[Federal Register Volume 59, Number 167 (Tuesday, August 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21341]


[[Page Unknown]]

[Federal Register: August 30, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20497; 812-8992]

 

Crestfunds, Inc., et al.; Notice of Application

August 24, 1944.
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: CrestFunds, Inc. (the ``Fund''), Capitoline Investment 
Services Incorporated (the ``Adviser''), and Fidelity Distributors 
Corporation (the ``Distributor'').

relevant act sections: Order requested under section 6(c) for an 
exemption from sections 2(a)(32), 2(a)(35), 22(c), and 22(d) and rule 
22c-1, and to amend a previous order (the ``Prior Order'') that granted 
applicants an exemption relief from sections 18(f), 18(g), and 
18(i).\1\
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    \1\CrestFunds, Inc., et al., Investment Company Act Release Nos. 
19149 (Dec. 8, 1992) (notice) and 19206 (Jan. 5, 1993) (order).

SUMMARY of application: Applicants request an amendment to the Prior 
Order which permits the Fund to offer multiple classes of shares. As 
amended, the order would permit the Fund to assess a contingent 
deferred sales charge (``CDSC'') on certain redemptions of shares. The 
order also would let applicants add a conversion feature to their 
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existing multiple class distribution arrangement.

filing DATE: The application was filed on May 17, 1994 and amended on 
August 1, 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 September 19, 
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 Fifth Street NW., Washington, DC 20549. 
The Fund and the Distributor, 82 Devonshire Street, Boston, MA 02109; 
the Adviser, 919 East Main Street, Richmond, VA 23219.

FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Robert A. 
Robertson, Branch Chief, at (202) 942-0564 (Office of Investment 
Company Regulation, Division of Investment Management).

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 Fund is an open-end management investment company, which 
currently consists of ten series. The series represent interests in 
three money market portfolios, four bond portfolios, and three equity 
portfolios (the ``Portfolios''). The Adviser is a wholly-owned 
subsidiary of Crestar Bank, which is a subsidiary of Crestar Financial 
Corporation. The Distributor is a wholly-owned subsidiary of FMR Corp.
    2. The Prior Order permits the Fund to issue an unlimited number of 
classes of shares. The Prior Order recognizes certain permissible class 
differences, including: (a) the allocation among classes of certain 
expenses including 12b-1 fees and shareholder servicing fees, transfer 
agency fees, blue sky fees and certain other fees; (b) the fact that 
classes will vote separately with respect to the classes' 12b-1 plans 
and/or shareholder services plans; (c) the exchange privileges of the 
various classes; and (d) the manner in which each class of shares are 
designated. The Fund's existing classes of shares are sold subject to a 
traditional front-end sales load and/or rule 12b-1 fees.
    3. Applicants request an exemption to let them impose a CDSC on 
certain redemptions of shares and waive the CDSC in certain cases. 
Applicants also request an exemption to allow them to offer one or more 
classes of shares with a conversion feature. Applicants request that 
the relief apply to all other investment companies or series thereof 
that are, or in the future will be, advised by the Adviser, or a person 
controlling, controlled by, or under common control with the Adviser, 
or that are, or in the future will be, distributed by the Distributor, 
or a person controlling, controlled by, or under common control with 
the Distributor and that have or will have the ability to issue classes 
of shares that are identical in all material respects to those 
described in the application. All existing entities that presently 
intend to rely on the requested order have been named as applicants.
    4. The terms of the CDSC and the circumstances under which it is 
imposed may vary among the Portfolios and among classes within a 
Portfolio. A CDSC may be imposed in combination with an initial sales 
load, in connection with redemptions of shares for which an initial 
sales load was waived, or in connection with redemptions of shares sold 
at net asset value. 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 redemption. No CDSC will be 
imposed on amounts representing capital appreciation or shares acquired 
through reinvestment of dividends or capital gain distributions.
    5. Applicants request the ability to waive or reduce the CDSC. In 
waiving or reducing a CDSC, the Fund will comply with the requirements 
of rule 22d-1. Applicants may provide a credit in the amount of the 
CDSC to a shareholder who reinvests in Fund shares within a certain 
period after redemption. Any credit will be paid by the Distributor or 
the Adviser.
    6. Shareholders may be permitted to exchange shares subject to a 
CDSC for shares of the same class of another Portfolio and for shares 
of the money market Portfolios. Any exchange privilege will comply with 
rule 11a-3.
    7. Applicants may offer one or more classes of shares subject to a 
conversion feature. After the expiration of a specified period, shares 
of one class (``Purchase Class'') automatically will convert at their 
net asset value to shares of another class with different features 
(``Target Class''). After conversion, the Target Class shares will be 
subject to an asset-based sales charge and/or service fee, if any, that 
in the aggregate are lower than the asset-based sales charge and 
service fee of the Purchase Class.

Applicants' Legal Analysis

    1. Applicants believe that the proposal to impose a CDSC is fair, 
in the public interest and the interest of the Fund's shareholders, and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and the provisions of the Act. Consequently, 
applicants request an order under section 6(c) of the Act for an 
exemption from sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act 
and rule 22c-1 thereunder to the extent necessary to permit the 
proposed CDSC arrangement.
    2. Applicants also request an amendment to the Prior Order to let 
them add a conversion feature as a difference between the classes of 
shares. Applicants believe that the conversion feature is equitable and 
will not discriminate against any group of shareholders.

Applicants' Conditions

    Applicants agree that the following conditions may be imposed in 
any SEC order granting the requested relief.
    1. Each class of shares of a Portfolio 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 of a Portfolio will relate solely to one or more of the 
following: (a) the method of financing certain class expenses, which 
are limited to any or all of the following: (i) transfer agent fees 
identified by applicants 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 statements to current shareholders of a specific class; (iii) SEC 
and/or Blue Sky registration fees incurred by a class of shares; (iv) 
the expense of administrative personnel and services as required to 
support the shareholders of a specific class; (v) directors' fees or 
expenses incurred as a result of issues relating to one class of 
shares; and (vi) accounting expenses relating to one class of shares; 
(b) expenses assessed to a class pursuant to a shareholder services 
plan and/or 12b-1 plan (whether an administrative 12b-1 plan or a 
distribution and service plan or both) with respect to such class; (c) 
the fact that the classes will vote separately with respect to the 
Fund's shareholder services plan and/or any 12b-1 plan (except as set 
forth in condition 16 below); (d) the different exchange privileges of 
the classes of shares; (e) the designation of each class of shares of 
the Fund; and (f) the fact that certain classes will have a conversion 
feature. Any additional incremental expenses not specifically 
identified above which 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.
    2. The directors of the Fund, including a majority of the 
independent directors, will approve the offering of additional classes 
of new shares (the ``Multi-Class System''). The minutes of the meetings 
of the directors regarding the deliberations of the directors with 
respect to the approvals necessary to implement the Multi-Class System 
will reflect in detail the reasons for the directors' determination 
that the proposed Multi-Class System is in the best interest of both 
the Fund and its 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 board of directors, including 
a majority of the independent directors. Any persons authorized to 
direct the allocation and disposition of monies paid or payable by the 
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.
    4. On an ongoing basis, the directors of the Fund, pursuant to 
their fiduciary responsibilities under the Act and otherwise, will 
monitor the 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 
Distributor and the Adviser will be responsible for reporting any 
potential or existing conflicts to the directors. If a conflict arises, 
the Distributor and the Adviser, at their own cost, will remedy such 
conflict up to and including establishing a new registered management 
investment company.
    5. The distributor will adopt compliance standards as to when each 
class of shares may be sold to particular investors. Applicants will 
require all persons selling shares of the Fund to agree to conform to 
such standards.
    6. 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.
    7. The directors will receive quarterly and annual statements 
concerning the amounts expended under the shareholder services plans 
and any 12b-1 plans and the related service agreements complying with 
paragraph (b)(3)(ii) of rule 12b-1, as it may be amended from time to 
time. In the statements, only expenditures properly attributable to the 
sale or servicing of a particular class of shares will be used to 
justify any distribution or servicing fee charged to that class. 
Expenditures not related to the sale or servicing of a particular class 
will not be presented to the 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.
    8. Dividends paid by the 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 per outstanding share, except that administrative or service 
payments made by a class under a plan and any class expenses will be 
borne exclusively by that class.
    9. 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 
expert (the ``Expert'') who has rendered a report to the applicants 
that such methodology and procedures are adequate to ensure that such 
calculations and allocations would 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 such review, will render at least annually a 
report to the Fund that the calculations and allocations are being made 
properly. The reports of the Expert will be filed as part of the 
periodic reports filed with the SEC pursuant to section 30(a) and 
30(b)(1) of the Act. The work papers of the Expert with respect to such 
reports, following request by the Fund (which the Fund agrees to 
provide), will be available for inspection by the SEC staff upon 
written request to the Fund 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, 
and Assistant Director, and any Regional Administrators or Associate 
and Assistant Administrators. The initial report of the Expert is a 
``Special Purpose'' report on the ``Design of a System'' and ongoing 
reports will be ``reports on policies and procedures placed in 
operation and tests of operating effectiveness'' as defined and 
described in Statement of Auditing Standards No. 70 of the American 
Institute of Certified Public Accountants (``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.
    10. Applicants have adequate facilities in place to ensure 
implementation of the methodology and procedures for calculating the 
net asset value and dividends and distribution of the classes of shares 
and the proper allocation of expenses among the classes and this 
representation has been concurred with by the Expert in the initial 
report referred to in condition 9 above and will be concurred with by 
the Expert, or an appropriate substitute Expert, on an ongoing basis at 
least annually in the ongoing reports referred to in condition 9 above. 
Applicants will take immediate corrective action if this representation 
is not concurred in by the Expert or appropriate substitute Expert.
    11. The prospectuses 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 Fund shares 
may receive different compensation with respect to one particular class 
of shares over another in the Fund.
    12. The conditions pursuant to which the exemptive order is granted 
and the duties and responsibilities of the directors with respect to 
the Multi-Class Systems will be set forth in guidelines which will be 
furnished to the directors.
    13. The 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 the 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 such Fund. To 
the extent that any advertisement or sales literature describes the 
expenses or performance data applicable to any class of shares of a 
Portfolio, it will also disclose the respective expenses and/or 
performance data applicable to all classes of shares of such Portfolio. 
The information provided by applicants for publication in any newspaper 
or similar listing of the 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 Fund 
may make pursuant to its administrative 12b-1 plan, distribution and 
service plan or shareholder services plan in reliance on the exemptive 
order.
    15. Any Purchase Class with a conversion feature will convert into 
a Target Class 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.
    16. If the Fund implements any amendment to a 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 will stop converting into 
Target Class shares unless the Purchase Class shareholders, voting 
separately as a class, approve the proposal. If such approval is not 
granted, 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 Purchase Class 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 will convert into New Target Class. 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 any manner that the directors reasonably believe will not be subject 
to federal taxation. In accordance with condition 4, any additional 
cost associated with the creation, exchange, or conversion of New 
Target Class or New Purchase Class shall be borne solely by the Adviser 
and/or 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 disclosure in an effective registration 
statement.
    17. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act, Investment Company Act Release No. 16169 (Nov. 2, 
1988), as such rule is currently proposed and as it may be reproposed, 
adopted or amended.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21341 Filed 8-29-94; 8:45 am]
BILLING CODE 8010-01-M