[Federal Register Volume 62, Number 241 (Tuesday, December 16, 1997)]
[Notices]
[Pages 65825-65827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32754]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22935; 812-10878]


Emerald Funds, et al.; Notice of Application

December 10, 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.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: The requested order would permit the 
implementation, without shareholder approval, of new investment 
advisory and sub-advisory agreements (``New Advisory Agreements'') for 
a period of up to 120 days following consummation of the merger between 
Barnett Banks, Inc. (``Barnett Banks'') and NationsBank Corporation 
(``NationsBank'') or a subsidiary of NationsBank (but in no event later 
than May 30, 1998) (the ``Interim Period''). The order also would 
permit Barnett Capital Advisors, Inc. (``Adviser''), Rodney Square 
Management Corporation (``Rodney Square''), and Brandes Investment 
Partners, L.P. (``Brandes'') (Brandes and Rodney Square, the ``Sub-
Advisers'') to receive all fees earned under the New Advisory 
Agreements following shareholder approval.
    Applicants: Emerald Funds (the ``Trust''), the Adviser, and the 
Sub-Advisers.

FILING DATE: The application was filed on November 24, 1997 and amended 
on December 9, 1997. 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 
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 
30, 1997, and should be accompanied by proof of service on applicants 
in the form of an affidavit or,

[[Page 65826]]

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, 3435 Stelzer Road, Columbus, Ohio 43219; Adviser, 9000 
Southside Boulevard, Building 100, Jacksonville, Florida 32256; Rodney 
Square, Rodney Square North, Wilmington, Delaware 19890; Brandes, 12750 
High Bluff Drive, San Diego, California 92130.

FOR FURTHER INFORMATION CONTACT:
David W. Grim, Staff Attorney, at (202) 942-0571, or Nadya B. 
Roytblatt, Assistant Director, 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 is 
organized as a series investment company and currently offers fourteen 
investment portfolios (each, a ``Fund''). The Adviser serves as 
investment adviser to each Fund. The Adviser is a wholly-owned 
subsidiary of Barnett Banks, N.A., which is the largest banking 
subsidiary of Barnett Banks, a registered bank holding company, and is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act'') Rodney Square, a wholly-owned subsidiary 
of Wilmington Trust Company and a registered investment adviser under 
the Advisers Act, acts as a sub-adviser to one Fund of the Trust, the 
Tax-Exempt Fund. Similarly, Brandes, a registered investment adviser 
under the Advisers Act, acts as sub-adviser to one Fund of the Trust, 
the International Equity Fund. Brandes Investment Partners, Inc. owns a 
controlling interest in Brandes and serves as its general partner, and 
Charles Brandes is the controlling shareholder of Brandes Investment 
Partners, Inc.
    2. On August 29, 1997, Barnett Banks announced that it had reached 
a definitive agreement with NationsBank to merge Barnett Banks into 
NationsBank or a subsidiary of NationsBank (the ``Merger''). As a 
result of the Merger, the Adviser will become a direct or indirect 
wholly-owned subsidiary of NationsBank or a subsidiary of NationsBank. 
The consummation of the Merger is subject to certain conditions, 
including the receipt of certain regulatory approvals. Barnett Banks 
and NationsBank currently expect that the Merger will be consummated 
during the first quarter of 1998.
    3. Applicants believe that the Merger may result in the assignment 
of the existing advisory agreements between the Funds and the Adviser 
and the existing sub-advisory agreements between the Adviser and the 
Sub-Advisers (the ``Existing Advisory Agreements''). Applicants request 
an exemption to permit (i) the implementation, during the Interim 
Period, prior to obtaining shareholder approval, of the New Advisory 
Agreements, and (ii) the Adviser to receive from each Fund (and the 
Sub-Advisers to receive from the Adviser) all fees earned under the New 
Advisory Agreement if, and to the extent, the New Advisory Agreement is 
approved by the shareholders of the Fund. Applicants state that the New 
Advisory Agreements will have the same terms and conditions as the 
Existing Advisory Agreements, except for the dates of commencement and 
termination and the inclusion of escrow arrangements.
    4. A meeting of the Trust's board of trustees (the ``Board'') was 
held on November 13-14, 1997 at which the Merger and its implications 
for the Trust were discussed. A majority of the members of the Board, 
including a majority of the Board 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''), participated in the meeting and 
concluded unanimously that it was in the best interests of the Trust 
and its shareholders to file the application as a necessary step in 
implementing the New Advisory Agreements during the Interim Period in a 
manner that would minimize the disruption in advisory services to the 
particular Funds involved. The Board met again on December 8, 1997 and 
approved the New Advisory Agreements in the manner prescribed in 
section 15(c) of the Act. At the December 8, 1997 meeting, the Board 
also voted to recommend that shareholders of the Funds approve the New 
Advisory Agreements during the Interim Period.
    5. Fees earned under the New Advisory Agreements during the Interim 
Period will be maintained in an interest-bearing escrow account with a 
financial institution that is unaffiliated with the Adviser and Sub-
Advisers. The escrow agent will release the amounts held in the escrow 
account (including any interest earned): (i) To the Adviser only upon 
approval of the New Advisory Agreement by the shareholders of the 
related Fund; or (ii) to the relevant Fund, in the absence of approval 
by such shareholders. Before amounts are released from the escrow 
account, the Board 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, as a result of the Merger, the Adviser 
will become a direct or indirect wholly-owned subsidiary of NationsBank 
or a subsidiary of NationsBank. Applicants believe, therefore, that the 
Merger may result in the ``assignment'' of the Existing Advisory 
Agreements, thus terminating these Agreements pursuant 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: (i) the new contract is approved by that 
company's board of directors (including a majority of the non-
interested directors); (ii) 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 (iii) 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 they 
may not be entitled to rely on rule 15a-4 because of the benefits 
Barnett Banks, the indirect holding company of the Adviser, will 
receive from the Merger.

[[Page 65827]]

    4. Section 6(c) of the Act 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 Merger is influenced by a 
number of factors relating principally to the merging companies' 
commercial banking and other similar business concerns, as well as 
pending regulatory approvals and satisfaction of other closing 
conditions. Applicants state that these circumstances make it 
difficult, from a timing perspective, to secure prior approval of the 
New Advisory Agreements by the Funds' shareholders. Applicants state 
that, in addition, because it is likely that one or more of the Funds 
will be merged into corresponding funds of the Nations Funds family of 
funds in 1998, the granting of the requested order will allow the Funds 
to undertake a single proxy solicitation for obtaining shareholder 
approval of the plan of reorganization and the New Advisory Agreements, 
rather than conducting more than one proxy solicitation within a 
relatively short time frame, and should thus serve to reduce costs and 
minimize any potential shareholder confusion.
    6. Applicants submit that they will take all appropriate actions to 
prevent any diminution in the scope of quality of services provided to 
the Funds during the Interim Period. Applicants state that the Existing 
Advisory Agreements were approved by the Board and the shareholders of 
the Funds. Applicants represent that the New Advisory Agreements will 
have the same terms and conditions as the Existing Advisory Agreements, 
except for the dates of commencement and termination and the inclusion 
of escrow arrangements. Accordingly, applicants assert that each Fund 
will receive, during the Interim Period, substantially identical 
investment advisory services, provided in the same manner, as it 
received prior to the Merger. Applicants state that, in the event there 
is any material change in the Adviser's personnel providing advisory 
services under the New Advisory Agreements during the Interim Period, 
the Adviser will apprise and consult the Board to ensure that the 
Board, including a majority of the Indepenednet Trustees, are satisfied 
that the services provided by the Adviser will not be diminished in 
scope or quality.
    7. Applicants contend that to deprive the Adviser and Sub-Advisers 
of their customary fees during the Interim Period for no reason, other 
than the fact that the Merger may be deemed to result in an assignment 
of the Existing Advisory Agreements, would be an unduly harsh and 
unreasonable penalty to impose upon an investment adviser in the 
circumstances of the application. Applicants submit that, in good faith 
and consistent with the Act and the spirit of rule 15a-4, they seek to 
promote the interests of the Funds and their shareholders by 
undertaking the fee and other arrangements described in the 
application. Applicants emphasize that the fees payable to the Adviser 
and Sub-Advisers under the New Advisory Agreements have been approved 
by the Board, including a majority of the Independent Trustees, and 
that these fees will not be released by the escrow agent without the 
approval of the respective Fund's shareholders.

Applicants' Conditions

    Applicants agree as conditions to the issuance of the exemptive 
order requested by the application that:
    1. Each New Advisory Agreement will have the same terms and 
conditions as the respective Existing Advisory Agreement, except for 
the effective and termination dates and the inclusion of escrow 
arrangements.
    2. Fees earned by the Adviser and paid by a Fund during the Interim 
Period in accordance with a New Advisory Agreement will be maintained 
in an interest-bearing escrow account, and amounts in such account 
(including interest earned on such amounts) will be paid to the Adviser 
only upon approval of the New Advisory Agreement by the shareholders of 
the related Fund or, in the absence of approval by such shareholders, 
to the Fund.
    3. The Trust will hold meetings of shareholders to vote on approval 
of the New Advisory Agreements on or before the 120th day following the 
termination of the Existing Advisory Agreements (but in no event later 
than May 30, 1998).
    4. The Adviser will pay the costs of preparing and filing the 
application. The Adviser will pay the costs relating to the 
solicitation of approval of Fund shareholders, to the extent such costs 
relate to shareholder approval of the New Advisory Agreements 
necessitated by the Merger.
    5. The Adviser will take all Appropriate actions to ensure that the 
scope and quality of advisory and other services provided to the Funds 
under the New Advisory Agreements 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 provided under the 
Existing Advisory Agreements. In the event of any material change in 
personnel providing services pursuant to the New Advisory Agreements, 
the Adviser will apprise and consult the Board to assure that the Board 
and a majority of the Independent Trustees are satisfied that the 
services provided by the Adviser 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. 97-32754 Filed 12-15-97; 8:45 am]
BILLING CODE 8010-01-M