[Federal Register Volume 60, Number 24 (Monday, February 6, 1995)]
[Notices]
[Pages 7079-7083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2752]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20869; 812-9348]
ABT Growth and Income Trust, et al.; Notice of Application
January 30, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANTS: ABT Growth and Income Trust, ABT Utility Income Fund, Inc.,
ABT Investment Series, Inc., ABT Southern Master Trust (together, the
``Companies''), ABT Financial Services, Inc. (``ABTFS''), and Palm
Beach Capital Management, Ltd. (``PBCM'').
[[Page 7080]] Relevant Act Sections: Conditional order requested under
section 6(c) of the Act granting an exemption from sections 2(a)(32),
2(a)(35), 18(f), 18(g), 18(i), 22(c), and 22(d) thereof and rule 22c-1
thereunder.
SUMMARY OF APPLICATION: Applicants seek a conditional order permitting
the Companies to issue multiple classes of shares representing
interests in the same portfolio of securities, and to assess and, under
certain circumstances, waive a contingent deferred sales charge
(``CDSC'') on certain share redemptions. Applicants request that any
relief granted pursuant to the application also apply to future
investment companies (a) for which PBCM or any person controlling,
controlled by, or under common control with PBCM serves as investment
adviser, and/or ABTFS or any person controlling, controlled by, or
under common control with ABTFS serves as principal underwriter, and
(b) that issue and sell classes of shares on a basis identical in all
material respects to that described in the application.
FILING DATE: The application was filed on December 8, 1994. Counsel for
Applicants has undertaken to file an amendment during the notice
period, the substance of which is incorporated herein.
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 24,
1995, and should be accompanied by proof of service on 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
reasons for the request, and the issues contested. Persons who wish to
be notified of a hearing may request such notification by writing to
the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants, 340 Royal Palm Way, Palm Beach, Florida 33480.
FOR FURTHER INFORMATION CONTACT:
H.R. Hallock, Jr. Special Counsel, at (202) 942-0564 or Barry D.
Miller, Senior Special Counsel 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. Each of the Companies is an open-end diversified management
investment company registered under the Act. ABT Southern Master Trust
offers three portfolios. The other three Companies each offer one
portfolio. (The six portfolios, together with any future investment
companies that rely on the requested order, are referred to below as
the ``Funds''.)
2. PBCM, or a person controlling, controlled by, or under common
control with PBCM, will be the investment adviser for each Fund. ABTFS,
or a person controlling, controlled by, or under common control with
ABTFS, will serve as the distributor of the shares of each Fund (the
``Distributor''). Shares of the Funds will be available through the
Distributor and through financial intermediaries that have entered into
agreement with the Distributor to sell shares.
A. The Multiple Class System
1. Applicants propose that each Fund be permitted to create an
unlimited number of classes (the ``Multiple Class System''), which
would allow each Fund to offer investors the option of purchasing
shares (a) in connection with a plan or plans adopted pursuant to rule
12b-1 under the Act (a ``Distribution Plan''); (b) in connection with a
non-rule 12b-1 shareholder services plan or plans (a ``Shareholder
Services Plan''), (c) in connection with the allocation of certain
expenses that are directly attributable only to a particular class; (d)
without any Distribution Plan or Shareholder Services Plan
(collectively, the ``Plans''); (e) subject to varying front-end sales
charges; (f) subject to varying CDSCs; and/or (g) subject to certain
conversion features.
2. With respect to each class, each Fund could enter into one or
more Distribution Plan agreements and/or Shareholder Services Plan
agreements (collectively, ``Plan Agreements'') with PBCM, the
Distributor, and/or other groups, organizations or institutions
concerning the provision of certain services to shareholders of that
class. With respect to each class, a Fund could pay either directly or
indirectly for such services under a Plan Agreement (``Plan
Payments''). The expense of Plan Payments would be borne entirely by
the owners or beneficial owners of the class of the Fund to which the
Plan Agreement relates.
3. The provision of distribution services and shareholder servicing
under the Plans will complement (and not be duplicative of) the
services to be provided to each Fund by its manager, investment
adviser(s), and/or distributor, and by the parties that provide
custody, transfer agency, and administrative services to each Fund.
When a class is subject to both a Distribution Plan and a Shareholder
Services Plan, the provision of services under one Plan will complement
(and not be duplicative of) the services provided under the other Plan.
The Funds will comply with Article III, Section 26 of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
(``NASD'') with respect to asset-based distribution charges.
4. The expenses of the Companies that cannot be attributed directly
to any one Fund (``Company Expenses'') generally will be allocated to
each Fund based on the relative net assets of the Fund. Certain
expenses that may be attributable to a particular Fund, but not a
particular class (``Fund Expenses''), will be allocated to each class
based upon the relative net assets of the classes. Certain expenses may
be attributable to a particular class of a Fund (``Class Expenses'').
All such Class Expenses incurred by a class will be charged directly to
the net assets of that particular class, and thus will be borne on a
pro rata basis by the outstanding shares of such class.
5. PBCM may choose to reimburse or waive Class Expenses on certain
classes of a Fund on a voluntary, temporary basis. Class Expenses are
by their nature specific to a given class and, therefore, expected to
vary from one class to another. Applicants thus believe that it is
acceptable and consistent with shareholder expectations to reimburse or
waive Class Expenses at different levels for different classes of the
same Fund.
6. In addition, PBCM 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 amount of Company
Expenses and/or Fund Expenses are waived or reimbursed for each class
of the Fund. Thus, any Company Expenses that are waived or reimbursed
would be credited to each class of a 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.
7. Because Plan Payments and other Class Expenses will be borne
exclusively by the class to which they are attributable, the net income
and net asset value per share of (and dividends payable to) each class
within a Fund may be different. Dividends and other
[[Page 7081]] distributions payable to each class of shares in a Fund,
however, will be declared and paid on the same days and at the same
times, and, except with respect to Plan Payments and Class Expenses,
will be determined in the same manner and paid in the same amounts.
8. Shares of one or more classes subject to a CDSC (``Convertible
CDSC Shares'') may automatically convert to shares of a class not
subject to a CDSC (``Non-CDSC Shares'') after a prescribed period of
time, and thereafter be subject to lower Plan Payments, if any,
applicable to the Non-CDSC Shares. It is expected that Convertible CDSC
Shares will convert to Non-CDSC Shares after approximately eight years
from the purchase date. Non-CDSC Shares will in all cases be subject to
lower aggregate Plan Payments, if any, and any other ongoing Class
Expenses than Convertible CDSC Shares.
9. The conversion will be on the basis of the relative net asset
values of the two classes, without the imposition of any sales or other
charge except that any asset-based sales or other charge applicable to
the Non-CDSC Shares would thereafter be applied to the converted
shares. Convertible CDSC Shares in a shareholder's account that were
purchased through the reinvestment of dividends and other distributions
paid in respect of Convertible CDSC Shares will be considered to be
held in a separate sub-account. Each time any Convertible CDSC Shares
in the shareholder's account convert to Non-CDSC Shares, a pro rata
portion of the Convertible CDSC Shares then in the sub-account will
also convert to Non-CDSC Shares.
10. The conversion of Convertible CDSC Shares into Non-CDSC Shares
would be subject to the availability of an opinion by counsel or an
Internal Revenue Service private letter ruling to the effect that the
conversion does not constitute a taxable event under federal income tax
law. The proposed conversion may be suspended if such a ruling or
opinion is not available. In that event, no further conversions would
occur and the Convertible CDSC Shares might be subject to higher Plan
Payments for an indefinite period.
11. Different classes within a Fund will have different exchange
privileges. Shares may be exchanged at net asset value for shares of
the corresponding class of certain other Funds. Exchange privileges
will comply with rule 11a-3 under the Act.
B. The CDSC
1. Applicants request that the Funds be permitted to assess a CDSC
on share redemptions of certain classes, if such shares are redeemed
within a prescribed period of time after purchase.
In no event would the amount of the CDSC exceed 6% of the aggregate
purchase payments made by an investor in a CDSC class. The CDSC of any
particular Fund, however, may be lower than 6%. The amount of the CDSC
to be imposed in any given instance will depend on the number of years
elapsed since the investor purchased the shares being redeemed, as set
forth in the Fund's prospectus. The amount of the CDSC will be
calculated as the lesser of the amount that represents a specified
percentage of the net asset value of the shares at the time of
purchase, or the amount that represents such percentage of the net
asset value of the shares at the time of redemption. The CDSC will
comply, to the extent applicable, with the requirements of Article III,
Section 26(d) of the Rules of Fair Practice of the NASD.
2. The CDSC will not be imposed on redemptions of shares that were
purchased more than six years prior to the redemptions (the ``CDSC
Period''), or on shares derived from reinvestment of dividends or
distributions. No CDSC will be imposed on an amount that represents an
increase in the value of the shares redeemed resulting from capital
appreciation above the amount paid for such shares purchased during the
CDSC Period. In determining the applicability and rate of any CDSC, it
will be assumed that a redemption is made first on shares representing
reinvestment of dividends and capital gain distributions, then of
shares held by the shareholder for a period equal to or greater than
the CDSC Period, and finally of other shares held by the shareholder
for the longest period of time. This will result in a charge, if any,
imposed at the lowest possible rate. No CDSC will be imposed on any
shares issued prior to the date of the order granting exemptive relief.
3. Applicants request the ability to waive or reduce the CDSC in
certain instances as described in the application. If a Fund waives or
reduces the CDSC, such waiver or reduction will be uniformly applied to
all offerees of the particular class of the Fund's shares. In waiving
or reducing the CDSC, the Funds will comply with the requirements of
rule 22d-1 under the Act. The CDSC will be waived or reduced as
provided in a Fund's prospectus at the time the investor purchased the
shares.
4. Applicants also request the ability to provide a pro rata credit
for any CDSC paid in connection with a redemption followed by a
reinvestment effected within a specified period not exceeding 365 days
from the redemption. Such credit will be paid by the Distributor.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 18(f)(1), 18(g), and 18(i) to the extent that
the proposed Multiple Class System may be deemed to (a) result in a
``senior security'' within the meaning of section 18(g) and to be
prohibited by section 18(f)(1); and (b) violate the equal voting
provisions of section 18(i). Applicants also request an order pursuant
to section 6(c) providing an exemption from sections 2(a)(32),
2(a)(35), 22(c), and 22(d) of the Act and rule 22c-1 thereunder, to the
extent necessary to permit the imposition of a CDSC on certain
redemptions of shares, and the waiver or reduction of the CDSC in
certain circumstances.
2. Applicants believe that the proposed allocation of expenses and
voting rights in the manner described in the application is equitable
and would not discriminate against any group of shareholders. Although
investors purchasing shares offered in connection with a Plan and/or
bearing particular Class Expenses would bear the costs associated with
the related services, they would also enjoy the benefits of those
services and the exclusive shareholder voting rights with respect to
matters affecting the applicable Plan. Conversely, investors purchasing
shares that are not covered by a Plan or not bearing Class Expenses
would not be burdened with such expenses or enjoy such voting rights.
3. Applicants assert that the abuses that section 18 of the Act is
intended to redress are not present under the proposed arrangement. In
this regard, Applicants state that because the rights and privileges of
classes with respect to any Fund would be substantially identical, the
possibility that their interests would ever conflict is remote. In
addition, the proposed arrangement does not involve borrowings and does
not affect the Funds' assets or reserves. Nor will the proposed
arrangement increase the speculative character of the shares in a Fund,
because all shares will participate in all of the Fund's appreciation,
income, and expenses. No class of shares will have any preference or
priority over any other class in a Fund in the usual sense (that is, no
class will have distribution or liquidation preferences with respect to
particular assets and no class will be protected by any reserve or
other account). [[Page 7082]]
Applicants' Conditions
Applicants agree that the following conditions may be imposed in
any order granting the requested relief:
1. Each class of shares of a Fund will represent interests in the
same portfolio of investments, and be identical in all respects, except
as set forth below. The only differences between the classes of shares
of a Fund will relate solely to one or more of the following: (a)
Expenses assessed to a class pursuant to a Plan, if any, with respect
to such class; (b) the impact of Class Expenses, which will be limited
to any or all of the following: (i) Transfer agent fees identified as
being attributable to a specific class of shares, (ii) stationery,
printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and
proxy statements to current shareholders of a specific class, (iii)
Blue Sky registration fees incurred by a class of shares, (iv) SEC
registration fees incurred by a class of shares, (v) expenses of
administrative personnel and services as required to support the
shareholders of a specific class, (vi) directors/trustees' fees or
expenses incurred as a result of issues relating to one class of
shares, (vii) accounting expenses relating solely to one class of
shares, (viii) auditors fees, litigation expenses, and legal fees and
expenses relating to a class of shares, (ix) expenses incurred in
connection with shareholders' meetings as a result of issues relating
to one class of shares, and (x) any other incremental expenses
subsequently identified which should be properly allocated to a
particular class of shares and which, as such, are approved by the SEC
pursuant to an amended order; (c) the fact that the classes will vote
separately with respect to matters relating to a Fund's Distribution
Plan, if any, or any other matters appropriately limited to such
class(es), except as provided in condition 15 below; (d) the different
exchange privileges of the classes of shares, if any; (e) the
designation of each class of shares of a Fund; and (f) certain
conversion features offered by some of the classes.
2. Each Company's board of directors/trustees (``Trustees''),
including a majority of the Trustees who are not interested persons of
the Company (``Independent Trustees''), will have approved the Multiple
Class System with respect to a particular Fund prior to the
implementation of the system by that Fund. The minutes of the meetings
of the Trustees regarding the deliberations of the Trustees with
respect to the approvals necessary to implement the Multiple Class
System will reflect in detail the reasons for the determination by the
Trustees that the proposed Multiple Class System is in the best
interests of each Fund and its 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, 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 shall provide to the Trustees, and the Trustees
shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
4. If any class will be subject to a Shareholder Services Plan, the
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 will
not enjoy the voting rights specified in rule 12b-1.
5. On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the Act and otherwise, will monitor each Fund,
as applicable, for the existence of any material conflicts among the
interests of the classes of its shares, if there is more than one
class. The Trustees, including a majority of the Independent Trustees,
shall take such action as is reasonably necessary to eliminate any such
conflicts that may develop. Each Fund's investment manager and/or
Distributor will be responsible for reporting any potential or existing
conflicts to the Trustees. If such a conflict arises, the Fund's
investment manager and/or Distributor, at their own expense, will take
such actions as are necessary to remedy such conflict, including
establishing a new registered management investment company, if
necessary.
6. The Trustees will receive quarterly and annual statements
concerning the amounts expended under the Plans complying with
paragraph (b)(3)(ii) of rule 12b-1, as it may be amended from time to
time. In the statements, only expenditures properly attributable to the
sale or servicing of a particular class of shares will be used to
justify any fee for services charged to that class. Expenditures not
related to the sale or servicing of a particular class will not be
presented to the Trustees to justify any fee attributable to that
class. 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 and other distributions paid by a Fund with respect to
each class of its shares, to the extent any dividends and other
distributions are paid, will be declared and paid on the same day and
at the same time, and will be determined in the same manner and will be
in the same amount, except that the amount of the dividends declared
and paid by a particular class may be different from that of another
class because Plan Payments made by a class under a Plan and other
Class Expenses will be borne exclusively by that class.
8. The methodology and procedures for calculating the net asset
value and dividends and other distributions of the classes and the
proper allocation of expenses among the classes have been reviewed by
an expert (the ``Expert'') who has rendered a report to the Applicants,
which has been provided to the SEC, stating that such methodology and
procedures are adequate to ensure that such calculations and
allocations would be make in an appropriate manner. On an ongoing
basis, the Expert, or an appropriate substitute Expert, will monitor
the manner in which the calculations and allocations are being made
and, base upon such review, will render at least annually a report to
the Funds that the calculations and allocations are being made
properly. The reports of the Expert 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 Expert with respect to such
reports, following request by the Funds which the Funds agree to make,
will be available for inspection by the Commission staff upon written
request to the Funds for such work papers by a senior member of the
Division of Investment Management or of a Regional Office of the SEC,
limited to the Director, an Associate Director, the Chief Accountant,
the Chief Financial Analyst, an Assistant Director, and any Regional
Administrators or Associate or Assistant Administrators. The initial
report of the Expert is a report on the ``Design of a System,''
including policies and procedures related thereto to be placed into
operation, as defined and described in Statement of Auditing Standards
(``SAS'') No. 70 of the American Institute of Certified Public
Accountants (``AICPA'') and the ongoing reports will be ``Reports on
Policies and Procedures Placed in Operation and Tests of Operating
Effectiveness'' as defined and described in SAS No. 70 of the AICPA, as
it may be amended from time to time, or in similar auditing
[[Page 7083]] 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 and dividends and other distributions of the classes of
shares and the proper allocation of expenses among the classes of
shares and this representation has been concurred with by the Expert in
the initial report referred to in condition 8 above and will be
concurred with by the Expert, or an appropriate substitute Expert, on
an ongoing basis at least annually in the ongoing reports referred to
in condition 8 above. Applicants will take immediate corrective action
if the Expert or appropriate substitute Expert does not so concur in
the ongoing reports.
10. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the Trustees with respect to the
Multiple Class System will be set forth in guidelines that will be
furnished to the Trustees.
11. Each of the Funds will disclose the respective expenses,
performance data, distribution arrangements, services, fees, sales
loads, deferred sales loads, conversion features, and exchange
privileges applicable to each class of shares in every prospectus,
regardless of whether all classes of shares are offered through such
prospectus. Each Fund will disclose the respective expenses and
performance data applicable to all classes 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 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 such Fund. To
the extent any advertisement or sales literature describes the expenses
or performance data applicable to any class of shares, it will also
disclose the expenses and/or performance data applicable to all classes
of shares. The information provided by Applicants for publication in
any newspaper or similar listing of the Funds' net asset values and
public offering prices will present each class of shares separately.
12. The prospectus of each Fund will contain a statement to the
effect that a salesperson and any other person entitled to receive
compensation for selling or servicing Fund shares may receive different
levels of compensation with respect to one particular class of shares
over another in the Fund.
13. Applicants acknowledge that the grant of the exemptive order
requested by the application will not imply SEC approval of,
authorization of, or acquiescence in any particular level of payments
that any Fund may make pursuant to a Plan in reliance on the exemptive
order.
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 charges and service fee to which they were subject prior to the
conversion.
15. If a Fund implements any amendment to a Distribution Plan (or,
if presented to shareholders, adopts or implements any amendment of a
Shareholder Services Plan) that would increase materially the amount
that may be borne by the Non-CDSC Shares under the Plan, then existing
CDSC Shares will stop converting into the Non-CDSC Shares unless the
holders of a majority of convertible CDSC Shares, as defined in the
Act, voting separately as a class, approve the amendment. The Trustees
shall take such action as is necessary to ensure that existing
Convertible CDSC Shares are exchanged or converted into a new class of
shares (``New Non-CDSC Shares''), identical in all material respects to
Non-CDSC Shares as they existed prior to implementation of the
amendment, no later than the date such shares previously were scheduled
to convert into Non-CDSC Shares. If deemed advisable by the Trustees to
implement the foregoing, such action may include the exchange of all
existing Convertible CDSC Shares for a new class (``New Convertible
CDSC Shares'') of shares, identical to existing Convertible CDSC Shares
in all material respects except that the New Convertible CDSC Shares
will convert into the New Non-CDSC Shares. The New Non-CDSC Shares and
New Convertible CDSC Shares 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 5, any
additional cost associated with the creation, exchange, or conversion
of the New Non-CDSC Shares or New Convertible CDSC Shares shall be
borne solely by the Fund's investment manager or Distributor.
Convertible CDSC Shares sold after the implementation of the amendment
may convert into Non-CDSC Shares subject to the higher maximum payment,
provided that the material features of the Non-CDSC Shares plan and the
relationship of such plan to the Convertible CDSC Shares are disclosed
in an effective registration statement.
16. The Distributor will adopt compliance standards as to when each
class of shares may be sold to particular investors. Applicants will
require all persons selling shares of a Fund to agree to conform to
such standards.
17. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act, Investment Company Act Release No. 16169 (Nov. 2,
1988), as such rule is currently proposed and as it may be reproposed,
adopted or amended.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2752 Filed 2-3-95; 8:45 am]
BILLING CODE 8010-01-M
