[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