[Federal Register Volume 61, Number 177 (Wednesday, September 11, 1996)]
[Notices]
[Pages 47988-47990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23120]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 22198; 812-10310]
The ARCH Fund, Inc., et al.; Notice of Application
September 4, 1996.
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 Arch Fund, Inc. (the ``Fund''), Mississippi
Valley Advisors, Inc. (the ``Adviser''), and Clay Finlay Inc. (``CF'').
RELEVANT ACTION SECTIONS: Order requested under section 6(c) of the Act
for an exemption from section 15(a) of the Act.
SUMMARY OF APPLICATION: The order would permit the implementation,
without shareholder approval, of a new sub-advisory contract for a
period of up to 120 days following the date of the change in control of
CF, a sub-adviser to the Fund (but in no event later than December 31,
1996). The order also would permit CF to receive from the Fund fees
earned under the new sub-advisory contract following approval by the
Fund's shareholders.
FILING DATE: The application was filed on August 22, 1996. 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 September 30,
1996 and should be accompanied by proof of service on applicants, in
the form of an affidavit, or, for lawyers, a certificate of service.
[[Page 47989]]
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 of a hearing by
writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants: the Fund, 3435 Stelzer Road, Columbus, Ohio 43219;
the Adviser, One Mercantile Center, Seventh and Washington Streets, St.
Louis, Missouri 63101; and CF, 200 Park Avenue, New York, New York
10166.
FOR FURTHER INFORMATION CONTACT: Marianne H. Khawly, Staff Attorney, at
(202) 942-0562, or Alison E. Baur, 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 is available for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Fund is an open-end, management investment company
registered under the Act. The Fund consists of 11 series including the
International Equity Portfolio (the ``Portfolio''). The Adviser, a
registered investment adviser under the Investment Advisers Act of 1940
(the ``Advisers Act''), serves as the investment adviser to the Fund
pursuant to an advisory agreement with the Fund. CF, also a registered
investment adviser under the Advisers Act, provides sub-advisory
services to the Portfolio pursuant to a sub-advisory agreement (the
``Existing Sub-Advisory Agreement'') among the Portfolio, the Adviser,
and CF.
2. On July 17, 1996, CF and United Asset Management (``UAM'')
entered into an agreement pursuant to which a wholly-owned subsidiary
of UAM will be merged with and into CF (the ``Merger''), with CF to be
the survivor and wholly-owned subsidiary of UAM. Pursuant to the
Merger, shares of CF's common stock will be exchanged for shares of
UAM's common stock.
3. The parties to the Merger anticipate that the Merger will be
consummated by August 29, 1996 (the ``Effective Date''). Upon
consummation of the Merger, 100% of the outstanding voting securities
of CF will be owned by UAM and CF will become a wholly-owned subsidiary
of UAM. Thus, the Merger will result in a change of control of CF.
Accordingly, the change of control will result in the assignment of the
Existing Sub-Advisory Agreement and the determination of such agreement
according to its terms.
4. Applicants seek an exemption to permit the implementation,
without shareholder approval, of a new sub-advisory agreement (the
``New Sub-Advisory Agreement'') to be entered into by the Portfolio,
the Adviser, and CF. The requested exemption would cover an interim
period of not more than 120 days (the ``Interim Period'') beginning on
the Effective Date and continuing through the date the new sub-advisory
agreement is approved or disapproved by the Fund's shareholders (but in
no event later than December 31, 1996). During the Interim Period, that
portion of the advisory fees paid by the Adviser to CF for sub-advisory
services would be paid into an escrow account.
5. The New Sub-Advisory Agreement is identical to the Existing Sub-
Advisory Agreement, except for the effective date, escrow provisions,
and as described below. The New Sub-Advisory Agreement will introduce
fee ``break points'' that lower the amount of compensation to CF as the
size of the Portfolio grows and will eliminate a provision that
provides for fee waivers by CF when the Portfolio was in a start-up
mode.
6. In accordance with section 15(c) of the Act,\1\ the board of
directors (the ``Board'') of the Fund met on August 21, 1996 and
determined that the New Sub-Advisory Agreement would be in the best
interests of the Fund and its shareholders. At this meeting, the Board,
including a majority of the disinterested directors (the ``Independent
Directors''), voted to approve the New Sub-Advisory Agreement.
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\1\ Section 15(c) provides, in relevant part, that it shall be
unlawful for any registered investment company to enter into an
investment advisory contract unless the terms of such contract have
been approved by the vote of a majority of directors, who are not
parties to such contract or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
approval.
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7. Applicants propose to enter into an escrow arrangement that
would provide that: (a) the fees payable to CF during the Interim
Period under the New Sub-Advisory Agreement would be paid into an
interest-bearing escrow account maintained by the escrow agent; (b) the
amounts in the escrow account (including interest earned on such paid
fees) would be paid to CF only upon approval of the Fund's shareholders
of the New Sub-Advisory agreement or, in the absence of such approval,
to the Portfolio; and (c) the escrow agent would release the monies to
CF only upon approval of the New Sub-Advisory Agreement by the Fund's
shareholders in accordance with section 15 of the Act or to the Fund if
the Interim Period has ended and the New Sub-Advisory Agreement has not
received the requisite shareholder approval. Before any such release is
made, the Board would be notified. Any and all fees escrowed during the
Interim Period will be less than or equal to the fees under the
Existing Sub-Advisory agreement and, in addition, will be in accordance
with the fee break points established in the New Sub-Advisory Agreement
for the benefit of shareholders (after waiver by the Adviser of its
portion of the fee) and will not be subject to the fee waivers of the
Existing Sub-Advisory Agreement.
Applicants' Legal Analysis
1. Applicants request an order pursuant to section 6(c), exempting
them from section 15(a) of the Act, to the extent necessary (i) to
permit the implementation during the Interim Period, without prior
shareholder approval, of the New Sub-Advisory Agreement and (ii) to
permit CF to receive from the Adviser upon approval by the Portfolio's
shareholders any and all fees earned under the New Sub-Advisory
Agreement implemented during the Interim Period.
2. Section 15(a) of the Act prohibits an investment adviser from
providing investment advisory services to an investment company except
under a written contract that has been approved by a majority of the
voting securities of the 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 contract
by the assignor or of a controlling block of the assignor's outstanding
voting securities by a security holder of the assignor. Section 2(a)(9)
of the Act defines ``control'' as the power to exercise a controlling
influence over the management or policies of a company. Upon
consummation of the Merger, CF will become a wholly-owned subsidiary of
UAM. Applicants state that the Merger therefore will result in an
``assignment'' of the Existing Sub-Advisory Agreement within the
meaning of section 2(a)(4), terminating such agreement according to its
terms.
3. Rule 15a-4 provides, in relevant part, 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
[[Page 47990]]
compensation rate if a new contract is approved by the board of
directors of the investment company and if neither the investment
adviser nor a controlling person thereof directly or indirectly
receives money or other benefit in connection with the assignment.
Applicants cannot rely on rule 15a-4 because of the benefits to the CF
shareholders arising from the Merger.
4. Applicants state that a proxy solicitation to the shareholders
of the Fund is a complicated and time consuming task. The task will
include the preparation, clearance, and mailing of proxy materials, and
the solicitation efforts required to obtain the requisite votes.
Because of the complexity of the proxy solicitation and the imposition
of a confidentiality requirement that prevented CF from contacting the
Fund and the Adviser in advance of the Merger, applicants state that it
was not possible for the Fund to obtain shareholder approval of the New
Sub-Advisory Agreement in accordance with section 15(a) of the Act
prior to the Effective Date.
5. Applicants submit that the requested relief would permit CF to
provide continuity of investment management to the Portfolio during the
Interim Period without a disruption of advisory services. In addition,
the requested relief would also preserve the profitability of CF during
the Interim Period by ensuring that investment advisory fees will
continue to accrue to it from the Portfolio, subject to shareholder
approval. These fees are an important part of CF's total revenue and
are important to maintaining its ability to provide services to the
Portfolio.
6. 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
pubic interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act. For
the reasons stated above, applicants believe that the requested relief
meets this standard.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by this application that:
1. The New Sub-Advisory Agreement will have the same terms and
conditions as the Existing Sub-Advisory Agreement, except for the
effective and termination dates, the introduction of fee break points
and the elimination of a provision providing for fee waivers by CF when
the Portfolio was in a start-up mode.
2. Fees earned by CF and paid by the Adviser during the Interim
Period in accordance with the New Sub-Advisory Agreement will be
maintained in an interest-bearing escrow account, and amounts in the
account (including interest earned on such amounts) will be paid to CF
only after the requisite shareholder approval is obtained, or in the
event such approval is not obtained, to the Portfolio.
3. The Fund will hold a meeting of its shareholders to vote on the
approval of the New Sub-Advisory Agreement on or before the 120th day
following the termination of the Existing Sub-Advisory Agreement on the
Effective Date (but in no event later than December 31, 1996).
4. CF and/or UAM will pay the costs of preparing and filing this
application. CF and/or UAM will pay the costs relating to the
solicitation of the Fund shareholder approval, to the extent such costs
relate to approval of the New Sub-Advisory Agreement necessitated by
the Merger.
5. CF will take all appropriate actions to ensure that the scope
and quality of advisory and other services provided to the Portfolio
under the New Sub-Advisory Agreement will be at least equivalent, in
the judgment of the Fund's Board, including a majority of the
Independent Directors, to the scope and quality of services previously
provided. In the event of any material change in personnel providing
services pursuant to the New Sub-Advisory Agreement caused by the
Merger, CF will apprise and consult with the Board of the Fund to
assure that the Board, including a majority of the Independent
Directors members, is satisfied that the services provided by CF 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. 96-23120 Filed 9-10-96; 8:45 am]
BILLING CODE 8010-01-M
