[Federal Register Volume 68, Number 117 (Wednesday, June 18, 2003)]
[Notices]
[Pages 36602-36607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15312]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-26073; 812-12859]
Dresdner Bank AG, et al.; Notice of Application
June 11, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 12(d)(1)(J) of
the Investment Company Act of 1940 (the ``Act'') for an exemption from
section 12(d)(1) of the Act, under sections 6(c) and 17(b) of the Act
for an exemption from section 17(a) of the Act, under section 6(c) of
the Act for an exemption from section 17(e) of the Act, and under
section 17(d) of the Act and rule 17d-1 under the Act to permit certain
joint transactions.
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Summary of Application: Applicants request an order to permit: (a)
Certain registered investment companies and certain private investment
companies to use cash collateral from securities lending transactions
(``Cash Collateral'') to purchase shares (``Shares'') of certain
registered open-end management investment companies (``Registered
Investment Funds'') and private investment companies (``Private
Investment Funds'', together with the Registered Investment Funds, the
``Investment Funds''); (b) certain registered investment companies to
pay an affiliated lending agent a fee based on a share of the revenue
derived from securities lending activities; (c) Dresdner Bank AG
(``Bank''), Dresdner Kleinwort Wassertein Securities LLC (``DKWS'') and
any other Dresdner Entity (as defined below) (each, an ``Affiliated
Borrower'') to engage in principal transactions with, and receive
brokerage commissions from, certain registered investment companies
that are affiliated persons because they hold 5% or more of the
outstanding voting securities of an Investment Fund; and (d) certain
registered investment companies to lend portfolio securities to
Affiliated Borrowers.
Applicants: Bank, DKWS and PIMCO Funds: Multi-Manager Series (the
``Trust'').
Filing Dates: The application was filed on July 19, 2002 and
amended on June 2, 2003.
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 by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on July 7, 2003, 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 may request notification of a hearing by writing to
the Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC
20549-0609. Applicants, c/o Robert Boyd, Dresdner Bank AG, New York
Branch, 75 Wall Street, 31st Floor, New York, NY 10005.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel,
at (202) 942-0714, 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 Commission's Public Reference Branch, 450 5th Street, NW.,
Washington DC 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. The Bank, a German public limited company, is wholly-owned by
Allianz AG (``Allianz''), a German international financial services
company. DKWS, registered as a broker-dealer under the Securities
Exchange Act of 1934, is a wholly-owned subsidiary of Allianz. The
Trust, a Massachusetts business trust, is an open-end management
investment company registered under the Act and advised by PIMCO
Advisors Fund Management LLC, an investment adviser under the
Investment Advisers Act of 1940 that is an indirect subsidiary of
Allianz. Series of the Trust and any other registered management
investment companies or series thereof currently or in the future
advised by the Bank or any entity controlling, controlled by, or under
common control with the Bank (the Bank and each
[[Page 36603]]
entity, a ``Dresdner Entity'') are referred to as ``Affiliated Lending
Funds.'' \1\
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\1\ All existing Affiliated Lending Funds that currently intend
to rely on the requested relief have been named as applicants. Any
other existing or future entity may rely on the requested relief
only in accordance with the terms and conditions of the application.
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2. The New York branch of the Bank operates a securities lending
program (``Program''). Lenders in the Program include, among others:
(a) Affiliated Lending Funds, (b) other registered management
investment companies or series thereof (``Other Lending Funds,''
together with the Affiliated Lending Funds, the ``Registered Lending
Funds'') and (c) investment entities excluded from the definition of
investment company under section 3(c)(1) or 3(c)(7) of the Act
(``Private Lending Funds,'' together with the Registered Lending Funds,
the ``Lending Funds'').
3. The Registered Investment Funds will be open-end management
investment companies registered under the Act and advised by a Dresdner
Entity. The Private Investment Funds will rely on section 3(c)(1) or
3(c)(7) of the Act and will be advised by a Dresdner Entity. Shares of
the Investment Funds will not be subject to any sales load, redemption
fee, asset-based sales charge or service fee, as defined in rule
2830(b)(9) of the Conduct Rules of the National Association of
Securities Dealers, Inc. (``NASD Conduct Rules''). Certain Investment
Funds will hold themselves out as money market funds and will comply
with rule 2a-7 under the Act. Other Investment Funds will seek to
achieve a high level of current income consistent with the preservation
of capital and the maintenance of liquidity and will invest in high
quality securities with relatively short maturities.
4. Under the Program, the Bank will enter into an agreement
(``Lending Agreement'') with each Lending Fund that appoints the Bank
to serve as its lending agent and authorizes the Bank to enter into a
master borrowing agreement (``Borrowing Agreement'') with persons
designated by the Lending Fund as eligible to borrow its portfolio
securities (each a ``Borrower''). Under the Lending Agreement, the Bank
will invest any Cash Collateral received in the Program on behalf of a
Lending Fund directly in various types of instruments, accounts and
investment vehicles, including Shares of one or more Investment Funds.
The Lending Agreement and the Borrowing Agreement will also establish
for each transaction the initial and on-going collaterization
requirements and the types of collateral that may be accepted.
Personnel providing day-to-day lending agency services to the
Affiliated Lending Funds will not provide investment advisory services
to the Affiliated Lending Funds or participate in any way in the
selection of portfolio securities for, or other aspects of the
management of, the Affiliated Lending Funds. The duties to be performed
by the Bank as lending agent with respect to any Registered Lending
Fund will not exceed the parameters described in Norwest Minnesota,
N.A., SEC No-Action Letter (pub. avail. May 25, 1995). The Bank will
not purchase Shares of an Investment Fund with Cash Collateral unless
participation in the Program has been approved by a majority of the
directors or trustees of the Registered Lending Fund that are not
``interested persons'' within the meaning of section 2(a)(19) of the
Act.
5. When a securities loan is collateralized by Cash Collateral, the
Borrower is entitled to receive a fixed return on the collateral for
the term of the loan (``Borrower's Rebate''). The difference between
the Borrower's Rebate and the actual return on the investment of the
collateral will be divided between the Lending Fund and the Bank in
accordance with the terms of the Lending Agreement. When the collateral
is not Cash Collateral, the Lending Agreement will set a loan fee to be
paid by the Borrower, which likely will approximate the return the
Lending Fund would receive had the Borrower delivered Cash Collateral.
The amount of the fee will be divided between the Lending Fund and the
Bank in accordance with the terms of the Lending Agreement.
6. The applicants request relief to permit: (a) The Lending Funds
to invest Cash Collateral in the Investment Funds, (b) the Registered
Lending Funds to pay the Bank a fee based on a share of the revenue
derived from securities lending activities, (c) Affiliated Lending
Funds to lend portfolio securities to the Affiliated Borrowers, and (d)
a Dresdner Entity to engage in principal transactions with, and receive
brokerage commissions from, the Other Lending Funds.
Applicants' Legal Analysis
A. Investment of Cash Collateral by the Lending Funds in the Investment
Funds
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) of the
Act 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. Section
12(d)(1)(J) of the Act provides that the Commission may exempt any
person or transaction from any provision of section 12(d)(1) if and to
the extent that the exemption is consistent with the public interest
and the protection of investors.
2. Applicants request an exemption under section 12(d)(1)(J) to
permit the Lending Funds to invest Cash Collateral in Shares of the
Registered Investment Funds in excess of the limits imposed by section
12(d)(1)(A), and each Registered Investment Fund to sell its Shares to
the Lending Funds in excess of the limits in section 12(d)(1)(B).
3. Applicants state that none of the abuses meant to be addressed
by section 12(d)(1) of the Act will be created by the proposed
investment of Cash Collateral in the Registered Investment Funds.
Applicants represent that the proposed arrangement will not result in
an inappropriate layering of fees because Shares of the Investment
Funds will be sold without a sales load, redemption fee, asset-based
sales charge or service fee as defined in the NASD Conduct Rules.
Applicants also represent that no Investment Fund will acquire shares
of any other investment company in excess of the limits contained in
section 12(d)(1)(A) of the Act.
4. Sections 17(a)(1) and 17(a)(2) of the Act prohibit an affiliated
person of a registered investment company, or any affiliated person of
the affiliated person (``second-tier affiliate'') from selling any
security to, or purchasing any security from, the registered investment
company. Section 2(a)(3) of the Act defines an ``affiliated person'' of
another person to include: 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; any person 5% or
more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other person;
any person directly or indirectly controlling, controlled by, or under
common control with, the other person; and, in the case of an
investment company, its investment adviser. Control is defined
[[Page 36604]]
in section 2(a)(9) of the Act to mean ``the power to exercise a
controlling influence over the management or policies of a company,
unless such power is solely the result of an official position with
such company.''
5. Applicants state that because Dresdner Entities will serve as
investment advisers to Affiliated Lending Funds and the Investment
Funds, the Dresdner Entities could be deemed to control the Affiliated
Lending Funds and the Investment Funds, and the Dresdner Entities are
under common control. Accordingly, the Affiliated Lending Funds and the
Investment Funds may be deemed to be under common control and
affiliated persons of each other. Further, applicants state that if any
Other Lending Fund acquires 5% or more of an Investment Fund's Shares,
the Investment Fund may be deemed an affiliated person of the Other
Lending Fund. As a result, applicants state that the sale of Shares of
the Investment Funds to the Registered Lending Funds, and the
redemption of such Shares in connection with the investment of Cash
Collateral may be prohibited under Section 17(a).
6. Section 17(b) of the Act authorizes the Commission 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, and the proposed transaction is consistent with the
policy of each registered investment company concerned and with the
general purposes of the Act. Section 6(c) of the Act authorizes the
Commission to exempt any person or transaction 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.
7. Applicants request an order under sections 6(c) and 17(b) of the
Act to permit the Registered Lending Funds to invest Cash Collateral in
Shares of the Investment Funds. Applicants submit that the terms of the
proposed transactions, including the consideration to be paid or
received, are reasonable and fair, do not involve overreaching and are
consistent with the general purposes of the Act as well as the policies
of the respective Registered Lending Funds. The Registered Lending
Funds will purchase and redeem Shares on the same terms and the same
basis as the Shares are purchased and redeemed by all other
shareholders of the Investment Funds. Applicants state that the
Registered Lending Funds will only be permitted to invest in an
Investment Fund if that Investment Fund invests in instruments that the
Registered Lending Fund has previously determined are acceptable medium
for the investment for Cash Collateral. Applicants state that Cash
Collateral of a Registered Lending Fund that is a money market fund
will not be used to acquire Shares of any Investment Fund that does not
comply with rule 2a-7 under the Act. Applicants further state that the
investment of Cash Collateral will comply with all present and future
Commission and staff positions concerning securities lending
arrangements. Applicants also state that the Private Investment Funds
will comply with the provisions of the Act dealing with affiliated
transactions, leveraging and issuing senior securities, and rights of
redemption.
8. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person or principal underwriter for a registered
investment company, or any second tier affiliate, 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, without an order of the Commission.
Under rule 17d-1, in passing on applications for orders under section
17(d), the Commission considers whether the participation of the
registered investment company is consistent with the provisions,
policies, and purposes of the Act and the extent to which the
participation is on a basis different from or less advantageous than
that of other participants.
9. Applicants state that the Lending Funds (by purchasing and
redeeming Shares of the Investment Funds), the Dresdner Entities (by
managing the portfolio securities of the Affiliated Lending Funds and
Investment Funds at the same time that the Affiliated Lending Funds'
Cash Collateral is invested in Shares), the Bank (by acting as lending
agent, investing Cash Collateral in Shares, and receiving a portion of
the revenue generated by securities lending transactions), and the
Investment Funds (by selling Shares to and redeeming Shares from the
Lending Funds) could be deemed to be participants in a joint enterprise
or other joint arrangement within the meaning of section 17(d) of the
Act and rule 17d-1 under the Act. Applicants request an order in
accordance with section 17(d) and rule 17d-1 to permit the transactions
incident to the investment of Cash Collateral of the Lending Funds in
the Investment Funds.
10. Applicants state that the investment by the Lending Funds in
Shares will be on the same basis and will be indistinguishable from any
other shareholder account maintained by the Investment Funds. In
addition, applicants state that all investors in Shares will be subject
to the same eligibility requirements imposed by the Investment Funds
and all Shares will be priced in the same manner and will be redeemable
under the same terms.
B. Payment of Lending Agent Fees to the Bank
1. Applicants also believe that a lending agent agreement between
the Registered Lending Funds and the Bank, under which compensation is
based on a share of the revenue generated by the Program, may be a
joint enterprise or other joint arrangement within the meaning of
section 17(d) of the Act and rule 17d-1 under the Act. Consequently,
applicants request an order permitting the Registered Lending Funds to
pay, and the Bank, as lending agent, to accept fees based on a share of
the revenue generated by securities lending transactions under the
Program.
2. Applicants propose that each Affiliated Lending Fund adopt the
following procedures to ensure that the proposed fee arrangement and
the other terms governing the relationship with the Bank, as lending
agent, will meet the standards of rule 17d-1:
(a) In connection with the approval of the Bank as lending agent
for an Affiliated Lending Fund and implementation of the proposed fee
arrangement, a majority of the board of directors or trustees of the
Affiliated Lending Fund (the ``Board''), including a majority of the
directors or trustees that are not ``interested persons'' as defined in
section 2(a)(19) of the Act (``Independent Directors''), will determine
that (i) the Lending Agreement with the Bank is in the best interests
of the Affiliated Lending Fund and its shareholders, (ii) the services
to be performed by the Bank are appropriate for the Affiliated Lending
Fund, (iii) the nature and quality of the services provided by the Bank
are at least equal to those services offered and provided by others,
and (iv) the fees for the Bank's services are within the range of, but
in any event no higher than, the fees charged by the Bank to comparable
unaffiliated securities lending clients for services of the same nature
and quality.
(b) Each Affiliated Lending Fund's Lending Agreement with the Bank
for lending agent services will be reviewed annually by the Board and
will be approved for continuation only if a majority of the Board,
including a
[[Page 36605]]
majority of Independent Directors, makes the findings referred to in
paragraph (a) above.
(c) In connection with the initial implementation of an arrangement
whereby the Bank will be compensated as lending agent based on a
percentage of the revenue generated by an Affiliated Lending Fund's
participation in the Program, the Affiliated Lending Fund's Board shall
secure a certificate from the Bank attesting to the factual accuracy of
clause (iv) in paragraph (a) above. In addition, the Board will request
and evaluate, and the Bank shall furnish, such information and
materials as the Board, with and upon the advice of agents, consultants
or counsel, determines to be appropriate in making the findings
referred to in paragraph (a) above. Such information shall include, in
any event, information concerning the fees charged by the Bank to other
institutional investors for providing similar services.
(d) The Board of each Affiliated Lending Fund, including a majority
of the Independent 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 set forth in the application for
continuing appropriateness.
(e) Each Affiliated Lending Fund will (i) maintain and preserve
permanently in an easily accessible place a written copy of the
procedures and conditions described in the application and (ii)
maintain and preserve for a period of not less than six (6) years from
the end of the fiscal year in which any loan transaction pursuant to
the Program occurred, the first two (2) years in an easily accessible
place, a written record of each such loan transaction setting forth a
description of the security loaned, the identity of the person on the
other side of the loan transaction, the terms 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.
3. With respect to Other Lending Funds, applicants state that the
affiliations with the Bank arise solely as result of the investment of
Cash Collateral in the Investment Funds. Applicants state that a
Dresdner Entity would not have any influence over the decisions made by
any Other Lending Fund, and that any fee arrangement between the Other
Lending Funds and the Bank will be the product of arm's-length
bargaining.
C. Lending to Affiliated Borrowers
1. Section 17(a)(3) of the Act makes it unlawful for any affiliated
person of a registered investment company or second-tier affiliate,
acting as principal, to borrow money or other property from the
registered investment company. Under section 2(a)(3)(C) of the Act, an
Affiliated Borrower would be deemed a second-tier affiliate of
Affiliated Lending Funds for which Dresdner Entities serve as
investment advisers. In addition, applicants state that to the extent
that an Affiliated Lending Fund or Other Lending Fund acquires Shares
of an Investment Fund, an Affiliated Borrower also could be deemed a
second-tier affiliate of the Affiliated Lending Fund or Other Lending
Fund. Accordingly, section 17(a)(3) would prohibit the Affiliated
Borrowers from borrowing securities from the Registered Lending Funds.
2. As noted above, section 17(d) and rule 17d-1 generally prohibit
joint transactions involving registered investment companies and their
affiliates unless the Commission has approved the transaction.
Applicants request relief under sections 6(c) and 17(b) of the Act
exempting the Registered Lending Funds from section 17(a)(3), and under
section 17(d) and rule 17d-1 to permit the Registered Lending Funds to
lend portfolio securities to Affiliated Borrowers.
3. Applicants state that each loan to an Affiliated Borrower by an
Affiliated Lending Fund will be made with a spread that is no lower
than that applied to comparable loans to unaffiliated Borrowers.\2\
Applicants further state that at least 50% of the loans made by the
Affiliated Lending Funds, on an aggregate basis, 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 which
will be established by each Affiliated Lending Fund's Board and a
majority of the Independent Directors and monitored by an officer of
the Affiliated Lending Fund. The Board, including a majority of the
Independent Directors, also will review quarterly reports on all
lending activity.
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\2\ A ``spread'' is the compensation earned by a Lending Fund
from a securities loan, which compensation is in the form either of
a lending fee payable by the Borrower to the Lending Fund (when non-
cash collateral is posted) or of the excess retained by the Lending
Fund over a rebate rate payable by the Lending Fund to the Borrower
(when Cash Collateral is posted and then invested by the Lending
Fund).
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D. Transactions by Other Lending Funds with Dresdner Entities
1. As noted above, sections 17(a)(1), (2) and (3) prohibit certain
principal transactions between a registered investment company and its
affiliates. To the extent that a Dresdner Entity and the Investment
Funds are deemed to be under common control, they could be affiliated
persons of one another. Applicant also asserts that each Dresdner
Entity that serves as investment adviser to an Investment Fund could be
deemed an affiliated person of the Investment Fund and a second-tier
affiliate of an Other Lending Fund that owns 5% or more of an
Investment Fund.
2. Applicants request relief under sections 6(c) and 17(b) from
section 17(a) to permit principal transactions between Other Lending
Funds and Dresdner Entities where the affiliation between the parties
arises solely as a result of an investment by an Other Lending Fund in
Shares of the Investment Funds. Applicants state that there will be no
element of self-dealing because the Dresdner Entities will have no
influence over the decisions made by any Other Lending Fund. Applicants
assert that each transaction will be the product of arm's length
bargaining. Because the interests of the Other Lending Funds'
investment advisers are solely and directly aligned with those of the
Other Lending Funds, applicants believe it is reasonable to conclude
that the consideration paid to or received by the Other Lending Funds
in connection with a principal transaction with a Dresdner Entity will
be reasonable and fair.
3. Section 17(e) of the Act makes it unlawful for any affiliated
person of a registered investment company, or any second-tier
affiliate, acting as a broker in connection with the sale of securities
to or by that registered investment company, to receive from any source
a commission for effecting the transaction that exceeds specified
limits. Rule 17e-1 provides that a commission shall be deemed an usual
and customary broker's commission if certain procedures are followed by
the registered investment company.
4. Applicants request relief under section 6(c) from section 17(e)
to the extent necessary to permit Dresdner Entities to receive fees or
commissions for acting as broker or agent in connection with the
purchase or sale of securities for any Other Lending Fund for which a
Dresdner Entity becomes a second-tier affiliate solely because of the
investment by the Other Lending Fund in Shares of Investment Funds.
[[Page 36606]]
5. Applicants submit that brokerage or similar transactions by
Dresdner Entities for the Other Lending Funds raise no possibility of
self-dealing or any concern that the Other Lending Funds would be
managed in the interest of the Dresdner Entities. Applicants believe
that each transaction between an Other Lending Fund and a Dresdner
Entity would be the product of arm's length bargaining because each
investment adviser to an Other Lending Fund would have no interest in
benefiting a Dresdner Entity at the expense of an Other Lending Fund.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
General
1. The securities lending program of each Registered Lending Fund
will comply with all present and future applicable guidelines of the
Commission and its staff regarding securities lending arrangements.
2. The approval of an Affiliated Lending Fund's Board, including a
majority of the Independent Directors, shall be required for the
initial and subsequent approvals of the Bank's service as lending agent
for the Affiliated Lending Fund pursuant to the Program, for the
institution of all procedures relating to the Program as it relates to
the Affiliated Lending Fund, and for any periodic review of loan
transactions for which the Bank acted as lending agent pursuant to the
Program.
3. No Registered Lending Fund will purchase Shares of any
Investment Fund unless participation in the Program has been approved
by a majority of the Independent Directors of the Registered Lending
Fund. The Independent Directors will evaluate the Program no less
frequently than annually and determine that investing Cash Collateral
in the Investment Funds is in the best interests of the shareholders of
the Registered Lending Fund.
Investment of Cash Collateral
4. Investment in Shares of an Investment Fund by a particular
Registered Lending Fund will be consistent with the Registered Lending
Fund's investment objectives and policies. A Registered Lending Fund
that complies with rule 2a-7 under the Act will not invest its Cash
Collateral in an Investment Fund that does not comply with the
requirements of rule 2a-7 under the Act.
5. Investment in Shares of an Investment Fund by a particular
Registered Lending Fund will be in accordance with the guidelines
regarding the investment of Cash Collateral specified by the Registered
Lending Fund in the Lending Agreement. A Registered Lending Fund's Cash
Collateral will be invested in a particular Investment Fund only if
that Investment Fund has been approved for investment by the Registered
Lending Fund and if that Investment Fund invests in the types of
instruments that the Registered Lending Fund has authorized for the
investment of its Cash Collateral.
6. An Investment Fund will not acquire securities of any investment
company in excess of the limits in Section 12(d)(1)(A).
7. Shares will not be subject to a sales load, redemption fee,
asset-based sales charge or service fee (as defined in rule 2830(b)(9)
of the NASD Conduct Rules).
Private Investment Funds
8. Each Registered Lending Fund will purchase and redeem Shares of
a Private Investment Fund 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 Private Investment Fund.
A separate account will be established in the shareholder records of
the Private Investment Fund for the account of each Registered Lending
Fund.
9. Each Private Investment Fund in which a Registered Lending Fund
invests will comply with the requirements of sections 17(a), (d), and
(e), and 18 of the Act as if the Private Investment Fund were a
registered open-end investment company. With respect to all redemption
requests made by a Registered Lending Fund, the Private Investment Fund
will comply with section 22(e) of the Act. The Dresdner Entity serving
as investment adviser, trustee, general partner or managing member of a
Private Investment Fund will adopt procedures designed to ensure that
the Private Investment Fund will comply with the requirements of
sections 17(a), (d), and (e), 18, and 22(e) of the Act, will
periodically review and periodically update as appropriate such
procedures, will maintain books and records describing such procedures,
and will 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 maintained 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 Commission and its staff.
10. The net asset value per Share with respect to Shares of the
Private Investment Funds will be determined separately for each Private
Investment Fund by dividing the value of the assets belonging to that
Private Investment Fund, less the liabilities of that Private
Investment Fund, by the number of Shares outstanding with respect to
that Private Investment Fund.
11. Any Private Investment Fund that operates as a money market
fund and uses the amortized cost method of valuation, as defined in
rule 2a-7 under the Act, will comply with rule 2a-7. With respect to
each such Private Investment Fund, the Dresdner Entity serving as
investment adviser, trustee, general partner or managing member shall
adopt and monitor the procedures described in rule 2a-7(c)(7) under the
Act and will take such other actions as are required to be taken
pursuant to these procedures. The Registered Lending Funds may only
purchase Shares of such Private Investment Fund if the Dresdner Entity
serving as investment adviser, trustee, general partner or managing
member determines on an ongoing basis that the Private Investment Fund
is in compliance with rule 2a-7. Such investment adviser, trustee,
general partner or managing member shall preserve for a period not less
than six years from the date of determination, the first two years in
an easily accessible place, a record of such determination and the
basis upon which the determination was made. This record will be
subject to examination by the Commission and its staff.
Loans to Affiliated Borrowers
12. The Affiliated Lending Funds, on an aggregate basis, will make
at least 50% of their portfolio securities loans to unaffiliated
Borrowers.
13. An Affiliated Lending Fund will not make any loan to an
Affiliated Borrower unless the income attributable to such loan fully
covers the transaction costs incurred in making the loan.
14. a. All loans will be made with spreads no lower than those set
forth in a schedule of spreads which will be established and may be
modified from time to time by each Affiliated Lending Fund's Board and
by a majority of the Independent Directors (the ``Schedule of
Spreads'').
b. The Schedule of Spreads will set forth rates of compensation to
the Affiliated Lending Funds that are reasonable and fair and that are
[[Page 36607]]
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 Affiliated Lending Fund's portfolio securities, and
will specify the lowest allowable spread with respect to a loan of
securities to any Borrower.
d. If a security is lent to an unaffiliated Borrower with a spread
higher than the minimum set forth in the Schedule of Spreads, all
comparable loans to Affiliated Borrowers will be made at no less than
the higher spread.
e. The securities lending program for each Affiliated Lending Fund
will be monitored on a daily basis by an officer of each Affiliated
Lending Fund who is subject to section 36(a) of the Act. This officer
will review the terms of each loan to Affiliated Borrowers 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 Affiliated Lending Fund's Board,
including a majority of the Independent Directors.
15. The total value of securities loaned to any one Borrower on the
approved list of Borrowers of securities from an Affiliated Lending
Fund will be in accordance with a schedule to be approved by the Board
of each Affiliated Lending Fund, but in no event will the total value
of securities loaned to any one Affiliated Borrower exceed 10% of the
net assets of the Affiliated Lending Fund, computed at market.
16. The Boards of the Affiliated Lending Funds, including a
majority of the Independent Directors, (a) will determine no less
frequently than quarterly that all transactions with the Affiliated
Borrowers effected during the preceding quarter were effected in
compliance with the requirements of the procedures adopted by the
Boards and the conditions of this order if granted and that such
transactions were conducted on terms that were reasonable and fair; and
(b) will review no less frequently than annually such requirements and
conditions for their continuing appropriateness.
17. The Affiliated Lending 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 Borrower was fair and reasonable, and
that the procedures followed in making such loan were in accordance
with the procedures and other undertakings set forth in the
application.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15312 Filed 6-17-03; 8:45 am]
BILLING CODE 8010-01-P