[Federal Register Volume 70, Number 53 (Monday, March 21, 2005)]
[Notices]
[Pages 13552-13555]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1213]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No.26784; 812-12948]


Burnham Investors Trust, et al., Notice of Application

March 15, 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 (a) certain registered management investment companies and 
certain entities that are excluded from the definition of investment 
company pursuant to section 3(c)(1), 3(c)(7) or 3(c)(11) of the Act to 
invest uninvested cash and cash collateral in (i) affiliated money 
market funds and/or short-term bond funds or (ii) one or more 
affiliated entities that operate as cash management investment vehicles 
and that are excluded from the definition of investment company 
pursuant to section 3(c)(1) or 3(c)(7) of the Act, and (b) the 
registered investment companies and the affiliated entities to continue 
to engage in purchase and sale transactions involving portfolio 
securities in reliance on rule 17a-7 under the Act.

Applicants: Burnham Investors Trust (the ``Investment Company'') and 
Burnham Asset Management Corporation (and any entity controlling, 
controlled by, or under common control with Burnham Asset Management 
Corporation, the ``Adviser'').

Filing Dates: The application was filed on March 27, 2003, and amended 
on March 14, 2005.

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 April 11, 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, 1325 Avenue of the Americas, 26th Floor, New 
York, NY, 10019.

FOR FURTHER INFORMATION CONTACT: Keith A. Gregory, Senior Counsel, at 
(202) 551-6815 or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(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. The Investment Company is organized as a Delaware statutory 
trust and is registered under the Act as an open-end management 
investment company. Each series of the Investment Company has separate 
investment objectives and policies. The Adviser currently serves as the 
investment adviser to the Investment Company. The Adviser is a Delaware 
corporation and is registered under the Investment Advisers Act of 
1940.\1\ Funds that are not money market funds and Non-Registered Funds 
(the ``Participating Funds'') have or may be expected to have cash that 
has not been invested in portfolio securities (``Uninvested Cash''). 
Uninvested Cash may result

[[Page 13553]]

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. Each 
Participating Fund that is a series of the Investment Company also may 
participate in a securities lending program (``Securities Lending 
Program'') under which it 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. Currently, the Adviser can invest Cash Balances directly in 
money market instruments or other short-term debt obligations. 
Applicants state that Participating Funds will either be management 
investment companies registered under the Act (``Registered 
Participating Funds'') or trusts or other entities that are excluded 
from the definition of investment company pursuant to section 3(c)(1), 
3(c)(7) or 3(c)(11) of the Act for which the Adviser acts as trustee or 
investment adviser (``Non-Registered Participating Funds'').
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    \1\ Applicants request that any relief granted also apply to (a) 
any other registered management investment company and series 
thereof for which the Adviser currently is, or in the future may act 
as, investment adviser (together with all existing and future series 
of the Investment Company, the ``Funds'') and (b) any entity 
excluded form the definition of investment company pursuant to 
section 3(c)(1(, 3(c)(7) or 3(c)(11) of the Act, for which the 
Adviser currently is, or in the future may act as, investment 
adviser or trustee exercising investment discretion (``Non-
Registered Funds''). All entities that currently intend to reply on 
the order have been named as applicants. Any other existing or 
future entity that relies on the order in the future will do so only 
in accordance with the terms and conditions of the application.
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    2. Applicants request an order to permit: (i) The Participating 
Funds to use their Cash Balances to purchase shares of one or more of 
the Funds that are money market funds or short-term bond funds (the 
``Registered Central Funds'') or shares of one or more Non-Registered 
Funds that operate as cash management investment vehicles and that are 
excluded from the definition of investment company pursuant to section 
3(c)(1) or 3(c)(7) of the Act (the ``Non-Registered Central Funds'') 
(the Registered Central Funds and the Non-Registered Central Funds, 
collectively, the ``Central Funds''); (ii) the Central Funds to sell 
their shares to and redeem such shares from the Participating Funds; 
(iii) the Participating Funds and the Central Funds to engage in 
interfund purchase and sale transactions in securities (``Interfund 
Transactions''); and (iv) the Adviser to effect the above transactions.
    3. The investment by each Registered Participating Fund in shares 
of the Central Funds will be in accordance with that Registered 
Participating Fund's investment policies and restrictions as set forth 
in its registration statement. The Registered Central Funds are or will 
be taxable or tax-exempt money market funds that comply with rule 2a-7 
under the Act or short-term bond funds that invest in fixed-income 
securities and maintain a dollar-weighted average portfolio maturity of 
three years or less. Each Non-Registered Central Fund will comply with 
rule 2a-7 under the Act.

Applicants' Legal Analysis

I. Investment of Cash Balances by the Participating Funds in the 
Central Funds

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 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. Any entity that is excluded from the 
definition of investment company pursuant to section 3(c)(1) or 3(c)(7) 
of the Act is deemed to be an investment company for the purposes of 
the 3% limitation specified in sections 12(d)(1)(A) and (B) with 
respect to purchases by and sales to such company.
    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 Participating 
Funds to use their Cash Balances to acquire shares of the Registered 
Central Funds in excess of the percentage limitations in section 
12(d)(1)(A), provided however, that in all cases a Registered 
Participating Fund's aggregate investment of Uninvested Cash in shares 
of the Central Funds will not exceed the greater of 25% of the 
Registered Participating Fund's total assets or $10 million. Applicants 
also request relief to permit the Registered Central Funds to sell 
their securities to the Participating 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 there is no threat of redemption to gain 
undue influence over the Central Funds due to the highly liquid nature 
of each Central Fund's portfolio. Applicants also state that the 
proposed arrangement will not result in inappropriate layering of fees. 
If a Central Fund offers more than one class of shares in which a 
Registered Participating Fund may invest, the Registered Participating 
Fund will invest its Cash Balances only in the class with the lowest 
expense ratio at the time of investment. Applicants also state that no 
sales load, redemption fee, asset-based sales charge or service fee 
will be charged in connection with the purchase and sale of shares of 
the Central Funds. Before approving any advisory contract under section 
15 of the Act, the board of trustees of the Registered Participating 
Fund (``Board''), including a majority of trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees''), shall consider to what extent, if any, the 
advisory fees charged to the Registered Participating Fund by the 
Adviser should be reduced to account for the reduced services provided 
to the Registered Participating Fund as a result of Uninvested Cash 
being invested in the Central Funds. Applicants represent that no 
Central 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. Because the Adviser serves or will serve as each 
Fund's investment adviser, and may serve as trustee of a Non-Registered 
Fund, the Funds and Non-Registered

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Funds may be deemed to be under common control and thus affiliated 
persons of each other. In addition, if a Participating Fund purchases 
more than 5% of the voting securities of a Central Fund, the Central 
Fund and the Participating 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 Participating Funds, and the redemption of the 
shares by the Participating 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 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.
    3. Applicants submit that their request for relief to permit the 
purchase and redemption of shares of the Central Funds by the 
Participating Funds satisfies the standards in sections 6(c) and 17(b) 
of the Act. Applicants note that shares of the Central Funds will be 
purchased and redeemed at their net asset value, the same consideration 
paid and received for these shares by any other shareholder. Applicants 
state that the Registered Participating Funds will retain their ability 
to invest Cash Balances directly in money market instruments as 
authorized by their respective investment objectives and policies if 
they can achieve a higher return or for any other reason. Applicants 
state that each of the Registered Central Funds has the right to 
discontinue selling shares to any of the Participating Funds if the 
Registered Central Fund's Board or the Adviser determines that such 
sale would adversely affect the Registered Central Fund's 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 approved the 
joint arrangement. Applicants state that the Participating Funds and 
the Central Funds, by participating in the proposed transactions, and 
the Adviser, by managing the proposed transactions, could be deemed to 
be participating in a joint arrangement within the meaning of section 
17(d) and rule 17d-1.
    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 state that the investment 
by the Participating Funds in shares of the Central Funds would be on 
the same basis and no different from or less advantageous than that of 
other participants. Applicants submit that the proposed transactions 
meet the standards for an order under rule 17d-1.

II. Interfund Transactions

    1. Applicants state that the Participating Funds and Central Funds 
currently rely on rule 17a-7 under the Act to conduct Interfund 
Transactions. Rule 17a-7 under the Act provides an exemption from 
section 17(a) for a purchase or sale of certain securities between a 
registered investment company and an affiliated person (or an 
affiliated person of an affiliated person), provided that certain 
conditions are met, including that the affiliation between the 
registered investment company and the affiliated person (or an 
affiliated person of the affiliated person) must exist solely by reason 
of having a common investment adviser, common directors and/or common 
officers. Applicants state that the Participating Funds and Central 
Funds may not be able to rely on rule 17a-7 when purchasing or selling 
portfolio securities to each other, because some of the Participating 
Funds may own 5% or more of the outstanding voting securities of a 
Central Fund and, therefore, an affiliation would not exist solely by 
reason of such Participating Fund and such Central Fund having a common 
investment adviser, common directors and/or common officers.
    2. Applicants request relief under sections 6(c) and 17(b) of the 
Act to permit the Interfund Transactions. The Interfund Transactions 
for which relief is requested are transactions between Non-Registered 
Central Funds and Registered Participating Funds or between Registered 
Central Funds and Non-Registered Participating Funds. Applicants submit 
that the requested relief satisfies the standards for relief in 
sections 6(c) and 17(b). Applicants state that the requirements set 
forth in rule 17a-(a) through (g) under the Act will be met. Applicants 
state that the additional affiliation created under sections 2(a)(3)(A) 
and (B) does not affect the other protections provided by rule 17a-7, 
including the integrity of the pricing mechanism employed and oversight 
by each Fund's Board.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Shares of the Central Funds sold to and redeemed by the 
Participating Funds will not be subject to a sales load, redemption 
fee, asset-based sales charge or service fee under a plan 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).
    2. Before the next meeting of the Board of a Registered 
Participating Fund that invests in the Central Fund is held for the 
purpose of voting on an advisory contract under section 15 of the Act, 
the Adviser will provide the Board with such information as the Board 
may request to evaluate the effect of the investment of Uninvested Cash 
in the Central Funds upon the direct and indirect compensation to the 
Adviser. Such information will include specific information regarding 
the approximate costs to the Adviser of, or portion of the advisory fee 
under the existing advisory contract attributable to, managing the 
Uninvested Cash of the Registered Participating Fund that can be 
expected to be invested in the Central Funds. In connection with 
approving any advisory contract for a Registered Participating Fund, 
the Registered Participating Fund's Board, including a majority of the 
Independent Trustees, shall consider to what extent, if any, the 
advisory fees charged to the Registered Participating Fund by the 
Adviser should be reduced to account for reduced services provided to 
the Registered Participating Fund by the Adviser as a result of the 
Uninvested Cash being invested in the Central Funds. The minute books 
of the Registered Participating Fund will record fully the Board's 
consideration in approving the advisory contact, including the 
considerations relating to fees referred to above.
    3. Each Registered Participating Fund will invest Uninvested Cash 
in, and hold shares of, the Central Funds only

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to the extent that the Registered Participating Fund's aggregate 
investment of Uninvested Cash in the Central Funds does not exceed the 
greater of 25% of the Registered Participating Fund's total assets or 
$10 million.
    4. Investment by a Registered Participating Fund in shares of the 
Central Funds will be in accordance with the Registered Participating 
Fund's investment restrictions and will be consistent with the 
Registered Participating Fund's investment policies as set forth in its 
prospectus and statement of additional information.
    5. Each Fund that may rely on the order shall be advised by the 
Adviser.
    6. No Central 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.
    7. The Non-Registered Central Funds will comply with the 
requirements of sections 17(a), (d), and (e) and 18 of the Act as if 
the Non-Registered Central Funds were registered open-end investment 
companies. With respect to all redemption requests made by a 
Participating Fund, the Non-Registered Central Funds will comply with 
section 22(e) of the Act. The Adviser will adopt procedures designed to 
ensure that each Non-Registered Central Fund complies with sections 
17(a), (d), and (e), 18 and 22(e) of the Act. The Adviser will also 
periodically review and update, as appropriate, the procedures and will 
maintain books and records describing such procedures, and 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 made pursuant to 
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.
    8. Each Non-Registered Central Fund will comply with rule 2a-7 
under the Act. With respect to each such Non-Registered Central Fund, 
the Adviser will adopt and monitor the procedures described in rule 2a-
7(c)(7) under the Act and will take such other actions as are required 
to be taken under those procedures. A Registered Participating Fund may 
only purchase shares of a Non-Registered Central Fund if the Adviser 
determines on an ongoing basis that the Non-Registered Central Fund is 
in compliance with rule 2a-7. The Adviser will preserve for a period 
not less than 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.
    9. Each Participating Fund will purchase and redeem shares of any 
Non-Registered Central 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 Non-Registered Central 
Fund. A separate account will be established in the shareholder records 
for each Non-Registered Central Fund for the account of each 
Participating Fund that invests in such Non-Registered Central Fund.
    10. To engage in Interfund Transactions, the Funds and the Non-
Registered Funds will comply with rule 17a-7 under the Act in all 
respects other than the requirement that the parties to the transaction 
be affiliated persons (or affiliated persons of affiliated persons) of 
each other solely by reason of having a common investment adviser or 
investment advisers which are affiliated persons of each other, common 
officers, and/or common directors, solely because a Participating Fund 
and a Central Fund might become affiliated persons within the meaning 
of section 2(a)(3)(A) and (B) of the Act.
    11. Before a Registered Participating Fund may participate in the 
Securities Lending Program, a majority of the Board (including a 
majority of the Independent Trustees) will approve the Registered 
Participating Fund's participation in the Securities Lending Program. 
No less frequently than annually, the Board also will evaluate, with 
respect to each Registered Participating Fund, any securities lending 
arrangement and its results and determine that any investment of Cash 
Collateral in the Central Funds is in the best interest of the 
Registered Participating Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1213 Filed 3-18-05; 8:45 am]
BILLING CODE 8010-01-P