[Federal Register Volume 75, Number 161 (Friday, August 20, 2010)]
[Notices]
[Pages 51507-51509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-20673]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29380; File No. 812-13733]
WisdomTree Asset Management, Inc., and WisdomTree Trust; Notice
of Application
August 13, 2010.
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.
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Summary of the Application: Applicants, including an actively-managed
open-end exchange traded fund, request an order that would permit them
to enter into and materially amend subadvisory agreements without
shareholder approval.
Applicants: WisdomTree Asset Management, Inc (``WTAM'' or ``Adviser'')
and WisdomTree Trust (``Trust'').
Filing Dates: The application was filed on December 23, 2009, and
amended on May 21, 2010 and August 11, 2010. 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 5:30
p.m. on September 7, 2010, 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
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
[[Page 51508]]
Street, NE., Washington, DC 20549-1090. Applicants, 380 Madison Avenue,
21st Floor, New York, New York 10017.
FOR FURTHER INFORMATION CONTACT: Lewis B. Reich, Senior Counsel, at
(202) 551-6919, or Jennifer L. Sawin, Branch Chief, at (202) 551-6821
(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 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, is
registered under the Act as an open-end management investment company,
and offers multiple series (each, a ``Fund''). Currently, 42 Funds are
operational, and additional Funds may be offered in the future.\1\
Funds of the Trust operate as actively-managed exchange traded open-end
funds (``ETFs'') in reliance on previously-granted exemptive orders.\2\
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\1\ Applicants request that any relief granted pursuant to the
application also apply to any existing or future open-end management
investment companies or series thereof that (a) are advised by WTAM
or any entity controlling, controlled by or under common control
with WTAM or its successors (each such entity included in the term
``Adviser''), (b) are registered under the Act, (c) use the
``Manager of Managers Structure'' (as described in the application),
and (d) comply with the terms and conditions in the application
(included in the term ``Funds''); and any Adviser. The term
``Trust'' as used in the application includes any open-end series
management investment company that is registered with the Commission
and advised by the Adviser. Every entity that currently intends to
rely on the requested order is named as an Applicant. Any entity
that relies on the order in the future will do so only in accordance
with the terms and conditions in the application. If the name of any
Fund relying on the requested relief contains the name of a
Subadviser (as defined below), the name ``WisdomTree'' or other name
being used by the Adviser will precede the name of the Subadviser.
\2\ WisdomTree Investments, Inc., et al., Investment Company Act
Release Nos. 27324 (May 18, 2006) (notice) and 27319 (June 12, 2006)
(order); WisdomTree Investments, Inc., et al., Investment Company
Act Release Nos. 27976 (Sept. 21, 2007) (notice) and 28015 (Oct. 17,
2007) (order); WisdomTree Trust, et al., Investment Company Act
Release Nos. 28147 (Feb. 6, 2008) (notice) and 28174 (Feb. 27, 2008)
(order); and WisdomTree Trust, et al., Investment Company Act
Release Nos. 228419 (Sept. 29, 2008) (notice) and 28471 (Oct. 27,
2008) (order).
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2. WTAM, a Delaware corporation with its principal office in New
York City, is registered as an investment adviser under the Investment
Advisers Act of 1940 (``Advisers Act'') and is a wholly-owned
subsidiary of WisdomTree Investments, Inc. WTAM serves as the
investment adviser to the current Funds pursuant to an investment
advisory agreement with each of those Funds (an ``Advisory Agreement'')
approved by the board of trustees of the Trust (the ``Board'') \3\,
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 by the initial shareholder of each Fund in the manner
required by sections 15(a) and (c) of the Act and rule 18f-2
thereunder. With respect to new Funds offered in the future, the
Advisory Agreement will be approved by the initial shareholder of the
Fund in the manner required by sections 15(a) and (c) of the Act and
rule 18f-2 thereunder.
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\3\ ``Board,'' as used herein, is also the board of each
individual Fund.
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3. Under the Advisory Agreement, the Adviser is responsible for
furnishing the overall investment program for each Fund and providing
continuous investment management for each Fund's assets. As
compensation for its investment management services, the Adviser
receives the fee specified in the Advisory Agreement from each Fund
based on the Fund's average daily net assets. The Advisory Agreement
permits the Adviser to retain one or more unaffiliated subadvisers
(each a ``Subadviser'') pursuant to investment subadvisory agreements
(each a ``Subadvisory Agreement'') at the Adviser's own expense, for
the purpose of managing all or a portion of the assets of a Fund. Each
Subadviser is, or will be, an investment adviser registered under the
Advisers Act. Each Subadviser is and will be responsible, subject to
the general supervision of the Adviser and the Board, for the purchase,
retention and sale of securities for the applicable Fund. The Adviser
will evaluate and recommend Subadvisers to the Board and will monitor
and evaluate each Subadviser's investment programs, performance and
compliance. The Adviser will recommend to the Board whether Subadvisory
Agreements should be renewed, modified or terminated.
4. Applicants request an order to permit the Adviser, subject to
Board approval, to enter into and materially amend Subadvisory
Agreements without shareholder approval. The requested relief will not
apply with respect to any subadviser that is an affiliated person, as
defined in section 2(a)(3) of the Act, of the Trust, a Fund or of the
Adviser, other than by reason of serving as subadviser to one or more
Funds (``Affiliated Subadviser'').
5. Applicants state that the requested relief is unusual insofar as
the requested order seeks relief for an ETF. However, applicants
believe that operations of the Funds under the requested order address
the concerns historically considered by the Commission when granting
identical relief to mutual funds. Applicants believe that similar to
shareholders of a mutual fund who may ``vote with their feet'' by
redeeming their individual shares at net asset value (``NAV'') if they
do not approve of a change in subadviser or subadvisory agreement, Fund
shareholders will be able to sell shares in the secondary market at
negotiated prices that usually closely track the relevant Fund's NAV if
they do not approve of a change. Applicants state that the Funds that
are ETFs will rely on the same delivery mechanisms currently used by
certain mutual funds to ensure that shareholders who purchase shares in
the secondary market receive a prospectus and all of the information
that would have been provided in a proxy statement in an information
statement. Applicants note that the requested relief is not broader in
scope than the relief previously granted to mutual funds.
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 investment company affected by a matter must
approve the matter if the Act requires shareholder approval.
2. 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 seek the same relief previously granted to mutual
funds, and believe that the requested relief is equally appropriate for
ETFs. Applicants state that the requested relief meets the necessary
standards for the reasons discussed below.
3. Applicants state that the shareholders expect the Adviser and
the Board to select the Subadviser for a Fund that is best suited to
achieve the Fund's investment objective. Applicants assert that, from
the perspective of the investor, the role of the Subadvisers
[[Page 51509]]
with respect to the Funds utilizing the Manager of Managers Structure
is substantially equivalent to the role of the individual portfolio
managers employed by traditional investment company advisory firms. In
the absence of exemptive relief from Section 15(a) of the Act, when a
new Subadviser is proposed for retention by a Fund or the Trust on
behalf of one or more Funds, shareholders would be required to approve
the Subadvisory Agreement with that Subadviser. Similarly, approval by
the shareholders of the affected Fund would be required in order to
amend an existing Subadvisory Agreement in any material respect or in
order to continue to retain an existing Subadviser whose Subadvisory
Agreement is ``assigned'' as a result of a change of control. Obtaining
shareholder approval would be costly and slow, and potentially harmful
to the affected Fund and its shareholders. Applicants also note that
the Advisory Agreement will remain fully subject to the shareholder
approval requirements in section 15(a) of the Act and rule 18f-2 under
the Act, including the requirement for shareholder voting.
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 order requested in the
application, 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 sub-advised Fund
to the public.
2. The prospectus for each Fund relying on the order requested in
the application will disclose the existence, substance, and effect of
any order granted pursuant to the application. Each Fund relying on the
order requested in the application will hold itself out to the public
as utilizing the Manager of Managers 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 a new Subadviser, the affected
Fund shareholders will be furnished all information about the new
Subadviser that would be included in a proxy statement. To meet this
obligation, the Fund will provide shareholders of the affected Fund
within 90 days of hiring a new Subadviser with an information statement
meeting the requirements of Regulation 14C, Schedule 14C and Item 22 of
Schedule 14A under the Securities Exchange Act of 1934, as amended.
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. 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 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. The Adviser will provide general management services to each
Fund that is sub-advised, 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: (i) Set each Fund's
overall investment strategies; (ii) evaluate, select and recommend
Subadvisers to manage all or a part of a Fund's assets; (iii) allocate
and, when appropriate, reallocate a Fund's assets among one or more
Subadvisers; (iv) monitor and evaluate the performance of Subadvisers;
and (v) implement procedures reasonably designed to ensure that the
Subadvisers comply with the relevant Fund's investment objective,
policies and restrictions.
8. 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 (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.
9. 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.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20673 Filed 8-19-10; 8:45 am]
BILLING CODE 8010-01-P