[Federal Register Volume 63, Number 25 (Friday, February 6, 1998)]
[Notices]
[Pages 6240-6241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3008]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23017; 812-10570]
American Odyssey Funds, Inc., et al.; Notice of Application
February 2, 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.
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SUMMARY OF APPLICATION: Applicants request an order to permit them to
enter into and materially amend investment subadvisory agreements
without shareholder approval.
Applicants: American Odyssey Funds, Inc. (``AOF'') and American
Odyssey Funds Management. Inc. (the ``Manager'').
FILING DATE: The application was filed on March 12, 1997 and amended on
October 9, 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 copy of the request, personally or by mail.
Hearing requests should be received by the SEC by 5:30 p.m. on February
27, 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington D.C.
20549. Applicants, Two Tower Center, East Brunswick, New Jersey 08816.
FOR FURTHER INFORMATION CONTACT:
John K. Forst, Attorney Advisor, at (202) 942-0569, or Mary Kay Frech,
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, 450 Fifth Street, N.W., Washington,
D.C. 20549 (Tel. 202-942-8090).
Applicants' Representations
1. AOF is a Maryland corporation registered under the Act as an
open-end management investment company currently offering six series
(the ``Funds''.\1\ Shares of each Fund are sold only to variable
contract separate account and qualified retirement plans. A majority of
each Fund's shares underlie variable annuity contracts held by contract
owners.
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\1\ Applicants request that the order exempt all current and
future series of AOF.
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2. The Manager, a wholly-owned indirect subsidiary of Travelers
Group Inc. and a member of the Copeland Companies (a related group of
indirect subsidiaries of Travelers Group Inc.) is registered as an
investment adviser under the Investment Advisers Act of 1940
(``Advisers Act''). AOF has entered into an investment management
agreement (the ``Management Agreement'') with the Manager. The Manager
has overall supervisory and administrative responsibility for each of
the Funds, and selects and supervises one or more subadvisers for each
Fund. The Manager is paid a fee by each Fund based on its average daily
net assets.
3. Subject to the general supervision of the board of directors of
AOF (the ``Board''), the Manager (a) Sets each Fund's overall
investment strategies; (b) evaluates, selects, and recommends
subadvisers to manage all or a part of each Fund's assets; (c) monitors
and evaluates the subadvisers' investment program and results; and, (d)
reviews each Fund's compliance with its investment objectives,
policies, and restrictions. In addition, the Manager recommends to the
Board whether subadvisers' agreements should be renewed, modified, or
terminated. The Manager and a consultant retained by the manager to
help it evaluate subadvisers, provide information to the Board to aid
it in making its determinations. The Board generally reviews
comparative information provided by the Manager and the consultant
regarding fees charged by other investment advisers for similar
services. The Board receives quarterly reports for its regular meeting
regarding the performance of each subadviser and the results of the
Manager's evaluation and monitoring functions. The reports provide an
overall assessment of the investment subadviser and, if appropriate,
would include any recommendation for action with respect to the
subadvisory agreement.
4. The subadvisers, each of which is an investment adviser
registered under the Advisers Act, furnished discretionary investment
advisory services in connection with the management of the Funds. A
subadviser has some or all of a Fund's assets allocated to it and is
responsible for the day-to-day investment management of those assets,
subject to the Fund's investment objectives and policies and to the
Manager's supervision.
5. Each Fund currently has a single subadviser, except for the
American Odyssey Emerging Opportunities Fund, which has two
subadvisers. AOF may employ multiple subadvisers for any Fund in the
future. Currently, subadvisers' fees are paid by the Manager out of the
fees paid by a Fund to the Manager at rates negotiated by the Manager.
The Manager pays each subadviser a fee using a formula based on average
daily net assets of the Fund. At a special meeting held on April 23,
1997, persons having voting rights \2\ approved a new Management
Agreement between AOF and the Manager that will become effective only
if the relief requested in the application is granted. Under the new
Management Agreement, AOF would pay all subadvisory fees directly,
rather than paying those fees to the Manager (who would then pay the
appropriate fee to each subadviser), based upon net assets
[[Page 6241]]
allocated to the subadviser. The new Management Agreement would
authorize AOF and the Manager to enter into new subadvisory agreements
at fee rates different than the current ones, provided that any new fee
rate is less than or equal to a maximum fee rate approved by persons
having voting rights with respect to the applicable Fund. These maximum
fee rates are slightly higher than the fee rates currently in effect in
order to provide AOF and the Manager some flexibility if they determine
they can obtain superior subadvisory services by paying slightly higher
fees.
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\2\ Depending upon applicable law or the terms of the insurance
contract or qualified plan, the right to vote shares is held by
contract owners, insurance companies, plan participants, or plan
trustees (collectively, ``persons having voting rights'').
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6. Applicants request an exemption to permit the Manager and AOF to
enter into and amend subadvisory agreements without approval by persons
having voting rights with respect to the Funds. The Management
Agreement between the Manager and AOF would continue to be subject to
the shareholder voting requirements of section 15(a).
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 company's outstanding voting securities. Rule 18f-2 under the Act
provided 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 believe that under AOF's manager/subadviser
structure, subadvisers take the place of individual portfolio managers
in a conventional fund context. Applicants state that investors expect
the Manager to select and retain subadvisers who successfully meet the
Fund's objectives and policies and replace those who do not. Applicants
assert that persons having voting rights have determined to rely on the
Manager's ability to select, monitor, and terminate subadvisers.
Applicants contend that requiring shareholder approval of subadvisers
and subadvisory agreements would impose costs on the Funds without
advancing shareholder interests.
3. Applicants will not enter into or amend any subadvisory
agreement that would increase the subadvisory fee beyond the maximum
fee approved by persons having voting rights with respect to the
applicable Fund, without such agreement, including the compensation to
be paid thereunder, being approved by the persons having voting rights
with respect to the applicable Fund.
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.
Applicants' Conditions
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following conditions:
1. Before any Fund may rely on the order requested in this
application, the operation of the Fund in the manner described in the
application will be approved by a majority vote of persons having
voting rights with respect to the Fund, or, in the case of a new Fund
whose prospectus contains the disclosure contemplated by condition 2
below, by the sole initial shareholder(s) before offering shares of
such Fund to the public.
2. Any Fund relying on the requested relief will disclose in its
prospectus the existence, substance, and effect of any order granted
pursuant to the application. In addition, any such Fund will hold
itself out to the public as employing the ``manager/subadviser''
structure described in the application. The prospectus will prominently
disclose that the Manager has ultimate responsibility to oversee the
subadvisors and recommend their hiring, termination, and replacement.
3. The Manager will provide management and administrative services
to AOF and, subject to the review and approval by the Board, will: (a)
Set each Fund's overall investment strategies; (b) evaluate, select,
and recommend subadvisers to manage all or a part of a Fund's assets;
(c) allocate and, when appropriate, reallocate each Fund's assets among
subadvisers; (d) monitor and evaluate subadviser performance; and (e)
oversee subadviser compliance with the applicable Fund's investment
objective, policies, and restrictions.
4. A majority of the Fund's Board will be persons who are not
``interested persons'' (as defined in section 2(a)(19) of the Act) of
AOF (``Independent Directors''), and the nomination of new or
additional Independent Directors will be placed within the discretion
of the then existing Independent Directors.
5. AOF will not enter into a subadvisory agreement with any
subadviser that is an ``affiliated person'' of the Fund (as defined in
section 2(a)(3) of the Act) (``Affiliated Subadviser'') other than by
reason of serving as subadviser to one or more Funds without such
subadvisory agreement, including the compensation to be paid
thereunder, being approved by the persons having voting rights with
respect to the applicable Fund.
6. When a subadviser change is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Independent Directors, will make a separate finding, reflected in the
Board minutes, that such change is in the best interests of the
applicable Fund and persons having voting rights with respect to that
Fund and that such change does not involve a conflict of interest from
which the Manager or the Affiliated Subadviser derives inappropriate
advantage.
7. No director, trustee, or officer of AOF or the Manager 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 a subadviser except for ownership of (a) interests in the
Manager or any entity that controls, is controlled by, or is under
common control with the Manager, or (b) less than 1% of the outstanding
securities of any class of equity or debt of a publicly-traded company
that is either a subvadviser or an entity that controls, is controlled
by, or is under common control with a subadviser.
8. Within 90 days of the hiring of any new subadviser, the Manager
will furnish person having voting rights with respect to the
appropriate Fund with all information about the new subadviser or
subadvisory agreement that would be included in a proxy statement. Such
information will include any changes caused by the addition of a new
subadviser. To meet this condition, the Manager will provide persons
having voting rights with an information statement meeting the
requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule
14A under the Securities Exchange Act of 1934.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-3008 Filed 2-5-98; 8:45 am]
BILLING CODE 8010-01-M
