[Federal Register Volume 63, Number 14 (Thursday, January 22, 1998)]
[Notices]
[Pages 3364-3367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1493]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23000; 812-10876]


Saratoga Advantage Trust, et al.; Notice of Application

January 14, 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, and from certain disclosure 
requirements under the Act.

SUMMARY OF APPLICATION: The order would permit the investment adviser 
to an open-end registered investment company to enter into subadvisory 
contracts with subadvisers without receiving shareholder approval, and 
grant relief from certain disclosure requirements regarding advisory 
fees paid to subadvisers.

APPLICANTS: Saratoga Capital Management (the ``Manager''), and the 
Saratoga Advantage Trust (the ``Trust'').\1\
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    \1\ Applicants request that the relief apply to any open-end 
registered investment company for which the Manager or any entity 
controlling, controlled by, or under common control with the Manager 
acts as investment 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 in the application.

FILING DATES: The application was filed on November 24, 1997, and 
amended on December 31, 1997. Applicants have agreed to file an 
amendment during the notice period, the substance of which is included 
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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

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copy of the request, personally or by mail. Hearing requests should be 
received by the SEC by 5:30 p.m. on February 9, 1998 and should be 
accompanied by proof of service on the 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 5th Street, N.W., Washington, DC 20549. 
Applicants: 1501 Franklin Avenue, Mineola, NY 11501.

FOR FURTHER INFORMATION CONTACT: Lisa McCrea, Attorney Adviser, at 
(202) 942-0562, or Nayda B. Roytblat, Assistant Director, 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 5th Street, N.W., Washington, DC 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Trust is an open-end management investment company 
registered under the Act. The Trust currently is comprised of seven 
separate investment portfolios (the ``Portfolios''), each of which has 
its own investment objectives and policies.
    2. The Manager is registered as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act''). The Trust has 
entered into an investment management agreement (``Management 
Agreement'') with the Manager under which the Manager serves as 
investment adviser to the Trust and its Portfolios. The Manager retains 
investment advisers registered under the Advisers Act to serve as 
investment advisers to the Portfolios (``Advisers''). Currently each 
Portfolio has a single Adviser although the Manager is authorized to 
select multiple Advisers for each Portfolio.
    3. All Advisers currently must be approved by the Trust's board of 
trustees (``The Board'') and by shareholders. In evaluating prospective 
Advisers, the Manager considers, among other factors, each Adviser's: 
level of expertise; relative performance and consistency of performance 
to investment discipline or philosophy; investment personnel and 
financial strength; and quality of service and client communication. 
The Manager recommends to the Board whether investment advisory 
agreements with Advisers (``Advisory Agreements'') would be renewed, 
modified or terminated. In undertaking this evaluation, the Board 
recognizes that a portion of the fees charged by the Manager pursuant 
to the Management Agreement will be paid by the Manager to the 
Advisers, and the Board will be provided with, and will evaluate, 
information concerning the fees paid by the Manager to the Advisers 
pursuant to the Advisory Agreements.
    4. Subject to the supervision and direction of the Manager and, 
ultimately, the Board, each Adviser's responsibilities are to manage 
the securities investments held by the Portfolio it serves in 
accordance with the Portfolio's stated investment objective and 
policies, and exercise discretionary authority to make investment 
decisions for the Portfolio and place orders to purchase and sell 
securities on behalf of the Portfolio.
    5. The Trust's investment advisory arrangements differ from those 
of traditional investment companies. In the case of the Trust, the 
Manager does not make the day-to-day investment decisions for the 
Portfolios. Instead, the Manager establishes an investment program for 
each Portfolio and selects, supervises and evaluates the Advisers who 
make the day-to-day investment decisions for the respective Portfolios. 
In addition to selecting and monitoring Advisers, the Manager 
supervises the Portfolio's overall investment programs, including 
advising and consulting with the Trustees and the Advisers. The Manager 
monitors the performance of the Trust's outside service providers, 
including the Trust's administrator, transfer agent and custodian. The 
Manager also pays salaries, fees and expenses of the Trust's officers, 
trustees or employees that are directors, officers or employees of the 
Manager.
    6. In return for providing the services described above, the 
Manager currently receives a fee from each Portfolio, computed as a 
percentage of net assets. The Manager pays each Adviser out of this 
fee.
    7. Applicants request an order permitting the Manager to enter into 
and materially amend Advisory Agreements without obtaining shareholder 
approval. Applicants also request an exemption from the disclosure 
provisions described below regarding disclosure of fees paid to each 
Adviser. Each Portfolio will disclose the following (both as a dollar 
amount and as a percentage of a Portfolio's net assets): (a) Aggregate 
fees paid to the Manager and Affiliated Advisers (as defined below); 
and (b) aggregate fees paid to Advisers other than Affiliated Advisers 
(as defined below) (``Aggregate Fee Disclosure''). For purposes of this 
application, an Affiliated Adviser is an Adviser that is an 
``affiliated person'', as defined in section 2(a)(3) of the Act, of the 
Portfolio or Manager, other than by reason of serving as an Adviser of 
a Portfolio.

Applicants' Legal Analysis

    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 
pursuant to a written contract which has been approved by the vote of a 
majority of the investment company's outstanding voting securities. 
Rule 18f-2 provides 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. Certain items of Form N-1A, the registration statement used by 
open-end investment companies, when taken together, may require each 
Portfolio to disclose compensation paid to the investment company's 
investment adviser and the method of computing the fee.
    3. Form N-14, the registration form for business combinations 
involving investment companies, 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 using the format prescribed'' by Form 
N-1A.
    4. 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 (the ``1934 Act''). Certain items of 
Schedule 14A require the following: (a) A proxy statement for a 
shareholder meeting at which a new fee will be established or an 
existing fee increased to include a table of the current and pro forma 
fees using the format prescribed in item 2 of Form N-1A; and (b) a 
proxy statement for a shareholder meeting at which an advisory contract 
is to be voted upon shall include the ``rate of compensation of the 
investment adviser,'' the ``aggregate amount of the investment 
adviser's fees,'' the ``terms of the contract to be acted upon,'' and, 
if a change in fees is proposed, the existing and proposed rate 
schedule for advisory fees paid to the advisers.
    5. Form N-SAR is the semi-annual report filed with the SEC by 
registered investment companies. Form N-SAR requires investment 
companies to disclose the rate schedule for fees paid to investment 
advisers.

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    6. Regulation S-X specifies the requirements for financial 
statements required to be included as part of the registration 
statements and shareholder reports filed with the SEC under the Act and 
the Securities Act of 1933. Section 6-07.2 of Regulation S-X may 
require that the Trust's financial statements contain information 
concerning fees paid to the Advisers.
    7. Applicants believe that investors choose to invest in the 
Portfolios because of the Manager's experience and expertise in 
evaluating, selecting and supervising Advisers. Applicants believe that 
investors expect the Manager and the Board to select the Advisers for 
each Portfolio based on an Adviser's experience and expertise. 
Applicants contend that it is consistent with the protection of 
investors to vest the selection and supervision of the Advisers in the 
Manager because shareholders expect that the Manager will use its 
expertise to select the most able advisers.
    8. Applicants believe that permitting the Manager to perform those 
duties for which shareholders compensate the Manager--the selection, 
supervision and evaluation of Advisers--without incurring unnecessary 
delay or expense is appropriately in the interests of the Portfolios' 
shareholders and will allow each Portfolio to operate more efficiently. 
Applicants contend that, without the delay inherent in holding 
shareholder meetings, the Portfolios will be able to act more quickly 
and with less expense to replace Advisers when the Manager and the 
Trustees believe that a change would benefit a Portfolio. Applicants 
assert that, without exemptive relief, the Trust would be required to 
call meetings of shareholders whenever the Manager determined to employ 
new or additional Advisers, or to approve a new Advisory Agreement 
after an assignment or due to a material change in terms.
    9. Applicants argue that the relief requested from disclosure 
requirements would provide the Manager with more flexibility in 
negotiating fees with new Advisers. Applicants state that some Advisers 
use a ``posted'' rate schedule to set their fees, and that some 
Advisers would be unwilling to negotiate fees lower than the ``posted'' 
rate schedule, unless the rates negotiated for the Portfolios are not 
publicly disclosed. Disclosure of Adviser's fees would therefore lessen 
the Manager's bargaining power, and would not benefit shareholders. 
Applicants state that investors will know the rate of investment 
advisory fees each Portfolio will bear. Applicants assert that 
investors would still be able to determine whether the cost of 
investment advisory services, including the selection and supervision 
of Advisers, is competitive with services and costs which the investor 
could obtain elsewhere.
    10. 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 the exemption is necessary or 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 believe that the requested relief satisfies this standard.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Within 90 days of the hiring of any Adviser, the affected 
Portfolio will furnish its shareholders with all information about a 
new Adviser or Advisory Agreement that would be included in a proxy 
statement. The information will include any change in the disclosure 
caused by the addition of a new Adviser of a Portfolio. The Portfolio 
will meet this condition by providing shareholders, within 90 days of 
the hiring of an Adviser, with an information statement that meets the 
requirements of Regulation 14C and Schedule 14C under the 1934 Act, and 
Item 22 of Schedule 14A under the 1934 Act.
    2. Before a Portfolio may rely on the order requested, the 
operation of the Portfolio as described in the application will be 
approved by a majority of each Portfolio's outstanding voting 
securities, as defined in the Act, or, in the case of a new Portfolio 
whose public shareholders purchase shares on the basis of a prospectus 
containing the disclosure addressed in condition 3 below, by the sole 
shareholder before offering of shares of the Portfolio to the public.
    3. The Trust will disclose in its prospectus the existence, 
substance, and effect of the order. In addition, the Portfolios will 
hold themselves out to the public as employing the management structure 
described in the application. The prospectus will prominently disclose 
that the Manager has ultimate responsibility to oversee Advisers and to 
recommend their hiring, termination, and replacement.
    4. The Manager will provide general management and administrative 
services to the Trust and its Portfolios, including overall supervisory 
responsibility for the general management and investment of each 
Portfolio's securities portfolio, and, subject to review and approval 
by the Board, will: (i) Set the Portfolios' overall investment 
strategies; (ii) recommend and select Advisers; (iii) allocate and 
reallocate the Portfolios' assets among multiple Advisers, if more than 
one exists; (iv) monitor and evaluate the performance of Advisers, and 
(v) implement procedures to ensure that the Advisers comply with the 
Portfolio's investment objectives, policies, and restrictions.
    5. At all times, a majority of the Board will not be ``interested 
persons'' of the Trust within the meaning of the Act (``Independent 
Trustees''), and the nomination of new or additional Independent 
Trustees will be placed within the discretion of the then existing 
Independent Trustees.
    6. When an Adviser change is proposed for a Portfolio with an 
Affiliated Adviser, the Trust's Trustees, including a majority of 
Independent Trustees, will make a separate finding, reflected in that 
Trust's Board minutes, that such change is in the best interests of the 
Portfolio and its shareholders and does not involve a conflict of 
interest from which the Manager or the Affiliated Adviser derives an 
inappropriate advantage.
    7. The Manager will not enter into an Advisory Agreement with any 
Affiliated Adviser without that Advisory Agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Portfolio.
    8. Each Portfolio will disclose in the Trust's registration 
statement the Aggregate Fee Disclosure.
    9. The Manager will provide the Board, no less frequently than 
quarterly, information about the Manager's profitability for each 
Portfolio. The information will reflect the impact on profitability of 
the hiring or termination of any Advisers during the quarter.
    10. Whenever an Adviser is hired or terminated, the Manager will 
provide the Board with information showing the expected impact on the 
Managers' profitability.
    11. At all times, independent counsel knowledgeable about the Act 
and the duties of Independent Trustees will be engaged to represent the 
Independent Trustees of the Trust. The selection of such counsel will 
be placed within the discretion of the Independent Trustees.
    12. No Trustee or officer of the Trust or partner or officer of the 
Manager will own directly or indirectly (other than through a pooled 
investment vehicle over which such person does not have control) any 
interest in an Adviser except for: (i) Ownership of interests in

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the Manager or any entity that controls, is controlled by, or is under 
common control with the Manager; or (ii) ownership of less than 1% of 
the outstanding securities of any class of equity or debt of a publicly 
traded company that is either an Adviser or any entity that controls, 
is controlled by, or is under common control with an Adviser.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-1493 Filed 1-21-98; 8:45 am]
BILLING CODE 8010-01-M