[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
