[Federal Register Volume 64, Number 228 (Monday, November 29, 1999)]
[Notices]
[Pages 66679-66681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30835]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24148; 812-11846]
Conning Asset Management Company, et. al., Notice of Application
November 19, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of an 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 and subadvisory and subadvisory agreements (collectively,
``New Agreements'') for a period of up to 150 days beginning on the
later of the date on which Metropolitan Life Insurance Company
(``MetLife'') acquires all the common stock of GenAmerica Corporation
(``GAC'') from General American Mutual Holding Company (``GAMHC'') or
the date the requested order is issued and continuing until the date
the New Agreements are approved or disapproved by shareholders of the
respective investment companies (but in no event later than April 30,
2000) (``Interim Period''). The order also would permit payment of all
fees earned under the New Agreements during Interim Period following
shareholder approval.
APPLICANTS: Conning Asset Management Company (``Conning Management'')
and Cova Investment Advisory Corporation (``COVA'') (collectively,
``Advisers'').
FILING DATE: The application was filed on November 5, 1999. Applicants
have agreed to file an amendment during the notice period, the
substance of which is reflected 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 by 5:30 p.m. on December
13, 1999, 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 the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609; Applicants: Conning Asset Management Company, 700 Market Street,
St. Louis, Missouri 63101; Cova Investment Advisory Corporation, One
Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644.
FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, at
(202) 942-7120 or Nadya B. Roytblat, Assistant Director, 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, NW., Washington, DC
20549-0102 (Telephone (202) 942-8090).
Applicants' Representations
1. Conning Management, a Missouri corporation, is an investment
adviser registered under the Investment Advisers Act of 1940 Act
(``Advisers Act''). Conning Management is a wholly-owned, indirect
subsidiary of Conning Corporation, which in turn is a majority-owned,
indirect subsidiary of GAC. COVA, an Illinois corporation, is an
investment adviser registered under the Advisers Act, and a wholly-
owned, indirect subsidiary of GAC. General American Life Insurance
Company (``General American'') is a wholly-owned subsidiary of GAC and
indirectly owns 100% of COVA and a controlling interest in Conning
Management. GAC is a wholly-owned subsidiary of GAMHC, a Missouri
mutual holding company.
2. Conning Management serves as investment adviser or subadviser to
certain open-end management investment companies, or their portfolios,
registered under the Act.\1\ COVA serves as investment adviser to
series of the Cova Series Trust, an open-end management investment
company registered under the Act.\2\ The Advisers serve as investment
advisers to the Funds pursuant to existing advisory or subadvisory
agreements (``Existing Agreements'').
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\1\ Conning Management serves as investment adviser to the
following portfolios of General American Capital Company: Money
Market Fund, Bond Index Fund, Asset Allocation Fund, Managed Equity
Fund, S&P 500 Index Fund, Mid-Cap Equity Fund, Small-Cap Equity
Fund, and International Index Fund. Conning Management also serves
as subadviser to the Money Market Fund, a portfolio of Sage Life
Investment Trust, and the Conning Money Market Portfolio, a
portfolio of Mercantile Funds, Inc.
\2\ The portfolios include the Quality Bond Portfolio, Small Cap
Stock Portfolio, Large Cap Stock Portfolio, Select Equity Portfolio,
International Equity Portfolio, Emerging Markets Equity Portfolio,
Bond Debenture Portfolio, Mid-Cap Value Portfolio, Large Cap
Research Portfolio, Developing Growth Portfolio, Lord Abbett Growth
and Income Portfolio, Balanced Portfolio, Small Cap Equity
Portfolio, Equity Income Portfolio, Growth & Income Equity
Portfolio, Riggs Stock Portfolio, Riggs Small Company Stock
Portfolio, and Riggs U.S. Government Securities Portfolio.
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3. On August 26, 1999, GAMHC and MetLife entered into a stock
purchase agreement under which GAMHC agreed to sell all of the stock it
owns in GAC to MetLife (the ``Transaction''). The Transaction is
currently expected to occur during December 1999 or during
[[Page 66680]]
the first quarter of 2000 (``Closing Date'').
4. Applicants state that the Transaction will result in a change of
control of the Advisers, which will result in an assignment and
automatic termination of the Existing Agreements. Applicants request an
exemption to: (i) Permit the Advisers to provide investment advisory
services to the Funds pursuant to the New Agreements during the Interim
Period without obtaining prior shareholder approval, and (ii) permit
the Advisers to receive fees earned under the respective New Agreements
with respect to each Fund during the Interim Period if, and to the
extent that, the New Agreements are approved by the shareholders of the
Funds. The requested exemption would cover an Interim Period commencing
on the later of the date the Transaction is consummated or the date the
requested order is issued and continuing until the New Agreements are
approved or disapproved by the Funds' shareholders (but in no event
later than April 30, 2000).\3\ Applicants state that the New Agreements
will have the same terms and conditions as the Existing Agreements
except for the effective and termination dates.
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\3\ Applicants state that if the consummation of the Transaction
precedes the issuance of the requested order, the Advisers will
serve after the consummation of the Transaction and prior to the
issuance of the order in a manner consistent with their fiduciary
duties to provide investment advisory and subadvisory services to
the Funds even though approval of the New Agreements has not yet
been secured from the Funds' shareholders. Applicants also state
that, in such event, the Advisers will be entitled to receive from
the Funds, with respect to the period from the date of consummation
of the Transaction until the issuance of the order, no more than the
actual out-of-pocket costs to the Advisers for providing investment
advisory or subadvisory services to the Funds.
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5. Applicants state that the boards of directors (``Boards''),
including a majority of directors who are not ``interested persons'' as
that term is defined in section 2(a)(19) of the Act (the ``Independent
Directors''), of Mercantile Funds, Inc., General American Capital
Company, and Cova Series Trust held an in-person meeting in accordance
with section 15(c) of the Act on October 19, October 27, and November
12, 1999, respectively, to evaluate whether the terms of the New
Agreements are in the best interests of the Funds and their
shareholders and to approve the New Agreements.\4\ The Boards,
including the Independent Directors, voted to approve the relevant New
Agreements and to recommend that Fund shareholders approve the New
Agreements. Proxy materials seeking the approval of the New Agreements
are expected to be mailed to shareholders of each Fund during the last
quarter of 1999 or the first quarter of 2000.
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\4\ Applicants acknowledge that, to the extent that the Board of
any other Fund cannot meet to approve a New Agreement prior to the
Closing Date, the Fund may not rely on the exemptive relief
requested in the application.
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6. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution (``Escrow Agent''). The fees payable
to the Advisers during the Interim Period under the New Agreements 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 relevant
Adviser only if that Fund's shareholders approve the applicable New
Agreement or (b) to the applicable Fund if the Interim Period has ended
and the New Agreements have not been approved by the requisite
shareholder vote. The Escrow Agent will release the moneys as provided
only upon receipt of a certificate from officers of the Adviser that
the action is appropriate based on shareholder votes. Before any such
certificate is sent, the Adviser will notify the relevant Board,
including the Independent Directors.
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.
Section 2(a)(9) of the Act defines ``control'' as the power to exercise
a controlling influence over the management or policies of a company,
and beneficial ownership of more than 25% of the voting securities of a
company is presumed under section 2(a)(9) to reflect control.
Applicants state that the Transaction will result in a change of
control of the Advisers. Accordingly, applicants state that the
Transaction may result in an assignment of each Existing Agreement and,
therefore, that each agreement will terminate according to its terms.
2. 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: (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 GAMHC, the Advisers' indirect parent, arising from the
Transaction, applicants cannot rely on rule 15a-4.
3. 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.
4. Applicants state that the terms and timing of the Transaction
were determined in response to a number of factors beyond the scope of
the Act and substantially unrelated to the Funds. Applicants assert
that there is insufficient time to obtain shareholder approval of the
New Agreements before the Transaction is consummated. Applicants
further assert that the requested relief would prevent any disruption
in the delivery of investment advisory and subadvisory services to the
Funds during the period following consummation of the Transaction.
Applicants represent that, under the New Agreements during the Interim
Period, the Funds will receive substantially identical investment
advisory and subadvisory services, provided in substantially the same
manner, as they received prior to the consummation of the Transaction.
Applicants state that, in the event of any material change in personnel
of either Adviser providing services pursuant to the New Agreements
during the Interim Period, the respective Adviser will apprise and
consult the relevant Fund's Board to assure that the Board, including a
majority of the Independent Directors, is satisfied that the services
provided by the Adviser will not be diminished in scope and quality.
[[Page 66681]]
Applicants' Conditions
The Applicants agree that any order granting the requested relief
will be subject to the following conditions:
1. The New Agreements will have the same terms and conditions as
the corresponding Existing Agreements, except for their dates of
effectiveness and termination.
2. Fees earned by the Advisers in respect of the relevant 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 fees) will be paid to (a) an Adviser in accordance with
the New Agreements only after the requisite approvals are obtained, or
(b) the respective Fund, in the absence of such approval with respect
to such Fund.
3. Each Fund will hold shareholders' meetings to vote on approval
of the relevant New Agreements within the Interim Period (but in no
event later than April 30, 2000).
4. The Advisers, or an entity controlling, controlled by, or under
common control with the Advisers, not the Funds, will bear the costs of
preparing and filing the application and the costs relating to the
solicitation of the relevant shareholders and beneficial owners of the
approval or disapproval of the applicable New Agreements.
5. The Advisers will take all appropriate steps so 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
Fund's Board, including a majority of the Independent Directors, 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 relevant Adviser will apprise and consult
with the Board to assure that the Board, including a majority of the
Independent Directors, of the Fund 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. 99-30835 Filed 11-26-99; 8:45 am]
BILLING CODE 8010-01-M