[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
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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]
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