[Federal Register Volume 63, Number 101 (Wednesday, May 27, 1998)]
[Notices]
[Pages 29046-29048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13959]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23192; 812-10596]
Stein Roe Income Trust, et al.; Notice of Application
May 19, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 17(d) of the
Investment Company Act of 1940 (the ``Act'') and rule 17d-1.
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SUMMARY OF THE APPLICATION: Applicants request an order to permit
certain registered investment companies to deposit uninvested cash
balances in a joint account to be used to enter into short-term
investments.
APPLICANTS: Stein Roe Income Trust, Stein Roe Investment Trust, Stein
Roe Municipal Trust, Stein Roe Institutional Trust, Stein Roe Advisor
Trust, Stein Roe Trust, SR&F Base Trust (each a ``Trust,'' and
collectively, the ``Trusts''), and Stein Roe & Farnham Incorporated
(the ``Adviser'').
FILING DATES: The application was filed on March 26, 1997 and amended
on August 5, 1997 and April 17, 1998.
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 June 15, 1998,
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 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Cameron S. Avery, Bell, Boyd & Lloyd, Three
First National Plaza, Suite 3300, Chicago, IL 60602.
FOR FURTHER INFORMATION CONTACT: Michael W. Mundt, Staff Attorney, at
(202) 942-0578, or Nadya B. Roytblat, Assistant Director, at (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, 450 Fifth Street, NW., Washington, DC
20549 (tel. 202-942-8090).
Applicant's Representations
1. Each Trust, other than SR&F Base Trust (``Base Trust''), is
organized as a business trust under the laws of Massachusetts. Base
Trust is organized as a common law trust under the laws of
Massachusetts. Each Trust is registered under the Act as an open-end
management investment company and has, or intends to have, multiple
series (``Funds''). Base Trust was organized so that its various series
could serve as master funds in a master-feeder structure. Currently,
each series of Stein Roe Advisor Trust, Stein Roe Institutional Trust,
Stein Roe Trust, Stein Roe Investment Trust (other than Stein Roe
Emerging Markets Fund and Stein Roe Capital Opportunities Fund), Stein
Roe Municipal Money Market Fund (a series of Stein Roe Municipal
Trust), and Stein Roe High Yield Fund (a series of Stein Roe Income
Trust) operate as feeder funds.
2. The Adviser, a wholly-owned indirect subsidiary of Liberty
Financial Companies, Inc., is registered as an investment adviser under
the Investment Advisers Act of 1940 and provides investment advisory
services to the respective series of the Base Trust and to each of the
Funds that are not feeder funds. The Adviser also provides
administrative, accounting and bookkeeping services to certain of the
Funds. The Adviser has discretion to purchase and sell securities for
each Fund in accordance with that Fund's investment objectives,
policies and restrictions.
3. Applicants request that any relief granted pursuant to the
application also apply to any other registered open-end management
investment company and series thereof for which the Adviser may serve
as investment adviser in the future (``Future Funds''). Any Future Fund
relying on the requested relief will do so only in compliance with the
terms and conditions of the application.
4. The assets of the Funds are held by State Street Bank and Trust
Company (``State Street''). On each trading day, some or all of the
Funds generally have uninvested cash balances in their accounts. Each
Fund is authorized to invest its uninvested cash assets in repurchase
agreements and certain short-term money market instruments. Currently,
such cash balance of each Fund is used on an individual basis to invest
in short-term instruments, including individual issues of commercial
paper or United States Government agency paper. Applicants assert that
these separate purchases result in certain inefficiencies that limit a
Fund's return on its cash balances. In addition, the assets of some
Funds are too small or become available too late on a given day to be
invested effectively on an individual basis.
5. Applicants propose to deposit all or a portion of their
uninvested cash balances into a single joint account (``Joint
Account'') to enter into one or more short-term investment
transactions, including repurchase agreements ``collateralized fully''
as defined in rule 2a-7 under the Act and other short-term money market
instruments that constitute ``eligible securities'' as defined in rule
2a-7 under the Act. All counterparties to repurchase agreements entered
into through the Joint Account are expected to be banks and broker-
dealers. Repurchase agreements will be entered into on a ``hold-in-
custody'' basis (i.e., repurchase agreements where the counterparty or
one of its affiliated persons may have possession of, or control over,
the collateral subject of the agreement) only where cash is received
very late in the business day and otherwise would be unavailable for
investment. Purchases of short-term money market instruments will be
made from dealers in the open market or directly from issuers and will
include investments in various taxable and tax-exempt short-term money
market instruments with overnight, over-the-weekend or over-the-holiday
maturities.
6. 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 interpretations of the staff of the
SEC. Applicants acknowledge that they have a continuing obligation to
monitor the SEC's published statements on repurchase agreements and
represent that the repurchase agreement transactions entered into
through a Joint Account will comply with future
[[Page 29047]]
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 any Joint
Account will comply with those guidelines.
7. The proposed Joint Account would not be distinguishable from any
other account maintained by State Street or a Fund, except that monies
from multiple Funds would be deposited on a commingled basis. The sole
function of the Joint Account would be to provide a convenient means of
aggregating what otherwise would be two or more daily transactions for
each Fund necessary to manage its respective daily uninvested cash
balance. Each Fund will participate in the Joint Account and in any
given investment made by the Joint Account on the same voluntary basis
as every other participant in the Joint Account and in conformity with
that Fund's investment objectives, policies and restrictions. If a tax-
exempt money market fund contributes cash to the Joint Account, the
cash will only be invested in securities that qualify for purchase by a
tax-exempt money market fund under rule 2a-7 as it may be amended from
time to time. Participants will not be required either to invest a
minimum amount or to maintain a minimum balance in the Joint Account.
Each participant will retain the sole ownership rights to any of its
assets invested in the Joint Account, including income payable on the
invested assets.
8. The applicants anticipate that, under certain circumstances, the
Joint Account may invest in more than one repurchase agreement or
short-term money market instrument on a given day and that, under such
circumstances, each participant in the Joint Account would not
necessarily have its cash invested in every repurchase agreement
entered into and/or short-term money market instrument purchased
through the Joint Account. Such a situation could occur for a variety
of reasons, including a Fund's investment restrictions, the
unavailability of a Fund's cash until after repurchase agreements have
been negotiated on a given day, or a Fund's determination to invest its
cash individually. The Adviser believes that no conflict of interest or
potential for favoring one Fund over another arises merely as a result
of the fact that the participating Funds may not always be allocated a
pro rata portion of every investment made through the Joint Account.
9. The Adviser will have no monetary participation in the Joint
Account, but will be responsible for investing assets in the Joint
Account, establishing accounting and control procedures, and fairly
allocating investment opportunities among the Funds. The recordkeeping
system for the proposed Joint Account will be substantively identical
to that which would be used if several joint accounts were established,
with each investing in only a specific type of instrument. Among other
recordkeeping and accounting control mechanisms, the Adviser will
document each participant's pro rata portion of each joint investment,
including investment amounts and the proportionate income to be
received by each participant.
Applicant's Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company, or an
affiliated person of such person, from participating in any joint
enterprise or other joint arrangement in which such investment company
is a participant, without an SEC order. Rule 17d-1 provides that in
passing upon such applications, the SEC may consider the extent to
which an entity's participation in a joint arrangement or enterprise is
on a basis different or less advantageous than that of other
participants.
2. The Funds, by participating in the Joint Account, and the
Adviser, by managing the Joint Account, 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 Account could be deemed to
be a ``joint enterprise or other joint arrangement'' within the meaning
of rule 17d-1 under the Act.
3. Applicants assert that participants in the Joint Account could
save significant amounts in yearly transaction fees by reducing the
total number of transactions, thereby increasing the rate of return on
investments. Because the Joint Account could invest larger amounts than
the individual Funds, the rate of return for investments in the Joint
Account may also be higher than could be negotiated by the Funds
individually. The existence of a Joint Account could increase the
number of dealers willing to enter into investment transactions with
the participants, enhancing flexibility in the management of cash
balances and reducing the possibility that any participant would have
an uninvested cash balance overnight. The use of a single Joint Account
could result in savings of the costs of establishing and maintaining
several different accounts. By reducing the number of trade tickets
that each repurchase agreement and/or short-term money market
instrument counterparty has to write, the Joint Account also could
simplify transactions and reduce opportunity for errors.
4. Applicants submit that the participation by the respective Funds
in the Joint Account would be consistent with the provisions, policies
and purposes of the Act, and would be on a basis that is no different
from or less advantageous than that of other participating Funds.
Although the Adviser might gain some benefit through administrative
convenience and possible reduction in clerical costs, the participating
Funds and their shareholders will be the primary beneficiaries of the
Joint Account because the Joint Account is likely to permit a greater
return on short-term investments.
Applicants' Conditions
Applicants will comply with the following as conditions to any
order granted by the SEC:
1. A separate Joint Account will be established with State Street.
Each Fund will be permitted to deposit its uninvested net cash balances
into the Joint Account on a daily basis. The Joint Account will not be
distinguishable from any other accounts maintained by the participants
except that monies will be deposited in the Joint Account on a
commingled basis. The Joint Account will not have a separate existence
and will not have any indicia of a separate legal entity. The sole
function of the Joint Account will be to provide a convenient way of
aggregating individual transactions which would otherwise require daily
management by the Adviser of uninvested cash balances.
2. Cash in the Joint Account will be invested by the Adviser in one
or more (a) repurchase agreements ``Collateralized Fully'' as defined
in rule 2a-7 under the Act, and/or (b) short-term money market
instruments that constitute ``Eligible Securities'' (as defined in rule
2a-7 under the Act) with overnight, over-the-weekend or over-the-
holiday maturities. Any repurchase agreements will have a remaining
maturity of 60 days or less and other short-term investments will have
a remaining maturity of 90 days or less, each as calculated in
accordance with rule 2a-7 under the Act.
3. All investments held by the Joint Account will be valued on an
amortized cost basis to the extent permitted by applicable SEC
releases, rules or orders.
4. Each participating Fund valuing its net assets in reliance upon
rule 2a-7
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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 the Fund's average
portfolio maturity with respect to the portion of its assets held in
the Joint Account for that day.
5. In order to ensure that there will be no opportunity for one
participant to use any part of a balance of the Joint Account credited
to another participant, no participant will be allowed to create a
negative balance in the Joint Account for any reason, although each
Fund will be permitted to draw down its entire balance at any time.
Each Fund's decision to invest in the Joint Account will be solely at
its option, and no Fund will be obligated either to invest in the Joint
Account or to maintain any minimum balance in the Joint Account. In
addition, each Fund will retain the sole rights of ownership to any of
its assets invested in the Joint Account, including interest payable on
such assets in the Joint Account.
6. Not every participant in the Joint Account will necessarily have
its cash invested in every short-term investment entered into through
the Joint Account. However, to the extent that a participant's cash is
applied to a particular short-term investment made through the Joint
Account, the participant will participate in and own a 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.
7. The Adviser will administer the investment of cash balances in
and operations of the Joint Account as part of its general duties under
its existing or any future investment advisory contracts will the Funds
and the Adviser will not collect any additional or separate fees from
any Fund for advising the Joint Account.
8. The administration of the Joint Account will be within the
fidelity bond coverage required by section 17(g) of the Act and rule
17g-1 thereunder.
9. The Board of Trustees of each Trust that has Funds and/or Future
Funds participating in the Joint Account will adopt procedures pursuant
to which the Joint Account will operate, which will be reasonably
designed to provide that the requirements of this application will be
met. The Board of Trustees of each Trust that has Funds and/or Future
Funds participating in the Joint Account will make and approve such
changes as each deems necessary to ensure that such procedures are
followed. In addition, each of such Board of Trustees will determine,
no less frequently than annually, that the Joint Account has been
operated in accordance with the proposed procedures and will permit
continued participation by those Funds in the Joint Account only if it
determines that there is a reasonable likelihood that the Fund and its
shareholders will benefit from the Joint Account.
10. Any short-term investments made through the Joint Account will
satisfy the investment criteria of all participants in that investment.
11. The Adviser and State Street will maintain records documenting,
for any given day, each participant's aggregate investment in the Joint
Account and its pro rata share of each investment made through the
Joint Account. The records will be maintained in conformity with
section 31 of the Act and the rules and regulations thereunder.
12. Short-term investments held in the Joint Account generally will
not be sold prior to maturity unless: (a) The Adviser 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 downgrading or otherwise; or (c) in the case of a
repurchase agreement, the counterparty defaults. The Adviser 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 transactions will not adversely affect
other participants participating in the 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 the Joint Account or otherwise adversely affect the
other participants. Each participant in the 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 the Joint Account with a
remaining maturity of more than seven days, as calculated pursuant to
rule 2a-7 under the Act, would be considered illiquid and would be
subject to the restriction that a Fund may not invest more than 15% or,
in the case of a money market fund, more than 10% (or, in either such
case, such other percentage as set forth by the SEC from time to time)
of its net assets in illiquid securities, if the Adviser cannot sell
the instruments, or the Fund's fractional interest in such instrument,
pursuant to the preceding condition.
14. Future Funds will be permitted to participate in the Joint
Account arrangement only on the same terms and conditions as the Funds
have set forth herein.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-13959 Filed 5-26-98; 8:45 am]
BILLING CODE 8010-01-M