[Federal Register Volume 60, Number 12 (Thursday, January 19, 1995)]
[Notices]
[Pages 3890-3893]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1283]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20832; 812-9208]
Brandes International Fund, et al.; Notice of Application
January 12, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Brandes International Fund (the ``Company''), Brandes
Investment Partners, Inc. (the ``Adviser''), and First Fund
Distributors, Inc. (the ``Distributor'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act to
grant an exemption from sections 2(a)(32), 2(a)(35), 18(f), 18(g),
18(i), 22(c), and 22(d) of the Act, and rule 22c-1 thereunder.
Summary of Application: Applicants request an order to permit the Funds
to issue multiple classes of shares representing interests in the same
portfolio of securities and assess and, under certain circumstances
waive, a contingent deferred sales charge (``CDSC'') upon the
redemption of certain shares.
FILING DATES: The application was filed on October 7, 1994 and amended
on December 14, 1994. Applicants agree to file an additional amendment,
the substance of which is incorporated herein, during the notice
period.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on February 6,
1995, and should be accompanied by proof of service on the applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants: Brandes International Fund, Brandes Investment Partners,
Inc., 12750 High Bluff Drive, Suite 420, San Diego, California 92130;
First Fund Distributors, Inc., 4455 E. Camelback Rd., Suite 261E,
Phoenix, AZ 85018.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Staff Attorney, at (202) 942-0573, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Company is a registered open-end management investment
company organized as a Delaware business trust. The Company currently
has one series. It does not propose to offer or sell shares until the
issuance of the order requested
[[Page 3891]]
in this application. The Company has entered into an investment
advisory agreement with the Adviser pursuant to which the Adviser will
provide investment management and advisory services to the Funds. The
Company has also entered into a principal underwriting agreement with
the Distributor. Investment Company Administration Corporation serves
as administrator to the Company. Applicants request that relief extend
to the Company, its present series, and any other series (the
``Funds'') that may in the future be advised by the Adviser or any
entity controlling, controlled by, or under common control with the
Adviser.
2. The Company has adopted a distribution plan pursuant to rule
12b-1 under the Act (the ``Rule 12b-1 Plan''). The Company has also
adopted a non-rule 12b-1 shareholder service plan (the ``Service
Plan''). Applicants propose to establish a multi-class distribution
system. Under the multi-class distribution system, each Fund will have
the opportunity to provide investors with the option of purchasing
shares: (1) With a conventional front-end sales load, a distribution
fee and/or a service fee (``Class A shares'' or the ``Front-End Load
Option''); and (b) subject to a CDSC and a distribution fee and/or a
service fee (``Class C shares'' or the ``Deferred Option''). The front-
end sales load for Class A shares will be subject to reductions for
larger purchases, and a CDSC for redemptions of certain purchases.
3. Each Fund also may create additional classes of shares. The only
differences among the classes will relate solely to: (a) the
designation of each class of shares of the Fund; (b) the exclusive
right of each class of shares to vote on matters related to the Fund's
Rule 12b-1 Plan and/or Service Plan; (c) the impact of the
disproportionate payments made under the Plans; (d) Class Expenses, as
set forth in condition 1; (e) each class of shares would have different
exchange privileges; and (f) each class of shares might have different
rights of conversion into other classes.
4. All expenses incurred by a Fund will be allocated to each class
of its shares based upon the relative daily net assets of the class.
Rule 12b-1 Plan payments, Service Plan payments, and Class Expenses
which may be attributable to a particular class of shares of a Fund
will be charged directly to the net assets of the particular class.
Because of the higher fees paid by the holders of certain classes, the
net income attributable to and the dividends payable on shares of one
class may differ from the net income attributable to and the dividends
payable on shares of other classes in the same Fund. As a result, the
net asset values per share of the classes will differ at times.
5. The Adviser may waive or reimburse Company expenses and/or Fund
expenses (with or without a waiver or reimbursement of Class Expenses)
but only if the same proportionate amounts of Company expenses and/or
Fund expenses are waived or reimbursed for each class. Thus, any
Company expenses that are waived or reimbursed would be credited to
each Fund of the Company according to the relative net assets of the
Funds, and in turn credited to each class of each Fund based on the
relative net assets of the classes. Similarly, any Fund expenses that
are waived or reimbursed would be credited to each class of that Fund
according to the relative net assets of the classes.
6. Shares of a class of one Fund will be exchangeable for shares of
the same class of another Fund. Any exchanges will comply with the
provisions of the rule 11a-3 under the Act.
7. Applicants also propose that Funds be permitted to charge a CDSC
on certain classes of shares if the shares are redeemed within a
prescribed time after their purchase (the ``CDSC Period''). The amount
of the CDSC will be calculated as a specified percentage of the lesser
of the net asset value at the time of purchase or at the time of
redemption. No CDSC will be imposed on amounts representing increases
in the value of shares due to capital appreciation, redemptions of
shares acquired through reinvestment of dividends or distributions, or
redemptions of shares held for longer than the CDSC Period. In
determining whether the CDSC is payable, it will be assumed that shares
not subject to the CDSC are redeemed first and that other shares are
then redeemed in the order purchased. This will result in a charge, if
any, being imposed at the lowest possible rate.
8. Applicants request the ability to waive or reduce the CDSC on
certain redemptions. Any waiver of the CDSC will comply with the
requirements set forth in subparagraphs (a) through (d) of rule 22d-1
under the Act. The sum of any front-end sales charge, asset-based sales
charge, and CDSC will not exceed the maximum sales charge as provided
in Article III, Section 26(d) of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (``NASD'').
Applicant's Legal Analysis
1. Applicants request an exemption under section 6(c) of the Act
from sections 18(f)(1), 18(g), and 18(i) of the Act to the extent that
the proposed issuance and sale of shares might be deemed to result in
the issuance of a ``senior security'' within the meaning of section
18(g) and thus be deemed to be prohibited by section 18(f)(1) and to
violate the equal voting provisions of section 18(i). Applicants
believe that the proposed allocation of expenses and voting rights in
the manner described above is equitable and would not discriminate
against any group of shareholders.
2. Applicants also request an exemption under section 6(c) from
sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act and rule 22c-1
thereunder, to assess and, under certain circumstances, waive or reduce
a CDSC with respect to certain redemptions of shares. Applicants
believe that this would allow shareholders the option of having more
investment dollars working for them from the time of their share
purchases than if a sales load were imposed at the time of purchase.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. Each class of shares will represent interests in the same
portfolio of investments of a Fund and will be identical in all
respects, except as set forth below. The only differences among the
classes of shares of the same Fund will relate solely to: (a) The
designation of each class of shares of the Fund; (b) the exclusive
right of each class of shares to vote on matters related to the Fund's
Rule 12b-1 Plan and/or Service Plan, except as provided in condition 15
below; (c) the impact of disproportionate payments made under the
Plans; (d) Class Expenses, which will be limited to: (i) Incremental
transfer agency costs attributable to a class of shares of the Fund;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and
proxy statements to current shareholders of a specific class; (iii) SEC
registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the
shareholders of a specific class; (v) trustees' fees or expenses
incurred as a result of issues relating to one class of shares; (vi)
accounting expenses relating solely to one class of shares; (vii) blue
sky registration fees incurred by one class of shares; (viii)
litigation or other legal expenses relating solely to one class of
shares; and (ix) any other incremental expenses subsequently identified
that
[[Page 3892]]
should be properly allocated to one or more classes of shares that
shall be approved by the Commission pursuant to an amended order; (e)
each class of shares would have different exchange privileges; and (f)
each class of shares might have different rights of conversion into
other classes.
2. The trustees of the Company, including a majority of the
independent trustees, will have approved the multi-class distribution
system prior to the implementation of the multi-class distribution
system by a particular Fund. The minutes of the meetings of the
trustees of the Company regarding the deliberations of the trustees
with respect to the approvals necessary to implement the multi-class
distribution system will reflect in detail the reasons for determining
that the proposed multi-class distribution system is in the best
interests of both the Funds and their respective shareholders.
3. The initial determination of the Class Expenses that will be
allocated to a particular class and any subsequent changes thereto will
be reviewed and approved by a vote of the trustees of the Company,
including a majority of the independent trustees. Any person authorized
to direct the allocation and disposition of monies paid or payable by a
Fund to meet Class Expenses will provide to the trustees, and the
trustees will review, at least quarterly, a written report of the
amounts so expended and the purpose for which the expenditures were
made.
4. On an ongoing basis, the trustees of the Company, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor each Fund for the existence of any material conflicts among the
interests of the various classes of shares. The trustees, including a
majority of the independent trustees, will take such action as is
reasonably necessary to eliminate any conflicts that may develop. The
Adviser and the Distributor will be responsible for reporting any
potential or existing conflicts to the trustees. If a conflict arises,
the Adviser and the Distributor at their own expense will remedy the
conflict up to and including establishing a new registered management
investment company.
5. If any class will be subject to a Service Plan, the Service Plan
will be adopted and operated in accordance with the procedures set
forth in rule 12b-1(b) through (f) as if the expenditures made
thereunder were subject to rule 12b-1, except that shareholders need
not enjoy the voting rights specified in rule 12b-1.
6. The trustees of the Company will receive quarterly and annual
statements concerning distribution and shareholder servicing
expenditures complying with paragraph (b)(3)(ii) of rule 12b-1, as it
may be amended from time to time. In the statements, only distribution
or shareholder servicing expenditures properly attributable to the sale
or servicing of one class of shares will be used to support any
distribution or shareholder servicing fee charged to shareholders of
that class of shares. Expenditures not related to the sale or servicing
of a specific class of shares will not be presented to the trustees to
support any fees charged to shareholders of that class of shares. The
statements, including the allocations upon which they are based, will
be subject to the review and approval of the independent trustees in
the exercise of their fiduciary duties.
7. Dividends paid by a Fund with respect to each class of shares,
to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same
amount, except that payments for services described in condition 1
above that are rendered to a particular class of shares will be borne
exclusively by that class.
8. The methodology and procedures for calculating the net asset
value, dividends, and distributions of the various classes and the
proper allocation of expenses among the various classes have been
reviewed by the Independent Examiner. The Independent Examiner has
rendered a report to applicants, which has been provided to the staff
of the SEC, stating that the methodology and procedures are adequate to
ensure that the calculations and allocations will be made in an
appropriate manner. On an ongoing basis, the Independent Examiner, or
an appropriate substitute Independent Examiner, will monitor the manner
in which the calculations and allocations are being made and, based
upon this review, will render at least annually a report to the Company
that the calculations and allocations are being made properly. The
reports of the Independent Examiner will be filed as part of the
periodic reports filed with the SEC pursuant to sections 30(a) and
30(b)(1) of the Act. The work papers of the Independent Examiner with
respect to these reports, following request by the Company, which the
Company agrees to provide, will be available for inspection by the SEC
staff upon the written request to a Fund for these work papers by a
senior member of the Division of Investment Management, limited to the
Director, an Associate Director, the Chief Accountant, the Chief
Financial Analyst, an Assistant Director, and any Regional
Administrators or Associate and Assistant Administrators. The initial
report of the Independent Examiner is a ``report on policies and
procedures placed in operation,'' and the ongoing reports will be
``reports on policies and procedures placed in operation and tests of
operating effectiveness,'' as defined and described in Statement of
Auditing Standards (``SAS'') No. 70 of the American Institute of
Certified Public Accountants (``AICPA''), as it may be amended from
time to time, or in similar auditing standards as may be adopted by the
AICPA from time to time.
9. Applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value, dividends, and distributions of the various classes of
shares and the proper allocation of expenses among the classes of
shares, and this representation has been concurred with by the
Independent Examiner in the initial report referred to in condition 8
above and will be concurred with by the Independent Examiner, or an
appropriate substitute Independent Examiner, on an ongoing basis at
least annually in the ongoing reports referred to in condition 8 above.
Applicants will take immediate corrective measures if this
representation is not concurred in by the Independent Examiner or
appropriate substitute Independent Examiner.
10. The prospectus of each Fund, if such is the case, will contain
a statement to the effect that a salesperson and any other entity
entitled to receive any compensation for selling or servicing Fund
shares may receive different compensation with respect to one
particular class of shares over another class in the Fund.
11. The Distributor will adopt compliance standards as to when
shares of a particular class may appropriately be sold to particular
investors. Applicants will require all persons selling shares of the
Funds to agree to conform to these standards.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the trustees of the company with
respect to the multi-class distribution system will be set forth in
guidelines that will be furnished to the trustees.
13. Each Fund will disclose in its prospectus the respective
expenses, performance data, distribution arrangements, services, fees,
sales loads, deferred sales loads, and exchange privileges applicable
to each class of shares in every prospectus, regardless of
[[Page 3893]]
whether all classes of shares are offered through each prospectus. Each
Fund will disclose the respective expenses and performance data
applicable to each class of shares in every shareholder report. The
shareholder reports will contain, in the statement of assets and
liabilities and statement of operations, information related to the
Fund as a whole generally and not on a per class basis. Each Fund's per
share data, however, will be prepared on a per class basis with respect
to all classes of shares of the Fund. To the extent any advertisement
or sales literature describes the expenses or performance data
applicable to any class of shares, it also will disclose the respective
expenses and/or performance data applicable to all classes of shares of
such Fund. The information provided by applicants for publication in
any newspaper or similar listing of a Fund's net asset value or public
offering price will separately present this information for each class
of shares of such Fund.
14. Any class of shares with a conversion feature will convert into
another class of shares on the basis of the relative net asset values
of the two classes, without the imposition of any sales load, fee, or
other charge. After conversion, the converted shares will be subject to
an asset-based sales charge and/or service fee (as those terms are
defined in Article III, Section 26 of the NASD's Rules of Fair
Practice), if any, that in the aggregate are lower than the asset-based
sales charge and service fee to which they were subject prior to the
conversion.
15. If a Fund adopts and implements any amendment to its Rule 12b-1
Plan (or, if presented to shareholders, adopts or implements any
amendment of a Service Plan) that would increase materially the amount
that may be borne by the class of shares (``Target Class'') into which
the class of shares with a conversion feature (``Purchase Class'') will
convert under the plan, existing Purchase Class shares will stop
converting into Target Class shares unless the Purchase Class
shareholders, voting separately as a class, approve the proposal. The
trustees shall take such action as is necessary to ensure that existing
Purchase Class shares are exchanged or converted into a new class of
shares (``New Target Class''), identical in all material respects to
the Target Class as it existed prior to implementation of the proposal,
no later than the date such shares previously were scheduled to convert
into Target Class shares. If deemed advisable by the trustees to
implement the foregoing, such action may include the exchange of all
existing Purchase Class shares for a new class (``New Purchase
Class''), identical to existing Purchase Class shares in all material
respects except that New Purchase Class shares will convert into New
Target Class shares. A New Target Class or New Purchase Class may be
formed without further exemptive relief. Exchanges or conversions
described in this condition shall be effected in a manner that the
trustees reasonably believe will not be subject to federal taxation. In
accordance with condition 4 above, any additional cost associated with
the creation, exchange, or conversion of New Target Class shares or New
Purchase Class shares shall be borne solely by the Adviser and the
Distributor. Purchase Class shares sold after the implementation of the
proposal may convert into Target Class shares subject to the higher
maximum payment, provided that the material features of the Target
Class plan and the relationship of such plan to the Purchase Class
shares are disclosed in an effective registration statement.
16. Applicants will comply with proposed rule 6c-10 under the Act,
Investment Company Act Release No. 16619 (Nov. 2, 1988), as such rule
is currently proposed and as it may be reproposed, adopted, or amended.
17. Applicants acknowledge that the grant of the exemptive order
requested by this application will not imply SEC approval,
authorization, or acquiescence in any particular level of payments that
the Funds may make pursuant to Rule 12b-1 Plans or Service Plans in
reliance on the exemptive order.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-1283 Filed 1-18-95; 8:45 am]
BILLING CODE 8010-01-M
