[Federal Register Volume 63, Number 213 (Wednesday, November 4, 1998)]
[Notices]
[Pages 59605-59607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29469]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23509; 812-11350]
Hilliard-Lyons Growth Fund, Inc., et al.; Notice of Application
October 28, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act.
-----------------------------------------------------------------------
SUMMARY OF APPLICATION: The requested order would permit the
implementation, without prior shareholder approval, of new investment
advisory agreements (the ``New Advisory Agreements''), for a period of
up to 60 days following the later of the dates on which Hilliard
[[Page 59606]]
Lyons, Inc., the corporate parent of J.J.B. Hilliard, W.L. Lyons, Inc.
(the ``Adviser''), consummates its merger with PNC Bank Corp., or the
date on which the requested order is issued (but in no event later than
January 31, 1999) (the ``Interim Period''). The order also would permit
the Adviser to receive all fees earned under the New Advisory
Agreements during the Interim Period following shareholder approval.
APPLICANTS: Hilliard-Lyons Growth Fund, Inc. (the ``Growth Fund''),
Hilliard-Lyons Government Fund, Inc. (the ``Government Fund'')
(together, the ``Funds,''), and the Adviser.
FILING DATES: The application was filed on October 8, 1998, and amended
on October 26, 1998. Applicants have agreed to file an amendment during
the notice period, the substance of which is included in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief 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 November
20, 1998, and should be accompanied by proof of service on applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549.
Applicants, Hilliard-Lyons Growth Fund, Inc., et al., Hilliard Lyons
Center, Louisville, KY 40202.
FOR FURTHER INFORMATION CONTACT: Lisa McCrea, Attorney Adviser, (202)
942-0562, or Mary Kay Frech, Branch Chief, at (202) 942-0564 (Office of
Investment Company Regulation, Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 5th Street, N.W., Washington, DC
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Funds are registered under the Act as an open-end management
investment companies. The Adviser is registered as an investment
adviser under the Investment Advisers Act of 1940. The Adviser serves
as investment adviser to the Funds under existing investment advisory
agreements (the ``Existing Advisory Agreements'').
2. On August 20, 1998, PNC Bank Corp. (``PNC'') entered into a
merger agreement with Hilliard-Lyons, Inc. (``Hilliard-Lyons''), the
parent of the Adviser, under which Hilliard-Lyons would be merged into
PNC (the ``Merger''). Upon consummation of the Merger, PNC will own all
of the outstanding capital stock of Hilliard-Lyons. Applicants expect
consummation of the Merger (the ``Closing Date'') on or before November
30, 1998.\1\
---------------------------------------------------------------------------
\1\ Applicants state that if the Merger precedes the issuance of
the requested order, the Adviser will continue to serve as
investment adviser after the Merger and prior to the issuance of the
order in a manner consistent with its fiduciary duty to continue to
provide advisory services to the Funds even though shareholder
approval of the new arrangements has not yet been secured.
Applicants also state that the Funds may be required to pay, with
respect to the period until receipt of the order, no more than the
actual out-of-pocket cost to the Adviser for providing advisory
services.
---------------------------------------------------------------------------
3. Applicants state that the Merger will result in the assignment
and the automatic termination of the Existing Advisory Agreements.
Applicants request an exemption to permit (a) the implementation during
the Interim Period, prior to obtaining shareholder approval, of the New
Advisory Agreements, and (b) the Adviser to receive from each Fund,
upon approval of that Fund's shareholders, any and all fees payable
under the New Advisory Agreement during the Interim Period. The
requested exemption would cover the Interim Period of not more than 60
days beginning on the later of the Closing Date or the date on which
the requested order is issued, and continuing with respect to each Fund
through the date on which each New Advisory Agreement is approved or
disapproved by the shareholders of each Fund (but in no event later
than January 31, 1999). The New Advisory Agreements will contain terms
and conditions identical to those of the Existing Advisory Agreements,
except for the effective dates, termination dates, and escrow
provisions.
4. On September 17, 1998 and September 21, 1998, the boards of
directors (the ``Boards''), including a majority of the members who are
not ``interested persons'' as defined in section 2(a)(19) of the Act
(the ``Independent Directors''), of the Government Fund and the Growth
Fund, respectively, voted in accordance with section 15(c) of the Act
to approve the New Advisory Agreements, and to submit them to the
Funds' shareholders. The shareholder meetings are scheduled to be held
on November 6, 1998 for the Government Fund, and on November 19, 1998
for the Growth Fund (the ``Meetings''). Applicants state that proxy
materials for the Meetings were mailed to the Government Fund's
shareholders on October 15, 1998, and to the Growth Fund's shareholders
on October 22, 1998. Applicants state that the Boards will meet in
person prior to the commencement of the Interim Period to approve the
escrow provisions of the New Advisory Agreements in accordance with
section 15(c) of the Act.
5. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution. The fees payable to the Adviser
during the Interim Period under the New Advisory Agreements would be
paid by the Funds into an interest-bearing escrow account. The escrow
agent would release the monies held in the escrow account (including
any interest earned): (a) to the Adviser only upon approval of the
relevant New Advisory Agreement by the relevant fund's shareholders in
accordance with section 15 of the Act; or (b) to the relevant Fund if
the Interim Period has ended and the New Advisory Agreement has not
received the requisite shareholder approval. Before any such release is
made, the Board of the relevant fund would be notified.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in pertinent part, that it
shall be unlawful for any person to serve or act as investment adviser
of a registered investment company, except pursuant to a written
contract that has been approved by the vote of a majority of the
outstanding voting securities of such registered investment company.
Section 15(a) further requires that the written contract provide for
automatic termination in the event of its assignment. Section 2(a)(4)
of the Act defines ``assignment'' to include any direct or indirect
transfer of a controlling block of the assignor's outstanding voting
securities by a security holder of the assignor. Applicants state that
the Merger will result in an ``assignment'' of the Existing Advisory
Agreements, and that the Existing Advisory Agreements will terminate by
their terms and in accordance with the Act.
2. Rule 15a-4 under the Act provides, in pertinent part, that if an
investment advisory contract with an investment company is terminated,
the adviser may continue to serve for 120 days under a written contract
that has not been approved by the investment company's shareholders,
provided that: (a) The new contract is approved by the board of
[[Page 59607]]
directors (including a majority of the non-interested directors); (b)
the compensation to be paid under the new contract does not exceed the
compensation which would have been paid under the contract most
recently approved by shareholders of the investment company; and (c)
neither the adviser nor any controlling person of the investment
adviser ``directly or indirectly receives money or other benefit'' in
connection with the transaction. Applicants state that they may not
rely on rule 15a-4 because the Adviser and its affiliates may be deemed
to receive a benefit in connection with the Merger.
3. Section 6(c) provides that the SEC may exempt any person,
security, or transaction from any provision of the Act, if and to the
extent that the exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policies and provisions of the Act.
Applicants state that the requested relief satisfies this standard.
4. Applicants assert that the terms and timing of the Merger were
determined by Hilliard-Lyons and PNC in response to a number of factors
beyond the scope of the Act and unrelated to the Funds and the Adviser.
Applicants state that a proxy solicitation is a time consuming task,
and that it is possible that an insufficient number of votes will have
been received by the Meeting, and it may be necessary to adjourn for a
period to permit additional shareholders to vote their shares by proxy.
5. Applicants state that the requested relief will allow continuity
in investment management services to the Funds during the Interim
Period. Applicants state that, during the Interim Period, the Funds
would receive the same advisory services, provided in the same manner
and at the same fee levels, by substantially the same personnel as they
received before the Merger.
Applicant's Conditions
Applicants agree that the requested order will be subject to the
following conditions:
1. The New Advisory Agreements will have the same terms and
conditions as the Existing Advisory Agreements, except for the
effective dates, termination dates, and escrow provisions.
2. Advisory fees earned by the Adviser during the Interim Period
will be maintained in an interest-bearing escrow account, and amounts
in the account, (including interest earned on such amounts), will be
paid (a) to the Adviser in accordance with the relevant New Advisory
Agreement, after the requisite shareholder approval is obtained, or (b)
to the relevant Fund, in the absence of such approval with respect to
such Fund.
3. The Government Fund and the Growth Fund will hold meetings of
shareholders to vote on approval of the New Advisory Agreements on
November 6, 1998, and November 19, 1998, respectively, or within the
60-day period following the commencement of the Interim Period (but in
no event later than January 31, 1999).
4. The Funds will not bear the costs of preparing and filing the
application, or any costs relating to the solicitation of shareholder
approval necessitated by the consummation of the Merger.
5. The Adviser will take all appropriate steps to ensure that the
scope and quality of advisory and other services provided to the Funds
during the Interim Period will be at least equivalent, in the judgment
of the Board, including a majority of the Independent Directors, to the
scope and quality of services provided under the Existing Advisory
Agreement. In the event of any material change in personnel providing
services pursuant to the New Advisory Agreements, the Adviser will
apprise and consult with the Boards to assure that the Boards,
including a majority of the Independent Directors, are satisfied that
the services provided will not be diminished in scope or quality.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-29469 Filed 11-3-98; 8:45 am]
BILLING CODE 8010-01-M
