[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):

------------------------------------------------------------------------
                                      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