[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