[Federal Register Volume 64, Number 50 (Tuesday, March 16, 1999)]
[Notices]
[Pages 13044-13046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6278]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23733; 812-11452]
Nations Funds Portfolios, Inc., et al.; Notice of Application
March 9, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application under section 17(b) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 17(a) of
the Act.
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SUMMARY OF APPLICATION: Applicants, Nations Funds Portfolios, Inc.
(``Portfolios'') and NationsBanc Advisors, Inc. (``NBAI''), seek an
order to permit one series of the Portfolios to acquire all of the
assets and assume all of the liabilities of another series of the
Portfolios. Because of certain affiliations, applicants may not rely on
rule 17a-8 under the Act.
FILING DATE: The application was filed on January 6, 1999 and amended
on March 1, 1999. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicant with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on March 30, 1999, and should be accompanied by proof of service
on applicant, 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 Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 Fifth Street, N.W., Washington,
DC 20549. Applicants, Portfolios and NBAI, One Bank America Plaza,
Charlotte, North Carolina 28255.
FOR FURTHER INFORMATION CONTACT: Edward P. Macdonald, Branch Chief, at
(202) 942-0564 (Division of Investment Management, Office of Investment
Company Regulation).
[[Page 13045]]
SUPPLEMENTARY 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 5th Street, N.W., Washington,
DC 20549 (tel. no. 202-942-8090).
Applicants' Representations
1. Portfolios, a Maryland corporation, is registered under the Act
as an open-end management investment company. Portfolios currently
consists of three series, two of which--Nations Emerging Markets Fund
(``Acquiring Fund'') and Nations Pacific Growth Fund (``Acquired
Fund'')--are the subject of this application.
2. NBAI, a wholly-owned subsidiary of NationsBank, N.A.
(``NationsBank''), is registered under the Investment Advisers Act of
1940 and is the investment adviser to both the Acquiring and the
Acquired Funds (the ``Fund''). NationsBank and certain of its
affiliated companies that are under common control with NBAI
(``NationsBank Group''), hold of record in their name and in the names
of their nominees approximately 86% and 92% of the outstanding voting
securities of the Acquired Fund and Acquiring Fund, respectively. All
such securities are held for the benefit of others in a trust, agency,
custodial or other fiduciary or representative capacity. None of the
members of the NationsBank Group owns a direct economic interest in the
Funds' securities.
3. On October 7, 1998, the board of directors of the Funds
(``Board''), including a majority of the disinterested directors as
defined under section 2(a)(19) of the Act, approved the Agreement and
Plan of Consolidation pursuant to which the Acquiring Fund will acquire
all of the assets and assume all of the liabilities of the Acquired
Fund in exchange for shares of the Acquiring Fund equal in value to the
net asset value (``NAV'') of the Acquired Fund (the ``Consolidation'').
The Consolidation is expected to close on March 30, 1999 (``Closing
Date''). Each shareholder of the Acquired Fund will receive shares of
the Acquiring Fund having an aggregate NAV equal to the aggregate NAV
of the Acquired Fund's shares held by that shareholder calculated as of
4:00 p.m. on the Closing Date. No front end sales load, redemption fee
or contingent deferred sales charge will be imposed on shareholders in
connection with the Consolidation.
4. Shares of both the Acquired Fund and Acquiring Fund are divided
into five classes: Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, and Investor C Shares. The Portfolios have
adopted identical distribution and shareholder servicing plans for the
corresponding classes within the Acquired and Acquiring Fund. The
number of shares of the Acquiring Fund to be issued to shareholders of
the Acquired Fund will be determined by dividing the aggregate net
assets of each class of the Acquired Fund by the NAV per corresponding
class of shares of the Acquiring Fund, each computed at the time on the
Closing Date determined by the Funds' valuation procedures. Shares of
the Acquiring Fund will be distributed to shareholders of the Acquired
Fund in liquidation of the Acquired Fund, and the Acquired Fund will be
dissolved.
5. Applicants state that the investment objectives of the Funds are
generally similar. Each Fund seeks to provide investors with long-term
capital appreciation by investing primarily in equity securities of
foreign companies. The Acquiring Fund primarily invests in securities
of companies located in emerging market countries, including Pacific
Basin and Far East countries (excluding Japan), India, and countries in
Latin America, Eastern Europe, and Africa. The Acquired Fund invests
primarily in securities of companies located in the Pacific Basin and
the Far East (excluding Japan). The Acquired Fund intends to sell a
substantial portion of its portfolio securities prior to the Closing
Date, the proceeds of which will be held in temporary investments or
reinvested in assets that qualify to be held by the Acquiring Fund. The
Board determined that even with the costs of repositioning the Acquired
Fund's portfolio it was in the best interests of the Acquired Fund's
shareholders to have the Acquired Fund consolidate into a similar
investment product that would allow them to have the international
exposure that they desired and was managed in a similar style.
6. The Board found that participation in the Consolidation was in
the best interests of each Fund and their shareholders and that the
interests of the existing shareholders of each Fund would not be
diluted as a result of the Consolidation. The Board considered a number
of factors in authorizing the Consolidation including: (i) Possible
alternatives to the Consolidation, including liquidation of the
Acquired Fund; (ii) the terms and conditions of the Consolidation and
whether the Consolidation would result in the dilution of shareholder
interests; (iii) the future viability of the Acquired Fund; (iv) the
expected cost savings for shareholders of the Acquired Fund; (v)
expense ratios and available information regarding fees and expenses of
the Funds; (vi) the compatibility of the investment objectives of the
Funds; and (vii) the tax consequences of the Consolidation. NBAI will
pay all customary expenses incurred in connection with the
Consolidation.
7. The Board considered that both before and after expense waivers
each class of the Acquired Fund would be consolidated into a class of
the Acquiring Fund that has a lower total expense ratio. The
Consolidation will not be considered a tax-free ``reorganization''
under applicable provisions of the Internal Revenue Code of 1986, as
amended. The Board considered the taxable nature of the Consolidation
and in particular the Board considered that, in light of the NAV
performance of the Acquired Fund, most shareholders have a basis in
their shares that equals or exceeds the current value of their shares
(and therefore that they would realize, if anything, a loss rather than
a taxable gain).
8. The Consolidation is subject to a number of conditions
precedent, including that: (i) Definitive proxy solicitation materials
shall have been filed with the SEC and distributed to shareholders of
the Acquired Fund; (ii) the shareholders of the Acquired Fund approve
the Consolidation; and (iii) applicants will receive from the SEC an
exemption from section 17(a) of the Act for the Consolidation. The
Consolidation may be terminated and the transactions abandoned at any
time prior to the Closing Date by mutual consent of the Portfolios or
by consent of the Portfolios on behalf of either Fund. Applicants agree
that no material changes will be made to the Consolidation plan without
the prior approval of the Commission staff.
9. Definitive proxy solicitation materials have been filed with the
SEC and were mailed to shareholders of the Acquired Fund on or about
February 26, 1999. A special meeting of shareholders is scheduled for
March 29, 1999.
Applicants' Legal Analysis
1. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person, acting as principal, from selling any security to, or
purchasing any security from, the company. Section 2(a)(3) of the Act
defines an ``affiliated person'' of another person to include (a) any
person directly or indirectly owning, controlling, or holding with
power to vote 5% or more of the outstanding voting securities of the
other person; (b) any person 5% or more of whose securities are
directly or
[[Page 13046]]
indirectly owned, controlled, or held with power to vote by the other
person; (c) any person directly or indirectly controlling, controlled
by or under common control with the other person; and (d) if the other
person is an investment company, any investment adviser of that
company.
2. Rule 17a-8 under the Act exempts from the prohibitions of
section 17(a) mergers, consolidations, or purchases or sales of
substantially all of the assets of registered investment companies that
are affiliated persons, or affiliated persons of an affiliated person,
solely by reason of having a common investment adviser, common
directors, and/or common officers, provided that certain conditions set
forth in the rule are satisfied.
3. Applicants state that they may not rely on rule 17a-8 in
connection with the Consolidation because the Funds may be affiliated
by reasons other than having a common investment adviser, common
director, and/or common officers. The Acquiring Fund and the Acquired
Fund are affiliated persons also because of NationsBank Group's
ownership of 86% and 92% of the Acquired Fund and Acquiring Fund,
respectively.
4. Section 17(b) of the Act provides that the Commission may exempt
a transaction from the provisions of section 17(a) if the evidence
establishes that the term of the proposed transaction, including the
consideration to be paid, are reasonable and fair and do not involve
overreaching on the part of any person concerned, and that the proposed
transaction is consistent with the policy of each registered investment
company concerned and with the general purposes of the Act.
5. Applicants request an order under section 17(b) of the Act
exempting them from section 17(a) to the extent necessary to consummate
the Consolidation. Applicants submit that the Consolidation satisfies
the standards of section 17(b) of the Act. Applicants state that the
Board has determined that the Consolidation is in the best interest of
the existing shareholders of the Fund and that the interests of the
existing shareholders will not be diluted as a result of the
Consolidation. In addition, Applicants state that the exchange of the
Acquired Fund's shares for shares of the Acquiring Fund will be based
on NAV.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-6278 Filed 3-15-99; 8:45 am]
BILLING CODE 8010-01-M