[Federal Register Volume 63, Number 140 (Wednesday, July 22, 1998)]
[Notices]
[Pages 39303-39306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19497]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23316; 812-11002]
Allmerica Investment Trust, et al; Notice of Application
July 15, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (``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.
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SUMMARY OF APPLICATION: Applicants request an order to permit them to
enter into and amend subadvisory agreements without receiving
shareholder approval, and grant relief from certain disclosure
requirements regarding advisory fees paid to the subadvisers.
APPLICANTS: Allmerica Investment Trust (``Trust'') and Allmerica
Financial Investment Management Services, Inc. (``Adviser'').\1\
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\1\ Applicants request relief with respect to future series of
the Trust, and any other registered open-end management investment
company advised by the Adviser or any entity controlling, controlled
by, or under common control with the 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 of the application.
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FILING DATE: The application was filed on February 10, 1998 and amended
on July 2, 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 August 10, 1998,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service.
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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, N.W., Washington, D.C.
20549. Applicants, 440 Lincoln Street, Worcester, Massachusetts 01653.
FOR FURTHER INFORMATION CONTACT: Edward P. Macdonald, 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 at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
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 is composed
of 14 series (``Funds''), each of which has its own investment
objectives and policies. Shares of each Fund may be purchased only by
the separate accounts established by First Allmerica Financial Life
Insurance Company or Allmerica Financial Life Insurance and Annuity
Company for the purpose of funding variable annuity contracts and life
insurance policies.
2. The Adviser is registered under the Investment Advisers Act of
1940 (``Advisers Act'') and serves as the investment adviser to the
Trust and the Funds under an investment advisory agreement (``Advisory
Agreement''). The adviser is responsible for the management of the
Trust's day-to-day business affairs, has general responsibility for the
management of the investments of the Funds, and performs administrative
and management services for the Trust. In return for providing these
services, the Adviser receives a fee from each Fund, computed as a
percentage of net assets.
3. Specific portfolio management for each Fund is performed by
investment advisers registered under the Advisers Act that serve as
investment subadvisers to the Funds (``Subadvisers''). Currently each
Fund has a single Subadviser although the Adviser is authorized to
select multiple Subadvisers for each Fund. All Subadvisers must be
approved by the Trust's board of trustees (``Board''), including a
majority of the trustees who are not ``interested persons'' (as defined
in section 2(a)(19) of the Act) of the Trust (``Independent
Trustees''), the Adviser or the Subadvisers, and by shareholders. The
Adviser pays each Subadvier out of the fee the Funds pay to the
Adviser.
4. In evaluating prospective Subadvisers, the Adviser considers,
among other factors, each Subadviser's management experience,
investment techniques and staffing. The Adviser recommends to the Board
whether investment advisory agreements with Subadvisers (``Subadvisers
Agreements'') should be renewed, modified or terminated.
5. Applicants request an order to permit them to enter into and
materially amend Subadvisory Agreements without receiving shareholder
approval. The requested relief will not extend to a Subadviser that is
an ``affiliated person'' of either the Trust or the Adviser, as defined
in section 2(a)(3) of the Act, other than by reason of serving as a
Subadviser to one or more of the funds (``Affiliated Subadviser'').
Applicants also request an exemption to permit the Funds to disclose
(both as a dollar value and as a percentage of a Fund's net assets):
(1) aggregate fees paid to the Adviser; and (2) aggregate fees paid to
Subadvisers other than Affiliated Subadvisers (``Limited Fee
Disclosure''). For any fund that employs an Affiliated Subadviser, the
Fund will provide separate disclosure of any fees paid to the
Affiliated Subadviser.
Applicants' Legal Analysis
Shareholder Voting
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
under a written contract which has been approved by the vote of a
majority of the outstanding voting securities. Rule 18f-2 provides that
each series or class of stock in a series company affected by a matter
must approve the matter if the Act requires shareholder approval.
2. Section 6(c) authorizes the SEC to exempt persons or
transactions from the provisions of the Act to the extent that such
exemption is 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 request relief under
section 6(c) from sections 15(a) of the act and rule 18f-2 under the
Act to permit them to enter into and materially amend Subadvisers
Agreements without shareholder approval.
3. Applicants state that investors in a Fund are, in effect,
electing to have the Adviser select one or more Subadvisers best suited
to achieve that Fund's investment objectives. Part of the investors'
investment decision is a decision to have such selections made by a
professional management organization, such as the Adviser, with
substantial experience in making such evaluations and selections (or in
recommending the termination of Subadvisers, as deemed appropriate by
the Adviser). Thus, the role of the Subadvisers from the perspective of
the investors, is comparable to that of the individual portfolio
managers employed by other investment company investment advisory
firms. Applicants thus assert that the requested relief would allow the
Adviser to more efficiently perform its principal functions of
selecting, monitoring, and making changes in the role of the
Subadvisers.
4. Applicants also state that because investors are relying on the
Adviser for investment results and overall management services, it is
the agreement with the Adviser over which a Fund's shareholders should
exercise control. If the relief requested is granted, the Advisory
Agreement between the Trust and the Adviser will continue to be fully
subject to section 15 of the Act and rule 18f-2.
Fee Disclosure
5. Form N-1A is the registration statement used by open-end
investment companies. Items 2, 5(b)(iii), and 16(a)(iii) of Form N-1A
(and after the effective date of the amendments to Form N-1A, items 3,
6(a)(1)(iii), and 15(a)(3)), require disclosure of the method and
amount of the investment advisers, compensation.
6. Form N-14 is the registration form for business combinations
involving open-end investment companies. Item 3 of Form N-14 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.''
7. 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 (``Exchange Act''). Item 22(a)(3)(iv)
of Schedule 14A requires a proxy statement for a shareholder meeting at
which a new fee will be established or an existing fee will be
increased to include a table of the current and pro forma fees. Items
22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8), and 22(c)(9), taken together,
require a proxy statement for a shareholder meeting at which the
advisory contract will be voted upon to include the ``rate of
compensation of the investment
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adviser,'' the ``aggregate amount of the investment adviser's fees,'' a
description of ``the terms of the contract to be acted upon,'' and, if
a change in the advisory fee is proposed, the existing and proposed
fees and the difference between the two fees.
8. Form N-SAR is the semi-annual report filed with the SEC by
registered investment companies. Item 48 of Form N-SAR requires
investment companies to disclose the rate schedule for fees paid to
their investment advisers, including the Subadvisers.
9. Regulation S-X sets forth the requirements for financial
statements required to be included as part of investment company
registration statements and shareholder reports filed with the SEC.
Sections 6-07(2)(a), (b), and (c) of Regulation S-X require that
investment companies include in their financial statements information
about investment advisory fees.
10. Applicants request relief under section 6(c) from the above
disclosure requirements to provide Limited Fee Disclosure. Applicants
argue that, with the information provided in the Limited Fee
Disclosure, investors will have adequate information to compare the
advisory fees of the Funds with those of other funds. Applicants
believe that, while the amount of the total fees retained by the
Adviser is relevant to the investors' determination of the value of the
Adviser's services, the specific portion of the total fee paid to an
individual Subadviser provides no useful information since the
investors have engaged the Adviser to select, monitor, and compensate
the Subadvisers. Applicants also believe that because some investment
advisers price their services based on ``posted'' fee rates, the
Adviser, without the requested relief, may only be able to obtain a
specific Subadviser's services by paying higher fee rates than it would
otherwise be able to negotiate if the rates paid were not disclosed
publicly.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Fund may rely on the requested order, the operation of
the Fund as described in the application will be approved by a majority
of the outstanding voting securities, as defined in the Act, of the
Fund, (or, in the case of the Trust, pursuant to voting instructions
provided by contract owners with assets allocated to any separate
account for which a Fund serves as a funding medium), or, in the case
of a new Fund whose public shareholders purchased shares on the basis
of a prospectus containing 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
prospectuses the existence, substance, and effect of any order granted
pursuant to the application. In addition, each Fund will hold itself
out to the public as employing the management structure described in
the application. The prospectus will prominently disclose that the
Adviser has ultimate responsibility to oversee Subadvisers and to
recommend their hiring, termination, and replacement.
3. The Adviser will provide general management services to the
Trust and its Funds and subject to the review and approval of the
Board, will: set the overall investment strategies of the Funds;
recommend Subadvisers; when appropriate, allocate and reallocate the
assets of a Fund among Subadvisers; monitor and evaluate the investment
performance of the Subadvisers; and ensure that the Subadvisers comply
with the investment objectives, policies, and restrictions of the
respective Funds.
4. A majority of the Board will continue to be Independent
Trustees, and the nomination of new or additional Independent Trustees
will continue to be placed within the discretion of the then existing
Independent Trustees.
5. The Adviser will not enter into a Subadvisory Agreement for a
Fund with any Affiliated Subadviser without such agreement, including
the compensation to be paid thereunder, being approved by the
shareholders of the applicable Fund (or in the case of the Trust,
pursuant to voting instructions provided by contract owners with assets
allocated to any separate account for which the Fund serves as a
funding medium).
6. When a change of Subadviser is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
minutes of meetings of the Board, that the change of Subadviser is in
the best interests of the Fund and its shareholders (or in the case of
the Trust, of the contract owners with assets allocated to any separate
account for which the Fund 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.
7. No director, Trustee or officer of the Trust or 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 a Subadviser except for ownership of interests
in the Adviser or any entity that controls, is controlled by, or under
common control with the Adviser or ownership of less than 1% of the
outstanding securities of any class of equity or debt securities of any
publicly-traded company that is either a Subadviser or an entity that
controls, is controlled by, or is under common control with a
Subadviser.
8. Within ninety (90) days of the hiring of any new Subadviser the
affected Fund will furnish its shareholders with all information about
the new Subadviser or Subadvisory Agreement that would be included in a
proxy statement, except as modified by the order to permit Limited Fee
Disclosure. Such information will include Limited Fee Disclosure and
any change in such disclosure caused by the addition of a new
Subadviser or any proposed material change in the Subadvisory Agreement
of a Fund. The Fund will meet this condition by providing shareholders,
within 90 days of the hiring of a Subadviser with an information
statement meeting the requirements of Regulation 14C and Schedule 14C
under the Exchange Act. The information statement also will meet the
requirements of Items 22 of Schedule 14A under the Exchange Act, except
as modified by the order to permit Limited Fee Disclosure. The Trust
will ensure that the information statement is furnished to contract
owners with assets allocated to any separate account for which the
Trust serves as a funding medium.
9. The Trust will disclose in its registration statement the
Limited Fee Disclosure.
10. Independent counsel knowledgeable about the Act and the duties
of Independent Trustees will be engaged to represent the Independent
Trustees. The selection of such counsel will be placed 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. An annual
report also will be provided to Trustees which shall contain
information about the Adviser's profitability calculated on a per-Fund
basis. Such information will reflect the impact on profitability of the
hiring or termination of any Subadvisers during the applicable quarter.
12. Whenever a Subadviser is hired or terminated, or a Subadvisory
Agreement is materially amended (including any change in the fee paid
to the Subadviser), the Adviser will provide the Board information
showing the expected impact on the Adviser's
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profitability. In addition to any other information the Board may
request, the Adviser will provide information concerning the Adviser's
profitability for the preceding quarter with respect to the relevant
Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Joanathan G. Katz,
Secretary.
[FR Doc. 98-19497 Filed 7-21-98; 8:45 am]
BILLING CODE 8010-01-M
