[Federal Register Volume 64, Number 98 (Friday, May 21, 1999)]
[Notices]
[Pages 27829-27831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12815]
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SECURITIES AND EXCHANGE COMMISSION
[Release Nos. IC-23841, 812-11414]
AIM Advisor Funds, Inc., et al.; Notice of Application
May 14, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under sections 6(c),
12(d)(1)(J), and 17(b) of the Investment Company Act of 1940 (the
``Act'') for exemptions from sections 12(d)(1)(A) and (B) and 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 the Application: The requested order would permit
certain registered management investment companies to invest uninvested
cash and cash collateral in affiliated money market funds in excess of
the limits in sections 12(d)(1)(A) and (B) of the Act.
Applicants: AIM Advisor Funds, Inc., AIM Eastern Europe Fund, AIM
Equity Funds, Inc., AIM Funds Group, AIM Growth Series, AIM
International Funds, Inc., AIM Investment Funds, AIM Investment
Securities Funds, AIM Series Trust, AIM Special Opportunities Funds,
AIM Summit Fund, Inc., AIM Tax-Exempt Funds, Inc., AIM Variable
Insurance Funds, Inc., Emerging Markets Debt Portfolio, Floating Rate
Portfolio, Global Investment Portfolio, Growth Portfolio, G.T. Global
Floating Rate Fund, Inc., G.T. Global Variable Investment Series, G.T.
Global Variable Investment Trust, Short-Term
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Investments Co., Short-Term Investments Trust, Tax-Free Investments
Co., and all existing and future registered management investment
companies for which AIM Advisors, Inc. (``AIM'') serves in the future
as in investment adviser (collectively, the ``Investment Companies'')
and all series of the Investment Companies.
Filing Dates: The application was filed on November 25, 1998, and
amended on April 16, 1999.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the SEC orders a hearing. Interested
persons may request a hearing by writing to the SEC's Secretary and
serving 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 8,
1999, 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, N.W., Washington, D.C.
20549-0609. Applicants, 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173.
FOR FURTHER INFORMATION CONTACT: John K. Forst, Attorney-Advisor, at
(202) 942-0517, 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
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC
20549-0102 (tel. 202-942-8090).
Applicants' Representations
1. Each of the Investment Companies is an open-end management
investment company registered under the Act, except for AIM Eastern
Europe Fund and G.T. Global Floating Rate Fund, Inc., which are
registered under the Act as closed-end management investment companies.
The Investment Companies currently consist of over one hundred ten
(110) series (the series and any Investment Companies that do not have
series, together with any future such series or Investment Companies,
the ``Funds''), eleven of which hold themselves out as money market
funds and are subject to the requirements of rule 2a-7 under the Act
(together with any future money market Funds, the ``Money Market
Funds'').\1\ AIM is the investment adviser to each Fund and is
registered under the Investment Advisers Act of 1940.
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\1\ All Funds that currently intend to rely on the requested
order are named as applicants. Any other existing or future Fund
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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2. Applicants state that each of the Funds has, or may have,
uninvested cash held by its custodian. Such cash may result from a
variety of sources, including dividends or interest received on
portfolio securities, unsettled securities transactions, strategic
reserves, matured investments, proceeds from liquidation of investment
securities, dividend payments, or new investor capital (``Uninvested
Cash''). Most Funds also may participate in a securities lending
program under which a Fund may lend its portfolio securities to
registered broker-dealers or other institutional investors
(``Securities Lending Program''). The loans are 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,'' and together with Uninvested Cash, ``Cash Balances'').
3. Applicants request an order to permit certain Funds (``Investing
Funds'') to invest their Cash Balances in one or more of the Money
Market Funds, and the Money Market Funds to sell their shares to, and
redeem their shares from, the Investing 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' 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) 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.
2. Section 12(d)(1)(J) of the Act provides that the SEC may exempt
any person, security, or transaction 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. Applicants request
relief under section 12(d)(1)(J) from the limitations of section
12(d)(1)(A) and (B) to permit the Investing Funds to invest Cash
Balances in Money Market Funds.
3. Applicants state that the proposed arrangement would not result
in the abuses that sections 12(d)(1)(A) and (B) were intended to
prevent. Applicants state that because each Money Market Fund will
maintain a highly liquid portfolio, an Investing Fund will not be in a
position to gain undue influence over a Money Market Fund through
threat of redemption. 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, or if the shares are subject to any
such fee, AIM will waive its advisory fee for each Investing Fund in an
amount that offsets the amount of the fee incurred by the Investing
Fund. In connection with approving any advisory contract for an
Investing Fund, the Investing Fund's board of trustees or directors
(the ``Board''), including a majority of the trustees or directors who
are not ``interested persons,'' as defined in section 2(a)(19) of the
Act (``Disinterested Directors''), will consider to what extent, if
any, the advisory fees charged to the Investing Fund by AIM should be
reduced to account for reduced services provided to the Investing Fund
by AIM as a result of the investment of Uninvested Cash in the Money
Market Funds. Applicants represent that no Money Market Fund will
acquire securities of any other investment company in excess of the
limitations contained in section 12(d)(1)(A).
4. Section 17(a) of the Act 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 to include any person directly or
indirectly controlling,
[[Page 27831]]
controlled by , or under common control with the other person.
Applicants state that, because the Funds share a common investment
adviser, 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.
5. 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 investment company concerned, and the proposed
transaction is consistent with the general purposes of the Act. 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.
6. Applicants submit that their request for relief to permit the
purchase and redemption of shares of the Money Market Funds by the
Investing Funds satisfies the standards in sections 6(c) and 17(b).
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. 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. The Money
Market Funds have the right to discontinue selling shares to any of the
Investing Funds if the Money Market Fund's Board determines that such
sale would adversely affect its portfolio management and operations.
7. Section 17(d) of the Act and rule 17d-1 under the Act 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 state that the Funds, by participating
in the proposed transactions, and AIM, 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.
8. Rule 17d-1 permits the SEC to approve a joint transaction
covered by the terms of section 17(d). In determining whether to
approve a transaction, the SEC considers whether the investment
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 Funds will
participate in the proposed transactions on the same basis and will be
indistinguishable from any other shareholder account maintained by the
same class of the Money Market Funds and that the transactions will be
consistent with the Act.
Applicants' Conditions
Applicants agree that any 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 2830(b)(9) of the
NASD's Conduct Rules) or if such shares are subject to any such fee,
AIM will waive its advisory fee for each Investing Fund in an amount
that offsets the amount of such fee incurred by the Investing Fund.
2. Prior to reliance on the order, an Investing Fund will hold a
meeting of the Board for the purpose of voting on the advisory contract
under section 15 of the Act. Before approving any advisory contract for
an Investing Fund, the Board, including a majority of the Disinterested
Directors, taking into account all relevant factors, shall consider to
what extent, if any, the advisory fees charged to the Investing Fund by
AIM should be reduced to account for reduced services provided to the
Fund by AIM as a result of the Uninvested Cash being invested in the
Money Market Fund. In connection with this consideration, AIM will
provide the Board with specific information regarding the approximate
cost to AIM 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
Fund. The minute books of the Investing Fund will record fully the
Board's considerations in approving the advisory contract, including
the consideration relating to fees 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
Funds' aggregate investment in the Money Market Funds does not exceed
25 percent of the Investing Fund's total assets. For purposes of this
limitation, each Investing Fund 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 respective investment
restrictions, if any, and will be consistent with each Investing Fund's
policies as set forth in its prospectuses and statements of additional
information.
5. Each Investing Fund, each Money Market Fund, and any future fund
that may rely on the order shall be advised or, provided AIM manages
Cash Balances, subadvised by AIM, or a person controlling, controlled
by, or under common control with AIM.
6. No Money Market Fund whose shares are acquired by an Investing
Fund shall acquire securities of any 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
Directors, will approve the Fund's participation in the Securities
Lending Program. Such directors/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
Fund.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-12815 Filed 5-20-99; 8:45 am]
BILLING CODE 8010-01-M