[Federal Register Volume 66, Number 146 (Monday, July 30, 2001)]
[Notices]
[Pages 39383-39386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18943]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25076; 812-12004]


Markman MultiFund Trust, et al; Notice of Application

July 24, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act and under sections 6(c) and 
17(b) of the Act for an exemption from section 17(a) of the Act.

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SUMMARY OF APPLICATION: The order would permit certain registered open-
end management investment companies to acquire shares of other 
registered open-end management investment companies outside the same 
group of investment companies.
    Applicants: Markman MultiFund Trust (the ``Trust'') and Markman 
Capital Management, Inc. (the ``Adviser'').
    Filing Dates: The application was filed on February 25, 2000 and 
amended on July 20, 2001.
    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 August 16, 2001, 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

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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, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, 6600 France Avenue South, Suite 565, 
Minneapolis, Minnesota 55435.

FOR FURTHER INFORMATION CONTACT: Sara Crovitz, Senior Counsel, or 
Michael W. Mundt, 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 at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102, (202) 942-8090.

Applicant's Representations

    1. The Trust is an open-end management investment company 
registered under the Act that is comprised of separate series, each of 
which pursues a distinct set of investment objectives and policies. The 
Adviser is registered as an investment adviser under the Investment 
advisers Act of 1940 and serves as investment adviser to the Trust.
    2. Applicants request relief to permit series of the trust (the 
``Funds of Funds'') to acquire more significant amounts of shares of 
registered open-end management investment companies that are not part 
of the same group of investment companies as the Funds of Funds (the 
``Underlying Funds'') and the Underlying Funds to sell such shares to 
the Funds of Funds.\1\ The requested order would apply to purchases 
made by the Funds of Funds only where the Funds of Funds could not rely 
on the provisions of section 12(d)(1)(F) of the Act.
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    \1\ All Funds of Funds that currently intend to rely on the 
requested order are named as applicants. Any other investment 
company that relies on the order in the future will comply with the 
terms and conditions of the application.
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    3. Applicants state that each Fund of Funds will enable investors 
to create either a comprehensive asset allocation program or achieve 
diversification in a specific segment of the market with just one 
investment. Applicants assert that a Fund of Funds will provide a 
simple, convenient, low cost investment program for investors who are 
able to identify their long-term investment goals but who may not be 
comfortable deciding how to invest their assets to achieve those goals.

Applicant's Legal Analysis:

    A. Section 12(d)(1).
    1. Section 12(d)(1)(A) of the Act prohibits a registered investment 
company from acquiring shares of an investment company if the 
securities represent more than 3% of the total outstanding voting stock 
of the acquired company, more than 5% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company from selling its shares 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 generally.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction, or any class or classes of 
persons, securities or transactions, from any provisions of section 
12(d)(1) if the exemption is consistent with the public interest and 
the protection of investors. Applicants seek an exemption under section 
12(d)(1)(J) to permit the Fund of Funds to acquire shares of the 
Underlying Funds and the Underlying Funds to sell their shares to the 
Funds of Funds beyond the limits set forth in sections 12(d)(1)(A) and 
(B).
    3. Applicants state that the proposed arrangement will adequately 
address the policy concerns underlying sections 12(d)(1)(A) and (B), 
which include concerns about undue influence by a fund of funds over 
underlying funds, excessive layering of fees, and overly complex fund 
structures. Accordingly, applicants believe that the requested 
exemption is consistent with the public interest and the protection of 
investors.
    4. Applicants state that the proposed arrangement will not result 
in undue influence by a Fund of Funds or its affiliates over Underlying 
Funds. To limit the influence that a Funds of Funds may have over an 
Underlying Funds, applicants propose a condition prohibiting the Funds 
of Funds, the Adviser and certain affiliates (individually or in the 
aggregate) from controlling an Underlying Fund within the meaning of 
section 2(a)(9) of the Act. To limit further the potential for undue 
influence over the Underlying Funds, applicants propose conditions 2 
through 7, stated below, to preclude a Fund of Funds and its affiliated 
entities from taking advantage of an Underlying Fund with respect to 
transactions between the entities and to ensure the transactions will 
be on an arm's length basis.
    5. As an additional assurance that an Underlying Fund understands 
the implications of an investment by a Fund of Funds under the 
requested order, the Fund of Funds and Underlying Fund will execute an 
agreement prior to the investment stating that the board of directors 
or trustees of the Underlying Fund and the adviser to the Underlying 
Fund understand the terms and conditions of the order and agree to 
fulfill their responsibilities under the order. Applicants note that an 
Underlying Fund may choose to reject an investment from the Fund of 
Funds.
    6. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. Applicants state that the board of 
trustees of the Funds of Funds, including a majority of the trustees 
who are not ``interested persons'' as such term is defined in section 
2(a)(19) of the Act (``Disinterested Trustees''), will find that the 
investment advisory fees charged under any investment advisory 
agreements are based on services provided that will be in addition to, 
rather than duplicative of, services provided under the investment 
advisory agreement of any Underlying Fund in which a Fund of Funds may 
invest. In addition, the Adviser will waive fees otherwise payable to 
the Adviser by a Fund of Funds in an amount at least equal to any 
compensation received by the Adviser or an affiliated person of the 
Adviser from the Underlying Fund in connection with the investment by 
the Fund of Funds in the Underlying Fund. Applicants also state that 
the aggregate sales charges and/or service fees charged with respect to 
shares of a Fund of Funds will not exceed the limits applicable to 
funds of funds set forth in Rule 2830 of the Conduct Rules of the 
National Association of Securities Dealers (``NASD Conduct Rules'').
    7. Applicants state that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that an Underlying 
Fund will be prohibited from acquiring securities of any investment 
company in excess of the limits contained in section 12(d)(1)(A), 
except to the extent permitted by an exemptive order allowing an 
Underlying Fund to purchase shares of an affiliated money market fund 
for short-term cash management purposes. In addition, applicants 
represent that a Fund of Funds' prospectus does and will contain 
concise, ``plain English'' disclosure designed to inform investors of 
the unique characteristics of the Fund of Funds structure, including, 
but not limited to, its expense structure and the

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additional expenses of investing in the Underlying Funds.

B. Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include any person 5% or 
more of whose outstanding voting securities are directly or indirectly 
owned, controlled, or held with power to vote by the other person and 
any person directly or indirectly controlling, controlled by, or under 
common control with the other person.
    2. Applicants state that a Fund of Funds and an Underlying Fund 
might become affiliated persons of the Fund of Funds acquires more than 
5% of the Underlying Fund's outstanding voting securities. In light of 
this possible affiliation, section 17(a) could prevent an Underlying 
Fund from selling shares to and redeeming shares from the Fund of 
Funds.
    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that (a) the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act. Section 
6(c) of the Act permits the Commission to exempt any person or 
transactions from any provisions of the Air if 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.
    4. Applicants submit that the proposed arrangement satisfies the 
standards for relief under section 17(b) and 6(c) of the Act. 
Applicants state that the terms of the arrangement are fair and 
reasonable and do not involve overreaching. Applicants note that the 
consideration paid for the sale and redemption of shares of the 
Underlying Funds will be based on the net assets values of the 
Underlying Funds. Applicants state that the proposed arrangement will 
be consistent with the policies of each Fund of Funds as set forth in 
each Fund of Funds' registration statement, the policies of each 
Underlying Fund, and with the general purposes of the Act.

Applicants' Conditions

    1. (a) The Adviser, (b) any person controlling, controlled by, or 
under common control with the Adviser, and (c) any investment company 
and any issuer that would be an investment company but for section 
3(c)(1) or section 3(c)(7) of the Act advised by the Adviser or any 
person controlling, controlled by, or under common control with the 
Adviser (together, the ``Group'') will not control (individually or in 
the aggregate) an Underlying Fund within the meaning of section 2(a)(9) 
of the Act. If, as a result of a decrease in the outstanding voting 
securities of an Underlying Fund, the Group, in the aggregate, becomes 
a holder of more than 25% of the outstanding voting securities of an 
Underlying Fund, the Group will vote its shares of the Underlying Fund 
in the same proportion as the vote of all other holders of the 
Underlying Fund's shares.
    2. A Funds of Funds and the Adviser, the Funds of Funds' promoter, 
and principal underwriter, and any person controlling, controlled by, 
or under common control with any of those entities (each a ``Funds of 
Funds Affiliate'') will not cause any existing or potential investment 
by the Fund of Funds in shares of an Underlying Fund to influence the 
terms of any services or transactions between the Funds of Funds or a 
Funds of Funds Affiliate and the Underlying Fund or its investment 
adviser, promoter, principal underwriter, and any person controlling, 
controlled by, or under common control with any of those entities (each 
an ``Underlying Fund Affiliate''),
    3. The board of trustees of the Funds of Funds, including a 
majority of the Disinterested Trustees, will adopt procedures 
reasonably designed to assure that the Adviser is conducting the 
investment program of the Funds of Funds without taking into account 
any consideration received by the Funds of Funds or a Funds of Funds 
Affiliate from an Underlying Fund or an Underlying Fund Affiliate in 
connection with any services or transactions.
    4. The board of directors or trustees of each Underlying Fund, 
including a majority of the disinterested directors or trustees, will 
determine that any consideration paid by the Underlying Fund to the 
Funds of Funds or a Funds of Funds Affiliate in connection with any 
services or transactions: (A) Is fair and reasonable in relation to the 
nature and quality of the services and benefits received by the 
Underlying Fund; (b) is within the range of consideration that the 
Underlying Fund would be required to pay to another unaffiliated entity 
in connection with the same services or transactions; and (c) does not 
involve overreaching on the part of any person concerned.
    5. No Funds of Funds or Funds of Funds Affiliate will cause an 
Underlying Fund to purchase a security from any underwriting or selling 
syndicate in which a principal underwriter is an officer, director, 
member of an advisory board, investment adviser, or employee of the 
Funds of Funds, or a person of which any such officer, director, member 
of an advisory board, investment adviser or employee is an affiliated 
person (each an ``Underwriting Affiliate''). An offering of securities 
during the existence of an underwriting or selling syndicate of which a 
principal underwriter is an Underwriting Affiliate is considered an 
``Affiliated Underwriting.''
    6. The board of directors or trustees of an Underlying Fund, 
including a majority of the disinterested directors or trustees, will 
adopt procedures reasonably designed to monitor any purchases of 
securities by the Underlying Fund in an Affiliated Underwriting, 
including any purchases made directly from an Underwriting Affiliate. 
The board of directors or trustees of the Underlying Fund will review 
these purchases periodically, but no less frequently than annually, to 
determine whether the purchases were influenced by the investment by a 
Funds of Funds in shares of the Underlying Fund. The board of directors 
or trustees of the Underlying Fund should consider among other things, 
(a) whether the purchases were consistent with the investment 
objectives and policies of the Underlying Fund; (b) how the performance 
of securities purchased in an Affiliated Underwriting compares to the 
performance of comparable securities purchased during a comparable 
period of time in underwritings other than Affiliated Underwritings or 
to a benchmark such as a comparable market index; and (c) whether the 
amount of securities purchased by the Underlying Affiliate have changed 
significantly from prior years. The board of directors or trustees of 
the Underlying Fund shall take any appropriate actions based on its 
review, including, if appropriate, the institution of procedures 
designed to assure that purchases of securities from Affiliated 
Underwritings are in the best interests of shareholders.
    7. The Underlying Fund shall maintain and preserve permanently in 
an easily accessible place a written copy

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of the procedures described in the preceding condition, and any 
modifications, and shall maintain and preserve for a period not less 
than six years from the end of the fiscal year in which any purchase 
from an Affiliated Underwriting occurred, the first two years in an 
easily accessible place, a written record of each purchase, setting 
forth from whom the securities were acquired, the identity of the 
underwriting syndicate's members, the terms of the purchase, and the 
information of materials upon which the board's determinations were 
made.
    8. Prior to an investment in shares of an Underlying Fund in excess 
of the limit in section 12(d)(1)(F), the Fund of Funds and the 
Underlying Fund will execute an agreement stating, without limitation, 
that the board of directors or trustees of the Underlying Fund and the 
adviser to the Underlying Fund understand the terms and conditions of 
the order and agree to fulfill their responsibilities under the order. 
At the time of its investment in shares of an Underlying Fund in excess 
of the limit in section 12(d)(1)(F), a Fund of Funds will notify the 
Underlying Fund of the investment. At such time, the Fund of Funds also 
will transmit to the Underlying Fund a list of the names of each Fund 
or Funds Affiliate and Underwriting Affiliate. The Fund of Funds will 
notify the Underlying Fund of any changes to the list of the names as 
soon as reasonably practicable after a change occurs. The Underlying 
Fund and the Fund of Funds will maintain and preserve a copy of the 
order, the agreement, and the list with any undated information for a 
period of not less than six years from the end of the fiscal year in 
which any investment occurred, the first two in an easily accessible 
place.
    9. Prior to approving any investment advisory agreement under 
section 15 of the Act, the board of trustees of the Funds of Funds, 
including an majority of the Disinterested Trustees, will find that the 
investment advisory fees charged under such agreement are based on 
services provided that will be in addition to, rather than duplicative 
of, the services provided under the investment advisory agreement of 
any Underlying Fund in which the Fund of Funds may invest. These 
findings and their basis will be recorded fully in the minute books of 
the appropriate Fund of Funds.
    10. Any sales charges and/or service fees (as defined in rule 2830 
of the NASD Conduct Rules) charged and respect to shares of a Fund of 
Funds will not exceed the limits applicable to funds of funds set forth 
in Rule 2830 of the NASD Conduct Rules.
    11. No Underlying Fund will acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act, except to the extent permitted by an exceptive 
order that allows the Underlying Fund to purchase shares of an 
affiliated money market fund short-term cash management purposes.
    12. The Adviser will waive fees otherwise payable to the Adviser by 
Fund of Funds in an amount at least equal to any compensation 
(including fees received pursuant to a plan adopted by an Underlying 
Fund under rule 12b-1 under the Act) received by an Adviser or an 
affiliated person of the Adviser from an Underlying Fund in connection 
with the investment by the Fund of Funds in the Underlying Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-18943 Filed 7-27-01; 8:45 am]
BILLING CODE 8010-01-M