[Federal Register Volume 62, Number 227 (Tuesday, November 25, 1997)]
[Notices]
[Pages 62789-62791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30863]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22894; 812-10630]


Cash Accumulation Trust, et al.; Notice of Application

November 18, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (the ``Act'') exempting applicants 
from sections 12(d)(1) (A) and (B) of the Act, under sections 6(c) and 
17(b) of the Act exempting applicants from section 17(a) of the Act, 
and under section 17(d) of the Act and rule 17d-1 thereunder.

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SUMMARY OF APPLICATION: The requested order would permit certain 
registered investment companies to invest excess cash in affiliated 
money market and/or short-term bond funds in excess of the limits of 
section 12(d)(1) of the Act.

APPLICANTS: Cash Accumulation Trust (``CAT''), PIMCO Funds: Multi-
Manager Series (``PFMMS''), and all other registered investment 
companies and series thereof that currently or in the future are part 
of a ``group of investment companies'' that includes either CAT or 
PFMMS (together with CAT and PFMMS, the ``Funds''), PIMCO Advisors, 
L.P. (``PALP''), and PIMCO Funds Distribution Company (``PFDCO'').

FILING DATES: The application was filed on April 25, 1997 and amended 
on July 31, 1997, and September 30, 1997.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested person 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 December 15, 
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 who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, c/o Newton B. Schott, Jr., Esq., 2187 Atlantic 
Street, Stamford, CT 06902.

FOR FURTHER INFORMATION CONTACT:
Annmarie Zell, Law Clerk, at (202) 942-0532 or Mercer E. Bullard, 
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 at the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. CAT and PFMMS are open-end investment companies organized as 
Massachusetts business trusts and registered under the Act. CAT has a 
money market portfolio and a short-term bond portfolio. PFMMS has 22 
separate portfolios.
    2. PALP, a Delaware limited partnership, is registered as an 
investment adviser under the Investment Advisers Act of 1940. PALP 
serves as investment adviser to CAT and PFMMS and has retained a number 
of PALP's subpartnerships to act as subadvisers for most of the Funds' 
portfolios (collectively with PALP, the ``Advisers''). PFDCO, a 
subsidiary of PALP, is registered as a broker-dealer under the 
Securities Exchange Act of 1934 and acts or will act as each Fund's 
principal underwriter.
    3. Applicants request an order that would permit certain Funds 
(``Participating Funds'') to invest their excess cash in one or more 
Funds that are money market or short-term bond Funds (``Central 
Funds''), and the Adviser to effect such transactions.\1\ Central Funds 
that are money market funds will be subject to rule 2a-7 under the Act. 
Central Funds that are short-term bond funds will seek current income 
consistent with the preservation of capital by investing in fixed-
income securities while maintaining a dollar-weighted average maturity 
of three years or less.
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    \1\ Each Fund that intends to rely on the order has been named 
as an applicant. Any other existing Fund and any Future Fund that 
may rely on the order in the future will do so only in accordance 
with the terms and conditions of the application.
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    4. Each Participating Fund has, or may have, uninvested cash held 
by its custodian bank. Uninvested cash may result from a variety of 
sources, including dividends or interest received from portfolio 
securities, unsettled securities transactions, reserves held for 
investment strategy purposes, scheduled maturity of investments, 
liquidation of investment securities to meet anticipated redemptions 
and dividend payments, and new cash received from investors. Currently, 
the Funds can invest uninvested cash directly in money market 
instruments or other short-term debt obligations.
    5. The Participating Funds wish to have the option to use the 
Central Funds as an additional cash management device for their 
uninvested cash. Applicants believe that the proposed transactions may 
reduce aggregate counterparty risk on repurchase agreements, protect 
liquidity, reduce credit exposure to custodian banks, reduce custodian 
transaction costs, and diversify risk across a wide range of short-term 
investments.
    6. To provide the Participating Funds with a wider selection of 
short-term investment vehicles, the Central Funds may include one or 
more short-term bond funds. Applicants note that an investment in a 
Central Fund that is a

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short-term bond fund would be available only to those Participating 
Funds for which a direct investment in short-term bonds would be 
consistent with their investment objectives, policies, and 
restrictions. By investing in a short-term bond fund, a Participating 
Fund could gain exposure to different points on the yield curve without 
the need to buy the underlying securities. A Participating Fund could 
achieve this exposure through a Central Fund while obtaining greater 
liquidity and diversification than otherwise might be available.
    7. If a Central Fund offers more than one class of shares, each 
Participating Fund will invest only in the class with the lowest 
expense ratio at the time of investment. The shares of the Central 
Funds sold to and redeemed from the Participating Funds will not be 
subject to a sales load, redemption fee, distribution fee under a plan 
adopted in accordance with rule 12b-1 under the Act (``rule 12b-1 
fee''), or service fee (as defined in section 2830(b)(9) of the Conduct 
Rules of the National Association of Securities Dealers, Inc.).
    8. Under applicants' proposal, the number or value of the shares of 
the Central Funds held by a Participating Fund may exceed the 
percentage restrictions set forth in section 12(d)(1) of the Act. 
Applicants' review of the historical cash positions held by the 
Participating Funds indicates that, while the Funds typically are fully 
invested (e.g., cash positions of 10% of total assets or less), cash 
positions fluctuate with shareholder and investment activity, and cash 
positions in excess of 20% of total assets occasionally may occur. For 
each Participating Fund, the uninvested cash available for investment 
at any particular time may total 25% or more of the Participating 
Fund's total net assets. Thus, each Participating Fund seeks relief to 
invest up to 25% of its total assets in the Central Funds.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides that a registered 
investment company may not acquire securities of another investment 
company if such securities represent more than 3% of the acquired 
company's outstanding voting stock, more than 5% of the acquiring 
company's total assets, or if such securities, together with the 
securities of other acquired investment companies, represent more than 
10% of the acquiring company's total assets. Section 12(d)(1)(B) of the 
Act provides that no registered open-end investment company may sell 
its securities to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies. Section 
12(d)(1)(J) of the Act provides that the SEC may exempt any persons or 
transactions from section 12(d)(1) to the extent the exemption is 
consistent with the public interest and the protection of investors. 
For the following reasons, applicants believe the proposed transactions 
satisfy this standard.
    2. Applicants state that section 12(d)(1) is intended to protect an 
investment company's shareholders against (a) undue influence over 
portfolio management through the threat of large scale redemptions; (b) 
the layering of fees; and (c) an overly complex structure. Applicants 
believe that none of these perceived abuses is created by the proposed 
transactions.
    3. Applicants submit that each of the Central Funds will be managed 
specifically to maintain a highly liquid portfolio, and the Adviser 
will have superior ability to anticipate Participating Funds' cash 
flows. Applicants believe that no layering of sales charges will occur 
because no front-end sales charge, contingent deferred sales charge, 
rule 12b-1 fee, or other underwriting or distribution fee will be 
charged in connection with the purchase and sale of shares of the 
Central Funds. The Adviser will credit to the respective Participating 
Fund or waive the investment advisory fee that it or its affiliates 
earns as a result of the Participating Fund's investment in one or more 
Central Funds to the extent such fees are based upon the Participating 
Fund's assets invested in shares of the Central Funds. Therefore, 
applicants believe that the proposed transactions will not result in 
the layering of any sales charges or investment advisory fees. 
Regarding the complexity of the proposed structure, applicants note 
that, as conditions to the application, no Participating Fund will 
invest more than 25% of its assets in the Central Funds and no Central 
Fund will acquire securities of any investment company in excess of the 
limits of section 12(d)(1)(a).
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from the company. Section 2(a)(3) of the 
Act defines an affiliated person of an investment company to include 
any person that owns more than 5% of the outstanding voting securities 
of that company, and any person directly or indirectly controlling, 
controlled by, or under common control with such investment company. 
Because the Funds share a common investment adviser or have an 
investment adviser that is under common control with those of the other 
Funds, and because PFMMS and CAT share a common board of trustees, 
applicants believe that each of the Funds may be deemed to be under 
common control with all the other Funds, and, therefore, an affiliated 
person of those Funds. In addition, applicants state that a 
Participating Fund may be an affiliated person of a Central Fund by 
owning more than 5% of the outstanding voting securities of the Central 
Fund. Applicants request an exemption from section 17(a) to permit the 
sale of shares of the Central Funds to the Participating Funds and the 
redemption of such shares by the Central Funds.
    5. Section 17(b) of the Act authorizes the SEC to exempt a 
transaction from section 17(a) if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
policy of each investment company concerned and the general purposes of 
the Act. Section 6(c) authorizes the Commission to exempt persons or 
transactions from the provisions of the Act to the extent that such 
exemptions are appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policies and provisions of the Act. Applicants submit, for the reasons 
discussed below, that their request for relief satisfies these 
standards.
    6. Applicants believe that section 17(a) was designed to prevent 
``overreaching'' on the part of an affiliated person and to ensure that 
all transactions between an affiliated person and an investment company 
are conducted on an arm's length basis. Applicants submit that the 
proposed transactions will not involve overreaching because the 
consideration paid and received for the sale and redemption of shares 
of the Central Funds will be based on the net asset value per share of 
the Central Funds. Applicants also assert that the proposed 
transactions are appropriate because they provide the Participating 
Funds and their shareholders with a possible means of obtaining high 
current rates of return for cash investments.
    7. Section 17(d) of the Act and rule 17d-1 prohibit an affiliated 
person of a registered investment company, acting as principal, from 
participating in any joint arrangement with the investment

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company unless the SEC has issued an order authorizing the arrangement. 
Applicants believe that the Funds, by participating in the proposed 
transactions, and the Adviser, by managing the proposed transactions, 
could be deemed to be participating in a joint arrangement within the 
meaning of section 17(d) and rule 17d-1.
    8. In determining whether to grant an exemption under rule 17d-1, 
the SEC considers whether the investment company's participation in the 
joint enterprise is consistent with the provisions, policies, and 
purposes of the Act, and the extent to which such participation is on a 
basis different from or less advantageous than that of other 
participants. Applicants assert that no Participating Fund or Central 
Fund will participate in the proposed transactions on a basis that is 
different from or less advantageous than that of any other participant 
and that the transactions will be consistent with the Act.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The shares of the Central Funds sold to and redeemed from the 
Participating Funds will not be subject to a sales load, redemption 
fee, distribution fee under a plan adopted in accordance with rule 12b-
1, or service fee (as defined in rule 2830(b)(9) of the NASD Conduct 
Rules).
    2. If the Adviser collects a fee from a Central Fund for acting as 
its investment adviser with respect to assets invested by a 
Participating Fund, before the next meeting of the board of trustees of 
a Participating Fund that invests in the Central Funds is held for the 
purpose of voting on an advisory contract under section 15 of the Act, 
the Adviser to the Participating Fund will provide the board of 
trustees with specific information regarding the approximate cost to 
the Adviser for, or portion of the advisory fee under the existing 
advisory fee attributable to, managing the assets of the Participating 
Fund that can be expected to be invested in such Central Funds. Before 
approving any advisory contract under section 15, the board of trustees 
of such Participating Fund, including a majority of the trustees who 
are not ``interested persons,'' as defined in section 2(a)(19) of the 
Act, shall consider to what extent, if any, the advisory fees charged 
to the Participating Fund by the Adviser should be reduced to account 
for the fee indirectly paid by the Participating Fund because of the 
advisory fee paid by the Central Fund to the Adviser. The minute books 
of the Participating Fund will record fully the trustees' consideration 
in approving the advisory contract, including the considerations 
relating to fees referred to above.
    3. Each of the Participating Funds will invest uninvested cash in, 
and hold shares of, the Central Funds only to the extent that the 
Participating Fund's aggregate investment in the Central Funds does not 
exceed 25% of the Participating Fund's total net assets. For purposes 
of this limitation, each Participating Fund or series thereof will be 
treated as a separate investment company.
    4. Investment in shares of the Central Funds will be in accordance 
with each Participating Fund's respective investment restrictions, if 
any, and will be consistent with each Participating Fund's policies as 
set forth in its prospectuses and statements of additional information.
    5. Each Participating Fund, the Central Funds, and any future Fund 
that may rely on the order shall be part of a ``group of investment 
companies,'' as defined in section 12(d)(1)(G)(ii) of the Act, that 
includes either CAT or PFMMS.
    6. No Central Fund shall acquire securities of any other investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
Act.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-30863 Filed 11-24-97; 8:45 am]
BILLING CODE 8010-01-M