

[Federal Register: October 9, 2007 (Volume 72, Number 194)]
[Notices]               
[Page 57359-57361]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09oc07-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28010; 812-13419]

 
JNF Advisors, Inc. and Northern Lights Variable Trust; Notice of 
Application

October 2, 2007.
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

[[Page 57360]]

the Act, as well as from certain disclosure requirements.

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Summary of the Application: Applicants request an order permitting them 
to enter into and materially amend subadvisory agreements without 
shareholder approval and granting relief from certain disclosure 
requirements.

Applicants: JNF Advisors, Inc. (``JNF Advisors'') and Northern Lights 
Variable Trust (``Trust'').

Filing Dates: The application was filed on August 24, 2007, and amended 
on October 1, 2007.

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 October 
29, 2007 and should be accompanied by proof of service on 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 by writing to the Commission's 
Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, c/o JoAnn Strasser, 
Esq., Thompson Hine, 312 Walnut Street, Cincinnati, Ohio 45202.

FOR FURTHER INFORMATION CONTACT: Donna Tumminio, Law Clerk, at (202) 
551-6826, or Nadya B. Roytblat, Assistant Director, at (202) 551-6821 
(Office of Investment Company Regulation, Division of Investment 
Management).

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, 100 F Street, NE., Washington, DC 
20549-0102 (telephone (202) 551-5850).

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. 
JNF Advisors, a Delaware corporation, is registered as an investment 
adviser under the Investment Advisers Act of 1940 (``Advisers Act'').
    2. The Trust currently offers 5 separate series, each with its own 
investment objective(s), policies and restrictions. JNF Advisors serves 
as the investment adviser to two of the series of the Trust (each, a 
``Fund,'' and collectively, the ``Funds''). JNF Advisors has entered 
into an investment advisory agreement with the Trust for each Fund 
(each, an ``Advisory Agreement,'' and collectively, the ``Advisory 
Agreements'') 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 (the 
``Independent Trustees''), and the shareholders of each Fund.\1\
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    \1\ Applicants also request relief with respect to any 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 JNF Advisors or any entity controlling, controlled by, 
or under common control with JNF Advisors; (b) uses the multi-
manager structure described in the application; and (c) complies 
with the terms and conditions contained in the application (included 
in the term ``Funds''). The Trust is the only existing investment 
company that currently intends to rely on the requested order. If 
the name of any Fund contains the name of a Sub-Adviser (as defined 
below), the name JNF Advisors or the name of the entity controlling, 
controlled by, or under common control with JNF Advisors that serves 
as the primary adviser to such Fund will precede the name of the 
Sub-Adviser.
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    3. The Advisory Agreements permit JNF Advisors to enter into 
separate advisory agreements (``Sub-Advisory Agreements'') with sub-
advisers (``Sub-Advisers''). Each Sub-Adviser will be registered under 
the Advisers Act. Under the terms of each Sub-Advisory Agreement, the 
Sub-Adviser will be responsible for the day-to-day decision-making with 
respect to the Fund's investment program and will determine which 
securities will be purchased and sold. JNF Advisors will select Sub-
Advisers based on an evaluation of their skills and proven abilities in 
managing assets pursuant to a specific investment style. JNF Advisors 
will monitor and evaluate the performance of Sub-Advisers and recommend 
to the Board their hiring, termination and replacement. In return for 
providing overall investment management services, including Sub-Adviser 
monitoring and evaluation, JNF Advisors will receive a fee under its 
Advisory Agreement from each Fund. JNF Advisors will compensate a Sub-
Adviser out of the management fee paid to JNF Advisers by the Fund.
    4. Applicants request an order to permit JNF Advisors, subject to 
Board approval, to enter into 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 JNF Advisors, other 
than by reason of serving as a Sub-Adviser to one or more of the Funds 
(``Affiliated Sub-Adviser'').
    5. Applicants also request an exemption from the various disclosure 
provisions described below that may require each Fund to disclose fees 
paid by JNF Advisors to the Sub-Advisers. An exemption is requested to 
permit each Fund to disclose (both as a dollar amount and as a 
percentage of the Fund's net assets) the: (a) Aggregate fees paid to 
JNF Advisors and any Affiliated Sub-Advisers; and (b) aggregate fees 
paid to Sub-Advisers other than Affiliated Sub-Advisers (collectively, 
``Aggregate Fee Disclosure''). If a Fund employs an Affiliated Sub-
Adviser, the Fund will provide separate disclosure of any fees paid to 
the Affiliated Sub-Adviser.

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 under a written contract that has been 
approved by a 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 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 14(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 Sub-Advisers.
    5. Regulation S-X sets forth the requirements for financial 
statements

[[Page 57361]]

required to be included as part of investment company registration 
statements and shareholders 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 provisions of the Act, or 
from any rule thereunder, 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 
policies and provisions of the Act. Applicants state that the requested 
relief meets this standard for the reasons discussed below.
    7. Applicants assert that the Funds' shareholders rely on JNF 
Advisors to select and monitor the Sub-Advisers best suited to achieve 
a Fund's investment objectives. Applicants contend that, from the 
perspective of the investor, the role of the Sub-Advisers is comparable 
to that of individual portfolio managers employed by traditional 
investment advisory firms. Applicants state that requiring shareholder 
approval of each Sub-Advisory Agreement would impose unnecessary costs 
and delays on the Funds and may preclude JNF Advisors from acting 
promptly in a manner considered advisable by the Board. Applicants note 
that the Advisory Agreement will remain subject to section 15(a) of the 
Act and rule 18f-2 under the Act.
    8. Applicants assert that many Sub-Advisers use a ``posted'' rate 
schedule to set their fees. Applicants state that, while Sub-Advisers 
are willing to negotiate fees lower than those posted in the schedule, 
they are reluctant to do so when the fees are disclosed to other 
prospective and existing customers. Applicants submit that the 
requested relief will encourage potential Sub-Advisers to negotiate 
lower Sub-Advisory fees with JNF Advisors, the benefits of which may be 
passed on to the Funds' shareholders.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. JNF Advisors will provide general investment 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 of the Board, will: (a) Set the Fund's overall 
investment strategies; (b) evaluate, select and recommend Sub-Advisers 
to manage all or a portion of the Fund's assets; (c) allocate and, when 
appropriate, reallocate the Fund's assets among multiple Sub-Advisers; 
(d) monitor and evaluate Sub-Advisers' performance; and (e) implement 
procedures reasonably designed to ensure that the Sub-Advisers comply 
with the relevant Fund's investment objective, policies, and 
restrictions.
    2. Before a Fund may rely on the requested order herein, 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 3 below, by the initial 
shareholder before such Fund's shares are offered to the public.
    3. 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 described in the Application. The 
prospectus will prominently disclose that JNF Advisors has ultimate 
responsibility, subject to oversight by the Board, to oversee the Sub-
Advisers and recommend their hiring, termination, and replacement.
    4. Within 90 days of the hiring of any new Sub-Adviser, 
shareholders of the relevant Fund will be furnished all information 
about the new Sub-Adviser that would be included in a proxy statement, 
except as modified to permit Aggregate Fee Disclosure. This information 
will include Aggregate Fee Disclosure and any change in such disclosure 
caused by the addition of a new Sub-Adviser. To meet this obligation, 
JNF Advisors will provide shareholders of the applicable Fund, within 
90 days of the hiring of a new Sub-Adviser, 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.
    5. No trustee or officer of the Trust or a Fund or director or 
officer of JNF Advisors 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 JNF Advisors or any entity that controls, is controlled 
by, or is under common control with JNF Advisors; 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.
    6. 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.
    7. Whenever a Sub-Adviser change is proposed for a Fund with an 
Affiliated Sub-Adviser, the Fund's Board, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
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 JNF Advisors or the Affiliated Sub-Adviser derives an 
inappropriate advantage.
    8. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    9. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the 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.
    10. JNF Advisors will provide the Board, no less frequently than 
quarterly, with information about JNF Advisors' profitability on a per 
Fund basis. This information will reflect the impact on profitability 
of the hiring or termination of any Sub-Adviser during the applicable 
quarter.
    11. Whenever a Sub-Adviser is hired or terminated, JNF Advisors 
will provide the Board with information showing the expected impact on 
JNF Advisors' profitability.
    12. JNF Advisors will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser, without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    13. The requested order will expire on the effective date of rule 
15a-5 under the Act, if adopted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E7-19753 Filed 10-5-07; 8:45 am]

BILLING CODE 8011-01-P
