[Federal Register Volume 67, Number 53 (Tuesday, March 19, 2002)]
[Notices]
[Pages 12628-12630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6550]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25462; 812-12312]


Financial Investors Trust, et al.; Notice of Application

March 13, 2002.
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 an 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 APPLICATION: The requested order would permit certain 
registered 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: Armada Funds (``Armada''), The Armada Advantage Fund 
(``Armada Advantage''), Financial Investors Trust on behalf of The 
United Association S&P 500 Index Fund (``United Association'', and 
together with Armada and Armada Advantage, the ``Trusts'') and any 
registered open-end management investment company or series thereof 
that is currently, or in the future advised by National City Investment 
Management Company (``IMC'') or any entity controlling, controlled by, 
or under common control with IMC (together with IMC, the ``Adviser'')( 
collectively, the Trusts and their series, such investment companies 
and their series, the ``Funds.'')
    Filing Dates: The application was filed on October 20, 2000, and 
amended on March 4, 2002.
    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 8, 2002, 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, Armada, One Freedom Valley Drive, Oaks, PA 
19456; Armada Advantage, One Freedom Valley Drive, Oaks, PA 19456; 
United Association S&P 550 Index Fund, PMB 606, 303 16th Street, Suite 
#016, Denver, CO 80202-5657; IMC, 1900 East Ninth Street, Cleveland, OH 
44114.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 942-0574 or Nadya 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 (telephone (202) 942-8090).

Applicants' Representations

    1. Armada and Armada Advantage are Massachusetts business trusts 
registered under the Act as open-end management investment companies. 
Financial Investors Trusts is a Delaware business trust registered 
under the Act as an open-end management investment company. 
Collectively, the Trusts consist of 36 Funds.\1\ The Funds, other than 
the money market Funds (``Money Market Funds''), invest in a variety of 
debt and/or equity securities in accordance with their respective 
investment objectives and policies. The Money Market Funds comply with 
rule 2a-7 under the Act. The Adviser is a wholly-owned subsidiary of 
National City Corporation, a publicly-held bank holding company, and is 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act'').
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    \1\ Each Fund that currently intends to rely on the order has 
been named as an applicant. Another Fund 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 certain Funds (``Investing Funds'') have, 
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 on portfolio securities, 
unsettled securities transactions, reserves held for investment 
strategy purposes, scheduled maturity of investments, liquidation of 
investment securities to meet anticipated redemptions, dividend 
payments, or new monies received from investors. The Investing Funds 
also may participate in a securities lending program under which a Fund 
may lend its portfolio securities to registered broker-dealers or other 
institutional investors. 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 Investing 
Funds to invest its Cash Balances in one or more of the Money Market 
Funds, and to permit each of the Money Market Funds to sell its shares 
to, and redeem its shares from, the Investing Funds, and the Adviser to 
effect such purchases and sales. Investment of Cash Balances in shares 
of the Money Market Funds will be made only to the extent that such 
investments are consistent with each Investing Fund's investment 
objectives, 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

[[Page 12629]]

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 section 12(d)(1)(A) and (B) to 
permit the Investing Funds to invest Cash Balances in the Money Market 
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 state that because each Money Market Fund will 
maintain a highly liquid portfolio, an Investing Fund would not be in a 
position to gain undue influence over a Money Market Fund. Applicants 
represent that the proposed arrangement will not result in an 
inappropriate layering of fees because shares of the Money Market Funds 
sold to the Investment Funds will not be subject to a sales load, 
redemption fee, distribution fee under a plan adopted in accordance 
with rule 12b-1 or service fee (as defined in rule 2830(b)(9) of the 
National Association of Securities Dealer's (``NASD'') Conduct Rules) 
or if such shares are subject to any such sales load, redemption fees, 
distribution fee or service fee, the Adviser will waive its advisory 
fee for each Investing Fund in an amount that offsets the amount of 
such fees incurred by the Investing Fund. Applicants state that if a 
Money Market Fund offers more than one class of shares, each Investing 
Fund will invest only in the class with the lowest expense ratio at the 
time of the investment. In connection with approving any advisory 
contract for an Investing Fund, the Investing 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 
(``Disinterested Trustees''), will consider to what extent, if any, the 
advisory fees charged to the Investing Fund by the Adviser should be 
reduced to account for reduced services provided to the Investing Fund 
by the Adviser as a result of the investment of Uninvested Cash in the 
Money Market Funds. Applicants represent that no Money Market 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, acting as principal, to sell 
or purchase any security to or from the company. Section 2(a)(3) of the 
Act, in pertinent part, defines an ``affiliated person'' of an 
investment company to include any person directly or indirectly 
controlling, controlled by, or under common control with the other 
person and any person owning, controlling, or holding with power to 
vote 5% or more of the other person. Applicants state that because the 
Funds share a common 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. In addition, applicants state that 
because an Investing Fund may acquire 5% or more of a Money Market 
Fund, the Investing Fund may be deemed to be an affiliated person of 
the Money Market Fund. As a result, section 17(a) would prohibit the 
sale of shares of a Money Market Fund to the Investing Funds, and the 
redemption of 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, 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 Funds by the 
Investing Funds satisfies the standards in sections 6(c) and 17(b). 
Applicants note that shares of the Money Market Funds will be purchased 
and redeemed by the Investing Funds 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 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 Money Market Fund 
has the right to discontinue selling shares to any of the Investing 
Funds if the Money Market 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 a registered investment company, acting as a 
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 Fund, by 
participating in the proposed transactions, and the Adviser, by 
effecting the proposed transactions, 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 
participation by the registered investment company 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 Funds 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 Funds 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 service fee (as defined in rule 2830(b)(9) of the 
Rules of Conduct of the NASD) or if such shares are subject to any such 
sales load, redemption fee, distribution fee or service fee, the 
Adviser will waive its advisory fee for each Investing Fund in an 
amount that offsets the amount of such fees incurred by the Investing 
Fund.
    2. Before the next meeting of the Board of an Investing Fund is 
held for purposes of voting on an advisory contract under section 15 of 
the Act, the Adviser to the Investing Fund 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 Investing Fund 
that can be expected to be invested in the Money Market Funds. Before 
approving any advisory contract for an Investing Fund, the Board of the 
Investing Fund, including a majority of the Disinterested Trustees, 
shall consider to what extent, if any, the

[[Page 12630]]

advisory fees charged to the Investing Fund by the Adviser should be 
reduced to account for reduced services provided to the Investing Fund 
by the Adviser as a result of Uninvested Cash being invested in the 
Money Market Funds. The minute books of the Investing Fund will record 
fully the Board's consideration in approving the advisory contract, 
including the considerations referred to above.
    3. Each of the Investing Funds will invest Uninvested Cash in, and 
hold shares of, the Money Market Funds only to the extent that the 
Investing Fund's aggregate investment of Uninvested Cash in the Money 
Market Funds does not exceed 25 percent of the Investing Fund's total 
assets. 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 Funds will be in 
accordance with each Investing Fund's respective investment 
restrictions, if any, and will be consistent with each Investing Fund's 
policies as set forth in its prospectus and statement of additional 
information.
    5. Each Investing Fund and Money Market Fund that may rely on the 
requested order shall be advised by the Adviser.
    6. So long as its shares are held by an Investing Fund no Money 
Market 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. 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 is in the best interest of the shareholders of the Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6550 Filed 3-18-02; 8:45 am]
BILLING CODE 8010-01-P