

[Federal Register: September 21, 2006 (Volume 71, Number 183)]
[Notices]               
[Page 55227-55229]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21se06-83]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27482; 812-13172]

 
State Farm Mutual Fund Trust, et al.; Notice of Application 
September 15, 2006.

AGENCY: Securities and Exchange Commission (``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.

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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.

Applicants:  State Farm Mutual Fund Trust (``Mutual Fund Trust''); 
State Farm Variable Product Trust (``Variable Product Trust''); and 
State Farm Investment Management Corp. (the ``Adviser'').

Filing Dates:  The application was filed on March 7, 2005, and amended 
on September 11, 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, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090; Applicants, One State Farm 
Plaza, A-3, Bloomington, Illinois 61710-0001.

FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202) 
551-6878, or Mary Kay Frech, Branch Chief, 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 
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington DC 20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. Mutual Fund Trust and Variable Product Trust (together, the 
``Companies'') are Delaware business trusts registered under the Act as 
open-end management investment companies. The Companies offer multiple 
series (each a ``Fund'' and collectively, the ``Funds''), each with 
separate investment objectives, policies

[[Page 55228]]

and restrictions.\1\ Mutual Fund Trust offers its shares to the public. 
Variable Product Trust offers its shares to four separate accounts 
sponsored by life insurance affiliates of the Adviser. 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 
Agreements'') with each Company on behalf of each Fund. The Advisory 
Agreements have been approved by each Company's board of trustees 
(``Board''), including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
the Companies, the Adviser or the Subadvisers (as defined below) 
(``Independent Trustees''), as well as by the shareholders of each 
Fund.\2\
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    \1\ Applicants also request relief with respect to future series 
of the Companies 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 (included in the term 
``Adviser''); (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''). The only existing 
registered open-end management investment companies that currently 
intend to rely on the requested order are named as applicants. If 
the name of any Fund contains the name of a Subadviser (as defined 
below), the name of the Adviser will precede the name of the 
Subadviser.
    \2\ The term ``shareholder'' includes variable life insurance 
policy and variable annuity contract owners that are unitholders of 
any separate account for which a Fund serves as a funding medium.
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    2. Under the terms of the Advisory Agreements, the Adviser provides 
investment advisory services to each Fund, supervises the investment 
program for each Fund, and has the authority, subject to Board 
approval, to enter into investment subadvisory agreements 
(``Subadvisory Agreements'') with one or more subadvisers 
(``Subadvisers''). Each Subadviser is registered as an investment 
adviser 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 Trustees. 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 Agreements.
    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 Companies or of the 
Adviser, other than by reason of serving as a Subadviser to one or more 
of the Funds (``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. 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.
    3. 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 Agreements and any Subadvisory 
Agreements with an Affiliated Subadviser will remain subject to section 
15(a) of the Act and rule 18f-2 under the Act.

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 a new Subadviser, shareholders 
of the affected Fund will be furnished all information about the new 
Subadviser that would be included in a proxy statement. 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 Securities Exchange Act of 1934.
    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 Trustees, and the nomination of new or additional 
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
    6. 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 
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. 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

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recommend Subadvisers to manage all or a part of the Fund's assets, (c) 
when appropriate, allocate and reallocate the 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.
    8. No trustee or officer of the Companies, 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 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.
    9. 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.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06-7897 Filed 9-20-06; 8:45 am]

BILLING CODE 8010-01-P
