[Federal Register Volume 63, Number 114 (Monday, June 15, 1998)]
[Notices]
[Pages 32686-32688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15826]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23246; 812-10970]


M Fund, Inc., et al.; Notice of Application

June 9, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') from section 15(a) of the 
Act and rule 18f-2 under the Act.

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SUMMARY OF APPLICATION: Applicants, M Fund, Inc. (``Company'') and M 
Financial Investment Advisers, Inc. (``Adviser''), request an order to 
permit them to enter into and materially amend investment advisory 
contracts without shareholder approval.

FILING DATES: The application was filed on January 16, 1998, and 
amended on May 18, 1998, and June 4, 1998. 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 SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on June 30, 1998, 
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 SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549. 
Applicants, 205 S.E. Spokane Street, Portland, Oregon 97202.

FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, 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

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may be obtained for a fee at the SEC's Public Reference Branch, 450 
Fifth St., N.W., Washington, DC 20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Company, a Maryland corporation registered under the Act as 
an open-end diversified management investment company currently has 
four series (``Funds'') that are offered exclusively to variable 
annuity and variable life insurance separate accounts of life insurance 
companies. The Adviser, registered under the Investment Advisers Act of 
1940 (``Advisers Act''), is the investment adviser to each of the Funds 
pursuant to an investment advisory agreement (``Agreement''). Each Fund 
currently has one investment subadviser (``Manager''), each of which is 
registered under the Advisers Act.
    2. Under the Agreement, the Adviser oversees the administration of 
all operations of the Company and oversees each Fund's Manager. Each 
Manager recommended by the Adviser is ultimately approved by the Fund's 
board of directors (``Board''), including a majority of the Fund's 
directors who are not ``interested persons'' of the Fund as defined in 
section 2(a)(19) of the Act (``Independent Directors''). The Adviser 
monitors each Manager's compliance with each Fund's investment 
objectives and policies, reviews the performance of each Manager, and 
periodically reports each Manager's performance to the Board. As 
compensation for its services, the Adviser receives a fee, paid by the 
Company, based on the average daily net assets of each of the Funds.
    3. Under subadvisory agreements between the Adviser and the 
Managers (``Subadvisory Agreements'') the specific investment decisions 
for each Fund are, and will continue to be, made by each Manager. The 
Managers' fees are paid by the Adviser out of its fee.
    4. Applicants request an exemption from section 15(a) of the Act 
and rule 18f-2 under the Act to permit Managers selected by the Adviser 
and approved by the Board to serve as investment subadvisers for the 
Funds without shareholder approval.\1\
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    \1\ Applicants request that the relief also apply to any series 
of the Company that may be created in the future, and to all 
subsequently registered open-end investment companies that in the 
future are advised by the Adviser, or any entity controlling, 
controlled by, or under common control with the Adviser, provided 
that these companies operate in substantially the same manner as the 
Funds with respect to the Adviser's responsibility to select, 
evaluate and supervise Managers and comply with the conditions to 
the requested order as set forth in the application (``Future 
Funds'').
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    Shareholder approval is, and will continue to be, required for any 
Manager that is an affiliated person, as defined in section 2(a)(3) of 
the Act, other than by reason of serving as a Manager to one or more of 
the Funds (``Affiliated Manager'').

Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it 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 a 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 provides that the SEC may exempt any 
person, security, or transaction from any provision of the Act 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 policy and provisions of the Act. 
Applicants believe that their requested relief meets this standard for 
the reasons discussed below.
    3. Applicants assert that the Company's investors rely on the 
Adviser to select Managers best suited to achieve a Fund's investment 
objectives. The Adviser has represented itself as an investment adviser 
whose strength and expertise lies in its ability to evaluate, select 
and supervise those Managers who can add the most value to a 
shareholder's investment in the Company. Applicants state that, from 
the perspective of an investor, the role of the Managers is similar to 
that of individual portfolio managers employed by traditional 
investment advisory firms. Applicants thus contend that the requested 
relief will allow each Fund to operate more efficiently by enabling the 
Funds to act quickly and cost effectively to replace Managers when the 
Board and the Adviser feel that a change would benefit the Fund. 
Applicants also note that the Agreement will remain fully subject to 
the requirements of section 15 of the Act and rule 18f-2 under the Act, 
including the requirements for shareholder approval.\2\
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    \2\ The Company's prospectus has disclosed, since the effective 
date of the Company's registration statement, that the Company would 
seek an exemptive order from the SEC permitting changes in Managers 
without submitting the Subadvisory Agreements to a vote of the 
Company's shareholders.
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Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. Before a Future Fund that does not presently have an effective 
registration statement may rely on the order requested herein, the 
operation of the Future Fund in the manner described in the application 
will be approved by its initial shareholder(s) before shares of the 
Future Fund are made available to the public.
    2. The Company will disclose in its prospectus the existence, 
substance, and effect of any order granted pursuant to this 
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 the Managers and recommend their hiring, 
termination, and replacement.
    3. At all times, a majority of the Company's Board will consist of 
Independent Directors, and the nomination of new or additional 
Independent Directors will be at the discretion of the then existing 
Independent Directors.
    4. The Adviser will not enter into a Subadvisory Agreement with any 
Affiliated Manager without that Agreement, including the compensation 
to be paid thereunder, being approved by the shareholders of the 
applicable Fund.
    5. When a Manager change is proposed for a Fund with an Affiliated 
Manager, the Company's Board, including a majority of the Independent 
Directors, will make a separate finding, reflected in the Company'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 of the Affiliated Manager derives an inappropriate 
advantage.
    6. Within 90 days of the hiring of any new Manager shareholders 
will be furnished relevant information about the new Manager or 
Subadvisory agreement that would be contained in a proxy statement 
including any change in the disclosure caused by the addition of the 
new Manager. The Adviser will meet this condition by providing 
shareholders, within 90 days of the hiring of a Manager, an informal 
information statement meeting the requirements of Regulations 14C, 
Schedule 14C, and Item 22 of Schedule 14A under the Securities Exchange 
Act of 1934.
    7. The Adviser will provide general management services to each 
Fund,

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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 managers, (iii) when appropriate, recommend to 
the Board the allocation and reallocation of a Fund's assets among 
multiple Managers; (iv) monitor and evaluate the performance of 
Manager; and (v) ensure that the Managers comply with the Fund's 
investment objectives, policies, and restrictions.
    8. No director or officer of the Company or director or officer of 
the Adviser will own directly or indirectly (other than through a 
pooled investment vehicle that is not controlled by that director or 
officer) any interest in a Manager 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 debt or equity of 
a publicly-traded company that is either a Manager or an entity that 
controls, is controlled by, or is under common control with a Manager.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-15826 Filed 6-12-98; 8:45 am]
BILLING CODE 8010-01-M