[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