[Federal Register Volume 61, Number 126 (Friday, June 28, 1996)]
[Notices]
[Pages 33784-33786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16572]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22037; 812-10114]
Nations Fund Trust, et al., Notice of Application
June 24, 1996.
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''), NationsBanc Advisors, Inc. (``NBAI''), TradeStreet
Investment Associates, Inc. (``TradeStreet''), and Stephens Inc.
(``Stephens'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) granting an
exemption from section 12(d)(1), and under sections 6(c) and 17(b)
granting an exemption from section 17(a).
SUMMARY OF APPLICATION: Applicants request an order to permit Nations
to create a ``fund of funds'' that would purchase shares of affiliated
open-end investment companies in excess of the percentage limitations
of section 12(d)(1).
FILING DATES: The application was filed on April 29, 1996, and was
amended on June 13, 1996.
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 19, 1996
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 who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: One NationsBank Plaza, 101
[[Page 33785]]
South Tryon Street, Charlotte, North Carolina 28255.
FOR FURTHER INFORMATION CONTACT: Sarah A. Buescher, Staff Attorney, at
(202) 942-0573, or Robert A. Robertson, Branch Chief, at (202) 942-0564
(Office of Investment Company Regulation, Division of Investment
Management).
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. Applicants propose to create several series of a new open-end
management investment company (the ``Funds'') that would invest
substantially all of their assets in shares of the open-end management
investment companies in the Nations Fund Family. The ``Nations Fund
Family'' is defined to include NFT, NFI, NFPI, NIR, and each open-end
management investment company or series thereof that is or becomes a
member of the same ``group of investment companies'' as defined in rule
11a-3 under the Act.
The ``Underlying Portfolios'' are defined to include NFT, NFI,
NFPI, NIR, and other funds or series thereof in the Nations Fund Family
in which the Funds will invest.
2. NBAI and TradeStreet are both wholly-owned subsidiaries of
NationsBank, N.A., which is in turn a wholly-owned subsidiary of
NationsBank Corporation. NBAI will serve as investment adviser to the
Funds and the Underlying Portfolios. TradeStreet serves as subadviser
to NFT, NFI, and NIR, and it will serve as subadviser to the Funds.
Stephens, a registered broker-dealer, will serve as the distributor and
administrator for the Funds. Stephens currently provides those services
for NFT, NFI, NFPI, and NIR.
3. The Funds initially will consist of three separate series with
distinct investment objectives. Additional series may be added in the
future. The three initial Funds will be intended primarily for long-
term investors. The first Fund will invest in a variety of equity
market segments, the second Fund will invest in a balanced portfolio of
equity and fixed income securities, and the third Fund will seek to
provide investors with current income and modest growth as a hedge
against inflation. Asset allocation decisions for each Fund will be
made by NBAI and TradeStreet.
4. Applicants propose that, subject to the conditions to the
requested order, the Funds be permitted to purchase and redeem shares
of the Underlying Portfolios, and that each Underlying Portfolio be
permitted to sell and redeem shares from each of the Funds. The Funds
generally will invest substantially all of their assets in shares of
the Underlying Portfolios. Any assets that are not invested in
Underlying Portfolios will be invested directly in stocks, bonds, and
other securities, although it is not currently contemplated that there
will be a substantial amount of direct investing in individual
securities by the Funds.
5. The Funds and the Underlying Portfolios will pay investment
advisory fees to NBAI, and NBAI will compensate TradeStreet for
providing subadvisory services out of these fees. The Funds and the
Underlying Portfolios also will pay other service providers for their
services. It is currently contemplated that the Funds will invest in a
class of shares of the Underlying Portfolios that will not be subject
to sales loads, distribution fees, or shareholder servicing fees.
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 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. Applicants request an order under section
6(c) exempting them from section 12(d)(1) to permit the Funds to
acquire shares of the Underlying Portfolios in excess of the percentage
limitations of section 12(d)(1).
3. 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) Unnecessary duplication of costs,
e.g., sales loads, advisory fees, and administrative costs; (b) a lack
of appropriate diversification; (c) undue influence by the fund holding
company over its underlying funds; (d) the threat of large scale
redemptions of the securities of the underlying investment companies;
and (e) 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.
4. The proposed arrangement would contain no improper layering of
fees. The proposed arrangement will not involve the improper layering
of advisory fees since, before approving any advisory contract for the
Funds under section 15(a) of the Act, the board of trustees of the
Funds, including a majority of the trustees who are not ``interested
persons,'' as defined in section 2(a)(19) of the Act, must find that
the advisory fees charged under the contract are based on services
provided that are in addition to, rather than duplicative of, services
provided under any Underlying Portfolio advisory contract.
5. While applicants currently do not anticipate that the Funds will
be subject to sales loads, distribution fees, or shareholder servicing
fees, any sales charges or service fees relating to the shares of the
Funds will not exceed the limits set forth in Article III, section 26
of the NASD's Rules of Fair Practice, when aggregated with any sales
charges or service fees that the Funds may pay relating to the
Underlying Portfolio shares. The aggregate sales charges at both
levels, therefore, will not exceed the limit that otherwise lawfully
could be charged at any single level. Applicants believe that there
will not be a redundancy of administrative fees and expenses because
distinct services would be provided to the Funds and the Underlying
Portfolios.
6. Applicants believe that the concern over potential large scale
redemptions is not present in the context of the Funds. Because the
Funds will only acquire shares of Underlying Portfolios that are in the
Nations Fund Family, a redemption from one Underlying Portfolio will
simply lead to the investment of the proceeds in another Underlying
Portfolio. Applicants also believe that the proposed arrangement will
not result in disruptive redemptions because the Funds will be designed
for intermediate and long-term investors. This will reduce the
possibility of the Funds being used as short-term trading vehicles and
further protect the Funds ad the Underlying
[[Page 33786]]
Portfolios from unexpected large redemptions.
7. Section 17(a) makes it unlawful for an affiliated person of a
registered investment company to sell securities to, or purchase
securities from, the company. The Funds and the Underlying Portfolios
may be considered affiliated persons because they share a common
adviser. Thus, purchases or sales of securities between a Fund and an
Underlying Portfolio may be prohibited by section 17(a).
8. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) The
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policies of the registered investment company concerned; and (c)
the proposed transaction is consistent with the general provisions of
the Act. Applicants request an exemption under sections 6(c) and 17(b)
to permit the Funds to purchase shares of an Underlying Portfolio, and
an Underlying Portfolio to redeem such shares.\1\ Applicants believe
that the proposed transactions meet the standards of sections 6(c) and
17(b).
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\1\ Section 17(b) applies to specific proposed transactions,
rather than an ongoing series of future transactions. See Keystone
Custodian Funds, 21 S.E.C. 295, 298-99 (1945). Section 6(c)
frequently is used to grant relief from section 17(a) to permit an
ongoing series of future transactions.
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Applicants' Conditions
Applicants expressly consent to the imposition of the following
conditions in connection with this request for exemptive relief:
1. The Funds and each Underlying Portfolio will be part of the same
``group of investment companies,'' as defined in rule 11a-3 under the
Act.
2. No Underlying Portfolio will acquire securities of any other
investment company in excess of the limits contained in section
12(d)(1)(A) of the Act.
3. A majority of the directors of the Funds will not be
``interested persons,'' as defined in section 2(a)(19) of the Act.
4. Any sales-related charges or service fees relating to the shares
of the Funds, when aggregated with any charges or service fees paid by
the Funds with respect to the securities of the Underlying Portfolio,
will not exceed the limits set forth in Article III, section 26, of the
NASD's Rules of Fair Practice.
5. Before approving any advisory contract under section 15 of the
Act, the board of directors of the Funds, including a majority of the
directors who are not ``interested persons,'' as defined in section
2(a)(19), will find that the advisory fees charged under the contract
are based on services provided that are in addition to, rather than
duplicative of, services provided under any Underlying Portfolio
advisory contract. This finding, and the basis upon which the finding
was made, will be recorded fully in the minute books of the Funds.
6. Applicants agree to provide the following information, in an
electronic format, to the Chief Financial Analyst of the SEC's Division
of Investment Management: monthly average total assets for the Funds
and Underlying Portfolios; monthly purchases and redemptions (other
than by exchange) for the Funds and each Underlying Portfolio; monthly
exchanges into and out of the Funds and each Underlying Portfolio;
month-end allocations of the Funds' assets among the Underlying
Portfolios; annual expense ratios for the Funds and each Underlying
Portfolio; and a description of any vote taken by the shareholders of
any Underlying Portfolio, including a statement of the percentage of
votes cast for and against the proposal by the Funds and by the other
shareholders of the Underlying Portfolio. The information will be
provided as soon as reasonably practicable following each fiscal year-
end of the Funds (unless the Chief Financial Analyst notifies
applicants in writing that the information need no longer be
submitted).
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16572 Filed 6-27-96; 8:45 am]
BILLING CODE 8010-01-M