
[Federal Register Volume 79, Number 146 (Wednesday, July 30, 2014)]
[Notices]
[Pages 44221-44224]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17883]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31186; File No. 812-14314]


Steben Alternative Investment Funds and Steben & Company, Inc.; 
Notice of Application

July 24, 2014.
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 with 
Wholly-Owned Subadvisers (as defined below) and non-affiliated 
subadvisers without shareholder approval and would grant relief from 
certain disclosure requirements.

Applicants:  Steben Alternative Investment Funds (``Trust'') and Steben 
& Company, Inc. (``Adviser'').

Filing Dates:  The application was filed on May 22, 2014.

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 18, 2014, 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 
Street NE., Washington, DC 20549-1090. Applicants, 9711 Washingtonian 
Boulevard, Suite 400, Gaithersburg, MD 20878.

FOR FURTHER INFORMATION CONTACT: Kay-Mario Vobis, Senior Counsel, at 
(202) 551-6728, or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

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 for 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 and is 
registered under the Act as an open-end management investment company. 
The Trust currently offers one series of shares (the ``Series''), 
Steben Managed Futures Strategy Fund. The Series commenced operations 
on April 1, 2014. The Adviser, a corporation organized under the laws 
of the state of Maryland, is registered as an investment adviser under 
the Investment Advisers Act of 1940 (``Advisers Act'').
    2. Applicants request an order to permit the Adviser, subject to 
the approval of the board of trustees of the Trust (``Board''), 
including a majority of the members of the Board who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
the Series or the Adviser (``Independent Board Members''), to, without 
obtaining shareholder approval: (i) Select Subadvisers to manage all or 
a portion of the assets of a Series and enter into Sub-Advisory 
Agreements (as defined below) with the Subadvisers,\1\ and (ii) 
materially amend Sub-Advisory Agreements with the Subadvisers.\2\ 
Applicants request that the relief apply to the named applicants, as 
well as to any future Series and any other existing or future 
registered open-end management investment company or series thereof 
that is advised by the

[[Page 44222]]

Adviser or its successors, uses the multi-manager structure described 
in the application, and complies with the terms and conditions of the 
application (``Subadvised Series'').\3\
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    \1\ A ``Subadviser'' is (1) an indirect or direct ``wholly-owned 
subsidiary'' (as such term is defined in the Act) of the Adviser for 
the Series, or (2) a sister company of the Adviser for the Series 
that is an indirect or direct ``wholly-owned subsidiary'' (as such 
term is defined in the Act) of the same company that, indirectly or 
directly, wholly owns the Adviser (each of (1) and (2) a ``Wholly-
Owned Subadviser'' and collectively, the ``Wholly-Owned 
Subadvisers''), or (3) an investment subadviser for the Series that 
is not an ``affiliated person'' (as such term is defined in section 
2(a)(3) of the Act) of the Series or the Adviser, except to the 
extent that an affiliation arises solely because the subadviser 
serves as a subadviser to the Series (each a ``Non-Affiliated 
Subadviser'' and collectively, the ``Non-Affiliated Subadvisers''). 
The Subadvisers will be registered with the Commission under the 
Advisers Act or exempt from such registration.
    \2\ Shareholder approval will continue to be required for any 
other subadviser changes and material amendments to an existing Sub-
Advisory Agreement with any subadviser other than a Non-Affiliated 
Subadviser or a Wholly-Owned Subadviser, in each case (all such 
changes requiring shareholder approval referred to herein as 
``Ineligible Subadviser Changes'') except as otherwise permitted by 
applicable law or by rule.
    \3\ For the purposes of the requested order, ``successor'' is 
limited to an entity resulting from a reorganization into another 
jurisdiction or a change in the type of business organization. All 
registered open-end investment companies that currently intend to 
rely on the requested order are named as applicants. Any entity that 
relies on the requested order will do so only in accordance with the 
terms and conditions contained in the application. If the name of 
any Subadvised Series contains the name of a Subadviser, the name of 
the Adviser to the Subadvised Series, or a trademark or trade name 
that is owned by or publicly used to identify the Adviser, will 
precede the name of that Subadviser.
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    3. The requested relief will not extend to any subadviser, other 
than a Wholly-Owned Subadviser, who is an affiliated person, as defined 
in section 2(a)(3) of the Act, of the Subadvised Series or of the 
Adviser, other than by reason of serving as a subadviser to one or more 
of the Subadvised Series (``Affiliated Subadviser'').
    4. The Adviser serves as the investment adviser to the Series 
pursuant to an investment advisory agreement with the Trust 
(``Investment Advisory Agreement'). The Investment Advisory Agreement 
for the Series has been approved by the board of trustees of the Trust 
(``Board''),\4\ including a majority of the Independent Board Members, 
and by the shareholders of the Series in the manner required by 
sections 15(a) and 15(c) of the Act and rule 18f-2 thereunder. The 
terms of the Investment Advisory Agreement comply with section 15(a) of 
the Act.
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    \4\ The term ``Board'' also includes the board of trustees or 
directors of a future Subadvised Series.
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    5. Pursuant to the terms of the Investment Advisory Agreement, the 
Adviser, subject to the supervision of the Board, provides continuous 
investment advisory services to the Series. The Adviser will 
periodically review the Series' investment policies and strategies, and 
based on its need may recommend changes to the investment policies and 
strategies of the Series for consideration by the Board. For its 
services to the Series under the Investment Advisory Agreement, the 
Adviser receives an investment management fee from the Series. The 
Investment Advisory Agreement provides that the Adviser may, subject to 
the approval of the Board, including a majority of the Independent 
Board Members and the initial shareholder of the Subadvised Series, 
delegate portfolio management responsibilities of all or a portion of 
the assets of a Subadvised Series to one or more Subadvisers.
    6. Pursuant to the Investment Advisory Agreement, the Adviser has 
overall responsibility for the management and investment of the assets 
of each Subadvised Series. These responsibilities include, for example, 
recommending the removal or replacement of Subadvisers, and determining 
the portion of that Subadvised Series' assets to be managed by any 
given Subadviser and reallocating those assets as necessary from time 
to time.
    7. The Adviser may enter into investment sub-advisory agreements 
with various Subadvisers on behalf of the Subadvised Series (``Sub-
Advisory Agreements'') to provide investment management services to the 
Subadvised Series. The terms of each Sub-Advisory Agreement comply 
fully with the requirements of section 15(a) of the Act and have been 
approved by the Board, including a majority of the Independent Board 
Members and the initial shareholder of the Subadvised Series, in 
accordance with sections 15(a) and 15(c) of the Act and rule 18f-2 
thereunder. The Subadvisers, subject to the supervision of the Adviser 
and oversight of the Board, will determine the securities and other 
investments to be purchased, sold or entered into by a Subadvised 
Series and will place orders with brokers or dealers that they select. 
The Adviser will compensate each Subadviser out of the fee paid to the 
Adviser under the Investment Advisory Agreement.
    8. If the requested order is granted and if new Subadvisers are 
hired, the Subadvised Series will inform shareholders of the hiring of 
a new Subadviser pursuant to the following procedures (``Modified 
Notice and Access Procedures''): (a) Within 90 days after a new 
Subadviser is hired for any Subadvised Series, that Subadvised Series 
will send its shareholders either a Multi-manager Notice or a Multi-
manager Notice and Multi-manager Information Statement; \5\ and (b) the 
Subadvised Series will make the Multi-manager Information Statement 
available on the Web site identified in the Multi-manager Notice no 
later than when the Multi-manager Notice (or Multi-manager Notice and 
Multi-manager Information Statement) is first sent to shareholders, and 
will maintain it on that Web site for at least 90 days. In the 
circumstances described in the application, a proxy solicitation to 
approve the appointment of new Subadvisers provides no more meaningful 
information to shareholders than the proposed Multi-manager Information 
Statement. Applicants state that each Board would comply with the 
requirements of sections 15(a) and 15(c) of the Act before entering 
into or amending Sub-Advisory Agreements.
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    \5\ A ``Multi-manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Securities 
Exchange Act of 1934 (``Exchange Act''), and specifically will, 
among other things: (a) Summarize the relevant information regarding 
the new Subadviser (except as modified to permit Aggregate Fee 
Disclosure (as defined below); (b) inform shareholders that the 
Multi-manager Information Statement is available on a Web Site; (c) 
provide the website address; (d) state the time period during which 
the Multi-manager Information Statement will remain available on 
that website; (e) provide instructions for accessing and printing 
the Multi-manager Information Statement; and (f) instruct the 
shareholder that a paper or email copy of the Multi-manager 
Information Statement may be obtained, without charge, by contacting 
the Subadvised Series. A ``Multi-manager Information Statement'' 
will meet the requirements of Regulation 14C, Schedule 14C and Item 
22 of Schedule 14A under the Exchange Act for an information 
statement, except as modified by the order to permit Aggregate Fee 
Disclosure. Multi-manager Information Statements will be filed with 
the Commission via the EDGAR system.
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    9. Applicants also request an order exempting the Subadvised Series 
from certain disclosure obligations that may require each Subadvised 
Series to disclose fees paid by the Adviser to each Subadviser. 
Applicants seek relief to permit each Subadvised Series to disclose (as 
a dollar amount and a percentage of the Subadvised Series' net assets): 
(a) The aggregate fees paid to the Adviser and any Wholly-Owned 
Subadvisers; (b) the aggregate fees paid to Non-Affiliated Subadvisers; 
and (c) the fee paid to each Affiliated Subadviser (collectively, the 
``Aggregate Fee Disclosure''). An exemption is requested to permit the 
Series to include only the Aggregate Fee Disclosure. All other items 
required by Sections 6-07(2)(a), (b), and (c) of Regulation S-X will be 
disclosed.

Applicants' Legal Analysis

    1. Section 15(a) of the Act states, in 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, which 
contract, whether with such registered company or with an investment 
adviser of such registered company, has been approved by the vote of a 
majority of the outstanding voting securities of such registered 
company.'' 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

[[Page 44223]]

requires a registered investment company to disclose in its statement 
of additional information the method of computing the ``advisory fee 
payable'' by the investment company, including the total dollar amounts 
that the investment company ``paid to the adviser (aggregated with 
amounts paid to affiliated advisers, if any), and any advisers who are 
not affiliated persons of the adviser, under the investment advisory 
contract for the last three fiscal years.''
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to a registered investment company to comply with Schedule 14A under 
the 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 fee,'' 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 by order 
upon application may conditionally or unconditionally 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 their 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 
Subadvisers who are in the best position to achieve the Subadvised 
Series' investment objective. Applicants assert that, from the 
perspective of the shareholder, the role of the Subadvisers is 
substantially equivalent to the role of the individual portfolio 
managers employed by an investment adviser to a traditional investment 
company. Applicants believe that permitting the Adviser to perform the 
duties for which the shareholders of the Subadvised Series are paying 
the Adviser--the selection, supervision and evaluation of the 
Subadvisers--without incurring unnecessary delays or expenses is 
appropriate in the interest of the Subadvised Series' shareholders and 
will allow such Subadvised Series to operate more efficiently. 
Applicants state that the Investment Advisory Agreement will continue 
to be fully subject to section 15(a) of, and rule 18f-2 under, the Act 
and approved by the Board, including a majority of the Independent 
Board Members, in the manner required by sections 15(a) and 15(c) of 
the Act. Applicants are not seeking an exemption with respect to the 
Investment Advisory Agreement.
    7. Applicants assert that disclosure of the individual fees that 
the Adviser would pay to the Subadvisers of Subadvised Series that 
operate under the multi-manager structure described in the application 
would not serve any meaningful purpose. Applicants contend that the 
primary reasons for requiring disclosure of individual fees paid to 
Subadvisers are to inform shareholders of expenses to be charged by a 
particular Subadvised Series and to enable shareholders to compare the 
fees to those of other comparable investment companies. Applicants 
believe that the requested relief satisfies these objectives because 
the advisory fee paid to the Adviser will be fully disclosed and 
therefore, shareholders will know what the Subadvised Series' fees and 
expenses are and will be able to compare the advisory fees a Subadvised 
Series is charged to those of other investment companies. Applicants 
assert that the requested disclosure relief would benefit shareholders 
of the Subadvised Series because it would improve the Adviser's ability 
to negotiate the fees paid to Subadvisers. Applicants state that the 
Adviser may be able to negotiate rates that are below a Subadviser's 
``posted'' amounts if the Adviser is not required to disclose the 
Subadvisers' fees to the public. Applicants submit that the relief 
requested to use Aggregate Fee Disclosure will also encourage 
Subadvisers to negotiate lower sub-advisory fees with the Adviser if 
the lower fees are not required to be made public.
    8. For the reasons discussed above, applicants submit that the 
requested relief meets the standards for relief under section 6(c) of 
the Act. Applicants state that the operation of the Subadvised Series 
in the manner described in the application must be approved by 
shareholders of a Subadvised Series before that Subadvised Series may 
rely on the requested relief. In addition, applicants state that the 
proposed conditions to the requested relief are designed to address any 
potential conflicts of interest, including any posed by the use of 
Wholly-Owned Subadvisers, and provide that shareholders are informed 
when new Subadvisers are hired. Applicants assert that conditions 6, 7, 
10 and 11 are designed to provide the Board with sufficient 
independence and the resources and information it needs to monitor and 
address any conflicts of interest with affiliated persons of the 
Adviser, including Wholly-Owned Subadvisers. Applicants state that, 
accordingly, they believe the requested relief 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' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Subadvised Series may rely on the order requested in 
the application, the operation of the Subadvised Series in the manner 
described in the application, including the hiring of Wholly-Owned 
Subadvisers, will be, or has been, approved by a majority of the 
Subadvised Series' outstanding voting securities as defined in the Act, 
or, in the case of a new Subadvised Series whose public shareholders 
purchase shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the sole initial shareholder 
before offering the Subadvised Series' shares to the public.
    2. The prospectus for each Subadvised Series will disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. Each Subadvised Series will hold itself out to the public 
as employing the multi-manager structure described in the application. 
Each prospectus will prominently disclose that the Adviser has the 
ultimate responsibility, subject to oversight by the Board, to oversee 
the Subadvisers and recommend their hiring, termination and 
replacement.
    3. The Adviser will provide general management services to a 
Subadvised Series, including overall supervisory responsibility for the 
general management and investment of the Subadvised Series' assets. 
Subject to review and approval of the Board, the

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Adviser will (a) set a Subadvised Series' overall investment 
strategies, (b) evaluate, select, and recommend Subadvisers to manage 
all or a portion of a Subadvised Series' assets, and (c) implement 
procedures reasonably designed to ensure that Subadvisers comply with a 
Subadvised Series' investment objective, policies and restrictions. 
Subject to review by the Board, the Adviser will (a) when appropriate, 
allocate and reallocate a Subadvised Series' assets among multiple 
Subadvisers; and (b) monitor and evaluate the performance of 
Subadvisers.
    4. A Subadvised Series will not make any Ineligible Subadviser 
Changes without such agreement, including the compensation to be paid 
thereunder, being approved by the shareholders of the applicable 
Subadvised Series.
    5. Subadvised Series will inform shareholders of the hiring of a 
new Subadviser within 90 days after the hiring of the new Subadviser 
pursuant to the Modified Notice and Access Procedures.
    6. At all times, at least a majority of the Board will be 
Independent Board Members, and the selection and nomination of new or 
additional Independent Board Members will be placed within the 
discretion of the then-existing Independent Board Members.
    7. Independent Legal Counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Board Members. 
The selection of such counsel will be within the discretion of the 
then-existing Independent Board Members.
    8. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Subadvised Series basis. The information will reflect the impact on 
profitability of the hiring or termination of any Subadviser during the 
applicable quarter.
    9. Whenever a Subadviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    10. Whenever a Subadviser change is proposed for a Subadvised 
Series with an Affiliated Subadviser or a Wholly-Owned Subadviser, the 
Board, including a majority of the Independent Board Members, will make 
a separate finding, reflected in the Board minutes, that such change is 
in the best interests of the Subadvised Series and its shareholders, 
and does not involve a conflict of interest from which the Adviser or 
the Affiliated Subadviser or Wholly-Owned Subadviser derives an 
inappropriate advantage.
    11. No Board member or officer of a Subadvised Series, or partner, 
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 
(i) ownership of interests in the Adviser or any entity, other than a 
Wholly-Owned Subadviser, that controls, is controlled by, or is under 
common control with the Adviser, or (ii) 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.
    12. Each Subadvised Series will disclose the Aggregate Fee 
Disclosure in its registration statement.
    13. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that requested in the 
application, the requested order will expire on the effective date of 
that rule.
    14. Any new Sub-Advisory Agreement or any amendment to a Subadvised 
Series' existing Investment Advisory Agreement or Sub-Advisory 
Agreement that directly or indirectly results in an increase in the 
aggregate advisory fee rate payable by the Subadvised Series will be 
submitted to the Subadvised Series' shareholders for approval.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17883 Filed 7-29-14; 8:45 am]
BILLING CODE 8011-01-P


