[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]
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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.
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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