[Federal Register Volume 62, Number 234 (Friday, December 5, 1997)]
[Notices]
[Pages 64411-64414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31847]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22918; 812-10688]
Strong Advantage Fund, Inc., et al.; Notice of Application
November 28, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 17(d) of the
Investment Company Act of 1940 (the ``Act'') and rule 17d-1.
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Summary of the Application: Applicants request an order to permit
certain investment companies to deposit their uninvested cash balances
in joint accounts to be used to enter into short-term investments.
Applicants: Strong Advantage Fund, Inc., Strong Asia Pacific Fund,
Inc., Strong Asset Allocation Fund, Inc., Strong Common Stock Fund,
Inc., Strong Conservative Equity Funds, Inc., Strong Corporate Bond
Fund, Inc., Strong Discovery Fund, Inc., Strong Equity Funds, Inc.,
Strong Government Securities Fund, Inc., Strong Heritage Reserve
Series, Inc., Strong High-Yield Municipal Bond Funds, Inc., Strong
Income Funds, Inc., Strong Institutional Funds, Inc., Strong
International Bond Fund, Inc., Strong International Stock Fund, Inc.,
Strong Money Market Fund, Inc., Strong Municipal Funds, Inc., Strong
Municipal Bond Fund, Inc., Strong Short-Term Bond Fund, Inc., Strong
Short-Term Global Bond Fund, Inc., Strong Short-Term Municipal Bond
Fund, Inc., Strong Special Fund II, Inc., Strong Total Return Fund,
Inc., Strong Variable Insurance Funds, Inc. (``Funds''), Strong Capital
Management, Inc. (the ``Adviser'') and Strong Funds Distributors, Inc.
(the ``Distributor'').
Filing Dates: The application was filed on June 2, 1997 and amended
on October 6, 1997. Applicants have agreed to file an amendment to the
application during the notice period, the substance of which is
included in this notice.
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 December
23, 1997, 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, One Hundred Heritage Reserve, Menomonee Falls,
Wisconsin 53051.
FOR FURTHER INFORMATION CONTACT:
Joseph B. McDonald, Jr., Senior Counsel, at (202) 942-0533, or Mary Kay
Frech, Branch Chief, at (202) 942-0564 (Office of Investment Company
Regulation, Division of Investment Management).
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 St., N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. Each Fund is incorporated under the laws of the State of
Wisconsin and registered under the Act as an open-end management
investment company. All of the Funds are series companies that may
issue one or more classes of shares.
2. The Adviser, incorporated under the laws of the State of
Wisconsin, is an investment adviser registered under the Investment
Advisers Act of 1940. The Adviser acts as each Fund's investment
manager, provides the Funds with various administrative services, and
acts as transfer and dividend disbursing agent for the Funds. The
Distributor, incorporated under the laws of the State of Wisconsin, is
a broker-dealer registered under the Securities Exchange Act of 1934.
The Distributor is an indirect subsidiary of the Adviser
[[Page 64412]]
and acts as principal underwriter of each of the Funds.
3. Applicants request that any relief granted pursuant to the
application also apply to all other registered investment companies and
series thereof that are part of the same group of investment companies
(as defined in rule 11a-3 under the Act) and: (a) for which the
Adviser, or a person controlling, controlled by, or under common
control with the Adviser may in the future act as investment adviser;
or (b) for which the Distributor, or a person controlling, controlled
by, or under common control with the Distributor may in the future act
as principal underwriter. The Funds that intend to rely on the
requested order are named as applicants. Funds for which the Adviser or
Distributor acts as investment adviser and/or principal underwriter in
the future will not rely on the requested relief except upon the terms
and conditions contained in the application.
4. All of the Funds are authorized by their investment policies to
invest at least a portion of their uninvested cash balances in short-
term liquid assets, including repurchase agreements, high-grade
commercial paper, U.S. Government securities and other short-term debt
obligations (``Short-Term Investments'').
5. The assets of the Funds are held by Firstar Trust Company and/or
Brown Brothers Harriman & Co. as custodians (collectively, the
``Custodian''), neither of which controls, is controlled by or is under
common control with, any of the Funds or the Adviser. At the end of
each trading day, some or all of the funds may have uninvested cash
balances in accounts at their respective Custodian that would not
otherwise be invested in portfolio securities by the Adviser.
Generally, such cash balances of the Funds are, or would be, invested
in short-term liquid assets, such as commercial paper, U.S. Treasury
bills, shares of certain Funds that value their net assets in reliance
on rule 2a-7 under the Act,\1\ and repurchase agreements.
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\1\ Applicants have obtained an exemptive order from the SEC
that permits certain Funds to purchase shares of affiliated Funds
that are money market funds, in excess of the limitations prescribed
in section 12(d)(1) of the Act, for cash management purposes. See
Strong Advantage Fund, Inc., Investment Company Act Release Nos.
22308 (Oct. 31, 1996) (notice) and 22356 (Nov. 26, 1996) (order).
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6. Applicants propose that the Funds deposit uninvested cash
balances that remain at the end of the trading day into one or more
joint accounts (the ``Joint Accounts'') and that the daily balances of
the Joint Accounts be invested in Short-Term Investments. Each Fund
would invest through a Joint Account only to the extent that the Fund
intends to invest in Short-Term Investments consistent with its
respective investment objectives, policies and restrictions. The
decision to employ a Joint Account for each fund will be based on the
same factors as the decision to make any other investment in Short-Term
Investments for the Fund.
7. Currently, the Adviser must enter into repurchase agreements and
purchase other money market instruments separately on behalf of each
Fund. This requires the Adviser to monitor multiple sources of cash
availability, to allocate opportunities among the Funds, to execute
multiple trades in similar securities on any given day and to settle
the trades in a number of separate accounts. The sole purpose of the
Joint Accounts will be to provide a convenient means of aggregating
what otherwise would be one or more daily transactions for some or all
Funds necessary to manage their respective daily account balances.
8. The Adviser will not charge any additional or separate fees for
operating or advising the Joint Accounts and will have no monetary
participation in the Joint Accounts, but would continue to receive from
each Fund its asset-based advisory fee with respect to each Fund's
assets. The Adviser will be responsible for investing funds held by the
Joint Accounts, establishing accounting and control procedures, and
ensuring fair treatment of the Funds. All purchases through a Joint
Account will be subject to the same systems and standards for acquiring
investments for individual Funds.
9. Any repurchase agreements entered into through the Joint
Accounts will comply with the terms of Investment Company Act Release
No. 13005 (February 2, 1983). Applicants acknowledge that they have a
continuing obligation to monitor the SEC's published statements on
repurchase agreements, and represent that the repurchase agreement
transactions entered into through a Joint Account will comply with
future positions of the SEC to the extent that such positions set forth
different or additional requirements regarding repurchase agreements.
In the event that the SEC sets forth guidelines with respect to other
Short-Term Investments, all such investments made through any Joint
Account will comply with those guidelines.
Applicants' Legal Analysis
1. Section 17(d) and rule 17d-1 prohibit an affiliated person of a
registered investment company, or an affiliated person of such a
person, from participating in any joint enterprise or arrangement in
which such investment company is a participant, without an SEC order.
2. The Funds, by participating in the Joint Accounts, and the
Adviser, by managing the Joint Accounts, could be deemed to be ``joint
participants * * * in a transaction'' within the meaning of section
17(d) of the Act. In addition, the Joint Accounts could be deemed to be
a ``joint enterprise or other joint arrangement'' within the meaning of
rule 17d-1 under the Act.
3. Rule 17d-1 provides, in part, that no affiliated person of any
registered investment company and no affiliated person of such a
person, acting as principal, shall participate in, or effect any
transaction in connection with, any joint enterprise or other joint
arrangement or profit-sharing plan in which any such registered company
is a participant, and which is entered into, adopted or modified
subsequent to the effective date of the rule, unless an application
regarding such joint enterprise, arrangement of profit-sharing plan has
been filed with the SEC and has been granted by an order.
4. The Funds may earn a higher rate of return on investments
effected through the Joint Accounts relative to the returns the Funds
could earn individually. Under most market conditions, it is generally
possible to negotiate a rate of return on larger repurchase agreements
and other Short-Term Investments that is higher than the rate available
on smaller repurchase agreements and other Short-Term Investments. The
Joint Accounts also may increase the number of dealers and issuers
willing to enter into Short-Term Investments with the Funds and may
reduce the possibility that the Funds' cash balances remain uninvested.
5. The Joint Accounts may result in certain administrative
efficiencies and a reduction of the potential for errors by reducing
the number of trade tickets and cash wires that must be processed by
the sellers of Short-Term Investments, the Custodian, and the Adviser's
accounting and trading departments.
6. Applicants assert that no Fund will be in a less favorable
position as a result of the Joint Accounts. Applicants believe that
each Fund's investment in a Joint Account would not be subject to the
claims of creditors, whether brought in bankruptcy, insolvency or other
legal proceeding, of any other Fund. Each Fund's liability on any
Short-Term Investment will be limited to its interest in such
investment; no Fund will be jointly liable for the investments of any
other Fund.
[[Page 64413]]
7. Although the Adviser will realize some benefits through
administrative convenience and some possible reduction in clerical
costs, the Funds will be the primary benefactors of the Joint Accounts
because the Joint Accounts may result in higher returns and will be a
more efficient means of administering daily cash investments.
8. Applicants submit that the proposed operation of the Joint
Accounts, as described in the application, is consistent with the
provisions, policies and purposes of the Act, and that no Fund will
participate in the Joint Accounts on a basis different from or less
advantageous than that of any other Fund.
Applicants' Conditions
Applicants will comply with the following as conditions to any
order granted by the SEC:
1. A separate custodial cash account will be established with the
Custodian for each Joint Account into which each Fund will be permitted
to have deposited daily some or all of its uninvested net cash
balances. A Fund may transfer a portion of its daily cash balances to
more than one Joint Account. The Joint Accounts will not be
distinguishable from any other accounts maintained by the Funds at the
Custodian, except that monies from the Funds will be deposited in the
Joint Accounts on a commingled basis. The Joint Accounts will not have
a separate existence and will not have any indicia of a separate legal
entity. The sole function of the Joint Accounts will be to provide a
convenient means of aggregating individual transactions in Short-Term
Investments which would otherwise require daily management by the
Adviser of each Fund's uninvested cash balances.
2. Cash in the Joint Accounts, as directed by the Adviser, will be
invested in one or more of the following: (a) repurchase agreements
which are ``collateralized fully'' as defined in rule 2a-7 under the
Act; (b) interest-bearing or discounted commercial paper, including
dollar denominated commercial paper of foreign issuers; and (c) any
other short-term money market instruments, that constitute ``Eligible
Securities'' (as defined in rule 2a-7 under the Act). The repurchase
agreements entered into through the Joint Accounts will have remaining
maturities of 60 days or less, and any other Short-Term Investments
will have a remaining maturity of 90 days or less, each as calculated
in accordance with rule 2a-7 under the Act. No Fund will be permitted
to invest in a Joint Account unless the Short-Term Investments in such
Joint Account will comply with the investment policies and guidelines
of that Fund.
3. All assets held in the Joint Accounts will be valued on an
amortized cost basis to the extent permitted by applicable SEC
releases, rules, or orders.
4. Each Fund that values its net assets in reliance on rule 2a-7
under the Act will use the average maturity of the instruments in the
Joint Accounts in which such Fund has an interest (determined on a
dollar weighted basis), for the purpose of computing its average
portfolio maturity with respect to its portion of the assets held in a
Joint Account on that day.
5. In order to ensure that there will be no opportunity for any
Fund to use any part of a balance of a Joint Account credited to
another Fund, no Fund will be allowed to create a negative balance in
any Joint Account for any reason, although each Fund will be permitted
to draw down its entire balance at any time. Each Fund's decision to
invest in the Joint Accounts will be solely at its option, and no Fund
will be obligated to invest in the Joint Accounts or to maintain any
minimum balance in the Joint Accounts. In addition, each Fund will
retain the sole rights of ownership to any of its assets invested in
the Joint Accounts, including interest payable on such assets invested
in the Joint Accounts.
6. The Adviser will administer the investment of cash balances in
and operation of the Joint Accounts as part of its general duties under
the existing or any future advisory agreements it has with the Funds
and will not collect any additional or separate fees for advising the
Joint Accounts.
7. The administration of the Joint Accounts will be within the
fidelity bond coverage required by section 17(g) of the Act and rule
17g-1 thereunder.
8. The boards of directors of the Funds (each a ``Board'' and
collectively, the ``Boards'') will adopt procedures pursuant to which
the Joint Accounts will operate, which will be reasonably designed to
provide that the requirements of the application will be met. Each of
the Boards will make and approve such changes as it deems necessary to
ensure that such procedures are followed. In addition, the Board of
each Fund will determine, no less frequently than annually, that the
Joint Accounts have been operated in accordance with such procedures
and will only permit a Fund to continue to participate therein if it
determines that there is a reasonable likelihood that the Fund and its
shareholders will benefit from the Fund's continued participation.
9. Each Fund's participation in a Joint Account (i.e., its
proportionate share of the Short-Term Investments effected through the
Joint Accounts) will be documented daily on its books and on the books
of the Custodian. Each Fund will maintain records (in conformity with
section 31 of the Act and the rules thereunder) documenting, for any
given day, its aggregate investment through each Joint Account and its
pro rata share of each Short-Term Investment transaction made through
such Joint Account.
10. Each investment made through a Joint Account will satisfy the
investment criteria of each Fund participating in the joint investment.
11. Not every Fund participating in a Joint Account necessarily
will have its cash invested in every Short-Term Investment entered into
through the Joint Account. However, to the extent that a Fund's cash is
applied to a particular investment made through a Joint Account, the
Fund will participate in and own a proportionate share of such Short-
Term Investment, and any income earned or accrued thereon, based upon
the percentage of such investment purchased with monies contributed by
the Fund.
12. Short-Term Investments held in a Joint Account generally will
not be sold prior to maturity, except if: (a) the Adviser believes the
investment no longer presents minimal credit risks; (b) the investment
no longer satisfies the investment criteria of all Funds owning a pro
rata share of the investment, because of a credit downgrading or
otherwise; or (c) in the case of a repurchase agreement, the
counterparty defaults. The Adviser may, however, sell any Short-Term
Investment (or any fractional portion thereof) on behalf of some or all
Funds prior to the maturity of the investment if the cost of such
transactions will be borne solely by the selling Funds and the
transactions will not adversely affect other Funds participating in the
Joint Account. In no case would an early termination by less than all
Funds be permitted if it would reduce the principal amount or yield
received by other Funds in the Joint Accounts or otherwise adversely
affect the other Funds. Each Fund in a Joint Account will be deemed to
have consented to such sale and partition of the investments in the
Joint Account.
13. Short-Term Investments held through a Joint Account with a
remaining maturity of more than seven days, as calculated pursuant to
rule 2a-7 under the Act, will be considered illiquid and, for any Fund
that is an
[[Page 64414]]
open-end investment company registered under the Act, subject to the
restriction that the Fund may not invest more than 15% (or such other
percentage as set forth by the SEC from time to time) of its net assets
in illiquid securities and any similar restrictions set forth in the
Fund's investment restrictions and policies, if the Adviser cannot sell
the instrument, or the Fund's fractional interest in such instrument,
pursuant to the preceding condition.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-31847 Filed 12-4-97; 8:45 am]
BILLING CODE 8010-01-M