[Federal Register Volume 59, Number 20 (Monday, January 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2017]
[[Page Unknown]]
[Federal Register: January 31, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20032; 812-8768]
Emerald Funds, et al.; Application for Exemption
January 24, 1994.
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: Emerald Funds (the ``Trust''), Emerald Asset Management,
Inc. (``EAM''), Concord Holding Corporation (``Concord''), Barnett
Banks Trust Company, N.A. (``Barnett''), BNY Hamilton Funds, Inc., (the
``Fund''), BNY Hamilton Distributors, Inc. (``BDI''), The Bank of New
York (``BNY''), The 231 Funds, the 231 Broker-Dealer Services, Inc.
(``231 Broker''), Concord Financial Group, Inc. (``Concord
Financial''), and Continental Bank N.A. (``Continental'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from
sections 2(a)(32), 2(a)(35), 18(f), 18(g), 18(i), and 22(d) of the Act
and rule 22c-1 thereunder.
SUMMARY OF APPLICATION: Applicants seek an amendment to a prior order
(the ``Prior Order'')\1\ to permit The 231 Funds to (a) offer an
unlimited number of classes of shares in the same portfolio; and (b)
impose and, under certain circumstances, waive a contingent deferred
sales charge (``CDSC'') on redemptions of shares of certain portfolios.
Applicants request that the requested relief also apply to any
investment company for which Continental acts in the future as
investment adviser and which elects to adhere to the representations
set forth in the application for the Prior Order.
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\1\Investment Company Act Release Nos. 19836 (Nov. 4, 1993)
(notice) and 19911 (Nov. 30, 1993) (order).
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FILING DATE: The application was filed on January 11, 1994.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Any interested person
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 18,
1994 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: The Trust, EAM, Concord, the Fund, BDI, The 231 Funds, 231
Broker, and Concord Financial, 125 W. 55th St., 11th Floor, New York,
NY 10019; Barnett, 9000 Southside Boulevard, Building 100, 6th Floor,
Jacksonville, FL 32203; BNY, 1 Wall Street, 7th Floor, New York, NY
10286; Continental, 231 South LaSalle Street, Chicago, IL 60697.
FOR FURTHER INFORMATION CONTACT: John V. O'Hanlon, Senior Attorney, at
(202) 272-3922, or Elizabeth G. Osterman, Branch Chief, at (202) 272-
3016 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch.
Applicants' Representations
1. The 231 Funds is a Massachusetts business trust registered under
the Act as an open-end management investment company. As of the date of
the application, The 231 Funds offered two separate investment
portfolios. A third investment portfolio has been registered but has
not yet commenced operations. All three portfolios are money market
portfolios operating under rule 2a-7 under the Act. Shares in each of
these portfolios currently are offered to investors without a sales
load.
2. Continental serves as The 231 Funds' investment adviser. Concord
Financial serves as The 231 Funds' distributor. In the future, shares
of The 231 Funds will be distributed by 231 Broker, a company under
common control with Concord Financial.
3. The Prior Order permits certain investment companies to offer an
unlimited number of classes or series of shares in the same portfolio.
Classes or series may be offered: (a) In connection with a plan or
plans adopted pursuant to rule 12b-1; and/or (b) in connection with a
non-rule 12b-1 administrative plan or plans; and/or (c) in connection
with the allocation of certain expenses (``Class Expenses'') that are
directly attributable only to certain classes; and/or (d) subject to
the imposition of varying front-end sales charges; and/or (e) subject
to the imposition of varying CDSCs; and/or (f) subject to certain
conversion features.
4. Applicants seek an amendment to the Prior Order to permit The
231 Funds to offer classes of shares under that order. Classes of
shares issued by The 231 Funds pursuant to the amended order will
conform to the representations contained in the application for the
Prior Order.
Applicants' Legal Analysis
Applicants assert that the reasons for the requested exemptions set
forth in the application for the Prior Order are applicable to The 231
Funds. Accordingly, applicants assert that the requested amendment is
appropriate in the public interest and is consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act.
Applicant's Conditions
Applicants agree that any order of the Commission granting the
requested relief shall be subject to the following conditions:\2\
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\2\All defined terms are defined in the notice of the Prior
Order cited in footnote 1.
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1. Each class of shares will represent interests in one Portfolio
of a Company, and will be identical in all respects, except as set
forth below. The only differences among the classes of shares of the
same Portfolio will relate solely to: (a) The impact of (i) expenses
assessed to a class pursuant to a Plan, (ii) other Class Expenses which
would be limited to (A) transfer agency fees identified by the transfer
agent as being attributable to a specific class of shares; (B) fees and
expenses of a Company's administrator that are identified and approved
by the Company's board as being attributable to a specific class of
shares; (C) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and
proxies to current shareholders of a class; (D) blue sky registration
fees incurred by a class of shares; (E) SEC registration fees incurred
by a class of shares; (F) the expense of administrative personnel and
services as required to support the shareholders of a specific class;
(G) litigation or other legal expenses or audit or other accounting
expenses relating solely to one class of shares; and (H) trustees' fees
incurred as a result of issues relating to one class of shares; and
(iii) any other incremental expenses subsequently identified that
should be properly allocated to one class and which are approved by the
Commission pursuant to an amended order; (b) the fact that the classes
will vote separately with respect to a Portfolio's Plans and any other
matter submitted to shareholders relating to Class Expenses, except as
provided in condition 17 below; (c) the different exchange privileges
of the classes of shares; (d) the designation of each class of shares;
and (e) certain conversion features offered by some of the classes.
2. The board of trustees of a Company, including a majority of the
independent trustees, will approve the offering of different classes of
shares under the multi-class distribution system. The minutes of the
meetings of the trustees regarding the deliberations of the trustees
with respect to the approvals necessary to implement a multi-class
system will reflect in detail the reasons for the trustees'
determination that the proposed multi-class system is in the best
interests of both the Company involved 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 board of trustees of a
Company, including a majority of the trustees who are not interested
persons of the Company. Any person authorized to direct the allocation
and disposition of monies paid or payable by a Company to meet Class
Expenses shall provide to the board of 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. On an ongoing basis, the trustees of a Company, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor each Portfolio having a multi-class system for the existence of
any material conflicts among the interests of the various classes of
each Portfolio. 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. A Portfolio's investment
adviser and distributor will be responsible for reporting any potential
or existing conflicts to the trustees. If a conflict arises, a
Portfolio's investment adviser and/or distributor at their own cost
will remedy such conflict up to and including establishing a new
registered management investment company.
5. Any Administrative 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 a Company will receive quarterly and annual
statements concerning distribution and shareholder servicing
expenditures complying with paragraph (b)(3)(ii) of rule 12b-1, as
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 distribution or servicing
expenditure 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 paid by a Portfolio with respect to each class of its
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 Plan Payments relating to each respective class of
shares and the Class Expenses relating to each class of shares will be
borne exclusively by that class.
8. The methodology and procedures for calculating the net asset
value and dividends and distributions of various classes in any
Portfolio having a multi-class distribution system and the proper
allocation of expenses among the various classes in each such Portfolio
have been reviewed by an expert (the ``Expert'') who has rendered a
report to the Company involved, which report has been provided to the
staff of the Commission, that such methodology and procedures are
adequate to ensure that such calculations and allocations will be made
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, based upon such
review, will render at least annually a report to the Company involved
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 Commission 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 Company involved (which the Company agrees to
provide), will be available for inspection by the Commission's staff
upon the written request for such work papers by a senior member of the
Division of Investment Management or of a Regional Office of the
Commission 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 Expert is a ``Special Purpose'' report on the
``Design of a System'' as defined and described in SAS No. 44 of the
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 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 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
measures if this representation is not concurred in by the Expert or
appropriate substitute Expert.
10. The prospectuses of each Portfolio having a multi-class system
will contain a statement to the effect that a salesperson and any other
person entitled to receive compensation for selling or servicing shares
of a Portfolio may receive different compensation with respect to one
particular class of shares over another in the same Portfolio.
11. The distributor for a Company having a multi-class system will
adopt compliance standards for any Portfolio which has a multi-class
system, which standards will relate to when each class of shares may
appropriately be sold to particular investors. Applicants will require
all persons selling shares of a Portfolio having a multi-class system
to agree to conform to such applicable standards.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the trustees with respect to the
multi-class system will be set forth in guidelines which will be
furnished to the trustees of a Company having a multi-class system.
13. Each Portfolio having a multi-class system will disclose the
respective expenses, performance data, distribution arrangements,
services, fees, front-end sales loads, conversion features, CDSCs, and
exchange privileges applicable to each class of shares in a Portfolio
in every prospectus relating to such Portfolio, regardless of whether
all classes of shares are offered through each prospectus. Each such
Portfolio will disclose the respective expenses and performance data
applicable to all classes of shares in a Portfolio in every shareholder
report relating to such Portfolio. The shareholder reports will
contain, in the statement of assets and liabilities and statement of
operations, information related to the Portfolio as a whole generally
and not on a per class basis. Each Portfolio's per share data, however,
will be prepared on a per class basis with respect to all classes of
shares of such Portfolio. 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 respective 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 any Portfolio's net asset value and public offering price
will present each class of shares separately.
14. Applicants acknowledge that the grant of the amended order
requested by the application will not imply Commission approval,
authorization or acquiescence in any particular level of payments that
the Portfolios may make pursuant to a Plan in reliance on the exemptive
order.
15. If a CDSC arrangement is implemented with respect to shares of
a Portfolio, applicants agree to comply with the provisions of 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.
16. 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.
17. If a Company implements any amendment to its Distribution
Plan(s) (or, if presented to shareholders, adopts or implements any
amendment to an Administrative Plan or Plans) that would increase
materially the amount that may be borne by the Non-CDSC Shares under
the Plan, existing Convertible CDSC Shares, voting separately as a
class, approve the proposal. The trustees will take such action as is
necessary to ensure that Convertible CDSC Shares are exchanged or
converted into a new class of shares (``New Non-CDSC Shares''),
identical in all material respects to the Non-CDSC Shares as they
existed prior to the implementation of the proposal, 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''), identical to
the existing Convertible CDSC Shares in all material respects except
that the New Convertible CDSC Shares will convert into New Non-CDSC
Shares. New Non-CDSC Shares or 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 4, any additional cost associated with the
creation, exchange, or conversion of New Non-CDSC Shares or New
Convertible CDSC Shares shall be borne solely by the adviser and the
distributor. Convertible CDSC Shares sold after implementation of the
proposal may convert into Non-CDSC Shares subject to the higher maximum
payment, provided that the material features of the Non-CDSC Share plan
and the relationship of such plan to the Convertible CDSC Shares are
disclosed in an effective registration statement.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2017 Filed 1-28-94; 8:45 am]
BILLING CODE 8010-01-M