[Federal Register Volume 70, Number 173 (Thursday, September 8, 2005)]
[Notices]
[Pages 53399-53401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4886]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27054; 812-12926]


Fifth Third Funds, et al.; Notice of Application

September 1, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act, as well as certain disclosure 
requirements.

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Summary of Application:  Applicants request an order that would permit 
them to enter into and materially amend sub-advisory agreements without 
shareholder approval and would grant relief from certain disclosure 
requirements.

Applicants:  Fifth Third Funds and Variable Insurance Funds (each, a 
``Trust,'' and together, the ``Trusts''), and Fifth Third Asset 
Management Inc. (``FTAM'').

Filing Dates:  The application was filed on February 5, 2003, and 
amended on August 16, 2005.

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 September 27, 2005, 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 may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-9303. Applicants, c/o Alan G. Priest, 
Esq., Ropes & Gray LLP, One Metro Center, 700 12th Street, NW., 
Washington, DC 20005-3948.

FOR FURTHER INFORMATION CONTACT: Marc R. Ponchione, Senior Counsel, at 
(202) 551-6874, or Nadya B. Roytblat, Assistant Director, at (202) 551-
6821 (Division of Investment 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 
Commission's Public Reference Desk, 100 F Street, NE., Washington DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. Each Trust is organized as a Massachusetts business trust and is 
registered under the Act as an open-end management investment company. 
Each Trust currently offers multiple series (each, a ``Fund''), each 
with its own investment objectives, restrictions, and policies. Certain 
of the Funds use or may use the multi-manager structure described below 
(each, a ``Multi-Manager Fund,'' and together, the ``Multi-Manager 
Funds''). FTAM is registered as an investment adviser under the 
Investment Advisers Act of 1940 (``Advisers Act'') and serves as 
investment adviser to all of the Funds.\1\ Each Trust, on behalf of its 
Funds, has entered into an investment advisory agreement with FTAM 
(each an ``Advisory Agreement'' and collectively, the ``Advisory 
Agreements''). The Advisory Agreements have been approved by each 
Trust's board of trustees (each, a ``Board,'' and together, the 
``Boards''), including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
the Trusts (``Independent Trustees''), as well as by each applicable 
Fund's shareholders.\2\
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    \1\ Applicants also request that any relief granted pursuant to 
the application extend to any other existing or future registered 
open-end management investment company or series therof that: (i) Is 
advised by FTAM or any entity controlling, controlled by, or under 
common control with FTAM and (ii) uses the multi-manager structure 
described in the application (``Future Funds,'' included in the term 
``Multi-Manager Funds''). Any Fund or Future Fund that relies on the 
requested order will do so only in accordance with the terms and 
conditions contained in the application. The Trusts are the only 
existing investment companies that currently intend to rely on the 
order. If the name of any Multi-Manager Fund contains the name of a 
Sub-Advisor (as defined below), it will be preceded by FTAM's name.
    \2\ The term ``shareholder'' includes variable life insurance 
policy and variable annuity contract owners that are unit holders of 
any separate account for which a series of the Variable Insurance 
Funds serves as a funding medium.
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    2. Under the terms of the Advisory Agreements, FTAM oversees each 
Multi-Manager Fund's investments and may select and contract with one 
or more sub-advisors (``Sub-Advisors'') to exercise day-to-day 
investment discretion over all or a portion of the assets of a Multi-
Manager Fund pursuant to a separate investment sub-advisory agreement. 
FTAM monitors and evaluates the Sub-Advisors and recommends to the 
Board their hiring, retention or termination. Sub-Advisors must be 
approved by a Multi-Manager Fund's Board and by shareholders, and may 
be terminated by the Board or the shareholders. Each Sub-Advisor is or 
will be registered under the Advisers Act. Each Sub-Advisor's fee is 
paid by FTAM out of the management fee received by FTAM from the Multi-
Manager Funds.
    3. Applicants request relief to permit FTAM, subject to Board 
approval, to enter into and materially amend sub-advisory agreements 
without shareholder approval. The requested relief will not extend to a 
Sub-Advisor that is an affiliated person, as defined in section 2(a)(3) 
of the Act, of a Multi-Manager Fund or FTAM, other than by reason of 
serving as a Sub-Advisor to one or more of the Multi-Manager Fund 
(``Affiliated Sub-Advisor'').

[[Page 53400]]

    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require the Multi-Manager Funds to 
disclose the fees paid by FTAM to the Sub-Advisors. An exemption is 
requested to permit a Multi-Manager Fund to disclose (as both a dollar 
amount and as a percentage of its net assets): (a) The aggregate fees 
paid to FTAM and any Affiliated Sub-Advisor, and (b) the aggregate fees 
paid to Sub-Advisors other than Affiliated Sub-Advisors (collectively, 
``Aggregate Fees''). If a Multi-Manager Fund employs an Affiliated Sub-
Advisor, the Multi-Manager Fund will provide separate disclosure of any 
fees paid to the Affiliated Sub-Advisor.

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 the vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series company affected by a matter must approve such 
matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 14(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``Exchange Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    4. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
their investment advisers, including the Sub-Advisors.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    6. Section 6(c) 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 the Act, or 
from any rule thereunder, 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. Applicants believe that the requested relief meets this standard 
for the reasons discussed below.
    7. Applicants assert that by investing in a Multi-Manager Fund, 
shareholders, in effect, will hire FTAM to manage the Multi-Manager 
Fund's assets by using its investment advisor selection and monitoring 
process. Applicants assert that investors will purchase Multi-Manager 
Fund shares to gain access to FTAM's expertise in these areas. 
Applicants further assert that the requested relief will reduce Multi-
Manager Fund expenses and enable the Multi-Manager Funds to operate 
more efficiently. Applicants note that the Multi-Manager Funds' 
Advisory Agreements will remain subject to the shareholder approval 
requirements of section 15(a) of the Act and rule 18f-2 under the Act.
    8. Applicants assert that many Sub-Advisors charge their customers 
for advisory services according to a ``posted'' fee schedule. 
Applicants state that while Sub-Advisors are willing to negotiate fees 
lower than those posted in the rate schedule, particularly with large 
institutional clients, they are reluctant to do so where the fees are 
disclosed to other prospective and existing customers. Applicants 
submit that the relief will encourage Sub-Advisors to negotiate lower 
advisory fees with FTAM, the benefits of which may be passed on to 
Multi-Manager Fund shareholders.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Multi-Manager Fund may rely on the requested order, the 
operation of the Multi-Manager Fund in the manner described in the 
application will be approved by a majority of the Multi-Manager Fund's 
outstanding voting securities, as defined in the Act, or, in the case 
of a Multi-Manager Fund whose public shareholders purchase shares on 
the basis of a prospectus containing the disclosure contemplated by 
condition 2 below, by the sole shareholder prior to offering shares of 
the Multi-Manager Fund to the public.
    2. Each Multi-Manager Fund will disclose in its prospectus the 
existence, substance, and effect of any order granted pursuant to the 
application. In addition, each Multi-Manager Fund will hold itself out 
to the public as employing the ``manager of managers'' approach 
described in the application. The prospectus will prominently disclose 
that FTAM has ultimate responsibility (subject to oversight by the 
Board) for the investment performance of a Multi-Manager Fund due to 
its responsibility to oversee Sub-Advisors and recommend their hiring, 
termination and replacement.
    3. Within 90 days of the hiring of any new Sub-Advisor, FTAM will 
furnish shareholders of the affected Multi-Manager Fund with all of the 
information about the new Sub-Advisor that would be contained in a 
proxy statement, except as modified by the order to permit the 
disclosure of Aggregate Fees. This information will include the 
disclosure of Aggregate Fees and any change in such disclosure caused 
by the addition of a new Sub-Advisor. FTAM 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 Exchange Act, except as modified by the order to permit 
the disclosure of Aggregate Fees.
    4. FTAM will not enter into a sub-advisory agreement with any 
Affiliated Sub-Advisor without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the Multi-Manager Fund.
    5. Each Fund will comply with the fund governance standards as 
defined in rule 0-1(a)(7) under the Act by the compliance date for the 
rule. Prior to the compliance date, a majority of each Board will be 
Independent Trustees and the nomination of new or additional 
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
    6. When a change of Sub-Advisor is proposed for a Multi-Manager 
Fund with an Affiliated Sub-Advisor, the Board, including a majority of 
the Independent Trustees, will make a separate finding, reflected in 
the Board minutes, that such change is in the best interests of the 
Multi-Manager Fund and its shareholders and does not involve a conflict 
of interest from which FTAM or

[[Page 53401]]

the Affiliated Sub-Advisor derives an inappropriate advantage.
    7. FTAM will provide general management services to each Multi-
Manager Fund, and, subject to review and approval by the Board, will: 
(a) Set each Multi-Manager Fund's overall investment strategies, (b) 
evaluate, select and recommend Sub-Advisors to manage all or a part of 
a Multi-Manager Fund's assets, (c) when appropriate, allocate and 
reallocate the Multi-Manager Fund's assets among multiple Sub-Advisors, 
(d) monitor and evaluate the Sub-Advisors' investment performance, and 
(e) implement procedures reasonably designed to ensure that the Sub-
Advisors comply with the Multi-Manager Fund's investment objectives, 
policies and restrictions.
    8. No trustee or officer of a Multi-Manager Fund, or director or 
officer of FTAM will own, directly or indirectly (other than through a 
pooled investment vehicle over which such person does not have 
control), any interest in a Sub-Advisor, except for: (a) Ownership of 
interests in FTAM or any entity that controls, is controlled by, or is 
under common control with FTAM, 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 Sub-Advisor or an entity that controls, 
is controlled by, or is under common control with a Sub-Advisor.
    9. Each Multi-Manager Fund will disclose in its registration 
statement the Aggregate Fees.
    10. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Trustees. The 
selection of such counsel will be within the discretion of the then-
existing Independent Trustees.
    11. FTAM will provide the Board, no less frequently than quarterly, 
with information about FTAM's profitability on a per-Multi-Manager Fund 
basis. The information will reflect the impact on profitability of the 
hiring or termination of any Sub-Advisor during the applicable quarter.
    12. Whenever a Sub-Advisor is hired or terminated, FTAM will 
provide the Board with information showing the expected impact on 
FTAM's profitability.
    13. The requested order will expire on the effective date of rule 
15a-5 under the Act, if adopted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. E5-4886 Filed 9-7-05; 8:45 am]
BILLING CODE 8010-01-P