[Federal Register Volume 63, Number 72 (Wednesday, April 15, 1998)]
[Notices]
[Pages 18464-18465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10028]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23107; 812-11086]
DG Investor Series, et al.; Notice of Application
April 9, 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: The requested order would permit the
implementation, without prior shareholder approval, of new advisory
(``New Management Agreement'') and sub-advisory agreements (``New Sub-
Advisory Agreements'') (collectively, the ``New Agreements'') for a
period of up to 120 days following the date of a change in control of
ParkSouth Corporation (the ``Adviser'') (but in no event later than
September 30, 1998) (the ``Interim Period''). The order also would
permit the Adviser and Subadvisers to receive all fees earned under the
New Agreements during the Interim Period following shareholder
approval.
APPLICANTS: Adviser, Womack Asset Management (``Womack''), Bennett
Lawrence Management, LLC (``Bennett''), Lazard Asset Management, a
division of Lazard Freres & Co. LLC (``Lazard''), and DG Investor
Series (the ``Trust'').
FILING DATE: The application was filed on April 9, 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 29, 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.
Trust, Advisor, Womack, Bennett, and Lazard, c/o Timothy S. Johnson,
Esq., Federated Investors, 5800 Corporate Drive, Pittsburgh,
Pennsylvania 15237-7010.
FOR FURTHER INFORMATION CONTACT:
John K. Forst, Attorney Advisor, at (202) 942-0569, or Mary Kay Frech,
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 Trust is a Massachusetts business trust registered under the
Act as an open-end management investment company. The Trust currently
offers nine series: DG Equity Fund, DG Opportunity Fund (``Opportunity
Fund''), DG Mid Cap Fund (``Mid Cap Fund''), DG International Equity
Fund (``International Equity Fund''), DG Limited Term Government Income
Fund, DG Government Income Fund, DG Municipal Income Fund, DG Prime
Money Market Fund, and DG Treasury Money Market Fund (each a
``Portfolio''). The assets of the Trust are managed by the Adviser
pursuant to an investment management contract between the Adviser and
the Trust on behalf of each Portfolio (the ``Existing Management
Agreement''). Womack provides investment advisory services to the
Opportunity Fund pursuant to a separate agreement with the Adviser.
Bennett provides investment advisory services to the Mid Cap Fund
pursuant to a separate agreement with the Adviser. Lazard provides
investment advisory services to the International Equity Fund pursuant
to a separate agreement with the Adviser (collectively the existing
Womack, Bennett and Lazard sub-advisory agreements are the ``Existing
Sub-Advisory Agreements''). The Adviser, Womack, Bennett, and Lazard
are investment advisers registered under the Investment Advisers Act of
1940.
2. On December 7, 1997, Deposit Guaranty Corporation (``DGC''),
corporate parent of the Adviser, and First American Corporation
(``First American'') entered into an agreement and plan of merger,
whereby DGC will be merged with and into First American, a bank holding
company (the ``Transaction''). As a result of the Transaction, the
Adviser will become a wholly-owned subsidiary of First American.
Applicants expect consummation of the Transaction on April 30, 1998.
3. Applicants believe that the Transaction will result in an
assignment of the Existing Management Agreement and could be deemed to
result in an assignment of the Existing Sub-Advisory Agreements
(together, the Existing Management Agreement and Existing Sub-Advisory
Agreements are the ``Existing Agreements''). Applicants request an
exemption to permit (i) the implementation, during the Interim Period,
prior to obtaining shareholder approval, of the applicable New
Agreements, and (ii) the Adviser and Subadvisers to receive from each
Portfolio all fees earned under the New Agreement during the Interim
Period, as applicable, if, and to the extent, the New Management
Agreement and applicable New Sub-Advisory Agreement are approved by the
shareholders of each Portfolio. The requested exemption would cover the
Interim Period beginning on the date the Transaction is consummated and
continuing through the earlier of 120 days or the date on which the
applicable New Agreements are approved or disapproved by the
shareholders of each relevant Portfolio, but in no event later than
September 30, 1998. Applicants state that the New Agreements will be
identical in substance to the respective Existing Agreements.
4. On February 26, 1998, the Trust's board of trustees, including a
majority of 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'') (the ``Board''), held in-person meetings to evaluate
whether the terms of the New Agreements are in the best interests of
the relevant Portfolios and their shareholders and to approve the New
Agreements.\1\ Applicants expect shareholders of each of the Portfolios
to meet on or about July 15, 1998 (the ``Meetings''). Applicants expect
that proxy materials for the Meetings will be mailed on or about May
15, 1998.
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\1\ The Board considered, among other things, that subsequent to
the Transaction, the Adviser personnel serving the Portfolios would
do so from a department of First American National Bank, a
subsidiary of First American. Since it was subsequently determined
that the Adviser will remain a separately organized operating
subsidiary of First American and will serve the Portfolios as such,
the Board will meet on or about May 12, 1998 to reaffirm its
findings and approvals.
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5. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution. The fees payable to the Adviser and
Subadvisers 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 Adviser and
applicable Subadviser only upon
[[Page 18465]]
approval of the relevant New Agreement(s) by the shareholders of the
relevant Portfolio; or (b) to the appropriate Portfolio if the Interim
Period has ended and its relevant New Agreement(s) have not received
the requisite shareholder approval. Before any such release is made,
the Independent Trustees of the Trust 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, following the completion of the
Transaction, control of the Adviser will transfer to First American.
Applicants believe, therefore, that the Transaction will result in an
assignment of the Existing Management Agreement and could be deemed to
result in an assignment of the Existing Sub-Advisory Agreements and
that the Existing Agreements will terminate according 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 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: (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 DGC, the Adviser's parent, arising from the Transaction,
applicants can not rely on rule 15a-4.
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 believe that the requested relief meets this standard.
5. Applicants note that the timing of the Transaction was
determined by DGC and First American and arose primarily out of
business considerations unrelated to the Trust. Applicants believe that
allowing the Adviser and Subadvisers to continue to provide investment
advisory services to the Portfolios during the Interim Period, thereby
avoiding any interruption in services to the Portfolios, is in the best
interests of the Portfolios and their shareholders and is in keeping
with the spirit of the provisions of rule 15a-4 and with the purposes
of section 15 of the Act.
6. Applicants submit that the scope and quality of services
provided to each Portfolio during the Interim Period will not be
diminished. During the Interim Period, each Portfolio would operate
under the New Management Agreement and, if applicable, a New Sub-
Advisory Agreement each of which is anticipated to be identical in
substance to the relevant Existing Agreement, except for its effective
date and escrow provisions. Applicants submit that they are not aware
of any material changes in the personnel who will provide investment
management services during the Interim Period. Accordingly, each
Portfolio 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
closing of the Transaction.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. The New Management Agreement and New Sub-Advisory Agreements
will have substantially the same terms and conditions as the Existing
Management Agreement and Existing Sub-Advisory Agreements, except for
their effective dates and escrow provisions.
2. Fees earned by the Adviser and Subadvisers in respect of the New
Management Agreement and New Sub-Advisory 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 and Subadvisers in accordance with the
New Management Agreement and New Sub-Advisory Agreements, only after
the requisite shareholder approvals are obtained, or (b) to the
respective Portfolio, in the absence of such approvals with respect to
such Portfolio.
3. The Trust will hold meetings of shareholders to vote on approval
of the New Management Agreement and New Sub-Advisory Agreements on or
before the 120th day following the termination of the Existing
Management Agreement and Existing Sub-Advisory Agreements (but in no
event later than September 30, 1998).
4. Either the Adviser or the Subadvisers will bear the costs of
preparing and filing the application, and costs relating to the
solicitation of shareholder approval of the Portfolios necessitated by
the Transaction.
5. The Adviser and Subadvisers will take all appropriate steps so
that the scope and quality of advisory and other services provided to
the Portfolios 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. If
personnel providing material services during the Interim Period change
materially, the Adviser and Subadviser will apprise and consult with
the Board to assure that the Trustees, including a majority of the
Independent Trustees of the Trust, 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-10028 Filed 4-14-98; 8:45 am]
BILLING CODE 8010-01-M