[Federal Register Volume 65, Number 94 (Monday, May 15, 2000)]
[Notices]
[Pages 31023-31029]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-12133]


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SECURITIES AND EXCHANGE COMMISSION

[Rel No. IC-24449; 812-12078]


BISYS Fund Services Limited Partnership, et al.; Notice of 
Application

May 9, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for exemption under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (the ``Act'') from section 
17(a) of the Act 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 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 an affiliated private investment 
company, BISYS Securities Lending Management LC (the ``Trust'').

Applicants: BISYS, BISYS Fund Services Ohio, Inc. (``BISYS ohio''), the 
Trust, Fifth Third Funds, Fifth Third Bank, BB&T Funds, Branch Banking 
& Trust Company (``BB&T''), Pacific Capital Funds, Pacific Century 
Trust (``Pacific Century''), AmSouth Funds, AmSouth Bank (``AmSouth''), 
Nationwide Mutual Funds, Nationwide Separate Account Trust 
(collectively, Nationwide Mutual Funds and Nationwide Separate Account 
Trust are the ``Nationwide Funds''), Union Bond & Trust Company 
(``Union''), and Villanova Mutual Fund Capital Trust (``Villanova'') 
(collectively, the Fifth Third Funds, BB&T Funds, Pacific Capital 
Funds, AmSouth Funds, and the Nationwide Funds are the ``Funds'').

Filing Dates: The application was filed on April 21, 2000. 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 June 5, 2000, 
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-
0609. The Trust, AmSouth Funds, BB&T Funds, Pacific Capital Funds, 
BISYS Ohio, and BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-3035; 
AmSouth Bank, 1901 Sixth Avenue-North, Birmingham, Alabama 35203; BB&T, 
435 Fayetteville Street Mall, Raleigh, North Carolina 27601; Fifth 
Third Funds and Fifth Third, 38 Fountain Square Plaza, Cincinnati, Ohio 
45263; Pacific Century, Financial Plaza of the Pacific, 111 S. King 
Street, Honolulu, Hawaii 96813; Nationwide Funds and Villanova, Three 
Nationwide Plaza, Columbus, Ohio 43216; and Union, 5665 SW Meadows 
Road, Lake Oswego, Oregon 97035.

For Further Information Contact:  Elaine M. Boggs, Senior Counsel, at

[[Page 31024]]

(202) 942-0572, or Nadya B. Roytblat, Assistant Director, 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, N.W., Washington, D.C. 
20549 (telephone (202) 942-8090).

Applicant's Representations

    1. The Funds, with the exception of Nationwide Mutual Fund which is 
an Ohio trust, are Massachusetts business trusts. Each Fund is an open-
end management investment company registered under the Act. Each Fund 
consists of multiple portfolios (``Portfolios''). The investment 
adviser for BB&T Fund is BB&T, for AmSouth Funds is AmSouth, for Fifth 
Third Funds is Fifth Third or Heartland Capital Management, Inc., for 
Pacific Capital Funds is Pacific Century, and for Nationwide Separate 
Account Trust is Villanova. Villanova and Union serve as investment 
advisers to the Portfolios of the Nationwide Mutual Fund, except for 
certain Portfolios which are ``feeder'' funds with a ``master'' fund 
advised by Fund Asset Management, L.P. The BB&T Fund, AmSouth Funds, 
and Pacific Capital Funds are in the BB&T, AmSouth, and Pacific Capital 
group of investment companies, respectively, within the meaning of 
section 12(d)(1)(G) of the Act.
2. BISYS is the administrator and distributor for each of the Fifth 
Third Fund's Portfolios and the distributor for the Portfolios of 
AmSouth Fund, BB&T Funds, and the Pacific Capital Funds. BISYS Ohio 
serves as: (a) The transfer and dividend disbursing agent and fund 
accountant for the Portfolios of the BB&T (b) the transfer agent for 
the Portfolios of the AmSouth Portfolios; and (c) the fund accountant 
for the Portfolios of Pacific Capital Fund. BISYS serves as the sub-
administrator to the Nationwide Funds. BISYS and BISYS Ohio are wholly-
owned subsidiaries of the BISYS Group, Inc.
    3. BB&T is the principal bank affiliate of BB&T Corporation, a bank 
holding corporation. AmSouth is a bank affiliate of AmSouth 
Bancorporation, a banking institution. Fifth Third is a bank subsidiary 
of Fifth Third Bancorp. Pacific Century is a trust firm and a division 
of Bank of Hawaii. Villanova is an investment adviser and is under the 
indirect control of Nationwide Mutual Insurance Company. Union is a 
state bank and trust company. Villanova is registered as an investment 
adviser under the Investment Advisers Act of 1940 (``Advisers Act''). 
BB&T, AmSouth, Fifth Third, Pacific Century, and Union are exempt from 
registration under the Advisers Act.
    4. The Trust is a Delaware limited liability company and currently 
consists of two portfolios (together with any future portfolios, each 
an ``Investment Fund''). Currently, it is intended that AmSouth serve 
as investment adviser to the Trust (``Trust Adviser'') but one or more 
of the other Advisers (defined below) may also serve as investment 
adviser to the Trust. Each Investment Fund will value its securities 
based on the amortized cost method and comply with rule 2a-7 under the 
Act.
    5. Trust shares will be offered to the Lending Funds (defined 
below) and other participants in the Program in reliance on the 
exemption provided by Regulation D under the Securities Act of 1933. 
The Trust will operate as a private investment company excluded from 
the definition of ``investment company'' pursuant to section 3(c)(1) or 
(7) of the Act. Trust shares will have no voting rights and may not be 
transferred without the consent of the trustee. BISYS will be the sole 
trustee (``Trustee''), will oversee the Trust's operations, and will 
provide accounting and administrative services to the Trust. BISYS and 
the Trust Adviser will be compensated by the Trust for their services. 
Trust share will not be subject to any sales load, redemption fee, 
asset-based sales charge, or service fee.
    6. Applicants request that relief be extended to: (a) Any 
registered management investment company or series of a registered 
management 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 AmSouth, BB&T, Fifth Third, Pacific Century, 
Villanova, or Union or any person controlling, controlled by, or under 
common control with AmSouth, BB&T, Fifth Third, Pacific Century, 
Villanova, or Union (each, an ``Adviser'') \1\ now or in the future 
serves as investment adviser (collectively with the Funds, each a 
``Fund''); (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'').\2\
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    \1\ Each Adviser will be registered under the Advisers Act or 
exempt from registration.
    \2\ All existing entities that currently intend to rely on the 
requested relief have been named as applicants. Any existing and 
future entity may reply on the order in the future only in 
accordance with the terms and conditions in the application.
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    7. 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 
(collectively with the third-party lending agents, the ``Lending 
Agent'')
    8. Under the Program, the Lending Agent enters into agreements with 
borrowers (``Borrowers'') to lend them portfolio securities of the 
Lending Fund (``Securities Loan Agreements''). Pursuant to the 
Securities Loan Agreements, the Lending Agent delivers the 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 
Fund in accordance with specific parameters set forth in the Securities 
Loan Agreement. These guidelines include permissible investment of the 
cash collateral as well as a list of eligible types of investments.
    9. With respect to securities loans that are collateralized by 
cash, the Borrower is entitled to receive a fixed 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.
    10. The applicants request relief to permit: (a) The Funds for 
which BISYS serves as distributor to pay and BISYS Ohio or any person 
controlling, controlled by, or under common control

[[Page 31025]]

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 \3\ (``Uninvested Cash'') 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 for which 
BISYS serves as distributors to lend portfolio securities to Affiliated 
Broker-Dealers.
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    \3\ 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 principal underwriter for the Funds except the Nationwide Funds) 
are each wholly-owned subsidiaries of the 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) of the Act and rule 17d-1 under 
the Act to the extent necessary to permit each lending Fund (except the 
Nationwide Funds for which no relief is requested) 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 Lending Funds in connection with services 
provided as Lending Agent.
    2. Rule 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 or trustees (the ``Board'') 
(including a majority of the directors or trustees who are not 
``interested persons'' within the meaning of the Act (the 
``Disinterested directors'') of the lending Fund swill determine that 
(i) the contract with BISYS Ohio is in 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 other; 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 finding 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 term 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.

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 Uninvested Cash in the Joint Accounts established at the 
Fund's 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,\4\ (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 may 
deposit its Uninvested Cash or cash collateral only in a Joint Account 
that is advised by that Fund's Adviser. 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 to a Joint Account 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

[[Page 31026]]

procedures, operating the Joint Accounts in accordance with the 
procedures described in the application, and ensuring fair treatment of 
the Participants.
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    \4\ The Funds will enter into ``hold-in-custody'' repurchase 
agreements (i.e., repurchase agreements where the counterparty or 
one of its affiliated person may have possession of, or control 
over, the collateral subject to the agreement) only where cash is 
received late in the business day and otherwise would be unavailable 
for investment.
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    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 (as the investment 
adviser to the Participants) and BISYS, (as the principal underwriter 
for each Participant except the Nationwide Funds) 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 discussed below.
    3. Applicants state that any repurchase agreement 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 the 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 options of its 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 
assets invested by it in the Joint Accounts, including interest payable 
on the assets.
    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, of 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 Fund's 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 Fund's 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, BYSIS 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 
(except the Nationwide 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 Trust Adviser will be an 
investment adviser to the Trust as well as to a Lending Fund, the Trust 
Adviser would be an affiliated person of any Lending Fund it advises 
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 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. 
Applicants 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

[[Page 31027]]

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)93) of the Act makes it unlawful for any affiliated 
person for 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 an other 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' (except the Nationwide Funds) principal underwriter, BISYS, and 
thus prohibited form 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. Relief 
is not being requested with respect to the Nationwide Funds. Applicants 
state that the Funds seek to diversify the Borrower to when 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.\5\ In this regard, 
applicants state that at least 50% of the loans made by the Funds, on 
an aggregate basis (by each ``group of investment companies,'' as 
defined in section 12(d)(1)(G) of the Act), 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 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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    \5\ 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 posed) 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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Applicants' 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. 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. Each Fund may deposit its Uninvested Cash or cash 
collateral only in a Joint Account that is advised by that Fund's 
Adviser.
    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 rata 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 partition of the 
investment 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 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

[[Page 31028]]

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 and will 
not have indicia of a separate 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 (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 Lending Fund and its 
shareholders.
    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 Funding, 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 (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 (by each ``group of investment 
companies,'' as defined in section 12(d)(1)(G) of the Act), 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 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'').

[[Page 31029]]

    (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 portfolios 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 Directors.
    5. The Fund's Board, including a majority of the Disinterested 
Directors, (a) will determine no less frequently than quarterly that 
all transaction 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 
reasonable 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. 00-12133 Filed 5-12-00; 8:45 am]
BILLING CODE 8010-01-M