Marshall Funds, Inc., et al.; Notice of Application, 54590-54595 [05-18311]
Download as PDF
<![CDATA[
54590
Federal Register / Vol. 70, No. 178 / Thursday, September 15, 2005 / Notices
appropriate arrangements can be made.
Electronic recordings will be permitted.
Further information regarding this
meeting can be obtained by contacting
the Designated Federal Official between
7:30 a.m. and 4:15 p.m. (ET). Persons
planning to attend this meeting are
urged to contact the above named
individual at least two working days
prior to the meeting to be advised of any
potential changes to the agenda.
Dated: September 8, 2005.
Michael L. Scott,
Branch Chief, ACRS/ACNW.
[FR Doc. E5–5021 Filed 9–14–05; 8:45 am]
BILLING CODE 7590–01–P
PENSION BENEFIT GUARANTY
CORPORATION
Required Interest Rate Assumption for
Determining Variable-Rate Premium;
Interest Assumptions for
Multiemployer Plan Valuations
Following Mass Withdrawal
Pension Benefit Guaranty
Corporation.
ACTION: Notice of interest rates and
assumptions.
AGENCY:
SUMMARY: This notice informs the public
of the interest rates and assumptions to
be used under certain Pension Benefit
Guaranty Corporation regulations. These
rates and assumptions are published
elsewhere (or can be derived from rates
published elsewhere), but are collected
and published in this notice for the
convenience of the public. Interest rates
are also published on the PBGC’s Web
site (https://www.pbgc.gov).
DATES: The required interest rate for
determining the variable-rate premium
under part 4006 applies to premium
payment years beginning in September
2005. The interest assumptions for
performing multiemployer plan
valuations following mass withdrawal
under part 4281 apply to valuation dates
occurring in October 2005.
FOR FURTHER INFORMATION CONTACT:
Catherine B. Klion, Attorney, Legislative
and Regulatory Department, Pension
Benefit Guaranty Corporation, 1200 K
Street, NW., Washington, DC 20005,
202–326–4024. (TTY/TDD users may
call the Federal relay service toll-free at
1–800–877–8339 and ask to be
connected to 202–326–4024.)
SUPPLEMENTARY INFORMATION:
Variable-Rate Premiums
Section 4006(a)(3)(E)(iii)(II) of the
Employee Retirement Income Security
Act of 1974 (ERISA) and § 4006.4(b)(1)
of the PBGC’s regulation on Premium
VerDate Aug<18>2005
15:03 Sep 14, 2005
Jkt 205001
Rates (29 CFR part 4006) prescribe use
of an assumed interest rate (the
‘‘required interest rate’’) in determining
a single-employer plan’s variable-rate
premium. Pursuant to the Pension
Funding Equity Act of 2004, for
premium payment years beginning in
2004 or 2005, the required interest rate
is the ‘‘applicable percentage’’
(currently 85 percent) of the annual rate
of interest determined by the Secretary
of the Treasury on amounts invested
conservatively in long-term investment
grade corporate bonds for the month
preceding the beginning of the plan year
for which premiums are being paid.
Thus, the required interest rate to be
used in determining variable-rate
premiums for premium payment years
beginning in September 2005 is 4.61
percent (i.e., 85 percent of the 5.42
percent composite corporate bond rate
for August 2005 as determined by the
Treasury).
The following table lists the required
interest rates to be used in determining
variable-rate premiums for premium
payment years beginning between
October 2004 and September 2005.
For premium payment years
beginning in:
The interest
rate is:
October 2004 ........................
November 2004 ....................
December 2004 ....................
January 2005 ........................
February 2005 ......................
March 2005 ...........................
April 2005 .............................
May 2005 ..............................
June 2005 .............................
July 2005 ..............................
August 2005 .........................
September 2005 ...................
4.79
4.73
4.75
4.73
4.66
4.56
4.78
4.72
4.60
4.47
4.56
4.61
Multiemployer Plan Valuations
Following Mass Withdrawal
The PBGC’s regulation on Duties of
Plan Sponsor Following Mass
Withdrawal (29 CFR part 4281)
prescribes the use of interest
assumptions under the PBGC’s
regulation on Allocation of Assets in
Single-Employer Plans (29 CFR part
4044). The interest assumptions
applicable to valuation dates in October
2005 under part 4044 are contained in
an amendment to part 4044 published
elsewhere in today’s Federal Register.
Tables showing the assumptions
applicable to prior periods are codified
in appendix B to 29 CFR part 4044.
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
Issued in Washington, DC, on this 9th day
of September 2005.
Vincent K. Snowbarger,
Deputy Executive Director, Pension Benefit
Guaranty Corporation.
[FR Doc. 05–18327 Filed 9–14–05; 8:45 am]
BILLING CODE 7708–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27060; 812–13134]
Marshall Funds, Inc., et al.; Notice of
Application
September 8, 2005.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
order under the Investment Company
Act of 1940 (the ‘‘Act’’) under: (i)
Section 6(c) of the Act granting an
exemption from sections 18(f) and 21(b)
of the Act; (ii) section 12(d)(1)(J) of the
Act granting an exemption from sections
12(d)(1)(A) and (B) of the Act; (iii)
sections 6(c) and 17(b) of the Act
granting an exemption from sections
17(a)(1) and 17(a)(3) of the Act; and (iv)
section 17(d) of the Act and rule 17d-1
under the Act to permit certain joint
transactions.
AGENCY:
Summary of Application: Applicants
request an order that would permit
certain registered open-end management
investment companies to participate in
a joint lending and borrowing facility.
Applicants: Marshall Funds, Inc., M&I
Investment Management Corp. (‘‘M&I
Investment Management’’), and
Marshall & Ilsley Trust Company, N.A.
(‘‘M&I Trust’’).
Filing Dates: The application was
filed on November 3, 2004, and
amended on September 8, 2005.
Hearing or Notification of Hearing: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on October 4, 2005, 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
reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
E:\FR\FM\15SEN1.SGM
15SEN1
Federal Register / Vol. 70, No. 178 / Thursday, September 15, 2005 / Notices
Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
9303; Applicants, c/o Pamela M. Krill,
Esq., Godfrey & Kahn, S.C., One East
Main Street, Madison, WI 53703.
FOR FURTHER INFORMATION CONTACT:
Marc R. Ponchione, Senior Counsel, at
(202) 551–6874 or Mary Kay Frech,
Branch Chief, at (202) 551–6821
(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 at the
Commission’s Public Reference Branch,
100 F Street, NE., Washington, DC
20549–0102 (tel. 202–551–5850).
ADDRESSES:
Applicants’ Representations
1. Marshall Funds, Inc. is registered
under the Act as an open-end
management investment company and
is organized as a Wisconsin corporation.
Marshall Funds, Inc. currently consists
of thirteen series (each, a ‘‘Fund’’ and
together, the ‘‘Funds’’), three of which
comply with rule 2a-7 under the Act
and hold themselves out as money
market funds (the ‘‘Money Market
Funds’’). M&I Investment Management,
a wholly-owned subsidiary of Marshall
and Ilsley Corporation, is registered as
an investment adviser under the
Investment Advisers Act of 1940 and
serves as investment adviser to the
Funds.1 M&I Trust, a wholly-owned
subsidiary of Marshall and Ilsley
Corporation, serves as custodian and
administrator to the Funds.
2. Some Funds may enter into
repurchase agreements or purchase
other short-term instruments issued by
banks or other entities. Other funds may
need to borrow money from the same or
similar banks for temporary purposes to
satisfy redemption requests, to cover
unanticipated cash shortfalls such as a
trade ‘‘fail’’ in which cash payment for
a security sold by a Fund has been
delayed, or for other temporary
purposes. Currently, Marshall Funds,
1 Applicants request that the relief also apply to
any other existing or future registered open-end
management investment company or series thereof
that is advised by M&I Investment Management or
any person controlling, controlled by, or under
common control with M&I Investment Management
or its successors (‘‘Future Funds,’’ included in the
term ‘‘Funds’’). ‘‘Successor’’ is limited to any entity
or entities that result from a reorganization into
another jurisdiction or a change in the type of
business organization. All entities that currently
intend to rely on the requested order have been
named as applicants. Any future entity that relies
on the requested relief will do so only in
accordance with the terms and conditions of the
application.
VerDate Aug<18>2005
15:03 Sep 14, 2005
Jkt 205001
Inc. has a $25 million standby line of
credit with State Street Bank.
3. If the funds were to borrow money
through their line of credit, the Funds
would pay interest on the borrowed
cash at a rate which would be
significantly higher than the rate that
would be earned by other (nonborrowing) Funds on investments in
repurchase agreements and other shortterm instruments of the same maturity
as the bank loan. Applicants state that
this differential represents the profit the
bank would earn for serving as a
middleman between a borrower and a
lender and is not attributable to any
material difference in the credit quality
or risk in such transactions. In addition,
while bank borrowings generally could
supply needed cash to cover
unanticipated redemptions and sales
fails, the borrowing Funds would incur
commitment fees and/or other charges
involved in obtaining a bank loan.
4. Applicants request an order that
would permit the funds to enter into
master interfund lending agreements
(‘‘Interfund Lending Agreements’’) that
would permit each Fund to lend money
directly to and borrow directly from
other funds for temporary purposes (an
‘‘Interfund Loan’’). Applicants believe
that the proposed credit facility would
both reduce the Funds’ potential
borrowing costs and enhance the ability
of the lending Funds to earn higher rates
of interest on their short-term loans.
Although the proposed credit facility
would reduce the Funds’ need to
borrow from banks, the Funds would be
free to establish and/or continue
standby lines of credit or other
borrowing arrangements with banks.
5. Applicants anticipate that the
credit facility will provide a borrowing
Fund with significant savings when the
cash position of the Fund is insufficient
to meet temporary cash requirements.
This situation could arise when
shareholder redemptions exceed
anticipated volumes and certain Funds
have insufficient cash on hand to satisfy
such redemptions. When the Funds
liquidate portfolio securities to meet
redemption requests, they often do not
receive payment in settlement for up to
three days (or longer for certain foreign
transactions). The credit facility would
provide a source of immediate, shortterm liquidity pending settlement of the
sale of portfolio securities.
6. Applicants also propose using the
credit facility when a sale of portfolio
securities fails due to circumstances
beyond the Fund’s control, such as a
delay in the delivery of cash to the
Fund’s custodian or improper delivery
instructions by the broker effecting the
transaction. Sales fails may present a
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
54591
cash shortfall if the Fund has
undertaken to purchase a security with
the proceeds from securities sold. Under
such circumstances, the Fund could fail
on its intended purchase due to lack of
funds from the previous sale, resulting
in additional costs to the Fund, or sell
a security on a same day settlement
basis, earning a lower return on the
investment. Use of the credit facility
under these circumstances would give
the Fund access to immediate shortterm liquidity without incurring
custodian overdraft or other charges.
7. While bank borrowings could
generally supply needed cash to cover
unanticipated redemptions and sales
fails, under the credit facility, a
borrowing Fund would pay lower
interest rates than those offered by
banks on short-term loans. In addition,
Funds making short-term cash loans
directly to other Funds would earn
interest at a rate higher than they
otherwise could obtain from investing
their cash in repurchase agreements or
purchasing shares of a Money Market
Fund.2 Thus, applicants believe that the
credit facility would benefit both
borrowing and lending Funds.
8. The interest rate charged to the
Funds on any loans (the ‘‘Interfund
Loan Rate’’) would be determined daily
and would be the average of the Repo
Rate and the Bank Loan Rate, both as
defined below. The Repo Rate on any
day would be the highest rate available
to the Funds from investments in
overnight repurchase agreements. The
Bank Loan Rate for any day would be
calculated by the Credit Facility Team,
as defined below, each day an Interfund
Loan is made according to a formula
established by each Fund’s board of
directors (‘‘Board’’) designed to
approximate the lowest interest rate at
which short-term bank loans would be
available to the Funds. The formula
would be based upon a publicly
available rate (e.g., Federal funds plus
25 basis points) and would vary with
this rate so as to reflect changing bank
loan rates. The Board of each Fund
periodically would review the
continuing appropriateness of using the
publicly available rate to determine the
Bank Loan Rate, as well as the
relationship between the Bank Loan
Rate and current bank loan rates that
would be available to the Fund. The
initial formula and any subsequent
modifications to the formula would be
2 Marshall Funds, Inc. has received an order that
permits the Funds to purchase shares of Money
Market Funds for cash management purposes.
Investment Company Act Release Nos. 22313
(November 4, 1996) (notice) and 22362 (December
2, 1996) (order).
E:\FR\FM\15SEN1.SGM
15SEN1
54592
Federal Register / Vol. 70, No. 178 / Thursday, September 15, 2005 / Notices
subject to the approval of each Fund’s
Board.
9. The Fund’s president, treasurer,
and compliance officer and an
investment professional within M&I
Investment Management (who is also an
employee of M&I Trust) who serves as
a portfolio manager for the Money
Market Funds (the ‘‘Money Market
Manager’’) (collectively, the ‘‘Credit
Facility Team’’) would administer the
credit facility. Under the credit facility,
the portfolio managers for each
participating Fund could provide
standing instructions to participate
daily as a borrower or lender. On each
business day, M&I Trust, as the Fund’s
custodian, would prove the Credit
Facility Team with data on the
uninvested cash and borrowing
requirements of all participating Funds.
Once it had determined the aggregate
amount of cash available for loans and
borrowing demand, the Credit Facility
Team would allocate loans among
borrowing Funds without any further
communication from portfolio managers
(other than the Money Market Manager
in his or her capacity as the Credit
Facility Team member). It is expected
that there typically will be far more
available uninvested cash each day than
borrowing demand. After the Credit
Facility Team has allocated cash for
Interfund Loans, the Credit Facility
Team will invest any remaining cash in
accordance with the standing
instructions of portfolio managers or
return remaining amounts to the Funds.
10. The Credit Facility Team would
allocate borrowing demand and cash
available for lending among the Funds
on what the Credit Facility Team
believes to be an equitable basis, subject
to certain administrative procedures
applicable to all Funds, such as the time
of filing requests to participate,
minimum loan lot sizes, and the need to
minimize the number of transactions
and associated administrative costs. To
reduce transaction costs, each loan
normally would be allocated in a
manner intended to minimize the
number of participants necessary to
complete the loan transaction. The
method of allocation and related
administrative procedures would be
approved by the Board of each Fund,
including a majority of the members of
the Board who are not ‘‘interested
persons’’ of the Fund, as defined in
section 2(a)(19) of the Act
(‘‘Independent Directors’’), to ensure
that both borrowing and lending Funds
participate on an equitable basis.
11. The Credit Facility Team would:
(a) Monitor the interest rates charged
and the other terms and conditions of
the loans; (b) limit the borrowings and
VerDate Aug<18>2005
15:03 Sep 14, 2005
Jkt 205001
loans entered into by each Fund to
ensure that they comply with the Fund’s
investment policies and limitations; (c)
ensure equitable treatment of each
Fund; and (d) make quarterly reports to
the Board of each fund concerning any
transactions by the Fund under the
credit facility and the interest rates
charged.
12. M&I Investment Management and
M&I Trust, through the Credit Facility
Team, would administer the credit
facility as a disinterested fiduciary and
a disinterested party, respectively.
Neither M&I Investment Management
nor M&I Trust would receive any
compensation in connection with the
administration of the proposed credit
facility.
13. No Fund may participate in the
credit facility unless: (a) The Fund has
obtained shareholder approval for its
participation, if such approval is
required by law, or provides notice to
shareholders of its intention to
participate in the proposed credit
facility; (b) the Fund has fully disclosed
all material information concerning the
credit facility in its prospectus and/or
SAI; and (c) the Fund’s participation in
the credit facility is consistent with its
investment objectives, limitation, and
organizational documents.
14. In connection with the proposed
credit facility, applicants request an
order under: (a) Section 6(c) of the Act
granting relief from sections 18(f) and
21(b) of the Act; (b) section 12(d)(1)(J) of
the Act granting relief from sections
12(d)(1)(A) and 12(d)(1)(B) of the Act;
(c) sections 6(c) and 17(b) of the Act
granting relief from sections 17(a)(1) and
17(a)(3) of the Act; and (d) section 17(d)
of the Act and rule 12d–1 under the Act
permit certain joint arrangements.
Applicants’ Legal Analysis
1. Section 17(a)(3) of the Act generally
prohibits any affiliated person, or
affiliated person of a affiliated person,
from borrowing money or other property
from a registered investment company.
Section 21(b) of the Act generally
prohibits any registered management
investment company from lending
money or other property to any person
if that person controls or is under
common control with the company.
Section 2(a)(3)(C) of the act defines
‘‘affiliated person’’ of another person, in
part, to be any person directly or
indirectly controlling, controlled by, or
under common control with, such other
person. Applicants state that the Funds
may be under common control by virtue
of having M&I Investment Management
as their common investment adviser
and/or reason of having common
officers, directors, and/or trustees.
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
2. Section 6(c) of the Act provides that
an exemptive order may be granted
where an exemption is necessary or
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Section 17(b) authorizes the
Commission to exempt a proposed
transaction from section 17(a) of the Act
provided that the terms of the
transaction, including the consideration
to be paid or received, are fair and
reasonable and do not involve
overreaching on the part of any person
concerned, and the transaction is
consistent with the policy of the
investment company as recited in its
registration statement and with the
general purposes of the Act. Applicants
believe that the proposed arrangements
satisfy these standards for the reasons
discussed below.
3. Applicants submit that sections
17(a)(3) and 21(b) were intended to
prevent a party with strong potential
adverse interests and some influence
over the investment decisions of a
registered investment company from
causing or inducing the investment
company to engage in lending
transactions that unfairly inure to the
benefit of that person and that are
detrimental to the best interests of the
investment company and its
shareholders. Applicants assert that the
proposed credit facility transactions do
not raise these concerns because: (a)
M&I Investment Management and M&I
Trust, through the Credit Facility Team,
would administer the program as a
disinterested fiduciary and disinterested
party, respectively; (b) all Interfund
Loans would consist only of uninvested
cash reserves that the Funds otherwise
would invest in short-term repurchase
agreements or other short-term
instruments either directly or through a
Money Market Fund; (c) the Interfund
Loans would not involve a greater risk
than such other investments; (d) a
lending Fund would receive interest at
a rate higher than it could obtain
through such other investments; and (e)
a borrowing Fund would pay interest at
a rate lower than otherwise available to
it under its bank loan agreements and
avoid the up-front commitment fees
associated with committed lines of
credit. Moreover, applicants believe that
the other conditions in the application
would effectively preclude the
possibility of any Fund obtaining an
undue advantage over any other Fund.
4. Section 17(a)(1) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of an affiliated person,
from selling any securities or other
E:\FR\FM\15SEN1.SGM
15SEN1
Federal Register / Vol. 70, No. 178 / Thursday, September 15, 2005 / Notices
property to the company. Section
12(d)(1) of the Act generally makes it
unlawful for a registered investment
company to purchase or otherwise
acquire any security issued by any other
investment company except in
accordance with the limitations set forth
in that section. Applicants state that the
obligation of a borrowing Fund to repay
an Interfund Loan may constitute a
security under sections 17(a)(1) and
12(d)(1). Section 12(d)(1)(J) provides
that an exemptive order may be granted
by the Commission from any provision
of section 12(d)(1) if and to the extent
such exemption is consistent with the
public interest and the protection of
investors. Applicants contend that the
standards under sections 6(c), 17(b) and
12(d)(1)(J) are satisfied for all the
reasons set forth above in support of
their request for relief from sections
17(a)(3) and 21(b) and for the reasons
discussed below.
5. Applicants state that section
12(d)(1) was intended to prevent the
pyramiding of investment companies in
order to avoid duplicative costs and fees
attendant upon multiple layers of
investment companies. Applicants
submit that the proposed credit facility
does not involve these abuses.
Applicants note that there would be no
duplicative costs or fees to the Funds or
shareholders, and that M&I Investment
Management and M&I Trust, through
the Credit Facility Team, would
administer the credit facility as a
disinterested fiduciary and a
disinterested party, respectively, and
would not receive any compensation for
its services. Applicants also note that
the purpose of the proposed credit
facility is to provide economic benefits
for all the participating Funds and their
shareholders.
6. Section 18(f)(1) of the Act prohibits
open-end investment companies from
issuing any senior security except that
a company is permitted to borrow from
any bank, provided that, immediately
after the borrowing, there is an asset
coverage of at least 300 per centum for
all borrowings of the company. Under
section 18(g) of the Act, the term ‘‘senior
security’’ includes any bond, debenture,
note, or similar obligation or instrument
constituting a security and evidencing
indebtedness. Applicants request
exemptive relief from section 18(f)(1) to
the limited extent necessary to
implement the credit facility (because
the lending Funds are not banks).
7. Applicants believe that granting the
relief under section 6(c) is appropriate
because the borrowing Funds would
remain subject to the requirement of
section 18(f)(1) that all borrowings of
the Fund, including combined interfund
VerDate Aug<18>2005
15:03 Sep 14, 2005
Jkt 205001
and bank borrowings, have at least
300% asset coverage. Based on the
conditions and safeguards described in
the application, applicants also submit
that to allow the Funds to borrow from
other Funds pursuant to the proposed
credit facility is consistent with the
purposes and policies of section 18(f)(1).
8. Section 17(d) of the Act and rule
17d–1 thereunder generally prohibit any
affiliated person of a registered
investment company, or affiliated
persons of an affiliated person, when
acting as principal, from effecting any
joint transaction unless the transaction
is approved by the Commission. Rule
17d–1(b) under the Act provides that in
passing upon applications from
exemptive relief, the Commission will
consider whether the participation of a
registered investment company in a
joint enterprise on the basis proposed is
consistent with the provisions, policies
and purposes of the Act and the extent
to which the company’s participation is
on a basis different from or less
advantageous than that of other
participants.
9. Applicants submit that the purpose
of section 17(d) is to avoid overreaching
by and unfair advantage to investment
company insiders. Applicants believe
that the credit facility is consistent with
the provisions, policies and purposes of
the Act in that it offers both reduced
borrowing costs and enhanced returns
on loaned funds to all participating
Funds and their shareholders.
Applicants note that each Fund would
have an equal opportunity to borrow
and lend on equal terms consistent with
its investment policies and limitations.
Applicants therefore believe that each
Fund’s participation in the credit
facility would be on terms which are no
different from or less advantageous than
that of other participating Funds.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the request relief
will be subject to the following
conditions:
1. The Interfund Loan Rate to be
charged to the Funds under the credit
facility will be the average of the Repo
Rate and the Bank Loan Rate.
2. On each business day, the Credit
Facility Team will compare the Bank
Loan Rate with the Repo Rate and will
make cash available for Interfund Loans
only if the Interfund Loan Rate is: (a)
More favorable to the lending Fund than
the Repo Rate, and, if applicable, the
yield of the highest yielding Money
Market Fund in which the lending Fund
could otherwise invest; and (b) more
favorable to the borrowing Fund than
the Bank Loan Rate.
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
54593
3. If a Fund has outstanding
borrowings, any Interfund Loans to the
Fund: (a) Will be at an interest rate
equal to or lower than any outstanding
bank loan; (b) will be secured at least on
an equal priority basis with at least an
equivalent percentage of collateral to
loan value as any outstanding bank loan
that requires collateral; (c) will have a
maturity no longer than any outstanding
bank loan (an in any event not over
seven days); and (d) will provide that,
if an event of default occurs under any
agreement evidencing an outstanding
bank loan to the Fund, the event of
default will automatically (without need
for action or notice by the lending Fund)
constitute an immediate event of default
under the Interfund Lending Agreement,
entitling the lending Fund to call the
Interfund Loan (and exercise all rights
with respect to any collateral) and that
such call will be made if the lending
bank exercises its right to call its loan
under its agreement with the borrowing
Fund.
4. A Fund may make an unsecured
borrowing through the credit facility if
its outstanding borrowings from all
sources immediately after the interfund
borrowing total 10% or less of its total
assets, provided that if the Fund has a
secured loan outstanding from any other
lender, including but not limited to
another Fund, the Fund’s interfund
borrowing will be secured on at least an
equal priority basis with at least an
equivalent percentage of collateral to
loan value as any outstanding loan that
requires collateral. If a Fund’s total
outstanding borrowings immediately
after an interfund borrowing would be
greater than 10% of its total assets, the
Fund may borrow through the credit
facility on a secured basis only. A Fund
may not borrow through the credit
facility or from any other source it its
total outstanding borrowings
immediately after such borrowing
would be more than 331⁄3 of its total
assets.
5. Before any Fund that has
outstanding interfund borrowings may,
through additional borrowings, cause its
outstanding borrowings from all sources
to exceed 10% or its total assets, the
Fund must first secure each outstanding
Interfund Loan by the pledge of
segregated collateral with a market
value at least equal to 102% of the
outstanding principal value of the loan.
If the total outstanding borrowings of a
Fund with outstanding Interfund Loans
exceed 10% of its total assets for any
other reason (such as a decline in net
asset value or because of shareholder
redemptions), the Fund will within one
business day thereafter: (a) Repay all of
its outstanding Interfund Loans; (b)
E:\FR\FM\15SEN1.SGM
15SEN1
54594
Federal Register / Vol. 70, No. 178 / Thursday, September 15, 2005 / Notices
reduce its outstanding indebtedness to
10% or less of its total assets; or (c)
secure each outstanding Interfund Loan
by the pledge of segregated collateral
with a market value at least equal to
102% of the outstanding principal value
of the loan until the Fund’s total
outstanding borrowings cease to exceed
10% of its total assets, at which time the
collateral called for by this condition 5
shall no longer be required. Until each
Interfund Loan that is outstanding at
any time that a Fund’s total outstanding
borrowings exceeds 10% is repaid, or
the Fund’s total outstanding borrowings
cease to exceed 10% of its total assets,
the Fund will mark the value of
collateral to market each day and will
pledge such additional collateral as is
necessary to maintain the market value
of the collateral that secures each
outstanding Interfund Loan at least
equal to 102% of the outstanding
principal value of the loan.
6. No Fund may lend to another Fund
through the credit facility if the loan
would cause its aggregate outstanding
loans through the credit facility to
exceed 15% of the lending Fund’s
current net assets at the time of the loan.
7. A Fund’s Interfund Loans to any
one Fund will not exceed 5% of the
lending Fund’s net assets.
8. The duration of Interfund Loans
will be limited to the time required to
receive payment for securities sold, but
in no event more than seven days. Loans
effected within seven days of each other
will be treated as separate loan
transactions for purposes of this
condition.
9. A Fund’s borrowings through the
credit facility, as measured on the day
when the most recent loan was made,
will not exceed the greater of 125% of
the Fund’s total net cash redemptions or
102% of sales fails for the preceding
seven calendar days.
10. Each Interfund Loan may be called
on one business day’s notice by a
lending Fund and may be repaid on any
day by a borrowing Fund.
11. A Fund’s participation in the
credit facility must be consistent with
its investment policies and limitations
and organizational documents.
12. The Credit Facility Team will
calculate total Fund borrowing and
lending demand through the credit
facility, and allocate loans on an
equitable basis among the Funds
without the intervention of any portfolio
manager of the Funds (other than the
Money Market Manager acting in his or
her capacity as a member of the Credit
Facility Team). All allocations will
require approval of at least one member
of the Credit Facility Team who is not
the Money Market Manager. The Credit
VerDate Aug<18>2005
15:03 Sep 14, 2005
Jkt 205001
Facility team will not solicit cash for the
credit facility from any Fund or
prospectively publish or disseminate
loan demand data to portfolio managers
(except to the extent that the Money
Market Manager has access to loan
demand data). The Credit Facility Team
will invest any amounts remaining after
satisfaction of borrowing demand in
accordance with the standing
instructions from portfolio managers or
return remaining amounts for
investment directly by the Funds.
13. The Credit Facility Team will
monitor the interest rates charged and
the other terms and conditions of the
Interfund Loans and will make a
quarterly report to the Board of each
Fund concerning the participation of the
Fund in the credit facility and the terms
and other conditions of any extensions
of credit under the facility.
14. The Board of each Fund,
including a majority of the Independent
Directors, will: (a) Review no less
frequently than quarterly each Fund’s
participation in the credit facility during
the preceding quarter for compliance
with the conditions of any order
permitting the transactions; (b) establish
the Bank Loan Rate formula used to
determine the interest rate on Interfund
Loans, and review no less frequently
than annually the continuing
appropriateness of the Bank Loan Rate
formula; and (c) review no less
frequently than annually the continuing
appropriateness of each Fund’s
participation in the credit facility.
15. In the event an Interfund Loan is
not paid according to its terms and the
default is not cured within two business
days from its maturity or from the time
the lending Fund makes a demand for
payment under the provisions of the
Interfund Lending Agreement, the
Credit Facility Team will promptly refer
the loan for arbitration to an
independent arbitrator, selected by the
Board of each Fund involved in the
loan, who will serve as arbitrator of
disputes concerning Interfund Loans.3
The arbitrator will resolved any problem
promptly, and the arbitrator’s decision
will be binding on both Funds. The
arbitrator will submit at least annually
a written report to the Board of each
Fund setting forth a description of the
nature of any dispute and the actions
taken by the Funds to resolve the
dispute.
16. Each Fund will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
3 If a dispute involves Funds with different
Boards, the Board of each Fund will select an
independent arbitrator that is satisfactory to each
Fund.
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
which any transaction under the credit
facility occurred, the first two years in
an easily accessible place, written
records of all such transactions, setting
forth a description of the terms of the
transaction, including the amount, the
maturity and the rate of interest on the
loan, the rate of interest available at the
time on overnight repurchase
agreements and bank borrowings, the
yield of any Money Market Fund in
which the lending Fund could
otherwise invest and such other
information presented to the Fund’s
Board in connection with the review
required by conditions 13 and 14.
17. The Credit Facility Team will
prepare and submit to the Board of each
Fund for review an initial report
describing the operations of the credit
facility and the procedures to be
implemented to ensure that all the
Funds are treated fairly. After the
commencement of the operations of the
credit facility, the Credit Facility Team
will report on the operations of the
credit facility at the quarterly meetings
of each Fund’s Board.
In addition, for two years following
the commencement of the credit facility,
the independent public accountant for
each Fund shall prepare an annual
report that evaluates the Credit Facility
Team’s assertion that it has established
procedures reasonably designed to
achieve compliance with the conditions
of the order. The report shall be
prepared in accordance with the
Statements on Standards for Attestation
Engagements No. 10 and it shall be filed
pursuant to item 77Q3 of Form N–SAR,
as such Statements or Form may be
revised, amended, or superseded from
time to time. In particular, the report
shall address procedures designed to
achieve the following objectives: (a)
That the Interfund Loan Rate will be
higher than the Repo Rate and, if
applicable, the yield of the highest
yielding Money Market Funds, but
lower than the Bank Loan Rate; (b)
compliance with the collateral
requirements as set forth in the
application; (c) compliance with the
percentage limitations on interfund
borrowing and lending; (d) allocation of
interfund borrowing and lending
demand in an equitable manner and in
accordance with procedures established
by the Board of each Fund; and (e) that
the interest rate on any Interfund Loan
does not exceed the interest rate on any
third party borrowings of a borrowing
Fund at the time of the Interfund Loan.
After the final report is filed, the
Fund’s external auditors, in connection
with their Fund audit examinations,
will continue to review the operation of
the credit facility for compliance with
E:\FR\FM\15SEN1.SGM
15SEN1
Federal Register / Vol. 70, No. 178 / Thursday, September 15, 2005 / Notices
the conditions of the application and
their review will form the basis, in part,
of the auditor’s report on internal
accounting controls in Form N–SAR.
18. No Fund will participate in the
credit facility upon receipt of requisite
regulatory approval unless it has fully
disclosed in its SAI all material facts
about its intended participation.
19. Each Fund will satisfy the fund
governance standards set forth in rule
0–1(a)(7) under the Act by the
compliance date for the rule.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 05–18311 Filed 9–14–05; 8:45 am]
Applicant, c/o Stephanie A. Djinis, Law
Offices of Stephanie A. Djinis, 1749 Old
Meadow Road, Suite 310, McLean, VA
22102.
FOR FURTHER INFORMATION CONTACT: Jaea
F. Hahn, Senior Counsel, at (202) 551–
6870, or Todd F. Kuehl, Branch Chief,
at (202) 551–6821 (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
Commission’s Public Reference Branch,
100 F Street NE., Washington, DC
20549–0102 (telephone (202) 551–5850).
Applicant’s Representations
1. Applicant was incorporated under
the laws of the State of Maryland as Bull
& Bear Tax-Free Income Fund, a series
of Bull & Bear Municipal Securities,
SECURITIES AND EXCHANGE
Inc., an open-end management
COMMISSION
investment company registered under
[Release No. IC–27061; 811–3934]
the Act on December 8, 1983. On
November 8, 1996, applicant registered
Tuxis Corporation; Notice of
under the Act as a closed-end
Application
management investment company.
September 9, 2005.
Applicant changed its name to Tuxis
AGENCY: Securities and Exchange
Corporation in 1998. In October 2001,
Commission (‘‘Commission’’).
applicant’s stockholders approved a
proposal to change the nature of
ACTION: Notice of application for
applicant’s business so as to cease to be
deregistration under section 8(f) of the
an investment company and become an
Investment Company Act of 1940 (the
operating company. Shareholders
‘‘Act’’).
approved the termination of the
Summary of Application: Tuxis
investment management agreement
Corporation requests an order declaring between applicant and its investment
that it has ceased to be an investment
adviser, and applicant’s board of
company.
directors terminated its management
Applicant: Tuxis Corporation.
contract with the outside investment
Filing Dates: The application was
adviser effective November 30, 2001,
filed on May 3, 2004 and amended on
and authorized applicant’s officers to
September 8, 2005.
manage applicant’s business affairs.
Hearing or Notification of Hearing: An
2. Applicant’s management
order granting the requested relief will
commenced a business review,
be issued unless the Commission orders development and acquisition program
a hearing. Interested persons may
with respect to the real estate and real
request a hearing by writing to the
estate services industries upon approval
Commission’s Secretary and serving
of the proposal, and formed five whollyapplicant with a copy of the request,
owned subsidiaries: Tuxis Real Estate I
personally or by mail. Hearing requests
LLC (‘‘TRE–I’’), Tuxis Operations LLC
should be received by the Commission
(‘‘TOP’’), Tuxis Real Estate II LLC
by 5:30 p.m. on October 4, 2005 and
(‘‘TRE–II’’), Tuxis Real Estate Brokerage
should be accompanied by proof of
LLC (‘‘TEB’’), and Winmark Properties I
service on applicant, in the form of an
LLC (‘‘Winmark I’’). Applicant states
affidavit or, for lawyers, a certificate of
that none of these subsidiaries are
service. Hearing requests should state
investment companies as defined in
the nature of the writer’s interest, the
section 3(a) of the Act. The business of
reason for the request, and the issues
TRE–I, TRE–II, and Winmark I consists
contested. Persons who wish to be
of holding title to real estate. TOP
notified of a hearing may request
operates and manages TRE–I’s, TRE–II’s
notification by writing to the
and Winmark I’s properties. TEB is
Commission’s Secretary.
expected to act as agent in the purchase,
sale and lease of real estate. Applicant
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street states that it intends to renovate the
properties held by TRE–I, TRE–II and
NE., Washington, DC 20549–9303.
BILLING CODE 8010–01–M
VerDate Aug<18>2005
15:03 Sep 14, 2005
Jkt 205001
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
54595
Winmark I and then engage in an active
leasing program, operating the sites for
multiple tenants in retail and other
businesses. In addition, applicant states
that it intends to further expand its real
estate property holdings.
3. Applicant states that its whollyowned subsidiaries represent
approximately 35.3% of applicant’s
total assets on an unconsolidated basis.
Applicant further states that its holding
of money market fund shares represent
approximately 64.2% of applicant’s
total assets on an unconsolidated basis.
4. For the last four fiscal quarters
ended March 31, 2005 combined,
applicant has had net losses from its
real estate operations but has derived
income from its holdings of Government
securities and money market fund
shares. During that same time period,
applicant received interest and
dividends of $95,915 from its holdings
of Government securities and money
market fund shares and $20,750 from its
real estate operations. Applicant states
that it expects its revenues from its real
estate operations to increase and its
revenues from money market fund
shares to decrease as its current real
estate holdings are developed and
leased and as it makes additional real
estate acquisitions, thereby reducing its
money market fund holdings. Further,
applicant states that management is
actively reviewing a number of other
real estate acquisition candidates and
anticipates additional transactions.
Applicant’s Legal Analysis
1. Section 8(f) of the Act provides that
whenever the Commission, upon
application or its own motion, finds that
a registered investment company has
ceased to be an investment company,
the Commission shall so declare by
order and upon the taking effect of such
order, the registration of such company
shall cease to be in effect.
2. Section 3(a)(1)(A) of the Act defines
an investment company as any issuer
which ‘‘is or holds itself out as being
engaged primarily, or proposes to
engage primarily, in the business of
investing, reinvesting, or trading in
securities.’’ Section 3(a)(1)(C) of the Act
defines an investment company as any
issuer which ‘‘is engaged or proposes to
engage in the business of investing,
reinvesting, owning, holding, or trading
in securities, and owns or proposes to
acquire investment securities having a
value exceeding 40 per centum of the
value of such issuer’s total assets
(exclusive of Government securities and
cash items) on an unconsolidated
basis.’’ Section 3(a)(2) of the Act defines
investment securities as ‘‘all securities
except (A) Government securities, (B)
E:\FR\FM\15SEN1.SGM
15SEN1
]]>Agencies
[Federal Register Volume 70, Number 178 (Thursday, September 15, 2005)]
[Notices]
[Pages 54590-54595]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-18311]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27060; 812-13134]
Marshall Funds, Inc., et al.; Notice of Application
September 8, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (the ``Act'') under: (i) Section 6(c) of the Act granting
an exemption from sections 18(f) and 21(b) of the Act; (ii) section
12(d)(1)(J) of the Act granting an exemption from sections 12(d)(1)(A)
and (B) of the Act; (iii) sections 6(c) and 17(b) of the Act granting
an exemption from sections 17(a)(1) and 17(a)(3) of the Act; and (iv)
section 17(d) of the Act and rule 17d-1 under the Act to permit certain
joint transactions.
-----------------------------------------------------------------------
Summary of Application: Applicants request an order that would
permit certain registered open-end management investment companies to
participate in a joint lending and borrowing facility.
Applicants: Marshall Funds, Inc., M&I Investment Management Corp.
(``M&I Investment Management''), and Marshall & Ilsley Trust Company,
N.A. (``M&I Trust'').
Filing Dates: The application was filed on November 3, 2004, and
amended on September 8, 2005.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on October 4, 2005, 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 reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
[[Page 54591]]
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-9303; Applicants, c/o Pamela M.
Krill, Esq., Godfrey & Kahn, S.C., One East Main Street, Madison, WI
53703.
FOR FURTHER INFORMATION CONTACT: Marc R. Ponchione, Senior Counsel, at
(202) 551-6874 or Mary Kay Frech, Branch Chief, at (202) 551-6821
(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 at the
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC
20549-0102 (tel. 202-551-5850).
Applicants' Representations
1. Marshall Funds, Inc. is registered under the Act as an open-end
management investment company and is organized as a Wisconsin
corporation. Marshall Funds, Inc. currently consists of thirteen series
(each, a ``Fund'' and together, the ``Funds''), three of which comply
with rule 2a-7 under the Act and hold themselves out as money market
funds (the ``Money Market Funds''). M&I Investment Management, a
wholly-owned subsidiary of Marshall and Ilsley Corporation, is
registered as an investment adviser under the Investment Advisers Act
of 1940 and serves as investment adviser to the Funds.\1\ M&I Trust, a
wholly-owned subsidiary of Marshall and Ilsley Corporation, serves as
custodian and administrator to the Funds.
---------------------------------------------------------------------------
\1\ Applicants request that the relief also apply to any other
existing or future registered open-end management investment company
or series thereof that is advised by M&I Investment Management or
any person controlling, controlled by, or under common control with
M&I Investment Management or its successors (``Future Funds,''
included in the term ``Funds''). ``Successor'' is limited to any
entity or entities that result from a reorganization into another
jurisdiction or a change in the type of business organization. All
entities that currently intend to rely on the requested order have
been named as applicants. Any future entity that relies on the
requested relief will do so only in accordance with the terms and
conditions of the application.
---------------------------------------------------------------------------
2. Some Funds may enter into repurchase agreements or purchase
other short-term instruments issued by banks or other entities. Other
funds may need to borrow money from the same or similar banks for
temporary purposes to satisfy redemption requests, to cover
unanticipated cash shortfalls such as a trade ``fail'' in which cash
payment for a security sold by a Fund has been delayed, or for other
temporary purposes. Currently, Marshall Funds, Inc. has a $25 million
standby line of credit with State Street Bank.
3. If the funds were to borrow money through their line of credit,
the Funds would pay interest on the borrowed cash at a rate which would
be significantly higher than the rate that would be earned by other
(non-borrowing) Funds on investments in repurchase agreements and other
short-term instruments of the same maturity as the bank loan.
Applicants state that this differential represents the profit the bank
would earn for serving as a middleman between a borrower and a lender
and is not attributable to any material difference in the credit
quality or risk in such transactions. In addition, while bank
borrowings generally could supply needed cash to cover unanticipated
redemptions and sales fails, the borrowing Funds would incur commitment
fees and/or other charges involved in obtaining a bank loan.
4. Applicants request an order that would permit the funds to enter
into master interfund lending agreements (``Interfund Lending
Agreements'') that would permit each Fund to lend money directly to and
borrow directly from other funds for temporary purposes (an ``Interfund
Loan''). Applicants believe that the proposed credit facility would
both reduce the Funds' potential borrowing costs and enhance the
ability of the lending Funds to earn higher rates of interest on their
short-term loans. Although the proposed credit facility would reduce
the Funds' need to borrow from banks, the Funds would be free to
establish and/or continue standby lines of credit or other borrowing
arrangements with banks.
5. Applicants anticipate that the credit facility will provide a
borrowing Fund with significant savings when the cash position of the
Fund is insufficient to meet temporary cash requirements. This
situation could arise when shareholder redemptions exceed anticipated
volumes and certain Funds have insufficient cash on hand to satisfy
such redemptions. When the Funds liquidate portfolio securities to meet
redemption requests, they often do not receive payment in settlement
for up to three days (or longer for certain foreign transactions). The
credit facility would provide a source of immediate, short-term
liquidity pending settlement of the sale of portfolio securities.
6. Applicants also propose using the credit facility when a sale of
portfolio securities fails due to circumstances beyond the Fund's
control, such as a delay in the delivery of cash to the Fund's
custodian or improper delivery instructions by the broker effecting the
transaction. Sales fails may present a cash shortfall if the Fund has
undertaken to purchase a security with the proceeds from securities
sold. Under such circumstances, the Fund could fail on its intended
purchase due to lack of funds from the previous sale, resulting in
additional costs to the Fund, or sell a security on a same day
settlement basis, earning a lower return on the investment. Use of the
credit facility under these circumstances would give the Fund access to
immediate short-term liquidity without incurring custodian overdraft or
other charges.
7. While bank borrowings could generally supply needed cash to
cover unanticipated redemptions and sales fails, under the credit
facility, a borrowing Fund would pay lower interest rates than those
offered by banks on short-term loans. In addition, Funds making short-
term cash loans directly to other Funds would earn interest at a rate
higher than they otherwise could obtain from investing their cash in
repurchase agreements or purchasing shares of a Money Market Fund.\2\
Thus, applicants believe that the credit facility would benefit both
borrowing and lending Funds.
---------------------------------------------------------------------------
\2\ Marshall Funds, Inc. has received an order that permits the
Funds to purchase shares of Money Market Funds for cash management
purposes. Investment Company Act Release Nos. 22313 (November 4,
1996) (notice) and 22362 (December 2, 1996) (order).
---------------------------------------------------------------------------
8. The interest rate charged to the Funds on any loans (the
``Interfund Loan Rate'') would be determined daily and would be the
average of the Repo Rate and the Bank Loan Rate, both as defined below.
The Repo Rate on any day would be the highest rate available to the
Funds from investments in overnight repurchase agreements. The Bank
Loan Rate for any day would be calculated by the Credit Facility Team,
as defined below, each day an Interfund Loan is made according to a
formula established by each Fund's board of directors (``Board'')
designed to approximate the lowest interest rate at which short-term
bank loans would be available to the Funds. The formula would be based
upon a publicly available rate (e.g., Federal funds plus 25 basis
points) and would vary with this rate so as to reflect changing bank
loan rates. The Board of each Fund periodically would review the
continuing appropriateness of using the publicly available rate to
determine the Bank Loan Rate, as well as the relationship between the
Bank Loan Rate and current bank loan rates that would be available to
the Fund. The initial formula and any subsequent modifications to the
formula would be
[[Page 54592]]
subject to the approval of each Fund's Board.
9. The Fund's president, treasurer, and compliance officer and an
investment professional within M&I Investment Management (who is also
an employee of M&I Trust) who serves as a portfolio manager for the
Money Market Funds (the ``Money Market Manager'') (collectively, the
``Credit Facility Team'') would administer the credit facility. Under
the credit facility, the portfolio managers for each participating Fund
could provide standing instructions to participate daily as a borrower
or lender. On each business day, M&I Trust, as the Fund's custodian,
would prove the Credit Facility Team with data on the uninvested cash
and borrowing requirements of all participating Funds. Once it had
determined the aggregate amount of cash available for loans and
borrowing demand, the Credit Facility Team would allocate loans among
borrowing Funds without any further communication from portfolio
managers (other than the Money Market Manager in his or her capacity as
the Credit Facility Team member). It is expected that there typically
will be far more available uninvested cash each day than borrowing
demand. After the Credit Facility Team has allocated cash for Interfund
Loans, the Credit Facility Team will invest any remaining cash in
accordance with the standing instructions of portfolio managers or
return remaining amounts to the Funds.
10. The Credit Facility Team would allocate borrowing demand and
cash available for lending among the Funds on what the Credit Facility
Team believes to be an equitable basis, subject to certain
administrative procedures applicable to all Funds, such as the time of
filing requests to participate, minimum loan lot sizes, and the need to
minimize the number of transactions and associated administrative
costs. To reduce transaction costs, each loan normally would be
allocated in a manner intended to minimize the number of participants
necessary to complete the loan transaction. The method of allocation
and related administrative procedures would be approved by the Board of
each Fund, including a majority of the members of the Board who are not
``interested persons'' of the Fund, as defined in section 2(a)(19) of
the Act (``Independent Directors''), to ensure that both borrowing and
lending Funds participate on an equitable basis.
11. The Credit Facility Team would: (a) Monitor the interest rates
charged and the other terms and conditions of the loans; (b) limit the
borrowings and loans entered into by each Fund to ensure that they
comply with the Fund's investment policies and limitations; (c) ensure
equitable treatment of each Fund; and (d) make quarterly reports to the
Board of each fund concerning any transactions by the Fund under the
credit facility and the interest rates charged.
12. M&I Investment Management and M&I Trust, through the Credit
Facility Team, would administer the credit facility as a disinterested
fiduciary and a disinterested party, respectively. Neither M&I
Investment Management nor M&I Trust would receive any compensation in
connection with the administration of the proposed credit facility.
13. No Fund may participate in the credit facility unless: (a) The
Fund has obtained shareholder approval for its participation, if such
approval is required by law, or provides notice to shareholders of its
intention to participate in the proposed credit facility; (b) the Fund
has fully disclosed all material information concerning the credit
facility in its prospectus and/or SAI; and (c) the Fund's participation
in the credit facility is consistent with its investment objectives,
limitation, and organizational documents.
14. In connection with the proposed credit facility, applicants
request an order under: (a) Section 6(c) of the Act granting relief
from sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of
the Act granting relief from sections 12(d)(1)(A) and 12(d)(1)(B) of
the Act; (c) sections 6(c) and 17(b) of the Act granting relief from
sections 17(a)(1) and 17(a)(3) of the Act; and (d) section 17(d) of the
Act and rule 12d-1 under the Act permit certain joint arrangements.
Applicants' Legal Analysis
1. Section 17(a)(3) of the Act generally prohibits any affiliated
person, or affiliated person of a affiliated person, from borrowing
money or other property from a registered investment company. Section
21(b) of the Act generally prohibits any registered management
investment company from lending money or other property to any person
if that person controls or is under common control with the company.
Section 2(a)(3)(C) of the act defines ``affiliated person'' of another
person, in part, to be any person directly or indirectly controlling,
controlled by, or under common control with, such other person.
Applicants state that the Funds may be under common control by virtue
of having M&I Investment Management as their common investment adviser
and/or reason of having common officers, directors, and/or trustees.
2. Section 6(c) of the Act provides that an exemptive order may be
granted where an exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act provided that the terms of
the transaction, including the consideration to be paid or received,
are fair and reasonable and do not involve overreaching on the part of
any person concerned, and the transaction is consistent with the policy
of the investment company as recited in its registration statement and
with the general purposes of the Act. Applicants believe that the
proposed arrangements satisfy these standards for the reasons discussed
below.
3. Applicants submit that sections 17(a)(3) and 21(b) were intended
to prevent a party with strong potential adverse interests and some
influence over the investment decisions of a registered investment
company from causing or inducing the investment company to engage in
lending transactions that unfairly inure to the benefit of that person
and that are detrimental to the best interests of the investment
company and its shareholders. Applicants assert that the proposed
credit facility transactions do not raise these concerns because: (a)
M&I Investment Management and M&I Trust, through the Credit Facility
Team, would administer the program as a disinterested fiduciary and
disinterested party, respectively; (b) all Interfund Loans would
consist only of uninvested cash reserves that the Funds otherwise would
invest in short-term repurchase agreements or other short-term
instruments either directly or through a Money Market Fund; (c) the
Interfund Loans would not involve a greater risk than such other
investments; (d) a lending Fund would receive interest at a rate higher
than it could obtain through such other investments; and (e) a
borrowing Fund would pay interest at a rate lower than otherwise
available to it under its bank loan agreements and avoid the up-front
commitment fees associated with committed lines of credit. Moreover,
applicants believe that the other conditions in the application would
effectively preclude the possibility of any Fund obtaining an undue
advantage over any other Fund.
4. Section 17(a)(1) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
an affiliated person, from selling any securities or other
[[Page 54593]]
property to the company. Section 12(d)(1) of the Act generally makes it
unlawful for a registered investment company to purchase or otherwise
acquire any security issued by any other investment company except in
accordance with the limitations set forth in that section. Applicants
state that the obligation of a borrowing Fund to repay an Interfund
Loan may constitute a security under sections 17(a)(1) and 12(d)(1).
Section 12(d)(1)(J) provides that an exemptive order may be granted by
the Commission from any provision of section 12(d)(1) if and to the
extent such exemption is consistent with the public interest and the
protection of investors. Applicants contend that the standards under
sections 6(c), 17(b) and 12(d)(1)(J) are satisfied for all the reasons
set forth above in support of their request for relief from sections
17(a)(3) and 21(b) and for the reasons discussed below.
5. Applicants state that section 12(d)(1) was intended to prevent
the pyramiding of investment companies in order to avoid duplicative
costs and fees attendant upon multiple layers of investment companies.
Applicants submit that the proposed credit facility does not involve
these abuses. Applicants note that there would be no duplicative costs
or fees to the Funds or shareholders, and that M&I Investment
Management and M&I Trust, through the Credit Facility Team, would
administer the credit facility as a disinterested fiduciary and a
disinterested party, respectively, and would not receive any
compensation for its services. Applicants also note that the purpose of
the proposed credit facility is to provide economic benefits for all
the participating Funds and their shareholders.
6. Section 18(f)(1) of the Act prohibits open-end investment
companies from issuing any senior security except that a company is
permitted to borrow from any bank, provided that, immediately after the
borrowing, there is an asset coverage of at least 300 per centum for
all borrowings of the company. Under section 18(g) of the Act, the term
``senior security'' includes any bond, debenture, note, or similar
obligation or instrument constituting a security and evidencing
indebtedness. Applicants request exemptive relief from section 18(f)(1)
to the limited extent necessary to implement the credit facility
(because the lending Funds are not banks).
7. Applicants believe that granting the relief under section 6(c)
is appropriate because the borrowing Funds would remain subject to the
requirement of section 18(f)(1) that all borrowings of the Fund,
including combined interfund and bank borrowings, have at least 300%
asset coverage. Based on the conditions and safeguards described in the
application, applicants also submit that to allow the Funds to borrow
from other Funds pursuant to the proposed credit facility is consistent
with the purposes and policies of section 18(f)(1).
8. Section 17(d) of the Act and rule 17d-1 thereunder generally
prohibit any affiliated person of a registered investment company, or
affiliated persons of an affiliated person, when acting as principal,
from effecting any joint transaction unless the transaction is approved
by the Commission. Rule 17d-1(b) under the Act provides that in passing
upon applications from exemptive relief, the Commission will consider
whether the participation of a registered investment company in a joint
enterprise on the basis proposed is consistent with the provisions,
policies and purposes of the Act and the extent to which the company's
participation is on a basis different from or less advantageous than
that of other participants.
9. Applicants submit that the purpose of section 17(d) is to avoid
overreaching by and unfair advantage to investment company insiders.
Applicants believe that the credit facility is consistent with the
provisions, policies and purposes of the Act in that it offers both
reduced borrowing costs and enhanced returns on loaned funds to all
participating Funds and their shareholders. Applicants note that each
Fund would have an equal opportunity to borrow and lend on equal terms
consistent with its investment policies and limitations. Applicants
therefore believe that each Fund's participation in the credit facility
would be on terms which are no different from or less advantageous than
that of other participating Funds.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
request relief will be subject to the following conditions:
1. The Interfund Loan Rate to be charged to the Funds under the
credit facility will be the average of the Repo Rate and the Bank Loan
Rate.
2. On each business day, the Credit Facility Team will compare the
Bank Loan Rate with the Repo Rate and will make cash available for
Interfund Loans only if the Interfund Loan Rate is: (a) More favorable
to the lending Fund than the Repo Rate, and, if applicable, the yield
of the highest yielding Money Market Fund in which the lending Fund
could otherwise invest; and (b) more favorable to the borrowing Fund
than the Bank Loan Rate.
3. If a Fund has outstanding borrowings, any Interfund Loans to the
Fund: (a) Will be at an interest rate equal to or lower than any
outstanding bank loan; (b) will be secured at least on an equal
priority basis with at least an equivalent percentage of collateral to
loan value as any outstanding bank loan that requires collateral; (c)
will have a maturity no longer than any outstanding bank loan (an in
any event not over seven days); and (d) will provide that, if an event
of default occurs under any agreement evidencing an outstanding bank
loan to the Fund, the event of default will automatically (without need
for action or notice by the lending Fund) constitute an immediate event
of default under the Interfund Lending Agreement, entitling the lending
Fund to call the Interfund Loan (and exercise all rights with respect
to any collateral) and that such call will be made if the lending bank
exercises its right to call its loan under its agreement with the
borrowing Fund.
4. A Fund may make an unsecured borrowing through the credit
facility if its outstanding borrowings from all sources immediately
after the interfund borrowing total 10% or less of its total assets,
provided that if the Fund has a secured loan outstanding from any other
lender, including but not limited to another Fund, the Fund's interfund
borrowing will be secured on at least an equal priority basis with at
least an equivalent percentage of collateral to loan value as any
outstanding loan that requires collateral. If a Fund's total
outstanding borrowings immediately after an interfund borrowing would
be greater than 10% of its total assets, the Fund may borrow through
the credit facility on a secured basis only. A Fund may not borrow
through the credit facility or from any other source it its total
outstanding borrowings immediately after such borrowing would be more
than 33\1/3\ of its total assets.
5. Before any Fund that has outstanding interfund borrowings may,
through additional borrowings, cause its outstanding borrowings from
all sources to exceed 10% or its total assets, the Fund must first
secure each outstanding Interfund Loan by the pledge of segregated
collateral with a market value at least equal to 102% of the
outstanding principal value of the loan. If the total outstanding
borrowings of a Fund with outstanding Interfund Loans exceed 10% of its
total assets for any other reason (such as a decline in net asset value
or because of shareholder redemptions), the Fund will within one
business day thereafter: (a) Repay all of its outstanding Interfund
Loans; (b)
[[Page 54594]]
reduce its outstanding indebtedness to 10% or less of its total assets;
or (c) secure each outstanding Interfund Loan by the pledge of
segregated collateral with a market value at least equal to 102% of the
outstanding principal value of the loan until the Fund's total
outstanding borrowings cease to exceed 10% of its total assets, at
which time the collateral called for by this condition 5 shall no
longer be required. Until each Interfund Loan that is outstanding at
any time that a Fund's total outstanding borrowings exceeds 10% is
repaid, or the Fund's total outstanding borrowings cease to exceed 10%
of its total assets, the Fund will mark the value of collateral to
market each day and will pledge such additional collateral as is
necessary to maintain the market value of the collateral that secures
each outstanding Interfund Loan at least equal to 102% of the
outstanding principal value of the loan.
6. No Fund may lend to another Fund through the credit facility if
the loan would cause its aggregate outstanding loans through the credit
facility to exceed 15% of the lending Fund's current net assets at the
time of the loan.
7. A Fund's Interfund Loans to any one Fund will not exceed 5% of
the lending Fund's net assets.
8. The duration of Interfund Loans will be limited to the time
required to receive payment for securities sold, but in no event more
than seven days. Loans effected within seven days of each other will be
treated as separate loan transactions for purposes of this condition.
9. A Fund's borrowings through the credit facility, as measured on
the day when the most recent loan was made, will not exceed the greater
of 125% of the Fund's total net cash redemptions or 102% of sales fails
for the preceding seven calendar days.
10. Each Interfund Loan may be called on one business day's notice
by a lending Fund and may be repaid on any day by a borrowing Fund.
11. A Fund's participation in the credit facility must be
consistent with its investment policies and limitations and
organizational documents.
12. The Credit Facility Team will calculate total Fund borrowing
and lending demand through the credit facility, and allocate loans on
an equitable basis among the Funds without the intervention of any
portfolio manager of the Funds (other than the Money Market Manager
acting in his or her capacity as a member of the Credit Facility Team).
All allocations will require approval of at least one member of the
Credit Facility Team who is not the Money Market Manager. The Credit
Facility team will not solicit cash for the credit facility from any
Fund or prospectively publish or disseminate loan demand data to
portfolio managers (except to the extent that the Money Market Manager
has access to loan demand data). The Credit Facility Team will invest
any amounts remaining after satisfaction of borrowing demand in
accordance with the standing instructions from portfolio managers or
return remaining amounts for investment directly by the Funds.
13. The Credit Facility Team will monitor the interest rates
charged and the other terms and conditions of the Interfund Loans and
will make a quarterly report to the Board of each Fund concerning the
participation of the Fund in the credit facility and the terms and
other conditions of any extensions of credit under the facility.
14. The Board of each Fund, including a majority of the Independent
Directors, will: (a) Review no less frequently than quarterly each
Fund's participation in the credit facility during the preceding
quarter for compliance with the conditions of any order permitting the
transactions; (b) establish the Bank Loan Rate formula used to
determine the interest rate on Interfund Loans, and review no less
frequently than annually the continuing appropriateness of the Bank
Loan Rate formula; and (c) review no less frequently than annually the
continuing appropriateness of each Fund's participation in the credit
facility.
15. In the event an Interfund Loan is not paid according to its
terms and the default is not cured within two business days from its
maturity or from the time the lending Fund makes a demand for payment
under the provisions of the Interfund Lending Agreement, the Credit
Facility Team will promptly refer the loan for arbitration to an
independent arbitrator, selected by the Board of each Fund involved in
the loan, who will serve as arbitrator of disputes concerning Interfund
Loans.\3\ The arbitrator will resolved any problem promptly, and the
arbitrator's decision will be binding on both Funds. The arbitrator
will submit at least annually a written report to the Board of each
Fund setting forth a description of the nature of any dispute and the
actions taken by the Funds to resolve the dispute.
---------------------------------------------------------------------------
\3\ If a dispute involves Funds with different Boards, the Board
of each Fund will select an independent arbitrator that is
satisfactory to each Fund.
---------------------------------------------------------------------------
16. Each Fund will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any transaction
under the credit facility occurred, the first two years in an easily
accessible place, written records of all such transactions, setting
forth a description of the terms of the transaction, including the
amount, the maturity and the rate of interest on the loan, the rate of
interest available at the time on overnight repurchase agreements and
bank borrowings, the yield of any Money Market Fund in which the
lending Fund could otherwise invest and such other information
presented to the Fund's Board in connection with the review required by
conditions 13 and 14.
17. The Credit Facility Team will prepare and submit to the Board
of each Fund for review an initial report describing the operations of
the credit facility and the procedures to be implemented to ensure that
all the Funds are treated fairly. After the commencement of the
operations of the credit facility, the Credit Facility Team will report
on the operations of the credit facility at the quarterly meetings of
each Fund's Board.
In addition, for two years following the commencement of the credit
facility, the independent public accountant for each Fund shall prepare
an annual report that evaluates the Credit Facility Team's assertion
that it has established procedures reasonably designed to achieve
compliance with the conditions of the order. The report shall be
prepared in accordance with the Statements on Standards for Attestation
Engagements No. 10 and it shall be filed pursuant to item 77Q3 of Form
N-SAR, as such Statements or Form may be revised, amended, or
superseded from time to time. In particular, the report shall address
procedures designed to achieve the following objectives: (a) That the
Interfund Loan Rate will be higher than the Repo Rate and, if
applicable, the yield of the highest yielding Money Market Funds, but
lower than the Bank Loan Rate; (b) compliance with the collateral
requirements as set forth in the application; (c) compliance with the
percentage limitations on interfund borrowing and lending; (d)
allocation of interfund borrowing and lending demand in an equitable
manner and in accordance with procedures established by the Board of
each Fund; and (e) that the interest rate on any Interfund Loan does
not exceed the interest rate on any third party borrowings of a
borrowing Fund at the time of the Interfund Loan.
After the final report is filed, the Fund's external auditors, in
connection with their Fund audit examinations, will continue to review
the operation of the credit facility for compliance with
[[Page 54595]]
the conditions of the application and their review will form the basis,
in part, of the auditor's report on internal accounting controls in
Form N-SAR.
18. No Fund will participate in the credit facility upon receipt of
requisite regulatory approval unless it has fully disclosed in its SAI
all material facts about its intended participation.
19. Each Fund will satisfy the fund governance standards set forth
in rule 0-1(a)(7) under the Act by the compliance date for the rule.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 05-18311 Filed 9-14-05; 8:45 am]
BILLING CODE 8010-01-M
