[Federal Register Volume 64, Number 53 (Friday, March 19, 1999)]
[Notices]
[Pages 13617-13619]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6786]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release NO. 23738; 812-11274]


Market Street Funds, Inc. et al.; Notice of Application

March 12, 1999
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 15(a) 
of the Act and rule 18f-2 under the Act.

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SUMMARY OF THE APPLICATION: Market Street Funds, Inc. (``MSF''), on 
behalf of AllPro Large Cap Growth Portfolio, AllPro SmallCap Growth 
Portfolio, AllPro Large Cap Value Portfolio and AllPro Small Cap Value 
Portfolio (each a ``Fund'' and collectively, the ``Funds''), and 
Provident mutual Investment Management Company (``PIMC''), request an 
order that would permit applicants to enter into and materially amend 
sub-advisory agreements without shareholder approval.

FILING DATE: The application was filed on August 26, 1998. Applicants 
have agreed to file an amendment to the application during the notice 
period, the substance of which is reflected in this notice.

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. on April 6, 1999, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549. Applicants, c/o David S. Goldstein, Esq., Sutherland, 
Asbill & Brennen, 1275 Pennsylvania Avenue, N.W., Washington, D.C. 
20004-2415.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or George J. Zornada, 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 from 
the Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20549 (telephone (202) 942-8090).

Applicants' Representations

    1. MSF, a Maryland corporation, is registered under the Act as an 
open-end management investment company. MSF is currently comprised of 
eleven series, including the Funds, each of which has its own 
investment objectives, policies and restrictions.\1\ The shares of the 
Funds serve or will serve as funding

[[Page 13618]]

vehicles for variable annuity contracts offered through separate 
accounts of the Provident Mutual Life Insurance Company (``PMLIC'') or 
a subsidiary of PMLIC.
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    \1\ Applicants also request relief with respect to future series 
of MSF and all future registered open-end management investment 
companies that are (a) advised by PIMC or any entity controlling, 
controlled by, or under common control with PIMC, and (b) which 
operate in substantially the same manner as the Funds and comply 
with the terms and conditions contained in the application (``Future 
Funds''). MSF is the only existing investment company that currently 
intends to rely on the order.
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    2. PIMC, a Pennsylvania corporation, serves as the investment 
adviser to the Funds, and is registered under the Investment Advisers 
Act of 1940 (``Advisers Act''). PIMC is an indirect wholly-owned 
subsidiary of PMLIC.
    3. PIMC serves as investment adviser to the Funds pursuant to an 
investment advisory agreement between MSF and PIMC that was approved by 
the board of directors of MSF (``the ``Board''), including a majority 
of the directors who are not ``interested persons,'' as defined in 
section 2(a)(19) of the Act (``Independent Directors''), and the 
shareholders of the Funds (``Management Agreement''). Under the 
Management Agreement, PIMC has overall general supervisory 
responsibility for the investment program of the Funds and recommends 
to the Board the selection of one or more subadvisers (each a 
``Subadviser'' and collectively, ``subadvisers'') to provide one or 
more Funds with day-to-day portfolio management services (``Manager of 
Subadvisers Strategy''). Each Subadvisers is (or will be) an investment 
adviser registered under the Advisers Act and performs (or will 
perform) services pursuant to a written agreement with PIMC (the ``Sub-
Advisory Agreement''). Subadvisers' fees are (or will be) paid by PIMC 
out of its fees from the Funds at rates negotiated with the Subadvisers 
by PIMC.
    4. PIMC has supervised subadvisers since 1991 and uses a Manager of 
Subadvisers Strategy for each of the Funds. PIMC makes qualitative 
evaluations of each subadviser's skills and demonstrated performance in 
managing assets under particular investment styles. PIMC recommends to 
the Board for selection those Subadvisers that have consistently 
distinguished themselves and demonstrated a high level of service and 
responsibility to investors. PIMC reviews, monitors and reports to the 
Board regarding the performance and procedures of the Subadvisers. PIMC 
may recommend to the Board reallocation of assets of a Fund among 
Subadvisers, if necessary, and PIMC also may recommend hiring 
additional Subadvisers or the termination of Subadvisers in appropriate 
circumstances.
    5. Applicants request relief to permit PIMC to enter into and 
materially amend Sub-Advisory Agreements without shareholder 
approval.\2\ The requested relief will not extend to a Subadviser that 
is an affiliated person, as defined in section 2(a)(3) of the Act, of 
MSF or PIMC, other than by reason of serving as a Subadviser to one or 
more of the Funds (an ``Affiliated Subadviser'').
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    \2\ The term ``shareholder'' includes variable life insurance 
policy and variable annuity contract owners that are unit holders of 
any separate account for which the Funds serve as a funding medium.
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Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of the company's outstanding voting securities. 
Rule 18f-2 under the Act provides that each series or class of stock in 
a series company affected by a matter must approved such matter if the 
Act requires shareholder approval.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions from any provision of the Act, or 
from any rule thereunder, if 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. Applicants request an exemption under section 6(c) of the Act from 
section 15(a) of the Act and rule 18f-2 under the Act to permit them to 
enter into and materially amend Sub-Advisory Agreements without 
shareholder approval.
    3. Applicants assert that under the Manager of Subadvisers 
Strategy, the Fund's investors will rely on PIMC to select and monitor 
one or more Subadvisers best suited to achieve a Fund's investment 
objectives. Therefore, applicants believe that, from the perspective of 
the investor, the role of the Subadvisers is comparable to that of 
individual portfolio managers employed by other investment advisory 
firms. Applicants contend that requiring shareholder approval of Sub-
Advisory Agreements would impose expenses and unnecessary delays on the 
Funds, and may preclude PIMC from promptly acting in a manner 
considered advisable by the Board. Applicants note that the Management 
Agreement between all Funds and PIMC will remain subject to section 
15(a) of the Act and rule 18f-2 under the Act, including the 
requirements for shareholder approval.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. PIMC will provide management services to the Funds, including 
overall supervisory responsibility for the general management and 
investment of each Fund, and, subject to review and approval by the 
Fund's Board will (a) set each Fund's overall investment strategies; 
(b) evaluate, select and recommend Subadvisers to manage all or a part 
of a Fund's assets; (c) when appropriate, allocate and reallocate a 
Fund's assets among multiple Subadvisers; (d) monitor and evaluate the 
investment performance of Subadvisers; and (e) implement procedures 
reasonably designed to ensure that the Subadvisers comply with the 
relevant Fund's investment objectives, policies, and restrictions.
    2. Before a Fund may rely on the order, the operation of the Fund 
in the manner described in the application will be approved by a 
majority of the Fund's outstanding voting securities (or, if the Fund 
serves as a funding medium for any sub-account of a registered separate 
account, pursuant to voting instructions provided by the unitholders of 
the sub-account), as defined in the Act, or in the case of a new Fund 
whose public shareholders (or variable contract owners through a 
separate account) purchase shares on the basis of a prospectus(es) 
containing the disclosure contemplated by Condition 4 below, by the 
sole initial shareholder(s) before the shares of such Fund are offered 
to the public (or the variable contract owners through a separate 
account).
    3. Within 90 days of the hiring of any new Subadviser, PIMC will 
furnish shareholders (or, if the Fund serves as a funding medium for 
any sub-account of a registered separate account, PMLIC or a subsidiary 
of PMLIC will furnish the unit holders of the sub-account) with respect 
to the appropriate Fund with an information statement about the new 
Subadviser or Subadvisory Agreement that would be included in a proxy 
statement. Such information will include any changes caused by the 
addition of a new Subadviser. To meet this condition, PIMC will provide 
shareholders (or, if the Fund serves as a funding medium for any sub-
account of a registered separate account, then by providing unitholders 
of the sub-account) with an information statement meeting the 
requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule 
14A under the Securities Exchange Act of 1934.

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    4. Any Fund relying on the requested relief will disclose in its 
prospectus the existence, substance and effect of any order granted 
pursuant to this application. In addition, any such Fund will hold 
itself out as employing the Manager of Subadvisers Strategy described 
in the application. The prospectus will prominently disclose that PIMC 
has ultimate responsibility to oversee the Subadvisers and recommend 
their hiring, termination, and replacement.
    5. No director or officer of MSF or PIMC will own directly or 
indirectly (other than through a pooled investment vehicle that is not 
controlled by such director or officer) any interest in a Subadviser 
except for (a) ownership of interests in PIMC or any entity that 
controls, is controlled by, or is under common control with PIMC; or 
(b) ownership of less than 1% of the outstanding securities of any 
class of equity or debt securities of a publicly-traded company that is 
either a Subadviser or controls, is controlled by, or is under common 
control with a Subadviser.
    6. No Fund will enter into a Subadvisory Agreement with an 
Affiliated Subadviser without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the Fund (or, if the Fund serves as a funding medium for any sub-
account of a registered separate account, then pursuant to voting 
instructions by the unitholders of the sub-account).
    7. At all times, a majority of each Fund's Board will be persons 
who are Independent Directors, and the nomination of new or additional 
Independent Director will be at the discretion of the then-existing 
Independent Directors.
    8. When a change of Subadviser is proposed for a Fund with an 
Affiliated Subadviser, the Fund's Board, including a majority of the 
Independent Directors, will make a separate finding, reflected in the 
Fund's Board minutes, that such change of Subadviser is in the best 
interests of the Fund and its shareholders (or, if the Fund serves as a 
funding medium for any sub-account of a registered separate account, in 
the best interests of the Fund and the unitholders of any sub-account) 
and that the change does not involve a conflict of interest from which 
PIMC or the Affiliated Subadviser derives an inappropriate advantage.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-6786 Filed 3-18-99; 8:45 am]
BILLING CODE 8010-01-M