[Federal Register Volume 63, Number 248 (Monday, December 28, 1998)]
[Notices]
[Pages 71520-71522]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34257]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23614; 812-11246]
Mitchell Hutchins Institutional Series, et al.; Notice of
Application
December 21, 1998
AGENCY: Secururities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
section 15(a) of the Act and rule 18f-2 under the Act.
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SUMMARY OF APPLICATION: The order would permit applicants to enter into
and materially amend subadvisory agreements without obtaining
shareholder approval.
APPLICANTS: Mitchell Hutchins Institutional Series; Mitchell Hutchins
Portfolios; Mitchell Hutchins Series Trust; PaineWebber America Fund;
PaineWebber Financial Services Growth Fund Inc.; PaineWebber Index
Trust; PaineWebber Investment Series; PaineWebber Investment Trust;
PaineWebber Investment Trust II; PaineWebber Managed Assets Trust;
PaineWebber Managed Investments Trust; PaineWebber Master Series, Inc.;
PaineWebber Municipal Series; PaineWebber Mutual Fund Trust;
PaineWebber Olympus Fund; PaineWebber Securities Trust (the
``Companies'') \1\ and Mitchell Hutchins Asset Management Inc.
(``Adviser'').
\1\ Applicants also request relief with respect to any other
open-end management investment company, or series of such company,
organized in the future and advised by the Adviser, or a person
controlling, controlled by or under common control with the Adviser
(a ``Future Fund''), provided that such Future Fund operates in
substantially the same manner as the Companies with respect to the
Adviser's responsibility to select, evaluate, and supervise
subadvisers and complies with the terms and conditions of the
application. Each existing registered open-end management investment
company that currently intends to rely on the order is named as an
applicant.
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FILING DATES: The application was filed August 5, 1998, and amended
October 27, 1998. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected in this notice.
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 15,
1999, and should be accompanied by proof of service on the applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 fifth Street, N.W., Washington, D.C.
20549; Applicants, 1285 Avenue of the Americas, New York, NY 10019.
FOR FURTHER INFORMATION CONTACT:
Timothy R. Kane, Staff Attorney, at (202) 942-0615, or Edward P.
MacDonald, 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, 450 Fifth
[[Page 71521]]
Street, N.W., Washington, D.C. 20549 (telephone 202-942-8090).
Applicants' Representations
1. Each Company is registered under the Act as an open-end
management investment company offering shares of one or more series
(``Funds''), each with its own distinct investment objectives,
policies, and restrictions. The Companies are organized as Delaware
business trusts, Massachusetts business trusts, or Maryland
corporations.
2. The Adviser, registered under the Investment Advisers Act of
1940 (``Advisers Act''), and wholly-owned by PaineWebber Incorporated,
serves as investment adviser to all Companies pursuant to investment
advisory agreements (``Advisory Agreements''). Certain Funds currently
have one subadviser (``Subadviser''), each of which is registered under
the Advisers Act.
3. Under the Advisory Agreements, the Adviser, subject to the
supervision of the boards of directors of the Companies (the
``Boards''), provides each Fund with investment research, advice, and
supervision, furnishes and investment program for each Fund consistent
with the investment objectives and policies of the Fund, and oversees
the Subadvisers. The adviser also administers each Fund's business
affairs and maintains the financial and accounting records of each
Fund. The Adviser comprehensively reviews the qualifications of
possible Subadvisers and thoroughly analyzes whether to hire a
Subadviser. Each Subadviser is ultimately approved by the Boards. The
Adviser regularly evaluates existing Subadvisers under the same
standards. For these services, each Fund pays the Adviser a fee based
on the Fund's average net assets.
4. Under subadvisory agreements between the Adviser and Subadvisers
(``Subadvisory Agreements''), each Subadviser provides day-to-day
portfolio management to the Fund. The Adviser pays the Subadvisers'
fees out of the fees the Adviser receives from the Fund.
5. Applicants request an order to permit the Adviser to enter into
and materially amend Subadvisory Agreements without obtaining
shareholder approval. The requested relief will not extend to a
Subadviser that is an ``affiliated person'' (as defined in section
2(a)(3) of the Act) of the Company, the Adviser, or the Funds, other
than by reason of serving as a Subadviser to one or more of the Funds
(``Affiliated Subadviser'').
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to act as an investment adviser to a registered
investment company except under a written contract approved by a
majority of the investment company's outstanding voting shares. Rule
18f-2 under the Act provides that each series or class of stock in a
series company affected by a matter must approve the matter if the Act
requires shareholder capital.
2. Section 6(c) of the Act authorizes the Commission to exempt
persons or transactions from the provisions of the Act to the extent
that the exemption is necessary or appropriate in the public interest
and consistent with the protection of investors and the purposes fairly
intended by the policies and provisions of the Act. Applicants believe
that their requested relief meets this standard for the reasons
discussed below.
3. Applicants assert that a Fund's investors rely on the Adviser to
select and monitor Subadvisers best suited to achieve the Fund's
investment objective. Applicants represent that the Adviser has
substantial experience in performing these functions for the Companies.
Applicants submit that, from the perspective of an investor, the role
of the Subadvisers is comparable to that of individual portfolio
managers employed by other investment company advisory firms.
Applicants thus contend that, without the requested relief, the Company
may be precluded from promptly and effectively employing Subadvisers
best suited to the needs of the Funds. Applicants also note that the
Advisory Agreements will remain fully subject to the shareholder
approval requirements of the Act and rules under the Act.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Fund may rely on the requested order, the operation of
the Fund as described in the application will be approved by the vote
of a majority of the Fund's outstanding voting securities, as defined
in the Act, or, in the case of a Future Fund whose public shareholders
purchased shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the initial shareholders before
offering shares of that Fund to the public.
2. Each fund will disclose in its prospectus the existence,
substance, and effect of any order granted pursuant to the application.
In addition, each Fund will hold itself out to the public as employing
the management structure described in the application. The Fund's
prospectus will prominently disclose that the Adviser has the ultimate
responsibility to oversee Subadvisers and recommend their hiring,
termination, and replacement.
3. At all times, a majority of each Company's Board will be persons
each of whom is not an ``interested person'' of the Company or the
Adviser as defined in section 2(a)(19) of the Act (``Independent
Directors''), and the nomination of new or additional Independent
Directors will be at the discretion of the then-existing Independent
Directors.
4. The Adviser will not enter into a Subadvisory Agreement with any
Affiliated Subadviser without the Subadvisory Agreement, including the
compensation to be paid under that Agreement, being approved by the
shareholders of the applicable Fund.
5. When a Subadviser change is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Independent Directors, will make a separate finding, reflected in the
Board's minutes, that the change is in the best interests of the Fund
and its shareholders and does not involve a conflict of interest from
which the Adviser or the Affiliated Subadviser derives an inappropriate
advantage.
6. Within 90 days of the hiring of any new Subadviser, shareholders
will be furnished relevant information about the new Subadviser that
would be contained in a proxy statement, including any change in such
disclosure caused by the addition of the new Subadviser. Each Fund will
meet this condition by providing shareholders with an Information
Statement meeting the requirements of Regulation 14C, Schedule 14C, and
Item 22 of Schedule 14A of the Securities Exchange Act of 1934 within
90 days of the hiring of the Subadviser.
7. The Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of each Fund's portfolio, and, subject to
review and approval by the Board, will: (i) set the Fund's overall
investment strategies; (ii) select Subadvisers; (iii) monitor and
evaluate the performances of Subadvisers; (iv) ensure that the
Subadvisers comply with the Fund's investment objectives, policies, and
restrictions by, among other things, implementing procedures reasonably
designed to ensure compliance; and (v) allocate and, when appropriate,
[[Page 71522]]
reallocate a Fund's assets among Subadvisers when a Fund has more than
one Subadviser.
8. No trustee, director, or officer of a Company or director or
officer of the Adviser will own directly or indirectly (other than
through a pooled investment vehicle that is not controlled by the
trustee, director, officer) any interest in a Subadviser, except for
(i) ownership of interests in the Adviser or any entity that controls,
is controlled by, or is under common control with the Adviser; or (ii)
ownership of less than one percent of the outstanding securities of any
class of equity or debt of a publicly-traded company that is either a
Subadviser or an entity that controls, is controlled by, or is under
common control with a Subadviser.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-34257 Filed 12-24-98; 8:45 am]
BILLING CODE 8010-01-M
