[Federal Register Volume 63, Number 101 (Wednesday, May 27, 1998)]
[Notices]
[Pages 29042-29044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13958]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23193; 812-11088]


Cowen & Co., et al.; Notice of Application

May 19, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act.

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SUMMARY OF THE APPLICATION: Applicants seek an order to permit the 
implementation, without prior shareholder approval, of new investment 
advisory agreements (``New Advisory Agreements'') following the 
acquisition by Societe Generale (``SG'') of certain assets, including 
current investment advisory agreements (``Existing Advisory 
Agreements''), from Cowen & Co. (``Current Adviser'') and Cowen 
Incorporated (together with the Current Adviser, ``Cowen''). The order 
would cover a period beginning at the later of the date the acquisition 
is completed (``Closing Date'') or the date on which the requested 
order is issued, and continue for a period of up to 150 days (but in no 
event later than December 31, 1998) (``Interim Period''). If 
shareholders approve the New Advisory Agreements, the order also would 
permit the payment of fees earned under the New Advisory Agreements 
during the Interim Period.

APPLICANTS: The Current Adviser and Societe Generale Securities 
Corporation (``SGSC'').

FILING DATES: The application was filed on March 24, 1998, and amended 
on May 8, 1998.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request

[[Page 29043]]

a hearing by writing to the Commission's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the Commission by 5:30 p.m. on June 15, 
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 
Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549. Current Adviser, Financial Square, New York, New York 
10005; SGSC, 1221 Avenue of The Americas, New York, New York 10020.

FOR FURTHER INFORMATION CONTACT: Michael W. Mundt, Staff Attorney, at 
(202) 942-0578, or George J. Zornada, 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 
Commission's Public Reference Branch, 450 Fifth St., NW., Washington, 
DC 20549, (202) 942-8090.

Applicants' Representations

    1. The Current Adviser is a New York limited partnership registered 
under the Investment Advisers Act of 1940 (``Advisers Act'') whose 
general partner is Cowen Incorporated. Pursuant to separate investment 
advisory agreements, the Current Adviser serves as investment adviser 
to Cowen Income + Growth Fund, Inc., Cowen Standby Reserve Fund, Inc., 
Cowen Standby Tax-Exempt Reserve Fund, Inc., Cowen Large Cap Value Fund 
(a series of Cowen Series Funds, Inc.), Cowen Intermediate Fixed Income 
Fund, Cowen Government Securities Fund and Cowen Opportunity Fund (the 
latter three funds, each a series of Cowen Funds, Inc.) (each a 
``Fund,'' and collectively, the ``Funds'').
    2. On February 22, 1998, Cowen entered into an agreement with SG, a 
banking corporation organized under the laws of France, under which SG 
will acquire certain assets and assume certain liabilities of Cowen 
(the ``Acquisition''). In the Acquisition, the Current Adviser's 
advisory business will be transferred to SGSC, a subsidiary of SG. SGSC 
will be renamed SG Cowen Securities Corporation (``SG Cowen'') after 
the Acquisition, and a division or affiliate of SG Cowen will serve as 
the new investment adviser to each of the Funds (the ``New Adviser''). 
Applicants represent that the New Adviser either will have filed a form 
ADV with the Commission that becomes effective on or before the Closing 
Date or, as successor to the business of the Current Adviser, will have 
filed a form ADV with the Commission in reliance on section 203(g) of 
the Advisers Act. Applicants anticipate that the Closing Date will 
occur within the next three months and could occur as early as June 1, 
1998.\1\
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    \1\ Applicants state that if the Closing Date precedes the 
issuance of an order, the New Adviser will serve as investment 
adviser after the Closing Date and prior to the issuance of the 
order in a manner consistent with its fiduciary duty to provide 
investment advisory services to the Funds, even though approval of 
the New Advisory Agreements has not yet been secured from the Funds' 
respective shareholders. Applicants also submit that in such event, 
the New Adviser will be entitled to receive from the Funds, with 
respect to the period from the Closing Date until the receipt of the 
order, no more than the actual out-of-pocket cost to the New Adviser 
for providing investment advisory services to the Funds.
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    3. Applicants state that the Acquisition will result in an 
assignment and thus automatic termination of the Existing Advisory 
Agreements between the Funds and the Current Adviser under the Act and 
the Existing Advisory Agreements. Applicants request an exemption (i) 
to permit the implementation of New Advisory Agreements during the 
Interim Period without prior shareholder approval, and (ii) to permit 
the New Adviser to receive all fees earned under the New Advisory 
Agreements during the Interim Period upon approval of the New Advisory 
Agreements by shareholders of the Funds. Applicants assert that the New 
Advisory Agreements will contain substantially the same terms and 
conditions as the Existing Advisory Agreements, except for the 
identification of the New Adviser and the effective and termination 
dates.
    4. Prior to the Closing Date, the board of directors of each Fund 
(each a ``Board,'' and collectively, the ``Boards''), including a 
majority of directors who are not interested persons of the Funds under 
section 2(a)(19) of the Act (``Disinterested Directors''), will meet in 
person, in accordance with section 15(c) of the Act, to evaluate 
whether the terms of the New Advisory Agreements are in the best 
interests of the Funds and their respective shareholders.\2\ The Boards 
currently intend to meet on or around May 21, 1998.
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    \2\ To the extent that the Boards cannot meet prior to the 
Closing Date, applicants acknowledge that the Funds may not rely on 
the exemptive relief requested in the application.
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    5. The New Adviser and the Funds propose to enter into an escrow 
arrangement with an unaffiliated financial institution (``Escrow 
Agent''). The portion of the investment advisory fees earned by the New 
Adviser during the Interim Period under the New Advisory Agreements 
would 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) would be paid to the New Adviser only upon 
approval of each New Advisory Agreement by the applicable Fund's 
shareholders. In the absence of such approval, the amounts will be paid 
to the applicable Fund. The Board of the applicable Fund will be 
notified before any amounts are released from the escrow account.

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.
    2. Applicants state that the acquisition by SG of certain assets 
including the Existing Advisory Agreements from Cowen will result in an 
``assignment'' of the Existing Advisory Agreements, terminating such 
agreements according to the Act and their respective 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 approved 
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

[[Page 29044]]

connection with the assignment. Applicants state that they may not be 
entitled to rely on rule 15a-4 because of the benefits that Cowen will 
receive as a result of the Acquisition.
    4. Section 6(c) of the Act provides that the Commission 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 submit that the terms and timing of the Acquisition 
were determined in response to a number of factors substantially 
unrelated to the Funds and that the Existing Advisory Agreements 
constitute a relatively small part of the Acquisition. Applicants state 
that the Closing Data does not allow a sufficient time to secure prior 
shareholder approval of the New Advisory Agreements. Applicants state 
that the requested relief will permit continuity of investment 
management of the Funds during the period following the Acquisition so 
that advisory services will not be disrupted. Applicants represent that 
the Funds will receive the same scope and quality of investment 
advisory services provided by essentially the same investment 
management personnel under the New Advisory Agreements as they receive 
under the Existing Advisory Agreements. If the investment management 
personnel changes materially, the New Adviser will apprise and consult 
with the Boards to ensure that the Boards, including a majority of the 
Disinterested Directors, are satisfied that the services provided by 
the New Adviser will not be diminished in scope and quality.
    6. Applicants contend that to deprive the New Adviser of investment 
advisory fees during the Interim Period would be an unduly harsh and 
unreasonable penalty to attach to the Acquisition and would serve no 
useful purpose. Applicants note that the fees will not be released to 
the New Adviser by the Escrow Agent without an appropriate 
certification that the New Advisory Agreements have been approved by 
the Funds' respective shareholders.

Applicants' Conditions

    Applicants agree as conditions to the issuance of the exemptive 
order requested by the application that:
    1. The New Advisory Agreements will contain substantially the same 
terms and conditions as the Existing Advisory Agreements, except for 
the identification of the New Adviser and the dates of execution and 
termination.
    2. The portion of the investment advisory fee earned by the New 
Adviser during the Interim Period will be maintained in an interest-
bearing escrow account, and amounts in the account (including interest 
earned on such amounts) will be paid to the New Adviser only upon 
approval of each New Advisory Agreement by the applicable Fund's 
shareholders or in the absence of such approval, to the Fund.
    3. Each Fund will promptly schedule a meeting of shareholders to 
vote on the approval of the New Agreements to be held within 150 days 
following the commencement of the Interim Period (but in no event later 
than December 31, 1998).
    4. The Current Adviser will pay the costs of preparing and filing 
the application and the costs relating to the solicitation and approval 
of Fund shareholders of the New Advisory Agreements necessitated by the 
Acquisition.
    5. Cowen and SG will take all appropriate actions to ensure that 
the scope and quality of investment advisory and other services to be 
provided to the Funds by the New Adviser during the Interim Period will 
be at least equivalent, in the judgment of the Boards, including a 
majority of the Disinterested Directors, to the scope and quality of 
services provided by the Current Adviser. In the event of any material 
change in investment management personnel providing advisory services 
pursuant to the New Advisory Agreements, the New Adviser will apprise 
and consult with the Boards to ensure that the Boards, including a 
majority of the Disinterested Directors, are satisfied that the 
services provided will not be diminished in scope or quality.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-13958 Filed 5-26-98; 8:45 am]
BILLING CODE 8010-01-M