[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