[Federal Register Volume 75, Number 190 (Friday, October 1, 2010)]
[Notices]
[Pages 60838-60840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24655]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29444; File No. 812-13708]
American Fidelity Dual Strategy Fund, Inc. and American Fidelity
Assurance Company; Notice of Application
September 27, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 15(a) of
the Act, as well as from certain disclosure requirements.
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Summary of Application: Applicants request an order that would permit
them to enter into and materially amend subadvisory agreements without
shareholder approval and would grant relief from certain disclosure
requirements.
Applicants: American Fidelity Dual Strategy Fund, Inc. (the ``Fund'')
and American Fidelity Assurance Company (the ``Advisor'').
Filing Dates: The application was filed on October 1, 2009, and amended
on March 15, 2010, and September 24, 2010.
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 October 22, 2010, 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, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants, 2000 N. Classen
Boulevard, Oklahoma City, OK 73106.
FOR FURTHER INFORMATION CONTACT: Lewis Reich, Senior Counsel, at (202)
551-6919, or Jennifer Sawin, Branch Chief, at (202) 551-6821 (Division
of Investment Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application
[[Page 60839]]
may be obtained via the Commission's Web site by searching for the file
number, or an applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicants' Representations
1. The Fund, a Maryland corporation, is registered under the Act as
an open-end management investment company. The Advisor is registered as
an investment adviser under the Investment Advisers Act of 1940
(``Advisers Act'') and serves as the investment adviser of the Fund
pursuant to an investment advisory agreement (``Advisory Agreement'')
with the Fund. The Advisory Agreement was approved by the Fund's board
of directors (``Board''), including a majority of the directors who are
not ``interested persons,'' as defined in section 2(a)(19) of the Act,
of the Fund (``Independent Directors'') and by the shareholders of the
Fund. Under the terms of the Advisory Agreement, the Advisor is
responsible for providing a wide variety of services to the Fund
including selecting and trading portfolio securities, and will have
overall responsibility for the management and investment of the Fund's
assets. For the management and investment advisory services that it
provides to the Fund, the Advisor receives the fee specified in the
Advisory Agreement. The Advisory Agreement also permits the Advisor to
operate the Fund with one or more subadvisers (``Sub-Advisors''), and
the Advisor's investment management services include selection of the
Fund's Sub-Advisors. Pursuant to this authority, the Advisor has
entered into investment subadvisory agreements (``Investment
Subadvisory Agreements'') with four Sub-Advisors \1\ to provide
investment advisory services to the Fund subject to the supervision of
the Advisor and the Board. Each current Sub-Advisor is and each future
Sub-Advisor will be an investment adviser as defined in section
2(a)(20) of the Act and registered as an investment adviser under the
Advisers Act. The Advisor will evaluate, allocate assets to, and
oversee the Sub-Advisors, and make recommendations to the Board about
their hiring, retention or release, at all times subject to the
authority of the Board. The Advisor will compensate the Sub-Advisors
out of the fees paid to the Advisor under the Advisory Agreement.
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\1\ Quest Investment Management, Inc., The Renaissance Group,
LLC, Beck, Mack & Oliver LLC and WEDGE Capital Management LLP.
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2. Applicants request an order to permit the Advisor, subject to
Board approval, to enter into and materially amend Investment
Subadvisory Agreements without obtaining shareholder approval. The
requested relief will not extend to any Sub-Advisor that is an
affiliated person, as defined in section 2(a)(3) of the Act, of the
Fund or the Advisor, other than by reason of serving as a Sub-Advisor
to the Fund (``Affiliated Sub-Advisor'').
3. Applicants also request an exemption from the various disclosure
provisions described below that may require the Fund to disclose fees
paid by the Advisor to the Sub-Advisors. An exemption is requested to
permit a Fund to disclose (as both a dollar amount and as a percentage
of its net assets): (a) the aggregate fees paid to the Advisor and any
Affiliated Sub-Advisors; and (b) the aggregate fees paid to Sub-
Advisors other than Affiliated Sub-Advisors (collectively, ``Aggregate
Fee Disclosure''). If the Fund employs an Affiliated Sub-Advisor, the
Fund will provide separate disclosure of any fees paid to the
Affiliated Sub-Advisor.
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 pursuant to a written contract that has been
approved by the vote of a majority of the company's outstanding voting
securities.
2. Form N-1A is the registration statement used by open-end
investment companies. Item 19(a)(3) of Form N-1A requires disclosure of
the method of computing, and amount of, the investment adviser's
compensation.
3. 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 (``1934 Act''). Items 22(c)(1)(ii),
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together,
require a proxy statement for a shareholder meeting at which the
advisory contract will be voted upon to include the ``rate of
compensation of the investment adviser,'' the ``aggregate amount of the
investment adviser's fees,'' a description of the ``terms of the
contract to be acted upon,'' and, if a change in the advisory fee is
proposed, the existing and proposed fees and the difference between the
two fees.
4. Regulation S-X sets forth the requirements for financial
statements required to be included as part of investment company
registration statements and shareholder reports filed with the
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require
that investment companies include in their financial statements
information about investment advisory fees.
5. 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 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 state that the requested relief meets this standard for
the reasons discussed below.
6. Applicants assert that shareholders of the Fund expect the
Advisor to select Sub-Advisors who have the appropriate skills and
experience to manage the Fund's assets allocated to them. Applicants
assert that, from the perspective of the investor, the role of the Sub-
Advisors is substantially equivalent to that of the individual
portfolio managers employed in a traditional investment advisory
structure. Applicants state that requiring shareholder approval of each
Investment Subadvisory Agreement would impose costs and unnecessary
delays on the Fund; the requested relief may enable the Fund to act
more quickly when the Board and the Advisor feel that a change would
benefit the Fund and its shareholders. Applicants note that the
Advisory Agreement and any Investment Subadvisory Agreement with an
Affiliated Sub-Advisor will remain subject to section 15(a) of the Act.
7. Applicants assert that many advisers use a ``posted'' rate
schedule to set their fees. Applicants state that, while advisers are
willing to negotiate fees lower than those posted in the schedule, they
are reluctant to do so where the fees are disclosed to other
prospective and existing customers. Applicants submit that the
requested relief will allow the Advisor to negotiate more effectively
with each Sub-Advisor.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before the Fund may rely on the order requested in the
application, 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.
2. The prospectus for the Fund will disclose the existence,
substance, and effect of any order granted pursuant to the application.
The Fund will hold
[[Page 60840]]
itself out to the public as employing the manager of managers structure
described in the application. The prospectus will prominently disclose
that the Advisor has ultimate responsibility (subject to oversight by
the Board) to oversee the Sub-Advisors and recommend their hiring,
termination, and replacement.
3. Within 90 days of the hiring of a new Sub-Advisor, the Fund's
shareholders will be furnished all information about the new Sub-
Advisor that would be included in a proxy statement, except as modified
by the order to permit Aggregate Fee Disclosure. This information will
include Aggregate Fee Disclosure and any change in such disclosure
caused by the addition of the new Sub-Advisor. To meet this obligation,
the Fund will provide shareholders, within 90 days of the hiring of a
new Sub-Advisor, with an information statement meeting the requirements
of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under the
1934 Act, except as modified by the order to permit Aggregate Fee
Disclosure.
4. The Advisor will not enter into an Investment Subadvisory
Agreement with any Affiliated Sub-Advisor without that agreement,
including the compensation to be paid thereunder, being approved by
Fund shareholders.
5. At all times, at least a majority of the Board will be
Independent Directors, and the nomination of new or additional
Independent Directors will be placed within the discretion of the then
existing Independent Directors.
6. When a Sub-Advisor change is proposed for the Fund with an
Affiliated Sub-Advisor, the Board, including a majority of the
Independent Directors, will make a separate finding, reflected in the
applicable Board minutes, that such change is in the best interests of
the Fund and its shareholders, and does not involve a conflict of
interest from which the Advisor or the Affiliated Sub-Advisor derives
an inappropriate advantage.
7. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act, will be engaged to represent the Independent Directors. The
selection of such counsel will be within the discretion of the then
existing Independent Directors.
8. Whenever a Sub-Advisor is hired or terminated, the Advisor will
provide the Board with information showing the expected impact on the
profitability of the Advisor.
9. The Advisor will provide general management services to the
Fund, including overall supervisory responsibility for the general
management and investment of the Fund's assets and, subject to review
and approval of the Board, will: (i) Set the Fund's overall investment
strategies, (ii) evaluate, select and recommend Sub-Advisors to manage
all or a part of the Fund's assets, (iii) when appropriate, allocate
and reallocate the Fund's assets among multiple Sub-Advisors, (iv)
monitor and evaluate the performance of Sub-Advisors, and (v) implement
procedures reasonably designed to ensure that the Sub-Advisors comply
with the Fund's investment objective, policies and restrictions.
10. No director or officer of the Fund, or director or officer of
the Advisor, will own directly or indirectly (other than through a
pooled investment vehicle that is not controlled by such person) any
interest in a Sub-Advisor, except for (a) ownership of interests in the
Advisor or any entity that controls, is controlled by, or is under
common control with the Advisor, 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-Advisor or an entity that controls,
is controlled by or is under common control with a Sub-Advisor.
11. The Fund will disclose in its registration statement the
Aggregate Fee Disclosure.
12. In the event the Commission adopts a rule under the Act
providing substantially similar relief to that in the order requested
in the application, the requested order will expire on the effective
date of that rule.
13. The Advisor will provide the Board, no less frequently than
quarterly, with information about the profitability of the Advisor with
respect to the Fund. The information will reflect the impact on
profitability of the hiring or termination of any Sub-Advisor during
the applicable quarter.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-24655 Filed 9-30-10; 8:45 am]
BILLING CODE 8010-01-P