[Federal Register Volume 64, Number 9 (Thursday, January 14, 1999)]
[Notices]
[Pages 2529-2530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-805]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23635; 812-10426]


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

January 7, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order pursuant to section 17(d) 
and rule 17d-1 under the Investment Company Act of 1940 (the ``Act'').

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SUMMARY OF APPLICATION: Applicants request an order that would permit 
certain funds relying on section 12(d)(1)(G) of the Act to enter into a 
special servicing agreement.

APPLICANTS: Frank Russell Investment Company (``FRIC''), on behalf of 
its series, Diversified Equity Fund, Special Growth Fund, Equity Income 
Fund, Quantitative Equity Fund, International Securities Fund, Real 
Estate Securities Fund, Diversified Bond Fund, Volatility Constrained 
Bond Fund, Multistrategy Bond Fund, Limited Volatility Tax Free Fund, 
U.S. Government Money Market Fund, Tax Free Money Market Fund, Equity I 
Fund, Equity II Fund, Equity III Fund, Equity Q Fund, Equity T Fund, 
International Fund, Emerging Markets Fund, Fixed Income I Fund, Fixed 
Income II Fund, Fixed Income III Fund, Equity Balanced Strategy Fund, 
Aggressive Strategy Fund, Balanced Strategy Fund, Moderate Strategy 
Fund, Conservative Strategy Fund, and Money Market Fund; Frank Russell 
Investment Management Company (``FRIMCo''); Russell Fund Distributors, 
Inc. (``RFD''); and each existing or future open-end management 
investment company or series thereof that is part of the same group of 
investment companies as FRIC under section 12(d)(1)(G)(ii) of the Act 
and which is, or will be, advised by FRIMCo or any entity controlling, 
controlled by, or under common control with FRIMCo, or for which RFD or 
any entity controlling, controlled by, or under common control with 
RFD, serves as principal underwriter (these investment companies or 
series thereof, together with FRIC and its series, are referred to in 
this notice as the ``Frank Russell Funds'').

FILING DATES: The application was filed on November 8, 1996, and 
amended on October 10, 1997, June 12, 1998, and December 3, 1998.

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 February 1, 
1999, 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, 909 A Street, Tacoma, WA 98402. Attention: Gregory Lyons, 
Esq.

FOR FURTHER INFORMATION CONTACT:
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 at the 
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. FRIMCo is an investment adviser registered under the Investment 
Advisers Act of 1940. FRIMCo serves as adviser to, and transfer agent 
for, FRIC. RFD is registered as a broker-dealer under the Securities 
Exchange Act of 1934. RFD serves as the principal underwriter of the 
Frank Russell Funds.

[[Page 2530]]

    2. FRIC is organized as a Massachusetts business trust and 
registered under the Act as an open-end management investment company. 
FRIC currently offers 28 series, five of which are ``TopFunds'' \1\ and 
23 of which are ``Underlying Funds.'' \2\ The TopFunds will invest in 
the Underlying Funds in accordance with section 12(d)(1)(G) of the 
Act.\3\ Each TopFund and certain of the Underlying Funds will be 
multiple class funds in reliance on rule 18f-3 under the Act.
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    \1\ The term ``TopFunds'' refers to the following five series of 
FRIC: Equity Balanced Strategy Fund, Conservative Strategy Fund, 
Moderate Strategy Fund, Balanced Strategy Fund, and Aggressive 
Strategy Fund. The term also refers to other investment companies or 
series thereof currently existing or organized in the future which 
receive investment advice from FRIMCO, and are intended to invest 
substantially all of their assets in the Underlying Funds (defined 
below).
    \2\ The term ``Underlying Funds'' refers to the following series 
of FRIC: Equity I Fund, Equity II Fund, Equity III Fund, 
International Fund, Fixed Income I Fund, Fixed Income II Fund, Fixed 
Income III Fund, Equity Q Fund, Equity T Fund, Emerging Markets 
Fund, Money Market Fund, Diversified Equity Fund, Special Growth 
Fund, Equity Income Fund, Quantitative Equity Fund, International 
Securities Fund, Real Estate Securities Fund, Diversified Bond Fund, 
Volatility Constrained Bond Fund, Multistrategy Bond Fund, Limited 
Volatility Tax Free Fund, U.S. Government Money Market Fund, and Tax 
Free Money Market Fund. The term also refers to each existing and 
future open-end management investment company or any series of that 
company that is part of the same group of investment companies as 
FRIC under section 12(d)(1)(G)(ii) of the Act, and (1) is, or will 
be, advised by FRIMCo or any entity controlling, controlled by, or 
under common control with FRIMCo, or (2) for which RFD or any entity 
controlling, controlled by, or under common control with RFD, serves 
as principal underwriter.
    \3\ The TopFunds may not be Underlying Funds.
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    3. FRIMCo and FRIC propose to enter into a Special Servicing 
Agreement that would allow an Underlying Fund to bear the expenses of a 
TopFund (other than advisory fees, rule 12b-1 fees and shareholder 
servicing fees) in proportion to the average daily value of the 
Underlying Fund's shares owned by the TopFund. Certain expenses paid by 
an Underlying Fund to a TopFund under the Special Servicing Agreement 
may be a fund level expense of the Underlying Fund, while other 
expenses paid under the Agreement may be a class expense of the 
Underlying Fund. Any determination to treat such expenses as a class 
expense or fund level expense of an Underlying Fund would be effected 
only after approval by the board of directors of the Underlying Fund 
pursuant to rule 18f-3, and only in compliance with the condition to 
the application.
    4. Applicants submit that the Underlying Fund may experience 
savings because it would be servicing only one account (i.e., the 
TopFund), instead of multiple accounts of the shareholders of the 
TopFund. No Underlying Fund will bear any expenses of a TopFund that 
exceed Net Benefits, as defined in the condition below, to the 
Underlying Fund from the arrangement.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1(a) under the Act provide 
that an affiliated person of, or a principal underwriter for, a 
registered investment company, or an affiliate of such person or 
principal underwriter, 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. Rule 17d-1(b) provides that, in passing upon exemptive requests 
under the rule, the SEC will consider whether participation of the 
investment company in the joint enterprise, joint arrangement, or 
profit-sharing plan 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 other participants.
    3. Applicants request relief under section 17(d) and rule 17d-1 to 
permit them to enter into the Special Servicing Agreement in which the 
Underlying Funds may pay certain expenses of the TopFunds. Applicants 
contend that each Underlying Fund will pay a TopFund's expenses only in 
direct proportion to the average daily value of the Underlying Fund's 
shares owned by the TopFund to ensure that expenses of the TopFund are 
borne proportionately and farily. Applicants also state that prior to 
an Underlying Fund's entering into the Special Servicing Agreement, and 
at least annually thereafter, the board of trustees of FRIC, including 
a majority of the trustees who are not interested persons of FRIC (the 
``Board''), will determine that the Special Servicing Agreement will 
result in Net Benefits, as defined in the condition below, to the 
Underlying Fund. In making the annual determination, one of the factors 
the Board will consider is the amount of Net Benefits actually 
experienced by each class of shareholders of the Underlying Fund and 
the Underlying Fund as a whole during the preceding year. For these 
reasons, applicants state that the requested relief meets the standards 
of section 17(d) and rule 17d-1.

Applicants' Condition

    Applicants agree that the order will be subject to the following 
condition:
    Prior to FRIC entering into the Special Servicing Agreement with 
respect to an Underlying Fund, and at least annually thereafter, the 
Board must determine, through the process described in Section II of 
the application, that the Special Servicing Agreement will result in 
quantifiable benefits to each class of shareholders of the Underlying 
Fund and to the Underlying Fund as a whole that will exceed the costs 
of the Special Servicing Agreement borne by each class of shareholders 
of the Underlying Fund and by the Underlying Fund as a whole (``Net 
Benefits''), and that the premises supporting the data provided to the 
Board in this regard are reasonable and appropriate. In making the 
annual determination, one of the factors the Board must consider is the 
amount of Net Benefits actually experienced by each class of 
shareholders of the Underlying Fund and the Underlying Fund as a whole 
during the preceding year. The Underlying Fund will preserve for a 
period of not less than six years from the date of a Board 
determination, the first two years in an easily accessible place, a 
record of the determination and the basis and information upon which 
the determination was made. This record will be subject to examination 
by the SEC and its staff.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-805 Filed 1-13-99; 8:45 am]
BILLING CODE 8010-01-M