[Federal Register Volume 61, Number 33 (Friday, February 16, 1996)]
[Notices]
[Pages 6269-6272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3574]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21744; 812-9726]
AIM Equity Funds, Inc., et al.; Notice of Application
February 12, 1996.
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: AIM Equity Funds, Inc., AIM Funds Group, AIM International
Funds, Inc., AIM Investment Securities Funds, AIM Strategic Income
Fund, Inc., AIM Summit Fund, Inc., AIM Tax-Exempt Funds, Inc., AIM
Variable Insurance Funds, Inc., Short-Term Investments Co., Short-Term
Investments Trust, Tax-Free Investments Co. (collectively the
``Funds''); each investment portfolio of the Funds; and each other
registered investment company or investment portfolio for which AIM
Advisors, Inc. (``AIM Advisors'') or AIM Capital Management, Inc.
(``AIM Capital
[[Page 6270]]
Management'') (collectively, the ``Advisers'') serves in the future as
an investment adviser (collectively, with the Funds, the ``U.S.
Portfolios''); Global Strategy Canada Growth Fund, Global Strategy U.S.
Equity Fund, Short-Term Investments Company (Global Series) PLC
(collectively, the ``Non-U.S. Registered Funds''); and each investment
portfolio of the Non-U.S. Registered Funds; each other pooled
investment fund advised or in the future advised by either of the
Advisers not engaged in a public offering of their shares in the United
States (collectively with the Non-U.S. Registered Funds, the ``Non-U.S.
Registered Portfolios''); all existing private accounts, investment
companies and other pooled investment funds and investment portfolios
thereof that are exempt from registration as an investment company
under the Act advised or in the future advised by either of the
Advisers (the ``Private Accounts'') (the Non-U.S. Registered Portfolios
and the Private Accounts are collectively referred to as the
``Additional Participants''); and the Advisers.
Revelant Act Section: Exemption requested under section 17(d) and rule
17d-1.
Summary of Application: Applicants seek to amend an existing order that
permits applicants to participate in joint accounts for the purpose of
investing in repurchase agreements with remaining maturities not to
exceed 60 days, and certain other short-term money market instruments
with remaining maturities not to exceed 90 days. The amended order
would extend such prior order's applicability to include additional
participants.
Filing Date: The application was filed on August 22, 1995, and amended
on December 14, 1995 and February 12, 1996.
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 March 8, 1996,
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 such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney at (202) 942-0574, or Alison E. Baur,
Branch Chief, at (202) 942-0564, (Division of Investment Management,
Office Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. Each of the Funds is a registered management investment company
for which AIM Advisors, a registered investment adviser, serves as
investment adviser. AIM Capital Management, a wholly-owned subsidiary
of AIM Advisors, also is a registered investment adviser and serves as
subadviser to several portfolios of AIM Equity Funds, Inc., and as
adviser to the Private Accounts.
2. Pursuant to a prior order (the ``Prior Order''),\1\ the U.S.
Portfolios and the Advisers were given the authority to establish joint
trading accounts (``Joint Accounts''). The Prior Order permits the U.S.
Portfolios to pool some or all of their cash balances into Joint
Accounts for the purpose of investing in: (a) Repurchase agreements
with remaining maturities not to exceed 60 days; and (b) other short-
term money market instruments, including tax-exempt money market
instruments, that constitute ``Eligible Securities'' within the meaning
of rule 2a-7 under the Act with remaining maturities or deemed
maturities (pursuant to rule 2a-7) not to exceed 90 days.
\1\ Investment Company Act Release Nos. 20761 (Dec. 9, 1994)
(notice) and 20821 (Jan. 4, 1995) (order).
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3. The requested order would amend the Prior Order and extend its
applicability to the Additional Participants. The Joint Accounts would
invest in any ``Investment'' as defined in condition 2 below. All Funds
that currently intend to rely on the requested order are named as
applicants.
4. A U.S. Portfolio or an Additional Participant would only
purchase a security through the use of a Joint Account if such security
was consistent with its investment objectives, policies and
restrictions.\2\ Subject to differences in investment objectives, the
Board of Trustees/Directors of each Fund has established the same
systems and standards for evaluating and acquiring Investments through
the Joint Accounts. The Additional Participants will use the same
systems and standards employed by the Funds.
\2\ Currently, neither Global Strategy Canada Growth Fund nor
Global Strategy U.S. Equity Fund may invest in repurchase
agreements. Until they are permitted to invest in repurchase
agreements, neither fund will participate in any Joint Account that
invests in repurchase agreements in reliance on the requested order.
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5. Applicants contend that, if the requested order is granted, the
U.S. Portfolios and the Additional Participants will be able to realize
trading and administrative efficiencies in the management of their
uninvested cash balances. By pooling these balances in the Joint
Accounts, higher yields may be obtained and administrative costs may be
saved, because a larger position can be purchased by a Joint Account
than by any U.S. Portfolio or Additional Participant (each a
``Portfolio'' and, collectively, the ``Portfolios'') individually.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 thereunder 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. Each Portfolio may be deemed an ``affiliated person'' of
each other Portfolio under the definition set forth in section 2(a)(3)
of the Act. Each Portfolio participating in the proposed Joint Account
and each of the Advisers could be deemed to be ``a joint participant''
in a transaction within the meaning of section 17(d). In addition, the
Joint Accounts could be deemed to be a ``joint enterprise or other
joint arrangement'' within the meaning of rule 17d-1.
2. The Board of Directors/Trustees of each Fund has determined that
the Joint Account will not result in any conflicts of interest among
the joint participants. Although the Advisers can gain some benefit
through administrative convenience and possible reduction in clerical
costs, the primary beneficiaries will be the participating Portfolios
because the Joint Accounts may earn higher returns for the Portfolios
and will be a more efficient means of administering investment
transactions. The Boards of the Funds have determined that the
operation of the Joint Accounts will be free of any inherent bias
favoring one Portfolio over another. Prior to the participation by any
Additional Participant in the Joint Accounts, the responsible persons
of such Additional Participant must make findings similar to those made
by the Boards of the Funds.
[[Page 6271]]
3. In passing upon applications under section 17(d) and rule 17d-1,
the SEC considers whether participation in the proposed joint
transaction by a registered investment company is consistent with the
provisions, policies, and purposes of the Act, and not on a basis less
advantageous than that of other participants. Applicants believe that
the granting of the requested order is consistent with this standard.
Applicants' Conditions
Applicants consent to the following as express conditions to any
order issued by the SEC in connection with this application:
1. Each Portfolio will transfer into one or more of the Joint
Accounts the cash it wishes to invest through such Joint Accounts after
the calculation of its daily cash available for investment and will
specifically indicate whether the cash is to be used to purchase
investments. The Joint Accounts will not be distinguishable from any
other accounts maintained buy a Portfolio with its custodian bank
except that monies from a Portfolio will be deposited on a commingled
basis. The Joint Accounts will not have any separate existence and will
not have indicia of separate legal entities. The sole function of the
Joint Accounts will be to provide a convenient way of aggregating
individual transactions which would otherwise require daily management
by each Portfolio of its uninvested cash balances.
2. Cash in the Joint Accounts would be invested in one or more of
the following, as directed by the Portfolio: (i) Repurchase agreements
collateralized fully as defined in rule 2a-7 under the Act by: (a) U.S.
Government obligations; (b) obligations issued or guaranteed as to
principal and interest or otherwise backed by any of the agencies or
instrumentalities of the U.S. Government; (c) certain obligations of
the U.S. Government in the form of separately traded principal and
interest components of securities issued or guaranteed by the U.S.
Treasury; and (d) certain U.S. government agency securities such as
mortgage-backed certificates issued by the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal
Home Loan Mortgage Corporation, representing ownership interests in
mortgage pools; (ii) interest bearing or discounted commercial paper,
including dollar denominated commercial paper of foreign issuers; and
(iii) in any other short-term money market instruments, including tax-
exempt money market instruments, that constitute ``Eligible
Securities'' within the meaning of rule 2a-7 under the Act
(collectively, the ``Investments''). No Portfolio would be permitted to
invest in a Joint Account unless the Investments in such Joint Account
satisfied the investment policies and guidelines of that Portfolio.
Investments that are joint repurchase transactions would have a
remaining maturity or deemed maturity of 60 days or less and other
Investments would have a remaining maturity of 90 days or less, each as
determined pursuant to rule 2a-7 under the Act.
3. All assets held by a Joint Account would be valued on an
amortized cost basis to the extent permitted by applicable SEC release,
rule, or order.
4. Each participating Portfolio valuing its assets in reliance upon
rule 2a-7 under the Act will use the average maturity of the
instrument(s) in the Joint Account in which such Portfolio has an
interest (determined on a dollar weighted basis) for the purpose of
computing that Portfolio's average portfolio maturity with respect to
the portion of its assets held in such Joint Account on that day.
5. In order to assure that there would be no opportunity for one
Portfolio to use any part of a balance of a Joint Account credited to
another Portfolio, no Portfolio will be allowed to create a negative
balance in a Joint Account for any reason, although it would be
permitted to draw down its entire balance at any time. Each Portfolio's
decision to invest in a Joint Account would be solely at its option,
and no Portfolio will be obligated either to invest in a Joint Account
or to maintain any minimum balance in a Joint account. In addition,
each Portfolio would retain the sole rights of ownership to any of its
assets invested in a Joint Account, including interest payable on such
assets invested in such Joint Account.
6. The Advisers would administer the investment of the cash
balances in and operation of the Joint Accounts as part of their duties
under the general terms of each Portfolio's existing or any future
investment advisory contract or sub-advisory contract (the ``Advisory
Contracts'') and would not collect any additional or separate fees for
advising any Joint Account. The operation of the Joint Accounts is not
provided for specifically under each Portfolio's Advisory Contract, but
rather is covered under the general terms of each such Contract. The
Advisers would collect their fees based upon the assets of each
separate Portfolio as provided in each respective Advisory Contract.
7. 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 thereunder.
8. The Boards of Trustees/Directors of the Funds, the Corporate
Trustee of the Non-U.S. Registered Funds and the responsible person of
the Private Accounts (each a ``Board'' and collectively the ``Boards'')
will adopt procedures pursuant to which the Joint Accounts will
operate, which will be reasonably designed to provide that the
requirements of the application will be met. Each of the Boards will
make and approve such changes as it deems necessary to ensure that such
procedures are followed. In addition, the Boards of each Portfolio will
determine, no less frequently than annually, that the Joint Accounts
have been operated in accordance with such procedures and will only
permit a Portfolio to continue to participate therein if it determines
that there is a reasonable likelihood that the Portfolio and its
shareholders (or beneficiaries, as applicable) will benefit from the
Portfolio's continued participation.
9. Any Investment made by a Portfolio or Portfolios through the
Joint Accounts will satisfy the investment criteria of all Portfolios
participating in that Investment.
10. The Advisers and the custodian of each Portfolio will maintain
records documenting, for any given day, each Portfolio's aggregate
investment in a Joint Account and each Portfolio's pro rata share of
each Investment made through such Joint Account. The records maintained
for each Portfolio that is a Fund or an investment portfolio thereof
shall be maintained in conformity with section 31 of the Act and the
rules and regulations thereunder. Each Portfolio that is not a
registered investment company under the Act or an investment portfolio
thereof shall make available to the SEC, upon request, books and
records containing information related to its participation in the
Joint Accounts.
11. Not every Portfolio participating in the Joint Accounts will
necessarily have its cash invested in every Joint Account. However, to
the extent a Portfolio's cash is applied to a particular Joint Account,
the Portfolio will participate in and own a proportionate share of the
Investment in such Joint Account, and the income earned or accrued
thereon, based upon the percentage of such Investment in such Joint
Account purchased with monies contributed by the Portfolio.
12. Investments held in a Joint Account generally will not be sold
prior to maturity except: (a) If the Advisers believe that the
Investment no longer presents minimal credit risk; (b) in the
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case of commercial paper or tax-exempt securities, if as a result of a
credit downgrading or otherwise, the Investment no longer satisfies the
investment criteria of all Portfolios participating in that Investment;
or (c) in the case of a repurchase agreement, if the counterparty
defaults. A Portfolio may, however, sell its fractional portion of an
Investment in a Joint Account prior to the maturity of the Investment
in such Joint Account if the cost of such transaction will be borne
solely by the selling Portfolio and the transaction would not adversely
affect the other Portfolios participating in that Joint Account. In no
case would an early termination be less than all participating
Portfolios be permitted if it would reduce the principal amount or
yield received by other Portfolios participating in a particular Joint
Account or otherwise adversely affect the other participating
Portfolios. Each Portfolio participating in such Joint Account will be
deemed to have consented to such sale and partition of the Investment
in such Joint Account.
13. Any Investment held through a Joint Account with a remaining
maturity of more than seven days will be considered illiquid and, for
any Portfolio that is an open-end management investment company
registered under the Act, subject to the restriction that the Portfolio
may not invest more than 15% (or such other percentage as set forth by
the SEC from time to time) of its net assets in illiquid securities, if
the Portfolio cannot sell its fractional interest in the Investment in
such Joint Account pursuant to the requirements described in the
preceding condition.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3574 Filed 2-15-96; 8:45 am]
BILLING CODE 8010-01-M
