[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

[[Page 54697]]

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