[Federal Register Volume 63, Number 102 (Thursday, May 28, 1998)]
[Notices]
[Pages 29258-29260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14018]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23198; 812-10942]


Boston 1784 Funds, et al.; Notice of Application

May 20, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (the ``Act'') exempting applicants 
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 
17(b) of the Act exempting applicants from sections 17(a)(1) and 
17(a)(2) of the Act, and under section 17(d) of the Act and rule 17d-1 
under the Act.

-----------------------------------------------------------------------

SUMMARY OF THE APPLICATION: The requested order would permit certain 
registered open-end management investment companies to invest excess 
cash and collateral in affiliated money market funds in excess of the 
limits in sections 12(d)(1)(A) and (B) of the Act.

APPLICANTS: Boston 1784 Funds (the ``Trust''), and all other registered 
open-end management investment companies and series thereof that 
currently or in the future are part of the same ``group of investment 
companies,'' within the meaning of section 12(d)(1)(G) of the Act, that 
includes the Trust, and BankBoston, N.A. (``BankBoston'').

FILING DATES: The application was filed on December 31, 1997, and 
amended on May 20, 1998.

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 
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 June 15, 1998, 
and should be accompanied by proof of service on applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, 2 Oliver Street, Boston, MA 02109.

FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney, 
at (202) 942-0517, or Nadya B. Roytblat, Assistant Director, at (202) 
942-0564,

[[Page 29259]]

(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Trust is an open-end management investment company 
registered under the Act and organized as a Massachusetts business 
trust. The Trust currently consists of nineteen series (``Funds''), 
five of which hold themselves out as money market funds and are subject 
to the requirements of rule 2a-7 under the Act (``Money Market 
Funds''). BankBoston (formerly, The First National Bank of Boston) is 
the investment adviser to each Fund. Kleinwort Benson Investment 
Management Americas Inc. (``KBIMA'') serves as co-investment adviser to 
the Boston 1784 International Equity Fund with BankBoston. BankBoston, 
as a national bank, is not required to register as an investment 
adviser under the Investment Adviser Act of 1940 (``Advisers Act''). 
KBIMA is registered as an investment adviser under the Advisers Act. 
(BankBoston together with KBIMA, the ``Investment Advisers''.) 
BankBoston also serves as custodian (``Custodian'') for the assets of 
all series of the Trust.
    2. Each Fund may participate in a securities lending program 
(``Securities Lending Program'') under which the Fund may lend its 
portfolio securities to registered broker-dealers or other 
institutional investors. Before a Fund will participate in the 
Securities Lending Program, it will select a securities lending agent 
which is not affiliated with BankBoston or any of its affiliates. The 
agreements governing these loans require that the loans be continuously 
secured by collateral equal at all times to at least the market value 
of the securities loaned. Collateral for these loans may include cash 
(``Cash Collateral''), securities of the U.S. Government or its 
agencies, or any combination of cash and such securities. Any 
investment of Cash Collateral will comply with all present and future 
applicable SEC positions regarding securities lending agreements.
    3. Each of the Funds has, or may have, uninvested cast 
(``Uninvested Cash'') held by its Custodian. Uninvested Cash may result 
from a variety of sources, including dividends or interest received on 
portfolio securities, unsettled securities transactions, reserves held 
for investment strategy purposes, scheduled maturity of investments, 
liquidation of investment securities to meet anticipated redemptions, 
dividend payments, or new monies received from investors. Currently, 
the Funds may invest Uninvested Cash in individual short-term money 
market instruments and repurchase agreements.
    4. The Funds wish to have the flexibility to invest their 
Uninvested Cash and Cash Collateral (collectively, ``Cash Balances'') 
in the Money Market Funds. Investment of Cash Balances in shares of the 
Money Market Funds will be made only to the extent that such 
investments are consistent with each Fund's investment restrictions and 
policies as set forth in its prospectus and statement of additional 
information. Applicants believe that the proposed transactions may 
reduce transaction costs, create more liquidity, increase returns, and 
diversify holdings. Applicants request an order to permit certain Funds 
(``Investing Funds'') to invest their Cash Balances in one or more of 
the Money Market Funds.\1\
---------------------------------------------------------------------------

    \1\ All investment companies that currently intend to rely on 
the requested order are named as applicants. Any other existing or 
future investment company that may rely on the order in the future 
will do so only in accordance with the terms and conditions of the 
application.
---------------------------------------------------------------------------

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 
if such securities represent more than 3% of the acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if such securities, together with the securities of other 
acquired investment companies, represent 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)(J) of the Act provides that the SEC may exempt 
any person, security, or transaction (or classes thereof) from any 
provision of section 12(d)(1) if and to the extent that such exemption 
is consistent with the public interest and the protection of investors.
    3. Applicants' proposal would permit the Investing Funds to use 
Cash Balances to acquire shares of the Money Market Funds in excess of 
the percentage limitations in section 12(d)(1)(A), provided however, 
that in all cases the Investing Fund's aggregate investment of 
Uninvested Cash in shares of the Money Market Funds will not exceed 25% 
of the Investing Fund's total assets. Applicants' proposal also would 
permit the Money Market Funds to sell their securities to an Investing 
Fund in excess of the percentage limitations in section 12(d)(1)(B). 
Applicants represent that no Money Market Funds will acquire securities 
of any other investment company in excess of the limitations contained 
in section 12(d)(1)(A) of the Act.
    4. Applicants believe that the proposed arrangement would not 
result in the abuses that sections 12(d)(1) (A) and (B) were intended 
to prevent. Applicants represent that the proposed arrangement will not 
result in an inappropriate layering of fees because shares of the Money 
Market Funds sold to the Investing Funds will not be subject to a sales 
load, redemption fee, asset-based distribution fee or service fee. In 
addition, in connection with approving any advisory contract, the 
Investing Fund's board of trustees (the ``Board''), including a 
majority of the trustees who are not ``interested persons,'' as defined 
in section 2(a)(19) of the Act (``Disinterested Trustees''), will 
consider to what extent, if any, the advisory fees charged to the 
Investing Fund by the Investment Adviser should be reduced to account 
for reduced services provided to the Investing Fund by the Investment 
Adviser as a result of a portion of the assets of the Investing Fund 
being invested in the Money Market Funds.
    5. Section 17(a) makes it unlawful for any affiliated person of a 
registered investment company, acting as principal, to sell or purchase 
any security to or from the company. Section 2(a)(3) of the Act defines 
an affiliated person of another person as any person directly or 
indirectly controlling, controlled by, or under common control with, 
such other person. Under section 2(a)(3), because the Trust has one 
board of trustees, each Fund may be deemed to be under common control 
with each of the other Funds, and thus an affiliated person of each of 
the other Funds. As a result, section 17(a) would prohibit the sale of 
the shares of the Money Market Funds to the Investing Funds, and the 
redemption of the shares by the Money Market Funds.
    6. Section 17(b) of the Act authorizes the SEC to exempt a 
transaction from section 17(a) of the Act if the terms of the proposed 
transaction, including the

[[Page 29260]]

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 investment 
company concerned, and the proposed transaction is consistent with the 
general purposes of the Act.
    7. Section 6(c) of the Act permits the SEC to exempt persons or 
transactions from any provision of the Act, if the 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.
    8. Applicants submit that their request for relief satisfies the 
standards in sections 17(b) and 6(c). Applicants state that the 
Investing Funds will retain their ability to invest Cash Balances 
directly in money market instruments as authorized by their respective 
investment objectives and policies, if they believe they can obtain a 
higher rate of return, or for any other reason. Similarly, each of the 
Money Market Funds has the right to discontinue selling shares to any 
of the Investing Funds if the Board of the Money Market Fund determines 
that such sale would adversely affect its portfolio management and 
operations. In addition, applicants note that shares of the Money 
Market Funds will be purchased and redeemed at their net asset value, 
the same consideration paid and received for these shares by any other 
shareholder.
    9. Section 17(d) and rule 17d-1 prohibit an affiliated person of an 
investment company, acting as principal, from participating in or 
effecting any transaction in connection with any joint enterprise or 
joint arrangement in which the investment company participates. 
Applicants believe that the Funds, by participating in the proposed 
transactions, and the Investment Advisers, by managing the proposed 
transactions, could be deemed to be participating in a joint 
arrangement within the meaning of section 17(d) and rule 17d-1 under 
the Act.
    10. In considering whether to grant an exemption under rule 17d-1, 
the SEC considers whether the investment company's participation in 
such joint enterprise is consistent with the provisions, policies, and 
purposes of the Act, and the extent to which such participation is on a 
basis different from or less advantageous than that of other 
participants. Applicants submit that the Funds will participate in the 
proposed transactions on a basis not different from or less 
advantageous than that of any other participant and that the 
transactions will be consistent with the Act.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Shares of the Money Market Funds sold to and redeemed by the 
Investing Funds will not be subject to a sales load, redemption fee, 
distribution fee under a plan adopted in accordance with rule 12b-1 
under the Act or service fee (as defined in rule 2380(b)(9) of the 
NASD's Conduct Rules).
    2. Before the next meeting of the Board is held for the purpose of 
voting on an advisory contract under section 15 of the Act, the 
Investment Adviser to the Investing Fund will provide the Board with 
specific information regarding the approximate cost to the Investment 
Adviser of, or portion of the advisory fee under the existing advisory 
contract attributable to, managing the Uninvested Cash of the Investing 
Fund that can be expected to be invested in the Money Market Funds. In 
connection with approving any advisory contract for an Investing Fund, 
the Board, including a majority of the Disinterested Trustees, shall 
consider to what extent, if any, the advisory fees charged to the 
Investing Fund by the Investment Adviser should be reduced to account 
for reduced services provided to the Investing Fund by the Investment 
Adviser as a result of Uninvested Cash being invested in the Money 
Market Funds. The minute book of the Investing Fund Will record fully 
the Board's consideration in approving the advisory contract, including 
the considerations referred to above.
    3. Each Investing Fund will invest Uninvested Cash in, and hold 
shares of, the Money Market Funds only to the extent that the Investing 
Fund's aggregate investment in the Money Market Funds does not exceed 
25% of the Investing Fund's total assets. For purposes of this 
limitation, each Investing Fund or series thereof will be treated as a 
separate investment company.
    4. Investment of Cash Balances in shares of the Money Market Funds 
will be in accordance with each Investing Fund's investment 
restrictions and will be consistent with each Investing Fund's policies 
as set forth in its prospectus and statement of additional information.
    5. Each Investing Fund, each Money Market Fund, and any future 
registered open-end management investment company that may rely on the 
order shall be part of the same ``group of investment companies,'' as 
defined in section 12(d)(1)(G)(ii) of the Act, that includes the Trust.
    6. No Money Market Fund shall acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act.
    7. Before a Fund may participate in the Securities Lending Program, 
a majority of the Board, including a majority of the Disinterested 
Trustees, will approve the Fund's participation in the Securities 
Lending Program. Such Trustees also will evaluate the securities 
lending arrangement and its results no less frequently than annually 
and determine that any investment of Cash Collateral in the Money 
Market Funds is in the best interest of the shareholders of the 
Investing Fund.

    For the SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14018 Filed 5-27-98; 8:45 am]
BILLING CODE 8010-01-M