[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
[[Page 49044]]
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