Forum Funds, et al.; Notice of Application, 26130-26132 [E6-6638]
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26130
Federal Register / Vol. 71, No. 85 / Wednesday, May 3, 2006 / Notices
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6–6660 Filed 5–2–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
(202) 551–6990, or Janet M. Grossnickle,
Branch Chief, at (202) 551–6821 (Office
of Investment Company Regulation,
Division of Investment Management).
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 Branch,
100 F Street, NE., Washington, DC
20549–0104 (telephone (202) 551–8090).
jlentini on PROD1PC65 with NOTICES
[Investment Company Act Release No.
27304; 812–13113]
Applicants’ Representations
1. The Trust, a Delaware statutory
trust, is registered under the Act as an
Forum Funds, et al.; Notice of
open-end management investment
Application
company. The Trust currently is
April 26, 2006.
comprised of twenty-eight series
AGENCY: Securities and Exchange
(‘‘Funds’’), each with a separate
Commission (‘‘Commission’’).
investment objective, policy, and
ACTION: Notice of an application for an
restrictions.1 The Advisor, a Maryland
order under section 6(c) of the
corporation, is registered as an
Investment Company Act of 1940
investment adviser under the
(‘‘Act’’) for an exemption from section
Investment Advisers Act of 1940
15(a) of the Act and rule 18f–2 under
(‘‘Advisers Act’’) and serves as
the Act, as well as from certain
investment adviser to nine of the
disclosure requirements.
existing Funds (‘‘Series’’) pursuant to
investment advisory agreements
Summary of the Application:
(‘‘Advisory Agreements’’). Each
Applicants request an order that would
Advisory Agreement has been approved
permit them to enter into and materially
by the Trust’s board of trustees (the
amend subadvisory agreements without
‘‘Board’’),2 including a majority of the
shareholder approval and would grant
trustees who are not ‘‘interested
relief from certain disclosure
persons,’’ as defined in section 2(a)(19)
requirements.
of the Act, of the Trust or the Advisor
Applicants: Forum Funds (‘‘Trust’’),
(‘‘Independent Trustees’’), as well as by
and Brown Investment Advisory
the shareholders of each Series.
Incorporated (‘‘Advisor’’).
2. Applicants propose to establish a
Filing Dates: The application was
program in which the Advisor, in its
filed on July 29, 2004, and amended on
capacity as investment adviser to each
February 13, 2006 and April 25, 2006.
Series, oversees the portfolio
Hearing or Notification of Hearing: An
management of a Series by its
order granting the application will be
subadvisers (each, a ‘‘Subadvisor’’). The
issued unless the Commission orders a
Advisor would provide overall
hearing. Interested persons may request
investment management services to
a hearing by writing to the
each Series, including Subadvisor
Commission’s Secretary and serving
monitoring and evaluation and would
applicants with a copy of the request,
personally or by mail. Hearing requests
1 Applicants also request relief with respect to
should be received by the Commission
future series of the Trust and any other existing or
future registered open-end management investment
by 5:30 p.m. on May 22, 2006 and
company or series thereof that: (a) Is advised by the
should be accompanied by proof of
Advisor or an entity controlling, controlled by, or
service on applicants, in the form of an
under common control with the Advisor; (b) uses
affidavit or, for lawyers, a certificate of
the multi-manager structure as described in the
application; and (c) complies with the terms and
service. Hearing requests should state
conditions of the application (included in the term
the nature of the writer’s interest, the
‘‘Series’’). The only existing registered open-end
reason for the request, and the issues
management investment company that currently
contested. Persons who wish to be
intends to rely on the requested order is named as
an applicant. All references to the term ‘‘Advisor’’
notified of a hearing may request
herein include (a) the Advisor or its successor in
notification by writing to the
interest (limited to any entity resulting from a
Commission’s Secretary.
reorganization of the Advisor into another
jurisdiction or a change in the type of business
ADDRESSES: Secretary, U.S. Securities
organization), and (b) an entity controlling,
and Exchange Commission, 100 F
controlled by, or under common control with the
Street, NE., Washington, DC 20549–
Advisor. If the name of any Series contains the
1090. Applicants: Anthony C.J. Nuland, name of a Subadvisor (as defined below), the name
of the Advisor will precede the name of the
Seward & Kissel LLP, 1200 G Street,
Subadvisor.
NW., Washington, DC 20005.
2 With respect to a Series not part of the Trust,
FOR FURTHER INFORMATION CONTACT:
the term ‘‘Board’’ refers to the board of directors/
trustees of the relevant Series.
Barbara T. Heussler, Senior Counsel, at
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be responsible for recommending the
hiring, termination and replacement of
Subadvisors to the Board. All
subadvisory agreements (‘‘Subadvisory
Agreements’’) will be approved by the
Board, including a majority of the
Independent Trustees. Under each
Subadvisory Agreement, the Subadvisor
would determine which securities will
be purchased and sold for a Series’
investment portfolio or for a portion of
the portfolio. Each Subadvisor will be
registered under the Advisers Act and
paid by the Advisor out of the fee it
receives from the Series under its
Advisory Agreement. Applicants
request an order to permit the Advisor,
subject to Board approval, to enter into
and materially amend Subadvisory
Agreements without obtaining
shareholder approval. The requested
relief will not extend to any Subadvisor
that is an affiliated person, as defined in
section 2(a)(3) of the Act, of a Series or
of the Advisor, other than by reason of
serving as a Subadvisor to one or more
of the Series (‘‘Affiliated Subadvisor’’).
3. Applicants also request an
exemption from the various disclosure
provisions described below that may
require a Series to disclose fees paid by
the Advisor to each Subadvisor. An
exemption is requested to permit each
Series, in the event that a Series has
more than one Subadvisor, to disclose
(both as a dollar amount and as a
percentage of a Series’ net assets): (a)
The aggregate fees paid to the Advisor
and Affiliated Subadvisors; and (b)
aggregate fees paid to Subadvisors other
than Affiliated Subadvisors (‘‘Aggregate
Fee Disclosure’’). For any Series that
employs an Affiliated Subadvisor, the
Series will provide separate disclosure
of any fees paid to such Affiliated
Subadvisor.
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
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03MYN1
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Federal Register / Vol. 71, No. 85 / Wednesday, May 3, 2006 / Notices
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. 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 subadvisers.
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 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 their requested relief meets
this standard for the reasons discussed
below.
7. Applicants assert that by investing
in a Series, shareholders are in effect
hiring the Advisor to manage the Series’
assets through monitoring and
evaluation of Subadvisors rather than by
hiring the Advisor’s own employees to
directly manage assets, and that
shareholders will expect that the
Advisor will oversee its Subadvisors
and recommend whether to hire,
terminate or replace such Subadvisors
when deemed appropriate. Applicants
believe that permitting the Advisor to
hire Subadvisors without incurring the
unnecessary delay and expense of
obtaining shareholder approval of each
Subadvisory Agreement is appropriate
in the interest of the Series’
shareholders and will allow each Series
to potentially operate more efficiently.
Applicants note that the Advisory
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Agreements will continue to be subject
to section 15(a) of the Act and rule 18f–
2 under the Act.
8. Applicants assert that, because the
Advisor compensates the Subadvisors
out of the fee it receives from each
Series for advisory services, disclosure
of the individual fees that the Advisor
would pay to each Subadvisor in a cosubadvisory or multi-subadvisory
situation does not serve any meaningful
purpose. Applicants further assert that
some Subadvisors use a ‘‘posted’’ rate
schedule to set their fees. Applicants
state that while Subadvisors are willing
to negotiate fees that are lower than
those posted on 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 encourage
potential Subadvisors to negotiate lower
subadvisory fees with the Advisor, the
benefits of which may be passed on to
Series shareholders.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The Advisor will provide general
investment management services to
each Series, including overall
supervisory responsibility for the
general management and investment of
the Series’ assets and, subject to review
and approval of the Board, will: (i) Set
the Series’ overall investment strategies;
(ii) evaluate, select and recommend
Subadvisors to manage all or a portion
of a Series’ assets; (iii) allocate and,
when appropriate, reallocate a Series’
assets among multiple Subadvisors; (iv)
monitor and evaluate Subadvisor
performance; and (v) implement
procedures reasonably designed to
ensure that Subadvisors comply with
the relevant Series’ investment
objective, policies and restrictions.
2. Before a Series may rely on the
order requested herein, the operation of
the Series in the manner described in
this application will be approved by a
majority of the Series’ outstanding
voting securities as defined in the Act,
or, in the case of a Series whose public
shareholders purchase shares on the
basis of a prospectus containing the
disclosure contemplated by condition 3
below, by the initial shareholder before
such Series’ shares are offered to the
public.
3. The prospectus for each Series will
disclose the existence, substance and
effect of any order granted pursuant to
this application. In addition, each Series
will hold itself out to the public as
employing the manager of managers
structure described in this application.
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26131
The prospectus will prominently
disclose that the Advisor has ultimate
responsibility, subject to oversight by
the Board, to oversee the Subadvisors
and recommend their hiring,
termination, and replacement.
4. Within 90 days of the hiring of any
new Subadvisor, the shareholders of the
relevant Series will be furnished all
information about the new Subadvisor
that would be included in a proxy
statement, except as modified to permit
Aggregate Fee Disclosure. This
information will include Aggregate Fee
Disclosure and any change in such
disclosure caused by the addition of a
new Subadvisor. To meet this
obligation, the Advisor will provide
shareholders of the applicable Series,
within 90 days of the hiring of a new
Subadvisor, 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.
5. No trustee or officer of the Trust or
a Series 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 Subadvisor
except for: (i) ownership of interests in
the Advisor or any entity that controls,
is controlled by, or is under common
control with the Advisor; or (ii)
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 Subadvisor or
an entity that controls, is controlled by
or is under common control with a
Subadvisor.
6. At all times, at least a majority of
the 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. The
Board also will satisfy the fund
governance standards defined in rule 0–
1(a)(7) under the Act.
7. Whenever a Subadvisor change is
proposed for a Series with an Affiliated
Subadvisor, the Series’ Board, including
a majority of the Independent Trustees,
will make a separate finding, reflected
in the applicable Board minutes, that
such change is in the best interests of
the Series and its shareholders and does
not involve a conflict of interest from
which the Advisor or the Affiliated
Subadvisor derives an inappropriate
advantage.
8. Each Series in its registration
statement will disclose the Aggregate
Fee Disclosure.
9. Independent legal counsel, as
defined in rule 0–1(a)(6) under the Act,
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will be engaged to represent the
Independent Trustees. The selection of
such counsel will be within the
discretion of the then-existing
Independent Trustees.
10. The Advisor will provide the
Board, no less frequently than quarterly,
with information about the Advisor’s
profitability on a per Series basis. This
information will reflect the impact on
profitability of the hiring or termination
of any Subadvisor during the applicable
quarter.
11. Whenever a Subadvisor is hired or
terminated, the Advisor will provide the
Board with information showing the
expected impact on the Advisor’s
profitability.
12. The Advisor will not enter into a
Subadvisory Agreement with any
Affiliated Subadvisor, without such
agreement, including the compensation
to be paid thereunder, being approved
by the shareholders of the applicable
Series.
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.
Nancy M. Morris,
Secretary.
[FR Doc. E6–6638 Filed 5–2–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release Nos. 33–8681; 34–53737/April 28,
2006]
Order Making Fiscal Year 2007 Annual
Adjustments to the Fee Rates
Applicable Under Section 6(b) of the
Securities Act of 1933 and Sections
13(e), 14(g), 31(b), and 31(c) of the
Securities Exchange Act of 1934
jlentini on PROD1PC65 with NOTICES
I. Background
The Commission collects fees under
various provisions of the securities
laws. Section 6(b) of the Securities Act
of 1933 (‘‘Securities Act’’) requires the
Commission to collect fees from issuers
on the registration of securities.1 Section
13(e) of the Securities Exchange Act of
1934 (‘‘Exchange Act’’) requires the
Commission to collect fees on specified
repurchases of securities.2 Section 14(g)
of the Exchange Act requires the
Commission to collect fees on proxy
solicitations and statements in corporate
control transactions.3 Finally, Sections
1 15
U.S.C. 77f(b).
U.S.C. 78m(e).
3 15 U.S.C. 78n(g).
2 15
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31(b) and (c) of the Exchange Act
require national securities exchanges
and national securities associations,
respectively, to pay fees to the
Commission on transactions in specified
securities.4
The Investor and Capital Markets Fee
Relief Act (‘‘Fee Relief Act’’) 5 amended
Section 6(b) of the Securities Act and
Sections 13(e), 14(g), and 31 of the
Exchange Act to require the
Commission to make annual
adjustments to the fee rates applicable
under these sections for each of the
fiscal years 2003 through 2011, and one
final adjustment to fix the fee rates
under these sections for fiscal year 2012
and beyond.6
II. Fiscal Year 2007 Annual Adjustment
to the Fee Rates Applicable Under
Section 6(b) of the Securities Act and
Sections 13(e) and 14(g) of the Exchange
Act
Section 6(b)(5) of the Securities Act
requires the Commission to make an
annual adjustment to the fee rate
applicable under Section 6(b) of the
Securities Act in each of the fiscal years
2003 through 2011.7 In those same fiscal
years, Sections 13(e)(5) and 14(g)(5) of
the Exchange Act require the
Commission to adjust the fee rates
under Sections 13(e) and 14(g) to a rate
that is equal to the rate that is applicable
under Section 6(b). In other words, the
annual adjustment to the fee rate under
Section 6(b) of the Securities Act also
sets the annual adjustment to the fee
rates under Sections 13(e) and 14(g) of
the Exchange Act.
Section 6(b)(5) sets forth the method
for determining the annual adjustment
to the fee rate under Section 6(b) for
fiscal year 2007. Specifically, the
Commission must adjust the fee rate
under Section 6(b) to a ‘‘rate that, when
applied to the baseline estimate of the
aggregate maximum offering prices for
4 15 U.S.C. 78ee(b) and (c). In addition, Section
31(d) of the Exchange Act requires the Commission
to collect assessments from national securities
exchanges and national securities associations for
round turn transactions on security futures. 15
U.S.C. 78ee(d).
5 Pub. L. 107–123, 115 Stat. 2390 (2002).
6 See 15 U.S.C. 77f(b)(5), 77f(b)(6), 78m(e)(5),
78m(e)(6), 78n(g)(5), 78n(g)(6), 78ee(j)(1), and
78ee(j)(3). Section 31(j)(2) of the Exchange Act, 15
U.S.C. 78ee(j)(2), also requires the Commission, in
specified circumstances, to make a mid-year
adjustment to the fee rates under Sections 31(b) and
(c) of the Exchange Act in fiscal years 2002 through
2011.
7 The annual adjustments are designed to adjust
the fee rate in a given fiscal year so that, when
applied to the aggregate maximum offering price at
which securities are proposed to be offered for the
fiscal year, it is reasonably likely to produce total
fee collections under Section 6(b) equal to the
‘‘target offsetting collection amount’’ specified in
Section 6(b)(11)(A) for that fiscal year.
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[fiscal year 2007], is reasonably likely to
produce aggregate fee collections under
[Section 6(b)] that are equal to the target
offsetting collection amount for [fiscal
year 2007].’’ That is, the adjusted rate is
determined by dividing the ‘‘target
offsetting collection amount’’ for fiscal
year 2007 by the ‘‘baseline estimate of
the aggregate maximum offering prices’’
for fiscal year 2007.
Section 6(b)(11)(A) specifies that the
‘‘target offsetting collection amount’’ for
fiscal year 2007 is $214,000,000.8
Section 6(b)(11)(B) defines the ‘‘baseline
estimate of the aggregate maximum
offering price’’ for fiscal year 2007 as
‘‘the baseline estimate of the aggregate
maximum offering price at which
securities are proposed to be offered
pursuant to registration statements filed
with the Commission during [fiscal year
2007] as determined by the
Commission, after consultation with the
Congressional Budget Office and the
Office of Management and Budget
* * *.’’
To make the baseline estimate of the
aggregate maximum offering price for
fiscal year 2007, the Commission is
using the same methodology it
developed in consultation with the
Congressional Budget Office (‘‘CBO’’)
and Office of Management and Budget
(‘‘OMB’’) to project aggregate offering
price for purposes of the fiscal year 2006
annual adjustment. Using this
methodology, the Commission
determines the ‘‘baseline estimate of the
aggregate maximum offering price’’ for
fiscal year 2007 to be
$6,974,885,248,909.9 Based on this
estimate, the Commission calculates the
annual adjustment for fiscal 2007 to be
$30.70 per million. This adjusted fee
rate applies to Section 6(b) of the
Securities Act, as well as to Sections
13(e) and 14(g) of the Exchange Act.
8 Congress determined the target offsetting
collection amounts by applying reduced fee rates to
the CBO’s January 2001 projections of the aggregate
maximum offering prices for fiscal years 2002
through 2011. In any fiscal year through fiscal year
2011, the annual adjustment mechanism will result
in additional fee rate reductions if the CBO’s
January 2001 projection of the aggregate maximum
offering prices for the fiscal year proves to be too
low, and fee rate increases if the CBO’s January
2001 projection of the aggregate maximum offering
prices for the fiscal year proves to be too high.
9 Appendix A explains how we determined the
‘‘baseline estimate of the aggregate maximum
offering price’’ for fiscal year 2007 using our
methodology, and then shows the purely
arithmetical process of calculating the fiscal year
2007 annual adjustment based on that estimate. The
appendix includes the data used by the
Commission in making its ‘‘baseline estimate of the
aggregate maximum offering price’’ for fiscal year
2007.
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]]>Agencies
[Federal Register Volume 71, Number 85 (Wednesday, May 3, 2006)]
[Notices]
[Pages 26130-26132]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-6638]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27304; 812-13113]
Forum Funds, et al.; Notice of Application
April 26, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order 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 from certain
disclosure requirements.
-----------------------------------------------------------------------
Summary of the 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: Forum Funds (``Trust''), and Brown Investment Advisory
Incorporated (``Advisor'').
Filing Dates: The application was filed on July 29, 2004, and
amended on February 13, 2006 and April 25, 2006.
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 May 22, 2006 and should be accompanied by proof of service
on 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: Anthony C.J.
Nuland, Seward & Kissel LLP, 1200 G Street, NW., Washington, DC 20005.
FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel,
at (202) 551-6990, or Janet M. Grossnickle, Branch Chief, at (202) 551-
6821 (Office of Investment Company Regulation, Division of Investment
Management).
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 Branch, 100 F Street, NE., Washington, DC
20549-0104 (telephone (202) 551-8090).
Applicants' Representations
1. The Trust, a Delaware statutory trust, is registered under the
Act as an open-end management investment company. The Trust currently
is comprised of twenty-eight series (``Funds''), each with a separate
investment objective, policy, and restrictions.\1\ The Advisor, a
Maryland corporation, is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act'') and serves as
investment adviser to nine of the existing Funds (``Series'') pursuant
to investment advisory agreements (``Advisory Agreements''). Each
Advisory Agreement has been approved by the Trust's board of trustees
(the ``Board''),\2\ including a majority of the trustees who are not
``interested persons,'' as defined in section 2(a)(19) of the Act, of
the Trust or the Advisor (``Independent Trustees''), as well as by the
shareholders of each Series.
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\1\ Applicants also request relief with respect to future series
of the Trust and any other existing or future registered open-end
management investment company or series thereof that: (a) Is advised
by the Advisor or an entity controlling, controlled by, or under
common control with the Advisor; (b) uses the multi-manager
structure as described in the application; and (c) complies with the
terms and conditions of the application (included in the term
``Series''). The only existing registered open-end management
investment company that currently intends to rely on the requested
order is named as an applicant. All references to the term
``Advisor'' herein include (a) the Advisor or its successor in
interest (limited to any entity resulting from a reorganization of
the Advisor into another jurisdiction or a change in the type of
business organization), and (b) an entity controlling, controlled
by, or under common control with the Advisor. If the name of any
Series contains the name of a Subadvisor (as defined below), the
name of the Advisor will precede the name of the Subadvisor.
\2\ With respect to a Series not part of the Trust, the term
``Board'' refers to the board of directors/trustees of the relevant
Series.
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2. Applicants propose to establish a program in which the Advisor,
in its capacity as investment adviser to each Series, oversees the
portfolio management of a Series by its subadvisers (each, a
``Subadvisor''). The Advisor would provide overall investment
management services to each Series, including Subadvisor monitoring and
evaluation and would be responsible for recommending the hiring,
termination and replacement of Subadvisors to the Board. All
subadvisory agreements (``Subadvisory Agreements'') will be approved by
the Board, including a majority of the Independent Trustees. Under each
Subadvisory Agreement, the Subadvisor would determine which securities
will be purchased and sold for a Series' investment portfolio or for a
portion of the portfolio. Each Subadvisor will be registered under the
Advisers Act and paid by the Advisor out of the fee it receives from
the Series under its Advisory Agreement. Applicants request an order to
permit the Advisor, subject to Board approval, to enter into and
materially amend Subadvisory Agreements without obtaining shareholder
approval. The requested relief will not extend to any Subadvisor that
is an affiliated person, as defined in section 2(a)(3) of the Act, of a
Series or of the Advisor, other than by reason of serving as a
Subadvisor to one or more of the Series (``Affiliated Subadvisor'').
3. Applicants also request an exemption from the various disclosure
provisions described below that may require a Series to disclose fees
paid by the Advisor to each Subadvisor. An exemption is requested to
permit each Series, in the event that a Series has more than one
Subadvisor, to disclose (both as a dollar amount and as a percentage of
a Series' net assets): (a) The aggregate fees paid to the Advisor and
Affiliated Subadvisors; and (b) aggregate fees paid to Subadvisors
other than Affiliated Subadvisors (``Aggregate Fee Disclosure''). For
any Series that employs an Affiliated Subadvisor, the Series will
provide separate disclosure of any fees paid to such Affiliated
Subadvisor.
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
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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. 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 subadvisers.
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 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 their requested relief meets this standard
for the reasons discussed below.
7. Applicants assert that by investing in a Series, shareholders
are in effect hiring the Advisor to manage the Series' assets through
monitoring and evaluation of Subadvisors rather than by hiring the
Advisor's own employees to directly manage assets, and that
shareholders will expect that the Advisor will oversee its Subadvisors
and recommend whether to hire, terminate or replace such Subadvisors
when deemed appropriate. Applicants believe that permitting the Advisor
to hire Subadvisors without incurring the unnecessary delay and expense
of obtaining shareholder approval of each Subadvisory Agreement is
appropriate in the interest of the Series' shareholders and will allow
each Series to potentially operate more efficiently. Applicants note
that the Advisory Agreements will continue to be subject to section
15(a) of the Act and rule 18f-2 under the Act.
8. Applicants assert that, because the Advisor compensates the
Subadvisors out of the fee it receives from each Series for advisory
services, disclosure of the individual fees that the Advisor would pay
to each Subadvisor in a co-subadvisory or multi-subadvisory situation
does not serve any meaningful purpose. Applicants further assert that
some Subadvisors use a ``posted'' rate schedule to set their fees.
Applicants state that while Subadvisors are willing to negotiate fees
that are lower than those posted on 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 encourage
potential Subadvisors to negotiate lower subadvisory fees with the
Advisor, the benefits of which may be passed on to Series shareholders.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Advisor will provide general investment management services
to each Series, including overall supervisory responsibility for the
general management and investment of the Series' assets and, subject to
review and approval of the Board, will: (i) Set the Series' overall
investment strategies; (ii) evaluate, select and recommend Subadvisors
to manage all or a portion of a Series' assets; (iii) allocate and,
when appropriate, reallocate a Series' assets among multiple
Subadvisors; (iv) monitor and evaluate Subadvisor performance; and (v)
implement procedures reasonably designed to ensure that Subadvisors
comply with the relevant Series' investment objective, policies and
restrictions.
2. Before a Series may rely on the order requested herein, the
operation of the Series in the manner described in this application
will be approved by a majority of the Series' outstanding voting
securities as defined in the Act, or, in the case of a Series whose
public shareholders purchase shares on the basis of a prospectus
containing the disclosure contemplated by condition 3 below, by the
initial shareholder before such Series' shares are offered to the
public.
3. The prospectus for each Series will disclose the existence,
substance and effect of any order granted pursuant to this application.
In addition, each Series will hold itself out to the public as
employing the manager of managers structure described in this
application. The prospectus will prominently disclose that the Advisor
has ultimate responsibility, subject to oversight by the Board, to
oversee the Subadvisors and recommend their hiring, termination, and
replacement.
4. Within 90 days of the hiring of any new Subadvisor, the
shareholders of the relevant Series will be furnished all information
about the new Subadvisor that would be included in a proxy statement,
except as modified to permit Aggregate Fee Disclosure. This information
will include Aggregate Fee Disclosure and any change in such disclosure
caused by the addition of a new Subadvisor. To meet this obligation,
the Advisor will provide shareholders of the applicable Series, within
90 days of the hiring of a new Subadvisor, 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.
5. No trustee or officer of the Trust or a Series 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 Subadvisor except for: (i) ownership of
interests in the Advisor or any entity that controls, is controlled by,
or is under common control with the Advisor; or (ii) 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 Subadvisor or an entity that
controls, is controlled by or is under common control with a
Subadvisor.
6. At all times, at least a majority of the 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. The Board also will satisfy the fund
governance standards defined in rule 0-1(a)(7) under the Act.
7. Whenever a Subadvisor change is proposed for a Series with an
Affiliated Subadvisor, the Series' Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
applicable Board minutes, that such change is in the best interests of
the Series and its shareholders and does not involve a conflict of
interest from which the Advisor or the Affiliated Subadvisor derives an
inappropriate advantage.
8. Each Series in its registration statement will disclose the
Aggregate Fee Disclosure.
9. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act,
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will be engaged to represent the Independent Trustees. The selection of
such counsel will be within the discretion of the then-existing
Independent Trustees.
10. The Advisor will provide the Board, no less frequently than
quarterly, with information about the Advisor's profitability on a per
Series basis. This information will reflect the impact on profitability
of the hiring or termination of any Subadvisor during the applicable
quarter.
11. Whenever a Subadvisor is hired or terminated, the Advisor will
provide the Board with information showing the expected impact on the
Advisor's profitability.
12. The Advisor will not enter into a Subadvisory Agreement with
any Affiliated Subadvisor, without such agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Series.
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.
Nancy M. Morris,
Secretary.
[FR Doc. E6-6638 Filed 5-2-06; 8:45 am]
BILLING CODE 8010-01-P
