[Federal Register Volume 72, Number 86 (Friday, May 4, 2007)]
[Notices]
[Pages 25346-25348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-8506]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27807; 812-13286]


Old Westbury Funds, Inc. and Bessemer Investment Management LLC; 
Notice of Application

April 27, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 15(a) of the Act and rule 18f-2 under the Act, as well as from 
certain disclosure requirements.

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Applicants: Old Westbury Funds, Inc. (the ``Corporation'') and Bessemer 
Investment Management LLC (the ``Adviser'').

Filing Dates: The application was filed on April 24, 2006, and amended 
on April 26, 2007.

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 May 22, 2007, 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, U.S. Securities & Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090; Applicants, c/o Robert M. 
Kurucza, Morrison & Foerster LLP, 2000 Pennsylvania Avenue, NW., Suite 
5500, Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817 or Julia Kim Gilmer, 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, 100 F Street, NE., Washington, DC 
20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. The Corporation, a Maryland corporation, is registered under the 
Act as an open-end management investment company. The Corporation 
currently is comprised of seven series (each a ``Fund'' and 
collectively, the ``Funds''), each with separate investment

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objectives, policies and restrictions.\1\ The Adviser is registered as 
an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and serves as investment adviser to each of the 
Funds pursuant to an investment advisory agreement (``Advisory 
Agreement'') with the Corporation. The Advisory Agreement has been 
approved by the Corporation's board of directors (the ``Board''), 
including a majority of the directors who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, of the 
Corporation or the Adviser (``Independent Directors''), as well as by 
the shareholders of each Fund.
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    \1\ Applicants also request relief with respect to future series 
of the Corporation and any other existing or future registered open-
end management investment company or series thereof that: (a) Is 
advised by the Adviser, (b) uses the management structure described 
in the application; and (c) complies with the terms and conditions 
of the application (included in the term ``Funds''). The only 
existing registered open-end management investment company that 
currently intends to rely on the requested order is named as an 
applicant. All references to the term ``Adviser'' include: (a) the 
Adviser, and (b) any entity controlling, controlled by, or under 
common control with the Adviser. If the name of any Fund contains 
the name of a Subadviser (as defined below), the name of the Adviser 
will precede the name of the Subadviser.
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    2. Under the terms of the Advisory Agreement, the Adviser provides 
investment advisory services to each Fund, supervises the investment 
program for each Fund, and has the authority, subject to Board 
approval, to enter into investment subadvisory agreements 
(``Subadvisory Agreements'') with one or more subadvisers 
(``Subadvisers''). Each Subadviser is registered under the Advisers 
Act. The Adviser monitors and evaluates the Subadvisers and recommends 
to the Board their hiring, retention or termination. Subadvisers 
recommended to the Board by the Adviser are selected and approved by 
the Board, including a majority of the Independent Directors. Each 
Subadviser has discretionary authority to invest the assets or a 
portion of the assets of a particular Fund. The Adviser compensates 
each Subadviser out of the fees paid to the Adviser under the Advisory 
Agreement.
    3. Applicants request an order to permit the Adviser, subject to 
Board approval, to enter into and materially amend Subadvisory 
Agreements without obtaining shareholder approval. The requested relief 
will not extend to any Subadviser that is an affiliated person, as 
defined in section 2(a)(3) of the Act, of the Corporation or of the 
Adviser, other than by reason of serving as a Subadviser to one or more 
of the Funds (``Affiliated Sub-Adviser'').
    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require a Fund to disclose fees 
paid by the Adviser to each Subadviser. An exemption is requested to 
permit the Corporation to disclose for each Fund (as both a dollar 
amount and as a percentage of each Fund's net assets): (a) The 
aggregate fees paid to the Adviser and any Affiliated Subadvisers; and 
(b) the aggregate fees paid to Subadvisers other than Affiliated 
Subadvisers (collectively ``Aggregate Fee Disclosure''). For any Fund 
that employs an Affiliated Subadviser, the Fund will provide separate 
disclosure of any fees paid to the Affiliated Subadviser.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except under a written contract that has been 
approved by the vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series company affected by a matter must approve such 
matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 14(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``1934 Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    4. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
their investment advisers, including the Subadvisers.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    6. Section 6(c) 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 the Act, or 
from any rule thereunder, 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. Applicants state that their requested relief meets this standard 
for the reasons discussed below.
    7. Applicants assert that the shareholders are relying on the 
Adviser's experience to select the Subadviser best suited to achieve a 
Fund's investment objectives. Applicants assert that, from the 
perspective of the investor, the role of the Subadvisers is comparable 
to that of the individual portfolio managers employed by traditional 
investment company advisory firms. Applicants state that requiring 
shareholder approval of each Subadvisory Agreement would impose costs 
and unnecessary delays on the Funds, and may preclude the Adviser from 
acting promptly in a manner considered advisable by the Board. 
Applicants note that the Advisory Agreement and any Subadvisory 
Agreement with an Affiliated Subadviser will remain subject to section 
15(a) of the Act and rule 18f-2 under the Act.
    8. Applicants assert that some Subadvisers use a ``posted'' rate 
schedule to set their fees. Applicants state that while Subadvisers are 
willing to negotiate fees that are lower than those posted on the 
schedule, they are reluctant to do so where the fees are disclosed to 
other prospective and existing customers. Applicants submit that the 
requested relief will benefit Fund shareholders because it would 
improve the Adviser's ability to negotiate the fees paid to the 
Subadvisers.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Fund may rely on the order requested in the 
application, the operation of the Fund in the manner described in the 
application will be approved by a majority of the Fund's outstanding 
voting securities, as defined

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in the Act, or, in the case of a Fund whose public shareholders 
purchased shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the sole initial shareholder 
before offering the Fund's shares to the public.
    2. Each Fund will disclose in its prospectus the existence, 
substance, and effect of any order granted pursuant to the application. 
In addition, each Fund will hold itself out to the public as employing 
the management structure described in the application. The prospectus 
will prominently disclose that the Adviser has ultimate responsibility, 
subject to oversight by the Board, to oversee Subadvisers and recommend 
their hiring, termination, and replacement.
    3. Within 90 days of the hiring of a new Subadviser, the affected 
Fund shareholders will be furnished all the information about the new 
Subadviser that would be included in a proxy statement, except as 
modified to permit Aggregate Fee Disclosure. This information will 
include Aggregate Fee Disclosure and any change in such disclosure 
caused by the addition of the new Subadviser. To meet this obligation, 
the Fund will provide shareholders within 90 days of the hiring of a 
new Subadviser with an information statement meeting the requirements 
of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the 
1934 Act, except as modified by the order to permit Aggregate Fee 
Disclosure.
    4. The Adviser will not enter into a Subadvisory Agreement with any 
Affiliated Subadviser without that agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    5. At all times, at least a majority of the Board will be 
Independent Directors, and the nomination of new or additional 
Independent Directors will be placed within the discretion of the then-
existing Independent Directors.
    6. When a Subadviser change is proposed for a Fund with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Directors, will make a separate finding, reflected in the 
Board minutes, that the change is in the best interests of the Fund and 
its shareholders and does not involve a conflict of interest from which 
the Adviser or the Affiliated Subadviser derives an inappropriate 
advantage.
    7. The Adviser will provide general management services to each 
Fund, including overall supervisory responsibility for the general 
management and investment of the Fund's assets, and, subject to review 
and approval of the Board, will: (a) Set each Fund's overall investment 
strategies, (b) evaluate, select and recommend Subadvisers to manage 
all or a part of a Fund's assets, (c) allocate and, when appropriate, 
reallocate a Fund's assets among multiple Subadvisers; (d) monitor and 
evaluate the performance of the Subadvisers, and (e) implement 
procedures reasonably designed to ensure that the Subadvisers comply 
with each relevant Fund's investment objective, policies and 
restrictions.
    8. No director or officer of the Funds or the Adviser, will own 
directly or indirectly (other than through a pooled investment vehicle 
that is not controlled by such person), any interest in a Subadviser, 
except for: (a) ownership of interests in the Adviser or any entity 
that controls, is controlled by, or is under common control with the 
Adviser, or (b) ownership of less than 1% of the outstanding securities 
of any class of equity or debt of a publicly traded company that is 
either a Subadviser or an entity that controls, is controlled by, or is 
under common control with a Subadviser.
    9. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the Adviser's profitability on a per-
Fund basis. Such information will reflect the impact on the 
profitability of the hiring or termination of any Subadviser during the 
applicable quarter.
    10. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    11. The requested order will expire on the effective date of rule 
15a-5 under the Act, if adopted.
    12. Whenever a Subadviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
Adviser's profitability.
    13. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the 1940 Act, will be engaged to represent the Independent Directors. 
The selection of such counsel will be within the discretion of the then 
existing Independent Directors.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-8506 Filed 5-3-07; 8:45 am]
BILLING CODE 8010-01-P