[Federal Register Volume 59, Number 15 (Monday, January 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1530]
[[Page Unknown]]
[Federal Register: January 24, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 20018; 812-8580]
NWNL Northstar Series Trust, et al.; Notice of Application
January 14, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: NWNL Northstar Series Trust (the ``Trust''), NWNL Northstar
Distributors, Inc. (the ``Distributor''), and Northstar Investment
Management Corporation (the ``Adviser'').
RELEVANT ACT SECTIONS: Conditional order requested under section 6(c)
for exemption from the provisions of sections 2(a)(32), 2(a)(35),
18(f), 18(g), 18(i), 22(c) and 22(d),and rule 22c-1.
SUMMARY OF APPLICATION: The Trust, on behalf of NWNL Northstar High
Yield Bond Fund, NWNL Northstar Income and Growth Fund, NWNL Northstar
Multi-Sector Bond Fund, and any other series of the Trust or any other
open-end management investment companies that in the future may be in
the same ``group of investment companies'' as defined in rule 11a-3 of
the Act (the ``Funds''), the Distributor, the Adviser, and any entity
controlling, under common control with or controlled by the Distributor
or the Adviser that may in the future serve as, respectively, the
Funds' distributor or investment adviser, seek a conditional order that
would permit the Funds (a) to issue an unlimited number of classes of
securities representing interests in the same portfolio, and (b) to
assess a contingent deferred sales charge (``CDSC'') on redemptions of
shares of some of the classes, and to waive the CDSC in certain
cases.\1\
\1\All conditions and representations herein will apply equally
to any entity controlling, under common control with, or controlled
by the Adviser or the Distributor that may in the future serve as
investment adviser or distributor of the Funds.
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FILING DATE: The application was filed on September 14, 1993, and
amended on November 19, 1993 and January 7, 1994.
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 8,
1994, 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
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 5th Street, NW., Washington, DC 20549.
Applicants, Northstar Investment Management Corporation, Two Pickwick
Plaza, Greenwich, Connecticut 06830, Attn: Lisa M. Hurley, Esq.
FOR FURTHER INFORMATION CONTACT: Felicia H. Kung, Senior Attorney, at
(202) 504-2803, or Elizabeth G. Osterman, Branch Chief, at (202) 272-
3018 (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 at the
SEC's Public Reference Branch.
Applicant's Representations
1. Each of the Funds is a series, and separate diversified
portfolio of, the Trust, a registered open-end management investment
company. The Trust is organized as a Massachusetts business trust. The
Adviser, a majority-owned subsidiary of NWNL Companies, Inc., is a
registered investment adviser that will provide investment advisory
services to each of the Funds. The Distributor is a registered broker-
dealer that will act as principal underwriter of the Funds' shares, and
is an affiliated person of the Adviser.
2. Applicants propose to establish a multiple class distribution
system (the ``Multi-Class Distribution System'') to enable each of the
Funds to offer an unlimited number of classes of shares that would be
subject to a front-end sales load, a CDSC, a rule 12b-1 plan providing
for a distribution fee and service fee, a combination of the above, or
none of the above. Classes of shares that do not have a front-end sales
load, and are subject to a rule 12b-1 plan and a CDSC are referred to
herein as ``Deferred Option'' classes. Applicants will comply with
Article III, Section 26 of the NASD's Rules of Fair Practice, which
limits the amount of asset-based distribution charges a Fund may
assess. All Fund expenditures for distribution will be made in
accordance with rule 12b-1.
3. Each Fund currently intends to offer only two classes of shares
(``Class A'' and ``Class B''). Some or all of the Funds may not in fact
create or issue additional classes of shares.
4. The Funds will offer Class A shares at net asset value plus a
front-end sales load. The front-end sales loads generally would be
subject to reductions for larger purchases and under a right of
accumulation. Class A shares also will be subject to a rule 12b-1 plan
providing for distribution and service fees at a combined annual rate
of up to .30 percent of the average daily net asset value of that
class. In addition, Class A shareholders who purchase shares at net
asset value without the imposition of a front-end sales load may be
subject to a low level CDSC (not to exceed 2 percent of net asset
value) for a specified period, not to exceed two years, from the date
of purchase when they redeem their Class A shares. The purpose of such
a sales charge is to reimburse the Distributor for commissions paid to
dealers at the time of sale from the Distributor's own resources.
5. The Funds will offer Class B shares at net asset value subject
to a CDSC, as described below. Class B shares also will be subject to a
rule 12b-1 plan providing for combined distribution and service fees at
an annual rate of up to 1 percent of the average daily net asset value
of that class.
6. Investment income and unrealized and realized gains or losses
will be allocated daily to each class of shares based on the percentage
of net assets of the outstanding or dividend eligible shares, as
appropriate, in each class of a Fund at the beginning of each day.
Operating expenses, which are attributable to all classes, will be
allocated daily to each class of shares based on the percentage of the
Fund's net assets in each class at the beginning of the day. Expenses
that have a greater cost for one class than another (i.e., rule 12b-1
fees and possibly transfer agent fees) will be charged separately to
each class. Because of higher ongoing distribution fees and potentially
higher transfer agency fees paid by holders of the Deferred Option
shares, the net income attributable to and the dividends payable on
Deferred Option shares would be lower than the net income attributable
to and the dividends payable on Class A shares.
7. Class B shares may convert automatically to Class A shares after
a specified period of years. In addition, for the purposes of
conversion, shares purchased through the reinvestment of dividends and
other distributions paid in respect of Class B shares are also Class B
shares, except that they will be considered held in a separate sub-
account. Each time a shareholder's Class B shares, other than those in
the sub-account, convert to Class A, a pro rata portion of the Class B
shares in the sub-account also will convert to Class A.
8. Applicants reserve the ability to convert shares of any class to
shares of another, consistent with the standards, policies, conditions,
and representations set forth in the application regarding the
conversion of Class B shares to Class A shares. Such ability to convert
shares will be subject to the terms fully disclosed in a Fund's
registration statement current at the time of sale, and will be at the
relative net asset values of each of the classes.
9. The conversion feature is subject to the availability of an
opinion of counsel or Internal Revenue Service private letter ruling to
the effect that such conversion of shares does not constitute a taxable
event under federal income tax law, and may be suspended if such a
ruling or opinion is not available.
10. Applicants anticipate that each class of shares may be
exchanged for shares of the same class in another Fund to the extent
that the shareholder would have been eligible to purchase the shares
acquired in the exchange. The exchange privileges will comply with rule
11a-3 under the Act.
11. Applicants expect that the CDSC applicable to Class B shares
will vary from 2 percent to 5 percent for redemptions made during the
first year after purchase to 1 percent for redemptions made during the
fourth year after purchase. The CDSC applicable to Class B shares will
not be imposed on redemptions of shares purchased more than six years
prior to their redemption.
12. 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 at the time of redemption. The
CDSC of any particular Fund or class thereof may be higher or lower
than that described in the application. The CDSC will not be imposed on
shares derived from the reinvestment of dividends or capital gains
distributions. Furthermore, no CDSC will be imposed on an amount which
represents an increase in the value of the shareholder's account
resulting from capital appreciation above the amount paid for shares
purchased during the CDSC period.
13. In determining the applicability and rate of any CDSC, it will
be assumed that a redemption is made first of shares representing
capital appreciation, next of shares derived from reinvestment of
dividends and capital gains distributions, and finally of other shares
held by the shareholder for the longest period of time. This will
result in the charge, if any, being imposed at the lowest possible
rate.
14. Applicants propose to waive the CDSC, in whole or in part, in
connection with (a) redemptions made within one year following the
death or disability, as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986, as amended (the ``Code''), of a shareholder;
(b)(i) a lump sum or other distribution following retirement, or, in
the case of an individual retirement account (``IRA''), Keogh Plan, or
custodial account pursuant to section 403(b)(7) of the Code, after the
shareholder has attained age 59\1/2\, or any redemption resulting from
a tax-free return of an excess contribution pursuant to section 408(d)
(4) or (5) of the Code, or from the death or disability of the
employee, or (ii) in the alternative, in connection with a distribution
following retirement under a tax-deferred retirement plan, or attaining
age 70\1/2\ in the case of an IRA, Keogh Plan, or custodial account
pursuant to section 403(b) of the Code, or resulting from the tax-free
return of an excess contribution to an IRA; (c) redemptions of shares
purchased by active or retired officers, directors or trustees,
partners and employees of the Funds, the Distributor or affiliated
companies, by members of the immediate families of such persons, by
dealers having a sales agreement with the Distributor, by any state,
county, or city, or any instrumentality, department, authority, or
agency thereof and by trust companies and bank trust departments which
hold shares in a fiduciary capacity; (d) redemptions of shares made
pursuant to a shareholder's participation in any systematic withdrawal
plan adopted by a Fund; (e) redemptions by shareholders holding shares
of a Fund worth over $1 million immediately prior to redemption; (f)
redemptions effected by advisory accounts managed by the Adviser; (g)
redemptions by tax-exempt employee benefit plans resulting from the
adoption or promulgation of any law or regulation; and (h) redemptions
effected by registered investment companies in connection with the
combination of an investment company with a Fund by merger, acquisition
of assets, or by any other transaction.
15. If the Funds waive or reduce the CDSC, such waiver or reduction
will be applied uniformly to all offerees in the specified class. If
the Trustees of a Fund determine to discontinue the waiver or reduction
of the CDSC, the disclosure in the Fund's prospectus will be
appropriately revised. Any shares purchased prior to the termination or
reduction of such waiver will be able to have the CDSC waived or
reduced as provided in the Fund's prospectus at the time of the
purchase of such shares.
16. The Funds may provide a pro rata credit, to be paid for by the
Distributor, for any CDSC paid in connection with a redemption of
shares followed by a reinvestment effected within 365 days, or a
shorter period, of the redemption.
Applicants' Legal Analysis
1. Applicants request an exemptive order to the extent that the
proposed Multi-Class Distribution System might be deemed: (a) to result
in the issuance of a ``senior security'' within the meaning of section
18(g), and thus prohibited by section 18(f)(1), and (b) to violate the
equal voting provisions of section 18(i). Applicants also seek an
exemption from sections 2(a)(32), 2(a)(35), 22(c) and 22(d), and rule
22c-1 to the extent necessary to permit the imposition and waiver of a
CDSC on redemptions of Fund shares.
2. Applicants believe that the proposal will permit the Funds to
facilitate both the distribution of their securities and provide
investors with a broader choice as to the method of purchasing shares
without assuming excessive accounting and bookkeeping costs or
unnecessary investment risks. Applicants assert that, under the
proposed Multi-Class Distribution System, the Funds will save the
organizational and other continuing costs that would be incurred if the
Funds were required to establish new separate investment portfolios.
3. Applicants believe that the Multi-Class Distribution System does
not raise any of the concerns that prompted the SEC to recommend the
adoption of section 18, i.e., excessive borrowing, inadequate assets or
reserves, and increased speculative character of junior securities.
Applicants state that the proposal does not involve borrowings and does
not affect the Funds' existing assets or reserves. In addition,
applicants state that the proposed arrangement will not increase the
speculative character of the shares of the Funds, since all such shares
will participate pro rata in all of a Fund's appreciation, income and
expenses, with the exception of the different distribution fees and any
different transfer agency costs payable by each class. Applicants
contend that mutuality of risk will be preserved with respect to each
class of shares in a Fund.
4. Applicants assert that the proposed capital structures of the
Funds will not induce any group of shareholders to invest in risky
securities to the detriment of any other group of shareholders because
the investment risks of each Fund will be borne equally by all of its
shareholders. Moreover, applicants further assert that the proposed
capital structures will not enable insiders to manipulate the expenses
and profits among the various classes of shares because the Funds are
not organized in a pyramid fashion, all expenses and profits of a Fund,
other than the different class expenses, will be borne pro rata by all
shares of the Fund, and all shareholders will have equal voting rights,
except concerning matters relating to each class' rule 12b-1 plan.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following:
1. Each class of shares will represent interests in the same
portfolio of investments of a Fund and 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 impact of the
respective rule 12b-1 plan payments made by each of the classes of
shares of a Fund, any higher incremental transfer agency costs
attributable solely to the Deferred Option shares of a Fund, and any
other incremental expenses subsequently identified that should be
properly allocated to one class which shall be approved by the SEC
pursuant to an amended order; (b) the fact that the classes will vote
separately with respect to a Fund's rule 12b-1 distribution plan,
except as provided in condition 4 below; (c) the different exchange
privileges of each class of shares; (d) the fact that only certain
classes will have a conversion feature; and (e) the designation of each
class of shares of a Fund.
2. The Trustees of each of the Funds, including a majority of the
Independent Trustees, shall 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 each of the Funds 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 and
such minutes will be available for inspection by the SEC staff.
3. On an ongoing basis, the Trustees of the Funds, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor each Fund for the existence of any material conflicts between
or among the interests of the classes of shares offered. 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. 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 costs
will remedy such conflict up to and including establishing a new
registered management investment company.
4. If a Fund implements any amendment to its rule 12b-1 plan (or,
if presented to shareholders, adopts or implements any amendment of a
non-rule 12b-1 shareholder services plan) that would increase
materially the amount that may be borne by a class of shares (the
``Target Class'') under the plan, existing shares of a class of shares
that converts into the Target Class shares after a period of time (the
``Purchase Class'') will stop converting into the Target Class 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 (the ``New Target Class''), identical in all
material respects to the Target Class as it existed prior to
implementation of the proposal, no later than such shares previously
were scheduled to convert into the Target Class. 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 (the
``New Purchase Class''), identical to existing Purchase Class shares in
all material respects except that the New Purchase Class will convert
into the New Target Class. The New Target Class or the 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 3, any additional cost
associated with the creation, exchange, or conversion of the New Target
Class or the New Purchase Class shall be borne solely by the Adviser
and the Distributor. The Purchase Class shares sold after the
implementation of the proposal may convert into the 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.
5. The Trustees of the Funds 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 subject to
the review and approval of the Independent Trustees in the exercise of
their fiduciary duties.
6. 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 fee payments made under rule 12b-1 plans relating
to each respective class of shares will be borne exclusively by that
class and any incremental transfer agency costs relating a particular
class of shares will be borne exclusively by such class.
7. The methodology and procedures for calculating the net asset
value and dividends and distributions of the classes and the proper
allocation of income and expenses between the classes has been reviewed
by an expert (the ``Independent Examiner'') who has rendered a report
to applicants, which has been provided to the staff of the SEC, stating
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 Independent Examiner, or an appropriate
substitute Independent Examiner, 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 Funds that the
calculations and allocations are being made properly. The reports of
the Independent Examiner 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 Independent Examiner with respect to such
reports, following request by the Funds which the Funds agree to make,
will be available for inspection by the SEC 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 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 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.
8. The 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 between such classes of
shares, and this representation has been concurred with by the
Independent Examiner in the initial report referred to in condition 7
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 7 above.
Applicants will take immediate corrective action if this representation
is not concurred in by the Independent Examiner, or appropriate
substitute Independent Examiner.
9. The prospectuses of the Funds will contain a statement to the
effect that a salesperson and any other person entitled to receive
compensation for selling Fund shares may receive different levels of
compensation for selling or servicing one particular class of shares
over another in a Fund.
10. 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 of the Funds to
agree to conform to such standards.
11. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the Trustees of the Funds with
respect to the Multi-Class Distribution System will be set forth in
guidelines which will be furnished to the Trustees.
12. Each Fund will disclose the respective expenses, performance
data, distribution arrangements, service, fees, sales loads, deferred
sales loads, and exchange privileges applicable to each class of shares
in every prospectus, regardless of whether all classes of shares are
offered through each prospectus. Each Fund will disclose the 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 a per
class basis. Each Fund's per share data, however, will be prepared on a
per class basis with respect to the 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 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.
13. Applicants acknowledge that the grant of the exemptive order
requested by the 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 in reliance on the exemptive order.
14. The conversion of one class of shares to another class of
shares will be done on the basis of the relative net asset value 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. Applicants will 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.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1530 Filed 1-21-94; 10:00 am]
BILLING CODE 8010-01-M