[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Notices]
[Pages 7647-7650]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02745]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31447; File No. 812-14351]
The Saratoga Advantage Trust and James Alpha Management, LLC;
Notice of Application
February 5, 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 with
Wholly-Owned Sub-Advisers (as defined below) and non-affiliated sub-
advisers without shareholder approval and would grant relief from
certain disclosure requirements.
Applicants: The Saratoga Advantage Trust (``Trust''), and James Alpha
Management, LLC (``Adviser'').
DATES: Filing Dates: The application was filed on August 19, 2014, and
amended on December 12, 2014 and on January 23, 2015.
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 March 2, 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: Michael W. Mundt,
Stradley, Ronon Stevens & Young, 2600 One Commerce Square,
Philadelphia, PA 19103-7098.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at
(202) 551-6868, or Daniele Marchesani, 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 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 currently consists of fifteen series (``Series''), each with
its own distinct investment objective, policies and restrictions. The
Adviser is a Delaware limited liability company and is registered as an
investment adviser under the Investment Advisers Act of 1940
(``Advisers Act'').\1\
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\1\ Applicants request that the relief apply to applicants, as
well as to 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
described in the application, and complies with the terms and
conditions of the application (``Subadvised Series''). 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, then the
name of the Adviser that serves as the primary adviser to the
Subadvised Series, 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.
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2. Each Series has or will have, as its investment adviser, the
Adviser, or an entity controlling, controlled by or under common
control with the Adviser or its successors (included in the term, the
``Adviser'').\2\ The Adviser serves or will serve as the investment
adviser to each Subadvised Series (as defined below) pursuant to an
investment advisory agreement with the Trust (``Investment Management
Agreement''). Each Investment Management Agreement has been or will be
approved by the board of trustees of the Trust (``Board''),\3\
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 Subadvised Series or the Adviser (``Independent Board Members'')
and by the shareholders of the relevant Subadvised Series as required
by sections 15(a) and 15(c) of the Act and rule 18f-2 thereunder. The
terms of the Investment Management Agreements comply or will comply
with section 15(a) of the Act.
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\2\ Each Adviser is, or will be, registered with the Commission
as an investment adviser under the Advisers Act. 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.
\3\ The term ``Board'' also includes the board of trustees or
directors of a future Subadvised Series.
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3. Under the terms of each Investment Management Agreement, the
Adviser, subject to the supervision of the Board, will provide
continuous investment management of the assets of each Series. The
Adviser will periodically review a 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
applicable Investment Management Agreement, the Adviser will receive an
investment management fee from that Series. Each Investment Management
Agreement provides or will provide 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.\4\
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\4\ A ``Sub-Adviser'' for a Subadvised Series is (a) an indirect
or direct ``wholly-owned subsidiary'' (as such term is defined in
the Act) of the Adviser for that Series; (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'').
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[[Page 7648]]
4. Applicants request an order to permit the Adviser, subject to
the approval of the Board of the relevant Subadvised Series, including
a majority of the 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, and (ii)
materially amend Sub-Advisory Agreements with the Sub-Advisers.\5\ 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, the Trust, 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'').
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\5\ 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''), except
as otherwise permitted by applicable law or by rule.
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5. Pursuant to each Investment Management Agreement, the Adviser
has overall responsibility for the management and investment of the
assets of each Subadvised Series. These 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.
6. 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 or will comply fully with the requirements of
section 15(a) of the Act and have been or will be approved by the
Board, including a majority of the Independent Board Members and the
initial shareholder 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, will determine the securities and other investments to be
purchased, sold or entered into by a Subadvised Series and place orders
with brokers or dealers that they select, or direct the Adviser to
place such orders. The Adviser will compensate each Sub-Adviser out of
the fee from the relevant Subadvised Series to the Adviser under the
applicable Investment Management Agreement. A Subadvised Series also
may pay advisory fees directly to a Sub-Adviser.
7. 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;\6\ 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 each Board would comply with the requirements of
sections 15(a) and 15(c) of the Act before entering into or amending
Sub-Advisory 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 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.
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8. 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'').
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, 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 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 may exempt
any person, security, or transaction or any
[[Page 7649]]
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 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-Advisers 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 each
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, 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
Agreements.
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 subadvisory 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,
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 with affiliated persons of the
Adviser, including Wholly-Owned Sub-Advisers. 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:\7\
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\7\ Applicants will only comply with conditions 7, 8, 9 and 12
if they rely on the relief that would allow them to provide
Aggregate Fee Disclosure.
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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 the 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 the
application. Each Subadvised Series will hold itself out to the public
as employing the multi-manager structure described in the 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 the approval of 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
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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 a Subadvised
Series with an Affiliated Sub-Adviser or a Wholly-Owned Sub-Adviser,
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 Wholly-Owned Sub-Adviser
derives an inappropriate advantage.
11. No director, trustee 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 (a) 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 (b) 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 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.
Brent J. Fields,
Secretary.
[FR Doc. 2015-02745 Filed 2-10-15; 8:45 am]
BILLING CODE 8011-01-P