[Federal Register Volume 63, Number 160 (Wednesday, August 19, 1998)]
[Notices]
[Pages 44479-44480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22295]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23388; 812-10668]


SIT Mutual Funds, Inc., et al.; Notice of Application

August 13, 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 (``Act'') for an exemption from 
section 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.

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SUMMARY OF APPLICATION: Applicants, SIT Mutual Funds, Inc., SIT Mutual 
Funds II, Inc., SIT Mid Cap Growth Fund, Inc., SIT Large Cap Growth 
Fund, Inc., SIT U.S. Government Securities Fund, Inc., SIT Money Market 
Fund, Inc. (``Money Market Fund'') (collectively, the ``Funds''), and 
SIT Investment Associates, Inc. (``Adviser'') seek an order to permit 
certain registered open-end investment companies to invest uninvested 
cash in an affiliated money market fund. The requested order would 
extend to current and subsequently created series of the Funds and any 
other registered open-end investment company advised by the Adviser. 
The requested order would supersede an existing order.\1\

    \1\ Investment Company Act Release No. 20420 (July 21, 1994) 
(Notice) and 20482 (August 16, 1994) (Order).
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FILING DATES: The application was filed on May 14, 1997, and amended on 
July 13, 1998. Applicants undertake to file a amendment during the 
notice period, the substance of which is incorporated in the 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 10, 
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, Mary K. Stern, 4600 Norwest Center, Minneapolis, MN 55402. 
Counsel, Robert A. Kukuljan, Esq., Dorsey & Whitney, LLP., 220 South 
Sixth Street, Minneapolis, MN 55402.

FOR FURTHER INFORMATION CONTACT: Edward P. Macdonald, Branch Chief, at 
(202) 942-0564 (Office of Investment Company Regulation, Division of 
Investment Management).

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 Funds are open-end management investment companies 
registered under the Act and organized as Minnesota corporations. The 
Adviser is registered under the Investment Advisers Act of 1940 and 
serves as the investment adviser for each of the series of the Funds 
(``Series''). Certain of the Series also have investment subadvisers 
(together with the Adviser, ``Advisers''). The Money Market Fund, a 
series of the Funds, is subject to rule 2a-7 under the Act.
    2. The Series may have, or may be expected to have, uninvested cash 
(``Uninvested Cash'') held by their custodian. Uninvested cash may 
result from a variety of sources, including dividends or interest 
received on portfolio securities, unsettled securities transactions, 
reserves held for investment strategy purposes, scheduled maturity of 
investments, liquidation of investment securities to meet anticipated 
redemptions, dividend payments, or new monies received from investors. 
Currently, the Series may invest Uninvested Cash directly in individual 
short term money market instruments.
    3. The Series (the ``Investing Funds'') wish to have the 
flexibility to invest their Uninvested Cash in the Money Market Fund. 
Any investment of Uninvested Cash in shares of the Money Market Fund 
will be in accordance with each Investing Fund's investment 
restrictions and will be consistent with each Investing Funds' policies 
as set forth in its prospectuses and statements 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 that no registered 
investment company may 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 
investment companies, represent more than 10% of the acquiring 
company's total assets. Section 12(d)(1)(B) provides 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 to be owned by 
investment companies.
    2. Section 12(d)(1)(J) of the Act provides that the SEC may exempt 
persons or transactions from any provision of section 12(d)(1) if and 
to the extent the exemption is consistent with the public interest and 
the protection of investors. Applicants request relief under section 
12(d)(1)(J) to permit the Investing Funds to use Uninvested Cash to 
acquire shares of the Money Market Fund in excess of the percentage 
limitations in section 12(d)(1)(A), provided however, that in all cases 
the Investing Fund's aggregate investment of Uninvested Cash in shares 
of the Money Market Fund will not exceed 25% of the Investing Fund's

[[Page 44480]]

total assets at any time. Applicants also request relief to permit the 
Money Market Fund to sell its securities to an Investing Fund in excess 
of the percentage limitations in section 12(d)(1)(B). Applicants 
represent that the Money Market Fund will not acquire securities of any 
other investment company in excess of the limitations contained in 
section 12(d)(1)(A) of the Act.
    3. Applicants believe that the proposed arrangement does not result 
in the abuses that sections 12(d)(1) (A) and (B) were intended to 
prevent. Applicants represent that the proposed arrangement will not 
result in an inappropriate layering of fees because shares of the Money 
Market Fund sold to the Investing Funds will not be subject to a sales 
load, redemption fee, asset-based distribution fee or service fee. In 
addition, the Advisers will waive their investment advisory fees for 
each Investing Fund in an amount that offsets the amount of the 
advisory fees of the Money Market Fund incurred by the Investing Fund.
    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. Because each Series 
may be deemed to be under common control with the other Series, it may 
be an ``affiliated person,'' as defined in section 2(a)(3) of the Act, 
of the other Series. Accordingly, applicants state that the sale of 
shares of the Money Market Fund to the Investing Funds, would be 
prohibited under section 17(a) of the Act.
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the act if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
fair and reasonable and do not involve overreaching on the part of any 
person concerned, the proposed transaction is consistent with the 
policy of each investment company concerned, and with the general 
purposes of the Act. Section 6(c) of the Act permits the Commission to 
exempt persons or transactions from any provision of the Act, if the 
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. The Investing Funds will retain their ability to invest their 
cash balances directly into money market instruments if they believe 
that they can obtain a higher return. The Money Market Fund 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 the Money Market Fund. In 
addition, applicants state that shares of the Money Market Fund will be 
purchased and redeemed at their net asset value, the same consideration 
paid and received for these shares by any other shareholder. Therefore, 
applicants believe that the proposal satisfies the standards for relief 
in sections 17(b) and 6(c) of the Act.
    7. Section 17(d) of the Act and rule 17d-1 under the Act 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. Applicants state that each Investing Fund, by 
purchasing shares of the Money Market Fund; each Adviser of an 
Investing Fund, by managing the assets of the Investing Funds invested 
in the Money Market Fund; and the Money Market Fund, by selling shares 
to the Investing Funds, could be participants in a joint enterprise 
within the meaning of section 17(d)(1) of the Act and rule 17d-1 under 
the Act.
    8. Rule 17d-1 under the Act permits the Commission to approve a 
joint transaction covered by the terms of section 17(d). In determining 
whether to approve a transaction, the Commission considers 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 submit that the Series 
will participate in the proposed transactions on a basis not different 
from or less advantageous than that of any other participant and that 
the transactions will be consistent with the Act.

Appicants' Conditions

    Applicants agree that the order granting requested relief will be 
subject to the following conditions:
    1. Shares of the Money Market Fund 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 of the NASD's 
Conduct Rules).
    2. The Advisers will waive their advisory fee for each Investing 
Fund in an amount that offsets the amount of the advisory fees of the 
Money Market Fund incurred by the Investing Funds. Any of these fees 
remitted or waived will not be the subject to recoupment by the 
Advisers at a later date.
    3. Each Investing Fund will invest Uninvested Cash in, and hold 
shares of, the Money Market Fund only to the extent that the Investing 
Fund's aggregate investment in the Money Market Fund does not exceed 
25% 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 in shares of the Money Market Fund will 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 prospectuses and statements of additional 
information.
    5. Each Investing Fund and any future fund that may rely on the 
order requested will be advised by the Adviser or an entity 
controlling, controlled by, or under common control with the Adviser.
    6. The Money Market Fund will not acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-22295 Filed 8-18-98; 8:45 am]
BILLING CODE 8010-01-M