[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]


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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'').

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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

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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

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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

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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