[Federal Register Volume 64, Number 144 (Wednesday, July 28, 1999)]
[Notices]
[Pages 40919-40921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19224]



[[Page 40919]]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23915; 812-11012]


IDS Bond Fund, Inc., et al.; Notice of Application

July 21, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of an application for an order under section 17(d) of 
the Investment Company Act of 1940 (the ``Act'') and rule 17d-1 under 
the Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered management investment companies to deposit their uninvested 
cash balances in joint accounts investing in short-term investments.

APPLICANTS: IDS Bond Fund, Inc., IDS Discover Fund, Inc., IDS Equity 
Select Fund, Inc., IDS Global Series, Inc., IDS International Fund, 
Inc., IDS Market Advantage Series, Inc., IDS Money Market Series, Inc., 
IDS Precious Metals Fund, Inc., IDS Progressive Fund, Inc., IDS 
Strategy Fund, Inc., IDS Tax-Exempt Bond Fund, Inc., IDS Tax-Free Money 
Fund, Inc., IDS Utilities Income Fund, Inc., IDS California Tax-Exempt 
Trust, IDS Special Tax-Exempt Series Trust, Growth Trust, Growth and 
Income Trust, Income Trust, Tax-Free Income Trust, orld Trust, IDS Life 
Investment Series, Inc., IDS Life Managed Fund, Inc., IDS Life 
Moneyshare Fund, Inc., IDS Life Special Income Fund, Inc., IDS Life 
Series Fund, Inc., IDS Life Variable Annuity Fund A, and IDS Life 
Variable Annuity Find B (the ``investment Companies''), and American 
Express Financial Corporation (``AEFC'').

FILING DATES: The application was filed on February 18, 1998 and 
amended on October 26, 1998 and June 28, 1999.

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 August 16, 1999, 
and should be accompanied by proof of service on applicants in the form 
of an affidavit or, for lawyers, a certifiate 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-
0609. Applicants: c/o Christopher R. Long, AEFC, IDS Tower 10, Law 
Department, T-27/52 Minneapolis, MN 55440-0010.

FOR FURTHER INFORMATION CONTACT: John K. Forst, Attorney Advisor, at 
(202) 942-0569, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Office of Investmnt 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 
20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. Each Investment Company is registered under the Act as an open-
end management investment company. AEFC, registered as an investment 
adviser under the Investment Advisers Act of 1940 (the ``Advisers 
Act''), serves as investment adviser to the Investment Companies. AEFC 
also provides investment advisory services to other clients, including 
employee benefit plans and accounts (collectively, with any account 
advised by another registered investment adviser controlling, 
controlled by, or under common control with AEFC (``AEFC Adviser''), 
the ``Private Accounts'').\1\
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    \1\ Applicants request that the relief also apply to all other 
registered management investment companies that in the future are 
advised or sub-advised by an AEFC Adviser (``Future Funds''). Any 
Future Fund and Private Account that relies on the requested order 
will do so only in accordance with the terms and conditions of the 
application.
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    2. At the end of each trading day, applicants expect that the 
Investment Companies and the Private Accounts (collectively, the 
``Participants'') will have uninvested cash balances in their accounts 
with their custodians that would not otherwise be invested in portfolio 
securities. Applicants propose to deposit these uninvested cash 
balances into one or more joint trading accounts (``Joint Accounts'') 
and to invest the daily balance of the Joint Accounts in repurchase 
agreements, commercial paper, and/or other short term investments that 
will have, with rare exceptions, an overnight, over-the-weekend or 
over-the-holiday maturity, and in no event will have a maturity of more 
than seven days (``Short Term investments''). Repurchase agreements 
will be ``collateralized fully,'' as defined in rule 2a-7 under the 
Act.\2\ A Joint Account would consist of a separate cash custodial 
account established at a custodian bank.
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    \2\ A Joint Account will not enter into hold-in-custody 
repurchase agreements, whereby the counterparty retains custody of 
the securities that are the subject of the repurchase transaction.
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    3. Participants would only invest through a Joint Account to the 
extent that the investments made through the Joint Account are 
consistent with their respective investment objectives, policies, and 
restrictions. A Participant's decision to use the Joint Accounts will 
be based on the same factors as its decision to make any short-term 
investment.
    4. AEFC will administer the investment of the cash balances in and 
operation of the Joint Accounts as part of its duties under the general 
terms of each Participant's investment management agreement and will 
not collect any additional or separate fees for the management of the 
Joint Account. AEFC will be responsible for investing amounts in the 
Joint Account, establishing accounting and control procedures, and 
ensuring the equal treatment of each Participant.
    5. Any repurchase agreements entered into through the Joint 
Accounts will comply with the standards and guidelines of Investment 
Company Act Release No. 13005 (February 2, 1983) and any other 
applicable future positions of the SEC or its staff regarding 
repurchase agreements. In the event the SEC or its staff sets forth 
guidelines with respect to other Short Term Investments, all such 
investments made through the Joint Accounts will company with those 
guidelines.

Applicants' 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 arrangement in which such investment company is a 
participant, unless an application regarding the joint arrangement has 
been filed with and approved by the SEC. In passing on such 
applications, the SEC considers whether the participation of the 
registered investment company in the proposed joint arrangement is 
consistent with the provisions, policies, and purposes of the Act and 
the extent to which the participation is on a basis different from or 
less advantageous than that of other participants.
    2. Section 2(a)(3) of the Act defines an ``affiliated person'' of 
another person to include any person directly or indirectly owing, 
controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of the other person, as well as any 
person directly or indirectly controlling,

[[Page 40920]]

controlled by, or under common control with, the other person, and in 
the case of an investment company, its investment adviser. Applicants 
state that, under section 2(a)(3) of the Act, the Participants may be 
deemed ``affiliated persons'' because they may be deemed to be under 
the common control of AEFC. Applicants state that the Participants, by 
participating in the Joint Accounts, and AEFC, by managing the Joint 
Accounts, could be deemed to be ``joint participants'' in a transaction 
within the meaning of section 17(d)(1) of the Act. In addition, 
applicants state that the Joint Accounts could be deemed to be a 
``joint enterprise or other joint arrangement'' within the meaning of 
rule 17d-1 under the Act.
    3. Applicants believe that no Participant will receive fewer 
relative benefits from the operation of the Joint Accounts than any 
other Participant. Applicants also believe that the operation of the 
Joint Accounts will not result in any conflicts of interest among 
Participants. Applicants state that each Participant's liability on any 
Short Term Investment held in a Joint Account will be several in 
proportion to its pro rata interest in the total assets in the Joint 
Account and not joint.
    4. Applicants believe that the proposed Joint Accounts could result 
in certain benefits to Participants. The Participants may earn a higher 
return on investments through the Joint Accounts relative to the 
returns they could earn individually. Applicants state that, under most 
market conditions, it is possible to negotiate a higher rate of return 
on larger Short Term Investments than the rate available on smaller 
Short Term Investments. Applicants also assert that each Participant 
will have the opportunity to benefit from the fact that an institution 
entering into a larger investment transaction is more likely to be able 
and willing to increase the amount covered by the transaction near the 
end of the day, thus reducing the possibility a Participant might have 
cash uninvested, which possibly may not exist with smaller 
transactions. Applicants state that the Joint Accounts also may result 
in savings in transaction fees.
    5. For the reasons set forth above, applicants submit that the 
proposed Joint Accounts meet the criteria of rule 17d-1 for issuance of 
an order.

Applicants' Conditions

    Applicants will comply with the following as conditions to any 
order granted by the SEC:
    1. A separate custodial account will be established for each Joint 
Account into which a participant may transfer some or all of its 
uninvested cash balances after the conclusion of its daily trading 
activity. In the event that any Participant has a custodian different 
from the custodian at which the Joint Account is maintained and elects 
to participate, the Participant will appoint the custodian of the Joint 
Account as a sub-custodian. Each Investment Company that appoints such 
a custodian will have taken all necessary actions to authorize the 
custodian as its legal custodian, including all actions required under 
the Act. The Joint Accounts will be the same as other custodial 
accounts maintained by the Participant except that monies of the 
Participant will be deposited on a commingled basis. The Joint Accounts 
will be structured to avoid any indicia of separate legal existence. 
The sole function of the Joint Accounts will be to provide a convenient 
way to manage uninvested cash balances.
    2. Cash in a Joint Account will be invested in one or more Short 
Term Investments that will have, with rare exceptions, an overnight, 
over-the-weekend or over-the-holiday maturity and in no event will have 
a maturity of more than seven days as calculated in accordance with 
rule 2a-7 under the Act.
    3. Each Participant will participate in a Joint Account only to the 
extent consistent with its investment objectives, policies, and 
restrictions.
    4. Each Participant, through AEFC Adviser and/or custodian, will 
document daily its investments through such Joint Accounts. Such 
records will be maintained in conformity with section 31 of the Act and 
the rules and regulations thereunder documenting, for any given day, 
such Participant's aggregate investment in a joint account and its pro 
rate share of each investment made though the joint account. Each 
Participant that is not a registered investment company or registered 
investment adviser will make available to the SEC, upon request, such 
books and records with respect to its participation in a Joint Account.
    5. Repurchase agreements in the Joint Account will be 
``collateralized fully'' as defined in rule 2a-7 under the Act.
    6. No Participant will be allowed to create a negative balance in a 
Joint Account for any reason, although it will be permitted to draw 
down its entire balance at any time. No Participant will be obligated 
either to invest in the Joint Accounts or to maintain any minimum 
balance in the Joint Accounts. In addition, each Participant will 
retain the sole rights of ownership to any of its assets invested in 
the Joint Accounts, including interest payable on such assets invested 
in the Joint Accounts.
    7. AEFC will administer the investment of the cash balances in and 
operation of the Joint Accounts as part of its duties under the general 
terms of each Participant's existing or any future investment 
management agreement and will not collect any additional or separate 
fees for the management of the Joint Accounts.
    8. 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.
    9. The board of directors or trustees of each Investment Company 
(the ``Board'') participating in a Joint Account will adopt procedures 
pursuant to which the Joint Account will operate. The procedures will 
be consistent with the requirements of the application and no change 
shall be made in the procedures without prior approval of the Board. 
AEFC will be responsible for operating the Joint Account in accordance 
with such procedures and shall provide to the Board such reports as are 
necessary for the Board to determine that the procedures have been 
followed. In addition, each Board will determine, no less frequently 
than annually, that the Joint Accounts have been operated in accordance 
with the procedures adopted and will only permit an Investment Company 
to continue to participate therein if it determines that there is a 
reasonable likelihood that the Investment Company and its shareholders 
will benefit from continued participation.
    10. All assets held in the Joint Accounts will be valued on an 
amortized cost basis to the extent permitted by applicable SEC 
releases, rules or orders.
    11. 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 Accounts 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 portion of the assets held in a 
Joint Account on that day.
    12. 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 money contributed by the Participant.

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    13. Each Short Term Investment held in a Joint Account generally 
will be held to maturity, except if: (i) AEFC believes the investment 
no longer presents minimal credit risks; (ii) the investment no longer 
satisfies the investment criteria of all Participants in the investment 
because of a credit downgrade or otherwise; or (iii) the counterparty 
to a repurchase agreement defaults. AEFC 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 Short Term Investment 
if the cost of such transaction 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 will 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 
investment in the Joint Account.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-19224 Filed 7-27-99; 8:45 am]
BILLING CODE 8010-01-M