[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