[Federal Register: March 18, 2003 (Volume 68, Number 52)]
[Notices]
[Page 12964-12966]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18mr03-123]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 25956; 812-12274]
JNL Series Trust, et al.; Notice of Application
March 12, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act and rule 18f-2 under the Act, as well as from certain
disclosure requirements.
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SUMMARY OF APPLICATION: The requested order would permit certain
registered open-end management investment companies to enter into and
materially amend subadvisory agreements without shareholder approval
and grant relief from certain disclosure requirements.
APPLICANTS: Jackson National Asset Management, LLC (the ``Manager''),
JNL Series Trust (``Series Trust''), JNL Investors Series Trust
(``Investors Series Trust''), and JNL Variable Fund LLC, JNL Variable
Fund III LLC, JNL Variable Fund V LLC, JNLNY Variable Fund I LLC and
JNLNY Variable Fund II LLC (collectively, the ``Variable Funds'').
FILING DATES: The application was filed on September 22, 2000 and
amended on December 27, 2001 and March 6, 2003.
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 April 7, 2003, 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 Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC
20549-0609; Applicants, c/o Keith J. Rudolf, Esq., Jorden Burt LLP,
1025 Thomas Jefferson Street, NW., Washington, DC 20007.
FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at
(202) 942-0527 and Annette M. Capretta, 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 at the
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington,
DC 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. The Series Trust and the Investors Series Trust, Massachusetts
business trusts, and the Variable Funds, each a Delaware limited
liability company, are registered under the Act as open-end management
investment companies and have one or more series (each a ``Fund'' and,
together, the ``Funds''). Each of the
[[Page 12965]]
Funds has its own investment objectives, policies and restrictions.\1\
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\1\ Applicants request that any relief granted pursuant to the
application also apply to all future series of Series Trust,
Investors Series Trust and the Variable Funds and any other
registered open-end management investment companies and their series
that in the future (a) are advised by the Manager or an entity
controlling, controlled by, or under common control with the Manager
(with the Manager, the ``Manager''); (b) are managed in a manner
consistent with this application; and (c) comply with the terms and
conditions in the application (each, a ``Fund'' and together with
the Funds, the ``Funds.''). Series Trust, Investors Series Trust and
the Variable Funds are the only existing investment companies that
currently intend to rely on the requested order. Applicants state
that if the name of any Fund contains the name of an Adviser (as
defined below), the name of the Adviser will be preceded by the name
of the Manager or the name ``JNL,'' which is an abbreviation of the
name ``Jackson National Life Insurance Company,'' the parent of the
Manager.
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2. Shares of the Funds of Series Trust and the Variable Funds are
offered through registered separate accounts as funding vehicles for
variable annuity contracts issued by insurance companies and may be
offered as funding vehicles for variable life insurance contracts.
Shares of the Funds of Series Trust may be offered for sale to
qualified pension plans. Shares of Investors Series Trust will be sold
directly to the public and through banks, trust companies and
investment advisers.
3. The Manager, a Michigan limited liability company and wholly
owned subsidiary of Jackson National Life Insurance Company, is
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). The Funds have each entered into an investment advisory and
management agreement (each a ``Management Agreement''), pursuant to
which the Manager serves as the investment adviser to the Funds. Each
Management Agreement was approved by, in the case of Series Trust and
Investors Series Trust, a majority of its board of trustees, and in the
case of each of the Variable Funds, a majority of its board of managers
(each a ``Board'' and together the ``Boards''), including a majority of
the trustees or managers (the ``Directors'') who are not ``interested
persons,'' as defined in section 2(a)(19) of the Act (``Independent
Directors''), of the Funds or the Manager, as well as by each Fund's
shareholders.\2\ Under the terms of the Management Agreements, the
Manager, subject to oversight by the Boards, has supervisory
responsibility for the investment program of each Fund.
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\2\ The term ``shareholders'' includes variable contract owners,
as applicable.
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4. The Manager has entered into separate sub-advisory agreements
(``Advisory Agreements'') with each sub-adviser (an ``Adviser'') to
each Fund. Under the Advisory Agreements, each Adviser, subject to
general supervision by the Manager and the Board, has discretionary
authority to invest the portion of the Fund's assets allocated to it by
the Manager. Each Adviser is, and any future Adviser will be,
registered under the Advisers Act. Advisers are recommended to the
Board by the Manager and selected and approved by the Board, including
a majority of the Independent Directors. Each Adviser's fees are, and
will be, paid by the Manager out of the management fees received by the
Manager from the respective Fund.
5. The Manager monitors the Funds and the Advisers and makes
recommendations to the Board regarding allocation, and reallocation, of
assets between Advisers and is responsible for recommending the hiring,
termination and replacement of Advisers. The Manager recommends
Advisers based on a number of factors used to evaluate their skills in
managing assets pursuant to particular investment objectives.
6. Applicants request an order to permit the Manager, subject to
the oversight of the Board, to enter into and materially amend Advisory
Agreements without shareholder approval. The requested relief will not
extend to an Adviser that is an affiliated person, as defined in
section 2(a)(3) of the Act, of the Funds or the Manager, other than by
reason of serving as an Adviser to one or more of the Funds (an
``Affiliated Adviser'').
7. Applicants also request an exemption from the various disclosure
provisions described below that may require each Fund to disclose fees
paid by the Manager to the Advisers. Each Fund will disclose (both as a
dollar amount and as a percentage of a Fund's net assets): (a)
Aggregate fees paid to the Manager and any Affiliated Advisers; (b)
aggregate fees paid to Advisers other than Affiliated Advisers; and (c)
separate disclosure of advisory fees paid to any Affiliated Adviser
(``Aggregate Fee Disclosure'').
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 pursuant to a written contract that has been
approved by the vote of the company's outstanding voting securities.
Rule 18f-2 under the Act provides, in relevant part, 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. Form N-1A is the registration statement used by open-end
investment companies. Item 15(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 investment company to comply with Schedule 14A under the
Securities Exchange Act of 1934 (``Exchange 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 Advisers.
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 provision 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 believe that their requested relief meets this standard
for the reasons discussed below.
7. Applicants assert that the shareholders are relying on the
Manager's experience to select one or more Advisers best suited to
achieve a Fund's desired investment objectives. Applicants assert that,
from the perspective of the shareholders, the role of the Advisers is
comparable to that of individual portfolio managers employed by other
investment advisory firms. Applicants contend that requiring
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shareholder approval of each Advisory Agreement would impose costs and
unnecessary delays on the Funds, and may preclude the Manager from
acting promptly in a manner considered advisable by the Board.
Applicants note that the Management Agreements will remain subject to
section 15(a) of the Act and rule 18f-2 under the Act.
8. Applicants assert that many Advisers use a ``posted'' rate
schedule to set their fees. Applicants state that while Advisers are
willing to negotiate fees lower than those posted in the schedule,
particularly with large institutional clients, they are reluctant to do
so where the fees are disclosed to other prospective and existing
customers. Applicants submit that the nondisclosure of the individual
Adviser's fees is in the best interests of the Funds and their
shareholders, where the disclosure of such fees would increase costs to
shareholders without offsetting benefit to the Funds and their
shareholders.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
Conditions Applicable to All Funds Relying on the Requested Order
1. Before a Fund may rely on the requested order, 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 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 initial shareholder(s) before the shares of the Fund are offered
to the public.
2. Each Fund will disclose in its prospectus the existence,
substance and effect of any order granted pursuant to the application.
In addition, each Fund will hold itself out to the public as employing
the management structure described in this application. Each Fund's
prospectus will prominently disclose that the Manager has ultimate
responsibility (subject to oversight by the Board) to oversee the
Advisers and recommend their hiring, termination and replacement.
3. Within 90 days of the hiring of any new Adviser, the Manager
will furnish shareholders of the affected Fund all information about
the new Adviser that would be included in a proxy statement, except as
modified by the order to permit Aggregate Fee Disclosure. This
information will include the Aggregate Fee Disclosure and any change in
such disclosure caused by the addition of the new Adviser. The Manager
will satisfy this condition by providing shareholders with an
information statement meeting the requirements of Regulation 14C,
Schedule 14C and Item 22 of Schedule 14A under the Exchange Act, except
as modified by the order to permit Aggregate Fee Disclosure.
4. The Manager will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of each Fund's securities portfolio, and,
subject to review and approval by the Board will: (a) Set the Fund's
overall investment strategies; (b) evaluate, select, and recommend
Advisers to manage all or part of a Fund's assets; (c) allocate and,
when appropriate, reallocate a Fund's assets among Advisers; (d)
monitor and evaluate the performance of Advisers; and (e) implement
procedures reasonably designed to ensure that the Advisers comply with
each Fund's investment objectives, policies, and restrictions.
5. The Manager will not enter into an Advisory Agreement with any
Affiliated Adviser without that Advisory Agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
6. When a change in Adviser is proposed for a Fund with an
Affiliated Adviser, the Board, including a majority of the Independent
Directors, will make a separate finding, reflected in the 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
Manager or the Affiliated Adviser derives an inappropriate advantage.
7. At all times, a majority of each Board will be Independent
Directors, subject only to the suspension of this requirement for the
death, disqualification or bona fide resignation of directors as
provided in rule 10e-1 under the Act, and the nomination of new or
additional Independent Directors will be at the discretion of the then-
existing Independent Directors.
8. No director or officer of a Fund or director or officer of the
Manager will own directly or indirectly (other than through a pooled
investment vehicle over which such person does not have control) any
interest in an Adviser except for: (a) Ownership of interests in the
Manager, 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 an Adviser or an entity that controls, is controlled by or is
under common control with an Adviser.
Additional Conditions Applicable to Funds Relying on the Aggregate Fee
Disclosure Relief of the Requested Order
9. Each Fund will disclose in its registration statement the
respective Aggregate Fee Disclosure.
10. Independent legal counsel knowledgeable about the Act and the
duties of Independent Directors, will be engaged to represent the
Independent Directors. The selection of such counsel will be within the
discretion of the then-existing Independent Directors.
11. The Manager will provide the Board, no less frequently than
quarterly, with information about the Manager's profitability for each
Fund relying on the relief requested in the application. This
information will reflect the impact on profitability of the hiring or
termination of any Adviser during the applicable quarter.
12. Whenever an Adviser to a particular Fund is hired or
terminated, the Manager will provide the applicable Fund's Board with
information showing the expected impact on the Manager's profitability.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-6431 Filed 3-17-03; 8:45 am]
BILLING CODE 8010-01-P