A unit of PNC Bank Corp. has established an office in Ireland to service offshore mutual funds.

PFPC Inc., the Pittsburgh-based bank's mutual fund administration and servicing subsidiary, expects to manage $1.5 billion in fund assets in the Dublin office by yearend.

That is a sliver of the $24 billion in mutual fund assets that PFPC currently administers, but offshore funds are clearly shaping up as an important growth area for the company.

Complicated Business

That's because U.S. mutual funds are becoming increasingly attractive to foreign investors, said J. Richard Carnall, chairman and chief executive of PFPC.

"Internationalization keeps marching onward. It's been remarkable. That's going to continue unabated"' Mr. Carnall said.

Managing mutual funds for non-U.S. citizens is a complicated business. If foreign investors put their money in a U.S. fund, "they are hit with a 30% withholding tax," Mr. Canall said. By managing U.S. funds offshore, PFPC can shield foreign investors from U.S. taxation.

Master-Feeder Stracture

To tailor U.S. mutual funds to foreign investors' needs, PFPC uses a master-feeder structure.

Under this structure, which is also known as hub-and-spoke, fund portfolio assets are managed in a single pool, or "master fund." Profits and taxes flow through to "feeder funds," which invest in the master fund. Shares of the feeder funds can be sold at different prices to different investors.

Work Force Will Grow

Initially, the office will handle four U.S.-based mutual fund families and 15 portfolios, performing fund accounting, administration, transfer agency, and shareholder servicing. Mr. Carnall would not disclose the fund names.

Four employees are currently assigned to the Dublin office, and the work force is expected to grow to 10 by yearend.

PFPC isn't the only mutual fund servicer to set up shop in Ireland. Concord Holding Group also administers some offshore funds from Dublin.

Mr. Carnall cited a favorable regulatory environment, an educated work force, and support services such as a good telephone system as reasons for locating in Dublin. Other sites that were considered included the Isle of Man Luxembourg, and the Bahamas.

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