[Federal Register Volume 68, Number 52 (Tuesday, March 18, 2003)]
[Notices]
[Pages 12964-12966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6431]


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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

[[Page 12966]]

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