[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]


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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.

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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'').


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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'').
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    \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.
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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