[Federal Register Volume 65, Number 72 (Thursday, April 13, 2000)]
[Notices]
[Pages 19950-19952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9252]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24383, 812-11614]
Endeavor Series Trust, et al.; Notice of Application
April 10, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (the ``Act'') for exemption from
sections 12(d)(1)(A) and (B) of the Act, under section 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 THE APPLICATION: Applicants request an order that would
permit certain registered open-end 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: Endeavors Series Trust (the ``Trust''), all existing and
future series of the Trust, PFL Endeavor Target Account, AUSA Endeavor
Target Account (together with the PFL Endeavor Target Account, the
``Accounts''), all existing and future subaccounts (and portfolios
thereof) of the Accounts, and any other registered open-end management
investment company and its series that are currently or in the future
advised by Endeavor Management Co. (the ``Adviser'') or any entity
controlling, controlled by, or under common control with the Adviser
(collectively, the ``Funds''), and the Adviser.
FILING DATES: The application was filed on May 21, 1999, and amended on
November 5, 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 applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on April 28, 2000, 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 Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC
20549-0609. Applicants: Trust and Adviser, 2101 East Coast Highway,
Suite 300, Corona del Mar, California 92625; Accounts, 4333 Edgewood
Road, N.E., Cedar Rapids, Iowa 52499-0001.
FOR FURTHER INFORMATION CONTACT: Sara Crovitz, Senior Counsel, at (202)
942-0667, or Michael W. Mundt, 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, 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
shares of the Trust are sold exclusively to insurance company separate
accounts that fund variable annuity and variable life contracts. The
Trust currently consists of fourteen series, one of which is a money
market fund subject to rule 2a-7 under the Act (together with any
future Funds that are money market funds, the ``Money Market Funds;''
all other Funds that are not money market funds are collectively
referred to as the ``Non-Money Market Funds''). \1\ The PFL Endeavor
Target Account and AUSA Endeavor Target Account are managed separate
accounts established by PFL Life Insurance Company and AUSA Life
Insurance Company, respectively, and are each divided into two non-
money
[[Page 19951]]
market subaccounts with multiple portfolios. The Accounts are open-end
management investment companies registered under the Act. The Adviser
serves as investment manager to each Fund and is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
``Advisers Act''). The Advisers selects other affiliated and
unaffiliated investment advisers registered under the Advisers Act
(``Subadvisers'') to manage the portfolio for each Fund.
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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 open-end management investment
companies that subsequently rely on the order will comply with the
terms and conditions in the application.
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2. Applicants state that each Non-Money Market Funds 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 fro liquidation of investment securities, and new
investor capital. The Non-Money Market Funds also may participate in a
securities lending program that may be developed in the future under
which a Non-Money Market Fund may lend its portfolio securities to
registered broker-dealers or other institutional investors
(``Securities Lending Program''). Before a Fund participates in a
Securities Lending Program, it will select a securities lending agent
that is not affiliated with the Adviser, Subadvisers, or any of their
affiliates. Any loans would be continuously secured by collateral equal
at all times to at least the market value of the securities loaned.
Collateral for these loans could include cash (``Cash Collateral,'' and
together with Uninvested Cash, ``Cash Balances'').
3. Applicants request an order to permit a Non-Money Market Fund to
use its Cash Balances to purchase and redeem shares of a Money Market
Fund, and the Money Market Fund to sell shares to and redeem shares as
requested by the Non-Money Market Fund. Applicants believe that the
ability to invest Cash Balances in Money Market Funds will benefit the
Non-Money Market Funds by providing higher 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 the securities represent more than 3% of the acquired company's
outstanding voting stock, more than 5% of the acquiring company's total
assets, or, together with the securities of other acquired investment
companies, 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 Commission may
exempt any persons or transactions from any provision of section
12(d)(1) if the exemption is consistent with the public 12(d)(1)(J) to
permit the Non-Money Market Funds to invest Cash Balances in the Money
Market Funds in excess of the limitations in sections 12(d)(1)(A) and
(B).
3. Applicants submit that the proposed transactions do not
implicate the abuses that sections 12(d)(1)(A) and (B) were intended to
prevent. 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 or assets based distribution
fee will be charged in connection with the purchase and sale of shares
of the Money Market Funds. To the extent that both a Money Market Funds
and Non-Money Market Fund charge a service fee as defined in rule 2830
of the conduct rules of the National Association of Securities Dealers
(``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 fee incurred by the Non-Money
Market Fund. Before approving any advisory contract for a Non-Money
Market Fund, the board of trustees or board of managers of a Fund
(``Board''), including a majority of the trustees or managers who are
not ``interested persons'' as defined in section 2(a)(19) of the Act
(``Independent Board Members''), will consider to what extent, if any,
the advisory fees charged to the Non-Money Market Fund should be
reduced to account for the reduced services provided to the Non-Money
Market Fund by the Adviser and Subadviser as a result of Uninvested
Cash being invested in the Money Market Fund. No Money Fund will
acquire shares of any other investment company in excess of the limits
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
the affiliated 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 any person
directly or indirectly controlled by, or under common control with the
investment company. Applicants state that because the Funds share a
common investment manager and have substantially identical Boards, each
Fund 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 the
shares of a Money Market Fund to a Non-Money Market Fund and the
redemption of the shares by the Non-Money Market Funds.
5. Section 17(b) of the Act provides that the Commission 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
purpose 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. 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 Cash Balances directly in money market
instruments in accordance with their investment objectives and
policies. Applicants state that each Money Market Fund may discontinue
selling its shares to any of the Non-Money Market Funds if the Board of
the Money Market Fund determines that the sale would adversely affect
the Money Market Fund's 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
[[Page 19952]]
participating in or effecting any transaction in connection with any
joint enterprise or joint arrangement in which the investment company
participates. Applicants state that the Funds, by participating in the
proposed transactions, and the Adviser and Subadvisers, 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.
8. In considering whether to permit a joint transaction under rule
17d-1, the Commission considers whether the investment company's
participation in 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 submit that the Funds will
participate in the proposed transactions on the same basis and will be
indistinguishable from any other shareholder 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. The shares of the Money Market Funds sold to and redeemed as
requested by 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 under the Act. To the extent that both a
Money Market Fund and a Non-Money Market Fund may charge a service fee
(as defined in rule 2830(b)(9) 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 a Non-Money Market Fund
is held for the purpose of voting on an advisory contract under section
15 of the Act, the Adviser and Subadviser will provide the Board with
specific information regarding the approximate costs to the Adviser and
Subadviser 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, including a majority of the Independent Board
Members, shall consider to what extent, if any, the advisory fees
charged to the Non-Money Market Fund by the Adviser and the Subadviser
should be reduced to account for the reduced services provided to the
Non-Money Market Fund by the Adviser and the Subadviser as a result of
Uninvested Cash being invested in the Money Market Funds. The Non-Money
Market Fund's minute books will record fully the Board's considerations
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 of Uninvested Cash in the
Money Market Funds does not exceed 25 percent of the Non-Money Market
Fund's total assets. For purposes of this limitation, each Money Market
Fund or series thereof 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 Non-Money Market Fund's respective
investment restrictions, if any, 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 will be advised by the Adviser
or a person controlling, controlled by, or under common control with
the Adviser.
6. No Money Market Fund will 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 the Securities Lending Program,
a majority of its Board, including a majority of the Independent Board
Members, will approve the Fund's participation in the Securities
Lending Program. The Board also will evaluate the securities lending
arrangement and its results no less frequently than annually and
determine that any investment of Cash Collateral in the Money Market
Funds in the best interest of the shareholders of the Fund.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9252 Filed 4-12-00; 8:45 am]
BILLING CODE 8010-01-M