[Federal Register Volume 68, Number 53 (Wednesday, March 19, 2003)]
[Notices]
[Pages 13340-13341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6552]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25958; 812-12891]


T. Rowe Price Balanced Fund, Inc., et al.; Notice of Application

March 13, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 12(d)(1)(J) of the 
Investment Company Act of 1940 (``Act'') for an exemption from section 
12(d)(1)(G)(i)(II) of the Act.

-----------------------------------------------------------------------

Summary of Application: Applicants request an order to permit funds of 
funds relying on section 12(d)(1)(G) of the Act to invest in securities 
and other financial instruments. The requested order also would amend a 
prior order.\1\
---------------------------------------------------------------------------

    \1\ T. Rowe Price Spectrum Fund, Inc., et al., Investment 
Company Act Release Nos. 21371 (Sept. 22, 1995) (notice) and 21425 
(Oct. 18, 1995) (order) (``Spectrum Fund Order''). Condition 2 of 
the Spectrum Fund Order was amended by Reserve Investment Funds, 
Inc., et al., Investment Company Act Release Nos. 22732 (July 2, 
1997) (notice) and 22770 (July 29, 1997) (order).

Applicants: T. Rowe Price Balanced Fund, Inc. (``Balanced Fund''); T. 
Rowe Price Blue Chip Growth Fund, Inc.; T. Rowe Price California Tax-
Free Income Trust; T. Rowe Price Capital Appreciation Fund; T. Rowe 
Price Capital Opportunity Fund, Inc.; T. Rowe Price Corporate Income 
Fund, Inc.; T. Rowe Price Developing Technologies Fund, Inc.; T. Rowe 
Price Diversified Small-Cap Growth Fund, Inc.; T. Rowe Price Dividend 
Growth Fund, Inc.; T. Rowe Price Equity Income Fund, Inc.; T. Rowe 
Price Equity Series, Inc.; T. Rowe Price Financial Services Fund, Inc.; 
T. Rowe Price Fixed Income Series, Inc.; T. Rowe Price Global 
Technology Fund, Inc.; T. Rowe Price GNMA Fund; T. Rowe Price Growth & 
Income Fund, Inc.; T. Rowe Price Growth Stock Fund, Inc.; T. Rowe Price 
Health Sciences Fund, Inc.; T. Rowe Price High Yield Fund, Inc.; T. 
Rowe Price Index Trust Inc.; T. Rowe Price Institutional Equity Funds, 
Inc.; T. Rowe Price Institutional International Funds, Inc.; T. Rowe 
Price International Funds, Inc.; T. Rowe Price International Index 
Fund, Inc.; T. Rowe Price International Series, Inc.; T. Rowe Price 
Media & Telecommunications Fund, Inc.; T. Rowe Price Mid-Cap Growth 
Fund, Inc.; T. Rowe Price Mid-Cap Value Fund, Inc.; T. Rowe Price New 
America Growth Fund; T. Rowe Price New Era Fund, Inc.; T. Rowe Price 
New Horizons Fund, Inc.; T. Rowe Price New Income Fund, Inc.; T. Rowe 
Price Personal Strategy Funds, Inc.; T. Rowe Price Prime Reserve Fund, 
Inc.; T. Rowe Price Real Estate Fund, Inc.; T. Rowe Price Retirement 
Funds, Inc.; T. Rowe Price Reserve Investment Funds, Inc.; T. Rowe 
Price Science & Technology Fund, Inc.; T. Rowe Price Short-Term Bond 
Fund, Inc.; T. Rowe Price Small-Cap Stock Fund, Inc.; T. Rowe Price 
Small-Cap Value Fund, Inc.; T. Rowe Price Spectrum Fund, Inc. (together 
with any other fund of funds relying on the Spectrum Fund Order, 
``Spectrum Funds''); T. Rowe Price State Tax-Free Income Trust; T. Rowe 
Price Summit Funds, Inc.; T. Rowe Price Summit Municipal Funds, Inc.; 
T. Rowe Price Tax-Efficient Funds, Inc.; T. Rowe Price Tax-Exempt Money 
Fund, Inc.; T. Rowe Price Tax-Free High Yield Fund, Inc.; T. Rowe Price 
Tax-Free Income Fund, Inc.; T. Rowe Price Tax-Free Intermediate Bond 
Fund, Inc.; T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.; T. 
Rowe Price U.S. Bond Index Fund, Inc.; T. Rowe Price U.S. Treasury 
Funds, Inc.; T. Rowe Price Value Fund, Inc.; T. Rowe Price 
Institutional Income Funds, Inc. (collectively, together with any other 
registered open-end investment company that is in the same group of 
investment companies as the named investment companies, the ``Price 
---------------------------------------------------------------------------
Funds''); and T. Rowe Price Associates, Inc. (``T. Rowe Price'').

Filing Dates: The application was filed on October 8, 2002 and amended 
on March 13, 2003.

Hearing or Notification of Hearing: An order granting the application 
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 April 7, 2003, 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 Commission's 
Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, c/o T. Rowe Price Associates, Inc., 100 East 
Pratt Street, Baltimore, MD 21202, Attn.: Henry H. Hopkins, Esq. and 
Forrest R. Foss, Esq.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Nadya B. Roytblat, Assistant Director, at (202) 942-
0578 (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 Balanced Fund is a Maryland corporation registered under the 
Act as an open-end management investment company. T. Rowe Price is an 
investment adviser registered under the Investment Advisers Act of 
1940, and is the investment adviser to the Balanced Fund. The Balanced 
Fund will invest in shares of the T. Rowe Price Institutional High 
Yield Fund (``IHY Fund'') and/or any other Price Fund (collectively, 
the ``Underlying Funds''), as well as directly in stocks, bonds, and 
other securities. Applicants request that the relief also apply to 
other existing Price Funds and any Price Funds that might be organized 
in the future (collectively, the ``Upper-Tier Funds'') that wish to 
invest in any existing or future Underlying Fund.\2\
---------------------------------------------------------------------------

    \2\ Applicants represent that all existing entities that 
currently intend to rely on the requested order are named as 
applicants and that any 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.
---------------------------------------------------------------------------

    2. The IHY Fund was created for the purpose of offering a high 
yield investment option to institutional clients of T. Rowe Price and 
Price International and various Price Funds, such as the Balanced Fund, 
that invest a portion of their assets in high yield bonds. Applicants 
believe that the IHY Fund will provide a more efficient and cost-
effective means of investing assets of the Balanced Fund, as well as 
other Price Funds acting as Upper-Tier Funds,

[[Page 13341]]

that are allocated to high yield securities.

Applicants' Legal Analysis

A. Section 12(d)(1) of the Act

    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 or more than 5% of the acquiring company's 
total assets, or if such securities, together with the securities of 
other investment companies, represent 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 cause 
more than 10% of the acquired company's voting stock to be owned by 
investment companies.
    2. Section 12(d)(1(G) of the Act provides that section 12(d)(1) 
will not apply to securities of an acquired company purchased by an 
acquiring company if: (i) The acquiring company and the acquired 
company are part of the same group of investment companies; (ii) the 
acquiring company holds only securities of acquired companies that are 
part of the same group of investment companies, government securities, 
and short-term paper; (iii) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are not 
excessive under rules adopted pursuant to section 22(b) or section 
22(c) of the Act by a securities association registered under section 
15A of the Securities Exchange Act of 1934 or by the Commission; and 
(iv) the acquired company has a policy that prohibits it from acquiring 
securities of registered open-end management investment companies or 
registered unit investment trusts in reliance on section 12(d)(1)(F) or 
(G) of the Act. Applicants state that the proposed arrangement would 
comply with the provisions of section 12(d)(1)(G), but for the fact 
that the Balanced Fund's investment policies contemplate that its 
investments will include direct investments in equity securities, 
bonds, and other securities.
    3. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt persons 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 request an order 
under section 12(d)(1)(J) exempting them from section 
12(d)(1)(G)(i)(II). Applicants assert that permitting the Balanced Fund 
and other Upper Tier Funds to invest in Underlying Funds and directly 
in securities as proposed, would not raise any of the concerns that the 
requirements of section 12(d)(1)(G) were designed to address.

B. Spectrum Fund Order

    1. Applicants also request an order under section 12(d)(1)(J) of 
the Act and under sections 6(c) and 17(b) of the Act to amend the 
Spectrum Fund Order and permit an Upper-Tier Fund in which a Spectrum 
Fund invests pursuant to the Spectrum Fund Order (``Spectrum Underlying 
Fund'') to purchase shares of an Underlying Fund in excess of the 
limits contained in section 12(d)(1)(A)(i) of the Act but within the 
limits in section 12(d)(1)(A)(ii) and (iii).
    2. Applicants believe that the proposed modification of the 
Spectrum Fund Order satisfies the standards of sections 12(d)(1)(J), 
6(c), and 17(b). The requested amendment would allow a Spectrum 
Underlying Fund to own in excess of 3% of the outstanding voting 
securities of IHY Fund or another Underlying Fund. Applicants submit 
that any concerns about undue influence underlying section 12(d)(1) of 
the Act are addressed by the fact that the Spectrum Underlying Fund and 
the IHY Fund or another Underlying Fund will be in the same group of 
investment companies. Since the Spectrum Underlying Fund will remain 
subject to the limits in section 12(d)(1)(A)(ii) and (iii) when it 
invests in the IHY Fund or another Underlying Fund, applicants submit 
that concerns about complex fund structures and layering of fees will 
not be present. Applicants also submit that the conditions to the 
Spectrum Fund Order (as they would be modified) and the conditions to 
the requested order further would address these concerns.

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. Before approving any advisory contact under section 15 of the 
Act, the board of directors/trustees (``Board'') of the Balanced Fund 
or any Upper Tier Fund, including a majority of the directors/trustees 
who are not ``interested persons'' as defined in section 2(a)(19) of 
the Act, will find that advisory fees, if any, charged under such 
contract are based on services provided that are in addition to, rather 
than duplicative of, services provided pursuant to the Underlying 
Fund's advisory contract. Such finding, and the basis upon which the 
finding was made, will be recorded fully in the minute books of the 
Balanced Fund or Upper Tier Fund.
    2. Applicants will comply with all provisions of section 
12(d)(1)(G) of the Act, except for section 12(d)(1)(G)(i)(II) to the 
extent that it restricts the Balanced Fund or an Upper Tier Fund from 
investing directly in securities as described in the application.
    Applicants also agree that conditions number 2 and 5 to the 
Spectrum Fund Order would be modified as follows (for purposes of these 
conditions, the defined terms have the same meanings as in the Spectrum 
Fund Order):
    2. No Underlying Fund shall acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act, except to the extent such Underlying Fund 
acquires securities of another investment company pursuant to exemptive 
relief from the Commission permitting such Underlying Fund to acquire 
securities of one or more registered open-end investment companies in 
the same group of investment companies as the Underlying Fund (a) that 
are money market funds or short-term bond funds for short-term cash 
management purposes; or (b) within the limits in section 
12(d)(1)(A)(ii) and (iii) of the Act.
    5. Any sales charges or service fees charged with respect to 
securities of Spectrum Fund, when aggregated with (i) any sales charges 
and service fees paid by Spectrum Fund with respect to securities of 
the Underlying funds, and (ii) any sales charges and service fees paid 
by an Underlying Fund with respect to securities acquired as permitted 
in condition 2(b), shall not exceed the limits set forth in Rule 2830 
of the Rules of Conduct of the National Association of Securities 
Dealers, Inc.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-6552 Filed 3-18-03; 8:45 am]
BILLING CODE 8010-01-M