[Federal Register Volume 64, Number 31 (Wednesday, February 17, 1999)]
[Notices]
[Pages 7923-7928]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3774]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23688; 812-11134]
The Infinity Mutual Funds, Inc., et al.; Notice of Application
February 10, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under sections 6(c) and
17(b) of the Investment Company Act of 1940 (the ``Act'') granting an
exemption from section 17(a) and under section 17(d) of the Act and
rule 17d-1 under the Act to permit certain joint transactions.
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Summary of Application: Applicants seek an order to permit certain
registered investment companies (a) to pay BISYS Fund Services Limited
Partnership (``BISYS'') and certain of its affiliated persons fees for
acting as lending agent with respect to a securities lending program
(``Program''); (b) to lend portfolio securities to affiliated broker-
dealers; (c) to deposit the cash collateral received in connection with
the Program and other uninvested cash in one or more joint trading
accounts; and (d) to use cash collateral received in connection with
the Program to purchase shares of affiliated private investment
company, the BISYS Securities Lending Trust (the ``Trust'').
Applicants: The Infinity Mutual Funds, Inc. (the ``Fund''), BISYS,
BISYS Fund Services Ohio, Inc. (``BISYS Ohio''), the Trust, and First
American National Bank (``First American'').
Filing Dates: The application was filed on May 5, 1998. Applicants
have agreed to file an amendment, the substance of which is reflected
in this notice, 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 March 8,
1999, and should be accompanied by proof of service on the 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, NW, Washington, DC 20549.
The Fund, the Trust, BISYS Ohio, and BISYS, 3435 Stelzer Road,
Columbus, Ohio 43219-3035. First American, 315 Deaderick Street,
Nashville, Tennessee 37237.
FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Senior Counsel, at
(202) 942-0572, or Christine Y. Greenlees, 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 is available for a fee at the
SEC's Public Reference Branch, 450 5th Street, NW, Washington, DC 20549
(telephone (202) 942-8090).
Applicants' Representations
1. The Fund, a Maryland corporation, is an open-end management
investment company registered under the Act and consists of twenty-five
separate series (the ``Portfolios''). Twenty-three of the Portfolios
are advised by First American. BISYS serves as each Portfolio's
administrator and distributor and BISYS Ohio serves as each Portfolio's
transfer and dividend disbursing agent and full accountant. BISYS and
BISYS Ohio are wholly-owned subsidiaries of The BISYS Group, Inc.
2. The Trust is a Massachusetts business trust and will initially
consist of two portfolios (each an ``Investment Fund'') advised by the
Adviser (defined below). Each Investment Fund will value its securities
based on the amortized cost method and comply with rule 2a-7 under the
Act.
3. Trust shares will be offered to the Lending Funds and other
participants in the Program in reliance on the exemption provided by
Regulation D under the Securities Act of 1933. The Trust intends to
operate as a private investment company excluded from the definition of
``investment company'' pursuant to section 3(c)(1) or (7) of the Act.
Shares in the Trust will have no voting rights and may not be
transferred without the consent of the trustee. BISYS will be the sole
trustee (``Trustee'') and will oversee the Trust's operations and also
will provide accounting and administrative services to the Trust. BISYS
and the Adviser will be compensated by the Trust for their services.
Trust shares will not be subject to any sales load, redemption fee,
asset-based sales charge or service fee.
4. Applicants request that relief be extended to (a) any registered
investment company or series of a registered investment company for
which BISYS, or any person controlling, controlled by or under common
control with BISYS, now or in the future serves as principal
underwriter, administrator, or distributor and for which First American
or any person controlling, controlled by, or under common control with
First American (each, an ``Adviser'') now or in the future serves as
investment adviser (collectively with the Fund, the ``Funds''); (b)
BISYS and any person controlling, controlled by or under common control
with BISYS, including registered broker-dealers that are controlling,
controlled by or under common control with BISYS (the ``Affiliated
Broker-Dealers''); and (c) the Trust and any other private investment
company organized by BISYS or any person controlling, controlled by, or
under common control with BISYS and advised by an Adviser (any future
private investment companies are also the ``Trust'' and their series
the ``Investment Funds'').\1\
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\1\ All existing entities that currently intend to rely on the
requested relief have been named as applicants. Any existing and
future entity may rely on the order in the future only in accordance
with the terms and conditions in the application.
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5. Several of the Portfolios currently participate in the Program
administered by BISYS Ohio. Each Fund that participates in the Program
(``Lending Fund'') will be permitted to lend its portfolio securities,
and its prospectus will disclose that it may engage in portfolio
securities lending. Currently, BISYS Ohio provides administrative
services in connection with the Program and engages an independent
third-party to act as securities lending agent for the Lending Funds.
In the future, BISYS Ohio may act as securities lending agent
[[Page 7924]]
(collectively with the third-party lending agents, the ``Lending
Agent'').
6. Under the Program, the Lending Agent enters into agreements with
borrowers (``Borrowers'') to lend them portfolio securities of the Fund
(``Securities Loan Agreements''). Pursuant to the Securities Loan
Agreements, the Lending Agent delivers Lending Fund's portfolio
securities to Borrowers in exchange for cash collateral or other types
of collateral, such as U.S. government securities. Cash collateral is
delivered in connection with most loans. The Lending Agent invests the
cash collateral on behalf of the Lending Funds in accordance with
specific parameters set forth in the Securities Loan Agreements. These
guidelines include permissible investment of the cash collateral as
well as a list of eligible types of investments.
7. With respect to securities loans that are collateralized by
cash, the Borrower is entitled to receive a fixed cash collateral fee
based on the amount of cash held as collateral. The Lending Fund in
this case is compensated on the spread between the net amount earned on
the investment of the cash collateral and the Borrower's cash
collateral fee. In the case of collateral that is other than cash, the
Lending Fund receives a loan fee paid by the Borrower equal to a
percentage of the market value of the loaned securities as specified in
the Securities Loan Agreement.
8. The applicants request relief to permit: (a) the Funds to pay
and BISYS Ohio or any person controlling, controlled, or under common
control with BISYS, to accept fees based on a share of the proceeds
derived by the Funds from their securities lending transactions, for
services as Lending Agent; (b) the Funds to deposit cash collateral
received in connection with their securities lending activities and
other uninvested cash \2\ in one or more joint trading accounts or
subaccounts (the ``Joint Accounts''); (c) the Funds to use some or all
of the cash collateral received in connection with their securities
lending activities to purchase shares of the Trust and the Trust to
redeem shares from the Funds; and (d) the Funds to lend portfolio
securities to Affiliated Broker-Dealers.
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\2\ Uninvested cash may occur in connection with a Fund
maintaining cash reserves to meet redemption requests or as a result
of late day purchases by shareholders.
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Applicants' Legal Analysis
A. Payment of Fees by Lending Funds to BISYS Ohio
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person of or principal underwriter for a registered
investment company or any affiliated person of such person or principal
underwriter, acting as principal, from effecting any transaction in
connection with any joint enterprise or other joint arrangement or
profit sharing plan, in which the investment company participates.
Section 2(a)3 of the Act defines an affiliated person to include any
person directly or indirectly controlling, controlled by, or under
common control with, the other person. Because BISYS Ohio and BISYS
(the Funds' principal underwriter) are each wholly-owned subsidiaries
of The BISYS Group, Inc., they may be deemed to be under ``common
control'' and therefore affiliated persons, and BISYS Ohio may be
deemed an affiliated person of the principal underwriter for each
Lending Fund. Accordingly, applicants request an order under section
17(d) and rule 17d-1 under the Act to the extent necessary to permit
each Lending Fund to pay and BISYS Ohio, or any other person
controlling, controlled by, or under common control with BISYS, to
accept fees that are based on a share of the proceeds derived by the
Funds in connection with services provided as Lending Agent.
2. Rules 17d-1 permits the SEC to approve a proposed joint
transaction covered by the terms of section 17(d). In determining
whether to approve a transaction, the SEC is to consider whether the
proposed transaction is consistent with the provisions, policies, and
purposes of the Act, and the extent to which the participation of the
investment companies is on a basis different from or less advantageous
than that of the other participants.
3. Applicants propose that each Lending Fund adopt the following
procedures to ensure that the proposed fee arrangement and the other
terms governing the relationship with BISYS Ohio, as Lending Agent,
will meet the standards of rule 17d-1:
(a) In connection with the approval of BISYS Ohio as lending agent
for a Lending Fund and implementation of the proposed fee arrangement,
a majority of the board of directors (the ``Board'') (including a
majority of the directors who are not ``interested persons'' within the
meaning of the Act (the ``Disinterested Directors'') of the Lending
Fund will determine that (i) the contract with BISYS Ohio is the best
interests of the Lending Fund and its shareholders; (ii) the services
to be performed by BISYS Ohio are appropriate for the Lending Fund;
(iii) the nature and quality of the services provided by BISYS Ohio are
at least equal to those offered and provided by others; and (iv) the
fees for BISYS Ohio'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 Lending Fund's contract with BISYS Ohio for lending agent
services will be reviewed annually and will be approved for
continuation only if a majority of the Board (including a majority of
the Disinterested Directors) makes the findings referred to in
paragraph (a) above.
(c) In connection with the initial implementation of the proposed
fee arrangement whereby BISYS Ohio will be compensated as lending agent
based on a percentage of the revenue generated by a Lending Fund's
participation in the Program, the Board will obtain competing quotes
with respect to lending agent fees from at least three independent
lending agents to assist the Board in making the findings referred to
in paragraph (a) above.
(d) The Board, including a majority of the Disinterested Directors,
will (i) determine at each regular quarterly meeting that the loan
transactions during the prior quarter were effected in compliance with
the conditions and procedures set forth in the application and (ii)
review no less frequently than annually the conditions and procedures
for continuing appropriateness.
(e) Each Lending Fund will (i) maintain and preserve permanently in
an easily accessible place a written copy of the procedures and
conditions (and any modifications) described in the application or
otherwise followed in connection with lending securities pursuant to
the Program and (ii) maintain and preserve for a period not less than
six years from the end of the fiscal year in which any loan transaction
pursuant to the Program occurred, the first two years in an easily
accessible place, a written record of each 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 loan was made in accordance with the
procedures set forth above and the conditions to the application.
[[Page 7925]]
B. Investment of Uninvested Cash and Cash Collateral in the Joint
Accounts
1. The Funds propose to deposit some or all of their cash
collateral and other uninvested cash in the Joint Accounts established
at the Funds' custodian for the purpose of investing in one or more of
the following: (a) Repurchase agreements ``collateralized fully'' as
defined in rule 2a-7 under the Act, (b) U.S. dollar denominated
commercial paper and (c) any other short-term money market instruments
that constitute ``Eligible Securities'' (as defined in rule 2a-7 under
the Act) that are not subject to contractual or other restrictions on
resale (collectively, ``Short-Term Investments''). Each Fund (the Funds
that are eligible to participate and elect to participate in the Joint
Accounts are the ``Participants'') will have the option to participate
in any Joint Account on the same basis as every other Fund, subject to
and in conformity with its own investment objectives, policies, and
restrictions. The Adviser will be responsible for investing funds held
by the Joint Accounts. BISYS, under the supervision of the Adviser,
will be responsible for establishing accounting and control procedures,
operating the Joint Accounts in accordance with the procedures
described in the application, and ensuring fair treatment of the
Participants.
2. As noted above, section 17(d) and rule 17d-1 generally prohibit
joint transactions involving registered investment companies and
certain of their affiliates unless the SEC has approved the
transaction. Applicants state that the Participants, by participating
in the proposed Joint Accounts, and the Adviser and BISYS, by
administering 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 meaning of rule
17d-1 under the Act. Accordingly, applicants request an order under
section 17(d) and rule 17d-1 under the Act to permit them to engage in
the proposed Joint Accounts. Applicants believe that the requested
relief meets the standards of rule 17d-1 for the reasons described
below.
3. Applicants state that any repurchase agreements entered into
through the Joint Accounts will comply with the terms of Investment
Company Act Release No. 13005 (Feb. 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 made
through the Joint Accounts, the investments will comply with those
guidelines.
4. The Joint Accounts may comprise multiple joint subaccounts, if
BISYS or the Adviser determines that multiple joint subaccounts are
necessary or advisable to provide the Funds with additional flexibility
and choice in the Short-Term Investments in which they choose to
invest. Joint subaccounts may also be established for other reasons,
such as to facilitate monitoring of individual Funds' interests in
different Short-Term Investments, consistent with the variations in
investment restrictions and policies among the various Funds.
5. Each Fund's decision to invest in a Joint Account will be solely
at the option of the Adviser within the standards and procedures
established by that Fund's Board, and no Fund will be required to
maintain any minimum balance. To eliminate any possibility of one Fund
using any part of the 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 will retain sole rights to all of the
cash and cash collateral invested by it in the Joint Accounts,
including interest payable on the cash or cash collateral.
6. Applicants believe that each Participant's investment in a Joint
Account would not be subject to the claims of creditors, whether
brought in bankruptcy, insolvency or other legal proceeding, or any
other Participant. Each Fund's liability on any Short-Term Investment
through the Joint Account will be limited to its own interest in the
Short-Term Investment.
7. Applicants believe that the proposed method of operating the
Joint Accounts will not result in any conflicts of interest between any
of the Funds or between any Funds and BISYS or the Adviser. Applicants
state that although BISYS will likely gain some benefit through the
administrative convenience of the Funds investing in Short-Term
Investments on a joint basis, and may experience some reduction in
clerical costs, the Funds will be the primary beneficiaries because of
the increased efficiencies realized through use of the Joint Accounts,
the possible increase in rates of return available, and, for some
Funds, the opportunity to invest in Short-Term Investments. Neither the
Adviser nor BISYS will receive any additional fees from the Funds for
the administration of the Joint Accounts.
C. Investment of Cash Collateral in Shares of the Trust
1. As noted above, section 17(d) and rule 17d-1 generally prohibit
joint transactions involving registered investment companies and
certain of their affiliates unless the SEC has approved the
transaction. Applicants state that the Funds (by purchasing and
redeeming Trust shares), BISYS as principal underwriter of the Funds at
the same time that the Funds' cash collateral is invested in Trust
shares, and as Trustee and service provider to the Trust at the same
time that the Trust sells Trust shares to and redeems them from the
Funds, BISYS Ohio (by acting as Lending Agent), and the Trust (by
selling shares to and redeeming them for the Funds) could be deemed to
be participants in a joint enterprise or arrangement within the meaning
of section 17(d) of the Act and rule
17d-1 under the Act.
2. Section 17(a) of the Act makes it unlawful for any affiliated
person of a registered investment company, or any affiliated person of
such affiliated person (``Second-Tier Affiliate''), acting as
principal, to sell or purchase any security to or from such investment
company. BISYS is the principal underwriter for the Lending Funds. The
Trust may be considered an affiliated person of BISYS under section
2(a)(3) of the Act because of BISYS' role as Trustee. In addition,
since the Adviser is the investment adviser to the Trust and a Lending
Fund, the Adviser would be an affiliated person of the Lending Funds
under section 2(a)(3) and the Trust would be a Second-Tier Affiliate of
the Lending Funds. Accordingly, the sale of shares of the Trust to the
Fund, and the redemption of such shares from the Fund, would be
prohibited under section 17(a).
3. Section 17(b) of the Act authorizes the SEC to exempt a
transaction from section 17(a) if the terms of the proposed
transaction, including the consideration to be paid or received, are
reasonable and fair and do not involve overreaching on the part of any
person concerned, the proposed transaction is consistent with the
policy of each registered investment company concerned, and the
proposed transaction is consistent with the general policy of the Act.
Section 6(c) under the Act permits the SEC to exempt any person or
transaction from
[[Page 7926]]
any provision of the Act, if such exemption is necessary or appropriate
in the public interest and consistent with the protection of investors
and the purposes fairly intended by the policies of the Act.
4. Applicants request an order under sections 6(c), 17(b), and
17(d) of the Act and rule 17d-1 under the Act to permit the Lending
Funds to purchase and redeem Trust shares from the Trust and the Trust
to sell and redeem Trust shares to and from the Lending Funds.
Applicant state that a Fund's cash collateral will be invested in a
particular Investment Fund only if the Investment Fund invests in the
types of instruments that the Lending Fund has authorized for the
investment of its cash collateral. Each Investment Fund will comply
with rule 2a-7 under the Act.
5. Applicants state that the Lending Funds will purchase, hold and
redeem Trust shares on the same basis as any other holder of Trust
shares. Applicants assert that by investing cash collateral in Trust
shares as proposed, the Lending Funds will be able to achieve
liquidity, diversification, and quality of investments at a cost that
is expected to be lower than the cost typically incurred when investing
in a registered investment company. Further, each Investment Fund will
comply with sections 17(a), (d), (e), and 18 of the Act as if the Trust
were a registered open-end investment company. With respect to all
redemption requests made by a Lending Fund, the Trust will comply with
section 22(e) of the Act.
D. Lending of Portfolio Securities to Affiliated Broker-Dealers
1. Section 17(a)(3) of the Act makes it unlawful for any affiliated
person of or principal underwriter for a registered investment company
or their Second-Tier Affiliates, acting as principal, to borrow money
or other property from the registered investment company. Section
2(a)(3) of the Act defines the term affiliated person of another person
to include any person under common control with that other person.
Under section 2(a)(3) of the Act, BISYS and the Affiliated Broker-
Dealers may be deemed to be persons under common control and thus
affiliated persons of each other. Accordingly, for purposes of section
17(a)(3) of the Act, the Affiliated Broker-Dealers may be affiliated
persons of the Funds' principal underwriter, BISYS, and thus prohibited
from borrowing portfolio securities from the Funds.
2. As noted above, section 17(d) and rule 17d-1 generally prohibit
joint transactions involving registered investment companies and
certain of their affiliates unless the SEC has approved the
transaction. The Funds request relief under sections 6(c) and 17(b) of
the Act exempting them from section 17(a)(3) of the Act, and under
section 17(d) of the Act and rule 17d-1 under the Act to permit the
Funds to lend portfolio securities to Affiliated Broker-Dealers.
Applicants state that the Funds seek to diversify the Borrowers to whom
they lend in order to ensure the stability and efficiency of the
Program. Applicants submit that because only a few Borrowers may seek
to borrow a particular security at a given time, a prohibition on
lending to Affiliated Broker-Dealers could disadvantage a Fund.
3. Applicants state that each loan to an Affiliated Broker-Dealer
by a Fund will be made with a spread that is no lower than that applied
to comparable loans to unaffiliated broker-dealers.\3\ In this regard,
applicants state that at least 50% of the loans made by the Funds, on
an aggregate basis, will be made to unaffiliated Borrowers. Moreover,
all loans will be made with spreads that are no lower than those set
forth in a schedule of spreads established by the Board of each Fund,
including a majority of the Disinterested Directors. All transactions
with the Affiliated Broker-Dealers will be reviewed periodically by the
officers of the Funds. Quarterly, officers of the Funds and the Lending
Agent will present reports on the lending transactions to the Board,
including a majority of the Disinterested Directors, for their review.
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\3\ A ``spread'' is the compensation earned by a Fund, as
lender, from a securities loan. The compensation is in the form
either of a lending fee payable by the borrower to the Fund (where
non-cash collateral is posted) or of the excess--retained by the
Fund--over a rebate rate payable by the Fund to the borrower (where
cash collateral is posted and then invested by the Fund).
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Applicant's Conditions
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following conditions:
A. General
1. Any Fund or Investment Fund that relies on the requested order
will be advised by the Adviser and distributed or administered by
BISYS, or any entity controlling, controlled by, or under common
control with BISYS.
2. The securities lending program of each Fund will comply with all
present and future applicable SEC and staff positions regarding
securities lending arrangements.
B. Joint Accounts
1. The Joint Accounts will be established as one or more separate
cash accounts on behalf of the Funds at a custodian. Each Fund may
deposit, daily, all or a portion of its uninvested cash and cash
collateral into the Joint Accounts.
2. Cash in the Joint Accounts will be invested in one or more
Short-Term Investments, as directed by the Adviser. Short-Term
Investments that are 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. Cash collateral in a Joint
Account would be invested in Short-Term Investments which have a
remaining maturity of 397 days or less, as calculated in accordance
with rule 2a-7 under the Act.
3. All Short-Term Investments invested in through the Joint
Accounts will be valued on an amortized cost basis. Each Fund that
relies upon rule 2a-7 under the Act will use the dollar-weighted
average maturity of a Joint Account's Short-Term Investments for the
purpose of computing that Fund's average portfolio maturity with
respect to the portion of the cash held by it in that Joint Account.
4. The Fund's Adviser, fund accountant, pricing agent, and
custodian will maintain records (in conformity with section 31 of the
Act and the rules and regulations under the Act) documenting, for any
given day, the Fund's aggregate investment in the Joint Account and the
Fund's pro rate share of each Short-Term Investment made through the
Joint Account.
5. Short-Term Investments held in a Joint Account generally will
not be sold prior to maturity except if: (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. Any Short-Term
Investment (or any fractional portion thereof), however, may be sold 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
[[Page 7927]]
partition of the investments in the Joint Account.
6. 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 will be
subject to the restriction that a Fund may not invest more than a % 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 instrument, or the
Fund's fractional interest in such instrument, cannot be sold pursuant
to the preceding condition.
7. To assure that there will be no opportunity for one Fund to use
any part of a balance of any Joint Account credited to another Fund, no
Fund will be allowed to create a negative balance in any Joint Account
for any reason, although each Fund will be permitted to draw down its
pro rata share of the entire balance at any time. Each Fund's decision
to invest through the Joint Accounts shall be solely at the option of
that Fund and the Adviser (within the standards and procedures
established by the Fund's Board), and no Fund will be obligated, in any
way, to invest through, or to maintain any minimum balance in, the
Joint Accounts. In addition, each Fund will retain the sole rights to
any of the cash, including interest payable on the cash, invested by
that Fund through the Joint Accounts.
8. Each Fund will participate in the income earned or accrued in
the Joint Account through which it is invested on the basis of its
percentage share of the total balance of the Joint Account on that day.
9. The Adviser will be responsible for investing funds held by the
Joint Accounts. BISYS will administer the Joint Accounts in accordance
with the standards and procedures established by the Board of the Funds
as part of its duties under the existing or any future administrative
contract with the Funds. Neither BISYS nor the Adviser will receive
additional or separate fees for advising or administering the Joint
Accounts.
10. The administration of the Joint Accounts will be within the
fidelity bond coverage required by section 17(g) of the Act and rule
17g-1 under the Act.
11. The Board of each Fund investing in Short-Term Investments
through the Joint Accounts will adopt procedures pursuant to which the
Joint Accounts will operate, which procedures will be reasonably
designed to provide that requirements of the requested order will be
met. In addition, not less frequently than annually, the Board will
evaluate the Joint Account arrangements, will determine whether the
Joint Accounts have been operated in accordance with the adopted
procedures, and will authorize a Fund's continued participation in the
Joint Accounts only if the Board determines that there is a reasonable
likelihood that such continued participation would benefit that Fund
and its shareholders.
12. The Joint Accounts will not be distinguishable from any other
accounts maintained by a fund with a custodian except that cash from
various Funds will be deposited in the Joint Accounts on a commingled
basis. The Joint Accounts will not have a separate existence with
indicia of a separate legal entity. The sole function of the Joint
Accounts will be to provide a convenient way of aggregating individual
transactions that would otherwise require daily management and
investment by each Fund of its cash.
13. All transactions in Short-Term Investments that are repurchase
agreements will be effected in accordance with Investment Company Act
Release No. 13005 (February 2, 1983) and with future positions taken by
the Commission or the staff by rule, release, or no-action letter.
C. The Trust
1. A majority of the Board of the Lending Fund (including a
majority of the Disinterested Directors), will initially and at least
annually thereafter determine that the investment of cash collateral in
Trust shares is in the best interests of the shareholders of the
Lending Fund.
2. Investment in Trust shares by a particular Lending Fund will be
consistent with that Lending Fund's investment objectives and policies.
3. Each Investment Fund will comply with rule 2a-7 under the Act.
Each Investment Fund will value its shares, as of the close of business
on each business day, using the ``amortized cost method,'' as defined
in rule 2a-7 under the Act, to determine the net asset value per share
of the Investment Fund. The Trust will, subject to approval of the
Trustee, adopt the monitoring procedures described in rule 2a-7(c)(7)
under the Act and the Adviser will comply with these procedures and
take any other actions as are required to be taken pursuant to these
procedures.
4. The Trust will comply as to each Investment Fund with the
requirements of sections 17(a), (d) and (e), and 18 of the Act as if
the Trust were a registered open-end investment company. With respect
to all redemption requests made by a Lending Fund, the Trust will
comply with section 22(e) of the Act. The Adviser shall, subject to
approval by the Trustee, adopt procedures designed to ensure that the
Trust complies with sections 17(a), (d) and (e), 18, and 22(e) of the
Act. The Adviser also will periodically review and periodically update
as appropriate such procedures and will maintain books and records
describing such procedures, and maintain the records required by rules
31a-1(b)(1), 31a-1(b)(2)(ii), and 31a-1(b)(9) under the Act. All books
and records required to be kept pursuant to this condition will be
maintained and preserved for a period of not less than six years from
the end of the fiscal year in which any transaction occurred, the first
two years in an easily accessible place, and will be subject to
examination by the SEC and the staff.
5. The net asset value per share with respect to Trust shares will
be determined separately for each Investment Fund by dividing the value
of the assets belonging to that Investment Fund, less the liabilities
of that Investment Fund, by the number of Trust shares outstanding with
respect to that Investment Fund.
6. The Trust shares will not be subject to a sales load, redemption
fee, any asset-based sales charge or service fee (as defined in rule
2830(b)(9) of the Conduct Rules of the National Association of
Securities Dealers, Inc.).
7. Each Lending Fund will purchase and redeem trust shares as of
the same time and at the same price, and will receive dividends and
bear its proportionate share of expenses on the same basis, as other
shareholders of the Trust. A separate account will be established in
the shareholder records of the Trust for the account of each Lending
Fund.
8. The Investment Fund will not acquire any securities of any other
investment company in excess of the limits contained in section
12(d)(1)(A) of the Act.
D. Lending to Affiliated Broker-Dealers
1. The Funds, on an aggregate basis, will make at least 50% of
their portfolio securities loans to unaffiliated Borrowers.
2. The total value of securities loaned to any one broker-dealer on
the approved list will be in accordance with a schedule to be approved
by the Fund's Board, but in no event will the total value of securities
lent to any one Affiliated Broker-Dealer exceed 10% of the net assets
of the Fund, computed at market.
3. A Fund will not make any loan to an Affiliated Broker-Dealer
unless the
[[Page 7928]]
income attributable to such loan fully covers the transaction costs
incurred in making such loan.
4. (a) All loans will be made with spreads no lower than those set
forth in the schedule of spreads which will be established and may be
modified from time to time by each Fund's full Board and by a majority
of the Disinterested Directors (``Schedule of Spreads'').
(b) The Schedule of Spreads will set forth rates of compensation to
the Fund that are reasonable and fair and that are determined in light
of those considerations set forth in the application.
(c) The Schedule of Spreads will be uniformly applied to all
Borrowers of the Fund's portfolio securities, and will specify the
lowest allowable spread with respect to a loan of securities to any
Borrower.
(d) If a security is loaned to an unaffiliated Borrower with a
spread higher than the minimum set forth in the Schedule of Spreads,
all comparable loans to an Affiliated Broker-Dealer will be made at no
less than the higher spread.
(e) The Fund's Program will be monitored on a daily basis by an
officer of the Fund who is subject to section 36(a) of the Act. This
officer will review the terms of each loan to an Affiliated Broker-
Dealer for comparability with loans to unaffiliated Borrowers and
conformity with the Schedule of Spreads, and will periodically, and at
least quarterly, report his or her findings to the Fund's Board,
including a majority of the Disinterested Director.
5. The Fund's Board, including a majority of the Disinterested
Directors, (a) will determine no less frequently than quarterly that
all transactions with Affiliated Broker-Dealers effected during the
preceding quarter were effected in compliance with the requirements of
the procedures adopted by the Board and the conditions of the requested
order and that such transactions were conducted on terms which were
reaonsable and fair; and (b) will review no less frequently than
annually such requirements and conditions for their continuing
appropriateness.
6. The Funds will maintain and preserve permanently in an easily
accessible place a written copy of the procedures (and any
modifications thereto) which are followed in lending securities and
shall maintain and preserve for a period of not less than six years
from the end of the fiscal year in which any loan occurs, the first two
years in an easily accessible place, a written record of each loan
setting forth the number of shares loaned, the face amount of the
securities loaned, the fee received (or the rebate rate remitted), the
identity of the Borrower, the terms of the loan and any other
information or materials upon which the finding was made that each loan
made to an Affiliated Broker-Dealer was fair and reasonable and that
the procedures followed in making such loan were in accordance with the
other undertakings set forth in the application.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3774 Filed 2-16-99; 8:45 am]
BILLING CODE 8010-01-M