[Federal Register Volume 63, Number 82 (Wednesday, April 29, 1998)]
[Notices]
[Pages 23482-23484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11288]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23125; 812-11080]
Freedom Mutual Fund, et al.; Notice of Application
April 23, 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.
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SUMMARY OF APPLICATION: The requested order would permit the
implementation, without prior shareholder approval, of new investment
advisory agreements, for a period of up to 150 days following the later
of: (i) the date the assignment of the existing investment advisory
agreements is deemed to have occurred, or (ii) the date the requested
order is issued (but in no event later than October 31, 1998), and to
permit the investment adviser to certain registered management
investment companies to receive all fees earned under the new
agreements during this interim period.
APPLICANTS: Freedom Mutual Fund (``Freedom Mutual''), on behalf of
Freedom Cash Management Fund and Freedom Government Securities Fund
(``Freedom Funds''), Freedom Group of Tax Exempt Funds (``Freedom
Group''), on behalf of Freedom Tax Exempt Money Fund and Freedom
California Tax Exempt Money Fund (``Group Funds''), FundManager
Portfolios (together with Freedom Mutual and Freedom Group,
``Trusts''), on behalf of FundManager Aggressive Growth Portfolio,
FundManager Growth Portfolio, FundManager Growth with Income Portfolio,
FundManager Bond Portfolio, FundManager Managed Total Return Portfolio,
FundManager International Portfolio (together with the Freedom Funds
and the Group Funds, ``Funds''), and Freedom Capital Management
Corporation (the ``Adviser'').
FILING DATES: The application was filed on March 20, 1998, and amended
on April 14, 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 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 May 14, 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, Freedom Capital Management Corporation, One Beacon Street,
Boston, MA 02108.
FOR FURTHER INFORMATION CONTACT:
Lisa McCrea, Attorney Adviser (202) 942-0562, or Edward P. Macdonald,
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
[[Page 23483]]
may be obtained for a fee at the SEC's Public Reference Branch, 450 5th
Street, NW., Washington, DC 20549 (tel. 202-942-8090).
Applicants' Representations
1. The Trusts are registered under the Act as open-end management
investment companies. The Advisers, an investment adviser registered
under the Investment Advisers Act of 1940, is an indirect wholly-owned
subsidiary of Freedom Securities Corporation (the ``Parent''). The
Adviser manages the Funds' assets under investment advisory agreements
with the Trusts (the ``Existing Agreements''). Thomas H. Lee Equity
Fund III, L.P., Thomas H. Lee Foreign Fund III, L.P., and THL-CCI, L.P.
(the ``Thomas Lee Entities'') own more than 25% of the outstanding
voting securities of the Parent.
2. The Parent currently is involved in a series of transactions
which will result in its issuing a significant number of additional
shares of its common stock, and pursuant to which the Thomas Lee
Entities will be selling their shares of the Parent's common stock to
the public. Upon the issuance of additional shares of the Parent's
common stock pursuant to these transactions, the Thomas Lee Entities
will own less than 25% of the outstanding voting securities of the
Parent. In addition, a stockholder agreement between the Thomas Lee
Entities and certain other shareholders of the Parent with respect to
the exercise of certain shareholder voting rights held by the
shareholders (the ``Stockholders Agreement'') is expected to terminate
45 days following the closing of the Parent's public offering of its
common stock. As a result of the occurrence of these events, the Thomas
Lee Entities may no longer be deemed to control the Parent, and an
indirect change in control of the Adviser may be deemed to have
occurred.
3. The indirect change in control of the Adviser will result in an
assignment, and thus automatic termination, of the Existing Agreements.
Applicants request an exemption to permit the Adviser and the Trusts to
enter into new advisory agreements (``New Agreements'') without prior
shareholder approval. The requested exemption would cover an interim
period of not more than 150 days beginning on the later of (a) the
earliest date on which either (i) the stock ownership of the Thomas Lee
Entities in the parent falls below 25%, or (ii) the Stockholders
Agreement terminates (either event, the ``Transaction''), or (b) the
date on which the requested order is issued, and continuing with
respect to each Fund through the date the New Agreements are approved
or disapproved by the shareholders of the respective Funds (but in no
event later than October 31, 1998) (the ``Interim Period''). The
Transaction is expected to occur in May 1998.\1\
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\1\ Applicants state that if the Transaction precedes the
issuance of the requested order, the Adviser will continue to serve
as investment adviser after the Transaction (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 approval of the new arrangements has not yet been secured
from the Funds' shareholders. 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.
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4. The Trusts' boards of trustees (the ``Boards'' or the ``Boards
of Trustees''), including a majority of the Trustees who are not
``interested persons'' of the Trust (``Independent Trustees''), met on
March 17, 1998, and voted unanimously to approve the preparation and
filing of preliminary proxy materials for a special meeting of
shareholders of each Fund to consider the New Agreements. The Boards
also met in person on March 30, 1998, to consider and act upon the
approval of the New Agreements in accordance with section 15(c) of the
Act, and to evaluate whether the terms of the New Agreements are in the
best interests of the Funds and their shareholders. The Trustees,
including a majority of the Independent Trustees, unanimously approved
the New Agreements, and recommended their approval to the shareholders
of the Funds.
5. The fees payable to the Adviser during the Interim Period under
the New Agreements will be paid into an interest-bearing escrow account
with an unaffiliated bank. The escrow agent will release the amounts
held in the escrow account (including interest earned on paid fees) to:
(i) The Adviser if shareholders of the Funds approve the relevant New
Agreement; or (ii) the relevant Fund, in the absence of approval by
shareholders. Before amounts are released from the escrow accounts, the
Boards will 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 such 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 contract by the assignor, or of a controlling block of
the assignor's outstanding voting securities by a security holder of
the assignor.
2. Applicants state that, when the Transaction occurs, the Thomas
Lee Entities may no longer be deemed to control the Parent, and an
indirect change in control of the Adviser may be deemed to have
occurred. The Transaction thus may be deemed to result in an assignment
of the Existing Agreements within the meaning of section 2(a)(4) of the
Act, and a termination of the Existing Agreements according to their
terms.
3. Rule 15a-4 provides, in pertinent part, that if any investment
advisory contract with an investment company is terminated by
assignment, the adviser may continue to act as such 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 directors (including a majority of trustees that are
not ``interested persons'' of the investment company); (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 assignment. Applicants state that they may not rely
on rule 15a-4 because the Parent or the Thomas Lee Entities may be
deemed to receive a benefit in connection with the Transaction.
4. 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 believe that the requested relief satisfies this standard.
5. Applicants state that, without an exemption, there may not be an
adequate period to obtain approval of the New Agreements by the
shareholders of each Fund prior to the Transaction. Applicants state
that they mailed proxy materials to shareholders on April 15, 1998, and
April 16, 1998, and the requisite shareholder meetings to consider
approval of the New Agreements are expected to be held on or about May
20, 1998.
[[Page 23484]]
6. Applicants state that, given the frequency of the failure of
shareholders to return proxies, and the large number of beneficial
owners of shares of the Funds, 150 days is necessary to obtain
shareholder approval of the New Agreements. Applicants state that
during the Interim Period, each Fund would operate under the New
Agreements, which are substantially identical to the Existing
Agreements, except for the effective dates, termination dates and the
updated names of the Funds. Applicants also state that no changes are
anticipated in the personnel providing investment management services
to the Funds during the Interim Period. Applicants therefore submit
that each Fund should receive, during the Interim Period, the same
investment advisory services, provided in the same manner, at the same
fee levels, and by substantially the same personnel as before the
Transaction.
Applicants' Conditions
Applicants agree that the requested order will be subject to the
following conditions:
1. The New Agreements will have the same terms and conditions as
the Existing Agreements, except for the effective dates, termination
dates, and the updated names of the Funds.
2. Fees earned by the Adviser in respect of the New Agreements
during the Interim Period will be maintained in an interest-bearing
escrow account, and amounts in the account, (including interest earned
on such paid fees), will be paid (a) to the Adviser, after the
requisite approval of shareholders are obtained, or (b) to the
respective Fund, in the absence of such approvals.
3. The Funds will hold meetings of shareholders to vote on approval
of the New Agreements on or before the 150th day following the
termination of the Existing Agreements (but in no event later than
October 31, 1998).
4. The Advisor and/or Parent will bear the costs of preparing and
filing the application and the costs relating to the solicitation of
shareholder approval of the New Agreements.
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 Boards, including a majority of the Independent Trustees, to the
scope and quality of services previously provided under the Existing
Agreements. If personnel providing material services during the Interim
Period change materially, the Adviser will apprise and consult with the
Board of the affected Funds to assure that they, including a majority
of the Independent Trustees, 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. 98-11288 Filed 4-28-98; 8:45 am]
BILLING CODE 8010-01-M
