[Federal Register Volume 61, Number 49 (Tuesday, March 12, 1996)]
[Notices]
[Pages 10038-10041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5783]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21808; 812-9684]
The Benchmark Funds and The Northern Trust Company; Notice of
Application
March 5, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
APPLICANTS: The Benchmark Funds (the ``Trust''), The Northern Trust
Company (``Northern'').
RELEVANT ACT SECTIONS: Order requested under section 17(d) of the Act
and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit
applicants to jointly enter into repurchase agreements with non-
affiliated financial institutions.
FILING DATES: The application was filed on July 24, 1995, and amended
on October 18, 1995. Applicants have agreed to file an amendment during
the notice period, the substance of which is included in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing.
[[Page 10039]]
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 April 1, 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
may request notification of a hearing by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants: The Benchmark Funds, 4900 Sears Tower, Chicago, IL, 60606;
and The Northern Trust Company, 50 South LaSalle Street, Chicago, IL,
60675.
FOR FURTHER INFORMATION CONTACT:
Marianne H. Khawly, Staff Attorney, at (202) 942-0562, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUMMARY 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 investment company that currently
offers the following four money market portfolios: The Government
Portfolio, Diversified Assets Portfolio, Tax-Exempt Portfolio, and
Government Select Portfolio (collectively, the ``Money Market
Portfolios''). The Trust also currently offers twelve non-money market
portfolios (collectively, the ``Non-Money Market Portfolios,'' and
together with the Money Market Portfolios, the ``Portfolios'').
Northern serves as investment adviser, transfer agent, and custodian to
the Trust.\1\ Initially, only the Government Portfolio and Diversified
Assets Portfolio would enter into the master repurchase agreements
described below. Applicants request, however, that the relief extend to
any existing or future portfolio of the Trust and any future management
investment company or series thereof that is advised by Northern, or
any person directly or indirectly controlling, controlled by, or under
common control with Northern, which holds itself out to investors as
being related for purposes of investment and investor services, and the
investment adviser of such portfolios.
\1\ Northern, with the approval of the Trust, may appoint sub-
custodians and sub-transfer agents.
---------------------------------------------------------------------------
2. The net asset values per unit of the Trust's Government
Portfolio and Diversified Assets Portfolio are determined, and units of
each of these Portfolios are priced, daily as of 3:00 p.m. Central Time
using the amortized cost method pursuant to rule 2a-7 under the Act.
Currently, to be executed on a given day, a purchase order for units of
the Money Market Portfolios must be received that day by Northern by
1:00 p.m. Central Time, which is the latest time orders may be placed
for overnight investment of funds received that day.\2\ Purchase orders
received after this time are executed the next business day. Purchase
orders for units of the Government Portfolio and Diversified Assets
Portfolio are executed only when federal or other funds are immediately
available to Northern for investment by the Trust.
\2\ For non-money market portfolios, the purchase, order
deadline is 3:00 p.m. Central Time.
---------------------------------------------------------------------------
3. Units of the Trust are offered to institutional investors
including Northern. Applicants intend that Northern, acting as agent
for its customers and customers of its affiliated, in accordance with
the terms of the customers' standing instructions or agreements,
automatically will invest excess cash balances in the customers'
respective accounts at Northern in units of the Portfolios. These same-
day ``sweep'' transactions will be effected automatically by computer
each business day as of 1:00 p.m. Central Time. However, the machine
processing required to tabulate the day's transaction activity in
Northern's customer accounts will be completed later that same day
after the close of regular business through Northern's data processing
system. It is currently anticipated that such processing will normally
be effected at approximately 11:00 p.m. Central Time (the ``Completion
Time'').
4. Northern, each trading day, estimates the amount of excess cash
that will be in its customer accounts and purchases that amount of
Portfolio units on behalf of its customers. While total assets invested
in a Portfolio through the same-day ``sweep'' program each day will
therefore not be known with precision until the Completion Time that
evening, such assets will be held by Northern, as of 1:00 p.m. Central
Time, and will be available immediately for investment. After
Completion Time, the records maintained by Northern for its customer
accounts will show a cash debit for the number of units purchased and a
credit for the number of units redeemed as of 1:00 p.m. Central Time.
Also after Completion Time, Northern will show for the Portfolios'
unitholder account records, credits (debits) to the corresponding
unitholder accounts for the number of Portfolio units automatically
purchased (redeemed) as of 1:00 p.m. Central Time.
5. Applicants contemplate that the amount that is in fact ``swept''
into the Portfolios from the customer accounts each day will be limited
so that the Portfolios will not have an uninvested cash position on
that day as a result of the same-day ``sweep'' program. Any
unanticipated account balances that were not included in Northern's
estimates would not be ``swept'' into the Portfolios but will remain in
the customer accounts for that day.
6. Applicants request relief to permit Northern, as investment
adviser to the Portfolios, to invest the cash balances invested in the
Portfolios, as a result of the same-day ``sweep'' program in repurchase
transactions with non-affiliated counterparties, with confirmation of
the exact principal amount of the transaction occurring the following
business day. Each repurchase agreement will be valued by a Portfolio
on an amortized cost basis and generally will have an overnight, over-
the-weekend or over-a-holiday maturity and in no event will have a
maturity exceeding seven days. Northern will administer and manage the
repurchase agreements in accordance with and as part of its duties
under its existing or future investment advisory agreements with the
Portfolios and will not collect any additional fees from the
Portfolios.
7. The Trust will use a master repurchase agreement (the ``Master
Agreement''). The Master Agreement establishes that, among other
things, the other party to the repurchase transaction (the ``Seller'')
send a confirmation of such transaction to Northern or the respective
Portfolio's designated sub-custodian the next business day after the
Portfolio has entered into the transaction. These confirmations must
set forth with respect to each repurchase transaction: the specific
eligible securities subject thereto; the sale price of such securities;
the applicable interest rate; the applicable repurchase price; the
applicable margin percentage; the date, if any, fixed for termination
of the transaction; and a notation, if applicable, that the transaction
is terminable upon demand.
8. Prior to the daily pricing of Portfolio units at 3:00 p.m.
Central Time, Northern will enter into a repurchase transaction under
the Master Agreement on behalf of a Portfolio in an amount which it
estimates will cover
[[Page 10040]]
the day's activity in the same-day ``sweep'' program and will be
sufficient to ensure the investment of the funds which the Portfolio
will receive through the ``sweep'' program that day. For example, if
Northern, as the Trust's adviser, estimates that the Government
Portfolio and the Diversified Assets Portfolio will each receive net $7
million during the day through automatic investment transactions (after
allowing for other net sales or net redemptions of units of the
Portfolios), Northern will enter into a repurchase transaction on
behalf of the respective Portfolios by an amount which it believes is
sufficient to ensure the investment of those monies (e.g., in this
example, Northern might enter into an additional $9 million in
repurchase transactions for each Portfolio).
9. To the extent that a Portfolio's repurchase transaction is
sufficient to make the Portfolio fully invested, with respect to its
``sweep'' funds, the Portfolio's custodian account will reflect the
specific amount that it had, in fact, invested in the transaction,
including its ownership of the eligible securities purchased by such
investments. If the amount of the repurchase transaction is not
sufficient to make the Portfolio fully invested, with respect to its
``sweep'' funds, the Portfolio's records will reflect its investment in
the entire amount of the repurchase transaction. It is currently
contemplated that any amounts that would cause the Portfolio to have an
uninvested cash position would not be swept but would remain in the
customer accounts. To the extent that the total amount credited to the
account of the Seller when it transferred eligible securities the
previous day exceeded a Portfolio's assets that were available for
investment, as shown by the results of the day's computer processing,
Northern would have purchased such securities with its own funds and
have entered into a repurchase transaction with the Seller for its own
account.
10. In the event that a repurchase transaction entered into the
previous day was secured by more than one issue of securities, and such
issues differed as to quality, maturity, or rate, each particular issue
will be apportioned pro rata to the extent possible between the
relevant Portfolio and Northern. In the event that an exact pro rata
allocation cannot be made, securities will be distributed in a manner
judged by Northern to leave each party in a comparably secured
position. A Portfolio would continue to have a perfected security
interest in those eligible securities which were confirmed to it as
being subject to its repurchase transaction.
Applicants' Legal Analysis
1. Section 17(d) of the Act makes it unlawful for an affiliated
person of a registered investment company, 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 the SEC may prescribe. Rule 17d-
1(a) provides that an affiliated person of a registered investment
company, 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. Applicants believe that Northern's same-day ``sweep'' program
does not raise any issues under section 17(d) or rule 17d-1. The effect
of the program is to computerize the Trust's purchase and redemption
procedures for these unitholders. However, to the extent that assets of
Northern and the Portfolios are used to enter into repurchase
transactions, Northern may be deemed to ``participating in,'' as
principal, an ``arrangement'' concerning ``an enterprise or
undertaking'' whereby Northern and the Portfolios have a joint or a
joint and several participation.'' Applicants submit that the requested
relief is appropriate and in the public interest because it will permit
the investment of cash immediately when it is available and will
thereby reduce dilution in daily dividends.
3. Applicants believe that the proposed procedure ensues that each
Portfolio is fully invested and provides only benefits and not
disadvantages to unitholders. Each Portfolio's rights, vis-a-vis a
Seller, under the repurchase transactions will be protected by the
Master Agreement that is substantially similar to the form that has
been developed for the industry. Pending reconciliation of the day's
transaction activity, Northern will segregate and hold for the
exclusive benefit of a Portfolio all securities transferred to Northern
in connection with the repurchase transactions entered into for the
Portfolio. Until the amount of the Portfolio's assets actually invested
in the transaction is determined at the end of the day, Northern will
assume that only a Portfolio's assets were used and the Portfolio will
have a perfected security interest in such securities.
4. Applicants believe that the interest of Northern in negotiating
the maximum interest rate available on any repurchase transaction
entered into for a Portfolio will be the same as that of the Portfolio.
Therefore, to the extent that Northern is deemed to have any
participation in the proposed investment procedure within the meaning
of section 17(d) and rule 17d-1(a), the Trust's participation is
consistent with the provisions, policies, and purposes of the Act and
not on a basis different from or less advantageous than that of
Northern. Thus, applicants believe that the requested relief meets the
standards of rule 17d-1.
Applicants' Conditions
Applicants agree as conditions to the requested exemptive relief
that:
1. All repurchase agreements entered into pursuant to the
application will be on terms that are reasonable and fair and will not
cause any applicant to participate on a basis that is less advantageous
than any other applicant.
2. All repurchase agreement transactions entered into pursuant to
the application will be ``collateralized fully'' as defined in rule 2a-
7 under the Act and will satisfy the uniform standards set by the
Portfolios for such investments.
3. All repurchase agreements entered into by the Portfolios
pursuant to the application will be valued on an amortized cost basis.
4. Each Portfolio will retain the sole rights of ownership of any
of its assets, including interest payable on such assets, invested in
repurchase agreement transactions pursuant to the application. Each
Portfolio's investment in such repurchase agreement transactions will
be documented daily on the books of the Portfolio as well as on
Northern's books.
5. Each Portfolio will participate in the income earned or accrued
in any single repurchase agreement transaction entered into pursuant to
the application on the basis of the percentage of the total amount
invested in such transactions by a Portfolio on any day.
6. Northern will administer, manage, and invest in any repurchase
agreement transactions entered into pursuant to the application in
accordance with and as part of its duties under its existing or future
contracts with each Portfolio, and will not collect any additional fee
or separate fee from the Portfolios for the administration of such
transactions.
7. All repurchase agreement transactions entered into pursuant to
the application will generally have an overnight, over-the-weekend, or
over-a-holiday maturity and in no event will they have a maturity
exceeding seven days.
8. All repurchase agreement transactions will be effected in
accordance with Investment Company
[[Page 10041]]
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.
9. Any investment made in repurchase agreement transactions
pursuant to the application will satisfy the investment policies or
criteria of all Portfolios participating in that investment.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-5783 Filed 3-11-96; 8:45 am]
BILLING CODE 8010-01-M
