[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]
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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'').
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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.
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\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).
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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