At first glance, Ameritas Investment Corporation’s decision to replace sub-advisor Fred Alger Management in its small-cap portfolio may seem callous. John McStay Investment Counsel, advisor to the Brazos Funds, will now take over the sub-account.

Since the media became aware of a shareholder proxy filed with the Securities and Exchange Commission, the firm has been scrambling in an effort to stave off bad press.

Fred Alger Management, which kept one of its key offices in the North Tower of the World Trade Center, lost 38 of its employees Sept. 11 when terrorists slammed airliners into the buildings causing their collapse. Among those killed was David Alger, the firm’s president and chief investment officer and brother of founder, Fred Alger. Fred Alger has since returned from retirement to lead the firm.

"We’ve been talking to reporters all day," said Bob O’Meara, assistant treasurer at Ameritas. "Our biggest fear right now is that people are going to read this and say, ‘Oh, it’s because of Sept. 11.’"

The move could be drawing even more attention because of one phrase in the proxy that O’Meara concedes was "poorly worded." It reads: "The Board took into account… investment management staffing and the portfolio managers' respective experience and qualifications."

"People are taking this with a Sept. 11 bent, so they’re taking that sentence as directed at Alger, but it’s really directed at McStay. They’re reading between the lines to come up with this negative against Alger, whereas this was really intended as a positive for McStay," explained O’Meara.

Ameritas originally put the portfolio on a watch list in May, at which point the firm hired Morningstar to find a replacement. The decision was based purely on performance of the $47 million portfolio because Alger still manages two other portfolios for Ameritas totaling $377 million.

O’Meara said that Ameritas clearly regrets the misfortune of timing, but the firm did not stall the progression of the filing process because of the events of September 11.

"From a human standpoint, we felt terrible, but we had to keep moving because our No. 1 responsibility was to the shareholders. We just proceeded along with the course of actions that had already taken place," he said. "This would be a non-event if it wasn’t for September 11."

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