[Federal Register Volume 64, Number 134 (Wednesday, July 14, 1999)]
[Notices]
[Pages 38056-38058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17932]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23898; 812-11482]
Wayne Hummer Investment Trust, et al.; Notice of Application
July 8, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of an application under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 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 to permit certain
joint transactions.
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Summary of Application: Applicants request an order that would permit
certain registered open-end management investment companies to use
uninvested cash to purchase shares of affiliated money market funds.
Applicants: Wayne Hummer Investment Trust (``Trust''), all existing and
future series thereof, and any other registered open-end management
investment company and its series that are currently or in the future
advised by Wayne Hummer Management Company (the ``Adviser'') or any
entity controlling, controlled by, or under common control with the
Adviser (collectively, the ``Funds''), the Adviser, and Wayne Hummer
Investments L.L.C. (``WHILLC'').
FILING DATES: The application was filed on January 27, 1999, and
amended on May 18, 1999. Applicants have agreed to file another
amendment during the notice period, the substance of which is reflected
in this notice.
Hearing or Notification of Hearing: An order granting the requested
relief 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 July 29,
1999, 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-
[[Page 38057]]
0609. Applicants, 300 South Wacker Drive, Suite 1500, Chicago, Illinois
60606.
FOR FURTHER INFORMATION CONTACT: Susan K. Pascocello, Senior Counsel,
at (202) 942-0674, or Michael W. Mundt, 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
20549-0102 (tel. 202-942-8090).
Applicants' Representations
1. The Trust is organized as a Massachusetts business trust and is
an open-end management investment company registered under the Act. The
Wayne Hummer Investment Trust currently consists of two series, a
growth fund and an income fund (together with any future Funds that are
not money market funds, the ``Non-Money Market Funds'') and as of July
31, 1999 will add two more series, one of which will be a money market
fund (together with any future Funds that are money market funds, the
``Money Market Funds'').\1\ The Adviser, an Illinois corporation,
serves as investment adviser to each Fund and is registered as an
investment adviser under the Investment Advisers Act of 1940. WHILLC, a
Delaware limited liability company, acts as the distributor for each of
the existing Funds.
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\1\ All existing investment companies that currently intend to
rely on the order have been named as applicants, and any other
existing or future registered management investment companies that
subsequently rely on the order will comply with the terms and
conditions in the application.
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2. Each Non-Money Market Fund has, or may be expected to have,
uninvested cash (``Uninvested Cash'') held by its custodian. Uninvested
Cash may result from a variety of sources, including dividends or
interest received from portfolio securities, unsettled securities
transactions, strategic reserves, matured investments, proceeds from
the liquidation of investment securities, and new investor capital.
3. Applicants request an order to permit a Non-Money Market Fund to
use its Uninvested Cash to purchase shares of a Money Market Fund, and
the Money Market Fund to sell shares to and redeem from the Non-Money
Market Fund, provided that the Non-Money Market Fund's aggregate
investment in Money Market Funds does not exceed 25% of the Non-Money
Market Fund's total assets at any time. Applicants believe that the
ability to invest Uninvested Cash in Money Market Funds will benefit
the Non-Money Market Funds by providing high rates of return, ready
liquidity, and increased diversification.
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
acquired investment companies, represent more than 10% of the acquiring
company's total assets. Section 12(d)(1)(B) of the Act 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, 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 any provision of section 12(d)(1) if
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 Non-Money Market Funds to use Uninvested Cash to purchase
shares of the Money Market Funds and the Money Market Funds to sell the
shares in excess of the limitations in sections 12(d)(1) (A) and (B),
provided that no Non-Money Market Fund will invest more than an
aggregate of 25% of its total assets in all Money Market Funds at any
time.
3. Applicants submit that the proposed transactions do not
implicate the abuses that sections 12(d)(1) (A) and (B) were intended
to prevent, which include the exercise of undue influence by an
acquiring fund over an acquired fund and layering of fees. Applicants
state that each of the Money Market Funds will be managed specifically
to maintain a highly liquid portfolio and will not be susceptible to
undue control due to the threat of large-scale redemptions. Applicants
also submit that there will be no layering of fees because no sales
load, redemption fee, asset-based distribution fee or service fee will
be charged in connection with the purchase and sale of shares of the
Money Market Funds. Applicants state that the Adviser currently intends
to credit to the Non-Money Market Fund, or waive, the investment
advisory fees that it earns as a result of the investment in the Money
Market Funds.
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 investment adviser of the investment company and any person
directly or indirectly controlling, controlled by, or under common
control with the investment company. Applicants state that because the
Funds are advised by the Adviser and share a common board of trustees,
the Funds may be deemed to be under common control and affiliated
persons of one another. As a result, section 17(a) would prohibit the
sale of shares of a Money Market Fund to a Non-Money Market Fund and
the redemption of the shares by the Non-Money Market Fund.
5. Section 17(b) of the Act provides that the SEC may 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 registered investment company concerned and the general
purposes of the Act.
6. Section 6(c) of the Act permits the SEC to exempt any person,
security, or transaction from any provision of the Act if, and to the
extent that, 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.
7. Applicants submit that the request for relief satisfies the
standards of sections 17(b) and 6(c). Applicants state that the
proposed transactions are reasonable and fair and would not involve
overreaching because shares of the Money Market Fund will be purchased
and redeemed by the Non-Money Market Funds at net asset value.
Applicants also note that Non-Money Market Funds will retain their
ability to invest their Uninvested Cash directly in money market
instruments in accordance with their investment objectives and policies
if a higher return can be obtained or for any other reason. Applicants
assert that each Money Market Fund may discontinue selling its shares
to any of the Non-Money Market Funds if the board of trustees of the
Money Market Fund determines that the sale would adversely affect the
Money Market Fund's portfolio management and operations.
[[Page 38058]]
8. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company, acting as
principal, from participating in any joint arrangement with the
investment company. Applicants assert that the Non-Money Market Funds,
by purchasing shares of the Money Market Funds, the Money Market Funds,
by selling shares to Non-Money Market Funds, and the Adviser, by
managing the proposed transactions, could be deemed to be participants
in a joint arrangement.
9. Rule 17d-1 under the Act permits the SEC to approve a joint
transaction covered by the terms of section 17(d). In determining
whether to approve a transaction, 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 the participation is on a basis different from, or
less advantageous than, that of other participants. Applicants assert
that the Funds will participate in the proposed transactions on a basis
not different from or less advantageous than that of other participants
and that the transactions will be consistent with the purposes of the
Act.
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
Non-Money Market 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(b)(9) of the
NASD Rules of Conduct).
2. If the Adviser collects a fee from a Money Market Fund for
acting as its investment adviser with respect to assets invested by a
Non-Money Market Fund, before the next meeting of the board of trustees
of a Non-Money Market Fund that invests in the Money Market Funds
(``Board'') is held for the purpose of voting on an advisory contract
for the Non-Money Market Fund under section 15 of the Act, the Adviser
will provide the Board with specific information regarding the
approximate cost to the Adviser for, or portion of the advisory fee
under the existing advisory contract attributable to, managing the
assets of the Non-Money Market Fund that can be expected to be invested
in such Money Market Funds. Before approving any advisory contract
under section 15, the Board, 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 fee indirectly paid by the Non-Money Market Fund
because of the advisory fee paid by the Money Market Fund to the
Adviser. The minute books of the Non-Money Market Fund will record
fully the Board's considerations in approving the advisory contract,
including the considerations relating to fees referred to above.
3. Each of the Non-Money Market Funds 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 respective investment
restrictions and policies set forth in its prospectus and statement of
additional information.
5. 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.
6. Each Non-Money Market Fund, Money Market Fund, and any future
Fund that may rely on the requested order will be advised by the
Adviser or an entity controlling, controlled by, or under common
control with the Adviser.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-17932 Filed 7-13-99; 8:45 am]
BILLING CODE 8010-01-M