[Federal Register Volume 61, Number 69 (Tuesday, April 9, 1996)]
[Notices]
[Pages 15844-15846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8791]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21872; 812-10038]
MAS Funds; Notice of Application
April 3, 1996.
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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applicant: MAS Funds.
relevant act sections: Order requested under section 6(c) of the Act
for an exemption from sections 13(a)(2), 18(f)(1), 22(f), and 22(g) of
the Act and rule 2a-7 thereunder, under sections 6(c) and 17(b) of the
Act for an exemption from section 17(a)(1) of the Act, and under
section 17(d) of the Act and rule 17d-1 thereunder to permit certain
joint arrangements.
summary of application: Applicant requests an order that would permit
it to enter into deferred compensation arrangements with its
independent trustees.
filing dates: The application was filed on March 7, 1996.
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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on April 29, 1996,
and should be accompanied by proof of service on applicant, 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, NW., Washington, DC 20549.
Applicant, One Tower Bridge, West Conshohocken, PA 19428.
for further information contact: Elaine M. Boggs, Staff Attorney, at
(202) 942-0572, or Robert A. Robertson, 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.
Applicant's Representations
1. Applicant is a Pennsylvania business trust registered under the
Act as an open-end management investment company and organized as a
series company. One portfolio, the Cash Reserves Portfolio, is a money
market fund. Miller Anderson & Sherrerd, LLP (the ``Adviser'') serves
as the Fund's investment adviser.
2. Applicant has a board of trustees, a majority of the members of
which are not ``interested persons'' of applicant within the meaning of
section 2(a)(19) of the Act. Each of the trustees who is not an
``interested person'' receives annual fees which collectively are, and
are expected to continue to be, insignificant in comparison to the
total net assets of applicant. Applicant requests an order to permit
the trustees who are not interested persons (the ``Eligible Trustees'')
to defer receipt of all or a portion of their fees pursuant to a
deferred compensation plan (the ``Plan''). Under the Plan, the Eligible
Trustees could defer payment of trustees' fees (the ``Deferred
Compensation'') in order to defer payment of income taxes or for other
reasons.
3. Applicant requests that relief be extended to any registered
investment company established or acquired in the future, or series
thereof, for which the Adviser or any entity controlling, controlled
by, or under common control with the Adviser acts in the future as
investment adviser and any successors in interest to applicant or its
portfolios or any future fund (collectively,
[[Page 15845]]
applicant, its portfolios, and any future fund are referred to herein
as the ``Fund'').\1\
\1\ ``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, e.g., a partnership or
a corporation.
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4. The Adviser was acquired by affiliates of Morgan Stanley Asset
Management Inc. (``Morgan Stanley''). The SEC recently issued an order
which permits certain funds advised by Morgan Stanley to establish
deferred compensation plans for their independent trustees (the
``Morgan Stanley Order'').\2\ Because the Fund wishes to adopt a
different plan from the one described in the Morgan Stanley Order, the
proposed Plan will not be covered by the Morgan Stanley Order.
Conversely, the relief requested would not apply to any investment
company that adopts the deferred compensation plan described in the
Morgan Stanley Order.
\2\ PCS Cash Fund, Inc., Investment Company Act Release Nos.
21569 (Dec. 5, 1995) (notice) and 21647 (Jan. 3, 1996) (order).
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5. Trustee's fees include quarterly meeting fees and an annual
retainer. Under the Plan, each Eligible Trustee must defer a minimum of
25% of each year's fees. To this end, the Plan provides that each
Eligible Trustee's entire annual retainer will be deferred, and such
deferral will be deemed to be a deferral of 25% of the Eligible
Trustee's fees for the year. Each Eligible Trustee also annually may
elect to defer receipt of any or all of the other fees that he or she
may receive during the year.
6. 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 deferred fees will accrue income from the
date of credit in an account equal to the amount that would have been
earned had such fees (and all income earned thereon) been invested and
reinvested in shares of one or more designated portfolios of the Fund
(``Shares''). An Eligible Trustee will not be able to select Shares if
the purchase of such Shares by the Fund would violate sections 12(d)(1)
or 13(a)(3) of the Act.
7. The Fund's obligations to make payments of amounts accrued under
the Plan will be general unsecured obligations, payable from its
general assets and property. The Plan provides that the Fund will be
under no obligation to purchase, hold or dispose of any investments
under the Plan, but, if the Fund chooses to purchase investments to
cover its obligations under the Plan, then any and all such investments
will continue to be a part of the respective general assets and
property of the Fund.
8. Any Fund or portfolio thereof that values its assets in
accordance with a method prescribed by rule 2a-7 will buy and hold the
shares that determine the value of the Deferral Accounts in order to
achieve an exact match between the Fund's liability to pay deferred
fees and the assets that offset such liability.
9. In addition, as a matter of prudent risk management, each Fund
that is not a money market fund may purchase Shares in amounts equal to
the Deferral Accounts. The Shares will be held solely in the name of
the Fund. Thus, when a Fund purchases Shares, liabilities created by
the credits to the Deferral Accounts under the Plan are expected to be
matched by an equal amount of assets. Such assets would not be held by
the Fund if the trustee fees were paid on a current basis. It is not
anticipated that any portfolio will purchase its own Shares. Monies
that such portfolio might have used to purchase its own Shares will be
invested as part of the portfolio's general investment operations.
10. Deferred Compensation generally will become payable in cash
when an Eligible Trustee retires. An Eligible Trustee may elect to
receive payment in a lump sum or in equal annual installments over a
period of five years. In the event of death prior to any distribution,
such trustee's Deferral Account will become payable in cash to the
trustee's designated beneficiary in a lump sum.
11. The Plan will not obligate any participating Fund to retain a
trustee in such a capacity, nor will it obligate any Fund to pay any
(or any particular level of) trustees' fees to any trustee.
Applicant's Legal Analysis
1. Applicant requests an order which would exempt the Fund: under
section 6(c) of the Act from sections 13(a)(2), 18(f)(1), 22(f), and
22(g) of the Act and rule 2a-7 thereunder, under sections 6(c) and
17(b) of the Act from section 17(a)(1) of the Act, and under section
17(d) of the Act and rule 17d-1 thereunder to the extent necessary to
permit the fund to adopt and implement 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. Applicant states
that the Plan possesses none of the characteristics of senior
securities that led Congress to enact sections 13(a)(2) and 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 issued by
open-end investment companies. Regardless of whether interests in the
Plan may fall within the definition of ``security,'' the Plan would set
forth all restrictions on transferability, which would be included
primarily to benefit the Eligible Trustees and would not adversely
affect the interests of the shareholders of the Fund.
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. Applicant believes 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. 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. Applicant believes that the requested exemption would
permit the Funds to achieve an exact matching of Shares with the deemed
investments of the Deferral Accounts, thereby ensuring that the
deferred fees would not affect net asset value.
6. Section 6(c) provides, in relevant part, that the SEC may 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. Applicant believes that the relief
requested satisfies this standard.
[[Page 15846]]
7. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company from selling any security to such
registered investment company.\3\ The section 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.
Applicant believes 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.
\3\ Section 2(a)(3)(C) of the Act defines the term ``affiliated
person'' of another person to include any person controlling,
controlled by, or under common control with such other person. Thus,
the Fund and each of its portfolios may be subject to the
prohibitions of section 17(a)(1).
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8. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(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. Applicant believes that the proposed transaction satisfies the
criteria of section 17(b). Applicant also requests relief from section
17(a)(1) under section 6(c) to the extent necessary to implement the
Deferred Compensation under the Plan on an ongoing basis.\4\
\4\ 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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9. Section 17(d) of the Act makes it unlawful for any affiliated
person of a registered investment company, acting as principal, to
effect any transaction in which the company is a joint or joint and
several participant in contravention of such rules and regulations as
the SEC may prescribe. Rule 17d-1 permits an affiliated person to
engage in a joint transaction if the SEC issues an order. 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 Fund, than if he or she
had received trustees fees on a current basis and invested them in
Shares.
Applicant's Conditions
Applicant agrees that the order granting the requested relief will
be subject to the following conditions:
1. With respect to the relief requested from rule 2a-7, the Cash
Reserves Portfolio, and any other Fund or portfolio that is a money
market fund that values its assets in accordance with a method
prescribed by rule 2a-7, will buy and hold the Shares that determine
the value of the Deferral Accounts to achieve an exact match between
such portfolio's or Fund's liability to pay deferred fees and the
assets that offset that liability.
2. If a portfolio or Fund purchases Shares issued by an affiliated
portfolio or Fund, the acquiring portfolio or Fund will vote such
Shares in proportion to the votes of all other holders of Shares of
such affiliated portfolio or Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-8791 Filed 4-8-96; 8:45 am]
BILLING CODE 8010-01-M
