[Federal Register Volume 59, Number 221 (Thursday, November 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28363]
[[Page Unknown]]
[Federal Register: November 17, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20695; 812-9108]
Portico Funds, Inc., et al.; Notice of Application
November 10, 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: Portico Funds, Inc. (the ``Fund''), Firstar Investment
Research & Management Company (``FIRMCO''), and Sunstone Financial
Group, Inc. (``Sunstone'').
Relevant Act Sections: Exemption requested under section 6(c) of the
Act 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 the Fund
to issue multiple classes of shares representing interests in the same
portfolio of securities and assess a contingent deferred sales charge
on redemptions of shares.
Filing Dates: The application was filed on July 8, 1994, and amended on
September 14, 1994, and November 10, 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 5,
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's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants, the Fund, 615 East Michigan Street, P.O. Box 3011,
Milwaukee, WI 53201-3011; FIRMCO, Firstar Center, 777 East Wisconsin
Ave., 18th Floor, Milwaukee, WI 53202; and Sunstone, 207 East Buffalo
St., Suite 400, Milwaukee, WI 53202.
FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 942-0572, or C. David
Messman, 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 fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Fund is a open-end management investment company. The Fund
consists of multiple investment portfolios or series, each of which has
separate investment objectives and policies. FIRMCO serves as the
Fund's investment adviser and Sunstone serves as the distributor.
2. Applicants request that any relief granted also apply to other
open-end management investment companies for which FIRMCO or any person
controlling, controlled by, or under common control with FIRMCO acts in
the future as investment adviser (collectively, with the Fund, the
``Companies'').
3. Under the current distribution arrangements, shares of each of
the Fund's portfolios are offered to investors without a sales charge.
Some portfolios are, however, subject to a purchase adjustment fee of
up to .50%. This fee is imposed at the time of purchase to prevent a
portfolio from being adversely affected by the transaction costs
associated with share purchases. It is anticipated that this fee will
be discontinued after the requested order is granted.
4. Applicants propose that each Company be permitted to offer an
unlimited number of classes of shares. Classes of shares may be offered
in connection with a plan or plans adopted pursuant to rule 12b-1 under
the Act (the ``Distribution Plan'') and/or in connection with a non-
rule 12b-1 administrative plan (the ``Administrative Services Plan,''
and, collectively with the Distribution Plan, the ``Plans''). Services
under the Plans may be provided by a Company's distributor and/or
administrator, or by organizations that have entered into agreements
(collectively, ``Plan Agreements'') with the Company, its distributor,
or it administrator concerning the provision of services to the
organization's clients who may be the record or beneficial owners of
shares of a particular class. The Companies also may offer classes of
shares that would be subject to front-end sales loads and/or CDSCs. The
sum of any front-end load, asset based sales charge, and CDSC paid by a
shareholder for a single investment will not exceed the maximum sales
charge provided for in article III, section 26 of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
(``NASD'').
5. Expenses of a Company that could not be attributed directly to
any one portfolio would be allocated to each portfolio based on the
relative net assets of the portfolio or as otherwise determined under
the supervision of its directors (``Company Expenses''). Expenses
attributable to a portfolio but not to a particular class would be
allocated on the basis of the relative net asset value of the
respective classes in the portfolio (``Portfolio Expenses''). Each
class will bear certain expenses attributable specifically to such
class, as set forth in condition 1 (``Class Expenses''). The net asset
value of all shares of a portfolio would be computed on the same days
and at the same times.
6. FIRMCO or another service contractor may choose to reimburse or
waive Class Expenses on certain classes on a voluntary, temporary
basis. The amount of Class Expenses waived or reimbursed may vary from
class to class. Class Expenses are by their nature specific to a given
class and are 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.
7. In addition, FIRMCO or another service contractor may waive or
reimburse Company Expenses and/or Portfolio Expenses (with or without a
waiver or reimbursement of Class Expenses) but only if the same
proportionate amount of Company Expenses and/or Portfolio Expenses are
waived or reimbursed for each class. Thus, any Company Expenses and/or
Portfolio Expenses that are waived or reimbursed would be credited to
each class of a portfolio according to the relative net assets of the
classes. Company Expenses and Portfolio Expenses apply equally to all
classes of a given portfolio. Accordingly, it may not be appropriate to
waive or reimburse Company Expenses or Portfolio Expenses at different
levels for different classes of the same portfolio.
8. Applicants propose that share exchange privileges may be
available to shareholders to permit (a) the exchange of shares of one
portfolio for shares of another portfolio, (b) the exchange of shares
of an equity portfolio or a fixed income portfolio for shares of a
money market portfolio (or vice versa), and/or (c) the exchange of
shares of one class of a portfolio for shares of another class of the
same portfolio. Any exchange of shares will comply with rule 11a-3
under the Act.
9. Shares of some classes of shares subject to a CDSC
(``Convertible CDSC Shares'') could automatically convert into shares
of non-CDSC shares (``Non-CDSC Shares'') after a prescribed period
following the purchase of Convertible CDSC Shares. Shares acquired
through the reinvestment of dividends and other distributions paid with
respect to Cnvertible CDSC Shares will also be Convertible CDSC Shares.
These shares will convert to Non-CDSC Shares on the earlier of a
prescribed period following the date of such reinvestment or the
conversion date of the most recently purchased Convertible Shares which
were not acquired through the reinvestment of dividends or other
distributions.
10. Applicants also request an exemption to permit the Companies to
impose a CDSC on redemptions of shares of the Company, and to waive the
CDSC under certain circumstances. No CDSC will be imposed on an amount
that represents an increase in the shareholder's account resulting from
capital appreciation, on shares acquired through the reinvestment of
income dividends or capital gain distributions, or on those shares
purchased more than a specified period prior to redemption. In
determining whether a CDSC would be payable, it would be assumed that
shares, or amounts representing shares, that are not subject to a CDSC
would be redeemed first and other shares or amounts would be redeemed
in the other purchased. No CDSC will be imposed on shares purchased
before the effective date of the requested order.
11. Applicants also request relief to permit each Fund to waive or
reduce the CDSC in certain circumstances. Any waiver or reduction will
comply with the conditions in paragraphs (a) through (d) of rule 22d-1
of the Act.
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 by implementing the multiple class
distribution system, the Company would be able to facilitate the
distribution of their shares and provide a broad array of services
without assuming excessive accounting and bookkeeping costs. Applicants
also believe that the proposed allocation of expenses and voting rights
in the manner described above is equitable and would not discriminate
against any group of shareholders.
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 a CDSC on
redemptions of shares. Applicants believe that their request to permit
the CDSC arrangement would permit shareholders the option of having
more investment dollars working for them from the time of their share
purchases than if they chose a class with a front-end sales load.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. Each class of shares will represent interests in one portfolio
of a Company, and will be identical in all respects, except as set
forth below. The only differences between the classes of shares of the
same portfolio will relate solely to: (a) the impact of (i) expenses
assessed to a class pursuant to a Plan, (ii) other Class Expenses which
would be limited to (A) transfer agency fees identified by the transfer
agent as being attributable to a specific class of shares, (B) printing
and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses, and proxies to current
shareholder of a class, (C) blue sky registration fees incurred by a
class of shares, (D) SEC registration fees incurred by a class of
shares, (E) the expense of administrative personnel and services as
required to support the shareholders of a specific class, (F)
litigation or other legal expenses or audit or other accounting
expenses relating solely to one class of shares, and (G) directors'
fees incurred as a result of issues relating to one class of shares;
and (iii) any other incremental expenses subsequently identified that
should be properly allocated to one class and which are approved by the
SEC pursuant to an amended order; (b) the fact that the classes will
vote separately with respect to a portfolio's Plans and any other
matter submitted to shareholders relating to Class Expenses, except as
provided in condition 17 below; (c) the different exchange privileges
of the classes of shares; (d) the designation of each class of shares
of a portfolio; and/or (e) certain conversion features offered by some
of the classes.
2. The board of directors of a Company, including a majority of the
independent directors, will approve the multiclass distribution system.
The minutes of the meetings of the directors regarding the
deliberations of the directors with respect to the approvals necessary
to implement a multi-class system will reflect in detail the reasons
for the directors' determination that the proposed multi-class system
is in the best interests of both the Company involved 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 board of directors of a
Company, including a majority of the directors who are not interested
persons of the Company. Any person authorized to direct the allocation
and disposition of monies paid or payable by a Company 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 such expenditures were made.
4. On an ongoing basis, the directors of a Company, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor each portfolio having a multi-class system for the existence of
any material conflicts among the interests of the various classes of
each portfolio. 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. A portfolio's investment
adviser and distributor will be responsible for reporting any potential
or existing conflicts to the directors. If a conflict arises, a
portfolio's investment adviser and/or distributor at their own cost
will remedy such conflict up to and including establishing a new
registered management investment company.
5. Any Administrative 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 a Company will receive quarterly and annual
statements concerning distributions and shareholder servicing
expenditures 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 of
shares will be used to justify any distribution or servicing
expenditure 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 a 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 that Plan Payments relating to each respective class of
shares and the Class Expenses relating to each class of shares will be
borne exclusively by that class.
8. The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes in any
portfolio having a multi-class distribution system and the proper
allocation of expenses among the various classes in each such portfolio
have been reviewed by an expert (the ``Expert'') who has rendered a
report to the Company involved, which report 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 such review, will render
at least annually a report to the Company involved 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 Company involved (which the Company agrees to provide), will be
available for inspection by the SEC staff upon the written request to
the Company for such work papers by a senior member of the Division of
Investment Management or a regional office of the SEC. Authorized staff
members would be 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 SAS No.
70 of the American Institute of Certified Public Accountants
(``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. 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 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. Applicants will take immediate corrective
measures if this representation is not concurred in by the Expert or
appropriate substitute Expert.
10. The prospectuses of each portfolio having a multi-class system
will contain a statement to the effect that a salesperson and any other
person entitled to receive compensation for selling or servicing shares
of a portfolio may receive different compensation with respect to one
particular class of shares over another in the same portfolio.
11. The distributor for a Company having a multi-class system will
adopt compliance standards for any portfolio which has a multi-class
system, which standards will relate to when each class of shares may
appropriately be sold to particular investors. Applicants will require
all persons selling shares of a portfolio having a multi-class system
to agree to conform to such applicable standards.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the directors with respect to
the multi-class system will be set forth in guidelines which will be
furnished to the directors of a Company having a multi-class system.
13. Each portfolio having a multi-class system will disclose the
respective expenses, performance data, distribution arrangements,
services, fees, sales loads, conversion features, CDSCs, and exchange
privileges applicable to each class of shares in a portfolio in every
prospectus relating to such portfolio, regardless of whether all
classes of shares are offered through each prospectus. Each such
portfolio will disclose the respective expenses and performance data
applicable to all classes of shares in a portfolio in every shareholder
report relating to such portfolio. The shareholder reports will
contain, in the statement of assets and liabilities and statement of
operations, information related to the 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, it will also 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 any portfolio's net asset value and public offering price
will present each class of shares separately.
14. Applicants acknowledge that the grant of the exemptive order
requested by the application will not imply SEC approval,
authorization, or acquiescence in any particular level of payments that
the portfolios may make pursuant to a Plan in reliance on the exemptive
order.
15. If a CDSC arrangement is implemented with respect to shares of
a portfolio, applicants agree to comply with the provisions of proposed
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.
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. If a Company implements any amendment to its Distribution
Plan(s) (or, if presented to shareholders, adopts or implements any
amendment to an Administrative Plan or Plans) that would increase
materially the amount that may be borne by the Non-CDSC Shares under
the Plan, existing Convertible CDSC Shares will stop converting into
the Non-CDSC Shares unless the Convertible CDSC Shares, voting
separately as a class, approve the proposal. The directors shall take
such action as is necessary to ensure that Convertible CDSC Shares are
exchanged or converted into a new class of shares (``New Non-CDSC
Shares''), identical in all material respects to the Non-CDSC Shares as
they existed prior to implementation of the proposal, no later than the
date such shares previously were scheduled to convert into Non-CDSC
Shares. If deemed advisable by the directors to implement the
foregoing, such action may include the exchange of all existing
Convertible CDSC Shares for a new class (``New Convertible CDSC Shares
''), identical to the existing Convertible CDSC Shares in all material
respects except that the New Convertible CDSC Shares will convert into
New Non-CDSC Shares. New Non-CDSC Shares or New Convertible CDSC Shares
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, any additional cost
associated with the creation, exchange, or conversion of New Non-CDSC
Shares or New Convertible CDSC Shares shall be borne solely by the
Company's adviser and/or distributor. Convertible CDSC Shares sold
after the implementation of the proposal may convert into Non-CDSC
Shares subject to the higher maximum payment, provided that the
material features of the Non-CDSC Shares plan and the relationship of
such plan to the Convertible CDSC Shares are disclosed in an effective
registration statement.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-28363 Filed 11-16-94; 8:45 am]
BILLING CODE 8010-01-M