[Federal Register Volume 63, Number 213 (Wednesday, November 4, 1998)]
[Notices]
[Pages 59605-59607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29469]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23509; 812-11350]


Hilliard-Lyons Growth Fund, Inc., et al.; Notice of Application

October 28, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption 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 (the ``New Advisory Agreements''), for a period of 
up to 60 days following the later of the dates on which Hilliard

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Lyons, Inc., the corporate parent of J.J.B. Hilliard, W.L. Lyons, Inc. 
(the ``Adviser''), consummates its merger with PNC Bank Corp., or the 
date on which the requested order is issued (but in no event later than 
January 31, 1999) (the ``Interim Period''). The order also would permit 
the Adviser to receive all fees earned under the New Advisory 
Agreements during the Interim Period following shareholder approval.

APPLICANTS: Hilliard-Lyons Growth Fund, Inc. (the ``Growth Fund''), 
Hilliard-Lyons Government Fund, Inc. (the ``Government Fund'') 
(together, the ``Funds,''), and the Adviser.

FILING DATES: The application was filed on October 8, 1998, and amended 
on October 26, 1998. 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 requested 
relief 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 November 
20, 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, NW, Washington, DC 20549. 
Applicants, Hilliard-Lyons Growth Fund, Inc., et al., Hilliard Lyons 
Center, Louisville, KY 40202.

FOR FURTHER INFORMATION CONTACT: Lisa McCrea, Attorney Adviser, (202) 
942-0562, 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 5th Street, N.W., Washington, DC 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Funds are registered under the Act as an open-end management 
investment companies. The Adviser is registered as an investment 
adviser under the Investment Advisers Act of 1940. The Adviser serves 
as investment adviser to the Funds under existing investment advisory 
agreements (the ``Existing Advisory Agreements'').
    2. On August 20, 1998, PNC Bank Corp. (``PNC'') entered into a 
merger agreement with Hilliard-Lyons, Inc. (``Hilliard-Lyons''), the 
parent of the Adviser, under which Hilliard-Lyons would be merged into 
PNC (the ``Merger''). Upon consummation of the Merger, PNC will own all 
of the outstanding capital stock of Hilliard-Lyons. Applicants expect 
consummation of the Merger (the ``Closing Date'') on or before November 
30, 1998.\1\
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    \1\ Applicants state that if the Merger precedes the issuance of 
the requested order, the Adviser will continue to serve as 
investment adviser after the Merger and prior to the issuance of the 
order in a manner consistent with its fiduciary duty to continue to 
provide advisory services to the Funds even though shareholder 
approval of the new arrangements has not yet been secured. 
Applicants also state that the Funds may be required to pay, with 
respect to the period until receipt of the order, no more than the 
actual out-of-pocket cost to the Adviser for providing advisory 
services.
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    3. Applicants state that the Merger will result in the assignment 
and the automatic termination of the Existing Advisory Agreements. 
Applicants request an exemption to permit (a) the implementation during 
the Interim Period, prior to obtaining shareholder approval, of the New 
Advisory Agreements, and (b) the Adviser to receive from each Fund, 
upon approval of that Fund's shareholders, any and all fees payable 
under the New Advisory Agreement during the Interim Period. The 
requested exemption would cover the Interim Period of not more than 60 
days beginning on the later of the Closing Date or the date on which 
the requested order is issued, and continuing with respect to each Fund 
through the date on which each New Advisory Agreement is approved or 
disapproved by the shareholders of each Fund (but in no event later 
than January 31, 1999). The New Advisory Agreements will contain terms 
and conditions identical to those of the Existing Advisory Agreements, 
except for the effective dates, termination dates, and escrow 
provisions.
    4. On September 17, 1998 and September 21, 1998, the boards of 
directors (the ``Boards''), including a majority of the members who are 
not ``interested persons'' as defined in section 2(a)(19) of the Act 
(the ``Independent Directors''), of the Government Fund and the Growth 
Fund, respectively, voted in accordance with section 15(c) of the Act 
to approve the New Advisory Agreements, and to submit them to the 
Funds' shareholders. The shareholder meetings are scheduled to be held 
on November 6, 1998 for the Government Fund, and on November 19, 1998 
for the Growth Fund (the ``Meetings''). Applicants state that proxy 
materials for the Meetings were mailed to the Government Fund's 
shareholders on October 15, 1998, and to the Growth Fund's shareholders 
on October 22, 1998. Applicants state that the Boards will meet in 
person prior to the commencement of the Interim Period to approve the 
escrow provisions of the New Advisory Agreements in accordance with 
section 15(c) of the Act.
    5. 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 Advisory Agreements would be 
paid by the Funds into an interest-bearing escrow account. The escrow 
agent would release the monies held in the escrow account (including 
any interest earned): (a) to the Adviser only upon approval of the 
relevant New Advisory Agreement by the relevant fund's shareholders in 
accordance with section 15 of the Act; or (b) to the relevant Fund if 
the Interim Period has ended and the New Advisory Agreement has not 
received the requisite shareholder approval. Before any such release is 
made, the Board of the relevant fund would be notified.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in pertinent part, that it 
shall be unlawful for any person to serve or act as investment adviser 
of 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 such registered investment company. 
Section 15(a) further requires that the written contract provide for 
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 controlling block of the assignor's outstanding voting 
securities by a security holder of the assignor. Applicants state that 
the Merger will result in an ``assignment'' of the Existing Advisory 
Agreements, and that the Existing Advisory Agreements will terminate by 
their terms and in accordance with the Act.
    2. Rule 15a-4 under the Act provides, in pertinent part, that if an 
investment advisory contract with an investment company is terminated, 
the adviser may continue to serve for 120 days under a written contract 
that has not been approved by the investment company's shareholders, 
provided that: (a) The new contract is approved by the board of

[[Page 59607]]

directors (including a majority of the non-interested directors); (b) 
the compensation to be paid under the new contract does not exceed the 
compensation which would have been paid under the contract most 
recently approved by shareholders of the investment company; and (c) 
neither the adviser nor any controlling person of the investment 
adviser ``directly or indirectly receives money or other benefit'' in 
connection with the transaction. Applicants state that they may not 
rely on rule 15a-4 because the Adviser and its affiliates may be deemed 
to receive a benefit in connection with the Merger.
    3. 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 the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policies and provisions of the Act. 
Applicants state that the requested relief satisfies this standard.
    4. Applicants assert that the terms and timing of the Merger were 
determined by Hilliard-Lyons and PNC in response to a number of factors 
beyond the scope of the Act and unrelated to the Funds and the Adviser. 
Applicants state that a proxy solicitation is a time consuming task, 
and that it is possible that an insufficient number of votes will have 
been received by the Meeting, and it may be necessary to adjourn for a 
period to permit additional shareholders to vote their shares by proxy.
    5. Applicants state that the requested relief will allow continuity 
in investment management services to the Funds during the Interim 
Period. Applicants state that, during the Interim Period, the Funds 
would receive the same advisory services, provided in the same manner 
and at the same fee levels, by substantially the same personnel as they 
received before the Merger.

Applicant's Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. The New Advisory Agreements will have the same terms and 
conditions as the Existing Advisory Agreements, except for the 
effective dates, termination dates, and escrow provisions.
    2. Advisory fees earned by the Adviser 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 Adviser in accordance with the relevant New Advisory 
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.
    3. The Government Fund and the Growth Fund will hold meetings of 
shareholders to vote on approval of the New Advisory Agreements on 
November 6, 1998, and November 19, 1998, respectively, or within the 
60-day period following the commencement of the Interim Period (but in 
no event later than January 31, 1999).
    4. The Funds will not bear the costs of preparing and filing the 
application, or any costs relating to the solicitation of shareholder 
approval necessitated by the consummation of the Merger.
    5. The Adviser will take all appropriate steps 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 Board, including a majority of the Independent Directors, to the 
scope and quality of services provided under the Existing Advisory 
Agreement. In the event of any material change in personnel providing 
services pursuant to the New Advisory Agreements, the Adviser will 
apprise and consult with the Boards to assure that the Boards, 
including a majority of the Independent Directors, are satisfied that 
the services provided will not be diminished in scope or quality.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-29469 Filed 11-3-98; 8:45 am]
BILLING CODE 8010-01-M