[Federal Register Volume 63, Number 82 (Wednesday, April 29, 1998)]
[Notices]
[Pages 23482-23484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11288]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23125; 812-11080]


Freedom Mutual Fund, et al.; Notice of Application

April 23, 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, for a period of up to 150 days following the later 
of: (i) the date the assignment of the existing investment advisory 
agreements is deemed to have occurred, or (ii) the date the requested 
order is issued (but in no event later than October 31, 1998), and to 
permit the investment adviser to certain registered management 
investment companies to receive all fees earned under the new 
agreements during this interim period.

APPLICANTS: Freedom Mutual Fund (``Freedom Mutual''), on behalf of 
Freedom Cash Management Fund and Freedom Government Securities Fund 
(``Freedom Funds''), Freedom Group of Tax Exempt Funds (``Freedom 
Group''), on behalf of Freedom Tax Exempt Money Fund and Freedom 
California Tax Exempt Money Fund (``Group Funds''), FundManager 
Portfolios (together with Freedom Mutual and Freedom Group, 
``Trusts''), on behalf of FundManager Aggressive Growth Portfolio, 
FundManager Growth Portfolio, FundManager Growth with Income Portfolio, 
FundManager Bond Portfolio, FundManager Managed Total Return Portfolio, 
FundManager International Portfolio (together with the Freedom Funds 
and the Group Funds, ``Funds''), and Freedom Capital Management 
Corporation (the ``Adviser'').

FILING DATES: The application was filed on March 20, 1998, and amended 
on April 14, 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 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 May 14, 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, Freedom Capital Management Corporation, One Beacon Street, 
Boston, MA 02108.

FOR FURTHER INFORMATION CONTACT:
Lisa McCrea, Attorney Adviser (202) 942-0562, or Edward P. Macdonald, 
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

[[Page 23483]]

may be obtained for a fee at the SEC's Public Reference Branch, 450 5th 
Street, NW., Washington, DC 20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Trusts are registered under the Act as open-end management 
investment companies. The Advisers, an investment adviser registered 
under the Investment Advisers Act of 1940, is an indirect wholly-owned 
subsidiary of Freedom Securities Corporation (the ``Parent''). The 
Adviser manages the Funds' assets under investment advisory agreements 
with the Trusts (the ``Existing Agreements''). Thomas H. Lee Equity 
Fund III, L.P., Thomas H. Lee Foreign Fund III, L.P., and THL-CCI, L.P. 
(the ``Thomas Lee Entities'') own more than 25% of the outstanding 
voting securities of the Parent.
    2. The Parent currently is involved in a series of transactions 
which will result in its issuing a significant number of additional 
shares of its common stock, and pursuant to which the Thomas Lee 
Entities will be selling their shares of the Parent's common stock to 
the public. Upon the issuance of additional shares of the Parent's 
common stock pursuant to these transactions, the Thomas Lee Entities 
will own less than 25% of the outstanding voting securities of the 
Parent. In addition, a stockholder agreement between the Thomas Lee 
Entities and certain other shareholders of the Parent with respect to 
the exercise of certain shareholder voting rights held by the 
shareholders (the ``Stockholders Agreement'') is expected to terminate 
45 days following the closing of the Parent's public offering of its 
common stock. As a result of the occurrence of these events, the Thomas 
Lee Entities may no longer be deemed to control the Parent, and an 
indirect change in control of the Adviser may be deemed to have 
occurred.
    3. The indirect change in control of the Adviser will result in an 
assignment, and thus automatic termination, of the Existing Agreements. 
Applicants request an exemption to permit the Adviser and the Trusts to 
enter into new advisory agreements (``New Agreements'') without prior 
shareholder approval. The requested exemption would cover an interim 
period of not more than 150 days beginning on the later of (a) the 
earliest date on which either (i) the stock ownership of the Thomas Lee 
Entities in the parent falls below 25%, or (ii) the Stockholders 
Agreement terminates (either event, the ``Transaction''), or (b) the 
date on which the requested order is issued, and continuing with 
respect to each Fund through the date the New Agreements are approved 
or disapproved by the shareholders of the respective Funds (but in no 
event later than October 31, 1998) (the ``Interim Period''). The 
Transaction is expected to occur in May 1998.\1\
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    \1\ Applicants state that if the Transaction precedes the 
issuance of the requested order, the Adviser will continue to serve 
as investment adviser after the Transaction (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 approval of the new arrangements has not yet been secured 
from the Funds' shareholders. 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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    4. The Trusts' boards of trustees (the ``Boards'' or the ``Boards 
of Trustees''), including a majority of the Trustees who are not 
``interested persons'' of the Trust (``Independent Trustees''), met on 
March 17, 1998, and voted unanimously to approve the preparation and 
filing of preliminary proxy materials for a special meeting of 
shareholders of each Fund to consider the New Agreements. The Boards 
also met in person on March 30, 1998, to consider and act upon the 
approval of the New Agreements in accordance with section 15(c) of the 
Act, and to evaluate whether the terms of the New Agreements are in the 
best interests of the Funds and their shareholders. The Trustees, 
including a majority of the Independent Trustees, unanimously approved 
the New Agreements, and recommended their approval to the shareholders 
of the Funds.
    5. The fees payable to the Adviser during the Interim Period under 
the New Agreements will be paid into an interest-bearing escrow account 
with an unaffiliated bank. The escrow agent will release the amounts 
held in the escrow account (including interest earned on paid fees) to: 
(i) The Adviser if shareholders of the Funds approve the relevant New 
Agreement; or (ii) the relevant Fund, in the absence of approval by 
shareholders. Before amounts are released from the escrow accounts, the 
Boards will 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 such 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 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, when the Transaction occurs, the Thomas 
Lee Entities may no longer be deemed to control the Parent, and an 
indirect change in control of the Adviser may be deemed to have 
occurred. The Transaction thus may be deemed to result in an assignment 
of the Existing Agreements within the meaning of section 2(a)(4) of the 
Act, and a termination of the Existing Agreements according to their 
terms.
    3. Rule 15a-4 provides, in pertinent part, that if any investment 
advisory contract with an investment company is terminated by 
assignment, the adviser may continue to act as such 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 directors (including a majority of trustees that are 
not ``interested persons'' of the investment company); (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 assignment. Applicants state that they may not rely 
on rule 15a-4 because the Parent or the Thomas Lee Entities may be 
deemed to receive a benefit in connection with the Transaction.
    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 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 believe that the requested relief satisfies this standard.
    5. Applicants state that, without an exemption, there may not be an 
adequate period to obtain approval of the New Agreements by the 
shareholders of each Fund prior to the Transaction. Applicants state 
that they mailed proxy materials to shareholders on April 15, 1998, and 
April 16, 1998, and the requisite shareholder meetings to consider 
approval of the New Agreements are expected to be held on or about May 
20, 1998.

[[Page 23484]]

    6. Applicants state that, given the frequency of the failure of 
shareholders to return proxies, and the large number of beneficial 
owners of shares of the Funds, 150 days is necessary to obtain 
shareholder approval of the New Agreements. Applicants state that 
during the Interim Period, each Fund would operate under the New 
Agreements, which are substantially identical to the Existing 
Agreements, except for the effective dates, termination dates and the 
updated names of the Funds. Applicants also state that no changes are 
anticipated in the personnel providing investment management services 
to the Funds during the Interim Period. Applicants therefore submit 
that each Fund 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 
Transaction.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. The New Agreements will have the same terms and conditions as 
the Existing Agreements, except for the effective dates, termination 
dates, and the updated names of the Funds.
    2. Fees earned by the Adviser in respect of the New Agreements 
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 Adviser, after the 
requisite approval of shareholders are obtained, or (b) to the 
respective Fund, in the absence of such approvals.
    3. The Funds will hold meetings of shareholders to vote on approval 
of the New Agreements on or before the 150th day following the 
termination of the Existing Agreements (but in no event later than 
October 31, 1998).
    4. The Advisor and/or Parent will bear the costs of preparing and 
filing the application and the costs relating to the solicitation of 
shareholder approval of the New Agreements.
    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 Boards, including a majority of the Independent Trustees, to the 
scope and quality of services previously provided under the Existing 
Agreements. If personnel providing material services during the Interim 
Period change materially, the Adviser will apprise and consult with the 
Board of the affected Funds to assure that they, including a majority 
of the Independent Trustees, 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. 98-11288 Filed 4-28-98; 8:45 am]
BILLING CODE 8010-01-M