[Federal Register Volume 64, Number 206 (Tuesday, October 26, 1999)]
[Notices]
[Pages 57669-57671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27882]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-24105; 812-11510]
Puget Sound Alternative Investment Series Trust, et al.; Notice
of Application
October 20, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act and rule 18f-2 under the Act.
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SUMMARY OF APPLICATION: The order would permit applicants to enter into
and materially amend investment subadvisory agreements without
obtaining shareholder approval.
APPLICANTS: Puget Sound Alternative Investment Series Trust (the
``Trust'') and Puget Sound Asset Management Co., LLC (the ``Manager'').
FILING DATES: The application was filed on February 11, 1999.
Applicants have agreed to file an amendment, the substance of which is
reflected in this notice, during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on November 15,
1999, and should be accompanied by proof of service on the applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549-
0609; Applicants, One Yesler Building, Suite 200, Seattle, Washington
98104.
FOR FURTHER INFORMATION CONTACT: Mary T. Geffroy, Senior Counsel, at
(202) 942-0553, or Christine Y. Greenlees, Branch Chief, at (202) 942-
0564 (Division of Investment
[[Page 57670]]
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC
20549-0102 (tel. (202) 942-8090).
Applicants' Representations
1. The Trust, a Massachusetts business trust, is registered under
the Act as an open-end management investment company. The Trust
currently consists of one series (the ``Portfolio''). \1\
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\1\ Applicants also request relief for any series of the Trust
organized in the future (``Future Funds'' and collectively with the
Portfolio, the ``Funds''), and any registered open-end management
investment company, or series of the company, advised in the future
by the Manager, or a person controlling, controlled by or under
common control (within the meaning of section 2(a)(9) of the Act)
with the Manager that uses the adviser/subadviser structure
described in the application and complies with the terms and
conditions of the application (``Future Trusts''). Each existing
registered open-end management investment company that currently
intends to rely on the order is named as an applicant.
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2. The Manager, registered under the Investment Advisers Act of
1940 (the ``Advisers Act''), serves as investment adviser for the
Portfolio under an investment advisory agreement (``Advisory
Agreement''). Under the Advisory Agreement, the Manager is responsible
for managing the investment and reinvestment of the Portfolio's assets
(``Portfolio Management Services''), subject to the supervision and
control of the Trust's board of trustees (the ``Board''). The Advisory
Agreement also provides that the Manager may delegate its Portfolio
Management Services to one or more subadvisers (``Subadvisers''). In
the event of such delegation, the Manager will oversee and monitor the
performance of each Subadviser and recommend the selection or
termination of Subadvisers to the Board. In selecting Subadvisers, the
Manager conducts extensive research and due diligence, using a
combination of qualitative and quantitative criteria. The Portfolio
pays the Manager a fee for its service based on the Portfolio's average
daily net assets.
3. The Manager has entered into a subadvisory agreement (the
``Subadvisory Agreement'') with a single Subadviser to provide day-to-
day Portfolio Management Services for the Portfolio. The Subadviser is,
and any future Subadviser will be, registered under the Advisers Act.
The Subadviser is not an ``affiliated person,'' as defined in section
2(a)(3) of the Act (``Affiliated Person''), of the Manager. The Manager
pays the Subadviser a fee out of the fees the Manager receives from the
Portfolio.
4. Applicants request relief to permit the Manager to enter into
and amend Subadvisory Agreements without obtaining shareholder
approval. The requested relief will not extend to a Subadviser that is
an Affiliated Person of the Manager or the Trust, other than by reason
of serving as a Subadviser to a Fund (``Affiliated Subadviser'').
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to act as an investment adviser to a registered
investment company except under a written contract that has been
approved by a majority of the investment company's outstanding voting
shares. Rule 18f-2 under the Act provides that each series or class of
stock in a series company affected by a matter must approve the matter
if the Act requires shareholder approval.
2. Section 6(c) of the Act authorizes the SEC to exempt persons or
transactions from the provisions of the Act to the extent that the
exemption is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act. Applicants state that
the requested relief meets this standard for the reasons discussed
below.
3. Applicants state that investment companies such as the Trust
that use an adviser/subadviser structure divide responsibility for
general management and investment advice between the Manager and one or
more Subadvisers. Applicants also state that, under this type of
management structure, the Manager selects and monitors the Subadvisers
and the Subadvisers, in turn, select the specific portfolio
investments. Applicants contend that, by choosing to invest in Funds
that use the adviser/subadviser structure, investors are choosing to
have the Manager manage the Subadvisers because the investors do not
wish to select and monitor Subadvisers. Applicants submit that the
requested relief will permit them to use the adviser/subadviser
structure more efficiently by reducing expenses and by permitting the
prompt implementation of subadvisory changes that are in the best
interests of the shareholders. Applicants note that the Advisory
Agreement will remain subject to the shareholder approval requirements
of the Act and rules under the Act.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Manager will not enter into a Subadvisory Agreement with an
Affiliated Subadviser without the agreement, including the compensation
to be paid under the agreement, being approved by the shareholders of
the applicable Fund.
2. At all times, a majority of the Board will be persons each of
whom is not an ``interested person'' of the Trust (as defined in
section 2(a)(19) of the Act) (the ``independent Trustees''), and the
nomination of new or additional Independent Trustees will be committed
to the discretion of then existing Independent Trustees.
3. When a Subadviser change is proposed for a Fund having an
Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Trust's board minutes, that the change is in the best interests of the
Fund and its shareholders and does not involve a conflict of interest
from which the Manager or the Affiliated Subadviser derives an
inappropriate advantage.
4. Before the currently existing Fund may rely on the order
requested in the application, the operation of the Fund in the manner
described in the application will be approved by a majority of its
outstanding voting securities, as defined in the Act. Before a Future
Fund may rely on the order requested in the application, the operation
of the Future Fund in the manner described in the application will be
approved by its initial shareholder before a public offering is made of
the shares of the Future Fund, provided that shareholders purchase
shares on the basis of a prospectus containing the disclosure
contemplated by condition 7 below.
5. Within 90 days after the hiring of any new Subadviser, the Trust
will furnish shareholders with all information about a new Subadviser
that would be included in a proxy statement. The information will
include any change in the disclosure caused by the addition of a new
Subadviser. A Fund will meet this condition by providing shareholders
with an information statement meeting the requirements of Regulation
14C, Schedule 14C and Item 22 of Schedule 14A under the Securities
Exchange Act of 1934.
6. No trustee or officer of the Trust or managing member or officer
of the Manager will own, directly or indirectly
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(other than through a pooled investment vehicle that is not controlled
by such person), any interest in a Subadviser except for: (a) ownership
of interests in the Manager or any entity that controls the Manager; or
(b) ownership of less than 1% of the outstanding securities of any
class of equity or debt of a publicly-traded company that is either a
Subadviser or an entity that controls, is controlled by, or is under
common control with a Subadviser.
7. The Trust will disclose in its prospectus the existence,
substance and effect of any order granted pursuant to the application.
In addition, each Fund will hold itself out to the public as employing
the adviser/subadviser approach described in the application. The
prospectus will prominently disclose that the Manager has ultimate
responsibility to oversee Subadvisers and recommend their hiring,
termination and replacement.
8. The Manager will provide general management and administrative
services to the Trust, including overall supervisory responsibility for
the general management and investment of the Trust's securities
portfolios, and, subject to review and approval by the Board, will (i)
set the Funds' overall investment strategies; (ii) select Subadvisers;
(iii) monitor and evaluate the performance of the Subadvisers; (iv)
allocate, and when appropriate, reallocate a Fund's assets among its
Subadvisers in those cases where a Fund has more than one Subadviser;
and (v) implement procedures reasonably designed to ensure that the
Subadvisers comply with the Trust's investment objectives, policies and
restrictions.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27882 Filed 10-25-99; 8:45 am]
BILLING CODE 8010-01-M