[Federal Register Volume 65, Number 38 (Friday, February 25, 2000)]
[Notices]
[Pages 10132-10134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-4470]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24292; 812-11462]


Republic Funds, et al.; Notice of Application

February 16, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an 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 agreements without 
obtaining shareholder approval.

APPLICANTS: Republic Funds (the ``Republic Trust'') and Republic 
Portfolios (the ``Portfolio Trust,'' together with the Republic Trust, 
the ``Trusts''), and HSBC Bank USA (``Manager'').

FILING DATES: The application was filed on January 11, 1999 and amended 
on October 27, 1999. 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 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 March 13, 2000, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC 
20549-0609; Applicants, 452 Fifth Avenue, New York, NY 10018.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 942-0574 or George J. Zornada, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Republic Trust is organized as a Massachusetts business 
trust and the Portfolio Trust is organized as a New York trust. Each 
Trust is registered under the Act as an open-end management investment 
company and is composed of separate investment portfolios (each a 
``Fund,'' and collectively the ``Funds''), each of which has its own 
investment objectives, policies, and restrictions. The Republic Trust 
is composed of eight Funds and the Portfolio Trust consists of three 
Funds. Five of the eight Republic Trust Funds and each Fund of the 
Portfolio Trust are managed by the Manager. The remaining three 
Republic Trust Funds (the ``Feeder Funds'') do not have an investment 
adviser and each seeks to achieve its investment objectives by 
investing all its assets in a corresponding Portfolio Trust Fund. The 
Manager is an indirect wholly-owned subsidiary of HSBC Holdings plc, a 
registered bank holding company. The Manager is exempt from 
registration as an investment adviser under the Investment Advisers Act 
of 1940 (``Advisers Act'').\1\
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    \1\ Applicants also request that the relief apply to all Funds 
that may be established in the future and all registered open-end 
management investment companies or series thereof advised in the 
future by the Manager, or any entity controlling, controlled by, or 
under common control (within the meaning of section 2(a)(9) of the 
Act) with the Manager. All existing registered open-end management 
investment companies that currently intend to rely on the order have 
been named as applicants, and any future Fund or existing or future 
registered open-end management investment companies that rely on the 
order in the future will comply with the terms and conditions of the 
order.
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    2. The Republic Trust and Portfolio Trust have each entered into an 
investment advisory agreement with the Manager (``Management 
Agreement''). The Management Agreement has been approved by each Fund's 
board of trustees (``Board''), including a majority of the trustees who 
are not interested persons, as defined in section 2(a)(19) of the Act, 
of the Manager or the Trust (``Independent Trustees''), and by each 
Fund's shareholders. Under the Management Agreement, the Manager, 
subject to the oversight of the Board, supervises the overall 
investment program of the Funds. The Manager has entered into separate 
advisory agreements (``Subadvisory Agreements'') with one or more 
subadvisers (``Subadvisers''). Subject to general supervision by the 
Manager and Board, the Subadvisers provide the day-to-day management 
services to the Funds (each Fund with a Subadviser, a ``Subadvised 
Fund''). Currently there are five Subadvisers, each of which is 
registered under the Advisers Act. Future Subadvisers will be 
registered or exempt from registration under the Advisers Act. Each 
Fund pays the Manager a fee based on the value of the daily average net 
assets of the Fund.
    3. The Management recommends each Subadviser based on, among other 
things, an evaluation of the Subadviser's level of expertise and 
performance, and chooses those Subadvisers that have distinguished 
themselves in the market sectors in which a Fund invests. The Manager 
reviews the performance of the Subadvisers and will recommend to the 
Board whether a Subadvisory Agreement should be renewed, modified, or 
terminated. Fees for each Subadviser are paid directly by the Trust on 
behalf of the respective Subadvised Fund at rates negotiated with each 
Subadviser by the Manager.
    4. Applicants request an order to permit the Manager to enter into 
and materially amend Subadvisory Agreements without obtaining 
shareholder approval. The requested relief will not extend to a 
Subadviser

[[Page 10133]]

that is an affiliated person, as defined in section 2(a)(3) of the Act, 
of a Trust or the Manager, other than by reason of serving as a 
Subadviser to one or more of the Funds (an ``Affiliated Subadviser''). 
None of the current Subadviser is an 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 approved by a 
majority of the investment company's outstanding voting shares. Rule 
18f-2 under the Act provides that each series or class of stock in a 
series company affected by a matter must approve that matter if the Act 
requires shareholder approval.
    2. Section 6(c) of the Act authorizes the Commission to exempt 
persons or transactions from the provisions of the Act, or from any 
rule thereunder, 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 an exemption under section 
6(c) of the Act to permit them to enter into and materially amend 
Subadvisory Agreements without shareholder approval.
    3. Applicants state that the Funds' shareholders rely on the 
Manager to select and supervise Subadvisers. Applicants submit that 
from the perspective of the investor, the role of the Subadviser with 
respect to each Subadvised Fund is substantially equivalent to the role 
of individual portfolio managers employed by investment advisory firms. 
Applicants contend that the requested relief will allow each Subadvised 
Fund to operate more efficiently by enabling the Subadvised Funds to 
act quickly and cost effectively to replace Subadvisers when the 
respective Board and the Manager find that a change would benefit the 
Subadvised Fund. Applicants state that the Management Agreement will 
remain fully subject to the requirements of section 15(a) of the Act 
and rule 18f-2 under the Act, including the requirements for 
shareholder approval. Applicants also state that, as a condition to the 
requested order, any changes to a Subadvisory Agreement that would 
result in an increase in the overall management and advisory fees 
payable by a Subadvised Fund wll be subject to the shareholder voting 
requirements of section 15(a) and rule 18f-2.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Subadvised Fund may rely on the order requested in the 
application, the operation of the Subadvised Fund in the manner 
described in the application will be approved by a majority of the 
outstanding voting securities of the Subadvised Fund, within the 
meaning of the Act, or if applicable, pursuant to voting instructions 
provided by shareholders of those Feeder Funds investing in such 
Subadvised Fund (or by the unit holders in the case of Feeder Funds 
that are insurance company separate accounts) that are registered under 
the Act or other voting arrangements that comply with section 
12(d)(1)(E)(iii)(aa) of the Act, if applicable. Before a future Fund 
may rely on the order requested in the application, the operation of 
the future Fund in the manner described in the application will be 
approved by a majority of the outstanding voting securities of the 
future Fund, within the meaning of the Act, or if applicable, pursuant 
to voting instructions provided by the shareholders of the future Fund 
(or by unit holders in the case of a future Fund that is an insurance 
company separate account registered under the Act), in accordance with 
section 12(d)(1)(E)(iii)(aa) of the Act, or in the case of a future 
Fund whose shareholders or unit holders, as the case may be, purchase 
shares in a public offering on the basis of a prospectus containing the 
disclosure contemplated by Condition 3 below, by the initial 
shareholder(s) before the shares of the future Fund are offered to the 
public.
    2. Within 90 days of the hiring of any new Subadviser, the Manager 
will furnish the shareholders of the applicable Subadvised Fund and 
Feeder Funds (including in the case of a Feeder Fund that is an 
insurance company separate account, the unit holders of that separate 
account) all the information that would have been included in a proxy 
statement. Such information will include any changes in such 
information caused by the addition of a new Subadviser. To meet this 
obligation, the Manager will provide the shareholders of the applicable 
Subadvised Funds and Feeder Funds (including in the case of a Feeder 
Fund that is an insurance company separate account, the unit holders of 
that separate account) with an information statement meeting the 
requirements of Regulation 14C and Schedule 14C under the Securities 
Exchange Act of 1934 (``Exchange Act'') as well as the requirements of 
Item 22 of Schedule 14A under the Exchange Act.
    3. The Republic Trust's or a Feeder Fund's prospectus, Portfolio 
Trust's or future Funds' offering documents and, if applicable, 
Portfolio Trust's or future Fund's prospectus, will disclose the 
existence, substance, and effect of any order granted pursuant to this 
application. In addition, the Feeder Funds, the Subadvised Funds and 
the future Funds will hold themselves out as employing the Manager/
Subadviser approach described in the application. The Republic Trust's 
or a Feeder Funds' prospectus, Portfolio Trust's or future Fund's 
offering documents and, if applicable, Portfolio Trust's or future 
Funds' prospectus, will prominently disclose that the Manager has 
ultimate responsibility to oversee the Subadvisers and recommend their 
hiring, termination and replacement.
    4. The Manager will provide general management services to each 
respective Trust and its Subadvised Funds, including overall 
supervisory responsibility for the general management and investment of 
each Subadvised Fund's securities portfolio, and, subject to review and 
approval by the respective Board will: (i) set the Subadvised Fund's 
overall investment strategies; (ii) evaluate, select and recommend 
Subadvisers to manage all or a part of a Subadvised Fund's assets; 
(iii) allocate and reallocate a Subadvised Fund's assets among multiple 
Subadvisers, if more than one exists; (iv) monitor and evaluate the 
performance of Subadvisers including their compliance with the 
investment objectives, policies, and restrictions of Subadvised Funds; 
and (v) implement procedures to ensure that the Subadvisers comply with 
the Subadvised Fund's investment objectives, policies, and 
restrictions.
    5. A majority of each respective 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 Subadvised Fund with 
an Affiliated Subadviser, the respective Trust's trustees, 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 Subadvised Fund, and the Feeder Fund investing in the 
Subadvised Fund, and their respective shareholders (including, in the 
case of a Subadvised Fund offered to insurance company separate 
accounts, the unit holders of any separate account for

[[Page 10134]]

which the Subadvised fund serves as a funding medium) and does not 
involve a conflict of interest from which the Manager or the Affiliated 
Subadviser derives an inappropriate advantage.
    7. Neither the Manager nor a Subadvised Fund will enter into 
Subadvisory Agreements with any Subadviser that is an Affiliated 
Subadviser, other than by reason of serving as Subadviser to one or 
more Subadvised Funds, without such Subadvisory Agreement, including 
the compensation to be paid thereunder, being approved by the 
shareholders of the applicable Subadvised Fund, or if applicable, 
pursuant to voting instructions provided by shareholders of those 
Feeder Funds investing in such Subadvised Funds (or by unit holders in 
the case of Feeder Funds that are insurance company separate accounts) 
that are registered under the Act or other voting arrangements that 
comply with section 12(d)(1)(E)(iii)(aa) of the Act, if applicable.
    8. No trustee or officer of the Trusts or partner or officer of the 
Manager will own directly or indirectly (other than through a pooled 
investment vehicle that is not controlled by that Trustee, partner or 
officer) any interest in a Subadviser except for: (i) ownership of 
interests in the Manager or any entity that controls, is controlled by, 
or is under common control with the Manager, or (ii) 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.
    9. Any changes to a Subadvisory Agreement that would result in an 
increase in the overall management and advisory fees payable by a 
Subadvised Fund will be required to be approved by the shareholders of 
the Subadvised Fund, or if applicable, pursuant to voting instructions 
provided by shareholders of those Feeder Funds investing in the 
Subadvised Fund (or by unit holders in the case of Feeder Funds that 
are insurance company separate accounts) that are registered under the 
Act or other voting arrangements that comply with section 
12(d)(1)(E)(iii)(aa) of the Act, if applicable.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-4470 Filed 2-24-00; 8:45 am]
BILLING CODE 8010-01-M