[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