[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Notices]
[Pages 64461-64463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30569]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21590; 812-9534]
Managed Accounts Services Portfolio Trust and Mitchell Hutchins
Asset Management Inc.; Notice of Application
December 11, 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: Managed Accounts Services Portfolio Trust (the ``Trust'')
and Mitchell Hutchins Asset Management Inc. (``Mitchell Hutchins'').
RELEVANT ACT SECTIONS: Applicants request an exemption under section
6(c) of the Act from section 15(a) of the Act and rule 18f-2
thereunder.
SUMMARY OF APPLICATION: The Trust is a registered investment company
advised by Mitchell Hutchins. Mitchell Hutchins oversees the selection
of other investment advisers for the Trust's series, monitors such
investment advisers, and allocates assets among them. The order would
permit an investment adviser other than Mitchell Hutchins to serve as
an investment adviser to one or more series of the Trust without
receiving prior shareholder approval.
FILING DATE: The application was filed on March 16, 1995, and amended
on August 9, and December 8, 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 5, 1996,
and should be accompanied by proof of service on applicants, in the
form of an addidavit, 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, D.C.
20549. Applicants, 1285 Avenue of the Americas, New York, New York
10019.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574 or Alison E. Baur,
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 is available for a fee from the
SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is a registered open-end management investment company
organized as a Delaware business trust. The Trust is currently composed
of twelve separate investment portfolios (each a ``Portfolio,'' and
collectively, the ``Portfolios''). The Trust was organized by Mitchell
Hutchins and its parent, PaineWebber Incorproated (``PaineWebber''), to
provide to participants in the PaineWebber PACE Program (the ``PACE
Program'') a cost-effective investment method (i.e., a series of pooled
investment funds) to invest their assets in a variety of different
asset classes managed by investment advisers selected and monitored by
Mitchell Hutchins.
2. Mitchell Hutchins, a Delaware corporation that is registered as
an investment adviser, acts as the investment manager and administrator
to the Trust pursuant to an Investment Management and Administration
Agreement with the Trust (the ``Management Agreement'') and is
responsible for the selection or termination of investment advisers
(``Sub-Advisers'') for each of the Portfolios. Mitchell Hutchins also
serves as the adviser to the PACE Money Market Investment Portfolio,
one of the
[[Page 64462]]
Trust's Portfolios. None of the Sub-Advisers has any affiliation with
Mitchell Hutchins or PaineWebber. Each Portfolio will pay Mitchell
Hutchins a management fee for investment management services provided
to the Trust, and an administrative fee for administrative services
provided to each Portfolio. Mitchell Hutchins compensates each Sub-
Adviser from the management fees that it receives from the applicable
Portfolio.
3. The purchase of shares of the Trust by a PACE Program
participant must be made through a brokerage account maintained with
PaineWebber.\1\ As described in the Trust's prospectus and marketing
materials, under the PACE Program, PaineWebber Managed Accounts
Services (``PMAS''), a division of PaineWebber, will provide
participants with asset allocation recommendations and related services
with respect to their investments in the Portfolios for a fee, which
will be charged directly to the participant's brokerage account. These
recommendations are based on an evaluation of each participant's
identified investment objectives and risk tolerances. PMAS will provide
each participant with written recommendations appropriate to that
participant, but the participant is under no obligation to act on the
recommendations, and PMAS will not have investment discretion over the
participant's account. Participants in the PACE Program are expected to
include individuals, institutional investors, individual retirement
accounts and qualified employee benefit plans.
\1\ Shares of the Portfolios may also be available at some
future date for purchase through other asset allocation programs
offered by professional asset managers (e.g. banks, trust companies,
or registered investment advisers) who, for compensation, engage in
the business of advising others as to the value of securities or as
to the advisability of investing in, purchasing or selling
securities.
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4. An important element of the PACE Program, as disclosed in the
Trust's prospectus\2\ and emphasized in the PACE Program marketing
materials, is the use of a significant number of different Sub-Advisers
evaluated, selected and monitored by Mitchell Hutchins. This structure
is often referred to as a ``multi-manager fund.'' An explanatory
supplemental sales literature brochure titled ``Investment Manager
Profiles'' provided to each PACE Program participant describes the Sub-
Adviser selection process and the Sub-Advisers employed currently by
the Trust.
\2\ The Trust's prospectus has also disclosed, since the
effective date of the Trust's registration statement on June 21,
1995, that the Trust was seeking an exemptive order from the SEC
exempting it from the requirement that each agreement between the
Trust and a Sub-Adviser be approved by a vote of a majority of the
shareholders of the affected Portfolio.
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5. Initially, each Portfolio, with the exception of the PACE Money
Market Investments Portfolio which will be advised by Mitchell
Hutchins, will have one Sub-Adviser. Mitchell Hutchins anticipates that
it may recommend the use of two or more Sub-Advisers for some, and
perhaps most, Portfolios as assets of the Portfolios increase and it
becomes cost-effective to allocate a Portfolio's assets among several
Sub-Advisers. Each Sub-Adviser would pursue a distinct but
complementary investment process.
6. Under the Management Agreement, Mitchell Hutchins manages the
investment operations of the Trust, administers the Trust's affairs,
and, except as provided below, makes recommendations for each Portfolio
to the Board of Trustees of the Trust regarding (a) the investment
strategies and policies of each Portfolio and (b) the selection and
retention of Sub-Advisers who will exercise investment discretion with
respect to the assets of each Portfolio. Mitchell Hutchins' services do
not include recommendations regarding the purchase of individual
securities, but consist of professional advice as to the Sub-Advisers
that are most likely, over time, to achieve the investment objectives
of the Portfolios.
7. Mitchell Hutchins provides investment advisory services for the
PACE Money Market Investments Portfolio, although the Trust reserves
the right to hire another Sub-Adviser to provide investment advisory
services to the PACE Money Market Investments Portfolio if Mitchell
Hutchins recommends, and the Board of Trustees approves, such action.
8. Applicants request an exemption from section 15(a) and rule 18f-
2 to permit a Sub-Adviser to serve as an investment adviser to one or
more Portfolios under a written contract that has not been approved by
a vote of the majority of the outstanding voting securities of the
Portfolios, including a contract that has terminated as a result of its
``assignment.'' Although shareholders will not vote on Sub-Adviser
changes, applicants will provide shareholders with all the information
that would be included in a proxy statement within 90 days of the
hiring of any new Sub-Adviser or the implementation of any proposed
material change in a Sub-Adviser contract.
9. The Trust will rely on Mitchell Hutchins to monitor the
performance of each Sub-Adviser employed by the Trust, as well as other
attributes that could affect a Sub-Adviser's future performance.
Applicants believe that it is in the best interest of the Trust's
shareholders for the Trust's Trustees to be able to respond promptly to
Mitchell Hutchins' recommendations by negotiating changes in Sub-
Advisers' contracts or, if necessary, by adding one or more new Sub-
Advisers.
Applicants' Legal Conclusions
1. Section 15(a) makes it 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 a majority of the
investment company's outstanding voting securities. Rule 18f-2 provides
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. The Trust holds itself out as a multi-manager fund whereby
investors obtain Mitchell Hutchins' services as a professional
organization that will evaluate and determine which Sub-Advisers are
most likely to make portfolio securities selections that will achieve
the investor's defined objectives. Applicants believe that investors
choosing to invest in the Trust have determined that they are unable or
unwilling to select and/or monitor) effectively the best Sub-Advisers
for a Portfolio and, therefore, desire that a professional organization
with substantial experience and resources conduct these services on
their behalf. Under the Trust's structure, applicants assert that the
selection or change in a Sub-Adviser is not an event that significantly
alters the nature of the shareholder's investment and thus does not
implicate the policy concerns requiring shareholder approval.
3. Applicants assert that, unlike the conventional investment
company, the structure of the Trust provides complete independence from
the Sub-Advisers. By contracting with Mitchell Hutchins for corporate
management and distribution functions, the Trust provides investors
with the full services of a conventional investment company, but also
retains complete freedom to select or change investment advisers.
Applicants believe that there are no compelling policy reasons that
require the Trust, any more than shareholders of the conventional
investment company should approve its adviser's change of a portfolio
manager or revision of that portfolio manager's employment contract.
4. Applicants assert that the Trust's investors will be able to
exercise control over their relationship with Mitchell
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Hutchins, the party the investors have chosen to hold accountable for
investment results, through the voting rights pursuant to section 15(a)
of the Act and rule 18f-2 thereunder concerning the Trust's Management
Agreement with Mitchell Hutchins. Applicants believe that a shareholder
vote concerning a Sub-Advisory Agreement prior to its effective date
should not be required, particularly when doing so will (i) increase
the Trust's expenses and (ii) may delay prompt implementation of the
action Mitchell Hutchins (and ultimately the investors themselves) has
determined is most beneficial to the Trust's shareholders. Therefore,
applicants contend that requiring the Trust to obtain immediate and
costly shareholder approval for every change in control of a Sub-
Adviser is unreasonably burdensome, particularly where shareholders
have chosen Mitchell Hutchins to determine the impact of the proposed
change on their behalf.
5. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act, if and
to the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
policies and purposes fairly intended by the policies and provisions of
the Act. Applicants believe that the requested relief meets this
standard.
Applicants' Conditions
Applicants agree that the requested exemption is subject to the
following conditions:
1. Mitchell Hutchins will not enter into a Sub-Advisory Agreement
with any Sub-Adviser that is an affiliated person (as defined in
section 2(a)(3) of the Act) of the Trust or Mitchell Hutchins other
than by reason of serving as a Sub-Adviser to one or more of the
Portfolios (an ``Affiliated Sub-Adviser'') without such agreement,
including the compensation to be paid thereunder, being approved by the
shareholders of the applicable Portfolio.
2. At all times, a majority of the Trustees of the Trust will be
persons each of whom is not an ``interested person'' of the Trust (as
defined in section 2(a)(19) of the Act) (the ``Independent Trustees''),
and the nomination of new or additional Independent Trustees will be
placed with the discretion of the then existing Independent Trustees.
3. When a Sub-Adviser change is proposed for a Portfolio with an
Affiliated Sub-Adviser, the Trustee of the Trust, including a majority
of the Independent Trustees, will make a separate finding, reflected in
the Trust's board minutes, that the change is in the best interests of
the Portfolio and its shareholders and does not involve a conflict of
interest from which Mitchell Hutchins or the Affiliated Sub-Adviser
derives an inappropriate advantage.
4. Mitchell Hutchins will provide general management and
administrative services to the Trust, and, subject to review and
approval by the Trust's Trustees, will: (a) Set the Portfolios' overall
investment strategies; (b) select Sub-Advisers; (c) allocate and, when
appropriate, reallocate the Portfolios' assets among Sub-Advisers; (d)
monitor and evaluate the performance of Sub-Advisers; and (e) ensure
that the Sub-Advisers comply with the Trust's investment objectives,
policies, and restrictions.
5. Before a future Portfolio that does not presently have an
effective registration statement may rely on the order, its initial
shareholder will approve the multi-manager structure before Portfolio
shares are offered to the public.
6. Within 90 days of the hiring of any new Sub-Adviser or the
implementation of any proposed material change in a Sub-Advisory
Agreement, the Trust will furnish shareholders all information about a
new Sub-Adviser or Sub-Advisory Agreement that would be included in a
proxy statement. Such information will include any change in such
disclosure caused by the addition of a new Sub-Adviser or any proposed
material change in a Portfolio's Sub-Advisory Agreement. The Trust will
meet this condition by providing shareholders, within 90 days of the
hiring of a Sub-Adviser or the implementation of any material change to
the terms of a Sub-Advisory Agreement, with an information statement
meeting the requirements of Regulation 14C and Schedule 14C under the
Securities Exchange Act of 1934 (the ``Exchange Act''). The information
statement also will meet the requirements of Schedule 14A under the
Exchange Act.
7. No Trustee or officer of the Trust or Mitchell Hutchins will own
directly or indirectly (other than through a pooled investment vehicle
that is not controlled by any such Trustee or officer) any interest in
a Sub-Adviser except for: (a) ownership of interests in Mitchell
Hutchins or any entity that controls, is controlled by, or is under
common control with Mitchell Hutchins; or (b) 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.
8. The Trust will disclose in all prospectuses relating to any
Portfolio the existence, substance, and effect of any order granted
pursuant to the application.
9. Shares of the Trust will be offered exclusively to participants
in the PACE Program or other asset allocation services offered by
professional asset managers who, for compensation, engage in the
business of advising others as to the value of securities or as to the
advisability of investing in, purchasing or selling securities.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30569 Filed 12-14-95; 8:45 am]
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