[Federal Register Volume 79, Number 247 (Wednesday, December 24, 2014)]
[Notices]
[Pages 77542-77545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30130]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31386; 812-14344]
Forum Funds II and CVR Portfolio Funds LLC; Notice of Application
December 18, 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.
-----------------------------------------------------------------------
Summary of Application: Applicants request an order that would permit
them to enter into and materially amend sub-advisory agreements with
Wholly-Owned Sub-Advisers (as defined below) and Non-Affiliated Sub-
Advisers (as defined below) without shareholder approval and would
grant relief from certain disclosure requirements.
Applicants: Forum Funds II (``Trust'') and CVR Portfolio Funds LLC
(``Adviser'').
DATES: Filing Dates: The application was filed August 12, 2014, and
amended on September 19, 2014, November 18, 2014, November 21, 2014 and
December 16, 2014.
Hearing or Notification of Hearing: An order granting the requested
relief 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 January 12, 2015, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, 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: Trust, Three Canal
Plaza, Suite 600, Portland, ME 04101; Adviser, One Bromfield Street,
Suite 5100, Boston, MA 02108.
FOR FURTHER INFORMATION CONTACT: Kaitlin C. Bottock, Attorney Adviser,
at (202) 551-8658, or Daniele Marchesani, Branch Chief, at (202) 551-
6747 (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 under the Act as an open-end management investment company.
The Trust offers one or more series of shares (each, a ``Series'').
Each Subadvised Series (as defined below) has its own investment
objectives, policies and restrictions and may offer one or more classes
of shares that are subject to different expenses.
2. The Adviser, a limited liability company organized under the
laws of the state of Delaware, is registered as an investment adviser
under the Investment Advisers Act of 1940 (``Advisers Act'').
3. Applicants request an order to permit the Adviser, subject to
the approval of the Board, including a majority of the members of the
Board who are not ``interested persons,'' as defined in section
2(a)(19) of the Act, of the Series or the Adviser (``Independent Board
Members''), to, without obtaining shareholder approval: (i) Select Sub-
Advisers to manage all or a portion of the assets of a Series and enter
into Sub-Advisory Agreements (as defined below) with the Sub-
Advisers,\1\ and (ii) materially amend Sub-Advisory Agreements with the
Sub-Advisers.\2\ Applicants request that the relief apply to named
applicants, as well as any future Series and any other existing or
future registered open-end management investment company or series
thereof that is advised by the Adviser, uses the multi-manager
structure as described in the application, and complies with the terms
and conditions of the application (``Subadvised Series'').\3\ The
requested relief will not extend to any sub-adviser, other than a
Wholly-Owned Sub-Adviser, who is an affiliated person, as defined in
section 2(a)(3) of the Act, of the Subadvised Series or of the Adviser,
other than by reason of serving as a sub-adviser to one or more of the
Subadvised Series (``Affiliated Sub-Adviser'').
---------------------------------------------------------------------------
\1\ A ``Sub-Adviser'' is (a) an indirect or direct ``wholly
owned subsidiary'' (as such term is defined in the Act) of the
Adviser for that Series, or (b) a sister company of the Adviser for
that Series 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 Sub-Adviser'' and collectively, the
``Wholly-Owned Sub-Advisers''), or (c) an investment sub-adviser for
that Series that is not an ``affiliated person'' (as such term is
defined in section 2(a)(3) of the Act) of the Series or the Adviser,
except to the extent that an affiliation arises solely because the
sub-adviser serves as a sub-adviser to one or more Series (each, a
``Non-Affiliated Sub-Adviser'' and collectively, the ``Non-
Affiliated Sub-Advisers''). Each Sub-Adviser will be registered with
the Commission under the Advisers Act or not subject to such
registration.
\2\ Shareholder approval will continue to be required for any
other sub-adviser changes and material amendments to an existing
Sub-Advisory Agreement with any sub-adviser other than a Non-
Affiliated Sub-Adviser or a Wholly-Owned Sub-Adviser (all such
changes referred to as ``Ineligible Sub-Adviser Changes'').
\3\ 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. All
registered open-end investment companies that currently intend to
rely on the requested order are named as applicants. 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 Series contains the name of a sub-adviser, the name
of the Adviser, or a trademark or trade name that is owned by or
publicly used to identify that Adviser, will precede the name of the
sub-adviser.
---------------------------------------------------------------------------
4. Each Subadvised Series has, or will have, as its investment
adviser, the Adviser, its successors, or an entity controlling,
controlled by or under common control with the Adviser or its
successors (included in the term, ``Adviser''). The Adviser will serve
as investment adviser to each Subadvised Series pursuant to an
investment advisory agreement with the Trust (``Investment Management
Agreement''). The Investment Management Agreement for each Series will
be approved by the board of trustees of the Trust (``Board''),\4\
including a majority of the Independent Board Members, and by the
shareholders of the relevant Series as required by sections 15(a) and
15(c) of the Act and rule 18f-2 thereunder. The terms of the Investment
Management Agreement comply with section 15(a) of the Act.
---------------------------------------------------------------------------
\4\ The term ``Board'' also includes the board of trustees or
directors of a future Subadvised Series, if different.
---------------------------------------------------------------------------
5. Under the terms of the Investment Management Agreement, the
Adviser, subject to the supervision of the Board, provides continuous
investment management of the assets of each Series.
[[Page 77543]]
The Adviser periodically reviews each Series' investment policies and
strategies, and based on the need of a particular Series may recommend
changes to the investment policies and strategies of the Series for
consideration by the Board. For its services to each Series under the
Investment Management Agreement, the Adviser receives an investment
management fee from that Series. The Investment Management Agreement
provides that the Adviser may, subject to the approval of the Board,
including a majority of the Independent Board Members, and the
shareholders of the applicable Subadvised Series (if required),
delegate portfolio management responsibilities of all or a portion of
the assets of a Subadvised Series to one or more Sub-Advisers.
6. Pursuant to the Investment Management Agreement, the Adviser
continues to have overall responsibility for the management and
investment of the assets of each Subadvised Series. The Adviser's
responsibilities include recommending the removal or replacement of
Sub-Advisers, determining the portion of that Subadvised Series' assets
to be managed by any given Sub-Adviser and reallocating those assets as
necessary from time to time.
7. The Adviser may enter into sub-advisory agreements with various
Sub-Advisers (``Sub-Advisory Agreements'') to provide investment
management services to the Subadvised Series. The terms of each Sub-
Advisory Agreement comply fully with the requirements of section 15(a)
of the Act. Any Sub-Advisory Agreements in effect at the time the
Subadvised Series commences their public offerings of securities will
have been approved by the Board, including a majority of the
Independent Board Members, and the initial shareholders of the
applicable Subadvised Series in accordance with sections 15(a) and
15(c) of the Act and rule 18f-2 thereunder. The Sub-Advisers, subject
to the supervision of the Adviser and oversight of the Board, determine
the securities and other investments to be purchased, sold or entered
into by a Subadvised Series' portfolio or a portion thereof, and will
place orders with brokers or dealers that they select. The Adviser
compensates each Sub-Adviser out of the fee paid to the Adviser under
the Investment Management Agreement.
8. If the requested order is granted, the Subadvised Series 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
Series, that Subadvised Series will send its shareholders either a
Multi-manager Notice or a Multi-manager Notice and Multi-manager
Information Statement; \5\ and (b) the Subadvised Series 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
Sub-Advisers provides no more meaningful information to shareholders
than the proposed Multi-manager Information Statement. Applicants state
that the Board would comply with the requirements of sections 15(a) and
15(c) of the Act before entering into or amending Sub-Advisory
Agreements.
---------------------------------------------------------------------------
\5\ 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 Sub-Adviser (except as modified to permit Aggregate Fee
Disclosure as defined below); (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 Series. 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 order to permit Aggregate Fee
Disclosure. Multi-manager Information Statements will be filed with
the Commission via the EDGAR system.
---------------------------------------------------------------------------
9. Applicants also request an order exempting the Subadvised Series
from certain disclosure obligations that may require each Subadvised
Series to disclose fees paid by the Adviser to each Sub-Adviser.
Applicants seek relief to permit each Subadvised Series to disclose (as
a dollar amount and a percentage of the Subadvised Series' net assets):
(a) The aggregate fees paid to the Adviser and any Wholly-Owned Sub-
Advisers, (b) the aggregate fees paid to Non-Affiliated Sub-Advisers,
and (c) the fee paid to each Affiliated Sub-Adviser (collectively, the
``Aggregate Fee Disclosure''). An exemption is requested to permit the
Subadvised Series to include only the Aggregate Fee Disclosure. All
other items required by section 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 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, 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, 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,'' a
description of the ``aggregate amount of the investment adviser's
fee,'' 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 by order
upon application may conditionally or unconditionally exempt any
person, security, or transaction or any class or
[[Page 77544]]
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 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 Sub-
Advisers who are in the best position to achieve the Subadvised Series'
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
believe that permitting the Adviser to perform the duties for which the
shareholders of the Subadvised Series are paying the Adviser--the
selection, supervision and evaluation of the Sub-Advisers--without
incurring unnecessary delays or expenses is appropriate in the interest
of the Subadvised Series' shareholders and will allow such Subadvised
Series to operate more efficiently. Applicants state that the
Investment Management Agreement will continue to be fully subject to
section 15(a) of the Act and rule 18f-2 under the Act and approved by
the Board, including a majority of the Independent Board Members, and
by the shareholders of the relevant Series in the manner required by
sections 15(a) and 15(c) of the Act. Applicants are not seeking an
exemption with respect to the Investment Management Agreement.
7. Applicants assert that disclosure of the individual fees that
the Adviser would pay to the Sub-Advisers of Subadvised Series that
operate under the multi-manager structure described in the application
would not serve any meaningful purpose. Applicants contend that the
primary reasons for requiring disclosure of individual fees paid to
Sub-Advisers are to inform shareholders of expenses to be charged by a
particular Subadvised Series and to enable shareholders to compare the
fees to those of other comparable investment companies. Applicants
believe that the requested relief satisfies these objectives because
the advisory fee paid to the Adviser will be fully disclosed and
therefore, shareholders will know what the Subadvised Series' fees and
expenses are and will be able to compare the advisory fees a Subadvised
Series is charged to those of other investment companies. Applicants
assert that the requested disclosure relief would benefit shareholders
of the Subadvised Series 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 relief
requested to use Aggregate Fee Disclosure will encourage Sub-Advisers
to negotiate lower sub-advisory fees with the Adviser if the lower fees
are not required to be made public.
8. For the reasons discussed above, applicants submit that the
requested relief meets the standards for relief under section 6(c) of
the Act. Applicants state that the operation of the Subadvised Series
in the manner described in the application must be approved by
shareholders of a Subadvised Series before that Subadvised Series may
rely on the requested relief. In addition, applicants state that the
proposed conditions to the requested relief are designed to address any
potential conflicts of interest, including any posed by the use of
Wholly-Owned Sub-Advisers, and provide that shareholders are informed
when new Sub-Advisers are hired. Applicants assert that conditions 6,
7, 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. Applicants state that, accordingly,
they believe the requested relief 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' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions: \6\
---------------------------------------------------------------------------
\6\ Applicants will comply with conditions 7, 8, 9 and 12 only
if they rely on the relief that would allow them to provide
Aggregate Fee Disclosure.
---------------------------------------------------------------------------
1. Before a Subadvised Series may rely on the order requested in
the Application, the operation of the Subadvised Series in the manner
described in this Application, including the hiring of Wholly-Owned
Sub-Advisers, will be, or has been, approved by a majority of the
Subadvised Series' outstanding voting securities as defined in the Act,
or, in the case of a new Subadvised Series 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 Subadvised Series' shares to the public.
2. The prospectus for each Subadvised Series will disclose the
existence, substance, and effect of any order granted pursuant to this
Application. Each Subadvised Series will hold itself out to the public
as employing the multi-manager structure described in this Application.
Each 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. The Adviser will provide general management services to a
Subadvised Series, including overall supervisory responsibility for the
general management and investment of the Subadvised Series' assets.
Subject to review and approval of the Board, the Adviser will (a) set a
Subadvised Series' overall investment strategies, (b) evaluate, select,
and recommend Sub-Advisers to manage all or a portion of a Subadvised
Series' assets, and (c) implement procedures reasonably designed to
ensure that Sub-Advisers comply with a Subadvised Series' investment
objective, policies and restrictions. Subject to review by the Board,
the Adviser will (a) when appropriate, allocate and reallocate a
Subadvised Series' assets among multiple Sub-Advisers; and (b) monitor
and evaluate the performance of Sub-Advisers.
4. A Subadvised Series will not make any Ineligible Sub-Adviser
Changes without such agreement, including the compensation to be paid
thereunder, being approved by the shareholders of the applicable
Subadvised Series.
5. Subadvised Series 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.
6. At all times, at least a majority of the Board will be
Independent Board Members, and the selection and nomination of new or
additional Independent Board Members will be placed within the
discretion of the then-existing Independent Board Members.
7. Independent Legal Counsel, as defined in rule 0-1(a)(6) under
the Act, will be engaged to represent the Independent Board Members.
The selection of such counsel will be within the discretion of the
then-existing Independent Board Members.
8. The Adviser will provide the Board, no less frequently than
quarterly, with information about the profitability
[[Page 77545]]
of the Adviser on a per Subadvised Series basis. The information will
reflect the impact on profitability of the hiring or termination of any
sub-adviser during the applicable quarter.
9. 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.
10. Whenever a sub-adviser change is proposed for an Affiliated
Sub-Adviser or Wholly-Owned Sub-Adviser to a Subadvised Series, the
Board, including a majority of the Independent Board Members, will make
a separate finding, reflected in the Board minutes, that such change is
in the best interests of the Subadvised Series and its shareholders,
and does not involve a conflict of interest from which the Adviser or
the Affiliated Sub-Adviser or the Wholly-Owned Sub-Adviser derives an
inappropriate advantage.
11. No Board Member or officer of a Subadvised Series, or partner,
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 Sub-Adviser, except for
(i) ownership of interests in the Adviser or any entity, other than a
Wholly-Owned Sub-Adviser, 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 a
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 Series will disclose the Aggregate Fee
Disclosure in its registration statement.
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 Sub-Advisory Agreement or any amendment to a Subadvised
Series' existing Investment Management Agreement or Sub-Advisory
Agreement that directly or indirectly results in an increase in the
aggregate advisory fee rate payable by the Subadvised Series will be
submitted to the Subadvised Series' shareholders for approval.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-30130 Filed 12-23-14; 8:45 am]
BILLING CODE 8011-01-P