Legg Mason Partners Equity Trust, et al.; Notice of Application, 16529-16533 [2010-7290]
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Federal Register / Vol. 75, No. 62 / Thursday, April 1, 2010 / Notices
receive approximately three initial Form
1 filings per year and that each
respondent would incur an average
burden of 47 hours to file an initial
Form 1 at an average cost per response
of approximately $10,354. Therefore,
the Commission estimates that the
annual burden for all respondents to file
the initial Form 1 would be 141 hours
(one response/respondent × three
respondents × 47 hours/response) and
$31,062 (one response/respondent ×
three respondents × $10,354/response).
There currently are thirteen entities
registered as national securities
exchanges and two exempt exchanges,
for a total of 15 exchanges. The
Commission estimates that each
registered or exempt exchange files four
amendments or periodic update to Form
1 per year, incurring an average burden
of 25 hours to comply with Rule 6a–2.
The Commission estimates that the
annual burden for all respondents to file
amendments and periodic updates to
the Form 1 pursuant to Rule 6a–2 is
1500 hours (15 respondents × 25 hours/
response × four response/respondent
per year) and $317,700 (15 respondents
× $5,295/response × one response/
respondent per year).
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimate of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information to be 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: Charles Boucher, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Shirley
Martinson, 6432 General Green Way,
Alexandria, Virginia 22312 or send an
e-mail to: PRA_Mailbox@sec.gov.
Dated: March 25, 2010.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–7360 Filed 3–31–10; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
29192; File No. 812–13681]
Legg Mason Partners Equity Trust, et
al.; Notice of Application
March 26, 2010.
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: Legg Mason Partners
Equity Trust (‘‘LMP Equity Trust’’), Legg
Mason Partners Variable Equity Trust
(‘‘LMP Variable Equity Trust,’’ and
together with LMP Equity Trust, the
‘‘Trusts’’) and Legg Mason Partners Fund
Advisor, LLC (‘‘LMPFA’’ or the
‘‘Adviser’’).
FILING DATES: The application was filed
on August 7, 2009 and amended on
December 30, 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 April 20, 2010, 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: Legg Mason Partners Equity
Trust and Legg Mason Partners Variable
Equity Trust, 55 Water Street, New
York, NY 10041; Legg Mason Partners
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Fund Advisor, LLC, 620 Eighth Avenue,
New York, NY 10018.
FOR FURTHER INFORMATION CONTACT:
Lewis B. Reich, Senior Counsel, at (202)
551–6919, or Jennifer L. Sawin, 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. Each Trust is a Maryland business
trust registered as an open-end
management investment company
under the Act. Each Trust is a series
trust whose shares are registered under
the Securities Act of 1933, as amended.1
The series of LMP Variable Equity Trust
are offered to registered separate
accounts (‘‘Registered Separate
Accounts’’) and unregistered separate
accounts (‘‘Unregistered Separate
Accounts’’) of insurance companies that
are not affiliates of the Adviser; those
separate accounts fund certain variable
annuity and variable life insurance
contracts and qualified retirement and
pension plans (together with Registered
Separate Accounts and the Unregistered
Separate Accounts, the ‘‘Variable
Accounts’’).2
2. LMPFA is registered with the
Commission as an investment adviser
under the Investment Advisers Act of
1940 (‘‘Advisers Act’’) and serves as the
investment adviser to each Trust.
LMPFA provides administrative and
certain oversight services to the Funds,
manages the Funds’ cash and short-term
instruments and is responsible for the
overall management of the Funds’
investment programs. All investment
advisers and subadvisers to any Fund
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 part of the same group of investment companies,
as defined in section 12(d)(1)(G) of the Act as the
Trusts and that are, or in the future are, advised by
the Adviser or any other investment adviser
controlling, controlled by, or under common
control with the Adviser (together with the existing
series of 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.
2 Each Fund that operates as a Fund of Funds as
defined below, relies on the requested order and
offers its shares to Variable Accounts, a ‘‘Variable
Fund of Funds’’.
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will be registered as investment advisers
under the Advisers Act.
3. Applicants request relief to the
extent necessary to permit (a) Any Fund
(each, a ‘‘Fund of Funds’’) to acquire
shares of registered open-end
management investment companies (the
‘‘Unaffiliated Investment Companies’’)
and UITs (the ‘‘Unaffiliated Trusts’’, and
together with the Unaffiliated
Investment Companies, 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 Fund of Funds; (b) the
Unaffiliated Funds or their principal
underwriters and any broker or dealer
registered under the Securities
Exchange Act of 1934 (‘‘1934 Act’’)
(‘‘Broker’’) to sell shares of the
Unaffiliated Funds 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 the Fund of Funds (the ‘‘Affiliated
Funds,’’ and together with the
Unaffiliated Funds, the ‘‘Underlying
Funds’’), and (d) the Affiliated Funds, or
their principal underwriters and any
Broker to sell shares of the Affiliated
Funds to the Funds of Funds. Certain of
the Unaffiliated Funds may be
registered under the Act as either UITs
or open-end management investment
companies that have received exemptive
relief to permit their shares be listed and
traded on a national securities exchange
at negotiated prices (‘‘ETFs’’). Each Fund
of Funds also may invest in securities
and investments that are not issued by
registered investment companies and
that are consistent with its investment
objective.
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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
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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 (a)
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 (b) the Underlying Funds,
their principal underwriters and any
Broker to sell shares of the Underlying
Funds to the Funds of Funds in excess
of the limits set forth in section
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 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 will comply with condition 1
below, which prohibits: (a) The Adviser,
any person controlling, controlled by or
under common control with the
Adviser, 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 the Adviser or any person
controlling, controlled by or under
common control with the Adviser
(collectively, the ‘‘Group’’), and (b) any
other investment adviser within the
meaning of section 2(a)(20)(B) of the Act
to a Fund of Funds (‘‘Sub-Adviser’’), 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 Sub-Adviser or any
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person controlling, controlled by or
under common control with the SubAdviser (collectively, the ‘‘Sub-Adviser
Group’’) from controlling (individually
or in the aggregate) an Unaffiliated Fund
within the meaning of section 2(a)(9) of
the Act.
5. Applicants further state that they
propose to prevent a Fund of Funds, the
Adviser, any Sub-Adviser, promoter or
principal underwriter of a Fund of
Funds, as well as 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’’). Additionally, 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 Investment
Company or sponsor to an Unaffiliated
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, advisory board member,
investment adviser, Sub-Adviser, or
employee of the Fund of Funds, or a
person of which any such officer,
director, trustee, investment adviser,
Sub-Adviser, 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 Investment Company
understands and appreciates the
implications of an investment by a Fund
of Funds under the requested order,
condition 8 requires that prior to a Fund
of Funds’ investment in the Unaffiliated
Investment Company in excess of the
limit of section 12(d)(1)(A)(i), a Fund of
Funds and the Unaffiliated Investment
Company will execute an agreement
stating, without limitation, that their
boards of directors or trustees (‘‘Boards’’)
and their investment advisers
understand the terms and conditions of
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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
management or advisory fees charged
under a Fund of Funds’ advisory
contract(s) are based on services
provided that are in addition to, rather
than duplicative of, services provided
pursuant to any Underlying Fund’s
advisory contract(s). Applicants further
state that the Adviser 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 Investment Company
pursuant to rule 12b–1 under the Act)
received from an Unaffiliated Fund by
the Adviser, or an affiliated person of
the Adviser, other than any advisory
fees paid to the Adviser or an affiliated
person of the Adviser by the
Unaffiliated 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 Variable Fund of Funds, no
sales load will be charged at the Fund
of Funds level or at the Underlying
Fund level, and other sales charges and
service fees, as defined in Rule 2830 of
the Conduct Rules of the National
Association of Securities Dealers
(‘‘NASD Conduct Rule 2830’’),4 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 Funds, any sales charges
and/or service fees charged with respect
to shares of a Fund of Funds will not
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
limits in section 12(d)(1)(A)(i) of the Act by
declining to execute the Participation Agreement
with the Fund of Funds.
4 Any references to NASD Conduct Rule 2830
include any successor or replacement rule to
Conduct Rule 2830 that may be adopted by the
Financial Industry Regulatory Authority, Inc.
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exceed the limits applicable to funds of
funds as set forth in NASD Conduct
Rule 2830.
9. Applicants represent that each
Variable Fund of Funds will represent
in the Participation Agreement that no
insurance company sponsoring a
Registered Separate Account funding
variable insurance contracts will be
permitted to invest in the Variable Fund
of Funds unless the insurance company
has certified to such 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 in certain
circumstances identified in condition 12
below.
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
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16531
to and redeeming shares from a Fund of
Funds.5
3. Section 17(b) of the Act authorizes
the Commission to grant an order
permitting a transaction otherwise
prohibited by section 17(a) if the
Commission 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.6 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:
5 Applicants acknowledge that receipt of any
compensation by (a) an affiliated person of a Fund
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.
6 Applicants note that a Fund of Funds generally
would purchase and sell shares of an Unaffiliated
Fund that operates as an ETF through secondary
market transactions at market prices rather than
through principal transactions with the Unaffiliated
Fund at net asset value. Applicants would not rely
on the requested relief from Section 17(a) for such
secondary market transactions. A Fund of Funds
could seek to transact in ‘‘Creation Units’’ directly
with an ETF that is an Unaffiliated Fund pursuant
to the requested section 17(a) relief. Certain of the
Affiliated Funds also may operate as ETFs;
however, no Fund of Funds will be an ETF.
Applicants are not requesting, and the Commission
is not granting, any relief from section 17(a) to
purchase and redeem Creation Units of any ETF
that is an Affiliated Fund.
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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 Sub-Adviser 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
Sub-Adviser 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 Sub-Adviser Group with respect to an
Unaffiliated Fund for which the SubAdviser or a person controlling,
controlled by, or under common control
with the Sub-Adviser acts as the
investment adviser within the meaning
section 2(a)(20)(A) of the Act (in the
case of an Unaffiliated Investment
Company) or the sponsor (in the case of
an Unaffiliated Trust). With respect to
each Variable Fund of Funds, a
Registered Separate Account will seek
voting instructions from its contract
holders and will vote its shares of an
Unaffiliated Fund in accordance with
the instructions received and will vote
those shares for which no instructions
were received in the same proportion as
the shares for which instructions were
received. An Unregistered Separate
Account will either (a) vote its shares of
the Unaffiliated Fund in the same
proportion as the vote of all other
holders of the Unaffiliated Fund’s
shares or (b) seek voting instructions
from its contract holders and vote its
shares in accordance with the
instructions received and vote those
shares for which no instructions were
received in the same proportion as the
shares for which instructions were
received.
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 its
Adviser and any Sub-Adviser to the
Fund of Funds are conducting the
investment program of the Fund of
Funds without taking into account any
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consideration received by the Fund of
Funds or 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 Investment Company
exceeds the limit of section
12(d)(1)(A)(i) of the Act, the Board of
the Unaffiliated Investment Company,
including a majority of the Independent
Trustees, will determine that any
consideration paid by the Unaffiliated
Investment Company 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 Investment Company; (b) is
within the range of consideration that
the Unaffiliated Investment Company
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 Investment Company 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 Investment
Company or sponsor to an Unaffiliated
Trust) will cause an Unaffiliated Fund
to purchase a security in any Affiliated
Underwriting.
6. The Board of an Unaffiliated
Investment Company, including a
majority of the Independent Trustees,
will adopt procedures reasonably
designed to monitor any purchases of
securities by the Unaffiliated Investment
Company in an Affiliated Underwriting
once an investment by a Fund of Funds
in the securities of the Unaffiliated
Investment Company 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 Investment
Company 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 Investment Company. The
Board of the Unaffiliated Investment
Company will consider, among other
things: (a) whether the purchases were
consistent with the investment
objectives and policies of the
Unaffiliated Investment Company; (b)
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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 the amount of securities
purchased by the Unaffiliated
Investment Company in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board of the Unaffiliated Investment
Company 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 Investment
Company 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
Investment Company exceeds the limit
of section 12(d)(1)(A)(i) of the Act,
setting forth (1) The party from whom
the securities were acquired, (b) the
identity of the underwriting syndicate’s
members, (c) the terms of the purchase,
and (d) the information or materials
upon which the determinations of the
Board of the Unaffiliated Investment
Company were made.
8. Prior to its investment in shares of
an Unaffiliated Investment Company in
excess of the limit set forth in section
12(d)(1)(A)(i) of the Act, the Fund of
Funds and the Unaffiliated Investment
Company 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 Investment
Company in excess of the limit set forth
in section 12(d)(1)(A)(i), a Fund of
Funds will notify the Unaffiliated
Investment Company of the investment.
At such time, the Fund of Funds will
also transmit to the Unaffiliated
Investment Company a list of the names
E:\FR\FM\01APN1.SGM
01APN1
mstockstill on DSKH9S0YB1PROD with NOTICES
Federal Register / Vol. 75, No. 62 / Thursday, April 1, 2010 / Notices
of each Fund of Funds Affiliate and
Underwriting Affiliate. The Fund of
Funds will notify the Unaffiliated
Investment Company of any changes to
the list as soon as reasonably practicable
after a change occurs. The Unaffiliated
Investment Company 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. The Adviser 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 Investment Company
pursuant to rule 12b–1 under the Act)
received from an Unaffiliated Fund by
the Adviser, or an affiliated person of
the Adviser, other than any advisory
fees paid to the Adviser or its affiliated
person by the Unaffiliated Fund, in
connection with the investment by the
Fund of Funds in the Unaffiliated Fund.
Any Sub-Adviser will waive fees
otherwise payable to the Sub-Adviser,
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
Sub-Adviser, from an Unaffiliated Fund,
other than any advisory fees paid to the
Sub-Adviser or its affiliated person by
the Unaffiliated Investment Company,
in connection with the investment by
the Fund of Funds in the Unaffiliated
Investment Company made at the
direction of the Sub-Adviser. In the
event that the Sub-Adviser 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
Variable Fund of Funds, no sales load
will be charged at the Fund of Funds
level or at the Underlying Fund level,
and 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
VerDate Nov<24>2008
16:51 Mar 31, 2010
Jkt 220001
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
affiliated 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. 2010–7290 Filed 3–31–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61787; File No. SR–
NASDAQ–2010–015]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Approving Proposed Rule Change To
Apply Retroactively a Correction of a
Drafting Error in Rule 7018
March 26, 2010.
I. Introduction
On January 26, 2010, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change that would apply retroactively,
to the period from July 24, 2009 through
January 25, 2010, the correction made
by SR–NASDAQ–2010–014 3 of a
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 61515
(February 12, 2010), 75 FR 7642 (February 22,
2010).
2 17
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
16533
‘‘typographical error’’ 4 formerly in Rule
7018.
The proposed rule change was
published for comment in the Federal
Register on February 23, 2010.5 The
Commission received no comments on
the proposal. This order approves the
proposed rule change.
II. Description of the Proposal
In August 2009, Nasdaq filed SR–
NASDAQ–2009–072,6 to make clerical
changes designed to streamline and
simplify Rule 7018. In the ‘‘Purpose’’
section of the proposed rule change,
Nasdaq stated ‘‘[n]one of the clerical
changes will modify any fee assessed or
credit earned for trading on the
NASDAQ Market Center.’’ However, due
to a drafting error, Exhibit 5 to the
proposed rule change (which sets out
the actual language of the proposed rule
change) introduced changes to the fees
for orders in securities listed on the
New York Stock Exchange (‘‘NYSE’’) that
are routed to other venues without
attempting to execute in Nasdaq for the
full size of the order prior to routing.
Nasdaq has been billing members in
accordance with the fees that were in
place before it filed SR–NASDAQ–
2009–072. Nasdaq filed SR–NASDAQ–
2010–014 7 to correct the error; that
proposed rule change was effective
upon filing with the Commission, and
changed the fees from the day it was
filed (January 26, 2010) going forward.
The instant proposed rule change would
apply the same changes retroactively to
the period from July 24, 2009 through
January 25, 2010.
III. Discussion and Commission
Findings
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.8 In particular, the
Commission finds that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,9 in
general, and with Section 6(b)(4) of the
4 The Commission notes that the ‘‘typographical
error’’ is more accurately characterized as a drafting
error by Nasdaq that resulted in the omission and
misplacement of rule language.
5 See Securities Exchange Act Release No. 61524
(February 16, 2010), 75 FR 8160.
6 Securities Exchange Act Release No. 60430
(August 4, 2009), 74 FR 40279 (August 11, 2009).
7 Securities Exchange Act Release No. 61515
(February 12, 2010), 75 FR 7642 (February 22, 2010)
(SR–NASDAQ–2010–014).
8 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
9 15 U.S.C. 78f.
E:\FR\FM\01APN1.SGM
01APN1
]]>Agencies
[Federal Register Volume 75, Number 62 (Thursday, April 1, 2010)]
[Notices]
[Pages 16529-16533]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-7290]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29192; File No. 812-13681]
Legg Mason Partners Equity Trust, et al.; Notice of Application
March 26, 2010.
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 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: Legg Mason Partners Equity Trust (``LMP Equity Trust''),
Legg Mason Partners Variable Equity Trust (``LMP Variable Equity
Trust,'' and together with LMP Equity Trust, the ``Trusts'') and Legg
Mason Partners Fund Advisor, LLC (``LMPFA'' or the ``Adviser'').
FILING DATES: The application was filed on August 7, 2009 and amended
on December 30, 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 April 20, 2010, 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: Legg Mason Partners Equity
Trust and Legg Mason Partners Variable Equity Trust, 55 Water Street,
New York, NY 10041; Legg Mason Partners Fund Advisor, LLC, 620 Eighth
Avenue, New York, NY 10018.
FOR FURTHER INFORMATION CONTACT: Lewis B. Reich, Senior Counsel, at
(202) 551-6919, or Jennifer L. Sawin, 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. Each Trust is a Maryland business trust registered as an open-
end management investment company under the Act. Each Trust is a series
trust whose shares are registered under the Securities Act of 1933, as
amended.\1\ The series of LMP Variable Equity Trust are offered to
registered separate accounts (``Registered Separate Accounts'') and
unregistered separate accounts (``Unregistered Separate Accounts'') of
insurance companies that are not affiliates of the Adviser; those
separate accounts fund certain variable annuity and variable life
insurance contracts and qualified retirement and pension plans
(together with Registered Separate Accounts and the Unregistered
Separate Accounts, the ``Variable Accounts'').\2\
---------------------------------------------------------------------------
\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 part of the same group of investment companies, as defined in
section 12(d)(1)(G) of the Act as the Trusts and that are, or in the
future are, advised by the Adviser or any other investment adviser
controlling, controlled by, or under common control with the Adviser
(together with the existing series of 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.
\2\ Each Fund that operates as a Fund of Funds as defined below,
relies on the requested order and offers its shares to Variable
Accounts, a ``Variable Fund of Funds''.
---------------------------------------------------------------------------
2. LMPFA is registered with the Commission as an investment adviser
under the Investment Advisers Act of 1940 (``Advisers Act'') and serves
as the investment adviser to each Trust. LMPFA provides administrative
and certain oversight services to the Funds, manages the Funds' cash
and short-term instruments and is responsible for the overall
management of the Funds' investment programs. All investment advisers
and subadvisers to any Fund
[[Page 16530]]
will be registered as investment advisers under the Advisers Act.
3. Applicants request relief to the extent necessary to permit (a)
Any Fund (each, a ``Fund of Funds'') to acquire shares of registered
open-end management investment companies (the ``Unaffiliated Investment
Companies'') and UITs (the ``Unaffiliated Trusts'', and together with
the Unaffiliated Investment Companies, 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 Fund of Funds; (b) the
Unaffiliated Funds or their principal underwriters and any broker or
dealer registered under the Securities Exchange Act of 1934 (``1934
Act'') (``Broker'') to sell shares of the Unaffiliated Funds 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 the Fund
of Funds (the ``Affiliated Funds,'' and together with the Unaffiliated
Funds, the ``Underlying Funds''), and (d) the Affiliated Funds, or
their principal underwriters and any Broker to sell shares of the
Affiliated Funds to the Funds of Funds. Certain of the Unaffiliated
Funds may be registered under the Act as either UITs or open-end
management investment companies that have received exemptive relief to
permit their shares be listed and traded on a national securities
exchange at negotiated prices (``ETFs''). Each Fund of Funds also may
invest in securities and investments that are not issued by registered
investment companies and that are consistent with its investment
objective.
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 (a) 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 (b) the Underlying Funds, their
principal underwriters and any Broker to sell shares of the Underlying
Funds to the Funds of Funds in excess of the limits set forth in
section 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 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 will comply with condition 1
below, which prohibits: (a) The Adviser, any person controlling,
controlled by or under common control with the Adviser, 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
the Adviser or any person controlling, controlled by or under common
control with the Adviser (collectively, the ``Group''), and (b) any
other investment adviser within the meaning of section 2(a)(20)(B) of
the Act to a Fund of Funds (``Sub-Adviser''), any person controlling,
controlled by or under common control with the Sub-Adviser, 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 Sub-Adviser
or any person controlling, controlled by or under common control with
the Sub-Adviser (collectively, the ``Sub-Adviser Group'') from
controlling (individually or in the aggregate) an Unaffiliated Fund
within the meaning of section 2(a)(9) of the Act.
5. Applicants further state that they propose to prevent a Fund of
Funds, the Adviser, any Sub-Adviser, promoter or principal underwriter
of a Fund of Funds, as well as 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'').
Additionally, 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 Investment Company or sponsor to
an Unaffiliated 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, advisory board member, investment
adviser, Sub-Adviser, or employee of the Fund of Funds, or a person of
which any such officer, director, trustee, investment adviser, Sub-
Adviser, 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 Investment
Company understands and appreciates the implications of an investment
by a Fund of Funds under the requested order, condition 8 requires that
prior to a Fund of Funds' investment in the Unaffiliated Investment
Company in excess of the limit of section 12(d)(1)(A)(i), a Fund of
Funds and the Unaffiliated Investment Company will execute an agreement
stating, without limitation, that their boards of directors or trustees
(``Boards'') and their investment advisers understand the terms and
conditions of
[[Page 16531]]
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 limits in section 12(d)(1)(A)(i) of the Act by
declining to execute the Participation Agreement with the Fund of
Funds.
---------------------------------------------------------------------------
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 management or advisory
fees charged under a Fund of Funds' advisory contract(s) are based on
services provided that are in addition to, rather than duplicative of,
services provided pursuant to any Underlying Fund's advisory
contract(s). Applicants further state that the Adviser 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 Investment Company pursuant to rule 12b-1
under the Act) received from an Unaffiliated Fund by the Adviser, or an
affiliated person of the Adviser, other than any advisory fees paid to
the Adviser or an affiliated person of the Adviser by the Unaffiliated
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 Variable Fund of Funds, no sales load will be
charged at the Fund of Funds level or at the Underlying Fund level, and
other sales charges and service fees, as defined in Rule 2830 of the
Conduct Rules of the National Association of Securities Dealers (``NASD
Conduct Rule 2830''),\4\ 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 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 as set forth in NASD Conduct Rule
2830.
---------------------------------------------------------------------------
\4\ Any references to NASD Conduct Rule 2830 include any
successor or replacement rule to Conduct Rule 2830 that may be
adopted by the Financial Industry Regulatory Authority, Inc.
---------------------------------------------------------------------------
9. Applicants represent that each Variable Fund of Funds will
represent in the Participation Agreement that no insurance company
sponsoring a Registered Separate Account funding variable insurance
contracts will be permitted to invest in the Variable Fund of Funds
unless the insurance company has certified to such 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 in
certain circumstances identified in condition 12 below.
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.\5\
---------------------------------------------------------------------------
\5\ Applicants acknowledge that receipt of any compensation by
(a) an affiliated person of a Fund 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.
---------------------------------------------------------------------------
3. Section 17(b) of the Act authorizes the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
the Commission 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.\6\ 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.
---------------------------------------------------------------------------
\6\ Applicants note that a Fund of Funds generally would
purchase and sell shares of an Unaffiliated Fund that operates as an
ETF through secondary market transactions at market prices rather
than through principal transactions with the Unaffiliated Fund at
net asset value. Applicants would not rely on the requested relief
from Section 17(a) for such secondary market transactions. A Fund of
Funds could seek to transact in ``Creation Units'' directly with an
ETF that is an Unaffiliated Fund pursuant to the requested section
17(a) relief. Certain of the Affiliated Funds also may operate as
ETFs; however, no Fund of Funds will be an ETF. Applicants are not
requesting, and the Commission is not granting, any relief from
section 17(a) to purchase and redeem Creation Units of any ETF that
is an Affiliated Fund.
---------------------------------------------------------------------------
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
[[Page 16532]]
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 Sub-Adviser 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 Sub-Adviser 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 Sub-Adviser 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 Sub-Adviser Group with respect to an Unaffiliated Fund for
which the Sub-Adviser or a person controlling, controlled by, or under
common control with the Sub-Adviser acts as the investment adviser
within the meaning section 2(a)(20)(A) of the Act (in the case of an
Unaffiliated Investment Company) or the sponsor (in the case of an
Unaffiliated Trust). With respect to each Variable Fund of Funds, a
Registered Separate Account will seek voting instructions from its
contract holders and will vote its shares of an Unaffiliated Fund in
accordance with the instructions received and will vote those shares
for which no instructions were received in the same proportion as the
shares for which instructions were received. An Unregistered Separate
Account will either (a) vote its shares of the Unaffiliated Fund in the
same proportion as the vote of all other holders of the Unaffiliated
Fund's shares or (b) seek voting instructions from its contract holders
and vote its shares in accordance with the instructions received and
vote those shares for which no instructions were received in the same
proportion as the shares for which instructions were received.
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 its Adviser and any Sub-Adviser to the Fund of Funds are
conducting the investment program of the Fund of Funds without taking
into account any consideration received by the Fund of Funds or 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 Investment Company exceeds the limit of section
12(d)(1)(A)(i) of the Act, the Board of the Unaffiliated Investment
Company, including a majority of the Independent Trustees, will
determine that any consideration paid by the Unaffiliated Investment
Company 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 Investment Company; (b) is within the
range of consideration that the Unaffiliated Investment Company 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 Investment Company 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 Investment Company or sponsor to an Unaffiliated Trust)
will cause an Unaffiliated Fund to purchase a security in any
Affiliated Underwriting.
6. The Board of an Unaffiliated Investment Company, including a
majority of the Independent Trustees, will adopt procedures reasonably
designed to monitor any purchases of securities by the Unaffiliated
Investment Company in an Affiliated Underwriting once an investment by
a Fund of Funds in the securities of the Unaffiliated Investment
Company 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 Investment Company 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 Investment Company.
The Board of the Unaffiliated Investment Company will consider, among
other things: (a) whether the purchases were consistent with the
investment objectives and policies of the Unaffiliated Investment
Company; (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 the amount of
securities purchased by the Unaffiliated Investment Company in
Affiliated Underwritings and the amount purchased directly from an
Underwriting Affiliate have changed significantly from prior years. The
Board of the Unaffiliated Investment Company 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 Investment Company 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 Investment Company
exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting forth
(1) The party from whom the securities were acquired, (b) the identity
of the underwriting syndicate's members, (c) the terms of the purchase,
and (d) the information or materials upon which the determinations of
the Board of the Unaffiliated Investment Company were made.
8. Prior to its investment in shares of an Unaffiliated Investment
Company in excess of the limit set forth in section 12(d)(1)(A)(i) of
the Act, the Fund of Funds and the Unaffiliated Investment Company 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 Investment Company in excess of the limit set forth in
section 12(d)(1)(A)(i), a Fund of Funds will notify the Unaffiliated
Investment Company of the investment. At such time, the Fund of Funds
will also transmit to the Unaffiliated Investment Company a list of the
names
[[Page 16533]]
of each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of
Funds will notify the Unaffiliated Investment Company of any changes to
the list as soon as reasonably practicable after a change occurs. The
Unaffiliated Investment Company 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. The Adviser 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
Investment Company pursuant to rule 12b-1 under the Act) received from
an Unaffiliated Fund by the Adviser, or an affiliated person of the
Adviser, other than any advisory fees paid to the Adviser or its
affiliated person by the Unaffiliated Fund, in connection with the
investment by the Fund of Funds in the Unaffiliated Fund. Any Sub-
Adviser will waive fees otherwise payable to the Sub-Adviser, directly
or indirectly, by the Fund of Funds in an amount at least equal to any
compensation received by the Sub-Adviser, or an affiliated person of
the Sub-Adviser, from an Unaffiliated Fund, other than any advisory
fees paid to the Sub-Adviser or its affiliated person by the
Unaffiliated Investment Company, in connection with the investment by
the Fund of Funds in the Unaffiliated Investment Company made at the
direction of the Sub-Adviser. In the event that the Sub-Adviser 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
Variable Fund of Funds, no sales load will be charged at the Fund of
Funds level or at the Underlying Fund level, and 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
affiliated 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. 2010-7290 Filed 3-31-10; 8:45 am]
BILLING CODE 8011-01-P
