[Federal Register Volume 60, Number 146 (Monday, July 31, 1995)]
[Notices]
[Pages 39065-39068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18705]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21249/812-9480]
SunAmerica Series Trust, et. al.; Notice of Application
July 25, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
APPLICANTS: SunAmerica Series Trust (``SunAmerica Trust''), Anchor
Pathway Fund (``Anchor Fund''), Anchor Series Trust (``Anchor Trust'');
and SunAmerica Equity Funds, SunAmerica Income Funds and SunAmerica
Money Market Funds, Inc. (collectively, the ``Retail Funds'').
RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 17(b)
for an exemption from section 17(a) and rule 17g-1(b) thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit each of
applicants' present and future series (each, a ``Fund'') to (a)
purchase fidelity bond coverage and/or directors' and officers'/errors
and omissions (``D&O/E&O'') insurance (fidelity bond and D&O/E&O
insurance collectively referred to as ``Insurance Coverage'') from
National Union Fire Insurance Company of Pittsburgh, PA or any other
insurance company that may be an affiliated person of an affiliated
person of such Fund solely because the affiliated person is a
subadvisor to the Fund and (b) settle any claims that may arise in
connection with such Insurance Coverage. The order also would permit
Anchor Fund to be named as a joint insured on a fidelity bond with the
other Funds, even though Anchor Fund does not meet the requirements of
rule 17g-1(b)(3) under the Act.
FILING DATE: The application was filed on February 13, 1995 and amended
on July 6, 1995.
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
[[Page 39066]]
received by the SEC by 5:30 p.m. on August 21, 1995, 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 SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, D.C.
20549. Applicant, 733 Third Avenue, New York, New York 10017.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney, at
(202) 942-0574, or Robert A. Robertson, 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.
Applicants' Representations
1. SunAmerica Trust, a registered open-end management investment
company, has fourteen series Funds. Shares of SunAmerica Trust are
issued only in connection with investments in variable annuity
contracts issued by Anchor National Life Insurance Company (``Anchor
National''). Anchor National is a wholly owned subsidiary of Sun Life
Insurance Company of America, a wholly owned subsidiary of SunAmerica
Inc. SunAmerica Asset Management Corp. (``SAAMCo''), an indirect wholly
owned subsidiary of Anchor National, serves as investment adviser for
all the Funds of SunAmerica Trust. All of the Funds of SunAmerica
Trust, except the High-Yield Bond Portfolio and the Cash Management
Portfolio, have a subadviser which is not an affiliated person or an
affiliated person of an affiliated person of SAAMCo.
2. Anchor Fund, a registered open-end management investment
company, has seven series Funds. Shares of the Anchor Fund are issued
in connection with investments in variable annuity contracts issued by
Anchor National. Capital Research and Management Company serves as the
investment adviser to the Anchor Fund. Anchor Investment Adviser, Inc.,
an indirect wholly owned subsidiary of Anchor National and an affiliate
of SAAMCo and SunAmerica Capital Services, Inc. (``SACS''), is the
Anchor Fund's business manager.
3. Anchor Trust, a registered open-end management investment
company, has twelve series funds. Shares of Anchor Trust are issued
only in connection with investments in variable annuity and variable
life insurance contracts issued by Anchor National, Phoenix Mutual,
First SunAmerica Life Insurance Company and Presidential Life Insurance
Company. First SunAmerica Life Insurance Company is an indirect wholly-
owned subsidiary of SunAmerica Inc. SAAMCo serves as investment
adviser, and Wellington Management Company serves as subadviser, to all
the Funds of Anchor Trust.
4. SunAmerica Equity Funds and SunAmerica Income Funds are
registered open-end management investment companies. SunAmerica Equity
Funds has six series Funds and SunAmerica Income Funds has five series
Funds. SunAmerica Money Market funds, Inc., a registered open-end
management investment company, has one series fund. Shares of these
Retail Funds are offered to the public. SACS acts as distributor to the
Retail Funds and is an indirect wholly owned subsidiary of Anchor
National and an affiliate of SAAMCo. SAAMCo is the investment adviser
for all Funds comprising the Retail Funds. GSAM International and
American International Group Asset Management, Inc. (``AIGAM'') serve
as subadvisers for certain portions of the Global Balanced fund series
of SunAmerica Equity Funds. In addition, AIGAM has subcontracted with
its affiliate, AIGAM International Limited, to provide the Global
Balanced Fund with asset allocation and subadvisory services in respect
to European securities markets. Each of AIGAM and AIGAM's affiliated
companies is an indirect wholly owned subsidiary of American
International Group, Inc., an international insurance organization.
5. National Union Fire Insurance Company of Pittsburgh, PA
(``National Union'') is a wholly-owned subsidiary of American
International Group, Inc. Neither National Union nor any affiliated
person thereof is an affiliated person of SAAMCo, Anchor Investment
Adviser, Inc., Anchor National, or any officer, trustee, director or
employee of any applicant. Neither National Union nor any affiliated
person thereof owns 5% or more of the shares of any Fund.
6. Applicants request that a Fund be permitted to (a) Purchase
Insurance Coverage from National Union or any other insurance company
who may be an affiliated person of an affiliated person of such Fund
solely because the affiliated person is a subadviser to the fund and
(b) settle any claims that may arise in connection with such Insurance
Coverage. Applicants further request relief for any other registered
investment company, or series thereof, which in the future is advised
by SAAMCo, or an entity in control of, controlled by, or under common
control with SAAMCo, or whose shares are distributed by SACS, or an
entity in control of, controlled by, or under common control with SACS,
and which is a member of the SunAmerica ``[g]roup of investment
companies'' as defined in rule 11a-3(a)(5) under the Act. At present,
the only existing Fund that may rely on the requested relief is the
Global Balanced Fund because of the relationship between AIGAM and
National Union.
7. Applicants also request that Anchor Fund be named as a joint
insured on a fidelity bond with the other Funds.
8. All of the Funds (except Anchor Fund) are currently joint
insureds under one fidelity bond and one D&O/E&O policy in order to
obtain the maximum coverage for the lowest possible cost. One of the
methods of negotiating coverage and premiums is to solicit quotations
from as many different insurance companies as possible. Applicants
believe that there are only five major carriers of fidelity bond
coverage, including National Union, with a combined capacity of over
$100 million, and that there are several other carriers that provide
excess rather than primary coverage. National Union is one of the
highest rated of these companies and applicants believe that National
Union accounts for a significant amount of this capacity. Given the
limited universe of insurance companies that provide fidelity bond
coverage, applicants believe that it is not in the best interests of
the Funds or their shareholders to preclude the funds from purchasing
Insurance Coverage from an insurance company such as National Union
merely because of its affiliation with the subadviser to one or more of
the Funds.
9. Applicants state that no person who is potentially in a position
to control or influence SAAMCo or the Funds' decisions with respect to
Insurance Coverage will have a relationship with any affiliated
insurance company from which coverage will be purchased or with which
settlements will be negotiated. Pursuant to the conditions set forth
below, in addition to the finings to be made by the trustees of each
Fund at the time of purchasing Insurance Coverage, rule 17g-1 requires
that the trustees of each Fund who are not interested persons of the
Fund (the ``disinterested
[[Page 39067]]
trustees''), approve the form and amount of fidelity bond coverage for
each Fund, as well as the allocation of the premium of a joint insured
bond. Similarly, rule 17d-1(d)(7) requires the disinterested to make
certain findings relating to each Fund's participation in a joint D&O/
E&O insurance policy and the proposed allocation of premiums.
Applicants believe that the requirements of approval by the
disinterested trustees impose an additional level of protection against
any conflicts of interest which could arise from the use of an
affiliated insurance company.
10. Anchor Fund is currently covered by a single insured bond.
Applicants state that the inclusion of Anchor Fund as an additional
insured on a joint bond will result in cost savings for Anchor Fund for
at least comparable coverage to that which it currently maintains.
Applicants believe that there are economies of scale realized in the
pricing of fidelity bonds. Applicants state that the inclusions of
Anchor Fund as an additional insured on the other Funds' joint bond
will potentially result in lower costs of coverage for such other
Funds. Therefore, the addition of Anchor Fund could potentially allow a
greater number of insureds to share the same costs, thereby reducing
the cost for each insured.
Applicants' Legal Analysis
1. Section 17(a), in pertinent part, prohibits an affiliated person
of a registered investment company, acting as principal, from selling
to or purchasing from such registered company, any security or other
property. Section 17(b) provides that the SEC may exempt a transaction
from section 17(a) if evidence establishes that the terms of the
proposed transaction, including the consideration to be paid, are
reasonable and fair and do not involve overreaching on the part of any
person concerned, and that the proposed transaction is consistent with
the policy of the registered investment company concerned and with the
general purposes of the Act. The sale of fidelity bond coverage to a
fund by an affiliated person or an affiliated person of an affiliated
person is a principal transaction prohibited by section 17(a). The
settlement of claims under such a fidelity bond also would be
prohibited by section 17(a) because the settlement of a claim under an
insurance policy entails the release of a property right (i.e., of a
right to sue under the policy with respect to the claim).
2. Applicants state that the only type of principal transaction
intended to be permitted under the requested order is one that might be
deemed to be prohibited by section 17(a) solely because of an insurance
company's relationship with the subadviser to one or more Funds.
Applicants believe that the proposed transactions will meet the
standards of section 17(b). SAAMCo is the entity responsible for
negotiating the Insurance Coverage on behalf of each Fund, as well as
any settlements of claims submitted to the insurance company. SAAMCo
and its affiliates will be unaffiliated with any insurance company that
may be considered to provide any part of such Insurance Coverage. In
all cases for which relief is being sought, the sudadviser and the
affiliated insurance company will be separate legal entities.
Accordingly, if SAAMCo decides to purchase all or any portion of the
Funds' Insurance Coverage from an affiliated insurance company, or to
settle a claim with an affiliated insurance company for less than the
face amount thereof, SAAMCo can neither lose nor gain financially on
the basis of whether the transaction is beneficial or detrimental to
such affiliated insurance company.
3. SAAMCo, SACS and Sun America Fund Services, Inc. (``SAFS''), (an
affiliate of SAAMCo and SACS which serves as shareholder servicing
agent for the Retail Funds), are joint insureds under the Fund's
current Insurance Coverage. SAAMCo therefore has an interest in
obtaining the best possible coverage at the lowest possible cost for
all of the insureds. Furthermore, applicants state that in negotiating
the amount of any extra-judicial settlement under Insurance Coverage on
behalf of a Fund with an affiliated insurance company, SAAMCo has an
interest in maximizing the Fund's recovery. SAAMCo's advisory fees are
determined as a percentage of Fund assets, and, accordingly, SAAMCo has
an interest in maximizing the assets of each Fund. Applicants believe
that because there will be no conflict of interest inherent in the
Funds' decision to purchase Insurance Coverage from an affiliated
insurance company or to settle a claim under such coverage, there is no
danger of overreaching on the part of any person concerned with the
transaction.
4. Section 17(g) and rule 17g-1 thereunder require that officers
and employees of investment companies with access to company assets be
bonded against larceny and embezzlement by a reputable fidelity
insurance company. Under the rule, a group of related investment
companies or an investment company and certain affiliates may use a
joint insured bond. Rule 17f-1(b)(3) specifies the types of persons
that may be joint insureds under a fidelity bond. Under section 6(c),
the SEC may exempt classes of transactions from any provisions of the
Act or of any rule 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.
5. Applicants request that Anchor Fund be permitted to be named as
a joint insured on a joint fidelity bond with the other Funds, SAAMCo,
SACS and SAFS, even though Anchor Fund does not meet the requirements
of rule 17g-1(b)(3). Applicants state that Anchor Investment Adviser,
Inc., an affiliate of SAAMCo, is the business manager for Anchor Fund
and as such acts as administrator for Anchor Fund. In addition, the
officers and trustees of Anchor Fund are the same persons as the
officers and trustees of SubAmerica Trust. Applicants believe that
there is a reasonable business relationship between Anchor Fund and the
other Funds and that the inclusion of Anchor Fund in a bond with the
other Funds is consistent with the intention reflected in rule 17g-
1(b)(3) to permit participation in a joint bond by investment companies
that are related.
Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Prior to the purchase of any Insurance Coverage from an
affiliated insurance company, and before any material amendment to such
Insurance Coverage, a majority of the trustees of each of the Funds,
and a majority of the trustees who are not interested persons of the
Funds, will find that the Insurance Coverage selected will provide the
best available protection for shareholders of the Funds ad the lowest
cost available in light of the coverage.
2. In the event of a loss covered by such Insurance Coverage, the
trustees of the Fund incurring the loss, including a majority of the
trustees who are not interested persons of the Fund, will evaluate and
approve the amount of the loss, and the Fund will submit a claim for
that amount to the affiliated insurance company. If the affiliated
insurance company makes a insurance offer for less than the amount
submitted, the adequacy of the settlement offer will be evaluated by
the Fund's trustees. Such a settlement may be accepted if the trustees
of the Fund, including a majority of the trustees who are not
interested persons of the Fund, determine that the settlement offer is
reasonable and fair and does not involve overreaching on the part of
the affiliated
[[Page 39068]]
insurance company and is in the best interest of the Fund and its
shareholders.
3. The board will record and preserve a description of al
affiliated insurance company transactions, their findings, the
information or materials upon which their findings are based and the
basis thereof. All such records will be maintained for a period of not
less than six years, the first two years in an easily accessible place,
and will be available for inspection by the staff of the SEC.
For the Commission, by the Division of Implementation
Management, under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-18705 Filed 7-28-95; 8:45 am]
BILLING CODE 8010-01-M