
[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1519-1522]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00227]


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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31408; 812-14266]


Context Capital Advisers, LLC and Context Capital Funds; Notice 
of Application

January 6, 2015.
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.

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

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 relief from certain disclosure 
requirements.

Applicants: Context Capital Advisers, LLC (``Context Capital'' or the 
``Adviser'') and Context Capital Funds (the ``Trust'' and collectively 
with Context Capital, the ``Applicants'').

Filing Dates: The application was filed January 14, 2014 and amended on 
May 21, 2014 and September 19, 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 February 2, 2015 and should be accompanied by proof of service 
on the applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a

[[Page 1520]]

hearing on the matter, 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: Context Capital 
Funds, Three Canal Plaza, Suite 600, Portland, Maine 04101; Jason A. 
Myers, Context Capital Advisers, LLC, 401 City Avenue, Suite 800, Bala 
Cynwyd, PA 19004.

FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, 
at (202) 551-6990, or James M. Curtis, Branch Chief, at (202) 551-6712 
(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 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. 
Currently, the Trust is comprised of one series, the Context 
Alternative Strategies Fund (``Alternative Strategies Fund'').\1\ Each 
of the Trust's series will have its own investment objective, policies 
and restrictions.
---------------------------------------------------------------------------

    \1\ Applicants also request relief with respect to any existing 
or future series of the Trust and 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 or its 
successors (included in the term ``Adviser''); (b) uses the manager 
of managers structure (``Manager of Managers Structure'') described 
in the application; and (c) complies with the terms and conditions 
of the application (together with the Alternative Strategies Fund, 
the ``Funds'' and each individually, a ``Fund''). For purposes of 
the requested order, ``successor'' is limited to an entity that 
would result from a reorganization into another jurisdiction or a 
change in the type of business organization. The only existing 
registered open-end management investment company that currently 
intends to rely on the requested order is the Trust. If the name of 
any Fund contains the name of a Subadviser, the name of the Adviser 
will precede the name of the Subadviser. The term ``Board'' also 
includes the board of trustees or directors of a future Fund.
---------------------------------------------------------------------------

    2. Context Capital, a Delaware limited liability company, is 
registered as an investment adviser with the Commission under the 
Investment Advisers Act of 1940 (``Advisers Act''). Any future Adviser 
also will also be registered with the Commission as an investment 
adviser under the Advisers Act. Context Capital serves as the 
investment adviser of the Alternative Strategies Fund pursuant to an 
investment advisory agreement with the Trust (the ``Advisory 
Agreement'').\2\ The Advisory Agreement was approved by the board of 
trustees of the Trust (the ``Board''), including a majority of the 
members of the board of trustees who are not ``interested persons,'' as 
defined in section 2(a)(19) of the Act, of the Trust, the Fund, or of 
the Adviser (``Independent Trustees'') and was approved by the initial 
shareholder of the Alternative Strategies Fund, in the manner required 
by sections 15(a) and 15(c) of the Act and rule 18f-2 under the Act.\3\ 
Applicants are not seeking any exemptions with respect to the Advisory 
Agreement or Future Advisory Agreements.
---------------------------------------------------------------------------

    \2\ The Adviser will enter into substantially similar investment 
advisory agreements to provide investment management services to 
future Funds (``Future Advisory Agreements''). The terms of Future 
Advisory Agreements will comply with section 15(a) of the Act, and 
Future Advisory Agreements will be approved by shareholders and by 
the Board, including a majority of the Independent Trustees, in the 
manner required by Sections 15(a) and 15(c) of the Act and rule 18f-
2 thereunder. References to any Advisory Agreement(s) include Future 
Advisory Agreements as they pertain to future Funds.
    \3\ Context Asset Management, L.P. the parent company of the 
Adviser, is undergoing a reorganization resulting in the termination 
of the Fund's current advisory agreement and subadvisory agreements. 
At a meeting held on June 16, 2014, the Fund's Board unanimously 
approved a new advisory agreement and subadvisory agreements for the 
Fund. The new advisory agreement and subadvisory agreements become 
effective upon approval by the Fund's shareholders.
---------------------------------------------------------------------------

    3. Under the terms of the Advisory Agreement, and subject to the 
oversight of the Board, Context Capital is responsible for the overall 
management of the Alternative Strategies Fund's business affairs and 
selecting investments according to its investment objective, policies, 
and restrictions. For the investment management services that it 
provides to the Alternative Strategies Fund, Context Capital receives 
the fee specified in the Advisory Agreement based on average daily net 
assets. In addition, under the Advisory Agreement, Context Capital may 
retain one or more subadvisers, at Context Capital's own cost and 
expense, subject to approval of the Board, including approval by a 
majority of the Independent Trustees and the shareholders of the Fund 
(if required by applicable law), for the purpose of managing the 
investment of all or a portion of the assets of the Alternative 
Strategies Fund. Context Capital has entered into subadvisory 
agreements with eight subadvisers to provide investment advisory 
services to the Alternative Strategies Fund.\4\ Each subadviser is an 
``investment adviser'' as defined in section 2(a)(20) of the Act and 
registered as an investment adviser under the Advisers Act. The Adviser 
selects subadvisers based on the Adviser's evaluation of the 
subadviser's skills in managing assets pursuant to particular 
investment styles that are consistent with the investment objective of 
each Fund and recommends their hiring to the Board. For the investment 
advisory services subadvisers provide to the Funds, each subadviser 
receives annual fees from the Adviser calculated at an annual rate 
based on the average daily net assets of the respective Fund. The 
Adviser compensates each subadviser out of the fees that are paid to 
the Adviser under the Advisory Agreement.\5\
---------------------------------------------------------------------------

    \4\ All existing subadvisory agreements comply with sections 
15(a) and (c) of the Act and rule 18f-2 thereunder.
    \5\ The reorganization will result in new subadvisory agreements 
that will become effective upon approval by the Fund's shareholders.
---------------------------------------------------------------------------

    4. Applicants request an order to permit the Adviser, subject to 
approval of the Board, including a majority of the Independent 
Trustees, to do the following without obtaining shareholder approval: 
(a) Select an unaffiliated investment subadviser or subadvisers (each a 
``Subadviser'') to manage all or a portion of the assets of the 
Alternative Strategies Fund or any other Fund pursuant to an investment 
subadvisory agreement with a Subadviser (each a ``Subadvisory 
Agreement''), and (b) materially amend Subadvisory Agreements. The 
requested relief will not extend to any subadviser that is an 
affiliated person, as defined in section 2(a)(3) of the Act, of the 
Trust, a Fund or the Adviser, other than by reason of serving as a 
subadviser to one or more of the Funds (``Affiliated Subadviser'').
    5. If a new Subadviser is hired, the Fund 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 Fund, that Fund will send its 
shareholders either a Multi-manager Notice or a Multi-manager Notice 
and Multi-manager Information Statement; \6\ and (b) the Fund will make

[[Page 1521]]

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. Applicants assert that a proxy 
solicitation to approve the appointment of new Subadvisers provides no 
more meaningful information to shareholders than the proposed Multi-
manager Information Statement. Moreover, as indicated above, the Board 
would comply with the requirements of sections 15(a) and 15(c) of the 
Act before entering into or amending Subadvisory Agreements.
---------------------------------------------------------------------------

    \6\ A ``Multi-manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the 1934 Act, 
and specifically will, among other things: (a) Summarize the 
relevant information regarding the new Subadviser; (b) inform 
shareholders that the Multi-manager Information Statement is 
available on a Web site; (c) provide the Web site address; (d) state 
the time period during which the Multi-manager Information Statement 
will remain available on that Web site; (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 Funds. A ``Multi-manager Information Statement'' 
will meet the requirements of Regulation 14C, Schedule 14C and Item 
22 of Schedule 14A under the 1934 Act for an information statement, 
except as modified by the requested order to permit Aggregate Fee 
Disclosure. Multi-manager Information Statements will be filed 
electronically with the Commission via the EDGAR system.
---------------------------------------------------------------------------

    6. Applicants also request an order exempting the Fund from certain 
disclosure provisions described below that may require the Applicants 
to disclose fees paid to each Subadviser by the Adviser. Applicants 
seek an order to permit each Fund to disclose (both as a dollar amount 
and a percentage of a Fund's net assets): (a) Aggregate fees paid to 
the Adviser and Affiliated Subadvisers; and (b) aggregate fees paid to 
Subadvisers other than Affiliated Subadvisers (``Aggregate Fee 
Disclosure''). For any Fund that employs Affiliated Subadvisers, the 
Fund will provide separate disclosure of any fees paid to such 
Affiliated Subadvisers.

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 of 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 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 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 a registered 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 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 
Subadvisers who are best suited to achieve each Fund's 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 state that 
requiring shareholder approval of each Subadvisory Agreement would 
impose unnecessary delays and expenses on the Funds and may preclude 
the Funds from acting promptly when the Adviser and Board consider it 
appropriate to hire Subadvisers or amend Subadvisory Agreements. 
Applicants note that the Advisory Agreements and Subadvisory Agreements 
with Affiliated Subadvisers (if any) will remain 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 will 
benefit shareholders to the extent that it will facilitate lower 
overall investment advisory fees. Applicants state that if the Adviser 
is not required to disclose the Subadvisers' fees to the public, the 
Adviser may be able to negotiate rates that are below a Subadviser's 
``posted'' amounts. Applicants state that the requested relief will 
encourage Subadvisers to negotiate lower advisory 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 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 below, by the initial shareholder(s) before 
offering shares of that Fund to the public.
    2. The prospectus for each Fund will disclose the existence, 
substance, and effect of any order granted pursuant to the Application. 
Each Fund will hold itself out to the public as utilizing the Manager 
of Managers Structure. 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. Funds 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.
    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 selection and 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

[[Page 1522]]

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. 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.
    8. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Fund 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. The Adviser 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 of the Board, will: (a) Set each Fund's overall investment 
strategies; (b) evaluate, select, and recommend Subadvisers to manage 
all or a portion of the each Fund's assets; (c) allocate and, when 
appropriate, reallocate each Fund's assets among one or more 
Subadvisers; (d) monitor and evaluate the performance of Subadvisers; 
and (e) implement procedures reasonably designed to ensure that 
Subadvisers comply with each Fund's investment objective, policies and 
restrictions.
    11. 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 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 Subadviser or an 
entity that controls, is controlled by or is under common control with 
a Subadviser.
    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. Each Fund will disclose the Aggregate Fee Disclosure in its 
registration statement.
    14. Any new Subadvisory Agreement or any amendment to a Fund's 
existing Advisory Agreement or Subadvisory Agreement that directly or 
indirectly results in an increase in the aggregate advisory rate 
payable by the Fund will be submitted to the Fund's shareholders for 
approval.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2015-00227 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P


