[Federal Register Volume 69, Number 220 (Tuesday, November 16, 2004)]
[Notices]
[Pages 67199-67200]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3170]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26653; 812-12980]


Pacific Capital Funds and the Asset Management Group of Bank of 
Hawaii; Notice of Application

November 9, 2004.
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 the Application: The requested order would permit certain 
registered open-end management investment companies to enter into and 
materially amend subadvisory agreements without shareholder approval.


Applicants: Pacific Capital Funds (the ``Trust'') and The Asset 
Management Group of Bank of Hawaii (the ``Adviser'').


Filing Date: The application was filed on May 29, 2003, and amended on 
September 17, 2004, and October 28, 2004.


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 December 6, 2004, 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, c/o Wendell M. Faria, Esq., Paul, Hastings, 
Janofsky & Walker LLP, 1299 Pennsylvania Avenue, NW., Tenth Floor, 
Washington, DC 20004-2400.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Annette Capretta, 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 20549-0102 (telephone (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 
currently offers multiple series (each a ``Fund,'' and collectively, 
the ``Funds''), each of which has its own investment objectives, 
policies and restrictions.\1\
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    \1\ Applicants also request relief with respect to future series 
of the Trust and any other existing or future registered open-end 
management investment company or series thereof that: (a) Is advised 
by the Adviser or a person controlling, controlled by or under 
common control with the Adviser; (b) uses the management structure 
described in this application; and (c) complies with the terms and 
conditions of this application (included in the term ``Funds''). The 
only existing registered open-end management investment company that 
currently intends to rely on the requested order is named as an 
applicant. If the name of any Fund contains the name of a Subadviser 
(as defined below), the name of the Adviser or the name of the 
entity controlling, controlled by, or under common control with the 
Adviser that serves as the primary adviser to the Fund will precede 
the name of the Subadviser.
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    2. The Adviser, registered under the Investment Advisers Act of 
1940 (``Advisers Act''), serves as investment adviser to each Fund 
pursuant to an investment advisory agreement with the Trust (``Advisory 
Agreement''), that was approved by the board of trustees of the Trust 
(the ``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 the shareholders of each Fund. Under 
the terms of the Advisory Agreement, the Adviser provides each Fund 
with investment research, advice and supervision, and furnishes an 
investment program for each Fund consistent with the investment 
objectives and policies of the Fund. For its services, the Adviser 
receives a fee from each Fund based on the average daily net assets of 
the Fund. Under the Advisory Agreement, the Adviser may delegate 
investment advisory responsibilities to one or more subadvisers 
(``Subadvisers'') who have discretionary authority to invest all or a 
portion of the Fund's assets pursuant to a separate subadvisory 
agreement (``Subadvisory Agreement''). Each Subadviser is or will be an 
investment adviser registered under the Advisers Act. For its services 
to a Fund, the Fund pays a Subadviser a quarterly or monthly fee at an 
annual rate based on the average daily net assets of the Fund.
    3. Applicants request relief to permit the Adviser, subject to 
Board approval, 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 a Fund or the Adviser, other than by 
reason of serving as a Subadviser to one or more of the Funds (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 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 matter must approve such 
matter if the Act requires shareholder approval.
    2. 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 and to the extent that 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 believe that their 
requested relief meets this standard for the reasons discussed below.
    3. Applicants state that the Funds' shareholders will rely on the 
Adviser, subject to oversight by the Board, 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 traditional investment advisory firms. Applicants contend 
that requiring shareholder approval of Subadvisory Agreements would 
impose costs and unnecessary delays on the Funds and may preclude the 
Adviser from acting promptly in a manner considered

[[Page 67200]]

advisable by the Board. Applicants also note that the Advisory 
Agreement will remain subject to the shareholder approval requirements 
in section 15(a) of the Act and rule 18f-2 under the Act.
    4. Applicants note that the Commission recently adopted certain 
fund governance standards,\2\ and applicants agree that each Fund will 
comply with the fund governance standards set forth in rule 0-1(a)(7) 
under the Act by the compliance date set forth in the Adopting Release. 
Applicants also note that the Commission has proposed rule 15a-5 under 
the Act and agree that the requested order will expire on the effective 
date of rule 15a-5 under the Act, if adopted.\3\
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    \2\ Investment Company Act Release No. 16520 (July 27, 2004) 
(``Adopting Release'').
    \3\ Investment Company Act Release No. 26230 (Oct. 23, 2003).
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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 the 
application, theoperation of the Fund in the manner 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 purchase shares on the basis of a prospectus 
containing the disclosure contemplated by condition 2 below, by the 
sole initial shareholder before offering the Fund's shares to the 
public.
    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 ultimate responsibility, 
subject to oversight by the Board, to oversee the Subadvisers and 
recommend their hiring, termination, and replacement.
    3. Each Fund will comply with the fund governance standards set 
forth in rule 0-1(a)(7) under the Act by the compliance date set forth 
in the Adopting Release (``Compliance Date''). Prior to the Compliance 
Date, 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. Any person who 
acts as legal counsel for the Independent Trustees will be an 
independent legal counsel, as defined in rule 0-1(a)(6) under the Act.
    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 
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. Shareholders of a Fund will approve any change to a Subadvisory 
Agreement if such change would result in an increase in the overall 
management and advisory fees payable by the Fund that have been 
approved by the shareholders of the Fund.
    7. Within 90 days of the hiring of a new Subadviser, the Adviser 
will furnish shareholders of the affected Fund with all information 
about the new Subadviser that would be included in a proxy statement. 
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.
    8. The Adviser will provide general management services to each 
Fund, including overall supervisory responsibility for the general 
management and investment of the Fund's assets, 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) allocate and, when appropriate, 
reallocate a 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 each Fund's investment objective, policies, and restrictions.
    9. No trustee or officer of the Funds, 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.
    10. The requested order will expire on the effective date of rule 
15a-5 under the Act, if adopted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-3170 Filed 11-15-04; 8:45 am]
BILLING CODE 8010-01-P