[Federal Register Volume 62, Number 197 (Friday, October 10, 1997)]
[Notices]
[Pages 53032-53034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26900]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22841; 812-10796]
Blanchard Funds, et al.; Notice of Application
October 6, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') from section 15(a) of the
Act.
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SUMMARY OF APPLICATION: Signet Banking Corporation (``Signet''), parent
of Virtus Capital Management, Inc. (``Adviser''), has entered into an
agreement and plan of merger with First Union Corporation (``First
Union''). The indirect change in control of the Adviser will result in
the assignment, and thus the termination, of the existing advisory
contracts between Blanchard Funds (``Blanchard''), The Virtus Funds
(``Virtus''), Blanchard Precious Metals Fund, Inc. (``Precious
Metals'') (collectively, the ``Funds'') and the Adviser. The order
would permit the implementation, without shareholder approval, of new
investment advisory
[[Page 53033]]
agreements for a period of up to 120 days following the date of the
change in control of the Adviser (but in no event later than April 30,
1998). The order also would permit the Adviser to receive all fees
earned under the new advisory agreements following shareholder
approval.
APPLICANTS: Blanchard, Virtus, Precious Metals, and the Adviser.
FILING DATES: The application was filed on September 23, 1997.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SAC 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 October 31,
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 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, D.C.
20549. Applicants, c/o Evergreen Keystone Investment Services Inc., 200
Berkeley Street, Boston, Massachusetts 02116.
FOR FURTHER INFORMATION CONTACT: John K. Forst, Attorney Advisor, at
(202) 942-0569, or Mary Kay Frech, Branch Chief, 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, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. Blanchard and Virtus are Massachusetts business trusts
registered under the Act as open-end management investment companies.
Precious Metals is a Maryland corporation also registered under the Act
as an open-end management investment company. Blanchard and Virtus
currently offer six and eight series (the ``Portfolios''),
respectively, to the public. The Adviser, a wholly-owned subsidiary of
Signet, is an investment adviser registered under the Investment
Advisers Act of 1940. The Funds and the Adviser have entered into sub-
advisory agreements for certain Portfolios.\1\
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\1\ The following firms serve as subadvisers to the respective
Funds under sub-advisory agreements with the Funds and the Adviser:
Mellon Capital Management Corporation (for the Blanchard Asset
Allocation and Global Growth Funds); United States Trust Company of
New York (for the Blanchard Flexible Tax-Free Bond Fund); Cavelti
Capital Management Ltd (for Precious Metals); Trend Capital
Management, Inc. (for The Style Manager Fund and The Style Manager;
Large Cap Fund).
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2. On July 18, 1997, First Union entered into an agreement and plan
of merger with Signet, under which Signet would be merged with and into
First Union in exchange for shares of common stock of First Union (the
``Transaction''). As a result of the Transaction, Signet will become a
wholly-owned subsidiary of First Union and the Adviser will remain a
wholly-owned subsidiary of Signet. Applicants expect consummation of
the Transaction on November 1, 1997.
3. Applicants request an exemption to permit implementation, prior
to obtaining shareholder approval, of new investment advisory
agreements between each Fund and the Adviser, on behalf of each of the
Funds, and new sub-advisory agreements between the Adviser and each
appropriate subadviser (collectively, ``New Agreements''). The
requested exemption will cover an interim period of not more than 120
days beginning on the date the Transaction is consummated and
continuing through the date on which each New Agreement is approved or
disapproved by the shareholders of each Portfolio or Precious Metals,
but in no event later than April 30, 1998 (the ``Interim Period'').
Applicants state that the New Agreements will be identical in substance
to the existing investment advisory agreements (``Existing
Agreements''). The aggregate contractual rate chargeable for the
advisory services under each New Agreement will remain the same as
under the relevant Existing Agreement.
4. On September 16, 1997, the boards of trustees of Blanchard and
Virtus, and the board of directors of Precious Metals (collectively,
the ``Boards'') held in-person meetings to evaluate whether the terms
of the New Agreements are in the best interests of the Funds and their
shareholders. At the meetings, a majority of the members of the Boards,
including a majority of members who are not ``interested persons'' of
the Funds, as that term is defined in section 2(a)(19) of the Act (the
``Independent Trustees''), voted in accordance with section 15(c) of
the Act to approve the New Agreements and to submit the New Agreements
to the shareholders of each of the Funds at meeting expected to be held
on or about February 2, 1998 (the ``Meetings'').
5. Applicants expect that proxy materials for the Meetings will be
mailed on or about December 12, 1997. Applicants believe that the
requested relief is necessary to permit continuity of investment
management for the Funds during the Interim Period and to prevent
disruption of the services for the Funds.
6. Applicants also request an exemption to permit the Adviser to
receive from each Fund, upon approval by their respective shareholders,
all fees earned under the New Agreements during the Interim Period.
Applicants state that the fees paid during the Interim Period will be
unchanged from the fees paid under the Existing Agreements.
7. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution. The fees payable to the Adviser
during the Interim Period under the New Agreements will be paid into an
interest-bearing escrow account maintained by the escrow agent. The
escrow agent will release the amounts held in the escrow account
(including any interest earned): (a) To the Adviser only upon approval
of the relevant New Agreement by the shareholders of the Funds; or (b)
to the relevant Fund if the Interim period has ended and its New
Agreement has not received the requisite shareholder approval. Before
any such release is made, the Independent Trustees of the Funds will be
notified.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in pertinent part, that it is
unlawful for any person to serve as an investment adviser to 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 the investment company. Section 15(a) further
requires the written contract to provide for its 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, or of a controlling block of the assignor's
outstanding voting securities by a security holder of the assignor.
2. Applicants state that, following the completion of the
Transaction, Signet will become a wholly-owned subsidiary of First
Union. Applicants believe, therefore, that the Transaction will result
in an ``assignment'' of the Existing Agreements and that the Existing
Agreements will terminate by their
[[Page 53034]]
terms upon consummation of the Transaction.
3. Rule 15a-4 provides, in pertinent part, that if an investment
advisory contract with an investment company is terminated by an
assignment in which the adviser does not directly or indirectly receive
a benefit, the adviser may continue to serve for 120 days under a
written contract that has not been approved by the company's
shareholders, provided that: (a) The new contract is approved by that
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 the 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 because of the
benefits to Signet, the Adviser's parent, arising from the Transaction,
applicants may not rely on rule 15a-4.
4. 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 requested relief meets this standard.
5. Applicants note that the terms and timing of the Transaction
were determined by First Union and Signet and arose primarily out of
business considerations beyond the scope of the Act and unrelated to
the Funds and the Adviser, including the time needed to obtain federal
and state banking approvals for the Transaction. Applicants submit that
it is in the best interests of shareholders to avoid any interruption
in services to the Funds and to allow sufficient time for the
consideration and return of proxies and to hold a shareholder meeting.
6. Applicants submit that the scope and quality of services
provided to the Funds during the Interim Period will not be diminished.
During the Interim Period, the Adviser would operate under the New
Agreements, which would be substantively the same as the Existing
Agreements, except for their effective dates. Applicants submit that
they are not aware of any material changes in the personnel who will
provide investment management services during the Interim Period.
Accordingly, the Funds should receive, during the Interim Period, the
same advisory services, provided in the same manner, at the same fee
levels, and by substantially the same personnel as they received before
the Transaction.
7. Applicants contend that the best interests of shareholders of
the Funds would be served if the Adviser receives fees for its services
during the Interim Period. Applicants state that the fees are a
substantial part of the Adviser's total revenues and, thus, are
essential to maintaining its ability to provide services to the Funds.
In addition, the fees to be paid during the Interim Period will be
unchanged from the fees paid under the Existing Agreements, which have
been approved by the shareholders of each respective Fund.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. The New Agreements will have substantially the same terms and
conditions as the Existing Agreements, except for their effective
dates.
2. Fees earned by the Adviser in respect of the New Agreements
during the Interim Period will be maintained in an interest-bearing
escrow account, and amounts in the account (including interest earned
on such paid fees) will be paid (a) to the Adviser in accordance with
the new Agreements, after the requisite approvals are obtained, or (b)
to the respective Fund, in the absence of such approval with respect to
such Fund.
3. The Fund will hold meetings of shareholders to vote on approval
of the new Agreements on or before the 120th day following the
termination of the Existing Agreements (but in no event later than
April 30, 1998).
4. Either First Union or the Adviser will bear the costs of
preparing and filing the application, and costs relating to the
solicitation of the shareholder approval of the Funds necessitated by
the Transaction.
5. The Adviser will take all appropriate steps so that the scope
and quality of advisory and other services provided to the Funds during
the Interim Period will be at least equivalent, in the judgment of the
Boards, including a majority of the Independent Trustees, to the scope
and quality of services previously provided. If personnel providing
material services during the Interim Period change materially, the
Adviser will apprise and consult with the Boards to assure that the
Boards, including a majority of the Independent Trustees of the Funds,
are satisfied that the services provided will not be diminished in
scope or quality.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-26900 Filed 10-9-97; 8:45 am]
BILLING CODE 8010-01-M