Document ID: SEC-2017-0908-0001
Agency: sec
Document Type: Notice
Title: Applications: PIMCO Equity Series, et al.
Posted Date: 2017-06-01T04:00Z

[Federal Register Volume 82, Number 104 (Thursday, June 1, 2017)]
[Notices]
[Pages 25467-25469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11242]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32661; 812-14715]

PIMCO Equity Series, et al.

May 25, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 
under the Act, under sections 6(c) and 17(b) of the Act for an 
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under 
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 
12(d)(1)(B) of the Act. The requested order would permit (a) index-
based series of certain open-end management investment companies 
(``Funds'') to issue shares redeemable in large aggregations 
(``Creation Units''); (b) secondary market transactions in Fund shares 
to occur at negotiated market prices rather than at net asset value 
(``NAV''); (c) certain Funds to pay redemption proceeds, under certain 
circumstances, more than seven days after the tender of shares for 
redemption; (d) certain affiliated persons of a Fund to deposit 
securities into, and receive securities from, the Fund in connection 
with the purchase and redemption of Creation Units; (e) certain 
registered management investment companies and unit investment trusts 
outside of the same group of investment companies as the Funds (``Funds 
of Funds'') to acquire shares of the Funds; (f) certain Funds (``Feeder 
Funds'') to create and redeem Creation Units in-kind in a master-feeder 
structure; and (g) certain Funds to issue shares in less than Creation 
Unit size to investors participating in a distribution reinvestment 
program.

Applicants: PIMCO Equity Series (the ``Trust''), a Delaware statutory 
trust that is registered under the Act as an open-end management 
investment company with multiple series, Pacific Investment Management 
Company LLC (the ``Initial Adviser''), a Delaware limited liability 
company registered as an investment adviser under the Investment 
Advisers Act of 1940, and PIMCO Investments LLC (the ``Distributor''), 
a Delaware limited liability company and broker-dealer registered under 
the Securities Exchange Act of 1934 (``Exchange Act'').\1\
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    \1\ The Initial Adviser has previously received exemptive relief 
from the Commission permitting it to operate ETFs (defined below) 
that track fixed income securities indexes created by an 
unaffiliated index provider. See Pacific Investment Management 
Company LLC, et al., Investment Company Act Release Nos. 28723 (May 
11, 2009) (notice) and 28752 (Jun. 1, 2009) (order) (``Existing 
Relief''). No Fund relying on the requested order will rely on the 
Existing Relief.

Filing Dates: The application was filed on November 18, 2016 and 
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amended on March 13, 2017, May 2, 2017 and May 25, 2017.

Hearing or Notification of Hearing: An order granting the requested 
relief 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 June 19, 2017, and should be accompanied by proof of 
service on applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, 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, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090; Applicants: Joshua D. Ratner, Esq., 
Pacific Investment Management Company LLC, 650 Newport Center Drive, 
Newport Beach, CA 92660 and Douglas P. Dick, Esq., Dechert LLP, 1900 K 
Street NW., Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, 
at (202) 551-6990, or Robert H. Shapiro, Branch Chief, at (202) 551-
6821 (Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application

[[Page 25468]]

may be obtained via the Commission's Web site by searching for the file 
number, or for an applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Summary of the Application

    1. Applicants request an order that would allow Funds to operate as 
index exchange traded funds (``ETFs'').\2\ Fund shares will be 
purchased and redeemed at their NAV in Creation Units (other than 
pursuant to a distribution reinvestment program), as described in the 
application. All orders to purchase Creation Units and all redemption 
requests will be placed by or through an ``Authorized Participant'', 
which will have signed a participant agreement with the Distributor. 
Shares will be listed and traded individually on a national securities 
exchange, where share prices will be based on the current bid/offer 
market. Certain Funds may operate as Feeder Funds in a master-feeder 
structure. Any order granting the requested relief would be subject to 
the terms and conditions stated in the application.
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    \2\ Applicants request that the ETFs (i) track a specified index 
(``Underlying Index'') comprised of domestic and/or foreign equity 
securities (``Equity Funds'') for which a third party that is not an 
``affiliated person'' (as such term is defined in section 2(a)(3) of 
the Act), or an affiliated person of an affiliated person, of the 
Trust, the Adviser, any Sub-Adviser, the Distributor or a promoter 
of the Fund will serve as the index provider (each, an ``Equity 
Index-Based Fund''), (ii) track a specified index for which an 
``affiliated person,'' as defined in section 2(a)(3) of the Act, or 
an affiliated person of an affiliated person of the Trust or a Fund, 
of the Adviser, any Sub-Adviser, the Distributor or a promoter of a 
Fund will serve as the index provider (each, a ``Self-Indexing 
Fund''), or (iii) operate as a Feeder Fund pursuant to the Master-
Feeder Relief described in the application.
    Applicants request that the order apply to new series of the 
Trust, and any additional series of the Trust, and any other 
existing or future open-end management investment company or 
existing or future series thereof (each, included in the term 
``Fund''), that operate as (i) Equity Index-Based Funds, and their 
respective existing or future Master Funds, (ii) Self-Indexing Funds 
that are Equity Funds, and their respective existing or future 
Master Funds, or Self-Indexing Funds that track a specified index 
comprised of domestic and/or foreign fixed income securities 
(``Fixed Income Funds''), and their respective existing or future 
Master Funds, and (iii) Feeder Funds, which may be Equity Funds or 
Fixed Income Funds, pursuant to the Master-Feeder Relief. Any Fund 
will (a) be advised by the Initial Adviser or an entity controlling, 
controlled by, or under common control with the Initial Adviser 
(each, an ``Adviser'') and (b) comply with the terms and conditions 
of the application.
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    2. Each Fund will hold investment positions selected to correspond 
closely to the performance of an Underlying Index. In the case of Self-
Indexing Funds, an affiliated person, as defined in section 2(a)(3) of 
the Act (``Affiliated Person''), or an affiliated person of an 
Affiliated Person (``Second-Tier Affiliate''), of the Trust or a Fund, 
of the Adviser, of any sub-adviser, the Distributor or a promoter of a 
Fund will compile, create, sponsor or maintain the Underlying Index.\3\
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    \3\ Each Self-Indexing Fund will post on its Web site the 
identities and quantities of the investment positions that will form 
the basis for the Fund's calculation of its NAV at the end of the 
day. Applicants believe that requiring Self-Indexing Funds to 
maintain full portfolio transparency will help address, together 
with other protections, conflicts of interest with respect to such 
Funds.
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    3. Shares will be purchased and redeemed in Creation Units and 
generally on an in-kind basis, or issued in less than Creation Unit 
size to investors participating in a distribution reinvestment program. 
Except where the purchase or redemption will include cash under the 
limited circumstances specified in the application, purchasers will be 
required to purchase Creation Units by depositing specified instruments 
(``Deposit Instruments''), and shareholders redeeming their shares will 
receive specified instruments (``Redemption Instruments''). The Deposit 
Instruments and the Redemption Instruments will each correspond pro 
rata to the positions in the Fund's portfolio (including cash 
positions) except as specified in the application.
    4. Because shares will not be individually redeemable, applicants 
request an exemption from section 5(a)(1) and section 2(a)(32) of the 
Act that would permit the Funds to register as open-end management 
investment companies and issue shares that are redeemable in Creation 
Units (other than pursuant to a dividend reinvestment program).
    5. Applicants also request an exemption from section 22(d) of the 
Act and rule 22c-1 under the Act as secondary market trading in shares 
will take place at negotiated prices, not at a current offering price 
described in a Fund's prospectus, and not at a price based on NAV. 
Applicants state that (a) secondary market trading in shares does not 
involve a Fund as a party and will not result in dilution of an 
investment in shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants represent that share market prices will 
be disciplined by arbitrage opportunities, which should prevent shares 
from trading at a material discount or premium from NAV.
    6. With respect to Funds that effect creations and redemptions of 
Creation Units in-kind and that are based on certain Underlying Indexes 
that include foreign securities, applicants request relief from the 
requirement imposed by section 22(e) in order to allow such Funds to 
pay redemption proceeds within fifteen calendar days following the 
tender of Creation Units for redemption. Applicants assert that the 
requested relief would not be inconsistent with the spirit and intent 
of section 22(e) to prevent unreasonable, undisclosed or unforeseen 
delays in the actual payment of redemption proceeds.
    7. Applicants request an exemption to permit Funds of Funds to 
acquire Fund shares beyond the limits of section 12(d)(1)(A) of the 
Act; and the Funds, and any principal underwriter for the Funds, and/or 
any broker or dealer registered under the Exchange Act, to sell shares 
to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act. 
The application's terms and conditions are designed to, among other 
things, help prevent any potential (i) undue influence over a Fund 
through control or voting power, or in connection with certain 
services, transactions, and underwritings, (ii) excessive layering of 
fees, and (iii) overly complex fund structures, which are the concerns 
underlying the limits in sections 12(d)(1)(A) and (B) of the Act.
    8. Applicants request an exemption from sections 17(a)(1) and 
17(a)(2) of the Act to permit persons that are Affiliated Persons, or 
Second-Tier Affiliates, of the Funds, solely by virtue of certain 
ownership interests, to effectuate purchases and redemptions in-kind. 
The deposit procedures for in-kind purchases of Creation Units and the 
redemption procedures for in-kind redemptions of Creation Units will be 
the same for all purchases and redemptions and Deposit Instruments and 
Redemption Instruments will be valued in the same manner as those 
investment positions currently held by the Funds. Applicants also seek 
relief from the prohibitions on affiliated transactions in section 
17(a) to permit a Fund to sell its shares to and redeem its shares from 
a Fund of Funds, and to engage in the accompanying in-kind transactions 
with the Fund of Funds.\4\

[[Page 25469]]

The purchase of Creation Units by a Fund of Funds directly from a Fund 
will be accomplished in accordance with the policies of the Fund of 
Funds and will be based on the NAVs of the Funds.
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    \4\ The requested relief would apply to direct sales of shares 
in Creation Units by a Fund to a Fund of Funds and redemptions of 
those shares. Applicants, moreover, are not seeking relief from 
section 17(a) for, and the requested relief will not apply to, 
transactions where a Fund could be deemed an Affiliated Person, or a 
Second-Tier Affiliate, of a Fund of Funds because an Adviser or an 
entity controlling, controlled by or under common control with an 
Adviser provides investment advisory services to that Fund of Funds.
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    9. Applicants also request relief to permit a Feeder Fund to 
acquire shares of another registered investment company managed by the 
Adviser having substantially the same investment objectives as the 
Feeder Fund (``Master Fund'') beyond the limitations in section 
12(d)(1)(A) and permit the Master Fund, and any principal underwriter 
for the Master Fund, to sell shares of the Master Fund to the Feeder 
Fund beyond the limitations in section 12(d)(1)(B).
    10. Section 6(c) of the Act permits the Commission to exempt any 
persons or transactions from any provision 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. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors. 
Section 17(b) of the Act authorizes the Commission to grant an order 
permitting a transaction otherwise prohibited by section 17(a) if it 
finds that (a) the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11242 Filed 5-31-17; 8:45 am]
BILLING CODE 8011-01-P