[Federal Register Volume 60, Number 244 (Wednesday, December 20, 1995)]
[Notices]
[Pages 65714-65716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30908]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21601; 812-9828]
Mutual Fund Group, et al.; Notice of Application
December 14, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Mutual Fund Group, Mutual Fund Trust, Mutual Fund Variable
Annuity Trust, Vista Global Fixed Income Portfolio, Vista Growth and
Income Portfolio, Vista International Equity Portfolio, Vista Capital
Growth Portfolio (collectively, the ``Investment Companies''), and the
Chase Manhattan Bank, N.A, or its successor entity subsequent to its
merger into Chemical Bank \1\ (the ``Adviser'').
\1\ Chase Manhattan Corporation has announced that it plans to
enter into a reorganization with Chemical Banking Corporation
pursuant to which Chemical Banking Corporation will be the surviving
corporation. This merger is expected to be completed on or about
April 1, 1996. Subsequent to this merger it is expected that the
Chase Manhattan Bank will be merged into Chemical Bank, with
Chemical Bank as the surviving bank, assuming the investment
management of the Investment Companies.
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f), and
22(g) and rule 2a-7 thereunder, under sections 6(c) and 17(b) of the
Act for an exemption from section 17(a)(1), and under section 17(d) of
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the Act and rule 17d-1 thereunder to permit certain joint arrangements.
SUMMARY OF APPLICATION: Applicants request an order that would permit
each applicant investment company to enter into deferred compensation
arrangements with its trustees who are not employees of its affiliated
persons.
FILING DATES: The application was filed on October 23, 1995, and
amended on December 7, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on January 8, 1996,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested.
[[Page 65715]]
Persons who wish to be notified of a hearing may request notification
by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, the Investment Companies, Vista Service Center, P.O.
Box 419392, Kansas City, Missouri 64141-6392, and the Adviser, One
Chase Manhattan Plaza, New York, New York 10081.
FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Staff Attorney, at
(202) 942-0572, or C. David Messman, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. Mutual Fund Group, Mutual Fund Trust, Mutual Fund Variable
Annuity Trust, Vista Global Fixed Income Portfolio, Vista Growth and
Income Portfolio, Vista International Equity Portfolio and Vista
Capital Growth Portfolio are diversified open-end management investment
companies that currently consist of 32 separate portfolios. The Adviser
serves as the investment adviser for the Investment Companies and Vista
Broker-Dealer Services, Inc. services as their distributor.
2. Applicants request that relief be extended to any other
registered open-end investment company established or acquired in the
future, or series thereof, (including any successors in interest \2\)
advised by the Adviser (together with the Investment Companies, the
``Funds'').
\2\ ``Successors in interest'' is herein limited to entities
that result from a reorganization into another jurisdiction or a
change in the type of business organization.
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3. Each Investment Company has a board of trustees, a majority of
the members of which are not ``interested persons'' of such Investment
Company within the meaning of section 2(a)(19) of the Act. Each of the
trustees who is not as employee of the Adviser, the Investment
Companies' administrator or distributor, or any of their affiliates
(``Eligible Trustees'') receives annual fees which collectively are,
and are expected to continue to be, insignificant in comparison to the
total net assets of the Investment Companies. Applicants request an
order to permit the Eligible Trustees to elect to defer receipt of all
or a portion of their fees pursuant to a deferred compensation plan
(the ``Plan'') and related election agreement entered into between each
Eligible Trustee and the appropriate Fund. Under the Plan, the Eligible
Trustees could defer payment of trustees' fees (the ``Deferred Fees'')
in order to defer payment of income taxes or for other reasons.
4. Under the Plan, the deferred fees payable by a Fund to a
participating Eligible Trustee will be credited to a book reserve
account established by the Fund (a ``Deferral Account''), as of the
first business day following the date such fees would have been paid to
the Eligible Trustee. The trustee may select one or more investment
portfolios from a list of available Investment Companies that will be
used to measure the hypothetical investment performance of the
trustee's Deferral Account. The value of a Deferral Account will be
equal to the value such account would have had if the amount credited
to it had been invested and reinvested in shares of the investment
portfolios designated by the trustee (the ``Designated Shares'').
5. Each Investment Company intends generally to purchase and
maintain Designated Shares in an amount equal to the deemed investments
of the Deferred Accounts of its trustees. Any participating money
market series of a Fund that values its assets by the amortized cost
method will buy and hold the Designated Shares that determine the
performance of the Deferral Accounts in order to achieve an exact match
between such series' liability to pay deferred fees and the assets that
offset such liability. The accrued liability of each Investment Company
for the compensation deferrals will fluctuate with changes in the value
of the Designated Shares. The Investment Company will not, however,
experience any economic effect from the fluctuating liability because
it will own Designated Shares purchased with money that otherwise would
have been paid to the Eligible Trustee. Changes in the amount of the
liability will be exactly matched by changes in the value of the
Designated Shares.
6. The Funds' respective obligations to make payments of amounts
accrued under the Plan will be general unsecured obligations, payable
solely from their respective general assets and property. The Plan
provides that the Funds will be under no obligation to purchase, hold
or dispose of any investments under the Plan, but, if one or more of
the Funds choose to purchase investments to cover their obligations
under the Plan, then any and all such investments will continue to be a
part of the respective general assets and property of such Funds.
7. Payment to Eligible Trustees will be made in a lump sum or in
generally equal annual installments over a period of no more than 10
years as selected by the Eligible Trustee at the time of deferral. In
the event of death, amounts payable to the Eligible Trustee under the
Plan will become payable to a beneficiary designated by the Eligible
Trustee. In all other events, the Eligible Trustee's right to receive
payments is non-transferable.
8. The Plan was adopted prior to receipt of the requested relief.
Pending receipt of SEC approval, the Plan provides that the
compensation deferred by an Eligible Trustee will be credited to a
Deferral Account in the form of cash and credited with an amount equal
to the yield on 90 day U.S. Treasury Bills.\3\
\3\ See, e.g., American Balanced Fund, Inc. (pub. avail. Feb.
13, 1984) (no-action assurances given for deferred compensation plan
in which the value of the deferred amounts did not depend upon the
investment company's performance).
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Applicants' Legal Analysis
1. Applicants request an order which would exempt the Funds: (a)
under section 6(c) of the Act from sections 13(a)(2), 13(a)(3),
18(f)(1), 22(f), and 22(g) and rule 2a-7 thereunder, to the extent
necessary to permit the Funds to adopt and implement the Plan; (b)
under sections 6(c) and 17(b) of the Act from section 17(a)(1) to
permit the Funds to sell securities for which they are the issuer to
participating Funds in connection with the Plan; and (c) under section
17(d) of the Act and rule 17d-1 thereunder to permit the Funds to
effect certain joint transactions incident to the Plan.
2. Section 18(f)(1) generally prohibits a registered open-end
investment company from issuing senior securities. Section 13(a)(2)
requires that a registered investment company obtain shareholder
authorization before issuing any senior security not contemplated by
the recitals of policy in its registration statement. Applicants state
that the Plan possesses none of the characteristics of senior
securities that led Congress to enact section 18(f)(1). The Plan would
not: (a) Induce speculative investments or provide opportunities for
manipulative allocation of any Fund's expenses or profits; (b) affect
control of any Fund; or (c) confuse investors or convey a false
impression as to the safety of their investments. All liabilities
created under the Plan would be offset by equal amounts of assets that
would not otherwise exist if the fees were paid on a current basis.
3. Section 22(f) prohibits undisclosed restrictions on
transferability or negotiability of redeemable securities
[[Page 65716]]
issued by open-end investment companies. Applicants state that such
restrictions are set forth in the Plan, which would be included
primarily to benefit the Eligible Trustees and would not adversely
affect the interests of the trustees or of any shareholder.
4. Section 22(g) prohibits registered open-end investment companies
from issuing any of their securities for services or for property other
than cash or securities. This provision prevents the dilution of equity
and voting power that may result when securities are issued for
consideration that is not readily valued. Applicants believe that the
Plan would merely provide for deferral of payment of such fees and thus
should be viewed as being issued not in return for services but in
return for a Fund not being required to pay such fees on a current
basis.
5. Section 13(a)(3) provides that no registered investment company
shall, unless authorized by the vote of a majority of its outstanding
voting securities, deviate from any investment policy that is
changeable only if authorized by shareholder vote. The relief requested
from section 13(a)(3) would extend only to existing Investment
Companies. Applicants believe that relief from section 13(a)(3) is
appropriate to enable the affected Investment Companies to invest in
Designated Shares without a shareholder vote. Applicants will provide
notice to shareholders in the prospectus of each affected Investment
Company of the Deferred Fees under the Plan. The value of the
Designated Shares will be de minimis in relation to the total net
assets of the respective Investment Company, and will at all times
equal the value of the Investment Company's obligations to pay deferred
fees.
6. Rule 2a-7 imposes certain restrictions on the investments of
``money market funds,'' as defined under the rule, that would prohibit
a Fund that is a money market Fund from investing in the shares of any
other Fund. Applicants believe that the requested exemption would
permit the Funds to achieve an exact matching of Designated Shares with
the deemed investments of the Deferral Accounts, thereby ensuring that
the deferred fees would not affect net asset value.
7. Section 6(c) provides, in relevant part, that the SEC may,
conditionally or unconditionally, by order, exempt any person or class
of persons from any provision of the Act or from any rule thereunder,
if such exemption is necessary or appropriate in the public interest,
consistent with the protection of investors, and consistent with the
purposes fairly intended by the policy and provisions of the Act.
Applicants submit that the relief requested from the above provisions
satisfies this standard.
8. Section 17(a)(1) generally prohibits an affiliated person, or an
affiliated person of an affiliated person, of a registered investment
company from selling any security to such registered investment
company. The Adviser is an affiliated person of each of the Fund's
portfolios pursuant to section 2(a)(3)(E) of the Act. Each portfolio
may be treated as an affiliated person of each other portfolio by
reason of being under the common control of the Adviser.\4\ The sale by
a portfolio of any security to any other portfolio of any Fund would
therefore be subject to the prohibitions of section 17(a)(1).
Applicants assert that section 17(a)(1) was designed to prevent, among
other things, sponsors of investment companies from using investment
company assets as capital for enterprises with which they were
associated or to acquire controlling interest in such enterprises.
Applicants submit that the sale of securities issued by the Funds
pursuant to the Plan does not implicate the concerns of Congress in
enacting this section, but merely would facilitate the matching of each
Fund's liability for deferred trustees' fees with the Designated Shares
that would determine the amount of such Fund's liability.
\4\ Section 2(a)(3)(C) of the Act defines the term ``affiliated
person'' of another person to include any person directly or
indirectly controlling, controlled by, or under common control with
such other person.
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9. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 217(a) if evidence establishes that the terms
of the transaction, including the consideration to be paid or received,
are reasonable and fair and do not involve overreaching on the part of
any person concerned, the transaction is consistent with the policies
of the registered investment company, and the general purposes of the
Act. Applicants assert that the proposed transaction satisfies the
criteria of section 17(b). The finding that the terms of the
transaction are consistent with the policies of the registered
investment company is predicated on the assumption that relief is
granted from section 13(a)(3). Applicants also request relief from
section 17(a)(1) under section 6(c) to the extent necessary to
implement the Deferred Fees under the Plan on an ongoing basis.\5\
\5\ Section 17(b) may permit only a single transaction, rather
than a series of on-going transactions, to be exempted from section
17(a). See Keystone Custodian Funds, Inc., 21 S.E.C. 295 (1945).
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10. Section 17(d) and rule 17d-1 generally prohibit a registered
investment company's joint or joint and several participation with an
affiliated person in a transaction in connection with any joint
enterprise or other joint arrangement or profit-sharing plan ``on a
basis different from or less advantageous than that of'' the affiliated
person. Eligible Trustees will not receive a benefit, directly or
indirectly, that would otherwise inure to a Fund or its shareholders.
Eligible Trustees will receive tax deferral but the Plan otherwise will
maintain the parties, viewed both separately and in their relationship
to one another, in the same position as if the deferred fees were paid
on a current basis. When all payments have been made to a Eligible
Trustee, the Eligible Trustee will be no better off, relative to the
Funds, than if he or she had received trustee fees on a current basis
and invested them in Designated Shares.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. With respect to the relief requested from rule 2a-7, any money
market Fund that values its assets by the amortized cost method will
buy and hold Designated Shares that determine the value of Deferral
Accounts to achieve an exact match between the liability of any such
Fund to pay compensation deferrals and the assets that offset that
liability.
2. If a Fund purchases Designated Shares issued by an affiliated
Fund, the Fund will vote such shares in proportion to the votes of all
other shareholders of such affiliated Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30908 Filed 12-19-95; 8:45 am]
BILLING CODE 8010-01-M
