[Federal Register Volume 60, Number 21 (Wednesday, February 1, 1995)]
[Notices]
[Pages 6335-6337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2383]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20862; 812-9332]
Ambassador Funds, et al.; Notice of Application
January 25, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANTS: Ambassador Funds (``Ambassador''); St. Clair Funds, Inc.
(``St. Clair''); The Munder Funds, Inc. (``Munder''); Peoples S&P
MidCap Index Fund, Inc. (``Peoples''); SEI Index Funds (``SEI,'' and,
collectively with Ambassador, St. Clair, Munder, and Peoples, the
``Funds''); Woodbridge Capital Management, Inc. (``Woodbridge''); WAM
Holdings, Inc. (``WAM'');\1\ Old MCM, Inc. (``MCM,'' and, collectively
with Woodbridge and WAM, the ``Advisers'');\2\ and Munder Capital
Management (the ``New Adviser'').
\1\Prior to December 30, 1994, WAM was known as ``World Asset
Management, Inc.''
\2\Prior to January 4, 1995, MCM was known as ``Munder Capital
Management, Inc.''
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RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from the
provisions of section 15(a).
SUMMARY OF APPLICATION: Applicants seek a conditional order exempting
them from the provisions of section 15(a). The Advisers have formed a
partnership, the New Adviser, to succeed to and continue the advisory
business of each Adviser. The order would permit the implementation,
without shareholder approval, of a new investment advisory agreement
for each Fund for a period of up to 120 days (the ``Interim Period'')
after the termination of the existing investment advisory agreement of
each Fund as a result of the transfer of the investment advisory
businesses of the current advisers of the Funds (the ``Advisers'') to a
partnership (the ``New Adviser'') formed by the Advisers. The order
also would permit the New Adviser to receive fees earned under the new
investment advisory agreements during the Interim Period following
approval of the agreements by the shareholders of the Funds.\3\
\3\In the case of Peoples and SEI, the new investment advisory
agreement will be with a newly-organized, wholly-owned subsidiary of
the partnership. For purposes of this notice, the term ``New
Adviser'' refers to both the partnership referred to above and this
wholly-owned subsidiary.
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FILING DATES: The application was filed on November 22, 1994, and
amended on January 17 and 24, 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 February 21,
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 such notification by writing to
the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants: Ambassador and St. Clair, One Exchange Place, Boston,
Massachusetts 02109; Peoples, 144 Glenn Curtiss Boulevard, Uniondale,
New York 11556; SEI, 680 East Swedesford Road, Wayne, Pennsylvania
19087; Woodbridge and WAM, 100 Renaissance Center, Detroit, Michigan
48243; Munder, MCM, and the New Adviser, 480 Pierce Street, Birmingham,
Michigan 48009.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Attorney, at (202) 942-0583, or C. David
Messman, 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 may be obtained for a fee from
the SEC's Public Reference Branch.
APPLICANTS' REPRESENTATIONS:
1. Each Fund is registered under the Act as an open-end management
investment company. Each Fund offers one or more investment portfolios
to the public.
2. Each Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act''). Woodbridge and
WAM are subsidiaries of Comerica Investment Services, Inc. (``CIS'').
CIS is, in turn, a subsidiary of Comerica Bank, which is a wholly-owned
subsidiary of Comerica Incorporated (``Comerica''), a publicly-held
bank holding company. Woodbridge serves as sole investment adviser to
each investment portfolio of Ambassador, St. Clair, and SEI. Until
December 31, 1994, WAM served as Peoples' sole investment adviser. MCM,
a Delaware corporation in which Mr. Lee P. Munder owns a controlling
stock interest, currently serves as sole investment adviser to each
investment portfolio of Munder.
3. In August, 1994, representatives of CIS and MCM began
discussions regarding the possible creation of a new general
partnership, the New Adviser, to succeed to the investment advisory
businesses of the Advisers. On November 2, 1994, Comerica and the
Advisers entered into a definitive joint venture agreement, which
provided for the contribution of the investment advisory business of
each Adviser to the New Adviser, which was created on December 31,
1994. The partners of the New Adviser are the Advisers (which will
continue to be controlled by Comerica and Mr. Munder, respectively) and
Employee Group, L.L.C., a newly-organized company through which
employees of the New Adviser may acquire partnership interests.
4. Consummation of the joint venture agreement (the ``Closing'')
was subject to a number of contingencies, including consent by the
Office of the Comptroller of the Currency (the ``OCC'') to the
participation of Woodbridge and WAM in the transaction. The boards of
directors or boards of trustees, as applicable, (the ``Governing
Boards'') of the Funds believed that it was in the interests of the
Funds and their shareholders not to commence the solicitation of
proxies to approve the new investment advisory agreement until it was
reasonably certain that the [[Page 6336]] OCC consent would be obtained
in order to avoid possible shareholder confusion in the event such
consent was not in fact obtained. The OCC consent was received on
December 15, 1994.
5. Once the joint venture agreement was announced on November 2,
1994, the Governing Boards of the Funds were promptly notified and
meetings scheduled. Between November 9, 1994 and December 23, 1994,
meetings of the Governing Boards of the Funds were held to consider and
vote on the proposed new investment advisory agreement and, in the case
of Ambassador, St. Clair, and Munder, to nominate additional board
members to ensure compliance with section 15(f) of the Act and avoid a
subsequent meeting of shareholders to elect board members.\4\ At these
meetings, the Governing Board of each Fund, including a majority of
those board members who are not interested persons of the Funds or the
Advisers (the ``Independent Board Members''), approved a new investment
advisory agreement. They also recommended that the shareholders of the
Fund approve the new agreement, including the payment of advisory fees
earned by the New Adviser during the Interim Period, which would be
maintained in an interest-bearing escrow account during the Interim
Period. In connection with their evaluation of the new advisory
agreements, a primary consideration of the Governing Boards was the
Advisers; representation that: (a) There would be no diminution under
the new agreements in the scope and quality of advisory and other
services currently provided by the Advisers; (b) the new agreements
would have the same terms and conditions as the existing agreements for
the respective Funds; and (c) the Funds would receive during the
Interim Periods the same investment advisory services, provided in the
same manner by essentially the same personnel, as they had received
prior to the Closing.
\4\Section 15(f) permits an investment adviser to receive ``any
amount or benefit'' in connection with the assignment of its
investment advisory contract with a registered investment company if
the requirements of that section are satisfied. Section 15(f)(1)(A)
requires that, for three years after the transaction, at least 75%
of the directors of the investment company are not interested
persons of the investment adviser of such company, or of the
predecessor investment adviser.
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6. The first part of the Closing occurred on December 31, 1994. On
that date, the non-mutual fund accounts of the Advisers and WAM's
investment advisory agreement with Peoples were transferred to the New
Adviser. A second part of the Closing, which involved the transfer of
the financing activities conducted by Pierce & Brown, was held on
January 13, 1995. The remaining part of the Closing, which will involve
the transfer of the investment advisory arrangements of Woodbridge and
MCM with the other Funds to the New Adviser, will occur no later than
January 31, 1995.
7. Because of issues arising under the Glass-Steagall Act and
federal banking regulations, MCM has transferred to an unaffiliated
third party the mutual fund sales load financing activities that had
been conducted by Pierce & Brown, a limited partnership in which MCM is
general partner. This divestiture occurred on January 13, 1995.
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 which has been approved by the vote of a majority of the
outstanding voting securities of such registered company. Section 15(a)
further requires that such written contract provide for automatic
termination in the event of its assignment. Section 2(a)(4) defines
``assignment'' to include any direct or indirect transfer of a contract
by the assignor or of a controlling block of the assignor's outstanding
voting securities by a security holder of the assignor.
2. Upon completion of the Closing, the New Adviser will acquire the
investment advisory businesses of the respective Advisers. This
acquisition will result in an ``assignment'' of the existing advisory
agreements within the meaning of section 2(a)(4) of the Act. Consistent
with section 15(a), therefore, the existing advisory agreements between
the Advisers and the Funds will terminate pursuant to their terms upon
completion of the Closing.
3. Rule 15a-4 provides, among other things, that if an investment
adviser's investment advisory contract with an investment company is
terminated by assignment, the adviser may continue to act as such for
120 days at the previous compensation rate if a new contract is
approved by the board of directors of the investment company and if the
investment adviser or a controlling person thereof does not directly or
indirectly receive money or other benefit in connection with the
assignment. Because of possible benefits to the Advisers and their
controlling shareholders as a result of the joint venture agreement,
rule 15a-4 is not available to applicants.
4. Applicants believe that the 120-day period they request will
facilitate the orderly and reasonable consideration of the advisory
agreements by the shareholders of each Fund in a manner that is
consistent with the provisions of section 15 of the Act as well as the
corporate governance objectives of the Act.
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
purposes fairly intended by the policy and provisions of the Act.
Applicants believe that the requested relief meets this standard.
6. Applicants submit that a Closing on December 31, 1994 was
important for tax, accounting, and regulatory reporting purposes, in
that certain of the Advisers (Woodbridge and WAM) currently have, and
the New Adviser will have, tax and accounting years that close on
December 31. Applicants represent that it would have been impossible to
obtain the required shareholder approvals of the new investment
advisory agreements within the fifty-nine day period between the
execution of the joint venture agreement on November 2, 1994 and the
first part of the Closing on December 31, 1994. First, it was necessary
to submit the transaction to the Governing Boards of four separate and
independent Fund groups and to obtain the required board approvals to
proceed. Second, in the case of three of the Funds, consideration of
new board nominees was necessary. Third, the preparation, regulatory
clearance, printing and mailing of proxy materials requires, at a
minimum, three to four weeks. Further, any shareholder solicitation
would have occurred during the December holiday season, which would
have involved delays in mailing time and shareholder response.
7. Applicants assert that only a small fraction (less than 17
percent) of the total assets managed by the Advisers are mutual fund
assets. Because the process for obtaining consents with respect to the
non-mutual fund assets is much simpler than the process of obtaining
required board and shareholder approvals with respect to the mutual
fund assets, the Advisers' non-mutual fund accounts were ready for
transfer to the New Adviser on December 31, 1994, and the holders of
those accounts expected that the transfer would in fact occur on that
date. Accordingly, applicants state that, if the non-mutual fund
accounts had not been transferred on or promptly after that date, the
legitimate expectations of these accountholders regarding the orderly
[[Page 6337]] transfer of their accounts to the New Adviser and the
prompt delivery of the benefits that the joint venture agreement is
expected to produce would not have been met.
8. Applicants believed that a speedy Closing would serve to
minimize employee anxiety, assist in the retention of portfolio
personnel, and assist in the delivery of improved portfolio service
through the integration of credit research, back office, and other
operations.
9. Applicants also state that an arrangement whereby all non-mutual
fund accounts were transferred on December 31, 1994, but all mutual
fund accounts were not transferred until the shareholder votes
occurred, would have required the Advisers to implement a form of
``dual employee'' arrangement. Such an arrangement would have created
needless organizational complexity and would have raised the
possibility of shareholder confusion as to the provision of investment
advisory services during the Interim Periods.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. The new advisory agreements to the implemented during the
Interim Periods will have the same terms and conditions as each
respective current agreement, except in each case for the names or
identities of the parties, the commencement and termination dates, the
inclusion of escrow arrangements, the incorporation of certain
previously adopted amendments (if any) into the body of the agreements,
and certain additional language to satisfy regulatory requirements of
the Advisers Act.
2. Fees earned by the New Adviser during the Interim Period in
accordance with the terms of such new advisory agreements will be
maintained in an interest-bearing escrow account, and amounts in the
account will be paid to: (a) the New Adviser only upon approval by the
shareholders of such Fund, or (b) in the absence of such approval, to
such Fund.
3. Each Fund will hold a meeting of shareholders to vote on
approval of its new investment advisory agreement on or before the
120th day following the termination of its existing investment advisory
agreement as a result of the transfer of the investment advisory
businesses of the Advisers to the New Adviser (which transfer will be
completed on or before Janaury 31, 1995).
4. The Advisers and the New Adviser will pay the costs of preparing
and filing the application and the costs of holding all meetings of
each Fund's shareholders necessitated by the consummation of the joint
venture agreement, including the cost of proxy solicitations.
5. The New Adviser will take all appropriate steps so that the
scope and quality of advisory and other services provided to each Fund
during the respective Interim Periods will be at least equivalent, in
the judgment of the Governing Board of each Fund, including a majority
of the independent board members, to the scope and quality of services
previously provided. In the event of any material change in personnel
providing services pursuant to the advisory agreement, the New Adviser
will apprise and consult with the Governing Board of the affected Fund
in order to assure that they, including a majority of the independent
board members, 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. 95-2383 Filed 1-31-95; 8:45 am]
BILLING CODE 8010-01-M
