Federal Register / Vol. 63, No. 74 / Friday, April 17, 1998 / Notices 19277

presentations describing the current

Department of Energy repository and

waste package designs, the workshop

will move to discussion by the

participants to alternative design

concepts that are compatible with the

Department of Energy’s current

repository design for Yucca Mountain,

or other repository designs that

reasonably could be implemented there.

The discussion also will include

research and development that might be

required to support each design

concept.

Time will be set aside during the

workshop for technical comments from

the public that pertain to the discussion.

Depending on the number of people

wanting to make comments, time limits

may have to be set. Written comments

of any length may be submitted for the

record. Those wanting to make

comments will be asked to sign up at

the registration table.

Transcripts of this meeting will be

available on computer disk, via e-mail,

or on a library-loan basis in paper

format from Davonya Barnes, Board

staff, beginning June 30, 1998. For

further information, contact Frank

Randall, External Affairs, 2300

Clarendon Blvd., Suite 1300, Arlington,

Virginia 22201; (tel) 703–235–4473;

(fax) 703–235–4495; (e-mail)

info@nwtrb.gov.

The Nuclear Waste Technical Review

Board was created by Congress in the

Nuclear Waste Policy Amendments Act

of 1987 to evaluate the technical and

scientific validity of activities

undertaken by the DOE in its program

to manage the disposal of the nation’s

high-level radioactive waste and

commercial spent nuclear fuel. In that

same legislation, Congress directed the

DOE to characterize a site at Yucca

Mountain in Nevada for its suitability as

a potential location for a permanent

repository for disposing of that waste.

Dated: April 14, 1998.

William Barnard,

Executive Director, Nuclear Waste Technical

Review Board.

[FR Doc. 98–10220 Filed 4–16–98; 8:45 am]

BILLING CODE 6820–AM–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–23109; 812–9544]

State Street Bank and Trust Company;

Notice of Application

April 13, 1998.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for

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

of the Investment Company Act of 1940

(the ‘‘Act’’) from sections 17(a)(1) and

17(a)(2) of the Act.

SUMMARY OF APPLICATION: Applicant

State Street Bank and Trust Company

requests an order that would permit it

to engage in repurchase agreements and

currency transactions with certain

affiliated registered management

investment companies (the ‘‘Funds’’) for

which applicant serves as custodian.

Applicant will be an affiliated person,

or an affiliated person of an affiliated

person, of a Fund solely by reason of

applicant’s owning, controlling, or

holding 5% or more (but less than 20%)

of the outstanding voting securities of

the Fund. The requested order would

not extend to transactions between

applicant and a Fund when applicant or

an affiliated person of applicant is the

investment adviser to the Fund.

FILING DATES: The application was filed

on March 17, 1995, and amended on

December 20, 1995. Applicant has

agreed to file another amendment

during the notice period, the substance

of which is included in this notice.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Any interested person may request a

hearing by writing to the SEC’s

Secretary and serving applicant with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

May 8, 1998 and should be

accompanied by proof of service on

applicant 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, N.W., Washington, D.C. 20549.

Applicant: 225 Franklin Street, Boston,

Massachusetts 02110.

FOR FURTHER INFORMATION CONTACT:

David W. Grim, Staff Attorney, at (202)

942–0571, 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

may be obtained for a fee from the SEC’s

Public Reference Branch (tel. 202–942–

8090).

Applicant’s Representations

1. Applicant is a wholly-owned

subsidiary of State Street Boston

Corporation, a publicly held bank

holding company. Applicant is

organized as a trust company under the

laws of the Commonwealth of

Massachusetts and is a member of the

Federal Reserve System. Applicant is a

‘‘bank’’ as that term is defined by

section 2(a)(5) of the Act and meets the

qualifications set forth in section

26(a)(1) of the Act for an investment

company custodian. Applicant offers a

wide variety of commercial and trust

services, including custodian services to

registered investment companies.

2. One division of applicant, Capital

Markets, is a dealer in government

securities, foreign currency, and other

instruments. Another division of

applicant, Global Advisors, manages

money on a discretionary basis for

registered investment companies,

collective and common trust funds, and

separate accounts. Global Advisors may

invest client funds in a wide variety of

investment products, including shares

of Funds. As a result of the investment

activities of Global Advisors, applicant

may at times own, hold, or control with

the power to vote more than 5% of the

shares of a Fund.

3. Applicant proposes to enter into

repurchase agreements and currency

transactions with the Funds for which

applicant serves as custodian. As a

Fund’s custodian, applicant is in a

unique position to afford the Fund

certain advantages, such as added

investment flexibility, advantageous

prices, and accurate and efficient

settlements for these types of

transactions.

Applicant’s Legal Analysis

1. Sections 17(a)(1) and 17(a)(2) of the

Act prohibit an affiliated person of a

Fund, or an affiliated person of an

affiliated person of the Fund, from

knowingly selling to or purchasing from

the Fund any security or other property.

Applicant represents that the purchase

and sale of repurchase agreements are

the types of transactions covered by

section 17. Applicant also states that the

proposed currency transactions may be

covered by section 17 to the extent they

involve the purchase or sale of property.

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

‘‘affiliated person’’ of another person to

include: (a) any person directly or

indirectly owning, controlling, or

holding with power to vote 5% or more

of the outstanding voting securities of

the other person; (b) any person 5% or

more of whose outstanding voting

securities are directly or indirectly
19278 Federal Register / Vol. 63, No. 74 / Friday, April 17, 1998 / Notices

owned, controlled, or held with power

to vote, by the other person; and (c) any

person directly or indirectly controlling,

controlled by, or under common control

with, the other person.

3. Applicant states that, as a result of

the investment activities of Global

Advisors, as described above, applicant

may at times own, control, or hold with

the power to vote 5% or more of the

outstanding shares of a Fund and

therefore constitute an affiliated person

of the Fund. Furthermore, Funds may be

affiliates of each other when they share

common officers, directors, or

investment advisers because the Funds

may be deemed to be under common

control. As a result, applicant states

that, when it owns, controls, or holds

with power to vote 5% or more of the

outstanding shares of a Fund, it may be

deemed to be an affiliated person of an

affiliated person of all Funds in the

same complex as the Fund.

4. Under section 17(b), the SEC may

issue an order of exemption from

section 17(a) if evidence establishes

that: (a) the terms of the proposed

transaction are reasonable and fair and

do not involve overreaching on the part

of any person; (b) the proposed

transaction is consistent with the policy

of each registered investment company

concerned; and (c) the proposed

transaction is consistent with the

general purposes of the Act. Under

section 6(c), the SEC may exempt any

person, security, or transaction from any

provision of the Act or any rule

thereunder if and to the extent that such

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. Applicant

asserts that the proposed transactions

meet the standards set forth in sections

6(c) and 17(b).

5. Applicant represents that the

requested relief would be conditioned

on a Fund’s adoption of certain

procedures (the ‘‘Procedures’’).

Applicant asserts that the Procedures

require careful monitoring by a Fund of

securities transactions with applicant.

Applicant states that the Procedures

provide a mechanism to determine that:

(a) the security to be purchased or sold

by a Fund is consistent with the

investment policy and objectives of that

Fund and with the interests of its

shareholders and is comparable to other

similar securities in which the Fund is

authorized to invest and currently is

purchasing; (b) the terms of the

proposed transaction are reasonable and

fair to the shareholders of that Fund and

do not involve overreaching on the part

of any person concerned; and (c) the

proposed transaction is consistent with

the general purposes of the Act.

6. Applicant submits that the primary

purpose of section 17(a) is to prevent

persons with the power to control an

investment company from using that

power to such persons’ own pecuniary

advantage (i.e., to prevent self-dealing).

Applicant asserts that the degree of its

affiliation with a Fund, coupled with

the Procedures to be adopted by a Fund

with respect to repurchase agreements

and currency transactions with

applicant, ameliorate the concerns

underlying section 17. Further,

applicant represents that there is or will

be no express or implied understanding

between applicant and the investment

adviser of any Fund that such

investment adviser will cause any Fund

to enter into the transactions with

applicant or give a preference to

applicant in effecting such transactions

between the Funds and applicant.

7. Applicant states that preventing a

Fund from effecting repurchase

agreement (‘‘repo’’) transactions with

applicant when applicant is the Fund’s

custodian would significantly limit the

Fund’s opportunity to obtain

operational and processing cost savings

on its repo transactions as well as

impede its flexibility to invest cash

balances late in the day. Applicant

asserts that repo transactions with third

parties which involve a transfer of

securities through the Fed Wire to a

Fund’s custodian bank cannot be

effected after 3:00 p.m. because the Fed

Wire closes at that time. As a practical

matter, applicant notes that such repo

transactions generally have to be

initiated well before 3:00 p.m. in order

to insure consummation prior to the

close. By contrast, applicant believes

that repo transactions can be effected

with applicant by Funds, for which

applicant is custodian, after the close of

the Fed Wire, because a transfer of

securities can be effected through

internal bookkeeping entries by

applicant.

8. Applicant states that, in

circumstances in which applicant is a

Fund’s custodian and is effecting repo

transactions with the Fund, applicant

has adopted detailed procedures

designed to give the Fund an ownership

and/or perfected security interest in the

collateral (i.e., the securities underlying

the repo transaction). Applicant believes

that these procedures ameliorate the

risks associated with repo transactions

when custody is maintained by the repo

counterparty and not transferred to a

third party. These risks may involve the

insolvency of, and consequent default

by, the repo counterparty, an attempt by

the repo counterparty to retain assets (or

offset against assets) when a dispute

arises between the parties, or losses

resulting from fraud or operational error

due to the Fund’s inability to determine

whether the collateral exists.

9. Applicant states that the securities

underlying the repo transaction are

maintained either in the Fund’s custody

account or on behalf of the specific

Fund in an omnibus custodial account

maintained by applicant at the Federal

Reserve Bank of Boston. Applicant

states that, in both cases, the securities

are transferred to, or identified in, the

custody account against a transfer of

moneys out of the Fund’s account to

applicant’s proprietary account.

Applicant contends that the repo

transaction securities so maintained are

the assets of the Fund, not of applicant.

Accordingly, applicant asserts that the

risk of insolvency and the risks

associated with commingling of assets

are eliminated. Moreover, applicant

states that in its capacity as custodian

for the Fund, applicant marks its books

and records to reflect the Fund’s interest

in the repo transaction securities. In

addition, applicant states that written

confirmations specifying the particular

securities which are the subject of the

repo transactions currently are sent to

the Funds at the end of each trading

day. In applicant’s view, these

procedures provide the Funds the same

types of protections as would be the

case if the securities were transferred to

a third party.

10. Applicant states that the inability

of a Fund to effect foreign currency

transactions with applicant, when

applicant is custodian for the Fund,

could inhibit the ability of the Fund to

obtain best price and execution on its

foreign currency transactions and

deprive the Fund of certain operational

advantages and efficiencies.

11. Generally, the settlement of Fund

transactions in foreign equity and debt

securities is effected in the currency of

the country of the issuer or the country

in which the securities are traded. Thus,

the Funds buy foreign currency to settle

purchase transactions within foreign

markets and sell foreign currency that

they receive in the settlement of

transactions in foreign markets. In

addition, Funds often convert dividends

or interest payments denominated in a

particular currency into U.S. dollars or

another currency. Some of the Funds

also may enter into forward currency

exchange contracts as a means of

managing exchange rate risks. A Fund

may enter into a foreign currency

contract covering foreign securities held

by the Fund in order to reduce or

eliminate foreign currency exposure.

Applicant states that the Funds will
Federal Register / Vol. 63, No. 74 / Friday, April 17, 1998 / Notices 19279

represent that they will enter into

foreign currency contracts in

compliance with Investment Company

Act Release No. 10666 (Apr. 18, 1979).

12. Currency transactions are entered

into by telephone or computer. There is

no centralized trading floor. Commercial

banks act as the core of this market,

quoting bid/asked prices and acting as

principals. The spread between the bid

and the asked price in the foreign

exchange markets represents the

potential profit to the market maker and

the compensation for its perceived risk

in quoting the price and selling or

holding the currency. Foreign exchange

rates generally are obtained through

automated quotation systems. Applicant

states that the Reuters Monitor Money

Rates Service (‘‘Reuters’’) is the money

rate quote service that currently is

recognized in the currency markets as

the most reliable.

13. Applicant asserts that of particular

importance to Funds in many cases are

‘‘odd lot’’ currency transactions,

established by industry practice as those

involving a United States dollar value of

less than $1 million. Currency dealers

generally do not make an active market

in odd lot currency transactions, and

indications for such transactions are not

reported on Reuters. The exchange rate

that can be obtained for an odd lot

currency transaction generally varies

directly with the size of the transaction

and the type of currency.

14. Applicant is a dealer in foreign

currency and provides competitive

quotations twenty four hours a day five

days a week on over forty currencies.

The most favorable price and execution

on foreign currency transactions are

normally achieved by requesting

competitive quotations from foreign

currency dealers with respect to a

particular currency. The character of the

market for a particular currency may

vary widely in terms of price and

availability. Therefore, applicant

believes that it is important that the

Funds have the ability to obtain

quotations from as many major currency

dealers as possible, including itself, to

ensure that they are obtaining the most

favorable price. Particularly when

applicant is among a small number of

competitive dealers in a currency, a

Fund’s ability to obtain the most

favorable price or prompt execution

would be directly restricted if a Fund is

denied access to applicant.

15. Applicant represents that access to

applicant is particularly significant in

connection with odd lot currency

transactions. When applicant serves as a

Fund’s custodian, it will ordinarily

accommodate any odd lot currency

transaction required for securities

settlement or related to the conversion

of dividend and/or interest payments

denominated in a particular currency

into U.S. dollars or another currency.

Because currency dealers do not make

an active market in odd lot transactions,

a Fund could have difficulty obtaining

favorable prices and executions for

these transactions absent the ability to

effect transactions with applicant.

16. Applicant states that the inability

to effect foreign currency transactions

with applicant when applicant is the

Fund’s custodian also would deprive

the Fund of certain operational

advantages and efficiencies. Settlement

procedures for transactions with

applicant in these cases are simpler and

more easily coordinated than

transactions with third parties, resulting

in a lower trade settlement failure rate.

In addition, applicant can execute

foreign currency transactions for the

Fund after normal business hours.

Moreover, applicant, in its role as

custodian, monitors the settlement

process for all foreign exchange and

security transactions. As a result, if

there is a trade settlement failure,

applicant is positioned to quickly

identify the failure and minimize the

costs to the Fund.

17. Applicant states that its

experience has been that Funds may at

times engage in foreign currency

transactions representing a significant

percentage of their assets. As a result,

applicant proposes that there will be no

limit on the amount of a Fund’s total

assets that may be committed to foreign

currency transactions with applicant.

Applicant also represents that a

significant percentage of currency

transactions effected by applicant

involve settlement terms that may range

from one day to six months.

Accordingly, applicant proposes that

there will be no limit on the length of

the currency contracts permitted under

the requested relief.

Applicant’s Conditions

If the requested relief is granted,

applicant agrees to comply with the

following conditions.

A. General Conditions

1. The board of directors of each

Fund, including a majority of the

directors who are not interested persons

of the Fund, (a) will adopt procedures

that are reasonably designed to provide

that the conditions set forth below have

been complied with; (b) will make and

approve such changes to the procedures

as deemed necessary; and (c) will

determine no less frequently than

quarterly that the transactions made

pursuant to the order during the

preceding quarter were effected in

compliance with such procedures. The

investment adviser of each Fund may

implement these procedures, subject to

the direction and control of the board of

directors of each Fund. Applicant will

only engage in repurchase agreements

and currency transactions with Funds

that agree to adhere to the specific

conditions set forth below and have

furnished evidence to applicant that

they will agree to abide by the

conditions.

2. Each Fund (a) will maintain and

preserve permanently in an easily

accessible place a written copy of the

procedures (and any modifications

thereto) and a copy of the notice and

order issued on the application; and (b)

will maintain and preserve 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, a written

record of each transaction setting forth

a description of the transaction,

including the identity of the person on

the other side of the transaction, the

terms of the transaction, and the

information or materials upon which

the determinations described below

were made.

3. No Fund will engage in

transactions with applicant if applicant

exercises a controlling influence over

that Fund. Applicant will have no

affiliation with a Fund, except that

applicant may directly or indirectly

own, control, or hold less than 20% of

the outstanding voting securities of the

Fund.

4. The transactions entered into by a

Fund will be consistent with the

investment objectives and policies of

that Fund as recited in that Fund’s

registration statement and reports filed

under the Act.

B. Repurchase Agreements

1. Any repurchase agreement will

meet the portfolio quality requirements

set forth in paragraph (c)(3) of rule 2a–

7 under the Act and be ‘‘collateralized

fully’’ as defined in rule 2a–7.

2. The quality, yield, and maturity of

any repurchase agreement will be at

least as favorable to a Fund as compared

to other repurchase agreements that are

appropriate for that Fund and that are

being entered into during a comparable

period of time.

C. Currency Transactions

1. At the time any currency

transaction is consummated, applicant’s

short-term debt instruments will meet

the portfolio quality requirements of a

‘‘First-Tier Security’’ set forth in rule

2a–7 under the Act.
19280 Federal Register / Vol. 63, No. 74 / Friday, April 17, 1998 / Notices

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 39580

(January 26, 1998) 63 FR 5577.

4Telephone conversation between Claire

McGrath, Vice President and Special Counsel,

Amex, and Deborah Flynn, Division of Market

Regulation (‘‘Division’’), Commission, on January

22, 1998.

5The component securities of the Index are as

follows: Bank of New York Co., Inc.; Chubb Corp.;

Comcast Corporation; Cracker Barrel Old Country

Stores; Delta Airlines, Inc.; DST Systems, Inc.;

Federal National Mortgage Association; Guidant

Corporation; Masco Corp.; Office Depot, Inc.; Pfizer,

Inc.; Protective Life Corp.; Questar Corp.; Tenet

Healthcare Corp.; Telecom Italia SpA; KLM Royal

Dutch Airlines; and Toyota Motor Corporation.

6Telephone conversation between Claire

McGrath, Vice President and Special Counsel,

Amex, and Deborah Flynn, Division, Commission,

on January 22, 1998.

7 17 CFR 240.19b–4.

8Telephone conversation between Claire

McGrath, Vice President and Special Counsel,

Amex, and Deborah Flynn, Division, Commission,

on April 8, 1998.

2. Before any currency transaction is

entered into, the Fund or its adviser

must obtain such available market

information as they deem necessary to

determine that the price to be paid or

received for, and the terms of, each

transaction are at least as favorable as

that available from other sources. This

shall include the following information,

without limitation:

With respect to round lot currency

transactions, the Fund must obtain and

document the competitive indications

with respect to the specific proposed

transaction, either from two other

currency dealers or from one currency

dealer and from an automated quotation

system approved by the board of

directors of the Fund, including a

majority of non-interested directors. In

the case of odd lot currency

transactions, the Fund must obtain and

document the competitive indications

with respect to (a) the specific proposed

transaction from two other currency

dealers; and (b) a round lot transaction

of the same currency with the same

settlement terms from one other

currency dealer or an automated

quotation system. Competitive quotation

information must include price and

settlement terms. Dealers must be those

who, in the experience of the Fund’s

adviser, have demonstrated the

consistent ability to provide

professional execution of currency

transactions at competitive market

prices in the currencies of the type

desired. The dealers also must be those

who, in the experience of the Fund’s

adviser, are in a position to quote

favorable prices.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–10183 Filed 4–16–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39853; File No. SR–Amex–

97–48]

Self-Regulatory Organizations;

American Stock Exchange, Inc.; Order

Granting Approval To Proposed Rule

Change Relating to Listing and Trading

of Index Warrants on the Merrill Lynch

1998 Equity Focus Index

April 13, 1998.

I. Introduction

On December 22, 1997, the American

Stock Exchange, Inc. (‘‘Amex’’ 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

thereunder,2 a proposed rule change to

approve for listing and trading index

warrants based on the Merrill Lynch

1998 Equity Focus Index (‘‘Index’’).

The proposed rule change was

published for comment in the Federal

Register on February 3, 1998.3 No

comments were received on the

proposal. This order approves the

proposed rule change.

II. Description of the Proposal

The purpose of the proposed rule

change is to permit the Exchange to list

and trade cash-settled index warrants

based on the Index, an equal-dollar

weighted index developed by Merrill

Lynch, Pierce, Fenner & Smith, Inc. The

Exchange has represented that the

listing and trading of warrants based on

the Index will comply in all respects

with Amex Rules 1100 through 1110

and Section 106 of the Amex Company

Guide.

Design of the Index

The Exchange has represented that

the Index is narrow-based 4 and

composed of the stocks (or American

Depositary Receipts (‘‘ADRs’’) thereon)

of 17 companies 5 representing various

industries that are traded on the New

York Stock Exchange (‘‘NYSE’’) or

through the facilities of the National

Association of Securities Dealers

Automated Quotation system

(‘‘Nasdaq’’). The Index is equal-dollar

weighted and is, therefore, designed to

ensure that each of the component

securities is initially represented in an

approximately ‘‘equal’’ dollar amount in

the Index. Accordingly, each of the 17

companies included in the Index will

represent approximately 5.882 percent

of the weight of the Index at the time of

issuance of the warrant. The Index

multipliers will be determined to yield

an Index value of 100.00 on the date the

warrant is priced for initial offering to

the public.

According to the Amex, the total

market capitalization of the Index

totaled $380 billion on December 10,

1997. The median capitalization of the

companies in the Index on that date was

$9.4 billion and the average market

capitalization of these companies was

$22 billion. The individual market

capitalization of the companies ranged

from $1.7 billion to $106 billion. In

addition, minimum monthly trading

volume in the Index stocks ranged from

approximately 330,000 shares to 54.4

million shares during the six month

period from June through November

1997.

According to the Exchange, 15 of the

Index’s 17 component securities meet

the current criteria for standardized

options trading set forth in Rule 915.

Only two component securities,

Telecom Italia SpA and Toyota Motor

Corporation, are represented by ADRs

and according to the Amex, in both

instances, comprehensive surveillance

sharing arrangements are in place with

the appropriate regulatory authorities in

each relevant country. The Amex

represents that no component security

represents more than 25% of the weight

of the index and the five highest

weighted securities do not account for

more that 50% of the weight of the

Index.

Amex contemplates listing a single

issuance of warrants based on the

Index,6 with a term ranging from one to

three years. If the Amex seeks to list and

trade other products based on the Index,

including other issuances of Index

warrants, the Exchange will advise the

Commission to determine whether an

additional filing pursuant to Rule 19b–

4 7 is necessary. In addition, if the term

of the warrants exceeds one year, the

Exchange will monitor the options

eligibility of the underlying securities. If

less that 75% of the weight of the Index

is composed of securities that are

options eligible, the Amex will notify

the Commission.8

Maintenance of the Index

Shares of a component stock may be

replaced (or supplemented) with other

securities under certain circumstances,

such as the conversion of a component

stock into another class of security, the