Altegris Advisors, L.L.C., et al.; Notice of Application, 69155-69159 [2013-27477]
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Federal Register / Vol. 78, No. 222 / Monday, November 18, 2013 / Notices
provided that will be in addition to,
rather than duplicative of, the services
provided under the advisory contract(s)
of any Fund in which the Investing
Management Company may invest.
These findings and their basis will be
fully recorded in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
12. No Fund will acquire securities of
an investment company or company
relying on Section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in Section 12(d)(1)(A) of the Act, except
to the extent the Fund acquires
securities of another investment
company pursuant to exemptive relief
from the Commission permitting the
Fund to acquire securities of one or
more investment companies for shortterm cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–27476 Filed 11–15–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30779; 812–14130]
Altegris Advisors, L.L.C., et al.; Notice
of Application
November 12, 2013.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from sections
12(d)(1)(A) and (B) of the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (2)
of the Act, and under section 6(c) of the
Act for an exemption from rule 12d1–
2(a) under the Act.
AGENCY:
The requested
order would (a) permit certain registered
open-end management investment
companies that operate as ‘‘funds of
funds’’ to acquire shares of certain
registered open-end management
investment companies and unit
investment trusts (‘‘UITs’’) that are
within and outside the same group of
investment companies as the acquiring
investment companies, and (b) permit
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SUMMARY OF APPLICATION:
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funds of funds relying on rule 12d1–2
under the Act to invest in certain
financial instruments.
APPLICANTS: Altegris Advisors, L.L.C.
(the ‘‘Adviser’’) and Northern Lights
Fund Trust (the ‘‘Trust’’), on behalf of
Altegris Multi-Strategy Alternative Fund
(the ‘‘Multi-Strategy Alternative Fund’’).
FILING DATES: The application was filed
on March 7, 2013, and amended on
October 3, 2013.
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 December 6, 2013, 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
notification by writing to the
Commission’s Secretary.
ADDRESSES: Elizabeth M. Murphy,
Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
Applicants: c/o Richard Horowitz,
Dechert LLP, 1095 Avenue of the
Americas, New York, NY 10036.
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,
Exemptive Applications 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 https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. The Trust is an open-end
management investment company
registered under the Act and organized
as a Delaware statutory trust. The Trust
currently is comprised of multiple
series, including the Multi-Strategy
Alternative Fund, each of which has its
own investment objective, policies, and
restrictions.1
1 Applicants request that the order apply to each
existing and future series of the Trust and to each
existing and future registered open-end
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2. The Adviser, a Delaware limited
liability company, is registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and serves as
investment adviser to the Multi-Strategy
Alternative Fund, certain other Funds of
the Trust, and may serve as investment
adviser to future Funds.
3. Applicants request an order to
permit (a) a Fund that operates as a
‘‘fund of funds’’ (each a ‘‘Fund of
Funds’’) 2 to acquire shares of (i)
registered open-end management
investment companies that are not part
of the same ‘‘group of investment
companies,’’ within the meaning of
section 12(d)(1)(G)(ii) of the Act, as the
Fund of Funds (‘‘Unaffiliated
Investment Companies’’) and UITs that
are not part of the same group of
investment companies as the Fund of
Funds (‘‘Unaffiliated Trusts,’’ together
with the Unaffiliated Investment
Companies, ‘‘Unaffiliated Funds’’) 3 or
(ii) registered open-end management
companies or UITs that are part of the
same ‘‘group of investment companies,’’
within the meaning of section
12(d)(1)(G) (ii) of the Act, as the Fund
of Funds (collectively, ‘‘Affiliated
Funds,’’ together with the Unaffiliated
Funds, ‘‘Underlying Funds’’) and (b)
each Underlying Fund, any principal
underwriter for the Underlying Fund,
and any broker or dealer (‘‘Broker’’)
registered under the Securities
Exchange Act 1934 (‘‘Exchange Act’’) to
sell shares of the Underlying Fund to
the Fund of Funds.4 Applicants also
request an order under sections 6(c) and
17(b) of the Act to exempt applicants
from section 17(a) to the extent
necessary to permit Underlying Funds
to sell their shares to Funds of Funds
and redeem their shares from Funds of
Funds.
4. Applicants also request an
exemption under section 6(c) from rule
12d1–2 under the Act to permit any
management investment company or series thereof
(each, a ‘‘Fund’’ and collectively, including the
Multi-Strategy Alternative Fund, the ‘‘Funds’’) that
is advised by the Adviser or any entity controlling,
controlled by or under common control with the
Adviser (included in the term ‘‘Adviser’’) and is
part of the same ‘‘group of investment companies’’
(as defined in section 12(d)(1)(G)(ii) of the Act), as
the Trust.
2 Any Fund of Funds relying on the requested
relief will be advised by the Adviser.
3 Certain of the Unaffiliated Funds may be
registered under the Act as either UITs or open-end
management investment companies and have
received exemptive relief to permit their shares to
be listed and traded on a national securities
exchange at negotiated prices (‘‘ETFs’’).
4 All entities that currently intend to rely on the
requested order are named as applicants. Any other
entity that relies on the order in the future will
comply with the terms and conditions of the
application.
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existing or future Fund of Funds that
relies on section 12(d)(1)(G) of the Act
(‘‘Same Group Fund of Funds’’) and that
otherwise complies with rule 12d1–2 to
also invest, to the extent consistent with
its investment objective, policies,
strategies, and limitations, in financial
instruments that may not be securities
within the meaning of section 2(a)(36) of
the Act (‘‘Other Investments’’).
Applicants’ Legal Analysis
Investments in Underlying Funds
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A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act, in
relevant part, prohibits a registered
investment company from acquiring
shares of an investment company if the
securities represent more than 3% of the
total outstanding voting stock of the
acquired company, more than 5% of the
total assets of the acquiring company,
or, together with the securities of any
other investment companies, more than
10% of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, and any Broker from
selling the investment company’s shares
to another investment company if the
sale will cause the acquiring company
to own more than 3% of the acquired
company’s total outstanding voting
stock, or if the sale will cause more than
10% of the acquired company’s total
outstanding voting stock to be owned by
investment companies generally.
2. Section 12(d)(1)(J) 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 section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Applicants seek an exemption under
section 12(d)(1)(J) of the Act to permit
a Fund of Funds to acquire shares of the
Underlying Funds in excess of the limits
in section 12(d)(1)(A), and an
Underlying Fund, any principal
underwriter for an Underlying Fund,
and any Broker to sell shares of an
Underlying Fund to a Fund of Funds in
excess of the limits in section
12(d)(1)(B) of the Act.
3. Applicants state that the terms and
conditions of the proposed arrangement
will not give rise to the policy concerns
underlying sections 12(d)(1)(A) and (B),
which include concerns about undue
influence by a fund of funds over
underlying funds, excessive layering of
fees, and overly complex fund
structures. Accordingly, applicants
believe that the requested exemption is
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consistent with the public interest and
the protection of investors.
4. Applicants submit that the
proposed arrangement will not result in
the exercise of undue influence by the
Fund of Funds or a Fund of Funds
Affiliate (as defined below) over the
Unaffiliated Funds.5 To limit the control
that the Fund of Funds may have over
an Unaffiliated Fund, applicants
propose a condition prohibiting the
Adviser, any person controlling,
controlled by, or under common control
with the Adviser, and any investment
company or issuer that would be an
investment company but for section
3(c)(1) or 3(c)(7) of the Act that is
advised or sponsored by the Adviser or
any person controlling, controlled by, or
under common control with the Adviser
(the ‘‘Advisory Group’’) from controlling
(individually or in the aggregate) an
Unaffiliated Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any subadviser within the meaning of section
2(a)(20)(B) of the Act to a Fund of Funds
(‘‘Sub-adviser’’), any person controlling,
controlled by, or under common control
with the Sub-adviser, and any
investment company or issuer that
would be an investment company but
for section 3(c)(1) or 3(c)(7) of the Act
(or portion of such investment company
or issuer) advised or sponsored by the
Sub-adviser or any person controlling,
controlled by, or under common control
with the Sub-adviser (the ‘‘Subadvisory
Group’’). Applicants propose other
conditions to limit the potential for
undue influence over the Unaffiliated
Funds, including that no Fund of Funds
or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to an Unaffiliated
Investment Company or sponsor to an
Unaffiliated Trust) will cause an
Unaffiliated Fund to purchase a security
in an offering of securities during the
existence of any underwriting or selling
syndicate of which a principal
underwriter is an Underwriting Affiliate
(‘‘Affiliated Underwriting’’).6
5 A ‘‘Fund of Funds Affiliate’’ is the Adviser, any
Sub-adviser (as defined below), promoter, or
principal underwriter of a Fund of Funds, as well
as any person controlling, controlled by, or under
common control with any of those entities. An
‘‘Unaffiliated Fund Affiliate’’ is an investment
adviser(s), sponsor, promoter, or principal
underwriter of an Unaffiliated Fund, as well as any
person controlling, controlled by, or under common
control with any of those entities.
6 An ‘‘Underwriting Affiliate’’ is a principal
underwriter in any underwriting or selling
syndicate that is an officer, director, trustee,
advisory board member, investment adviser, Subadviser, or employee of the Fund of Funds, or a
person of which any such officer, director, trustee,
investment adviser, Sub-adviser, member of an
advisory board, or employee is an affiliated person.
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5. To further ensure that an
Unaffiliated Investment Company
understands the implications of an
investment by a Fund of Funds under
the requested order, prior to a Fund of
Funds’ investment in the shares of an
Unaffiliated Investment Company in
excess of the limit in section
12(d)(1)(A)(i) of the Act, the Fund of
Funds and the Unaffiliated Investment
Company will execute an agreement
stating, without limitation, that their
respective board of directors or trustees
(for any entity, the ‘‘Board’’) and their
investment advisers understand the
terms and conditions of the order and
agree to fulfill their responsibilities
under the order (‘‘Participation
Agreement’’). Applicants note that an
Unaffiliated Investment Company (other
than an ETF whose shares are
purchased by a Fund of Funds in the
secondary market) will retain its right at
all times to reject any investment by a
Fund of Funds.7
6. Applicants state that they do not
believe that the proposed arrangement
will involve excessive layering of fees.
The Board of each Fund of Funds,
including a majority of the trustees who
are not ‘‘interested persons’’ (within the
meaning of section 2(a)(19) of the Act)
(‘‘Independent Trustees’’), will find that
the advisory fees charged under any
investment advisory or management
contract(s) are based on services
provided that will be in addition to,
rather than duplicative of, the services
provided under such advisory
contract(s) of any Underlying Fund in
which the Fund of Funds may invest. In
addition, the Adviser will waive fees
otherwise payable to it by a Fund of
Funds in an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by an
Unaffiliated Investment Company under
rule 12b–1 under the Act) received from
an Unaffiliated Fund by the Adviser or
an affiliated person of the Adviser, other
than any advisory fees paid to the
Adviser or its affiliated person by an
Unaffiliated Investment Company, in
connection with the investment by the
Fund of Funds in the Unaffiliated Fund.
Any sales charges and/or service fees, as
defined in rule 2830 of the Conduct
Rules of the NASD (‘‘NASD Conduct
An Underwriting Affiliate does not include any
person whose relationship to an Unaffiliated Fund
is covered by section 10(f) of the Act.
7 An Unaffiliated Investment Company, including
an ETF, would retain its right to reject any initial
investment by a Fund of Funds in excess of the
limit in section 12(d)(1)(A)(i) of the Act by
declining to execute the Participation Agreement
with the Fund of Funds.
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Rule 2830’’),8 charged with respect to
shares of a Fund of Funds will not
exceed the limits applicable to a fund of
funds as set forth in NASD Conduct
Rule 2830.
7. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that no Underlying
Fund will acquire securities of any
investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
in certain circumstances identified in
condition 11 below.
B. Section 17(a)
1. Section 17(a) of the Act generally
prohibits sales or purchases of securities
between a registered investment
company and any affiliated person of
the company. Section 2(a)(3) of the Act
defines an ‘‘affiliated person’’ of another
person to include (a) any person directly
or indirectly owning, controlling, or
holding with power to vote, 5% or more
of the outstanding voting securities of
the other person; (b) any person 5% or
more of whose outstanding voting
securities are directly or indirectly
owned, controlled, or held with power
to vote by the other person; and (c) any
person directly or indirectly controlling,
controlled by, or under common control
with the other person.
2. Applicants state that a Fund of
Funds and the Affiliated Funds might
be deemed to be under common control
of the Adviser and therefore affiliated
persons of one another. Applicants also
state that the Funds of Funds and the
Unaffiliated Funds might be deemed to
be affiliated persons of one another if
the Fund of Funds acquires 5% or more
of an Unaffiliated Fund’s outstanding
voting securities. In light of these and
other possible affiliations, section 17(a)
could prevent an Underlying Fund from
selling shares to and redeeming shares
from a Fund of Funds.
3. Section 17(b) of the Act authorizes
the Commission to grant an order
permitting a transaction otherwise
prohibited by section 17(a) if it finds
that (a) the terms of the proposed
transaction are fair and reasonable and
do not involve overreaching on the part
of any person concerned; (b) the
proposed transaction is consistent with
the policies of each registered
investment company involved; and (c)
the proposed transaction is consistent
with the general purposes of the Act.
Section 6(c) of the Act permits the
8 Any references to NASD Conduct Rule 2830
include any successor or replacement FINRA rule
to NASD Conduct Rule 2830.
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Commission to exempt any person or
transactions from any provision of the
Act 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.
4. Applicants submit that the
proposed transactions satisfy the
standards for relief under sections 17(b)
and 6(c) of the Act.9 Applicants state
that the terms of the transactions are
reasonable and fair and do not involve
overreaching. Applicants state that the
terms upon which an Underlying Fund
will sell its shares to or purchase its
shares from a Fund of Funds will be
based on the net asset value of the
Underlying Fund.10 Applicants state
that the proposed transactions will be
consistent with the policies of each
Fund of Funds and each Underlying
Fund and with the general purposes of
the Act.
Other Investments by Same Group
Funds of Funds
1. Section 12(d)(1)(G) of the Act
provides that section 12(d)(1) will not
apply to securities of an acquired
company purchased by an acquiring
company if: (a) The acquiring company
and acquired company are part of the
same group of investment companies;
(b) the acquiring company holds only
securities of acquired companies that
are part of the same group of investment
companies, government securities, and
short-term paper; (c) the aggregate sales
loads and distribution-related fees of the
acquiring company and the acquired
company are not excessive under rules
adopted pursuant to section 22(b) or
section 22(c) of the Act by a securities
association registered under section 15A
of the Exchange Act or by the
Commission; and (d) the acquired
9 Applicants acknowledge that receipt of any
compensation by (a) an affiliated person of a Fund
of Funds, or an affiliated person of such person, for
the purchase by a Fund of Funds of shares of an
Underlying Fund or (b) an affiliated person of an
Underlying Fund, or an affiliated person of such
person, for the sale by the Underlying Fund of its
shares to a Fund of Funds may be prohibited by
section 17(e)(1) of the Act. The Participation
Agreement also will include this acknowledgement.
10 To the extent purchases and sales of shares of
an ETF occur in the secondary market (and not
through principal transactions directly between a
Fund of Funds and an ETF), relief from section
17(a) of the Act would not be necessary. The
requested relief is intended to cover, however,
transactions directly between ETFs and a Fund of
Funds. Applicants are not seeking relief from
section 17(a) of the Act for, and the requested relief
will not apply to, transactions where an ETF could
be deemed an affiliated person, or an affiliated
person of an affiliated person, of a Fund of Funds
because the investment adviser to the ETF also is
an investment adviser to the Fund of Funds.
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69157
company has a policy that prohibits it
from acquiring securities of registered
open-end management investment
companies or registered unit investment
trusts in reliance on section 12(d)(1)(F)
or (G) of the Act.
2. Rule 12d1–2 under the Act permits
a registered open-end investment
company or a registered unit investment
trust that relies on section 12(d)(1)(G) of
the Act to acquire, in addition to
securities issued by another registered
investment company in the same group
of investment companies, government
securities, and short-term paper: (a)
Securities issued by an investment
company that is not in the same group
of investment companies, when the
acquisition is in reliance on section
12(d)(1)(A) or 12(d)(1)(F) of the Act; (b)
securities (other than securities issued
by an investment company); and (c)
securities issued by a money market
fund, when the investment is in reliance
on rule 12d1–1 under the Act. For the
purposes of rule 12d1–2, ‘‘securities’’
means any security as defined in section
2(a)(36) of the Act.
3. Applicants state that the proposed
arrangement would comply with the
provisions of rule 12d1–2 under the Act,
but for the fact that a Same Group Fund
of Funds may invest a portion of its
assets in Other Investments. Applicants
request an order under section 6(c) of
the Act for an exemption from rule
12d1–2(a) to allow the Same Group
Funds of Funds to invest in Other
Investments. Applicants assert that
permitting Same Group Funds of Funds
to invest in Other Investments as
described in the application would not
raise any of the concerns that the
requirements of section 12(d)(1) were
designed to address.
4. Applicants represent that,
consistent with its fiduciary obligations
under the Act, the Board of each Same
Group Fund of Funds will review the
advisory fees charged by the Same
Group Fund of Fund’s investment
adviser to ensure that they are based on
services provided that are in addition to,
rather than duplicative of, services
provided pursuant to the advisory
agreement of any investment company
in which the Same Group Fund of
Funds may invest.
Applicants’ Conditions
Investments by Funds of Funds in
Underlying Funds
Applicants agree that the relief to
permit Funds of Funds to invest in
Underlying Funds shall be subject to the
following conditions:
1. The members of an Advisory Group
will not control (individually or in the
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aggregate) an Unaffiliated Fund within
the meaning of section 2(a)(9) of the Act.
The members of a Subadvisory Group
will not control (individually or in the
aggregate) an Unaffiliated Fund within
the meaning of section 2(a)(9) of the Act.
If, as a result of a decrease in the
outstanding voting securities of an
Unaffiliated Fund, the Advisory Group
or a Subadvisory Group, each in the
aggregate, becomes a holder of more
than 25 percent of the outstanding
voting securities of the Unaffiliated
Fund, then the Advisory Group or the
Subadvisory Group will vote its shares
of the Unaffiliated Fund in the same
proportion as the vote of all other
holders of the Unaffiliated Fund’s
shares. This condition will not apply to
a Subadvisory Group with respect to an
Unaffiliated Fund for which the Subadviser or a person controlling,
controlled by, or under common control
with the Sub-adviser acts as the
investment adviser within the meaning
of section 2(a)(20)(A) of the Act (in the
case of an Unaffiliated Investment
Company) or as the sponsor (in the case
of an Unaffiliated Trust).
2. No Fund of Funds or Fund of
Funds Affiliate will cause any existing
or potential investment by the Fund of
Funds in shares of an Unaffiliated Fund
to influence the terms of any services or
transactions between the Fund of Funds
or a Fund of Funds Affiliate and the
Unaffiliated Fund or an Unaffiliated
Fund Affiliate.
3. The Board of each Fund of Funds,
including a majority of the Independent
Trustees, will adopt procedures
reasonably designed to ensure that its
Adviser and any Sub-adviser(s) to the
Fund of Funds are conducting the
investment program of the Fund of
Funds without taking into account any
consideration received by the Fund of
Funds or Fund of Funds Affiliate from
an Unaffiliated Fund or an Unaffiliated
Fund Affiliate in connection with any
services or transactions.
4. Once an investment by a Fund of
Funds in the securities of an
Unaffiliated Investment Company
exceeds the limit of section 12(d)(l)(A)(i)
of the Act, the Board of the Unaffiliated
Investment Company, including a
majority of the Independent Trustees,
will determine that any consideration
paid by the Unaffiliated Investment
Company to a Fund of Funds or a Fund
of Funds Affiliate in connection with
any services or transactions: (a) Is fair
and reasonable in relation to the nature
and quality of the services and benefits
received by the Unaffiliated Investment
Company; (b) is within the range of
consideration that the Unaffiliated
Investment Company would be required
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to pay to another unaffiliated entity in
connection with the same services or
transactions; and (c) does not involve
overreaching on the part of any person
concerned. This condition does not
apply with respect to any services or
transactions between an Unaffiliated
Investment Company and its investment
adviser(s) or any person controlling,
controlled by or under common control
with such investment adviser(s).
5. No Fund of Funds or Fund of
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to an Unaffiliated Investment
Company or sponsor to an Unaffiliated
Trust) will cause an Unaffiliated Fund
to purchase a security in any Affiliated
Underwriting.
6. The Board of an Unaffiliated
Investment Company, including a
majority of the Independent Trustees,
will adopt procedures reasonably
designed to monitor any purchases of
securities by the Unaffiliated Investment
Company in an Affiliated Underwriting
once an investment by a Fund of Funds
in the securities of the Unaffiliated
Investment Company exceeds the limit
of section 12(d)(l)(A)(i) of the Act,
including any purchases made directly
from an Underwriting Affiliate. The
Board of the Unaffiliated Investment
Company will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Fund of Funds in the
Unaffiliated Investment Company. The
Board of the Unaffiliated Investment
Company will consider, among other
things: (a) Whether the purchases were
consistent with the investment
objectives and policies of the
Unaffiliated Investment Company; (b)
how the performance of securities
purchased in an Affiliated Underwriting
compares to the performance of
comparable securities purchased during
a comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (c)
whether the amount of securities
purchased by the Unaffiliated
Investment Company in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board of the Unaffiliated Investment
Company will take any appropriate
actions based on its review, including,
if appropriate, the institution of
procedures designed to ensure that
purchases of securities in Affiliated
Underwritings are in the best interests
of shareholders.
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
7. Each Unaffiliated Investment
Company shall maintain and preserve
permanently in an easily accessible
place a written copy of the procedures
described in the preceding condition,
and any modifications to such
procedures, and shall maintain and
preserve for a period not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in an Affiliated Underwriting
once an investment by a Fund of Funds
in the securities of an Unaffiliated
Investment Company exceeds the limit
of section 12(d)(l)(A)(i) of the Act,
setting forth the: (a) Party from whom
the securities were acquired; (b) identity
of the underwriting syndicate’s
members; (c) terms of the purchase, and;
(d) information or materials upon which
the determinations of the Board of the
Unaffiliated Investment Company were
made.
8. Prior to its investment in shares of
an Unaffiliated Investment Company in
excess of the limit in section
12(d)(l)(A)(i) of the Act, the Fund of
Funds and the Unaffiliated Investment
Company will execute a Participation
Agreement stating, without limitation,
that their Boards and their investment
advisers understand the terms and
conditions of the order and agree to
fulfill their responsibilities under the
order. At the time of its investment in
shares of an Unaffiliated Investment
Company in excess of the limit in
section 12(d)(l)(A)(i), a Fund of Funds
will notify the Unaffiliated Investment
Company of the investment. At such
time, the Fund of Funds will also
transmit to the Unaffiliated Investment
Company a list of the names of each
Fund of Funds Affiliate and
Underwriting Affiliate. The Fund of
Funds will notify the Unaffiliated
Investment Company of any changes to
the list of the names as soon as
reasonably practicable after a change
occurs. The Unaffiliated Investment
Company and the Fund of Funds will
maintain and preserve a copy of the
order, the Participation Agreement, and
the list with any updated information
for the duration of the investment and
for a period of not less than six years
thereafter, the first two years in an
easily accessible place.
9. Before approving any advisory
contract under section 15 of the Act, the
Board of each Fund of Funds, including
a majority of the Independent Trustees,
shall find that the advisory fees charged
under such advisory contract are based
on services provided that are in addition
to, rather than duplicative of, services
E:\FR\FM\18NON1.SGM
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mstockstill on DSK4VPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 222 / Monday, November 18, 2013 / Notices
provided under the advisory contract(s)
of any Underlying Fund in which the
Fund of Funds may invest. Such finding
and the basis upon which the finding
was made will be recorded fully in the
minute books of the appropriate Fund of
Funds.
10. The Adviser will waive fees
otherwise payable to it by a Fund of
Funds in an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by an
Unaffiliated Investment Company under
rule 12b-1 under the Act) received from
an Unaffiliated Fund by the Adviser, or
an affiliated person of the Adviser, other
than any advisory fees paid to the
Adviser or its affiliated person by an
Unaffiliated Investment Company, in
connection with the investment by the
Fund of Funds in the Unaffiliated Fund.
Any Sub-adviser will waive fees
otherwise payable to the Sub-adviser,
directly or indirectly, by the Fund of
Funds in an amount at least equal to any
compensation received by the Subadviser, or an affiliated person of the
Sub-adviser, from an Unaffiliated Fund,
other than any advisory fees paid to the
Sub-adviser or its affiliated person by an
Unaffiliated Investment Company, in
connection with the investment by the
Fund of Funds in the Unaffiliated Fund
made at the direction of the Sub-adviser.
In the event that the Sub-adviser waives
fees, the benefit of the waiver will be
passed through to the Fund of Funds.
11. No Underlying Fund will acquire
securities of any other investment
company or company relying on section
3(c)(l) or 3(c)(7) of the Act in excess of
the limits contained in section
12(d)(1)(A) of the Act, except to the
extent that such Underlying Fund: (a)
Receives securities of another
investment company as a dividend or as
a result of a plan of reorganization of a
company (other than a plan devised for
the purpose of evading section 12(d)(l)
of the Act); or (b) acquires (or is deemed
to have acquired) securities of another
investment company pursuant to
exemptive relief from the Commission
permitting such Underlying Fund to (i)
acquire securities of one or more
investment companies for short-term
cash management purposes, or (ii)
engage in interfund borrowing and
lending transactions.
12. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to fund of funds set
forth in NASD Conduct Rule 2830.
Other Investments by Same Group
Funds of Funds
Applicants agree that the relief to
permit Same Group Funds of Funds to
VerDate Mar<15>2010
17:33 Nov 15, 2013
Jkt 232001
invest in Other Investments shall be
subject to the following condition:
13. Applicants will comply with all
provisions of rule 12d1–2 under the Act,
except for paragraph (a)(2) to the extent
that it restricts any Same Group Fund of
Funds from investing in Other
Investments as described in the
application.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–27477 Filed 11–15–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70844; File No. SR–CBOE–
2013–103]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Obvious Error
November 12, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on October
28, 2013, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 6.25 (Nullification and Adjustment
of Options Transactions). The text of the
proposed rule change is available on the
Exchange’s Web site (https://
www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00120
Fmt 4703
Sfmt 4703
69159
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Exchange Rule 6.25 (Nullification and
Adjustment of Options Transactions)
governs the nullification and adjustment
of options transactions. The Exchange is
proposing to amend Rule 6.25(a)(1) to
modify how the Exchange will nullify or
adjust an obvious error. The Exchange
believes this proposal will also
harmonize its rules to more closely align
with other options exchanges.3
Under the current rule 6.25(a)(1)(i),
the Exchange will adjust the price of an
erroneous transaction to the Theoretical
Price when the transaction is between
two market-makers unless such parties
agree to adjust the transaction to a
different price or bust the trade within
fifteen minutes of being notified by
Exchange Trading Officials of the error.
Pursuant to current Exchange Rule
6.25(a)(1)(iv), transactions involving at
least one non-CBOE market-maker will
be adjusted to the Theoretical Price
provided that the adjustment does not
violate the non-CBOE market-maker’s
limit price unless both parties agree to
adjust the transaction to a different price
or agree to bust the trade within thirty
minutes of being notified by Trading
Officials of the error.
The Exchange is now proposing to
amend Rule 6.25(a)(1) to modify the
Exchange obvious error procedures by
nullifying trades for transactions
involving at least one non-broker-dealer
customer and adjusting all other trades
between groups that do not fall into that
category including for example, a
market maker or a broker-dealer.4 The
Exchange believes that the proposal will
eliminate some uncertainty in the
3 See, e.g., International Securities Exchange, LLC
(‘‘ISE’’) Rule 720(b)(2).
4 The Exchange is also proposing to add text to
Exchange Rule 1.1(fff) (Voluntary Professional) and
Rule 1.1(ggg) (Professional) to include a reference
to Rule 6.25. These designations are done on the
Exchange on an order by order basis. Thus, through
reference, professional orders will be treated as
broker-dealer orders. In addition certain nonbroker-dealer customers may have their orders
treated as broker-dealer orders rather than as public
customer orders for purposes of Rule 6.25.
E:\FR\FM\18NON1.SGM
18NON1
]]>Agencies
[Federal Register Volume 78, Number 222 (Monday, November 18, 2013)]
[Notices]
[Pages 69155-69159]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27477]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30779; 812-14130]
Altegris Advisors, L.L.C., et al.; Notice of Application
November 12, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (the ``Act'') for an exemption
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and
17(b) of the Act for an exemption from sections 17(a)(1) and (2) of the
Act, and under section 6(c) of the Act for an exemption from rule 12d1-
2(a) under the Act.
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Summary of Application: The requested order would (a) permit certain
registered open-end management investment companies that operate as
``funds of funds'' to acquire shares of certain registered open-end
management investment companies and unit investment trusts (``UITs'')
that are within and outside the same group of investment companies as
the acquiring investment companies, and (b) permit funds of funds
relying on rule 12d1-2 under the Act to invest in certain financial
instruments.
Applicants: Altegris Advisors, L.L.C. (the ``Adviser'') and Northern
Lights Fund Trust (the ``Trust''), on behalf of Altegris Multi-Strategy
Alternative Fund (the ``Multi-Strategy Alternative Fund'').
Filing Dates: The application was filed on March 7, 2013, and amended
on October 3, 2013.
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 December 6, 2013, 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
notification by writing to the Commission's Secretary.
ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants: c/
o Richard Horowitz, Dechert LLP, 1095 Avenue of the Americas, New York,
NY 10036.
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, Exemptive Applications 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 https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust is an open-end management investment company
registered under the Act and organized as a Delaware statutory trust.
The Trust currently is comprised of multiple series, including the
Multi-Strategy Alternative Fund, each of which has its own investment
objective, policies, and restrictions.\1\
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\1\ Applicants request that the order apply to each existing and
future series of the Trust and to each existing and future
registered open-end management investment company or series thereof
(each, a ``Fund'' and collectively, including the Multi-Strategy
Alternative Fund, the ``Funds'') that is advised by the Adviser or
any entity controlling, controlled by or under common control with
the Adviser (included in the term ``Adviser'') and is part of the
same ``group of investment companies'' (as defined in section
12(d)(1)(G)(ii) of the Act), as the Trust.
---------------------------------------------------------------------------
2. The Adviser, a Delaware limited liability company, is registered
as an investment adviser under the Investment Advisers Act of 1940
(``Advisers Act'') and serves as investment adviser to the Multi-
Strategy Alternative Fund, certain other Funds of the Trust, and may
serve as investment adviser to future Funds.
3. Applicants request an order to permit (a) a Fund that operates
as a ``fund of funds'' (each a ``Fund of Funds'') \2\ to acquire shares
of (i) registered open-end management investment companies that are not
part of the same ``group of investment companies,'' within the meaning
of section 12(d)(1)(G)(ii) of the Act, as the Fund of Funds
(``Unaffiliated Investment Companies'') and UITs that are not part of
the same group of investment companies as the Fund of Funds
(``Unaffiliated Trusts,'' together with the Unaffiliated Investment
Companies, ``Unaffiliated Funds'') \3\ or (ii) registered open-end
management companies or UITs that are part of the same ``group of
investment companies,'' within the meaning of section 12(d)(1)(G) (ii)
of the Act, as the Fund of Funds (collectively, ``Affiliated Funds,''
together with the Unaffiliated Funds, ``Underlying Funds'') and (b)
each Underlying Fund, any principal underwriter for the Underlying
Fund, and any broker or dealer (``Broker'') registered under the
Securities Exchange Act 1934 (``Exchange Act'') to sell shares of the
Underlying Fund to the Fund of Funds.\4\ Applicants also request an
order under sections 6(c) and 17(b) of the Act to exempt applicants
from section 17(a) to the extent necessary to permit Underlying Funds
to sell their shares to Funds of Funds and redeem their shares from
Funds of Funds.
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\2\ Any Fund of Funds relying on the requested relief will be
advised by the Adviser.
\3\ Certain of the Unaffiliated Funds may be registered under
the Act as either UITs or open-end management investment companies
and have received exemptive relief to permit their shares to be
listed and traded on a national securities exchange at negotiated
prices (``ETFs'').
\4\ All entities that currently intend to rely on the requested
order are named as applicants. Any other entity that relies on the
order in the future will comply with the terms and conditions of the
application.
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4. Applicants also request an exemption under section 6(c) from
rule 12d1-2 under the Act to permit any
[[Page 69156]]
existing or future Fund of Funds that relies on section 12(d)(1)(G) of
the Act (``Same Group Fund of Funds'') and that otherwise complies with
rule 12d1-2 to also invest, to the extent consistent with its
investment objective, policies, strategies, and limitations, in
financial instruments that may not be securities within the meaning of
section 2(a)(36) of the Act (``Other Investments'').
Applicants' Legal Analysis
Investments in Underlying Funds
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered investment company from acquiring shares of an investment
company if the securities represent more than 3% of the total
outstanding voting stock of the acquired company, more than 5% of the
total assets of the acquiring company, or, together with the securities
of any other investment companies, more than 10% of the total assets of
the acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, and
any Broker from selling the investment company's shares to another
investment company if the sale will cause the acquiring company to own
more than 3% of the acquired company's total outstanding voting stock,
or if the sale will cause more than 10% of the acquired company's total
outstanding voting stock to be owned by investment companies generally.
2. Section 12(d)(1)(J) 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 section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors. Applicants seek an exemption under section
12(d)(1)(J) of the Act to permit a Fund of Funds to acquire shares of
the Underlying Funds in excess of the limits in section 12(d)(1)(A),
and an Underlying Fund, any principal underwriter for an Underlying
Fund, and any Broker to sell shares of an Underlying Fund to a Fund of
Funds in excess of the limits in section 12(d)(1)(B) of the Act.
3. Applicants state that the terms and conditions of the proposed
arrangement will not give rise to the policy concerns underlying
sections 12(d)(1)(A) and (B), which include concerns about undue
influence by a fund of funds over underlying funds, excessive layering
of fees, and overly complex fund structures. Accordingly, applicants
believe that the requested exemption is consistent with the public
interest and the protection of investors.
4. Applicants submit that the proposed arrangement will not result
in the exercise of undue influence by the Fund of Funds or a Fund of
Funds Affiliate (as defined below) over the Unaffiliated Funds.\5\ To
limit the control that the Fund of Funds may have over an Unaffiliated
Fund, applicants propose a condition prohibiting the Adviser, any
person controlling, controlled by, or under common control with the
Adviser, and any investment company or issuer that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act that
is advised or sponsored by the Adviser or any person controlling,
controlled by, or under common control with the Adviser (the ``Advisory
Group'') from controlling (individually or in the aggregate) an
Unaffiliated Fund within the meaning of section 2(a)(9) of the Act. The
same prohibition would apply to any sub-adviser within the meaning of
section 2(a)(20)(B) of the Act to a Fund of Funds (``Sub-adviser''),
any person controlling, controlled by, or under common control with the
Sub-adviser, and any investment company or issuer that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act (or
portion of such investment company or issuer) advised or sponsored by
the Sub-adviser or any person controlling, controlled by, or under
common control with the Sub-adviser (the ``Subadvisory Group'').
Applicants propose other conditions to limit the potential for undue
influence over the Unaffiliated Funds, including that no Fund of Funds
or Fund of Funds Affiliate (except to the extent it is acting in its
capacity as an investment adviser to an Unaffiliated Investment Company
or sponsor to an Unaffiliated Trust) will cause an Unaffiliated Fund to
purchase a security in an offering of securities during the existence
of any underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated
Underwriting'').\6\
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\5\ A ``Fund of Funds Affiliate'' is the Adviser, any Sub-
adviser (as defined below), promoter, or principal underwriter of a
Fund of Funds, as well as any person controlling, controlled by, or
under common control with any of those entities. An ``Unaffiliated
Fund Affiliate'' is an investment adviser(s), sponsor, promoter, or
principal underwriter of an Unaffiliated Fund, as well as any person
controlling, controlled by, or under common control with any of
those entities.
\6\ An ``Underwriting Affiliate'' is a principal underwriter in
any underwriting or selling syndicate that is an officer, director,
trustee, advisory board member, investment adviser, Sub-adviser, or
employee of the Fund of Funds, or a person of which any such
officer, director, trustee, investment adviser, Sub-adviser, member
of an advisory board, or employee is an affiliated person. An
Underwriting Affiliate does not include any person whose
relationship to an Unaffiliated Fund is covered by section 10(f) of
the Act.
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5. To further ensure that an Unaffiliated Investment Company
understands the implications of an investment by a Fund of Funds under
the requested order, prior to a Fund of Funds' investment in the shares
of an Unaffiliated Investment Company in excess of the limit in section
12(d)(1)(A)(i) of the Act, the Fund of Funds and the Unaffiliated
Investment Company will execute an agreement stating, without
limitation, that their respective board of directors or trustees (for
any entity, the ``Board'') and their investment advisers understand the
terms and conditions of the order and agree to fulfill their
responsibilities under the order (``Participation Agreement'').
Applicants note that an Unaffiliated Investment Company (other than an
ETF whose shares are purchased by a Fund of Funds in the secondary
market) will retain its right at all times to reject any investment by
a Fund of Funds.\7\
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\7\ An Unaffiliated Investment Company, including an ETF, would
retain its right to reject any initial investment by a Fund of Funds
in excess of the limit in section 12(d)(1)(A)(i) of the Act by
declining to execute the Participation Agreement with the Fund of
Funds.
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6. Applicants state that they do not believe that the proposed
arrangement will involve excessive layering of fees. The Board of each
Fund of Funds, including a majority of the trustees who are not
``interested persons'' (within the meaning of section 2(a)(19) of the
Act) (``Independent Trustees''), will find that the advisory fees
charged under any investment advisory or management contract(s) are
based on services provided that will be in addition to, rather than
duplicative of, the services provided under such advisory contract(s)
of any Underlying Fund in which the Fund of Funds may invest. In
addition, the Adviser will waive fees otherwise payable to it by a Fund
of Funds in an amount at least equal to any compensation (including
fees received pursuant to any plan adopted by an Unaffiliated
Investment Company under rule 12b-1 under the Act) received from an
Unaffiliated Fund by the Adviser or an affiliated person of the
Adviser, other than any advisory fees paid to the Adviser or its
affiliated person by an Unaffiliated Investment Company, in connection
with the investment by the Fund of Funds in the Unaffiliated Fund. Any
sales charges and/or service fees, as defined in rule 2830 of the
Conduct Rules of the NASD (``NASD Conduct
[[Page 69157]]
Rule 2830''),\8\ charged with respect to shares of a Fund of Funds will
not exceed the limits applicable to a fund of funds as set forth in
NASD Conduct Rule 2830.
---------------------------------------------------------------------------
\8\ Any references to NASD Conduct Rule 2830 include any
successor or replacement FINRA rule to NASD Conduct Rule 2830.
---------------------------------------------------------------------------
7. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Underlying
Fund will acquire securities of any investment company or company
relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the
limits contained in section 12(d)(1)(A) of the Act, except in certain
circumstances identified in condition 11 below.
B. Section 17(a)
1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and any
affiliated person of the company. Section 2(a)(3) of the Act defines an
``affiliated person'' of another person to include (a) any person
directly or indirectly owning, controlling, or holding with power to
vote, 5% or more of the outstanding voting securities of the other
person; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote by the other person; and (c) any person directly or
indirectly controlling, controlled by, or under common control with the
other person.
2. Applicants state that a Fund of Funds and the Affiliated Funds
might be deemed to be under common control of the Adviser and therefore
affiliated persons of one another. Applicants also state that the Funds
of Funds and the Unaffiliated Funds might be deemed to be affiliated
persons of one another if the Fund of Funds acquires 5% or more of an
Unaffiliated Fund's outstanding voting securities. In light of these
and other possible affiliations, section 17(a) could prevent an
Underlying Fund from selling shares to and redeeming shares from a Fund
of Funds.
3. Section 17(b) of the Act authorizes the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
it finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act. Section
6(c) of the Act permits the Commission to exempt any person or
transactions from any provision of the Act 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.
4. Applicants submit that the proposed transactions satisfy the
standards for relief under sections 17(b) and 6(c) of the Act.\9\
Applicants state that the terms of the transactions are reasonable and
fair and do not involve overreaching. Applicants state that the terms
upon which an Underlying Fund will sell its shares to or purchase its
shares from a Fund of Funds will be based on the net asset value of the
Underlying Fund.\10\ Applicants state that the proposed transactions
will be consistent with the policies of each Fund of Funds and each
Underlying Fund and with the general purposes of the Act.
---------------------------------------------------------------------------
\9\ Applicants acknowledge that receipt of any compensation by
(a) an affiliated person of a Fund of Funds, or an affiliated person
of such person, for the purchase by a Fund of Funds of shares of an
Underlying Fund or (b) an affiliated person of an Underlying Fund,
or an affiliated person of such person, for the sale by the
Underlying Fund of its shares to a Fund of Funds may be prohibited
by section 17(e)(1) of the Act. The Participation Agreement also
will include this acknowledgement.
\10\ To the extent purchases and sales of shares of an ETF occur
in the secondary market (and not through principal transactions
directly between a Fund of Funds and an ETF), relief from section
17(a) of the Act would not be necessary. The requested relief is
intended to cover, however, transactions directly between ETFs and a
Fund of Funds. Applicants are not seeking relief from section 17(a)
of the Act for, and the requested relief will not apply to,
transactions where an ETF could be deemed an affiliated person, or
an affiliated person of an affiliated person, of a Fund of Funds
because the investment adviser to the ETF also is an investment
adviser to the Fund of Funds.
---------------------------------------------------------------------------
Other Investments by Same Group Funds of Funds
1. Section 12(d)(1)(G) of the Act provides that section 12(d)(1)
will not apply to securities of an acquired company purchased by an
acquiring company if: (a) The acquiring company and acquired company
are part of the same group of investment companies; (b) the acquiring
company holds only securities of acquired companies that are part of
the same group of investment companies, government securities, and
short-term paper; (c) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are not
excessive under rules adopted pursuant to section 22(b) or section
22(c) of the Act by a securities association registered under section
15A of the Exchange Act or by the Commission; and (d) the acquired
company has a policy that prohibits it from acquiring securities of
registered open-end management investment companies or registered unit
investment trusts in reliance on section 12(d)(1)(F) or (G) of the Act.
2. Rule 12d1-2 under the Act permits a registered open-end
investment company or a registered unit investment trust that relies on
section 12(d)(1)(G) of the Act to acquire, in addition to securities
issued by another registered investment company in the same group of
investment companies, government securities, and short-term paper: (a)
Securities issued by an investment company that is not in the same
group of investment companies, when the acquisition is in reliance on
section 12(d)(1)(A) or 12(d)(1)(F) of the Act; (b) securities (other
than securities issued by an investment company); and (c) securities
issued by a money market fund, when the investment is in reliance on
rule 12d1-1 under the Act. For the purposes of rule 12d1-2,
``securities'' means any security as defined in section 2(a)(36) of the
Act.
3. Applicants state that the proposed arrangement would comply with
the provisions of rule 12d1-2 under the Act, but for the fact that a
Same Group Fund of Funds may invest a portion of its assets in Other
Investments. Applicants request an order under section 6(c) of the Act
for an exemption from rule 12d1-2(a) to allow the Same Group Funds of
Funds to invest in Other Investments. Applicants assert that permitting
Same Group Funds of Funds to invest in Other Investments as described
in the application would not raise any of the concerns that the
requirements of section 12(d)(1) were designed to address.
4. Applicants represent that, consistent with its fiduciary
obligations under the Act, the Board of each Same Group Fund of Funds
will review the advisory fees charged by the Same Group Fund of Fund's
investment adviser to ensure that they are based on services provided
that are in addition to, rather than duplicative of, services provided
pursuant to the advisory agreement of any investment company in which
the Same Group Fund of Funds may invest.
Applicants' Conditions
Investments by Funds of Funds in Underlying Funds
Applicants agree that the relief to permit Funds of Funds to invest
in Underlying Funds shall be subject to the following conditions:
1. The members of an Advisory Group will not control (individually
or in the
[[Page 69158]]
aggregate) an Unaffiliated Fund within the meaning of section 2(a)(9)
of the Act. The members of a Subadvisory Group will not control
(individually or in the aggregate) an Unaffiliated Fund within the
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in
the outstanding voting securities of an Unaffiliated Fund, the Advisory
Group or a Subadvisory Group, each in the aggregate, becomes a holder
of more than 25 percent of the outstanding voting securities of the
Unaffiliated Fund, then the Advisory Group or the Subadvisory Group
will vote its shares of the Unaffiliated Fund in the same proportion as
the vote of all other holders of the Unaffiliated Fund's shares. This
condition will not apply to a Subadvisory Group with respect to an
Unaffiliated Fund for which the Sub-adviser or a person controlling,
controlled by, or under common control with the Sub-adviser acts as the
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(in the case of an Unaffiliated Investment Company) or as the sponsor
(in the case of an Unaffiliated Trust).
2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in shares of an
Unaffiliated Fund to influence the terms of any services or
transactions between the Fund of Funds or a Fund of Funds Affiliate and
the Unaffiliated Fund or an Unaffiliated Fund Affiliate.
3. The Board of each Fund of Funds, including a majority of the
Independent Trustees, will adopt procedures reasonably designed to
ensure that its Adviser and any Sub-adviser(s) to the Fund of Funds are
conducting the investment program of the Fund of Funds without taking
into account any consideration received by the Fund of Funds or Fund of
Funds Affiliate from an Unaffiliated Fund or an Unaffiliated Fund
Affiliate in connection with any services or transactions.
4. Once an investment by a Fund of Funds in the securities of an
Unaffiliated Investment Company exceeds the limit of section
12(d)(l)(A)(i) of the Act, the Board of the Unaffiliated Investment
Company, including a majority of the Independent Trustees, will
determine that any consideration paid by the Unaffiliated Investment
Company to a Fund of Funds or a Fund of Funds Affiliate in connection
with any services or transactions: (a) Is fair and reasonable in
relation to the nature and quality of the services and benefits
received by the Unaffiliated Investment Company; (b) is within the
range of consideration that the Unaffiliated Investment Company would
be required to pay to another unaffiliated entity in connection with
the same services or transactions; and (c) does not involve
overreaching on the part of any person concerned. This condition does
not apply with respect to any services or transactions between an
Unaffiliated Investment Company and its investment adviser(s) or any
person controlling, controlled by or under common control with such
investment adviser(s).
5. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to an
Unaffiliated Investment Company or sponsor to an Unaffiliated Trust)
will cause an Unaffiliated Fund to purchase a security in any
Affiliated Underwriting.
6. The Board of an Unaffiliated Investment Company, including a
majority of the Independent Trustees, will adopt procedures reasonably
designed to monitor any purchases of securities by the Unaffiliated
Investment Company in an Affiliated Underwriting once an investment by
a Fund of Funds in the securities of the Unaffiliated Investment
Company exceeds the limit of section 12(d)(l)(A)(i) of the Act,
including any purchases made directly from an Underwriting Affiliate.
The Board of the Unaffiliated Investment Company will review these
purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Fund of Funds in the Unaffiliated Investment Company. The Board of
the Unaffiliated Investment Company will consider, among other things:
(a) Whether the purchases were consistent with the investment
objectives and policies of the Unaffiliated Investment Company; (b) how
the performance of securities purchased in an Affiliated Underwriting
compares to the performance of comparable securities purchased during a
comparable period of time in underwritings other than Affiliated
Underwritings or to a benchmark such as a comparable market index; and
(c) whether the amount of securities purchased by the Unaffiliated
Investment Company in Affiliated Underwritings and the amount purchased
directly from an Underwriting Affiliate have changed significantly from
prior years. The Board of the Unaffiliated Investment Company will take
any appropriate actions based on its review, including, if appropriate,
the institution of procedures designed to ensure that purchases of
securities in Affiliated Underwritings are in the best interests of
shareholders.
7. Each Unaffiliated Investment Company shall maintain and preserve
permanently in an easily accessible place a written copy of the
procedures described in the preceding condition, and any modifications
to such procedures, and shall maintain and preserve for a period not
less than six years from the end of the fiscal year in which any
purchase in an Affiliated Underwriting occurred, the first two years in
an easily accessible place, a written record of each purchase of
securities in an Affiliated Underwriting once an investment by a Fund
of Funds in the securities of an Unaffiliated Investment Company
exceeds the limit of section 12(d)(l)(A)(i) of the Act, setting forth
the: (a) Party from whom the securities were acquired; (b) identity of
the underwriting syndicate's members; (c) terms of the purchase, and;
(d) information or materials upon which the determinations of the Board
of the Unaffiliated Investment Company were made.
8. Prior to its investment in shares of an Unaffiliated Investment
Company in excess of the limit in section 12(d)(l)(A)(i) of the Act,
the Fund of Funds and the Unaffiliated Investment Company will execute
a Participation Agreement stating, without limitation, that their
Boards and their investment advisers understand the terms and
conditions of the order and agree to fulfill their responsibilities
under the order. At the time of its investment in shares of an
Unaffiliated Investment Company in excess of the limit in section
12(d)(l)(A)(i), a Fund of Funds will notify the Unaffiliated Investment
Company of the investment. At such time, the Fund of Funds will also
transmit to the Unaffiliated Investment Company a list of the names of
each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of
Funds will notify the Unaffiliated Investment Company of any changes to
the list of the names as soon as reasonably practicable after a change
occurs. The Unaffiliated Investment Company and the Fund of Funds will
maintain and preserve a copy of the order, the Participation Agreement,
and the list with any updated information for the duration of the
investment and for a period of not less than six years thereafter, the
first two years in an easily accessible place.
9. Before approving any advisory contract under section 15 of the
Act, the Board of each Fund of Funds, including a majority of the
Independent Trustees, shall find that the advisory fees charged under
such advisory contract are based on services provided that are in
addition to, rather than duplicative of, services
[[Page 69159]]
provided under the advisory contract(s) of any Underlying Fund in which
the Fund of Funds may invest. Such finding and the basis upon which the
finding was made will be recorded fully in the minute books of the
appropriate Fund of Funds.
10. The Adviser will waive fees otherwise payable to it by a Fund
of Funds in an amount at least equal to any compensation (including
fees received pursuant to any plan adopted by an Unaffiliated
Investment Company under rule 12b-1 under the Act) received from an
Unaffiliated Fund by the Adviser, or an affiliated person of the
Adviser, other than any advisory fees paid to the Adviser or its
affiliated person by an Unaffiliated Investment Company, in connection
with the investment by the Fund of Funds in the Unaffiliated Fund. Any
Sub-adviser will waive fees otherwise payable to the Sub-adviser,
directly or indirectly, by the Fund of Funds in an amount at least
equal to any compensation received by the Sub-adviser, or an affiliated
person of the Sub-adviser, from an Unaffiliated Fund, other than any
advisory fees paid to the Sub-adviser or its affiliated person by an
Unaffiliated Investment Company, in connection with the investment by
the Fund of Funds in the Unaffiliated Fund made at the direction of the
Sub-adviser. In the event that the Sub-adviser waives fees, the benefit
of the waiver will be passed through to the Fund of Funds.
11. No Underlying Fund will acquire securities of any other
investment company or company relying on section 3(c)(l) or 3(c)(7) of
the Act in excess of the limits contained in section 12(d)(1)(A) of the
Act, except to the extent that such Underlying Fund: (a) Receives
securities of another investment company as a dividend or as a result
of a plan of reorganization of a company (other than a plan devised for
the purpose of evading section 12(d)(l) of the Act); or (b) acquires
(or is deemed to have acquired) securities of another investment
company pursuant to exemptive relief from the Commission permitting
such Underlying Fund to (i) acquire securities of one or more
investment companies for short-term cash management purposes, or (ii)
engage in interfund borrowing and lending transactions.
12. Any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to fund
of funds set forth in NASD Conduct Rule 2830.
Other Investments by Same Group Funds of Funds
Applicants agree that the relief to permit Same Group Funds of
Funds to invest in Other Investments shall be subject to the following
condition:
13. Applicants will comply with all provisions of rule 12d1-2 under
the Act, except for paragraph (a)(2) to the extent that it restricts
any Same Group Fund of Funds from investing in Other Investments as
described in the application.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27477 Filed 11-15-13; 8:45 am]
BILLING CODE 8011-01-P
