[Federal Register Volume 59, Number 134 (Thursday, July 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17101]


[[Page Unknown]]

[Federal Register: July 14, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC--20391; 812-8068]

 

Thornburg Income Trust, et al.; Notice of Application

July 8, 1994.
AGENCY: Securities and Exchange Commission (the ``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: Thornburg Income Trust, Limited Term Municipal Fund, Inc. 
(together with their series, the ``Funds''), Thornburg Securities 
Corporation (``TSC'') and Thornburg Management Company, Inc. (``TMC'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
granting an exemption from sections 2(a)(32), 2(a)(35), 18(f), 18(g), 
18(i), 22(c), and 22(d) of the Act, and rule 22c-1 thereunder.

SUMMARY OF APPLICATION: Applicants seek an order permitting certain 
open-end management investment companies to issue multiple classes of 
shares representing interests in the same portfolio of securities and 
impose a contingent deferred sales charge (``CDSC'') on certain 
redemptions of the shares.

FILING DATES: The application was filed on August 24, 1992 and amended 
on January 12, 1994 and April 25, 1994. By letter dated July 8, 1994, 
counsel, on behalf of applicants, agreed to file a further amendment 
during the notice period to make certain technical changes. This notice 
reflects the changes to be made to the application by such further 
amendment.

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 August 2, 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, N.W., Washington, D.C. 
20549. Applicants, 119 East Marcy Street, Suite 202, Santa Fe, New 
Mexico 87501.

FOR FURTHER INFORMATION CONTACT: Felice R. Foundos, Senior Attorney, at 
(202) 942-0571, 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 at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Each of the Funds is an open-end management investment company 
registered under the Act. Limited Term Municipal Fund, Inc. is a 
Maryland corporation currently offering shares in two series.\1\ The 
Thornburg Income Trust is a Massachusetts business trust currently 
offering shares in five series. The Thornburg Income Trust also has 
seven series that have an effective registration statement but they are 
not currently offered.\2\ Each Fund has entered into an investment 
advisory aggreement with TMC, a registered investment adviser. Under 
the agreement, TMC provides investment advisory and general management 
services to the Funds, subject to the general supervision of the Fund's 
board of directors or trustees, whichever is applicable. Each Fund also 
has entered into a distribution agreement with TSC under which TSC acts 
as principal underwriter for each Fund. TMC is referred to herein as 
the ``Adviser'' and TSC as the ``Distributor.'' The trustees and 
directors of the Funds are referred to herein as the ``Directors.''
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    \1\The series of Limited Term Municipal Fund, Inc. are Limited 
Term Municipal Fund National Portfolio and Limited Term Municipal 
Fund California Portfolio.
    \2\The series of Thornburg Income Trust are: Thornburg Limited 
Term U.S. Government Fund, Thornburg Limited Term Income Fund, 
Thornburg Alabama Intermediate Municipal Fund, Thornburg Arizona 
Intermediate Municipal Fund, Thornburg Florida Intermediate 
Municipal Fund, Thornburg Indiana Intermediate Municipal Fund, 
Thornburg New Mexico Intermediate Municipal Fund, Thornburg 
Pennsylvania Intermediate Municipal Fund, Thornburg Tennessee 
Intermediate Municipal Fund, Thornburg Texas Intermediate Municipal 
Fund, Thornburg Utah Intermediate Municipal Fund, and Thornburg 
Intermediate Municipal Fund.
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    2. Applicants request that any order issued concerning this 
application also apply to any other open-end investment company which 
at any time in the future may offer shares on a basis which is 
identical in all material respects to the arrangements described in the 
application, and for which TMC, or any person controlled by or under 
common control with TMC, in the future may serve as investment adviser, 
and for which TSC, or any person controlled by or under common control 
with TSC, acts as distributor of such company's shares.
    3. Currently, those Funds that have commenced operations offer 
their shares at net asset value plus a front-end sales load. Each of 
those Funds also pays TMC a rule 12b-1 service fee at an annual rate of 
.125% to .25% of the average daily net assets.
    4. Applicants seek relief to implement a multiple distribution 
system (the ``Alternative Pricing System''). Under this system, each of 
the Funds may offer investors the option of purchasing: shares subject 
to a front-end sales load and a rule 12b-1 service fee (``Class A''); 
shares subject to a CDSC and distribution and service fees charged 
under rule 12b-1 plans (``Class B''); shares sold at net asset value 
but subject to distribution and service fees charged under rule 12b-1 
plans (``Class C''); and shares subject to a smaller front-end sales 
load than that charged on Class A shares and a smaller CDSC than that 
charged on Class B shares plus distribution and service fees charged 
under rule 12b-1 plans (``Class D'').
    5. The Funds also may offer additional classes of shares (``Future 
Classes'') to or through groups, organizations or institutions such as 
trade associations, membership or professional organizations, broker-
dealers, investment advisers and managers, banking and financial 
services organizations and financial planners (the ``Service 
Organizations''). Each Future Class's load structure and rule 12b-1 
distribution arrangement will be designed to meet the particular 
requirements of the Service Organization to which it relates. Although 
the Future Classes would be subject to the same advisory agreement as 
all shares of the fund, the Service Organization for which the Future 
Class was created may provide certain administrative and shareholder 
services to the class. These services will augment or replace (and not 
be duplicative of) the services provided by TMC and TSC. Expenses 
attributable to these services would be charged only to the Future 
Class to which the expenses relate.
    6. Certain classes may provide a conversion feature under which 
shares will convert automatically after a period of time into shares 
that are subject to an asset based sales charge and service fee, if 
any, that is in the aggregate lower than the asset based sales charges 
and service fees on the original shares. All conversions will be 
effected at net asset value without the imposition of any sales load, 
fee, or other charge.
    7. Each of the Funds currently offers a reinvestment privilege 
permitting any shareholder of a Fund who has redeemed shares in the 
preceding 24 months to buy shares in the Fund at net asset value, up to 
the amount of the redemption proceeds. Applicants expect to continue 
this reinvestment privilege under the Alternative Pricing System, 
except that the shareholder may reinvest in shares of a Fund within 24 
months or other specified time period at net asset value only if (i) 
the shares to be purchased are offered in the shareholder's state, and 
(ii) the purchased shares are of the same class designation as the 
shares redeemed, except that if the shareholder redeemed shares subject 
to a CDSC and paid the charge at the time of redemption, the 
shareholder would be issued Class A shares not subject to a CDSC and 
without the front-end sales load normally assessed.
    8. The Funds do not currently offer any exchange privilege, and 
have no present intention to do so. However, if an exchange privilege 
were offered in the future, shares of a Fund generally would be 
exchangeable only for shares of the corresponding class of other Funds 
and the privilege would be subject to the eligibility criteria 
applicable to the class of shares into which the shareholder seeks to 
exchange. Any exchange privilege applicable to any Fund or class of 
shares would comply with rule 11a-3 under the Act.
    9. Under the Alternative Pricing System, the investment income and 
gains or losses will be allocated to each class of shares based upon 
its relative percentage of the Fund's net assets. Expenses also will be 
allocated to each class based upon its relative percentage of the 
Fund's net assets except to the extent: (a) Each class bears the 
specific expenses of the class's rule 12b-1 plans (if any), and (b) 
Class Expenses (as described in condition 1) are allocated to a 
specific class. Because of the differing rule 12b-1 fees and Class 
Expenses, the net income per share of (and dividends per share payable 
to) each class likely will be different from the net income per share 
of the other classes of shares of the Fund.
    10. Applicants also seek relief to permit the Funds to assess a 
CDSC on redemptions of certain classes of shares. Shares of the Funds 
may be subject to the imposition of a CDSC if such shares are redeemed 
within a specified period after their purchase. The CDSC will apply 
only to those shares that are issued by the Fund after the SEC grants 
the requested exemption.
    11. No CDSC would be imposed with respect to: (a) Redemptions of 
shares that were purchased more than a fixed number of years prior to 
the redemptions; (b) shares derived from reinvestment of distributions; 
or (c) the amount that represents an increase in the value of the 
shareholder's account resulting from capital appreciation. 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 the amount that represents such percentage 
of the net asset value of the shares at the time of redemption.
    12. In determining the applicability and rate of any CDSC, shares 
that are not subject to any deferred sales charge are redeemed first, 
and then other shares will be redeemed in order of purchase, except 
that another order of redemption may be employed if that would result 
in the shareholder paying a lower deferred sales charge. If a 
shareholder owns more than one class of shares, the classes will be 
redeemed in an order which will result in the lowest possible sales 
charge, unless the shareholder specifies otherwise.
    13. The sum of any front-end sales charge, CDSC, and asset based 
sales charge imposed by each Fund will not exceed the maximum sales 
charge then provided for in Article III, Section 26(d) of the Rules of 
Fair Practice of the NASD. In addition, any CDSC will apply only to 
shares issued by a Fund after the SEC grants the requested exemptive 
relief.

Applicants' Legal Analysis

    1. Applicants request an exemption under section 6(c) from sections 
18(f), 18(g), and 18(i) to issue multiple classes of shares 
representing interests in the same portfolio of securities. Applicants 
believe that, by implementing the multiple class distribution system, 
the Funds would be able to facilitate the distribution of their shares 
and provide a broad array of services without assuming excessive 
accounting and bookkeeping costs. Applicants also believe that the 
proposed allocation of expenses and voting rights is equitable and 
would not discriminate against any group of shareholders. The proposed 
arrangement does not involve borrowings, affect the Funds' existing 
assets or reserves, or increase the speculative character of the shares 
of a Fund.
    2. Applicants also request an exemption under section 6(c) from 
sections 2(a)(32), 2(a)(35), 22(c), and 22(d), and rule 22c-1, to 
assess and, under certain circumstances, waive a CDSC on redemptions of 
shares. Applicants believe that their request to permit the CDSC 
arrangement would place the purchaser in a better position than if a 
sales load were imposed at the time of sale, since the shareholder may 
have to pay only a reduced sales charge.

Applicants' Conditions

    Applicants agree that the 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 among the various 
classes of shares of the same Fund will relate solely to: (a) The 
impact of the Class Expenses, which are limited to (i) Transfer agency 
fees as identified by the transfer agent as being attributable to a 
specific class of shares; (ii) printing and postage expenses related to 
preparing and distributing materials such as shareholder reports, 
prospectuses, and proxy materials to current shareholders; (iii) blue 
sky fees and costs attributable to registration, qualification or 
exemption of the class' shares; (iv) SEC registration fees incurred by 
a class of shares; (v) administrative expenses required to support the 
shareholders of a specific class; (vi) litigation or other legal 
expenses relating solely to one class of shares; and (vii) any other 
expenses subsequently identified that should be properly allocated to 
one class that shall be approved by the SEC pursuant to an amended 
order; (b) the impact of the disproportionate payments made under the 
rule 12b-1 distribution plans and service fees; (c) the fact that each 
class will vote separately with respect to the Fund's rule 12b-1 
distribution plans applicable to that class of the Fund, except as 
provided in condition number 13, below; (d) the fact that only certain 
classes will have a conversion feature; (e) the fact that certain 
classes will have different exchange privileges; and (f) the 
designation of each class of shares of a Fund.
    2. The Directors of each of the Funds, including a majority of the 
independent Directors, will approve the Alternative Pricing System, 
prior to the implementation of the Alternative Pricing System 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 Alternative Pricing System 
will reflect in detail the reasons for determining that the proposed 
Alternative Pricing System is in the best interests of both the Funds 
and their respective shareholders.
    3. 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 costs will remedy the 
conflict up to and including establishing a new registered management 
investment company.
    4. 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 expenditures 
properly attributable to the sale or servicing of one class of shares 
will be used to support the rule 12b-1 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 
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 Directors in the exercise of 
their fiduciary duties.
    5. 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 with respect to each other class of shares of the Fund, except 
that distribution and shareholder services payments relating to each 
respective class of shares will be borne exclusively by that class, and 
any Class Expenses relating to a given class of shares will be borne 
exclusively by the affected class.
    6. The methodology and procedures for calculating the net asset 
value and dividends/distributions of the various classes and the proper 
allocation of expenses among the various classes has been reviewed by 
an expert (the ``Independent Examiner''). The Independent Examiner has 
rendered a report to the 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 these 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 the 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 or 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.
    7. The applicants have adequate facilities in place to ensure 
implementation of the methodology and procedures for calculating the 
net asset value and dividends/distributions among the various classes 
of shares and the proper allocation of expenses among the classes of 
shares, and this representation has been concurred with by the 
Independent Examiner in the initial report referred to in condition 
number 6 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 
number 6 above. The applicants agree to take immediate corrective 
action if the Independent Examiner, or appropriate substitute 
Independent Examiner, does not so concur in the ongoing reports.
    8. The prospectuses of the Funds will include a statement to the 
effect that a salesperson and any other person entitled to receive any 
compensation for selling or servicing Fund shares may receive different 
levels of compensation with respect to one particular class of shares 
over another in a Fund.
    9. 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 Alternative Pricing System will be set forth in 
guidelines which will be furnished to the Directors.
    10. Each Fund will disclose the respective expenses, performance 
data, distribution arrangements, services, 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. The Fund will disclose the respective 
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 all classes of shares of that Fund. 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 the Funds' net asset 
value and public offering prices will present each class of shares 
separately.
    11. The 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.
    12. Any class of shares with a conversion feature (``Purchase 
Class'') will convert into another class of shares (``Target Class'') 
on the basis of 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 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.
    13. If a Fund implements any amendment to its rules 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 the Target Class shares 
under the plan, Purchase Class shares will stop converting into Target 
Class Shares unless shareholders of the Purchase Class, 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 such 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 and 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 3, any additional cost associated with the 
creation, exchange, or conversion of the New Target Class or New 
Purchase Class shall be borne solely by the Advisor and the 
Distributor. Purchase Class shares sold after 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 are 
disclosed in an effective registration statement.
    14. TSC, the Funds' 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.
    15. 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 Funds 
including a majority of the Independent Directors. Any person 
authorized to direct the allocation and disposition of monies paid or 
payable by the 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 purposes for which 
such expenditures were made.
    16. Any shareholder services plan with respect to any Future Class, 
which is not otherwise governed by rule 12b-1, 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.
    17. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act, Release No. 16619 (November 2, 1989), as the rule is 
currently proposed and as it may be reproposed, adopted, or amended.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-17101 Filed 7-13-94; 8:45 am]
BILLING CODE 8010-01-M