[Federal Register Volume 66, Number 128 (Tuesday, July 3, 2001)]
[Notices]
[Pages 35289-35291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16635]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25053; 812-12302]


The Huntington Funds, et al.; Notice of Application

June 27, 2001.
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 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 the Application: Applicants request an order to 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: The Huntington Funds, Huntington, VA Funds 
(collectively, the ``Trusts''), and Huntington Asset Advisors, Inc. 
(the ``Adviser'').
    Filing Dates: The application was filed on October 16, 2000 and 
amended on June 14, 2001.
    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 July 23, 2001, 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, N.W., Washington, 
D.C. 20549-0609. Applicants, c/o Paul R. Rentenbach, Esq., Dykema 
Gossett, PLLC, 400 Renaissance Center, Detroit, Michigan 48243-1668.

FOR FURTHER INFORMATION CONTACT: Keith A. Gregory, Attorney-Adviser, at 
(202) 942-0611, 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).

Applicants' Representations

    1. The Trusts, organized as Massachusetts business trusts, are 
registered under the Act as open-end management investment companies. 
The Huntington Funds currently consists of twelve series and the 
Huntington VA Funds currently consists of two series (together with any 
registered open-end management investment company or series thereof 
that currently, or in the future, is advised by the Adviser, the 
``Funds'').\1\ The shares of the Huntington VA Funds are sold 
exclusively to insurance company separate accounts that fund variable 
annuity and variable life contracts. Certain Funds hold themselves out 
as money market Funds and comply with rule 2a-7 under the Act (the 
``Central Funds''). The Adviser is an indirect wholly-owned subsidiary 
of Huntington Bancshares Incorporated, a publicly-held bank holding 
company. The Adviser is registered under the Investment Advisers Act of 
1940 and serves as investment adviser to the Funds.\2\
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    \1\ Each Fund that currently intends to rely on the requested 
relief is a series of one of the Trusts named as an applicant. Any 
future Fund 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 the purposes of this application, the term ``Adviser'' 
includes, in addition to Huntington Asset Advisors, Inc., any other 
person controlling, controlled by or under common control with 
Huntington Asset Advisors, Inc. that acts in the future as an 
investment adviser to a Fund.
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    2. Applicants state that each Participating Fund (as defined below) 
has, or may be expected to have, cash that has not been invested in 
portfolio securities (``Uninvested Cash''). 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. A Fund 
that purchases shares of the Central Funds is referred to as a 
Participating Fund. 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 Participating 
Funds to invest their Cash Balances in one or more of the Central 
Funds, and the Central Funds to sell their shares to, and redeem their 
shares from, the Participating Funds. Investment of Cash Balances in 
shares of the Central Funds will be made only to the extent that such 
investments are consistent with each Participating Fund's investment 
restrictions and policies as set forth in the Participating Fund's 
prospectus and statement of additional information. Applicants state 
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 Participating 
Funds to invest Cash Balances in the Central Funds.
    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

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state that because each Central Fund will maintain a highly liquid 
portfolio, a Participating Fund will not be in a position to gain undue 
influence over a Central Fund through threat of redemption. Applicants 
represent that the proposed arrangement will not result in an 
inappropriate layering of fees because shares of the Central Funds sold 
to the Participating 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 state that if a Central Fund 
offers more than one class of shares, a Participating Fund will invest 
its Cash Balances only in the class with the lowest expense ratio 
(taking into account the expected impact of the Participating Funds 
investment) at the time of investment. In connection with approving any 
advisory contract for a Participating Fund, the Participating Fund's 
board of trustees (the ``Board''), including a majority of the trustees 
who are not ``interested persons,'' as defined in section 2(a)(19) of 
the Act (the ``Disinterested Trustees'') will consider to what extent, 
if any, the advisory fees charged to the Participating Fund by the 
Adviser should be reduced to account for reduced services provided to 
the Fund by the Adviser as a result of the investment of Uninvested 
Cash in the Central Funds. Applicants represent that no Central Fund 
will 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 Board, 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, because a Participating Fund may acquire 5% 
or more of a Central Fund, each Fund may be deemed to be an affiliated 
person of the other Fund. As a result, section 17(a) would prohibit the 
sale of the shares of a Central Fund to the participating Funds, and 
the redemption of the shares by a Central 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 Central Funds by the 
participating Funds satisfies the standards in sections 6(c) and 17(b) 
of the Act. Applicants note that shares of the Central 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 Participating Funds will retain 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 Central Fund has the right to discontinue 
selling shares to any of the Participating Funds if the Central 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 Participating Fund, by 
purchasing shares of a Central Fund, the Adviser, by managing the 
assets of the Participating Funds investing in a Central Fund, and a 
Central Fund, by selling shares to the Participating 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 Participating Funds in shares of a Central Fund would be on the 
same basis and would be indistinguishable from any other shareholder 
account maintained by the Central Fund and that the transactions will 
be consistent with the Act.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Shares of the Central Funds sold to and redeemed by the 
Participating 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).
    2. Before the next meeting of the Board is held for purposes of 
voting on an advisory contract under section 15 of the act, the Adviser 
will provide the Board with specific information regarding the 
approximate cost to the Adviser of, or portion of the advisory fee 
under the existing advisory contract attributable to, managing the 
Uninvested Cash of the Participating Fund that can be expected to be 
invested in the Central Funds. Before approving any advisory contract 
for a Participating Fund, the Board, including a majority of the 
Disinterested Trustees, shall consider to what extent, if any, the 
advisory fees charged to the Participating Fund by the Adviser should 
be reduced to account for reduced services provided to the Funds by the 
Adviser as a result of the Uninvested Cash being invested in the 
Central Fund. The minute books of the Participating Fund will record 
fully the Board's considerations in approving the advisory contract, 
including the considerations referred to above.
    3. Each of the Participating Funds will invest Uninvested Cash in, 
and hold shares of, the Central Funds only to the extent that the 
Participating Fund's aggregate investment of Uninvested Cash in the 
Central Funds does not exceed 25 percent of the Participating Fund's 
total assets. For purposes of this limitation, each Participating Fund 
or series thereof will be treated as a separate investment company.

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    4. Investment of Cash Balances in shares of the Central Funds will 
be in accordance with each Participating Fund's respective investment 
restrictions, if any, and will be consistent with each Participating 
Fund's policies as set forth in the prospectus and statement of 
additional information.
    5. Each Participating Fund, Central Fund, and any future Fund that 
may rely on the order shall be advised by the Adviser.
    6. No Central Fund shall acquire securities of any other 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 the Board, including a majority of the Disinterested 
Trustees, will approve the Fund's participation in the Securities 
Lending Program. Such Trustees 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 Central 
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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-16635 Filed 7-2-01; 8:45 am]
BILLING CODE 8010-01-M