[Federal Register Volume 66, Number 158 (Wednesday, August 15, 2001)]
[Notices]
[Pages 42901-42904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-20449]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25106; 812-12286]


Pitcairn Funds and Pitcairn Trust Company; Notice of Application

August 9, 2001.

AGENCY: Securities and Exchange Commission (``Commission'')

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 15(a) of the Act, rule 18f-2 under the Act, certain disclosure 
requirements, and rule 15a-4(b)(2)(vi)(C) under the Act.

-----------------------------------------------------------------------

SUMMARY: Applicants, Pitcairn Funds (the ``Trust'') and Pitcairn Trust 
Company (``PTC'') request an order that would permit them to enter into 
and materially amend subadvisory agreements without shareholder 
approval, grant relief from certain disclosure requirements, and allow 
for a release from escrow of compensation earned under an interim 
subadvisory agreement.

FILING DATES: The application was filed on September 29, 2000 and 
amended on March 20, 2001 and July 27, 2001. Applicants have agreed to 
file an amendment during the notice period, the substance of which is 
reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on September 3, 2001, and should be accompanied by proof of 
service on applicants, in the form of an

[[Page 42902]]

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 Commission's 
Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609; Applicants, c/o Ruth Epstein, Esq., Dechert, 1775 Eye 
Street, NW., Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT: Lidian Pereira, Senior Counsel, at 
(202) 942-0524 (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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Trust, a Delaware business trust, is registered under the 
Act as an open-end management investment company. The Trust is 
currently comprised of ten separate investment series (each a 
``Pitcairn Fund'' and collectively, the ``Pitcairn Funds'').\1\ Each 
Fund has its own investment objectives, policies and restrictions. PTC 
is a state chartered trust company and bank as defined in section 
202(a)(2) of the Investment Advisers Act of 1940 (``Advisers Act''). 
Pitcairn Investment Management (the ``Adviser'') provides investment 
adviser services to the Trust pursuant to an advisory agreement with 
the Trust (``Advisory Agreement''). The Advisory Agreement was approved 
by the board of trustees of the Trust (the ``Board''), including a 
majority of the trustees who are not ``interested persons,'' as defined 
in section 2(a)(19) of the Act (``Independent Trustees''), and the 
shareholder(s) of each Fund.
---------------------------------------------------------------------------

    \1\ Applicants also request relief with respect to future series 
of the Trust, and any other registered open-end management 
investment companies or series thereof (a) that are advised by the 
Adviser (as defined below) or any entity controlling, controlled by, 
or under common control with the Adviser and/or PTC, and (b) which 
operate in substantially the same manner as the Pitcairn Funds 
(together with the Pitcairn Funds, the ``Funds''). Any Fund that 
relies on the requested order will do so only in accordance with the 
terms and conditions contained in the application. The Trust is the 
only existing investment company that currently intends to rely on 
the order. If the name of any Fund should, at any time, contain the 
name of a Manager (as defined below), it will also contain the name 
of the Adviser which will appear before the name of the Manager.
---------------------------------------------------------------------------

    2. Under the terms of the Advisory Agreement, the Adviser manages 
the investment assets of each Fund and may, subject to oversight by the 
Board, hire one or more subadvisers (``Managers'') to provide portfolio 
management services to each of the Funds pursuant to separate 
investment advisory agreements (``Management Agreements''). Each 
Manager is, or will be, an investment adviser that is either registered 
or exempt from registration under the Advisers Act. Managers are 
recommended to the Board by the Adviser and selected and approved by 
the Board, including a majority of the Independent Trustees. Each 
Manager's fees are, and will be, paid by the Adviser out of the 
management fees received by the Adviser from the respective Fund.
    3. The Adviser monitors the Funds and the Managers and makes 
recommendations to the Board regarding allocations, and reallocation, 
of assets between Managers and is responsible for recommending the 
hiring, termination and replacement of Managers. The Adviser recommends 
Managers based on a number of factors used to evaluate their skills in 
managing assets pursuant to particular investment objectives.
    4. Applicants request relief to permit the Adviser, subject to the 
oversight of the Board, to enter into and materially amend Management 
Agreements without shareholder approval. The requested relief will not 
extend to a Manager that is an affiliated person, as defined in section 
2(a)(3) of the Act, of the Trust or the Adviser, other than by reason 
of serving as a Manager to one or more of the Funds (an ``Affiliated 
Manager'').
    5. Applicants also request an exemption from the various disclosure 
provisions described below that may require each Fund to disclose fees 
paid by the Adviser to the Managers. The Trust will disclose for each 
Fund (both as a dollar amount and as a percentage of a Fund's net 
assets): (a) Aggregate fees paid to the Adviser and Affiliated 
Managers; and (b) aggregate fees paid to Managers other than Affiliated 
Managers (``Aggregate Fee Disclosure''). For any Fund that employs an 
Affiliated Manager, the Fund will provide separate disclosure of any 
fees paid to the Affiliated Manager.
    6. On April 25, 2001, Standish, Ayer & Wood, Inc. (``Standish''), 
then the Manager of one of the Funds, entered into an agreement with 
Mellon Financial Corp. (``Mellon''), under which Standish agreed to be 
merged into a newly formed subsidiary of Mellon, to be called Standish 
Mellon Asset Management Company LLC (``Standish Mellon,'' the 
transaction to be called the ``Mellon Standish Transaction''). The 
Mellon Standish Transaction closed on July 31, 2001 and resulted in an 
assignment and termination of the Adviser's Management Agreement with 
Standish. Applicants are currently relying on rule 15a-4 under the Act, 
which permits the Adviser to enter into an interim contract with 
Standish Mellon (the ``Interim Agreement'') without shareholder 
approval for a period not to exceed 150 days subject to the 
requirements set forth in the rule. In connection with the Mellon 
Standish Transaction, applicants seek relief from rule 15a-
4(b)(2)(vi)(C) to permit the release from escrow of compensation earned 
under the Interim Agreement, upon the earlier of: (a) Shareholder 
approval of a new Management Agreement with Standish Mellon within the 
150 day period provided in the rule, or (b) receipt by applicants of 
the requested order and adoption of a new Management Agreement with 
Standish Mellon in accordance with the terms of that order.

Applicants' Legal Analysis

Relief From Section 15(a), Rule 18f-2 and Certain Disclosure 
Requirements

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to registered 
investment company except pursuant to a written contract that has been 
approved by the vote of the company's outstanding voting securities. 
Rule 18f-2 under the Act provides that each series or class of stock in 
a series company affected by a matter must approve the matter if the 
Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 15(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``Exchange Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.

[[Page 42903]]

    4. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
their investment advisers, including the Managers.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    6. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities or transactions from any provision of the Act, or 
form any rule thereunder, if such exemption is necessary or appropriate 
in the public interest and consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
Act. Applicants state that their requested relief meets this standard 
for the reasons discussed below.
    7. Applicants assert that shareholders are relying on the Adviser's 
experience to select one or more Managers best suited to achieve a 
Fund's desired investment objectives. Applicants assert that, from the 
perspective of the investor, the role of the Managers is comparable to 
that of individual portfolio managers employed by other investment 
advisory firms. Applicants contend that requiring shareholder approval 
of Management Agreements may impose unnecessary costs and delays on the 
Funds, and may preclude the Adviser from acting promptly in a manner 
considered advisable by the Board. Applicants note that the Advisory 
Agreement will remain subject to section 15(a) of the Act and rule 18f-
2 under the Act.
    8. Applicants assert that some Managers use a ``posted'' rate 
schedule to set their fees. Applicants state that the Adviser may not 
be able to negotiate below ``posted'' fee rates with Managers if each 
Manager's fees are required to be disclosed. Applicants submit that the 
nondisclosure of the individual Managers' fees is in the best interest 
of the Funds and their shareholders, where the disclosure of such fees 
would increase costs to shareholers without offsetting benefit to the 
Funds and their shareholders.

Relief from Rule 15a-4

    9. Rule 15a-4 under the Act provides that, subject to certain 
requirements, a person may act as investment adviser for a registered 
investment company under an interim contract that has not been approved 
by shareholders after the termination of a previous contract. Rule 15a-
4(b)(2)(vi) requires, among other things, that compensation to be 
received under the interim contract be kept in an interest-bearing 
escrow account with the investment company's custodian or bank. Rule 
15a-4(b)(2)(vi)(C) requires that, if a majority of the investment 
company's outstanding voting securities do not approve a contract with 
the investment adviser, the investment adviser will be paid, out of the 
escrow account, the lesser of: (1) Any costs incurred in performing the 
interim contract (plus interest earned on that amount while in escrow); 
or (2) the total amount in the escrow account (plus interest earned). 
In connection with the Standish Mellon Transaction and the 
establishment of the Interim Agreement, applicants have relied on rule 
15a-4. Applicants request relief from rule 15a-4(b)(2)(vi)(C) to permit 
release of the escrowed subadvisory fees earned under the Interim 
Agreement upon the earlier of: (a) Shareholder approval of a new 
Management Agreement with Standish Mellon within the 150 day period 
provided in the rule, or (b) receipt by applicants of the requested 
order and adoption of a new Management Agreement with Standish Mellon 
in accordance with the terms of that order.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

Conditions Applicable to All Funds Relying on the Requested Order

    1. Before a Fund may rely on the order requested in this 
application, the operation of the Fund in the manner described in this 
application will be approved by a majority of the outstanding voting 
securities of the Fund, as defined in the Act, or in the case of a Fund 
whose shareholders purchase shares in a public offering on the basis of 
a prospectus containing the disclosure contemplated by condition 3 
below, by the initial shareholder(s) before the shares of the Fund are 
offered to the public.
    2. Within 90 days of the hiring of any new Manager, the Adviser 
will furnish the shareholders of the applicable Fund all the 
information about a new Manager that would have been included in a 
proxy statement, except as modified to permit Aggregate Fee Disclosure. 
Such information will include Aggregate Fee Disclosure and any changes 
in such disclosure caused by the addition of a new Manager. To meet 
this obligation, the Adviser will provide the shareholders of the 
applicable Fund, within 90 days of the hiring of a Manager, with an 
Information Statement meeting the requirements of Regulation 14C, 
Schedule 14C and Item 22 of Schedule 14A under the 1934 Act, except as 
modified by the order to permit Aggregate Fee Disclosure.
    3. The Trust's prospectus will disclose the existence, substance 
and effect of any order granted pursuant to this application. In 
addition, the Funds will hold themselves out to the public as employing 
the Adviser/Manager approach described in this application. The Trust's 
prospectus will prominently disclose that the Adviser has ultimate 
responsibility (subject to oversight by the Board) to oversee the 
Managers and recommend their hiring, termination and replacement.
    4. The Adviser will provide general management services to the 
Trust and its Funds, including overall supervisory responsibility for 
the general management and investment of each Fund's securities 
portfolio, and, subject to review and approval by the Board will: (i) 
Set the Fund's overall investment strategies; (ii) evaluate, select, 
and recommend Managers to manage all or part of a Fund's assets; (iii) 
when appropriate, allocate and reallocate a Fund's assets among 
Managers; (iv) monitor and evaluate the performance of Managers, 
including their compliance with the investment objectives, policies, 
and restrictions of the Funds; and (v) implement procedures to ensure 
that the Managers comply with the Fund's investment objectives, 
policies, and restrictions.
    5. At all times, a majority of the Board will be Independent 
Trustees, subject to the suspension of this requirement for the death, 
disqualification or bona fide resignation of directors as provided in 
rule 10e-1 under the Act, and the nomination of new or additional 
Independent Trustees will be at the discretion of the then existing 
Independent Trustees.
    6. Neither the Adviser nor PTC will enter into a Management 
Agreement with any Affiliated Manager, without such Management 
Agreement, including the compensation to be paid thereunder, being 
approved by the shareholders of the applicable Fund.
    7. No trustee or officer of the Trust or director or officer of the 
Adviser will own directly or indirectly (other than through a pooled 
investment vehicle

[[Page 42904]]

that is not controlled by that trustee, director or officer) any 
interest in a Manager except for: (i) Ownership of interests in the 
Adviser or any entity that controls, is controlled by, or is under 
common control with the Adviser, or (ii) ownership of less than 1% of 
the outstanding securities of any class of equity or debt of a 
publicly-traded company that is either a Manager or an entity that 
controls, is controlled by or is under common control with a Manager.
    8. When a change in Manager is proposed for a Fund with an 
Affiliated Manager, the Board, including a majority of the Independent 
Trustees, will make a separate finding, reflected in the Fund's Board 
minutes, that the change is in the best interests of the Fund and its 
shareholders and does not involve a conflict of interest from which the 
Adviser or the Affiliated Manager derives an inappropriate advantage.

Additional Conditions Applicable to Funds Relying on the Aggregate Fee 
Disclosure Relief

    9. Each Fund will include in its registration statement the 
Aggregate Fee Disclosure.
    10. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, knowledgeable about the Act and the duties of Independent 
Trustees will be engaged to represent the Independent Trustees. The 
selection of such counsel will be within the discretion of the 
Independent Trustees.
    11. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the Adviser's profitability on a per-
Fund basis. The information will reflect the impact on profitability of 
the hiring or termination of any Manager during the applicable quarter.
    12. Whenever a Manager is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
Adviser's profitability.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-20449 Filed 8-14-01; 8:45 am]
BILLING CODE 8010-01-M