56210 Federal Register / Vol. 62, No. 209 / Wednesday, October 29, 1997 / Notices

1 15 U.S.C. 78s(b)(1).

bond sector of the market while at the

same time providing greater liquidity

than the Blended Funds would provide

separately. Applicants state that the

Bond Core Portfolio likely will own

more issuers in the high-yield bond

sector than any single Blended Fund

would own. As a result, events that

affect the price of a single issuer in this

sector can be expected to have less

impact on Bond Core Portfolio than they

would have on the high-yield bond

sector of a Blended Fund that was less

diversified. Applicants represent that

this diversification can be expected to

benefit both Bond Core Portfolio and its

shareholders, the Blended Funds, by

providing greater price stability and

lower volatility, while at the same time

capturing the performance benefits of

exposure to the high-yield bond sector.

10. Applicants anticipate that the

efficiencies resulting from the use of the

Bond Core Portfolio will result in cost

savings to the Blended Funds.

Applicants expect that the cost savings

will occur because Bond Core Portfolio

will experience trading costs that will

be substantially less than the trading

costs that would be incurred if highyield bonds were purchased separately

for each of the Blended Funds.

Applicants’ Legal Analysis

1. Section 12(d)(1)(A) of the Act

provides that no registered investment

company may acquire securities of

another investment company

representing more than 3% of the

acquired company’s outstanding voting

stock, more than 5% of the acquiring

company’s total assets, or, together with

the securities of other investment

companies, more than 10% of the

acquiring company’s total assets.

Section 12(d)(1)(B) provides that no

registered open-end investment

company may sell its securities to

another investment company if the sale

will cause the acquiring company to

own more than 3% of the acquired

company’s voting stock, or if the sale

will cause more than 10% of the

acquired company’s voting stock to be

owned by investment companies.

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

exempts from the above limitations

certain ‘‘funds of funds,’’ subject to

conditions stated in that section.

Applicants state that section 12(d)(1)(G)

is not available to them because the

Blended Funds will continue to invest

directly in corporate bonds, other

investment grade securities, and other

instruments, in addition to investing in

the Portfolios.

3. Section 12(d)(1)(J) provides that the

SEC may exempt persons or transactions

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

request relief from the limitations of

section 12(d)(1) to permit: (a) A Fund to

(i) purchase in excess of 3% of the total

outstanding voting shares of a Portfolio;

(ii) purchase securities of a Portfolio

having an aggregate value in excess of

5% of the value of the total assets of a

Fund; and (iii) purchase securities of a

Portfolio having an aggregate value in

excess of 10% of the assets of a Fund;

(b) a Portfolio to sell more than 3% of

its total outstanding shares to any Fund;

and (c) a Portfolio to sell more than 10%

of its total outstanding voting stock to

the Funds. Applicants believe that none

of the concerns underlying section

12(d)(1) are present in the proposed

arrangement.

4. Applicants also request an

exemption from section 17(a) of the Act,

which prohibits certain purchases and

sales of securities between investment

companies and their affiliated persons,

as defined in section 2(a)(3) of the Act.

Because the Federated Funds and Core

Trust have common trustees, directors,

and officers, and are advised by

commonly controlled Advisers, the

Blended funds and the Bond Core

Portfolio could be deemed affiliated

persons of one another. Accordingly,

purchases or sales between the Blended

Funds and the Bond Core Portfolio

could be deemed to be principal

transactions between affiliated persons

under section 17(a).

5. Applicants submit that the terms of

their proposed arrangement satisfy the

standards for relief under sections 6(c)

and 17(b). Applicants state that the

terms of the proposed transactions are

reasonable and fair and do not involve

overreaching. Applicants state that there

are sufficient protections in the

proposed arrangement against

duplicative or excessive advisory fees

and sales loads. Applicants state that a

Fund’s investment in a Portfolio will be

in accordance with the Fund’s

investment restrictions and will be

consistent with its policies as recited in

its registration statement.

Applicants’ Conditions

Applicants agree that the order

granting the requested relief shall be

subject to the following conditions:

1. Each Fund and each Portfolio will

be part of the same ‘‘group of

investment companies,’’ as defined in

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

2. A fund will not invest in any

Portfolio if the Portfolio may acquire

securities of any other investment

company in excess of the limits

contained in section 12(d)(1)(A) of the

Act, except for securities received as a

dividend or as a result of a plan of

reorganization of any company.

3. Prior to approving any advisory

contract under section 15 of the Act, the

directors or trustees of each Fund,

including a majority of the individuals

who are not ‘‘interested persons’’ of the

Fund, as that term is defined in section

2(a)(19) of the Act (‘‘Independent

Trustees’’), shall find that the advisory

fees charged under such contract, if any,

are based on services that will be in

addition to, rather than duplicative of,

the services provided under the

contracts of any Portfolio in which the

Fund ;may invest; provided that no such

findings will be necessary if the Adviser

to a Portfolio waives all advisory fees

that may be imposed for serving as

investment adviser to the Portfolio or, if

only a portion of such advisory fees are

waived, the Adviser or another party

reimburses the Fund for any advisory

fee or portion thereof that is not waived.

These findings and their basis will be

recorded fully in the minute books of

the Fund.

4. Any sales charges and service fees,

as such terms are defined under Rule

2830 of the NASD’s Conduct Rules, and

may be charged with respect to

securities of a Fund, when aggregated

with any such sales charges and service

fees borne by the Fund with respect to

the shares of a Portfolio, shall not

exceed the limits set forth in Rule 2830

of the NASD’s Conduct Rules.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–28567 Filed 10–28–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39267; File No. SR–CBOE–

97–33]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Granting Approval to

Proposed Rule Change Relating to

Suspensions for Failure to Pay Debts

Owed to the Exchange

October 22, 1997.

On July 24, 1997, the Chicago Board

Options Exchange, Inc. (‘‘CBOE’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4
Federal Register / Vol. 62, No. 209 / Wednesday, October 29, 1997 / Notices 56211

2 17 CFR 240.19b–4.

3 15 U.S.C. 78f(b).

4 15 U.S.C. 78f(b)(5).

5 In approving this rule, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

6 15 U.S.C. 78s(b)(2).

7 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3The Exchange filed Amendment No. 1 to the

proposed rule change on October 20, 1997, the

substance of which is incorporated into this release.

See letter from Adam Gurwitz, Vice President Legal,

CSE, the Heather Seidel, Attorney, Market

Regulation, Commission, dated October 17, 1997

(‘‘Amendment No. 1’’).

thereunder,2 a proposed rule change to

amend its rule relating to the

suspension of members and associated

persons who fail to pay debts owed to

the Exchange.

The proposed rule change was

published for comment in Securities

Exchange Act Release No. 39026 (Sept.

8, 1997), 62 FR 48123 (Sept. 12, 1997).

No comments were received on the

proposal. This order approves the

proposal.

Rule 2.23 presently requires that

members or associated persons who fail

to pay any debts owed to the Exchange

within 30 days after they become due

may be suspended from membership or

association with a member by the

Chairman of the Executive Committee

until payment is made.

The Exchange proposes to amend this

rule to clarify the application of Rule

2.23 to former members and persons

associated with members by providing

expressly that such persons who fail to

pay debts owed to the Exchange may be

barred from becoming a member and

associated person by the Chairman of

the Executive Committee until payment

is made.

The Exchange also proposes to add

new Interpretation .02 to provide that

the Exchange will report any suspension

or bar imposed pursuant to Rule 2.23 to

the Central Registration Depository

(‘‘CRD’’). This new paragraph is similar

to CBOE Rule 17.14 which provides for

the reporting by the Exchange to the

CRD of information concerning pending

formal Exchange disciplinary

proceedings. The Exchange also

proposes to delete references to a

regular membership and special

membership in the current Rule 2.23, as

CBOE no longer has any special

memberships, and to add language

clarifying that if a member fails to pay

an Exchange debt within 6 months, the

Chairman of the Executive Committee

may dispose of any memberships owned

by that member in accordance with Rule

3.41(b).

Finally, the proposed rule change also

includes several nonsubstantive

language changes.

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities, and,

in particular, with the requirements of

Section 6(b).3 Specifically, the

Commission believes the proposal is

consistent with the Section 6(b)(5) 4

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts, and, in general, to protect investors

and the public interest.5 In this regard,

the Commission believes that the

proposed rule change will enhance the

public’s access to information

concerning suspensions and bars

imposed by the CBOE upon its members

and associated persons.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,6 that the

proposed rule change (SR–CBOE–97–

33) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–28571 Filed 10–28–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39268; File No. SR–CSE–

97–10]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Cincinnati Stock

Exchange, Inc. Relating to Listing and

Trading Standards for Portfolio

Depositary Receipts

October 22, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on October

14, 1997,3 the Cincinnati Stock

Exchange, Inc. (‘‘CSE’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I and II below, which Items have

been prepared by the self-regulatory

organization. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons. The

Commission is also granting accelerated

approval of the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CSE proposes to adopt new

Exchange rule 11.9(v), to provide listing

standards for, and trading in Portfolio

Depositary Receipts (‘‘PDRs’’). The text

of the proposed rule change is available

at the Office of the Secretary, CSE and

at the Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization included

statements concerning the purpose of

and basis for the proposed rule change

and discussed any comments it received

on the proposed rule change. The text

of these statements may be examined at

the places specified in Item III below.

The self-regulatory organization has

prepared summaries, set forth in

Sections A, B, and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

a. Listing Requirements for Portfolio

Depositary Receipts. The Exchange

proposes to adopt new Rule 11.9(v) to

accommodate the trading of PDRs, i.e.,

securities that are interests in a unit

investment trust (‘‘Trust’’) holding a

portfolio of securities linked to an

index. Each Trust will provide investors

with an instrument that (1) closely

tracks the underlying portfolio of

securities, (2) trades like a share of

common stock, and (3) pays holders of

the instrument periodic dividends

proportionate to those paid with respect

to the underlying portfolio of securities,

less certain expenses (as described in

the Trust prospectus).

Under the proposal, the Exchange

may list and trade, or trade pursuant to

unlisted trading privileges, PDRs based

on one or more stock indices or

securities portfolios. PDRs based on

each particular stock index or portfolio

will be designated as a separate series

and identified by a unique symbol. The

stocks that are included in an index or

portfolio on which PDRs are based will

be selected by the Exchange, or by

another person having a proprietary

interest in and authorized use of such

index or portfolio, and may be revised

as may be deemed necessary or