[Federal Register Volume 59, Number 62 (Thursday, March 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7603]
[[Page Unknown]]
[Federal Register: March 31, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 20159; 812-8770]
The Woodward Funds; Notice of Application
March 24, 1994.
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: The Woodward Funds (``Woodward''), NBD Bank, N.A.
(``NBD''), First of Michigan Corporation (``FMC''). Applicants will be
deemed to include, where appropriate, each current and pending Woodward
portfolio as well as any subsequently created portfolio.
RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 17(b)
for an exemption from sections 12(d)(1) and 17(a), and pursuant to
section 17(d) and rule 17d-1 to permit certain joint transactions.
SUMMARY OF APPLICATION: Applicants seek an order to permit certain non-
money market series of Woodward to utilize the cash reserves that have
not been invested in portfolio securities (``Uninvested Cash'') to
purchase shares of one or more of the money market series of Woodward.
FILING DATE: The application was filed on January 12, 1994. In a letter
dated March 24, 1994, applicants' counsel stated that an additional
amendment will be filed, the substance of which is reflected 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
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 April 18, 1994,
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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Woodward, c/o NBD Bank, N.A., Transfer Agent, P.O. Box 7058, Troy,
Michigan 48007; NBD, 611 Woodward Avenue, Detroit, Michigan 48336; FMC,
100 Renaissance Center, 26th Floor, Detroit, Michigan 48243.
FOR FURTHER INFORMATION CONTACT: Joseph G. Mari, Senior Special
Counsel, (202) 272-3030, or Barry D. Miller, Senior Special Counsel,
(202) 272-3018 (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. Woodward, a Massachusetts business trust, is an open-end
management investment company registered under the Act. Woodward offers
shares in fourteen separate investment portfolios, five of which are
money market funds (the ``Money Market Funds'') and nine of which are
non-money market funds (the ``Non-Money Market Funds'').\1\ NBD is the
investment adviser, transfer agent, and custodian for each of
Woodward's portfolios. NBD is entitled to receive an investment
advisory fee from Woodward based upon a percentage of each portfolio's
net assets and a percentage of the gross income earned by certain of
the portfolios on loans of their securities.\2\ NBD's fees for serving
as transfer agent are based primarily on the number of shareholder
accounts and share transactions, and are not based on a percentage of
net assets. As custodian, NBD Bank is entitled to receive (i) from the
Money Market Funds specified fees for each clearing and settlement
transaction, accounting and safe-keeping transaction with respect to
investments and activity in master control and master settlement
accounts, and (ii) from the Non-Money Market Funds, specified fees
based upon a percentage of each portfolio's net assets, as well as
annual account fees, asset fees, security transaction fees, and
accounting statement fees.
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\1\Woodward has under registration four other separate
investment portfolios which will be Non-Money Market Funds.
\2\NBD has not engaged in any transactions involving loans of
Woodward's securities for which NBD has received any compensation,
and it will not engage in such transactions unless the SEC permits
it to do so.
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2. FMC, a Delaware corporation, as sponsor and distributor of the
portfolios, receives a fee from Woodward based upon a percentage of
each portfolio's net assets.
3. The Non-Money Market Funds invest in a variety of debt and/or
equity securities. The Money Market Funds seek current income,
liquidity and capital preservation by investing in short-term money
market instruments such as U.S. Government securities, bank
obligations, commercial paper, municipal obligations, or repurchase
agreements secured by Government securities.
4. Each Non-Money Market Fund has, or may be expected to have,
Uninvested Cash in its custodian bank which either may be invested
directly in individual short-term money market instruments, or may not
otherwise be invested in any portfolio securities. Uninvested Cash of
such Non-Money Market Funds may result from a variety of sources,
including dividends or interest received on portfolio securities,
unsettled securities transactions, reserves held for investment
strategy purposes, scheduled maturity of investments, liquidation of
investment securities to meet anticipated redemptions and dividend
payments, and new monies received from investors.
5. Applicants seek an order that would permit the Non-Money Market
Funds to utilize Univested Cash to purchase shares of one or more of
the Money Market Funds and the Money Market Funds to sell their shares
to, and to redeem their shares from, the Non-Money Market Funds.\3\ The
Uninvested Cash held by an individual Non-Money Market Fund at any
particular time may not be large enough generally to make economical
direct investments in money market instruments. By investing Uninvested
Cash in Money Market Funds, the Non-Money Market Funds will reduce
their transaction costs, create more liquidity, enjoy greater returns
on the Uninvested Cash, and further diversify their holdings.
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\3\Prior to submission of this application, certain of the
applicants had participated in such activity. Applicants have
discontinued such practice pending their receipt of an exemptive
order of the SEC. Any exemptive relief only will be prospective in
its application.
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6. Under the proposal, no sales charge, contingent deferred sales
charge, rule 12b-1 fee, or other underwriting or distribution fee would
be charged by a Money Market Fund, or by the distributor, with respect
to purchases of shares of such Money Market Funds made with Uninvested
Cash by any Non-Money Market Fund, or upon the redemption of shares of
such Money Market Funds by any Non-Money Market Fund. The shareholders
of the Non-Money Market Funds would not be subject to the imposition of
double management fees. NBD will reduce its fees charged to each Non-
Money Market Fund by an amount equal to the net asset value of the Non-
Money Market Fund's holdings in any Money Market Fund times the rate at
which advisory and other fees are charged by NBD to such Money Market
Funds (excluding amounts that could have been charged but were waived),
provided that such fees are based on a percentage of the Money Market
Fund's net assets (the ``Reduction Amount'').
7. If NBD waives any portion of its Non-Money Market Fund fees or
bears any portion of the expenses of a Non-Money Market Fund (an
``Expense Waiver''), the adjusted fees for the Non-Money Market Fund
(gross fees minus Expense Waiver) will be calculated without reference
to the Reduction Amount. If the Reduction Amount exceeds adjusted fees,
NBD will reimburse the appropriate Non-Money Market Fund in an amount
equal to such excess.
8. To ensure that the Non-Money Market Funds will not exert any
undue influence in the voting process for any matter submitted to a
vote by the shareholders of the Money Market Funds, the Non-Money
Market Funds will vote their shares of each of the Money Market Funds
in proportion to the vote by all other shareholders of such Money
Market Fund. The Non-Money Market Funds will purchase and redeem shares
of each of the Money Market Funds at the same time and price, and will
receive dividends and bear expenses on the same basis, as all other
shareholders of such Money Market Fund. The Money Market Funds each
will establish a separate account on their books for each of the Non-
Money Market Funds which have invested therein. If a Non-Money Market
Fund were to require cash for any expenditure, investment, or
redemption of its shares, it would redeem the exact amount of shares of
Money Market Funds needed for such purposes.
9. Applicants also request relief that would permit the Non-Money
Market Funds to invest Uninvested Cash in, and hold shares of, a Money
Market Series in excess of the percentage limitations set forth in
section 12(d)(1)(A). The value of the shares held by a Non-Money Market
Fund, however, will be limited as follows: (a) Each Non-Money Market
Fund will be permitted to invest Uninvested Cash in, and hold shares
of, a Money Market Fund only to the extent that (i) the Non-Money
Market Fund's aggregate investment in the Money Market Fund does not
exceed the greater of 5% of such Non-Money Market Fund's total net
assets or $2.5 million, and (ii) the Non-Money Market Fund's aggregate
investment in all investment companies (including all Money Market
Funds) does not exceed 10% of such Non-Money Market Fund's total net
assets; and (b) no single Non-Money Market Fund will be permitted to
own more than 3% of the outstanding shares of any single Money Market
Fund or any other investment company.
10. The investment by the Non-Money Market Funds in shares of the
Money Market Funds will be in accordance with each Woodward portfolio's
investment restrictions and will be consistent with their policies as
recited in each portfolio's registration statement.
Applicants' Legal Analysis
1. Under section 6(c), the SEC may exempt any person or transaction
from any provision of the Act or any rule thereunder 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. Applicants seek
relief under section 6(c) for an exemption from section 12(d)(1)(A),
and so the exemption granted from section 17 applies to a class of
transactions, rather than to a single transaction. The proposed
transactions meet the standards for relief under section 6(c) because
they will allow the applicant Funds to increase their return on
investments, reduce certain transaction costs, and avoid a reduction in
or possible loss of investment opportunities.
2. Section 12(d)(1)(A) sets certain limits on an investment
company's ability to invest in the shares of another investment
company. Section 12(d)(1) is intended to protect an investment
company's shareholders from undue influence over portfolio management
through the threat of large scale redemptions, the acquisition of
voting control, the layering of sales charges and advisory fees, and
the creation of a complex structure that makes it difficult for a
stockholder to ascertain the true value of the subject security.
Applicants' proposal does not create any of those perceived abuses.
3. Section 17(a) makes it unlawful for any affiliated person of a
registered investment company, acting as principal, to sell any
security to, or purchase any security from, such investment company.
The portfolios of Woodward might be deemed to be affiliated persons of
each other by virtue of being under common control because Woodward has
one board of trustees.
4. Section 17(b) permits 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, and the
proposed transaction is consistent with the policy of each registered
investment company concerned and the general purposes of the Act.\4\
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\4\The policies of the Non-Money Market Funds permit the
purchase and sale of money market instruments, including shares of a
money market fund.
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5. Section 17(d) and rule 17d-1 thereunder, in the absence of an
order granted by the SEC, prohibit an affiliated person of a registered
investment company, or an affiliated person of such person, acting as
principal, from participating in, or effecting any transaction in
connection with, any joint enterprise or other joint arrangement in
which any such registered investment company, or a company controlled
by such registered company is a participant. Under rule 17d-1, the SEC
may permit a proposed joint transaction if participation by a
registered investment company is consistent with the provisions,
policies and purposes of the Act and not on a basis less advantageous
than that of other participants.
6. The terms of the proposed transactions are consistent with the
provisions, policies and purposes of the Act and participation by
Woodward is not on a basis different from or less advantageous than
that of other participants. The investment by the Non-Money Market
Funds in shares of the Money Market Funds would be on the same basis
and would be indistinguishable from any other shareholder account
maintained by the Money Market Funds. The Non-Money Market Funds will
participate on a fair and reasonable basis, relative to the size of
their investment, in the returns and expenses of the Money Market
Funds.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Money Market Funds will calculate their net asset values in
accordance with rule 2a-7 under the Act.
2. The shares of the Money Market Funds sold to and redeemed from
the Non-Money Market Funds will not be subject to a sales load,
redemption fee, or distribution fee under a plan adopted in accordance
with rule 12b-1.
3. NBD will reduce its fees charged to each Non-Money Market Fund
by the Reduction Amount.
4. If NBD waives any portion of its Non-Money Market Fund fees or
bears any portion of the expenses of a Non-Money Market Fund (an
``Expense Waiver''), the adjusted fees for the Non-Money Market Fund
(gross fees minus Expense Waiver) will be calculated without reference
to the Reduction Amount. Adjusted fees then will be reduced by the
Reduction Amount. If the Reduction Amount exceeds adjusted fees, NBD
will reimburse the appropriate Non-Money Market Fund in an amount equal
to such excess.
5. Each of the Non-Money Market Funds will be permitted to invest
Uninvested Cash in, and hold shares of, a Money Market Fund only to the
extent that (a) the Non-Money Market Fund's aggregate investment in the
Money Market Fund does not exceed the greater of 5% of the Non-Money
Market Fund's total net assets, or $2.5 million, and (b) the Non-Money
Market Fund's aggregate investment in all investment companies
(including all Money Market Funds) does not exceed 10% of such Non-
Money Market Fund's total net assets. No Non-Money Market Fund of
Woodward will be permitted to own more than 3% of the total outstanding
voting stock of any Money Market Fund or of any other investment
company. For purposes of these limitations, each Woodward portfolio
will be treated as a separate investment company. Accordingly, a single
Non-Money Market Fund's investments and share ownership of a particular
Money Market Fund will not be aggregated with the Non-Money Market Fund
investments and share ownership of any other Woodward portfolio for
purposes of determining whether the foregoing limitations have been
satisfied.
6. The Non-Money Market Funds will vote their shares of each of the
Money Market Funds in the same proportion as the votes of all other
shareholders in such Money Market Funds.
7. The Non-Money Funds will purchase and redeem shares of each of
the Money Market Funds as of the same time and at the same price, and
will receive dividends and bear their proportionate share of expenses
on the same basis, as other shareholders of such Money Market Funds. A
separate account will be established in the shareholder records of each
of the Money Market Funds for each of the acquiring Non-Money Market
Funds.
8. All reductions and reimbursements of Non-Money Market Fund fees
in connection with the purchase and sale of shares of the Money Market
Funds as described herein will be permanent and will not be subject to
recoupment by NBD or by any future service providers at a later date.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-7603 Filed 3-30-94; 8:45 am]
BILLING CODE 8010-01-M
