Investment Company Act of 1940: Exemption applications SunAmerica Asset Management Corp. et al.,
[Federal Register: November 26, 1999 (Volume 64, Number 227)]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24145; 812-11466]
SunAmerica Asset Management Corp., et al,; Notice of Application
November 19, 1999. AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 6(c) and 17(b) of the Investment Company Act of 1940 (the ``Act'') for an exemption from section 17(a) of the Act.
Summary of Application: Applicants request an order to permit certain open-end management investment companies to settle claims that may arise under a directors' and officers'/errors and omission insurance policy provided by an affiliated insurance company.
Applicants: SunAmerica Asset Management Corp. (``Adviser''); Anchor Pathway Fund, Anchor Series Trust, Season Series trust, Style Select Series, Inc., SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., SunAmerica Series Trust, and SunAmerica Strategic Investment Series, Inc. (each a ``Fund,'' and collectively, the ``Funds'').
Filing Date: The application was filedon January 13, 1999. Applicants have agreed to file an amendment to the application, the substance of which is reflected in this notice, during the notice period.
Hearing or Notification of Hearing: An order granting the applicant will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on December 14, 1999, and should be accompanied by proof and 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 Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Applicants, 733 Third Avenue, New York, New York 10017- 3204.
FOR FURTHER INFORMATION CONTACT: Michael W. Mundt, 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 Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 20549-0102, (202) 942-8090.
Each fund is registered under the Act as an open-end management investment company. The Adviser is registered as an investment adviser under the Investment Adviser Act of 1940 (``Advisers Act'') and advises each of the Funds other than Anchor Pathway Fund. Anchor Pathway Fund is advised by Capital Research and Management Company, an investment adviser registered under the Advisers Act. All of the outstanding shares of Anchor Pathway Fund are held by a separate account of Anchor National Life Insurance Company, an indirect wholly owned subsidiary of SunAmerica Inc. (``SunAmerica''). The
Adviser is also an indirect wholly owned subsidiary of SunAmerica.
The Funds the Adviser, and certain other SunAmerica entities are joint insured under a directors' and officer's/errors and omissions insurance policy provided by National Union fire Insurance Company (``National Union''). The Funds first obtained this type of insurance from National Union in 1995. The currently policy (``Existing Policy'') was issued in 1996 and expires on September 1, 2000. Applicants state that after the expiration of the Existing Policy, applicants will not obtain insurance coverage from National Union.
National Union is an indirect, wholly owned subsidiary of American International Group, Inc. (``AIG''). On January 1, 1999, AIG acquired SunAmerica. As a result of the merger, the Adviser has become an indirect wholly owned subsidiary of AIG, and applicants state that National Union has become an affiliated person of the Adviser and an affiliated person of an affiliated person (``second-tier affiliate'') of the Funds. In light of these new affiliations, applicants request relief so that a Fund may settle insurance claims with National Union under the Existing Policy.
Applicant's Legal Analysis
Section 17(a) generally prohibits sales or purchases of securities or property between a registered investment company and any affiliated person or second-tier affiliate of the company. Section 2(a)(3) of the Act defines an ``affiliated person'' of another person to include (a) any person directly or indirectly controlling, controlled by, or under common control with the other person, and (b) if the other person is an investment company, any investment adviser of that company.
Section 17(b) of the Act authorizes the Commission to grant an order permitting a transaction otherwise prohibited by section 17(a) if it finds that (a) the terms of the proposed transaction are reasonable and fair and do not involve overreaching on the part of any person concerned; (b) the proposed transaction is consistent with the policy of each registered investment company concerned; and (c) the proposed transaction is consistent with the general purposes of the Act. Section 6(c) of the Act authorizes the Commission to exempt persons or transactions from the provisions of the Act to the extent that such exemptions are 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 request an order under section 6(c) and 17(b) of the Act for an exemption from section 17(a) of the Act to permit a Fund and National Union to settle claims arising under the Existing Policy. Applicants state that section 17(a) prohibits the settlement of claims under an insurance policy where the insurer is an affiliated person or second-tier affiliate of the insured investment company 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). Applicants state that the Adviser is an affiliated person of the Funds by virtue of being investment adviser to the Funds. Because National Union is under common control with the Adviser, applicants state that National Union may be deemed a second-tier affiliate of the Funds.
Applicants submit that the interests of the Funds would be best served by permitting extra-judicial settlement of claims because Funds will be able to resolve claims promptly without incurring additional costs of litigation. Applicants note that any settlement would be subject to the approval of a majority of a Fund's board of directors (``Board''), including a majority of the directors who are not ``interested persons'' of the Fund, the Adviser, or AIG within the meaning of section 2(a)(19) of the Act (Independent Board Members''). In addition, applicants state that in negotiating the amount of any extra-judicial settlement under the Existing Policy on behalf of a Fund, the Adviser has an interest in maximizing the Fund's recovery because its advisory fees are based on Fund assets. Applicants state that even though the Adviser and National Union are both subsidiaries of AIG, each is a separately operated entity with different directors and officers, and each entity is in a separate profit center within the AIG corporate structure.
Applicants agree that any order granting the requested relief will be subject to the following conditions:
The officers of each Fund will report all losses potentially covered under the Existing Policy to the Fund's Board. The Board, including the Independent Board Members, will evaluate the loss, and a majority of the Board, including a majority of the Independent Board Members, will determine whether to submit a claim to National Union and the amount of any claim. If National Union makes a settlement offer for less than the amount submitted, the adequacy of the settlement offer will be evaluated by the Board, including the Independent Board Members. The settlement may be accepted if a majority of the Board, including a majority of the Independent Board Members (upon the advice of independent counsel), determines that the settlement offer meets the standards specified in section 17(b) of the Act and is in the best interest of the Fund and its shareholders.
Each Board will record and preserve a description of all transactions with National Union, its findings, the information or materials upon which its findings are based and the basis for the findings. 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 Commission.
For the Commission, by the Division of Investment Management, under delegated authority. Margaret H. McFarland, Deputy Secretary.
[FR Doc. 99-30708Filed11-24-99; 8:45 am]
BILLING CODE 8010-01-M