In a recent no-action letter, the staff of the Division of Investment Management (the “Staff”) indicated that it would not recommend enforcement under Section 15(a) of the 1940 Act against American Century Funds or the investment adviser, American Century Investment Management, Inc. (“ACI” or the “Adviser”), if the Adviser reallocates (“brings up”) the unitary fee that it collects from the underlying funds to the target-date investing funds (“Investing Funds”) without shareholder approval.
Under the current fee structure, the Investing Funds pay acquired funds fees and expenses (“AFFE”) in the form of unitary fees to the underlying funds in which they invest (“Underlying Funds”). The unitary fees represent the single fee per share class paid to the Adviser for its provision of certain services necessary for fund operation. Although ACI collects fees for advisory services from the unitary fees paid to the Underlying Funds, it does not collect fees for advisory services at the Investing Fund level, even though the advisory agreement requires such services. ACI proposes to collect fees for services provided to the Investing Funds directly from those funds as a management fee and to eliminate the AFFE line item. The new fee structure would result in fees that are equal to or less than the current fees.
At issue was whether the proposed changes would be considered a material modification to the advisory agreement, thereby requiring shareholder approval. ACI asserted that Section 15 was intended to protect shareholders from material changes to the advisory agreement that may harm shareholders – such as increased fees or a decline in services; whereas the proposal does not increase fees and maintains the same level of service as the previous arrangement.
The Staff, in reaching its no-action position, cited to the Adviser’s representations that: (i) the new fees will be the same as or lower than the fees that would be collected under the current fee structure; (ii) the Adviser will not reduce or modify its services with respect to the Funds; (iii) the Adviser will comply with all requirements of Section 15 of the 1940 Act (other than the shareholder approval requirement); and (iv) the Adviser will provide shareholders with notice about the changes to the fee structure.
Click here to access the SEC No-Action letter.