[Federal Register Volume 61, Number 220 (Wednesday, November 13, 1996)]
[Notices]
[Pages 58266-58269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29040]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22323; 812-10174]
SunAmerica Series Trust, et al.; Notice of Application
November 6, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption Under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: SunAmerica Series Trust (the ``Series Trust''), SunAmerica
Equity Funds (the ``Equity Trust'' or collectively with the Series
Trust, ``Trusts'') on behalf of SunAmerica Global Balanced Fund
(``Global''), and SunAmerica Asset Management Corp (``SAAMCo'' or the
``Adviser'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from section 15(a) of the Act and rule 18f-2
thereunder; and from certain disclosure requirements set forth in item
22 of Schedule 14A under the Securities Exchange Act of 1934 (the
``Exchange Act''); items 2, 5(b)(iii), and 16(a)(iii) of Form N-1A;
item 3 of Form N-14; item 48 of Form N-SAR; and sections 6-07(2) (a),
(b), and (c) of Regulation S-X.
SUMMARY OF APPLICATION: Applicants request an order permitting the
Adviser
[[Page 58267]]
to enter into or amend contracts with subadvisers without obtaining
shareholder approval and permitting applicants to disclose only
aggregate subadvisory fees for each portfolio in their prospectuses and
other reports.
FILING DATES: The application was filed on May 29, 1996, and amended on
October 31, 1996.
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 December 1,
1996, 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 such notification by writing to
the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Series Trust, P.O. Box 54299, Los Angeles, CA 90054-
0299; Equity Trust and SAAMCo, The SunAmerica Center, 733 Third Avenue,
New York, N.Y. 10017-3204.
FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenlees, Senior Counsel, at (202) 942-0581, or Mercer E.
Bullard, Branch Chief, 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.
Applicants' Representations
1. Each of the Trusts is an open-end management investment company
registered under the Act and organized as a Massachusetts business
trust. The Series Trust, currently composed of eighteen separate
portfolios (each a ``Series Portfolio''), was established to provide a
funding medium for certain annuity contracts issued by the Variable
Separate Account and FS Variable Separate Account, which are separate
accounts of Anchor National Life Insurance Company and First SunAmerica
Life Insurance Company, respectively. The Equity Trust is currently
composed of six separate portfolios (each an ``Equity Portfolio'').
Global is the only Equity Portfolio to which the application currently
applies (Global and each Series Portfolio are referred to herein as the
``Portfolios'').\1\
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\1\ Applicants also request relief with respect to any series of
either Trust, now existing or organized in the future, and for any
open-end management investment company or series thereof advised by
the Adviser, or a person controlling, controlled by or under common
control with the Adviser in the future, provided that such
investment company or series operates in substantially the same
manner as the Portfolios and complies with the conditions to the
requested order.
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2. Each Portfolio has its own investment objectives and policies
and each is managed as though it was a separate mutual fund issuing its
own shares. Some Portfolios benefit from discretionary advisory
services provided by one or more separate registered investment
advisers (``Subadvisers''), which are retained and compensated by the
Adviser. Applicants state that the Trusts' prospectuses disclose that
the Adviser has the authority to hire one or more Subadvisers for a
Portfolio, and that the Adviser is responsible for monitoring the
Subadvisers' performance and recommending replacement Subadvisers to
the Board from time to time.
3. The Adviser, a registered investment adviser under the
Investment Advisers Act of 1940, as amended, has entered into an
investment advisory agreement (``Advisory Agreement'') with each Trust.
The Advisory Agreements provide that the Adviser shall manage the
Trusts' investments, administer their business affairs, provide office
space and other facilities and equipment for the management of the
affairs of the Trusts, and pay the compensation of certain officers of
the Trusts who are affiliated persons of SAAMCo. The Advisory
Agreements further provide that the Adviser may delegate the management
of a Portfolio's investments to the Subadviser of the Portfolio, if
any. For its services, the Adviser receives from each Trust a fee based
on the net assets of each Portfolio.
4. SAAMCo has in turn entered into an agreement with each
Subadviser (``Subadvisory Agreement''). The Subadvisory Agreements are
similar in all material respects except for the names of the
Subadvisers and the rates of compensation, which are a portion of the
management fee that is paid by each Portfolio to SAAMCo and which
SAAMCo pays to the Subadvisers.
5. The Adviser, either alone or with the assistance of one or
another of its SunAmerica corporate affiliates, is responsible for (a)
supervising the Subadvisers' compliance with state and federal
regulations, (b) analyzing the composition of the investment portfolios
of the Portfolios and preparing reports thereon for the Board of
Trustees of each Trust (the ``Trustees'' or the ``Board''), or any
committee of the Board, (c) evaluating each Portfolio's performance in
comparison to similar mutual funds and other market information, (d)
conducting searches for replacement Subadvisers, and selecting, subject
to the review and approval of the Trustees, Subadvisers who have
distinguished themselves by able performance in their respective areas
of responsibility and overseeing their continued performance, and (e)
preparing presentations to shareholders analyzing the Portfolios'
investment program and performance.
6. Under the Subadvisory Agreements, the Subadvisers manage the
investment and reinvestment of the assets of the respective Portfolios
for which they are responsible. Each of the Subadvisers is independent
of SAAMCo and discharges its responsibilities subject to the policies
of the Trustees and the oversight and supervision of SAAMCo, which pays
the Subadvisers' fees. Currently, SAAMCo divides the subadvisory
services for Global between itself and a Subadviser, while the other
Portfolios each have either a single Subadviser or are managed solely
by SAAMCo. Applicants intend that, in the future, a Portfolio may be
managed by a single Subadviser or may be allocated by the Adviser
between or among more than one Subadviser. None of the Subadvisers are
affiliated persons of the Adviser, as defined in section 2(a)(3) of the
Act.
7. Applicants request an exemption from section 15(a) of the Act
and rule 18f-2 thereunder to permit the Adviser to enter into a
Subadvisory Agreement for a Portfolio or to amend an existing
Subadvisory Agreement without obtaining shareholder approval thereon.
The exemption would cover new Subadvisory Agreements necessitated
because the prior Subadvisory Agreements were terminated as a result of
an assignment (as defined in section 2(a)(4) of the Act).
8. Applicants also request an exemption from certain disclosure
requirements, as described below, that may require disclosure of fees
paid to individual Subadvisers.
9. Item 2 of Form N-1A requires the Trusts to disclose in their
prospectuses, as a percentage of average net assets, management fees
paid by them. Item 5(b)(iii) of Form N-1A requires that the Trusts set
forth in their prospectuses ``a brief description of the investment
adviser's compensation.'' Item 16(a)(iii) of Form N-1A requires that
the Trusts set forth in their Statements of Additional Information for
each
[[Page 58268]]
investment adviser its compensation and the method of computing the
advisory fee.
10. Item 3 of 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'' in
item 2 of Form N-1A.
11. Rule 20a-1 under the Act requires proxies solicited with
respect to an investment company to comply with Schedule 14A under the
Exchange Act. Subparagraphs (a)(3)(iv), (c)(1)(ii) and (c)(1)(iii) of
Item 22 of Schedule 14A and paragraphs (c)(8) and (c)(9) of Item 22 of
Schedule 14A, taken together, require that a proxy statement on a
shareholder meeting at which an advisory contract is to be voted upon,
shall include, among other information, the ``rate of compensation of
the investment adviser'' and the ``aggregate amount of the investment
adviser's fee.''
12. Item 48 of Form N-SAR provides that the Trusts must disclose
the rate schedule for fees paid to their investment advisers, including
the Subadvisers. Items 6-07(2) (a), (b), and (c) of Regulation S-X may
be deemed to require that the Trusts' financial statements contain
information concerning fees paid to the Subadvisers by the Adviser.
13. Applicants propose to disclose (both as a dollar amount and as
a percentage of the Portfolio's net assets) in each Trust's
registration statement and other public documents only the ``Aggregate
Fee Disclosure,'' which means: (a) the total advisory fee charged by
the Adviser with respect to each Portfolio; (b) the aggregate fees paid
by the Adviser to all Subadvisers managing assets of each Portfolio;
(c) the net advisory fee retained by the Adviser with respect to each
Portfolio after the Adviser pays all Subadvisers managing assets of the
Portfolio; and (d) fees paid to any Subadviser who is an affiliated
person (as defined in section 2(a)(3) of the Act) of either Trust or
the Adviser other than by reason of serving as a Subadviser (an
``Affiliated Subadviser'').
Applicants' Legal Analysis
1. Section 15(a) of the Act makes it unlawful for any person to act
as investment adviser to a registered investment company except
pursuant to a written contract that has been approved by a majority of
the investment company's outstanding securities. Rule 18f-2 under the
Act 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. Applicants assert that the requested exemption will permit the
Adviser to more efficiently perform the functions the Portfolios are
paying it to perform: selecting and monitoring the performance of
Subadvisers, and changing Subadvisers with Board approval. Applicants
believe that requiring shareholders to approve each new Subadviser
would not only result in unnecessary administrative expense to the
Portfolios, but could also result in harmful delays in executing
changes in Subadvisers. Applicants note that primary responsibility for
management of the Portfolios is vested in the Adviser, subject to
oversight by the respective Board. Applicants also note that its
contracts with the Trusts will remain fully subject to the requirements
of section 15(a) of the Act and rule 18f-2 thereunder, including the
requirements for shareholder voting.
3. Applicants also state that the Trusts' prospectuses disclose
information concerning the identity, ownership, and qualifications of
the Subadvisers in full compliance with Form N-1A. Further, the
information statement described in condition 3 below would provide
shareholders with all information regarding a new Subadviser or a
material change in a Subadvisory Agreement to the same extent as would
be set forth in a proxy statement. Applicants contend that investors
therefore would be in a position to make a fully informed investment
decision as to the purchase, redemption or retention of Portfolio
shares. In addition, applicants assert that, if the exemptive relief is
not granted, all shareholders would bear the higher expenses associated
with formal proxy solicitations without receiving more meaningful
disclosure.
4. Because of the desire of most investment advisers to price their
services based on ``posted'' fee rates, applicants believe that, in the
absence of the requested relief, the Adviser, the Trusts and
shareholders of the Portfolios may be able to obtain a specific
Subadviser's services only by the Adviser paying higher fee rates than
it would otherwise be able to negotiate if the rates were not disclosed
publicly. If the Adviser must pay higher fees, applicants argue that it
must charge the Portfolios or the shareholders higher fees to cover its
cost of doing business. Applicants submit that the nondisclosure of
individual Subadviser's fees is in the best interest of the Portfolios
and their shareholders, where disclosure of such fees would increase
costs to shareholders without an offsetting benefit.
5. Section 6(c) of the Act 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.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. The Adviser will provide general management and administrative
services to the Trusts, including overall supervisory responsibility
for the general management and investment of the Trusts' securities
portfolios, and, subject to review and approval by each Board with
respect to its respective Portfolios, will (a) set the Portfolios'
overall investment strategies; (b) select Subadvisers; (c) monitor and
evaluate the performance of Subadvisers; (d) allocate and, when
appropriate, reallocate a Portfolio's assets among its Subadvisers in
those cases where a Portfolio has more than one Subadviser; and (e)
implement procedures reasonably designed to ensure that the Subadvisers
comply with the Trusts' and the relevant Portfolio's investment
objectives, policies, and restrictions.
2. Before a Portfolio may rely on any order granting the requested
relief, the operation of the Portfolio in the manner described in the
application will be approved by a majority of its outstanding voting
securities (or, in the case of the Series Trust, by the unitholders of
any separate account for which the Series Trust serves as a funding
medium), as defined in the Act, or, in the case of a new Portfolio
whose public shareholders purchased shares on the basis of a prospectus
containing the disclosure contemplated by condition 4 below, by the
sole shareholder before offering of shares of such Portfolio to the
public.
3. Each Trust will furnish to its shareholders all information
about a new Subadviser or Subadvisory Agreement for one of its
Portfolios that would be included in a proxy statement, except as may
be modified by the order with respect to the disclosure of fees paid to
the Subadvisers (the ``Disclosure Order''). Such information will
include disclosure as to the level of fees to be paid to the Adviser
and each Subadviser of the Portfolio (unless the Trust is relying on
the Disclosure Order, in
[[Page 58269]]
which case it will include Aggregate Fee Disclosure) and any change in
such disclosure caused by the addition of a new Subadviser or any
material change in a Subadvisory Agreement. Each Trust will meet this
condition by providing its shareholders with an informal information
statement complying with the provisions of Regulation 14C under the
Exchange Act and Schedule 14C thereunder. With respect to a newly
retained Subadviser, or a change in a Subadvisory Agreement, this
information statement will be provided to shareholders of the Portfolio
a maximum of sixty (60) days after the addition of the new Subadviser
or the implementation of any change in a Subadvisory Agreement. The
information statement will also meet the requirements of Schedule 14A,
except as may be modified by the Disclosure Order. The Series Trust
will ensure that the information statement is furnished to the
unitholders of any separate account for which the Series Trust serves
as a funding medium.
4. Each Trust will disclose in its prospectus the existence,
substance and effect of the order.
5. No trustee, director, or officer of a Trust or director or
officer of the Adviser will own directly or indirectly (other than
through a pooled investment vehicle that is not controlled by any such
director, trustee or officer) any interest in any Subadviser except for
(a) ownership of interests in the Adviser or any entity that controls,
is controlled by or is under common control with the Adviser; or (b)
ownership of less than 1% of the outstanding securities of any class of
equity or debt of a publicly-traded company that is either a Subadviser
or any entity that controls, is controlled by or is under common
control with a Subadviser.
6. The Adviser will not enter into a Subadvisory Agreement with any
Affiliated Subadviser without such agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Portfolio.
7. At all times, a majority of the members of each Board will be
persons each of whom is not an ``interested person'' of the respective
Trust as defined in Section 2(a)(19) 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.
8. When a Subadviser change is proposed for a Portfolio with an
Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Board's minutes, that such change is in the best interests of the
Portfolio and its shareholders (or, in the case of the Series Trust,
the unitholders of any separate account for which the Series Trust
serves as a funding medium) and does not involve a conflict of interest
from which the Adviser or the Affiliated Subadviser derives an
inappropriate advantage.
In addition to the above conditions, applicants agree to comply
with the following conditions prior to relying on the Disclosure Order:
9. Each Trust will disclose both as a dollar amount and as a
percentage of a Portfolio's net assets in its registration statement
the respective Aggregate Fee Disclosure.
10. The Independent Trustees shall retain and be represented by
independent counsel knowledgeable about the Act and the duties of
Independent Trustees. The selection of such counsel shall at all times
be within the discretion of the Independent Trustees.
11. The Adviser will provide the Board, no less frequently than
quarterly, information about the Adviser's profitability on a per-
Portfolio basis. Such information will reflect the impact on
profitability of the hiring or termination of any Subadviser during the
applicable quarter.
12. Whenever a Subadviser is hired or terminated, the Adviser will
provide the Board information showing the expected impact on the
Adviser's profitability.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29040 Filed 11-12-96; 8:45 am]
BILLING CODE 8010-01-M
