[Federal Register Volume 61, Number 141 (Monday, July 22, 1996)]
[Notices]
[Pages 37946-37948]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18454]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22072; 812-10034]
Pacific Horizons Funds, Inc., et al.; Notice of Application
July 15, 1996.
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: Pacific Horizon Funds, Inc. (``Pacific Horizon''), Master
Investment Trust, Series I (``MIT I''), Master Investment Trust, Series
II (``MIT II''), Seafirst Retirement Funds (``Seafirst''), Time Horizon
Funds (``Time Horizon''), each existing and future series of the above-
named funds, and existing and future registered investment companies or
series thereof that, now or in the future, are advised by Bank of
America National Trust and Savings Association (``Bank of America'') or
an entity controlling, controlled by, or under common control with Bank
of America and any feeder fund that invests substantially all of its
assets in any such investment company or series thereof (the
``Funds''); Bank of America; and Concord Financial Group, Inc.
(``Concord'').\1\
\1\ All existing funds that presently intend to rely on the
requested order are named as applicants.
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RELEVANT ACT SECTIONS: Order requested under section 6(c) for an
exemption from section 12(d)(1)(A)(ii), under sections 6(c) and 17(b)
for an exemption from section 17(a)(1) and 17(a)(2), and under rule
17d-1 to permit certain transactions in accordance with section 17(d)
and rule 17d-1.
SUMMARY OF APPLICATION: Applicants seek an order that would permit
certain Funds to use their cash reserves to purchase shares of
affiliated money market funds.
FILING DATES: The application was filed on March 6, 1996 and was
amended on May 29, 1996. Applicants have agreed to file an amendment
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 August 9, 1996
and should be accompanied by proof of service on the 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 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Pacific Horizon, MIT II, Time Horizon, and Concord,
3435 Stelzer Road, Columbus, Ohio 43219; MIT I c/o Concord (Cayman
Islands) Limited, Bank of America Building, Fort Street, George Town,
Grand Cayman, Cayman Islands, British West Indies; Seafirst, 701 Fifth
Avenue, Seattle, Washington 98104; and Bank of America, 555 California
Street, San Francisco, California 94104.
FOR FURTHER INFORMATION CONTACT: Marianne H. Khawly, Staff Attorney, at
(202) 942-0562, or Alison E. Baur, 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
[[Page 37947]]
may be obtained for a fee from the SEC's Public Reference Branch.
Applicants' Representations
1. Each Fund is an open-end management investment company organized
in series form. Six of the Pacific Horizon series are money market
funds subject to the requirements of rule 2a-7 under the Act (``Money
Market Funds''). The remaining nine Pacific Horizon series and all of
the existing series of MIT I, MIT II, Seafirst, and Time Horizon are
variable net asset value funds (``Non-Money Market Funds''). Five of
Pacific Horizon's Non-Money Market Funds and Seafirst's three series
are organized as feeder funds that seek to achieve their investment
objective by investing substantially all of their assets in
corresponding series of MIT I, MIT II, or future master funds advised
by Bank of America or an entity controlling, controlled by, or under
common control with Bank of America (``Feeder Funds'').
2. Bank of America (the ``Adviser'') serves as investment adviser
to each of the Funds except for the Feeder Funds, which have no
investment adviser. The Adviser is a subsidiary of BankAmerica
Corporation, a bank holding company. Concord, a subsidiary of Concord
Holding Corporation, serves as distributor for each Pacific Horizon,
Seafirst, and Time Horizon series. MIT I and MIT II have no distributor
because they are offered in private placements.
3. The Money Market Funds seek current income, liquidity, and
capital preservation by investing exclusively in short-term money
market instruments, such as U.S. government securities, bank
obligations, commercial paper, municipal obligations, and repurchase
agreements secured by government securities. These short-term debt
securities are valued at their amortized cost in accordance with the
requirements of rule 2a-7. The Non-Money Market Funds invest in a
variety of debt and/or equity securities in accordance with their
respective investment objectives and policies.
4. Applicants request an order that would permit: (a) Each of the
Non-Money Market Funds to utilize cash reserves that have not been
invested in portfolio securities (``Uninvested Cash'') to purchase
shares of one or more of the Money Market Funds, and (b) each Money
Market Fund to sell shares to, and redeem such shares from, a Non-Money
Market Fund. Applicants also request relief that would permit the Non-
Money Market Funds to invest Uninvested Cash in a Money Market Fund in
excess of the percentage limitations of section 12(d)(1)(A)(ii) of the
Act. Applicants propose that each Non-Money Market Fund be permitted to
invest in shares of a Money Market Fund provided that each Non-Money
Market Fund's aggregate investment in such Money Market Fund does not
exceed the greater of 5% of such Non-Money Market Fund's total net
assets or $2.5 million. Applicants will comply with all other
provisions of section 12(d)(1).
5. By investing Uninvested Cash in the Money Market Funds,
applicants believe that the Non-Money Market Funds will be able to
combine these cash balances and thereby reduce their transaction costs,
create more liquidity, enjoy greater returns, and further diversify
their holdings. The policies of the Non-Money Market Funds either now
permit, or will be amended to permit, the Non-Money Market Funds to
purchase money market instruments, including shares of a Money Market
Fund.
6. The shareholders of the Non-Money Market Funds would not be
subject to the imposition of double advisory fees. The Adviser,
Concord, and each of their affiliated persons will remit to the
respective Non-Money Market Fund, or waive, an amount equal to the
investment advisory or other asset-based fees the Adviser, Concord, and
each of their affiliated persons earn as a result of the Non-Money
Market Fund's investments in the Money Market Funds to the extent such
fees are based upon the Non-Money Market Fund's assets invested in
shares of the Money Market Funds (the ``Reduction Amount''). Further,
neither the Money Market Funds nor Concord will charge a sales charge,
contingent deferred sales charge, a distribution fee under a plan
adopted in accordance with the requirements of rule 12b-1 under the
Act, or other underwriting or distribution fees to the Non-Money Market
Funds with respect to those Funds' purchase or redemption of Money
Market Fund shares. If a Money Market Fund offers more than one class
of shares, each Non-Money Market Fund will invest only in the class
with the lowest expense ratio that does not impose a sales charge,
contingent deferred sales charge, rule 12b-1 fee, or other underwriting
or distribution fee at the time of the investment.
7. The Adviser, Concord, and/or each of their affiliated persons
currently or in the future may waive fees or reimburse expenses (an
``Expense Waiver''). Any Expense Waiver will not limit the advisory fee
waiver or remittance discussed above.
Applicants' Legal Analysis
1. Sections 17(a)(1) and 17(a)(2) make it unlawful for any
affiliated person of a registered investment company, or an affiliated
person of such affiliated person, acting as principal, to sell any
security to, or purchase any security from, such investment company.
Because each Fund may be deemed to be under common control with the
other Funds, it is an ``affiliated person,'' as defined in section
2(a)(3) of the Act, of the other Funds. Accordingly, the sale of shares
of the Money Market Funds to the Non-Money Market Funds and the
redemption of such shares of the Money Market Funds from the Non-Money
Market Funds, would be prohibited under section 17(a).
2. Section 17(b) authorizes 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, the
proposed transaction is consistent with the policy of each investment
company concerned, and the proposed transaction is consistent with the
general purposes of the Act. Under section 6(c), the SEC may exempt a
series of transactions from any provision of the Act or any rule or
regulation thereunder if, and 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. Thus, applicants request relief under
sections 6(c) and 17(b) because they wish to engage in a series of
transactions rather than a single transaction.
3. The Non-Money Market Funds will retain their ability to invest
their cash balances directly in money market instruments if they
believe they can obtain a higher return. Each of the Money Market Funds
has the right to discontinue selling shares to any of the Non-Money
Market Funds if its board of directors/trustees determines that such
sales would adversely affect the portfolio management and operations of
such Money Market Fund. Therefore, applicants believe that the proposal
satisfies the standards for relief.
4. Section 17(d) and rule 17d-1 prohibit an affiliated person of an
investment company, acting as principal, from participating in or
effecting any transaction in connection with any joint enterprise or
joint arrangement in which the investment company participates. Each
Non-Money Market Fund, the Adviser, and each of the Money Market Funds
could be
[[Page 37948]]
considered participants in a joint enterprise or other joint
arrangement within the meaning of section 17(d)(1) and rule 17d-1.
5. 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 different from or less advantageous than that of the
other participants. Applicants believe that their proposal satisfies
these standards.
6. Section 12(d)(1)(A)(ii) prohibits a registered investment
company from acquiring the securities of another investment company if,
immediately thereafter, the acquiring company would have more than 5%
of its total assets invested in the securities of the selling company.
Applicants request an exemption from section 12(d)(1)(A)(ii) to permit
each Non-Money Market Fund to invest in a Money Market Fund the greater
of 5% of such Non-Money Market Fund's total net assets or $2.5 million.
Applicants submit that the perceived abuses section 12(d)(1) sought to
address include undue influence by an acquiring fund over the
management of an acquired fund, layering of fees, and complex
structures. Applicants believe that none of these concerns are
presented by the proposed transactions and that the proposed
transactions meet the section 6(c) standards for relief.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. 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, distribution fee under a plan adopted in accordance
with rule 12b-1, or service fee (as defined in section 26(b)(9) of the
NASD Rules of Fair Practice).
2. Before the next meeting of the board of directors/trustees of a
Non-Money Market Fund is held for the purpose of voting on an advisory
contract under section 15, the Adviser to the Non-Money Market Fund
will provide the board of directors/trustees with specific information
regarding the approximate cost to the Adviser for, or portion of the
advisory fee under the existing advisory fee attributable to, managing
the assets of the Non-Money Market Fund that can be expected to be
invested in the Money Market Funds. Before approving any advisory
contract under section 15, the board of directors/trustees of the Non-
Money Market Fund, including a majority of the directors who are not
``interested persons,'' as defined in section 2(a)(19), shall consider
to what extent, if any, the advisory fees charged to the Non-Money
Market Fund by the Adviser should be reduced to account for the
reduction of these services to the Non-Money Market Fund by the Adviser
under the advisory contract as a result of a portion of the assets of
the Non-Money Market Fund being invested in the Money Market Funds. The
minute books of the Non-Money Market Fund will record fully the board's
consideration in approving the advisory contract, including the
considerations relating to fees referred to above.
3. Each Non-Money Market Fund will be permitted to invest
Uninvested Cash in, and hold shares of, a single Money Market Fund, so
long as such Non-Money Market Fund's aggregate investment in such Money
Market Fund does not exceed the greater of 5% of such Non-Money Market
Fund's total net assets or $2.5 million.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18454 Filed 7-19-96; 8:45 am]
BILLING CODE 8010-01-M
