[Federal Register Volume 62, Number 129 (Monday, July 7, 1997)]
[Notices]
[Pages 36322-36325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17577]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22729; 812-10486]
Nations Fund Trust, et al.; Notice of Application
June 27, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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Applicants: Nations Fund Trust (``NFT''), Nations Fund, Inc.
(``NFI''), Nations Fund Portfolios, Inc. (``NFPI''), Nations
Institutional Reserves (``NIR''--formerly, The Capitol Mutual Funds),
each open-end management investment company or series thereunder, that
currently is, or in the future becomes, part of the same ``group of
investment companies,'' as defined in rule 11a-3 under the Act, any
other registered investment companies or series thereof that are now or
in the future advised by NationsBanc Advisors, Inc. (``NBAI'')
(collectively, ``Nations Fund Family''), and NBAI.
Relevant Act Sections: Order requested under section 12(d)(1)(J)
for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B), under
sections 6(c) and 17(b) for an exemption from section 17(a), and under
section 17(d) and rule 17d-1 thereunder permitting certain joint
transactions.
Summary of Application: Applicants request an order that would
permit certain investment companies to purchase shares of affiliated
money market funds in excess of the limits prescribed in section
12(d)(1).
Filing Dates: The application was filed on January 10, 1997, and
amended on April 15, 1997, and June 26, 1997.
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 July 22,
1997 and should be accompanied by proof of service on the 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, NW., Washington, DC 20549.
Applicants, One NationsBank Plaza, 101 South Tryon Street, Charlotte,
North Carolina 28255.
FOR FURTHER INFORMATION CONTACT:
Joseph B. McDonald, Jr., Senior Counsel, at (202) 942-0533, or
Christine Y. Greenlees, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. NFT and NIR are Massachusetts business trusts registered under
the Act as open-end management investment companies. NFI and NFPI are
Maryland corporations registered under the Act as open-end management
investment companies. The Nations Fund Family presently consists of 50
distinct investment portfolios.
2. NFT currently consists of 35 separate series or investment
portfolios, two of which hold themselves out as money market funds that
seek to maintain a constant net asset value (``NAV''), and are subject
to the requirements of rule 2a-7 under the Act, and 33 of which have
per share NAVs that fluctuate from day to day. NFI currently consists
of eight separate series or investment portfolios, two of which hold
themselves out as money market funds and six of which have fluctuating
per share NAVs. NFPI currently consists of three separate series or
investment portfolios, all of which have fluctuating per share NAVs.
NIR currently consists of four separate series or investment
portfolios, all of which hold themselves out as money market funds.
Additional series of NFT, NFI, NFPI, and NIR may be added in the
future.
3. Each existing and any future money market portfolio of NFT, NFI,
NFPI, NIR and any other investment companies advised now or in the
future by NBAI are referred to herein individually as a ``Money Market
Fund'' and collectively as the ``Money Market Funds.'' Each existing
and any future variable NAV portfolio of NFT, NFI, NFPI, and any other
investment companies advised now or in the future by NBAI are referred
to herein individually as a ``Non-Money Market Fund'' and collectively
as the ``Non-Money Market Funds.'' The Money Market Funds and the Non-
Money Market Funds are
[[Page 36323]]
referred to herein collectively as the ``Funds.'' \1\
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\1\ All investment companies advised by NBAI that currently
intend to rely on the requested order are named as applicants.
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4. NBAI is the investment adviser for each series of the Nations
Fund Family. NBAI is a wholly-owned subsidiary of NationsBank, N.A.
(``NationsBank''), which in turn is a wholly-owned indirect subsidiary
of NationsBank Corporation (``NBC''), a publicly held bank holding
company. TradeStreet Investment Associates, Inc. (``TSIA''), also a
wholly-owned subsidiary of NationsBank, serves as the investment sub-
adviser for all but one of the series of NFT, NFI, and NIR. Gartmore
Global Partners (``GGP''), a joint venture owned equally by a wholly-
owned subsidiary of NationsBank and an indirect wholly-owned subsidiary
of Gartmore Investment Management plc, a company organized under the
laws of the United Kingdom, serves as the investment subadviser to each
series of NFPI and one series of NFI. NBAI, TSIA, GGP, and any future
investment sub-adviser to any Fund are referred to herein collectively
as the ``Investment Advisers.''
5. NationsBank of Texas, N.A. (``NBT''), a wholly-owned indirect
subsidiary of NBC, serves as custodian for the assets of all but four
series of the Nations Fund Family. The Bank of New York (``BONY''),
which is not affiliated with NationsBank or its affiliates, serves as
the sub-custodian for the assets of all but four series of the Nations
Fund Family, and serves as the direct custodian for the assets of those
four series. NBT and BONY, in their respective capacities as custodian
and sub-custodian, are referred to herein collectively as the
``Custodian.'' Stephens Inc., a registered broker-dealer that is not
affiliated with NationsBank or its affiliates, serves as the Funds'
sponsor, distributor, and administrator. First Data Investor Services
Group, Inc., which is not affiliated with NationsBank or its
affiliates, serves as the co-administrator and the transfer agent for
the Funds.
6. The Non-Money Market Funds invest in a variety of debt and/or
equity securities in accordance with their respective investment
objectives and policies. The Money Market Funds seek current income,
liquidity, and capital preservation by investing exclusively in short-
term money market instruments such as U.S. Government securities, bank
obligations, commercial paper, municipal obligations, or repurchase
agreements. Each of the Funds has, or may be expected to have, Cash
Balances (as defined below) in an account at the Custodian, which
either may be invested directly in individual short-term money market
instruments, or may not otherwise be invested in any portfolio
securities.
7. Certain of the Funds may participate in a securities lending
program (the ``Securities Lending Program''), under which they may lend
portfolio securities to registered broker-dealers or other
institutional investors deemed by the respective Fund's Investment
Adviser to be of good standing (``Borrowers''). These loans may not
exceed one-third of a Fund's total assets taken at market value (or
such other percentage as may be permissible in the future under
applicable rules or SEC staff positions). The Funds have selected BONY,
which is not affiliated with NationsBank or its affiliates, as their
securities lending agent. The agreements governing such loans require
that the loans be continuously secured by collateral equal at all times
in value to at least the market value of the securities loaned.
Collateral for such loans may include cash, shares of money market
mutual funds, U.S. Government or agency securities, repurchase
agreements, or an irrevocable letter of credit issued by a bank meeting
certain qualifications. Any investment of cash collateral will comply
with all present and future applicable SEC staff positions regarding
securities lending arrangements.
8. Applicants request an order that would permit: (a) each of the
Funds to utilize its cash reserves that have not been invested in
portfolio securities (``Uninvested Cash'') to purchase shares of one or
more of the Money Market Funds (such Funds, including Money Market
Funds, that purchase shares of the Money Market Funds are referred to
herein collectively as the ``Investing Funds''); (b) each of the
Investing Funds to utilize cash collateral received from Borrowers in
connection with the Investing Fund's securities lending activities
(``Cash Collateral'') to purchase shares of one or more of the Money
Market Funds; and (c) the Money Market Funds to sell their shares to,
and to purchase (or redeem) such shares from, the Investing Funds.
Uninvested Cash and Cash Collateral are referred to herein collectively
as ``Cash Balances.'' By investing Cash Balances in the Money Market
Funds as proposed, applicants believe that the Investing Funds will be
able to reduce their transaction costs, create more liquidity, enjoy
greater returns, and further diversify their holdings.
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
if such securities represent more than 3% of the acquired company's
outstanding voting stock, more than 5% of the acquiring company's total
assets, or if such securities, together with the securities of other
acquired investment companies, represent 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 12(d)(1)(J) of the Act provides that the SEC may exempt
any person, security or transaction (or classes thereof) from any
provision of section 12(d)(1) if and to the extent that such exemption
is consistent with the public interest and the protection of investors.
3. Applicants' proposal would permit the Investing Funds to use
Cash Balances to acquire shares of a Money Market Fund in excess of the
percentage limitations set out in section 12(d)(1)(A), provided,
however, that each Investing Fund's aggregate investment of Uninvested
Cash in shares of such Money Market Fund shall not exceed 25% of the
Investing Fund's total assets. Applicants' proposal also would permit
the Money Market Funds to sell their securities to an Investing Fund in
excess of the percentage limitations set out in section 12(d)(1)(B).
Applicants represent that no Money Market Fund will acquire securities
of any other investment company in excess of the limits contained in
section 12(d)(1)(A) of the Act.
4. The restrictions in section 12(d)(1) were intended to prevent
certain abuses perceived to be associated with the pyramiding of
investment companies, including: (a) undue influence by the fund
holding company over its underlying funds; (b) the threat of large
scale redemptions of the securities of the underlying investment
companies; (c) unnecessary duplication of costs, e..g., sales loads,
advisory fees, and administrative costs; and (d) unnecessary
complexity. For the following reasons, applicants believe that the
proposed arrangement does not entail the type of abuse that Congress
adopted section 12(d) to prevent.
[[Page 36324]]
5. Applicants represent that the proposed arrangement would not
result in the inappropriate layering of either sales charges or
investment advisory fees.\2\ Shares of the Money Market Funds sold to
and redeemed by the Investing Funds will not be subject to a sales
load, redemption fee, distribution fee, or service fee. In connection
with approving any advisory contract, the Investing Fund's board of
trustees, including a majority of the trustees who are not ``interested
persons,'' as defined in section 2(a)(19) of the Act, will consider to
what extent the advisory fees charged to the Investing Fund by the
Investment adviser should be reduced to account for the reduced
services provided to the Fund as a result of Uninvested Cash being
invested in the Money Market Fund.
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\2\ Applicants do not believe that the custodian fees paid to
NBT as Custodian or administrative or transfer agency fees which may
be paid to other affiliates of NBAI will result in a significant
layering of fees. The services for which such fees are paid must be
performed separately at both the Investing Fund and the Money Market
Fund levels in all events, and significant economies in the cost of
performing these functions are not expected to be realized as a
result of investments by Investing economies in the cost of
performing these functions are not expected to be realized as a
result of investments by Investing Funds in the Money Market Funds.
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6. Section 17 (a)(1) and (2) make it unlawful for any affiliated
person of a registered investment company, acting as principal, to sell
or purchase any security to or from such investment company. Because
NFT, NFI, NFPI, and NIR have common boards of trustees, each series of
NFT, NFI, NFPI and NIR may be deemed to be under common control with
each of the other. In light of their common boards of trustees, each
series of NFT, NFI, NFPI, and NIR might be deemed to be an ``affiliated
person,'' as defined in section 2(a)(3) of the Act, of each of the
other series. Accordingly, the sale of shares of the Money Market Funds
to the Investing Funds, and the redemption of such shares by the
Investing Funds, would be prohibited under section 17(a).
7. Section 6(c) of the Act provides that the SEC may exempt persons
or transactions 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.
8. Section 17(b) authorizes the SEC 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, the
proposed transaction is consistent with the policy of each investment
company concerned, and 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 each of the Investing Funds to
purchase and redeem shares of the Money Market Funds, and the Money
Market Funds to sell their shares to, and to redeem such shares from,
each of the Funds.\3\
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\3\ 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 are used to grant relief from section
17(a) to permit an ongoing series of future transactions.
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9. The Investing Funds will retain their ability to invest Cash
Balances directly in money market instruments as authorized by their
respective investment objectives and policies, if they believe they can
obtain a higher return, or for any other reason. Each of the Money
Market Funds has the right to discontinue selling shares to any of the
Investing Funds if its board of trustees determines that such sales
would adversely affect its portfolio management and operations.
Therefore, applicants believe that the proposal satisfies the standards
for relief in sections 6(c) and 17(b).
10. Section 17(d) and rule 17d-1 prohibit an affiliated person of
an investment company, acting as principal, from participating in or
effecting any transaction in connection with any joint enterprise or
joint arrangement in which the investment company participates. Each
Investing Fund, by purchasing shares of the Money Market Funds, each
Investment Adviser of an Investing Fund, by managing the assets of the
Investing Funds invested in the Money Market Funds, and each Money
Market Fund, by selling shares to the Investing Funds, could be deemed
to be participants in a joint enterprise or other joint arrangement
within the meaning of section 17(d) and rule 17d-1.
11. In passing upon applications submitted pursuant to section
17(d) and rule 17d-1, the SEC will consider whether the participation
of such registered or controlled company in such joint enterprise,
joint arrangement or profit-sharing plan on the basis proposed is
consistent with the provisions, policies, and purposes of the Act, and
the extent to which such participation is on a basis different from or
less advantageous than that of other participants. Applicants believe
that the proposal satisfies these standards.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Shares of the Money Market Funds sold to and redeemed by the
Investing Funds will not be subject to a sales load, redemption fee,
distribution fee under a plan adopted in accordance with rule 12b-1
under the Act, or service fee (as defined in rule 2830(b)(9) of the
NASD Conduct Rules).
2. Before the next meeting of the board of trustees of an Investing
Fund is held for the purpose of voting on an advisory contract under
section 15 of the Act, the Investment Adviser to the Investing Fund
will provide the board of trustees with specific information regarding
the approximate cost to the Investment Adviser of, or portion of the
advisory fee under the existing advisory fee attributable to, managing
the Uninvested Cash of the Investing Fund that can be expected to be
invested in the Money Market Fund. In connection with approving any
advisory contract for an Investing Fund, the board of trustees of the
Investing Fund, including a majority of the trustees who are not
``interested persons,'' as defined in section 2(a)(19) of the Act,
shall consider to what extent, if any, the advisory fees charged to the
Investing Fund by the Investment Adviser should be reduced to account
for reduced services provided to the Fund by the Investment Adviser as
a result of Uninvested Cash being invested in the Money Market Fund.
The minute books of the Investing Fund will record fully the Board's
consideration in approving the advisory contract, including the
considerations referred to above.
3. Each Investing Fund will invest Uninvested Cash in, and hold
shares of, the Money Market Funds only to the extent that the Investing
Fund's aggregate investment in the Money Market Funds does not exceed
25 percent of the Investing Fund's total assets.
4. Investment of Cash Balances in shares of the Money Market Funds
will be in accordance with each Investing Fund's respective investment
restrictions, if any, and will be consistent with each Investing Fund's
policies as set forth in its prospectuses and statements of additional
information.
5. Each Investing Fund, each Money Market Fund, and any future fund
that may rely on the order shall be advised by the Investment Adviser,
or a person controlling, controlled by, or under common control with
the Investment Adviser.
[[Page 36325]]
6. No Money Market Fund shall acquire securities of any other
investment company in excess of the limits contained in section
12(d)(1)(A) of the Act.
7. Before a Fund may participate in the Securities Lending Program,
a majority of the trustees (including a majority of the independent
trustees) of the Fund will approve the Fund's participation in the
Securities Lending Program. Such trustees also will evaluate the
securities lending arrangement and its results no less frequently than
annually and determine that any investment of Cash Collateral in the
Money Market Funds is in the best interest of the shareholders of the
Fund.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-17577 Filed 7-3-97; 8:45 am]
BILLING CODE 8010-01-M