[Federal Register: December 30, 2002 (Volume 67, Number 250)]
[Notices]
[Page 79662-79664]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30de02-121]
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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.
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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.
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\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.
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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'').
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\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.
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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\
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\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.
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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\
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\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.
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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