[Federal Register Volume 66, Number 136 (Monday, July 16, 2001)]
[Notices]
[Pages 37074-37078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-17721]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-25060; 812-12126]


Northern Institutional Funds, et al.; Notice of Application

July 11, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') exempting applicants from 
section 12(d)(1) of the Act, under sections 6(c) and 17(b) of the Act 
exempting applicants from section 17(a) of the Act, under section 6(c) 
of the Act for an exemption from section 17(e) of the Act, and under 
section 17(d) of the Act and rule 17d-1 under the Act permitting 
certain joint transactions.

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SUMMARY: Summary of Application: The order would permit certain 
registered open-end investment companies to use their cash reserves 
that have not been invested in portfolio securities (``Uninvested 
Cash'') to purchase shares of certain money market funds (``Money 
Market Portfolios''). The order also would permit certain registered 
open-end investment companies to use cash collateral from securities 
lending transactions (``Cash Collateral'') to purchase shares of the 
Money Market Portfolios or private investment funds (``Private Funds'' 
and, together with the Money Market Portfolios, the ``Investment 
Funds'') and to pay fees based on a share of the revenue generated from 
securities lending transactions to an affiliated lending agent. The 
order also would permit the lending agent and certain of its affiliates 
to engage in principal transactions with, and receive brokerage 
commissions from, certain open-end investment companies that are 
affiliated with the lending agent and its affiliates solely as a result 
of investing Cash Collateral in the Investment Funds.
    Applicants: Northern institutional Funds (``NIF''), Northern Funds 
(``NF''), The Northern Trust Company (``Northern''), Northern Trust 
Investments, Inc. (``NTI''), Northern Trust Global Investments (Europe) 
Limited (``NTGIE''), and AB Funds Trust (``AB'').
    Filing Dates: The application was filed on May 31, 2000. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on July 31, 2001, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants (other than AB), 50 South LaSalle Street, 
Chicago, IL 60675. AB, 2401 Cedar Springs Road, Dallas, TX 75201.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Michael W. Mundt, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. NIF, NF and AB, all of which are Delaware business trusts, are 
open-end management investment companies registered under the Act that 
have 22, 35 and 13 portfolio series, respectively. Northern, a 
principal subsidiary of Northern Trust Corporation, is an Illinois 
state-chartered commercial bank and a member of the Federal Reserve 
System. NTI, an indirect wholly owned subsidiary of Northern Trust 
Corporation, is an Illinois state-chartered trust company. NTGIE, an 
indirect wholly owned subsidiary of Northern Trust Corporation, is 
organized under the laws of the United Kingdom. NTI and NTGIE are 
registered investment advisers under the Investment Advisers Act of 
1940 and serve as the investment advisers to both NIF and NF. It is 
contemplated that Northern, NTI, NTGIE or an entity controlling, 
controlled by, or under common control (within the meaning of section 
2(a)(9) of the Act) with Northern, NTI, or NTGIE (collectively, 
``Northern Entities'') will serve as sub-adviser to certain portfolio 
series of AB when they commence operations. NIF, NF, AB and any other 
registered investment company or portfolio series that currently, or in 
the future, is advised by a Northern Entity are collectively referred 
to as the ``Affiliated Funds.'' \1\ The Money Market Portfolios will 
comply with rule 2a-7 under the Act and will either be a portfolio 
series of NIF or an Affiliated Fund that is organized specifically for 
the investment of Uninvested Cash and/or Cash Collateral.
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    \1\ A registered investment company or series that is 
subadvised, but not advised, by a Northern Entity may be considered 
an Affiliated Fund for purposes of the requested relief except that 
(a) the relief requested from section 12(d)(1) to permit the 
investment of Uninvested Cash will not apply to such fund, and (b) 
such fund will not be a Money Market Portfolio that receives 
Uninvested Cash and/or Cash Collateral.
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    2. The Private Funds are common trust funds that will operate as 
private investment companies in reliance on section 3(c)(1) or 3(c)(7) 
of the Act. Units of the Private Funds (``Units'') may be offered to 
the Lending Funds (as defined below) in reliance on Regulation D under 
the Securities Act of

[[Page 37075]]

1933. Any Private Fund that uses the amortized cost method of valuation 
as defined in rule 2a-7 under the Act will comply with rule 2a-7. A 
Northern Entity will act as the trustee (``Trustee'') of each Private 
Fund.
    3. Applicants request relief for any existing or future Northern 
Entity, Affiliated Fund, Private Fund, or other registered investment 
company or series that is not an Affiliated Fund (``Other Fund'').\2\
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    \2\ All existing Affiliated Funds that currently intend to rely 
on the requested order have been named as applicants. Any existing 
or future Northern Entity, Affiliated Fund, Private Fund, or Other 
Fund may rely on the requested order in the future only in 
accordance with the terms and conditions stated in the application.
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    4. Each of the Affiliated Funds has, or may be expected to have, 
Uninvested Cash that results from a variety of sources, including new 
monies received from investors, dividends or interest received on 
portfolio securities, unsettled securities transactions, reserves held 
for investment strategy purposes, scheduled maturity of investments, 
and liquidation of investment securities to meet anticipated 
redemptions and dividend payments. Applicants propose that the 
Affiliated Funds use Uninvested Cash to purchase shares (``Shares'') of 
the Money Market Portfolios. An Affiliated Fund's aggregate investment 
of Uninvested Cash in Money Market Portfolios will not exceed 25% of 
the Affiliated Fund's total assets and will be in accordance with the 
Affiliated Fund's investment restrictions and policies described in its 
prospectus and statement of additional information.
    5. A Northern Entity (the ``Lending Agent'') will administer a 
securities lending program (the ``Lending Program'') whose participants 
will include Affiliated Funds and Other Funds (together, the ``Lending 
Funds''). Each Lending Fund will be authorized to seek additional 
income by lending portfolio securities. The Lending Agent will enter 
into agreements (``Agreements'') with certain entities (``Borrowers'') 
designated by a Lending Fund. Under the Agreements, the Lending Agent 
will lend securities to Borrowers in exchange for Cash Collateral or 
other types of collateral, such as U.S. Government securities or 
irrevocable letters of credit, as approved by the board of directors or 
trustees of a Lending Fund (``Board''). Cash Collateral will be 
delivered in connection with most loans. The Lending Agent will invest 
Cash Collateral in accordance with specific guidelines provided by the 
Lending Fund. These guidelines will identify the particular types of 
instruments, including Shares, Units, repurchase agreements and other 
money market instruments, in which Cash Collateral may be invested, as 
well as the amounts that may be invested.
    6. The personnel of the Northern Entity providing day-to-day 
lending agency services to the Lending Funds will neither provide 
investment advisory or sub-advisory services to the Lending Funds, nor 
participate in any way in the selection of portfolio securities for, or 
other aspects of management of the Lending Funds.
    7. With respect to loans involving Cash Collateral, the Borrower 
will be entitled to receive an agreed-upon Cash Collateral rebate 
(``Borrower's Rebate''). The Lending Fund will be compensated based on 
the difference between the Borrower's Rebate and the actual return on 
the investment of the Cash Collateral. In the case of collateral other 
than cash, the Lending Agent will negotiate a loan free to be paid by 
the Borrower, which will likely approximate the return the Lending Fund 
would receive had the Borrower delivered Cash Collateral. For its 
services, the Lending Agent will receive fees based on a share of the 
revenue generated from the securities lending transactions.
    8. As agent for a Lending Fund, the Lending Agent may not purchase 
Shares or Units with Cash Collateral unless participation in the 
Lending Program has been approved by the Board of each Lending Fund, 
including a majority of the directors or trustees who are not 
``interested persons'' of the Lending Fund within the meaning of 
section 2(a)(19) of the Act (``Independent Directors''). The Board, 
including the Independent Directors, is required to determine that the 
investment of Cash Collateral in an Investment Fund is in the best 
interests of the shareholders of the Lending Fund.
    9. In addition, the Lending Agent may not purchase Shares or Units 
of any Investment Fund as agent for a Lending Fund unless the Lending 
Fund has represented to the Lending Agent that (a) its policies 
generally permit the Lending Fund to engage in securities lending 
transactions, (b) the transactions are conducted in accordance with the 
guidelines of the Commission and/or its staff, (c) its policies permit 
the Lending Fund to purchase Shares or Units with Cash Collateral, and 
(d) its securities lending activities are conducted in accordance with 
all representations and conditions in the applications.

Applicants' Legal Analysis

A. Investment of Uninvested Cash and Cash Collateral in Money Market 
Portfolios and Private Funds

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
representing more than 3% of the acquired company's outstanding voting 
stock, more than 5% of the acquiring company's total assets, or 
together with the securities of other investment companies, more than 
10% of the acquiring company's total assets. Section 12(d)(1)(B) of the 
Act provides that no registered open-end investment company may sell 
its securities to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies. Section 
12(d)(1)(J) of the Act provides that the Commission may exempt any 
person or transaction from any provision of section 12(d)(1) if and to 
the extent that the exemption is consistent with the public interest 
and the protection of investors.
    2. Applicants request an exemption under section 12(d)(1)(J) to 
permit each Affiliated Fund to use Uninvested Cash and Cash Collateral 
and each Other Fund to use Cash Collateral to acquire Shares in excess 
of the limits imposed by section 12(d)(1)(A), and each Money Market 
Portfolio to sell its securities to Affiliated Funds and Other Funds in 
excess of the limits in section 12(d)(1)(B).
    3. Applicants state that none of the abuses meant to be addressed 
by section 12(d)(1) is created by the proposed investment of Uninvested 
Cash and Cash Collateral in the Money Market Portfolios. Applicants 
further state that access to the Money Market Portfolios will enhance 
each Affiliated Fund's and Other Fund's ability to manage and invest 
Cash Collateral and each Affiliated Fund's ability to manage and invest 
Uninvested Cash. Applicants represent that the proposed arrangement 
will not result in an inappropriate layering of fees because the Money 
Market Portfolios will not charge a sales load, redemption fee, asset-
based distribution fee or service fee (as defined in rule 2830(b)(9) of 
the NASD Conduct Rules). In addition, in connection with approving any 
advisory contract, the Affiliated Fund's Board, including a majority of 
the Independent Directors, will consider to what extent, if any, the 
advisory fees charged to the

[[Page 37076]]

Affiliated Fund by its adviser should be reduced to account for reduced 
services provided when Uninvested Cash is invested in Money Market 
Portfolios. Applicants represent that if a Money Market Portfolio 
offers more than one class of shares, each Affiliated Fund or Other 
Fund will invest its Cash Collateral or Uninvested Cash (in the case of 
Affiliated Funds) in the class with the lowest expense ratio at the 
time of investment. Applicants represent that no Money Market Portfolio 
in which Uninvested Cash or Cash Collateral is invested will acquire 
securities of any other investment company in excess of the limits 
contained in section 12(d)(1)(A) of the Act.
    4. Sections 17(a)(1) and (2) of the Act prohibit an affiliated 
person of a registered investment company, or any affiliated person of 
the affiliated person (``Second Tier Affiliate''), acting as principal, 
from selling any security to, or purchasing any security from, the 
registered investment company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include: any person directly 
or indirectly owning, controlling, or holding with power to vote 5% or 
more of the outstanding voting securities of the other person; any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person; and, in the case of an 
investment company, its investment adviser.
    5. Applicants state that NTI and NTGIE, by serving as investment 
advisers to the Affiliated Funds (including the Money Market 
Portfolios), are affiliated persons of each of these entities. 
Applicants state that a Northern Entity may be deemed to control the 
Private Funds by virtue of being the Trustee, and thus may be an 
affiliated person of the Private Funds. Therefore, an Investment Fund 
may be deemed either an affiliated person, or a Second Tier Affiliate, 
of the Affiliated Funds. In addition, applicants indicate that if an 
Other Fund acquires 5% or more of a Money Market Portfolio's Shares or 
a Private Fund's Units, the Money Market Portfolio or Private Fund may 
be deemed to be an affiliated person of the Other Fund. As a result, 
section 17(a) may prohibit each Investment Fund from selling its Shares 
or Units to, and redeeming its Shares or Units from, Affiliated Funds 
or Other Funds.
    6. Section 17(b) of the Act authorizes the Commission 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, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and with the 
general purposes of the Act. Section 6(c) of the Act authorizes the 
Commission to exempt any person or transaction from any provision of 
the Act if the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    7. Applicants request an order under sections 6(c) and 17(b) to 
permit (a) Investment Funds to sell Shares or Units to, and redeem 
Shares or Units from, the Lending Funds (in connection with the 
investment of Cash Collateral) and (b) Money Market Portfolios to sell 
Shares to and redeem Shares from the Affiliated Funds (in connection 
with the investment of Uninvested Cash). Applicants maintain that the 
terms of the proposed transactions are reasonable and fair because the 
Affiliated Funds and the Other Funds will be treated like any other 
investors in the Investment Funds, and will purchase and sell Shares 
and/or Units on the same terms and one the same basis as Shares and/or 
Units are purchased and sold by all other shareholders of the Money 
Market Portfolios and all other unitholders of the Private Funds. 
Applicants assert that the proposed transactions will comply with the 
investment restrictions and policies of each Affiliated Fund and Other 
Fund. Applicants state that Cash Collateral of a Lending Fund that is a 
Money Market Portfolio will not be used to acquire Units of any Private 
Fund that does not comply with rule 2a-7 under the Act. Applicants 
further state that the investment of Cash Collateral will comply with 
all present and future Commission and staff positions concerning 
securities lending. Applicants state that the Private Funds will comply 
with the major substantive provisions of the Act, including the 
prohibitions against affiliated transactions, leveraging and issuing 
senior securities, and rights of redemption.
    8. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person or principal underwriter for a registered 
investment company, or a Second Tier Affiliate, 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, without an order of the Commission.
    9. Applicants state that the Affiliated Funds and the Other Funds 
(by purchasing and redeeming Shares and Units), the Northern Entities 
(by (a) managing the assets of the Affiliated Funds and the Private 
Funds and (b) acting as Lending Agent, investing Cash Collateral in 
Shares or Units, and receiving portion of the revenue generated by 
securities lending transactions), and the Money Maker Portfolios and 
Private Funds (by selling Shares or Units to, and redeeming them from, 
the Affiliated Funds and Other Funds) could be deemed to be 
participants in a joint enterprise or other joint arrangement within 
the meaning of section 17(d) and rule 17d-1. Applicants request an 
order in accordance with section 17(d) and rule 17d-1 to permit certain 
transactions incident to investment in Investment Funds.
    10. Under rule 17d-1, in passing on applications for orders under 
section 17(d), the Commission considers whether the company's 
participation in the joint enterprise 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. Applicants submit that the proposed 
transactions meet these standards for the reasons discussed above.

B. Payment of Lending Agent Fees to a Northern Entity

    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 Commission has approved the 
transaction. Applicants state that a lending agent arrangement between 
an Affiliated Fund or Other Fund and the Lending Agent under which 
compensation is based on a share of the revenue generated by the 
Lending Agent's activities may be a joint enterprise or other joint 
arrangement or profit sharing plan within the meaning of section 17(d) 
and rule 17d-1. Consequently, applicants request an order to permit 
each Northern Entity, as Lending Agent, to receive fees on a share of 
the revenue generated from securities lending transactions undertaken 
pursuant to the Lending Program.
    2. Each Affiliated Fund that will enter into the Lending Program 
will adopt the following procedures to ensure that the proposed fee 
arrangement and other terms governing the relationship with a Northern 
Entity, as Lending Agent, will be fair and meet the standards of rule 
17d-1:
    (a) In connection with the approval of any Northern Entity as 
Lending Agent

[[Page 37077]]

for an Affiliated Fund and implementation of the proposed fee 
arrangement, a majority of the Board (including a majority of the 
Independent Directors) will determine that (i) the securities lending 
agreement with the Northern Entity is in the best interests of the 
Affiliated Fund and its shareholders; (ii) the services to be performed 
by the Northern Entity are appropriate for the Affiliated Fund; (iii) 
the nature and quality of the services provided by the Northern Entity 
are at least equal to those provided by others offering the same or 
similar services for similar compensation; and (iv) the fees for the 
Northern Entity'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 Affiliated Fund's securities lending agreement with a 
Northern Entity for lending agent services will be reviewed annually by 
the Board and will be approved for continuation only if a majority of 
the Board (including a majority of the Independent Directors) makes the 
findings referred to in paragraph (a) above.
    (c) In connection with the initial implementation of the proposed 
fee arrangement whereby a Northern Entity will be compensated as 
lending agent based on a percentage of the revenue generated by an 
Affiliated Fund's participation in the Lending 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 Independent 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 
set forth in the application for continuing appropriateness.
    (e) Each Affiliated Fund will maintain and preserve: (i) 
permanently, in an easily accessible place, a written copy of the 
procedures and conditions described in the application and (ii) for a 
period of not less than six years from the end of the fiscal year in 
which any loan transaction under the Lending Program occurred, the 
first two years in an easily accessible place, a written record of each 
such 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 the loan was made 
in accordance with the procedures set forth above and the conditions to 
the application.
    3. With respect to Other Funds, applicants assert that the nature 
of the affiliation between the Other Funds and any Northern Entity 
serving as Lending Agent is only technical. Applicants assert that any 
Northern Entity serving as Lending Agent would not have any influence 
over the decisions made by any Other Fund and that any fee arrangements 
between the Other Funds and the Northern Entities will be the product 
of arms-length bargaining. Accordingly, applicants believe that the 
proposed arrangement between Other Funds and the Northern Entities 
would meet the standards of rule 17d-1.

C. Transactions by Other Funds With Northern Entities

    1. As noted above, sections 17(a)(1) and (2) prohibit certain 
principal transactions between a registered investment company and its 
affiliates. Applicants assert that a Northern Entity could be deemed a 
Second-tier Affiliate of an Other Fund that owns 5% or more of an 
Investment Fund.
    2. Applicants request relief under sections 6(c) and 17(b) from 
sections 17(a)(1) and (2) to permit principal transactions between 
Other Funds and Northern Entities where the affiliation between the 
parties arises solely as a result of an investment of Cash Collateral 
by an Other Fund in Shares and/or Units. Applicants state that there 
will be no element of self-dealing because none of the Northern 
Entities has any influence over the decisions made by any Other Fund. 
Applicants assert that each transaction will be the product of arms-
length bargaining. Because the interests of the Other Funds' investment 
advisers are solely aligned with those of the Other Funds (to which the 
advisers have fiduciary responsibilities), applicants believe it is 
reasonable to conclude that the consideration paid to or received by 
Other Funds in connection with a principal transaction with a Northern 
Entity will be reasonable and fair.
    3. Section 17(e) of the Act makes it unlawful for any affiliated 
person of a registered investment company, or any Second-tier 
Affiliate, acting as broker in connection with the sale of securities 
to or by that registered investment company, to receive from any source 
a commission for effecting the transaction that exceeds specified 
limits. Rule 17e-1 under the Act provides that a commission shall be 
deemed a usual and customary broker's commission if certain procedures 
are followed by the registered investment company.
    4. Applicants request relief under section 6(c) from section 17(e) 
to the extent necessary to permit the Northern Entities to receive fees 
or commissions for acting as broker or agent in connection with the 
purchase or sale of securities for any Other Fund for which a Northern 
Entity becomes a Second-tier Affiliate solely because of the investment 
of Cash Collateral by the Other Fund in Shares and/or Units.
    5. Applicants submit that brokerage or similar transactions by a 
Northern Entity for the Other Funds raise no possibility of self-
dealing or any concern that these Other Funds would be managed in the 
interest of a Northern Entity. Applicants believe that each transaction 
between an Other Fund and a Northern Entity would be the product of 
arms-length bargaining because each adviser to an Other Fund would have 
no interest in benefiting a Northern Entity at the expense of the Other 
Fund.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:

Securities Lending Program

    1. Before a Lending Fund may participate in the Lending Program, a 
majority of the Board (including a majority of the Independent 
Directors) will approve of the Lending Fund's participation in the 
Lending Program. Such Board also will evaluate the Lending Program and 
its results no less frequently than annually and a majority of the 
Board (including a majority of the Independent Directors) will 
determine that any investment of Cash Collateral in Shares and/or Units 
is in the best interests of the shareholders of the Lending Fund.
    2. Cash Collateral of any Affiliated Fund or Other Fund that relies 
on rule 2a-7 under the Act will not be used to acquire Units of any 
Private Fund that does not comply with the requirements of rule 2a-7.
    3. The approval of an Affiliated Fund's Board, including a majority 
of the Independent Directors, will be required for the initial and 
subsequent approvals of a Northern Entity's service as Lending Agent 
for the Affiliated Fund pursuant to the Lending Program, for the 
institution of all procedures relating to the Lending Program as it 
relates to the Affiliated Fund, and for any periodic review of loan 
transactions for which a Northern Entity acted as Lending Agent 
pursuant to the Lending Program.

[[Page 37078]]

    4. The Lending Program of each Lending Fund will comply with all 
present and future applicable Commission and staff positions regarding 
securities lending arrangements.

Private Funds

    5. Each Lending Fund will purchase and redeem Units 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 holders of 
the Units. A separate account will be established in the unitholder 
records of each Private Fund for the account of each Lending Fund.
    6. Each Private Fund will comply with the requirements of sections 
17(a), (d), (e), and 18 of the Act as if the Private Fund was a 
registered open-end investment company. With respect to all redemption 
requests made by a Lending Fund, the Private Funds will comply with 
section 22(e) of the Act. The Trustee of a Private Fund shall adopt 
procedures designed to ensure that the Private Fund complies with 
sections 17(a), (d), and (e), 18 and 22(e) of the Act. Such Trustee 
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 made 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 
Commission and its staff.
    7. The net asset value per Unit with respect to Units of the 
Private Funds will be determined separately for each Private Fund by 
dividing the value of the assets belonging to that Private Fund, less 
the liabilities of that Private Fund, by the number of Units 
outstanding with respect to that Private Fund.
    8. Any Private Fund that uses the amortized cost method of 
valuation, as defined in rule 2a-7 under the Act, will comply with rule 
2a-7. With respect to each such Private Fund, the Trustee will adopt 
and monitor the procedures described in rule 2a-7(c)(7) and will take 
such other actions as are required to be taken under those procedures. 
The Lending Funds may only purchase Units of such Private Fund if the 
Trustee determines on an ongoing basis that the Private Fund is in 
compliance with rule 2a-7. The Trustee will preserve for a period of 
not less than six years from the date of determination, the first two 
years in an easily accessible place, a record of the determination and 
the basis upon which the determination was made. This record will be 
subject to examination by the Commission and its staff.

Other Conditions

    9. Investment of Uninvested Cash in Shares and Cash Collateral in 
Shares and/or Units will be in accordance with each Affiliated Fund's 
and Other Fund's respective investment restrictions, if any, and will 
be consistent with its policies as recited in its prospectus and 
statement of additional information (and supplements thereto).
    10. Shares and Unites will not be subject to a sales load, 
redemption fee, asset-based distribution fee or service fee (as defined 
in rule 2830(b)(9) of the NASD Conduct Rules).
    11. Before the next meeting of the Board of an Affiliated Fund is 
held for the purpose of voting on an advisory contract under section 15 
of the Act, the Northern Entity acting as investment adviser of the 
Affiliated Fund will provide the Board with specific information 
regarding the approximate cost to such investment adviser of, or 
portion of the advisory fee under the existing advisory contract 
attributable to, managing the Uninvested Cash of the Affiliated Fund 
that can be expected to be invested in the Money Market Portfolios. In 
connection with approving any advisory contract for an Affiliated Fund, 
the Board of the Affiliated Fund, including a majority of the 
Independent Directors, will consider to what extent, if any, the 
advisory fees charged to the Affiliated Fund by a Northern Entity 
should be reduced to account for reduced services provided to the 
Affiliated Fund by the Northern Entity as a result of Uninvested Cash 
being invested in the Money Market Portfolios. The minute books of the 
Affiliated Fund will record fully the Board's consideration in 
approving the advisory contract, including the consideration referred 
to above.
    12. Each Affiliated Fund will invest Uninvested Cash in, and hold 
Shares of, the Money Market Portfolios only to the extent that the 
Affiliated Fund's aggregate investment of Uninvested Cash in the Money 
Market Portfolios does not exceed 25% of the Affiliated Fund's total 
assets.
    13. Each Affiliated Fund, Money Market Portfolio and Private Fund 
that relies on the order will be advised by a Northern Entity.
    14. Neither the Private Funds nor the Money Market Portfolios in 
which Cash Collateral or Uninvested Cash is invested shall acquire 
securities of any other investment company in excess of the limits 
contained in section 12(d)(1)(A) of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-17721 Filed 7-13-01; 8:45 am]
BILLING CODE 8010-01-M