No-Action Letter under:
Investment Company Act -
Section 17(d)

The Chase Manhattan Bank

July 24, 2001

RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT

Our Ref. No. 20007251732 The Chase Manhattan Bank __File No. 132-3__

By letter dated July 23, 2001, you request our assurance that we would not recommend enforcement action to the Securities and Exchange Commission under Section 17(d) of the Investment Company Act of 1940 (the "Investment Company Act") and Rule 17d-1 thereunder if the cash collateral that registered management investment companies or series thereof, and certain of their affiliated persons, receive in connection with their participation in a securities lending program that is administered by The Chase Manhattan Bank ("Chase") is invested in certain short-term instruments through one or more joint accounts ("Joint Accounts").

Facts

You state that Chase is a custodian bank that administers a securities lending program¹ that matches prospective borrowers of securities (e.g., broker-dealers) with prospective lenders (e.g., registered management investment companies or series thereof ("Funds")) that are seeking to lend a portion of their securities portfolios in order to earn additional income. You state that pursuant to Chase's securities lending program, Chase delivers a specific quantity of a lender's portfolio securities to a borrower in exchange for cash collateral ("Cash Collateral").² You state that Chase, on behalf of the lender, purchases short-term instruments with the Cash Collateral and negotiates the payment of a "rebate" by the lender to the borrower in exchange for the lender's use of the Cash Collateral.³ You state that the net income earned on the lender's invested Cash Collateral (after the deduction of the rebate) is divided between Chase and the lender in a pre-agreed proportion.

Chase proposes to deposit into one or more Joint Accounts the Cash Collateral of Funds and other lenders (the "Participants") that are advised or subadvised by the same investment adviser, or an entity controlling, controlled by, or under common control with, the investment adviser. You state that Chase would not be an affiliated person (within the meaning of Section 2(a)(3) of the Investment Company Act) of any of the Funds that participate in a Joint Account. You state that Chase would invest the Cash Collateral deposited into the Joint Accounts in one or more of the following: (i) repurchase agreements that are "collateralized fully" as defined in Rule 2a-7 under the Investment Company Act;⁴ (ii) interest-bearing or discounted commercial paper, including U.S. dollar-denominated commercial paper of foreign issuers; and (iii) any other short-term money market instruments that constitute "Eligible Securities" (as defined in Rule 2a-7 under the Investment Company Act) (collectively, "Short-Term Investments"). (Chase's deposit of the Participants' Cash Collateral into the Joint Accounts and its investment of such Cash Collateral in Short-Term Investments are referred to hereafter as the "Joint Account Arrangements.")

You represent that all of the purchases and sales of Short-Term Investments by Chase on behalf of the Participants would comply with investment guidelines that are set by each Participant and its investment adviser ("Investment Guidelines").⁵ You represent that the investment adviser of each Fund participating in a Joint Account would have sole responsibility for determining whether a Fund could participate in a Joint Account, subject to standards and procedures that would be established by the board of directors or trustees of the Fund. You also represent that the investment adviser(s) would be responsible for overseeing Chase's administration of the Joint Accounts, including the accounting and control procedures and ensuring the fair treatment of the Joint Account Participants. You represent that Participants would invest through a Joint Account only to the extent that, regardless of the Joint Accounts, they would desire to invest in Short-Term Investments that are consistent with their respective investment objectives, policies and restrictions. You also represent that a Participant's decision to use a Joint Account would be based on the same factors as its decision to make any other Short-Term Investment.

You argue that the Joint Account Arrangements would be beneficial to the Participants because the arrangements would facilitate the "bulk purchase" of Short-Term Investments so that the Participants could earn a higher rate of return on investments, decrease transaction costs, and experience administrative efficiencies.

Analysis

Section 17(d) of the Investment Company Act provides that the Commission may adopt rules that limit or prevent registered investment companies from participating in joint transactions with affiliated persons on a basis different from or less advantageous than that of any other participant.⁶ Rule 17d-1 thereunder, in relevant part, provides that no affiliated person of a registered investment company, and no affiliated person of an affiliated person (collectively, "affiliated persons"), may participate as a principal in any joint enterprise, joint arrangement, or profit-sharing plan, as defined in the rule,⁷ without first obtaining an order from the Commission. Section 17(d) and Rule 17d-1, taken together, are designed to ensure fair dealing and no overreaching in connection with joint transactions involving an investment company and its affiliated persons.⁸

The Division of Investment Management, pursuant to delegated authority from the Commission, has issued a number of conditional orders under Rule 17d-1 permitting fund families to invest in various Short-Term Investments through one or more joint accounts.⁹ In particular, the most recent orders permit funds and other participants¹⁰ to use joint accounts for the investment of cash collateral and uninvested cash balances, representing proceeds from sales of portfolio securities and/or cash awaiting investment (collectively, "cash balances"). The orders generally are subject to the following conditions: ¹¹

1. One or more joint accounts will be established on behalf of the participants as separate accounts into which a participant may deposit daily all, or a portion of, its cash balances. The joint accounts will be subject to the participants' custody agreements and will not be distinguishable from any other accounts maintained by the participants at the participants' custodian except that monies from the participants will be deposited in the joint accounts on a commingled basis. The joint accounts will not have separate existences and will not be separate legal entities. The sole function of the joint accounts will be to provide a convenient way of aggregating individual transactions, which would otherwise require separate daily management of the cash balances.

2. Assets in the joint accounts will be invested in Short-Term Investments, as directed by the participant's investment adviser (or, in the case of cash collateral, by the custodian, in its role as securities lending agent, in instruments pre-approved by the participant's investment adviser). Uninvested cash other than cash collateral in a joint account will be invested in Short-Term Investments that are repurchase agreements that have a remaining maturity of 60 days or less and other Short-Term Investments that have a remaining maturity of 90 days or less, each as calculated in accordance with Rule 2a-7 under the Investment Company Act. Cash collateral in a joint account will be invested in Short-Term Investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the Investment Company Act. No participant will be permitted to invest in a joint account unless the Short-Term Investments in the joint account will comply with the investment policies and restrictions of that participant.

3. All of the assets that are held by the joint accounts will be valued on an amortized cost basis to the extent permitted by applicable Commission or staff releases, rules, letters or orders.

4. Each fund that values its net assets in reliance on Rule 2a-7 under the Investment Company Act will use the average maturity of the instruments in the joint account (determined on a dollar-weighted basis) for the purpose of computing the fund's average portfolio maturity with respect to its portion of the assets that are held in the joint account on that day.

5. To prevent any participant from using any part of a balance of a joint account that is credited to another participant, no participant will be allowed to create a negative balance in any joint account for any reason, although each participant will be permitted to draw down its entire balance at any time, provided that the participant's investment adviser determines that such draw-down would have no significant adverse impact on any other participant participating in that joint account. Each participant's decision to invest through the joint accounts would be solely at its option, and no participant will be obligated to invest in a joint account or maintain a minimum balance in a joint account. In addition, each participant will retain the sole rights of ownership to any of its assets invested in a joint account, including interest payable on such assets that are invested in the joint accounts.

6. The fund's investment adviser will administer the investment of assets in, and the operation of, the joint accounts as part of its general duties under its advisory or sub-advisory agreements with the fund and the investment adviser will not collect any additional or separate fees for administering any joint account.

7. The administration of the joint accounts will be within the fidelity bond coverage required by Section 17(g) of the Investment Company Act and Rule 17g-1 thereunder.¹²

8. The board of trustees or directors ("Board") of each fund will adopt procedures pursuant to which the joint accounts will operate, which will be reasonably designed to provide that the requirements of the representations described herein will be met. Each Board will make and approve such changes as it deems necessary to ensure that such procedures are followed. In addition, the Board of each fund will determine, no less frequently than annually, that the joint accounts have been operated in accordance with the adopted procedures, and will permit a fund to continue to participate therein only if the Board determines that there is a reasonable likelihood that the fund and its shareholders will benefit from the fund's continued participation.

9. Each participant will participate in a joint account on the same basis as any other participant in the joint account in conformity with the participant's fundamental investment objectives, policies and restrictions.

10. Any Short-Term Investments that are made through a joint account will satisfy the investment criteria of all of the participants participating in that Short-Term Investment.

11. Each participant's investment in a joint account will be documented daily on its books and on the books of its custodian. Chase, each participant and each participant's investment adviser would maintain records documenting, for any given day, the participant's aggregate investment in a joint account and the participant's pro rata share of each Short-Term Investment made through such joint account. The records maintained for each participant will be maintained in conformity with Section 31 of the Investment Company Act and the rules and regulations promulgated thereunder. Any participant that is not a fund, and any investment adviser not registered under the Investment Advisers Act of 1940 that advises a participant that is not a fund, will make available to the Commission, upon request, such books and records with respect to such participant's participation in the joint accounts.

12. A participant participating in a joint account will not necessarily have its cash invested in every Short-Term Investment that is made though the joint account. To the extent that a participant's cash is applied to a particular Short-Term Investment, however, the participant will participate in and own its proportional share of such Short-Term Investment, and any income earned or accrued thereon, based upon the percentage of the Short-Term Investment that was purchased with monies that were contributed by the participant.

13. Short-Term Investments that are held in a joint account generally will not be sold prior to maturity unless: (i) a participant's investment adviser believes that the investment no longer presents minimal credit risks; (ii) the investment no longer satisfies the investment criteria of all of the participants participating in the investment because of a credit downgrading or otherwise; or (iii) in the case of a repurchase agreement, the counterparty defaults. The investment adviser or the custodian, in its role as securities lending agent, may sell any Short-Term Investment (or fractional portion thereof) on behalf of some or all of the participants prior to the maturity of the investment, provided that the cost of such transaction will be allocated solely to the selling participants and the transaction will not adversely affect the other participants participating in that joint account. In no case would a sale prior to maturity by less than all of the participants be permitted if the sale would reduce the principal amount or yield that is received by the other participants in the joint account, or otherwise adversely affect the other participants. Each participant in a joint account will be deemed to have consented to the sale and partition of the investments in the joint account.

14. Short-Term Investments that are held through a joint account with remaining maturities of more than seven days, as calculated pursuant to Rule 2a-7 under the Investment Company Act, will be considered to be illiquid and subject to the restriction that a fund may not invest more than 15% or, in the case of a money market fund, more than 10% (or, in either case, such other percentage as set forth by the Commission from time to time) of its net assets in illiquid securities, and any similar restrictions set forth in the fund's investment restrictions and policies, if the investment adviser or the custodian cannot sell the instrument, or the fund's fractional interest in such instrument, pursuant to the preceding condition.

15. If the joint accounts are established by a custodian that is not a participant's regular custodian and the participant wishes to participate in the joint accounts, the participant must appoint such custodian as a sub-custodian for the limited purposes of: (i) receiving and disbursing cash balances and cash collateral; (ii) holding any Short-Term Investments; and (iii) holding any collateral received from a transaction that is effected through a joint account. A participant that so appoints such a sub-custodian will take all necessary action to authorize the sub-custodian as its legal custodian, including any actions that are required under the Investment Company Act.

You represent that you would operate the Joint Accounts in accordance with the above- listed conditions, and the representations set forth in your letter. You argue that operating the Joint Accounts in that manner would satisfy the concerns that Section 17(d) and Rule 17d-1 were designed to address. We agree. Rule 17d-1, however, requires that no fund affiliate may participate in any joint transaction without having received prior exemptive relief from the Commission, regardless of whether the transaction may be conducted in a manner that addresses the concerns of Section 17(d) and Rule 17d-1. We note that, in certain situations, we have agreed not to recommend enforcement action to the Commission with respect to certain prohibited transactions based, at least in part, upon representations that the prohibited transactions would be conducted in accordance with the conditions that were imposed by the Commission in a series of exemptive orders.¹³ In those exemptive orders, the Commission consistently imposed a standard set of conditions to the transaction(s) at issue (e.g., a redemption in kind to a fund affiliate, a deferred compensation arrangement for a fund's directors). Granting enforcement-only no-action relief in those situations conserves the resources of both applicants and the staff which would otherwise be expended in the exemptive process. More than 50 exemptive orders have been granted for the operation of joint account arrangements involving the investment of cash balances in Short-Term Investments pursuant to conditions that are substantially similar to the conditions listed above.

Accordingly, based on the facts and representations made in your letter, we would not recommend enforcement action to the Commission under Section 17(d) of the Investment Company Act or Rule 17d-1 thereunder if the Participants' Cash Collateral is invested in Short-Term Investments through one or more Joint Accounts.¹⁴ Any different facts or representations may require a different conclusion.¹⁵

Daphne D. Tippens
Senior Counsel

Footnotes

1	You represent that the securities lending program complies with all of the applicable staff positions regarding securities lending arrangements, such as those governing the type and amount of collateral, the voting of loaned securities, and prospectus disclosure. See, e.g., SIFE Trust Fund (pub. avail. Feb. 17, 1982); State Street Bank and Trust Co. (pub. avail. Jan. 29, 1972).
2	You state that there may be more than one lender participating in a loan to a single borrower.
3	When there is more than one lender participating in a loan, each lender is responsible for paying its pro rata share of a rebate. You have not asked and we take no position regarding whether: (i) the participation of a Fund and any of its affiliated persons (within the meaning of Section 2(a)(3) of the Investment Company Act) in a loan to a single borrower; or (ii) the negotiation of the rebate on behalf of more than one Fund, raises any issues under Section 17(d) of the Investment Company Act.
4	You represent that any repurchase agreements that are entered into through a Joint Account would comply with the terms of Investment Company Act Release No. 13005 (Feb. 2, 1983), and with current and future positions of the Commission or staff that relate to repurchase agreements. In the event that the Commission or staff sets forth positions with respect to other Short-Term Investments made through the Joint Accounts, you represent that the Short-Term Investments would comply with those positions. You also represent that Joint Accounts would enter into overnight "hold-in-custody" repurchase agreements, in which the counterparty or one of its affiliated persons may have possession of, or control over, the collateral subject to the agreement, only when cash is received late in the business day and otherwise would be unavailable for investment.
5	You state that the Investment Guidelines would identify the particular types of Short-Term Investments in which Cash Collateral could be invested and the maximum and minimum amount of cash or percentages of a Fund's Cash Collateral that could be invested in each authorized Short-Term Investment. Chase may invest the Cash Collateral of the Participants only in Short-Term Investments that have been pre-approved by the Participants and their investment adviser(s). Chase, in its role as securities lending agent, generally will not sell Short-Term Investments prior to maturity without receiving pre-approval from the Participant's investment adviser(s). The delegation of responsibilities for purchasing and selling Short-Term Investments to a custodian without appropriate guidance and limitations raises issues under Section 15 of the Investment Company Act. See Norwest Bank Minnesota, N.A.; Society National Bank (pub. avail. May 25, 1995); Salomon Brothers (pub. avail. Sept. 29, 1972); and State Street Bank & Trust Co. (pub. avail. Sept. 29, 1972). You have not asked and we take no position regarding whether the purchase and sale of securities by Chase pursuant to the Joint Account Arrangements raise issues under Section 15 of the Investment Company Act.
6	You state that the Participants could be affiliated with each other under Section 2(a)(3)(C) of the Investment Company to the extent that they are deemed to be under the common control of their investment adviser. You also state that the investment adviser(s) is affiliated with the Participants for which it serves as investment adviser(s) by virtue of Section 2(a)(3)(D) of the Investment Company Act.
7	Rule 17d-1(c) defines a "[j]oint enterprise or other joint arrangement or profit-sharing plan" to include any contract or arrangement concerning an enterprise or undertaking whereby a registered investment company and any affiliated person of the company "have a joint or a joint and several participation, or share in the profits of such enterprise or undertaking." Some element of combination or profit motive must generally be present for Section 17(d) and Rule 17d-1 to apply. See Massachusetts Mutual Life Insurance Company (pub. avail. June 7, 2000) ("MassMutual") and SMC Capital, Inc. (pub. avail. Sept. 5, 1995) ("SMC") (citing In re Steadman Security Corp., 1974-75 Fed. Sec. L. Rep. (CCH) ¶ 80,038 at 84,848 (Dec. 20, 1974) and SEC v. Talley Indust., Inc., 399 F.2d 396, 403 (2d Cir. 1968), cert. denied, 393 U.S. 1015 (1969)). We believe that the Joint Account Arrangements would involve the requisite element of combination or profit motive for Section 17(d) and Rule 17d-1 to apply because the arrangements would entail the joint investment of assets and the joint ownership of securities among a Fund and its affiliated persons.
8	See Hearings on S. 3580 Before a Subcomm. of the Senate Comm. on Banking and Currency, 76th Cong., 3rd Sess. 256 (Apr. 9, 1940) (statement of David Schenker, Chief Counsel, Securities and Exchange Commission, Investment Trust Study, indicating that the purpose of Commission rules to be promulgated under Section 17(d) (originally drafted as Section 17(a)(4)) is to "insure fair dealing and no overreaching")).
9	See, e.g., In the Matter of Daily Money Fund, et al., Investment Company Act Release Nos. 19594 (Notice) (July 26, 1993) and 19647 (Order) (Aug. 23, 1993); and In the Matter of Fidelity Fund, Inc., et al., Investment Company Act Release Nos. 11962 (Notice) (Sept. 29, 1981) and 12061 (Order) (Nov. 27, 1981). Under Rule 17d-1, the Commission may grant orders based on representations and conditions that are designed to ensure that any registered investment company that is party to a joint transaction participates on a basis consistent with the provisions, policies and purposes of the Investment Company Act and no different from or less advantageous than that of any other participant.
10	Participants include private and other non-fund accounts that are advised or subadvised by the same investment adviser, or an entity controlling, controlled by, or under common control with, the investment adviser.
11	See, e.g., In the Matter of Pioneer America Income Trust, et al., Investment Company Act Release Nos. 24583 (Notice) (July 27, 2000) and 24604 (Order) (Aug. 22, 2000); In the Matter of UAM Funds, Inc., et al., Investment Company Act Release Nos. 24477 (Notice) (May 25, 2000) and 24504 (Order) (June 20, 2000); In the Matter of BISYS Fund Services Limited Partnership, et al., Investment Company Act Release Nos. 24449 (Notice) (May 9, 2000) and 24488 (Order) (June 6, 2000); and In the Matter of Marshall Funds, Inc., et al., Investment Company Act Release Nos. 24404 (Notice) (Apr. 25, 2000) and 24458 (May 18, 2000).
12	We note that such a fidelity bond generally would not cover the employees of third-party service providers to a fund.
13	See Signature Financial Group (pub. avail. Dec. 28, 1999) and Investment Company Institute (pub. avail. May 14, 1998).
14	We believe that the affiliated persons of Funds (other than affiliated securities lending agents) that have received exemptive orders under Rule 17d-1 permitting the use of joint accounts for the investment of cash balances, including cash collateral from securities lending activities, may rely on this letter. Alternatively, those persons may continue to rely on their Rule 17d-1 exemptive orders. In our view, such affiliated persons of Funds that wish to implement joint accounts as described in this letter need not seek exemptive orders from the Commission covering the joint accounts.
15	We note that this letter does not express any views with respect to the operation of securities lending arrangements. This letter expresses our views only with respect to the investment of cash balances through one or more joint accounts.

Incoming Letter:

Baker & McKenzie
805 Third Avenue
New York, New York 10019

July 23, 2001

Douglas J. Scheidt, Esq.     1940 Act/17(d)
Chief Counsel
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Dear Mr. Scheidt:

On behalf of The Chase Manhattan Bank ("Chase")¹ and any registered management investment company or series thereof that may participate from time to time as a lender (a "Fund") in the securities lending program administered by Chase (the "Program"), we are writing to request assurance that the staff (the "Staff") of the Securities and Exchange Commission ("Commission") would not recommend enforcement action to the Commission under Section 17(d) of the Investment Company Act of 1940 (the "Investment Company Act") and Rule 17d-1 thereunder if the cash collateral ("Cash Collateral") that a Fund, and certain of their affiliated persons, receive in connection with their participation in the Program is invested in certain Short-Term Investments (as defined below) through one or more joint accounts ("Joint Accounts").

Background

Chase is a custodian bank for many mutual funds. Securities lending has become a technique used with increasing frequency by mutual funds to earn additional income on their investment portfolios and enhance investment return or reduce fund expenses. Pursuant to the Program, Chase matches prospective borrowers of securities (e.g., a broker-dealer) with prospective lenders of securities, such as a Fund. Chase, serving as the agent for the lenders, delivers a specific quantity of securities to a borrower in exchange for Cash Collateral.² The securities to be lent are delivered contemporaneously with the transfer of the Cash Collateral, with the Cash Collateral then allocated by Chase on its books and records among the separate accounts of each Fund that participated in the loan.

Chase negotiates a "rebate" with the borrower of the securities in exchange for the lender's use of the Cash Collateral. Chase invests the Cash Collateral into agreed investments, subject to guidelines established by the investment adviser to the Fund. Net income earned on invested Cash Collateral (after deduction of the rebate) is divided between Chase and the Fund in a pre-agreed proportion.

The separate purchase and administration of investments by Chase on behalf of each Fund results in certain inefficiencies, reduces returns that a Fund could otherwise achieve, limits diversification and increases transaction costs. Accordingly, under the Program, Chase and its Fund custody clients propose to deposit into one or more Joint Accounts the Cash Collateral received for the account of Funds and other lenders ("Participants") that are advised or subadvised by the same investment adviser, or by an entity controlling, controlled by or under common control with the investment adviser ("Advisers"). Chase would invest the Cash Collateral deposited in the Joint Accounts in Short-Term Investments selected by Chase in conformity with Investment Guidelines (again, as defined below) established by the Participants (with the advice of their Advisers).³ The primary purpose of these Joint Accounts would be to facilitate the "bulk purchase" of money market investments on behalf of the various affiliated Funds and to achieve greater administrative efficiencies in the management of such investments once purchased.

Generally, to the extent that the use of Joint Accounts will facilitate bulk purchase practices, Participants may earn a higher rate of return on investments through the Joint Accounts than the return they could earn individually. Under most market conditions, it is possible to negotiate a higher rate of return on larger quantities of money market investments (such as repurchase agreements) than the rate available for smaller transactions. By increasing the transaction size, use of the Joint Accounts also may increase the number of dealers and issuers willing to enter into money market investments with Participants. In addition, an ability to earn a higher rate of return upon investment of Cash Collateral may make it feasible for Chase to engage in more securities lending transactions on behalf of Participants while continuing to maintain a profitable spread between the rebate owed to the borrower of the securities and the income earned on the Cash Collateral.

Description of the Program and Joint Accounts for Cash Collateral

Aside from its aggregation of Cash Collateral for investment through use of the Joint Accounts and the administration of the Joint Accounts in the manner described below, the Program would operate similarly to the manner in which Chase currently conducts securities lending programs on behalf of its clients. Chase would enter into a securities lending agreement (a "Lending Agreement") with each Fund authorizing Chase to make loans of the Fund's securities pursuant to a master borrowing agreement (a "Borrowing Agreement") with each entity designated by the Fund as eligible to borrow securities from its portfolio (a "Borrower"). Chase would maintain a list of Borrowers that it believes to be creditworthy and that are eligible to participate in the Program; however, each Fund, acting with the advice of its Adviser, would be responsible for independently evaluating and monitoring the creditworthiness of each Borrower it selected from Chase's pre-approved list and would have the right to add Borrowers to the list, subject to Chase's approval, as well as to exclude certain Borrowers.⁴

Chase would invest Cash Collateral received in the Program on behalf of affiliated Participants in: (i) repurchase agreements that are "collateralized fully" as defined in Rule 2a-7 under the Investment Company Act, (ii) interest bearing or discounted commercial paper, including U.S. dollar denominated commercial paper of foreign issuers, and (iii) any other short-term money market instruments that constitute "Eligible Securities" (as defined in Rule 2a-7 under the Investment Company Act)(collectively, "Short-Term Investments").⁵ All purchases and sales of Short-Term Investments by Chase on behalf of the Participants would comply with investment guidelines that are set by each Participant and its Adviser ("Investment Guidelines"). The Investment Guidelines would identify the particular types of Short-Term Investments in which Cash Collateral could be invested and the maximum and minimum amounts of cash or percentages of a Participant's Cash Collateral that could be invested in each authorized Short-Term Investment.⁶ Chase, in its role as securities lending agent, generally would not sell Short-Term Investments prior to maturity without receiving pre-approval from a Participant's Adviser. The Lending Agreements would authorize Chase to deposit Cash Collateral received by each Participant into one or more Joint Accounts with other Participants. While the guidelines would vary from one Joint Account to another, the Investment Guidelines adopted by all Participants participating in a particular Joint Account would be required to be the same with respect to that Joint Account.

The Adviser to each Fund participating in a Joint Account would have sole responsibility for determining whether a Fund could participate in that Joint Account, subject to standards and procedures that would be established by the board of directors or trustees of the applicable Fund. These Advisers would be responsible for overseeing Chase's administration of the Joint Accounts, including the accounting and control procedures, and insuring the fair treatment of the Participants. Funds would invest through Joint Accounts only to the extent that, regardless of the availability of the Joint Accounts, those Funds desired to invest in Short-Term Investments that were consistent with their respective investment objectives, policies and restrictions. A Fund's decisions to use a Joint Account would be based on the same factors as its decisions to make any other Short-Term Investment.

In designating permissible investments for a Fund with respect to the Joint Accounts, each Adviser would be obligated to take into account each affiliated Fund's investment objectives, policies and restrictions, the need for diversification and the time that cash becomes available for investment.

The Lending Agreements and the Borrowing Agreements would establish, with respect to each transaction, the initial and ongoing collateralization requirements, the types of collateral that would be accepted and the manner in which the rebate would be established and paid. The Lending Agreements would fix the proportions of the income available after the deduction of the rebate that would be, respectively, retained by the Participants and paid to Chase. The Lending Agreements also would authorize Chase to negotiate the rebate for each transaction.

Chase would manage investments in the Joint Accounts subject to the applicable Investment Guidelines established by the Participants in essentially the same manner as if it had invested in such instruments on an individual basis for each Participant. In addition, all purchases through the Joint Accounts would be designed to comply with current Staff positions relating to the investment of cash collateral in connection with securities lending activities of investment companies, and would be expected to be adapted to future Staff positions as well. ⁷

No Participant would be in a less favorable position as a result of participating in the Joint Accounts, nor would its investment in a Joint Account be subject to the claims of any other lender, fund or creditors, whether brought in bankruptcy, insolvency or other legal proceeding. Each Participant's exposure on any Short-Term Investment would be limited to its interest in such investment; no Participant would be jointly liable for the investments of any other Participant.

In addition to the other benefits noted above (including decreased transaction costs), the Joint Accounts could result in certain administrative efficiencies, such as a reduction of the potential for errors by reducing the number of trade tickets and cash wires that would have to be processed by the counterparties to the transactions and the affiliated Funds' custodian and administrators.

Legal Analysis

Section 17(d) and Rule 17d-1 thereunder have been interpreted to prohibit an affiliated person of a registered investment company, or an affiliated person of such an affiliated person, from participating in any joint enterprise or arrangement in which such investment company is a participant without a Commission exemptive order. As noted in footnote 3 above, each Fund within a fund complex could be deemed an affiliated person of each other Fund in that complex if the common Adviser to that complex were deemed to control such Funds, as well as with other Participants advised by the same Adviser if that Adviser were deemed to control the Participant in question.

The Commission has granted a number of exemptive orders allowing the joint investment of Cash Collateral and other cash balances on behalf of registered investment companies by either a common investment adviser or an affiliated common custodian under circumstances analogous to those described here.⁸ Exemptive relief has been thought to provide the appropriate mechanism to permit such arrangements because it can be argued that each affiliated Fund, by participating in the proposed Joint Accounts, and the Adviser for each affiliated Fund, by managing the proposed Joint Accounts, could be deemed to be joint participants in a transaction within the meaning of Section 17(d) of the Investment Company Act. In addition, the proposed Joint Accounts might be deemed to be joint arrangements within the meaning of Rule 17d-1.

We believe, however, that investment of Cash Collateral through Joint Accounts either (i) should not be regarded as joint participation or joint arrangements at all or (ii), if the Staff will not agree to such a characterization, the lack of potential abuse presented by such arrangements should, in accordance with precedent, nonetheless support no-action relief.

The Commission has acknowledged that there is considerable uncertainty about the scope of Section 17(d) and Rule 17d-1.⁹ We believe that the Joint Account arrangements described here would present a situation that is comparable to the arrangements with respect to which the Staff has granted no-action relief to SMC Capital, Inc. (pub. avail. Sept. 5, 1995)("SMC")(with respect to allocation of joint purchases and sales in the case of publicly traded securities) and Massachusetts Mutual Life Insurance Company (pub. avail. June 7, 2000) ("MassMutual") (same, with respect to privately traded securities where the only element for negotiation related to price), the T. Rowe Price Funds (publicly available July 31, 1995)("T. Rowe Price") (with respect to the shared payment of commitment fees in connection with affiliated funds' entry into bank credit facilities for the purpose of providing short-term liquidity) and Alliance Capital Management, L.P. (publicly available April 25, 1997)("Alliance") (same). As in SMC, MassMutual, T. Rowe Price and Alliance, the purpose of the Joint Account arrangement would not be to gain a profit through a joint investment of registered investment companies' resources, but rather to facilitate the affiliated Funds' separate and individual investment of Cash Collateral for their own benefit in as efficient and profitable a manner as possible. As the Staff stated in SMC:

Some element of combination or profit motive must generally be present for section 17(d) and rule 17d-1 to apply . . .

We agree that the mere aggregation of orders for advisory clients, including a registered investment company, would not violate section 17(d), provided that the investment company participates on terms not less advantageous than those of any other participant. If a portfolio manager allocates trades in such a way as to disadvantage a registered investment company, however, a joint enterprise or arrangement raising the concerns section 17(d) was designed to address may result.

Similarly, we believe that no joint enterprise should be considered to exist when each Fund participating in a Joint Account takes part in the investment of Cash Collateral on terms no less advantageous than any other participant. The remainder of this letter recites conditions designed to implement such principles, upon the basis of which Chase seeks no-action relief.

Conditions

The conditions described below are derived from various Commission exemptive orders that have permitted the establishment of Joint Accounts among affiliated funds to be used for short-term investments.¹⁰ Although a number of these conditions relate to actions to be taken by or on behalf of the Funds that Chase would not be in a position to control, Chase would obtain acknowledgments from the Funds of their obligation to comply with the conditions as a prerequisite to the Funds' participation in the Program.

1. One or more Joint Accounts would be established at Chase on behalf of the Participants as separate accounts into which a Participant could deposit daily all, or a portion of, its cash balances. The Joint Accounts would be subject to the Participants' custody agreements and would not be distinguishable from any other accounts maintained by the Participants at Chase except that monies from the Participants would be deposited in the Joint Accounts on a commingled basis. The Joint Accounts would not have separate existences and would not be separate legal entities. The sole function of the Joint Accounts would be to provide a convenient way of aggregating individual transactions, which would otherwise require separate daily management of the cash balances.

2. Assets in the Joint Accounts would be invested in Short-Term Investments, as directed by the Participants' Advisers (or, in the case of Cash Collateral, by Chase, in its role as securities lending agent, in instruments pre-approved by the Participants' Advisers). Uninvested cash other than Cash Collateral in a Joint Account would be invested in Short-Term Investments that were repurchase agreements that had a remaining maturity of 60 days or less, and other Short-Term Investments that had a remaining maturity of 90 days or less, each as calculated in accordance with Rule 2a-7 under the Investment Company Act. Cash Collateral in a Joint Account would be invested in Short-Term Investments that had a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the Investment Company Act. No Participant would be permitted to invest in a Joint Account unless the Short-Term Investments in the Joint Account would comply with the investment policies and restrictions of that Participant.

3. All of the assets that are held by the Joint Accounts would be valued on an amortized cost basis to the extent permitted by applicable Commission or Staff releases, rules, letters or orders.

4. Each Fund that valued its net assets in reliance on Rule 2a-7 under the Investment Company Act would use the average maturity of the instruments in a Joint Account (determined on a dollar-weighted basis) for the purpose of computing the Fund's average portfolio maturity with respect to its portion of the assets that were held in that Joint Account on that day.

5. To prevent any Participant from using any part of a balance of a Joint Account that was credited to another Participant, no Participant would be allowed to create a negative balance in any Joint Account for any reason, although each Participant would be permitted to draw down its entire balance at any time provided that the Participant's Adviser determined that such draw-down would have no significant adverse impact on any other Participant participating in that Joint Account. Each Participant's decision to invest through the Joint Accounts would be solely at its option, and no Participant would be obligated to invest in a Joint Account or maintain a minimum balance in a Joint Account. In addition, each Participant would retain the sole rights of ownership to any of its assets invested in a Joint Account, including interest payable on such assets that were invested in the Joint Accounts.

6. A Fund's Adviser would administer the investment of assets in, and the operation of, the Joint Accounts as part of its general duties under its advisory or sub-advisory agreements with the Fund, and the Adviser would not collect any additional or separate fees for administering any Joint Account.

7. The administration of the Joint Accounts would be within the fidelity bond coverage required by Section 17(g) of the Investment Company Act and Rule 17g-1 thereunder.¹¹

8. Each Fund's board of trustees or directors ("Board") would adopt procedures for each of the Funds pursuant to which the Joint Accounts would operate that would be reasonably designed to provide that the requirements of the Staff's response to this no-action request and subsequent Commission or Staff positions would be met. Each Board would make and approve such changes as it deemed necessary to ensure that such procedures were followed. In addition, the Board of each Fund would determine, no less frequently than annually, that the Joint Accounts have been operated in accordance with the adopted procedures, and would permit a Fund to continue to participate therein only if the Board determined that there was a reasonable likelihood that the Fund and its shareholders would benefit from the Fund's continued participation.

9. Each Participant would participate in a Joint Account on the same basis as any other Participant in the Joint Account in conformity with the Participants' fundamental investment objectives, policies and restrictions.

10. Any Short-Term Investments that were made through a Joint Account would satisfy the investment criteria of all the Participants participating in that Short-Term Investment.

11. Each Participant's investment in a Joint Account would be documented daily on its books and on Chase's books. Chase, each Participant and each Participant's Adviser would maintain records documenting, for any given day, the Participant's aggregate investment in a Joint Account and the Participant's pro rata share of each Short-Term Investment made through such Joint Account. The records maintained for each Participant would be maintained in conformity with Section 31 of the Investment Company Act and the rules and regulations promulgated thereunder. Any Participant that was not a Fund, and any Adviser not registered under the Investment Advisers Act of 1940 that advised a Participant that was not a Fund, would make available to the Commission, upon request, such books and records with respect to such Participants' participation in the Joint Accounts.

12. A Participant in a Joint Account would not necessarily have its cash invested in every Short-Term Investment that was made though that Joint Account. To the extent that a Participant's Cash Collateral was applied to a particular Short-Term Investment, however, that Participant would participate in and own its proportional share of such Short-Term Investment, and any income earned or accrued thereon, based upon the percentage of the Short-Term Investment that was purchased with monies that were contributed by the Participant.

13. Short-Term Investments that were held in a Joint Account generally would not be sold prior to maturity except if: (i) a Participant's Adviser believed that the investment no longer presented minimal credit risks; (ii) the investment no longer satisfied the investment criteria of all the Participants participating in the investment because of a credit downgrading or otherwise; or (iii) in the case of a repurchase agreement, the counterparty defaulted. The Adviser or Chase, in its role as securities lending agent, could sell any Short-Term Investment (or fractional portion thereof), however, on behalf of some of or all Participants prior to the maturity of the Investment provided that the cost of such transaction would be allocated solely to the selling Participants and the transaction would not adversely affect the other Participants participating in that Joint Account. In no case would a sale prior to maturity by less than all the Participants be permitted if the sale would reduce the principal amount or yield that was received by the other Participants in the Joint Account, or otherwise would adversely affect the other Participants. Each Participant in a Joint Account would be deemed to have consented to the sale and partition of the investments in the Joint Account.

14. Short-Term Investments that were held through a Joint Account with remaining maturities of more than seven days, as calculated pursuant to Rule 2a-7 under the Investment Company Act, would be considered to be illiquid and subject to the restriction that a Fund may not invest more than 15% or, in the case of a money market fund, more than 10% (or, in either case, such other percentage as may be set forth by the Commission from time to time) of its net assets in illiquid securities, and any similar restrictions set forth in the Fund's investment restrictions and policies, if the Adviser or Chase could not sell the instrument, or the Fund's fractional interest in such instrument, pursuant to the preceding condition.

16. If Chase were not the regular custodian for a Participant and that Participant wished to participate in a Joint Account, the Participant would be required to appoint Chase as a sub-custodian for the limited purposes of: (i) receiving and disbursing Cash Collateral; (ii) holding any Short-Term Investments; and (iii) holding any Cash Collateral received from a transaction that was effected through a Joint Account. A Participant that so appointed Chase would take all necessary action to authorize Chase as its legal custodian, including any actions that were required under the Investment Company Act.

Chase represents that it would operate the Joint Accounts in accordance with these conditions and the other representations set forth in this letter. We believe that operating the Joint Accounts in this manner would satisfy the concerns that Section 17(d) and Rule 17d-1 were designed to address. Accordingly, Chase requests that the Staff advise us that it would not recommend action to the Commission if Chase implemented the Program in the manner described without obtaining an exemptive order from the Commission.

Please call me (212-891-3554) if you have any questions concerning the matters described above.

Very truly yours,

Edwin C. Laurenson

Footnotes

1	We note that Chase anticipates that it will merge with Morgan Guaranty Trust Company of New York in the Fall.
2	Borrowers from Chase's securities lending clients periodically provide other kinds of permissible collateral for securities loans, such as short-term debt securities and bank letters of credit. However, the relief requested by this letter relates exclusively to Cash Collateral.
3	Chase itself will not be an affiliated person (as defined in Section 2(a)(3) of the Investment Company Act) of any Fund that participates in a Joint Account. Participants could be deemed to be affiliated with each other under Section 2(a)(3)(C) of the Investment Company Act to the extent that they are deemed to be under the common control of their Adviser. In addition, an Adviser is affiliated with the Participants for which it serves as investment adviser(s) by virtue of Section 2(a)(3)(D) of the Investment Company Act.
4	There may be more than one lender participating in a loan to a single borrower. When more than one lender participates in a loan to a single Borrower, each lender is responsible for paying its pro rata portion of the applicable rebate.
5	Any such repurchase agreements would comply with the terms of Investment Company Act Release No. 13005 (Feb. 2, 1983) and with current and future positions of the Commission or the Staff that relate to repurchase agreements. In the event that the Commission or the Staff sets forth positions with respect to other Short-Term Investment made through the Joint Accounts, Chase intends that the Short-Term Investments would comply with those positions. Chase also intends that the Joint Accounts would enter into overnight "hold-in-custody" repurchase agreement in which the counterparty or one of its affiliated persons may have possession of, or control over, the collateral subject to the repurchase agreement only when cash is received late in the business day and otherwise would be unavailable for investment.
6	Because Chase would invest the Cash Collateral of the Participants only in Short-Term Investments that have been pre-approved by the Participants and the Advisers and generally would not sell Short-Term Investments prior to maturity without receiving pre-approval from the Participant's Advisers, we believe that Chase's proposal to invest the Cash collateral of the Participants that are Funds does not raise issues under Section 15 of the Investment Company Act. See Norwest Bank Minnesota, N.A. and Society National Bank (both pub. avail. May 25, 1995) and Salomon Brothers and State Street Bank & Trust Co. (both pub. avail. Sept. 29, 1972).
7	The Program complies, and Chase agrees that it will comply, with all applicable Staff positions regarding securities lending arrangements, such as those governing the type and amount of collateral, the voting of loaned securities and prospectus disclosure. See SIFE Trust Fund (pub. avail. Feb. 17, 1982) and State Street Bank & Trust Co. (pub. avail. Jan. 29, 1972). In the case of prospectus disclosure, Chase would implement its commitment by obtaining certifications to such effect from the Funds or their Advisers.
8	See, for example, In the Matter of Pioneer America Income Trust, et al., Investment Company Act Release Nos. 24583 (Notice) (July 27, 2000) and 24604 (Order) (Aug. 22, 2000); In the Matter of UAM Funds, Inc., et al., Investment Company Act Release Nos. 24477 (Notice) (May 25, 2000) and 24504 (Order) (June 20, 2000); In the Matter of BISYS Fund Services Limited Partnership, et al., Investment Company Act Release Nos. 24449 (Notice) (May 9, 2000) and 24488 (Order) (June 6, 2000); and In the Matter of Marshall Funds, Inc., et al., Investment Company Act Release Nos. 24404 (Notice) (Apr. 25, 2000) and 24458 (May 18, 2000).
9	See Protecting Investors: A Half Century of Investment Company Regulation, prepared by the Commission's Division of Investment Management, at 479 (citing Steadman Sec. Corp., Inv. Co. Act Rel. No. 9830 (June 29, 1977)).
10	See the orders cited above in note 8.
11	Neither Chase nor its employees would be covered by such a required fidelity bond issued to a Fund or its Adviser.

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