[Federal Register Volume 62, Number 232 (Wednesday, December 3, 1997)]
[Notices]
[Pages 63987-63989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31620]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22904/812-10608]
Acorn Investment Trust; Notice of Application
November 24, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for an order (i) under section 6(c) of
the Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 13(a)(2), 18(f)(1), 22(f), and 22(g) of the Act; (ii) under
sections 6(c) and 17(b) of the Act for an exemption from section
17(a)(1); and (iii) under section 17(d) of the Act and rule 17d-1 to
permit certain joint transactions.
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SUMMARY OF APPLICATION: Applicant requests an order to permit Acorn
Investment Trust (``Acorn'') to enter into deferred compensation
arrangements with its trustees who are not interested persons of Acorn.
Filing Dates: The application was filed on April 7, 1997 and
amended on August 22, 1997. Applicant has 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 applicant 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
22, 1997, and should be accompanied by proof of service on applicant,
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. Acorn Investment Trust, 227 West Monroe Street, Suite 3000,
Chicago, Illinois 60606.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Mary Kay Frech,
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, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicant's Representations
1. Acorn is a registered open-end management investment company
organized as a Massachusetts business trust. Acorn currently offers
three series: Acorn Fund, Acorn International, and Acorn USA (the
``Acorn Funds,'' together with any additional series offered by Acorn
in the future, the ``Funds''). Wagner Asset Management, L.P. serves as
investment adviser to the Funds. Acorn requests that the relief apply
to the Funds and any successors in interest to Acorn or any existing or
future series thereof.\1\
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\1\ For purposes of the application, ``successors in interest''
is limited to entities that result from a reorganization due to
change of legal domicile or a change in form of business
organization, e.g., partnership to corporation.
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2. Acorn's board of trustees (``Trustees'') currently consists of
nine persons, seven of whom are not ``interested persons'' of Acorn
within the meaning of Section 2(a)(19) of the Act (``Eligible
Trustees''). Each Eligible Trustee receives an annual retainer plus an
additional fee for each board meeting and each pricing committee
meeting attended. Acorn's Trustees have approved a deferred
compensation plan for the Eligible Trustees (the ``Plan''). The
purposes of the Plan is to permit the Eligible Trustees to defer any or
all of their compensation from Acorn for federal income tax purposes.
An Eligible Trustee's election to defer any or all of such compensation
will continue in effect for each calendar year unless the Eligible
Trustee delivers to the administrator of the Plan a written revocation
or modification of the election.
3. If an Eligible Trustee elects to defer compensation pursuant to
the Plan, compensation will be credited to a book reserve account
established by Acorn (the ``Deferral Account''), as of the date the
compensation otherwise would have been payable to the Eligible Trustee.
Each Eligible Trustee may elect to have his or her compensation treated
as if it had been invested and reinvested in shares of one or more of
the Funds or of any unaffiliated money market fund with which the Funds
enjoy exchange privileges (``Shares''), and may from time to time
change his or her designation of Shares.\2\
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\2\ The Plan may be amended in the future to permit an Eligible
Trustee to have the return on the compensation measured by the
return on shares of an investment company other than one of the
Acorn Funds or an unaffiliated money market fund.
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4. The compensation credited to a Deferral Account for each
Eligible Trustee will be treated as if it had been invested in the
Shares at the current net asset value (``NAV'') of the Shares on the
date the compensation is credited to the Deferral Account. Thereafter,
the value of the Deferral Account will fluctuate as the NAV of the
Shares fluctuates, and will also reflect the value of the assumed
reinvested dividends or capital gains distributions in additional
Shares. It is intended that each Fund may purchase Shares in amounts
equal to the deemed investment of the Deferral Accounts of the Eligible
Trustees.\3\ If a Fund purchases Shares, the Shares will be held solely
in the name of that Fund. When a Fund purchases Shares, liabilities
created by the credits to the Deferral Accounts under the Plan are
expected to be matched by an equal amount of assets (i.e., a direct
investment in the Shares).
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\3\ Acorn's purchase of Shares will be made for the benefit of
Acorn and not for the benefit of participating Eligible Trustees.
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5. The Plan provides that each Fund's respective obligation to make
payments of amounts accrued in each of the Deferral Accounts will be a
general obligation of that Fund, and payments made pursuant to the Plan
will be made from that Fund's general assets and property. No Fund will
be liable for any other Fund's respective obligation to make payments
under the Plan. Each Eligible Trustee will be a general unsecured
creditor of a Fund. The Plan also provides that a Fund will not be
under an obligation to purchase, hold, or dispose of any investments
under the Plan. If a Fund chooses to purchase investments to cover its
obligations under the Plan, such investments will
[[Page 63988]]
continue to be a part of the general assets and property of that Fund.
Applicants state that the number of Shares purchased under the Plan
will be de minimis in relation to the size of each Fund.
6. Under the Plan, amounts credited to an Eligible Trustee's
Deferral Account generally will become payable in cash when an Eligible
Trustee retires from the board. An Eligible Trustee may elect to
receive payment in a lump sum or in equal annual installments over a
period of five years. If an Eligible Trustee dies prior to the
commencement of the distribution from the Deferral Account, the balance
of the Deferral Account will be distributed to the Eligible Trustee's
designated beneficiary in a lump sum as soon as practicable. If an
Eligible Trustee dies after the commencement of such distribution, but
prior to the complete distribution of the Deferral Account, the balance
will be distributed to the beneficiary over the remaining distribution
period. The Trustees, in their sole discretion, may accelerate the
distribution of the Deferral Account. In all other events, the Eligible
Trustee's right to receive distributions from the Deferral Account will
be non-transferable.
7. The Plan also permits an Eligible Trustee to apply to the Plan
administrator at any time for a full or partial withdrawal on the basis
of ``hardship or unforeseen emergency'' as defined in the Plan. The
Plan has reserved the right to accelerate or extend payment of amounts
in the Deferral Account at any time after the termination of the
Eligible Trustee's service as a trustee or in the event of a change in
control of Acorn's investment adviser. In addition, in the event of
liquidation, dissolution, or winding up of Acorn or the distribution of
all or substantially all of Acorn's assets and property to its
shareholders, or in the event of a merger or reorganization of Acorn
(unless prior to such merger or reorganization, the Trustees determine
that the Plan shall survive the merger or reorganization), all unpaid
amounts in the Deferral Accounts will be paid in a lump sum to the
Eligible Trustees on the effective date of such liquidation,
dissolution, winding up, distribution, merger, or reorganization.
Applicant's Legal Analysis
1. Applicant requests an order under (i) section 6(c) of the Act to
exempt Acorn from the provisions of sections 13(a)(2), 18(f)(1), 22(f),
and 22(g) to the extent necessary to permit Acorn to implement the
Plan; (ii) sections 6(c) and 17(b) of the Act to exempt Acorn from the
provisions of section 17(a) to permit each Fund to sell securities of
which it is the issuer to other Funds in connection with the Plan; and
(iii) section 17(d) of the Act and rule 17d-1 to permit Acorn and the
Eligible Trustees to effect certain transactions incident to the Plan.
2. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act, if and
to the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
3. Section 18(f)(1) of the Act generally prohibits a registered
open-end investment company from issuing senior securities. In
addition, section 13(a)(2) of the Act requires that a registered
investment company obtain shareholder authorization before issuing any
senior security not contemplated by the recitals of policy in its
registration statement. Section 18(g) of the Act defines ``senior
security'' to include ``any bond, debenture, note or similar obligation
or instrument constituting a security and evidencing indebtedness.''
Applicant states that the plan does not possess any of the
characteristics of senior securities that led to the enactment of
sections 13(a)(2) and 18(f)(1). Applicant states that Acorn will not be
``borrowing'' from its Eligible Trustees, and liabilities created by
credits to the Deferral Accounts under the Plan are expected to be
offset by equal amounts of assets of Acorn that would not otherwise
exist if the compensation was paid on a current basis. Applicant
asserts that the Plan will not induce speculative investments by Acorn
or provide opportunity for manipulative allocation of the expenses and
profits of Acorn. Applicant also asserts that the control of Acorn will
not be affected, and the Plan will not confuse investors.
4. Section 22(f) prohibits restrictions on the transferability of
negotiability of redeemable securities issued by an open-end investment
company unless the restrictions are disclosed in its registration
statement and do not contravene SEC rules and regulations. Applicant
asserts that the restriction on the transferability of benefits under
the Plan is clearly described in the Plan, is included in the Plan
primarily to benefit the Eligible Trustees, and would not advserely
affect the interests of Acorn's shareholders.
5. Section 22(g) generally prohibits registered open-end investment
companies from issuing any of their securities for services or for
property other than cash or securities. Applicant believes that section
22(g) is primarily concerned with the dilutive effect on the equity and
voting power of the common stock of an investment company if securities
are issued for consideration not readily valued. Applicant asserts that
interests under the Plan will not entitle the Eligible Trustees to vote
as shareholders or participate in the profit and gain of Acorn. In
addition, applicant asserts that the Eligible Trustees' interests in
the Plan are non-transferable, and an Eligible Trustee's right to
receive payments under the Plan is not granted in return for services.
Thus, applicant contends that the Plan merely provides for the deferral
of compensation and any rights under the Plan should be viewed as being
``issued'' in return for Acorn not being required to pay the
compensation on a current basis.
6. Section 17(a)(1) of the Act generally prohibits an affiliated
person of a registered investment company, or any affiliated person of
such person, from selling any security to such registered investment
company. Applicant submits that the Funds and other investment
companies that have the same investment adviser may be ``affiliated
persons'' within the meaning of section 2(a)(3) of the Act. Applicant
states that section 17(a)(1) was designed to prevent sponsors of
investment companies from using investment company assets as capital
for enterprises with which they are associated or to acquire
controlling interests in such enterprises. Applicant believes that an
exemption from this provision would facilitate the matching of its
liability for deferred compensation with the value of the Shares chosen
by the Eligible Trustees.
7. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) the
terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching, (b)
the transaction is consistent with the policy of each registered
investment company concerned, and (c) the transaction is consistent
with the general purposes of the Act. Applicant submits that the terms
of the proposed transactions under the Plan that involve the
acquisition of Shares by Funds are fair and reasonable to all parties,
are consistent with the Act and the Funds' policies, and meet all the
standards of section 17(b) of the Act. Applicant further submits that
the requested relief from various provisions of the Act meets the
standards for an exemption set forth in section 6(c) of the Act.
[[Page 63989]]
8. Section 17(d) and rule 17d-1 prohibit affiliated persons from
participating in joint arrangements with a registered investment
company unless authorized by the SEC. In passing on applications for
such orders, rule 17-d provides that the SEC will consider whether the
participation of such investment company is consistent with the
provisions, policies, and purposes of the Act and the extent to which
such participation is on a basis different from or less advantageous
than that of other participants. Applicant asserts that the Eligible
Trustees will neither directly nor indirectly receive benefits that
would otherwise inure to Acorn or its shareholders because (a) a Fund
may choose to invest in Shares, (b) amounts credited to the Deferral
Account will be adjusted to reflect income, gains, and losses relating
to the investment of the assets of such Fund, and (c) such income,
gains, or losses will be identical to what any shareholder in that Fund
would receive whose shares were not subject to the Plan. Applicants
contend that deferral of an Eligible Trustee's compensation in
accordance with the Plan would essentially maintain the parties, viewed
both separately and in their relationship to one another, in the same
position as if the compensation were paid on a current basis and then
invested in the Shares.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-31620 Filed 12-2-97; 8:45 am]
BILLING CODE 8010-01-M