[Federal Register Volume 63, Number 149 (Tuesday, August 4, 1998)]
[Notices]
[Pages 41607-41609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20750]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23365; 812-10710]
MEMBERS Mutual Funds and CIMCO Inc.; Notice of Application July
29, 1998
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act and rule 18f-2 under the Act.
-----------------------------------------------------------------------
SUMMARY OF APPLICATION: Applicants request an order to permit them to
enter into and materially amend subadvisory contracts without obtaining
shareholder approval.
APPLICANTS: MEMBERS Mutual Funds (the ``Trust'') and CIMCO Inc. (the
``Manager'').
[[Page 41608]]
FILING DATES: The application was filed on June 20, 1997, and amended
on May 28, 1998. 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 the 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 24, 1998, 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
writers' request, the reason for the request, and the issues contested.
Persons may request notification of a hearing by writing to the
Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549. Applicants, 5910 Mineral Point Road,
Madison, WI 53705-0391, Attention: Faye Patzner, Esq.
FOR FURTHER INFORMATION CONTACT: Lawrence W. Pisto, Senior Counsel, at
(202) 942-0527, or Christine Y. Greenlees, Branch Chief, at (202) 942-
0564 (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 for a fee from
the Commission's Public Reference Branch, 450 Fifth Street, NW,
Washington, DC 20549 (tel. (202) 942-8090).
Applicants' Representations
1. The Trust, a Delaware business trust, is an open-end management
investment company registered under the Act. The Trust currently is
comprised of seven separate series (each, a ``Fund'' and collectively,
the ``Funds''), each of which has its own investment objective and
policies. The Manager, registered under the Investment Advisers Act of
1940 (``Advisers Act''), provides overall investment management to the
Trust and each Fund, subject to the supervision of the Board of
trustees of the trust (the ``Board''), pursuant to an investment
management agreement (the ``Management Agreement''). Currently, the
Manager provides specific portfolio management for five of the Funds,
and one or more subadvisers (``Subadvisers'') provide specific
portfolio management for two of the Funds. Each Subadviser is
registered under the Advisers Act.
2. Under the Management Agreement, the Manager monitors the
performance of each Subadviser and of a Fund's portfolio and
reallocates Fund assets among Subadvisers, or recommends to the Board
that a Fund employ or terminate particular Subadvisers. Each Subadviser
recommended by the Manager is selected and approved by the Board,
including a majority of the trustees who are not ``interested persons''
of the Manager or the Trust (the ``Independent Trustees''). The Manager
also provides the Trust and the Funds with overall administrative
services. Each Fund pays the Manager a fee based on the Fund's average
net assets.
3. Under subadvisory agreements between the Manager and the
Subadvisers (``Subadvisory Agreements'') and subject to general
supervision by the Manager and the Board, each Subadviser makes the
specific investment decisions for the Fund it advises, and has
discretionary authority to invest all or a portion of the assets of
that Fund. No Subadviser has any broader supervisory, management, or
administrative responsibilities with respect to the Trust or a Fund.
The Manager pays the Subadvisers out of the fees it receives from the
Trust.
4. Applicants seek an exemption to permit Subadvisers selected by
the Manager and approved by the Board to serve as portfolio managers
without shareholder approval.\1\ Shareholder approval is, and will
continue to be, required for any Subadviser that is an affiliated
person, as defined in section 2(a)(3) of the Act, of the Trust or the
Manager, other than by reason of serving as a Subadviser to one or more
of the Funds (``Affiliated Subadviser'').
---------------------------------------------------------------------------
\1\ Applicants request that the relief also apply to future
Funds, and to all registered open-end investment companies or series
of such companies that (i) are now, or in the future, advised by
Manager of any entity controlling, controlled by, or under common
control with the Manager; (ii) use one or more Subadvisers, and
(iii) comply with the terms and conditions in the application. All
existing investment companies that currently intend to rely on the
order have been named as applicants.
---------------------------------------------------------------------------
Applicants' Legal Analysis
1. Section 15(a) of the Act makes it 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 a majority of
the investment company's outstanding voting securities. Rule 18f-2
under the Act provides that each series or class of stock in a series
company affected by a matter must approve the matter if the Act
requires shareholder approval.
2. Section 6(c) of the Act authorizes the Commission to exempt any
person, security or transaction from any provision of the Act to the
extent that the exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policies and provisions of the Act.
Applicants request relief under section 6(c) from section 15(a) of the
Act and rule 18f-2 under the Act. For the reasons discussed below,
applicants believe that the requested relief meets the standard of
section 6(c).
3. Applicants assert that the Trust's investors rely on the Manager
for investment management, and expect the Manager to select one or more
Subadvisers best suited to achieve a Fund's investment objectives.
Applicants represent that the Manager has substantial experience in
performing these functions. Applicants submit that, consequently, from
the perspective of an investor, the role of the Subadvisers is
comparable to that of individual portfolio managers employed by other
investment advisory firms. Applicants thus contend that, without the
requested relief, the Trust may be precluded form promptly and timely
employing Subadvisers best suited to the needs of the Funds. Applicants
also note that the Management Agreement will remain fully subject to
the requirements of section 15 of the Act and rule 18f-2 under the Act,
including the requirements for shareholder approval.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Manager will provide management and administrative services
to the Funds and, subject to the review and approval of the Board,
will: (i) set the overall investment strategies of the Funds; (ii)
recommend Subadvisers; (iii) allocate and, when appropriate,
reallocate, the assets of the Funds among Subadvisers in those cases
where a Fund has more than one Subadviser; and (iv) monitor and
evaluate the investment performance of the Subadvisers, including their
compliance with the investment objectives, policies, and restrictions
of the Funds.
2. Before any Fund may rely on the order requested in the
application, the operation of the Fund in the manner described in the
application will be approved by a majority of its
[[Page 41609]]
outstanding voting securities, as defined in the Act, or, in the case
of a new Fund whose public shareholders purchased shares on the basis
of a prospectus containing the disclosure contemplated by condition 4
below, by the sole initial shareholder(s) before offering shares of
such Fund to the public.
3. Within 90 days of the hiring of any Subadviser, the Manager will
furnish shareholders of the affected Fund with all information about
the Subadviser that would be included in a proxy statement. The Manager
will meet this condition by providing shareholders with an information
statement meeting the requirements of Regulation 14C, Schedule 14C, and
item 22 of Schedule 14A under the Securities Exchange Act of 1934.
4. The Trust will disclose in its prospectus the existence,
substance and effect of any order granted pursuant to the application.
In addition, each Fund will hold itself out to the public as employing
the ``manager of managers'' approach described in the application. The
prospectus will prominently disclose that the Manager has the ultimate
responsibility for the investment performance of the Fund due to its
responsibility to oversee Subadvisers and recommend their hiring,
termination and replacement.
5. No director, trustee, or officer of the Trust or the Manager
will own, directly or indirectly (other than through a pooled
investment vehicle that is not controlled by any such director,
trustee, or officer), any interest in a Subadviser except for: (a)
ownership of interests in the Manager or any entity that controls, is
controlled by, or under common control with the Manager, or (b) or
ownership of less than 1% of the outstanding securities of any class of
equity or debt securities of any publicly traded company that is either
a Subadviser or controls, is controlled by, or is under common control
with a Subadviser.
6. The Manager will not enter into Subadvisory Agreements on behalf
of a Fund with any Affiliated Subadviser without such agreement,
including the compensation to be paid thereunder, being approved by the
shareholders of the applicable Fund.
7. At all times, 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.
8. When a change of Subadviser is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
minutes of meetings of the Board, that the change of Subadvisers is in
the best interest of the Fund and its shareholders and does not involve
a conflict of interest from which the Manager or Affiliated Subadviser
derives an inappropriate advantage.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-20750 Filed 8-3-98; 8:45 am]
BILLING CODE 8010-01-M
