[Federal Register Volume 61, Number 74 (Tuesday, April 16, 1996)]
[Notices]
[Pages 16658-16660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9301]



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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21878; 812-9516]


The Asia Tigers Fund, Inc., et al.; Notice of Application

April 9, 1996.
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: The Asia Tigers Fund, Inc.; The Czech Republic Fund, Inc. 
(``Czech Fund''); The India Fund, Inc.; The Mexico Equity and Income 
Fund, Inc. (``Mexico Fund''); The Emerging Markets Floating Rate Fund 
Inc.; The Emerging Markets Income Fund Inc; The Emerging Markets Income 
Fund II Inc; Global Partners Income Fund Inc. (collectively, the 
``Funds''); and Oppenheimer & Co., Inc. (``OpCo''), on behalf of 
themselves and any other future investment companies for which 
Advantage Advisers, Inc. (``Advantage''), a wholly owned subsidiary of 
OpCo, or any other entity controlling, controlled by, or under common 
control (as defined in section 2(a)(9) of the Act) with OpCo, serves as 
investment adviser.

RELEVANT ACT SECTIONS: Order requested under rule 17d-1 to permit 
certain transactions in accordance with section 17(d) and rule 17d-1.

SUMMARY OF APPLICATION: Applicants seek an order to permit OpCo to 
receive a fee from the Funds for its services as lending agent in 
connection with the loan of portfolio securities owned by the Funds. 
The proposed fee would be based upon a share of the proceeds derived by 
the Funds from the securities lending program.

FILING DATES: The application was filed on March 9, 1995, and amended 
on October 30, 1995, and March 29, 1996.

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 May 6, 1996, and 
should be accompanied by proof of service on applicant, 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: The Asia Tigers Fund, Inc., Czech Fund, The India 
Fund, Inc., Mexico Fund, and OpCo, Oppenheimer Tower, 200 Liberty 
Street, One World Financial Center, New York, New York 10281; The 
Emerging Markets Floating Rate Fund Inc., Emerging Markets Income Fund 
Inc., The Emerging Markets Income Fund II Inc., and Global Partners 
Income Fund Inc., 7 World Trade Center, New York, New York 10048.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 942-0583, or Alison E. Baur, 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.

Applicant's Representations

    1. Each of the Funds is a Maryland corporation registered under the 
Act as a closed-end management investment company. The Funds invest in 
a range of equity and fixed-income securities. Advantage, an investment 
adviser registered under the Investment Advisers Act of 1940 
(``Advisers Act''), serves as investment adviser to each of the Funds. 
Advantage advises and consults with each Fund's day-to-day investment 
adviser regarding the Fund's overall investment strategy and its use of 
leveraging techniques, and monitors the performance of the Fund's 
outside service providers. Advantage is not currently responsible for 
making specific investment decisions for the Funds, except for the 
Mexico Fund. With respect to the Mexico Fund, Advantage and the Fund's 
day-to-day investment adviser are jointly responsible for making the 
Fund's investment decisions.
    2. OpCo, a Delaware corporation that is an indirect, wholly owned 
subsidiary of Oppenheimer Group, Inc., is a privately-owned securities 
brokerage, investment banking, and asset management firm that offers a 
broad range of services to corporations, institutions, and private 
investors. OpCo serves as administrator to The Asia Tigers Fund, Inc., 
The India Fund, Inc., the Czech Fund, and the Mexico Fund. OpCo is 
registered as a broker-dealer under the Securities Exchange Act of 
1934, and as an investment adviser under the Advisers Act.
    3. Each of the Funds is permitted under its investment objectives, 
policies, and restrictions to lend its portfolio securities. Advantage 
has proposed that each Fund establish a securities lending program to 
increase the income earned by the Fund and the total return to 
shareholders. In connection with the establishment of such a program, 
the board of directors of the Fund, including a majority of the 
directors who are not ``interested persons'' as defined in section 
2(a)(19) of the Act, would institute procedures to govern the program. 
These procedures, which would comply with the previous policies set 
forth by the Commission and its staff in no-action letters, would 
include specific guidelines relating to the creditworthiness of 
borrowers, the amount of securities that may be loaned

[[Page 16659]]

at any one time and to any one borrower, and the creditworthiness of 
issuers from whom a Fund may accept irrevocable letters of credit as 
collateral.
    4. Each Fund's day-to-day investment adviser, subject to the 
supervision of the board of directors, would be responsible for 
negotiating the terms of loans, selecting borrowers, investing cash 
collateral, and determining which specific securities are available to 
be loaned, subject to the parameters set forth in the procedures 
approved by the board of directors of each Fund. In addition, the day-
to-day investment adviser would retain full discretion and power to 
prevent any loan from being made or to terminate any loan.
    5. Since each Fund currently does not have the internal resources 
necessary to lend securities efficiently or effectively without the 
services of a third-party lending agent, Advantage has proposed that 
each Fund engage one or more third parties to act as lending agent. The 
lending agent would be responsible for soliciting borrowers and 
confirming their creditworthiness, monitoring daily the value of the 
loaned securities and collateral, requesting that borrowers add to the 
collateral when required by the loan arrangements, and performing other 
administrative functions in connection with the Fund's securities 
lending program. In addition, the lending agent, under the supervision 
of the day-to-day investment adviser of a Fund may enter into loans 
with pre-approved borrowers on terms, the parameters of which would be 
pre-approved by the investment adviser, and invest cash collateral for 
the loans in instruments pre-approved by the investment adviser. All 
such duties of the lending agent, as well as procedures governing the 
determination of borrowers, loan terms, and investment instruments, 
will be included in a Fund's agreement with the lending agent or 
otherwise detailed in writing. The day-to-day investment adviser will 
monitor the lending agent to ensure that the securities loans are 
effected in accordance with its instructions and within the procedures 
adopted by the Fund's board of directors. Applicants represent that the 
day-to-day investment adviser's delegation of authority to the lending 
agent will be consistent with (and will not exceed) the parameters set 
forth in Norwest Bank (pub. avail. May 25, 1995).
    6. Each borrower of a Fund's securities will be required to tender 
collateral equal to at least 100% of the value of the securities loaned 
to be held by the Fund's custodian or sub-custodian in the form of 
cash, securities issued or guaranteed by the United States Government, 
its agencies, or instrumentalities (``U.S. Government securities''), or 
irrevocable letters of credit issued by certain approved banks. If 
necessary, the collateral will be supplemented to cover differences 
between the value of the collateral and the market value of the loaned 
securities.
    7. In transactions where the collateral consists of U.S. Government 
securities or letters of credit, the lending agent will negotiate on 
behalf of the Fund a lending fee to be paid by the borrower to the 
Fund. Where the collateral consists of U.S. Government securities, the 
beneficial ownership of the collateral and the right to the income 
earned will remain with the borrower. At the termination of a loan, the 
borrower will pay the lending fee to the Fund, and the lending agent 
will receive its pre-negotiated percentage of the fee.
    8. In transactions where the collateral consists of cash, the Fund, 
instead of receiving a separate lending fee from the borrower, will 
receive a portion of the return earned on the investment of the cash 
collateral by or under the direction of the Fund's day-to-day 
investment adviser. Depending on the arrangements negotiated with the 
borrower by the lending agent, a percentage of the return on the 
investment of the cash collateral may be remitted by the Fund to the 
borrower. Out of the amounts earned on the investment of the cash 
collateral, the Fund first will pay the borrower the amount agreed 
upon, if any, and then, out of any remaining earnings, will pay the 
lending agent its pre-negotiated percentage.
    9. OpCo currently operates a ``match-book'' securities lending 
practice in which it borrows securities from one client and immediately 
lends those securities to another client. Advantage may, subject to 
obtaining the requested relief, recommend to a Fund's board of 
directors that OpCo serve as lending agent to the Fund. OpCo believes 
that it can provide lending agent services to each Fund in an efficient 
and profitable manner, and in a manner comparable to that of other 
potential lending agents.
    10. Applicants believe that, absent exemptive relief, OpCo may be 
prohibited by section 17(d) of the Act and rule 17d-1 thereunder from 
receiving lending agent fees based upon a share of the profits derived 
from the Fund's securities lending program. Applicants propose that, if 
the board of directors of a Fund determines that OpCo should act as the 
Fund's lending agent, the fund will adopt the following procedures to 
ensure that the fee arrangement and other terms governing the 
relationship between the Fund and OpCo will be fair:
    a. In connection with the initial approval of OpCo as lending agent 
to the Fund, a majority of the board of directors of the Fund 
(including a majority of the directors who are not ``interested 
persons'' as defined in section 2(a)(19) of the Act) will determine 
that (1) the contract with OpCo is in the best interests of the Fund 
and its shareholders; (2) the services to be performed by OpCo are 
required by the Fund; (3) the nature and quality of the services 
provided by OpCo are at least equal to those provided by others 
offering the same or similar services; and (4) the fees for OpCo's 
services are fair and reasonable in light of the usual and customary 
charges imposed by others for services of the same nature and quality.
    b. Each Fund's contract with OpCo for lending agent services will 
be reviewed annually and will be approved for continuation only if a 
majority of the board of directors of each Fund (including a majority 
of the directors who are not interested persons) makes the 
determinations referred to above.
    c. In connection with the initial approval of OpCo as lending agent 
to a Fund, the board of directors of the Fund will obtain competing 
quotes regarding lending agent fees from at least three independent 
lending agents to assist the board of directors in making the 
determinations referred to above.
    d. The board of directors of each Fund, including a majority of the 
directors who are not interested persons, will (1) determine at each 
quarterly meeting that the loan transactions during the prior quarter 
were effected in compliance with the conditions and procedures set 
forth herein, and (2) review no less frequently than annually the 
conditions and procedures set forth herein for continuing 
appropriateness.
    e. Each Fund will (1) maintain and preserve permanently in an 
easily accessible place a written copy of the conditions and procedures 
(and modifications thereto) described in the application or otherwise 
followed in connection with lending securities, and (2) maintain and 
preserve for a period not less than six years from the end of the 
fiscal year in which any loan transaction occurred, the first two years 
in an easily accessible place, a written record of each such loan 
transaction setting forth a description of the security loaned, the 
identity of the person on the other side of the loan transaction, the 
terms of the loan transaction, and the information or materials upon 
which the determination was made that each

[[Page 16660]]

loan was in accordance with the procedures set forth above and the 
conditions to the application.

Applicants' Legal Analysis

    1. Section 2(a)(3) of the Act defines an affiliated person of an 
investment company to include any investment adviser of the investment 
company and any person directly or indirectly controlling, or under 
common control with, such investment adviser. Under section 2(a)(3), 
OpCo, which owns all of the outstanding stock of Advantage, is an 
affiliated person of Advantage. Since Advantage is an affiliated person 
of each Fund by virtue of its position as an investment adviser of each 
Fund, OpCo may thereby be deemed an affiliated person of an affiliated 
person of each Fund. OpCo also may be deemed an affiliated person of 
the Czech Fund, for which OpCo Advisors (``OpCap'') serves as day-to-
day investment adviser, by virtue of the fact that OpCo and OPCap are 
under common control.
    2. Section 17(d) of the Act and rule 17d-1 thereunder make it 
unlawful for any affiliated person of a registered investment company, 
or any affiliated person of such person, acting as principal, to 
participate in or effect any transaction in connection with any joint 
enterprise or other joint arrangement or profit-sharing plan in which 
such investment company is a joint participant, unless an application 
regarding such joint enterprise or other joint arrangement or profit-
sharing plan has been filed with the SEC and has been granted by an 
order of the SEC. Rule 17d-1 provides that, in passing upon any such 
application, the SEC will consider whether the participation of such 
registered investment company in such joint enterprise or joint 
arrangement or profit-sharing plan is consistent with the provisions, 
policies and purposes of the Act, and the extent to which such 
participation is on a basis different from or less advantageous than 
that of the other participants. To the extent that OpCo's proposed 
activities as lending agent for the Funds in return for a share of the 
revenue generated thereby may be deemed a joint enterprise or profit 
sharing plan, applicants believe that such activities would be 
prohibited by section 17(d) and rule 17d-1.
    3. Applicants believe that the procedures to be adopted by each 
Fund with respect to the Fund's employment of OpCo as lending agent 
will ensure the fairness of the fee arrangement and other terms 
governing this relationship. Applicants state that the proposed 
conditions and procedures place reliance on the directors who are not 
interested persons of a Fund to determine that the lending arrangements 
are fair and reasonable and in the best interests of the Fund and its 
shareholders. Accordingly, applicants believe that the application 
satisfies the standards for relief set forth in rule 17d-1.

Applicants' Conditions

    Applicants agree that any order of the SEC granting the requested 
relief will be subject to the following conditions:
    1. No Fund may lend its portfolio securities to a borrower that is 
an affiliated person of the Fund, any adviser of the Fund, or OpCo, or 
to an affiliated person of any such person.
    2. Except as set forth herein, the securities lending program of 
each Fund will comply with all present and future applicable SEC staff 
positions regarding securities lending arrangements, i.e., with respect 
to the type and amount of collateral, voting of loaned securities, 
limitations on the percentage of portfolio securities on loan, 
prospectus disclosure, termination of loans, receipt of dividends or 
other distributions, and compliance with fundamental policies.\1\
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    \1\ See, e.g., SIFE Trust Fund (pub. avail. Feb. 17, 1982).
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    3. Approval of the board of directors of a Fund, including a 
majority of directors who are not ``interested persons'' under the Act, 
shall be required for the initial and subsequent approvals of OpCo's 
service as lending agent for the Fund, for the institution of all 
procedures relating to the securities lending program of the Fund, and 
for any periodic review of loan transactions for which OpCo acted as 
lending agent.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-9301 Filed 4-15-96; 8:45 am]
BILLING CODE 8010-01-M