[Federal Register Volume 67, Number 250 (Monday, December 30, 2002)]
[Notices]
[Pages 79662-79664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32913]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25876; 812-12648]


Nicholas-Applegate Capital Management et al.; Notice of 
Application

December 23, 2002.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').

ACTION: Notice of application for an order under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (``Act'') for exemptions 
from section 17(a) of the Act, and under section 17(d) of the Act and 
rule 17d-1 thereunder to permit certain joint transactions.

-----------------------------------------------------------------------

Summary of Application:  Applicants requests an order to permit certain 
registered open-end management investment companies or series thereof 
that are advised by Nicholas-Applegate Capital Management (each, a 
``Fund'') to invest in a company organized in the Republic of Mauritius 
(``Mauritius Company'') that will invest in Indian securities.

Applicants: Nicholas-Applegate Capital Management (``NACM'') and 
Nicholas-Applegate Institutional Funds (``NAIF'').

Filing Dates: The application was filed on September 27, 2001 and 
amended on December 23, 2002.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on January 17, 2003, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants: J.B. Kittredge, Esq., Ropes & Gray, One 
International Place, Boston, MA 02110.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
942-0614, or Janet M. Grossnickle, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. NAIF, a Delaware business trust, is registered under the Act as 
an open-end management investment company and has 16 series, three of 
which currently intend to invest in the Mauritius Company: Nicholas-
Applegate International Growth Opportunities Fund, Nicholas-Applegate 
International Core Growth Fund, and Nicholas-Applegate Emerging 
Countries Fund.\1\ The investment objective of each of these series is 
to maximize long-term capital appreciation. NACM, a California limited 
partnership, is registered as an investment adviser under the 
Investment Advisers Act of 1940. NACM serves as investment adviser 
pursuant to an advisory agreement between NACM and the relevant Fund 
(each, an ``Advisory Agreement''). As investment adviser, NACM is 
responsible for making investment decisions for a Fund and managing the 
Fund's other affairs and business, subject to the policies established 
by the board of directors of the relevant Fund (each a ``Board''). 
Under the terms of each Advisory Agreement, NACM receives monthly 
management fees from the Fund or the Fund's adviser, as the case may 
be, at specified annual rates.
---------------------------------------------------------------------------

    \1\ Each existing registered open-end management investment 
company that currently intends to rely on the requested relief has 
been named as an applicant. Applicants are also seeking relief for 
any registered open-end management investment company or series 
thereof for which an Adviser (defined below) currently, or in the 
future, acts as investment adviser or subadviser (included in the 
term ``Funds''). The term ``Adviser'' includes NACM, or any 
registered investment adviser controlling, controlled by, or under 
common control with NACM that serves as investment adviser or 
subadviser to a Fund. Each existing or future registered open-end 
management investment company or Adviser that may rely on the 
requested relief in the future will do so only in accordance with 
the terms and conditions of the requested order.
---------------------------------------------------------------------------

    2. The Funds desire to purchase and sell shares of beneficial 
interest representing ownership interests in a limited life company 
organized in the Republic of Mauritius (the ``Mauritius Company''). The 
Mauritius Company will be formed and will operate solely for the 
purpose of allowing the Funds and certain pension plans and other 
separately managed accounts (collectively, the ``Accounts'') for which 
NACM or another Adviser acts as discretionary manager, to invest in 
debt and equity securities of Indian issuers.\2\ The Mauritius Company 
will enable the Funds' and the Accounts' investments in India to 
qualify for the favorable tax treatment afforded by the Mauritius-India 
double taxation avoidance treaty (the ``Treaty'').
---------------------------------------------------------------------------

    \2\ The Funds will not invest in Indian issuers directly (other 
than investments in American Depositary Receipts or Global 
Depositary Receipts of Indian issuers (collectively, ``Depositary 
Receipts'')) so long as they are able to invest in Indian securities 
through the Mauritius Company. For purposes of section 5 of the Act, 
a Fund would aggregate any Indian securities underlying Depositary 
Receipts owned by that Fund with that Fund's pro rata share of 
Indian securities held indirectly through the Mauritius Company.
---------------------------------------------------------------------------

    3. The Mauritius Company will be wholly-owned by the Funds and 
Accounts,\3\ and will not be permitted to make any types of 
investments, or engage in any types of activities, that would not be 
permitted to be made or engaged in by the Funds directly in accordance 
with their investment objectives, policies, and limitations. All 
material legal and tax considerations applicable to the Mauritius 
Company and the Funds' investments therein will be fully set forth in 
each Fund's registration statement. The shares of the Mauritius Company 
purchased by the

[[Page 79663]]

Funds and the Accounts will have identical terms, rights and 
conditions, will be redeemable at their net asset value next determined 
after receipt of the redemption request, and are expected to be 
liquid.\4\
---------------------------------------------------------------------------

    \3\ The Mauritius Company will be a private investment company 
excluded from the definition of ``investment company'' pursuant to 
section 3(c)(7) of the Act and the rules thereunder.
    \4\ In making its own determination that its investments in 
illiquid securities do not exceed 15% of its net assets, each Fund 
will aggregate any illiquid securities owned by that Fund with that 
Fund's pro rata share of any illiquid securities held indirectly 
through the Mauritius Company.
---------------------------------------------------------------------------

    4. NACM will serve as the investment adviser to the Mauritius 
Company and will make recommendations as to all investments of the 
Mauritius Company, subject to the supervision of the Mauritius 
Company's board of directors (the ``Mauritius Company Board''). No 
advisory fees will be paid to NACM by the Mauritius Company, but the 
Mauritius Company will pay NACM a monthly administrative fee based upon 
a percentage of the Mauritius Company's average daily net assets. 
NACM's duties will include coordinating all of the Mauritius Company's 
services (including auditors and legal service providers), calculating 
the daily net asset value per share of the Mauritius Company, 
overseeing compliance by the Mauritius Company with applicable 
requirements of the Act, maintaining the books and records of the 
Mauritius Company, and acting as U.S. agent for the service of process 
for the directors and officers of the Mauritius Company who are not 
U.S. citizens or residents. The Funds and the Accounts will be assessed 
the expenses of the Mauritius Company on a pro rata basis.\5\
---------------------------------------------------------------------------

    \5\ The Mauritius Company's expenses will consist primarily of 
the administrative fee payable to NACM, the fees paid to the 
Mauritius Company's other service providers, local administrator 
fees, and the brokerage commissions paid by the Mauritius Company on 
its purchases and sales of portfolio securities of Indian issuers.
---------------------------------------------------------------------------

    5. Applicants request an order pursuant to sections 6(c), 17(b) and 
17(d) of the Act and rule 17d-1 under the Act solely to the extent 
necessary to permit: (a) The Funds to purchase shares of beneficial 
interest of the Mauritius Company; (b) the Mauritius Company to sell 
its shares of beneficial interest to the Funds, and to redeem such 
shares held by the Funds, upon the demand of the Funds; and (c) The 
Advisers to provide investment management services to the Funds and the 
Mauritius Company.

Applicants' Legal Analysis

    1. Section 17(a) generally provides, in part, that it is unlawful 
for any affiliated person of a registered investment company, or any 
affiliated person of such person, acting as principal, knowingly to 
sell or purchase any security or other property to or from such 
investment company. Section 2(a)(3) of the Act defines an ``affiliated 
person'' of another person to include (a) any person directly or 
indirectly owning, controlling, or holding with power to vote, 5% or 
more of the outstanding voting securities of the other person; (b) any 
person 5% or more of whose outstanding voting securities are directly 
or indirectly owned, controlled, or held with the power to vote by the 
other person; and (c) any person directly or indirectly controlling, 
controlled by, or under common control with the other person.
    2. Applicants state that the Funds and the Mauritius Company are 
expected to be affiliated persons under section 2(a)(3) of the Act, 
since one or more of the Funds will own at least 5% (and, in all 
likelihood, more than 25%) of the outstanding voting securities of the 
Mauritius Company. In addition, as the investment adviser or subadviser 
to certain Funds and the Mauritius Company, NACM is an affiliated 
person of such Funds and the Mauritius Company. Further, certain of the 
Funds, Accounts, and the Mauritius Company arguably could be deemed to 
be under the common control of NACM or one of the other Advisers. 
Consequently, the sale of shares of beneficial interest of the 
Mauritius Company to the Funds, and the redemption of such shares of 
the Mauritius Company held by the Funds, would be prohibited under 
section 17(a) of the Act.
    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
the terms of the proposed transaction are fair and reasonable and do 
not involve overreaching on the part of any person concerned and the 
proposed transaction is consistent with the policies of each registered 
investment company involved and with the general purposes of the Act. 
Section 6(c) of the Act permits the Commission to exempt any person or 
transactions from any provisions of the Act if such 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 submit that the proposed arrangement satisfies the 
standards for relief under sections 17(b) and 6(c) of the Act. For the 
reasons discussed below, Applicants submit that the terms of the 
arrangement are fair and reasonable and do not involve overreaching on 
the part of any person concerned, and that the proposed transactions 
are consistent with the policy of each registered investment company 
concerned and with the general purposes of the Act. Applicants further 
submit that the Funds' participation in the Mauritius Company will be 
necessary or 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.
    5. Applicants note that NACM and its affiliates will receive no 
advisory fee in connection with the Funds' investment in the Mauritius 
Company, and shares of the Mauritius Company will not be subject to a 
sales load, redemption fee, distribution fee or service fee. Applicants 
argue that the fees payable to the Mauritius Company's service 
providers, including NACM, will be for distinct services, and the costs 
of such fees will be outweighed by the benefits to be obtained under 
the Treaty. Moreover, the administrative fees to be paid by the 
Mauritius Company to NACM will be paid only upon the determination by 
each Fund's Board, including a majority of its directors that are not 
``interested persons'' of the Fund as defined in section 2(a)(19) of 
the Act (``Non-Interested Directors''), that the fees are (i) for 
services in addition to, rather than duplicative of, services rendered 
to the Funds directly and (ii) fair and reasonable in light of the 
usual and customary charges imposed by others for services of the same 
nature and quality. Each Fund and Account will be treated identically 
as a shareholder of the Mauritius Company, and each Fund and Account 
will purchase and sell shares of beneficial interest of the Mauritius 
Company on the same terms and on the same basis as each other Fund and 
Account that invests in the Mauritius Company.
    6. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit joint transactions involving registered investment companies 
and their affiliates unless the Commission has approved the 
transaction. In considering whether to approve a joint transaction 
under rule 17d-1, the Commission considers whether the proposed 
transaction is consistent with the provisions, policies, and purposes 
of the Act, and the extent to which the participation of the investment 
companies is on a basis different from or less advantageous than that 
of the other participants. Applicant states that the Funds and the 
Accounts (by purchasing shares of beneficial interest of the Mauritius 
Company), NACM and the other Advisers (by managing the portfolio 
securities of the Funds at the same time that the Funds are invested

[[Page 79664]]

in shares of beneficial interest of the Mauritius Company), and the 
Mauritius Company (by selling its shares to, and redeeming its shares 
from, the Funds), could be deemed to be participants in a joint 
enterprise or arrangement within the meaning of section 17(d) and rule 
17d-1.
    7. Applicants request an order pursuant to section 17(d) and rule 
17d-1 to permit the proposed transactions with the Mauritius Company. 
Applicants submit that the investment by the Funds in the Mauritius 
Company on the basis proposed is consistent with the provisions, 
policies and purposes of the Act, and that each Fund will invest in 
shares of beneficial interest of the Mauritius Company on the same 
basis as any other shareholder (i.e., the other Funds and Accounts). 
Applicants further submit that all investors in shares of beneficial 
interest of the Mauritius Company will be subject to the same 
eligibility requirements imposed by the Mauritius Company, and all 
shares will be priced in the same manner and will be redeemable under 
the same terms. Moreover, investing in the Mauritius Company will offer 
tax advantages to the Funds that would not otherwise be available.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. The Funds' investment in shares of the Mauritius Company will be 
undertaken only in accordance with the Funds' stated investment 
restrictions and will be consistent with their stated investment 
policies. For these purposes, the Funds will be treated as owning their 
pro rata portion of the portfolio securities of the Mauritius Company.
    2. NACM and its affiliated persons will receive no advisory fee in 
connection with the Funds' investment in the Mauritius Company. NACM 
and its affiliated persons will receive no commissions, fees, or other 
compensation from a Fund or the Mauritius Company in connection with 
the purchase or redemption by the Funds of shares in the Mauritius 
Company. Shares of the Mauritius Company will not be subject to a sales 
load, redemption fee, distribution fee or service fee.
    3. Administrative fees will be paid by the Mauritius Company to 
NACM only upon a determination by each Fund's Board, including a 
majority of its Non-Interested Directors, that the fees are (i) for 
services in addition to, rather than duplicative of, services rendered 
to the Funds directly, and (ii) fair and reasonable in light of the 
usual and customary charges imposed by others for services of the same 
nature and quality. If such determination is not made by a Fund's 
Board, NACM will reimburse to that Fund the amount of any 
administrative fee borne by that Fund as an investor in the Mauritius 
Company.
    4. The Mauritius Company will, at all times, limit its investment 
in illiquid securities to no more than 15% of its assets.
    5. Each Fund's Board, including a majority of the Non-Interested 
Directors, will determine initially and no less frequently than 
annually that the Fund's investments in the Mauritius Company are, and 
continue to be, in the best interests of the Fund and the Fund's 
shareholders.
    6. NACM will undertake to make the accounts, books and other 
records of the Mauritius Company available for inspection by the SEC 
staff and, if requested, to furnish copies of those records to the SEC 
staff.
    7. The Mauritius Company will comply with the requirements of 
sections 9, 12, 13, 17(a), 17(d), 17(e), 17(f), 17(h), 18, 21 and 36-53 
of the Act and rule 22c-1 under the Act as if the Mauritius Company 
were an open-end management investment company registered under the 
Act. In addition, the Mauritius Company will comply with the 
requirements of the rules under section 17(f) and 17(g) of the Act. 
With respect to all redemption requests made by a Fund, the Mauritius 
Company will comply with section 22(e) of the Act. NACM will adopt 
procedures designed to ensure that the Mauritius Company complies with 
the aforementioned sections of the Act and rules under the Act. NACM 
will periodically review and periodically update as appropriate such 
procedures and will maintain books and records describing such 
procedures, and maintain the records required by rules 31a-1(b)(1), 
31a-1(b)(2)(ii) and 31a-1(b)(9) under the Act. In addition, in 
connection with the review required by condition 5 above, NACM will 
provide annually to each Fund's Board a written report about NACM's and 
the Mauritius Company's compliance with this condition. All books and 
records required to be made pursuant to this condition will be 
maintained and preserved for a period of not less than six years from 
the end of the fiscal year in which any transaction occurred, the first 
two years in an easily accessible place, and will be subject to 
examination by the SEC and its staff.

    For the Commission, by the Division of Investment Management, 
under delegated authority.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-32913 Filed 12-27-02; 8:45 am]
BILLING CODE 8010-01-P