[Federal Register Volume 65, Number 152 (Monday, August 7, 2000)]
[Notices]
[Pages 48260-48262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19908]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24588; 812-11870]


Securities Management and Research, Inc., et al.; Notice of 
Application

August 1, 2000.
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 join transactions.

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    Summary of the Application: The requested order would permit 
certain registered management investment companies to invest uninvested 
cash in an affiliated money market fund in excess of the limits in 
sections 12(d)(1)(A) and (B) of the Act.
    Applicants: Securities Management and Research, Inc. (the 
``Adviser''), SM&R Investments, Inc. (the ``Series Fund''), and all 
existing and future series thereof, SM&R Growth Fund, Inc., SM&R Equity 
Income Fund, Inc., and SM&R Balanced Fund, Inc. (together with the 
Series Fund, the ``Funds'').
    Filing Dates: The application was filed on December 2, 1999, and 
amended on April 14, 2000 and June 12, 2000.
    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 August 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, c/o Teresa E. Axelson, Securities Management 
and Research, Inc., 2450 Southshore Blvd., Suite 400, League City, TX 
77573.

FOR FURTHER INFORMATION CONTACT:  Paula L. Kashtan, Senior Counsel, at 
(202) 942-0615, or Mary Kay Frech, 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).

[[Page 48261]]

Applicants' Representations

    1. The Funds, each a Maryland corporation, are registered under the 
Act as open-end management investment companies.\1\ The Series Fund 
currently offers four series, including the SM&R Money Market Fund (the 
``Money Market Fund''). The Money Market Fund is subject to the 
requirements of rule 2a-7 under the Act. The Adviser, a Florida 
corporation and a wholly-owned subsidiary of American National 
Insurance Company, is registered as a investment adviser under the 
Investment Advisers Act of 1940 \2\ The Adviser serves as the 
investment adviser for each of the Funds.
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    \1\ Applicants also request relief for all other registered 
management investment companies that are or become adviser or sub-
advised by the Adviser and that are part of the same group of 
investment companies, as that term is defined in section 12(d)(1)(G) 
of the Act, as the Funds (``Future Funds'' and together with the 
Funds, the ``Funds''). All investment companies that currently 
intend to rely on the requested relief are named as applicants. Any 
other existing or future registered management investment company 
that may rely on the order in the future will do so only in 
accordance with the terms and conditions of the application.
    \2\ For purposes of this application, the term ``Adviser'' 
includes, in addition to Securities Management and Research, Inc., 
any other person controlling, controlled by or under common control 
with Securities Management and Research, Inc. that acts in the 
future as an investment adviser for the Funds.
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    2. Applicants state that each of the Funds has, or may have, 
uninvested cash (``Uninvested Cash'') held by its custodian. 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.
    3. Applicants request an order to permit each of the Funds 
(``Investing Funds'') to invest their Uninvested Cash in the Money 
Market Fund, and to permit the Money Market Fund to sell shares to, and 
to redeem shares from, the Investing Funds. investment of Uninvested 
Cash in shares of the Money Market Fund will be made, only to the 
extent that such investment is 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)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(1) 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)(1)(J) from the 
limitations of sections 12(d)(1)(A) and (B) to permit the Investing 
Funds to invest Uninvested Cash in the Money Market Fund.
    3. Applicants state that the proposed arrangement would not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that because the Money Market Fund will 
maintain a highly liquid portfolio, an Investing Fund will not be a 
position to gain undue influence over the Money Market Fund. Applicants 
represent that the proposed arrangement will not result in an 
inappropriate layering of fees because of the Money Market Fund 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(b)(9) of the 
National Association of Securities Dealers' (``NASD'') Conduct Rules). 
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.
    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 investment company and any investment adviser to the 
investment company. Applicants state that, because the Funds share a 
common investment 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. As a result, section 17(a) would prohibit the 
sale of the shares of the Money market Fund to the Investing Funds, and 
the redemption of the shares by the Money Market Fund.
    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 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 their request for relief to permit the 
purchase and redemption of shares of the 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 Fund 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 retain their ability to invest 
their Uninvested Cash 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 the Money market Fund has the right 
to discontinue selling shares to any of the Investing Funds if the 
money Market Fund's board of directors determines that such sale would 
adversely affect its portfolio management or operations.
    7. 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 or effecting any transaction in 
connection with any joint enterprise or joint arrangement in which the 
investment company participates. Applicants state

[[Page 48262]]

that each Investing Fund, by purchasing shares of the Money Market 
Fund, the Adviser, by managing the assets of the Investing Funds 
investing in the Money Market Fund, and the 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 the Money Market Fund would be 
indistinguishable from any other shareholder account maintained by 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 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 a service fee (as defined in rule 2830(b)(9) of the 
NASD Conduct Rules).
    2. If the Adviser collects from the Money Market Fund a fee for 
acting as its investment adviser with respect to assets invested by the 
Investing Funds, before the next meeting of the board of directors of 
an Investing Fund that invests in the Money Market Fund (``Board'') is 
held for the purpose of voting on an investment advisory contract 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 investment advisory fee under the existing advisory 
agreement attributable to, managing the assets of the Investing Fund 
that can be expected to be invested in the Money Market Fund. Before 
approving any investment advisory contract under section 15, the Board, 
including a majority of the directors who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, shall consider to 
what extent, if any, the investment advisory fees charged to the 
Investing Fund by the Adviser should be reduced to account for the 
investment advisory fees indirectly paid by the Investing Fund because 
of the investment advisory fee paid by the Money Market Fund to the 
Adviser. The minute books of the applicable Investing Fund will record 
fully the factors considered by the Board in approving the investment 
advisory contract, including the considerations of the Board relating 
to the advisory fees referred to above.
    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 
percent of the total assets of the Investing Fund. For purposes of this 
limitation, each Investing Fund and series thereof 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 policies as set forth in its prospectus and statement 
of additional information.
    5. Each Investing Fund, the Money Market Fund, 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. 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. 00-19908 Filed 8-4-00; 8:45 am]
BILLING CODE 8010-01-M