[Federal Register Volume 70, Number 158 (Wednesday, August 17, 2005)]
[Notices]
[Pages 48446-48449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4463]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27027; 812-13026]


AXP California Tax-Exempt Trust, et al.; Notice of Application

August 11, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``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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    Applicants: AXP California Tax-Exempt Trust, AXP Dimensions Series, 
Inc., AXP Discovery Series, Inc., AXP Equity Series, Inc., AXP Fixed 
Income Series, Inc., AXP Global Series, Inc., AXP Government Income 
Series, Inc., AXP Growth Series, Inc., AXP High Yield Income Series, 
Inc., AXP High Yield Tax-Exempt Series, Inc., AXP Income Series, Inc., 
AXP International Series, Inc., AXP Investment Series, Inc., AXP 
Managed Series, Inc., AXP Market Advantage Series, Inc., AXP Money 
Market Series, Inc., AXP Partners International Series, Inc., AXP 
Partners Series, Inc., AXP Sector Series, Inc., AXP Selected Series, 
Inc., AXP Special Tax-Exempt Series Trust, AXP Stock Series, Inc., AXP 
Strategy Series, Inc., AXP Tax-Exempt Series, Inc., AXP Tax-Free Money 
Series, Inc. (together, the ``AXP Funds''), AXP Variable Portfolio-
Income Series, Inc., AXP Variable Portfolio-Investment Series, Inc., 
AXP Variable Portfolio-Managed Series, Inc., AXP Variable Portfolio-
Money Market Series, Inc., AXP Variable Portfolio-Partners Series, 
Inc., AXP Variable Portfolio-Select Series, Inc. (these six entities 
together, the ``Variable Portfolio Funds''), Growth Trust, Growth and 
Income Trust, Income Trust, Tax-Free Income Trust, World Trust (these 
five entities together, the ``Master Trusts'') and Ameriprise 
Financial, Inc., formerly known as American Express Financial 
Corporation (``AFI'', and together with the AXP Funds, the Variable 
Portfolio Funds and the Master Trusts, the ``Applicants'').\1\
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    \1\ Applicants request that any relief granted also apply to (i) 
any existing or future registered management investment companies 
and their series that are part of the same ``group of investment 
companies'' as defined in section 12(d)(1)(G) of the Act and for 
which AFI or a person controlling, controlled by or under common 
control (within the meaning of section 2(a)(9) of the Act) with AFI 
(each, an ``Adviser'') serves as investment adviser (``Registered 
Funds'') and (ii) any existing or future unregistered entities for 
which an Adviser serves as investment adviser, trustee, managing 
member or general partner exercising investment discretion, and 
which are excepted from the definition of investment company 
pursuant to section 3(c)(1) or section 3(c)(7) of the Act 
(``Unregistered Funds''), qualified employee benefit plans, trusts, 
institutional accounts, bank common funds and bank collective trusts 
(within the meaning of section 3(c)(11) of the Act) that are not 
investment companies as defined in the Act (``Other Institutional 
Clients'', and together with the Registered Funds and the 
Unregistered Funds, the ``Clients''). All existing Advisers, 
Registered Funds and Unregistered Funds that currently intend to 
rely on the requested relief have been named as applicants. All 
entities that rely on the requested order in the future will do so 
only in accordance with the terms and conditions of the application.

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[[Page 48447]]

    Summary of Application: Applicants request an order to permit 
certain registered management investment companies and unregistered 
entities to invest uninvested cash and cash collateral in affiliated 
registered money market funds.
    Filing Dates: The application was filed on September 30, 2003 and 
amended on May 20, 2005 and August 8, 2005.
    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 September 1, 2005, 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, 100 F Street, NE., Washington, DC, 
20549-9303; Applicants, c/o Arthur C. Delibert, Esq. and Fatima 
Sulaiman, Esq., Kirkpatrick & Lockhart Nicholson Graham LLP, 1800 
Massachusetts Avenue, NW, Washington, DC, 20036-1221.

For Further Information Contact: Shannon Conaty, Senior Counsel, at 
(202) 551-6827 or Janet M. Grossnickle, Branch Chief, at (202) 551-6821 
(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, 100 F Street, NE., Washington, DC 
20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. Each of the Registered Funds is registered under the Act as an 
open-end management investment company. Except for AXP California Tax-
Exempt Trust, AXP Special Tax-Exempt Series Trust and the Master 
Trusts, each Registered Fund is a corporation organized under the laws 
of the State of Minnesota. AXP California Tax-Exempt Trust, AXP Special 
Tax-Exempt Series Trust and the Master Trusts are organized as 
Massachusetts business trusts. AFI serves as the investment adviser to 
the Registered Funds. Each of AFI and any other Adviser serving as 
investment adviser to a Registered Fund is registered under the 
Investment Advisers Act of 1940.
    2. Certain of the Registered Funds are ``feeder funds'' (``Feeder 
Funds'') that seek to achieve their respective investment objectives by 
investing all their net investable assets, in reliance on section 
12(d)(1)(E) of the Act, in corresponding series of the Registered Funds 
which are ``master funds'' (``Master Funds'').\2\ Shares of the 
Variable Portfolio Funds are sold exclusively to insurance company 
separate accounts that fund variable annuity and/or variable life 
contracts.
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    \2\ Applicants also wish to have the flexibility to allow the 
Feeder Funds to engage directly in the transactions described in the 
application if, in the future, the Feeder Funds were to terminate 
their master-feeder structure and instead invest directly in 
investment securities as single-tier funds. To have this 
flexibility, Applicants request relief to engage in the transactions 
described in the application on behalf of each Feeder Fund as well 
as each Master Fund. Applicants further acknowledge that if the 
Feeder Funds terminate their master-feeder structure, the Feeder 
Funds will rely on the requested relief only in accordance with all 
of the terms and conditions of the application.
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    3. Certain of the Clients (``Participating Clients'') have, or may 
be expected to have, cash reserves that have not been invested in 
portfolio securities (``Uninvested Cash'').\3\ 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, proceeds from liquidation of investment securities to meet 
anticipated redemptions and dividend payments, and new monies received 
from investors. Certain of the Participating Clients also may 
participate in a securities lending program under which a Participating 
Client may lend its portfolio securities to registered broker-dealers 
or other institutional investors deemed by the Adviser to be in good 
standing (``Securities Lending Program''). The loans will be 
continuously secured by collateral which may include cash (``Cash 
Collateral'', and together with Uninvested Cash, ``Cash Balances'') 
equal at all times to at least the market value of the securities 
loaned.
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    \3\ The Participating Clients that are Registered Funds are the 
``Participating Funds.''
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    4. Applicants request relief to the extent necessary to permit: (i) 
The Participating Clients to utilize Uninvested Cash to purchase shares 
of one or more Registered Funds that comply with rule 2a-7 under the 
Act (``Money Market Funds'') and to redeem such shares; (ii) each of 
the Participating Clients to utilize Cash Collateral received from the 
borrowers of its portfolio securities in connection with the 
Participating Client's Securities Lending Program to purchase shares of 
one or more of the Money Market Funds and to redeem such shares; (iii) 
the Money Market Funds to sell shares to, and purchase such shares 
from, the Participating Clients; and (iv) an Adviser to effect such 
purchases and sales. The Money Market Funds will seek current income, 
liquidity and capital preservation by investing exclusively in short-
term money market instruments that are valued at their amortized cost 
pursuant to rule 2a-7 under the Act. Investment of Cash Balances in 
shares of the Money Market Funds will be in accordance with each 
Participating Fund's investment restrictions, if any, and will be 
consistent with its objectives and policies as set forth in its 
registration statement and reports filed under the Act. Applicants 
submit that investing Cash Balances in shares of the Money Market Funds 
is in the best interests of the Participating Funds and their 
shareholders because the Participating Funds expect to benefit from 
economies of scale that maximize investment opportunities, minimize 
credit and interest rate risks, facilitate management of liquidity and 
minimize administrative costs.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides 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 provides that no 
registered open-end investment company, its principal underwriter or 
any broker or dealer may sell any security of the company 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

[[Page 48448]]

will cause more than 10% of the acquired company's voting stock to be 
owned by investment companies. Any entity that is excluded from the 
definition of ``investment company'' under section 3(c)(1) or 3(c)(7) 
of the Act is deemed to be an investment company for the purposes of 
the 3% limitation specified in sections 12(d)(1)(A) and (B) with 
respect to purchases by and sales to such entity of securities of a 
registered investment company.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction (or any classes thereof) 
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 an exemption from the provisions of 
sections 12(d)(1)(A) and (B) to the extent necessary to permit each 
Participating Fund and Unregistered Fund to invest Cash Balances in the 
Money Market Funds. Applicants also request relief to the extent 
necessary to permit a Money Market Fund, its principal underwriter and 
any broker or dealer to sell shares of the Money Market Fund to the 
Participating Funds and Unregistered Funds in excess of the percentage 
limitations in section 12(d)(1)(B).
    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, a Participating Fund or 
Unregistered Fund will not be in a position to gain undue influence 
over a Money Market Fund through threat of redemption. Applicants also 
submit that the proposed arrangement will not result in the 
inappropriate layering of fees because shares of the Money Market Funds 
sold to the Participating Funds will not be subject to a sales load, 
redemption fee, asset-based distribution fee adopted in accordance with 
rule 12b-1 under the Act or service fee (as defined in rule 2830(b)(9) 
of the Conduct Rules of the National Association of Securities Dealers, 
Inc. (``NASD'')), or, if such shares are subject to any such fees, the 
Adviser for each Participating Fund will waive its advisory fee for 
each Participating Fund in an amount that offsets the amount of such 
fees incurred by the Participating Fund. If a Money Market 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 Fund's 
investment) at the time of the investment. In connection with approving 
any advisory contract between an Adviser and the Participating Funds, 
the boards of directors, trustees or managers of the Participating 
Funds (each, a ``Board'' and together the ``Boards''), including a 
majority who are not ``interested persons'' within the meaning of 
section 2(a)(19) of the Act (``Independent Board Members''), will 
consider to what extent, if any, the advisory fees charged to each 
Participating Fund by the Adviser should be reduced to account for 
reduced services provided to the Participating Fund by the Adviser as a 
result of Uninvested Cash being invested in the Money Market Funds. 
Applicants represent that no Money Market Fund will acquire securities 
of any other investment company or company relying on section 3(c)(1) 
or 3(c)(7) of the Act in excess of the limits contained in section 
12(d)(1)(A) of the Act, except securities of a registered open-end 
investment company in the same group of investment companies as the 
Money Market Fund to the extent permitted by section 12(d)(1)(E) 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 investment company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of an investment company to include any 
investment adviser to the company, any person directly or indirectly 
owning, controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of such other person, or any person 5% or 
more of whose outstanding securities are directly or indirectly owned, 
controlled, or held with power to vote, by such other person, and any 
person directly or indirectly controlling, controlled by, or under 
common control with such other person. Because the Adviser serves, or 
will serve, as investment adviser to the Participating Funds, it may be 
deemed to be an affiliated person of each Participating Fund under 
section 2(a)(3) of the Act. In addition, Applicants state that because 
the Participating Funds share a common investment adviser and the 
Participating Funds share common officers and Boards, the Participating 
Funds may be deemed to be under common control and thus considered 
affiliated persons of each other under section 2(a)(3). Furthermore, a 
Participating Fund may own more than 5% of the outstanding shares of 
beneficial interests of one or more of the Money Market Funds and thus 
the Participating Fund and the Money Market Funds may be deemed to be 
affiliated persons of each other. Accordingly, the sale of the shares 
of the Money Market Funds to the Participating Funds, and the 
redemption of the shares by the Participating Funds, may be prohibited 
under section 17(a) of the Act.
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
proposed transaction from section 17(a) of the Act 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 policy of each registered investment company 
concerned and with the general purposes of the Act. Section 6(c) of the 
Act permits the Commission, by order upon application, to exempt any 
person, security or transaction, or any class or classes of persons, 
securities 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 
Participating Funds satisfies the standards in sections 6(c) and 17(b) 
of the Act. Applicants note that the consideration paid and received on 
the sale and redemption of shares of the Money Market Funds will be 
based on the net asset value per share of the Money Market Funds. In 
addition, 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 
without incurring additional risk or for any other reason. Applicants 
represent that a Money Market Fund reserves the right to discontinue 
selling shares to any of the Participating Clients if the Money Market 
Fund's Board determines that such sale would adversely affect the Money 
Market Fund's 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

[[Page 48449]]

company participates, unless the Commission has approved the joint 
arrangement. Applicants state that the Participating Clients, by 
purchasing and redeeming shares of the Money Market Funds, the Money 
Market Funds, by selling shares to and redeeming shares from 
Participating Clients, and the Advisers, by managing the assets of the 
Participating Clients invested in the Money Market Funds, could be 
deemed to be participating in a joint enterprise or joint arrangement 
within the meaning of section 17(d) and rule 17d-1.
    8. In considering whether to approve a joint transaction under rule 
17d-1, the Commission considers whether the registered investment 
company's participation in the joint 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 proposed 
transactions meet the standards for an order under rule 17d-1.
    9. Applicants state that the investment by the Participating Funds 
in shares of Money Market Funds will be on the same basis and will be 
indistinguishable from any other shareholder account maintained by the 
Money Market Funds. Applicants also maintain that, to the extent that 
the Money Market Funds participate on a basis that is different from 
the other participants, the relative advantages and disadvantages will 
vary randomly over time and are not expected to be material.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. Investment of Cash Balances in shares of a Money Market Fund 
will be in accordance with each Participating Fund's investment 
restrictions, if any, and will be consistent with its objectives and 
policies as set forth in such Participating Fund's registration 
statement.
    2. The shares of the Money Market Funds sold to and redeemed by the 
Participating Funds will not be subject to a sales load, redemption 
fee, distribution fee adopted in accordance with rule 12b-1 under the 
Act, or service fees (as defined in rule 2830(b)(9) of the NASD's 
Conduct Rules), or, if such shares are subject to any such fee, the 
Adviser for each Participating Fund will waive its advisory fee for 
each Participating Fund in an amount that offsets the amount of such 
fees that are incurred by the Participating Fund.
    3. Prior to reliance on the order by a Participating Fund, the 
Board of the Participating Fund will hold a meeting for the purpose of 
voting on an advisory contract under section 15 of the Act. Before 
approving any advisory contract for a Participating Fund, the Board, 
including a majority of the Independent Board Members, taking into 
account all relevant factors, 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 
Participating Fund by the Adviser as a result of Uninvested Cash being 
invested in the Money Market Funds. In connection with this 
consideration, the Adviser to the Participating 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 
fee attributable to, managing the Uninvested Cash of the Participating 
Fund that can be expected to be invested in the Money Market Funds. The 
minute books of the Participating Fund will record fully the Board's 
consideration in approving the advisory contract, including the 
considerations relating to fees referred to above.
    4. Each Participating Fund will invest Uninvested Cash in, and hold 
shares of, the Money Market Funds only to the extent that the 
Participating Fund's aggregate investment of Uninvested Cash in the 
Money Market Funds does not exceed 25% of the Participating Fund's 
total assets.
    5. Each Participating Fund and each Money Market Fund that relies 
on the order will be part of the same group of investment companies as 
defined in section 12(d)(1)(G) of the Act, and will be advised, or 
provided the Adviser manages the Cash Balances, sub-advised by an 
Adviser. Each Unregistered Fund and Other Institutional Client that 
relies on the order will have an Adviser as its investment adviser, 
trustee, managing member or general partner exercising investment 
discretion.
    6. No Money Market Fund in which a Participating Fund invests shall 
acquire securities of any investment company or company relying on 
section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained 
in section 12(d)(1)(A) of the Act, except securities of a registered 
open-end investment company in the same group of investment companies 
as the Money Market Fund to the extent permitted by section 12(d)(1)(E) 
of the Act.
    7. Before a Participating Fund that participates in the Securities 
Lending Program is permitted to invest Cash Collateral in the Money 
Market Funds, a majority of the Board (including a majority of the 
Independent Board Members) will approve such investment. No less 
frequently than annually, the Board of each Participating Fund 
(including a majority of the Independent Board Members) will evaluate 
the Securities Lending Program and its results and determine that 
investing Cash Collateral in the Money Market Funds is in the best 
interests of the Participating Fund.
    8. The Board of any Participating Fund will satisfy the fund 
governance standards as defined in rule 0-1(a)(7) under the Act by the 
compliance date for the rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4463 Filed 8-16-05; 8:45 am]
BILLING CODE 8010-01-P