[Federal Register Volume 68, Number 175 (Wednesday, September 10, 2003)]
[Notices]
[Pages 53407-53409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-23049]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26172; 812-12895]


ISI Strategy Fund, Inc., et al.; Notice of Application September 
4, 2003.

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 
15(f)(1)(A) of the Act.

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    Summary of Application: The requested order would permit ISI 
Strategy Fund, Inc. (``Fund'') not to reconstitute its board of 
directors to meet the 75 percent non-interested director requirement of 
section 15(f)(1)(A) of the Act in order for Los Angeles Capital 
Management and Equity Research, Inc. (``LA Capital'') to rely upon the 
safe harbor provisions of section 15(f).
    Applicants: The Fund, International Strategy & Investment Inc. 
(``ISI'') and LA Capital.
    Filing Dates: The application was filed on October 15, 2002 and 
amended on September 2, 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 September 29, 2003, and should be accompanied by proof of 
service on the 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 R. Alan Medaugh, ISI Strategy Fund, Inc., 
535 Madison Avenue, New York, NY 10022.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202)

[[Page 53408]]

942-0527, or Mary Kay Frech, 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 Fifth Street, NW, Washington, 
DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Fund, a Maryland corporation, is registered under the Act as 
an open-end management investment company. ISI, a Delaware corporation, 
serves as the investment adviser to the Fund and is registered under 
the Investment Advisers Act of 1940 (``Advisers Act''). LA Capital, a 
California corporation, serves as the sub-adviser to the Fund and is 
registered under the Advisers Act.
    2. Until March 29, 2002, Wilshire Asset Management, the asset 
management division of Wilshire Associates, Incorporated (``Wilshire'') 
and an investment adviser registered under the Advisers Act, served as 
sub-adviser to the Fund pursuant to a sub-advisory agreement between 
Wilshire and ISI. On March 29, 2002, Wilshire spun off its asset 
management division into a separate, independent company, LA Capital 
(``Transaction''). Upon the consummation of the Transaction, Wilshire's 
investment sub-advisory agreement with the Fund was automatically 
terminated. Pursuant to a new sub-advisory agreement approved by the 
Fund's Board of Directors (``Board''), including a majority of 
directors who are not interested persons of the Fund, ISI or LA Capital 
as set forth in section 2(a)(19) of the Act, on March 27, 2002, LA 
Capital became the sub-adviser to the Fund effective March 29, 2002. On 
June 26, 2002, shareholders of the Fund approved the sub-advisory 
agreement with LA Capital. In connection with the Transaction, for the 
three year period beginning March 29, 2002, LA Capital has determined 
to seek to comply with the ``safe harbor'' provisions of section 15(f) 
of the Act. Applicants state that, absent exemptive relief, more than 
25 percent of the Fund's Board would be ``interested persons'' for 
purposes of section 15(f)(1)(A) of the Act.
    3. Applicants state that Mr. Carl Vogt is and has been a director 
of the Fund since 1995. Mr. Vogt is of counsel in the Washington, DC 
office of Fulbright & Jaworski L.L.P. (``Fulbright'').\1\ Applicants 
state that the Los Angeles, CA office of Fulbright (``Fulbright LA'') 
has rendered general corporate legal services to and received legal 
fees from LA Capital in connection with the formation of LA Capital. 
Fulbright LA continues to provide general corporate legal services to 
LA Capital. Applicants state, however, that these services do not 
relate in any way to the Fund, the Act, or the Advisers Act. Applicants 
represent that the fees paid to Fulbright LA by LA Capital are expected 
to represent significantly less than 1% of Fulbright's total annual 
revenues. Applicants represent that Mr. Vogt has not participated in 
Fulbright LA's representation of LA Capital in any manner and will not 
be involved in such representation for as long as he is a director of 
the Fund. Applicants represent that Mr. Vogt has no professional or 
business relationships with LA Capital other than his position as a 
director of the Fund.
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    \1\ Mr. Vogt retired as a partner on December 31, 2001 and 
effective January 1, 2002, he became ``of counsel'' on a part-time 
basis to Fulbright. Mr. Vogt's compensation is based directly on the 
hours of service performed by him and billed to Fulbright's clients. 
Mr. Vogt currently receives as compensation a percentage of his own 
hours billed, or a percentage of the fees paid less expenses on 
fixed-fee arrangements. Mr. Vogt is not compensated in relation to 
Fulbright's overall profits and receives no economic benefit from 
legal representations by Fulbright in areas outside his own personal 
practice. Mr. Vogt does not have fixed hours of employment and sets 
his work schedule based on his clients' needs and he does not serve 
as a billing partner. Mr. Vogt does not render legal advice 
regarding any issues relating to investment companies or investment 
advisers. Mr. Vogt's practice involves solely aviation law, a 
specialized area of law distinct from any subject matter that LA 
Capital has consulted, or would consult, with Fulbright.
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Applicants' Legal Analysis

    1. Section 15(f) of the Act is a safe harbor that permits an 
investment adviser to a registered investment company (or an affiliated 
person of the investment adviser as defined in Section 2(a)(3) of the 
Act) to realize a profit on the sale of its business if certain 
conditions are met. One of these conditions is set forth in section 
15(f)(1)(A), which provides that, for a period of three years after the 
sale, at least 75 percent of the board of directors of the investment 
company may not be ``interested persons'' with respect to either the 
predecessor or successor adviser of the investment company. Section 
2(a)(19)(B)(iv) provides that any person or partner or employee of any 
person who has acted as legal counsel to the investment adviser or 
principal underwriter of an investment company at any time since the 
beginning of the last two fiscal years of such investment company is an 
interested person of such investment adviser or principal underwriter. 
Consequently, Mr. Vogt could be deemed to be an interested person of LA 
Capital as a result of Fulbright LA's representation of LA Capital.
    2. The Fund currently has five directors, three of whom are not 
interested persons of ISI or LA Capital. Without the requested 
exemption, the Fund would have to reconstitute its Board to meet the 75 
percent non-interested director requirement of section 15(f)(1)(A) of 
the Act.
    3. Section 6(c) of the Act permits the Commission to exempt any 
person or transaction 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.
    4. Applicants request an exemption under section 6(c) from section 
15(f)(1)(A) of the Act. Applicants submit that the addition of 
directors to achieve the 75 percent disinterested director ratio 
required by section 15(f)(1)(A) would make the Board unduly large and 
unwieldy, unnecessarily increase the ongoing expenses of the Fund, and 
cause the Fund to incur additional expenses in connection with the 
selection and election of the additional directors.
    5. Applicants assert that the requested exemption is consistent 
with the protection of investors. Applicants state that the Fund will 
continue to treat Mr. Vogt as an interested person of the Fund and LA 
Capital for all purposes other than section 15(f)(1)(A) of the Act so 
long as Mr. Vogt is considered an ``interested person'' as defined in 
section 2(a)(19) of the Act. Applicants also state that the conditions 
to the requested order further would assure investor protection.
    6. Applicants also submit that the requested exemption is 
consistent with the purposes fairly intended by the policies and 
provisions of the Act. Applicants assert that the legislative history 
of section 15(f) indicates that Congress intended the Commission to 
deal flexibly with situations where the imposition of the 75 percent 
requirement might pose an unnecessary obstacle or burden on an 
investment company. Applicants also state that section 15(f)(1)(A) was 
designed primarily to address the types of biases and conflicts of 
interest that might exist where an investment company's board of 
directors is influenced by a substantial number of interested directors 
to approve a transaction because the interested directors have an 
economic interest in the adviser.

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Applicants assert that these circumstances do not exist in the present 
case.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. If, within three years of the completion of the Transaction, it 
becomes necessary to replace any director of the Fund, that director 
will be replaced by a director who is not an ``interested person'' of 
LA Capital or ISI within the meaning of section 2(a)(19)(B) of the Act, 
unless at least 75% of the directors at that time are not interested 
persons of LA Capital or ISI.
    2. Mr. Vogt will not be involved in Fulbright's representation of 
LA Capital.
    3. Fees paid to Fulbright by LA Capital shall not, in the 
aggregate, exceed 1% of Fulbright's total revenues during any fiscal 
year.
    4. Mr. Vogt will not be compensated in relation to the overall 
profits of Fulbright and will not receive any economic benefit from 
legal representation by Fulbright in areas outside of his own personal 
practice.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-23049 Filed 9-9-03; 8:45 am]
BILLING CODE 8010-01-P