[Federal Register Volume 59, Number 137 (Tuesday, July 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17519]
[[Page Unknown]]
[Federal Register: July 19, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20403; 812-8954]
The PNC Fund, et al.; Notice of Application
July 13, 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 (``PNC''), PNC Institutional Management
Corporation (``PIMC''), and Provident Distributors, Inc. (``PDI''), on
behalf of themselves and other investment companies for which PIMC or
PDI acts as investment adviser and distributor and which adhere to the
representations and conditions set forth in the application
(collectively, with PNC, the ``Funds'').\1\
\1\Although PIMC and PDI act as investment adviser or
distributor, respectively, to other investment companies not named
as parties to the application, none of those companies currently
intends to rely on the requested relief. Such companies may in the
future rely on the requested exemption if they determine to issue
multiple classes of shares and impose a contingent deferred sales
charge in accordance with the representations and conditions in the
application.
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Relevant Act Sections: Exemption requested under section 6(c) from
sections 2(a)(32), 2(a)(35), 18(f), 18(g), 18(i), 22(c), and 22(d), and
rule 22c-1.
Summary of Application: Applicants seek to amend an existing order that
permits the portfolios of PNC to issue up to three classes of shares.
The amended order will permit each Fund's existing and future
investment portfolios to issue an unlimited number of classes of
shares, add a conversion feature, and assess and, under certain
circumstances, waive a contingent deferred sales charge (``CDSC'') upon
certain redemptions of shares.
Filing Dates: The application was filed on April 28, 1994, and amended
on July 1, 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 August 8, 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, D.C. 20549.
Applicants: PNC 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) 942-0581, or C. David Messman, 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 few at the
SEC's Public Reference Branch.
Applicants' Representations
1. PNC is a Massachusetts business trust registered under the Act
as an open-end management investment company. PNC currently is
authorized to offer shares in twenty-five portfolios, and may create
new portfolios in the future. PIMC serves as PNC's investment adviser.
PDI serves as PNC's distributor.
2. On March 14, 1994, the SEC issued an order (the ``Existing
Order'')\2\ permitting each portfolio of PNC to offer up to three
classes of shares--Investor Shares, Service Shares, and Institutional
Shares. Applicants seek to amend the Existing Order to permit each
Fund's existing and future portfolios to issue an unlimited number of
classes of shares, add a conversion feature, and assess, and under
certain circumstances, waive a CDSC upon certain redemptions of shares.
The requested relief will supersede the Existing Order in its entirety.
Investor Shares, Service Shares, and Institutional Shares will be
offered as described in the application for the Existing Order.
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\2\The PNC Fund, Investment Company Act Release Nos. 20081 (Feb.
17, 1994) (notice) and 20133 (Mar. 15, 1994) (order).
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3. Under the requested order, applicants may offer classes of
shares subject to rule 12b-1 plans or shareholder services plans (each
a ``Plan''), certain class expenses described in condition 1 below that
are attributable only to certain of the classes, certain conversion
features as further described below, and/or the imposition of various
front-end sales loads and/or CDSCs. The services provided under a Plan
will augment or replace, but not duplicate, services otherwise provided
by a Fund's investment adviser, transfer agent, and administrator. When
a class of shares is subject to a rule 12b-1 Plan and a shareholder
services Plan, the services provided under one Plan will augment (and
not be duplicative of) the services provided under the other Plan.
4. All shares of a portfolio will bear Fund and 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 will be
allocated to that class. A Fund's investment adviser or other service
contractor may reimburse or waive class expenses on certain classes on
a voluntary, temporary basis, and the amount waived or reimbursed may
vary from time to time.
5. Because of class expenses and payments made under a Plan that
may be borne by each class of shares, the per share net income of, and
dividends to, each class may differ from the net income of, and
dividends to, the other classes of shares of a portfolio. In addition,
except for portfolios that seek to maintain a stable net asset value
and declare dividends daily, the net asset value attributable to each
class of shares of a portfolio may differ.
6. Shares of a class of one portfolio will be exchangeable for
shares of another portfolio that have similar characteristics. In
addition, shares of an equity or fixed income portfolio will be
exchangeable for shares of a money market portfolio, and vice-versa,
and shares of one class of a portfolio will be exchangeable for shares
of another class of the same portfolio. Exchanges will be effected in
accordance with the provisions of rule 11a-3 under the Act.
7. Shares of certain of the classes may be subject to the
imposition of a CDSC if they are redeemed within a prescribed time
after their purchase.The amount of the CDSC will be calculated as the
lesser of a specified percentage of the net asset value at the time of
purchase or at the time of redemption.
8. No CDSC will be imposed on amounts representing increases in the
value of shares due to capital appreciation, redemptions of shares
acquired through reinvestment of dividends or capital gain
distributions, or redemptions of shares held for longer than the CDSC
period. In addition, no charge will be imposed on any shares purchased
prior to the effective date of the requested order or prior to the
disclosure of such CDSC in the prospectus of the applicable portfolio.
In determining whether the CDSC is payable, it will be assumed that
shares not subject to the CDSC are redeemed first and that other shares
then are redeemed in the order purchased.
9. If a shareholder pays a CDSC upon redemption and a reinvestment
occurs within a specified time period stated in the prospectus at the
time the shares were sold, the shareholder may receive a credit, paid
by the distributor, for any CDSC paid.
10. Any change in the specified terms of a CDSC arrangement will be
reflected in the prospectus of the applicable portfolio. Such change
will not affect shares that already have been issued, unless the change
would result in terms more favorable to the shareholder.
11. Applicants request the ability to waive the CDSC on
redemptions: (a) in connection with required (or, in some cases,
discretionary) distributions to participants or beneficiaries of an
employee pension, profit-sharing, or other trust or qualified
retirement plan or Keogh plan, individual retirement account, or
custodial account maintained pursuant to section 403(b)(7) of the
Internal Revenue Code (the ``Code''); (b) in connection with required
(or, in some cases, discretionary) distributions to participants in
qualified retirement or Keogh plans, individual retirement accounts, or
custodial accounts maintained pursuant to section 403(b)(7) of the Code
due to death, disability, or the attainment of age 59\1/2\; (c) in
whole or in part, by shareholders whose accounts exceed $50,000, with
additional reductions of the CDSC occurring in connection with
redemptions of shares by shareholders whose accounts exceed certain
higher breakpoints; (d) effected pursuant to a portfolio's right to
liquidate a shareholder's account if the aggregate net asset value of
shares held in the account is less than the minimum account size; (e)
in connection with the combination of the portfolio with any other
investment company registered under the Act by merger, acquisition of
assets, or by any other transaction; (f) of shares that qualify for
rights of accumulation, privileges under a letter of intent, or
quantity discount; (g) resulting from a tax-free return of an excess
contribution pursuant to section 408(d)(4) or (5) of the Code; (h) made
in connection with a systematic withdrawal plan; (i) of shares held by
current and/or former board members, officers, and employees (and their
families) of applicants and current and/or former registered
representatives or employees (and their families) of banks or broker/
dealers that have entered into selling agreements with applicants; (j)
by a state, county, or city, or any instrumentality thereof, and/or by
trust companies and bank trust departments; (k) effected by advisory
accounts managed by PIMC, PDI, or other firms registered (or exempt
from registration) under the Investment Advisers Act of 1940; or ; (1)
pursuant to a qualified domestic relations order, as defined in section
414(p) of the Code.
12. Shares of some classes subject to a CDSC (``Convertible CDSC
Shares'') could automatically convert into shares of other classes not
subject to a CDSC (``Non-CDSC Shares'') after a prescribed period
following the purchase of Convertible CDSC Shares without the
imposition of any sales charges. Shares acquired through the
reinvestment of dividends and other distributions paid with respect to
Convertible CDSC Shares will also be Convertible CDSC Shares, but will
convert to Non-CDSC Shares on the earlier of a prescribed period
following the date of such reinvestment or the conversion date of the
most recently purchased Convertible CDSC Shares not acquired through
the reinvestment of dividends or other distributions.
13. Applicants in all cases will comply with article III, section
26(d) of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., as it relates to the maximum amount of asset-
based sales charges that may be imposed by an investment company, when
and in the form (as amended from time to time) the provisions of such
rules relating to such charges become effective, and for as long as
they remain in effect.
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 believe that the ability to offer various classes of
shares in each portfolio with different levels of service will better
enable the Funds to meet the competitive demands of today's financial
services industry. The proposed arrangement will permit the Funds both
to facilitate the distribution of its securities and expand the depth
and scope of its services without assuming excessive operational costs
or unnecessary investment risks. In addition, the Funds 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.
3. Applicants assert that the proposed allocation of expenses and
voting rights in the manner described is equitable and would not
discriminate against any group of shareholders. 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.
4. Applicants also request an exemption under section 6(c) from
sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act and rule 22c-1
thereunder to assess and, under certain circumstances, waive a CDSC on
redemptions of shares. Applicants believe that their request to permit
the CDSC arrangement would permit shareholders the option of having
more investment dollars working for them from the time of their share
purchases than if they chose a class with a front-end sales load.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief shall be subject to the following conditions:
1. Each class of shares representing interests in the same
portfolio of a Fund will be identical in all respects, except as set
forth below. The only differences between the classes of shares of the
same portfolio will relate solely to: (a) the impact of (i) expenses
assessed to a class pursuant to a Plan, (ii) other class expenses which
would be limited to (A) transfer agency fees identified by the transfer
agent as being attributable to a specific class of shares, (B) fees and
expenses of a Fund's administrator that are identified and approved by
the Fund's board as being attributable to a specific class of shares,
(C) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxies to
current shareholder of a class, (D) blue sky registration fees incurred
by a class of shares, (E) SEC registration fees incurred by a class of
shares, (F) the expense of administrative personnel and services as
required to support the shareholders of a specific class, (G)
litigation or other legal expenses or audit or other accounting
expenses relating solely to one class of shares, and (H) trustees' fees
incurred as a result of issues relating to one class of shares, and
(iii) any other incremental expenses subsequently identified that
should be properly allocated to one class and which are approved by the
SEC pursuant to an amended order; (b) the fact that the classes will
vote separately with respect to a portfolio's Plans and any matter
submitted to shareholders relating to class expenses, except as
provided in condition 17 below; (c) the different exchange privileges
of the classes of shares; (d) the designation of each class of shares
of a portfolio; and (e) certain conversion features offered by some of
the classes.
2. The board of trustees\3\ of a Fund, including a majority of the
independent trustees, will approve the offering of different classes of
shares under the multi-class distribution system. The minutes of the
meetings of the trustees regarding the deliberations of the trustees
with respect to the approvals necessary to implement a multi-class
system will reflect in detail the reasons for the trustees'
determination that the proposed multi-class system is in the best
interests of both the Fund involved and its shareholders.
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\3\Any reference to ``trustees'' includes directors of a Fund
that is organized as a corporation.
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3. The initial determination of the class expenses that will be
allocated to a particular class and any subsequent changes thereto will
be reviewed and approved by a vote of the board of trustees of a Fund,
including a majority of the trustees who are not interested persons of
the Fund. Any person authorized to direct the allocation and
disposition of monies paid or payable by a Fund to meet class expenses
shall provide to the board of trustees, and the trustees shall review,
at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
4. On an ongoing basis, the trustees of a Fund, pursuant to their
fiduciary responsibilities under the Act and otherwise, will monitor
each portfolio having a multi-class system for the existence of any
material conflicts among the interests of the various classes of each
portfolio. The trustees, including a majority of the independent
trustees, shall take such action as is reasonably necessary to
eliminate any such conflicts that may develop. A portfolio's investment
adviser and distributor will be responsible for reporting any potential
or existing conflicts to the trustees. If a conflict arises, a
portfolio's investment adviser and/or distributor at their own cost
will remedy such conflict up to and including establishing a new
registered management investment company.
5. Any 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 shareholders need not enjoy the voting rights specified in
rule 12b-1.
6. The trustees of a Fund will receive quarterly and annual
statements concerning distribution and shareholder servicing
expenditures 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
expenditure charged to that class. Expenditures not related to the sale
or servicing of 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.
7. Dividends paid by a portfolio 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 that payments made under a Plan relating to each
respective class of shares and the class expenses relating to each
class of shares will be borne exclusively by that class.
8. The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes in any
portfolio having a multi-class distribution system and the proper
allocation of expenses among the various classes in each such portfolio
have been reviewed by an expert (the ``Expert'') who has rendered a
report to the Fund involved, which report has been provided to the
staff of 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 the Fund involved 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
involved (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 or a regional office of the SEC. Authorized staff members
would be 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 will be a ``report on policies and
procedures placed in operation'' and the ongoing reports will be
``reports on policies and procedures placed in operation and tests of
operating effectiveness'' as defined and described in Statement of
Auditing Standards No. 70 of the American Institute of Certified Public
Accountants (``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.
9. Applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value and dividends and distributions of the various classes
of shares and the proper allocation of expenses among the various
classes of shares and this representation will be concurred with by the
Expert in the initial report referred to in condition 8 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 8 above. Applicants will take immediate corrective
measures if this representation is not concurred with by the Expert or
appropriate substitute Expert.
10. The prospectus of each portfolio having a multi-class system
will contain a statement to the effect that a salesperson and any other
person entitled to receive compensation for selling or servicing shares
in a portfolio may receive different compensation with respect to one
particular class of shares over another in the same portfolio.
11. The distributor for a Fund having a multi-class system will
adopt compliance standards for any portfolio which has a multi-class
system, which standards will relate to when each class of shares may
appropriately be sold to particular investors. Applicants will require
all persons selling shares of a portfolio having a multi-class system
to conform to such applicable standards.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the trustees with respect to the
multi-class system will be set forth in guidelines which will be
furnished to the trustees of a Fund having a multi-class system.
13. Each portfolio having a multi-class system will disclose the
respective expenses, performance data, distribution arrangements,
services, fees, front-end sales loads, CDSCs, conversion features, and
exchange privileges applicable to each class of shares in a portfolio
in every prospectus relating to such portfolio, regardless of whether
all classes of shares are offered through each prospectus. Each such
portfolio will disclose the respective expenses and performance data
applicable to all classes of shares in a portfolio in every shareholder
report relating to such portfolio to the extent required by SEC rule or
interpretation. The shareholder reports will contain, in the statement
of assets and liabilities and statement of operations, information
related to the 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
portfolio). To the extent any advertisement or sales literature
describes the expenses or performance data applicable to any class of
shares, it will also disclose the respective expenses and/or
performance data applicable to all classes of shares. The information
provided by applicants for publication in any newspaper or similar
listing of any portfolio's net asset value and public offering price
will present each class of shares separately.
14. Applicants acknowledge that the grant of the amended order
requested by the application will not imply SEC approval,
authorization, or acquiescence in any particular level of payments that
the portfolios may make pursuant to a Plan in reliance on the exemptive
order.
15. If a CDSC arrangement is implemented with respect to shares of
a portfolio, applicants agree to comply with the provisions of proposed
rule 6c-10 under the Act, Investment Company Act Release No. 16619
(Nov. 2, 1988), as such rule is currently proposed and as it may be
reproposed, adopted or amended.
16. Any class of shares with a conversion feature will convert into
another class of shares on the basis of the relative net asset values
of the two classes, without the imposition of any sales load, fee, or
other charge. After conversion, the converted shares will be subject to
an asset-based sales charge and/or service fee (as those terms are
defined in article III, section 26 of the NASD's Rules of Fair
Practice), if any, that in the aggregate are lower than the asset-based
sales charge and service fee to which they were subject prior to the
conversion.
17. If a Fund implements any amendment to its 12b-1 Plan(s) (or, if
presented to shareholders, adopts or implements any amendment to a
shareholder services Plan or Plans) that would increase materially the
amount that may be borne by the Non-CDSC Shares under the Plan,
existing Convertible CDSC Shares will stop converting into the Non-CDSC
Shares unless the Convertible CDSC Shares, voting separately as a
class, approve the proposal. The trustees shall take such action as is
necessary to ensure that existing Convertible CDSC Shares are exchanged
or converted into a new class of shares (``New Non-CDSC Shares''),
identical in all material respects to the Non-CDSC Shares as they
existed prior to implementation of the proposal, no later than the date
such shares previously were scheduled to convert into Non-CDSC Shares.
If deemed advisable by the trustees to implement the foregoing, such
action may include the exchange of all existing Convertible CDSC Shares
for a new class (``New Convertible CDSC Shares''), identical to the
existing Convertible CDSC Shares in all material respects except that
the New Convertible CDSC Shares will convert into New Non-CDSC Shares.
New Non-CDSC Shares or New Convertible CDSC Shares may be formed
without further exemptive relief. Exchanges or conversions described in
this condition shall be effected in a manner that the trustees
reasonably believe will not be subject to federal taxation. In
accordance with condition 4, any additional cost associated with the
creation, exchange, or conversion of New Non-CDSC Shares or New
Convertible CDSC Shares shall be borne solely by the adviser and the
distributor. Convertible CDSC Shares sold after the implementation of
the proposal may convert into Non-CDSC Shares subject to the higher
maximum payment, provided that the material features of the Non-CDSC
Share plan and the relationship of such plan to the Convertible CDSC
Shares are disclosed in an effective registration statement.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-17519 Filed 7-18-94; 8:45 am]
BILLING CODE 8010-01-M