[Federal Register: January 22, 2009 (Volume 74, Number 13)]
[Notices]
[Page 4058-4062]
[DOCID:fr22ja09-79]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28581; 812-13523]

Allstate Financial Investment Trust, et al.; Notice of
Application

January 12, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of
the Investment Company Act of 1940 (``Act'') for an exemption from
sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c) and
17(b) of the Act for an exemption from section 17(a) of the Act.

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    Summary of the Application: Applicants request an order that would
permit certain registered open-end management investment companies to
acquire shares of other registered open-end management investment
companies and unit investment trusts that are within and outside the
same group of investment companies.
    Applicants: Allstate Financial Investment Trust (``Trust'') and
Allstate Institutional Advisers, LLC (``Adviser'').
    Filing Dates: The application was filed on April 18, 2008 and
amended on October 14, 2008. 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 February 6, 2009, 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, c/o Renee M. Hardt,
Vedder Price P.C., 222 N. LaSalle Street, Chicago, IL 60601.

FOR FURTHER INFORMATION CONTACT: Keith A. Gregory, Senior Counsel, at
(202) 551-6815, or Mary Kay Frech, Branch Chief, at<PHONE_NUMBER>
(Office of Investment Company Regulation, Division of Investment
Management).

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 Room, 100 F Street, NE., Washington, DC
20549-1520 (telephone<PHONE_NUMBER>).

Applicants' Representations

    1. The Trust, a Delaware statutory trust, is registered under the
Act as an open-end management investment company. The Trust is a series
trust which currently offers eight series, each of which has its own
investment objectives and policies (``Funds'').\1\
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    \1\ Applicants request that the order extend to any future
series of the Trust, and any other existing or future registered
open-end management investment companies and their series that are
part of the same group of investment companies, as defined in
section 12(d)(1)(G)(ii) of the Act, as the Trust and are, or may in
the future be, advised by the Adviser or any other investment
adviser controlling, controlled by, or under common control with the
Adviser (included in the term, ``Funds''). The Trust is the only
registered investment company that currently intends to rely on the
requested order. Any other entity that relies on the order in the
future will comply with the terms and conditions of the application.
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    2. The Adviser, a Delaware limited liability company, is registered
as an investment adviser under the Investment Advisers Act of 1940 (the
``Advisers Act'') and serves as investment adviser to the Funds. The
Adviser is a wholly-owned subsidiary of Allstate Life Insurance
Company, which is an indirect, wholly-owned subsidiary of The Allstate
Corporation. The Adviser currently employs AllianceBerstein L.P. to
manage the Funds of Funds (as defined below) and Allstate Investment
Management Company (``AIMCO''), an affiliate of the Adviser, to manage
the Allstate Large Cap Index, a Fund of the Trust. AllianceBernstein
L.P. and AIMCO are, and any future subadviser will be, registered under
the Advisers Act.
    3. Applicants request relief to permit: (a) A Fund (each a ``Fund
of Funds'') to acquire shares of registered open-end management
investment companies (the ``Unaffiliated Investment Companies'') and
unit investment trusts (``UITs'') that are not part of the ``same group
of investment companies'' (as defined in section 12(d)(1)(G)(ii) of the
Act) as the Fund of Funds (``Unaffiliated Trusts,''

together with the Unaffiliated Investment Companies, the ``Unaffiliated
Funds''); (b) the Unaffiliated Funds, their principal underwriters and
any broker or dealer registered under the Securities Exchange Act of
1934 (``Broker'') to sell shares of the Unaffiliated Funds to the Fund
of Funds; (c) the Fund of Funds to acquire shares of Allstate Large Cap
Index Fund and other Funds in the ``same group of investment
companies'' (as defined in section 12(d)(1)(G)(ii) of the Act) as the
Fund of Funds (collectively, the ``Affiliated Funds,'' and together
with the Unaffiliated Funds, the ``Underlying Funds''); and (d) the
Affiliated Funds, their principal underwriters and any Broker to sell
shares of the Affiliated Funds to the Fund of Funds. Certain of the
Unaffiliated Funds may be registered under the Act as either UITs or
open-end management investment companies and have obtained exemptions
from the Commission necessary to permit their shares to be listed and
traded on a national securities exchange at negotiated prices
(``ETFs''). Each Fund of Funds also may invest in other securities and
financial instruments that are not issued by registered investment
companies and are consistent with its investment objective and
restrictions.

Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter and
any broker or dealer from selling the shares of the investment company
to another investment company if the sale will cause the acquiring
company to own more than 3% of the acquired company's voting stock, or
if the sale will cause more than 10% of the acquired company's voting
stock to be owned by investment companies generally.
    2. Section 12(d)(1)(J) 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 section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors. Applicants seek an exemption under section
12(d)(1)(J) of the Act to permit the Funds of Funds to acquire shares
of the Underlying Funds in excess of the limits set forth in section
12(d)(1)(A) of the Act and to permit the Underlying Funds, their
principal underwriters and any Broker to sell shares of the Underlying
Funds to the Funds of Funds in excess of the limits set forth in
section 12(d)(1)(B) of the Act.
    3. Applicants state that the proposed arrangement will not give
rise to the policy concerns underlying sections 12(d)(1)(A) and (B),
which include concerns about undue influence by a fund of funds or its
affiliated persons over underlying funds, excessive layering of fees,
and overly complex fund structures. Accordingly, applicants believe
that the requested exemption is consistent with the public interest and
the protection of investors.
    4. Applicants state that the proposed arrangement will not result
in undue influence by a Fund of Funds or its affiliated persons over
the Underlying Funds. The concern about undue influence does not arise
in connection with a Fund of Funds' investment in the Affiliated Funds,
since they are part of the same group of investment companies. To limit
the control that a Fund of Funds or its affiliated persons may have
over an Unaffiliated Fund, applicants submit that: (a) The Adviser and
any person controlling, controlled by or under common control with the
Adviser, any investment company and any issuer that would be an
investment company but for section 3(c)(1) or section 3(c)(7) of the
Act advised or sponsored by the Adviser or any person controlling,
controlled by or under common control with the Adviser (collectively,
the ``Group''), and (b) any investment adviser within the meaning of
section 2(a)(20)(B) of the Act to a Fund of Funds (``Sub-Adviser'') and
any person controlling, controlled by or under common control with the
Sub-Adviser, and any investment company or issuer that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act (or
portion of such investment company or issuer) advised by the Sub-
Adviser or any person controlling, controlled by or under common
control with the Sub-Adviser (collectively, the ``Sub-Adviser Group'')
will not control (individually or in the aggregate) an Unaffiliated
Fund within the meaning of section 2(a)(9) of the Act.
    5. Applicants further state that condition 2 below precludes a Fund
of Funds or the Adviser, any Sub-Adviser, promoter or principal
underwriter of a Fund of Funds, and any person controlling, controlled
by, or under common control with any of those entities (each, a ``Fund
of Funds Affiliate'') from taking advantage of an Unaffiliated Fund
with respect to transactions between a Fund of Funds or a Fund of Funds
Affiliate and the Unaffiliated Fund or its investment adviser(s),
sponsor, promoter and principal underwriter and any person controlling,
controlled by or under common control with any of those entities (each,
an ``Unaffiliated Fund Affiliate''). No Fund of Funds or Fund of Funds
Affiliate (except to the extent it is acting in its capacity as an
investment adviser to an Unaffiliated Investment Company or sponsor to
an Unaffiliated Trust) will cause an Unaffiliated Fund to purchase a
security in an offering of securities during the existence of any
underwriting or selling syndicate of which a principal underwriter is
an officer, director, trustee, advisory board member, investment
adviser, Sub-Adviser, or employee of the Fund of Funds, or a person of
which any such officer, director, trustee, investment adviser, Sub-
Adviser, member of an advisory board, or employee is an affiliated
person (each, an ``Underwriting Affiliate,'' except any person whose
relationship to the Unaffiliated Fund is covered by section 10(f) of
the Act is not an Underwriting Affiliate). An offering of securities
during the existence of any underwriting or selling syndicate of which
a principal underwriter is an Underwriting Affiliate is an ``Affiliated
Underwriting.''
    6. To further assure that an Unaffiliated Investment Company
understands the implications of an investment by a Fund of Funds under
the requested order, prior to a Fund of Funds' investment in the shares
of an Unaffiliated Investment Company in excess of the limit in section
12(d)(1)(A)(i) of the Act, a Fund of Funds and the Unaffiliated
Investment Company will execute an agreement stating, without
limitation, that their boards of directors or trustees (``Boards'') and
their investment advisers understand the terms and conditions of the
order and agree to fulfill their responsibilities under the order
(``Participation Agreement''). Applicants note that an Unaffiliated
Fund (other than an ETF whose shares are purchased by a Fund of Funds
in the secondary market) will retain its right at all times to reject
any investment by a Fund of Funds.\2\
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    \2\ An Unaffiliated Fund, including an ETF, would retain its
right to reject any initial investment by a Fund of Funds in excess
of limit in section 12(d)(1)(A)(i) of the Act by declining to
execute the Participation Agreement with the Fund of Funds.

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    7. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. The Board of each Fund of Funds,
including a majority of the trustees who are not ``interested
persons,'' as defined in section 2(a)(19) of the Act (``Independent
Trustees'') will find that the advisory fees charged under the advisory
contract are based on services provided that are in addition to, rather
than duplicative of, services provided pursuant to any Underlying
Fund's advisory contract(s). Applicants further state that the Adviser
will waive fees otherwise payable to it by a Fund of Funds in an amount
at least equal to any compensation (including fees received pursuant to
any plan adopted by an Unaffiliated Investment Company pursuant to rule
12b-1 under the Act) received from an Unaffiliated Fund by the Adviser,
or an affiliated person of the Adviser, other than any advisory fees
paid to the Adviser or an affiliated person of the Adviser by the
Unaffiliated Investment Company, in connection with the investment by
the Fund of Funds in the Unaffiliated Fund.
    8. Applicants state that any sales charges and/or service fees
charged with respect to shares of a Fund of Funds will not exceed the
limits applicable to funds of funds set forth in Rule 2830 of the
Conduct Rules of the NASD.
    9. Applicants state that the proposed arrangement will not create
an overly complex fund structure. Applicants note that an Underlying
Fund will be prohibited from acquiring securities of any investment
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in
excess of the limits contained in section 12(d)(1)(A) of the Act,
except in certain circumstances identified in condition 12 below.
Applicants also represent that a Fund of Funds' prospectus and sales
literature will contain concise, ``plain English'' disclosure designed
to inform investors about the unique characteristics of the proposed
arrangement, including, but not limited to, the expense structure and
the additional expenses of investing in Underlying Funds.

B. Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and any
affiliated persons of the company. Section 2(a)(3) of the Act defines
an ``affiliated person'' of another person to include (a) any person
directly or indirectly owning, controlling, or holding with power to
vote, 5% or more of the outstanding voting securities of the other
person; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote by the other person; and (c) any person directly or
indirectly controlling, controlled by, or under common control with the
other person. Applicants state that the Funds of Funds and the
Affiliated Funds may be deemed to be under common control of the
Adviser and therefore affiliated persons of one another. Applicants
also state that a Fund of Funds and the Underlying Funds may be deemed
to be affiliated persons of each other if a Fund of Funds acquires 5%
or more of an Underlying Fund's outstanding voting securities. In light
of these possible affiliations, section 17(a) could prevent an
Underlying Fund from selling shares to and redeeming shares from a Fund
of Funds.\3\
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    \3\ Applicants acknowledge that receipt of any compensation by
(a) an affiliated person of a Fund of Funds, or an affiliated person
of such person, for the purchase by the Fund of Funds of shares of
an Underlying Fund or (b) an affiliated person of an Underlying
Fund, or an affiliated person of such person, for the sale by the
Underlying Fund of its shares to a Fund of Funds may be prohibited
by section 17(e) of the Act. The Participation Agreement also will
include this acknowledgement.
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    2. Section 17(b) of the Act authorizes the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
it finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act. Section
6(c) of the Act permits the Commission to exempt any person or
transactions from any provision of the Act 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.
    3. Applicants submit that the proposed transactions satisfy the
requirements for relief under sections 17(b) and 6(c) of the Act as the
terms are fair and reasonable and do not involve overreaching.
Applicants state that the terms upon which an Underlying Fund will sell
its shares to or purchase its shares from a Fund of Funds will be based
on the net asset value of each Underlying Fund.\4\ Applicants also
state that the proposed transactions will be consistent with the
policies of each Fund of Funds and Underlying Fund, and with the
general purposes of the Act.
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    \4\ Applicants note that a Fund of Funds generally would
purchase and sell shares of an Unaffiliated Fund that operates as an
ETF through secondary market transactions rather than through
principal transactions with the Unaffiliated Fund. To the extent
that a Fund of Funds purchases or redeems shares from an ETF that is
an affiliated person of the Fund of Funds in exchange for a basket
of specified securities as described in the application for the
exemptive order upon which the ETF relies, applicants also request
relief from section 17(a) for those transactions.
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Applicants' Conditions

    Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
    1. The members of the Group will not control (individually or in
the aggregate) an Unaffiliated Fund within the meaning of section
2(a)(9) of the Act. The members of a Sub-Adviser Group will not control
(individually or in the aggregate) an Unaffiliated Fund within the
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in
the outstanding voting securities of an Unaffiliated Fund, the Group or
a Sub-Adviser Group, each in the aggregate, becomes a holder of more
than 25% of the outstanding voting securities of the Unaffiliated Fund,
then the Group or the Sub-Adviser Group will vote its shares of the
Unaffiliated Fund in the same proportion as the vote of all other
holders of the Unaffiliated Fund's shares. This condition will not
apply to a Sub-Adviser Group with respect to an Unaffiliated Fund for
which the Sub-Adviser or a person controlling, controlled by, or under
common control with the Sub-Adviser acts as the investment adviser
within the meaning section 2(a)(20)(A) of the Act (in the case of an
Unaffiliated Investment Company) or as the sponsor (in the case of an
Unaffiliated Trust.
    2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in an
Unaffiliated Fund to influence the terms of any services or
transactions between the Fund of Funds or a Fund of Funds Affiliate and
the Unaffiliated Fund or an Unaffiliated Fund Affiliate.
    3. The Board of each Fund of Funds, including a majority of the
Independent Trustees, will adopt procedures reasonably designed to
assure that its Adviser and any Sub-Adviser to the Fund of Funds are
conducting the investment program of the Fund of Funds without taking
into account any consideration received by the Fund of Funds or Fund of
Funds Affiliate from an Unaffiliated Fund or an Unaffiliated

Fund Affiliate in connection with any services or transactions.
    4. Once an investment by a Fund of Funds in the securities of an
Unaffiliated Investment Company exceeds the limit of section
12(d)(1)(A)(i) of the Act, the Board of the Unaffiliated Investment
Company, including a majority of the Independent Trustees, will
determine that any consideration paid by the Unaffiliated Investment
Company to a Fund of Funds or a Fund of Funds Affiliate in connection
with any services or transactions: (a) Is fair and reasonable in
relation to the nature and quality of the services and benefits
received by the Unaffiliated Investment Company; (b) is within the
range of consideration that the Unaffiliated Investment Company would
be required to pay to another unaffiliated entity in connection with
the same services or transactions; and (c) does not involve
overreaching on the part of any person concerned. This condition does
not apply with respect to any services or transactions between an
Unaffiliated Investment Company and its investment adviser(s), or any
person controlling, controlled by, or under common control with such
investment adviser(s).
    5. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to an
Unaffiliated Investment Company or sponsor to an Unaffiliated Trust)
will cause an Unaffiliated Fund to purchase a security in any
Affiliated Underwriting.
    6. The Board of an Unaffiliated Investment Company, including a
majority of the Independent Trustees, will adopt procedures reasonably
designed to monitor any purchases of securities by the Unaffiliated
Investment Company in an Affiliated Underwriting once an investment by
a Fund of Funds in the securities of the Unaffiliated Investment
Company exceeds the limit of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly from an Underwriting Affiliate.
The Board of the Unaffiliated Investment Company will review these
procedures periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Fund of Funds in the Unaffiliated Investment Company. The Board of
the Unaffiliated Investment Company will consider, among other things:
(a) Whether the purchases were consistent with the investment
objectives and policies of the Unaffiliated Investment Company; (b) how
the performance of securities purchased in an Affiliated Underwriting
compares to the performance of comparable securities purchased during a
comparable period of time in underwritings other than Affiliated
Underwritings or to a benchmark such as a comparable market index; and
(c) whether the amount of securities purchased by the Unaffiliated
Investment Company in Affiliated Underwritings and the amount purchased
directly from an Underwriting Affiliate have changed significantly from
prior years. The Board of the Unaffiliated Investment Company will take
any appropriate actions based on its review, including, if appropriate,
the institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interests of
shareholders.
    7. Each Unaffiliated Investment Company will maintain and preserve
permanently in an easily accessible place a written copy of the
procedures described in the preceding condition, and any modifications
to such procedures, and will maintain and preserve for a period of not
less than six years from the end of the fiscal year in which any
purchase from an Affiliated Underwriting occurred, the first two years
in an easily accessible place, a written record of each purchase of
securities in an Affiliated Underwriting once an investment by a Fund
of Funds in the securities of an Unaffiliated Investment Company
exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting forth
the (a) party from whom the securities were acquired, (b) identity of
the underwriting syndicate's members, (c) terms of the purchase, and
(d) the information or materials upon which the determinations of the
Board of the Unaffiliated Investment Company were made.
    8. Prior to its investment in shares of an Unaffiliated Investment
Company in excess of the limit in section 12(d)(1)(A)(i) of the Act,
the Fund of Funds and the Unaffiliated Investment Company will execute
a Participation Agreement stating, without limitation, that their
Boards and their investment advisers understand the terms and
conditions of the order and agree to fulfill their responsibilities
under the order. At the time of its investment in shares of an
Unaffiliated Investment Company in excess of the limit in section
12(d)(1)(A)(i), a Fund of Funds will notify the Unaffiliated Investment
Company of the investment. At such time, the Fund of Funds will also
transmit to the Unaffiliated Investment Company a list of the names of
each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of
Funds will notify the Unaffiliated Investment Company of any changes to
the list as soon as reasonably practicable after a change occurs. The
Unaffiliated Investment Company and the Fund of Funds will maintain and
preserve a copy of the order, the Participation Agreement, and the list
with any updated information for the duration of the investment and for
a period of not less than six years thereafter, the first two years in
an easily accessible place.
    9. Before approving any advisory contract under section 15 of the
Act, the Board of each Fund of Funds, including a majority of the
Independent Trustees, shall find that the advisory fees charged under
the advisory contract are based on services provided that are in
addition to, rather than duplicative of, services provided under the
advisory contract(s) of any Underlying Fund in which the Fund of Funds
may invest. Such finding, and the basis upon which the finding was
made, will be recorded fully in the minute books of the appropriate
Fund of Funds.
    10. The Adviser will waive fees otherwise payable to it by a Fund
of Funds in an amount at least equal to any compensation (including
fees received pursuant to any plan adopted by an Unaffiliated
Investment Company pursuant to rule 12b-1 under the Act) received from
an Unaffiliated Fund by the Adviser, or an affiliated person of the
Adviser, other than any advisory fees paid to the Adviser or its
affiliated person by the Unaffiliated Investment Company, in connection
with the investment by the Fund of Funds in the Unaffiliated Fund. Any
Sub-Adviser will waive fees otherwise payable to the Sub-Adviser,
directly or indirectly, by the Fund of Funds in an amount at least
equal to any compensation received by the Sub-Adviser, or an affiliated
person of the Sub-Adviser, from an Unaffiliated Fund, other than any
advisory fees paid to the Sub-Adviser or its affiliated person by the
Unaffiliated Investment Company, in connection with the investment by
the Fund of Funds in the Unaffiliated Fund made at the direction of the
Sub-Adviser. In the event that the Sub-Adviser waives fees, the benefit
of the waiver will be passed through to the Fund of Funds.
    11. Any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to
funds of funds set forth in NASD Conduct Rule 2830.
    12. No Underlying Fund will acquire securities of any other
investment company or company relying on section 3(c)(1) or 3(c)(7) of
the Act, in excess of the limits contained in section 12(d)(1)(A) of
the Act, except to the extent that such Underlying Fund: (a)

receives securities of another investment company as a dividend or as a
result of a plan of reorganization of a company (other than a plan
devised for the purpose of evading section 12(d)(1) of the Act); or (b)
acquires (or is deemed to have acquired) securities of another
investment company pursuant to exemptive relief from the Commission
permitting such Underlying Fund to: (i) Acquire securities of one or
more investment companies for short-term cash management purposes, or
(ii) engage in interfund borrowing and lending transactions.

    For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-1083 Filed 1-21-09; 8:45 am]

BILLING CODE 8011-01-P