[Federal Register Volume 64, Number 237 (Friday, December 10, 1999)]
[Notices]
[Pages 69300-69302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-32063]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24183; 812-11706]


The Payden & Rygel Investment Group and Payden & Rygel; Notice of 
Application

December 6, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under sections 6(c), 
12(d)(1)(J), and 17(b) of the Investment Company Act of 1940 (the 
``Act'') for exemptions from sections 12(d)(1)(A) and (B) and 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.

-----------------------------------------------------------------------

    Summary of the Application: The requested order would permit 
certain registered management investment companies to invest uninvested 
cash and cash collateral in affiliated money market funds in excess of 
the limits in sections 12(d)(1)(A) and (B) of the Act.
    Applicants: The Payden & Rygel Investment Group (``P&R Group''), 
and all existing and future registered management investment companies 
for which Payden & Rygel (``Payden'') serves in the future as an 
investment adviser (collectively, the ``Investment Companies'') and all 
existing and future series of the Investment Companies (``Funds''), and 
Payden.
    Filing Dates: The application was filed on July 20, 1999. 
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 Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicant with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on December 28, 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

[[Page 69301]]

notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549-0609. Applicants, c/o Wendell M. Faria, Esq., Paul Hastings, 
Janofsky and Walker, LLP, 1299 Pennsylvania Avenue, NW, 10th Floor, 
Washington, D.C. 20004.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or George J. Zornada, 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 
Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The P&R Group, a Massachusetts business trust, is registered 
under the Act as an open-end management investment company. The P&R 
Group currently consists of twenty-three Funds, including the Bunker 
Hill Money Market Fund which holds itself out as a money market fund 
and is subject to the requirements of rule 2a-7 under the Act (together 
with any other future money market Funds, ``Money Market Funds'').\1\ 
Payden, a privately-owned California company, is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and serves as investment adviser to each Fund.
---------------------------------------------------------------------------

    \1\ All Investment Companies and Funds that currently intend to 
rely on the requested relief are named as applicants. Any other 
Investment Companies and Funds that may rely on the relief in the 
future will do so only in accordance with the terms and conditions 
of the application.
---------------------------------------------------------------------------

    2. Applicants state that each of the Funds has, or may have, 
uninvested cash held by its custodian (``Uninvested Cash''). Such 
Uninvested Cash may result from a variety of sources, including 
dividends or interest received on portfolio securities, unsettled 
securities transactions, strategic reserves, matured investments, 
proceeds from liquidation of investment securities, dividend payments, 
or money received from investors. The Funds also may participate in a 
securities lending program under which a Fund may lend its portfolio 
securities to broker-dealers or other institutional investors 
(``Securities Lending Program''). The loans are continuously secured by 
collateral equal at all times to at least the market value of the 
securities loaned. Collateral for these loans may include cash (``Cash 
Collateral,'' and together with Uninvested Cash, ``Cash Balances'').
    3. Applicants request an order to permit each of the Funds 
(``Investing Funds'') to invest their Cash Balances in one or more 
Money Market Funds, and the Money Market Funds to sell their shares to, 
and redeem their shares from, the Investing Funds. Investment of Cash 
Balances in shares of Money Market Funds will be made only to the 
extent that such investments are consistent with each Investing Fund's 
investment restrictions and policies as set forth in its prospectus and 
statement 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, in pertinent part, 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, in pertinent part, 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)(l)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(l) if, and to the extent that, such exemption is 
consistent with the public interest and the protection of investors. 
Applicants request relief under section 12(d)(l)(J) from the 
limitations of sections 12(d)(l)(A) and (B) to permit the Investing 
Funds to invest Cash Balances in Money Market Funds.
    3. Applicants state that the proposed arrangement would not result 
in the abuses that sections 12(d)(l)(A) and (B) were intended to 
prevent. Applicants state that because each Money Market Fund will 
maintain a highly liquid portfolio, an Investing Fund will not be in a 
position to gain undue influence over a Money Market Fund through 
threat of redemption. Applicants represent that the proposed 
arrangement will not result in an inappropriate layering of fees 
because shares of the Money Market Funds sold to 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 National Association of 
Securities Dealers' (``NASD'') Conduct Rules), or, if such shares are 
subject to any such sales load, redemption fee, distribution fee or 
service fee, Payden will waive its advisory fee for each Investing Fund 
in an amount that offsets the amount of such fees incurred by the 
Investing Fund. In connection with approving any advisory contract for 
an Investing Fund, the Investing Fund's board of directors of trustees 
(the ``Board''), including a majority of the directors or trustees who 
are not ``interested persons,'' as defined in section 2(a)(19) of the 
Act (``Independent Directors or Trustees'') will consider to what 
extent, if any, the advisory fees charged to the Investing Fund by 
Payden should be reduced to account for reduced services provided to 
the Investing Fund by Payden as a result of the investment of 
Uninvested Cash in the Money Market Funds. Applicants represent that no 
Money Market Fund will acquire securities of any other investment 
company of the limitations contained in section 12(d)(1)(A) of the Act.
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, or an affiliated person of 
such person, 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, among others, any person 
directly or indirectly controlling, controlled by, or under common 
control with the other person and any person owning, controlling, or 
holding with power to vote, 5% or more of the other person. Applicants 
state that, because the Funds share a common adviser, each Fund may be 
deemed to be under common control with each of the other Funds, and 
thus an affiliated person of each of the other Funds. In addition, if 
the relief is granted, an Investing Fund may acquire 5% or more of a 
Money Market Fund and become an affiliated person of the Money Market 
Fund. As a result, section 17(a) would prohibit the sale of the shares 
of a Money Market Fund to the Investing Funds, and the redemption of 
the shares by a Money Market Fund.

[[Page 69302]]

    5. 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 investment company concerned, and the proposed 
transaction is consistent 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 interested and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act.
    6. Applicants submit that their request for relief to permit the 
purchase and redemption of shares of a Money Market Fund by the 
Investing Funds satisfies the standards in sections 6(c) and 17(b) of 
the Act. Applicants note that shares of the Money Market Funds will be 
purchased and redeemed at their net asset value, the same consideration 
paid and received for these shares by any other shareholder. Applicants 
state that the Investing Funds will remain their ability to invest Cash 
Balances directly in money market instruments as authorized by their 
respective investment objectives and policies if they believe they can 
obtain a higher rate of return, or for any other reason. Applicants 
also state that a Money Market Fund has the right to discontinue 
selling shares to any of the Investing Funds if the Money Market Fund's 
Board determines that such sale would adversely affect its portfolio 
management and operations.
    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 a Money Market Fund, Payden, by managing the 
assets of the Investing Funds investing in a Money Market Fund, and a 
Money Market Fund, by selling shares to the Investing Funds, could be 
deemed to be participants in a joint enterprise or arrangement within 
the meaning of section 17(d) of the Act and rule 17d-1 under the Act.
    8. Rule 17d-1 permits the Commission to approve a proposed joint 
transaction covered by the terms of section 17(d) of the Act. 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 is on a basis different from or less advantageous 
than that of other participants. Applicants submit that the investment 
by the Investing Funds in shares of a Money Market Fund would be on the 
same basis and would be indistinguishable from any other shareholder 
account maintained by the same class of the Money Market Fund and that 
the transactions will be consistent with the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Shares of the Money Market Funds 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(b)(9) of the 
NASD's Conduct Rules), or if such shares are subject to any such fee, 
Payden will waive its advisory fee for each Investing Fund in an amount 
that offsets the amount of such fees incurred by the Investing Fund.
    2. Prior to reliance on the order, an Investing Fund will hold a 
meeting of the Board for the purpose of voting on the advisory contract 
under section 15 of the Act. Before approving any advisory contract for 
an Investing Fund, the Board, including a majority of the Independent 
Directors or Trustees, taking into account all relevant factors, shall 
consider to what extent, if any, the advisory fees charged to the 
Investing Fund by Payden should be reduced to account for reduced 
services provided to the Fund by Payden as a result of the Uninvested 
Cash being invested in the Money Market Fund. In connection with this 
consideration, Payden will provide the Board with specific information 
regarding the approximate cost to Payden of, or portion of the advisory 
fee under the existing advisory contract attributable to, managing the 
Uninvested Cash of the Investing Fund that can be expected to be 
invested in the Money Market Fund. The minute books of the Investing 
Fund will record fully the Board's considerations in approving the 
advisory contract, including the consideration relating to fees 
referred to above.
    3. Each Investing Fund will invest Uninvested Cash in, and hold 
shares of, the Money Market Funds only to the extent that the Investing 
Fund's aggregate investment in the Money Market Funds does not exceed 
25 percent 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 of Cash Balances in shares of the Money Market Funds 
will be in accordance with each Investing Fund's respective investment 
restrictions, if any, 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, each Money Market Fund, and any future Fund 
that may rely on the order shall be part of the same group of 
investment companies, as defined in section 12(d)(1)(G)(ii) of the Act 
and shall be advised or, provided Payden manages Cash Balances, 
subadvised by Payden, or a person controlling, controlled by, or under 
common control with Payden.
    6. No Money Market Fund whose shares are acquired by an Investing 
Fund shall acquire securities of any investment company in excess of 
the limits contained in section 12(d)(1)(A) of the Act.
    7. Before a Fund may participate in Securities Lending 
Arrangements, a majority of the Board, including a majority of the 
Independent Directors or Trustees, will approve the Fund's 
participation in Securities Lending Arrangements. Such Independent 
Directors or Trustees also will evaluate the Securities Lending 
Arrangements and their results no less frequently than annually and 
determine that any investment of Cash Collateral in the Money Market 
Funds is in the best interest of the shareholders of the Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-32063 Filed 12-9-99; 8:45 am]
BILLING CODE 8010-01-M