[Federal Register Volume 59, Number 143 (Wednesday, July 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18256]
[[Page Unknown]]
[Federal Register: July 27, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20420; 812-9044]
SIT Mutual Funds, Inc., et al.; Notice of Application
July 21, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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Applicants: SIT Mutual Funds, Inc., SIT Mutual Funds II, Inc., SIT
Growth Fund, Inc., SIT Growth & Income Fund, Inc., SIT U.S. Government
Securities Fund, Inc., SIT Money Market Fund, Inc., and SIT Investment
Associates, Inc. (``SIT Investment'').
Relevant Act Sections: Exemption requested under section 6(c) of the
Act that would grant an exemption from section 12(d)(1)(A)(ii), under
sections 6(c) and 17(b) that would grant an exemption from section
17(a), and under rule 17d-1 to permit certain transactions in
accordance with section 17(d) of the Act and rule 17d-1.
Summary of Application: Applicants seek an order that would permit
certain money markets funds to sell their shares to affiliated
investment companies. Applicants request that any order also apply to
other registered investment companies that are now or in the future
advised by SIT Investment.\1\
\1\All existing investment companies that presently intend to
rely on the requested order are named as applicants.
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Filing Date: The application was filed on June 7, 1994, and amended on
July 11, 1994.
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 August 15, 1994,
and should be accompanies 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, NW., Washington, DC 20549.
Applicants, 4600 Norwest Center, Minneapolis, Minnesota 55402.
FOR FURTHER INFORMATION CONTACT:
John V. O'Hanlon, Senior Attorney, at (202) 942-0578, or C. David
Messman, 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
SEC's Public Reference Branch.
Applicants' Representations
1. SIT Mutual Funds, Inc., SIT Mutual Funds II, Inc., SIT Growth
Fund, Inc., SIT Growth & Income Fund, Inc., SIT U.S. Government
Securities Fund, Inc., and SIT Money Market Fund, Inc. (collectively,
the ``SIT Group'') are open-end management investment companies. The
SIT Group currently offers eleven series (each a ``Fund''). One of the
Funds is a money market fund subject to the requirements of rule 2a-7
under the Act (together with any future money market portfolios, the
``Money Market Funds''). The other ten Funds are non-money markets
funds (together with any future non-money market funds, the ``Non-Money
Market Funds'').
2. SIT Investment is the investment adviser for the SIT Group. Sit/
Kim International Investment Associates, Inc. serves as sub-adviser for
two of the Funds (together with SIT Investment and any future sub-
adviser to a Fund, the ``Investment Advisers.'' SIA Securities Corp.
serves as principal underwriter for the Funds. Norwest Bank Minnesota,
N.A. serves as transfer agent and custodian to the Funds. At the
present time, each of the Funds is offered without any sales charge,
redemption fee, or rule 12b-1 or shareholder servicing fee.
3. The Money Market Funds seek current income, liquidity, and
capital preservation by investing exclusively in short-term money
market instruments, such as U.S. government securities, bank
obligations, commercial paper, municipal obligations, or repurchase
agreements secured by government securities. These short-term debt
securities are valued at their amortized cost pursuant to the
requirements of rule 2a-7. The Non-Money Market Funds invest in a
variety of debt and/or equity securities in accordance with their
respective investment objectives and policies. Each of the Funds has,
or may be expected to have, uninvested cash in an account with the
custodian. This cash either may be invested directly in individual
short-term money market instruments or may not be otherwise invested in
any portfolio securities.
4. Applicants seek the ability for (a) the Funds to utilize their
cash reserves that have not been invested in portfolio securities to
purchase shares of the Money Market Funds (each Fund, including Money
Market Funds, purchasing shares of the Money Market Funds is an
``Investing Fund'') and (b) the Money Market Funds to sell or redeem
their shares to or from each Investing Fund. By investing cash balances
in the Money Market Funds as proposed, applicants believe that the
Investing Fund will be able to combine their cash balances and thereby
(a) reduce their transaction costs, since transaction costs currently
incurred by the Investing Funds in connection with the short term
investment of their uninvested cash would be avoided; (b) create more
liquidity; (c) enjoy greater returns; and (d) further diversify their
holdings. The policies of the Funds either permit or will be amended
(pursuant to shareholder vote if required) to permit the Funds to
purchase money market instruments, including shares of a Money Market
Fund.
5. The shareholders of the Investing Funds would not be subject to
the imposition of double management fees. Applicants would cause each
Investment Adviser and its respective affiliates to remit to the
respective Investing Funds or waive investment advisory and any other
fees these service providers earn as a result of the Investing Funds'
investments in the Money Market Funds to the extent the fees are based
upon the Investing Funds' assets invested in shares of the Money Market
Funds. Further, no sales charge, contingent deferred sales charge, 12b-
1 fee, or other underwriting or distribution fee would be charged by
the Money Market Funds with respect to the purchase or redemption of
their shares. 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 at the time of the investment.
6. Several of the Funds have contractual or voluntary expense cap
arrangements with SIT Investment for the purpose of keeping each Fund's
total expenses below a certain predetermined percentage amount
(``Expense Waiver''). To the extent actual expenses of the Funds exceed
these caps, SIT Investment waives its advisory fee or reimburses a Fund
in the amount of the excess. Any applicable Expense Waiver will not
limit the advisory and other fee waiver or remittance discussed above.
7. Applicants also request relief that would permit the Funds to
invest uninvested cash in a Money Market Fund in excess of the
percentage limitations set out in section 12(d)(A)(ii) of the Act.
Section 12(d)(A)(ii) prohibits a registered investment company from
acquiring the securities of another investment company if, immediately
thereafter, the acquiring company would have more than 5% of its total
assets invested in the securities of the selling company. Applicants
propose that each Fund be permitted to invest in shares of a single
Money Market Fund so long as each Fund's aggregate investment in such
Money Market Fund does not exceed the greater of 5% of such Fund's
total net assets or $2.5 million. Applicants will comply with all other
provisions of section 12(d)(1).
Applicants' Legal Analysis
1. Sections 17(a)(1) and (2) of the Act make it unlawful for any
affiliated person of a registered investment company, or any affiliated
person of such affiliated person, acting as principal, to sell or
purchase any security to or from such investment company, Because each
Fund may be deemed to be under common control with the other Funds, it
may be an ``affiliated person,'' as defined in section 2(a)(3) of the
Act, of the other Funds. Accordingly, the sale of shares of the Money
Market Funds to the Investing Funds, and the redemption of such shares
from the Investing Funds, would be prohibited under section 17(a).
2. Section 17(b) of the Act authorizes the Commission to exempt a
transaction from section 17(a) if the terms of the proposed
transaction, including the consideration to be paid or received, are
reasonable and fair and do not involve overreaching on the part of any
person concerned, the proposed transaction is consistent with the
policy of each registered investment company concerned, and the
proposed transaction is consistent with the general policy of the Act.
Section 17(b) could be interpreted to exempt only a single transaction.
However, the Commission, under section 6(c) of the Act, may exempt a
series of transactions that otherwise would be prohibited by section
17(a).
3. The Investing Funds will retain their ability to invest their
cash balances directly into money market instruments if they believe
they can obtain a higher return. Each of the Money Market Funds has the
right to discontinue selling shares to any of the Investing Funds if
its board of trustees determines that such sales would adversely affect
the portfolio management and operations of such Money Market Fund.
Therefore, applicants believe that the proposal satisfies the standards
for relief.
4. Section 17(d) of the Act and rule 17d-1 thereunder prohibit an
affiliated person of an 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. Each Investing Fund, by purchasing shares of the Money
Market Funds; each Investment Adviser of an Investing Fund, by managing
the assets of the Investing Funds invested in the Money Market Funds;
and each of the Money Market Funds, by selling shares to the Investing
Funds, could be participants in a joint enterprise or other joint
arrangement within the meaning of section 17(d)(1) and rule 17d-1.
5. Rule 17d-1 permits the Commission to approve a proposed joint
transaction covered by the terms of section 17(d). 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 the participation of
the investment companies is on a basis different from or less
advantageous than that of the other participants. Applicants believe
that the proposal satisfies these standards.
6. Section 12(d)(1), as noted above, sets certain limits on an
investment company's ability to invest in the shares of another
investment company. The perceived abuses section 12(d)(1) sought to
address include undue influence by an acquiring fund over the
management of an acquired fund, layering of fees, and complex
structures. Applicants believe that none of these concerns are
presented by the proposed transactions and that the proposed
transactions meet the section 6(c) standards for relief.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Shares of the Money Market Funds sold to and redeemed from the
Investing Funds will not be subject to a sales load, redemption fee, or
distribution fee under a plan adopted in accordance with rule 12b-1.
2. Applicants will cause the Investment Advisers and their
respective affiliates, in their capacities as service providers for the
Money Market Funds, to remit to the respective Investing Fund or waive
an amount equal to all fees received by them or their affiliates under
their respective agreements with the Money Market Funds to the extent
such fees are based upon the Investing Fund's assets invested in shares
of the Money Market Funds. Any of these fees remitted or waived will
not be subject to recoupment by the Funds' Investment Advisers or their
respective affiliates at a later date.
3. For the purpose of determining any amount to be waived and/or
expenses to be borne to comply with any Expense Waiver, the adjusted
fees for an Investing Fund (gross fees minus Expense Waiver) will be
calculated without reference to the amounts waived or remitted pursuant
to condition 2. Adjusted fees then will be reduced by the amount waived
pursuant to condition 2. If the amount waived pursuant to condition 2
exceeds adjusted fees, the Investing Fund's Investment Adviser also
will reimburse the Investing Fund in an amount equal to such excess.
4. Each of the Investing Funds will be permitted to invest
uninvested cash in, and hold shares of, a Money Market Fund only to the
extent that the Investing Fund's aggregate investment in such Money
Market Fund does not exceed the greater of 5% of the Investing Fund's
total net assets or $2.5 million.
5. The Investing Funds will vote their shares of each of the Money
Market Funds in the same proportion as the votes of all other
shareholders in such Money Market Funds.
6. The Investing Funds will receive dividends and bear their
proportionate shares of expenses on the same basis as other
shareholders of such Money Market Funds. A separate account will be
established in the shareholder records of each of the Money Market
Funds for each of the acquiring Investing Funds.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18256 Filed 7-26-94; 8:45 am]
BILLING CODE 8010-01-M