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[Federal Register Volume 62, Number 234 (Friday, December 5, 1997)]
[Notices]
[Pages 64409-64411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31875]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22919; 812-10880]

Federated Index Trust, et al.; Notice of Application

December 1, 1997.
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 shareholder approval, of a new sub-advisory 
agreement (``New Agreement'') for a period of up to 120 days following 
the date of a change in control of ANB Investment Management and Trust 
Company (the ``Subadviser'') (but in no event later than May 30, 1998) 
(the ``Interim Period''). The order also would permit the Subadviser to 
receive all fees earned under the New Agreement following shareholder 
approval.
    Applicants: Subadviser and Federated Index Trust (the ``Trust'').
    Filing Date: The application was filed on November 25, 1997.
    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 December 
24, 1997, 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. Trust, c/o John W. McGonigle, Esq., Federated Investors Funds, 
5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7000. Subadviser,

[[Page 64410]]

One North LaSalle St., Chicago, Illinois 60690.

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 is a Massachusetts business trust registered under the 
Act as an open-end management investment company. The Trust currently 
offers three series: Federated Max-Cap Fund, Federated Mid-Cap Fund and 
Federated Mini-Cap Fund (each a ``Portfolio''). The assets of the Trust 
are managed by Federated Management (the ``Adviser'') pursuant to an 
investment management agreement between the Adviser and the Trust on 
behalf of each Portfolio. The Subadviser provides sub-advisory services 
to each Portfolio under an existing sub-advisory agreement (``Existing 
Agreement'') between the Adviser and the Subadviser. The Subadviser is 
an investment adviser registered under the Investment Advisers Act of 
1940.
    2. Under an agreement dated October 3, 1997, between Northern Trust 
Corporation (``Northern Trust'') and First Chicago Investment 
Management Company (``First Chicago''), Northern Trust has agreed to 
purchase the Subadviser for cash (the ``Transaction''). As a result of 
the Transaction, the Subadviser will become a wholly-owned subsidiary 
of Northern Trust. Applicants expect consummation of the Transaction on 
December 31, 1997.
    3. Applicants believe that the Transaction will result in an 
assignment of the Existing Agreement. Applicants request an exemption 
to permit: (i) The implementation, during the Interim Period, prior to 
obtaining shareholder approval, of the New Agreement, and (ii) the 
Subadviser to receive from each Portfolio all fees earned under the New 
Agreement if, and to the extent, the New Agreement is approved by the 
shareholders of each Portfolio. The requested exemption will cover the 
Interim Period beginning on the date the Transaction is consummated and 
continuing through the date on which the New Agreement is approved or 
disapproved by the shareholders of each Portfolio, but in no event 
later than May 30, 1998. Applicants state that the New Agreement will 
be identical in substance to the Existing Agreement.
    4. On November 20, 1997, the Trust's board of trustees (the 
``Board'') held in-person meetings for the purpose of considering and 
approving the New Agreement to evaluate whether the terms of the New 
Agreement are in the best interests of the Portfolios and their 
shareholders. At the meeting, the Board, including a majority of 
members who are not ``interested persons'' of the Trust, as that term 
is defined in section 2(a)(19) of the Act (the ``Independent 
Trustees''), voted unanimously in accordance with section 15(c) of the 
Act to approve the New Agreement and to submit the New Agreement to 
shareholders of each of the Portfolios at meetings expected to be held 
on or about February 13, 1998 (the ``Meetings''). Applicants expect 
that proxy materials for the Meetings will be mailed on or about 
December 30, 1997.
    5. The Subadviser believes that the requested relief is necessary 
to permit continuity of investment management for each Portfolio during 
the Interim Period so that services to the Portfolios would not be 
disrupted.
    6. Applicants propose to enter into an escrow arrangement with an 
unaffiliated financial institution. The fees payable to the Subadviser 
during the Interim Period under the New Agreement 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 Subadviser only upon 
approval of the New Agreement by the shareholders of the Portfolios; or 
(b) to the relevant Portfolio 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 Trustees of the Trust 
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, or of a controlling block of the assignor's 
outstanding voting securities by a security holder of the assignor.
    2. Applicants state that, following the completion of the 
Transaction, control of the Subadviser will transfer to Northern Trust. 
Applicants believe, therefore, that the Transaction will result in an 
``assignment'' of the Existing Agreement and that the Existing 
Agreement will terminate according to its 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 because of the 
benefits to First Chicago, the Subadviser's parent, arising from the 
Transaction, applicants may not 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 timing of the Transaction was 
determined by First Chicago and Northern Trust and arose primarily out 
of business considerations unrelated to the Trust, including the time 
needed to obtain federal banking approvals for the Transaction. 
Applicants believe that allowing the Subadviser to continue to provide 
investment advisory services to the Portfolios during the Interim 
Period is in the best interests of the Portfolios and their 
shareholders to avoid any interruption in services to the Portfolios 
and is in keeping with the spirit of the provisions of rule 15a-4 and 
with the purpose of section 15 of the Act.
    6. Applicants submit that the scope and quality of services 
provided to each Portfolio during the Interim Period will not be 
diminished. During the Interim

[[Page 64411]]

Period, each Portfolio would operate under the New Agreement, which is 
anticipated to be identical in substance to the Existing Agreement, 
except for its effective date. Applicants submit that they are not 
aware of any material changes in the personnel who will provide 
investment management services during the Interim Period. Accordingly, 
each Portfolio should receive, during the Interim Period, the same 
investment advisory services, provided in the same manner at the same 
fee levels, and by substantially the same personnel as before the 
closing of the Transaction.
    7. Applicants contend that the best interests of shareholders of 
the Portfolios would be served if the Subadviser receives fees for its 
services during the Interim Period. Applicants state that the fees are 
a substantial part of the Subadviser's total revenues and, thus, are 
essential to maintaining its ability to provide services to the 
Portfolios. In addition, the fees to be paid during the Interim Period 
are at the same rate as the fees paid under the Existing Agreement, 
which has been approved by the shareholders of each respective 
Portfolio.

Applicants' Conditions

    Applicants agree as conditions to the issuance of the exemptive 
order requested by the application that:
    1. The New Agreement will have substantially the same terms and 
conditions as the Existing Agreement, except for its effective date.
    2. Fees earned by the Subadviser in respect of the New Agreement 
during the Interim Period will be maintained in an interest-bearing 
escrow account, and amounts in the account (including interest earned 
on such paid fees) will be paid (a) to the Subadviser in accordance 
with the New Agreement, after the shareholder approvals are obtained, 
or (b) to the respective Portfolio, in the absence of such approval 
with respect to such Portfolio.
    3. The Trust will hold meetings of shareholders to vote on approval 
of the New Agreement on or before the 120th day following the 
termination of the Existing Agreement (but in no event later than May 
30, 1998).
    4. Either the Subadviser or the Adviser will bear the costs of 
preparing and filing the application, and costs relating to the 
solicitation of shareholder approval of the Portfolios necessitated by 
the Transaction.
    5. The Subadviser will take all appropriate steps so that the scope 
and quality of advisory and other services provided to the Portfolios 
during the Interim Period will be at least equivalent, in the judgment 
of the Board, including a majority of the Independent Trustees, to the 
scope and quality of services previously provided. If personnel 
providing material services during the Interim Period change 
materially, the Subadviser will apprise and consult with the Board to 
assure that the Trustees, including a majority of the Independent 
Trustees of the Trust, 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. 97-31875 Filed 12-4-97; 8:45 am]
BILLING CODE 8010-01-M
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