[Federal Register Volume 63, Number 99 (Friday, May 22, 1998)]
[Notices]
[Pages 28429-28431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13647]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23188]


Armada Funds, et al.; Notice of Application

May 15, 1998.
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: Applicants, Armada Funds (the ``Fund'') and 
National Asset Management Corporation (the ``Adviser''), request an 
order permitting the implementation, without prior shareholder 
approval, of new investment advisory agreements (the ``New 
Agreements'') between the Fund and the Adviser in connection with a 
change in control of the Adviser. The order would cover a period 
beginning on the date the requested order is issued until the date the 
New Agreements are approved or disapproved by the Fund's shareholders 
(but in no event later than July 6, 1998) (``Interim Period''). The 
order also would permit the Adviser to receive all fees earned under 
the New Agreement during the Interim Period following shareholder 
approval.

FILING DATES: The application was filed on April 3, 1998 and amended on 
May 13, 1998.

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 June 4, 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

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hearing may request notification by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Fund, One Freedom Valley Drive, Oaks, Pennsylvania 19456. Adviser, 101 
South Fifth Street, Louisville, Kentucky 40402.

FOR FURTHER INFORMATION CONTACT:
Shirley A. Bodden, Paralegal Specialist, at (202) 942-0575, 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 may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Fund is a Massachusetts business trust registered under the 
Act as an open-end management investment company. The Adviser is an 
investment adviser registered under the Investment Advisers Act of 
1940. The Adviser manages three portfolios of the Fund under two 
investment advisory agreements with the Fund (``Prior Agreements'').
    2. On March 6, 1998, National City Corporation (``NCC'') sold all 
of the Adviser's outstanding stock to the Adviser's principal 
management team (the ``Transaction''). Applicants state that the 
Transaction resulted in an assignment of the Prior Agreements. 
Applicants request an exemption: (i) To permit the implementation, 
without prior shareholder approval, of the New Agreements; and (ii) to 
permit the Adviser to receive from the Fund all fees earned under the 
New Agreements during the Interim Period if, and to the extent, the New 
Agreements are approved by the Fund's shareholders.\1\
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    \1\ The Adviser has continued to serve as investment adviser to 
the Fund since the Transaction in a manner consistent with its 
fiduciary duty to the Fund even though the Fund's shareholders have 
not approved the New Agreements. Applicants acknowledge that the 
Fund 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 to the Fund.
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    3. On March 6, 1998, the Fund's board of trustees (the ``Board''), 
including a majority of the trustees who are not interested persons of 
the Fund within the meaning of section 2(a)(19) of the Act 
(``Independent Trustees''), met in-person and approved the New 
Agreements. The New Agreements are identical in substance to the Prior 
Agreements except for their effective and termination dates and certain 
escrow provisions as described below. Proxy materials to vote on the 
New Agreements are expected to be mailed to the Fund's shareholders on 
or about May 18, 1998. The requisite shareholder meetings are expected 
to take place on or about June 29, 1998.
    4. Applicants have entered into an escrow arrangement with an 
unaffiliated financial institution (``Escrow Agent''). The fees payable 
to the Adviser under the New Agreements during the Interim Period will 
be paid into an interest-bearing escrow account maintained by the 
Escrow Agent. The amounts in the escrow account (including interest 
earned on such paid fees) will be paid to the Adviser only if the 
Fund's shareholders approve the New Agreements. If the Interim Period 
has ended and the Fund's shareholders have failed to approve the New 
Agreements, the Escrow Agent will pay to the Fund the escrow amounts 
(including any interest earned). Before the release of any escrow 
amounts, the Independent Trustees will be notified.

Applicant's 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 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, upon completion of the Transaction, 
control of the Adviser was transferred to the Adviser's principal 
management team. Accordingly, the Transaction resulted in an assignment 
of the Prior Agreements and thus their automatic termination.
    3. Rule 15a-4 provides in pertinent part, that if an investment 
advisory contract with an investment company is terminated by an 
assignment in which the adviser does not directly or indirectly receive 
a benefit, the adviser may continue to act as such for the company 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 directors 
who are not interested persons of the company); (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 or any controlling 
person of the adviser ``directly or indirectly receives money or other 
benefit'' in connection with the assignment. Applicants state that they 
cannot rely on rule 15a-4 because of the benefits the Adviser will 
receive from 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 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 submit that the requested relief meets this standard.
    5. Applicants submit that the timing of the Transaction arose 
primarily out of business considerations unrelated to the Fund and did 
not reasonably present an opportunity to secure prior approval of the 
New Agreements by the Fund's shareholders. Applicants state that the 
requested relief would permit the continuity of investment management 
for the Fund, without interruption, during the period following the 
issuance of the requested order.
    6. Applicants submit that the scope and quality of investment 
advisory services provided to the Fund during the Interim Period will 
not be diminished. During the Interim Period, the Adviser will operate 
under the New Agreements, which will be substantively the same as the 
Prior Agreements, except for their effective and termination dates and 
escrow provisions. Applicants are not aware of any material changes in 
the personnel that will provide investment management services during 
the Interim Period. Accordingly, the Fund should receive, during the 
Interim Period, the same investment advisory services, provided in the 
same manner, as the Fund received before the Transaction.
    7. Applicants assert that to deprive the Adviser of fees during the 
Interim Period would be a harsh result and an unreasonable penalty to 
attach to the Transaction and would serve no useful purpose. Applicants 
submit that the fees payable to the Adviser under the New Agreements 
during the Interim Period will be maintained in an interest-bearing 
escrow account by the Escrow Agent. Such fees will not be released by 
the Escrow Agent to the Adviser without notice to the Independent

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Trustees and appropriate certifications that the New Agreements have 
been approved by the Funds' shareholders.

Applicants' Conditions

    Applicants agree as conditions to the issuance of the exemptive 
order requested by the application that:
    1. The New Agreements will have the same terms and conditions as 
the Prior Agreements, except for their effective and termination dates 
and escrow provisions.
    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 in accordance with 
the New Agreements, after the requisite shareholder approval is 
obtained; or (b) to the Fund portfolio which paid the fees, in the 
absence of shareholder approval with respect to the Fund portfolio.
    3. The Fund will hold a meeting of shareholders to vote on approval 
of the New Agreements on or before the 120th day following the 
termination of the Prior Agreements (but in no event later than July 6 
1998).
    4. The Adviser will bear the costs of preparing and filing the 
application and the costs relating to the solicitation of shareholder 
approval of the New Agreement necessitated by the Transaction.
    5. The Adviser will take all appropriate steps so that the scope 
and quality of advisory and other services provided to the Fund 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. In the event of any 
material change in the personnel providing services pursuant to the New 
Agreements, the Adviser will apprise and consult with the Board to 
assure that the Trustees, including a majority of the Independent 
Trustees, 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.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-13647 Filed 5-21-98; 8:45 am]
BILLING CODE 8010-01-M