[Federal Register Volume 60, Number 21 (Wednesday, February 1, 1995)]
[Notices]
[Pages 6335-6337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2383]



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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20862; 812-9332]


Ambassador Funds, et al.; Notice of Application

 January 25, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (``Act'').

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APPLICANTS: Ambassador Funds (``Ambassador''); St. Clair Funds, Inc. 
(``St. Clair''); The Munder Funds, Inc. (``Munder''); Peoples S&P 
MidCap Index Fund, Inc. (``Peoples''); SEI Index Funds (``SEI,'' and, 
collectively with Ambassador, St. Clair, Munder, and Peoples, the 
``Funds''); Woodbridge Capital Management, Inc. (``Woodbridge''); WAM 
Holdings, Inc. (``WAM'');\1\ Old MCM, Inc. (``MCM,'' and, collectively 
with Woodbridge and WAM, the ``Advisers'');\2\ and Munder Capital 
Management (the ``New Adviser'').

    \1\Prior to December 30, 1994, WAM was known as ``World Asset 
Management, Inc.''
    \2\Prior to January 4, 1995, MCM was known as ``Munder Capital 
Management, Inc.''
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RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from the 
provisions of section 15(a).

SUMMARY OF APPLICATION: Applicants seek a conditional order exempting 
them from the provisions of section 15(a). The Advisers have formed a 
partnership, the New Adviser, to succeed to and continue the advisory 
business of each Adviser. The order would permit the implementation, 
without shareholder approval, of a new investment advisory agreement 
for each Fund for a period of up to 120 days (the ``Interim Period'') 
after the termination of the existing investment advisory agreement of 
each Fund as a result of the transfer of the investment advisory 
businesses of the current advisers of the Funds (the ``Advisers'') to a 
partnership (the ``New Adviser'') formed by the Advisers. The order 
also would permit the New Adviser to receive fees earned under the new 
investment advisory agreements during the Interim Period following 
approval of the agreements by the shareholders of the Funds.\3\

    \3\In the case of Peoples and SEI, the new investment advisory 
agreement will be with a newly-organized, wholly-owned subsidiary of 
the partnership. For purposes of this notice, the term ``New 
Adviser'' refers to both the partnership referred to above and this 
wholly-owned subsidiary.
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FILING DATES: The application was filed on November 22, 1994, and 
amended on January 17 and 24, 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 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 February 21, 
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: Ambassador and St. Clair, One Exchange Place, Boston, 
Massachusetts 02109; Peoples, 144 Glenn Curtiss Boulevard, Uniondale, 
New York 11556; SEI, 680 East Swedesford Road, Wayne, Pennsylvania 
19087; Woodbridge and WAM, 100 Renaissance Center, Detroit, Michigan 
48243; Munder, MCM, and the New Adviser, 480 Pierce Street, Birmingham, 
Michigan 48009.

FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Attorney, at (202) 942-0583, 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. Each Fund is registered under the Act as an open-end management 
investment company. Each Fund offers one or more investment portfolios 
to the public.
    2. Each Adviser is registered as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act''). Woodbridge and 
WAM are subsidiaries of Comerica Investment Services, Inc. (``CIS''). 
CIS is, in turn, a subsidiary of Comerica Bank, which is a wholly-owned 
subsidiary of Comerica Incorporated (``Comerica''), a publicly-held 
bank holding company. Woodbridge serves as sole investment adviser to 
each investment portfolio of Ambassador, St. Clair, and SEI. Until 
December 31, 1994, WAM served as Peoples' sole investment adviser. MCM, 
a Delaware corporation in which Mr. Lee P. Munder owns a controlling 
stock interest, currently serves as sole investment adviser to each 
investment portfolio of Munder.
    3. In August, 1994, representatives of CIS and MCM began 
discussions regarding the possible creation of a new general 
partnership, the New Adviser, to succeed to the investment advisory 
businesses of the Advisers. On November 2, 1994, Comerica and the 
Advisers entered into a definitive joint venture agreement, which 
provided for the contribution of the investment advisory business of 
each Adviser to the New Adviser, which was created on December 31, 
1994. The partners of the New Adviser are the Advisers (which will 
continue to be controlled by Comerica and Mr. Munder, respectively) and 
Employee Group, L.L.C., a newly-organized company through which 
employees of the New Adviser may acquire partnership interests.
    4. Consummation of the joint venture agreement (the ``Closing'') 
was subject to a number of contingencies, including consent by the 
Office of the Comptroller of the Currency (the ``OCC'') to the 
participation of Woodbridge and WAM in the transaction. The boards of 
directors or boards of trustees, as applicable, (the ``Governing 
Boards'') of the Funds believed that it was in the interests of the 
Funds and their shareholders not to commence the solicitation of 
proxies to approve the new investment advisory agreement until it was 
reasonably certain that the [[Page 6336]] OCC consent would be obtained 
in order to avoid possible shareholder confusion in the event such 
consent was not in fact obtained. The OCC consent was received on 
December 15, 1994.
    5. Once the joint venture agreement was announced on November 2, 
1994, the Governing Boards of the Funds were promptly notified and 
meetings scheduled. Between November 9, 1994 and December 23, 1994, 
meetings of the Governing Boards of the Funds were held to consider and 
vote on the proposed new investment advisory agreement and, in the case 
of Ambassador, St. Clair, and Munder, to nominate additional board 
members to ensure compliance with section 15(f) of the Act and avoid a 
subsequent meeting of shareholders to elect board members.\4\ At these 
meetings, the Governing Board of each Fund, including a majority of 
those board members who are not interested persons of the Funds or the 
Advisers (the ``Independent Board Members''), approved a new investment 
advisory agreement. They also recommended that the shareholders of the 
Fund approve the new agreement, including the payment of advisory fees 
earned by the New Adviser during the Interim Period, which would be 
maintained in an interest-bearing escrow account during the Interim 
Period. In connection with their evaluation of the new advisory 
agreements, a primary consideration of the Governing Boards was the 
Advisers; representation that: (a) There would be no diminution under 
the new agreements in the scope and quality of advisory and other 
services currently provided by the Advisers; (b) the new agreements 
would have the same terms and conditions as the existing agreements for 
the respective Funds; and (c) the Funds would receive during the 
Interim Periods the same investment advisory services, provided in the 
same manner by essentially the same personnel, as they had received 
prior to the Closing.

    \4\Section 15(f) permits an investment adviser to receive ``any 
amount or benefit'' in connection with the assignment of its 
investment advisory contract with a registered investment company if 
the requirements of that section are satisfied. Section 15(f)(1)(A) 
requires that, for three years after the transaction, at least 75% 
of the directors of the investment company are not interested 
persons of the investment adviser of such company, or of the 
predecessor investment adviser.
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    6. The first part of the Closing occurred on December 31, 1994. On 
that date, the non-mutual fund accounts of the Advisers and WAM's 
investment advisory agreement with Peoples were transferred to the New 
Adviser. A second part of the Closing, which involved the transfer of 
the financing activities conducted by Pierce & Brown, was held on 
January 13, 1995. The remaining part of the Closing, which will involve 
the transfer of the investment advisory arrangements of Woodbridge and 
MCM with the other Funds to the New Adviser, will occur no later than 
January 31, 1995.
    7. Because of issues arising under the Glass-Steagall Act and 
federal banking regulations, MCM has transferred to an unaffiliated 
third party the mutual fund sales load financing activities that had 
been conducted by Pierce & Brown, a limited partnership in which MCM is 
general partner. This divestiture occurred on January 13, 1995.

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 which has been approved by the vote of a majority of the 
outstanding voting securities of such registered company. Section 15(a) 
further requires that such written contract provide for automatic 
termination in the event of its assignment. Section 2(a)(4) 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. Upon completion of the Closing, the New Adviser will acquire the 
investment advisory businesses of the respective Advisers. This 
acquisition will result in an ``assignment'' of the existing advisory 
agreements within the meaning of section 2(a)(4) of the Act. Consistent 
with section 15(a), therefore, the existing advisory agreements between 
the Advisers and the Funds will terminate pursuant to their terms upon 
completion of the Closing.
    3. Rule 15a-4 provides, among other things, 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 compensation rate if a new contract is 
approved by the board of directors of the investment company and if the 
investment adviser or a controlling person thereof does not directly or 
indirectly receive money or other benefit in connection with the 
assignment. Because of possible benefits to the Advisers and their 
controlling shareholders as a result of the joint venture agreement, 
rule 15a-4 is not available to applicants.
    4. Applicants believe that the 120-day period they request will 
facilitate the orderly and reasonable consideration of the advisory 
agreements by the shareholders of each Fund in a manner that is 
consistent with the provisions of section 15 of the Act as well as the 
corporate governance objectives of the Act.
    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.
    6. Applicants submit that a Closing on December 31, 1994 was 
important for tax, accounting, and regulatory reporting purposes, in 
that certain of the Advisers (Woodbridge and WAM) currently have, and 
the New Adviser will have, tax and accounting years that close on 
December 31. Applicants represent that it would have been impossible to 
obtain the required shareholder approvals of the new investment 
advisory agreements within the fifty-nine day period between the 
execution of the joint venture agreement on November 2, 1994 and the 
first part of the Closing on December 31, 1994. First, it was necessary 
to submit the transaction to the Governing Boards of four separate and 
independent Fund groups and to obtain the required board approvals to 
proceed. Second, in the case of three of the Funds, consideration of 
new board nominees was necessary. Third, the preparation, regulatory 
clearance, printing and mailing of proxy materials requires, at a 
minimum, three to four weeks. Further, any shareholder solicitation 
would have occurred during the December holiday season, which would 
have involved delays in mailing time and shareholder response.
    7. Applicants assert that only a small fraction (less than 17 
percent) of the total assets managed by the Advisers are mutual fund 
assets. Because the process for obtaining consents with respect to the 
non-mutual fund assets is much simpler than the process of obtaining 
required board and shareholder approvals with respect to the mutual 
fund assets, the Advisers' non-mutual fund accounts were ready for 
transfer to the New Adviser on December 31, 1994, and the holders of 
those accounts expected that the transfer would in fact occur on that 
date. Accordingly, applicants state that, if the non-mutual fund 
accounts had not been transferred on or promptly after that date, the 
legitimate expectations of these accountholders regarding the orderly 
[[Page 6337]] transfer of their accounts to the New Adviser and the 
prompt delivery of the benefits that the joint venture agreement is 
expected to produce would not have been met.
    8. Applicants believed that a speedy Closing would serve to 
minimize employee anxiety, assist in the retention of portfolio 
personnel, and assist in the delivery of improved portfolio service 
through the integration of credit research, back office, and other 
operations.
    9. Applicants also state that an arrangement whereby all non-mutual 
fund accounts were transferred on December 31, 1994, but all mutual 
fund accounts were not transferred until the shareholder votes 
occurred, would have required the Advisers to implement a form of 
``dual employee'' arrangement. Such an arrangement would have created 
needless organizational complexity and would have raised the 
possibility of shareholder confusion as to the provision of investment 
advisory services during the Interim Periods.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. The new advisory agreements to the implemented during the 
Interim Periods will have the same terms and conditions as each 
respective current agreement, except in each case for the names or 
identities of the parties, the commencement and termination dates, the 
inclusion of escrow arrangements, the incorporation of certain 
previously adopted amendments (if any) into the body of the agreements, 
and certain additional language to satisfy regulatory requirements of 
the Advisers Act.
    2. Fees earned by the New Adviser during the Interim Period in 
accordance with the terms of such new advisory agreements will be 
maintained in an interest-bearing escrow account, and amounts in the 
account will be paid to: (a) the New Adviser only upon approval by the 
shareholders of such Fund, or (b) in the absence of such approval, to 
such Fund.
    3. Each Fund will hold a meeting of shareholders to vote on 
approval of its new investment advisory agreement on or before the 
120th day following the termination of its existing investment advisory 
agreement as a result of the transfer of the investment advisory 
businesses of the Advisers to the New Adviser (which transfer will be 
completed on or before Janaury 31, 1995).
    4. The Advisers and the New Adviser will pay the costs of preparing 
and filing the application and the costs of holding all meetings of 
each Fund's shareholders necessitated by the consummation of the joint 
venture agreement, including the cost of proxy solicitations.
    5. The New Adviser will take all appropriate steps so that the 
scope and quality of advisory and other services provided to each Fund 
during the respective Interim Periods will be at least equivalent, in 
the judgment of the Governing Board of each Fund, including a majority 
of the independent board members, to the scope and quality of services 
previously provided. In the event of any material change in personnel 
providing services pursuant to the advisory agreement, the New Adviser 
will apprise and consult with the Governing Board of the affected Fund 
in order to assure that they, including a majority of the independent 
board members, 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. 95-2383 Filed 1-31-95; 8:45 am]
BILLING CODE 8010-01-M