[Federal Register Volume 63, Number 182 (Monday, September 21, 1998)]
[Notices]
[Pages 50262-50264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25132]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23435; 812-11300]


Crabbe Huson Funds, et al.; Notice of Application

September 14, 1998.
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 prior shareholder approval, of new investment 
advisory agreements (``New Agreements'') for a period of up to 120 days 
following the later of the date of the acquisition of the assets of The 
Crabbe Huson Group, Inc. (the ``Advisor'') by LFC Acquisition Corp. 
(the ``New Advisor'') or the date on which the requested order is 
issued (but in no event later than February 28, 1999) (the ``Interim 
Period''). The order also would permit the New Advisor to receive all 
fees earned under the New Agreements during the Interim Period 
following shareholder approval.

Applicants: Crabbe Huson Funds (the ``Trust''), The Crabbe Huson 
Special Fund, Inc. (the ``Special Fund''), Advisor, and New Advisor.

FILING DATES: The application was filed on September 11, 1998.
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 October 8, 1998, 
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: Mr. Charlie Davidson, c/o The Crabbe Huson Group, 
121 S.W. Morrison, Suite 1425, Portland, OR 92704, and Ms. Lindsay 
Cook, c/o Liberty Financial Companies, Inc., 600 Atlantic Ave., Boston, 
MA 02210.

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, a Delaware business trust, and the Special Fund, an 
Oregon corporation, are registered under the Act as open-end management 
investment companies. The Trust currently offers eight portfolios \1\ 
and the Special Fund constitutes a single portfolio (each portfolio and 
the Special Fund are a ``Fund''). The Advisor, an investment adviser 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''), serves as investment adviser for the Funds pursuant to existing 
investment advisory agreements (the ``Existing Agreements''). The New 
Advisor is a subsidiary of Liberty Financial Companies, Inc. 
(``Liberty''). The New Advisor will be registered as an investment 
adviser under the Advisers Act by the closing date of the Acquisition, 
as defined below, and will serve as investment adviser for the Funds 
pursuant to new investment advisory agreements (the ``New 
Agreements'').
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    \1\ The Trust is comprised of six portfolios for purposes of 
this application: Crabbe Huson Income Fund, Crabbe Huson Asset 
Allocation Fund, Crabbe Huson Small Cap Fund, Crabbe Huson Equity 
Fund, Crabbe Huson Oregon Tax-Free Fund and Crabbe Huson Real Estate 
Investment Fund.
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    2. On June 10, 1998, the Advisor, the New Advisor, Liberty, and 
certain shareholders of the Advisor entered into an agreement under 
which the New Advisor will purchase substantially all of the assets of 
the Advisor (the ``Acquisition''). Applicants state that the 
Acquisition may be deemed to result in an indirect transfer of the 
Existing Agreements to the New Advisor. Applicants expect closing of 
the Acquisition (the ``Closing Date'') to occur on September 30, 1998.
    3. Applicants believe that the Acquisition will result in an 
assignment

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and thus the automatic termination of the Existing Agreements. 
Applicants request an exemption to permit (i) the implementation during 
the Interim Period, prior to obtaining shareholder approval, of the New 
Agreements, and (ii) the New Advisor to receive from each Fund, upon 
approval of that Fund's shareholders of the relevant New Agreement, any 
and all fees earned (plus interest thereon) under the New Agreement 
during the applicable Interim Period. The requested exemption would 
cover the Interim Period of not more than 120 days which would begin on 
the later of the Closing Date or the date on which the requested order 
is issued and will continue through the date on which the applicable 
New Agreement is approved or disapproved by the shareholders of each 
Fund, but in no event later than February 28, 1999.\2\ Applicants 
represent that each New Agreement will have substantially the same 
terms and conditions as the respective Existing Agreement, except in 
each case for the effective date, termination date, and escrow 
provisions. Applicants state that the Funds should receive, during the 
Interim Period, the same advisory services, provided in the same manner 
and at the same fee levels, by substantially the same personnel, as 
they received prior to the Acquisition.
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    \2\ If the Closing Date of the Acquisition precedes the issuance 
of the order, the New Advisor will serve as investment adviser after 
the Closing Date and prior to the issuance of the order in a manner 
consistent with its fiduciary duty to provide investment advisory 
services to the Funds even though approval of the New Agreements has 
not yet been secured from the Fund's respective shareholders. 
Applicants submit that in such event the New Advisor will be 
entitled to receive from the Funds, with respect to the period from 
the Closing Date until the receipt of the order, no more than the 
actual out-of-pocket cost to the New Advisor for providing 
investment advisory services to the Funds.
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    4. On July 17, 1998, the board of trustees of the Trust and the 
board of directors of Special Fund (collectively, the ``Boards''), 
including a majority of the members who are not ``interested persons,'' 
as that term is defined in section 2(a)(19) of the Act (the 
``Independent Board Members''), 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 a meeting to be 
held on September 30, 1998 (the ``Meeting''). Applicants state that 
proxy materials were mailed to the Funds' shareholders on or about 
August 18, 1998.
    5. Applicants propose to enter into an escrow arrangement with an 
unaffiliated financial institution. The fees payable to the New Advisor 
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 New Advisor only upon 
approval of the relevant New Agreement by the shareholders of the 
relevant Fund; 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 Board 
Members 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.
    2. Applicants state that, following the Acquisition, the New 
Advisor will own substantially all of the assets of the Advisor. 
Applicants believe, therefore, that the Acquisition will result in an 
assignment of the Existing Agreements, and that the Existing Agreements 
will terminate according 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: (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 the Advisor 
may be deemed to receive a benefit in connection with the Acquisition, 
thus applicants may not be entitled to 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 Acquisition 
were determined by Liberty and the Advisor in response to a number of 
factors beyond the scope of the Act and unrelated to the Funds. 
Applicants believe that allowing the New Advisor to provide investment 
advisory services to the Funds during the Interim Period, thereby 
avoiding any interruption in services to the Funds, is in the best 
interests of the Funds and their shareholders and is in keeping with 
the spirit of the provisions of rule 15a-4 and with the purposes of 
section 15 of the Act.
    6. Applications 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 New Advisor would operate under the New 
Agreements, which would be substantially the same as the Existing 
Agreements, except for their effective dates, termination dates, and 
escrow provisions. The Advisor and New Advisor have advised the Boards 
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 Acquisition.

Applicants' Conditions

    Applicants agree as conditions to the issuance of the exemptive 
order requested by the application that:
    1. Each New Agreement will have substantially the same terms and 
conditions as the respective Existing Agreement, except for the 
effective date, termination date, and escrow provisions.
    2. Advisory fees earned by the New Advisor during the Interim 
Period will be maintained in an interest-bearing escrow account, and 
amounts in the account (including interest earned on such amounts) will 
be paid (a) to the New Advisor, in accordance with the relevant New 
Agreement, after the requisite shareholder approval is obtained, or (b) 
to the relevant Fund, in the absence of such approval with respect to 
such Fund.

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    3. Each of the Funds will hold a meeting of shareholders to vote on 
approval of the New Agreements for the Funds on September 30, 1998, or 
within the 120 day period following the commencement of the Interim 
Period (but in no event later than February 28, 1999).
    4. Liberty and the Advisor will bear the costs of preparing and 
filing the application, and Liberty will bear any costs relating to the 
solicitation of shareholder approval necessitated by the Acquisition.
    5. The New Advisor will take all appropriate actions to ensure 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 Board 
Members, to the scope and quality of services previously provided. In 
the event of any material change in personnel providing services 
pursuant to the New Agreements caused by the Acquisition, the New 
Advisor will apprise and consult with the Boards to assure that the 
Boards, including a majority of the Independent Board Members, 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. 98-25132 Filed 9-18-98; 8:45 am]
BILLING CODE 8010-01-M