[Federal Register Volume 66, Number 206 (Wednesday, October 24, 2001)]
[Notices]
[Pages 53812-53814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26753]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25214; 812-11928]


Clearwater Investment Trust and Clearwater Management Co., Inc.; 
Notice of Application

October 18, 2001.
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: The requested order would permit applicants, 
Clearwater Investment Trust (the ``Trust'') and Clearwater Management 
Co., Inc. (the ``Adviser''), to enter into and materially amend 
investment subadvisory agreements without obtaining shareholder 
approval.

FILING DATES: The application was filed on January 6, 2000, and amended 
on

[[Page 53813]]

April 10, 2000, and August 13, 2001, and amended on October 3, 2001.

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 November 13, 2001, 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 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, c/o Richard T. Holm, Esq., Clearwater 
Management Co., Inc., 332 Minnesota Street, Suite 2100, St. Paul MN 
55101-1394.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 942-0574, or Nadya Roytblat, Assistant Director, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulations).

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 (tel. (202) 942-8090).

Applicants' Representations

    1. The Trust, a Massachusetts business trust, is registered under 
the Act as an open end management investment company. The Trust is 
comprised of three separate series, each with its own distinct 
investment objectives, policies, and restrictions (each, a 
``Fund'').\1\
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    \1\ Applicants also request relief with respect to future Funds 
and any other registered open-end management investment company and 
its series that in the future: (a) is advised by the Adviser, or a 
person controlling, controlled by or under common control (within 
the meaning of section 2(a)(9) of the Act) with the Adviser; (b) 
operates in substantially the same manner as the Funds with regard 
to the Adviser's responsibility to select, evaluate, and supervise 
Subadvisers; and (c) complies with the terms and conditions in the 
application (``Future Funds''). The only existing registered open-
end management investment company that currently intends to rely on 
the requested order is named as an applicant. (p. 2, fn. 1) No Fund 
or Future Fund will incorporate the name of any Subadviser in the 
Fund's name.
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    2. The Adviser is registered under the Investment Advisers Act of 
1940 (``Advisers Act''). The Trust, on behalf of each Fund, has entered 
into investment advisory agreements with the Adviser (each, an 
``Advisory Agreement''), pursuant to which the Adviser serves as the 
investment adviser to the Funds. Each Advisory Agreement has been 
approved by the Funds' initial shareholder and by a majority of the 
Trust's board of trustees (the ``Board''), including a majority of the 
trustees who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act, of the Trust or the Adviser (``Independent 
Trustees'').
    3. Under the Advisory Agreements, the Adviser, subject to Board 
oversight, provides each Fund with investment research, advise, and 
supervision, and furnishes an investment program for each Fund. The 
Advisory Agreements also provide that the Adviser may delegate its 
responsibility for providing investment advise and making investment 
decisions for a particular Fund to one or more subadvisers 
(``Subadvisers''). The Adviser selects Subadvisers based on the 
Adviser's continuing evaluation of their skills in managing assets 
pursuant to particular investment styles. The Adviser screens potential 
new Subadvisers and engages in an on-going analysis of the continued 
advisability as to the retention of its existing Subadvisers. From time 
to time, the Adviser may recommend to the Board that the services of a 
Subadviser be terminated. Each Fund pays the Adviser a fee for its 
services based on the Fund's average daily net assets.
    4. The Adviser and each Fund have entered into investment 
subadvisory agreements (``Subadvisory Agreements'') with each 
Subadviser. None of the Trust's existing Subadvisers is an ``affiliated 
person,'' as defined in section 2(a)(3) of the Act, of the Fund or the 
Adviser (other than by serving as a Subadviser to the Fund). Each 
Subadviser, and any future Subadviser will be, registered under the 
Advisers Act or exempt from registration. The Adviser pays each 
Subadviser's fees out of the fees the Adviser receives from each Fund.
    5. Applicants request relief to permit the Adviser to enter into 
and materially amend Subadvisory Agreements without obtaining 
shareholder approval. Applicants state that shareholder approval of a 
Subadvisory Agreement with a Subadviser that is an affiliated person of 
the Trust or the Adviser (other than by reason of serving as a 
Subadviser to one or more of the Funds) (``Affiliated Subadviser'') 
will be obtained.

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 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 the 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 from section 15(a) of the Act and rule 18f-2 under the 
Act to permit them to enter into and materially amend Subadvisory 
Agreements without shareholder approval.
    3. Applicants assert that a Fund's investors rely on the Adviser to 
select and monitor Subadvisers best suited to manage the Fund's 
portfolio. Applicants submit that, from the perspective of an investor, 
the role of the Subadvisers is comparable to that of individual 
portfolio managers employed by other investment company advisory firms. 
Applicants contend that requiring shareholder approval of Subadvisory 
Agreements would impose expenses and unnecessary delays on the Funds, 
and may preclude the Adviser from promptly acting in a manner 
considered advisable by the Board. Applicants note that the Advisory 
Agreements will remain subject to section 15(a) 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. Before a Fund may rely on the order requested in this 
application, the operation of the Fund in the manner described in this 
application will be approved by a majority or the Fund's outstanding 
voting securities, as defined in the Act, or by its initial 
shareholder, provided that, in the case of approval by the initial 
shareholder, the pertinent Fund's shareholders purchase shares on the 
basis of a prospectus containing the disclosure contemplated by 
condition 2 below. Similarly, before a Future Fund

[[Page 53814]]

may rely on the order requested in this application, the operation of 
the Future Fund in the manner described in this application will be 
approved by its initial shareholder before a public offering of shares 
of such Future Fund, provided that shareholders purchase shares on the 
basis of a prospectus containing the disclosure contemplated by 
condition 2 below.
    2. Each Fund 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 the ultimate 
responsibility to oversee 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 any 
Affiliated Subadviser without that agreement, including the 
compensation to be paid thereunder, 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 change.
    6. Within 90 days of the hiring of any new Subadviser for any Fund, 
the Fund shareholders will be furnished all relevant information about 
a new Subadviser that would be contained in a proxy statement, 
including any change in such disclosure caused by the addition of a new 
Subadviser. Each Fund will meet this condition by providing 
shareholders with an information statement meeting the disclosure 
requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule 
14A under the Securities Exchange Act of 1934 within 90 days of the 
hiring of a Subadviser.
    7. The Adviser will provide general management services to each 
Fund, 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 Subadviser(s); (iii) monitor and 
evaluate the performance of Subadviser(s); (iv) ensure that the 
Subadviser(s) comply with each Fund's investment objectives, policies 
and restrictions by, among other things, implementing procedures 
reasonably designed to ensure compliance; and (v) allocate and, where 
appropriate, reallocate a Fund's assets among its Subadvisers when a 
Fund has more than one Subadviser.
    8. No trustee or officer of the Trust or director of officer of the 
Adviser will own, directly or indirectly (other than through a pooled 
investment vehicle that is not controlled by that 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 of 
a publicly-traded company that is either a Subadviser or any entity 
that controls, is controlled by, or is under common control with a 
Subadviser.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-26753 Filed 10-23-01; 8:45 am]
BILLING CODE 8010-01-M