[Federal Register Volume 62, Number 132 (Thursday, July 10, 1997)]
[Notices]
[Pages 37088-37093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17989]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22732; 812-10580]


Reserve Investment Funds, Inc., et al., Notice of Application

July 2, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (the ``Act'').

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APPLICANTS: Reserve Investment Funds, Inc., T. Rowe Price Balanced 
Fund, Inc., T. Rowe Price Blue Chip Growth Fund, Inc., T. Rowe Price 
Capital Appreciation Fund, T. Rowe Price Capital Opportunity Fund, 
Inc., T. Rowe Price Dividend Growth Fund, Inc., T. Rowe Price Equity 
Income Fund, T. Rowe Price Equity Series, Inc., T. Rowe Price Equity 
Income Portfolio, T. Rowe Price Mid-Cap Growth Portfolio, T. Rowe Price 
New America Growth Portfolio, T. Rowe Price Personal Strategy Balanced 
Portfolio, T. Rowe Price Financial Services Fund, Inc., T. Rowe Price 
Growth & Income Fund, Inc., T. Rowe Price Growth Stock Fund, Inc., T. 
Rowe Price Health Sciences Fund, Inc., T. Rowe Price Index Trust, Inc., 
T. Rowe Price Equity Index Fund, Institutional Equity Fund, Inc., Mid-
Cap Equity Growth Fund, Institutional International Funds, Inc., 
Foreign Equity Fund, T. Rowe Price International Fund, Inc., T. Rowe 
Price International Discovery Fund, T. Rowe Price International Stock 
Fund, T. Rowe Price European Stock Fund, T. Rowe Price New Asia Fund, 
T. Rowe Price Japan Fund, T. Rowe Price Latin America Fund, T. Rowe 
Price Emerging Markets Stock Fund, T. Rowe Price Global Stock Fund, T. 
Rowe Price International Bond Fund, T. Rowe Price Global Government 
Bond Fund, T. Rowe Price Emerging Markets Bond Fund, T. Rowe Price 
International Series, Inc., T. Rowe Price International Stock 
Portfolio, T. Rowe Price Mid-Cap Growth Fund, Inc., T. Rowe Price Mid-
Cap Value Fund, Inc., T. Rowe Price New America Growth Fund, T. Rowe 
Price New Era Fund, Inc., T. Rowe Price New Horizons Fund, Inc., T. 
Rowe Price OTC Fund, Inc., T. Rowe Price OTC Fund, T. Rowe Price 
Science & Technology Fund, Inc., T. Rowe Price Small-Cap Value Fund, 
Inc., T. Rowe Price Spectrum Fund, Inc., Spectrum Growth Fund, Spectrum 
Income Fund, Spectrum International Fund, T. Rowe Price Value Fund, 
Inc., New Age Media Fund, Inc., T. Rowe Price California Tax-Free 
Income Trust, California Tax-Free Bond Fund, California Tax-Free Money 
Fund, T. Rowe Price Corporate Income Fund, Inc., T. Rowe Price Fixed 
Income Series, Inc., T. Rowe Price Limited-Term Bond Portfolio, T. Rowe 
Price Prime Reserve Portfolio, T. Rowe Price GNMA Fund, T. Rowe Price 
High Yield Fund, Inc., T. Rowe Price New Income Fund, Inc., T. Rowe 
Price Personal Strategy Fund, Inc., T. Rowe Price Personal Strategy 
Balanced Fund, T. Rowe Price Personal Strategy Growth

[[Page 37089]]

Fund, T. Rowe Price Personal Strategy Income Fund, T. Rowe Price Prime 
Reserve Fund, Inc., T. Rowe Price Short-Term Bond Fund, Inc., T. Rowe 
Price Short-Term U.S. Government Fund, Inc., (formerly known as T. Rowe 
Price Adjustable Rate U.S. Government Fund, Inc.), T. Rowe Price State 
Tax-Free Income Trust, Maryland Tax-Free BondFund, Maryland Short-Term 
Tax-Free Bond Fund, New York Tax-Free Bond Fund, New York Tax-Free 
Money Fund, Virginia Tax-Free Bond Fund, Virginia Short-Term Tax-Free 
Bond Fund, New Jersey Tax-Free Bond Fund, Georgia Tax-Free Bond Fund, 
Florida Insured Intermediate Tax-Free Fund, T. Rowe Price Summit Funds, 
Inc., T. Rowe Price Summit Cash Reserves Fund, T. Rowe Price Summit 
Limited-Term Bond Fund, T. Rowe Price Summit GNMA Fund, T. Rowe Price 
Summit Municipal Funds, Inc., T. Rowe Price Summit Municipal Money 
Market Fund, T. Rowe Price Summit Municipal Intermediate Fund, T. Rowe 
Price Summit Municipal Income Fund, T. Rowe Price Tax-Exempt Money 
Fund, Inc., T. Rowe Price Tax-Free High Yield Fund Inc., T. Rowe Price 
Tax-Free Income Fund, Inc., T. Rowe Price Tax-Free Insured Intermediate 
Bond Fund, Inc., T. Rowe Price Tax-Free Short-Intermediate Fund, Inc., 
T. Rowe Price U.S. Treasury Funds, Inc., U.S. Treasury Intermediate 
Fund, U.S. Treasury Long-Term Fund, U.S. Treasury Money Fund, T. Rowe 
Price Associates, Inc. (``T. Rowe Price''), Rowe Price-Fleming 
International, Inc. (``Price-Fleming''), each fund and all other 
registered investment companies and series thereof that are advised by 
T. Rowe Price or Price-Fleming or a person controlling, controlled by, 
or under common control with T. Rowe Price or Price-Fleming 
(collectively, the ``Adviser''), and all other registered investment 
companies and series thereof for which the Adviser in the future acts 
as investment adviser (collectively, the ``Price Funds''); T. Rowe 
Price Trust Company (``Trust Company''); collective trust funds, the 
trustee for which, or in the future the trustee for which, is Trust 
Company or the Adviser that are excepted from the definition of 
investment company by section 3(c)(11) of the Act (the ``3(c)(11) 
Entities''); institutional and individual managed accounts advised by 
the Adviser (``Institutional Accounts'') \1\ (collectively, the Price 
Funds, the 3(c)(11) Entities, and the Institutional Accounts, the 
``Funds''),\2\ T. Rowe Price Services, Inc. (``Services''), T. Rowe 
Price (Canada), Inc. (``Price Canada''), and T. Rowe Price Stable Asset 
Management, Inc. (``Price SAM'').

    \1\ An Institutional Account is defined as any separately 
managed account (as distinct from a Price Fund or collective trust 
fund).
    \2\ Each Fund that currently intends to rely on the requested 
relief has been named as an applicant. Any other existing Fund that 
may rely on the order in the future and any future Fund that relies 
on the order will do so only in accordance with the terms and 
conditions of the application.
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RELEVANT ACT SECTIONS: Order of requested under section 12(d)(1)(J) of 
the Act exempting applicant from sections 12(d)(1) (A) and (B) of the 
Act, under section 6(c) of the Act exempting applicants from rule 2a-
7(c)(4) (i) and (ii) under the Act, under sections 6(c) and 17(b) of 
the Act exempting applicants from section 17(a) of the Act, and under 
rule 17d-1 under the Act to permit certain transactions in accordance 
with section 17(d) of the Act and rule 17d-1 thereunder.

SUMMARY OF APPLICATION: The requested order would permit certain Funds, 
including money market funds (the ``Participating Funds''), to purchase 
shares of one or more non-publicly traded T. Rowe Price money market 
funds and/or short-term bond funds (the ``Central Funds'') for cash 
management purposes, and permit the Participating Funds and the Central 
Funds to engage in certain transactions with each other. The requested 
order also would amend a condition of a prior order.\3\

    \3\ T. Rowe Price Spectrum Fund, Inc., Investment Company Act 
Release Nos. 21371 (Sept. 22, 1995) (notice) and 21425 (Oct. 18, 
1995) (order) (``Spectrum Fund Order'').
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FILING DATES: The application was filed on March 14, 1997 and amended 
on June 9, 1997 and June 19, 1997. Applicants have agreed to file an 
amendment, the substance of which is incorporated herein, 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 July 28, 1997 
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, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, 100 East Pratt Street, Baltimore, MD 21202.

FOR FURTHER INFORMATION CONTACT: David W. Grim, Staff Attorney, at 
(202) 942-0571, or Mercer E. Bullard, 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 Price Fund is or will be registered under the Act, and the 
shares of each series in a Price Fund are or will be registered under 
the Securities Act of 1933 (the ``1933 Act''). Most of the Price Funds 
are series companies and may issue one or more series and/or one or 
more classes of shares. The 3(c)(11) Entities are common trust funds 
established by Trust Company under Maryland law and exempt from 
registration under the Act in reliance on section 3(c)(11) thereunder. 
Trust Company, which is a wholly-owned subsidiary of T. Rowe Price, 
acts as trustee for each common trust.\4\
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    \4\ Trust Company, in its capacity as trustee, is the legal 
owner of the assets of the 3(c)(11) Entities, although the assets 
within each such entity are beneficially owned by the participating 
employee benefit plans therein. Accordingly, applicants submit that 
Trust Company can appropriately join as an applicant on behalf of 
the 3(c)(11) Entities without each entity individually also joining 
as an applicant.
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    2. T. Rowe Price and Price-Fleming are each registered under the 
Investment Advisers Act of 1940 (the ``Advisers Act''). T. Rowe Price 
acts as the investment manager for all domestic Funds and Price-Fleming 
acts as the investment manager for all international and global Funds. 
T. Rowe Price provides all Funds with certain administrative services 
and Price-Fleming provides the international and global Funds with 
certain administrative services. Services, a wholly-owned subsidiary of 
T. Rowe Price, is a registered transfer agent and acts as the 
shareholder servicing, transfer, and dividend paying agent for each of 
the Price Funds. Price Canada, a wholly-owned subsidiary of T. Rowe 
Price, is an investment adviser organized in Maryland and registered 
under the Advisers Act and with the Ontario Securities Commission to 
provide advisory services to individual and institutional clients 
residing in Canada. Price SAM is a wholly-owned subsidiary of T. Rowe 
Price and is registered under the Advisers Act. Price SAM provides 
investment management

[[Page 37090]]

services for portfolios investing in guaranteed investment contracts, 
bank investment contracts, and structured investment contracts issued 
by banks and insurance companies, as well as short-term fixed income 
securities.
    3. Each Participating Fund has, or may be expected to have, 
uninvested cash held by its custodian bank. Such cash may result from a 
variety of sources, including dividends or interest received from 
portfolio securities, reserves held for investment strategy purposes, 
scheduled maturity of investments, liquidation of investment securities 
to meet anticipated redemptions and dividend payments, and new monies 
received from investors.
    4. The Central Funds will be open-end management investment 
companies registered under the Act, but will not register their shares 
for sale under 1933 Act. The Central Funds will be taxable or tax-
exempt money market funds or short-term bond funds with a portfolio 
maturity of three years or less.\5\ The Central Funds are anticipated 
to be used as an additional cash management device for temporary 
investment by the Participating Funds. Shares of the Central Funds will 
be sold only to the Participating Funds.
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    \5\ An investment in a Central Fund that is a short-term bond 
fund would be available only to those Participating Funds for which 
direct investment in short-term bonds would be consistent with their 
investment objectives, policies, and restrictions. Participating 
Funds that are money market funds would not be eligible to invest in 
a Central Fund that is a short-term bond fund, but would be eligible 
to invest in a Central Fund meeting the requirements of rule 2a-7
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    5. No front-end sales charge, contingent deferred sales charge, 
rule 12b-1 fee, or other underwriting and distribution fee will be 
charged in connection with the purchase and sale of shares of the 
Central Funds. The Adviser currently intends not to collect any 
advisory fee from a Central Fund for serving as its investment adviser.
    6. Applicants believe that it will be in the best interests of the 
Participating Funds and their shareholders to provide the widest 
possible range of investments for available cash. By adding shares of 
the Central Funds as another investment option, applicants believe that 
the Participating Funds may reduce their aggregate exposure to 
counterparty risk in repurchase agreements and diversify the risk 
associated with direct purchases of short-term obligations while 
providing high current rates of return, ready liquidity, and increased 
diversity of holdings indirectly through investment in the Central 
Funds. Reducing the amount of uninvested cash held at custodian banks 
also would reduce the Participating Funds' credit exposure to such 
banks. These benefits would be particularly pronounced for any tax-
exempt Participating Funds, which have fewer cash management options 
than taxable funds.
    7. Applicants intend that Participating Funds and the Central Funds 
engage in certain interfund purchase and sale transactions in 
securities. From time to time, certain of the Participating Funds 
engage in interfund purchase and sale transactions involving short-term 
money market instruments. Typically, these transactions would be 
between one entity that has a need to raise cash and another that has 
cash to invest on a short-term basis or between a fund seeking to 
implement a portfolio strategy and another fund seeking to raise or 
invest cash. These transactions provide the Participating Funds with an 
additional source of liquidity and an additional source of securities 
for investment.
    8. Applicants seek an order to permit (i) the Participating Funds 
to purchase shares of the Central Funds; (ii) the Central Funds to sell 
such shares to the Participating Funds; (iii) the Central Funds to 
purchase (redeem) such shares from the Participating Funds; (iv) the 
Adviser to effect such purchases and sales (collectively, the 
``Proposed Transactions''); (v) the Participating Funds and the Central 
Funds to engage in interfund purchase and sale transactions in 
securities (including daily and weekly variable rate demand notes that 
trade at par plus accrued interest, if any (``VRDNs'')) that otherwise 
would be effected in reliance on rule 17a-7 \6\ (the ``Interfund 
Transactions''); and (vi) the Participating Funds that are money market 
funds (the ``Money Funds'') to invest more than five percent of their 
assets (but no more than 25% of their total net assets) in the Central 
Funds that are money market funds.
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    \6\ Rule 17a-7 generally permits purchase or sale transactions 
between registered investment companies and certain affiliated 
persons provided that certain conditions are met.
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    9. Applicants state that T. Rowe Price Spectrum Fund, Inc. 
(``Spectrum Fund'') is a party to the application. Spectrum is a fund 
of funds registered under the Act and the 1933 Act that operates under 
the Spectrum Fund Order. Applicants state that one of the conditions of 
the Spectrum Fund Order is that the underlying funds in which Spectrum 
Fund can invest cannot themselves acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act. Applicants request that if the requested relief 
is granted, the Price Funds, which include the underlying funds in 
which Spectrum Fund can invest, will be permitted to purchase shares in 
excess of the limits contained in section 12(d)(1)(A) of the Act.

Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if such securities represent more than 3% of the outstanding voting 
stock of the acquired company's voting stock, more than 5% of the 
acquiring company's total assets, or if such securities, together with 
the securities of any other acquired investment companies, represent 
more than 10% of the acquiring company's total assets. Section 
12(d)(1)(B) 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.
    2. Applicants state that because the Participating Funds will be 
the only shareholders of the Central Funds, it is unavoidable that more 
than 3% of the shares of each Central Fund may be owned from time to 
time by one or more of the Participating Funds that are Price Funds and 
that more than 10% of each Central Fund's shares may be held by one or 
more Price Funds. In addition, applicants state that each of the Price 
Funds will invest in, and hold shares of, the Central Funds to the 
extent that a Price Fund's aggregate investment in the Central Funds at 
the time the investment is made does not exceed 25% of the Price Fund's 
total net assets. For these reasons, applicants seek an exemption from 
the provisions of section 12(d)(1) to the extent necessary to implement 
the Proposed Transactions.
    3. Section 12(d)(1)(J) provides that the SEC may exempt persons or 
transactions from any provision of section 12(d)(1) if and to the 
extent such exemption is consistent with the public interest and the 
protection of investors.
    4. Applicants state that while any equity fund might from time to 
time have a larger than 10% portion of assets temporarily in cash, and 
while new funds during their start-up phase may even have larger cash 
positions, applicants believe that a maximum of 25% of a Participating 
Fund's assets

[[Page 37091]]

will cover normal investment patterns and permit the majority of equity 
fund cash to be invested in a Central Fund (assuming that a fund's 
fundamental investment policies permit such investment). In addition, 
applicants assert that a 25% limit would be consistent with the 
requirements and experience of the tax-exempt bond Funds. Furthermore, 
applicants submit that while the 25% limit might not accommodate the 
needs of the tax-exempt Money Funds during all periods, it would still 
allow such Funds an important alternative means of investing for 
liquidity purposes. Finally, applicants state that they have reviewed 
the operations of taxable funds with respect to their historic short-
term liquid investment requirements and believe that limiting a 
Participating Fund's investment in the Central Funds to 25% of its 
total net assets would adequately accommodate cash investment 
requirements.
    5. Applicants state that section 12(d)(1) is intended to protect an 
investment company's shareholders against (i) undue influence over 
portfolio management through the threat of large-scale redemptions, the 
threat of loss of advisory fees to the adviser, and the disruption of 
orderly management of the investment company through the maintenance of 
large cash balances to meet potential redemptions, (ii) the acquisition 
of voting control of the company, and (iii) the layering of sales 
charges, advisory fees, and administrative costs. Applicants state that 
each of the Central Funds will be managed specifically to maintain a 
highly liquid portfolio and that access to the Central Fund will 
enhance each Participating Fund's ability to manage and invest cash. In 
addition, applicants state that because the Adviser will serve as 
investment adviser to both the Participating Funds and the Central 
Funds, it is not susceptible to undue influence regarding its 
management of the Central Funds due to threatened redemptions or loss 
of fees. Further, applicants assert that because no Central Fund will 
be publicly offered, only the Participating Funds will exercise voting 
control over the Central Funds and each Participating Fund will hold a 
pro rata share of a Central Fund's outstanding voting securities based 
on the amount of its investment. Additionally, applicants state that 
because the Participating Funds will not incur many of the expenses 
associated with direct investment, these expense savings should 
significantly offset the effect of the remaining expenses incurred by 
the Central Funds. Therefore, applicants believe none of the perceived 
abuses meant to be addressed by section 12(d)(1) is created by the 
Proposed Transactions.

B. Rule 2a-7

    1. Rule 2a-7(c)(4) (i) and (ii) require money market funds to limit 
their investment in the securities of any one issuer (other than 
certain specified securities) to 5% of fund assets with respect to 
either 100% or 75% of the fund's total assets. The SEC has interpreted 
rule 2a-7(c)(4) (i) and (ii) as applying to a money market fund's 
investment in another money market fund.\7\ Accordingly, applicants 
seek relief from rule 2a-7(c)(4) (i) and (ii) to the extent necessary 
to permit the Money Funds to invest in a Central Fund that is a money 
market fund, to the same extent, and on the same basis, as 
Participating Funds that are not money market funds.
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    \7\ See Investment Company Act Release No. 21837 (Mar. 21, 1996) 
(release adopting amendments to rule 2a-7).
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    2. Section 6(c) permits the SEC to exempt any person or transaction 
from any provision of the Act, 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.
    3. Applicants state that rule 2a-7 is designed to minimize the risk 
that a money market fund will not be able to maintain a stable net 
asset value. Applicants note that a Central Fund that is a money market 
fund will seek to maintain a constant net asset value and will be as 
liquid as a publicly offered money market fund. Applicants state that 
the net asset value per share of a money market Participating Fund 
would be made no more volatile as a result of investing a portion of 
its assets in another money market fund. In addition, applicants note 
that investment in a Central Fund would be as liquid as other 
investment alternatives. Accordingly, applicants believe that the 
investment by a money market Participating Fund in a Central Fund that 
is a money market fund would be consistent with the risk-limiting 
objectives of rule 2a-7.

C. Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of that company. Applicants request an exemption from 
the provisions of section 17(a) to permit (i) the sale of shares of the 
Central Funds to the Participating Funds that are registered investment 
companies and the redemption of such shares to the Central Funds, and 
(ii) the Participating Funds, and the Central Fund to engage in certain 
Interfund Transactions involving the purchase and sale of securities 
(including VRDNs) that otherwise would be effected in reliance on rule 
17a-7.
    2. Section 2(a)(3) of the Act defines an affiliated person of an 
investment company to include any person that owns more than 5% of the 
outstanding voting securities of that company, any investment adviser 
of the investment company, and any person directly or indirectly 
controlling, controlled by, or under common control with, such 
investment company. Applicants state that the Adviser is an affiliated 
person of each Fund under section 2(a)(3). Applicants state that 
because the Funds either share a common investment adviser or have an 
investment adviser that is under common control with those of the other 
Funds, and certain Price Funds also share a common board of directors/
trustees, some or all of the Funds may be deemed to be under common 
control with some or all the other Funds, and, therefore, affiliated 
persons of those Funds. In addition, applicants state that it is likely 
that a Participating Fund would own more than 5% of the outstanding 
voting securities of the Central Fund. Thus, each Participating Fund 
and the Central Fund may be affiliated persons (or affiliates of 
affiliates) of each other Fund.
    3. Applicants state that the Participating Funds currently rely on 
rule 17a-7 under the Act to conduct Interfund Transactions. Rule 17a-7 
excepts from the prohibitions of section 17(a) the purchase or sale of 
certain securities between registered investment companies which are 
affiliated persons, or affiliated persons of affiliated persons, or 
each other or between a registered investment company and a person 
which is an affiliated person of such company (or an affiliated person 
of such person) solely by reason of having a comment investment 
adviser, common officers, and/or common directors, Applicants believe 
that Participating Funds could be affiliated persons of each other, and 
of the Central Funds, by virtue of a Participating Fund owning 5% or 
more of the outstanding voting securities of a Central Fund. Thus, 
applicants believe they would not be able to reply on rule 17a-7 to 
effect Interfund Transactions.
    4. Section 17(b) permits the SEC to grant an order permitting a 
transaction otherwise prohibited by section 17(a) if

[[Page 37092]]

it finds that the terms of the proposed transaction are reasonable and 
fair and do not involve overreaching on the part of any person 
concerned, the proposed transaction is consistent with the policy of 
each registered investment company concerned, and the proposed 
transaction is consistent with the general purposes of the Act. 
Applicants state that section 17(b) applies only to individual proposed 
transactions. However, applicants note that the SEC has frequently used 
its authority under section 6(c) of the Act to exempt a series of 
future affiliated transactions that otherwise met the standards of 
section 17(b). Applicants submit that their request for relief is 
consistent with these standards.
    5. Applicants assert that the terms of the Proposed Transactions 
will be fair and reasonable, and do not involve overreaching. 
Applicants state that the consideration paid and received for the sale 
and redemption of shares of the Central Funds will be based on the net 
asset value per share of the Central Funds. In addition, applicants 
submit that the Proposed Transactions will be consistent with the 
policies of each Fund involved. Applicants state that the investment of 
assets of the Participating Funds in shares of the Central Funds, and 
the issuance of shares of the Central Funds, will be effected in 
accordance with each Participating Fund's investment guidelines, if 
any, and will be consistent with each Participating Price Fund's 
policies as set forth in its registration statement.
    6. With respect to the relief requested from section 17(a) for the 
Interfund Transactions, applicants state that the Funds will comply 
with rule 17a-7 under the Act in all respects, other than the 
requirement that the registered investment company and the affiliated 
person thereof (or the affiliated person of such person) be 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. Applicants state that 
the additional affiliation created by the Proposed Transactions does 
not affect the other protections provided by rule 17a-7, including the 
integrity of the pricing mechanism employed and oversight by the board 
of directors/trustees of each Price Fund.
    7. Applicants believe that Interfund Transactions do not raise the 
types of concerns that section 17 was designed to address. Applicants 
state that all Interfund Transactions will be effected at the 
independent current market value of the security. Applicants contend 
that effecting Interfund Transactions at the current market value 
assures that there is an independent basis for determining that value 
of the securities. Applicants note that no brokerage commission, fee, 
or other remuneration will be paid in connection with the transactions. 
Applicants also note that the Adviser will not be a party to the 
transactions. Applicants therefore believe that Interfund Transactions 
will be reasonable and fair, will not involve overreaching, and will be 
consistent with the purposes of the Act and the policy of each 
registered investment company concerned.

D. Section 17(d) and Rule 17d-1

    1. Section 17(d) of the Act and rule 17d-1 thereunder generally 
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. Applicants contend that because 
they are acting together to create the Central Funds as a private 
facility for their cash management needs, the Central Funds may be 
deemed a joint enterprise for the purposes of section 17(d) and rule 
17d-1. Applicants also believe that the Funds and Services, by 
participating in the Proposed Transactions, and the Adviser, by 
managing the Proposed Transactions, could be deemed to be joint 
participants in a joint transaction.
    2. In order to grant an exemption from the provisions of section 
17(d), rule 17d-1 requires that the SEC consider whether an investment 
company's participation in a joint enterprise or joint arrangement 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.
    3. Applicants state that, for the reasons explained above, the 
Proposed Transactions are consistent with the provisions, policies, and 
purposes of the Act. Applicants also assert that the Participating 
Funds that are Price Funds and the Central Funds will not participate 
in this arrangement on a basis that is different from or less 
advantageous than the participants that are not investment companies. 
Rather, applicants state that the Proposed Transactions are intended to 
provide substantial benefits to all Participating Funds and that the 
Central Funds will benefit from having as large an asset base as 
possible. Moreover, applicants state that the arrangement is not 
intended to increase the fees for the Adviser or any other non-
investment company participant. Finally, applicants note that each 
Participating Fund may purchase and redeem shares of each Central Fund, 
and would receive dividends and bear expenses on the same basis as each 
other Participating Fund that also invests in such Central Fund.

E. Spectrum Fund

    1. Applicants also request relief under section 12(d)(1)(J) of the 
Act for an exemption from sections 12(d)(1) (A) and (B) of the Act, and 
under sections 6(c) and 17(b) of the Act for an exemption from section 
17(a) of the Act to the extent necessary to amend the Spectrum Fund 
Order. Applicants submit that the Spectrum Fund Order should be 
modified solely to the extent necessary to permit the underlying funds 
in which Spectrum Fund can invest to purchase shares of the Central 
Funds in excess of the limits contained in section 12(d)(1)(A) of the 
Act. Applicants believe that the proposed relief satisfies the 
standards of sections 12(d)(1)(J), 6(c), and 17(b). Applicants state 
that the underlying funds in which Spectrum Fund invests will be 
investing in the Central Funds solely for cash management purposes, and 
such investment will not create any of the abuses to which section 
12(d)(1)(A) is addressed for the reasons discussed above.

Applicants' Conditions

    Applicants agree that any order of the SEC granting the requested 
relief will be subject to the following conditions:
    1. The shares of the Central Funds sold to and redeemed from the 
Funds will not be subject to a sales load, redemption fee, distribution 
fee under a plan adopted in accordance with rule 12b-1, or service fee 
(as defined in rule 2830(b)(9) of the National Association of 
Securities Dealers' Conduct Rules).\8\
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    \8\ The staff notes that until recently rule 2830 of the NASD's 
Conduct Rules was section 26 of Article III of the NASD Rules of 
Fair Practice.
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    2. If the Adviser to a Central Fund collects a fee from the Central 
Fund for acting as its investment adviser, before the next meeting of 
the board of directors/trustees of a Price Fund that invests in the 
Central Fund is held for the purpose of voting on an advisory contract 
under section 15, the Adviser to the Price Fund will provide the board 
of directors/trustees with specific information regarding the 
approximate cost to the Adviser for managing the assets for the Price 
Fund that can be expected to be invested in such Central Funds. Before 
approving any advisory contract under section 15, the board of

[[Page 37093]]

directors/trustees of such Price Fund, including a majority of the 
directors/trustees who are not ``interested persons,'' as defined in 
section 2(a)(19), shall consider to what extent, if any, the advisory 
fees charged to the Price Fund by the Adviser should be reduced to 
account for the fee indirectly paid by the Price Fund because of the 
advisory fee paid by the Central Fund. The minute books of the Price 
Fund will record fully the directors/trustees' consideration in 
approving the advisory contract, including the considerations relating 
to fees referred to above.
    3. Each Participating Fund, each Central Fund, and any future fund 
that may rely on the order shall be advised by or, in the case of a 
3(c)(11) Entity, shall have as its trustee, T. Rowe Price or Price-
Fleming or a person controlling, controlled by, or under common control 
with T. Rowe Price or Price-Fleming.
    4. Investment in shares of the Central Funds will be in accordance 
with each Price Fund's respective investment restrictions, if any, and 
will be consistent with each Price Fund's policies as set forth in its 
prospectuses and statements of additional information.
    5. No Central Fund shall acquire securities of any other investment 
company in excess of the limits contained in section 12(d)(1) (A) of 
the Act.
    6. A majority of the directors/trustees of each Price Fund will not 
be ``interested persons,'' as defined in section 2(a)(19) of the Act.
    7. Each of the Price Funds will invest uninvested cash in, and hold 
shares of, the Central Funds only to the extent that the Price Fund's 
aggregate investment in the Central Funds at the time the investment is 
made does not exceed 25% of the Price Fund's total net assets. For 
purposes of this limitation, each Price Fund or series thereof will be 
treated as a separate investment company.
    8. To engage in Interfund Transactions, the 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 be 
reason of having a common investment adviser or investment advisers 
which are affiliated person of each other, common officers, and/or 
common directors.
    Applicants also agree that condition number 2 to the Spectrum Fund 
Order would be modified as follows:
    No Underlying Fund shall acquire securities of any other investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
Act, except to the extent such Underlying Fund acquires securities of 
another investment company pursuant to exemptive relief from the SEC 
permitting such Underlying Fund to acquire securities of one or more 
affiliated investment companies for short-term cash management 
purposes.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-17989 Filed 7-9-97; 8:45 am]
BILLING CODE 8010-01-M