[Federal Register Volume 61, Number 124 (Wednesday, June 26, 1996)]
[Notices]
[Pages 33151-33153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16290]



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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22034; 812-9998]


Qualivest Funds, et al.; Notice of Application

June 20, 1996.
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: Qualivest Funds (the ``Trust'') and Qualivest Capital 
Management, Inc. (``QCMI'').

RELEVANT ACT SECTION: Order requested under section 17(d) of the Act 
and rule 17d-1 thereunder.

SUMMARY OF APPLICATION: Applicants request an order to permit certain 
investment companies to deposit their uninvested cash balances in one 
or more joint accounts to be used to enter into short-term investments.

FILING DATES: The application was filed on February 20, 1996, and 
amended on May 17, 1996. Applicants agree to file an additional 
amendment, the substance of which is incorporated herein, during the 
notice period.

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 July 15, 1996, 
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 notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicants: the Trust, 3435 Stelzer Road, Columbus, Ohio 43219; 
QCMI, P.O. Box 2758, 111 S.W. Fifth Avenue, Portland, Oregon 97208.

FOR FURTHER INFORMATION CONTACT: Sarah A. Buescher, Staff Attorney, at 
(202) 942-0573, or Robert A. Robertson, Branch Chief, (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. The Trust, organized as a Massachusetts business trust, is an 
open-end management investment company currently comprised of eleven 
series (the ``Funds''). QCMI serves as investment adviser to the Trust, 
and is an affiliate of U.S. Bank, a wholly-owned subsidiary of U.S. 
Bancorp. BISYS Fund Services, a division of the BISYS Group, Inc., acts 
as administrator for each Fund of the Trust, and acts as the Trust's 
principal underwriter and distributor.
    2. The assets of the Funds of the Trust, except for Qualivest 
International Opportunities Fund are held by U.S. National Bank of 
Oregon as custodian. The assets of Qualivest International 
Opportunities Fund are held by The Bank of New York. Applicants request 
that any relief granted pursuant to the application also apply to any 
future

[[Page 33152]]

Funds that are advised by QCMI, or any entity controlling, controlled 
by, or under common control with QCMI.
    3. At the end of each trading day, the Funds have uninvested cash 
balances in their accounts at their respective custodian banks that 
would not otherwise be invested in portfolio securities by QCMI. 
Generally such cash balances are invested in short-term liquid assets 
such as repurchase agreements, commercial paper, or U.S. Treasury 
bills.
    4. Applicants propose to deposit uninvested cash balances of the 
Funds that remain at the end of the trading day, as well as cash for 
investment purposes, into one or more joint accounts (the ``Joint 
Accounts'') and to invest the daily balance of the Joint Accounts in: 
(a) repurchase agreements ``collateralized fully'' (as defined in rule 
2a-7 under the Act); (b) interest-bearing or discounted commercial 
paper, including dollar denominated commercial paper of foreign 
issuers; and (c) any other short-term taxable or tax-exempt money 
market instruments, including variable rate demand notes, that 
constitute ``Eligible Securities'' (as defined in rule 2a-7 under the 
Act) (collectively, ``Short-Term Investments''). The Funds that are 
eligible to participate in a Joint Account and that elect to 
participate in such Account are collectively referred to as 
``Participants.''
    5. Applicants propose to enter into hold-in-custody repurchase 
agreements, i.e., repurchase agreements where the counterparty or one 
of its affiliated persons may have possession of, or control over, the 
collateral subject to the agreement, only where cash is received very 
late in the business day and otherwise would be unavailable for 
investment.
    6. A Participant's decision to use a Joint Account would be based 
on the same factors as its decision to make any other short-term liquid 
investment. The sole purpose of the Joint Accounts would be to provide 
a convenient means of aggregating what otherwise would be one or more 
daily transactions for some or all Participants necessary to manage 
their respective daily account balances.
    7. QCMI would be responsible for investing funds held by the Joint 
Accounts, establishing accounting and control procedures, and ensuring 
fair treatment of Participants. QCMI will manage investments in the 
Joint Accounts in essentially the same manner as if it had invested in 
such instruments on an individual basis for each Participant.
    8. Any repurchase agreements entered into through the Joint Account 
will comply with the terms of Investment Company Act Release No. 13005 
(February 2, 1983). Applicants acknowledge that they have a continuing 
obligation to monitor the SEC's published statements on repurchase 
agreements, and represent that repurchase agreement transactions will 
comply with future positions of the SEC to the extent that such 
positions set forth different or additional requirements regarding 
repurchase agreements. In the event that the SEC sets forth guidelines 
with respect to other Short-Term Investments, all such investments made 
through the Joint Account will comply with those guidelines.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 thereunder prohibit an 
affiliated person of a registered investment company from participating 
in any joint enterprise or arrangement in which such investment company 
is a participant, without an SEC order.
    2. The Participants, by participating in the proposed Joint 
Accounts, and QCMI, by managing the proposed Joint Accounts, could be 
deemed to be ``joint participants'' in a transaction within the meaning 
of section 17(d) of the Act. In addition, the proposed Joint Accounts 
could be deemed to be a ``joint enterprise or other joint arrangement'' 
within the mean of rule 17d-1.
    3. Although QCMI will realize some benefits through administrative 
convenience and some possible reduction in clerical costs, the 
Participants will be the primary beneficiaries of the Joint Accounts 
because the Account may result in higher returns and would be a more 
efficient means of administering daily cash investments.
    4. Participants may earn a higher rate of return on investments 
through the Joint Accounts relative to the returns they could earn 
individually. Under most market conditions, it is generally possible to 
negotiate a rate of return on larger repurchase agreements and other 
Short-Term Investments that is higher than the rate available on 
smaller repurchase agreements and other Short-Term Investments. The 
Joint Accounts also may increase the number of dealers and issuers 
willing to enter into Short-Term Investments with the Participants and 
may reduce the possibility that their cash balances remain uninvested.
    5. The Joint Accounts may result in certain administrative 
efficiencies and a reduction of the potential for errors by reducing 
the number of trade tickets and cash wires that must be processed by 
the sellers of Short-Term Investments, the Participants' custodians, 
and QCMI's accounting and trading departments. For the reasons set 
forth above, applicants believe that granting the requested order is 
consistent with the provisions, policies, and purposes of the Act and 
the intention of rule 17d-1.

Applicants' Conditions

    Applicants will comply with the following as conditions to any 
order granted by the SEC:
    1. The Joint Accounts will not be distinguishable from any other 
accounts maintained by Participants at their custodians except that 
monies from Participants will be deposited in the Joint Account on a 
commingled basis. The Joint Accounts will not have a separate existence 
and will not have indicia of a separate legal entity. 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 QCMI of uninvested cash balances.
    2. Cash in the Joint Accounts will be invested in one or more of 
the following, as directed by QCMI: (a) repurchase agreements 
``collateralized fully'' as defined in rule 2a-7 under the Act; (b) 
interest-bearing or discounted commercial paper, including dollar 
denominated commercial paper of foreign issuers; and (c) any other 
short-term taxable and tax-exempt money market instruments, including 
variable rate demand notes, that constitute ``Eligible Securities'' (as 
defined in rule 2a-7 under the Act) (defined as ``Short-Term 
Investments''). Short-Term Investments that are repurchase agreements 
would have a remaining maturity of 60 days or less and other Short-Term 
Investments would have a remaining maturity of 90 days or less, each as 
calculated in accordance with rule 2a-7 under the Act. No Participant 
would be permitted to invest in a Joint Account unless the Short-Term 
Investments in such Joint Accounts satisfied the investment policies 
and guidelines of that Participant.
    3. All assets held in the Joint Accounts would be valued on an 
amortized cost basis to the extent permitted by applicant SEC releases, 
rules or orders.
    4. Each Participant valuing its net assets in reliance on rule 2a-7 
under the Act will use the average maturity of the instruments in the 
Joint Account in which such Participant has an interest (determined on 
a dollar weighted basis) for the purpose of computing its average 
portfolio maturity with respect to its

[[Page 33153]]

portion of the assets held in a Joint Account on that day.
    5. In order to assure that there will be no opportunity for any 
Participant to use any part of a balance of a Joint Account credited to 
another Participant, no Participant will be allowed to create a 
negative balance in any Joint Account for any reason, although each 
Participant would be permitted to draw down its entire balance at any 
time. Each Participant's decision to invest in a Joint Account would be 
solely at its option, and no Participant will be obligated to invest in 
the Joint Account or to maintain any minimum balance in the Joint 
Account. In addition, each Participant will retain the sole rights of 
ownership to any of its assets invested in the Joint Account, including 
interest payable on such assets invested in the Joint Account.
    6. QCMI would administer the investment of cash balances in and 
operation of the Joint Accounts as part of its general duties under its 
advisory agreements with Participants and will not collect any 
additional or separate fees for advising any Joint Account.
    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 (each a ``Board'' 
and collectively the ``Boards'') will adopt procedures pursuant to 
which the Joint Accounts will operate, which will be reasonably 
designed to provide that the requirements of this application will be 
met. Each of the Boards will make and approve such changes as they deem 
necessary to ensure that such procedures are followed. In addition, the 
Boards of each Fund will determine, no less frequently than annually, 
that the Joint Accounts have been operated in accordance with the 
proposed procedures and will only permit a Fund to continue to 
participate therein if it determines that there is a reasonable 
likelihood that the Fund and its shareholders will benefit from the 
Fund's continued participation.
    9. Any Short-Term Investments made through the Joint Accounts will 
satisfy the investment criteria of all Participants in that investment.
    10. QCMI and the custodian of each Participant will maintain 
records documenting, for any given day, each Participant's aggregate 
investment in a Joint Account and each Participant's pro rata share of 
each investment made through such Joint Account. The records maintained 
for each Participant shall be maintained in conformity with section 31 
of the Act and the rules and regulations thereunder.
    11. Every Participant in the Joint Accounts will not necessarily 
have its cash invested in every Short-Term Investment. However, to the 
extent that a Participant's cash is applied to a particular Short-Term 
Investment, the Participant will participate in and own its 
proportionate share of such Short-Term Investment, and any income 
earned or accrued thereon, based upon the percentage of such investment 
purchased with monies contributed by the Participant.
    12. Short-Term Investments held in a Joint Account generally will 
not be sold prior to maturity except if: (a) QCMI believes the 
investment no longer presents minimal credit risks; (b) the investment 
no longer satisfies the investment criteria of all Participants in the 
investment because of a downgrading or otherwise; or (c) in the case of 
a repurchase agreement, the counterparty defaults. QCMI may, however, 
sell any Short-Term Investment (or any fractional portion thereof) on 
behalf of some or all Participants prior to the maturity of the 
investment if the cost of such transactions will be borne solely by the 
selling Participants and the transaction will not adversely affect 
other Participants participating in that Joint Account. In no case 
would an early termination by less than all Participants be permitted 
if it would reduce the principal amount or yield received by other 
Participants in a particular Joint Account or otherwise adversely 
affect the other Participants. Each Participant in a Joint Account will 
be deemed to have consented to such sale and partition of the 
investments in the Joint Account.
    13. Short-Term Investments held through a Joint Account with a 
remaining maturity of more than seven days, as calculated pursuant to 
rule 2a-7 under the Act, will be considered illiquid and, for any 
Participant that is an open-end 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 QCMI cannot sell the 
instrument, or the Fund's fractional interest in such instrument, 
pursuant to the preceding condition.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16290 Filed 6-25-96; 8:45 am]
BILLING CODE 8010-01-M