Fifth Third Funds, et al.; Notice of Application, 53399-53401 [E5-4886]
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Federal Register / Vol. 70, No. 173 / Thursday, September 8, 2005 / Notices
bring extra copies of their comments
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presentation must e-mail the
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to the meeting date so that the
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Laura Auletta,
Designated Federal Officer (Executive
Director), Acquisition Advisory Panel.
[FR Doc. 05–17841 Filed 9–7–05; 8:45 am]
BILLING CODE 3110–01–P
The
following is a summary of the
application. The complete application
may be obtained for a fee at the
Commission’s Public Reference Desk,
100 F Street, NE., Washington DC
20549–0102 (tel. 202–551–5850).
SUPPLEMENTARY INFORMATION:
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27054; 812–12926]
Fifth Third Funds, et al.; Notice of
Application
Applicants’ Representations
September 1, 2005.
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 and rule
18f–2 under the Act, as well as certain
disclosure requirements.
AGENCY:
Applicants
request an order that would permit them
to enter into and materially amend subadvisory agreements without
shareholder approval and would grant
SUMMARY OF APPLICATION:
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relief from certain disclosure
requirements.
APPLICANTS: Fifth Third Funds and
Variable Insurance Funds (each, a
‘‘Trust,’’ and together, the ‘‘Trusts’’),
and Fifth Third Asset Management Inc.
(‘‘FTAM’’).
FILING DATES: The application was filed
on February 5, 2003, and amended on
August 16, 2005.
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 September 27, 2005,
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 may request
notification of a hearing by writing to
the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
9303. Applicants, c/o Alan G. Priest,
Esq., Ropes & Gray LLP, One Metro
Center, 700 12th Street, NW.,
Washington, DC 20005–3948.
FOR FURTHER INFORMATION CONTACT:
Marc R. Ponchione, Senior Counsel, at
(202) 551–6874, or Nadya B. Roytblat,
Assistant Director, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
1. Each Trust is organized as a
Massachusetts business trust and is
registered under the Act as an open-end
management investment company. Each
Trust currently offers multiple series
(each, a ‘‘Fund’’), each with its own
investment objectives, restrictions, and
policies. Certain of the Funds use or
may use the multi-manager structure
described below (each, a ‘‘MultiManager Fund,’’ and together, the
‘‘Multi-Manager Funds’’). FTAM is
registered as an investment adviser
under the Investment Advisers Act of
1940 (‘‘Advisers Act’’) and serves as
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53399
investment adviser to all of the Funds.1
Each Trust, on behalf of its Funds, has
entered into an investment advisory
agreement with FTAM (each an
‘‘Advisory Agreement’’ and collectively,
the ‘‘Advisory Agreements’’). The
Advisory Agreements have been
approved by each Trust’s board of
trustees (each, a ‘‘Board,’’ and together,
the ‘‘Boards’’), including a majority of
the trustees who are not ‘‘interested
persons,’’ as defined in section 2(a)(19)
of the Act, of the Trusts (‘‘Independent
Trustees’’), as well as by each applicable
Fund’s shareholders.2
2. Under the terms of the Advisory
Agreements, FTAM oversees each
Multi-Manager Fund’s investments and
may select and contract with one or
more sub-advisors (‘‘Sub-Advisors’’) to
exercise day-to-day investment
discretion over all or a portion of the
assets of a Multi-Manager Fund
pursuant to a separate investment subadvisory agreement. FTAM monitors
and evaluates the Sub-Advisors and
recommends to the Board their hiring,
retention or termination. Sub-Advisors
must be approved by a Multi-Manager
Fund’s Board and by shareholders, and
may be terminated by the Board or the
shareholders. Each Sub-Advisor is or
will be registered under the Advisers
Act. Each Sub-Advisor’s fee is paid by
FTAM out of the management fee
received by FTAM from the MultiManager Funds.
3. Applicants request relief to permit
FTAM, subject to Board approval, to
enter into and materially amend subadvisory agreements without
shareholder approval. The requested
relief will not extend to a Sub-Advisor
that is an affiliated person, as defined in
section 2(a)(3) of the Act, of a MultiManager Fund or FTAM, other than by
reason of serving as a Sub-Advisor to
one or more of the Multi-Manager Fund
(‘‘Affiliated Sub-Advisor’’).
1 Applicants also request that any relief granted
pursuant to the application extend to any other
existing or future registered open-end management
investment company or series therof that: (i) Is
advised by FTAM or any entity controlling,
controlled by, or under common control with
FTAM and (ii) uses the multi-manager structure
described in the application (‘‘Future Funds,’’
included in the term ‘‘Multi-Manager Funds’’). Any
Fund or Future Fund that relies on the requested
order will do so only in accordance with the terms
and conditions contained in the application. The
Trusts are the only existing investment companies
that currently intend to rely on the order. If the
name of any Multi-Manager Fund contains the
name of a Sub-Advisor (as defined below), it will
be preceded by FTAM’s name.
2 The term ‘‘shareholder’’ includes variable life
insurance policy and variable annuity contract
owners that are unit holders of any separate account
for which a series of the Variable Insurance Funds
serves as a funding medium.
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Federal Register / Vol. 70, No. 173 / Thursday, September 8, 2005 / Notices
4. Applicants also request an
exemption from the various disclosure
provisions described below that may
require the Multi-Manager Funds to
disclose the fees paid by FTAM to the
Sub-Advisors. An exemption is
requested to permit a Multi-Manager
Fund to disclose (as both a dollar
amount and as a percentage of its net
assets): (a) The aggregate fees paid to
FTAM and any Affiliated Sub-Advisor,
and (b) the aggregate fees paid to SubAdvisors other than Affiliated SubAdvisors (collectively, ‘‘Aggregate
Fees’’). If a Multi-Manager Fund
employs an Affiliated Sub-Advisor, the
Multi-Manager 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 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. Form N–1A is the registration
statement used by open-end investment
companies. Item 14(a)(3) of Form N–1A
requires disclosure of the method 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 (‘‘Exchange 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. Form N–SAR is the semi-annual
report filed with the Commission by
registered investment companies. Item
48 of Form N–SAR requires investment
companies to disclose the rate schedule
for fees paid to their investment
advisers, including the Sub-Advisors.
5. Regulation S–X sets forth the
requirements for financial statements
required to be included as part of
investment company registration
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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.
6. 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 provision 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
believe that the requested relief meets
this standard for the reasons discussed
below.
7. Applicants assert that by investing
in a Multi-Manager Fund, shareholders,
in effect, will hire FTAM to manage the
Multi-Manager Fund’s assets by using
its investment advisor selection and
monitoring process. Applicants assert
that investors will purchase MultiManager Fund shares to gain access to
FTAM’s expertise in these areas.
Applicants further assert that the
requested relief will reduce MultiManager Fund expenses and enable the
Multi-Manager Funds to operate more
efficiently. Applicants note that the
Multi-Manager Funds’ Advisory
Agreements will remain subject to the
shareholder approval requirements of
section 15(a) of the Act and rule 18f–2
under the Act.
8. Applicants assert that many SubAdvisors charge their customers for
advisory services according to a
‘‘posted’’ fee schedule. Applicants state
that while Sub-Advisors are willing to
negotiate fees lower than those posted
in the rate schedule, particularly with
large institutional clients, they are
reluctant to do so where the fees are
disclosed to other prospective and
existing customers. Applicants submit
that the relief will encourage SubAdvisors to negotiate lower advisory
fees with FTAM, the benefits of which
may be passed on to Multi-Manager
Fund shareholders.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. Before a Multi-Manager Fund may
rely on the requested order, the
operation of the Multi-Manager Fund in
the manner described in the application
will be approved by a majority of the
Multi-Manager Fund’s outstanding
voting securities, as defined in the Act,
or, in the case of a Multi-Manager Fund
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whose public shareholders purchase
shares on the basis of a prospectus
containing the disclosure contemplated
by condition 2 below, by the sole
shareholder prior to offering shares of
the Multi-Manager Fund to the public.
2. Each Multi-Manager Fund will
disclose in its prospectus the existence,
substance, and effect of any order
granted pursuant to the application. In
addition, each Multi-Manager Fund will
hold itself out to the public as
employing the ‘‘manager of managers’’
approach described in the application.
The prospectus will prominently
disclose that FTAM has ultimate
responsibility (subject to oversight by
the Board) for the investment
performance of a Multi-Manager Fund
due to its responsibility to oversee SubAdvisors and recommend their hiring,
termination and replacement.
3. Within 90 days of the hiring of any
new Sub-Advisor, FTAM will furnish
shareholders of the affected MultiManager Fund with all of the
information about the new Sub-Advisor
that would be contained in a proxy
statement, except as modified by the
order to permit the disclosure of
Aggregate Fees. This information will
include the disclosure of Aggregate Fees
and any change in such disclosure
caused by the addition of a new SubAdvisor. FTAM 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 Exchange Act, except as
modified by the order to permit the
disclosure of Aggregate Fees.
4. FTAM will not enter into a subadvisory agreement with any Affiliated
Sub-Advisor without such agreement,
including the compensation to be paid
thereunder, being approved by the
shareholders of the Multi-Manager
Fund.
5. Each Fund will comply with the
fund governance standards as defined in
rule 0–1(a)(7) under the Act by the
compliance date for the rule. Prior to the
compliance date, a majority of each
Board will be Independent Trustees and
the nomination of new or additional
Independent Trustees will be placed
within the discretion of the thenexisting Independent Trustees.
6. When a change of Sub-Advisor is
proposed for a Multi-Manager Fund
with an Affiliated Sub-Advisor, the
Board, including a majority of the
Independent Trustees, will make a
separate finding, reflected in the Board
minutes, that such change is in the best
interests of the Multi-Manager Fund and
its shareholders and does not involve a
conflict of interest from which FTAM or
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Federal Register / Vol. 70, No. 173 / Thursday, September 8, 2005 / Notices
the Affiliated Sub-Advisor derives an
inappropriate advantage.
7. FTAM will provide general
management services to each MultiManager Fund, and, subject to review
and approval by the Board, will: (a) Set
each Multi-Manager Fund’s overall
investment strategies, (b) evaluate,
select and recommend Sub-Advisors to
manage all or a part of a Multi-Manager
Fund’s assets, (c) when appropriate,
allocate and reallocate the MultiManager Fund’s assets among multiple
Sub-Advisors, (d) monitor and evaluate
the Sub-Advisors’ investment
performance, and (e) implement
procedures reasonably designed to
ensure that the Sub-Advisors comply
with the Multi-Manager Fund’s
investment objectives, policies and
restrictions.
8. No trustee or officer of a MultiManager Fund, or director or officer of
FTAM will own, directly or indirectly
(other than through a pooled investment
vehicle over which such person does
not have control), any interest in a SubAdvisor, except for: (a) Ownership of
interests in FTAM or any entity that
controls, is controlled by, or is under
common control with FTAM, 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 SubAdvisor.
9. Each Multi-Manager Fund will
disclose in its registration statement the
Aggregate Fees.
10. Independent legal counsel, as
defined in rule 0–1(a)(6) under the Act,
will be engaged to represent the
Independent Trustees. The selection of
such counsel will be within the
discretion of the then-existing
Independent Trustees.
11. FTAM will provide the Board, no
less frequently than quarterly, with
information about FTAM’s profitability
on a per-Multi-Manager Fund basis. The
information will reflect the impact on
profitability of the hiring or termination
of any Sub-Advisor during the
applicable quarter.
12. Whenever a Sub-Advisor is hired
or terminated, FTAM will provide the
Board with information showing the
expected impact on FTAM’s
profitability.
13. The requested order will expire on
the effective date of rule 15a–5 under
the Act, if adopted.
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For the Commission, by the Division of
Investment Management, under delegated
authority.
Jonathan G. Katz,
Secretary.
[FR Doc. E5–4886 Filed 9–7–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52367; File No. SR–CBOE–
2004–86]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Granting Approval
of Proposed Rule Change Relating to
the Modified ROS Opening Procedure
August 31, 2005.
I. Introduction
On December 15, 2004, the Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to
amend the Exchange’s Rapid Opening
System (‘‘ROS’’) 3 modified opening
procedure set forth in CBOE Rule
6.2A.03. On July 5, 2005, the Exchange
filed Amendment No. 1 to the proposed
rule change.4 The proposed rule change
was published for comment in the
Federal Register on July 28, 2005.5 The
Commission received no comments on
the proposal. This order approves the
proposed rule change, as amended.
II. Description of the Proposed Rule
Change
Current CBOE Rule 6.2A.03 sets forth
certain procedures that modify the
normal operation of ROS for index
options with respect to which volatility
indexes are calculated, to be utilized on
the final settlement date (‘‘Settlement
Date’’) of futures and options contracts
that are traded on the applicable
volatility index.6 Specifically, the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 ROS is the Exchange’s automated system for
opening certain classes of options at the beginning
of the trading day or for re-opening those classes of
options during the trading day.
4 See Form 19b–4, dated July 1, 2005
(‘‘Amendment No. 1’’). Amendment No. 1 replaced
the original filing in its entirety.
5 See Securities Exchange Act Release No. 52101
(July 21, 2005), 70 FR 43726 (‘‘Notice’’).
6 The final settlement date of futures and options
contracts on volatility indexes occurs on the
Wednesday that is immediately prior to the third
Friday of the month that immediately precedes the
month in which the options used in the calculation
of that index expire.
2 17
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53401
modified ROS opening procedure
provides that on such Settlement Date,
all orders, other than contingency
orders, are eligible to be placed on the
book in those index option contract
months whose prices are used to derive
the volatility indexes on which options
and futures are traded, for the purposes
of permitting those orders to participate
in the ROS opening price calculation for
the applicable index option series.7
In setting forth the purpose of the
proposed rule change, CBOE cites the
example of market participants actively
trading futures on the CBOE Volatility
Index (‘‘VIX futures’’), who have
utilized the modified ROS opening
procedure to place orders for options on
the S&P 500 Index (‘‘SPX’’) on the book
on the Settlement Date of the VIX
futures contract to unwind hedge
strategies involving SPX options that
were initially entered into upon the
purchase or sale of the futures.8
According to CBOE, to the extent that (i)
traders who are liquidating hedges
predominately are on one side of the
market and (ii) those traders’ orders
predominate over other orders during
the SPX opening on Settlement Date,
trades to liquidate hedges may
contribute to an order imbalance during
the SPX opening on Settlement Date.
CBOE proposes to implement changes
to the modified ROS opening procedure
to encourage additional participation by
market participants who may wish to
place off-setting orders against the
imbalances. Currently, all orders for
participation in the modified procedure
must be received by 8:28 a.m. (CT).9 The
proposed rule change would amend
Rule 6.2A.03 to require that all index
option orders for participation in the
modified ROS opening that are related
to positions in, or a trading strategy
involving, volatility index options or
futures, and any changes or
cancellations to these orders, be
received prior to 8 a.m. (CT).10 In
addition, the proposed rule would
require information regarding any order
7 See CBOE Rule 6.2A.03. See also Securities
Exchange Act Release Nos. 49468 (March 24, 2004),
69 FR 17000 (March 31, 2004); and 49798 (June 3,
2004), 69 FR 32644 (June 10, 2004).
8 See Notice. In particular, CBOE states, the
commonly-used hedge for VIX futures involves
holding a portfolio of the SPX options that will be
used to calculate the settlement value of the VIX
futures contract on the Settlement Date. Traders
holding hedged VIX futures positions to settlement
can be expected to trade out of their SPX options
on the Settlement Date. Id.
9 See current CBOE Rule 6.2A.03(v).
10 The proposed rule change includes provisions
setting forth generally the criteria by which the
Exchange would consider index options orders to
be related to positions in, or a trading strategy
involving, volatility index options or futures for
purposes of the rule. See Notice.
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]]>Agencies
[Federal Register Volume 70, Number 173 (Thursday, September 8, 2005)]
[Notices]
[Pages 53399-53401]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4886]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27054; 812-12926]
Fifth Third Funds, et al.; Notice of Application
September 1, 2005.
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 and rule 18f-2 under the Act, as well as certain disclosure
requirements.
-----------------------------------------------------------------------
Summary of Application: Applicants request an order that would permit
them to enter into and materially amend sub-advisory agreements without
shareholder approval and would grant relief from certain disclosure
requirements.
Applicants: Fifth Third Funds and Variable Insurance Funds (each, a
``Trust,'' and together, the ``Trusts''), and Fifth Third Asset
Management Inc. (``FTAM'').
Filing Dates: The application was filed on February 5, 2003, and
amended on August 16, 2005.
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 September 27, 2005, 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 may request notification of a hearing by writing to
the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-9303. Applicants, c/o Alan G. Priest,
Esq., Ropes & Gray LLP, One Metro Center, 700 12th Street, NW.,
Washington, DC 20005-3948.
FOR FURTHER INFORMATION CONTACT: Marc R. Ponchione, Senior Counsel, at
(202) 551-6874, or Nadya B. Roytblat, Assistant Director, 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 may be obtained for a fee at the
Commission's Public Reference Desk, 100 F Street, NE., Washington DC
20549-0102 (tel. 202-551-5850).
Applicants' Representations
1. Each Trust is organized as a Massachusetts business trust and is
registered under the Act as an open-end management investment company.
Each Trust currently offers multiple series (each, a ``Fund''), each
with its own investment objectives, restrictions, and policies. Certain
of the Funds use or may use the multi-manager structure described below
(each, a ``Multi-Manager Fund,'' and together, the ``Multi-Manager
Funds''). FTAM is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act'') and serves as
investment adviser to all of the Funds.\1\ Each Trust, on behalf of its
Funds, has entered into an investment advisory agreement with FTAM
(each an ``Advisory Agreement'' and collectively, the ``Advisory
Agreements''). The Advisory Agreements have been approved by each
Trust's board of trustees (each, a ``Board,'' and together, the
``Boards''), including a majority of the trustees who are not
``interested persons,'' as defined in section 2(a)(19) of the Act, of
the Trusts (``Independent Trustees''), as well as by each applicable
Fund's shareholders.\2\
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\1\ Applicants also request that any relief granted pursuant to
the application extend to any other existing or future registered
open-end management investment company or series therof that: (i) Is
advised by FTAM or any entity controlling, controlled by, or under
common control with FTAM and (ii) uses the multi-manager structure
described in the application (``Future Funds,'' included in the term
``Multi-Manager Funds''). Any Fund or Future Fund that relies on the
requested order will do so only in accordance with the terms and
conditions contained in the application. The Trusts are the only
existing investment companies that currently intend to rely on the
order. If the name of any Multi-Manager Fund contains the name of a
Sub-Advisor (as defined below), it will be preceded by FTAM's name.
\2\ The term ``shareholder'' includes variable life insurance
policy and variable annuity contract owners that are unit holders of
any separate account for which a series of the Variable Insurance
Funds serves as a funding medium.
---------------------------------------------------------------------------
2. Under the terms of the Advisory Agreements, FTAM oversees each
Multi-Manager Fund's investments and may select and contract with one
or more sub-advisors (``Sub-Advisors'') to exercise day-to-day
investment discretion over all or a portion of the assets of a Multi-
Manager Fund pursuant to a separate investment sub-advisory agreement.
FTAM monitors and evaluates the Sub-Advisors and recommends to the
Board their hiring, retention or termination. Sub-Advisors must be
approved by a Multi-Manager Fund's Board and by shareholders, and may
be terminated by the Board or the shareholders. Each Sub-Advisor is or
will be registered under the Advisers Act. Each Sub-Advisor's fee is
paid by FTAM out of the management fee received by FTAM from the Multi-
Manager Funds.
3. Applicants request relief to permit FTAM, subject to Board
approval, to enter into and materially amend sub-advisory agreements
without shareholder approval. The requested relief will not extend to a
Sub-Advisor that is an affiliated person, as defined in section 2(a)(3)
of the Act, of a Multi-Manager Fund or FTAM, other than by reason of
serving as a Sub-Advisor to one or more of the Multi-Manager Fund
(``Affiliated Sub-Advisor'').
[[Page 53400]]
4. Applicants also request an exemption from the various disclosure
provisions described below that may require the Multi-Manager Funds to
disclose the fees paid by FTAM to the Sub-Advisors. An exemption is
requested to permit a Multi-Manager Fund to disclose (as both a dollar
amount and as a percentage of its net assets): (a) The aggregate fees
paid to FTAM and any Affiliated Sub-Advisor, and (b) the aggregate fees
paid to Sub-Advisors other than Affiliated Sub-Advisors (collectively,
``Aggregate Fees''). If a Multi-Manager Fund employs an Affiliated Sub-
Advisor, the Multi-Manager 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 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. Form N-1A is the registration statement used by open-end
investment companies. Item 14(a)(3) of Form N-1A requires disclosure of
the method 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 (``Exchange 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. Form N-SAR is the semi-annual report filed with the Commission
by registered investment companies. Item 48 of Form N-SAR requires
investment companies to disclose the rate schedule for fees paid to
their investment advisers, including the Sub-Advisors.
5. 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.
6. 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 provision 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 believe that the requested relief meets this standard
for the reasons discussed below.
7. Applicants assert that by investing in a Multi-Manager Fund,
shareholders, in effect, will hire FTAM to manage the Multi-Manager
Fund's assets by using its investment advisor selection and monitoring
process. Applicants assert that investors will purchase Multi-Manager
Fund shares to gain access to FTAM's expertise in these areas.
Applicants further assert that the requested relief will reduce Multi-
Manager Fund expenses and enable the Multi-Manager Funds to operate
more efficiently. Applicants note that the Multi-Manager Funds'
Advisory Agreements will remain subject to the shareholder approval
requirements of section 15(a) of the Act and rule 18f-2 under the Act.
8. Applicants assert that many Sub-Advisors charge their customers
for advisory services according to a ``posted'' fee schedule.
Applicants state that while Sub-Advisors are willing to negotiate fees
lower than those posted in the rate schedule, particularly with large
institutional clients, they are reluctant to do so where the fees are
disclosed to other prospective and existing customers. Applicants
submit that the relief will encourage Sub-Advisors to negotiate lower
advisory fees with FTAM, the benefits of which may be passed on to
Multi-Manager Fund shareholders.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Multi-Manager Fund may rely on the requested order, the
operation of the Multi-Manager Fund in the manner described in the
application will be approved by a majority of the Multi-Manager Fund's
outstanding voting securities, as defined in the Act, or, in the case
of a Multi-Manager Fund whose public shareholders purchase shares on
the basis of a prospectus containing the disclosure contemplated by
condition 2 below, by the sole shareholder prior to offering shares of
the Multi-Manager Fund to the public.
2. Each Multi-Manager Fund will disclose in its prospectus the
existence, substance, and effect of any order granted pursuant to the
application. In addition, each Multi-Manager Fund will hold itself out
to the public as employing the ``manager of managers'' approach
described in the application. The prospectus will prominently disclose
that FTAM has ultimate responsibility (subject to oversight by the
Board) for the investment performance of a Multi-Manager Fund due to
its responsibility to oversee Sub-Advisors and recommend their hiring,
termination and replacement.
3. Within 90 days of the hiring of any new Sub-Advisor, FTAM will
furnish shareholders of the affected Multi-Manager Fund with all of the
information about the new Sub-Advisor that would be contained in a
proxy statement, except as modified by the order to permit the
disclosure of Aggregate Fees. This information will include the
disclosure of Aggregate Fees and any change in such disclosure caused
by the addition of a new Sub-Advisor. FTAM 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 Exchange Act, except as modified by the order to permit
the disclosure of Aggregate Fees.
4. FTAM will not enter into a sub-advisory agreement with any
Affiliated Sub-Advisor without such agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the Multi-Manager Fund.
5. Each Fund will comply with the fund governance standards as
defined in rule 0-1(a)(7) under the Act by the compliance date for the
rule. Prior to the compliance date, a majority of each Board will be
Independent Trustees and the nomination of new or additional
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
6. When a change of Sub-Advisor is proposed for a Multi-Manager
Fund with an Affiliated Sub-Advisor, the Board, including a majority of
the Independent Trustees, will make a separate finding, reflected in
the Board minutes, that such change is in the best interests of the
Multi-Manager Fund and its shareholders and does not involve a conflict
of interest from which FTAM or
[[Page 53401]]
the Affiliated Sub-Advisor derives an inappropriate advantage.
7. FTAM will provide general management services to each Multi-
Manager Fund, and, subject to review and approval by the Board, will:
(a) Set each Multi-Manager Fund's overall investment strategies, (b)
evaluate, select and recommend Sub-Advisors to manage all or a part of
a Multi-Manager Fund's assets, (c) when appropriate, allocate and
reallocate the Multi-Manager Fund's assets among multiple Sub-Advisors,
(d) monitor and evaluate the Sub-Advisors' investment performance, and
(e) implement procedures reasonably designed to ensure that the Sub-
Advisors comply with the Multi-Manager Fund's investment objectives,
policies and restrictions.
8. No trustee or officer of a Multi-Manager Fund, or director or
officer of FTAM will own, directly or indirectly (other than through a
pooled investment vehicle over which such person does not have
control), any interest in a Sub-Advisor, except for: (a) Ownership of
interests in FTAM or any entity that controls, is controlled by, or is
under common control with FTAM, 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.
9. Each Multi-Manager Fund will disclose in its registration
statement the Aggregate Fees.
10. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act, will be engaged to represent the Independent Trustees. The
selection of such counsel will be within the discretion of the then-
existing Independent Trustees.
11. FTAM will provide the Board, no less frequently than quarterly,
with information about FTAM's profitability on a per-Multi-Manager Fund
basis. The information will reflect the impact on profitability of the
hiring or termination of any Sub-Advisor during the applicable quarter.
12. Whenever a Sub-Advisor is hired or terminated, FTAM will
provide the Board with information showing the expected impact on
FTAM's profitability.
13. The requested order will expire on the effective date of rule
15a-5 under the Act, if adopted.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. E5-4886 Filed 9-7-05; 8:45 am]
BILLING CODE 8010-01-P
