[Federal Register Volume 63, Number 82 (Wednesday, April 29, 1998)]
[Notices]
[Pages 23484-23486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11287]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act, Release No. 23124; 812-11022]
Nations Fund Trust, et al.; Notice of Application
April 22, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of an application under section 17(b) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 17(a) of
the Act.
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SUMMARY OF THE APPLICATION: Applicants request an order to permit
certain series of Nations Fund Trust (``NFT''), Nations Fund, Inc.
(``NFI''), and Nations Institutional Reserves (``NIR'') to acquire all
of the assets and liabilities of all of the series of Emerald Funds
(``Emerald'').
APPLICANTS: NFT, NFI, NIR, NationsBanc Advisors, Inc. (``NBAI''),
Emerald, and Barnett Capital Advisors, Inc. (``Barnett'').
FILING DATES: The application was filed on February 23, 1998.
Applicants have agreed to file an amendment, the substance of which is
included in this notice, 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 May 13, 1998 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 by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: NFT, NFI, NIR, and NBAI, One NationsBank Plaza,
Charlotte, NC 28255; Emerald, 3435 Stelzer Road, Columbus, OH 43219;
and Barnett, 9000 Southside Boulevard, Building 100, Jacksonville, FL
32256.
FOR FURTHER INFORMATION CONTACT:
Rachel H. Graham, Senior Counsel, (202) 942-0583, or Christine Y.
Greenlees, Branch Chief, (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, 450 Fifth Street, N.W., Washington,
D.C. 20549 (telephone (202) 942-8090).
Applicants' Representations
1. Emerald, a Massachusetts business trust, is an open-end
management investment company registered under the Act. Emerald
currently offers shares in fourteen series (the ``Acquired Funds'').
2. NFT and NIR, each a Massachusetts business trust, and NFI, a
Maryland corporation, are open-end management investment companies
registered under the Act. Each company offers shares in certain series,
some of which constitute the ``Acquiring Funds'' (together with the
Acquired Funds, the ``Funds''). NFT offers shares in thirty-nine
series, seven of which are Acquiring Funds. NFI offers shares in eight
series, four of which are Acquiring Funds. NIR offers shares in four
series, one of which is an Acquiring Fund. Each of NFI and NIR is
organizing a new shell series, which also will be Acquiring Funds.\1\
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\1\ Registration statements for the two shell Acquiring Funds
were declared effective on April 6, 1998, and April 7, 1998. These
funds are expected to commence operations upon the consummation of
the Reorganizations (as defined below).
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3. Barnett is registered under the Investment Advisers Act of 1940
(``Advisers Act'') and is the investment adviser to the Acquired Funds.
Barnett is a wholly-owned subsidiary of Barnett Bank, N.A., which, in
turn, is a wholly-owned subsidiary of Barnett Banks, Inc. As of the
date of the application, Barnett and its affiliates, all of which are
part of a common control group (the ``Barnett Group''), held of record,
in their name and in the names of their nominees, more than 25% of the
outstanding voting shares of certain classes of shares of the Acquired
Funds. All of these securities are held for the benefit of others in a
trust, agency, custodial, or other fiduciary or representative
capacity, except that Barnett Bank, N.A.
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may, from time to time, own more than 5% but less than 10% of a certain
class of shares of certain Acquired Funds for its own account.
4. NBAI is registered under the Advisers Act and is the investment
adviser for the Acquiring Funds. NBAI is a wholly-owned subsidiary of
NationsBank, N.A., which, in turn, is a wholly-owned subsidiary of
NationsBank Corporation (``NationsBank'').
5. On January 9, 1998, Barnett Banks, Inc. merged into NB Holdings
Corporation, a subsidiary of NationsBank (the ``Holding Company
Merger''). As a result of the Holding Company Merger, Barnett became an
indirect wholly-owned subsidiary of NationsBank.
6. On January 16, 1998, and February 12, 1998, respectively, the
boards of directors and trustees of NFT, NFI, and NIR (the ``Nations
Funds' Boards'') and the board of trustees of Emerald (the ``Emerald
Board''), including their disinterested directors and trustees,
unanimously approved Agreements and Plans of Reorganization between
Emerald and each of NFT, NFI, and NIR (each a ``Reorganization Plan''
and collectively, the ``Reorganization Plans''). Pursuant to the
Reorganization Plans, each Acquiring Fund will acquire all of the
assets and liabilities \2\ of the corresponding Acquired Fund in
exchange for shares of designated classes of the Acquiring Fund (the
``Reorganizations'').\3\ The number of Acquiring Fund shares to be
issued to shareholders of the Acquired Fund will be determined by
dividing the aggregate net assets of each Acquired Fund class by the
net asset value per share of the corresponding Acquiring Fund class,
each computed as of the close of business on the closing date
(``Closing Date''). The Reorganization Plans provide that these
Acquiring Fund shares will be distributed pro rata to the shareholders
of record in the applicable Acquired Fund class, determined as of the
close of business on the Closing Date. This distribution will be
accomplished by issuing the Acquiring Fund shares to open accounts on
the share records of the Acquiring Funds in the names of the Acquired
Fund shareholders. Simultaneously, all issued and outstanding shares of
the Acquired Funds will be cancelled on the books of the Acquired
Funds. Each Acquired Fund, and Emerald, thereafter will be dissolved.
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\2\ Prior to implementation of the Reorganization Plans, the
Acquired Funds intend to discharge substantially all of their
liabilities. Each Acquiring Fund will assume all remaining
liabilities of its corresponding Acquired Fund.
\3\ The Acquired Funds and the corresponding Acquiring Funds
are: (i) Emerald Balanced Fund and Nations Balanced Assets Fund;
(ii) Emerald Equity Fund and Nations Disciplined Equity Fund; (iii)
Emerald Equity Value Fund and Nations Value Fund; (iv) Emerald
Florida Tax-Exempt Fund and Nations Florida Municipal Bond Fund; (v)
Emerald International Equity Fund and Nations International Value
Fund (shell); (vi) Emerald Managed Bond Fund and Nations Strategic
Fixed Income Fund; (vii) Emerald Prime Fund and Nations Prime Fund;
(viii) Emerald Prime Advantage Institutional Fund and Nations Money
Market Reserves (shell); (ix) Emerald Short-Term Fixed Income Fund
and Nations Short-Term Income Fund; (x) Emerald Small Capitalization
Fund and Nations Small Company Growth Fund; (xi) Emerald Tax-Exempt
Fund and Nations Tax-Exempt Fund: (xii) Emerald Treasury Fund and
Nations Treasury Fund; (xiii) Emerald Treasury Advantage
Institutional Fund and Nations Treasury Reserves; and (xiv) Emerald
U.S. Government Securities Fund and Nations government Securities
Fund.
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7. The Acquiring Funds fall into three categories. First, there are
three Acquiring Funds that offer shares in six classes (Primary A,
Primary B, Investor A, Investor B, Investor C, and Daily) (``Category 1
Acquiring Funds''). Second, there are nine Acquiring Funds that offer
shares in four classes (Primary A, Investor A, Investor B [formerly
Investor N], and Investor C) (``Category 2 Acquiring Funds''). Seven of
the Category 2 Acquiring Funds also offer Primary B class shares.
Third, there are two Acquiring Funds that offer shares in four classes
(Adviser, Capital, Liquidity, and Market) (``Category 3 Acquiring
Funds''). Shares in the following classes will be issued in the
Reorganizations: Primary A, Investor A, and Daily shares in the
Category 1 Acquiring Funds; Primary A and Investor A shares in the
Category 2 Acquiring Funds; and Capital shares in the Category 3
Acquiring Funds. No distribution fees are paid by the Primary A shares
in either the Category 1 or Category 2 Acquiring Funds or by the
Capital shares in the Category 3 Acquiring Funds. Investor A shares in
both the Category 1 and Category 2 Acquiring Funds are subject to
distribution and shareholder servicing fees under a rule 12b-1 plan.
Daily shares in the Category 1 Acquiring Funds also are subject to
distribution and servicing fees. None of the Acquiring Funds is subject
to a front-end or contingent deferred sales load.
8. The Acquired Funds also fall into three categories. First, there
are three Acquired Funds that offer Institutional, Retail, and Service
class shares (``Category 1 Acquired Funds''). Second, there are nine
Acquired Funds that offer Institutional and Retail class shares
(``Category 2 Acquired Funds''). Third, there are two Acquired Funds
that offer shares in a single, unnamed class (``Category 3 Acquired
Funds''). None of the Acquired Funds is subject to a front-end or
contingent deferred sales load. Retail shares in the Category 1 and
Category 2 Acquired Funds are subject to distribution and servicing
fees. No. rule 12b-1 fees are paid by the Institutional shares in the
Category 1 and Category 2 Acquired Funds. Service shares in the
Category 1 Acquiring Funds also do not pay rule 12b-1 fees, but they
are subject to fees under a shareholder and processing services plan.
Neither of the Category 3 Acquired Funds is subject to any rule 12b-1
or shareholder servicing fees.
9. As a result of the Reorganizations, holders of the
Institutional, Retail, and Service shares of the Category 1 Acquired
Funds will become holders, respectively, of Primary A, Daily and
Investor A shares of the Category 1 Acquiring Funds. Holders of the
Institutional and Retail shares of the Category 2 Acquired Funds will
become holders, respectively, of Primary A and Investor A shares of the
Category 2 Acquiring Funds. Holders of shares of the Category 3
Acquired Funds will become holders of Capital shares of the Category 3
Acquiring Funds. The rights and obligations of each class of shares of
the Acquired Funds are similar to those of the corresponding class of
shares of the Acquiring Funds. No sales load will be imposed with
respect to the shares of the Acquiring Funds to be issued in the
Reorganizations, but those shares will be subject to the asset-based
distribution and shareholder servicing fees of the particular Acquiring
Fund.
10. The investment advisory fees for the Acquiring Funds and the
Acquired Funds are paid monthly. At the present time, NBAI and Barnett
are waiving a portion of their advisory fees. NBAI does not presently
intend to reduce or eliminate any waivers following the
Reorganizations.
11. The investment objectives, policies, and restrictions of each
Acquired Fund and its corresponding Acquiring Fund are substantially
similar.
12. The Nations Funds' Boards and the Emerald Board (collectively,
the ``Boards''), including a majority of their disinterested directors
and trustees, found that participation in the Reorganizations is in the
best interest of each Fund and that the interests of existing
shareholders in the Funds will not be diluted as a result of the
Reorganizations.
13. In approving the Reorganizations, the Boards considered, among
other things: (a) The terms and conditions of the Reorganizations; (b)
the capabilities, practices, and resources of NBAI and other service
providers to the Acquiring Funds; (c) the expected cost savings for
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certain of the Acquired Funds; (d) the relative performance of the
Funds and the compatibility of their investment objectives, policies,
and limitations; (e) the tax-free status of the Reorganizations; (f)
the number of investment portfolio options that would be available to
shareholders after the Reorganizations; (g) the shareholder services of
the Acquiring Funds; and (h) the investment advisory and other fees
paid by the Acquiring Funds, and the historical and projected expense
ratios of the Acquiring Funds as compared with those of the Acquired
Funds. In addition, the Emerald Board considered that the Acquired Fund
shareholders would benefit from the distribution and shareholder
servicing plans of the Acquiring Funds, as well as their fee structure
and shareholder services. The Emerald Board also considered that seven
of the twenty-nine classes of Acquired Funds will be reorganized into
Acquiring Fund classes with greater operating expense ratios. It noted,
however, that those seven classes are comprised of institutional
investors, many of which have fiduciary or other arrangements through
which they receive other related services and pay other fees outside of
the fund. Further, the Emerald Board considered that, as a result of
the Reorganizations, Acquired Fund shareholders should benefit from
improved economies of scale and will have access to a larger and more
diverse family of mutual funds.
14. NBAI will assume all expenses incurred by the Funds in
connection with the Reorganizations.
15. The Reorganization Plans may be terminated by mutual written
consent of the Emerald Board and the applicable Nations Board at any
time prior to the Closing Date. In addition, either party may terminate
the Reorganization Plan if: (a) The closing has not occurred prior to
December 31, 1998; (b) the other party materially fails to perform its
obligations; (c) the other party materially breaches its
representations, warranties, or covenants; or (d) a condition precedent
to the party's obligations cannot be met.
16. Registration statements on Form N-14 (``N-14 Registration
Statements'') were filed with the SEC on February 23, 1998 and became
effective on March 25, 1998. Applicants mailed a prospectus/proxy
statement to shareholders of the Acquired Funds on March 30, 31, and
April 1, 1998. A special meeting of the Acquired Fund shareholders will
be held on or about May 4, 1998.
17. The consummation of the Reorganizations is subject to the
following conditions, as set forth in the Reorganization Plans: (a) The
N-14 Registration Statements will have become effective; (b) the
Acquired Fund shareholders will have approved the Reorganization Plans;
(c) applicants will have received exemptive relief from the SEC with
respect to the issues in the application; (d) the Acquired Funds will
have received an opinion of counsel concerning the federal income tax
aspects of the Reorganizations; and (e) each Acquired Fund will have
declared a dividend or dividends to distribute substantially all of its
investment company taxable income and net capital gain, if any, to its
shareholders. Applicants agree not to make any material changes to the
Reorganization Plans that affect the application without prior SEC
approval.
Applicants' Legal Analysis
1. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
that person, acting as principal, from selling any security to, or
purchasing any security from, the company. Section 2(a)(3) of the Act
defines an ``affiliated person'' of another person to include (a) any
person that directly or indirectly owns, controls, or holds with power
to vote 5% or more of the outstanding voting securities of the other
person; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with
power to vote by the other person; (c) any person directly or
indirectly controlling, controlled by, or under common control with the
other person; and (d) if the other person is an investment company, any
investment adviser of that company.
2. Rule 17a-8 under the Act exempts from the prohibitions of
section 17(a) mergers, consolidations, or purchases or sales of
substantially all of the assets of registered investment companies that
are affiliated persons solely by reason of having a common investment
adviser, common directors/trustees, and/or common officers, provided
that certain conditions set forth in the rule are satisfied.
3. Applicants believe that they may not rely on rule 17a-8 because
the Funds may be affiliated for reasons other than those set forth in
the rule. First, the Barnett Group holds of record more than 25% of the
outstanding voting securities of certain classes of each Acquired Fund.
Because of this ownership, each Acquired Fund may be deemed an
affiliated person of Barnett under section 2(a)(3)(B). Second, as a
result of the Holding Company Merger, NBAI and Barnett are under the
common ownership and control of NationsBank. Because of this ownership,
each Acquiring Fund may be deemed an ``affiliated person of an
affiliated person'' of each Acquired Fund. Accordingly, the
Reorganizations may not meet the ``solely by reason of'' requirement of
rule 17a-8. Applicants thus are requesting an order pursuant to section
17(b) of the Act exempting them from section 17(a) to the extent
necessary to consummate the Reorganizations.
4. Section 17(b) of the Act provides that the SEC may exempt a
transaction from the provisions of section 17(a) if the evidence
establishes that the terms of the proposed transaction, including the
consideration to be paid, are reasonable and fair and do not involve
overreaching on the part of any person concerned, and that the proposed
transaction is consistent with the policy of each registered investment
company concerned and with the general purposes of the Act.
5. Applicants submit that the terms of the Reorganizations satisfy
the standards set forth in section 17(b). Applicants note that the
Boards, including a majority of the disinterested directors and
trustees, found that participation in the Reorganizations is in the
best interests of the Funds and that the interests of the existing
shareholders of the Funds will not be diluted as a result of the
Reorganizations. Applicants also note that the exchange of the Acquired
Funds' shares for shares in the Acquiring Funds will be based on the
Funds' relative net asset values.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-11287 Filed 4-28-98; 8:45 am]
BILLING CODE 8010-01-M