[Federal Register Volume 63, Number 14 (Thursday, January 22, 1998)]
[Notices]
[Pages 3364-3367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1493]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23000; 812-10876]
Saratoga Advantage Trust, et al.; Notice of Application
January 14, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act and rule 18f-2 under the Act, and from certain disclosure
requirements under the Act.
SUMMARY OF APPLICATION: The order would permit the investment adviser
to an open-end registered investment company to enter into subadvisory
contracts with subadvisers without receiving shareholder approval, and
grant relief from certain disclosure requirements regarding advisory
fees paid to subadvisers.
APPLICANTS: Saratoga Capital Management (the ``Manager''), and the
Saratoga Advantage Trust (the ``Trust'').\1\
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\1\ Applicants request that the relief apply to any open-end
registered investment company for which the Manager or any entity
controlling, controlled by, or under common control with the Manager
acts as investment adviser. All existing investment companies that
currently intend to rely on the order have been named as applicants,
and any other existing or future investment companies that
subsequently rely on the order will comply with the terms and
conditions in the application.
FILING DATES: The application was filed on November 24, 1997, and
amended on December 31, 1997. Applicants have agreed to file an
amendment during the notice period, the substance of which is included
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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 February 9, 1998 and should be
accompanied by proof of service on the 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 may request notification of
a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, DC 20549.
Applicants: 1501 Franklin Avenue, Mineola, NY 11501.
FOR FURTHER INFORMATION CONTACT: Lisa McCrea, Attorney Adviser, at
(202) 942-0562, or Nayda B. Roytblat, Assistant Director, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch, 450 5th Street, N.W., Washington, DC
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Trust is an open-end management investment company
registered under the Act. The Trust currently is comprised of seven
separate investment portfolios (the ``Portfolios''), each of which has
its own investment objectives and policies.
2. The Manager is registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act''). The Trust has
entered into an investment management agreement (``Management
Agreement'') with the Manager under which the Manager serves as
investment adviser to the Trust and its Portfolios. The Manager retains
investment advisers registered under the Advisers Act to serve as
investment advisers to the Portfolios (``Advisers''). Currently each
Portfolio has a single Adviser although the Manager is authorized to
select multiple Advisers for each Portfolio.
3. All Advisers currently must be approved by the Trust's board of
trustees (``The Board'') and by shareholders. In evaluating prospective
Advisers, the Manager considers, among other factors, each Adviser's:
level of expertise; relative performance and consistency of performance
to investment discipline or philosophy; investment personnel and
financial strength; and quality of service and client communication.
The Manager recommends to the Board whether investment advisory
agreements with Advisers (``Advisory Agreements'') would be renewed,
modified or terminated. In undertaking this evaluation, the Board
recognizes that a portion of the fees charged by the Manager pursuant
to the Management Agreement will be paid by the Manager to the
Advisers, and the Board will be provided with, and will evaluate,
information concerning the fees paid by the Manager to the Advisers
pursuant to the Advisory Agreements.
4. Subject to the supervision and direction of the Manager and,
ultimately, the Board, each Adviser's responsibilities are to manage
the securities investments held by the Portfolio it serves in
accordance with the Portfolio's stated investment objective and
policies, and exercise discretionary authority to make investment
decisions for the Portfolio and place orders to purchase and sell
securities on behalf of the Portfolio.
5. The Trust's investment advisory arrangements differ from those
of traditional investment companies. In the case of the Trust, the
Manager does not make the day-to-day investment decisions for the
Portfolios. Instead, the Manager establishes an investment program for
each Portfolio and selects, supervises and evaluates the Advisers who
make the day-to-day investment decisions for the respective Portfolios.
In addition to selecting and monitoring Advisers, the Manager
supervises the Portfolio's overall investment programs, including
advising and consulting with the Trustees and the Advisers. The Manager
monitors the performance of the Trust's outside service providers,
including the Trust's administrator, transfer agent and custodian. The
Manager also pays salaries, fees and expenses of the Trust's officers,
trustees or employees that are directors, officers or employees of the
Manager.
6. In return for providing the services described above, the
Manager currently receives a fee from each Portfolio, computed as a
percentage of net assets. The Manager pays each Adviser out of this
fee.
7. Applicants request an order permitting the Manager to enter into
and materially amend Advisory Agreements without obtaining shareholder
approval. Applicants also request an exemption from the disclosure
provisions described below regarding disclosure of fees paid to each
Adviser. Each Portfolio will disclose the following (both as a dollar
amount and as a percentage of a Portfolio's net assets): (a) Aggregate
fees paid to the Manager and Affiliated Advisers (as defined below);
and (b) aggregate fees paid to Advisers other than Affiliated Advisers
(as defined below) (``Aggregate Fee Disclosure''). For purposes of this
application, an Affiliated Adviser is an Adviser that is an
``affiliated person'', as defined in section 2(a)(3) of the Act, of the
Portfolio or Manager, other than by reason of serving as an Adviser of
a Portfolio.
Applicants' Legal Analysis
1. Section 15(a) of the Act makes it unlawful for any person to act
as an investment adviser to a registered investment company except
pursuant to a written contract which has been approved by the vote of a
majority of the investment company's outstanding voting securities.
Rule 18f-2 provides that each series or class of stock in a series
company affected by a matter must approve such matter if the Act
requires shareholder approval.
2. Certain items of Form N-1A, the registration statement used by
open-end investment companies, when taken together, may require each
Portfolio to disclose compensation paid to the investment company's
investment adviser and the method of computing the fee.
3. Form N-14, the registration form for business combinations
involving investment companies, requires the inclusion of a ``table
showing the current fees for the registrant and the company being
acquired and pro forma fees, if different, for the registrant after
giving effect to the transaction using the format prescribed'' by Form
N-1A.
4. Rule 20a-1 under the Act requires proxies solicited with respect
to an investment company to comply with Schedule 14A under the
Securities Exchange Act of 1934 (the ``1934 Act''). Certain items of
Schedule 14A require the following: (a) A proxy statement for a
shareholder meeting at which a new fee will be established or an
existing fee increased to include a table of the current and pro forma
fees using the format prescribed in item 2 of Form N-1A; and (b) a
proxy statement for a shareholder meeting at which an advisory contract
is to be voted upon shall include the ``rate of compensation of the
investment adviser,'' the ``aggregate amount of the investment
adviser's fees,'' the ``terms of the contract to be acted upon,'' and,
if a change in fees is proposed, the existing and proposed rate
schedule for advisory fees paid to the advisers.
5. Form N-SAR is the semi-annual report filed with the SEC by
registered investment companies. Form N-SAR requires investment
companies to disclose the rate schedule for fees paid to investment
advisers.
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6. Regulation S-X specifies the requirements for financial
statements required to be included as part of the registration
statements and shareholder reports filed with the SEC under the Act and
the Securities Act of 1933. Section 6-07.2 of Regulation S-X may
require that the Trust's financial statements contain information
concerning fees paid to the Advisers.
7. Applicants believe that investors choose to invest in the
Portfolios because of the Manager's experience and expertise in
evaluating, selecting and supervising Advisers. Applicants believe that
investors expect the Manager and the Board to select the Advisers for
each Portfolio based on an Adviser's experience and expertise.
Applicants contend that it is consistent with the protection of
investors to vest the selection and supervision of the Advisers in the
Manager because shareholders expect that the Manager will use its
expertise to select the most able advisers.
8. Applicants believe that permitting the Manager to perform those
duties for which shareholders compensate the Manager--the selection,
supervision and evaluation of Advisers--without incurring unnecessary
delay or expense is appropriately in the interests of the Portfolios'
shareholders and will allow each Portfolio to operate more efficiently.
Applicants contend that, without the delay inherent in holding
shareholder meetings, the Portfolios will be able to act more quickly
and with less expense to replace Advisers when the Manager and the
Trustees believe that a change would benefit a Portfolio. Applicants
assert that, without exemptive relief, the Trust would be required to
call meetings of shareholders whenever the Manager determined to employ
new or additional Advisers, or to approve a new Advisory Agreement
after an assignment or due to a material change in terms.
9. Applicants argue that the relief requested from disclosure
requirements would provide the Manager with more flexibility in
negotiating fees with new Advisers. Applicants state that some Advisers
use a ``posted'' rate schedule to set their fees, and that some
Advisers would be unwilling to negotiate fees lower than the ``posted''
rate schedule, unless the rates negotiated for the Portfolios are not
publicly disclosed. Disclosure of Adviser's fees would therefore lessen
the Manager's bargaining power, and would not benefit shareholders.
Applicants state that investors will know the rate of investment
advisory fees each Portfolio will bear. Applicants assert that
investors would still be able to determine whether the cost of
investment advisory services, including the selection and supervision
of Advisers, is competitive with services and costs which the investor
could obtain elsewhere.
10. 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 the exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policies and provisions of the Act.
Applicants believe that the requested relief satisfies this standard.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Within 90 days of the hiring of any Adviser, the affected
Portfolio will furnish its shareholders with all information about a
new Adviser or Advisory Agreement that would be included in a proxy
statement. The information will include any change in the disclosure
caused by the addition of a new Adviser of a Portfolio. The Portfolio
will meet this condition by providing shareholders, within 90 days of
the hiring of an Adviser, with an information statement that meets the
requirements of Regulation 14C and Schedule 14C under the 1934 Act, and
Item 22 of Schedule 14A under the 1934 Act.
2. Before a Portfolio may rely on the order requested, the
operation of the Portfolio as described in the application will be
approved by a majority of each Portfolio's outstanding voting
securities, as defined in the Act, or, in the case of a new Portfolio
whose public shareholders purchase shares on the basis of a prospectus
containing the disclosure addressed in condition 3 below, by the sole
shareholder before offering of shares of the Portfolio to the public.
3. The Trust will disclose in its prospectus the existence,
substance, and effect of the order. In addition, the Portfolios will
hold themselves out to the public as employing the management structure
described in the application. The prospectus will prominently disclose
that the Manager has ultimate responsibility to oversee Advisers and to
recommend their hiring, termination, and replacement.
4. The Manager will provide general management and administrative
services to the Trust and its Portfolios, including overall supervisory
responsibility for the general management and investment of each
Portfolio's securities portfolio, and, subject to review and approval
by the Board, will: (i) Set the Portfolios' overall investment
strategies; (ii) recommend and select Advisers; (iii) allocate and
reallocate the Portfolios' assets among multiple Advisers, if more than
one exists; (iv) monitor and evaluate the performance of Advisers, and
(v) implement procedures to ensure that the Advisers comply with the
Portfolio's investment objectives, policies, and restrictions.
5. At all times, a majority of the Board will not be ``interested
persons'' of the Trust within the meaning of the Act (``Independent
Trustees''), and the nomination of new or additional Independent
Trustees will be placed within the discretion of the then existing
Independent Trustees.
6. When an Adviser change is proposed for a Portfolio with an
Affiliated Adviser, the Trust's Trustees, including a majority of
Independent Trustees, will make a separate finding, reflected in that
Trust's Board minutes, that such change is in the best interests of the
Portfolio and its shareholders and does not involve a conflict of
interest from which the Manager or the Affiliated Adviser derives an
inappropriate advantage.
7. The Manager will not enter into an Advisory Agreement with any
Affiliated Adviser without that Advisory Agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Portfolio.
8. Each Portfolio will disclose in the Trust's registration
statement the Aggregate Fee Disclosure.
9. The Manager will provide the Board, no less frequently than
quarterly, information about the Manager's profitability for each
Portfolio. The information will reflect the impact on profitability of
the hiring or termination of any Advisers during the quarter.
10. Whenever an Adviser is hired or terminated, the Manager will
provide the Board with information showing the expected impact on the
Managers' profitability.
11. At all times, independent counsel knowledgeable about the Act
and the duties of Independent Trustees will be engaged to represent the
Independent Trustees of the Trust. The selection of such counsel will
be placed within the discretion of the Independent Trustees.
12. No Trustee or officer of the Trust or partner or officer of the
Manager will own directly or indirectly (other than through a pooled
investment vehicle over which such person does not have control) any
interest in an Adviser except for: (i) Ownership of interests in
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the Manager or any entity that controls, is controlled by, or is under
common control with the Manager; or (ii) ownership of less than 1% of
the outstanding securities of any class of equity or debt of a publicly
traded company that is either an Adviser or any entity that controls,
is controlled by, or is under common control with an Adviser.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-1493 Filed 1-21-98; 8:45 am]
BILLING CODE 8010-01-M
