[Federal Register Volume 63, Number 61 (Tuesday, March 31, 1998)]
[Notices]
[Pages 15469-15471]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8363]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23077; 812-11060]
Piper Funds Inc., et al.; Notice of Application
March 25, 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 the Application: The requested order would permit the
implementation, without prior shareholder approval, of new investment
advisory and sub-advisory agreements (``Interim Agreements'') for a
period of up to 120 days following consummation of the merger between
Piper Jaffray Companies Inc. (``Piper Jaffray'') and U.S. Bancorp
(``USB'') (but in no event later than August 31, 1998) (the ``Interim
Period''). The order also would permit Piper Capital Management
Incorporated (the ``Adviser''), Edinburgh Fund Managers plc
(``Edinburgh''), Federated Advisers (``Federated''), and Salmon
Brothers Asset Management Inc (``Salomon'') (Edinburgh, Federated, and
Salomon collectively, the ``Sub-Advisers) to receive all fees earned
under the Interim Agreements following shareholder approval.
Applicants: Piper Funds Inc. (``PFI''), Piper Funds Inc.-II (``PFI-
II''), Piper Global Funds Inc. (``PGF''), Piper Institutional Funds
Inc. (``PIF''), each on behalf of its separate investment portfolios,
American Government Income Fund Inc. (``AGF''), American Government
Income Portfolio, Inc. (``AAF''), American Opportunity Income Fund Inc.
(``OIF''), American Municipal Term Trust Inc. (``AXT''), American
Municipal Term Trust Inc.-II (``BXT''), American Municipal Term Trust
Inc.-III (``CXT''), Minnesota Municipal Term Trust Inc. (``MNA''),
Minnesota Municipal Term Trust Inc.-II (``MNB''), American Municipal
Income Portfolio Inc (``XAA''), Minnesota Municipal Income Portfolio
Inc. (``MXA''), American Strategic Income Portfolio Inc. (``ASP''),
American Strategic Income Portfolio Inc.-II (``BSP''), American
Strategic income Portfolio Inc.-III (``CSP''), American Select
Portfolio Inc. (``SLA''), The Americans Income Trust Inc. (``XUS''),
Highlander Income Fund Inc. (``HLA''), (collectively, ``Piper Funds''),
the Adviser, and the Sub-Advisers.
Filing Dates: The application was filed on March 12, 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 April
20, 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, N.W., Washington, D.C.
20549. Piper Funds, 222 Sought Ninth Street, Minneapolis, MN 55402-
3204; Edinburgh Fund Managers plc, Donaldson House, 97 Haymarket
Terrace, Edinburgh, Scotland EH12, 5HD; Federated Advisers, Federated
Investors Tower, Pittsburgh, PA 15222-3779; Salomon Brothers Asset
Management Inc, Seven World Trade Center, New York, NY 10048.
FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney,
at (202) 942-0517, or Mary Kay Frech, Branch Chief, 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
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Piper Funds are each organized as a Minnesota corporation.
PFI, PFI-II,
[[Page 15470]]
PGF, and PIF are each registered under the Act as an open-end
management investment company. PFI is organized as a series investment
company and currently offers twelve separate portfolios. PFI-II offers
a single portfolio, PGF is organized as a series company and currently
offers two portfolios. PIF offers a single portfolio. The Piper Funds
also include the following closed-end investment companies, each of
which is registered under the Act: AGF, AAF, OIF, AXT, BXT, CXT, MNA,
MNB, XAA, MXA, ASP, BSP, CSP, SLA, XUS, and HLA.
2. The Adviser, a wholly-owned subsidiary of Piper Jaffray, is
registered as an investment adviser under the Investment Advisers Act
of 1940 (``Advisers Act''). The Adviser serves as investment adviser to
the Piper Funds. The Adviser also serves as sub-adviser to The Monitor
Mortgage Securities Fund (the ``Monitor Fund'') (Monitor Fund, together
with the Piper Funds, the ``Funds''), under a sub-advisory agreement
with the Huntington Trust Company (``Huntington'').
3. Edinburgh, a wholly-owned subsidiary of Edinburgh Fund Managers
Group plc and an investment adviser registered under the Advisers Act,
serves as sub-adviser to the Pacific-European Growth Fund and Emerging
Markets Growth Fund series of PGF. Federated, a subsidiary of Federated
Investors and an investment adviser registered under the Advisers Act,
serves as sub-adviser to HLA. Salomon, an indirect subsidiary of
Travelers Group Inc. and an investment adviser registered under the
Advisers Act, serves as sub-adviser to XUS.
4. On December 14, 1997, USB and Piper Jaffray entered into an
agreement and plan of merger pursuant to which USB will acquire Piper
Jaffray and its direct and indirect subsidiaries (the ``Merger''). On
the date and at the time when the Merger becomes effective (the
``Effective Date''), a wholly-owned subsidiary of USB, organized for
the purpose of participating in the Merger, will merge into Piper
Jaffray and Piper Jaffray will continue as the surviving corporation
and a wholly-owned subsidiary of USB. The consummation of the Merger is
subject to certain closing conditions, including the approval of the
shareholders of Piper Jaffray and the receipt of certain regulatory
approvals. Piper Jaffray and USB anticipate that the Merger will occur
during the second quarter of 1998.
5. Applicants believe that the Merger may result in the assignment
and thus automatic termination of the existing investment advisory
agreements between the Piper Funds and the Adviser, the sub-advisory
agreements between the Adviser and the Sub-Advisers, and the sub-
advisory agreement between the Adviser and Huntington (collectively,
the ``Existing Agreements''). Applicants request an exemption to permit
(i) the implementation prior to obtaining shareholder approval, of the
Interim Agreements, and (ii) the Adviser and the Sub-Advisers to
receive, upon approval of the Fund shareholders, any and all fees
earned under the relevant Interim Agreement during the Interim Period.
Applicants state that the terms and conditions of the corresponding
Existing and Interim Agreements will be the same, except with respect
to their effective and termination dates and the inclusion of escrow
arrangements described below.
6. Applicants state that the board of directors of each Fund
(collectively, the ``Boards'') will convene regular or special meetings
on a date prior to the Effective Date to discuss the Merger and its
implications for the respective Funds. Applicants represent that in
connection with these meetings the Boards will receive from
representatives of the Adviser, the Sub-Advisers, and USB such
information as they may request as reasonably necessary to evaluate,
among other things, the terms of the proposed Interim Agreements and to
determine whether the Interim Agreements are in the best interests of
the respective Funds and their shareholders. Applicants state that each
Interim Agreement will not be implemented unless (i) the respective
Board, including in each case a majority of the Board members who are
not ``interested persons,'' as that term is defined in section 2(a)(19)
of the Act, of the Fund (the ``Independent Directors''), after a full
evaluation, with the advice and assistance of independent counsel,
votes, in the manner prescribed in section 15(c) of the Act, to approve
the Interim Agreement; and (ii) the Board votes to recommend that
shareholders of the Fund approve the Interim Agreement during the 120-
day period commencing on the Effective Date.\1\
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\1\ To the extent that the Board of any Fund cannot meet prior
to the Effective Date, applicants acknowledge that such Fund may not
rely on the exemptive relief requested in the application.
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7. Fees earned under the Interim Agreements during the Interim
Period will be maintained in an interest-bearing escrow account with an
unaffiliated bank. The escrow agent will release the amounts held in
the escrow account (including any interest earned): (i) to the Adviser
and, if applicable, any Sub-Adviser, only upon approval of the Interim
Agreements by the shareholders of the relevant Fund; or (ii) to the
relevant Fund, in the absence of approval by its shareholders. Before
amounts are released from the escrow account, the Board 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 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 the registered investment company.
Section 15(a) further requires that the written contract provides 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, Piper Jaffray
will become a wholly-owned subsidiary of USB. Applicants believe,
therefore, that the Merger may result in the ``assignment'' of the
Existing Agreements, thus terminating the Agreements pursuant to their
terms.
3. Rule 15a-4 under the Act provides, in pertinent part, that if an
investment advisory contract with a registered investment company is
terminated by 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 approve
by that company's board of directors (including a majority of 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 that
Piper Jaffray and the Adviser will receive from the Merger.
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
[[Page 15471]]
the Act. Applicants believe that the requested relief meets this
standard.
5. Applicants note that the timing of the Merger was determined in
response to a number of business concerns substantially unrelated to
the Funds or the Adviser. Applicants state that the pending Effective
Date and the form of transaction deemed most appropriate by Piper
Jaffray and USB do not permit an opportunity to secure prior approval
of the Interim Agreements by the Funds' shareholders. Applicants state
that, in addition, because it is likely that many of the Funds will be
merged into corresponding funds of the First American family of funds
during the Interim Period (``Family Fund Combination''), the granting
of the requested order will allow the Funds to undertake a single proxy
solicitation for obtaining shareholder approval of the Merger, the
Interim Agreements, and any Family Fund Combination. Applicants believe
a single proxy solicitation will, by eliminating unnecessary burdens
and reducing shareholder confusion, be in the best interests of the
Funds and their shareholders.
6. Applicants submit that they will take all appropriate actions to
prevent any diminution in the scope or quality of services provided to
the Funds during the Interim Period.
Applicants state that the Existing Agreements were approved by the
Board and the shareholders of the Funds. Applicants represent that the
Interim Agreements will have the same terms and conditions as the
Existing 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 and/or sub-advisory
services, provided in the same manner, as it received prior to the
Effective Date. Applicants state that, in the event there is any
material change in the personnel of the Adviser or Sub-Adviser
providing services under the Interim Agreements during the Interim
Period, the Adviser or Sub-Adviser, as the case may be, will apprise
and consult the Boards to assure that the Boards, including a majority
of Independent Directors, are satisfied that the services provided by
the Adviser or Sub-Adviser will not be diminished in scope or quality.
7. Applicants contend that to deprive the Adviser and the Sub-
Advisers of their customary fees during the Interim Period would be an
unduly harsh and unreasonable penalty. Applicants note that the fees
payable to the Adviser and the Sub-Advisers under the Interim
Agreements will not be released to the Adviser or, if applicable, any
Sub-Adviser, by the escrow agent without the approval of the Fund
shareholders.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by this application that:
1. Each Interim Agreement will have the same terms and conditions
as the respective Existing Agreement, except for the effective and
termination dates and the inclusion of the escrow arrangements.
2. Fees earned by the Adviser or any Sub-Adviser during the Interim
Period in accordance with an Interim Agreement will be maintained in an
interest-bearing escrow account with an unaffiliated bank, and amounts
in such account (including interest earned on such paid fees) will be
paid to the Adviser and, if applicable, any Sub-Adviser, only upon
approval of the related Fund shareholders or, in the absence of such
approval, to the related Fund.
3. Each Fund will hold a meeting of shareholders to vote on
approval of the related Interim Agreement or Interim Agreements on or
before the 120th day following termination of the Existing Agreements,
but in on event later than August 31, 1998.
4. Piper Jaffray, USB and/or one or more subsidiaries of the
foregoing, but not the Funds, will pay the costs of preparing and
filing the application and the costs relating to the solicitation of
the approval of the Funds' shareholders of the Interim Agreements.
5. The Adviser and the Sub-Advisers will take all appropriate
actions to ensure that the scope and quality of advisory and other
services provided to the Funds under the Interim Agreements will be at
least equivalent, in the judgment of the respective Boards, including a
majority of the Independent Directors, to the scope and quality of
services provided under the Existing Agreements. In the event of any
material change in personnel providing services pursuant to the Interim
Agreements, the Adviser or a Sub-Adviser, as the case may be, will
apprise and consult the Boards of the affected Funds to assure that
such Boards, including a majority of the Independence Directors, are
satisfied that the services provided by the Adviser or such Sub-Adviser
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. 98-8363 Filed 3-31-98; 8:45 a.m.]
BILLING CODE 8010-01-M