[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