[Federal Register Volume 62, Number 129 (Monday, July 7, 1997)]
[Notices]
[Pages 36322-36325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17577]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22729; 812-10486]


Nations Fund Trust, et al.; Notice of Application

June 27, 1997.
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''--formerly, The Capitol Mutual Funds), 
each open-end management investment company or series thereunder, that 
currently is, or in the future becomes, part of the same ``group of 
investment companies,'' as defined in rule 11a-3 under the Act, any 
other registered investment companies or series thereof that are now or 
in the future advised by NationsBanc Advisors, Inc. (``NBAI'') 
(collectively, ``Nations Fund Family''), and NBAI.
    Relevant Act Sections: Order requested under section 12(d)(1)(J) 
for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B), under 
sections 6(c) and 17(b) for an exemption from section 17(a), and under 
section 17(d) and rule 17d-1 thereunder permitting certain joint 
transactions.
    Summary of Application: Applicants request an order that would 
permit certain investment companies to purchase shares of affiliated 
money market funds in excess of the limits prescribed in section 
12(d)(1).
    Filing Dates: The application was filed on January 10, 1997, and 
amended on April 15, 1997, and June 26, 1997.
    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 22, 
1997 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549. 
Applicants, One NationsBank Plaza, 101 South Tryon Street, Charlotte, 
North Carolina 28255.

FOR FURTHER INFORMATION CONTACT:
Joseph B. McDonald, Jr., Senior Counsel, at (202) 942-0533, or 
Christine Y. Greenlees, 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 from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. NFT and NIR are Massachusetts business trusts registered under 
the Act as open-end management investment companies. NFI and NFPI are 
Maryland corporations registered under the Act as open-end management 
investment companies. The Nations Fund Family presently consists of 50 
distinct investment portfolios.
    2. NFT currently consists of 35 separate series or investment 
portfolios, two of which hold themselves out as money market funds that 
seek to maintain a constant net asset value (``NAV''), and are subject 
to the requirements of rule 2a-7 under the Act, and 33 of which have 
per share NAVs that fluctuate from day to day. NFI currently consists 
of eight separate series or investment portfolios, two of which hold 
themselves out as money market funds and six of which have fluctuating 
per share NAVs. NFPI currently consists of three separate series or 
investment portfolios, all of which have fluctuating per share NAVs. 
NIR currently consists of four separate series or investment 
portfolios, all of which hold themselves out as money market funds. 
Additional series of NFT, NFI, NFPI, and NIR may be added in the 
future.
    3. Each existing and any future money market portfolio of NFT, NFI, 
NFPI, NIR and any other investment companies advised now or in the 
future by NBAI are referred to herein individually as a ``Money Market 
Fund'' and collectively as the ``Money Market Funds.'' Each existing 
and any future variable NAV portfolio of NFT, NFI, NFPI, and any other 
investment companies advised now or in the future by NBAI are referred 
to herein individually as a ``Non-Money Market Fund'' and collectively 
as the ``Non-Money Market Funds.'' The Money Market Funds and the Non-
Money Market Funds are

[[Page 36323]]

referred to herein collectively as the ``Funds.'' \1\
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    \1\ All investment companies advised by NBAI that currently 
intend to rely on the requested order are named as applicants.
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    4. NBAI is the investment adviser for each series of the Nations 
Fund Family. NBAI is a wholly-owned subsidiary of NationsBank, N.A. 
(``NationsBank''), which in turn is a wholly-owned indirect subsidiary 
of NationsBank Corporation (``NBC''), a publicly held bank holding 
company. TradeStreet Investment Associates, Inc. (``TSIA''), also a 
wholly-owned subsidiary of NationsBank, serves as the investment sub-
adviser for all but one of the series of NFT, NFI, and NIR. Gartmore 
Global Partners (``GGP''), a joint venture owned equally by a wholly-
owned subsidiary of NationsBank and an indirect wholly-owned subsidiary 
of Gartmore Investment Management plc, a company organized under the 
laws of the United Kingdom, serves as the investment subadviser to each 
series of NFPI and one series of NFI. NBAI, TSIA, GGP, and any future 
investment sub-adviser to any Fund are referred to herein collectively 
as the ``Investment Advisers.''
    5. NationsBank of Texas, N.A. (``NBT''), a wholly-owned indirect 
subsidiary of NBC, serves as custodian for the assets of all but four 
series of the Nations Fund Family. The Bank of New York (``BONY''), 
which is not affiliated with NationsBank or its affiliates, serves as 
the sub-custodian for the assets of all but four series of the Nations 
Fund Family, and serves as the direct custodian for the assets of those 
four series. NBT and BONY, in their respective capacities as custodian 
and sub-custodian, are referred to herein collectively as the 
``Custodian.'' Stephens Inc., a registered broker-dealer that is not 
affiliated with NationsBank or its affiliates, serves as the Funds' 
sponsor, distributor, and administrator. First Data Investor Services 
Group, Inc., which is not affiliated with NationsBank or its 
affiliates, serves as the co-administrator and the transfer agent for 
the Funds.
    6. The Non-Money Market Funds invest in a variety of debt and/or 
equity securities in accordance with their respective investment 
objectives and policies. The Money Market Funds seek current income, 
liquidity, and capital preservation by investing exclusively in short-
term money market instruments such as U.S. Government securities, bank 
obligations, commercial paper, municipal obligations, or repurchase 
agreements. Each of the Funds has, or may be expected to have, Cash 
Balances (as defined below) in an account at the Custodian, which 
either may be invested directly in individual short-term money market 
instruments, or may not otherwise be invested in any portfolio 
securities.
    7. Certain of the Funds may participate in a securities lending 
program (the ``Securities Lending Program''), under which they may lend 
portfolio securities to registered broker-dealers or other 
institutional investors deemed by the respective Fund's Investment 
Adviser to be of good standing (``Borrowers''). These loans may not 
exceed one-third of a Fund's total assets taken at market value (or 
such other percentage as may be permissible in the future under 
applicable rules or SEC staff positions). The Funds have selected BONY, 
which is not affiliated with NationsBank or its affiliates, as their 
securities lending agent. The agreements governing such loans require 
that the loans be continuously secured by collateral equal at all times 
in value to at least the market value of the securities loaned. 
Collateral for such loans may include cash, shares of money market 
mutual funds, U.S. Government or agency securities, repurchase 
agreements, or an irrevocable letter of credit issued by a bank meeting 
certain qualifications. Any investment of cash collateral will comply 
with all present and future applicable SEC staff positions regarding 
securities lending arrangements.
    8. Applicants request an order that would permit: (a) each of the 
Funds to utilize its cash reserves that have not been invested in 
portfolio securities (``Uninvested Cash'') to purchase shares of one or 
more of the Money Market Funds (such Funds, including Money Market 
Funds, that purchase shares of the Money Market Funds are referred to 
herein collectively as the ``Investing Funds''); (b) each of the 
Investing Funds to utilize cash collateral received from Borrowers in 
connection with the Investing Fund's securities lending activities 
(``Cash Collateral'') to purchase shares of one or more of the Money 
Market Funds; and (c) the Money Market Funds to sell their shares to, 
and to purchase (or redeem) such shares from, the Investing Funds. 
Uninvested Cash and Cash Collateral are referred to herein collectively 
as ``Cash Balances.'' By investing Cash Balances in the Money Market 
Funds as proposed, applicants believe that the Investing Funds will be 
able to reduce their transaction costs, create more liquidity, enjoy 
greater returns, and further diversify their holdings.

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 12(d)(1)(J) of the Act provides that the SEC may exempt 
any person, security or transaction (or classes thereof) from any 
provision of section 12(d)(1) if and to the extent that such exemption 
is consistent with the public interest and the protection of investors.
    3. Applicants' proposal would permit the Investing Funds to use 
Cash Balances to acquire shares of a Money Market Fund in excess of the 
percentage limitations set out in section 12(d)(1)(A), provided, 
however, that each Investing Fund's aggregate investment of Uninvested 
Cash in shares of such Money Market Fund shall not exceed 25% of the 
Investing Fund's total assets. Applicants' proposal also would permit 
the Money Market Funds to sell their securities to an Investing Fund in 
excess of the percentage limitations set out in section 12(d)(1)(B). 
Applicants represent that no Money Market Fund will acquire securities 
of any other investment company in excess of the limits contained in 
section 12(d)(1)(A) of the Act.
    4. 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) undue influence by the fund 
holding company over its underlying funds; (b) the threat of large 
scale redemptions of the securities of the underlying investment 
companies; (c) unnecessary duplication of costs, e..g., sales loads, 
advisory fees, and administrative costs; and (d) 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.

[[Page 36324]]

    5. Applicants represent that the proposed arrangement would not 
result in the inappropriate layering of either sales charges or 
investment advisory fees.\2\ Shares of the Money Market Funds sold to 
and redeemed by the Investing Funds will not be subject to a sales 
load, redemption fee, distribution fee, or service fee. In connection 
with approving any advisory contract, the Investing Fund's board of 
trustees, including a majority of the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, will consider to 
what extent the advisory fees charged to the Investing Fund by the 
Investment adviser should be reduced to account for the reduced 
services provided to the Fund as a result of Uninvested Cash being 
invested in the Money Market Fund.
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    \2\ Applicants do not believe that the custodian fees paid to 
NBT as Custodian or administrative or transfer agency fees which may 
be paid to other affiliates of NBAI will result in a significant 
layering of fees. The services for which such fees are paid must be 
performed separately at both the Investing Fund and the Money Market 
Fund levels in all events, and significant economies in the cost of 
performing these functions are not expected to be realized as a 
result of investments by Investing economies in the cost of 
performing these functions are not expected to be realized as a 
result of investments by Investing Funds in the Money Market Funds.
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    6. Section 17 (a)(1) and (2) make it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from such investment company. Because 
NFT, NFI, NFPI, and NIR have common boards of trustees, each series of 
NFT, NFI, NFPI and NIR may be deemed to be under common control with 
each of the other. In light of their common boards of trustees, each 
series of NFT, NFI, NFPI, and NIR might be deemed to be an ``affiliated 
person,'' as defined in section 2(a)(3) of the Act, of each of the 
other series. Accordingly, the sale of shares of the Money Market Funds 
to the Investing Funds, and the redemption of such shares by the 
Investing Funds, would be prohibited under section 17(a).
    7. 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.
    8. Section 17(b) authorizes the SEC to exempt a transaction from 
section 17(a) if the terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned, the 
proposed transaction is consistent with the policy of each investment 
company concerned, and 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 each of the Investing Funds to 
purchase and redeem shares of the Money Market Funds, and the Money 
Market Funds to sell their shares to, and to redeem such shares from, 
each of the Funds.\3\
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    \3\ 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 are used to grant relief from section 
17(a) to permit an ongoing series of future transactions.
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    9. The Investing Funds will retain their ability to invest Cash 
Balances directly in money market instruments as authorized by their 
respective investment objectives and policies, if they believe they can 
obtain a higher return, or for any other reason. Each of the Money 
Market Funds has the right to discontinue selling shares to any of the 
Investing Funds if its board of trustees determines that such sales 
would adversely affect its portfolio management and operations. 
Therefore, applicants believe that the proposal satisfies the standards 
for relief in sections 6(c) and 17(b).
    10. Section 17(d) and rule 17d-1 prohibit an affiliated person of 
an investment company, acting as principal, from participating in or 
effecting any transaction in connection with any joint enterprise or 
joint arrangement in which the investment company participates. Each 
Investing Fund, by purchasing shares of the Money Market Funds, each 
Investment Adviser of an Investing Fund, by managing the assets of the 
Investing Funds invested in the Money Market Funds, and each Money 
Market Fund, by selling shares to the Investing Funds, could be deemed 
to be participants in a joint enterprise or other joint arrangement 
within the meaning of section 17(d) and rule 17d-1.
    11. In passing upon applications submitted pursuant to section 
17(d) and rule 17d-1, the SEC will consider whether the participation 
of such registered or controlled company in such joint enterprise, 
joint arrangement or profit-sharing plan on the basis proposed is 
consistent with the provisions, policies, and purposes of the Act, and 
the extent to which such participation is on a basis different from or 
less advantageous than that of other participants. Applicants believe 
that the proposal satisfies these standards.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Shares of the Money Market Funds sold to and redeemed by the 
Investing Funds will not be subject to a sales load, redemption fee, 
distribution fee under a plan adopted in accordance with rule 12b-1 
under the Act, or service fee (as defined in rule 2830(b)(9) of the 
NASD Conduct Rules).
    2. Before the next meeting of the board of trustees of an Investing 
Fund is held for the purpose of voting on an advisory contract under 
section 15 of the Act, the Investment Adviser to the Investing Fund 
will provide the board of trustees with specific information regarding 
the approximate cost to the Investment Adviser of, or portion of the 
advisory fee under the existing advisory fee attributable to, managing 
the Uninvested Cash of the Investing Fund that can be expected to be 
invested in the Money Market Fund. In connection with approving any 
advisory contract for an Investing Fund, the board of trustees of the 
Investing Fund, including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, 
shall consider to what extent, if any, the advisory fees charged to the 
Investing Fund by the Investment Adviser should be reduced to account 
for reduced services provided to the Fund by the Investment Adviser as 
a result of Uninvested Cash being invested in the Money Market Fund. 
The minute books of the Investing Fund will record fully the Board's 
consideration in approving the advisory contract, including the 
considerations referred to above.
    3. Each Investing Fund will invest Uninvested Cash in, and hold 
shares of, the Money Market Funds only to the extent that the Investing 
Fund's aggregate investment in the Money Market Funds does not exceed 
25 percent of the Investing Fund's total assets.
    4. Investment of Cash Balances in shares of the Money Market Funds 
will be in accordance with each Investing Fund's respective investment 
restrictions, if any, and will be consistent with each Investing Fund's 
policies as set forth in its prospectuses and statements of additional 
information.
    5. Each Investing Fund, each Money Market Fund, and any future fund 
that may rely on the order shall be advised by the Investment Adviser, 
or a person controlling, controlled by, or under common control with 
the Investment Adviser.

[[Page 36325]]

    6. No Money Market Fund shall acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act.
    7. Before a Fund may participate in the Securities Lending Program, 
a majority of the trustees (including a majority of the independent 
trustees) of the Fund will approve the Fund's participation in the 
Securities Lending Program. Such trustees also will evaluate the 
securities lending arrangement and its results no less frequently than 
annually and determine that any investment of Cash Collateral in the 
Money Market Funds is in the best interest of the shareholders of the 
Fund.

    For the SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-17577 Filed 7-3-97; 8:45 am]
BILLING CODE 8010-01-M