[Federal Register Volume 63, Number 107 (Thursday, June 4, 1998)]
[Notices]
[Pages 30522-30523]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14827]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23227; 812-11066]


PIMCO Funds, et al.; Notice of Application

May 29, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

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

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SUMMARY OF APPLICATION: Order requested to permit a certain series of a 
registered open-end management investment company to acquire all of the 
assets and assume all of the liabilities of a certain series of another 
registered open-end management investment company. Because of certain 
affiliations, applicants may not rely on rule 17a-8 under the Act.

APPLICANTS: PIMCO Funds d/b/a/ PIMCO Funds: Pacific Investment 
Management Series (``PIMS''), PIMCO Funds: Multi-Manager Series 
(``MMS''), Pacific Investment Management Company (``PIMCO''), and PIMCO 
Advisors L.P. (the ``Advisor'').

FILING DATES: The application was filed on March 13, 1998. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING:  An order granting the application 
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 June 23, 1998, 
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.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, 2187 Atlantic Avenue, Stamford, Connecticut 06902.

FOR FURTHER INFORMATION CONTACT: Lawrence W. Pisto, Senior Counsel, at 
(202) 942-0527, or Edward P. MacDonald, Branch Chief at (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 Fifth Street, N.W., Washington, D.C. 
20549 (tel (202) 942-8090).

Applicants' Representations

    1. PIMS, a Massachusetts business trust, is an open-end management 
investment company registered under the Act. PIMS currently offers 
twenty-five investment portfolios, one of which is the PIMCO Municipal 
Bond Fund (the ``Acquiring Fund''). The Acquiring fund has three 
classes of shares: (1) Class A shares, which are sold subject to a 
front-end sales charge; (2) Class B shares, which are sold subject to a 
contingent deferred sales charge; and (3) Class C shares, which are 
sold subject to an asset-based sales charge.
    2. MMS, a Massachusetts business trust, is an open-end management 
investment company registered under the Act. MMS currently offers 22 
investment portfolios, one of which is the Tax Exempt Fund (the 
``Acquired Fund,'' together with the Acquiring Fund, the ``Funds''). 
The Acquired Fund offers three classes of shares, Class A, Class B, and 
Class C, which are identical to the respective classes of the Acquiring 
Fund, except that the front-end sales charge for Class A shares of the 
Acquiring Fund is lower than that for Class A shares of the Acquired 
Fund, and the Acquiring Fund's distributor has voluntarily waived a 
portion of the asset-based sales charge for Class C shares.
    3. The Advisor, which is registered under the Investment Advisers 
Act of 1940 (the ``Advisers Act''), serves as investment adviser to the 
Acquired Fund. A subsidiary of the Adviser, Columbus Circle Investors 
(``Columbus Circle''), serves as portfolio manager of the Acquired 
Fund. Columbus Circle is registered under the Advisers Act. PIMCO, 
which is registered under the Advisers Act, is another subsidiary of 
the Adviser and serves as investment adviser to the Acquiring Fund. The 
Acquiring Fund began offering its shares to the public in April 1998, 
however, PIMCO provided its initial capital and, therefore, currently 
owns a substantial percentage of its outstanding shares.
    4. On February 24, 1998, the board of trustees of PIMS and, on 
March 5, 1998, the board of trustees of MMS (together, the ``Boards''), 
including a majority of the disinterested trustees, approved an 
Agreement and Plan of Reorganization (the ``Plan''). The Plan provides 
for the transfer (``Reorganization'') of the assets of the Acquired 
Fund to the Acquiring Fund in exchange for Class A, Class B and Class C 
shares of the Acquiring Fund (``Merger Shares'') that have an aggregate 
net asset value equal to the aggregate net asset value of the Class A, 
Class B, and Class C shares of the Acquired Fund on the date of 
exchange (the ``Exchange Date''). On the Exchange Date the Acquired 
Fund will distribute on a pro rata basis Merger Shares the value of 
which will be determined at 4:00 p.m., Eastern Standard Time or such 
other time as may be agreed upon in writing by the parties. The net 
asset value of the Merger Shares of the Acquiring Fund will be computed 
in the manner set forth in the then-current PIMS prospectus. The value 
of the assets and liabilities of the shares of the Acquired Fund will 
be determined by the Acquiring Fund, in cooperation with the Acquired 
Fund, pursuant to the Acquiring Fund's procedures, which are 
substantially similar to the procedures used by the Acquired Fund in 
determining the fair market value of its assets and liabilities.
    5. No sales charge will be incurred by shareholders of the Acquired 
Fund in connection with their acquisition of Acquiring Fund shares. 
Applicants state that the investment objectives, policies and 
restrictions of the Acquiring Fund are substantially similar to those 
of the Acquired Fund. The Advisor will bear all costs and expenses of 
the Reorganization incurred by the Acquiring Fund. The Acquired Fund 
will bear $24,241 of the costs and expenses it incurs in the 
Reorganization, with the Advisor bearing all costs and expenses in 
excess of that amount. The total costs and expenses of the 
Reorganization are estimated to be approximately $100,000 to $125,000.
    6. The Boards determined that the Reorganization is in the best 
interests of the shareholders of the Funds and that

[[Page 30523]]

the current interests of the shareholders of the Funds would not be 
diluted as a result of the Reorganization. In assessing the 
Reorganization, the Board of the Acquired Fund considered: (a) Expense 
ratios and information regarding fees and expenses of the Funds; (b) 
terms and conditions of the Reorganization, including whether it would 
result in a dilution of the Acquired Fund's current shareholders; (c) 
the compatibility of the Acquiring Fund's investment objectives, 
policies and restrictions with those of the Acquired Fund; (d) the 
expertise of PIMCO in fixed income investing; (e) the capabilities and 
resources of PIMCO and its affiliates in the areas of investment 
management and shareholder servicing; (f) the growth opportunities 
afforded by the proposed Reorganization; (g) the tax consequences of 
the Reorganization to the Acquired Fund and its shareholders; and (h) 
the direct and indirect costs to be incurred by the Acquired Fund or 
its shareholders.
    7. A proxy statement/prospectus describing the Reorganization, 
filed with the Commission on Form N-14 and declared effective on April 
22, 1998, was sent to shareholders of the Acquired Fund in connection 
with the solicitation of proxies for a special meeting of the 
shareholders to be held on June 19, 1998.
    8. The Reorganization is subject to the following conditions 
precedent: (a) That the shareholders of the Acquired Fund approved the 
Plan; (b) that the Funds receive an opinion of tax counsel that the 
proposed Reorganization will be tax-free for the Funds and their 
shareholders; (c) that applicants will receive from the SEC an 
exemption from section 17(a) of the Act for the Reorganization; and (d) 
if necessary, any approval from the relevant state securities 
administrator. Applicants agree not to make any material changes to the 
Reorganization without prior SEC approval.

Applicants' Legal Analysis

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person, acting as principal, from selling any security to, or 
purchasing any security from the company.
    2. Section 2(a)(3) of the Act defines an ``affiliated person of 
another person'' to include any person directly or indirectly owning, 
controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of such other person, and any person 
directly or indirectly controlling, controlled by or under common 
control with such other person, and if such other person is an 
investment company, any investment adviser of that company.
    3. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchases or sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons solely by reason of having a common investment 
adviser, common directors, and/or common officers, provided that 
certain conditions set forth in the rule are satisfied.
    4. Applicants believe that they may not rely on rule 17a-8 in 
connection with the Reorganization because the Funds may be deemed to 
be affiliated persons, or affiliated persons of an affiliated person, 
by reason other than having a common investment adviser, common 
directors, and/or common officers. The Acquiring Fund began to accept 
orders for the purchase of its shares beginning in April 1998. 
Applicants state, however, that PIMCO currently owns a substantial 
percentage of the Acquiring Fund's outstanding shares, consequently, it 
is possible that, as of the Exchange Date, PIMCO may own 5% or more, 
and possibly more than 25% of the outstanding voting securities of the 
Acquiring Fund.
    5. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from the provisions of section 17(a) if the terms of the 
proposed transaction, including the consideration to be paid, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and that the proposed transaction is consistent with 
the policy of each registered investment company concerned and with the 
general purposes of the Act.
    6. Applicants submit that the Reorganization satisfies the 
standards of section 17(b). Applicants believe the terms of the 
Reorganization are fair and reasonable and do not involve overreaching. 
Applicants state that the Reorganization will be based on the relative 
net asset values of the Funds' shares. Applicants also state that the 
primary investment objective for each Fund is to seek high current 
income exempt from federal income tax, consistent with preservation of 
capital;. It is a policy of each Fund that, under normal market 
conditions, at least 80% of its net assets will be invested in 
Municipal Bonds. Applicants also state that the Boards, including a 
majority of the independent trustees, have made the requisite 
determinations that the participation of the relevant Fund in the 
proposed Reorganization is in the best interests of the Fund, and that 
such participation will not dilute the interests of shareholders of the 
Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14827 Filed 6-3-98; 8:45 am]
BILLING CODE 8010-01-M