[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]


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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'').

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[[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\
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    \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).
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    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.
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    \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.
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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

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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