[Federal Register Volume 63, Number 72 (Wednesday, April 15, 1998)]
[Notices]
[Pages 18464-18465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10028]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23107; 812-11086]


DG Investor Series, et al.; Notice of Application

April 9, 1998.
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: The requested order would permit the 
implementation, without prior shareholder approval, of new advisory 
(``New Management Agreement'') and sub-advisory agreements (``New Sub-
Advisory Agreements'') (collectively, the ``New Agreements'') for a 
period of up to 120 days following the date of a change in control of 
ParkSouth Corporation (the ``Adviser'') (but in no event later than 
September 30, 1998) (the ``Interim Period''). The order also would 
permit the Adviser and Subadvisers to receive all fees earned under the 
New Agreements during the Interim Period following shareholder 
approval.

APPLICANTS: Adviser, Womack Asset Management (``Womack''), Bennett 
Lawrence Management, LLC (``Bennett''), Lazard Asset Management, a 
division of Lazard Freres & Co. LLC (``Lazard''), and DG Investor 
Series (the ``Trust'').

FILING DATE: The application was filed on April 9, 1998.

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 copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on April 29, 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 SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Trust, Advisor, Womack, Bennett, and Lazard, c/o Timothy S. Johnson, 
Esq., Federated Investors, 5800 Corporate Drive, Pittsburgh, 
Pennsylvania 15237-7010.

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 Trust is a Massachusetts business trust registered under the 
Act as an open-end management investment company. The Trust currently 
offers nine series: DG Equity Fund, DG Opportunity Fund (``Opportunity 
Fund''), DG Mid Cap Fund (``Mid Cap Fund''), DG International Equity 
Fund (``International Equity Fund''), DG Limited Term Government Income 
Fund, DG Government Income Fund, DG Municipal Income Fund, DG Prime 
Money Market Fund, and DG Treasury Money Market Fund (each a 
``Portfolio''). The assets of the Trust are managed by the Adviser 
pursuant to an investment management contract between the Adviser and 
the Trust on behalf of each Portfolio (the ``Existing Management 
Agreement''). Womack provides investment advisory services to the 
Opportunity Fund pursuant to a separate agreement with the Adviser. 
Bennett provides investment advisory services to the Mid Cap Fund 
pursuant to a separate agreement with the Adviser. Lazard provides 
investment advisory services to the International Equity Fund pursuant 
to a separate agreement with the Adviser (collectively the existing 
Womack, Bennett and Lazard sub-advisory agreements are the ``Existing 
Sub-Advisory Agreements''). The Adviser, Womack, Bennett, and Lazard 
are investment advisers registered under the Investment Advisers Act of 
1940.
    2. On December 7, 1997, Deposit Guaranty Corporation (``DGC''), 
corporate parent of the Adviser, and First American Corporation 
(``First American'') entered into an agreement and plan of merger, 
whereby DGC will be merged with and into First American, a bank holding 
company (the ``Transaction''). As a result of the Transaction, the 
Adviser will become a wholly-owned subsidiary of First American. 
Applicants expect consummation of the Transaction on April 30, 1998.
    3. Applicants believe that the Transaction will result in an 
assignment of the Existing Management Agreement and could be deemed to 
result in an assignment of the Existing Sub-Advisory Agreements 
(together, the Existing Management Agreement and Existing Sub-Advisory 
Agreements are the ``Existing Agreements''). Applicants request an 
exemption to permit (i) the implementation, during the Interim Period, 
prior to obtaining shareholder approval, of the applicable New 
Agreements, and (ii) the Adviser and Subadvisers to receive from each 
Portfolio all fees earned under the New Agreement during the Interim 
Period, as applicable, if, and to the extent, the New Management 
Agreement and applicable New Sub-Advisory Agreement are approved by the 
shareholders of each Portfolio. The requested exemption would cover the 
Interim Period beginning on the date the Transaction is consummated and 
continuing through the earlier of 120 days or the date on which the 
applicable New Agreements are approved or disapproved by the 
shareholders of each relevant Portfolio, but in no event later than 
September 30, 1998. Applicants state that the New Agreements will be 
identical in substance to the respective Existing Agreements.
    4. On February 26, 1998, the Trust's board of trustees, including a 
majority of members who are not ``interested persons'' of the Trust, as 
that term is defined in section 2(a)(19) of the Act (the ``Independent 
Trustees'') (the ``Board''), held in-person meetings to evaluate 
whether the terms of the New Agreements are in the best interests of 
the relevant Portfolios and their shareholders and to approve the New 
Agreements.\1\ Applicants expect shareholders of each of the Portfolios 
to meet on or about July 15, 1998 (the ``Meetings''). Applicants expect 
that proxy materials for the Meetings will be mailed on or about May 
15, 1998.
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    \1\ The Board considered, among other things, that subsequent to 
the Transaction, the Adviser personnel serving the Portfolios would 
do so from a department of First American National Bank, a 
subsidiary of First American. Since it was subsequently determined 
that the Adviser will remain a separately organized operating 
subsidiary of First American and will serve the Portfolios as such, 
the Board will meet on or about May 12, 1998 to reaffirm its 
findings and approvals.
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    5. Applicants propose to enter into an escrow arrangement with an 
unaffiliated financial institution. The fees payable to the Adviser and 
Subadvisers during the Interim Period under the New 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 
applicable Subadviser only upon

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approval of the relevant New Agreement(s) by the shareholders of the 
relevant Portfolio; or (b) to the appropriate Portfolio if the Interim 
Period has ended and its relevant New Agreement(s) have not received 
the requisite shareholder approval. Before any such release is made, 
the Independent Trustees of the Trust 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, control of the Adviser will transfer to First American. 
Applicants believe, therefore, that the Transaction will result in an 
assignment of the Existing Management Agreement and could be deemed to 
result in an assignment of the Existing Sub-Advisory Agreements and 
that the Existing Agreements will terminate according to their 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 an 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 DGC, the Adviser's parent, arising from the Transaction, 
applicants can 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 believe that the requested relief meets this standard.
    5. Applicants note that the timing of the Transaction was 
determined by DGC and First American and arose primarily out of 
business considerations unrelated to the Trust. Applicants believe that 
allowing the Adviser and Subadvisers to continue to provide investment 
advisory services to the Portfolios during the Interim Period, thereby 
avoiding any interruption in services to the Portfolios, is in the best 
interests of the Portfolios and their shareholders and is in keeping 
with the spirit of the provisions of rule 15a-4 and with the purposes 
of section 15 of the Act.
    6. Applicants submit that the scope and quality of services 
provided to each Portfolio during the Interim Period will not be 
diminished. During the Interim Period, each Portfolio would operate 
under the New Management Agreement and, if applicable, a New Sub-
Advisory Agreement each of which is anticipated to be identical in 
substance to the relevant Existing Agreement, except for its effective 
date and escrow provisions. Applicants submit that they are not aware 
of any material changes in the personnel who will provide investment 
management services during the Interim Period. Accordingly, each 
Portfolio should receive, during the Interim Period, the same 
investment advisory services, provided in the same manner, at the same 
fee levels, and by substantially the same personnel as before the 
closing of the Transaction.

Applicants' Conditions

    Applicants agree as conditions to the issuance of the exemptive 
order requested by the application that:
    1. The New Management Agreement and New Sub-Advisory Agreements 
will have substantially the same terms and conditions as the Existing 
Management Agreement and Existing Sub-Advisory Agreements, except for 
their effective dates and escrow provisions.
    2. Fees earned by the Adviser and Subadvisers in respect of the New 
Management Agreement and New Sub-Advisory Agreements 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 Adviser and Subadvisers in accordance with the 
New Management Agreement and New Sub-Advisory Agreements, only after 
the requisite shareholder approvals are obtained, or (b) to the 
respective Portfolio, in the absence of such approvals with respect to 
such Portfolio.
    3. The Trust will hold meetings of shareholders to vote on approval 
of the New Management Agreement and New Sub-Advisory Agreements on or 
before the 120th day following the termination of the Existing 
Management Agreement and Existing Sub-Advisory Agreements (but in no 
event later than September 30, 1998).
    4. Either the Adviser or the Subadvisers will bear the costs of 
preparing and filing the application, and costs relating to the 
solicitation of shareholder approval of the Portfolios 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 Portfolios during the Interim Period will be at least equivalent, 
in the judgment of the Board, including a majority 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 Adviser and Subadviser will apprise and consult with 
the Board to assure that the Trustees, including a majority of the 
Independent Trustees of the Trust, 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. 98-10028 Filed 4-14-98; 8:45 am]
BILLING CODE 8010-01-M