[Federal Register Volume 59, Number 38 (Friday, February 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4334]


[[Page Unknown]]

[Federal Register: February 25, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC--20081; 812-8220]

 

The PNC Fund, et al.; Notice of Application

February 17, 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 PNC Fund (the ``Fund''), PNC Institutional Management 
Corporation (``PIMC''), and Provident Distributors, Inc. (``PDI'').

RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from 
sections 18(f), 18(g), and 18(i).

SUMMARY OF APPLICATION: Applicants seek a conditional order exempting 
them from the provisions of sections 18(f), 18(g), and 18(i) to the 
extent necessary to permit each of the Fund's existing and future 
investment portfolios to issue up to three classes of shares.

FILING DATES: The application was filed on December 16, 1992, and 
amendments were filed on April 6, 1993, June 4, 1993, December 3, 1993, 
and February 14, 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 March 14, 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 notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549. 
Applicants: The Fund and PIMC, Bellevue Corporate Center, 103 Bellevue 
Parkway, Wilmington, Delaware 19809; PDI, 259 Radnor-Chester Road, 
suite 120, Radnor, Pennsylvania 19087.

FOR FURTHER INFORMATION CONTACT: James J. Dwyer, Staff Attorney, at 
(202) 504-2920, or Elizabeth G. Osterman, Assistant Director, at (202) 
272-3016 (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 Massachusetts business trust registered under the 
Act as an open-end management investment company. The Fund currently is 
authorized to offer shares in twenty-one separate investment 
portfolios, but may create new portfolios in the future. Six of the 
Fund's existing portfolios are money market portfolios that declare 
dividends daily and operate in accordance with rule 2a-7 under the Act.
    2. PIMC serves as the Fund's investment adviser. PDI serves as the 
Fund's distributor.
    3. In 1991, the SEC issued an order (the ``Existing Order'')\1\ 
permitting the Fund's money market portfolios to offer two classes of 
shares (``Investor Shares''and ``Service Shares''). In 1992, the SEC 
issued an order (the ``Distributor's Order'')\2\ permitting investment 
companies, including the Fund, for which Funds Distributor, Inc. 
(``FDI'') acts as principal underwriter to offer three classes of 
shares (the third class being the ``Institutional Shares'') in each of 
its investment portfolios. The Fund's board approved a three-class 
distribution structure on June 22, 1992, based on the Distributor's 
Order. Effective January 17, 1993, the Fund replaced FDI as its 
distributor, and as a consequence thereof, could no longer reply on the 
Distributor's Order. The Fund has received a letter from the Division 
of Investment Management dated April 2, 1993, stating that it would not 
recommend that the SEC take any enforcement action against the Fund if, 
pending final SEC action on the application or one year from the date 
of the letter, whichever is sooner, any portfolio of the Fund issued 
three classes of shares in reliance on, and subject to the terms and 
conditions of, the Distributor's Order.
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    \1\The PNC Fund, Investment Company Act Releases Nos. 17819 
(Oct. 24, 1990) (notice) and 17875 (Nov. 27, 1990) (order).
    \2\The Galaxy Fund, Investment Company Act Release Nos. 18507 
(Jan. 30, 1992) (notice) and 18558 (Feb. 19, 1992) (order).
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    4. Applicants request a conditional order to permit each portfolio 
of the Fund to offer up the three classes of shares. The order would 
supersede the Existing Order and the Distributor's Order, as such 
orders relate to the Fund.
    5. Institutional Shares currently are sold and redeemed at net 
asset value without a sales or redemption charge imposed by the Fund. 
Institutional Shares do not bear rule 12b-1 or shareholder servicing 
expenses. Service Shares also currently are sold and redeemed at net 
asset value without a sales or redemption charge, but are charged fees 
for shareholder services, in reliance on the no-action letter and the 
Existing Order. Investor Shares of the non-money market portfolios are 
sold with a front-end sales load. In addition, Investor Shares of all 
portfolios currently are being charged rule 12b-1 fees, in reliance on 
the no-action letter and the Existing Order. Transfer agency expenses 
have been treated as a general expense of a particular portfolio.
    6. Under the proposed order, Investor Shares will be sold to 
investors generally and be subject to a rule 12b-1 plan with fees 
currently at an annual rate of up to .55 percent of the average net 
asset value of the outstanding shares in the class.
    7. Service Shares will be sold to customers of banks and other 
financial institutions, which will provide administrative support 
services under a shareholder services plan to customers who 
beneficially own the Service Shares. The shareholder services plan will 
not provide for payments for activities intended to result in the sale 
of Service Shares. The shareholder services plan provides for a service 
fee, as defined in the Rules of Fair Practice of the National 
Association of Securities Dealers, Inc. (the ``NASD''), and a non-
service fee. Each fee currently is at an annual rate of up to .15 
percent of the average daily net asset value of the class. The non-
service fee is not a service fee as that term is used in the NASD's 
Rules of Fair Practice.
    8. Institutional Shares will be sold primarily to financial 
institutions for their own account or in their capacity as fiduciaries 
for certain accounts, and will not be subject to expenses incurred 
pursuant to a shareholder services plan or rule 12b-1 plan.
    9. As used herein, ``Plan'' will refer to the applicable 
shareholder services plan or rule 12b-1 plan, and ``Plan Payments'' 
will refer to payments made under a Plan. The assessing may asset-based 
sales charge and/or service fee, applicants will comply with article 
III, section 26 of the NASD's Rules of Fair Practice, as they may be 
amended from time to time.
    10. All shares of a portfolio bear portfolio expenses allocated pro 
rata to each class on the basis of the relative net asset value of the 
respective class. Expenses specific to a class are allocated to that 
class. Dividends paid to each class of shares will be declared and 
paid, and the net asset value of each class will be determined, on the 
same days and at the same time, and will be determined in the same 
manner.
    11. Under the proposed order, shares of a class of one portfolio 
would be exchangeable only for shares of another with the same class 
designation. Exchanges will be effected in accordance with the 
provisions of rule 11a-3 under the Act.

Applicants' Legal Analysis

    1. Applicants request an exemptive order to the extent that the 
proposed issuance and sale of any of the classes of shares might be 
deemed to result in a ``senior security'' within the meaning of section 
18(g) and prohibited by section 18(f)(1) and to violate the equal 
voting provisions of section 18(i).
    2. Applicants assert that the proposed allocation of expenses and 
voting rights in the manner described is consistent with that of the 
Existing Order, is equitable, and would not discriminate against any 
group of shareholders. Applicants argue that investors purchasing 
Service or Investor Shares would receive the services provided under 
the respective Plans, and would bear the costs associated with such 
services. Moreover, since the rights and privileges of all classes of 
shares of a portfolio would be substantially identical, the possibility 
that their interests would conflict would be remote.
    3. Applicants believe that the ability to offer various classes of 
shares in each portfolio with different levels of service will better 
enable the Fund to meet the competitive demands of today's financial 
services industry. The proposed arrangement will permit the Fund to 
both facilitate the distribution of its securities and expand the scope 
and depth of its services without assuming excessive accounting and 
bookkeeping costs or unnecessary investment risks. In addition, the 
Fund would be able, under the proposed arrangement, to match more 
precisely its distribution costs, administrative support, and other 
expenses with those investors on whose behalf such costs and expenses 
are incurred.

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 impact of the Plan Payments, possibly 
transfer agency expenses, and any other incremental expense 
subsequently identified that should be properly allocated to one class 
which will be approved by the SEC pursuant to an amended order; (b) the 
fact that the classes will vote separately with respect to each 
portfolio's rule 12b-1 plan and shareholder services plan; (c) exchange 
privileges; and (d) class designations.
    2. The Trustees of the Fund, including a majority of the 
independent Trustees, will approve the multi-class structure. The 
minutes of the meetings of the Trustees of the Fund regarding the 
deliberations of the Trustees with respect to the approvals necessary 
to implement the multi-class structure will reflect in detail the 
reasons for the Trustees' determination that the proposed multi-class 
structure is in the best interests of both the Fund and its 
shareholders.
    3. On an ongoing basis, the Trustees 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 Trustees, including a majority 
of the non-interested Trustees, shall take such action as is reasonably 
necessary to eliminate any such conflicts that may develop. The Fund's 
adviser and distributor will be responsible for reporting any potential 
or existing conflicts to the Trustees. If a conflict arises, the Fund's 
adviser and distributor, at their own cost, will remedy such conflict 
up to and including establishing a new registered management investment 
company.
    4. 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 holders of Service Shares need not receive the voting 
rights specified in rule 12b-1.
    5. The Trustees of the Fund will receive quarterly and annual 
statements concerning Plan Payments 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 fee charged to that class. Expenditures not 
related to a particular class will not be presented to the Trustees 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 Trustees in the exercise of 
their fiduciary duties.
    6. Dividends paid by the Fund 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 the impact of Plan Payments and possibly transfer 
agency expenses.
    7. The methodology and procedures for calculating the net asset 
value, 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 applicants, 
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 applicants 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 ``Special Purpose'' report on the 
``Design of a System'' as defined and described in SAS No. 44 of the 
AICPA, 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 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.
    8. Applicants have adequate facilities in place to ensure 
implementation of the methodology and procedures for calculating the 
net asset value, 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 7 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 
7 above. Applicants will take immediate corrective measures if this 
representation is not concurred in by the Expert or appropriate 
substitute Expert.
    9. The prospectus for each portfolio with more than one class 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 for selling or servicing one 
particular class of shares over another class in the same portfolio.
    10. 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 to agree to conform 
to such standards.
    11. The conditions pursuant to which the order is granted and the 
duties and responsibilities of the Trustees of the Fund with respect to 
the multi-class structure will be set forth in guidelines which will be 
furnished to the Trustees of the Fund.
    12. 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 each 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 Fund. 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 applicants 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.
    13. Applicants acknowledge 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 its shareholder services or rule 12b-1 plan in reliance on 
the order.

    For the SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-4334 Filed 2-24-94; 8:45 am]
BILLING CODE 8010-01-M