[Federal Register Volume 61, Number 74 (Tuesday, April 16, 1996)]
[Notices]
[Pages 16664-16666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9344]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21881; 812-9910]
EAI Select Managers Equity Fund, et al.; Notice of Application
April 10, 1996.
Agency: Securities and Exchange Commission (``SEC'').
action: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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applicants: EAI Select Managers Equity Fund (``Fund''), and Evaluation
Associates Capital Markets, Incorporated (``Manager'').
relevant act sections: Order requested under section 6(c) of the Act
for an exemption from section 15(a).
summary of application: The Fund is a registered investment company
advised by the Manager. The Manager oversees the selection of other
investment advisers (``Subadvisers'') for the Fund, monitors their
performance, and allocates assets among them. The order would permit
the Subadvisers to serve as investment advisers to the Fund without
receiving prior shareholder approval.
filing dates: The application was filed on December 18, 1995, and
amended on February 23, 1996.
hearing or notification of hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on May 6, 1996, 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 such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, 200 Connecticut Avenue, Suite 700, Norwalk, Connecticut
06854-1958.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel, at (202) 942-0583, or Alison E.
Baur, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Fund is a registered open-end management investment company
organized as a Massachusetts business trust.
2. The Manager, an investment adviser registered under the
Investment Advisers Act of 1940, serves as the principal investment
adviser for the Fund. Under the ``multi-manager'' approach employed by
the Fund and the
[[Page 16665]]
Manager, the Manager selects Subadvisers to manage the assets of the
Fund and allocates the assets among those Subadvisers in order to
achieve a diversity in expertise and investment style that would not be
possible if the Fund had only one investment adviser. Under this
approach, the Manager (a) sets the Fund's overall investment
strategies, (b) makes recommendations to the Trustees regarding the
Subadvisers based on its continuing qualitative and quantitative
assessment of each Subadviser's skills in managing assets and other
factors that could affect the Fund's performance, (c) allocates and,
when appropriate, reallocates the Fund's assets among Subadvisers, (d)
monitors and evaluates the performance of each Subadviser, (e) ensures
that the Subadvisers comply with the Fund's investment objectives,
policies, and restrictions, and (f) consults regularly with the
Subadvisers. Pursuant to the agreement between the Manager and the Fund
(``Management Agreement''), the Fund pays the Manager a management fee
of .92% of the net asset value of the Fund for its services, and a
certain portion of that management fee is forwarded to the Subadvisers
to pay their fees in accordance with contractual provisions negotiated
between the Manager and each Subadviser.
3. Each Subadviser has discretion, subject to oversight by the
Fund's board of trustees (``Trustees'') and the Manager, to purchase
and sell portfolio assets consistent with the investment objectives and
policies set forth in its particular sub-advisory agreement (each a
``Subadvisory Agreement'') and established for it by the Manager and
the Trustees. The duties and responsibilities of each Subadviser under
its Subadvisory Agreement are limited to the management of the portion
of the Fund's assets allocated to it by the Manager in accordance with
the investment policies and objectives of the Fund. None of the
Subadvisers provide any services to the Fund other than pursuant to
their Subadvisory Agreements, except that a Subadviser or its
affiliated broker-dealer may execute transactions for the Fund and
receive a brokerage commission for such transactions in accordance with
section 17(e)(2) of the Act and rule 17e-1 thereunder. No Subadviser
has responsibility for the ongoing administration and corporate
maintenance of the Fund or for the servicing of its shareholders.
4. No Subadviser will be an affiliated person, as defined in
section 2(a)(3) of the Act, of the Manager or the Fund, or of an
affiliated person of the Manager or the Fund (an ``Affiliated
Subadviser'') unless the Subadvisory Agreement with that Affiliated
Subadviser, including the compensation to be paid thereunder, is
approved by the shareholders of the Fund, and unless the Trustees,
including a majority of the Trustees who are not ``interested persons''
(as defined in section 2(a)(19) of the Act) of the appropriate
Subadviser (``Independent Trustees''), make a separate finding
reflected in the board minutes of the Fund that any subsequently
proposed change of Subadviser is in the best interests of the Fund and
does not involve a conflict of interest from which the Manager or such
Affiliated Subadviser derives an inappropriate benefit.
5. Applicants propose that each Subadvisory Agreement be exempt
from section 15(a) of the Act so that the Subadvisers may serve as
investment advisers to the Fund under a written contract that has not
been approved by a vote of a majority of the outstanding shares of the
Fund. Instead, each Subadvisory Agreement and any extensions thereto
would be subject to the approval of the Manager, the Trustees, and a
majority of the Independent Trustees. In addition, each Subadvisory
Agreement would have a one-year term, with successive one-year
extensions if approved by the Manager, the Trustees, and a majority of
the Independent Trustees. Any amendment to a Subadvisory Agreement
would require the approval of the Manager and the Trustees. Each
Subadvisory Agreement would terminate automatically if it is assigned
unless the Manager and the Trustees agree to continue such agreement,
and the Manager would be able to terminate any Subadvisory Agreement
without penalty at any time, subject to the approval of the Trustees.
The Management Agreement would remain subject to all of the shareholder
approval requirements set forth in the Act.
6. Applicants state that the Fund has disclosed in its prospectus
that it is seeking an order from the SEC to exempt the Fund from the
requirement that Each Subadvisory Agreement be approved by a vote of a
majority of its shareholders, and will disclose in all future
prospectuses the existence, substance, and effect of any such order. In
addition, applicants represent that the prospectus and any sales
materials or other shareholder communications relating to the Fund will
prominently disclose the identities of the Subadvisers and the fact
that the Manager has ultimate responsibility for the investment
performance of the Fund due to its responsibility to oversee the
Subadvisers and recommend their hiring, termination, and replacement.
Applicants' Legal Analysis
1. Section 15(a) of the Act makes it unlawful for any person to act
as investment adviser to a registered investment company except
pursuant to a written contract that has been approved by a majority of
the investment company's outstanding securities. Section 15(a)
therefore requires the Subadvisory Agreement to be approved by the
Fund's shareholders.
2. Applicants assert that the requested exemption will benefit the
Fund's shareholders by permitting the Manager to perform its duties in
selecting and monitoring Subadvisers more quickly and efficiently and
by avoiding the unnecessary expenses associated with convening special
shareholders' meetings each time a change is made in the Subadvisers
for the Fund. Applicants point out that the Manager will retain
ultimate responsibility for the management of the Fund under the
Management Agreement (subject to the oversight of the Board of
Trustees). Applicants also note that because no exemptive relief is
sought with respect to the relationship between the Fund and the
Manager, that relationship will continue to be subject to the
shareholder approval requirements of section 15(a). Finally, applicants
argue that, because no Affiliated Subadviser can be retained without
shareholder approval, the relationship between the Fund and the Manager
on the one hand and Subadvisers not approved by shareholders on the
other will be entirely at arm's length.
3. Applicants also state that the Fund's shareholders will have all
of the information they will need to decide whether to continue to
invest in the Fund. Potential investors will know, through the
disclosure required in the prospectus, the identity of each Subadviser
and the fee paid under each Subadvisory Agreement, and all shareholders
will be advised, through annual and other reports and through the
written information that will be sent to them, of changes in the
Subadvisers or in any Subadvisory Agreement. In addition, applicants
assert that, if the exemptive relief is not granted, all shareholders
would bear the higher costs of formal proxy solicitations and special
shareholder meetings without any more meaningful disclosure.
4. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act, if and
to the extent that such exemption is necessary or appropriate in the
public interest and
[[Page 16666]]
consistent with the protection of investors and the policies and
purposes fairly intended by the policies and provisions of the Act.
Applicants believe that the requested relief meets this standard.
Applicants' Conditions
Applicants agree that any other granting the requested relief will
be subject to the following conditions:
1. At all times, a majority of the Trustees 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.
2. The Manager will provide general management and administrative
services to the Fund, and, subject to the oversight of the Trustees,
will (a) set the Fund's overall investment strategies, (b) select the
Subadvisers, (c) allocate and, when appropriate, reallocate the Fund's
assets among Subadvisers, (d) monitor and evaluate the performance of
Subadvisers, and (e) ensure that the Subadvisers company with the
Fund's investment objectives, policies, and restrictions.
3. Within 60 days of the hiring of any new Subadviser or the
implementation of any proposed material change in a Subadvisory
Agreement, the Manager will furnish the Fund's shareholders all of the
information about the new Subadviser or the Subadvisory Agreement that
would be included in a proxy statement. Such information will include
any change in such information caused by the addition of a new
Subadviser or any proposed material change in a Subadvisory Agreement.
The Manager will meet this condition by providing shareholders of the
Fund, within 60 days of the hiring of a new Subadviser or the
implementation of any material change to the terms of a Subadvisory
Agreement, with an information statement meeting the requirements of
Regulation 14C and Schedule 14C under the Securities Exchange Act of
1934 (``Exchange Act''). The information statement will also meet the
requirements of Schedule 14A under the Exchange Act.
4. No Trustee, director, or officer of the Fund or the Manager will
own directly or indirectly (other than through a pooled investment
vehicle that is not controlled by any such Trustee, director, or
officer) any interest in a Subadviser except for 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.
5. The prospectus for the Fund will disclose the existence,
substance, and effect of any order granted pursuant to the application.
In addition, the Fund will hold itself out to the public as employing
the ``multi-manager'' structure described in the application. The
prospectus and any sales materials or other shareholder communications
relating to the Fund will prominently disclose that the Manager has
ultimate responsibility for the investment performance of the Fund due
to its responsibility to oversee the Subadvisers and recommend their
hiring, termination, and replacement.
6. The Manager 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 Fund.
7. If the Manager retains an Affiliated Subadviser for the Fund,
the Trustees of the Fund, including a majority of the Independent
Trustees, will make a separate finding, reflected in the board minutes
of the Fund, that any subsequently proposed change of the Subadviser is
in the best interest of the Fund and its shareholders, and does not
involve a conflict of interest from which the Manager or the Affiliated
Subadviser derives an inappropriate advantage.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-9344 Filed 4-15-96; 8:45 am]
BILLING CODE 8010-01-M
