[Federal Register Volume 59, Number 38 (Friday, February 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4334]
[[Page Unknown]]
[Federal Register: February 25, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC--20081; 812-8220]
The PNC Fund, et al.; Notice of Application
February 17, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: The PNC Fund (the ``Fund''), PNC Institutional Management
Corporation (``PIMC''), and Provident Distributors, Inc. (``PDI'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from
sections 18(f), 18(g), and 18(i).
SUMMARY OF APPLICATION: Applicants seek a conditional order exempting
them from the provisions of sections 18(f), 18(g), and 18(i) to the
extent necessary to permit each of the Fund's existing and future
investment portfolios to issue up to three classes of shares.
FILING DATES: The application was filed on December 16, 1992, and
amendments were filed on April 6, 1993, June 4, 1993, December 3, 1993,
and February 14, 1994.
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 March 14, 1994,
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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants: The Fund and PIMC, Bellevue Corporate Center, 103 Bellevue
Parkway, Wilmington, Delaware 19809; PDI, 259 Radnor-Chester Road,
suite 120, Radnor, Pennsylvania 19087.
FOR FURTHER INFORMATION CONTACT: James J. Dwyer, Staff Attorney, at
(202) 504-2920, or Elizabeth G. Osterman, Assistant Director, at (202)
272-3016 (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.
Applicants' Representations
1. The Fund is a Massachusetts business trust registered under the
Act as an open-end management investment company. The Fund currently is
authorized to offer shares in twenty-one separate investment
portfolios, but may create new portfolios in the future. Six of the
Fund's existing portfolios are money market portfolios that declare
dividends daily and operate in accordance with rule 2a-7 under the Act.
2. PIMC serves as the Fund's investment adviser. PDI serves as the
Fund's distributor.
3. In 1991, the SEC issued an order (the ``Existing Order'')\1\
permitting the Fund's money market portfolios to offer two classes of
shares (``Investor Shares''and ``Service Shares''). In 1992, the SEC
issued an order (the ``Distributor's Order'')\2\ permitting investment
companies, including the Fund, for which Funds Distributor, Inc.
(``FDI'') acts as principal underwriter to offer three classes of
shares (the third class being the ``Institutional Shares'') in each of
its investment portfolios. The Fund's board approved a three-class
distribution structure on June 22, 1992, based on the Distributor's
Order. Effective January 17, 1993, the Fund replaced FDI as its
distributor, and as a consequence thereof, could no longer reply on the
Distributor's Order. The Fund has received a letter from the Division
of Investment Management dated April 2, 1993, stating that it would not
recommend that the SEC take any enforcement action against the Fund if,
pending final SEC action on the application or one year from the date
of the letter, whichever is sooner, any portfolio of the Fund issued
three classes of shares in reliance on, and subject to the terms and
conditions of, the Distributor's Order.
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\1\The PNC Fund, Investment Company Act Releases Nos. 17819
(Oct. 24, 1990) (notice) and 17875 (Nov. 27, 1990) (order).
\2\The Galaxy Fund, Investment Company Act Release Nos. 18507
(Jan. 30, 1992) (notice) and 18558 (Feb. 19, 1992) (order).
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4. Applicants request a conditional order to permit each portfolio
of the Fund to offer up the three classes of shares. The order would
supersede the Existing Order and the Distributor's Order, as such
orders relate to the Fund.
5. Institutional Shares currently are sold and redeemed at net
asset value without a sales or redemption charge imposed by the Fund.
Institutional Shares do not bear rule 12b-1 or shareholder servicing
expenses. Service Shares also currently are sold and redeemed at net
asset value without a sales or redemption charge, but are charged fees
for shareholder services, in reliance on the no-action letter and the
Existing Order. Investor Shares of the non-money market portfolios are
sold with a front-end sales load. In addition, Investor Shares of all
portfolios currently are being charged rule 12b-1 fees, in reliance on
the no-action letter and the Existing Order. Transfer agency expenses
have been treated as a general expense of a particular portfolio.
6. Under the proposed order, Investor Shares will be sold to
investors generally and be subject to a rule 12b-1 plan with fees
currently at an annual rate of up to .55 percent of the average net
asset value of the outstanding shares in the class.
7. Service Shares will be sold to customers of banks and other
financial institutions, which will provide administrative support
services under a shareholder services plan to customers who
beneficially own the Service Shares. The shareholder services plan will
not provide for payments for activities intended to result in the sale
of Service Shares. The shareholder services plan provides for a service
fee, as defined in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the ``NASD''), and a non-
service fee. Each fee currently is at an annual rate of up to .15
percent of the average daily net asset value of the class. The non-
service fee is not a service fee as that term is used in the NASD's
Rules of Fair Practice.
8. Institutional Shares will be sold primarily to financial
institutions for their own account or in their capacity as fiduciaries
for certain accounts, and will not be subject to expenses incurred
pursuant to a shareholder services plan or rule 12b-1 plan.
9. As used herein, ``Plan'' will refer to the applicable
shareholder services plan or rule 12b-1 plan, and ``Plan Payments''
will refer to payments made under a Plan. The assessing may asset-based
sales charge and/or service fee, applicants will comply with article
III, section 26 of the NASD's Rules of Fair Practice, as they may be
amended from time to time.
10. All shares of a portfolio bear portfolio expenses allocated pro
rata to each class on the basis of the relative net asset value of the
respective class. Expenses specific to a class are allocated to that
class. Dividends paid to each class of shares will be declared and
paid, and the net asset value of each class will be determined, on the
same days and at the same time, and will be determined in the same
manner.
11. Under the proposed order, shares of a class of one portfolio
would be exchangeable only for shares of another with the same class
designation. Exchanges will be effected in accordance with the
provisions of rule 11a-3 under the Act.
Applicants' Legal Analysis
1. Applicants request an exemptive order to the extent that the
proposed issuance and sale of any of the classes of shares might be
deemed to result in a ``senior security'' within the meaning of section
18(g) and prohibited by section 18(f)(1) and to violate the equal
voting provisions of section 18(i).
2. Applicants assert that the proposed allocation of expenses and
voting rights in the manner described is consistent with that of the
Existing Order, is equitable, and would not discriminate against any
group of shareholders. Applicants argue that investors purchasing
Service or Investor Shares would receive the services provided under
the respective Plans, and would bear the costs associated with such
services. Moreover, since the rights and privileges of all classes of
shares of a portfolio would be substantially identical, the possibility
that their interests would conflict would be remote.
3. Applicants believe that the ability to offer various classes of
shares in each portfolio with different levels of service will better
enable the Fund to meet the competitive demands of today's financial
services industry. The proposed arrangement will permit the Fund to
both facilitate the distribution of its securities and expand the scope
and depth of its services without assuming excessive accounting and
bookkeeping costs or unnecessary investment risks. In addition, the
Fund would be able, under the proposed arrangement, to match more
precisely its distribution costs, administrative support, and other
expenses with those investors on whose behalf such costs and expenses
are incurred.
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 Fund will
represent interests in the same portfolio of investments of a portfolio
of the Fund and will be identical in all respects, except as set forth
below. The only differences between the classes of shares of the Fund
will relate solely to: (a) The impact of the Plan Payments, possibly
transfer agency expenses, and any other incremental expense
subsequently identified that should be properly allocated to one class
which will be approved by the SEC pursuant to an amended order; (b) the
fact that the classes will vote separately with respect to each
portfolio's rule 12b-1 plan and shareholder services plan; (c) exchange
privileges; and (d) class designations.
2. The Trustees of the Fund, including a majority of the
independent Trustees, will approve the multi-class structure. The
minutes of the meetings of the Trustees of the Fund regarding the
deliberations of the Trustees with respect to the approvals necessary
to implement the multi-class structure will reflect in detail the
reasons for the Trustees' determination that the proposed multi-class
structure is in the best interests of both the Fund and its
shareholders.
3. On an ongoing basis, the Trustees of the Fund, pursuant to their
fiduciary responsibilities under the Act and otherwise, will monitor
the portfolios for the existence of any material conflicts between the
interests of the 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. The Fund's
adviser and distributor will be responsible for reporting any potential
or existing conflicts to the Trustees. If a conflict arises, the Fund's
adviser and distributor, at their own cost, will remedy such conflict
up to and including establishing a new registered management investment
company.
4. Each shareholder 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 holders of Service Shares need not receive the voting
rights specified in rule 12b-1.
5. The Trustees of the Fund will receive quarterly and annual
statements concerning Plan Payments 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 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 subject to the
review and approval of the independent Trustees in the exercise of
their fiduciary duties.
6. Dividends paid by the Fund 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 for the impact of Plan Payments and possibly transfer
agency expenses.
7. 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 filed with 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 applicants that the
calculations and allocations 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 Fund (which the Fund agrees to provide), will be available for
inspection by the SEC staff, upon the written request to the Fund 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 ``Special Purpose'' report on the
``Design of a System'' as defined and described in SAS No. 44 of the
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.
8. Applicants have adequate facilities in place to ensure
implementation of 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 such classes of shares,
and this representation has been concurred with by the Expert in the
initial report referred to in condition 7 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
7 above. Applicants will take immediate corrective measures if this
representation is not concurred in by the Expert or appropriate
substitute Expert.
9. The prospectus for each portfolio with more than one class will
contain a statement to the effect that a salesperson and any other
person entitled to receive compensation for selling or servicing shares
may receive different compensation for selling or servicing one
particular class of shares over another class in the same portfolio.
10. 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.
11. The conditions pursuant to which the order is granted and the
duties and responsibilities of the Trustees of the Fund with respect to
the multi-class structure will be set forth in guidelines which will be
furnished to the Trustees of the Fund.
12. Each portfolio will disclose the respective expenses,
performance data, distribution arrangements, services, fees, transfer
agency expenses, sales loads, deferred sales loads, and exchange
privileges applicable to each class of shares of such portfolio in
every prospectus, regardless of whether all classes of shares in the
portfolio are offered through each prospectus. Each portfolio will
disclose the respective expenses and performance data applicable to all
classes of shares 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 Fund. 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 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.
13. Applicants acknowledge that the grant of the order requested by
this application will not imply SEC approval, authorization, or
acquiescence in any particular level of payments that the Fund may make
pursuant to its shareholder services or rule 12b-1 plan in reliance on
the order.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-4334 Filed 2-24-94; 8:45 am]
BILLING CODE 8010-01-M