[Federal Register Volume 62, Number 181 (Thursday, September 18, 1997)]
[Notices]
[Pages 49043-49045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24759]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22819; 812-10434]


Frank Russell Investment Company, et al.; Notice of Application

September 12, 1997.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission``).

ACTION: Notice of application under sections 6(c), 12(d)(1)(J), and 
17(b) of the Investment Company Act of 1940 (the ``Act'') for 
exemptions from sections 12(d)(1) (A) and (B), and 17(a) of the Act, 
and under section 17(d) of the Act and rule 17d-1 to permit certain 
joint transactions.

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SUMMARY OF APPLICATION: The requested order would permit nonmoney 
market funds of Frank Russell Investment Company and Russell Insurance 
Funds (``Investment Funds'') to purchase shares of one or more 
affiliated investment companies that are money market funds (the 
``Money Market Funds'') for cash management purposes. The requested 
order would supersede a prior order.
    Applicants: Frank Russell Investment Company (``FRIC''), Russell 
Insurance Funds (``RIF''), Frank Russell Investment Management Company 
(``FRIMCo''), and Russell Fund Distributors, Inc. (the 
``Distributors'').
    Filing Dates: The application was filed on November 14, 1996, and 
amended on August 14, 1997.
    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, 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, N.W., Washington, D.C. 
20549. Applicants, 909 A Street, Tacoma. WA 98402.

FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Senior Counsel, at (202) 942-0572, or Christine Y. 
Greenlees, 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, 450 Fifth Street, N.W., Washington, 
D.C. 20549 (telephone (202) 942-8090).

Applicants' Representations

    1. FRIC and RIF are registered open-end management investment 
companies organized as Massachusetts business

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trusts. RIF consists of four separate series and FRIC of twenty-three, 
three of which are Money Market Funds. FRIMCo is currently the 
investment adviser to FRIC and RIF and provides administrative services 
for each series. The Distributor serves as distributor for each series.
    2. Each Investing Fund has, or may be expected to have, uninvested 
cash (``Uninvested Cash'') held by its custodian bank. Uninvested Cash 
may result from a variety of sources, including dividends or interest 
received from portfolio securities, unsettled securities transactions, 
reserves held for investment strategy purposes, maturity of 
investments, liquidation of investment securities to meet anticipated 
redemptions and dividend payments, and new monies received from 
investors. Applicants are requesting relief to permit each Investing 
Fund to use its Uninvested Cash to purchase and redeem shares of the 
Money Market Funds, and each Money Market Fund to sell its shares to, 
and redeem its shares from, each of the Investing Funds. Each Investing 
Fund will be a non-money market fund. The Uninvested Cash held for the 
benefit of an individual Investing Fund at any particular time may not 
be large enough generally to make the direct investment of the cash 
balances in money market instruments economical. However, by investing 
these cash balances in the Money Market Funds, as proposed, the 
Investing Funds will reduce their transaction costs, create more 
liquidity, enjoy greater returns on the Uninvested Cash and further 
diversify their holdings.
    3. The Commission has previously granted an order to permit series 
of FRIC to purchase shares of a portfolio of FRIC that invests solely 
in short-term money market instruments without being subject to the 
limits imposed by sections 12(d)(1) (A) and (B) of the Act (the ``Prior 
Order'')\1\ The requested order would supersede the Prior Order.
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    \1\ Frank Russell Investment Co., Investment Company Act Release 
Nos. 12514 (June 30, 1982) (notice) and 12562 (July 26, 1982) 
(order).
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    4. Applicants request that relief be extended to each current and 
subsequently created series of FRIC and RIF and any other registered 
investment company or series thereof that is now or in the future 
advised by any entity controlling, controlled by, or under common 
control with FRIMCo that serves as investment adviser to the Investing 
and Money Market Funds (the ``Investment Advisers'') (these funds are 
included in the terms ``Investment Fund'' and ``Money Market Fund,'' as 
appropriate).\2\
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    \2\ All the Funds that currently intend to rely on the requested 
order have been named as applicants.
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Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits any registered 
investment company (the ``acquiring company'') or any company or 
companies controlled by the acquiring company from purchasing any 
security issued by any other investment company (the ``acquired 
company'') if the purchase will result in the acquiring company or 
companies it controls owning in the aggregate more than 3% of the 
outstanding voting stock of the acquired company, more than 5% of the 
acquiring company's total assets, or if the securities, together with 
the securities of other acquired investment companies, represent more 
than 10% of the acquiring company's total assets. Section 12(d)(1)(B) 
provides that no acquired 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. The perceived abuses section 12(d)(1) 
sought to address include undue influence by an acquiring fund over the 
management of an acquired fund, layering of fees, and complex fund 
structures.
    2. Applicants' request would permit the Investing Funds to use 
Uninvested Cash to acquire shares of Money Market Funds in excess of 
the percentage limitations set out in section 12(d)(1)(A). Applicants 
propose that each Investing Fund be permitted to invest in shares of a 
Money Market Fund so long as each Investing Fund's aggregate investment 
in such Money Market Fund does not exceed 25% of the Investing Fund's 
total net assets. Applicants' request also would permit Money Market 
Funds to sell their securities to Investing Funds in excess of the 
percentage limitations set out in section 12(d)(1)(B). Applicants state 
that relief permitting an Investing Fund to invest up to 25% of its 
total net assets in shares of the Money Market Funds is appropriate 
because at any given time, 25% or more of an Investing Fund's total net 
assets may be comprised of Uninvested Cash.
    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 believe that none of the concerns underlying section 
12(d)(1) are presented by the proposed transactions and that the 
proposed transactions meet the section 12(d)(1)(J) standards for 
relief. Applicants state that since FRIMCo will waive its advisory fee 
for each Investing Fund in an amount that offsets the amount of the 
advisory fees of a Money Market Fund incurred by the Investing Funds, 
shareholders of the Investing Funds will not be subject to the 
imposition of duplicative management fees. Applicants further state 
that the Investment Advisers will not be susceptible to undue influence 
in their management of the Money Market Funds because of threatened 
redemptions from the Money Market Funds or loss of fees because the 
Investment Advisers and their affiliates will not derive any additional 
investment advisory fees or other compensation with respect to these 
transactions. In addition, applicants state that the net asset value of 
each Money Market Fund is maintained at a constant $1.00 per share. 
Therefore, applicants submit that the value of an Investing Fund's 
investments in the Money Market Funds will be easily determinable.

B. 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. Section 2(a)(3) of the Act defines 
an affiliated person of an investment company to include any investment 
adviser of the investment company and any person directly or indirectly 
controlling, or under common control with, the investment adviser. 
Under section 2(a)(3), each FRIC Fund and each RIF Fund may be deemed 
to be under common control with the other FRIC Funds and RIF Funds, 
respectively, and, therefore, each FRIC Fund would be an affiliated 
person of each other FRIC Fund, and each RIF Fund would be an 
affiliated person of each other RIF Fund. Accordingly, the sale by the 
Money Market Funds of their shares to the Investing Funds and the 
redemption of such shares by the Investing Funds could be deemed to be 
a principal transaction between affiliated persons that is prohibited 
under section 17(a).
    2. Section 6(c) permits the Commission 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

[[Page 49045]]

investors and the purposes fairly intended by the policies of the Act.
    3. Section 17(b) permits the Commission to grant an order 
permitting a transaction otherwise prohibited by section 17(a) if it 
finds that the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned. Section 17(b) could be interpreted to exempt only a single 
transaction. However, the Commission, under section 6(c) of the Act, 
may exempt a series of transactions that otherwise would be prohibited 
by section 17(a).
    4. Applicants state that the terms of the proposed transactions are 
fair because the consideration paid and received for the sale and 
redemption of shares of the Money Market Funds will be based on the net 
asset value per share of the Money Market Funds. In addition, the 
purchase of shares of the Money Funds by the Investing Funds will be 
effected in accordance with each Investing Fund's investment 
restrictions and policies as set forth in its registration statement. 
For these reasons, applicants believe that the terms of the 
transactions meet the standards of sections 6(c) and 17(b).

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

    1. Section 17(d) and rule 17d-1 prohibit affiliated persons from 
participating in joint arrangements with a registered investment 
company unless authorized by the Commission. In passing on applications 
for such orders, rule 17d-1 provides that the Commission will consider 
whether the participation of the investment company on the basis 
proposed is consistent with the provisions, policies, and purposes of 
the Act, and the extent to which the participation is on a basis 
different from or less advantageous than that of the other 
participants. Applicants state that the Investing Funds, the Investment 
Advisers, and the Money Market Funds participating in the proposed 
transactions could be deemed to be participants in a joint enterprise 
or other joint arrangement.
    2. Applicants state that the investment by the Investing Funds in 
shares of the Money Market Funds would be on the same basis as an 
investment by any other person. Applicants also state that the proposed 
transactions would be beneficial to each of the participants and that 
there is no basis on which to believe that any participants would 
benefit to a greater extent than any other. In addition, applicants 
state that the Investment Advisers will not receive any increased 
investment advisory fee under the proposed transactions, although the 
Investment Advisers may enjoy certain reduced clerical costs. Further, 
applicants state that the proposed transactions should provide 
increased returns and reduced costs for the Investing Funds and their 
shareholders. Applicants believe that the relative advantages or 
disadvantages to the Money Market Funds from the proposed transactions 
will vary over time and are not expected to be material. Accordingly, 
applicants believe that the proposed transactions meet the standards 
for relief under section 17(d) and rule 17d-1.

Applicants' Conditions

    Applicants agree that any order of the SEC granting the requested 
relief will be subject to the following conditions:
    1. Shares of the Money Market Funds sold to and redeemed from the 
Investing Funds will not be subject to a sales load, redemption fee, 
distribution fee under a plan adopted in accordance with rule 12b-1 
under the Act, or service fee (as defined in rule 2803(b)(9) of the 
National Association of Securities Dealers' Conduct Rules).
    2. FRIMCo will waive its advisory fees for each Investing Fund in 
an amount that offsets the amount of the advisory fees of a Money 
Market Fund incurred by the Investing Fund.
    3. Each Investing Fund will invest Uninvested Cash in, and hold 
shares of, the Money Market Funds only to the extent that the Investing 
Fund's aggregate investment in such Money Market Funds does not exceed 
25% of the Investing Fund's total net assets. For purposes of this 
limitation, each Investing Fund or series thereof will be treated as a 
separate investment company.
    4. Investment in shares of the Money Market Funds will be in 
accordance with each Investing Fund's respective investment 
restrictions, if any, and will be consistent with each Investing Fund's 
policies as set forth in its prospectuses and statements of additional 
information.
    5. Each Investing Fund, each Money Market Fund, and any future fund 
that may rely on the order shall be advised by the Investment Advisers, 
or a person controlling, controlled by, or under common control with 
the Investment Advisers.
    6. No Money Market Fund shall acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24759 Filed 9-17-97; 8:45 am]
BILLING CODE 8010-01-M