[Federal Register Volume 59, Number 59 (Monday, March 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7165]
[Federal Register: March 28, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20150; 812-8754]
Atlas Advisers, Inc., et al.; Notice of Application
March 21, 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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APPLICATIONS: Atlas Advisers, Inc. (the ``Adviser''); Atlas Securities,
Inc. (the ``Distributor''); and Atlas Assets, Inc. (``Atlas Assets''),
on behalf of itself and any other open-end investment company which is
or may in the future become a member of the same ``group of investment
companies,'' as that phrase is defined by rule 11a-3(a)(5), and which
decides in the future to issue multiple classes of shares on a basis
that is the same in all material respects to that described in the
application (the ``Funds'').
RELEVANT ACT SECTIONS: Order requested pursuant to section 6(c) for
exemptions from sections 2(a)(32), 2(a)(35), 18(f)(1), 18(g), 18(i),
22(c), and 22(d) of the Act and rule 22c-1 thereunder.
Summary of Application: Applicants seek an order to permit the Funds to
issue and sell multiple classes of shares representing interests in the
same portfolios of securities, assess a CDSC on certain redemptions,
and waive the CDSC in certain instances.
Filing Date: The application was filed on December 30, 1993, and
amended on March 2, 1994 and March 18, 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 April 15, 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 the date of a hearing may request notification by writing
to the SEC's Secretary.
Addresses: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants, 1901 Harrison Street, Oakland, California 94612.
For Further Information Contact: James E. Anderson, Staff Attorney, at
(202) 272-7027, or C. David Messman, Branch Chief, at (202) 272-3018
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of application.
The complete application is available for a fee from the SEC's Public
Reference Branch.
Applicants' Representations
1. Atlas Assets is an open-end, management investment company
organized as a Maryland corporation. Atlas Assets is organized as a
series fund, and currently issues shares in twelve series (the
``Portfolios''). Portfolios that are money market funds are referred to
herein as ``Money Market Portfolios.'' The Adviser serves as the
investment adviser to Atlas Assets. The Distributor serves as the
principal underwriter of the shares of Atlas Assets.
2. The Portfolios, other than the Money Market Portfolios,
currently offer their shares at net asset value plus a front-end sales
charge. The Money Market Portfolios issue their shares at net asset
value without the imposition of a front-end sales charge. Atlas Assets
is subject to a distribution plan pursuant to rule 12b-1 under which
each Portfolio may reimburse the Distributor up to .25% per year of its
average daily net assets for actual expenditures made by the
Distributor on behalf of that Portfolio for distribution and
shareholder services.
3. Applicants request an order to permit the Funds to issue and
sell multiple classes of shares, assess a CDSC on certain redemptions,
and waive the CDSC in certain instances.
4. Under applicants' proposal, the Funds initially may offer shares
either: (a) Subject to a conventional front-end sales load and a rule
12b-1 distribution or service fee at an annual rate of up to .25% of
the average daily net assets (``Class A shares''); or (b) subject to a
CDSC (which applicants expect will range from 3% on redemptions made
during the first year following purchase to 1% on redemptions made
during the fifth year since purchase), a rule 12b-1 service fee at an
annual rate of up to .25%, and a rule 12b-1 distribution fee at an
annual rate of up to .75%, of average daily net assets (``Class B
shares''). Existing shares will become Class A shares upon
implementation of the proposed multi-class distribution system.
Applicants also may establish one or more additional classes of shares,
the terms of which may differ from the classes of shares described
herein only as described in condition 1 below.
5. The CDSC will be imposed on the lesser of the aggregate net
asset value of the shares being redeemed either at the time of purchase
or redemption. No CDSC will be imposed on shares acquired more than a
fixed number of years prior to the redemptions or on shares derived
from the reinvestment of distributions. No CDSC will be imposed on an
amount that represents capital appreciation.
6. Applicants request the ability to waive or reduce the CDSC in
the following instances: (a) Redemptions following the death or
disability of a shareholder within the meaning of section 72(m)(7) of
the Internal Revenue Code, as amended (the ``Code''), if redemption is
made within one year of death or disability; (b) redemptions in
connection with a lump-sum or other distribution following retirement
or, in the case of an IRA or Keogh Plan or a custodial account pursuant
to section 403(b)(7) of the Code, after attaining age 59\1/2\; and (c)
redemptions that result 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 an employee.
7. All or part of the proceeds from a redemption of Class B shares
may be reinvested within 30 days of redemption (or such other time
period as a Fund may establish) into Class B shares of any Fund at net
asset value. The Distributor will refund from its own assets the CDSC
imposed at the time of redemption by crediting the shareholder's
account with additional shares in an amount equal to the CDSC. Upon any
such reinvestment, the amount reinvested will be subject to the same
CDSC to which such amount was subject prior to the redemption.
8. Class B shares of a Fund held for the Class B CDSC period will
automatically convert to Class A shares of such Fund at the relative
net asset values of each of the classes. The purpose of the conversion
feature is to relieve the Class B shareholders from remaining subject
to the asset-based sales charge for longer than the CDSC period.
9. Each class of shares will be exchangeable only for shares of the
same class of other Funds. Applicants only will permit exchanges into
shares of Money Market Portfolios having rule 12b-1 plans if either the
time period during which the shares of the money market funds are held
is included with the time period during which the exchanged shares were
held in the calculation of the CDSC, or such time period is not
included but the amount of the CDSC is reduced by the amount of any
rule 12b-1 payments made by the money market funds with respect to
those shares. Applicants may choose not to offer an exchange privilege
for single class Money Market Portfolios. Applicants will comply with
rule 11a-3 as to all exchanges.
10. Class A, Class B, and additional classes of shares created in
the future will each represent interests in the same portfolio of
investments, and will be identical in all respects except: (a) Each
class of shares would have different designation; (b) each class of
shares might be sold under different sales arrangements (e.g., subject
to a front-end sales load, a CDSC, a front-end sales load and a CDSC,
or at net asset value); (c) each class of shares would bear any
payments incurred in connection with a rule 12b-1 plan or non-rule 12b-
1 shareholder services plan related to that class (and any other costs
relating to obtaining shareholder approval of the rule 12b-1 plan for
that class or an amendment to its rule 12b-1 plan); (d) each class of
shares would bear expenses specifically attributable to the particular
class (``Class Expenses''), as described in the following paragraph;
(e) the fact that classes will vote separately with respect to a Fund's
rule 12b-1 plan and/or shareholder services plan, except as provided in
condition 15 below; (f) each class of shares would have different
exchange privileges; and (g) each class of shares might have different
conversion features.
11. Class Expenses may include the following: (a) Transfer agency
fees as identified by the transfer agent as being attributable to a
specific class; (b) printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; (c) Blue Sky registration fees
incurred by a class of shares; (d) SEC registration fees incurred by a
class of shares; (e) the expenses of administrative personnel and
services as required to support the shareholders of a specific class;
(f) litigation, tax liens or other legal expenses relating solely to
one class of shares; (g) directors' fees incurred as a result of issues
relating to one class of shares; and (h) other expenses that are
subsequently identified and determined to be properly allocated to one
class of shares which shall be approved by the SEC pursuant to an
amended order.
Applicants' Legal Analysis
1. Applicants request an order exempting them from the provisions
of sections 18(f)(1), 18(g), and 18(i) of the Act to the extent that
the proposed issuance and sale of various classes of shares
representing interests in the same Fund might be deemed: (a) to result
in a ``senior security'' within the meaning of section 18(g); (b)
prohibited by section 18(f)(1); and (c) to violate the equal voting
provisions of section 18(i).
2. Applicants believe that the proposed multi-class arrangement
will better enable the Funds to meet the competitive demands of today's
financial services industry. Under the multi-class arrangement, an
investor will be able to choose the method of purchasing shares that is
most beneficial given the amount of his or her purchase, the length of
time the investor expects to hold his or her shares, and other relevant
circumstances. The proposed arrangement would 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.
3. The proposed allocation of expenses and voting rights relating
to the rule 12b-1 plans in the manner described is equitable and would
not discriminate against any group of shareholders. In addition, such
arrangements should not give rise to any conflicts of interest because
the rights and privileges of each class of shares are substantially
identical.
4. Applicants believe that the proposed multi-class arrangement
does not present the concerns that section 18 of the Act was designed
to address. The multi-class arrangement will not increase the
speculative character of the shares of the Fund. The multi-class
arrangement does not involve borrowing, nor will it affect the Funds'
existing assets or reserves, and does not involve a complex capital
structure. Nothing in the multi-class arrangement suggests that it will
facilitate control by holders of any class of shares.
5. Applicants submit that the requested exemption to permit the
Funds to implement the proposed CDSCs is appropriate in the public
interest, and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act. The
proposed CDSC arrangements will provide shareholders the option of
having their full payment invested for them at the time of their
purchase of shares of the Funds with no deduction of an initial sales
charge.
Applicants' Conditions
Applications agree that any order granting the requested relief
shall be subject to the following conditions:
1. Each class of shares will represent interests in the same
protrfolio of investments of a Fund and be identical in all respects,
except as set forth below. The only differences among various classes
of shares of the same Fund will relate solely to: (a) the designation
of each class of shares of a Fund; (b) expenses assessed to a class as
a result of a rule 12b-1 plan providing for a distribution fee or a
service fee or a shareholder services plan (e.g., Class B and Class A
shares may pay different rule 12b-1 service fees and/or rule 12b-1
distribution fees); (c) different Class Expenses for each class of
shares, which will be limited to: (i) Transfer Agency 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 current shareholders; (iii) Blue Sky registration fees
incurred by a class of shares; (iv) SEC registration fees incurred by a
class of shares; (v) the expenses of administrative personnel and
services as required to support the shareholders of a specific class;
(vi) litigation, tax liens or other legal expenses relating solely to
one class of shares; and (vii) directors' fees incurred as a result of
issues relating to one class of shares; (d) the fact that the classes
will vote separately with respect to a Fund's rule 12b-1 plan or
shareholder services plan, except as provided in condition 15 below;
(e) different exchange privileges; and (f) the conversion feature
applicable to certain classes of shares. Any additional incremental
expenses not specifically identified above that are subsequently
identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the SEC pursuant to
an amended order.
2. The directors of each of the Funds, including a majority of the
independent directors, shall have approved the multi-class arrangement,
prior to the implementation of the multi-class arrangement by a
particular Fund. The minutes of the meetings of the directors of each
of the Funds regarding the deliberations of the directors with respect
to the approvals necessary to implement the multi-class arrangement
will reflect in detail the reasons for determining that the proposed
multi-class arrangement is in the best interest of both the Fund and
their respective shareholders.
3. The initial determination of the Class Expenses that will be
allocated to a particular class and any subsequent changes thereto will
be reviewed and approved by a vote of the directors of the affected
Fund, including a majority of the independent directors. 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
directors, and the directors shall review, at least quarterly, a
written report of the amounts so expended and the purpose for which the
expenditures were made.
4. On an ongoing basis, the directors of the Funds, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor each Fund for the existence of any material conflicts among the
interests of the various classes of shares. The directors, including a
majority of the independent directors, 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 directors. If a conflict arises,
the Adviser and the Distributor at their own expense will remedy the
conflict up to and including establishing a new registered management
investment company.
5. If any class will be subject to a shareholder services plan, the
shareholder 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 need not enjoy the voting rights specified in rule 12b-1.
6. The directors 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 distribution
or shareholder servicing expenditures properly attributable to the sale
of servicing of one class of shares will be used to justify any
distribution or shareholder servicing fee charged to shareholders of
that class of shares. Expenditures not related to the sale or servicing
of a specific class of shares will not be presented to the directors to
support any fees charged to shareholders of that class of shares. The
statements, including the allocations upon which they are based, will
be subject to the review and approval of the independent directors in
the exercise of their fiduciary duties.
7. Dividends paid by a Fund with respect to each class of shares,
to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same
amount, except that Class Expenses and costs and distribution fees
associated with any rule 12b-1 plan and shareholder services plan
relating to a particular class will be borne exclusively by each
respective class.
8. The methodology and procedures for calculating the net asset
value and dividends, and distributions of the various classes and the
proper allocation of income and expenses among the classes has been
reviewed by an expert (the ``Expert''). The Expert has rendered a
report to the applicants, which has been provided to the staff of the
SEC, stating that the methodology and procedures are adequate to ensure
that the calculations and allocations will be made in an appropriate
manner. On an ongoing basis, the Expert, or an appropriate substitute
Expert, will monitor the manner in which the calculations and
allocations are being made and, based upon this review, will render at
least annually a report to the Funds that the calculations and
allocations 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 Experts
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 these 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 and Assistant Administrators. The
initial report of the Expert 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.
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 various classes
of shares and the proper allocation of income and expenses among the
classes of shares, and this representation has been concurred with by
the Expert in its initial report referred to in condition 8 above and
will be concurred with by the Expert, or appropriate substitute Expert,
on an ongoing basis at least annually in the ongoing reports referred
to in condition 8 above. The applicants will take immediate corrective
action if the Expert, or appropriate substitute Expert, does not so
concur in the ongoing reports.
10. The prospectuses of the Funds, if such is the case, 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 class in the Fund.
11. The Distributor will adopt compliance standards as to when
shares of a particular class may appropriately be sold to particular
investors. Applicants will require all persons selling shares of the
Funds to agree to conform to those standards.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the directors of the Funds with
respect to the multi-class arrangement will be set forth in guidelines
that will be furnished to the directors.
13. Each Fund will disclose in its prospectus the respective
expenses, performance data, distribution arrangements, services, fees,
sales loads, CDSCs, 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
respective expenses and performance data applicable to each class of
shares in every shareholder report. The shareholder reports will
contain, in the statement of assets and liabilities and statement of
operations, information related to the Fund as a whole generally and
not on a per class basis. Each Fund's per share data, however, will be
prepared on a per class basis with respect to the classes of shares of
the Fund. To the extent any advertisement or sales literature describes
the expenses or performance data applicable to any class of shares, it
will disclose the expenses and/or performance data applicable to all
classes of shares of such Fund. The information provided by applicants
for publication in any newspaper or similar listing of a Fund's net
asset value or public offering price will separately present this
information for each class of shares.
14. Any class of shares with a conversion feature will convert into
another class of shares on the basis of the relative net asset values
of the two classes, without the imposition of any sales load, fee, or
other charge. After conversion, the converted shares will be subject to
an asset-based sales charge and/or service fee (as those terms are
defined in Article III, section 26 of the NASD's Rules of Fair
Practice), if any that in the aggregate are lower than the asset-based
sales charge and service fee to which they were subject prior to the
conversion.
15. If a Fund adopts and implements any amendment to its rule 12b-1
plan (or, if presented to shareholders, adopts or implements any
amendment of a shareholder services plan) that would increase
materially the amount that may be borne by the class of shares
(``Target Class'') into which the class of shares with a conversion
feature (``Purchase Class'') will convert under the plan, existing
Purchase Class shares will stop converting into Target Class shares
unless the Purchase Class shareholders, voting separately as a class,
approve the proposal. The directors shall take such action as is
necessary to ensure that existing Purchase Class shares are exchanged
or converted into a new class of shares (``New Target Class''),
identical in all material respects to the Target Class as it existed
prior to implementation of the proposal, no later than the date such
shares previously were scheduled to convert into Target Class shares.
If deemed advisable by the directors to implement the foregoing, such
action may include the exchange of all existing Purchase Class shares
for a new class (``New Purchase Class''), identical to existing
Purchase Class shares in all material respects except that New Purchase
Class shares will convert into New Target Class shares. A New Target
Class or New Purchase Class may be formed without further exemptive
relief. Exchanges or conversions described in this condition shall be
effected in a manner that the directors reasonably believe will not be
subject to federal taxation. In accordance with condition 4 above, any
additional cost associated with the creation, exchange, or conversion
of New Target Class shares or New Purchase Class shares will be borne
solely by the Adviser and the Distributor. Purchase Class shares sold
after the implementation of the proposal may convert into Target Class
shares subject to the higher maximum payment, provided that the
material features of the Target Class plan and the relationship of such
plan to the Purchase Class shares are disclosed in an effective
registration statement.
16. Applicants will comply with proposed rule 6c-10 under the Act,
Investment Company Act Release No. 16619 (Nov. 2, 1989), as such rule
is currently proposed and as it may be reproposed, adopted, or amended.
17. Applicants acknowledge that the grant of the exemptive order
requested by this application will not imply SEC approval,
authorization, or acquiescence in any particular level of payments that
the Funds may make pursuant to rule 12b-1 plans or shareholder services
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. 94-7165 Filed 3-25-94; 8:45 am]
BILLING CODE 8010-01-M