[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

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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