[Federal Register Volume 73, Number 193 (Friday, October 3, 2008)]
[Notices]
[Pages 57693-57695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-23365]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28420; 812-13533]


Forward Funds and Forward Management, LLC; Notice of Application

September 29, 2008.
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.

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Summary of Application: Applicants request an order that would 
supersede an existing order that permits them to enter into and 
materially amend subadvisory agreements without shareholder approval 
(``Existing Order'').\1\
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    \1\ Forward Funds, et al., Investment Company Act Release Nos. 
27777 (April 5, 2007) (notice) and 27814 (May 1, 2007) (order).

Applicants: Forward Funds (the ``Trust'') and Forward Management, LLC 
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(``Forward Management'').

DATES: Filing Dates: The application was filed on May 19, 2008 and 
amended on September 25, 2008.

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 October 24, 2008, 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, U.S. Securities and Exchange Commission, 100 F 
St., NE., Washington, DC 20549-1090; Applicants, 433 California Street, 
11th Floor, San Francisco, CA 94104.

FOR FURTHER INFORMATION CONTACT: Mary Kay Frech, Branch Chief, or 
Michael W. Mundt, 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 St., NE., Washington, DC 
20549-1520 (telephone (202) 551-5850).

Applicants' Representations

    1. The Trust is organized as a Delaware statutory trust and is 
registered under the Act as an open-end management investment company. 
The Trust currently offers sixteen series (the ``Funds''), each with 
its own investment objectives, policies, and restrictions. Applicants 
request that the order apply to: (a) The Funds; and (b) any future 
series of the Trust and any other registered open-end management 
investment companies or series thereof that (1) use the ``manager-of-
managers'' arrangement described in the application, (2) comply with 
the terms and conditions of the application, and (3) are advised by a 
Manager (as defined below) (the investment companies and their series, 
as well as the Funds, the ``Sub-Advised Funds'').\2\
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    \2\ All existing entities that currently intend to rely on the 
order are named as applicants. Any entity that relies on the order 
in the future will do so only in accordance with the terms and 
conditions of the application. If the name of any Sub-Advised Fund 
contains the name of a Sub-Adviser (as defined below), the name of 
the Manager that serves as the primary adviser to the Sub-Advised 
Fund will precede the name of the Sub-Adviser.
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    2. Forward Management is registered as an investment adviser under 
the Investment Advisers Act of 1940 (the ``Advisers Act'') and serves 
as investment adviser to the Funds pursuant to an investment advisory 
agreement with the Trust, on behalf of the Funds (``Advisory 
Agreement''). The Advisory Agreement has been approved by the Trust's 
board of trustees (``Board''), including a majority of the trustees who 
are not ``interested persons,'' as defined in section 2(a)(19) of the 
Act, of the Trust (the ``Independent Trustees''), as well as by the 
shareholders of the Funds. The term ``Manager'' refers to Forward 
Management and any existing or future entity controlling, controlled 
by, or under common control with Forward Management that is an 
investment adviser registered under the Advisers Act and any successor 
in interest thereto.\3\
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    \3\ A successor in interest is limited to entities that result 
from a reorganization into another jurisdiction or a change in the 
type of business organization.
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    3. Under the terms of the Advisory Agreement, the Manager provides 
investment advisory services to each Sub-Advised Fund and has the 
authority, subject to Board approval, to enter into investment 
subadvisory agreements (``Sub-Advisory Agreements'') with one or more 
subadvisers (``Sub-Advisers''). Each Sub-Adviser is registered under 
the Advisers Act. The Manager will monitor and evaluate the Sub-
Advisers and recommend to the Board their hiring, retention or 
termination. Sub-Advisers recommended to the Board by the Manager are 
selected and approved by the Board, including a majority of the 
Independent Trustees. Each Sub-Adviser has discretionary authority to 
invest the assets or a portion of the assets of the relevant Sub-
Advised Fund. For its services, the Manager receives a fee from the 
Sub-Advised Fund computed as a percentage of the Sub-Advised Fund's net 
assets.
    4. Applicants request an order that would permit the Manager to 
hire Sub-Advisers and materially amend Sub-Advisory Agreements without 
obtaining

[[Page 57694]]

shareholder approval. The requested order would supersede the Existing 
Order to allow a Sub-Adviser to be compensated either (a) by the 
Manager out of the advisory fees it receives from the Sub-Advised Fund, 
or (b) directly by the Sub-Advised Fund out of its assets.\4\ The 
conditions of the requested order are identical to the conditions in 
the Existing Order, except for the addition of condition 10, which 
addresses Sub-Adviser compensation paid directly by a Sub-Advised Fund. 
The requested relief will not extend to any Sub-Adviser that is an 
affiliated person, as defined in section 2(a)(3) of the Act, of a Sub-
Advised Fund or the Manager, other than by reason of serving as a Sub-
Adviser to one or more of the Sub-Advised Funds (``Affiliated Sub-
Adviser'').
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    \4\ Under the Existing Order, the Manager compensates each Sub-
Adviser out of the fees paid to the Manager under the Advisory 
Agreement.
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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. 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 provisions of the Act, or 
from any rule under 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. Applicants state that their requested relief 
meets this standard for the reasons discussed below.
    3. Applicants assert that the Sub-Advised Funds' shareholders are 
relying on the Manager's experience to select one or more Sub-Advisers 
best suited to achieve a Sub-Advised Fund's investment objectives. 
Applicants assert that, from the perspective of an investor in the Sub-
Advised Fund, the role of the Sub-Advisers is comparable to that of the 
individual portfolio managers employed by traditional investment 
company advisory firms. Applicants state that requiring shareholder 
approval of each Sub-Advisory Agreement would impose costs and 
unnecessary delays on the Sub-Advised Funds, and may preclude the 
Manager from acting promptly in a manner considered advisable by the 
Board. Applicants note that the Advisory Agreement and any Sub-Advisory 
Agreement with an Affiliated Sub-Adviser will remain subject to section 
15(a) of the Act and rule 18f-2 under the Act.
    4. Applicants state that for tax or other reasons as may be 
determined by the Board and the Manager to be relevant from time to 
time, certain Sub-Advised Funds may pay fees directly to the Sub-
Adviser rather than having the Manager pay the Sub-Adviser out of its 
advisory fees. With respect to the Sub-Advised Funds that pay Sub-
Advisers directly, any change to a Sub-Advisory Agreement that results 
in an increase in the total management and advisory fees payable by a 
Sub-Advised Fund will be required to be approved by the shareholders of 
the Sub-Advised Fund.
    5. Applicants note that the Commission has proposed rule 15a-5 
under the Act and agree that the requested order will expire on the 
effective date of rule 15a-5 under the Act, if adopted.\5\
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    \5\ Investment Company Act Release No. 26230 (Oct. 23, 2003).
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Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Sub-Advised Fund may rely on the requested order, the 
operation of the Sub-Advised Fund in the manner described in the 
application will be approved by a majority of the Sub-Advised Fund's 
outstanding voting securities, as defined in the Act, or in the case of 
a Sub-Advised Fund whose public shareholders purchase shares on the 
basis of a prospectus containing the disclosure contemplated by 
condition 2 below, by the initial shareholder(s) before offering shares 
of that Sub-Advised Fund to the public.
    2. Each Sub-Advised Fund will disclose in its prospectus the 
existence, substance and effect of the order. In addition, each Sub-
Advised Fund will hold itself out to the public as employing the 
manager-of-managers arrangement described in the application. The 
prospectus relating to each Sub-Advised Fund will prominently disclose 
that the Manager has ultimate responsibility (subject to oversight by 
the Board) to oversee Sub-Advisers and to recommend their hiring, 
termination, and replacement.
    3. Within 90 days of the hiring of a new Sub-Adviser, the Manager 
will furnish shareholders of the applicable Sub-Advised Fund all 
information about the new Sub-Adviser that would be included in a proxy 
statement. To meet this condition, the Manager will provide 
shareholders of the applicable Sub-Advised Fund 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.
    4. The Manager will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser unless such agreement, including the 
compensation to be paid thereunder, has been approved by the 
shareholders of the applicable Sub-Advised Fund.
    5. At all times, at least a majority of the 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-Adviser is proposed for a Sub-Advised Fund 
with an Affiliated Sub-Adviser, 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 such Sub-
Advised Fund and its shareholders and does not involve a conflict of 
interest from which the Manager or an Affiliated Sub-Adviser derives an 
inappropriate advantage.
    7. The Manager will provide general investment management services 
to each Sub-Advised Fund, including overall supervisory responsibility 
for the general management and investment of each Sub-Advised Fund's 
assets and, subject to review and approval by the Board, will: (a) Set 
the Sub-Advised Fund's overall investment strategies; (b) evaluate, 
select, and recommend Sub-Advisers to manage all or a part of the Sub-
Advised Fund's assets; (c) when appropriate, allocate and reallocate 
the Sub-Advised Fund's assets among multiple Sub-Advisers; (d) monitor 
and evaluate the Sub-Advisers' investment performance; and (e) 
implement procedures reasonably designed to ensure compliance by the 
Sub-Adviser(s) with the Sub-Advised Fund's investment objectives, 
policies and restrictions.
    8. No trustee or officer of the Trust, or director or officer of 
the Manager, will own directly or indirectly (other than through a 
pooled investment vehicle that is not controlled by such person) any 
interest in a Sub-Adviser, except for (a) ownership of interests in the 
Manager or any entity that controls, is controlled by, or is under 
common control with the Manager, or (b) ownership of less than 1% of 
the

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outstanding securities of any class of equity or debt of a publicly-
traded company that is either a Sub-Adviser or an entity that controls, 
is controlled by or is under common control with a Sub-Adviser.
    9. The requested order will expire on the effective date of rule 
15a-5 under the Act, if adopted.
    10. For Sub-Advised Funds that pay a Sub-Adviser's fees directly 
from Fund assets, any changes to a Sub-Advisory Agreement that would 
result in an increase in the total management and advisory fees payable 
by a Sub-Advised Fund will be required to be approved by the 
shareholders of the Sub-Advised Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-23365 Filed 10-2-08; 8:45 am]
BILLING CODE 8011-01-P