[Federal Register Volume 60, Number 41 (Thursday, March 2, 1995)]
[Rules and Regulations]
[Pages 11876-11887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4997]
[[Page 11875]]
_______________________________________________________________________
Part XIII
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Part 239, 240 et al.
Exemption for Open-End Management Investment Companies Issuing Multiple
Classes of Shares; Disclosure by Multiple Class and Master Feeder
Funds; Voting on Distribution Plans; Final Rules and Proposed Rule
Federal Register / Vol. 60, No. 41 / Thursday, March 2, 1995 / Rules
and Regulations
[[Page 11876]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 239, 270, and 274
[Release Nos. 33-7143, IC-20915, File No. S7-32-93]
RIN 3235-AF00
Exemption for Open-End Management Investment Companies Issuing
Multiple Classes of Shares; Disclosure by Multiple Class and Master-
Feeder Funds; Class Voting on Distribution Plans
AGENCY: Securities and Exchange Commission
ACTION: Final Rules
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SUMMARY: The Securities and Exchange Commission is adopting a rule
under the Investment Company Act of 1940 (``Investment Company Act'')
to permit open-end management investment companies (``mutual funds'')
to issue multiple classes of voting stock representing interests in the
same portfolio. The new rule will eliminate the need for funds seeking
to issue multiple classes of their shares to apply for exemptions. The
Commission also is adopting amendments to certain registration
statement forms under the Investment Company Act and the Securities Act
of 1933 (``Securities Act'') and publishing a staff guide to one
registration form. These amendments require that multiple class and
master-feeder funds provide investors with certain disclosure. The
disclosure will allow investors to obtain information about these funds
and their structures.
DATES: Effective Date: April 3, 1995.
Compliance Date: Registration statements and post-effective
amendments filed with the Commission after the effective date must be
in compliance with the amendments to Forms N-1A and N-14.
FOR FURTHER INFORMATION CONTACT: Karrie McMillan, Senior Counsel (202)
942-0695, or Robert G. Bagnall, Assistant Chief (202) 942-0686, Office
of Regulatory Policy, Division of Investment Management, 450 Fifth
Street, NW., Stop 10-6, Washington, D.C. 20549.
Requests for formal interpretive advice should be directed to the
Office of Chief Counsel (202) 942-0659, Division of Investment
Management, 450 Fifth Street, N.W., Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION: The Commission is today adopting rule 18f-3
[17 CFR 270.18f-3] and a related amendment to rule 12b-1 [17 CFR
270.12b-1], both under the Investment Company Act. The Commission is
also adopting amendments to Forms N-1A [17 CFR 239.15A, 274.11A] and N-
14 [17 CFR 239.23].
Most multiple class funds have also obtained exemptive relief to
impose contingent deferred sales loads (``CDSLs''). In separate
releases, the Commission also is adopting rule 6c-10 [17 CFR 270.6c-10]
under the Investment Company Act, to allow mutual funds to impose
CDSLs, and proposing to amend the rule to permit other forms of
deferred loads, such as installment loads, and to remove many of the
requirements of the rule as adopted.1
\1\Exemption for Certain Open-End Management Investment
Companies to Impose Contingent Deferred Sales Loads, Investment
Company Act Release No. 20916 (Feb. 23, 1995); Exemption for Certain
Open-End Management Investment Companies to Impose Deferred Sales
Loads, Investment Company Act Release No. 20917 (Feb. 23, 1995).
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Table of Contents
Executive Summary
I. Background
II. Discussion
A. Rule 18f-3
1. Differences in Distribution and Shareholder Services
2. Allocation of Expenses
a. Class Expenses
b. Allocation of Fund Income and Expenses
c. Accountant's Report on System of Internal Control
d. Waivers and Reimbursements of Expenses
3. Voting and Other Rights and Obligations
4. Exchange Privileges and Conversions
5. Board Review of Plans
B. Rule 12b-1
C. Disclosure
1. Prospectus Disclosure Concerning Other Classes or Feeder
Funds
2. Discussion of Classes or Feeder Funds Offered in Prospectus
3. Discussion of Classes Into Which Shares May Convert or Be
Exchanged
4. Advertising and Sales Literature
D. Effective Dates
III. Cost/Benefit of the Proposals
IV. Regulatory Flexibility Act Analysis
V. Statutory Authority
VI. Text of Adopted Rule and Rule and Form Amendments
Executive Summary
Since 1985, the Commission has issued approximately 200 exemptive
orders allowing funds to issue multiple classes of shares representing
interests in the same portfolio, typically with different distribution
arrangements. The orders frequently impose as many as 20 conditions
designed to address various investor protection concerns.
The Commission is adopting rule 18f-3 under the Investment Company
Act, which will permit funds to issue multiple classes of shares
without the need to seek exemptions from the Commission. The rule will
decrease the amount of time and expense involved in creating these
structures. It also will reduce the Commission's burden of reviewing
the applications. The rule requires certain differences in the
expenses, rights, and obligations of different classes, permits certain
other differences among classes, specifies the matters on which class
voting is required, and prescribes how income and expenses must be
allocated. The rule also emphasizes the responsibilities of the board
of directors to establish and monitor allocation and other procedures
in the best interests of each class and of the fund as a whole.
Finally, the rule permits, but does not require, different classes to
have different exchange privileges and conversion rights. A related
amendment to rule 12b-1 clarifies that a rule 12b-1 plan must have
separate provisions for each class; any action on the plan, such as
director or shareholder approval, must take place separately for each
class.
Over the past few years, many fund sponsors have adopted another
distribution arrangement designed to achieve many of the same business
goals as the multiple class structure without the need to obtain
exemptions under section 18. This ``master-feeder'' arrangement
comprises a two-tier structure in which one or more funds (the upper
tier) invest solely in the securities of another fund (the lower
tier).2 Although master-feeder structures are functionally similar
to multiple class funds, they are viewed as not needing exemptions and
have been subject to different disclosure requirements.
\2\Master-feeder funds are often referred to as ``core and
feeder'' or ``hub and spoke'' funds. Signature Financial Group is
the originator and patent licensor of the Hub and Spoke
form of the master-feeder structure.
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The disclosure requirements adopted today apply equally to multiple
class and master-feeder funds, and are similar to those currently in
effect for master-feeder funds. A prospectus for a class or feeder fund
will be required to include disclosure about other publicly offered
classes or feeder funds not offered through the prospectus and a
telephone number an investor may call to receive additional information
about other classes or feeder funds sold by the same bank, broker, or
other financial intermediary. In view of commenters' concerns, the
Commission is not adopting the more extensive disclosure requirements
originally proposed. The provisions as adopted are consistent
[[Page 11877]] with the Commission's encouragement of simplified
prospectuses.
I. Background
Both the multiple class and master-feeder structures may benefit
shareholders and fund sponsors. These structures may increase investor
choice, result in efficiencies in the distribution of fund shares, and
allow fund sponsors to tailor products more closely to different
investor markets. Fund sponsors assert that multiple classes may enable
funds to attract larger asset bases, permitting them to spread fixed
costs over more shares, qualify for discounts in advisory fees
(``breakpoints''), and otherwise experience economies of scale,
resulting in lower fees and expenses. They also state that multiple
classes avoid the need to create ``clone'' funds, which require
duplicative portfolio and fund management expenses. Furthermore, fund
sponsors state that a larger asset base permits greater portfolio
liquidity and diversification.
Master-feeder funds may achieve similar benefits of economies of
scale, thus potentially lowering expenses, and also allow several
different small funds access to the same management and compliance
personnel. The master-feeder structure allows a fund sponsor to offer
feeder funds that invest in specialized portfolios, even though the
sponsor's expected asset base may not justify organizing a stand-alone
fund for that market or market segment. Sponsors also use this
structure to offer off-shore and other unregistered feeder funds.3
\3\P.W. Coolidge, Business Applications of the Hub and
Spoke Structure, 1993 Mutual Funds & Investment Management
Conference X-3 (Mar. 11, 1993); R.M. Phillips and C.E. Plaza, Hub &
Spoke Mutual Funds, 26 Securities & Commodities Regulation
137 (Aug. 1993). See also ``Hub-and-Spoke'' Funds: A Report Prepared
by the Division of Investment Management, submitted with letter from
Richard C. Breeden, Chairman, SEC, to John D. Dingell, Chairman,
House Comm. on Energy and Commerce (Apr. 15, 1992).
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Investor understanding of sales and service charges in both
arrangements, however, has been a subject of concern to the
Commission.4 Some commentators have asserted that the complexity
generated by these arrangements may confuse many investors, who often
may not understand them or the effect that fees have upon
performance.5
\4\See, e.g., Exemption for Open-End Management Investment
Companies Issuing Multiple Classes of Shares; Disclosure by Multiple
Class and Master-Feeder Funds, Investment Company Act Release No.
19955 (Dec. 15, 1993), 58 FR 68074 (Dec. 23, 1993) [hereinafter
Proposing Release].
\5\See Proposing Release, 58 FR at 68082 n.59; see also Jeff
Kelly, A Fine Mess, Morningstar Mutual Funds, Nov. 25, 1994, at S1;
Carole Gould, Brokers' New Pitch; Level Load on Funds, N.Y. Times,
May 7, 1994, at 37 (``If investors are confused about which pricing
method is best for them, it's no wonder''); Vanessa O'Connell,
Mastering the ABCs of Fund Shares, Money, Sept. 1993 (``Counting A,
B and C shares, analysts now predict that the number of fund options
could double to a mind-numbing 8,000 within the next 18 months'').
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On December 15, 1993, the Commission proposed for public comment
rule 18f-3 and related amendments to rule 12b-1 under the Investment
Company Act and advertising and prospectus disclosure
requirements.6 Among other things, rule 18f-3 would have allowed
funds to issue multiple classes of shares without the need to apply for
and receive an exemption from the Commission and largely would have
codified the exemptive orders. The proposal also would have made
consistent the disclosure requirements of Form N-1A for multiple class
and master-feeder funds by imposing disclosure requirements based on
those in the multiple class exemptive orders. These requirements would
have included a prominent legend following the fee table disclosing the
availability of other classes or feeder funds not offered in that
prospectus, and an undertaking to provide investors with additional
information about other classes or feeder funds. They also would have
required full cross-disclosure in the prospectus about any other
classes or feeder funds that were offered or made available through the
same broker, dealer, bank, or other financial intermediary, and
permitted investors to choose among alternative arrangements for sales
and related charges. The proposal also would have required a line graph
comparing the hypothetical value of holdings of the classes or feeder
funds described in the prospectus upon redemption at the end of each
year during a ten-year period. The proposal would have made conforming
changes to advertising and sales literature rules and Form N-14. A
related amendment to rule 12b-1 would have clarified that a rule 12b-1
plan must treat each class separately and required separate director
and shareholder approval.
\6\Proposing Release, supra note 4.
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II. Discussion
The Commission received 24 comments on the proposal.7 Most of
the commenters were fund groups, law firms, and trade associations.
Although all commenters favored a rule allowing multiple class
structures without the need for exemptive orders, most strongly opposed
the proposed disclosure requirements. The Commission is adopting rule
18f-3 and related prospectus disclosure requirements with modifications
that address the comments received. Rule 18f-3 allows funds flexibility
in tailoring many aspects of their multiple class structures, overseen
by the board of directors, while preserving investor protection
conditions based on the exemptive orders and derived from the concerns
underlying section 18. The Commission has reconsidered the disclosure
aspects of the proposal in light of the strong opposition of the
commenters, and is adopting much less extensive requirements than
proposed. The rule and form amendments will give investors the means to
obtain information about certain other classes or other feeder funds
investing in the same master fund, but do not require extensive cross-
disclosure in prospectuses and advertisements.
\7\The comment letters, as well as a comment summary dated Dec.
21, 1994 prepared by the Commission's staff, are available for
public inspection and copying at the Commission's public reference
room in File No. S7-32-93.
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A. Rule 18f-3
The Commission is adopting rule 18f-3 to create a limited exemption
from sections 18(f)(1) and 18(i)8 for funds that issue multiple
classes of shares with varying arrangements for the distribution of
securities and provision of services to shareholders. Multiple class
funds relying on existing exemptive orders would be allowed to use the
rule but would not be required to do so.9 The Commission has made
several modifications to the rule in view of the comments received.
\8\15 U.S.C. Sec. 80a-18(f)(1) and -(i). Section 18(f)(1)
generally makes it ``unlawful for any registered open-end company to
issue any class of senior security.'' Section 18(g) defines senior
security to include any stock of a class having a priority over any
other class as to distribution of assets or payment of dividends.
Section 18(i) requires that every share of stock issued by a
registered investment company be voting stock, with the same voting
rights as every other outstanding voting stock.
\9\Funds currently relying on exemptive orders that choose to
operate instead under the new rule must first prepare plans under
paragraph (d) of the rule and file copies of the plans with the
Commission as exhibits to their registration statements under new
Item 24(b)(18) of Form N-1A. Provided that no changes are made to
arrangements and expense allocations under an existing order,
paragraph (d) does not require board approval of the plan. A fund
choosing to rely on an existing exemptive order, including one
providing an exemption for ``future classes,'' may continue to do
so, provided it complies with all of the conditions in the order
(including the disclosure conditions); in addition, such a fund
would also be subject to the disclosure requirements adopted today.
See discussion at II.A.5. regarding the adoption of a multiple class
plan under the rule.
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The rule largely codifies the exemptive order approach of
addressing [[Page 11878]] the potential for conflicts among classes by
limiting the permissible differences among classes in expenses and
voting rights. It specifies permissible methods of allocating expenses,
and allows the waiver of expenses by service providers. Rule 18f-3 also
specifies the conditions under which shares of one class may be
converted into or exchanged with shares of another class.
The rule requires the board of directors of a fund to approve a
plan detailing each class's arrangement for the distribution of
securities and the services provided to each class, and the payment of
other expenses. The board must determine that the plan is in the best
interests of each class individually and the fund as a whole.
1. Differences in Distribution and Shareholder Services
Under paragraph (a)(1)(i), classes must differ either in the manner
in which they distribute their securities, or in the services they
provide to their shareholders, or both. As under the proposal,
distribution systems may differ in the amount or form of payment, or
the nature or extent of services provided. A class that pays a front-
end load, for example, differs from a class paying a rule 12b-1
fee10 in a spread load or level load arrangement in the amount,
the form (by shareholders individually versus the class as a whole),
and timing (at purchase versus over time) of distribution charges.
\10\A rule 12b-1 fee is a charge to fund assets that may be used
to pay certain distribution expenses in accordance with rule 12b-1
(17 CFR 270.12b-1) under the Investment Company Act.
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Funds may also meet paragraph (a)(1)(i) by providing different
services to the shareholders of each class. One commenter expressed
concern that the requirement in proposed paragraph (a)(5) that all
classes have the same rights and obligations would not permit
differences among classes in services such as checkwriting.11
Presumably, the commenter viewed the term ``shareholder service'' as
encompassing only certain services provided to shareholders by banks,
brokers, and other third parties detailed in the many multiple class
exemptive applications, and not shareholder transaction services, such
as checkwriting. The term ``shareholder services'' in the rule,
however, encompasses both types of services.
\11\Letter from the Investment Company Institute to Jonathan G.
Katz, Secretary, SEC 22 (Feb. 22, 1994).
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2. Allocation of Expenses
a. Class Expenses. Under rule 18f-3, certain expenses must be
allocated to individual classes, while others may be so allocated at
the discretion of the fund's board of directors. Paragraph (a)(1)(i)
provides that expenses relating to the distribution of a class's
shares, or to services provided to the shareholders of that class, must
be allocated to that class. Although this requirement was implicit in
proposed paragraph (a)(1)(i), the text of the rule as adopted has been
clarified to make it explicit.
Paragraph (a)(1)(ii) provides that other expenses (other than
advisory12 or custodial fees or other expenses relating to the
management of the fund's assets, which must be allocated to all classes
in accordance with paragraph (c)) may be allocated to different classes
in different amounts to the extent that they are incurred by one class
in a different amount, or reflect differences in the amount or kind of
services that different classes receive.13 This paragraph
encompasses both differences in actual out-of-pocket expenses among
classes (for instance, blue sky fees that are incurred for some classes
but not others), and differences in charges when classes receive
services that are different in kind or amount. For example, some
classes may use transfer agency services differently than others. Thus,
the rule contemplates that allocations may be based upon the level or
kind of services used.14
\12\ Under rule 18f-3, the investment advisory fee charged to
each class generally must be the same percentage amount. In the case
of a multiple class fund with an advisory contract that provides for
compensation to the adviser on the basis of performance, paragraph
(a)(1)(iii) clarifies that the percentage amount may vary for each
class to the extent that any difference is the result of the
application of the same performance fee provisions to the different
investment performance of each class.
In addition, the Commission believes that it would also be
consistent with section 205(b)(2) and rule 205-1 if a multiple class
fund were to use the investment performance of a single class for
the purpose of calculating the performance fee. In approving the use
of a class, the board of directors of the fund should consider all
of the relevant factors, including the proposed performance fee
schedule, the effect that using one class instead of another would
have on the fees to be paid, the anticipated relative size of each
class, the expense ratio of each class, the effect of any waiver or
reimbursement of expenses on the performance of that class, the
nature of the index to which the fund's performance will be compared
and, if the index is comprised of comparable funds, the average
expense ratio of those funds. For instance, it would appear
difficult for a board to justify basing the calculation of a
performance fee on the performance of a class with the lowest
expenses if the result would be that shareholders of another class
would pay a higher advisory fee than would be warranted given that
class's performance.
\13\The board should monitor whether the fund's allocations have
complied with the requirements of paragraph (a)(1)(ii) when the
board reviews the fund's plan. See section II.A.5., infra.
\14\Paragraph (a)(1)(ii) as adopted has been reworded to delete
subparagraph (A) of the proposed rule text. Under proposed paragraph
(a)(1)(A), expenses could have been treated as belonging to a class
if they were directly related to the arrangement of that class for
shareholder services or distribution. The proposal did not provide
any guidance for determining whether an expense was ``directly
related,'' nor did it explain how these expenses were to be
distinguished from expenses of an arrangement under paragraph
(a)(1)(i), or other expenses under paragraph (a)(1)(ii)(B).
Therefore, the Commission has deleted this provision as unnecessary.
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The proposal requested comment on whether the rule should provide
more specific limits on differential allocations of expenses.
Commenters strongly supported the flexible approach taken in the
proposal.15 In particular, one commenter stated that ``[a] more
rigid approach to expense allocation could undermine the utility of the
exemptive rule.''16 Another endorsed the ``proposal to leave these
determinations to the Directors.''17 A commenter stated that
mandating certain expenses as class expenses could run afoul of
Internal Revenue Service private letter rulings, which only permit de
minimis differences among the expenses of different classes.18
\15\E.g., Letter from Ropes & Gray to Jonathan G. Katz,
Secretary, SEC 7 (Feb. 21, 1994); Letter from Federated Investors to
Jonathan G. Katz, Secretary, SEC 2 (Feb. 15, 1994).
\16\ICI Comment Letter, supra note , at 21.
\17\Letter from the American Bar Association to Jonathan G.
Katz, Secretary, SEC 12 (Mar. 15, 1994).
\18\Letter from Fidelity Management and Research Company to
Jonathan G. Katz, Secretary, SEC A-1 (May 13, 1994).
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At several commenters' suggestion, the Commission has revised
paragraph (a)(1)(ii) to delete the word ``materially.'' Although the
materiality qualifier in proposed paragraph (a)(1)(ii)(B) would have
allowed boards of directors to avoid making allocation determinations
for trivial differences in expenses, several commenters interpreted the
requirement to mean that boards could not allocate expenses with
immaterial differences at all.19 Because paragraph (a)(1)(ii) is
permissive, allocations of differential expenses, regardless of
materiality, are at the board's discretion.
\19\E.g., ICI Comment Letter, supra note 11, at 21.
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b. Allocation of Fund Income and Expenses. Paragraph (c) sets forth
the allocation methods for income, realized and unrealized capital
gains and losses, and expenses that are not assigned to a particular
class. The proposal would have required that these items be allocated
to each class based on the relative net assets. One commenter, however,
argued that requiring allocations based on net asset value could result
in the dilution of shareholders in daily dividend funds such as money
market funds that permit investors to subscribe for shares, but not
[[Page 11879]] pay for them with federal funds.20 According to the
commenter, because an investor's money is not available for investment
by a fund until federal funds have been received, the payment of
dividends to the investor before receipt of federal funds would dilute
the holdings of other shareholders.21
\20\Memorandum to file from Karrie McMillan regarding telephone
conversation with Richard Peteka, Oppenheimer Management Corporation
(May 11, 1994) (Peteka Comment Memorandum). The term ``net assets''
includes the value of any receivables, including subscriptions to
purchase shares for which the fund has not yet received payment. See
AICPA Audit Guide, supra note 26, at 2.22. Because daily
distribution fund portfolio transactions settle daily against
federal funds (in contrast to other securities that have ``regular
way'' (e.g., currently T+5) settlement), many of these funds only
record income and expenses on their books for shareholders whose
subscriptions have cleared in federal funds. See T. Rowe Price
Associates, Inc. (pub. avail. Dec. 22, 1986). Thus, allocating on
the basis of relative net assets would be in conflict with typical
daily distribution fund allocations.
\21\According to the commenter, this problem is exacerbated when
a large disparity exists between the size of the classes or feeder
funds, as each subscription to the smaller class or feeder fund will
be large relative to the size of the other classes or feeder funds,
and will dilute the classes or feeder funds having greater assets.
Peteka Comment Memorandum, supra note 20.
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Therefore, the rule as adopted allows different methods of
allocation for daily distribution funds than for non-daily distribution
funds. Non-daily distribution funds must allocate these items based on
the relative net assets. Money market funds (including those
calculating net assets on an amortized cost basis) and other funds
making daily distributions of their net investment income may allocate
these items to each share regardless of class,22 or based on the
relative net assets (settled shares).23 The parenthetical
reference in the rule to calculation of net assets using amortized cost
recognizes that money market funds may allocate fund expenses based on
the relative amortized cost net assets.24 The allocation method
selected by the fund must be applied consistently.
\22\Like some exemptive orders, paragraph (c)(2)(i) requires
funds allocating these items equally to all shares regardless of
class to obtain the agreement of their service providers that, to
the extent necessary to assure that all classes maintain the same
net asset value, the providers will waive or reimburse class
expenses.
\23\The rule defines ``relative net assets (settled shares)'' to
mean net assets valued in accordance with generally accepted
accounting principles, but excluding the value of subscriptions
receivable, in relation to the net assets of the fund.
\24\See Fidelity Comment Letter, supra note 18, at A-2.
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A commenter requested that the Commission provide guidance about
the allocation of costs of implementing a multiple class
structure.25 If a fund is organized initially with a multiple
class structure, these costs are part of the fund's organization
expenses and usually are capitalized. Funds may allocate the
amortization of these expenses among the classes like other expenses
under paragraph (c) of the rule. If the class structure is added after
the fund has been organized, or if new classes are added, these
expenditures would not be capitalized. Instead, they would be expenses
of the class or classes in existence before the addition of the class
structure or the new classes,26 and therefore would be recognized
by, and allocated to, those existing classes as an expense under
paragraph (c) and not charged to the new class or classes.27
\25\Id. at 3.
\26\See Financial Accounting Standards Board, Financial
Accounting Standards No. 7, Secs. 8 and 9, Accounting and Reporting
by Development Stage Enterprises, and AICPA, Audits of Investment
Companies: Audit and Accounting Guide 8.10 (May 1993).
\27\Organization expenses should be distinguished from other
expenses, such as printing of prospectuses. These other non-
organizational expenses may appropriately be capitalized and
amortized in accordance with the provisions of generally accepted
accounting principles. The amortization of these expenses would be
allocated to all classes which benefit from the expense.
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c. Accountant's Report on System of Internal Control. The
Commission is not adopting the proposed amendment to Form N-SAR,
relating to an accountant's report on a fund's system of internal
controls. As proposed, Item 77B would have required accountants
preparing the report on a multiple class fund's system of accounting
controls to refer expressly to the procedures for calculating the
classes' net asset values. This provision was intended to replace the
requirement in the exemptive orders that an expert file a separate
report on the adequacy of accounting procedures of multiple class
funds. One commenter supported the proposal's omission of a requirement
for the expert's report as no longer necessary. It believed that the
orders granted to date, and the additional guidance in rule 18f-3,
adequately define the methodology that a fund should follow in
allocating income, realized and unrealized capital gains and losses,
and expenses of the company to a class of shares.28 The commenter,
however, disagreed with the proposal's requirement of a specific
reference in the internal controls report to the procedures for
calculating multiple class net assets, arguing that because the
internal control structure, required to be reviewed by Statement on
Auditing Standards No. 55,29 includes the procedures for
calculating multiple class net assets, the report required by Item 77B
need not be modified to emphasize only one of the aspects of the
internal control structure. The Commission believes that since under
current accounting standards, a review of the fund's internal control
structure must include a review of procedures for calculating multiple
class net assets, it is unnecessary to require the independent
accountant's report to include such a reference.
\28\Letter from the American Institute of Certified Public
Accountants to Jonathan G. Katz, Secretary, SEC 2 (Mar. 18, 1994).
\29\Codification of Statements on Auditing Standards, American
Institute of Certified Public Accountants, AU Sec. 319 (1994).
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d. Waivers and Reimbursements of Expenses. As adopted, rule 18f-
3(b) expressly allows a fund's underwriter, adviser, or other provider
of services to waive or reimburse the expenses of a specific class or
classes. The proposal would have permitted only waivers or
reimbursements by the fund's adviser or underwriter of class expenses,
and would not have permitted waivers or reimbursements for specific
classes of fund expenses, such as advisory fees. Despite the
prohibition on differential waivers of fund expenses, fund sponsors
could have achieved the same result indirectly by waiving or
reimbursing class expenses. Therefore, the Commission is deleting the
restrictions on waivers in the final rule. This modification is not
intended to allow reimbursements or waivers to become de facto
modifications of the fees provided for in advisory or other contracts
so as to provide a means for cross-subsidization between classes.\30\
Consistent with its oversight of the class system and its independent
fiduciary obligations to each class, the board must monitor the use of
waivers or reimbursements to guard against cross-subsidization between
classes.\31\
\30\Rule 18f-3 is only a limited exemption from the literal
application of the prohibitions of section 18 and may not be used to
undermine that section's role in effecting the statutory purpose of
preventing the issuance of ``securities containing inequitable or
discriminatory provisions.'' 15 U.S.C. Sec. 80a-1(b)(3).
\31\See infra section II.A.5.
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3. Voting and Other Rights and Obligations
The Commission is adopting the provisions relating to shareholder
voting substantially as proposed.\32\ These provisions elicited little
comment. Paragraph (a)(2), which provides that each class must have
exclusive voting rights on any matter submitted to
[[Page 11880]] shareholders that relates solely to the arrangement of
that class, governs which class of shareholders may vote on a matter,
but does not affect whether the matter is one that requires a
shareholder vote. Paragraph (a)(3) requires that each class have the
right to vote separately on matters in which its interests are
different from those of other classes.
\32\Paragraphs (a)(2) and (a)(3) of the final rule were
paragraphs (a)(3) and (a)(4), respectively, in the rule as proposed.
They have been renumbered as a result of the transfer of certain
provisions of proposed paragraph (a)(2) into paragraph (b) of the
final rule.
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The Commission is adopting as proposed paragraph (a)(4), which
states that except as provided in the previous paragraphs, each class
of a fund relying on the rule must have the same rights and obligations
as each other class.\33\ Among other things, this paragraph effectively
requires multiple class funds to allocate voting rights that affect all
fund shareholders equally to all shareholders. The Commission had
requested comment on whether to require that voting be allocated based
on relative net asset value per share, rather than one vote per
share.\34\ All of the commenters addressing the issue opposed such a
requirement. These commenters suggested that the proposal's more
flexible approach of allowing a fund to select the method most suitable
for it would provide the best result for each fund.\35\ Several
commenters noted that many funds would be required to hold shareholder
meetings in order to amend their charters to comply with such a
requirement, thus incurring additional expense.\36\ Therefore, the
Commission is not requiring voting based on relative net asset value
per share, but believes that such voting is permissible under section
18(i) of the Investment Company Act.\37\
\33\This provision was paragraph (a)(5) in the rule as proposed.
\34\See footnote 42 of the Proposing Release.
\35\E.g., ICI Comment Letter, supra note 11, at 22; Fidelity
Comment Letter, supra note 18, at A-2 (Fidelity stated that dollar-
based voting may not be consistent with state law).
\36\E.g., Letter from the Chicago Bar Association, Subcommittee
of the Securities Law Committee to Jonathan G. Katz, Secretary, SEC
3 (Feb. 21, 1994); Letter from Federated Investors to Jonathan G.
Katz, Secretary, SEC 3 (Feb. 15, 1994).
\37\See Sentinel Group Funds, Inc. (pub. avail. Oct. 27, 1992)
(under section 18(i), voting rights of different series in a fund
may be tied to the relative net asset value of each series to avoid
vesting unfair voting power in series with per share net asset
values that are significantly lower than those of other series). In
discussing the meaning of ``equal voting rights'' under section
18(i), the Commission has noted that:
Problems of interpretation may very well arise from defining
with exactitude what constitutes ``equal voting rights'' within the
meaning of Section 18(i). It is apparent that in certain cases an
inflexible adherence to any rigid interpretation could produce grave
distortions of the apparent intent of Congress to require a
reasonably equitable distribution of voting power consistent with
the applicable provisions pertaining to the different classes of
stock.
The Solvay American Corp., 27 SEC 971, 974 n.9 (1948).
The Commission also believes that voting based on relative net
asset value is consistent with the definition of ``the vote of a
majority of the outstanding voting securities'' in section 2(a)(42)
of the Investment Company Act [15 U.S.C. Sec. 80a-2(a)(42)]. That
provision does not specify whether the prescribed percentages are to
be determined on the basis of the number of securities, or the value
of the securities.
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4. Exchange Privileges and Conversions
The Commission is adopting provisions relating to conversions and
exchanges of shares substantially as proposed.\38\ The rule as adopted
also includes a provision allowing conversions when a shareholder is no
longer eligible to invest in a particular class.39
\38\Exchanges are subject to section 11 of the Investment
Company Act and the rules thereunder. See 15 U.S.C. Sec. 80a-11(a);
17 CFR 270.11a-1, -2 and -3 (requiring offers of exchange to be made
on the basis of net asset value, with certain exceptions).
\39\The Commission also is amending Form N-1A to require
prospectus disclosure for multiple class funds allowing or requiring
conversions or exchanges between classes. See infra section II.C.3.
for a discussion of the amendment.
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Paragraph (e)(1) allows funds to offer different exchange
privileges to different classes.\40\ Paragraph (e)(2) permits funds to
offer one or more classes with conversion features that allow for
automatic conversions into another class after a specified period, if
the conversions are made at net asset value without the imposition of
any sales load, fee or other charge upon the conversion. As suggested
by a commenter, paragraph (e)(2) as adopted provides that total
expenses (not just those associated with a rule 12b-1 plan) may not be
higher for the new class than for the old class.\41\
\40\For example, when shares of one class of a fund may be
exchanged for shares of the same class in another fund, but not for
shares of other classes.
\41\ICI Comment Letter, supra note 11, at 23-24.
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The Commission has added paragraph (e)(3), which allows, under
limited circumstances, conversions that occur whenever a shareholder
ceases to be eligible to invest in a class. Unlike paragraph (e)(2),
this provision does not require that the new class have the same or
lower expenses. A commenter objected that the expense limitation in
paragraph (e)(2) would not accommodate situations in which a
shareholder may no longer be eligible to participate in the class in
which he or she originally invested, and therefore need or wish to be
placed into a class that may have higher expenses.\42\ For example, an
investor in a class offered only to trust customers may cease to be a
trust customer, and thus no longer be eligible to invest in that
class.\43\ In this event, the commenter suggested that the rule permit
the new class to assess higher rule 12b-1 fees. Paragraph (e)(3) allows
these conversions to occur, if the conversion is effected at net asset
value without the imposition of any sales load, fee, or other charge
upon the conversion and the investor is given advance notice of the
conversion.
\42\Letter from Hale and Dorr to Jonathan G. Katz, Secretary,
SEC 7 (Feb. 22, 1994). See Ark Funds, Investment Company Act Release
Nos. 19812 (Oct. 22, 1993), 58 FR 58025 (Oct. 28, 1993) (Notice of
Application), and 19882 (Nov. 17, 1993), 55 SEC Docket 1541 (Order)
(allowing automatic conversions when a shareholder in one class
becomes ineligible to purchase shares of the class originally held);
Federated Securities Corp. (pub. avail. Jan. 14, 1992) (permitting
shareholders to switch from one class to another class where,
because of a change in circumstances, such shareholders would no
longer be eligible to invest in a particular class of shares).
\43\Although some fees may be lower for classes whose
shareholders have certain other relationships with a financial
institution that provides services to fund shareholders, these
investors may also be paying other fees directly to the institution
in addition to paying expenses at the fund level.
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5. Board Review of Plans
The Commission is adopting paragraph (d), governing the adoption
and approval of multiple class plans by boards of directors, with
modifications in view of comments received. Rule 18f-3 gives the board
of directors, particularly the independent directors, significant
responsibility to approve a fund's plan and oversee its operation.
Paragraph (d) requires that a fund adopt a written plan specifying all
of the differences among classes, including the various services
offered to shareholders, different distribution arrangements for each
class, methods for allocating expenses relating to those differences,
and any conversion features or exchange privileges.\44\ The plan should
provide a detailed statement of the differences among the classes.
\44\Forms N-1A and N-14 have been amended to require that a copy
of the plan be filed as an exhibit to the forms.
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The rule requires that the board, including a majority of the
independent directors, find that the plan is in the best interests of
each class individually and the fund as a whole.\45\ This approval
requirement replaces the several board reviews under the exemptive
orders. The orders required boards of directors to approve the issuance
of multiple classes of shares, review and approve specific allocations
of class expenses, [[Page 11881]] monitor for conflicts of interest
among classes and take any action necessary to eliminate conflicts.
\45\In making its findings, the board should focus, among other
things, on the relationship among the classes and examine potential
conflicts of interest among classes regarding the allocation of
fees, services, waivers and reimbursements of expenses, and voting
rights. Most significantly, the board should evaluate the level of
services provided to each class and the cost of those services to
ensure that the services are appropriate and that the allocation of
expenses is reasonable.
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Paragraph (d) as adopted requires the board to approve a plan
initially and before any material change. The Commission is not
requiring annual approval of the board, which was proposed. Many
commenters objected to the annual review requirement and argued that it
runs counter to the Commission's recent elimination of certain annual
review requirements.\46\
\46\E.g., ABA Comment Letter, supra note 17, at 4; Federated
Investors Comment Letter, supra note 15, at 2; Hale and Dorr Comment
Letter, supra note 42, at 4-5; ICI Comment Letter, supra note 11, at
23; Letter from Dechert Price & Rhoades to Jonathan G. Katz,
Secretary, SEC 2 (Feb. 22, 1994). See Proposing Release at 21 n.48,
58 FR at 68080 n.48, for a discussion of recent Commission actions
to reduce the burdens on boards of directors.
---------------------------------------------------------------------------
Paragraph (d) as adopted does not require the board to approve the
initial adoption of a plan if the plan merely reproduces without change
a fund's existing multiple class structure that the board has approved
under an existing exemptive order. One commenter requested that the
Commission amend the rule to clarify that board approval is not
required for existing classes that intend to rely on the rule if the
board has already approved a multiple class structure under an
order.\47\ Although the rule as adopted does not require a vote of the
board of directors under these circumstances, a fund with an existing
order that seeks to rely on rule 18f-3 must create a plan setting forth
the fund's current separate arrangements, expense allocation procedures
and exchange and conversion privileges\48\ and file a copy of the plan
with the Commission as an exhibit to the fund's registration statement
under new Item 24(b)(18). These plans create a cohesive structure for
monitoring the operation of the class system, rather than having
procedures scattered among exemptive orders and their amendments,
prospectuses and internal guidelines, and the formulation of a plan
from these source materials should not impose a significant burden.
\47\ICI Comment Letter, supra note 11, at 23.
\48\Board approval of the plan is required, though, if it
contains any material deviations from current practice.
---------------------------------------------------------------------------
Finally, the rule text as adopted omits the proposed requirement
that boards find that plans are ``fair.'' This change recognizes that
the term was not a condition of the exemptive applications, and that
the requirement that a board find a plan to be in the best interests of
each class individually and of the fund as a whole provides the same
protection as a separate fairness requirement.
B. Rule 12b-1
The Commission is adopting new paragraph (g) of rule 12b-1
substantially as proposed. It provides that if a plan covers more than
one class of shares, the provisions of the plan must be severable for
each class, and any action taken on the plan must be taken separately
for each class. The board would be required to make the finding,
separately for each class, that a distribution plan presents a
``reasonable likelihood of benefit'' to the company and its
shareholders. Similarly, the amendment requires shareholder approval by
the outstanding voting securities of each separate class when rule 12b-
1 requires that a plan for the distribution of securities be approved
by a majority of the fund's outstanding voting securities. Paragraph
(g) also contains a cross-reference to rule 18f-3 to address the
limited exception that under paragraph (e)(2) of that rule, any
shareholder vote on the rule 12b-1 plan of a target class would also
require a separate vote of any purchase class.\49\
\49\In light of the adoption of new paragraph (e)(3) of rule
18f-3, the Commission has modified rule 12b-1(g) from the proposal
to limit the cross-reference to paragraph (e)(2). Whereas
conversions under paragraph (e)(2) will occur if shareholders remain
in a class for a specified period of time, conversions under
paragraph (e)(3) will not occur except upon the happening of a
specified contingency that is dependent upon the shareholder.
Therefore, a vote of the class of shares that may convert is not
required.
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C. Disclosure
The Commission is adopting disclosure requirements for registration
statements of master-feeder and multiple class funds with substantial
modifications from the proposal, and is not adopting any disclosure
requirements for advertisements and sales literature.\50\ New Item 6(h)
provides that multiple class and master-feeder funds should describe
the salient features of the multiple class or master-feeder structure.
Feeder funds should also disclose the circumstances under which the
feeder fund could no longer invest in the master fund, and the
consequences to shareholders of such an event. Item 6(h) also requires
prospectuses used in connection with a public offering to disclose that
there are other classes or other feeder funds that invest in the same
master fund, and to include a telephone number investors can call to
obtain additional information about other classes or feeder funds
available through their sales representative.\51\ These provisions
should give funds flexibility in drafting disclosure while making
available to investors the means to obtain additional information about
other classes or feeder funds investing in the same master fund. These
disclosure requirements are consistent with the Commission's goals of
promoting prospectus simplification and the use of plain language.\52\
\50\In view of commenters' objections and recent industry
initiatives, the Commission also is not imposing standardized class
designations upon multiple class funds. See Memorandum of the ICI,
Board of Governors Adopts Voluntary Nomenclature Standards of
Multiple Class Funds (May 16, 1994); Jeff Kelly, A Fine Mess,
Morningstar Mutual Funds, Nov. 25, 1994, at S1; ICI Comment Letter,
supra note 11, at 19.
\51\This disclosure requirement was proposed as part of
Instruction 1 to Item 2(a) of Form N-1A. Multiple class funds must
comply with the disclosure requirements adopted today regardless of
whether they rely on rule 18f-3 or continue to operate under and
comply with all of the terms (including disclosure-related
conditions) of an existing exemptive order. The disclosure
requirements adopted today also do not alter feeder funds' existing
disclosure obligations. Letter from Carolyn B. Lewis, Assistant
Director, Division of Investment Management, SEC, to Registrants
(Feb. 22, 1993), Comment II.H (hereinafter ``1993 Generic Disclosure
Comment Letter''). New Instruction 4A to Item 2(a) of Form N-1A
codifies the requirement that the expenses of both the master fund
and the feeder fund be reflected in a single fee table.
\52\See, e.g., Arthur Levitt, Chairman, SEC, Taking the Mystery
Out of the Marketplace: The SEC's Consumer Education Campaign,
remarks before the National Press Club (Oct. 13, 1994).
---------------------------------------------------------------------------
Funds must provide more extensive prospectus disclosure about other
classes or feeder funds only in two cases. First, under new staff Guide
34 to Form N-1A, if a prospectus offers more than one class or feeder
fund, it must discuss briefly the differences between the classes or
feeder funds, and arrange the fee table to facilitate a comparison by
shareholders of the different fee structures.\53\ Second, under new
General Instruction I to Form N-1A, if a fund is offering a class that
will or may convert or be exchanged into other classes of the same
fund, the prospectus must provide disclosure about the other classes.
\53\Funds may either use one fee table with separate and clearly
labeled columns for each class or feeder fund, or may prepare
separate fee tables for each class or feeder offered.
---------------------------------------------------------------------------
The Commission is not adopting most of the proposed disclosure
requirements; nearly all commenters expressed strong opposition to the
extent and the details of these requirements.\54\ As discussed in more
detail below, commenters argued, among other things, that the proposed
requirements would have imposed liability burdens and logistical
difficulties on some funds.
\54\A few commenters, however, supported requiring disclosure
about other classes or feeder funds. See, e.g., Hale and Dorr
Comment Letter, supra note 42, at 8; Dechert Price Comment Letter,
supra note 46, at 3.
---------------------------------------------------------------------------
The Commission recognizes that the complexity of distribution
charge [[Page 11882]] options can be confusing to some investors.
Instead of relying on prospectus disclosure, however, the Commission is
addressing these concerns through consumer education and the promotion
of good sales practices. In the proposal, the Commission requested
comment on whether, instead of requiring extensive prospectus
disclosure, it should work with the National Association of Securities
Dealers, Inc. (``NASD'') to develop standards for basic information
that representatives should communicate to their clients. Several
commenters endorsed this approach as an alternative to cross-
disclosure.\55\ The Commission staff has been working, and will
continue to work, with the NASD on providing guidance about the duties
of sales representatives when recommending the purchase of multiple
class and master-feeder funds.\56\ Finally, the Commission expects to
promote consumer education in this area through the development and
publication of a brochure explaining the structures and expenses of
multiple class and master-feeder funds.\57\
\55\E.g., Signature Group Comment Letter, supra note 59, at 14-
15; ABA Comment Letter, supra note 17, at 10; Letter from the
Investment Company Institute (attaching memorandum from Kirkpatrick
and Lockhart) to Matthew A. Chambers, Associate Director, Division
of Investment Management, SEC (Oct. 6, 1994).
\56\Since the proposal, the NASD has reminded members of ``their
obligations to ensure that the investments are suitable for their
customers and to disclose and discuss certain matters in the sale of
mutual funds.'' These matters include the disclosure of ``all
material facts to the customer'' and, in particular, sales charges.
Notice to Members 94-16 (Mar. 1994).
\57\The Commission has previously published two brochures
providing general information about investing.
---------------------------------------------------------------------------
1. Prospectus Disclosure Concerning Other Classes or Feeder Funds
The Commission is adding new Item 6(h) to Form N-1A\58\ to require
prospectuses for multiple class and master-feeder funds to describe the
salient features of the multiple class or master-feeder structure. In
addition, Item 6(h) requires prospectuses of multiple class or master-
feeder funds to include disclosure about other publicly offered\59\
classes or feeder funds, unless all classes or all feeder funds are
offered through the same prospectus.\60\ A fund must disclose that it
issues other classes or that other feeder funds invest in the master
fund, and that the other classes or feeder funds may have different
sales charges and expenses, which would affect performance. The
disclosure must also provide a telephone number investors may call to
obtain information concerning other classes or feeder funds available
through their sales representative, and note that investors may obtain
information concerning those classes or feeder funds from (as
applicable) their sales representative, or any person, such as the
principal underwriter, a broker-dealer or bank, which is offering or
making available to them the securities offered in the prospectus. This
disclosure should provide investors with access to information allowing
them to compare the expenses and services of a given class or feeder
fund to others that are available to them.
\58\17 CFR 239.15A, 274.11A.
\59\Item 6(h) refers to any publicly offered class or feeder
fund; thus, no disclosure is required, for example, about offshore
or private funds. See, e.g., Letter from Kirkpatrick & Lockhart on
behalf of Signature Financial Group and certain other companies to
Jonathan G. Katz, Secretary, SEC 11-12 (Mar. 18, 1994) (expressing
concern about disclosure regarding offshore funds), ICI Comment
Letter, supra note 11, at 11 (expressing concern that disclosure
would be required about private feeder funds).
\60\This requirement is more like the disclosure currently
provided by master-feeder funds than that required under the
exemptive orders for multi-class funds. The requirements adopted
today treat multiple class and master-feeder disclosure in a
consistent manner.
---------------------------------------------------------------------------
Although commenters strongly opposed the more extensive disclosure
requirements in the proposal, they generally agreed that it is
``appropriate to require some disclosure as to the fact that there are
other classes or feeder funds investing in the underlying
portfolio.''61 Many agreed that alerting investors to the
relationship between expenses and performance is appropriate.62
\61\ABA Comment Letter, supra note 17, at 8; see also Chicago
Bar Comment Letter, supra note 36, at 2.
\62\See, e.g., Hale and Dorr Comment Letter, supra note 42, at
9; Signature Group Comment Letter, supra note 59, at 5.
---------------------------------------------------------------------------
The Commission is not specifying how fund sponsors must respond to
investors' calls. Unlike the requirements adopted today, the proposal
would have required the statement to include the names of the other
classes or feeder funds, and an undertaking to provide information over
a toll-free number, and provide a prospectus for the other classes or
feeder funds upon request. Commenters, however, vehemently objected to
the proposed undertaking to provide additional information and
prospectuses for other classes or feeder funds.63 One commenter
stated that independent mutual fund groups and their sponsors may be
disproportionately affected by the undertaking. ``Whereas the toll-free
number provided by broker-sponsored mutual funds will likely have to
answer questions only about (and provide prospectuses for) that
particular broker's family of funds, the Release imposes upon an
independent mutual fund sponsor with a master-feeder structure the much
broader obligation to provide information * * * about any other
entity's proprietary feeder funds feeding into the same master
fund.''64 Several commenters objected to the toll-free number
requirement.65 The Commission is continuing to require the
inclusion of a telephone number, but is not requiring that the number
be toll-free; the requirement of a telephone number is consistent with
the disclosure guidelines of the Commission staff and state regulators,
to which master-feeder funds are already subject. By not requiring any
specific procedures with callers, the Commission is leaving fund
sponsors the flexibility to determine how best to respond to inquiries.
\63\E.g., ABA Comment Letter, supra note 17, at 8-9; Signature
Group Comment Letter, supra note 59, at 10; ICI Comment Letter,
supra note 11, at 13 (``[s]uch a proposal ignores market realities,
and would greatly limit the very benefits of multiple class and
master-feeder structures that the Commission has itself commented
on.'').
\64\Eaton Vance Comment Letter, supra note 66, at 8.
\65\See Chicago Bar Comment Letter, supra note 36, at 2 (a toll-
free number should not be required); Fidelity Comment Letter, supra
note 18, at 2 (the proposal's toll-free number requirement would
cause an issuer to deal directly with investors, when it intended to
sell through intermediaries, ``effectively chill[ing] the use of
multi-class and feeder funds'').
---------------------------------------------------------------------------
A commenter noted that compliance with the proposed requirement to
name other classes or feeder funds would be difficult for unaffiliated
feeder funds; they would be required to keep abreast of the creation of
or changes to other feeder funds and sticker their prospectuses to
reflect such changes.66 A commenter also speculated that
mentioning feeder funds in states where they are not registered could
create problems under state securities laws because such a statement
could be considered to be an offer.67
\66\Signature Group Comment Letter, supra note 59, at 10. See
also Letter from Eaton Vance Management to Jonathan G. Katz,
Secretary, SEC 4 (Feb. 24, 1994).
\67\Eaton Vance Comment Letter, supra note 66, at 4 n.4.
---------------------------------------------------------------------------
The disclosure requirement that the Commission is adopting is
similar to the recommendations of some commenters. For example, one
commenter suggested that the Commission require a narrative following
the fee table stating that (i) the fund issues other classes or feeder
funds that invest in the master fund; (ii) because sales charges and
expenses vary, performance may also vary; and (iii) the customer may
call a toll-free number to obtain further information
[[Page 11883]] about the other funds not offered through the prospectus
but available through the same financial intermediary. The commenter
also recommended that the prospectus should contain prominent
disclosure recommending that the investor contact his or her broker or
financial adviser for further information about suitable classes or
feeder funds offered by the intermediary.68
\68\Id. at 9.
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Commenters suggested the above approach as an alternative to the
proposed cross-disclosure requirements, which commenters strongly
criticized and which the Commission is not adopting. The proposal would
have required a prospectus for one class or feeder fund to provide full
cross-disclosure69 about all other classes or all other feeder
funds investing in the same master fund that were not offered in the
prospectus and that met two conditions. First, the classes or feeder
funds had to be offered through the same financial intermediary.70
Second, they had to permit investors to choose among alternative
arrangements for sales and related charges.71
\69\Disclosure responding to Items 2 through 9 of Form N-1A.
\70\The Proposing Release listed as examples of ``financial
intermediaries'' brokers, dealers, banks and any other entities that
act as agents or principals in the sale of a fund's shares, or that,
like some banks, provide shareholder services under an agreement
with a fund. See 58 FR 68083, n.69.
\71\Although the Commission is not adopting the proposed cross-
disclosure requirement, it believes that disclosure about more than
one class or feeder fund in the same prospectus can be consistent
with clear, simple, and effective disclosure and prospectus
simplification. Similarly, Guide 34 expressly contemplates that more
than one class or feeder fund may be offered in the same prospectus.
See discussion of Guide 34, infra at section II.C.2.
---------------------------------------------------------------------------
Many commenters argued that cross-disclosure would not achieve the
Commission's goal of promoting investor understanding of multiple class
and master-feeder funds because of the volume of disclosure that the
proposal might require, arguing that ``the disclosure requirements of
the Proposal run counter to the staff's professed desire for prospectus
simplification and the desire to avoid `prospectus creep.'''72
Several commenters cautioned that if the Commission adopted the
proposed disclosure requirements, sponsors would not use the master-
feeder form and would create ``less efficient and more expensive clone
funds.''73 One commenter representing a fund family that offers
both no-load and broker-sold products objected to requiring brokers to
disclose that the same fund is available without a sales charge,
arguing that if a client receives advice from a broker, the broker
deserves to be paid for those services.74
\72\Chicago Bar Comment Letter, supra note 36, at 2; see also
ICI Comment Letter, supra note 11, at 5-7; Signature Group Comment
Letter, supra note 59, at 6-8 (disputing the proposal's assumption
that investor confusion about these instruments ``is a serious and
widespread problem'').
\73\E.g., Signature Group Comment Letter, supra note 59 at 5;
see also letter from Fidelity Investments to Barry Barbash,
Director, Division of Investment Management, SEC 1-2 (July 22,
1994).
\74\See Letter and memorandum from Robert Pozen, General Counsel
and Managing Director, FMR Corp. to Arthur Levitt, Chairman, SEC 2
(Nov. 18, 1994) (``This would be the equivalent of requiring Filenes
to tell all of its customers that the same goods may be purchased at
a discount in the basement or from a competitor.'').
---------------------------------------------------------------------------
Some commenters strongly criticized the proposal for requiring an
issuer to provide prospectus disclosure about securities it does not
intend to offer through that prospectus. Several expressed concern that
feeder funds would have to assume liability for disclosure about
unrelated feeder funds even though they are distinct entities and may
have different advisers, underwriters, and boards of directors.75
\75\E.g., ICI Comment Letter, supra note 11, at 7. See also ABA
Comment Letter, supra note 17, at 8-9; Signature Group Comment
Letter, supra note 59, at 5 and 9 (``[s]uch a requirement of
disclosure about products offered by competitors and the assumption
of liability for such disclosures would be entirely unprecedented in
the securities industry'') (emphasis deleted).
---------------------------------------------------------------------------
Commenters also criticized the financial intermediary test--one of
the proposal's two triggers for cross-disclosure.76 One commenter
stated, for example, that ``[t]he Proposal erroneously assumes that all
financial intermediaries are homogeneous organizations, serving only a
single market or customer base.''77 Much of the commenters'
concern centered on the effect of the proposed requirement on
independent sponsors of feeder funds and on financial intermediaries
with more than one distribution network. One commenter noted that
``feeder funds, unlike different classes of shares, often are organized
to serve customers of unaffiliated third party banks, insurance
companies or brokerage firms who are competitors of each other and, in
many cases, of the master fund.''78
\76\The proposal would have required cross-disclosure only about
classes or feeder funds both offered through the same financial
intermediary and with alternative arrangements for sales and related
charges, and made clear that not all cases would involve alternative
arrangements. See text accompanying notes 70-72 of the Proposing
Release, 58 FR at 68083. Most commenters, however, appeared to
assume that there would be alternative sales charges in all cases.
\77\Signature Group Comment Letter, supra note 59, at 5.
\78\Id. at 8.
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One independent sponsor of mutual funds argued that the proposal
would create unique problems for independent mutual fund groups, and
would discourage brokers from offering funds if prospectuses must
describe funds offered by unaffiliated brokers.79 This commenter
asserted that fund sponsors would have to create a different prospectus
for each possible combination of the different classes or feeder funds
that in theory a broker might offer; therefore, the preparation of
numerous prospectuses would create increased costs for these funds and
an ``administrative nightmare'' for their sponsors, while in-house
master-feeder or multiple class funds and their sponsors would not face
comparable burdens.
\79\Eaton Vance Comment Letter, supra note 66.
---------------------------------------------------------------------------
The disclosure requirement as adopted addresses the commenters'
concerns. The disclosure that investors may ask their sales
representatives about other classes or feeder funds should alleviate
the concern that the disclosure would encourage investors to deal
directly with issuers, rather than their intermediaries. This dialogue
should further investor understanding of the different fee arrangements
or distribution possibilities associated with the fund without imposing
a burden on issuers. Retaining a telephone number requirement, but not
requiring the other disclosure or obligations should provide investors
with a source for obtaining more information about other classes or
feeder funds available through their sales representative without
raising the practical concerns voiced by many commenters. Not requiring
cross-disclosure about other classes or feeder funds not offered
through the prospectus removes the logistical and competitive concerns
voiced by many commenters. This approach is also consistent with the
Commission's goals of promoting prospectus simplification.
2. Discussion of Classes or Feeder Funds Offered in Prospectus
New staff Guide 34 to Form N-1A requires a discussion of the
differences between classes or feeder funds whenever two or more
classes or feeder funds are offered through the same prospectus. In
addition, new Guide 34 advises that if a single prospectus is used to
offer more than one class or feeder fund, and the classes or feeder
funds have different expense and/or sales load arrangements, the
prospectus should clearly explain the differences in the features, and
should provide a separate response to Item 2(a)(i) for each class or
feeder. These requirements are [[Page 11884]] intended to inform
investors about the differences between the investment options offered
together to them.
The proposal would have required that whenever a prospectus offered
two or more classes or feeder funds, or provided cross-disclosure about
one or more classes or feeder funds, it must also contain a discussion
of the differences between the classes or feeder funds. This aspect of
the proposal elicited little comment. The proposal also would have
required a line graph comparing the feeder funds' or classes'
performance over a hypothetical ten-year period, assuming an initial
investment of $10,000 and a 5% rate of return.80 The Commission
intended that the graph demonstrate the circumstances under which
holding shares of each class or feeder fund for various lengths of time
would produce the highest return. The Commission is not adopting this
aspect of the proposal. The narrative discussion called for by Guide 34
should provide investors with similar information. Moreover, the line
graph proposal was predicated upon the cross-disclosure requirement,
which the Commission is not adopting.
\80\Both of these requirements would have been contained in a
new Item 6(h) of Form N-1A.
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The proposed line graph met with significant opposition from a
number of commenters, many of which conjectured that it could mislead
investors into believing that the ``market always goes up.''81 One
commenter expressed concern that the graph creates a ``significant
potential for litigation.''82 Another commenter observed that,
except for variable life illustrations, ``the Commission has not
previously used these investment assumptions to project hypothetical
future performance.''83 Many commenters raised numerous concerns
regarding the accuracy of the graphs given the myriad redemption
possibilities, expenses, sales charges, and exchange privileges.84
A commenter also argued that much of the information would duplicate
disclosure in the fee table, and thus would be contrary to the goal of
prospectus simplification.85
\81\Chicago Bar Comment Letter, supra note 36, at 3; See also
Signature Group Comment Letter, supra note 59, at 16; Fidelity
Comment Letter, supra note 18, at 2.
\82\Federated Investors Comment Letter, supra note 15, at 3.
\83\Chicago Bar Comment Letter, supra note 36, at 2-3.
\84\E.g., Signature Group Comment Letter, supra note, 59, at 15-
16; ICI Comment Letter, supra note 11, at 15-16 (the ICI also
suggested that the line graph requirement could pose problems for
EDGAR filers, since the EDGAR system cannot recognize more than a
limited set of characters, id. at 16 n.20).
\85\Letter from IDS Financial Corporation to Jonathan G. Katz,
Secretary, SEC 2 (Feb. 22, 1994). See also ICI Comment Letter, supra
note 11, at 14.
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3. Discussion of Classes Into Which Shares May Convert or Be Exchanged
The Commission is adopting new General Instruction I to Form N-1A.
This Instruction states that multiple class funds that provide for
conversions or exchanges of shares from one class to another should
provide disclosure in the prospectus about all other classes into which
the shares may be converted or exchanged. Although Instruction I does
not specify a particular format, it states that the disclosure should
be designed to aid investor comprehension, and when appropriate, should
use tables, side-by-side comparisons, or other parallel presentations
to assist an investor's understanding of the other class or classes.
4. Advertising and Sales Literature
The Commission is not adopting requirements for advertisements or
sales literature about multiple class or master-feeder funds. The
Commission had proposed amending rules 134 and 482 under the Securities
Act and rule 34b-1 under the Investment Company Act to require multiple
class and master-feeder fund advertisements to contain a prominent
legend substantially similar to that proposed for prospectus
disclosure. In addition, the Commission had proposed amending rules 482
and 34b-1 to require multiple class and master-feeder fund
advertisements that contain performance figures to include, with equal
prominence, the performance of all classes and feeder funds that would
have been subject to the proposed prospectus cross-disclosure
requirement. The proposal would also have required that when an
advertisement contains performance figures for a class or feeder fund
for which average annual total return information is not available for
one, five, and ten year periods, and this information is available for
another class, feeder or master fund, then the advertisement must
include quotations of average annual total return for the securities of
the other class, feeder or master fund together with any necessary
explanation.
Commenters opposed the requirement of disclosure about other
classes or feeder funds in advertisements.86 One stated that
``[i]n many respects, these requirements are so onerous that they are
unworkable'' and that ``[t]he volume of disclosure required by the
Proposal and the equal prominence requirement would make advertising
prohibitively expensive as well as highly impractical for funds in the
master-feeder fund structure.''87 Some commenters objected to the
requirement because of the amount of space the disclosure would occupy
in an average advertisement.88
\86\See, e.g., Fidelity Comment Letter, supra note 18, at 3
(``cross-disclosure is particularly burdensome in advertisements'');
ICI Comment Letter, supra note 11, at 17-18.
\87\Signature Group Comment Letter, supra note 59, at 16-17.
\88\Id.; ICI Comment Letter, supra note 11, at 17-18 (the
expense of cross-disclosure, together with the equal prominence
requirement, would place multiple class and master-feeder funds at a
competitive disadvantage).
---------------------------------------------------------------------------
In view of those objections, the Commission has determined not to
adopt the proposed advertising disclosure requirements.89 Instead,
the Commission will address disclosure of performance under the general
anti-fraud provisions of the federal securities laws90 and expects
that the staff will continue to address issues relating to performance
disclosure on an interpretive or no-action basis.91
\89\Footnote 88 in the proposing release erroneously stated that
``rule 134 advertisements, however, may include rankings based on
performance data.'' 58 FR at 68085, n.88. Rule 134 advertisements
may not contain performance rankings.
\90\Therefore, funds relying on rule 18f-3 will not be required
to quote the performance of all classes when they quote performance
in advertisements under rule 482, as was required generally under
the exemptive orders. The Commission cautions multiple class funds
to use care not to mislead investors in advertising the performance
of one class when multiple classes are being offered to the same
persons. For example, it may be misleading to quote only performance
of a class for institutional or inside investors (with low expenses)
in a publication with a retail readership.
\91\See, e.g., IDS Financial Corp. (pub. avail. Dec. 19, 1994)
(allowing a multiple class fund to calculate standardized total
return of a new class following a merger based upon the performance
of the acquiring (and surviving) fund, adjusted to reflect
differences in the sales load, but not differences in rule 12b-1
fees).
---------------------------------------------------------------------------
D. Effective Dates
Rule 18f-3 and the amendment to rule 12b-1 will become effective
April 3, 1995. Registration statements and post-effective amendments
filed with the Commission after April 3, 1995 must be in compliance
with the amendments to Forms N-1A and N-14.
III. Cost/Benefit of the Proposals
Rule 18f-3 and the rule and form amendments adopted today should
impose less of a reporting or recordkeeping burden and less regulatory
compliance cost on multiple class funds than those imposed by the
multiple class exemptive orders. Under rule 18f-3 and the form
amendments, [[Page 11885]] multiple class funds would be subject to
fewer disclosure requirements and lower costs than under the exemptive
orders. Any additional time required to comply with the rule's written
plan requirement should be minimal because multiple class funds already
would have to commit material class differences to writing in order to
enter into distribution or service agreements, or to disclose their
terms. The prospectus disclosure should impose little burden, and in
fact requires less disclosure than currently required for multiple
class funds. The disclosure is similar to that presently required for
master-feeder funds, and thus should impose little or no additional
burden on those funds.
The amendment to rule 12b-1 should not impose any additional costs
because it essentially would incorporate in the rule existing
requirements in the exemptive orders for multiple class funds.
IV. Regulatory Flexibility Act Analysis
A summary of the Initial Regulatory Flexibility Analysis, which was
prepared in accordance with 5 U.S.C. 603, was published in the
Proposing Release. No comments were received on this analysis. The
Commission has prepared a Final Regulatory Flexibility Analysis, a copy
of which may be obtained by writing to Karrie McMillan, Esq., Division
of Investment Management, Mail Stop 10-6, Securities and Exchange
Commission, 450 Fifth Street, N.W. 20549.
V. Statutory Authority
The Commission is adopting rule 18f-3 under the authority in
sections 6(c), 18(i), and 38(a) of the Investment Company Act [15
U.S.C. Secs. 6(c), 18(i), and 37(a)], and the amendment to rule 12b-1
under section 12(b) of the Investment Company Act [15 U.S.C.
Sec. 12(b)]. The Commission is adopting the amendments to Form N-1A
under sections 6, 7(a), 10 and 19(a) of the Securities Act [15 U.S.C.
77g(a), 77j, and 77s(a)], and sections 8(b), 24(a), and 38(a) of the
Investment Company Act [15 U.S.C. Secs. 80a-8(b), 24(a), and 37(a)],
and the amendments to Form N-14 under sections 6, 7, 8, 10 and 19(a) of
the Securities Act [15 U.S.C. 77f, 77h, 77j and 77s(a)] and sections
14(a), 14(c) and 23(a) of the Exchange Act of 1934 [15 U.S.C. 78n(a),
78n(c) and 78w].
VI. Text of Adopted Rule and Rule and Form Amendments
List of Subjects in 17 CFR Parts 239, 270, and 274
Investment Companies, Reporting and record keeping requirements,
Securities.
For the reasons set out in the preamble, Title 17, Chapter II of
the Code of Federal Regulations is amended as follows:
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
1. The authority citation for Part 270 continues to read, in part,
as follows:
Authority: 15 U.S.C. 80a-1, et seq., 80a-37, 80a-39 unless
otherwise noted;
* * * * *
2. Section 270.12b-1 is amended by adding paragraph (g) to read as
follows:
Sec. 270.12b-1 Distribution of shares by registered open-end
management investment company.
* * * * *
(g) If a plan covers more than one class of shares, the provisions
of the plan must be severable for each class, and whenever this section
provides for any action to be taken with respect to a plan, that action
must be taken separately for each class, provided, however, that under
Sec. 270.18f-3(e)(2), any shareholder vote on a plan of a target class
must also require a vote of any purchase class.
3. By adding Sec. 270.18f-3 to read as follows:
Sec. 270.18f-3 Multiple class companies.
Notwithstanding sections 18(f)(1) and 18(i) of the Act (15 U.S.C.
80a-18(f)(1) and (i), respectively), a registered open-end management
investment company or series or class thereof established in accordance
with section 18(f)(2) of the Act (15 U.S.C. 80a-18(f)(2)) whose shares
are registered on Form N-1A [Secs. 239.15A and 274.11A of this chapter]
(``company'') may issue more than one class of voting stock, provided
that:
(a) Each class:
(1)(i) Shall have a different arrangement for shareholder services
or the distribution of securities or both, and shall pay all of the
expenses of that arrangement;
(ii) May pay a different share of other expenses, not including
advisory or custodial fees or other expenses related to the management
of the company's assets, if these expenses are actually incurred in a
different amount by that class, or if the class receives services of a
different kind or to a different degree than other classes; and
(iii) May pay a different advisory fee to the extent that any
difference in amount paid is the result of the application of the same
performance fee provisions in the advisory contract of the company to
the different investment performance of each class;
(2) Shall have exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement;
(3) Shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class; and
(4) Shall have in all other respects the same rights and
obligations as each other class.
(b) Expenses may be waived or reimbursed by the company's adviser,
underwriter, or any other provider of services to the company.
(c) Income, realized and unrealized capital gains and losses, and
expenses of the company not allocated to a particular class pursuant to
paragraph (a) of this section:
(1) Except as permitted in paragraph (c)(2) of this section, shall
be allocated to each class on the basis of the net asset value of that
class in relation to the net asset value of the company; or
(2) For companies operating under Sec. 270.2a-7 (including the
provision allowing the calculation of net assets on an amortized cost
basis), and for other companies declaring distributions of net
investment income daily that maintain the same net asset value per
share in each class, may be allocated:
(i) To each share without regard to class, provided that the
company has received undertakings from its adviser, underwriter or any
other provider of services to the company, agreeing to waive or
reimburse the company for payments to such service provider by one or
more classes, as allocated under paragraph (a)(1) of this section, to
the extent necessary to assure that all classes of the company maintain
the same net asset value per share; or
(ii) On the basis of relative net assets (settled shares). For
purposes of this section, ``relative net assets (settled shares)'' are
net assets valued in accordance with generally accepted accounting
principles but excluding the value of subscriptions receivable, in
relation to the net assets of the company.
(d) Any payments made under paragraph (a) of this section shall be
made pursuant to a written plan setting forth the separate arrangement
and expense allocation of each class, and any related conversion
features or exchange privileges. Before the first issuance of a share
of any class in reliance upon this section, and before any material
amendment of a plan, a majority of the directors of the company, and a
majority of the directors who are not interested persons of the
company, shall find that the plan as proposed to be adopted or amended,
including the expense allocation, is in [[Page 11886]] the best
interests of each class individually and the company as a whole;
initial board approval of a plan under this paragraph (d) is not
required, however, if the plan does not make any change in the
arrangements and expense allocations previously approved by the board
under an existing order of exemption. Before any vote on the plan, the
directors shall request and evaluate, and any agreement relating to a
class arrangement shall require the parties thereto to furnish, such
information as may be reasonably necessary to evaluate the plan.
(e) Nothing in this section prohibits a company from offering any
class with:
(1) An exchange privilege providing that securities of the class
may be exchanged for certain securities of another company; or
(2) A conversion feature providing that shares of one class of the
company (the ``purchase class'') will be exchanged automatically for
shares of another class of the company (the ``target class'') after a
specified period of time, provided that:
(i) The conversion is effected on the basis of the relative net
asset values of the two classes without the imposition of any sales
load, fee, or other charge;
(ii) The expenses, including payments authorized under a plan
adopted pursuant to Sec. 270.12b-1 (``rule 12b-1 plan''), for the
target class are not higher than the expenses, including payments
authorized under a rule 12b-1 plan, for the purchase class; and
(iii) If the amount of expenses, including payments authorized
under a rule 12b-1 plan, for the target class is increased materially
without approval of the shareholders of the purchase class, the fund
will establish a new target class for the purchase class on the same
terms as applied to the target class before that increase.
(3) A conversion feature providing that shares of a class in which
an investor is no longer eligible to participate may be converted to
shares of a class in which that investor is eligible to participate,
provided that:
(i) The investor is given prior notice of the proposed conversion;
and
(ii) The conversion is effected on the basis of the relative net
asset values of the two classes without the imposition of any sales
load, fee, or other charge.
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940
4. The authority citation of Part 239 continues to read, in part,
as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 78l,
78m, 78n, 78o(d), 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 79l, 79m,
79n, 79q, 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless otherwise
noted.
* * * * *
5. The authority citation for Part 274 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m,
78n, 78o(d), 80a-8, 80a-24, and 80a-29, unless otherwise noted.
Note: Form N-1A does not, and the amendments to Form N-1A will
not, appear in the Code of Federal Regulations.
6. By adding new General Instruction I to Form N-1A [referenced in
Secs. 239.15A and 274.11A] to read as follows:
Form N-1A
* * * * *
General Instructions
* * * * *
I. Multiple Class and Master-Feeder Funds
Registrants issuing multiple classes of shares that provide for
conversions of exchanges of shares from one class to another class
of the same fund should disclose the information required by Form N-
1A about all other classes into which the shares may be converted or
exchanged. This information should be presented in a format designed
to facilitate comprehension by investors, and when appropriate,
should use tables, side-by-side comparisons, or other presentations
to assist an investor's understanding of the other class or classes.
A ``multiple class fund'' is an open-end management investment
company that issues more than one class of shares, each of which
represents interests in the same portfolio of securities, and either
meets the requirements of rule 18f-3 under the Act [17 CFR 270.18f-
3] or operates pursuant to an exemptive order. A ``feeder fund'' is
an open-end management investment company, except a company that
issues periodic payment plan certificates, that holds shares of a
single open-end management investment company (the ``master fund'')
as its only investment securities.
7. By amending Form N-1A [referenced in Secs. 239.15A and 274.11A]
by adding Instruction 4A to Item 2(a)(i), to read as follows:
Form N-1A
* * * * *
Item 2. Synopsis
(a)(i) * * *
Instructions:
* * * * *
4A. If the prospectus offers shares of a feeder fund, reflect
the expenses of both the feeder fund and the master fund in which
the feeder fund invests in a single fee table using the captions
provided. In the brief narrative following the fee table, state that
the fee table reflects the expenses of both Registrants.
* * * * *
8. By amending Form N-1A [referenced in Secs. 239.15A and 274.11A]
by adding Item 6(h) to read as follows:
Form N-1A
* * * * *
Item 6. Capital Stock and Other Securities
* * * * *
(h) Registrants that offer multiple classes of shares or that
are feeder funds should briefly describe the salient features of the
multiple class or master-feeder structure. In the case of a feeder
fund, explain the circumstances under which the feeder fund could no
longer invest in the master fund (e.g., if the master fund changed
its investment objectives to be inconsistent with those of the
feeder fund), and the consequences to shareholders of such an event.
If the Registrant has publicly offered any class of shares of the
same series not offered through the prospectus, or if any publicly
offered feeder fund not offered through the prospectus invests in
the same master fund as the Registrant, include the following
disclosure: (i) that the Registrant issues other classes or that
other funds invest in the same master fund (using the same
terminology for classes or master and feeder funds as elsewhere in
the prospectus), (ii) that those other classes or feeder funds may
have different sales charges and other expenses, which may affect
performance, (iii) a telephone number investors may call to obtain
more information concerning the other classes or feeder funds
available to them through their sales representative, and (iv) that
investors may obtain information concerning those classes or feeder
funds from (as applicable) their sales representative, or any
person, such as the principal underwriter, a broker-dealer or bank,
which is offering or making available to them the securities offered
in the prospectus.
9. By amending Form N-1A [referenced in Secs. 239.15A and 274.11A]
by adding paragraph (b)(18) to Item 24 before the Instructions to read
as follows:
Form N-1A
* * * * *
Item 24. Financial Statements and Exhibits
* * * * *
(b) * * *
(18) copies of any plan entered into by Registrant pursuant to
Rule 18f-3 under the 1940 Act, any agreement with any person
relating to the implementation of a plan, any amendment to a plan or
agreement, and a copy of the portion of the minutes of a meeting of
the Registrant's directors describing any action taken to revoke a
plan.
* * * * *
10. By adding Guide 34 to the Guidelines for Form N-1A [referenced
in Secs. 239.15A and 274.11A] to read as follows:
Guidelines for Form N-1A
* * * * * [[Page 11887]]
Guide 34. Multiple Class and Master-Feeder Structures
In response to Item 6, if a single prospectus is used to offer
more than one class of a multiple class fund or more than one feeder
fund that invests in the same master fund, the prospectus should
provide a separate response to Item 2(a)(i) (the fee table
requirement) for each class or feeder fund and should clearly
explain the differences between the expense and/or sales load
arrangements of the classes or feeder funds. The fee table
information should be arranged to facilitate a comparison by
shareholders of the different fee structures.
11. By amending Form N-14 [referenced in Sec. 239.23] by revising
Item 16(10) to read as follows:
Note: Form N-14 does not, and the amendment to Form N-14 will
not, appear in the Code of Federal Regulations.
Form N-14
* * * * *
Item 16. Exhibits
* * * * *
(10) copies of any plan entered into by registrant pursuant to
rule 12b-1 under the 1940 Act [17 CFR 270.12b-1] and any agreements
with any person relating to implementation of the plan, and copies
of any plan entered into by Registrant pursuant to Rule 18f-3 under
the 1940 Act [17 CFR 270.18f-3], any agreement with any person
relating to implementation of the plan, any amendment to the plan,
and a copy of the portion of a meeting of the minutes of the
Registrant's directors describing any action taken to revoke the
plan;
* * * * *
Dated: February 23, 1995.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-4997 Filed 3-1-95; 8:45 am]
BILLING CODE 8010-01-P
