[Federal Register Volume 67, Number 169 (Friday, August 30, 2002)]
[Notices]
[Pages 55891-55893]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22214]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25717; 812-12174]


Reserve Private Equity Series, et al., Notice of Application

August 26, 2002.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of an 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: The requested order would permit certain registered open-end 
investment companies to use uninvested cash to invest in affiliated 
money market funds, and the money market funds to sell shares to, and 
redeem shares from, the investment companies.

Applicants:  Reserve Private Equity Series (the ``Equity Fund''), The 
Reserve Fund, Reserve Tax-Exempt Trust, Reserve New York Tax-Exempt 
Trust, Reserve Municipal Money Market Trust (the ``Money Market 
Funds,'' together with the Equity Fund, the ``Trusts''), Reserve 
Management Company, Inc.

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(the ``Adviser''), all existing and future series of the Trusts 
(``Funds'') and any other registered open-end management investment 
company and any series thereof (included in the term ``Funds'') that 
are now or in the future advised by the Adviser or a person 
controlling, controlled by or under common control with the Adviser.

Filing Dates: The application was filed on May 16, 2000, and amended on 
August 20, 2002.

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 September 18, 
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 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants: 1250 Broadway, 32nd Floor, New York, NY 10001-3701.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 942-0634, or Nadya B. Royblat, 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 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicants' Representatives

    1. The Equity Fund, a Delaware business trust, is an open-end 
management investment company registered under the Act and is comprised 
of seven Funds. The Money Market Funds, each a Massachusetts business 
trust, are open-end management investment companies registered under 
the Act. The Money Market Funds are subject to the requirements of rule 
2a-7 under the Act. The Adviser, a New Jersey corporation, serves as 
investment manager to the Funds and is registered as an investment 
adviser under the Investment Advisers Act of 1940.\1\
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    \1\ All existing investment companies that currently intend to 
rely on the requested order are named as applicants. Any other 
existing or future registered open-end management investment company 
that may rely on the order 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 certain Funds, including Money Market 
Funds (the ``Participating Funds'') have, or may be expected to have, 
cash balances that have not been invested in portfolio securities 
(``Uninvested Cash'') held by their custodian bank. Uninvested Cash may 
result from a variety of sources, including dividends or interest 
received from portfolio securities, unsettled securities transactions, 
strategic reserves, matured investments, proceeds from liquidation of 
investment securities, and new monies received from investors.
    3. Applicants request an order to permit the Participating Funds to 
use their Uninvested Cash to purchase shares of one or more Money 
Market Funds that comply with rule 2a-7 under the Act (the ``Central 
Funds''), and each Central Fund to sell shares and purchase such shares 
from the Participating Funds and the Adviser to effect such purchases 
and sales (the ``Proposed Transactions''). Applicants believe that the 
Proposed Transactions will benefit the Participating Funds by providing 
higher rates of return, ready liquidity, and increased diversification 
and the Central Funds by increasing their asset base and providing an 
additional, stable market for their shares.

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, together with the securities of 
other acquired investment companies, more than 10% of the acquiring 
company's 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, 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 provides that the Commission may 
exempt any person, security or transactions from any provision of 
section 12(d)(1) if, and to the extent that, the exemption is 
consistent with the public interest and the protection of investors. 
Applicants requests relief under section 12(d)(1)(J) from the 
limitations of sections 12(d)(1)(A) and (B) to permit the Participating 
Funds to invest Uninvested Cash in the Central Funds.
    3. Applicants submit that the Proposed Transactions do not 
implicate the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that because each Central Fund will maintain 
a highly liquid portfolio, a Participating Fund would not be in a 
position to gain undue influence over a Central Fund through threat of 
redemption. Applicants represent that the Proposed Transactions will 
not result in an inappropriate layering of fees because shares of the 
Central Fund sold to the Participating Funds will not be subject to a 
sales load, 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 Rules of Conduct of the National Association of Securities 
Dealers, Inc. (``NASD'')). In connection with approving any advisory 
contract, a Participating Fund's board of trustees (the ``Board''), 
including a majority of the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act (``Disinterested 
Trustees''), will consider to what extent, if any, the advisory fees 
charged to a Participating Fund by the Adviser should be reduced to 
account for any changes in services provided to a Participating Fund by 
the Adviser as a result of the Uninvested Cash being invested in the 
central Funds. Applicants state that no Central Fund will acquire 
securities of any other investment company in excess of the limitations 
contained in section 12(d)(1)(A) of the Act. Applicants further state 
that if a Central Fund offers more than one class of shares, each 
Participating Fund will invest only in the class with the lowest 
expense ratio at the time of the investment.
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, or an affiliated person of 
the affiliated 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 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

[[Page 55893]]

more of whose outstanding voting 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. Applicants state that because the Funds share a 
common investment adviser, each of the Funds may be deemed to be under 
common control and affiliated persons of one another. In addition, 
applicants state that because a Participating Fund may acquire 5% or 
more of a Central Fund's outstanding voting securities, the 
Participating Fund and the Central Fund may be deemed to be affiliated 
persons of each other. As a result, section 17(a) would prohibit the 
sale of the shares of a central Fund to a participating Fund and the 
redemption of shares by the Central Fund.
    5. Section 17(b) of the Act provides that the Commission may 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, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and 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 the Proposed Transactions satisfy the 
standards of sections 17(b) and 6(c). Applicants submit that the 
Proposed Transactions satisfy the standards of sections 17(b) and 6(c). 
Applicants note that the Proposed Transactions are reasonable and fair 
and would not involve overreaching because shares of the Central Funds 
will be purchased and redeemed at net asset value. Applicants state 
that the participating Funds will retain their ability to invest 
Uninvested Cash directly in money market instruments in accordance with 
their investment objectives and policies. Applicants also state that 
each Central Fund may discontinue selling its shares to the 
Participating Funds if the central Fund's Board determines that the 
sale would adversely affect its portfolio management and operations.
    7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered 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 the Funds, by 
participating in the Proposed Transactions, and the Adviser, by 
managing the Proposed Transactions, could be deemed to be participants 
in a joint arrangement within the meaning of section 17(d) and rule 
17d-1.
    8. In considering whether to permit a joint transaction under rule 
17d-1, the commission considers whether the investment company's 
participation 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 state that, for the reasons discussed above, the proposed 
Transactions meet the standards for an order under rule 17d-1.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The shares of the Central Funds sold to and redeemed from the 
Participating Funds will not be subject to a sales load, redemption 
fee, distribution fee under a plan adopted pursuant to rule 12b-1 under 
the Act, or service fee as defined in rule 2830(b)(9) of the NASD Rules 
of Conduct.
    2. Before the next meeting of the Board of a Participating Fund is 
held for the purpose of voting on an investment advisory contract under 
section 15 of the Act, 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 agreement 
attributable to, managing the Uninvested Cash of the Participating Fund 
that can be expected to be invested in the Central Funds. Before 
approving any investment advisory contract under section 15, the Board 
of the Participating Fund, including a majority of the Disinterested 
Trustees, shall consider to what extent, if any, the advisory fees 
charged to the Participating Fund by the Adviser should be reduced to 
account for any change in the services provided to the Participating 
Fund by the Adviser as a result of Uninvested Cash being invested in 
the Central Funds. The minute books of the Participating Fund will 
record fully the Board's consideration in approving the advisory 
contract, including the consideration relating to fees referred to 
above.
    3. Each of the Participating Funds will invest Uninvested Cash in, 
and hold shares of, the Central Funds only to the extent that the 
Participating Fund's aggregate investment in the Central Funds does not 
exceed 25% of the Participating Fund's total assets. For purposes of 
this limitation, each Participating Fund will be treated as a separate 
investment company.
    4. Investment in shares of the Central Funds will be in accordance 
with each Participating Fund's respective investment restrictions and 
policies as set forth in its prospectus and statement of additional 
information.
    5. No Central Fund shall acquire securities of any investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
Act.
    6. Each Participating Fund and Central Fund that may rely on the 
requested order will be advised by the Adviser or any person 
controlling, controlled by, or under common control with the Adviser.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-22214 Filed 8-29-02; 8:45 am]
BILLING CODE 8010-01-M