[Federal Register Volume 67, Number 149 (Friday, August 2, 2002)]
[Notices]
[Pages 50487-50489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19506]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25688; 812-12574]


Fremont Mutual Funds, Inc. and Fremont Investment Advisors, Inc.; 
Notice of Application

July 29, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order 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 under the 
Act to permit certain joint transactions.

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    Summary of the Application: The requested order would permit 
certain registered management investment companies to invest uninvested 
cash and cash collateral in affiliated money market funds in excess of 
the limits in sections 12(d)(1)(A) and (B) of the Act.
    Applicants: Fremont Mutual Funds, Inc. (the ``Company''), all 
existing and future registered management investment companies for 
which Fremont Investment Advisors, Inc. (``Fremont'') or any entity 
controlling, controlled by, or under common control with Fremont 
(together with Fremont, the ``Adviser''), serves as an investment 
adviser (all such registered investment companies and their series 
together with the existing and future series of the Company, 
collectively, the ``Funds'') and the Adviser.
    Filing Dates: The application was filed on July 13, 2001 and 
amended on April 25, 2002 and July 19, 2002.
    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 August 23, 2002, 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 who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC, 
20549-0609. Applicants, c/o Wendell M. Faria, Esq., Paul, Hastings, 
Janofsky and Walker, LLP, 1299 Pennsylvania Avenue, NW, 10th Floor, 
Washington, DC, 20004-2400.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Nadya B. Roytblat, Assistant Director, 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 Fifth Street, NW., 
Washington, DC, 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Company, a Maryland corporation, is registered under the Act 
as an open-end management investment company. The Company currently 
offers twelve Funds, including the Fremont Money Market Fund. The 
Fremont Money Market Fund and any future money market Fund that holds 
itself out a money market fund and is subject to the requirements of 
rule 2a-7 under the Act are referred to as the ``Money Market 
Funds.''\1\ Fremont, a Delaware corporation, is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and serves as investment adviser to the Company.
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    \1\ All Funds that currently intend to rely on the requested 
relief are named as applicants. Any other Funds that may rely on the 
relief in the future will do so only in accordance with the terms 
and conditions of the application.
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    2. Applicants state that each Fund has, or may have, uninvested 
cash in an account held by a custodian (``Uninvested Cash''). 
Uninvested Cash may result from a variety of sources, including 
dividends or interest received on portfolio securities, unsettled 
securities transactions, strategic reserves, matured investments, 
liquidation proceeds of investment securities, or new monies received 
from investors. The Funds also may participate in a securities lending 
program under which a Fund may lend its portfolio securities to 
registered broker-dealers or other institutional investors 
(``Securities Lending Arrangements''). The loans are continuously 
secured by collateral equal at all times to at least the market value 
of the securities loaned. Collateral for these loans may include cash 
(``Cash Collateral'' and together with Uninvested Cash, ``Cash 
Balances'').
    3. Applicants request an order to permit certain Funds (``Investing 
Funds'') to invest their Cash Balances in shares of one or more of the 
Money Market Funds, the Money Market Funds to sell their shares to, and 
redeem their shares from, the Investing Funds and the Adviser to effect 
such purchases and sales. Investment of Cash Balances in shares of the 
Money Market Funds will be made only to the extent that such 
investments are consistent with each Investing Fund's investment 
restrictions and policies as set forth in its prospectus and statement 
of additional information. Applicants believe that the proposed 
transactions may reduce transaction costs, create more liquidity, 
increase returns, and further diversify holdings.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides, in pertinent part, 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,

[[Page 50488]]

represent more than 10% of the acquiring company's total assets. 
Section 12(d)(1)(B) of the Act, in pertinent part, 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, or 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 authorizes the Commission to 
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. 
Applicants request relief under section 12(d)(1)(J) from the 
limitations of sections 12(d)(1)(A) and (B) to permit the Investing 
Funds to invest Cash Balances in Money Market Funds.
    3. Applicants state that the proposed arrangement would not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that because each Money Market Fund will 
maintain a highly liquid portfolio, an Investing Fund will not be in a 
position to gain undue influence over a Money Market Fund through 
threat of redemption. Applicants represent that the proposed 
arrangement will not result in an inappropriate layering of fees 
because shares of the Money Market Funds sold to 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 2830(b)(9) of the National Association 
of Securities Dealers' (``NASD'') Conduct Rules), or, if such shares 
are subject to a sales load, redemption fee, distribution fee or 
service fee, the Adviser will waive its advisory fee for each Investing 
Fund in an amount that offsets the amount of such fees incurred by the 
Investing Fund. Applicants state that if a Money Market Fund offers 
more than one class of shares, each Investing Fund will invest Cash 
Balances only in the class with the lowest expense ratio at the time of 
the investment. In connection with approving any advisory contract for 
an Investing Fund, the board of directors of the Company (the 
``Board''), including a majority of the directors who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Directors''), will consider to what extent, if any, the 
advisory fees charged to the Investing Fund by the Adviser should be 
reduced to account for reduced services provided to the Investing Fund 
by the Adviser as a result of the investment of Uninvested Cash in a 
Money Market Fund. In this regard, the Adviser will provide the Board 
with specific information regarding the approximate cost to the Adviser 
of, or portion of the advisory fee under the existing advisory contract 
attributable to, managing the Uninvested Cash of the Investing Fund 
that can be expected to be invested in the Money Market Funds. 
Applicants represent that a Money Market Fund will not acquire 
securities of any other investment company in excess of the limitations 
contained in section 12(d)(1)(A) of the Act.
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, or an affiliated person of 
such person, acting as principal, to sell or purchase any security to 
or from the company. Section 2(a)(3) of the Act defines an ``affiliated 
person'' of an investment company to include, among others, any person 
directly or indirectly controlling, controlled by, or under common 
control with the other person and any person owning, controlling, or 
holding with power to vote, 5% or more of the other person. Applicants 
state that, because the Funds share a common investment adviser, each 
Fund may be deemed to be under common control with each of the other 
Funds, and thus an affiliated person of each of the other Funds. 
Applicants state that the Adviser and its affiliates may hold of record 
5% or more outstanding shares of certain Funds and such Funds may be 
deemed affiliated persons of each other. As a result, section 17(a) 
would prohibit the sale of the shares of a Money Market Fund to the 
Investing Funds, and the redemption of such shares by the Money Market 
Funds.
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) 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, the proposed transaction is consistent with the 
policy of each investment company concerned, and the proposed 
transaction is consistent 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.
    6. Applicants submit that their request for relief to permit the 
purchase and redemption of shares of a Money Market Fund by the 
Investing Funds satisfies the standards in sections 6(c) and 17(b) of 
the Act. 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 shareholder. Applicants 
state that the Investing Funds will retain their ability to invest Cash 
Balances directly in money market instruments as authorized by their 
respective investment objectives and policies if they believe they can 
obtain a higher rate of return, or for any other reason. Applicants 
also state that each Money Market Fund reserves the right to 
discontinue selling shares to any of the Investing Funds if the board 
of directors of the Money Market Fund determines that such sales would 
adversely affect the Money Market Fund's portfolio management and 
operations.
    7. 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. Applicants state that each Investing Fund, by 
purchasing shares of the Money Market Funds, each Money Market Fund, by 
selling shares to the Investing Funds, and the Adviser, by effecting 
the proposed transactions, could be deemed to be participants in a 
joint enterprise or arrangement within the meaning of section 17(d) of 
the Act and rule 17d-1 under the Act.
    8. Rule 17d-1 permits the Commission to approve a proposed joint 
transaction covered by the terms of section 17(d) of the Act. In 
determining whether to approve a transaction, the Commission will 
consider whether the proposed transaction 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. Applicants submit that the investment 
by the Investing Funds in shares of a Money Market Fund would be on the 
same basis and would be indistinguishable from any other shareholder 
account maintained by the Money Market Fund and that the transactions 
will be consistent with the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Shares of a Money Market Fund sold to and redeemed by the 
Investing

[[Page 50489]]

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 NASD's Conduct 
Rules), or if such shares are subject to any such fee, the Adviser will 
waive its advisory fee for each Investing Fund in an amount that 
offsets the amount of such fees incurred by the Investing Fund.
    2. Before relying on the order, an Investing Fund will hold a 
meeting of the Board for the purpose of voting on the advisory contract 
under section 15 of the Act. Before approving any advisory contract for 
an Investing Fund, the Board, including a majority of the Independent 
Directors, taking into account all relevant factors, shall consider to 
what extent, if any, the advisory fees charged to the Investing Fund by 
Adviser should be reduced to account for reduced services provided to 
the Investing Fund by the Adviser as a result of the Uninvested Cash 
being invested in the Money Market Funds. In connection with this 
consideration, the Adviser will provide the Board with specific 
information regarding the approximate cost to the Adviser of, or 
portion of the advisory fee under the existing advisory contract 
attributable to, managing the Uninvested Cash of an Investing Fund that 
can be expected to be invested in the Money Market Funds. The minute 
books of the Investing Fund will record fully the Board's 
considerations in approving the advisory contract, including the 
consideration relating to fees referred to above.
    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 of Uninvested Cash in the Money Market 
Funds does not exceed 25 percent of the Investing Fund's total assets. 
For purposes of this limitation, each Investing Fund will be treated as 
a separate investment company.
    4. Investment of Cash Balances 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 prospectus and statement of additional 
information.
    5. Each Investing Fund and Money Market Fund that may rely on the 
order shall be shall be advised or, provided the Adviser manages Cash 
Balances, sub-advised by the Adviser.
    6. No Money Market Fund whose shares are held by an Investing Fund 
shall acquire securities of any investment company in excess of the 
limits contained in section 12(d)(1)(A) of the Act.
    7. Before a Fund may participate in Securities Lending 
Arrangements, a majority of the Board, including a majority of the 
Independent Directors, will approve the Fund's participation in 
Securities Lending Arrangements. The Board also will evaluate the 
Securities Lending Arrangements and their 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 Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-19506 Filed 8-1-02; 8:45 am]
BILLING CODE 8010-01-P