[Federal Register Volume 61, Number 136 (Monday, July 15, 1996)]
[Notices]
[Pages 36941-36944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17931]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22056; 812-10040]


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

July 9, 1996.
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. (the ``Bank''), Norwest 
Advantage Funds, Forum Financial Services, Inc. (``Forum''), Core Trust 
(Delaware) (``Core Trust''), and Schroder Capital Management 
International, Inc. (``Schroder'').

RELEVANT ACT SECTIONS: Exemption requested under section 6(c) of the 
Act from section 12(d)(1) of the Act, and under sections 6(c) and 17(b) 
of the Act from section 17(a) of the Act.

SUMMARY OF APPLICATION: Applicants request an order that would 
supersede a prior order (the ``Existing Order'') \1\ and would permit 
Norwest Advantage Funds to invest any percentage of their assets in an 
underlying Core Trust portfolio or in direct investments. It also would 
remove certain restrictions currently imposed on the Core Trust 
portfolios to permit them to accept investments from persons other than 
Norwest Advantage Funds.

    \1\ Norwest Bank Minnesota, N.A., et al., Investment Company Act 
Release Nos. 20640 (Oct. 19, 1994) (notice) and 20697 (Nov. 10, 
1994) (order).
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FILING DATE: The application was filed on March 8, 1996 and amended on 
May 17, 1996, and June 27, 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 August 5, 1996, 
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, N.W., Washington, D.C. 
20549. Applicants, c/o Forum Financial Group, Two Portland Square, 
Portland, Maine 04101, Attention: David I. Goldstein, Esq.

FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574 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. Norwest Advantage Funds is a registered open-end series 
investment company organized as a Delaware business trust.\2\ Norwest 
Advantage Funds currently consists of 30 series. Five of the Norwest 
Advantage Funds (the ``Blended Funds'') allocate their assets among a 
combination of different investment strategies or styles (e.g., small 
company stock, international stock, short-term corporate bonds). The 
Blended Funds currently are offered without a sales load or redemption 
fee and do not bear distribution expenses pursuant to a plan adopted 
under rule 12b-1 under the Act, although applicants anticipate revising 
these arrangements in the future. Other Norwest Advantage Funds offer 
multiple classes of shares in reliance on rule 18f-3, including classes 
subject to sales loads and distribution expenses pursuant to rule 12b-1 
plans.
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    \2\ At the time of the Existing Order, Norwest Advantage Funds 
was known as ``Norwest Funds'' Effective October 1, 1995, Norwest 
Funds changed its name to Norwest Advantage Funds.
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    2. Core Trust is a registered open-end series investment company 
organized as a Delaware business trust. Core Trust does not offer its 
securities to the public; its securities are offered only in private 
placement transactions to registered investment companies and other 
institutional investors. Core Trust, however, reserves the right to 
offer its shares to the public in the future. Presently, there are 
seven series of Core Trust (the ``Core Trust Portfolios''). Three 
series of Core Trust, Small Company Portfolio, International Portfolio 
II, and Index Portfolio, operate in a manner similar to master funds in 
a master-feeder arrangement, and currently offer their securities only 
to the Blended Funds pursuant to the Existing Order (the ``Core 
Advantage Portfolios''). Four series of Core Trust operate as master 
funds in master feeder arrangements: Treasury Cash Portfolio, 
Government Cash Portfolio, Cash Portfolio (collectively, the ``Money 
Fund Portfolios''), and International Portfolio. The Money Fund 
Portfolios (which currently are unrelated in any way to the Bank and/or 
Norwest Advantage Funds) invest in money market instruments. 
International Portfolio currently offers its securities only to 
International fund, a series of Norwest Advantage Funds, in reliance on 
section 12(d)(1)(E) of the Act. The Core Trust Portfolios may, in the 
future, be offered to Funds (as defined below) relying on any order 
granting this application, or to any other investor legally entitled to 
purchase securities issued by the Core Trust Portfolios. Shares of the 
Core Trust Portfolios that intend to rely on the requested order 
presently are offered

[[Page 36942]]

without a sales load or redemption fee and do not bear distribution 
expenses pursuant to a rule 12b-1 plan.
    3. The Bank is a wholly-owned subsidiary of Norwest Corporation. 
The Bank is the investment adviser to each Norwest Advantage Fund and 
two Core Advantage Portfolios. Schroder, a registered investment 
adviser, serves as subadviser to International fund and, with respect 
to investments in international securities, to each Blended Fund. 
Schroder also serves as investment adviser to International Portfolio 
and International Portfolio II of Core Trust. Forum, a registered 
broker-dealer and investment adviser, provides distribution, 
management, and related services to the Norwest Advantage Funds and 
Core Trust. Applicants request that any relief granted pursuant to this 
application also apply to (a) any registered open-end investment 
company or series thereof for which the Bank, Schroder, Forum, or any 
entity that controls, is controlled by, or is under common control with 
the Bank, Schroder, or Forum serves as investment adviser, 
administrator (as that term is defined in item 5 of Form N-1A), 
principal underwriter, or placement agent (together with Norwest 
Advantage Funds, the ``Funds'') that in the future determines to invest 
its assets in another registered open-end investment company that is 
part of the same ``group of investment companies,'' (together with Core 
Trust, the ``Portfolios'') \3\ and (b) to any such Portfolio.\4\
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    \3\ The Money Fund Portfolios currently offer their securities 
to three series of Monarch Funds, and currently intend to offer 
their securities to at least two series of forum Funds in reliance 
on section 12(d)(1)(E) of the act. Both Monarch Funds and forum 
Funds are registered open-end management investment companies whose 
securities are distributed by Forum. Neither Monarch Funds nor forum 
Funds currently intends to invest in Portfolios in reliance on this 
order, but may do so in the future.
    \4\ For purposes of this application, ``group of investment 
companies'' has the same meaning as that term is assigned in rule 
11a-3(a)(5) under the Act, modified to the extent that an investment 
company that does not offer its shares to the public has a placement 
agent rather than a principal underwriter.
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    4. The Existing Order allows each Blended Fund to invest a portion 
of its assets, within a specified range, in the outstanding voting 
shares of the three Core Advantage Portfolios, and imposes several 
restrictions on the operation of the Blended Funds and Core Advantage 
Portfolios. For example, the Existing Order applies only to investments 
in the three Core Advantage Portfolios. A Blended Fund that allocates 
part of its assets to a different investment style must invest in 
portfolio securities directly, without the benefits of pooled 
investment. Each Core Advantage Portfolio is barred from offering 
securities to persons other than Blended Funds relying on the Existing 
Order, including feeder funds relying on section 12(d)(1)(E) of the 
Act. Moreover, each Blended Fund must allocate a ``base percentage'' of 
its assets to each of the three Core Advantage Portfolios in which it 
invests, and may deviate from these base allocations only within 
specified ranges. Applicants contend that the Existing Order is 
outdated and that the proposed revisions constitute a cost-effective 
response to investor demand for diversification of fund portfolios.
    5. Applicants request an exemption under section 6(c) of the Act 
from section 12(d)(1) of the Act, and under sections 6(c) and 17(b) of 
the Act from section 17(a) of the Act. The requested order would 
supersede the Existing Order and would permit the Funds to invest any 
percentage of their assets in underlying Portfolios or in direct 
investments to the extent consistent with their investment policies and 
registration statements. It also would remove certain restrictions 
currently imposed on the Core Trust portfolios to permit the Portfolios 
to accept investments from persons other than the Norwest Advantage 
Funds.
    6. The funds will not invest in any Portfolio unless the Portfolio 
may not acquire securities of any other investment company in excess of 
the limits contained in section 12(d)(1)(A), except for securities 
received as a dividend or as a result of a plan of reorganization of 
any company. The exception for securities received as a dividend or as 
a result of a plan of reorganization is based on section 
12(d)(1)(D).\5\ No Portfolio will participate in any plan or 
reorganization devised for the purpose of evading the provisions of 
section 12(d)(1)(A). Applicants assert that the legislative history of 
section 12(d)(1)(D) indicates that the enumerated exceptions are 
warranted because they do not involve any new commitment on the part of 
the acquiring investment company, and consequently do not present the 
abuses section 12(d)(1)(A) was intended to address.
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    \5\ Section 12(d)(1)(D) permits an investment company to exceed 
the limits contained in section 12(d)(1)(A) in the event that the 
investment company exceeds the limits because it acquires investment 
company shares as a dividend, as a result of an offer of exchange, 
or pursuant to a plan of reorganization (other than a plan devised 
for the purpose of evading section 12(d)(1)(A)).
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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.
    2. Section 6(c) provides that the SEC may exempt persons or 
transactions if, and to the extent that, such exemption is necessary or 
appropriate in the pubic 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 sections 12(d)(1) (A) and (B) to permit the Funds to invest 
in shares of the Portfolios in excess of the percentage limitations of 
section 12(d)(1).
    3. 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. One of the concerns that led to the enactment of section 
12(d)(1) was the layering of fees. Applicants assert that fees charged 
to the Funds and Portfolios in which they invest will not be 
duplicative. Any advisory fees that are charged to a Fund would be 
subject to the approval of the Fund's director or trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees''). This approval process is designed to ensure 
that any advisory fee that may be borne by any Fund would be for 
services that augment, rather than duplicate, those services provided 
to the Portfolios. If the requested relief is granted, applicants 
expect to seek shareholder approval to the extent required by section 
15 of the Act to reorganize the fee structure of the Blended Funds and 
the Portfolios such that advisory fees would be charged only at the 
Portfolio level. If shareholder approval is obtained, advisory fees 
then would be assessed at the Fund level only for (a) services related 
to the direct investment activities undertaken by the

[[Page 36943]]

Funds, and (b) any non-duplicative services rendered only at the Fund 
level. Any advisory fee charged at the Fund level would compensate the 
adviser for services (e.g., asset allocation) that were unique to the 
Fund and that would not be provided at the Portfolio level.
    4. Applicants assert that granting the requested relief would not 
present any danger of duplicative or excessive sales loads. Applicants 
intend that sales charges will continue to be incurred only at the Fund 
level. Applicants have, however, reserved the right to have different 
sales load structures in the future, which may include the payment of 
sales charges or service fees at both the Portfolio and Fund levels. If 
a Fund determines to invest in shares of a Portfolio that also bears a 
sales charge or service fee, it will do so only in conformity with the 
National Association of Securities Dealers' (``NASD'') restrictions on 
aggregated sales charges and service fees. The funds would pay no sales 
charges on account of their investments in the Portfolios unless such 
charges had been reviewed and approved by the Fund's Independent 
Trustees.
    5. Applicants assert that the requested relief would not lead to 
undue control or the threat of large-scale redemptions. Applicants 
contend that the excessive from the threat of redemptions and the 
concomitant loss of advisory fees does no apply in the context of funds 
of funds, all of which belong to the same group of investment 
companies. Because of the relationship among the investment advisers 
and/or principal underwriters/placement agents for a Fund and the 
Portfolio in which it invests, the threat of redemption as a means of 
exercising control is remote.
    6. Section 17(a) makes it unlawful for an affiliated person of a 
registered investment company, or an affiliated person of such person, 
to sell securities to, or purchase securities from, the company. 
Because Norwest Advantage Funds and the index Portfolio and the Small 
Company Portfolio of Core Trust are each advised by the Bank, and 
because six Norwest Advantage Funds and International Portfolio and 
International Portfolio II are advised by or subadvised by Schroder, 
Norwest Advantage Funds and Core Trust could be deemed to be affiliates 
of one another. Purchases by the Norwest Advantage Funds of the shares 
of the Core Trust Portfolios and the sale by the Core Trust Portfolios 
of their shares to the Norwest Advantage Funds could thus be deemed to 
be principal transactions between affiliated persons under section 
17(a).
    7. Section 17(b) provides that the SEC shall exempt 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. Applicants request an exemption under sections 6(c) and 17(b) to 
permit the Portfolios to sell their shares to the Funds.\6\ Applicants 
believe that the proposed transaction meet the standards of sections 
6(c) and 17(b).
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    \6\ Section 17(b) applies to a specific proposed transaction 
rather than an ongoing series of future transactions. See Keystone 
Custodian Funds, 21 S.E.C. 295, 298-99 (1945). Section 6(c), along 
with section 17(b), frequently is used to grant relief from section 
17(a) to permit an ongoing series of future transactions.
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Applicant's Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Each Fund will be part of the same ``group of investment 
companies'' as any Portfolio in which it invests. For purposes of this 
condition, ``group of investment companies'' mean any two or more 
registered open-end investment companies that hold themselves out to 
investors as related companies for purposes of investment and investor 
services, and (a) that have a common investment adviser or principal 
underwriter/placement agent, or (b) the investment adviser or principal 
underwriter/placement agent of one of the companies is an affiliated 
person as defined in section 2(a)(3) of the Act of the investment 
adviser or principal underwriter/placement agent of each of the other 
companies.
    2. A Fund will not invest in any Portfolio unless the Portfolio may 
not acquire securities of any other investment company in excess of the 
limits contained in section 12(d)(1)(A) of the Act, except for 
securities received as a dividend or as a result of a plan of 
reorganization of any company.
    3. At least a majority of each Fund's directors or trustees will be 
Independent Trustees, and the selection of Independent Trustees 
necessary to fill any vacancies on the board of directors or trustees, 
as well as the nomination of those persons to be recommended by the 
board of directors or trustees in connection with any shareholder vote, 
will be committed to the discretion of such Independent Trustees.
    4. Prior to approving any advisory or management contract under 
section 15 of the Act or promptly upon the termination of a fee waiver, 
the directors or trustees of each Fund, including a majority of the 
Independent Trustees, shall find that the management and advisory fees 
charged under such contract, if any, are based on services that will be 
in addition to, rather than duplicative of, the services provided under 
the contracts of any Portfolio in which the Fund may invest; provided 
that no such findings will be necessary if the Bank or other investment 
adviser to a Portfolio waives all advisory fees that may be imposed for 
serving as investment adviser to the Portfolio or, if only a portion of 
such advisory fees are waived, the Bank or another party reimburses the 
Portfolio for any advisory fee or portion thereof that is not waived. 
These findings and their basis will be recorded fully in the minute 
books of the Fund.
    5. Any Sales Charges or Service Fees, as such terms are defined 
under Section 26(b) of Article III of the NASD Rules of Fair Practice, 
as may be charged with respect to securities of a Fund, when aggregated 
with any such sales charges and/or service fees borne by the Fund with 
respect to the shares of a Portfolio, shall not exceed the limits set 
forth in section 26(d) of Article III of the NASD Rules of Fair 
Practice.
    6. Applicants will provide the following information in electronic 
format to the Chief Financial Analyst of the SEC's Division of 
Investment Management as soon as reasonably practicable following each 
fiscal year-end of each Fund, unless the Chief Financial Analyst 
notifies applicants that the information need no longer be submitted: 
(a) monthly average total assets for each Fund and each Portfolio in 
which a Fund invests; (b) monthly purchases and redemptions (other than 
by exchange) for each Fund and each Portfolio in which a Fund invests; 
(c) monthly exchanges into and out of each Fund and each Portfolio in 
which a Fund invests; (d) month-end allocations of each Fund's assets 
among the Portfolios in which it invests; (e) annual expense ratios for 
each Fund and each Portfolio in which a Fund invests; and (f) a 
description of any vote taken by the shareholders of any Portfolio in 
which a Fund invests, including a statement of the percentage of votes 
cast for and against the proposal by the Fund and by the other 
shareholders of that Portfolio.


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    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-17931 Filed 7-12-96; 8:45 am]
BILLING CODE 8010-01-M