[Federal Register Volume 61, Number 136 (Monday, July 15, 1996)]
[Notices]
[Pages 36941-36944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17931]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22056; 812-10040]
Norwest Bank Minnesota, N.A., et al.; Notice of Application
July 9, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: Norwest Bank Minnesota, N.A. (the ``Bank''), Norwest
Advantage Funds, Forum Financial Services, Inc. (``Forum''), Core Trust
(Delaware) (``Core Trust''), and Schroder Capital Management
International, Inc. (``Schroder'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) of the
Act from section 12(d)(1) of the Act, and under sections 6(c) and 17(b)
of the Act from section 17(a) of the Act.
SUMMARY OF APPLICATION: Applicants request an order that would
supersede a prior order (the ``Existing Order'') \1\ and would permit
Norwest Advantage Funds to invest any percentage of their assets in an
underlying Core Trust portfolio or in direct investments. It also would
remove certain restrictions currently imposed on the Core Trust
portfolios to permit them to accept investments from persons other than
Norwest Advantage Funds.
\1\ Norwest Bank Minnesota, N.A., et al., Investment Company Act
Release Nos. 20640 (Oct. 19, 1994) (notice) and 20697 (Nov. 10,
1994) (order).
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FILING DATE: The application was filed on March 8, 1996 and amended on
May 17, 1996, and June 27, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on August 5, 1996,
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 SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants, c/o Forum Financial Group, Two Portland Square,
Portland, Maine 04101, Attention: David I. Goldstein, Esq.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574 or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. Norwest Advantage Funds is a registered open-end series
investment company organized as a Delaware business trust.\2\ Norwest
Advantage Funds currently consists of 30 series. Five of the Norwest
Advantage Funds (the ``Blended Funds'') allocate their assets among a
combination of different investment strategies or styles (e.g., small
company stock, international stock, short-term corporate bonds). The
Blended Funds currently are offered without a sales load or redemption
fee and do not bear distribution expenses pursuant to a plan adopted
under rule 12b-1 under the Act, although applicants anticipate revising
these arrangements in the future. Other Norwest Advantage Funds offer
multiple classes of shares in reliance on rule 18f-3, including classes
subject to sales loads and distribution expenses pursuant to rule 12b-1
plans.
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\2\ At the time of the Existing Order, Norwest Advantage Funds
was known as ``Norwest Funds'' Effective October 1, 1995, Norwest
Funds changed its name to Norwest Advantage Funds.
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2. Core Trust is a registered open-end series investment company
organized as a Delaware business trust. Core Trust does not offer its
securities to the public; its securities are offered only in private
placement transactions to registered investment companies and other
institutional investors. Core Trust, however, reserves the right to
offer its shares to the public in the future. Presently, there are
seven series of Core Trust (the ``Core Trust Portfolios''). Three
series of Core Trust, Small Company Portfolio, International Portfolio
II, and Index Portfolio, operate in a manner similar to master funds in
a master-feeder arrangement, and currently offer their securities only
to the Blended Funds pursuant to the Existing Order (the ``Core
Advantage Portfolios''). Four series of Core Trust operate as master
funds in master feeder arrangements: Treasury Cash Portfolio,
Government Cash Portfolio, Cash Portfolio (collectively, the ``Money
Fund Portfolios''), and International Portfolio. The Money Fund
Portfolios (which currently are unrelated in any way to the Bank and/or
Norwest Advantage Funds) invest in money market instruments.
International Portfolio currently offers its securities only to
International fund, a series of Norwest Advantage Funds, in reliance on
section 12(d)(1)(E) of the Act. The Core Trust Portfolios may, in the
future, be offered to Funds (as defined below) relying on any order
granting this application, or to any other investor legally entitled to
purchase securities issued by the Core Trust Portfolios. Shares of the
Core Trust Portfolios that intend to rely on the requested order
presently are offered
[[Page 36942]]
without a sales load or redemption fee and do not bear distribution
expenses pursuant to a rule 12b-1 plan.
3. The Bank is a wholly-owned subsidiary of Norwest Corporation.
The Bank is the investment adviser to each Norwest Advantage Fund and
two Core Advantage Portfolios. Schroder, a registered investment
adviser, serves as subadviser to International fund and, with respect
to investments in international securities, to each Blended Fund.
Schroder also serves as investment adviser to International Portfolio
and International Portfolio II of Core Trust. Forum, a registered
broker-dealer and investment adviser, provides distribution,
management, and related services to the Norwest Advantage Funds and
Core Trust. Applicants request that any relief granted pursuant to this
application also apply to (a) any registered open-end investment
company or series thereof for which the Bank, Schroder, Forum, or any
entity that controls, is controlled by, or is under common control with
the Bank, Schroder, or Forum serves as investment adviser,
administrator (as that term is defined in item 5 of Form N-1A),
principal underwriter, or placement agent (together with Norwest
Advantage Funds, the ``Funds'') that in the future determines to invest
its assets in another registered open-end investment company that is
part of the same ``group of investment companies,'' (together with Core
Trust, the ``Portfolios'') \3\ and (b) to any such Portfolio.\4\
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\3\ The Money Fund Portfolios currently offer their securities
to three series of Monarch Funds, and currently intend to offer
their securities to at least two series of forum Funds in reliance
on section 12(d)(1)(E) of the act. Both Monarch Funds and forum
Funds are registered open-end management investment companies whose
securities are distributed by Forum. Neither Monarch Funds nor forum
Funds currently intends to invest in Portfolios in reliance on this
order, but may do so in the future.
\4\ For purposes of this application, ``group of investment
companies'' has the same meaning as that term is assigned in rule
11a-3(a)(5) under the Act, modified to the extent that an investment
company that does not offer its shares to the public has a placement
agent rather than a principal underwriter.
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4. The Existing Order allows each Blended Fund to invest a portion
of its assets, within a specified range, in the outstanding voting
shares of the three Core Advantage Portfolios, and imposes several
restrictions on the operation of the Blended Funds and Core Advantage
Portfolios. For example, the Existing Order applies only to investments
in the three Core Advantage Portfolios. A Blended Fund that allocates
part of its assets to a different investment style must invest in
portfolio securities directly, without the benefits of pooled
investment. Each Core Advantage Portfolio is barred from offering
securities to persons other than Blended Funds relying on the Existing
Order, including feeder funds relying on section 12(d)(1)(E) of the
Act. Moreover, each Blended Fund must allocate a ``base percentage'' of
its assets to each of the three Core Advantage Portfolios in which it
invests, and may deviate from these base allocations only within
specified ranges. Applicants contend that the Existing Order is
outdated and that the proposed revisions constitute a cost-effective
response to investor demand for diversification of fund portfolios.
5. Applicants request an exemption under section 6(c) of the Act
from section 12(d)(1) of the Act, and under sections 6(c) and 17(b) of
the Act from section 17(a) of the Act. The requested order would
supersede the Existing Order and would permit the Funds to invest any
percentage of their assets in underlying Portfolios or in direct
investments to the extent consistent with their investment policies and
registration statements. It also would remove certain restrictions
currently imposed on the Core Trust portfolios to permit the Portfolios
to accept investments from persons other than the Norwest Advantage
Funds.
6. The funds will not invest in any Portfolio unless the Portfolio
may not acquire securities of any other investment company in excess of
the limits contained in section 12(d)(1)(A), except for securities
received as a dividend or as a result of a plan of reorganization of
any company. The exception for securities received as a dividend or as
a result of a plan of reorganization is based on section
12(d)(1)(D).\5\ No Portfolio will participate in any plan or
reorganization devised for the purpose of evading the provisions of
section 12(d)(1)(A). Applicants assert that the legislative history of
section 12(d)(1)(D) indicates that the enumerated exceptions are
warranted because they do not involve any new commitment on the part of
the acquiring investment company, and consequently do not present the
abuses section 12(d)(1)(A) was intended to address.
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\5\ Section 12(d)(1)(D) permits an investment company to exceed
the limits contained in section 12(d)(1)(A) in the event that the
investment company exceeds the limits because it acquires investment
company shares as a dividend, as a result of an offer of exchange,
or pursuant to a plan of reorganization (other than a plan devised
for the purpose of evading section 12(d)(1)(A)).
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Applicants' Legal Analysis
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)
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.
2. Section 6(c) provides that the SEC may exempt persons or
transactions if, and to the extent that, such exemption is necessary or
appropriate in the pubic interest and consistent with the protection of
investors and the purposes fairly intended by the policy and provisions
of the Act. Applicants request an order under section 6(c) exempting
them from sections 12(d)(1) (A) and (B) to permit the Funds to invest
in shares of the Portfolios in excess of the percentage limitations of
section 12(d)(1).
3. Applicants believe that the proposed investment structure will
not be subject to any of the abuses that section 12(d)(1) was intended
to prevent. One of the concerns that led to the enactment of section
12(d)(1) was the layering of fees. Applicants assert that fees charged
to the Funds and Portfolios in which they invest will not be
duplicative. Any advisory fees that are charged to a Fund would be
subject to the approval of the Fund's director or trustees who are not
``interested persons,'' as defined in section 2(a)(19) of the Act
(``Independent Trustees''). This approval process is designed to ensure
that any advisory fee that may be borne by any Fund would be for
services that augment, rather than duplicate, those services provided
to the Portfolios. If the requested relief is granted, applicants
expect to seek shareholder approval to the extent required by section
15 of the Act to reorganize the fee structure of the Blended Funds and
the Portfolios such that advisory fees would be charged only at the
Portfolio level. If shareholder approval is obtained, advisory fees
then would be assessed at the Fund level only for (a) services related
to the direct investment activities undertaken by the
[[Page 36943]]
Funds, and (b) any non-duplicative services rendered only at the Fund
level. Any advisory fee charged at the Fund level would compensate the
adviser for services (e.g., asset allocation) that were unique to the
Fund and that would not be provided at the Portfolio level.
4. Applicants assert that granting the requested relief would not
present any danger of duplicative or excessive sales loads. Applicants
intend that sales charges will continue to be incurred only at the Fund
level. Applicants have, however, reserved the right to have different
sales load structures in the future, which may include the payment of
sales charges or service fees at both the Portfolio and Fund levels. If
a Fund determines to invest in shares of a Portfolio that also bears a
sales charge or service fee, it will do so only in conformity with the
National Association of Securities Dealers' (``NASD'') restrictions on
aggregated sales charges and service fees. The funds would pay no sales
charges on account of their investments in the Portfolios unless such
charges had been reviewed and approved by the Fund's Independent
Trustees.
5. Applicants assert that the requested relief would not lead to
undue control or the threat of large-scale redemptions. Applicants
contend that the excessive from the threat of redemptions and the
concomitant loss of advisory fees does no apply in the context of funds
of funds, all of which belong to the same group of investment
companies. Because of the relationship among the investment advisers
and/or principal underwriters/placement agents for a Fund and the
Portfolio in which it invests, the threat of redemption as a means of
exercising control is remote.
6. Section 17(a) makes it unlawful for an affiliated person of a
registered investment company, or an affiliated person of such person,
to sell securities to, or purchase securities from, the company.
Because Norwest Advantage Funds and the index Portfolio and the Small
Company Portfolio of Core Trust are each advised by the Bank, and
because six Norwest Advantage Funds and International Portfolio and
International Portfolio II are advised by or subadvised by Schroder,
Norwest Advantage Funds and Core Trust could be deemed to be affiliates
of one another. Purchases by the Norwest Advantage Funds of the shares
of the Core Trust Portfolios and the sale by the Core Trust Portfolios
of their shares to the Norwest Advantage Funds could thus be deemed to
be principal transactions between affiliated persons under section
17(a).
7. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if (a) the terms of the proposed
transaction, including the consideration paid or received, are
reasonable and fair and do not involve overreaching on the part of any
persons concerned; (b) the proposed transaction is consistent with the
policies of each registered investment company concerned; and (c) the
proposed transaction is consistent with the general purposes of the
Act. Applicants request an exemption under sections 6(c) and 17(b) to
permit the Portfolios to sell their shares to the Funds.\6\ Applicants
believe that the proposed transaction meet the standards of sections
6(c) and 17(b).
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\6\ Section 17(b) applies to a specific proposed transaction
rather than an ongoing series of future transactions. See Keystone
Custodian Funds, 21 S.E.C. 295, 298-99 (1945). Section 6(c), along
with section 17(b), frequently is used to grant relief from section
17(a) to permit an ongoing series of future transactions.
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Applicant's Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each Fund will be part of the same ``group of investment
companies'' as any Portfolio in which it invests. For purposes of this
condition, ``group of investment companies'' mean any two or more
registered open-end investment companies that hold themselves out to
investors as related companies for purposes of investment and investor
services, and (a) that have a common investment adviser or principal
underwriter/placement agent, or (b) the investment adviser or principal
underwriter/placement agent of one of the companies is an affiliated
person as defined in section 2(a)(3) of the Act of the investment
adviser or principal underwriter/placement agent of each of the other
companies.
2. A Fund will not invest in any Portfolio unless the Portfolio may
not acquire securities of any other investment company in excess of the
limits contained in section 12(d)(1)(A) of the Act, except for
securities received as a dividend or as a result of a plan of
reorganization of any company.
3. At least a majority of each Fund's directors or trustees will be
Independent Trustees, and the selection of Independent Trustees
necessary to fill any vacancies on the board of directors or trustees,
as well as the nomination of those persons to be recommended by the
board of directors or trustees in connection with any shareholder vote,
will be committed to the discretion of such Independent Trustees.
4. Prior to approving any advisory or management contract under
section 15 of the Act or promptly upon the termination of a fee waiver,
the directors or trustees of each Fund, including a majority of the
Independent Trustees, shall find that the management and advisory fees
charged under such contract, if any, are based on services that will be
in addition to, rather than duplicative of, the services provided under
the contracts of any Portfolio in which the Fund may invest; provided
that no such findings will be necessary if the Bank or other investment
adviser to a Portfolio waives all advisory fees that may be imposed for
serving as investment adviser to the Portfolio or, if only a portion of
such advisory fees are waived, the Bank or another party reimburses the
Portfolio for any advisory fee or portion thereof that is not waived.
These findings and their basis will be recorded fully in the minute
books of the Fund.
5. Any Sales Charges or Service Fees, as such terms are defined
under Section 26(b) of Article III of the NASD Rules of Fair Practice,
as may be charged with respect to securities of a Fund, when aggregated
with any such sales charges and/or service fees borne by the Fund with
respect to the shares of a Portfolio, shall not exceed the limits set
forth in section 26(d) of Article III of the NASD Rules of Fair
Practice.
6. Applicants will provide the following information in electronic
format to the Chief Financial Analyst of the SEC's Division of
Investment Management as soon as reasonably practicable following each
fiscal year-end of each Fund, unless the Chief Financial Analyst
notifies applicants that the information need no longer be submitted:
(a) monthly average total assets for each Fund and each Portfolio in
which a Fund invests; (b) monthly purchases and redemptions (other than
by exchange) for each Fund and each Portfolio in which a Fund invests;
(c) monthly exchanges into and out of each Fund and each Portfolio in
which a Fund invests; (d) month-end allocations of each Fund's assets
among the Portfolios in which it invests; (e) annual expense ratios for
each Fund and each Portfolio in which a Fund invests; and (f) a
description of any vote taken by the shareholders of any Portfolio in
which a Fund invests, including a statement of the percentage of votes
cast for and against the proposal by the Fund and by the other
shareholders of that Portfolio.
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For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-17931 Filed 7-12-96; 8:45 am]
BILLING CODE 8010-01-M