Stein Roe Floating Rate Income Fund, et al., Notice of Application

[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,

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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

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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