[Federal Register Volume 64, Number 194 (Thursday, October 7, 1999)]
[Notices]
[Pages 54696-54698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26153]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 2 4068; 812-11788]
The Infinity Mutual Funds, Inc., et al., Notice of application
AGENCY: Securities and Exchange Commission (``Commission'').
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 an interim
investment advisory agreement (``Interim Advisory Agreement'') and
interim subadvisory agreements (``Interim Subadvisory Agreements'')
(collectively, ``Interim Agreements'') for a period of up to 150 days
beginning on the later of the date of a change in control of First
American National Bank (``Adviser'') or the date the requested order is
issued and continuing until the date the Interim Agreements are
approved or disapproved by shareholders of the investment company (but
in no event later than March 31, 2000) (``Interim Period''). The order
also would permit the Adviser and Subadvisers (as defined below) to
receive all fees earned under the Interim Agreements during the Interim
Period following shareholder approval.
APPILCANTS: Infinity Mutual Funds, Inc. (``Company''), Adviser, Bennett
Lawrence Management, LLC (``Bennett Lawrence''), Lazard Asset
Management (``Lazard'') and Womack Asset Management, Inc. (``Womack''
together with Bennett Lawrence and Lazard, the ``Subadvisers'').
FILING DATE: The application was filed on September 24, 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 Commission orders a hearing. Interested
persons may request 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 October 22, 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 to the Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC
20549-0609; Applicants, c/o David Stephens, Esq., Stroock & Stroock &
Lavan LLP, 180 Maiden Lane, New York, New York, 10038.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at
(202) 942-0574 or George J. Zornada, 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
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington,
DC 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. The Company is a Maryland corporation registered under the Act
as an open-end management investment company. The Company currently
offers 21 series advised by the Adviser (the ``Funds''). The Adviser
serves as investment adviser to the Funds pursuant to an investment
advisory agreement (``Existing Advisory Agreement''). Womack provides
subadvisory services to the ISG Small-Cap Opportunity Fund pursuant to
a separate agreement with the Adviser (``Existing Womack Subadvisory
Agreement''), Bennett Lawrence provides subadvisory services to the ISG
Mid-Cap Fund pursuant to a separate agreement with the Adviser
(``Existing Bennett Subadvisory Agreement''), and Lazard provides
subadvisory services to the ISG International equity Fund pursuant to a
separate agreement with the Adviser (``Existing Lazard Subadvisory
Agreement'' together with the Existing Womack Subadvisory Agreement and
the Existing Bennett Subadvisory Agreement, the ``Existing Subadvisory
Agreements'').
2. The Adviser, a national banking association, is a wholly-owned
subsidiary of First American Corporation (``First American''), a
registered bank holding company, and is exempt from the registration
requirements of the Investment Advisers Act of 1940 (``Advisers Act'').
Womack, Bennett Lawrence, and Lazard are investment advisers registered
under the Advisers Act.
3. First American, the parent company of the Adviser, and AmSouth
Bancorp (``AmSouth''), a bank holding company, have agreed to a merger
whereby First American will be merged with and into AmSouth (the
``Transaction''). The Transaction is currently expected to be
consummated on or about October 4, 1999.
4. Applicants state that the Transaction will result in an
assignment and thus automatic termination of the Existing Advisory
Agreement and could be deemed to result in an assignment and
termination of the Existing Subadvisory Agreements. Applicants request
an exemption to: (i) Permit the Adviser to provide investment advisory
services to the Funds pursuant to the
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Interim Advisory Agreement and the Subadvisers to provide subadvisory
services to the relevant Funds pursuant to the Interim Subadvisory
Agreements during the Interim Period without obtaining prior
shareholder approval, and (ii) permit the Adviser and the Subadvisers
to receive fees earned under the respective Interim Agreements with
respect to each Fund during the Interim Period if, and to the extent
that, the Interim 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 Interim Agreements
are approved or disapproved by the Funds' shareholders (but in no event
later than March 31, 2000).\1\ Applicants state that the Interim
Agreements will have the same terms and conditions as the Existing
Advisory Agreement and the Existing Subadvisory Agreements except for
the effective dates and escrow provisions.
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\1\ Applicants state that if the consummation of the Transaction
precedes the issuance of the requested order, the Adviser and
Subadviser 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 Interim Agreements
has not yet been secured from the Funds' shareholders. Applicants
also state that, in such event, the Adviser and Subadvisers 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
Adviser and Subadvisers for providing investment advisory services
to the Funds.
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5. On September 22, 1998, the Company's board of directors
(``Board''), including a majority of directors who are not ``interested
persons'' of the Company, as that term is defined in section 2(a)(19)
of the Act (the ``Independent Directors''), held an in-person meeting
in accordance with section 15(c) of the Act to evaluate whether the
terms of the Interim Agreements are in the best interests of the Funds
and their shareholders and to approve the Interim Agreements. Proxy
materials seeking the approval of the Interim Agreements are expected
to be mailed to shareholders of each Fund on or about January 2, 2000.
6. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution (``Escrow Agent''). The fees payable
to the Adviser and Subadvisers during the Interim Period under the
Interim 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 Subadvisers only if shareholders of the applicable
Fund approve the Interim Agreements or (b) to the applicable Fund if
the Interim Period has ended and the Interim 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 Company that the action is appropriate based on
shareholder votes. Because any such certificate is sent, the
Independent Directors of the Company 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.
Applicants state that the Transaction will result in an ``assignment''
of the Existing Advisory Agreement and could be deemed to result in an
``assignment'' of the Existing Subadvisory Agreements and that the
Existing Advisory Agreement and Existing Subadvisory Agreements will
terminate according to their 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 First American, the Adviser's parent, arising from the
Transaction, applicants, cannot rely on rule 15a-4.
3. Section 6(c) 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.
4. Applicants state that the terms and timing of the Transaction
were determined in response to a number of business 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 Interim 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 Interim 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 the Adviser or the Subadvisers
providing services pursuant to the Interim Agreements during the
Interim Period, the Adviser and the Subadvisers will apprise and
consult the Board to assure that the Board, including a majority of the
Independent Directors, is satisfied that the services provided by the
Adviser and the Subadvisers will not be diminished in scope and
quality.
Applicants' Conditions
The Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. The Interim Agreements will have the same terms and conditions
as the respective Existing Advisory Agreement and Existing Subadvisory
Agreements, except for their effective dates and escrow provisions.
2. Fees earned by the Adviser and Subadvisers in respect of the
relevant Interim 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)
the Adviser and Subadvisers in accordance with the Interim Agreements,
only after the requisite approvals are obtained, or
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(b) the respective Fund, in absence of such approval with respect to
such Fund.
3. The Company will hold meetings of shareholders to vote on
approval of the Interim Agreements within the Interim Period (but in no
event later than March 31, 2000).
4. The Adviser or an entity controlling, controlled by, or under
common control with the Adviser, not the Funds, will bear the costs of
preparing and filing the application and the costs relating to the
solicitation of shareholder approval of the Funds 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 Funds during the Interim Period will be at least equivalent, in the
judgment of the Company's Board, including a majority of the
Independent Directors, to the scope and quality of services previously
provided under the Existing Advisory Agreement and Existing Subadvisory
Agreements. If personnel providing material services during the Interim
Period change materially, the Adviser and Subadvisers, as the case may
be, will apprise and consult with the Board to assure that the
Directors, including a majority of the Independent 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.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-26153 Filed 10-6-99; 8:45 am]
BILLING CODE 8010-01-M