[Federal Register Volume 64, Number 182 (Tuesday, September 21, 1999)]
[Notices]
[Pages 51152-51155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24547]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24014; 812-648]
Stein Roe Floating Rate Income Fund, et al., Notice of
Application
September 15, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
18(c) and 18(i) of the Act, under sections 6(c) and 23(c)(3) of the Act
for an exemption from rule 23c-3 under the Act, and pursuant to section
17(d) of the Act and rule 17d-1 under the Act.
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Summary of Application
Applicants request an order to permit certain registered closed-end
management investment companies to issue multiple classes of shares,
and impose asset-based distribution fees and early withdrawal charges.
Applicants
Stein Roe Floating Rate Income Fund (the ``Trust'' or a ``Fund''),
Stein Roe Advisor Floating Rate Advantage Fund (the ``Floating Rate
Fund'' or a ``Fund'' and together with the Trust, the ``Funds''), Stein
Roe Floating Rate Limited Liability Company (the ``Portfolio''), Stein
Roe & Farnham Incorporated (the ``Adviser''), Liberty Funds
Distributor, Inc. (the ``Distributor''), and Colonial Management
Associates, Inc. (the ``Administrator'').
Filing Dates
The application was filed on June 9, 1999 and amended on August 27,
1999. Applicants have agreed to file an amendment during the notice
period, the substance of which is reflected in this notice.
Hearing or Notification of Hearing
An order granting the application will be issued unless the
Commission orders a hearing. Interested persons may request a hearing
by writing to the Commission's Secretary and serving applicants with a
copy of the request,
[[Page 51153]]
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on October 12, 1999, 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 Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC
20549-0609; Applicants, One Financial Center, Boston, MA 02111.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Senior Counsel, at (202) 942-0574, or Christine Y.
Greenlees, 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
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington,
DC 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. Each Fund is organized as a Massachusetts business trust. The
Trust is, and the Floating Rate Fund will be, registered under the Act
as closed-end management investment companies. The Portfolio is
organized as a Delaware limited liability company, and is registered
under the Act as a closed-end management investment company.
2. The Adviser, registered under the Investment Advisers Act of
1940 (``Advisers Act''), has overall responsibility for the management
of the Funds and serves as investment adviser to the Portfolio and will
serve as investment adviser to the Floating Rate Fund. The Distributor,
a broker-dealer registered under the Securities Exchange Act of 1934,
distributes each Fund's shares. The Administrator is registered under
the Advisers Act and serves as administrator to the Floating Rate Fund.
Each of the Adviser, the Distributor, and the Administrator is an
indirect wholly-owned subsidiary of Liberty Financial Companies, Inc.,
which is a majority-owned subsidiary of Liberty Mutual Insurance
Company. Applicants request that the order also apply to any other
registered closed-end investment company for which the Administrator,
the Adviser or the Distributor or any entity controlling, controlled
by, or under common control with the Administrator, the Adviser or the
Distributor acts as investment adviser or principal underwriter.\1\
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\1\ Any registered closed-end investment company relying on this
relief in the future will do so in a manner consistent with the
terms and conditions of the application. Applicants represent that
each investment company presently intending to rely on the relief
requested in this application is listed as an applicant.
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3. Each Fund's investment objective is to provide a high level of
current income, consistent with the preservation of capital. The Trust
operates as a feeder fund in a
master/feeder structure and invests all of its net investable assets in
the Portfolio, a master fund with the same investment objective and
policies as the Trust. The Portfolio does, and the Floating Rate Fund
will, invest primarily in senior secured floating or variable rate
loans made by commercial banks, investment banks and finance companies
to commercial and industrial borrowers (``Loans''). Under normal market
conditions, at least 80% of each of the Portfolio's and the Floating
Rate Fund's total assets will be invested in Loans. Up to 20% of each
of the Portfolio's and the Floating Rate Fund's total assets may be
invested in high quality, short-term debt securities with remaining
maturities of one year or less and warrants, equity securities and, in
limited circumstances, junior debt securities acquired in connection
with investments in Loans.
4. The Trust does, and the Floating Rate Fund intends to,
continuously offer their shares to the public at net asset value. The
Trust's shares are not, and the Floating Rate Fund's shares will not
be, offered or traded in the secondary market and will not be listed on
any exchange or quoted on any quotation medium. The Trust and the
Portfolio do, and the Floating Rate Fund intends to, operate as an
``interval fund'' pursuant to rule 23c-3 under the Act and make
periodic repurchase offers to their shareholders.
5. The Trust currently does not have multiple classes of shares.
Applicants propose to structure each of the Funds as a multiple-class
fund, with each class of shares having a different sales charge
structure. Each Fund will offer four classes of shares: Class A Shares,
Class B Shares, Class C Shares, and Class Z Shares. Class A Shares will
be issued upon automatic conversion of Class B Shares, as described
below, and also may be offered with a front-end sales load that may be
waived in certain circumstances. Class B Shares will be offered with no
front-end sales charge but will be subject to an early withdrawal
charge (``EWC'') that declines over time to 0% after the end of the
eighth year that a shareholder owns Class B Shares. Class B Shares will
automatically convert to Class A Shares eight years from the date of
purchase. Shareholders will not incur any sales charge on the
conversion of Class B Shares to Class A Shares. Class C Shares will be
offered with no front-end sales charge but will be subject to an EWC of
1% during the first three years that a shareholder owns Class C Shares.
The Class B and Class C EWCs may be waived in certain circumstances.
Class A, Class B and Class C Shares will be subject to an annual
service fee of .25% of average daily net assets. In addition, Class A
Shares will be subject to an annual distribution fee of .10% of average
daily net assets. Each of Class B Shares and Class C Shares will be
subject to an annual distribution fee of up to .75% of average daily
net assets. The shares currently offered by the Trust will be
designated Class Z Shares, and each Fund also will offer Class Z Shares
that will be sold to institutional investors. Class Z Shares are not
and will not be subject to distribution fees, service fees, front-end
sales charges, or EWCs. Applicants represent that the service and
distribution fees will comply with the provisions of rule 2830(d) of
the Conduct Rules of the National Association of Securities Dealers,
Inc. (``NASD'') as if each Fund were an open-end investment company.
Applicants also represent that each Fund will disclose in its
prospectus the fees, expenses and other characteristics of each class
of shares offered for sale, as is required for open-end multi-class
funds under Form N-1A.
6. All expenses incurred by a Fund will be allocated among the
various classes of shares based on the net assets of a Fund
attributable to each class, except that the net asset value and
expenses of each class will reflect distribution fees, service fees
(including transfer agency fees), and any other incremental expenses of
that class. Expenses of a Fund allocated to a particular class of
shares will be borne on a pro rata basis by each outstanding share of
that class. Each Fund may create additional classes of shares in the
future that may have different terms from Class A, Class B, Class C,
and Class Z Shares. Applicants state that each Fund will comply with
the provisions of rule 18f-3 under the Act as if it were an open-end
investment company.
7. Each Fund may waive the EWC for certain categories of
shareholders or transactions to be established from time to time. With
respect to any waiver of, scheduled variation in, or elimination of the
EWC, a Fund will comply with rule
[[Page 51154]]
22d-1 under the Act as if it were an open-end investment company.
8. Each Fund may offer its shareholders an exchange feature under
which shareholders of a Fund may, during any quarterly repurchase
period, exchange their shares for shares of the same class of other
funds in the Liberty group of investment companies. Any exchange option
will comply with rule 11a-3 under the Act as if a Fund were an open-end
investment company subject to that rule. In complying with rule 11a-3,
a Fund will treat the EWC as if it were a contingent deferred sales
charge (``CDSC'').
Applicants' Legal Analysis
Multiple Classes of Shares
1. Section 18(c) of the Act provides, in relevant part, that a
closed-end investment company may not issue or sell any senior security
if, immediately thereafter, the company has outstanding more than one
class of senior security. Applicants state that the creation of
multiple classes of shares of a Fund may be prohibited by section
18(c).
2. Section 18(i) of the Act provides that each share of stock
issued by a registered management investment company will be a voting
stock and have equal voting rights with every other outstanding voting
stock. Applicants state that multiple classes of shares of a Fund may
violate section 18(i) of the Act because each class would be entitled
to exclusive voting rights with respect to matters solely related to
that class.
3. Section 6(c) of the Act provides that the Commission 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.
Applicants request an exemption under section 6(c) of the Act from
sections 18(c) and 18(i) of the Act to permit a Fund to issue multiple
classes of shares.
4. Applicants submit that the proposed allocation of expenses and
voting rights among multiple classes is equitable and will not
discriminate against any group or class of shareholders. Applicants
submit that the proposed arrangements would permit a Fund to facilitate
the distribution of its securities and provide investors with a broader
choice of shareholder services. Applicants assert that their proposal
does not raise the concerns underlying section 18 of the Act to any
greater degree than open-end investment companies' multiple class
structures that are permitted by rule 18f-3 under the Act. Applicants
state that a Fund will comply with the provisions of rule 18f-3 as if
it were an open-end investment company.
Early Withdrawal Charges
5. Section 23(c) of the Act provides, in relevant part, that no
registered closed-end investment company will purchase any securities
of which it is the issuer, except: (i) On a securities exchange or
other open market; (ii) pursuant to tenders, after reasonable
opportunity to submit tenders given to all holders of securities of the
class to be purchased; or (iii) under other circumstances as the
Commission may permit by rules and regulations or orders for the
protection of investors.
6. Rule 23c-3 under the Act permits a registered closed-end
investment company (an ``interval fund'') to make repurchase offers of
between five and twenty-five percent of its outstanding shares at net
asset value at periodic intervals pursuant to a fundamental policy of
the interval fund. Rule 23c-3(b)(1) under the Act provides that an
interval fund may deduct from repurchase proceeds only a repurchase
fee, not to exceed two percent of the proceeds, that is reasonably
intended to compensate the fund for expenses directly related to the
repurchase.
7. Section 23(c)(3) provides that the Commission may issue an order
that would permit a closed-end investment company to repurchase its
shares in circumstances in which the repurchase is made in a manner or
on a basis which does not unfairly discriminate against any holders of
the class or classes of securities to be purchased. As noted above,
section 6(c) provides that the Commission may exempt any person,
security or transaction from any provision of the Act, if and to the
extent that the 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.
Applicants request relief under sections 6(c) and 23(c) from rule 23c-3
to permit them to impose EWCs on shares submitted for repurchases that
have been held for less than a specified period.
8. Applicants submit that the requested relief meets the standards
of sections 6(c) and 23(c)(3). Rule 6c-10 under the Act permits open-
end investment companies to impose deferred sales charges, subject to
certain conditions. Applicants state that EWCs are functionally similar
to CDSCs imposed by open-end investment companies under rule 6c-10
under the Act. Applicants state that EWCs may be necessary for the
Distributor to recover distribution costs and that EWCs may discourage
investors from moving their money quickly in and out of a Fund, a
practice that applicants submit imposes costs on all shareholders.
Applicants will comply with rule 6c-10 under the Act as if that rule
applied to closed-end investment companies. Each fund also will
disclose EWCs in accordance with the requirements of Form N-1A
concerning CDSCs. Applicants further state that each Fund will apply
the EWC (and any waivers or scheduled variations of the EWC) uniformly
to all shareholders in a given class and consistent with the
requirements of rule 22d-1 under the Act.
Asset-Based Distribution Fees
9. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company or an
affiliated person of such person, acting as principal, from
participating in or effecting any transaction in connection with any
joint enterprise or joint arrangement in which the investment company
participates unless the Commission issues an order permitting the
transaction. In reviewing applications submitted under section 17(d)
and rule 17d-1, the Commission considers whether the participation of
the investment company in a joint enterprise or joint arrangement is
consistent with the provisions, policies and purposes of the Act, and
the extent to which the participation is on a basis different from or
less advantageous than that of other participants.
10. Rule 17d-3 under the Act provides an exemption from section
17(d) and rule 17d-1 to permit open-end investment companies to enter
into distribution arrangements pursuant to rule 12b-1 under the Act.
Applicants request an order under section 17(d) and rule 17d-1 to
permit each Fund to impose asset-based distribution fees. Applicants
have agreed to comply with rules 12b-1 and 17d-3 as if those rules
applied to closed-end investment companies.
Applicant's Condition
Applicants agree that any order granting the requested relief will
be subject to the following condition:
Applicants will comply with the provisions of rules 6c-10, 11a-3,
12b-1, 17d-3, 18f-3, and 22d-1 under the Act and NASD Conduct Rule
2830(d), as amended from time to time, as if those rules applied to
closed-end investment companies.
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For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24547 Filed 9-20-99; 8:45 am]
BILLING CODE 8010-01-M