[Federal Register Volume 63, Number 65 (Monday, April 6, 1998)]
[Notices]
[Pages 16833-16837]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8929]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23094; 812-10660]


SunAmerica Asset Management Corp., et al.; Notice of Application

March 31, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (the ``Act'') granting an exemption under section 6(c) of 
the Act from section 17(e) of the Act and rule 17e-1 under the Act, 
under sections 6(c) and 17(b) of the Act from section 17(a) of the Act, 
and under section 10(f) of the Act from section 10(f) of the Act and 
rule 10f-3 under the Act.

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    Summary of Application: The order would permit certain registered 
open-end management investment companies advised by several investment 
advisers to engage in principal and brokerage transactions with a 
broker-dealer affiliated with one of the investment advisers. The 
transactions would be between the broker-dealer and a portion of the 
investment company's portfolio not advised by the adviser affiliated 
with that broker-dealer. The order also would permit these investment 
companies not to aggregate certain purchases from an underwriting 
syndicate in which an affiliated person of one of the investment 
advisers is a principal underwriter.

[[Page 16834]]

    Applicants: SunAmerica Asset Management Corp. (``SAAMCo''), Style 
Select Series, Inc. (``Style Select''), and Seasons Series Trust 
(``Season'') (together, with Style Select, the ``Funds''), Janus 
Capital Corporation (``Janus''), Miller Anderson & Sherrerd, LLP 
(``MAS''), Lazard Asset Management (``Lazard''), Davis Selected 
Advisers, LP (``Davis''), Neuberger&Berman, LLC (``Neuberger''), Berger 
Associates, Inc. (``Berger''), Perkins Wolf, McDonnell & Company 
(``PWM''), Rowe Price-Fleming International, Inc. (``Rowe-Fleming''), 
Pilgrim Baxter & Associates, Ltd. (``Pilgrim''), Warburg Pincus Asset 
Management, Inc. (``Warburg''), T. Rowe Price Associates, Inc. (``T. 
Rowe Price''), Strong Capital Management, Inc. (``Strong''), Bankers 
Trust Company (``Bankers''), and Glenmede Trust Company (``Glenmede'').
    Filing Dates: The application was filed on May 13, 1997. Applicants 
have agreed to file an amendment, the substance of which is 
incorporated in this notice, during the notice period.
    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 April 
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: SAAMCo and the Funds, SunAmerica Center, 733 Third 
Avenue, New York, New York 10017-3204; Janus, 100 Fillmore Street, 
Denver, Colorado 80206; MAS, One Tower Bridge, West Conshohocken, 
Pennsylvania 19428; Lazard, 30 Rockefeller Plaza, New York, New York 
10020; Davis, 124 East March Street, Santa Fe, New Mexico 87502; 
Neuberger, 605 Third Avenue, New York, New York 10158; Berger, 210 
University Blvd., Suite 900, Denver, Colorado 80206; PWM, 53 West 
Jackson Blvd., Suite 818, Chicago, Illinois 60604; and Rowe-Fleming and 
T. Rowe-Price, 100 East Pratt Street, Baltimore, Maryland 21202; 
Pilgram, 825 DuPortail Road, Wayne, Pennsylvania 18087; Warburg, 466 
Lexington Ave., New York, NY 10017; Strong, P.O. Box 2936, Milwaukee, 
Wisconsin 53201; Bankers, 130 Liberty Street, New York, New York 10006; 
and Glenmede, One Liberty Place, 1650 Market Street, Suite 1200, 
Philadelphia, Pennsylvania 19103.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Senior Counsel, at 
(202) 942-0572, or Christine Y. Greenlees, 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 5th Street, N.W., Washington, 
D.C. 20549 (telephone (202) 942-8090).

Applicants' Representations

    1. The Funds are open-end management investment companies 
registered under the Act. Style Select consists of eight separate 
Portfolios, each of which is advised by SAAMCo and several investment 
subadvisers (the ``Style Select Portfolios''). Each Style Select 
Portfolio is designed to provide investors with access to several 
different professional investment advisers, each seeking the same 
investment objective and utilizing a similar style with respect to a 
separate portion of the respective Portfolio's assets. Seasons was 
established to serve as a funding medium for variable annuity contracts 
offered by Anchor National Life Insurance Company, an affiliated person 
of SAAMCo. Seasons consists of six separate Portfolios, four of which 
are advised by SAAMCo and several investment subadvisers (the ``Seasons 
Portfolios''). Each of the Seasons Portfolios represents a different 
asset allocation strategy, with the assets of each Portfolio being 
allocated among the same three subadvisers in differing proportions. 
Each subadviser manages its discrete portion or portions of the Seasons 
Portfolios according to a distinct investment strategy, which is 
different from that employed by the other subadvisers to the same 
Portfolio.
    2. SAAMCo is an investment adviser registered under the Investment 
Advisers Act of 1940 (the ``Advisers Act''). SAAMCo selects the 
subadvisers for the Style Select and Seasons Portfolios (the 
``Subadvisers''), provides various administrative services, and 
supervises the Portfolios' daily business affairs, subject to general 
review by the board of directors or trustees of each Fund. SAAMCo also 
directly advises discrete portions of two Style Select Portfolios and 
each Seasons Portfolio. The Subadvisers for the Style Select and 
Seasons Portfolios are: Janus; Berger; Lazard; Warburg; MAS; Pilgrim; 
T. Rowe Price; Davis; Neuberger; Strong; Rowe-Fleming; Wellington 
Management Company, LLP; L. Roy Papp & Associates; Montag & Caldwell, 
Inc.; David L. Babson & Co., Inc.; Bankers; and Glenmede.\1\ Each 
Subadviser is registered under the Advisers Act. The Subadvisers that 
are affiliated with broker-dealers within the meaning of section 
2(a)(3)(C) of the Act are: Janus, MAS, Lazard, Davis, Neuberger, 
Berger, PWM, Bankers, and Rowe-Fleming.
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    \1\ Each Subadviser that currently intends to rely on the order 
has been named as an applicant.
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    3. The requested relief would permit a portion of a Style Select or 
Seasons Portfolio (``Unaffiliated Portion'') to engage in principal 
transactions with a broker-dealer that is, or is an affiliated person 
of, a Subadviser to another portion of the Portfolio (``Affiliated 
Broker-Dealer''). The requested relief also would permit an Affiliated 
Broker-Dealer to provide brokerage services to an Unaffiliated Portion 
without complying with the requirements of rule 17e-1(b) and (c) under 
the Act. Finally, the requested relief would permit an Unaffiliated 
Portion to purchase securities in an underwriting syndicate in which an 
Affiliated Broker is a participant, and would permit a purchase by a 
portion of a Style Select or Seasons Portfolio advised by the 
Subadviser affiliated with the Affiliated Broker-Dealer (``Affiliated 
Subadviser'') not to be aggregated with the purchase by the 
Unaffiliated Portion for purposes of determining compliance with rule 
10f-3(b)(7) under the Act. The requested relief would apply only if the 
Affiliated Broker-Dealer is not an affiliated person or an affiliated 
person of an affiliated person of SAAMCo, the Subadviser making the 
investment decision with respect to the Unaffiliated Portion 
(``Unaffiliated Subadviser''),\2\ or an officer, director, or employee 
of the Fund engaging in the transaction.
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    \2\ The terms ``Unaffiliated Subadviser,'' ``Subadviser'' and 
``Unaffiliated Portion'' include SAAMCo and the discrete portion of 
a Multi-Managed Portfolio (as defined below) directly advised by 
SAAMCo, respectively, provided that SAAMCo manages its portion of 
the Portfolio independently of the portions managed by the other 
Subadvisers to the Portfolio, and SAAMCo does not control or 
influence any other Subadviser's investment decisions for its 
portion of the Portfolio.
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    4. Applicants request relief for the Style Select and Seasons 
Portfolios, as well as any future portfolio of the Funds and any other 
registered open-end management investment company or portfolio thereof 
advised by SAAMCo and at least one other investment

[[Page 16835]]

adviser (collectively, ``Multi-Managed Portfolios'').\3\ In a Multi-
Managed Portfolio, the advisory contract with each of the Subadviers to 
the Multi-Managed Portfolios assigns the Subadviser responsibility to 
manage a discrete portion of the respective Multi-Managed Portfolio. 
Each Subadviser is responsible for making independent investment and 
brokerage allocation decision based on its own research and credit 
evaluations. SAAMCo does not dictate or influence brokerage allocation 
decisions with respect to the Multi-Managed Portfolios (except for 
those portions actually advised by SAAMCo). Each Subadviser to a Multi-
Managed Portfolio is compensated based on a percentage of the value of 
assets allocated to that Subadviser. Applicants state that SAAMCo will 
take steps designed to ensure that any other existing or future entity 
that relies on the order will comply with the terms and conditions of 
the application.
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    \3\ For purposes of this application, the term ``Unaffiliated 
Portion'' defined above includes a portion of any Multi-Managed 
Portfolio; and the term ``Affiliated Broker-Dealer'' includes a 
broker-dealer that is an affiliated person of an investment adviser 
of another portion of any Multi-Managed Portfolio.
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Applicants' Legal Analysis

A. Relief From Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of the company or an affiliated person of such 
affiliated person (``second-tier affiliate''). Section 2(a)(3) of the 
Act defines an affiliated person of another person to be any person 
directly or indirectly controlling, controlled by, or under common 
control with such person and any investment adviser of an investment 
company.
    2. Under section 2(a)(3), an Affiliated Broker-Dealer would be an 
affiliated person or a second-tier affiliate of a Multi-Managed 
Portfolio. As a result, any transactions sought to be effected by the 
Unaffiliated Subadviser on behalf of its portion of a Multi-Managed 
Portfolio with an Affiliated Broker-Dealer would be subject to the 
provisions of section 17(a). Applicants seek relief from section 17(a) 
to exempt principal transactions entered into in the ordinary course of 
business between the Unaffiliated Subadviser to an Unaffiliated Portion 
of a Multi-Managed Portfolio and an Affiliated Broker- Dealer. The 
requested exemption would apply only where an Affiliated Broker-Dealer 
is deemed to be an affiliated person or a second-tier affiliate of an 
Unaffiliated Portion of a Multi-Managed Portfolio solely because an 
Affiliated Subadviser manages another discrete portion of the same 
Portfolio.
    3. Section 17(b) permits the SEC to grant an order permitting a 
transaction otherwise prohibited by section 17(a) if it finds that the 
terms of the proposed transaction are fair and reasonable and do not 
involve overreaching on the part of any person concerned. Section 6(c) 
permits the SEC to exempt any person or transaction from any provision 
of the Act, if such exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policies of the Act. For the reasons 
stated below, applicants believe that the terms of the proposed 
transactions meet the standards of sections 6(c) and 17(b).
    4. Applicants state that when the person acting on behalf of an 
investment company has no direct or indirect pecuniary interest in a 
party to a principal transaction, the abuses that section 17(a) is 
designed to prevent are not present. Applicants state that this is the 
situation in each transaction for which relief is requested because if 
an Unaffiliated Subadviser were to purchase securities on behalf of an 
Unaffiliated Portion of a Multi-Managed Portfolio in a principal 
transaction with an Affiliated Broker-Dealer, any benefit that might 
inure to the Affiliated Broker-Dealer would not be shared by the 
Unaffiliated Subadviser.
    5. Applicants state that each Subadviser's contract assignes it 
responsibility to manage a discrete portion of the Multi-Managed 
Portfolio. The contracts neither require nor authorize collaboration 
between or among Subadvisers. Each Subadviser is responsible for making 
independent investment and brokerage allocation decisions based on its 
own research and credit evaluations. Applicants state that SAAMCo does 
not dictate or influence brokerage allocation decisions for the Multi-
Managed Portfolios, except where SAAMCo actually advises an 
Unaffiliated Portion of a Multi-Managed Portfolio. Applicants submit 
that in managing a discrete portion of a Portfolio, each Subadviser 
acts for all practical purposes as though it is managing a separate 
investment company. Further, applicants state that, for each 
transaction for which relief is requested, the Unaffiliated Subadviser 
would be dealing with an Affiliated Broker-Dealer that is a competitor 
of that subadviser. Applicants believe, therefore, that each such 
transaction would be the product of arm's length bargaining.
    6. In addition, applicants state that the method of compensating 
Subadvisers in the context of a Multi-Managed Portfolio furthers 
competition among them. Applicants state that Subadvisers are paid on 
the basis of a percentage of the value of the assets allocated to their 
management. Applicants argue that the execution of a transaction to the 
disadvantage of the Unaffiliated Portion of a Multi-Managed Portfolio 
would disadvantage the Unaffiliated Subadviser to the extent that it 
diminishes the value of the Unaffiliated Portion of the Portfolio, with 
no countervailing benefit to the Unaffiliated Subadviser. Applicants 
further submit that SAAMCo's power to dismiss Subadvisers or to change 
the portion of a Multi-Managed Portfolio allocated to each reinforces a 
subadviser's incentive to maximize the investment performance of its 
own portion of the Multi-Managed Portfolio.

B. Relief From Section 17(e) and Rule 17e-1

    1. Section 17(e)(2)(A) of the Act prohibits an affiliate or a 
second-tier affiliate of a registered investment company acting as 
broker in connection with the sale of securities to or by the 
investment company, to receive a commission, fee or other remuneration 
for effecting such transaction which exceeds the usual and customary 
broker's commission if the sale is effected on a securities exchange.
    2. Rule 17e-1 sets forth the conditions under which an affiliated 
person or a second-tier affiliate of an investment company may receive 
a commission, fee, or other remuneration which would not exceed the 
``usual and customary broker's commission'' for purposes of section 
17(e)(2)(A). Paragraph (b) of rule 17e-1 requires the investment 
company's board of directors, including a majority of the disinterested 
directors, to adopt certain procedures and to determine at least 
quarterly that all transactions effected in reliance on rule 17e-1 in 
the preceding quarter were effected in compliance with the company's 
rule 17e-1 procedures. Rule 17e-1(c) specifies the records that must be 
maintained by each investment company with respect to any transactions 
effected pursuant to rule 17e-1.
    3. Applicants request relief under section 6(c) to the extent 
necessary to permit the Unaffiliated Portion of each Multi-Managed 
Portfolio to pay commissions, fees, or other remuneration to an 
Affiliated Broker-Dealer, acting as broker in the ordinary course of 
business, in connection with the sale of securities to or by such

[[Page 16836]]

Unaffiliated Portion of a Multi-Managed Portfolio, without complying 
with the requirements of subparagraphs (b) and (c) of rule 17e-1 under 
the Act. In addition, applicants request that such relief extend to 
transactions in futures contracts and related options as well as 
securities.
    4. Applicants state that the transactions for which relief is 
requested will involve no conflict of interest and that there is no 
possibility of self-dealing. Applicants submit that the pecuniary 
interests of the particular Unaffiliated Subadviser are directly 
aligned with those of the Unaffiliated Portion of the Multi-Managed 
Portfolio. Applicants further submit that there is no possibility of 
self-dealing in situations in which a particular Unaffiliated 
Subadviser is not affiliated with any other Subadviser's Affiliated 
Broker-Dealer. For these reasons, applicants believe that the brokerage 
commissions, fees, or other remuneration to be paid by the Unaffiliated 
Portion will be reasonable and fair and that there is no danger that 
commissions will exceed the usual or customary level.
    5. Applicants argue that the procedures required by rule 17e-1 (b) 
and (c) are unduly burdensome to the Unaffiliated Portions and the 
Unaffiliated Subadvisers. Applicants state that the costs to an 
Unaffiliated Subadviser of complying with those provisions of rule 17e-
1 with respect to broker-dealers that have no affiliation with the 
Unaffiliated Subadviser may discourage that Subadviser from accepting 
or continuing a Multi-Managed Portfolio as a client. Applicants further 
state that to facilitate management of its portion of a Multi-Managed 
Portfolio, an Unaffiliated Subadviser would normally place orders for 
trades for its portion of a Portfolio at the same time and with the 
same broker-dealer as trades for other clients. Because Affiliated 
Broker-Dealers are not affiliated persons of an Unaffiliated 
Subadviser, the Unaffiliated Subadviser's computer systems are not 
generally programmed to detect transactions through these brokers. 
Applicants state that as a result, in order to compile the necessary 
records under rule 17e-1, one or more individuals employed by the 
Unaffiliated Subadviser must manually sift through the Unaffiliated 
Subadviser's trading records relating to the Portfolio. Applicants 
state that an Unaffiliated Subadviser may choose to forego trading its 
portion of a Multi-Managed Portfolio in block transactions with its 
other clients and may avoid executing transactions through Affiliated 
Broker-Dealers entirely, which may result in increased execution costs 
to the Unaffiliated Portion.
    6. Applicants state that each Unaffiliated Subadviser that selects 
an Affiliated Broker-Dealer as broker will do so in accordance with the 
brokerage allocation practices set forth in the prospectus and 
statement of additional information for the respective Fund (i.e., 
subject to best price and execution). In addition, applicants state 
that each Unaffiliated Subadviser selecting broker-dealers for its 
Unaffiliated Portion of a Multi-Managed Portfolio has an inherent 
interest in obtaining best price and execution, so as to maximize the 
Unaffiliated Portion's potential return. Conversely, applicants submit 
that such Unaffiliated Subadvisers have no interest in benefiting an 
Affiliated Broker-Dealer at the expense of the Unaffiliated Portions of 
the Multi-Managed Portfolios they manage.

C. Relief From Section 10(f) and Rule 10f-3

    1. Section 10(f), in relevant part, prohibits a registered 
investment company from knowingly purchasing or otherwise acquiring 
during the existence of any underwriting or selling syndicate, any 
security (except a security of which the company is the issuer) a 
principal underwriter of which is an officer, director, member of an 
advisory board, investment adviser, or employee of the company, or an 
affiliated person of any of the foregoing. Section 10(f) also provides 
that the SEC may exempt by order any transaction or classes of 
transactions from any of the provisions of section 10(f), if and to the 
extent that such exemption is consistent with the protection of 
investors.
    2. Applicants acknowledge that each Subadviser to a Multi-Managed 
Portfolio, although under contract to manage only a distinct portion of 
the Portfolio, is an investment adviser to the Multi-Managed Portfolio 
itself, not just the portion of the Portfolio it manages. All purchases 
of securities by any Unaffiliated Subadviser on behalf of its 
Unaffiliated Portion of a Multi-Managed Portfolio from an underwriting 
syndicate a principal underwriter of which is an affiliated person of 
another Subadviser to that Multi-Managed Portfolio, thus fall within 
the prohibitions of section 10(f).
    3. Applicants request relief pursuant to section 10(f) exempting 
from the provisions of section 10(f) any purchase of securities by an 
Unaffiliated Portion of a Multi-Managed Portfolio in the ordinary 
course of business during the existence of an underwriting or selling 
syndicate, a principla underwriter of which is an Affiliated Broker-
Dealer. Applicants believe that the requested relief meets the 
standards set forth in section 10(f).
    4. Applicants state that section 10(f) was designed to prevent the 
practice of ``dumping'' otherwise unmarketable securities on investment 
companies, either by forcing the investment company to purchase 
unmarketable securities from the underwriting affiliate itself, or by 
forcing or encouraging the investment company to purchase such 
securities from another member of the syndicate. Applicants submit that 
such abuses are not present in the context of Multi-Managed Portfolios 
to any greater extent than is the case with a series investment company 
with unaffiliated advisers to separate Portfolios. As stated above in 
the conext of transactions under sections 17(a) and (e), in each 
underwriting transaction that would be subject to the requested relief, 
the Unaffiliated Subadviser would be dealing, on behalf of the 
Unaffiliated Portion of the Multi-Managed Portfolio, with an Affiliated 
Broker-Dealer that is an unrelated entity in an arm's length 
arrangement.
    5. Rule 10f-3 exempts certain transactions from the prohibitions of 
section 10(f) if specified conditions are met. Paragraph (b)(7) of rule 
10f-3 provides that the amount of securities of any class of an issue 
to be purchased by the investment company, or by two or more investment 
companies having the same investment adviser, shall not exceed certain 
percentages specified in the rule. Applicants request exemptive relief 
pursuant to section 10(f) to the extent necessary so that where a 
portion of a Multi-Managed Portfolio managed by an Affiliated 
Subadviser purchases securities in reliance upon rule 10f-3, for 
purposes of determining the Affiliated Subadviser's compliance with the 
percentage limits of rule 10f-3(b)(7), such purchases will not be 
aggregated with any purchases that might be made by an Unaffiliated 
Portion of the same Multi-Managed Portfolio. Applicants believe the 
requested relief meets the standards of section 10(f) for the reasons 
discussed above.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. Each Multi-Managed Portfolio will be advised by SAAMCo and at 
least one other Unaffiliated Subadviser and will be operated consistent 
with the manner described in the application.
    2. The Affiliated Broker-Dealer will not be an affiliated person or 
a second-

[[Page 16837]]

tier affiliate of SAAMCo, any Unaffiliated Subadviser, or any officer, 
director, or employee of the Fund engaging in the transaction.
    3. No Affiliated Subadviser will directly or indirectly consult 
with any Unaffiliated Subadviser concerning allocation of principal or 
brokerage transactions.
    4. No Affiliated Subadviser will participate in any arrangement 
under which the amount of its subadvisory fees will be affected by the 
investment performance of an Unaffiliated Subadviser.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-8929 Filed 4-3-98; 8:45 am]
BILLING CODE 8010-01-M