[Federal Register Volume 70, Number 6 (Monday, January 10, 2005)]
[Notices]
[Pages 1743-1746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-38]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26717; 812-13044]


Neuberger Berman Equity Funds, et al.; Notice of Application

January 4, 2005.
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, under sections 6(c) and 17(b) 
of the Act for an exemption from section 17(a) of the Act, and under 
section 17(d) of the Act and rule 17d-1 under the Act to permit certain 
joint transactions.

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    Summary of Application: The applicants request an order that would 
permit certain registered management investment companies to invest 
uninvested cash and cash collateral in (a) affiliated money market 
funds or (b) one or more affiliated entities that operate as cash 
management investment vehicles and that rely on section 3(c)(1) or 
3(c)(7) of the Act. The order would supersede a prior order.\1\
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    \1\ Equity Managers Trust et al., Investment Company Act Release 
Nos. 24672 (Oct. 2, 2000) (notice) and 24718 (Oct. 30, 2000) 
(order).
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    Applicants: Neuberger Berman Equity Funds (``NBEF''), Neuberger 
Berman Income Funds (``NBIF), Neuberger Berman Advisers Management 
Trust (``NBAMT''), Neuberger Berman Intermediate Municipal Fund Inc. 
(``NBIMF''), Neuberger Berman California Intermediate Municipal Fund 
Inc. (``NBCIMF''), Neuberger Berman New York Intermediate Municipal 
Fund Inc. (``NBNYIMF''), Neuberger Berman Real Estate Income Fund Inc. 
(``NBREIF''), Neuberger Berman Realty Income Fund Inc. (``NBRIF''), 
Neuberger Berman Income Opportunity Fund Inc. (``NBIOF''), Neuberger 
Berman Real Estate Securities Income Fund Inc. (``NBRESIF''), Neuberger 
Berman Dividend Advantage Fund Inc. (``NBDAF'') on behalf of themselves 
and their respective series (the ``Funds''), Neuberger Berman, LLC 
(``Neuberger Berman''), Neuberger Berman Management Inc. (``NBMI''), 
Lincoln Capital Fixed Income Management Company, Inc. (``Lincoln 
Capital'') (Neuberger Berman, NBMI and Lincoln Capital, together with 
any entity controlling, controlled by or under common control with 
Neuberger Berman, NBMI or Lincoln Capital, are each an ``Adviser'' and 
collectively the ``Advisers'').
    Filing Dates: The application was filed on November 21, 2003, and 
amended on December 27, 2004.
    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 January 31, 2005, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609; Applicants, c/o Robert A. Wittie, Esq., Kirkpatrick & 
Lockhart LLP, 1800 Massachusetts Avenue, NW., Washington, DC 20036-
1800.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 942-0634 or Annette Capretta, 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 (telephone (202) 942-8090).

Applicants' Representations

    1. NBEF, NBIF and NBAMT, each a Delaware statutory trust, are 
registered under the Act as open-end management investment companies. 
NBIMF, NBCIMF, NBNYIMF, NBREIF, NBRIF, NBIOF, NBRESIF and NBDAF, each a 
Maryland corporation, are registered under the Act as closed-end 
management investment companies. Neuberger Berman, NBMI and Lincoln 
Capital are each an investment adviser registered under the Investment 
Advisers Act of 1940. Neuberger Berman and NBMI each serves as an 
investment adviser to one or more of the Funds. Lincoln Capital will 
serve as investment adviser to the Private Funds (defined below) and 
may serve in the future as investment adviser to one or more of the 
Money Market Funds (defined below).\2\ Neuberger Berman, NBMI and 
Lincoln Capital are each a wholly-owned subsidiary of Lehman Brothers 
Holdings, Inc.
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    \2\ Applicants request that any relief granted also apply to (a) 
all existing or future registered management investment companies 
and series thereof for which an Adviser serves as investment adviser 
(included in the term ``Funds'') and (b) unregistered investment 
vehicles, that are advised by an Adviser and rely on sections 
3(c)(1) or 3(c)(7) of the Act (``Private Funds'') and that may be 
used as investment vehicles for cash collateral. All existing 
registered invesment companies and Private Funds that currently 
intend to rely on the requested order are named as applicants. Any 
entities that rely on the requested order in the future will do so 
only in accordance with the terms and conditions of the application.
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    2. Certain Funds, including money market Funds that comply with 
rule 2a-7 under the Act, (each, an ``Investing Fund'') have or may be 
expected to have cash that has not been invested in portfolio 
securities (``Uninvested Cash''). Uninvested Cash may result from a 
variety of sources, including dividends or interest received on 
portfolio securities, unsettled securities transactions, strategic 
reserves, matured investments, proceeds from liquidation of investment 
securities, dividend payments or money from investors. Certain 
Investing Funds also may participate in a securities lending program 
(``Securities Lending Program'') under which a Fund may lend its 
portfolio securities to registered broker-dealers or other 
institutional investors. The loans are secured by collateral, including 
cash collateral (``Cash Collateral'' and together with Uninvested Cash, 
``Cash Balances''), equal at all times to at least the market value of 
the securities loaned.
    3. Applicants request an order to permit: (a) The Investing Funds 
to use their Uninvested Cash to purchase shares of one or more of the 
Funds that are in the same group of investment companies (as defined in 
section 12(d)(1)(G) of the Act) as the Investing Fund and comply with 
rule 2a-7 under the Act (``Money Market Funds''); (b) the Investing 
Funds to use their Cash Collateral to purchase shares of one or more of 
the Money Market Funds or Private Funds (the Money Market Funds

[[Page 1744]]

and the Private Funds are collectively referred to as the ``Central 
Funds''); (c) the Central Funds to sell their shares to and redeem such 
shares from the Investing Funds; and (d) the Advisers to effect the 
above transactions.
    4. The investment by each Investing Fund in shares of the Central 
Funds will be in accordance with that Investing Fund's investment 
policies and restrictions as set forth in its prospectus and statement 
of additional information. Certain Private Funds will comply with rule 
2a-7 under the Act (``Private Money Market Funds''). Other Private 
Funds will invest in securities that satisfy the quality requirements 
of rule 2a-7 and have short maturities. Applicants believe that the 
proposed transaction may reduce transaction costs, create more 
liquidity, increase returns and diversify holdings.\3\
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    \3\ An Investing Fund that complies with rule 2a-7 under the Act 
will not invest its Cash Collateral in a Private Fund that does not 
comply with rule 2a-7.
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Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act provides that no investment 
company may acquire securities of a registered 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) of the Act 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 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(1) if and to the extent that such exemption is consistent 
with the public interest and the protection of investors. Applicants 
request relief under section 12(d)(1)(J) to permit the Investing Funds 
to use their Cash Balances to acquire shares of the Money Market Funds 
in excess of the percentage limitations in section 12(d)(1)(A), 
provided however, that in all cases an Investing Fund's aggregate 
investment of Uninvested Cash in shares of the Money Market Funds will 
not exceed 25% of the Investing Fund's total assets. Applicants also 
request relief to permit the Money Market Funds to sell their 
securities to the Investing Funds in excess of the percentage 
limitations in section 12(d)(1)(B).
    3. Applicants state that the proposed arrangement will not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that because each Money Market Fund will 
maintain a highly liquid portfolio, an Investing Fund will not be in a 
position to gain undue influence over a Money Market Fund. Applicants 
represent that the proposed arrangement will not result in an 
inappropriate layering of fees because shares of the Money Market Funds 
sold to the Investing Funds will not be subject to a sales load, 
redemption fee, asset-based distribution fee adopted in accordance with 
rule 12b-1 under the Act or service fee (as defined in rule 2830(b)(9) 
of the NASD Conduct Rules) or, if such shares are subject to any such 
fees in the future, the Adviser will waive its advisory fee for each 
Investing Fund in an amount that offsets the amount of such fees 
incurred by the Investing Fund. Applicants state that if a Money Market 
Fund offers more than one class of shares, an Investing Fund will 
invest its Cash Balances only in the class with the lowest expense 
ratio (taking into account the expected impact of the Investing Fund's 
investment) at the time of the investment. In connection with approving 
any advisory contract, the boards of trustees or directors of the 
Investing Funds (each a ``Board,'' collectively the ``Boards''), 
including a majority of the trustees or directors who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees'') will consider to what extent, if any, the 
advisory fees charged to each Investing Fund by the Adviser should be 
reduced to account for reduced services provided to the Investing Fund 
by the Adviser as a result of Uninvested Cash being invested in the 
Money Market Funds. Applicants represent that no Money Market Fund will 
acquire securities of any other investment company or company relying 
on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits 
contained in section 12(d)(1)(A) of the Act.

B. Section 17(a) of the Act

    1. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from the investment company. Section 
2(a)(3) of the Act defines an affiliated person of an investment 
company to include any person directly or indirectly owning, 
controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of the other person, any person 5% or 
more of whose outstanding securities are directly or indirectly owned, 
controlled, or held with power to vote by the other person, any person 
directly or indirectly controlling, controlled by, or under common 
control with the other person, and any investment adviser to the 
investment company. Applicants state that the Advisers are under common 
control and serve as investment advisers to the Investing Funds and 
Central Funds and that to the extent that the Investing Funds and 
Central Funds may be deemed to be controlled by the Advisers, they may 
be under common control and affiliated persons of each other. In 
addition, if an Investing Fund owns more than 5% of the voting 
securities of a Central Fund, the Central Fund and the Investing Fund 
may be affiliated persons of each other. As a result, section 17(a) 
would prohibit the sale of the shares of Central Funds to the Investing 
Funds, and the redemption of the shares by the Investing Funds.
    2. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the Act if 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, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and with the 
general purposes of the Act. Section 6(c) of the Act permits the 
Commission to exempt any person, security or transaction, or any class 
or classes of persons, securities 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.
    3. Applicants submit that their request for relief satisfies the 
standards in sections 6(c) and 17(b) of the Act. Applicants state that 
the Investing Funds will purchase and sell shares on the same terms and 
on the same basis as shares are purchased and sold by all other 
shareholders of the Central Funds. In addition, under the proposed 
transactions, the Investing Funds will retain their ability to invest 
their Cash Balances directly in money market instruments as permitted 
by each Investing Fund's investment objectives and policies. Applicants 
state that each

[[Page 1745]]

Money Market Fund reserves the right to discontinue selling shares to 
any of the Investing Funds if the Money Market Fund's Board determines 
that such sales would adversely affect its portfolio management and 
operations.

C. Section 17(d) of the Act and Rule 17d-1 Under the Act

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, acting as 
principal, from participating in or effecting any transaction in 
connection with any joint enterprise or joint arrangement in which the 
investment company participates, unless the Commission has issued an 
order authorizing the arrangement. Applicants state that the Investing 
Funds (by purchasing shares of the Central Funds), the Advisers (by 
managing the assets of the Investing Funds invested in the Central 
Funds), and the Central Funds (by selling shares to and redeeming them 
from the Investing Funds) could be deemed to be participants in a joint 
enterprise or other joint arrangement within the meaning of section 
17(d) of the Act and rule 17d-1 thereunder.
    2. In considering whether to approve a joint transaction under rule 
17d-1, the Commission considers whether the registered investment 
company's participation in the joint transaction is consistent with the 
provisions, policies and purposes of the Act, and the extent to which 
the participation is on a basis different from or less advantageous 
than that of other participants. Applicants submit that the proposed 
transactions meet these standards because the investments by the 
Investing Funds in shares of the Central Funds would be 
indistinguishable from any other shareholder account maintained by the 
Central Funds and the transactions will be consistent with the Act.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. The investment of Cash Balances in shares of the Money Market 
Funds and Cash Collateral in shares of the Private Funds will be in 
accordance with the Investing Fund's investment restrictions and will 
be consistent with the Investing Fund's investment objectives and 
policies as set forth in its prospectus and statement of additional 
information. An Investing Fund that complies with rule 2a-7 under the 
Act will not invest its Cash Collateral in a Private Fund that does not 
comply with rule 2a-7. An Investing Fund's Cash Collateral will be 
invested in a particular Private Fund only if that Private Fund has 
been approved for investment by the Investing Fund and if that Private 
Fund invests in the types of instruments that the Investing Fund has 
authorized for the investment of its Cash Collateral.
    2. Shares of the Central Funds sold to and redeemed by the 
Investing Funds will not be subject to a sales load, redemption fee, 
asset-based distribution fee, or service fee (as defined in rule 
2830(b)(9) of the NASD Conduct Rules), or if such shares are subject to 
any such fee, the Adviser will waive its advisory fee for each 
Investing Fund in an amount that offsets the amount of such fees 
incurred by the Investing Fund.
    3. Before the next meeting of the Board of an Investing Fund is 
held for the purpose of voting on an advisory contract under section 15 
of the Act, the Adviser to the Investing Fund will provide the Board 
with specific information regarding the approximate cost to the Adviser 
of, or portion of the advisory fee under the existing advisory contract 
attributable to, managing the Uninvested Cash of the Investing Fund 
that can be expected to be invested in the Money Market Funds. Before 
approving any advisory contract for an Investing Fund, the Board, 
including a majority of the Independent Trustees, taking into account 
all relevant factors, shall consider to what extent, if any, the 
advisory fees charged to the Investing Fund by the Adviser should be 
reduced to account for reduced services provided to the Investing Fund 
by the Adviser as a result of Uninvested Cash being invested in one or 
more of the Money Market Funds. The minute books of the Investing Fund 
will record fully the Board's consideration in approving the advisory 
contact, including the considerations relating to fees referred to 
above.
    4. Each Investing Fund will invest Uninvested Cash in, and hold 
shares of, the Money Market Funds only to the extent that the Investing 
Fund's aggregate investment of Uninvested Cash in all Money Market 
Funds does not exceed the greater of 25 percent of the Investing Fund's 
total assets.
    5. Each Investing Fund and Central Fund that may rely on the order 
shall be advised by an Adviser. Each Investing Fund and Money Market 
Fund will be in the same group of investment companies as defined in 
section 12(d)(1)(G) of the Act.
    6. So long as its shares are held by an Investing Fund, a Central 
Fund will not acquire securities of any investment company or company 
relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the 
limits contained in section 12(d)(1)(A) of the Act.
    7. Each Investing Fund will purchase and redeem shares of a Private 
Fund as of the same time and at the same price, and will receive 
dividends and bear its proportionate share of expenses on the same 
basis, as other shareholders of the Private Fund. A separate account 
will be established in the shareholder records of each Private Fund for 
the account of each Investing Fund that invests in such Private Fund.
    8. Each Private Fund will comply with sections 17(a), (d), and (e) 
and 18 of the Act as if the Private Fund were a registered open-end 
investment company. With respect to all redemption requests made by an 
Investing Fund, a Private Fund will comply with section 22(e) of the 
Act. The Adviser of a Private Fund will adopt procedures designed to 
ensure that the Private Fund will comply with sections 17(a), (d), and 
(e), 18, and 22(e) of the Act. The Adviser also will periodically 
review and update (as appropriate) the procedures, will maintain books 
and records describing the procedures, and will maintain the records 
required by rules 31a-1(b)(1), 31a-1(b)(2)(ii), and 31a-1(b)(9) under 
the Act. All books and records required to be maintained under this 
condition will be maintained and preserved for a period of not less 
than six years from the end of the fiscal year in which any transaction 
occurred, the first two years in an easily accessible place, and will 
be subject to examination by the Commission and its staff.
    9. The net asset value per share with respect to shares of the 
Private Funds that are not Private Money Market Funds will be 
determined separately for each such Private Fund by dividing the value 
of the assets belonging to that Private Fund, less the liabilities of 
that Private Fund, by the number of shares outstanding with respect to 
that Private Fund.
    10. Each Private Money Market Fund will use the amortized cost 
method of valuation and will comply with rule 2a-7 as though it were a 
registered open-end investment company. Each Private Money Market Fund 
will adopt the procedures described in rule 2a-7(c)(7) and the Adviser 
to the Private Money Market Fund will comply with these procedures and 
take any other actions that are required to be taken pursuant to these 
procedures. An Investing Fund may only purchase shares of a Private 
Money Market Fund if the Adviser determines on an ongoing basis that 
the Private Money Market Fund is in compliance with rule 2a-7. The 
Adviser will preserve for a period not less than

[[Page 1746]]

six years from the date of determination, the first two years in an 
easily accessible place, a record of such determination and the basis 
upon which the determination was made. This record will be subject to 
examination by the Commission and its staff.
    11. Before an Investing Fund may participate in a Securities 
Lending Program, a majority of the Board, including a majority of the 
Independent Trustees, will approve the Investing Fund's participation 
in the Securities Lending Program. The Board will evaluate the 
securities lending arrangement and its results no less frequently than 
annually and determine that any investment of Cash Collateral in the 
Central Funds is in the best interest of the Investing Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E5-38 Filed 1-7-05; 8:45 am]
BILLING CODE 8010-01-P