Elkhorn Securities, LLC and Elkhorn Unit Trust; Notice of Application, 22720-22723 [2014-09237]
Download as PDF
<![CDATA[
22720
Federal Register / Vol. 79, No. 78 / Wednesday, April 23, 2014 / Notices
transaction is consistent with the
general purposes of the Act.
3. Applicants seek an exemption
under sections 6(c) and 17(b) to allow
the proposed transactions. Applicants
state that the transactions satisfy the
standards for relief under sections 6(c)
and 17(b). Specifically, Applicants state
that the terms of the transactions are fair
and reasonable and do not involve
overreaching. Applicants note that the
consideration paid and received for the
sale and redemption of Interests of the
Fund will be based on the NAV of the
Fund and, no sales load will be charged
by the Fund, and other sales charges
and service fees, if any, will only be
charged at the Fund level or the Other
Fund level, but not both. In addition,
Applicants represent that the proposed
transactions will be consistent with the
policies of each registered investment
company involved, and the general
purposes of the Act.
wreier-aviles on DSK5TPTVN1PROD with NOTICES
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The Fund’s outstanding securities
will be owned exclusively by persons
who are Qualified Purchasers, as
defined in section 2(a)(51) of the Act
and the rules thereunder.
2. The Fund will adopt a fundamental
policy, which may be changed only by
a majority vote of the outstanding voting
securities of the Fund and only upon
approval by the Commission or its staff,
that will specify the circumstances in
which the Fund will redeem its
Interests, such that the Fund (a) will pay
redemptions no less frequently than on
one day each month (each such day, a
Redemption Payment Date), (b) will
calculate its NAV applicable to a
redemption request received in good
order in accordance with procedures set
forth in the Fund’s prospectus as of the
close of business on the next
redemption pricing date and time
following such redemption request,
which will be on the same day as the
Redemption Payment Date, and (c) will
redeem Interests in a given month only
for redemptions requested on or before
the redemption pricing date and time
for that Redemption Payment Date.
3. At least 85% of the assets of the
Fund will consist of assets:
(a) That the Fund reasonably believes
may be sold or disposed of in local
currency in the ordinary course of
business, at approximately the price
used in computing the Fund’s NAV,
within seven days, or
(b) that mature by the next
Redemption Payment Date.
VerDate Mar<15>2010
15:37 Apr 22, 2014
Jkt 232001
4. The Board of the Fund, including
a majority of the disinterested trustees,
will adopt written procedures designed
to ensure that the Fund will comply
with the terms and conditions of the
requested order. The Board will review
these procedures at least annually and
approve such changes as it deems
necessary.
5. The Fund will not hold itself out
as a ‘‘mutual fund.’’ The Fund will
disclose its redemption policy on the
cover page of its offering memorandum
and in any marketing materials.
6. Each Series will disclose in its
registration statement that it does not
have a concentration policy regarding
investments in any industry or group of
industries.
7. Any registered investment
company that invests in a Series will
aggregate the Series’ holdings with its
own holdings for purposes of evaluating
its concentration policy regarding
investments in any industry or group of
industries.
8. With respect to Other Funds that
invest in the Fund, no sales load will be
charged by the Fund. Other sales
charges and service fees, as defined in
NASD Conduct Rule 2830, if any, will
only be charged at the Fund level or at
the Other Fund level, not both. With
respect to other investments in the
Fund, any sales charges and/or service
fees charged with respect to Interests of
the Fund or its Series will not exceed
the limits applicable to a fund of funds
set forth in such Rule 2830.
9. The Adviser will be an investment
adviser or manager to each series of the
Matthews Funds, Other Fund, or
separate account that invests in the
Fund.
10. No Series of the 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 to the extent that such
Series of the Fund acquires, or is
deemed to have acquired, the securities
pursuant to exemptive relief from the
Commission permitting such Series of
the Fund to (a) acquire securities of one
or more affiliated investment companies
or companies relying on section 3(c)(1)
or 3(c)(7) of the Act for short-term cash
management purposes, or (b) engage in
interfund borrowing and lending
transactions.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–09235 Filed 4–22–14; 8:45 am]
BILLING CODE 8011–01–P
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31022; File No. 812–14261]
Elkhorn Securities, LLC and Elkhorn
Unit Trust; Notice of Application
April 17, 2014.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
order under section 12(d)(1)(J) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
12(d)(1)(A), (B) and (C) of the Act, and
under sections 6(c) and 17(b) of the Act
for an exemption from section 17(a) of
the Act.
AGENCY:
Summary of the Application:
Applicants request an order that would
permit certain series of a unit
investment trust (‘‘UIT’’) registered
under the Act to acquire shares of
registered management investment
companies and unit investment trusts or
series thereof (the ‘‘Funds’’) both within
and outside the same group of
investment companies.
Applicants: Elkhorn Securities, LLC
(the ‘‘Depositor’’), and Elkhorn Unit
Trust (the ‘‘Trust’’).
DATED: Filing Date: The application was
filed on January 9, 2014.
Hearing or Notification of Hearing: An
order granting the requested relief 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 12, 2014, 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: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
Applicants: 207 Reber Street, Suite 201,
Wheaton, Illinois 60187.
FOR FURTHER INFORMATION CONTACT:
Steven I. Amchan, Senior Counsel, at
(202) 551–6826, or David P. Bartels,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
SUMMARY:
E:\FR\FM\23APN1.SGM
23APN1
Federal Register / Vol. 79, No. 78 / Wednesday, April 23, 2014 / Notices
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
wreier-aviles on DSK5TPTVN1PROD with NOTICES
Applicants’ Representations
1. The Trust is a UIT registered under
the Act.1 Each Series will be a series of
a Trust and will offer units for sale to
the public (‘‘Units’’). Each Series will be
created pursuant to a trust agreement
which will incorporate by reference a
master trust agreement between the
Depositor and a financial institution
that satisfies the criteria in section 26(a)
of the Act (the ‘‘Trustee’’). The
Depositor has filed to be a broker dealer
registered under the Securities
Exchange Act of 1934 and is member of
the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’).
2. Applicants request relief to permit
a Series to invest in registered
investment companies or series thereof
(‘‘Funds’’) that are (a) part of the same
‘‘group of investment companies’’ (as
that term is defined in section
12(d)(1)(G) of the Act) as the Series
(‘‘Affiliated Funds’’), and (b) not part of
the same group of investment
companies as the Series (‘‘Unaffiliated
Funds’’). Each of the Funds will be
registered as a closed-end management
investment company (‘‘Closed-end
Fund’’), an open-end management
investment company (‘‘Open-end
Fund’’) or a UIT. An Unaffiliated Fund
that is a UIT is referred to as an
‘‘Unaffiliated Underlying Trust.’’ An
Unaffiliated Fund that is a Closed-end
Fund or Open-end Fund is referred to as
an ‘‘Unaffiliated Underlying Fund.’’
Certain of the Funds may be registered
as Open-end Funds or UITs, but have
received exemptive relief in order that
their shares may be traded at
‘‘negotiated prices’’ on a national
securities exchange in the same manner
as other equity securities (the
‘‘Exchange-traded Funds’’). Shares of
Exchange-traded Funds and Closed-end
Funds will be deposited in a Series at
prices which are based on the market
value of the securities, as determined by
an evaluator. The Depositor does not
have discretion as to when portfolio
1 Applicants request that the order also extend to
future registered UITs sponsored by the Depositor
or an entity controlling, controlled by or under
common control with the Depositor and their
respective series (the future UITs, together with the
Trust, are collectively the ‘‘Trusts’’ and the series
of the Trusts are the ‘‘Series’’). All existing 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.
VerDate Mar<15>2010
15:37 Apr 22, 2014
Jkt 232001
securities of a Series will be sold, except
that the Depositor is authorized to sell
securities in extremely limited
circumstances described in the Series’
prospectus.
3. Applicants state that the requested
relief will provide investors with a
practical, cost-efficient means of
investing in a professionally selected,
diversified portfolio of securities of
investment companies. Each Series may
also make investments in securities that
are not issued by registered investment
companies.
Applicants’ Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act
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 value of the total assets of the
acquiring company. Section 12(d)(1)(B)
of the Act prohibits a registered openend investment company, its principal
underwriter and any broker or dealer
(‘‘Broker’’) from selling the shares of the
investment company to another
investment company if the sale will
cause the acquiring company to own
more than 3% of the acquired
company’s voting stock, or if the sale
will cause more than 10% of the
acquired company’s voting stock to be
owned by investment companies
generally. Section 12(d)(1)(C) prohibits
an investment company, other
investment companies having the same
investment adviser, and companies
controlled by such investment
companies, from acquiring more than
10% of the outstanding voting stock of
a registered closed-end investment
company.
2. Section 12(d)(1)(G) provides, in
relevant part, that section 12(d)(1) will
not apply to securities of a registered
open-end investment company or UIT
acquired by a registered UIT if the
acquired company and the acquiring
company are part of the same group of
investment companies, provided that
certain other requirements contained in
section 12(d)(1)(G) are met, including
that the only other investments held by
the acquiring company are government
securities and short-term paper.
Applicants state that they may not rely
on section 12(d)(1)(G) because a Series
will invest in Unaffiliated Funds and
securities other than government
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
22721
securities and short-term paper in
addition to Affiliated Funds.
3. 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) to permit a Series to
purchase or otherwise acquire shares of
the Funds in excess of the percentage
limitations of sections 12(d)(1)(A) and
(C), and the Open-end Funds, their
principal underwriters and any Broker
to sell their shares to the Series in
excess of the percentage limitations of
section 12(d)(1)(B).
4. Applicants state that the proposed
arrangement will not give rise to the
policy concerns underlying sections
12(d)(1)(A), (B), and (C), 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.
5. Applicants state that the concern
about undue control does not arise with
respect to a Series’ investment in
Affiliated Funds, as reflected in section
12(d)(1)(G) of the Act. Applicants also
state that the proposed arrangement will
not result in undue influence by a Series
or its affiliates over Unaffiliated Funds.
Applicants have agreed that (a) the
Depositor, (b) any person controlling,
controlled by or under common control
with the Depositor, and (c) any
investment company and any issuer that
would be an investment company but
for section 3(c)(1) or 3(c)(7) of the Act,
sponsored or advised by the Depositor
(or any person controlling, controlled by
or under common control with the
Depositor) (collectively, the ‘‘Group’’)
will not control (individually or in the
aggregate) an Unaffiliated Fund within
the meaning section 2(a)(9) of the Act.
Applicants also note that conditions 2,
3, 5 and 6 set forth below will address
the concern about undue influence with
respect to the Unaffiliated Funds.
6. As an additional assurance that an
Unaffiliated Underlying Fund
understands the implications of an
investment by a Series under the
requested order, prior to a Series’
investment in the Unaffiliated
Underlying Fund in excess of the limit
in section 12(d)(1)(A)(i), the Series and
the Unaffiliated Underlying Fund will
execute an agreement stating, without
limitation, that the Depositor and
Trustee and the board of directors or
E:\FR\FM\23APN1.SGM
23APN1
wreier-aviles on DSK5TPTVN1PROD with NOTICES
22722
Federal Register / Vol. 79, No. 78 / Wednesday, April 23, 2014 / Notices
trustees to the Unaffiliated Underlying
Fund and the investment adviser(s) to
the Unaffiliated Underlying Fund,
understand the terms and conditions of
the order and agree to fulfill their
responsibilities under the order
(‘‘Participation Agreement’’). Applicants
note that an Unaffiliated Underlying
Fund, including a Closed-end Fund or
an Exchange-traded Fund, may choose
to reject an investment from the Series
by declining to execute the Participation
Agreement.
7. Applicants do not believe that the
proposed arrangement will involve
excessive layering of fees. Applicants
state that any sales charges and/or
service fees, as those terms are defined
in Rule 2830 of the Conduct Rules of the
NASD, Inc. (‘‘NASD Conduct Rules’’),2
charged with respect to Units of a Series
will not exceed the limits applicable to
a fund of funds as set forth in Rule 2830
of the NASD Conduct Rules.3 In
addition, the Trustee or Depositor will
waive fees otherwise payable to it by a
Series in an amount at least equal to any
compensation (including fees paid
pursuant to any plan adopted by an
Unaffiliated Underlying Fund under
rule 12b–1 under the Act) received from
an Unaffiliated Fund by the Trustee or
Depositor, or an affiliated person of the
Trustee or Depositor, other than any
advisory fees paid to the Trustee or
Depositor or its affiliated person by an
Unaffiliated Underlying Fund, in
connection with the investment by the
Series in the Unaffiliated Fund.
8. Applicants state that the proposed
arrangement will not create an overly
complex fund structure. Applicants note
that a Fund will be prohibited from
acquiring 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), except to the extent
permitted by exemptive relief from the
Commission permitting the Fund to
purchase shares of other investment
companies for short-term cash
management purposes. Applicants also
represent that a Series’ prospectus and
sales literature will contain concise,
‘‘plain English’’ disclosure designed to
inform investors of the unique
characteristics of the trust of funds
structure, including, but not limited to,
its expense structure and the additional
expenses of investing in Funds.
2 Any references to NASD Conduct Rule 2830
include any successor or replacement rule to
Conduct Rule 2830 that may be adopted by FINRA.
3 With respect to purchasing Closed-end Funds or
Exchange-traded Fund shares, a Series may incur
the customary brokerage commissions associated
with purchasing any equity security on the
secondary market.
VerDate Mar<15>2010
15:37 Apr 22, 2014
Jkt 232001
B. Section 17(a)
1. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such a person
(‘‘second-tier affiliate’’), acting as
principal, from selling any security or
other property to or acquiring any
security or other property from 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 Series and
an Affiliated Fund might be deemed to
be under the common control of the
Depositor or an entity controlling,
controlled by, or under common control
with the Depositor. Applicants also state
that a Series and a Fund might become
‘‘affiliated persons’’ if the Series
acquires more than 5% of the Fund’s
outstanding voting securities. The sale
or redemption by a Fund of its shares
to or from a Series therefore could be
deemed to be a principal transaction
prohibited by Section 17(a) of the Act.4
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
4 To the extent purchases and sales of shares of
an Exchange-traded Fund occur in the secondary
market (and not through principal transactions
directly between a Series and an Exchange-traded
Fund), relief from section 17(a) would not be
necessary. The requested relief is intended to cover,
however, transactions directly between Exchangetraded Funds and a Series. Applicants are not
seeking relief from section 17(a) for, and the
requested relief will not apply to, transactions
where an Exchange-traded Fund could be deemed
an affiliated person, or an affiliated person of an
affiliated person, of a Series because the investment
adviser to the Exchange-traded Fund or an entity
controlling, controlled by or under common control
with the investment adviser is also a depositor to
the Series. In addition, the request for relief does
not cover principal transactions with Closed-end
Funds.
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
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. Applicants state that
the terms of the proposed transactions
are fair and reasonable and do not
involve overreaching. Applicants note
that the consideration paid for the sale
and redemption of shares of the Openend Funds and Funds that are UITs will
be based on the net asset values of the
Funds. Finally, applicants state that the
proposed transactions will be consistent
with the policies of each Series and
Fund, and with the general purposes of
the Act.
Applicants’ Conditions
Applicants agree that the order
granting the requested relief shall be
subject to the following conditions:
1. The members of the 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 Group, in the
aggregate, becomes a holder of more
than 25% of the outstanding voting
securities of the Unaffiliated Fund, the
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.
2. No Series or its Depositor,
promoter, principal underwriter, or any
person controlling, controlled by, or
under common control with any of
those entities (each, a ‘‘Series Affiliate’’)
will cause any existing or potential
investment by the Series in an
Unaffiliated Fund to influence the terms
of any services or transactions between
the Series or Series Affiliate and the
Unaffiliated Fund or its investment
adviser(s), sponsor, promoter, principal
underwriter, or any person controlling,
controlled by, or under common control
with any of those entities.
3. Once an investment by a Series in
the securities of an Unaffiliated
Underlying Fund exceeds the limit in
section 12(d)(1)(A)(i) of the Act, the
board of directors or trustees of the
Unaffiliated Underlying Fund,
including a majority of the disinterested
board members, will determine that any
consideration paid by the Unaffiliated
Underlying Fund to the Series or Series
Affiliate in connection with any services
E:\FR\FM\23APN1.SGM
23APN1
wreier-aviles on DSK5TPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 78 / Wednesday, April 23, 2014 / Notices
or transactions: (a) Is fair and reasonable
in relation to the nature and quality of
the services and benefits received by the
Unaffiliated Underlying Fund; (b) is
within the range of consideration that
the Unaffiliated Underlying Fund 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 Underlying Fund and its
investment adviser(s), or any person
controlling, controlled by, or under
common control with such investment
adviser(s).
4. The Trustee or Depositor will waive
fees otherwise payable to it by the
Series, in an amount at least equal to
any compensation (including fees
received pursuant to any plan adopted
by an Unaffiliated Underlying Fund
under rule 12b–1 under the Act)
received from an Unaffiliated Fund by
the Trustee or Depositor, or an affiliated
person of the Trustee or Depositor, other
than any advisory fees paid to the
Trustee or Depositor or its affiliated
person by an Unaffiliated Underlying
Fund, in connection with the
investment by a Series in the
Unaffiliated Fund.
5. No Series or Series Affiliate (except
to the extent it is acting in its capacity
as an investment adviser to an
Unaffiliated Underlying Fund or
sponsor to an Unaffiliated Underlying
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 the
Depositor or a person of which the
Depositor is an affiliated person (each,
an ‘‘Underwriting Affiliate,’’ except any
person whose relationship to the
Unaffiliated Fund is covered by section
10(f) of the Act is not an Underwriting
Affiliate). An offering of securities
during the existence of an underwriting
or selling syndicate of which a principal
underwriter is an Underwriting Affiliate
is an ‘‘Affiliated Underwriting.’’
6. The board of an Unaffiliated
Underlying Fund, including a majority
of the disinterested board members, will
adopt procedures reasonably designed
to monitor any purchases of securities
by the Unaffiliated Underlying Fund in
an Affiliated Underwriting once an
investment by a Series in the securities
of the Unaffiliated Underlying Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, including any
purchases made directly from an
Underwriting Affiliate. The board of the
Unaffiliated Underlying Fund will
VerDate Mar<15>2010
15:37 Apr 22, 2014
Jkt 232001
review these purchases periodically, but
no less frequently than annually, to
determine whether the purchases were
influenced by the investment by the
Series in the Unaffiliated Underlying
Fund. The board of the Unaffiliated
Underlying Fund will consider, among
other things: (a) Whether the purchases
were consistent with the investment
objectives and policies of the
Unaffiliated Underlying Fund; (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
Underlying Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The board
of the Unaffiliated Underlying Fund
will take any appropriate actions based
on its review, including, if appropriate,
the institution of procedures designed to
assure that purchases of securities in
Affiliated Underwritings are in the best
interests of shareholders.
7. An Unaffiliated Underlying Fund
will 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
will 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 Affiliated Underwritings
once an investment by a Series in the
securities of the Unaffiliated Underlying
Fund exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the determinations of the board of the
Unaffiliated Underlying Fund were
made.
8. Before investing in an Unaffiliated
Underlying Fund in excess of the limit
in section 12(d)(1)(A)(i), each Series and
the Unaffiliated Underlying Fund will
execute a Participation Agreement
stating, without limitation, that the
Depositor and Trustee, and the board of
directors or trustees of the Unaffiliated
Underlying Fund and the investment
adviser(s) to the Unaffiliated Underlying
Fund, understand the terms and
PO 00000
Frm 00106
Fmt 4703
Sfmt 4703
22723
conditions of the order and agree to
fulfill their responsibilities under the
order. At the time of its investment in
shares of an Unaffiliated Underlying
Fund in excess of the limit in section
12(d)(1)(A)(i), a Series will notify the
Unaffiliated Underlying Fund of the
investment. At such time, the Series
also will transmit to the Unaffiliated
Underlying Fund a list of the names of
each Series Affiliate and Underwriting
Affiliate. The Series will notify the
Unaffiliated Underlying Fund of any
changes to the list of names as soon as
reasonably practicable after a change
occurs. The Unaffiliated Underlying
Fund and the Series 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 not less than six years thereafter,
the first two years in an easily accessible
place.
9. Any sales charges and/or service
fees charged with respect to Units of a
Series will not exceed the limits
applicable to a fund of funds as set forth
in Rule 2830 of the NASD Conduct
Rules.
10. No Fund will acquire securities of
any other 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 permitted by
exemptive relief from the Commission
permitting the Fund to purchase shares
of other investment companies for shortterm cash management purposes.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–09237 Filed 4–22–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31021; File No. 812–13597]
Vanguard Admiral Funds, et al.; Notice
of Application
April 17, 2014.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order pursuant to (a) section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) granting an exemption from
sections 18(f) and 21(b) of the Act; (b)
section 12(d)(1)(J) of the Act granting an
exemption from section 12(d)(1) of the
Act; (c) sections 6(c) and 17(b) of the
AGENCY:
E:\FR\FM\23APN1.SGM
23APN1
]]>Agencies
[Federal Register Volume 79, Number 78 (Wednesday, April 23, 2014)]
[Notices]
[Pages 22720-22723]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09237]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31022; File No. 812-14261]
Elkhorn Securities, LLC and Elkhorn Unit Trust; Notice of
Application
April 17, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 12(d)(1)(J) of
the Investment Company Act of 1940 (``Act'') for an exemption from
sections 12(d)(1)(A), (B) and (C) of the Act, and under sections 6(c)
and 17(b) of the Act for an exemption from section 17(a) of the Act.
-----------------------------------------------------------------------
SUMMARY: Summary of the Application: Applicants request an order that
would permit certain series of a unit investment trust (``UIT'')
registered under the Act to acquire shares of registered management
investment companies and unit investment trusts or series thereof (the
``Funds'') both within and outside the same group of investment
companies.
Applicants: Elkhorn Securities, LLC (the ``Depositor''), and
Elkhorn Unit Trust (the ``Trust'').
DATED: Filing Date: The application was filed on January 9, 2014.
Hearing or Notification of Hearing: An order granting the requested
relief 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 12, 2014, 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: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicants: 207 Reber Street,
Suite 201, Wheaton, Illinois 60187.
FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at
(202) 551-6826, or David P. Bartels, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
[[Page 22721]]
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for 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 a UIT registered under the Act.\1\ Each Series will
be a series of a Trust and will offer units for sale to the public
(``Units''). Each Series will be created pursuant to a trust agreement
which will incorporate by reference a master trust agreement between
the Depositor and a financial institution that satisfies the criteria
in section 26(a) of the Act (the ``Trustee''). The Depositor has filed
to be a broker dealer registered under the Securities Exchange Act of
1934 and is member of the Financial Industry Regulatory Authority, Inc.
(``FINRA'').
---------------------------------------------------------------------------
\1\ Applicants request that the order also extend to future
registered UITs sponsored by the Depositor or an entity controlling,
controlled by or under common control with the Depositor and their
respective series (the future UITs, together with the Trust, are
collectively the ``Trusts'' and the series of the Trusts are the
``Series''). All existing 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.
---------------------------------------------------------------------------
2. Applicants request relief to permit a Series to invest in
registered investment companies or series thereof (``Funds'') that are
(a) part of the same ``group of investment companies'' (as that term is
defined in section 12(d)(1)(G) of the Act) as the Series (``Affiliated
Funds''), and (b) not part of the same group of investment companies as
the Series (``Unaffiliated Funds''). Each of the Funds will be
registered as a closed-end management investment company (``Closed-end
Fund''), an open-end management investment company (``Open-end Fund'')
or a UIT. An Unaffiliated Fund that is a UIT is referred to as an
``Unaffiliated Underlying Trust.'' An Unaffiliated Fund that is a
Closed-end Fund or Open-end Fund is referred to as an ``Unaffiliated
Underlying Fund.'' Certain of the Funds may be registered as Open-end
Funds or UITs, but have received exemptive relief in order that their
shares may be traded at ``negotiated prices'' on a national securities
exchange in the same manner as other equity securities (the ``Exchange-
traded Funds''). Shares of Exchange-traded Funds and Closed-end Funds
will be deposited in a Series at prices which are based on the market
value of the securities, as determined by an evaluator. The Depositor
does not have discretion as to when portfolio securities of a Series
will be sold, except that the Depositor is authorized to sell
securities in extremely limited circumstances described in the Series'
prospectus.
3. Applicants state that the requested relief will provide
investors with a practical, cost-efficient means of investing in a
professionally selected, diversified portfolio of securities of
investment companies. Each Series may also make investments in
securities that are not issued by registered investment companies.
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act 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 value 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 or dealer (``Broker'') from selling the shares of the
investment company to another investment company if the sale will cause
the acquiring company to own more than 3% of the acquired company's
voting stock, or if the sale will cause more than 10% of the acquired
company's voting stock to be owned by investment companies generally.
Section 12(d)(1)(C) prohibits an investment company, other investment
companies having the same investment adviser, and companies controlled
by such investment companies, from acquiring more than 10% of the
outstanding voting stock of a registered closed-end investment company.
2. Section 12(d)(1)(G) provides, in relevant part, that section
12(d)(1) will not apply to securities of a registered open-end
investment company or UIT acquired by a registered UIT if the acquired
company and the acquiring company are part of the same group of
investment companies, provided that certain other requirements
contained in section 12(d)(1)(G) are met, including that the only other
investments held by the acquiring company are government securities and
short-term paper. Applicants state that they may not rely on section
12(d)(1)(G) because a Series will invest in Unaffiliated Funds and
securities other than government securities and short-term paper in
addition to Affiliated Funds.
3. 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) to permit a Series to purchase or otherwise acquire shares
of the Funds in excess of the percentage limitations of sections
12(d)(1)(A) and (C), and the Open-end Funds, their principal
underwriters and any Broker to sell their shares to the Series in
excess of the percentage limitations of section 12(d)(1)(B).
4. Applicants state that the proposed arrangement will not give
rise to the policy concerns underlying sections 12(d)(1)(A), (B), and
(C), 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.
5. Applicants state that the concern about undue control does not
arise with respect to a Series' investment in Affiliated Funds, as
reflected in section 12(d)(1)(G) of the Act. Applicants also state that
the proposed arrangement will not result in undue influence by a Series
or its affiliates over Unaffiliated Funds. Applicants have agreed that
(a) the Depositor, (b) any person controlling, controlled by or under
common control with the Depositor, and (c) any investment company and
any issuer that would be an investment company but for section 3(c)(1)
or 3(c)(7) of the Act, sponsored or advised by the Depositor (or any
person controlling, controlled by or under common control with the
Depositor) (collectively, the ``Group'') will not control (individually
or in the aggregate) an Unaffiliated Fund within the meaning section
2(a)(9) of the Act. Applicants also note that conditions 2, 3, 5 and 6
set forth below will address the concern about undue influence with
respect to the Unaffiliated Funds.
6. As an additional assurance that an Unaffiliated Underlying Fund
understands the implications of an investment by a Series under the
requested order, prior to a Series' investment in the Unaffiliated
Underlying Fund in excess of the limit in section 12(d)(1)(A)(i), the
Series and the Unaffiliated Underlying Fund will execute an agreement
stating, without limitation, that the Depositor and Trustee and the
board of directors or
[[Page 22722]]
trustees to the Unaffiliated Underlying Fund and the investment
adviser(s) to the Unaffiliated Underlying Fund, understand the terms
and conditions of the order and agree to fulfill their responsibilities
under the order (``Participation Agreement''). Applicants note that an
Unaffiliated Underlying Fund, including a Closed-end Fund or an
Exchange-traded Fund, may choose to reject an investment from the
Series by declining to execute the Participation Agreement.
7. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. Applicants state that any sales
charges and/or service fees, as those terms are defined in Rule 2830 of
the Conduct Rules of the NASD, Inc. (``NASD Conduct Rules''),\2\
charged with respect to Units of a Series will not exceed the limits
applicable to a fund of funds as set forth in Rule 2830 of the NASD
Conduct Rules.\3\ In addition, the Trustee or Depositor will waive fees
otherwise payable to it by a Series in an amount at least equal to any
compensation (including fees paid pursuant to any plan adopted by an
Unaffiliated Underlying Fund under rule 12b-1 under the Act) received
from an Unaffiliated Fund by the Trustee or Depositor, or an affiliated
person of the Trustee or Depositor, other than any advisory fees paid
to the Trustee or Depositor or its affiliated person by an Unaffiliated
Underlying Fund, in connection with the investment by the Series in the
Unaffiliated Fund.
---------------------------------------------------------------------------
\2\ Any references to NASD Conduct Rule 2830 include any
successor or replacement rule to Conduct Rule 2830 that may be
adopted by FINRA.
\3\ With respect to purchasing Closed-end Funds or Exchange-
traded Fund shares, a Series may incur the customary brokerage
commissions associated with purchasing any equity security on the
secondary market.
---------------------------------------------------------------------------
8. Applicants state that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring 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), except to the extent
permitted by exemptive relief from the Commission permitting the Fund
to purchase shares of other investment companies for short-term cash
management purposes. Applicants also represent that a Series'
prospectus and sales literature will contain concise, ``plain English''
disclosure designed to inform investors of the unique characteristics
of the trust of funds structure, including, but not limited to, its
expense structure and the additional expenses of investing in Funds.
B. Section 17(a)
1. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``second-tier affiliate''), acting as principal, from
selling any security or other property to or acquiring any security or
other property from 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 Series and an Affiliated Fund might be
deemed to be under the common control of the Depositor or an entity
controlling, controlled by, or under common control with the Depositor.
Applicants also state that a Series and a Fund might become
``affiliated persons'' if the Series acquires more than 5% of the
Fund's outstanding voting securities. The sale or redemption by a Fund
of its shares to or from a Series therefore could be deemed to be a
principal transaction prohibited by Section 17(a) of the Act.\4\
---------------------------------------------------------------------------
\4\ To the extent purchases and sales of shares of an Exchange-
traded Fund occur in the secondary market (and not through principal
transactions directly between a Series and an Exchange-traded Fund),
relief from section 17(a) would not be necessary. The requested
relief is intended to cover, however, transactions directly between
Exchange-traded Funds and a Series. Applicants are not seeking
relief from section 17(a) for, and the requested relief will not
apply to, transactions where an Exchange-traded Fund could be deemed
an affiliated person, or an affiliated person of an affiliated
person, of a Series because the investment adviser to the Exchange-
traded Fund or an entity controlling, controlled by or under common
control with the investment adviser is also a depositor to the
Series. In addition, the request for relief does not cover principal
transactions with Closed-end 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.
Applicants state that the terms of the proposed transactions are fair
and reasonable and do not involve overreaching. Applicants note that
the consideration paid for the sale and redemption of shares of the
Open-end Funds and Funds that are UITs will be based on the net asset
values of the Funds. Finally, applicants state that the proposed
transactions will be consistent with the policies of each Series and
Fund, and with the general purposes of the Act.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. The members of the 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 Group, in the aggregate,
becomes a holder of more than 25% of the outstanding voting securities
of the Unaffiliated Fund, the 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.
2. No Series or its Depositor, promoter, principal underwriter, or
any person controlling, controlled by, or under common control with any
of those entities (each, a ``Series Affiliate'') will cause any
existing or potential investment by the Series in an Unaffiliated Fund
to influence the terms of any services or transactions between the
Series or Series Affiliate and the Unaffiliated Fund or its investment
adviser(s), sponsor, promoter, principal underwriter, or any person
controlling, controlled by, or under common control with any of those
entities.
3. Once an investment by a Series in the securities of an
Unaffiliated Underlying Fund exceeds the limit in section
12(d)(1)(A)(i) of the Act, the board of directors or trustees of the
Unaffiliated Underlying Fund, including a majority of the disinterested
board members, will determine that any consideration paid by the
Unaffiliated Underlying Fund to the Series or Series Affiliate in
connection with any services
[[Page 22723]]
or transactions: (a) Is fair and reasonable in relation to the nature
and quality of the services and benefits received by the Unaffiliated
Underlying Fund; (b) is within the range of consideration that the
Unaffiliated Underlying Fund 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 Underlying Fund and
its investment adviser(s), or any person controlling, controlled by, or
under common control with such investment adviser(s).
4. The Trustee or Depositor will waive fees otherwise payable to it
by the Series, in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by an
Unaffiliated Underlying Fund under rule 12b-1 under the Act) received
from an Unaffiliated Fund by the Trustee or Depositor, or an affiliated
person of the Trustee or Depositor, other than any advisory fees paid
to the Trustee or Depositor or its affiliated person by an Unaffiliated
Underlying Fund, in connection with the investment by a Series in the
Unaffiliated Fund.
5. No Series or Series Affiliate (except to the extent it is acting
in its capacity as an investment adviser to an Unaffiliated Underlying
Fund or sponsor to an Unaffiliated Underlying 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 the Depositor or a person of which the
Depositor is an affiliated person (each, an ``Underwriting Affiliate,''
except any person whose relationship to the Unaffiliated Fund is
covered by section 10(f) of the Act is not an Underwriting Affiliate).
An offering of securities during the existence of an underwriting or
selling syndicate of which a principal underwriter is an Underwriting
Affiliate is an ``Affiliated Underwriting.''
6. The board of an Unaffiliated Underlying Fund, including a
majority of the disinterested board members, will adopt procedures
reasonably designed to monitor any purchases of securities by the
Unaffiliated Underlying Fund in an Affiliated Underwriting once an
investment by a Series in the securities of the Unaffiliated Underlying
Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including
any purchases made directly from an Underwriting Affiliate. The board
of the Unaffiliated Underlying Fund will review these purchases
periodically, but no less frequently than annually, to determine
whether the purchases were influenced by the investment by the Series
in the Unaffiliated Underlying Fund. The board of the Unaffiliated
Underlying Fund will consider, among other things: (a) Whether the
purchases were consistent with the investment objectives and policies
of the Unaffiliated Underlying Fund; (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 Underlying Fund in
Affiliated Underwritings and the amount purchased directly from an
Underwriting Affiliate have changed significantly from prior years. The
board of the Unaffiliated Underlying Fund will take any appropriate
actions based on its review, including, if appropriate, the institution
of procedures designed to assure that purchases of securities in
Affiliated Underwritings are in the best interests of shareholders.
7. An Unaffiliated Underlying Fund will 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 will 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 Affiliated Underwritings once an investment by a Series
in the securities of the Unaffiliated Underlying Fund exceeds the limit
of section 12(d)(1)(A)(i) of the Act, setting forth from whom the
securities were acquired, the identity of the underwriting syndicate's
members, the terms of the purchase, and the information or materials
upon which the determinations of the board of the Unaffiliated
Underlying Fund were made.
8. Before investing in an Unaffiliated Underlying Fund in excess of
the limit in section 12(d)(1)(A)(i), each Series and the Unaffiliated
Underlying Fund will execute a Participation Agreement stating, without
limitation, that the Depositor and Trustee, and the board of directors
or trustees of the Unaffiliated Underlying Fund and the investment
adviser(s) to the Unaffiliated Underlying Fund, 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 Underlying Fund in excess of the limit in section
12(d)(1)(A)(i), a Series will notify the Unaffiliated Underlying Fund
of the investment. At such time, the Series also will transmit to the
Unaffiliated Underlying Fund a list of the names of each Series
Affiliate and Underwriting Affiliate. The Series will notify the
Unaffiliated Underlying Fund of any changes to the list of names as
soon as reasonably practicable after a change occurs. The Unaffiliated
Underlying Fund and the Series 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 not
less than six years thereafter, the first two years in an easily
accessible place.
9. Any sales charges and/or service fees charged with respect to
Units of a Series will not exceed the limits applicable to a fund of
funds as set forth in Rule 2830 of the NASD Conduct Rules.
10. No Fund will acquire securities of any other 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 permitted by exemptive relief from the Commission permitting
the Fund to purchase shares of other investment companies for short-
term cash management purposes.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09237 Filed 4-22-14; 8:45 am]
BILLING CODE 8011-01-P
