[Federal Register Volume 76, Number 126 (Thursday, June 30, 2011)]
[Notices]
[Pages 38432-38434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-16403]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29707; 812-13831]
TIAA-CREF Funds, et al.; Notice of Application
June 24, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 17(d) of the
Investment Company Act of 1940 (``Act'') and rule 17d-1 under the Act.
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SUMMARY: Applicants request an order to permit certain registered open-
end investment companies in the same group of investment companies to
enter into a special servicing agreement (``Special Servicing
Agreement'').
Applicants: TIAA-CREF Funds, on behalf of its series, Lifecycle
2010 Fund, Lifecycle 2015 Fund, Lifecycle 2020 Fund, Lifecycle 2025
Fund, Lifecycle 2030 Fund, Lifecycle 2035 Fund, Lifecycle 2040 Fund,
Lifecycle 2045 Fund, Lifecycle 2050 Fund, Lifecycle 2055 Fund,
Lifecycle Retirement Income Fund, Lifecycle Index 2010 Fund, Lifecycle
Index 2015 Fund, Lifecycle Index 2020 Fund, Lifecycle Index 2025 Fund,
Lifecycle Index 2030 Fund, Lifecycle Index 2035 Fund, Lifecycle Index
2040 Fund, Lifecycle Index 2045 Fund, Lifecycle Index 2050 Fund,
Lifecycle Index 2055 Fund, Lifecycle Index Retirement Income Fund,
Managed Allocation Fund, Bond Fund, Bond Index Fund, Bond Plus Fund,
Emerging Markets Equity Fund, Emerging Markets Equity Index Fund,
Enhanced International Equity Index Fund, Enhanced Large-Cap Growth
Index Fund, Enhanced Large-Cap Value Index Fund, Equity Index Fund,
Growth & Income Fund, High-Yield Fund, Inflation-Linked Bond Fund,
International Equity Fund, International Equity Index Fund, Large-Cap
Growth Fund, Large-Cap Value Fund, Mid-Cap Growth Fund, Mid-Cap Value
Fund, Money Market Fund, Real Estate Securities Fund, Short-Term Bond
Fund, Small-Cap Equity Fund; Teachers Advisors, Inc. (``Advisors'')
Teachers Personal Investors Services, Inc. (``TPIS'') and each existing
or future registered open-end management investment company or series
thereof that is part of the same ``group of investment companies'' as
TIAA-CREF Funds (the ``Trust'') under Section 12(d)(1)(G)(ii) of the
Act and (i) Is advised by Advisors or any entity controlling,
controlled by, or under common control with Advisors or (ii) for which
TPIS and any entity controlling, controlled by or under common control
with TPIS serves as principal underwriter (such investment companies or
series thereof, together with the Trust and its series, the
``Funds'').\1\
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\1\ All entities that currently intend to rely on the order have
been named as applicants. Any other entity that relies on the order
in the future will comply with the terms and conditions of the
application.
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Filing Dates: The application was filed on October 5, 2010, and
amended on March 7, 2011. Applicants have agreed to file an amendment
during the
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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 18, 2011, 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, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090; Applicants, 730 Third Avenue,
New York, NY 10017-3206.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 551-6817, or Janet M. Grossnickle, Assistant Director, 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 via the
Commission's website by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. Advisors is an investment adviser registered under the
Investment Advisers Act of 1940. Advisors serves as investment adviser
to the Funds. TPIS is registered as a broker-dealer under the
Securities Exchange Act of 1934 and serves as distributor of the Funds.
2. The Trust is a Delaware statutory trust registered under the Act
as an open-end management investment company. The Trust currently
offers 51 series, 23 of which are ``Top-Tier Funds'' \2\ and 22 of
which are ``Underlying Funds.'' \3\ The Top-Tier Funds invest
substantially all of their assets in the Underlying Funds.\4\ The Top-
Tier Funds and certain of the Underlying Funds currently offer multiple
classes of shares in reliance on rule 18f-3 under the Act.
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\2\ ``Top-Tier Funds'' refers to Lifecycle 2010 Fund, Lifecycle
2015 Fund, Lifecycle 2020 Fund, Lifecycle 2025 Fund, Lifecycle 2030
Fund, Lifecycle 2035 Fund, Lifecycle 2040 Fund, Lifecycle 2045 Fund,
Lifecycle 2050 Fund, Lifecycle 2055 Fund, Lifecycle Retirement
Income Fund, Lifecycle Index 2010 Fund, Lifecycle Index 2015 Fund,
Lifecycle Index 2020 Fund, Lifecycle Index 2025 Fund, Lifecycle
Index 2030 Fund, Lifecycle Index 2035 Fund, Lifecycle Index 2040
Fund, Lifecycle Index 2045 Fund, Lifecycle Index 2050 Fund,
Lifecycle Index 2055 Fund, Lifecycle Index Retirement Income Fund
and Managed Allocation Fund and any other Fund that invests
substantially all of its assets in the Underlying Funds (as defined
below).
\3\ ``Underlying Funds'' refers to Bond Fund, Bond Index Fund,
Bond Plus Fund, Emerging Markets Equity Fund, Emerging Markets
Equity Index Fund, Enhanced International Equity Index Fund,
Enhanced Large-Cap Growth Index Fund, Enhanced Large-Cap Value Index
Fund, Equity Index Fund, Growth & Income Fund, High-Yield Fund,
Inflation-Linked Bond Fund, International Equity Fund, International
Equity Index Fund, Large-Cap Growth Fund, Large-Cap Value Fund, Mid-
Cap Growth Fund, Mid-Cap Value Fund, Money Market Fund, Real Estate
Securities Fund, Short-Term Bond Fund and Small-Cap Equity Fund.
\4\ The Top-Tier Funds will not be Underlying Funds and no Top-
Tier Fund will invest in another Top-Tier Fund.
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3. Advisors and the Trust propose to enter into a Special Servicing
Agreement that would allow an Underlying Fund to bear the expenses of a
Top-Tier Fund (other than investment management fees, rule 12b-1 fees
and class-specific administrative service fees). Under the Special
Servicing Agreement, each Underlying Fund will bear expenses of a Top-
Tier Fund in proportion to the estimated benefits to the Underlying
Fund arising from the investment in the Underlying Fund by the Top-Tier
Fund (``Underlying Fund Benefits'').
4. Applicants state that the Underlying Fund Benefits are expected
to result primarily from the incremental increase in assets resulting
from investment in the Underlying Funds by the Top-Tier Funds and the
large size of a Top-Tier Fund's holdings of shares in a shareholder
account relative to the average size of the share balances held in
other Underlying Fund shareholder accounts. A Top-Tier Fund's
shareholder account will experience fewer shareholder transactions and
greater predictability of transaction activity than other shareholder
accounts. As a result, the shareholder servicing costs to any
Underlying Fund for servicing one account registered to a Top-Tier Fund
will be significantly less than the cost to that same Underlying Fund
of servicing the same pool of assets contributed by a large group of
shareholders owning relatively small accounts in one or more Underlying
Funds. In addition, by reducing Top-Tier Fund expenses, the Special
Servicing Agreement may lead to increased assets being invested in the
Top-Tier Funds, which in turn would lead to increased assets being
invested in the Underlying Funds. Further, increased assets could
enable the Underlying Funds to control and reduce their expense ratios
because their operating expenses will be spread over a larger asset
base.
5. No Fund will enter into a Special Servicing Agreement unless the
Special Servicing Agreement: (a) Precisely describes the services
provided to the Top-Tier Funds and the amount of expenses for services
charged to the Top-Tier Fund that may be paid by an Underlying Fund
(``Underlying Fund Payments''); (b) provides that no affiliated person
of the Top-Tier Funds, or affiliated person of such person, will
receive, directly or indirectly, any portion of the Underlying Fund
Payments; (c) provides that the Underlying Fund Payments may not exceed
the amount of actual expenses incurred by the Top-Tier Funds; (d)
provides that no Underlying Fund will reimburse transfer agent expenses
of a Top-Tier Fund, including out-of-pocket expenses and other
expenses, at a rate in excess of the average per account transfer agent
expenses of the Underlying Fund, including out-of-pocket and other
expenses, expressed as a basis point charge (for purposes of
calculating the Underlying Fund's average per account transfer agent
expense, the Top-Tier Fund's investment in the Underlying Fund will be
excluded); and (e) has been approved by the Fund's board of trustees
(``Board''), including a majority of trustees who are not ``interested
persons'' (within the meaning of section 2(a)(19) of the Act)
(``Independent Trustees''), as being in the best interests of the Fund
and its shareholders and not involving overreaching on the part of any
person concerned.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 under the Act provide
that an affiliated person of, or a principal underwriter for, a
registered investment company, or an affiliate of such person or
principal underwriter, acting as principal, shall not participate in,
or effect any transaction in connection with, any joint enterprise or
other joint arrangement in which the registered investment company is a
participant unless the Commission has issued an order approving the
arrangement. Advisors, as investment adviser, is an affiliated person
of each of the Underlying Funds and Top-Tier Funds, which in turn could
be deemed to be under common control of Advisors and therefore
affiliated persons of each other. The Top-Tier Funds and the
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Underlying Funds also may be affiliated persons by virtue of a Top-Tier
Fund's ownership of more than 5% of the outstanding voting securities
of an Underlying Fund. Consequently, the Special Servicing Agreement
could be deemed to be a joint transaction among the Top-Tier Funds, the
Underlying Funds and Advisors.
2. Rule 17d-1 under the Act provides that, in passing upon a joint
arrangement under the rule, the Commission will consider whether
participation of the investment company in the joint enterprise or
joint arrangement on the basis proposed 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.
3. Applicants request an order under section 17(d) and rule 17d-1
to permit the proposed expense sharing arrangements. Applicants state
that participation by the Top-Tier Funds, the Underlying Funds and
Advisors in the proposed expense sharing arrangements is consistent
with the provisions, policies and purposes of the Act, and that the
terms of the Special Servicing Agreement and the conditions set forth
below will ensure that no participant will participate on a basis less
advantageous than that of other participants.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. No Fund will enter into a Special Servicing Agreement unless the
Special Servicing Agreement: (a) Precisely describes the services
provided to the Top-Tier Funds and the Underlying Fund Payments; (b)
provides that no affiliated person of the Top-Tier Funds, or affiliated
person of such person, will receive, directly or indirectly, any
portion of the Underlying Fund Payments; (c) provides that the
Underlying Fund Payments may not exceed the amount of actual expenses
incurred by the Top-Tier Funds; (d) provides that no Underlying Fund
will reimburse transfer agent expenses of a Top-Tier Fund, including
out-of-pocket expenses and other expenses, at a rate in excess of the
average per account transfer agent expenses of the Underlying Fund,
including out-of-pocket expenses and other expenses, expressed as a
basis point charge (for purposes of calculating the Underlying Fund's
average per account transfer agent expense, the Top-Tier Fund's
investment in the Underlying Fund will be excluded); and (e) has been
approved by the Fund's Board, including a majority of the Independent
Trustees, as being in the best interests of the Fund and its
shareholders and not involving overreaching on the part of any person
concerned.
2. In approving a Special Servicing Agreement, the Board of an
Underlying Fund will consider, without limitation: (a) The reasons for
the Underlying Fund's entering into the Special Servicing Agreement;
(b) information quantifying the Underlying Fund Benefits; (c) the
extent to which investors in the Top-Tier Fund could have purchased
shares of the Underlying Fund; (d) the extent to which an investment in
the Top-Tier Fund represents or would represent a consolidation of
accounts in the Underlying Funds, through exchanges or otherwise, or a
reduction in the rate of increase in the number of accounts in the
Underlying Funds; (e) the extent to which the expense ratio of the
Underlying Fund was reduced following investment in the Underlying Fund
by the Top-Tier Fund and the reasonably foreseeable effects of the
investment by the Top-Tier Fund on the Underlying Fund's expense ratio;
(f) the reasonably foreseeable effects of participation in the Special
Servicing Agreement on the Underlying Fund's expense ratio; and (g) any
conflicts of interest that Advisors, any affiliated person of Advisors,
or any other affiliated person of the Underlying Fund may have relating
to the Underlying Fund's participation in the Special Servicing
Agreement.
3. Prior to approving a Special Servicing Agreement on behalf of an
Underlying Fund, the Board of the Underlying Fund, including a majority
of the Independent Trustees, will determine that: (a) The Underlying
Fund Payments under the Special Servicing Agreement are expenses that
the Underlying Fund would have incurred if the shareholders of the Top-
Tier Fund had instead purchased shares of the Underlying Fund through
the same broker-dealer or other financial intermediary; (b) the amount
of the Underlying Fund Payments is less than the amount of Underlying
Fund Benefits; and (c) by entering into the Special Servicing
Agreement, the Underlying Fund is not engaging, directly or indirectly,
in financing any activity which is primarily intended to result in the
sale of shares issued by the Underlying Fund.
4. In approving a Special Servicing Agreement, the Board of a Fund
will request and evaluate, and Advisors will furnish, such information
as may reasonably be necessary to evaluate the terms of the Special
Servicing Agreement and the factors set forth in condition 2 above, and
make the determinations set forth in conditions 1 and 3 above.
5. Approval by the Fund's Board, including a majority of the
Independent Trustees, in accordance with conditions 1 through 4 above,
will be required at least annually after the Fund's entering into a
Special Servicing Agreement and prior to any material amendment to a
Special Servicing Agreement.
6. To the extent Underlying Fund Payments are treated, in whole or
in part, as a class expense of an Underlying Fund, or are used to pay a
class-based expense of a Top-Tier Fund, conditions 1 through 5 above
must be met with respect to each class of a Fund as well as the Fund as
a whole.
7. Each Fund will maintain and preserve the Board's findings and
determinations set forth in conditions 1 and 3 above, and the
information and considerations on which they were based, for the
duration of the Special Servicing Agreement, and for a period not less
than six years thereafter, the first two years in an easily accessible
place.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16403 Filed 6-29-11; 8:45 am]
BILLING CODE 8011-01-P