[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
