[Federal Register Volume 79, Number 141 (Wednesday, July 23, 2014)]
[Notices]
[Pages 42847-42850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-17270]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31161; 812-14253]
FundVantage Trust, et al.; Notice of Application
July 17, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (the ``Act'') for exemption from
sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c) and
17(b) of the Act for an exemption from section 17(a) of the Act.
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SUMMARY:
Summary of the Application: The order would permit certain open-end
management investment companies registered under the Act to acquire
shares of certain open-end management investment companies registered
under the Act that are outside of the same group of investment
companies as the acquiring investment companies.
Applicants: FundVantage Trust (the ``Trust''), Gotham Asset
Management, LLC (the ``Adviser''), and Foreside Funds Distributor, LLC
(the ``Distributor'').
DATES: Filing Dates: The application was filed on December 16, 2013,
and amended on April 25, 2014.
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 August 11, 2014, 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
Street NE., Washington, DC 20549-1090; Applicants, Attn: John M. Ford,
Esq., Pepper Hamilton LLP, 3000 Two Logan Square, Philadelphia, PA
19103.
FOR FURTHER INFORMATION CONTACT: Michael S. Didiuk, Senior Counsel, at
(202) 551-6839, or Holly Hunter-Ceci, Branch Chief, at (202) 551-6869
(Division of Investment Management, Chief Counsel's 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 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 is organized as a Delaware statutory trust and is
registered as an open-end management investment company under the Act.
The Trust is comprised of separate series (each a ``Fund'' and
collectively, the ``Funds''). The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940
(``Advisers Act'') and serves as investment adviser for three of the
Funds. The Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934 (the ``Exchange Act'') and serves as
the Funds' principal underwriter and distributor. Both the Adviser and
the Distributor are Delaware limited liability companies.
2. Applicants request an order to permit (a) registered open-end
management investment companies (the ``Investing Funds'') that are not
part of the same ``group of investment companies,'' within the meaning
of section 12(d)(1)(G)(ii) of the Act, as the Trust, to acquire shares
of the Funds in excess of the limits in section 12(d)(1)(A) of the Act,
and (b) the Funds, any principal underwriter for a Fund, and any broker
or dealer registered under the Exchange Act (``Broker'') to sell shares
of the Funds to the Investing Funds in excess of the limits of section
12(d)(1)(B) of the Act.\1\ Applicants also request an order under
sections 6(c) and 17(b) of the Act to exempt applicants from section
17(a) to the extent necessary to permit a Fund to sell its shares to
and redeem its shares from an Investing Fund.\2\
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\1\ All entities that currently intend to rely on the requested
order are named as applicants. Any other entity that relies on the
order in the future will comply with the terms and conditions of the
application. Certain of the Funds created in the future may be
registered under the Act as open-end management investment companies
and may have received exemptive relief to permit their shares to be
listed and traded on a national securities exchange at negotiated
prices (``ETFs'').
\2\ Applicants request that the relief apply to: (1) each
registered open-end management investment company or series thereof
that currently or subsequently is part of the same ``group of
investment companies,'' within the meaning of section
12(d)(1)(G)(ii) of the Act, as the Trust and is advised by the
Adviser (included in the term ``Funds''); (2) each Investing Fund
that enters into a Participation Agreement (as defined below) with a
Fund to purchase shares of the Fund; and (3) any principal
underwriter to a Fund or Broker selling shares of a Fund.
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3. Each Investing Fund will be advised by an ``investment
adviser,'' within the meaning of section 2(a)(20)(A) of the Act, and
such adviser will be registered as an investment adviser under the
Advisers Act (each, an ``Investing Fund Adviser''). Some Investing
Funds may also be advised by investment adviser(s) that meets the
definition of section 2(a)(20)(B) of the Act (each, an ``Investing Fund
Subadviser'').
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered
[[Page 42848]]
investment company from acquiring shares of an investment company if
the securities represent more than 3% of the total outstanding voting
stock of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, and
any Broker from knowingly selling the investment company's shares to
another investment company if the sale will cause the acquiring company
to own more than 3% of the acquired company's total outstanding voting
stock, or if the sale will cause more than 10% of the acquired
company's total outstanding voting stock to be owned by investment
companies generally.
2. Section 12(d)(1)(J) 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 section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors. Applicants seek an exemption under section
12(d)(1)(J) of the Act to permit Investing Funds to acquire shares of
the Funds in excess of the limits in section 12(d)(1)(A), and a Fund,
any principal underwriter for a Fund and any Broker to sell shares of a
Fund to an Investing Fund in excess of the limits in section
12(d)(1)(B) of the Act.
3. Applicants state that the proposed arrangement will not give
rise to the policy concerns underlying sections 12(d)(1)(A) and (B),
which include concerns about undue influence by a fund of funds over
underlying funds, excessive layering of fees, and overly complex fund
structures. Accordingly, applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
4. Applicants believe that the proposed arrangement will not result
in the exercise of undue influence by an Investing Fund or an Investing
Fund Affiliate over the Funds.\3\ To limit the control that an
Investing Fund may have over a Fund, applicants propose a condition
prohibiting the Investing Fund's Advisory Group from controlling
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act.\4\ The same prohibition would apply to any
Investing Fund's Subadvisory Group.\5\ Applicants propose other
conditions to limit the potential for undue influence over the Funds,
including that no Investing Fund or Investing Fund Affiliate (except to
the extent it is acting in its capacity as an investment adviser to a
Fund) will cause a Fund to purchase a security in an offering of
securities during the existence of any underwriting or selling
syndicate of which a principal underwriter is an Underwriting Affiliate
(``Affiliated Underwriting'').\6\
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\3\ An ``Investing Fund Affiliate'' is the Investing Fund
Adviser, any Investing Fund Subadviser, promoter or principal
underwriter of an Investing Fund, as well as any person controlling,
controlled by, or under common control with any of those entities. A
``Fund Affiliate'' is an investment adviser, sponsor, promoter, or
principal underwriter of a Fund, as well as any person controlling,
controlled by, or under common control with any of those entities.
\4\ An ``Investing Fund's Advisory Group'' is the Investing Fund
Adviser, any person controlling, controlled by or under common
control with the Investing Fund Adviser, and any investment company
or issuer that would be an investment company but for section
3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by the
Investing Fund Adviser or any person controlling, controlled by or
under common control with the Investing Fund Adviser.
\5\ An ``Investing Fund's Subadvisory Group'' is an Investing
Fund Subadviser, any person controlling, controlled by or under
common control with the Investing Fund Subadviser, and any
investment company or issuer that would be an investment company but
for section 3(c)(1) or 3(c)(7) of the Act (or portion of such
investment company or issuer) advised or sponsored by the Investing
Fund Subadviser or any person controlling, controlled by or under
common control with the Investing Fund Subadviser.
\6\ An ``Underwriting Affiliate'' is a principal underwriter in
any underwriting or selling syndicate that is an officer, director,
trustee, advisory board member, Investing Fund Adviser, Investing
Fund Subadviser, or employee of the Investing Fund, or a person of
which any such officer, director, trustee, advisory board member,
Investing Fund Adviser, Investing Fund Subadviser, or employee is an
affiliated person. An Underwriting Affiliate does not include any
person whose relationship to the Fund is covered by section 10(f) of
the Act.
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5. To ensure that the Investing Funds comply with the terms and
conditions of the requested relief, prior to an Investing Fund's
investment in the shares of a Fund in excess of the limit in section
12(d)(1)(A) of the Act, the Investing Fund and the Fund will execute an
agreement stating, without limitation, that their Boards (as defined
below) and their investment advisers understand the terms and
conditions of the order and agree to fulfill their responsibilities
under the order (``Participation Agreement'').\7\ Applicants note that
each of the Funds (other than an ETF whose shares are purchased by an
Investing Fund in the secondary market) will retain its right at all
times to reject any investment by an Investing Fund.\8\
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\7\ The board of directors or trustees, as applicable, of a
specified entity is referred to herein as a ``Board.''
\8\ A Fund, including an ETF, would retain its right to reject
any initial investment by an Investing Fund in excess of the limit
in section 12(d)(1)(A)(i) of the Act by declining to execute the
Participation Agreement with the Investing Fund.
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6. Applicants state that they do not believe that the proposed
arrangement will involve excessive layering of fees. The Board of each
Investing Fund, including a majority of the directors or trustees who
are not ``interested persons'' (within the meaning of section 2(a)(19)
of the Act) (``Independent Trustees''), will find that the advisory
fees charged under investment advisory contract(s) are based on
services provided that will be in addition to, rather than duplicative
of, the services provided under the advisory contract(s) of any Fund in
which the Investing Fund may invest. In addition, the Investing Fund
Adviser will waive fees otherwise payable to it by an Investing Fund in
an amount at least equal to any compensation (including fees received
pursuant to any plan adopted by a Fund under rule 12b-1 under the Act)
received from a Fund by the Investing Fund Adviser, or an affiliated
person of the Investing Fund Adviser, other than any advisory fees paid
to the Investing Fund Adviser or its affiliated person by the Fund, in
connection with the investment by the Investing Fund in the Fund. Any
sales charges and/or service fees charged with respect to shares of an
Investing Fund will not exceed the limits applicable to a fund of funds
as set forth in Rule 2830 of the Conduct Rules of the NASD (``NASD
Conduct Rule 2830'').\9\
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\9\ Any references to NASD Conduct Rule 2830 include any
successor or replacement FINRA rule to NASD Conduct Rule 2830.
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7. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Fund will
acquire securities of any investment company or company relying on
section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except in certain circumstances
identified in condition 12 below.
B. Section 17(a)
1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and any
affiliated person of the company. Section 2(a)(3) of the Act defines an
``affiliated person'' of another person to include (a) any person
directly or indirectly owning, controlling, or holding with power to
vote, 5% or more of the outstanding voting securities of the other
person; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power
[[Page 42849]]
to vote by the other person; and (c) any person directly or indirectly
controlling, controlled by, or under common control with the other
person.
2. Applicants state that an Investing Fund and a Fund might be
deemed to be affiliated persons of one another if the Investing Fund
acquires 5% or more of a Fund's outstanding voting securities.
Accordingly, section 17(a) could prevent a Fund from selling shares to
and redeeming shares from an Investing Fund.
3. Section 17(b) of the Act authorizes the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
it finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act. Section
6(c) of the Act permits the Commission to exempt any persons or
transactions from any provision of 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.
4. Applicants submit that the proposed transactions satisfy the
standards for relief under sections 17(b) and 6(c) of the Act.\10\
Applicants state that the terms of the transactions are reasonable and
fair and do not involve overreaching. Applicants state that the terms
upon which a Fund will sell its shares to or purchase its shares from
an Investing Fund will be based on the net asset value of the Fund.\11\
Applicants state that the proposed transactions will be consistent with
the policies of each Investing Fund and each Fund and with the general
purposes of the Act.
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\10\ Applicants acknowledge that receipt of any compensation by
(a) an affiliated person of an Investing Fund, or an affiliated
person of such person, for the purchase by an Investing Fund of
shares of a Fund or (b) an affiliated person of a Fund, or an
affiliated person of such person, for the sale by the Fund of its
shares to an Investing Fund may be prohibited by section 17(e)(1) of
the Act. The Participation Agreement also will include this
acknowledgement.
\11\ Applicants note that an Investing Fund generally would
purchase and sell shares of a Fund that operates as an ETF through
secondary market transactions rather than through principal
transactions with the Fund. The requested relief is intended to
cover, however, transactions directly between Funds and Investing
Funds. Applicants are not seeking relief from section 17(a) for, and
the requested relief will not apply to, transactions where an ETF
could be deemed an affiliated person, or an affiliated person of an
affiliated person of an Investing Fund because an investment adviser
to the ETF is also an investment adviser to the Investing Fund.
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Applicants' Conditions
Applicants agree that the relief to permit Investing Funds to
invest in Funds shall be subject to the following conditions:
1. The members of an Investing Fund's Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of an Investing Fund's
Subadvisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding voting securities of a Fund, the
Investing Fund's Advisory Group or the Investing Fund's Subadvisory
Group, each in the aggregate, becomes a holder of more than 25 percent
of the outstanding voting securities of a Fund, it will vote its shares
of the Fund in the same proportion as the vote of all other holders of
the Fund's shares. This condition does not apply to the Investing
Fund's Subadvisory Group with respect to a Fund for which the Investing
Fund Subadviser or a person controlling, controlled by, or under common
control with the Investing Fund Subadviser acts as the investment
adviser within the meaning of section 2(a)(20)(A) of the Act.
2. No Investing Fund or Investing Fund Affiliate will cause any
existing or potential investment by the Investing Fund in shares of a
Fund to influence the terms of any services or transactions between the
Investing Fund or an Investing Fund Affiliate and the Fund or a Fund
Affiliate.
3. The Board of an Investing Fund, including a majority of the
Independent Trustees, will adopt procedures reasonably designed to
ensure that the Investing Fund Adviser and any Investing Fund
Subadviser(s) are conducting the investment program of the Investing
Fund without taking into account any consideration received by the
Investing Fund or an Investing Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services or transactions.
4. Once an investment by an Investing Fund in the securities of a
Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board
of the Fund, including a majority of the Independent Trustees, will
determine that any consideration paid by the Fund to the Investing Fund
or an Investing Fund Affiliate in connection with any services or
transactions: (a) Is fair and reasonable in relation to the nature and
quality of the services and benefits received by the Fund; (b) is
within the range of consideration that the Fund would be required to
pay to another unaffiliated entity in connection with the same services
or transactions; and (c) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Fund and its investment adviser(s)
or any person controlling, controlled by, or under common control with
such investment adviser(s).
5. No Investing Fund or Investing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in any Affiliated
Underwriting.
6. The Board of a Fund, including a majority of the Independent
Trustees, will adopt procedures reasonably designed to monitor any
purchases of securities by the Fund in an Affiliated Underwriting once
an investment by an Investing Fund in the securities of the Fund
exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any
purchases made directly from an Underwriting Affiliate. The Board of
the Fund will review these purchases periodically, but no less
frequently than annually, to determine whether the purchases were
influenced by the investment by the Investing Fund in shares of the
Fund. The Board will consider, among other things, (a) whether the
purchases were consistent with the investment objectives and policies
of the Fund; (b) how the performance of securities purchased in an
Affiliated Underwriting compares to the performance of comparable
securities purchased during a comparable period of time in
underwritings other than Affiliated Underwritings or to a benchmark
such as a comparable market index; and (c) whether the amount of
securities purchased by the Fund in Affiliated Underwritings and the
amount purchased directly from an Underwriting Affiliate have changed
significantly from prior years. The Board will take any appropriate
actions based on its review, including, if appropriate, the institution
of procedures designed to ensure that purchases of securities in
Affiliated Underwritings are in the best interest of shareholders.
7. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in
[[Page 42850]]
which any purchase in an Affiliated Underwriting occurred, the first
two years in an easily accessible place, a written record of each
purchase of securities in Affiliated Underwritings once an investment
by an Investing Fund in the securities of a Fund exceeds the limit in
section 12(d)(1)(A)(i) of the Act, setting forth the: (a) party from
whom the securities were acquired, (b) identity of the underwriting
syndicate's members, (c) terms of the purchase, and (d) information or
materials upon which the Board's determinations were made.
8. Before investing in shares of a Fund in excess of the limits in
section 12(d)(1)(A) of the Act, each Investing Fund and Fund will
execute a Participation Agreement stating, without limitation, that
their Boards and their investment advisers understand the terms and
conditions of the order and agree to fulfill their responsibilities
under the order. At the time of its investment in shares of a Fund in
excess of the limit in section 12(d)(1)(A)(i), an Investing Fund will
notify the Fund of the investment. At such time, the Investing Fund
will also transmit to the Fund a list of the names of each Investing
Fund Affiliate and Underwriting Affiliate. The Investing Fund will
notify the Fund of any changes to the list of the names as soon as
reasonably practicable after a change occurs. The Fund and the
Investing Fund will maintain and preserve a copy of the order, the
Participation Agreement, and the list with any updated information for
the duration of the investment and for a period of not less than six
years thereafter, the first two years in an easily accessible place.
9. Prior to approving any advisory contract under section 15 of the
Act, the Board of each Investing Fund, including a majority of the
Independent Trustees, will find that the advisory fees charged under
such advisory contracts are based on services provided that will be in
addition to, rather than duplicative of, services provided under the
advisory contract(s) of any Fund in which the Investing Fund may
invest. Such finding and the basis upon which the finding was made will
be recorded fully in the minute books of the appropriate Investing
Fund.
10. The Investing Fund Adviser will waive fees otherwise payable to
it by the Investing Fund in an amount at least equal to any
compensation (including fees received pursuant to a plan adopted by a
Fund under Rule 12b-1 under the Act) received from a Fund by the
Investing Fund Adviser, or an affiliated person of the Investing Fund
Adviser, other than any advisory fees paid to the Investing Fund
Adviser or its affiliated person by the Fund, in connection with the
investment by the Investing Fund in the Fund. Any Investing Fund
Subadviser will waive fees otherwise payable to the Investing Fund
Subadviser, directly or indirectly, by the Investing Fund in an amount
at least equal to any compensation received from a Fund by the
Investing Fund Subadviser, or an affiliated person of the Investing
Fund Subadviser, other than any advisory fees paid to the Investing
Fund Subadviser or its affiliated person by the Fund, in connection
with the investment by the Investing Fund in the Fund made at the
direction of the Investing Fund Subadviser. In the event that the
Investing Fund Subadviser waives fees, the benefit of the waiver will
be passed through to the Investing Fund.
11. Any sales charges and/or service fees charged with respect to
shares of an Investing Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
12. No Fund will acquire securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission permitting the
Fund to purchase shares of other investment companies for short-term
cash management purposes.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2014-17270 Filed 7-22-14; 8:45 am]
BILLING CODE 8011-01-P