[Federal Register Volume 60, Number 89 (Tuesday, May 9, 1995)]
[Notices]
[Pages 24662-24664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11359]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-21038; 812-9536]
1784 Funds and The First National Bank of Boston; Notice of
Application
May 3, 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: 1784 Funds (the ``Trust'') and The First National Bank of
Boston (``FNBB'').
RELEVANT SECTIONS OF THE ACT: Order requested under section 17(d) of
the Act and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order permitting all the
current and future series of the Trust and any future management
investment company or series thereof which is advised by FNBB or any
entity controlling, controlled by, or under common control (as defined
in section 2(a)(9) of the Act) with FNBB (a ``Related Adviser'') to
deposit uninvested cash balances into one or more joint accounts (the
``Accounts'') to be used to enter into short-term repurchase
agreements.
FILING DATE: The application was filed on March 16, 1995.
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 May 30, 1995,
and should be accompanied by proof of service on the 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 reasons
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, N.W., Washington, D.C.
20549. 1784 Funds, SEI Financial Services Company, Wayne, Pennsylvania
19087; The First National Bank of Boston, 100 Federal Street, Boston,
Massachusetts 02110.
FOR FURTHER INFORMATION CONTACT: H.R. Hallock, Jr., Special Counsel at
(202) 942-0564, 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 may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is a registered, open-end management investment
company organized in series form. FNBB provides or arranges for the
provision of investment advisory, custodial and accounting services for
all of the series of the Trust. The Trust and all existing and future
series thereof, and any future management investment companies and
series thereof to which FNBB or any Related Adviser thereof serves as
investment adviser, are referred to hereinafter as the ``Portfolios.''
FNBB and any Related Adviser that serves as investment adviser to any
of the Portfolios are collectively referred to hereinafter as the
``Adviser.''
2. Each Portfolio has, or may be expected to have, from time to
time cash balances held by its custodian or a sub-custodian bank (the
``Custodian''), which otherwise would not be invested in portfolio
securities by the Adviser at the end of the trading day. Ordinarily,
the Adviser would invest such cash in short-term investments authorized
by the Portfolio's investment policies to provide liquidity and to earn
additional income for the portfolio. The Adviser proposes to establish
one or more new Accounts for the investment of some or all of the
excess cash of the Portfolios in repurchase agreements.
3. Under the proposed arrangement, each repurchase transaction
would be entered into by the Adviser calling one of the previously
approved counterparties of repurchase agreements, indicating the size
and duration of the desired repurchase transaction, and negotiating the
rate of interest. Master repurchase agreements with the approved
counterparties will establish minimum collateral levels, the securities
eligible to be held as collateral, and the maximum term of a
transaction. To facilitate repurchase transactions and to help obtain
more attractive rates, the Custodian may enter into third-party
arrangements for custody of assets and collateral securities with other
qualified banks. The term of a repurchase transaction would typically
be overnight (or over a holiday or weekend) and in no event more than
seven days.
4. After the Adviser has agreed to one or more repurchase
transactions, the Custodian would be notified and, prior to releasing
funds, would be required to verify that eligible collateral securities
of sufficient value had been received. These securities would be either
wired to the account of the Custodian (or third-party custodian) at the
appropriate Federal Reserve Bank or physically transferred to a
segregated account of the Custodian (or third-party custodian). The
Portfolios will not enter into repurchase agreements with the Adviser
or any of its affiliated persons (within the meaning of section 2(a)(3)
of the Act).
5. Transactions in the Account will be reported to the Portfolio's
Custodian through a trade authorization that will authorize the
Custodian to settle the transaction on a joint basis and will state
each Portfolio's portion of the investment. The Custodian will
reconcile the Account with the trading authorizations on a daily basis.
At least [[Page 24663]] monthly, the assets held in the Account will be
reconciled to the Custodian's movement and control records and, in
addition, the Custodian will reconcile each Portfolio's security
ownership records.
6. FNBB, as the Adviser to the Portfolios, believes that engaging
in repurchase agreements through the Account, as contrasted with
separate transactions, could increase returns on these types of
investments by as much as .05% (on an annualized basis) because of
reduced transaction costs and the ability of the Adviser to negotiate
more favorable interest rates.
Applicants' Legal Conclusions
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), each Portfolio and Adviser could be
deemed an affiliated person of any other Portfolio or Adviser.
3. Each Portfolio will participate in the Account on the same basis
as every other Portfolio and in conformity with its fundamental
investment objectives, policies and restrictions. The Adviser will have
no monetary participation in the Account, but will be responsible for
investment amounts in the Account, establishing accounting and control
procedures, and ensuring the equal treatment of each participating
Portfolio.
4. On the basis of information considered by the Board of Trustees
(``Board''), the Board members have satisfied themselves that the
proposed method of operating the Account would not result in any
conflict of interest among any of the Portfolios, or between a
Portfolio and the Adviser. The Board also has considered that there
does not appear to be any basis upon which to predict greater benefits
to one Portfolio than to another, because the daily uninvested cash
balance of any one Portfolio on any given day is neither a function of
the size of the Portfolio nor the particular securities in which it
invests. Such daily cash balances rather are a function of other
factors, such as portfolio management decisions, security holder
purchases and redemptions, or the timing of settlement of trades.
Although the Adviser would gain some benefit through administrative
convenience and some possible reduction in clerical costs, the primary
beneficiaries would be the Portfolios and their security holders.
5. The Board also has determined that it would be desirable to
permit participation by future Portfolios without the necessity of
applying for an amendment to the requested order. Future Portfolios
would be required to participate in the Account on the same terms and
conditions as the existing Portfolios.
6. Rule 17d-1(b) under the Act provides that, in passing upon
applications under rule 17d-1, the SEC will consider whether each
party's participation in the proposed joint arrangement 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 believe that,
for the reasons set forth above and in light of the conditions set
forth below, the criteria for issuance of an order under rule 17d-1 are
met.
Applicants' Conditions
Applicants agree that any order granting the requested relief may
be made 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
could 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 the indicia of a separate legal entity. The sole
function of the Account will be to provide a convenient way of
aggregating individual transactions which will otherwise require daily
management and investment 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 under the Act for valuation of its net assets 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 such 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 any minimum balance in, the Account. In
addition, each Portfolio will retain the sole rights of ownership of
any of its assets, including interest payable on such assets, invested
in the Account. 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 such Account, on the
basis of the percentage of the total amount in such Account on any day
represented by its share of such 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, and will not collect any additional or separate fee for the
administration of the Account.
7. 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 the Trust, on behalf of each Portfolio
participating in the Account, will evaluate the Account
[[Page 24664]] 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 will benefit
the Portfolio and its security holders.
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 Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-11359 Filed 5-8-95; 8:45 am]
BILLING CODE 8010-01-M
