Here is something that I randomly pulled from American Century Investments family of funds. In this excerpt they are attempting to loosen restrictions on their current policy of the lending of securities. It appears that the fees they collect are in the form of 'interest' on 'loans'. ( Do you ever remember a fund family paying you 'interest' on your shares.
Good reading...
CHANGE #4 TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING LENDING (ALL FUNDS)
The Funds' current fundamental investment limitations concerning lending states
generally that a Fund shall not lend its portfolio securities except to
unaffiliated persons, and is subject to the rules and regulations adopted under
the Investment Company Act. No such rules and regulations have been promulgated,
but it is the Fund's current policy that such loans must be secured continuously
by cash collateral maintained on a current basis in an amount at least equal to
the market value of the securities loaned, or by irrevocable letters of credit.
During the existence of the loan, the Fund must continue to receive the
equivalent of the interest and dividends paid by the issuer on the securities
loaned and interest on the investment of the collateral; the Fund must have the
right to call the loan and obtain the securities loaned at any time on five
days' notice, including the right to call the loan to enable the Fund to vote
the securities. To comply with the requirements of certain state securities
administrators, such loans may not exceed one-third of the corporation's net
assets taken at market. It is also the current policy of the Funds not to permit
interest on loaned securities of any Fund to exceed 10% of the annual gross
income of that Fund (without offset for realized capital gains).
It is proposed that shareholders approve the replacement of the foregoing
investment limitations with the following amended fundamental limitation
concerning lending (which, if approved, could not be changed without a
shareholder vote):
"The Fund may not lend any security or make any other loan if, as a result,
more than 331/3% of the Fund's total assets would be lent to other parties,
except, (i) through the purchase of debt securities in accordance with its
investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities."
The proposal is not expected to materially affect the operation of the Funds.
However, the proposed limitation would clarify the Funds' ability to invest in
direct debt instruments such as loans and loan participations, which are
interests in amounts owed to another party by a company, government or other
borrower. These types of securities may have additional risks beyond
conventional debt securities because they may provide less legal protection for
the Fund, or there may be a requirement that the Fund supply additional cash to
a borrower on demand.
Finally, the adoption of standardized investment limitations proposed will
advance the goals of investment limitation standardization. |
