[Federal Register Volume 60, Number 244 (Wednesday, December 20, 1995)]
[Notices]
[Pages 65714-65716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30908]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21601; 812-9828]


Mutual Fund Group, et al.; Notice of Application

December 14, 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: Mutual Fund Group, Mutual Fund Trust, Mutual Fund Variable 
Annuity Trust, Vista Global Fixed Income Portfolio, Vista Growth and 
Income Portfolio, Vista International Equity Portfolio, Vista Capital 
Growth Portfolio (collectively, the ``Investment Companies''), and the 
Chase Manhattan Bank, N.A, or its successor entity subsequent to its 
merger into Chemical Bank \1\ (the ``Adviser'').

    \1\ Chase Manhattan Corporation has announced that it plans to 
enter into a reorganization with Chemical Banking Corporation 
pursuant to which Chemical Banking Corporation will be the surviving 
corporation. This merger is expected to be completed on or about 
April 1, 1996. Subsequent to this merger it is expected that the 
Chase Manhattan Bank will be merged into Chemical Bank, with 
Chemical Bank as the surviving bank, assuming the investment 
management of the Investment Companies.

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
for an exemption from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f), and 
22(g) and rule 2a-7 thereunder, under sections 6(c) and 17(b) of the 
Act for an exemption from section 17(a)(1), and under section 17(d) of 
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the Act and rule 17d-1 thereunder to permit certain joint arrangements.

SUMMARY OF APPLICATION: Applicants request an order that would permit 
each applicant investment company to enter into deferred compensation 
arrangements with its trustees who are not employees of its affiliated 
persons.

FILING DATES: The application was filed on October 23, 1995, and 
amended on December 7, 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 8, 1996, 
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. 

[[Page 65715]]
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, the Investment Companies, Vista Service Center, P.O. 
Box 419392, Kansas City, Missouri 64141-6392, and the Adviser, One 
Chase Manhattan Plaza, New York, New York 10081.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Staff Attorney, at 
(202) 942-0572, or C. David Messman, 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.

Applicants' Representations

    1. Mutual Fund Group, Mutual Fund Trust, Mutual Fund Variable 
Annuity Trust, Vista Global Fixed Income Portfolio, Vista Growth and 
Income Portfolio, Vista International Equity Portfolio and Vista 
Capital Growth Portfolio are diversified open-end management investment 
companies that currently consist of 32 separate portfolios. The Adviser 
serves as the investment adviser for the Investment Companies and Vista 
Broker-Dealer Services, Inc. services as their distributor.
    2. Applicants request that relief be extended to any other 
registered open-end investment company established or acquired in the 
future, or series thereof, (including any successors in interest \2\) 
advised by the Adviser (together with the Investment Companies, the 
``Funds'').

    \2\ ``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.
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    3. Each Investment Company has a board of trustees, a majority of 
the members of which are not ``interested persons'' of such Investment 
Company within the meaning of section 2(a)(19) of the Act. Each of the 
trustees who is not as employee of the Adviser, the Investment 
Companies' administrator or distributor, or any of their affiliates 
(``Eligible Trustees'') receives annual fees which collectively are, 
and are expected to continue to be, insignificant in comparison to the 
total net assets of the Investment Companies. Applicants request an 
order to permit the Eligible Trustees to elect to defer receipt of all 
or a portion of their fees pursuant to a deferred compensation plan 
(the ``Plan'') and related election agreement entered into between each 
Eligible Trustee and the appropriate Fund. Under the Plan, the Eligible 
Trustees could defer payment of trustees' fees (the ``Deferred Fees'') 
in order to defer payment of income taxes or for other reasons.
    4. 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 trustee may select one or more investment 
portfolios from a list of available Investment Companies that will be 
used to measure the hypothetical investment performance of the 
trustee's Deferral Account. The value of a Deferral Account will be 
equal to the value such account would have had if the amount credited 
to it had been invested and reinvested in shares of the investment 
portfolios designated by the trustee (the ``Designated Shares'').
    5. Each Investment Company intends generally to purchase and 
maintain Designated Shares in an amount equal to the deemed investments 
of the Deferred Accounts of its trustees. Any participating money 
market series of a Fund that values its assets by the amortized cost 
method will buy and hold the Designated Shares that determine the 
performance of the Deferral Accounts in order to achieve an exact match 
between such series' liability to pay deferred fees and the assets that 
offset such liability. The accrued liability of each Investment Company 
for the compensation deferrals will fluctuate with changes in the value 
of the Designated Shares. The Investment Company will not, however, 
experience any economic effect from the fluctuating liability because 
it will own Designated Shares purchased with money that otherwise would 
have been paid to the Eligible Trustee. Changes in the amount of the 
liability will be exactly matched by changes in the value of the 
Designated Shares.
    6. The Funds' respective obligations to make payments of amounts 
accrued under the Plan will be general unsecured obligations, payable 
solely from their respective general assets and property. The Plan 
provides that the Funds will be under no obligation to purchase, hold 
or dispose of any investments under the Plan, but, if one or more of 
the Funds choose to purchase investments to cover their obligations 
under the Plan, then any and all such investments will continue to be a 
part of the respective general assets and property of such Funds.
    7. Payment to Eligible Trustees will be made in a lump sum or in 
generally equal annual installments over a period of no more than 10 
years as selected by the Eligible Trustee at the time of deferral. In 
the event of death, amounts payable to the Eligible Trustee under the 
Plan will become payable to a beneficiary designated by the Eligible 
Trustee. In all other events, the Eligible Trustee's right to receive 
payments is non-transferable.
    8. The Plan was adopted prior to receipt of the requested relief. 
Pending receipt of SEC approval, the Plan provides that the 
compensation deferred by an Eligible Trustee will be credited to a 
Deferral Account in the form of cash and credited with an amount equal 
to the yield on 90 day U.S. Treasury Bills.\3\

    \3\ See, e.g., American Balanced Fund, Inc. (pub. avail. Feb. 
13, 1984) (no-action assurances given for deferred compensation plan 
in which the value of the deferred amounts did not depend upon the 
investment company's performance).
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Applicants' Legal Analysis

    1. Applicants request an order which would exempt the Funds: (a) 
under section 6(c) of the Act from sections 13(a)(2), 13(a)(3), 
18(f)(1), 22(f), and 22(g) and rule 2a-7 thereunder, to the extent 
necessary to permit the Funds to adopt and implement the Plan; (b) 
under sections 6(c) and 17(b) of the Act from section 17(a)(1) to 
permit the Funds to sell securities for which they are the issuer to 
participating Funds in connection with the Plan; and (c) under section 
17(d) of the Act and rule 17d-1 thereunder to permit the Funds to 
effect certain joint transactions incident to 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. Applicants state 
that the Plan possesses none of the characteristics of senior 
securities that led Congress to enact section 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 

[[Page 65716]]
issued by open-end investment companies. Applicants state that such 
restrictions are set forth in the Plan, which would be included 
primarily to benefit the Eligible Trustees and would not adversely 
affect the interests of the trustees or of any shareholder.
    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. Applicants believe 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. Section 13(a)(3) provides that no registered investment company 
shall, unless authorized by the vote of a majority of its outstanding 
voting securities, deviate from any investment policy that is 
changeable only if authorized by shareholder vote. The relief requested 
from section 13(a)(3) would extend only to existing Investment 
Companies. Applicants believe that relief from section 13(a)(3) is 
appropriate to enable the affected Investment Companies to invest in 
Designated Shares without a shareholder vote. Applicants will provide 
notice to shareholders in the prospectus of each affected Investment 
Company of the Deferred Fees under the Plan. The value of the 
Designated Shares will be de minimis in relation to the total net 
assets of the respective Investment Company, and will at all times 
equal the value of the Investment Company's obligations to pay deferred 
fees.
    6. 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. Applicants believe that the requested exemption would 
permit the Funds to achieve an exact matching of Designated Shares with 
the deemed investments of the Deferral Accounts, thereby ensuring that 
the deferred fees would not affect net asset value.
    7. Section 6(c) provides, in relevant part, that the SEC may, 
conditionally or unconditionally, 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. 
Applicants submit that the relief requested from the above provisions 
satisfies this standard.
    8. Section 17(a)(1) generally prohibits an affiliated person, or an 
affiliated person of an affiliated person, of a registered investment 
company from selling any security to such registered investment 
company. The Adviser is an affiliated person of each of the Fund's 
portfolios pursuant to section 2(a)(3)(E) of the Act. Each portfolio 
may be treated as an affiliated person of each other portfolio by 
reason of being under the common control of the Adviser.\4\ The sale by 
a portfolio of any security to any other portfolio of any Fund would 
therefore be subject to the prohibitions of section 17(a)(1). 
Applicants assert that section 17(a)(1) 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. 
Applicants submit 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 with the Designated Shares 
that would determine the amount of such Fund's liability.

    \4\ Section 2(a)(3)(C) of the Act defines the term ``affiliated 
person'' of another person to include any person directly or 
indirectly controlling, controlled by, or under common control with 
such other person.
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    9. Section 17(b) authorizes the SEC to exempt a proposed 
transaction from section 217(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. Applicants assert that the proposed transaction satisfies the 
criteria of section 17(b). The finding that the terms of the 
transaction are consistent with the policies of the registered 
investment company is predicated on the assumption that relief is 
granted from section 13(a)(3). Applicants also request relief from 
section 17(a)(1) under section 6(c) to the extent necessary to 
implement the Deferred Fees under the Plan on an ongoing basis.\5\

    \5\ 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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    10. Section 17(d) and rule 17d-1 generally prohibit a registered 
investment company's joint or joint and several participation with an 
affiliated person in a transaction in connection with any joint 
enterprise or other joint arrangement or profit-sharing plan ``on a 
basis different from or less advantageous than that of'' the affiliated 
person. 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 
Funds, than if he or she had received trustee fees on a current basis 
and invested them in Designated Shares.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. With respect to the relief requested from rule 2a-7, any money 
market Fund that values its assets by the amortized cost method will 
buy and hold Designated Shares that determine the value of Deferral 
Accounts to achieve an exact match between the liability of any such 
Fund to pay compensation deferrals and the assets that offset that 
liability.
    2. If a Fund purchases Designated Shares issued by an affiliated 
Fund, the Fund will vote such shares in proportion to the votes of all 
other shareholders of such affiliated Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30908 Filed 12-19-95; 8:45 am]
BILLING CODE 8010-01-M