[Federal Register Volume 59, Number 159 (Thursday, August 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20311]
[[Page Unknown]]
[Federal Register: August 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20474; 812-9012]
Delaware Group Trend Fund, Inc., et al.; Notice of Application
August 12, 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: Delaware Group Trend Fund, Inc., Delaware Group Decatur
Fund, Inc., Delaware Group Delaware Fund, Inc., Delaware Group DelCap
Fund, Inc., Delaware Group Value Fund, Inc., Delaware Group Premium
Fund, Inc., Delaware Group Global & International Funds, Inc., Delaware
Pooled Trust, Inc. (collectively, the ``Non-Daily Dividend Funds'');
and Delaware Group Tax-Free Fund, Inc., Delaware Group Government Fund,
Inc., Delaware Group Delchester High-Yield Bond Fund, Inc., Delaware
Group Treasury Reserves, Inc., Delaware Management Company Tax-Free
Income Trust-PA, Delaware Group Cash Reserve, Inc., and Delaware Group
Tax-Free Money Fund, Inc. (collectively, the ``Daily Dividend Funds'')
(the Non-Daily Dividend Funds and the Daily Dividend Funds are
collectively referred to herein as the ``Funds''); and Delaware
Management Company, Inc., and Delaware International Advisers Ltd.
(together, the ``Advisers''), and Delaware Distributors, Inc. (the
``Distributor''). (The Advisers, Distributor, Non-Daily Dividend Funds,
and Daily Dividend Funds are collectively referred to herein as the
``Applicants''.)
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption 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 request an order to permit the Non-
Daily Dividend Funds to issue an unlimited number of classes of shares
representing interests in the same portfolio of securities. This aspect
of the order would supersede a prior multi-class order (the ``1992
Order'') that permits the Non-Daily Dividend Funds to issue two classes
of shares.\1\ The order also would permit the Funds to assess, and
under certain circumstances waive or reduce, a contingent deferred
sales charge (``CDSC''). This aspect of the order would supersede a
prior CDSC order (the ``Existing CDSC Order'') by consolidating the
CDSC arrangement for the Funds.\2\
\1\Investment Company Act Release No. 19086 (Nov. 9, 1992).
\2\Investment Company Act Release No. 19440 (Apr. 27, 1993).
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FILING DATES: The application was filed on May 23, 1994 and amended on
July 14, 1994. Applicants have agreed to file an additional amendment,
the substance of which is incorporated herein, during the notice
period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on September 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 issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, One Commerce Square, Philadelphia, Pennsylvania 19103.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, 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 is available 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. The Advisers provide investment advisory and
administrative services to each of the Funds. The Distributor acts as
principal underwriter for the Funds.
2. Under the 1992 Order, the Non-Daily Dividend Funds may offer two
classes of shares: one with a front-end sales load and a rule 12b-1
plan, and another without a front-end sales load or a rule 12b-1 plan.
The requested order is intended to supersede the 1992 Order to permit a
contemplated third class of shares as well as an unlimited number of
future classes of shares.
3. Most of the applicants are also parties to the Existing CDSC
Order, which permits the imposition of a CDSC. In order to consolidate
the obligations of the applicants, the requested order is intended to
supersede the Existing CDSC Order for all Funds in the Delaware Group,
both those which declare a dividend daily and those which do not.
Multiple-Class Representations
1. The Non-Daily Dividend Funds, on behalf of themselves and future
investment companies for which the Advisers, or any person controlled
by or under common control with the Advisers, may serve as investment
adviser, or for which the underwriter, or any person controlled by or
under common control with the underwriter, may serve as principal
underwriter, request an order to permit the Non-Daily Dividend Funds to
issue multiple classes of shares. The Non-Daily Dividend Funds propose
to establish a multiple-class system to enable each of the Non-Daily
Dividend Funds to offer investors the option of purchasing shares
either (a) with a conventional front-end load and a rule 12b-1 fee
(``Class A shares''), (b) without a front-end load or a rule 12b-1 fee
(``Class B shares''), or (c) subject to a CDSC and a higher rule 12b-1
fee (``Class C shares''). In addition, the Non-Daily Dividend Funds may
from time to time create one or more additional classes of shares, the
terms of which may differ from the classes currently offered.
2. The terms of the future classes may differ from Class A, Class
B, and Class C shares only in the following respects: (a) Any such
class may bear different distribution and servicing fees in conjunction
with a rule 12b-1 plan; (b) any such class may be offered in
conjunction with a non-rule 12b-1 shareholder services plan; (c) any
such class may bear different designations; (d) any such class will
have exclusive voting rights with respect to any rule 12b-1 plan
adopted exclusively with respect to such class, except as provided in
the conditions below; (e) any such class may have different conversion
and/or exchange features; and (f) any such class may bear any of the
expenses, listed in multiple-class condition 1, attributable
specifically to such class (``Class Expenses'').
3. All expenses incurred by a Non-Daily Dividend Fund will be
allocated among the various classes of shares based on the net assets
of the Non-Daily Dividend Fund attributable to each such class, except
that each class's net asset value and expenses will reflect the
expenses associated with that class's rule 12b-1 plan (if any),
expenses associated with a shareholder services plan (if any), and any
Class Expenses. Expenses of a fund allocated to a particular class of
shares of that fund will be borne on a pro rata basis by each
outstanding share of that class.
4. A Non-Daily Dividend Fund may also permit one class of shares
(``Purchase Class'') to convert to another class of shares (``Target
Class'') after expiration of a certain period. Such Purchase Class
shares (except those purchased through the reinvestment of dividends
and other distributions) would automatically convert to Target Class
shares at the relative net asset values of each of the classes, and
would thereafter be subject to a lower rule 12b-1 fee.
5. All Purchase Class shares in a shareholder's account that were
purchased through the reinvestment of dividends and other distributions
paid in respect of purchase Class (and which have not converted to
Target Class) would be considered to be held in a separate sub-account.
Each time any Purchase Class shares in the shareholder's account (other
than those in the sub-account) convert to Target Class shares, a pro
rata portion of the Purchase Class shares then in the sub-account also
would convert to Target Class shares.
Multiple-Class Legal Analysis
1. Applicants request an exemption under section 6(c) of The Act to
the extent that the proposed issuance of multiple classes of shares
representing interests in the Non-Daily Dividend Funds might be deemed:
(1) To result in a ``senior security'' within the meaning of section
18(g) of the Act and to be prohibited by section 18(b)(1) of the Act;
and (2) to violate the equal voting provisions of section 18(i) of the
Act. The multiple-class distribution system for the Non-Daily Dividend
Funds does not involve borrowings and does not affect the integrity of
the funds, existing assets or reserves, or the interests of existing
shareholders. 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 fees associated with the
various rule 12b-1 and shareholder services plans and Class Expenses).
Multiple-Class Conditions
Applicants agree that the order granting the request relief with
respect to multiple classes of shares shall be subject to the following
conditions:
1. Each class of shares of a Non-Daily Dividend Fund will represent
interests in the same portfolio of investments and be identical in all
respects, except as set forth below. The only differences among the
classes of shares will relate solely to: (a) Different expenses which
the board of directors or trustees of a Non-Daily Dividend Fund
determines to allocate to a specific class, which are limited to; (i)
transfer agent fees; and (ii) other expenses that are subsequently
identified and determined to be properly allocated to one class of
shares shall not be so allocated unless and until approved by the SEC
pursuant to an amended order; (b) expenses assessed to a class pursuant
to a rule 12b-1 plan (if any), or shareholder service plan (if any);
(c) the fact that classes will vote separately with respect to the Non-
Daily Dividend Fund's 12b-1 plan and shareholder services plan, except
as provided in CDSC condition 3 below; (d) the fact that only certain
classes will have a conversion feature; (e) the different exchange
privileges of the classes of shares; and (f) the designation of each
class of shares of the Non-Daily Dividend Fund.
2. The directors of the Non-Daily Dividends Funds, including a
majority of the independent directors, have approved the multiple-class
distribution system. The minutes of the meetings of the directors of
each of the Non-Daily Dividend Funds regarding the deliberations of the
director with respect to the approvals necessary to implement the
multiple-class distribution system will reflect in detail the reasons
for the directors' determination that the multiple-class distribution
system is in the best interest of both the Non-Daily Dividend Fund and
its shareholders.
3. On on ongoing basis, the directors of the Non-Daily Dividend
Funds, pursuant to their fiduciary responsibilities under the Act and
otherwise, will monitor each Non-Daily Dividend Fund for the existence
of any material conflicts among the interests of the 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 Advisers and the Distributor will be
responsible for reporting any potential or existing conflicts to the
directors. If a conflict arises, the Advisers and the Distributor, at
their own cost, will remedy such conflict up to and including
establishing a new registered management investment company.
4. The initial determination of the Class Expenses that will be
allocated to a particular class and any subsequent changes thereto will
be reviewed and approved by a vote of the board of directors including
a majority of the independent directors. Any person authorized to
direct the allocation and disposition of monies paid or payable by a
Non-Daily Dividend Fund to meet Class Expenses shall provide to the
board of 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.
5. The directors will receive quarterly and annual statements
concerning the amounts expended under any shareholder services plans
and any 12b-1 plans 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 rule 12b-1 plan
or shareholder services plan fee charged to that class. Expenditures
not related to the sale or servicing of a particular class 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.
6. If any class will be subject to a shareholder services plan,
such 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.
7. Dividends paid by a Non-Daily Dividend Fund with respect to each
class of its shares, to the extent any dividends are paid, will be
calculated in the same manner, at the same time, on the same day, and
will be in the same amount, except that expenditures associated with
any rule 12b-1 plan or shareholder servicing plan relating to a
particular class will be borne exclusively by the affected class and
any designated Class Expenses will be borne exclusively by the affected
class.
8. The methodology and procedures for calculating the net asset
value and dividends and distributions of the classes and the proper
allocation of expenses among the classes have been reviewed by an
Independent Examiner (the ``Independent Examiner''). The Independent
Examiner has rendered a report to the Non-Daily Dividends Funds, 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 Non-Daily
Dividend Fund that the calculations and allocations are being made
properly. The reports of the Independent Examiner will 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 Non-Daily
Dividend Funds (which the Non-Daily Dividend Funds agree to provide),
will be available for inspection by the SEC staff upon written request
to the Non-Daily Dividend Funds for such work papers by a senior member
of the Division of Investment Management, limited to the Director, an
Associate Director, the Chief Accountant, the Chief Financial Analyst,
an Assistant Director and any Regional Administrator 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 American Institute of Certified
Public Accounts (``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 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 (8)
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 (8)
above. Applicants will take immediate corrective action if this
representation is not concurred in by the Independent Examiner or
appropriate substitute Independent Examiner.
10. The prospectus of each class of shares will contain a statement
to the effect that a salesperson and any other person entitled to
receive compensation for selling or servicing Non-Daily Dividend Fund
shares may receive different compensation with respect to one
particular class of shares over another in a Non-Daily Dividend Fund.
11. The distributor will adopt compliance standards as to when each
class of shares may appropriately be sold to particular investors.
Applicants will require all persons selling shares of the Non-Daily
Dividend Funds to agree to conform to such standards.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the directors with respect to
the multiple-class distribution system will be set forth in guidelines
which will be furnished to the directors.
13. The Non-Daily dividend Funds 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 Non-Daily
Dividend Funds 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 a Non-
Daily Dividend Fund as a whole generally and not on a per class basis.
Each Non-Daily Dividend Fund's per share data, however, will be
prepared on a per class basis with respect to all classes of shares of
such Non-Daily Dividend Fund. To the extent that any advertisement or
sales literature describes the expenses or performance data applicable
to any class of shares of a Non-Daily Dividend Fund, it will also
disclose the respective expenses and/or performance data applicable to
all classes of shares of such Non-Daily Dividend Fund. The information
provided by applicants for publication in any newspaper or similar
listing of a Non-Daily dividend Fund's net asset value or public
offering price will present each class of shares separately.
14. Applicants acknowledge that the grant of the exemptive order
requested by the application will not imply SEC approval, authorization
of or acquiescence in any particular level of payments that the Non-
Daily Dividend Funds may make pursuant to any distribution plan or
shareholder services plan in reliance on the exemptive order.
CDSC Representations
1. In order to consolidate the rights and obligations of the Funds
in the Delaware Group with respect to the imposition of a CDSC, any
order granted in connection with this application will supersede the
Existing CDSC Order and will apply to any Fund. Any CDSC will not be
imposed on redemptions of shares which were purchased more than a
certain designated time period prior to the redemptions (the ``CDSC
Period'') or on shares derived from reinvestment of distributions.
Furthermore, no CDSC will be imposed on an amount which represents an
increase in the value of a shareholder's account resulting from capital
appreciation above the amount paid for shares purchased during the CDSC
Period. The amount of any applicable CDSC will be calculated by
multiplying the applicable percentage charge by the lesser of (1) the
net asset value of the shares at the time of purchase, and (2) the net
asset value of the shares at the time of redemption. In determining the
applicability and rate of any CDSC, it will be assumed that a
redemption is made first of shares representing reinvestment of
dividends and capital gain distributions, and then of other shares held
by the shareholder for the longest period of time. This should result
in the charge, if any, being imposed at the lowest possible rate. The
sum of any CDSC, front-end sales charge, and asset-based sales charge
will not exceed the maximum sales charge permissible under Article III,
Section 29(d) of the National Association of Securities Dealers Rules
of Fair Practice.
2. Applicants request relief to permit each Fund to waive or reduce
the CDSC in certain circumstances. Any waiver or reduction will comply
with the conditions in paragraphs (a) through (d) of rule 22d-1 of the
Act. Applicants also intend to credit the time during which a
shareholder held redeemed shares, if a CDSC is paid in connection with
a redemption of shares followed by a reinvestment effected within
ninety days after redemption pursuant to the Fund's reinstatement
privilege.
3. If the directors of a Fund, which has been waiving or reducing
its CDSC in a specific situation, determine that such Fund not waive or
reduce such CDSC any longer, the disclosure in that Fund's prospectus
will be appropriately revised. Also, any shares purchased prior to the
termination of such waiver or reduction would be able to have the CDSC
waived or reduced as provided in a Fund's prospectus at the time of the
purchase of such shares.
CDSC Legal Analysis
1. Applicants request an exemption under section 6(c) from sections
2(a)(32), 2(a)(35), 22(c) and 22(d) of the Act and rule 22c-1
thereunder to assess a CDSC on certain redemptions of shares of a Fund
and to permit the Funds to waive or reduce the CDSC with respect to
certain types of redemptions. Applicants believe that the imposition of
the CDSC on certain classes of the Funds is fair and in the best
interests of their shareholders.
CDSC Conditions
Applicants agree that the order granting the requested relief with
respect to the imposition of a CDSC shall be subject to the following
conditions:
1. 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.
2. 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.
3. 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 the Target Class Shares
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 (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
the date such shares previously were scheduled to convert into the
Target Class. 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 (the ``New Purchase Class''),
identical to existing Purchase Class Shares in all material respects
except that New Purchase Class Shares will convert to New Target Class
Shares. 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 Multiple-Class Condition 3, any additional cost
associated with the creation, exchange, or conversion of New Target
Class or New Purchase Class shall be borne solely by the Advisers and
the Distributor. The 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.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20311 Filed 8-17-94; 8:45 am]
BILLING CODE 8010-01-M