[Federal Register Volume 63, Number 248 (Monday, December 28, 1998)]
[Notices]
[Pages 71520-71522]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34257]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23614; 812-11246]


Mitchell Hutchins Institutional Series, et al.; Notice of 
Application

December 21, 1998
AGENCY: Secururities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 15(a) of the Act and rule 18f-2 under the Act.

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SUMMARY OF APPLICATION: The order would permit applicants to enter into 
and materially amend subadvisory agreements without obtaining 
shareholder approval.

APPLICANTS: Mitchell Hutchins Institutional Series; Mitchell Hutchins 
Portfolios; Mitchell Hutchins Series Trust; PaineWebber America Fund; 
PaineWebber Financial Services Growth Fund Inc.; PaineWebber Index 
Trust; PaineWebber Investment Series; PaineWebber Investment Trust; 
PaineWebber Investment Trust II; PaineWebber Managed Assets Trust; 
PaineWebber Managed Investments Trust; PaineWebber Master Series, Inc.; 
PaineWebber Municipal Series; PaineWebber Mutual Fund Trust; 
PaineWebber Olympus Fund; PaineWebber Securities Trust (the 
``Companies'') \1\ and Mitchell Hutchins Asset Management Inc. 
(``Adviser'').

    \1\ Applicants also request relief with respect to any other 
open-end management investment company, or series of such company, 
organized in the future and advised by the Adviser, or a person 
controlling, controlled by or under common control with the Adviser 
(a ``Future Fund''), provided that such Future Fund operates in 
substantially the same manner as the Companies with respect to the 
Adviser's responsibility to select, evaluate, and supervise 
subadvisers and complies with the terms and conditions of the 
application. Each existing registered open-end management investment 
company that currently intends to rely on the order is named as an 
applicant.
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FILING DATES: The application was filed August 5, 1998, and amended 
October 27, 1998. Applicants have agreed to file an amendment during 
the notice period, the substance of which is reflected 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 15, 
1999, and should be accompanied by proof of service on the 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, 1285 Avenue of the Americas, New York, NY 10019.

FOR FURTHER INFORMATION CONTACT:
Timothy R. Kane, Staff Attorney, at (202) 942-0615, or Edward P. 
MacDonald, 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, 450 Fifth

[[Page 71521]]

Street, N.W., Washington, D.C. 20549 (telephone 202-942-8090).

Applicants' Representations

    1. Each Company is registered under the Act as an open-end 
management investment company offering shares of one or more series 
(``Funds''), each with its own distinct investment objectives, 
policies, and restrictions. The Companies are organized as Delaware 
business trusts, Massachusetts business trusts, or Maryland 
corporations.
    2. The Adviser, registered under the Investment Advisers Act of 
1940 (``Advisers Act''), and wholly-owned by PaineWebber Incorporated, 
serves as investment adviser to all Companies pursuant to investment 
advisory agreements (``Advisory Agreements''). Certain Funds currently 
have one subadviser (``Subadviser''), each of which is registered under 
the Advisers Act.
    3. Under the Advisory Agreements, the Adviser, subject to the 
supervision of the boards of directors of the Companies (the 
``Boards''), provides each Fund with investment research, advice, and 
supervision, furnishes and investment program for each Fund consistent 
with the investment objectives and policies of the Fund, and oversees 
the Subadvisers. The adviser also administers each Fund's business 
affairs and maintains the financial and accounting records of each 
Fund. The Adviser comprehensively reviews the qualifications of 
possible Subadvisers and thoroughly analyzes whether to hire a 
Subadviser. Each Subadviser is ultimately approved by the Boards. The 
Adviser regularly evaluates existing Subadvisers under the same 
standards. For these services, each Fund pays the Adviser a fee based 
on the Fund's average net assets.
    4. Under subadvisory agreements between the Adviser and Subadvisers 
(``Subadvisory Agreements''), each Subadviser provides day-to-day 
portfolio management to the Fund. The Adviser pays the Subadvisers' 
fees out of the fees the Adviser receives from the Fund.
    5. Applicants request an order to permit the Adviser to enter into 
and materially amend Subadvisory Agreements without obtaining 
shareholder approval. The requested relief will not extend to a 
Subadviser that is an ``affiliated person'' (as defined in section 
2(a)(3) of the Act) of the Company, the Adviser, or the Funds, other 
than by reason of serving as a Subadviser to one or more of the Funds 
(``Affiliated Subadviser'').

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except under a written contract approved by a 
majority of the investment company's outstanding voting shares. Rule 
18f-2 under the Act provides that each series or class of stock in a 
series company affected by a matter must approve the matter if the Act 
requires shareholder capital.
    2. Section 6(c) of the Act authorizes the Commission to exempt 
persons or transactions from the provisions of the Act to the extent 
that the exemption is necessary or appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policies and provisions of the Act. Applicants believe 
that their requested relief meets this standard for the reasons 
discussed below.
    3. Applicants assert that a Fund's investors rely on the Adviser to 
select and monitor Subadvisers best suited to achieve the Fund's 
investment objective. Applicants represent that the Adviser has 
substantial experience in performing these functions for the Companies. 
Applicants submit that, from the perspective of an investor, the role 
of the Subadvisers is comparable to that of individual portfolio 
managers employed by other investment company advisory firms. 
Applicants thus contend that, without the requested relief, the Company 
may be precluded from promptly and effectively employing Subadvisers 
best suited to the needs of the Funds. Applicants also note that the 
Advisory Agreements will remain fully subject to the shareholder 
approval requirements of the Act and rules under the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Fund may rely on the requested order, the operation of 
the Fund as described in the application will be approved by the vote 
of a majority of the Fund's outstanding voting securities, as defined 
in the Act, or, in the case of a Future Fund whose public shareholders 
purchased shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the initial shareholders before 
offering shares of that Fund to the public.
    2. Each fund will disclose in its prospectus the existence, 
substance, and effect of any order granted pursuant to the application. 
In addition, each Fund will hold itself out to the public as employing 
the management structure described in the application. The Fund's 
prospectus will prominently disclose that the Adviser has the ultimate 
responsibility to oversee Subadvisers and recommend their hiring, 
termination, and replacement.
    3. At all times, a majority of each Company's Board will be persons 
each of whom is not an ``interested person'' of the Company or the 
Adviser as defined in section 2(a)(19) of the Act (``Independent 
Directors''), and the nomination of new or additional Independent 
Directors will be at the discretion of the then-existing Independent 
Directors.
    4. The Adviser will not enter into a Subadvisory Agreement with any 
Affiliated Subadviser without the Subadvisory Agreement, including the 
compensation to be paid under that Agreement, being approved by the 
shareholders of the applicable Fund.
    5. When a Subadviser change is proposed for a Fund with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Directors, will make a separate finding, reflected in the 
Board's minutes, that the change is in the best interests of the Fund 
and its shareholders and does not involve a conflict of interest from 
which the Adviser or the Affiliated Subadviser derives an inappropriate 
advantage.
    6. Within 90 days of the hiring of any new Subadviser, shareholders 
will be furnished relevant information about the new Subadviser that 
would be contained in a proxy statement, including any change in such 
disclosure caused by the addition of the new Subadviser. Each Fund will 
meet this condition by providing shareholders with an Information 
Statement meeting the requirements of Regulation 14C, Schedule 14C, and 
Item 22 of Schedule 14A of the Securities Exchange Act of 1934 within 
90 days of the hiring of the Subadviser.
    7. The Adviser will provide general management services to each 
Fund, including overall supervisory responsibility for the general 
management and investment of each Fund's portfolio, and, subject to 
review and approval by the Board, will: (i) set the Fund's overall 
investment strategies; (ii) select Subadvisers; (iii) monitor and 
evaluate the performances of Subadvisers; (iv) ensure that the 
Subadvisers comply with the Fund's investment objectives, policies, and 
restrictions by, among other things, implementing procedures reasonably 
designed to ensure compliance; and (v) allocate and, when appropriate,

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reallocate a Fund's assets among Subadvisers when a Fund has more than 
one Subadviser.
    8. No trustee, director, or officer of a Company or director or 
officer of the Adviser will own directly or indirectly (other than 
through a pooled investment vehicle that is not controlled by the 
trustee, director, officer) any interest in a Subadviser, except for 
(i) ownership of interests in the Adviser or any entity that controls, 
is controlled by, or is under common control with the Adviser; or (ii) 
ownership of less than one percent of the outstanding securities of any 
class of equity or debt of a publicly-traded company that is either a 
Subadviser or an entity that controls, is controlled by, or is under 
common control with a Subadviser.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-34257 Filed 12-24-98; 8:45 am]
BILLING CODE 8010-01-M