[Federal Register Volume 59, Number 108 (Tuesday, June 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13739]
[[Page Unknown]]
[Federal Register: June 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20326; 812-8860]
Princor Blue Chip Fund, Inc., et al.; Application
May 31, 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: Princor Blue Chip Fund, Inc.; Princor Bond Fund, Inc.;
Princor Capital Accumulation Fund, Inc.; Princor Cash Management Fund,
Inc.; Princor Emerging Growth Fund, Inc.; Princor Government Securities
Income Fund, Inc.; Princor Growth Fund, Inc.; Princor High Yield Fund,
Inc.; Princor Managed Fund, Inc.; Princor Tax-Exempt Bond Fund, Inc.;
Princor Tax-Exempt Cash Management Fund, Inc.; Princor Utilities Fund,
Inc.; and Princor World Fund, Inc. (collectively, the ``Funds'');
Princor Financial Services Corporation (the ``Distributor''); and
Princor Management Corporation (the ``Adviser''); on behalf of the
Funds and any other open-end management investment companies that may
in the future become a member of the same ``group of investment
companies'' as that term is defined in rule 11a-3 under the Act.
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from the
provisions of 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 seek a conditional order that would
permit the Funds to issue multiple classes of shares representing
interests in the same portfolio of securities, assess a contingent
deferred sales charge (``CDSC'') on certain redemptions of shares, and
waive the CDSC in certain instances.
FILING DATE: The application was filed on February 28, 1994, and
amended on April 21, 1994 and May 27, 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 June 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 who wish to be
notified of a hearing may request such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, c/o The Principal Financial Group, Des Moines, Iowa 50392.
FOR FURTHER INFORMATION CONTACT:
Marc Duffy, Staff Attorney, at (202) 942-0565, or Barry D. Miller,
Senior Special Counsel, 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 fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. Each of the Funds is a Maryland corporation that is registered
under the Act as an open-end, management investment company. Two of the
Funds (the ``Money Market Funds'') are offered to the public at net
asset value with no sales charge. The other Funds (the ``Load Funds'')
are offered to the public at net asset value plus a sales charge. Each
Load Fund has adopted a distribution plan (the ``Distribution Plan'')
under rule 12b-1 under the Act, which permits each Load Fund to pay the
Distributor up to 0.25% of that Fund's average daily net assist value
on an annual basis.
2. The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, and serves as the investment adviser
of each of the Funds. The Adviser is a wholly-owned subsidiary of the
Distributor. The Distributor is an indirect, wholly-owned subsidiary of
Principal Mutual Life Insurance Company. The Distributor, a registered
broker-dealer, serves as the principal underwriter for each of the
Funds.
3. Applicants seek to implement multi-class distribution
arrangements (the ``Multi-Class System'') for each of the Funds. Under
the Multi-Class System, each Fund will issue two classes of shares. All
shares outstanding as of the time of implemention of the Multi-Class
System will be designated as ``Class A'' shares. The offering price of
Class A shares of a Load Fund purchased in amounts of less than $1
million will be net asset value plus a front-end sales charge. Class A
shares of the Load Funds will be subject to the Distribution Plan
currently in effect, as modified to accommodate the mutli-class
structure. Class A shares of the Money Market Funds will be sold at net
asset value, and will not be subject to a Distribution Plan.
4. Under the Multi-Class System, each Fund will create an
additional class of shares designated as ``Class B'' shares. Class B
shares will be subject to a Distribution Plan fee of 1% of average
daily net assets on an annual basis, of which up to 0.25% will be paid
to dealers' registered representatives as a service fee. The remainder
of the Distribution Plan fee on Class B shares will be used primarily
to reimburse the Distributor for commissions paid to dealers and
registered representatives in connection with sales of Class B shares.
Class B shares of the Money Market Funds can be acquired only through
exchanges for Class B shares of other Funds.
5. Class B shares also will be subject to a CDSC of up to 4% for a
period of six years. The amount of any CDSC imposed upon a redemption
of Class B shares will be computed as a percentage of the lesser of the
value of the redeemed shares at the time of purchase or their value at
redemption. The holding period and amount of the CDSC, and the
magnitude of the purchases to which it applies are each subject to
change. No CDSC will be imposed on Class B shares: (a) Purchased with
reinvested income dividends or capital gains distributions, (b)
purchased more than six years prior to the date of the redemption, or
(c) acquired through an exchange for other Class B shares, if the
exchanged Class B shares would not have been assessed a CDSC upon
redemption.
6. Applicants proposed to waive any CDSC that otherwise would be
applicable to a redemption of Class B shares in connection with shares
redeemed: (a) Due to the death or disability, as defined in the
Internal Revenue Code (the ``Code''), of a shareholder; (b) from
retirement plans to satisfy minimum distribution rules under the Code;
(c) to pay surrender charges; (d) to pay retirement plan fees; (e)
involuntarily from small balance accounts (values of less than $300);
(f) through a systematic withdrawal plan that permits 10% of the value
of a shareholder's Class B shares of a particular Fund on January 1 of
each year to be withdrawn automatically in equal monthly installments
throughout the year without payment of the otherwise applicable CDSC;
or (g) from a retirement plan to assure the plan complies with section
401(k) and 401(m) of the Code.
7. Class A shares of the Load Funds will be sold with no sales
charge to persons who reinvest, within 60 days, the proceeds of
redemptions of Class B shares of the Load Funds on which the CDSC was
waived because of the death or disability of the original shareholder.
8. Any Class B shares purchased will convert automatically to Class
A shares seven years after the end of the month of the date of their
purchase. At the same time, a pro rata portion of all shares purchased
through reinvestment of dividends and distributions will convert into
Class A shares, with that portion determined by the ratio that the
shareholder's Class B shares converting into Class A shares bears to
the shareholder's total Class B shares not acquired through dividends
and distributions. The conversion of Class B shares into Class A shares
will be subject to the availability of an opinion of counsel or
Internal Revenue Service private letter ruling to the effect that the
conversion does not constitute a taxable event.
9. Exchanges for shares of another Fund generally will be permitted
only for shares of the same class. However, to facilitate automatic
exchanges used by some investors to effect a dollar-cost averaging
strategy, Class B shares of the Load Funds may be acquired in exchange
for Class A shares of Princor Cash Management Fund, Inc. that were
purchased without payment of a sales load. All exchanges will comply
with rule 11a-3 under the Act.
10. Under the Multi-Class System, all expenses incurred by a Fund
will be allocated among the classes of shares of such Fund based on the
net assets of the Fund attributable to each class, except that the net
asset value and expenses of each class will reflect the Distribution
Plan expenses (if any) and any expenses attributable to the class as
set forth in condition 1 below (``Class Expenses''). Expenses allocated
to a particular class of shares of a Fund will be borne on a
proportionate basis by each outstanding share of that class.
11. From time to time, a Fund may create additional classes of
shares of beneficial interest, the terms of which may differ from the
classes described herein only in the following respects: (a) Each new
class of shares might have a different designation; (b) the impact of
the disproportionate payments made under a Distribution Plan; (c) each
new class of shares will hold any voting rights as to matters
exclusively affecting that class, except as provided in condition 14
below; (d) each new class of shares will bear Class Expenses
specifically attributable to the particular class; (e) each new class
of shares will have different exchange privileges; and (f) certain
classes may have a conversion feature. Applicants also may charge
different sales loads on different classes of shares.
12. Applicants will comply with applicable portions of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
(``NASD''), including in particular the portions of Rule 26 that relate
to sales loads, asset-based sales charges and service fees.
Applicants' Legal Analysis
1. Section 18 is designed to prohibit material differences among
the rights of shareholders in a fund, including abuses resulting from
complex capital structures (such as excessive leverage, conflicts of
interest among classes, and investor confusion), and discriminatory
shareholder voting provisions. Applicants request an exemptive order to
the extent that the proposed Multi-Class System might be deemed to
result in a ``senior security'' within the meaning of section 18(g) of
the Act, and thus be prohibited by section 18(f)(1), and violate the
equal voting provisions of the Act.
2. Applicants assert that the Multi-Class System would present none
of the abuses addressed by section 18. No leverage would result from
the issuance or purchase of different classes of shares. Mutuality of
risk would be preserved, and each class of Fund shares would be
redeemable at all times. No class of shares of a Fund would have any
distribution or liquidation preference with respect to particular
assets, and no class would be protected by any reserve or other
account. Investors would not be given misleading impressions about the
safety or risk of any class of shares, because the similarities and
ifferences of the classes of shares would be disclosed in the
prospectuses and statements of additional information describing the
Funds.
3. Applicants also request an exemption from the provisions of
sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act, and rule 22c-
1 thereunder to the extent necessary to permit the Funds to assess a
CDSC on certain redemptions of shares and to waive the CDSC in certain
instances.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each class of shares of a Fund will represent interests in the
same portfolio of investments of that Fund and will be identical in all
respects, except as set forth below. The only differences among the
classes of shares of the same Fund will relate solely to: (a) The
designation of each class of shares of a Fund; (b) the impact of the
disproportionate payments made under the Distribution Plan; (c)
different Class Expenses for each class of shares, which are limited
to: (i) Transfer agency fees identified by the transfer agent of the
Funds as being attributable to a specific class; (ii) blue sky
registration fees incurred with respect to a class of shares; (iii) SEC
registration fees incurred with respect to a class of shares; (iv) the
expenses of administrative personnel and services as required to
provide services to the shareholders of a specific class; (v)
litigation or other legal expenses, or audit or other accounting
expenses relating solely to one class of shares; (vi) directors' fees
incurred as a result of issues relating to one class of shares; and
(vii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and
proxies to current shareholders of a given class; (d) the voting rights
as to matters exclusively affecting one class of shares (e.g., the
adoption, amendment or termination of a Distribution Plan) except as
provided in condition 14 below; (e) different exchange privileges; and
(f) certain classes may have a conversion feature. Any additional
incremental expenses not specifically identified above that are
subsequently identified and determined to be properly allocated to one
class of shares will not be so allocated unless and until approved by
the SEC pursuant to an amended order.
2. The directors of the Funds, including a majority of the
independent directors, will approve the creation and issuance of any
new classes of shares in their respective Funds. The minutes of the
meetings of the directors of each of the Funds regarding the
deliberations of the directors with respect to the approvals necessary
to add or change a class of shares will reflect in detail the reason
for the directors' determination that such an addition or change is in
the best interests of the Funds and their respective shareholders.
3. On an ongoing basis, the directors of the Funds, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor each Fund for the existence of any material conflicts among the
interests of the various classes of shares offered by each Fund. The
directors, including a majority of the independent directors, shall
take such action as is reasonably necessary to eliminate any such
conflicts that may develop. The Adviser and the Distributor will be
responsible for reporting any potential or existing conflicts to the
directors. If a conflict arises, the Adviser and the Distributor, at
their own cost, will remedy such a conflict, up to and including
establishing one or more new registered management investment
companies.
4. The directors of the Funds will receive quarterly and annual
statements concerning distribution and shareholder servicing
expenditures under any distribution or servicing plan, in compliance
with paragraph (b)(3)(ii) of rule 12b-1 under the Act, as 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 the Distribution Plan 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 charged to shareholders of 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.
5. Dividends paid by a Fund regarding its various classes of
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 Distribution Plan fee payments relating to each
respective class of shares will be borne exclusively by that class, and
any Class Expenses attributable solely to one class will be borne
exclusively by that class.
6. The methodology and procedures for calculating the net asset
value and dividends and distributions of multiple classes, and the
proper allocation of expenses among them has been reviewed by an expert
(the ``Expert''), who has rendered a report to applicants, which 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 that review, will render at least annually a report to the
Funds 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 those reports,
following a request by a Fund (which each Fund agrees to provide), will
be available for inspection by the SEC staff upon the written request
to a Fund for those work papers by a senior member of the SEC's
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
described in Statement of Auditing Standards No. 70 of the American
Institute of Certified Public Accountants (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.
7. 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 has been concurred with by
the initial report referred to in condition 6 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 6 above. Applicants will take immediate corrective action
if this representation is not concurred in by the Expert or an
appropriate substitute Expert.
8. The prospectus of each Fund will contain a statement to the
effect that a salesperson and any other person entitled to receive
compensation for selling or servicing Fund shares may receive different
levels of compensation with respect to one particular class of shares
over another in the Fund.
9. The Distributor will adopt compliance standards for determining
when each class of shares may appropriately be sold to particular
investors. Applicants will require all persons selling shares of the
Funds to conform to those standards.
10. The conditions pursuant to which the exemptive order is
granted, and the duties and responsibilities of the directors of the
Funds with respect to the various classes of shares will be set forth
in guidelines that will be furnished to the directors.
11. Each Fund will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales loads, deferred
sales loads, and exchange privileges applicable to each class of shares
in each of its prospectuses regardless of whether all classes of shares
are offered through each prospectus. Each Fund 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 the Fund as a whole generally and
not on a per class basis. Each Fund's per share data, however, will be
prepared on a per class basis with respect to all classes of shares of
the Fund. To the extent any advertisement or sales literature describes
the expenses or performance data applicable to any class of shares, it
also will 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 the
Funds' net asset values and public offering prices will present each
class of shares separately.
12. Applicants acknowledge that the grant of the exemptive 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 Distribution Plans in reliance on the
exemptive order.
13. Any class of shares with a conversion feature (``Purchase
Class'') will convert into another class (``Target Class'') of shares
on the basis of the relative net assets 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.
14. If a Fund implements any amendment to the Distribution Plan or
other plan adopted under rule 12b-1 (or, if presented to shareholders,
adopts or implements any amendment of a ``non-rule 12b-1'' shareholder
services plan) that would increase materially the amount that may be
borne by a Target Class under the plan, then Purchase Class shares will
stop converting into shares of that Target Class, unless Purchase Class
shareholders, voting separately as a class, approve the amendment. The
directors shall take any action 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
Target Class shares as they existed prior to implementation of the
amendment, no later than the date those Purchase Class shares were
scheduled to convert into Target Class shares. If deemed advisable by
the directors to implement the foregoing, such action may include the
exchange of all existing Purchase Class shares for a new class (``New
Purchase Class'') of shares, identical to existing Purchase Class
shares in all material respects, except that the new Purchase Class
will convert into the New Target Class. The New Target Class and 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 3, any additional
cost associated with the creation, exchange, or conversion of the New
Target Class or New Purchase Class shares shall be borne solely by the
Adviser and the Distributor. Purchase Class shares sold after the
implementation of the amendment 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 that plan to
the Purchase Class are disclosed in an effective registration
statement.
15. 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 directors of the
Funds, including a majority of the independent directors. Any person
authorized to direct the allocation and disposition of monies paid or
payable by the Funds to meet class expenses shall provide to the board
of directors and the directors shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which
those expenditures were made.
16. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act, as that rule is currently stated in Investment
Company Act Release No. 16619 (Nov. 2, 1988), and as it may be
reproposed, adopted, or modified in the future.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13739 Filed 6-6-94; 8:45 am]
BILLING CODE 8010-01-M
