[Federal Register Volume 63, Number 102 (Thursday, May 28, 1998)]
[Notices]
[Pages 29258-29260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14018]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23198; 812-10942]
Boston 1784 Funds, et al.; Notice of Application
May 20, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 12(d)(1)(J) of
the Investment Company Act of 1940 (the ``Act'') exempting applicants
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and
17(b) of the Act exempting applicants from sections 17(a)(1) and
17(a)(2) of the Act, and under section 17(d) of the Act and rule 17d-1
under the Act.
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SUMMARY OF THE APPLICATION: The requested order would permit certain
registered open-end management investment companies to invest excess
cash and collateral in affiliated money market funds in excess of the
limits in sections 12(d)(1)(A) and (B) of the Act.
APPLICANTS: Boston 1784 Funds (the ``Trust''), and all other registered
open-end management investment companies and series thereof that
currently or in the future are part of the same ``group of investment
companies,'' within the meaning of section 12(d)(1)(G) of the Act, that
includes the Trust, and BankBoston, N.A. (``BankBoston'').
FILING DATES: The application was filed on December 31, 1997, and
amended on May 20, 1998.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 15, 1998,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, 2 Oliver Street, Boston, MA 02109.
FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney,
at (202) 942-0517, or Nadya B. Roytblat, Assistant Director, at (202)
942-0564,
[[Page 29259]]
(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
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Trust is an open-end management investment company
registered under the Act and organized as a Massachusetts business
trust. The Trust currently consists of nineteen series (``Funds''),
five of which hold themselves out as money market funds and are subject
to the requirements of rule 2a-7 under the Act (``Money Market
Funds''). BankBoston (formerly, The First National Bank of Boston) is
the investment adviser to each Fund. Kleinwort Benson Investment
Management Americas Inc. (``KBIMA'') serves as co-investment adviser to
the Boston 1784 International Equity Fund with BankBoston. BankBoston,
as a national bank, is not required to register as an investment
adviser under the Investment Adviser Act of 1940 (``Advisers Act'').
KBIMA is registered as an investment adviser under the Advisers Act.
(BankBoston together with KBIMA, the ``Investment Advisers''.)
BankBoston also serves as custodian (``Custodian'') for the assets of
all series of the Trust.
2. Each Fund may participate in a securities lending program
(``Securities Lending Program'') under which the Fund may lend its
portfolio securities to registered broker-dealers or other
institutional investors. Before a Fund will participate in the
Securities Lending Program, it will select a securities lending agent
which is not affiliated with BankBoston or any of its affiliates. The
agreements governing these loans require that the loans be continuously
secured by collateral equal at all times to at least the market value
of the securities loaned. Collateral for these loans may include cash
(``Cash Collateral''), securities of the U.S. Government or its
agencies, or any combination of cash and such securities. Any
investment of Cash Collateral will comply with all present and future
applicable SEC positions regarding securities lending agreements.
3. Each of the Funds has, or may have, uninvested cast
(``Uninvested Cash'') held by its Custodian. Uninvested Cash may result
from a variety of sources, including dividends or interest received on
portfolio securities, unsettled securities transactions, reserves held
for investment strategy purposes, scheduled maturity of investments,
liquidation of investment securities to meet anticipated redemptions,
dividend payments, or new monies received from investors. Currently,
the Funds may invest Uninvested Cash in individual short-term money
market instruments and repurchase agreements.
4. The Funds wish to have the flexibility to invest their
Uninvested Cash and Cash Collateral (collectively, ``Cash Balances'')
in the Money Market Funds. Investment of Cash Balances in shares of the
Money Market Funds will be made only to the extent that such
investments are consistent with each Fund's investment restrictions and
policies as set forth in its prospectus and statement of additional
information. Applicants believe that the proposed transactions may
reduce transaction costs, create more liquidity, increase returns, and
diversify holdings. Applicants request an order to permit certain Funds
(``Investing Funds'') to invest their Cash Balances in one or more of
the Money Market Funds.\1\
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\1\ All investment companies that currently intend to rely on
the requested order are named as applicants. Any other existing or
future investment company that may rely on the order in the future
will do so only in accordance with the terms and conditions of the
application.
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Applicants' Legal Analysis
1. Section 12(d)(1)(A) of the Act provides that no registered
investment company may acquire securities of another investment company
if such securities represent more than 3% of the acquired company's
outstanding voting stock, more than 5% of the acquiring company's total
assets, or if such securities, together with the securities of other
acquired investment companies, represent more than 10% of the acquiring
company's total assets. Section 12(d)(1)(B) 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.
2. Section 12(d)(1)(J) of the Act provides that the SEC may exempt
any person, security, or transaction (or classes thereof) from any
provision of section 12(d)(1) if and to the extent that such exemption
is consistent with the public interest and the protection of investors.
3. Applicants' proposal would permit the Investing Funds to use
Cash Balances to acquire shares of the Money Market Funds in excess of
the percentage limitations in section 12(d)(1)(A), provided however,
that in all cases the Investing Fund's aggregate investment of
Uninvested Cash in shares of the Money Market Funds will not exceed 25%
of the Investing Fund's total assets. Applicants' proposal also would
permit the Money Market Funds to sell their securities to an Investing
Fund in excess of the percentage limitations in section 12(d)(1)(B).
Applicants represent that no Money Market Funds will acquire securities
of any other investment company in excess of the limitations contained
in section 12(d)(1)(A) of the Act.
4. Applicants believe that the proposed arrangement would not
result in the abuses that sections 12(d)(1) (A) and (B) were intended
to prevent. Applicants represent that the proposed arrangement will not
result in an inappropriate layering of fees because shares of the Money
Market Funds sold to the Investing Funds will not be subject to a sales
load, redemption fee, asset-based distribution fee or service fee. In
addition, in connection with approving any advisory contract, the
Investing Fund's board of trustees (the ``Board''), including a
majority of the trustees who are not ``interested persons,'' as defined
in section 2(a)(19) of the Act (``Disinterested Trustees''), will
consider to what extent, if any, the advisory fees charged to the
Investing Fund by the Investment Adviser should be reduced to account
for reduced services provided to the Investing Fund by the Investment
Adviser as a result of a portion of the assets of the Investing Fund
being invested in the Money Market Funds.
5. Section 17(a) makes it unlawful for any affiliated person of a
registered investment company, acting as principal, to sell or purchase
any security to or from the company. Section 2(a)(3) of the Act defines
an affiliated person of another person as any person directly or
indirectly controlling, controlled by, or under common control with,
such other person. Under section 2(a)(3), because the Trust has one
board of trustees, each Fund may be deemed to be under common control
with each of the other Funds, and thus an affiliated person of each of
the other Funds. As a result, section 17(a) would prohibit the sale of
the shares of the Money Market Funds to the Investing Funds, and the
redemption of the shares by the Money Market Funds.
6. Section 17(b) of the Act authorizes the SEC to exempt a
transaction from section 17(a) of the Act if the terms of the proposed
transaction, including the
[[Page 29260]]
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 investment
company concerned, and the proposed transaction is consistent with the
general purposes of the Act.
7. Section 6(c) of the Act permits the SEC to exempt persons or
transactions 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.
8. Applicants submit that their request for relief satisfies the
standards in sections 17(b) and 6(c). Applicants state that the
Investing Funds will retain their ability to invest Cash Balances
directly in money market instruments as authorized by their respective
investment objectives and policies, if they believe they can obtain a
higher rate of return, or for any other reason. Similarly, each of the
Money Market Funds has the right to discontinue selling shares to any
of the Investing Funds if the Board of the Money Market Fund determines
that such sale would adversely affect its portfolio management and
operations. In addition, applicants note that shares of the Money
Market Funds will be purchased and redeemed at their net asset value,
the same consideration paid and received for these shares by any other
shareholder.
9. Section 17(d) and rule 17d-1 prohibit an affiliated person of an
investment company, acting as principal, from participating in or
effecting any transaction in connection with any joint enterprise or
joint arrangement in which the investment company participates.
Applicants believe that the Funds, by participating in the proposed
transactions, and the Investment Advisers, by managing the proposed
transactions, could be deemed to be participating in a joint
arrangement within the meaning of section 17(d) and rule 17d-1 under
the Act.
10. In considering whether to grant an exemption under rule 17d-1,
the SEC considers whether the investment company's participation in
such joint enterprise is consistent with the provisions, policies, and
purposes of the Act, and the extent to which such participation is on a
basis different from or less advantageous than that of other
participants. Applicants submit that the Funds will participate in the
proposed transactions on a basis not different from or less
advantageous than that of any other participant and that the
transactions will be consistent with the Act.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Shares of the Money Market Funds sold to and redeemed by the
Investing Funds will not be subject to a sales load, redemption fee,
distribution fee under a plan adopted in accordance with rule 12b-1
under the Act or service fee (as defined in rule 2380(b)(9) of the
NASD's Conduct Rules).
2. Before the next meeting of the Board is held for the purpose of
voting on an advisory contract under section 15 of the Act, the
Investment Adviser to the Investing Fund will provide the Board with
specific information regarding the approximate cost to the Investment
Adviser of, or portion of the advisory fee under the existing advisory
contract attributable to, managing the Uninvested Cash of the Investing
Fund that can be expected to be invested in the Money Market Funds. In
connection with approving any advisory contract for an Investing Fund,
the Board, including a majority of the Disinterested Trustees, shall
consider to what extent, if any, the advisory fees charged to the
Investing Fund by the Investment Adviser should be reduced to account
for reduced services provided to the Investing Fund by the Investment
Adviser as a result of Uninvested Cash being invested in the Money
Market Funds. The minute book of the Investing Fund Will record fully
the Board's consideration in approving the advisory contract, including
the considerations referred to above.
3. Each Investing Fund will invest Uninvested Cash in, and hold
shares of, the Money Market Funds only to the extent that the Investing
Fund's aggregate investment in the Money Market Funds does not exceed
25% of the Investing Fund's total assets. For purposes of this
limitation, each Investing Fund or series thereof will be treated as a
separate investment company.
4. Investment of Cash Balances in shares of the Money Market Funds
will be in accordance with each Investing Fund's investment
restrictions and will be consistent with each Investing Fund's policies
as set forth in its prospectus and statement of additional information.
5. Each Investing Fund, each Money Market Fund, and any future
registered open-end management investment company that may rely on the
order shall be part of the same ``group of investment companies,'' as
defined in section 12(d)(1)(G)(ii) of the Act, that includes the Trust.
6. No Money Market Fund shall acquire securities of any other
investment company in excess of the limits contained in section
12(d)(1)(A) of the Act.
7. Before a Fund may participate in the Securities Lending Program,
a majority of the Board, including a majority of the Disinterested
Trustees, will approve the Fund's participation in the Securities
Lending Program. Such Trustees also will evaluate the securities
lending arrangement and its results no less frequently than annually
and determine that any investment of Cash Collateral in the Money
Market Funds is in the best interest of the shareholders of the
Investing Fund.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14018 Filed 5-27-98; 8:45 am]
BILLING CODE 8010-01-M