[Federal Register Volume 66, Number 45 (Wednesday, March 7, 2001)]
[Notices]
[Pages 13813-13815]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5538]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-24881; 812-12266]
ING Pilgrim Investments, LLC, et al.; Notice of Application
February 28, 2001.
Agency: Securities and Exchange Commission (``Commission'').
Action: Notice of application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
18(c) and 18(i) of the Act, under sections 6(c) and 23(c)(3) of the Act
for an exemption from rule 23c-3 under the Act, and pursuant to section
17(d) of the Act and rule 17d-1 under the Act.
-----------------------------------------------------------------------
Summary of Application: Applicants request on order to permit certain
registered closed-end management investment companies to issue multiple
classes of shares and to impose asset-based distribution fees and early
withdrawal charges.
Applicants: Pilgrim Senior Income Fund (``Fund''), ING Pilgrim
Investments, LLC (``Investment Adviser''), and ING Pilgrim Securities,
Inc. (``ING Pilgrim Securities'').
Filing Dates: The application was filed on September 25, 2000 and
amended on February 28, 2001.
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 March 26, 2001, 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, 7337 East Doubletree Ranch Road, Scottsdale,
Arizona, 85258.
[[Page 13814]]
For Further Information Contact: Keith A. Gregory, Attorney-Adviser, at
(202) 942-0611, 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 20549-0101, (202) 942-8090.
Applicants' Representations:
1. The Fund is a closed-end management investment company
registered under the Act and organized as a Delaware business trust.
The Investment Adviser is registered as an investment adviser under the
Investment6 Advisers Act of 1940 and will serve as investment adviser
to the Fund. ING Pilgrim Securities, a broker-dealer registered under
the Securities Exchange Act of 1934, will distribute the Fund's shares.
The Investment Adviser and ING Pilgrim Securities are both indirect,
wholly-owned subsidiaries of ING Groep N.V. Applicants request that the
order also apply to any other registered closed-end management
investment company that may be organized in the future for which the
Investment Adviser, or any entity controlling, controlled by, or under
common control with the Investment Adviser acts as principal
underwriter or investment adviser and which operates as an interval
fund pursuant to rule 23c-3 under the Act.\1\
---------------------------------------------------------------------------
\1\ Any registered closed-end management investment company
relying on this relief in the future will do so in a manner
consistent with the terms and conditions of the application.
Applicants represent that each entity presently intending to rely on
the requested relief is listed as an applicant.
---------------------------------------------------------------------------
2. The Fund's investment objective is to provide a high level of
monthly income. The Fund investment primarily in floating rate secured
senior loans made by commercial banks, investment banks, finance
companies and other lenders only to corporations or other business
entities organized under U.S. laws or located in the U.S. (``Senior
Loans''). Under normal circumstances, at least 80% of the Fund's total
assets are invested in Senior Loans. The Fund may also invest up to 20%
of its total assets in unsecured loans; subordinated loans; corporate
debt securities; equity securities; and loans made to, or debt
securities issued by, corporations or other business entities organized
or located outside the U.S. Under normal circumstances, the Fund may
also invest up to 10% of its total assets in cash and short-term
instruments.
3. The Fund intends to continuously offer its shares to the public
at net asset value, plus any applicable sales charges. The Funds shares
will not be offered or traded in the secondary market and will not be
listed on any exchange or quoted on any quotation medium. The Fund
intends to operate as an ``interval fund'' pursuant to rule 23c-3 under
the Act and to make quarterly repurchase offers to its shareholders.
4. The Fund seeks the flexibility to be structured as a multiple-
class fund and currently intends to offer four classes of shares. The
Fund will offer Class B shares at net asset value without a front-end
sales charge, but subject to an early withdrawal charge (``EWC'') on
shares that are repurchased by the Fund within five years of the date
of purchase. The Fund will offer Class C shares at net asset value
without a front-end sales charge, but subject to an EWC on shares that
are repurchased by the Fund within one year of the date of purchase.
The Fund will also offer Class A and Class Q shares at net asset value
without a front-end sales charge, and without a distribution fee or an
EWC. Class A shares will only be available to investors upon the
automatic conversion of Class B shares eight years after date of
purchase or through exchange of Class A shares of certain other Pilgrim
funds. Class A, Class B, Class C, and Class Q shares will be subject to
an annual service fee of up to 0.25% of average daily net assets. Class
B and Class C shares will be subject to an annual distribution fee of
up to 0.75% of average daily net assets. Applicants represent that
these service fees and asset-based distribution fees will comply with
the provision of rule 2830(d) of the Conduct Rules of the National
Association of Securities Dealers, Inc. (``NASD Sales Charge Rule'').
The Fund may in the future offer additional classes of shares with a
front-end sales charge, an EWC, and/or asset-based service or
distribution fees. Applicants also represent that the Fund will
disclose in its prospectus, the fees, expenses and other
characteristics of each class of shares offered for sale by the
prospectus, as is required for open-end multi-class funds under Form N-
1A.
5. All expenses incurred by the Fund will be allocated among the
various classes of shares based on the net assets of the Fund
attributable to each class, except that the net asset value and
expenses of each class will reflect distribution fees, service fees,
and any other incremental expenses of that class. Expenses of the Fund
allocated to a particular class of shares will be borne on a pro rata
basis by each outstanding share of that class. The Fund may create
additional classes of shares in the future that may have different
terms from Class A, Class B, Class C and Class Q shares. Applicants
state that the Fund will comply with the provisions of rule 18f-3 under
the Act as if it were an open-end investment company.
6. The Fund may waive the EWC for certain categories of
shareholders or transactions to be established from time to time. With
respect to any waiver of, scheduled variation in, or elimination of the
EWC, the Fund will comply with rule 22d-1 under the Act as if the Fund
were an open-end investment company.
7. The Fund may offer its shareholders an exchange feature under
which shareholders of the Fund may, during the Fund's quarterly
repurchase periods, exchange their shares for shares of the same class
of other registered open-end investment companies or registered closed-
end investment companies that comply with rule 23c-3 under the Act and
continuously offer their shares at net asset value, and that are in the
Pilgrim group of investment companies. Fund shares so exchanged will
count as part of the repurchase offer amount as specified in rule 23c-3
under the Act. Any exchange option will comply with rule 11a-3 under
the Act as if the Fund were an open-end investment company subject to
that rule. In complying with rule 11a-3, the Fund will treat the EWCs
as if they were a contingent deferred sales charge (``CDSC'').
Applicants' Legal Analysis
Multiple Classes of Shares
1. Section 18(c) of the Act provides, in relevant part, that a
closed-end investment company may not issue or sell any senior security
if, immediately thereafter, the company has outstanding more than one
class of senior security. Applicants state that the creation of
multiple classes of shares of the Fund may be prohibited by section
18(c).
2. Section 18(i) of the Act provides that each share of stock
issued by a registered management investment company will be a voting
stock and have equal voting rights with every other outstanding voting
stock. Applicants state that multiple classes of shares of the Fund may
violate section 18(i) of the Act because each class would be entitled
to exclusive voting rights with respect to matters solely related to
that class.
3. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction from any
[[Page 13815]]
provision of the Act, if and to the extent that 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. Applicants request an exemption under
section 6(c) from sections 18(c) and 18(i) to permit the Fund to issue
multiple classes of shares.
4. Applicants submit that the proposed allocation of expenses and
voting rights among multiple classes is equitable and will not
discriminate against any group or class of shareholders. Applicants
submit that the proposed arrangements would permit the Fund to
facilitate the distribution of its securities and provide investors
with a broader choice of shareholder services. Applicants assert that
their proposal does not raise the concerns underlying section 18 of the
Act to any greater degree than open-end investment companies' multiple
class structures that are permitted by rule 18f-3 under the Act.
Applicants state that the Fund will comply with the provisions of rule
18f-3 as if it were an open-end investment company.
Early Withdrawal Charges
5. Section 23(c) of the Act provides, in relevant part, that no
registered closed-end investment company will purchase securities of
which it is the issuer, except: (i) On a securities exchange or other
open market; (ii) pursuant to tenders, after reasonable opportunity to
submit tenders given to all holders of securities of the class to be
purchased; or (iii) under other circumstances as the Commission may
permit by rules and regulations or orders for the protection of
investors.
6. Rule 23c-3 under the Act permits a registered closed-end
investment company (an ``interval fund'') to make repurchase offers of
between five and twenty-five percent of its outstanding shares at net
asset value at periodic intervals pursuant to a fundamental policy of
the interval fund. Rule 23c-3(b)(1) under the Act provides that an
interval fund may deduct from repurchase proceeds only a repurchase
fee, not to exceed two percent of the proceeds, that is reasonably
intended to compensate the fund for expenses directly related to the
repurchase.
7. Section 23(c)(3) provides that the Commission may issue an order
that would permit a closed-end investment company to repurchase its
shares in circumstances in which the repurchase is made in a manner or
on a basis that does not unfairly discriminate against any holders of
the class or classes of securities to be purchased. As noted above,
section 6(c) provides that the Commission may exempt any person,
security or transaction from any provision of the Act, if and to the
extent that the 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.
Applicants request relief under sections 6(c) and 23(c) from rule 23c-3
to permit them to impose EWCs on shares submitted for repurchase that
have been held for less than a specified period.
8. Applicants believe that the requested relief meets the standards
of sections 6(c) and 23(c)(3). Rule 6c-10 under the Act permits open-
end investment companies to impose CDSCs, subject to certain
conditions. Applicants state that EWCs are functionally similar to
CDSCs imposed by open-end investment companies under rule 6c-10.
Applicants state that EWCs may be necessary for the Investment Adviser
to recover distribution costs. Applicants will comply with rule 6c-10
as if that rule applied to closed-end investment companies. The Fund
also will disclose EWCs in accordance with the requirements of Form N-
IA concerning CDSCs. Applicants further state that the Fund will apply
the EWC (and any waivers or scheduled variations of the EWC) uniformly
to all shareholders in a given class and consistently with the
requirements of rule 22d-1 under the Act.
Asset-Based Distribution Fees
9. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company or an
affiliated person of such person, acting as principal, from
participating in or effecting any transaction in connection with any
joint enterprise or joint arrangement in which the investment company
participates unless the Commission issues an order permitting the
transaction. In reviewing applications submitted under section 17(d)
and rule 17d-1, the Commission considers whether the participation of
the investment company in a joint enterprise or joint arrangement is
consistent with the provisions, policies and purposes of the Act, and
the extent to which the participation is on a basis different from or
less advantageous than that of other participants.
10. Rule 17d-3 under the Act provides an exemption from section
17(d) and rule 17d-1 to permit open-end investment companies to enter
into distribution arrangements pursuant to rule 12b-1 under the Act.
Applicants request an order under section 17(d) and rule 17d-1 under
the Act to permit the Fund to impose asset-based distribution fees.
Applicants have agreed to comply with rules 12b-1 and 17d-3 as if those
rules applied to closed-end investment companies.
Applicants' Condition
Applicants agree that any order granting the requested relief will
be subject to the following condition:
Applicants will comply with the provisions of rules 6c-10, 11a-3,
12b-1, 17d-3, 18f-3, and 22d-1 under the Act, as amended from time to
time, as if those rules applied to closed-end management investment
companies, and will comply with the NASD Sales Charge Rule, as amended
from time to time.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-5538 Filed 3-6-01; 8:45 am]
BILLING CODE 8010-01-M