[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]


[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'').


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.

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.

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 
    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 
    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]