[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