[Federal Register Volume 59, Number 97 (Friday, May 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12304]
[[Page Unknown]]
[Federal Register: May 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20294; 812-8742]
Norwest Corp., et al.; Notice of Application
May 13, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANTS: Norwest Corporation, Norwest Bank Minnesota, N.A. (the
``Bank''); Norwest Funds (the ``Fund''); Index Fund, Managed Fixed
Income Fund, Small Company Growth Fund, Growth Equity Fund, and
International Fund, on behalf of themselves and other collective
investment funds sponsored by the Bank which the Bank in the future may
decide to convert into registered open-end investment companies in the
manner described below, and in which, at that time, pension plans
established and maintained for the benefit of employees of Norwest
Corporation and its subsidiaries (``Norwest Plans'') have invested
assets (the ``Converting CIFs''); Diversified Equity Fund, Conservative
Balanced Fund, Moderate Balanced Fund, and Growth Balanced Fund
(together with Growth Equity Fund and International Fund, the
``Redeeming CIFs''); Schroder Capital Management International, Inc.
(``SCMI''); and Schroder Capital Funds, Inc. (``Schroder Funds'').
RELEVANT ACT SECTIONS: Order requested under sections 6(c), 17(b),
17(d) and rule 17d-1 exempting applicants from the provisions of
section 17(a) and permitting certain joint transactions pursuant to
section 17(d) and rule 17d-1.
SUMMARY OF APPLICATION: Applicants seek a conditional order to permit
the Converting CIFs to transfer their assets to series of the Fund (the
``Portfolios'') in exchange for shares of the Portfolios. The order
also would permit the redemption in-kind of shares of Schroder Funds
held by the Redeeming CIFs prior to the transfer of their assets to the
Portfolios.
FILING DATE: The application was filed on December 29, 1993, and
amended on April 21, 1994, and May 9, 1994.
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 June 7, 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 such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicant, c/o Norwest Corporation, Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479-1026.
FOR FURTHER INFORMATION CONTACT:
James E. Anderson, Staff Attorney, at (202) 942-0573, or C. David
Messman, 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. The Bank is a national bank wholly-owned by Norwest Corporation,
a bank holding company. The Fund, formerly known as Prime Value Funds,
Inc., is a registered open-end management investment company organized
as a Delaware business trust. Shares of the Fund may be divided into
series, and the shares of each series may be divided into classes.\1\
The Portfolios are part of larger group of fifteen series of the Fund
which collectively will be known as the Advantage Funds. Shares of the
Advantage Funds will be offered only to the pension plans for which the
Bank serves as custodian, trustee, and/or investment adviser, other
employee benefit plans in related trusts, and certain other tax-
deferred investors. The Bank serves as investment adviser, custodian,
and transfer agent to the Fund.
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\1\The Fund is authorized to issue multiple classes of shares
pursuant to an exemptive order of the SEC. Prime Value Fund, Inc.,
Investment Company Act Release Nos. 19317 (Mar. 5, 1993) (notice)
and 19375 (Apr. 1, 1993) (order).
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2. The Converting CIFs and the Redeeming CIFs are part of a group
of employee benefit plan collective investment funds sponsored by the
Bank (the ``CIFs''). As of January 31, 1994, the Bank had $5.9 billion
of assets under management in its CIFs. The investors in the CIFs are
approximately 7,500 pension plans (the ``Plans'') for which the Bank
serves as trustee, investment adviser, and/or custodian.
3. The Bank is terminating 14 of its CIFs, including the Converting
CIFs, by transferring the CIFs' assets to the Advantage Funds in
exchange for shares of the Advantage Funds. The CIFs, other than the
Converting CIFs, may be converted into the Advantage Funds in
conformity with a variety of no-action letters in which the staff has
permitted similar conversions of trust funds into mutual funds.\2\ The
Converting CIFs are unable to rely on the no-action letters, in part,
because such relief has been conditioned on affiliated persons, or
affiliated persons of affiliated persons, of the registered investment
company having no beneficial interest in the proposed transactions. The
Bank, as investment adviser to the Portfolios, is an affiliated person
of the Portfolios and may be deemed to have a beneficial interest in
the proposed transactions because the Norwest Plans invest in the
Converting CIFs. Accordingly, applicants seek an exemption under
sections 6(c) and 17(b) from the provisions of section 17(a) and
pursuant to section 17(d) and rule 17d-1 so that assets of the
Converting CIFs can be transferred to Portfolios in exchange for
Portfolio shares (the ``Proposed Transfers'').
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\2\See, e.g., Trust Funds Institutional Managed Trust (pub.
avail. July 20, 1988); American Medical Association Retirement Plan
(pub. avail. Jan. 15, 1987); First National Bank of Chicago (pub.
avail. Feb. 5, 1986); and Lincoln National Investment Management
Company (pub. avail. Mar. 26, 1976).
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4. Each of the Plans, other than the Norwest Plans, that invests in
the CIFs sponsored by the Bank has an independent or ``second''
fiduciary that supervises and will supervise the investment of the
Plan's assets. The second fiduciary is generally the Plan's named
fiduciary, trustee, or sponsoring employer and is subject to fiduciary
responsibilities under the Employee Retirement Income Security Act of
1974 (``ERISA''). In the case of the Norwest Plans, the Norwest
Corporation's Employee Benefit Review Committee (the ``Committee'')
serves as a fiduciary. Before completing the Proposed Transfers, the
Bank will seek and obtain the approval of each Plan's second fiduciary
and the Committee.
5. Provided that the Bank receives the requisite approval, the
acquisition of Portfolio shares will be accomplished by having each
Converting CIF transfer assets to a corresponding Portfolio with
virtually identical investment objectives in exchange for shares of
that Portfolio at the then-current market value of the Converting CIF's
assets. Simultaneously, the Converting CIF will distribute the
Portfolio shares on a pro rata basis to all of its participating
pension plan investors.
6. The Bank is terminating the CIFs and transferring their assets
to the Advantage Funds because it believes the interests of its pension
plan clients would be better served through the use of mutual funds.
Investment of these assets through mutual funds will allow the sponsors
of and participants in the pension plans to monitor more easily the
performance of their investments on a daily basis (since information
concerning the performance of the Advantage Funds will be available in
daily newspapers of general circulation). The mutual fund vehicle also
will allow for better marketing of the Bank's investment management
services and, by promoting portfolio growth, will allow better
diversification and risk spreading. Finally, the Act places a greater
emphasis on disclosure to participants than do banking regulations and
also provides a well-tested mechanism for approval of disclosure
documents.
7. Prior to completing the Proposed Transfers, applicants seek an
exemption from the provisions of section 17(a) to permit the Redeeming
CIFs to receive a pro rata redemption in-kind of the Redeeming CIFs'
shares of International Equity Fund (``IEF''), a portfolio of Schroder
Funds. Schroder Funds is a registered investment company. SCMI acts as
investment adviser to the Schroder Funds, and following the conversion,
will act as subadviser to the six series of the Advantage Funds that
will replace the Redeeming CIFs. Investments in IEF by the Redeeming
CIFs represent, in the aggregate, approximately $269 million of IEF's
$396 million in assets.
8. The Bank is proposing to cause the Redeeming CIFs to redeem
their investment in IEF because, after conversion of the Redeeming CIFs
into corresponding series of the Advantage Funds, five of the series'
holdings of IEF shares would be inconsistent with section 12(d) of the
Act.\3\ The sixth Redeeming CIF that holds shares of IEF, the
International Fund, invests all its assets in IEF. Although section
12(d) would not prohibit the International Fund from continuing to hold
its shares of IEF after it converts into a series of the Advantage
Funds, it would be impractical because IEF is not organized as a master
fund.\4\ Moreover, effecting the redemption in-kind will reduce
substantially the transaction costs associated with the conversion.
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\3\Section 12(d)(1)(A), among other things, prohibits a
registered investment company from acquiring more than 3% of the
outstanding voting securities of another investment company,
investing more than 5% of its assets in the securities of any one
other investment company, and investing more than 10% of its assets
in securities issued by investment companies.
\4\Under section 12(d)(1)(E), the prohibitions under section
12(d)(1)(A) do not apply if, among other things, the securities of
the portfolio investment company are the only investment securities
held by the registered investment company.
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9. In connection with the redemption in-kind, securities will be
distributed pro rata after excluding securities which, if distributed,
would be required to be registered under the Securities Act of 1933 and
securities issued by entities in countries that restrict or prohibit
the holding of securities by non-nationals other than through qualified
investment vehicles like IEF. In addition, cash will be distributed in
lieu of shares above around lots (i.e., 100 shares) or fractional
shares. The securities distributed to the Redeeming CIFs will be valued
in the same manner as they would be valued for purposes of computing
IEF's net asset value, which, in the case of securities traded on a
public securities market for which quotations are available, is their
last reported trade price on the exchange on which such securities are
principally traded, or, if there is no such reported price, is the
average of the highest current independent bid and lowest current
independent offer.
10. The Redeeming CIFs' pro rata share of the IEF portfolio
securities that may not be distributed in-kind pursuant to the
limitations set forth in the preceding paragraph will be sold in an
appropriate market, and the proceeds of such sale will be distributed
to the Redeeming CIFs in lieu of a distribution in-kind.
Applicants' Legal Conclusions
1. Section 2(a)(3) defines the term ``affiliated person of another
person'' to include, in relevant part, (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 thereof.
2. 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) so that the exemption granted from section
17(a) to permit the Converting CIFs to transfer assets to the
Portfolios applies to a class of transactions, rather than to a single
transaction.
3. Section 17(a), in relevant part, prohibits an affiliated person,
or an affiliated person of an affiliated person, of a registered
investment company acting as principal, from selling to or purchasing
from such investment company any security or other property. Section
17(b) provides that, notwithstanding section 17(a), any person may file
an application for an order exempting a proposed transaction from the
prohibitions of section 17(a). Applications are granted under section
17(b) if evidence establishes that 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 that the proposed transaction is consistent with
the policy of each registered investment company concerned and the
general policies and purposes of the act.
4. Section 17(d) makes it unlawful for any affiliated person, or
affiliated person of an affiliated person, of a registered investment
company, acting as principal, to effect any transaction in which the
company is a joint or joint and several participant with the affiliated
person in contravention of such rules and regulations as the SEC may
prescribe for the purpose of limiting or preventing participation by
such company. Rule 17d-1 was promulgated pursuant to section 17(d).
Under rule 17d-1, most joint transactions are prohibited unless
approved by order of the SEC. In passing upon such applications, the
SEC considers whether 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.
5. Because the Converting CIFs may be viewed as acting as principal
in the Proposed Transfers, and because the Converting CIFs and the Fund
may be viewed as being under the common control of the Bank and
consequently affiliated persons within the meaning of section 2(a) (3)
(C), the Proposed Transfers may be subject to the prohibitions
contained in section 17(a). For the same reasons, the Proposed
Transfers might be deemed to be a joint enterprise or other joint
arrangement prohibited by section 17(d) and rule 17d-1.
6. The Proposed Transfers will be on terms that are reasonable and
fair, and do not involve overreaching on the part of any person, and
will be consistent with the provisions, policies, and purposes of the
Act. The Proposed Transfers will comply with rule 17a-7 in most
respects, and also will comply with the policy behind the conditions
set forth in rule 17a-8. Rule 17a-7 exempts certain purchase and sale
transactions otherwise prohibited under section 17(a) if, among other
things, the transactions are effected at an ``independent market
price'' and the investment company's board of directors reviews the
transactions for fairness. Rule 17a-8 exempts certain mergers and
consolidations from the provisions of section 17(a) if, among other
things, the investment company's board of directors determines that the
transactions are fair. Because applicants intend to comply with the
terms of rules 17a-7 and 17a-8 to the extent possible, the transactions
will be effected at an independent current market price and will be
reviewed by the Fund's board of directors, including a majority of the
independent directors, for their fairness. Because the investment
objectives and policies of the Portfolios and the Converting CIFs are
virtually identical, the securities received by the Portfolios will not
violate the Portfolios' investment objectives or policies. The Bank
will not collect fees at both the pension plan level and the Fund level
for managing the same assets, and although the fees charged to the
pension plans may increase slightly as a result of the greater costs of
mutual fund administration, the Bank's total net fees will not increase
significantly after the conversion.
7. The Redeeming CIFs may be deemed affiliated persons of IEF under
section 2(a) (3) (A) because several of the Redeeming CIFs own,
individually, more that 5% of IEF's outstanding voting securities (and
own, in aggregate, approximately two-thirds of IEF's outstanding voting
securities). To the extent that an in-kind redemption of shares would
involve a ``purchase'' of securities for purposes of section 17(a), the
proposed redemption in-kind would be prohibited by section 17(a) (2).
8. The proposed redemption in-kind will be on terms that are
reasonable and fair to IEF and the Redeeming CIFs and that do not
involve overreaching on the part of any person. The securities will be
distributed pro rata and valued at the last reported trade price on the
exchange on which the securities are traded, or if there is no reported
trade price, at the most recent reported mid-market price. As a result,
the Redeeming CIFs will not receive any advantage over any other
shareholder if the proposed redemptions are permitted.
Applicants' Conditions
Applicants agree that any order of the SEC granting the requested
relief shall be subject to the following conditions:
1. The Proposed Transfers will comply with the provisions of rule
17a-7(b)-(f).
2. The proposed Transfers will not occur unless and until: (a) The
board of trustees of the Fund (including a majority of its
disinterested trustees) and the Committee or the Plans' second
fiduciaries, as the case may be, find that the Proposed Transfers are
in the best interests of the Fund and the Plans, respectively; and (b)
the board of trustees of the Fund (including a majority of its
disinterested trustees) finds that the interests of the existing
shareholders of the Fund will not be diluted as a result of the
Proposed Transfers. These determinations and the basis upon which they
are made will be recorded fully in the records of the Fund and the
Plans.
3. The securities distributed to the Redeeming CIFs pursuant to a
redemption in-kind (the ``In-Kind Securities'') will be limited to
securities which are traded on a public securities market or for which
quoted bid and asked prices are available.
4. In-Kind Securities will be distributed on a pro rata basis after
excluding: (a) Securities which, if distributed, would be required to
be registered under the Securities Act of 1933; (b) securities issued
by entities in countries which restrict or prohibit the holdings of
securities by non-nationals other than through qualified investment
vehicles, such as IEF; and (c) certain securities that--although liquid
and marketable--must be traded through the marketplace in order to
effect a change in beneficial ownership. In addition, cash will be
distributed in lieu of any shares not amounting to a round lot (e.g.,
100 shares), fractional shares, and accruals (i.e., dividends
receivable) on such securities.
5. The Redeeming CIFs' pro rata share of the IEF portfolio
securities that may not be distributed in-kind pursuant to conditions 3
and 4 above will be sold in an appropriate market, and the proceeds of
such sale will be distributed to the Redeeming CIFs in lieu of a
distribution in-kind.
6. Schroder Funds will maintain and preserve for a period of not
less than six years from the end of the fiscal year in which any
redemption in-kind to a CIF occurred, the first two years in an easily
accessible place, a written record of each such redemption that
describes each security distributed, the terms of the distribution, and
the information or materials upon which the valuation was made.
7. The In-Kind Securities distributed to the Redeeming CIFs will be
valued in the same manner as they would be valued for purposes of
computing a portfolio's net asset value, which, in the case of
securities traded on a public securities market for which quotations
are available, is their last reported trade price on the exchange on
which the securities are principally traded, or, if there is no such
reported price, is the average of highest current independent bid and
lowest current independent offer.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12304 Filed 5-19-94; 8:45 am]
BILLING CODE 8010-01-M
