Applications, hearings, determinations, etc.: Amway Mutual Fund Trust et al.,

[Federal Register: August 10, 1999 (Volume 64, Number 153)]

[Notices]

[Page 43412-43414]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr10au99-113]

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23933; 812-11606]

Amway Mutual Fund Trust et al.; Notice of Application

August 3, 1999. AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order 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.

SUMMARY OF APPLICATION: The requested order would permit applicants, Amway Mutual Fund Trust (the ``Trust''), Amway Management Company (``Amway''), and Activa Asset Management LLC (``Activa'' and together with Amway, the ``Managers''), to enter into and materially amend subadvisory agreements without obtaining shareholder approval.

FILING DATES: The application was filedon February 24, 1999, and was amended on July 13, 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 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 August 30, 1999, 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 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, 2905 Lucerne SE, Grand Rapids, MI 45546.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at (202) 942-0574 or George J. Zornada, 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 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

1. The Trust, a Delaware business trust, is registered under the Act as an open-end management investment company and operates as a series company. The only series of the Trust presently offered to the public is Amway Mutual Fund (``Fund''). The Trust has recently authorized four additional series (``New Funds'') (together with the Fund, the ``Funds'').\1\

   \1\ Applicants also request that the relief apply to all registered open-end management investment companies or series thereof that are now, or in the future will be, advised by the Managers or any entity controlling, controlled by, or under common control with the Managers and which operate in substantially the same manner as the Trust (``Future Funds''). Applicants state that all existing investment companies that currently intend to rely on the requested order have been named as applicants, and any Future Funds that subsequently rely on the requested order will comply with the terms and conditions in the application.

2. Anyway is an investment adviser registered under the Investment Advisers Act of 1940 (``Advisers Act''). Amway serves as investment adviser to the Fund under an investment management agreement between Amway and the Fund that was approved by the Trust's board of trustees (``Board''), including a majority of trustees who are not ``interested persons,'' as defined in section 2(a)(19) of the Act (``Independent Trustees''), and the shareholders of the Fund (the ``Management Agreement''). Activa, an investment adviser which will be registered under the Advisers Act, will serve as investment adviser to the Fund and the New Funds under an investment management agreement between Activa and the Funds that was approved by the Board, including a majority of the Independent Trustees, and will be approved by the initial shareholders of the New Funds before they are offered to the public and by shareholders of the Fund at a meeting scheduled to be held on August 30, 1999 (the ``New Management Agreement'').\2\ The Managers are under

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   common control and have the same principal officers and employees.

   \2\ The New Management Agreement will not be effective until the effective date of Activa's registration under the Advisers Act. If the New Management Agreement is not approved by shareholders of the Fund, Amway will continue to serve as investment adviser to the Fund.

3. The investment management responsibilities under the Management Agreement and the New Management Agreement (together the ``Management Agreement'') are essentially the same. Under the Management Agreement, the Managers have overall general supervisory responsibility for the investment management of the Funds and, subject to the supervision of the Board, the power to select subadvisers (``Subadvisers'') to provide portfolio management services for all or a portion of a Fund. The Fund currently has, and each of the New Funds is expected to have, a single subadviser.

4. The Managers will select Subadvisers based on a continuing quantitative and qualitative evaluation of their skills and proven abilities in managing assets pursuant to a particular investment style. A Subadviser performs services pursuant to a written investment subadvisory agreement between the Subadviser and the Manager (``Subadvisory Agreement''). The Subadvisers are, and will be, registered under the Advisers Act. The Manager pays the Subadvisers out of the fees the Manager receives from the Trust.

5. Applicants request an order to permit the Managers to enter into, and materially amend Subadvisory Agreements without obtaining shareholder approval. The requested relief will be extend to a Subadviser that is an ``affiliated person,'' as defined in section 2(a)(3) of the Act, of the Trust or the Managers, other than be reason of serving as a Subadviser to one or more of the Funds (an ``Affiliated Subadviser'').

   Applicants'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 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 Commission to exempt persons or transactions from the provisions of the Act 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 believe that their requested relief meets this standard for the reasons discussed below.

3. Applicants assert that investors rely upon the Manager to select one or more Subadvisers for the Fund. Applicants contend that the role of the Subadviser, from the perspective of the investor, is comparable to that of the individual portfolio managers employed by other investment advisory firms. Applicants also contend that requiring shareholder approval of Subadvisory Agreements would impose expenses and unnecessary delays on the Funds, and could prevent the prompt implementation of actions deemed advisable by the Manager and the Board. Applicants note that the Management Agreements will continue to be fully subject to section 15 of the Act and rule 18f-2 under the Act.

   Applicants' Conditions

   Applicants agree that the requested order will be subject to the following conditions:

1. The Managers will provide management and administrative services to the Funds and, subject to the review and approval of the Board will: (i) Set the overall investment strategies of the Funds; (ii) evaluate and recommend Subadvisers; (iii) allocate, and when appropriate, reallocate, the assets of the Funds among Subadvisers in those cases where a Fund has more than one Subadviser; and (iv) monitor and evaluate the investment performance of the Subadvisers, including their compliance with the investment objectives, policies, and restrictions of the Funds.

2. Before any Fund may rely on the order requested in the application, the operation of the Fund in the manner described in this application will be approved by a majority of its outstanding voting securities, as defined in the Act, or, in the case of a Fund whose public shareholders purchased shares on the basis of a prospectus containing the disclosure contemplated by condition 4 below, by the sole initial shareholder(s) before offering shares of such Fund to the public.

3. Within 90 days of the hiring of any Subadviser, the Managers will furnish shareholders of the affected Fund with all information about such Subadviser that would be included in a proxy statement, including any change in such disclosure caused by the addition of the new Subadviser. The Managers will meet this condition by providing shareholders with an information statement meeting the requirements of Regulation 14C and Schedule 14C under the Securities Exchange Act of 1934, as amended (``1934 Act''). The information statement also will meet the requirements of Item 22 of Schedule 14A under the 1934 Act.

4. The Trust and any Future 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 ``manager of managers'' approach described in the application. The prospectus will prominently disclose that the Managers, subject to Board oversight, have the ultimate responsibility for the investment performance of the Fund due to their responsibility to oversee Subadvisers and recommend their hiring, termination, and replacement.

5. No director, trustee, or officer of the Trust, the Funds, or a Future Fund, or director or officer of the Managers, will own directly or indirectly (other than through a pooled investment vehicle that is not controlled by any such director, trustee, or officer) any interest in a Subadviser except for (a) ownership of interests in the Manager or any entity that controls, is controlled by, or under common control with the Manager, or (b) 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 controls, is controlled by, or is under common control with a Subadviser.

6. Neither the Trust nor the Managers will enter into subadvisory Agreements on behalf of a Fund with any Affiliated Subadviser without such agreement, including the compensation to be paid thereunder, being approved by the shareholders of the applicable Fund.

7. At all times, a majority of the Board will be Independent Trustees, and the nomination of new or additional Independent Trustees will be placed within the discretion of the then-existing Independent Trustees.

8. When a change of Subadviser 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 minutes of meetings of the Board that any such change of Subadvisers is in the best interest of the Fund and its shareholders and does not involve a conflict of interest from which the Manager or Affiliated Subadviser derives an inappropriate advantage.

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   For the Commission, by the Division of Investment Management, under delegated authority. Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 99-20490Filed8-9-99; 8:45 am]

   BILLING CODE 8010-01-M