Federal Register / Vol. 65, No. 94 / Monday, May 15, 2000 / Notices 31023

Guaranty Corporation regulations. These

rates and assumptions are published

elsewhere (or are derivable 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 (http://www.pbgc.gov).

DATES: The interest rate for determining

the variable-rate premium under part

4006 applies to premium payment years

beginning in May 2000. The interest

assumptions for performing

multiemployer plan valuations

following mass withdrawal under part

4281 apply to valuation dates occurring

in June 2000.

FOR FURTHER INFORMATION CONTACT:

Harold J. Ashner, Assistant General

Counsel, Office of the General Counsel,

Pension Benefit Guaranty Corporation,

1200 K Street, NW., Washington, DC

20005, 202–326–4024. (For TTY/TDD

users, call the Federal relay service tollfree 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

Rates (29 CFR part 4006) prescribe use

of an assumed interest rate in

determining a single-employer plan’s

variable-rate premium. The rate is the

‘‘applicable percentage’’ (currently 85

percent) of the annual yield on 30-year

Treasury securities for the month

preceding the beginning of the plan year

for which premiums are being paid (the

‘‘premium payment year’’). The yield

figure is reported in Federal Reserve

Statistical Releases G.13 and H.15.

The assumed interest rate to be used

in determining variable-rate premiums

for premium payment years beginning

in May 2000 is 4.97 percent (i.e., 85

percent of the 5.85 percent yield figure

for April 2000).

The following table lists the assumed

interest rates to be used in determining

variable-rate premiums for premium

payment years beginning between June

1999 and May 2000.

For premium payment years

beginning in:

The assumed interest rate is:

June 1999 ................................. 4.94

July 1999 .................................. 5.13

August 1999 ............................. 5.08

September 1999 ....................... 5.16

October 1999 ............................ 5.16

November 1999 ........................ 5.32

December 1999 ........................ 5.23

January 2000 ............................ 5.40

February 2000 .......................... 5.64

For premium payment years

beginning in:

The assumed interest rate is:

March 2000 ............................... 5.30

April 2000 ................................. 5.14

May 2000 .................................. 4.97

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 June

2000 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.

Issued in Washington, DC, on this 8th day

of May 2000.

John Seal,

Acting Executive Director, Pension Benefit

Guaranty Corporation.

[FR Doc. 00–12090 Filed 5–12–00; 8:45 am]

BILLING CODE 7708–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Rel No. IC–24449; 812–12078]

BISYS Fund Services Limited

Partnership, et al.; Notice of

Application

May 9, 2000.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’).

ACTION: Notice of application for

exemption under sections 6(c) and 17(b)

of the Investment Company Act of 1940

(the ‘‘Act’’) from section 17(a) of the Act

and under section 17(d) of the Act and

rule 17d–1 under the Act to permit

certain joint transactions.

SUMMARY OF APPLICATION: Applicants

seek an order to permit certain

registered investment companies (a) to

pay BISYS Fund Services Limited

Partnership (‘‘BISYS’’) and certain of its

affiliated persons fees for acting as

lending agent with respect to a

securities lending program (‘‘Program’’);

(b) to lend portfolio securities to

affiliated broker-dealers; (c) to deposit

cash collateral received in connection

with the Program and other uninvested

cash in one or more joint trading

accounts; and (d) to use cash collateral

received in connection with the

Program to purchase shares of an

affiliated private investment company,

BISYS Securities Lending Management

LC (the ‘‘Trust’’).

APPLICANTS: BISYS, BISYS Fund

Services Ohio, Inc. (‘‘BISYS ohio’’), the

Trust, Fifth Third Funds, Fifth Third

Bank, BB&T Funds, Branch Banking &

Trust Company (‘‘BB&T’’), Pacific

Capital Funds, Pacific Century Trust

(‘‘Pacific Century’’), AmSouth Funds,

AmSouth Bank (‘‘AmSouth’’),

Nationwide Mutual Funds, Nationwide

Separate Account Trust (collectively,

Nationwide Mutual Funds and

Nationwide Separate Account Trust are

the ‘‘Nationwide Funds’’), Union Bond

& Trust Company (‘‘Union’’), and

Villanova Mutual Fund Capital Trust

(‘‘Villanova’’) (collectively, the Fifth

Third Funds, BB&T Funds, Pacific

Capital Funds, AmSouth Funds, and the

Nationwide Funds are the ‘‘Funds’’).

FILING DATES: The application was filed

on April 21, 2000. Applicants have

agreed to file an amendment, the

substance of which is reflected in this

notice, 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

June 5, 2000, 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 SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW., Washington, DC 20549–

0609. The Trust, AmSouth Funds, BB&T

Funds, Pacific Capital Funds, BISYS

Ohio, and BISYS, 3435 Stelzer Road,

Columbus, Ohio 43219–3035; AmSouth

Bank, 1901 Sixth Avenue-North,

Birmingham, Alabama 35203; BB&T,

435 Fayetteville Street Mall, Raleigh,

North Carolina 27601; Fifth Third

Funds and Fifth Third, 38 Fountain

Square Plaza, Cincinnati, Ohio 45263;

Pacific Century, Financial Plaza of the

Pacific, 111 S. King Street, Honolulu,

Hawaii 96813; Nationwide Funds and

Villanova, Three Nationwide Plaza,

Columbus, Ohio 43216; and Union,

5665 SW Meadows Road, Lake Oswego,

Oregon 97035.

FOR FURTHER INFORMATION CONTACT:

Elaine M. Boggs, Senior Counsel, at

31024 Federal Register / Vol. 65, No. 94 / Monday, May 15, 2000 / Notices

1Each Adviser will be registered under the

Advisers Act or exempt from registration.

2All existing entities that currently intend to rely

on the requested relief have been named as

applicants. Any existing and future entity may

reply on the order in the future only in accordance

with the terms and conditions in the application.

(202) 942–0572, or Nadya B. Roytblat,

Assistant Director, at (202) 942–0564

(Division of Investment Management,

Office of Investment Company

Regulation).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application is

available for a fee at the SEC’s Public

Reference Branch, 450 5th Street, N.W.,

Washington, D.C. 20549 (telephone

(202) 942–8090).

Applicant’s Representations

1. The Funds, with the exception of

Nationwide Mutual Fund which is an

Ohio trust, are Massachusetts business

trusts. Each Fund is an open-end

management investment company

registered under the Act. Each Fund

consists of multiple portfolios

(‘‘Portfolios’’). The investment adviser

for BB&T Fund is BB&T, for AmSouth

Funds is AmSouth, for Fifth Third

Funds is Fifth Third or Heartland

Capital Management, Inc., for Pacific

Capital Funds is Pacific Century, and for

Nationwide Separate Account Trust is

Villanova. Villanova and Union serve as

investment advisers to the Portfolios of

the Nationwide Mutual Fund, except for

certain Portfolios which are ‘‘feeder’’

funds with a ‘‘master’’ fund advised by

Fund Asset Management, L.P. The

BB&T Fund, AmSouth Funds, and

Pacific Capital Funds are in the BB&T,

AmSouth, and Pacific Capital group of

investment companies, respectively,

within the meaning of section

12(d)(1)(G) of the Act.

2. BISYS is the administrator and

distributor for each of the Fifth Third

Fund’s Portfolios and the distributor for

the Portfolios of AmSouth Fund, BB&T

Funds, and the Pacific Capital Funds.

BISYS Ohio serves as: (a) The transfer

and dividend disbursing agent and fund

accountant for the Portfolios of the

BB&T; (b) the transfer agent for the

Portfolios of the AmSouth Portfolios;

and (c) the fund accountant for the

Portfolios of Pacific Capital Fund.

BISYS serves as the sub-administrator to

the Nationwide Funds. BISYS and

BISYS Ohio are wholly-owned

subsidiaries of the BISYS Group, Inc.

3. BB&T is the principal bank affiliate

of BB&T Corporation, a bank holding

corporation. AmSouth is a bank affiliate

of AmSouth Bancorporation, a banking

institution. Fifth Third is a bank

subsidiary of Fifth Third Bancorp.

Pacific Century is a trust firm and a

division of Bank of Hawaii. Villanova is

an investment adviser and is under the

indirect control of Nationwide Mutual

Insurance Company. Union is a state

bank and trust company. Villanova is

registered as an investment adviser

under the Investment Advisers Act of

1940 (‘‘Advisers Act’’). BB&T, AmSouth,

Fifth Third, Pacific Century, and Union

are exempt from registration under the

Advisers Act.

4. The Trust is a Delaware limited

liability company and currently consists

of two portfolios (together with any

future portfolios, each an ‘‘Investment

Fund’’). Currently, it is intended that

AmSouth serve as investment adviser to

the Trust (‘‘Trust Adviser’’) but one or

more of the other Advisers (defined

below) may also serve as investment

adviser to the Trust. Each Investment

Fund will value its securities based on

the amortized cost method and comply

with rule 2a–7 under the Act.

5. Trust shares will be offered to the

Lending Funds (defined below) and

other participants in the Program in

reliance on the exemption provided by

Regulation D under the Securities Act of

1933. The Trust will operate as a private

investment company excluded from the

definition of ‘‘investment company’’

pursuant to section 3(c)(1) or (7) of the

Act. Trust shares will have no voting

rights and may not be transferred

without the consent of the trustee.

BISYS will be the sole trustee

(‘‘Trustee’’), will oversee the Trust’s

operations, and will provide accounting

and administrative services to the Trust.

BISYS and the Trust Adviser will be

compensated by the Trust for their

services. Trust share will not be subject

to any sales load, redemption fee, assetbased sales charge, or service fee.

6. Applicants request that relief be

extended to: (a) Any registered

management investment company or

series of a registered management

investment company for which BISYS,

or any person controlling, controlled by,

or under common control with BISYS,

now or in the future, serves as principal

underwriter, administrator, or

distributor and for which AmSouth,

BB&T, Fifth Third, Pacific Century,

Villanova, or Union or any person

controlling, controlled by, or under

common control with AmSouth, BB&T,

Fifth Third, Pacific Century, Villanova,

or Union (each, an ‘‘Adviser’’) 1 now or

in the future serves as investment

adviser (collectively with the Funds,

each a ‘‘Fund’’); (b) BISYS and any

person controlling, controlled by, or

under common control with BISYS,

including registered broker-dealers that

are controlling, controlled by or under

common control with BISYS (the

‘‘Affiliated Broker-Dealers’’); and (c) the

Trust and any other private investment

company organized by BISYS or any

person controlling, controlled by, or

under common control with BISYS and

advised by an Adviser (any future

private investment companies are also

the ‘‘Trust’’ and their series the

‘‘Investment Funds’’).2

7. Several of the Portfolios currently

participate in the program administered

by BISYS Ohio. Each Fund that

participates in the Program (‘‘Lending

Fund’’) will be permitted to lend its

portfolio securities, and its prospectus

will disclose that it may engage in

portfolio securities lending. Currently,

BISYS Ohio provides administrative

services in connection with the Program

and engages an independent third-party

to act as securities lending agent for the

Lending Funds. In the future, BISYS

Ohio may act as securities lending agent

(collectively with the third-party

lending agents, the ‘‘Lending Agent’’)

8. Under the Program, the Lending

Agent enters into agreements with

borrowers (‘‘Borrowers’’) to lend them

portfolio securities of the Lending Fund

(‘‘Securities Loan Agreements’’).

Pursuant to the Securities Loan

Agreements, the Lending Agent delivers

the Lending Fund’s portfolio securities

to Borrowers in exchange for cash

collateral or other types of collateral,

such as U.S. Government securities.

Cash collateral is delivered in

connection with most loans. The

Lending Agent invests the cash

collateral on behalf of the Lending Fund

in accordance with specific parameters

set forth in the Securities Loan

Agreement. These guidelines include

permissible investment of the cash

collateral as well as a list of eligible

types of investments.

9. With respect to securities loans that

are collateralized by cash, the Borrower

is entitled to receive a fixed fee based

on the amount of cash held as collateral.

The Lending Fund in this case is

compensated on the spread between the

net amount earned on the investment of

the cash collateral and the Borrower’s

cash collateral fee. In the case of

collateral that is other than cash, the

Lending Fund receives a loan fee paid

by the Borrower equal to a percentage of

the market value of the loaned securities

as specified in the Securities Loan

Agreement.

10. The applicants request relief to

permit: (a) The Funds for which BISYS

serves as distributor to pay and BISYS

Ohio or any person controlling,

controlled by, or under common control

Federal Register / Vol. 65, No. 94 / Monday, May 15, 2000 / Notices 31025

3Uninvested cash may occur in connection with

a Fund maintaining cash reserves to meet

redemption requests or as a result of late day

purchases by shareholders.

4The Funds will enter into ‘‘hold-in-custody’’

repurchase agreements (i.e., repurchase agreements

where the counterparty or one of its affiliated

person may have possession of, or control over, the

collateral subject to the agreement) only where cash

is received late in the business day and otherwise

would be unavailable for investment.

with BISYS, to accept fees based on a

share of the proceeds derived by the

Funds from their securities lending

transactions, for services as Lending

Agent; (b) the Funds to deposit cash

collateral received in connection with

their securities lending activities and

other uninvested cash 3 (‘‘Uninvested

Cash’’) in one or more joint trading

accounts or subaccounts (the ‘‘Joint

Accounts’’); (c) the Funds to use some

or all of the cash collateral received in

connection with their securities lending

activities to purchase shares of the Trust

and the Trust to redeem shares from the

Funds; and (d) the Funds for which

BISYS serves as distributors to lend

portfolio securities to Affiliated BrokerDealers.

Applicants’ Legal Analysis

A. Payment of Fees by Lending Funds to

BISYS Ohio

1. Section 17(d) of the Act and rule

17d–1 under the Act prohibit any

affiliated person of or principal

underwriter for a registered investment

company or any affiliated person of

such person or principal underwriter,

acting as principal, from effecting any

transaction in connection with any joint

enterprise or other joint arrangement or

profit sharing plan, in which the

investment company participates.

Section 2(a)(3) of the Act defines an

affiliated person to include any person

directly or indirectly controlling,

controlled by, or under common control

with, the other person. Because BISYS

Ohio and BISYS (the principal

underwriter for the Funds except the

Nationwide Funds) are each whollyowned subsidiaries of the The BISYS

Group, Inc., they may be deemed to be

under ‘‘common control’’ and therefore

affiliated persons, and BISYS Ohio may

be deemed an affiliated person of the

principal underwriter for each lending

Fund. Accordingly, applicants request

an order under section 17(d) of the Act

and rule 17d–1 under the Act to the

extent necessary to permit each lending

Fund (except the Nationwide Funds for

which no relief is requested) to pay and

BISYS Ohio, or any other person

controlling, controlled by, or under

common control with BISYS, to accept

fees that are based on a share of the

proceeds derived by the Lending Funds

in connection with services provided as

Lending Agent.

2. Rule 17d–1 permits the SEC to

approve a proposed joint transaction

covered by the terms of section 17(d). In

determining whether to approve a

transaction, the SEC is to consider

whether the proposed transaction is

consistent with the provisions, policies,

and purposes of the Act, and the extent

to which the participation of the

investment companies is on a basis

different from or less advantageous than

that of the other participants.

3. Applicants propose that each

lending Fund adopt the following

procedures to ensure that the proposed

fee arrangement and the other terms

governing the relationship with BISYS

Ohio, as Lending Agent, will meet the

standards of rule 17d–1:

(a) In connection with the approval of

BISYS Ohio as lending agent for a

Lending Fund and implementation of

the proposed fee arrangement, a

majority of the board of directors or

trustees (the ‘‘Board’’) (including a

majority of the directors or trustees who

are not ‘‘interested persons’’ within the

meaning of the Act (the ‘‘Disinterested

directors’’) of the lending Fund swill

determine that (i) the contract with

BISYS Ohio is in the best interests of the

Lending Fund and its shareholders; (ii)

the services to be performed by BISYS

Ohio are appropriate for the Lending

Fund; (iii) the nature and quality of the

services provided by BISYS Ohio are at

least equal to those offered and

provided by other; and (iv) the fees for

BISYS Ohio’s services are fair and

reasonable in light of the usual and

customary charges imposed by others

for services of the same nature and

quality.

(b) Each Lending Fund’s contract with

BISYS Ohio for lending agent services

will be reviewed annually and will be

approved for continuation only if a

majority of the Board (including a

majority of the Disinterested directors)

makes the finding referred to in

paragraph (a) above.

(c) In connection with the initial

implementation of the proposed fee

arrangement whereby BISYS Ohio will

be compensated as lending Agent based

on a percentage of the revenue

generated by a Lending Fund’s

participation in the Program, the Board

will obtain competing quotes with

respect to lending agent fees from at

least three independent lending agents

to assist the Board in making the

findings referred to in paragraph (a)

above.

(d) The Board, including a majority of

the Disinterested directors, will (i)

determine at each regular quarterly

meeting that the loan transactions

during the prior quarter were effected in

compliance with the conditions and

procedures set forth in the application

and (ii) review no less frequently than

annually the conditions and procedures

for continuing appropriateness.

(e) Each Lending Fund will (i)

maintain and preserve permanently in

an easily accessible place a written copy

of the procedures and conditions (and

any modifications) described in the

application or otherwise followed in

connection with lending securities

pursuant to the Program and (ii)

maintain and preserve for a period not

less than six years from the end of the

fiscal year in which any loan transaction

pursuant to the Program occurred, the

first two years in an easily accessible

place, a written record of each loan

transaction setting forth a description of

the security loaned, the identity of the

person on the other side of the loan

transaction, the term of the loan

transaction, and the information or

materials upon which the determination

was made that each loan was made in

accordance with the procedures set

forth above and the conditions to the

application.

B. Investment of Uninvested Cash and

Cash Collateral in the Joint Accounts

1. The Funds propose to deposit some

or all of their cash collateral and

Uninvested Cash in the Joint Accounts

established at the Fund’s custodian for

the purpose of investing in one or more

of the following: (a) Repurchase

agreements ‘‘collateralized fully’’ as

defined in rule 2a–7 under the Act,4 (b)

U.S. dollar denominated commercial

paper and (c) any other short-term

money market instruments that

constitute ‘‘Eligible Securities’’ (as

defined in rule 2a–7 under the Act) that

are not subject to contractual or other

restrictions on resale (collectively,

‘‘Short-Term Investments’’). Each Fund

may deposit its Uninvested Cash or cash

collateral only in a Joint Account that is

advised by that Fund’s Adviser. Each

Fund (the Funds that are eligible to

participate and elect to participate in

the Joint Accounts are the

‘‘Participants’’) will have the option to

participate in any joint Account on the

same basis as every other Fund, subject

to and in conformity with its own

investment objectives, policies, and

restrictions. The Adviser to a Joint

Account will be responsible for

investing funds held by the Joint

Accounts BISYS, under the supervision

of the Adviser, will be responsible for

establishing accounting and control

31026 Federal Register / Vol. 65, No. 94 / Monday, May 15, 2000 / Notices

procedures, operating the Joint

Accounts in accordance with the

procedures described in the application,

and ensuring fair treatment of the

Participants.

2. As noted above, section 17(d) and

rule 17d–1 generally prohibit joint

transactions involving registered

investment companies and certain of

their affiliates unless the SEC has

approved the transaction. Applicants

state that the Participants, by

participating in the proposed Joint

Accounts, and the Adviser (as the

investment adviser to the Participants)

and BISYS, (as the principal

underwriter for each Participant except

the Nationwide Funds) by administering

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 meaning

of rule 17d–1 under the Act.

Accordingly, applicants request an

order under section 17(d) and rule 17d–

1 under the Act to permit them to

engage in the proposed Joint Accounts.

Applicants believe that the requested

relief meets the standards of rule 17d–

1 for the reasons discussed below.

3. Applicants state that any

repurchase agreement entered into

through the Joint Accounts will comply

with the terms of Investment Company

Act Release No. 13005 (Feb. 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 the

other Short-Term Investments made

through the Joint Accounts, the

investments will comply with those

guidelines.

4. The Joint Accounts may comprise

multiple joint subaccounts, if BISYS or

the Adviser determines that multiple

joint subaccounts are necessary or

advisable to provide the Funds with

additional flexibility and choice in the

Short-Term Investments in which they

choose to invest. Joint subaccounts may

also be established for other reasons,

such as to facilitate monitoring of

individual Funds’ interests in different

Short-Term Investments, consistent

with the variations in investment

restrictions and policies among the

various Funds.

5. Each Fund’s decision to invest in

a Joint Account will be solely at the

options of its Adviser within the

standards and procedures established by

that Fund’s Board, and no Fund will be

required to maintain any minimum

balance. To eliminate any possibility of

one Fund using any part of the balance

of a Joint Account credited to another

Fund, no Fund will be allowed to create

a negative balance in any Joint Account

for any reason. Each Fund will retain

sole rights to all of the assets invested

by it in the Joint Accounts, including

interest payable on the assets.

6. Applicants believe that each

Participant’s investment in a Joint

Account would not be subject to the

claims of creditors, whether brought in

bankruptcy, insolvency or other legal

proceeding, of any other Participant.

Each Fund’s liability on any Short-Term

Investment through the Joint Account

will be limited to its own interest in the

Short-Term Investment.

7. Applicants believe that the

proposed method of operating the Joint

Accounts will not result in any conflicts

of interest between any of the Funds or

between any Funds and BISYS or the

Fund’s Adviser. Applicants state that

although BISYS will likely gain some

benefit through the administrative

convenience of the Funds investing in

Short-Term Investments on a joint basis,

and may experience some reduction in

clerical costs, the Funds will be the

primary beneficiaries because of the

increased efficiencies realized through

use of the Joint Accounts, the possible

increase in rates of return available, and,

for some Funds, the opportunity to

invest in Short-Term Investments.

Neither the Adviser nor BISYS will

receive any additional fees from the

Funds for the administration of the Joint

Accounts.

C. Investment of Cash Collateral in

Shares of the Trust

1. As noted above, section 17(d) and

rule 17d–1 generally prohibit joint

transactions involving registered

investment companies and certain of

their affiliates unless the SEC has

approved the transaction. Applicants

state that the Funds (by purchasing and

redeeming Trust shares), BISYS as

principal underwriter of the Funds at

the same time that the Fund’s cash

collateral is invested in Trust shares,

and as Trustee and service provider to

the Trust at the same time that the Trust

sells Trust shares to and redeems them

from the Funds, BYSIS Ohio (by acting

as Lending Agent), and the Trust (by

selling shares to and redeeming them for

the Funds) could be deemed to be

participants in a joint enterprise or

arrangement within the meaning of

section 17(d) of the Act and rule 17d–

1 under the Act.

2. Section 17(a) of the Act makes it

unlawful for any affiliated person of a

registered investment company, or any

affiliated person of such affiliated

person (‘‘Second-Tier Affiliate’’), acting

as principal, to sell or purchase any

security to or from such investment

company. BISYS is the principal

underwriter for the Lending Funds

(except the Nationwide Funds). The

Trust may be considered an affiliated

person of BISYS under section 2(a)(3) of

the Act because of BISYS’ role as

Trustee. In addition, since the Trust

Adviser will be an investment adviser to

the Trust as well as to a Lending Fund,

the Trust Adviser would be an affiliated

person of any Lending Fund it advises

and the Trust would be a Second-Tier

Affiliate of the Lending Funds.

Accordingly, the sale of shares of the

Trust to the Fund, and the redemption

of such shares from the Fund, would be

prohibited under section 17(a).

3. Section 17(b) of the Act authorizes

the SEC to exempt a transaction from

section 17(a) if the terms of the

proposed transaction, including the

consideration to be paid or received, are

reasonable and fair and do not involve

overreaching on the part of any person

concerned, the proposed transaction is

consistent with the policy of each

registered investment company

concerned, and the proposed

transaction is consistent with the

general policy of the Act. Section 6(c)

under the Act permits the SEC to

exempt any person or transaction from

any provision of the Act, if such

exemption is necessary or appropriate

in the public interest and consistent

with the protection of investors and the

purposes fairly intended by the policies

of the Act.

4. Applicants request an order under

sections 6(c), 17(b), and 17(d) of the Act

and rule 17d–1 under the Act to permit

the Lending Funds to purchase and

redeem Trust shares from the Trust and

the Trust to sell and redeem Trust

shares to and from the Lending Funds.

Applicants state that a Fund’s cash

collateral will be invested in a particular

Investment Fund only if the Investment

Fund invests in the types of instruments

that the Lending Fund has authorized

for the investment of its cash collateral.

Each Investment Fund will comply with

rule 2a–7 under the Act.

5. Applicants state that the Lending

Funds will purchase, hold and redeem

Trust shares on the same basis as any

other holder of Trust shares. Applicants

assert that by investing cash collateral in

Trust shares as proposed, the Lending

Federal Register / Vol. 65, No. 94 / Monday, May 15, 2000 / Notices 31027

5A ‘‘spread’’ is the compensation earned by a

Fund, as lender, from a securities loan. The

compensation is in the form either of a lending fee

payable by the borrower to the Fund (where noncash collateral is posed) or of the excess—retained

by the Fund—over a rebate rate payable by the

Fund to the borrower (where cash collateral is

posted and then invested by the Fund).

Funds will be able to achieve liquidity,

diversification and quality of

investments at a cost that is expected to

be lower than the cost typically incurred

when investing in a registered

investment company. Further, each

Investment Fund will comply with

sections 17(a), (d), (e), and 18 of the Act

as if the Trust were a registered openend investment company. With respect

to all redemption requests made by a

lending Fund, the Trust will comply

with section 22(e) of the Act.

D. Lending of Portfolio Securities to

Affiliated Broker-Dealers

1. Section 17(a)93) of the Act makes

it unlawful for any affiliated person for

principal underwriter for a registered

investment company or their SecondTier Affiliates, acting as principal, to

borrow money or other property from

the registered investment company.

Section 2(a)(3) of the Act defines the

term affiliated person of an other person

to include any person under common

control with that other person. Under

section 2(a)(3) of the Act, BISYS and the

Affiliated Broker-Dealers may be

deemed to be persons under common

control and thus affiliated persons of

each other. Accordingly, for purposes of

section 17(a)(3) of the Act, the Affiliated

Broker-Dealers may be affiliated persons

of the Funds’ (except the Nationwide

Funds) principal underwriter, BISYS,

and thus prohibited form borrowing

portfolio securities from the Funds.

2. As noted above, section 17(d) and

rule 17d–1 generally prohibit joint

transactions involving registered

investment companies and certain of

their affiliates unless the SEC has

approved the transaction. The Funds

request relief under sections 6(c) and

17(b) of the Act exempting them from

section 17(a)(3) of the Act, and under

section 17(d) of the Act and rule 17d–

1 under the Act to permit the Funds to

lend portfolio securities to Affiliated

Broker-Dealers. Relief is not being

requested with respect to the

Nationwide Funds. Applicants state that

the Funds seek to diversify the Borrower

to when they lend in order to ensure the

stability and efficiency of the Program.

Applicants submit that because only a

few Borrowers may seek to borrow a

particular security at a given time, a

prohibition on lending to Affiliated

Broker-Dealers could disadvantage a

Fund.

3. Applicants state that each loan to

an Affiliated Broker-Dealer by a Fund

will be made with a spread that is no

lower than that applied to comparable

loans to unaffiliated broker-dealers.5 In

this regard, applicants state that at least

50% of the loans made by the Funds, on

an aggregate basis (by each ‘‘group of

investment companies,’’ as defined in

section 12(d)(1)(G) of the Act), will be

made to unaffiliated Borrowers.

Moreover, all loans will be made with

spreads that are no lower than those set

forth in a schedule of spreads

established by the Board of each Fund,

including a majority of the Disinterested

Directors. All transactions with the

Affiliated Broker-Dealers will be

reviewed periodically by the officers of

the Funds. Quarterly, officers of the

Funds will be reviewed periodically by

the officers of the Funds. Quarterly,

officers of the Funds and the Lending

Agent will present reports on the

lending transactions to the Board,

including a majority of the Disinterested

Directors, for their review.

Applicants’ Conditions

Applicants agree that any order of the

SEC granting the requested relief will be

subject to the following conditions.

A. General

1. Any Fund or Investment Fund that

relies on the requested order will be

advised by the Adviser and distributed

or administered by BISYS, or any entity

controlling, controlled by, or under

common control with BISYS.

2. The securities lending program of

each Fund will comply with all present

and future applicable SEC and staff

positions regarding securities lending

arrangements.

B. Joint Accounts

1. Joint Accounts will be established

as one or more separate cash accounts

on behalf of the Funds at a custodian.

Each Fund may deposit, daily, all or a

portion of its Uninvested Cash and cash

collateral into the Joint Accounts. Each

Fund may deposit its Uninvested Cash

or cash collateral only in a Joint

Account that is advised by that Fund’s

Adviser.

2. Cash in the Joint Accounts will be

invested in one or more Short-Term

Investments, as directed by the Adviser.

Short-Term Investments that are

repurchase agreements will have a

remaining maturity of 60 days or less

and other Short-Term Investments will

have a remaining maturity of 90 days or

less, each as calculated in accordance

with rule 2a–7 under the Act. Cash

collateral in a Joint Account would be

invested in Short-Term Investments

which have a remaining maturity of 397

days or less, as calculated in accordance

with rule 2a–7 under the Act.

3. All Short-Term Investments

invested in through the Joint Accounts

will be valued on an amortized cost

basis. Each Fund that relies upon rule

2a–7 under the Act will use the dollarweighted average maturity of a Joint

Account’s Short-Term Investments for

the purpose of computing that Fund’s

average portfolio maturity with respect

to the portion of the cash held by it in

that Joint Account.

4. The Fund’s Adviser, fund

accountant, pricing agent, and custodian

will maintain records (in conformity

with section 31 of the Act and the rules

and regulations under the Act)

documenting, for any given day, the

Fund’s aggregate investment in the Joint

Account and the Fund’s pro rata share

of each Short-Term Investment made

through the Joint Account.

5. Short-Term Investments held in a

Joint Account generally will not be sold

prior to maturity except if: (a) the

Adviser 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 downgrading

or otherwise; or (c) in the case of a

repurchase agreement, the counterparty

defaults. Any Short-Term Investment (or

any fractional portion thereof), however,

may be sold 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 investment in the Joint

Account.

6. 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 will be subject to the

restriction that a Fund may not invest

more than 15% or, in the case of a

money market fund, more than 10% (or,

in either such case, such other

percentage as set forth by the SEC from

31028 Federal Register / Vol. 65, No. 94 / Monday, May 15, 2000 / Notices

time to time) of its net assets in illiquid

securities, if the instrument, or the

Fund’s fractional interest in such

instrument, cannot be sold pursuant to

the preceding condition.

7. To assure that there will be no

opportunity for one Fund to use any

part of a balance of any Joint Account

credited to another Fund, no Fund will

be allowed to create a negative balance

in any Joint Account for any reason,

although each Fund will be permitted to

draw down its pro rata share of the

entire balance at any time. Each Fund’s

decision to invest through the Joint

Accounts shall be solely at the option of

that Fund and the Adviser (within the

standards and procedures established by

the Fund’s Board), and no Fund will be

obligated, in any way, to invest through,

or to maintain any minimum balance in,

the Joint Accounts. In addition, each

Fund will retain the sole rights to any

of the cash, including interest payable

on the cash, invested by that Fund

through the Joint Accounts.

8. Each Fund will participate in the

income earned or accrued in the Joint

Account through which it is invested on

the basis of its percentage share of the

total balance of the Joint Account on

that day.

9. The Adviser will be responsible for

investing funds held by the Joint

Accounts. BISYS will administer the

Joint Accounts in accordance with the

standards and procedures established by

the Board of the Funds as part of its

duties under the existing or any future

administrative contract with the Funds.

Neither BISYS nor the Adviser will

receive additional or separate fees for

advising or administering the Joint

Accounts.

10. The administration of the Joint

Accounts will be within the fidelity

bond coverage required by section 17(g)

of the Act and rule 17g–1 under the Act.

11. The Board of each Fund investing

in Short-Term Investments through the

Joint Accounts will adopt procedures

pursuant to which the Joint Accounts

will operate, which procedures will be

reasonably designed to provide that

requirements of the requested order will

be met. In addition, not less frequently

than annually, the Board will evaluate

the Joint Account arrangements, will

determine whether the Joint Accounts

have been operated in accordance with

the adopted procedures, and will

authorize a Fund’s continued

participation in the Joint Accounts only

if the Board determines that there is a

reasonable likelihood that such

continued participation would benefit

that Fund and its shareholders.

12. The Joint Accounts will not be

distinguishable from any other accounts

maintained by a Fund with a custodian

except that cash from various Funds

will be deposited in the Joint Accounts

on a commingled basis. The Joint

Accounts will not have a separate

existence and will not have indicia of a

separate entity. the sole function of the

Joint Accounts will be to provide a

convenient way of aggregating

individual transactions that would

otherwise require daily management

and investment by each Fund of its

cash.

13. All transactions in Short-Term

Investments that are repurchase

agreements will be effected in

accordance with Investment Company

Act Release No. 13005 (February 2,

1983) and with future positions taken by

the Commission or the staff by rule,

release, or no-action letter.

C. The Trust

1. A majority of the Board of the

Lending (including a majority of the

Disinterested Directors), will initially

and at least annually thereafter

determine that the investment of cash

collateral in Trust shares is in the best

interests of the Lending Fund and its

shareholders.

2. Investment in Trust shares by a

particular Lending Fund will be

consistent with that Lending Fund’s

investment objectives and policies.

3. Each Investment Fund will comply

with rule 2a–7 under the Act. Each

Investment Fund will value its shares,

as of the close of business on each

business day, using the ‘‘amortized cost

method,’’ as defined in rule 2a–7 under

the Act, to determine the net asset value

per share of the Investment Fund. The

Trust will, subject to approval of the

Trustee, adopt the monitoring

procedures described in rule 2a–7(c)(7)

under the Act and the Adviser will

comply with these procedures and take

any other actions as are required to be

taken pursuant to these procedures.

4. The Trust will comply as to each

Investment Fund with the requirements

of sections 17(a), (d) and (e), and 18 of

the Act as if the Trust were a registered

open-end investment company. With

respect to all redemption requests made

by a Lending Funding, the Trust will

comply with section 22(e) of the Act.

The Adviser shall, subject to approval

by the Trustee, adopt procedures

designed to ensure that the Trust

complies with sections 17(a), (d) and (e),

18, and 22(e) of the Act. The Adviser

also will periodically review and

periodically update as appropriate such

procedures and will maintain books and

records describing such procedures, and

maintain the records required by rules

31a–1(b)(1), 31a–1(b)(2)(ii), and 31a–

1(b)(9) under the Act. All books and

records required to be kept pursuant to

this condition will be maintained and

preserved for a period of not less than

six years from the end of the fiscal year

in which any transaction occurred, the

first two years in an easily accessible

place, and will be subject to

examination by the SEC and the staff.

5. The net asset value per share with

respect to Trust shares will be

determined separately for each

Investment Fund by dividing the value

of the assets belonging to that

Investment Fund, less the liabilities of

that Investment Fund, by the number of

Trust shares outstanding with respect to

that Investment Fund.

6. The Trust shares will not be subject

to a sales load, redemption fee, any

asset-based sales charge or service (as

defined in rule 2830(b)(9) of the

Conduct Rules of the National

Association of Securities Dealers, Inc.).

7. Each Lending fund will purchase

and redeem Trust shares as of the same

time and at the same price, and will

receive dividends and bear its

proportionate share of expenses on the

same basis, as other shareholders of the

Trust. A separate account will be

established in the shareholder records of

the Trust for the account of each

Lending fund.

8. The Investment fund will not

acquire any securities of any other

investment company in excess of the

limits contained in section 12(d)(1)(A)

of the Act.

D. Lending to Affiliated Broker-Dealers

1. The Funds, on an aggregate basis

(by each ‘‘group of investment

companies,’’ as defined in section

12(d)(1)(G) of the Act), will make at

least 50% of their portfolio securities

loans to unaffiliated Borrowers.

2. The total value of securities loaned

to any one broker-dealer on the

approved list will be in accordance with

a schedule to be approved by the Fund’s

Board, but in no event will the total

value of securities lent to any one

Affiliated Broker-Dealer exceed 10% of

the net assets of the Fund, computed at

market.

3. A Fund will not make any loan to

an Affiliated Broker-Dealer unless the

income attributable to such loan fully

covers the transaction costs incurred in

making such loan.

4. (a) All loans will be made with

spreads no lower than those set forth in

the schedule of spreads which will be

established and may be modified from

time to time by each Fund’s full Board

and by a majority of the Disinterested

Directors (‘‘Schedule of Spreads’’).

Federal Register / Vol. 65, No. 94 / Monday, May 15, 2000 / Notices 31029

(b) The Schedule of Spreads will set

forth rates of compensation to the Fund

that are reasonable and fair and that are

determined in light of those

considerations set forth in the

application.

(c) The Schedule of Spreads will be

uniformly applied to all Borrowers of

the Fund’s portfolios securities, and will

specify the lowest allowable spread

with respect to a loan of securities to

any Borrower.

(d) If a security is loaned to an

unaffiliated Borrower with a spread

higher than the minimum set forth in

the Schedule of Spreads, all comparable

loans to an Affiliated Broker-Dealer will

be made at no less than the higher

spread.

(e) The Fund’s Program will be

monitored on a daily basis by an officer

of the Fund who is subject to section

36(a) of the Act. This officer will review

the terms of each loan to an Affiliated

Broker-Dealer for comparability with

loans to unaffiliated Borrowers and

conformity with the Schedule of

Spreads, and will periodically, and at

least quarterly, report his or her findings

to the Fund’s Board, including a

majority of the Disinterested Directors.

5. The Fund’s Board, including a

majority of the Disinterested Directors,

(a) will determine no less frequently

than quarterly that all transaction with

Affiliated Broker-Dealers effected during

the preceding quarter were effected in

compliance with the requirements of the

procedures adopted by the Board and

the conditions of the requested order

and that such transactions were

conducted on terms which were

reasonable and fair; and (b) will review

no less frequently than annually such

requirements and conditions for their

continuing appropriateness.

6. The Funds will maintain and

preserve permanently in an easily

accessible place a written copy of the

procedures (and any modifications

thereto) which are followed in lending

securities and shall maintain and

preserve for a period of not less than six

years from the end of the fiscal year in

which any loan occurs, the first two

years in an easily accessible place, a

written record of each loan setting forth

the number of shares loaned, the face

amount of the securities loaned, the fee

received (or the rebate rate remitted),

the identity of the Borrower, the terms

of the loan and any other information or

materials upon which the finding was

made that each loan made to an

Affiliated Broker-Dealer was fair and

reasonable and that the procedures

followed in making such loan were in

accordance with the other undertakings

set forth in the application.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–12133 Filed 5–12–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

First Allmerica Financial Life Insurance

Company, et al.

May 5, 2000.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’).

ACTION: Notice of application for an

order of approval pursuant to Section

26(b) of the Investment Company Act of

1940 (the ‘‘Act’’) and an order granting

exemptive relief pursuant to Section

17(b) of the Act.

Summary of Application: Applicants

seek an order under Section 26(b) of the

Act approving the proposed substitution

of shares of the Investment Grade

Income Fund of AIT for shares of the

Select Income Fund of AIT and for

shares of Strategic Income Portfolio of

Fulcrum held by the First Allmerica

Separate Accounts and the Allmerica

Financial Life Separate Accounts to

support certain variable life insurance

contracts or variable annuity contracts

(collectively, the ‘‘Variable Contracts’’)

issued by First Allmerica or Allmerica

Financial Life. Applicants also seek an

order under Section 17(b) of the Act

exempting them from Section 17(a) to

the extent necessary to permit the

Applicants, by means of in-kind

redemptions and purchases, to carry out

the above-referenced substitutions of

securities.

Applicants: First Allmerica Financial

Life Insurance Company (‘‘First

Allmerica’’); Allmerica Select Separate

Account, Allmerica Select Separate

Account II, Fulcrum Separate Account,

Group VEL Account, Inheritage

Account, Separate Account VA–K and

VEL II Account (collectively, the ‘‘First

Allmerica Separate Accounts’’);

Allmerica Financial Life Insurance and

Annuity Company (‘‘Allmerica

Financial Life’’); Allmerica Select

Separate Account, Allmerica Select

Separate Account II, Fulcrum Separate

Account, Fulcrum Variable Life

Separate Account, Group VEL Account,

Inheritage Account, Select Account III,

Separate Account IMO, Separate

Account VA–K, VEL Account, VEL II

Account and VEL Account III

(collectively, the ‘‘Allmerica Financial

Life Separate Accounts’’); Allmerica

Investment Trust (‘‘AIT’’) and the

Fulcrum Trust (‘‘Fulcrum’’)

(collectively, the ‘‘Applicants’’).

Filing Date: The application was filed

on January 31, 2000, and amended and

restated on May 3, 2000.

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 on this application by writing

to the SEC’s Secretary and serving

Applicants with a copy of the request,

in person or by mail. Hearing requests

must be received by the Commission by

5:30 p.m. on May 30, 2000 and must 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 may request notification of the

date of a hearing by writing to the

Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, D.C. 20549–

0609. Applicants, Richard M. Reilly,

President, Allmerica Financial Life

Insurance and Annuity Company, 440

Lincoln Street, Worcester, MA 01653,

and copy to George M. Boyd, Esq., First

Allmerica Financial Life Insurance

Company, N–440, 440 Lincoln Street,

Worcester, MA 01653.

FOR FURTHER INFORMATION CONTACT: Ann

L. Vlcek, Senior Counsel, or Keith

Carpenter, Branch Chief, Office of

Insurance Products, Division of

Investment Management, at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee from the SEC’s

Public Reference Branch, 450 Fifth

Street, N.W., Washington, DC 20549–

0102.

Applicants’ Representations

1. First Allmerica was organized

under the laws of Massachusetts in

1844. Effective October 16, 1995, the

company converted from a mutual life

insurance company known as State

Mutual Life Assurance Company of

America to a stock life insurance

company and adopted its present name.

The company is a wholly-owned

subsidiary of Allmerica Financial

Corporation (‘‘AFC’’).

2. Allmerica Financial Life is a life

insurance company organized under the

laws of Delaware in July 1974.

Allmerica Financial Life is an indirect,

wholly-owned subsidiary of First

Allmerica, which in turn is a whollyowned subsidiary of AFC.