[Federal Register Volume 60, Number 89 (Tuesday, May 9, 1995)]
[Notices]
[Pages 24662-24664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11359]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-21038; 812-9536]


1784 Funds and The First National Bank of Boston; Notice of 
Application

May 3, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: 1784 Funds (the ``Trust'') and The First National Bank of 
Boston (``FNBB'').

RELEVANT SECTIONS OF THE ACT: Order requested under section 17(d) of 
the Act and rule 17d-1 thereunder.

SUMMARY OF APPLICATION: Applicants request an order permitting all the 
current and future series of the Trust and any future management 
investment company or series thereof which is advised by FNBB or any 
entity controlling, controlled by, or under common control (as defined 
in section 2(a)(9) of the Act) with FNBB (a ``Related Adviser'') to 
deposit uninvested cash balances into one or more joint accounts (the 
``Accounts'') to be used to enter into short-term repurchase 
agreements.

FILING DATE: The application was filed on March 16, 1995.

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 May 30, 1995, 
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 reasons 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request such notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. 1784 Funds, SEI Financial Services Company, Wayne, Pennsylvania 
19087; The First National Bank of Boston, 100 Federal Street, Boston, 
Massachusetts 02110.

FOR FURTHER INFORMATION CONTACT: H.R. Hallock, Jr., Special Counsel at 
(202) 942-0564, or C. David Messman, Branch Chief, 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.

Applicants' Representations

    1. The Trust is a registered, open-end management investment 
company organized in series form. FNBB provides or arranges for the 
provision of investment advisory, custodial and accounting services for 
all of the series of the Trust. The Trust and all existing and future 
series thereof, and any future management investment companies and 
series thereof to which FNBB or any Related Adviser thereof serves as 
investment adviser, are referred to hereinafter as the ``Portfolios.'' 
FNBB and any Related Adviser that serves as investment adviser to any 
of the Portfolios are collectively referred to hereinafter as the 
``Adviser.''
    2. Each Portfolio has, or may be expected to have, from time to 
time cash balances held by its custodian or a sub-custodian bank (the 
``Custodian''), which otherwise would not be invested in portfolio 
securities by the Adviser at the end of the trading day. Ordinarily, 
the Adviser would invest such cash in short-term investments authorized 
by the Portfolio's investment policies to provide liquidity and to earn 
additional income for the portfolio. The Adviser proposes to establish 
one or more new Accounts for the investment of some or all of the 
excess cash of the Portfolios in repurchase agreements.
    3. Under the proposed arrangement, each repurchase transaction 
would be entered into by the Adviser calling one of the previously 
approved counterparties of repurchase agreements, indicating the size 
and duration of the desired repurchase transaction, and negotiating the 
rate of interest. Master repurchase agreements with the approved 
counterparties will establish minimum collateral levels, the securities 
eligible to be held as collateral, and the maximum term of a 
transaction. To facilitate repurchase transactions and to help obtain 
more attractive rates, the Custodian may enter into third-party 
arrangements for custody of assets and collateral securities with other 
qualified banks. The term of a repurchase transaction would typically 
be overnight (or over a holiday or weekend) and in no event more than 
seven days.
    4. After the Adviser has agreed to one or more repurchase 
transactions, the Custodian would be notified and, prior to releasing 
funds, would be required to verify that eligible collateral securities 
of sufficient value had been received. These securities would be either 
wired to the account of the Custodian (or third-party custodian) at the 
appropriate Federal Reserve Bank or physically transferred to a 
segregated account of the Custodian (or third-party custodian). The 
Portfolios will not enter into repurchase agreements with the Adviser 
or any of its affiliated persons (within the meaning of section 2(a)(3) 
of the Act).
    5. Transactions in the Account will be reported to the Portfolio's 
Custodian through a trade authorization that will authorize the 
Custodian to settle the transaction on a joint basis and will state 
each Portfolio's portion of the investment. The Custodian will 
reconcile the Account with the trading authorizations on a daily basis. 
At least [[Page 24663]] monthly, the assets held in the Account will be 
reconciled to the Custodian's movement and control records and, in 
addition, the Custodian will reconcile each Portfolio's security 
ownership records.
    6. FNBB, as the Adviser to the Portfolios, believes that engaging 
in repurchase agreements through the Account, as contrasted with 
separate transactions, could increase returns on these types of 
investments by as much as .05% (on an annualized basis) because of 
reduced transaction costs and the ability of the Adviser to negotiate 
more favorable interest rates.

Applicants' Legal Conclusions

    1. Section 17(d) of the Act makes it unlawful for an affiliated 
person of a registered investment company or an affiliated person of 
such person, acting as principal, to effect any transaction in which 
the registered investment company is a joint or a joint and several 
participant with such person in contravention of rules and regulations 
prescribed by the SEC. Rule 17d-1(a) under the Act provides that an 
affiliated person of a registered investment company or an affiliated 
person of such person, acting as principal, shall not participate in, 
or effect any transaction in connection with, any joint enterprise or 
other joint arrangement in which the registered investment company is a 
participant unless the SEC has issued an order approving the 
arrangement.
    2. Each Portfolio, by participating in the proposed Account, and 
the Adviser, by managing the proposed Account, could be deemed to be 
joint participants in a transaction within the meaning of section 
17(d), and the proposed Account could be deemed to constitute a joint 
enterprise or other type of joint arrangement within the meaning of 
rule 17d-1. Furthermore, under the definition of ``affiliated person'' 
set forth in section 2(a)(3), each Portfolio and Adviser could be 
deemed an affiliated person of any other Portfolio or Adviser.
    3. Each Portfolio will participate in the Account on the same basis 
as every other Portfolio and in conformity with its fundamental 
investment objectives, policies and restrictions. The Adviser will have 
no monetary participation in the Account, but will be responsible for 
investment amounts in the Account, establishing accounting and control 
procedures, and ensuring the equal treatment of each participating 
Portfolio.
    4. On the basis of information considered by the Board of Trustees 
(``Board''), the Board members have satisfied themselves that the 
proposed method of operating the Account would not result in any 
conflict of interest among any of the Portfolios, or between a 
Portfolio and the Adviser. The Board also has considered that there 
does not appear to be any basis upon which to predict greater benefits 
to one Portfolio than to another, because the daily uninvested cash 
balance of any one Portfolio on any given day is neither a function of 
the size of the Portfolio nor the particular securities in which it 
invests. Such daily cash balances rather are a function of other 
factors, such as portfolio management decisions, security holder 
purchases and redemptions, or the timing of settlement of trades. 
Although the Adviser would gain some benefit through administrative 
convenience and some possible reduction in clerical costs, the primary 
beneficiaries would be the Portfolios and their security holders.
    5. The Board also has determined that it would be desirable to 
permit participation by future Portfolios without the necessity of 
applying for an amendment to the requested order. Future Portfolios 
would be required to participate in the Account on the same terms and 
conditions as the existing Portfolios.
    6. Rule 17d-1(b) under the Act provides that, in passing upon 
applications under rule 17d-1, the SEC will consider whether each 
party's participation in the proposed joint arrangement 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 believe that, 
for the reasons set forth above and in light of the conditions set 
forth below, the criteria for issuance of an order under rule 17d-1 are 
met.

Applicants' Conditions

    Applicants agree that any order granting the requested relief may 
be made subject to the following conditions:
    1. The Account will be established as one or more separate cash 
accounts on behalf of the Portfolios with the Custodian. The Portfolios 
could deposit daily all or a portion of their uninvested net cash 
balances into the Account. The Account will not be distinguishable from 
any other accounts maintained by a Portfolio with the Custodian except 
that monies from the various Portfolios will be deposited in the 
Account on a commingled basis. The Account will not have any separate 
existence with the indicia of a separate legal entity. The sole 
function of the Account will be to provide a convenient way of 
aggregating individual transactions which will otherwise require daily 
management and investment by each Portfolio of its cash balances.
    2. Cash in the Account will be invested solely in repurchase 
agreements, ``collateralized fully'' as defined in rule 2a-7 under the 
Act and satisfying the uniform standards set by the Portfolios for such 
investments.
    3. All repurchase agreements entered into by the Portfolios through 
the Account will be valued on an amortized cost basis. Each Portfolio 
relying upon rule 2a-7 under the Act for valuation of its net assets of 
amortized cost will use the average maturity of the repurchase 
agreements purchased by the Portfolios participating in the account for 
the purpose of computing the Portfolio's average portfolio maturity 
with respect to the portion of its assets held in such account on that 
day.
    4. In order to assure that there will be no opportunity for one 
Portfolio to use any part of the balance of the Account credited to 
another Portfolio, no Portfolio will be allowed to create a negative 
balance in the Account for any reason, although each Portfolio will be 
permitted to draw down its pro rata share of the entire balance at any 
time. Each Portfolio's decision to invest through the Account will be 
solely at the Portfolio's option, and no Portfolio will be obligated to 
invest through, or to maintain any minimum balance in, the Account. In 
addition, each Portfolio will retain the sole rights of ownership of 
any of its assets, including interest payable on such assets, invested 
in the Account. Each Portfolio's investment in the Account will be 
documented daily on the books of the Portfolio as well as on the 
Custodian's books.
    5. Each Portfolio will participate in the income earned or accrued 
in the Account, including all investments held by such Account, on the 
basis of the percentage of the total amount in such Account on any day 
represented by its share of such Account.
    6. The Adviser will administer, manage and invest the cash balance 
in the Account in accordance with and as part of its duties under the 
existing or any future investment advisory contracts with each 
Portfolio, and will not collect any additional or separate fee for the 
administration of the Account.
    7. Portfolios and the Adviser will enter into an agreement to 
govern the arrangements in accordance with the foregoing 
representations.
    8. The administration of the Account will be within the fidelity 
bond coverage required by section 17(g) of the Act and rule 17g-1 
thereunder.
    9. The Board of the Trust, on behalf of each Portfolio 
participating in the Account, will evaluate the Account 
[[Page 24664]] arrangements annually and will authorize the continued 
participation in the Account only if it determines that there is a 
reasonable likelihood that such continued participation will benefit 
the Portfolio and its security holders.
    10. Substantially all repurchase transactions will have an 
overnight, over-the-weekend or over a holiday maturity, and in no event 
would a transaction have a maturity of more than seven days.
    11. All joint repurchase transactions will be effected in 
accordance with Investment Company Act Release No. 13005 (Feb. 2, 1983) 
and with other existing and future positions taken by the SEC or its 
staff by rule, interpretive release, no action letter, any release 
adopting any new rule, or any release adopting any amendments to any 
existing rule.
    12. Any investment made through the Account will satisfy the 
investment policies or criteria of all Portfolios participating in that 
investment.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-11359 Filed 5-8-95; 8:45 am]
BILLING CODE 8010-01-M