02-15708. Merrimac Master Portfolio, et al.; Notice of Application

June 17, 2002.

AGENCY:

Securities and Exchange Commission (“Commission”).

ACTION:

Notice of application 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.

Summary of Application: Applicants seek an order that would permit them to enter into and materially amend subadvisory agreements without shareholder approval.

Applicants: Merrimac Master Portfolio (“Master Trust”), Merrimac Series (“Feeder Series Trust”), Merrimac Funds (“Feeder Funds Trust”) and Investors Bank & Trust Company—Advisory Division (“Adviser”).

Filing Dates: The application was filed on May 19, 2000, and amended on June 12, 2002.

Hearing or Notification of Hearing: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on July 12, 2002, 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 who wish to be notified of a hearing may request notification by writing to the Commission's Secretary.

ADDRESSES:

Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC, 20549-0609. Applicants, c/o Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA, 02116.

FOR FURTHER INFORMATION CONTACT:

Julia Kim Gilmer, Senior Counsel, at [phone], or Todd F. Kuehl, Branch Chief, at [phone] (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 Commission's Public Reference Branch, 450 Fifth Street, NW., Washington, DC, 20549-0102 (tel. [phone]).

Applicants' Representations

1. The Master Trust, the Feeder Series Trust and the Feeder Funds Trust are registered under the Act as open-end management investment companies.^[1] The Master Trust, a New York common law trust, consists of five Investment Companies (individually, a “Master Fund”) each with its own investment objectives, policies, and restrictions. The Feeder Series Trust and the Feeder Funds Trust are Delaware trusts and are composed of five and two Investment Companies respectively. Each Investment Company of a Feeder Series Trust and Feeder Funds Trust (a “Feeder Fund”) invests all of its investable assets in a single Master Fund with the same investment objective and policies as that Feeder Fund. The Adviser is registered under the Investment Advisers Act of 1940 (“Advisers Act”) and serves as investment adviser to each Master Fund pursuant to an investment advisory agreement (“Investment Adviser Agreement”) that was approved by each Master Fund's shareholders and the Master Trust's board of trustees (“Board”) (including a majority of the trustees who are not “interested persons,” as defined in section 2(a)(19) of the Act (“Independent Trustees”)). The Investment Adviser Agreements permit the Adviser to enter into separate investment advisory agreements (“Sub-Advisory Agreements”) with subadvisers (each a “Sub-Adviser”) to whom the Adviser delegates its responsibility for providing investment advice and making investment decisions for the particular Investment Company.

2. Under the terms of the Investment Adviser Agreements the Adviser assumes overall responsibility, subject to ongoing supervision of the Board, for administering all operations of the Master Trust and for monitoring and evaluating the management of each Master Fund's assets by one or more Sub-Advisers. Sub-Advisers will be recommended to the Board by the Adviser and selected and approved by the Board, including by a majority of the Independent Trustees. Each Sub-Adviser's fees will be paid by the Adviser out of the management fees received by the Adviser from the applicable Master Fund. Each Sub-Adviser is or will be registered under the Advisers Act. Currently, each Master Fund has a single Sub-Adviser.

3. The Adviser will administer all operations of the Master Trust, evaluate each Sub-Adviser's management of assets and recommend to the Board the hiring, termination and replacement of Sub-Advisers. The Adviser will recommend Sub-Advisers based on a number of factors used to evaluate their skills in managing assets pursuant to particular investment objectives.

4. Applicants request relief to permit the Adviser, subject to Board oversight, to enter into and materially amend Sub-Advisory Agreements without shareholder approval. The requested relief will not extend to a Sub-Adviser that is an affiliated person, as defined in section 2(a)(3) of the Act, of the Trusts or the Adviser, other than by reason of serving as a Sub-Adviser to one or more of the Investment Companies (“Affiliated Sub-Adviser”).

Applicants' Legal Analysis

1. Section 15(a) of the Act provides, in part, that it is unlawful for any person to act as investment adviser to a registered investment company except pursuant to a written contract that has been approved by the vote of a majority of the company's outstanding voting securities. Rule 18f-2 under the Act provides, in relevant part, that each series or class of stock in a series company affected by a matter must approve such matter if the Act requires shareholder approval.^[2]

2. Section 6(c) of the Act provides that the Commission may exempt any person, security, or transaction or any class or classes of persons, securities or transactions from any provision of the Act, or from any rule thereunder, if such 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 state that the requested relief meets this standard for the reasons discussed below.

3. Applicants assert that the shareholders of each Investment Company are relying on the Adviser to select and monitor the activities of Sub-Advisers best suited for the Investment Company. Applicants assert that, from the perspective of the investor, the role of the Sub-Advisers is comparable to that of individual portfolio managers employed by other investment advisory firms. Applicants contend that requiring shareholder approval of each Sub-Advisory Agreement may impose unnecessary costs and delays on the Investment Company, and may preclude the Adviser from acting promptly and efficiently in a manner considered advisable by the Board and the Adviser. Applicants note that the Investment Adviser Agreements will remain subject to section 15(a) of the Act and rule 18f-2 under the Act.

Applicants' Conditions

Applicants agree that any order granting the requested relief will be subject to the following conditions:

1. Before an Investment Company may rely on the order requested in the application, the operation of the Investment Company in the manner described in the application will be approved by a majority of the outstanding voting securities of the Investment Company, within the meaning of the Act, which in the case of a Master Fund will be pursuant to voting instructions provided by shareholders of the Feeder Fund investing in such Master Fund or other voting arrangements that comply with section 12(d)(1)(E)(iii)(aa) of the Act, if applicable; or, in the case of an Investment Company whose shareholders have purchased shares on the basis of a prospectus or offering circular containing the disclosure contemplated by condition 2 below, by the initial shareholder(s) before offering shares of that Investment Company to the public.

2. The offering circular or prospectus of any Investment Company relying on the requested relief or, in the case of a Master Fund relying on the requested relief, its offering documents and the corresponding Feeder Fund's offering circular or prospectus will disclose the existence, substance and effect of any order granted pursuant to this application. In addition, any such Investment Company will hold itself out to the public as employing the management structure described in the application. The offering circular or prospectus of such Investment Company, or in the case of such Master Fund, its offering documents and the corresponding Feeder Fund's offering circular or prospectus, will prominently disclose that the Adviser has the ultimate responsibility to oversee the Sub-Advisers and recommend their hiring, termination, and replacement.

3. At all times, a majority of the Board of each Trust will be Independent Trustees, and the nomination of new or additional Independent Trustees will be at the discretion of the then existing Independent Trustees.

4. Neither the Adviser nor any Investment Company will enter into a Sub-Advisory Agreement with an Affiliated Sub-Adviser without that agreement, including the compensation to be paid thereunder, being approved by the shareholders of the applicable Investment Company, which in the case of a Master Fund will be pursuant to voting instructions provided by shareholders of those Feeder Funds investing in such Master Fund that are registered under the Act, or other voting arrangements that comply with section 12(d)(1)(E)(iii)(aa) of the Act, if applicable.

5. When a Sub-Adviser change is proposed for an Investment Company with an Affiliated Sub-Adviser, the applicable Board of Trustees, including a majority of the Independent Trustees, will make a separate finding, reflected in the minutes of the Board of the Master Fund and the Board of Trustees of the corresponding Feeder Fund, that the change is in the best interests of the Master Fund and its shareholders, and any Feeder Fund investing in the Master Fund and its respective shareholders, and does not involve a conflict of interest from which the Adviser or Affiliated Sub-Adviser derives an inappropriate advantage.

6. Within 90 days of the hiring of any new Sub-Adviser, the shareholders of the applicable Master Fund and Feeder Fund will be furnished all information about the new Sub-Adviser that would have been contained in a proxy statement, including any change in such disclosure caused by the addition of a new Sub-Adviser. The Trusts will meet this condition by providing such shareholders, within 90 days of the hiring of a new Sub-Adviser an information statement meeting the requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under the Securities Exchange Act of 1934.

7. The Adviser will provide general management services to each Investment Company, including overall supervisory responsibility for the general management and investment of each Investment Company's portfolio, and, subject to review and approval by the respective Trusts' Board will (i) set the Investment Company's overall investment strategies; (ii) select Sub-Advisers; (iii) when appropriate, recommend to the Investment Company's Board the allocation and reallocation of the Investment Company's assets among multiple Sub-Advisers; (iv) monitor and evaluate the performance of Sub-Advisers; and (v) implement procedures reasonably designed to ensure that the Sub-Advisers comply with the Investment Company's investment objectives, policies, and restrictions.

8. No trustee, or officer of a Trust 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 or officer) any interest in a Sub-Adviser 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 1% of the outstanding securities of any class of equity or debt of a publicly-traded company that is either a Sub-Adviser or an entity that controls, is controlled by or is under common control with a Sub-Adviser.

For the Commission, by the Division of Investment Management, under delegated authority.

Jill M. Peterson,

Assistant Secretary.

Footnotes

1.  Applicants also request that any relief granted pursuant to the application also apply to any other existing or future registered open-end management investment company (“Future Trust,” together with the Master Trust, the Feeder Series Trust and the Feeder Funds Trust, the “Trusts”) and all current and future series of the Trusts (“Investment Companies”) that: (i) are advised by the Adviser (or a person controlling, controlled by, or under common control with the Adviser); (ii) use the same management structure; and (iii) comply with the terms and conditions in the application. The registered investment companies that currently intend to rely on the requested order are named as applicants. If the name of an Investment Company contains the name of a Sub-Adviser (as defined below), it will be preceded by the name of the Adviser.

2.  In the case of the Master Funds, shareholder approval requirements under section 15(a) and rule 18f-2 also are governed by the voting provisions set forth in section 12(d)(1)(E) of the Act.