[Federal Register Volume 64, Number 71 (Wednesday, April 14, 1999)]
[Notices]
[Pages 18452-18454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9315]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23777; 812-11568]
American Skandia Trust and American Skandia Investment Services,
Inc.; Notice of Application
April 8, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act.
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SUMMARY: Applicants American Skandia Trust (the ``Fund''), on behalf of
its series AST Putnam Value Growth & Income Portfolio, AST Putnam
International Equity Portfolio and AST Putnam Balanced Portfolio (the
``Portfolios''), and American Skandia Investment Services, Inc. (the
``Manager'') seek an order to permit the implementation, without
shareholder approval, of new investment sub-advisory agreements
(``Interim Agreements'') following the resignation of the investment
sub-adviser to the Portfolios. The order would cover a period beginning
on the date that the termination of the existing sub-advisory agreement
becomes effective (the ``Effective Date'') and continue for a period of
up to 150 days (but in no event later than September 30, 1999) (the
``Interim Period''). The order also would permit the payment of fees
earned under the Interim Agreements during the Interim Period,
following shareholder approval.
FILING DATE: The application was filed on April 8, 1999.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission
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by 5:30 p.m. on April 29, 1999, 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 Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants, One Corporate Drive,
P.O. Box 883, Shelton, Conn. 06484-0883.
FOR FURTHER INFORMATION CONTACT: George J. Zornada, 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
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington,
DC 20549-0102 (tel. (202) 942-8090).
Applicants' Representations
1. The Fund, a Massachusetts business trust, is registered under
the Act as an open-end management investment company. The Fund is
organized as a series company consisting of 29 series, including the
Portfolios. The Manager is registered under the Investment Advisers Act
of 1940 (the ``Advisers Act'') and is the investment adviser to each of
the Portfolios.
2. The advisory agreements between the Portfolios and the Manager
(the ``Management Agreements'') allow the Manager to engage a sub-
adviser for each Portfolio, subject to the approval of the board of
trustees of the Fund (the ``Board'') and the shareholders of the
Portfolios. Under this authority, the Manager entered into investment
sub-advisory agreements for each Portfolio (the ``Existing
Agreements'') with Putnam Investment Management, Inc. (``Putnam''), an
investment adviser registered under the Advisers Act. The Existing
Agreements have been approved by the Board and the shareholders of the
Portfolios in accordance with section 15 of the Act. On March 4, 1999,
Putnam gave written notice of its intent to resign as sub-adviser to
each of the Portfolios (the ``Resignation''). The Effective Date of the
Resignation is scheduled for May 3, 1999. Applicants state that the
terms and timing of the Resignation were wholly determined by Putnam
without advance discussion with applicants, and were not reasonably
foreseeable by the Fund or the Manager.
3. Applicants state that they have conducted preliminary
discussions with candidate organizations to serve as investment sub-
advisers to the Portfolios (``Successor Sub-advisers'') but have not
completed the evaluation process and identified the best candidate or
negotiated terms and conditions of the new investment sub-advisory
agreements for the Portfolios (the ``New Agreements''). Any Successor
Sub-adviser will be an investment adviser registered or exempt from
registration under the Advisers Act. Once applicants have identified an
appropriate candidate as Successor Sub-adviser and negotiated terms and
conditions of a New Agreement, the Board, including a majority of the
trustees who are not interested persons (as defined in section 2(a)(19)
of the Act) of the Manager or the proposed Successor Sub-Adviser
(``Independent Trustees''), will meet to approve the Interim Agreements
and the New Agreements in accordance with section 15(c) of the Act. The
Board currently is scheduled to meet on April 21, 1999.
4. Applicants request an exemption (a) to permit the implementation
during the Interim Period, without shareholder approval, of the Interim
Agreements with the Successor Sub-advisers, and (b) to permit the
Successor Sub-advisers to receive from the Manager, upon approval of
the New Agreements by the Portfolios' shareholders, all fees earned
during the Interim Period. Applicants state that the Interim Agreements
will contain substantially the same terms and conditions as the
Existing Agreements, except for their effective and termination dates
and the name of the Successor Sub-adviser.
5. Applicants propose to enter into an escrow agreement with an
unaffiliated financial institution (``Escrow Agent''). The portion of
the investment advisory fees payable to the Successor Sub-adviser
during the Interim Period under the Interim Agreements would be paid by
the Manager into an interest-bearing escrow account maintained by the
Escrow Agent. The amounts in the escrow account (including any interest
earned on such paid fees) would be paid to the Successor Sub-adviser
only upon approval of the New Agreements by each Portfolio's
shareholders. In the absence of such approval, the amounts will be paid
to the applicable Portfolio. The Board will be notified before any
amounts are released from the escrow account.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in pertinent part, that it
shall be unlawful for any person to serve or act as investment adviser
of 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 such registered investment company.
Rule 15a-4 under the Act provides, in pertinent part, that if an
investment advisory contract with a registered investment company is
terminated by certain events set forth in section 15(a) of the Act, an
adviser may 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 non-interested directors) and (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. Applicants state that the Resignation is not a
termination of an advisory contract by an event set forth in section
15(a) of the Act that is set forth in rule 15a-4 under the Act.
2. Section 6(c) of the Act provides that the Commission 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.
3. Applicants submit that the terms and timing of the Resignation
and subsequent termination of the Existing Agreements were wholly
determined by Putnam, without advance discussion with applicants, and
were not foreseeable. Applicants state that the Effective Date does not
provide the Board with sufficient time to perform adequately its
responsibilities in identifying a Successor Sub-adviser, negotiating
the New Agreements, soliciting proxies, and securing shareholder
approval of the New Agreements. Applicants contend that, under the
circumstances, acceleration of the shareholder approval process would
not be in the best interests of shareholders.
4. Applicants state that the requested relief will allow for the
continued conduct of the Portfolios' investment program, without
disruption, during the Interim Period, and facilitate the orderly and
reasonable consideration of the
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New Agreements by shareholders. Applicants state that the Board,
including the Independent Trustees, will undertake the review required
by section 15(c) of the Act and that the scope and quality of services
provided to the Portfolios by the Successor Sub-adviser during the
Interim Period will be at least equivalent to that provided under the
Existing Agreements. Applicants also state that such services will be
provided at fees unchanged from the fees paid under the Existing
Agreements.
Applicants' Conditions
Applicants agree that the requested order will be subject to the
following conditions:
1. The Interim Agreement for each Portfolio will have substantially
the same terms and conditions as the Existing Agreement for such
Portfolio, except for the name of the Successor Sub-adviser, the
effective and termination dates and the inclusion of escrow
arrangements.
2. The advisory fees payable by the Manager to the Successor Sub-
adviser for each Portfolio during the Interim Period will not be
greater than the fees payable under the Existing Agreement. The portion
of the advisory fees payable by the Manager to the Successor Sub-
adviser during the Interim Period will be maintained in an interest-
bearing escrow account, and amounts in the escrow account (including
interest earned on such amounts) will be paid (a) to the Successor Sub-
adviser after the requisite approval of the New Agreement for such
Portfolio is obtained, or (b) to the Portfolio in the absence of such
approval.
3. Each Portfolio will promptly schedule a meeting of shareholders
to vote on approval of its New Agreement to be held on or before the
150th day following the termination of its Existing Agreement (but in
no event later than September 30, 1999).
4. The Manager will take, and the Successor Sub-adviser for each
Portfolio will be required to take, all appropriate steps so that the
scope and quality of sub-advisory services provided to the Portfolio
during the Interim Period will be at least equivalent, in the judgment
of the Fund's Board, including the Independent Trustees, to the scope
and quality of services previously provided under the Existing
Agreement for the Portfolio.
5. The Board of the Fund, including a majority of the Independent
Trustees, will have approved the Interim Agreement and the New
Agreement for each Portfolio in accordance with the requirements of
section 15(c) of the Act prior to termination of the Existing Agreement
for the Portfolio.
6. The costs of preparing and filing the application and the costs
related to the solicitation of shareholder approval of the New Sub-
advisory Agreements will be borne by the Portfolios, provided that the
Board of Trustees, including a majority of the Independent Trustees,
determines that the Manager or a controlling person of the Manager will
not directly or indirectly receive money or other benefit, including,
but not limited to, an increased portion of the fees under the
Management Agreements for the Portfolios or a reduced level of
responsibility, in connection with the New Sub-advisory Agreements.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-9315 Filed 4-13-99; 8:45 am]
BILLING CODE 8010-01-M
