[Federal Register Volume 63, Number 198 (Wednesday, October 14, 1998)]
[Notices]
[Pages 55161-55162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27417]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23480; 812-11186]


Sanford C. Bernstein Fund, Inc. et al.; Notice of Application

October 6, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 17(b) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 17(a) 
of the Act.

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SUMMARY OF APPLICATION: Applicants seek an order under section 17(b) of 
the Act in connection with a proposed division of the International 
Value Portfolio (the ``Existing Portfolio'') of Sanford C. Bernstein 
Fund, Inc. (the ``Fund') into two separate portfolios.

APPLICANTS: The Fund and Sanford C. Bernstein & Co., Inc. (the 
``Adviser'').

FILING DATES: The application was filed on June 22, 1998. Applicants 
have agreed to file an amendment to the application during the notice 
period, the substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 27, 1998, and should be accompanied by proof of service 
on 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 Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549. Applicants, 767 Fifth Avenue, New 
York, New York 10153.

FOR FURTHER INFORMATION CONTACT: Lawrence W. Pisto, Senior Counsel, at 
(202) 942-0527, or George J. Zornada, 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 applications may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20459 (tel. (202) 942-8090).

Applicant's Representations

    1. The Fund is organized as a Maryland corporation and is 
registered under the Act as an open-end management investment company. 
The Fund currently offers eleven series, including the Existing 
Portfolio. The investment objective of the Existing Portfolio is to 
seek long-term capital growth on a total return basis. The Adviser is 
an investment adviser registered under the Investment Advisers Act of 
1940. The Adviser is the investment adviser to the Existing Portfolio.
    2. Applicants propose that the Existing Portfolio be divided into 
two separate portfolios, designed to accommodate the needs of two 
distinct categories of investors. After the division, the Existing 
Portfolio will be managed in a tax-efficient manner and directed toward 
taxable shareholders (``Taxable Shareholders''). A newly formed series 
of the Fund (``New Portfolio'') will be managed without regard to tax 
consequences and directed toward shareholders not subject to federal 
income taxation (``Tax-Exempt Shareholders'').
    3. The division of the Existing Portfolio will be accomplished by 
offering each Tax-Exempt Shareholder an opportunity to redeem its 
shares of the Existing Portfolio in-kind and invest the assets received 
in the New Portfolio (the ``Transaction'').\1\ To avoid the cost and 
inconvenience of the physical transfer of securities and other assets 
to and from the Tax-Exempt Shareholders, the redemption and 
reinvestment transactions will be ``collapsed'' so that assets will be 
transferred directly from the Existing Portfolio to the New Portfolio. 
The applicants state that, in practical effect, the Transaction will 
not result in tax consequences for any shareholders.
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    \1\ Tax-Exempt Shareholders not choosing to invest in the New 
Portfolio could remain in the Existing Portfolio or redeem their 
shares of the Existing Portfolio at any time in accordance with the 
redemption procedures set out in the Funds prospectus and statement 
of additional information.
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    4. The securities to be transferred to the New Portfolio will be 
valued in a manner identical to the Existing Portfolio's valuation 
practices and the shares of the New Portfolio issued to the Tax-Exempt 
Shareholders will have an aggregate net asset value equal to the value 
of the assets so transferred. Shares of the New Portfolio will be 
credited to each Tax-Exempt Shareholder, pro rata, according to the 
Tax-Exempt Shareholder's interest in the Existing Portfolio immediately 
prior to the Transaction. No brokerage commission, fee (except 
customary transfer fees) or remuneration will be paid in connection 
with the Transaction.
    5. In considering the Transaction, the Fund's board of directors 
(the ``Board''), including a majority of the directors who are not 
``interested persons'' within the meaning of section 2(a)(19) of the 
Act (``Independent Directors''), determined that the Transaction would 
be in the best interests of both Tax-Exempt and Taxable Shareholders 
and would not dilute the interests of shareholders. In making its 
determination, the Board considered the anticipated benefits of 
separately managing the Portfolios for the benefit of these two 
categories of shareholders. The Board, including the Independent 
Directors, also considered that, although a modest increase in the 
expense ratios with respect to each of the Existing and New Portfolios 
might be expected, the Adviser anticipates that the expected increase 
in return would more than offset the increase in the expense ratio with 
respect to each Portfolio.

Applicants' Legal Analysis

    1. Section 17(a) of the Act prohibits any affiliated person of a 
registered investment company, or any affiliated person of such person, 
acting as principal, knowingly to sell any security or other property 
to such registered investment company, or to purchase from such 
registered investment company any security or other property (except 
securities of which the seller is the issuer). Section 2(a)(3) of the 
Act defines the term ``affiliated person'' of another person to include 
any person owning, controlling, or holding with power to vote, 5% or 
more of the outstanding voting securities of the other person; any 
person controlling, controlled by, or under common control with, the 
other person; and, if the other person is an investment company, any 
investment adviser of the investment company.
    2. Applicants state that the Existing Portfolio and New Portfolio 
might be viewed as being under the common control of the Adviser, and 
thus affiliated persons of each other. Applicants further state that to 
the extent that the redemptions in-kind from the Existing Portfolio 
coupled with the investment in the New Portfolio (collectively, the 
``Transfer'') may be deemed to constitute an indirect purchase and sale 
of securities between the Portfolios, the Transfer would be prohibited 
by section 17(a). In addition, to the extent that the redemption in-
kind (``Redemption'') may be deemed to

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involve the ``purchase'' of portfolio securities by any shareholder 
that owns more than 5% of the Existing Portfolio's outstanding voting 
securities (``Covered Shareholder'') that may exist at the time of the 
Transaction, section 17(a) would prohibit the Redemption.
    3. Rule 17a-7 under the Act exempts certain purchase and sale 
transactions otherwise prohibited by section 17(a) if an affiliation 
exists solely by reason of having a common investment adviser, common 
directors, and/or common officers, provided, among other requirements, 
that the transaction involves a cash payment against prompt delivery of 
the security. Applicants state that the relief provided by rule 17a-7 
is not available for the Transfer because it will not be effected in 
cash. Moreover, rule 17a-7(b) requires that the securities being sold 
be valued at the ``last sale price or the average of the highest 
current independent bid and lowest current independent offer.'' The 
Existing Portfolio's valuation procedures provide that securities are 
priced at the last sale price or, if that is not available, the current 
bid price of the securities.
    4. Rule 17a-8 exempts certain mergers, consolidations, and asset 
sales of registered investment companies from the provisions of section 
17(a) of the Act if an affiliation exists solely by reason of having a 
common investment adviser, common directors, and/or common officers, 
provided, among other requirements, that the board of directors of each 
affiliated investment company make certain determinations that the 
transaction is fair. Applicants state that the relief provided by the 
rule 17a-8 is unavailable for the Transfer because the Transfer is not 
structured as a merger, consolidation or asset sale.
    5. Section 17(b) provides that the Commission shall exempt a 
transaction from section 17(a) if evidence establishes that the terms 
of the proposed transaction, including the consideration to be paid, 
are reasonable and fair and do not involve overreaching, the proposed 
transaction is consistent with the policy of reach registered 
investment company concerned, and the proposed transaction is 
consistent with the general purposes of the Act. Applicants request 
relief under section 17(b) to allow (a) the Redemption of the Covered 
Shareholders, and (b) the Transfer.
    6. Applicants submit that the terms of the proposed Redemption by a 
Covered Shareholder meet the standards set forth in section 17(b). 
Applicants state that the Covered Shareholders will not have a choice 
as to the type of assets to be received in the Redemption, and neither 
the Adviser nor a Covered Shareholder will have any opportunity to 
select the specific portfolio securities to be distributed in a manner 
that will benefit Covered Shareholders or be detrimental to the 
interests of other shareholders. In addition, the Fund will use an 
objective, verifiable standard to value the securities to be 
distributed pursuant to the Redemption.
    7. Applicants state that the Board has approved the Transaction in 
the manner required by rule 17a-8. Applicants also state that the 
Transfer will comply with rule 17a-7 to the extent possible. Applicants 
assert that if the Transfer were effected in cash, as required under 
rule 17a-7(a), rather than in-kind, the Tax-Exempt Shareholders would 
bear unnecessary expense and inconvenience in transferring securities 
to the New Portfolio. The Existing Portfolio would also incur brokerage 
expenses on the sale of portfolio securities. The New Portfolio also 
would incur brokerage expenses on the subsequent purchase of similar 
securities. Applicants state that the securities involved in the 
Transfer will be valued in a manner identical to the Existing 
Portfolio's valuation practices and that the shares of the New 
Portfolio issued to the Tax-Exempt Shareholder will have an aggregate 
net asset value equal to the value of the assets so transferred. 
Applicants also assert that valuing securities for which a ``last sales 
price'' is not available at their bid price, rather than the average of 
the bid and ask price as required by rule 17a-7, is appropriate. 
Applicants state that the use of the calculation methodology contained 
in rule 17a-7(b) could skew the Existing Portfolio's net asset value 
calculation and result in the relative dilution of interests of either 
the Taxable or Tax-Exempt Shareholders.

Applicants' Conditions

    1. The Transaction will comply with the terms of rule 17a-7, except 
as described in the Application.
    2. The in-kind securities will be distributed by the Existing 
Portfolio on a pro rata basis after excluding: (a) Securities which, if 
distributed would require registration under the Securities Act of 1933 
or violate a restriction with respect to transferability, or other 
securities not transferable in the manner contemplated in the 
application; (b) securities issued by entities in countries which (i) 
restrict or prohibit the holding of securities by non-nationals other 
than through qualified investment vehicles, such as the Fund, or (ii) 
permit transfers of ownership of securities to be effected only by 
transactions conducted on a local stock exchange; and (c) certain 
portfolio assets (such as forward foreign currency exchange contracts, 
futures and options contracts and repurchase agreements) that, although 
they may be liquid and marketable, must be traded through the 
marketplace or with the counterparty to the transaction in order to 
effect a change in beneficial ownership. Cash will be paid for that 
portion of the Existing Portfolio's assets represented by cash 
equivalents (such as certificates of deposit, commercial paper and 
repurchase agreements) and other assets which are not readily 
distributable as described in the preceding sentence (as well as 
receivables and prepaid expenses), net of all liabilities (including 
accounts payable). The Existing Portfolio will also distribute cash in 
lieu of securities held in its portfolio if distributing the securities 
would result in the New Portfolio receiving odd lots or fractional 
shares. In effecting the proposed in-kind redemptions, the Existing 
Portfolio will round down the proportionate distribution of each 
portfolio security to the nearest round lot amount and will redeem the 
remaining odd lot in cash.
    3. The in-kind securities distributed to the Tax-Exempt 
Shareholders will be valued in the same manner as they would be valued 
for purposes of computing the net asset value of each of the Existing 
and New Portfolios.
    4. The Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which the Transaction 
occurs, the first two years in an easily accessible place, a written 
record of such redemptions setting forth a description of each security 
distributed, the terms of the distribution, and the information or 
materials upon which the valuation was made.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27417 Filed 10-13-98; 8:45 am]
BILLING CODE 8010-01-M