[Federal Register Volume 61, Number 241 (Friday, December 13, 1996)]
[Notices]
[Pages 65616-65619]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31726]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 22382; 812-10318]
NASL Financial Services, Inc., et al.; Notice of Application
December 9, 1996.
AGENCY: Securities and Exchange Commission (SEC).
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
APPLICANTS: NASL Financial Services, Inc. (``Adviser''), NASL Series
Trust (``Trust''), and North American Funds (``Fund'' and, together
with the Trust, ``Companies'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) of the
Act from the provisions of section 15(a) and
[[Page 65617]]
rule 18f-2 and from certain disclosure requirements set forth in item
22 of Schedule 14A under the Securities Exchange Act of 1934 (the
``Exchange Act''), items 2, 5(b)(iii), and 16(a)(iii) of Form N-1A,
item 48 of Form N-SAR, item 3 of Form N-14, and sections 6-07(2) (a),
(b), and (c) of Regulation S-X.
SUMMARY OF APPLICATION: Applicants seek an order to permit sub-advisers
to serve as portfolio managers for series of the Trust and the Fund
without obtaining shareholder approval and to grant relief from various
disclosure requirements regarding advisory fees paid to the sub-
advisers.
FILING DATES: The application was filed on August 29, 1996, and amended
on November 27, 1996. Applicants have agreed to file an amendment
during the notice period, the substance of which is included 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 December 30,
1996, 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, 116 Huntington Avenue, Boston, MA 02116.
FOR FURTHER INFORMATION CONTACT:
Harry Eisenstein, Senior Counsel, at (202) 942-0552, or Mercer E.
Bullard, Branch Chief, 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
SEC's Public Reference Branch.
Applicants' Representations
1. The Trust, organized as a Massachusetts business trust, is an
open-end management investment company registered under the Act. The
Trust has 35 investment portfolios (``Trust Portfolios''), each with
its own investment objectives and policies. Shares of the Trust are
sold only to insurance companies and their separate accounts. The Trust
currently serves as the underlying investment medium for amounts
invested in annuity and variable life contracts issued by North
American Security Life Insurance Company (``NASL''), First North
American Life Assurance Company (``FNAL''), and The Manufacturers Life
Insurance Company of America (``MLICA''). The Trust currently has three
shareholders, NASL, FNAL and MLICA. NASL, FNAL, and MLICA share an
ultimate common parent, The Manufacturers Life Insurance Company.
2. The Fund, organized as a Massachusetts business trust, is
registered as an open-end management investment company under the Act.
The Fund is comprised of thirteen separate portfolios (``Fund
Portfolios'' and, together with the Trust Portfolios, ``Portfolios''),
each with its own investment objectives and policies. Each Fund
Portfolio has three classes of shares. Shares of each Fund Portfolio
are sold to the public through certain securities dealers, banks, and
other financial institutions or through the Adviser, which is the
fund's distributor. Class A shares, other than those of the Money
Market Portfolio, are subject to a maximum front-end sales charge of
4.75%. Class B shares, other than those of the Money Market Portfolio,
are subject to a maximum 5% contingent deferred sales charge
(``CDSC''), which decreases to zero if an investor holds his shares for
more than six years. Class C shares, other than those of the Money
Market Portfolio, are subject to a 1% CDSC, which is applied only if
the investor redeems during the first year after the purchase of such
shares; after the first year, the shares have no CDSC. All Fund
Portfolios, other than the Money Market Portfolio, assess a fee
pursuant to rule 12b-1 under the Act. Class A shares of the National
Municipal Bond Portfolio are subject to a 0.15% rule 12b-1 fee, all of
which may be used as a service fee, and Class B and Class C shares of
that Portfolio are subject to a 1.00% rule 12b-1 fee, 0.25% of which
may be used as a service fee. All other Fund Portfolios have a 0.35%
Class A rule 12b-1 fee, 0.25% of which may be used as a service fee,
and a 1.00% Class B and Class C rule 12b-1 fee, 0.25% of which may be
used as a service fee.
3. The Adviser is a registered investment adviser under the
Investment Advisers Act of 1940 and serves as investment adviser to the
Portfolios. The Adviser also serves as principal underwriter of certain
contracts issued by its parent, NASL. The Adviser is responsible for
administering the business and affairs of the Trust and the Fund. The
Companies pay the Adviser a fee for its services as a percentage of the
current value of the net assets of each Portfolio.
4. The Companies at present engage sub-advisers (``Managers'') to
manage each of their Portfolios. The day-to-day portfolio management of
each Portfolio is provided by one Manager. In all, the Adviser employs
14 different Managers for the Companies' Portfolios. Under the
Companies' proposed structure, some Portfolios may employ multiple
managers.
5. The Managers are concerned only with selection of portfolio
investments in accordance with a Portfolio's investment objectives and
policies. They have no broader supervisory, management or
administrative responsibilities with respect to a Portfolio or the
respective Company. Managers' fees will be paid by the Adviser out of
its fees from the Portfolios at rates negotiated with the Managers by
the Adviser. One of the Managers, Manufacturers Adviser Corporation,
will be an affiliate of the Adviser.
6. Applicants request an exemption from section 15(a) and rule 18f-
2 to permit Managers approved by each Company's Board of Trustees to
serve as portfolio managers for the Portfolios without obtaining
shareholder approval of the agreements with the Managers (``Portfolio
Management Agreements''), except that shareholder approval of a
Portfolio Management Agreement with a Manager that is an ``affiliated
person,'' as defined in Section 2(a)(3) of the Act, of any Company or
the Adviser, other than by reason of serving as a Manager to one or
more of the Portfolios (``Affiliated Manager'') will be obtained.
7. Applicants also request an exemption from certain disclosure
requirements, set forth immediately below, that may require disclosure
of fees paid to Managers.
8. Items 2, 5(b)(iii) and 16(a)(iii) of Form N-1A require the
Companies to disclose in their prospectuses the investment adviser's
compensation. Rule 20a-1 under the Act requires the disclosure of
information in accordance with Schedule 14A under the Exchange Act.
Items 22(a)(3)(iv), 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 22(c)(9)
of Schedule 14A, taken together, require that proxy statements for a
shareholder meeting at which action is to be taken on the advisory
contract, or that would establish new or higher advisory fees or
expenses, disclose information regarding advisory fee rates and
amounts. Item 48 of Form N-SAR provides that the Companies must
[[Page 65618]]
disclose the rate schedule for advisory fees paid to their advisers,
including the Managers. Section 6-07(2) (a), (b) and (c) of Regulation
S-X require that the Companies' financial statements contain
information concerning fees paid to investment advisers, which could be
interpreted to require disclosure of fees paid to the Managers. Item 3
of Form N-14, the prescribed registration form for business
combinations involving open-end management investment companies
requires a fee table that shows current fees for the registrant and the
company being acquired (and pro forma fees, if different).
9. For each Portfolio, applicants purpose that the applicable
Company disclose the following (both as a dollar amount and as a
percentage of a Portfolio's net assets) (``Limited Fee Disclosure''):
(a) fees to the Adviser by the Portfolio; (b) aggregate fees paid by
the Adviser to Managers of that Portfolio; (c) net advisory fees
retained by the Adviser with respect to the Portfolio after payment of
Managers' fees; and (d) fees paid by the Adviser to any Affiliated
Manager.
10. Applicants also make the foregoing requests for any series of
the Companies organized in the future, and any subsequently registered
open-end management investment companies advised in the future by the
Adviser or by a person controlling, controlled by, or under common
control with the Adviser that use a multi-manager structure as
described in the application and that comply with the conditions to the
requested order as set forth in the application.
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
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 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 state that the requested exemptions would be in accordance
with the standards of section 6(c) for the reasons set forth below.
3. Applicants assert that investors in a Portfolio will rely on the
Adviser for investment management. According to Applicants, these
investors will expect the Adviser to select one or more Managers for a
Portfolio. Thus, applicants believe that the role of the Managers, from
the perspective of the investor, is comparable to that of the
individual portfolio managers employed by other investment company
advisory firms.
4. Each Company's prospectus and statement of additional
information will include all required information concerning each
Manager, except as modified by the proposed Limited Fee Disclosure. If
a new Manager is retained, or a Portfolio Management Agreement is
materially amended, the respective Company will furnish shareholders,
within 60 days, with all the information that would have been provided
in a proxy statement, provided that information regarding fees would be
modified by the Proposed Limited Fee Disclosure.
5. Applicants contend that requiring shareholder approval of
Portfolio Management Agreements places costs and burdens on each
Company and its shareholders that do not advance their interests.
Applicants additionally assert that shareholders are adequately
protected by their voting rights concerning the advisory agreement
between each Company and the Adviser, as well as by the
responsibilities borne by the Adviser and each Company's Board of
Trustees with respect to the Managers and the Portfolio Management
Agreements.
6. Applicants note that the investment advisory fees paid to the
Adviser will be disclosed in each Company's prospectus and statement of
additional information. Applicants contend that each investor will,
therefore, be able to determine whether its cost for investment
advisory services, including the selection and supervision of Managers
(and the reallocation of assets among multiple Managers from time to
time, if and where applicable), is competitive with the services and
costs which the investor could obtain elsewhere. Applicants note that
some Managers use a ``posted'' rate schedule to set their fees,
particularly at lower asset levels. Based upon the Adviser's extensive
experience in dealing with portfolio managers and upon the Adviser's
discussions with prospective Managers, applicants believe that some
organizations will be unwilling to serve as Managers at any fee rate
other than their ``posted'' fee rates, unless the rates negotiated for
the Portfolios are not publicly disclosed. Applicants believe that
forcing disclosure of Managers' fees would therefore tend to deprive
the Adviser of its bargaining power while producing no benefit to
shareholders, since the fees they pay would not be affected.
Applicants' Conditions
Applicants agree that the following conditions may be imposed in
any order of the Commission granting the requested relief:
1. Each Company will disclose in its registration statement the
Limited Fee Disclosure.
2. The Adviser will not enter into a Portfolio Management Agreement
with any Affiliated Manager without that agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Portfolio.
3. At all times, a majority of each Company's Board of Trustees
will continue to be persons each of whom is not an ``interested
person'' of the Company as defined in section 2(a)(19) of the Act
(``Independent Trustees''), and the nomination of new or additional
Independent Trustees will be placed with the discretion of the then
existing Independent Trustees.
4. Independent counsel knowledgeable about the Act and the duties
of Independent Trustees will be engaged to represent the Independent
Trustees of each Company. The selection of independent counsel will be
placed within the discretion of the Independent Trustees.
5. The Adviser will provide the Board of Trustees of each Company,
no less frequently than quarterly, with information about the Adviser's
profitability on a per-Portfolio basis. The information will reflect
the impact on profitability of the hiring or termination of any
Managers during the applicable quarter.
6. Whenever a Manager is hired or terminated, the Adviser will
provide the applicable Board of Trustees information showing the
expected impact on the Adviser's profitability.
7. When a Manager change is proposed for a Portfolio with an
Affiliated Manager, the Company's Trustees, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Company's Board minutes, that the change is in the best interests of
the Portfolio and its shareholders (or, in the case of the Trust, the
contract owners with assets allocated to any sub-account for which a
Trust Portfolio serves as a funding medium) and does not involve
[[Page 65619]]
a conflict of interest from which the Adviser or the Affiliated Manager
derives an inappropriate advantage.
8. Before a Portfolio may rely on the order requested by
applicants, the operation of the Portfolio in the manner described in
the application will be approved by a majority of its outstanding
voting securities, as defined in the Act (or, in the case of the Trust,
pursuant to voting instructions provided by contract owners with assets
allocated to any sub-account of a registered separate account for which
a Trust Portfolio serves as a funding medium), or, in the case of a new
Portfolio whose public shareholders purchase shares on the basis of a
prospectus containing the disclosure contemplated by condition 11
below, by the sole initial shareholder(s) before offering shares of
that Portfolio to the public.
9. The Adviser will provide general management services to each
Company and their Portfolios, including overall supervisory
responsibility for the general management and investment of each
Portfolio's securities portfolio, and, subject to review and approval
by each Company's Board of Trustees, will (i) set the Portfolio's
overall investment strategies; (ii) select Managers; (iii) when
appropriate, allocate and reallocate the Fund's assets among Managers;
(iv) monitor and evaluate the performance of Mangers; and (v) ensure
that the Managers comply with the Portfolio's investment objectives,
policies and restrictions.
10. Within 60 days of the hiring of any new Manager or the
implementation of any proposed material change in a Management
Agreement, shareholders will be furnished all information about the new
Manager or Management Agreement that would be included in a proxy
statement, except as modified by the order to permit Limited Fee
Disclosure. Such information will include Limited Fee Disclosure and
any change in such disclosure caused by the addition of a new Manager
or any proposed material change in a Management Agreement. The Adviser
will meet this condition by providing shareholders, within 60 days of
the hiring of a Manager or the implementation of any material change to
the terms of a Management Agreement, with an information statement
meeting the requirements of Regulation 14C and Schedule 14C under the
Exchange Act. The information statement also will meet the requirements
of Schedule 14A under the Exchange Act, except as modified by the order
to permit Limited Fee Disclosure. The Trust will ensure that the
information statement is furnished to contract owners with assets
allocated to any registered separate account for which the Trust serves
as a funding medium.
11. Each Company will disclose in its prospectus the existence,
substance, and effect of any order granted pursuant to the application.
12. No Trustee or officer of a Company or director or officer of
the Adviser will own directly or indirectly (other than through a
pooled investment vehicle over which such person does not have control)
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 equity or debt 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. 96-31726 Filed 12-12-96; 8:45 am]
BILLING CODE 8010-01-M
