[Federal Register Volume 59, Number 240 (Thursday, December 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30780]


[[Page Unknown]]

[Federal Register: December 15, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20761; 812-9008]

 

AIM Equity Funds, Inc., et al.; Notice of Application

December 9, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: AIR Equity Funds, Inc., AIM Funds Group, AIM International 
Funds, Inc., AIM Investment Securities Funds, AIM Strategic Income 
Fund, Inc., AIM Summit Fund, Inc., AIM Tax-Exempt Funds, Inc., Short-
Term Investments Co., Short-Term Investments Trust, Tax-Free 
Investments Co., including all existing and future series thereof 
(collectively, the ``Existing Funds''), on behalf of themselves and all 
registered investment companies (including series thereof) for which A 
I M Advisors Inc. or A I M Capital Management, Inc. (each an 
``Adviser'') serves in the future as investment adviser (collectively, 
with the Existing Funds, the ``Funds''); A I M Advisors, Inc.; and A I 
M Capital Management, Inc.

RELEVANT ACT SECTION: Exemption requested under section 17(d) and rule 
17d-1.

SUMMARY OF APPLICATION: Applicants seek a conditional order permitting 
them to participate in a joint account (the ``Joint Account'') to pool 
cash balances and reserves for the purpose of investing in: (a) 
repurchase agreements with remaining maturities not to exceed 60 days; 
and (b) other short-term money market instruments, including tax-exempt 
money market instruments, that constitute ``Eligible Securities'' 
within the meaning of rule 2a-7 under the Act with remaining maturities 
or deemed maturities (pursuant to rule 2a-7) not to exceed 90 days 
(``Short-Term Money Market Instruments'').

FILING DATES: The application was filed on May 18, 1994, and was 
amended on October 18, 1994, and December 8, 1994.

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 January 3, 1995, 
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 such notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, Eleven Greenway Plaza, Suite 1919, Houston, Texas 
77046.

FOR FURTHER INFORMATION CONTACT: James J. Dwyer, Staff Attorney at 
(202) 942-0581, or C. David Messman, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office 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.

Applicant's Representations

    1. The Existing Funds are registered management investment 
companies, several of which consist of multiple portfolios. AIM 
Advisors, Inc. is a registered investment adviser that serves as 
investment adviser to the Existing Funds. AIM Capital Management, Inc., 
a wholly-owned subsidiary of AIM Advisors, Inc., is a registered 
investment adviser and serves as subadviser to the AIM Charter, AIM 
Constellation, and AIM Weingarten portfolios of AIM Equity Funds, Inc.
    2. Pursuant to an existing order (the ``Existing Order''),\1\ the 
Funds may deposit overnight cash balances and reserves into Joint 
Accounts that would invest in commercial paper or repurchase agreements 
with a bank, non-bank government securities dealer, or major brokerage 
house. The repurchase agreements are collateralized by: U.S. Government 
obligations; obligations issued or guaranteed as to principal and 
interest or otherwise backed by any of the agencies or 
instrumentalities of the U.S. Government; certain obligations of the 
U.S. Government in the form of separately traded principal and interest 
components of securities issued or guaranteed by the U.S. Treasury; or 
certain U.S. government agency securities such as mortgage-backed 
certificates issued by the Government National Mortgage Association, 
the Federal National Mortgage Association, and the Federal Home Loan 
Mortgage Corporation, that represent ownership interests in mortgage 
pools. In addition, the Funds may invest jointly in interest bearing or 
discounted commercial paper, including dollar denominated commercial 
paper of foreign issuers, provided that the commercial paper is rated 
in the highest category by Standard & Poor's or Moody's, or unrated but 
of equivalent investment quality as determined by the Advisers under 
the supervision of the boards of the applicable Funds.
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    \1\Investment Company Act Release Nos. 18550 (Feb. 13, 1992) 
(notice) and 18614 (Mar. 12, 1992) (order).
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    3. The requested order would supersede the Existing Order, and 
would permit the Funds to purchase on a joint basis other securities in 
addition to the purchases permitted under the Existing Order. The Joint 
Accounts established under the requested order would invest in any 
``Investment,'' as defined in condition 2 below.
    4. A separate custodial cash account would be established for each 
Joint Account at the applicable custodian bank into which some or all 
of the uninvested net cash balances of the participating Funds would be 
deposited daily.
    5. All of the Funds are authorized by their investment policies and 
limitations to invest at least a portion of their uninvested cash 
balances in Investments. An Adviser would determine the amount of 
anticipated cash available at the end of a trading day. After the 
Advisers have accumulated data as to available cash and the type of 
Investments desired for each Fund, they would determine the extent of 
the market in various securities and aggregate orders as appropriate. 
The Advisers then would give a broker/dealer one order for each Joint 
Account and instruct the custodian to allocate the securities acquired 
by the Joint Account among the participating Funds.
    6. The operation of the Joint Account will result in fewer 
transactions in Investments for the Funds, thus saving transaction 
fees. The Funds also will benefit from higher yields and administrative 
savings through pooling of their uninvested cash balances in Joint 
Accounts.
    7. Subject to differences in investment objectives, each of the 
Funds has established the same systems and standards for acquiring 
Investments and the Joint Accounts will use the same systems and 
standards employed by the individual Funds. With respect to repurchase 
agreement transactions, these standards include creditworthiness 
standards for counterparties and for collateral. The repurchase 
agreements entered into under the requested order will be 
``collateralized fully,'' as that term is defined in rule 2a-7, and 
would have remaining maturities that would not exceed 60 days.
    8. All joint repurchase agreement transactions will be effected in 
accordance with Investment Company Act Release No. 13005 (Feb. 2, 1983) 
and with other existing and future positions taken by the SEC or its 
staff by rule, interpretive release, no-action letter, any release 
adopting any new rule, or any release adopting any amendments to any 
existing rule.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 thereunder 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. Each Fund may be deemed an ``affiliated person'' of each 
other Fund under the definition set forth in section 2(a)(3). Each Fund 
participating in the proposed joint account and the Adviser could be 
deemed to be ``a joint participant'' in a transaction within the 
meaning of section 17(d). In addition, the proposed account could be 
deemed to be a ``joint enterprise or other joint arrangement'' within 
the meaning of rule 17d-1.
    2. Applicants assert that the Joint Account will not result in any 
conflicts of interest among the joint participants. Although the 
Advisers will gain some benefit through administrative convenience and 
possible reduction in clerical costs, the primary beneficiaries will be 
the participating Funds because the Joint Account will be a more 
efficient means of administering investment transactions. Applicants 
believe that the operation of the Joint Account will be free of any 
inherent bias favoring one Fund over another.
    3. In passing upon applications under section 17(d) and rule 17d-1, 
the SEC considers whether participation by a registered investment 
company is consistent with the provisions, policies, and purposes of 
the Act and not on a basis less advantageous than that of other 
participants. Applicants submit that these criteria are met.

Applicants' Conditions

    Applicants agree to the following as express conditions to any 
order issued by the SEC in connection with the application:
    1. Each Fund will transfer into one or more of the Joint Accounts 
the cash it wishes to invest through such Joint Accounts after the 
calculation of its daily cash available for investment and will 
specifically indicate whether the cash is to be used to purchase 
Investments. The Joint Accounts will not be distinguishable from any 
other accounts maintained by a Fund with its custodian bank except that 
monies from a Fund will be deposited on a commingled basis. The Joint 
Accounts will not have any separate existence and will not have indicia 
of separate legal entities. The sole function of the Joint Accounts 
will be to provide a convenient way of aggregating individual 
transactions which would otherwise require daily management by each 
Fund of its uninvested cash balances.
    2. Cash in the Joint Accounts would be invested in one or more of 
the following, as directed by the Fund: repurchase agreements 
collateralized by U.S. Government obligations; repurchase agreements 
collateralized by obligations issued or guaranteed as to principal and 
interest or otherwise backed by any of the agencies or 
instrumentalities of the U.S. Government; repurchase agreements 
collateralized by certain obligations of the U.S. Government in the 
form of separately traded principal and interest components of 
securities issued or guaranteed by the U.S. Treasury; repurchase 
agreements collateralized by certain U.S. government agency securities 
such as mortgage-backed certificates issued by the Government National 
Mortgage Association, the Federal National Mortgage Association, and 
the Federal Home Loan Mortgage Corporation, representing ownership 
interests in mortgage pools; interest bearing or discounted commercial 
paper, including dollar denominated commercial paper of foreign 
issuers; and in any other short-term money market instruments, 
including tax-exempt money market instruments, that constitute 
``Eligible Securities'' within the meaning of rule 2a-7 under the Act 
(collectively, the ``Investments''). No Fund would be permitted to 
invest in a Joint Account unless the Investment in such account 
satisfied the policies and guidelines of that Fund. Investments that 
are joint repurchase transactions would have a remaining maturity of 60 
days or less and other Investments would have a remaining maturity of 
90 days or less, each as determined pursuant to rule 2a-7 under the 
Act.
    3. All assets held by a Joint Account would be valued on an 
amortized cost basis to the extent permitted by applicable SEC release, 
rule, or order.
    4. Each participating Fund valuing its net assets in reliance upon 
rule 2a-7 under the Act will use the average maturity of the 
instrument(s) in the Joint Account in which such Fund has an interest 
(determined on a dollar weighted basis) for the purpose of computing 
that Fund's average portfolio maturity with respect to the portion of 
its assets held in such Account on that day.
    5. In order to assure that there will be no opportunity for one 
Fund to use any part of a balance of a Joint Account credited to 
another Fund, no Fund will be allowed to create a negative balance in a 
Joint Account for any reason, although it would be permitted to draw 
down its entire balance at any time. Each Fund's decision to invest in 
a Joint Account would be solely at its option, and no Fund will be 
obligated either to invest in a Joint Account or to maintain any 
minimum balance in a Joint Account. In addition, each Fund would retain 
the sole rights of ownership to any of its assets invested in a Joint 
Account, including interest payable on such assets invested in such 
Account.
    6. The Advisers would administer the investment of the cash 
balances in and operation of the Joint Accounts as part of their duties 
under the general terms of each Fund's existing or any future 
investment advisory contract or subadvisory contract (the ``Advisory 
Contracts'') and would not collect any additional or separate fees for 
advising any Joint Account. The operation of the Joint Accounts is not 
provided for specifically under each Fund's Advisory Contract, but 
rather is covered under the general terms of each such Contract. The 
Advisers would collect their fees based upon the assets of each 
separate Fund as provided in each respective Advisory Contract.
    7. The administration of the Joint Accounts would be within the 
fidelity bond coverage required by section 17(g) of the Act and rule 
17g-1 thereunder.
    8. The boards of trustees/directors of the Funds will adopt 
procedures pursuant to which the Joint Accounts will operate, which 
will be reasonably designed to provide that the requirements of the 
application will be met. Each of the boards will make and approve such 
changes as it deems necessary to ensure that such procedures are 
followed. In addition, the boards will determine, no less frequently 
than annually, that the Joint Accounts have been operated in accordance 
with such procedures.
    9. Any Investment made by a Fund or Funds through the Joint 
Accounts will satisfy the investment criteria of all Funds 
participating in that Investment.
    10. The Advisers and the custodian of each Fund will maintain 
records (in conformity with section 31 of the Act and the rules 
thereunder) documenting, for any given day, each Fund's aggregate 
investment in a Joint Account and each Fund's pro rata share of each 
Investment made through such Joint Account.
    11. Not every Fund participating in the Joint Accounts will 
necessarily have its cash invested in every Joint Account. However, to 
the extent a Fund's cash is applied to a particular Joint Account, the 
Fund will participate in and own a proportionate share of the 
Investment in such Joint Account, and the income earned or accrued 
thereon, based upon the percentage of such Investment in such Joint 
Account purchased with monies contributed by the Fund.
    12. Investments held in a Joint Account generally will not be sold 
prior to maturity except: (a) If the Advisers believe the Investment no 
longer presents minimal credit risk; (b) in the case of commercial 
paper or tax-exempt securities, if as a result of a credit downgrading 
or otherwise, the Investment no longer satisfies the investment 
criteria of all Funds participating in that Investment; or (c) in the 
case of a repurchase agreement, if the counterparty defaults. A Fund 
may, however, sell its fractional portion of an Investment in a Joint 
Account prior to the maturity of the Investment in such Joint Account 
if the cost of such transaction will be borne solely by the selling 
Fund and the transaction would not adversely affect the other Funds 
participating in that Joint Account. In no case would an early 
termination by less than all participating Funds be permitted if it 
would reduce the principal amount or yield received by other Funds 
participating in a particular Joint Account or otherwise adversely 
affect the other participating Funds. Each Fund participating in such 
Joint Account will be deemed to have consented to such sale and 
partition of the Investment in such Joint Account.
    13. Any Investment held through a Joint Account with a remaining 
maturity of more than seven days will be considered illiquid and, for 
any Fund that is an open-end management investment company registered 
under the Act, subject to the restriction that the Fund may not invest 
more than 15% (or such other percentage as set forth by the SEC from 
time to time) of its net assets in illiquid securities, if the Fund 
cannot sell its fractional interest in the Investment in such Joint 
Account pursuant to the requirements described in the preceding 
condition.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30780 Filed 12-14-94; 8:45 am]
BILLING CODE 8010-01-M