(The article featured below is a selection from SEC No-Action Letter Weekly, which is available to subscribers of that publication.)

Staff Clarifies Position in 2001 No-Action Letter

In a no-action letter to Debevoise & Plimpton LLP regarding its client Allianz Funds, the Division of Investment Management clarified the conditions outlined in a no-action letter to Chase Manhattan Bank in 2001 which was cited by the firm. Allianz Global Investors of America LLC sought to acquire securities from Allianz Funds, a registered investment company that consists of multiple series, in return for which the funds would receive aggregate cash consideration equal to the remaining unpaid principal amount of the subject securities plus accrued and unpaid interest (Allianz Funds, SEC No-Action Letters Ind. & Summaries (WSB) #0803200910 (August 3, 2009)).

In the no-action letter to Chase (July 24, 2001), the staff referred to a condition that all of the assets held by the joint accounts would be valued on an amortized cost basis to the extent permitted by applicable SEC or staff releases, rules, letters or orders. The condition was intended to signify that the amortized cost method of valuation may only be used by open-end investment companies to value investments with a remaining maturity of 60 days or less in accordance with Release No. IC-9786 (May 31, 1977), unless the investments are held by a money market fund registered under the Investment Company Act and operating in compliance with Rule 2a-7.

In the Allianz letter, the staff said it was withdrawing any statements that may suggest otherwise. The joint accounts that are the subject of the Allianz letter are not money market funds registered under the Act and operating in compliance with Rule 2a-7.

The Allianz Funds hold securities through joint accounts that were established to invest the cash collateral received in connection with a securities lending program. The joint accounts were designed to operate in conformance with two no-action letters issued by the staff which granted no-action assurance to funds participating in joint accounts without obtaining an exemptive order from the Commission (the Chase letter and one to the Investment Company Institute dated December 14, 2005).

In accordance with the conditions in the Chase and ICI letters, investments in the joint accounts were limited to, among other investments, short-term money market instruments that constituted eligible securities. The securities are no longer eligible securities and the adviser determined that it would be in the best interests of the funds to dispose of them.

In the absence of liquidity in the market for these securities, the adviser and the board of trustees believed that it would not be in the best interests of each fund and each fund's shareholders to dispose of the securities in the market. Allianz Global, which is an affiliated person of the adviser, said it was prepared to purchase the securities. The aggregate consideration would be greater than the market value, including accrued interest, of the securities at the time of purchase. The transaction would satisfy the requirements of Rule 17a-9 except that the funds are not money market funds.

The staff advised that it would not recommend enforcement action if Allianz Global purchased the securities for the aggregate consideration outlined in the letter. The letter confirmed oral no-action relief provided on March 9, 2009. The parties requested confidential treatment for their request until the information was made public out of concern that premature disclosure might adversely affect the parties.

The staff also noted that it generally permits third parties to rely on no-action or interpretive letters to the extent that the third party's facts and circumstances are substantially similar. However, based on the fact-specific nature of the Allianz Funds request, the staff position applies only to the entities seeking relief. No other entity may rely on the position. If other funds are facing similar legal issues, they should contact the staff about the availability of no-action relief.