[Federal Register Volume 64, Number 134 (Wednesday, July 14, 1999)]
[Notices]
[Pages 38055-38056]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17970]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23900; 812-11646]


The Wachovia Funds, et al., Notice of Application

July 9, 1999.
agency: Securities and Exchange Commission (``Commission'').

action: Notice of Application under sections 6(c) and 17(b) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 17(a) of the Act.

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summary of application: Applicants request an order to permit certain 
common trust funds to transfer their assets to certain series of 
registered open-end management companies in exchange for shares of the 
series.

applicants: The Wachovia Funds (``Trust''); Wachovia Bank, N.A. 
(``Wachovia''), Wachovia Corporation, Wachovia Capital Management 
Special Values Fund (``Special Values Fund''), and Wachovia Stock Fund 
(``Stock Fund'').

filing dates: The application was filed on June 9, 1999. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.

hearing or notification of hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on July 29, 1999, 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 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

addresses: Secretary, Commission, 450 Fifth Street, NW, Washington, DC 
20549-0609. Applicants, c/o William Stoyko, Esq., Wachovia Bank, N.A., 
1021 East Cary Street, P.O. Box 27602 Richmond, VA 23261.

for further information contact: John K. Forst, Attorney Advisory at 
(202) 942-0569, or Michael W. Mundt, 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 
Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, DC 20549-0102 (tel. (202) 942-8090).

Applicant's Representations

    1. The Trust is a Massachusetts business trust registered under the 
Act as an open-end management investment company which offers fourteen 
series, including the Wachovia Special Values Fund and Wachovia 
Quantitative Equity Fund (``Mutual Funds''). Wachovia Asset Management, 
a business unit of Wachovia, acts as investment adviser to each Mutual 
Fund. As a ``bank'' within the meaning of section 202(a)(2) of the 
Investment Advisers Act of 1940 (the ``Advisers Act''), Wachovia is 
exempt from registration under the Advisers Act.
    2. Wachovia, a national bank, is a wholly-owned subsidiary of 
Wachovia Corporation, a bank holding company. Special Values Fund and 
Stock Fund are maintained by Wachovia as trustee and are ``common trust 
funds'' as defined in section 584(a) of the Internal Revenue Code of 
1986, as amended (`CTFs''). Participants in the CTFs are persons or 
entities for which Wachovia acts as trustee, executor, administrator, 
guardian, or custodian) (``Participants''). Wachovia is trustee for the 
Wachovia Pension Plan (``WPP''), an employee benefit plan maintained 
for employees of Wachovia Corporation and its subsidiaries. WPP holds 
more than 5% of the outstanding voting shares of each of the Mutual 
Funds.
    3. Applicants propose to transfer in-kind the assets of Special 
Values Fund to Wachovia Special Values Fund and of Stock Fund to 
Wachovia Quantitative Equity Fund in exchange for Mutual Fund shares 
having an aggregate net asset value equal to the market value of the 
transferred securities (the ``Conversions''). The CTF assets to be 
transferred to the Mutual Funds will be valued in accordance with the 
provisions of rule 17a-7(b) under the Act. The Mutual Fund shares 
received in the Conversions will not be subject to a sales charge, 
redemption fee or rule 12b-1 distribution fee. The Mutual Fund shares 
received by the CTFs will be credited to the account of each 
Participant, pro rata, according to the Participant's interest in the 
relevant CTF immediately prior to the Conversions. Following the 
Conversions, the CTFs will be terminated and the Mutual Fund shares 
will be held by Wachovia directly for the benefit of the Participants. 
Wachovia will pay all expenses incurred in connection with the 
Conversions.
    4. Applicants request relief to effect the Conversions, which are 
expected to occur on August 1, 1999. Applicants also request relief for 
similar future transactions in which assets of a CTF maintained by 
Wachovia as trustee are exchanged for shares of a registered open-end 
management investment company advised by Wachovia or any entity 
controlling, controlled by, or under common control with Wachovia, and 
in which, at that time, WPP or other employee benefit plans maintained 
for the benefit of Wachovia or its affiliates own 5% or more of the 
shares (``Future Transactions''). Applicants state that they will rely 
on the requested relief for Future Transactions only in accordance with 
the terms and conditions contained in the application.

Applicants' Legal Analysis

    1. Section 17(a) of the Act, in relevant part, prohibits an 
affiliated person of a registered investment company, or an affiliated 
person of such person, acting as principal, from selling to or 
purchasing from such investment company any security or other property. 
Section 2(a)(3) of the Act, in relevant part, defines ``affiliated 
person'' to include: (a) Any person directly or indirectly owning, 
controlling, or holding with the power to vote, 5% or more of the 
outstanding voting securities of such other person; (b) any person 
directly or indirectly controlling, controlled by, or under common 
control with, such other person; and (c) if such other person is an 
investment company, any investment adviser of the investment company. 
Applicants state that, because the CTFs may be viewed as acting as 
principals in the Conversions and because the CTFs and the Mutual Funds 
may be viewed as being under the common control of Wachovia within the 
meaning of section 2(a)(3)(C) of the Act, the Conversions may be 
subject to the prohibitions contained in section 17(a).
    2. Rule 17a-7 under the Act exempts certain purchase and sale 
transactions otherwise prohibited by section 17(a) if an affiliation 
exists solely by reason of having a common investment adviser, common 
directors, and/or common officers, provided, among other requirements, 
that the transaction involves a cash payment against prompt delivery of 
the security. Applicants state that rule 17a-7 is not available for the 
Conversions because WPP currently owns more than 5% of the outstanding 
voting securities of the Mutual Funds and Wachovia may be deemed to 
have an indirect pecuniary interest in the performance of the assets 
held by WPP. As a result, the affiliation between the

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CTFs and the Mutual Funds may not be solely by reason of having a 
common investment adviser, common directors, and/or common officers. In 
addition, the Conversions will be effected as in-kind transfers, rather 
than in cash.
    3. Rule 17a-8 under the Act exempts certain mergers, 
consolidations, and sales of assets of registered investment companies 
from the provisions of section 17(a) of the Act if an affiliation 
exists solely by reason of having a common investment adviser, common 
directors, and/or common officers, provided, among other requirements, 
that the board of directors of each investment company makes certain 
determinations. Applicants state that rule 17a-8 is not available for 
the Conversions because the CTFs are not registered investment 
companies and because the CTFs and the Mutual Funds have affiliations 
other than those covered by the rule.
    4. Section 17(b) of the Act provides that the Commission 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 policy of the registered investment 
company involved; and (c) the proposed transaction is consistent with 
the general purposes of the Act.
    5. Section 6(c) provides that the Commission may exempt any person 
or transaction from any provision of the Act or any rule under the Act 
to the extent that such 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.
    6. Applicants seek an order under sections 6(c) and 17(b) of the 
Act to permit the Conversions and Future Transactions. Applicants 
submit that the proposed transactions satisfy the standards for relief 
under sections 6(c) and 17(b). Applicants assert that the terms of the 
Conversions are reasonable and fair and do not involve overreaching on 
the part of any person; the investment objectives and policies of the 
CTFs are compatible with and similar to the applicable Mutual Fund's 
investment objectives and policies; and the Conversions and the 
requested exemption are in the public interest, consistent with the 
protection of investors and the purposes fairly intended by the 
policies and provisions of the Act.
    7. Applicants state that the Conversions will meet all of the 
conditions of rules 17a-7 and 17a-8, except as noted above. Applicants 
state that the Conversions are in accordance with procedures previously 
adopted by the Mutual Funds' board of trustees (the ``Board'') pursuant 
to rule 17a-7(e), and the provisions of rule 17a-7(b), (c), (d), and 
(f) will be satisfied. The Conversions will take place as in-kind 
transfers from the CTFs to the Mutual Funds, rather than cash 
transactions as required by rule 17a-7(a). Applicants assert that if 
the Conversions were effected in cash, the CTFs and the Mutual Funds 
would have to bear unnecessary expense and inconvenience in 
transferring assets to the Mutual Funds. In addition, applicants state 
that the Board, including a majority of the disinterested members, has 
determined that the participation of each Mutual Fund in the 
Conversions is in the best interests of that Mutual Fund and that the 
interests of existing shareholders of the Mutual Fund will not be 
diluted as a result of a Conversion. Such findings and the basis on 
which they were made will be fully recorded in the minute books of the 
Mutual Funds.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Conversions will comply with the terms of Rule 17a-7(b) 
through (f).
    2. The Conversions will not occur unless and until the Board 
(including a majority of the disinterested members) finds that 
participation by the Mutual Funds in the Conversions is in the best 
interests of each Mutual Fund and that the interests of the existing 
shareholders of the Mutual Funds will not be diluted as a result of the 
Conversions. These findings, and the basis upon which they are made, 
will be recorded fully in the minute books of the Trust.
    3. The Conversions will not occur unless and until Wachovia, as 
trustee and fiduciary of each CTF and the Participants therein, has 
determined in accordance with its fiduciary duties that the Conversions 
are in the best interests of Participants in the CTFs.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-17970 Filed 7-13-99; 8:45 am]
BILLING CODE 8010-01-M