PIMCO Flexible Credit Income Fund, et al., 46225-46228 [2018-19765]

Download as PDF Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices against any group or class of shareholders. Applicants submit that the proposed arrangements would permit a Fund to facilitate the distribution of its shares and provide investors with a broader choice of shareholder services. Applicants assert that the proposed closed-end investment company multiple class structure 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 each Fund will comply with the provisions of rule 18f–3 as if it were an open-end investment company. daltland on DSKBBV9HB2PROD with NOTICES Early Withdrawal Charges 1. Section 23(c) of the Act provides, in relevant part, that no registered closed-end investment company shall purchase securities of which it is the issuer, except: (a) On a securities exchange or other open market; (b) pursuant to tenders, after reasonable opportunity to submit tenders given to all holders of securities of the class to be purchased; or (c) under other circumstances as the Commission may permit by rules and regulations or orders for the protection of investors. 2. 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 permits an interval fund to deduct from repurchase proceeds only a repurchase fee, not to exceed two percent of the proceeds, that is paid to the interval fund and is reasonably intended to compensate the fund for expenses directly related to the repurchase. A Fund will not impose a repurchase fee on investors who purchase and tender their shares. 3. 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. 4. Applicants request relief under section 6(c), discussed above, and section 23(c)(3) from rule 23c–3 to the extent necessary for the Funds to impose Early Withdrawal Charge on shares of the Funds submitted for repurchase that have been held for less than a specified period. VerDate Sep<11>2014 18:41 Sep 11, 2018 Jkt 244001 5. Applicants state that the Early Withdrawal Charges they intend to impose are functionally similar to contingent deferred sales loads imposed by open-end investment companies under rule 6c–10 under the Act. Rule 6c–10 permits open-end investment companies to impose contingent deferred sales loads, subject to certain conditions. Applicants note that rule 6c–10 is grounded in policy considerations supporting the employment of contingent deferred sales loads where there are adequate safeguards for the investor and state that the same policy considerations support imposition of Early Withdrawal Charges in the interval fund context. In addition, applicants state that Early Withdrawal Charges may be necessary for the distributor to recover distribution costs. Applicants represent that any Early Withdrawal Charge imposed by the Funds will comply with rule 6c–10 under the Act as if the rule were applicable to closed-end investment companies. The Funds will disclose Early Withdrawal Charges in accordance with the requirements of Form N–1A concerning contingent deferred sales loads. Asset-Based Distribution and/or Service Fees 1. 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. 2. 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 the extent necessary to permit the Fund to impose asset-based distribution and/or service fees. Applicants have agreed to comply with rules 12b–1 and 17d–3 as if those rules applied to closed-end investment PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 46225 companies, which they believe will resolve any concerns that might arise in connection with a Fund financing the distribution of its shares through assetbased distribution and/or service fees. For the reasons stated above, applicants submit that the exemptions requested under section 6(c) are necessary and appropriate in the public interest and are consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants further submit that the relief requested pursuant to section 23(c)(3) will be consistent with the protection of investors and will insure that applicants do not unfairly discriminate against any holders of the class of securities to be purchased. Finally, applicants state that the Funds’ imposition of asset-based distribution and/or service fees is consistent with the provisions, policies and purposes of the Act and does not involve participation on a basis different from or less advantageous than that of other participants. Applicants’ Condition: Applicants agree that any order granting the requested relief will be subject to the following condition: Each Fund relying on the order will comply with the provisions of rules 6c–10, 12b–1, 17d–3, 18f–3, 22d–1, and, where applicable, 11a–3 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 FINRA Sales Charge Rule, as amended from time to time, as if that rule applied to all closedend management investment companies. For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–19837 Filed 9–11–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 33219; 812–14767] PIMCO Flexible Credit Income Fund, et al. September 6, 2018. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice. AGENCY: Notice of an application under section 6(c) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from E:\FR\FM\12SEN1.SGM 12SEN1 daltland on DSKBBV9HB2PROD with NOTICES 46226 Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices sections 18(a)(2), 18(c) and 18(i) of the Act, under sections 6(c) and 23(c) of the Act for an exemption from rule 23c–3 under the Act, and for an order pursuant to section 17(d) of the Act and rule 17d– 1 under the Act. SUMMARY OF APPLICATION: Applicants request an order to permit certain registered closed-end management investment companies to issue multiple classes of shares and to impose assetbased distribution and/or service fees and early withdrawal charges (‘‘EWCs’’). APPLICANTS: PIMCO Flexible Credit Income Fund (the ‘‘Credit Fund’’) and PIMCO Flexible Municipal Income Fund (the ‘‘Municipal Fund’’) (the Credit Fund and the Municipal Fund together the ‘‘Initial Funds’’), Pacific Investment Management Company LLC (the ‘‘Investment Manager’’) and PIMCO Investments LLC (the ‘‘Distributor’’). FILING DATES: The application was filed on April 25, 2017 and amended on December 4, 2017 and August 20, 2018. 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 October 1, 2018, and should be accompanied by proof of service on the 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, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090; Applicants: PIMCO Flexible Credit Income Fund, PIMCO Flexible Municipal Income Fund, Pacific Investment Management Company LLC and PIMCO Investments LLC, c/o David C. Sullivan, Esq., Ropes & Gray LLP, 800 Boylston St., Boston, MA 02199 . FOR FURTHER INFORMATION CONTACT: Rachel Loko, Senior Counsel or Aaron Gilbride, Branch Chief, at (202) 551– 6825 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s website by searching for the file VerDate Sep<11>2014 18:41 Sep 11, 2018 Jkt 244001 number, or for an applicant using the Company name box, at or by calling (202) 551–8090. Applicants’ Representations 1. The Credit Fund is a Massachusetts business trust that is registered under the Act as a non-diversified, closed-end management investment company. The Credit Fund seeks to provide attractive risk-adjusted returns and current income. The Credit Fund seeks to achieve its investment objectives by investing, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) in a portfolio of debt instruments of varying maturities. The Municipal Fund is a Massachusetts business trust registered under the Act as a nondiversified, closed-end management investment company. The Municipal Fund seeks to provide high current income exempt from federal income tax. Capital appreciation is a secondary objective. The Municipal Fund seeks to achieve these objectives by investing at least 80% of its net assets (plus any borrowings for investment purposes) in a portfolio of municipal bonds and other municipal securities, the interest from which, in the opinion of bond counsel for the issuer at the time of issuance (or on the basis of other authority believed by PIMCO to be reliable), is exempt from federal income tax. To a lesser extent, the Municipal Fund also expects to invest in a full range of preferred securities, with an emphasis on preferred securities that, at the time of issuance, are eligible to pay dividends that qualify for certain favorable federal income tax treatment. 2. The Investment Manager is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. The Investment Manager serves as investment adviser to the Initial Funds. 3. The applicants seek an order to permit the Initial Funds to issue multiple classes of shares and to impose asset-based distribution and/or service fees and EWCs. 4. Applicants request that the order also apply to any continuously offered registered closed-end management investment company that has been previously organized or that may be organized in the future for which the Investment Manager or Distributor, or any entity controlling, controlled by, or under common control with the Investment Manager or Distributor, or any successor in interest to any such entity,1 acts as investment manager, 1 A successor in interest is limited to an entity that results from a reorganization into another PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 adviser or principal underwriter and which operates as an interval fund pursuant to rule 23c–3 under the Act or provides periodic liquidity with respect to its shares pursuant to rule 13e–4 under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) (each, a ‘‘Future Fund’’ and together with the Initial Funds, the ‘‘Funds’’).2 5. The Credit Fund continuously offers, and the Municipal Fund will continuously offer, common shares to the public. Applicants state that additional offerings by any Fund relying on the order may be on a private placement or public offering basis. Shares of the Funds will not be listed on any securities exchange nor quoted on any quotation medium. The Funds do not expect there to be a secondary trading market for their shares. 6. If the requested relief is granted, the Credit Fund intends to commence a continuous offering of one or more additional classes of shares. If the relief requested herein is granted, it is currently expected that the Municipal Fund will initially offer two share classes. It is currently expected that one share class will not be subject to a frontend sales load, a distribution fee or a service fee. The other share class may be subject to a front-end sales load, a distribution fee and/or a service fee. The Funds may in the future offer additional classes of shares and/or another sales charges structure. Because of the different distribution fees, services and any other class expenses that may be attributable to the each class of shares, the net income attributable to, and the dividends payable on, each class of shares may differ from each other. 7. Applicants state that, from time to time, the Funds may create additional classes of shares, the terms of which may differ from the initial class in the following respects: (i) The amount of fees permitted by different distribution plans or different service fee arrangements; (ii) voting rights with respect to a distribution plan of a class; (iii) different class designations; (iv) any differences in dividends and net asset value resulting from differences in fees under a distribution or service fee arrangement or in class expenses; (v) any EWC or other sales load structure; and (vi) exchange or conversion privileges of the classes as permitted under the Act. jurisdiction or a change in the type of business organization. 2 Any Fund 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. E:\FR\FM\12SEN1.SGM 12SEN1 Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES 8. Applicants state that the Initial Funds have each adopted a fundamental policy to repurchase a specified percentage of its shares (no less than 5%) at net asset value on a quarterly basis. Such repurchase offers will be conducted pursuant to rule 23c–3 under the Act. Each of the other Funds will likewise adopt fundamental investment policies and make periodic repurchase offers to its shareholders in compliance with rule 23c–3 or will provide periodic liquidity with respect to its shares pursuant to rule 13e–4 under the Exchange Act.3 Any repurchase offers made by the Funds will be made to all holders of shares of each such Fund. 9. Applicants represent that any assetbased service and/or distribution fees for each class of shares of the Funds will comply with the provisions of FINRA Rule 2341(d) (‘‘FINRA Sales Charge Rule’’).4 Applicants also represent that each 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 multiple class funds under Form N–1A. As is required for open-end funds, each Fund will disclose its expenses in shareholder reports, and describe any arrangements that result in breakpoints in or elimination of sales loads in its prospectus.5 In addition, applicants will comply with applicable enhanced fee disclosure requirements for fund of funds, including registered funds of hedge funds.6 10. Each of the Funds will comply with any requirements that the Commission or FINRA may adopt regarding disclosure at the point of sale and in transaction confirmations about the costs and conflicts of interest arising out of the distribution of open-end investment company shares, and 3 Applicants submit that rule 23c–3 and Regulation M under the Exchange Act permit an interval fund to make repurchase offers to repurchase its shares while engaging in a continuous offering of its shares pursuant to Rule 415 under the Securities Act of 1933, as amended. 4 Any reference to the FINRA Sales Charge Rule includes any successor or replacement to the FINRA Sales Charge Rule. 5 See Shareholder Reports and Quarterly Portfolio Disclosure of Registered Management Investment Companies, Investment Company Act Release No. 26372 (Feb. 27, 2004) (adopting release) (requiring open-end investment companies to disclose fund expenses in shareholder reports); and Disclosure of Breakpoint Discounts by Mutual Funds, Investment Company Act Release No. 26464 (June 7, 2004) (adopting release) (requiring open-end investment companies to provide prospectus disclosure of certain sales load information). 6 Fund of Funds Investments, Investment Company Act Rel. Nos. 26198 (Oct. 1, 2003) (proposing release) and 27399 (Jun. 20, 2006) (adopting release). See also Rules 12d1–1, et seq. of the Act. VerDate Sep<11>2014 18:41 Sep 11, 2018 Jkt 244001 regarding prospectus disclosure of sales loads and revenue sharing arrangements, as if those requirements applied to the Fund. In addition, each Fund will contractually require that any distributor of the Fund’s shares comply with such requirements in connection with the distribution of such Fund’s shares. 11. Each Fund will allocate all expenses incurred by it among the various classes of shares based on the net assets of that Fund attributable to each class, except that the net asset value and expenses of each class will reflect the expenses associated with the distribution plan of that class, service fees attributable to that class (if any), including transfer agency fees, and any other incremental expenses of that class. Expenses of a Fund allocated to a particular class of shares will be borne on a pro rata basis by each outstanding share of that class. Applicants state that each Fund will comply with the provisions of rule 18f–3 under the Act as if it were an open-end investment company. 12. Applicants state that each Fund may impose an EWC on shares submitted for repurchase that have been held less than a specified period and may waive the EWC for certain categories of shareholders or transactions to be established from time to time. Applicants state that each Fund will apply the EWC (and any waivers or scheduled variations, or elimination of the EWC) uniformly to all shareholders in a given class and consistently with the requirements of rule 22d–1 under the Act as if the Funds were open-end investment companies. 13. Each Fund operating as an interval fund pursuant to rule 23c–3 under the Act may offer its shareholders an exchange feature under which the shareholders of the Fund may, in connection with such Fund’s periodic repurchase offers, exchange their shares of the Fund for shares of the same class of (i) registered open-end investment companies or (ii) other registered closed-end investment companies that comply with rule 23c–3 under the Act or Rule 13e–4 under the Exchange Act and continuously offer their shares at net asset value, that are in the Fund’s group of investment companies (collectively, ‘‘Other Funds’’). Shares of a Fund operating pursuant to rule 23c– 3 that are exchanged for shares of Other Funds will be included as part of the amount of the repurchase offer amount for such Fund 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 rule PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 46227 11a–3. In complying with rule 11a–3, each Fund will treat an EWC as if it were a contingent deferred sales load (‘‘CDSL’’). Applicants’ Legal Analysis Multiple Classes of Shares 1. Section 18(a)(2) of the Act provides that a closed-end investment company may not issue or sell a senior security that is a stock unless certain requirements are met. Applicants state that the creation of multiple classes of shares of the Funds may violate section 18(a)(2) because the Funds may not meet such requirements with respect to a class of shares that may be a senior security. 2. 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 Funds may be prohibited by section 18(c), as a class may have priority over another class as to payment of dividends because shareholders of different classes would pay different fees and expenses. 3. 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 Funds 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. 4. Section 6(c) 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 the Act, or from any rule or regulation under the Act, if and to the extent 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(a)(2), 18(c) and 18(i) to permit the Funds to issue multiple classes of shares. 5. Applicants submit that the proposed allocation of expenses relating to distribution 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 a Fund to facilitate the distribution of its securities and provide E:\FR\FM\12SEN1.SGM 12SEN1 46228 Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES investors with a broader choice of shareholder services. Applicants assert that the proposed closed-end investment company multiple class structure 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 each Fund will comply with the provisions of rule 18f–3 as if it were an open-end investment company. Early Withdrawal Charges 1. Section 23(c) of the Act provides, in relevant part, that no registered closed-end investment company shall purchase securities of which it is the issuer, except: (a) On a securities exchange or other open market; (b) pursuant to tenders, after reasonable opportunity to submit tenders given to all holders of securities of the class to be purchased; or (c) under other circumstances as the Commission may permit by rules and regulations or orders for the protection of investors. 2. Rule 23c–3 under the Act permits 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 permits an interval fund to deduct from repurchase proceeds only a repurchase fee, not to exceed two percent of the proceeds, that is paid to the interval fund and is reasonably intended to compensate the fund for expenses directly related to the repurchase. 3. 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. 4. Applicants request relief under section 6(c), discussed above, and section 23(c)(3) from rule 23c–3 to the extent necessary for the Funds to impose EWCs on shares of the Funds submitted for repurchase that have been held for less than a specified period. 5. Applicants state that the EWCs they intend to impose are functionally similar to CDSLs imposed by open-end investment companies under rule 6c–10 under the Act. Rule 6c–10 permits openend investment companies to impose CDSLs, subject to certain conditions. Applicants note that rule 6c–10 is grounded in policy considerations supporting the employment of CDSLs VerDate Sep<11>2014 18:41 Sep 11, 2018 Jkt 244001 where there are adequate safeguards for the investor and state that the same policy considerations support imposition of EWCs in the interval fund context. In addition, applicants state that EWCs may be necessary for the distributor to recover distribution costs. Applicants represent that any EWC imposed by the Funds will comply with rule 6c–10 under the Act as if the rule were applicable to closed-end investment companies. The Funds will disclose EWCs in accordance with the requirements of Form N–1A concerning CDSLs. Asset-Based Distribution and/or Service Fees 1. 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. 2. 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 the extent necessary to permit the Fund to impose asset-based distribution and/or service fees. Applicants have agreed to comply with rules 12b–1 and 17d–3 as if those rules applied to closed-end investment companies, which they believe will resolve any concerns that might arise in connection with a Fund financing the distribution of its shares through assetbased distribution fees. 3. For the reasons stated above, applicants submit that the exemptions requested under section 6(c) are necessary and appropriate in the public interest and are consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants further submit that the relief requested pursuant to section 23(c)(3) will be consistent with the protection of PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 investors and will insure that applicants do not unfairly discriminate against any holders of the class of securities to be purchased. Finally, applicants state that the Funds’ imposition of asset-based distribution and/or service fees is consistent with the provisions, policies and purposes of the Act and does not involve participation on a basis different from or less advantageous than that of other participants. Applicants’ Condition Applicants agree that any order granting the requested relief will be subject to the following condition: Each Fund relying on the order will comply with the provisions of rules 6c– 10, 12b–1, 17d–3, 18f–3, 22d–1, and, where applicable, 11a–3 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 FINRA Sales Charge Rule, as amended from time to time, as if that rule applied to all closedend management investment companies. For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–19765 Filed 9–11–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–84049; File No. SR– NYSEArca–2018–38] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Approving on an Accelerated Basis a Proposed Rule Change, as Modified by Amendment No. 1, Relating to the Continued Listing Criteria Applicable to the Shares of the iShares California AMT Free Muni Bond ETF and iShares New York AMT-Free Muni Bond ETF September 6, 2018. I. Introduction On May 21, 2018, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to modify the continued listing criteria applicable to the shares (‘‘Shares’’) of the iShares California 1 15 2 17 E:\FR\FM\12SEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 12SEN1

Agencies

[Federal Register Volume 83, Number 177 (Wednesday, September 12, 2018)]
[Notices]
[Pages 46225-46228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19765]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33219; 812-14767]


PIMCO Flexible Credit Income Fund, et al.

September 6, 2018.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from

[[Page 46226]]

sections 18(a)(2), 18(c) and 18(i) of the Act, under sections 6(c) and 
23(c) of the Act for an exemption from rule 23c-3 under the Act, and 
for an order pursuant to section 17(d) of the Act and rule 17d-1 under 
the Act.

Summary of Application: Applicants request an order to permit certain 
registered closed-end management investment companies to issue multiple 
classes of shares and to impose asset-based distribution and/or service 
fees and early withdrawal charges (``EWCs'').

Applicants: PIMCO Flexible Credit Income Fund (the ``Credit Fund'') and 
PIMCO Flexible Municipal Income Fund (the ``Municipal Fund'') (the 
Credit Fund and the Municipal Fund together the ``Initial Funds''), 
Pacific Investment Management Company LLC (the ``Investment Manager'') 
and PIMCO Investments LLC (the ``Distributor'').

Filing Dates: The application was filed on April 25, 2017 and amended 
on December 4, 2017 and August 20, 2018.

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 October 1, 2018, and should be accompanied by proof of 
service on the 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, U.S. Securities and Exchange Commission, 100 F 
Street NE, Washington, DC 20549-1090; Applicants: PIMCO Flexible Credit 
Income Fund, PIMCO Flexible Municipal Income Fund, Pacific Investment 
Management Company LLC and PIMCO Investments LLC, c/o David C. 
Sullivan, Esq., Ropes & Gray LLP, 800 Boylston St., Boston, MA 02199 .

FOR FURTHER INFORMATION CONTACT: Rachel Loko, Senior Counsel or Aaron 
Gilbride, Branch Chief, at (202) 551-6825 (Division of Investment 
Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or for an 
applicant using the Company name box, at or by calling (202) 551-8090.

Applicants' Representations

    1. The Credit Fund is a Massachusetts business trust that is 
registered under the Act as a non-diversified, closed-end management 
investment company. The Credit Fund seeks to provide attractive risk-
adjusted returns and current income. The Credit Fund seeks to achieve 
its investment objectives by investing, under normal circumstances, at 
least 80% of its net assets (plus any borrowings for investment 
purposes) in a portfolio of debt instruments of varying maturities. The 
Municipal Fund is a Massachusetts business trust registered under the 
Act as a non-diversified, closed-end management investment company. The 
Municipal Fund seeks to provide high current income exempt from federal 
income tax. Capital appreciation is a secondary objective. The 
Municipal Fund seeks to achieve these objectives by investing at least 
80% of its net assets (plus any borrowings for investment purposes) in 
a portfolio of municipal bonds and other municipal securities, the 
interest from which, in the opinion of bond counsel for the issuer at 
the time of issuance (or on the basis of other authority believed by 
PIMCO to be reliable), is exempt from federal income tax. To a lesser 
extent, the Municipal Fund also expects to invest in a full range of 
preferred securities, with an emphasis on preferred securities that, at 
the time of issuance, are eligible to pay dividends that qualify for 
certain favorable federal income tax treatment.
    2. The Investment Manager is registered as an investment adviser 
under the Investment Advisers Act of 1940, as amended. The Investment 
Manager serves as investment adviser to the Initial Funds.
    3. The applicants seek an order to permit the Initial Funds to 
issue multiple classes of shares and to impose asset-based distribution 
and/or service fees and EWCs.
    4. Applicants request that the order also apply to any continuously 
offered registered closed-end management investment company that has 
been previously organized or that may be organized in the future for 
which the Investment Manager or Distributor, or any entity controlling, 
controlled by, or under common control with the Investment Manager or 
Distributor, or any successor in interest to any such entity,\1\ acts 
as investment manager, adviser or principal underwriter and which 
operates as an interval fund pursuant to rule 23c-3 under the Act or 
provides periodic liquidity with respect to its shares pursuant to rule 
13e-4 under the Securities Exchange Act of 1934 (``Exchange Act'') 
(each, a ``Future Fund'' and together with the Initial Funds, the 
``Funds'').\2\
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    \1\ A successor in interest is limited to an entity that results 
from a reorganization into another jurisdiction or a change in the 
type of business organization.
    \2\ Any Fund 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.
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    5. The Credit Fund continuously offers, and the Municipal Fund will 
continuously offer, common shares to the public. Applicants state that 
additional offerings by any Fund relying on the order may be on a 
private placement or public offering basis. Shares of the Funds will 
not be listed on any securities exchange nor quoted on any quotation 
medium. The Funds do not expect there to be a secondary trading market 
for their shares.
    6. If the requested relief is granted, the Credit Fund intends to 
commence a continuous offering of one or more additional classes of 
shares. If the relief requested herein is granted, it is currently 
expected that the Municipal Fund will initially offer two share 
classes. It is currently expected that one share class will not be 
subject to a front-end sales load, a distribution fee or a service fee. 
The other share class may be subject to a front-end sales load, a 
distribution fee and/or a service fee. The Funds may in the future 
offer additional classes of shares and/or another sales charges 
structure. Because of the different distribution fees, services and any 
other class expenses that may be attributable to the each class of 
shares, the net income attributable to, and the dividends payable on, 
each class of shares may differ from each other.
    7. Applicants state that, from time to time, the Funds may create 
additional classes of shares, the terms of which may differ from the 
initial class in the following respects: (i) The amount of fees 
permitted by different distribution plans or different service fee 
arrangements; (ii) voting rights with respect to a distribution plan of 
a class; (iii) different class designations; (iv) any differences in 
dividends and net asset value resulting from differences in fees under 
a distribution or service fee arrangement or in class expenses; (v) any 
EWC or other sales load structure; and (vi) exchange or conversion 
privileges of the classes as permitted under the Act.

[[Page 46227]]

    8. Applicants state that the Initial Funds have each adopted a 
fundamental policy to repurchase a specified percentage of its shares 
(no less than 5%) at net asset value on a quarterly basis. Such 
repurchase offers will be conducted pursuant to rule 23c-3 under the 
Act. Each of the other Funds will likewise adopt fundamental investment 
policies and make periodic repurchase offers to its shareholders in 
compliance with rule 23c-3 or will provide periodic liquidity with 
respect to its shares pursuant to rule 13e-4 under the Exchange Act.\3\ 
Any repurchase offers made by the Funds will be made to all holders of 
shares of each such Fund.
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    \3\ Applicants submit that rule 23c-3 and Regulation M under the 
Exchange Act permit an interval fund to make repurchase offers to 
repurchase its shares while engaging in a continuous offering of its 
shares pursuant to Rule 415 under the Securities Act of 1933, as 
amended.
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    9. Applicants represent that any asset-based service and/or 
distribution fees for each class of shares of the Funds will comply 
with the provisions of FINRA Rule 2341(d) (``FINRA Sales Charge 
Rule'').\4\ Applicants also represent that each 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 multiple class funds under Form N-1A. As is required for open-
end funds, each Fund will disclose its expenses in shareholder reports, 
and describe any arrangements that result in breakpoints in or 
elimination of sales loads in its prospectus.\5\ In addition, 
applicants will comply with applicable enhanced fee disclosure 
requirements for fund of funds, including registered funds of hedge 
funds.\6\
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    \4\ Any reference to the FINRA Sales Charge Rule includes any 
successor or replacement to the FINRA Sales Charge Rule.
    \5\ See Shareholder Reports and Quarterly Portfolio Disclosure 
of Registered Management Investment Companies, Investment Company 
Act Release No. 26372 (Feb. 27, 2004) (adopting release) (requiring 
open-end investment companies to disclose fund expenses in 
shareholder reports); and Disclosure of Breakpoint Discounts by 
Mutual Funds, Investment Company Act Release No. 26464 (June 7, 
2004) (adopting release) (requiring open-end investment companies to 
provide prospectus disclosure of certain sales load information).
    \6\ Fund of Funds Investments, Investment Company Act Rel. Nos. 
26198 (Oct. 1, 2003) (proposing release) and 27399 (Jun. 20, 2006) 
(adopting release). See also Rules 12d1-1, et seq. of the Act.
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    10. Each of the Funds will comply with any requirements that the 
Commission or FINRA may adopt regarding disclosure at the point of sale 
and in transaction confirmations about the costs and conflicts of 
interest arising out of the distribution of open-end investment company 
shares, and regarding prospectus disclosure of sales loads and revenue 
sharing arrangements, as if those requirements applied to the Fund. In 
addition, each Fund will contractually require that any distributor of 
the Fund's shares comply with such requirements in connection with the 
distribution of such Fund's shares.
    11. Each Fund will allocate all expenses incurred by it among the 
various classes of shares based on the net assets of that Fund 
attributable to each class, except that the net asset value and 
expenses of each class will reflect the expenses associated with the 
distribution plan of that class, service fees attributable to that 
class (if any), including transfer agency fees, and any other 
incremental expenses of that class. Expenses of a Fund allocated to a 
particular class of shares will be borne on a pro rata basis by each 
outstanding share of that class. Applicants state that each Fund will 
comply with the provisions of rule 18f-3 under the Act as if it were an 
open-end investment company.
    12. Applicants state that each Fund may impose an EWC on shares 
submitted for repurchase that have been held less than a specified 
period and may waive the EWC for certain categories of shareholders or 
transactions to be established from time to time. Applicants state that 
each Fund will apply the EWC (and any waivers or scheduled variations, 
or elimination of the EWC) uniformly to all shareholders in a given 
class and consistently with the requirements of rule 22d-1 under the 
Act as if the Funds were open-end investment companies.
    13. Each Fund operating as an interval fund pursuant to rule 23c-3 
under the Act may offer its shareholders an exchange feature under 
which the shareholders of the Fund may, in connection with such Fund's 
periodic repurchase offers, exchange their shares of the Fund for 
shares of the same class of (i) registered open-end investment 
companies or (ii) other registered closed-end investment companies that 
comply with rule 23c-3 under the Act or Rule 13e-4 under the Exchange 
Act and continuously offer their shares at net asset value, that are in 
the Fund's group of investment companies (collectively, ``Other 
Funds''). Shares of a Fund operating pursuant to rule 23c-3 that are 
exchanged for shares of Other Funds will be included as part of the 
amount of the repurchase offer amount for such Fund 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 rule 11a-3. In complying with rule 11a-3, each Fund will 
treat an EWC as if it were a contingent deferred sales load (``CDSL'').

Applicants' Legal Analysis

Multiple Classes of Shares

    1. Section 18(a)(2) of the Act provides that a closed-end 
investment company may not issue or sell a senior security that is a 
stock unless certain requirements are met. Applicants state that the 
creation of multiple classes of shares of the Funds may violate section 
18(a)(2) because the Funds may not meet such requirements with respect 
to a class of shares that may be a senior security.
    2. 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 Funds may be prohibited by section 
18(c), as a class may have priority over another class as to payment of 
dividends because shareholders of different classes would pay different 
fees and expenses.
    3. 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 Funds 
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.
    4. Section 6(c) 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 the Act, or from any 
rule or regulation under the Act, if and to the extent 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(a)(2), 18(c) and 18(i) to permit the 
Funds to issue multiple classes of shares.
    5. Applicants submit that the proposed allocation of expenses 
relating to distribution 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 a Fund to facilitate the distribution of its securities and 
provide

[[Page 46228]]

investors with a broader choice of shareholder services. Applicants 
assert that the proposed closed-end investment company multiple class 
structure 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 each Fund will comply with the provisions of rule 
18f-3 as if it were an open-end investment company.

Early Withdrawal Charges

    1. Section 23(c) of the Act provides, in relevant part, that no 
registered closed-end investment company shall purchase securities of 
which it is the issuer, except: (a) On a securities exchange or other 
open market; (b) pursuant to tenders, after reasonable opportunity to 
submit tenders given to all holders of securities of the class to be 
purchased; or (c) under other circumstances as the Commission may 
permit by rules and regulations or orders for the protection of 
investors.
    2. Rule 23c-3 under the Act permits 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 permits an interval fund to deduct from repurchase proceeds only a 
repurchase fee, not to exceed two percent of the proceeds, that is paid 
to the interval fund and is reasonably intended to compensate the fund 
for expenses directly related to the repurchase.
    3. 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.
    4. Applicants request relief under section 6(c), discussed above, 
and section 23(c)(3) from rule 23c-3 to the extent necessary for the 
Funds to impose EWCs on shares of the Funds submitted for repurchase 
that have been held for less than a specified period.
    5. Applicants state that the EWCs they intend to impose are 
functionally similar to CDSLs imposed by open-end investment companies 
under rule 6c-10 under the Act. Rule 6c-10 permits open-end investment 
companies to impose CDSLs, subject to certain conditions. Applicants 
note that rule 6c-10 is grounded in policy considerations supporting 
the employment of CDSLs where there are adequate safeguards for the 
investor and state that the same policy considerations support 
imposition of EWCs in the interval fund context. In addition, 
applicants state that EWCs may be necessary for the distributor to 
recover distribution costs. Applicants represent that any EWC imposed 
by the Funds will comply with rule 6c-10 under the Act as if the rule 
were applicable to closed-end investment companies. The Funds will 
disclose EWCs in accordance with the requirements of Form N-1A 
concerning CDSLs.

Asset-Based Distribution and/or Service Fees

    1. 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.
    2. 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 the extent necessary to permit the Fund to impose asset-
based distribution and/or service fees. Applicants have agreed to 
comply with rules 12b-1 and 17d-3 as if those rules applied to closed-
end investment companies, which they believe will resolve any concerns 
that might arise in connection with a Fund financing the distribution 
of its shares through asset-based distribution fees.
    3. For the reasons stated above, applicants submit that the 
exemptions requested under section 6(c) are necessary and appropriate 
in the public interest and are consistent with the protection of 
investors and the purposes fairly intended by the policy and provisions 
of the Act. Applicants further submit that the relief requested 
pursuant to section 23(c)(3) will be consistent with the protection of 
investors and will insure that applicants do not unfairly discriminate 
against any holders of the class of securities to be purchased. 
Finally, applicants state that the Funds' imposition of asset-based 
distribution and/or service fees is consistent with the provisions, 
policies and purposes of the Act and does not involve participation on 
a basis different from or less advantageous than that of other 
participants.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    Each Fund relying on the order will comply with the provisions of 
rules 6c-10, 12b-1, 17d-3, 18f-3, 22d-1, and, where applicable, 11a-3 
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 
FINRA Sales Charge Rule, as amended from time to time, as if that rule 
applied to all closed-end management investment companies.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19765 Filed 9-11-18; 8:45 am]
 BILLING CODE 8011-01-P
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