51762 Federal Register / Vol. 62, No. 192 / Friday, October 3, 1997 / Rules and Regulations

based companies in domestic and

export markets.

Executive Order 12866

The Attorney General has determined

that this rule is a significant regulatory

action under Executive Order 12866,

and accordingly this rule has been

reviewed by the Office of Management

and Budget.

Executive Order 12612

The regulation adopted herein will

not have substantial direct effects on the

States, on the relationship between the

National Government and States, or on

the distribution or power and

responsibilities among the various

levels of government. Therefore, in

accordance with Executive Order 12612,

it is determined that this rule does not

have sufficient federalism implications

to warrant the preparation of a

Federalism Assessment.

Executive Order 12988 Civil Justice

Reform

This interim rule meets the applicable

standards set forth in sections 3(a) and

3(b)(2) of E.O. 12988.

List of Subjects in 8 CFR Part 140

Administrative practice and

procedure, Aliens, Immigration.

Accordingly, part 240 of chapter I of

Title 8 of the Code of Federal

Regulations is amended as follows:

PART 240—PROCEEDINGS TO

DETERMINE REMOVABILITY OF

ALIENS IN THE UNITED STATES

1. The authority citation for part 240

continues to read as follows:

Authority: 8 U.S.C. 1103, 1182, 1186a,

1224, 1225, 1226, 1227, 1251, 1252 note,

1252a, 1252b, 1362; 8 CFR part 2.

2. Section 240.21 is added to read as

follows:

§ 240.21 Suspension of deportation and

adjustment under section 244(a) of the Act

(as in effect before April 1, 1997) and

cancellation of removal and adjustment

under section 240A(b) of the Act for certain

nonpermanent residents.

(a) Applications for suspension of

deportation under section 244(a) of the

Act (as in effect before April 1, 1997) or

cancellation of removal and adjustment

of status under section 240A(b) of the

Act that meet the statutory requirements

and warrant a favorable exercise of

discretion may be granted only on a

conditional basis. The order

conditionally granting relief shall state

which paragraph of section 244(a) of the

Act (as in effect before April 1, 1997) or

section 240A(b) of the Act applies. No

application for suspension or

cancellation shall receive a favorable

exercise of discretion where the

applicant has been granted asylum or

adjustment of status while the

suspension or cancellation application

is pending. A decision to deny as a

matter of discretion an application for

suspension or cancellation on this basis

shall be reconsidered where an appeal

of a decision granting asylum or

adjustment is sustained by the Board of

Immigration Appeals.

(b) An alternate order of voluntary

departure, deportation, or removal must

be entered when there is a conditional

grant of suspension or cancellation. The

alternate order shall take effect if the

condition is not ultimately removed.

(c) An order conditionally granting an

application for suspension or

cancellation is appealable to the Board

pursuant to the procedures set forth in

this chapter, and the time for appeal by

the Service of the conditional grant or

for appeal by the alien of the finding of

deportability or of any denial of other

relief by the immigration judge shall run

from the date of such order.

(d) If, on appeal, the Board determines

that an application for suspension of

deportation or cancellation of removal

meets the statutory requirements and

warrants a favorable exercise of

discretion, such application shall be

granted on a conditional basis, even if

an immigration judge granted the

application without condition.

Dated: October 1, 1997.

Janet Reno,

Attorney General.

[FR Doc. 97–26385 Filed 10–1–97; 11:36 am]

BILLING CODE 4410–10–M

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 270

[Release No. IC–22835; File No. S7–24–96]

RIN 3235–AG72

Rule Amendments Relating to Multiple

Class and Series Investment

Companies

AGENCY: Securities and Exchange

Commission.

ACTION: Final rule.

SUMMARY: The Commission is adopting

amendments to the rule under the

Investment Company Act of 1940 that

permits open-end management

investment companies (‘‘funds’’) to

issue multiple classes of shares

representing interests in the same

portfolio. The amendments expand and

clarify the methods by which a multiple

class fund may allocate among its

classes income, gains and losses, and

expenses not allocated to a particular

class, and clarify the shareholder voting

provisions of the rule. The Commission

also is adopting a technical amendment

that clarifies the application to series

funds of the rule under the Investment

Company Act that governs the use of

fund assets to pay for the distribution of

fund shares.

EFFECTIVE DATE: November 10, 1997.

FOR FURTHER INFORMATION CONTACT:

Thomas M. J. Kerwin, Senior Counsel,

Office of Regulatory Policy, at (202)

942–0690, or, regarding accounting

issues, John S. Capone, Assistant Chief

Accountant, Office of the Chief

Accountant, at (202) 942–0590, in the

Division of Investment Management,

Mail Stop 10–2, Securities and

Exchange Commission, 450 Fifth Street,

N.W., Washington, D.C. 20549. Requests

for formal interpretive advice should be

directed to the Office of Chief Counsel

at (202) 942–0659, Division of

Investment Management, Mail Stop 10–

6, Securities and Exchange Commission,

450 Fifth Street, N.W., Washington, D.C.

20549.

SUPPLEMENTARY INFORMATION: The

Commission is adopting amendments to

rules 18f–3 [17 CFR 270.18f–3] and 12b–

1 [17 CFR 270.12b–1] under the

Investment Company Act of 1940 [15

U.S.C. 80a] (the ‘‘Investment Company

Act’’).

Executive Summary

The Commission is adopting

amendments to rule 18f–3 under the

Investment Company Act, the rule that

permits a fund to issue multiple classes

of shares representing interests in the

same investment portfolio. The

amendments expand the specified

methods a multiple class fund may use

to allocate among its classes income,

gains and losses (including unrealized

appreciation or depreciation), and

expenses not allocated to a particular

class. The amendments also permit a

fund to use any other allocation method

that the fund’s board of directors

determines is fair to the shareholders of

each class. In addition, the amendments

clarify the shareholder voting rights

provision of the rule.

The Commission also is adopting a

technical amendment to rule 12b–1

under the Investment Company Act, the

rule that governs the use of fund assets

to pay for the distribution of fund shares

in accordance with a ‘‘rule 12b–1 plan.’’

The amendment codifies existing

interpretations of how various

provisions of the rule apply to a ‘‘series’’
Federal Register / Vol. 62, No. 192 / Friday, October 3, 1997 / Rules and Regulations 51763

1 In this release, ‘‘gains and losses’’ include both

realized gains and losses and unrealized

appreciation and depreciation. ‘‘Fundwide

expenses’’ may include expenses that are

attributable to more than one class but fewer than

all classes, such as the costs of adding new classes

to an existing multiple class structure. See

Exemption for Open-End Management Investment

Companies Issuing Multiple Classes of Shares;

Disclosure by Multiple Class and Master-Feeder

Funds; Class Voting on Distribution Plans,

Investment Company Act Release No. 20915 at

nn.26–27 and accompanying text (Feb. 23, 1995) [60

FR 11876 (Mar. 2, 1995)] [hereinafter 1995 Release].

2Rule 18f–3(c)(1) [17 CFR 270.18f–3(c)(1)]; see

amended rule 18f–3(c)(1)(i) [17 CFR 270.18f–

3(c)(1)(i)].

3Rule 18f–3(c)(2) [17 CFR 270.18f–3(c)(2)]; see

amended rule 18f–3(c)(2)(i) [17 CFR 270.18f–

3(c)(2)(i)] (defining a daily dividend fund as ‘‘any

company that has a policy of declaring distributions

of net investment income daily, including any

money market fund that determines net asset value

using the amortized cost method permitted by

section 270.2a–7 [rule 2a–7]’’).

4Rule 18f–3(c)(2)(i) [17 CFR 270.18f–3(c)(2)(i)];

see amended rule 18f–3(c)(1)(iv) [17 CFR 270.18f–

3(c)(1)(iv)]. Use of this method in those

circumstances is equivalent to allocation based on

relative net assets. The rule also requires funds

using this method to obtain the agreement of their

service providers that, to the extent necessary to

assure that all classes maintain the same NAV per

share, providers will waive or reimburse class

expenses. Rule 18f–3(c)(2)(i). The amended rule

clarifies that amounts waived or reimbursed by

service providers under these agreements may not

be carried forward or recouped later. Amended rule

18f–3(c)(1)(iv).

5Rule 18f–3(c)(2)(ii) [17 CFR 270.18f–3(c)(2)(ii)];

see amended rule 18f–3(c)(1)(iii), (c)(2)(iii) [17 CFR

270.18f–3(c)(1)(iii), (c)(2)(iii)]. The settled shares

method is consistent with the policy of many daily

dividend funds to withhold dividends from nonsettled shares. Payment of dividends on non-settled

shares would dilute dividends paid on settled

shares, since fund income is attributable only to

settled shares. See Rule Amendments Relating to

Multiple Class and Series Investment Companies,

Investment Company Act Release No. 22203 at n.7

(Sept. 9, 1996) [61 FR 49022 (Sept. 17, 1996)]

[hereinafter Proposing Release] (investor’s payment

in federal funds may not be collected until three

days after share purchase; at time of purchase fund

may buy portfolio securities to be paid for in three

days, but fund does not earn interest on securities

until it makes payment; buying other portfolio

securities that settle daily against federal funds is

not feasible until investor’s payment has been

collected).

6See Proposing Release, supra note .

7See Letter from Subcommittee on Investment

Companies and Investment Advisers, Committee on

Federal Regulation of Securities, Section of

Business Law, American Bar Association (‘‘ABA’’),

to Jonathan G. Katz, Secretary, SEC (Nov. 19, 1996)

(hereinafter ‘‘ABA Letter’’); Letter from Gregory M.

Smith, Director-Operations, Investment Company

Institute (‘‘ICI’’), to Jonathan G. Katz, Secretary, SEC

(Nov. 18, 1996) (hereinafter ‘‘ICI Letter’’).

8Such orders may require compliance with

conditions, such as disclosure of differences among

multiple classes, that do not apply to multiple class

funds that rely on rule 18f–3 and related

requirements of Form N–1A [17 CFR 239.15A,

274.11A].

9See amended rule 18f–3(c)(1)(iii).

10Amended rule 18f–3(c)(1)(iii). The staff of the

Commission previously approved use of this

combination of methods. See Letter from the

Division of Investment Management to Investment

Company Chief Financial Officers at 5 (Nov. 2,

1995).

11See ICI Letter, supra note 7, at 2 (daily dividend

funds generally process purchase orders when

received, before the collection of payment in federal

funds, to enable the purchaser of non-settled shares

to participate in changes in NAV per share from

appreciation or depreciation of portfolio securities

during collection period; most funds nevertheless

pay dividends only on settled shares). Combining

these methods may be essential if a fund maintains

the same NAV per share for all classes, since

allocating gains and losses (which affect NAV)

based only on settled shares could cause a

divergence in NAV among classes. See Proposing

Release, supra note , at n.11 (use of settled shares

method requires reduction of net assets of fund and

each class by unpaid subscriptions; percentage

reduction of each class’s net assets would vary for

each class because of differing amounts of nonsettled shares; resulting different allocations of

gains and losses to each class would affect NAV

differently).

12Amended rule 18f–3(c)(1)(ii), (c)(2)(iv) [17 CFR

270.18f–3(c)(1)(ii), (c)(2)(iv)].

13Amended rule 18f–3(c)(2)(iv). For example, if

fundwide expenses amounted to .75% of net assets

for each class on average, and Class A were assessed

a class expense ratio of .30% of net assets annually

Continued

fund (i.e., a fund that offers investors an

opportunity to invest in one or more

portfolios, each of which has a specific

investment objective).

I. Discussion

A. Rule 18f–3

Rule 18f–3 under the Investment

Company Act establishes a framework

for a fund’s issuance of multiple classes

of shares representing interests in the

same portfolio. A fund generally

establishes a multiple class arrangement

to offer investors a choice of methods

for paying distribution costs or to allow

the fund to use alternative distribution

channels more efficiently. Rule 18f–3

addresses issues that may create

conflicts among multiple classes,

including how a fund must allocate to

each class its share of income, gains and

losses, and expenses that are not

allocated to a particular class

(‘‘fundwide expenses’’).1

Rule 18f–3(c) permits a fund generally

to allocate income, gains and losses, and

fundwide expenses based on the ratio of

class net assets to fund net assets

(‘‘relative net assets’’).2 The rule also

permits a fund that declares dividends

daily (a ‘‘daily dividend fund’’), such as

a money market fund, to select either of

two alternative allocation methods.3 A

daily dividend fund that maintains the

same net asset value (‘‘NAV’’) per share

in each class may allocate income, gains

and losses, and fundwide expenses to

each share without regard to class.4 A

daily dividend fund that maintains the

same NAV per share in each class may

also make these allocations to each class

based on relative net assets after

subtracting the value of subscriptions

for non-settled shares (i.e., shares for

which payment in federal funds has not

been received) (the ‘‘settled shares

method’’).5

In September 1996 the Commission

proposed amendments to rule 18f–3 to

give daily dividend funds greater

flexibility in using the settled shares

method, to permit funds to use a new

allocation method (the ‘‘simultaneous

equations method’’), and to clarify

certain other aspects of the rule.6 The

Commission received letters from two

commenters in response to the proposal,

both generally favoring the proposed

amendments.7 The Commission is

adopting the proposed amendments

with certain revisions, as described

below.

1. Expanded Allocation Methods

a. Settled Shares Method. Some daily

dividend funds use the settled shares

method in reliance upon exemptive

orders that predate the adoption of rule

18f–3.8 These funds have been unable to

rely on rule 18f–3 because they do not

maintain the same NAV per share in

each class, a condition for use of the

settled shares method under the rule.

Because the settled shares method

produces appropriate allocations even if

NAV per share differs among classes,

the Commission proposed to amend rule

18f–3 to permit a daily dividend fund to

use the settled shares method without

maintaining the same NAV per share in

each class. Commenters supported the

amendment, which the Commission is

adopting as proposed.9

The Commission is also amending

rule 18f–3 to clarify that a daily

dividend fund may simultaneously use

the settled shares method to allocate

income and fundwide expenses and use

the relative net assets method to allocate

gains and losses.10 This combination of

methods is consistent with fund policies

that commonly permit the participation

of non-settled shares in any increase or

decrease in NAV that results from

appreciation or depreciation of portfolio

securities, while excluding non-settled

shares from participation in daily

dividends.11

b. Simultaneous Equations Method.

The Commission is adopting, as

proposed, an amendment to rule 18f–3

to permit any fund to allocate income,

gains and losses, and fundwide

expenses based on an additional

method, the ‘‘simultaneous equations

method.’’ 12 Under this method,

allocations are based on simultaneous

equations designed to produce an

annualized rate of return of each class

that generally differs from that of the

other classes only by the expense

differentials among the classes.13 A fund
51764 Federal Register / Vol. 62, No. 192 / Friday, October 3, 1997 / Rules and Regulations

and Class B were assessed .80% for class expenses,

use of the simultaneous equations method during

a full year that produced gross returns of 10.75%

should result in an annualized rate of return of

approximately 9.70% for Class A and 9.20% for

Class B.

14The equations should allocate the day’s

income, realized gains (or losses), unrealized

appreciation (or depreciation), and fundwide

expenses and reallocate each class’s undistributed

net investment income, undistributed realized gains

(or losses), and unrealized appreciation (or

depreciation).

15An example of equations for a fund having two

classes of shares appeared in an appendix to the

Proposing Release, and is attached to this release as

Appendix A.

16See ICI Letter, supra note 7, at 2

(recommending that Commission not specify

particular equations). Any equations selected

generally should be applied on a consistent basis.

See infra note 21 and accompanying text.

17Amended rule 18f–3(c)(1)(v) [17 CFR 270.18f–

3(c)(1)(v)]; see section 2(a)(19) of the Investment

Company Act [15 U.S.C. 80a–2(a)(19)] (defining

‘‘interested person’’ of a fund).

18See supra note 13 and accompanying text.

19The allocation methods specified in the rule

provide standards for determining whether a new

allocation method is fair to shareholders.

20The amended rule should not impose

significant additional burdens on fund boards,

which remain free to permit only the use of one of

the allocation methods specified in the rule.

21Amended rule 18f–3(c)(1) [17 CFR 270.18f–

3(c)(1)]; see also 1995 Release, supra note 1, at text

accompanying nn. 24–25. Because the selected

allocation method should be consistently applied

from period to period, changes in the method are

expected to be rare. See also rule 18f–3(d) [17 CFR

270.18f–3(d)] (before any material amendment of a

plan governing a multiple class arrangement, the

fund’s directors must determine that the plan as

proposed to be amended, including the expense

allocation, is in the best interests of each class

individually and the fund as a whole).

22The purchase class typically pays an assetbased distribution fee and a contingent deferred

sales charge. The conversion feature is intended to

permit long-term shareholders to receive the benefit

of a lower distribution fee (or no fee) charged to the

target class. See Proposing Release, supra note 5, at

n.16 and accompanying text.

23 In the alternative, the fund could establish a

new target class for purchase class shareholders on

the same terms that applied to the target class

before the increase.

24Amended rule 18f–3(e)(2)(iii) [17 CFR 270.18f–

3(e)(2)(iii)]. An increase that implicates this

provision would include, for example, a proposal

to increase distribution fees materially for the target

class under a rule 12b–1 plan or certain shareholder

services plans.

25Amended rule 12b–1(g) [17 CFR 270.12b–1(g)].

26Rule 12b–1(b) [17 CFR 270.12b–1(b)].

27See rule 12b–1(b)(1), (b)(3)(iii) to (iv)(A), (b)(4),

(g) [17 CFR 270.12b–1(b)(1), (b)(3)(iii) to (iv)(A),

(b)(4), (g)].

28Rule 12b–1(g).

29Amended rule 12b–1(g); see Distribution of

Shares by Registered Open-End Management

Investment Company, Investment Company Act

Release No. 22201 at n.7 and accompanying text

(Sept. 9, 1996) [61 FR 49010 (Sept. 17, 1996)] (rule

12b–1 has been interpreted to treat each series of

a fund as a separate fund; a series or class not

publicly offered should be treated in same way as

a fund not publicly offered). The amended rule also

deletes current rule 12b–1(g)’s description of certain

voting rights of purchase class shareholders under

rule 18f–3, which is a matter addressed by rule 18f–

3 itself. The amended rule substitutes a reference

to amended rule 18f–3(e)(2)(iii). Amended rule

12b–1(g).

using this method would allocate each

day’s income, gains and losses, and

fundwide expenses to each class, and

simultaneously reallocate cumulative

undistributed income and undistributed

or unrealized capital items among the

classes.14 Commenters agreed that the

results derived from this method are

consistent with the purpose of the rule’s

allocation provisions.

The amended rule does not specify

particular equations to be used in

implementing this method.15

Appropriate equations may vary

depending on the number of classes

offered and other factors such as

whether expense differentials among

classes are fixed or variable.

Commenters also confirmed the

Commission’s understanding that

equations may be further refined as

funds gain more experience in using

this method 16

c. Other Allocation Methods. The

Commission is also amending rule 18f–

3 to permit a fund to use any

appropriate allocation method not

specified in the rule if the fund’s

directors, including a majority of

directors who are not interested persons

of the fund, determine that the method

is fair to each class of shareholders.17

The amendment also would require

directors to determine that under the

new method, the annualized rate of

return of each class will generally differ

from that of the other classes only by the

expense differentials among the

classes.18 This amendment will provide

funds with flexibility and avoid the

possible need for further administrative

relief to permit new allocation methods

that may be developed. The

Commission believes it is appropriate to

require a specific board determination

concerning the fairness of an alternative

allocation method to assure that the

selection of such a method is fair to

each class.19 In making this

determination, the fund board may

reasonably rely on the opinions of

experts such as accounting firms.20 A

fund would be expected to apply on a

consistent basis any allocation method

selected under this or any other

provision of the rule.21

2. Voting Rights

Rule 18f–3 contains certain

conditions that are applicable to

arrangements involving a class of shares

with one type of distribution charge (the

‘‘purchase class’’) that automatically

convert into another class (the ‘‘target

class’’) after a specified period of time.22

The rule requires a fund having such an

arrangement to obtain the approval of

the shareholders of the purchase class

whenever the fund materially increases

expenses for the target class.23 The

amended rule, as proposed, clarifies that

this provision applies only if the

expense increase is submitted for a

separate vote of target class

shareholders.24

B. Rule 12b–1

The Commission also is adopting as

proposed a technical amendment to rule

12b–1 that clarifies the rule’s

application to separate series or

portfolios of a fund.25 Rule 12b–1

permits the use of fund assets to finance

the distribution of fund shares pursuant

to a written plan that describes the

distribution financing arrangement and

contains certain conditions.26 Among

other conditions, the rule 12b–1 plan

must allow fund shareholders to vote on

certain matters including approval,

amendment, or termination of the

plan.27 Rule 12b–1 provides that a plan

may cover more than one class of shares

if the plan’s provisions are severable for

each class and if votes by shareholders

and other required actions are taken

separately for each class.28 The

amendment codifies prior

interpretations that a rule 12b–1 plan

also may cover more than one series or

portfolio under the same conditions

applicable when a plan covers more

than one class.29

II. Cost/Benefit Analysis and Effects On

Competition, Efficiency, And Capital

Formation

In the proposing release, the

Commission provided a Cost-Benefit

Analysis on the amendments and

requested comments. No comments

were received on the analysis. The

Commission is sensitive to the costs and

benefits imposed by its rules. The

amendments to rule 18f–3 provide

greater flexibility to multiple class funds

in allocating to each class its

proportionate share of income, gains

and losses, and fundwide expenses. The

amended rule gives every fund a

selection of one or more new specified

methods without limiting the use of

previously authorized methods. The

amended rule also authorizes the use of

an unspecified method selected by the

fund subject to appropriate safeguards.

A fund’s selection of any method

permitted by the amendments should

not substantially increase the fund’s

costs in making allocations. The

amended rule also reduces costs by

allowing more funds to rely on the rule

instead of obtaining and complying with

exemptive orders, and by eliminating
Federal Register / Vol. 62, No. 192 / Friday, October 3, 1997 / Rules and Regulations 51765

30 15 U.S.C. 80a–2(c).

unnecessary requirements to solicit

votes of purchase class shareholders.

The amendment to rule 12b–1 does not

impose a burden because it codifies an

existing interpretation of the rule.

Section 2(c) of the Investment

Company Act provides that whenever

the Commission is engaged in

rulemaking and is required to consider

or determine whether an action is

necessary or appropriate in the public

interest, the Commission must consider,

in addition to the protection of

investors, whether the action will

promote efficiency, competition, and

capital formation.30 The Commission

has considered the amendments to rule

18f–3 and rule 12b–1 in light of these

standards. The Commission believes the

amendments to rule 18f–3 are consistent

with the public interest and may

promote efficiency and competition

because they broaden the scope and

flexibility of an exemptive rule, may

reduce costs and other burdens for

funds, and may thereby encourage more

funds to offer multiple classes of shares.

The Commission believes that the

amendments will have no adverse effect

on capital formation. The amendment to

rule 12b–1, as a codification of an

existing interpretation of the rule, will

not have significant effects on

efficiency, competition, or capital

formation.

III. Summary of Final Regulatory

Flexibility Analysis

The Initial Regulatory Flexibility

Analysis (‘‘IRFA’’), which was prepared

in accordance with 5 U.S.C. 603, was

published in Investment Company Act

Release No. 22203. No comments were

received on the IRFA. The Commission

has prepared a Final Regulatory

Flexibility Analysis (‘‘FRFA’’) in

accordance with 5 U.S.C. 604. The

FRFA indicates that the amendments to

rule 18f–3 enable multiple class funds,

including small entities, to rely on the

rule instead of exemptive orders and to

benefit from more flexible compliance

requirements by expanding specified

allocation methods and permitting the

use of an unspecified method if

directors determine that it is fair. In

addition, the FRFA states that the

amendments clarify compliance

requirements by eliminating

unnecessary voting provisions

consistent with the Commission’s

original intent. The FRFA explains that

the amendment to rule 12b–1 codifies

existing interpretations treating multiple

series of a series fund like multiple

classes of a portfolio.

The FRFA notes that in response to

comments from the public, the

Commission modified the amendments

to permit the selection of unspecified

methods. The FRFA also discusses the

amendments’ effect on small entities

that are registered open-end

management investment companies. For

purposes of the amendments, small

entities are those having net assets of

$50 million or less as of the end of their

most recent fiscal year. The Commission

estimates that there are 500 small

entities out of 3000 active open-end

management investment companies,

and that 43 of those 500 offer multiple

classes of shares. The FRFA states that

the rules do not impose any new

reporting, recordkeeping, or other

compliance requirements.

The FRFA also discusses the

Commission’s efforts to minimize

significant economic impact on small

entities, noting that the amendments’

effect is generally positive for all

affected funds including small entities.

The FRFA notes that the Commission

considered several alternatives that

might minimize any effect on small

entities, including (a) the establishment

of differing compliance or reporting

requirements or timetables that take into

account the resources available to small

entities; (b) the clarification,

consolidation, or simplification of

compliance and reporting requirements

under the rules for small entities; (c) the

use of performance rather than design

standards; and (d) an exemption from

coverage of the rules or any part of the

rules for small entities. The FRFA states

that the amendments generally increase

flexibility, simplify or clarify existing

compliance requirements, and introduce

performance standards by permitting

the use of an unspecified allocation

method determined to be fair. In light of

these considerations, the FRFA states

that it would be inconsistent with the

purposes of the Act to exempt small

entities from the amendments or to

specify different requirements for small

entities. Different compliance or

reporting requirements for small entities

are not necessary because the rules do

not establish any new reporting,

recordkeeping, or compliance

requirements. The Commission has

determined that it is not feasible to

further clarify, consolidate, or simplify

the rules for small entities consistently

with the protection of investors.

Cost-benefit information in the ‘‘Cost/

Benefit Analysis’’ section of this Release

is reflected in the Analysis. A copy of

the Final Regulatory Flexibility Analysis

may be obtained by contacting Thomas

M. J. Kerwin, Mail Stop 10–2, Securities

and Exchange Commission, 450 Fifth

Street, N.W., Washington, D.C. 20549.

IV. Statutory Authority

The Commission is amending rule

12b–1 pursuant to the authority set forth

in sections 12(b) and 38(a) of the

Investment Company Act [15 U.S.C.

80a–12(b), –37(a)], and is amending rule

18f–3 under sections 6(c), 18(i), and

38(a) of the Investment Company Act

[15 U.S.C. 80a–6(c), –18(i), –37(a)].

List of Subjects in 17 CFR Part 270

Investment companies, Reporting and

recordkeeping requirements, Securities.

Text Of Rule Amendments

For the reasons set out in the

preamble, Title 17, Chapter II of the

Code of Federal Regulations is amended

as follows:

PART 270—RULES AND

REGULATIONS, INVESTMENT

COMPANY ACT OF 1940

1. The authority citation for Part 270

continues to read, in part, as follows:

Authority: 15 U.S.C. 80a–1 et seq., 80a–37,

80a–39 unless otherwise noted;

* * * * *

2. Section 270.12b–1 is amended by

revising paragraph (g) to read as follows:

§ 270.12b–1 Distribution of shares by

registered open-end management

investment company.

* * * * *

(g) If a plan covers more than one

series or class of shares, the provisions

of the plan must be severable for each

series or class, and whenever this

section provides for any action to be

taken with respect to a plan, that action

must be taken separately for each series

or class affected by the matter. Nothing

in this paragraph (g) shall affect the

rights of any purchase class under

§ 270.18f–3(e)(2)(iii).

3. Section 270.18f–3 is amended by

revising paragraphs (c) and (e)(2)(iii) to

read as follows:

§ 270.18f–3 Multiple class companies.

* * * * *

(c) (1) Income, realized gains and

losses, unrealized appreciation and

depreciation, and Fundwide Expenses

shall be allocated based on one of the

following methods (which method shall

be applied on a consistent basis):

(i) To each class based on the net

assets of that class in relation to the net

assets of the company (‘‘relative net

assets’’);

(ii) To each class based on the

Simultaneous Equations Method;

(iii) To each class based on the Settled

Shares Method, provided that the
51766 Federal Register / Vol. 62, No. 192 / Friday, October 3, 1997 / Rules and Regulations

company is a Daily Dividend Fund

(such a company may allocate income

and Fundwide Expenses based on the

Settled Shares Method and realized

gains and losses and unrealized

appreciation and depreciation based on

relative net assets);

(iv) To each share without regard to

class, provided that the company is a

Daily Dividend Fund that maintains the

same net asset value per share in each

class; that the company has received

undertakings from its adviser,

underwriter, or any other provider of

services to the company, agreeing to

waive or reimburse the company for

payments to such service provider by

one or more classes, as allocated under

paragraph (a)(1) of this section, to the

extent necessary to assure that all

classes of the company maintain the

same net asset value per share; and that

payments waived or reimbursed under

such an undertaking may not be carried

forward or recouped at a future date; or

(v) To each class based on any other

appropriate method, provided that a

majority of the directors of the

company, and a majority of the directors

who are not interested persons of the

company, determine that the method is

fair to the shareholders of each class and

that the annualized rate of return of

each class will generally differ from that

of the other classes only by the expense

differentials among the classes.

(2) For purposes of this section:

(i) Daily Dividend Fund means any

company that has a policy of declaring

distributions of net investment income

daily, including any money market fund

that determines net asset value using the

amortized cost method permitted by

§ 270.2a–7;

(ii) Fundwide Expenses means

expenses of the company not allocated

to a particular class under paragraph

(a)(1) of this section;

(iii) The Settled Shares Method means

allocating to each class based on relative

net assets, excluding the value of

subscriptions receivable; and

(iv) The Simultaneous Equations

Method means the simultaneous

allocation to each class of each day’s

income, realized gains and losses,

unrealized appreciation and

depreciation, and Fundwide Expenses

and reallocation to each class of

undistributed net investment income,

undistributed realized gains or losses,

and unrealized appreciation or

depreciation, based on the operating

results of the company, changes in

ownership interests of each class, and

expense differentials between the

classes, so that the annualized rate of

return of each class generally differs

from that of the other classes only by the

expense differentials among the classes.

* * * * *

(e) * * *

(2) * * *

(iii) If the shareholders of the target

class approve any increase in expenses

allocated to the target class under

paragraphs (a)(1)(i) and (a)(1)(ii) of this

section, and the purchase class

shareholders do not approve the

increase, the company will establish a

new target class for the purchase class

on the same terms as applied to the

target class before that increase.

* * * * *

Dated: September 26, 1997.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

Note: Appendix A to the preamble will not

appear in the Code of Federal Regulations.

Appendix A—Simultaneous Equations

Method

The equations set forth below are examples

of a set of simultaneous equations that could

be used as an allocation method in a multiple

class fund with two classes at the end of day

t. The inception date of class B shares is

assumed to be on or after the inception date

of class A shares.

Equation 1: At + Bt = Gt + Ct

Equation 2: At/Sat¥Bt/Sbt = dx(NAV0)

where:

At: the total net assets to be allocated to class

A at the end of day t

Bt: the total net assets to be allocated to class

B at the end of day t

Gt: the cumulative undistributed net change

in assets from operations for the fund at

the end of day t

Ct: the cumulative capital for the fund at the

end of day t

Sat: the number of shares in class A at the end

of day t

Sbt: the number of shares in class B at the end

of day t

d: the time adjustment factor, calculated as

the number of days since the inception

of class B or the ex-dividend date of the

last income distribution, whichever is

more recent, divided by 365

x: the differential in expense ratios between

the two classes

NAV0: the NAV per share for class A and

class B on day 0, where day 0 is either

the day class B commences trading or the

ex-dividend date of the last income

distribution, whichever is more recent.

[FR Doc. 97–26145 Filed 10–2–97; 8:45 am]

BILLING CODE 8010–01–P

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 4, 10, 11, 12, 18, 24, 103,

112, 122, 127, 133, 141, 143, 148, 151,

152, 159, 171, 177 and 191

[T.D. 97–82]

Technical Amendments to the

Customs Regulations

AGENCY: Customs Service, Department

of the Treasury.

ACTION: Final rule.

SUMMARY: This document makes various

minor technical changes and corrections

to the Customs Regulations, in

accordance with the Customs policy of

periodically reviewing its regulations to

ensure that they are current.

EFFECTIVE DATE: October 3, 1997.

FOR FURTHER INFORMATION CONTACT:

Harold Singer, Regulations Branch,

Office of Regulations and Rulings (202–

927–2268).

SUPPLEMENTARY INFORMATION:

Background

The technical amendments set forth

in this document involve Parts 4, 10, 11,

12, 18, 24, 103, 112, 122, 127, 133, 141,

143, 148, 151, 152, 159, 171, 177 and

191 of the Customs Regulations (19 CFR

Parts 4, 10, 11, 12, 18, 24, 103, 112, 122,

127, 133, 141, 143, 148, 151, 152, 159,

171, 177 and 191) and are summarized

below.

Discussion of Changes

Part 4

1. In the table set forth under

§ 4.20(c), in the column headed ‘‘Light

money’’, the second figure (‘‘.05’’) is

corrected to read ‘‘.50’’.

2. At the end of § 4.80(a)(3), the

reference to ‘‘46 CFR subpart 67.03’’ is

corrected to read ‘‘46 CFR 67.3’’.

Part 10

1. In the third sentence of § 10.1(i),

the reference to ‘‘§ 142.11(b)’’ is

corrected to read ‘‘§ 141.11(b)’’.

2. In the last sentence of § 10.7(d), the

reference to ‘‘§ 10.6(c)’’ is corrected to

reflect that present § 10.6 (which

corresponds in substance to former

§ 10.6(c)) is not subdivided.

3. In the second sentence of

§ 10.11(b), the reference to ‘‘item

807.00’’ is replaced by the appropriate

Harmonized Tariff Schedule of the

United States (HTSUS) reference which

appears correctly in the first sentence.

4. In § 10.41b, the number ‘‘12’’

appearing in the first sentence of the

introductory text of paragraph (b) and