[Federal Register Volume 60, Number 7 (Wednesday, January 11, 1995)]
[Notices]
[Pages 2801-2803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-605]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC--20817; 812-9016]
AVESTA Trust, et al.; Notice of Application
January 4, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for Exemption Under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: AVESTA Trust (``AVESTA''), including all existing and
future series thereof, and any future management investment companies
and series thereof that are advised by Texas Commerce Bank, N.A.
(``TCB'') or any entity controlling, controlled by, or under common
control (as defined in section 2(a)(9) of the Act) with TCB (the
``Portfolios''); and TCB and any entity controlling, controlled by, or
under common control (as defined in section
[[Page 2802]]
2(a)(9) with TCB that serves as investment adviser to any of the
Portfolios (the ``Advisers'').
RELEVANT ACT SECTION: Order requested under section 17(d) of the Act
and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request a conditional order
permitting the Portfolios to pool uninvested cash balances and deposit
the balances into one or more joint accounts (the ``Accounts''). Cash
balances in the Accounts would be invested in short-term repurchase
agreements.
FILING DATES: The application was filed on May 25, 1994, and amended on
September 19, 1994, and December 23, 1994.
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 January 30,
1995, 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 SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW, Washington, DC 20549.
Applicants, 712 Main Street, Houston, Texas 77002.
FOR FURTHER INFORMATION CONTACT: Bradley W. Paulson, Staff Attorney, at
(202) 942-0147 or C. David Messman, 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 is available for a fee from the
SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is a registered open-end management investment company
and is organized as a business trust under the laws of Texas. TCB
provides or arranges for investment advisory, administrative,
custodial, and accounting services for all fifteen series of the Trust.
2. Each Portfolio may be expected to have uninvested cash balances
held by its custodian or sub-custodian bank (the ``Custodian'') at the
end of the trading day. To provide liquidity and earn additional
income, the Adviser ordinarily would invest this cash in short-term
investments authorized under the Portfolio's investment policies.
3. Applicants propose to establish one or more Accounts that would
be used exclusively to pool excess cash of the Portfolios to purchase
one or more repurchase agreements. Under the proposed arrangement, the
Adviser would enter into repurchase agreements by calling a previously
approved counterparty, indicating the size and duration of the
transaction, and negotiating the rate of interest. Master repurchase
agreements establish minimum collateral levels, securities eligible to
be held as collateral, and the maximum term of a transaction. The
Custodian would be able to enter into third-party arrangements with
qualified banks for custody of assets and collateral securities to
facilitate repurchase transactions and obtain more attractive rates.
4. After the Adviser and a counterparty reach agreement on the size
of a repurchase transaction, the Custodian would be notified and would
be required to verify, before releasing the funds, that eligible
collateral securities of sufficient value have been received. These
securities would be either wired to the account of the Custodian (or a
third-party custodian) at the appropriate Federal Reserve Bank or
physically transferred to a segregated account of the Custodian (or
third-party custodian).
5. Transactions in the Account would be reported to the Portfolios'
Custodian through a trade authorization that would authorize the
Custodian to settle the transaction on a joint basis. The trade
authorization would state each Portfolio's portion of the investment.
The Custodian would reconcile the Account with the trade authorizations
on a daily basis. At least monthly, assets held in the Account would be
reconciled with the Custodian's securities movement and control
records, and the Custodian would reconcile each Portfolio's securities
movement and control records with each Portfolio's security ownership
records.
6. The Portfolios will not enter into repurchase agreements with
their custodian, except where cash is received very late in the
business day and otherwise would be unavailable for investment at all.
7. Applicants believe the proposed Account would have the following
benefits for the Portfolios: (a) The Portfolios would save significant
fees and expenses by reducing the number of transactions in which they
engage; (b) the Portfolios would enjoy a higher rate of return on
uninvested cash balances because higher rates of return are usually
available for larger repurchase agreements; (c) the number of trade
tickets written by each party to a repurchase transaction would be
reduced, which would simplify the transaction and decrease the
opportunity for errors.
Applicants' Legal Analysis
1. Section 17(d) of the Act makes it unlawful for an affiliated
person of a registered investment company or an affiliated person of
such person, acting as principal, to effect any transaction in which
the registered investment company is a joint or a joint and several
participant with such person in contravention of rules and regulations
prescribed by the SEC. Rule 17d-1(a) under the Act provides that an
affiliated person of a registered investment company or an affiliated
person of such person, acting as principal, shall not participate in,
or effect any transaction in connection with, any joint enterprise or
other joint arrangement in which the registered investment company is a
participant unless the SEC has issued an order approving the
arrangement.
2. Each Portfolio, by participating in the proposed Account, and
the Adviser by managing the proposed Account, could be deemed to be
joint participants in a transaction within the meaning of section
17(d), and the proposed Account could be deemed to constitute a joint
enterprise or other type of joint arrangement within the meaning of
rule 17d-1. Furthermore, under the definition of ``affiliated person''
set forth in section 2(a)(3) of the Act, each applicant could be deemed
an affiliated person of each other applicant.
3. Applicants believe that the proposed method of operating the
Account would not result in conflicts of interest among any of the
Portfolios or between a Portfolio and its Adviser. Although the Adviser
would gain some benefit through administrative convenience and possible
reduction in clerical costs, the primary beneficiaries would be the
Portfolios and their shareholders. The Account would provide the
Portfolios and their shareholders with a more efficient and productive
way of administering daily investment transactions.
4. Applicants believe that it would be desirable to permit future
Portfolios to participate in the Account without the necessity of
applying for an amendment to the requested order. Future Portfolios
would be required to participate on the
[[Page 2803]]
same terms and conditions as the existing Portfolios.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Account will be established as one or more separate cash
accounts on behalf of the Portfolios with the Custodian. The Portfolios
may deposit daily all or a portion of their uninvested net cash
balances into the Account. The Account will not be distinguishable from
any other accounts maintained by a Portfolio with the Custodian except
that monies from the various Portfolios will be deposited in the
Account on a commingled basis. The Account will not have any separate
existence with indicia of a separate legal entity. The sole function of
the account will be to provide a convenient way of aggregating
individual transactions that would otherwise require management by each
Portfolio of its cash balances.
2. Cash in the Account will be invested solely in repurchase
agreements, ``collateralized fully'' as defined in rule 2a-7 under the
Act and satisfying the uniform standards set by the Portfolios for such
investments.
3. All repurchase agreements entered into by the Portfolios through
the Account will be valued on an amortized cost basis. Each Portfolio
relying upon rule 2a-7 for valuation of its net assets on the basis of
amortized cost will use the average maturity of the repurchase
agreements purchased by the Portfolios participating in the account for
the purpose of computing the Portfolio's average portfolio maturity
with respect to the portion of its assets held in the account on that
day.
4. In order to assure that there will be no opportunity for one
Portfolio to use any part of the balance of the Account credited to
another Portfolio, no Portfolio will be allowed to create a negative
balance in the Account for any reason, although each Portfolio will be
permitted to draw down its pro rata share of the entire balance at any
time. Each Portfolio's decision to invest through the Account will be
solely at the Portfolio's option, and no Portfolio will be obligated to
invest through, or to maintain a minimum balance in, the Account. In
addition, each Portfolio will retain the sole rights of ownership of
any of its assets invested in the Account, including interest payable
on the assets. Each Portfolio's investment in the account will be
documented daily on the books of the Portfolio as well as on the
Custodian's books.
5. Each Portfolio will participate in the income earned or accrued
in the Account, including all investments held by the Account, on the
basis of the percentage of the total amount in the Account on any day
represented by its share of the Account.
6. The Adviser will administer, manage, and invest the cash balance
in the Account in accordance with and as part of its duties under the
existing or any future investment advisory contracts with each
Portfolio. The Adviser will not collect any additional or separate fee
for the administration of the Account.
7. The Portfolios and the Adviser will enter into an agreement to
govern the arrangements in accordance with the foregoing
representations.
8. The administration of the Account will be within the fidelity
bond coverage required by section 17(g) of the Act and rule 17g-1
thereunder.
9. The Board of Directors of each Portfolio participating in the
Account will evaluate the Account arrangements annually and will
authorize the continued participation in the Account only if it
determines that there is a reasonable likelihood that such continued
participation would benefit the Portfolio and its shareholders.
10. Substantially all repurchase transactions will have an
overnight, over-the-weekend or over-a-holiday maturity, and in no event
would a transaction have a maturity of more than seven days.
11. All joint repurchase transactions will be effected in
accordance with Investment Company Act Release No. 13005 (Feb. 2, 1983)
and with other existing and future positions taken by the SEC or its
staff by rule, interpretive release, no-action letter, any release
adopting any new rule, or any release adopting any amendments to any
existing rule.
12. Any investment made through the Account will satisfy the
investment policies or criteria of all Portfolios participating in that
investment.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-605 Filed 1-10-95; 8:45 am]
BILLING CODE 8010-01-M
