for an affiliated person of a
registered investment company to sell securities to, or purchase
securities from, the company. The Capital Manager Fund and the
International Funds may be considered affiliated persons because they
share a common adviser. Thus, purchases or sales of securities between
the Capital Manager Fund and an International Fund may be prohibited by
section 17(a).
10. Section 17(b) 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 company concerned; 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 Capital Manager Fund to purchase shares of an
International Fund, and an International Fund to redeem such shares.\2\
Applicants believe that the proposed transactions, including the in-
kind redemptions discussed above, meet the standards of sections 6(c)
and 17(b). Applicants state that the consideration paid and received
for the sale and redemption of shares of the International Funds will
be based on the net asset value of the International Funds and
therefore is reasonable and does not involve overreaching.
---------------------------------------------------------------------------
\2\ Section 17(b) applies to specific proposed transactions,
rather than an ongoing series of future transactions. See Keystone
Custodian Funds, 21 S.E.C. 295, 298-99 (1945). Section 6(c)
frequently is used to grant relief from section 17(a) to permit an
ongoing series of future transactions.
---------------------------------------------------------------------------
Applicants' Conditions
If the requested order is granted, applicants agree to the
following conditions:
1. The Capital Manager Fund and each International Fund will be
part of the same ``group of investment companies,'' as defined in rule
11a-3 under the Act.
2. No International Fund shall 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 Benham Manager Funds will be
independent, i.e., not ``interested persons,'' as defined in section
2(a)(19) of the Act (``Independent trustees'').
4. Before approving any advisory contract under section 15 of the
Act for the Capital Manager Fund, the board of trustees of Benham
Manager Funds, including a majority of the Independent Trustees, shall
find that advisory fees, if any, charged under such contract are based
on services that are in addition to, rather than duplicative of,
services provided pursuant to any International Fund's advisory
contract. Such finding, and the basis upon which the finding was made,
will be recorded fully in the minute books of the Capital Manager Fund.
5. Any sales charges or service fees charged with respect to
securities of the Capital Manager Fund, when aggregated with any sales
charges or service fees paid by the Capital Manager Fund with respect
to securities of the International Funds, shall not exceed the limits
set forth in Rule 2830 of the Conduct Rules of the NASD.
6. The applicants agree to provide the following information, in
electronic format, to the Chief Financial Analyst of
[[Page 52819]]
the SEC's Division of Investment Management: Monthly average total
assets for the Capital Manager Fund and each of the International Funds
in which it invests; monthly purchases and redemptions (other than by
exchange) for the Capital Manager Fund and each of the International
Funds in which it invests; monthly exchanges into and out of the
Capital Manager Fund and each of the International Funds in which it
invests; month-end allocations of the Capital Manager Fund's assets
among the International Funds in which it invests; annual expense
ratios for the Capital Manager Fund and each of the International Funds
in which it invests; and a description of any vote taken by the
shareholders of any International Fund, including a statement of the
percentage of votes cast for and against the proposal by the Capital
Manager Fund and by the other shareholders of the International Funds.
Such information will be provided as soon as reasonably practicable
following each fiscal year-end of the Capital Manager Fund (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. 96-25684 Filed 10-7-96; 8:45 am]
BILLING CODE 8010-01-M
