
[Federal Register Volume 76, Number 158 (Tuesday, August 16, 2011)]
[Notices]
[Pages 50773-50776]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20758]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29751; 812-13883]


Pax World Funds Series Trust I and Pax World Management LLC; 
Notice of Application

August 10, 2011.
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, as well as from certain 
disclosure requirements.

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    Summary of Application: Applicants request an order that would 
permit them to enter into and materially amend subadvisory agreements 
without shareholder approval and would grant

[[Page 50774]]

relief from certain disclosure requirements.
    Applicants: Pax World Funds Series Trust I (``Mutual Funds Trust'') 
and Pax World Management LLC (the ``Adviser'') (collectively, 
``Applicants'').
    Filing Dates: The application was filed on March 22, 2011, and 
amended on August 1, 2011. 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 6, 2011 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, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: c\o Stuart E. 
Fross, K&L Gates LLP, One Lincoln Street, Boston, MA 02111, and Joseph 
F. Keefe, Pax World Management LLC, 30 Penhallow Street, Suite 400, 
Portsmouth, New Hampshire 03801.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at 
(202) 551-6868, or Daniele Marchesani, 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. Mutual Funds Trust, a Massachusetts business trust, is 
registered under the Act as open-end management investment companies 
and currently offers eleven series (each a ``Series'' and Mutual Funds 
Trust, Series or future Series, a ``Fund'' and collectively the 
``Funds''), each of which has its own distinct investment objectives, 
policies and restrictions.\1\ The Adviser is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and serves as the investment adviser to the Mutual 
Funds Trust pursuant to separate investment advisory agreements (each 
an ``Investment Advisory Agreement'' and collectively, the ``Investment 
Advisory Agreements'') with each Fund. Each Investment Advisory 
Agreement has been or will be approved by the Mutual Funds Trust's 
board of trustees (the ``Board''), including a majority of the trustees 
who are not ``interested persons,'' as defined in section 2(a)(19) of 
the Act, of the Trust or the Adviser (``Independent Trustees'') and by 
the shareholders of the relevant Fund in the manner required by 
sections 15(a) and 15(c) of the Act and rule 18f-2 under the Act.
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    \1\ Applicants also request relief with respect to any other 
existing or future registered open-end management investment company 
or series thereof that: (a) Is advised by the Adviser or any entity 
controlling, controlled by, or under common control with the Adviser 
(collectively, the ``Adviser'') or its successors; (b) uses the 
multi-manager structure (``Multi-Manager Structure'') described in 
the application; and (c) complies with the terms and conditions of 
this application (together with any Funds that currently use the 
Multi-Manager Structure, each a ``Subadvised Fund'' and 
collectively, the ``Subadvised Funds''). The only existing 
registered open-end management investment companies that currently 
intend to rely on the requested order are named as applicants. For 
purposes of the requested order, ``successor'' is limited to an 
entity or entities that result from a reorganization into another 
jurisdiction or a change in the type of business organization. If 
the name of any Subadvised Fund contains the name of a Sub-Adviser 
(as defined below), the name of the Adviser will precede the name of 
the Sub-Adviser.
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    2. Under the terms of the Investment Advisory Agreements, the 
Adviser, subject to the oversight of the Board, furnishes a continuous 
investment program for each Fund. The Adviser periodically reviews 
investment policies and strategies of each Fund and based on the need 
of a particular Fund may recommend changes to the investment policies 
and strategies of the Fund for consideration by its Board. For its 
services to each Fund, the Adviser receives an investment advisory fee 
from that Fund as specified in the applicable Investment Advisory 
Agreement based on the average daily net asset value of that Fund. The 
terms of the Investment Advisory Agreements also permit the Adviser, 
subject to the approval of the relevant Board, including a majority of 
the Independent Trustees, and the shareholders of the applicable 
Subadvised Funds (if required by applicable law), to delegate portfolio 
management responsibilities of all or a portion of the assets of the 
Subadvised Fund to one or more subadvisers (``Sub-Advisers''). The 
Adviser has entered into subadvisory agreements (``Sub-Advisory 
Agreements'') with various Sub-Advisers to provide investment advisory 
services to various Subadvised Funds.\2\ Each Sub-Adviser is, and each 
future Sub-Adviser will be, an investment adviser as defined in section 
2(a)(20) of the Act as well as registered with the Commission as an 
``investment adviser'' under the Advisers Act. The Adviser evaluates, 
allocates assets to and oversees the Sub-Advisers, and makes 
recommendations about their hiring, termination and replacement to the 
Board, at all times subject to the authority of the Board.\3\ The 
Adviser will compensate each Sub-Adviser out of the fee paid to the 
Adviser under the relevant Investment Advisory Agreement, or the 
Subadvised Fund will be responsible for paying subadvisory fees 
directly to the Sub-Adviser.
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    \2\ The Adviser has entered into Sub-Advisory Agreements with 
Impax Asset Management Ltd., Access Capital Strategies LLC, a 
division of Voyageur Asset Management Inc., Ariel Investments, LLC, 
ClearBridge Advisors, LLC, Community Capital Management, Inc., 
Miller Howard Investments Inc., Mennonite Mutual Aid Association, 
Neuberger Berman Management, LLC, Portfolio 21 Investments, Inc. and 
Parnassus Investments.
    \3\ As described more fully in the application, the Adviser 
utilizes the services of Morningstar Associates, LLC (``Morningstar 
Associates'') under a subsidiary agreement for recommending to the 
Adviser and the Board various Sub-Advisers. The responsibility for 
the evaluation, selection, and recommendation of Sub-Advisers to 
manage the assets (or portion thereof) of a Subadvised Fund, as well 
as the monitoring and review of the Sub-Adviser ultimately rests 
with the Adviser. Applicants acknowledge that the requested relief 
will not extend to any such subadvisory agreement with Morningstar 
Associates.
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    3. Applicants request an order to permit the Adviser, subject to 
Board approval, to select certain Sub-Advisers to manage all or a 
portion of the assets of a Subadvised Fund pursuant to a Sub-Advisory 
Agreement 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 Subadvised Fund or the Adviser, other than by 
reason of serving as a Sub-Adviser a Subadvised Funds (``Affiliated 
Sub-Adviser'').
    4. Applicants also request an order exempting the Subadvised Funds 
from certain disclosure provisions described below that may require the 
Applicants to disclose fees paid by the Adviser or a Subadvised Fund to 
each Sub-Adviser. Applicants seek an order to permit each Subadvised 
Fund to disclose (as a dollar amount and a percentage of each

[[Page 50775]]

Subadvised Fund's net assets) only: (a) The aggregate fees paid to the 
Adviser and any Affiliated Sub-Advisers; and (b) the aggregate fees 
paid to Sub-Advisers other than Affiliated Sub-Advisers (collectively, 
the ``Aggregate Fee Disclosure''). A Subadvised Fund that employs an 
Affiliated Sub-Adviser 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 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 investment company affected by a matter must 
approve that matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(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 (``1934 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. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of a registered investment 
company's registration statement and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require 
a registered investment company to include in its financial statement 
information about the investment advisory fees.
    5. 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 state that the requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Adviser, 
subject to the review and approval of the Board, to select the Sub-
Advisers who are best suited to achieve the Subadvised Fund's 
investment objective. Applicants assert that, from the perspective of 
the shareholder, the role of the Sub-Adviser is substantially 
equivalent to the role of the individual portfolio managers employed by 
an investment adviser to a traditional investment company. Applicants 
state that requiring shareholder approval of each Sub-Advisory 
Agreement would impose unnecessary delays and expenses on the 
Subadvised Funds, and enable the Subadvised Fund to act more quickly 
when the Board and the Adviser believe that a change would benefit a 
Subadvised Fund and its shareholders. Applicants note that the 
Investment Advisory Agreements and any Sub-Advisory Agreement with an 
Affiliated Sub-Adviser (if any) will continue to be subject to the 
shareholder approval requirements of section 15(a) of the Act and rule 
18f-2 under the Act.
    7. Applicants assert that the requested disclosure relief would 
benefit shareholders of the Subadvised Funds because it would improve 
the Adviser's ability to negotiate the fees paid to Sub-Advisers. 
Applicants state that the Adviser may be able to negotiate rates that 
are below a Sub-Adviser's ``posted'' amounts, if the Adviser is not 
required to disclose the Sub-Advisers' fees to the public. Applicants 
submit that the requested relief will encourage Sub-Advisers to 
negotiate lower subadvisory fees with the Adviser if the lower fees are 
not required to be made public.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Subadvised Fund may rely on the order requested herein, 
the operation of the Subadvised Fund in the manner described in this 
application will be approved by a majority of the Subadvised Fund's 
outstanding voting securities as defined in the Act or, in the case of 
a Subadvised Fund whose public shareholders purchase shares on the 
basis of a prospectus containing the disclosure contemplated by 
condition 2 below, by the initial shareholder before such Subadvised 
Fund's shares are offered to the public.
    2. The prospectus for each Subadvised Fund will disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. In addition, each Subadvised Fund will hold itself out to 
the public as employing a Multi-Manager Structure. The prospectus will 
prominently disclose that the Adviser has the ultimate responsibility, 
subject to oversight by the Board, to oversee the Sub-Advisers and 
recommend their hiring, termination, and replacement.
    3. Within ninety days of the hiring of a new Sub-Adviser, 
shareholders of the relevant Subadvised Fund will be furnished all 
information about the new Sub-Adviser 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 
disclosure caused by the addition of a new Sub-Adviser. To meet this 
obligation, each Subadvised Fund will provide its shareholders, within 
90 days of the hiring of a new Sub-Adviser, an information statement 
meeting the requirements of Regulation 14C, Schedule 14C and Item 22 of 
Schedule 14A under the 1934 Act, except as modified by the order to 
permit Aggregate Fee Disclosure.
    4. The Adviser will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser without that agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Subadvised 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. 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.
    7. Whenever a Sub-Adviser change is proposed for a Subadvised 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 
Subadvised Fund and its shareholders, and does not involve a conflict 
of interest from which the Adviser or the Affiliated Sub-Adviser 
derives an inappropriate advantage.
    8. Whenever a Sub-Adviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.

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    9. The Adviser will provide general management services to each 
Subadvised Fund, including overall supervisory responsibility for the 
general management and investment of the Subadvised Fund's assets and, 
subject to review and approval of the Board, will: (a) Set the 
Subadvised Fund's overall investment strategies; (b) evaluate, select 
and recommend Sub-Advisers to manage all or a portion of the Subadvised 
Fund's assets; (c) allocate and, when appropriate, reallocate the 
Subadvised Fund's assets among Sub-Advisers; (d) monitor and evaluate 
the Sub-Advisers' performance; and (e) implement procedures reasonably 
designed to ensure that Sub-Advisers comply with the Subadvised Fund's 
investment objective, policies and restrictions.
    10. No trustee or officer of a Subadvised Fund or director 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 Sub-Adviser 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 
any 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.
    11. Each Subadvised Fund will disclose in its registration 
statement the Aggregate Fee Disclosure.
    12. 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.
    13. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Subadvised Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Sub-Adviser during 
the applicable quarter.
    14. For Subadvised Funds that pay fees to a Sub-Adviser directly 
from Fund assets, any changes to a Sub-Advisory Agreement that would 
result in an increase in the total management and advisory fees payable 
by a Subadvised Fund will be required to be approved by the 
shareholders of the Subadvised Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Elizabeth M. Murphy,
 Secretary.
[FR Doc. 2011-20758 Filed 8-15-11; 8:45 am]
BILLING CODE 8011-01-P


