97-27594. Security First Trust, et al.; Notice of Application  

  • [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
    
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    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
    
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    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
    
    
    

Document Information

Published:
10/17/1997
Department:
Securities and Exchange Commission
Entry Type:
Notice
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.
Document Number:
97-27594
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.
Pages:
54145-54147 (3 pages)
Docket Numbers:
Investment Company Act Release No. 22850, 812-10808
PDF File:
97-27594.pdf