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SBM Certificate Company; Notice of Application

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Start Preamble June 11, 2002.


Securities and Exchange Commission (“Commission”).


Notice of application under section 28(c) of the Investment Company Act of 1940 (the “Act”).

Summary of Application:

Applicant seeks an order pursuant to section 28(c) of the Act approving certain proposed custodial arrangements.

Applicant: SBM Certificate Company (“SBM”).

Filing Dates:

The application was filed on December 7, 2000, and amended on May 23, 2002 and June 7, 2002.

Hearing or Notification of Hearing: An order granting the requested relief 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 8, 2002, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission's Secretary.


Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Applicant, 5101 River Road, Suite 101, Bethesda, Maryland, 20816.

Start Further Info


Julia Kim Gilmer, Senior Counsel, at (202) 942-0528, or Janet M. Grossnickle, Branch Chief, at (202) 942-0564 (Division of Investment Management, Start Printed Page 41284Office of Investment Company Regulation).

End Further Info End Preamble Start Supplemental Information


The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants Representations

1. Applicant, a Maryland corporation, is a face-amount certificate company registered under the Act. Applicant currently intends to offer four face-amount certificates (“Certificates”) registered under the Securities Act of 1933. In the future, applicant may offer additional Certificates. The Certificates are fixed income securities that entitle the holder to receive, at maturity, the face amount of the Certificate and interest credited thereon, less withdrawals and applicable fees and charges. To meet its payment obligations, applicant is required to maintain a minimum amount of reserves in “qualified investments” as defined in section 28(b) of the Act (“Reserves”).

2. Applicant proposes to enter into custodial arrangements with regard to its Reserves with one or more banks that meet certain requirements (“Custodians”). Applicant seeks an order approving the proposed form of custody agreement (“Agreement”) to be entered into by applicant with each Custodian. Under the requested order, applicant would be able to select and change Custodians in its discretion.

3. Each Custodian will maintain the Reserves to ensure that applicant meets its payment obligations under the terms and conditions of any outstanding Certificate. If applicant were to default on any obligation under a Certificate, each Custodian would be authorized to cure the default by liquidating so much of the Reserves held by it as necessary to discharge the obligation. In addition, each Custodian will perform the duties and functions typically performed by a custodian, such as securities registration and delivery, income collection, periodic reporting, and other safekeeping and processing functions.

Applicants Legal Analysis

1. Section 28(c) of the Act requires a registered face-amount certificate company to maintain the Reserves with a custodian that meets the requirements of section 26(a)(1) of the Act and in accordance with such terms and conditions as the Commission shall prescribe and as appropriate for the protection of investors. Under section 26(a)(1), a custodian generally must be a bank that has at all times an aggregate capital, surplus, and undivided profits of a specified minimum amount which may not be less than $500,000.

2. Applicant requests an order under section 28(c) of the Act approving the Agreement. Applicant states that the Agreement contains provisions to maintain and safeguard the Reserves, including provisions governing (i) the holding, segregation, registration, depositing, and delivery of securities, (ii) the payment of monies and maintenance of bank accounts, and (iii) the management of real estate and real estate related investments, as well as establishing procedures to cure any defaults by applicant on its obligations under the Certificates and procedures for periodic reporting and inspection of the assets.[1] Applicant represents that it will seek an amended order from the Commission for any material changes in the substantive provisions of the Agreement.

3. Applicant states that it may seek to terminate Custodians and employ new Custodians for many reasons, including: (i) The availability of superior or specialized services through other Custodians; (ii) dissatisfaction with the quality of a Custodian's services; (iii) fee increases or the availability of comparable services from other Custodians at more competitive rates; (iv) changes in a Custodian's management, location, financial condition, or methods of operation; (v) regulatory developments or actions affecting the ability or qualification of a Custodian to serve as such; or (vi) a determination by a Custodian to cease offering its services.

4. Applicant will only enter into an Agreement approved by its board of directors (“Board”), including a majority of directors who are not interested persons within the meaning of Section 2(a)(19) of the Act (“Disinterested Directors”). In addition, the continuance of any Agreement would be subject to annual review by the Board, including a majority of the Disinterested Directors, to determine whether the quality of services provided by the Custodian remains satisfactory and the fees are reasonably competitive. Applicant submits, for all the reasons stated above, that its request is consistent with the protection of investors.

Start Signature

For the Commission, by the Division of Investment Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

End Signature End Supplemental Information


1.  Applicant states it will comply with rule 17f-4 under the Act as if it were a registered management investment company to the extent an Agreement permits a Custodian to maintain any portion of the Reserves in a securities depository.

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[FR Doc. 02-15177 Filed 6-14-02; 8:45 am]