[Federal Register Volume 60, Number 122 (Monday, June 26, 1995)]
[Notices]
[Pages 33011-33013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15500]
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[[Page 33012]]
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21141; File No. 812-7271]
G.T. Global Growth Series, et al.; Notice of Application
June 16, 1995,
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: G.T. Global Growth Series, G.T. Investment Funds, Inc.,
G.T. Investment Portfolios, Inc. (collectively, the ``Investment
Companies''), and G.T. Capital Management, Inc. (the ``Adviser'').
RELEVANT ACT SECTIONS: Applicants request an exemption under section
6(c) of the Act from section 15(a) of the Act.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Adviser to have served as investment adviser to the Investment
Companies for approximately one month under interim advisory
agreements, without a shareholder vote, following a change in its
ownership and to receive from the Investment Companies fees earned
under interim advisory agreements.
FILING DATE: The application was filed on March 15, 1989, and amended
on February 17, 1995 and May 2, 1995. Applicants have agreed to file an
additional amendment, the substance of which is incorporated herein,
during the notice period.
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 July 11, 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: 50 California Street, San Francisco, CA 94111.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574 or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulations).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch.
Applicants' Representations
1. The Investment Companies are registered open-end management
investment companies. The Adviser is registered as an investment
adviser under the Investment Advisers Act of 1940 and provides
investment advisory services to the Investment Companies. The Adviser
is an indirect subsidiary of G.T. Management PLC of London, England
(``GTM'').
2. On January 31, 1989, GTM and the Bank of Liechtenstein
Aktiengesellschaft (the ``Bank'') announces terms for the acquisition
of GTM by the Bank through an offer (the ``Offer'') for all the shares
of GTM to be made on behalf of the Bank and its subsidiaries. (The Bank
and its subsidiaries collectively are referred to as ``BIL.'') On March
23, 1989, BIL acquired a majority ownership interest in GTM, and thus
acquired ``control'' over GTM and its various subsidiaries. The
acquisition of such control resulted in the assignment of the
investment advisory agreements of the Investment Companies, thus
terminating such agreements in accord with their terms.
3. GTM and BIL had concluded, in light of the disruptions that
could occur if an advisory firm announced the existence of acquisition
negotiations, that the existence of negotiations and the terms be kept
strictly confidential. Accordingly, access to the knowledge that
negotiations were underway was restricted by GTM and BIL. Moreover,
negotiations between GTM and BIL were subject to the secrecy rules
under the United Kingdom law and the City Code on Takeovers and Mergers
(the ``U.K. Code''). Those rules required GTM and its subsidiaries,
including the Adviser, to limit knowledge of the existence and
substance of these negotiations to the maximum extent possible. Thus,
during the period of negotiation, the Adviser's personnel were limited
in their knowledge of the status and contents of the negotiations.
Further, it was not certain that an agreement would be reached and
approved by the GTM board until such agreement was reached and approval
was obtained.
4. Once the Offer was made public, the board of directors took all
reasonable steps to evaluate the probable impact of the purchase on the
provision of investment advisory services to the Investment Companies
and to secure the continued provision of such services in the event the
purchase was consummated and an assignment of former advisory
agreements (the ``Former Advisory Agreements'') occurred. The timing
for the Offer and the purchase was dictated by the provisions of the
U.K. Code. Those considerations did not allow applicants the ability to
utilize a time schedule that assured the solicitation of shareholder
approval of the new advisory agreements prior to the consummation of
the purchase. These factors necessitated the use of interim investment
advisory agreements (the ``Interim Advisory Agreements'') between the
Investment Companies and the Adviser as a fair and reasonable solution
to this unforeseen situation. Applicants request an exemption from
section 15(a) of the Act that would permit the Adviser to have served
as investment adviser to each of the Investment Companies during the
period in which the Interim Advisory Agreements were in effect (from
March 23, 1989 to April 19, 1989, the ``Interim Period'')\1\ and to
receive from each Investment Company fees for providing advisory
services under the Interim Advisory Agreements.
\1\The filing of the amended application has been delayed by a
number of factors, including a change in General Counsel and a
change in outside counsel to G.T. Capital during the period from
March 15, 1989 to February 17, 1995.
5. On February 3, 1989, the board of directors of each Investment
Company, including a majority of the members who were not ``interested
persons'' of the Investment Company as that term is defined in section
2(a)(19) of the Act, approved the relevant Interim Advisory Agreements
in compliance with the requirements of section 15(c) of the Act. The
board of directors requested and evaluated the anticipated effects of
the purchase on the Adviser's ability to provide investment advisory
services to the Investment Companies. The Adviser and BIL assured the
board of directors that there would be no diminution in the scope and
quality of advisory and other services provided by the Adviser under
the Interim Advisory Agreements, and that the services would be
provided in the same manner by essentially the same personnel as they
were before March 23, 1989. Applicants believe that there was no
diminution in the scope and quality of services provided by the Adviser
to the Investment Companies during the Interim Period.
6. The board of directors also concluded that the payment of
advisory fees earned during the Interim Period [[Page 33013]] would be
fair considering that, among other things, (a) the Offer arose out of
business considerations unrelated to the relationships between the
Investment Companies and the Adviser, (b) because of the relatively
short time frame involved, there was not reasonably sufficient time to
seek shareholder approval of the Interim Advisory Agreements, and (c)
the nonpayment of such fees would be unduly harsh result to the Adviser
in view of the services provided by the Adviser under the Interim
Advisory Agreements. Each Interim Advisory Agreement that was in effect
during the Interim Period contained the same terms and conditions as
the applicable Former Advisory Agreement. In addition, the amount
payable to the Adviser under each Interim Advisory Agreement was
unchanged from the fees paid under each Former Advisory Agreement. Fees
earned during the Interim Period were placed in an escrow account
pending ratification of the Interim Advisory Agreements by the
Investment Companies' shareholders and issuance by the SEC of an order
granting the relief requested herein. If the fees are not paid to the
Adviser, the fees will revert to the Investment Companies.
7. On February 24, 1989, the board of directors approved new
advisory agreements. Applicants held shareholders meetings of each
Investment Company on April 19, 1989, at which the shareholders
approved the Interim Advisory Agreements as well as new advisory
agreements. The Adviser has paid or will pay, as applicable, the costs
of preparing and filing this application and the allocable costs of the
meeting of each Investment Company's shareholders necessitated by the
assignment of the Former Advisory Agreement, including the cost of
proxy solicitations.
Applicants' Legal Conclusions
1. Section 15(a) prohibits an investment adviser from providing
investment advisory services to an investment company except pursuant
to a written contract approved by a majority of the voting securities
of the investment company. The section further requires that such
written contract provide for its automatic termination in the event of
an assignment.
2. Under section 2(a)(4) of the Act, an assignment includes any
direct or indirect transfer of a contract by the assignor or of a
controlling block of the assignor's voting securities. Under Section
2(a)(9), a beneficial owner of more than 25 percent of the voting
securities of a company is presumed to control such company. Because
BIL acquired more than 25 percent of GTM, the Investment Companies'
investment advisory agreements were assigned and, consequently,
terminated pursuant to their terms.
3. Rule 15a-4 provides that, among other things, if an investment
adviser's investment advisory contract 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 of the investment adviser does not directly or
indirectly receive money or other benefit in connection with the
assignment. Because many of GTM's shareholders, including all its board
of directors who owned GTM stock, received a benefit in connection with
the assignment of the contracts, applicants may not rely on rule 15a-4.
4. Applicants believe that the exemptive relief requested is
necessary and 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. Because the change of control of the
Adviser caused the termination of the Former Advisory Agreements, the
board of directors were required to consider appropriate actions in the
best interests of the Investment Companies and their respective
shareholders. Appplicants believe that approval of the Interim Advisory
Agreements by the board of directors was in accord with the general
views of the SEC that an investment adviser has a fiduciary duty to
seek to avoid disruption to the operations of an investment company
client during any ``interim period'' and that advisory services should
continue to be provided. The Adviser and the board of directors
concluded that denying the Adviser its fees during the Interim Period
would be a harsh result and would not afford shareholders of the
Investment Companies any extra protection or long-term benefit.
Applicants represent that their respective Interim Advisory Agreements
had the same terms, conditions and fees as the respective Former
Advisory Agreements.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-15500 Filed 6-23-95; 8:45 am]
BILLING CODE 8010-01-M