Franklin Portfolio Associates, LLC; The Hirtle Callaghan Trust; Notice of Application, 57610-57613 [E7-19912]
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Federal Register / Vol. 72, No. 195 / Wednesday, October 10, 2007 / Notices
10,787 advisers registered with the
Commission as of August 31, 2007. The
Commission has estimated that
compliance with rule 204–3 imposes a
burden of approximately 639.87 hours
annually based on an average adviser
having 670 clients. Based on this figure,
the Commission estimates a total annual
burden of 6,902,278 hours for this
collection of information.
Written comments are invited on: (a)
Whether the collection of information is
necessary for the proper performance of
the functions of the agency, including
whether the information will have
practical utility; (b) the accuracy of the
agency’s estimate of the burden of the
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
Please direct your written comments
to R. Corey Booth, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Shirley
Martinson, 6432 General Green Way,
Alexandria, VA 22312; or send an email to: PRA_Mailbox@sec.gov.
October 1, 2007.
Nancy M. Morris,
Secretary.
[FR Doc. E7–19855 Filed 10–9–07; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of Investor
Education and Advocacy,
Washington, DC 20549–0213.
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Extension:
Form ADV, SEC File No. 270–39, OMB
Control No. 3235–0049.
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collections of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
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The title for the collection of
information is ‘‘Form ADV’’ (17 CFR
279.1). Form ADV is the investment
adviser registration form filed
electronically with the Commission
pursuant to rules 203–1 (17 CFR
275.203–1) and 204–1 (17 CFR 275.204–
1) under the Investment Advisers Act of
1940 (15 U.S.C. 80b–1 et seq.) by
advisers registered with the Commission
or applying for registration with the
Commission. The information collected
takes the form of disclosures to the
investment adviser’s clients and
potential clients. The purpose of this
collection of information is to provide
advisory clients, prospective clients,
and the Commission with information
about the adviser, its business, and its
conflicts of interest. Clients use certain
of the information to determine whether
to hire or retain an adviser.
The information collected provides
the Commission with knowledge about
the adviser, its business, and its
conflicts of interest. The Commission
uses the information to determine
eligibility for registration with the
Commission and to manage its
regulatory, examination, and
enforcement programs.
Respondents to the collection of
information are investment advisers
registered with the Commission or
applying for registration with the
Commission. The Commission estimates
that the total annual reporting and
recordkeeping burden of the collection
of information for each respondent is
23.375 hours.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to R. Corey Booth, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Shirley
Martinson, 6432 General Green Way,
Alexandria, VA 22312 or send an e-mail
to: PRA_Mailbox@sec.gov.
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Dated: October 1, 2007.
Nancy M. Morris,
Secretary.
[FR Doc. E7–19856 Filed 10–9–07; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IA–2668; 803–184]
Franklin Portfolio Associates, LLC;
The Hirtle Callaghan Trust; Notice of
Application
October 3, 2007.
Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’).
ACTION: Notice of Application for
Exemption under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’).
AGENCY:
Applicants: Franklin Portfolio
Associates, LLC (‘‘Franklin’’); The Hirtle
Callaghan Trust (‘‘Trust’’); together
(‘‘Applicants’’).
Relevant Advisers Act Sections:
Exemption requested under section
206A of the Advisers Act from section
205 of the Advisers Act and Advisers
Act rule 205–1.
Summary of Application: Applicants
request an order permitting Franklin to
charge a performance fee based on the
performance of that portion of a Trust
portfolio managed by Franklin
(‘‘Franklin Account’’). Applicants
further request that the order permit
them to compute the performancerelated portion of the fee using changes
in the Franklin Account’s gross asset
value rather than net asset value.
Filing Dates: The application was
filed on July 7, 2005, and amended and
restated on August 3, 2006 and October
1, 2007.
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 copies of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on October 29, 2007, 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 may request
notification of a hearing by writing to
the Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090.
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Applicants, Franklin Portfolio
Associates, LLC, c/o David Dirks, One
Boston Place, 29th Floor, Boston,
Massachusetts 02108; The Hirtle
Callaghan Trust, c/o Rhonda Fell, Five
Tower Bridge, 300 Barr Harbor Drive,
Suite 500, West Conshohocken, PA
19428.
FOR FURTHER INFORMATION CONTACT:
David W. Blass, Assistant Director, or
Vivien Liu, Senior Counsel, at (202)
551–6787 (Office of Investment Adviser
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
20549–0102 (telephone (202) 551–5850).
Applicant’s Representations
1. Franklin is an investment adviser
registered under the Advisers Act. The
Trust is an open-end management
investment company registered under
the Investment Company Act of 1940.
The Trust was organized in 1994 by
Hirtle, Callaghan & Co. (‘‘Hirtle
Callaghan’’), an investment adviser
registered under the Advisers Act. The
Trust is a series company that currently
consists of several separate investment
portfolios. Shares of the Trust are
available only to clients of Hirtle
Callaghan or clients of financial
intermediaries, such as investment
advisers that are acting in a fiduciary
capacity with investment discretion and
that have established relationships with
Hirtle Callaghan.
2. Hirtle Callaghan serves as a
‘‘manager of managers’’ for the Trust.
Hirtle Callaghan is responsible for
monitoring the overall investment
performance of the Trust’s portfolios
and the performance of the portfolio
managers that manage the Trust’s
portfolios. Hirtle Callaghan may also
from time to time recommend that the
Trust’s Board of Trustees (the ‘‘Board’’)
retain additional portfolio managers or
terminate existing portfolio managers.
Authority to select new portfolio
managers and reallocate assets among
the portfolio managers, however, resides
with the Trust’s Board.
3. Franklin is one of five investment
advisers that provide portfolio
management services to the Small
Capitalization Equity Portfolio
(‘‘Portfolio’’) of the Trust. Each of these
advisers is responsible for the
management of a discrete portion of the
Portfolio’s assets on a day-to-day basis.
In doing so each acts as though it were
advising a separate investment
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company. Percentage limitations on
investments are applied to each portion
of the Portfolio without regard to the
investments in the other advisers’
portions of the Portfolio. When each
adviser receives information about
portfolio positions from the Trust or its
custodian, the adviser generally receives
only information about the portion of
the Portfolio assigned to it, and not
information about the positions held by
the Portfolio as a whole. Each adviser
generally is responsible for preparing
reports to the Trust and the Board only
with respect to its discrete portion of the
Portfolio.
4. Franklin is not affiliated with Hirtle
Callaghan, the Trust or any other
investment advisory organization that
provides portfolio management and
services to the Trust. Services provided
to the Trust by Franklin are limited to
investment selection for the Franklin
Account, placement of transactions for
execution, and certain compliance
functions directly related to such
services. Franklin and its affiliates do
not act as a distributor or sponsor for the
Trust or Portfolio. No member of the
Trust’s Board is affiliated with Franklin.
5. Franklin currently receives a fee at
the annual rate of 0.40 percent of the
average daily net asset value of the
Franklin Account, payable monthly. On
August 26, 2004 the Trust’s Board
approved an amendment to the portfolio
management agreement between
Franklin and the Trust under which the
existing fee structure would be replaced
with a fee structure that includes a
performance component (‘‘Proposed
Amendment’’). On October 25, 2004 the
shareholders of the Portfolio approved
the Proposed Amendment. The
Proposed Amendment would become
effective on the first day of the month
following receipt of an order from the
Commission approving the application.
Franklin’s fee would be adjusted to
reflect the performance of the Franklin
Account only after the Proposed
Amendment has been in effect for 12
months (the ‘‘Initial Period’’).
6. Under the Performance Fee
Amendment, Franklin’s fee for each of
the first three quarters of the Initial
Period, would consist of a fee (‘‘Base
Fee’’) computed by multiplying the
average daily net assets of the Franklin
Account for that quarter by the
Designated Applicable Fee Rate,
dividing the product by 365 and
multiplying the resulting amount by the
number of days in the quarter. The
Designated Applicable Rate is: 0.40
percent for quarters when the average
assets of the account are less than $100
million, or 0.35 percent for quarters
when the average assets of the account
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are equal to or greater than $100
million.1
For the fourth quarter of the Initial
Period, Franklin would receive a fee
equal to the Designated Applicable Rate
applied to the average daily net assets
of the Franklin Account for the fourth
quarter, divided by 365 and then
multiplied by the number of days in that
quarter plus or minus a Performance
Component multiplied by the average
daily net assets of the Account for the
Initial Period. The Performance
Component for the Initial Period would
be calculated by (a) computing the
difference between (i) the total return of
the Franklin Account without regard to
expenses incurred in the operation of
the Franklin Account (‘‘Gross Total
Return’’) during the Initial Period, and
(ii) the return of the Russell 2000 Index
during the Initial Period plus 0.40
percent; and (b) multiplying the
resulting factor by 10 percent.
7. For each quarterly period
subsequent to the Initial Period,
Franklin would be entitled to receive
quarterly payments of the Base Fee
(approximately 0.10 percent or 0.0875
percent (10 or 8.75 basis points),
respectively, depending upon the level
of assets of the Franklin Account, as
detailed above) of the average daily net
assets of the Franklin account plus or
minus 25 percent of the Performance
Component multiplied by the average
daily net assets of the Franklin Account
for the immediately preceding 12 month
period, on a ‘‘rolling basis.’’ 2 The
Performance Component for such
subsequent periods would be calculated
by (a) computing the difference between
(i) the Gross Total Return of the
Franklin Account during the
immediately preceding 12 month period
and (ii) the return of the Russell 2000
Index during such period plus the
Designated Applicable Rate; and (b)
multiplying the resulting factor by 10
percent.
8. None of the expenses of the
Portfolio, including the advisory fee
1 Expressed mathematically, the Base Fee is
calculated as follows: {[(‘‘Designated Applicable
Rate’’)(average daily net assets)] / X} × N, where
‘‘X’’ = the number of days in the preceding 12
month period and ‘‘N’’ = the number of days in the
quarter. The average daily net assets are calculated
over the preceding quarter during the first three
quarters of the initial period and over the preceding
12 month period thereafter.
2 ‘‘Rolling Basis’’ means that, at each quarterly fee
calculation, the Gross Total Return of the Franklin
Account, the Index Return and the average daily net
assets of the Franklin Account for the most recent
quarter will be substituted for the corresponding
values of the earliest quarter included in the prior
fee calculation. Both the Base Fee and the
Performance Component are calculated based on
the same rolling period as described in this footnote
and the accompanying text.
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paid to Franklin, would be deducted
from the performance of the Franklin
Account for purposes of calculating the
Gross Total Return. However, the Gross
Total Return would reflect the effect
(i.e., reducing performance) of all
applicable brokerage and transaction
costs.
9. The maximum annual fee payable
under the Performance Fee Amendment
would not exceed 0.70 percent (70 basis
points) with respect to any 12-month
period when assets of the Franklin
Account are less than $100 million (or
0.60 percent (60 basis points) with
respect to any 12-month period when
quarterly assets of the Franklin Account
in each quarter are equal to or in excess
of $100 million) and cannot exceed
0.175 percent (17.5 basis points), for any
calendar quarter when assets of the
Franklin account are less than $100
million (or 0.15 percent (15 basis
points), for any calendar quarter when
assets of the Franklin account are equal
to or more than $100 million). Franklin
is guaranteed a minimum annual fee of
0.10 percent (10 basis points).
10. Because no performance
adjustment will be paid until the end of
the Initial Period, it is possible that
payments of the Base Fee made to
Franklin during the first 9 months may
exceed the appropriate performance
adjusted fee if the Performance
Component has been negative. In the
event of such an occurrence, the
Proposed Amendment provides a
‘‘recoupment feature’’ pursuant to
which advisory fees payable to Franklin
will be reduced until the difference
between the aggregate quarterly fees
received by Franklin with respect to the
Initial Period and the performance
adjusted fee is fully recouped by the
Trust. However, if the portfolio
management agreement with Franklin is
terminated before any recoupment has
been fully accounted for, the Trust
would not be able to recoup any
outstanding excess that had been paid
in previous quarters.
Applicants’ Legal Analysis
1. Section 205(a)(1) of the Advisers
Act generally prohibits an investment
adviser from entering into any
investment advisory agreement that
provides for compensation to the
adviser on the basis of a share of capital
gains or capital appreciation of a client’s
account.
2. Section 205(b) of the Advisers Act
provides a limited exception to this
prohibition, permitting an adviser to
charge a registered investment company
and certain other persons a fee that is
based on asset value of the company or
fund under management averaged over
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a specified period and increases and
decreases ‘‘proportionately with the
investment performance of the company
or fund over a specified period in
relation to the investment record of an
appropriate index of securities prices or
such other measure of investment
performance as the Commission by rule,
regulation or order may specify.’’
3. Rule 205–1 under the Advisers Act
requires that the investment
performance of an investment company
be computed based on the change in the
net (of all expenses and fees) asset value
per share of the investment company.
4. Applicants request exemptive relief
from section 205 of the Advisers Act
and rule 205–1 thereunder to permit
them to (i) apply the proposed fee only
to the Franklin Account and not to the
Portfolio as a whole, and (ii) compute
the Performance Component measured
by the change in the Franklin Account’s
gross asset value, rather than the change
in its net asset value.
5. Applicants state that Congress, in
adopting and amending section 205 of
the Advisers Act, and the Commission,
in adopting rule 205–1, put into place
safeguards designed to ensure that
investment advisers would not take
advantage of advisory clients.
6. Applicants assert that the
Commission required that performance
fees be calculated based on the net asset
value of the investment company’s
shares to prevent a situation where an
adviser could earn a performance fee
even though investment company
shareholders did not derive any benefit
from the adviser’s performance after the
deduction of fees and expenses.
7. Applicants state that, unlike
traditional performance fee
arrangements, Franklin would not
receive the Performance Component of
its fee unless its management of the
Franklin Account has resulted in
performance in excess of the Index
performance plus a ‘‘performance
hurdle’’ equal to the Designated
Applicable Rate. Applicants assert that
increasing the performance of the Index
by the above stated hurdle would have
an effect similar to deducting Franklin’s
fees. In the event the base fee changes,
the performance hurdle also would be
changed to match the Base Fee.
Applicants state that since the fee
structure contains a performance
hurdle, the Portfolio’s shareholders will
have protections similar to those
contemplated by the net asset value
requirement of rule 205–1.
8. Applicants suggest that Congress’
concern, in enacting the safeguards of
section 205, came about because the
vast majority of investment advisers
exercised a high level of control over the
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structuring of the advisory relationship.
Applicants state that the proposed fee,
however, was negotiated actively at
arm’s-length between the Trust and
Franklin. Applicants state that Franklin
has little, if any, influence over the
overall management of the Trust or the
Portfolio beyond stock selection, and
does not control the Portfolio or the
Trust. Management functions of the
Trust and the Portfolio reside in the
Trust’s Board. The Trust is directly and
fully responsible for supervising the
Trust’s service providers and
monitoring expenses of each of the
Trust’s portfolios. The Trust’s Board is
responsible for allocating the assets of
the several portfolios among the
portfolio managers. Neither Franklin nor
any of its affiliates sponsored or
organized the Trust, or serves as a
distributor or principal underwriter of
the Trust. Franklin and its affiliates do
not own any shares issued by the Trust.
No officer, director or employee of
Franklin, nor any of its affiliates, serves
as an executive officer or director of the
Trust. Neither Franklin nor any of its
affiliates is an affiliated person of Hirtle
Callaghan or any other person who
provides investment advice with respect
to the Trust’s advisory relationships
(except to the extent that such affiliation
may exist by reason of Franklin or any
of its affiliates serving as investment
adviser to the Trust). No member of the
Trust’s Board is affiliated with Franklin.
9. Applicants state that the proposed
fee arrangement satisfies the purpose of
rule 205–1 because it was negotiated at
arms-length and the Trust, for the
reasons stated in the previous
paragraphs, does not need the
protections afforded by calculating a
performance fee based on net assets.
Applicants argue that the proposed fee
arrangement is therefore consistent with
the underlying policies of section 205
and rule 205–1 under the Advisers Act
and that the exemption would be
consistent with the protection of
investors.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. If the Base Fee changes, the
performance hurdle will be changed to
match the Base Fee and to ensure that
the investment advisory fee continue to
have the potential to increase and
decrease proportionately.
2. To the extent Franklin relies on the
requested order with respect to advisory
arrangements with other investment
companies that it advises, those
arrangements will meet the following
requirements: (i) The investment
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advisory fee will be negotiated on an
arm’s-length basis between Franklin and
the investment company or its primary
investment adviser; (ii) the fee structure
will contain a performance hurdle that
is, at all times, no lower than the base
fee; and should the base fee change, the
hurdle also will be changed to match
the base fee and to ensure that the
investment advisory fee continues to
have the potential to increase and
decrease proportionally; (iii) neither
Franklin nor any of its affiliates will
serve as distributor or sponsor of the
investment company; (iv) no member of
the board of the investment company
will be affiliated with Franklin or its
affiliates; (v) neither Franklin nor any of
its affiliates will organize the
investment company; (vi) neither
Franklin nor any of its affiliates will be
an affiliated person of any primary
adviser to the investment company or of
any other person who provides advice
with respect to the investment
company’s advisory relationships
(except to the extent that Franklin and/
or its affiliates may be affiliated with
another portfolio manager by virtue of
the fact that Franklin or the affiliate
serves as a portfolio manager to the
investment company or to another
investment company); and (vii) other
than described in this application, the
Applicants will comply with section
205 and rules 205–1 and 205–2 under
the Advisers Act.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E7–19912 Filed 10–9–07; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IA–2667; 803–186]
IronBridge Capital Management LP;
The Hirtle Callaghan Trust; Notice of
Application
October 3, 2007.
Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’).
ACTION: Notice of Application for
Exemption under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’).
AGENCY:
IronBridge Capital
Management LP (‘‘IronBridge’’); The
Hirtle Callaghan Trust (‘‘Trust’’);
together (‘‘Applicants’’).
RELEVANT ADVISERS ACT SECTIONS:
Exemption requested under section
206A of the Advisers Act from section
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APPLICANTS:
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205 of the Advisers Act and Advisers
Act rule 205–1.
SUMMARY OF APPLICATION: Applicants
request an order permitting IronBridge
to charge a performance fee based on the
performance of that portion of a Trust
portfolio managed by IronBridge
(‘‘IronBridge Account’’). Applicants
further request that the order permit
them to compute the performancerelated portion of the fee using changes
in the IronBridge Account’s gross asset
value rather than net asset value.
FILING DATES: The application was filed
on July 7, 2005, and amended and
restated on August 3, 2006 and October
1, 2007.
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 copies of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on October 29, 2007, 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 may request
notification of a hearing by writing to
the Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090.
Applicants, IronBridge Capital
Management LP, c/o Samuel T. Eddins,
One Parkview Plaza, Suite 600,
Oakbrook Terrace, Illinois 60181; The
Hirtle Callaghan Trust, c/o Rhonda Fell,
Five Tower Bridge, 300 Barr Harbor
Drive, Suite 500, West Conshohocken,
PA 19428.
FOR FURTHER INFORMATION CONTACT:
David W. Blass, Assistant Director, or
Vivien Liu, Senior Counsel, at (202)
551–6787 (Office of Investment Adviser
Regulation, Division of Investment
Management).
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
20549–0102 (telephone (202) 551–5850).
SUPPLEMENTARY INFORMATION:
Applicant’s Representations
1. IronBridge is an investment adviser
registered under the Advisers Act. The
Trust is an open-end management
investment company registered under
the Investment Company Act of 1940.
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57613
The Trust was organized in 1994 by
Hirtle, Callaghan & Co. (‘‘Hirtle
Callaghan’’), an investment adviser
registered under the Advisers Act. The
Trust is a series company that currently
consists of several separate investment
portfolios. Shares of the Trust are
available only to clients of Hirtle
Callaghan or clients of financial
intermediaries, such as investment
advisers that are acting in a fiduciary
capacity with investment discretion and
that have established relationships with
Hirtle Callaghan.
2. Hirtle Callaghan serves as a
‘‘manager of managers’’ for the Trust.
Hirtle Callaghan is responsible for
monitoring the overall investment
performance of the Trust’s portfolios
and the performance of the portfolio
managers that manage the Trust’s
portfolios. Hirtle Callaghan may also
from time to time recommend that the
Trust’s Board of Trustees (the ‘‘Board’’)
retain additional portfolio managers or
terminate existing portfolio managers.
Authority to select new portfolio
managers and reallocate assets among
the portfolio managers, however, resides
with the Trust’s Board.
3. IronBridge is one of five investment
advisers that provide portfolio
management services to the Small
Capitalization Equity Portfolio
(‘‘Portfolio’’) of the Trust. Each of these
advisers is responsible for the
management of a discrete portion of the
Portfolio’s assets on a day-to-day basis.
In doing so each acts as though it were
advising a separate investment
company. Percentage limitations on
investments are applied to each portion
of the Portfolio without regard to the
investments in the other advisers’
portions of the Portfolio. When each
adviser receives information about
portfolio positions from the Trust or its
custodian, the adviser generally receives
only information about the portion of
the Portfolio assigned to it, and not
information about the positions held by
the Portfolio as a whole. Each adviser
generally is responsible for preparing
reports to the Trust and the Board only
with respect to its discrete portion of the
Portfolio.
4. IronBridge is not affiliated with
Hirtle Callaghan, the Trust or any other
investment advisory organization that
provides portfolio management and
services to the Trust.1 Services provided
to the Trust by IronBridge are limited to
investment selection for the IronBridge
Account, placement of transactions for
1 IronBridge does not have any affiliates at this
time. Future affiliates, if any, will comply with the
terms of any order issued by the Commission in
connection with this application.
E:\FR\FM\10OCN1.SGM
10OCN1
]]>Agencies
[Federal Register Volume 72, Number 195 (Wednesday, October 10, 2007)]
[Notices]
[Pages 57610-57613]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-19912]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-2668; 803-184]
Franklin Portfolio Associates, LLC; The Hirtle Callaghan Trust;
Notice of Application
October 3, 2007.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Advisers Act of 1940 (``Advisers Act'').
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Applicants: Franklin Portfolio Associates, LLC (``Franklin''); The
Hirtle Callaghan Trust (``Trust''); together (``Applicants'').
Relevant Advisers Act Sections: Exemption requested under section
206A of the Advisers Act from section 205 of the Advisers Act and
Advisers Act rule 205-1.
Summary of Application: Applicants request an order permitting
Franklin to charge a performance fee based on the performance of that
portion of a Trust portfolio managed by Franklin (``Franklin
Account''). Applicants further request that the order permit them to
compute the performance-related portion of the fee using changes in the
Franklin Account's gross asset value rather than net asset value.
Filing Dates: The application was filed on July 7, 2005, and
amended and restated on August 3, 2006 and October 1, 2007.
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 copies of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on October 29, 2007, 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 may request notification of a hearing by writing to
the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090.
[[Page 57611]]
Applicants, Franklin Portfolio Associates, LLC, c/o David Dirks, One
Boston Place, 29th Floor, Boston, Massachusetts 02108; The Hirtle
Callaghan Trust, c/o Rhonda Fell, Five Tower Bridge, 300 Barr Harbor
Drive, Suite 500, West Conshohocken, PA 19428.
FOR FURTHER INFORMATION CONTACT: David W. Blass, Assistant Director, or
Vivien Liu, Senior Counsel, at (202) 551-6787 (Office of Investment
Adviser 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
20549-0102 (telephone (202) 551-5850).
Applicant's Representations
1. Franklin is an investment adviser registered under the Advisers
Act. The Trust is an open-end management investment company registered
under the Investment Company Act of 1940. The Trust was organized in
1994 by Hirtle, Callaghan & Co. (``Hirtle Callaghan''), an investment
adviser registered under the Advisers Act. The Trust is a series
company that currently consists of several separate investment
portfolios. Shares of the Trust are available only to clients of Hirtle
Callaghan or clients of financial intermediaries, such as investment
advisers that are acting in a fiduciary capacity with investment
discretion and that have established relationships with Hirtle
Callaghan.
2. Hirtle Callaghan serves as a ``manager of managers'' for the
Trust. Hirtle Callaghan is responsible for monitoring the overall
investment performance of the Trust's portfolios and the performance of
the portfolio managers that manage the Trust's portfolios. Hirtle
Callaghan may also from time to time recommend that the Trust's Board
of Trustees (the ``Board'') retain additional portfolio managers or
terminate existing portfolio managers. Authority to select new
portfolio managers and reallocate assets among the portfolio managers,
however, resides with the Trust's Board.
3. Franklin is one of five investment advisers that provide
portfolio management services to the Small Capitalization Equity
Portfolio (``Portfolio'') of the Trust. Each of these advisers is
responsible for the management of a discrete portion of the Portfolio's
assets on a day-to-day basis. In doing so each acts as though it were
advising a separate investment company. Percentage limitations on
investments are applied to each portion of the Portfolio without regard
to the investments in the other advisers' portions of the Portfolio.
When each adviser receives information about portfolio positions from
the Trust or its custodian, the adviser generally receives only
information about the portion of the Portfolio assigned to it, and not
information about the positions held by the Portfolio as a whole. Each
adviser generally is responsible for preparing reports to the Trust and
the Board only with respect to its discrete portion of the Portfolio.
4. Franklin is not affiliated with Hirtle Callaghan, the Trust or
any other investment advisory organization that provides portfolio
management and services to the Trust. Services provided to the Trust by
Franklin are limited to investment selection for the Franklin Account,
placement of transactions for execution, and certain compliance
functions directly related to such services. Franklin and its
affiliates do not act as a distributor or sponsor for the Trust or
Portfolio. No member of the Trust's Board is affiliated with Franklin.
5. Franklin currently receives a fee at the annual rate of 0.40
percent of the average daily net asset value of the Franklin Account,
payable monthly. On August 26, 2004 the Trust's Board approved an
amendment to the portfolio management agreement between Franklin and
the Trust under which the existing fee structure would be replaced with
a fee structure that includes a performance component (``Proposed
Amendment''). On October 25, 2004 the shareholders of the Portfolio
approved the Proposed Amendment. The Proposed Amendment would become
effective on the first day of the month following receipt of an order
from the Commission approving the application. Franklin's fee would be
adjusted to reflect the performance of the Franklin Account only after
the Proposed Amendment has been in effect for 12 months (the ``Initial
Period'').
6. Under the Performance Fee Amendment, Franklin's fee for each of
the first three quarters of the Initial Period, would consist of a fee
(``Base Fee'') computed by multiplying the average daily net assets of
the Franklin Account for that quarter by the Designated Applicable Fee
Rate, dividing the product by 365 and multiplying the resulting amount
by the number of days in the quarter. The Designated Applicable Rate
is: 0.40 percent for quarters when the average assets of the account
are less than $100 million, or 0.35 percent for quarters when the
average assets of the account are equal to or greater than $100
million.\1\
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\1\ Expressed mathematically, the Base Fee is calculated as
follows: {[(``Designated Applicable Rate'')(average daily net
assets)] / X{time} x N, where ``X'' = the number of days in the
preceding 12 month period and ``N'' = the number of days in the
quarter. The average daily net assets are calculated over the
preceding quarter during the first three quarters of the initial
period and over the preceding 12 month period thereafter.
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For the fourth quarter of the Initial Period, Franklin would
receive a fee equal to the Designated Applicable Rate applied to the
average daily net assets of the Franklin Account for the fourth
quarter, divided by 365 and then multiplied by the number of days in
that quarter plus or minus a Performance Component multiplied by the
average daily net assets of the Account for the Initial Period. The
Performance Component for the Initial Period would be calculated by (a)
computing the difference between (i) the total return of the Franklin
Account without regard to expenses incurred in the operation of the
Franklin Account (``Gross Total Return'') during the Initial Period,
and (ii) the return of the Russell 2000 Index during the Initial Period
plus 0.40 percent; and (b) multiplying the resulting factor by 10
percent.
7. For each quarterly period subsequent to the Initial Period,
Franklin would be entitled to receive quarterly payments of the Base
Fee (approximately 0.10 percent or 0.0875 percent (10 or 8.75 basis
points), respectively, depending upon the level of assets of the
Franklin Account, as detailed above) of the average daily net assets of
the Franklin account plus or minus 25 percent of the Performance
Component multiplied by the average daily net assets of the Franklin
Account for the immediately preceding 12 month period, on a ``rolling
basis.'' \2\ The Performance Component for such subsequent periods
would be calculated by (a) computing the difference between (i) the
Gross Total Return of the Franklin Account during the immediately
preceding 12 month period and (ii) the return of the Russell 2000 Index
during such period plus the Designated Applicable Rate; and (b)
multiplying the resulting factor by 10 percent.
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\2\ ``Rolling Basis'' means that, at each quarterly fee
calculation, the Gross Total Return of the Franklin Account, the
Index Return and the average daily net assets of the Franklin
Account for the most recent quarter will be substituted for the
corresponding values of the earliest quarter included in the prior
fee calculation. Both the Base Fee and the Performance Component are
calculated based on the same rolling period as described in this
footnote and the accompanying text.
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8. None of the expenses of the Portfolio, including the advisory
fee
[[Page 57612]]
paid to Franklin, would be deducted from the performance of the
Franklin Account for purposes of calculating the Gross Total Return.
However, the Gross Total Return would reflect the effect (i.e.,
reducing performance) of all applicable brokerage and transaction
costs.
9. The maximum annual fee payable under the Performance Fee
Amendment would not exceed 0.70 percent (70 basis points) with respect
to any 12-month period when assets of the Franklin Account are less
than $100 million (or 0.60 percent (60 basis points) with respect to
any 12-month period when quarterly assets of the Franklin Account in
each quarter are equal to or in excess of $100 million) and cannot
exceed 0.175 percent (17.5 basis points), for any calendar quarter when
assets of the Franklin account are less than $100 million (or 0.15
percent (15 basis points), for any calendar quarter when assets of the
Franklin account are equal to or more than $100 million). Franklin is
guaranteed a minimum annual fee of 0.10 percent (10 basis points).
10. Because no performance adjustment will be paid until the end of
the Initial Period, it is possible that payments of the Base Fee made
to Franklin during the first 9 months may exceed the appropriate
performance adjusted fee if the Performance Component has been
negative. In the event of such an occurrence, the Proposed Amendment
provides a ``recoupment feature'' pursuant to which advisory fees
payable to Franklin will be reduced until the difference between the
aggregate quarterly fees received by Franklin with respect to the
Initial Period and the performance adjusted fee is fully recouped by
the Trust. However, if the portfolio management agreement with Franklin
is terminated before any recoupment has been fully accounted for, the
Trust would not be able to recoup any outstanding excess that had been
paid in previous quarters.
Applicants' Legal Analysis
1. Section 205(a)(1) of the Advisers Act generally prohibits an
investment adviser from entering into any investment advisory agreement
that provides for compensation to the adviser on the basis of a share
of capital gains or capital appreciation of a client's account.
2. Section 205(b) of the Advisers Act provides a limited exception
to this prohibition, permitting an adviser to charge a registered
investment company and certain other persons a fee that is based on
asset value of the company or fund under management averaged over a
specified period and increases and decreases ``proportionately with the
investment performance of the company or fund over a specified period
in relation to the investment record of an appropriate index of
securities prices or such other measure of investment performance as
the Commission by rule, regulation or order may specify.''
3. Rule 205-1 under the Advisers Act requires that the investment
performance of an investment company be computed based on the change in
the net (of all expenses and fees) asset value per share of the
investment company.
4. Applicants request exemptive relief from section 205 of the
Advisers Act and rule 205-1 thereunder to permit them to (i) apply the
proposed fee only to the Franklin Account and not to the Portfolio as a
whole, and (ii) compute the Performance Component measured by the
change in the Franklin Account's gross asset value, rather than the
change in its net asset value.
5. Applicants state that Congress, in adopting and amending section
205 of the Advisers Act, and the Commission, in adopting rule 205-1,
put into place safeguards designed to ensure that investment advisers
would not take advantage of advisory clients.
6. Applicants assert that the Commission required that performance
fees be calculated based on the net asset value of the investment
company's shares to prevent a situation where an adviser could earn a
performance fee even though investment company shareholders did not
derive any benefit from the adviser's performance after the deduction
of fees and expenses.
7. Applicants state that, unlike traditional performance fee
arrangements, Franklin would not receive the Performance Component of
its fee unless its management of the Franklin Account has resulted in
performance in excess of the Index performance plus a ``performance
hurdle'' equal to the Designated Applicable Rate. Applicants assert
that increasing the performance of the Index by the above stated hurdle
would have an effect similar to deducting Franklin's fees. In the event
the base fee changes, the performance hurdle also would be changed to
match the Base Fee. Applicants state that since the fee structure
contains a performance hurdle, the Portfolio's shareholders will have
protections similar to those contemplated by the net asset value
requirement of rule 205-1.
8. Applicants suggest that Congress' concern, in enacting the
safeguards of section 205, came about because the vast majority of
investment advisers exercised a high level of control over the
structuring of the advisory relationship. Applicants state that the
proposed fee, however, was negotiated actively at arm's-length between
the Trust and Franklin. Applicants state that Franklin has little, if
any, influence over the overall management of the Trust or the
Portfolio beyond stock selection, and does not control the Portfolio or
the Trust. Management functions of the Trust and the Portfolio reside
in the Trust's Board. The Trust is directly and fully responsible for
supervising the Trust's service providers and monitoring expenses of
each of the Trust's portfolios. The Trust's Board is responsible for
allocating the assets of the several portfolios among the portfolio
managers. Neither Franklin nor any of its affiliates sponsored or
organized the Trust, or serves as a distributor or principal
underwriter of the Trust. Franklin and its affiliates do not own any
shares issued by the Trust. No officer, director or employee of
Franklin, nor any of its affiliates, serves as an executive officer or
director of the Trust. Neither Franklin nor any of its affiliates is an
affiliated person of Hirtle Callaghan or any other person who provides
investment advice with respect to the Trust's advisory relationships
(except to the extent that such affiliation may exist by reason of
Franklin or any of its affiliates serving as investment adviser to the
Trust). No member of the Trust's Board is affiliated with Franklin.
9. Applicants state that the proposed fee arrangement satisfies the
purpose of rule 205-1 because it was negotiated at arms-length and the
Trust, for the reasons stated in the previous paragraphs, does not need
the protections afforded by calculating a performance fee based on net
assets. Applicants argue that the proposed fee arrangement is therefore
consistent with the underlying policies of section 205 and rule 205-1
under the Advisers Act and that the exemption would be consistent with
the protection of investors.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. If the Base Fee changes, the performance hurdle will be changed
to match the Base Fee and to ensure that the investment advisory fee
continue to have the potential to increase and decrease
proportionately.
2. To the extent Franklin relies on the requested order with
respect to advisory arrangements with other investment companies that
it advises, those arrangements will meet the following requirements:
(i) The investment
[[Page 57613]]
advisory fee will be negotiated on an arm's-length basis between
Franklin and the investment company or its primary investment adviser;
(ii) the fee structure will contain a performance hurdle that is, at
all times, no lower than the base fee; and should the base fee change,
the hurdle also will be changed to match the base fee and to ensure
that the investment advisory fee continues to have the potential to
increase and decrease proportionally; (iii) neither Franklin nor any of
its affiliates will serve as distributor or sponsor of the investment
company; (iv) no member of the board of the investment company will be
affiliated with Franklin or its affiliates; (v) neither Franklin nor
any of its affiliates will organize the investment company; (vi)
neither Franklin nor any of its affiliates will be an affiliated person
of any primary adviser to the investment company or of any other person
who provides advice with respect to the investment company's advisory
relationships (except to the extent that Franklin and/or its affiliates
may be affiliated with another portfolio manager by virtue of the fact
that Franklin or the affiliate serves as a portfolio manager to the
investment company or to another investment company); and (vii) other
than described in this application, the Applicants will comply with
section 205 and rules 205-1 and 205-2 under the Advisers Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E7-19912 Filed 10-9-07; 8:45 am]
BILLING CODE 8011-01-P
