[Federal Register Volume 63, Number 157 (Friday, August 14, 1998)]
[Notices]
[Pages 43734-43736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21845]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23382; 812-10956]


The Expedition Funds and Compass Bank; Notice of Application

August 7, 1998.
agency: Securities and Exchange Commission (``SEC'').

action: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (the ``Act'') exempting applicants 
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 
17(b) of the Act exempting applicants from section 17(a) of the Act, 
and under section 17(d) of the Act and rule 17d-1 under the Act.

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summary of application: The requested order would permit non-money 
market series of The Expedition Funds (``Trust'') to invest their 
uninvested cash in the money market series of the Expedition Funds in 
excess of the limits in section 12(d)(1)(A) of the Act.

applicants: Trust and Compass Bank (``Adviser'').

filing dates: The application was filed on January 15, 1998, and 
amended on August 3, 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 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 September 1, 
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 
SEC's Secretary.

addresses: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, Oaks, PA 19456.

for further information contact: Mary Kay Frech, 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, 450 Fifth Street, NW., Washington, DC 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Trust is an open-end management investment company organized 
as a Massachusetts business trust and registered under the Act. The 
Trust currently offers a money market series (together with future 
money market series of the Trust, ``Money Market Funds'') and two non-
money market series (together with future non-money market series of 
the Trust, ``Non-Money Market Funds'') (collectively, ``Funds'').\1\ 
Each Money Market Fund is or will be subject to rule 2a-7 under the 
Act. The Adviser, an Alabama state banking corporation and a Federal 
Reserve System Member Bank, serves as investment adviser to the Trust. 
The Adviser, as a bank, is not required to register under the 
Investment Advisers Act of 1940.
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    \1\ Each existing Fund that currently intends to rely on the 
requested order has been named as an applicant. Any other existing 
Fund and any future 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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    2. Each Non-Money Market Fund has, or may be expected to have, cash 
balances not otherwise invested in portfolio securities (``Uninvested 
Cash'') held by its custodian bank. Uninvested Cash may result from a 
variety of sources, including dividends or interest received from 
portfolio securities, unsettled securities transactions, reserves held 
for investment strategy purposes, scheduled maturity of investments, 
liquidation of investment securities to meet anticipated

[[Page 43735]]

redemptions and dividend payments, and new cash received from 
investors.
    3. The Non-Money Market Funds wish to have the option of investing 
their Uninvested Cash in an amount of up to 25% of a Non-Money Market 
Fund's total assets in the Money Market Funds. Applicants believe that 
the proposed transactions may reduce custodian transaction costs and 
diversify risk across a wider range of short-term investments.
    4. If a Money Market Fund offers more than one class of shares, 
each Non-Money Market Fund will invest only in the class with the 
lowest expense ratio at the time of investment. The shares of the Money 
Market Funds sold to and redeemed from the Non-Money Market Fund will 
not be subject to a sales load, redemption fee or distribution fee 
under a plan adopted in accordance with rule 12b-1 under the Act. To 
the extent that both a Money Market Fund and a Non-Money Market Fund 
charge a service fee (as defined in Rule 2830 of the Conduct Rules of 
the National Association of Securities Dealers (the ``NASD''), the 
Money Market Fund will waive its service fee with respect to shares 
purchased by a Non-Money Market Fund or the Adviser will waive its 
advisory fee for each Non-Money Market Fund in an amount that offsets 
the amount of service fee incurred by the Non-Money Market Fund.
    5. Uninvested Cash will be invested in the Money Market Funds only 
when the investment will not disrupt the Money Market Funds and the 
Adviser reasonably believes that the Money Market Funds' return will be 
no less favorable than that of short-term debt instruments.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides that a registered 
investment company may not acquire securities of another investment 
company if such 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 acquiring 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 SEC may exempt 
any persons or transactions from section 12(d)(1) to the extent the 
exemption is consistent with the public interest and the protection of 
investors. Applicants request an order under section 12(d)(1)(J) to 
permit the Non-Money Market Funds to purchase shares of the Money 
Market Funds in excess of the limits in sections 12(d)(1)(A) and (B).
    3. Applicants maintain that the proposed arrangement will not 
result in the abuses that sections 12(d)(1)(A) and (B) were intended to 
address. Shares of the Money Market Funds sold to or redeemed by the 
Non-Money Market Funds will not be subject to a sales load, redemption 
fee, or asset-based distribution fee, and, in accordance with condition 
1, the Non-Money Market Funds will not pay duplicative service fees. 
When approving an investment advisory contract under section 15 of the 
Act, the board of trustees of a Non-Money Market Fund will consider to 
what extent the advisory fees paid by the Non-Money Market Fund to the 
Adviser should be reduced to account for the advisory fees paid by the 
Non-Money Market Fund as a shareholder in the Money Market Fund. 
Applicants also note that the net asset value of each Money Market Fund 
is and will be at a constant $1.00 per share. Therefore, applicants 
submit that the value of the investments in the Money Market Funds held 
by a Non-Money Market Fund will be easily determinable.
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from the company. Section 2(a)(3) of the 
Act defines an affiliated person of an investment company to include 
any person directly or indirectly controlling, controlled by, or under 
common control with such investment company. Because the Funds share a 
common investment adviser and a common board of trustees, each of the 
Funds may be deemed to be under common control with all the other 
Funds.
    5. Section 17(b) of the Act authorizes the SEC 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, and the proposed transaction is consistent with the 
policy of each investment company concerned and the general purposes of 
the Act. Section 6(c) authorizes the Commission to exempt persons or 
transactions from the provisions of the Act to the extent that such 
exemptions are appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policies and provisions of the Act.
    6. Applicants request an exemption under sections 6(c) and 17(b) 
from section 17(a) to permit the sale of shares of the Money Market 
Funds to the Non-Money Market Funds and the redemption of these shares 
by the Money Market Funds. Applicants submit that the proposed 
transactions will not involve overreaching because the consideration 
paid and received for the sale and redemption of shares of the Money 
Market Funds by the Non-Money Market Funds will be based on the net 
asset value per share of the Money Market Funds. Applicants also state 
that the Non-Money Market Funds will retain their ability to invest 
their Uninvested Cash directly in short-term debt obligations if they 
so choose for any reason. Applicants also note that the Money Market 
Funds reserve the right to discontinue selling their shares to any of 
the Non-Money Market Funds if the board of trustees of a Money Market 
Fund determines that the sales would adversely affect the Money Market 
Fund's management and operations.
    7. Section 17(d) of the Act and rule 17d-1 prohibit an affiliated 
person of a registered investment company, acting as principal, from 
participating in any joint arrangement with the investment company 
unless the SEC has issued an order authorizing the arrangement. 
Applicants believe that the Funds, by participating in the proposed 
transactions, and the Adviser, by managing the proposed transactions, 
could be deemed to be participating in a joint arrangement within the 
meaning of section 17(d) and rule 17d-1. Applicants request an order 
under section 17(d) and rule 17d-1 permitting the proposed 
transactions.
    8. In determining whether to permit a transaction under rule 17d-1, 
the SEC considers whether the investment company's participation in the 
joint enterprise is consistent with the provisions, policies, and 
purposes of the Act, and the extent to which such participation is on a 
basis different from or less advantageous than that of other 
participants. Applicants assert that participation by the Money Market 
Funds and the Non-Money Market Funds in the proposed transactions will 
be on the same basis and will be consistent with the policies and 
purposes of the Act.

[[Page 43736]]

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The shares of the Money Market Funds sold to and redeemed from 
the Non-Money Market Funds will not be subject to a sales load, 
redemption fee or distribution fee under a plan adopted in accordance 
with rule 12b-1. To the extent that both a Money Market Fund and Non-
Money Market Fund may charge a service fee (as defined in Rule 2830 of 
the NASD Conduct Rules), the Money Market Fund will waive its service 
fee with respect to shares purchased by a Non-Money Market Fund or the 
Adviser will waive its advisory fee for each Non-Money Market Fund in 
an amount that offsets the amount of the service fee incurred by the 
Non-Money Market Fund.
    2. Before the next meeting of the board of trustees of the Non-
Money Market Fund is held for the purpose of voting on an advisory 
contract under section 15 of the Act, the Adviser will provide the 
board of trustees 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 Non-Money Market Fund that can be expected to be invested 
in the Money Market Funds. Before approving any advisory contract for a 
Non-Money Market Fund, the board of trustees, including a majority of 
the trustees who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act, shall consider to what extent, if any, the 
advisory fees charged to the Non-Money Market Fund by the Adviser 
should be reduced to account for the reduced services provided to the 
Non-Money Market Fund by the Adviser as a result of Uninvested Cash 
being invested in the Money Market Funds. The Trust's minute books will 
record fully the board of trustees' consideration in approving the 
advisory contract, including the considerations relating to fees 
referred to above.
    3. Each Non-Money Market Fund will invest Uninvested Cash in, and 
hold shares of, the Money Market Funds only to the extent that the Non-
Money Market Fund's aggregate investment in the Money Market Funds does 
not exceed 25% of the Non-Money Market Fund's total assets. For 
purposes of this limitation, each Non-Money Market Fund or series 
thereof will be treated as a separate investment company.
    4. Investment in shares of the Money Market Funds will be in 
accordance with each Non-Money Market Fund's investment restrictions, 
and will be consistent with each Non-Money Market Fund's policies as 
set forth in its prospectus and statement of additional information.
    5. The Non-Money Market Funds, the Money Market Funds, and any 
future Fund that may rely on the order shall be advised by the Adviser 
or a person controlling, controlled by or under common control with the 
Adviser.
    6. 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.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-21845 Filed 8:13-98; 8:45 am]
BILLING CODE 8010-01-M