[Federal Register Volume 66, Number 220 (Wednesday, November 14, 2001)]
[Notices]
[Pages 57135-57137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-28428]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25254; 812-12396]


The AAL Mutual Funds, et al.; Notice of Application

November 6, 2001.
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 exemption 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.

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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:  The AAL Mutual Funds (``Fund'') and AAL Capital Management 
Corporation (``AAL CMC'').

FILING DATES:  The application was filed on January 9, 2001 and amended 
on November 6, 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 December 3, 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, NW, Washington, DC 
20549-0609. Applicants, 222 West College Avenue, Appleton, Wisconsin 
54919-0007.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Nadya B. Roytblat, Assistant director, 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 Fund is a Massachusetts business trust registered under the 
Act as an open-end management investment company. The Fund currently 
offers twenty portfolios, including The AAL Money Market Fund which 
complies with rule 2a-7 under the Act (``Money Market Portfolio''). The 
existing and future series of the Fund (``Portfolios''), together with 
any other registered open-end management investment company or series 
thereof that is advised by AAL CMC or an entity controlling, controlled 
by, or under common control with AAL CMC and which is not a money 
market fund, are referred to as the Non-Money Market Portfolios.\1\ AAL 
CMC is registered as an investment adviser under the Investment 
Advisers Act of 1940. AAL CMC serves as the investment adviser and 
distributor for the Portfolios.
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    \1\ Any future Non-Money Market Portfolio that may rely on the 
order in the future will do so only in accordance with the terms and 
conditions of the application.
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    2. Applicants state that each Investing Portfolio (as defined 
below) holds cash reserves from time to time that are not invested in 
portfolio securities (``Uninvested Cash''). Uninvested Cash may include 
dividend payments, interest received on portfolio securities, unsettled 
securities transactions, strategic reserves, matured investments, 
proceeds from liquidation of portfolio securities, or new investor 
capital. A Non-Money Market Portfolio that purchases shares of the 
Money Market Portfolio is referred to as an Investing Portfolio.
    3. Applicants requested an order to permit each of the Investing 
Portfolios to invest their Uninvested Cash in the Money Market 
Portfolio, and to permit the Money Market Portfolio to sell shares to, 
and redeem shares from, the Investing Portfolios. Investment of 
Uninvested Cash in shares of the Money Market Portfolio will be made 
only to the extent that such investment is consistent with each 
Investing Portfolio's investment restrictions and policies as set forth 
in the Investing Portfolio's prospectus and statement of additional 
information. Applicants states that the proposed transactions may 
reduce transaction costs, create more liquidity, increase returns, and 
diversify holdings.

[[Page 57136]]

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act pvovides, in pertinent part, that 
no registered investment company may acquire securities of another 
investment company is such securities represent more than 3% of the 
acquired company's outstanding voting stock, more than 5% of the 
acquiring company's total assets, of 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. 
Applicant request relief under section 12(d)(1)(J) from the limitations 
of sections 12(d)(1)(A) and (B) to permit the Investing Portfolios to 
invest Uninvested Cash in the Money Market Portfolio.
    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 the Money Market Portfolio will maintain 
a highly liquid portfolio and will not be susceptible to undue control. 
Applicants represent that the proposed arrangement will not result in 
an inappropriate layering of fees because shares of the Money Market 
Portfolio sold to the Investing Portfolios 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), or if such shares are subject to a service 
fee, AAL CMC will waive its advisory fee for each Investing Portfolio 
in an amount that offsets the amount of such fee incurred by the 
Investing Portfolio. Applicants represent that the Money Market 
Portfolio will not acquire securities of any other investment company 
in excess of the limitations contained in section 12(d)(1)(A) of the 
Act. Applicants also represent that if the Money Market Portfolio 
offers more than one class of shares, each Investing Portfolios will 
invest its Uninvested Cash only in the class with the lowest expense 
ration at the time of investment.
    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. Applicants state that, because the 
Portfolios share a common board of trustees, each Portfolio may be 
deemed to be under common control with each of the other Portfolios, 
and thus an affiliated person of each of the other Portfolios. As a 
result, section 17(a) would prohibit the sale of the shares of the 
Money Market Portfolio to the Investing Portfolios, and the redemption 
of the shares by the Money Market Portfolio.
    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 Portfolio by the 
Investing Portfolios satisfies the standards in sections 6(c) and 17(b) 
of the Act. Applicants note that shares of the Money Market Portfolio 
will be purchased and redeemed at their net asset value. Applicants 
state that the Investing Portfolios 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 Portfolio has the 
right to discontinue selling shares to any of the Investing Portfolios 
if the Money Market Portfolio's board of trustees 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 that each Investing 
Portfolio, by purchasing shares of the Money Market Portfolio, AAL CMC, 
by managing the assets of the Investing Portfolios investing in the 
Money Market Portfolio, and the Money Market Portfolio, by selling 
shares to the Investing Portfolios, 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 Portfolios in shares of the Money Market Portfolio 
would be indistinguishable from any other shareholder of the Money 
Market Portfolio 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 Portfolio sold to and redeemed by the 
Investing Portfolios 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), or if such shares are subject to a service fee, 
AAL CMC will waive its advisory fee for each Investing Portfolio in an 
amount that offsets the amount of such fee incurred by the Investing 
Portfolio.
    2. Before the next meeting of the board of trustees of the 
Investing Portfolios (``Board'') is held for the purpose of voting on 
an investment advisory contract under section 15 of the Act, AAL CMC 
will provide the Board with specific information regarding the 
approximate cost of AAL

[[Page 57137]]

CMC for, or portion of the advisory fee under the existing advisory 
agreement attributable to, managing the assets of each Investing 
Portfolio that can be expected to be invested in the Money Market 
Portfolio. Before approving any investment advisory contract under 
section 15, the Board of the Investing Portfolio, including a majority 
of the trustees who are not ``interested persons,'' as defined in 
section 2(a)(19) of the 1940 Act, shall consider to what extent, if 
any, the advisory fees charged to the Investing Portfolio by AAL CMC 
should be reduced to account for reduced services provided to the 
Investing Portfolio by AAL CMC as a result of Uninvested Cash being 
invested in the Money Market Portfolio. The minute books of the 
Investing Portfolio will record fully the Board's consideration in 
approving the advisory contract, including the considerations referred 
to above.
    3. Each of the Investing Portfolios will invest Uninvested Cash in, 
and hold shares of, the Money Market Portfolio only to the extent that 
the Investing Portfolio's aggregate investment in the Money Market 
Portfolio does not exceed 25 percent of the Investing Portfolio's total 
assets. For purposes of this limitation, each Investing Portfolio or 
series thereof will be treated as a separate investment company.
    4. Investment in shares of the Money Market Portfolio will be in 
accordance with each Investing Portfolio's respective investment 
restrictions and policies as set forth in its prospectus and statement 
of additional information.
    5. Each Investing Portfolio and the Money Market Portfolio will be 
advised by AAL CMC or a person controlling, controlled by, or under 
common control with AAL CMC.
    6. The Money Market Portfolio 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. 01-28428 Filed 11-13-01; 8:45 am]
BILLING CODE 8010-01-M