[Federal Register Volume 68, Number 117 (Wednesday, June 18, 2003)]
[Notices]
[Pages 36611-36614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15356]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 26075; 812-12779]
American Performance Funds, et al.; Notice of Application
June 12, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (the ``Act'') for an exemption
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and
17(b) of the Act for an exemption from section 17(a) of the Act, and
under section 17(d) of the Act and rule 17d-1 under the Act to permit
certain joint transactions.
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Summary of Application: Applicants request an order that would permit
certain registered management investment companies to invest uninvested
cash and cash collateral in one or more affiliated money market funds
in excess of the limits in sections 12(d)(1)(A) and (B) of the Act.
Prior to relying on the requested order, Applicants would cease relying
on a prior order.\1\
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\1\ On February 19, 2000, the Commission issued an order
amending prior orders under Sections 6(c) and 17(b) of the Act that
exempted certain Applicants and certain other entities who are not
parties to the application from the provisions of Section
12(d)(1)(A) and Section 17(a) of the Act and that permitted pursuant
to rule 17d-1, certain joint transactions in accordance with Section
17(d) and rule 17d-1. See Investment Company Act Rel. Nos. 24274
(Feb. 1, 2000) (notice) and 24325 (Feb. 19, 2000) (order);
Investment Company Act Rel. Nos. 23962 (Aug. 23, 1999) (notice) and
24021 (Sept. 21, 1999) (order); Investment Company Act Rel. Nos.
23393 (Aug. 18, 1998) (notice) and 23436 (Sept. 15, 1998);
Investment Company Act Rel. Nos. 22636 (April 24, 1997) (notice) and
22677 (May 20, 1997) (order); Investment Company Act Rel. Nos. 19695
(Sept. 9, 1993) and 19759 (Oct. 5, 1993) (order).
Applicants: American Performance Funds, AmSouth Funds, BNY Hamilton
Funds, Inc. (``BNY Hamilton Funds''), Citizens Funds, Fifth Third
Funds, HSBC Advisor Funds Trust, HSBC Investor Funds and HSBC Investor
Portfolios (collectively, the ``HSBC Funds''), Legacy Funds Group
(``Legacy Funds''), Mercantile Funds, Inc. (``Mercantile Funds''), Old
Westbury Funds, Inc. (``Old Westbury Funds''), Performance Funds Trust
(``Performance Funds''), The Victory Portfolios, Vintage Mutual Funds,
BOk Investment Advisers, Inc. (``BOk'') (formerly, Investment Concepts,
Inc.), AmSouth Investment Management Company, LLC (``AmSouth''), The
Bank of New York (``BNY''), Citizens Advisers, Inc. (``Citizens
Advisers''), Fifth Third Asset Management, Inc. (``Fifth Third''), HSBC
Asset Management (Americas) Inc. (``HSBC''), First Financial Capital
Advisors LLC (``First Financial''), Bessemer Investment Management LLC
(``Bessemer''), Mercantile Capital Advisors, Inc. (``Mercantile''),
Trustmark Investment Advisors, Inc. (formerly, Trustmark Financial
Services, Inc.) (``Trustmark''), Victory Capital Management, Inc.
(``Victory'') and Investors Management Group, Ltd. (``Investors
Management Group'').
Filing Dates: The application was filed on February 1, 2002 and was
amended on June 9, 2003. 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 July 7, 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 Ryan M. Louvar, Esq., BISYS, 60 State
Street, Suite 1300, Boston, MA 02109.
FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at
(202) 942-0527 or Annette M. Capretta, 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).
[[Page 36612]]
Applicants' Representations
1. American Performance Funds, AmSouth Funds, Citizens Funds, Fifth
Third Funds, HSBC Advisor Funds Trust, HSBC Investor Funds, Legacy
Funds and Old Westbury Funds are Massachusetts business trusts that are
registered under the Act as open-end management investment companies.
BNY Hamilton Funds, Mercantile Funds and Vintage Mutual Funds are
Maryland corporations that are registered under the Act as open-end
management investment companies. HSBC Investor Portfolios is a New York
trust that is registered under the Act as an open-end investment
management company. The Performance Funds and The Victory Portfolios
are Delaware statutory trusts that are registered under the Act as
open-end management investment companies.
2. BOk is the investment adviser to each of the twelve series of
the American Performance Funds. AmSouth is the investment adviser to
the twenty-four series of the AmSouth Funds. Citizens Advisers is the
investment adviser to the twelve series of the Citizens Funds. BNY is
the investment adviser to the twenty series of BNY Hamilton Funds.
Fifth Third serves as the investment adviser to thirty-five of the
thirty-six series of the Fifth Third Funds. HSBC serves as investment
adviser to the twenty-one series of the HSBC Funds. First Financial
serves as the investment adviser to the three series of the Legacy
Funds. Mercantile serves as the investment adviser to the fourteen
series of the Mercantile Funds. Bessemer serves as the investment
adviser to the five series of the Old Westbury Funds. Trustmark is the
investment adviser to the seven series of the Performance Funds.
Victory is the investment adviser to the twenty-six series of The
Victory Portfolios. Investors Management Group is the investment
adviser to the nine series of the Vintage Mutual Funds.
3. The American Performance Funds, AmSouth Funds, BNY Hamilton
Funds, Citizens Funds, Fifth Third Funds, the HSBC Funds, Legacy Funds,
Mercantile Funds, Old Westbury Funds, Performance Funds, The Victory
Portfolios and the Vintage Mutual Funds and their respective series
(each series, a ``Fund,'' and collectively, the ``Funds'') each is in
the American Performance, AmSouth, BNY Hamilton, Citizens, Fifth Third,
HSBC, Legacy, Mercantile, Old Westbury, Performance, Victory and
Vintage group of investment companies, respectively, within the meaning
of section 12(d)(1)(G)(ii) of the Act (each a ``Fund Group'').
4. Applicants request that relief be extended to any registered
open-end management investment company or series thereof for which BOk,
AmSouth, BNY, Citizen Advisers, Fifth Third, HSBC, First Financial,
Bessemer, Mercantile, Trustmark, Victory or Investors Management Group
(each an ``Adviser,'' and any entity controlled by, controlling or
under common control with each Adviser, an ``Adviser'')\2\ now or in
the future serves as investment adviser (collectively with the Funds,
the ``Funds'').\3\
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\2\ Each Adviser is registered under the Investment Advisers Act
of 1940 or will be exempt from registration.
\3\ Each Fund that currently intends to rely on the order has
been named as an applicant. Any other Fund that may rely on the
order in the future will do so only in accordance with the terms and
conditions of the application.
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5. Each Fund Group has one or more money market Funds (``Money
Market Funds''). The Money Market Funds comply with rule 2a-7 under the
Act. The Funds that are not Money Market Funds invest in a variety of
debt and/or equity securities or other investments in accordance with
their respective investment objectives and policies.
6. Applicants state that certain Funds (``Investing Funds'') have,
or may be expected to have, cash that has not been invested in
portfolio securities (``Uninvested Cash''). Uninvested Cash may result
from a variety of sources, including dividends or interest received on
portfolio securities, unsettled securities transactions, strategic
reserves, matured investments, proceeds from liquidation of investment
securities, dividend payments, or money received from investors. The
Investing Funds may participate in a securities lending program under
which a Fund may lend its portfolio securities to registered broker-
dealers or other institutional investors. The loans are continuously
secured by collateral equal at all times to at least the market value
of the securities loaned. Collateral for these loans may include cash
(``Cash Collateral,'' and together with Uninvested Cash, ``Cash
Balances'').
7. Applicants request an order to permit each of the Investing
Funds to invest its Cash Balances in one or more of the Money Market
Funds within the same Fund Group, and to permit each of the Money
Market Funds to sell its shares to, and redeem its shares from, the
Investing Funds within the same Fund Group. Investment of Cash Balances
in shares of the Money Market Funds will be made only to the extent
that such investments are consistent with each Investing Fund's
investment objectives, restrictions, and policies as set forth in its
prospectus and statement of additional information. Applicants believe
that the proposed transactions may reduce transaction costs, create
more liquidity, increase returns, and diversify holdings.
Applicants' Legal Analysis
1. Section 12(d)(1)(A) of the Act provides, in pertinent part, that
no registered investment company may acquire securities of another
investment company if the securities represent more than 3% of the
acquired company's outstanding voting stock, more than 5% of the
acquiring company's total assets, or if such securities, together with
the securities of other acquired investment companies, represent more
than 10% of the acquired company's total assets. Section 12(d)(1)(B) of
the Act provides, in pertinent part, 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)(J) of the Act provides that the Commission may
exempt any person, security, or transaction 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 relief under section 12(d)(1)(J) of the Act from the
limitations of sections 12(d)(1)(A) and (B) to permit the Investing
Funds to invest Cash Balances in the Money Market Funds.
3. Applicants state that the proposed arrangement will not result
in the abuses that sections 12(d)(1)(A) and (B) were intended to
prevent. Applicants state that because each Money Market Fund will
maintain a highly liquid portfolio, an Investing Fund would not be in a
position to gain undue influence over a Money Market Fund. Applicants
represent that the proposed arrangement will not result in an
inappropriate layering of fees because shares of the Money Market Funds
sold to the Investing Funds will not be subject to a sales load,
redemption fee, distribution fee under a plan adopted in accordance
with rule 12b-1 under the Act or service fee (as defined in rule
2830(b)(9) of the National Association of Securities Dealers, Inc.
(``NASD'') Conduct Rules) or if such shares are subject to any such
sales load, redemption fees, distribution fees or service fees, the
Adviser will waive its advisory fee for each Investing
[[Page 36613]]
Fund in an amount that offsets the amount of such fees incurred by the
Investing Fund. Applicants state that if a Money Market Fund offers
more than one class of shares, each Investing Fund will invest only in
the class with the lowest expense ratio (taking into account the
expected impact of the Investing Fund's investment) at the time of the
investment. In connection with approving any advisory contract for an
Investing Fund, the Investing Fund's board of directors/trustees (the
``Board''), including a majority of the directors/trustees who are not
``interested persons,'' as defined in section 2(a)(19) of the Act
(``Disinterested Directors''), will consider to what extent, if any,
the advisory fees charged to the Investing Fund by the Adviser should
be reduced to account for the reduced services provided to the
Investing Fund by the Adviser as a result of the investment of
Uninvested Cash in a Money Market Fund. Applicants represent that no
Money Market Fund will acquire securities of any other investment
company in excess of the limitations contained in section 12(d)(1)(A)
of the Act.
4. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and an affiliated
person of a registered investment company or an affiliated person of
such person acting as principal. Section 2(a)(3) of the Act defines an
``affiliated person'' of another person to include: (a) Any person
directly or indirectly controlling, controlled by, or under common
control with the other person; (b) any officer or director of such
other person; and (c) if such other person is an investment company,
any investment adviser thereof. Applicants state that each Fund within
the same Fund Group may be deemed to be affiliated persons of one
another by virtue of having a common board of directors or common
investment advisers. In light of these possible affiliations, section
17(a) could prevent a Money Market Fund from selling shares to and
redeeming shares from an Investing Fund.
5. Section 17(b) of the Act authorizes the Commission to grant an
order exempting a transaction otherwise prohibited by section 17(a) if
(a) the terms of the proposed transaction are fair and reasonable and
do not involve overreaching on the part of any person concerned; (b)
the proposed transaction is consistent with the policies of the
registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act. Section
6(c) of the Act permits the Commission to exempt any person or
transaction from any provision of the Act if 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 submit that their request for relief to permit the
purchase and redemption of shares of the Money Market Funds by the
Investing Funds satisfies the standards for relief under sections 6(c)
and 17(b) of the Act. Applicants note that the shares of the Money
Market Funds will be purchased and redeemed by the Investing Funds at
their net asset value, the same consideration paid and received for
these shares by any other shareholder. Applicants state that the
Investing Funds will retain their ability to invest Cash Balances
directly in money market instruments as authorized by their respective
investment objectives and policies if they believe they can obtain a
higher rate of return, or for any other reason. Applicants also state
that a Money Market Fund has the right to discontinue selling shares to
any of the Investing Funds if the Money Market Fund's Board determines
that such sale would adversely affect its portfolio management and
operations.
7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company, acting as
principal, from participating in or effecting any transaction in
connection with any joint enterprise or joint arrangement in which the
investment company participates. Applicants state that each Investing
Fund (by purchasing shares of Money Market Funds), the Adviser for each
Investing Fund (by managing the assets of the Investing Funds invested
in Money Market Funds), and each Money Market Fund (by selling shares
to Investing Funds) could be deemed to be participants in a joint
enterprise or arrangement within the meaning of section 17(d) of the
Act and rule 17d-1 under the Act.
8. Rule 17d-1 permits the Commission to approve a proposed joint
transaction covered by the terms of section 17(d) of the Act. In
determining whether to approve a transaction, the Commission is to
consider whether the proposed transaction is consistent with the
provisions, policies, and purposes of the Act, and the extent to which
participation by the registered investment company is on a basis
different from, or less advantageous than, that of other participants.
Applicants submit that the investment by the Investing Funds in shares
of the Money Market Funds would be indistinguishable from any other
shareholder account maintained by the Money Market Fund and that the
transactions will be consistent with the Act.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. Shares of the Money Market Funds sold to and redeemed by the
Investing Funds will not be subject to a sales load, redemption fee,
distribution fee under a plan adopted in accordance with rule 12b-1
under the Act, or service fee (as defined in rule 2830(b)(9) of the
NASD Conduct Rules), or if such shares are subject to any such fee, the
Adviser for the Investing Fund will waive its advisory fee for each
Investing Fund in an amount that offsets the amount of such fees that
are incurred by the Investing Fund.
2. Prior to reliance on the order, an Investing Fund will hold a
meeting of the Board for the purpose of voting on the advisory contract
under section 15 of the Act. The Adviser to the Investing Fund will
provide the Board with specific information regarding the approximate
cost to the Adviser of, or portion of the advisory fee under the
existing advisory contract attributable to, managing the Uninvested
Cash of the Investing Fund that can be expected to be invested in the
Money Market Funds. Before approving any advisory contract for an
Investing Fund, the Board, including a majority of the Disinterested
Directors, taking into account all relevant factors, shall consider to
what extent, if any, the advisory fees charged to the Investing Fund by
such Fund's Adviser should be reduced to account for reduced services
provided to the Investing Fund by the Adviser as a result of Uninvested
Cash being invested in one or more of the Money Market Funds. The
minute books of the Investing Fund will record fully the Board's
consideration in approving the advisory contract, including the
considerations relating to fees referred to above.
3. Each Investing Fund will invest Uninvested Cash in, and hold
shares of, Money Market Funds only to the extent that the Investing
Fund's aggregate investment in such Money Market Funds does not exceed
25 percent of the Investing Fund's total assets. For purposes of this
limitation, each Investing Fund will be treated as a separate
investment company.
4. Investment of Cash Balances in shares of the Money Market Funds
will
[[Page 36614]]
be in accordance with each Investing Fund's respective investment
restrictions and will be consistent with each Investing Fund's policies
as set forth in its prospectus and statement of additional information.
5. Each Investing Fund that may rely on the order may invest only
in Money Market Funds within the same Fund Group as the Investing Fund.
6. So long as its shares are held by an Investing Fund no Money
Market Fund shall acquire securities of any other investment company in
excess of the limits contained in section 12(d)(1)(A) of the Act.
7. Before a Fund may participate in the Securities Lending
Arrangements, a majority of the Board, including a majority of the
Disinterested Directors, will approve the Fund's participation in the
Securities Lending Arrangements. Such Disinterested Directors also will
evaluate the Securities Lending Arrangements and their results no less
frequently than annually and determine that any investment of Cash
Collateral in the Money Market Funds is in the best interest of the
shareholders of the Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15356 Filed 6-17-03; 8:45 am]
BILLING CODE 8010-01-P