[Federal Register Volume 61, Number 161 (Monday, August 19, 1996)]
[Notices]
[Pages 42923-42925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21055]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22138; 812-10196]
Benham California Tax-Free Trust, et al.; Notice of Application
August 13, 1996.
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: Benham California Tax-Free Trust; Benham Equity Funds;
Benham Financial Services, Inc. (``BFS''); Benham Government Income
Trust; Benham International Funds; Benham Investment Trust; Benham
Management Corporation (``BMC''); Benham Manager Funds; Benham
Municipal Trust; Benham Target Maturities Trust; Capital Preservation
Fund, Inc.; Capital Preservation Fund II, Inc.; all future investment
companies for which BMC acts as investment adviser and all existing and
future series of the foregoing investment companies (the ``Benham
Funds''); Investors Research Corporation (``IRC''); TCI Portfolios,
Inc.; Twentieth Century Capital Portfolios, Inc.; Twentieth Century
Investors, Inc.; Twentieth Century Premium Reserves Inc.; Twentieth
Century Services, Inc. (``TCS''); Twentieth Century Strategic Asset
Allocations, Inc.; Twentieth Century World Investors, Inc.; all future
investment companies for which IRC acts as investment adviser and all
existing and future series of the foregoing investment companies (the
``Twentieth Century Funds,'' together with the Benham Funds, the
``Funds''); and any future investment adviser to the Funds which is a
direct or indirect wholly-owned subsidiary of Twentieth Century
Companies, Inc. (``TCC''), BFS, and TCS.
Relevant Act Section: Order requested under section 17(d) of the Act
and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit certain
investment companies to deposit their uninvested cash in joint accounts
and invest the cash in short-term investments, including repurchase
agreements.
FILING DATE: The application was filed on June 11, 1996, and amended on
August 12, 1996. Applicants inadvertently indicated on the application
and the amendment that the file number was 812-7549. The correct file
number is 812-10196.
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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on September 9,
1996, and should be accompanied by proof of service on the applicant,
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, 1665 Charleston Road, Mountain View, CA 94043 or
4500 Main Street, Kansas City, Missouri 64141-6200.
FOR FURTHER INFORMATION CONTACT: Mary T. Geffroy, Staff Attorney, at
(202) 942-0553, 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.
Applicant's Representations
1. Each of the Funds currently has an effective registration
statement under the Act and maintains a public offering of its shares
or shares of its various series or portfolios. BMC is a registered
investment adviser under the Act and serves as investment adviser to
the Benham Funds. IRC is a registered investment adviser under the Act
and serves as investment adviser to the Twentieth Century Funds, and to
individual, corporate, charitable, and retirement accounts (``Private
Accounts''). BFS serves as transfer agent for the Benham Funds. TCS
serves as transfer agent to the Twentieth Century Funds. BFS, BMC, IRC,
and TCS are wholly-owned subsidiaries of TCC, a Delaware corporation.
2. Applicants request that any relief granted pursuant to the
application apply to any present or future registered investment
companies that are advised by BMC, IRC, or any wholly-owned subsidiary
of TCC; Private Accounts for which BMC or IRC serve as investment
adviser; and any entity controlling, controlled by, or under common
control with TCS and BFS that serves as transfer agent for any of the
Funds. All Funds that intend to rely upon the requested order are named
as applicants.
3. The SEC previously issued an order that allows the Benham Funds
to use a Joint Account to purchase repurchase agreements on a pooled
basis.\1\ On June 1, 1995, BMC, BFS and their affiliates were acquired
by TCC. As a result of this transaction, the Twentieth Century Funds
became affiliates of the Benham Funds. Because the previous order does
not extend to the Twentieth Century Funds, applicants seek a new order
that grants authorization to the Benham Funds and the Twentieth Century
Funds to use Joint Accounts. In addition, applicants seek to adopt the
conditions that the SEC now requires of applicants who request this
type of relief, and to revise the nature of the relief granted to
include investments other than repurchase agreements.
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\1\ Benham Equity Funds, Investment Company Act Release Nos.
17984 (Feb. 6, 1991) (notice) and 18035 (Mar. 12, 1991) (order).
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4. Applicants propose to allow each Fund to participate in joint
account arrangements (``Joint Accounts'') for the purposes of investing
in: (a) repurchase agreements collateralized fully, as defined in rule
2a-7 under the Act; (b) interest-bearing or discounted commercial
paper, including dollar denominated commercial paper of foreign
issuers; and (c) any other short-term money market instruments,
including variable rate demand notes and other tax-exempt money market
instruments, that constitute ``Eligible Securities'' (as defined in
rule 2a-7 under the Act) (collectively, ``Short-Term Investments'') as
permitted by its investment policies and restrictions.
5. Each of the Funds and Private Accounts (collectively,
``Participants'') has, or may be expected to have, uninvested cash
balances with its custodian bank which would not otherwise be invested
in portfolio securities by the portfolio manager at the end of each
trading day. In the normal course of business, such assets of each
Participant are, or would be, invested in Short-Term Investments in
[[Page 42924]]
order to earn additional income for that Participant.
6. BFS, as transfer agent for the Benham Funds, maintains certain
accounts on behalf of the Benham Funds at a variety of banks and
financial institutions. Each of the Twentieth Century Funds maintains a
similar account at a local banking institution. Monies forwarded to BFS
or TCS by investors for the purchase of additional shares of the Funds
are placed in these accounts (``Purchase Accounts'') while purchase
orders are processed. The money deposited in the Purchase Accounts is
not available for investment by a Fund until it is wired to each Fund's
custodian bank the following day. The Funds, do, however, earn income
on monies deposited in a Purchase Account. Applicants propose to
establish a single joint Purchase Account into which purchase checks
received by all of the Participants would be deposited. The
Participants would negotiate the rate of interest on monies held in the
joint Purchase Account. The joint Purchase Account would operate as,
and be subject to the conditions for, a Joint Account, except that
money placed in a joint Purchase Account would be invested only in
repurchase agreements.
7. Participants may, but are not obligated to, invest not only cash
which in the absence of a Joint Account would remain uninvested, but
also cash which in the absence of a Joint Account would be individually
invested in Short-Term Investments pursuant to a Participant's
investment policies.
8. The record owner of a Joint Account or joint Purchase Account
will be the participant's custodian or a nominee of the Participant's
respective custodians. Each Participant that deposits cash into a Joint
Account or joint Purchase Account will be beneficial owner of: (a) the
cash so deposited plus interest, if any earned thereon; and (b) the
Participant's pro rata share of any securities and income from any
securities purchased with the Participant's cash.
9. Each Participant would participate in the Joint Account on the
same basis as every other Participant in conformity with its
fundamental investment objectives and restrictions. Future participants
will be required to participate in the Joint Account on the same terms
and conditions as the existing Participants. BMC, IRC, and any future
investment adviser or subadviser to the Participants, which is a direct
or indirect wholly-owned subsidiary of TCC (``Advisers'') would have no
monetary participation in the account, but would be responsible for
investing amounts in the account, establishing accounting and control
procedures, and ensuring the equal treatment of each Participant.
10. Each of the Participants has established the same systems and
standards relating to repurchase agreements. These standards include
creditworthiness standards for issuers of repurchase agreements and for
collateral, and requirements that the repurchase agreement will be at
least 100% collateralized at all times.
11. The Participants generally do not enter into repurchase
agreements in which the counterparty (or one of its affiliated persons)
may have possession of, or control over, the collateral which is the
subject of the agreement (``Hold-in Custody Repurchase Agreements'').
The Participants will not enter into Hold-in Custody Repurchase
Agreements with their custodian banks except in those cases where cash
is received very late in the business day and otherwise would be
unavailable for investment.
Applicants' Legal Analysis
1. Section 17(d) of the Act makes it unlawful for an affiliated
person of a registered investment company, acting as principal, to
effect any transaction in which the registered investment company is a
joint or a joint and several participant with such person in
contravention of rules and regulations proscribed by the SEC. Rule 17d-
1 provides that an affiliated person of a registered investment
company, acting as principal, shall not participate in, or effect any
transaction in connection with, any joint enterprise or other joint
arrangement in which the registered investment company is a participant
unless the SEC has issued an order approving the arrangement.
2. Each Participant, by participating in a Joint Account or joint
Purchase Account, and the Advisers, by managing the Joint Account or
joint Purchase Account, could be deemed to be ``joint participants'' in
a transaction within the meaning of section 17(d). In addition, the
proposed accounts could be deemed to be ``joint enterprises or other
joint arrangements'' within the meaning of rule 17d-1.
3. Applicants represent that the proposed method of operating the
Joint Account will not result in any conflicts of interest between any
of the Participants or between a Participant and its respective
Adviser. Applicants believe that there does not appear to be any way in
which operations of the Joint Account would result in greater benefit
to one Participant than to another.
4. Applicants believe that the Joint Accounts could result in
certain benefits to the Participants. For example, the Participants may
earn a higher rate of return on investments through the Joint Accounts
relative to the returns they could earn individually. Under most market
conditions, it is possible to negotiate a rate of return on larger
repurchase agreements that is higher than the rate on smaller
repurchase agreements.
5. Applicants believe that one of the benefits of the Joint
Accounts is that by reducing the number of trade tickets which each
government securities dealer will have to write, repurchase
transactions will be simplified for those organizations, with a
concomitant reduction for errors.
6. For the reasons set forth above, applicants believe that
granting the requested order is consistent with the protection of
investors and the purposes fairly intended by the policies and
provisions of the Act and the intention of rule 17d-1.
Applicants' Conditions
Applicants will comply with the following procedures as conditions
to any SEC order:
1. The Joint Accounts or joint Purchase Accounts will not be
distinguishable from any other accounts maintained by the Participants
at their custodians except that monies from the Participants will be
deposited in the Joint Account or joint Purchase Account on a
commingled basis. The Joint Accounts or joint Purchase Accounts will
not have separate existences and will not have any indicia of separate
legal entities. The sole function of the Joint Accounts will be to
provide a convenient way of aggregating individual transactions which
would otherwise require daily management by the Advisers of uninvested
cash balances.
2. Cash in the Joint Accounts will be invested in one or more of
the following, as directed by the Advisers: (a) repurchase agreements
``collateralized fully'' as defined in rule 2a-7 under the Act; (b)
interest-bearing or discounted commercial paper, including dollar
denominated commercial paper of foreign issuers; and (c) any other
short-term money market instruments, including variable rate demand
notes and other tax-exempt money market instruments, that constitute
``Eligible Securities'' (as defined in rule 2a-7 under the Act). Cash
in the joint Purchase Accounts will earn a negotiated rate of interest
or be invested in overnight repurchase agreements ``collateralized
fully'' as
[[Page 42925]]
defined in rule 2a-7 under the Act. No Participant would be permitted
to invest in a Joint Account or joint Purchase Account unless the
Short-Term Investments made by the Participant in such Joint Account or
joint Purchase Account satisfied the investment policies and guidelines
of that Participant. Short-Term Investments that are repurchase
agreements would have a remaining maturity of 60 days or less and other
Short-Term Investments would have a remaining maturity of 90 days or
less, as calculated in accordance with rule 2a-7 under the Act.
3. All assets held in the Joint Accounts would be valued on an
amortized cost basis to the extent permitted by applicable SEC
releases, rules, or orders.
4. Each Participant that is a registered investment company valuing
its net assets in reliance on rule 2a-7 under the Act will use the
average maturity of the instruments in the Joint Account in which such
Participant has an interest (determined on a dollar-weighted basis) for
the purpose of computing its average portfolio maturity with respect to
its portion of assets held in a Joint Account on that day.
5. In order to assure that there will be no opportunity for one
Participant to use any part of a balance of a Joint Account or joint
Purchase Account credited to another Participant, no Participant will
be allowed to create a negative balance in any Joint Account or joint
Purchase Account for any reason, although each Participant would be
permitted to draw down its entire balance at any time. In no case would
an early termination by less than all Participants be permitted if it
would reduce the principal amount or yield received by other
Participants in a particular Joint Account or joint Purchase Account or
otherwise adversely affect the other Participants. Each Participant's
decision to invest in a Joint Account would be solely at its option,
and no Participant will be obligated to invest in the Joint Account or
to maintain any minimum balance in the Joint Account. In addition, each
Participant will retain the sole rights of ownership of any of its
assets invested in the Joint Account or joint Purchase Account,
including interest payable on such assets invested in the Joint Account
or joint Purchase Account.
6. The Advisers will administer the investment of cash balances in,
and the operation of, the Joint Accounts or joint Purchase Accounts as
part of their general duties under their advisory agreements with
Participants and will not collect any additional or separate fees for
advising any Joint Account or joint Purchase Account.
7. The administration of the Joint Accounts or joint Purchase
Accounts will be within the fidelity bond coverage required by section
17(g) of the Act and rule 17g-1 thereunder.
8. The directors or trustees of the Funds will adopt procedures
pursuant to which the Joint Accounts or joint Purchase Accounts will
operate, which will be reasonably designed to provide that the
requirements of the application will be met. The directors or trustees
will make and approve such changes as they deem necessary to ensure
that such procedures are followed. The directors or trustees will
determine, no less frequently than annually, that the Joint Accounts
have been operated in accordance with the proposed procedures.
Furthermore, the directors or trustees will only permit a Participant
to continue to participate in a Joint Account or joint Purchase Account
if they determine that there is a reasonable likelihood that the
Participant and its shareholders will benefit from the Participant's
continued participation.
9. Any Short-Term Investment made through the Joint Accounts will
satisfy the investment criteria of all Participants in that investment.
Repurchase agreements purchased through a joint Purchase Account will
satisfy the investment criteria of all Participants in the investment.
10. Each Participant's investment in a Joint Account will be
documented daily on the books of each Participant and the books of its
custodian. Each Participant will maintain records (in conformity with
section 31 of the Act and rules thereunder) documenting for any given
day, its aggregate investment in a Joint Account and its pro rata share
of each Short-Term Investment made through such Joint Account. Each
Participant that is not a registered investment company or registered
investment adviser will make available to the SEC, upon request, such
books and records with respect to its participation in a Joint Account.
11. Every Participant in the Joint Accounts will not necessarily
have its cash invested in every Short-Term Investment. However, to the
extent that a Participant's cash is applied to a particular Short-Term
Investment, the Participant will participate in and own its
proportionate share of such Short-Term Investment, and any income
earned or accrued thereon, based upon the percentage of such investment
purchased with monies contributed by the Participant. This condition
shall also apply to the repurchase agreements purchased through a joint
Purchase Account.
12. Short-Term Investments held in a Joint Account generally will
not be sold prior to maturity except if: (a) The Advisers believe the
investment no longer presents minimal credit risks; (b) the investment
no longer satisfies the investment criteria of all Participants in the
investment because of downgrading or otherwise; or (c) in the case of a
repurchase agreement, the counterparty defaults. The Adviser may,
however, sell any Short-Term Investment (or any fractional portion
thereof) on behalf of some or all Participants prior to the maturity of
the investment if the cost of such transaction will be borne solely by
the selling Participants and the transaction will not adversely affect
other Participants. Each Participant in a Joint Account will be deemed
to have consented to such sale and partition of the investments in the
Joint Account.
13. Short-Term Investments held through a Joint Account with a
remaining maturity of more than seven days, as calculated pursuant to
rule 2a-7 under the Act, will be considered illiquid (``Illiquid Joint
Account Investments''). For any Participant that is an open-end
investment company registered under the Act, if an Adviser cannot sell
the instrument, or the Participant's fractional interest in such
instrument, pursuant to the preceding condition, such Illiquid Joint
Account Investments shall be included among those securities which are
subject to the restriction that the fund may not invest more than 15%
(or such other percentage as set forth by the SEC from time to time) of
its net assets in illiquid securities.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-21055 Filed 8-16-96; 8:45 am]
BILLING CODE 8010-01-M