[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]
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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