[Federal Register Volume 78, Number 112 (Tuesday, June 11, 2013)]
[Notices]
[Pages 35073-35075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-13771]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30550; 812-13881]
Compass Efficient Model Portfolios, LLC and Compass EMP Funds
Trust; Notice of Application
June 4, 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.
-----------------------------------------------------------------------
Summary of Application: Applicants request an order that would
permit them to enter into and materially amend subadvisory agreements
without shareholder approval.
Applicants: Compass Efficient Model Portfolios, LLC (the
``Adviser'') and Compass EMP Funds Trust (``the Trust'').
Filing Dates: The application was filed on March 17, 2011, and
amended on September 1, 2011, May 16, 2012, September 24, 2012, and May
14, 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 July 1, 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
[[Page 35074]]
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:
Adviser, 213 Overlook Circle, Suite A-1, Brentwood, TN 37027; the
Trust, 17605 Wright Street, Omaha, Nebraska 68130.
FOR FURTHER INFORMATION CONTACT: Lewis Reich, Senior Counsel, at (202)
551-6919, or Jennifer L. Sawin, Branch Chief, 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 is organized as a Delaware statutory trust and is
registered as an open-end management investment company currently
comprising 23 series (the ``Compass Funds'').\1\ Each series of the
Trust has its own investment objective, policies and restrictions, and
each is managed by the Adviser and may be managed by various
subadvisers.\2\
---------------------------------------------------------------------------
\1\ Those 23 series are Compass EMP U.S. 500 Volatility Weighted
Fund, Compass EMP U.S. Small Cap 500 Volatility Weighted Fund,
Compass EMP International 500 Volatility Weighted Fund, Compass EMP
Emerging Market 500 Volatility Weighted Fund, Compass EMP REC
Enhanced Volatility Weighted Fund, Compass EMP U.S. 500 Enhanced
Volatility Weighted Fund, Compass EMP Long/Short Strategies Fund,
Compass EMP International 500 Enhanced Volatility Weighted Fund,
Compass EMP U.S. Long/Short Fund, Compass EMP Commodity Long/Short
Strategies Fund, Compass EMP Commodity Strategies Volatility
Weighted Fund, Compass EMP Managed Futures Strategy Fund, Compass
EMP U.S. Long/Short Fixed Income Fund, Compass EMP Long/Short Fixed
Income Fund, Compass EMP U.S. Enhanced Fixed Income Fund, Compass
EMP Enhanced Fixed Income Fund, Compass EMP Ultra Short-Term Fixed
Income Fund, Compass EMP Multi-Asset Balanced Fund, Compass EMP
Multi-Asset Growth Fund, Compass EMP Alternative Strategies Fund,
Compass EMP Balanced Volatility Weighted Fund, Compass EMP Growth
Volatility Weighted Fund, and Compass EMP Conservative Volatility
Weighted Fund.
\2\ Applicants request relief with respect to any existing or
future series of the Trust and any other existing or future
registered open-end management investment company or series thereof
that (a) is advised by the Adviser; (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
application (together with the Compass Funds, the ``Funds'' and
each, individually, a ``Fund''). The only existing registered open-
end management investment company that currently intends to rely on
the requested order are named as an Applicant.
---------------------------------------------------------------------------
2. The Adviser is a Tennessee limited liability company registered
as an investment adviser under the Investment Advisers Act of 1940
(``Advisers Act''). It provides investment management services to the
Compass Funds under an investment advisory agreement with the Trust
(the ``Advisory Agreement'') and will provide investment management
services to future Funds under substantially similar advisory
agreements (the Advisory Agreement and the advisory agreements for any
future Funds, together, the ``Advisory Agreements''). The terms of the
Advisory Agreement with respect to the Compass Funds comply, and of
other Advisory Agreements will comply, with section 15(a) of the Act.
The Advisory Agreement with respect to the Compass Funds was approved
by the board of trustees of the Trust (the board of trustees of any
Fund, a ``Board''), including by a majority of the trustees who are not
``interested persons'' (as defined in section 2(a)(19) of the Act) of
the Trust, any Fund or the Adviser (such trustees for any Fund, its
``Independent Trustees''), and by the initial shareholder of each of
the Compass Funds in the manner required by sections 15(a) and (c) of
the Act and Rule 18f-2 thereunder.\3\
---------------------------------------------------------------------------
\3\ Other Advisory Agreements will be similarly approved.
Applicants are not seeking any exemptions with respect to Advisory
Agreements.
---------------------------------------------------------------------------
3. Under the terms of the Advisory Agreements, the Adviser is
responsible for the overall management of the business affairs of the
Compass Funds' business affairs and selecting investments in accordance
with the Compass Funds' respective investment objectives, policies and
restrictions. For the investment management services that it provides
to the Compass Funds, the Adviser receives the fee specified in the
Advisory Agreements. The Advisory Agreement also permits the Adviser to
retain one or more subadvisers for the purpose of managing all or a
portion of the assets of the Compass Funds. Pursuant to this authority,
the Adviser intends to enter into subadvisory agreements with certain
unaffiliated subadvisers (``Subadvisers'', and such agreements,
``Subadvisory Agreements'') to provide investment advisory services to
the Compass Funds. Each Subadviser to a Fund will be an ``investment
adviser'' as defined in section 2(a)(20)(B) of the Act and registered
as an investment adviser under the Advisers Act or not subject to such
registration.\4\ The Adviser will supervise and monitor the
Subadvisers, allocate Fund assets to the Subadvisers and periodically
recommend to the Board which Subadvisers should be retained or
released. The Adviser will compensate the Subadvisers for a Fund out of
the advisory fees that the Adviser receives from that Fund.
---------------------------------------------------------------------------
\4\ If the name of any Fund contains the name of a Subadviser,
the name of the Fund's Adviser will precede the name of the
Subadviser.
---------------------------------------------------------------------------
4. Applicants request an order to permit the Adviser, subject to
Board approval, to select Subadvisers and enter into and materially
amend Subadvisory Agreements without obtaining shareholder approval.
The terms of the Subadvisory Agreements will comply fully with the
requirements of section 15(a) of the Act and the Subadvisory Agreements
will be approved by the Board, including a majority of the Independent
Trustees as required under section 15(a) and section 15(c) of the Act.
The Adviser will compensate each Subadviser out of the fees paid to the
Adviser under the applicable Advisory Agreement.
5. The requested relief will not extend to any subadviser that is
an affiliated person, as defined in section 2(a)(3) of the Act, of the
Trust, a Fund or the Adviser (other than by reason of serving as a
subadviser to one or more Funds) (``Affiliated Subadviser'').
6. The Funds will inform shareholders of the hiring of a new
Subadviser pursuant to the following procedures (``Modified Notice and
Access Procedures''): (a) Within 90 days after a new Subadviser 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; \5\ 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
[[Page 35075]]
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.
---------------------------------------------------------------------------
\5\ The ``Multi-manager Notice'' will be modeled on a Notice of
Internet Availability as defined in rule 14a-16 under the Securities
Exchange Act of 1934 (``Exchange Act''), and specifically will,
among other things: (a) Summarize the relevant information regarding
the new Subadviser; (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. Multi-
manager Information Statements will be filed electronically with the
Commission via the EDGAR system.
---------------------------------------------------------------------------
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 securities in a series investment company affected by a matter must
approve that 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 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.
3. Applicants assert that the shareholders are relying on the
Adviser's experience to select one or more Subadvisers best suited to
achieve a Fund's investment objectives. Applicants assert that, from
the perspective of the investor, the role of the Subadvisers is
comparable to that of the individual portfolio managers employed by the
Adviser. Applicants state that requiring shareholder approval of each
Subadvisory Agreement would impose costs and unnecessary delays on the
Funds, and may preclude the Adviser from acting promptly in a manner
considered advisable by the Board. Applicants note that the Advisory
Agreements and any subadvisory agreement with an Affiliated Subadviser
will remain subject to sections 15(a) and (c) of the Act and rule 18f-2
under the Act.
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 requested order, 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 initial shareholder(s) before
offering shares of that Fund to the public.
2. Each Fund relying on the requested order will disclose in its
prospectus the existence, substance, and effect of any order granted
pursuant to the application. Each Fund will hold itself out to the
public as utilizing the Manager of Managers Structure. The prospectus
will prominently disclose that the Adviser has ultimate responsibility
(subject to oversight by the applicable Board) to oversee the
Subadvisers and recommend their hiring, termination, and replacement.
3. Funds will inform shareholders of the hiring of a new Subadviser
within 90 days after the hiring of the new Subadviser pursuant to the
Modified Notice and Access Procedures.
4. The Adviser will not enter into a subadvisory agreement with any
Affiliated Subadviser without such 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 applicable 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. Whenever a subadviser change is proposed for a Fund with an
Affiliated Subadviser, the applicable 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
Fund and its shareholders, and does not involve a conflict of interest
from which the Adviser or the Affiliated Subadviser derives an
inappropriate advantage.
7. The Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of each Fund's assets and, subject to review
and approval of the applicable Board, will: (a) Set each Fund's overall
investment strategies; (b) evaluate, select and recommend Subadvisers
to manage all or a part of each Fund's assets; (c) allocate and, when
appropriate, reallocate each Fund's assets among one or more
Subadvisers; (d) monitor and evaluate the performance of Subadvisers;
and (e) implement procedures reasonably designed to ensure that the
Subadvisers comply with each Fund's investment objective, policies and
restrictions.
8. No trustee or officer of the Trust or a Fund, or director,
manager, 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 Subadviser, except for (a) ownership
of interests in the Adviser or any entity that controls, is controlled
by, or is under common control with the Adviser or (b) 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 Subadviser or an
entity that controls, is controlled by, or is under common control with
a Subadviser.
9. 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. 2013-13771 Filed 6-10-13; 8:45 am]
BILLING CODE 8011-01-P