[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