[Federal Register Volume 62, Number 201 (Friday, October 17, 1997)]
[Notices]
[Pages 54145-54147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27594]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22850; 812-10808]
Security First Trust, et al.; Notice of Application
October 10, 1997.
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: Signet Banking Corporation (``Signet''),
parent of Virtus Capital Management, Inc. (``Subadviser''), has entered
into an agreement and plan of merger with First Union Corporation
(``First Union''). The indirect change in control of the Subadviser
will result in the assignment, and thus the termination, of the
existing subadvisory contract between Security First Investment
Management Corporation (``Adviser'') on behalf of Security First Trust
(``Fund''), and the Subadviser. The order would permit the
implementation, without shareholder approval, of a new investment
subadvisory agreement for a period of up to 120 days following the date
of the change in control of the Subadviser (but in no event later than
April 30, 1998). The order also would permit the Subadviser to receive
all fees earned under the new subadvisory agreement following
shareholder approval.
Applicants: Fund, Adviser, and the Subadviser.
Filing Dates: The application was filed on October 7, 1997.
Applicants have agreed to file an amendment during the notice period,
the substance of which is included 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
[[Page 54146]]
copy of the request, personally or by mail. Hearing requests should be
received by the SEC by 5:30 p.m. on November 4, 1997, 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.
Applicants, c/o Rosemary D. Van Antwerp, Esq., Evergreen Keystone
Investment Services Inc., 200 Berkeley Street, Boston, Massachusetts
02116.
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 Fund is a Massachusetts business trust registered under the
Act as an open-end management investment company. The Fund currently
offers two series, the Virtus Equity Series and Virtus U.S. Government
Income Series (the ``Portfolios''), to the public. The Adviser and the
Subadviser, a wholly-owned subsidiary of Signet, are investment
advisers registered under the Investment Advisers Act of 1940. The Fund
and the Adviser have entered into a sub-advisory agreement for the
Portfolios.
2. On July 18, 1997, First Union entered into an agreement and plan
of merger with Signet, under which Signet would be merged with and into
First Union in exchange for shares of common stock of First Union in
exchange for shares of common stock of First Union (the
``Transaction''). As a result of the Transaction, Signet will become a
wholly-owned subsidiary of First Union and the Subadviser will remain a
wholly-owned subsidiary of Signet. Applicants expect consummation of
the Transaction on November 13, 1997.
3. Applicants request an exemption to permit implementation, prior
to obtaining shareholder approval, of a new investment subadvisory
agreement between the Adviser and the Subadviser, on behalf of the
Fund, (``New Agreement''). The requested exemption will cover an
interim period of not more than 120 days beginning on the date the
Transaction is consummated and continuing through the date on which the
New Agreement is approved or disapproved by the shareholders of each
Portfolio, but in no event later than April 30, 1998 (the ``Interim
Period''). Applicants state that the New Agreement will be identical in
substance to the existing investment subadvisory agreement (``Existing
Agreement''). The contractual rates chargeable for subadvisory services
under the New Agreement will remain the same as under the Existing
Agreement.
4. On October 7, 1997, the Fund's board of trustees held an in-
person meeting to evaluate whether the terms of the New Agreement are
in the best interests of the Fund and its shareholders. At the meeting,
a majority of the members of the board, including a majority of members
who are not ``interested persons'' of the Fund, as that term is defined
in section 2(a)(19) of the Act (the ``Independent Trustees''), voted in
accordance with section 15(c) of the Act to approve the New Agreement
and to submit the New Agreement to the shareholders of each of the
Portfolios at meetings expected to be held in February, 1998 (the
``Meetings'').
5. Applicants expect that proxy materials for the Meetings will be
mailed during January 1998. Applicants believe that the requested
relief is necessary to permit continuity of investment management for
the Fund during the Interim Period and to prevent disruption of the
services for the Fund.
6. Applicants also request an exemption to permit the Subadviser to
receive from the Fund, upon approval by its shareholders, all fees
earned under the New Agreement during the Interim Period. Applicants
state that the fees paid during the Interim Period will be unchanged
from the fees paid under the Existing Agreement.
7. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution. The fees payable to the Subadviser
during the Interim Period under the New Agreement 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 only upon approval
of the relevant New Agreement by the shareholders of the Portfolios; or
(b) to the relevant Portfolio if the Interim Period has ended and its
New Agreement has not received the requisite shareholder approval.
Before any such release is made, the Independent Trustees of the Fund
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, Signet will become a wholly-owned subsidiary of First
Union. Applicants believe, therefore, that the Transaction will result
in an ``assignment'' of the Existing Agreement and that the Existing
Agreement will terminate by its terms upon consummation of the
Transaction.
3. Rule 15a-4 provides, in pertinent part, that if an investment
advisory contract with an investment company is terminated by an
assignment in which the adviser does not directly or indirectly receive
a benefit, 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 Signet, the Subadviser's parent, arising from the
Transaction, applicants may 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
[[Page 54147]]
believe that the requested relief meets this standard.
5. Applicants note that the terms and timing of the Transaction
were determined by First Union and Signet and arose primarily out of
business considerations beyond the scope of the Act and unrelated to
the Fund and the Subadviser, including the time needed to obtain
federal and state banking approvals for the Transaction. Applicants
submit that it is in the best interests of shareholders of the Fund to
avoid any interruption in services to the Fund, to allow sufficient
time for the consideration and return of proxies, and to hold a
shareholders meeting.
6. Applicants submit that the scope and quality of services
provided to the Fund during the Interim Period will not be diminished.
During the Interim Period, the Subadviser would operate under the New
Agreement, which would be substantively the same as the Existing
Agreement, except for its effective date. Applicants submit that if the
personnel providing material services pursuant to the New Agreement
change materially, the Subadviser will apprise and consult with the
Fund's board of trustees to assure that the board (including a majority
of the Independent Trustees) is satisfied that the services provided by
the Subadviser will not be diminished in scope or quality. Accordingly,
the Fund should receive, during the Interim Period, the same
subadvisory services, provided in the manner, at the same fee levels as
the Fund received before the Transaction.
7. Applicants contend that the best interests of shareholders of
the Fund would be served if the Subadviser receives fees for its
services during the Interim Period. Applicants state that the fees are
essential to maintaining the subadviser's ability to provide services
to the Fund. In addition, the fees to be paid during the Interim Period
will be unchanged from the fees paid under the Existing Agreements,
which have been approved by the shareholders of each respective
Portfolio.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. The New Agreement will have substantially the same terms and
conditions as the Existing Agreement, except for its effective date.
2. Fees earned by the Subadviser in respect of the New Agreement
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 Subadviser in accordance
with the New Agreement, after the requisite shareholder approvals are
obtained, or (b) to the respective Portfolio, in the absence of
shareholder approval with respect to such Portfolio.
3. The Fund will hold a meeting of shareholders to vote on approval
of the New Agreement on or before the 120th day following the
termination of the Existing Agreement (but in no event later than April
30, 1998).
4. Either First Union or the Subadviser will bear the costs of
preparing and filing the application, and costs relating to the
solicitation of shareholder approval of the Fund necessitated by the
Transaction.
5. The Subadviser will take all appropriate steps so that the scope
and quality of advisory and other services provided to the Fund during
the Interim Period will be at least equivalent, in the judgment 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 Subadviser will apprise and consult with
the board to assure that the board, including a majority of the
Independent Trustees of the Fund, 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. 97-27594 Filed 10-16-97; 8:45 am]
BILLING CODE 8010-01-M