Document ID: SEC-2010-0590-0001
Agency: sec
Document Type: Notice
Title: Applications: Northern Lights Fund Trust, et al.
Posted Date: 2010-04-22T04:00Z

[Federal Register: April 22, 2010 (Volume 75, Number 77)]
[Notices]               
[Page 21048-21050]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ap10-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29208; 812-13651]

 
Northern Lights Fund Trust, et al.; Notice of Application

April 16, 2010.
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:  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.
    Applicants: Northern Lights Fund Trust (the ``Trust'') and CMG 
Capital Management Group, Inc. (the ``Adviser'').

DATES:  Filing Dates: The application was filed on April 9, 2009 and 
amended on September 28, 2009 and April 16, 2010.
    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 May 11, 2010, 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, 150 North 
Radnor-Chester Road, Suite A120, Radnor, PA 19087; Trust, 450 Wireless 
Boulevard, Hauppauge, NY 11788-0132.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 551-6868, or Julia Kim Gilmer, Branch Chief, 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 offers 
approximately forty-six series, including the CMG Absolute Return 
Strategies Fund (``CMG Fund''). The CMG Fund currently employs six 
unaffiliated investment subadvisers (each, a ``Subadviser'').\1\ The 
Adviser is registered as an investment adviser under the Investment 
Advisers Act of 1940 (``Advisers Act'') and serves as the investment 
adviser to the CMG Fund pursuant to an investment advisory agreement 
(``Advisory

[[Page 21049]]

Agreement'') with the Trust. The Adviser will also serve as the 
investment adviser to the other Funds. The Advisory Agreement was 
approved by the Trust's board of trustees (together with the board of 
directors or trustees of any Fund if different, 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 initial shareholder 
of the CMG Fund.
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    \1\ Applicants also 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 described in the application; and (c) complies 
with the terms and conditions of this application (together with the 
CMG Fund, the ``Funds'' and each, individually, a ``Fund.'') The 
only existing registered open-end management investment company that 
currently intends to rely on the requested order is named as an 
applicant. 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 Advisory Agreement, the Adviser is 
responsible for the overall management of the CMG Fund's business 
affairs and selecting the CMG Fund's investments in accordance with its 
investment objectives, policies and restrictions. For the investment 
management services that it provides to the CMG Fund, the Adviser 
receives the fee specified in the Advisory Agreement. The Advisory 
Agreement also permits the Adviser to retain one or more subadvisers 
for the purpose of managing the investments of the CMG Fund. Pursuant 
to this authority, the Adviser has entered into investment subadvisory 
agreements (``Subadvisory Agreements'') with six Subadvisers to provide 
investment advisory services to the CMG Fund. Each Subadviser is and 
each future 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'').
    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require the Funds to disclose fees 
paid by the Adviser to the Subadvisers. An exemption is requested to 
permit a Fund to disclose (as both a dollar amount and as a percentage 
of each Fund's net assets): (a) The aggregate fees paid to the Adviser 
and any Affiliated Subadvisers; and (b) the aggregate fees paid to 
Subadvisers (collectively, ``Aggregate Fee Disclosure''). Any 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 14(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.\2\
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    \2\ Form N-1A was recently amended by the Commission, effective 
March 31, 2009, and Item 14(a)(3) should be read to refer to Item 
19(a)(3) for each Fund when that Fund begins using the revised form.
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    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 (``1934 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 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.
    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 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 for 
the reasons discussed below.
    6. Applicants assert that the shareholders are relying on the 
Adviser's experience to select one or more Subadvisers best suited to 
achieve a Fund's investment objectives. Applicants assert that, from 
the perspective of the investor, the role of the Subadvisers is 
comparable 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 
Agreement 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.
    7. Applicants assert that many Subadvisers use a ``posted'' rate 
schedule to set their fees. Applicants state that, while Subadvisers 
are willing to negotiate fees lower than those posted in the schedule, 
they are reluctant to do so where the fees are disclosed to other 
prospective and existing customers. Applicants submit that the 
requested relief will allow the Adviser to negotiate more effectively 
with each Subadviser.

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 a multi-manager investment approach (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.

[[Page 21050]]

    3. Within 90 days of the hiring of a new Subadviser, Fund 
shareholders will be furnished all information about the new Subadviser 
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 disclosure caused by the 
addition of the new Subadviser. 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 1934 Act, except as 
modified by the order to permit Aggregate Fee Disclosure.
    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. 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.
    8. 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 subadviser during the 
applicable quarter.
    9. 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.
    10. 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.
    11. 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.
    12. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    13. 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.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9285 Filed 4-21-10; 8:45 am]
BILLING CODE 8011-01-P