[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]



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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'').

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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 

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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