[Federal Register Volume 79, Number 148 (Friday, August 1, 2014)]
[Notices]
[Pages 44873-44875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18129]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31189; File No. 812-14196]
Altegris Advisors L.L.C. and Northern Lights Fund Trust; Notice
of Application
July 28, 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
shareholder approval and would grant relief from certain disclosure
requirements. The order would supersede a prior order.\1\
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\1\ Altegris Advisors, L.L.C. et al., Investment Company Act
Rel. Nos. 29689 (June 1, 2011) (notice) and 29710 (June 28, 2011)
(order).
Applicants: Altegris Advisors L.L.C. (the ``Adviser'') and Northern
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Lights Fund Trust (the ``Trust'').
Filing Dates: The application was filed on August 5, 2013 and amended
on March 17, 2014, April 17, 2014, and July 11, 2014.
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 August 21, 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: Adviser, 1200
Prospect Street, Suite 400, La Jolla CA 92037; Trust: 17065 Wright
Street, Suite 2, Omaha, NE 68130.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 551-6817 or Daniele Marchesani, 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 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 is comprised of
multiple series, each with its own investment, objectives and
policies.\2\ The Adviser is a Delaware limited liability company
registered as an investment adviser under the Investment Advisers Act
of 1940 (``Advisers Act'') and serves as the investment adviser to the
Funds pursuant to investment advisory agreements (``Advisory
Agreements'') with the Trust. The 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''),\3\ 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 Fund in the manner
required by sections 15(a) and 15(c) of the Act and rule 18f-2
thereunder. Applicants are not seeking any exemptions from the
provisions of the Act with respect to any Advisory Agreement.
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\2\ Altegris Managed Futures Strategy Fund (the ``MF Fund''),
Altegris Macro Strategy Fund (the ``MS Fund''), Altegris Futures
Evolution Fund (the ``FE Fund''), Altegris Equity Long Short Fund
(the ``ELS Fund''), Altegris Fixed Income Long Short Fund (the
``FILS Fund''), Altegris Multi-Strategy Alternative Fund (the ``MSA
Fund''), and the Altegris/AACA Real Estate Long Short Fund (the
``RELS'' Fund'') are the only Funds (defined below) that currently
intend to rely on the requested order. Applicants request relief
with respect to existing and 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; (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 MF Fund,
the MS Fund, FE Fund, ELS Fund, the FILS Fund, the MSA Fund, and the
RELS Fund, the ``Funds'' and each, individually, a ``Fund.''). If
the name of any Fund contains the name of a Sub-Adviser, the name of
the Adviser will precede the name of the Sub-Adviser.
\3\ The term ``Board'' also includes the board of trustees of a
future Fund.
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2. Under the terms of the Advisory Agreements, each Adviser,
subject to the oversight of the applicable Board, is
[[Page 44874]]
responsible for the overall management of the Funds' business affairs
and selecting the Funds' investments according to the Funds' investment
objectives, policies, and restrictions. For the investment advisory
services that they provide to the Funds, the Advisers receive a fee
from the Funds as specified in the Advisory Agreements. The Advisory
Agreements also authorize the Advisers to retain one or more
unaffiliated investment subadvisers (each, a ``Sub-Adviser''), to be
compensated by the Advisers for the purpose of managing the investment
of the assets of the Funds. The Advisers have entered into subadvisory
agreements (``Sub-Advisory Agreements'') with various Sub-Advisers to
provide investment advisory services to certain Funds.\4\ Each Sub-
Adviser is, and each future Sub-Adviser will be, an ``investment
adviser,'' as defined in section 2(a)(20)(B) of the Act, and registered
as an investment adviser under the Advisers Act, or not subject to such
registration. The Advisers will evaluate, allocate assets to, and
oversee the Sub-Advisers, and make recommendations about their hiring,
termination, and replacement to the applicable Board, at all times
subject to the authority of that Board. The Adviser compensates each
Sub-Adviser out of the fee paid by a Fund to the Adviser under the
Advisory Agreement.
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\4\ All Sub-Advisory Agreements comply with sections 15(a) and
(c) of the Act.
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3. Applicants request an order to permit the Advisers, subject to
Board approval, to engage Sub-Advisers to manage all or a portion of
the assets of a Fund pursuant to a Sub-Advisory Agreement and
materially amend Sub-Advisory Agreements without obtaining shareholder
approval. The requested relief will not extend to any Sub-Adviser that
is an ``affiliated person,'' as defined in section 2(a)(3) of the Act,
of a Fund or the Adviser, other than by reason of serving as Sub-
Adviser to a Fund (``Affiliated Sub-Adviser'').
4. Applicants also request an order exempting each Fund from
certain disclosure provisions described below that may require the
Funds to disclose fees paid by the Advisers to each Sub-Adviser.
Applicants seek an order to permit each Fund to disclose (as both a
dollar amount and as a percentage of a Fund's net assets) only: (a) The
aggregate fees paid to its Adviser and any Affiliated Sub-Advisers; and
(b) the aggregate fees paid to Sub-Advisers other than Affiliated Sub-
Advisers (collectively, the ``Aggregate Fee Disclosure''). A Fund that
employs an Affiliated Sub-Adviser will provide separate disclosure of
any fees paid to the Affiliated Sub-Adviser.
5. The Funds will inform shareholders of the hiring of a new Sub-
Adviser pursuant to the following procedures (``Modified Notice and
Access Procedures''): (a) Within 90 days after a new Sub-Adviser is
hired for any Fund, that Fund will send its shareholders either a
Multi-Manager Notice or a Multi-Manager Notice and Multi-Manager
Information Statement; \5\ and (b) the 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 Sub-Adviser; (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 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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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 each Fund's
Adviser, subject to the review and approval of the Board, to select the
Sub-Advisers who are best suited to achieve the Fund's investment
objective. Applicants assert that, from the perspective of the
shareholder, the role of the Sub-Adviser is substantially equivalent to
the role of the individual portfolio managers employed by traditional
investment company advisory firms. Applicants state that requiring
shareholder approval of each Sub-Advisory Agreement would impose
unnecessary delays and expenses on the Funds, and may preclude a Fund
from acting promptly when the applicable Board and Adviser believe that
a change would benefit the Fund and its shareholders. Applicants note
that the Advisory Agreements and any Sub-Advisory Agreement with an
Affiliated Sub-Adviser (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 Funds because it would improve the
Advisers' ability to negotiate the fees paid to Sub-Advisers.
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Applicants state that the Advisers may be able to negotiate rates that
are below a Sub-Adviser's ``posted'' amounts, if the Adviser is not
required to disclose the Sub-Advisers' fees to the public. Applicants
submit that the requested relief will encourage Sub-Advisers to
negotiate lower subadvisory fees with the Advisers 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:
1. Before a Fund may rely on the 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
1940 Act, or, in the case of a Fund whose public shareholders purchased
shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the initial shareholder before
such Fund's shares are offered to the public.
2. The prospectus for each Fund will disclose 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 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 Sub-Advisers and recommend their
hiring, termination, and replacement.
3. Funds will inform shareholders of the hiring of a new Sub-
Adviser within 90 days after the hiring of the new Sub-Adviser pursuant
to the Modified Notice and Access Procedures.
4. The Adviser will not enter into a Sub-Advisory Agreement with
any Affiliated Sub-Adviser without that 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. Independent Legal Counsel, as defined in Rule 0-1(a)(6) under
the 1940 Act, will 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 Sub-Adviser change is proposed for a Fund with an
Affiliated Sub-Adviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Trust's 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 Adviser or the Affiliated Sub-Adviser derives an
inappropriate advantage.
8. Whenever a Sub-Adviser 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 the Board, no less frequently than
quarterly, with information about the profitability of the Adviser on a
per Fund basis. The information will reflect the impact on
profitability of the hiring or termination of any Sub-Adviser during
the applicable quarter.
10. The Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of the Fund's assets, and, subject to review
and approval by the Board, will: (a) Set the Fund's overall investment
strategies; (b) evaluate, select and recommend Sub-Advisers to manage
all or a part of the Fund's assets; (c) when appropriate, allocate and
reallocate the Fund's assets among Sub-Advisers; (d) monitor and
evaluate the investment performance of Sub-Advisers; and (e) implement
procedures reasonably designed to ensure that the Sub-Advisers comply
with the Fund's investment objectives, policies, and restrictions.
11. No Trustee or officer of the Trust or of a 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 Sub-Adviser 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
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.
12. Each Fund will disclose in its registration statement the
Aggregate Fee Disclosure.
13. In the event that the Commission adopts a rule under the 1940
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.
14. Any new Sub-Advisory Agreement or any amendments to a Fund's
existing Advisory Agreement or Sub-Advisory 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's shareholders for
approval.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18129 Filed 7-31-14; 8:45 am]
BILLING CODE 8011-01-P