[Federal Register Volume 78, Number 168 (Thursday, August 29, 2013)]
[Notices]
[Pages 53487-53489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-21055]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30673; 812-14129]


Equinox Funds Trust and Equinox Institutional Asset Management 
LP; Notice of Application

August 23, 2013.
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 from 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: Equinox Funds Trust (the ``Trust'') and Equinox 
Institutional Asset Management LP (the ``Initial Adviser'') 
(collectively, ``Applicants'').

DATES: Filing Dates: The application was filed on March 7, 2013 and 
amended on August 9, 2013.
    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 18, 2013, 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 Commission's Secretary.

ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-1090. Applicants: 
Phillip Liu, Equinox Institutional Asset Management LP, 47 Hulfish 
Street, Suite 510, Princeton, NJ 08542; Daniel Prezioso, Equinox Fund 
Management, LLC, 1775 Sherman Street, Suite 2500, Denver, CO 80203.

FOR FURTHER INFORMATION CONTACT: Kay-Mario Vobis, Senior Counsel, at 
(202) 551-6728, or Dalia Osman Blass, Assistant Director, at (202) 551-
6821 (Division of Investment Management, Exemptive Applications 
Office).

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 http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Trust, a Delaware statutory trust, is registered under the 
Act as an open-end management investment company that offers one or 
more series of shares (each a ``Fund''), each with its own investment 
objectives, policies and restrictions.\1\ The Initial Adviser is, and 
any future Adviser will be, registered as an investment adviser under 
the Investment Advisers Act of 1940 (``Advisers Act''). The Adviser 
serves as the investment adviser to each Fund pursuant to an investment 
advisory agreement with the Trust (each an ``Investment Advisory 
Agreement'' and collectively, the ``Investment Advisory 
Agreements'').\2\ Each Investment Advisory Agreement was approved or 
will be approved by the board of trustees of the Trust (the ``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 
Subadvised Fund, or the Adviser (``Independent Trustees'') and by the 
shareholders of the relevant Subadvised Fund in the manner required by 
sections 15(a) and 15(c) of the Act and rule 18f-2 under the Act.\3\
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    \1\ Applicants request that the relief sought herein apply to 
the Applicants, as well as to any future Fund and any other existing 
or future registered open-end management investment company or 
series thereof that intends to rely on the requested order in the 
future and: (a) is advised by the Initial Adviser or any entity 
controlling, controlled by, or under common control with the Initial 
Adviser or its successors (each an ``Adviser''); (b) uses the multi-
manager or manager of managers structure described in the 
application (``Manager of Managers Structure''); and (c) complies 
with the terms and conditions set forth in the application (together 
with any Fund that uses the Manager of Managers Structure, each a 
``Subadvised Fund'' and collectively, the ``Subadvised Funds''). The 
only existing registered open-end investment company that currently 
intends to rely on the requested order is named as an Applicant. The 
Equinox EquityHedge U.S. Strategy Fund is the only existing Fund 
that currently uses one or more Sub-Advisers and is, therefore, a 
Subadvised Fund. For purposes of the requested order, ``successor'' 
is limited to an entity that results from a reorganization into 
another jurisdiction or a change in the type of business 
organization. If the name of any Subadvised Fund contains the name 
of a Sub-Adviser, the name of the Adviser that serves as the primary 
adviser to the Subadvised Fund, or a trademark or trade name that is 
owned by the Adviser, will precede the name of the Sub-Adviser.
    \2\ Each future investment advisory agreement between an Adviser 
and a Subadvised Fund is also included in the term ``Investment 
Advisory Agreement''.
    \3\ The term ``Board'' also includes the board of trustees or 
directors of a future Subadvised Fund.
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    2. Pursuant to the terms of the Advisory Agreement, the Adviser 
serves as the investment adviser and makes the investment decisions for 
each Fund and continuously reviews, supervises and administers each 
Fund's investment program, subject to the supervision of, and policies 
established by, the Board. For its services to a Subadvised Fund, the 
Adviser receives an investment advisory fee from the Subadvised Fund 
specified in the Advisory Agreement. The investment advisory fee for a 
Subadvised Fund is calculated daily and paid monthly at an annual rate 
based on the average daily net assets of such Subadvised Fund. Pursuant 
to the terms of the Advisory Agreement, the Adviser also may, subject 
to the approval of the Board, including a majority of the Independent 
Trustees, and shareholders of the applicable Subadvised Fund (if 
required by applicable law), delegate certain responsibilities to one 
or more subadvisers (``Sub-Advisers''). The Trust and the Adviser have 
entered into investment sub-advisory agreements (``Sub-Advisory 
Agreements'') with a number of Sub-Advisers to serve as Sub-Advisers to 
the Fund.\4\ Each Sub-Adviser is, and any future Sub-Adviser will be, 
an investment adviser as defined in Section 2(a)(20) of the 1940 Act. 
Each Sub-Adviser will be either registered with the Commission as an 
investment adviser under the Advisers Act or not subject to such 
registration. The Adviser will have the overall responsibility for the 
management of the assets of each Subadvised Fund and, with respect to 
each Subadvised Fund, the Adviser's responsibilities will include, for 
example, recommending the removal or replacement of Sub-Advisers, and 
determining the portion of that Subadvised Fund's assets to be managed 
by any given Sub-Adviser and reallocating those assets as necessary 
from time to time. The Adviser will evaluate, select and recommend Sub-
Advisers to manage the assets (or portion thereof) of a Subadvised 
Fund. The Adviser will also monitor and review each Sub-Adviser and its 
performance and its compliance with

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that Subadvised Fund's investment policies and restrictions. The 
Adviser may also directly invest the assets of a Subadvised Fund not 
otherwise allocated to Sub-Advisers. A Sub-Adviser of a particular 
Subadvised Fund will receive from the Adviser investment sub-advisory 
fees (paid by the Adviser out of the advisory fees that the Adviser 
receives from such Subadvised Fund) calculated daily and paid monthly 
at the annual rate based on the average daily net assets allocated to 
such Sub-Adviser, which may be all of the assets or a portion of the 
assets of such Subadvised Fund (``Sub-Advisory fees''). Accordingly, 
the Sub-Advisory fees payable to a Sub-Adviser will be calculated in 
the same manner as the investment advisory fees paid to the Adviser but 
not necessarily at the same rate or based on the entire amount of a 
Subadvised Fund's assets since the Adviser may allocate a portion of a 
Subadvised Fund's assets to one or more Sub-Adviser and negotiate 
different rates with each Sub-Adviser of a Subadvised Fund. Each Sub-
Adviser will bear its own expenses of providing investment management 
services to the relevant Subadvised Fund.
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    \4\ The Trust and the Adviser have entered into Sub-Advisory 
Agreements on behalf of the Equinox EquityHedge U.S. Strategy Fund 
with the following six (6) Sub-Advisers: (i) Confluence Investment 
Management; (ii) Equity Investment Corporation; (iii) Logan Capital 
Management, Inc.; (iv) Polen Capital Management, LLC; (v) Turner 
Investments, L.P.; and (vi) Quantum Capital Management.
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    3. Applicants request an order to permit the Adviser, subject to 
Board approval, to select certain Sub-Advisers to manage all or a 
portion of the assets of a Fund pursuant to a Sub-Advisory Agreement 
and materially amend Sub-Advisory Agreements without obtaining 
shareholder approval. 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 the Trust or a Subadvised Fund or the Adviser, other than 
by reason of serving as a Sub-Adviser to Subadvised Funds (``Affiliated 
Sub-Adviser'').
    4. Applicants also request an order exempting the Subadvised Funds 
from certain disclosure requirements described below that may require 
the Applicants to disclose fees paid to each Sub-Adviser by the Adviser 
or a Subadvised Fund. Applicants seek an order to permit each 
Subadvised Fund to disclose (as a dollar amount and a percentage of 
each Subadvised Fund's net assets) only: (a) The aggregate fees paid to 
the Adviser and any Affiliated Sub-Advisers; and (b) the aggregate fees 
paid to Sub-Advisers other than Affiliated Sub-Advisers (collectively, 
the ``Aggregate Fee Disclosure''). A Subadvised Fund that employs an 
Affiliated Sub-Adviser will provide separate disclosure of any fees 
paid to the Affiliated Sub-Adviser.

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 pursuant to 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 investment company affected by a matter must 
approve that matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(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. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of a registered investment 
company's registration statement and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require 
a registered investment company to include in its financial statement 
information about the investment advisory fees.
    5. 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 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 state that the requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Adviser, 
subject to the review and approval of the Board, to select the Sub-
Advisers who are best suited to achieve the Subadvised Fund's 
investment objective. Applicants assert that, from the perspective of 
the shareholder, the role of the Sub-Adviser is substantially 
equivalent to the role of the individual portfolio managers employed by 
an investment adviser to a traditional investment company. Applicants 
state that requiring shareholder approval of each Sub-Advisory 
Agreement would impose unnecessary delays and expenses on the 
Subadvised Funds and may preclude the Subadvised Funds from acting 
promptly when the Adviser and Board consider it appropriate to hire 
Sub-Advisers or amend Sub-Advisory Agreements. Applicants note that the 
Investment Advisory Agreements and any Sub-Advisory Agreement with an 
Affiliated Sub-Adviser (if any) will continue to be subject to the 
shareholder approval requirements of section 15(a) of the Act and rule 
18f-2 under the Act.
    7. If new Sub-Advisers are hired, the Subadvised Funds will inform 
shareholders of the hiring of a new Sub-Adviser pursuant to the 
following procedures (``Modified Notice and Access Procedures''): (a) 
Within 90 days after a new Sub-Adviser is hired for any Subadvised 
Fund, that Subadvised Fund will send its shareholders either a Multi-
manager Notice or a Multi-manager Notice and Multi-manager Information 
Statement; \5\ and (b) the Subadvised Fund will make the Multi-manager 
Information Statement available on the Web site identified in the 
Multi-manager Notice no later than when the Multi-manager Notice (or 
Multi-manager Notice and Multi-manager Information Statement) is first 
sent to shareholders, and will maintain it on that Web site for at 
least 90 days. In the circumstances described in this Application, a 
proxy solicitation to approve the appointment of new Sub-

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Advisers provides no more meaningful information to shareholders than 
the proposed Multi-manager Information Statement. Moreover, as 
indicated above, the applicable Board would comply with the 
requirements of Sections 15(a) and 15(c) of the 1940 Act before 
entering into or amending Sub-Advisory Agreements.
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    \5\ A ``Multi-manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Exchange 
Act, and specifically will, among other things: (a) Summarize the 
relevant information regarding the new Sub-Adviser; (b) inform 
shareholders that the Multi-manager Information Statement is 
available on a Web site; (c) provide the Web site address; (d) state 
the time period during which the Multi-manager Information Statement 
will remain available on that Web site; (e) provide instructions for 
accessing and printing the Multi-manager Information Statement; and 
(f) instruct the shareholder that a paper or email copy of the 
Multi-manager Information Statement may be obtained, without charge, 
by contacting the Subadvised Funds.
    A ``Multi-manager Information Statement'' will meet the 
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 
14A under the Exchange Act for an information statement, except as 
modified by the requested amended and restated order to permit 
Aggregate Fee Disclosure. Multi-manager Information Statements will 
be filed electronically with the Commission via the EDGAR system.
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    8. Applicants assert that the requested disclosure relief would 
benefit shareholders of the Subadvised Funds because it would improve 
the Adviser's ability to negotiate the fees paid to Sub-Advisers. 
Applicants state that the Adviser may be able to negotiate rates that 
are below a Sub-Adviser's ``posted'' amounts if the Adviser is not 
required to disclose the Sub-Advisers' fees to the public. Applicants 
submit that the requested relief will also encourage Sub-Advisers to 
negotiate lower sub-advisory fees with the Adviser if the lower fees 
are not required to be made public.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Subadvised Fund may rely on the order, the operation of 
the Subadvised Fund in the manner described in the Application will be 
approved by a majority of the Subadvised Fund's outstanding voting 
securities as defined in the Act or, in the case of a Subadvised Fund 
whose public shareholders purchased shares on the basis of a prospectus 
containing the disclosure contemplated by condition 2 below, by the 
initial shareholder before such Subadvised Fund's shares are offered to 
the public.
    2. The prospectus for each Subadvised Fund will disclose the 
existence, substance, and effect of any order granted pursuant to the 
Application. In addition, each Subadvised Fund will hold itself out to 
the public as employing the Manager of Managers Structure. The 
prospectus will prominently disclose that the Adviser has the ultimate 
responsibility, subject to oversight by the Board, to oversee the Sub-
Advisers and recommend their hiring, termination, and replacement.
    3. Subadvised Funds will inform shareholders of the hiring of a new 
Sub-Adviser within 90 days after the hiring of the new Sub-Adviser 
pursuant to the Modified Notice and Access Procedures.
    4. The Adviser will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser without that agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Subadvised 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. 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.
    7. Whenever a Sub-Adviser change is proposed for a Subadvised Fund 
with an Affiliated Sub-Adviser, 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 
Subadvised Fund and its shareholders, and does not involve a conflict 
of interest from which the Adviser or the Affiliated Sub-Adviser 
derives an inappropriate advantage.
    8. Whenever a Sub-Adviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    9. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Subadvised Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Sub-Adviser during 
the applicable quarter.
    10. The Adviser will provide general management services to each 
Subadvised Fund, including overall supervisory responsibility for the 
general management and investment of the Subadvised Fund's assets and, 
subject to review and approval of the Board, will: (i) set the 
Subadvised Fund's overall investment strategies; (ii) evaluate, select, 
and recommend Sub-Advisers to manage all or a part of the Subadvised 
Fund's assets; (iii) when appropriate, allocate and reallocate the 
Subadvised Fund's assets among Sub-Advisers; (iv) monitor and evaluate 
the investment performance of Sub-Advisers; and (v) implement 
procedures reasonably designed to ensure that Sub-Advisers comply with 
the Subadvised Fund's investment objective, policies and restrictions.
    11. No Trustee or officer of the Trust or of a Subadvised Fund or 
director or officer of the Adviser, 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 (i) ownership 
of interests in the Adviser or any entity that controls, is controlled 
by or is under common control with the Adviser; or (ii) ownership of 
less than 1% of the outstanding securities of any class of equity or 
debt of any 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.
    12. Each Subadvised Fund will disclose in its registration 
statement the Aggregate Fee Disclosure.
    13. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that in the order requested 
in the Application, the requested order will expire on the effective 
date of that rule.
    14. For Subadvised Funds that pay fees to a Sub-Adviser 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 Subadvised Fund will be required to be approved by the 
shareholders of the Subadvised Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-21055 Filed 8-28-13; 8:45 am]
BILLING CODE 8011-01-P