[Federal Register Volume 59, Number 224 (Tuesday, November 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28781]
[[Page Unknown]]
[Federal Register: November 22, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20707; 812-9298]
Cash Assets Trust, et al.; Notice of Application
November 16, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
APPLICANTS: Cash Assets Trust (the ``Trust''), Hawaiian Trust Company,
Limited (the ``Adviser''), and Aquila Distributors, Inc. (the
``Distributor'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from sections 18(f), 18(g), and 18(i) of the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit the Trust
to offer two classes of shares representing interests in the same
investment portfolio.
FILING DATE: The application was filed on October 21, 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 December 12,
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, N.W., Washington, D.C.
20549. Applicants: Cash Assets Trust, Hawaiian Trust Company, Limited,
and Aquila Distributors, Inc., 380 Madison Avenue, Suite 2300, New
York, New York 10017.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Law Clerk, 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 Trust is a Massachusetts business trust registered under the
Act as an open-end management investment company. Currently, the Trust
is authorized to offer three separate investment portfolios (the
``Portfolios''): Pacific Capital Cash Assets Trust, Pacific Capital
Tax-Free Cash Assets Trust, and Pacific Capital U.S. Treasuries Cash
Assets Trust. Each Portfolio holds itself out as a ``money market
fund'' and therefore seeks to maintain a stable net asset value of
$1.00 per share pursuant to rule 2a-7 under the Act. Aquila
Distributors, Inc., a registered broker-dealer, serves as the
distributor of the Trust's shares. Hawaiian Trust Company, Limited
serves as investment adviser to the Trust. Applicants request that
relief extend to any future trust, series or portfolio of a Trust that
is advised by the Adviser or whose shares are distributed by the
Distributor.
2. The Trust proposes to offer two classes of shares of each of its
Portfolios: Original Shares and Service Shares (the ``Dual Class
System''). The currently outstanding shares of each Portfolio will be
classified as Original Shares. If exemptive relief is granted, Original
Shares will be sold solely to (1) financial institutions for the
investment of funds for which they act in a fiduciary, agency,
investment advisory or custodial capacity; (2) persons entitled to
exchange into Original Shares under the exchange privileges of the
Trust; and (3) shareholders owning shares of the Trust of record on the
date that both classes of shares are first made available. Original
Shares will be sold without the imposition of any sales charges and
will not be subject to any asset-based distribution charges permitted
by rule 12b-1 under the Act. However, Original Shares will continue to
be subject to the normal and customary expenses of the Trust such as
advisory and administrative fees and other normal operating expenses.
3. Service Shares will be offered to customers of banks and other
financial institutions (``Service Organizations'') that typically are
compensated by service or distribution fees paid by the mutual funds
offered to their customers rather than by transactions or other fees
paid directly by such customers. The fees paid by this class could be
in the nature of (1) a distribution fee payable in connection with a
plan adopted pursuant to rule 12b-1 under the Act (a ``Rule 12b-1
Plan''); (2) an administrative services fee payable pursuant to a non-
rule 12b-1 administrative services plan (an ``Administrative Services
Plan''); or (3) a distribution fee and an administrative fee as a
result of a combination of the two types of plans.
4. Each of the Portfolios has adopted a currently effective
distribution plan under rule 12b-1, but neither the Trust nor the
Portfolios make payments under this plan.
5. Under amended Rule 12b-1 Plans to be implemented with the Dual
Class System, the Trust or each Portfolio, on behalf of the Services
Shares, would typically enter into agreements with and pay the
Distributor or the Service Organization for performing certain
services, some of which could be construed as distribution assistance.
The expenses of such payments would be borne entirely by the Service
Shares shareholders. Services provided in accordance with the terms of
the Rule 12b-1 Plan would not be duplicative of any services to be
provided to the Trust or its Portfolios by the administrator,
distributor or transfer agent.
6. Under an Administrative Services Plan, the Trust or the
Portfolios, on behalf of the Service Shares, would have the ability to
enter into agreements with Service Organizations in which each
organization will agree to provide certain services to its clients,
members or customers, who purchase shares. The provision of services
under the Administrative Services Plan would not be duplicative of any
services to be provided to the Trust or a Protfolio by its
administrator, distributor, or transfer agent. Each Portfolio would pay
a Service Organization for its service in accordance with the terms of
its particular Administrative Services Plan, and the expense of such
payment will be borne entirely by the beneficial owners of the Service
Shares.
7. Under the Dual Class System, each share in a Portfolio,
regardless of class, will represent an interest in the Portfolio and
will have identical voting rights, powers, qualifications, terms and
conditions, and, in proportion to each Share's net asset value,
liquidation rights and preferences. Each class will differ in that: (a)
Each class will have a different class designation; (b) only the
Service Shares will bear the expenses applicable to an Administrative
Services Plan or Rule 12b-1 plan; (c) each class would bear certain
other expenses that are directly attributable only to that class
(``Class Expenses''), as set forth in condition 1; (d) classes will
vote separately with respect to matters relating to the Fund's Rule
12b-1 Plan; and (e) the exchange privileges could vary among the
classes.
8. The classes of shares of the Portfolios will differ with respect
to exchange privileges among the Portfolios and the portfolios of
certain other investment companies advised by the Adviser. All
exchanges of shares will be effected in accordance with the provisions
of rule 11a-3 under the Act.
9. Portfolio expenses (such as advisory fees) will be allocated pro
rata, to each class on the basis of the relative net asset values of
the respective classes. Rule 12b-1 Plan payments, Administrative Plan
payments, and Class Expenses which are attributable to a particular
class of shares will be allocated to that particular class. As a
result, the net income and net asset value per share of a class may be
different than the new income and net asset value per share of another
class of shares in the same Portfolio.
Applicants' Legal Analysis
1. Applicants request that the Commission issue an order pursuant
to section 6(c) exempting them from sections 18(f)(1), 18(g), and 18(i)
of the Act to the extent that the proposed issuance and sale of shares
representing interests in the same investment portfolio might be
deemed: (1) to result in the issuance of a ``senior security'' within
the meaning of section 18(g) of the Act in violation of section
18(f)(1); or (2) to violate the equal voting provisions of section
18(i) of the Act. Applicants believe that the proposed arrangement
would permit the Trust to facilitate the distribution of its securities
and enhance the scope and depth of its shareholder services without
assuming excessive accounting and bookkeeping costs or unnecessary
investment risks. Applicants also believe that the proposed allocation
of expenses and the voting rights relating to the Administrative
Services Plan or Rule 12b-1 Plan in the manner described above is
equitable and would not discriminate against any group of shareholders.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. Each class of shares of each Portfolio of the Trust will
represent interests in the same portfolio of investments of a Portfolio
of the Trust, and will be identical in all respects, except as set
forth below. The only differences between the classes of shares of the
Trust will relate solely to: (a) The impact of the disproportionate
Administrative Services Plan payments, Rule 12b-1 Plan payments, and
Class Expenses which will be limited to (i) transfer agent fees as
identified by the transfer agent as being attributable to a specific
class; (ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and
proxies to the current shareholders of a specific class; (iii) Blue Sky
registration fees incurred by a class; (iv) SEC registration fees
incurred by a class; (v) the expense of administrative personnel and
services as required to support the shareholders of a specific class;
(vi) litigation or other legal expenses relating solely to one class;
and (vii) trustees fees incurred as a result of issues relating to one
class; (b) the fact that the classes will vote separately with respect
to the Portfolio's Rule 12b-1 Plan and Administrative Services Plan;
(c) exchange features; and (d) class designation differences.
2. The trustees of the Trust, including a majority of the
independent trustees, will approve the offering of two classes of
shares (the ``Dual Class System''). The minutes of the respective
meetings of the trustees regarding the deliberations of the trustees
with respect to the approvals necessary to implement the Dual Class
System will reflect in detail the reasons for the trustees'
determination that the Dual Class System is in the best interests of
both the Trust and its shareholders.
3. On an ongoing basis, the trustees of the Trust, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor the Portfolios for the existence of any material conflicts
among the interests of the two classes of shares. The trustees,
including a majority of the non-interested trustees, shall take such
action as is reasonably necessary to eliminate any such conflicts that
may develop. Hawaiian Trust Company, Limited as adviser and Aquila
Distributors, Inc. as 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 cost, will remedy such
conflict up to and including establishing a new registered management
investment company.
4. 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 Trust,
including a majority of the trustees who are not interested persons of
the Trust. Any person authorized to direct the allocation and
disposition of monies paid or payable by a Portfolio to meet class
expenses shall provide to the trustees of the Trust, 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.
5. Any Administrative Services 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 of Service Shares need not enjoy the voting
rights specified in rule 12b-1.
6. The trustees of the Trust 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 expenditures
properly attributable to the sale or servicing of a particular class of
shares will be used to justify any distribution or servicing fee
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 subjected
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 payments made by Service Shares under the Rule 12b-
1 Plan or Administrative Services Plan, and any Class Expenses, will be
borne exclusively by that class.
8. The methodology and procedures for calculating the net asset
value, dividends and distributions of the classes of shares and the
proper allocation of expenses between those classes has been reviewed
by an expert (the ``Expert'') who has rendered a report to applicants,
which has been provided to the staff of the SEC, 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
Trust that the calculations are being made properly. The reports of the
Expert shall 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
Trust (which the Trust agrees to provide), will be available for
inspection by the SEC staff upon the written request to the Trust for
such 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 Expert is a ``report on policies and procedures
placed in 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 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 values, dividends and distributions of the two classes of
shares and the proper allocation of expenses between 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 prospectus for each Portfolio will contain a statement to
the effect that a salesperson and any other person entitled to receive
compensation for selling or servicing Portfolio shares may receive
different compensation with respect to one particular class of shares
over another in the same Portfolio.
11. The Distributor will adopt compliance standards as to when each
class of shares may appropriately be sold to particular investors.
Applicants will require all persons selling shares to agree to conform
to such standards.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the trustees with respect to the
Dual Class System will be set forth in guidelines which will be
furnished to the trustees.
13. Each Portfolio will disclose the expenses, performance data,
distribution arrangement, services, fees, sales loads, deferred sales
loads, and exchange privileges applicable to both classes in every
prospectus, regardless of whether both classes are offered through each
prospectus. Each Portfolio will disclose the respective expenses and
performance data applicable to all classes of shares of the Portfolio
in every shareholder report. The shareholder reports will contain, in
the statement of assets and liabilities and statement of operations,
information related to each 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 in a Portfolio, it will also disclose the respective expenses
and/or performance data applicable to all classes of shares in such
Portfolio. The information provided by the applicants for publication
in any newspaper or similar listing of each Portfolio's net asset value
and public offering price will present each class of shares separately.
14. Applicants acknowledge that the grant of the requested
exemptive order will not imply SEC approval, authorization, or
acquiescence in any particular level of payments that the Trust may
make pursuant to its Administrative Services or Rule 12b-1 Plans in
reliance on the exemptive order.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-28781 Filed 11-21-94; 8:45 am]
BILLING CODE 8010-01-M