[Federal Register Volume 59, Number 97 (Friday, May 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12304]


[[Page Unknown]]

[Federal Register: May 20, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20294; 812-8742]

 

Norwest Corp., et al.; Notice of Application

May 13, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (``Act'').

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APPLICANTS: Norwest Corporation, Norwest Bank Minnesota, N.A. (the 
``Bank''); Norwest Funds (the ``Fund''); Index Fund, Managed Fixed 
Income Fund, Small Company Growth Fund, Growth Equity Fund, and 
International Fund, on behalf of themselves and other collective 
investment funds sponsored by the Bank which the Bank in the future may 
decide to convert into registered open-end investment companies in the 
manner described below, and in which, at that time, pension plans 
established and maintained for the benefit of employees of Norwest 
Corporation and its subsidiaries (``Norwest Plans'') have invested 
assets (the ``Converting CIFs''); Diversified Equity Fund, Conservative 
Balanced Fund, Moderate Balanced Fund, and Growth Balanced Fund 
(together with Growth Equity Fund and International Fund, the 
``Redeeming CIFs''); Schroder Capital Management International, Inc. 
(``SCMI''); and Schroder Capital Funds, Inc. (``Schroder Funds'').

RELEVANT ACT SECTIONS: Order requested under sections 6(c), 17(b), 
17(d) and rule 17d-1 exempting applicants from the provisions of 
section 17(a) and permitting certain joint transactions pursuant to 
section 17(d) and rule 17d-1.

SUMMARY OF APPLICATION: Applicants seek a conditional order to permit 
the Converting CIFs to transfer their assets to series of the Fund (the 
``Portfolios'') in exchange for shares of the Portfolios. The order 
also would permit the redemption in-kind of shares of Schroder Funds 
held by the Redeeming CIFs prior to the transfer of their assets to the 
Portfolios.

FILING DATE: The application was filed on December 29, 1993, and 
amended on April 21, 1994, and May 9, 1994.

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 June 7, 1994, 
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 such notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicant, c/o Norwest Corporation, Norwest Center, Sixth and 
Marquette, Minneapolis, Minnesota 55479-1026.

FOR FURTHER INFORMATION CONTACT:
James E. Anderson, Staff Attorney, at (202) 942-0573, or C. David 
Messman, 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. The Bank is a national bank wholly-owned by Norwest Corporation, 
a bank holding company. The Fund, formerly known as Prime Value Funds, 
Inc., is a registered open-end management investment company organized 
as a Delaware business trust. Shares of the Fund may be divided into 
series, and the shares of each series may be divided into classes.\1\ 
The Portfolios are part of larger group of fifteen series of the Fund 
which collectively will be known as the Advantage Funds. Shares of the 
Advantage Funds will be offered only to the pension plans for which the 
Bank serves as custodian, trustee, and/or investment adviser, other 
employee benefit plans in related trusts, and certain other tax-
deferred investors. The Bank serves as investment adviser, custodian, 
and transfer agent to the Fund.
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    \1\The Fund is authorized to issue multiple classes of shares 
pursuant to an exemptive order of the SEC. Prime Value Fund, Inc., 
Investment Company Act Release Nos. 19317 (Mar. 5, 1993) (notice) 
and 19375 (Apr. 1, 1993) (order).
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    2. The Converting CIFs and the Redeeming CIFs are part of a group 
of employee benefit plan collective investment funds sponsored by the 
Bank (the ``CIFs''). As of January 31, 1994, the Bank had $5.9 billion 
of assets under management in its CIFs. The investors in the CIFs are 
approximately 7,500 pension plans (the ``Plans'') for which the Bank 
serves as trustee, investment adviser, and/or custodian.
    3. The Bank is terminating 14 of its CIFs, including the Converting 
CIFs, by transferring the CIFs' assets to the Advantage Funds in 
exchange for shares of the Advantage Funds. The CIFs, other than the 
Converting CIFs, may be converted into the Advantage Funds in 
conformity with a variety of no-action letters in which the staff has 
permitted similar conversions of trust funds into mutual funds.\2\ The 
Converting CIFs are unable to rely on the no-action letters, in part, 
because such relief has been conditioned on affiliated persons, or 
affiliated persons of affiliated persons, of the registered investment 
company having no beneficial interest in the proposed transactions. The 
Bank, as investment adviser to the Portfolios, is an affiliated person 
of the Portfolios and may be deemed to have a beneficial interest in 
the proposed transactions because the Norwest Plans invest in the 
Converting CIFs. Accordingly, applicants seek an exemption under 
sections 6(c) and 17(b) from the provisions of section 17(a) and 
pursuant to section 17(d) and rule 17d-1 so that assets of the 
Converting CIFs can be transferred to Portfolios in exchange for 
Portfolio shares (the ``Proposed Transfers'').
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    \2\See, e.g., Trust Funds Institutional Managed Trust (pub. 
avail. July 20, 1988); American Medical Association Retirement Plan 
(pub. avail. Jan. 15, 1987); First National Bank of Chicago (pub. 
avail. Feb. 5, 1986); and Lincoln National Investment Management 
Company (pub. avail. Mar. 26, 1976).
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    4. Each of the Plans, other than the Norwest Plans, that invests in 
the CIFs sponsored by the Bank has an independent or ``second'' 
fiduciary that supervises and will supervise the investment of the 
Plan's assets. The second fiduciary is generally the Plan's named 
fiduciary, trustee, or sponsoring employer and is subject to fiduciary 
responsibilities under the Employee Retirement Income Security Act of 
1974 (``ERISA''). In the case of the Norwest Plans, the Norwest 
Corporation's Employee Benefit Review Committee (the ``Committee'') 
serves as a fiduciary. Before completing the Proposed Transfers, the 
Bank will seek and obtain the approval of each Plan's second fiduciary 
and the Committee.
    5. Provided that the Bank receives the requisite approval, the 
acquisition of Portfolio shares will be accomplished by having each 
Converting CIF transfer assets to a corresponding Portfolio with 
virtually identical investment objectives in exchange for shares of 
that Portfolio at the then-current market value of the Converting CIF's 
assets. Simultaneously, the Converting CIF will distribute the 
Portfolio shares on a pro rata basis to all of its participating 
pension plan investors.
    6. The Bank is terminating the CIFs and transferring their assets 
to the Advantage Funds because it believes the interests of its pension 
plan clients would be better served through the use of mutual funds. 
Investment of these assets through mutual funds will allow the sponsors 
of and participants in the pension plans to monitor more easily the 
performance of their investments on a daily basis (since information 
concerning the performance of the Advantage Funds will be available in 
daily newspapers of general circulation). The mutual fund vehicle also 
will allow for better marketing of the Bank's investment management 
services and, by promoting portfolio growth, will allow better 
diversification and risk spreading. Finally, the Act places a greater 
emphasis on disclosure to participants than do banking regulations and 
also provides a well-tested mechanism for approval of disclosure 
documents.
    7. Prior to completing the Proposed Transfers, applicants seek an 
exemption from the provisions of section 17(a) to permit the Redeeming 
CIFs to receive a pro rata redemption in-kind of the Redeeming CIFs' 
shares of International Equity Fund (``IEF''), a portfolio of Schroder 
Funds. Schroder Funds is a registered investment company. SCMI acts as 
investment adviser to the Schroder Funds, and following the conversion, 
will act as subadviser to the six series of the Advantage Funds that 
will replace the Redeeming CIFs. Investments in IEF by the Redeeming 
CIFs represent, in the aggregate, approximately $269 million of IEF's 
$396 million in assets.
    8. The Bank is proposing to cause the Redeeming CIFs to redeem 
their investment in IEF because, after conversion of the Redeeming CIFs 
into corresponding series of the Advantage Funds, five of the series' 
holdings of IEF shares would be inconsistent with section 12(d) of the 
Act.\3\ The sixth Redeeming CIF that holds shares of IEF, the 
International Fund, invests all its assets in IEF. Although section 
12(d) would not prohibit the International Fund from continuing to hold 
its shares of IEF after it converts into a series of the Advantage 
Funds, it would be impractical because IEF is not organized as a master 
fund.\4\ Moreover, effecting the redemption in-kind will reduce 
substantially the transaction costs associated with the conversion.
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    \3\Section 12(d)(1)(A), among other things, prohibits a 
registered investment company from acquiring more than 3% of the 
outstanding voting securities of another investment company, 
investing more than 5% of its assets in the securities of any one 
other investment company, and investing more than 10% of its assets 
in securities issued by investment companies.
    \4\Under section 12(d)(1)(E), the prohibitions under section 
12(d)(1)(A) do not apply if, among other things, the securities of 
the portfolio investment company are the only investment securities 
held by the registered investment company.
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    9. In connection with the redemption in-kind, securities will be 
distributed pro rata after excluding securities which, if distributed, 
would be required to be registered under the Securities Act of 1933 and 
securities issued by entities in countries that restrict or prohibit 
the holding of securities by non-nationals other than through qualified 
investment vehicles like IEF. In addition, cash will be distributed in 
lieu of shares above around lots (i.e., 100 shares) or fractional 
shares. The securities distributed to the Redeeming CIFs will be valued 
in the same manner as they would be valued for purposes of computing 
IEF's net asset value, which, in the case of securities traded on a 
public securities market for which quotations are available, is their 
last reported trade price on the exchange on which such securities are 
principally traded, or, if there is no such reported price, is the 
average of the highest current independent bid and lowest current 
independent offer.
    10. The Redeeming CIFs' pro rata share of the IEF portfolio 
securities that may not be distributed in-kind pursuant to the 
limitations set forth in the preceding paragraph will be sold in an 
appropriate market, and the proceeds of such sale will be distributed 
to the Redeeming CIFs in lieu of a distribution in-kind.

Applicants' Legal Conclusions

    1. Section 2(a)(3) defines the term ``affiliated person of another 
person'' to include, in relevant part, (a) Any person directly or 
indirectly owning, controlling, or holding with the power to vote, 5% 
or more of the outstanding voting securities of such other person; (b) 
any person directly or indirectly controlling, controlled by, or under 
common control with such other person; and (c) if such other person is 
an investment company, any investment adviser thereof.
    2. Under section 6(c), the SEC may exempt any person or transaction 
from any provision of the Act or any rule thereunder to the extent that 
such 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. applicants seek 
relief under section 6(c) so that the exemption granted from section 
17(a) to permit the Converting CIFs to transfer assets to the 
Portfolios applies to a class of transactions, rather than to a single 
transaction.
    3. Section 17(a), in relevant part, prohibits an affiliated person, 
or an affiliated person of an affiliated person, of a registered 
investment company acting as principal, from selling to or purchasing 
from such investment company any security or other property. Section 
17(b) provides that, notwithstanding section 17(a), any person may file 
an application for an order exempting a proposed transaction from the 
prohibitions of section 17(a). Applications are granted under section 
17(b) if evidence establishes that 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 and that the proposed transaction is consistent with 
the policy of each registered investment company concerned and the 
general policies and purposes of the act.
    4. Section 17(d) makes it unlawful for any affiliated person, or 
affiliated person of an affiliated person, of a registered investment 
company, acting as principal, to effect any transaction in which the 
company is a joint or joint and several participant with the affiliated 
person in contravention of such rules and regulations as the SEC may 
prescribe for the purpose of limiting or preventing participation by 
such company. Rule 17d-1 was promulgated pursuant to section 17(d). 
Under rule 17d-1, most joint transactions are prohibited unless 
approved by order of the SEC. In passing upon such applications, the 
SEC considers whether participation by a registered investment company 
is consistent with the provisions, policies, and purposes of the Act 
and not on a basis less advantageous than that of other participants.
    5. Because the Converting CIFs may be viewed as acting as principal 
in the Proposed Transfers, and because the Converting CIFs and the Fund 
may be viewed as being under the common control of the Bank and 
consequently affiliated persons within the meaning of section 2(a) (3) 
(C), the Proposed Transfers may be subject to the prohibitions 
contained in section 17(a). For the same reasons, the Proposed 
Transfers might be deemed to be a joint enterprise or other joint 
arrangement prohibited by section 17(d) and rule 17d-1.
    6. The Proposed Transfers will be on terms that are reasonable and 
fair, and do not involve overreaching on the part of any person, and 
will be consistent with the provisions, policies, and purposes of the 
Act. The Proposed Transfers will comply with rule 17a-7 in most 
respects, and also will comply with the policy behind the conditions 
set forth in rule 17a-8. Rule 17a-7 exempts certain purchase and sale 
transactions otherwise prohibited under section 17(a) if, among other 
things, the transactions are effected at an ``independent market 
price'' and the investment company's board of directors reviews the 
transactions for fairness. Rule 17a-8 exempts certain mergers and 
consolidations from the provisions of section 17(a) if, among other 
things, the investment company's board of directors determines that the 
transactions are fair. Because applicants intend to comply with the 
terms of rules 17a-7 and 17a-8 to the extent possible, the transactions 
will be effected at an independent current market price and will be 
reviewed by the Fund's board of directors, including a majority of the 
independent directors, for their fairness. Because the investment 
objectives and policies of the Portfolios and the Converting CIFs are 
virtually identical, the securities received by the Portfolios will not 
violate the Portfolios' investment objectives or policies. The Bank 
will not collect fees at both the pension plan level and the Fund level 
for managing the same assets, and although the fees charged to the 
pension plans may increase slightly as a result of the greater costs of 
mutual fund administration, the Bank's total net fees will not increase 
significantly after the conversion.
    7. The Redeeming CIFs may be deemed affiliated persons of IEF under 
section 2(a) (3) (A) because several of the Redeeming CIFs own, 
individually, more that 5% of IEF's outstanding voting securities (and 
own, in aggregate, approximately two-thirds of IEF's outstanding voting 
securities). To the extent that an in-kind redemption of shares would 
involve a ``purchase'' of securities for purposes of section 17(a), the 
proposed redemption in-kind would be prohibited by section 17(a) (2).
    8. The proposed redemption in-kind will be on terms that are 
reasonable and fair to IEF and the Redeeming CIFs and that do not 
involve overreaching on the part of any person. The securities will be 
distributed pro rata and valued at the last reported trade price on the 
exchange on which the securities are traded, or if there is no reported 
trade price, at the most recent reported mid-market price. As a result, 
the Redeeming CIFs will not receive any advantage over any other 
shareholder if the proposed redemptions are permitted.

Applicants' Conditions

    Applicants agree that any order of the SEC granting the requested 
relief shall be subject to the following conditions:
    1. The Proposed Transfers will comply with the provisions of rule 
17a-7(b)-(f).
    2. The proposed Transfers will not occur unless and until: (a) The 
board of trustees of the Fund (including a majority of its 
disinterested trustees) and the Committee or the Plans' second 
fiduciaries, as the case may be, find that the Proposed Transfers are 
in the best interests of the Fund and the Plans, respectively; and (b) 
the board of trustees of the Fund (including a majority of its 
disinterested trustees) finds that the interests of the existing 
shareholders of the Fund will not be diluted as a result of the 
Proposed Transfers. These determinations and the basis upon which they 
are made will be recorded fully in the records of the Fund and the 
Plans.
    3. The securities distributed to the Redeeming CIFs pursuant to a 
redemption in-kind (the ``In-Kind Securities'') will be limited to 
securities which are traded on a public securities market or for which 
quoted bid and asked prices are available.
    4. In-Kind Securities will be distributed on a pro rata basis after 
excluding: (a) Securities which, if distributed, would be required to 
be registered under the Securities Act of 1933; (b) securities issued 
by entities in countries which restrict or prohibit the holdings of 
securities by non-nationals other than through qualified investment 
vehicles, such as IEF; and (c) certain securities that--although liquid 
and marketable--must be traded through the marketplace in order to 
effect a change in beneficial ownership. In addition, cash will be 
distributed in lieu of any shares not amounting to a round lot (e.g., 
100 shares), fractional shares, and accruals (i.e., dividends 
receivable) on such securities.
    5. The Redeeming CIFs' pro rata share of the IEF portfolio 
securities that may not be distributed in-kind pursuant to conditions 3 
and 4 above will be sold in an appropriate market, and the proceeds of 
such sale will be distributed to the Redeeming CIFs in lieu of a 
distribution in-kind.
    6. Schroder Funds will maintain and preserve for a period of not 
less than six years from the end of the fiscal year in which any 
redemption in-kind to a CIF occurred, the first two years in an easily 
accessible place, a written record of each such redemption that 
describes each security distributed, the terms of the distribution, and 
the information or materials upon which the valuation was made.
    7. The In-Kind Securities distributed to the Redeeming CIFs will be 
valued in the same manner as they would be valued for purposes of 
computing a portfolio's net asset value, which, in the case of 
securities traded on a public securities market for which quotations 
are available, is their last reported trade price on the exchange on 
which the securities are principally traded, or, if there is no such 
reported price, is the average of highest current independent bid and 
lowest current independent offer.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12304 Filed 5-19-94; 8:45 am]
BILLING CODE 8010-01-M