[Federal Register Volume 63, Number 114 (Monday, June 15, 1998)]
[Notices]
[Pages 32686-32688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15826]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23246; 812-10970]
M Fund, Inc., et al.; Notice of Application
June 9, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') from section 15(a) of the
Act and rule 18f-2 under the Act.
-----------------------------------------------------------------------
SUMMARY OF APPLICATION: Applicants, M Fund, Inc. (``Company'') and M
Financial Investment Advisers, Inc. (``Adviser''), request an order to
permit them to enter into and materially amend investment advisory
contracts without shareholder approval.
FILING DATES: The application was filed on January 16, 1998, and
amended on May 18, 1998, and June 4, 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 SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 30, 1998,
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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549.
Applicants, 205 S.E. Spokane Street, Portland, Oregon 97202.
FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, 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
[[Page 32687]]
may be obtained for a fee at the SEC's Public Reference Branch, 450
Fifth St., N.W., Washington, DC 20549 (tel. 202-942-8090).
Applicants' Representations
1. The Company, a Maryland corporation registered under the Act as
an open-end diversified management investment company currently has
four series (``Funds'') that are offered exclusively to variable
annuity and variable life insurance separate accounts of life insurance
companies. The Adviser, registered under the Investment Advisers Act of
1940 (``Advisers Act''), is the investment adviser to each of the Funds
pursuant to an investment advisory agreement (``Agreement''). Each Fund
currently has one investment subadviser (``Manager''), each of which is
registered under the Advisers Act.
2. Under the Agreement, the Adviser oversees the administration of
all operations of the Company and oversees each Fund's Manager. Each
Manager recommended by the Adviser is ultimately approved by the Fund's
board of directors (``Board''), including a majority of the Fund's
directors who are not ``interested persons'' of the Fund as defined in
section 2(a)(19) of the Act (``Independent Directors''). The Adviser
monitors each Manager's compliance with each Fund's investment
objectives and policies, reviews the performance of each Manager, and
periodically reports each Manager's performance to the Board. As
compensation for its services, the Adviser receives a fee, paid by the
Company, based on the average daily net assets of each of the Funds.
3. Under subadvisory agreements between the Adviser and the
Managers (``Subadvisory Agreements'') the specific investment decisions
for each Fund are, and will continue to be, made by each Manager. The
Managers' fees are paid by the Adviser out of its fee.
4. Applicants request an exemption from section 15(a) of the Act
and rule 18f-2 under the Act to permit Managers selected by the Adviser
and approved by the Board to serve as investment subadvisers for the
Funds without shareholder approval.\1\
---------------------------------------------------------------------------
\1\ Applicants request that the relief also apply to any series
of the Company that may be created in the future, and to all
subsequently registered open-end investment companies that in the
future are advised by the Adviser, or any entity controlling,
controlled by, or under common control with the Adviser, provided
that these companies operate in substantially the same manner as the
Funds with respect to the Adviser's responsibility to select,
evaluate and supervise Managers and comply with the conditions to
the requested order as set forth in the application (``Future
Funds'').
---------------------------------------------------------------------------
Shareholder approval is, and will continue to be, required for any
Manager that is an affiliated person, as defined in section 2(a)(3) of
the Act, other than by reason of serving as a Manager to one or more of
the Funds (``Affiliated Manager'').
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 provides that the SEC may exempt any
person, security, or transaction from any provision of the Act if, and
to the extent that, 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.
3. Applicants assert that the Company's investors rely on the
Adviser to select Managers best suited to achieve a Fund's investment
objectives. The Adviser has represented itself as an investment adviser
whose strength and expertise lies in its ability to evaluate, select
and supervise those Managers who can add the most value to a
shareholder's investment in the Company. Applicants state that, from
the perspective of an investor, the role of the Managers is similar to
that of individual portfolio managers employed by traditional
investment advisory firms. Applicants thus contend that the requested
relief will allow each Fund to operate more efficiently by enabling the
Funds to act quickly and cost effectively to replace Managers when the
Board and the Adviser feel that a change would benefit the Fund.
Applicants also note that the 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.\2\
---------------------------------------------------------------------------
\2\ The Company's prospectus has disclosed, since the effective
date of the Company's registration statement, that the Company would
seek an exemptive order from the SEC permitting changes in Managers
without submitting the Subadvisory Agreements to a vote of the
Company's shareholders.
---------------------------------------------------------------------------
Applicants' Conditions
Applicants agree that the requested order will be subject to the
following conditions:
1. Before a Future Fund that does not presently have an effective
registration statement may rely on the order requested herein, the
operation of the Future Fund in the manner described in the application
will be approved by its initial shareholder(s) before shares of the
Future Fund are made available to the public.
2. The Company will disclose in its prospectus the existence,
substance, and effect of any order granted pursuant to this
application. In addition, each Fund 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 to oversee the Managers and recommend their hiring,
termination, and replacement.
3. At all times, a majority of the Company's Board will consist of
Independent Directors, and the nomination of new or additional
Independent Directors will be at the discretion of the then existing
Independent Directors.
4. The Adviser will not enter into a Subadvisory Agreement with any
Affiliated Manager without that Agreement, including the compensation
to be paid thereunder, being approved by the shareholders of the
applicable Fund.
5. When a Manager change is proposed for a Fund with an Affiliated
Manager, the Company's Board, including a majority of the Independent
Directors, will make a separate finding, reflected in the Company'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 of the Affiliated Manager derives an inappropriate
advantage.
6. Within 90 days of the hiring of any new Manager shareholders
will be furnished relevant information about the new Manager or
Subadvisory agreement that would be contained in a proxy statement
including any change in the disclosure caused by the addition of the
new Manager. The Adviser will meet this condition by providing
shareholders, within 90 days of the hiring of a Manager, an informal
information statement meeting the requirements of Regulations 14C,
Schedule 14C, and Item 22 of Schedule 14A under the Securities Exchange
Act of 1934.
7. The Adviser will provide general management services to each
Fund,
[[Page 32688]]
including overall supervisory responsibility for the general management
and investment of each Fund's portfolio, and subject to review and
approval by the Board, will: (i) set the Fund's overall investment
strategies; (ii) select managers, (iii) when appropriate, recommend to
the Board the allocation and reallocation of a Fund's assets among
multiple Managers; (iv) monitor and evaluate the performance of
Manager; and (v) ensure that the Managers comply with the Fund's
investment objectives, policies, and restrictions.
8. No director or officer of the Company or director or officer of
the Adviser will own directly or indirectly (other than through a
pooled investment vehicle that is not controlled by that director or
officer) any interest in a Manager except for (i) ownership of
interests in the Adviser or any entity that controls, is controlled by,
or is under common control with the Adviser; or (ii) ownership of less
than 1% of the outstanding securities of any class of debt or equity of
a publicly-traded company that is either a Manager or an entity that
controls, is controlled by, or is under common control with a Manager.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-15826 Filed 6-12-98; 8:45 am]
BILLING CODE 8010-01-M