[Federal Register Volume 62, Number 206 (Friday, October 24, 1997)]
[Notices]
[Pages 55436-55437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28237]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22861; 812-10656]
Emerald Funds; Notice of Application
October 20, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'').
ACTION: Notice of application under section 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: Applicant Emerald Funds (the ``Trust'') seeks
an order to permit an in-kind redemption of Trust shares held by an
affiliated person of the Trust.
FILING DATES: The application was filed on May 12, 1997. Applicants
have agreed to file an amendment to the application during the notice
period, the substance of which is included in this notice.
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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on November 14,
1997 and should be accompanied by proof of service on applicant, 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. Applicant, 3435 Stelzer Road, Columbus, Ohio 43219-3035.
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 at the
SEC's Public Reference Branch, 450 5th Street, N.W., Washington, D.C.
20549 (tel. (202) 942-8090).
Applicant's Representations
1. The Trust, an open-end management investment company organized
as a Massachusetts business trust, currently offers fourteen
portfolios, including the Equity Fund and the Small Capitalization Fund
(collectively, the ``Funds''). The board of trustees of the Trust (the
``Board'') is comprised of six trustees, three of whom are not
``interested persons'' (as defined in section 2(a)(19) of the Act) (the
``Independent Trustees'') of the Trust. Barnett Capital Advisors, Inc.
(``Barnett'') is the Trust's investment adviser. Each of the Funds
seeks long-term capital appreciation by investing primarily in common
stocks.
2. The Retirement Plan and Trust of Barnett Banks, Inc., and Its
Affiliates (the ``Affiliated Shareholder'') is a qualified retirement
plan and trust maintained by Barnett Banks, Inc. and its affiliates.
Barnett Bank N.A., a wholly-owned subsidiary of Barnett Banks, Inc.,
serves as trustee of the Affiliated Shareholder. Assets of the
Affiliated Shareholder are held in several investment accounts, each
with a separate investment objective. As of April 1, 1997, two of the
accounts of the Affiliated Shareholder (the ``Accounts'') owned
beneficially 12.9% of the outstanding shares of the Equity Fund and
32.4% of the outstanding shares of the Small Capitalization Fund.
3. Barnett Bank N.A., acting pursuant to its fiduciary obligations
under the Employee Retirement Income Security Act of 1974, as amended,
has concluded that the shares of the Funds owned by the Affiliated
Shareholder should be redeemed and the proceeds placed in the Accounts,
which thereafter will be separately managed by Barnett. Consequently,
the Affiliated Shareholder, on behalf of the Accounts, has advised the
Trust that it expects to redeem all of its shares of the Funds and
reinvest the proceeds in the Accounts.
4. The Funds' prospectus and statement of additional information
provide that shares may be redeemed at the net asset value per share
next determined after receipt of a proper redemption request. If,
however, the Board determines that conditions exist which make payment
of redemption proceeds wholly in cash unwise or undesirable, the Funds
may satisfy all or part of a redemption request by delivering readily
marketable portfolio securities to a redeeming shareholder. The Board,
including all of the Independent Trustees, has determined that it would
be in the best interests of the Funds and their shareholders to
[[Page 55437]]
redeem the shares of the Affiliated Shareholder in-kind as described
below.
5. Applicant proposes to redeem the shares of the Affiliated
Shareholder in the form of a pro rata distribution of each portfolio
security held by the Funds after excluding: (a) securities which, if
distributed, would be required to be registered under the Securities
Act of 1933; and (b) certain portfolio assets (such as futures and
options contracts and repurchase agreements) that, although they may be
liquid and marketable, must be traded through the marketplace or with
the counterparty to the transaction in order to effect a change in
beneficial ownership.
6. Securities to be distributed to the Affiliated Shareholder
through the in-kind redemption will be further limited to securities
which are traded on a public securities market or for which quoted bid
prices are available. Cash will be paid for that portion of the Fund's
assets represented by cash equivalents (such as certificates of
deposit, commercial paper and repurchase agreements) and other assets
which are not readily distributable (including receivables and prepaid
expenses), net of all liabilities (including accounts payable). In
addition, the Funds will distribute cash in lieu of securities held in
their portfolios not amounting to round lots (or which would not amount
to round lots if included in the in-kind distribution), fractional
shares and accruals on such securities.
Applicant's Legal Analysis
1. Section 17(a)(2) of the Act prohibits affiliated persons of a
registered investment company from knowingly purchasing any security
from the company. Section 2(a)(3)(A) of the Act defines ``affiliated
person'' of another person to include any person owning 5% or more of
the outstanding voting securities of the other person. The Affiliated
Shareholder is an affiliated person of each Fund under section
2(a)(3)(A) of the Act because it owns beneficially in excess of 5% of
each Fund's shares. In addition, the Affiliated Shareholder may be
deemed to be an affiliated person of each Fund under section 2(a)(3)(C)
of the Act because the Affiliated Shareholder and the Funds may be
deemed to be under the common control of Barnett Bank, N.A., which
serves as trustee of the Affiliated Shareholder and whose wholly-owned
subsidiary serves as investment adviser of the Funds. Finally, the
Affiliated Shareholder may be deemed to be an affiliated person of the
Small Capitalization Fund under section 2(a)(3)(C) of the Act because
it owns beneficially in excess of 25% of the outstanding shares of that
Fund. To the extent that the proposed in-kind redemptions would be
considered to involve the ``purchase'' of portfolio securities (of
which the Funds are not the issuer) by the Affiliated Shareholder, the
proposed in-kind redemptions would be prohibited by section 17(a)(2) of
the Act.
2. Section 17(b) of the Act 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 policy of each registered investment company involved; and (c)
the proposed transaction is consistent with the general purposes of the
Act.
3. Applicant submits that the terms of the proposed in-kind
redemption by the Affiliated Shareholder meet the standards set forth
in section 17(b). Applicant believes that the terms of the proposed in-
kind redemption do not involve overreaching on the part of any person
and are reasonable and fair to the Funds, their shareholders and the
Affiliated Shareholder. The Affiliated Shareholder will have no choice
as to the type of consideration to be received in connection with its
redemption request, and neither the Adviser nor the Affiliated
Shareholder will have any opportunity to select the specific portfolio
securities to be distributed. In addition, the Funds will use an
objective, verifiable standard to value any security to be distributed
pursuant to the proposed in-kind redemption. In addition, the proposed
in-kind redemption is consistent with the investment policies of the
Funds, as set forth in their prospectus, which expressly discloses the
Funds' ability to redeem shares in-kind. Finally, applicant believes
that the proposed in-kind redemption is consistent with the general
purposes of the Act to protect shareholders of the investment companies
from self-dealing on the part of investment company affiliates to the
detriment of other shareholders because the Affiliated Shareholder
would not receive any advantage not available to other shareholders if
the proposed in-kind redemption is permitted.
Applicant's Conditions
Applicant agrees that any order granting the requested relief will
be subject to the following conditions:
1. The portfolio securities of the Funds distributed to the
Affiliated Shareholder pursuant to the redemption in-kind (the ``In-
Kind Securities'') will be limited to securities that are traded on a
public securities market or for which quoted bid prices are available.
2. The In-Kind Securities will be distributed by the Funds on a pro
rata basis after excluding: (a) securities which, if distributed, would
be required to be registered under the Securities Act of 1933; and (b)
certain portfolio assets (such as futures and options contracts and
repurchase agreements) that, although they may be liquid and
marketable, must be traded through the marketplace or with the
counterparty to the transaction in order to effect a change in
beneficial ownership. Cash will be paid for that portion of the Funds'
assets represented by cash equivalents (such as certificates of
deposit, commercial paper, and repurchase agreements) and other assets
which are not readily distributable (including receivables and prepaid
expenses), net of all liabilities (including accounts payable). In
addition, the Funds will distribute cash in lieu of securities held in
their portfolios not amounting to round lots (or which would not amount
to round lots if included in the in-kind distribution), fractional
shares, and accruals on such securities.
3. The In-Kind Securities distributed to an Affiliated Shareholder
will be valued in the same manner as they would be valued for purposes
of computing the Funds' net asset values, which, in the case of
securities traded on a public securities market for which quotations
are available, is their last reported sales price on the exchange on
which the securities are primarily traded or at the last sales price on
the national securities market, or, if the securities are not listed on
an exchange or the national securities market or if there is no such
reported price, the average of the most recent bid and asked prices
(or, if no asked price is available, the last quoted bid price).
4. The Funds will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which a proposed in-
kind redemption occurs, the first two years in an easily accessible
place, a written record of each such redemption setting forth a
description of each security distributed, the terms of the
distribution, and the information or materials upon which the valuation
was made.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-28237 Filed 10-23-97; 8:45 am]
BILLING CODE 8010-01-M
