[Federal Register Volume 61, Number 162 (Tuesday, August 20, 1996)]
[Notices]
[Pages 43100-43102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21111]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22134; 812-10076]
Transamerica Investors, Inc. and Transamerica Investment
Services, Inc.; Notice of Application
August 13, 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: Transamerica Investors, Inc. and Transamerica Investment
Services, Inc.
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 repurchase agreements.
FILING DATE: The application was filed on April 5, 1996 and amended on
July 17, 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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on September 9,
1996, and should be accompanied by proof of service on the 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
[[Page 43101]]
request, and the issues contested. Persons may request notification of
a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, Transamerica Center, 1150 South Olive, Los Angeles,
CA 90015-2211.
FOR FURTHER INFORMATION CONTACT: Mary T. Geffroy, Staff Attorney, at
(202) 942-0553, or Mercer E. Bullard, 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. Transamerica Investors, Inc. (``TII''), a Maryland corporation,
is registered under the Act as an open-end management investment
company of the series type. TII currently consists of six series.
Transamerica Investment Services, Inc. (``TIS''), the investment
adviser to each series of TII, is a Delaware corporation and is
registered with the Commission as an investment adviser under the
Investment Advisers Act of 1940. TIS is a wholly-owned subsidiary of
Transamerica Corporation. State Street Bank & Trust Company provides
custodial services for TII, and Transamerica Occidental Life Insurance
Company acts as TII's administrator.
2. Applicants request that any relief granted pursuant to the
application apply to any existing or future series of TII, and any
other registered investment companies or series thereof that now or in
the future are advised or subadvised by TIS or any entity controlling,
controlled by, or under common control with TIS (collectively with TII,
the ``Funds''). All Funds that currently intend to rely upon the
requested order are named as applicants. Three additional registered
investment companies, Transamerica Income Shares, Inc. and Transamerica
Occidental's Separate Account Funds B and C, that currently do not
intend to rely upon the requested relief, in the future, may rely upon
the order in accordance with the terms and conditions contained in the
application.
3. At the end of each trading day, applicants expect that some or
all of the Funds will have uninvested cash balances in their respective
custodian banks that would not otherwise be invested in portfolio
securities by TIS. Currently, such cash balances may be invested in
repurchase agreements separately on behalf of each Fund.
4. Applicants propose to deposit some or all of the uninvested cash
balances of the Funds remaining at the end of each trading day into one
or more joint accounts (``Joint Accounts'') and to invest the daily
balance of the Joint Accounts in repurchase agreements having
maturities of 7 days or less that are collateralized fully as defined
in rule 2a-7 under the Act (``Short-Term Repurchase Agreements''), as
authorized by the investment policies of the Funds.
5. A Fund's decision to use a Joint Account will be based upon the
same factors as its decision to make any other short-term liquid
investment. The Joint Accounts would only be used to aggregate what
otherwise would be one or more daily individual transactions necessary
for the management of each of the Funds' daily uninvested cash balance.
6. TIS will not participate as an investor in the Joint Account.
TIS will be responsible for investing funds held by the Joint Accounts,
establishing accounting and control procedures, and ensuring the fair
and equitable treatment of the Funds.
7. Any repurchase agreements entered into through the Joint
Accounts will comply with the terms of Investment Company Act Release
No. 13005 (February 2, 1983) and any other existing and future
positions taken by the Commission or its staff by rule, release,
letter, or otherwise, relating to repurchase agreement transactions.
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.
Applicants' Legal Analysis
1. Section 17(d) of the Act makes it unlawful for an affiliated
person of a registered investment company, acting as principal, to
effect any transaction in which the registered investment company is a
joint or a joint and several participant with such person in
contravention of rules and regulations proscribed by the SEC. Rule 17d-
1(a) under the Act provides that an affiliated person of a registered
investment company, acting as principal, shall not participate in, or
effect any transaction in connection with, any joint enterprise or
other joint arrangement in which the registered investment company is a
participant unless the SEC has issued an order approving the
arrangement.
2. The Funds, by participating in the Joint Accounts, and TIS, by
managing the Joint Accounts, could be deemed to be ``joint
participants'' in a transaction within the meaning of section 17(d). In
addition, the proposed Joint Accounts could be deemed to be a ``joint
enterprise or other joint arrangement'' within the meaning of rule 17d-
1.
3. Applicants believe that no Fund will be in a less favorable
position as a result of the Joint Accounts. Applicants believe that a
Fund's investment in the Joint Account will not be subject to the
claims of creditors, whether brought in bankruptcy, insolvency or other
legal proceedings, or of any other participant Fund in the Joint
Account. Applicants further believe that each Fund's liability on any
Short-Term Repurchase Agreement will be limited to its interest in such
investment; no Fund will be jointly liable for the investments of any
other Fund.
4. Applicants believe that the Joint Accounts could result in
certain benefits to the Funds. For example, the Funds 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 possible to negotiate a rate of return on larger repurchase
agreements that is higher than the rate on smaller repurchase
agreements.
5. The Joint Accounts also may reduce the potential for errors by
reducing the number of trade tickets and cash wires that must be
processed by the sellers of Short-Term Repurchase Agreements and by the
Funds' custodians and accountants.
6. For the reasons set forth above, applicants believe that
granting the requested order is consistent with the protection of
investors and the purposes fairly intended by the policies and
provisions of the Act and the finding required by rule 17d-1.
Applicants' Conditions
Applicants will comply with the following procedures as conditions
to any SEC order:
1. The Joint Accounts would consist of one or more separate cash
accounts established at a custodian bank. A Joint Account may be
established at more than one custodian bank and more than one Joint
Account may be established at any custodian bank. A Fund may transfer a
portion of its daily cash balances to more than one Joint Account.
After the calculation of its daily cash balance and at the direction of
TIS, each Fund would transfer into one or more Joint Accounts the cash
it
[[Page 43102]]
intends to invest through the Joint Accounts. Each Fund whose regular
custodian is a custodian other than the bank at which a proposed Joint
Account would be maintained and that wishes to participate in the Joint
Account would appoint the latter bank as a sub-custodian for the
limited purposes of: (1) receiving and disbursing cash; (2) holding any
Short-Term Repurchase Agreements; and (3) holding any collateral
received from a transaction effected through the Joint Account. All
Funds that appoint such sub-custodians will have taken all necessary
actions to authorize such bank as their legal custodian, including all
actions required under the Act.
2. The Joint Accounts will not be distinguishable from any other
accounts maintained by the Funds at their custodians except that monies
from the Funds will be deposited in the Joint Account on a commingled
basis. The Joint Accounts will not have a separate existence and will
not have any indicia of a separate legal entity. The Joint Accounts
will only be used to aggregate individual transactions necessary for
the management of each Fund's daily uninvested cash balance.
3. Cash in the Joint Accounts will be invested in one or more
repurchase agreements with maturities of 7 days or less that are
collateralized fully as defined in rule 2a-7 under the Act, and that
satisfy the uniform standards set by the Funds for such investments.
The securities subject to the repurchase agreement will be transferred
to a Joint Account and they will not be held by the Fund's repurchase
counterparty or by an affiliated person of that counterparty.
4. Each Fund would participate in a Joint Account on the same basis
as every other Fund in conformity with its respective fundamental
investment objectives, policies, and restrictions. Any future Funds
that participate in the Joint Account would be required to do so on the
same terms and conditions as the existing Funds.
5. Each Fund's investment in a Joint Account will be documented
daily on the books of each Fund and the books of its custodian. Each
Fund, through its investment adviser and/or custodian, will maintain
records (in conformity with Section 31 of the Act and rules thereunder)
documenting for any given day, the Fund's aggregate investment in a
Joint Account and its pro rata share of each Short-Term Repurchase
Agreement made through such Joint Account.
6. All assets held by a Joint Account would be valued on an
amortized cost basis to the extent permitted by applicable Commission
releases, rules, letters, or orders.
7. Each Fund valuing its net assets based on amortized cost in
reliance upon rule 2a-7 under the Act will use the average maturity of
the instrument(s) in the Joint Accounts in which such Fund has an
interest (determined on a dollar-weighted basis) for the purpose of
computing its average portfolio maturity with respect to the portion of
its assets held in a Joint Account on that day.
8. Not every Fund participating in the Joint Accounts will
necessarily have its cash invested in every Short-Term Repurchase
Agreement. However, to the extent a Fund's cash is applied to a
particular Short-Term Repurchase Agreement, the Fund will participate
in and own its proportionate share of such Short-Term Repurchase
Agreement, and any income earned or accrued thereon, based upon the
percentage of such investment purchased with amounts contributed by
such Fund.
9. 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 any Joint Account
for any reason. Each Fund would be permitted to draw down its entire
balance at any time, provided TIS determines that such draw down would
have no significant adverse impact on any other Fund participating in
the Joint Account. 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 the Joint Accounts or to maintain any minimum balance in the
Joint Accounts. In addition, each Fund will retain the sole rights of
ownership of any of its assets, including interest payable on such
assets, invested in the Joint Accounts.
10. TIS will administer, manage, and invest the cash balance in the
Joint Accounts in accordance with and as part of its duties under
existing, or any future, investment advisory contracts or subadvisory
contracts with each Fund. TIS will not collect any additional or
separate fee for advising or managing any Joint Account.
11. The administration of the Joint Accounts will be within the
fidelity bond coverage maintained for the Funds as required by section
17(g) of the Act and rule 17g-1 thereunder.
12. The Board of Directors of the Funds participating in the Joint
Account will adopt procedures pursuant to which the Joint Accounts will
operate and which will be reasonably designed to provide that the
requirements set forth in the application are met. The Board will make
and approve such changes that they deem necessary to ensure that such
procedures are followed. In addition, the Board will determine, no less
frequently than annually, that the Joint Accounts have been operated in
accordance with the proposed procedures, and will permit a Fund to
continue to participate therein only if it determines that there is a
reasonable likelihood that the Fund and its shareholders will benefit
from the Fund's continued participation.
13. Investments held in a Joint Account generally will not be sold
prior to maturity except: (a) if the adviser believes that the
investment no longer presents minimal credit risk; (b) if, as a result
of a credit downgrading or otherwise, the investment no longer
satisfies the investment criteria of all Funds participating in the
investment; or (c) 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.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-21111 Filed 8-19-96; 8:45 am]
BILLING CODE 8010-01-M