[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