[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