[Federal Register Volume 59, Number 236 (Friday, December 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30264]


[[Page Unknown]]

[Federal Register: December 9, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-20751; 812-8874]

 

The RBB Fund, Inc., et al.

December 2, 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 RBB Fund, Inc. (the ``Fund''), PNC Institutional 
Management Corporation (``PIMC''), BEA Associates (``BEA''), Warburg 
Pincus Counsellors, Inc. (``Warburg''), Laffer Advisors Incorporated 
(``Laffer''), and Counsellors Securities, Inc. (``Distributor'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
for an exemption from sections 2(a)(32), 2(a)(35), 18(f), 18(g), 18(i), 
22(c) and 22(d) of the Act and rule 22c-1 thereunder.

SUMMARY OF APPLICATION: Applicants request an order to permit 
investment portfolios of the Fund to issue multiple classes of shares 
representing interests in the same portfolio of securities and assess, 
and under certain circumstances waive, a contingent deferred sales 
charge (``CDSC'') on redemptions of shares. The order would supersede a 
prior order, Investment Company Act Release No. 16539 (the ``Prior 
Order''), to permit the Fund to issue multiple classes of share in its 
portfolios that declare dividends on a non-daily, as well as a daily, 
basis.

FILING DATES: The application was filed on March 7, 1994 and amended on 
July 22, 1994, September 27, 1994, October 28, 1994, and December 2, 
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 December 27, 
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 may request 
notification of a hearing by writing to the SEC' Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC, 20549. 
Applicants, Bellevue Corporate Center, 400 Bellevue Parkway, suite 100, 
Wilmington, DE 19809.

FOR FURTHER INFORMATION CONTACT: Fran Pollack-Matz, Senior Attorney, at 
(202) 942-0570, or Robert A. Robertson, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from SEC's Public 
Reference Branch.

Applicants' Representations

    1. The Fund is an open-end management investment company registered 
under the Act with several separate investment portfolios (the 
``Portfolios''). The Distributor serves as the distributor for each of 
the Portfolios. PIMC, a wholly owned subsidiary of PNC Bank National 
Association, serves as the investment adviser to the Portfolios except 
those advised by BEA, Warburg, or Laffer. Warburg, a wholly owned 
subsidiary of E.M. Warburg, Pincus & Co., Inc., serves as adviser to 
the Warburg Portfolios and sub-adviser to the RBB High Yield Bond 
Portfolio. BEA serves as adviser to each of the BEA Portfolios. Laffer 
serves as adviser to the RBB Laffer/Canto Equity Portfolio.
    2. The Prior Order permits the Fund to issue and sell multiple 
classes of shares representing interests in its Portfolios that declare 
dividends on a daily basis. The current application seeks to replace 
the Prior Order with an order for both existing and future daily and 
non-daily dividend Portfolios distributed by the Distributor.

A. Multiple Class System

    1. Applicants propose to establish a multiple class distribution 
system that would authorize each Portfolio to sell separate classes of 
its shares. Each class of shares will be identical in all respects 
except: (a) Each class of shares would have a different designation; 
(b) each class of shares might be sold under different sale 
arrangements (e.g., sales with a front-end sales load, subject to a 
CDSC, or at net asset value; (c) each class of shares would bear any 
12b-1 or shareholder service fees related to the class; (d) each class 
of shares would bear expenses specifically attributable to the 
particular class (``Class Expenses''), as set forth in condition 1; (e) 
the related voting rights as to matters exclusively affecting one class 
of shares (e.g., the amendment or termination of a rule 12b-1 plan) in 
accordance with the procedures set forth in rule 12b-1, except as 
provided in condition 15 below; (f) each class of shares may have 
different exchange privileges; an (g) each class of shares may have 
different conversion features.
    2. Expenses of the Fund that are directly attributable to the 
operations of a Portfolio will be allocated to that Portfolio. Expenses 
that are indirectly attributable to the operations of the Fund will be 
allocated among the Portfolios of the Fund based upon the relative net 
assets of each Portfolio. Class Expenses will be allocated to that 
class. Because of the Class Expenses, the net income of any one class 
of shares in a Portfolio may be different than the net income of 
another class of shares in the same Portfolio.
    3. Applicants propose that each class of shares may be exchanged 
for shares of the same class in another Portfolio. The exchange 
privileges will comply with rule 11a-3 under the Act. In addition, 
applicants request the ability to convert shares of any class to shares 
of another class. The conversions will be at the relative net asset 
value of each of the classes. For purposes of such conversion, all 
shares purchased through the reinvestment of dividends and other 
distributions will be considered to be held in a separate sub-account. 
Each time any shares of one class in the shareholder's account (other 
than those in the sub-account) convert to shares of another class, a 
pro rata portion of the converting shares in the sub-account also will 
convert. The portion will be determined by the ratio of converting 
shares to the shareholder's total number of shares in that class (not 
including those in the sub-account).
    4. The Portfolio's investment advisers, the Distributor and/or 
other portfolio service providers may choose to reimburse or waive all 
or a portion of the Class Expenses on certain classes on a voluntary 
and temporary basis. The amount of Class Expenses waived or reimbursed 
by the advisers, the Distributor and/or other portfolio service 
providers may vary from class to class. Class Expenses are by their 
nature specific to a given class and expected to vary from one class to 
another. Applicants believe that it is acceptable and consistent with 
shareholder expectations to reimburse or waive Class Expenses at 
different levels for different classes of the same Portfolio.
    5. In addition, the advisers, the Distributor and/or other 
portfolio service providers may waive or reimburse all or a portion of 
the Portfolio expenses on a voluntary and temporary basis (with or 
without a waiver or reimbursement of Class Expenses) but only if the 
same proportionate amount of Portfolio expenses are waived or 
reimbursed for each class. Thus, any Portfolio expenses that are waived 
or reimbursed would be credited to each class of a Portfolio based on 
the relative net assets of the classes. Portfolio Expenses apply 
equally to all classes of a given Portfolio. Accordingly, it may not be 
appropriate to waive or reimburse Portfolio expenses at different 
levels for different classes of the same Portfolio.

B. The CDSC

    1. Applicants also request an exemption to allow the Portfolios to 
impose a CDSC on redemptions of certain shares, and to waive or reduce 
the CDSC under certain circumstances. The sum of any front-end sales 
charge, and CDSC will not exceed the maximum sales charge provided for 
in Article III, Section 26(d) of the Rules of Fair Practice of the 
National Association of Securities Dealers, Inc. (``NASD'').
    2. The amount of the CDSC will be calculated as the lesser of the 
amount that represents a specified percentage of the net asset value of 
the shares at the time of purchase or at the time of redemption. The 
CDSC will not be imposed on shares derived from the reinvestment of 
dividends or capital gains distributions. Furthermore, no CDSC will be 
imposed on an amount which represents an increase in the value of the 
shareholder's account resulting from capital appreciation above the 
amount paid for shares purchased during the CDSC period. In determining 
the applicability and rate of any CDSC, it will be assumed that a 
redemption is made first of shares representing capital appreciation, 
next of shares derived from reinvestment of dividends and capital gains 
distributions, and finally of other shares held by the shareholder for 
the longest period of time. This will result in the charge, if any, 
being imposed at the lowest possible rate.
    3. Applicants are requesting the ability to vary or waive the CDSC 
in the case of certain redemptions. Any waiver or reduction will comply 
with the conditions in paragraphs (a) through (d) of rule 22d-1. In 
addition, the Portfolios may provide a pro rata credit to be paid for 
by the Distributor, for any CDSC paid in connection with a redemption 
of shares followed by a reinvestment effected within 365 days, or a 
shorter period, of the redemption.

Applicants' Legal Analysis

    1. Applicants request an exemption under section 6(c) of the Act 
from sections 18(f)(1), 18(g), and 18(i) of the Act, to issue multiple 
classes of shares representing interests in the same portfolio of 
securities. Applicants believe that the proposed allocation of expenses 
is equitable and will not discriminate against any group of 
shareholders. Applicants also believe that the proposed arrangement 
will not involve borrowings and will not affect the Portfolios' 
existing assets or reserves.
    2. 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 or 
reduce a CEDSC with respect to certain redemptions of shares.

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 designation of each class of shares of a 
Portfolio; (b) expenses assessed to a class as a result of (i) a rule 
12b-1 plan providing for a distribution fee, (ii) an administrative 
service fee, or (iii) a portfolio servicing fee; (c) different Class 
Expenses for each class of shares, which may include, but otherwise be 
limited to: (i) transfer agency fees as identified by the transfer 
agent as being attributable to a specific class; (ii) printing and 
postage expenses relating to preparing and distributing materials such 
as shareholder reports, prospectuses and proxies to current 
shareholders; (iii) Blue Sky registration fees incurred by a class of 
shares; (iv) SEC registration fees incurred by a class of shares; (v) 
the expenses of administrative personnel and services as required to 
support the shareholders of a specific class; (vi) litigation or other 
legal expenses relating solely to one class of shares; and (vii) 
directors' fees incurred as a result of issues relating to one class of 
shares; (d) the fact that classes will vote separately with respect to 
the Fund's 12b-1 plan and shareholder services plan, except as provided 
in condition 15 below; (e) different exchange privileges; and (f) 
different conversion features. Any additional incremental expenses that 
should be properly allocated to one class of shares shall not be so 
allocated until approved by the SEC pursuant to an amended order.
    2. The directors of the Fund, including a majority of the 
independent directors, will approve the multi-class structure. The 
minutes of the meetings of the directors of the Fund regarding the 
deliberations of the directors with respect to the approvals necessary 
to implement the multi-class structure will reflect in detail the 
reasons for the director's determination that the proposed multi-class 
structure is in the best interests of the Fund and its shareholders.
    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 directors of the Fund 
including a majority of disinterested directors. Any person authorized 
to direct the allocation and disposition of monies paid or payable by a 
Portfolio to meet Class Expenses shall provide to the directors, and 
the directors shall review, at least quarterly, a written report of the 
amounts so expended and the purpose for which the expenditures were 
made.
    4. On an ongoing basis, the directors 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 directors, 
including a majority of the noninterested directors, shall take such 
action as is reasonably necessary to eliminate any such conflicts that 
may develop. The Fund's advisers and Distributor will be responsible 
for reporting any potential or existing conflicts to the directors. If 
a conflict arises, the Fund's advisers and Distributor, at their own 
cost, will remedy such conflict up to and including establishing a new 
registered management investment company.
    5. 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 shareholders need not enjoy the voting rights specified in 
rule 12b-1.
    6. The directors of the Fund will receive quarterly and annual 
statements concerning distribution and shareholder servicing 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 or shares will be used to 
justify any distribution or servicing fee charged to that class. 
Expenditures not related 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 the sale or 
servicing of a particular class will not be presented to the directors 
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 directors in the exercise of 
their fiduciary duties.
    7. Dividends paid by each 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 for Class Expenses, distribution payments, and 
shareholder service payments.
    8. The methodology and procedures for calculating the net asset 
values, 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 the Fund, 
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 the Fund 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 ``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 as 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.
    9. The Fund has adequate facilities in place to ensure 
implementation of the methodology and procedures for calculating the 
net asset values, 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 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. The Fund will take immediate corrective measures if this 
representation is not concurred in by the Expert or appropriate 
substitute expert.
    10. The prospectus for each Portfolio 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 with respect to one particular class of shares over 
another in the Fund.
    11. 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 of the Fund to agree 
to conform to such standards.
    12. The conditions pursuant to which the order is granted and the 
duties and responsibilities of the directors of the Fund with respect 
to the multi-class structure will be set forth in guidelines which will 
be furnished to the directors of the Fund.
    13. 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 the 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 Portfolio. 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 
the Fund 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.
    14. The Fund acknowledges 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 an administrative services or 12b-1 plan in reliance on the 
order.
    15. If a Portfolio implements any amendment to its rule 12-1 plan 
(or, if presented to shareholders, adopts or implements any amendment 
of a non-rule 12b-1 service plan) that would increase materially the 
amount that may be borne under the plan by Shares of any class 
(``Target Class'') into which a Class with a conversion feature 
(``Purchase Class'') is converted, existing Purchase Class shares will 
stop converting into Target Class shares unless the Purchase Class 
shareholders, voting separately as a class, approve the proposal. The 
directors shall take such action as is necessary to ensure that 
existing Purchase Class shares are exchanged or converted into a new 
class of shares (``New Target Class''), identical in all material 
respects to the Target Class as it existed prior to implementation of 
the proposal, no later than the date such shares previously were 
scheduled to convert into the Target Class. If deemed advisable by the 
directors of the Fund to implement the foregoing, such action may 
include the exchange of all existing Purchase Class shares for a new 
class (``New Purchase Class''), identical to existing Purchase Class 
shares in all material respects, except that the New Purchase Class 
will convert into the New Target Class. New Target Class or New 
Purchase Class may be formed without further exemptive relief. 
Exchanges or conversions described in this condition shall be effected 
in a manner that the directors reasonably believe will not be subject 
to federal taxation. In accordance with condition 4 above, any 
additional cost associated with the creation, exchange or conversion of 
New Target Class or New Purchase Class shall be borne solely by the 
advisers and the Distributor. Purchase Class shares sold after the 
implementation of the proposal may convert into Target Class shares 
subject to the higher maximum payment, provided that the material 
features of the Target Class plan and the relationship of such plan to 
the Purchase Class shares are disclosed in an effective registration 
statement.
    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. The applicants will comply with the provisions of 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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30264 Filed 12-8-94; 8:45 am]
BILLING CODE 8010-01-M