[Federal Register: July 9, 2007 (Volume 72, Number 130)]
[Notices]
[Page 37279-37281]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy07-120]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27879; 812-13375]
Aston Funds and Aston Asset Management LLC; Notice of Application
June 29, 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.
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Summary of the 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: Aston Funds (the ``Trust'') and Aston Asset Management
LLC (``Aston'').
Filing Dates: The application was filed on April 9, 2007, and
amended on June 29, 2007.
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 July 24, 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 Aston, 222
North LaSalle Street, Suite 2600, Chicago, Illinois 60601, Attention:
Cathy G. O'Kelly, Esquire.
FOR FURTHER INFORMATION CONTACT: Lewis B. Reich, Senior Counsel, at
(202) 551-6919, 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, a Delaware statutory trust, is registered under the
Act as an open-end management investment company. Aston, a Delaware
corporation, serves as the investment adviser to twenty-one series of
the Trust (such series, the ``Funds'') and is registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended (the ``Advisers Act'').\1\
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\1\ The applicants also request that any relief granted pursuant
to the application apply to future series of the Trust and any other
existing or future registered open-end management investment company
and its series that: (a) Are advised by Aston or any entity
controlling, controlled by, or under common control with Aston; (b)
use the manager of managers structure described in the application;
and (c) comply with the terms and conditions in the application
(included in the term ``Funds''). The Trust is the only existing
registered open-end management investment company that currently
intends to rely on the requested order. If the name of any Fund
contains the name of a Sub-Adviser, as defined below, the name of
Aston or the name of any entity controlling, controlled by, or under
common control with Aston, that serves as the primary investment
adviser to the Fund, will precede the name of the Sub-Adviser.
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2. Aston serves as investment adviser pursuant to an investment
advisory agreement between the Trust, on behalf of the Funds, and Aston
(the ``Management Agreement'') that was approved by the Trust's Board
of Trustees (``Board''), including a majority of the trustees who are
not ``interested persons,'' as defined in Section 2(a)(19) of the Act
(``Independent Trustees''), and each Fund's shareholder(s). The
Management Agreement permits Aston to enter into separate investment
advisory agreements (``Sub-Advisory Agreements'') with sub-advisers
(``Sub-Advisers''). Each Sub-Adviser is, and any future Sub-Adviser
will be, registered under the Advisers Act. Each Sub-Advisory Agreement
provides that each Sub-Adviser will provide an investment program for
the Fund with respect to the portion of the assets allocated to it by
Aston, including investment research and management with respect to
securities and investments, and determine what securities and other
investments will be purchased, retained or sold. Aston monitors and
evaluates the Sub-Advisers and recommends to the Board their hiring,
termination, and replacement. Aston recommends Sub-Advisers based on a
number of factors discussed in the application used to evaluate their
skills in managing assets pursuant to particular investment objectives.
Aston compensates the Sub-Adviser of each Fund out of the fee paid to
Aston by that Fund under the Management Agreement.
3. Applicants request an order to permit Aston, subject to Board
approval, to enter into and materially amend Sub-Advisory Agreements
without obtaining shareholder approval. The requested relief will not
extend to any Sub-Adviser that is an ``affiliated person'' (as defined
in Section 2(a)(3) of the Act) of a Fund or Aston other than by reason
of serving as a Sub-Adviser to one or more of the Funds (``Affiliated
Sub-Adviser''). None of the current Sub-Advisers to the Funds are
Affiliated Sub-Advisers.
4. Applicants also request an exemption from the various disclosure
provisions described below that may require each Fund to disclose fees
paid by Aston to the Sub-Advisers. An exemption is requested to permit
each Fund to disclose (both as a dollar amount and as a percentage of
the Fund's net assets): (a) Aggregate fees paid to Aston and Affiliated
Sub-Advisers; and (b) aggregate fees paid Sub-Advisers other than
Affiliated Sub-Advisers (``Aggregate Fee Disclosure''). If a Fund
employs an Affiliated Sub-Adviser, the Fund will provide separate
disclosure of any fees paid to the Affiliated Sub-Adviser.
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 pursuant to 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
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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 Sub-Advisers.
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 persons, 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 Aston to
select the Sub-Advisers best suited to achieve a Fund's investment
objectives. Applicants assert that, from the perspective of the
investor, the role of the Sub-Advisers is comparable to that of
individual portfolio managers employed by traditional investment
advisory firms. Applicants state that requiring shareholder approval of
each Sub-Advisory Agreement would impose costs and unnecessary delays
on the Funds, and may preclude Aston from acting promptly in a manner
considered advisable by the Board. Applicants also note that the
Management Agreement will remain fully subject to section 15(a) of the
Act and rule 18f-2 under the Act.
8. Applicants assert that many investment advisers use a ``posted''
rate schedule to set their fees. Applicants state that while investment
advisers are willing to negotiate fees lower than those posted in the
schedule, they are reluctant to do so where the fees are disclosed to
other prospective and existing customers. Applicants submit that the
requested relief will encourage potential Sub-Advisers to negotiate
lower sub-advisory fees with Aston, the benefits of which may be passed
on to Fund shareholders.
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 this Application.
In addition, each Fund will hold itself out to the public as employing
the manager of managers structure described in the Application. The
prospectus will prominently disclose that Aston has ultimate
responsibility, subject to oversight by the Board, to oversee the Sub-
Advisers and recommend their hire, termination, and replacement.
3. 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 at the discretion of the then-existing
Independent Trustees.
4. Aston will not enter into a Sub-Advisory Agreement with any
Affiliated Sub-Adviser, without such agreement, including compensation
to be paid thereunder, being approved by the shareholders of the
applicable Fund.
5. When a Sub-Adviser change is proposed for a Fund with an
Affiliated Sub-Adviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
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 Aston or the Affiliated Sub-Adviser derives an inappropriate
advantage.
6. Within 90 days of the hiring of any new Sub-Adviser, Aston will
furnish the shareholders of the affected Fund all information about the
new Sub-Adviser that would be contained in a proxy statement, except as
modified by the order to permit Aggregate Fee Disclosure. This
information will include Aggregate Fee Disclosure and any change in
such disclosure caused by the addition of the new Sub-Adviser. To meet
this condition, Aston will provide shareholders of the affected Fund
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.
7. Aston 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 Board oversight,
will: (a) Set a Fund's overall investment strategies; (b) evaluate,
select, and recommend Sub-Advisers to manage all or part of the Fund's
assets; (c) when appropriate, allocate and reallocate the Fund's assets
among multiple Sub-Advisers; (d) monitor and evaluate the performance
of the Sub-Advisers; and (e) implement procedures reasonably designed
to ensure that the Sub-Advisers comply with the Fund's investment
objective, policies and restrictions.
8. No trustee or officer of the Trust or director or officer of
Aston 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 Aston or
any entity that controls, is controlled by, or is under common control
with Aston; 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.
9. 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.
10. Aston will provide the Board, no less frequently than
quarterly, with information about the profitability of Aston on a per-
Fund basis. The information will reflect the impact on profitability of
the hiring or termination of any Sub-Adviser during the applicable
quarter.
11. Whenever a Sub-Adviser is hired or terminated, Aston will
provide the Board with information showing the expected impact on
Aston's profitability.
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.
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For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13191 Filed 7-6-07; 8:45 am]
BILLING CODE 8010-01-P