97-11741. Enterprise Group of Funds, Inc., et al.; Notice of Application  

  • [Federal Register Volume 62, Number 87 (Tuesday, May 6, 1997)]
    [Notices]
    [Pages 24675-24677]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 97-11741]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    
    [Investment Company Act Release No. 22648; 812-10548]
    
    
    Enterprise Group of Funds, Inc., et al.; Notice of Application
    
    April 30, 1997.
    AGENCY: Securities and Exchange Commission (``SEC'').
    
    ACTION: Notice of application for exemption under the Investment 
    Company Act of 1940 (``Act'').
    
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    APPLICANTS: Enterprise Group of Funds, Inc., (``Enterprise Funds''), on 
    behalf of its series, Enterprise Government Securities Portfolio 
    (``Enterprise Government''), Enterprise Money Market Portfolio 
    (``Enterprise Money''), Enterprise Growth and Income Portfolio 
    (``Enterprise Growth and Income''), and Enterprise Small Company Growth
    
    [[Page 24676]]
    
    Portfolio (``Enterprise Small Company Growth'') (the series are 
    collectively, the ``Enterprise Portfolios''); Enterprise Capital 
    Management Inc. (``Enterprise Capital''); Retirement System Fund Inc. 
    (``Retirement Inc.''), on behalf of its series, Intermediate Term Fixed 
    Income Fund (``Retirement Intermediate''), Money Market Fund 
    (``Retirement Money''), Core Equity Fund (``Retirement Core''), and 
    Emerging Growth Equity Fund (``Retirement Emerging'') (the series are 
    collectively, the ``Retirement Funds''); and Retirement System 
    Investors, Inc. (``Retirement Investors'').
    
    RELEVANT ACT SECTIONS: Order requested under section 6(c) for an 
    exemption from section 15(f)(1)(A).
    
    SUMMARY OF APPLICATION: Applicants request an exemption from section 
    15(f)(1)(A) to permit Retirement Investors and its parent corporation 
    to receive compensation in connection with Enterprise Funds' 
    acquisition of the net assets of the Retirement Funds, without having 
    to reconstitute Enterprise Funds' board of directors. Without the 
    requested exemption, Enterprise Funds would have to reconstitute it 
    boards of directors to meet the 75 percent non-interested director 
    requirement of section 15(f)(1)(A) in order to comply with the safe 
    harbor provisions of section 15(f).
    
    FILING DATES: The application was filed on March 7, 1997.
    
    HEARING OR NOTIFICATION OF HEARING: An order granting the application 
    will be issued unless the SEC orders a hearing. Interested persons may 
    request a hearing by writing the SEC's Secretary and serving applicants 
    with a copy of the request, personally or by mail. Hearing requests 
    should be received by the SEC by 5:30 p.m. on May 27, 1997 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 may request notification of 
    a hearing by writing to the SEC's Secretary.
    
    ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
    Applicants: Enterprise Group of Funds, Inc. and Enterprise Capital 
    Management Inc., 3343 Peachtree Road, NE., Suite 450, Atlanta, Georgia 
    30326; Retirement System Fund Inc. and Retirement System Investors 
    Inc., 317 Madison Avenue, New York, New York, 10017.
    
    FOR FURTHER INFORMATION CONTACT: Mary T. Geffroy, Staff Attorney, at 
    (202) 942-0553, 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 from 
    the SEC's Public Reference Branch.
    
    Applicants' Representations
    
        1. Enterprise Funds is an open-end management investment company 
    registered under the Act consisting of thirteen investment portfolios, 
    including, Enterprise Government, Enterprise Money, Enterprise Growth 
    and Income, and Enterprise Small Company Growth.
        2. Enterprise Capital is registered under the Investment Advisers 
    Act of 1940 (the ``Advisers Act'') and, pursuant to an investment 
    advisory agreement (``Enterprise Advisory Agreement''), serves as 
    investment adviser for Enterprise Funds. The Enterprise Advisory 
    Agreement authorizes Enterprise Capital to enter into subadvisory 
    agreements with various investment advisers as portfolio managers for 
    Enterprise Portfolios. Applicants state that it is contemplated that 
    Retirement Investors will serve as portfolio manager for Enterprise 
    Growth and Income.
        3. Retirement Inc. is an open-end management investment company 
    registered under the Act consisting of seven funds, including 
    Retirement Intermediate, Retirement Money, Retirement Core, and 
    Retirement Emerging. Retirement Investors is registered under the 
    Advisers Act and serves as investment adviser for the Retirement Funds.
        4. Applicants request an order under section 6(c) of the Act, 
    exempting Enterprise Funds from the provisions of section 15(f)(1)(A) 
    of the Act with respect to the proposed transaction (the 
    ``Transaction''). The Transaction contemplates, among other things, 
    reorganizations whereby the net assets of each of the Retirement Funds 
    will be acquired by the respective Enterprise Portfolio, in exchange 
    for an equivalent value of Class Y Shares\1\ of the Enterprise 
    Portfolio, which shares will be distributed to the shareholders of each 
    Retirement Fund in liquidation thereof (the ``Reorganizations''). 
    Applicants state that Enterprise Capital intends to compensate 
    Retirement Investors and its parent corporation, Retirement Systems 
    Group, Inc. (``Retirement Group'') in connection with the Transaction.
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        \1\ Applicants state that Class Y shares are not subject to any 
    initial or contingent deferred sales charge, or any distribution or 
    service fees pursuant to rule 12b-1 under the Act.
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        5. Retirement Investors and Retirement Group have executed a letter 
    of intent with Enterprise Capital dated January 7, 1997 (the ``letter 
    of Intent''). The Letter of Intent, among other things, contemplates 
    that Retirement Intermediate be reorganized with Enterprise Government; 
    Retirement Money be reorganized with Enterprise Money; and Retirement 
    Core and Retirement Emerging be reorganized with two newly created 
    portfolios of Enterprise Funds, Enterprise Growth and Income and 
    Enterprise Small Company Growth, respectively. Applicants state that 
    consummation of each of the Reorganizations contemplated by the Letter 
    of Intent is subject to certain conditions, including negotiation and 
    execution of a mutually satisfactory definitive agreement among 
    Enterprise Capital, Retirement Investors and Retirement Group relating 
    to the Transaction (the ``Transaction Agreement'') and receipt of 
    various required approvals, including approval of the boards of 
    directors of the mutual funds involved in the Transaction and approval 
    by the shareholders of the Retirement Funds.
        6. Retirement Investors, Retirement Group, and Enterprise Capital 
    have agreed to bear their own expenses in connection with the 
    negotiation and execution of the Transaction Agreement. In addition, 
    Retirement Investors and Retirement Group have agreed to bear any 
    expenses incurred by Retirement Inc. in connection with the 
    Transaction.
    
    Applicants' Legal Analysis
    
        1. Section 15(f) of the Act is a safe harbor that permits an 
    investment adviser to a registered investment company (or an affiliated 
    person of the investment adviser) to receive ``any amount or benefit'' 
    in connection with a sale of securities of, or sale of any other 
    interest in, such investment adviser (which results in an assignment of 
    an advisory contract with such company) is certain conditions are met. 
    Section 15(f)(1)(A) requires that, for a period of three years after 
    such sale, at least 75 percent of the board of an investment company 
    (or its successor, by reorganization or otherwise) may not be 
    ``interested persons'' with respect to either the predecessor or 
    successor adviser of the investment company.
        2. Section 6(c) of the Act permits the SEC to exempt any person or 
    transaction from any provision of the Act, or any rule or regulation 
    thereunder, if the exemption is necessary of appropriate in the public 
    interest and consistent with the protection of investors and the
    
    [[Page 24677]]
    
    purposes fairly intended by the policy and provisions of the Act. 
    Section 15(f)(3)(B) provides that if the assignment of an investment 
    advisory contract results from the merger of, or sale of substantially 
    all the assets by, a registered investment company with or to another 
    registered investment company with assets substantially greater in 
    amount, such discrepancy in size shall be considered by the SEC in 
    determining whether, or to what extent, to grant exemptive relief 
    pursuant to section 6(c) from section 15(f)(1)(A).
        3. Applicants state that the net assets of Enterprise Government 
    and Enterprise Money ($79,375,576 and $60,417,051 respectively, as of 
    December 31, 1996) are substantially greater than the net assets of 
    Retirement Intermediate and Retirement Money ($6,487,280 and $1,670,085 
    respectively, as of December 31, 1996), individually. Applicants also 
    state that the net assets of Enterprise Funds ($952,100,717, as of 
    December 31, 1996) as a whole are far greater than the net assets of 
    the four Retirement Funds ($27,242,022, as of December 31, 1996), even 
    though the two newly created portfolios will initially have no assets 
    other than what is received from the Retirement Funds, making the 
    Retirement Funds' assets less than 3% of Enterprise Funds' assets.
        4. Applicants submit that it is appropriate for the assets of 
    Enterprise Funds as a whole, as opposed to the individual Enterprise 
    Portfolios, to be taken into account when considering the 
    ``substantially greater'' test of section 15(f)(3)(B). Applicants 
    contend that any other conclusion would be inconsistent with the 
    literal language of the Act. Applicants state that section 15(f)(3)(B) 
    specifically refers to the sale of assets of one investment company to 
    another ``investment company with assets substantially greater in 
    amount.'' Enterprise Funds is the investment company involved in each 
    Reorganization and, in fact, the board of directors of Enterprise Funds 
    must authorize the Reorganization on behalf of the Enterprise 
    Portfolios.
        5. The boards of directors of Retirement Inc. and Enterprise Funds 
    consist of the following, including the respective number of directors 
    who are ``interested persons,'' of Retirement Investors, Retirement 
    Group, or Enterprise Capital, as the case may be, within the meaning of 
    section 2(a)(19) of the Act (``Interested Directors''), and who are not 
    Interested Directors (``Disinterested Directors''):
    
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                                          Number of    Number of            
             Investment company          interested  disinterested    Total 
                                          directors    directors            
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    Enterprise Funds...................          3             4           7
    Retirement Inc.....................          3             4           7
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        In order to comply with section 15(f)(1)(A) following consummation 
    of the transactions, Enterprise Funds would have to add five 
    Disinterested Directors or reduce the number of Interested Directors 
    from three to one. If Enterprise Funds were to add five Disinterested 
    Directors, a vote of shareholders would be required pursuant to section 
    16(a) of the Act, which requires that at least two-thirds of a fund's 
    trustees be elected by shareholders. Enterprise Funds would not 
    otherwise be required to hold a shareholders meeting under Maryland 
    law. Applicants submit that reconstitution of the board of Enterprise 
    Funds would serve no public interest, and in fact, would be contrary to 
    the interests of shareholders of Enterprise Funds.
        6. For the reasons stated above, applicants submit that the 
    requested relief is necessary and 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.
    
        For the SEC, by the Division of Investment Management, under 
    delegated authority.
    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 97-11741 Filed 5-5-97; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
05/06/1997
Department:
Securities and Exchange Commission
Entry Type:
Notice
Action:
Notice of application for exemption under the Investment Company Act of 1940 (``Act'').
Document Number:
97-11741
Dates:
The application was filed on March 7, 1997.
Pages:
24675-24677 (3 pages)
Docket Numbers:
Investment Company Act Release No. 22648, 812-10548
PDF File:
97-11741.pdf