[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
[[Page 62790]]
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
[[Page 62791]]
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