Bank of America announced plans to begin combining its flagship Nations mutual funds with the Columbia fund family it acquired in its merger with FleetBoston Financial Corp. nearly a year ago, after settling charges of market timing with regulators in February.
While the firm was able to craft a plan to combine the funds in the interim, a major reason it sought to delay the mergers was so it could settle its problems with regulators, spokesman Tom Gariepy said.
The Securities and Exchange Commission ordered the new Bank of America subsidiary that now serves as its asset management arm, Columbia Management Group, to pay $140 million in February to settle allegations of market timing. In a separate case, Banc of America Securities LLC and two affiliates were ordered to pay $375 million to settle similar charges.
Market timing involves the frequent buying and selling of fund shares to exploit inefficiencies in pricing. Though the practice is not in itself illegal, federal and state enforcement officials have charged that fund companies that permit it do so in violation of securities fraud laws if they have told investors in fund prospectuses that such practices are prohibited.
In the case involving the Columbia firms, the SEC charged that they entered into improper arrangements with nine entities in connection with seven funds, one of which was Columbia's Tax-Exempt Fund. The commission also charged that excessive trading was permitted in many of the firm's funds without such arrangements.
The Nations funds, which were formerly run out of Charlotte, where Bank of America is based, have been merged into Columbia Management Group and will now be managed from its offices in Boston, said Jon Goldstein, another spokesman at the firm.
The firm is meanwhile in the process of searching for a new municipal department head to replace Bonny Boatman in Boston, who retired March 31, Goldstein said. Boatman had served as head of the department since Fleet's acquisition of the Liberty Funds Group in November 2001.
The former municipal fund departments at Columbia and Bank of America were both similar in size, managing $5.43 billion and $5.56 billion in assets, respectively, at the end of 2004, according to Lipper Inc. Combined, the department now manages the ninth largest municipal fund group with almost $11 billion in assets.
Portfolio managers are currently reporting to Brenda Furlong, head of fixed income at Columbia.
Over the last year, the firm has engaged in a process of consolidating its fund lineup by merging together funds within the Columbia fund family, bringing the total number of funds to fewer than 100.
In a press release, the firm described the planned mergers of Columbia and Nations funds announced last week as "the next phase" of the process.
"This phased approach to consolidating and focusing this product line is designed to address redundancies, achieve efficiencies of scale, and more clearly differentiate the menu of choices we provide to investors," Columbia Management president Keith Banks said in the statement.
"These transactions, combined with the mergers and liquidations completed last month, other proposed consolidations announced in February and the streamlining of service provider platforms announced last month are all components of Columbia Managements strategy to create a cohesive product and servicing platform."
At this point, the mergers have been approved by some of the muni funds' boards and are still pending approval from shareholders. Should the shareholders of a fund reject a proposed merger, its board would take action that in its opinion would best serve its investors.
The firm is seeking to merge six municipal bond funds into three larger funds. It has proposed to merge the $1.71 billion Nations Intermediate Municipal Bond Fund, $72.3 million Kansas Municipal Income Fund, and the $57.1 million Nations Tennessee Intermediate Municipal Bond Fund into the $511.2 million Columbia Intermediate Tax Exempt Bond Fund. The mergers, if executed, would swell the size of the Columbia Intermediate fund to $2.35 billion. Columbia's Susan Sanderson will continue to serve as the head portfolio manager of the fund, which she has run since June 2003.
The firm has also proposed to combine the $261.6 million Nations California Municipal Bond Fund with the $237.5 million Columbia California Tax Exempt Bond Fund, to create a single fund with $264.1 million in assets. Columbia's Gary Swayze will continue to act as the fund's head portfolio manager, as he has sine October 1997.
The firm is also planning to merge the $89.8 million Nations Florida Municipal Bond Fund and the $65.8 million Columbia Florida Intermediate Municipal Bond Fund into the $194.2 million Nations Florida Intermediate Municipal Bond Fund. The combined fund would total $349.8 million in size if approved. Sanderson will replace Michele Poirer as head portfolio manager of the fund. Poirer had managed the Nations fund since October 1993.
Portfolio managers in Charlotte whose funds have been merged away have remained with the firm and been given new roles, Gariepy said. "No one is leaving."
