[Federal Register Volume 62, Number 146 (Wednesday, July 30, 1997)]
[Notices]
[Pages 40868-40871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20049]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22762; File No. 812-10676]
Oppenheimer & Co., L.P., et al.
July 24, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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Applicants: Oppenheimer & Co., L.P. (``Opco''), Oppenheimer Group,
Inc. (``Opgroup''), Oppenheimer Financial Corp. (``Opfin'')
(collectively, the ``Oppenheimer Applicants''), The Emerging Markets
Income Fund Inc. (``Emerging Market''), The Emerging Markets Income
Fund II Inc. (``Emerging Market II''), The Emerging Markets Floating
Rate Fund Inc. (``Emerging floating Rate''), Global Partners Income
Fund Inc. (``Global Partners''), Municipal Partners Fund Inc.
(``Municipal Partners''), Municipal Partners Fund II Inc. (``Municipal
Partners II''), The Enterprise Group of Funds, Inc. (``Enterprise
Fund''), Enterprise Accumulation Trust (``Enterprise Trust''), WNL
Series Trust (``WNL''), Endeavor Series Trust (``Endeavor''), Penn
Series Funds, Inc. (``Penn Fund''), The Preferred Group of Mutual Funds
(``Preferred''), Select Advisors Portfolios (``Select Portfolios''),
Select Advisors Variable Insurance Trust (``Select Trust''), Select
Advisors Trust A (``Select A''), and Select Advisors Trust C (``Select
C'') (collectively, the ``Companies'').
Relevant Act Sections: Order requested under section 6(c) for an
exemption from section 15(f)(1)(A).
Summary of Application: Applicants request an exemption from
section 15(f)(1)(A) in connection with the proposed change in control
of Oppenheimer Capital (``Opcapital''), Opcap Advisors (``Opcap''), and
Advantage Advisers, Inc. (``Advantage,'' collectively with Opcapital
and Opcap, the ``Advisers''), each of which acts as investment adviser
or subadviser to one or more of the Companies. Without the requested
exemption, the Companies would have to reconstitute their boards of
directors (``Boards'') to meet the 75
[[Page 40869]]
percent non-interested director requirement of section 15(f)(1)(A) in
order to permit the Oppenheimer Applicants to rely upon the safe harbor
provisions of section 15(f).
FILING DATE: The application was filed on May 20, 1997, and amended on
July 18, 1997.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the SEC orders a hearing. Interested
persons may request a hearing by writing to the SEC's Secretary and
serving applicants with a copy of the request, personally or by mail.
Hearing requests should be received by the SEC by 5:30 p.m. on August
18, 1997 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Oppenheimer Applicants, Oppenheimer Tower, World
Financial Center, 200 Liberty Street, New York, New York 10281;
Emerging Market, Emerging Market II, Emerging Floating Rate, Global
Partners, Municipal Partners, and Municipal Partners II, 7 World Trade
Center, New York, New York 10048; Enterprise Fund and Enterprise Trust,
Atlanta Financial Center, 3343 Peachtree Road, Suite 450, Atlanta,
Georgia 30326; WNL, 5555 San Felipe, Suite 900, Houston, Texas 77056;
Endeavor, 2101 East Coast Highway, Suite 300, Corona del Mar,
California 92625; Penn Fund, 600 Dresher Road, Horsham, Pennsylvania
19044; Preferred, 100 N.E. Adams Street, Peoria, Illinois 61629; Select
Portfolios, Select Trust, Select A, and Select C, c/o The Touchstone
Family of Funds, 311 Pike Street, Cincinnati, Ohio 45202.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thorton, Senior Counsel, at (202) 942-0583, or Mary Kay
Frech, 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 SEC's Public Reference Branch.
Applicants' Representations
1. Opcap, an investment adviser registered under the Investment
Advisers Act of 1940 (``Advisers Act''), is a general partnership in
which Opcapital, another general partnership registered as an
investment adviser, holds a 90% interest. Opfin holds a 32.52% general
partnership interest in Opcapital, and Oppenheimer Capital, L.P., a
publicly traded Delaware master limited partnership, holds the
remaining 67.48% general partnership interest in Opcapital. Opfin,
which also holds a 1% general partnership interest in Oppenheimer
Capital, L.P., is a wholly-owned subsidiary of Opgroup, the common
stock of which is owned 71% by Opco and 29% by holders unaffiliated
with Opco.
2. Advantage is a Delaware corporation registered as an investment
adviser under the Advisers Act. Advantage is a wholly-owned subsidiary
of Oppenheimer & Co., Inc. (an indirect wholly-owned subsidiary of
Opgroup), which is an investment bank and broker-dealer registered
under the Securities Exchange Act of 1934 (``Exchange Act'').
3. Each Company is registered under the Act as a management
investment company. Each of the Advisers serves as investment adviser
or subadviser to one or more of the Companies,\1\
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\1\ Advantage serves as ``investment manager'' of Emerging
Market II, Emerging Floating Rate, Global Partners, Municipal
Partners, and Municipal Partners II. As investment manager,
Advantage supervises each fund's investment program, including
advising and consulting with each fund's adviser regarding each such
fund's overall investment strategy and the adviser's decisions
concerning portfolio transactions, and provides access to economic
information and research to each fund. Applicants state that, when
acting as investment manager, Advantage is acting as an investment
adviser within the meaning of section 2(a)(20) of the Act under a
contract subject to section 15 of the Act.
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4. On February 13, 1997, Opgroup, Opfin, PIMCO Advisors L.P.
(``PIMCO''), and Thomson Advisory Group Inc. (``TAG''), an affiliated
person of PIMCO, entered into an agreement and plan of merger pursuant
to which Opgroup is to merge with and into TAG (the ``Transaction'').
Following consummation of the Transaction, Advantage will be a wholly-
owned subsidiary of TAG, and PIMCO will indirectly hold the 32.53%
general partnership interest in Opcapital and the 1% general
partnership interest in Oppenheimer Capital, L.P., each currently held
by Opfin.\2\
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\2\ Prior to consummation of the Transaction, tax considerations
may require the transfer of the portion of Advantage's business
relating to acting as investment adviser or investment manager of
the Companies to a new, wholly-owned subsidiary of Opco. In the
event of such a transfer, the new subsidiary (instead of Advantage)
will be transferred to TAG in the Transaction. In such event, all
references herein to Advantage would be deemed references to the new
Opco subsidiary.
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5. Consummation of the Transaction will result in a change of
control of each of the Advisers within the meaning of section 2(a)(9)
of the Act and, consequently, will result in an assignment of the
current advisory or subadvisory contract between each of the Advisers
and each respective Company (or its investment adviser, in the case of
subadvisory contracts) within the meaning of section 2(a)(4) of the
Act. As required by section 15(a)(4) of the Act, each such contract
will automatically terminate in accordance with the terms thereof.
6. Board and shareholder approval is being sought for new advisory
and subadvisory contracts to take effect upon consummation of the
Transaction, such new contracts in each case to be substantially
identical to the existing contracts (including the fees payable
thereunder). Approval of the new contracts already has been obtained
from the Board of each Company. In connection with this approval, a
presentation was made and information was furnished to each Board
regarding PIMCO and TAG, each Board considered the terms of the new
contract and information regarding the quality of the services to be
provided by the Adviser thereunder, and each Board determined that the
new contract was in the best interests of the Company's shareholders.
Each Company has begun to prepare proxy materials for distribution to
its shareholders in connection with soliciting their approval of the
Company's new advisory contract, and it is anticipated that such
proposals will have been obtained by the end of the summer.\3\
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\3\ In the case of Preferred, an information statement is being
distributed to shareholders rather than proxy materials, as a
majority of the shares of Preferred are held by three shareholders,
whose approval of the proposed new contract will be obtained without
a formal proxy solicitation.
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Applicants' Legal Analysis
1. Section 15(f) of the Act is a safe harbor that permits an
investment adviser to a registered investment company (or an affiliated
person of the investment adviser) to realize a profit upon the sale of
its business if certain conditions are met. One of these conditions is
set forth in section 15(f)(1)(A). This condition provides that, for a
period of three years after such a sale, at least 75 percent of the
board of an investment company may not be ``interested persons'' with
respect to either the predecessor or successor adviser of the
investment company. Section 2(a)(19)(B)(v) defines an interested person
of an investment adviser to include any broker or dealer
[[Page 40870]]
registered under the Exchange Act or any affiliated person of such
broker or dealer. Rule 2a19-1 provide an exemption from the definition
of interested persons for directors who are registered as brokers or
dealers or who are affiliated persons of registered brokers or dealers,
provided certain conditions are met.\4\
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\4\ The rule provides that the exemption is available only if:
(a) The broker or dealer does not execute any portfolio transactions
for, or engage in principle transactions with, the fund complex, (b)
the fund's board determines that the fund will not be adversely
affected if the broker or dealer does not effect such portfolio or
principal transactions or distribute shares of the fund, and (c) no
more than a minority of the fund directors are registered brokers or
dealers or affiliated persons thereof.
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2. Upon consummation of the Transaction, the Board of each Company
will consist of a majority of directors who are not interested persons
of any Adviser within the meaning of section 2(a)(19)(B). However, such
Board also will consist of at least two directors who may be considered
interested persons of one of the Advisers (``Interested Directors''),
for a total of fifteen Interested Directors in the seven fund complexes
involved.\5\ Thirteen of the fifteen Interested Directors will be
interested persons of one of the Advisers within the meaning of section
2(a)(19)(B)(v) by virtue of their relationship to a registered broker-
dealer. The exception provided by rule 2a19-1 will not be available
with respect to these Interested Directors because the broker-dealers
with which they are affiliated act as distributors for the Companies in
question or engage in transactions with other members of each Company's
complex. In addition, one of the remaining Interested Directors is
treated as an interested person in keeping with section
2(a)(19)(B)(vi), although the Company has not received a Commission
order.\6\ The remaining Interested Director is expected to be an
officer or employee of PIMCO (one of the parties to the Transaction) or
an affiliated person of PIMCO, who will be nominated as a replacement
for the Opgroup insider currently on the Boards of certain Companies.
As such, this director may be an interested person of one of the
Advisers. With the exception of this director, upon consummation of the
Transaction, none of the members of the Companies' Boards will be
affiliated persons within the meaning of section 2(a)(3) of the Act of
any party to the Transaction.
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\5\ Applicants do not believe that the 75% disinterested board
requirement set forth in section 15(f)(1)(A) of the Act applies to
investment company directors who are interested persons of an
investment adviser to a registered investment company within the
meaning of section 2(a)(19)(B) of the Act unless that investment
adviser is involved in the relevant change of control. Accordingly,
applicants assert that a director who is an interested person of an
investment adviser to a Company counts against the 75% disinterested
board requirement only if that director also is an interested person
of one of the Advisers, either before or following consummation of
the Transaction.
\6\ Section 2(a)(19)(B)(vi) includes within the definition of
interested person any individual whom the Commission by order has
determined to be an interested person because a material business or
professional relationship with the investment adviser or principal
underwriter of an investment company, or with any principal
executive officer or controlling person of such entity.
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3. Applicants seek an extension from section 15(f)(1)(A) in
connection with the proposed change in control of the Advisers. Without
the requested exemption, the Companies would have to reconstitute their
Boards to meet the 75 percent non-interested director requirement of
section 15(f)(1)(A) in order to permit the Oppenhemier Applicants to
rely upon the safe harbor provisions of section 15(f).
4. Section 6(c) of the Act permits the SEC to exempt any person or
transaction from any provision of the Act, or any rule or regulation
thereunder, if the 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.
5. Applicants believe that the requested exemption is necessary or
appropriate in the public interest. Applicants state that compliance
with section 15(f)(1)(A) would require the Companies to reconstitute
their Boards. In applicants' view, this reconstitution would serve no
public interest and, in fact, would be contrary to the interests of the
Companies' shareholders.\7\ Applicants submit that the addition of
directors to achieve the 75% disinterested director ratio required by
section 15(f)(1)(A) would make the Boards unduly large and unwieldy,
make decisional and operational matters cumbersome, unnecessarily
increase the expenses of the Transaction, and would cause the Companies
to incur additional expenses in connection with the selection and
election of the additional directors. In addition, applicants submit
that shrinking the Boards by eliminating previously existing Interested
Director positions would deny the Companies the valued services and
insights these insiders bring to their respective Boards.
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\7\ Applicants also point out that, in circumstances where one
of the Advisers serves one or more portfolios in a subadvisory
capacity, it is highly unlikely that the adviser of the Company
would be willing either to expand such Company's Board or eliminate
Interested Director positions currently occupied by the adviser's
own insider(s) to assist Opgroup in complying with section 15(f) of
the Act.
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6. Applicants also submit that the requested exemption is
consistent with the purposes fairly intended by the policies and
provisions of the Act. Applicants assert that the legislative history
of section 15(f) indicates that Congress intended the SEC to deal
flexibly with situations where the imposition of the 75 percent
requirement might pose an unnecessary obstacle or burden on a fund.
Applicants also state that section 15(f)(1)(A) was designed primarily
to address the types of biases and conflicts of interest that might
exist where the board of an investment company is influenced by a
substantial number of interested directors to approve a transaction
because of such directors' economic interest in the adviser. Because
such circumstances do not exist in the present case, applicants believe
that the SEC should be willing to exercise flexibility.
7. Applicants assert that the expected composition of each
Company's Board following consummation of the Transaction would provide
sufficient comfort of compliance with section 15(f)(1)(A) but for the
presence of directors who might be viewed as Interested Directors by
virtue of being affiliated persons of broker-dealers. Although such
directors might be viewed as interested persons of the Advisers, these
directors and the broker-dealers with which they are affiliated are not
affiliated persons of any party to the Transaction. In addition,
applicants argue that a director's affiliation with a Company's
distributor should not preclude the requested exemption despite the
unavailability of the rule 2a19-1 exemption because a Company's
distributor is retained directly by the Company. As a result, retention
of a distribution depends upon approval from the Company's Board and
not upon the identity of transactions involving the Company's Adviser.
Further, applicants submit that each distributor's compensation is
based on asset levels and/or the receipt of sales loads, and each
distributor therefore has a direct economic interest in the financial
success of the Company that retains it, an interest that is consistent
with the interests of the Company's shareholders.
8. Applicants believe that the requested exemption is consistent
with the protection of investors. Applicants submit that each of the
Companies and its Board is subject to, and operates in compliance with,
all other provisions of the Act intended to protect the interests of
shareholders, and the Advisers are subject to, and operate in
compliance with, the provisions of the Advisers Act.
[[Page 40871]]
Moreover, applicants will comply with section 15(f)(1)(B) of the Act
for at least two years following consummation of the Transaction, and
applicants agree that all Interested Directors will continue to be
treated as interested persons of the Companies and the Advisers for all
purposes other than section 15(f)(1)(A) for so long as such directors
are ``interested persons'' as defined in section 2 (a) (19) of the Act
and are not exempted from such definition by any applicable rules or
orders of the SEC. Applicants are not seeking any assurances from the
SEC regarding the future status of any such director. Accordingly,
applicants argue that no unfair burdens will be placed on the Companies
as a result of the Transaction. In addition, because the Transaction
will result in the automatic termination of the existing advisory or
subadvisory agreement between one of the Advisers and each Company, the
Board and shareholders of each Company will have the opportunity to
consider and approve the new contract with each Adviser. Such
arrangements will continue only if it is determined that they continue
to be in the best interests of such Company's shareholders.
Applicants' Condition
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following condition:
If, within three years of the completion of the Transaction, it
becomes necessary to replace any director, that director will be
replaced by a director who is not an ``interested person'' of any
Adviser within the meaning of section 2(a)(19)(B) of the Act, unless at
least 75% of the directors at that time are not interested persons of
any Adviser, provided that this condition will not preclude
replacements with or additions of directors who are interested persons
of an Adviser solely by reason of being affiliated persons of broker or
dealers who are affiliated persons of another investment adviser to a
Company, provided that such brokers or dealers are not affiliated
persons of any Adviser.
For the SEC, by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-20049 Filed 7-29-97; 8:45 am]
BILLING CODE 8010-01-M