[Federal Register Volume 62, Number 247 (Wednesday, December 24, 1997)]
[Notices]
[Pages 67420-67422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33595]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22947; 812-10890]


Merrill Lynch & Co., Inc., et al.; Notice of Application

December 19, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') from section 15(a) of the 
Act.

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    Summary of Application: Applicants seek an order to permit the 
implementation, without shareholder approval, of new investment 
advisory or sub-advisory agreements (``New Agreements'') between 
Mercury Asset Management International Limited (``MAM International'') 
and Mercury Asset Management International Channel Islands Ltd. (``MAM 
Channel Islands'') (collectively, the ``Advisers'') and various 
registered investment companies (each a ``Fund'' and collectively, the 
``Funds'') in connection with the acquisition of Mercury Asset 
Management Group plc (``Mercury'') by Merrill Lynch & Co., Inc. 
(``Merrill Lynch''). The order would cover a period of up to 150 days 
following the later of the date on which the assignment of the existing 
investment advisory contracts is deemed to have occurred (i.e., the 
date Merrill Lynch is deemed to control the issued share capital of 
Mercury (the ``Assignment Date'')) or the date upon which the requested 
order is issued (but in no event later than July 15, 1998) (the 
``Interim Period''). The order also would permit the Advisers to 
receive all fees earned under the New Agreements during the Interim 
Period following shareholder approval.
    Applicants: Merrill Lynch, Mercury, and the Advisers.
    Filing Dates: The application was filed on December 10, 1997. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is included in this notice.
    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 
9, 1998, 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 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: Merrill Lynch, World Financial Center, North Tower, 
250 Vesey Street, New York, New York 10281-1318; Mercury and MAM 
International, 33 King William Street, London, England EC4R 9AS; MAM 
Channel Islands, Forum House, Grenville Street, St. Helier, Jersey 
JE48RL, Channel Islands.

FOR FURTHER INFORMATION CONTACT:
John K. Forst, Attorney Advisor, at (202) 942-0569, or Mary Kay Frech, 
Branch Chief, at (202) 942-0564 (Office of Investment Company 
Regulation, Division of Investment Management).

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, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicant's Representations

    1. Merrill Lynch, through its subsidiaries, provides investment, 
financing, insurance, and related services on a global basis. Mercury, 
a holding company whose shares are listed on the London Stock Exchange, 
provides investment and related services through its subsidiaries on a 
global basis. The Advisers are investment advisers registered under the 
Investment Advisers Act of 1940. MAM International provides 
discretionary international investment portfolio management services to 
individual and institutional clients. MAM International provides 
investment advice to its wholly-owned subsidiary, MAM Channel Islands. 
MAM Channel Islands acts as investment adviser and MAM International 
acts as sub-adviser for The Europe Fund, Inc. and The United Kingdom 
Fund Inc., each a management investment company registered under the 
Act. MAM International also acts as investment sub-adviser to the 
Global Bond Series of Fortis Series Fund, Inc.,

[[Page 67421]]

a management investment company registered under the Act.
    2. On November 19, 1997, the boards of directors of Merrill Lynch 
and Mercury announced that they had agreed on the terms of a 
recommended cash offer (the ``Offer'') under which Merrill Lynch, 
through its newly-formed wholly-owned subsidiary, ML Invest plc, would 
seek to acquire all of the issued share capital of Mercury (the 
``Transaction''). Applicants state that, upon completion of the 
Transaction, it is intended that Mercury will be combined with the 
worldwide institutional business of Merrill Lynch Asset Management, 
L.P. and Fund Asset Management, L.P., which are both owned and 
controlled by Merrill Lynch, to form Merrill Lynch Mercury Asset 
Management. Applicants expect that all conditions to the Offer, 
including receipt of all necessary regulatory approvals, will be 
fulfilled by or after late December 1997.
    3. Applicants state that the Transaction could be deemed to result 
in an assignment of the existing advisory and sub-advisory contracts 
between the Funds and the Advisers (the ``Existing Agreements'') and, 
thus, their automatic termination. Applicants request an exemption to 
permit implementation, prior to obtaining shareholder approval, of the 
New Agreements. The requested exemption will cover the Interim Period 
of not more than 150 days beginning on the later of the Assignment Date 
or the date of the issuance of the requested order and continuing, in 
respect of each Fund, through the date on which each New Agreement is 
approved or disapproved by the respective Fund's shareholders, but in 
no event after July 15, 1998. Applicants represent that, during the 
Interim Period, the New Agreements will contain identical terms and 
conditions as the Existing Agreements, except in each case for the 
names of the parties, effective dates, termination dates, and the 
escrow provisions.
    4. On December 11, 1997, the board of directors of each Fund (the 
``Board'') met, in accordance with section 15(c) of the Act, so that 
they could evaluate whether the terms of the New Agreements, including 
the escrow provisions, are in the best interests of the Funds and their 
shareholders. Each of the Boards voted to approve the New Agreements in 
accordance with section 15(c).
    5. Applicants submit that it will not be possible to obtain 
shareholder approval of New Agreements in accordance with section 15(a) 
of the Act prior to the Assignment Date. Applicants state the each Fund 
will promptly schedule a meeting of shareholders to vote on the 
approval of the New Agreements to be held within 150 days after the 
commencement of the Interim Period, but in no event later than July 15, 
1998.
    6. Applicants also request an exemption to permit the Advisers to 
receive from each Fund all fees earned under the New Agreements during 
the Interim Period, if an to the extent the New Agreements are approved 
by the shareholders of each Fund.\1\ Applicants state that the fees to 
be paid during the Interim Period will not be greater than the fees 
currently paid by the Funds.
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    \1\ Applicants state that if the Assignment Date precedes 
issuance of the requested order, the advisers will continue to serve 
as investment advisers after the Assignment Date (and prior to the 
issuance of the order) in a manner consistent with their fiduciary 
duty to continue to provide advisory services to the Funds even 
though approval of the new arrangements has not yet been secured 
from the Funds' shareholders. Applicants also state that the Funds 
may be required to pay, with respect to the period until receipt of 
the order, no more than the actual out-of-pocket cost to the 
Advisers for providing advisory services.
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    7. Applicants propose to enter into escrow arrangements with an 
unaffiliated financial institution (the ``Escrow Agent''). The advisory 
fees payable by the Funds under the New Agreements during the Interim 
Period will be paid into an interest-bearing escrow account. The Escrow 
Agent will pay the amounts in the escrow account (including interest) 
to the Advisers only after the New Agreements are approved by the 
shareholders of the relevant Fund in accordance with section 15(a) of 
the Act. If shareholder approval is not given, the Escrow Agent will 
return the moneys to the appropriate Fund. Before any such release is 
made, the Boards will be notified.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in pertinent part, that it is 
unlawful for any person to serve as an 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 outstanding 
voting securities of the investment company. Section 15(a) further 
requires that the written contract provide for its automatic 
termination in the event of its ``assignment.'' Section 2(a)(4) of the 
Act defines the term ``assignment'' to include any direct or indirect 
transfer of an investment advisory contract by the assignor or a 
controlling block of the assignor's outstanding voting securities by a 
security holder of the assignor.
    2. Applicants state that it is possible that Merrill Lynch may be 
deemed to have obtained control of more than 25% of the voting 
securities of Mercury as early as mid-December. Applicants state that 
they are concerned that if an assignment does exist, the Existing 
Agreements will terminate by their terms.
    3. Rule 15a-4 provides, in pertinent part, that if an investment 
advisory contract with a registered investment company is terminated by 
an assignment, the adviser may continue to serve for 120 days under a 
written contract that has not been approved by the company's 
shareholders, provided that (as) the new contract is approved by the 
company's board of directors (including a majority of the non-
interested directors); (b) the compensation to be paid under the new 
contract does not exceed the compensation that would have been paid 
under the contract most recently approved by the company's 
shareholders; and (c) neither the adviser not any controlling person of 
the adviser ``directly or indirectly receive money or other benefit'' 
in connection with the assignment. Applicants state that because 
Merrill Lynch, Mercury and/or the Advisers may be deemed to receive a 
benefit in connection with the Transaction, there is a question as to 
applicants' ability to rely on rule 15a-4. However, applicants submit 
that granting the requested exemption would be within the spirit of 
rule 15a-4.
    4. Section 6(c) 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 
purposes fairly intended by the policy and provisions of the Act. 
Applicants believe that the requested relief meets this standard.
    5. Applicants note that the terms and the timing of the Transaction 
were determined by Merrill Lynch and Mercury in response to a number of 
factors beyond to scope of the Act and substantially unrelated to the 
Funds or the Advisers. Applicants state that it is not possible for the 
Funds to obtain shareholder approval of the New Agreements prior to the 
Assignment Date. Applicants submit that the Boards have approved the 
New Agreements, and the shareholders of the Funds will be further 
protected by the establishment of the escrow account described in the 
application.
    6. Applicants submit that the Advisers will take all appropriate 
steps to ensure that the scope and quality of advisory and other 
services provided to the Funds during the Interim Period will be at 
least equivalent to the scope

[[Page 67422]]

and quality of services previously provided. During the Interim Period, 
the Advisers would operate under the New Agreements, which would have 
the same terms and conditions as the respective Existing Agreements, 
except for the effective dates, termination dates and escrow 
provisions. Applicants believe that the level of service provided by 
the Advisers will remain the same under the New Agreements as under the 
existing ones.
    7. Applicants believe that the best interests of shareholders of 
the Funds would be served by allowing for the implementation of the New 
Agreements during the Interim Period. Applicants state that allowing 
the implementation of the New Agreements will ensure that there will be 
no disruption to the investment program and the delivery of related 
services to the Funds because the personnel that provide such services 
to the Funds will remain substantially the same as before the 
Transaction.

Applicants' Conditions

    Applicants agree as conditions to the issuance of the exemptive 
order requested by the application that:
    1. The New Agreements to be implemented following the commencement 
of the Interim Period will have the same terms and conditions as the 
respective Existing Agreements, except for the effective dates, 
termination dates, and escrow provisions.
    2. Fees payable to the Advisers by the Funds for the period covered 
by the order will be maintained during the Interim Period in an 
interest-bearing escrow account, and will be paid (1) to the Advisers 
after the requisite approval by shareholders is obtained, or (b) in the 
absence of such approval, to the relevant Fund.
    3. Each Fund will promptly schedule a meeting of shareholders to 
vote on approval of the New Agreements to be held within 150 days after 
the commencement of the Interim Period, but in no event later than July 
15, 1998.
    4. Merrill Lynch and/or Mercury will pay the costs of preparing and 
filing the application and the costs relating to the solicitation of 
approval of the Funds' shareholders of the New Agreements.
    5. The Advisers will take all appropriate steps to ensure that the 
scope and quality of advisory and other services provided to the Funds 
during the Interim Period will be at least equivalent, in the judgment 
of the respective Boards, including a majority of the directors who are 
not ``interested persons'' of the Funds, as defined in section 2(a)(19) 
of the Act (the ``Disinterested Directors''), to the scope and quality 
of services previously provided. In the event of any material change in 
the personnel providing services pursuant to the advisory agreements, 
the Advisers will apprise and consult with the Boards of the affected 
Funds in order to assure that the Boards, including a majority of the 
Disinterested Directors, are satisfied that the services provided will 
not be diminished in scope or quality.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-33595 Filed 12-23-97; 8:45 am]
BILLING CODE 8010-01-M