[Federal Register Volume 61, Number 124 (Wednesday, June 26, 1996)]
[Notices]
[Pages 33151-33153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16290]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22034; 812-9998]
Qualivest Funds, et al.; Notice of Application
June 20, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption Under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
APPLICANTS: Qualivest Funds (the ``Trust'') and Qualivest Capital
Management, Inc. (``QCMI'').
RELEVANT ACT SECTION: Order requested under section 17(d) of the Act
and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit certain
investment companies to deposit their uninvested cash balances in one
or more joint accounts to be used to enter into short-term investments.
FILING DATES: The application was filed on February 20, 1996, and
amended on May 17, 1996. Applicants agree to file an additional
amendment, the substance of which is incorporated herein, during the
notice period.
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 July 15, 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 notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants: the Trust, 3435 Stelzer Road, Columbus, Ohio 43219;
QCMI, P.O. Box 2758, 111 S.W. Fifth Avenue, Portland, Oregon 97208.
FOR FURTHER INFORMATION CONTACT: Sarah A. Buescher, Staff Attorney, at
(202) 942-0573, or Robert A. Robertson, Branch Chief, (202) 942-0564
(Office of Investment Company Regulation, Division of Investment
Management).
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.
Applicants' Representations
1. The Trust, organized as a Massachusetts business trust, is an
open-end management investment company currently comprised of eleven
series (the ``Funds''). QCMI serves as investment adviser to the Trust,
and is an affiliate of U.S. Bank, a wholly-owned subsidiary of U.S.
Bancorp. BISYS Fund Services, a division of the BISYS Group, Inc., acts
as administrator for each Fund of the Trust, and acts as the Trust's
principal underwriter and distributor.
2. The assets of the Funds of the Trust, except for Qualivest
International Opportunities Fund are held by U.S. National Bank of
Oregon as custodian. The assets of Qualivest International
Opportunities Fund are held by The Bank of New York. Applicants request
that any relief granted pursuant to the application also apply to any
future
[[Page 33152]]
Funds that are advised by QCMI, or any entity controlling, controlled
by, or under common control with QCMI.
3. At the end of each trading day, the Funds have uninvested cash
balances in their accounts at their respective custodian banks that
would not otherwise be invested in portfolio securities by QCMI.
Generally such cash balances are invested in short-term liquid assets
such as repurchase agreements, commercial paper, or U.S. Treasury
bills.
4. Applicants propose to deposit uninvested cash balances of the
Funds that remain at the end of the trading day, as well as cash for
investment purposes, into one or more joint accounts (the ``Joint
Accounts'') and to invest the daily balance of the Joint Accounts in:
(a) repurchase agreements ``collateralized fully'' (as defined in rule
2a-7 under the Act); (b) interest-bearing or discounted commercial
paper, including dollar denominated commercial paper of foreign
issuers; and (c) any other short-term taxable or tax-exempt money
market instruments, including variable rate demand notes, that
constitute ``Eligible Securities'' (as defined in rule 2a-7 under the
Act) (collectively, ``Short-Term Investments''). The Funds that are
eligible to participate in a Joint Account and that elect to
participate in such Account are collectively referred to as
``Participants.''
5. Applicants propose to enter into hold-in-custody repurchase
agreements, i.e., repurchase agreements where the counterparty or one
of its affiliated persons may have possession of, or control over, the
collateral subject to the agreement, only where cash is received very
late in the business day and otherwise would be unavailable for
investment.
6. A Participant's decision to use a Joint Account would be based
on the same factors as its decision to make any other short-term liquid
investment. The sole purpose of the Joint Accounts would be to provide
a convenient means of aggregating what otherwise would be one or more
daily transactions for some or all Participants necessary to manage
their respective daily account balances.
7. QCMI would be responsible for investing funds held by the Joint
Accounts, establishing accounting and control procedures, and ensuring
fair treatment of Participants. QCMI will manage investments in the
Joint Accounts in essentially the same manner as if it had invested in
such instruments on an individual basis for each Participant.
8. Any repurchase agreements entered into through the Joint Account
will comply with the terms of Investment Company Act Release No. 13005
(February 2, 1983). Applicants acknowledge that they have a continuing
obligation to monitor the SEC's published statements on repurchase
agreements, and represent that repurchase agreement transactions will
comply with future positions of the SEC to the extent that such
positions set forth different or additional requirements regarding
repurchase agreements. In the event that the SEC sets forth guidelines
with respect to other Short-Term Investments, all such investments made
through the Joint Account will comply with those guidelines.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 thereunder prohibit an
affiliated person of a registered investment company from participating
in any joint enterprise or arrangement in which such investment company
is a participant, without an SEC order.
2. The Participants, by participating in the proposed Joint
Accounts, and QCMI, by managing the proposed Joint Accounts, could be
deemed to be ``joint participants'' in a transaction within the meaning
of section 17(d) of the Act. In addition, the proposed Joint Accounts
could be deemed to be a ``joint enterprise or other joint arrangement''
within the mean of rule 17d-1.
3. Although QCMI will realize some benefits through administrative
convenience and some possible reduction in clerical costs, the
Participants will be the primary beneficiaries of the Joint Accounts
because the Account may result in higher returns and would be a more
efficient means of administering daily cash investments.
4. Participants may earn a higher rate of return on investments
through the Joint Accounts relative to the returns they could earn
individually. Under most market conditions, it is generally possible to
negotiate a rate of return on larger repurchase agreements and other
Short-Term Investments that is higher than the rate available on
smaller repurchase agreements and other Short-Term Investments. The
Joint Accounts also may increase the number of dealers and issuers
willing to enter into Short-Term Investments with the Participants and
may reduce the possibility that their cash balances remain uninvested.
5. The Joint Accounts may result in certain administrative
efficiencies and a reduction of the potential for errors by reducing
the number of trade tickets and cash wires that must be processed by
the sellers of Short-Term Investments, the Participants' custodians,
and QCMI's accounting and trading departments. For the reasons set
forth above, applicants believe that granting the requested order is
consistent with the provisions, policies, and purposes of the Act and
the intention of rule 17d-1.
Applicants' Conditions
Applicants will comply with the following as conditions to any
order granted by the SEC:
1. The Joint Accounts will not be distinguishable from any other
accounts maintained by Participants at their custodians except that
monies from Participants will be deposited in the Joint Account on a
commingled basis. The Joint Accounts will not have a separate existence
and will not have indicia of a separate legal entity. 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 QCMI of uninvested cash balances.
2. Cash in the Joint Accounts will be invested in one or more of
the following, as directed by QCMI: (a) repurchase agreements
``collateralized fully'' as defined in rule 2a-7 under the Act; (b)
interest-bearing or discounted commercial paper, including dollar
denominated commercial paper of foreign issuers; and (c) any other
short-term taxable and tax-exempt money market instruments, including
variable rate demand notes, that constitute ``Eligible Securities'' (as
defined in rule 2a-7 under the Act) (defined as ``Short-Term
Investments''). Short-Term Investments that are repurchase agreements
would have a remaining maturity of 60 days or less and other Short-Term
Investments would have a remaining maturity of 90 days or less, each as
calculated in accordance with rule 2a-7 under the Act. No Participant
would be permitted to invest in a Joint Account unless the Short-Term
Investments in such Joint Accounts satisfied the investment policies
and guidelines of that Participant.
3. All assets held in the Joint Accounts would be valued on an
amortized cost basis to the extent permitted by applicant SEC releases,
rules or orders.
4. Each Participant valuing its net assets in reliance on rule 2a-7
under the Act will use the average maturity of the instruments in the
Joint Account in which such Participant has an interest (determined on
a dollar weighted basis) for the purpose of computing its average
portfolio maturity with respect to its
[[Page 33153]]
portion of the assets held in a Joint Account on that day.
5. In order to assure that there will be no opportunity for any
Participant to use any part of a balance of a Joint Account credited to
another Participant, no Participant will be allowed to create a
negative balance in any Joint Account for any reason, although each
Participant would be permitted to draw down its entire balance at any
time. Each Participant's decision to invest in a Joint Account would be
solely at its option, and no Participant will be obligated to invest in
the Joint Account or to maintain any minimum balance in the Joint
Account. In addition, each Participant will retain the sole rights of
ownership to any of its assets invested in the Joint Account, including
interest payable on such assets invested in the Joint Account.
6. QCMI would administer the investment of cash balances in and
operation of the Joint Accounts as part of its general duties under its
advisory agreements with Participants and will not collect any
additional or separate fees for advising any Joint Account.
7. The administration of the Joint Accounts would 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 (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 this application will be
met. Each of the Boards will make and approve such changes as they deem
necessary to ensure that such procedures are followed. In addition, the
Boards of each Fund will determine, no less frequently than annually,
that the Joint Accounts have been operated in accordance with the
proposed procedures and will only permit a Fund to continue to
participate therein if it determines that there is a reasonable
likelihood that the Fund and its shareholders will benefit from the
Fund's continued participation.
9. Any Short-Term Investments made through the Joint Accounts will
satisfy the investment criteria of all Participants in that investment.
10. QCMI and the custodian of each Participant will maintain
records documenting, for any given day, each Participant's aggregate
investment in a Joint Account and each Participant's pro rata share of
each investment made through such Joint Account. The records maintained
for each Participant shall be maintained in conformity with section 31
of the Act and the rules and regulations thereunder.
11. Every Participant in the Joint Accounts will not necessarily
have its cash invested in every Short-Term Investment. However, to the
extent that a Participant's cash is applied to a particular Short-Term
Investment, the Participant will participate in and own its
proportionate share of such Short-Term Investment, and any income
earned or accrued thereon, based upon the percentage of such investment
purchased with monies contributed by the Participant.
12. Short-Term Investments held in a Joint Account generally will
not be sold prior to maturity except if: (a) QCMI believes the
investment no longer presents minimal credit risks; (b) the investment
no longer satisfies the investment criteria of all Participants in the
investment because of a downgrading or otherwise; or (c) in the case of
a repurchase agreement, the counterparty defaults. QCMI may, however,
sell any Short-Term Investment (or any fractional portion thereof) on
behalf of some or all Participants prior to the maturity of the
investment if the cost of such transactions will be borne solely by the
selling Participants and the transaction will not adversely affect
other Participants participating in that Joint Account. In no case
would an early termination by less than all Participants be permitted
if it would reduce the principal amount or yield received by other
Participants in a particular Joint Account or otherwise adversely
affect the other Participants. Each Participant in a Joint Account will
be deemed to have consented to such sale and partition of the
investments in the Joint Account.
13. Short-Term Investments held through a Joint Account with a
remaining maturity of more than seven days, as calculated pursuant to
rule 2a-7 under the Act, will be considered illiquid and, for any
Participant that is an open-end investment company registered under the
Act, subject to the restriction that the fund 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 QCMI cannot sell the
instrument, or the Fund's fractional interest in such instrument,
pursuant to the preceding condition.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16290 Filed 6-25-96; 8:45 am]
BILLING CODE 8010-01-M
