[Federal Register Volume 63, Number 99 (Friday, May 22, 1998)]
[Notices]
[Pages 28429-28431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13647]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23188]
Armada Funds, et al.; Notice of Application
May 15, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') from section 15(a) of the
Act.
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SUMMARY OF APPLICATION: Applicants, Armada Funds (the ``Fund'') and
National Asset Management Corporation (the ``Adviser''), request an
order permitting the implementation, without prior shareholder
approval, of new investment advisory agreements (the ``New
Agreements'') between the Fund and the Adviser in connection with a
change in control of the Adviser. The order would cover a period
beginning on the date the requested order is issued until the date the
New Agreements are approved or disapproved by the Fund's shareholders
(but in no event later than July 6, 1998) (``Interim Period''). The
order also would permit the Adviser to receive all fees earned under
the New Agreement during the Interim Period following shareholder
approval.
FILING DATES: The application was filed on April 3, 1998 and amended on
May 13, 1998.
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 June 4, 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
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hearing may request notification by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Fund, One Freedom Valley Drive, Oaks, Pennsylvania 19456. Adviser, 101
South Fifth Street, Louisville, Kentucky 40402.
FOR FURTHER INFORMATION CONTACT:
Shirley A. Bodden, Paralegal Specialist, at (202) 942-0575, 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 may be obtained for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Fund is a Massachusetts business trust registered under the
Act as an open-end management investment company. The Adviser is an
investment adviser registered under the Investment Advisers Act of
1940. The Adviser manages three portfolios of the Fund under two
investment advisory agreements with the Fund (``Prior Agreements'').
2. On March 6, 1998, National City Corporation (``NCC'') sold all
of the Adviser's outstanding stock to the Adviser's principal
management team (the ``Transaction''). Applicants state that the
Transaction resulted in an assignment of the Prior Agreements.
Applicants request an exemption: (i) To permit the implementation,
without prior shareholder approval, of the New Agreements; and (ii) to
permit the Adviser to receive from the Fund all fees earned under the
New Agreements during the Interim Period if, and to the extent, the New
Agreements are approved by the Fund's shareholders.\1\
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\1\ The Adviser has continued to serve as investment adviser to
the Fund since the Transaction in a manner consistent with its
fiduciary duty to the Fund even though the Fund's shareholders have
not approved the New Agreements. Applicants acknowledge that the
Fund 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 to the Fund.
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3. On March 6, 1998, the Fund's board of trustees (the ``Board''),
including a majority of the trustees who are not interested persons of
the Fund within the meaning of section 2(a)(19) of the Act
(``Independent Trustees''), met in-person and approved the New
Agreements. The New Agreements are identical in substance to the Prior
Agreements except for their effective and termination dates and certain
escrow provisions as described below. Proxy materials to vote on the
New Agreements are expected to be mailed to the Fund's shareholders on
or about May 18, 1998. The requisite shareholder meetings are expected
to take place on or about June 29, 1998.
4. Applicants have entered into an escrow arrangement with an
unaffiliated financial institution (``Escrow Agent''). The fees payable
to the Adviser under the New Agreements during the Interim Period will
be paid into an interest-bearing escrow account maintained by the
Escrow Agent. The amounts in the escrow account (including interest
earned on such paid fees) will be paid to the Adviser only if the
Fund's shareholders approve the New Agreements. If the Interim Period
has ended and the Fund's shareholders have failed to approve the New
Agreements, the Escrow Agent will pay to the Fund the escrow amounts
(including any interest earned). Before the release of any escrow
amounts, the Independent Trustees will be notified.
Applicant's 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 an 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) of the Act 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, upon completion of the Transaction,
control of the Adviser was transferred to the Adviser's principal
management team. Accordingly, the Transaction resulted in an assignment
of the Prior Agreements and thus their automatic termination.
3. Rule 15a-4 provides in pertinent part, that if an investment
advisory contract with an investment company is terminated by an
assignment in which the adviser does not directly or indirectly receive
a benefit, the adviser may continue to act as such for the company for
120 days under a written contract that has not been approved by the
company's shareholders, provided that: (a) The new contract is approved
by that company's board of directors (including a majority of directors
who are not interested persons of the company); (b) the compensation to
be paid under the new contract does not exceed the compensation that
would have been paid under the contract most recently approved by the
company's shareholders; and (c) neither the adviser or any controlling
person of the adviser ``directly or indirectly receives money or other
benefit'' in connection with the assignment. Applicants state that they
cannot rely on rule 15a-4 because of the benefits the Adviser will
receive from 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 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 submit that the requested relief meets this standard.
5. Applicants submit that the timing of the Transaction arose
primarily out of business considerations unrelated to the Fund and did
not reasonably present an opportunity to secure prior approval of the
New Agreements by the Fund's shareholders. Applicants state that the
requested relief would permit the continuity of investment management
for the Fund, without interruption, during the period following the
issuance of the requested order.
6. Applicants submit that the scope and quality of investment
advisory services provided to the Fund during the Interim Period will
not be diminished. During the Interim Period, the Adviser will operate
under the New Agreements, which will be substantively the same as the
Prior Agreements, except for their effective and termination dates and
escrow provisions. Applicants are not aware of any material changes in
the personnel that will provide investment management services during
the Interim Period. Accordingly, the Fund should receive, during the
Interim Period, the same investment advisory services, provided in the
same manner, as the Fund received before the Transaction.
7. Applicants assert that to deprive the Adviser of fees during the
Interim Period would be a harsh result and an unreasonable penalty to
attach to the Transaction and would serve no useful purpose. Applicants
submit that the fees payable to the Adviser under the New Agreements
during the Interim Period will be maintained in an interest-bearing
escrow account by the Escrow Agent. Such fees will not be released by
the Escrow Agent to the Adviser without notice to the Independent
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Trustees and appropriate certifications that the New Agreements have
been approved by the Funds' shareholders.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. The New Agreements will have the same terms and conditions as
the Prior Agreements, except for their effective and termination dates
and escrow provisions.
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 in accordance with
the New Agreements, after the requisite shareholder approval is
obtained; or (b) to the Fund portfolio which paid the fees, in the
absence of shareholder approval with respect to the Fund portfolio.
3. The Fund will hold a meeting of shareholders to vote on approval
of the New Agreements on or before the 120th day following the
termination of the Prior Agreements (but in no event later than July 6
1998).
4. The Adviser will bear the costs of preparing and filing the
application and the costs relating to the solicitation of shareholder
approval of the New Agreement necessitated by the Transaction.
5. The Adviser will take all appropriate steps so that the scope
and quality of advisory and other services provided to the Fund during
the Interim Period will be at least equivalent, in the judgment of the
Board, including a majority of the Independent Trustees, to the scope
and quality of services previously provided. In the event of any
material change in the personnel providing services pursuant to the New
Agreements, the Adviser will apprise and consult with the Board to
assure that the Trustees, including a majority of the Independent
Trustees, are satisfied that the services provided will not be
diminished in scope or quality.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-13647 Filed 5-21-98; 8:45 am]
BILLING CODE 8010-01-M
