SEC Division of Investment Management staff letter: North American Security Trust and NASL Series Trust

FE 211

Our Ref. No. 92-602-CC

North American

Security Trust and

NASL Series Trust

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
File Nos. 811-5797 and

DIVISION OF INVSTMNT MAAGEMENT 811-4146
Your letter of October 8, 1992, requests our assurance that

we would not recommend that the Commission take any enforcement

action under Section 10 (f) of the Investment Company Act of 1940

(the "1940 Act") if the investment portfolios of North American Security Trust ("NAST") and NASL Series Trust (IISeries Trustll) (collectively, the IIFundsll) engage in the transactions described

in your letter. 1/

The FUnds are open-end series investment companies

registered under the 1940 Act. NAST currently has seven

portfolios and Series Trust has thirteen portfolios. NASL

Financial services, Inc. (IINASL Financialll), a registered

investment adviser and broker-dealer, is the investment adviser

for each portfolio of the Funds. Under the terms of its advisory

agreements, NASL Financial selects, contracts with, monitors, and

compensates sub-advise.i"s for the portfolios (the IISub￾advisers"). The Funds currently have a combined total of six

Sub-advisers. l/ Each Sub-adviser makes all decisions regarding

the purchase and sale of securities for the portfol ios it

manages. No Sub-adviser's contract with NASL Financial permits it to make investment decisions with respect to other portfol ios . In addition, no Sub-adviser is an "affiliated person" of any

other Sub-adviser, NASL Financial, or any officer, trustee or

employee of the Funds.

Because some of the Sub-advisers are maj or securities

underwriters, you believe that all of the Funds' portfolios

should not be precluded, during the existence of an underwriting

or selling syndicate, from purchasing securities principally

underwritten by, among others, either a Sub-adviser or an

affiliated person of a Sub-adviser. You acknowledge that the

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 investment adviser of the company or an affiliated person of any investment adviser. section 2 (a) (3) of the 1940 Act defines lIaffiliated person."

l/ The Sub-advisers are Oechsle International Advisers, L.P.,

Salomon Brothers Asset Management Inc., Goldman Sachs Asset

Management, Welliiigton Management Company, Fidelity

Management Trust Company, and Roger Engemann Management Co.,

Inc.

prohibi tions of Section 10 (f) would apply to a portfolio's

purchase of securities principally underwritten by that

portfolio's Sub-adviser or an affiliated person of the Sub-

adviser. You assert, however, that Section 10 (f) should not

prohibit a portfolio from purchasing securities principally

underwritten by a Sub-adviser (1) that does not manage the

purchasing portfolio and (2) is not an affiliated person of the

portfolio's Sub-adviser, NASL Financial, or any officer, trustee

or employee of the Fund (the IIProposed Transactions. II) When Congress considered legislation in 1940 to regulate the

investment company industry, it expressed concern over sponsors

of investment companies improperly using these companies as

customers for certain securities. 1/ Concern was particularly

expressed over two practices: IIdumping, II the practice of selling

unmarketable securities to a controlled company, and IIbailing

out, II a transaction in which a controlled company receives securities to alleviate the financial distress of the sponsor.

We do not believe that the Proposed Transactions raise the type

of concerns that Section 10 (f) was intended to address because,

while an underwriting or selling syndicate exists, no portfolio

will purchase securities principally underwritten by the

portfolio's Sub-adviser (or an ,iffiliated person of the Sub-

adviser), NASL Financial, or any officer, trustee or employee of the Fund. Y Accordingly, on the basis of the facts and representations

in your letter, we would not recommend that the Commission take

any enforcement action under Section 10 (f) if the portfolios of

the Funds engage in the Proposed Transactions. 2/ Because this

response is based on the facts and representations in your

1/ This concern is described in the Report of the Securities

and Exchange Commission, Investment Trusts and Investment

Companies, Part Three, Chapter VII, "Abuses and Deficiencies

in the Organization and Operation of Investment Trusts and

Investment Companies," H.R. Doc. No. 279 76th Cong., 2d

Sess. 2581, 2589 (1940).
Y We are not persuaded that each portfolio of a series company should always be treated as a separate investment company

for purposes of section 10 (f) .
~ We note that the portfolios of the FUnds have obtained an

exemption from section 17 (a) of the 1940 Act to engage in

the Proposed Transactions. See Investment Company Act ReI.

Nos. 18860 (July 22, 1992) (notice) and 18899 (Aug. 18,

1992) (order) . We express no opinion as to whether the
portfolios are lIunder common controlll because they have the

same investment adviser and the same officers and trustees.

• 2

letter, you should note that different facts or representations

may require a different conclusion. Moreover, this response

expresses the Division's position on enforcement action only and

does not purport to express any legal conclusions on the

questions presented.
'J~~" Ji~
Lawrence P. Stadulis

Special Counsel

• 3

JONES & BLOUCH

2100 PENNSYLVANIA AVENUE, N. W.
WASHINGTON, D. C. 20037
(202) 223-3500
W. RANDOLPH THOMPSON
1940 Act

Section 10(f)
October 8, 1992

li-......,'!I"., ..' .....
Thomas S. Harman, Esq. 1-. /I/b) ¡Act ~..CI -40 ,.'~"'.
.,
Chief Counsel i,. t1 n /~ (-l
Division 0 Inves men a~ia9,:=i1i~ii . .. f t t M ¡..eco t: - Ç'~); secur~ ties and Exchange CO~lsion 450 rifth Street, N.W. l~ubl1(" IF)j 2t~ Washington, DC 20549 C.'31labilitY c; 1!J g..1&.O ,..'''$'' Re: North American Security T:o"ust an NASL Series Trust Re est for No-Action Letter OCT ß \992 Dear Mr. Harman:
72
We are writing on behalf of North American Security Trust

("NAST") and NASL Series Trust (the "Series Trust," collectively

with NAST, the "Funds") to request the staff's concurrence in our

view that the transactions described below are not subject to the

prohibitions of Section 10 (f) of the Investment Company Act of 1940

(the "Act"). Alternatively, we request the staff's assurance that

it will not recommend that the Commission take any enforcement action against the Funds alleging a violation of Section 10 (f) of the Act if the various investment portfolios of the Funds engage in

such transactions.

This letter presents the issue of whether, in the context of

a series investment company, the entity subject to the prohibitions

of Section 10 (f) is the registered management investment company or

its individual portfolios, an issue that may depend in part upon

whether an investment adviser is considered to be an investment

adviser of all portfolios of the series company or only of the

portfolio(s) that it manages. We believe that treating the indi￾vidual portfolios as the entities subject to Section 10 (f) and an

investment adviser as an investment adviser of only the portfo￾lio (s) that it manages is most consistent with the language and

purposes of Section 10 (f) of the Act and with Commission positions

wi th regard to the regulation of series companies under the Act.

BACKGROUND

The Funds

The Series Trust is a Massachusetts business trust registered

under the Act as an open-end, management investment company (File

No. 811-4146). The Series Trust currently has thirteen investment

portfolios, each of which offers a separate series of shares of

beneficial interest. The thirteen portfolios are: the Equity

Trust, the Growth Trust, the Pasadena Growth Trust, the Growth and

Income Trust, the Strategic Income Trust, the Investment Quality

Bond Trust, the U. S. Government Securities Trust, the Money Market

Trust, the Global Equity Trust, the Global Government Bond Trust,

the Conservative Asset Allocation Trust, the Moderate Asset Alloca￾tion Trust and the Aggressive Asset Allocation Trust. The invest￾ment objectives, policies and restrictions applicable to each

portfolio of the Series Trust are described in the Series Trust's

registration statement on Form N-1A (File No. 2-95157).

Shares of the Series Trust are not offered directly to the

public. Rather, the Series Trust currently serves ~s the underly￾ing investment medium for sums invested in variable annuity con￾tracts issued by North American Security Life Insurance Company

("Security Life") and its wholly-owned subsidiary, First North

American Life Assurance Company ("First North American"). Security

Life is a wholly-owned subsidiary of North American Life Assurance

Company, a mutual life insurance company based in Toronto Canada.

NAST is a Massachusetts business trust registered under the

Act as an open-end, management investment company (File No. 811
5797) . NAST currently has seven investment portfolios, each of

which offers a separate series of shares of beneficial interest to

the public. The seven portfolios are: the Global Growth Trust, the

Growth Trust, the Growth and Income Trust, the Investment Quality

Bond Trust, the U. S. Government Securities Trust, the Money Market Trust and the Asset Allocation Trust. The investment obj ecti ves, policies and restrictions applicable to each portfolio of NAST are

described in NAST's registration statement on Form N-1A (File No.

33-27958) .
Under Massachusetts law and their respective Declarations of

Trust and Bylaws, both Funds are managed under the direction of

their Trustees. Currently, the officers and Trustees of NAST are

the same persons as the officers and Trustees of the Series Trust.

Each portfolio of each Fund has as its investment adviser, NASL

Financial Services, Inc. ("NASL Financial"), a wholly-owned subsid￾iary of Security Life that is registered with the Commission both

as an investment adviser and as a broker-dealer. NASL Financial

also serves as the principal underwriter of the variable annuity

contracts issued by Security Life and First North Am~rican that are

funded by investment in the Series Trust, and as the distributor

for NAST.

Under the terms of its advisory agreements with the Funds,

NASL Financial selects, contracts with, and compensates subadvisers

for the Funds' investment portfolios (the "Subadvisers"). NASL

Financial monitors the compliance of the Subadvisers with the

investment objectives and related policies of each portfolio and

reviews the performance of the Subadvisers and reports periodically

on their performance to the Trustees. NASL Financial also provides

certain administrative services and expense guarantees to each

Fund.
The Subadvisers
The Funds currently have a combined total of six Subadvisers.

Oechsle International Advisors, L.P. ("Oechsle"), Salomon Brothers

Asset Management Inc ("SBAM"), Goldman Sachs Asset Management

("GSAM") and Wellington Management Company ("Wellington") each man￾ages one or more portfolios of each Fund. Fidelity Management

Trust Company ("Fidelity") manages four portfolios of the Series

Trust and Roger Engemann Management Co., Inc. ("REMC") manages one

portfolio of the Series Trust. Each Subadviser makes all decisions

regarding the purchase and sale of securities by the portfolios

that it manages. Each Subadviser other than Fidelity is regi&tered

with the Commission as an investment adviser. Fidelity is not an

investment adviser for purposes of the Investment Advisers Act of

1940, because it satisfies the definition of "bank" in Section

202 (a) (2) of that act.

Oechsle, a Delaware limited partnership, serves as Subadviser

to the Global Equity and Global Government Bond portfolios of the

Series Trust and the Global Growth portfolio of NAST. SBAM, a New

York corporation that is an indirect, wholly-owned subsidiary of

Salomon Inc, serves as Subadviser to the Strategic Income portfolio

of the Series Trust and to the U. S. Government Securities portfolio

of each Fund. GSAM, a division of Goldman Sachs & Co ("Goldman

Sachs"), a New York limited partnership, serves as Subadviser to

the Asset Allocation portfolios of NAST and to the Growth Trust of each Fund. Wellington, a Massachusetts partnership, serves as Subadviser to each Fund's Growth and Income, Investment Quality

Bond and Money Market portfolios. Fidelity, a Massachusetts corpo￾ration that is a wholly-owned subsidiary of FMR Corp., serves as

Subadviser to the Equity, Conservative Asset Allocation, Moderate

Asset Allocation and Aggressive Asset Allocation portfolios of the

Series Trust. REMC, a California corporation, serves as Subadviser

to the Pasedena Growth Trust of the Series Trust.

Each Subadviser is completely independent of each other Sub￾adviser; no Subadviser is an "affiliated person" of any other Subadviser as that term is defined in section 2 (a) (3) of the Act. Moreover, in economic reality, each Subadviser competes directly or

indirectly with each other Subadviser in the investment advisory

business and certain of the Subadvisers or their affiliates d~.rect￾ly or indirectly compete as securities dealers. None of the

Subadvisers is an affiliated person of the Funds' adviser (NASL

Financial) or of any officer, trustee or employee of either Fund.

Relevant Provisions of the Act

Section 10(f) of the Act, in relevant part, prohibits a regis￾tered 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 investment

company is the issuer) a principal underwriter of which is an

investment adviser of the registered investment company or is a

person of which any investment adviser of the registered investment

company is an affiliated person.

Section 2 (a) (20) of the Act, in relevant part, defines an

investment adviser of an investment company as

(A) any person . . . who pursuant to contract with such

company regulariy furnishes advice to such company with

respect to the desirability of investing in, purchasing

or selling securities or other property, or is empowered

to determine what securities or other property shall be

purchased or sold by such company and (B) any other per￾son who pursuant to contract with a person described in

clause (A) regularly performs substantially all of the

duties undertaken by such person described in clause (A) The interpretive Problem

other than purchases permitted by Rules 10f-1, 10f-2 and 10f￾3, purchases by a Fund portfolio of securities of which that port￾folio's Subadviser, or a person of which that Subadviser is an

affiliated person, is a principal underwriter are clearly prohibit￾ed by section 10 (f). However, it is unclear whether the prohibi￾tions of Section 10 (f) extend to purchases by a portfolio of secu￾rities of which a Subadviser to one of the other portfolios of the

same Fund, or a person of which such a Subadviser is an affiliated

person, is a principal underwriter. For convenience, subsequent

references to a Subadviser as a principal underwriter will include

persons of which the Subadviser is an affiliated person.

As some of the Subadvisers are maj or participants in the

business of underwriting securities offerings, it can be important

to the investment performance of a Fund portfolio that it not be

restricted in its purchases of securities during an underwriting

syndicate of which a principal underwriter is a Subadviser to other

portfolios of that Fund. Although in some cases, it might prove

beneficial to a Fund portfolio to be able to purchase securities a

principal underwriter of which is its own Subadviser in excess of

the amounts permitted by Commission rules, an exemptive order would

be needed to engage in such purchases and, accordingly, such

purchases are beyond the scope of this interpretive request. In

the absence of an exemptive order, each Fund portfolio will contin￾ue to purchase securities of which its Subadviser is a principal

underwriter only to the extent permitted by rules under Section

10 (f) of the Act.

OPINION AND BASIS THEREFOR

In our opinion, section 10 (f) does not prohibit a Fund portfo￾lio from purchasing securities of which a Subadviser is a principal

underwri ter, provided that the Subadviser does not manage the

purchasing portfolio and provided that none of the following is an

affiliated person of that Subadviser: NASL Financial, the purchas￾ing portfolio's Subadviser, or the officers, trustees or employees

of the Fund. The phrase "Proposed Transactions" hereinafter will

be used to refer to purchases by an existing Fund portfolio, or one

that may be formed in the future, of securities a principal under￾writer of which is a present or future Subadviser that (1) does not

manage the purchasing portfolio and (2) is not a person of which

NASL Financial, the purchasing portfolio's Subadviser, or any

officer, trustee or employee of the Fund is an affiliated person.

As noted above, Section 10 (f) prohibits purchases of securi￾ties by a "registered investment company" of securities a principal

underwr iter of which is that investment company's "investment

adviser." For the Proposed Transactions to be deemed prohibited by
Section 10 (f), one must either conclude (1) that each Subadviser to
a Fund portfolio is an investment adviser of every portfolio of

that Fund or (2) that a Subadviser to any portfolio is an invest￾ment adviser to the Fund and that each purchase of securities by a

Fund portfolio is made not by that portfolio but rather by the Fund. We believe that neither conclusion is required by the lan￾guage of the Act and that either would contravene the policies

underlying the Act.
Under Section 2 (a) (20) (B), a Subadviser is an investment adviser of a portfolio it manages because, pursuant to a contract

wi th NASL Financial, the Subadviser furnishes advice to the portfo￾lio with respect to the desirability of investing in, purchasing

and selling securities or other property and is empowered to deter￾mine what securities or other property shall be purchased or sold

by the portfolio. However, because ~ö Subadviser's contract with

NASL Financial permits or empowers It to furnish such advice or

make such investment decisions with respect to other portfolios of . the Fundi it is not an investment adviser to the other portfolios within ~he meaning of section 2 (a) (20) . Accordingly, if in the context of a series company such as one of the Funds the "invest￾ment company" referred to in Section 10 (f) is the Fund portfolio rather than the Fund, then a Subadviser is an investment adviser only of those portfolios it manages and the prohibitions of Section 10 (f) do not apply to the Proposed Transactions.

Section 3 (a) of the Act defines "investment company" as any

"issuer" which engages in the activities listed in paragraphs (1)

through (3) of that section. As shares of beneficial interest are

issued separately for each Fund portfolio and each portfolio engag￾es independently in the activities listed in section 3 (a) (1) and 3 (a) (3), it seems logical to conclude that the "issuer" of such shares, for purposes of the Section 3 (a) (3) definition and thus for purposes of Sections 2 (a) (20) and 10 (f), is the individual portfo lio. In 1966, the Commission informed Congress that "The individual

series of a registered investment company are, for all practical

purposes, separate investment companies." SEC, Public Policy Implications of Investment Comnany Growth, H.R. Rep. 2337, 89th

Cong., 2d Sess. 330-331 (1966). In explaining that conclusion, the

Commission noted that the reasons entities such as insurance compa￾ny separate accounts issuing variable annuities should be regulated

as separate investment companies apply equally to the separate

series of a series company. Id., at note 25.

The Commission has treated the individual portfolios of a

series company as the registered investment company for purposes of

Section 15 (a) of the Act. section 15 (a) requires that contracts

between an investment adviser to a registered investment company

and a subadviser, pursuant to which the subadviser agrees to act or

serve as an investment adviser to that registered investment compa￾ny, be approved by a vote of the shareholders of the registered

investment company. Paragraph (a) of Rule 18f-2 under the Act

requires approval of an investment advisory contract by each port￾folio series affected by that contract. Paragraph (c) of that rule

deems approval of such a contract by vote of the shareholders of an

individual portfolio sufficient to satisfy the requirements of

Section 15 (a) as to that portfolio, regardless of whether or not

other portfolios have voted to approve it or of whether a majority

of all of the company's outstanding securities have approved it

(unless state law requires approval by a majority of all shares

regardless of series). In effect, for purposes of Section 15 (a) ,

the "registered investment company" for which a Subadviser serves

as an "investment adviser" is thus the individual portfolio rather

than the Fund of which it is a part.

In defining the term "investment adviser," section 2 (a) (20) of the Act refers directly to the investment advisory contract with an investment company that must be approved by shareholders of that investment company under Section 15 (a). That Rule 18f-2 deems such approval to be effective as to a portfolio upon approval of share￾holders of that portfolio, even if shareholders of all portfolios do not approve the contract, provides persuasive support for the interpretation that the "registered investment company" of which a Subadviser is an investment adviser within the meaning of Section 2 (a) (20) (and thus Section 10 (f)) is the individual portfolio rather than the Fund.

The Commission has also concluded that individual portfolios

should be treated as separate investment companies for certain

regulatory purposes similar to those of Section 10 (f) . For exam￾pIe, the Commission has taken the position that Section 17 appl ies

to portfolio series of an investment company as if each were a

separate registered investment company. See, g,.g., Investment

Company Act Release Nos. 16431 (June 13, 1988) (amending Rule 17d￾3) and 11676 (Mar. 10, 1981) (adopting Rule 17a-7). While the

Commission has not specified that portfolios of a series company

are separate investment companies for purposes of Section 10 (f) , the same analysis that would lead to the conclusion that they are

separate companies for purposes of Section 17 should be applicable

to a section of the Act, such as Section 10 (f), which has a similar

purpose of preventing self-dealing.

In evaluating whether each portfolio of a series investment

company should be considered a separate investment company for

purposes of Section 10 (f), it is appropriate to examine the purpos￾es of that section to make sure that such an interpretation would

not frustrate those purposes. See qenerallv Joseph R. Fleming,

Requlation of Series Investment Companies Under the Investment

Company Act of 1940, 44 BUS. LAW. 1179 (1989). When proposing

amendments to Rule 10f-3 in 1979, the Commission discussed the

purposes of section 10 (f), as revealed in the legislative history

of that section, and noted that it was adopted in response to

concerns about investment bankers "dumping" otherwise unmarketable

securi ties on investment companies with which they were affiliated

or which they controlled. Investment Company Act Release No. 10592

(Feb. 13, 1979).

The Congressional concern about dumping was included in a discussion of the dangers associated with a variety of transactions between an investment company and those with the direct or indirect power to control it. The legislative history of the Act clarifies the type of abuses that were intended to be precluded by such sections as Section 17 and Section 10 (f) . The representatives of the investment trust industry

were of the unanimous opinion that "self-dealing" -- that

is, transactions between officers, directors, and similar

persons and the investment companies with which they are

associated -- presented opportunities for gross abuse by

unscrupulous persons, through unloading of securities

upon the companies, unfair purchases from the companies,

the obtaining of unsecured or inadequately secured loans

from the companies, etc. The industry recognized that,

even for the most conscientious managements, transactions

between these affiliated persons and the investment com￾panies present many di ff icul ties. S. Rep. No. 1775, 76th Cong., 3d Sess. 6 (1940) (emphasis added).

David Schenker, one of the principal authors of the Act, made

it clear that it is transactions where a person controlling an

investment company has a pecuniary interest in the entity with

which the investment company is dealing that present the potential

for abuse that both Section 10 (f) and section 17 are intended to

prevent. He used the metaphor of "sitting on both sides of the ta￾ble" to explain the purposes of Section 17 (a), but the nature of the concern is equally applicable to section 10 (f) . That is why this bill says that you cannot sit on

both sides of the table when you are dealing with an

investment trust. If you are a director or officer or

manager or controlling person you cannot sell any pro￾perty to an investment trust, because you are sitting on

one side representing yourself where YOU have a pecuniary

interest, and you are sitting on the other side repre￾senting the investment trust; and we say that funda￾mentally that should not be permitted.

. . . We tried to get the situations where it would be to

his pecuniary interest to unload securities on the in￾vestment trust. We figured that if he had a 5-percent

interest in the company that is selling the securities,

then he has a sufficient interest to affect his iudqment,

and therefore we say that he cannot sell. Hearings on S.

3580 Before a Subcomm. of the Senate Comm. on Bankinq and

Currency, 76th Cong., 3d Sess. 130-131, 261 (Testimony of

David Schenker) (1940) (emphasis added).
The Schenker testimony, especially the emphasized language, shows

that those who drafted the Act intended to preclude transactions

where the judgment of a person acting on behalf of, or controlling

the actions of, an investment company could be affected by a direct

or indirect pecuniary interest opposed to that of the investment

company.
When the person acting on behalf of an investment company has

no direct or indirect pecuniary interest in a securities trans￾action as an underwriter, then there is no interest in the transac￾tion that could affect the person's judgment and the abuse section

10(f) is designed to prevent (dumping) is not present. That is

precisely the situation in each Proposed Transaction. For example,

if Wellington decides that one of the portfolios that it manages

should purchase securities of which Goldman Sachs is a principal

underwriter, Wellington can neither lose nor gain financially on

the basis of whether the transaction is beneficial or detrimental

to Goldman Sachs. In fact, Wellington's only pecuniary interest in

such a transaction is that its subadvisory fees would be enhanced

to the extent that the transaction is beneficial to the portfolio

(by increasing the net assets under management), but reduced if it

were not beneficial to the portfolio (by decreasing the net assets

under management). This is precisely the arms-Iength-bargaining

situation that normally prevails when an adviser acts on behalf of

an investment company; it is not one where it would be imprudent to

trust the adviser's judgment. Accordingly, there is no more need

to restrict a Subadviser's ability to cause a portfolio to engage

in Proposed Transactions than there is for any other of the port￾folio's securities purchases.

It would be contrary to the interests of the shareholders of

a Fund portfolio to create "artificial barriers to purchases by the

portfolio of securities that conform to its investment objectives

and policies where there is not even a theoretical possibility of self-dealing or dumping. The broader the universe of securities offerings available to a portfolio, the easier it is for the Subad￾viser to that portfolio to maximize investment performance. Only

when there is some potential for harm to shareholders is it reason￾able for that universe to be restricted artificially. Accordingly,

we conclude that interpreting Section 10 (f) of the Act as applying

individually to each portfolio of a series company, rather than to

the series company as a whole, is consistent with the purposes and

policies underlying that section.

rhe staff of the Division of Investment Management has recent￾ly concluded that it is 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 to permit princi￾pal transactions between Fund portfolios and Subadvisers (or affil￾iated persons thereof) other than the Subadviser to the trading

portfolio. See North American Security Trust. et al., Investment

Company Act Release Nos. 18860 (July 22, 1992) (notice) and 18899

(Aug. 18, 1992) (order). As a result, Fund portfolios are permit￾ted to engage in principal transactions with Subadvisers of other

portfolios in the ordinary course of business. The staff's issu￾ance, pursuant to delegated authority, of a notice and order per-

mi tting unrestricted principal trading in this context suggests

that interpreting Section 10(f) to permit the Proposed Transactions

would be consistent with the purposes and policies of the Act and

prior positions taken by the Commission and its staff.

CONCLUSION
On the basis of the foregoing, it is our opinion that the

Proposed Transactions are not subj ect to the prohibitions of Sec￾tion 10 (f) of the Act. We respectfully request your advice that

you concur with our opinion or that you will not recommend that the

Commission take any enforcement action against the Funds alleging

a violation of Section 10 (f) of the Act if the Funds' portfolios

engage in the Proposed Transactions.

Because this interpretive request involves a publicly-offered

inve~ tment company and presents no issues pecul iar to insurance

products, we have directed this letter solely to your office.

However, because the Series Trust is a funding vehicle for an

insurance company separate account that issues variable annuity

contracts, we are providing a courtesy copy of this letter to

Wendell M. Faria, Esq., Deputy Chief of Office, Office of Insurance

Products and Legal Compliance. If you have any questions regarding this request, please feel free to contact the undersigned.

Very truly yours,

By:
cc: Wendell M. Faria, Esq.

John D. DesPrez, III, Esq.