[Federal Register Volume 62, Number 168 (Friday, August 29, 1997)]
[Notices]
[Pages 45886-45888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23007]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22796; 812-10420]
New England Funds Trust I, et al.; Notice of Application
August 22, 1997.
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 the provisions of
section 15(a) of the Act and rule 18f-2 under the Act.
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SUMMARY OF APPLICATION: Applicants request an order permitting TNE
Advisers, Inc. (``TNE Advisers'') and New England Fund Management, L.P.
(``NEFM''), as investment advisers of certain funds, to enter into sub-
advisory contracts on behalf of the funds without receiving prior
shareholder approval.
APPLICANTS: New England Funds Trust I, New England Funds Trust II, New
England Funds Trust III, New England Cash Management Trust, New England
Tax Exempt Money Market Trust (collectively, the ``New England
Funds''), New England Zenith Fund (collectively with the New England
Funds, the ``Trusts''), TNE Advisers, and NEFM (together with TNE
Advisers, the ``Advisers'').
FILING DATES: The application was filed on November 12, 1996, and
amended on July 1, 1997 and August 22, 1997.
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 September 16,
1997, 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 such notification by writing to
the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. New England Funds and NEFM, 399 Boylston Street, 4th Floor,
Boston, Massachusetts 02116. New England Zenith Fund and TNE Advisers,
501 Boylston Street, Boston, Massachusetts 02116.
FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney,
at (202) 942-0517, or Mary Kay Frech, 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 from
the SEC's Public Reference Branch, 450 Fifth Street, N.W. Washington,
D.C. 20549 (tel. 202-942-8090).
Applicants' Representations
1. Each of the New England Funds is organized as a Massachusetts
business trust and registered under the Act as an open-end management
investment company with one of more series. NEFM, a limited
partnership, is registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act''). NEFM serves as
investment adviser to each of the New England Funds (except New England
Growth Fund Series).
2. New England Zenith Fund (the ``Zenith Fund'') is organized as a
Massachusetts business trust and registered under the Act as an open-
end management investment company with one or more series. The Zenith
Fund serves as a funding vehicle for certain variable annuity and
variable life insurance products issued by Metropolitan Life Insurance
Company (``MetLife'') and its subsidiary New England Life Insurance
Company (``NELICO''). TNE Advisers is registered as an investment
adviser under the Advisers Act. TNE Advisers serves as investment
adviser for each series of the Zenith Fund (except the Capital Growth
Series).
3. Each series for the Zenith Fund (except the Capital Growth
Series) and each series of the New England Funds (except the New
England Growth Fund Series) (together, the ``Series'') utilizes the
adviser/subadviser management structure.\1\ Under this two-tiered
structure, NEFM (in the case of the New England Funds) or TNE Advisers
(in the case of the Zenith Fund) acts as each Series' investment
adviser, delegating the day-to-day portfolio management for each Series
to one or more sub-advisers.
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\1\ Applicants also request relief for any Series of the Trusts
organized in the future, and any open-end management investment
companies in the future advised by NEFM or TNE Advisers or by a
person controlling, controlled by, or under common control with NEFM
or TNE Advisers that operates in substantially the same manner as
the Trusts and complies with the conditions to the requested order
as set forth in the application.
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4. The New England Funds have entered into an advisory agreement
with NEFM, which states that NEFM will provide both portfolio
management services and administrative services to the New England
Funds. TNE Advisers has entered into an advisory agreement with the
Zenith Fund, which states that TNE Advisers will provide both portfolio
management services and administrative services for each Series of the
Zenith Fund for which TNE Advisers is the adviser. NEFM and TNE
Advisers are responsible for: (a) Evaluating existing and prospective
sub-advisers; (b) submitting recommendations to the boards of trustees
of the Trusts concerning sub-advisers to be engaged by the Series; (c)
monitoring and reporting to the Trusts' boards concerning investment
results of the sub-advisers; (d) monitoring the sub-advisers'
compliance with the Series' investment objectives, policies, and
restrictions; and (e) when appropriate, recommending that the trustees
of the relevant Trust terminate the services of a Series' sub-advisers.
5. NEFM and TNE Advisers have entered into sub-advisory agreements
with one or more advisory firms (sub-advisers) with respect to each
Series, pursuant to which the sub-advisers provide day-to-day portfolio
management services. Each sub-advisory agreement requires the relevant
sub-advisers to manage the investment and reinvestment of the assets of
the Series, subject to the supervision of either NEFM or TNE Advisers
and oversight by the trustees. The sub-advisers' responsibilities
include effecting portfolio transactions and reporting periodically to
NEFM or TNE Advisers, their agents, and the trustees of the Trusts.
6. Under their advisory agreements, NEFM and TNE Advisers receive
from the relevant Series compensation at a specified annual percentage
of the corresponding Series' average daily net assets. NEFM and TNE
Advisers, in turn, compensate the relevant sub-advisers at specified
annual percentage rates of the Series' average daily net assets. The
sub-advisory fee paid to the sub-advisers is payable by NEFM or TNE
Advisers, and not by the Series.
7. The Advisers have contractual rights under their applicable
advisory
[[Page 45887]]
agreements to delegate their duties to provide administrative services
to a sub-adviser or third party. The Advisers agree that no such Series
will utilize the relief granted under the requested order until such
time as the Advisers have waived such rights with respect to such
Series. The Advisers, however, may continue to delegate to a third
party routine accounting and legal functions (e.g., legal work
performed in connection with periodic filings and other routine legal
matters) that do not include establishing investment policies or the
selection, evaluation, or termination of sub-advisers. The Advisers,
under their advisory agreements, retain all responsibility for the
performance of these delegated duties.
Applicants' Legal Analysis
1. Applicants request an exemption from section 15(a) of the Act
and rule 18f-2 under the Act to permit NEFM and TNE Advisers to enter
into new or amended agreements with sub-advisers without obtaining
shareholder approval. Such relief would include any sub-advisory
agreement necessitated because the prior sub-adviser was terminated as
a result of an ``assignment,'' as defined in section 2(a)(4) of the
Act.
2. 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.
3. Applicants state that adviser/sub-adviser arrangements differ
from conventionally managed mutual funds. Unlike conventional mutual
funds, adviser/sub-adviser managed funds divide responsibility for
general management and investment advice between the adviser and the
sub-adviser. The adviser provides general management and administrative
services to the funds, including monitoring the sub-adviser. The
adviser selects the sub-adviser it believes is most likely to make
portfolio securities selections that will achieve the funds'
objectives. The sub-adviser, in turn, selects portfolio investments.
Applicants believe that the shareholders in an adviser/sub-adviser fund
rely on the fund's adviser to perform the selecting and monitoring of
sub-advisers and to respond promptly to any significant change in the
sub-advisory services provided to the fund.
4. Applicants believe that without the ability to employ promptly a
new sub-adviser, investors' expectation may be frustrated and the
Trusts and their shareholders could be disadvantaged when a sub-adviser
has resigned or has been terminated because its performance was
unsatisfactory or where there has been an ``assignment'' of a sub-
advisory agreement.
5. Applicants assert that the ability to enter into sub-advisory
agreements without shareholder approval would enable the Trusts and
their Series that employ an adviser/sub-adviser structure to act
promptly upon the Adviser's recommendations with respect to the sub-
adviser, as well as save the Series and their shareholders the expense
of convening shareholder meetings. Applicants further assert that the
Trusts' investors will be able to exercise control over their
relationship with the Adviser because the Trusts' advisory agreements
with NEFM or TNE Advisers, as applicable, will be subject to the
shareholder voting requirements of section 15(a) of the Act.
6. 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 exemption is in accordance with the
standards of section 6(c).
Applicants' Conditions
Applicants agree that the order shall be subject to the following
conditions:
1. The Advisers will provide general management and administrative
services to the Trusts, including overall supervisory responsibility
for the general management and investment of the Trusts' securities
portfolios that employ an adviser/sub-adviser structure, and subject to
review and approval by each Trust's board with respect to its
respective Series that employ an adviser/sub-adviser structure, will
(i) set the Series' overall investment strategies; (ii) select sub-
advisers; (iii) monitor and evaluate the performance of the sub-
advisers; (iv) allocate, and when appropriate, reallocate a Series'
assets among its sub-advisers in those cases where a Series has more
than one sub-adviser; and (v) implement procedures reasonably designed
to ensure that the sub-advisers comply with the relevant Trust's
investment objectives, policies, and restrictions.
2. Before a Series may rely on the order requested in the
application, the operation of the Series in the manner described in the
application will be approved by a majority of its outstanding voting
securities,\2\ as defined in the Act, or, in the case of a new Series
whose public shareholders purchased shares on the basis of a prospectus
containing the disclosure contemplated by 4. below, by the sole
shareholder before the offering of shares of such Series to the public.
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\2\ NELICO and MetLife are the legal owners of shares
attributable to variable life insurance and variable annuity
contracts issued by separate accounts of NELICO and MetLife. As
such, they are required to vote their shares in accordance with the
instructions received from the owners of variable life and variable
annuity contracts issued by separate accounts that are registered
under the Act. All Zenith Fund shares held by separate accounts that
are registered under the Act for which no timely instructions are
received are voted for, voted against, or withheld from voting on
any proposition in the same proportion as the shares held in that
separate account for all contracts for which voting instructions are
received.
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3. Within 90 days after the hiring of any new sub-adviser or the
implementation of any proposed material change in a sub-advisory
agreement, the Trusts will furnish shareholders the information about a
new sub-adviser or sub-advisory agreement that would be included in a
proxy statement. Such information will include any change in such
disclosure caused by the addition of a new sub-adviser or any proposed
material change in the sub-advisory agreement of a Series. The Series
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 (``Exchange Act''). The
information statement also will meet the requirements of Item 22 of
Schedule 14A under the Exchange Act. The Zenith Fund will ensure that
the information statement is furnished to the unitholders of any
separate account for which the Zenith Fund serves as a funding vehicle.
4. The Trusts will disclose in all prospectuses relating to any
Series the existence, substance and effect of any order granted
pursuant to the application. In addition, each Series will hold itself
out to the public as employing the adviser/sub-adviser approach
described in the application. The prospectus will prominently disclose
that the adviser has ultimate responsibility to oversee sub-advisers
and recommend their hiring, termination, and replacement.
[[Page 45888]]
5. The Advisers will not enter into a sub-advisory agreement with
any sub-adviser that is an affiliated person, as defined in section
2(a)(3) of the Act, the advisers, or the Trusts other than by reason of
serving as sub-adviser to one or more Series (``Affiliated Sub-
Adviser'') without such agreement, including compensation to be paid
thereunder, being approved by the shareholders of the applicable
Series.
6. At all times, a majority of the trustees of the Trusts will be
persons each of whom is not an ``interested person'' of each of the
Trusts (as defined in section 2(a)(19) of the Act) (the ``Independent
Trustees''), and the nomination of new or additional Independent
Trustees will be committed to the discretion of then existing
Independent Trustees.
7. When a sub-adviser change is proposed for a Series having an
Affiliated Sub-Adviser, the trustees of the Trusts, including a
majority of the Independent Trustees, will make a separate finding,
reflected in such Trust's board minutes, that the change is in the best
interests of the Series and its shareholders and does not involve a
conflict of interest from which the Advisers or the Affiliated Sub-
Adviser derives an inappropriate advantage.
8. No trustee or officer of the Trusts, or the Advisers will own
directly or indirectly (other than through a pooled investment vehicle
that is not controlled by any such trustee or officer) any interest in
a sub-adviser except for: (a) Ownership of interests in the Advisers or
any entity that controls the Advisers; 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 sub-adviser or an entity that
controls, is controlled by, or is under common control with a sub-
adviser.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-23007 Filed 8-28-97; 8:45 am]
BILLING CODE 8010-01-M
