[Federal Register Volume 79, Number 204 (Wednesday, October 22, 2014)]
[Notices]
[Pages 63183-63186]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25083]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31291; File No. 812-13784]
BlackRock Advisors, LLC, et al.; Notice of Application
October 16, 2014.
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 subadvisory agreements with
Wholly-Owned Subadvisers (as defined below) and non-affiliated
subadvisers without shareholder approval and would grant relief from
certain disclosure requirements.
Applicants: BlackRock Advisors, LLC (``BlackRock Advisors''), BlackRock
Funds (the ``Trust''), and FDP Series, Inc. (the ``Corporation'').
Filing Dates: The application was filed on June 17, 2010, and amended
on November 22, 2013, May 9, 2014, and October 3, 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 November 10, 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, 55 East 52nd Street,
New York, NY 10055.
FOR FURTHER INFORMATION CONTACT: David J. Marcinkus, Senior Counsel, at
(202) 551-6882, or David P. Bartels, Branch Chief, at (202) 551-6821
(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 Corporation is an open-end management investment company
registered under the Act that is organized as a Maryland corporation.
The Corporation is organized as a series fund (each, an ``FDP Series'')
and currently consists of four FDP Series. The Trust is an open-end
management investment company registered under the Act that is
organized as a Massachusetts business trust. The Trust is organized as
a series fund and currently consists of thirty-four series, only one of
which, the BlackRock Multi-Manager Alternative Strategies Fund (the
``Multi-Manager Fund''), currently intends to operate under the manager
of managers structure described in the application (the ``Manager of
Managers Structure''). BlackRock Advisors is a Delaware limited
liability company that is registered with the Commission as an
investment adviser under the Investment Advisers Act of 1940 (the
``Advisers Act'').
2. Applicants request an order to permit the Adviser,\1\ subject to
the approval of the board of directors or trustees of the Corporation
or the Trust, as applicable (each a ``Board''),\2\ including a majority
of the directors or trustees who are not ``interested persons'' as
defined in section 2(a)(19) of the Act of the Corporation or the Trust,
as applicable, or of the Adviser (the ``Independent Directors''), to
take certain actions without obtaining shareholder approval as follows:
(i) Select certain wholly-owned an non-affiliated investment advisers
(each a ``Subadviser'' \3\) to manage all or a portion of the assets of
one of more of the Subadvised Funds (as defined below) pursuant to an
investment subadvisory agreement with each Subadviser (each a
``Subadvisory Agreement''), and (ii) materially amend Subadvisory
Agreement with such Subadvisers.\4\ Applicants request that
[[Page 63184]]
the relief apply to the named applicants, as well as to any future FDP
Series of the Corporation, any other existing or future series of the
Trust, and any other existing or future registered open-end management
investment company or series thereof \5\ that relies on the requested
relief and (a) is advised by an Adviser, (b) uses Manager of Managers
Structure, and (c) complies with the terms and conditions set forth in
the application (the ``Subadvised Funds,'' and each a ``Subadvised
Fund'').\6\ The requested relief will not extend to any subadviser,
other than a Wholly-Owned Subadviser, who is an affiliated person, as
defined in section 2(a)(3) of the Act, of the Subadvised Fund or of the
Adviser, other than by reason of serving as a subadviser to one or more
of the Subadvised Funds (``Affiliated Sub-Adviser'').
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\1\ The term ``Adviser'' means (i) BlackRock Advisors and (ii)
any entity controlling, controlled by or under common control with,
BlackRock Advisors or its successor. 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.
\2\ The term ``Board'' includes the board of directors or
trustees of a Subadvised Fund.
\3\ A ``Subadviser'' for a Subadvised Fund is (a) an indirect or
direct ``wholly-owned subsidiary'' (as such term is defined in the
Act) of the Adviser for that Subadvised Fund; (b) a sister company
of the Adviser for that Subadvised Fund that is an indirect or
direct ``wholly-owned subsidiary'' (as such term is defined in the
Act) of the same company that, indirectly or directly, wholly owns
the Adviser (each of (a) and (b), a ``Wholly-Owned Subadviser'' and
collectively, the ``Wholly-Owned Subadvisers''), or (c) not an
``affiliated person'' (as such term is defined in section 2(a)(3) of
the Act) of the applicable Subadvised Fund, the Corporation or the
Trust, as applicable, or the Adviser, except to the extent that an
affiliation arises solely because the Subadviser serves as a
subadviser to a Subadvised Fund (each, a ``Non-Affiliated
Subadviser'').
\4\ Shareholder approval will continue to be required for any
other subadviser changes and material amendments to an existing
subadvisory agreement with any subadviser other than a Non-
Affiliated Subadviser or Wholly-Owned Sub-Adviser (all such changes
referred to as ``Ineligible Subadviser Changes''), except as
otherwise permitted by applicable law or by rule.
\5\ Any such existing or future series or investment company and
any existing or future series of the Corporation or the Trust, a
``Fund.''
\6\ All registered open-end investment companies that currently
intend to rely on the requested order are named as applicants. All
funds that currently are, or that currently intend to be, Subadvised
Funds (as defined below) are identified in the application. Any
entity that relies on the requested order will do so only in
accordance with the terms and conditions contained in the
application. If the name of any Subadvised Fund contains the name of
a Subadviser (as defined below), the name of the Adviser that serves
as the primary adviser to that Subadvised Fund, or a trademark or
trade name that is owned by or publicly used to identify that
Adviser, will precede the name of the Subadviser.
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3. BlackRock Advisors currently serves as investment adviser to
each FDP Series and to the Multi-Manager Fund, pursuant to investment
advisory agreements with the Corporation and the Trust, respectively
(each, an ``Investment Advisory Agreement'').\7\ Any other Adviser will
be registered with the Commission as an investment adviser under the
Advisers Act. The terms of each Investment Advisory Agreement comply
with section 15(a) of the Act, and applicants are not seeking an
exemption from the provisions of the Act with respect to the Investment
Advisory Agreements.
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\7\ The term ``Investment Advisory Agreement'' includes each
investment advisory agreement entered into by an Adviser with, or on
behalf of, a Subadvised Fund that in the future seeks to rely on the
order.
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4. Applicants state that, under the terms of each Investment
Advisory Agreement, subject to and in accordance with the investment
objective and policies of a Subadvised Fund and any directions which
the Board may issue to the Adviser, the Adviser has overall
responsibility for the general management and investment of the assets
and securities portfolios of the Subadvised Fund. In addition, the
Adviser shall develop the overall investment program and strategies for
the Subadvised Fund, or segments thereof, shall revise such program as
necessary, and shall monitor and report periodically to the Board
concerning the implementation of the program. For the investment
management services it provides to a Subadvised Fund, the Adviser
receives the fee specified in the Investment Advisory Agreement. Each
Investment Advisory Agreement permits the Adviser, subject to the
approval of the Board, to appoint one or more subadvisers to perform
investment advisory services with respect to a Subadvised Fund.
Applicants represent that, to the extent applicable, the Adviser shall
research and evaluate subadvisers and shall advise the Board of the
subadvisers that the Adviser believes are best-suited to invest the
assets of a Subadvised Fund; shall monitor and evaluate the performance
of each Subadviser; shall determine the portion of a Subadvised Fund's
assets to be managed by each Subadviser; shall recommend to the Board
changes or additions of Subadvisers when appropriate; and shall
coordinate the investment activities of the Subadvisers. In addition,
Applicants state that the Adviser may directly manage a portion or,
from time to time, all of the assets of a Subadvised Fund.
5. Pursuant to the authority under the Investment Advisory
Agreements, the Adviser has entered into subadvisory agreements with
subadvisers with respect to the existing FDP Series and the Multi-
Manager Fund. Applicants state that each of the current subadvisory
agreements relating to the FDP Series and the Multi-Manager Fund has
been approved by the respective Board, including by a majority of the
Independent Directors, and the shareholders of the respective FDP
Series and the Multi-Manager Fund, in accordance with Sections 15(a)
and 15(c) of the Act and Rule 18f-2 under the 1940 Act. Applicants
further state that, in the future, the Adviser may enter into new,
additional or amended Subadvisory Agreements on behalf of the FDP
Series, the Multi-Manager Fund or other Subadvised Funds, subject to
(i) applicable Board and Independent Director approval and (ii) (a) any
required shareholder approval or (b) any and all applicable terms and
conditions set forth in the application. The terms of each Subadvisory
Agreement will comply fully with the requirements of Section 15(a) of
the Act.
6. Each current subadviser is, and any future Subadviser will be
either registered with the Commission as an investment adviser under
the Advisers Act or not subject to such registration. Applicants state
that the specific investment decisions for each Subadvised Fund will be
made by that Subadviser which has discretionary authority to invest the
assets or a portion of the assets of that Subadvised Fund, subject to
the general supervision of the Adviser and the Board. For its services
to a Subadvised Fund, a Subadviser will receive a fee paid by the
Adviser from the fee the Adviser receives from the Subadvised Fund.
None of the Subadvised Funds is responsible for paying subadvisory fees
to any Subadviser.
7. Subadvised 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 Subadvised Fund, that Subadvised Fund will send its
shareholders either a Multi-manager Notice or a Multi-manager Notice
and Multi-manager Information Statement; \8\ 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. Applicants state that, in the
circumstances described in the application, a proxy solicitation to
approve the appointment of new Subadvisers provides no more meaningful
information to shareholders than the proposed Multi-manager Information
Statement. Applicants also state that the applicable Board would comply
with the requirements of
[[Page 63185]]
sections 15(a) and 15(c) of the Act before entering into or amending
Subadvisory Agreements.
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\8\ A ``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 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 to permit Aggregate Fee Disclosure. Multi-manager
Information Statements will be filed with the Commission via the
EDGAR system.
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8. Applicants also request an order under section 6(c) of the Act
exempting the Subadvised Fund from certain disclosure obligations that
may require each Subadvised Fund to disclose fees paid by the Adviser
to a subadviser. Applicants seek relief to permit each Subadvised Fund
to disclose (as a dollar amount and a percentage of the Subadvised
Fund's net assets) only: (a) The aggregate fees paid to the Subadvised
Fund's Adviser and any Wholly-Owned Subadvisers; (b) the aggregate fees
paid to Non-Affiliated Subadvisers; and (c) the fee paid to each
Affiliated Subadviser (collectively, the ``Aggregate Fee Disclosure'').
All other items required by Sections 6-07(2)(a), (b) and (c) of
Regulation S-X will be disclosed.
Applicants' Legal Analysis
1. Section 15(a) of the Act states, in 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, which
contract, whether with such registered company or with an investment
adviser of such registered company, has been approved by the vote of a
majority of the outstanding voting securities of such registered
company.'' 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 a registered
investment company to disclose in its statement of additional
information the method of computing the ``advisory fee payable'' by the
investment company, including the total dollar amounts that the
investment company ``paid to the adviser (aggregated with amounts paid
to affiliated advisers, if any), and any advisers who are not
affiliated persons of the adviser, under the investment advisory
contract for the last three fiscal years.''
3. Rule 20a-1 under the Act requires proxies solicited with respect
to a registered investment company to comply with Schedule 14A under
the Exchange Act. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and
22(c)(9) of Schedule 14A, taken together, may require a Subadvised Fund
to disclose the fees paid to a Subadviser in connection with a
Subadvisory Agreement or with shareholder action with respect to
entering into, or materially amending, an advisory agreement or
establishing, or increasing, advisory 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. These provisions could
require a Subadvised Fund's financial statements to disclose
information concerning fees paid to a subadviser.
5. Section 6(c) of the Act provides that the Commission by order
upon application may conditionally or unconditionally 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 assert that their 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
Subadvisers that the Adviser has reasonably determined are well suited
to achieve the Subadvised Fund's investment objective. Applicants
assert that, from the perspective of the shareholder, the role of the
Subadviser is substantially equivalent to the role of the individual
portfolio managers employed by an investment adviser to a traditional
investment company with a single investment adviser (a ``Single-Manager
Fund''). Applicants believe that permitting the Adviser to perform the
duties for which the shareholders of the Subadvised Fund are paying the
Adviser (which include the selection, supervision and evaluation of the
Subadvisers)--without incurring unnecessary delays or expenses is
appropriate in the interest of the Subadvised Fund's shareholders and
will allow such Subadvised Fund to operate more efficiently.
7. Applicants state that a Subadvised Fund will be required to
obtain shareholder approval of the Manager of Managers Structure before
relying on the requested order. Applicants assert that conditions 6,
10, and 11 are designed to provide the Board with sufficient
independence and the resources and information it needs to monitor and
address any conflicts of interest.
8. Applicants believe that relief from disclosure of the individual
fees that the Adviser would pay to the Subadvisers is necessary or
appropriate in the public interest, consistent with the protection of
investors and consistent with the purposes fairly intended by the
policy and provisions of the Act, and should be granted for the
following reasons: (1) The Adviser will operate the Subadvised Funds
using the services of one or more Subadvisers in a manner different
from that of Single-Manager Funds such that disclosure of the
individual fees that the Adviser or Subadvised Funds would pay to each
Subadviser would not be relevant to a shareholder or prospective
shareholder in understanding the aggregate amount that the fund would
pay for investment advisory services; (2) the relief would benefit
shareholders by enabling the Subadvised Funds to operate in a less
costly and more efficient manner, for example, by facilitating the
Adviser's ability to negotiate and manage subadvisory relationships;
and (3) the relief is subject to a number of conditions that adequately
address disclosure concerns.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions: \9\
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\9\ A Subadvised Fund relying on the order granted hereunder
will comply with conditions 7, 8, 9 and 12 only if it relies on the
relief that would allow it to provide Aggregate Fee Disclosure.
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1. Before a Subadvised Fund may rely on the order requested in the
application, the operation of the Subadvised Fund in the manner
described in the application, including the hiring of Wholly-Owned
Subadvisers, 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 purchase 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
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to oversight by the Board, to oversee the Subadvisers and recommend
their hiring, termination, and replacement.
3. 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 the review and approval by the Board, the Adviser will (a)
set a Subadvised Fund's overall investment strategies, (b) evaluate,
select, and recommend Subadvisers to manage all or a portion of the
Subadvised Fund's assets, and (c) implement procedures reasonably
designed to ensure that the Subadvisers comply with the Subadvised
Fund's investment objectives, policies and restrictions. Subject to
review by the Board, the Adviser will (a) when appropriate, allocate
and reallocate the Subadvised Fund's assets among multiple Subadvisers;
and (b) monitor and evaluate the performance of the Subadvisers.
4. A Subadvised Fund will not make any Ineligible Subadviser
Changes without the approval of the shareholders of the applicable
Subadvised Fund.
5. Subadvised 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.
6. At all times, at least a majority of the Board will be
Independent Directors, and the selection and nomination of new or
additional Independent Directors will be placed within the discretion
of the then-existing Independent Directors.
7. Independent Legal Counsel, as defined in rule 0-1(a)(16) under
the Act, will be engaged to represent the Independent Directors. The
selection of such counsel will be within the discretion of the then-
existing Independent Directors.
8. 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 subadviser during the
applicable quarter.
9. Whenever a subadviser is hired or terminated, the Adviser will
provide the Board with information showing the expected impact on the
profitability of the Adviser.
10. Whenever a subadviser change is proposed for a Subadvised Fund
with an Affiliated Subadviser or a Wholly-Owned Sub-Adviser, the Board,
including a majority of the Independent Directors, will make a separate
finding, reflected in the Board minutes, that such 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 Subadviser or Wholly-Owned Subadviser derives an
inappropriate advantage.
11. No Director or officer of the Trust, the Corporation, a
Subadvised Fund, or partner, 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
Subadviser except for (a) ownership of interests in the Adviser or any
entity, other than a Wholly-Owned Subadviser, 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 under
common control with a Subadviser.
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 requested in the
application, the requested order will expire on the effective date of
that rule.
14. Any new subadvisory agreement or any amendment to a Subadvised
Fund's existing Investment Advisory Agreement or subadvisory agreement
that directly or indirectly results in an increase in the aggregate
advisory fee rate payable by the Subadvised Fund will be submitted to
the Subadvised Fund's shareholders for approval.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25083 Filed 10-21-14; 8:45 am]
BILLING CODE 8011-01-P