[Federal Register Volume 66, Number 217 (Thursday, November 8, 2001)]
[Notices]
[Pages 56583-56584]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-28078]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-25252; 812-12456]


Heritage Capital Appreciation Trust, et al.; Notice of 
Application

November 2, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') exempting applicants from section 15(a) 
of the Act and rule 18f-2 under the Act.

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    Summary of Application: Applicants request an order to permit them 
to enter into an materially amend subadvisory agreements without 
shareholder approval.
    Applicants: Heritage Capital Appreciation Trust (``Capital 
Appreciation Trust''), Heritage Cash Trust (``Cash Trust''), Heritage 
Income Trust (``Income Trust''), Heritage Growth and Income Trust 
(``Growth and Income Trust''), Heritage Series Trust (``Series Trust,'' 
and together with Capital Appreciation Trust, Cash Trust, Income Trust, 
and Growth and Income Trust, the ``Trusts''), Heritage Asset 
Management, Inc. (``Heritage'') and Eagle Asset Management, Inc. 
(``Eagle,'' and together with Heritage, the ``Managers'').
    Filing Dates: The application was filed on March 5, 2001 and 
amended on October 5, 2001. Applicants have agreed to file an amendment 
during the notice period, the substance of which is reflected in this 
notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on November 27, 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 may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, 880 Carillon Parkway, St. Petersburg, FL 33716.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Nadya B. Roytblat, Assistant Director, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Each Trust, organized as a Massachusetts business trust, is 
registered under the Act as an open-end management investment company. 
Each Trust is organized as a series investment company an doffers 
shares of one or more series (each a ``Fund,'' and together, the 
``Funds''), each with its own investment objectives, policies and 
restrictions. \1\ Each Manager serves as the investment adviser to one 
of the Funds and is registered under the Investment Advisers Act of 
1940 (``Advisers Act'').
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    \1\ Applicants also request relief with respect to (a) any other 
Fund organized in the future, and (b) any other open-end management 
investment company or series thereof advised by a Manager or a 
person controlling, controlled by or under common control with a 
Manager (``Future Funds'', and together with the Funds, the 
``Funds''), provided that such Future Fund operates in substantially 
the same manner as the Funds with respect to a Manager's 
responsibility to select, evaluate and supervise Subadvisers (as 
defined below) and complies with the terms and conditions of the 
requested order. Each existing registered open-end management 
investment company that currently intends to rely on the requested 
order is named as an applicant. If the name of any Fund contains the 
name of its Subadviser, the name of the Manager will precede the 
name of the Subadviser.
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    2. The Trusts, on behalf of each Fund, have entered into separate 
investment advisory agreements with the Managers (``Advisory 
Agreements''), pursuant to which each Manager serves as investment 
manager to the respective Fund. Each Advisory Agreement has been 
approved either by the initial shareholder of a Fund or by a Fund's 
public shareholders and by a majority of each Trust's board of trustees 
(each, the ``Board,'' and collectively, the ``Boards''), including a 
majority of the trustees who are not ``interested persons'' as defined 
in section 2(a)(19) of the Act (``Independent Trustees''). Under the 
terms of the Advisory Agreements, the Manager provides each Fund with 
investment research, advice and supervision while delegating the day-
to-day portfolio management for each Fund to one or more subadvisers 
(``Subadvisers'') pursuant to separate investment subadvisory 
agreements (``Subadvisory Agreements'').\2\ Each Subadviser is an 
investment adviser registered under the Advisers Act. The Manager 
selects each Subadviser, subject to approval by the respective Board. 
For the investment management services they provide to the Funds, the 
Managers receive the fee specified in the Advisory Agreement for each 
Fund, payable monthly based on average daily net assets, at an annual 
rate based on the Fund's average net assets. The fees of the 
Subadvisers, at rates negotiated between the Subadvisers and a Manager, 
are paid by the Managers out of the fees

[[Page 56584]]

paid by Subadvised Funds to the Managers.
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    \2\ Each Fund that employes a Subadviser is referred to as a 
``Subadvised Fund.''
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    3. Each Manager establishes an investment program for each 
Subadvised Fund and supervises and evaluates the Subadvisers who make 
the day-to-day investment decisions for the respective Subadvised 
Funds. The Manager also is responsible for recommending whether to 
employ, terminate or replace a particular Subadviser. The Manager 
recommends the selection of a Subadviser based on a number of factors, 
including, whether the Subadviser has displayed discipline and 
thoroughness in pursuit of its stated investment objectives, has 
maintained consistently above-average performance, and has demonstrated 
a high level of service and responsibility to clients.
    4. Applicants request relief to permit each Manager, subject to 
approval by the applicable Board, to enter into and materially amend 
Subadvisory Agreements without seeking shareholder approval. The 
requested relief will not extend to a Subadviser that is an affiliated 
person, as defined in section 2(a)(3) of the Act, of either Trust or 
the Manager, other than by reason of serving as a Subadviser to one or 
more of the Funds (``Affiliated Subadviser'').

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of the company's outstanding voting securities. 
Rule 18f-2 under the Act provides that each series or class of stock in 
a series company affected by a matter must approve such matter if the 
Act requires shareholder approval.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions from any provision of the Act, or 
from any rule thereunder, if such 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 believe that their requested relief meets this standard 
for the reasons discussed below.
    3. The Subadvised Funds' investment advisory arrangements are 
different from those of traditional investment companies. Applicants 
assert that the investors are relying on the applicable Manager's 
experience to select one or more Subadvisers best suited to achieve a 
Fund's desired investment objectives. Applicants assert that, from the 
perspective of the investors, the role of Subadvisers is comparable to 
that of individual portfolio managers employed by other investment 
advisory firms. Applicants contend that requiring shareholder approval 
of Subadvisory Agreements may impose unnecessary costs and delays on 
the Funds, and may preclude the applicable Manager from acting promptly 
in a manner considered advisable by the Board. Applicants note that the 
Advisory Agreements will remain subject to the requirements of section 
15(a) of the Act and rule 18f-2 under the Act.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Before a Fund may rely on the order requested by the 
application, the operation of the Fund in the manner described in the 
application will be approved by vote of a majority of its outstanding 
voting securities, as defined in the Act, or, in the case of a Fund 
whose public shareholders purchase shares on the basis of a prospectus 
containing the disclosure contemplated by condition 2 below, by the 
initial shareholder before offering shares of such Fund to the public.
    2. Any Fund relying on the requested relief will disclose in its 
prospectus the existence, substance and effect of any order granted 
pursuant to the application. In addition, each Fund relying on the 
requested order will hold itself out to the public as employing the 
management structure described in the application. The prospectus with 
respect to each Fund will prominently disclose that the Manager has the 
ultimate responsibility (subject to oversight by the Board) to oversee 
Subadvisers and recommend their hiring, termination and replacement.
    3. Within 90 days of the hiring of any new Subadviser, the 
applicable Manager will furnish shareholders all information about the 
new Subadviser that would be included in a proxy statement. Such 
information will include any change in such disclosure caused by the 
addition of a new Subadviser. To meet this condition, the Managers will 
provide shareholders with an information statement meeting the 
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 
14A under the Securities Exchange Act of 1934, as amended, within 90 
days of the hiring of any new Subadviser.
    4. A Manager will not enter into a Subadvisory Agreement with an 
Affiliated Sub-adviser without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    5. At all times, a majority of each Fund's Board will be 
Independent Trustees, and the nomination of new or additional 
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
    6. When a change of Subadviser is proposed for a Fund with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
Board minutes of the Fund, that any such change of Subadviser is in the 
best interest of the Fund and its shareholders and does not involve a 
conflict of interest from which the Manager or Affiliated Subadviser 
derives an inappropriate advantage.
    7. A Manager will provide general management services to each Fund, 
including overall supervisory responsibility for the general management 
and investment of each Fund's assets and, subject to review and 
approval by the Board, will: (a) Set each Fund's overall investment 
strategies; (b) evaluate, select, and recommend Subadvisers; (c) 
allocate and, when appropriate, reallocate a Fund's assets among 
multiple Subadvisers in those cases where a Fund has more than one 
Subadviser; (d) monitor and evaluate the investment performance of the 
Subadvisers; and (e) implement procedures reasonably designed to ensure 
that the Subadvisers comply with each Fund's investment objectives, 
policies, and restrictions.
    8. No trustee or officer of a Fund or director or officer of the 
Managers will own directly or indirectly (other than through a pooled 
investment vehicle that is not controlled by such person) any interest 
in a Subadviser, except for ownership of: (a) an interest in the 
Manager or any entity that controls, is controlled by or is under 
common control with the Manager; or (b) less than 1% of the outstanding 
securities of any class of equity or debt of a publicly traded company 
that is either a Subadviser or an entity that controls, is controlled 
by or is under common control with a Subadviser.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-28078 Filed 11-7-01; 8:45 am]
BILLING CODE 8010-01-M