[Federal Register Volume 63, Number 109 (Monday, June 8, 1998)]
[Notices]
[Pages 31252-31254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15154]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23238; 812-11018]
Wilmington Trust Company, et al.; Notice of Application
June 2, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for exemption under sections 6(c) and
17(b) of the Investment Company Act of 1940 (the ``Act'') from section
17(a) of the Act.
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SUMMARY OF APPLICATION: Applicants request an order to permit certain
collective investment funds to transfer their assets to certain
portfolios of registered open-end management companies in exchange for
shares of the portfolios.
APPLICANTS: Wilmington Trust Company (``WTC''); Wilmington Trust
Corporation (``Wilmington Trust''); The Rodney Square Strategic Equity
Fund (``Strategic Equity Fund''); and the Rodney Square Fixed Income
Fund (``Strategic Fixed-Income Fund,'' and collectively with the
Strategic Equity Fund, the ``Funds'').
FILING DATES: The application was filed on February 20, 1998.
Applicants have agreed to file an amendment during the notice period,
the substance of which is reflected in this notice.
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 June 24, 1998, 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 Commission's Secretary.
ADDRESSES: Secretary, Security and Exchange Commission, 450 Fifth
Street, NW., Washington, DC 20549. Applicants, 1100 N. Market Street,
Wilmington, Delaware 19890-0001.
FOR FURTHER INFORMATION CONTACT: Lawrence W. Pisto, Senior Counsel, at
(202) 942-0527, or George J. Zornada, 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
Commission's Public Reference Branch, 450 Fifth Street, NW.,
Washington, DC 20549 (tel. (202) 942-8090).
Applicants' Representations
1. WTC, a Delaware state-chartered bank, is a wholly-owned
subsidiary of Wilmington Trust, a bank holding company. WTC serves as
custodian and investment manager and/or trustee for numerous employee
benefit plans qualified under section 401 of the Internal Revenue Code
of 1986, as amended. The assets of some of these employee benefit plans
are invested in collective investment funds (``CIFs'') sponsored by WTC
and for which WTC acts as trustee. Each CIF includes assets of
retirement benefit plans for employees of entities unaffiliated with
WTC (``Other Plans'') as well as assets of retirement benefit plans for
employees of WTC and its affiliates (``Affiliated Plans'') (Other Plans
and Affiliated Plans are collectively referred to as the ``Plans'').
Assets of Affiliated Plans represent 24% to 41% of the assets of each
CIF.
2. Both the Strategic Equity Fund and the Strategic Fund-Income
Fund are Massachusetts business trusts registered under the Act as
open-end management investment companies and may offer several
portfolios (``Portfolios''). Each Fund is offered and sold without a
sales load, redemption fee, asset-based distribution fee or shareholder
servicing
[[Page 31253]]
fee. The Strategic Equity Fund currently consists of one Portfolio, the
Large Cap Growth Equity Portfolio. The Strategic Fixed-Income Fund
currently consists of two Portfolios, the Diversified Income Portfolio
and the Municipal Income Portfolio. WTC is the investment adviser for
each of the Portfolios and will serve as the investment adviser for
each new Portfolio.\1\
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\1\ As a ``bank'' within the meaning of section 202(a)(2) of the
Investment Advisers Act of 1940 (the ``Advisers Act''), WTC is
excluded from the definition of an investment adviser in section
202(a)(11) of the Advisers Act and, accordingly, is exempt from the
registration requirements of section 203 of the Advisers Act.
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3. WTC is terminating the CIFs and intends to transfer in-kind the
Plans' assets in the CIFs to each of the existing and certain newly
created Portfolios (the ``Conversion''). In the Conversion the Funds
will accept a transfer of securities from one or more CIFs with
substantially similar investment objectives in exchange for Portfolio
shares having a total net asset value equal to the market value of the
transferred securities (the ``Proposed Transactions''). The Proposed
Transactions will be as follows:
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CIF Corresponding portfolio
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Growth Stock Fund...................... Large Cap Growth Equity
Portfolio.
Value Stock Fund....................... Large Cap Value Equity
Portfolio (New).
Small Cap Stock Fund................... Small Cap Equity Portfolio
(New).
International Stock Fund............... International Equity Portfolio
(New).
Intermediate Bond Fund................. Diversified Income
Portfolio.\2\
Bond Fund.............................. Intermediate Bond Portfolio
(New).
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\2\ At or about the time of the Conversion, the name of the Diversified
Income Portfolio will be changed to ``Short-Intermediate Bond
Portfolio.''
Applicants state that the Conversion is expected to occur on June 26,
1998.
4. The CIF assets to be transferred to the Portfolios will be
valued in accordance with the provisions of rule 17a-7(b) under the
Act. The Fund shares received by the CIFs then will be distributed, pro
rata, to all Plans whose interests were converted as of the date of the
transfer.
5. Applicants request relief to effect the Proposed Transactions.
Applicants also request relief for any other registered open-end
management investment company that may be advised by WTC or an entity
controlling, controlled by, or under common control with WTC, and any
other CIF sponsored by WTC in which employee benefit plans established
and maintained for the benefit of employees of WTC or its affiliates
own five percent or more of the assets that in the future may convert
into the registered open-end investment company (``Future
Transactions''). Applicants state that they will rely on the requested
relief for Future Transactions only in accordance with the terms and
conditions contained in this application.
Applicant' Legal Analysis
1. Section 17(a) of the Act, in relevant part, prohibits an
affiliated person of a registered investment company, or an affiliated
person of such person, acting as principal, from selling to or
purchasing from such investment company any security or other property.
Section 2(a)(3) of the Act, in relevant part, defines ``affiliated
person'' to include: (a) any person directly or indirectly owning,
controlling, or holding with the power to vote, five percent or more of
the outstanding voting securities of such other person; (b) any person
directly or indirectly controlling, controlled by, or under common
control with, such other person; and (c) if such other person is an
investment company, any investment adviser thereof. Because the CIFs
may be viewed as acting as principals in the Proposed Transactions and
because CIFs and the Funds may be viewed as being under the common
control of WTC within the meaning of section 2(a)(3)(C) of the Act, the
Proposed Transactions may be subject to the prohibitions contained in
section 17(a).
2. Rule 17a-7 under the Act exempts certain purchase and sale
transactions otherwise prohibited by section 17(a) if an affiliation
exists solely by reason of having a common investment adviser, common
directors, and/or common officers, provided, among other requirements,
that the transaction involves a cash payment against prompt delivery of
the security. Rule 17a-7 is not available for the Conversion because
WTC and Wilmington Trust may be deemed to have direct or indirect
beneficial interest (either as sponsor of an Affiliated Plan or because
WTC's employees or its affiliates' employees are participants in the
Affiliated Plans) in the CIFs in excess of give percent of the assets
of the CIFs, which creates an affiliation ``not solely by reason of''
having common investment adviser, common directors, and/or common
officers. In addition, the Conversion will be effected as an in-kind
transfer, rather than in cash.
3. Rule 17a-8 under the Act exempts certain mergers,
consolidations, and sales of assets of registered investment companies
from the provisions of section 17(a) of the Act if an affiliation
exists solely be reason of having a common investment adviser, common
directors, and/or common officers, provided, among other requirements,
that the board of directors of each investment company makes certain
determinations. Rule 17a-8 is not available for the Conversion because
the CIFs are not registered investment companies and because the CIFs
and the Funds have affiliations other than those covered by the rule.
4. Section 17(b) of the Act provides that the Commission shall
exempt a proposed transaction from section 17(a) if evidence
establishes that: (a) the terms of the proposed transaction are
reasonable and fair and do not involve overreaching; (b) the proposed
transaction is consistent with the policy of the registered investment
company involved; and (c) the proposed transaction is consistent with
the general purposes of the Act.
5. Section 6(c) provides that the Commission may exempt any person
or transaction from any provision of the Act or any rule thereunder to
the extent that such 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 seek an order under sections 6(c) and 17(b) of the
Act to permit the Proposed Transactions and Future Transactions.
Applicants submit that the proposed transactions satisfy the standards
for relief under sections 6(c) and 17(b). Applicants assert that the
terms of the Proposed Transactions are reasonable and fair and do not
involve overreaching on the part of any applicant; the investment
objectives, policies, and restrictions of the CIFs are compatible with
and substantially similar to the applicable Funds' investment
objectives, policies, and restrictions; and the Proposed Transactions
and the requested exemption are in the public interest, consistent with
the protection of investors and the purposes fairly intended by the
policies and provisions of the Act.
7. Applicants agree to comply with 17a-7 and 17a-8 to the extent
possible. Applicants state that the Proposed Transactions are in
accordance with procedures previously adopted by the Funds' board of
trustees sthe ``Boards'') pursuant to rule 17a-7(e), and the provisions
of rule 17a-7(b), (c), (d), and (f) will be satisfied. The Proposed
Transactions will take place as in-kind transfers from the CIFs to the
Funds, rather than cash transactions as required
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by rule 17a-7(a). Applicants assert that if the Proposed Transactions
were effected in cash, the CIFs and the Plans would have to bear
unnecessary expense and inconvenience in transferring assets to the
Funds. In addition, in order for the Conversion to take place, the
Boards, including a majority of the disinterested members, shall have
determined that the participation of each Portfolio in the Proposed
Transactions is in the best interests of that Portfolio and that the
interests of existing shareholders of the Portfolio will not be diluted
as a result of the Conversion. Such findings and the basis on which
they were made will be fully recorded by the Funds.
8. Applicants also state that the Plans are all employee benefit
plans subject to the Employment Retirement Income Security Act of 1974
(``ERISA''). Section 406(a) of ERISA prohibits certain types of
transactions between a plan and ``parties in interest'' (such as a plan
fiduciary, a service provider, or an employer whose employees are
covered by the plan). Because WTC is a fiduciary of the Affiliated
Plans and the adviser to the Portfolios, the Conversion would be
prohibited by section 406 of ERISA. WTC plans to submit an application
for an exemption to the Department of Labor (``DOL''). To comply with
the anticipated requirements for the exemption, the Conversions will be
approved by each Affiliated Plan's employee benefit review committee
(the ``Committee''), which serves as a fiduciary for the Plan. In
addition, if required by the DOL, the Conversion will be reviewed and
approved by a fiduciary independent of WTC, Wilmington trust and their
affiliates (an ``Independent Fiduciary''), who will be retained solely
for the purpose of determining the fairness to the Affiliated Plans of
the Proposed Transactions.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Proposed Transactions will comply with the terms of Rule
17a-7(b)-(f).
2. The Proposed Transactions will not occur unless and until: (a)
the Boards (including a majority of their disinterested members) and
the Committee and any Independent Fiduciary for the Affiliated Plans
required by the DOL find that the Proposed Transactions are in the best
interests of the Portfolios and the Plans, respectively; and (b) the
Boards (including a majority of the disinterested members) find that
the interests of the existing shareholders of the Portfolios will not
be diluted as a result of the Proposed Transactions. These
determinations and the basis upon which they are made will be recorded
fully in the records of the Funds and the Affiliated Plans,
respectively.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-15154 Filed 6-5-98; 8:45 am]
BILLING CODE 8010-01-M
