[Federal Register Volume 63, Number 160 (Wednesday, August 19, 1998)]
[Notices]
[Pages 44479-44480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22295]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23388; 812-10668]
SIT Mutual Funds, Inc., et al.; Notice of Application
August 13, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
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
section 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.
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SUMMARY OF APPLICATION: Applicants, SIT Mutual Funds, Inc., SIT Mutual
Funds II, Inc., SIT Mid Cap Growth Fund, Inc., SIT Large Cap Growth
Fund, Inc., SIT U.S. Government Securities Fund, Inc., SIT Money Market
Fund, Inc. (``Money Market Fund'') (collectively, the ``Funds''), and
SIT Investment Associates, Inc. (``Adviser'') seek an order to permit
certain registered open-end investment companies to invest uninvested
cash in an affiliated money market fund. The requested order would
extend to current and subsequently created series of the Funds and any
other registered open-end investment company advised by the Adviser.
The requested order would supersede an existing order.\1\
\1\ Investment Company Act Release No. 20420 (July 21, 1994)
(Notice) and 20482 (August 16, 1994) (Order).
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FILING DATES: The application was filed on May 14, 1997, and amended on
July 13, 1998. Applicants undertake to file a amendment during the
notice period, the substance of which is incorporated in the notice.
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 to 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 September 10,
1998, 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
SEC's Secretary.
ADDRESSES: Secretary, SEC 450 Fifth Street, NW., Washington, DC 20549.
Applicants, Mary K. Stern, 4600 Norwest Center, Minneapolis, MN 55402.
Counsel, Robert A. Kukuljan, Esq., Dorsey & Whitney, LLP., 220 South
Sixth Street, Minneapolis, MN 55402.
FOR FURTHER INFORMATION CONTACT: Edward P. Macdonald, Branch Chief, at
(202) 942-0564 (Office of Investment Company Regulation, Division of
Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Funds are open-end management investment companies
registered under the Act and organized as Minnesota corporations. The
Adviser is registered under the Investment Advisers Act of 1940 and
serves as the investment adviser for each of the series of the Funds
(``Series''). Certain of the Series also have investment subadvisers
(together with the Adviser, ``Advisers''). The Money Market Fund, a
series of the Funds, is subject to rule 2a-7 under the Act.
2. The Series may have, or may be expected to have, uninvested cash
(``Uninvested Cash'') held by their 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.
Currently, the Series may invest Uninvested Cash directly in individual
short term money market instruments.
3. The Series (the ``Investing Funds'') wish to have the
flexibility to invest their Uninvested Cash in the Money Market Fund.
Any investment of Uninvested Cash in shares of the Money Market Fund
will be in accordance with each Investing Fund's investment
restrictions and will be consistent with each Investing Funds' policies
as set forth in its prospectuses and statements 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 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
investment companies, represent more than 10% of the acquiring
company's total assets. Section 12(d)(1)(B) 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 to be owned by
investment companies.
2. Section 12(d)(1)(J) of the Act provides that the SEC may exempt
persons or transactions from any provision of section 12(d)(1) if and
to the extent the exemption is consistent with the public interest and
the protection of investors. Applicants request relief under section
12(d)(1)(J) to permit the Investing Funds to use Uninvested Cash to
acquire shares of the Money Market Fund in excess of the percentage
limitations in section 12(d)(1)(A), provided however, that in all cases
the Investing Fund's aggregate investment of Uninvested Cash in shares
of the Money Market Fund will not exceed 25% of the Investing Fund's
[[Page 44480]]
total assets at any time. Applicants also request relief to permit the
Money Market Fund to sell its securities to an Investing Fund in excess
of the percentage limitations in section 12(d)(1)(B). Applicants
represent that the Money Market Fund will not acquire securities of any
other investment company in excess of the limitations contained in
section 12(d)(1)(A) of the Act.
3. Applicants believe that the proposed arrangement does not result
in the abuses that sections 12(d)(1) (A) and (B) were intended to
prevent. Applicants represent that the proposed arrangement will not
result in an inappropriate layering of fees because shares of the Money
Market Fund sold to the Investing Funds will not be subject to a sales
load, redemption fee, asset-based distribution fee or service fee. In
addition, the Advisers will waive their investment advisory fees for
each Investing Fund in an amount that offsets the amount of the
advisory fees of the Money Market Fund incurred by the Investing Fund.
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. Because each Series
may be deemed to be under common control with the other Series, it may
be an ``affiliated person,'' as defined in section 2(a)(3) of the Act,
of the other Series. Accordingly, applicants state that the sale of
shares of the Money Market Fund to the Investing Funds, would be
prohibited under section 17(a) of the Act.
5. Section 17(b) of the Act authorizes the Commission to exempt a
transaction from section 17(a) of the act if the terms of the proposed
transaction, including the consideration to be paid or received, are
fair and reasonable 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 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. The Investing Funds will retain their ability to invest their
cash balances directly into money market instruments if they believe
that they can obtain a higher return. The Money Market Fund has the
right to discontinue selling shares to any of the Investing Funds if
its board of trustees determines that such sales would adversely affect
the portfolio management and operations of the Money Market Fund. In
addition, applicants state that shares of the Money Market Fund will be
purchased and redeemed at their net asset value, the same consideration
paid and received for these shares by any other shareholder. Therefore,
applicants believe that the proposal satisfies the standards for relief
in sections 17(b) and 6(c) of the Act.
7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of an 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 the Money Market Fund; each Adviser of an
Investing Fund, by managing the assets of the Investing Funds invested
in the Money Market Fund; and the Money Market Fund, by selling shares
to the Investing Funds, could be participants in a joint enterprise
within the meaning of section 17(d)(1) of the Act and rule 17d-1 under
the Act.
8. Rule 17d-1 under the Act permits the Commission to approve a
joint transaction covered by the terms of section 17(d). In determining
whether to approve a transaction, the Commission considers whether the
proposed transaction is consistent with the provisions, policies, and
purposes of the Act, and the extent to which the participation of the
investment companies is on a basis different from or less advantageous
than that of the other participants. Applicants submit that the Series
will participate in the proposed transactions on a basis not different
from or less advantageous than that of any other participant and that
the transactions will be consistent with the Act.
Appicants' Conditions
Applicants agree that the order granting requested relief will be
subject to the following conditions:
1. Shares of the Money Market Fund 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 of the NASD's
Conduct Rules).
2. The Advisers will waive their advisory fee for each Investing
Fund in an amount that offsets the amount of the advisory fees of the
Money Market Fund incurred by the Investing Funds. Any of these fees
remitted or waived will not be the subject to recoupment by the
Advisers at a later date.
3. Each Investing Fund will invest Uninvested Cash in, and hold
shares of, the Money Market Fund only to the extent that the Investing
Fund's aggregate investment in the Money Market Fund does not exceed
25% 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 in shares of the Money Market Fund will 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 prospectuses and statements of additional
information.
5. Each Investing Fund and any future fund that may rely on the
order requested will be advised by the Adviser or an entity
controlling, controlled by, or under common control with the Adviser.
6. The Money Market Fund 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. 98-22295 Filed 8-18-98; 8:45 am]
BILLING CODE 8010-01-M
