[Federal Register Volume 59, Number 105 (Thursday, June 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13379]
[[Page Unknown]]
[Federal Register: June 2, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20319; 812-8826]
Payden & Rygel Investment Group, et al.; Notice of Application
May 26, 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: Payden & Rygel Investment Group (the ``Trust''), Payden &
Rygel (the ``Adviser''), and Payden & Rygel Distributors, Inc. (the
``Distributor'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from
sections 18(f), 18(g), and 18(i).
SUMMARY OF APPLICATION: Applicants seek a conditional order exempting
them from the provisions of sections 18(f), 18(g), and 18(i) to the
extent necessary to permit each of the Trust's existing and future
investment portfolios (the ``Funds'') to issue two classes of shares.
FILING DATES: The application was filed on February 15, 1994, and
amended on May 9, 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
applications with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 20, 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, 333 South Grand Avenue, 32nd floor, Los Angeles, California
90071.
FOR FURTHER INFORMATION CONTACT: James J. Dwyer, Staff Attorney, at
(202) 942-0581, or C. David Messman, 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 at 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. The original name of
the Trust was P&R Investment Trust. The Trust currently is comprised of
five Funds: The Payden & Rygel Global Fixed Income Fund, the Payden &
Rygel Short Bond Fund, the Payden & Rygel Intermediate Bond Fund, the
Payden & Rygel Opportunity Fund, and the Payden & Rygel Tax Exempt Bond
Fund. Currently, shares of each Fund primarily are offered to pension
and profit sharing plans, employee benefit trusts, endowments,
foundations, other institutions, corporations, and individuals with
high net worth.
2. The Trust has entered into an investment management agreement
with the Adviser, a registered investment adviser, whereby the Adviser
manages the investment of the assets of the Funds and reviews,
supervises, and administers all investments of the Funds. Shares of
each Fund are distributed through the Distributor, a wholly-owned
subsidiary of the Adviser. No compensation is payable by any Fund to
the Distributor for its services. The Winston Company Limited
Partnership (the ``Administrator'') serves as administrator to the
Funds pursuant to an administrative agreement with the Trust. Under the
administration agreement, the Administrator receives a monthly fee from
the Funds based on a specified schedule of rates that is based on the
Funds' average daily net assets. The Winsbury Service Corporation, an
affiliate of the Administrator, provides accounting, dividend
disbursing, and transfer agency services pursuant to a separate
agreement with the Trust.
3. Applicants request a conditional order to permit each portfolio
of the Fund to offer an additional class of shares (``Class B shares'')
that would be identical to existing shares except that Class B shares
would be subject to a non-rule 12b-1 shareholder service plan (the
``Plan''). Under the requested order, the existing shares would be
``Class A'' shares that would no be subject to a Plan and related fees.
The Plan would authorize each Fund to compensate the Distributor and
other securities broker-dealers and service organizations for
shareholder services provided to Class B shareholders. Services to be
provided under the Plan may include: (a) Establishing and maintaining
client/shareholder accounts and records; (b) aggregating and processing
purchase, exchange, and redemption requests; (c) investing the assets
of clients' accounts in Class B shares pursuant to specified pre-
authorized instructions; (d) arranging for bank wires; (e) providing
sub-accounting services and preparing tax reports and forms on behalf
of shareholders; and (f) forwarding shareholder communications from the
Funds.
4. It currently is contemplated that the service organizations
would be compensated at an annual rate of up to 0.20% of the daily net
asset value of the Class B shares of each Fund. The fees would be
payable even if the amounts paid exceed the service organizations'
actual expenses.
5. The services provided under the Plan are not primarily intended
to result in the sale or distribution of Fund shares. Applicants in all
cases will comply with article III, section 26 of the Rules of Fair
Practice of the National Association of Securities Dealers as it
relates to the maximum amount of asset-based sales charges that may be
exposed.
6. All transfer agency expenses and other expenses incurred with
respect to a specific class will be borne by that class. All other
expenses incurred by a Fund will be allocated between the two classes
of shares based on the net assets of the Fund attributable to each
class. Because of the service fees paid by Class B shareholders, the
net income attributable to and the dividends payable on the Class B
shares generally will be lower than those of the Class A shares. As a
result, the net asset value per share of each class generally will
differ.
7. Shares of the Funds generally may be exchanged at net asset
value for shares of other Funds. The exchange privilege will comply
with rule 11a-3 under the Act.
Applicants' Legal Analysis
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 creation of the Class B shares may result in one class having
priority over another as to payment of dividends, and thus be a
``senior security'' as defined in section 18(g) of the Act, and
prohibited under section 18(f). The creation of Class B shares, where
Class B shareholders would be entitled to exclusive voting rights with
respect to matters concerning the Plan, also may violate the equal
voting provision of section 18(i).
2. Applicants believe that the proposed arrangement will better
enable the Funds to meet the competitive demands of today's financial
services industry. Under the dual distribution system, an investor will
be able to choose the method of purchasing shares that is most
beneficial to an investor given his or her relevant circumstances.
3. Applicants assert that the proposed allocation of expenses and
voting rights in the manner described is equitable and would not
discriminate against any group of shareholders. In addition, these
arrangements should not give rise to any conflicts of interest because
the rights and privileges of such class of shares are substantially
identical.
4. Applicants believe that the proposed arrangement does not
present the concerns that section 18 of the Act was designed to
ameliorate. The dual distribution system will not increase the
speculative character of the shares of the Fund. The 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 dual distribution system suggests that it will facilitate control
by holders of any class of shares.
Applicants' Conditions
Applicants 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
portfolio of investments of a Fund and be identical in all respects,
except as set forth below. The only differences between the classes of
shares of the same Fund will relate solely to: (a) The designation of
each class of shares of a Fund, (b) the exclusive right of Class B
shares to vote on matters related to the Plan, (c) the impact of the
disproportionate payments made under the Plan, (d) the incremental
transfer agency costs attributable to the Class B shares of the Fund;
(e) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class; (f) SEC
registration fees incurred by a class of shares; (g) the expense of
administrative personnel and services as required to support the
shareholders of a specific class; (h) trustees' fees or expenses
incurred as a result of issues relating to one class of shares; (i)
accounting expenses relating solely to one class of shares; (j) Blue
Sky registration fees incurred by one class of shares; (k) litigation
of other legal expenses related solely to one class of shares; and (l)
any other incremental expenses subsequently identified that should be
properly allocated to one or more classes of shares that shall be
approved by the SEC pursuant to an amended order.
2. The Trust's board of trustees, including a majority of trustees
who are not interested persons of the Trust, will approve the dual
distribution structure. The minutes of the meetings of the board of
trustees regarding the deliberations of the trustees with respect to
the approvals necessary to implement the dual distribution system will
reflect in detail the reasons for the trustees' determination that the
dual distribution system is in the best interests of both the Funds and
their respective shareholders.
3. On an ongoing basis, the trustees, pursuant to their fiduciary
responsibilities under the Act and otherwise, will monitor each Fund
for the existence of any material conflicts between the interests of
the two classes of shares. The trustees, including a majority of the
trustees who are not interested persons of the Trust, will take such
action as is reasonably necessary to eliminate any 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 cost will
remedy such conflict up to and including establishing a new registered
management investment company.
4. The plan will be adopted and operated in accordance with the
procedures set forth in rule 12b-1 (b) through (f) as if the
expenditures made thereunder were subject to rule 12b-1, except that
the shareholders need not receive the voting rights specified in rule
12b-1.
5. The board of trustees will receive quarterly and annual
statements concerning 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
servicing of a particular class of shares will be used to justify any
servicing fee charged to that class. Expenditures not related to the
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 trustees who are not interested persons
of the trust in the exercise of their fiduciary duties.
6. Dividends paid by a Fund with respect to teach 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 payments for services described in condition 1
above that are rendered to a particular class of shares will be borne
exclusively by that class.
7. The methodology and procedures for calculating the net asset
value, and dividends and distributions of the two classes have been
reviewed by an expert (the ``Expert'') who has rendered a report of
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 Expert with respect to
these reports, following request by the Funds (which the Funds agree to
provide), will be available for inspection by the SEC staff upon the
written request to a Fund for these 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,
and 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.
8. 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 two classes of
shares and the proper allocation of expenses between the two classes of
shares, and this representation will be concurred with by the Expert in
the initial report referred to in condition 7 above and will be
concurred with by the Expert, or an appropriate substitute Export, on
an ongoing basis at least annually in the ongoing reports referred to
in condition 7 above. Applicants will take immediate corrective
measures if this representation is not concurred in by the Expert or
appropriate substitute Expert.
9. The conditions pursuant to which the order is granted and the
duties and responsibilities of the trustees of the Trust with respect
to the Plan will be set forth in guidelines which will be furnished to
the trustees.
10. Each Fund will disclose in its prospectus the respective
expenses, performance data, distribution arrangements, services, fees,
sales loads, deferred sales loads, and exchange privileges applicable
to the two classes of shares, regardless of whether both classes of
shares in the portfolio are offered through the same 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 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 all classes of shares of such Fund. To the extent any advertisement
or sales literature describes the expenses and/or performance data
applicable to either class of shares, it will also disclose the
respective expenses and/or performance data applicable to the other
class 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 of such Fund.
11. 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 the Plan in reliance on the exemptive
order.
12. 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 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 Fund 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.
13. The prospectus of each fund will contain a statement to the
effect that a salesperson and any other person entitled to receive
compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over
another in the Fund.
14. 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.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13379 Filed 6-1-94; 8:45 am]
BILLING CODE 8010-01-M