OF THE OFFICE OF CHIEF COUNSEL

RESPONSE

DIVISION

OF THE OFFICE OF CHIEF COUNSEL

OF INVESTMENT MANAGEMENT

[Pub. Avail.: Oct. 8, 1996]

Our Ref No 96-259-CC

Pilgrim America Group Inc

File No 132-3

Your letter of May20 1996 requests 4ur assurance that we

would

to qhe Commission under

not recommend enforcement action

section

15a of the Investment Company Act of 1940 the

Act

if Pilgrim .Ameri4a Group Inc

pledges all of the outtanding voting

securities of its wholly owned subsidiary Pilgrim America

without obtaining approval of new

Investments Inc

contracts by the shareholders of the Pilgrim America

advisory

Group of Funds the

Investment

Company

Pilgrim AmericaTM

PAl

Funds

PAl serves as investment adviser to the Funds

Pilgrim

America and its affiliates have entered into

credit agreement

the Credit Agreement with First Bank Ntional Association

the

under which the Bank will loan funds to Pilgrim

America and its affiliates

for the loan

1/

As co11atexal

the Pledge

Pilgrim America will pursuant to

pledge agreement

Agreement pledge to the Bank all of the outstanding voting

with the Pledge

securities of PAl

You state that in accordance

Agreement the Bank would take possession of the certificates

PAls voting securities in order to perfect the

representing

Banks security interest in those securities You also state

however that Pilgrim America would retain all voting and other

rights with respect to the securities and the Pledge Agreement

would give the Bank no authority to take part in or influence

the management

of PAl or the Funds

Bank

Section 15a

of the Investment

Company Act states that

an investment advisory contract with

registred investment

for its automatic termination

company must provide in substance

in the event of its assignment

Section

of the

Investment

Company Act defines assignment to include

any

direct or indirect transfer or hypothecation

of

contract

or

chose in action by the assignor or of

controlling block of the

assignors outstanding voting securities by

security holder of

2a

The proceeds of the Credit Agreement will be used

other purposes

to finance the distribution of certain

shares of certain open-end Funds

You

2/

America

among

classes

state that the Pledge Agreement provides that Pilgrim

must not exercise or refrain from exercising any voting

rights if such action could reasonably be expected to have

material

adverse effect on the value of PAls securities

See

infra note

of

-2Rule 2a-6 under the Investment

the-assignor

Company Act

safe harbor from the definition of assignment for

provides

that does not result in

change of actual

any transaction

control or management

of the investment adviser to an investment

company

You maintain that Pilgrim Americas pledge of PAls

securities should not be considered

of

hypothecation

within

block of voting securities

the meaning of

controlling

result

in

section

and thus should not

an assignment

You also

triggering the application of section 15

maintain

if

the

is

considered

hypothecation

that even

pledge

of voting

the

is

not

securities

an assignment under rule

pledge

2a-6 because

it will not result

in any change

of actual

control

of PAl

or management

In enacting

the Investment

Company Act

Congress

found that the national public interest and the

specifically

interest of investors are adversely affected

when

control or

is

without

of investment companies

transferred

management

their

Section

was

the

consent of

15a

security holders 3/

intended to prevent such trafficking in investment advisory

contracts

Consistent with the purpose of section 15a

section

includes in the definition of assignment

transfers or hypothecations of

controlling block of the

transactions

that presumably would

assignors voting securities

transfer to another person the ability to control or manage an

investment adviser

2a

To

determine whether

there has been

transfer or

block

of

securities

for purposes

hypothecation

controlling

of section

it is necessary to look to section

of

the Investment

defines

the

control as

Company Act ./ which

ability to exercise

controlling influence over the management

or policies of

company and presumes such control when

person

owns more than 25s of

beneficially

companys voting securities

The definition of assignment in section

does not

include

in

however

fl changes

control but only those involving

the

transfer or hypothecation

of

controlling block of voting

of

2a

2a

2a

Section

./

declaration

1b

of

of

the

Investment

Company Act

findings

and

policy

3580 before

of the Senate Comm on

Hearings

on

Subcornm

and

76th

3d

Sess

253

Banking

1940 statement

Currency

Cong

of David

Schenker

4/

See

See Dean Witter

also Wiliheim

cert

denied

382

Discover

Co

pub avail Feb

Murchison

342

F.2d

U.S

840

1965

33

37-39

2d

1993

Cir

-3securities

in determining

The relevant inquiry then

6/

is

there has been such

transfer or hypothecation

the

result of the

transferee or pledgee has as

sufficient voting

interest to enable

transaction assumed

or

person to exercise the ability to direct the management

policies of the adviser 1/

whether

whether

In

the

transactiondescribed

letter

in your

the

pledge

the

of

PAls securities is not accompanied by the right to vote those

shares 8/

transfer of voting

In the absence of

rights

pledge of securities ordinarily cannot be

within the meaning of section

assignment

considered

2a

an

Based on the facts

and representations in your letter

particularly your representations that Pilgrim America would

retain all voting and other rights with respect to the

securities and that the Pledge Agreement would give the Bank no

of PAl or

the management

authority to take part in or influence

the

Funds we would not recommend that the Commission take any

enforcement

action under section 15a if Pilgrim America pledges

Wiliheim

Murchison

342

F.2d at

40

This analysis is consistent with the legislative history of

the transfer or

the Investment

Company Act because without

of such

hypothecation

voting interest the abuses Congress

cannot occur

sought to prevent through section 15a

that the provision of the Pledge Agreement

right

Pilgrim America must not exercise any voting

manner as to have

material adverse effect on the

PAls voting securities will not limit significantly

Pilgrim Americas voting rights because it generally will be in

Pilgrim Americas best interests not to take any actions that

You also

would

adversely affect the value of PAls securities

state that although under the Pledge Agreement the Bank has the

default to cause the

right at any time even in the absence of

certificates

PAls voting securities to be

representing

transferred

of record into the name of the Bank or its nominee

this would not affect any of the rights retained by Pilgrim

America with respect to those securities

../

You

assert

providi.ig

in such

value

of

that

the Bank would have

the

In the

event of

default however

right under the Pledge Agreement to sell the securities of PAT

that the Bank holds as collateral

and could exercise all voting

The default would result

rights with respect to the securities

therefore in an assignment of PAls investment advisory

contracts

within the meaning of section

9/

-4PAI..s

securities without obtaining shareholder approval

You should note that different facts or representations might

different conclusion

require

Aot JaM

Sarah

WagntÆn

Attorney

10/

See

Management

Funds

Inc

Corporation

pub avail Aug 12

pub avail Sept

Because

we do not consider the pledge

within the meaning of section

assignment

it necessary

to analyze your request under

1976 Wall

1974

to

Street

constitute

we

rule

2a-6

do

an

not

find

LAW OFFICES

477

MADISON

OF

DECHERT PRICE

AVENUE

RHOADS

TEN

NEW YORK NY 10022-5891

212

1500

AUANTIC TOWER

ARCH STREET

4000 BELL

1717

PA

P1-IILAEELPHIA

POST

N.W

STREET

617

DC 20005-1208

WASHINGTON

90

19103-2793

TELEPHONE

202

626-3300

PRINCETON

PA

STATE

FAX 202

17101-1603

HOUSE

SQUARE

LOUISE

BELGIUM

32-2 S35-5411

1050

BRUSSELS

626-3334

237-2000

TITMUSS

SAINER

DECHERT

SERJEANTS INN

LONDON EC4Y 1LT ENGLAND

CORPORATE

CENTER

P.O BOX 5218

PRINCETON

NJ 08543-5218

609 520-3200

PIKE

583-5353

44-171

151

BOULEVARD

HAU5SMMN

PARIS FRANCE

33-1 53 83 84 70

75008

2a4 and 15a

Sections

of the

Investment

Company Act

1940 and Rule

May 20

Jack

Associate

Murphy

of

2a-6 thereunder

1996

Director and

Chief Counsel

Division

of

450

Investment

and Exchange

Securities

D.C

Re

Dear

Management

Commission

N.W

Fifth Street

Washington

20549

Advisory Contracts

of Investment

Assignment

Mr Murphy

On behalf

Investments

America

Inc

Group

of

America

Pilgrim

Investment

the

Funds the

of

Group

Manager

Inc

Pilgrim

and the

America

investment

Pilgrim

companies

in

America

the

Funds we are writing to seek assurance that the

Pilgrim

staff

of

The open-end

Funds currently consist of Pilgrim America MagnaCap Fund Pilgrim

America High Yield Fund Pilgrim Government Securities Income Fund Inc Pilgrim

America Masters Asia-Pacific Equity Fund Pilgrim America Masters MidCap Value

Fund

and

as the

Open-End

Pilgrim

MagnaCap

Pilgrim

Value

SOIffl-f

728-7100

AVENUE

65

NORTH THIJW SflEEf

HARRISBURG

717

SQUARE

HARTFORD Cr 06103-3702

860 524-3999

215 994-4000

il-IIRTY

OFFICE

BOSTON MA 02109-4603

326-3500

Fund

America Masters

Funds

are

each

America Masters

Fund

and

Pilgrim

LargeCap Value Fund collectively referred to

Pilgrim America High Yield Fund and Pilgrim America

series

of

Asia-Pacific

Pilgrim

Equity

America Masters

America

Investment

Funds

Inc and

Fund Pilgrim America Masters MidCap

LargeCap Value

Fund

are

each

series

of

continued..

Jack

Murphy Esq

May 20

1996

Page2

the

of Investment

Division

Commission under Section

if

in

America pledges

Pilgrim

connection

National

Credit

in

credit

enforcement

action

to the

15a of the Investment Company Act of 1940 the 1940 Act

of the

all

securities

outstanding voting

agreement and

certain

of the Investment

agreements between

related

Manager

Bank

First

the Bank and Pilgrim America dated as of April 28 1995 the

Agreement The proieeds of the Credit Agreement will be used among other

Association

to

finance

the

distribution

of

certain

the

Pilgrim

America Group

of

Funds the

purposes

funds

with

not recommend

would

Management

classes

of

shares

each

of

of

the

open-end

organized

as

Delaware

Funds

Open-End

Introduction

America

Pilgrim

and

corporations

investment

Investment

the

The Investment

Manager

Manager

are

as investment

serves

each

of the Funds

to each

manager

the Investment

Management

The Investment Management Agreements for Pilgrim America MagnaCap

Agreements

Fund Pilgrim America High Yield Fund and Pilgrim Government Securities Income Fund

to

pursuant

management

agreements

Inc

the Elite Series were approved

by shareholders of each of the Elite Series funds at

held

1995

The

Investment

on April

meetings

Management

Agreement for Pilgrim

America Masters

and

Pilgrim

Asia-Pacific

th Masters

of

America Masters MidCap Value Fund

Fund the Masters Series was approved

Pilgrim

LargeCap Value

sole shareholder of each

by the

Fund

Equity

America Masters

funds by written

Series

on June

consent

27

1995

The Investment

turn

owned

the

company

services

business

Investment

of

the

America

of

Pilgrim

Distributor

Pilgrim

Group

Management

of

of which

Through

primarily

Manager

close

wholly owned

is

subsidiary

shares

Express America

as

Manager

wholly owned

is

began

the

management

serving

America

the

Investment

Distributor

to

Inc

affiliates

Corporation

1995

the

and distribution

the

subsidiary

in

Manager

and

Corporation

of investment

with

Funds of certain

Acquisition

of Pilgrim

the

Pilgrim

Prior

publicly

the

in

in

System

financial

companies

The

of the Elite Series

funds

acquisition

America

of the

to

which

National Market

for each

connection

Manager

Open-End

NASDAQ

America

Express America engages

as Investment

on April

its

traded on the

subsidiaries

its

business

and

Express

are

of Pilgrim

subsidiary

America Holdings

Securities

Inc

of the

former

Acquisition

Pilgrim

as investment

adviser

assets

the

Group Inc served

by Express

...continued

America Masters

Pilgrim

Pilgrim

Series Inc

America Group of Funds are

Bank and Thrift Fund Inc

America

Funds

The

closed-end

investment

companies in the

Pilgrim America Prime Rate Trust and Pilgrim

collectively

referred

to

as

the

Closed-End

Jack

Murphy Esq

20

May

1996

Page3

Funds

to the

not

each

and

6c-10

Fund has implemented

Bank whereby the Bank

sale of certain

the

America

Pilgrim

Investment

and

Management

no-action

and

the

the

that

purpose

to cause

default

nominee

although

the

would

not

Pilgrim

Manager

respect

refrain

from exercising

any voting

adverse

on the

Under

offered

sold

the

subject

front-end

In

that

security

Open-end

Class

to

the

agreement

this

right at

Pilgrim

15a

Section

this

voting

would

to the

Bank

for the

for purposes

of the

any

time

even in the absence

name of the Bank

voting

could

reasonably

systems

America

must

three

sales charge

and Class

also

not

have

to

with

or

to have

material

shares are

of

shares are

Class

shares

on Class

or

rights

or any

classes

of

exercise

be expected

securities

Manager

imposed

respect

other consensual

America

that

with

rights

but Pilgrim

front-end

and

by

with

securities

all

pricing

than

Agreements

Board of

the

securities

and

multi-class

less

the

under

the

Pilgrim Americas

sold

is

of

America would submit

of

action

with

Manager

Management

of the

of record into the

Investment

of the

America

securities

an assignment

Agreements

Manager

deferred sales charge

that

Bank

if

rights

are

any

retain

securities

value

contingent

sales charge

regard

will

Funds

shares

affect

agreement

Bank would merely hold the

loan

Pilgrim America

interest in

the

lending

for the

to be transferred

Investment

effect

the

collateral

has

the

issue

this

security

the

the Investment

that Pilgrim

the

of the Credit

of

pledge

accordance

the

financing

terms for Pilgrim

Investment

Management

Fund in

Investment

the

The Bank

to

material

as

Banks

America

securities

the

Pledge Agreement

certificates

compliance

pledge of all of the

to

pursuant

Funds and

the

views on

staffs

the

this

regarding

structure

each

of

Manager

Uniform Commercial Code.3

the

negotiation

the

might be deemed

this

between

Investment

representing

of perfecting

the

has not yet pledged

Pilgrim America agreed

Investment

certificates

Agreement with

favorable

most

Bank

of the

shareholders

terms of the

the

of the

Credit

the

During

Manager

the

provide

of concern

new

Bank and

the

Under

these

options

Investment

the

Agreements

request seeking

securities

its

various

consent

of

approval

require

Consequently

sole

the

into

entered

2a4 An assignment would terminate

Directors/Trustees

deliver

of

because

Manager

Investment

Section

with

system

among other things that Pilgrim Americas

would

Agreement

Pledge

have

Funds shares

Open-End

securities

voting

in

pricing

funds to be used for among other purposes

considered

and concluded

arrangements

outstanding

parties

multiple-class

1940 Act.2

the

affiliates

its

lend

will

classes of the

the

Agreement

under

18f-3

America and

Pilgrim

are

Corporation

other

Each Open-End

with Rules

and Pilgrim Management

Inc

America Investments

Pilgrim

with

affiliated

are

sold

with

shares

entered

into

related

Jack

Murphy Esq

May 20

1996

Page4

The Pledge Agreement

thereof

part

solely to protect

does

Agreement

interest in the

its

not

Investment

Manager

Managers

voting

to exercise

any other

In the

and

therefore

securities

event

Bank

the

grant

influence

of

authority

of the

Funds

to take

of default and does

the

the

certain

are

The Pledge

of the

management

Investment

the

in

rights

not grant

Bank any

the

of the Investment

or control

Bank would have

Bank

securities

in

part

no voting

confers

over the management

default

conferred on the

Manager

any

absence

the

in

the powers

states that

collateral

rights as specified

right

Manager

Credit

the

in

Agreement and the Pledge Agreement including the right to sell the Investment Manager

seurities

and to exercise all voting rights with respect to these securities

Our request for

no-action

default

of title

relief

Investment

Investment

Manager

securities

Act and

in

the

event

any

from

particular

Funds

or interpretive

However

the

promulgated

staff

of the

Commissions

multiple

class pricing

the

to issue guidance

recent

adoption

it

structures

with

below we believe

its

no-response

policy

of

Rules

and

would

c-1O

that

no longer

of Rule 2a-6

will

it

this

and

the

be extremely useful to the mutual

is

not the

that

in

type

light

proliferation

of

fund industry

for

issue

to this specific

respect

securities

We also believe

18f-3

the

Bank

Managers

regarding the application

requests

as discussed

1940

the

received

Presumably

of policy

matter

as

that

position

Fund

the

Investment

of shareholders of the

be deemed

2a4 of

each

unless

upon

rights

by the Bank

would

presumably

Agreements

Board and shareholders

its

its

or retention

Agreements under Section

to the

no-action

transaction

default

respect

its

exercises

securities

these

with

rights

announced

has

staff

of issue for which

staff

terminate

voting

prior approval

to routine

respond

would

after

Bank

the

Manager

Management

of this assignment

exercise

The

to

this

approval

would not

Investment

of the

which

prior to

period

sale of the

to the

without

the

to

In addition any

an assignment

prior

limited

is

Discussion

15a sets

Section

contract

advisory

investment

event

advisory

of its

assignment

of the

assignors

Pilgrim

Manager

the

registered

contract

could

is

contract

for

defined

in

Section

in

action

securities

by

its

in

automatic

2a4

by the

every investment

15a4 states that an

Section

company

substance

in

or chose

outstanding voting

Manager

Nevertheless

we believe

for purposes

of Section

in

investment

must be included

as

termination in the

any direct or indirect

assignor or of

controlling

holder of the

assignor

security

Americas pledge of all of the outstanding voting securities of the Investment

be deemed

of

block of the voting

securities of

hypothecation

controlling

Investment

not result

of

that

provisions

must provide

Assignment

or hypothecation

transfer

block

with

forth certain

any

change

and

that

thus

the

could

proposed

15a4 Since

of actual

result

in

an assignment

transaction

should

pledging the stock

control

or

management

under

Section

15a4

not be deemed an assignment

of the

of the

Investment

Investment

Manager

would

Manager

this

Jack

Murphy Esq

May 20

1996

Page5

pledge

would fall

Finally

the

proposed

Rule 2a-6 provides

of actual

control

not an assignment

time

certain

such

2a-6

not

investment

to

staff

engage

indicates

control

of corporate

statement

the

the

Pledge

block

within

investment

in

company

recognition

of voting

in

engage

which

--

of the adviser.4

management

the

structure

in

could

company

controlling

an assignment

as

in

the

may be

securities

Rule

Absent

the

meaning

advisory

contract

2a-6

of Section

with

the

that

the

Manager

Manager

as

controlling

the

the

structure

could

adviser

structure

--

Rule be Jimited solely to modifications

the

would

Rule

Rule

the

in

adcpting

constitute

was designed

to

release

that

an assignment

would be read

the

is

influence

not

to

include

this

encompass

more

terms

in

change

of actual

control

Under

would

merely

hold

voting

securities

result

Bank

for the

defined

loan and would

in

over the

Section

the

not have

2a9 of

management

the

Company Act Rel No

10809

Aug

1979

Re No

11005

Jan

1980

Company Act

of

of

company

proposing Rule

at

the

the

any control over the

1940 Act as the power

or policies

Id

Investment

would

structure

collateral

Control

investment

Commissions statement

the

demonstrating that

pledge would

Agreement

of corporate

of corporate

modifications

particularly

intend

an

that

and therefore

Manager

modifications

release

would not result in any

Rule 2a-6 primarily was intended

Although

addressed

that

securities

InvestmenL

of the

proposing

--

Moreover

further

the

Investment

pledge of the voting

management

of corporate

Investment

exercise

2a-6 was adopted

corporate

receiver

Investment

to

or

control

to

or management

Commission was concerned

that

modifications

the

or

proposed

Commission did not

actual

that

Further

of

control

automatically

transactions

type of transaction

than

of

positions

structure

transferring

indicates

indirect transfer

safe harbor of Rule

the

certain

that

the

no-action

Commissions

in

of

might be viewed

that

squarely within

codify

modifications

actual

to an investment

adviser

Rule

to an investment

adviser

not result

company.5

actual

in

the

terminating

We believe

fall

direct or

affect

15a4

of Section

particularly

transaction

2a4 thereby

change

--

to involve

would

but which

Of

For Purposes

does

that

transaction

investment

of the

or management

that

things

time an investment

transactions

considered

other

among

for purposes

to

An Assignment

15a4

Section

that

15a

Section

that

concerns

policy

Not Be Deemed

of Stock Should

The Pledge

is

of the

not raise any

would

pledge

Act

1940

the

by Rule 2a-6 under

provided

to address

was designed

change

the safe harbor

within

squarely

The

2a-6

Murphy Esq

Jack

1996

20

May

Page6

most important aspect of determining corporate control is the ability to elect

Since the Bank will have no voting rights with respect to the Investment

Manager

to

prior

and

default

shareholder approval

Investment

refrain

in

adverse

This

meaningful

any

Manager

way

would

is

it

voting

best

on

the

default

the

Bank

material

adverse

in

absence

of

respect

to

value

does

not limit

Investment

the

America not

of the

or

to haye

any material

or

provision

interests of Pilgrim

effect

have

securities

and

with

rights

any contrQl

be expected

reasonably

Manager

loan documentation

also in the

without

over the

America must not exercise

Pilgrim

Investment

of the

Americas

Pilgrim

since

securities

that

rights

as having

securities

default

after

rights

Bank

could

action

this

if

standard

is

generally

Agreement

the Pledge

on the value

effect

voting

to regard the

difficult

from exercising any voting

thereof

actions

Under

Manager.7

material

part

would be

exercise

not

will

generally

it

directors

to take

Investment

any

Manager

securities

In

Pledge

addition

stated

to

to

Agreement

Investment

in

would

The

owns

person generally

beneficially

share

the

shares

secured

party

collateral

that

official

10

of

right

control

under

is

the

Commission

the

or management

2a9 supports

this

view

to control

securities

company

of the

if

of directors

Thus

apparent

Under

that

company

2a42 of the 1940 Act as

person

Voting

that

security

as Congress

recognized

not sufficient to presume the existence

of control

to vote

for the

from

election

of directors

ownership of voting

of the Uniform Commercial Code

has

the

the

secured

to dispose

the

of

this

the voting

election

under

policies

with

presumed

the

of the

Unif

obligations

see Unif

Comm Code

collateral

becomes

Unif

security

debtors

of the

right to dispose

U.LA 61 1992

pledge of the

Section

or

consistent

is

is

comment

the

control

transferring

Our request

of

satisfy

right

above

actual

in

collateral to

The

Funds

indicated

that

results

Article

pledged to it but

1992

upon

ownership

carry the

presumption

management

As

Section

in

for the

to vote

right

significant

unless

defined

is

generally

provides the

the

found

control

ability

the

an assignment.6

more than 25%

security

even

2a-6

2a9

Section

in

of

of the

for Rule

constitute

presumption

any

no

have

will

over

influence

therefore

release

adopting

receiver

exercise

and

Manager

the

the

Furthermore

securities

does

not

ownership

own

interest

Comm Code

9-101

3B

U.LA

9-5011

effective

Comm Code

upon default not

9-5011 3B U.L.A 10

1992

note

not

to

advisers

and accompanying

recommend

and/or

agreements

the

principal

without

investment

text

enforcement

action

underwriters

further

advisers

above

to

the

one instance however

Commission if certain

staff

the

continued

interestholder

and principal

In

vote

to perform

even

underwriters

though

under

the

was subject

agreed

investment

their respective

parent company

to

state

of

insurance

continued..

Jack

Murphy Esq

May 20

1996

Page7

of securities

transfer

that

powers

would have

able

Commission to

by the

attempt

are

that

well

within

Granting

the

requested

this

area

enforcement

action

if

collateral

connection

in

in

On

shares

owner

of the shares

shares

As in our case

interest

in

also

two

occasions

the

the

the

retained

adviser

rights

were transferred

certificates

borrower

not

--

adviser.9

vested

in

lender as

to

each

In

the

recommend

to

were pledged

of the

right to possession

not

agreed

investment

all

is

but merely

with the staffs prior

generally

has

staff

an

with

Commission

consistent

the

acquisition

securities

except

share

by the

default

Bank

the

our case

the

receiver

Manager

of an investment

of

situation

event

of

Bank

the

not provide

In

Here

2a-6

of the Investment

by the

would be

relief

of stock

with

the

noted

limit

does

company

or business

of Rule

scope

an insolvency

in

of

in

the

loan

receiver

inierests

outer

the

instances the party pledging

as the

collateralize

of

assets

Banks

the

is

positions

to

those

to

over the

control

ready to protect

situation

Bank

the

to

limit

over the assets and business

control

to exercise

stands

to

equivalent

an outer

define

these

securities

pledged

certificates

of

representing the

lenders

to perfect

the

equivalent

of being

security

stock

the

8...continued

commissioner

rehabilitation

receivership

Mutual

Benefit

The

rehabilitation

possession

and

control

of

causes

securities

other

or

Fund

and

pub

al

to

bank

and

business

all

of the

in

Mutual

exclusive

contracts

assets

of deposit

of any

real or personal

property

all

1991

immediate

certificates

accounts

placed

Aug 23

avail

commissioner

the

the

title

records

funds

functional

et

order granted

of and

books

action

the

order

Benefit

funds

nature of Mutual

Benefit

pub avail Aug 12 1976 Wall

Funds

Inc

Sep

1974

In

each

of

investment

of the

these

advisory

on

of the

was

of Rule

adoption

Rule

change

should

be

about

the

it

of

is

of actual

control

that

that

the

these

that

under

connection

be

pledge

letters

the pledge

the

itself

were

in

avail

new

of

approval

with

disclosed

agreements and

advisory

Further

acquisition

the

proxy

was not treated

only

the

issued

falls within

acquisition

prior

the

as

to

the

provisions

Pledge Agreement would result in

and management and would result in an assignment

It

foreclosure

contrast

pledge

clear

2a-6 and here we believe

In

noted

would

treated

so

shareholder

that

to termination

rise

advisers

that

in

the

Corp pub

Management

would be sought

However

vote

stated

parties

and

adviser

this

an event giving

the

agreements

investment

statements

of that

letters

Street

the

time

of

the

the

approval

of the

Investment

and

Pledge Agreement

Management

Agreement for the Masters Series negotiations with the bank were well underway

and the sole shareholder of the Series the Investment Manager was fully informed

terms of the

at

Credit

Agreement

the

Jack

Murphy Esq

May 20

1996

Page8

In addition the requested

The

statutory

As David

contracts.11

advisory

Study described

the

discuss

situation

where

other peoples

However

assign

is

someone

else

management

advisory

not

result

since

of the

the

Investment

opinion

Cong

which

that

says

someone

to

the

the

hand

management

continue

will

turn

implies

over

is

selling ones

transferable

as

not

in

any transfer

Investment

of other

asset

sale for these

not result

of the

pledge

management

the

else.2

contract

other

of

home

to go

they have

the

pledge should

the

Further

of the

253 statement

of

all

peoples

Manager

money

to be solely responsible

to

for the

David

person

15

1940

the

General

passage

Counsel

of the

1940

Schenker Chief Counsel

clear

trafficking

in

investment

advisory

adviser

from

every

is

investment

provide

for

its

Company Act Rel

transferring

advisory

automatic

No 354 1942

Congressional

contracts

his

by the

contract

and

fiduciary

of the stockholders

effectuated

assignment

Commission

the

Act

manifests

That intention

must

of

15

over the management

15a that

Section

Investment

Comm on Banking and

Senate

of Section

investment

by turning

different

by

history

an

prevent

March

Subcomm

after the

to prevent

obligations

in

Trust

have

manager

and that you cannot

on the

Manager

3d Sess

shortly

legislative

intention

to

Investment

you

the

is

job he ought

contracts

an advisory

treating

over

was echoed

rendered

to

15a

Study

theme

The

he

not defined the term generally

3580 before

Trust

That

is

securities

Investment

on

76th

Currency

the

10-year

money

Here

obligation

with

course of business

turning

Commissions

the

This provision

relationships

in

Section

underlying

Funds

Hearings

12

else

generally

ordinary

policy

point

cannot be assigned

of voting

pledge

the

in

investment

will

and

this

through

is

the term trafficking

since

securities

it

to

fiduciary

other peoples

of

for gain

office

at

they take these

personal that

to sale

purposes

of the

he

someone

to

the

15a4

assumes

If

of that

management

Although

subject

money

contract

fiduciary

person

with

counsel

15a4

instead

right to

the

Schenker

of Section

purpose

me

Let

consistent

is

15a were designed to inhibit trafficking in investment

Sections

in

provisions

relief

money

requirement

made

termination

after

upon

in

an

Jack

Murphy Esq

May 20

1996

Page9

The

type

or some or

adviser

closed-end

funds

of

all

assumed

Manager

to which

of transaction

the

in

its

Section

1b6

intended

Section

15a4 to protect

companies

is

of

into the

Investment

not

is

this

Moreover

Elite Series

which

and

of

and

addressed by treating

adviser

or

exercise

the

by

We believe therefore

that

securities

the

entry

be deemed

assignment

affiliates

disclosure

connection

in

with

respect

Section

15a

rights

under

with

in

the

that

such

also

would

convening

of an investment

would

the

as

securities

not involve

assignments

prohibiting

about

15a would be more

to such

pledge arrangement

It

with

pledgee on the securities

by

the

If

Agreements

time

at

Series

year

last

Management

The purposes of Section

proposed

Congress was concerned

the

proxy statement

in

its

shareholders

of voting

the

and

Manager

foreclosure

that

disclosure

Management

Masters

of the

within

Investment

necessary for prospectus

proxies

pledgee

prohibited

triggers

of the

detailed

Fund

upon

soliciting

directly

abuses

including

Investment

the

their shares

purchased

Investment

the

expenses

shareholder meeting

of the

funds

otherwise considered

additional

event that

Funds

and shareholders of each

an assignment

be burdened with

arrangements

information is not

the

Congress

investmnt

We note that the

holders

Manager

Funds approved

Closed-End

new

Investment

of the

one year ago

deemed

is

shareholders would

impose

As set

Management Agreements and requires Fund

would serve no useful purpose

Shareholders

of

agreements

the

relatively

Pledge Agreement

credit

that

the

Investment

the

new

of

funds

are

Funds

or management

funds and Closed-End

the pledge

that

Agreements approximately

funds

type

control

and

funds

of transaction

of their security

consent

the

the

is

when

against

Elite Series

terminates

shareholder approval

the

Act

this

Investment

the

of transaction

type

requiring

that

an assignment

which

Elite Series

of the

of an

acquisition

Management Agreements was approved

by shareholders of those Funds

on April

1995 Pilgrim Americas pledge of the Investment

Manager

held

meeting

securities

of the

management

1940

the

without

transferred

transfer

at

of

the

is

to

pursuant

to each

manager

directed

America Group of Funds the Closed-End

Pilgrim

in

forth

is

transaction

the

assets

role as investment

its

15a4

Section

any

of investment

contracts

advisory

The Request

Staff

The

or

202a1-1

particular

Novel

And

Potentially

To Warrant

Beneficial

Response

has

that as

interpretive

requests

under

the

transaction.3

Nikko

Sufficiently

stated

staff

no-action

Is

Investment

The

International

staff

Capital

matter of policy

regarding

the

Advisers Act

of

promulgated

this

Management

it

will

no longer respond

of

application

Rule

2a-6

corollary

to Rule

no-response

policy

because

Company pub

avail

June

1940

the

to

routine

and

Rule

2a-6

to

it

did

1987

not

Jack

Murphy Esq

May 20

1996

Page

10

want

to be in

internal

management

in

actual

or

control

the

staff

in

the

or

verify

This however

the

Investment

advice

as to the

to

or

change

of

that

is

Commission and

addition the

the

control

inquiry

to

necessary

investigation

information regarding

does

not turn on the application

issue that

that

issue lends

this

come

general

important

Further

18f-39 and the

in

light

within

these

policy

of the

Commissions

fund

industry

large

block

of an investment

if

Nikko

the

staff

the

respecting

of multiple

to the

staff

recent

class pricing

corporate

International

though

provide

under

the

staff

specific

interpretive

general

applicability

Rule

adoption

of Rules

structures

it

in

Farrell Inc

the

pub

pub avail

18 1985

and Heine

Capital

Management

useful

of all or

of

financing

pub avail

Jan

avail

pledge

with the

Company

Jan 21 1986

Securities

6c-1O and

connection

Investment

2a-6.18

would be extremely

as to whether

Templeton

Benzak Salomon

March

corollary

issue presented

Capital

avail

no-action

of

Management

Counsel

Ltd pub

1987

the

whether

to

of course

detailed

the

securities

voting

as

of

We believe

determination

issued

advisers

in

the

that even

inquiries

will

202a1-1J.7

issues

proliferation

to

response

of

applicability

to resolution

202a1-1

Rule

Commission stated

Rule the

that

well

itself

in adopting

in

opinion

any

express

would

here goes

factual

is

factual

Advisers Act to Rule 2a-6 the

not

will

transaction

In

make

to

position

we note that

In that regard

context

ordinarily

transactions

letter

no-action

in

discrete

is

Thus we believe

of facts

letter

of

not

th requisite

evaluate

Determining

these

in

in

change

whether

transactions

reorganization

set

are

understandably

ascertain

has occurred

context

of

guess the significance

reorganizations.4

corporate

management

to address

difficult

of having to second

position

June

1986

Spears

Scudder Stevens

Clark

Corporation

22

pub avail Feb 25

1985

15

16

18

Nikko

Jnternational

Advisers Act Rel

Investment

Advisers Act

Rel

No 1034 Sep

We note that the staff has issued several

non-response

Investment

24

1995

implement

obtain

proposing Rule

202a1-1

no-action

letters

in this

Dean

area since

it

adopted

Co

Discover

Witter

1993

Company Act Rel Nos

Collectively

multiple

individual

1987

June

avail

1986

Mutual Benefit

policy

pub avail Feb

19

No 1013 Feb 20 1986

Investment

its

Company pub

these

class

exemptive

20915

Rules

pricing

relief

Rule 18f-3

permit

systems

and 20916

open-end

without

the

Rule 6c-10

investment

need

for

each

Feb

companies

to

company

to

Jack

Murphy Esq

May 20

1996

11

Page

distribution

multiple

class

Sections

15a4

the

obvious

that

these

arrangements

innovations

structure

been

used

two

securities

in

also would

positions

financing

costly

has issued

the

favorable

Finally

in

staff

advisers

Although

an investment

of

pledge

the

amount

would

arrangements

for financing

the

no-action

favorable

connection

with

of multiple

to

could

response

sale of

this

of mutual

mutual

request

shares

of

addressing

it

is

not

distribution

class

the

for

way

simpler and

pave

and provide

funds

fund

letters

an acquisition

apply to the financing

sale of shares

for purposes

an assignment

to

have

that

than arrangements

less

to date

Conclusion

We believe

is

consistent

policy

that

that

non-fact

novel

sufficiently

consideration

by the

15a

if

Pilgrim

under

Manager

Credit

Karen

staffs prior no-action

15a

and

intensive

seek

not

the

Further

beneficial

of the

all

circumstances

the

enforcement

of

staff

action

the

of Rule 2a-6

to

of the

raise any

we believe

warrant

this

issue

review

outstanding voting

described

above

in

Division

of

is

and

Investment

Commission under

to the

securities

connection

accordance

copies

with Securities

of this no-action

Anderberg

at

No 6269 Dec

Please contact

request

202

Rel

Act

626-3384

if

you have

the

with

any

James

Pilgrim

Thomas

Dorsey

Hennessy Esq

America Investments

Kelly

III

Whitney

Esq

Inc

1980

undersigned

questions

matter

cc

language

and does not

positions

to address

potentially

that

assurance

recommend

America pledges

the

designed

is

within

squarely

of

the

Section

Investment

entering

into

the

we have

enclosed

Agreement

In

seven

would

falls

staff

we

Therefore

Management

Section

relief

requested

with the

generally

concerns

the

Sincerely

yours

Jeffrey

Puretz

at

or

202 626-3358

comments

on

or

this