[Federal Register Volume 62, Number 132 (Thursday, July 10, 1997)]
[Notices]
[Pages 37086-37088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17988]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22733; 812-10654]
Qualivest Funds, et al.; Notice of Application
July 2, 1997.
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: Qualivest Funds on behalf of each of its investment
portfolios (each portfolio, a ``Fund''), Qualivest Capital Management,
Inc. (``Adviser''), and First Bank National Association (``New
Adviser'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) granting an
exemption from section 15(a).
SUMMARY OF APPLICATION: Adviser's parent, U.S. Bancorp, will merge with
and into New Adviser's parent, First Bank System, Inc. (``FBS''), which
will result in the assignment, and thus the termination, of the Funds'
existing advisory agreements with Adviser. Applicants request an order
to permit the implementation, without shareholder approval, of interim
advisory agreements between the Funds and New Adviser (``Interim
Advisory Agreements'') for a period commencing on the date the merger
is consummated (but in no event later than September 30, 1997) and
continuing for a period of up to the earlier of 120 days or the date
the Interim Advisory Agreements are approved or disapproved by
shareholders of the Funds (``Interim Period''). The order also would
permit New Adviser to receive, following shareholder approval of the
related Interim Advisory Agreement, all fees earned during the Interim
Period.
FILING DATES: The application was filed on May 12, 1997 and amended on
June 12, 1997.
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 28, 1997
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: Qualivest Funds, 3425 Stelzer Road, Columbus, OH
43219-3035; Adviser, 111 S.W. Fifth Avenue, Suite T-15, Portland, OR
97204; New Adviser, 601 Second Avenue South, Minneapolis, MN 55402.
FOR FURTHER INFORMATION CONTACT: Suzanne Krudys, Senior Counsel, at
(202) 942-0641 or Mercer E. Bullard, 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.
Applicant's Representations
1. Qualivest Funds, a business trust organized under the laws of
the Commonwealth of Massachusetts, is registered as an open-end
management investment company under the Act. It is organized as a
series investment company and currently offers 15 separate Funds, of
which 13 are currently offered for sale to the public. Adviser, a
registered investment adviser under the Investment Advisers Act of
1940, currently serves as investment adviser to the Funds. Adviser is a
wholly-owned subsidiary of United States National Bank of Oregon, which
is a wholly-owned subsidiary of U.S. Bancorp. New Adviser serves as the
investment adviser and manager of the First American Family of Funds
through its First Asset Management Group. New Adviser is a direct,
wholly-owned subsidiary of FBS.
2. On March 20, 1997, FBS and U.S. Bancorp jointly announced the
signing of a definitive agreement for FBS to acquire U.S. Bancorp (the
``Merger''). Under the merger agreement, U.S. Bancorp shareholders will
receive 0.755 shares of FBS common stock for each share of U.S. Bancorp
common stock. FBS will be the surviving corporation and will use the
name U.S. Bancorp. Applicants expect the Merger to be consummated
sometime before September 30, 1997, subject to the satisfaction of
certain conditions, including receipt of certain regulatory approvals.
3. At a meeting on May 8, 1997, the board of trustees of Qualivest
Funds (``Board'') voted in the manner prescribed by section 15(c) of
the Act to approve Interim Advisory Agreements and to recommend that
shareholders of each Fund approve the related Interim Advisory
Agreement during the 120-day period commencing on the earlier of the
consummation of the Merger (``Effective Date'') or September 30, 1997.
The Board determined to retain New Adviser rather than the current
Adviser after considering the capabilities of New Adviser and
determining that it was indeed well-qualified to manage each of the
Funds, and the exigent circumstances with which the Board was faced.
Applicants expect that at least six of the eleven Fund portfolio
managers now employed by Adviser will leave the employ of the Adviser
by or shortly after the Effective Date. As a result of these
departures, at least four Funds will lose both their portfolio co-
managers; at least another three Funds will lose one of their two
portfolio co-managers; and the committee which manages another four
Funds will lose more than half its members. In light of these facts,
the Board determined that doubt exists whether the remaining personnel
of Adviser, acting alone,
[[Page 37087]]
would be able to provide an appropriate scope and quality of advisory
services to the Funds during the Interim Period.
4. In order to provide continuity of Fund management and to avoid
harm to the Funds, applicants propose that the remaining Fund portfolio
managers now employed by the Adviser become employees of the New
Adviser on the Effective Date of the parent company Merger. These
individuals, together with the investment professionals already
employed by the New Adviser, then would assume management of the Funds
on the Effective Date pursuant to a new advisory agreement between the
New Adviser and the Funds.
5. All investment advisory fees paid by the Funds to New Adviser
during the Interim Period will be paid to an escrow agent (which will
be an unaffiliated third party institution), and, with respect to each
Fund, none of such fees held in escrow will be paid to New Adviser
until the related shareholder approval has been obtained. If
shareholders of any Fund fail to approve the Interim Advisory
Agreement, the escrow agent will pay to the Fund the applicable escrow
amounts (including interest earned). The escrow agent will release the
escrow funds only upon receipt of a certificate from the officers of
Qualivest Funds stating, if the escrow funds are to be delivered to New
Adviser, that the Interim Advisory Agreement has received the requisite
shareholder vote, or, if the escrow funds are to be delivered to any
Fund, that the Interim Period has ended and the Interim Advisory
Agreement has not received the requisite shareholder vote. Before any
such certificate is sent, the members of the Board that are not
interested persons as defined in section 2(a)(19) of the Act
(``Independent Trustees'') of Qualivest Funds will be notified.
6. Applicants request relief from section 15(a) to permit the Funds
to implement Interim Advisory Agreements during the Interim Period. In
the event the Effective Date is later than September 30, 1997, the
Interim Period will commence on September 30, 1997. Each Interim
Advisory Agreement will contain the same terms and conditions as the
existing advisory agreement between the related Fund and Adviser (each,
an ``Existing Advisory Agreement''), except for the effective and
termination dates, escrow provisions, and the substitution of New
Adviser in place of Adviser. Applicants also request an exemption to
permit New Adviser to receive from each Fund, subject to shareholder
approval of the related Interim Advisory Agreement and to the escrow
arrangement described in the application, any and all fees earned
during the Interim Period under such Interim Advisory Agreement. The
fees to be paid during the Interim Period will be unchanged from the
fees to be paid under the respective Existing Advisory Agreements.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides that it shall be unlawful for
any person to serve as an investment adviser of a registered investment
company except pursuant to a written contract that has been approved by
the vote of a majority of the outstanding voting securities of such
company. Section 15(a) further requires that such 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. Applicants state
that, on the Effective Date, Adviser will become a wholly-owned
subsidiary of the surviving corporation. Applicants therefore believe
that the Merger will result in the ``assignment'' of the Existing
Advisory Agreements.
2. Rule 15a-4 under the Act provides that, if an investment
advisory contract with an investment company is terminated by
assignment, an investment adviser may act as such for the company
during the 120 day period following such termination pursuant to a
written contract that has not been approved by the company's
shareholders, provided that (a) the new contract is approved by the
company's board of directors, including a majority of the non-
interested directors, (b) the compensation to be paid under the new
contract does not exceed the compensation that would have been paid
under the contract most recently approved by company's shareholders,
and (c) neither the adviser nor any controlling person of the adviser
directly or indirectly receives money or other benefit in connection
with the assignment. Applicants state that they may not be able to rely
on rule 15a-4 because of the benefits U.S. Bancorp's shareholders will
receive from the Merger.
3. Applicants contend that, because the Funds did not have
sufficient advance notice of the Merger, it will not be possible for
them to obtain shareholder approval of the Interim Advisory Agreements
in accordance with section 15(a) prior to the closing of the Merger.
Applicants state that the terms and timing of the Merger were
determined by FBS and U.S. Bancorp in response to a number of factors
relating principally to their commercial banking and other similar
business concerns.
4. Applicants state that the Board determined that retention of New
Adviser to provide advisory services to the Funds during the Interim
Period and employment of the remaining Fund portfolio managers of
Adviser by New Adviser would serve Fund shareholders better than any
alternative, in that it would (a) provide that the Funds will, to the
extent possible under the circumstances, continue to be managed by the
same individuals; (b) ensure that, to the extent current Fund portfolio
managers depart Adviser, the affected Funds will be managed during the
Interim Period by a group of investment professionals which the Board
has determined can provide the appropriate scope and quality of
advisory services; and (c) avoid the need for the Board to consider on
an emergency, ad hoc basis how to proceed if and to the extent
additional current Fund portfolio managers decide to leave Adviser.
With respect to the third point, the Board noted that if additional
portfolio managers were to leave Adviser, the affected Funds could be
left essentially unmanaged until the Board could be convened to
terminate the Existing Advisory Agreements and select and retain a new
investment adviser. The Board also noted that, following the Effective
Date, both Adviser and New Adviser will be subsidiaries of the same
corporate parent. Thus, applicants note, ultimate control over the
entity which advised the Funds during the Interim Period will rest in
the same place regardless of whether that entity is the current Adviser
or New Adviser.
5. Applicants anticipate that all but three of the Funds will be
merged into corresponding funds of the First American Family of funds
during or by the close of the Interim Period. Applicants maintain that
the 120 day period will give the Funds sufficient time to allow a
single proxy solicitation to be conducted for shareholder consideration
of an overall, comprehensive plan for reorganizing the Funds, as well
as for shareholder consideration of the Interim Advisory Agreements.
Applicants contend that proceeding in this manner will allow
shareholder approval to be obtained in a cost effective manner and will
minimize any shareholder confusion that might arise in the
circumstances.
6. Applicants submit that each Fund will receive during the Interim
Period substantially comparable investment advisory services, provided
in substantially the same manner, as it received prior to the Effective
Date. Applicants anticipate that New Adviser will employ certain of
Adviser's key portfolio managers and advisory
[[Page 37088]]
personnel that managed the Funds prior to the announcement of the
Merger. In the event there is any material change in personnel
providing advisory services under the Interim Advisory Agreements
during the Interim Period, applicants state that New Adviser will
apprise and consult the Board to ensure that such Board, including a
majority of the Independent Trustees, is satisfied that the services
provided by New Adviser will not be diminished in scope and quality.
Applicants state that the Board's approval of the Interim Advisory
Agreements signifies its independent determination that implementing
the Agreements prior to shareholder approval was necessary to protect
the Funds and their shareholders.
7. Applicants submit that to deprive New Adviser of its customary
fees during the Interim Period for no reason, other than the fact that
the Merger may be deemed to result in an assignment of the Existing
Advisory Agreements, would be unduly harsh and unreasonable penalty to
impose upon an investment adviser. New Adviser submits that, in good
faith and consistent with the Act and the spirit of rule 15a-4, it
seeks to promote the interests of the Funds and their shareholders by
undertaking the fee and other arrangements described in the
application. Applicants state that the fees payable to New Adviser
under the Interim Advisory Agreements have been approved by the Board,
including a majority of the Independent Trustees, in accordance with
their fiduciary and other obligations under the Act, and that such fees
will not be released by the escrow agent without the approval of the
respective Fund's shareholders.
8. Section 6(c) 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 relief requested satisfies this standard.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. Each Interim Advisory Agreement will have the same terms and
conditions as the respective Existing Advisory Agreement, except for
the effective and termination dates, escrow provisions, and the
substitution of New Adviser in place of Adviser.
2. Fees earned by New Adviser and paid by a Fund during the Interim
Period in accordance with the Interim Advisory Agreement will be
maintained with as unaffiliated financial institution in an interest-
bearing escrow account, and amounts in the such account (including
interest earned on such amounts) will be paid to New Adviser only upon
approval of the shareholders of the related Fund or, in the absence of
approval by such shareholders, to the Fund.
3. The Qualivest Funds will hold meetings of shareholders to vote
on approval of the Interim Advisory Agreements for the Funds on or
before the 120th day following the earlier of the termination of the
Existing Advisory Agreements on the Effective Date or September 30,
1997.
4. New Adviser will pay the costs of preparing and filing the
application. New Adviser will pay the costs relating to the
solicitation of approval of Fund shareholders, to the extent such costs
relate to shareholder approval of the Interim Advisory Agreements
necessitated by the Merger.
5. New Adviser will take all appropriate actions to ensure that the
scope and quality of advisory and other services provided to the Funds
under the Interim Advisory Agreements will be at least equivalent, in
the judgment of the Board, including a majority of the Independent
Trustees, to the scope and quality of services provided under the
Existing Advisory Agreements. In the event of any material change in
personnel providing services pursuant to the Interim Advisory
Agreements, New Adviser will apprise and consult the Board to assure
that the Board, including a majority of the Independent Trustees, is
satisfied that the services provided by New Adviser will not be
diminished in scope or quality.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-17988 Filed 7-9-97; 8:45 am]
BILLING CODE 8010-01-M