[Federal Register Volume 66, Number 146 (Monday, July 30, 2001)]
[Notices]
[Pages 39381-39383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18942]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25077; 812-12548]


Professionally Managed Portfolios, et al.; Notice of Application

July 24, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of an application for an exemption under section 6(c) of 
the Investment.

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    Company Act of 1940 (the ``Act'') from section 15(a) of the Act.

Summary of Application: Applicants seek an order to permit the 
implementation, without prior shareholder approval, of a new investment 
advisory agreement (``New Advisory Agreement'') for a period beginning 
on June 17, 2001, and ending on the earlier of (a) the date the New 
Advisory Agreement is approved or disapproved by the shareholders, or 
October 17, 2001 (the ``Interim Period'').

Applicants: Professionally Managed Portfolios (the ``Trust''), and 
Turner Investment Partners, Inc. (``Turner'').

Filing Dates: The application was filed on June 13, 2001 and amended on 
July 2, 2001 and July 23, 2001.

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 August 17, 2001, 
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-
0609. The Trust, 915 Broadway, New York, NY 10010. Turner, 1235 
Westlakes Drive, Suite 350, Berwyn, PA 19312.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582, or Mary Kay Frech, Branch Chief, at (202) 942-0564, (Division 
of Investment Management, Office of Investment Company Regulation).

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, NW., Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Trust is a Massachusetts business trust registered as an 
open-end management investment company under the Act. Titan Financial 
Services Fund (the ``Fund'') is a series of the Trust. Titan Investment 
Advisers, L.L.C. (the ``Adviser'') is an investment adviser registered 
under the Investment Advisers Act of 1940 (the ``Advisers Act''). Prior 
to January 17, 2001, the Adviser managed the assets of the Fund 
pursuant to an investment advisory agreement (the ``Former Advisory 
Agreement''). Mr. Gilbert R. Giordano, President and majority 
stockholder of the Adviser, had primary responsibility for the 
management of the Fund.
    2. On January 17, 2001, Mr. Giordano died unexpectedly, resulting 
in an assignment of the Former Advisory Agreement. On January 25, 2001, 
the Trust's board of trustees (``Board'') approved a new investment 
advisory agreement with the Adviser (the ``Interim Advisory 
Agreement'') and

[[Page 39382]]

appointed a subadviser, Harris Bretall Sullivan & Smith L.L.C. (the 
``Subadviser'') in reliance on rule 15a-4(b)(1) under the Act for an 
interim period that ended on June 16, 2001. Under its agreement with 
the Trust (the ``Subadvisory Agreement''), the Subadviser managed the 
investments of the Fund subject to the Adviser's supervision and was 
paid by the Adviser out of the fee the Adviser received from the Fund. 
The Fund informed its shareholders of these events in a supplement to 
the Fund's prospectus dated January 31, 2001. The supplement to the 
prospectus stated that a special meeting of shareholders would be 
scheduled to vote on the Interim Advisory Agreement and the Subadvisory 
Agreement.
    3. During the weeks following the appointment of the Subadviser, 
the Adviser and the Board considered what alternative arrangements 
regarding the management of the Fund might provide the greatest 
benefits to the Fund's shareholders. The Adviser and the Board 
considered a number of options, including continuing the interim 
arrangement with the Adviser and Subadviser on a permanent basis, 
retaining a new subadviser for the Fund, and replacing both the Adviser 
and Subadviser with a new investment adviser.
    4. During March 2001, the Adviser initiated talks with Turner, an 
investment adviser registered under the Advisers Act, about taking over 
the management of the Fund as subadviser in place of the Subadviser. 
Over the course of the following weeks, these discussions led the 
Adviser and Turner to consider other arrangements. In mid-May, the 
Adviser and Turner agreed in principle to present certain proposals to 
the Board. These proposals were that Turner be appointed as investment 
adviser to the Fund in place of both the Adviser and Subadviser, and 
that the Fund be combined with an open-end management investment 
company registered under the Act for which Turner serves as investment 
adviser, the Turner Future Financial Services Fund (the ``Turner Fund'' 
), in a tax-free reorganization (the ``Transaction'' ). In addition, 
Turner agreed to acquire the Adviser by buying 100% of its outstanding 
membership interests, with the payment to the Adviser's owners 
contingent on shareholder approval of the New Advisory Agreement and 
the Transaction. The Adviser and Turner entered into an agreement on 
the acquisition of the Adviser on June 7, 2001.
    5. The Interim Advisory Agreement and the Subadvisory Agreement 
expired on June 16, 2001. The Board, including all of the trustees who 
are not ``interested persons'' of the Trust within the meaning of 
section 2(a)(19) of the Act (the ``independent trustees'' ), appointed 
Turner to act as investment adviser to the Fund at a telephonic meeting 
on June 13, 2001, effective June 17, 2001. On June 20, 2001, the Board 
met in person and approved the New Advisory Agreement and submission of 
the New Advisory Agreement to the shareholders of the Fund for their 
approval. Turner will not be compensated for the services it provided 
to the Fund prior to the Board's approval of the new Advisory Agreement 
at the in person meeting. Settlement of the acquisition of the Adviser 
by Turner occurred on June 29, 2001. On July 17, 2001, the Board met 
and approved the Transaction and submission of the Transaction to the 
shareholders of the Fund for their approval.
    6. Applicants submit that it was not possible to obtain shareholder 
approval of the New Advisory Agreement and the Transaction by June 16, 
2001. Applicants are requesting an order exempting them from section 
15(a) of the Act during the Interim Period, which began on June 17, 
2001 and will end on the earlier of (a) the date the New Advisory 
Agreement is approved or disapproved by the shareholders of the Fund, 
or (b) October 17, 2001. Applicants state that the meeting of 
shareholders will be held during the Interim Period. Turner has agreed 
to pay for the costs of preparing and filing the application, the costs 
relating to any special meetings of the Board, and the costs relating 
to the solicitation of shareholder approval of the New Advisory 
Agreement and the Transaction.
    7. Applicants represent that the New Advisory Agreement meets all 
of the requirements of rule 15a-4(b)(2)(i)-(vi), except that in person 
Board approval occurred on June 20, 2001, rather than prior to the 
termination of the Former Advisory Agreement. Applicants represent that 
the New Advisory Agreement contains the same terms and conditions as 
the Former Advisory Agreement, with the exception of its effective and 
termination dates and the contract termination and escrow provisions 
required by rule 15a-4(b)(2)(iv) and (vi). The compensation to be 
received by Turner under the New Advisory Agreement will be the same as 
the compensation the Adviser would have received under the Former 
Advisory Agreement. Applicants further represent that the Board, 
including a majority of the independent trustees, determined that the 
scope and quality of the services to be provided by Turner under the 
New Advisory Agreement will be at least equivalent to the scope and 
quality of the services provided by the Adviser under the Former 
Advisory Agreement.
    8. Applicants state that the New Advisory Agreement is terminable 
by the Board or a majority of the Fund's outstanding voting securities, 
without penalty, on not more than 10 calendar days' written notice to 
Turner, in compliance with rule 15a-4(b)(2)(iv). Applicants further 
state that during the Interim Period, Turner's fees will be paid into 
an interest-bearing escrow account with the Fund's custodian. Payment 
of the amounts held in the escrow account will be made in accordance 
with rule 15a-4(b)(2)(vi).

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 an 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) of the Act further requires that such written 
contract 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 an investment advisory 
contract by the assignor or of a controlling block of the assignor's 
outstanding voting securities by a security holder of the assignor. 
Section 2(a)(9) of the Act defines ``control'' as the power to exercise 
a controlling influence over the management or policies of a company, 
and beneficial ownership of more than 25% of the voting securities of a 
company is presumed under section 2(a)(9) to reflect control. As 
majority owner of the Adviser, Mr. Giordano presumably controlled the 
Adviser. Applicants state that the death of Mr. Giordano resulted in an 
assignment of the Former Advisory Agreement and its automatic 
termination.
    2. Rule 15a-4(b)(1) under the Act provides, in pertinent part, that 
if an investment advisory contract with an investment company is 
terminated, an adviser may serve for up to 150 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 
company's board of directors (including a majority of the directors who 
are not interested persons of the company) within 10 business days 
after the

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termination, at a meeting in which directors may participate by any 
means of communication that allows all directors participating to hear 
each other simultaneously during the meeting; (b) the compensation to 
be paid under the new contract does not exceed the compensation that 
would have been paid under the terminated contract (which must have 
been 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 relied on rule 15a-4(b)(1) with respect to 
adoption of the Interim Advisory Agreement and the Subadvisory 
Agreement.
    3. Rule 15a-4(b)(2) under the Act provides, in pertinent part, that 
in the case of an assignment of an investment advisory contract with an 
investment company by an investment adviser or a controlling person of 
the investment adviser in connection with which the investment adviser 
or a controlling person directly or indirectly receives money or other 
benefit, an adviser may serve for up to 150 days under a written 
contract that has not been approved by the investment company's 
shareholders, provided that:
    (a) The compensation to be paid under the new contract does not 
exceed the compensation that would have been paid under the terminated 
contract (which must have been approved by the company's shareholders) 
(paragraph (b)(2)(i));
    (b) The board of directors of the investment company, including a 
majority of the directors who are not interested persons of the 
company, has voted in person to approve the new contract before the 
previous contract is terminated (paragraph (b)(2)(ii));
    (c) The board of directors of the company, including a majority of 
the directors who are not interested persons of the company, determines 
that the scope and quality of services to be provided to the company 
under the new contract will be at least equivalent to the scope and 
quality of services provided under the previous contract (paragraph 
(b)(2)(iii));
    (d) The new contract provides that the company's board of directors 
or a majority of the company's outstanding voting securities may 
terminate the contract at any time, without the payment of any penalty, 
on not more than 10 calendar days' written notice to the investment 
adviser (paragraph (b)(2)(iv));
    (e) The new contract contains the same terms and conditions as the 
terminated contract, with the exception of its effective and 
termination dates, provisions governed by paragraphs (b)(2)(i), 
(b)(2)(iv), and (b)(2)(vi), and any other differences in terms and 
conditions that the board of directors, including a majority of the 
directors who are not interested persons of the company, finds to be 
immaterial (paragraph (b)(2)(v)); and
    (f) The new contract contains the following provisions:
    (i) The fee earned under the contract will be held in an interest-
bearing escrow account with the company's custodian or a bank; and
    (ii) If a majority of the company's outstanding voting securities 
do not approve the new contract, the investment adviser will be paid, 
out of the escrow account, the lesser of: (A) any costs incurred in 
performing the interim contract (plus interest earned on that amount 
while in escrow); or (B) the total amount in the escrow account (plus 
interest earned) (paragraph (b)(2)(vi).
    4. Applicants cannot rely on rule 15a-4 in connection with the New 
Advisory Agreement because an ``interim contract'' within the meaning 
of the rule must have a duration of no more than 150 days following the 
date on which the previous contract that was approved by shareholders 
was terminated. Under the proposed condition, however, applicants will 
comply with all of the provisions of paragraphs (b)(2)(i) and 
(b)(2)(iii)-(vi) of rule 15a-4 described above.
    5. 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.
    6. Applicants state that the requested relief satisfies this 
standard. Applicants state that the need for the relief developed as a 
result of the sudden death of Mr. Giordano and from the Adviser and the 
Board giving careful consideration to what alternative arrangements 
might be most beneficial to the Fund and its shareholders. Applicants 
submit that under the proposed condition, the interests of the 
shareholders will be safeguarded during the Interim Period. In 
addition, allowing the implementation of the new Advisory Agreement 
will ensure that there is no disruption to the investment program and 
the delivery of services to the Fund.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    1. Applicants will comply with rule 15a-4(b)(2)(i), (iii), (iv), 
(v) and (vi) during the period covered by the requested order, with 
``previous contract'' construed to mean the Former Advisory Agreement 
and ``interim contract'' construed to mean the New Advisory Agreement.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-18942 Filed 7-27-01; 8:45 am]
BILLING CODE 8010-01-M