01-16879. Hillview Investment Trust II, Hillview Capital Advisors, LLC, 1055 Washington Boulevard, Stamford, Connecticut 06901, (812-12062); Order Pursuant to Section 6(c) of the Investment Company Act of 1940 Granting an Exemption From Section 15(a)...

Hillview Investment Trust II (“Hillview Trust”) and Hillview Capital Advisors, LLC filed an application on April 14, 2000, and an amendment to the application on November 15, 2000, requesting an order 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. The requested order would permit Hillview Trust, an open-end investment company registered under the Act (“fund”) that would operate under an adviser/subadviser(s) structure described in the application, to enter into and materially amend subadvisory agreements without shareholder approval (“manager of managers exemptive relief”).

On February 6, 2001, a notice of the filing of the application was issued (Investment Company Act Release No. 24853). The notice gave interested persons an opportunity to request a hearing and stated that an order disposing of the application would be issued unless a hearing was ordered.

On March 5, 2001, Fund Democracy, LLC (“Fund Democracy”) submitted a hearing request on the application (“Hearing Request”). Also on March 5, 2001, Institutional Shareholder Services (“ISS”) submitted a letter supporting the Hearing Request.

Rule 0-5(c) under the Act states that the Commission will order a hearing on a matter, upon the request of an “interested person” or upon its own motion, if it appears that a hearing is “necessary or appropriate in the public interest or for the protection of investors.”

The Commission has reviewed the issues raised in the Hearing Request, which are summarized below.

Fund Democracy asserts that a fund that has only one subadviser should not be entitled to the manager of managers exemptive relief (i.e., should not be able, among other things, to hire a new subadviser or reallocate fees between the adviser and the subadviser without shareholder approval). Fund Democracy also asserts that the conditions governing the manager of managers exemptive relief are insufficient to assure that funds relying on the relief hold themselves out to the public as operating pursuant to the manager of managers structure. The Hearing Request includes several examples of disclosures made by funds that have received the manager of managers exemptive relief that fund Democracy views as inadequate.

The Commission finds that these issues were considered and decided when the Commission granted manager of managers exemptive relief in Frank Russell Investment Company, et al., Investment Company Act Release Nos. 21108 (June 2, 1995) (notice) (“Frank Russell Notice”) and 21169 (June 28, 1995) (order) (“Frank Russell Order”). Nearly 70 other orders granting manager of managers exemptive relief under the conditions established in the Frank Russell Order have been issued since 1995 (“Other Orders”). The Frank Russell Order and the Other Orders allow funds that utilize the manager of managers structure to avoid the costs and burdens associated with seeking shareholder approval of subadvisory agreements. The order requested by the Hillview Trust would be subject to conditions substantially identical to those in the Frank Russell Order and the Other Orders.

When we first granted manager of managers exemptive relief in the Frank Russell Order, we recognized that certain funds may employ subadvisers in a capacity similar to that of individual portfolio managers. The application for the Frank Russell Order stated that “primary responsibility for management of the [f]unds, in particular, the selection and supervision of the [subadvisers], will be vested in the [advisers], subject to oversight and approval by the [f]unds' directors.” ^[1] Under the terms and conditions of the Frank Russell Order and the Other Orders, the adviser was required to provide general management and administrative services to the fund and, subject to review and approval of the fund's board of directors, set the fund's overall investment strategies, select subadvisers, allocate the fund's assets among subadvisers, monitor and evaluate the performance of the subadvisers, and ensure that the subadvisers, comply with the fund's investment objectives, policies and restrictions.^[2] In such an arrangement, irrespective of the number of subadvisers employed or the frequency with which subadvisers are changed, we determined that relief from the shareholder approval requirements in section 15(a) of the Act and rule 18f-2 under the Act for subadvisory agreements was 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]

In the Frank Russell Order, we also specifically considered the advisory fee arrangement of a fund operating pursuant to a manager of managers structure. The Frank Russell Order and the Other Orders permit the adviser to allocate and reallocate advisory fees between itself and the subadviser(s), and among subadvisers, without a shareholder vote, provided that the aggregate advisory fee paid by the fund remains subject to approval by the shareholders, and subject to the other conditions in the Frank Russell Order and the Other Orders.

Finally, the Commission finds that the conditions set forth in the Frank Russell Order and the Other Orders are appropriate to assure that funds relying on the manager of managers exemptive relief adequately disclose to the public the manner in which these funds operate.

The Commission therefore finds that it has previously considered and decided the issues raised in the Hearing Request. Therefore, it appears that a hearing is not necessary or appropriate in the public interest or for the protection of investors.^[4] Accordingly,

It is ordered that the request for a hearing is denied.

The matter having been considered, it is found, on the basis of the information set forth in the application, as amended, that granting the requested exemptions is 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.

It is further ordered that the requested exemption under section 6(c) of the Act from section 15(a) of the Act and rule 18f-2 under the Act is granted, effective immediately, subject to the conditions contained in the application, as amended.

By the Commission.

Jonathan G. Katz,

Secretary.

Footnotes

1.  Frank Russell Notice, applicants' legal analysis at paragraph 2.

2.  Id., applicants' condition #8.

3.  Neither the terms nor the conditions of the Frank Russell order required the funds to use multiple subadvisers; instead, the applicants represented specifically that the adviser to the funds “has engaged, or will engage, one or more subadvisers.” Frank Russell Notice, applicants' representations at paragraph 3. The Frank Russell Order and the Other Orders similarly imposed no requirement that the subadvisers be changed with any frequency.

4.  The Commission does not deem it necessary to make a formal determination with respect to the status of Fund Democracy or ISS as an “interested person” within the meaning of section 40(a) of the Act and rule 0-5(c) under the Act inasmuch as the Commission has determined that the issues raised in the Hearing Request do not warrant a hearing.