[Federal Register Volume 59, Number 240 (Thursday, December 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30779]


[[Page Unknown]]

[Federal Register: December 15, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20760 ; File No. 812-9170]

 

Portico Funds, Inc.; Notice of Application

December 9, 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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APPLICANT: Portico Funds, Inc. (``Portico'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
for an exemption from sections 13(a) (2), 17(a)(1), 18(f)(1), 22(f), 
and 22(g) of the Act and rule 2a-7 thereunder and pursuant to section 
17(d) of the Act and rule 17d-1 thereunder approving certain joint 
transactions.

SUMMARY OF APPLICATION: Portico requests an order permitting it to 
enter into deferred compensation agreements with certain of its 
directors.

FILING DATES: The application was filed on August 17, 1994, and amended 
on November 17, 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 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on January 3, 1995, 
and should be accompanied by proof of service on the applicant, 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 Fifth Street, N.W., Washington, D.C. 
20549. Applicant, Portico Funds Center, 615 East Michigan Street, 
Milwaukee, Wisconsin, 53201; c/0 W. Bruce McConnel, III and Kenneth L. 
Greenberg, Drinker Biddle & Reath, 1345 Chestnut Street, Suite 1100, 
Philadelphia, PA 10107.

FOR FURTHER INFORMATION CONTACT:
Bradley W. Paulson, Staff Attorney, at (202) 942-0147 or Robert A. 
Robertson, 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 free at the 
SEC's Public Reference Branch.

Applicant's Representations

    1. Portico is a registered open-end management investment company 
with multiple portfolios (together with any future portfolios of 
Portico, the ``Portfolios''). Portico has implemented a deferred 
compensation plan under which a director may elect to defer receipt of 
all or part of his or her fees. The deferred fees are credited to an 
account maintained on Portico's books at the time the fees would 
otherwise be payable. All amounts in the account are credited monthly 
with interest equal to the ``average rate''\1\ earned on 90-day United 
States Treasury Bills. The plan allows individual directors to defer 
receipt of their fees so that they may defer payment of income taxes or 
otherwise obtain personal financial benefits. Portico believes that 
deferred fee arrangements enhance its ability to attract and retain 
directors of high caliber.
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    \1\The average rate is calculated by adding the rate on the last 
day of the current month and the rate on the last day of the 
preceding month, then dividing the sum by two.
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    2. Portico proposes that it be permitted to modify its deferred 
compensation plan (as modified, the ``Plan'') so that its directors may 
allocate their deferred fee accounts to any or all Portfolios. Amounts 
allocated to a Portfolio will be adjusted periodically to reflect 
earnings, gains, and losses attributable to the Portfolio. The rate of 
return or loss on directors' deferred fee accounts will equal that of 
the Portfolio's public shareholders.
    3. Portico's obligations to pay amounts accrued under the Plan will 
be general unsecured obligations payable solely from its general assets 
and property. The Plan does not obligate Portico to retain a director 
in that capacity or pay any (or any particular level of) director's 
fees to any director.
    4. Portico may make administrative amendments to the Plan from time 
to time without approval or authorization of the SEC, provided that the 
amendments do not conflict with any policy or provision of the Act of 
regulations thereunder unless the SEC staff first expressly approves 
the amendment.
    5. Portico intends, although it is not obligated, to cover its 
obligations under the Plan by purchasing and holding shares of the 
Portfolios equal to the ``deemed investments'' of the directors' 
deferred fee accounts. Any such investment will remain part of the 
general assets and property of Portico.

Applicant's Legal Analysis

    1. Portico requests an order under section 6(c) of the Act to 
exempt it from sections 13(a)(2), 18(f)(1), 22(f), and 22(g) of the Act 
and rule 2a-7 thereunder to the extent necessary to permit the 
Portfolios to offer the deferred compensation Plans and 
section17(d)oftheActandrule17d-1 thereunder to permit the Portfolios to 
effect certain joint transactions incident to the Plans.
    2. Section 18(f)(1) restricts the ability of a registered open-end 
investment company to issue senior securities. Section 13(a)(2) 
requires that an investment company obtain shareholder authorization 
before issuing any senior securities not contemplated by the recitals 
of policy in its registration statement. Portico believes that the Plan 
possesses none of the characteristics of senior securities that led 
Congress to enact these sections. Portico asserts that the Plan would 
not induce speculative investments or provide opportunities for 
manipulative allocation of the expenses and profits of any Portfolio, 
affect control of any Portfolio, confuse investors, convey a false 
impression of safety, or be inconsistent with the theory of mutuality 
of risk. All liabilities resulting from credits to the directors' 
accounts will be offset by substantially equal amounts of assets that 
would not otherwise exist if the directors' fees were paid on a current 
basis.
    3. Section 22(f) prohibits undisclosed restrictions on 
transferability or negotiability of redeemable securities issued by 
open-end investment companies. All these restrictions would be clearly 
set forth in the agreement.
    4. Section 22(g) prohibits registered open-end investment companies 
from issuing any of their securities for services or property other 
than cash or securities. That section is primarily concerned with the 
dilutive effect on the equity and voting power that can result when 
securities are issued for consideration that is not readily valued. 
Portico believes that the Plan will not have this effect, but merely 
provides for deferral of payment of fees and not for payment in 
securities for services.
    5. Rule 2a-7 requires a registered investment company to limit its 
portfolio to securities meeting certain standards of maturity, quality, 
and diversification as a condition to adopting the term ``money 
market'' as part of its name and holding itself out to investors as a 
money market portfolio. Rule 2a-7 limits the extent to which the net 
asset value of a money market portfolio as determined pursuant to a 
method prescribed in rule 2a-7 can deviate from its net asset value as 
determined by the mark-to-market method. The rule imposes conditions 
that reduce the likelihood that a money market portfolio will hold 
securities that will substantially decline in value and cause the 
portfolio's net asset value to deviate from one dollar per share. Any 
money market Portfolio that values its assets using a method prescribed 
by rule 2a-7 will buy and hold securities of other Portfolios to 
achieve an exact match between the Portfolio's liability to pay 
deferred fees and the assets that offset that liability.
    6. Section 17(a)(1) prohibits an affiliated person of a registered 
investment company from selling any security to the company, except in 
limited circumstances. Each Portfolio may be an affiliate of each other 
Portfolio. The section was designed to prevent sponsors of investment 
companies from using investment company assets as capital for 
enterprises with which they were associated. Portico believes that its 
purchase and sale of securities pursuant to the Plan does not implicate 
these concerns, but merely facilitates the matching of the Portfolio's 
liabilities.
    7. Section 17(d) prohibits affiliated persons from participating in 
joint transactions with a registered investment company in 
contravention of rules and regulations prescribed by the SEC. Rule 17d-
1 prohibits affiliated persons of a registered investment company from 
entering into joint transactions with the investment company unless the 
SEC has granted an order permitting the transactions. While the Plan 
does have some profit-sharing characteristics, it does not have the 
effect of placing Portico or any of its Portfolios on a basis different 
from or less advantageous than that of any director.

Applicant's Conditions

    Portico agrees that any order granting the requested relief will be 
subject to the following conditions:
    1. With respect to the requested relief from rule 2a-7, for any 
money market Portfolio that values its assets using the amortized cost 
method, Portico will (a) buy and hold the securities that determine 
performance of the deferred compensation plan to achieve an exact match 
between such Portfolio's liability to pay deferred fees and the assets 
that offsets that liability and (b) allocate such securities to each 
money market Portfolio.
    2. In the event of a shareholder vote, Portico will vote its shares 
in the same proportion as the votes of all other shareholders entitled 
to vote in the matter being voted upon.

    For the SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30779 Filed 12-14-94; 8:45 am]
BILLING CODE 8010-01-M