[Federal Register Volume 59, Number 205 (Tuesday, October 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26429]


[[Page Unknown]]

[Federal Register: October 25, 1994]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20640; 812-9218]

 

Norwest Bank Minnesota, N.A., et al.; Notice of Application

October 19, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').

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

-----------------------------------------------------------------------

APPLICANTS: Norwest Bank Minnesota, N.A. (``Bank''); Norwest Funds; 
Forum Financial Services, Inc. (``Forum''); Core Trust (Delaware) 
(``Core Trust''); and Schroder Capital Management International, Inc. 
(``Schroder'').

RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 17(b) of 
the Act that would grant an exemption from sections 12(d)(1), 17(a)(1), 
and 17(a)(2) of the Act, and under section 17(d) of the Act and rule 
17d-1 thereunder to permit certain transactions.

SUMMARY OF APPLICATION: Applicants request an order to permit certain 
series of the Norwest Funds to invest portions of their assets in 
certain portfolios of Core Trust.

FILING DATE: The application was filed on September 8, 1994. Applicants 
have agreed to file an amendment, the substance of which is 
incorporated herein, during the notice period.

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 November 9, 
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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, DC 20549. 
Applicants, c/o Forum Financial Group, Two Portland Square, Portland, 
Maine 04101, Attention: Max Berueffy.

FOR FURTHER INFORMATION CONTACT:
James M. Curtis, Senior Counsel, at (202) 942-0563 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. The Bank is the sponsor of a number of collective investment 
funds (``CIFs'') that serve as investment vehicles for qualified and 
non-qualified employee benefit plans for which the Bank serves as 
trustee, investment manager, or custodian. The Bank intends to convert 
fourteen of the CIFs into corresponding new series of the Norwest 
Funds, an open-end series investment company.\1\ The new series, 
together with the new Advantage Class of an existing money market fund, 
will be known as the Advantage Funds. The Bank will serve as investment 
adviser to the Advantage Funds, and Schroder will serve as subadviser 
to those portions of the Advantage Funds that invest in international 
securities. The Advantage Funds will be offered without a sales load or 
redemption fee and will not bear distribution expenses pursuant to a 
plan adopted under rule 12b-1 under the Act, although applicants may 
revise these arrangements in the future.
---------------------------------------------------------------------------

    \1\On June 8, 1994, the Division of Investment Management, 
pursuant to delegated authority, issued an order pursuant to section 
17(b) of the Act and rule 17d-1 thereunder, permitting certain 
transactions necessary to complete the proposed conversion. See 
Norwest Corporation, Investment Company Act Release Nos. 20294 (May 
13, 1994) (notice) and 20342 (June 8, 1994) (order).
---------------------------------------------------------------------------

    2. Core Trust is an open-end series investment company. Although 
Core Trust will register under the Act, it does not intend to make a 
public offering of its securities and does not intend to register its 
shares under the Securities Act of 1933. Core Trust includes a 
portfolio that intends to invest in securities issued by small 
companies (``Small Company Portfolio''), a portfolio that intends to 
invest in securities of foreign issuers (``International Portfolio''), 
and a portfolio that will be designed to replicate the performance of 
the Standard & Poor's 500 Composite Index (``Index Portfolio'') (such 
three series are the ``Portfolios''). The Bank is the investment 
adviser to the Small Company and S&P 500 Index Portfolios of Core 
Trust, and Schroder is the investment adviser to the International 
Portfolio. The Portfolios will be offered only to certain Advantage 
Funds and eligible Future Funds (as hereinafter defined) relying on an 
order issued pursuant to the application. Shares of these Portfolios 
will be offered without a sales load or redemption fee, and Core Trust 
will not bear distribution expenses pursuant to a plan adopted under 
rule 12b-1 under the Act.
    3. Forum provides management, administrative, and distribution 
related services to Norwest Funds and will provide similar services to 
the Advantage Funds and Core Trust.
    4. The fifteen Advantage Funds will consist of seven equity funds 
(Diversified Equity Fund, Growth Equity Fund, Large Company Growth 
Fund, Small Company Growth Fund, Income Equity Fund, Index Fund, and 
International Fund); three balanced funds (Conservative Balanced Fund, 
Moderate Balanced Fund, and Growth Balanced Fund), and five fixed 
income funds (Intermediate U.S. Government Fund, Managed Fixed Income 
Fund, Stable Income Fund, Short Maturity Investment Fund, and Ready 
Cash Investment Fund).
    5. Five of the Advantage Funds--Diversified Equity Fund, Growth 
Equity Fund, Conservative Balanced Fund, Moderate Balanced Fund, and 
Growth Balanced Fund (the ``Blended Funds'')--will continue their 
predecessor CIFs' practice of allocating specified percentages of their 
assets among several different investment styles. The Diversified 
Equity Fund and the Growth Equity Fund (the ``Blended Equity Funds'') 
seek to achieve long term capital appreciation by investing in equity 
securities. Consistent with their investment objectives, the Blended 
Equity Funds allocate a fixed percentage of their assets to several 
investment styles. Each Blended Equity Fund allocates a significant 
portion of its assets to investments in large, high quality domestic 
companies that, in the view of its adviser, have superior growth 
potential as well as, in the case of the Diversified Equity fund, 
equities that may provide above average dividend income. In addition, 
each Blended Equity Fund allocates a portion of its assets to 
investment in equity securities of small companies and a portion to 
investment in non-U.S. issuers. The Diversified Equity Fund also 
invests in a group of securities representing 96% or more of the 
capitalization-weighted market value of the stocks in the S&P 500 
Index. The Conservative Balanced Fund, the Moderate Balanced Fund, and 
the Growth Balanced Fund (collectively, ``Blended Balanced Funds'') 
invest in a balanced portfolio of fixed income and equity securities. 
Like the Blended Equity Funds, the Blended Balanced Funds allocate 
portions of their assets among different investment styles.
    6. To an extent consistent with its investment objectives, each 
Blended Fund will invest directly in equity securities and, in the case 
of the Blended Balanced Funds, fixed income securities. Applicants 
believe that investors in the Blended Funds can obtain substantial 
benefits, however, if the Blended Funds pool the assets they allocate 
for investment in the securities of small companies, non-U.S. issuers, 
and companies listed in the S&P 500 Index. Accordingly, applicants 
propose that the Blended Funds invest those portions of their 
portfolios in the Small Company, International, and Index Portfolios of 
Core Trust. Although at present only the Blended Funds intend to rely 
on the order, applicants also propose that any other series of Norwest 
Funds for which the Bank or any company controlling, controlled by, or 
under common control with the Bank acts as adviser, or any open-end 
investment company for which the Bank or any company controlling, 
controlled by, or under common control with the Bank acts as adviser in 
the future (collectively the ``Future Funds''), be permitted to invest 
in the Small Company, International, and Index Portfolios of Core Trust 
in the same manner as the Blended Funds.
    7. Each existing CIF will convert into a corresponding series of 
the Advantage Funds by transferring the securities and cash in its 
portfolio to the corresponding Advantage Fund in exchange for shares of 
the Advantage Fund. Each CIF will then distribute shares of the 
Advantage Funds to each employee benefit plan pro rata according to its 
interest in the terminating CIF. When the Portfolios commence 
operations, each Blended Fund will contribute the small company, 
international, and S&P 500 Index securities in its portfolio to the 
corresponding Portfolio in exchange for shares of that Portfolio.
    8. All portfolio securities contributed in-kind will be appropriate 
investments for the Portfolios. Such in-kind transactions will comply 
with the provisions of paragraphs (a) through (f) of rule 17a-7, except 
that the consideration for the securities contributed to Core Trust 
will be Core Trust shares rather than cash. After the initial 
contribution of securities, the Portfolios will buy and sell portfolio 
securities at the discretion of their respective portfolio managers.
    9. Each Blended Fund will treat its investment in each Portfolio of 
Core Trust as subject to the requirements of Guide 3 of the Guidelines 
for the Preparation and Filing of Form N-1A so that the level of 
disclosure in the prospectus will be governed by the level of its 
investment in the portfolio of Core Trust. Thus, a Blended Fund that 
maintains an investment in a Portfolio in an amount of less than 5% of 
its net assets will include a brief description of the Portfolio, 
whereas a Blended Fund that invests 5% or more of its net assets in a 
Portfolio will include a more detailed description of the Portfolio and 
its objectives, risks, and manner of operation. In addition, each 
Blended Fund will list the securities held by the Portfolios in which 
it invests and the amount and value of its pro rata interest in each 
such security in its reports to shareholders under section 30(d) of the 
Act and rule 30d-1 thereunder to the same extent as if the Blended Fund 
held the securities directly.
    10. The Blended Funds may invest directly in some securities also 
held by the three Portfolios. Applicants believe that it is unlikely 
that any Blended Fund will incur unnecessary brokerage costs because it 
sells a security at the same time a Portfolio buys the same security, 
or vice versa. First, the actual overlap between the various portfolios 
is very small. Moreover, all portfolios of the Blended Funds and the 
Portfolios are expected to have very low turnover ratios, making the 
possibility of opposing buy/sell orders even less likely. In addition, 
the Blended Funds and the Index and Small Company Portfolios will all 
be managed by the Bank, which will monitor for offsetting buy/sell 
orders. Although the Bank and Schroder do not share portfolio 
information in advance, applicants believe that because Norwest and 
Schroder employ substantially different criteria for their investment 
decisions, they would rarely engage in transactions in the same 
security on the same day. Indeed, the historical experience of the CIFs 
indicates the possibility is remote that two portfolios managers might 
enter buy and sell orders for the same security at the same time. A 
review of the portfolios of the component CIFs from January 1, 1994 to 
May 31, 1994 reveals only one occasion on which one portfolio sold a 
security on the same day another purchased the same security. The 
brokerage costs associated with this transaction were $142.00.

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. Section 
6(c) provides that the SEC may exempt persons or transactions from any 
or all sections of the Act when 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.
    2. Applicants request an exemption under section 6(c) of the Act 
from section 12(d)(1) to the extent necessary to permit the Blended 
Funds' proposed investments in the Portfolios. 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. There is no risk 
that management of the Blended Funds will exercise inappropriate 
control over the management of Core Trust because (a) the Bank will be 
the investment adviser for all Blended Funds, as well as any Blended 
Funds, that may invest in the Small Company, International, or Index 
Portfolios of Core Trust; and (b) the Blended Funds and Future Funds 
will be the only investors in the Portfolios.
    3. If large-scale redemptions by public shareholders require a 
major change in the level of investment by a Blended Fund in the 
Portfolios such that the Portfolios might be required to liquidate 
securities in their portfolios in such a manner that the shareholders 
in other non-redeeming Blended Funds would be prejudiced, the 
Portfolios may make the redemptions in-kind by distributing securities 
in its portfolios, rather than cash, to the redeeming Blended Fund. 
Such in-kind transactions would comply with the provisions of 
paragraphs (a) through (f) of rule 17a-7, except that the consideration 
for the portfolio securities would be shares in the Portfolio rather 
than cash.
    4. Applicants believe that the Blended Funds' investment in Core 
Trust will not result in significant duplication of the costs of 
distribution, portfolio management, fund administration, or operations. 
Core Trust shares will not be subject to any sales load or rule 12b-1 
fees. The Bank will waive its advisory fee for serving as investment 
adviser to the Small Company and Index Portfolios of Core Trust and 
will reimburse the International Portfolio of Core Trust an amount 
equal to the advisory fees the Portfolio pays to Schroder, and Forum 
will not receive any fees for administering that portion of any Blended 
Fund that invests in Core Trust. Although there will be some 
duplication of custodial, transfer agency, and other expenses, 
applicants believe that the layering of these expenses will be minimal, 
and that the efficiencies that the Blended Funds should achieve in 
portfolio management and fund operations will result in net cost 
savings.
    5. To a limited extent, the Blended Funds may invest directly in 
some securities also held by the Portfolios.
    Applicants believe it is unlikely that any Blended Fund will incur 
unnecessary brokerage costs because it sells a security at the same 
time a Portfolio buys the same security, or vice versa. The actual 
overlay between the various portfolios is very small. Moreover, all 
portfolios of the Blended Funds and Core Trust are expected to have 
very low turnover ratios, making the possibility of opposing buy/sell 
orders even less likely. In addition, the Blended Funds and the Index 
and Small Company Portfolios of Core Trust will all be managed by the 
Bank, which will monitor for offsetting buy/sell orders.
    6. Applicants also request an exemption under sections 6(c) and 
17(b) of the Act from section 17(a) of the Act, which prohibits certain 
purchases and sales of securities between investment companies and 
their affiliated persons. Because the Blended Funds may individually 
own more than 5% of individual Portfolios and also may be deemed to be 
under common control with Core Trust, the Blended Funds and Core Trust 
may be deemed to be affiliated persons of one another. Purchases by the 
Blended Funds of shares of Core Trust or sales by Core Trust of their 
shares to the Blended Funds could be deemed to be principal 
transactions by affiliated persons under section 17(a). Similarly, the 
initial in-kind contributions by the Blended Funds of certain of their 
portfolio securities to the Portfolios in exchange for shares of the 
Portfolios and any possible subsequent redemptions in-kind by the 
Portfolios could likewise be deemed to be principal transactions by 
affiliated persons under section 17(a).
    7. Under section 17(b), the SEC shall issue an order exempting 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. Section 17(b) applies only to individual proposed transactions. 
However, the SEC frequently has used its authority under section 6(c) 
to exempt series of transactions that otherwise met the standards of 
section 17(b).
    8. Applicants believe that the terms of the proposed transactions 
are fair and reasonable and do not involve overreaching. The 
consideration paid and received for the sale and redemption of shares 
of the Portfolios will be based on the net asset value of those 
Portfolios. Similarly, the consideration paid and received for the 
Blended Funds' contribution of portfolio securities to Core Trust or 
for any subsequent in-kind redemptions will be based on the fair market 
value of those securities. The proposed transactions are also 
consistent with the policies of each fund. The investment of assets of 
the Blended Funds in shares of Core Trust and the issuance of shares of 
Core Trust will be effected in accordance with each Blended Funds' 
investment restrictions and will be consistent with its policies as set 
forth in each Blended Funds' registration statement. Applicants also 
believe that the proposed transactions are consistent with the general 
purposes of the Act.
    9. Section 17(d) of the Act prohibits any affiliated person of a 
registered investment company, or any affiliated person of such person, 
acting as principal, from effecting any transaction in which such 
investment company is a joint, or joint and several, participant with 
such person in contravention of SEC rules and regulations. Rule 17d-1 
promulgated under the Act provides that no joint transaction may be 
consummated without prior SEC approval. To the extent the proposed 
arrangement is considered a joint enterprise or joint arrangement, 
applicants believe that it is consistent with the provisions, policies, 
and purposes of the Act because the purpose of the proposed arrangement 
is to provide an efficient vehicle for the Blended Funds to invest in 
international, small company, and S&P 500 Index securities. In 
addition, the Blended Funds and Core Trust will not participate in this 
arrangement on a basis that is different or less advantageous than the 
participants that are not investment companies.

Applicants' Conditions

    Applicants agree that any order granting the exemptions they 
request may be conditioned on the following:
    1. The Bank will waive its advisory fee for serving as investment 
adviser to the Small Company and Index Portfolios of Core Trust and 
will reimburse the International Portfolio of Core Trust the amount of 
the advisory fee the Portfolio pays to Schroder.
    2. Forum will waive the amount of any fee that it would otherwise 
be entitled to receive from each Blended Fund for that portion of the 
assets of the Blended Fund invested in the Portfolios.
    3. Shares of Core Trust will not be subject to a sales load or 
redemption fee, and Core Trust will not assess any distribution fee 
under a plan adopted in accordance with rule 12b-1.
    4. Investment in shares of Core Trust will be in accordance with 
each Blended Fund's respective investment restrictions and will be 
consistent with its policies as recited in its registration statement.
    5. The board of trustees of each Blended Fund will review reports 
at least annually identifying all instances in which one Portfolio 
enters a buy order for a particular security at approximately the same 
time another Portfolio enters a sell order for that security. When it 
reviews the reports, the board will consider whether the duplication of 
brokerage costs resulting from such transactions has become 
significant. If the duplication of brokerage costs has become 
significant, the board will promptly adopt procedures designed to limit 
such duplication.
    6. Each Blended Balanced Fund will limit any redemptions resulting 
from a reallocation in its equity and fixed income positions to no more 
than 1 percent of a Portfolio's total outstanding securities during any 
period of less than thirty days.
    7. Each Blended Fund will continue to invest in portfolios of Core 
Trust only if the board of trustees of each Blended Fund determines, at 
least annually, that investment in portfolios of Core Trust is in the 
best interest of the shareholders of such Blended Fund.
    8. Each Blended Fund will, as part of its reports to shareholders 
under section 30(d) of the Act and rule 30d-1 thereunder, list the 
securities held by the portfolios of Core Trust in which the Blended 
Fund has invested and the amount and value of such Blended Fund's pro 
rata interest in each security to the same extent as if such securities 
or interests therein were held directly by such Blended Fund.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-26429 Filed 10-24-94; 8:45 am]
BILLING CODE 8010-01-M