[Federal Register Volume 67, Number 22 (Friday, February 1, 2002)]
[Notices]
[Pages 5013-5015]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 02-2458]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-25402; 812-12200]
Memorial Funds and Memorial Investment Advisors, Inc.; Notice of
Application
January 25, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for 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, as well as from certain
disclosure requirements.
-----------------------------------------------------------------------
Summary of Application: Memorial Funds (the ``Trust'') and Memorial
Investment Advisors, Inc. (the ``Adviser'') (together, ``Applicants'')
request an order that would permit applicants to enter into and
materially amend subadvisory agreements without shareholder approval
and grant relief from certain disclosure requirements.
Filing Dates: The application was filed on July 24, 2000, and amended
on January 22, 2002.
Hearing or Notification of Hearing: An order granting the requested
relief 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 19, 2002, 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 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, Commission, 450 Fifth Street, NW., Washington, DC
20549-0609; Applicants, c/o Anthony C.J. Nuland, Esq., Seward & Kissel,
LLP, 1200 G Street NW., Washington, DC 20005.
FOR FURTHER INFORMATION CONTACT: Lidian Pereira, Senior Counsel, at
(202) 942-0524, or Mary Kay Frech, 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 at the
[[Page 5014]]
Commission's Public Reference Branch, 450 Fifth Street, NW.,
Washington, DC 20549-0102, telephone 202-942-8090.
Applicants' Representations
1. The Trust, a Delaware business trust, is registered under the
Act as an open-end management investment company. The Trust currently
is composed of four series (each a ``Fund,'' collectively, the
``Funds'').\1\ Each Fund has its own investment objectives, policies
and restrictions.
---------------------------------------------------------------------------
\1\ Applicants request that any relief granted pursuant to the
application also apply to future series of the Trust, and any other
registered open-end management investment company and its series
that: (a) Are advised by the Adviser or any entity controlling,
controlled by, or under common control with the Adviser; (b) use the
multi-manager structure described in the application; and (c) comply
with the terms and conditions in the application (``Future Funds,''
included in the term ``Funds''). All entities that currently intend
to rely on the requested relief are named as applicants. If the name
of any Fund contains the name of a Subadviser, it will be preceded
by the name of the Adviser.
---------------------------------------------------------------------------
2. The Adviser, registered under the Investment Advisers Act of
1940 (``Advisers Act''), serves as investment adviser to the Funds
pursuant to an investment advisory agreement with the Trust (``Advisory
Agreement''), which was approved by the board of trustees of the Trust
(``Board''), including a majority of the trustees who are not
``interested persons,'' as defined in section 2(a)(19) of the Act
(``Independent Trustees''), and by each Fund's shareholders. Under the
terms of the Advisory Agreement, the Adviser provides investment
advisory services for each Fund and may hire one or more subadvisers
(``Subadvisers'') to exercise day-to-day investment discretion over the
assets of the Fund pursuant to separate investment advisory agreements
(``Subadvisory Agreements''). All current and future Subadvisers will
be registered under the Advisers Act. Subadvisers are recommended to
the Board by the Adviser and selected and approved by the Board,
including a majority of the Independent Trustees. The Adviser
compensates each Subadviser out of the fees paid to the Adviser by the
applicable Fund.
3. The Adviser monitors the Funds and the Subadvisers and makes
recommendations to the Board regarding allocation, and reallocation, of
assets between Subadvisers and is responsible for recommending the
hiring, termination and replacement of Subadvisers. The Adviser
recommends Subadvisers based on a number of factors used to evaluate
their skills in managing assets pursuant to particular investment
objectives.
4. Applicants request relief to permit the Adviser, subject to the
oversight of the Board, to enter into and materially amend Subadvisory
Agreements without shareholder approval. The requested relief will not
extend to a Subadviser that is an affiliated person, as defined in
section 2(a)(3) of the Act, of the Trust or the Adviser, other than by
reason of serving as a Subadviser to one or more of the Funds (an
``Affiliated Subadviser'').
5. Applicants also request an exemption from the various disclosure
provisions described below that may require each Fund to disclose fees
paid by the Adviser to the Subadvisers. The Trust will disclose for
each Fund (both as a dollar amount and as 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 an Affiliated Subadviser, the Fund will provide separate
disclosure of any subadvisory fees paid to the Affiliated Subadviser.
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 to a registered
investment company except under 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. Form N-1A is the registration statement used by open-end
investment companies. Item 15(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 an investment company to comply with Schedule 14A under the
Securities Exchange Act of 1934 (``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 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. Form N-SAR is the semi-annual report filed with the Commission
by registered investment companies. Item 48 of Form N-SAR requires
investment companies to disclose the rate schedule for fees paid to
their investment advisers, including the Subadvisers.
5. Regulation S-X sets forth the requirements for financial
statements required to be included as part of investment company
registration statements and shareholder reports filed with the
Commission. Sections 6-07(2) (a), (b), and (c) of Regulation S-X
require that investment companies include in their financial statements
information about investment advisory fees.
6. 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 provision 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 believe that their requested relief meets this standard
for the reasons discussed below.
7. Applicants assert that by investing in a Fund, shareholders, in
effect, will hire the Adviser to manage the Fund's assets by selecting
and monitoring Subadvisers rather than by hiring its own employees to
manage assets directly. Applicants state that investors will purchase
Fund shares to gain access to the Adviser's expertise in overseeing
Subadvisers. Applicants further assert that the requested relief will
reduce Fund expenses and permit the Funds to operate more efficiently.
Applicants note that the Advisory Agreement will remain subject to the
shareholder approval requirements of section 15(a) of the Act and rule
18f-2 under the Act.
8. Applicants assert that some Subadvisers charge their customers
for advisory services according to a ``posted'' rate schedule.
Applicants state that while Subadvisers are willing to negotiate fees
lower than those posted in the schedule, particularly with large
institutional clients, they are reluctant to do so where the fees are
disclosed to other prospective and existing customers. Applicants
submit that the relief will encourage Subadvisers to negotiate lower
advisory fees with the Adviser, the benefits of which are likely to be
passed on to shareholders.
[[Page 5015]]
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 outstanding voting securities of the Fund, as defined
in the Act, or in the case of a Fund whose public shareholders
purchased shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the initial shareholders prior to
offering shares of the Fund to the public.
2. Any Fund relying on the requested relief will disclose in its
prospectus the existence, substance, and effect of any order granted
pursuant to the application. In addition, each Fund relying on the
requested order will hold itself out to the public as employing the
management structure described in the application. The 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. Within 90 days of the hiring of any new Subadviser, shareholders
of the relevant Fund will be furnished all information about the
Subadviser that would be contained in a proxy statement, except as
modified by the order to permit Aggregate Fee Disclosure. This
information will include Aggregate Fee Disclosure and any change in
such disclosure caused by the addition of a new Subadviser. The Adviser
will meet this condition by providing shareholders, within 90 days of
the hiring of a Subadviser, an information statement meeting the
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule
14A under the Exchange Act, except as modified by the order to permit
Aggregate Fee Disclosure.
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, a majority of the Trust's Board will be
Independent Trustees, and the nomination of new or additional
Independent Trustees will be at the discretion of the then existing
Independent Trustees.
6. When a Subadviser change is proposed for a Fund with an
Affiliated Subadviser, the Trust's Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Trust's Board minutes, that the 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 counsel knowledgeable about the Act and the duties
of Independent Trustees will be engaged to represent the Trust's
Independent Trustees. The selection of such counsel will be within the
discretion of the Independent Trustees.
8. The Adviser will provide the Trust's Board, no less frequently
than quarterly, with information about the Adviser's profitability for
each Fund relying on the relief requested in the application. The
information will reflect the impact on profitability of the hiring or
termination of Subadvisers during the applicable quarter.
9. Whenever a Subadviser to a particular Fund is hired or
terminated, the Adviser will provide the Trust's Board with information
showing the expected impact on the Adviser's profitability.
10. The Adviser will provide general management services to the
Trust and the Funds, including overall supervisory responsibility for
the general management and investment of each Fund's securities
portfolio, and, subject to review and approval by the Board, will (a)
set each Fund's overall investment strategies, (b) evaluate, select and
recommend Subadvisers to manage all or a part of a Fund's assets, (c)
allocate and, when appropriate, reallocate a Fund's assets among
multiple Subadvisers, (d) monitor and evaluate the performance of
Subadvisers, and (e) implement procedures reasonably designed to ensure
that the Subadvisers comply with the relevant Fund's investment
objective, policies and restrictions.
11. No trustee or officer of the Trust or director or officer of
the Adviser will own directly or indirectly (other than through a
pooled investment vehicle that is not controlled by any 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 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 Fund will disclose in its registration statement the
respective Aggregate Fee Disclosure.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-2458 Filed 1-31-02; 8:45 am]
BILLING CODE 8010-01-U