[Federal Register Volume 61, Number 52 (Friday, March 15, 1996)]
[Notices]
[Pages 10826-10828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6181]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Rel. No. 21813; 812-9052]


Twentieth Century Blended Portfolios, Inc., et al.; Notice of 
Application

March 11, 1996.
AGENCY: Securities and Exchange Commission (the ``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: Twentieth Century Blended Portfolios, Inc. (formerly named 
Twentieth Century Strategic Portfolios, Inc.) (``Blended Portfolios''), 
Twentieth Century Capital Portfolios, Inc., Twentieth Century 
Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth 
Century World Investors, Inc., and Investors Research Corporation.

RELEVANT ACT SECTIONS: Order requested under section 6(c) from section 
12(d)(1) and under sections 6(c) and 17(b) from section 17(a).

SUMMARY OF APPLICATIONS: Applicants request an order to permit Blended 
Portfolios to implement a ``fund of funds'' arrangement and acquire up 
to 100% of the voting shares of any Twentieth Century Fund.

FILING DATE: The application was filed on June 10, 1994, and amended on 
November 10, 1994, October 20, 1995, and February 8, 1996.

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 April 5, 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 reasons 
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, Twentieth Century Tower, 4500 Main Street, Kansas 
City, Missouri 64111.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582 (Division of Investment Management, Office of Regulatory 
Policy), or Robert A. Robertson, 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. Blended Portfolios intends to register under the Act as an open-
end management investment company and file a registration statement for 
the sale of its shares under the Securities Act of 1933. Applicants 
anticipate that Blended Portfolios will initially consist of one series 
or portfolio, and that additional series or portfolios may be added in 
the future (the ``Portfolios''). Investors Research will act as 
investment adviser to Blended Portfolios, but it is currently 
contemplated that none of the Portfolios will be charged an advisory 
fee. Each Portfolio will invest substantially all of its assets in 
shares of the Twentieth Century Funds. Investments may also be made in 
money market instruments for

[[Page 10827]]
cash management and for temporary defensive purposes. The ``Twentieth 
Century Funds'' are defined for purposes of the application as 
Twentieth Century Capital Portfolios, Inc., Twentieth Century 
Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth 
Century World Investors, Inc., and any other open-end management 
investment company that is a member of the same ``group of investment 
companies'' as defined in rule 11a-3 under the Act, as Blended 
Portfolios. The ``Underlying Funds'' are defined as the Twentieth 
Century Funds and series thereof in which Blended Portfolios will 
invest.
    2. Investors Research is registered as an investment adviser under 
the Investment Advisers Act of 1940. As of December 31, 1995, Investors 
Research was investment adviser to five investment companies comprised 
of 27 series and a number of institutional accounts, with a total of 
approximately $34.0 billion under management. Each of the currently 
operating series included in the Twentieth Century Funds is an open-end 
management investment company advised and managed by Investors 
Research.
    3. Blended Portfolios has been designed to provide investors with 
one or more diversified investment programs tailored to meet particular 
investment goals and risk tolerances. Blended Portfolios is intended 
for persons who are able to identify their long-term goals and risk 
tolerances but are not comfortable deciding which specific funds to 
choose at any particular time to seek to achieve those goals. 
Applicants believe that persons who have chosen the Twentieth Century 
family of mutual funds but are uncertain as to the specific funds in 
which to invest will welcome Blended Portfolios.
    4. Each Portfolio will have an investment objective which may not 
be changed except by a vote of a majority of the Portfolio's 
outstanding voting securities (as defined in the Act). Allocations of a 
Portfolio's assets among Underlying Funds will be made consistent with 
its investment objective as described in the applicable prospectus. For 
example, it is anticipated that an ``aggressive'' Portfolio would, 
under normal circumstances, invest substantially all of its assets in 
Underlying Funds that invest in equity securities.
    5. The Underlying Funds in which a Portfolio may invest will also 
be described in the Portfolio's prospectus. To the extent the identity 
of the Underlying Funds in which the Portfolio may invest changes over 
time (such as through the inclusion of new Underlying Funds), 
shareholders and investors will receive disclosure of such changes.
    6. While applicants currently anticipate that Blended Portfolios 
and the Underlying Funds will be sold without any front-end sales 
charge, will not be subject to any contingent deferred sales charge, 
and will not be subject to any rule 12b-1 fees, applicants reserve the 
right to charge sales charges and service fees in the future, subject 
to condition five, below, and any other provisions or limitations of 
applicable law.
    7. The Portfolios will not bear the costs of audit expenses, legal 
expenses, transfer agency, shareholder servicing and other 
administrative expenses, or the expenses of registering Blended 
Portfolios under federal and state securities laws. These expenses will 
be borne by Investors Research. The Portfolios will, however, bear the 
costs of brokerage, taxes, interest, fees and expenses of non-
interested directors (including counsel fees) and extraordinary 
expenses, none of which expenses are expected to be significant.
    8. The principal ``expenses'' of the Portfolios will be the 
indirect expenses incurred through investments in the Underlying Funds, 
which consist primarily of the unified fees paid by the Underlying 
Funds (``Unified Fees'') to investors Research. Each of the Underlying 
Funds currently pays, or it is expected will pay, Investors Research a 
Unified Fee pursuant to a management agreement between Investors 
Research and the respective fund.\1\ Other than the Unified Fee, no 
payments are made by an Underlying Fund to Investors Research. In 
return for the Unified Fee, Investors Research provides investment 
advisory services and pays all expenses of the Underlying Funds except 
for brokerage, taxes, interest, fees and expenses of non-interested 
directors (including counsel fees) and extraordinary expenses.\2\

    \1\ Investors Research may voluntarily waive, as it has waived 
in certain cases, all or any portion of the Unified Fee with respect 
to some of the Underlying Funds.
    \2\ The expenses of the Underlying Funds paid by Investors 
Research include audit expenses, legal expenses, transfer agency, 
shareholder servicing and other administrative expenses, and the 
expenses of registering the funds under federal and state securities 
laws.
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Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) 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 any 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 any 
person, security, or transaction from any provisions of the Act or any 
rule 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.
    3. Applicants request an order under section 6(c) exempting them 
from section 12(d)(1) to the extent necessary to permit Blended 
Portfolios to purchase shares of the Underlying Funds in excess of the 
percentage limitations of section 12(d)(1) (A) and (B). Applicants 
request that the relief also apply to any future ``fund-of-funds'' that 
operates in all material respects in accordance with the 
representations contained in the application, complies with the 
conditions to the requested order, and is a member of the same ``group 
of investment companies,'' as defined in rule 11a-3 under the Act, as 
Blended Portfolios.
    4. Section 12(d)(1) was intended to prevent unregulated pyramiding 
of investment companies and the abuses that might arise from such 
pyramiding, including layering of fees and undue influence by the fund 
of funds over the management of the underlying funds. Applicants 
believe that none of the dangers which were of concern to Congress in 
drafting section 12(d)(1) are present with respect to the proposed 
Blended Portfolios arrangement. As previously indicated Investors 
Research currently intends to provide advisory services to Blended 
Portfolios without charging an investment advisory fee. In the event an 
investment advisory fee were to be proposed for a Portfolio, such 
advisory fee may only be adopted subject to the requirements of 
condition four and section 15 of the Act. In the event that sales 
charges or service fees are charged with respect to the shares of 
Blended Portfolios, such charges and/or

[[Page 10828]]
fees shall, when aggregated with any sales charges and service fees 
paid by Blended Portfolios with respect to any Underlying 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. (the ``NASD'').
    5. Investors Research will be the adviser to the Underlying Funds 
as well as the Blended Portfolios. Investors Research is governed by 
its obligations to the Underlying Funds and their shareholders and any 
allocation or reallocation by Investors Research of a Portfolio's 
assets among Underlying Funds would be required to be made in 
accordance with those obligations. Furthermore, Investors Research's 
own self-interest will prompt it to maximize benefits for all 
shareholders, and not disrupt the operations of any of Blended 
Portfolios or the Underlyng Funds.
    6. Each Portfolio's shareholders will benefit from the allocation 
strategy of Investors Research, a strategy that they would not receive 
if they invested in the Underlying Funds directly. Additionally, in 
return for the indirect expenses of investing in the Underlying Funds, 
the Portfolios and their shareholders will benefit to the same extent 
as other shareholders in the Underlying Funds. The Underlying Funds and 
their shareholders will not be negatively affected as a result of 
investments made by a Portfolio. As there are potential benefits to 
shareholders of Blended Portfolios, and no additional costs to 
shareholders of the Underlyng Funds, applicants believe that there are 
net benefits to investors from this transaction. Accordingly, 
applicants believe that it is appropriate for the SEC to exercise its 
authority under section 6(c) to exempt applicants from the limitations 
of section 12(d)(1) to the extent requested.

B. Section 17(a)

    1. Sections 17(a)(1) and 17(a)(2) of the Act provide, in substance, 
that it is unlawful for any affiliated person of a registered 
investment company, acting as principal, to sell any security to, or 
purchase any security from, such investment company.
    2. Section 17(b) of the Act provides that a person may file with 
the SEC an application for an order exempting a proposed transaction 
from section 17(a) and that the SEC shall issue such order if it is 
shown that: (a) The terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned; (b) the 
proposed transaction is consistent with the policy of each registered 
investment company; and (c) the proposed transaction is consistent with 
the general purposes of the Act.
    3. Under the proposed structure, Blended Portfolios and the 
Underlying Funds may be deemed to be affiliates of one another. The 
sale by the Underlying Funds of their shares to Blended Portfolios 
could thus be deemed to be principal transactions between affiliated 
persons under section 17(a). Applicants request an exemption under 
sections 6(c) and 17(b) from section 17(a) to the extent necessary to 
permit sales by the Underlying Funds of their shares to Blended 
Portfolios.\3\ Applicants believe that the standards of sections 6(c) 
and 17(b) are met and that such relief should be granted for the 
reasons set forth under the discussion of section 12(d)(1).

    \3\ 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) can be 
used to grant relief from section 17(a) for an ongoing series of 
future transactions.
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Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Blended Portfolios and each Underlying Fund will be part of the 
same ``group of investment companies'' as defined in rule 11a-3 under 
the Act.
    2. No Underlying 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 directors of Blended Portfolios will not be 
``interested persons'' as defined in section 2(a)(19) of the Act (the 
``Independent Directors'').
    4. Before approving any advisory contract under section 15 of the 
Act, the directors of Blended Portfolios, including a majority of the 
Independent Directors, shall find that the advisory fees, if any, 
charged under such contract are based on services provided that are in 
addition to, rather than duplicative of, services provided pursuant to 
any Underlying Fund's advisory contract. Such finding, and the basis 
upon which the finding was made, will be recorded fully in the minute 
books of Blended Portfolios.
    5. Any sales charges or service fees charged with respect to shares 
of Blended Portfolios, when aggregated with any sales charges and 
service fees paid by Blended Portfolios with respect to any Underlying 
Fund, shall not exceed the limits set forth in Article III, section 26, 
of the Rules of Fair Practice of the NASD.
    6. Applicants will 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 Portfolio 
and each of its Underlying Funds; monthly purchases and redemptions 
(other than by exchange) for each Portfolio and each of its Underlying 
Funds; monthly exchanges into and out of each Portfolio and each of its 
Underlying Funds; month-end allocations of each Portfolio's assets 
among its Underlying Funds; annual expense ratios for each Portfolio 
and each of its Underlying Funds; and a description of any vote taken 
by the shareholders of any Underlying Fund, including a statement of 
the percentage of votes cast for and against the proposal by Blended 
Portfolios and by the other shareholders of the Underlying Funds. Such 
information will be provided as soon as reasonably practicable 
following each fiscal year-end of Blended Portfolios (unless the Chief 
Financial Analyst shall notify Blended Portfolios or Investors Research 
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. 96-6181 Filed 3-14-96; 8:45 am]
BILLING CODE 8010-01-M