[Federal Register Volume 60, Number 182 (Wednesday, September 20, 1995)]
[Notices]
[Pages 48739-48741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23294]



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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21354; 812-7679]


The Managers Funds and The Managers Funds, L.P.; Notice of 
Application

September 13, 1995.
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: The Managers Funds (the ``Trust'') and The Managers Funds, 
L.P. (the ``Manager'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
for an exemption from section 15(a) and rule 18f-2.

SUMMARY OF APPLICATION: Applicants seek a conditional order permitting 
the Manager to enter into sub-advisory agreements on behalf of each 
series of the Trust without receiving approval of the series' 
shareholders.

FILING DATES: The application was filed on February 8, 1991, and 
amendments thereto were filed on May 18, 1994, July 29, 1994, July 28, 
1995, and September 13, 1995.

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 10, 
1995, 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, D.C. 
20549. Applicants, 40 Richards Avenue, Norwalk, Connecticut 06854.

FOR FURTHER INFORMATION CONTACT: Mary Kay Frech, Senior Attorney at 
(202) 942-0579, or C. David Messman, 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 Trust is a registered open-end management investment company 
organized as a Massachusetts business trust. The Trust is a series 
company currently consisting of eleven separate series, each 
constituting a different investment portfolio (each a ``Fund'' and, 
collectively, the ``Funds''). Applicants also request relief with 

[[Page 48740]]
respect to any Fund that may be created in the future.
    2. The Manager serves as investment manager to each Fund. Under its 
investment management agreement with the Trust, the Manager provides 
certain administrative services to the Trust and the Funds. In 
addition, the Manager selects and recommends to the trustees investment 
advisers to manage the portfolio of each Fund (the ``Sub-Advisers''). 
The portfolio of a Fund may be managed by a single Sub-Adviser or may 
be allocated by the Manager between or among more than one Sub-Adviser.
    3. The Manager monitors the performance of the various Sub-Advisers 
and researches and tracks the performance of potential new Sub-
Advisers. The Manager has the authority to reallocate, from time to 
time, Fund assets among Sub-Advisers or terminate a sub-advisory 
relationship without prior approval by the trustees.\1\ The Manager 
also makes recommendations to the trustees for the addition of new Sub-
Advisers as it deems appropriate. For these services the Manager 
receives a management fee from each Fund, and the Manager in turn pays 
the advisory fee of each Sub-Adviser.

    \1\As a matter of practice, however, the trustees are kept 
apprised of such actions contemplated by the Manager, and all such 
actions are subject to review by the trustees.
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    4. Applicants request an order permitting the Manager to enter into 
contracts with new Sub-Advisers for the Funds without obtaining 
shareholder approval. Although shareholders will not vote on Sub-
Adviser changes, applicants will provide shareholders with an 
information statement that includes all the information about a new 
Sub-Adviser or sub-advisory contract that would be included in a proxy 
statement. The investment management contracts between the Manager and 
the Trust or between the Manager and the Funds would remain subject to 
the shareholder voting requirements of the Act.
    5. In 1983, the SEC issued an order to applicants granting an 
exemption similar to the one now being requested.\2\ At that time, each 
investor in the Funds entered into a separate asset management 
consulting agreement with the Manager and paid an individually 
negotiated fee directly to the Manager. No advisory fees were paid by 
the Funds to the Manager. Subsequently, the fee structure was changed 
so that the Funds, rather than individual shareholders, pay management 
fees to the Manager. Applicants ceased relying on the 1983 order after 
the Funds' fee structure was changed. The requested order would 
supersede the 1983 order.

    \2\Investment Company Act Release Nos. 13594 (Oct. 24, 1983) 
(notice) and 13635 (Nov. 22,1983) (order). At the time of the 1983 
order, only nine of the current eleven Funds were in existence.
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Applicants' Legal Analysis

    1. Section 15(a) makes it unlawful for any person to act as an 
investment adviser to a registered investment company except pursuant 
to a written contract that has been approved by a majority of the 
investment company's outstanding voting securities. Rule 18f-2 provides 
that each series or class of stock in a series company affected by a 
matter must approve such matter if the Act requires shareholder 
approval.
    2. Applicants argue that the requested exemption would permit the 
Manager to perform to the fullest extent the principal function the 
Funds are paying it to perform: selecting Sub-Advisers, monitoring 
their performance, and making whatever changes in the roster of Sub-
Advisers are appropriate, subject to the approval of the Fund trustees. 
To require that shareholders approve each new Sub-Adviser would result 
not only in unnecessary administrative expense to the Funds, but could 
result in harmful delays in executing changes in Sub-Advisers or their 
sub-advisory agreements that the Manager and the trustees have 
determined are necessary.
    3. Primary responsibility for management of the Funds is vested in 
the Manager, subject to oversight by the trustees. The Manager 
continuously monitors the performance of each Sub-Advisor, and from 
time to time recommends the replacement of a particular Sub-Adviser, or 
allocation of a portion of the assets of a particular Fund to an 
additional Sub-Adviser. Applicants argue that this practice 
distinguishes the Trust from the vast majority of other investment 
companies. Applicants note that the Trust currently has eleven Funds 
that were organized at various times over the last eleven years. During 
this time, fifty different Sub-Advisers have been employed by the 
Trust.
    Applicants state that the frequency of Sub-Adviser changes and the 
reasons underlying these changes relate to a variety of factors 
including, the size of a Fund's assets, the type of assets the Fund 
purchases, the performance of a particular Sub-Adviser, a change in 
control that causes the sub-advisory agreement to terminate, or a 
decision to change investment styles. Applicants argue that their 
arrangements are distinguishable from those of most other investment 
companies where the identity of the company providing portfolio 
management is the primary basis for choosing among funds with similar 
investment objectives and policies.
    4. Applicants submit that investors will be in a position to make a 
fully informed investment decision as to the purchase, redemption, or 
retention of Fund shares. The Trust's prospectus discloses information 
concerning the identity, ownership, and qualifications of the Sub-
Advisers in full compliance with Form N-1A. Further, the information 
statements would provide shareholders with all information regarding a 
new Sub-Adviser or a material change in a sub-advisory agreement to the 
same extent as would set forth in a proxy statement. These arrangements 
are consistent with the protection of investors because they both 
permit the Trust to avoid the administrative burden and expense 
associated with a proxy solicitation (which benefits all shareholders, 
including those that might redeem their shares after review of an 
information statement relating to a new Sub-Adviser or a material 
change in a sub-advisory agreement they did not favor) and provide full 
disclosure to investors, permitting them to ``vote with their feet.''
    5. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction from any provision of the Act, if and 
to the same extent that such exemption is necessary or appropriate in 
the public interest and consistent with the protection of investors and 
the policies and purposes fairly intended by the policies and 
provisions of the Act. Applicants believe that the requested relief 
meets this standard.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. The Manager will provide general management and administrative 
services to the Trust, and, subject to review and approval by the board 
of trustees (the ``Trustees''), will (a) set the Funds' overall 
investment strategies; (b) select Sub-Advisers; (c) monitor and 
evaluate the performance of Sub-Advisers; (d) allocate and, when 
appropriate, reallocate a Fund's assets among its Sub-Advisers; and (e) 
implement procedures reasonably designed to ensure that the Sub-
Advisers comply with the Trust's investment objectives, policies, and 
restrictions.
    2. The operation of the Funds in the manner described in this 
application has been approved by a majority of each Fund's outstanding 
voting securities, as 

[[Page 48741]]
defined in the Act. Before a future Fund that does not presently have 
an effective registration statement may rely on the order, its initial 
shareholder will approve the multi-manager structure before that Fund's 
shares are offered to the public.
    3. The Trust will furnish to shareholders the information about a 
new Sub-Adviser or material change in a sub-advisory contract that 
would be included in a proxy statement. The Trust will meet this 
condition by providing shareholders, within sixty (60) days of the 
hiring of a Sub-Adviser or the implementation of any material change to 
the terms of a sub-advisory contract, with an information statement 
complying with Regulation 14C and Schedule 14C under the Securities 
Exchange Act of 1934 (the ``Exchange Act''). This information statement 
also will meet the requirements of Schedule 14A under the Exchange Act.
    4. Each Fund's prospectus will disclose the existence, substance, 
and effect of the order requested hereby.
    5. No trustee or officer of the Trust or general partner or officer 
of the Manager owns or will own directly or indirectly (other than 
through a pooled investment vehicle that is not controlled by such 
trustee, officer or general partner) any interest in any Sub-Adviser, 
except for: (a) ownership of interests in the Manager or any entity 
that controls, is controlled by, or is under common control with the 
Manager; or (b) ownership of less than 1% of the outstanding securities 
of any class of equity or debt of a publicly-traded company that is 
either a Sub-Adviser or an entity that controls, is controlled by, or 
is under common control with a Sub-Adviser.
    6. The Manager will not enter into any sub-advisory contract with 
any Sub-Adviser that is an affiliated person, as defined in section 
2(a)(3) of the Act, of the Trust or the Manager (an ``Affiliated Sub-
Adviser'') without such contract, including the compensation to be paid 
thereunder, being approved by the shareholders of the applicable Fund.
    7. At all times, a majority of the trustees of the Trust will be 
persons each of whom is not an ``interested person'' of the Trust as 
defined in section 2(a)(19) of the Act. (``Independent Trustees''), and 
the nomination of new or additional Independent Trustees will be placed 
within the discretion of the then existing Independent Trustees.
    8. When a change in Sub-Advisers is proposed for a Fund that has an 
Affiliated Sub-Adviser, the trustees, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
Trustee's board minutes, that such change is in the best interests of 
the Fund and its shareholders and does not involve a conflict of 
interest from which the Manager or the Affiliated Sub-Adviser derives 
an inappropriate advantage.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret M. McFarland,
Deputy Secretary.
[FR Doc. 95-23294 Filed 9-19-95; 8:45 am]
BILLING CODE 8010-01-M