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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
The PNC(R) Fund
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(Name of Registrant as Specified in Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement if other than the Registrant
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date filed:
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THE PNC(R) FUND
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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October 23, 1995
To the Shareholders of
The PNC Fund
A Special Meeting of Shareholders of the Index Equity Portfolio (the
"Portfolio") of The PNC Fund (the "PNC Fund") will be held on November 30, 1995
at 10:00 a.m. at the Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809 for the following purposes:
(1) to consider the approval or disapproval of a change to the
Portfolio's fundamental investment limitations to permit the Portfolio to
invest all of its assets in shares of a corresponding open-end management
investment company having substantially the same investment objective,
policies and limitations; and
(2) to transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The subjects referred to above are discussed in the Proxy Statement
attached to this Notice. Each shareholder is invited to attend the Special
Meeting of Shareholders in person. Shareholders of record at the close of
business on October 19, 1995 have the right to vote at the meeting. If you
cannot be present at the meeting, we urge you to complete and promptly return
the enclosed Proxy in order that the meeting may be held and a maximum number of
shares may be voted.
MORGAN R. JONES
Secretary
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THE PNC(R) FUND
400 BELLEVUE PARKWAY
SUITE 100
WILMINGTON, DELAWARE 19809
PROXY STATEMENT
THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE BOARD OF TRUSTEES OF THE PNC FUND (THE "PNC FUND") FOR USE AT A
SPECIAL MEETING OF SHAREHOLDERS OF THE INDEX EQUITY PORTFOLIO (THE "PORTFOLIO")
TO BE HELD AT THE BELLEVUE PARK CORPORATE CENTER, 400 BELLEVUE PARKWAY,
WILMINGTON, DELAWARE ON NOVEMBER 30, 1995 AT 10:00 A.M. (SUCH MEETING AND ANY
ADJOURNMENT THEREOF IS HEREAFTER REFERRED TO AS THE "MEETING").
It is expected that the solicitation of proxies will be primarily by mail.
The PNC Fund's officers and service contractors may also solicit proxies by
telephone or personal interview. The Portfolio will bear all proxy solicitation
costs. Any shareholder giving a proxy may revoke it at any time before it is
exercised by submitting to the Secretary of the PNC Fund a written notice of
revocation or a subsequently executed proxy or by attending the Meeting and
voting in person. This Proxy Statement and the enclosed form of proxy ("Proxy")
are expected to be distributed to shareholders on or about October 30, 1995.
Only Portfolio shareholders of record at the close of business on October
19, 1995 will be entitled to vote at the Meeting. On that date the outstanding
shares of the Portfolio were as follows: 4,686,184.731 shares of Class O-1
shares (Service Shares); 489,823.986 shares of Class O-2 shares (Series A
Investor Shares); and 8,040,887.745 shares of Class O-3 shares (Institutional
Shares, and collectively with the above-referenced Service Shares and Series A
Investor Shares, the "Shares").
If the enclosed Proxy is executed properly and returned, Shares represented
by it will be voted at the Meeting in accordance with the instructions thereon.
The PNC Fund's Board of Trustees recommends a vote FOR the approval of the
proposed change to the Portfolio's fundamental investment limitations to permit
the Portfolio to invest all of its assets in shares of a corresponding open-end
management investment company having substantially the same investment
objective, policies and limitations as the Portfolio.
Voting Procedures. Each full Share is entitled to one vote and each
fractional Share to a proportionate fractional vote. Shareholders of all classes
of the Portfolio will vote together as a single class.
The approval of the Proposal requires the affirmative vote of the holders
of a "majority of the outstanding Shares" of the Portfolio (as defined by the
Investment Company Act of 1940 (the "1940 Act")), which means the lesser of (a)
the holders of 67% or more of the Shares of the Portfolio present at the Meeting
if the holders of more than 50% of the outstanding Shares of the Portfolio are
present in person or by proxy, or (b) more than 50% of the outstanding Shares of
the Portfolio.
In the absence of voting instructions, Shares will be voted FOR the
proposal as indicated on each Proxy. If a Proxy is properly executed and is
marked with an abstention, the Shares represented thereby will be considered to
be present at the Meeting for purposes of determining the existence of a quorum
for the transaction of business. Broker "non-votes" (i.e., Proxies from brokers
or nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote Shares on a particular matter
with respect to which the brokers or nominees do not have discretionary
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power) will also be considered to be present at the Meeting for purposes of
determining the existence of a quorum for the transaction of business. Under
Massachusetts law, abstentions and broker non-votes will have the same effect as
casting a vote against the proposal for purposes of obtaining the requisite
approval of such proposal.
If you do not expect to be present at the Meeting and wish your Shares to
be voted, please complete the enclosed Proxy and mail it in the enclosed reply
envelope.
THE PNC FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE PORTFOLIO'S ANNUAL
REPORT AND SEMI-ANNUAL REPORT TO SHAREHOLDERS DATED SEPTEMBER 30, 1994 AND MARCH
31, 1995, RESPECTIVELY, TO ANY SHAREHOLDER UPON REQUEST. THE PNC FUND'S ANNUAL
REPORT AND SEMI-ANNUAL REPORT TO SHAREHOLDERS MAY BE OBTAINED FROM THE PNC FUND
BY CALLING (800) 422-6538 OR BY WRITING TO THE PNC FUND AT THE ADDRESS SET FORTH
ON THE FIRST PAGE OF THE PROXY STATEMENT.
The Board of Trustees of the PNC Fund knows of no matter other than that
mentioned in Proposal 1 of the Notice which will be presented at the Meeting. If
any other matter is properly presented at the Meeting, it is the intention of
the persons named as attorneys in the enclosed Proxy to vote the Proxies in
accordance with their judgment in regard to such matter.
PROPOSAL 1. TO APPROVE A CHANGE TO THE PORTFOLIO'S FUNDAMENTAL INVESTMENT
LIMITATIONS TO PERMIT THE PORTFOLIO TO INVEST ALL OF ITS ASSETS IN A
CORRESPONDING OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING SUBSTANTIALLY THE
SAME INVESTMENT OBJECTIVE, POLICIES AND LIMITATIONS.
SUMMARY
The Board of Trustees of the PNC Fund has approved, and is submitting to
the shareholders of the Portfolio for approval, a change to the Portfolio's
fundamental investment limitations to permit the Portfolio to invest all of its
assets in shares of another open-end management investment company having
substantially the same investment objective, policies and limitations as the
Portfolio.
If the change to the Portfolio's fundamental investment limitations is
approved by the Portfolio's shareholders at the Meeting, the Portfolio will
transfer all of its assets to the U.S. Large Company Series (the "Master
Portfolio") of The DFA Investment Trust Company (the "DFA Company"), an
investment portfolio having substantially the same investment objective,
policies and limitations as the Portfolio, in exchange for shares of the Master
Portfolio pursuant to a purchase agreement between the PNC Fund and the DFA
Company (the "Purchase Agreement"). Approval of this Proposal and the closing of
the Purchase Agreement would create a two-tier or "master-feeder" structure
whereby the Portfolio, along with other "feeder" portfolios, would invest
substantially all of its assets in shares of the Master Portfolio. The Portfolio
will bear its own costs with respect to this transaction.
After analyzing the prospects for the growth of the Portfolio and the
current expense ratio of the Portfolio, which is made possible by significant
fee waivers by the investment adviser and administrators, PNC Institutional
Management Corporation ("PIMC"), the Portfolio's current investment adviser,
advised the Trustees that the low expense ratio necessary for the Portfolio to
attract investors and to meet its investment objective required a larger asset
base than the Portfolio could reasonably attain. As a
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result, PIMC has recommended to the PNC Fund's Trustees that the Portfolio
invest all of its assets in a master fund, the Master Portfolio, managed by
Dimensional Fund Advisors Inc. ("DFA"), a well-known manager of index funds. DFA
has advised the PNC Fund's Trustees that it would seek to attract additional
assets to the Master Portfolio through association with additional feeder funds.
If successful, the operation of the Portfolio as a feeder portfolio of the
Master Portfolio may eventually achieve certain economies of scale resulting in
lower expense ratios for the Portfolio. Regardless of DFA's success in
attracting additional feeder funds, the Trustees of the PNC Fund believe that
the expense ratios of the Portfolio under the proposed master-feeder structure
will be approximately equal to what the Portfolio's expense ratios would be
under its current single-tier structure. To the extent that the Portfolio's
expense ratios decline as a result of the proposed master-feeder structure, the
Portfolio will be in a better position to achieve its investment objective of
duplicating the capital performance and dividend income of the Standard & Poor's
500(R) Composite Stock Price Index (the "S&P Index").1 The following tables show
the expenses of each class of the Portfolio for its fiscal year ended September
30, 1994 (as restated to reflect revised advisory and administration fee waivers
currently in effect) and pro forma adjustments thereof assuming that the
Portfolio had invested all of its assets in the Master Portfolio for the entire
period then ended.
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(1) The Portfolio is not sponsored, endorsed, sold or promoted by Standard &
Poor's Ratings Group.
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PORTFOLIO OPERATING AND PRO FORMA EXPENSE TABLES
PORTFOLIO EXPENSES
INSTITU- INVESTOR INVESTOR
TIONAL SERVICE CLASS CLASS
ANNUAL OPERATING EXPENSES INSTITU- CLASS CLASS INVESTOR SERIES A INVESTOR SERIES B
AFTER FEE WAIVERS AS A TIONAL (PRO SERVICE (PRO CLASS (PRO CLASS (PRO
PERCENTAGE OF DAILY NET ASSETS CLASS FORMA) CLASS FORMA) SERIES A FORMA) SERIES B FORMA)
- ------------------------------- -------- -------- ------- ------- -------- -------- -------- --------
Advisory Fees(1)(3)............ .05% .025% .05% .025% .05% .025% .05% .025%
Other Operating Expenses of the
Master Portfolio............. -- .038 -- .038 -- .038 -- .038
12b-1 Fees(2).................. -- -- -- -- .40 .40 .75 .75
Other Operating Expenses of the
Portfolio.................... .13 .117 .43 .417 .20 .187 .45 .437
--- ---- --- ---- --- ---- --- ----
Administration Fees(1)....... .02 .045 .02 .045 .02 .045 .02 .045
Service Fees................. -- -- .15 .15 -- -- .25 .25
Other Expenses(1)............ .11 .072 .26 .222 .18 .142 .18 .142
---- ----- ---- ---- ---- ----- ---- -----
Total Operating Expenses....... .18% .18% .48% .48% .65% .65% 1.25% 1.25%
=== ==== === ==== === ==== === ====
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(1) Advisory fees for the Portfolio's current structure are net of waivers of
.15% and administration fees are net of waivers of .18% for the Portfolio.
The administration fees in the "pro forma" columns are net of waivers of
.155% for the Portfolio. The expenses noted above under "Other Operating
Expenses of the Portfolio -- Other Expenses" are estimated based on the
level of such expenses for the Portfolio's fiscal year ended September 30,
1994. The Portfolio's adviser and administrators are under no obligation to
waive or continue waiving such fees, but have informed the PNC Fund that
they expect to waive or continue waiving such fees as necessary to maintain
the Portfolio's total operating expenses during the current fiscal year at
the levels set forth in the table. Securities dealers, financial
institutions and other industry professionals may charge their clients
additional fees for account services.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD").
(3) The advisory fees in the "pro forma" columns are paid at the Master
Portfolio level.
DISCUSSION OF THE PROPOSED MASTER-FEEDER STRUCTURE
If Proposal 1 is approved by shareholders of the Portfolio, the PNC Fund's
Board of Trustees expects to implement the master-feeder structure for the
Portfolio by causing the Portfolio to purchase shares of the Master Portfolio in
exchange for the assets reflected on the Portfolio's balance sheet, pursuant to
the Purchase Agreement. Thereafter, the Portfolio's investment portfolio will be
comprised exclusively of shares of the Master Portfolio. The proposed
master-feeder structure will not alter the rights and privileges of shareholders
of the Portfolio. However, the shareholders will not have the right to vote on
matters submitted to the Portfolio by the Master Portfolio, such as an amendment
or termination of the Master Portfolio's advisory contract. The value of a
shareholder's investment in the Portfolio will be the same immediately after the
Portfolio's investment in the Master Portfolio as immediately before that
investment. The value of a shareholder's investment in the Portfolio will
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fluctuate thereafter as a result of changes in the value of the Master Portfolio
and expenses incurred by the Master Portfolio and the Portfolio.
Under the proposed master-feeder structure, the Portfolio would no longer
incur expenses related to its investment advisory contract, which would be
terminated. As a feeder portfolio of the Master Portfolio, the Portfolio would
bear its pro rata portion of the Master Portfolio's advisory fees and operating
expenses which, when combined with the Portfolio's operating expenses, are
expected to result in expense ratios for the Portfolio that are approximately
equal to its expense ratios under the current single-tier structure. See the
expense table above under "Summary."
The DFA Company has advised the Portfolio that it will be in a position to
market similar master-feeder arrangements to other institutional investors that
may invest in the Master Portfolio. If the DFA Company is successful in this
endeavor, the proposed master-feeder structure could enable the Portfolio to
benefit, directly or indirectly, from certain economies of scale, based on the
premise that certain of the expenses of operating an investment portfolio are
relatively fixed and that a larger investment portfolio may eventually achieve a
somewhat lower ratio of operating expenses to average net assets. Currently, the
only investor in the Master Portfolio is the U.S. Large Company Portfolio (the
"Current Shareholder"), a series of DFA Investment Dimensions Group Inc., with
total assets as of September 30, 1995 of approximately $93.4 million. No
meaningful economies of scale, reductions in the Portfolio's expense ratios or
other benefits to the shareholders of the Portfolio are anticipated until
additional investors invest their assets in the Master Portfolio. There can be
no assurance that such economies of scale, reduced expense ratios or other
benefits to shareholders of the Portfolio will be realized.
As a general matter, after the Portfolio provides the DFA Company with 30
days notice, the Portfolio would be able to withdraw its investment in the
Master Portfolio without shareholder approval if the PNC Fund's Trustees
determine that it is in the best interests of the Portfolio to do so. If
requested by the Board of Trustees of the DFA Company, after receiving 90 days
notice, the Portfolio would have to withdraw its investment in the Master
Portfolio. Upon any such withdrawal, the Trustees would consider what further
action might be taken, including the investment of the Portfolio's assets in
another pooled investment entity having substantially the same investment
objective, policies and limitations as the Portfolio or, subject to the approval
of the Portfolio's shareholders, the retention of an investment adviser to
manage the Portfolio's assets.
IMPACT ON SERVICE PROVIDER ARRANGEMENTS
If shareholders of the Portfolio approve the proposed change to the
Portfolio's fundamental investment limitations to allow for the proposed
master-feeder structure, the Portfolio itself would no longer require investment
advisory services. Accordingly, the Portfolio will terminate its existing
investment advisory and sub-advisory arrangements with PIMC and PNC Equity
Advisors Company ("PEAC"), respectively, effective at the closing of the
Purchase Agreement if Proposal 1 is approved by the Portfolio's shareholders.
Under the Advisory Agreement currently in effect between the PNC Fund and PIMC
with respect to the Portfolio, PIMC is entitled to advisory fees at the annual
rate of .20% of the Portfolio's average daily net assets. PIMC has historically
waived a portion of these advisory fees and currently receives advisory fees at
the annual rate of .05%. Under a Sub-Advisory Agreement currently in effect
between PIMC and PEAC with respect to the Portfolio, PEAC is entitled to
sub-advisory fees at the annual rate of .15% of the Portfolio's average daily
net assets. PEAC is compensated by PIMC, not the Portfolio.
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The Portfolio would also have a reduced need for certain custodial services
if the proposed master-feeder structure is implemented. Therefore, if Proposal 1
is approved, PNC Bank, the PNC Fund's custodian, will provide more limited
custodial services for the Portfolio and will waive all of its custody fees with
respect to the Portfolio.
If the proposed master-feeder structure is implemented, PFPC Inc. ("PFPC")
and Provident Distributors, Inc. ("PDI"), the PNC Fund's administrators, will
adjust their waivers of administration fees as illustrated in the expense table
above under "Summary."
As a shareholder of the Master Portfolio, the Portfolio would bear its pro
rata portion of the Master Portfolio's advisory fees and other operating
expenses. The Portfolio's shareholders would indirectly bear such expenses in
addition to the Portfolio's own operating expenses. See the expense table above
under "Summary."
PROPOSED CHANGES TO FUNDAMENTAL INVESTMENT LIMITATIONS
The Board of Trustees of the PNC Fund has approved a change in the
fundamental investment limitations of the Portfolio to permit it to invest all
of its assets in shares of the Master Portfolio, an open-end management
investment company having substantially the same investment objective, policies
and limitations. Under the 1940 Act, changes to the Portfolio's fundamental
investment limitations require the approval of the Portfolio's shareholders.
Certain of the Portfolio's fundamental investment limitations may be deemed
to prohibit the Portfolio from pursuing its investment objective by investing
all of its assets in shares of another investment company. The most pertinent of
the Portfolio's fundamental investment limitations are set forth below. These
limitations restrict the extent to which the Portfolio can invest in (i)
securities of any one issuer, (ii) securities of issuers in the same industry,
and (iii) securities issued by investment companies. In particular, the
Portfolio currently may not:
(1) Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the value of
the Portfolio's total assets would (taken at current value) be invested in the
securities of such issuer, or more than 10% of the issuer's outstanding voting
securities would be owned by the Portfolio or the PNC Fund, except that up to
25% of the value of the Portfolio's total assets may (taken at current value) be
invested without regard to these limitations;
(2) Purchase any securities which would cause 25% or more of the value of
the Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to (i)
instruments issued or guaranteed by the United States, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, and (ii)
repurchase agreements secured by the instruments described in clause (i); and
(3) Acquire any other investment company or investment company security,
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act.
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In connection with the proposed master-feeder structure discussed above,
the Portfolio's shareholders are being asked to consider the approval of the
addition of the following provision to the Portfolio's fundamental investment
limitations:
"Notwithstanding the investment limitations of the Index Equity Portfolio,
the Portfolio may invest all of its assets in shares of an open-end
management investment company with substantially the same investment
objective, policies and limitations as the Portfolio."
The Trustees of the PNC Fund have determined that this additional provision
would also apply to one of the Portfolio's non-fundamental investment policies
(that is, a policy which may be changed by the Trustees without shareholder
approval), which currently restricts the Portfolio from investing more than 15%
of its total assets in illiquid securities, such as restricted and not readily
marketable securities.
DESCRIPTION OF THE MASTER PORTFOLIO AND COMPARISON WITH THE PORTFOLIO
The Master Portfolio is a series of the DFA Company, which is an open-end
management investment company registered under the 1940 Act. The DFA Company was
organized as a Delaware business trust on October 27, 1992. Shares of the Master
Portfolio are intended for sale to institutional investors and are not available
for purchase by members of the general public.
Although the investment objective, policies and limitations of the Master
Portfolio are substantially similar to those of the Portfolio, there are some
differences. For example, under normal market conditions, at least 90% of the
Portfolio's total assets must be invested in the stocks that comprise the S&P
Index, whereas at least 95% of the Master Portfolio's assets will be invested in
such stocks. The Portfolio's current investment policies permit it to lend
portfolio securities with an aggregate value of up to 30% of its total assets.
By contrast, the Master Portfolio may lend portfolio securities with an
aggregate value of up to 33 1/3% of its total assets. The Portfolio is
specifically authorized to write covered call options, buy put options, buy call
options and to write put options. By contrast, the Master Portfolio may invest
in index futures contracts and index options and purchase or sell financial
futures contracts and options thereon. In addition, the Portfolio is
specifically authorized to (i) enter into foreign currency transactions and
reverse repurchase agreements, (ii) invest in American Depository Receipts,
variable and floating rate instruments, mortgage-related securities and
asset-backed securities, (iii) participate in rights offerings, and (iv)
purchase securities on a "when-issued" basis and to purchase or sell securities
on a "forward commitment" basis. The Master Portfolio's investment policies do
not address such investments and investment techniques.
The Portfolio and the Master Portfolio also differ as to their fundamental
investment limitations. For example, the Portfolio may not issue senior
securities. The Master Portfolio has no corresponding fundamental investment
limitation. The Master Portfolio may pledge, mortgage or hypothecate securities
in amounts up to 10% of its total assets. By contrast, the Portfolio may only
mortgage, pledge or hypothecate its assets in connection with permitted
borrowings and then in amounts not in excess of one-third of the value of the
Portfolio's total assets at the time of such borrowing. In addition, the
Portfolio may not purchase securities of any one issuer if more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio or the
PNC Fund, provided that the Portfolio may invest up to 25% of its total assets
without regard to this limitation. The Master Portfolio's limitation on
acquiring more than 10% of the voting securities of any issuer applies only to
the holdings of the Master Portfolio itself. However, this restriction applies
to all of the Master Portfolio's assets.
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The Master Portfolio has additional fundamental investment limitations
which the Portfolio does not have. These restrictions essentially prohibit the
Master Portfolio from (i) purchasing or retaining securities of an issuer if the
officers and trustees of the DFA Company or the officers and directors of
Dimensional Fund Advisors Inc. ("DFA") owning more than 1/2 of 1% of such
securities together own more than 5% of such securities; (ii) investing more
than 5% of its total assets in securities of companies which have (with
predecessors) a record of less than three years' continuous operation; and (iii)
purchasing warrants; provided that the Master Portfolio may acquire warrants as
a result of corporate actions involving its holdings of other equity securities.
Lastly, the Master Portfolio has a fundamental investment limitation which
prohibits it from investing more than 10% of the value of its total assets in
illiquid securities. The Portfolio is subject to a non-fundamental investment
policy limiting its investments in illiquid securities to 15% of the value of
its total assets.
The Master Portfolio uses substantially the same methodologies as the
Portfolio to value its portfolio securities and to determine its net asset value
per share.
CERTAIN SERVICE PROVIDER ARRANGEMENTS OF THE MASTER PORTFOLIO
The DFA Company's investment adviser is DFA, which is engaged in the
business of providing investment management services to institutional investors.
DFA was organized in May, 1981 and currently manages over sixty investment
portfolios with combined assets under management exceeding $12.5 billion. DFA's
principal offices are located at 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401. As investment adviser to the Master Portfolio, DFA is entitled
to receive advisory fees at the annual rate of 0.025% of the Master Portfolio's
average daily net assets. Under the DFA Company's current advisory agreement
with DFA, DFA bears all of the ordinary operating expenses of the Master
Portfolio (except for the advisory fee), including the Master Portfolio's
administration, transfer agency and custody fees. The Master Portfolio is
currently seeking shareholder approval for a new investment management agreement
with DFA (the "New DFA Agreement"). If the Master Portfolio's Current
Shareholder approves the New DFA Agreement, DFA would continue to be entitled to
receive advisory fees at the annual rate of 0.025% of the Master Portfolio's
average daily net assets; however, DFA would no longer bear the fees of the
Master Portfolio's transfer, dividend disbursing and accounting service agent
and the asset-based fees of the Master Portfolio's custodian. The expense table
under "Summary" assumes that the Current Shareholder will approve the New DFA
Agreement.
The Current Shareholder's approval of the New DFA Agreement is a condition
of closing under the Purchase Agreement. Of course, there can be no assurance
that the Current Shareholder will approve the New DFA Agreement with DFA. If the
proposed New DFA Agreement is not approved by the Current Shareholder, the PNC
Fund would continue to retain PIMC and PEAC as the investment adviser and
sub-adviser, respectively, for the Portfolio, and the Trustees of the PNC Fund
will investigate the investment of its assets in another "master portfolio"
having substantially the same investment objective, policies and limitations as
the Portfolio.
PFPC serves as the administrative services, dividend disbursing and
transfer agent to the Master Portfolio, for which PFPC is entitled to
compensation at the annual rate of .015% of the Master Portfolio's average daily
net assets. PNC Bank, National Association ("PNC Bank") serves as the Master
Portfolio's custodian. For its services as custodian, PNC Bank is entitled to
compensation at the annual rate of .0025% of the Master Portfolio's average
daily net assets, plus $7.00 for each transaction.
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DESCRIPTION OF MASTER PORTFOLIO SHARES
Shares in the Master Portfolio, when issued and paid for in accordance with
the Master Portfolio's registration statement, will be fully paid and
non-assessable with equal, non-cumulative voting rights, except as set forth
below, and with no preferences as to conversion, exchange, dividends, redemption
or any other feature. Shareholders of the DFA Company have the right to vote
only (i) for removal of its trustees, (ii) with respect to such additional
matters relating to the DFA Company as may be required by the applicable
provisions of the 1940 Act, including the approval of the investment advisory
agreement and the selection of trustees and accountants, and (iii) on such other
matters as the trustees of the DFA Company may consider necessary or desirable.
In addition, the Master Portfolio's shareholders will be asked to vote on any
proposal to change a fundamental investment policy (i.e. a policy that may be
changed only with the approval of shareholders) of the Master Portfolio.
If the Portfolio, as a shareholder of the Master Portfolio, is requested to
vote on matters pertaining to the Master Portfolio, the Trustees intend to vote
all of the shares that the Portfolio holds in the Master Portfolio without
submitting any such questions to the shareholders of the Portfolio. If the
Trustees consider "pass-through" voting to be necessary or desirable, the
Portfolio would hold a meeting of its shareholders and would cast its votes
proportionately as instructed by Portfolio shareholders. In such cases,
shareholders of the Portfolio, in effect, would have the same voting rights they
would have as direct shareholders of the Master Portfolio.
If liquidation of the DFA Company should occur, shareholders in the Master
Portfolio, including the Portfolio, would be entitled to share pro rata in the
net assets of the Master Portfolio as well as a proportionate share of DFA
Company assets not attributable to any particular DFA Company portfolio
available for distribution to shareholders, if any.
TAX CONSIDERATIONS
A condition to the closing of the Purchase Agreement is the receipt of an
IRS tax ruling (or, alternatively, an opinion of the DFA Company's counsel) to
the effect that contribution of assets of the Portfolio to the Master Portfolio
in exchange for shares of the Master Portfolio (i) will be treated as a
contribution of property to a partnership in exchange for an interest in the
partnership, (ii) will not result in the recognition of gain or loss to the
Portfolio for federal income tax purposes, (iii) will provide the Master
Portfolio with the same tax basis in the contributed assets as the Portfolio had
in the assets immediately before the closing, and (iv) will provide that the
holding period of the Master Portfolio with respect to the contributed assets
will include the period for which the Portfolio held the assets. If it were
determined that the transaction was taxable, the Portfolio would realize and
recognize gain in an amount equal to the appreciation (undiminished by losses)
in the transferred assets as of the date of the transfer (the "deemed gain"). If
the Portfolio did not make a distribution to its shareholders equal to all or a
portion of the deemed gain, the Portfolio could be subject to tax (plus interest
and penalties) on all or a portion of the deemed gain. Alternatively, if the
Portfolio were to make a distribution to its shareholders in an amount equal to
all or a portion of the deemed gain, then its shareholders at the time of such
distribution would be taxable on the amount distributed and the Portfolio could
be required to pay penalties and/or interest. Depending on the amount and nature
of the deemed gain and the Portfolio's previous distributions of gains with
respect to the same taxable year, the Portfolio might be required to make the
distribution described in the preceding sentence in order to preserve its
qualification under the Internal Revenue Code (the "Code") as a regulated
investment company.
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As of June 30, 1995, the net unrealized appreciation in the assets of the
Portfolio on a federal income tax basis was $41,440,504. The amount of gross
unrealized appreciation in the assets of the Portfolio at the time of transfer
of the Portfolio's assets to the Master Portfolio may be more or less than the
amount indicated in the preceding sentence, and no assurance can be given as to
the magnitude of such amount at the time of such transfer.
Another condition to the closing of the Purchase Agreement is the receipt
of assurances acceptable to the PNC Fund, which may be in the form of an opinion
of counsel, that the Master Portfolio will not be subject to California state
taxes and that the Portfolio will not be subject to California state taxes by
reason of its ownership of Master Fund shares.
EVALUATION BY THE PORTFOLIO'S TRUSTEES
The PNC Fund's Board of Trustees has carefully considered Proposal 1 which,
in effect, authorizes the conversion of the Portfolio to the master-feeder
structure while maintaining the Portfolio's investment objective as it was
before the conversion. The PNC Fund's Board has carefully evaluated the
potential costs and benefits to the Portfolio and its shareholders that would be
associated with the proposed master-feeder structure.
The Trustees of the PNC Fund considered the recommendation of PIMC in
deciding to approve the proposed master-feeder structure while retaining the
Portfolio's same investment objective. PIMC has informed the PNC Fund's Trustees
that it was unlikely that the Portfolio could be grown significantly above its
present size, which is below the asset level required to garner meaningful
economies of scale. As an index fund, the Portfolio's success in pursuing its
investment objective is dependent, in part, upon the Portfolio's ability to
maintain relatively low expense ratios. As a result, the advisory fee payable to
PIMC as the Portfolio's investment adviser is relatively low (i.e. .20%
(annualized) of the Portfolio's average daily net assets). Furthermore, PIMC has
consistently waived a substantial portion of its advisory fees with respect to
the Portfolio. At the same time, the management of an index fund like the
Portfolio requires costly resources such as a highly sophisticated monitoring
and trading system capable of tracking the performance of the S&P Index with a
high degree of correlation. PIMC explained to the PNC Fund's Trustees that the
Portfolio's asset level is not expected to increase enough to enable the
Portfolio to be self-sustaining, but that a "master-feeder" structure could
enable the Portfolio to benefit from a larger asset base and maintain its low
expense ratios. Additionally, the Portfolio could indirectly obtain the services
of an investment adviser with the necessary resources to accurately track the
S&P 500. Therefore, PIMC recommended that the Board of the PNC Fund consider
approving the proposed master-feeder structure.
The Trustees of the PNC Fund also considered DFA's experience, capabilities
and resources that will enable DFA to successfully manage the Master Portfolio.
The Trustees of the PNC Fund also considered PIMC's representations that the
aggregate per share expenses of the Portfolio in the proposed master-feeder
structure should initially be approximately equal to the expenses that would be
incurred by the Portfolio if it continued to retain the services of an
investment adviser and to invest directly in securities. In addition, the
Trustees considered the potential for the Master Portfolio to attract other
feeder portfolios which will have investors who would not otherwise be investors
in the Portfolio. To the extent that the Master Portfolio is successful in
attracting additional feeder portfolios, additional assets would be invested in
the Master Portfolio to the potential benefit of the Portfolio's existing and
future shareholders. This pooling of assets may, over time, enable the Master
Portfolio to achieve a variety of operating economies that could reduce the
Portfolio's expense ratios. Shareholders should
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note, however, that expenses that vary with asset size would not produce
economies of scale unless such fees are reduced at specified asset levels. To
the extent that the Portfolio's expense ratios decline as a result of the
proposed master-feeder structure, the Portfolio will be in a better position to
achieve its investment objective of duplicating the capital performance and
dividend income of the S&P Index. However, these economies of scale and reduced
expense ratios would be likely only if assets of the Master Portfolio were to
grow through investments in the Master Portfolio by entities in addition to the
Current Shareholder and the Portfolio. There can be no assurance that such
economies of scale and expense savings will be realized.
The PNC Fund's Board also considered the fact that although the Portfolio
would bear its own costs in connection with the proposed transaction, the fee
waiver of the administrators, which maintains the Portfolio's expense ratios at
the levels set forth in the pro forma expense table above under "Summary,"
would, in effect, result in the cost being borne by the Portfolio's
administrators.
The PNC Fund's Board also considered risks associated with investing all of
the Portfolio's assets in shares of the Master Portfolio. The PNC Fund's
Trustees believe that the Master Portfolio's investment policies and limitations
involve substantially the same risks as are associated with the Portfolio's
direct investment in securities. Accordingly, the PNC Fund's Board of Trustees
believes that the proposed master-feeder structure would not entail risks
materially different from or greater than the risks associated with the
Portfolio's current operations.
Based on their consideration, analysis and evaluation of the above factors
and other information deemed by the PNC Fund's Board of Trustees to be relevant
to this Proposal, the Board has concluded that it would be in the best interests
of the Portfolio and its shareholders to approve the change to the Portfolio's
fundamental investment limitations to enable the Portfolio to invest all of its
assets in shares of a corresponding open-end management investment company
having substantially the same investment objective, policies and limitations as
the Portfolio.
VOTE REQUIRED TO APPROVE PROPOSAL 1
Approval by the shareholders of the Portfolio of the change to its
fundamental investment limitations requires the affirmative vote of a "majority
of the outstanding voting securities" of the Portfolio, which term as used in
this Proxy Statement means the vote of the lesser of (a) more than 50% of the
outstanding Shares of the Portfolio, or (b) 67% of the Shares of the Portfolio
present at the Meeting if the holders of more than 50% of the outstanding Shares
of the Portfolio are present or represented by Proxy at the Meeting.
Shareholders of all classes of the Portfolio will vote together as a single
class.
THE PNC FUND'S TRUSTEES UNANIMOUSLY RECOMMEND THAT THE SHAREHOLDERS OF THE
PORTFOLIO VOTE TO APPROVE THIS PROPOSAL. In the event that the shareholders of
the Portfolio do not approve this Proposal, the PNC Fund would continue to
retain PIMC and PEAC as the investment adviser and sub-adviser, respectively,
for the Portfolio to manage the Portfolio's assets through direct investments in
securities, and the Portfolio's existing advisory and sub-advisory agreements
would continue in effect in their current form.
If Proposal 1 is approved by the shareholders, the PNC Fund will cause the
Portfolio to purchase shares of the Master Portfolio in exchange for the assets
reflected on the Portfolio's balance sheet on the effective date of the
transaction, which is expected to occur on or about December 4, 1995. The
Portfolio
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will receive shares of the Master Portfolio with an aggregate net asset value
equal to the value of the Portfolio assets exchanged in the transaction.
However, the transaction may occur at such later time as the Board of Trustees
of the PNC Fund determines is in the best interest of the Portfolio's
shareholders. This transaction will be effected pursuant to the Purchase
Agreement.
INFORMATION ABOUT THE SERVICE PROVIDERS
OF THE PORTFOLIO AND OF THE MASTER PORTFOLIO
THE PORTFOLIO'S ADVISER, SUB-ADVISER, ADMINISTRATORS AND DISTRIBUTOR
PIMC currently serves as investment adviser to the Portfolio. Its principal
offices are located at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809. If Proposal 1 is approved, the Advisory Agreement
between the PNC Fund and PIMC with respect to the Portfolio which provides for a
fee at the annual rate of .20% of the Portfolio's net assets, but which, by
reason of waivers, has been charged at the rate of .05%, will terminate
effective at the closing of the Purchase Agreement.
PEAC currently serves as sub-adviser to the Portfolio. Its principal
offices are located at 1835 Market Street, 15th Floor, Philadelphia, PA 19103.
If Proposal 1 is approved, the Sub-Advisory Agreement between PIMC and PEAC with
respect to the Portfolio will terminate effective at the closing of the Purchase
Agreement. PIMC pays PEAC's fees for its services as sub-adviser to the
Portfolio.
PFPC and PDI serve as co-administrators to the PNC Fund and are entitled to
a combined fee at the annual rate of .20% of the first $500 million of the
Portfolio's average daily net assets, .18% of its next $500 million of average
daily net assets, .16% of its next $1 billion of average daily net assets, and
.15% of the Portfolio's average daily net assets in excess of $2 billion. During
the fiscal year ended September 30, 1995, PFPC and PDI charged administration
fees at the annual rate of .02% of the Portfolio's average daily net assets and
voluntarily waived all other administration fees. In addition, PDI serves as the
PNC Fund's distributor and will continue to serve as the PNC Fund's distributor
if Proposal 1 is approved. PFPC is affiliated with PIMC and PNC Bank. PFPC's
offices are located at 400 Bellevue Parkway, Wilmington, DE 19809. PDI's offices
are located at 259 Radnor-Chester Road, Suite 120, Radnor, PA 19087. See the
expense table above under "Summary" for the estimated expenses which the
Portfolio will bear if Proposal 1 is approved.
DESCRIPTION OF THE DFA COMPANY'S INVESTMENT MANAGEMENT AGREEMENT WITH DFA WITH
RESPECT TO THE MASTER PORTFOLIO
DFA serves as the investment adviser to the Master Portfolio pursuant to an
investment management agreement dated as of January 6, 1993 (the "Management
Agreement"). Pursuant to the Management Agreement, DFA has agreed, subject to
the general supervision of the DFA Company's Board of Trustees and in accordance
with the Master Portfolio's investment objective and policies, to manage the
investment and reinvestment of the assets of the Master Portfolio, to
continuously review, supervise and administer the Master Portfolio's investment
program, to determine in its discretion the securities to be purchased or sold
and the portion of the Master Portfolio's assets to be uninvested, to provide
the DFA Company with records concerning DFA's activities which the DFA Company
is required to maintain, and to render regular reports to the DFA Company's
officers and to the Board of
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Trustees of the DFA Company. Under the Management Agreement, DFA currently bears
all of the ordinary operating expenses of the Master Portfolio, including the
Master Portfolio's administration, transfer agency and custody fees. DFA has
agreed to provide, at its own expense, the office space, furnishings and
equipment and the personnel required by it to perform the services described in
the Management Agreement.
Under the Management Agreement, DFA is entitled to an advisory fee,
computed daily and paid monthly, at the annual rate of 0.025% of the Master
Portfolio's average daily net assets. For the DFA Company's fiscal year ended
November 30, 1994, DFA received a fee for its services which, on an annual
basis, equaled 0.025% of the Master Portfolio's average net assets.
The Management Agreement also provides that no provision of the Management
Agreement shall be deemed to protect DFA against any liability to the DFA
Company or its shareholders to which it might otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or the reckless disregard of its obligations under the Management
Agreement.
Unless otherwise terminated, the Management Agreement will continue in
effect with respect to the Master Portfolio until December 22, 1995 and
thereafter from year to year, provided that such continuance is approved at
least annually by a vote of the DFA Company's Board of Trustees, including the
vote of a majority of those members of the DFA Company's Board of Trustees who
are not "interested persons" (as that term is defined in the 1940 Act) of any
party to the Management Agreement. In addition, continuance of the Management
Agreement may be approved by vote of a majority of the outstanding shares of the
Master Portfolio. The Management Agreement provides that it will terminate
automatically in the event of its assignment. The Management Agreement also
provides that it is terminable without penalty with respect to the Master
Portfolio either by vote of the Board of Trustees of the DFA Company or by vote
of the holders of a majority of the outstanding shares of the Master Portfolio
on 60 days' written notice. The Management Agreement provides that it may be
terminated by DFA after 90 days' written notice to the DFA Company. The
Management Agreement will be terminated and supplanted by a new investment
management agreement with DFA (the "New DFA Agreement") described above at or
prior to the closing of the Purchase Agreement. See "Certain Service Provider
Arrangements of the Master Portfolio" above.
As noted above, if the Master Portfolio's Current Shareholder approves the
New DFA Agreement, DFA will no longer assume the expense of the Master
Portfolio's transfer, dividend disbursing and accounting service agent fees and
the asset-based fee of its custodian (the "Assumed Expenses"). The terms of the
Management Agreement and the New DFA Agreement are identical except for (i) the
provision whereby DFA agrees to pay the Assumed Expenses, and (ii) the
termination date, which will be December 31, 1996, subject to the annual
continuance by the DFA Company's Board of Trustees described in the preceding
paragraph.
ADDITIONAL INFORMATION
BENEFICIAL OWNERS
At October 19, 1995, PNC Bank owned of record 94% of the Portfolio's
Shares. PNC Bank has no investment power over the Shares it held of record and
disclaims beneficial ownership of such Shares. At October 19, 1995 the PNC
Fund's officers and trustees as a group owned less than 1% of the outstanding
Shares of the Portfolio. To the PNC Fund's knowledge, at October 19, 1995 the
name, address and
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percentage ownership of each person that beneficially owned 5% or more of the
outstanding Shares of the Portfolio were as follows:
CLASS AND PERCENTAGE
NAME AND ADDRESS OF AMOUNT OF PERCENTAGE OF OF PORTFOLIO
BENEFICIAL OWNER SHARES OWNED(1) CLASS OWNED SHARES OWNED
------------------------------------- ------------------- ------------- ------------
Saxon & Company...................... 4,686,184.731 100% 35.46%
PNC Bank Shares of Class 0-1
Attn: Income Collections
200 Stevens Drive, Suite 260
Lester, PA 19113
BHC Securities....................... 274,066.306 55.95% 2.07%
Attn: Mutual Funds Dept. Shares of Class 0-2
100 N. 20th St.
Philadelphia, PA 19103
MMC&P as Recordkeeper................ 31,006.764 6.33% 0.23%
for Optimum Group Shares of Class 0-2
401k Profit-Sharing Plan
One Gateway Center, 11th Floor
Pittsburgh, PA 15222-1416
Saxon & Company...................... 7,456,937.085 92.73% 56.42%
PNC Bank Shares of Class 0-3
Attn: Income Collections
200 Stevens Drive, Suite 260
Lester, PA 19113
- ---------------
(1) Share classes designated by "-1", "-2" and "-3" represent Service, Series A
Investor and Institutional Shares, respectively, in the Portfolio.
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OTHER MATTERS
No business other than the matter described above is expected to come
before the Meeting, but should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment of the Meeting, the persons
named in the enclosed Proxy will vote thereon according to their best judgment
in the interests of the Portfolio.
Dated: October 23, 1995
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO
HAVE THEIR SHARES VOTED ARE REQUESTED TO COMPLETE THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
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PROXY THE PNC(R) FUND
INDEX EQUITY PORTFOLIO
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of The PNC(R) FUND (the
"PNC Fund") for use at a Special Meeting of Shareholders (the "Meeting") to be
held at the Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, DE
19809 on November 30, 1995 at 10:00 a.m.
The undersigned hereby appoints Edward J. Roach and G. Willing Pepper, and
either of them, with full power of substitution, as proxies of the undersigned
to vote at the above-stated Meeting, and at all adjournments or postponements
thereof, all shares of beneficial interest evidencing interests in the Index
Equity Portfolio (the "Portfolio") of the PNC Fund that are held of record by
the undersigned on the record date for the Meeting, upon the following matter
AND UPON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING, IN THEIR
DISCRETION:
(1) To approve or disapprove a change to the Portfolio's fundamental
investment limitations to permit the Portfolio to invest all of its
assets in a specific corresponding open-end management investment
company having substantially the same investment objective, policies and
limitations as the Portfolio.
/ / FOR / / AGAINST / / ABSTAIN
(Continued, and to be signed on reverse side)
19
(Continued from other side)
Every properly signed proxy will be voted in the manner specified thereon
and, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING AUTHORITY TO
VOTE FOR PROPOSAL 1.
PLEASE SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney or executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
president or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
Dated:
-------------------------------,
1995
X
-------------------------------
Signature
X
-------------------------------
Signature, if held jointly