[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1519-1522]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00227]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31408; 812-14266]
Context Capital Advisers, LLC and Context Capital Funds; Notice
of Application
January 6, 2015.
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 without
shareholder approval and would grant relief from certain disclosure
requirements.
Applicants: Context Capital Advisers, LLC (``Context Capital'' or the
``Adviser'') and Context Capital Funds (the ``Trust'' and collectively
with Context Capital, the ``Applicants'').
Filing Dates: The application was filed January 14, 2014 and amended on
May 21, 2014 and September 19, 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 February 2, 2015 and should be accompanied by proof of service
on the 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
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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: Context Capital
Funds, Three Canal Plaza, Suite 600, Portland, Maine 04101; Jason A.
Myers, Context Capital Advisers, LLC, 401 City Avenue, Suite 800, Bala
Cynwyd, PA 19004.
FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel,
at (202) 551-6990, or James M. Curtis, Branch Chief, at (202) 551-6712
(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 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.
Currently, the Trust is comprised of one series, the Context
Alternative Strategies Fund (``Alternative Strategies Fund'').\1\ Each
of the Trust's series will have its own investment objective, policies
and restrictions.
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\1\ Applicants also 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 or any entity controlling,
controlled by, or under common control with the Adviser or its
successors (included in the term ``Adviser''); (b) uses the manager
of managers structure (``Manager of Managers Structure'') described
in the application; and (c) complies with the terms and conditions
of the application (together with the Alternative Strategies Fund,
the ``Funds'' and each individually, a ``Fund''). For purposes of
the requested order, ``successor'' is limited to an entity that
would result from a reorganization into another jurisdiction or a
change in the type of business organization. The only existing
registered open-end management investment company that currently
intends to rely on the requested order is the Trust. If the name of
any Fund contains the name of a Subadviser, the name of the Adviser
will precede the name of the Subadviser. The term ``Board'' also
includes the board of trustees or directors of a future Fund.
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2. Context Capital, a Delaware limited liability company, is
registered as an investment adviser with the Commission under the
Investment Advisers Act of 1940 (``Advisers Act''). Any future Adviser
also will also be registered with the Commission as an investment
adviser under the Advisers Act. Context Capital serves as the
investment adviser of the Alternative Strategies Fund pursuant to an
investment advisory agreement with the Trust (the ``Advisory
Agreement'').\2\ The Advisory Agreement was approved by the board of
trustees of the Trust (the ``Board''), including a majority of the
members of the board of trustees who are not ``interested persons,'' as
defined in section 2(a)(19) of the Act, of the Trust, the Fund, or of
the Adviser (``Independent Trustees'') and was approved by the initial
shareholder of the Alternative Strategies Fund, in the manner required
by sections 15(a) and 15(c) of the Act and rule 18f-2 under the Act.\3\
Applicants are not seeking any exemptions with respect to the Advisory
Agreement or Future Advisory Agreements.
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\2\ The Adviser will enter into substantially similar investment
advisory agreements to provide investment management services to
future Funds (``Future Advisory Agreements''). The terms of Future
Advisory Agreements will comply with section 15(a) of the Act, and
Future Advisory Agreements will be approved by shareholders and by
the Board, including a majority of the Independent Trustees, in the
manner required by Sections 15(a) and 15(c) of the Act and rule 18f-
2 thereunder. References to any Advisory Agreement(s) include Future
Advisory Agreements as they pertain to future Funds.
\3\ Context Asset Management, L.P. the parent company of the
Adviser, is undergoing a reorganization resulting in the termination
of the Fund's current advisory agreement and subadvisory agreements.
At a meeting held on June 16, 2014, the Fund's Board unanimously
approved a new advisory agreement and subadvisory agreements for the
Fund. The new advisory agreement and subadvisory agreements become
effective upon approval by the Fund's shareholders.
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3. Under the terms of the Advisory Agreement, and subject to the
oversight of the Board, Context Capital is responsible for the overall
management of the Alternative Strategies Fund's business affairs and
selecting investments according to its investment objective, policies,
and restrictions. For the investment management services that it
provides to the Alternative Strategies Fund, Context Capital receives
the fee specified in the Advisory Agreement based on average daily net
assets. In addition, under the Advisory Agreement, Context Capital may
retain one or more subadvisers, at Context Capital's own cost and
expense, subject to approval of the Board, including approval by a
majority of the Independent Trustees and the shareholders of the Fund
(if required by applicable law), for the purpose of managing the
investment of all or a portion of the assets of the Alternative
Strategies Fund. Context Capital has entered into subadvisory
agreements with eight subadvisers to provide investment advisory
services to the Alternative Strategies Fund.\4\ Each subadviser is an
``investment adviser'' as defined in section 2(a)(20) of the Act and
registered as an investment adviser under the Advisers Act. The Adviser
selects subadvisers based on the Adviser's evaluation of the
subadviser's skills in managing assets pursuant to particular
investment styles that are consistent with the investment objective of
each Fund and recommends their hiring to the Board. For the investment
advisory services subadvisers provide to the Funds, each subadviser
receives annual fees from the Adviser calculated at an annual rate
based on the average daily net assets of the respective Fund. The
Adviser compensates each subadviser out of the fees that are paid to
the Adviser under the Advisory Agreement.\5\
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\4\ All existing subadvisory agreements comply with sections
15(a) and (c) of the Act and rule 18f-2 thereunder.
\5\ The reorganization will result in new subadvisory agreements
that will become effective upon approval by the Fund's shareholders.
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4. Applicants request an order to permit the Adviser, subject to
approval of the Board, including a majority of the Independent
Trustees, to do the following without obtaining shareholder approval:
(a) Select an unaffiliated investment subadviser or subadvisers (each a
``Subadviser'') to manage all or a portion of the assets of the
Alternative Strategies Fund or any other Fund pursuant to an investment
subadvisory agreement with a Subadviser (each a ``Subadvisory
Agreement''), and (b) materially amend Subadvisory Agreements. 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 of the Funds (``Affiliated Subadviser'').
5. If a new Subadviser is hired, the Fund 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; \6\ and (b) the Fund will make
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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 assert that a proxy
solicitation to approve the appointment of new Subadvisers provides no
more meaningful information to shareholders than the proposed Multi-
manager Information Statement. Moreover, as indicated above, the Board
would comply with the requirements of sections 15(a) and 15(c) of the
Act before entering into or amending Subadvisory Agreements.
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\6\ A ``Multi-manager Notice'' will be modeled on a Notice of
Internet Availability as defined in rule 14a-16 under the 1934 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 1934 Act for an information statement,
except as modified by the requested order to permit Aggregate Fee
Disclosure. Multi-manager Information Statements will be filed
electronically with the Commission via the EDGAR system.
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6. Applicants also request an order exempting the Fund from certain
disclosure provisions described below that may require the Applicants
to disclose fees paid to each Subadviser by the Adviser. Applicants
seek an order to permit each Fund to disclose (both as a dollar amount
and a percentage of a Fund's net assets): (a) Aggregate fees paid to
the Adviser and Affiliated Subadvisers; and (b) aggregate fees paid to
Subadvisers other than Affiliated Subadvisers (``Aggregate Fee
Disclosure''). For any Fund that employs Affiliated Subadvisers, the
Fund will provide separate disclosure of any fees paid to such
Affiliated Subadvisers.
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 of 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 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 disclosure of
the method and amount of the investment adviser's compensation.
3. Rule 20a-1 under the Act requires proxies solicited with respect
to a registered investment company to comply with Schedule 14A under
the Securities Exchange Act of 1934 (``1934 Act''). Items 22(c)(1)(ii),
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together,
require a proxy statement for a shareholder meeting at which the
advisory contract will be voted upon to include the ``rate of
compensation of the investment adviser,'' the ``aggregate amount of the
investment adviser's fees,'' a description of the ``terms of the
contract to be acted upon,'' and, if a change in the advisory fee is
proposed, the existing and proposed fees and the difference between the
two fees.
4. Regulation S-X sets forth the requirements for financial
statements required to be included as part of a registered investment
company's registration statement and shareholder reports filed with the
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require
a registered investment company to include in its financial statement
information about investment advisory fees.
5. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction or any class or classes of
persons, securities, or transactions from any provisions of the Act, or
from any rule thereunder, if such exemption is necessary or appropriate
in the public interest and consistent with the protection of investors
and the purposes fairly intended by the policy and provisions of the
Act. Applicants state that the requested relief meets this standard for
the reasons discussed below.
6. Applicants assert that the shareholders expect the Adviser,
subject to the review and approval of the Board, to select the
Subadvisers who are best suited to achieve each Fund's investment
objective. Applicants assert that, from the perspective of the
shareholder, the role of the Subadvisers is substantially equivalent to
the role of the individual portfolio managers employed by an investment
adviser to a traditional investment company. Applicants state that
requiring shareholder approval of each Subadvisory Agreement would
impose unnecessary delays and expenses on the Funds and may preclude
the Funds from acting promptly when the Adviser and Board consider it
appropriate to hire Subadvisers or amend Subadvisory Agreements.
Applicants note that the Advisory Agreements and Subadvisory Agreements
with Affiliated Subadvisers (if any) will remain subject to the
shareholder approval requirements of section 15(a) of the Act and rule
18f-2 under the Act.
7. Applicants assert that the requested disclosure relief will
benefit shareholders to the extent that it will facilitate lower
overall investment advisory fees. Applicants state that if the Adviser
is not required to disclose the Subadvisers' fees to the public, the
Adviser may be able to negotiate rates that are below a Subadviser's
``posted'' amounts. Applicants state that the requested relief will
encourage Subadvisers to negotiate lower advisory fees with the Adviser
if the lower fees are not required to be made public.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Fund may rely on the 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. The prospectus for each Fund will disclose the existence,
substance, and effect of any order granted pursuant to the Application.
Each Fund will hold itself out to the public as utilizing the Manager
of Managers Structure. The prospectus will prominently disclose that
the Adviser has ultimate responsibility (subject to oversight by the
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 Board will be
Independent Trustees, and the selection and 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 Board, including a majority of the
Independent Trustees, will make a separate finding, reflected
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in the applicable Board minutes, that such change is in the best
interests of the Fund and its shareholders, and does not involve a
conflict of interest from which the Adviser or the Affiliated
Subadviser derives an inappropriate advantage.
7. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act, will be engaged to represent the Independent Trustees. The
selection of such counsel will be within the discretion of the then-
existing Independent Trustees.
8. The Adviser will provide the Board, no less frequently than
quarterly, with information about the profitability of the Adviser on a
per 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. 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 Board, will: (a) Set each Fund's overall investment
strategies; (b) evaluate, select, and recommend Subadvisers to manage
all or a portion of the 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
Subadvisers comply with each Fund's investment objective, policies and
restrictions.
11. 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.
12. 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.
13. Each Fund will disclose the Aggregate Fee Disclosure in its
registration statement.
14. Any new Subadvisory Agreement or any amendment to a Fund's
existing Advisory Agreement or Subadvisory Agreement that directly or
indirectly results in an increase in the aggregate advisory rate
payable by the Fund will be submitted to the 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. 2015-00227 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P