[Federal Register Volume 68, Number 129 (Monday, July 7, 2003)]
[Notices]
[Pages 40310-40312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17051]


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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26092; 812-12979]


PBHG Funds, et al.; Notice of Application

July 1, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 17(b) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 17(a) 
of the Act.

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

SUMMARY OF APPLICATION: Applicants request an order to permit a limited 
liability company to transfer substantially all of its assets to a new 
series of a registered open-end management investment company in 
exchange for shares of the series.

APPLICANTS: PBHG Funds (``Trust''), Pilgrim Baxter & Associates, Ltd. 
(``Pilgrim Baxter''), TS&W Small Cap Value Fund, LLC (``TS&W Fund'') 
and Thompson, Siegel & Walmsley, Inc. (``TS&W'').

FILING DATES: The application was filed on May 29, 2003 and amended on 
June 30, 2003.

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 July 22, 2003, and should be accompanied by proof of service on 
the 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, c/o John M. Zerr, Esq., Pilgrim Baxter & 
Associates, Ltd., 1400 Liberty Ridge Drive, Wayne, PA 19087.

FOR FURTHER INFORMATION, CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 942-0527, 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 at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Trust, a Delaware statutory trust, is registered under the 
Act as an open-end management investment company. The Trust is 
organized as a series investment company and currently has 18 series, 
one of which, the PBHG Small Cap Value Fund (``Fund''), corresponds to 
the TS&W Fund in terms of investment objective and policies. Pilgrim 
Baxter, a Delaware corporation, will serve as investment adviser to the 
Fund pursuant to an investment advisory agreement with the Trust.
    2. The TS&W Fund, a Virginia limited liability company, is not 
registered under the Act in reliance on section 3(c)(1) of the Act. 
Limited liability company interests (``Interests'') in the TS&W Fund 
are not registered under the Securities Act of 1933, as amended (the 
``Securities Act''), and are held by accredited investors 
(``Members''). TS&W, a Virginia corporation, is TS&W Fund's sole 
managing Member and is responsible for the management, operation and 
administration of the TS&W Fund, including its investment activities. 
TS&W will serve as the investment sub-adviser to the Fund

[[Page 40311]]

pursuant to a sub-advisory agreement with the Trust.
    3. Pilgrim Baxter and TS&W each are registered as an investment 
adviser under the Investment Advisers Act of 1940. Pilgrim Baxter and 
TS&W each are indirect, wholly owned subsidiaries of Old Mutual plc 
(``Old Mutual''), a financial services organization based in the United 
Kingdom.
    4. The Fund will seek to provide investors with long-term growth of 
capital by investing primarily in small capitalization stocks. The Fund 
will invest at least 80% of its assets in value securities, such as 
common stocks, of domestic small sized companies, which include 
companies with equity securities traded in the U.S. securities markets 
with market capitalizations of $1.3 billion or less at the time of 
purchase.
    5. Applicants propose that, pursuant to an agreement and plan of 
reorganization (the ``Reorganization Agreement''), the TS&W Fund will 
transfer to the Fund substantially all of its assets, which will 
consist of cash and portfolio securities with readily available market 
quotations and are permissible investments under the investment 
policies and restrictions of the Fund (``Assets''), less any funds 
required to pay the liabilities of the TS&W Fund, in exchange for 
shares (the ``Shares'') of the Fund (the ``Exchange''). Under the 
Reorganization Agreement, Shares of the Fund delivered to the TS&W Fund 
will have an aggregate net asset value (``NAV'') equal to the NAV of 
the Assets transferred by the TS&W Fund to the Fund. Upon the 
consummation of the Exchange, the Shares of the Fund will be credited 
to the account of each Member of the TS&W Fund, in an amount equal to 
the value of the Member's pro rata share of the Assets (``Interest'') 
on the Closing Date. Thereafter, the TS&W Fund will liquidate. The 
Exchange is scheduled to occur on or about July 25, 2003. No brokerage 
commissions, fees (except for customary transfer fees, if any) or other 
remuneration will be paid by the Fund or the TS&W Fund in connection 
with the Exchange. TS&W will pay the expenses of the TS&W Fund and the 
Fund will pay its own expenses incurred in connection with the 
Exchange. Applicants have agreed not to make any material changes to 
the Reorganization Agreement without prior approval of the Commission 
or its staff.
    6. On May 6, 2003, the board of trustees of the Trust (``Board''), 
including a majority of the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act (``Independent 
Trustees''), approved the Exchange. In approving the Exchange, the 
Board concluded that: (a) The Exchange is consistent with the policies 
of the Fund, as recited in its registration statement, (b) the terms of 
the Exchange, including the consideration to be received by the Fund, 
are reasonable and fair and do not involve overreaching on the part of 
any person concerned, and (c) participation by the Fund in the Exchange 
is in the best interests of the Fund and its shareholders and the 
interests of existing shareholders of the Fund will not be diluted as a 
result of the Exchange. These findings, and the basis upon which such 
findings were made, are recorded in the minute books of the Trust.
    7. With respect to the TS&W Fund, TS&W (as TS&W Fund's managing 
Member) believes that the Exchange is in the best interests of the TS&W 
Fund and its Members. The Exchange is required to be approved by 
Members of the TS&W Fund that represent more than 50% of the aggregate 
value of the outstanding Interests of the TS&W Fund.
    8. The Exchange will not be effected until: (a) The Commission has 
issued the requested order; (b) Members of the TS&W Fund that represent 
more than 50% of the aggregate value of the outstanding Interests in 
the TS&W Fund have consented to: (i) The TS&W Fund's participation in 
the Exchange and (ii) an amendment to TS&W Fund's operating agreement 
that permits the TS&W Fund to redeem, immediately prior to the 
effectiveness of the Exchange, the Interest of any Member that has not 
consented to the Exchange; and (c) the Trust and the TS&W Fund have 
received an opinion of counsel substantially to the effect that the 
Exchange will not result in taxable income to the Fund, the TS&W Fund, 
or the Members.

Applicants' Legal Analysis

    1. Section 17(a)(1) of the Act prohibits any affiliated person of a 
registered investment company, or any affiliated person of that person, 
acting as principal, from selling to the registered investment company 
any security or other property. Section 2(a)(3) of the Act defines an 
``affiliated person'' as, among other things, 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; any 
person controlling, controlled by, or under common control with, the 
other person; any officer, director, partner, copartner or employee of 
the other person; and, if the other person is an investment company, 
its investment adviser.
    2. Applicants state that the TS&W Fund could be deemed to be an 
affiliated person of an affiliated person of the Fund because TS&W and 
Pilgrim Baxter might be deemed to be under the common control of Old 
Mutual. Thus, applicants state that the proposed Exchange may be 
prohibited under section 17(a) of the Act.
    3. Rule 17a-7 exempts certain purchase and sale transactions 
otherwise prohibited by section 17(a) of the Act if an affiliation 
exists solely by reason of having a common investment adviser, 
investment advisers that are affiliated persons of each other, common 
directors, and/or common officers, provided, among other requirements, 
that the transaction is for no consideration other than cash. 
Applicants state that the relief provided by rule 17a-7 may not be 
available for the Exchange because the Exchange will involve 
consideration other than cash (i.e., Shares of the Fund). Applicants 
also state that the TS&W Fund may be deemed to be affiliated with the 
Fund for reasons other than those set forth in rule 17a-7.
    4. Rule 17a-8 exempts certain transactions (including mergers, 
consolidations or purchases or sales of substantially all of the assets 
of a company) between registered investment companies and eligible 
unregistered funds, as defined in rule 17a-8 (``Eligible Unregistered 
Fund''). Applicants state that the relief provided by rule 17a-8 is not 
available for the Exchange because the TS&W Fund is not a registered 
investment company or an Eligible Unregistered Fund.
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from the provisions of section 17(a) of the Act if the 
terms of the 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 registered investment company 
concerned and the general purposes of the Act.
    6. Applicants submit that the terms of the Exchange meet the 
criteria contained in section 17(b) of the Act. Applicants state that 
the Shares issued by the Fund will have an aggregate NAV equal to the 
NAV of the assets acquired from the TS&W Fund, determined in accordance 
with rule 17a-7 under the Act and the Fund's valuation policies as 
disclosed in its registration statement. Applicants also state that the 
investment objective and policies of the Fund are substantially similar 
to those

[[Page 40312]]

of the TS&W Fund. Applicants further state that the Board, including a 
majority of the Independent Trustees, has approved the Exchange and 
that the Exchange will comply with rule 17a-7(b) through (g) and the 
provisions of rule 17a-8 (as those provisions apply to the merger of an 
Eligible Unregistered Fund with a registered investment company).

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    The Exchange will comply with the terms of paragraphs (b) through 
(g) of rule 17a-7 and the provisions of rule 17a-8 (as those provisions 
apply to the merger of an Eligible Unregistered Fund with a registered 
investment company).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17051 Filed 7-3-03; 8:45 am]
BILLING CODE 8010-01-P