[Federal Register Volume 62, Number 234 (Friday, December 5, 1997)]
[Notices]
[Pages 64409-64411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31875]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22919; 812-10880]
Federated Index Trust, et al.; Notice of Application
December 1, 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: The requested order would permit the
implementation, without shareholder approval, of a new sub-advisory
agreement (``New Agreement'') for a period of up to 120 days following
the date of a change in control of ANB Investment Management and Trust
Company (the ``Subadviser'') (but in no event later than May 30, 1998)
(the ``Interim Period''). The order also would permit the Subadviser to
receive all fees earned under the New Agreement following shareholder
approval.
Applicants: Subadviser and Federated Index Trust (the ``Trust'').
Filing Date: The application was filed on November 25, 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 December
24, 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. Trust, c/o John W. McGonigle, Esq., Federated Investors Funds,
5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7000. Subadviser,
[[Page 64410]]
One North LaSalle St., Chicago, Illinois 60690.
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. The Trust is a Massachusetts business trust registered under the
Act as an open-end management investment company. The Trust currently
offers three series: Federated Max-Cap Fund, Federated Mid-Cap Fund and
Federated Mini-Cap Fund (each a ``Portfolio''). The assets of the Trust
are managed by Federated Management (the ``Adviser'') pursuant to an
investment management agreement between the Adviser and the Trust on
behalf of each Portfolio. The Subadviser provides sub-advisory services
to each Portfolio under an existing sub-advisory agreement (``Existing
Agreement'') between the Adviser and the Subadviser. The Subadviser is
an investment adviser registered under the Investment Advisers Act of
1940.
2. Under an agreement dated October 3, 1997, between Northern Trust
Corporation (``Northern Trust'') and First Chicago Investment
Management Company (``First Chicago''), Northern Trust has agreed to
purchase the Subadviser for cash (the ``Transaction''). As a result of
the Transaction, the Subadviser will become a wholly-owned subsidiary
of Northern Trust. Applicants expect consummation of the Transaction on
December 31, 1997.
3. Applicants believe that the Transaction will result in an
assignment of the Existing Agreement. Applicants request an exemption
to permit: (i) The implementation, during the Interim Period, prior to
obtaining shareholder approval, of the New Agreement, and (ii) the
Subadviser to receive from each Portfolio all fees earned under the New
Agreement if, and to the extent, the New Agreement is approved by the
shareholders of each Portfolio. The requested exemption will cover the
Interim Period beginning on the date the Transaction is consummated and
continuing through the date on which the New Agreement is approved or
disapproved by the shareholders of each Portfolio, but in no event
later than May 30, 1998. Applicants state that the New Agreement will
be identical in substance to the Existing Agreement.
4. On November 20, 1997, the Trust's board of trustees (the
``Board'') held in-person meetings for the purpose of considering and
approving the New Agreement to evaluate whether the terms of the New
Agreement are in the best interests of the Portfolios and their
shareholders. At the meeting, the Board, including a majority of
members who are not ``interested persons'' of the Trust, as that term
is defined in section 2(a)(19) of the Act (the ``Independent
Trustees''), voted unanimously in accordance with section 15(c) of the
Act to approve the New Agreement and to submit the New Agreement to
shareholders of each of the Portfolios at meetings expected to be held
on or about February 13, 1998 (the ``Meetings''). Applicants expect
that proxy materials for the Meetings will be mailed on or about
December 30, 1997.
5. The Subadviser believes that the requested relief is necessary
to permit continuity of investment management for each Portfolio during
the Interim Period so that services to the Portfolios would not be
disrupted.
6. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution. The fees payable to the Subadviser
during the Interim Period under the New Agreement 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 Subadviser only upon
approval of the New Agreement by the shareholders of the Portfolios; or
(b) to the relevant Portfolio 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 Trust
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, control of the Subadviser will transfer to Northern Trust.
Applicants believe, therefore, that the Transaction will result in an
``assignment'' of the Existing Agreement and that the Existing
Agreement will terminate according to its terms.
3. Rule 15a-4 provides, in pertinent part, that if an investment
advisory contract with a registered investment company is terminated by
an assignment, 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 First Chicago, the Subadviser'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 timing of the Transaction was
determined by First Chicago and Northern Trust and arose primarily out
of business considerations unrelated to the Trust, including the time
needed to obtain federal banking approvals for the Transaction.
Applicants believe that allowing the Subadviser to continue to provide
investment advisory services to the Portfolios during the Interim
Period is in the best interests of the Portfolios and their
shareholders to avoid any interruption in services to the Portfolios
and is in keeping with the spirit of the provisions of rule 15a-4 and
with the purpose of section 15 of the Act.
6. Applicants submit that the scope and quality of services
provided to each Portfolio during the Interim Period will not be
diminished. During the Interim
[[Page 64411]]
Period, each Portfolio would operate under the New Agreement, which is
anticipated to be identical in substance to the Existing Agreement,
except for its effective date. 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,
each Portfolio should receive, during the Interim Period, the same
investment advisory services, provided in the same manner at the same
fee levels, and by substantially the same personnel as before the
closing of the Transaction.
7. Applicants contend that the best interests of shareholders of
the Portfolios would be served if the Subadviser receives fees for its
services during the Interim Period. Applicants state that the fees are
a substantial part of the Subadviser's total revenues and, thus, are
essential to maintaining its ability to provide services to the
Portfolios. In addition, the fees to be paid during the Interim Period
are at the same rate as the fees paid under the Existing Agreement,
which has been approved by the shareholders of each respective
Portfolio.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. The New Agreement will have substantially the same terms and
conditions as the Existing Agreement, except for its effective date.
2. Fees earned by the Subadviser in respect of the New Agreement
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 Subadviser in accordance
with the New Agreement, after the shareholder approvals are obtained,
or (b) to the respective Portfolio, in the absence of such approval
with respect to such Portfolio.
3. The Trust will hold meetings of shareholders to vote on approval
of the New Agreement on or before the 120th day following the
termination of the Existing Agreement (but in no event later than May
30, 1998).
4. Either the Subadviser or the Adviser will bear the costs of
preparing and filing the application, and costs relating to the
solicitation of shareholder approval of the Portfolios necessitated by
the Transaction.
5. The Subadviser will take all appropriate steps so that the scope
and quality of advisory and other services provided to the Portfolios
during the Interim Period 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 previously provided. If personnel
providing material services during the Interim Period change
materially, the Subadviser will apprise and consult with the Board to
assure that the Trustees, including a majority of the Independent
Trustees of the Trust, 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. 97-31875 Filed 12-4-97; 8:45 am]
BILLING CODE 8010-01-M