[Federal Register Volume 59, Number 179 (Friday, September 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22974]


[[Page Unknown]]

[Federal Register: September 16, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20544; File No. 812-9066]

 

Composite Bond & Stock Fund, Inc.; Notice of Application

September 12, 1994.
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: Composite Bond & Stock Fund, Inc., Composite Growth Fund, 
Inc., Composite Northwest 50 Fund, Inc., Composite U.S. Government 
Securities, Inc., Composite Income Fund, Inc., Composite Tax-Exempt 
Bond Fund, Inc., Composite Cash Management Company, Composite Deferred 
Series, Inc. (collectively, the ``Funds''), and Composite Research & 
Management Co. (the ``Adviser'').

RELEVANT ACT SECTIONS: Order requested under section 17(d) of the Act 
and rule 17d-1 thereunder.

SUMMARY OF APPLICATION: Applicants request an order to permit the Funds 
to pool uninvested cash in joint accounts and invest the cash in short-
term repurchase agreements and commercial paper.

FILING DATE: The application was filed on June 24, 1994, and was 
amended on September 6, 1994.

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 October 7, 1994, 
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 reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, N.W., Washington, D.C. 20549. The Funds: 601 West Main Avenue, 
Suite 801, Spokane, WA 99201-0613. The Adviser: 1201 Third Avenue, 12th 
Floor, Seattle, WA 98101.

FOR FURTHER INFORMATION CONTACT:
Bradley W. Paulson, Staff Attorney, at (202) 942-0147 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 is available for a fee from the 
SEC's Public Reference Branch.

APPLICANT'S REPRESENTATIONS: 
    1. Each Fund is a registered open-end management investment 
company. The Funds and any series thereof are collectively referred to 
as ``Portfolios.'' The Adviser provides investment advisory and 
management services to the Portfolios, Murphey Favre Securities 
Services, Inc. provides administrative services to the Portfolios, and 
Investors Fiduciary Trust Company (the ``Custodian'') is the 
Portfolios' custodian. Applicants request relief for themselves, future 
series of the Funds, and all other registered management investment 
companies and series thereof that in the future are advised by the 
Adviser.
    2. At the end of each trading day, most of the Portfolios usually 
have uninvested cash balances in their accounts at the Custodian. 
Applicants request an order to permit the Portfolios to deposit some or 
all of their uninvested cash in a single joint account. The cash in the 
account then would be invested in short-term repurchase agreements and 
commercial paper.
    3. The joint account would enter into repurchase agreements 
collateralized only by U.S. Government or agency securities. Each 
repurchase agreement investment would satisfy the investment criteria 
of any Portfolio participating in such investment. The joint repurchase 
transactions will be effected in accordance with Investment Company Act 
Release No. 13005 (Feb. 2, 1983) and with other existing and future 
positions the Commission or its staff may take by rule, interpretive 
release, no-action letter, release adopting any new rule, release 
adopting any amendments to any existing rule, or otherwise.
    4. The joint account also would invest in interest bearing or 
discounted commercial paper. All commercial paper purchased by the 
joint account will be a ``First-Tier security'' as defined in rule 2a-7 
under the Act. Each commercial paper investment also would satisfy the 
investment criteria of any Portfolio participating in such investment. 
As with repurchase agreements, applicants acknowledge they have an 
obligation to monitor published statements of the SEC on commercial 
paper transactions, and in the event the SEC sets forth guidelines with 
respect to commercial paper, each Portfolio participating in commercial 
paper transactions made through the joint account will conform its 
investments to such guidelines and will adopt any appropriate standards 
and guidelines.
    5. The Adviser would decide whether to invest cash balances in the 
joint account in repurchase agreements and/or commercial paper. The 
joint account may invest in more than one repurchase agreement or 
commercial paper instrument. Each Portfolio participating in the joint 
account would not necessarily have its cash balances invested in every 
repurchase agreement or commercial paper instrument purchased through 
the joint account: Certain Portfolios' investment restrictions may 
preclude their participation in a given repurchase agreement or 
commercial paper instrument. Moreover, some Portfolios' cash balances 
may become available too late in the day to be included in repurchase 
agreements that already have been negotiated.
    6. The directors of each Fund have considered the proposed joint 
account and determined that participation in the joint account would 
benefit each participating Portfolio. Although the Adviser will gain 
some benefit through administrative convenience and a possible 
reduction in clerical costs, the primary beneficiaries will be the 
Portfolios because the joint account will be a more efficient way of 
administering investment transactions.

Applicants' Analysis:

    1. Section 17(d) of the Act makes it unlawful for an affiliated 
person of a registered investment company, acting as principal, to 
effect any transaction in which the registered investment company is a 
joint or a joint and several participant with such person in 
contravention of rules and regulations proscribed by the SEC. Rule 17d-
1(a) provides that an affiliated person of a registered investment 
company, acting as principal, shall not participate in, or effect any 
transaction in connection with, any joint enterprise or other joint 
arrangement in which the registered investment company is a participant 
unless the SEC has issued an order approving the arrangement.
    2. Each Portfolio, by participating in the proposed account, and 
the Adviser, by managing the proposed account, may be joint 
participants in a transaction within the meaning of section 17(d), and 
the proposed account may constitute a joint enterprise or other type of 
joint arrangement within the meaning of rule 17d-1. Furthermore, each 
applicant may be an affiliated person of each other applicant.
    3. Although not every Portfolio participating in the joint account 
will have an interest in every instrument purchased through the joint 
account, to the extent a Portfolio has an interest in a particular 
repurchase agreement or commercial paper instrument, its interest will 
be proportionate to its cash contribution to the purchase price of such 
repurchase agreement or commercial paper instrument, and will be 
computed on the same basis as every other participant in such 
repurchase agreement or commercial paper instrument. Accordingly, 
applicants believe that the requested order is consistent with the 
provisions, policies, and purposes of the Act.
    4. Applicants also believe that the proposed joint account 
arrangement could result in the following significant benefits for the 
Portfolios: (a) an increase of approximately 0.5% in the annual rate of 
return on the Portfolios' short-term investments in repurchase 
agreements; (b) an increased ability to invest funds that otherwise 
might not be invested; and (c) an enhanced ability to negotiate 
reductions in transaction fees.
    5. Applicants believe that the method of operating the joint 
account would not result in any conflicts of interest between any of 
the Portfolios or between any Portfolio and the Adviser, and that the 
operation of the joint account would be free of any inherent bias 
favoring one Portfolio over another.

Applicants' Conditions:

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions.
    1. A separate custodial cash account at the Custodian will be 
established for the joint account into which each Portfolio may deposit 
uninvested cash balances at the end of each trading day. The joint 
account will not be distinguishable from other accounts maintained by 
any Portfolio with the Custodian except that monies of the Portfolios 
will be commingled. The account will not have any separate existence 
with indicia of a separate legal entity. The sole function of the 
custodial joint account will be to provide a convenient way of 
aggregating individual transactions necessary for management of the 
Portfolios' respective daily uninvested cash balances.
    2. Cash in the joint account will be invested in one or more 
repurchase agreement transactions and/or commercial paper transactions. 
All repurchase agreement and commercial paper transactions will have, 
with rare exceptions, an overnight, over-the-weekend, or over-the-
holiday maturity, and in no even will have a maturity of more than 
seven days.
    3. Each Portfolio will participate in a given investment through 
the joint account only to the extent consistent with its investment 
objectives, policies and restrictions.
    4. The Adviser and the custodian will maintain records (in 
conformity with section 31 of the Act and rules and regulations 
thereunder) documenting, for any given day, such Portfolio's aggregate 
investment in the joint account and its pro rata share of each 
investment made through the joint account in which it participates.
    5. Repurchase agreements will be ``collateralized fully'' as 
defined in rule 2a-7 under the Act and satisfy the uniform standards 
set by the Portfolios for such investments. The securities subject to 
the repurchase agreement will be transferred to the Portfolio, the 
Portfolio's custodian, or a third party that qualifies as a custodian 
under the Act. The securities will not be held by the Portfolios' 
repurchase counterparty or by an affiliated person of that 
counterparty.
    6. Each Portfolio relying upon rule 2a-7 for valuation of its net 
assets based on amortized cost will use the average maturity of the 
repurchase agreements purchased by the Portfolio participating in the 
account when computing the Portfolio's average portfolio maturity with 
respect to the portion of its assets held in such account on that day.
    7. No Portfolio will be allowed to create a negative balance in the 
joint account for any reason, although it will be permitted to draw 
down its entire balance at any time. Each Portfolio's decision to 
invest in the joint account or in any given investment made through the 
joint account will be solely at its option. Nor Portfolio will be 
obligated either to invest in the joint account or in any given 
investment in the joint account or to maintain any minimum balance in 
the joint account.
    8. The Adviser will administer the investment of the cash balances 
in and operation of the joint account as part of its duties under the 
general terms of each Portfolio's existing or any future investment 
advisory contract and will not collect any additional or separate fees 
for the management of the joint account.
    9. The administration of the joint account would be within the 
fidelity bond coverage required by section 17(g) of the Act and rule 
17g-1 thereunder.
    10. Each Fund participating in the joint account will adopt 
procedures pursuant to which the joint account will operate, which will 
be reasonably designed to provide that the requirements of the 
application will be met. The directors of each Fund will make and 
approve changes they deem necessary to ensure that such procedures are 
followed. In addition, the directors of each Fund will determine, no 
less frequently than annually, whether the joint account has been 
operated in accordance with such procedures.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-22974 Filed 9-15-94; 8:45 am]
BILLING CODE 8010-01-M