[Federal Register Volume 63, Number 101 (Wednesday, May 27, 1998)]
[Notices]
[Pages 29044-29046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13956]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23197; File No. 812-10974]


Mitchell Hutchins Portfolios, et al.; Notice of Application

May 20, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 17(d) of the 
Investment Company Act of 1940 (the ``Act'') and rule 17d-1 under the 
Act.

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SUMMARY OF APPLICATION: Applicants request an order that would permit 
certain registered open-end management investment companies relying on 
section 12(d)(1)(G) of the Act to enter into a special servicing 
agreement.

APPLICANTS: Mitchell Hutchins Portfolios (the ``Trust''); PaineWebber 
America Fund, PaineWebber Cashfund, Inc. (``Cashfund''), PaineWebber 
Investment Series, PaineWebber Investment Trust, PaineWebber Managed 
Investments Trust, PaineWebber Olympus Fund, PaineWebber Securities 
Trust, (the ``PaineWebber Investment Companies,'' and together with the 
Trust, the ``PaineWebber Mutual Funds''), Mitchell Hutchins Asset 
Management Inc. (``Mitchell Hutchins''), and PaineWebber Incorporated 
(``PaineWebber''). Applicant also request relief for each existing or 
future registered open-end management investment company and series 
thereof that is part of the same group of investment companies as the 
PaineWebber Mutual Funds under section 12(d)(1)(G)(ii) of the Act, and 
which is, or will be, advised by Mitchell Hutchins or PaineWebber or 
any entity controlling, controlled by, or under common control with 
Mitchell Hutchins or PaineWebber, or for which Mitchell Hutchins or 
PaineWebber or any entity controlling, controlled by, or under common 
control with Mitchell Hutchins or PaineWebber serves, or will serve as 
principal underwriter (collectively, the ``PaineWebber Family of 
Funds'').

FILING DATES: The application was filed on January 26, 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 Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on June 15, 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

[[Page 29045]]

notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, D.C. 20549. Applicants, 1285 Avenue of the 
Americas, New York, NY 10019.

FOR FURTHER INFORMATION CONTACT:
Kathleen L. Knisely, Staff Attorney, at (202) 942-0517, or Nadya B. 
Roytblat, Assistant Director, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Trust, a Delaware business trust, is an open-end management 
investment company registered under the Act. The Trust currently offers 
three portfolios (the ``Portfolios'') which will invest all, or 
substantially all, of their assets in shares of other investment 
companies in the PaineWebber Family of Funds (``Underlying Funds''),\1\ 
in reliance on section 12(d)(1)(G) of the Act and thereby operate as a 
fund of funds. The Portfolios will allocate their assets among the 
following Underlying Funds: PaineWebber Global Equity Fund, PaineWebber 
Global Income Fund, PaineWebber Growth Fund, PaineWebber Growth and 
Income Fund, PaineWebber Small Cap Fund, PaineWebber High Income Fund, 
PaineWebber Investment Grade Income Fund, PaineWebber Low Duration U.S. 
Government Income Fund, PaineWebber U.S. Government Income Fund, and 
Cashfund. In the future, other registered open-end management 
investment companies in the PaineWebber Family of Funds may be added as 
Underlying Funds. Each Portfolio and each Underlying Fund is authorized 
to issue multiple classes of shares in accordance with rule 18f-3 under 
the Act.
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    \1\ The Portfolios may not be Underlying Funds and no Portfolio 
will invest in another Portfolio.
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    2. Mitchell Hutchins and PaineWebber (collectively, the 
``Advisers'') are registered as investment advisers under the 
Investment Advisers Act of 1940. Mitchell Hutchins is a subsidiary of 
PaineWebber, which is wholly owned by Paine Webber Group, Inc., a 
publicly owned financial services holding company. Mitchell Hutchins 
serves as investment adviser and administrator to the Portfolios. 
Mitchell Hutchins also serves as the principal underwriter of each 
Portfolios's shares and each Underlying Fund's shares (other than 
Cashfund, for which PaineWebber serves as principal underwriter). 
Mitchell Hutchins or PaineWebber serves as investment adviser to the 
Underlying Funds.
    3. Applicants propose to enter into a special servicing agreement 
(``Servicing Agreement'') among each Portfolio, the Underlying Funds 
and the Adviser. Under the Servicing Agreement, the Underlying Funds 
would bear the expenses of the Portfolio (other than advisory fees and 
rule 12b-1 fees) in proportion to the average daily value of the 
Underlying Fund's shares owned by the Portfolio. Payments by an 
Underlying Fund under the Servicing Agreement would be a fund-wide 
expense of the Underlying Fund.
    4. Applicants believe that each Portfolio creates savings to the 
Underlying Funds primarily due to a reduction in the administrative 
expenses incurred by the Underlying Funds as a result of the avoidance 
of numerous shareholder accounts which would have been established if 
investors in the Portfolios had invested directly in the Underlying 
Funds. No Underlying Fund would bear any expenses of a Portfolio that 
exceed Net Benefits as defined in the condition below, to the 
Underlying Fund from the arrangement.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 under the Act provide 
that an affiliated person of, or a principal underwriter for, a 
registered investment company, or an affiliate of such person or 
principal underwriter, acting as principal, shall not participate in, 
or effect any transaction in connection with, any joint enterprise or 
other joint arrangement in which the registered investment company is a 
participant unless the Commission has issued an order approving the 
arrangement. Because the Adviser is an affiliated person of each 
Portfolio and each Underlying Fund and because the Portfolios and 
Underlying Funds share a common board of directors/trustees 
(``Board''), each of the Portfolios and Underlying Funds advised by the 
Adviser could be deemed to be under common control with all the other 
Portfolios and Underlying Funds, and therefore, an affiliated person of 
those Funds. Consequently, the Servicing Agreement could be deemed to 
be a joint transaction.
    2. Rule 17d-1 under the Act provides that, in passing upon 
exemptive requests under the rule, the Commission considers whether the 
investment company's participation in the joint enterprise is 
consistent with the provision, policies and purposes of the Act, and 
the extent to which such participation is on a basis different from, or 
less advantageous than that of other participants.
    3. Applicants request relief under section 17(d) and rule 17d-1 to 
permit them to enter into the Service Agreement. Applicants contend 
that each Underlying Fund will pay a Portfolio's expenses only in 
direct proportion to the average daily value of each Underlying Fund's 
shares held by each Portfolio to ensure that expenses of the Portfolios 
will be borne proportionately and fairly. Applicants also state that 
prior to an Underlying Fund's entering into a Service Agreement, and at 
least annually thereafter, the Board of the Underlying Fund, including 
a majority of directors who are not interested persons under section 
2(a)(19) of the Act (``Disinterested Directors''), must determine that 
the Servicing Agreement will result in Net Benefit, as defined in the 
condition below, to the Underlying Fund. In making the annual 
determination, one of the factors the Board must consider is the amount 
of Net Benefits actually experienced by each class of shareholders of 
the Underlying Fund and the Underlying Fund as a whole during the 
preceding year. For these reasons, the applicants believe the requested 
relief meets the standards of section 17(d) of the Act and rule 17d-1 
under the Act.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    Prior to the Underlying Fund's entering into a Servicing Agreement, 
and at least annually thereafter, the Board of the Underlying Fund, 
including a majority of Disinterested Directors of the Underlying Fund, 
must determine that the Servicing Agreement will result in quantifiable 
benefits to each class of shareholders of the Underlying Fund and to 
the Underlying Fund as a whole that will exceed the costs of the 
Servicing Agreement borne by each class of shareholders of the 
Underlying Fund and by the Underlying Fund as a whole (``Net 
Benefits''). In making the annual determination, one of the factors the 
Board must consider is the amount of Net Benefits actually experienced 
by each class of shareholders of the Underlying Fund and the Underlying 
Fund as a whole during the preceding year. The Underlying Fund will 
preserve for a period of not less than six years from

[[Page 29046]]

the date of a determination of the Board, the first two years in an 
easily accessible place, a record of the determination and the basis 
and information upon which the determination was made. This record will 
be subject at all times to examination by the Commission and its staff.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-13956 Filed 5-26-98; 8:45 am]
BILLING CODE 8010-01-M