[Federal Register Volume 65, Number 206 (Tuesday, October 24, 2000)]
[Notices]
[Pages 63642-63645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27215]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24694; 812-11608]


William Blair Funds and William Blair & Company, L.L.C.; Notice 
of Application

October 17, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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SUMMARY OF APPLICATION: The applicants request an order that would 
permit certain registered management investment companies and private 
accounts to invest uninvested cash and cash collateral in one or more 
affiliated money market funds and engage in certain transactions with 
each other.
    Applicants: William Blair Funds on behalf of its series William 
Blair Growth Fund, William Blair Tax-Managed Growth Fund, William Blair 
Large Cap Growth Fund, William Blair Small Cap Growth Fund, William 
Blair International Growth Fund, William Blair Emerging Markets Growth 
Fund, William Blair Disciplined Large Cap Fund, William Blair Value 
Discovery Fund, William Blair, Millennium Fund, William Blair Income 
Fund, William Blair Ready Reserves Fund, each subsequently created 
series, and any registered management investment company and its series 
that are currently or in the future advised by William Blair Advisers 
(defined below) (``Blair Funds''), and William Blair & Company, L.L.C. 
and any entity controlling, controlled by, or under common control with 
William Blair & Company, L.L.C. (``William Blair Advisers'').

FILING DATES: The application was filed on May 14, 1999. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.
    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on November 13, 2000 and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing request 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 5th Street, NW., Washington, DC 
20549-0609. Applicants, 227 West Monroe Street, Chicago, IL 60606.

FOR FURTHER INFORMATION CONTACT: Anu Dubey, Senior Counsel, at (202) 
942-0687, or Michael Mundt, 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 
Commission's Public Reference Branch, 450 5th Street, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. William Blair Funds is organized as a Delaware business trust 
and is an open-end management investment company registered under the 
Act. One of the series of the William Blair Funds is a money market 
fund subject to the requirements of rule 2a-7 under the Act (together 
with future Blair Funds that are money market funds, the ``Money Market 
Funds'').\1\ William Blair &

[[Page 63643]]

Company, L.L.C. is the investment adviser to each series of the William 
Blair Funds. Each of the William Blair Advisers is or will be 
registered as an investment adviser under the Investment Advisers Act 
of 1940. A William Blair Adviser may serve as investment adviser to 
institutional and individual managed accounts (``Managed Accounts''). 
The accountholders of the Managed Accounts are individual institutions 
and natural persons. The Managed Accounts are not pooled investment 
vehicles.
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    \1\ All existing Blair Funds that currently intend to rely on 
the requested order are named as applicants. Applicants also request 
that the order extend to each applicant's successor in interest, 
which is any entity or entities that result from a reorganization of 
the entity into another jurisdiction or a change in the type of 
business organization of the entity. Any other existing or future 
entity will rely on the order only in accordance with the terms and 
conditions of the application.
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    2. Applicants state that the Blair Funds that are not Money Market 
Funds (``Investing William Blair Funds'') and Managed Accounts have, or 
may be expected to have, uninvested cash. Such cash may result from a 
variety of sources, including dividends or interest received on 
portfolio securities, unsettled securities transactions, reserves held 
for investment strategy purposes, scheduled maturity of investments, 
liquidation of investment securities to meet anticipated redemptions, 
dividend payments or new monies received from investors (``Uninvested 
Cash''). Certain of the Blair Funds also may participate in a 
securities lending program under which they loan their portfolio 
securities to registered broker-dealers or other institutional 
investors (``Securities Lending Program''). The loans are secured by 
collateral, including cash collateral (``Cash Collateral''), equal at 
all times to at least the market value of the securities loaned. The 
Managed Accounts also may have Cash Collateral. Applicants request an 
order to permit the Investing William Blair Funds and Managed Accounts 
(together, the ``Investing Funds'') to use their Uninvested Cash and 
Cash Collateral to purchase shares of one or more of the Money Market 
Funds, and the Money Market Funds to sell their shares to, and redeem 
their shares from, the Investing Funds.
    3. Applicants also state that the Blair Funds and Managed Accounts 
currently engage in purchase and sale transactions with other Blair 
Funds involving short-term money market instruments in reliance on rule 
17a-7 under the Act. Applicants also seek relief so that Investing 
Funds may engage in these interfund transactions in the event that the 
Investing Funds become affiliated persons of Blair Funds by virtue of 
owning more than 5% of a Money Market Fund (``Interfund 
Transactions'').

Applicant's Legal Analysis

I. Investment of Uninvested Cash and Cash Collateral

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 acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if such securities, together with the securities of other 
acquired investment companies, represent more than 10% of the acquiring 
company's outstanding total assets. Section 12(d)(1)(B) of the Act 
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, of if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(1) if and to the extent that such exemption is consistent 
with the public interest and the protection of investors.
    3. Applicants request relief under section 12(d)(1)(J) to permit 
the Investing William Blair Funds to use their Uninvested Cash and Cash 
Collateral to acquire shares of the Money Market Funds in excess of the 
percentage limitations in section 12(d)(1)(A), provided however, that 
in all cases an Investing William Blair Fund's aggregate investment of 
Uninvested Cash in shares of the Money Market Funds will not exceed 25% 
of the Investing William Blair Fund's total assets at any time. 
Applicants also request relief to permit the Money Market Funds to sell 
their securities to the Investing William Blair Funds in excess of the 
percentage limitations in section 12(d)(1)(B).
    4. Applicants state that the proposed arrangement will not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that there is no threat of redemption to gain 
undue influence over the Money Market Funds due to the highly liquid 
nature of each Money Market Fund's portfolio. Applicants also note that 
the William Blair Advisers will serve as investment advisers to all of 
the Blair Funds. Applicants state that the proposed arrangement will 
not result in inappropriate layering of either sales charges or 
investment advisory fees. Shares of the Money Market Funds sold to the 
Investing William Blair Funds will not be subject to a sales load, 
redemption fee, asset-based distribution fee or service fee. In 
connection with approving any advisory contract for an Investing 
William Blair Fund, the board of trustees of each Investing William 
Blair Fund (``Board''), including a majority who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act (``Independent 
Trustees''), shall consider to what extent, if any, the advisory fees 
charged to the Investing William Blair Fund by the William Blair 
Adviser should be reduced to account for reduced services provided to 
the Investing William Blair Fund by the William Blair Adviser as a 
result of Uninvested Cash being invested in the Money Market Funds. 
Applicants represent that no Money Market Funds will acquire securities 
of any other investment company in excess of the limitations contained 
in section 12(d)(1)(A) of the Act.
B. Section 17(a)
    5. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from the investment company. Section 
2(a)(3) of the Act defines an affiliated person of an investment 
company to include any person directly or indirectly owning, 
controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of the other person, any person 5% or 
more of whose outstanding securities are directly or indirectly owned, 
controlled, or held with power to vote by the other person, any person 
directly or indirectly controlling, controlled by, or under common 
control with the other person, and any investment adviser to the 
investment company. Because the Blair Funds and the Managed Accounts 
share a common investment adviser, they may be deemed to be under 
common control and thus affiliated persons of each of the other Blair 
Funds and Managed Accounts. In addition, if an Investing Fund purchases 
more than 5% of the voting securities of a Money Market Fund, the 
Investing Fund and Money Market Fund would be affiliated persons of 
each other. As a result of these affiliations, section 17(a) would 
prohibit the sale of the shares of Money Market Funds to the Investing 
William Blair Funds, and the redemption of the shares by Money Market 
Funds.
    6. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction

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from section 17(a) of the Act if the terms of the proposed transaction, 
including the consideration to be paid or received, are reasonable and 
fair and do not involve overreaching on the part of any person 
concerned, and the proposed transaction is consistent with the policy 
of each investment company concerned and with the general purposes of 
the Act. Section 6(c) of the Act permits the Commission to exempt 
persons or transactions from any provision of the Act, if the 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.
    7. Applicants submit that their request for relief to permit the 
purchase and redemption of shares of the Money Market Funds by the 
Investing William Blair Funds satisfies the standards in sections 6(c) 
and 17(b). Applicants state that the Investing William Blair Funds will 
retain their ability to invest Uninvested Cash and Cash Collateral 
directly in money market instruments as authorized by their respective 
investment objectives and policies, if they believe they can obtain a 
higher return or for any other reason. Similarly, a Money Market Fund 
has the right to discontinue selling shares to any of the Investing 
William Blair Funds if the Money Market Fund's board of trustees or 
investment adviser determines that such sale would adversely affect its 
portfolio management and operations. In addition, applicants note that 
shares of the Money Market Funds will be purchased and redeemed at 
their net asset value, the same consideration paid and received for 
these shares by any other shareholders.
C. Section 17(d) and Rule 17d-1
    8. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of an 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, unless the Commission has approved the joint 
arrangement. Applicants state that the Investing Funds and the Money 
Market Funds, by participating in the proposed transactions, and the 
William Blair Advisers, by effecting the proposed transactions, could 
be deemed to be participating in a joint arrangement within the meaning 
of section 17(d) and rule 17d-1.
    9. In considering whether to approve a joint transaction under rule 
17d-1, the Commission considers whether the investment company's 
participation in the joint enterprise is consistent with the 
provisions, policies and purposes of the Act and the extent to which 
participation in the joint enterprise is on a basis different from or 
less advantageous than that of other participants. Applicants state 
that, for the reasons discussed above, the proposed transactions meet 
the standards for an order under rule 17d-1.

II. Interfund Transactions

    10. Rule 17a-7 under the Act 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, of each other, or between a 
registered investment company and a person which is an affiliated 
person of such company, or an affiliated person of an affiliated 
person, solely by reason of having a common investment adviser or 
affiliated investment advisers, common officers and/or common 
directors. In the event that the Investing Funds could be deemed to be 
affiliated persons of each other, and of the Money Market Funds, by 
virtue of an Investing Fund owning 5% or more of the outstanding voting 
securities of a Money Market Fund, applicants state that they would be 
unable to rely on rule 17a-7 to effect Interfund Transactions.
    11. Applicants request relief under sections 6(c) and 17(b) of the 
Act to permit the Interfund Transactions. Applicants submit that the 
Investing Funds and the Money Market Funds will comply with rule 17a-7 
under the Act in all respects, other than the requirement that the 
participants be affiliated solely by reason of having a common 
investment adviser or affiliated investment advisers, common officers 
and/or common directors, solely because the Investing Funds and the 
Money Market Funds might become affiliated persons within the meaning 
of sections 2(a)(3)(A) and (B) of the Act. Applicants state that the 
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.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Shares of the Money Market Funds sold to and redeemed by the 
Investing William Blair 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 
2830(b)(9) of the National Association of Securities Dealers' Conduct 
Rules).
    2. No Money Market Fund will acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act.
    3. Each of the Investing William Blair Funds will invest Uninvested 
Cash in, and hold shares of, a Money Market Fund only to the extent 
that such Investing William Blair Fund's aggregate investment of 
Uninvested Cash in all the Money Market Funds does not exceed 25% of 
the Investing William Blair Fund's total assets. For purposes of this 
limitation, each Investing William Blair Fund or series thereof will be 
treated as a separate investment company.
    4. Each Investing Fund and Money Market Fund relying on the order 
will be advised by a William Blair Adviser.
    5. Investment by an Investing William Blair Fund in shares of the 
Money Market Funds will be in accordance with each Investing William 
Blair Fund's respective investment restrictions and will be consistent 
with each Investing William Blair Fund's policies as set forth in its 
prospectus and statement of additional information.
    6. Before the next meeting of the Board is held for the purpose of 
voting on an advisory contract under section 15 of the Act, the William 
Blair Adviser to the Investing William Blair Fund will provide the 
Board with specific information regarding the approximate cost to the 
William Blair Adviser of, or portion of the advisory fee under the 
existing advisory contract attributable to, managing the Uninvested 
Cash of the Investing William Blair Fund that can be expected to be 
invested in the Money Market Funds. In connection with approving any 
advisory contract for an Investing William Blair Fund, the Board, 
including a majority of the Independent Trustees, shall consider to 
what extent, if any, the advisory fees charged to the Investing William 
Blair Fund by the William Blair Adviser should be reduced to account 
for reduced services provided to the Investing William Blair Fund by 
the William Blair Adviser as a result of Uninvested Cash being invested 
in the Money Market Funds. The minute books of the Investing William 
Blair Fund will record fully the Board's consideration in approving the 
advisory contract, including the considerations referred to above.
    7. Before a Blair Fund may participate in the Securities Lending 
Program, a majority of the trustees (including a majority of the 
trustees who are not

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``interested persons,'' as defined in section 2(a)(19) of the Act) of 
the Blair Fund will approve the Blair Fund's participation in the 
Securities Lending Program. Such trustees also will evaluate the 
securities lending arrangement and its results no less frequently than 
annually and determine that any investment of Cash Collateral in the 
Money Market Funds is in the best interest of the shareholders of the 
Investing William Blair Fund.
    8. To engage in Interfund Transactions, the Investing Funds and 
Money Market Funds will comply with Rule 17a-7 under the Act in all 
respects other than the requirement that the parties to the 
transactions be affiliated persons (or affiliated persons of 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, solely because the 
Investing Funds and Money Market Funds might become affiliated persons 
within the meaning of section 2(a)(3)(A) and (B) of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-27215 Filed 10-23-00; 8:45 am]
BILLING CODE 8010-01-M