Madison Asset Management, LLC, et al.; Notice of Application, 65812-65816 [E9-29523]

Download as PDF 65812 Federal Register / Vol. 74, No. 237 / Friday, December 11, 2009 / Notices (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Dated: December 4, 2009. Karen G. Mills, Administrator. [FR Doc. E9–29525 Filed 12–10–09; 8:45 am] BILLING CODE 8025–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 29068; File No. 812–13653] Madison Asset Management, LLC, et al.; Notice of Application December 7, 2009. jlentini on DSKJ8SOYB1PROD with NOTICES AGENCY: Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an order under section 12(d)(1)(J) of the Investment Company Act of 1940 (‘‘Act’’) for an exemption from sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c) and 17(b) of the Act for an exemption from section 17(a) of the Act. SUMMARY OF THE APPLICATION: Applicants request an order that would permit certain series of registered openend management investment companies to acquire shares of other registered open-end management investment companies and unit investment trusts (‘‘UITs’’) that are within or outside the same group of investment companies. APPLICANTS: Madison Asset Management, LLC (‘‘MAM’’), MEMBERS Mutual Funds (‘‘MMF’’), Ultra Series Fund (‘‘USF’’), Madison Mosaic Equity Trust, Madison Mosaic Income Trust, Madison Mosaic Tax-Free Trust, Madison Mosaic Government Money Market (each, a ‘‘Madison Mosaic Fund,’’ and collectively, the ‘‘Madison Mosaic Funds,’’ and together with MMF and USF, the ‘‘Trusts’’), Madison Investment Advisors, Inc. (‘‘Madison’’) and Madison Mosaic, LLC (‘‘MMLLC’’). FILING DATES: The application was filed on April 16, 2009 and amended on September 4, 2009, December 4, 2009, and December 7, 2009. 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 December 28, 2009, and should be accompanied by proof of service on applicants in the form of an VerDate Nov<24>2008 17:33 Dec 10, 2009 Jkt 220001 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, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090; Applicants: c/o Madison/Mosaic Legal and Compliance Department, 8777 N. Gainey Center Drive, #220, Scottsdale, AZ 85258. FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202) 551– 6878, or Marilyn Mann, 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 via the Commission’s Web site by searching for the file number, or an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Applicants’ Representations 1. MMF is a statutory trust organized under the laws of Delaware. USF and the Madison Mosaic Funds are business trusts organized under the laws of Massachusetts. Each Trust is registered under the Act as an open-end management investment company and, except for Madison Mosaic Government Money Market, offers multiple series (‘‘Funds’’).1 USF is offered solely to CUNA Mutual Insurance Society (‘‘CMIS’’) and its separate accounts (together with the separate accounts of any unaffiliated insurance company that may invest in the future in USF, ‘‘Separate Accounts’’) which support the variable annuity contracts and variable life insurance policies it issues. The Separate Accounts may be registered under the Act (‘‘Registered Separate Accounts’’) or unregistered under the Act (‘‘Unregistered Separate Accounts’’). 2. MAM, an Iowa corporation, is registered under the Investment 1 Applicants request that the order also extend to any future series of the Trusts, and any other existing or future registered open-end management investment companies and any series thereof that are, or may in the future be, advised by MAM, Madison or MMLLC or any other investment adviser controlling, controlled by, or under common control with MAM, Madison or MMLLC (together with the Trusts, the ‘‘Funds’’). All entities that currently intend to rely on the requested order are named as applicants. Any other entity that relies on the order in the future will comply with the terms and conditions of the application. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 Advisers Act of 1940 (‘‘Advisers Act’’) and serves as investment adviser to MMF and USF. MAM is the investment adviser to each of the Fund of Funds, as defined below. Madison, a Wisconsin corporation, and MMLLC, a Wisconsin limited liability corporation, are each registered as investment advisors under the Advisers Act and jointly serve as investment advisers to the Madison Mosaic Funds, with the exception of the Madison Institutional Equity Option Fund (a series of Madison Mosaic Equity Trust), which is advised by MAM. MAM and MMLLC are controlled by Madison. CMIS has a non-voting interest in MAM and does not control MAM within the meaning of section 2(a)(9) of the Act.2 3. Applicants request relief to permit, (a) certain Funds (each, a ‘‘Fund of Funds’’) to acquire shares of registered open-end management investment companies (the ‘‘Unaffiliated Underlying Funds’’) and unit investment trusts (‘‘Unaffiliated Underlying Trusts,’’ and together with the Unaffiliated Underlying Funds, the ‘‘Unaffiliated Funds’’) that are not part of the same ‘‘group of investment companies’’ (as defined in section 12(d)(1)(G)(ii) of the Act) as the Funds of Funds, (b) the Unaffiliated Underlying Funds, their principal underwriters and any broker or dealer (‘‘Broker’’) registered under the Securities Exchange Act of 1934 to sell their shares to the Fund of Funds, (c) the Funds of Funds to acquire shares of certain other Funds in the same ‘‘group of investment companies’’ (as defined in section 12(d)(1)(G)(ii) of the Act) as the Fund of Funds (the ‘‘Affiliated Funds,’’ and together with the Unaffiliated Funds, the ‘‘Underlying Funds’’), and (d) the Affiliated Funds, their principal underwriters and any Brokers to sell shares of the Affiliated Funds to the 2 Under a prior order, the Commission granted relief to MMF, USF, Members Capital Advisors, Inc. (‘‘MCA’’) and CUNA Mutual Life Insurance Company from the provisions of sections 12(d)(1)(A), 12(d)(1)(B) and 17(a) of the Act, pursuant to which certain series of MMF and USF acquire shares of other registered open-end investment companies that are within or outside the same group of investment companies. MEMBERS Mutual Funds, et al., Investment Company Act Release Nos. 27598 (December 13, 2006)(notice) and 27657 (January 9, 2007)(order) (‘‘Existing Order’’). On April 15, 2009, MCA, an indirectly wholly owned subsidiary of CMIS, and CMIS entered into an agreement under which MAM would become the investment adviser to MMF and USF (the ‘‘Transaction’’). MAM became the investment adviser to MMF and USF on July 1, 2009. On June 30, 2009, the Commission staff issued a no-action letter permitting MAM to rely on the Existing Order until the earlier of the receipt of any order granted by the Commission on the application or December 30, 2009. Madison Asset Management, LLC, et al. (pub. avail. June 30, 2009). E:\FR\FM\11DEN1.SGM 11DEN1 Federal Register / Vol. 74, No. 237 / Friday, December 11, 2009 / Notices Funds of Funds. Certain of the Unaffiliated Funds may be listed and traded on a national securities exchange at negotiated prices (‘‘ETFs’’). Each Fund of Funds also may invest in securities other than shares of an investment company and in financial instruments that may not be securities within the meaning of section 2(a)(36) of the Act that are consistent with its investment objectives. jlentini on DSKJ8SOYB1PROD with NOTICES Applicants’ Legal Analysis A. Section 12(d)(1) 1. Section 12(d)(1)(A) of the Act prohibits a registered investment company from acquiring shares of an investment company if the securities represent more than 3% of the total outstanding voting stock of the acquired company, more than 5% of the total assets of the acquiring company, or, together with the securities of any other investment companies, more than 10% of the total assets of the acquiring company. Section 12(d)(1)(B) of the Act prohibits a registered open-end investment company, its principal underwriter and any broker or dealer from selling the shares of the investment company to another investment company if the sale will cause the acquiring company to own more than 3% of the acquired company’s voting stock, or if the sale will cause more than 10% of the acquired company’s voting stock to be owned by investment companies generally. 2. Section 12(d)(1)(J) 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 section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Applicants seek an exemption under section 12(d)(1)(J) of the Act from the limitations of sections 12(d)(1)(A) and (B) to the extent necessary to permit the Funds of Funds to acquire shares of the Underlying Funds in excess of the limits set forth in section 12(d)(1)(A) of the Act and to permit the Unaffiliated Underlying Funds and Affiliated Funds, their principal underwriters and any Brokers to sell shares to the Funds of Funds in excess of the limits set forth in sections 12(d)(1)(B) of the Act. 3. Applicants state that the proposed arrangement will not give rise to the policy concerns underlying sections 12(d)(1)(A) and (B), which include concerns about undue influence by a fund of funds or its affiliated persons over underlying funds, excessive layering of fees, and overly complex fund structures. Accordingly, applicants VerDate Nov<24>2008 17:33 Dec 10, 2009 Jkt 220001 believe that the requested exemption is consistent with the public interest and the protection of investors. 4. Applicants state that the proposed arrangement will not result in undue influence by a Fund of Funds or its affiliated persons over the Underlying Funds. The concern about undue influence does not arise in connection with a Fund of Funds’ investment in the Affiliated Funds, since they are part of the same group of investment companies. To limit the control that a Fund of Funds or its affiliated persons may have over an Unaffiliated Fund, applicants propose a condition prohibiting: (a) MAM and any person controlling, controlled by or under common control with MAM, any investment company and any issuer that would be an investment company but for section 3(c)(1) or section 3(c)(7) of the Act advised or sponsored by MAM or any person controlling, controlled by or under common control with MAM (collectively, the ‘‘Group’’), and (b) any investment adviser within the meaning of section 2(a)(20)(B) of the Act to a Fund of Funds (‘‘Subadviser’’), any person controlling, controlled by or under common control with the Subadviser, and any investment company or issuer that would be an investment company but for section 3(c)(1) or 3(c)(7) of the Act (or portion of such investment company or issuer) advised or sponsored by the Subadviser or any person controlling, controlled by or under common control with the Subadviser (collectively, the ‘‘Subadviser Group’’) from controlling (individually or in the aggregate) an Unaffiliated Fund within the meaning of section 2(a)(9) of the Act. No Separate Account will be a member of the Group or Subadvisor Group. 5. Applicants further state that condition 2 precludes a Fund of Funds, MAM, any Subadviser, promoter or principal underwriter of a Fund of Funds, and any person controlling, controlled by or under common control with any of those entities (each, a ‘‘Fund of Funds Affiliate’’) from taking advantage of an Unaffiliated Fund, with respect to transactions between the Fund of Funds or a Fund of Funds Affiliate and the Unaffiliated Fund or the Unaffiliated Fund’s investment adviser(s), sponsor, promoter, principal underwriter or any person controlling, controlled by or under common control with any of these entities (each, an ‘‘Unaffiliated Fund Affiliate’’). Condition 5 precludes a Fund of Funds or Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to an Unaffiliated Underlying Fund or sponsor to an PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 65813 Unaffiliated Underlying Trust) from causing an Unaffiliated Fund to purchase a security in an offering of securities during the existence of any underwriting or selling syndicate of which a principal underwriter is an officer, director, trustee, member of an advisory board, investment adviser, Subadviser, or employee of the Fund of Funds, or a person of which any such officer, director, trustee, investment adviser, Subadviser, member of an advisory board, or employee is an affiliated person (each, an ‘‘Underwriting Affiliate,’’ except any person whose relationship to the Unaffiliated Fund is covered by section 10(f) of the Act is not an Underwriting Affiliate). An offering of securities during the existence of any underwriting or selling syndicate of which a principal underwriter is an Underwriting Affiliate is an ‘‘Affiliated Underwriting.’’ 6. As an additional assurance that an Unaffiliated Underlying Fund understands the implications of an investment by a Fund of Funds under the requested order, prior to a Fund of Funds’ investment in the Unaffiliated Underlying Fund in excess of the limit in section 12(d)(1)(A)(i), condition 8 requires that the Fund of Funds and Unaffiliated Underlying Fund execute an agreement stating, without limitation, that their boards of directors or trustees (‘‘Boards’’) and their investment advisers understand the terms and conditions of the order and agree to fulfill their responsibilities under the order (‘‘Participation Agreement’’). Applicants note that an Unaffiliated Fund (other than an ETF whose shares are purchased by a Fund of Funds in the secondary market) will retain the right to reject an investment by a Fund of Funds.3 7. Applicants do not believe that the proposed arrangement will involve excessive layering of fees. With respect to investment advisory fees, applicants state that, in connection with the approval of any investment advisory contract under section 15 of the Act, the Board of each Fund of Funds, including a majority of the trustees who are not ‘‘interested persons,’’ as defined in section 2(a)(19) of the Act (‘‘Independent Trustees’’), will find that the advisory fees charged under the advisory contract are based on services provided that are in addition to, rather than duplicative of, services provided 3 An Unaffiliated Underlying Fund, including an ETF, would retain its right to reject any initial investment by a Fund of Funds in excess of the limit in section 12(d)(1)(A)(i) of the Act by declining to execute the Participation Agreement with the Fund of Funds. E:\FR\FM\11DEN1.SGM 11DEN1 jlentini on DSKJ8SOYB1PROD with NOTICES 65814 Federal Register / Vol. 74, No. 237 / Friday, December 11, 2009 / Notices pursuant to any Underlying Fund’s advisory contract(s). Applicants further state that MAM will waive fees otherwise payable to it by a Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by an Unaffiliated Underlying Fund pursuant to rule 12b–1 under the Act) received from an Unaffiliated Fund by MAM, or an affiliated person of MAM, other than any advisory fees paid to MAM or an affiliated person of MAM by an Unaffiliated Underlying Fund, in connection with the investment by the Fund of Funds in the Unaffiliated Fund. 8. Applicants state that with respect to Registered Separate Accounts that invest in a Fund of Funds, no sales load will be charged at the Fund of Funds level or at the Underlying Fund level. Other sales charges and service fees, as defined in Rule 2830 of the Conduct Rules of the NASD (‘‘NASD Conduct Rule 2830’’), if any, will only be charged at the Fund of Funds level or at the Underlying Fund level, not both. With respect to other investments in a Fund of Funds, any sales charges and/or service fees charged with respect to shares of the Fund of Funds will not exceed the limits applicable to funds of funds as set forth in NASD Conduct Rule 2830. 9. Applicants represent that each Fund of Funds will represent in the Participation Agreement that no insurance company sponsoring a Registered Separate Account funding variable annuity and variable life insurance contracts will be permitted to invest in the Fund of Funds unless the insurance company has certified to the Fund of Funds that the aggregate of all fees and charges associated with each contract that invests in the Fund of Funds, including fees and charges at the separate account, Fund of Funds, and Underlying Fund levels, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. 10. Applicants state that the proposed arrangement will not create an overly complex fund structure. Applicants note that an Underlying Fund will be prohibited from acquiring securities of any investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A), except to the extent that such Underlying Fund: (a) receives securities of another investment company as a dividend or as a result of a plan of reorganization of a company (other than a plan devised for the purpose of evading section 12(d)(1) of the Act); or (b) acquires (or is deemed VerDate Nov<24>2008 17:33 Dec 10, 2009 Jkt 220001 to have acquired) securities of another investment company pursuant to exemptive relief from the Commission permitting such Underlying Fund to: (i) acquire securities of one or more investment companies for short-term cash management purposes, or (ii) engage in interfund borrowing and lending transactions. B. Section 17(a) 1. Section 17(a) of the Act generally prohibits sales or purchases of securities between a registered investment company and its affiliated persons or affiliated persons of such persons. Section 2(a)(3) of the Act defines an ‘‘affiliated person’’ of another person to include (a) any person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of the other person; (b) any person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the other person; and (c) any person directly or indirectly controlling, controlled by, or under common control with the other person. 2. Applicants state that the Funds of Funds and the Affiliated Funds may be deemed to be under common control and therefore affiliated persons of one another. Applicants also state that the Funds of Funds and the Underlying Funds may be deemed to be affiliated persons of one another if a Fund of Funds acquires 5% or more of an Underlying Fund’s outstanding voting securities. In light of these possible affiliations, section 17(a) could prevent an Underlying Fund from selling shares to and redeeming shares from a Fund of Funds.4 3. Section 17(b) of the Act authorizes the Commission to grant an order permitting a transaction otherwise prohibited by section 17(a) if it finds that (a) the terms of the proposed transaction are fair and reasonable and do not involve overreaching on the part of any person concerned; (b) the proposed transaction is consistent with the policies of each registered investment company involved; and (c) the proposed transaction is consistent with the general purposes of the Act. Section 6(c) of the Act permits the Commission to exempt any person or 4 Applicants acknowledge that receipt of any compensation by (a) an affiliated person of a Funds of Funds, or an affiliated person of such person, for the purchase by the Fund of Funds of shares of an Underlying Fund or (b) an affiliated person of an Underlying Fund, or an affiliated person of such person, for the sale by the Underlying Fund of its shares to a Fund of Funds may be prohibited by section 17(e)(1) of the Act. The Participation Agreement also will include this acknowledgement. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 transactions from any provision of the Act 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. 4. Applicants submit that the proposed transactions satisfy the standards for relief under sections 17(b) and 6(c) of the Act, as the terms are fair and reasonable and do not involve overreaching. Applicants state that the terms upon which an Underlying Fund will sell its shares to or purchase its shares from a Fund of Funds will be based on the net asset value of each Underlying Fund.5 Applicants also state that the proposed transactions will be consistent with the policies of each Fund of Funds and Underlying Fund, and with the general purposes of the Act. Applicants’ Conditions Applicants agree that the order granting the requested relief shall be subject to the following conditions: 1. The members of the Group will not control (individually or in the aggregate) an Unaffiliated Fund within the meaning of section 2(a)(9) of the Act. The members of a Subadviser Group will not control (individually or in the aggregate) an Unaffiliated Fund within the meaning of section 2(a)(9) of the Act. If, as a result of a decrease in the outstanding voting securities of an Unaffiliated Fund, the Group or a Subadviser Group, each in the aggregate, becomes a holder of more than 25% of the outstanding voting securities of the Unaffiliated Fund, then the Group or the Subadviser Group will vote its shares of the Unaffiliated Fund in the same proportion as the vote of all other holders of the Unaffiliated Fund’s shares. This condition will not apply to a Subadviser Group with respect to an Unaffiliated Fund for which the Fund of Funds’ Sub-Adviser or a person controlling, controlled by, or under common control with the Subadviser acts as the investment adviser within the meaning section 2(a)(20)(A) of the Act (in the case of an Unaffiliated Underlying Fund) or the sponsor (in the 5 Applicants note that a Fund of Funds generally would purchase and sell shares of an Underlying Fund that operates as an ETF through secondary market transactions rather than through principal transactions with the Underlying Fund. To the extent that a Fund of Funds purchases or redeems shares from an ETF that is an affiliated person of the Fund of Funds in exchange for a basket of specified securities as described in the application for the exemptive order upon which the ETF relies, applicants also request relief from section 17(a) for those transactions. E:\FR\FM\11DEN1.SGM 11DEN1 jlentini on DSKJ8SOYB1PROD with NOTICES Federal Register / Vol. 74, No. 237 / Friday, December 11, 2009 / Notices case of an Unaffiliated Underlying Trust). 2. No Fund of Funds or Fund of Funds Affiliate will cause any existing or potential investment by the Fund of Funds in an Unaffiliated Fund to influence the terms of any services or transactions between the Fund of Funds or a Fund of Funds Affiliate and the Unaffiliated Fund or an Unaffiliated Fund Affiliate. 3. The Board of each Fund of Funds, including a majority of the Independent Trustees, will adopt procedures reasonably designed to assure that MAM and any Subadviser are conducting the investment program of the Fund of Funds without taking into account any consideration received by the Fund of Funds or a Fund of Funds Affiliate from an Unaffiliated Fund or an Unaffiliated Fund Affiliate in connection with any services or transactions. 4. Once an investment by a Fund of Funds in the securities of an Unaffiliated Underlying Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, the Board of the Unaffiliated Underlying Fund, including a majority of the Independent Trustees, will determine that any consideration paid by the Unaffiliated Underlying Fund to a Fund of Funds or a Fund of Funds Affiliate in connection with any services or transactions: (a) Is fair and reasonable in relation to the nature and quality of the services and benefits received by the Unaffiliated Underlying Fund; (b) is within the range of consideration that the Unaffiliated Underlying Fund would be required to pay to another unaffiliated entity in connection with the same services or transactions; and (c) does not involve overreaching on the part of any person concerned. This condition does not apply with respect to any services or transactions between an Unaffiliated Underlying Fund and its investment adviser(s), or any person controlling, controlled by, or under common control with such investment adviser(s). 5. No Fund of Funds or Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to an Unaffiliated Underlying Fund or sponsor to an Unaffiliated Underlying Trust) will cause an Unaffiliated Fund to purchase a security in any Affiliated Underwriting. 6. The Board of an Unaffiliated Underlying Fund, including a majority of the Independent Trustees, will adopt procedures reasonably designed to monitor any purchases of securities by the Unaffiliated Underlying Fund in an Affiliated Underwriting once an investment by a Fund of Funds in the securities of the Unaffiliated Underlying VerDate Nov<24>2008 17:33 Dec 10, 2009 Jkt 220001 Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any purchases made directly from an Underwriting Affiliate. The Board of the Unaffiliated Underlying Fund will review these purchases periodically, but no less frequently than annually, to determine whether or not the purchases were influenced by the investment by the Fund of Funds in the Unaffiliated Underlying Fund. The Board of the Unaffiliated Underlying Fund will consider, among other things: (a) Whether or not the purchases were consistent with the investment objectives and policies of the Unaffiliated Underlying Fund; (b) how the performance of securities purchased in an Affiliated Underwriting compares to the performance of comparable securities purchased during a comparable period of time in underwritings other than Affiliated Underwritings or to a benchmark such as a comparable market index; and (c) whether or not the amount of securities purchased by the Unaffiliated Underlying Fund in Affiliated Underwritings and the amount purchased directly from an Underwriting Affiliate have changed significantly from prior years. The Board of an Unaffiliated Underlying Fund will take any appropriate actions based on its review, including, if appropriate, the institution of procedures designed to assure that purchases of securities in Affiliated Underwritings are in the best interests of shareholders. 7. Each Unaffiliated Underlying Fund will maintain and preserve permanently in an easily accessible place a written copy of the procedures described in the preceding condition, and any modifications to such procedures, and will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any purchase from an Affiliated Underwriting occurred, the first two years in an easily accessible place, a written record of each purchase of securities in an Affiliated Underwriting once an investment by a Fund of Funds in the securities of an Unaffiliated Underlying Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting forth the: (a) Party from whom the securities were acquired, (b) identity of the underwriting syndicate’s members, (c) terms of the purchase, and (d) information or materials upon which the determinations of the Board of the Unaffiliated Underlying Fund were made. 8. Prior to its investment in shares of an Unaffiliated Underlying Fund in excess of the limit set forth in section PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 65815 12(d)(1)(A)(i) of the Act, the Fund of Funds and the Unaffiliated Underlying Fund will execute a Participation Agreement stating, without limitation, that their Boards and their investment advisers understand the terms and conditions of the order and agree to fulfill their responsibilities under the order. At the time of its investment in shares of an Unaffiliated Underlying Fund in excess of the limit set forth in section 12(d)(1)(A)(i), a Fund of Funds will notify the Unaffiliated Underlying Fund of the investment. At such time, the Fund of Funds will also transmit to the Unaffiliated Underlying Fund a list of the names of each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of Funds will notify the Unaffiliated Underlying Fund of any changes to the list as soon as reasonably practicable after a change occurs. The Unaffiliated Underlying Fund and the Fund of Funds will maintain and preserve a copy of the order, the Participation Agreement and the list with any updated information for the duration of the investment and for a period of not less than six years thereafter, the first two years in an easily accessible place. 9. Before approving any advisory contract under section 15 of the Act, the Board of each Fund of Funds, including a majority of the Independent Trustees, shall find that the advisory fees charged under the advisory contract are based on services provided that are in addition to, rather than duplicative of, services provided under the advisory contract(s) of any Underlying Fund in which the Fund of Funds may invest. Such finding, and the basis upon which the finding was made, will be recorded fully in the minute books of the appropriate Fund of Funds. 10. MAM will waive fees otherwise payable to it by a Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by an Unaffiliated Underlying Fund pursuant to rule 12b–1 under the Act) received from an Unaffiliated Fund by MAM, or an affiliated person of MAM, other than any advisory fees paid to MAM or its affiliated person by an Unaffiliated Underlying Fund, in connection with the investment by the Fund of Funds in the Unaffiliated Fund. Any Subadviser will waive fees otherwise payable to the Subadviser, directly or indirectly, by the Fund of Funds in an amount at least equal to any compensation received by the Subadviser, or an affiliated person of the Subadviser, from an Unaffiliated Fund, other than any advisory fees paid to the Subadviser or its affiliated person by an Unaffiliated Underlying Fund, in E:\FR\FM\11DEN1.SGM 11DEN1 65816 Federal Register / Vol. 74, No. 237 / Friday, December 11, 2009 / Notices connection with the investment by the Fund of Funds in the Unaffiliated Fund made at the direction of the Subadviser. In the event that the Subadviser waives fees, the benefit of the waiver will be passed through to the Fund of Funds. 11. With respect to Registered Separate Accounts that invest in a Fund of Funds, no sales load will be charged at the Fund of Funds level or at the Underlying Fund level. Other sales charges and service fees, as defined in NASD Conduct Rule 2830, if any, will only be charged at the Fund of Funds level or at the Underlying Fund level, not both. With respect to other investments in a Fund of Funds, any sales charges and/or service fees charged with respect to shares of a Fund of Funds will not exceed the limits applicable to funds of funds set forth in NASD Conduct Rule 2830. 12. No Underlying Fund will acquire securities of any other investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except to the extent that such Underlying Fund: (a) Receives securities of another investment company as a dividend or as a result of a plan of reorganization of a company (other than a plan devised for the purpose of evading section 12(d)(1) of the Act); or (b) acquires (or is deemed to have acquired) securities of another investment company pursuant to exemptive relief from the Commission permitting such Underlying Fund to: (i) Acquire securities of one or more investment companies for short-term cash management purposes, or (ii) engage in interfund borrowing and lending transactions. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Florence E. Harmon. Deputy Secretary. [FR Doc. E9–29523 Filed 12–10–09; 8:45 am] jlentini on DSKJ8SOYB1PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61122; File No. SR–FINRA– 2009–083] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt FINRA Rule 2330 (Members’ Responsibilities Regarding Deferred Variable Annuities) in the Consolidated FINRA Rulebook December 7, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b-4 thereunder,2 notice is hereby given that on November 20, 2009 Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a National Association of Securities Dealers, Inc. (‘‘NASD’’)) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been substantially prepared by FINRA. FINRA has designated the proposed rule change as constituting a ‘‘noncontroversial’’ rule change under paragraph (f)(6) of Rule 19b-4 under the Act,3 which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to adopt NASD Rule 2821 into the Consolidated FINRA Rulebook,4 as FINRA Rule 2330, without any substantive changes. The text of the proposed rule change is available on FINRA’s Web site at https://www.finra.org, at the principal office of FINRA and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared 1 15 U.S.C. 78s(b)(1). CFR 240.19b-4. 3 17 CFR 240.19b-4(f)(6). 4 See infra note 5. 2 17 VerDate Nov<24>2008 17:33 Dec 10, 2009 Jkt 220001 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose As part of the process of developing a new consolidated rulebook (‘‘Consolidated FINRA Rulebook’’),5 FINRA is proposing to transfer NASD Rule 2821 into the Consolidated FINRA Rulebook as FINRA Rule 2330. NASD Rule 2821 establishes sales practice standards regarding recommended purchases and exchanges of deferred variable annuities. The rule has six main sections. First, the rule addresses general considerations, such as the rule’s applicability. Second, the rule has requirements governing broker recommendations, including suitability and disclosure obligations. Third, the rule includes various principal review and approval obligations. Fourth, the rule requires members to establish and maintain supervisory procedures reasonably designed to achieve compliance with the standards set forth in the rule. Fifth, the rule has a training component. Sixth, the rule has a supplementary material section that addresses a variety of issues ranging from the handling of customer funds and checks to information gathering and sharing. FINRA seeks to transfer this important sales-practice rule, which the Commission only recently approved,6 into the Consolidated FINRA Rulebook as FINRA Rule 2330 without any substantive changes. Moving the rule into the Consolidated FINRA Rulebook ensures that the rule’s requirements will continue to protect investors and does not impose any significant burden on competition. FINRA notes that FINRA Rule 2330 will apply to broker-dealers 5 The current FINRA rulebook consists of (1) FINRA Rules; (2) NASD Rules; and (3) rules incorporated from NYSE (‘‘Incorporated NYSE Rules’’) (together, the NASD Rules and Incorporated NYSE Rules are referred to as the ‘‘Transitional Rulebook’’). While the NASD Rules generally apply to all FINRA members, the Incorporated NYSE Rules apply only to those members of FINRA that are also members of the NYSE (‘‘Dual Members’’). The FINRA Rules apply to all FINRA members, unless such rules have a more limited application by their terms. For more information about the rulebook consolidation process, see Information Notice, March 12, 2008 (Rulebook Consolidation Process). 6 See Securities Exchange Act Release No. 59772 (April 15, 2009), 74 FR 18419 (April 22, 2009) (approval order); Regulatory Notice 09–32 (June 2009). See also Securities Exchange Act Release No. 56375 (September 7, 2007), 72 FR 52403 (September 13, 2007) (approval order). E:\FR\FM\11DEN1.SGM 11DEN1

Agencies

[Federal Register Volume 74, Number 237 (Friday, December 11, 2009)]
[Notices]
[Pages 65812-65816]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-29523]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29068; File No. 812-13653]


Madison Asset Management, LLC, et al.; Notice of Application

December 7, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c) and 
17(b) of the Act for an exemption from section 17(a) of the Act.

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Summary of the Application: Applicants request an order that would 
permit certain series of registered open-end management investment 
companies to acquire shares of other registered open-end management 
investment companies and unit investment trusts (``UITs'') that are 
within or outside the same group of investment companies.

Applicants: Madison Asset Management, LLC (``MAM''), MEMBERS Mutual 
Funds (``MMF''), Ultra Series Fund (``USF''), Madison Mosaic Equity 
Trust, Madison Mosaic Income Trust, Madison Mosaic Tax-Free Trust, 
Madison Mosaic Government Money Market (each, a ``Madison Mosaic 
Fund,'' and collectively, the ``Madison Mosaic Funds,'' and together 
with MMF and USF, the ``Trusts''), Madison Investment Advisors, Inc. 
(``Madison'') and Madison Mosaic, LLC (``MMLLC'').

Filing Dates: The application was filed on April 16, 2009 and amended 
on September 4, 2009, December 4, 2009, and December 7, 2009.

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 December 28, 2009, 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, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090; Applicants: c/o Madison/Mosaic Legal 
and Compliance Department, 8777 N. Gainey Center Drive, 220, 
Scottsdale, AZ 85258.

FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202) 
551-6878, or Marilyn Mann, 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 via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at https://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. MMF is a statutory trust organized under the laws of Delaware. 
USF and the Madison Mosaic Funds are business trusts organized under 
the laws of Massachusetts. Each Trust is registered under the Act as an 
open-end management investment company and, except for Madison Mosaic 
Government Money Market, offers multiple series (``Funds'').\1\ USF is 
offered solely to CUNA Mutual Insurance Society (``CMIS'') and its 
separate accounts (together with the separate accounts of any 
unaffiliated insurance company that may invest in the future in USF, 
``Separate Accounts'') which support the variable annuity contracts and 
variable life insurance policies it issues. The Separate Accounts may 
be registered under the Act (``Registered Separate Accounts'') or 
unregistered under the Act (``Unregistered Separate Accounts'').
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    \1\ Applicants request that the order also extend to any future 
series of the Trusts, and any other existing or future registered 
open-end management investment companies and any series thereof that 
are, or may in the future be, advised by MAM, Madison or MMLLC or 
any other investment adviser controlling, controlled by, or under 
common control with MAM, Madison or MMLLC (together with the Trusts, 
the ``Funds''). All entities that currently intend to rely on the 
requested order are named as applicants. Any other entity that 
relies on the order in the future will comply with the terms and 
conditions of the application.
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    2. MAM, an Iowa corporation, is registered under the Investment 
Advisers Act of 1940 (``Advisers Act'') and serves as investment 
adviser to MMF and USF. MAM is the investment adviser to each of the 
Fund of Funds, as defined below. Madison, a Wisconsin corporation, and 
MMLLC, a Wisconsin limited liability corporation, are each registered 
as investment advisors under the Advisers Act and jointly serve as 
investment advisers to the Madison Mosaic Funds, with the exception of 
the Madison Institutional Equity Option Fund (a series of Madison 
Mosaic Equity Trust), which is advised by MAM. MAM and MMLLC are 
controlled by Madison. CMIS has a non-voting interest in MAM and does 
not control MAM within the meaning of section 2(a)(9) of the Act.\2\
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    \2\ Under a prior order, the Commission granted relief to MMF, 
USF, Members Capital Advisors, Inc. (``MCA'') and CUNA Mutual Life 
Insurance Company from the provisions of sections 12(d)(1)(A), 
12(d)(1)(B) and 17(a) of the Act, pursuant to which certain series 
of MMF and USF acquire shares of other registered open-end 
investment companies that are within or outside the same group of 
investment companies. MEMBERS Mutual Funds, et al., Investment 
Company Act Release Nos. 27598 (December 13, 2006)(notice) and 27657 
(January 9, 2007)(order) (``Existing Order''). On April 15, 2009, 
MCA, an indirectly wholly owned subsidiary of CMIS, and CMIS entered 
into an agreement under which MAM would become the investment 
adviser to MMF and USF (the ``Transaction''). MAM became the 
investment adviser to MMF and USF on July 1, 2009. On June 30, 2009, 
the Commission staff issued a no-action letter permitting MAM to 
rely on the Existing Order until the earlier of the receipt of any 
order granted by the Commission on the application or December 30, 
2009. Madison Asset Management, LLC, et al. (pub. avail. June 30, 
2009).
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    3. Applicants request relief to permit, (a) certain Funds (each, a 
``Fund of Funds'') to acquire shares of registered open-end management 
investment companies (the ``Unaffiliated Underlying Funds'') and unit 
investment trusts (``Unaffiliated Underlying Trusts,'' and together 
with the Unaffiliated Underlying Funds, the ``Unaffiliated Funds'') 
that are not part of the same ``group of investment companies'' (as 
defined in section 12(d)(1)(G)(ii) of the Act) as the Funds of Funds, 
(b) the Unaffiliated Underlying Funds, their principal underwriters and 
any broker or dealer (``Broker'') registered under the Securities 
Exchange Act of 1934 to sell their shares to the Fund of Funds, (c) the 
Funds of Funds to acquire shares of certain other Funds in the same 
``group of investment companies'' (as defined in section 
12(d)(1)(G)(ii) of the Act) as the Fund of Funds (the ``Affiliated 
Funds,'' and together with the Unaffiliated Funds, the ``Underlying 
Funds''), and (d) the Affiliated Funds, their principal underwriters 
and any Brokers to sell shares of the Affiliated Funds to the

[[Page 65813]]

Funds of Funds. Certain of the Unaffiliated Funds may be listed and 
traded on a national securities exchange at negotiated prices 
(``ETFs''). Each Fund of Funds also may invest in securities other than 
shares of an investment company and in financial instruments that may 
not be securities within the meaning of section 2(a)(36) of the Act 
that are consistent with its investment objectives.

Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits a registered investment 
company from acquiring shares of an investment company if the 
securities represent more than 3% of the total outstanding voting stock 
of the acquired company, more than 5% of the total assets of the 
acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter and 
any broker or dealer from selling the shares of the investment company 
to another investment company if the sale will cause the acquiring 
company to own more than 3% of the acquired company's voting stock, or 
if the sale will cause more than 10% of the acquired company's voting 
stock to be owned by investment companies generally.
    2. Section 12(d)(1)(J) 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 section 
12(d)(1) if the exemption is consistent with the public interest and 
the protection of investors. Applicants seek an exemption under section 
12(d)(1)(J) of the Act from the limitations of sections 12(d)(1)(A) and 
(B) to the extent necessary to permit the Funds of Funds to acquire 
shares of the Underlying Funds in excess of the limits set forth in 
section 12(d)(1)(A) of the Act and to permit the Unaffiliated 
Underlying Funds and Affiliated Funds, their principal underwriters and 
any Brokers to sell shares to the Funds of Funds in excess of the 
limits set forth in sections 12(d)(1)(B) of the Act.
    3. Applicants state that the proposed arrangement will not give 
rise to the policy concerns underlying sections 12(d)(1)(A) and (B), 
which include concerns about undue influence by a fund of funds or its 
affiliated persons over underlying funds, excessive layering of fees, 
and overly complex fund structures. Accordingly, applicants believe 
that the requested exemption is consistent with the public interest and 
the protection of investors.
    4. Applicants state that the proposed arrangement will not result 
in undue influence by a Fund of Funds or its affiliated persons over 
the Underlying Funds. The concern about undue influence does not arise 
in connection with a Fund of Funds' investment in the Affiliated Funds, 
since they are part of the same group of investment companies. To limit 
the control that a Fund of Funds or its affiliated persons may have 
over an Unaffiliated Fund, applicants propose a condition prohibiting: 
(a) MAM and any person controlling, controlled by or under common 
control with MAM, any investment company and any issuer that would be 
an investment company but for section 3(c)(1) or section 3(c)(7) of the 
Act advised or sponsored by MAM or any person controlling, controlled 
by or under common control with MAM (collectively, the ``Group''), and 
(b) any investment adviser within the meaning of section 2(a)(20)(B) of 
the Act to a Fund of Funds (``Subadviser''), any person controlling, 
controlled by or under common control with the Subadviser, and any 
investment company or issuer that would be an investment company but 
for section 3(c)(1) or 3(c)(7) of the Act (or portion of such 
investment company or issuer) advised or sponsored by the Subadviser or 
any person controlling, controlled by or under common control with the 
Subadviser (collectively, the ``Subadviser Group'') from controlling 
(individually or in the aggregate) an Unaffiliated Fund within the 
meaning of section 2(a)(9) of the Act. No Separate Account will be a 
member of the Group or Subadvisor Group.
    5. Applicants further state that condition 2 precludes a Fund of 
Funds, MAM, any Subadviser, promoter or principal underwriter of a Fund 
of Funds, and any person controlling, controlled by or under common 
control with any of those entities (each, a ``Fund of Funds 
Affiliate'') from taking advantage of an Unaffiliated Fund, with 
respect to transactions between the Fund of Funds or a Fund of Funds 
Affiliate and the Unaffiliated Fund or the Unaffiliated Fund's 
investment adviser(s), sponsor, promoter, principal underwriter or any 
person controlling, controlled by or under common control with any of 
these entities (each, an ``Unaffiliated Fund Affiliate''). Condition 5 
precludes a Fund of Funds or Fund of Funds Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to an 
Unaffiliated Underlying Fund or sponsor to an Unaffiliated Underlying 
Trust) from causing an Unaffiliated Fund to purchase a security in an 
offering of securities during the existence of any underwriting or 
selling syndicate of which a principal underwriter is an officer, 
director, trustee, member of an advisory board, investment adviser, 
Subadviser, or employee of the Fund of Funds, or a person of which any 
such officer, director, trustee, investment adviser, Subadviser, member 
of an advisory board, or employee is an affiliated person (each, an 
``Underwriting Affiliate,'' except any person whose relationship to the 
Unaffiliated Fund is covered by section 10(f) of the Act is not an 
Underwriting Affiliate). An offering of securities during the existence 
of any underwriting or selling syndicate of which a principal 
underwriter is an Underwriting Affiliate is an ``Affiliated 
Underwriting.''
    6. As an additional assurance that an Unaffiliated Underlying Fund 
understands the implications of an investment by a Fund of Funds under 
the requested order, prior to a Fund of Funds' investment in the 
Unaffiliated Underlying Fund in excess of the limit in section 
12(d)(1)(A)(i), condition 8 requires that the Fund of Funds and 
Unaffiliated Underlying Fund execute an agreement stating, without 
limitation, that their boards of directors or trustees (``Boards'') and 
their investment advisers understand the terms and conditions of the 
order and agree to fulfill their responsibilities under the order 
(``Participation Agreement''). Applicants note that an Unaffiliated 
Fund (other than an ETF whose shares are purchased by a Fund of Funds 
in the secondary market) will retain the right to reject an investment 
by a Fund of Funds.\3\
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    \3\ An Unaffiliated Underlying Fund, including an ETF, would 
retain its right to reject any initial investment by a Fund of Funds 
in excess of the limit in section 12(d)(1)(A)(i) of the Act by 
declining to execute the Participation Agreement with the Fund of 
Funds.
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    7. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. With respect to investment advisory 
fees, applicants state that, in connection with the approval of any 
investment advisory contract under section 15 of the Act, the Board of 
each Fund of Funds, including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees''), will find that the advisory fees charged 
under the advisory contract are based on services provided that are in 
addition to, rather than duplicative of, services provided

[[Page 65814]]

pursuant to any Underlying Fund's advisory contract(s). Applicants 
further state that MAM will waive fees otherwise payable to it by a 
Fund of Funds in an amount at least equal to any compensation 
(including fees received pursuant to any plan adopted by an 
Unaffiliated Underlying Fund pursuant to rule 12b-1 under the Act) 
received from an Unaffiliated Fund by MAM, or an affiliated person of 
MAM, other than any advisory fees paid to MAM or an affiliated person 
of MAM by an Unaffiliated Underlying Fund, in connection with the 
investment by the Fund of Funds in the Unaffiliated Fund.
    8. Applicants state that with respect to Registered Separate 
Accounts that invest in a Fund of Funds, no sales load will be charged 
at the Fund of Funds level or at the Underlying Fund level. Other sales 
charges and service fees, as defined in Rule 2830 of the Conduct Rules 
of the NASD (``NASD Conduct Rule 2830''), if any, will only be charged 
at the Fund of Funds level or at the Underlying Fund level, not both. 
With respect to other investments in a Fund of Funds, any sales charges 
and/or service fees charged with respect to shares of the Fund of Funds 
will not exceed the limits applicable to funds of funds as set forth in 
NASD Conduct Rule 2830.
    9. Applicants represent that each Fund of Funds will represent in 
the Participation Agreement that no insurance company sponsoring a 
Registered Separate Account funding variable annuity and variable life 
insurance contracts will be permitted to invest in the Fund of Funds 
unless the insurance company has certified to the Fund of Funds that 
the aggregate of all fees and charges associated with each contract 
that invests in the Fund of Funds, including fees and charges at the 
separate account, Fund of Funds, and Underlying Fund levels, are 
reasonable in relation to the services rendered, the expenses expected 
to be incurred, and the risks assumed by the insurance company.
    10. Applicants state that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that an Underlying 
Fund will be prohibited from acquiring securities of any investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in 
excess of the limits contained in section 12(d)(1)(A), except to the 
extent that such Underlying Fund: (a) receives securities of another 
investment company as a dividend or as a result of a plan of 
reorganization of a company (other than a plan devised for the purpose 
of evading section 12(d)(1) of the Act); or (b) acquires (or is deemed 
to have acquired) securities of another investment company pursuant to 
exemptive relief from the Commission permitting such Underlying Fund 
to: (i) acquire securities of one or more investment companies for 
short-term cash management purposes, or (ii) engage in interfund 
borrowing and lending transactions.

B. Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and its 
affiliated persons or affiliated persons of such persons. Section 
2(a)(3) of the Act defines an ``affiliated person'' of another person 
to include (a) any person directly or indirectly owning, controlling, 
or holding with power to vote, 5% or more of the outstanding voting 
securities of the other person; (b) any person 5% or more of whose 
outstanding voting securities are directly or indirectly owned, 
controlled, or held with power to vote by the other person; and (c) any 
person directly or indirectly controlling, controlled by, or under 
common control with the other person.
    2. Applicants state that the Funds of Funds and the Affiliated 
Funds may be deemed to be under common control and therefore affiliated 
persons of one another. Applicants also state that the Funds of Funds 
and the Underlying Funds may be deemed to be affiliated persons of one 
another if a Fund of Funds acquires 5% or more of an Underlying Fund's 
outstanding voting securities. In light of these possible affiliations, 
section 17(a) could prevent an Underlying Fund from selling shares to 
and redeeming shares from a Fund of Funds.\4\
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    \4\ Applicants acknowledge that receipt of any compensation by 
(a) an affiliated person of a Funds of Funds, or an affiliated 
person of such person, for the purchase by the Fund of Funds of 
shares of an Underlying Fund or (b) an affiliated person of an 
Underlying Fund, or an affiliated person of such person, for the 
sale by the Underlying Fund of its shares to a Fund of Funds may be 
prohibited by section 17(e)(1) of the Act. The Participation 
Agreement also will include this acknowledgement.
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    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that (a) the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act. Section 
6(c) of the Act permits the Commission to exempt any person or 
transactions from any provision of the Act 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.
    4. Applicants submit that the proposed transactions satisfy the 
standards for relief under sections 17(b) and 6(c) of the Act, as the 
terms are fair and reasonable and do not involve overreaching. 
Applicants state that the terms upon which an Underlying Fund will sell 
its shares to or purchase its shares from a Fund of Funds will be based 
on the net asset value of each Underlying Fund.\5\ Applicants also 
state that the proposed transactions will be consistent with the 
policies of each Fund of Funds and Underlying Fund, and with the 
general purposes of the Act.
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    \5\ Applicants note that a Fund of Funds generally would 
purchase and sell shares of an Underlying Fund that operates as an 
ETF through secondary market transactions rather than through 
principal transactions with the Underlying Fund. To the extent that 
a Fund of Funds purchases or redeems shares from an ETF that is an 
affiliated person of the Fund of Funds in exchange for a basket of 
specified securities as described in the application for the 
exemptive order upon which the ETF relies, applicants also request 
relief from section 17(a) for those transactions.
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Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. The members of the Group will not control (individually or in 
the aggregate) an Unaffiliated Fund within the meaning of section 
2(a)(9) of the Act. The members of a Subadviser Group will not control 
(individually or in the aggregate) an Unaffiliated Fund within the 
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in 
the outstanding voting securities of an Unaffiliated Fund, the Group or 
a Subadviser Group, each in the aggregate, becomes a holder of more 
than 25% of the outstanding voting securities of the Unaffiliated Fund, 
then the Group or the Subadviser Group will vote its shares of the 
Unaffiliated Fund in the same proportion as the vote of all other 
holders of the Unaffiliated Fund's shares. This condition will not 
apply to a Subadviser Group with respect to an Unaffiliated Fund for 
which the Fund of Funds' Sub-Adviser or a person controlling, 
controlled by, or under common control with the Subadviser acts as the 
investment adviser within the meaning section 2(a)(20)(A) of the Act 
(in the case of an Unaffiliated Underlying Fund) or the sponsor (in the

[[Page 65815]]

case of an Unaffiliated Underlying Trust).
    2. No Fund of Funds or Fund of Funds Affiliate will cause any 
existing or potential investment by the Fund of Funds in an 
Unaffiliated Fund to influence the terms of any services or 
transactions between the Fund of Funds or a Fund of Funds Affiliate and 
the Unaffiliated Fund or an Unaffiliated Fund Affiliate.
    3. The Board of each Fund of Funds, including a majority of the 
Independent Trustees, will adopt procedures reasonably designed to 
assure that MAM and any Subadviser are conducting the investment 
program of the Fund of Funds without taking into account any 
consideration received by the Fund of Funds or a Fund of Funds 
Affiliate from an Unaffiliated Fund or an Unaffiliated Fund Affiliate 
in connection with any services or transactions.
    4. Once an investment by a Fund of Funds in the securities of an 
Unaffiliated Underlying Fund exceeds the limit of section 
12(d)(1)(A)(i) of the Act, the Board of the Unaffiliated Underlying 
Fund, including a majority of the Independent Trustees, will determine 
that any consideration paid by the Unaffiliated Underlying Fund to a 
Fund of Funds or a Fund of Funds Affiliate in connection with any 
services or transactions: (a) Is fair and reasonable in relation to the 
nature and quality of the services and benefits received by the 
Unaffiliated Underlying Fund; (b) is within the range of consideration 
that the Unaffiliated Underlying Fund would be required to pay to 
another unaffiliated entity in connection with the same services or 
transactions; and (c) does not involve overreaching on the part of any 
person concerned. This condition does not apply with respect to any 
services or transactions between an Unaffiliated Underlying Fund and 
its investment adviser(s), or any person controlling, controlled by, or 
under common control with such investment adviser(s).
    5. No Fund of Funds or Fund of Funds Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to an 
Unaffiliated Underlying Fund or sponsor to an Unaffiliated Underlying 
Trust) will cause an Unaffiliated Fund to purchase a security in any 
Affiliated Underwriting.
    6. The Board of an Unaffiliated Underlying Fund, including a 
majority of the Independent Trustees, will adopt procedures reasonably 
designed to monitor any purchases of securities by the Unaffiliated 
Underlying Fund in an Affiliated Underwriting once an investment by a 
Fund of Funds in the securities of the Unaffiliated Underlying Fund 
exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any 
purchases made directly from an Underwriting Affiliate. The Board of 
the Unaffiliated Underlying Fund will review these purchases 
periodically, but no less frequently than annually, to determine 
whether or not the purchases were influenced by the investment by the 
Fund of Funds in the Unaffiliated Underlying Fund. The Board of the 
Unaffiliated Underlying Fund will consider, among other things: (a) 
Whether or not the purchases were consistent with the investment 
objectives and policies of the Unaffiliated Underlying Fund; (b) how 
the performance of securities purchased in an Affiliated Underwriting 
compares to the performance of comparable securities purchased during a 
comparable period of time in underwritings other than Affiliated 
Underwritings or to a benchmark such as a comparable market index; and 
(c) whether or not the amount of securities purchased by the 
Unaffiliated Underlying Fund in Affiliated Underwritings and the amount 
purchased directly from an Underwriting Affiliate have changed 
significantly from prior years. The Board of an Unaffiliated Underlying 
Fund will take any appropriate actions based on its review, including, 
if appropriate, the institution of procedures designed to assure that 
purchases of securities in Affiliated Underwritings are in the best 
interests of shareholders.
    7. Each Unaffiliated Underlying Fund will maintain and preserve 
permanently in an easily accessible place a written copy of the 
procedures described in the preceding condition, and any modifications 
to such procedures, and will maintain and preserve for a period of not 
less than six years from the end of the fiscal year in which any 
purchase from an Affiliated Underwriting occurred, the first two years 
in an easily accessible place, a written record of each purchase of 
securities in an Affiliated Underwriting once an investment by a Fund 
of Funds in the securities of an Unaffiliated Underlying Fund exceeds 
the limit of section 12(d)(1)(A)(i) of the Act, setting forth the: (a) 
Party from whom the securities were acquired, (b) identity of the 
underwriting syndicate's members, (c) terms of the purchase, and (d) 
information or materials upon which the determinations of the Board of 
the Unaffiliated Underlying Fund were made.
    8. Prior to its investment in shares of an Unaffiliated Underlying 
Fund in excess of the limit set forth in section 12(d)(1)(A)(i) of the 
Act, the Fund of Funds and the Unaffiliated Underlying Fund will 
execute a Participation Agreement stating, without limitation, that 
their Boards and their investment advisers understand the terms and 
conditions of the order and agree to fulfill their responsibilities 
under the order. At the time of its investment in shares of an 
Unaffiliated Underlying Fund in excess of the limit set forth in 
section 12(d)(1)(A)(i), a Fund of Funds will notify the Unaffiliated 
Underlying Fund of the investment. At such time, the Fund of Funds will 
also transmit to the Unaffiliated Underlying Fund a list of the names 
of each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of 
Funds will notify the Unaffiliated Underlying Fund of any changes to 
the list as soon as reasonably practicable after a change occurs. The 
Unaffiliated Underlying Fund and the Fund of Funds will maintain and 
preserve a copy of the order, the Participation Agreement and the list 
with any updated information for the duration of the investment and for 
a period of not less than six years thereafter, the first two years in 
an easily accessible place.
    9. Before approving any advisory contract under section 15 of the 
Act, the Board of each Fund of Funds, including a majority of the 
Independent Trustees, shall find that the advisory fees charged under 
the advisory contract are based on services provided that are in 
addition to, rather than duplicative of, services provided under the 
advisory contract(s) of any Underlying Fund in which the Fund of Funds 
may invest. Such finding, and the basis upon which the finding was 
made, will be recorded fully in the minute books of the appropriate 
Fund of Funds.
    10. MAM will waive fees otherwise payable to it by a Fund of Funds 
in an amount at least equal to any compensation (including fees 
received pursuant to any plan adopted by an Unaffiliated Underlying 
Fund pursuant to rule 12b-1 under the Act) received from an 
Unaffiliated Fund by MAM, or an affiliated person of MAM, other than 
any advisory fees paid to MAM or its affiliated person by an 
Unaffiliated Underlying Fund, in connection with the investment by the 
Fund of Funds in the Unaffiliated Fund. Any Subadviser will waive fees 
otherwise payable to the Subadviser, directly or indirectly, by the 
Fund of Funds in an amount at least equal to any compensation received 
by the Subadviser, or an affiliated person of the Subadviser, from an 
Unaffiliated Fund, other than any advisory fees paid to the Subadviser 
or its affiliated person by an Unaffiliated Underlying Fund, in

[[Page 65816]]

connection with the investment by the Fund of Funds in the Unaffiliated 
Fund made at the direction of the Subadviser. In the event that the 
Subadviser waives fees, the benefit of the waiver will be passed 
through to the Fund of Funds.
    11. With respect to Registered Separate Accounts that invest in a 
Fund of Funds, no sales load will be charged at the Fund of Funds level 
or at the Underlying Fund level. Other sales charges and service fees, 
as defined in NASD Conduct Rule 2830, if any, will only be charged at 
the Fund of Funds level or at the Underlying Fund level, not both. With 
respect to other investments in a Fund of Funds, any sales charges and/
or service fees charged with respect to shares of a Fund of Funds will 
not exceed the limits applicable to funds of funds set forth in NASD 
Conduct Rule 2830.
    12. No Underlying Fund will acquire securities of any other 
investment company or company relying on section 3(c)(1) or 3(c)(7) of 
the Act in excess of the limits contained in section 12(d)(1)(A) of the 
Act, except to the extent that such Underlying Fund: (a) Receives 
securities of another investment company as a dividend or as a result 
of a plan of reorganization of a company (other than a plan devised for 
the purpose of evading section 12(d)(1) of the Act); or (b) acquires 
(or is deemed to have acquired) securities of another investment 
company pursuant to exemptive relief from the Commission permitting 
such Underlying Fund to: (i) Acquire securities of one or more 
investment companies for short-term cash management purposes, or (ii) 
engage in interfund borrowing and lending transactions.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon.
Deputy Secretary.
[FR Doc. E9-29523 Filed 12-10-09; 8:45 am]
BILLING CODE 8011-01-P
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