[Federal Register Volume 68, Number 117 (Wednesday, June 18, 2003)]
[Notices]
[Pages 36611-36614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15356]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26075; 812-12779]


American Performance Funds, et al.; Notice of Application

June 12, 2003.
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 Application: Applicants request an order that would permit 
certain registered management investment companies to invest uninvested 
cash and cash collateral in one or more affiliated money market funds 
in excess of the limits in sections 12(d)(1)(A) and (B) of the Act. 
Prior to relying on the requested order, Applicants would cease relying 
on a prior order.\1\
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    \1\ On February 19, 2000, the Commission issued an order 
amending prior orders under Sections 6(c) and 17(b) of the Act that 
exempted certain Applicants and certain other entities who are not 
parties to the application from the provisions of Section 
12(d)(1)(A) and Section 17(a) of the Act and that permitted pursuant 
to rule 17d-1, certain joint transactions in accordance with Section 
17(d) and rule 17d-1. See Investment Company Act Rel. Nos. 24274 
(Feb. 1, 2000) (notice) and 24325 (Feb. 19, 2000) (order); 
Investment Company Act Rel. Nos. 23962 (Aug. 23, 1999) (notice) and 
24021 (Sept. 21, 1999) (order); Investment Company Act Rel. Nos. 
23393 (Aug. 18, 1998) (notice) and 23436 (Sept. 15, 1998); 
Investment Company Act Rel. Nos. 22636 (April 24, 1997) (notice) and 
22677 (May 20, 1997) (order); Investment Company Act Rel. Nos. 19695 
(Sept. 9, 1993) and 19759 (Oct. 5, 1993) (order).

Applicants: American Performance Funds, AmSouth Funds, BNY Hamilton 
Funds, Inc. (``BNY Hamilton Funds''), Citizens Funds, Fifth Third 
Funds, HSBC Advisor Funds Trust, HSBC Investor Funds and HSBC Investor 
Portfolios (collectively, the ``HSBC Funds''), Legacy Funds Group 
(``Legacy Funds''), Mercantile Funds, Inc. (``Mercantile Funds''), Old 
Westbury Funds, Inc. (``Old Westbury Funds''), Performance Funds Trust 
(``Performance Funds''), The Victory Portfolios, Vintage Mutual Funds, 
BOk Investment Advisers, Inc. (``BOk'') (formerly, Investment Concepts, 
Inc.), AmSouth Investment Management Company, LLC (``AmSouth''), The 
Bank of New York (``BNY''), Citizens Advisers, Inc. (``Citizens 
Advisers''), Fifth Third Asset Management, Inc. (``Fifth Third''), HSBC 
Asset Management (Americas) Inc. (``HSBC''), First Financial Capital 
Advisors LLC (``First Financial''), Bessemer Investment Management LLC 
(``Bessemer''), Mercantile Capital Advisors, Inc. (``Mercantile''), 
Trustmark Investment Advisors, Inc. (formerly, Trustmark Financial 
Services, Inc.) (``Trustmark''), Victory Capital Management, Inc. 
(``Victory'') and Investors Management Group, Ltd. (``Investors 
Management Group'').
    Filing Dates: The application was filed on February 1, 2002 and was 
amended on June 9, 2003. 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 July 7, 2003, and should be accompanied by proof of service on 
the 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 Ryan M. Louvar, Esq., BISYS, 60 State 
Street, Suite 1300, Boston, MA 02109.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 942-0527 or Annette M. Capretta, 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 (telephone (202) 942-8090).

[[Page 36612]]

Applicants' Representations

    1. American Performance Funds, AmSouth Funds, Citizens Funds, Fifth 
Third Funds, HSBC Advisor Funds Trust, HSBC Investor Funds, Legacy 
Funds and Old Westbury Funds are Massachusetts business trusts that are 
registered under the Act as open-end management investment companies. 
BNY Hamilton Funds, Mercantile Funds and Vintage Mutual Funds are 
Maryland corporations that are registered under the Act as open-end 
management investment companies. HSBC Investor Portfolios is a New York 
trust that is registered under the Act as an open-end investment 
management company. The Performance Funds and The Victory Portfolios 
are Delaware statutory trusts that are registered under the Act as 
open-end management investment companies.
    2. BOk is the investment adviser to each of the twelve series of 
the American Performance Funds. AmSouth is the investment adviser to 
the twenty-four series of the AmSouth Funds. Citizens Advisers is the 
investment adviser to the twelve series of the Citizens Funds. BNY is 
the investment adviser to the twenty series of BNY Hamilton Funds. 
Fifth Third serves as the investment adviser to thirty-five of the 
thirty-six series of the Fifth Third Funds. HSBC serves as investment 
adviser to the twenty-one series of the HSBC Funds. First Financial 
serves as the investment adviser to the three series of the Legacy 
Funds. Mercantile serves as the investment adviser to the fourteen 
series of the Mercantile Funds. Bessemer serves as the investment 
adviser to the five series of the Old Westbury Funds. Trustmark is the 
investment adviser to the seven series of the Performance Funds. 
Victory is the investment adviser to the twenty-six series of The 
Victory Portfolios. Investors Management Group is the investment 
adviser to the nine series of the Vintage Mutual Funds.
    3. The American Performance Funds, AmSouth Funds, BNY Hamilton 
Funds, Citizens Funds, Fifth Third Funds, the HSBC Funds, Legacy Funds, 
Mercantile Funds, Old Westbury Funds, Performance Funds, The Victory 
Portfolios and the Vintage Mutual Funds and their respective series 
(each series, a ``Fund,'' and collectively, the ``Funds'') each is in 
the American Performance, AmSouth, BNY Hamilton, Citizens, Fifth Third, 
HSBC, Legacy, Mercantile, Old Westbury, Performance, Victory and 
Vintage group of investment companies, respectively, within the meaning 
of section 12(d)(1)(G)(ii) of the Act (each a ``Fund Group'').
    4. Applicants request that relief be extended to any registered 
open-end management investment company or series thereof for which BOk, 
AmSouth, BNY, Citizen Advisers, Fifth Third, HSBC, First Financial, 
Bessemer, Mercantile, Trustmark, Victory or Investors Management Group 
(each an ``Adviser,'' and any entity controlled by, controlling or 
under common control with each Adviser, an ``Adviser'')\2\ now or in 
the future serves as investment adviser (collectively with the Funds, 
the ``Funds'').\3\
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    \2\ Each Adviser is registered under the Investment Advisers Act 
of 1940 or will be exempt from registration.
    \3\ Each Fund that currently intends to rely on the order has 
been named as an applicant. Any other 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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    5. Each Fund Group has one or more money market Funds (``Money 
Market Funds''). The Money Market Funds comply with rule 2a-7 under the 
Act. The Funds that are not Money Market Funds invest in a variety of 
debt and/or equity securities or other investments in accordance with 
their respective investment objectives and policies.
    6. Applicants state that certain Funds (``Investing Funds'') have, 
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. The 
Investing Funds 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'').
    7. 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 within the same Fund Group, and to permit each of the Money 
Market Funds to sell its shares to, and redeem its shares from, the 
Investing Funds within the same Fund Group. 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 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 if such securities, together with 
the securities of other acquired investment companies, represent more 
than 10% of the acquired company's total assets. Section 12(d)(1)(B) of 
the Act provides, in pertinent part, 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, the exemption is 
consistent with the public interest and the protection of investors. 
Applicants request relief under section 12(d)(1)(J) of the Act from the 
limitations of sections 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 will 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 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, Inc. 
(``NASD'') Conduct Rules) or if such shares are subject to any such 
sales load, redemption fees, distribution fees or service fees, the 
Adviser will waive its advisory fee for each Investing

[[Page 36613]]

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 (taking into account the 
expected impact of the Investing Fund's investment) at the time of the 
investment. In connection with approving any advisory contract for an 
Investing Fund, the Investing Fund's board of directors/trustees (the 
``Board''), including a majority of the directors/trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Disinterested Directors''), will consider to what extent, if any, 
the advisory fees charged to the Investing Fund by the Adviser should 
be reduced to account for the reduced services provided to the 
Investing Fund by the Adviser as a result of the investment of 
Uninvested Cash in a Money Market Fund. 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 generally prohibits sales or purchases 
of securities between a registered investment company and an affiliated 
person of a registered investment company or an affiliated person of 
such person acting as principal. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include: (a) Any person 
directly or indirectly controlling, controlled by, or under common 
control with the other person; (b) any officer or director of such 
other person; and (c) if such other person is an investment company, 
any investment adviser thereof. Applicants state that each Fund within 
the same Fund Group may be deemed to be affiliated persons of one 
another by virtue of having a common board of directors or common 
investment advisers. In light of these possible affiliations, section 
17(a) could prevent a Money Market Fund from selling shares to and 
redeeming shares from an Investing Fund.
    5. Section 17(b) of the Act authorizes the Commission to grant an 
order exempting a transaction otherwise prohibited by section 17(a) if 
(a) the terms of the proposed transaction are fair and reasonable and 
do not involve overreaching on the part of any person concerned; (b) 
the proposed transaction is consistent with the policies of the 
registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act. Section 
6(c) of the Act permits the Commission to exempt any person or 
transaction from any provision of the Act if such 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 for relief under sections 6(c) 
and 17(b) of the Act. Applicants note that the 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 
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 
Fund (by purchasing shares of Money Market Funds), the Adviser for each 
Investing Fund (by managing the assets of the Investing Funds invested 
in Money Market Funds), and each Money Market Fund (by selling shares 
to 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 
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 of the Commission 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 
NASD Conduct Rules), or if such shares are subject to any such fee, the 
Adviser for the Investing Fund will waive its advisory fee for each 
Investing Fund in an amount that offsets the amount of such fees that 
are incurred by the Investing Fund.
    2. Prior to reliance on the order, an Investing Fund will hold a 
meeting of the Board for the purpose of voting on the 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, including a majority of the Disinterested 
Directors, taking into account all relevant factors, shall consider to 
what extent, if any, the advisory fees charged to the Investing Fund by 
such Fund's 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 one or more of 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 relating to fees referred to above.
    3. Each Investing Fund will invest Uninvested Cash in, and hold 
shares of, Money Market Funds only to the extent that the Investing 
Fund's aggregate investment in such Money Market Funds does not exceed 
25 percent of the Investing Fund's total assets. For purposes of this 
limitation, each Investing Fund will be treated as a separate 
investment company.
    4. Investment of Cash Balances in shares of the Money Market Funds 
will

[[Page 36614]]

be in accordance with each Investing Fund's respective investment 
restrictions 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 that may rely on the order may invest only 
in Money Market Funds within the same Fund Group as the Investing Fund.
    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 
Arrangements, a majority of the Board, including a majority of the 
Disinterested Directors, will approve the Fund's participation in the 
Securities Lending Arrangements. Such Disinterested Directors also will 
evaluate the Securities Lending Arrangements and their 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. 03-15356 Filed 6-17-03; 8:45 am]
BILLING CODE 8010-01-P