[Federal Register Volume 79, Number 169 (Tuesday, September 2, 2014)]
[Notices]
[Pages 52073-52076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20704]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31222; 812-14032]
Northern Lights Fund Trust II and North Peak Asset Management
LLC; Notice of Application
August 26, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application 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, as well as from certain
disclosure requirements.
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Summary of Application: Applicants request an order that would permit
them to enter into and materially amend subadvisory agreements without
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shareholder approval and would grant relief from certain disclosure
requirements.
Applicants: Northern Lights Fund Trust II (the ``Trust'') and North
Peak Asset Management LLC (``North Peak'').
Filing Dates: The application was filed May 11, 2012, and amended on
March 7, 2014 and June 19, 2014.
Hearing or Notification of Hearing: An order granting the requested
relief 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 September 22, 2014, 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: Trust, 17605 Wright
Street, Omaha, NE 68130; North Peak, 457 Washington Street, Duxbury, MA
02332.
FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202)
551-6819, or David P. Bartels, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's Office).
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 for 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 is organized as a Delaware statutory trust and is
registered under the Act as an open-end management investment company.
The Trust offers one or more series of shares, each with its own
distinct investment objectives, policies and restrictions.\1\
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\1\ Applicants request relief with respect to all existing and
future series of the Trust and any other existing or future
registered open-end management investment company or series thereof,
in each case, that (a) is advised by North Peak or its successors or
any entity controlling, controlled by, or under common control with
North Peak or its successors (any such entity, the ``Adviser''); (b)
uses the multi-manager structure described in the application
(``Manager of Managers Structure''); and (c) complies with the terms
and conditions of the application (each a ``Subadvised Fund'' and
collectively, the ``Subadvised Funds''). The only existing
registered open-end management investment company that currently
intends to rely on the requested order is named as an applicant. For
purposes of the requested order, ``successor'' is limited to an
entity that results from a reorganization into another jurisdiction
or a change in the type of business organization. If the name of any
Subadvised Fund contains the name of a Subadviser (as defined
below), the name of the Adviser that serves as the primary adviser
to such Subadvised Fund, or a trademark or trade name that is owned
by the Adviser, will precede the name of the Subadviser.
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2. North Peak is, and any other Adviser will be, registered as an
investment adviser under the Investment Advisers Act of 1940
(``Advisers Act''). North Peak serves as the investment adviser to
series of the Trust pursuant to an investment advisory agreement with
the Trust (the ``Investment Advisory Agreement'').\2\ Each Investment
Advisory Agreement was approved or will be approved by the board of
trustees of the Trust (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 by the shareholders of the relevant Subadvised Fund in
the manner required by sections 15(a) and 15(c) of the Act and rule
18f-2 under the Act.\3\ Applicants are not seeking any exemption from
the provisions of the Act with respect to the Investment Advisory
Agreement.
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\2\ Each other Subadvised Fund will enter into an investment
advisory agreement with its Adviser (included in the term
``Investment Advisory Agreement'').
\3\ The term ``Board'' also includes the board of trustees or
directors of a future Subadvised Fund, if different.
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3. Under the terms of the Investment Advisory Agreement, the
Adviser, subject to the oversight of the Board, formulates a continuing
program for the investment of the assets of each Subadvised Fund in a
manner consistent with its investment objective(s), policies and
restrictions. The Adviser periodically reviews each Subadvised Fund's
investment policies and strategies and based on the need of a
particular Subadvised Fund may recommend changes to the investment
policies and strategies of the Subadvised Fund for consideration by its
Board. For its services to each Subadvised Fund, the Adviser receives
an investment advisory fee from that Subadvised Fund as specified in
the Investment Advisory Agreement calculated based on that Subadvised
Fund's average daily net assets. The terms of the Investment Advisory
Agreements also permit the Adviser, subject to the approval of the
Board, including a majority of the Independent Trustees, and the
shareholders of the applicable Subadvised Fund (if required by
applicable law), to delegate portfolio management responsibilities of
all or a portion of the assets of the Subadvised Fund to one or more
subadvisers (``Subadvisers''). The Adviser evaluates, selects and
recommends Subadvisers to manage the assets (or portion thereof) of
Subadvised Funds, monitors and reviews the Subadvisers and their
performance and their compliance with that Subadvised Fund's investment
policies and restrictions. The Adviser has entered into subadvisory
agreements (``Subadvisory Agreements'') with various Subadvisers.\4\
Each Subadviser is, and each future Subadviser will be, an ``investment
adviser,'' as defined in section 2(a)(20) of the Act, and is
registered, or will register, as an investment adviser under the
Advisers Act, or not subject to such registration.
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\4\ All existing Subadvisory Agreements comply with sections
15(a) and (c) of the Act and
rule 18f-2 thereunder.
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The Adviser may compensate each Subadviser out of the advisory fees
paid to the Adviser under the Investment Advisory Agreement, or
Subadvised Funds may compensate the Subadvisers directly.
4. Applicants request an order to permit the Adviser, subject to
Board approval, to select Subadvisers to manage all or a portion of the
assets of a Subadvised Fund pursuant to a Subadvisory Agreement 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 or a Subadvised Fund or the Adviser, other than by reason
of solely serving as a Subadviser to a Subadvised Fund or as an
investment adviser or subadviser to any series of the Trust other than
the series of the Trust advised by the Adviser (``Affiliated
Subadviser'').
5. The Funds will inform shareholders of the hiring of a new
Subadviser pursuant to the following procedures (``Modified Notice and
Access Procedures''): (a) Within 90 days after a new Subadviser is
hired for any Subadvised Fund, that Subadvised Fund will send its
shareholders either a Multi-manager Notice or a Multi-manager Notice
and Multi-manager Information Statement; \5\ and (b) the
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Subadvised Fund will make the Multi-manager Information Statement
available on the Web site identified in the Multi-manager Notice no
later than when the Multi-manager Notice (or Multi-manager Notice and
Multi-manager Information Statement) is first sent to shareholders, and
will maintain it on that Web site for at least 90 days.
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\5\ A ``Multi-manager Notice'' will be modeled on a Notice of
Internet Availability as defined in rule 14a-16 under the Securities
Exchange Act of 1934 (``Exchange Act''), and specifically will,
among other things: (a) Summarize the relevant information regarding
the new Subadviser; (b) inform shareholders that the Multi-manager
Information Statement is available on a Web site; (c) provide the
Web site address; (d) state the time period during which the Multi-
manager Information Statement will remain available on that Web
site; (e) provide instructions for accessing and printing the Multi-
manager Information Statement; and (f) instruct the shareholder that
a paper or email copy of the Multi-manager Information Statement may
be obtained, without charge, by contacting the Subadvised Funds. A
``Multi-manager Information Statement'' will meet the requirements
of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under
the Exchange Act for an information statement, except as modified by
the requested order to permit Aggregate Fee Disclosure. Multi-
manager Information Statements will be filed electronically with the
Commission via the EDGAR system.
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6. Applicants also request an order exempting each Subadvised Fund
from certain disclosure provisions described below that may require the
Subadvised Funds to disclose fees paid to each Subadviser by the
Adviser or a Subadvised Fund. Applicants seek an order to permit each
Subadvised Fund to disclose (as a dollar amount and a percentage of
each Subadvised Fund's net assets) only: (a) The aggregate fees paid to
the Adviser and any Affiliated Subadviser; and (b) the aggregate fees
paid to Subadvisers other than Affiliated Subadvisers (collectively,
the ``Aggregate Fee Disclosure''). A Subadvised Fund that employs an
Affiliated Subadviser will provide separate disclosure of any fees paid
to the 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 stock in a series investment company affected by a matter must
approve that matter if the Act requires shareholder approval.
2. Form N-1A is the registration statement used by open-end
investment companies. Item 19(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 a registered investment company to comply with Schedule 14A under
the 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. Regulation S-X sets forth the requirements for financial
statements required to be included as part of a registered investment
company's registration statement and shareholder reports filed with the
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require
a registered investment company to include in its financial statement
information about the investment advisory fees.
5. 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 state that the requested relief meets this standard for
the reasons discussed below.
6. Applicants assert that the shareholders expect the Adviser,
subject to the review and approval of the Board, to select the
Subadvisers who are best suited to achieve the Subadvised Fund's
investment objective. Applicants assert that, from the perspective of
the shareholder, the role of the Subadviser is substantially equivalent
to the role of the individual portfolio managers employed by an
investment adviser to a traditional investment company. Applicants
state that requiring shareholder approval of each Subadvisory Agreement
would impose unnecessary delays and expenses on the Subadvised Funds
and may preclude the Subadvised Funds from acting promptly when the
Board and the Adviser believe that a change would benefit a Fund and
its shareholders. Applicants note that the Investment Advisory
Agreements and any subadvisory agreement with an Affiliated Subadviser
(if any) will continue to be subject to the shareholder approval
requirements of section 15(a) of the Act and rule 18f-2 under the Act.
7. Applicants assert that the requested disclosure relief would
benefit shareholders of the Subadvised Funds because it would improve
the Adviser's ability to negotiate the fees paid to Subadvisers.
Applicants state that the Adviser may be able to negotiate rates that
are below a Subadviser's ``posted'' amounts if the Adviser is not
required to disclose the Subadvisers' fees to the public. Applicants
submit that the requested relief will encourage Subadvisers to
negotiate lower subadvisory fees with the Adviser if the lower fees are
not required to be made public.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions: \6\
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\6\ Applicants will comply with conditions 6, 8, 11 and 13 only
if they rely on the relief that would allow them to provide
Aggregate Fee Disclosure.
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1. Before a Subadvised Fund may rely on the order, the operation of
the Subadvised Fund in the manner described in the application will be
approved by a majority of the Subadvised Fund's outstanding voting
securities as defined in the Act or, in the case of a Subadvised Fund
whose public shareholders purchase shares on the basis of a prospectus
containing the disclosure contemplated by condition 2 below, by the
initial shareholder before such Subadvised Fund's shares are offered to
the public.
2. The prospectus for each Subadvised Fund will disclose the
existence, substance, and effect of any order granted pursuant to the
application. In addition, each Subadvised Fund will hold itself out to
the public as employing a Manager of Managers Structure. The prospectus
will prominently disclose that the Adviser has the ultimate
responsibility, subject to oversight by the Board, to oversee the
Subadvisers and recommend their hiring, termination, and replacement.
3. A Subadvised Fund will inform shareholders of the hiring of a
new Subadvisor within 90 days after the hiring of the new Subadviser
pursuant to the Modified Notice and Access Procedures.
4. The Adviser will not enter into a Subadvisory Agreement with any
Affiliated Subadviser without that agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Subadvised Fund.
5. At all times, at least a majority of the Board will be
Independent Trustees, and the selection and nomination of new or
additional Independent Trustees
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will be placed within the discretion of the then-existing Independent
Trustees.
6. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act, has been and will continue to be engaged to represent the
Independent Trustees. The selection of such counsel will be within the
discretion of the then-existing Independent Trustees.
7. Whenever a Subadviser change is proposed for a Subadvised Fund
with an Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Board minutes, that the change is in the best interests of the
Subadvised Fund and its shareholders, and does not involve a conflict
of interest from which the Adviser or the Affiliated Subadviser derives
an inappropriate advantage.
8. Whenever a Subadviser is hired or terminated, the Adviser will
provide the Board with information showing the expected impact on the
profitability of the Adviser.
9. The Adviser will provide general management services to each
Subadvised Fund, including overall supervisory responsibility for the
general management and investment of the Subadvised Fund's assets and,
subject to review and approval of the Board, will: (i) Set the
Subadvised Fund's overall investment strategies; (ii) evaluate, select,
and recommend Subadvisers to manage all or a portion of the Subadvised
Fund's assets; (iii) allocate and, when appropriate, reallocate the
Subadvised Fund's assets among Subadvisers; (iv) monitor and evaluate
the Subadvisers' performance; and (v) implement procedures reasonably
designed to ensure that Subadvisers comply with the Subadvised Fund's
investment objective, policies and restrictions.
10. No Trustee or officer of the Trust or of a Subadvised Fund or
director 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 (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 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.
11. Each Subadvised Fund will disclose in its registration
statement the Aggregate Fee Disclosure.
12. 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.
13. The Adviser will provide the Board, no less frequently than
quarterly, with information about the profitability of the Adviser on a
per Subadvised Fund basis. The information will reflect the impact on
profitability of the hiring or termination of any Subadviser during the
applicable quarter.
14. Any new Subadvisory Agreement or any amendment to a Fund's
existing Investment Advisory Agreement or Subadvisory Agreement that
directly or indirectly results in an increase in the aggregate advisory
fee rate payable by the Fund will be submitted to the Fund shareholders
for approval.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20704 Filed 8-29-14; 8:45 am]
BILLING CODE 8011-01-P