[Federal Register Volume 60, Number 7 (Wednesday, January 11, 1995)]
[Notices]
[Pages 2803-2805]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-606]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20818; 812-9412]
Kidder, Peabody Investment Trust, et al.; Notice of Application
January 4, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
APPLICANTS: Kidder, Peabody Investment Trust (``KPIT''); Kidder,
Peabody Investment Trust II (``KPIT II''); Kidder, Peabody Investment
Trust III (``KPIT III''); Kidder, Peabody Municipal Money Market
Series; Kidder, Peabody California Tax Exempt Money Fund; Kidder,
Peabody Premium Account Fund; Kidder, Peabody Equity Income Fund, Inc.;
Kidder, Peabody Government Income Fund, Inc.; Kidder, Peabody
Government Money Fund, Inc.; Kidder, Peabody Cash Reserve Fund, Inc.;
Kidder, Peabody Tax Exempt Money Fund, Inc.; Institutional Series
Trust; and Liquid Institutional Reserves (the ``Funds''); Kidder,
Peabody Asset Management, Inc. (``KPAM''); Emerging Markets Management
(``EMM''); GE Investment Management Incorporated (``GEIM''); George D.
Bjurman & Associates (``GDB&A''); and Strategic Fixed Income, L.P.
(``SFI'') (EMM, GEIM, GDB&A, and SFI together, the ``Subadvisers'');
PaineWebber Incorporated (``PWI''); Mitchell Hutchins Asset Management
Inc. (``MHAM''); and Mitchell Hutchins Institutional Investors Inc.
(``MHII,'' and together with MHAM, ``Mitchell Hutchins'') (Mitchell
Hutchins, together with PWI, KPAM and the Subadvisers are collectively
referred to herein as the ``Advisers'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) for an
exemption from section 15(a).
SUMMARY OF APPLICATION: Paine Webber Group Inc. (``PaineWebber'') has
agreed to purchase the investment advisory business of Kidder, Peabody
Group Inc. The transaction will result in the assignment, and thus the
termination, of existing investment advisory and subadvisory contracts
of the applicant investment companies. Applicants seek an order to
permit the implementation, without shareholder approval, of interim
investment advisory and subadvisory contracts, during a period of up to
120 days following the closing of the transaction. The order also will
permit the applicant investment advisers to receive from the applicant
investment companies fees earned under the interim investment advisory
contracts following approval by the investment companies' shareholders.
FILING DATE: The application was filed on January 4, 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
[[Page 2804]]
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 26, 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, Mitchell Hutchins Asset Management Inc., 14th Floor, 1285
Avenue of the Americas, New York, New York 10019; all other applicants,
c/o Arthur J. Brown, Esq., Kirkpatrick & Lockhart, South Lobby--9th
Floor, 1800 M Street, NW., Washington, D.C. 20036-5891.
FOR FURTHER INFORMATION CONTACT:
Marc Duffy, Senior Attorney, at (202) 942-0565, 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. The Funds are registered open-end management investment
companies. The Advisers are registered as investment advisers under the
Investment Advisers Act of 1940 (the ``Advisers Act''). The Funds each
have entered into an investment advisory agreement with KPAM under
which KPAM provides advisory and management services to the Funds (the
``Advisory Agreements''). Certain of the Funds also have entered into
subadvisory agreements with the Subadvisers and KPAM (the ``Subadvisory
Agreements,'' and together with the Advisory Agreements, the ``Prior
Agreements'').\1\
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\1\ The Subadvisory Agreements relate to the following
Subadvisers and Funds: EMM, with respect to the Kidder, Peabody
Emerging Markets Equity Fund series of KPIT II; GEIM, with respect
to Kidder, Peabody Global Equity Fund, the Kidder, Peabody Municipal
Bond Fund series of KPIT II, and the Kidder, Peabody Intermediate
Fixed Income Fund series of KPIT; GDB&A, with respect to the Kidder,
Peabody Small Cap Equity Fund series of KPIT III; AND SFI, with
respect to the Kidder, Peabody Global Fixed Income series of KPIT.
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2. KPAM is a wholly-owned indirect subsidiary of Kidder, Peabody
Group Inc. (``Kidder''). Kidder is a wholly-owned indirect subsidiary
of General Electric Company (``General Electric'').
3. MHAM and MHII serve as investment advisers to investment
companies and non-investment company clients. MHAM and MHII are wholly-
owned subsidiaries of PWI. PWI is a registered investment adviser under
the Advisers Act. PWI is wholly owned subsidiary of PaineWebber, a
publicly held financial services holding company.
4. On October 17, 1994, PaineWebber entered into an asset purchase
agreement with General Electric and Kidder (the ``Asset Purchase
Agreement''). PaineWebber agreed to purchase certain assets of Kidder
(the ``Kidder Assets'') for cash and other consideration (the
``Transaction''). PaineWebber has arranged for Mitchell Hutchins to
undertake the investment advisory services now provided to the Funds by
KPAM. Applicants intend to transfer the investment advisory business
concurrently with the transfer of the retail operations and brokerage
staff on January 29, 1995.
5. At special meetings held on November 1, 1994, November 2, 1994,
and December 16, 1994, the respective Boards of Trustees/Directors of
the Funds (the ``Boards'') met to discuss the Transaction. During those
meetings, the Boards, including a majority of the Board members who are
not ``interested persons,'' as that term is defined in the Act (the
``Independent Directors''), of the respective Funds, with the advice
and assistance of counsel to the Independent Directors, made a full
evaluation of the interim investment advisory agreements between the
Funds and Mitchell Hutchins and the interim subadvisory agreements
among Mitchell Hutchins, the Subadvisers, and certain of the Funds (the
``Interim Agreements''). In accordance with section 15(c) of the Act,
the Boards voted to approve the Interim Agreements. The Boards of each
Fund also voted to recommend that shareholders of the Fund approve the
Interim Advisory and Subadvisory Agreements, as well as a new advisory
agreement with PWI or Mitchell Hutchins and, where applicable, new
subadvisory agreements with the Subadvisers.
6. Applicants seek an exemption from section 15(a) of the Act to
permit the implementation, without shareholder approval, of the Interim
Agreements. The exemption would cover the period commencing on the date
of the transfer of the existing investment advisory and subadvisory
agreements and continuing through the date new advisory and subadvisory
agreements are approved or disapproved by shareholders of the
respective Funds, which period shall be no longer than 120 days (the
``Interim Period'').
7. In approving the Interim Agreements, the Boards, including a
majority of the Independent Directors, concluded that payment of the
advisory and subadvisory fees during the Interim Period would be
appropriate and fair because the fees to be paid are unchanged from the
fees paid under the Prior Agreements, the fees would be maintained in
an interest-bearing escrow account until payment is approved or
disapproved by shareholders, and the nonpayment of fees would be
inequitable to PaineWebber, Mitchell Hutchins, and the Subadvisers in
view of the substantial services to be provided by such companies to
the Funds, and the expenses incurred by such companies.
8. Applicants believe that delaying the closing of the Transaction
until shareholders of all of the Funds could vote on new advisory
agreements would result in substantial defections by portfolio
managers, advisory employees, and supervisory personnel. These
defections could significantly impair the value of the Kidder Assets
and significantly damage the Funds and their shareholders. Thus,
applicants believe that the requested relief, which will permit the
Transaction to close sooner than otherwise would be possible, is in the
best interests of the Funds and their shareholders.
Applicants' Legal Conclusions
1. Section 15(a) 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 such investment company. Section 15(a) further requires
that such written contract provide for its automatic termination in the
event of an assignment. Under section 2(a)(4) of the Act, an assignment
includes any direct or indirect transfer of a contract by the assignor.
2. The transfer of Kidder's investment advisory business, as
contemplated by the Asset Purchase Agreement, will result in an
``assignment'' within the meaning of section 2(a)(4) of the Act, of the
Prior Agreements. Consistent with section 15(a), therefore, each such
agreement will terminate by its terms.
3. Rule 15a-4 provides, among other things, that if an investment
adviser's investment advisory contract is terminated by assignment, the
investment 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
[[Page 2805]]
the investment company, and if the investment adviser or a controlling
person of the investment adviser does not directly or indirectly
receive money or other benefit in connection with the assignment.
Because General Electric will receive a benefit in connection with the
assignment of the contracts, applicants may not rely on rule 15a-4.
4. Applicant's believe that the requested relief will allow the
Funds to continue to operate on an orderly basis until the shareholders
have the opportunity to consider new investment advisory agreements.
The 120 day Interim Period will facilitate the orderly and reasonable
consideration of the new agreements.
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.
Applicants' Conditions
Applicants agree as conditions to the requested exemptive relief
that:
1. The Interim Agreements will have the same terms and conditions
as the Prior Agreements.
2. Fees earned by the Mitchell Hutchins and the Subadvisers and
paid by a Fund during the Interim Period in accordance with the Interim
Agreements will be maintained in an interest-bearing escrow account,
and amounts in such account (including interests earned on such paid
fees) will be paid to Mitchell Hutchins and the Subadvisers only upon
approval of the Fund shareholders or, in the absence of such approval,
to the respective Funds.
3. The Funds will hold meetings of shareholders to vote on approval
of new investment advisory or sub-advisory agreements, as the case may
be, on or before the 120th day following the termination of the Prior
Agreements.
4. General Electric or a subsidiary thereof, and PWI or a
subsidiary thereof, will share equally the cost of preparing and filing
this application. General Electric or a subsidiary thereof will pay the
costs relating to the solicitation of the approvals of the Funds'
shareholders of the Interim Agreements necessitated by the Transaction.
5. Mitchell Hutchins and the Subadvisers will take all appropriate
actions to ensure that the scope and quality of advisory and other
services provided to the Funds under the Interim Agreements will be at
least equivalent, in the judgment of the respective Boards, 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 under the Interim Agreements, Mitchell
Hutchins and the Subadvisers will apprise and consult the Boards of the
affected Funds to assure that such Boards, including a majority of the
Independent Directors, are satisfied that the services provided by
Mitchell Hutchins and the Subadvisers 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. 95-606 Filed 1-10-95; 8:45 am]
BILLING CODE 8010-01-M