[Federal Register Volume 66, Number 10 (Tuesday, January 16, 2001)]
[Notices]
[Pages 3622-3624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1191]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24821; 812-12388]


Nicholas-Applegate Fund, Inc., et al.; Notice of Application

January 9, 2001.
AGENCY: Securities and Exchange Commission (``SEC''or the 
``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 
15(f)(1)(A) of the Act.

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SUMMARY OF APPLICATION: The order would exempt the applicants from 
section 15(f)(1)(A) of he Act in connection with the proposed change in 
control of Nicholas-Applegate Capital Management (``NACM''). Without 
the requested exemption, Nicholas-Applegate Fund, Inc. (the 
``Company'') would have to reconstitute its board of directors (the 
``Board'') to meet the 75 percent non-interested director requirement 
of section 15(f)(1)(A) of the Act in order for NACM to rely upon the 
safe harbor provisions of section 15(f).
    Applicants: The Company and NACM.

Filing Date: The application was filed on January 8, 2001.
    Hearing or Notification of Hearing: An order granting the requested 
relief 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 January 
31, 2001, and should be accompanied by proof of service on applicants, 
in the from 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.

[[Page 3623]]


ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants: Nicholas-Applegate Capital Management, 600 West 
Broadway, San Diego, CA 92101; Nicholas-Applegate Fund, Inc., 100 
Mulberry Street, Newark, NJ 07102.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegal, Senior Counsel, at 
(202) 942-0567, or Nadya B. Roytblat, Assistant Director, 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 from 
the SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, 
DC 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. The Company is registered under the Act as an open-end 
management investment company, NACM, a California limited partnership, 
serves as the subadviser to the Company pursuant to a subadvisory 
agreement among NACM, the Company, and Prudential Investments Fund 
Management LLC (the successor to Prudential Mutual Fund Management, 
Inc.) (``Prudential''). Prudential serves as the manager and 
administrator of the Company. Each of NACM and Prudential is registered 
as an investment adviser under the Investment Advisers Act of 1940.\1\
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    \1\ Applicants state that each of Prudential and NACM is acting 
as an ``investment adviser'' within the meaning of section 2(a)(20) 
of the Act under a contract subject to section 15 of the Act.
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    2. Nicholas-Applegate Capital Management Holdings LP (``NACM 
Holdings LP'') is the general partner of, and Nicholas-Applegate 
Capital Management Global Holding Co. LP (``Global Holding LP'') is the 
sole limited partner of NACM. Their combined partnership interests 
comprise 100% ownership of NACM.
    3. Allianz of America, Inc. (``Allianz of America'') is a holding 
company that owns several insurance and financial service companies and 
is, in turn, a wholly owned subsidiary of Allianz AG. On October 17, 
2000, NACM, NACM Holdings LP, Global Holding LP, and certain of their 
affiliates,\2\ and Allianz of America and its wholly owned subsidiary, 
MacIntosh LLC, entered into a Merger Agreement under which Allianz of 
America agreed to acquire NACM (the ``Transaction''). As a result of 
the Transaction, NACM will become an indirect wholly owned subsidiary 
of Allianz of America and Allianz of America will control NACM and its 
affiliates. Applicants expect that the Transaction will be consummated 
in January, 2001.
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    \2\ These affiliates are Nicholas-Applegate LLC, Nicholas-
Applegate Securities and Nicholas-Applegate Securities International 
LDC.
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    4. Consummation of the Transaction will result in a change of 
control of NACM within the meaning of section 2(a)(9) of the Act and, 
consequently, will result in an assignment of the current subadvisory 
agreement among NACM, the Company, and Prudential within the meaning of 
section 2(a)(4) of the Act. As required by section 15(a)(4) of the Act, 
the subadvisory agreement will automatically terminate in accordance 
with the terms of the agreement. In connection with the Transaction, 
NACM has determined to seek to comply with the ``safe harbor'' 
provisions of section 15(f) of the Act.

Applicants' Legal Analysis

    1. Section 15(f) of the Act is a safe harbor that permits an 
investment adviser to a registered investment company (or an affiliated 
person of the investment company (or an affiliated person of the 
investment adviser) to realize a profit on the sale of its business if 
certain conditions are met. One of these conditions is set forth in 
section 15(f)(1)(A). This conditions provides that, for a period of 
three years after the sale, at least 75 percent of the board of 
directors of the investment company may not be ``interested persons'' 
with respect to either the predecessor or successor adviser of the 
investment company. Section 2(a)(19)(B) of the Act defines an 
``interested person'' of an investment adviser to include, among 
others, any broker or dealer registered under the Securities Exchange 
Act of 1934 or any affiliated person of the broker or dealer. Rule 
2a19-1 of the Act provides an exemption from the definition of 
interested person for directors who are registered as brokers or 
dealers, or who are affiliated persons of registered brokers or 
dealers, provided certain conditions are met.\3\
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    \3\ The rule generally provides that the exemption is available 
only if: (a) The broker or dealer does not execute any portfolio 
transactions for, engage in principal transactions with, or 
distribute shares for, the investment company complex, as defined in 
the rule, (b) the investment company's board determines that the 
investment company will not be adversely affected if the broker or 
dealer does not effect the portfolio or principal transactions or 
distribute shares of the investment company, and (c) no more than a 
minority of the investment company's directors are registered 
brokers or dealers of affiliated persons thereof.
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    2. Upon consummation of the Transaction, it is proposed that the 
Board will consist of seven directors, four of whom are not interested 
persons of NACM within the meaning of section 2(a)(19)(B) of the Act 
(``Disinterested Directors''), and three of whom may be considered 
interested persons of NACM (``Interested Directors''). Two of the 
Interested Directors may be considered interested persons of NACM 
within the meaning of section 2(a)(19)(B)(v) of the Act by virtue of 
their relationship to a registered broker-dealer. Applicants state that 
the exemption provided by rule 2a19-1 will not be available with 
respect to these two Interested Directors because the broker-dealers 
with which they are affiliated may engage in transactions with other 
members of the Company's complex.\4\ The remaining interested Director 
is the managing partner of NACM and thus, is an interested person of 
NACM. With the exception of this director, upon consummation of the 
Transaction, none of the members of the Board will be affiliated 
persons within the meaning of section 2(a)(3) of the Act of any party 
to the Transaction.
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    \4\ With respect to one of these Interested Directors, 
applicants state that the exemption provided by the rule is also 
unavailable because the broker-dealer with which the Interested 
Director is affiliated acts as distributor for the Company. 
Applicants further state that the same Interested Director is 
treated as an interested person of NACM in keeping with section 
2(a)(19)(B)(vi) of the Act, although the Company has not received a 
Commission order. Section 2(s)(19)(B)(vi) of the Act includes within 
the definition of interested person any individual whom the 
Commission by order has determined to be an interested person 
because of a material business or professional relationship with the 
investment adviser or principal underwriter of an investment 
company, or with any principal executive officer or controlling 
person of such entity.
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    3. Without the requested exemption, the Company would have to 
reconstitute its Board to meet the 75 percent non-interested director 
requirement of section 15(f)(1)(A).\5\ Section 6(c) of the Act permits 
the SEC to exempt any person or transaction from any provision of the 
Act, or any rule or regulation under the Act, if the exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the

[[Page 3624]]

purposes fairly intended by the policy and provisions of the Act.
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    \5\ The Company filed a definitive proxy statement with the 
Commission on December 27, 2000 (the ``Proxy Statement''). One of 
the proposals in the Proxy Statement solicits shareholder votes on 
the re-election of the seven directors who serve on the Board and 
the election of two additional Disinterested Directors. In the event 
exemptive relief has not been obtained by the earlier of February 
28, 2001 or the time the Transaction closes, one of the Board's 
Interested Directors would resign and the election of the two 
additional Disinterested Directors would become effective. Thus, the 
total number of directors on the Board would be eight and the ratio 
of Interested Directors to total directors would be 2:8 (25). The 
Company would then be compliant with section 15(f)(1)(A).
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    4. applicants request an exemption under section 6(c) from section 
15(f)(1)(A). Applicants submit that the reconstitution of the Board as 
contemplated by the Proxy Statement would serve no public interest and, 
in fact, would not be in the best interests of the shareholders of the 
Company. Applicants state that the resignation of the Interested 
Director would deprive the Company of a director who has important 
experience with the Company and its service providers and also has 
important macro-economic insights and perspective. Applicants also 
state that the addition of the two new Disinterested Directors would 
entail the additional expenses of directors' fees and potentially 
increased insurance and fidelity bond premiums, and the real, if 
intangible, costs of integrating two new board members into the 
decisional and operational affairs of the Company.
    5. Applicants state that although directors who are affiliated 
persons of broker-dealers may be viewed as interested persons of NACM, 
these directors, and the broker-dealers with which they are affiliated 
are not affiliated persons of any party to the Transaction. Applicants 
assert that the requested exemption is consistent with the protection 
of investors. Applicants state that the Company will continue to treat 
the Interested Directors as interested persons of the Company and NACM 
for all purposes other than section 15(f)(1)(A) of the Act so long as 
the directors are ``interested persons'' as defined in section 2(a)(19) 
of the Act and are not exempted from that definition by any applicable 
rules or orders of the SEC.
    6. Applicants also submit that the requested exemption is 
consistent with the purposes fairly intended by the policies and 
provisions of the Act. Applicants assert that the legislative history 
of section 15(f) indicates that Congress intended the SEC to deal 
flexibly with situations where the imposi9tion of the 75 percent 
requirement might pose an unnecessary obstacle or burden on an 
investment company. Applicants also state that section 15(f)(1)(A) was 
designed primarily to address the types of biases and conflicts of 
interest that might exist where an investment company's board of 
directors is influenced by a substantial number of interested directors 
to approve a transaction because the interested directors have an 
economic interest in the adviser. Applicants assert that these 
circumstances do not exist in the present case.

Applicants' Condition

    Applicants agree that the order granting the requested relief will 
be subject to following condition:
    If, within three years of the completion of the Transaction, it 
becomes necessary to replace any director of the Company, that director 
will be replaced by a director who is not an ``interested person'' of 
NACM within the meaning of section 2(a)(19)(B) of the Act, unless at 
least 75% of the directors at that time, after giving effect to the 
order granted pursuant to the application, are not interested persons 
of NACM for purposes of section 15(f) of the Act. This condition will 
not: (a) preclude replacement with or addition of a director who is an 
interested person of NACM solely by reason of being an affiliated 
person of a broker or dealer, provided that such broker or dealer is 
not an affiliated person of NACM, or (b) require replacement of a 
director if a change in the director's circumstances causes him to 
become an interested person of NACM solely by reason of becoming an 
affiliated person of a broker or dealer, provided that such broker or 
dealer is not an affiliated person of NACM.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-1191 Filed 1-12-01; 8:45 am]
BILLING CODE 8010-01-M