Document ID: SEC-2006-1207-0001
Agency: sec
Document Type: Notice
Title: Marshall Funds, Inc. and M&I Investment Management Corp.; Notice of Application
Posted Date: 2006-09-19T04:00Z

[Federal Register: September 19, 2006 (Volume 71, Number 181)]
[Notices]               
[Page 54850-54852]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19se06-72]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27480; 812-13230]

 
Marshall Funds, Inc. and M&I Investment Management Corp.; Notice 
of Application

September 13, 2006.
AGENCY: Securities and Exchange Commission.

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

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    Summary of Application: Applicants request an order that would 
permit them to enter into and materially amend subadvisory agreements 
without shareholder approval and would grant relief from certain 
disclosure requirements.
    Applicants: Marshall Funds, Inc. (the ``Company'') and M&I 
Investment Management Corp. (the ``Adviser'').
    Filing Dates: The application was filed on August 30, 2005, and 
amended on September 8, 2006.
    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 October 10, 2006, 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 may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants, 1000 North Water Street, 
Milwaukee, WI 53202.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, or Nadya B. Roytblat, Assistant Director, at (202) 
551-6821 (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, 100 F Street, NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. The Company, a Wisconsin corporation, is registered under the 
Act as an open-end management investment company. The Company currently 
is comprised of thirteen series (each a ``Fund'' and collectively, the 
``Funds''), each with a separate investment objective, policy and 
restrictions.\1\ The Adviser is registered as an investment adviser 
under the Investment Advisers Act of 1940 (``Advisers Act'') and serves 
as investment adviser to the Funds pursuant to an investment advisory 
agreement (``Advisory Agreement'') with the Company. The Advisory 
Agreement has been approved by the Company's board of directors (the 
``Board''), including a majority of the directors who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
the Company or the Adviser (``Independent Directors''), as well as by 
the shareholders of each Fund.
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    \1\ Applicants also request relief with respect to future series 
of the Company 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 or its successors; (b) uses the 
management structure described in the application; and (c) complies 
with the terms and conditions of the application (included in the 
term ``Funds''). For purposes of the requested order, ``successor'' 
is limited to an entity or entities that result from a 
reorganization into another jurisdiction or a change in the type of 
business organization. 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. Under the terms of the Advisory Agreement, the Adviser provides 
the Funds with overall investment management services, supervises the 
investment program for each Fund, and has the authority, subject to the 
approval of the Board and Fund shareholders, to enter into investment 
subadvisory agreements (``Subadvisory Agreements'') with one or more 
subadvisers (``Subadvisers''). The Adviser has entered into Subadvisory 
Agreements with two Subadvisers to provide investment advisory services 
to one Fund and in the future may enter into Subadvisory Agreements on 
behalf of other Funds. Each Subadviser is registered under the Advisers 
Act. The Adviser monitors and evaluates the Subadvisers and recommends 
to the Board their hiring, retention or termination. Subadvisers 
recommended to the Board by the Adviser are selected and approved by 
the Board, including a majority of the Independent Directors. Each 
Subadviser has discretionary authority to invest the assets or a 
portion of the assets of a particular Fund. The Adviser compensates 
each Subadviser out of the fees paid to the Adviser under the Advisory 
Agreement.
    3. Applicants request an order to permit the Adviser, subject to 
Board approval, to enter into and materially amend Subadvisory 
Agreements without obtaining shareholder approval. The requested relief 
will not extend to any Subadviser that is an affiliated person, as 
defined in section 2(a)(3) of the Act, of the Company or of the 
Adviser, other than by reason of serving as a Subadviser to one or more 
of the Funds (``Affiliated Sub-Adviser'').
    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require a Fund to disclose fees 
paid by the Adviser to each Subadviser. An exemption is requested to 
permit the Company to disclose for each Fund (as both a dollar amount 
and as a percentage of each Fund's net assets): (a) the aggregate fees 
paid to the Adviser and any Affiliated Subadvisers; and (b) the 
aggregate fees paid to Subadvisers other than Affiliated Subadvisers 
(``Aggregate Fee Disclosure''). For any Fund that employs an Affiliated 
Subadviser, the Fund will provide separate disclosure of any fees paid 
to the 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 under 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. Form N-1A is the registration statement used by open-end 
investment companies. Item 14(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an

[[Page 54851]]

investment company to comply with Schedule 14A under the Securities 
Exchange Act of 1934 (``1934 Act''). Items 22(c)(1)(ii), 22(c)(1)(iii), 
22(c)(8) and 22(c)(9) of Schedule 14A, taken together, require a proxy 
statement for a shareholder meeting at which the advisory contract will 
be voted upon to include the ``rate of compensation of the investment 
adviser,'' the ``aggregate amount of the investment adviser's fees,'' a 
description of the ``terms of the contract to be acted upon,'' and, if 
a change in the advisory fee is proposed, the existing and proposed 
fees and the difference between the two fees.
    4. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
their investment advisers, including the Subadvisers.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    6. 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 provisions of the Act, or 
from any rule thereunder, if 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 state that their requested relief meets this standard 
for the reasons discussed below.
    7. Applicants assert that the shareholders are relying on the 
Adviser's experience to select one or more 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 the individual portfolio managers employed by 
traditional investment company advisory firms. Applicants state that 
requiring shareholder approval of each Subadvisory Agreement would 
impose costs and unnecessary delays on the Funds, and may preclude the 
Adviser from acting promptly in a manner considered advisable by the 
Board. Applicants note that the Advisory Agreement and any Subadvisory 
Agreement with an Affiliated Subadviser will remain subject to section 
15(a) of the Act and rule 18f-2 under the Act.
    8. Applicants assert that some Subadvisers use a ``posted'' rate 
schedule to set their fees. Applicants state that while Subadvisers are 
willing to negotiate fees that are lower than those posted on the 
schedule, they are reluctant to do so where the fees are disclosed to 
other prospective and existing customers. Applicants submit that the 
requested relief will encourage potential Subadvisers to negotiate 
lower subadvisory fees with the Adviser.

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, the operation 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. The prospectus for each Fund will disclose the existence, 
substance, and effect of any order granted pursuant to the application. 
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. Within 90 days of the hiring of any new Subadviser, the affected 
Fund shareholders will be furnished all information about the new 
Subadviser that would be included in a proxy statement, except as 
modified to permit Aggregate Fee Disclosure. This information will 
include Aggregate Fee Disclosure and any change in such disclosure 
caused by the addition of the new Subadviser. To meet this obligation, 
the Fund will provide shareholders within 90 days of the hiring of a 
new Subadviser with an information statement meeting the requirements 
of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the 
1934 Act, except as modified by the order to permit Aggregate Fee 
Disclosure.
    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. At all times, at least a majority of the Board will be 
Independent Directors, and the nomination of new or additional 
Independent Directors will be placed within the discretion of the then-
existing Independent Directors.
    6. When a Subadviser change is proposed for a Fund with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Directors, will make a separate finding, reflected in the 
applicable Board minutes, that such 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.
    7. Independent counsel, as defined in rule 0-1(a)(6) under the Act, 
will be engaged to represent the Independent Directors. The selection 
of such counsel will be within the discretion of the then existing 
Independent Directors.
    8. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per-Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Subadviser during the 
applicable quarter.
    9. Whenever a Subadviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    10. 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 of the Board, will: (a) Set each Fund's overall investment 
strategies; (b) evaluate, select and recommend Subadvisers to manage 
all or a part of a Fund's assets; (c) when appropriate, allocate and 
reallocate a Fund's assets among multiple Subadvisers; (d) monitor and 
evaluate the performance of Subadvisers; and (e) implement procedures 
reasonably designed to ensure that the Subadvisers comply with each 
Fund's investment objective, policies and restrictions.
    11. 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 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

[[Page 54852]]

outstanding securities of any class of equity or debt of a publicly 
traded company that is either a Subadviser or an entity that controls, 
is controlled by, or is under common control with a Subadviser.
    12. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    13. 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.
Nancy M. Morris,
Secretary.
 [FR Doc. E6-15513 Filed 9-18-06; 8:45 am]

BILLING CODE 8010-01-P