[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