33014 Federal Register / Vol. 60, No. 122 / Monday, June 26, 1995 / Notices

company. Applicant has eight existing

Funds: Hercules European Value Fund,

Hercules Pacific Basin Value Fund,

Hercules Latin American Value Fund,

Hercules World Bond Fund, Hercules

Global Short-Term Fund, Hercules

North American Growth and Income

Fund, Hercules Emerging Markets Debt

Fund, and Hercules Money Market

Fund.

2. Hercules International Management

L.L.C. (‘‘Hercules’’) serves as investment

adviser for each Fund. Hercules was

organized under Delaware law and is

owned equally by Piper Jaffray

Companies Inc. (‘‘Piper’’) and Midland

Walwyn Capital Corporation

(‘‘MWCC’’).

3. Hercules has retained the services

of several advisory organizations to

serve as subadvisers to the individual

Funds (each a ‘‘Subadviser’’). The

current Subadvisers are Pictet

International Management Ltd.,

Edinburgh Fund Managers plc, Bankers

Trust Company (‘‘Bankers Trust’’),

Salomon Brothers Asset Management

Limited, Salomon Brothers Asset

Management Inc, Piper Capital

Management Incorporated (‘‘PCM’’),

Acci, and AGF Investment Advisors,

Inc. Each Subadviser, pursuant to an

agreement with Hercules, directs the

investments of the Fund it subadvises in

accordance with applicable law and the

Fund’s investment objectives, policies,

and restrictions. The activities of the

Subadvisers are subject to the

supervision of Hercules, which has

ultimate responsibility to select the

Subadvisers.

4. On April 13, 1995, applicant’s

board of directors approved applicant

entering into a new investment advisory

and management agreement with PCM,

subject to approval by shareholders of

the Funds. A new agreement is

necessary because Piper and MWCC

have determined to dissolve Hercules.

On the same date, the board approved

PCM entering into new subadvisory

agreements with the current

Subadvisers, subject to approval by the

shareholders of each Fund. The new

agreement will be identical to the

existing agreements in all material

respects except that PCM will be

substituted for Hercules as a party to the

agreements. The term ‘‘Adviser’’ as used

herein refers to Hercules, PCM, or such

person that in the future serves as

principal investment adviser to the

Funds.

5. Applicant requests relief to permit

an ‘‘Eligible Dealer,’’ as defined below,

to engage in principal transactions with

a Fund in the ordinary course of

business. An Eligible Dealer is a

Subadviser of one or more Funds not

engaging in the transaction that

conducts advisory and securities dealer

operations via the same legal entity that

is a second-tier affiliate of the Fund

engaging in the transaction solely by

reason of being a Subadviser of one or

more of the other Funds. An Eligible

Dealer is not (a) an affiliated person of

the Fund engaging in the transaction, (b)

the Adviser, or an affiliated person of

the Adviser, or (c) an officer, director,

employee, promoter, or principal

underwriter of any Fund, or an affiliated

person of such officer, director,

employee, promoter, or principal

underwriter. Bankers Trust, as the only

Subadviser that conducts advisory and

dealer operations through the same legal

entity, is currently the only Subadviser

that satisfies the definition of an Eligible

Dealer.

Applicant’s Legal Analysis

1. Section 17(a), among other things,

prohibits an affiliated person, principal

underwriter, or promoter of a registered

investment company, or any affiliated

person of such persons, acting as

principal, from (a) selling to or

purchasing from such registered

company, or any company controlled by

such company, any security or other

property, or (b) borrowing money or

other property from such company.

Section 2(a)(3) defines ‘‘affiliated

person’’ of another person as including

a person controlling, controlled by, or

under common control with such other

person, and, when such other person is

an investment company, the investment

adviser thereof.

2. Applicant asserts that the Funds

may be affiliated persons of each other

because they may be under the common

control of (a) the Adviser, which makes

decisions and fashions policies that

impact all of the Funds, and (b) a single

board of directors that overseas such

policies. A Subadviser is an affiliated

person of the Fund or Funds that it

subadvises, and a second-tier affiliate of

each other Fund. When such a

Subadviser conducts dealer operations

via the same entity, the dealer

component also would be a second-tier

affiliate of the Funds not subadvised by

the Subadviser. Accordingly, relief from

section 17(a) is required for an Eligible

Dealer to engage in principal

transactions with a Fund.

3. Applicant submits that the primary

purpose of section 17(a) is to prevent

persons with the power to control an

investment company from using that

power to such person’s own pecuniary

advantage, i.e., to prevent self-dealing.

Applicant believes that no element of

self-dealing would be involved in the

proposed transactions because the

Subadviser recommending the

transaction would be dealing with an

entity that in economic reality is a

competitor of the Subadviser. Each

transaction between a Fund and an

Eligible Dealer would be the product of

arms-length bargaining, and the

Subadviser recommending the

transaction can neither lose nor gain

financially on the basis of whether the

transaction is beneficial or detrimental

to the Eligible Dealer.

4. Section 17(b) provides that the SEC

may exempt a transaction from the

provisions of section 17(a) if evidence

establishes that the terms of the

proposed transaction, including the

consideration to be paid, are reasonable

and fair and do not involve

overreaching on the part of any person

concerned, and that the proposed

transaction is consistent with the policy

of the registered investment company

concerned and with the general

purposes of the Act. Applicant believes

that the proposed transactions will meet

the standards of section 17(b). Because

the pecuniary interests of a Subadviser

would be solely and directly aligned

with those of the Fund it subadvises, it

is reasonable to conclude that the

consideration to be paid to or received

by such Fund in connection with a

principal transaction with an Eligible

Dealer will be reasonable and fair.

5. Section 6(c) provides that the SEC

may exempt any person, security, or

transaction, or any class or classes of

persons, securities, or transactions, from

any provisions of the Act or of any rule

thereunder, if and to the extent that

such 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. Applicant asserts that the

proposed transactions would be

consistent with the policies of the Fund

involved. Further, applicant submits

that the broader the universe of persons

with which a Fund may engage in

principal transactions, the easier it is to

achieve best price and execution on

such transactions and the better will be

the Fund’s overall investment

performance.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–15501 Filed 6–23–95; 8:45 am]

BILLING CODE 8010–01–M