[Federal Register Volume 65, Number 73 (Friday, April 14, 2000)]
[Notices]
[Pages 20231-20233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9274]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24381; 812-12056]


Pacific Asset Management LLC, et al. Notice of Application

April 7, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 
15(f)(1)(A) of the Act.

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SUMMARY OF APPLICATION: The order would exempt the applicants from 
section 15(f)(1)(A) of the Investment Company Act of 1940 (the ``Act'') 
in connection with the proposed change in control of PIMCO Advisors 
L.P. (``PIMCO Advisors''). Without the requested exemption, certain 
investment companies advised by PIMCO Advisors or one of its subsidiary 
investment advisers. Oppenheimer Capital, OpCap Advisors, Parametric 
Portfolio Associates, and NFJ Investment Group (collectively, the 
``PIMCO Investment Advisers'' and together with PIMCO Advisors, the 
``Advisers''), would have to reconstitute their respective boards of 
directors

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(``Boards'') to meet the 75 percent non-interested director requirement 
of section 15(f)(1)(A) of the Act in order for the Advisers to rely 
upon the safe harbor provisions of section 15(f).

APPLICANTS: Pacific Asset Management LLC (``Pacific Asset 
Management''), PIMCO Advisors, PIMCO Advisors Holdings L.P. (``PAH''), 
PIMCO Holding LLC (``Holding LLC''), PIMCO Partners G.P. (``Partners 
G.P.''), and PIMCO Partners LLC (``Partners LLC'') (collectively, the 
``PIMCO Group''); The Emerging Markets Income Fund Inc. (``Emerging 
Markets''), The Emerging Markets Income fund II Inc. ``Emerging Markets 
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 Fund, Inc. (``Enterprise Fund''), Enterprise 
Accumulation Trust (``Enterprise Trust''), Penn Series Funds, Inc. 
(``Penn Fund''). The Preferred Group of Mutual Funds (``Preferred 
Group''), and Consulting Group Capital Markets Funds (``CGCM'') (each 
an ``Applicant Company'' and, collectively the ``Applicant 
Companies'').

FILING DATE: The application was filed on April 3, 2000.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief 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 May 2, 
2000, 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.

ADDRESS: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549-
0609. Applicants: The PIMCO Group, 800 Newport Center Drive, Suite 600, 
Newport Beach, California 92660; Emerging Markets, Emerging Markets 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; Penn Fund, 600 
Dresher Road, Horsham, Pennsylvania 19044; Preferred Group, 411 
Hamilton Boulevard, Suite 1200, Peoria, Illinois 61602; and CGCM, 222 
Delaware Avenue, Wilmington, Delaware 19801.

FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel (202) 
942-7120, or Nadya B. Roytblat, Assistant Director, (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

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 5th Street, NW., Washington, DC 
20549-0102 (tel. 202-9423-8090)

Applicants' Representatives

    1. PIMCO Advisors, a limited partnership, is an investment adviser 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). PAH, a publicly traded master limited partnership, and Partners 
G.P. are the general partners of PIMCO Advisors. Oppenheimer Capital is 
an indirect subsidiary of PIMCO Advisors. Parametric Portfolio 
Associates is a partnership of PIMCO Advisors and Parametric Management 
Inc. OpCap Advisors is a majority-owned subsidiary of Oppenheimer 
Capital. NFJ is a partnership of PIMCO Advisors and NFJ Management Inc. 
Each of the PIMCO Investment Advisers is registered as an investment 
adviser under the Advisers Act.
    2. Each Applicant Company is registered under the Act as either an 
open-end or closed-end management investment company. The Advisers 
serve as either investment adviser, investment manager, or subadviser 
to one or more of the Applicant Companies and to LSA Variable Series 
Trust, registered under the Act as an open-end management investment 
company (``LSA Variable'' and, together with Applicant Companies, the 
``Companies'' \1\
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    \1\ PIMCO Advisors serves as investment adviser to Emerging 
Markets, Municipal Advantage, and one portfolio of CGCM, and as 
investment manager to Emerging Markets II, Emerging Floating Rate, 
Global Partners, Municipal Partners, and Municipal Partners II. 
OpCap Advisors serves as fund manager to one portfolio of Enterprise 
Fund and one portfolio of Enterprise Trust. Parametric serves as 
subadviser to one portfolio of CGCM. OpCap Advisors serves as 
subadviser to two portfolios of Penn Fund and as subadviser to one 
portfolio of LSA Variable. Oppenheimer Capital serves as subadviser 
to one portfolio of Preferred Group. Applicants state that, in each 
case, each of the Advisers is acting as an investment adviser within 
the meaning of section 29(a)(20) of the Act under a contract subject 
to section 15 of the Act.
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    3. Allianz of America, Inc. (``Allianz'') is a holding company that 
owns several insurance and financial service companies and is, in turn, 
a subsidiary of Allianz AG. On October 31, 1999, PIMCO Advisors, its 
general partners, PAH and Partners G.P., certain of their affiliates, 
and Allianz entered into an Implementation and Merger Agreement (the 
``Merger Agreement'') under which Allianz agreed to acquire majority 
ownership of PIMCO Advisors (``Transaction''). Following consummation 
of the Transaction, Allianz will hold approximately 69% of the 
outstanding partnership interests in PIMCO Advisors and will become the 
sole general partner of PIMCO Advisors. Applicants expect that the 
Transaction will be consummated in May 2000.
    4. 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 contract will 
automatically terminate in accordance with the terms of the contract. 
In connection with the Transaction, the PIMCO Group has determined to 
seek to comply with the ``safe harbor'' provisions of section 15(f) of 
the Act. Applicants state that, absent exemptive relief, following 
consummation of the Transaction, more than 25 percent of the Board of 
each Company would be ``interested persons'' for purposes of section 
15(f)(1)(A) of the Act.

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 on 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 provide that, for a 
period of three years after the sale, at least 75 percent of the board 
of directors of the 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) defines an ``interested 
person'' of an investment adviser to include, among others, any broker 
or dealer registered under the Securities Exchange Act of 1934 or any 
affiliated person of the broker or dealer. Rule 2a19-1 provides an 
exemption from the definition of interested person for directors who 
are registered as

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brokers or dealers, or who are affiliated persons of registered brokers 
or dealers, provided certain conditions are met.\2\
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    \2\ The rule generally provides that the exemption is available 
only if: (a) The broker or dealer does not execute any portfolio 
transactions for, engage in principal transactions with, or 
distribute shares for, the investment company complex, as defined in 
the rule, (b) the investment company's board determines that the 
investment company will not be adversely affected if the broker or 
dealer does not effect the portfolio or principal transactions or 
distribute shares of the investment company, and (c) no more than a 
minority of the investment company's directors are registered 
brokers or dealers or affiliated persons thereof.
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    2. Upon consummation of the Transaction, each Board will consist of 
a majority of directors who are not interested persons of any Adviser 
within the meaning of section 2(a)(19)(B) (``Independent Directors''). 
However, each Board also will consist of two or more directors who may 
be considered interested persons of one of the Advisers (``Interested 
Directors''), for a total of twenty-seven Interested Directors in the 
twelve investment company complexes involved. Twenty-five of the 
Interested Directors may be considered 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. Applicants state that 
the exemption 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 
questions or may engaged in transactions with other members of a 
Company's complex. The remaining two director positions will be filed 
by two individuals who are officers or directors of PIMCO Advisers and 
thus, each of these directors will be an interested person of one or 
more of the Advisers. With exception of these two directors, 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.
    3. Without the requested exemption, each Company would have to 
reconstitute its Board to meet the 75 person non-interested director 
requirement of section 15(f)(1)(A). Section 6(c) of the Act permits the 
SEC to exempt any person or transaction from any provision of the Act, 
or any rule regulation under the Act, 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.
    4. Applicants request an exemption under section 6(c) from section 
15(f)(1)(A). Applicants submit that the addition of directors to 
achieve the 75 percent disinterested director ratio required by section 
15(f)(1)(A) of the Act would make the Boards unduly large and unwieldy, 
make decisional and operational matters cumbersome, unnecessarily 
increase the ongoing expenses of the Companies, and would cause the 
Companies to incur additional expenses in connection with the selection 
and election of the additional directors. In addition, applicants state 
that shrinking the Boards by eliminating previously existing Interested 
Director positions would deny the Companies the valued services and 
insights these directors bring to their respective Boards.
    5. Applicants state that although directors who are affiliated 
persons of broker-dealers may 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. 
Applicants assert that the requested exemption is consistent with the 
protection of investors. Applicants state that the Companies will 
continue to treat the Interested Directors as interested persons of the 
Companies and the Advisers for all purposes other than section 
15(f)(1)(A) of the Act for so long as the directors are ``interested 
persons'' as defined in section 2(a)(19) of the Act and are not 
exempted from that definition by any applicable rules or order of the 
SEC.
    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 an 
investment company. 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 an investment company's board of 
directors is influenced by a substantial number of interested directors 
to approve a transaction because the interested directors have an 
economic interest in the adviser. Applicants state that these 
circumstances do not exist in the present case.

Applicants' Condition

    Applicants agree that the order 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 of a Company, 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, after giving effect 
to the order granted pursuant to the application, are not interested 
persons of any Adviser for purposes of section 15(f) of the Act. For 
any Company for which an Adviser serves solely as a subadviser, this 
condition will not: (a) Preclude replacement with or addition of a 
director who is an interested person of any Adviser solely by reason of 
being an affiliated person of a broker or dealer, provided that such 
broker or dealer is not an affiliated person of any Adviser, or (b) 
require replacement of a Director if a change in the director's 
circumstances causes him to become an interested person of an Adviser 
solely by reason of becoming an affiliated person of a broker or 
dealer, provided that such broker or dealer is not an affiliated person 
of any Adviser.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9274 Filed 4-13-00; 8:45 am]
BILLING CODE 8010-01-M