[Federal Register Volume 62, Number 241 (Tuesday, December 16, 1997)]
[Notices]
[Pages 65825-65827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32754]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22935; 812-10878]
Emerald Funds, et al.; Notice of Application
December 10, 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 new investment
advisory and sub-advisory agreements (``New Advisory Agreements'') for
a period of up to 120 days following consummation of the merger between
Barnett Banks, Inc. (``Barnett Banks'') and NationsBank Corporation
(``NationsBank'') or a subsidiary of NationsBank (but in no event later
than May 30, 1998) (the ``Interim Period''). The order also would
permit Barnett Capital Advisors, Inc. (``Adviser''), Rodney Square
Management Corporation (``Rodney Square''), and Brandes Investment
Partners, L.P. (``Brandes'') (Brandes and Rodney Square, the ``Sub-
Advisers'') to receive all fees earned under the New Advisory
Agreements following shareholder approval.
Applicants: Emerald Funds (the ``Trust''), the Adviser, and the
Sub-Advisers.
FILING DATE: The application was filed on November 24, 1997 and amended
on December 9, 1997. Applicants have agreed to file an amendment during
the notice period, the substance of which is included in this notice.
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
30, 1997, and should be accompanied by proof of service on applicants
in the form of an affidavit or,
[[Page 65826]]
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, 3435 Stelzer Road, Columbus, Ohio 43219; Adviser, 9000
Southside Boulevard, Building 100, Jacksonville, Florida 32256; Rodney
Square, Rodney Square North, Wilmington, Delaware 19890; Brandes, 12750
High Bluff Drive, San Diego, California 92130.
FOR FURTHER INFORMATION CONTACT:
David W. Grim, Staff Attorney, at (202) 942-0571, or Nadya B.
Roytblatt, Assistant Director, 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 is
organized as a series investment company and currently offers fourteen
investment portfolios (each, a ``Fund''). The Adviser serves as
investment adviser to each Fund. The Adviser is a wholly-owned
subsidiary of Barnett Banks, N.A., which is the largest banking
subsidiary of Barnett Banks, a registered bank holding company, and is
registered as an investment adviser under the Investment Advisers Act
of 1940 (the ``Advisers Act'') Rodney Square, a wholly-owned subsidiary
of Wilmington Trust Company and a registered investment adviser under
the Advisers Act, acts as a sub-adviser to one Fund of the Trust, the
Tax-Exempt Fund. Similarly, Brandes, a registered investment adviser
under the Advisers Act, acts as sub-adviser to one Fund of the Trust,
the International Equity Fund. Brandes Investment Partners, Inc. owns a
controlling interest in Brandes and serves as its general partner, and
Charles Brandes is the controlling shareholder of Brandes Investment
Partners, Inc.
2. On August 29, 1997, Barnett Banks announced that it had reached
a definitive agreement with NationsBank to merge Barnett Banks into
NationsBank or a subsidiary of NationsBank (the ``Merger''). As a
result of the Merger, the Adviser will become a direct or indirect
wholly-owned subsidiary of NationsBank or a subsidiary of NationsBank.
The consummation of the Merger is subject to certain conditions,
including the receipt of certain regulatory approvals. Barnett Banks
and NationsBank currently expect that the Merger will be consummated
during the first quarter of 1998.
3. Applicants believe that the Merger may result in the assignment
of the existing advisory agreements between the Funds and the Adviser
and the existing sub-advisory agreements between the Adviser and the
Sub-Advisers (the ``Existing Advisory Agreements''). Applicants request
an exemption to permit (i) the implementation, during the Interim
Period, prior to obtaining shareholder approval, of the New Advisory
Agreements, and (ii) the Adviser to receive from each Fund (and the
Sub-Advisers to receive from the Adviser) all fees earned under the New
Advisory Agreement if, and to the extent, the New Advisory Agreement is
approved by the shareholders of the Fund. Applicants state that the New
Advisory Agreements will have the same terms and conditions as the
Existing Advisory Agreements, except for the dates of commencement and
termination and the inclusion of escrow arrangements.
4. A meeting of the Trust's board of trustees (the ``Board'') was
held on November 13-14, 1997 at which the Merger and its implications
for the Trust were discussed. A majority of the members of the Board,
including a majority of the Board 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''), participated in the meeting and
concluded unanimously that it was in the best interests of the Trust
and its shareholders to file the application as a necessary step in
implementing the New Advisory Agreements during the Interim Period in a
manner that would minimize the disruption in advisory services to the
particular Funds involved. The Board met again on December 8, 1997 and
approved the New Advisory Agreements in the manner prescribed in
section 15(c) of the Act. At the December 8, 1997 meeting, the Board
also voted to recommend that shareholders of the Funds approve the New
Advisory Agreements during the Interim Period.
5. Fees earned under the New Advisory Agreements during the Interim
Period will be maintained in an interest-bearing escrow account with a
financial institution that is unaffiliated with the Adviser and Sub-
Advisers. The escrow agent will release the amounts held in the escrow
account (including any interest earned): (i) To the Adviser only upon
approval of the New Advisory Agreement by the shareholders of the
related Fund; or (ii) to the relevant Fund, in the absence of approval
by such shareholders. Before amounts are released from the escrow
account, the Board 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, as a result of the Merger, the Adviser
will become a direct or indirect wholly-owned subsidiary of NationsBank
or a subsidiary of NationsBank. Applicants believe, therefore, that the
Merger may result in the ``assignment'' of the Existing Advisory
Agreements, thus terminating these Agreements pursuant to their 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: (i) the new contract is approved by that
company's board of directors (including a majority of the non-
interested directors); (ii) 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 (iii) 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 entitled to rely on rule 15a-4 because of the benefits
Barnett Banks, the indirect holding company of the Adviser, will
receive from the Merger.
[[Page 65827]]
4. 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.
5. Applicants note that the timing of the Merger is influenced by a
number of factors relating principally to the merging companies'
commercial banking and other similar business concerns, as well as
pending regulatory approvals and satisfaction of other closing
conditions. Applicants state that these circumstances make it
difficult, from a timing perspective, to secure prior approval of the
New Advisory Agreements by the Funds' shareholders. Applicants state
that, in addition, because it is likely that one or more of the Funds
will be merged into corresponding funds of the Nations Funds family of
funds in 1998, the granting of the requested order will allow the Funds
to undertake a single proxy solicitation for obtaining shareholder
approval of the plan of reorganization and the New Advisory Agreements,
rather than conducting more than one proxy solicitation within a
relatively short time frame, and should thus serve to reduce costs and
minimize any potential shareholder confusion.
6. Applicants submit that they will take all appropriate actions to
prevent any diminution in the scope of quality of services provided to
the Funds during the Interim Period. Applicants state that the Existing
Advisory Agreements were approved by the Board and the shareholders of
the Funds. Applicants represent that the New Advisory Agreements will
have the same terms and conditions as the Existing Advisory Agreements,
except for the dates of commencement and termination and the inclusion
of escrow arrangements. Accordingly, applicants assert that each Fund
will receive, during the Interim Period, substantially identical
investment advisory services, provided in the same manner, as it
received prior to the Merger. Applicants state that, in the event there
is any material change in the Adviser's personnel providing advisory
services under the New Advisory Agreements during the Interim Period,
the Adviser will apprise and consult the Board to ensure that the
Board, including a majority of the Indepenednet Trustees, are satisfied
that the services provided by the Adviser will not be diminished in
scope or quality.
7. Applicants contend that to deprive the Adviser and Sub-Advisers
of their 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 an unduly harsh and
unreasonable penalty to impose upon an investment adviser in the
circumstances of the application. Applicants submit that, in good faith
and consistent with the Act and the spirit of rule 15a-4, they seek to
promote the interests of the Funds and their shareholders by
undertaking the fee and other arrangements described in the
application. Applicants emphasize that the fees payable to the Adviser
and Sub-Advisers under the New Advisory Agreements have been approved
by the Board, including a majority of the Independent Trustees, and
that these fees will not be released by the escrow agent without the
approval of the respective Fund's shareholders.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. Each New Advisory Agreement will have the same terms and
conditions as the respective Existing Advisory Agreement, except for
the effective and termination dates and the inclusion of escrow
arrangements.
2. Fees earned by the Adviser and paid by a Fund during the Interim
Period in accordance with a New Advisory Agreement will be maintained
in an interest-bearing escrow account, and amounts in such account
(including interest earned on such amounts) will be paid to the Adviser
only upon approval of the New Advisory Agreement by the shareholders of
the related Fund or, in the absence of approval by such shareholders,
to the Fund.
3. The Trust will hold meetings of shareholders to vote on approval
of the New Advisory Agreements on or before the 120th day following the
termination of the Existing Advisory Agreements (but in no event later
than May 30, 1998).
4. The Adviser will pay the costs of preparing and filing the
application. The 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 New Advisory Agreements
necessitated by the Merger.
5. The Adviser will take all Appropriate actions to ensure that the
scope and quality of advisory and other services provided to the Funds
under the New 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 New Advisory Agreements,
the Adviser will apprise and consult the Board to assure that the Board
and a majority of the Independent Trustees are satisfied that the
services provided by the Adviser 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. 97-32754 Filed 12-15-97; 8:45 am]
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