[Federal Register Volume 59, Number 224 (Tuesday, November 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28781]


[[Page Unknown]]

[Federal Register: November 22, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20707; 812-9298]

 

Cash Assets Trust, et al.; Notice of Application

November 16, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').

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

APPLICANTS: Cash Assets Trust (the ``Trust''), Hawaiian Trust Company, 
Limited (the ``Adviser''), and Aquila Distributors, Inc. (the 
``Distributor'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
for an exemption from sections 18(f), 18(g), and 18(i) of the Act.

SUMMARY OF APPLICATION: Applicants request an order to permit the Trust 
to offer two classes of shares representing interests in the same 
investment portfolio.

FILING DATE: The application was filed on October 21, 1994. Applicants 
agree 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 December 12, 
1994, and should be accompanied by proof of service on the 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, N.W., Washington, D.C. 
20549. Applicants: Cash Assets Trust, Hawaiian Trust Company, Limited, 
and Aquila Distributors, Inc., 380 Madison Avenue, Suite 2300, New 
York, New York 10017.

FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Law Clerk, at (202) 942-0573, 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 from 
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. Currently, the Trust 
is authorized to offer three separate investment portfolios (the 
``Portfolios''): Pacific Capital Cash Assets Trust, Pacific Capital 
Tax-Free Cash Assets Trust, and Pacific Capital U.S. Treasuries Cash 
Assets Trust. Each Portfolio holds itself out as a ``money market 
fund'' and therefore seeks to maintain a stable net asset value of 
$1.00 per share pursuant to rule 2a-7 under the Act. Aquila 
Distributors, Inc., a registered broker-dealer, serves as the 
distributor of the Trust's shares. Hawaiian Trust Company, Limited 
serves as investment adviser to the Trust. Applicants request that 
relief extend to any future trust, series or portfolio of a Trust that 
is advised by the Adviser or whose shares are distributed by the 
Distributor.
    2. The Trust proposes to offer two classes of shares of each of its 
Portfolios: Original Shares and Service Shares (the ``Dual Class 
System''). The currently outstanding shares of each Portfolio will be 
classified as Original Shares. If exemptive relief is granted, Original 
Shares will be sold solely to (1) financial institutions for the 
investment of funds for which they act in a fiduciary, agency, 
investment advisory or custodial capacity; (2) persons entitled to 
exchange into Original Shares under the exchange privileges of the 
Trust; and (3) shareholders owning shares of the Trust of record on the 
date that both classes of shares are first made available. Original 
Shares will be sold without the imposition of any sales charges and 
will not be subject to any asset-based distribution charges permitted 
by rule 12b-1 under the Act. However, Original Shares will continue to 
be subject to the normal and customary expenses of the Trust such as 
advisory and administrative fees and other normal operating expenses.
    3. Service Shares will be offered to customers of banks and other 
financial institutions (``Service Organizations'') that typically are 
compensated by service or distribution fees paid by the mutual funds 
offered to their customers rather than by transactions or other fees 
paid directly by such customers. The fees paid by this class could be 
in the nature of (1) a distribution fee payable in connection with a 
plan adopted pursuant to rule 12b-1 under the Act (a ``Rule 12b-1 
Plan''); (2) an administrative services fee payable pursuant to a non-
rule 12b-1 administrative services plan (an ``Administrative Services 
Plan''); or (3) a distribution fee and an administrative fee as a 
result of a combination of the two types of plans.
    4. Each of the Portfolios has adopted a currently effective 
distribution plan under rule 12b-1, but neither the Trust nor the 
Portfolios make payments under this plan.
    5. Under amended Rule 12b-1 Plans to be implemented with the Dual 
Class System, the Trust or each Portfolio, on behalf of the Services 
Shares, would typically enter into agreements with and pay the 
Distributor or the Service Organization for performing certain 
services, some of which could be construed as distribution assistance. 
The expenses of such payments would be borne entirely by the Service 
Shares shareholders. Services provided in accordance with the terms of 
the Rule 12b-1 Plan would not be duplicative of any services to be 
provided to the Trust or its Portfolios by the administrator, 
distributor or transfer agent.
    6. Under an Administrative Services Plan, the Trust or the 
Portfolios, on behalf of the Service Shares, would have the ability to 
enter into agreements with Service Organizations in which each 
organization will agree to provide certain services to its clients, 
members or customers, who purchase shares. The provision of services 
under the Administrative Services Plan would not be duplicative of any 
services to be provided to the Trust or a Protfolio by its 
administrator, distributor, or transfer agent. Each Portfolio would pay 
a Service Organization for its service in accordance with the terms of 
its particular Administrative Services Plan, and the expense of such 
payment will be borne entirely by the beneficial owners of the Service 
Shares.
    7. Under the Dual Class System, each share in a Portfolio, 
regardless of class, will represent an interest in the Portfolio and 
will have identical voting rights, powers, qualifications, terms and 
conditions, and, in proportion to each Share's net asset value, 
liquidation rights and preferences. Each class will differ in that: (a) 
Each class will have a different class designation; (b) only the 
Service Shares will bear the expenses applicable to an Administrative 
Services Plan or Rule 12b-1 plan; (c) each class would bear certain 
other expenses that are directly attributable only to that class 
(``Class Expenses''), as set forth in condition 1; (d) classes will 
vote separately with respect to matters relating to the Fund's Rule 
12b-1 Plan; and (e) the exchange privileges could vary among the 
classes.
    8. The classes of shares of the Portfolios will differ with respect 
to exchange privileges among the Portfolios and the portfolios of 
certain other investment companies advised by the Adviser. All 
exchanges of shares will be effected in accordance with the provisions 
of rule 11a-3 under the Act.
    9. Portfolio expenses (such as advisory fees) will be allocated pro 
rata, to each class on the basis of the relative net asset values of 
the respective classes. Rule 12b-1 Plan payments, Administrative Plan 
payments, and Class Expenses which are attributable to a particular 
class of shares will be allocated to that particular class. As a 
result, the net income and net asset value per share of a class may be 
different than the new income and net asset value per share of another 
class of shares in the same Portfolio.

Applicants' Legal Analysis

    1. Applicants request that the Commission issue an order pursuant 
to section 6(c) exempting them from sections 18(f)(1), 18(g), and 18(i) 
of the Act to the extent that the proposed issuance and sale of shares 
representing interests in the same investment portfolio might be 
deemed: (1) to result in the issuance of a ``senior security'' within 
the meaning of section 18(g) of the Act in violation of section 
18(f)(1); or (2) to violate the equal voting provisions of section 
18(i) of the Act. Applicants believe that the proposed arrangement 
would permit the Trust to facilitate the distribution of its securities 
and enhance the scope and depth of its shareholder services without 
assuming excessive accounting and bookkeeping costs or unnecessary 
investment risks. Applicants also believe that the proposed allocation 
of expenses and the voting rights relating to the Administrative 
Services Plan or Rule 12b-1 Plan in the manner described above is 
equitable and would not discriminate against any group of shareholders.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. Each class of shares of each Portfolio of the Trust will 
represent interests in the same portfolio of investments of a Portfolio 
of the Trust, and will be identical in all respects, except as set 
forth below. The only differences between the classes of shares of the 
Trust will relate solely to: (a) The impact of the disproportionate 
Administrative Services Plan payments, Rule 12b-1 Plan payments, and 
Class Expenses which will be limited to (i) transfer agent 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 the current shareholders of a specific class; (iii) Blue Sky 
registration fees incurred by a class; (iv) SEC registration fees 
incurred by a class; (v) the expense of administrative personnel and 
services as required to support the shareholders of a specific class; 
(vi) litigation or other legal expenses relating solely to one class; 
and (vii) trustees fees incurred as a result of issues relating to one 
class; (b) the fact that the classes will vote separately with respect 
to the Portfolio's Rule 12b-1 Plan and Administrative Services Plan; 
(c) exchange features; and (d) class designation differences.
    2. The trustees of the Trust, including a majority of the 
independent trustees, will approve the offering of two classes of 
shares (the ``Dual Class System''). The minutes of the respective 
meetings of the trustees regarding the deliberations of the trustees 
with respect to the approvals necessary to implement the Dual Class 
System will reflect in detail the reasons for the trustees' 
determination that the Dual Class System is in the best interests of 
both the Trust and its shareholders.
    3. On an ongoing basis, the trustees of the Trust, pursuant to 
their fiduciary responsibilities under the Act and otherwise, will 
monitor the Portfolios for the existence of any material conflicts 
among the interests of the two classes of shares. The trustees, 
including a majority of the non-interested trustees, shall take such 
action as is reasonably necessary to eliminate any such conflicts that 
may develop. Hawaiian Trust Company, Limited as adviser and Aquila 
Distributors, Inc. as 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 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 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 Portfolio to meet class 
expenses shall provide to the trustees of the Trust, 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.
    5. Any Administrative 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 of Service Shares need not enjoy the voting 
rights specified in rule 12b-1.
    6. The trustees of the Trust 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 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 trustees 
to justify any fee attributable to that class. The statements, 
including the allocations upon which they are based, will be subjected 
to the review and approval of the independent trustees in the exercise 
of their fiduciary duties.
    7. Dividends paid by a Portfolio 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 payments made by Service Shares under the Rule 12b-
1 Plan or Administrative Services Plan, and any Class Expenses, will be 
borne exclusively by that class.
    8. The methodology and procedures for calculating the net asset 
value, dividends and distributions of the classes of shares and the 
proper allocation of expenses between those classes has been reviewed 
by an expert (the ``Expert'') who has rendered a report to applicants, 
which has been provided to the staff of the SEC, 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 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 
Trust that the calculations 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 such reports, following request by the 
Trust (which the Trust agrees to provide), will be available for 
inspection by the SEC staff upon the written request to the Trust 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 Administrators or Associate and Assistant Administrators. The 
initial report of the Expert is a ``report on policies and procedures 
placed in operation,'' as defined and described in Statement of 
Auditing Standards (``SAS'') No. 70 of the American Institute of 
Certified Public Accountants (``AICPA''), 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 values, dividends and distributions of the two classes of 
shares and the proper allocation of expenses between the classes of 
shares, and this representation has been concurred with by the Expert 
in the initial report referred to in condition 8 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 8 above. Applicants will take immediate corrective 
measures if this representation is not concurred in by the Expert or 
appropriate substitute Expert.
    10. The prospectus for each Portfolio will contain a statement to 
the effect that a salesperson and any other person entitled to receive 
compensation for selling or servicing Portfolio shares may receive 
different compensation with respect to one particular class of shares 
over another in the same Portfolio.
    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 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 trustees with respect to the 
Dual Class System will be set forth in guidelines which will be 
furnished to the trustees.
    13. Each Portfolio will disclose the expenses, performance data, 
distribution arrangement, services, fees, sales loads, deferred sales 
loads, and exchange privileges applicable to both classes in every 
prospectus, regardless of whether both classes are offered through each 
prospectus. Each Portfolio will disclose the respective expenses and 
performance data applicable to all classes of shares of the Portfolio 
in every shareholder report. The shareholder reports will contain, in 
the statement of assets and liabilities and statement of operations, 
information related to each Portfolio as a whole generally and not on a 
per class basis. Each Portfolio's per share data, however, will be 
prepared on a per class basis with respect to all classes of shares of 
such Portfolio. To the extent any advertisement or sales literature 
describes the expenses or performance data applicable to any class of 
shares in a Portfolio, it will also disclose the respective expenses 
and/or performance data applicable to all classes of shares in such 
Portfolio. The information provided by the applicants for publication 
in any newspaper or similar listing of each Portfolio's net asset value 
and public offering price will present each class of shares separately.
    14. Applicants acknowledge that the grant of the requested 
exemptive order will not imply SEC approval, authorization, or 
acquiescence in any particular level of payments that the Trust may 
make pursuant to its Administrative Services or Rule 12b-1 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. 94-28781 Filed 11-21-94; 8:45 am]
BILLING CODE 8010-01-M