SEC Division of Investment Management staff letter: PNC Fund, et al.

PUBLIC

RESPONSE OF THE OFFICE OF Our Ref. No. 93-01-ICR

INVESTMNT COMPAN REGULATION The PNC Fund, et al.

DIVISION OF INVESTMNT MAAGEMENT (File No. 812-8220)

In your letter dated March 31, 1993, you state that The PNC

Fund, Inc. (the "Fund") received an order (the "PNC Order") 1/ exempting it from sections 18 (f), 18 (g), and 18 (i) of the Investment Company Act of 1940 to permit the Fund to issue two

classes of shares in each of its money market portfolios. In

addition, Funds Distributor, Inc. ("Funds Distributor"), the

Fund's distributor until January 17, 1993, received an order (the

"Distributor's Order") 2./ exempting investment companies for

which Funds Distributor acts as principal underwriter from sections 18 (f), 18 (g), and 18 (i) to permit them to offer three classes of shares in each of their investment portfolios.

You state that the money market portfolios of the Fund that

have commenced operations now have two classes of shares

outstanding in reliance on the PNC Order. You state that the

Fund's other portfolios that have commenced operations also have

two classes of shares outstanding, although neither rule 12b-1

nor servicing expenses have been charged, paid, or accrued, and

transfer agency expenses have been treated as a general expense

of the particular portfolio.

You state that, in September, 1992, the Fund became aware of

the proposed acquisition of Funds Distributor's indirect

corporate parent, The Boston Company Advisors, Inc., by Mellon

Bank Corporation. On November 30, 1992, the Fund's board of

trustees held a meeting to consider the ramifications for the

Fund of the proposed acquisition, and decided to replace Funds

Distributor, effective January 17, 1993. On December 16, 1992,

the Fund applied (the "Application") to amend the PNC Order to

cover the three- class structure approved by the board of trustees

under the Distributor's Order.

You request assurance that the Division of Investment

Management will not recommend that the Commission take

enforcement action if, pending final Commission action on the

Application, the Fund issues three classes of shares in each of

its investment portfolios in reliance on the Distributor's Order.

Based on the facts and representations contained in your

letter, we would not recommend that the Commission take any

enforcement action against the Fund if, pending final Commission

action on the Application, the Fund relies on the Distributor's

Order, subj ect to the terms and conditions set forth in it. Any

i/ The PNC Fund, Investment Company Act Release 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).

• 2
  assurance provided here, however, is not a substitute for

exemptive relief. Accordingly, this position shall be effective

until the Commission takes final action on the Application, or

until one year from the date of this letter, whichever is

sooner.
The Division ordinarily would not provide no-action

assurance in response to a request made after a change affecting

the applicability of an order. We believe, however, that such a

response is appropriate in this case. The Fund had already begun

to implement the three- class structure permitted by the

Distributor's Order before deciding to replace the distributor.

The replacement of the distributor was made based on valid

business reasons independent of any order issued by the

Commission. Moreover, applicants filed the Application before

replacing the distributor, and discussed the possibility of no-

action relief with the staff before such change.

This response expresses the Division's position on enforcement action only, and does not purport to express any legal conclusions concerning the questions presented. Facts or conditions different from those presented in your letter might require a different conclusion. Furthermore, this letter provides no assurance that the Application will be approved by the Commission. James J. Dwyer

Staff Attorney

April 2, 1993

LAW OFFICES
DRINKER BIDDLE & REATH

SUITE 900 PHilADELPHIA NATIONAL 8ANK 8UIlDING SUITE 400 \1 FIFTEENTH STREET. N.W. 47 HULFISH STREET

WASHINGTON. DC 20005 BROAD AND CHESTNUT STREETS POST OFFICE BOX 627

12021 842-8800 PRINCETON. N.J 08542 PHILADELPHIA, PA 19107 16091 921-6336 TELEPHONE: 12151 988-2700

SUITE 300 TELEX: 834684 MICHAEL P. MALLOY 1000 WESTLAKES DRIVE 121S1 988-2978 FAX: 12151 988-2757 BERWYN. PA 19312 12151 993-2200 March 31, 1993

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Jeremy N. Rubenstein, Esq.
RULB
Assistant Director

Office of Investment Company Regulation FUBLIC 1. %'1/ Cí'3 of Investment Management, Stop 10 - 6 A V AILABILIT 1 J(;X 1

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Di vision

Re: The PNC~ Fund

Dear Mr. Rubenstein:
II ), we .,hereby request On behalf of The PNC Fund (the II Fund that the Staff of the Division of Investment Management (the II Staff II) advise us that it will not recommend that the Securities and Exchange Commission (the IICommissionll) take enforcement Investment Company Act of 1940,

as amended (" 1940 Act "), if, under the circumstances described

action against the Fund under the

order pending

receipt by the Fund of a comparable order permitting the Fund to

below, the Fund relies upon an existing exemptive

offer three classes of shares in each of its investment / i .. portfolios. /We are submitting this request to you pursuant to￾our recent telephone conversations with Marilyn Mann, Esq.,

Special Counsel, Offi.ce of Investment Company Regulation, in

which we discussed the desirability of submitting to you a

no-action request in this context. We are submitting an original

and eight copies of this letter in compliance with 17 CFR

§ 200.81.

As described further below, the Fund has filed an

application with the Commission, which, if granted, would amend

an existing order and permit the Fund to offer three classes of

shares in each of its investment portfolios.

Background
The Fund, an open-end management investment company

organized as a Massachusetts business trust, currently consists

of twenty-one separate investment portfolios. The Fund has been

granted an exemptive order for relief from Sections 18 (f), 18 (g) and 18 (i) of the 1940 Act to permit it to issue two classes of

DRINKER BIDDLE & REATH

Jeremy N. Rubenstein, Esq.

Page -2
March 31, 1993

shares in each of its money market portfolios (the "PNC Orderll) .1

Under the PNC Order, the two classes must be identical except for

the allocation of expenses relating to Rule 12b- 1 and shareholder

servicing plans, voting rights related to those plans, transfer

agency expenses, exchange privileges and class designations.

Funds Distributor, Inc. ("Funds Distributor"), the Fund's

distributor until January 17, 1993, had been granted a similar

exemptive order on February 19, 1992 (the "Distributor's II ) .2 That Order grants relief from Sections 18 (f), 18 (g) Order and 18 (i) of the 1940 Act to permit investment companies for

which Funds Distributor acts as principal underwriter to offer three -classes. of shares in each of its investment portfolios. Under the Distributor's Order, the three classes must be

identical except for the allocation of expenses relating to Rule

12b- 1 and shareholder servicing plans, voting rights related to

those plans, transfer agency expenses, the net asset values of

investment portfolios that do not declare dividends on a daily basis, exchange privileges, class designations and sales loads. 3 On June 22, 1992, the Fund's Board approved a three- class structure for each of its investment portfolios based on the Distributor's Order, and on May 8, 1992 the Fund filed a Post-Effective Amendment to its Registration Statement on Form N - 1A to register shares in the additional classes. That Amendment became effective on July 7, 1992. On or about September 14, 1992, the Fund became aware of the proposed acquisition by Mellon Bank Corporation (IIMellonll) of

1. The PNC Fund, Investment Company Act Release No. 17875

(November 27,1990).

2. The Galaxy Fund, et al., Investment Company Act Release No.

18550 (February 19,1992).

3. On February 25, 1993, a Notice of Application for Exemption

was issued under the 1940 Act relating to Funds

Distributor's request for an additional exemptive order for

relief from Sections 18 (f), 18 (g) and 18 (i) of the 1940 Act

to permit certain multi-class systems. Nations Fund Trust,

et al. Investment Company Act Release No. 19297 (February 25, 1993). The Fund will not rely on any Order relating to that Notice, and therefore is not requesting no-action

relief relating to any such Order.

DRINKER BIDDLE & REATH

Jeremy N. Rubenstein, Esq.

Page - 3
March 31, 1993

Funds Distributor's and the Fund's co-administrator's respective

indirect and direct corporate parent, The Boston Company

Advisors, Inc. (the IIMellon Transactionll). On November 30, 1992,

the Fund's Board held a meeting to consider the ramifications for

the Fund of the Mellon Transaction. The Board decided at that

meeting to replace Fund's Distributor and its co-administrator

effective January 17, 1993.

On December 16, 1992, the Fund filed an Application with the

Commission to amend the PNC Order to broaden it to cover the

above-described three- class structure approved by the Board on

June 22, 1992, and thereby obviate the Fund's need to rely on the

Distributor's Order. Prior to the termination of the Fund's

contract with the Distributor, the Fund's counsel discussed with

the Commission's Staff the possibility of filing a no-action request which might permit the Fund to use the three - class structure for the interim period from January 17, 1993 until the

Amended Order has been granted.

The Fund's portfolios that have commenced operations have

two classes of shares outstanding. However, neither Rule 12b- 1

nor servicing expenses have been charged, paid or accrued, and

transfer agency expenses have been treated as a general expense

of the partieúlar investment portfolio. Prior to becoming .aware

of the Meii6n Transaction, the Fund was about to launch its

multi-class structure with Rule 12b-1, servicing and possibly

transfer agency expenses charged on a class specific basis. The

Fund believes that its inability to rely on the Distributor's

Order has, and will continue to, put it at a severe competitive

disadvantage until it has received the Amended Order.

Analysis
The Fund proposes that pending receipt of the Amended Order

the Fund would rely on the Distributor's Order and, subj ect to

Staff positions, would be subj ect to that Order's terms and

conditions, The Fund agrees that it would rely on the Amended

Order when it is g~anted, rather than continuing to rely on the

Distributor's Order pursuant to the no-action position requested

hereby.
We believe that the Fund should be permitted to continue

relying on the Distributor's Order, because the factors

supporting the issuance of that Order are still applicable to the

Fund even though the Fund replaced Funds Distributor.

DRINKER BIDDLE & REATH

Jeremy N. Rubenstein, Esq.

Page -4
March 31, 1993

The Staff previously has taken "no-action" positions in

similar situations involving various parties who sought to

continue to rely on exemptive orders despite changes in

circumstances similar to those involved here. 4 In addition, most

of these IIno-action" positions were not limited to covering an

interim period pending the receipt of a comparable order.

Conclusion
For the reasons stated above, and, subject to Staff positions, subj ect to the condition that the Fund will comply

with the terms and conditions of the Distributor's Order pending

receipt of the Amended Order, we respectfully request that the

Staff advise that it will not recommend that the Commission take . enforcement action if the Fund relies on the Dist~ibutor' s Order

pending receipt by the Fund of the Amended Order.

/' /

/'

4. See Cigna Funds Group (July 13, 1992) (investment companies

with a new sponsor can rely on exemptive order relating to

deferred compensation for non- interested trustees even

though the order was granted to their previous sponso~ for

investment companies sponsored by such sponsor); Merrill

Lynch Federal Securities Trust (Sept. 26, 1991) (investment

company can rely on exemptive order permitting dual

distribution system without seeking to amend order even

though order did not originally apply to investment

company); First Boston Corporation (July 3, 1991) (newly

created funding corporation can rely on order exempting a

substantially equivalent, but separate, funding corporation

from registra~ion without seeking separate order); Fiduciary

Capital Partners, L.P. (Jan. 24, 1990) (partnerships can

rely on existing order declaring independent general

partners not to be II interested persons II without seeking amended or new order despite subsequent replacement of general partner); and Federated Investors, Inc. (Sept. 22,
1989) (reorganized entities can rely on order that only

applied to predecessors) .

DRINKER BIDDLE & REATH

Jeremy N. Rubenstein, Esq.

Page - 5
March 31, 1993

We would greatly appreciate your assistance in expediting

this request. If you have any questions in connection with this

request, please call me at (215) 988-2978, or in my absence,

Elena J. Morrow-Spitzer at (215) 988-2583.

Michael P. Malloy

PNC: (DOCSjNoActIon.L
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