[Federal Register Volume 76, Number 229 (Tuesday, November 29, 2011)]
[Notices]
[Pages 73748-73749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-30632]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29867; 812-13935]
Genesis Capital, LLC and Northern Lights Fund Trust; Notice of
Application
November 21, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from section
15(a) of the Act and rule 18f-2 under the Act.
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Summary of Application: Applicants request an order that would permit
them to enter into and materially amend subadvisory agreements without
shareholder approval.
Applicants: Genesis Capital, LLC (``Genesis Capital'' or the
``Adviser'') and Northern Lights Fund Trust (the ``Trust'').
DATES: Filing Dates: The application was filed on August 3, 2011, and
amended on November 14, 2011.
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 December 16, 2011, 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, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicants: Genesis Capital,
7191 Wagner Way NW., Suite 302, Gig Harbor, WA 98335; Trust: 4020 South
147th Street, Omaha, NE 68137.
FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at
(202) 551-6826, or Dalia Osman Blass, Assistant Director, at (202) 551-
6821 (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 via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust, a Delaware statutory trust, is registered under the
Act as an open-end management investment company and as of November 9,
2011 was comprised of 123 individual registered series, including the
SCA Absolute Return Fund and the SCA Directional Fund (the ``Absolute
Return Fund'' and ``Directional Fund,'' respectively, and together, the
``SCA Funds''), and 10 additional series that are in registration. The
SCA Funds do not currently employ unaffiliated investment subadvisers
(each, a ``Subadviser''), but anticipate doing so in the future.\1\
Genesis Capital, a Washington limited liability company, is, and each
other Adviser will be, registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act''). Genesis Capital
serves as the investment adviser of the Absolute Return Fund and
Directional Fund, and an Adviser will serve as investment adviser to
each future Fund, pursuant to investment advisory agreements
(``Advisory Agreements''). The SCA Funds' Advisory Agreements were
approved by the Trust's board of trustees (together with the board of
directors or trustees of any other Fund, the ``Board''), including a
majority of the trustees who are not ``interested persons,'' as defined
in section 2(a)(19) of the Act, of the Trust or the Adviser
(``Independent Trustees'') and will be approved by the initial
shareholder of the Absolute Return Fund and Directional Fund,
respectively, upon commencement of each respective Fund's operations.
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\1\ Applicants also request relief with respect to any existing
or future series of the Trust and any other existing or future
registered open-end management investment company or series thereof
that: (a) Is advised by the Adviser or any entity controlling,
controlled by, or under common control with the Adviser or its
successors (included within the term ``Adviser''); (b) uses the
manager of managers structure (``Manager of Managers Structure'')
described in the application; and (c) complies with the terms and
conditions of the application (together with the SCA Funds, the
``Funds'' and each, individually, a ``Fund''). For the purposes of
the requested order, ``successor'' is limited to those one or more
entities that would result from a reorganization into another
jurisdiction or a change in the type of business organization. All
existing entities that currently intend to rely on the requested
order are named as applicants, and the Absolute Return Fund and
Directional Fund are the only series that currently intend to rely
on the requested order. If the name of any Fund contains the name of
a Subadviser, the name of the Adviser will precede the name of the
Subadviser.
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2. Under the terms of the SCA Funds' Advisory Agreements, the
Adviser is responsible for the overall management of the Absolute
Return Fund's and Directional Fund's business affairs and selecting
investments according to their respective investment objectives,
policies and restrictions. For the investment management services that
it provides to those Funds, the Adviser receives the fee specified in
the Advisory Agreements. The Advisory Agreements also permit the
Adviser to retain one or more subadvisers for the purpose of managing
the investments of all or a portion of the assets of the Absolute
Return Fund and Directional Fund. Pursuant to this authority, the
Adviser may enter into investment subadvisory agreements with
Subadvisers to provide investment advisory services to the Absolute
Return Fund and Directional Fund, respectively (such agreements with
Subadvisers, ``Subadvisory Agreements''). Each Subadviser will be
registered as an investment adviser under the Advisers Act. The Adviser
will supervise, evaluate and allocate assets to the Subadvisers, and
make recommendations to the Board about their hiring, retention or
release, at all times subject to the authority of the Board. The
Adviser will compensate each Subadviser out of the fees paid to the
Adviser under the Advisory Agreement.
3. Applicants request an order to permit the Adviser, subject to
Board approval, to enter into and materially amend Subadvisory
Agreements without obtaining shareholder approval. The requested relief
will not extend to any subadviser that is an affiliated person, as
defined in section 2(a)(3) of the Act, of the Trust, a Fund or the
Adviser, other than by reason of serving as a subadviser to one or more
of the Funds (``Affiliated Subadviser'').
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 a majority of the company's outstanding voting
securities. Rule 18f-2 under the Act provides that each series or class
of securities in a series investment company affected by a
[[Page 73749]]
matter must approve that matter if the Act requires shareholder
approval.
2. 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 provisions 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 state that the requested relief meets this standard.
3. Applicants assert that the shareholders expect the Adviser and
the Board to select the Subadvisers for the Funds that are best suited
to achieve each Fund's investment objective. Applicants assert that,
from the perspective of the investor, the role of the Subadvisers is
substantially equivalent to that of the individual portfolio managers
employed by the Adviser. Applicants state that requiring shareholder
approval of each Subadvisory Agreement would impose costs and
unnecessary delays on the Funds, and may preclude the Adviser from
acting promptly in a manner considered advisable by the Board.
Applicants note that the Advisory Agreements and any Subadvisory
Agreement with an Affiliated Subadviser will remain subject to section
15(a) of the Act and rule 18f-2 under the Act, including the
requirement for shareholder voting.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
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, as defined in
the Act, 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
offering shares of that Fund to the public.
2. Each Fund relying on the requested order will disclose in its
prospectus the existence, substance, and effect of any order granted
pursuant to this application. Each Fund will hold itself out to the
public as utilizing the Manager of Managers Structure. The prospectus
will prominently disclose that the Adviser has ultimate responsibility
(subject to oversight by the Board) to oversee the Subadvisers and
recommend their hiring, termination, and replacement.
3. Within 90 days of the hiring of a new Subadviser, shareholders
of the affected Fund will be furnished all information about the new
Subadviser that would be included in a proxy statement. To meet this
obligation, each Fund will provide shareholders within 90 days of the
hiring of a new Subadviser an information statement meeting the
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule
14A under the Securities Exchange Act of 1934.
4. The Adviser will not enter into a subadvisory agreement with any
Affiliated Subadviser without such agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
5. At all times, at least a majority of the Board will be
Independent Trustees, and the nomination of new or additional
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
6. Whenever a subadviser change is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
applicable Board minutes, that such change is in the best interests of
the Fund and its shareholders, and does not involve a conflict of
interest from which the Adviser or the Affiliated Subadviser derives an
inappropriate advantage.
7. The Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of each Fund's assets and, subject to review
and approval of the Board, will: (a) Set each Fund's overall investment
strategies; (b) evaluate, select and recommend Subadvisers to manage
all or a part of each Fund's assets; (c) allocate and, when
appropriate, reallocate each Fund's assets among one or more
Subadvisers; (d) monitor and evaluate the performance of Subadvisers;
and (e) implement procedures reasonably designed to ensure that the
Subadvisers comply with each Fund's investment objective, policies and
restrictions.
8. No trustee or officer of the Trust or a Fund, or director,
manager, or officer of the Adviser, will own directly or indirectly
(other than through a pooled investment vehicle that is not controlled
by such person), any interest in a Subadviser, except for (a) Ownership
of interests in the Adviser or any entity that controls, is controlled
by, or is under common control with the Adviser, or (b) ownership of
less than 1% of the outstanding securities of any class of equity or
debt of any publicly traded company that is either a Subadviser or an
entity that controls, is controlled by, or is under common control with
a Subadviser.
9. In the event the Commission adopts a rule under the Act
providing substantially similar relief to that in the order requested
in the application, the requested order will expire on the effective
date of that rule.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30632 Filed 11-28-11; 8:45 am]
BILLING CODE 8011-01-P