[Federal Register Volume 77, Number 217 (Thursday, November 8, 2012)]
[Notices]
[Pages 67029-67032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-27288]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30255; 812-14062]
Arden Investment Series Trust and Arden Asset Management LLC;
Notice of Application
November 2, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
[[Page 67030]]
ACTION: Notice of an application for an order 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 the Application: Applicants request an order that would
permit them to enter into and materially amend subadvisory agreements
without shareholder approval and would grant relief from certain
disclosure requirements.
Applicants: Arden Investment Series Trust (the ``Trust'') and Arden
Asset Management LLC (the ``Initial Advisor'').
DATES: Filing Dates: The application was filed on July 23, 2012, and
amended on October 22, 2012.
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 November 27, 2012 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: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants,
Arden Investment Series Trust, 375 Park Avenue, 32nd Floor, New York,
New York 10152 and Arden Asset Management LLC, 375 Park Avenue, 32nd
Floor, New York, New York 10152.
FOR FURTHER INFORMATION CONTACT: David J. Marcinkus, Attorney-Advisor,
at (202) 551-6882, or David P. Bartels, Branch Chief, at (202) 551-6821
(Office of Investment Company Regulation, Division of Investment
Management).
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 for 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. The Trust currently
consists of a single series that will be advised by the Initial
Advisor.\1\ The Initial Advisor, a Delaware limited liability company,
is registered as an investment adviser under the Investment Advisers
Act of 1940 (``Advisers Act''). Any other Advisor will be registered as
an investment adviser under the Advisers Act. Applicants state that the
Initial Advisor serves as investment adviser to the initial Fund under
an investment advisory agreement with the Trust (the ``Advisory
Agreement'') \2\ that has been approved by each respective Fund's
shareholders and 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 either the Trust or the Advisor
(``Independent Trustees'') in the manner required by sections 15(a) and
(c) of the Act and rule 18f-2 under the Act.
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\1\ Applicants request relief with respect to any existing and
any future series of the Trust or any other registered open-end
management company that: (a) Is advised by the Initial Advisor or a
person controlling, controlled by, or under common control with the
Initial Advisor or its successor (each, an ``Advisor''); (b) uses
the manager of managers structure described in the application
(``Manager of Managers Structure''); and (c) complies with the terms
and conditions of the requested order (any such series, a ``Fund''
and collectively, the ``Funds''). The only existing registered open-
end management investment company that currently intends to rely on
the requested order is named as an applicant and the only series
that currently intends to rely on the requested order as a Fund is
identified in the application. 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 Fund contains the name of
a Subadvisor (as defined below), that name will be preceded by the
name of the Advisor.
\2\ ``Advisory Agreement'' includes advisory agreements with an
Advisor for future Funds.
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2. Under the terms of the Advisory Agreement, the Advisor manages
the Fund in accordance with its investment objective and policies and
oversees, implements and administers the Fund's investment program,
subject to the supervision of, and policies established by, the Board.
For the investment management services it will provide to each Fund,
the Advisor will receive the fee specified in the Advisory Agreement
from such Fund based on the average daily net assets of the Fund. The
Advisory Agreement permits the Advisor, subject to the approval of the
Board, to delegate certain responsibilities to one or more subadvisers
(``Subadvisors''). The Advisor expects to enter into subadvisory
agreements with various Subadvisors (``Subadvisory Agreements'') to
provide investment advisory services to the Funds.\3\ Each Subadvisor
will be an investment adviser as defined in section 2(a)(20) of the Act
as well as registered with the Commission as an ``investment adviser''
under the Advisers Act. The Advisor evaluates, allocates assets to and
oversees the Subadvisors, and makes recommendations about their hiring,
termination and replacement to the Board, at all times subject to the
authority of the Board. The Advisor will compensate the Subadvisors out
of the advisory fee paid by a Fund to the Advisor under the Advisory
Agreement.
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\3\ As of the date of the application the Advisor has not
entered in Subadvisory Agreements with Subadvisors.
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3. Applicants request an order to permit the Advisor, subject to
Board approval, to select certain Subadvisors to manage all or a
portion of the assets of a Fund or Funds pursuant to a Subadvisory
Agreement and materially amend Subadvisory Agreements without obtaining
shareholder approval. The requested relief will not extend to any
Subadvisor that is an affiliated person, as defined in section 2(a)(3)
of the Act, of the Trust, a Fund or the Advisor, other than by reason
of serving as a subadviser to one or more of the Funds (``Affiliated
Subadvisor'').
4. Applicants also request an order exempting the Funds from
certain disclosure provisions described below that may require a Fund
to disclose fees paid by the Advisor to each Subadvisor. Applicants
seek an order to permit the Trust to disclose for a Fund (as both a
dollar amount and as a percentage of the Fund's net assets): (a) the
aggregate fees paid to the Advisor and any Affiliated Subadvisor; and
(b) the aggregate fees paid to Subadvisors other than Affiliated
Subadvisors (collectively, ``Aggregate Fee Disclosure''). Any Fund that
employs an Affiliated Subadvisor will provide separate disclosure of
any fees paid to the Affiliated Subadvisor.
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 a 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
[[Page 67031]]
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 (``1934 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 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 Advisor,
subject to the review and approval of the Board, to select the
Subadvisors who are best suited to achieve the Fund's investment
objectives. Applicants assert that, from the perspective of the
shareholder, the role of the Subadvisors is substantially equivalent to
that of the individual portfolio managers employed by traditional
investment company advisory firms. Applicants state that requiring
shareholder approval of each Subadvisory Agreement would impose
unnecessary delays and expenses on the Funds and may preclude the Funds
from acting promptly when the Advisor and Board consider it appropriate
to hire Subadvisors or amend Subadvisory Agreements. Applicants note
that the Advisory Agreements and any Subadvisory Agreements with
Affiliated Subadvisors will remain subject to the shareholder approval
requirements of section 15(a) of the Act and rule 18f-2 under the Act.
7. If a new Subadvisor is retained in reliance on the requested
order, the Funds will inform shareholders of the hiring of a new
Subadvisor pursuant to the following procedures (``Modified Notice and
Access Procedures''): (a) within 90 days after a new Subadvisor is
hired for any Fund, that Fund will send its shareholders either a
Multi-manager Notice or a Multi-manager Notice and Multi-manager
Information Statement; \4\ and (b) the 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 the application, a
proxy solicitation to approve the appointment of new Subadvisors
provides no more meaningful information to shareholders than the
proposed Multi-manager Information Statement. Moreover, the Board will
comply with the requirements of sections 15(a) and 15(c) of the 1940
Act before entering into or amending Subadvisory Agreements.
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\4\ 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 Subadvisor; (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 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 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 Funds because it would improve the
Advisor's ability to negotiate the fees paid to Subadvisors. Applicants
state that the Advisor may be able to negotiate rates that are below a
Subadvisor's ``posted'' amounts if the Advisor is not required to
disclose the Subadvisors' fees to the public.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a 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 the Fund's outstanding
voting securities, as defined in the Act, or, in the case of a Fund
whose public shareholders purchase shares on the basis of a prospectus
containing the disclosure contemplated by condition 2 below, by the
sole initial shareholder before offering the Fund's shares to the
public.
2. The prospectus for each Fund will disclose the existence,
substance, and effect of any order granted pursuant to the application.
Each Fund will hold itself out to the public as employing the Manager
of Managers Structure. The prospectus will prominently disclose that
the Advisor has ultimate responsibility (subject to oversight by the
Board) to oversee the Subadvisors and recommend their hiring,
termination, and replacement.
3. Funds will inform shareholders of the hiring of a new Subadvisor
within 90 days after the hiring of a new Subadvisor pursuant to the
Modified Notice and Access Procedures.
4. The Advisor will not enter into a Subadvisory Agreement with any
Affiliated Subadvisor without that agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
5. At all times, at least a majority of the Board will be
Independent Trustees, and the nomination and selection of new or
additional Independent Trustees will be placed within the discretion of
the then-existing Independent Trustees.
6. When a Subadvisor change is proposed for a Fund with an
Affiliated Subadvisor, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
applicable Board minutes, that such change is in the best interests of
the Fund and its shareholders and does not involve a conflict of
interest from which the Advisor or the Affiliated Subadvisor derives an
inappropriate advantage.
7. 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.
8. Each Advisor will provide the Board, no less frequently than
quarterly,
[[Page 67032]]
with information about the profitability of the Advisor on a per-Fund
basis. The information will reflect the impact on profitability of the
hiring or termination of any Subadvisor during the applicable quarter.
9. Whenever a Subadvisor is hired or terminated, the Advisor will
provide the Board with information showing the expected impact on the
profitability of the Advisor.
10. The Advisor will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of the Fund's assets and, subject to review
and approval of the Board, will (i) Set each Fund's overall investment
strategies; (ii) evaluate, select and recommend Subadvisors to manage
all or part of a Fund's assets; (iii) when appropriate, allocate and
reallocate a Fund's assets among multiple Subadvisors; (iv) monitor and
evaluate the performance of Subadvisors; and (v) implement procedures
reasonably designed to ensure that the Subadvisors comply with each
Fund's investment objective, policies and restrictions.
11. No trustee or officer of the Trust, or of a Fund, or director
or officer of the Advisor, will own directly or indirectly (other than
through a pooled investment vehicle that is not controlled by such
person) any interest in a Subadvisor, except for (a) ownership of
interests in the Advisor or any entity that controls, is controlled by,
or is under common control with the Advisor; 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 Subadvisor or an entity that
controls, is controlled by, or is under common control with a
Subadvisor.
12. Each 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.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27288 Filed 11-7-12; 8:45 am]
BILLING CODE 8011-01-P