[Federal Register Volume 60, Number 244 (Wednesday, December 20, 1995)]
[Notices]
[Pages 65716-65718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30859]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21598; 812-9762]
The One Hundred Fund, Inc., et al.; Notice of Application
December 13, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: The One Hundred Fund, Inc., dba Berger 100 Fund (the ``100
Fund''), Berger One Hundred and One
[[Page 65717]]
Fund, Inc. (the ``101 Fund''), and Berger Investment Portfolio Trust
(the ``Trust'') (collectively, the ``Funds''), and Berger Associates,
Inc. (``BAI'').
RELEVANT ACTION SECTIONS: Order requested under section 6(c) of the Act
for an exemption from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f), and
22(g) of the Act; and under sections 6(c) and 17(b) of the Act for an
exemption from section 17(a)(1) of the Act; and pursuant to section
17(d) of the Act and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the applicant investment companies to enter into deferred compensation
arrangements with their independent directors.
FILING DATES: The application was filed on September 13, 1995 and
amended on November 30, 1995. Applicant's counsel has stated in a
letter dated December 12, 1995 that an amendment, the substance of
which is incorporated herein, will be filed during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on January 8, 1996
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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 210 University Boulevard, Denver, Colorado 80206.
FOR FURTHER INFORMATION CONTACT: David W. Grim, Law Clerk, at (202)
942-0571, or Robert A. Robertson, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. Each of the Funds is a registered open-end management investment
company. BAI serves as the investment adviser to each of the Funds.
Applicants request that the exemption also apply to any registered
open-end investment company for which BAI, or any entity under common
control with or controlled by BAI, subsequently serves as investment
adviser.
2. Each Fund has a board of trustees or board of directors. Each
board has ten members, eight of whom are not ``interested persons''
within the meaning of section 2(a)(19) of the Act (``independent
directors''). Each independent director receives an annual fee plus a
meeting attendance fee. No director who is an interested person of a
Fund receives any remuneration from such Fund.
3. Applicants request relief so that the Funds may offer their
independent directors deferred compensation plans (each, a ``Plan'').
Each Fund's Plan will be administered by its board or by such person or
persons as the board may designate to carry out administrative
functions under the Plan (the ``Administrator''). Each Plan would
permit independent directors of a Fund annually to elect to defer
receipt of all or a portion of their fees. This election would enable
the independent directors to defer payment of income taxes on such
fees.
4. Under the Plans, the Administrator shall maintain a book entry
account (an ``Account'') with respect to each deferral election by an
independent director and shall credit to that Account an amount equal
to all compensation deferred by the independent director under such
election, as of the date such fees would have been paid to such
independent director absent such deferral. The value of an Account will
be equal to the value such account would have had if the amount
credited to it had been invested and reinvested in certain designated
securities (the ``Designated Shares''). The Designated Shares for an
Account will be shares of one or more of the Funds or a money market
fund approved by the board of the Fund on which such independent
director serves (the ``Investment Funds''), as designated by the
participating independent director. The money market fund currently
proposed to be included as an Investment Fund is the Cash Account
Trust, for which Kemper Financial Services, Inc. acts as investment
adviser, and for which BAI provides sub-administration services. The
Cash Account Trust is not an ``affiliated person'' of the Funds, as
such term is defined in section 2(a)(3) of the Act. Each Account shall
be credited or charged with book adjustments representing all interest,
dividends, and other earnings and all gains and losses that would have
been realized had such account been invested in the Underlying Shares.
5. The amounts paid to the independent directors under the Plans
are expected to be insignificant in comparison to the total net assets
of the Funds. Each Plan provides that a Fund's obligation to make
payments from an Account will be a general obligation of the Fund and
payments made pursuant to each Plan will be made from the Fund's
general assets and property. With respect to the obligations created
under the Plans, the relationship of an independent director to a Fund
will be that of a general unsecured creditor.
6. The Plans do not create an obligation of a Fund to any
independent director of a Fund to purchase, hold, or dispose of any
investments. if a Fund should choose to purchase investments in order
to cover its obligations under a proposed Plan, any and all such
investments will continue to be part of the general assets and property
of such Fund. In this regard, a Fund may purchase its own shares or the
shares of any other Investment Fund to cover its obligations.
7. Under the Plans, an independent director may specify that his or
her deferred fees be distributed in whole or in part commencing on (a)
a date at least five years following the deferral election, or (b) the
date on which the independent director ceases to be a member of the
board, but not later than such cessation date. Deferred payments will
be made in a lump sum or in monthly or quarterly installments over a
period not to exceed ten years, as elected by the independent director.
In the event of the independent director's death, amounts payable under
a Plan will be payable to his or her designated beneficiary, or, in the
absence of such a beneficiary, to his or her estate. In all other
events, the independent director's right to receive payments cannot be
transferred, assigned, pledged, subjected to garnishment or otherwise
alienated.
8. The Plans will not obligate any Fund to retain the services of
an independent director, nor will they obligate any Fund to pay any (or
any particular level of) director's fees to any director.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f), and 22(g)
of the Act to permit the Funds to enter into deferred fee arrangements
with their independent directors; under sections 6(c) and 17(b) of the
Act for an exemption from section 17(a)(1) to permit the Investment
Funds to sell securities issued by them to
[[Page 65718]]
participating Funds; and pursuant to section 17(d) of the Act and rule
17d-1 thereunder to permit the Funds to engage in certain joint
transactions incident to such deferred fee arrangements.
2. Section 6(c) provides that the SEC may exempt any person,
security, or transaction from any provision of the Act, if and to the
extent that 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.
3. Section 18(f)(1) generally prohibits a registered open-end
investment company from issuing senior securities. Section 13(a)(2)
requires that a registered investment company obtain shareholder
authorization before issuing any senior security not contemplated by
the recitals of policy in its registration statement. The Plans would
result in the issuance of a senior security only if it was an
obligation or instrument ``similar'' to a bond, debenture or note, and
it evidenced indebtedness. In any event, applicants state that the
Plans possess none of the characteristics of senior securities that led
Congress to enact these sections. The Plans would not confused
investors, make it difficult for them to value their shares or convey a
false impression of safety. Further, the Plans would not be
inconsistent with the theory of mutuality of risk.
4. Section 22(f) prohibits undisclosed restrictions on the
transferability or negotiability of redeemable securities issued by
open-end investment companies. The Plans would set forth any
restrictions on transferability or negotiability, and such restrictions
are primarily to benefit the participating directors and would not
adversely affect the interests of the independent directors or of any
Fund shareholder.
5. Section 22(g) prohibits registered open-end investment companies
from issuing any of their securities for services or for property other
than cash or securities. These provisions prevent the dilution of
equity and voting power that may result when securities are issued for
consideration that is not readily valued. Applicants believe that the
Plans would provide for deferral of payment of fees and thus should be
viewed as being issued not in return for services but in return for a
Fund not being required to pay such fees on a current basis.
6. Section 13(a)(3) provides that no registered investment company
shall, unless authorized by the vote of a majority of its outstanding
voting securities, deviate from any investment policy that is
changeable only if authorized by shareholder vote. Each of the existing
Funds has limitations on its ability to purchase securities issued by
other investment companies. Any relief granted from section 13(a)(3)
would extend only to the existing Funds. Applicants believe that an
exemption is appropriate to enable the existing Funds to invest in
Designated Shares without a shareholder vote. Applicants will provide
notice to shareholders of the deferred fee arrangements with the
independent directors in their registration statements. The value of
the Designated Shares will be de minimis in relation to the total net
assets of the respective Fund. Changes in the value of the Designated
Shares will not affect the value of shareholders' investments.
Applicants believe that permitting the Funds to invest in Designated
Shares without shareholder approval, therefore, would result in no harm
to shareholders.
7. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company from selling any security to such
registered investment company, except in limited circumstances. Funds
that are advised by the same entity may be ``affiliated persons'' of
one another by reason of being under the common control of their
adviser. Applicants believe that an exemption from this provision would
not implicate Congress' concerns in enacting the section, but would
facilitate the matching of each Fund's liability for deferred
directors' fees with the Designated Shares that would determine the
amount of such Fund's liability.
8. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) The
terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching; (b)
the transaction is consistent with the policy of each registered
investment company concerned; and (c) the transaction is consistent
with the general purposes of the Act. Because section 17(b) may apply
only to a specific proposed transaction, applicants also request an
order under section 6(c) so that relief will apply to a class of
transactions. Applicants believe that the proposed transactions satisfy
the criteria of sections 6(c) and 17(b).
9. Section 17(d) of the Act prohibits affiliated persons from
participating in joint transactions with a registered investment
company in contravention of rules and regulations prescribed by the
SEC. Rule 17d-1 under the Act prohibits affiliated persons of a
registered investment company from entering into joint transactions
with the investment company unless the SEC has granted an order
permitting the transaction after considering whether the participation
of such investment company is consistent with the provisions, policies,
and purposes of the Act and the extent to which such participation is
on a basis different from or less advantageous than that of other
participants. Under the Plans, participating independent directors
would not receive a benefit that otherwise would inure to a Fund or its
shareholders. The effect of the Plans is to defer the payment of
compensation that a Fund otherwise would be obligated to pay on a
current basis as services are performed by its independent directors.
Applicants also believe that the Funds' ability to recruit and retain
highly qualified independent directors would be enhanced if they were
able to offer their independent directors the option of deferred
payment of their directors' fees.
Applicants' Condition
Applicants agree that the order granting the requested relief shall
be subject to the following condition:
1. If a Fund purchases Designated Shares issued by itself, an
affiliated Fund, or any other fund which has been approved as an
Investment Fund, the purchasing Fund will vote such shares in
proportion to the votes of all other holders of shares of such Fund,
affiliated Fund, or other Investment Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-30859 Filed 12-19-95; 8:45 am]
BILLING CODE 8010-01-M