[Federal Register Volume 65, Number 162 (Monday, August 21, 2000)]
[Notices]
[Pages 50726-50727]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21184]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24598; 812-11922]


CNI Charter Funds and City National Bank; Notice of Application

August 14, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an exemption under section 6(c) of 
the Investment Company Act of 1940 (``Act'') from section 15(a) of the 
Act and rule 18f-2 under the Act.

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    Summary of Application: The order would permit applicants to enter 
into and materially amend subadvisory agreements without shareholder 
approval.
    Applicants: CNI Charter Funds (the ``Trust'') and City National 
Bank (the ``Adviser'').
    Filing Dates: The application was filed on December 30, 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 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 
September 7, 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 
may request notification of a hearing by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants, 400 North Roxbury Drive, Suite 600, Beverly Hills, 
California 92010.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Staff Attorney, at 
(202) 942-0634, or Michael W. Mundt, 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 SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, 
DC 20549-0102 (tel. (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 is 
currently comprised of nine separate series (each a ``Fund,'' and 
together, the ``Funds''), each with its own investment objectives, 
policies, and restrictions.\1\ The Adviser, a federally chartered bank, 
serves as the investment adviser to the Funds and is exempt from 
registration under the Investment Advisers Act of 1940 (``Advisers 
Act'').
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    \1\ Applicants also request relief for any future series of the 
Trust and any other future registered open-end management investment 
company that (a) is advised by the Adviser or any entity 
controlling, controlled by or under common control with the Adviser; 
(b) uses the adviser/subadviser structure that is described in the 
application; and (c) complies with the terms and conditions in the 
application. The Trust is the only existing open-end management 
investment company that currently intends to rely on the order.
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    2. The Adviser serves as investment adviser to the Funds pursuant 
to an investment advisory agreement between the Trust and the adviser 
that was approved by the Trust'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 (``Independent Trustees''), 
and each Fund's shareholders (``Advisory Agreement'').
    3. The Advisory Agreement permits the Adviser to enter into 
separate investment advisory agreements (``Subadvisory Agreements'') 
with subadvisers (``Subadvisers'') to whom the Adviser may delegate 
responsibility for providing investment advice and making investment 
decisions for a Fund.\2\ The Adviser monitors and evaluates the 
Subadvisers and recommends to the Board their hiring, termination, and 
replacement. Each Subadviser is an investment adviser registered under 
the Advisers Act or

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exempt from registration. The Adviser compensates the Subadvisers out 
of the fees paid to the Adviser by the Fund.
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    \2\ Currently, three of the Funds are advised by a Subadviser.
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    4. Applicants request relief to permit the Adviser to enter into 
and materially amend Subadvisory Agreements without obtaining 
shareholder approval. The requested relief will not extend to any 
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 (``Affiliated 
Subadviser'').

Applicant's 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. Section 6(c) of the Act authorizes the SEC to exempt persons or 
transactions from the provisions of the Act to the extent that the 
exemption is unnecessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the polices and provisions of the Act. Applicants state 
that the requested relief meets this standard for the reasons discussed 
below.
    3. Applicants assert that the Funds' shareholders rely on the 
Adviser to select the Subadvisers best suited to achieve a Fund's 
investment objectives. Applicants assert that, from the perspective of 
the investor, the role of the Subadvisers is comparable to that of 
individual portfolio managers employed by other investment advisory 
firms. Applicants submit that the requested relief will reduce the 
Funds' expenses associated with shareholder meetings and proxy 
solicitations, and enable the Funds to operate more efficiently. 
Applicants also note that the Advisory Agreement will remain subject to 
section 15(a) of the Act and rule 18f-2 under the Act.

Applicants' Conditions

    Applicants agree that the 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, as described in the application, will be approved by a 
majority of the Fund's outstanding voting securities, as defined in the 
Act, or in the case of a Fund whose public shareholders purchased 
shares on the basis of the prospectus containing the disclosure 
contemplated by condition 2 below, by the initial shareholders before 
offering shares of that Fund to the public.
    2. Each 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 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 ultimate responsibility subject to review of the Board to 
monitor and evaluate Subadvisers and recommend their hiring, 
termination, and replacement.
    3. At all times, a majority of the 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.
    4. The Adviser will not enter into a Subadvisory Agreement with an 
Affiliated Subadviser without that agreement, including the 
compensation to be paid under it, being approved by the shareholders of 
the applicable Fund.
    5. When a Subadviser change 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 
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.
    6. Within 90 days of the hiring of any new Subadviser, the Adviser 
will furnish shareholders of the affected Fund with the information 
about the Subadviser that would be included in a proxy statement. The 
information will include any changes caused by the addition of the new 
Subadviser. The Adviser will meet this condition by providing 
shareholders of the applicable Fund 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, as amended.
    7. The Adviser will provide general management services to 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 (i) set each Fund's 
overall investment strategies; (ii) evaluate, select, and recommend 
Subadvisers to manage all or a part of a Fund's assets; (iii) when 
appropriate, allocate and reallocate the Fund's assets among multiple 
Subadvisers; (iv) monitor and evaluate the performance of the 
Subadvisers; and (v) implement procedures reasonably designed to ensure 
that the Subadvisers comply with the Fund's investment objectives, 
restrictions, and policies.
    8. 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 trustee, director 
or officer) any interest in a Subadviser 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 equity or debt 
securities of any publicly-traded company that is either a Subadviser 
or an entity that controls, is controlled by, or is under common 
control with a Subadviser.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-21184 Filed 8-18-00; 8:45 am]
BILLING CODE 8010-01-M