[Federal Register: March 27, 2003 (Volume 68, Number 59)]
[Notices]
[Page 15013-15015]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr03-77]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 25968; 812-12866]
SAFECO Common Stock Trust and SAFECO Asset Management Co.; Notice
of Application
March 21, 2003.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order 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: The requested order would permit certain
registered open-end management investment companies to enter into and
materially amend subadvisory agreements without shareholder approval.
Applicants: SAFECO Common Stock Trust (the ``Trust'') and SAFECO
Asset Management Co. (the ``Adviser'').
Filing Dates: The application was filed on August 9, 2002, and
amended on March 3, 2003.
Hearing or Notification of Hearing: An order granting the
application 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 April 15, 2003, 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 who wish to be notified of a hearing may
request notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, DC 20549-
0609. Applicants, 4854 154th PL. NE., Redmond, WA 98052.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 942-0634 or Annette Capretta, 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, 450 5th Street, NW., Washington, DC
20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. The Trust, a Delaware business trust, is registered under the
Act as an open-end management investment company. The Trust is
organized as a series investment company and has multiple series (each
series, a ``Fund,'' collectively the ``Funds''), each with its own
investment objectives, policies, and restrictions. The Adviser, a
Washington corporation, serves as the investment adviser to the Funds
and is registered as an investment adviser under the Investment
Advisers Act of 1940 (``Advisers Act'').\1\
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\1\ The applicants also request that any relief granted pursuant
to the application apply to future series of the Trust and any other
registered open-end management investment companies and their series
that: (a) Are advised by the Adviser or any entity controlling,
controlled by, or under common control with the Adviser; (b) are
managed in a manner consistent with the application; and (c) comply
with the terms and conditions in the application (``Future Funds,''
included in the term ``Funds''). The Trust is the only existing
investment company that currently intends to rely on the requested
order. If the name of any Fund contains the name of a Sub-adviser
(as defined below), the name of the Adviser or the name of the
entity controlling, controlled by, or under common control with the
Adviser that serves as the primary adviser to the Fund will precede
the name of the Sub-adviser.
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[[Page 15014]]
2. The Adviser serves as investment adviser to the Funds pursuant
to an investment advisory agreement between the Trust, on behalf of
each Fund, and the Adviser (``Advisory Agreement'') that was approved
by the Trust's board of trustees (``Board''), including a majority of
the trustees who are not ``interested persons,'' as defined in section
2(a)(19) of the Act (``Independent Trustees''), and each Fund's
shareholder(s). Each Advisory Agreement permits the Adviser to enter
into separate investment advisory agreements (``Sub-advisory
Agreements'') with sub-advisers (``Sub-advisers'') to whom the Adviser
may delegate responsibility for providing investment advice and making
investment decisions for a Fund. Each Sub-adviser is or will be
registered under the Advisers Act. The Adviser monitors and evaluates
the Sub-advisers and recommends to the Board their hiring, termination,
and replacement. The Adviser recommends Sub-advisers based on a number
of factors discussed in the application used to evaluate their skills
in managing assets pursuant to particular investment objectives. The
Adviser compensates the Sub-advisers out of the fee paid to the Adviser
by a Fund.
3. Applicants request an order to permit the Adviser, subject to
Board approval, to enter into and materially amend Sub-advisory
Agreements without obtaining shareholder approval. The requested relief
will not extend to any Sub-adviser that is an affiliated person, as
defined in section 2(a)(3) of the Act, of a Fund or the Adviser, other
than by reason of serving as a Sub-adviser to one or more of the Funds
(``Affiliated Sub-adviser''). None of the current Sub-advisers is an
Affiliated Sub-adviser.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to act as an investment adviser to a registered
investment company except under a written contract that has been
approved by the vote of a majority of the company's outstanding voting
securities. Rule 18f-2 under the Act 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. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction or any class or classes of
persons, securities, or transactions from any provisions of the Act, or
from any rule thereunder, 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 for the reasons discussed below.
3. Applicants state that the Funds' shareholders rely on the
Adviser to select the Sub-advisers best suited to achieve a Fund's
investment objectives. Applicants assert that, from the perspective of
the investor, the role of the Sub-advisers is comparable to that of
individual portfolio managers employed by other investment advisory
firms. Applicants contend that requiring shareholder approval of each
Sub-advisory Agreement would impose costs and unnecessary delays on the
Funds, and may preclude the Adviser from acting promptly in a manner
considered advisable by the Board. Applicants also note that each
Advisory Agreement will remain subject to section 15(a) of the Act and
rule 18f-2 under the Act.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Fund may rely on the requested order, the operation of
the Fund in the manner described in the application will be approved by
a majority of the Fund's outstanding voting securities, as defined in
the Act, or, in the case of a Fund whose public shareholders purchased
shares on the basis of a prospectus containing disclosure contemplated
by condition 2 below, by the initial shareholder(s) before offering
shares of that Fund to the public.
2. Each Fund will disclose in its prospectus the existence,
substance and effect of any order granted pursuant to the application.
In addition, each Fund relying on the requested order will hold itself
out to the public as employing the management structure described in
the application. The prospectus with respect to each Fund will
prominently disclose that the Adviser has the ultimate responsibility
(subject to oversight by the Board) to oversee Sub-advisers and
recommend their hiring, termination, and replacement.
3. At all times, a majority of the Board will be Independent
Trustees, and the nomination of new or additional Independent Trustees
will be at the discretion of the then existing Independent Trustees.
4. The Adviser will not enter into a Sub-advisory Agreement with
any Affiliated Sub-adviser without that agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
5. When a Sub-adviser change is proposed for a Fund with an
Affiliated Sub-adviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Board minutes, that the change is in the best interests of the Fund and
its shareholders and does not involve a conflict of interest from which
the Adviser or the Affiliated Sub-adviser derives an inappropriate
advantage.
6. Within 90 days of the hiring of any new Sub-adviser,
shareholders will be furnished all information about the new Sub-
adviser that would be included in a proxy statement. Each Fund will
meet this condition by providing shareholders 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
within 90 days of the hiring of any new Sub-adviser.
7. The Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of each Fund's assets, and, subject to review
and approval by the Board, will (a) set the Fund's overall investment
strategies; (b) evaluate, select, and recommend Sub-advisers to manage
all or part of the Fund's assets; (c) when appropriate, allocate and
reallocate a Fund's assets among multiple Sub-advisers; (d) monitor and
evaluate the performance of the Sub-advisers; and (e) ensure that the
Sub-advisers comply with each Fund's investment objectives, policies
and restrictions by, among other things, implementing procedures
reasonably designed to ensure compliance.
8. No trustee or officer of the Trust, or director or officer of
the Adviser will own directly or indirectly (other than through a
pooled investment vehicle that is not controlled by such person) any
interest in a Sub-adviser, except for (a) ownership of interests in the
Adviser or any entity that controls, is controlled by, or is under
common control with the Adviser, or (b) ownership of less than 1% of
the outstanding securities of any class of equity or debt of a
publicly-traded company that is either a Sub-adviser or an entity that
controls, is controlled by, or is under common control with a Sub-
adviser.
[[Page 15015]]
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-7343 Filed 3-26-03; 8:45 am]
BILLING CODE 8010-01-P