[Federal Register Volume 62, Number 87 (Tuesday, May 6, 1997)]
[Notices]
[Pages 24679-24680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11742]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22649; 812-10564]
New USA Mutual Funds, Inc., et al.; Notice of Application
April 30, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANTS: New USA Mutual Funds, Inc. (``New USA Co.'') on behalf of
its series, New USA Growth Fund; New USA Research & Management Co.
(``NURM''); O'Neil Data Systems, Inc. (``ODS''); and MFS Series Trust
II (``MFS Series II''). on behalf of its series, MFS Emerging Growth
Fund (``MFS Growth Fund'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) for an
exemption from section 15(f)(1)(A).
SUMMARY OF APPLICATION: Applicants request an exemption from section
15(f)(1)(A) to permit ODS to sell its interest in NURM, the investment
manager of the New USA Growth Fund, a series offered by New USA Co., to
MFS. Without the requested exemption, MFS Series II would have to
reconstitute its boards of directors to meet the 75 percent non-
interested director requirement of section 15(f)(1)(A) in order to
comply with the safe harbor provisions of section 15(f).
FILING DATES: The application was filed on March 11, 1997.
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 May 27, 1997 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. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants: New USA Mutual Funds, Inc., New USA Research & Management
Co., and O'Neil Data Systems, Inc., 12655 Beatrice Street, Los Angeles,
California 90066; and MFS Series Trust II c/o MFS Emerging Growth Fund,
500 Boylston Street, Boston, Massachusetts 02116.
FOR FURTHER INFORMATION CONTACT:
Mary T. Geffroy, Staff Attorney, at (202) 942-0553, or Mary Kay Frech,
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 from
the SEC's Public Reference Branch.
Applicant's Representations
1. New USA Co. is an open-end management investment company
registered under the Act consisting of one series, the New USA Growth
Fund. NURM is the investment manager of the New USA Growth Fund
pursuant to an investment management agreement between New USA Co. and
NURM (the ``Investment Advisory Agreement''). NURM's sole stockholder
and parent company is ODS.
2. MFS Series II is an open-end management investment company
registered under the Act consisting of four separate series (the ``MFS
Series II Funds''), including the MFS Growth Fund. The MFS Growth Fund
is part of the MFS family of funds, which consists of approximately 50
funds (collectively, the ``MFS Funds''). Massachusetts Financial
Services Company (``MFS'') is the investment adviser to the MFS Growth
Fund.
3. MFS Series II proposes to acquire the assets and liabilities of
the New USA Growth Fund in exchange for shares of equal aggregate value
of the MFS Growth Fund. In connection therewith, MFS will acquire all
of the outstanding shares of the stock of NURM from ODS. The foregoing
transactions are referred to as the ``Transaction.''
4. On March 6, 1997, ODS and MFS entered into a Stock Purchase
Agreement (the ``Purchase Agreement'') pursuant to which, and subject
to certain conditions, MFS agreed to purchase all of the outstanding
capital stock of NURM. The consummation of the Purchase Agreement is
subject to, among other things, the approval of the shareholders of the
New USA Growth Fund of a plan of reorganization by and between New USA
Co., on behalf of the New USA Growth Fund, and MFS Series II, on behalf
of the MFS Growth Fund (the ``Reorganization Agreement'').
5. The MFS Series II board of trustees approved the Reorganization
Agreement on December 11, 1996, and the New USA Co. board of directors
unanimously approved it on March 4, 1997. The Reorganization Agreement
provides for: (a) The acquisition by the MFS Growth Fund of
substantially all of the assets and liabilities of the New USA Growth
Fund in exchange for shares of the MFS Growth Fund; (b) the
distribution of these MFS Growth Fund shares to the shareholders of the
New USA Growth Fund in liquidation of the New USA Growth Fund; and (c)
New USA Co.'s
[[Page 24680]]
liquidation and termination under state law.
6. Applicants request an exemption under section 6(c) of the Act
from the provisions of section 15(f)(1)(A) to permit ODS to receive
consideration in compliance with section 15(f) in connection with the
Transaction, notwithstanding the fact that, after the Transaction, the
MFS Growth Fund will have a board of trustees consisting of fewer than
75% disinterested trustees.
Applicants' Legal Analysis
1. Section 15(f) of the Act is a safe harbor that permits an
investment adviser to a registered investment company (or an affiliated
person of the investment adviser) to realize a profit upon the sale of
its business (which results in an assignment of an advisory contract
with such company) if certain conditions are met. Section 15(f)(1)(A)
requires that, for a period of three years after such a sale, at least
75 percent of the board of the investment company (or its successor, by
reorganization or otherwise) may not be ``interested persons'' with
respect to either the predecessor or successor adviser of the
investment company.
2. Section 6(c) of the Act permits the SEC to exempt any person or
transaction from any provision of the Act, or any rule or regulation
thereunder, if the 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.
Section 15(f)(3)(B) provides that if the assignment of an investment
advisory contract results from the merger of, or sale of substantially
all the assets by, a registered investment company with or to another
registered investment company with assets substantially greater in
amount, such discrepancy in size shall be considered by the SEC in
determining whether, or to what extent, to grant exemptive relief
pursuant to section 6(c) from section 15(f)(1)(A).
3. Applicants state that at February 24, 1997, the New USA Co. had
assets of approximately $203 million, as compared to MFS Series II's
assets of approximately $2.649 billion; therefore, the assets of New
USA Co. are approximately 7.7% of the assets of MFS Series II. Thus,
the transaction involves an acquisition by an investment company with
assets ``substantially greater'' than the assets of the acquired fund.
4. Applicants assert that it is appropriate for the assets of each
investment company, as opposed to each series, to be taken into account
when considering the ``substantially greater'' test set forth in
section 15(f)(3)(B). Applicants contend that any other conclusion would
be inconsistent with the literal language of the section, which refers
to the sale of assets of one investment company to another ``investment
company with assets substantially greater in amount.'' Applicants state
that MFS Series II and the New USA Co. are the registered investment
companies involved in the transaction and, in fact, the board of
trustees of MFS Series II and the board of director of New USA Co.
authorized the transaction on behalf of their respective series.
5. The board of directors of New USA Co. and the board of trustees
of MFS Series II consist of the following (``Interested Directors'' and
``Interested Trustees'' are directors and trustees who are ``interested
persons,'' within the meaning of section 2(a)(19) of the Act, of NURM
and MFS, respectively):
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Number of Number of
interested disinterested
Investment company directors/ directors/ Total
trustees trustees
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New USA Co......................... 1 4 5
MFS Series......................... 4 7 11
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In order to comply with section 15(f)(1)(A) following consummation
of the transactions, MFS Series II would have to add five Disinterested
Trustees or reduce the number of Interested Trustees from four to two.
If MFS Series II were to add five Disinterested Trustees, a vote of it
shareholders would be required pursuant to section 16(a) of the Act,
which requires that at least two-thirds of a fund's trustees be elected
by shareholders. MFS Series II otherwise would not be required to hold
a shareholders meeting under Massachusetts law or the Act to consummate
the transaction.
6. For the reasons stated above, applicants assert that the
requested relief is necessary and appropriate in the public interest,
and is consistent with the protection of investors and the purposes
fairly intended by the policy and provisions of the Act, as required by
section 6(c).
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-11742 Filed 5-5-97; 8:45 am]
BILLING CODE 8010-01-M
