[Federal Register: December 6, 2007 (Volume 72, Number 234)]
[Notices]
[Page 68907-68909]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06de07-92]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28071; 812-13450]
Unified Series Trust and Envestnet Asset Management, Inc.; Notice
of Application
November 30, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order 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 the Application: Applicants request an order permitting them
to enter into and materially amend subadvisory agreements without
shareholder approval and granting relief from certain disclosure
requirements.
Applicants: Unified Series Trust (``Trust'') and Envestnet Asset
Management, Inc. (``Adviser'').
Filing Dates: The application was filed on November 14, 2007.
Applicants have agreed to file an amendment during the notice period,
the substance of which is reflected in this notice.
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 December
26, 2007 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 by writing to the Commission's
Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants, c/o Dee Anne
Sjogren, Thompson Coburn LLP, One U.S. Bank Plaza, St. Louis, MO 63101.
FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202)
551-6870, or Nadya B. Roytblat, Assistant Director, at (202) 551-6821
(Office of Investment Company Regulation, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC
20549-0102 (telephone (202) 551-5850).
Applicants' Representations
1. The Trust is organized as Ohio business trust and is registered
under the Act as an open-end management investment company. The
Adviser, a Delaware corporation, is registered as an investment adviser
under the Investment Advisers Act of 1940 (``Advisers Act'').
2. The Trust currently offers a number of series, each with its own
investment objective(s), policies and restrictions. The Adviser will
serve as the investment adviser to two of the series of the Trust
(each, a ``Fund,'' and collectively, the ``Funds''). The Adviser will
enter into an investment advisory agreement with the Trust for each
Fund (each, an ``Advisory Agreement,'' and collectively, the ``Advisory
Agreements'') approved by the board of trustees of the Trust (the
``Board''), including a majority of the trustees who are not
``interested persons,'' as defined in section 2(a)(19) of the Act (the
``Independent Trustees''), and the shareholders of each Fund.\1\
---------------------------------------------------------------------------
\1\ Applicants also request relief with respect to any 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 person controlling, controlled by,
or under common control with the Adviser; (b) uses the management
structure described in the application; and (c) complies with the
terms and conditions contained in the application (included in the
term ``Funds''). The Trust is the only existing investment company
that currently intends to rely on the requested order. If the name
of any Fund contains the name of a Subadviser (as defined below),
the name of the Adviser or the name of the entity controlling,
controlled by, or under common control with the Adviser that serves
as the primary adviser to such Fund, or a trademark or trade name
owned by them, will precede the name of the Subadviser.
---------------------------------------------------------------------------
3. The Advisory Agreement permits the Adviser to enter into
separate advisory agreements (``Subadvisory Agreements'') with
subadvisers (``Subadvisers''). Each Subadviser will be registered under
the Advisers Act. The specific investment decisions for each Fund using
a Subadviser will be made by that Subadviser, who will be granted
discretionary authority to invest the assets, or a portion of the
assets, of a particular Fund, subject to the general supervision by the
Adviser and the Board. The Adviser will select Subadvisers based on an
evaluation of their skills and proven abilities in managing assets
pursuant to a specific investment style and will recommend their hiring
to the Board. Subadvisers must be approved by the Board, including a
majority of the Independent Trustees. The Adviser will monitor and
evaluate the performance of Subadvisers and recommend to the Board
their hiring, termination and replacement. The Adviser will compensate
a Subadviser out of the management fee paid to the Adviser by the Fund
under the Advisory Agreement.
4. Applicants request an order to permit the Adviser, subject to
Board approval, to enter into and materially amend Subadvisory
Agreements without obtaining shareholder approval. 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 a Fund or the Adviser, other
than by reason of serving as a Subadviser to one or more of the Funds
(``Affiliated Subadviser'').
5. Applicants also request an exemption from the various disclosure
provisions described below that may require each Fund to disclose fees
paid by the Adviser to the Subadvisers. An
[[Page 68908]]
exemption is requested to permit each Fund to disclose (both as a
dollar amount and as a percentage of the Fund's net assets) the: (a)
aggregate fees paid to the Adviser and any Affiliated Subadvisers; and
(b) aggregate fees paid to Subadvisers other than Affiliated
Subadvisers (collectively, ``Aggregate Fee Disclosure''). If a Fund
employs an Affiliated Subadviser, the Fund will provide separate
disclosure of any fees paid to the Affiliated Subadviser.
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 to a registered
investment company except under a written contract that has been
approved by a vote of a majority of the company's outstanding voting
securities. Rule 18f-2 under the Act provides that each series or class
of stock in a series company affected by a matter must approve the
matter if the Act requires shareholder approval.
2. Form N-1A is the registration statement used by open-end
investment companies. Item 14(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 an investment company to comply with Schedule 14A under the
Securities Exchange Act of 1934 (``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 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. Form N-SAR is the semi-annual report filed with the Commission
by registered investment companies. Item 48 of Form N-SAR requires
investment companies to disclose the rate schedule for fees paid to
their investment advisers, including the Subadvisers.
5. Regulation S-X sets forth the requirements for financial
statements required to be included as part of investment company
registration statements and shareholders reports filed with the
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require
that investment companies include in their financial statements
information about investment advisory fees.
6. 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 and to the extent that such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the
policies and provisions of the Act. Applicants state that the requested
relief meets this standard for the reasons discussed below.
7. Applicants assert that the Funds' shareholders rely on the
Adviser to select and monitor the Subadvisers best suited to achieve a
Fund's investment objectives. Applicants contend that, from the
perspective of the investor, the role of the Subadvisers is comparable
to that of individual portfolio managers employed by traditional
investment advisory firms. Applicants state that requiring shareholder
approval of each Subadvisory Agreement would impose unnecessary costs
and delays on the Funds and may preclude the Adviser from acting
promptly in a manner considered advisable by the Board. Applicants note
that the Advisory Agreement will remain subject to section 15(a) of the
Act and rule 18f-2 under the Act.
8. Applicants assert that many Subadvisers use a ``posted'' rate
schedule to set their fees. Applicants state that, while Subadvisers
are willing to negotiate fees lower than those posted in the schedule,
they are reluctant to do so when the fees are disclosed to other
prospective and existing customers. Applicants submit that the
requested relief will encourage potential Subadvisers to negotiate
lower subadvisory fees with the Adviser.
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
such Fund's shares are offered 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 employing the
management structure described in the application. 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. Within 90 days of the hiring of any new Subadviser, the affected
Fund's shareholders will be furnished all information about the new
Subadviser that would be included in a proxy statement, except as
modified to permit Aggregate Fee Disclosure. This information will
include Aggregate Fee Disclosure and any change in such disclosure
caused by the addition of a new Subadviser. To meet this obligation,
the Fund will provide shareholders within 90 days of the hiring of a
new Subadviser with an information statement meeting the requirements
of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under the
Exchange Act, except as modified by the order to permit Aggregate Fee
Disclosure.
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 nomination of new or additional
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
6. When 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 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, has been and will continue to 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 Adviser's profitability on a per
Fund basis. This information will reflect the impact on profitability
of the hiring or termination of any Subadviser during the applicable
period.
[[Page 68909]]
9. Whenever a Subadviser is hired or terminated, the Adviser will
provide the Board with information showing the expected impact on the
Adviser's profitability.
10. The Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of the 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 part of a Fund's assets; (c) where appropriate, allocate and
reallocate a Fund's assets among multiple Subadvisers; (d) monitor and
evaluate the performance of Subadvisers; and (e) implement procedures
reasonably designed to ensure that the Subadvisers comply with each
Fund's investment objective, policies, and restrictions.
11. No trustee or officer of the Trust or a Fund or director or
officer of the Adviser will own any interest in a Subadviser, directly
or indirectly (other than through a pooled investment vehicle that is
not controlled by such person), 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 a
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. Each Fund will disclose in its registration statement the
Aggregate Fee Disclosure.
13. The requested order will expire on the effective date of rule
15a-5 under the Act, if adopted.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-23722 Filed 12-5-07; 8:45 am]
BILLING CODE 8011-01-P