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RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF INVESTMENT MANAGEMENT

June 7, 2000

Our Ref. No. 00-671146

Massachusetts Mutual Life

.Insurance Company

File No. 801-8059

By letter dated June 6, 2000, you reques~ our assurance that we would not recommend

enforcement action to the Commission under Section 17(d) ofthe Investment Company Act of

1940 ("Investment Company Act") and Rule 17d-l thereunder if, as described in your letter,

Massachusetts Mutual Life Insurance Company ("MassMutual"),I on behalfofitself and openend and closed-end investment companies and certain private accounts for which it serves as

investment adviser, aggregates orders for the purchase and sale ofprivate placement securities,

for which MassMutual negotiates no term, other than price.

FACTS

You state that MassMutual maintains a general account, which is used to fund its

obligationsto policyholders, and provides investment management to insurance company and

non-insurance company subsidiaries, which are considered proprietary accounts. You state that

MassMutual also serves as investment adviser to investment companies ("Funds") registered

under the InvestmentCompany Act, and private accounts, including investment funds that are

excepted from the definition ofinvestment company under Section 3(c) ofthe Investment

Company Act ("Section 3(c) Funds").2 Additionally, you represent that MassMutual serves as

investment adviser to state and municipal pension plans that are excluded from investment

company regulation under Section 2(b) ofthe Investment Company Act ("Section 2(b) Funds").

For purposes ofthis letter, Section 3(c) Funds, Section 2(b) Funds, private accounts, and

MassMutual's proprietary accounts are referred to collectively as "Accounts."

You state that MassMutual proposes to aggregate the orders of one more Funds and one

or more Accounts for the purchase or sale of certain private placement securities ("NonYou state that MassMutual is a mutual life insurance company registered with the

Commission as an investment adviser under the Investment Advisers Act of 1940

("Advisers Act"). You also state that the term "MassMutual" includes successors and

any current or future direct or indirect subsidiary that provide investment advice to

clients, including any registered investment company.

2 You state that the Section 3(c) Funds include, but are not limited to: (a) private funds

that are excepted under Section 3(c)(1 ); (b) qualified purchaser funds that are excepted

under Section3(c)(7); (c) pension trusts and collective trust funds that are excepted under

Section 3(c)(11); and (d) insurance company general accounts that are excepted under

Section 3(c)(3).
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negotiated Private Placement Securities"). You state that the term "Non-negotiated Private

Placement Securities" includes securities, warrants, ·conversion privileges, and other rights:

(a) which are exempt from registration under the. Securities Act of 1933 ("Securities Act"), or are

purchased in transactions exempt from such registration requirements; and (b) the terms ofwhich

(other than price) have not been directly or indirectly negotiated by MassMutual. You state that

the degree to which the terms of private placement securities may be subject to negoti,!-tion varies

from offering to offering. You state that, for example, some ofthese securities have conversion

and maturity provisions, call protections, and other financial covenants that can be negotiated.

You state that for purposes ofthis request, Non-negotiated Private Placement Securities include

those private placement securities for which MassMutual, on behalfoftheFunds and the

Accounts, only negotiates price3 and does not directly or indirectly negotiate any ofthe other

terms. You state that the Non-Negotiated Private Placement Securities typically would involve

securities issued in reliance upon Rule 144A, although other exemptions mightbe available.

You maintain that the Funds can benefit from participating in aggregated orders for the

purchase and sale ofNon-negotiated Private Placement Securities ("Aggregated Transactions").

You represent that when MassMutual is able to aggregate client purchases, the larger size ofthe

order gives MassMutual an advantage in negotiating the price and in receiving a larger portion of

the securities offered on behalfofitself and its clients in the event that its order is not filled

completely ("partial fill"). You also represent that a large purchase in one offering can improve

the ability ofMassMutual and its Clients to participate in future offerings. You assert that

through Aggregated Transactions, the Funds are able to participate in offerings that otherwise

might not be available to them because the assets ofthe Accounts are far greater than the assets

ofthe Funds.4

3

4

You state that the price may be negotiable depending on the amount ofthe offering that a

purchaser is willing to buy. You state that the "price" that MassMutual negotiates varies

depending on the type ofsecurity involved. You state that: (i) in the case of a fixedincome security, the price that MassMutual may negotiate includes the face amount ofthe

instrument plus the yield; (ii) in the case of an equity security, the price includes the

offering price; (iii) in the case of a convertible bond, debenture or preferred stock, the

price includes the conversion price; and (iv) in the case ofwarrants, the price includes the

exercise price.

You state that the Funds will benefit from aggregated sales ofNon-negotiated Private

Placement Securities. You state that the Funds may hold small amounts ofNonnegotiated Private Placement Securities relative to the amounts that the Accounts may

hold. You state that some institutional investors may be unwilling to acquire a small

amount ofNon-negotiated Private Placement Securities and that, as a result, the Funds

could benefit from participating in aggregated sales.· You state that the Funds also could

(continued ...)
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You represent that MassMutual proposes to aggregate purchase and sale orders ofNonnegotiated Private Placement Securities on behalfofthe Funds and Accounts as follows:

1. MassMutual's Board ofDirectors (or the Investment Committee ofthe Board)

will approve a trade aggregation policy statement (the "Policy Statement") designed to ensure

that Aggregated Transactions are made in a manner that is fair and equitable to, and in the best

interests of, the Funds and the Accounts. The Policy Statement will establish an aggregation

committee comprised ofsenior officers ofMassMutual that will be responsible for developing

written aggregation procedures ("Procedures") designed to result in fair and equitable

participation in Non-negotiated Private Placement Securities offerings or sales ofsuch

securities.5 .

2. The Procedures for the aggregation oftransactions will be fully dischlsed in

MassMutual's Form ADV and separately to all participating Funds and Accounts.

3. The trustees (including a majority ofthe disinterested trustees) of each Fund will

approve the Procedures and any material changes to the Procedures before the Fund may

participate in Aggregated Transactions.

4. As an initial step, each portfolio manager of a Fund or Account will review the

Fund's or Account's investment objectives, investment restrictions, cash position, need for

liquidity, sector concentration, and other objective criteria, and determine whether a purchase or

a sale of a Non-negotiated Private Placement Security is an appropriate transaction for that Fund

. or Account. Each Fund and Account will receive individualized investment advice and

treatment.

5. MassMutual will not engage in an Aggregated Transaction on behalf of a Fund

and an Account unless the transaction is consistent with MassMutual's duties to the Fund or the

take advantage ofreduced transaction costs in an aggregated sale. You state that

aggregated sales ofprivate placement securities generally do not involve the negotiation

of any terms ofthe securities, although the price at which a sale is effected may be

negotiated.

5 You state that the Procedures will set out objective criteria designed to take into account

the unique investment objectives, needs; and constraints of each participatingFund and

Account at any given time. You state that MassMutual has procedures and mechanisms

in place that are reasonably designed to implement its aggregation policies.
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Account, including its duty of best execution (which includes the duty to seek best price), and the

terms ofits investment advisory agreement with each client for which trades are being

aggregated.

6. The Procedures will be used to produce written (on paper or electronically)

allocation statements for each proposed Aggregated Transaction (~ach, an "Allocation

Statement"), which will be prepared before or at the time that MassMutual indicates to an issuer

or a prospective seller or buyer its interest in engaging in an Aggregated Transaction.

7. The Allocation Statement will describe specifically how Non-negotiated Private

Placement Securities or proceeds from an aggregated sale ofsuch securities will be allocated

among participants. Ifthere is a sufficient amount ofNon-negotiated Private Placement

Securities, in the case of a purchase, or proceeds, in the case of a sale, to satisfy all participants,

the securities or proceeds will be allocated among the participants in accordance witp the

Allocation Statement. Ifthere is an insufficient amount ofNon-negotiated Private Placement

Securities or sale proceeds to satisfy all participants, the securities or proceeds will be ailocated

pro rata based on the allocation that each Fund and Account would have received ifthere was a

sufficient amount ofsecurities or proceeds and they were allocated according to the Allocation

Statement.

8. An Aggregated Transaction may be allocated on a basis different from that

specified in the Allocation Statement if all participants receive fair and equitable treatment, and

the reason for the deviation is recorded in writing (on paper or electronically) promptly and

approved by a member ofthe aggregation committee in writing (on paper or electronically) at or

prior to settlement.6

9. MassMutual will review the Procedures at least annually to ensure that they are

adequate to prevent any Fund or Account from being systematically disadvantaged as a result of

the Aggregated Transactions. IfMassMutual discovers that the Procedures are not being

6 You state that there may be many reasons for deviating from the Allocation Statement.

You state that, for example, from the time that the Allocation Statement is completed to

the date ofsettlement, an Account or a Fund may no longer have the cash available to

purchase a Non-negotiated Private Placement Security. Similarly, during this time

period, an Account or a Fund may have met or exceeded concentration limits in the same

industry as the Non-negotiated Private Placement Security. You state that needing a

period oftime up to settlementto obtain approval is necessary because a member ofthe

aggregation committee may not be available to approve deviations once any deviation has

been identified.
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followed or that the Procedures do not have the intended results, it will take whatever corrective

measures are necessary, including revising the Procedures.

10. No Fund or Account partiCipating in an Aggregated Transaction will be favored

over any other Fund or Account, because each Fund and Account taking part in a transaction will

participate at the same unit price. Transaction costs and expenses will be shared by the

participants on a pro rata basis according to the amount oftheir participation.

11. MassMutual will receive no additional compensation or remuneration of any kind

as a result of an Aggregated Transaction that is not shared pro rata with the other participants in

the Aggregated Transaction.?'

12. Cash and securities ofFunds and Accounts participating in an Aggregated

Transaction may be deposited in a single account with one or more banks or broker-:dealers only

so long as reasonably necessary to settle the Aggregated Transaction on a delivery-~ersuspayment basis. Cash or securities will be held collectively following settlement only so long as

reasonably necessary to deliver the cash or securities to each'participant's custodian.

13. MassMutual will maintain written records of each Aggregated Transaction

involving a Non-Negotiated Private Placement Security of a Fund or Account in an easily

accessible place for a period not less than five years, the first two years in an appropriate office

ofMassMutual. These records will indicate, for each Fund and Account participating in an

Aggregated Transaction, the amount ofNon-negotiated Private Placement Securities allocated to

or sold from the Fund and the Account, the date that the Fund and Account acquired, liquidated

or otherwise disposed ofthe position, and the price paid or received by the Fund and Account

each time. MassMutual also will maintain in an easily accessible place for a period not less than'

five years, the first two years in an appropriate office ofMassMutual, written explanations of

deviations from Allocation Statements, including written approvals ofdeviations by a member of

the Aggregation Committee, and the Policy Statements, Procedures, and Allocation Statements.

7 You state that MassMutual may receive transaction fees (including break-up fees or

commitment fees, but excluding broker's fees or any other compensation, fee or other

remuneration prohibited by Section 17(e) ofthe Investment Company Act) that are

payable to the participants in an Aggregated Transaction when MassMutual is a

participant. You represent that any transaction fees payable to the participants of an

Aggregated Transaction will be distributed on a pro rata basis to the participants in

amounts proportionate to their respective investments. Youhave not asked, and we take

no position regarding, whether Section 17(e) ofthe Investment Company Act prohibits

the receipt by MassMutual of any transaction fees.
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ANALYSIS

Section 17(d) ofthe Investment Company Act provides that the Commission may adopt

rules that limit or prevent registered investment companies from participating in joint

transactions with affiliated persons on a basis different from or less advantageous than that of

any other participant. Rule 17d-l, in relevant part, provides that no affiliated person of a

registered investment company, and no affiliated person of an affiliated person,8 may participate

as a principal in any joint enterprise, joint arrangement, or profit-sharing plan, as defmed in the

rule,9 without first obtaining an order from the Commission. Section 17(d) and Rule 17d-l,

taken together, are designed to regUlate, among other things, situations in which persons making

the investment decisions for the investment company may have a conflict ofinterest and the

danger exists that the investment company or its controlled company may be overreached by

such persons. 10

Some element of combination or profit motive generally must be present for Section

17(d) and Rule 17d-l to apply. 11 The requisite element of combination generally is pre~ent, for

8

9

10

11

._you state that MassMutual is an affiliated person ofthe Funds because MassMutual is

their investnient adviser. You also state that MassMutual could be deemed an affiliated

person ofthe Funds or Accounts to the extent that MassMutual is deemed to control them

or ifMassMutual owned 5% or more ofthe voting securities ofsuch Fund or Account. In

addition, you state that the Funds and other Accounts could be affiliated with each other

to the extent that they are deemed to be under common control ofMassMutual. See

. Section 2(a)(3) ofthe Investment Company Act.

Rule 17d-l(c) defines a "[j]oint enterprise or other joint arrangement or profit-sharing

plan" to include any contract or arrangement concerning an enterprise or undertaking

whereby an investment company and an affiliated person ofthe company "have a joint or

a joint and several participation, or share in the profits ofsuch enterprise or undertaking."

See Investment Company Act Release No. 5128 (Oct. 13, 1967) (proposing amendments

to Ru1e 17d-l). See also Hearings on S. 3580 Before a Subcomm. ofthe Senate Comm.

on Banking and Currency, 76th Cong., 3rd Sess. 256 (Apr. 9, 1940) (statement ofDavid

Schenker, ChiefCounsel, Securities and Exchange Commission, Investment Trust Study)

(indicating that the purpose ofCommission rules to be promu1gated under Section 17(d)

(originally drafted as Section 17(a)(4)) is to "insure fair dealing and no overreaching").

SMC Capital, Inc. (pub. avail. Sep. 5, 1995) ("SMC") (citing, among other things, SEC v.

Talley Industries, Inc., 399 F.2d 396, 403 (2d Cir. 1968), cert. denied, 393 U.S. 1015

(1969)).
, f . \

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example, when an investment company and its affiliate act in concert or otherwise combine or

coordinate their activities as principals with respect to a third party.12

In SMC, we stated that the mere aggregation of orders for advisory clients, including a

registered investment company, would not violate Section 17(d), provided that the investment

company participates on terms no less advantageous than those of any other participant. SMC

did not request reliefwith respect to the aggregation oforders involving private placement

securities, however, and we expressed no view with respect to the aggregation oforders for such

securities. We believe that the aggregation oforders involving private placement securities

raises concerns under Section 17(d) and Rille 17d-l that are not raised by the aggregation of

orders involving publicly traded securities in the secondary markets. In particular, as discussed

below, aggregated orders involving private placement securities may involve conflicts ofinterest

between an investment company and its affiliate that may increase when the aggregated orders

involve the negotiation of one or more terms ofthe private placement securities.13

Conflicts ofInterest Between an Investment Company and Its Affiliated Persons.

Aggregated orders for the purchase or sale ofprivate placement securities may involve a

conflict ofinterest between an investment company and an affiliated person ofthe investment

company. A conflict ofinterest may arise if an affiliated person has both a material pecuniary

incentive and the ability to cause the investment company to participate with it in an aggregated

transactio!).. For example, an investment adviser may be interested in participating in an offering

ofprivate placement securities but may not be able to participate in the offering ifthe ability to

receive a portion ofthe offering depends on the size ofthe purchase order and the adviser's order

12

13

See,~, SEC v. Midwest Technical Development Corp., [1961-64 Transfer Binder] Fed.

Sec. L. Rep. (CCH) 91,252 (D. Minn. July 5, 1963) (parallel investments by the

directors ofthe fund and the fund "evidence a pattern of conduct that they were

collaborating from time to time with respect to the investments available to them" in

violation ofSection 17(d) and Rule 17d-l). See also Bloom v. Bradford, 480 F. Supp.

139, 145 (E.D.N.Y. 1979) (Section 17(d) requires "an intentional act of agreement or at

least a consensual pattern").

We note that the aggregation of orders of an investment company with those ofits

affiliated persons for the purchase ofsecurities offered in a public offering may, in some

cases, involve conflicts ofinterest and the negotiation ofthe terms ofthe securities and,

thus, raise concerns under Section 17(d) and Rille 17d-l. Our no-action positions in

SMC, and in this letter, do not address the aggregation oforders for those securities.
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is too smal1.14 As a result, the adviser would have the incentive to aggregate its order with the

orders of others. In that circumstance, the adviser would have the material pecuniary incentive

and the ability to cause an investment company client to participate with it in an aggregated

purchase ofthe private placement securities, even though the investment company's participation

may not be in its best interests. 15

In contrast, aggregated orders for the purchase or sale of publicly traded securities in the

secondary market are unlikely to create such a conflict ofinterest. In its request for no-action

relief, SMC described as a "theoretical conflict ofinterest" the possibility that the aggregation of

orders for publicly traded securities could cause an adviser to purchase unsuitable securities for

one client account so as to reduce the execution costs for an account in which advisory

employees owned an interest. SMC asserted that the gains from aggregation in terms ofreduced

execution costs would be highly unlikely to provide incentives to an adviser to purchase

unsuitable investments for one client account.

We believe that when an affiliated person of an investment company, such as its

investment adviser, has both a material pecuniary incentive and the ability to cause the

investment company to participate with it in an aggregated transaction for the purchase or sale of

private placement securities, the aggregated transaction would involve the requisite element of

combination or profit motive for Section 17(d) and Rule 17d-1 to apply.16 Section 17(d) and

14

15

16

You acknowledge that, in some circumstances, an adviser and other non-investment

company clients ofthe adviser could benefit from the participation of an investment

company client in an Aggregated Transaction because the investment company's

participation could increase the size ofthe order and enhance the adviser's ability to

negotiate the price and receive a larger portion ofthe securities offered in the case of a

partial fill.

An investment adviser also may, in some cases, have a material pecuniary incentive to

cause the investment company to participate in an aggregated transaction with another

client ofthe adviser, such as an advisory account in which employees ofthe adviser have

material fmancial interests.

We note that an investment company's investment adviser is not the only affiliated

person of an investment company that may have the ability to cause the investment

company to participate with it in an aggregated transaction. For example, other persons

who control the investment company within the meaning of Section 2(a)(9) ofthe

Investment Company Act also may have the ability to cause the investment company to

participate with it in an aggregated transaction.
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Rule 17d-1 would apply in that circumstance, even ifthe investment company participates on the

same terms as those ofthe other participants.17

We believe that the concerns ofoverreaching that Section 17(d) and Rule 17d-1 were

designed to address are not raised, however, if an affiliated person that effects, or participates in,

an aggregated transaction in which the investment company participates does not have both

a material pecuniary incentive and the ability to cause the investment company to participate in

the transaction. For example, if an investment adviser causes its investment company client to

participate in an aggregated transaction with other affiliated persons ofthe investment company,

but does not also participate in the transaction, the adviser would not necessarily have the

material pecuniary incentive to cause the investment company to participate in the transaction. 18

In that case, the concern that the investment company may be overreached by its adviser

generally would not be raised and the transaction would not involve the requisite element of

combination or profit motive between the investment company and its adviser for Section 17(d)

and Rule 17d-1 to apply. 19

We further believe that the mere aggregation ofthe orders of an investment company and

those ofits affiliated persons for the purchase or sale ofprivate placement securities would not

violate Section 17(d) and Rule 17d-l when the aggregation does not involve a conflictofinterest

between the investment company and its affiliated persons (or the negotiation ofany ofthe terms

17

18

19

See Talley, supra n.1l, 399 F.2d at 404 (noting that the varieties in which partiCipation by

an investment company may be "different from or less advantageous than that" of an

affiliate are infinite). See also In the Matter ofImperial Financial Services, Inc.,

Securities Exchange Act Release No. 7684 (Aug. 26, 1965) ("The possibility that the

investment company was not disadvantaged does not cure the unlawfulness of proceeding

with the joint enterprises without obtaining the prior approval ofthis Commission as

required by Rule l7d-1.").

If an investment adviser has an interest in another participant in the transaction, however,

then the adviser may have a material pecuniary incentive to cause the investment

company to participate in the transaction. See,~, n.15, supra.

We note, however, that under certain circumstances, separate transactions involving the

purchase or sale ofprivate placement securities by an investment company and an

affiliated person ofthe investment company may constitute a single joint transaction for

-purposes ofSection l7(d) and Rule 17d-l; such as when an investment adviser causes an

investment company client to purchase private placement securities in one transaction so

that the investment adviser can participate in a subsequent transaction.
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ofthe securities), provided that the investment company participates on terms no less

advantageous than those of any other participaneo

MassMutual proposes to aggregate orders for the purchase and sale ofprivate placement

securities on behalf ofthe Funds, MassMutual, and other Accounts, without first obtaining an

order from the Commission under Rule 17d-l. As discussed above, MassMutual's proposal to

aggregate its orders with those ofthe Funds raises the possibility that MassMutual may, in some

cases, have a conflict ofinterest with a Fund with respect to an Aggregated Transaction. You

represent that MassMutual will, consistent with its fiduciary duties, disclose to the disinterested

trustees of each Fund the existence of, and all ofthe material facts relating to, any conflicts of

interest between MassMutual and the Fund in an Aggregated Transaction to allow the

disinterested trustees to approve the Fund's participation in the Aggregated Transaction, before

or after thetransaction.21

Negotiation of Price.

The aggregation of orders involving private placement securities, unlike the aggregation

of orders involving publicly traded securities in the secondary market, may entail the negotiation

ofthe terms ofthe private placement securities. We believe that when the purchase or sale of .

private placement securities involves the negotiation of any ofthe terms ofthe securities by an

investment adviser, the aggregation ofthe orders of an investment company with its affiliates for

these securities generally would involve the requisite element of combination or profit motive for

20

21

You state that .certain private placement securities, such as Rule 144A securities of public

companies for which there is an active secondary trading market, tend to be offered to

qualified institutional buyers on a "take it or leave it" basis. We believe that the mere

aggregation ofthe orders of an investment company and those ofits affiliated persons for

the purchase or sale ofthose Rule l44A securities in the secondary market generally

would not violate Section l7(d) and Rule 17d-l. See SMC, n.ll, supra. Cf. n.22 and

accompanying text, infra (when the terms ofprivate placement securities, including Rule

144A securities, are subject to negotiation, however, the aggregation of orders may

involve the requisite element of combination or profit motive).

See Tannenbaum v. Zeller, 552 F.2d 402,418 (2d Cir. 1977), cert. denied, 434 U.S. 934

(1977) (stating that the investment adviser had a duty to disclose information to the

.unaffiliated directors ofthe fund "in every area where there was even a possible conflict

ofinterest" between the interests ofthe adviser and the interests ofthe fund).
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Section 17(d) and Rille 17d-1 to apply.22 The negotiation ofthe terms ofthose securities raises

concerns under Section 17(d) and Rule 17d-1 because an investment company that participates in

aggregated purchases or sales ofsuch securities could be disadvantaged, regardless ofwhether it

participates on the same terms as those ofthe other participants.23 For example, in connection

with the purchase of a private placement security, the adviser coilld negotiate a term ofthe

security, such as the maturity -date, to benefit itself or other advisory clients to the disadvantage

ofthe investment company.

MassMutual proposes to nego~iate no term (directly or indirectly), other than price, ofthe

private placement securities. You assert that the Funds woilld not be disadvantaged by their

participation in the Aggregated Transactions because: (a) MassMutual will negotiate only the

price ofNon-negotiated Private Placement Securities and, therefore, will not be able to affect the

terms of an offering to favor one client or group of clients over another; (b) all participants will

receive the same unit price; and (c) the Procedures (which are substantially similar to. those

followed in SMC) will mandate fair treatment and written explanations and approvals of any

deviations from an Allocation Statement. You state that the interests of all participants in an

Aggregated Transaction will be aligned because MassMutual will negotiate only the price of

Non-negotiated Private Placement Securities. You argue that price affects all participants

equally because every participant will seek to obtain the best price possible.24

Exercise ofOwnership Rights.

You state that MassMutual may exercise any ownership rights related to the purchase and

sale ofthe Non-negotiated Private Placement Securities on an aggregated basis, when this

exercise is consistent with each participant's investment objectives and policies. You state that

these ownership rights may include, for example, the right to exercise a conversion privilege in

22

23

24

For instance, you state that the initial terms of certain private placement securities,

including Rille 144A securities issued by private companies that have little or no

secondary market trading, may be subject to negotiation.

See n.17, supra.

As discussed above, you also represent that MassMutual will, among other things,

disclose to the disinterested trustees of each Fund the existence of, and all material facts

relating to, any conflicts ofinterest between MassMutual and the Fund in an Aggregated

Transaction to allow the disinterested trustees to approve the Fund's participation in the

Aggregated Transaction, before or after the transaction.
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the case ofconvertible bonds, debentures, and preferred stock.25 You represent that MassMutual .

will, consistent with its fiduciary duties, disclose to the disinterested trustees of a Fund the

existence of, and all ofthe material facts relating to, any conflicts ofinterest between

MassMutual and the Fund in the exercise ofownership rights ofthe Non-negotiated Private

Placement Securities to allow the disinterested trustees to approve the exercise of ownership

rights, before or after the exercise ofthose rights.

Conclusion.

Based on the facts and representations in your letter, we would not recommend

enforcement action to the Commission under Section 17(d) and Rule 17d-l thereunder if

MassMutual: (1) aggregates orders ofthe Funds and Accounts (including MassMutual's

proprietary account) for the purchase and sale ofNon-negotiated Private Placement Securities; or

(2) exercises ownership rights ofthe Non-negotiated Private Placement Securities i~ the manner

you describe in your letter. Our conclusion is based particularly on your representations that

MassMutual will: (1) disclose to the disinterested trustees ofthe Funds the existence of~ and all

ofthe material facts relating to, any conflicts ofinterest to allow the disinterested trustees, in

situations in which a conflict exists, to (a) approve the Fund's participation in the Aggregated

Transaction, before or after the transaction,and (b) approve the exercise of ownership rights

associated with any Non-negotiated Private Placement Securities, before or after the exercise of

such rights; and (2) aggregate purchase and sale orders involving Non-negotiated Private

Placement Securities consistent with representations 1 through i 3 in your letter.26 Any different

facts or representations may require a different conclusion. 27

25

26

27

You represent that MassMutual will not vote Non-negotiated Private Placement

Securities on an aggregated basis. Instead, MassMutual will vote each Fund or Account's

proxies using MassMutual's current proxy voting policies, in accordance with each

Fund's or Account's investment objectives and policies, or as directed by the Funds and

the Accounts.

Representation 7 in your letter discusses a pro rata method for the allocation ofsecurities

and proceeds among participants in the case of a partially filled order. We note that there

may be other allocation methods that MassMutual can use consistent with the

representations in your letter, but you have not asked for relief, and we do not express a

view, as to any allocation method other than a pro rata method.

We note that the aggregation of orders for advisory clients, including non-investment

company clients, also raises issues under Section 206 ofthe Advisers Act You state that

MassMutual is not requesting relief under Section 206 ofthe Advisers Act. You

represent that MassMutual understands that when it aggregates client orders, MassMutual

(continued ...)
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We note that the Commission has previously granted MassMutual conditional exemptive

relief under Sections 6(c) and 17(d) ofthe Investment Company Act and Rule 17d-l to allow

MassMutual to co-invest in securities acquired in private placements with certain clients for

. which MassMutual acts as investment adviser.28 You request no-action relief only with respect

has obligations under Section 206 to· aggregate the orders in a manner consistent with its

duty to seek best execution, to ensure that all clients are treated fairly, and to disclose to

its clients its policies with respect to the aggregation oforders. See SMC. You represent

that MassMutual will seek to comply with these obligations in connection with the

proposed transactions.

You have not asked, and we do not address, whether other provisions ofthe federal

securities laws or state laws may prohibit certain Aggregated Transactions. for example,

we do not address whether MassMutual, as a fiduciary, is obligated to put a Pund's trad~

ahead ofits own or those of other Accounts in the case of a partial fill. See Division of

Investment Management, Securities and Exchange Commission, Protecting Investors: A

HalfCentury ofInvestment Company Regulation, 495 (May 1992).

28 In the Matter ofMassachusetts Mutual Life Insurance Company, et al., Investment

Company Act Release Nos. 20381 (June 30, 1994) (notice) and 20427 (July 26, 1994)

(order). The advisory clients include two closed-end investment companies and an

investment fund that is not required to be registered under the Investment Company Act.

The Commission has issued similar orders allowing investment companies and certain

affiliates to invest jointly in private placement securities, if a number ofconditions are

met to ensure that each company's participation is on a basis no less favorable than that

of any other participant. The co-investing orders require, among other things, that the

investment company and its affiliate purchase the same class ofsecurity at the same time

and at the same price, and have conditions concerning the disposition ofthe security. See,

In the Matter ofVan Wagoner Funds, Inc., Investment Company Act Release Nos.

23954 (Aug. 19, 1999) (notice) and 24012 (Sept. 14, 1999) (order); In the Matter of

Access Capital Strategies Community Investment Fund, Inc., Investment Company Act·

Release Nos. 21836 (Mar. 20, 1996) (notice) and 21898 (Apr. 16, 1996) (order); In the

-Matter ofThe Latin American Investment Fund, Inc., Investment Company Act Release

Nos. 19808 (Oct. 21, 1993)(notice) and 19871 (Nov. 16, 1993) (order).

We note that those affiliated persons that have-received orders under Rule 17d-l

permitting them to co-invest with registered investment companies in private placement

securities may rely on this letter to aggregate orders for the purchase or sale ofNon-

(continued ...)
- 14-

to a subset ofthe private placement securities currently covered by the Order, i.e., the private.

placement securities for which MassMutual negotiates no term (directly or indirectly), other than

price. Aggregated transactions involving private placement securities that are not Nonnegotiated Private Placement Securities would be subject to the application requirementofRule

17d-1.29

Annette M. Capretta

Senior Counsel

negotiated Private Placement Securities. Alternatively, those affiliated persons may

continue to rely on their Rule 17d-l orders.

29 In addition, aggregated transactions involving Non-negotiated Private Placement

Securities in which there are other facts that create an element ofjointness or

combination, besides the negotiation ofprice, would be subject to the application

requirement ofRule 17d-1.
1800 M Street, NW.

Washington, D.C. 20036-5869

202-467-7000

Fax: 202-467-7176

Stephanie M. Monaco

202-467-7192

June 6, 2000

VIA HAND DELIVERY

Douglas 1. Scheidt, Esq.

Associate Director and ChiefCounsel

Division ofInvestment Management

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Re: Massachusetts Mutual Life Insurance Company. et al.

Dear Mr. Scheidt:

Morgan, Lewis

. &Bockius LLP

COUNSELORS AT LAW

The purpose ofthis letter is to request assurance that the Division offuvestment Management (the

"staff') will not recommend enforcement action to the Securities and Exchange Commission (the

"SEC") under Section 17(d) of the fuvestment Company Act of 1940, as amended (the "1940

Act") and Rule 17d-l thereunder if open-end and closed-end investment companies for which

Massachusetts Mutual Life fusurance Company ("MassMutual")1 serves as investment adviser

aggregate purchase and sale orders with MassMutual and certain private accounts for which

MassMutual serves as investment adviser for the purpose ofinvesting in privately placed securities

for which MassMutual negotiates no tenn, other than price ("Aggregated Transactions"). For the

reasons discussed below, we do not believe that the proposed transactions should be subject to

Section 17(d) and Rule 17d-l. Moreover, they would not raise the types of concerns that these

provisions were designed to address.

1 The tenn MassMutual includes successors and any current orfuture direct or indirect

subsidiary that provide investment advice to clients, including any registered investment

company.

l-WA/820662.21

Philadelphia Washington New York Los Angeles Miami Harrisburg Pittsburgh Princeton

London Brussels Frankfurt Tokyo Singapore Jakarta
"..:

Douglas J. Scheidt, Esq.

June 6, 2000

Page 2

A. BACKGROUND

. Morgan, Lewis

& Bockius UP

MassMutual is a mutual life insurance company organized under the laws ofthe Commonwealth

of Massachusetts and is an investment adviser registered with the SEC under the Investment

Advisers Act of 1940, as amended ("Advisers Act"). MassMutual maintains a general account,

which is used to fund its obligations to policyholders, and provides investment management to

insurance company and non-insurance company subsidiaries, which are considered proprietary

accounts. MassMutual also serves as investment adviser to investment companies ("Funds")

registered under the 1940 Act and private accounts, including investment funds excepted from the

investment company definition under Section 3(c) ofthe 1940 Act ("3(c) Funds"). The 3(c) Funds

include but are not limited to the following: private funds excepted under Section 3(c)(1);

qualified purchaser funds excepted under Section 3(c)(7); pension trusts and collective trust funds

excepted under Section 3(c)(11); and insurance company general accounts excepted under Section

3(c)(3). In addition to the foregoing, MassMutual serves as investment adviser to state and

municipal pension plans excluded from investment company regulation under Section 2(b) ("2(b)

Funds"). (The 3(c) Funds, the 2(b) Funds, private accounts, and MassMutual's proprietary

accounts, collectively, are referred to as "Accounts").

B. PROPOSED TRANSACTIONS

MassMutual proposes to aggregatethe orders ofone or more Funds and one or more Accounts for

the purchase or sale of certain private placement securities (''Non-:-negotiated Private Placement

Securities"). The term Non-negotiated Private Placement Securities includes securities, warrants,

conversion privileges, and other rights that (1) are exempt from registration under the Securities

Act of 1933, as amended ("Securities Act"), or are purchased in transactions exempt from such

registration requirements and (2) the terms ofwhich'<other than price) have not been, directly or

indirectly, negotiated by MassMutua1.2 While other terms could be negotiated, MassMutual seeks

no-action relief only for those transactions in which MassMutual actually has, directly or

indirectly, negotiated only the price. Typically, these would involve securities issued in reliance

upon Rule 144A, although other exemptions might be available.

MassMutual invests for the Funds and the Accounts in a full range of investments including,

among others, fixed-income securities, convertible notes, warrants, preferred stock and common

stock, many of which fall within the category ofNon-negotiated Private Placement Securities.

2 For purposes ofthis request, the term Non-negotiated Private Placement Securities does

not include "traditional" negotiated private placement securities, such as securities exempt

under the Securities Act by Section 4(2), Rules 505 or 506 under Regulation D or Rule 144

thereunder.

HIA/820662.21
Douglas J. Scheidt, Esq.

June 6, 2000

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These investments may be rated or unrated, investment grade or non-investment grade, liquid or

illiquid.

Whether an investment in a private placement security ultimately is negotiated or not depends on

the terms of each investment, the market for such securities, and how MassMutual exercises its

judgment as investment opportunities present themselves. As a result, it may be helpful to the

staff's analysis to understand the process by which MassMutual decides when and how to invest

in private placementsecurities, both negotiated and non-negotiated. New investment opportunities

are identified by MassMutual in a variety ofways. Most fixed-income investment opportunities

are typically identified and analyzed by MassMutual's in-house securities investment staff.

Publicly-traded fixed income securities and Rule 144A securities for which there is an active

secondary market among qualified investors are typically identified by MassMutual's trading

department on the basis oftheir rating, duration and yield characteristics, among;other things.

Traditional private placement securities (see note 2 above) and Rule 144A securitiesJor which

there is not an active secondary market are identified and analyzed by MassMutual's corporate

fmance department. The majority ofsuch investments are purchased directly from the issuer or

from a financial intermediary (such as a broker-dealer) contemporaneous with, or shortly after,

their issuance.

MassMutual's corporate finance staffbecomes aware ofinvestment opportunities in many ways

including direct solicitation by an issuer, by attending a "road show" conducted by the issuer and

its placement agent, or by receiving a private placement memorandum in the mail. While most

private placement investments purchased directly from the issuer are, to varying degrees,

negotiable by investors and their counsel, this is not always the case. For example, an issuer

registered under the Securities Exchange Act of1934, as amended, may issue private fixed-income

securities designed by the issuer and its advisers to "meet the market," such that terms are held out

to be non-negotiable. In such cases, investors are asked to invest on a "take it or leave it" basis

with only the price being subject to negotiation or "bidding." Occasionally, deals held out as

being non-negotiable tum out to be negotiable ifthe issuer and its advisers misjudge the market

and are unable to sell the issue as originally proposed. Rule 144A securities are hybrids in the

marketplace and some are negotiable like traditional private placement securities and some are

non-negotiable like public securities.

Determining whether, or to what extent, terms of a non-public offering should be negotiated is a

matter of judgment for MassMutual and other investors. In some cases, MassMutual may

determine that it is in the best interests ofthe Funds and the Accounts to negotiate certain terms

of a proposed investment. In other cases, a judgment may be made not to negotiate terms other .

than price. For example, MassMutual could determine that an attempt to negotiate terms may

result in forfeiting the investment opportunity to other investors willing to take the deal "as is."

1-WA/820662.21
·."\ Douglas 1. Scheidt, Esq.

June 6, 2000

Page 4

Morgan, Lewis

& Bockius LLP

The degree to which the terms ofprivate placement securities may be subject to negotiation by

institutional investors varies from offering to offering. For example, some ofthese securities have

conversion and maturity provisions, call protections and other financial covenants that can be

negotiated. It is not uncommon in Non-negotiated Private Placement Securities offerings for the

price to be negotiable depending on the amount ofthe offering a purchaser is willing to buy. For

purposes of this request, Non-negotiated Private Placement Securities include those private

placement securities where MassMutual, on behalfofthe Funds and the Accounts, only negotiates

price and does not, directly or indirectly, negotiate any other terms. The "price" that MassMutual

negotiates varies depending on the type of security involved. In the case of a fixed income

security, the price MassMutual may negotiate includes the face amount ofthe instrument plus the

yield. In the case of an equity security, the price includes the offering price. In the case of a

convertible bond, debenture or preferred stock, the price includes the conversion price. In the case

ofwarrants, the price includes the exercise price.

MassMutual proposes to aggregate purchases in Non-negotiated Private Placement Securities for

the Funds and the Accounts. Similarly, MassMutual may sell positions in Non-negotiated Private

Placement Securities on an aggregated basis.3 All Aggregated Transactions would be subject to

the following procedures.

1. MassMutual's Board ofDirectors (orthe Investment Committee ofthe Board) will approve

a trade aggregation policy statement (the ''Policy Statement") designed to ensure that Aggregated

Transactions are made in a manner that is fair and equitable to, and in the best interests of, the

Funds and the Accounts. The Policy Statement will establish an aggregation committee comprised

3 MassMutual also may exercise any ownership rights related to the purchase and sale ofthe

Non-negotiated Private Placement Securities on an aggregated basis, when this exercise

is consistent with each participant's investment objectives and policies..These ownership

rights may include, for example, the right to exercise a conversion privilege in the case of

convertible bonds, debentures and preferred stock. MassMutual will not vote Nonnegotiated Private Placement Securities on an aggregated basis. Instead, MassMutual will

vote each Fund's or Account's proxies using MassMutual's current proxy voting policies,

in accordance with each Fund's or Account's investment objectives and policies, or as

directed by the Funds and the Accounts. MassMutual will, consistent with its fiduciary

duties, disclose to the disinterested trustees of a Fund the existence of, and all material

facts relating to, any conflict ofinterest between MassMutual and the Fund in the exercise

of ownership rights of the Non-negotiated Private Placement Securities to allow the

disinterested trustees to approve the exercise of ownership rights, before or after the

exercise ofthose rights.

l-WA/820662.21
I \.

Douglas J. Scheidt, Esq.

June 6, 2000

. Page 5

Morgan, Lewis

&Bockiusup

of senior officers of MassMutual that will be responsible for developing written aggregation

procedures (''Procedures'') designed to result in fair and equitable participation in Non-negotiated

Private Placement Securities offerings or sales ofsuch securities. The Procedures will set out

objective criteria designed to take into account each participating Fund's and Account's unique

investment objectives, needs, and constraints at any given time. MassMutual has procedures and

mechanisms in place that are reasonably designed to implement its aggregation policies.

2. The Procedures for the aggregation oftransactions will be fully disclosed in MassMutual's

Form ADV and separately to all participating Funds and Accounts. \

3. The trustees (including a majority ofdisinterested trustees) of each Fund will approve the

Procedures and any material changes to the Procedures before the Fund may participate in

Aggregated Transactions.

4. As an initial step, each portfolio manager of a Fund or Account will review the Fund's or

Account's investment objectives, investment restrictions, cash position, need for liquidity, sector

concentration, and other objective criteria and determine whether a purchase or sale of a Nonnegotiated Private Placement Security is an appropriate transaction for that Fund or Account.

Each Fund and Account will receive individualized investment advice and treatment.

5. MassMutual will not engage in an Aggregated Transaction on behalf of a Fund and an

Account unless the transaction is consistent with MassMutual's duties to the Fund or the Account,

including its duty ofbest execution, which includes the duty to seek best price, and the terms of

its investment advisory agreement with each client for which trades are being aggregated.

6. The Procedures will be used to produce written (on paper or electronically) allocation

statements for each proposed Aggregated Transaction (each, an "Allocation Statement"), which

will be prepared before or at the time MassMutual indicates to an issuer or a prospective seller or

buyer its interest in engaging in an Aggregated Transaction.

7. The Allocation Statementwill describe specifically how Non-negotiated Private Placement

Securities or proceeds from an aggregated sale of such securities will be allocated among

participants. Ifthere is a sufficient amount ofNon-negotiated Private Placement Securities, in the

case of a purchase, or proceeds, in the case of a sale, to satisfY all participants, the securities or

proceeds will be allocated among the participants in accordance with the Allocation Statement.

Ifthere is an insufficient amount ofNon-negotiated Private Placement Securities or sale proceeds

to satisfy all participants, the securities or proceeds will be allocated pro rata based on the

allocation each Fund and Account would have received if there was a sufficient amount of

securities or proceeds and they were allocated according to the Allocation Stat~ment.

l-WA/820662.21
Douglas J. Scheidt, Esq.

June 6, 2000

Page 6

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&Bockius UP

8. An Aggregated Transactionmay be allocated on a basis different from that specified in the

Allocation Statement if all participants receive fair and equitable treatment, and the reason for the

deviation is recorded in writing (on paper or electronically) promptly and approved by a member

ofthe aggregation committee in writing (on paper or electronically) at or prior to settlement.4

9. MassMutual will review the Procedures at least annually to ensure that they are adequate

to prevent any Fund or Account from being systematically disadvantaged as a result of the

Aggregated Transactions. IfMassMutual discovers that the Procedures are not being followed or

that the Procedures do not have the intended results, it will take whatever corrective measures are

necessary, including revising the Procedures.5

4 There may be many reasons for deviating from the Allocation Statement.Fo~ example,

from the time the Allocation Statement is completed to the date ofsettlement, an Account

or Fund may no longer have the cash available to purchase a Non-negotiated Private

Placement Security. Similarly, during this time period, an Account or a Fund may have

- met or exceeded concentration limits in the same industry as the Non-negotiated Private

Placement Security. If an aggregated order is partially filled on a basis different from that

in the Statement, no Account or Fund that is benefitted by that allocation may effect any

purchase or sale, for a reasonable period oftime following the execution ofthe order, that

would result in the Account or Fund buying or selling more securities than the amount it

would have bought or sold had the aggregated order been filled completely. Needing a

period oftime up to settlement to obtain approval is necessary because a member ofthe

aggregation committee may not be available to approve deviations once any deviation has

been identified.

5 The aggregation committee will report to MassMutual's board ofdirectors or Investment

. Committee annually regarding deviations from pro rata allocations and the reasons for

these deviations. MassMutual intends to monitor how these Procedures work in practice.

If MassMutual observes that these procedures are not meeting their objectives,

MassMutual will change the Procedures without further notification to the SEC staff. For

example, MassMutual may change the manner in which partial fills are allocated to a

rotational system to replace thepro rata allocation that is proposed. In.a rotational system,

MassMutual would allocate small amounts ofsecurities or proceeds received in a partial

fill to some of the participants in an aggregated transaction, using a numerical or

alphabetical list of all clients. A rotational system treats clients fairly because clients

receive an amount ofsecurities that would have a measurable effect upon their account,

each client has an opportunity at some point to obtain securities or proceeds equal to the

(continued...)

1-WA/820662.21
Douglas J. Scheidt, Esq.

June 6,2000

Page 7

Morgan, Lewis

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10. No Fund or Account participating in an Aggregated Transaction will be favored over any

other Fund or Account, because each Fund and Account taking part in a transaction will participate

at the same unit price. Transaction costs and expenses will be shared by the participants on a pro

rata basis according to the amount oftheir participation.

11. MassMutual may receive transaction fees (including break-up or commitment fees, but

excluding broker's fees or any other compensation, fee, or other remuneration prohibited by

Section 17(e)ofthe 1940 Act) that are payable to the participants in an Aggregated Transaction

when MassMutual is a participant.6 MassMutual will receive no additional compensation or

remuneration ofany kind as a result of an Aggregated Transaction that is not sharedpro rata with

the other participants in the Aggregated Transaction. Any transaction fees payable to the

participants ofan Aggregated Transaction will be distributed on a pro rata basis to the participants

.in amounts proportionate to their respective investments.

12. Cash and securities ofFunds and Accounts participating in an Aggregated Transactionmay

be deposited in a single account with one or more banks or broker-dealers only so long as

reasonably necessary to settle an Aggregated Transaction on a delivery versus payment basis.

Cash or securities will be held collectively following settlement only so long as reasonably

necessary to deliver the cash or securities to each participant's custodian.

13. MassMutual will maintain written records of each Aggregated Transaction involving a

Non-negotiated Private Placement Security of a Fund or Account in an easily accessible place for

a period ofnot less than five years, the first two years in an appropriate office ofMassMutual.

These records will indicate, for each Fund and Account participating in an Aggregated

Transaction, the amount ofNon-negotiated Private Placement Securities allocated to or sold from

the Fund and the Account, the date the Fund and Account acquired, liquidated or otherwise

disposed of the position, and the price paid 'or received by the Fund and Account each time.

MassMutual also will maintain in an easily accessible place for a period ofnot less than five years,

the first two years in an appropriate office ofMassMutual, written explanations ofdeviations from

Allocation Statements including written approvals ofdeviations by a member ofthe Aggregation

Committee; and the Policy Statements, Procedures, and Allocation Statements.

5(...continued)

amount originally desired (i.e., as ifthe order had been completely filled), and MassMutual

would not be able to alter a client's position on the list to favor one client over others.

6 MassMutual is not requesting the staffs views on the applicability of Section 17(e) to its

receipt oftransaction fees in Aggregated Transactions.

l-WA/820662.21
DouglasJ. Scheidt, Esq.

June 6, 2000

Page 8

C. ISSUE PRESENTED

Morgan, Lewis

& BockiusUP

Section 17(d) of the 1940 Act makes it unlawful for any affiliated person of, or principal

underwriter for, a registered investment company, or any affiliated person ofsuch a person, acting

as principal, to effect any transaction in which the registered company is a joint orjoint and several

participant in contravention of SEC rules and regulations. Rule .17d-l prohibits any affiliated

person of, or principal underwriter for, a registered investment company or any affiliated person

of such persons from participating in, or effecting any transaction in connection with, a joint

arrangement or profit-sharing plan unless the SEC grants an exemptive order authorizing the

arrangement or plan. Rule 17d-l(c) defines ''joint enterprise or other joint arrangement or

profit-sharing plan" as any plan, contract, authorization, or arrangement, or any practice or

understanding concerning an enterprise or undertaking, under which a registered investment

company and any ofits affiliated persons or affiliated persons ofsuch persons have a joint orjoint

and several participation in the profits (a "Joint Transaction").

The application of Section 17(d) and Rule 17d-l to the proposed Aggregated Transactions,

therefore, turns on whether (1) the Funds and the Accounts are affiliated persons ofone another

within the meaning of Section 2(a)(3) ofthe 1940 Act or affiliated persons of affiliated persons,

and (2) whether the transactions are Joint Transactions.

As their investment adviser, MassMutual is an affiliated person ofthe Funds within the meaning

ofSection 2(a)(3)(E) ofthe 1940 Act. MassMutual also could be deemed an affiliated person of

the Funds or Accounts under Section 2(a)(3)(C) to the extent it is deemed to control them. In

addition, MassMutual would be deemed an affiliated person ofthose Funds or Accounts 5% or

more ofwhose voting securities it owns tinder Section 2(a)(3)(B).

In light ofthe foregoing, the Funds and the Accounts could be affiliated persons ofone another

under Section 2(a)(3)(C) ofthe 1940 Act to the extent they are deemed to be under the common

controlofMassMutual. They also could be deemed affiliated persons of affiliated persons since

(1) MassMutual is an affiliated person ofthe Funds under Section 2(a)(3)(E) and (2) the Accounts

could be viewed as affiliated persons ofMassMutual under Sections 2(a)(3)(A) or 2(a)(3)(C).

Assuming that the Funds and the Accounts are affiliated persons ofeach other or affiliated persons

ofsuch persons, the SEC or the staffcould take the position that the proposed transactions would

be Joint Transactions prohibited under Section 17(d) and Rule 17d-1. The SEC historically has

taken the position that these provisions apply where an investment company and its affiliated

persons or affiliated persons ofsuch persons undertake "at or about the same time to invest in the

l-WA/820662.21
· ( " ..

Douglas J. Scheidt, Esq.

June 6, 2000

Page 9

Morgan, Lewis

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same companies at the inducement of or arrangement of the same person."7 Because of this

position, MassMutual has obtained exemptive orders from the SEC under Section 17(d) and Rule

17d-l to engage in Aggregated Transactions involving privately-placed securities.8

Certain non-public securities, such as Rule 144A securities ofpublic companies, are traded more

like public securities than private placements.9 MassMutual, therefore, requests no-action relief

under Section 17(d) and Rule 17d-l to make certain that it is not required to file an exemptive

application with regard to the proposed Aggregated Transactions in Non-negotiated Private

Placement Securities. For the reasons discussed below, MassMutual believes that the proposed

Aggregated Transactions are consistent with the transactions that the staff permitted to be

aggregated in two interpretive letters - SMC Capital, Inc. (Sept. 5, 1995) ("SMC') and Pretzel &

Stouffer (Dec. 1, 1995) ("Pretzef').10

7 Imperial Financial Services, Securities Exchange Act ReI. No. 7684 (Aug. 26, 1965).

8 See, e.g., Massachusetts Mutual Life Ins. Company, et al., Investment Company Act ReI.

Nos. 20381 (June 30, 1994) (notice) and 20427 (July 26, 1994) (order).

9 Rule 144A provides a non-exclusive safe harbor exemption from the Securities Act

registration requirements for resales ofrestricted securities to eligible institutions that,

when issued, were not ofthe same class as securities listed on a U.S. securities exchange

or quoted on the National Association ofSecurities Dealers Automated Quotation System

(NASDAQ). With the exception ofregistered broker-dealers, qualified institutional buyers

("QIBs") eligible to make purchases under Rule 144A must in the aggregate own and

invest on a discretionary basis at least $100 million in securities of unaffiliated issuers.

Some Rule 144A securities are issued by public companies and have active secondary

trading markets. Others are issued by private companies and have little or no secondary

trading. The former tend to be offered to Qms on a "take it or leave it" basis while the

initial terms ofthe latter are much more likely to be negotiable.

10 Unlike in SMC, MassMutual is not requesting reliefunder Section 206 ofthe Advisers Act

to engage in the proposed transactions. The staffstated in Pretzel that an "adviser that

aggregates client orders must do so in a manner consistent with its duty to seek best

execution ofthe orders, and must ensure that all clients are treated fairly .... Additionally,

an adviser must disclose to its clients its policies with respect to the aggregation oforders."

MassMutual understands these obligations and will seek to comply with them fully in

connection with the proposed transactions.

l-WA/820662.21
'",

Douglas J. Scheidt, Esq.

Jooe 6,2000

Page 10

D. DISCUSSION

Morgan, Lewis

&Bockius LLP

The staff concluded in SMe and reaffirmed in Pretzel that ''the mere aggregation of orders·for

advisory clients, including a registered investment company, would not violate Section 17(d),

provided that the investment company participates on terms no less advantageous than those of

any other participant."· Conversely, the staffstated in SMe that where an adviser "allocates trades

in such a way as to disadvantage a registered investment company, however, ajoint enterprise or

joint arrangement raising the concerns Section 17(d) was designed to address may result."

The staffs response in SMe was based on a number ofrepresentations designed to ensure that

registered investment companies are not disadvantaged (the "SMe Conditions"). The stafffurther

stated, however, that "there may be other allocation methods that advisers can use without

violating Section 17(d)." Finally, the staffstated in SMe that because the request for interpretive

relief did "not request reliefwith respect to the aggregation oforders involving privately placed

securities ... we express no opinion with respect to the aggregation ofsuch securities."

The aggregation of orders involving private placement securities may entail the negotiation of

terms of the offering. This may raise concerns ooder Section 17(d) because a registered

investment company that participates in aggregated purchases or sales ofthese securities could be

disadvantaged, regardless of whether it participates on the same terms as those of the other

participants. For example, an adviser could negotiate terms ofthe security, such as the maturity

date, to benefit itself or other advisory clients to the possible disadvantage of the investment

company.

Urider the proposed Aggregated Transactions, none ofthe Foods would participate on terms less

advantageous than any of the ACCOootS, nor would MassMutual favor any participant in an

Aggregated Transaction over another participant. Moreover, MassMutual would comply with

conditions virtually identical to the SMe Conditions, which are designed to ensure that the Foods

are not disadvantaged. These conditions are set forth above in Part B ofthis letter discussing the

proposed transactions.

MassMutual believes that the Funds can benefit from participating in Aggregated Transactions.

When MassMutual is able to aggregate client purchases, the larger size ofthe order gives it an

advantage in negotiating the price, and in receiving a larger portion ofthe securities offered on

behalf of itself and its clients in the event that its order is not filled completely ("partial fill").

Further, a large purchase in one offering can improve the ability ofMassMutual and its clients to

participate in future offerings. In addition, because the assets ofthe Accounts are far greater than

the assets ofthe Foods, the Funds are able to participate in offerings that otherwise might not be

available to them. The Foods will benefit from aggregated sales of Non-negotiated Private

Placement Securities. The Funds may hold small amooots ofNon-negotiated Private Placement

l-WA/820662.21
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June 6,2000

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Securities relative to the amounts that the Accounts may hold. Some institutional investors may

be unwilling to acquire a small amount ofNon-negotiated Private Placement Securities and, as a

result, the Funds could benefit from participating in the aggregated sales. 11 The Funds also could

take advantage of reduced transaction costs in an aggregated sale. The Funds would not be

disadvantaged by their participation in Aggregated Transactions because (1) all participants will

receive the same unit price, (2) the Procedures will mandate fair treatment and written

explanations and approvals ofany deviations from an Allocation Statement, and (3) MassMutual

will negotiate only the price ofNon-negotiated Private Placement Securities and therefore will not

be able to affect the terms ofan offering to favor one client or group ofclients over another. The

interests ofall participants in an Aggregated Transaction will be aligned because MassMutual will

negotiate only the price of Non-negotiated Private Placement Securities. The price affects all

participants equally because every participant will seek to obtain the best price possible.

MassMutual acknowledges that, in some circumstances, an adviser and its non-investment

company clients could benefit from the participation of an investment company client in an

Aggregated Transaction because the investment company's· participation could increase the size

ofthe order and enhance the adviser's ability to negotiate the price and receive a larger portion of

the securities offered in the case ofa partial fill. This is not the case with MassMutual, however,

as the Funds' combined net assets are a fraction of the combined assets of the Accounts.

Nevertheless, MassMutual's proposal to aggregate its orders with those ofthe Funds raises the

possibility that MassMutual could, in some cases, have a conflict ofinterest with a Fund in an

Aggregated Transaction. MassMutual will, consistent with its fiduciary duties, disclose to the

disinterested trustees of each Fund the existence of, and all ofthe material facts relating to, any

conflicts ofinterests between MassMutual and the Fund in an Aggregated Transaction to allow

the disinterested trustees to approve the Fund's participation in the Aggregated Transaction, before

or after the transaction. For the reasons set out above, we believe the staff should grant the

requested relief under Section 17(d) and Rule 17d-l.

We recognize that SMC specifically stated that it did not address the aggregation of orders

involving private placement securities. However, we do not see any meaningful distinction

between transactions involving Non-negotiated Private Placement Securities where no term is

negotiated other than price and transactions involving publicly traded securities. The SEC issued

a report in 1996 stating that "[w]hat used to be thought of as public offerings are being done

privately under Rule 144A. Bearing close resemblance to public offerings, Rule 144A placements

often are facilitated by investment banking firms and accompanied by detailed offering circulars

11 Aggregated sales ofprivate placement securities generally do not involve the negotiation

of any terms of the securities, although the price at which a sale is effected may be

negotiated.

l-WA/820662.21
: ..,

\

)

Douglas J. Scheidt, Esq.

June 6, 2000

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Morgan, Lewis

& Bockius UP

..•."\2 In recognition ofthis fact, the SEC specifically amended Rule 10f-3 under the 1940 Act

to pennit funds to purchase securities in eligible Rule 144A offerings. 13 The term "Eligible Rule

144A Offering" is defined in Rule lOf-3 as any offering ofsecurities which, among other things,

is exempt from registration under Section 4(2) of the Securities Act of 1933, Rule 144A

. thereunder, or Regulation D. The same conclusion should apply to commercial paper that is

exempt from the Securities Act by Section 3(a)(3) thereunder.

In·any event, regardless of whether Non-negotiable Private Placement Securities are similar to

public securities, the ultimate question under Section 17(d) and Rule 17d-l thereunder is whether

the Funds would participate in the proposed transactions on terms no less advantageous than those

ofthe other Accounts. For the reasons discussed above, we believe that they will. In fact, we

believe that each Fund could benefit from aggregating transactions in Non-negotiated Private

Placement Securities with the Accounts to the extent that the ability to engage in large Aggregated

Transactions typically will result in more buying power which may enable each Fund and Account

to obtain better prices.

E. - CONCLUSION

For these reasons, we believe that the proposed Aggregated Transactions should not be deemed

subject to Section 17(d) and Rule 17d-l. Therefore, we request confirmation that the staffwill not

recommend enforcement action to the SEC under Section 17(d) or Rule 17d-l ifthe Funds and

the A.ccounts aggregate trades and invest in Non-negotiated Private Placement Securities under

the circumstances set forth above.

We would v~ry much appreciate your prompt attention to t1)is matter. Please contact me at (202)

467-7192, or Monica Parry at (202) 467-7692, ifyou have any questions.

-_•...."/)

ery fy yours, . /

,.~ -~ ../~.",.

12 Advisory Report ofthe Advisory Committee on the Capital Formation and Regulatory

Processes, Appendix A, pages 41-42 (July 24, 1996).

13 Investment Company Act Release No. 22775 (July 31, 1997) (adopting Rule lOf-3

amendments).

l-WA/820662.21
',.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20S49

DIVISION OF

'::STMENT MANAGEMENT

July 28, 2000

Stephanie M. Monaco, Esq.

Morgan, Lewis & Bockius LLP

1800 M Street, N.W.

Washington, D.C. 20036-5869

Dear Ms. Monaco:

On June 7,2000, we issued a no-action letter to Massachusetts Mutual Life

Insurance Company ("MassMutual") under Section 17(d) ofthe Investment Company

Act of 1940 and Rule 17d-l thereunder with respect to MassMutual's proposed

aggregation of orders, on behalfofits proprietary account and registered investment

companies ("funds") and certain private accounts for which it serves as investment

adviser, for the purchase and sale ofprivate placement securities for which it negotiates

no term other than price. Since the issuance ofthe letter, we have received a number of

inquiries regarding the scope ofthe no-action relief granted to MassMutual~ We are

writing to clarify that MassMutual did not request no-action relief, and we did not

express our views, with respect to aggregated transactions in which a fund's investment

adviser: (1) does not participate or have a material pecuniary interest in an entity that

does participate; but (2) negotiates the terms ofthe private placement securities on behalf

ofthe fund and other participants in the aggregated transaction which are affiliated with

the fund. Ifwe are requested to do so, we will address this issue separately.

Sincerely,

Annette

~~~ M. Capretta

Senior Counsel