[Federal Register Volume 66, Number 200 (Tuesday, October 16, 2001)]
[Notices]
[Pages 52646-52648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25986]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25208; 812-12398]


CCM Advisors Funds, et al.; Notice of Application

October 11, 2001.
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, as well as from certain 
disclosure requirements.

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SUMMARY OF APPLICATION: Applicants seek an order that would permit them 
to enter into and materially amend subadvisory agreements without 
shareholder approval and would grant relief from certain disclosure 
requirements.

APPLICANTS: CCM Advisors Funds (``Master Trust''), CCMA Select 
Investment Trust (``Select Trust''), AHA Investment Funds, Inc. (``AHA 
Funds'') (collectively, the ``Funds''), and CCM Advisors, LLC (the 
``Adviser'').

FILING DATES: The application was filed on January 9, 2001 and amended 
on October 10, 2001. 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 October 31, 2001, 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, 190 South LaSalle Street, Chicago, Illinois, 
60603.

FOR FURTHER INFORMATION CONTACT: Sara P. Crovitz, Senior Counsel, at 
(202) 942-0667, 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 at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0101, (202) 942-8090.

Applicants' Representations

    1. Each Fund is registered under the Act as an open-end management 
investment company. Master Trust, a Delaware business trust, consists 
of seven series (each a ``Master Portfolio'') that will issue interests 
solely through private placement transactions that do not involve any 
``public offering'' within the meaning of section 4(2) of the 
Securities Act of 1933 (``1933 Act''). Investments in the Master 
Portfolios may only be made by investment companies and certain other 
entities that are ``accredited investors'' within the meaning of 
regulation D under the 1933 Act. Each Master Portfolio will serve as a 
master fund in a master/feeder structure. Select Trust, a Delaware 
trust, consists of two series (each a ``Select Series''). Each Master 
Portfolio and Select Series is a ``Portfolio.'' AHA Funds, a Maryland 
corporation, consists of four series. As of November 1, 2001, each 
series of AHA expects to invest all of its investable assets in a 
corresponding Master Portfolio and become a ``Feeder Portfolio.''
    2. The Adviser, a Delaware limited liability company, is registered 
under the Investment Advisers Act of 1940 (``Advisers Act'') and 
currently serves as investment adviser to AHA Funds pursuant to an 
investment advisory agreement (``Advisory Agreement'') that was 
approved by the board of directors of AHA Funds, including a majority 
of the directors who are not ``interested persons,'' as defined in 
section 2(a)(19) of the Act, and by shareholders. The boards of 
trustees of Master Trust and Select Trust, including a majority of the 
trustees who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act, also have approved Advisory Agreements with the 
Adviser. The board of each Fund is a ``Board,'' and the

[[Page 52647]]

disinterested directors or trustees of each Board are ``Independent 
Directors.'' \1\
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    \1\ Applicants also request relief with respect to (1) any 
existing or future series of the Funds and any other registered 
open-end management investment companies or series thereof that are 
advised by the Adviser and operate in the same manner as the 
Portfolios (each such entity, also a ``Portfolio''), and (2) any 
registered open-end management investment companies or series 
thereof that are advised by the Adviser and operate in the same 
manner as the Portfolios (each such entity, also a ``Portfolio''), 
and (2) any registered open-end management investment company or 
series thereof that now or in the future invests all of its 
investable assets in a Portfolio (each such entity, also a ``Feeder 
Portfolio''). Any Portfolio or Feeder Portfolio that relies on the 
requested order will do so only in accordance with the terms and 
conditions contained in the application. The Funds are the only 
existing investment companies that currently intend to rely on the 
requested order. If the name of a Portfolio or Feeder Portfolio 
contains the name of a Subadviser (as defined below), the name of 
the Portfolio or Feeder Portfolio will also contain the name of the 
Adviser, which will appear before the name of the Subadviser.
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    3. Under the terms of each Advisory Agreement, the Adviser will 
serve as investment adviser to the Portfolios and will be responsible 
for providing general, overall advice and guidance to the Portfolios. 
Subject to oversight by the Board, the Adviser may hire subadvisers 
(each a ``Subadviser Agreements''). Each Subadviser is or will be an 
investment adviser registered or exempt from registration under the 
Advisers Act. Subadvisers will be recommended to the Board by the 
Adviser and selected and approved by the Board, including a majority of 
the Independent Directors. Each Subadviser's fees will be paid by the 
Adviser out of the management fees received by the Adviser from the 
representative Portfolio.
    4. The Adviser will monitor the Portfolio and the Subadvisers and 
will make recommendations to the Board regarding allocation, and 
reallocation, of assets between Subadvisers and will be responsible for 
recommending the hiring, termination and replacement Subadvisers and 
will be responsible for recommending the hiring, termination and 
replacement of Subadvisers. The Adviser will recommend Subadvisers 
based on a number of factors used to evaluate their skills in managing 
assets pursuant to particular investment objectives. The AHA Funds 
currently use 5 Subadvisers.
    5. Applicants request relief to permit the Adviser, subject to 
Board oversight, 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 Portfolios and Feeder Portfolios or 
of the Adviser, other than by reason of serving as a Subadviser to one 
or more of the Portfolios (``Affiliated Subadviser'').
    6. Applicants also request an exemption from the various disclosure 
provisions described below that may require each Portfolio or Feeder 
Portfolio to disclose the fees paid by the Adviser to each Subadviser. 
Each Portfolio and Feeder Portfolio would disclose (both as a dollar 
amount and as a percentage of the Portfolio' net assets): (a) aggregate 
fees paid to the Adviser and any Affiliated Subadvisers; and (b) 
aggregate fees paid to Subadvisers other than the Affiliated 
Subadvisers (``Non-Affiliated Subadvisers'') (collectively, ``Modified 
Fee Disclosure''). For any Portfolio that employs an Affiliated 
Subadviser, the Portfolio and Feeder Portfolio will provide separate 
disclosure of any fees paid to the Affiliated Subadviser.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
lawful for any person to act as investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of a majority of the 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 manner must approve such 
matter if the Act requires shareholder approval. \2\
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    \2\ In the case of the Master Portfolios, shareholder approval 
requirements under section 15(a) and rule 18f-2 also are governed by 
the voting provisions set forth in section 12(d)(1)(E) of the Act.
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    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 disclosure 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. Section 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 policies and provisions of the 
Act. Applicants state that the requested relief meets this standard for 
the reasons discussed below.
    7. Applicants assert that shareholders are relying on the Adviser 
to select and monitor the activities of Subadvisers best suited to 
achieve the Portfolios' 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 contend that requiring 
shareholder approval of each Subadvisory Agreement may impost 
unnecessary costs and delays on the Portfolio, and may preclude the 
Adviser from acting promptly and efficiently in a manner considered 
advisable by the Board and the Adviser. Applicants note that the 
Advisory Agreement will remain subject to section 15(a) of the Act and 
rule 18f-2 under the Act.
    8. Applicants assert that many Non-Affiliated Subadvisers charge 
their customers for advisory services according to a ``posted'' rate 
schedule. Applicants state that the Adviser may not be able to 
negotiate below ``posted'' fee rates with Non-Affiliated Subadvisers if 
each Non-Affiliated Subadviser's fees are required to be disclosed. 
Applicants submit that the relief will allow Non-Affiliated Subadvisers 
to accept lower advisory fees from the Adviser, the benefits of which 
will be passed on to shareholders in the form of lower advisory fees.

[[Page 52648]]

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Portfolio may rely on the order requested in the 
application, the operation of the Portfolio in the manner described in 
the application will be approved by a majority of the outstanding 
voting securities of the Portfolio, within the meaning of the Act, or 
if applicable, pursuant to voting instructions provided by shareholders 
of any Feeder Portfolios investing in the Portfolio or other voting 
arrangements that comply with section 12(d)(1)(E)(iii)(aa) (of the Act, 
if applicable. Before a future Portfolio or Feeder Portfolio may rely 
on the order requested in the application, the operation of the future 
Portfolio or Feeder Portfolio in the manner described in the 
application will be approved by a majority of the outstanding voting 
securities of the future Portfolio or Feeder Portfolio within the 
meaning of the Act, or if applicable, pursuant to voting instructions 
provided by the shareholders of the future Feeder Portfolio in 
accordance with section 12(d)(1)(E)(iii)(aa) of the Act, or in the case 
of a future Portfolio or Feeder Portfolio whose shareholders purchase 
shares in a public offering on the basis of a prospectus containing the 
disclosure contemplated by condition 2 below, by the initial 
shareholder(s) before the shares of the future Portfolio or Feeder 
Portfolio are offered to the public.
    2. A Portfolio's prospectus, a Feeder Portfolio's prospectus or, in 
the case of a Portfolio offering its shares in a private placement 
offering, its offering document, will disclose the existence, substance 
and effect of any order granted pursuant to the application. Each 
Portfolio and Feeder Portfolio will hold itself out as employing the 
management structure described in the application. A Portfolio's 
prospectus, a Feeder Portfolio's prospectus, or in the case of a 
Portfolio offering its shares in a private placement offering, its 
offering documents, will prominently disclose that the Adviser has 
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 a Subadviser, the Adviser will 
furnish shareholders of the applicable Portfolio and Feeder Portfolio 
with the information about the Subadviser that would be included in a 
proxy statement, except as modified to permit Modified Fee Disclosure. 
This information will include Modified Fee Disclosure and any changes 
in such disclosure caused by the addition of a new Subadviser. To meet 
this obligation, the Adviser will provide shareholders of the 
applicable Portfolio and Feeder Portfolio, 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 Modified Fee 
Disclosure.
    4. The Adviser will not enter into a Subadvisory Agreement with any 
Affiliated Subadviser without such Subadvisory Agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the Portfolio, or, if applicable, pursuant to voting instructions 
provided by shareholders of any Feeder Portfolios investing in such 
Portfolio or other voting arrangements that comply with section 
12(d)(1)(E)(iii)(aa) of the Act, if applicable.
    5. At all times, a majority of each Board will be Independent 
Directors, and the nomination of new or additional Independent 
Directors will be at the discretion of the then-existing Independent 
Directors.
    6. When a Subadviser change is proposed for a Portfolio with an 
Affiliated Subadviser, the applicable Board, including a majority of 
the Independent Directors, will make a separate finding, reflected in 
the applicable Portfolio's and Feeder Portfolio's Board minutes, that 
the change is in the best interests of the Portfolio and its 
shareholders and any Feeder Portfolio investing in the Portfolio and 
its respective shareholders, and does not involve a conflict of 
interest from which the Adviser or the Affiliated Subadviser derives an 
inappropriate advantage.
    7. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Directors. The 
selection of such counsel will be within the discretion of the then-
existing Independent Directors.
    8. The Adviser will provide the applicable Board, no less 
frequently than quarterly, with information about the profitability of 
the Adviser on a per-Portfolio basis. This information will reflect the 
impact on profitability of the hiring or termination of any Subadviser 
during the applicable quarter.
    9. Whenever a Subadviser is hired or terminated, the Adviser will 
provide the applicable Board with information showing the expected 
impact on the profitability of the Adviser.
    10. The Adviser will provide general management services to each 
Portfolio, including overall supervisory responsibility for the general 
management and investment of the Portfolio's assets and, subject to 
review and approval of the Board, will: (a) set each Portfolio's 
overall investment strategies; (b) evaluate, select and recommend 
Subadvisers to manage all or part of the Portfolio's assets; (c) 
allocate and, when appropriate, reallocate the Portfolio'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 each Portfolio's investment 
objectives, policies and restrictions.
    11. No trustee, director, or officer of the Portfolios or Feeder 
Portfolios or director or officer of the Adviser will own directly or 
indirectly (other than through a pooled investment vehicle that is not 
controlled by 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 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.
    12. Each Portfolio and Feeder Portfolio in its registration 
statement and each Portfolio offering its shares in a private placement 
offering, in its offering documents, will disclose the Modified Fee 
Disclosure.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-25986 Filed 10-15-01; 8:45 am]
BILLING CODE 8010-01-M