[Federal Register Volume 63, Number 64 (Friday, April 3, 1998)]
[Notices]
[Pages 16594-16596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8719]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23089; 812-10980]


BlackRock Funds, et al.; Notice of Application

March 27, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (the ``Act'').

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Summary of the Application

    Applicants request an order under sections 6(c) and 17(b) of the 
Act for an exemption from section 17(a) of the Act to permit certain 
common trust funds to transfer their assets to certain series of 
registered open-end management investment companies in exchange for 
shares of the series.

Applicants

    BlackRock Funds, PNC Bank, National Association (``PNC Bank, 
N.A.''), and PNC Select Equity Fund, PNC Large Cap Growth Equity Fund, 
PNC Large Cap Value Equity Fund, PNC Mid Cap Growth Equity Fund, PNC 
Mid Cap Value Equity Fund, PNC International Equity Fund, PNC Equity 
Growth & Income Fund, PNC Income Fund, and PNC Intermediate Bond Fund 
(collectively, the ``Common Trust Funds'').

Filing Date

    The application was filed on January 26, 1998 and amended on March 
12, 1998.

Hearing or Notification of Hearing

    An order granting the application 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., ET on April 21, 1998, and 
should be accompanied by proof of service on the 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 
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants c/o Robert P. 
Connolly, Esq., BlackRock, Inc., 1600 Market Street, 28th Floor, 
Philadelphia, PA 19103.

FOR FURTHER INFORMATION CONTACT:
George J. Zornada, Branch Chief, at (202) 942-0564, Office of 
Investment Company Regulation, Division of Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the

[[Page 16595]]

Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20549, (202) 942-8090.

Applicants' Representations

    1. BlackRock Funds (formerly Compass Capital Funds) is an open-end 
management investment company registered under the Act. BlackRock 
offers its shares to the public in several series with varying 
investment objectives and policies.
    2. PNC Bank, N.A. is a national banking association that acts as 
trustee for the Common Trust Funds. BlackRock, Inc., a wholly-owned 
subsidiary of PNC Bank, N.A., is an investment adviser registered under 
the Investment Advisers Act of 1940 and serves as investment adviser 
for each series of BlackRock Funds involved in the proposed 
transactions (the ``Mutual Funds''). PNC Bank, N.A. is an indirect 
wholly-owned subsidiary of PNC Bank Corp. (PNCBC''), which is a 
publicly-held bank holding company. A defined benefit pension plan 
maintained for the benefit of employees of PNCBC and subsidiaries of 
PNCBC (the ``Parent Company Plan'') holds more than 5% of the 
outstanding voting shares of each of the Mutual Funds.
    3. Each of the Common Trust Funds is a ``common trust fund'' as 
defined in section 584(a) of the Internal Revenue Code of 1986, as 
amended. The Common Trust Funds are excluded from the definition of 
``investment company'' under section 3(c)(3) of the Act. Participants 
in the Common Trust Funds are trusts for which PNC Bank, N.A. and its 
affiliates that are part of a common control group (collectively, ``PNC 
Bank''), each in its respective capacity, act as a trustee, executor, 
administrator, or guardian, or as a custodian under the Uniform Gifts 
to Minors Act (``Participants'').
    4. Applicants propose that the assets of the Common Trust Funds be 
transferred to the designated Mutual Funds in exchange for 
Institutional class shares of the designated Mutual Funds (the ``CTF 
Conversion''). The assets of each of the Common Trust Funds would be 
transferred to the corresponding Mutual Fund as follows:

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              Common trust funds                                          Mutual funds                          
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PNC Select Equity Fund.......................  Select Equity Portfolio.                                         
PNC Large Cap Growth Equity Fund.............  Large Cap Growth Equity Portfolio.                               
PNC Large Cap Value Equity Fund..............  Large Cap Value Equity Portfolio.                                
PNC Mid Cap Growth Equity Fund...............  Mid-Cap Growth Equity Portfolio.                                 
PNC Mid Cap Value Equity Fund................  Mid-Cap Value Equity Portfolio.                                  
PNC International Equity Fund................  International Equity Portfolio.                                  
PNC Equity Growth & Income Fund..............  Large Cap Value Equity Portfolio.                                
PNC Income Fund \1\..........................  Large Cap Value Equity Portfolio.                                
PNC Intermediate Bond Fund...................  Intermediate Bond Portfolio.                                     
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\1\ The assets of the PNC Income Fund will be transferred to two series of BlackRock Funds--the Large Cap Value 
  Equity Portfolio and the Managed Income Portfolio. The equity securities held by the PNC Income Fund will be  
  transferred to the Large Cap Value Equity Portfolio and the fixed income securities will be transferred to the
  Managed Income Portfolio.                                                                                     

    The CTF Conversion is scheduled to occur on May 1, 1998. Applicants 
also request relief for any future transactions in which common or 
collective trust funds for which PNC Bank acts as trustee propose to 
transfer assets to registered open-end management investment companies 
(or series thereof) that are (a) advised by PNC Bank, and (b) 5% or 
more owned by a defined benefit pension plan or other employee benefit 
plan (qualified or non-qualified) sponsored by PNC Bank (``Future 
Transactions''). Applicants state that they will rely on the requested 
relief with respect to Future Transactions only in accordance with the 
terms and conditions contained in this application.
    5. Institutional class shares are offered without a front-end or 
deferred sales change, are not subject to any redemption fees, and do 
not bear any rule 12b-1 distribution fees. The assets of the Common 
Trust Funds to be transferred will be valued in accordance with the 
provisions of rule 17a-7(b), and the shares of the Mutual Funds issued 
will have an aggregate net asset value equal to the value of the assets 
transferred by the Common Trust Funds. Following the CTF Conversion, 
the Common Trust Funds will be terminated, and the shares of the Mutual 
Fund issued will be held by PNC Bank, N.A. directly under the 
instrument by which it acts as trustee. The shares of the Mutual Funds 
issued will be credited to the benefit of each Participant, pro rata, 
according to each Participant's interest in the respective Common Trust 
Fund immediately prior to the CTF Conversion.
    6. With respect to the Mutual Funds, the CFT Conversion will be 
carried out in accordance with procedures previously adopted by the 
Mutual Fund's Board of Trustees (the ``Board'') under rule 17a-7(e), 
and the provisions of rule 17a-7(c), (d), and (f) will be satisfied 
with respect to the Mutual Funds. PNC Bank advised the Board that the 
investment objectives and policies of the Common Trust Funds and of 
their counterpart Mutual Funds, and the securities that they hold, are 
generally similar. In addition, the Board, including a majority of the 
trustees who are not interested persons, has determined that 
participation by the Mutual Funds in the CTF Conversion is in the best 
interest of the Mutual Funds and that the interests of existing 
shareholders of the Mutual Funds will not be diluted as a result of the 
CTF Conversion. These findings, and the basis on which they were made, 
will be recorded fully in the minute books of the Mutual Funds.
    7. With respect to the Common Trust Funds, PNC Bank, as trustee, 
will have determined in accordance with its fiduciary duties as trustee 
and as fiduciary for the Participants that the proposed CTF Conversion 
is in the best interests of Participants in each of the Common Trust 
Funds. In making this determination, PNC Bank will take into account 
the anticipated benefits that are expected to flow to Participants, 
including increased liquidity, the availability of daily pricing, the 
accessibility of performance and other information concerning the 
Mutual Funds, as well as the similarity of the investment objectives 
and policies of the Common Trust Funds and the Mutual Funds, the 
anticipated tax treatment of the CTF Conversion, and the aggregate fee 
levels experienced and expected to be experienced by Participants 
before and after the CTF Conversion.
    8. In some instances, under the trust instrument by which PNC Bank 
acts as trustee with respect to a Participant, investment authority may 
be shared with another party or parties and PNC Bank may be required to 
obtain consent or direction of such party or parties as

[[Page 16596]]

to whether the Participant will be included in the CTF Conversion. In 
the remaining instances, PNC Bank, acting alone in its fiduciary 
capacity, is authorized by such instruments and by applicable federal 
banking law and state fiduciary investment statutes to approve and 
cause the Participant to be included in the CTF Conversion. In those 
instances where an account party of the Participant does not exercise 
investment discretion but can terminate or transfer the fiduciary 
relationship with PNC Bank, such account party can direct PNC Bank to 
withdraw the Participant's investments from the Common Trust Fund 
before the CTF Conversion takes place. In all instances, detailed 
information concerning the terms of the proposed CTF Conversion, the 
Mutual Funds, applicable fee schedules, and other related information 
will be provided to Participants before the CTF Conversion takes place.

Applicants' Legal Analysis

    1. Section 17(a) of the Act provides that it is unlawful for any 
affiliated person of a registered investment company, or any affiliated 
person of such person, acting as principal, knowingly (a) to sell any 
security or other property to such registered investment company, or 
(b) to purchase from such registered investment company any security or 
other property. Section 2(a)(3) of the Act defines the term 
``affiliated person'' of another person to include (a) any person 
owning, controlling, or holding with power to vote, 5% or more of the 
outstanding voting securities of such other person; (b) any person 
controlling, controlled by, or under common control with, such other 
person; and, (c) if such other person is an investment company, any 
investment adviser thereof.
    2. Because the Common Trust Funds might be viewed as acting as 
principal in the CTF Conversion, and because the Common Trust Funds and 
the Mutual Funds might be viewed as being under common control of PNCBC 
within the meaning of section 2(a)(3) of the Act, the CTF Conversion 
may be subject to the prohibitions of section 17(a).
    3. Rule 17a-7 exempts certain purchase and sale transactions 
otherwise prohibited by section 17(a) if an affiliation exists soled by 
reason of having a common investment adviser, common directors, and/or 
common officers, provided, among other requirements, that the 
transaction involves a cash payment against prompt delivery of the 
security. The relief provided by rule 17a-7 may not be available for 
the CTF Conversion because the ownership of 5% or more of the 
outstanding voting shares of the Mutual Funds by the Parent Company 
Plan may create and affiliation ``not solely by reason of'' having a 
common investment adviser, common directors, and/or common officers. In 
addition, because the CTF Conversion is to be effected as an in-kind 
transfer, the transactions will be effected on a basis other than cash.
    4. Rule 17a-8 exempts certain mergers, consolidations, and assets 
sales of registered investment companies from the provisions of section 
17(a) of the Act if an affiliation exists solely by reason of having a 
common investment adviser, common directors, and/or common officers, 
provided, among other requirements, that the board of directors of each 
affiliated investment company make certain determinations that the 
transactions are fair. The relief provided by rule 17a-8 may not be 
available for the CTF Conversion because the Common Trust Funds are not 
registered investment companies. In addition, the relief provided by 
rule 17a-8 may not be available for the CTF Conversion because the 
ownership of 5% or more of the outstanding voting shares of the Mutual 
Funds by the Parent Company Plan may create an affiliation ``not solely 
by reason of'' having a common investment adviser, common directors, 
and/or common officers.
    5. Section 17(b) provides that the Commission shall exempt a 
transaction from section 17(a) if evidence establishes that (1) the 
terms of the proposed transaction, including the consideration to be 
paid, are reasonable and fair and do not involve overreaching; (2) the 
proposed transaction is consistent with the policy of each registered 
investment company concerned; and, (3) the proposed transaction is 
consistent with the general purposes of the Act.
    6. Section 6(c) of the Act provides that the Commission may exempt 
any person or transaction from any provision of the Act or any rule 
thereunder to the extent that 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.
    7. Applicants seek an order under sections 6 (c) and 17(b) to allow 
the CTF Conversion and Future Transactions. Applicants submit that the 
CTF Conversion satisfies the standards for relief under sections 6 (c) 
and 17(b). Applicants state that the CTF Conversion will comply with 
rule 17a-7(b) through (f). Applicants assert that if the CTF Conversion 
was effected in cash, as required under rule 17a-7(a), instead of 
through in-kind transfers of assets for shares, the Common Trust Funds 
and their respective Participants would bear unnecessary expenses and 
inconvenience in transferring assets to the Mutual Funds, and that the 
purchase of similar securities by the Mutual Funds would result in the 
payment of additional commissions or incur the effects of markups. 
Applicants also state that the Board will have approved the CTF 
Conversion in the manner required by rule 17a-8.

Applicants' Conditions

    1. The CTF Conversion will comply with rule 17a-7(b) through (f).
    2. The CFT Conversion will not occur unless and until the Board, 
including a majority of the Board's disinterested members, finds that 
participation by the Mutual Funds in the CTF Conversion is in the best 
interest of existing shareholders of each Mutual Fund and that the 
interests of these shareholders will not be diluted as a result of the 
transaction. These findings, and the basis upon which they are made, 
will be recorded in the minute books of the Mutual Funds.
    3. The CFT Conversion will not occur unless and until PNC Bank has 
determined in accordance with its fiduciary duties as trustee for the 
Common Trust Funds and as fiduciary for the Participants that the CFT 
Conversion is in the best interests of Participants in the Common Trust 
Funds.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Security.
[FR Doc. 98-8719 Filed 4-2-98; 8:45 am]
BILLING CODE 8010-01-M