[Federal Register Volume 62, Number 209 (Wednesday, October 29, 1997)]
[Notices]
[Pages 56209-56210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28567]
[[Page 56209]]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22865; 812-10522]
Federated Investors, et al.; Notice of Application
October 22, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
section 12(d)(1), and under sections 6(c) and 17(b) for an exemption
from section 17(a).
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Summary of Application: Applicants seek an order to permit certain
open-end investment companies to invest a portion of their assets in
other open-end investment companies in the same group of investment
companies as well as to invest in securities of other issuers.
Applicants: Managed Series Trust (``MST''), Fixed Income
Securities, Inc. (``FIS''), Investment Series Funds, Inc. (``ISF''),
Federated Total Return Series, Inc. (``FTRS''), Federated Stock and
Bond Fund, Inc. (``FSBF'') (collectively, ``Federated Funds'');
Federated Core Trust (``Core Trust''); and Federated Investors
(``Federated''), as the parent company for Federated Advisers,
Federated Management, Federated Research Corp., Federated
Administrative Services, Federated Investment Counseling, Federated
Research, Passport Research, Ltd., and Federated Global Research Corp.
(collectively, ``Advisers''). All existing investment companies that
currently intend to rely on the requested order are named as
applicants. The requested order also would extend to (i) any other
registered open-end investment company or series thereof (except Core
Trust and the Portfolios, as defined below) advised by the Advisers, or
any entity controlling, controlled by, or under common control with the
Advisers (together with Federated Funds, the ``Funds'') that wishes to
invest in another registered open-end investment company in the same
group of investment companies as the Funds and advised by the Advisers,
or any entity controlling, controlled by, or under common control with
the Advisers (together with Core Trust, the ``Portfolios''), and (ii)
any such Portfolio.
Filing Dates: The application was filed on February 5, 1997, and
amended on August 14, 1997. Applicants have also agreed to file an
additional amendment during the notice period. The substance of the
additional amendment is incorporated 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 November
17, 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, Federated Investors Tower, Pittsburgh, PA 15222-
3779.
FOR FURTHER INFORMATION CONTACT:
Kathleen L. Knisely, Staff Attorney, at (202) 942-0517, or Christine Y.
Greenlees, 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 from
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington
D.C. 20549 (tel. 202-942-8090).
Applicants' Representations
1. FIS and ISF, organized under Maryland law, are registered under
the Act as open-end management investment companies. FIS and ISF are
advised by Federated Advisers. FIS currently offers three portfolios,
including Federated Strategic Income Fund. ISF currently offers two
portfolios, including Federated Bond Fund.
2. FTRS and FSBF, organized under Maryland law, are registered
under the Act as open-end management investment companies. FTRS and
FSBF are advised by Federated Management. FTRS currently offers four
portfolios, including Federated Total Return Bond Fund, and Federated
Total Return Limited Duration Fund. FSBF currently is not a series
investment company.
3. MST, organized under Massachusetts law, is registered under the
Act as an open-end management investment company. MST is advised by
Federated Management. MST currently offers four portfolios, including
Federated Managed Aggressive Growth Fund, Federated Managed Growth
Fund, Federated Managed Growth & Income Fund, and Federated Managed
Income Fund.
4. Core Trust, organized under Massachusetts law, will be
registered as an open-end management investment company under the Act.
Core Trust is advised by Federated Research Corp. Core Trust currently
has one series, High-Yield Bond Portfolio (``Bond Core Portfolio''),
which invests in high-yield bonds.\1\
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\1\ Core Trust will not register under the Securities Act of
1933; its shares will be offered only in private placement
transactions to registered investment companies and other
institutional investors.
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5. Federated Managed Aggressive Growth Fund, Federated Managed
Growth Fund, Federated Managed Growth & Income Fund, Federated Managed
Income Fund, Federated Strategic Income Fund, Federated Bond Fund,
Federated Total Return Bond Fund, Federated Total Return Limited
Duration Fund, and FSBF (the ``Blended Funds'') would like to be able
to invest in securities directly as well as to invest a portion of
assets that they allocate for investment in the high-yield bond asset
class in the Bond Core Portfolio. The Funds also would like to be able
to invest in other Portfolios.
6. Bond Core Portfolio currently is intended to be offered only to
the Blended Funds. However, Bond Core Portfolio may, in the future, be
offered to funds relying on any order granting this application, or to
other investors.
7. A Blended Fund's investment in the Bond Core Portfolio will be
consistent with the Blended Fund's investment objective as described in
its prospectus. If a Blended Fund allocates its assets to an asset
class not represented by Bond Core Portfolio, or pursues a different
investment strategy or style with respect to the asset class than Bond
Core Portfolio, it will invest in those securities directly and/or
through another Portfolio.
8. Federated Management and Federated Advisers, as investment
advisers to the Blended Funds, will charge an annual investment
advisory fee based upon a percentage of each Blended Fund's average
daily net assets. Federated Research Corp. currently will not charge
Bond Core Portfolio an advisory fee. Applicants currently anticipate
that sales charges and service fees will be incurred only at the
Blended Fund level and that Bond Core Portfolio will be sold without
any such sales charge or service fee.
9. Applicants expect Bond Core Portfolio to provide broad diversity
and exposure to all aspects of the high-yield
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bond sector of the market while at the same time providing greater
liquidity than the Blended Funds would provide separately. Applicants
state that the Bond Core Portfolio likely will own more issuers in the
high-yield bond sector than any single Blended Fund would own. As a
result, events that affect the price of a single issuer in this sector
can be expected to have less impact on Bond Core Portfolio than they
would have on the high-yield bond sector of a Blended Fund that was
less diversified. Applicants represent that this diversification can be
expected to benefit both Bond Core Portfolio and its shareholders, the
Blended Funds, by providing greater price stability and lower
volatility, while at the same time capturing the performance benefits
of exposure to the high-yield bond sector.
10. Applicants anticipate that the efficiencies resulting from the
use of the Bond Core Portfolio will result in cost savings to the
Blended Funds. Applicants expect that the cost savings will occur
because Bond Core Portfolio will experience trading costs that will be
substantially less than the trading costs that would be incurred if
high-yield bonds were purchased separately for each of the Blended
Funds.
Applicants' Legal Analysis
1. Section 12(d)(1)(A) of the Act provides that no registered
investment company may acquire securities of another investment company
representing 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 investment companies, more than
10% of the acquiring company's total assets. Section 12(d)(1)(B)
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)(G) of the Act exempts from the above
limitations certain ``funds of funds,'' subject to conditions stated in
that section. Applicants state that section 12(d)(1)(G) is not
available to them because the Blended Funds will continue to invest
directly in corporate bonds, other investment grade securities, and
other instruments, in addition to investing in the Portfolios.
3. Section 12(d)(1)(J) provides that the SEC may exempt persons or
transactions from any provision of section 12(d)(1) if and to the
extent such exemption is consistent with the public interest and the
protection of investors. Applicants request relief from the limitations
of section 12(d)(1) to permit: (a) A Fund to (i) purchase in excess of
3% of the total outstanding voting shares of a Portfolio; (ii) purchase
securities of a Portfolio having an aggregate value in excess of 5% of
the value of the total assets of a Fund; and (iii) purchase securities
of a Portfolio having an aggregate value in excess of 10% of the assets
of a Fund; (b) a Portfolio to sell more than 3% of its total
outstanding shares to any Fund; and (c) a Portfolio to sell more than
10% of its total outstanding voting stock to the Funds. Applicants
believe that none of the concerns underlying section 12(d)(1) are
present in the proposed arrangement.
4. Applicants also request an exemption from section 17(a) of the
Act, which prohibits certain purchases and sales of securities between
investment companies and their affiliated persons, as defined in
section 2(a)(3) of the Act. Because the Federated Funds and Core Trust
have common trustees, directors, and officers, and are advised by
commonly controlled Advisers, the Blended funds and the Bond Core
Portfolio could be deemed affiliated persons of one another.
Accordingly, purchases or sales between the Blended Funds and the Bond
Core Portfolio could be deemed to be principal transactions between
affiliated persons under section 17(a).
5. Applicants submit that the terms of their proposed arrangement
satisfy the standards for relief under sections 6(c) and 17(b).
Applicants state that the terms of the proposed transactions are
reasonable and fair and do not involve overreaching. Applicants state
that there are sufficient protections in the proposed arrangement
against duplicative or excessive advisory fees and sales loads.
Applicants state that a Fund's investment in a Portfolio will be in
accordance with the Fund's investment restrictions and will be
consistent with its policies as recited in its registration statement.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each Fund and each Portfolio will be part of the same ``group of
investment companies,'' as defined in section 12(d)(1)(G)(ii) of the
Act.
2. A fund will not invest in any Portfolio if the Portfolio may
acquire securities of any other investment company in excess of the
limits contained in section 12(d)(1)(A) of the Act, except for
securities received as a dividend or as a result of a plan of
reorganization of any company.
3. Prior to approving any advisory contract under section 15 of the
Act, the directors or trustees of each Fund, including a majority of
the individuals who are not ``interested persons'' of the Fund, as that
term is defined in section 2(a)(19) of the Act (``Independent
Trustees''), shall find that the advisory fees charged under such
contract, if any, are based on services that will be in addition to,
rather than duplicative of, the services provided under the contracts
of any Portfolio in which the Fund ;may invest; provided that no such
findings will be necessary if the Adviser to a Portfolio waives all
advisory fees that may be imposed for serving as investment adviser to
the Portfolio or, if only a portion of such advisory fees are waived,
the Adviser or another party reimburses the Fund for any advisory fee
or portion thereof that is not waived. These findings and their basis
will be recorded fully in the minute books of the Fund.
4. Any sales charges and service fees, as such terms are defined
under Rule 2830 of the NASD's Conduct Rules, and may be charged with
respect to securities of a Fund, when aggregated with any such sales
charges and service fees borne by the Fund with respect to the shares
of a Portfolio, shall not exceed the limits set forth in Rule 2830 of
the NASD's Conduct Rules.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-28567 Filed 10-28-97; 8:45 am]
BILLING CODE 8010-01-M
