[Federal Register Volume 59, Number 245 (Thursday, December 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31402]
[[Page Unknown]]
[Federal Register: December 22, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20772; 812-9192]
The Charles Allmon Trust, Inc., et al.; Notice of Application
December 15, 1994.
agency: Securities and Exchange Commission (``SEC'').
action: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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applicants: The Charles Allmon Trust, Inc. (the ``Trust'') and Liberty
Asset Management Company (``LAMCO'').
relevant act sections: Order requested under section 6(c) for an
exemption from section 15(a) of the Act.
summary of application: The Trust and LAMCO, for themselves and on
behalf of present and future sub-advisers of the Trust, request a
conditional order of exemption from section 15(a) of the Act with
respect to the portion of the Trust's assets subject to LAMCO's
supervision. The requested order would let the Trust and LAMCO change
or add sub-advisers, or continue the services of a sub-adviser
following an assignment of its sub-advisory agreement, and delay
shareholder approval of the new sub-advisory agreements with such sub-
advisers until the Trust's next annual meeting of shareholders.
filing dates: The application was filed on August 22, 1994, and an
amendment to the application was filed on November 3, 1994.
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 9, 1995,
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, N.W., Washington, DC
20549. Applicants: The Trust, 4405 East-West Highway, Bethesda, MD
20814; LAMCO, Federal Reserve Plaza, Boston, MA 02210.
for further information contact: H.R. Hallock, Jr., Special Counsel, at
(202) 942-0564, or Barry D. Miller, Senior Special Counsel, 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.
Applicants' Representations
1. The Trust is a closed-end diversified management investment
company whose shares are listed and traded on the New York Stock
Exchange (``NYSE''). In accordance with NYSE rules, the Trust holds
annual meetings of shareholders. LAMCO, an indirect wholly-owned
subsidiary of Liberty Mutual Insurance Company, is a registered
investment adviser under the Investment Advisers Act of 1940.
2. From its inception in 1986 through May 27, 1994, the Trust's
sole investment manager and administrator was Growth Stock Outlook Inc.
(``GSO''). On May 27, 1994, following shareholder approval, the Trust
entered into a fund management agreement with LAMCO. Under the terms of
that agreement, LAMCO provides a ``multi-manager'' methodology of
portfolio management with respect to an initial amount equal to 20% of
the Trust's total net assets (the ``Multi-Managed Assets''). The
remainder of the Trust's assets are managed by GSO acting under a
separate investment advisory agreement.
3. The Multi-Managed Assets may be increased or decreased as a
result of investment income, gains or losses on such assets, and
dividends, distributions and operating expenses payable on such assets.
In addition, under the terms of an Asset Acquisition and Fund
Management Transition Agreement dated February 9, 1994, among LAMCO,
GSO and GSO's principal stockholder, it is contemplated that, subject
to certain conditions that must be met prior to the Trust's 1996 annual
meeting of shareholders, a new fund management agreement may be entered
into with LAMCO with respect to all the assets of the Trust.
4. LAMCO has allocated the Multi-Managed Assets on an approximately
equal basis among three independent investment management firms (the
``Sub-Advisers'') acting under identical sub-advisory agreements with
the Trust and LAMCO approved by shareholders at their May 27, 1994
meeting. LAMCO selected and recommended the Sub-Advisers using certain
specific criteria. In that regard, each of the present and future Sub-
Advisers must consistently employ a distinct, identifiable investment
style that differs from those of the other Sub-Advisers. Further, the
range of styles must be sufficiently broad so that at least one of them
may be expected to be in favor in all reasonably foreseeable market
conditions. Finally, each Sub-Adviser's longer-term investment
performance must be satisfactory when compared to other investment
management firms employing a similar style. The goal of this multi-
manager methodology as applied to the Multi-Managed Assets is to
produce better investment performance over time with less volatility
than that of the average single-manager fund with the same investment
objective and policies.
5. LAMCO continuously reviews the performance of the Sub-Advisers
to identify the presence of factors or conditions that would tend to
neutralize the effect of the multi-management methodology as applied to
the Multi-Managed Assets, such as a departure by a Sub-Adviser from its
investment style, a deterioration in its investment performance
relative to that of other investment management firms employing similar
styles, or an adverse change in its personnel or organization. Based
upon its review, LAMCO recommends appropriate changes in Sub-Advisers.
6. Each new sub-advisory agreement would affect no more than
approximately one-third of the Multi-Managed Assets. Accordingly, no
more than approximately one-third of 20% of the Trust's total net
assets currently will be affected by any one Sub-Adviser change. In the
future, because the amount of the Trust's total net assets represented
by the Multi-Managed Assets may increase or decrease in a manner
described in paragraph 3 above, any one Sub-Adviser change may affect a
greater or lesser amount of the Trust's total net assets, but never
more than approximately one-third of the Trust's total net assets.
7. In addition, each new sub-advisory agreement would contain
substantially the same terms and conditions as the existing sub-
advisory agreements for the Multi-Managed Assets. A new Sub-Adviser's
fee can be no higher than that provided in the Trust's three existing
sub-advisory agreements. In the event that fees under the new sub-
advisory agreement are less than in the existing agreements, the
difference will be passed on to the Trust through a corresponding
reduction in the fund management fee payable to LAMCO.
8. None of the Sub-Advisers has any affiliation with the Trust or
LAMCO other than as Sub-Adviser. The responsibility of the Sub-Advisers
under their respective sub-advisory agreements is limited to the
discretionary investment management of the respective portions of the
Multi-Managed Assets assigned to them by LAMCO from time to time, and
related record keeping and reporting. The Multi-Managed Assets are and
will be allocated and periodically rebalanced so as to maintain an
approximately equal allocation of such assets among the Sub-Advisers.
Applicants' Legal Analysis
1. Section 15(a) of the Act makes it unlawful for any person to act
as an investment adviser to a registered investment company except
pursuant to a written contract, whether with such registered company or
with an investment adviser of such registered company, which has been
approved by the majority vote of the outstanding voting securities of
such registered company. Section 15(a)(4) also requires that the
investment advisory contract provide, in substance, for its automatic
termination in the event of its assignment.
2. Rule 15a-4 under the Act permits an investment adviser to an
investment company to act under an agreement not approved by
shareholders for up to 120 days after the termination of an investment
advisory agreement resulting from certain specified events. Applicants
claim, however, that rule 15a-4 does not provide adequate relief to the
Trust. For one thing, a change in Sub-Advisers may occur more than 120
days before the next regularly scheduled annual meeting, resulting in
the necessity of a special meeting of shareholders. In addition, rule
15a-4 does not apply at all to an investment advisory agreement entered
into following a termination of the prior agreement caused by an
assignment in which the investment adviser or its controlling person
receives an economic benefit.
3. Applicants submit that requiring shareholder approval consistent
with section 15(a) before changing a Sub-Adviser or before continuing
the services of an existing Sub-Adviser following an assignment of its
sub-advisory agreement results in substantial delay or expense to the
Trust, without any corresponding benefit in terms of shareholder
protection.
4. Applicants assert that, because of the lack of affiliation
between LAMCO and the Sub-Advisers (unlike conventionally structured
single-manager investment companies), LAMCO has no interest other than
the efficient and effective functioning of the Trust's multi-manager
methodology and the enhancement of the Trust's investment performance
when recommending the replacement or addition of a Sub-adviser or the
continuation of the services of the Sub-Adviser following an assignment
of its sub-advisory agreement. Furthermore, Applicants represent that
neither LAMCO nor any of its affiliates will be parties to the
acquisition or other transaction giving rise to the termination and
assignment of the sub-advisory agreement and, consequently, will not
receive any economic benefit in connection with such transaction.
5. Applicants also assert that the terms and conditions of the
Trust's ``employment'' of its Sub-Advisers will in effect have already
been approved by shareholders because any new sub-advisory agreements
will be identical in all material respects to the existing agreements
which have been approved by shareholders, with no increase in expense
to the Trust.
6. Applicants further assert that, in view of the limited function
of the Sub-Advisers and the fact that no more than approximately one-
third of the Multi-Managed Assets will be affected by any one Sub-
Adviser change, addition or continuation, the Trust's shareholders are
significantly less dependent on any one Sub-Adviser than are the
shareholders of a conventionally structured single manager fund. As a
result, the need for the protection provided by the shareholder
approval requirement of section 15(a) is correspondingly less.
7. Section 6(c) of the Act authorizes the SEC to exempt persons or
transactions from the provisions of the Act to the extent that such
exemptions are necessary or approximate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by he policy and provisions of the Act. Applicants submit that
the requested exemptive relief from section 15(a) would be consistent
with the standards set forth in section 6(c) of the Act and would be in
the best interests of the Trust and its shareholders.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. Each new sub-advisory agreement will be submitted for
ratification and approval to the vote of the Trust's shareholders no
later than at the regularly scheduled annual meeting of shareholders of
the Trust next following the effective date of the new sub-advisory
agreement, and its continuance after such meeting will be conditioned
on approval by the required majority vote of such shareholders.
2. The Trust will continue to hold annual meetings of its
shareholders, whether or not required to do so by the rules of the NYSE
or otherwise.
3. The directors of the Trust, in addition to approving the new
sub-advisory agreement in accordance with the requirements of section
15(c) of the Act, will specifically determine that entering into the
new sub-advisory agreement in advance of the next regular annual
meeting of shareholders of the Trust and without prior shareholder
approval is in furtherance of the multi-manager methodology as applied
to the Multi-Managed Assets and is in the best interests of the Trust
and its shareholders.
4. The new sub-advisory agreement involved will, when entered into,
affect no more than approximately one-third of the Multi-Managed
Assets.
5. The new Sub-Adviser will have no affiliation with the Trust or
LAMCO other than as Sub-Adviser, and will have no duties or
responsibilities with respect to the Trust beyond the investment
management of the portion of the Multi-Managed Assets allocated to it
by LAMCO from time to time and related record keeping and reporting.
6. The new sub-advisory agreement will provide for a portfolio
management fee no higher than that provided in the Trust's existing
sub-advisory agreements with respect to the Multi-Managed Assets, and,
except for the provisions relating to shareholder approval referred to
in condition 1 above, will be on substantially the same other terms and
conditions as such existing agreements. In the event that the new sub-
advisory agreement provides for sub-advisory fees at rates less than
those provided in the existing sub-advisory agreements, the difference
will be passed on to the Trust and its shareholders through a
corresponding voluntary reduction in the fund agreement fee payable by
the Trust to LAMCO.
7. The appointment of the new or successor Sub-Adviser will be
announced by press release promptly following the directors' action
referred to in condition 3 above, and a notice of the new sub-advisory
agreement, together with a description of the new or successor Sub-
Adviser, will be included in the Trust's next report to shareholders.
8. LAMCO will provide overall supervisory responsibility for the
general management and investment of the Multi-Manager Assets, subject
to the Trust's investment objectives and policies and any directions of
the Trust's directors. In particular, LAMCO will (i) provide overall
investment programs and strategies for the Multi-Managed Assets, (ii)
recommend to the Trust's directors investment management firms for
appointment or replacement as Sub-Advisers for the Multi-Managed
Assets, (iii) allocate and reallocate the Multi-Managed Assets among
the Sub-Advisers, and (iv) monitor and evaluate the investment
performance of the Sub-Advisers, including their compliance with the
Trust's investment objectives, policies and restrictions.
9. In the case of a new sub-advisory agreement with an existing
Sub-Adviser or its successor following an ``assignment,'' as that term
is defined in the Act and the rules thereunder, of the Trust's sub-
advisory agreement with that Sub-Adviser, the Sub-Adviser (or its
successor) or LAMCO will pay the incremental cost of including the
proposal to approve or disapprove ratification of the new sub-advisory
agreement in the proxy material for the Trust's next annual meeting of
shareholders.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31402 Filed 12-21-94; 8:45 am]
BILLING CODE 8010-01-M
