Document ID: SEC-2007-1070-0001
Agency: sec
Document Type: Notice
Title: AARP Funds, et al.; Notice of Application
Posted Date: 2007-08-06T04:00Z

[Federal Register: August 6, 2007 (Volume 72, Number 150)]
[Notices]               
[Page 43670-43672]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06au07-74]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27918; 812-13251]

 
AARP Funds, et al.; Notice of Application

July 31, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 15(a) of the Act and rule 18f-2 under the Act.

-----------------------------------------------------------------------

    Summary of Application: Applicants request an order that would 
permit them

[[Page 43671]]

to enter into and materially amend sub-advisory agreements without 
shareholder approval.
    Applicants: AARP Funds and AARP Portfolios (each a ``Trust'' and 
together, the ``Trusts''), and AARP Financial Incorporated (the 
``Manager'').
    Filing Dates: The application was filed on January 3, 2006, and 
amended on June 14, 2006, and July 30, 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 August 27, 2007, and should be accompanied by proof of 
service on the 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, Securities and Exchange Commission, 100 F. 
Street, NE., Washington, DC 20549-1090. Applicants, c/o Marc Duffy, 
Secretary, AARP Funds, 650 F. Street, NW., Washington, DC 20004.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior 
Counsel, at (202) 551-6879, or Mary Kay Frech, 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 for a fee at the 
Commission's Public Reference Desk, 100 F. Street, NE., Washington, DC 
20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. Each Trust is a Delaware statutory trust and is registered under 
the Act as an open-end management investment company. Each Trust 
currently offers multiple series (each, a ``Fund'' and collectively, 
the ``Funds''), each with its own investment objectives, policies and 
restrictions.\1\
---------------------------------------------------------------------------

    \1\ Applicants also request that any relief granted pursuant to 
the application apply to future series of the Trusts and any other 
existing or future registered open-end management investment company 
and its series that: (a) Is advised by the Manager or a person 
controlling, controlled by, or under common control with the 
Manager; (b) uses the management structure described in the 
application; and (c) complies with the terms and conditions of the 
application (included in the term ``Funds''). The only existing 
registered open-end management investment companies that currently 
intend to rely on the requested order are named as applicants. If 
the name of any Fund contains the name of a Sub-Adviser (as defined 
below), the name of the Manager or the name of the entity 
controlling, controlled by or under common control with the Manager 
that serves as the primary adviser to the Fund will precede the name 
of the Sub-Adviser.
---------------------------------------------------------------------------

    2. The Manager, registered under the Investment Advisers Act of 
1940 (``Advisers Act''), serves as investment adviser to each Fund 
pursuant to an investment advisory agreement with the Trusts 
(``Advisory Agreement'') that was approved by the board of trustees of 
the Trusts (the ``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 the shareholders of each Fund. 
Under the terms of the Advisory Agreement, the Manager provides the 
Funds with investment research, advice and supervision, and furnishes 
an investment program for each Fund consistent with the investment 
objectives and policies of the Fund. Under the Advisory Agreement, the 
Manager may delegate its responsibility for providing investment advice 
and making investment decisions for a particular Fund to one or more 
sub-advisers (each, a ``Sub-Adviser'') who have discretionary authority 
to invest all or a portion of the Fund's assets pursuant to a separate 
sub-advisory agreement (``Sub-Advisory Agreement''). Each Sub-Adviser 
is, and any future Sub-Adviser will be, registered under the Advisers 
Act. The Manager monitors and evaluates the Sub-Advisers and recommends 
to the Board their hiring, termination, and replacement. The Manager 
will select Sub-Advisers for recommendation to the Board based on the 
Manager's selection and review process. For its services to a Fund, the 
Manager pays a Sub-Adviser a monthly fee at an annual rate based on the 
average daily net assets of the Fund. The fees of Sub-Advisers are paid 
by the Manager (and not by the applicable Fund) out of the fee paid to 
the Manager by a Fund under the Advisory Agreement.
    3. Applicants request an order to permit the Manager, 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 the Manager, 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 is an 
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 the 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 such 
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 provision 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 policy 
and provisions of the Act. Applicants believe that the requested relief 
meets this standard for the reasons discussed below.
    3. Applicants state that the Funds' shareholders rely on the 
Manager 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 contend that requiring shareholder approval 
of each Sub-Advisory Agreement would impose costs and unnecessary 
delays on the Funds, and may preclude the Manager from acting promptly 
in a manner considered advisable by the Board. Applicants also note 
that the Advisory Agreement will remain subject to the shareholder 
approval requirement in section 15(a) of the Act and rule 18f-2 under 
the Act.

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

[[Page 43672]]

below, by the initial shareholder(s) before offering shares of that 
Fund to the public.
    2. Each Fund will disclose in its prospectus the existence, 
substance and effect of any order granted pursuant to the application. 
In addition, 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 Manager has the ultimate 
responsibility (subject to oversight by the Board) to oversee Sub-
Advisers and to recommend their hiring, termination, and replacement.
    3. Within 90 days of the hiring of a new Sub-Adviser for any Fund, 
shareholders of the affected Fund will be furnished all information 
about the new Sub-Adviser that would be included in a proxy statement. 
To meet this condition, each Fund will provide shareholders 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 within 90 days of the hiring of a new Sub-Adviser.
    4. The Manager will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser unless such agreement, including the 
compensation to be paid thereunder, has been 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 change of Sub-Adviser 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 the change is in the best interests of the Fund and 
its shareholders and does not involve a conflict of interest from which 
the Manager or the Affiliated Sub-Adviser derives an inappropriate 
advantage.
    7. The Manager will provide general management services to each 
Fund, including overall supervisory responsibility for the general 
management and investment of each Fund's assets, and, subject to review 
and approval by the Board, will (a) Set the Fund's overall investment 
strategies; (b) evaluate, select, and recommend Sub-Advisers to manage 
all or a part of the Fund's assets; (c) when appropriate, allocate and 
reallocate a Fund's assets among multiple Sub-Advisers; (d) monitor and 
evaluate the performance of Sub-Advisers; and (e) implement procedures 
reasonably designed to ensure compliance by the Sub-Adviser(s) with the 
Fund's investment objectives, policies and restrictions.
    8. No trustee or officer of the Trusts, or director or officer of 
the Manager, 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 
Manager or any entity that controls, is controlled by, or is under 
common control with the Manager, 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. 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. E7-15188 Filed 8-3-07; 8:45 am]

BILLING CODE 8010-01-P