[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Notices]
[Pages 64461-64463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30569]



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

SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21590; 812-9534]


Managed Accounts Services Portfolio Trust and Mitchell Hutchins 
Asset Management Inc.; Notice of Application

December 11, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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

APPLICANTS: Managed Accounts Services Portfolio Trust (the ``Trust'') 
and Mitchell Hutchins Asset Management Inc. (``Mitchell Hutchins'').

RELEVANT ACT SECTIONS: Applicants request an exemption under section 
6(c) of the Act from section 15(a) of the Act and rule 18f-2 
thereunder.

SUMMARY OF APPLICATION: The Trust is a registered investment company 
advised by Mitchell Hutchins. Mitchell Hutchins oversees the selection 
of other investment advisers for the Trust's series, monitors such 
investment advisers, and allocates assets among them. The order would 
permit an investment adviser other than Mitchell Hutchins to serve as 
an investment adviser to one or more series of the Trust without 
receiving prior shareholder approval.

FILING DATE: The application was filed on March 16, 1995, and amended 
on August 9, and December 8, 1995.

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 5, 1996, 
and should be accompanied by proof of service on applicants, in the 
form of an addidavit, or for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, D.C. 
20549. Applicants, 1285 Avenue of the Americas, New York, New York 
10019.

FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574 or Alison E. Baur, 
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 is available for a fee from the 
SEC's Public Reference Branch.

Applicants' Representations

    1. The Trust is a registered open-end management investment company 
organized as a Delaware business trust. The Trust is currently composed 
of twelve separate investment portfolios (each a ``Portfolio,'' and 
collectively, the ``Portfolios''). The Trust was organized by Mitchell 
Hutchins and its parent, PaineWebber Incorproated (``PaineWebber''), to 
provide to participants in the PaineWebber PACE Program (the ``PACE 
Program'') a cost-effective investment method (i.e., a series of pooled 
investment funds) to invest their assets in a variety of different 
asset classes managed by investment advisers selected and monitored by 
Mitchell Hutchins.
    2. Mitchell Hutchins, a Delaware corporation that is registered as 
an investment adviser, acts as the investment manager and administrator 
to the Trust pursuant to an Investment Management and Administration 
Agreement with the Trust (the ``Management Agreement'') and is 
responsible for the selection or termination of investment advisers 
(``Sub-Advisers'') for each of the Portfolios. Mitchell Hutchins also 
serves as the adviser to the PACE Money Market Investment Portfolio, 
one of the 

[[Page 64462]]
Trust's Portfolios. None of the Sub-Advisers has any affiliation with 
Mitchell Hutchins or PaineWebber. Each Portfolio will pay Mitchell 
Hutchins a management fee for investment management services provided 
to the Trust, and an administrative fee for administrative services 
provided to each Portfolio. Mitchell Hutchins compensates each Sub-
Adviser from the management fees that it receives from the applicable 
Portfolio.
    3. The purchase of shares of the Trust by a PACE Program 
participant must be made through a brokerage account maintained with 
PaineWebber.\1\ As described in the Trust's prospectus and marketing 
materials, under the PACE Program, PaineWebber Managed Accounts 
Services (``PMAS''), a division of PaineWebber, will provide 
participants with asset allocation recommendations and related services 
with respect to their investments in the Portfolios for a fee, which 
will be charged directly to the participant's brokerage account. These 
recommendations are based on an evaluation of each participant's 
identified investment objectives and risk tolerances. PMAS will provide 
each participant with written recommendations appropriate to that 
participant, but the participant is under no obligation to act on the 
recommendations, and PMAS will not have investment discretion over the 
participant's account. Participants in the PACE Program are expected to 
include individuals, institutional investors, individual retirement 
accounts and qualified employee benefit plans.

    \1\ Shares of the Portfolios may also be available at some 
future date for purchase through other asset allocation programs 
offered by professional asset managers (e.g. banks, trust companies, 
or registered investment advisers) who, for compensation, engage in 
the business of advising others as to the value of securities or as 
to the advisability of investing in, purchasing or selling 
securities.
---------------------------------------------------------------------------

    4. An important element of the PACE Program, as disclosed in the 
Trust's prospectus\2\ and emphasized in the PACE Program marketing 
materials, is the use of a significant number of different Sub-Advisers 
evaluated, selected and monitored by Mitchell Hutchins. This structure 
is often referred to as a ``multi-manager fund.'' An explanatory 
supplemental sales literature brochure titled ``Investment Manager 
Profiles'' provided to each PACE Program participant describes the Sub-
Adviser selection process and the Sub-Advisers employed currently by 
the Trust.

    \2\ The Trust's prospectus has also disclosed, since the 
effective date of the Trust's registration statement on June 21, 
1995, that the Trust was seeking an exemptive order from the SEC 
exempting it from the requirement that each agreement between the 
Trust and a Sub-Adviser be approved by a vote of a majority of the 
shareholders of the affected Portfolio.
---------------------------------------------------------------------------

    5. Initially, each Portfolio, with the exception of the PACE Money 
Market Investments Portfolio which will be advised by Mitchell 
Hutchins, will have one Sub-Adviser. Mitchell Hutchins anticipates that 
it may recommend the use of two or more Sub-Advisers for some, and 
perhaps most, Portfolios as assets of the Portfolios increase and it 
becomes cost-effective to allocate a Portfolio's assets among several 
Sub-Advisers. Each Sub-Adviser would pursue a distinct but 
complementary investment process.
    6. Under the Management Agreement, Mitchell Hutchins manages the 
investment operations of the Trust, administers the Trust's affairs, 
and, except as provided below, makes recommendations for each Portfolio 
to the Board of Trustees of the Trust regarding (a) the investment 
strategies and policies of each Portfolio and (b) the selection and 
retention of Sub-Advisers who will exercise investment discretion with 
respect to the assets of each Portfolio. Mitchell Hutchins' services do 
not include recommendations regarding the purchase of individual 
securities, but consist of professional advice as to the Sub-Advisers 
that are most likely, over time, to achieve the investment objectives 
of the Portfolios.
    7. Mitchell Hutchins provides investment advisory services for the 
PACE Money Market Investments Portfolio, although the Trust reserves 
the right to hire another Sub-Adviser to provide investment advisory 
services to the PACE Money Market Investments Portfolio if Mitchell 
Hutchins recommends, and the Board of Trustees approves, such action.
    8. Applicants request an exemption from section 15(a) and rule 18f-
2 to permit a Sub-Adviser to serve as an investment adviser to one or 
more Portfolios under a written contract that has not been approved by 
a vote of the majority of the outstanding voting securities of the 
Portfolios, including a contract that has terminated as a result of its 
``assignment.'' Although shareholders will not vote on Sub-Adviser 
changes, applicants will provide shareholders with all the information 
that would be included in a proxy statement within 90 days of the 
hiring of any new Sub-Adviser or the implementation of any proposed 
material change in a Sub-Adviser contract.
    9. The Trust will rely on Mitchell Hutchins to monitor the 
performance of each Sub-Adviser employed by the Trust, as well as other 
attributes that could affect a Sub-Adviser's future performance. 
Applicants believe that it is in the best interest of the Trust's 
shareholders for the Trust's Trustees to be able to respond promptly to 
Mitchell Hutchins' recommendations by negotiating changes in Sub-
Advisers' contracts or, if necessary, by adding one or more new Sub-
Advisers.

Applicants' Legal Conclusions

    1. Section 15(a) makes it unlawful for any person to act as 
investment adviser to a registered investment company except pursuant 
to a written contract that has been approved by a majority of the 
investment company's outstanding voting securities. Rule 18f-2 provides 
that each series or class of stock in a series company affected by a 
matter must approve such matter if the Act requires shareholder 
approval.
    2. The Trust holds itself out as a multi-manager fund whereby 
investors obtain Mitchell Hutchins' services as a professional 
organization that will evaluate and determine which Sub-Advisers are 
most likely to make portfolio securities selections that will achieve 
the investor's defined objectives. Applicants believe that investors 
choosing to invest in the Trust have determined that they are unable or 
unwilling to select and/or monitor) effectively the best Sub-Advisers 
for a Portfolio and, therefore, desire that a professional organization 
with substantial experience and resources conduct these services on 
their behalf. Under the Trust's structure, applicants assert that the 
selection or change in a Sub-Adviser is not an event that significantly 
alters the nature of the shareholder's investment and thus does not 
implicate the policy concerns requiring shareholder approval.
    3. Applicants assert that, unlike the conventional investment 
company, the structure of the Trust provides complete independence from 
the Sub-Advisers. By contracting with Mitchell Hutchins for corporate 
management and distribution functions, the Trust provides investors 
with the full services of a conventional investment company, but also 
retains complete freedom to select or change investment advisers. 
Applicants believe that there are no compelling policy reasons that 
require the Trust, any more than shareholders of the conventional 
investment company should approve its adviser's change of a portfolio 
manager or revision of that portfolio manager's employment contract.
    4. Applicants assert that the Trust's investors will be able to 
exercise control over their relationship with Mitchell 

[[Page 64463]]
Hutchins, the party the investors have chosen to hold accountable for 
investment results, through the voting rights pursuant to section 15(a) 
of the Act and rule 18f-2 thereunder concerning the Trust's Management 
Agreement with Mitchell Hutchins. Applicants believe that a shareholder 
vote concerning a Sub-Advisory Agreement prior to its effective date 
should not be required, particularly when doing so will (i) increase 
the Trust's expenses and (ii) may delay prompt implementation of the 
action Mitchell Hutchins (and ultimately the investors themselves) has 
determined is most beneficial to the Trust's shareholders. Therefore, 
applicants contend that requiring the Trust to obtain immediate and 
costly shareholder approval for every change in control of a Sub-
Adviser is unreasonably burdensome, particularly where shareholders 
have chosen Mitchell Hutchins to determine the impact of the proposed 
change on their behalf.
    5. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction from any provision of the Act, if and 
to the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
policies and purposes fairly intended by the policies and provisions of 
the Act. Applicants believe that the requested relief meets this 
standard.

Applicants' Conditions

    Applicants agree that the requested exemption is subject to the 
following conditions:
    1. Mitchell Hutchins will not enter into a Sub-Advisory Agreement 
with any Sub-Adviser that is an affiliated person (as defined in 
section 2(a)(3) of the Act) of the Trust or Mitchell Hutchins other 
than by reason of serving as a Sub-Adviser to one or more of the 
Portfolios (an ``Affiliated Sub-Adviser'') without such agreement, 
including the compensation to be paid thereunder, being approved by the 
shareholders of the applicable Portfolio.
    2. At all times, a majority of the Trustees of the Trust will be 
persons each of whom is not an ``interested person'' of the Trust (as 
defined in section 2(a)(19) of the Act) (the ``Independent Trustees''), 
and the nomination of new or additional Independent Trustees will be 
placed with the discretion of the then existing Independent Trustees.
    3. When a Sub-Adviser change is proposed for a Portfolio with an 
Affiliated Sub-Adviser, the Trustee of the Trust, including a majority 
of the Independent Trustees, will make a separate finding, reflected in 
the Trust's board minutes, that the change is in the best interests of 
the Portfolio and its shareholders and does not involve a conflict of 
interest from which Mitchell Hutchins or the Affiliated Sub-Adviser 
derives an inappropriate advantage.
    4. Mitchell Hutchins will provide general management and 
administrative services to the Trust, and, subject to review and 
approval by the Trust's Trustees, will: (a) Set the Portfolios' overall 
investment strategies; (b) select Sub-Advisers; (c) allocate and, when 
appropriate, reallocate the Portfolios' assets among Sub-Advisers; (d) 
monitor and evaluate the performance of Sub-Advisers; and (e) ensure 
that the Sub-Advisers comply with the Trust's investment objectives, 
policies, and restrictions.
    5. Before a future Portfolio that does not presently have an 
effective registration statement may rely on the order, its initial 
shareholder will approve the multi-manager structure before Portfolio 
shares are offered to the public.
    6. Within 90 days of the hiring of any new Sub-Adviser or the 
implementation of any proposed material change in a Sub-Advisory 
Agreement, the Trust will furnish shareholders all information about a 
new Sub-Adviser or Sub-Advisory Agreement that would be included in a 
proxy statement. Such information will include any change in such 
disclosure caused by the addition of a new Sub-Adviser or any proposed 
material change in a Portfolio's Sub-Advisory Agreement. The Trust will 
meet this condition by providing shareholders, within 90 days of the 
hiring of a Sub-Adviser or the implementation of any material change to 
the terms of a Sub-Advisory Agreement, with an information statement 
meeting the requirements of Regulation 14C and Schedule 14C under the 
Securities Exchange Act of 1934 (the ``Exchange Act''). The information 
statement also will meet the requirements of Schedule 14A under the 
Exchange Act.
    7. No Trustee or officer of the Trust or Mitchell Hutchins will own 
directly or indirectly (other than through a pooled investment vehicle 
that is not controlled by any such Trustee or officer) any interest in 
a Sub-Adviser except for: (a) ownership of interests in Mitchell 
Hutchins or any entity that controls, is controlled by, or is under 
common control with Mitchell Hutchins; or (b) ownership of less than 1% 
of the outstanding securities of any class of equity or debt of a 
publicly-traded company that is either a Sub-Adviser or an entity that 
controls, is controlled by, or is under common control with a Sub-
Adviser.
    8. The Trust will disclose in all prospectuses relating to any 
Portfolio the existence, substance, and effect of any order granted 
pursuant to the application.
    9. Shares of the Trust will be offered exclusively to participants 
in the PACE Program or other asset allocation services offered by 
professional asset managers who, for compensation, engage in the 
business of advising others as to the value of securities or as to the 
advisability of investing in, purchasing or selling securities.

    For the SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30569 Filed 12-14-95; 8:45 am]
BILLING CODE 8010-01-M