[Federal Register Volume 63, Number 25 (Friday, February 6, 1998)]
[Notices]
[Pages 6240-6241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3008]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23017; 812-10570]


American Odyssey Funds, Inc., et al.; Notice of Application

February 2, 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.

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SUMMARY OF APPLICATION: Applicants request an order to permit them to 
enter into and materially amend investment subadvisory agreements 
without shareholder approval.
    Applicants: American Odyssey Funds, Inc. (``AOF'') and American 
Odyssey Funds Management. Inc. (the ``Manager'').

FILING DATE: The application was filed on March 12, 1997 and amended on 
October 9, 1997. Applicants have agreed to file an amendment during the 
notice period, the substance of which is included 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 copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on February 
27, 1998 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington D.C. 
20549. Applicants, Two Tower Center, East Brunswick, New Jersey 08816.

FOR FURTHER INFORMATION CONTACT:
John K. Forst, Attorney Advisor, at (202) 942-0569, or Mary Kay Frech, 
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 from 
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, 
D.C. 20549 (Tel. 202-942-8090).

Applicants' Representations

    1. AOF is a Maryland corporation registered under the Act as an 
open-end management investment company currently offering six series 
(the ``Funds''.\1\ Shares of each Fund are sold only to variable 
contract separate account and qualified retirement plans. A majority of 
each Fund's shares underlie variable annuity contracts held by contract 
owners.
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    \1\ Applicants request that the order exempt all current and 
future series of AOF.
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    2. The Manager, a wholly-owned indirect subsidiary of Travelers 
Group Inc. and a member of the Copeland Companies (a related group of 
indirect subsidiaries of Travelers Group Inc.) is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). AOF has entered into an investment management 
agreement (the ``Management Agreement'') with the Manager. The Manager 
has overall supervisory and administrative responsibility for each of 
the Funds, and selects and supervises one or more subadvisers for each 
Fund. The Manager is paid a fee by each Fund based on its average daily 
net assets.
    3. Subject to the general supervision of the board of directors of 
AOF (the ``Board''), the Manager (a) Sets each Fund's overall 
investment strategies; (b) evaluates, selects, and recommends 
subadvisers to manage all or a part of each Fund's assets; (c) monitors 
and evaluates the subadvisers' investment program and results; and, (d) 
reviews each Fund's compliance with its investment objectives, 
policies, and restrictions. In addition, the Manager recommends to the 
Board whether subadvisers' agreements should be renewed, modified, or 
terminated. The Manager and a consultant retained by the manager to 
help it evaluate subadvisers, provide information to the Board to aid 
it in making its determinations. The Board generally reviews 
comparative information provided by the Manager and the consultant 
regarding fees charged by other investment advisers for similar 
services. The Board receives quarterly reports for its regular meeting 
regarding the performance of each subadviser and the results of the 
Manager's evaluation and monitoring functions. The reports provide an 
overall assessment of the investment subadviser and, if appropriate, 
would include any recommendation for action with respect to the 
subadvisory agreement.
    4. The subadvisers, each of which is an investment adviser 
registered under the Advisers Act, furnished discretionary investment 
advisory services in connection with the management of the Funds. A 
subadviser has some or all of a Fund's assets allocated to it and is 
responsible for the day-to-day investment management of those assets, 
subject to the Fund's investment objectives and policies and to the 
Manager's supervision.
    5. Each Fund currently has a single subadviser, except for the 
American Odyssey Emerging Opportunities Fund, which has two 
subadvisers. AOF may employ multiple subadvisers for any Fund in the 
future. Currently, subadvisers' fees are paid by the Manager out of the 
fees paid by a Fund to the Manager at rates negotiated by the Manager. 
The Manager pays each subadviser a fee using a formula based on average 
daily net assets of the Fund. At a special meeting held on April 23, 
1997, persons having voting rights \2\ approved a new Management 
Agreement between AOF and the Manager that will become effective only 
if the relief requested in the application is granted. Under the new 
Management Agreement, AOF would pay all subadvisory fees directly, 
rather than paying those fees to the Manager (who would then pay the 
appropriate fee to each subadviser), based upon net assets

[[Page 6241]]

allocated to the subadviser. The new Management Agreement would 
authorize AOF and the Manager to enter into new subadvisory agreements 
at fee rates different than the current ones, provided that any new fee 
rate is less than or equal to a maximum fee rate approved by persons 
having voting rights with respect to the applicable Fund. These maximum 
fee rates are slightly higher than the fee rates currently in effect in 
order to provide AOF and the Manager some flexibility if they determine 
they can obtain superior subadvisory services by paying slightly higher 
fees.
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    \2\ Depending upon applicable law or the terms of the insurance 
contract or qualified plan, the right to vote shares is held by 
contract owners, insurance companies, plan participants, or plan 
trustees (collectively, ``persons having voting rights'').
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    6. Applicants request an exemption to permit the Manager and AOF to 
enter into and amend subadvisory agreements without approval by persons 
having voting rights with respect to the Funds. The Management 
Agreement between the Manager and AOF would continue to be subject to 
the shareholder voting requirements of section 15(a).

Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as investment adviser to a registered investment company except 
pursuant to a written contract that has been approved by a majority of 
the company's outstanding voting securities. Rule 18f-2 under the Act 
provided 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. Applicants believe that under AOF's manager/subadviser 
structure, subadvisers take the place of individual portfolio managers 
in a conventional fund context. Applicants state that investors expect 
the Manager to select and retain subadvisers who successfully meet the 
Fund's objectives and policies and replace those who do not. Applicants 
assert that persons having voting rights have determined to rely on the 
Manager's ability to select, monitor, and terminate subadvisers. 
Applicants contend that requiring shareholder approval of subadvisers 
and subadvisory agreements would impose costs on the Funds without 
advancing shareholder interests.
    3. Applicants will not enter into or amend any subadvisory 
agreement that would increase the subadvisory fee beyond the maximum 
fee approved by persons having voting rights with respect to the 
applicable Fund, without such agreement, including the compensation to 
be paid thereunder, being approved by the persons having voting rights 
with respect to the applicable Fund.
    4. 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 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.

Applicants' Conditions

    Applicants agree that any order of the SEC granting the requested 
relief will be subject to the following conditions:
    1. Before any Fund may rely on the order requested in this 
application, the operation of the Fund in the manner described in the 
application will be approved by a majority vote of persons having 
voting rights with respect to the Fund, or, in the case of a new Fund 
whose prospectus contains 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 
prospectus the existence, substance, and effect of any order granted 
pursuant to the application. In addition, any such Fund will hold 
itself out to the public as employing the ``manager/subadviser'' 
structure described in the application. The prospectus will prominently 
disclose that the Manager has ultimate responsibility to oversee the 
subadvisors and recommend their hiring, termination, and replacement.
    3. The Manager will provide management and administrative services 
to AOF and, subject to the review and approval by the Board, will: (a) 
Set each Fund's overall investment strategies; (b) evaluate, select, 
and recommend subadvisers to manage all or a part of a Fund's assets; 
(c) allocate and, when appropriate, reallocate each Fund's assets among 
subadvisers; (d) monitor and evaluate subadviser performance; and (e) 
oversee subadviser compliance with the applicable Fund's investment 
objective, policies, and restrictions.
    4. A majority of the Fund's Board will be persons who are not 
``interested persons'' (as defined in section 2(a)(19) of the Act) of 
AOF (``Independent Directors''), and the nomination of new or 
additional Independent Directors will be placed within the discretion 
of the then existing Independent Directors.
    5. AOF will not enter into a subadvisory agreement with any 
subadviser that is an ``affiliated person'' of the Fund (as defined in 
section 2(a)(3) of the Act) (``Affiliated Subadviser'') other than by 
reason of serving as subadviser to one or more Funds without such 
subadvisory agreement, including the compensation to be paid 
thereunder, being approved by the persons having voting rights with 
respect to the applicable Fund.
    6. When a subadviser change is proposed for a Fund with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Directors, will make a separate finding, reflected in the 
Board minutes, that such change is in the best interests of the 
applicable Fund and persons having voting rights with respect to that 
Fund and that such change does not involve a conflict of interest from 
which the Manager or the Affiliated Subadviser derives inappropriate 
advantage.
    7. No director, trustee, or officer of AOF or the Manager 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 (a) interests in the 
Manager or any entity that controls, is controlled by, or is under 
common control with the Manager, or (b) less than 1% of the outstanding 
securities of any class of equity or debt of a publicly-traded company 
that is either a subvadviser or an entity that controls, is controlled 
by, or is under common control with a subadviser.
    8. Within 90 days of the hiring of any new subadviser, the Manager 
will furnish person having voting rights with respect to the 
appropriate Fund with all information about the new subadviser or 
subadvisory agreement that would be included in a proxy statement. Such 
information will include any changes caused by the addition of a new 
subadviser. To meet this condition, the Manager will provide persons 
having voting rights with an information statement meeting the 
requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule 
14A under the Securities Exchange Act of 1934.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-3008 Filed 2-5-98; 8:45 am]
BILLING CODE 8010-01-M