NexPoint Credit Strategies Fund, et al.; Notice of Application, 7650-7654 [2015-02796]
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of the Adviser on a per Subadvised
Series basis. The information will reflect
the impact on profitability of the hiring
or termination of any sub-adviser during
the applicable quarter.
9. Whenever a sub-adviser is hired or
terminated, the Adviser will provide the
Board with information showing the
expected impact on the profitability of
the Adviser.
10. Whenever a sub-adviser change is
proposed for a Subadvised Series with
an Affiliated Sub-Adviser or a WhollyOwned Sub-Adviser, the Board,
including a majority of the Independent
Board Members, will make a separate
finding, reflected in the Board minutes,
that such change is in the best interests
of the Subadvised Series and its
shareholders, and does not involve a
conflict of interest from which the
Adviser or the Affiliated Sub-Adviser or
Wholly-Owned Sub-Adviser derives an
inappropriate advantage.
11. No director, trustee or officer of a
Subadvised Series, or partner, director,
manager or officer of the Adviser, will
own directly or indirectly (other than
through a pooled investment vehicle
that is not controlled by such person),
any interest in a Sub-Adviser, except for
(a) ownership of interests in the Adviser
or any entity, other than a WhollyOwned Sub-Adviser, that controls, is
controlled by, or is under common
control with the Adviser, or (b)
ownership of less than 1% of the
outstanding securities of any class of
equity or debt of a publicly traded
company that is either a Sub-Adviser or
an entity that controls, is controlled by,
or is under common control with a SubAdviser.
12. Each Subadvised Series will
disclose the Aggregate Fee Disclosure in
its registration statement.
13. In the event the Commission
adopts a rule under the Act providing
substantially similar relief to that
requested in the application, the
requested order will expire on the
effective date of that rule.
14. Any new Sub-Advisory
Agreement or any amendment to a
Subadvised Series’ existing Investment
Management Agreement or SubAdvisory Agreement that directly or
indirectly results in an increase in the
aggregate advisory rate payable by the
Subadvised Series will be submitted to
the Subadvised Series’ shareholders for
approval.
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For the Commission, by the Division of
Investment Management, under delegated
authority.
Brent J. Fields,
Secretary.
[FR Doc. 2015–02745 Filed 2–10–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31448; File No. 812–14407]
NexPoint Credit Strategies Fund, et al.;
Notice of Application
February 5, 2015.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 17(b) of the
Investment Company Act of 1940 (the
‘‘Act’’) granting an exemption from
section 17(a) of the Act, and under
section 17(d) of the Act and rule 17d–
1 thereunder permitting certain joint
transactions.
AGENCY:
NexPoint Credit Strategies
Fund (‘‘NHF’’), NexPoint Residential
Trust, Inc. (‘‘NXRT REIT’’), Freedom
REIT, LLC (‘‘Freedom REIT’’) (each, a
‘‘Fund,’’ and together, the ‘‘Funds’’),
NexPoint Advisors, L.P. (‘‘NHF
Adviser’’), and NexPoint Real Estate
Advisors, L.P. (‘‘NXRT Adviser’’) (each,
an ‘‘Adviser,’’ and together, the
‘‘Advisers’’), NexPoint Residential Trust
Operating Partnership, L.P. (‘‘NXRT
OP’’), and NexPoint Residential Merger
Company, LLC (‘‘NXRT LLC’’)
(collectively, the ‘‘Applicants’’).
SUMMARY: Summary of Application:
Applicants seek an order to permit NHF
to transfer certain real estate assets (the
‘‘Multifamily Properties’’) held by
Freedom REIT, NHF’s wholly-owned
subsidiary, to NXRT REIT, a real estate
investment trust (‘‘REIT’’) and NHF’s
wholly-owned subsidiary, in exchange
for NXRT REIT common stock; to permit
NHF to distribute such common stock to
NHF’s shareholders; and to permit
NXRT Adviser to enter into an
investment advisory agreement with
NXRT REIT.
DATES: Filing Dates: The application was
filed on December 22, 2014 and
amended on February 4, 2015.
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
APPLICANTS:
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should be received by the Commission
by 5:30 p.m. on February 25, 2015 and
should be accompanied by proof of
service on the applicants, in the form of
an affidavit, or, for lawyers, a certificate
of service. Pursuant to Rule 0–5 under
the Act, hearing requests should state
the nature of the writer’s interest, any
facts bearing upon the desirability of a
hearing on the matter, 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. The
Applicants: c/o David J. Harris, Esq.,
and Thomas J. Friedmann, Esq., Dechert
LLP, 1900 K Street NW., Washington,
DC 20006–6808.
FOR FURTHER INFORMATION CONTACT: Anil
K. Abraham, Senior Special Counsel, at
(202) 551–2614, or James M. Curtis,
Branch Chief, at (202) 551–6712
(Division of Investment Management,
Chief Counsel’s 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. NHF was organized as a Delaware
statutory trust and is registered under
the Act as a non-diversified, closed-end
management investment company. NHF
has elected to be treated as a regulated
investment company (‘‘RIC’’) under
Subchapter M of the Internal Revenue
Code of 1986, as amended (the ‘‘Code’’).
NHF’s investment objectives are to
provide both current income and capital
appreciation, which it seeks to achieve
by investing primarily in bonds and
other debt obligations, including belowinvestment grade debt obligations, and
equity.
2. Freedom REIT, a direct, whollyowned subsidiary 1 of NHF, was
organized on October 12, 2012 as a
Delaware limited liability company and
subsequently elected to be treated as a
REIT under section 856 of the Code.
Freedom REIT is considered a single
investment for purposes of determining
1 As defined in section 2(a)(43) of the Act, a
‘‘wholly-owned subsidiary’’ of a person means a
company 95% or more of the outstanding voting
securities of which are owned by such person, or
by a company which, within the meaning of this
paragraph, is a wholly-owned subsidiary of such
person.
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NHF’s compliance with its RIC
diversification requirements and in
NHF’s financial statements pursuant to
rule 6–03 under the Securities Exchange
Act of 1934 (‘‘Exchange Act’’).
3. NXRT REIT was organized as a
Maryland corporation and filed a
registration statement on Form 10 on
September 29, 2014 to register its shares
under section 12(b) of the Exchange Act.
NXRT REIT amended that registration
statement on November 7, 2014 and
January 9, 2015. On the effective date of
the Spin-Off Transaction (defined
below) (‘‘Effective Date’’), NHF Adviser
intends to cause the shares of NXRT
REIT to be listed on the New York Stock
Exchange (‘‘NYSE’’). The business
objectives of NXRT REIT are to: (a)
Deliver stable, attractive yields and
long-term capital appreciation to its
shareholders; (b) acquire multifamily
properties in markets with attractive job
growth and household formation
fundamentals primarily in the
southeastern United States and Texas;
(c) acquire assets significantly below
replacement costs; (d) implement a
value-add program to increase returns to
shareholders; and (e) own assets that
provide lifestyle amenities and
upgraded living spaces to low and
moderate income renters.
4. NXRT OP was organized as a
Delaware limited partnership and is
wholly-owned by NXRT REIT. NXRT
OP was formed solely to implement the
Spin-Off Transaction and the
subsequent operation of NXRT REIT’s
business on a tax-efficient basis.
5. NXRT LLC was organized as a
Delaware limited liability company and
is wholly-owned by Freedom REIT.
NXRT LLC was formed solely to
implement the Spin-Off Transaction on
a tax-efficient basis.
6. NHF Adviser was organized as a
Delaware limited liability company and
is registered as an investment adviser
under the Investment Advisers Act of
1940 (‘‘Advisers Act’’). NHF Adviser is
wholly-owned by an affiliate of
Highland Capital Management, L.P.
(‘‘Highland’’). Highland is also
registered as an investment adviser
under the Advisers Act. NHF Adviser
currently acts as the investment adviser
to NHF pursuant to an investment
advisory agreement (the ‘‘NHF Advisory
Agreement’’) between NHF and NHF
Adviser. NHF Adviser employs portfolio
management team members that
currently manage Freedom REIT’s
portfolio.
7. NXRT Adviser was organized as a
Delaware limited partnership and is
registered as an investment adviser
under the Advisers Act and is a whollyowned subsidiary of NHF Adviser.
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Following the Spin-Off Transaction,
NXRT Adviser will serve as the
investment adviser to NXRT REIT
pursuant to an investment advisory
agreement (‘‘NXRT Advisory
Agreement’’). Following the Spin-Off
Transaction, the portfolio management
team members that currently manage
Freedom REIT’s portfolio will advise
NXRT REIT as employees of NXRT
Adviser.
8. NHF’s current prospectus sets forth
a non-fundamental policy of investing at
least 80% of NHF’s assets in loans,
bonds, debt obligations, and structured
products under normal market
conditions. NHF may invest up to 20%
of its assets in other types of
investments (the ‘‘20% Limit’’).
Accordingly, NHF limits its investment
in Freedom REIT to 20% of its total
assets, or approximately $252 million as
of December 31, 2014. As of that date,
the value of the Multifamily Properties
held by Freedom REIT was
approximately $238 million, or
approximately 19% of the total assets of
NHF. Based on additional multifamily
properties under contract and expected
to close in the first quarter of 2015,
Freedom REIT is expected to approach
the 20% Limit in the first quarter of
2015, at which time NHF will be unable
to make additional investments in
Freedom REIT.
9. Without the consummation of the
Spin-Off Transaction, NHF would be
unable to invest in additional
multifamily real estate properties for the
benefit of its shareholders, and NHF
Adviser would likely have to liquidate
Freedom REIT’s Multifamily Properties
over time in order to maximize
shareholder value. NHF Adviser
believes the terms that NHF would
realize in connection with any such
liquidation would be significantly less
favorable to NHF shareholders than if
the Multifamily Properties were spunoff in the Spin-Off Transaction.
10. To enable NHF’s shareholders to
determine whether and to what extent
they will have exposure to multifamily
real estate, the NHF Board (‘‘NHF
Board’’), including a majority of the
trustees who are not interested persons 2
2 An ‘‘interested person’’ is defined under section
2(a)(19) of the Act to include, among other things,
‘‘any affiliated person’’ of an investment company.
Under section 2(a)(3) of the Act, an ‘‘affiliated
person’’ of another person means (A) any person
directly or indirectly owning, controlling, or
holding with power to vote, 5 per centum or more
of whose outstanding voting securities of such other
person; (B) any person 5 per centum or more of
whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to
vote, by such other person; (C) any person directly
or indirectly controlling, controlled by, or under
common control with, such other person; (D) any
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(as defined in section 2(a)(19) of the
Act) (the ‘‘Independent Trustees’’) of
NHF, has approved the Spin-Off
Transaction, subject to the issuance of
the requested order and the approval of
a majority of the outstanding voting
securities (as defined in section 2(a)(42)
of the Act) of NHF of the NXRT
Advisory Agreement. If the required
approvals are obtained, NHF will cause:
(a) Freedom REIT to contribute the
Multifamily Properties to NXRT LLC; (b)
Freedom REIT to distribute all of its
membership interests in NXRT LLC to
NHF; and (c) NXRT LLC to merge with
NXRT OP, a wholly-owned subsidiary
of NXRT REIT. NXRT REIT’s acquisition
of the Multifamily Properties will be
consistent with its investment goals,
policies, and restrictions. NHF will
distribute all of the NXRT REIT shares
on the Effective Date to NHF
shareholders (with the Freedom REIT’s
contribution of the Multifamily
Properties to NXRT LLC, the
distribution of the membership interests
of NXRT LLC to NHF, the merger of
NXRT LLC with NXRT OP and the
execution of the NXRT Advisory
Agreement, collectively, the ‘‘Spin-Off
Transaction’’).
11. Each NHF shareholder will
receive a pro rata distribution of NXRT
REIT shares based upon the number of
NHF shares that each shareholder owns
on the distribution record date. If such
distribution had occurred on December
31, 2014, the aggregate fair value of the
shares of NXRT REIT distributed to NHF
shareholders would have been $238
million.
12. The Advisers believe that the
Spin-Off Transaction offers the most
cost-effective and efficient means by
which NHF shareholders can be given
the opportunity to choose for
themselves whether, and to what extent,
they will continue NXRT REIT’s
multifamily property investment
strategy by continuing to hold the NXRT
REIT shares they receive in the Spin-Off
Transaction. At the same time, the SpinOff Transaction creates a cost-effective
way for NHF shareholders who are not
interested in having as much exposure
to the multifamily real estate market to
receive immediate liquidity for all or a
portion of such assets.
13. The Spin-Off Transaction will not
be consummated unless and until each
of the following approvals is obtained:
(a) The NHF Board and a majority of the
officer, director, partner, copartner, or employee of
such other person; (E) if such other person is an
investment company, any investment adviser
thereof or any member of an advisory board thereof;
and (F) if such other person is an unincorporated
investment company not having a board of
directors, the depositor thereof.
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Independent Trustees will approve the
NXRT Advisory Agreement at an inperson meeting of the NHF Board that
complies with the procedural
requirements of section 15 of the Act;
(b) NHF shareholder approval of the
NXRT Advisory Agreement will be
sought at a special meeting of NHF
shareholders anticipated to be held in
March 2014; and (c) the board of
directors of NXRT REIT (‘‘NXRT
Board’’), including a majority of the
directors who are not interested persons
(as defined in section 2(a)(19) of the
Act) (the ‘‘Independent Directors’’) of
NXRT, will ratify and approve the
NXRT Advisory Agreement in
accordance with the requirements of
section 15(c) of the Act, and NXRT
Adviser and NXRT REIT will comply
with section 15 of the Act, as provided
in the Condition below.
14. The NHF Board, including its
Independent Trustees, has considered
that the Spin-Off Transaction should
result in the following benefits to NHF
shareholders: (a) NXRT REIT shares will
be issued to investors at a lower
transaction cost than is typically the
case for a newly organized REIT because
there will be no underwriting discounts
or commissions incurred by NHF, NXRT
REIT, or any shareholder thereof in
connection with the Spin-Off
Transaction; (b) NHF shareholders will
not incur incremental investment
advisory fees relating to the
management of the Multifamily
Properties as a result of the Spin-Off
Transaction, neither of the Advisers is
entitled to receive, either before or after
the Spin-Off Transaction, a
performance-based incentive fee,
internalization fee, or any ‘‘break-up’’ or
termination fees under their respective
investment advisory contracts and the
NXRT Advisory Agreement will contain
the same terms for reimbursement of
administrative costs and out-of-pocket
expenses incurred by NXRT Adviser
and its affiliates as are currently in place
for NHF and NHF Adviser; (c) neither
NHF Adviser nor NXRT Adviser will
receive any compensation other than
fees under the NHF Advisory
Agreement or the NXRT Advisory
Agreement in connection with the SpinOff Transaction; (d) although NXRT
REIT will not be an investment
company regulated under the Act,
NXRT REIT will commit in its articles
of incorporation that it will not enter
into an investment advisory agreement
unless that agreement complies with
section 15 of the Act and has been
approved in compliance with section
15(c) of the Act and any applicable rules
thereunder or published guidance of the
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Commission or its staff; (e) the
Independent Directors will not overlap
with the Independent Trustees; (f) the
Spin-Off Transaction is not expected to
increase or decrease the aggregate net
assets of NHF and NXRT REIT; and (g)
NHF shareholders will be able to
maintain, increase or decrease their
exposure to the multifamily property
market by holding, buying, or selling,
respectively, shares of NXRT REIT.
15. The NXRT Advisory Agreement
will be approved by a majority of the
NXRT Board, as well as by a majority of
the Independent Directors, at an inperson meeting called for such purpose.
That agreement will have an initial term
of up to two years, and will continue
thereafter only if such continuance is
approved in accordance with section
15(c) of the Act. Any material change in
the terms of the NXRT Advisory
Agreement will require the approval of
a majority of the outstanding voting
securities (as defined in section 2(a)(42)
of the Act) of NXRT REIT, and the
NXRT Advisory Agreement will
terminate in the event of its assignment
(as defined in section 2(a)(4) of the Act).
The NXRT Advisory Agreement will be
terminable by the board or shareholders
of NXRT REIT at any time on 60 days’
notice without penalty. NXRT REIT’s
articles of incorporation will also
require that a majority of its directors be
Independent Directors.
16. NHF Adviser believes that holding
the Multifamily Properties in NXRT
REIT instead of NHF may benefit
shareholders by reducing a discount
that may be attributable to such assets.
NHF shares, like shares of many
registered closed-end funds, have traded
at a discount to net asset value (‘‘NAV’’).
As of January 30, 2015, NHF shares
were trading at a 14.3% discount to
NAV, whereas REIT shares generally
trade closer to their NAVs than
registered closed-end funds such as
NHF. Based upon historical and current
relative trading values in the secondary
market for REITs and closed-end funds,
the Advisers anticipate that NXRT REIT
common stock will trade at or near its
implied NAV after the Spin-Off
Transaction. If the common stock of
NXRT REIT trades at its implied NAV
following the Spin-Off Transaction,
NHF shareholders would, in effect, have
eliminated the discount on a portion of
their NHF shares. In addition, the
discount at which many closed-end
fund shares trade limits a closed-end
fund’s ability to raise incremental
capital for investment, including
investments necessary to fund capital
expenditures in multifamily properties.
NXRT REIT may be better able to realize
the value of the Multifamily Properties
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than would NHF, absent the Spin-Off
Transaction. The Applicants believe the
Spin-Off Transaction is the most costeffective and efficient way to maximize
value to NHF shareholders from the
Multifamily Properties.
17. Counsel has advised NXRT REIT
that the distribution of shares of NXRT
REIT to NHF shareholders likely will be
a taxable event for NHF shareholders,
but NHF Adviser estimates that the tax
impact of the Spin-Off Transaction is
likely to be modest. The realization of
certain taxable gains at NHF are
expected to be substantially offset by
existing capital loss carry-forwards,
scheduled to expire starting in 2015, to
the extent that the Multifamily
Properties have been held for more than
one year. Any gain not offset by such
capital loss carry-forwards will be
recognizable by NHF shareholders to the
extent it exceeds undistributed net
income. Distributing such gains may
permit NHF to avoid paying or to reduce
federal excise tax on undistributed
income. The NHF Board, including the
Independent Trustees, has considered
the potential tax consequences of the
Spin-Off Transaction and has
determined that the significant benefits
of the Spin-Off Transaction outweigh
the adverse tax consequences to NHF
and its shareholders, particularly
because such tax consequences are
expected to be minimal.
18. The costs of organizing NXRT
REIT and effecting the distribution of
NXRT REIT shares to NHF shareholders,
including the fees and expenses of
counsel and accountants and printing,
listing and registration fees, the costs of
soliciting NHF’s shareholders’ approval
of the Transaction, and the costs
incurred in connection with this
Application, are estimated to be
approximately $3 million. These
expenses will be borne ratably by NHF
and NXRT REIT, with such expense
allocations subject to the approval of the
Independent Trustees and Independent
Directors. A portion of this amount
represents costs that would have been
incurred directly or indirectly in the
ordinary course of operations by NHF.
NXRT REIT will incur operating
expenses on an ongoing basis, including
investment advisory fees and legal,
auditing, transfer agency, and custody
expenses that, when aggregated with the
fees payable by NHF for similar services
after the Spin-Off Transaction, should
be approximately the same as, or
slightly higher (due to marginal
duplication) than, the fees currently
payable by NHF for such services.
Under the terms of the NXRT Advisory
Agreement, NXRT Adviser will not
receive any fees for investment advisory
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services prior to the Effective Date. If the
Spin-Off Transaction is not completed
by March 31, 2015, NHF will be
obligated to pay approximately $5
million in additional fees and expenses
to the Federal Home Loan Mortgage
Corporation when the mortgages on the
Multifamily Properties are assigned.
Applicants’ Legal Analysis
1. Applicants request an order under
section 17(b) of the Act granting an
exemption from section 17(a) of the Act
and under section 17(d) of the Act and
rule17d–1 thereunder permitting certain
joint transactions.
2. Section 17(a) of the Act generally
prohibits sales or purchases of securities
between a registered investment
company and an affiliated person of that
investment 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 voting
securities are directly or indirectly
owned controlled or held with the
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.
Each of Freedom REIT and NXRT REIT
may be viewed as an affiliated person of
NHF under section 2(a)(3) because NHF
will own, directly or indirectly, 100% of
the outstanding voting securities of each
prior to the consummation of the SpinOff Transaction. Each of Freedom REIT
and NXRT REIT may also be viewed as
an affiliated person of NHF to the extent
that they may be deemed to be under
common control by virtue of having
investment advisers that are under
common control. As a result of the
affiliation between NHF and each of
Freedom REIT and NXRT REIT, section
17(a)(1) could be deemed to prohibit (a)
Freedom REIT’s contribution of the
Multifamily Properties to NXRT REIT
for shares issued by NXRT REIT and (b)
Freedom REIT’s distribution to NHF of
the NXRT REIT shares, and section
17(a)(2) could be deemed to prohibit
NXRT REIT from purchasing the
Multifamily Properties in consideration
for shares issued by NXRT REIT.
3. Applicants request an exemption
pursuant to section 17(b) of the Act from
the provisions of section 17(a) to permit
the Applicants to effect the Spin-Off
Transaction. Section 17(b) authorizes
the Commission to issue such an
exemptive order if the Commission
finds that the terms of the proposed
transaction are fair and reasonable and
do not involve overreaching on the part
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of any persons concerned, and the
proposed transaction is consistent with
the policy of each registered investment
company and the general purposes of
the Act.
4. Applicants assert that the terms of
the Spin-Off Transaction, including the
consideration to be paid or received, are
fair and reasonable and do not involve
overreaching by any person concerned.
Applicants state that the proposed
contribution by Freedom REIT of the
Multifamily Properties to NXRT REIT in
exchange for shares of NXRT REIT
common stock will not change the fair
value of such assets as determined by
NHF Adviser in accordance with the
valuation policies established by, and
subject to the supervision of, the NHF
Board. Such valuations will be passed
upon by the NHF Board and NXRT REIT
Board (including the Independent
Trustees and Independent Directors,
respectively, thereon) on a business day
to be selected by the NHF Board (the
‘‘Valuation Date’’). As noted above, it is
anticipated that such assets will consist
largely of the Multifamily Properties,
which have been held by Freedom REIT,
on average, for several fiscal quarters
and the valuation of which is well
understood by NHF Adviser and the
NHF Board. The shares of NXRT REIT
that will be distributed to the NHF
shareholders pro rata in the Spin-Off
Transaction will be valued based on the
value of NXRT REIT’s assets.
5. The Spin-Off Transaction will be
consistent with the investment policies
of NHF and NXRT REIT, as will be fully
disclosed to shareholders of NHF in the
proxy statement seeking NHF
shareholder approval of the NXRT
Advisory Agreement (‘‘Proxy
Statement’’) and as disclosed by NXRT
REIT in its registration statement on
Form 10. The Proxy Statement that will
be used to solicit the approval of NHF’s
shareholders for the NXRT Advisory
Agreement will describe the investment
objectives and policies of NHF and
NXRT REIT, the management of NXRT
REIT, and the terms of the Spin-Off
Transaction. The Proxy Statement will
be used to solicit the approval of NHF’s
shareholders of the Spin-Off
Transaction at shareholder meeting to
take place following the issuance of the
requested order. NHF’s shareholders
will have the opportunity to vote after
having received all material disclosure
concerning the NXRT Advisory
Agreement. The Spin-Off Transaction
will not change the underlying assets
owned by current NHF shareholders.
However, following the Spin-Off
Transaction certain of such assets, the
Multifamily Properties, will be held
through a REIT not regulated under the
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
7653
Act. The remaining assets will continue
to be held through NHF, a closed-end
management investment company
regulated under the Act.
6. The Applicants assert that the
proposed Spin-Off Transaction is being
proposed to benefit NHF and its
shareholders. The NHF Board and the
NXRT Board, including a majority of
each’s Independent Trustees and
Independent Directors, respectively,
have each determined that participation
in the Spin-Off Transaction is in the
best interests of NHF and NXRT REIT,
as applicable, and that the interests of
the existing stockholders of NHF will
not be diluted as a result of effecting the
Spin-Off Transaction. Such findings,
and the basis upon which the findings
were made, will be recorded fully in the
minute books of NHF and NXRT REIT.
7. Applicants also seek an order under
section 17(d) of the Act and rule 17d–
1 thereunder. Section 17(d) of the Act
and rule 17d–1 thereunder generally
prohibit, among other things,
transactions in which a registered
investment company and any affiliated
person of such a company may be
deemed to be acting jointly and as
principal. In passing on applications for
these orders, rule 17d–1 provides that
the Commission will consider whether
the participation of the investment
company is consistent with the
provisions, policies and purposes of the
Act, and the extent to which the
participation is on a basis different from
or less advantageous than that of the
other participants. Applicants request
an order pursuant to rule 17d–1 to the
extent that the participation of the
Applicants in the Spin-Off Transaction
may be deemed to constitute a
prohibited joint transaction.
8. Applicants state that the Spin-Off
Transaction will not place any of NHF,
NXRT REIT or existing NHF
shareholders in a position less
advantageous than that of any other
participant in the Spin-Off Transaction.
The value of NHF’s assets transferred to
NXRT REIT (and the shares of NXRT
REIT stock received in return) will be
based on their fair values as determined
by the Advisers and the Boards of the
Funds on the Valuation Date in
accordance with the requirements of the
Act and pursuant to valuation policies
and procedures adopted by the Boards
of NHF and NXRT REIT. The NXRT
REIT shares will be distributed to NHF’s
shareholders, leaving such shareholders
in the same investment posture
immediately following the Spin-Off
Transaction as before, subject only to
the allocation of transaction costs and
expenses and changes in the market
E:\FR\FM\11FEN1.SGM
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Federal Register / Vol. 80, No. 28 / Wednesday, February 11, 2015 / Notices
prices of the underlying assets
subsequent to the Spin-Off Transaction.
9. Applicants assert that the Spin-Off
Transaction is being proposed to benefit
NHF shareholders. The advisory fees for
NXRT REIT will be substantially similar
to those paid by NHF prior to the SpinOff Transaction, and neither Adviser
nor any affiliated person of NHF or
NXRT REIT will receive additional fees
on a consolidated basis solely as a result
of the Spin-Off Transaction. The Board
of NHF has determined that the
prospective benefits to the Advisers
would be marginal compared to the
prospective benefits to NHF
shareholders. In addition, by
consummating the Spin-Off
Transaction, NHF would enable its
shareholders to receive securities
without the costs associated with a
public offering.
Applicants’ Condition
NXRT REIT will commit in its articles
of incorporation that it will comply with
section 15 of the Act as if it were an
investment company registered under
the Act, and that it will not enter into
an investment advisory agreement
unless that agreement complies with
section 15 of the Act and any applicable
rules thereunder or published guidance
of the Commission or its staff.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Brent J. Fields,
Secretary.
[FR Doc. 2015–02796 Filed 2–10–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74223; File No. 4–668]
Joint Industry Plan; Notice of
Amendment to the National Market
System Plan Governing the Process of
Selecting a Plan Processor and
Developing a Plan for the Consolidated
Audit Trail by BATS Exchange, Inc.,
BATS–Y Exchange, Inc., BOX Options
Exchange LLC, C2 Options Exchange,
Incorporated, Chicago Board Options
Exchange, Incorporated, Chicago
Stock Exchange, Inc., EDGA
Exchange, Inc., EDGX Exchange, Inc.,
Financial Industry Regulatory
Authority, Inc., International Securities
Exchange, LLC, ISE Gemini, LLC,
Miami International Securities
Exchange LLC, NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, The
NASDAQ Stock Market LLC, National
Stock Exchange, Inc., New York Stock
Exchange LLC, and NYSE MKT LLC,
NYSE Arca, Inc.
February 6, 2015.
I. Introduction
Pursuant to Section 11A of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 608 thereunder,2
notice is hereby given that, on December
12, 2014, BATS Exchange, Inc., BATS–
Y Exchange, Inc., BOX Options
Exchange LLC, C2 Options Exchange,
Incorporated, Chicago Board Options
Exchange, Incorporated, Chicago Stock
Exchange, Inc., EDGA Exchange, Inc.,
EDGX Exchange, Inc., Financial
Industry Regulatory Authority, Inc.,
International Securities Exchange, LLC,
ISE Gemini, LLC, Miami International
Securities Exchange LLC, NASDAQ
OMX BX, Inc., NASDAQ OMX PHLX
LLC, The NASDAQ Stock Market LLC,
National Stock Exchange, Inc., New
York Stock Exchange LLC, NYSE MKT
LLC, and NYSE Arca, Inc. (collectively,
‘‘SROs’’ or ‘‘Participants’’), filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) a
proposal to amend the Plan Governing
the Process of Selecting a Plan Processor
and Developing a Plan for the
Consolidated Audit Trail (the ‘‘Selection
Plan’’).
tkelley on DSK3SPTVN1PROD with NOTICES
II. Background
On July 11, 2012, the Commission
adopted Rule 613 to require the SROs to
jointly submit a national market system
(‘‘NMS’’) plan to create, implement, and
maintain a consolidated audit trail
1 15
2 17
VerDate Sep<11>2014
17:07 Feb 10, 2015
Jkt 235001
PO 00000
U.S.C. 78k–1.
CFR 242.608.
Frm 00091
Fmt 4703
Sfmt 4703
(‘‘CAT NMS Plan’’).3 To facilitate the
development of the consolidated audit
trail, following the adoption of Rule
613, the SROs created a working group
consisting of representatives from each
SRO. The SROs also decided to engage
in a request for proposal (‘‘RFP’’)
process to help them develop the CAT
NMS Plan and to solicit bids (‘‘Bids 4’’)
for the role of Plan Processor to build,
operate, administer, and maintain the
consolidated audit trail.5 In addition, on
September 3, 2013, the SROs filed, for
approval, the Selection Plan to govern
how the SROs would proceed with
formulating and submitting the CAT
NMS Plan—and, as part of that process,
how the SROs would review, evaluate,
and narrow down the Bids submitted in
response to the RFP—and ultimately
selecting the Plan Processor.6 The
Selection Plan was approved on
February 21, 2014.7
The SROs propose to amend the
Selection Plan in two ways. First, the
SROs propose to provide opportunities
to accept revised Bids prior to approval
of the CAT NMS Plan, and second, to
allow the list of Shortlisted Bids to be
narrowed prior to Commission approval
of the CAT NMS Plan. A copy of the
proposed amendment to the Selection
Plan is attached as Exhibit A hereto. The
Commission is publishing this notice to
solicit comments from interested
persons on the proposed amendment to
the Selection Plan.
III. Description of the Plan
Set forth in this Section II is the
statement of the purpose of the
Selection Plan, along with the
information required by Rule 608(a)(4)
and (5) under the Exchange Act,8
prepared and submitted by the SROs to
the Commission.9
A. Background
The Selection Plan governs the
process for Participant review of Bids
for the role of Plan Processor for the
CAT NMS Plan, the procedures for
evaluating the Bids, and ultimately,
until approval of the CAT NMS Plan,
3 Securities Exchange Act Release No. 67457 (July
18, 2012), 77 FR 45722 (August 1, 2012).
4 Pursuant to Section I(C) of the Selection NMS
Plan, a ‘‘Bid’’ is a proposal submitted by a Bidder
in response to the RFP.
5 See Securities Exchange Act Release No. 70892
(Nov. 15, 2013), 78 FR 69910 (Nov. 21, 2013)(Notice
of Selection NMS Plan).
6 Id.
7 See Securities Exchange Act Release No. 71596
(Feb. 21, 2014), 79 FR 11152 (Feb. 27,
2014)(Approval Order).
8 See 17 CFR 242.608(a)(4) and (a)(5).
9 See Letter from the Participants to Brent J.
Fields, Secretary, Commission, dated December 12,
2014.
E:\FR\FM\11FEN1.SGM
11FEN1
]]>Agencies
[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Notices]
[Pages 7650-7654]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02796]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31448; File No. 812-14407]
NexPoint Credit Strategies Fund, et al.; Notice of Application
February 5, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 17(b) of
the Investment Company Act of 1940 (the ``Act'') granting an exemption
from section 17(a) of the Act, and under section 17(d) of the Act and
rule 17d-1 thereunder permitting certain joint transactions.
-----------------------------------------------------------------------
Applicants: NexPoint Credit Strategies Fund (``NHF''), NexPoint
Residential Trust, Inc. (``NXRT REIT''), Freedom REIT, LLC (``Freedom
REIT'') (each, a ``Fund,'' and together, the ``Funds''), NexPoint
Advisors, L.P. (``NHF Adviser''), and NexPoint Real Estate Advisors,
L.P. (``NXRT Adviser'') (each, an ``Adviser,'' and together, the
``Advisers''), NexPoint Residential Trust Operating Partnership, L.P.
(``NXRT OP''), and NexPoint Residential Merger Company, LLC (``NXRT
LLC'') (collectively, the ``Applicants'').
SUMMARY: Summary of Application: Applicants seek an order to permit NHF
to transfer certain real estate assets (the ``Multifamily Properties'')
held by Freedom REIT, NHF's wholly-owned subsidiary, to NXRT REIT, a
real estate investment trust (``REIT'') and NHF's wholly-owned
subsidiary, in exchange for NXRT REIT common stock; to permit NHF to
distribute such common stock to NHF's shareholders; and to permit NXRT
Adviser to enter into an investment advisory agreement with NXRT REIT.
DATES: Filing Dates: The application was filed on December 22, 2014 and
amended on February 4, 2015.
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 February 25, 2015 and should be accompanied by proof of service
on the applicants, in the form of an affidavit, or, for lawyers, a
certificate of service. Pursuant to Rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, 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. The Applicants: c/o David J.
Harris, Esq., and Thomas J. Friedmann, Esq., Dechert LLP, 1900 K Street
NW., Washington, DC 20006-6808.
FOR FURTHER INFORMATION CONTACT: Anil K. Abraham, Senior Special
Counsel, at (202) 551-2614, or James M. Curtis, Branch Chief, at (202)
551-6712 (Division of Investment Management, Chief Counsel's 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. NHF was organized as a Delaware statutory trust and is
registered under the Act as a non-diversified, closed-end management
investment company. NHF has elected to be treated as a regulated
investment company (``RIC'') under Subchapter M of the Internal Revenue
Code of 1986, as amended (the ``Code''). NHF's investment objectives
are to provide both current income and capital appreciation, which it
seeks to achieve by investing primarily in bonds and other debt
obligations, including below-investment grade debt obligations, and
equity.
2. Freedom REIT, a direct, wholly-owned subsidiary \1\ of NHF, was
organized on October 12, 2012 as a Delaware limited liability company
and subsequently elected to be treated as a REIT under section 856 of
the Code. Freedom REIT is considered a single investment for purposes
of determining
[[Page 7651]]
NHF's compliance with its RIC diversification requirements and in NHF's
financial statements pursuant to rule 6-03 under the Securities
Exchange Act of 1934 (``Exchange Act'').
---------------------------------------------------------------------------
\1\ As defined in section 2(a)(43) of the Act, a ``wholly-owned
subsidiary'' of a person means a company 95% or more of the
outstanding voting securities of which are owned by such person, or
by a company which, within the meaning of this paragraph, is a
wholly-owned subsidiary of such person.
---------------------------------------------------------------------------
3. NXRT REIT was organized as a Maryland corporation and filed a
registration statement on Form 10 on September 29, 2014 to register its
shares under section 12(b) of the Exchange Act. NXRT REIT amended that
registration statement on November 7, 2014 and January 9, 2015. On the
effective date of the Spin-Off Transaction (defined below) (``Effective
Date''), NHF Adviser intends to cause the shares of NXRT REIT to be
listed on the New York Stock Exchange (``NYSE''). The business
objectives of NXRT REIT are to: (a) Deliver stable, attractive yields
and long-term capital appreciation to its shareholders; (b) acquire
multifamily properties in markets with attractive job growth and
household formation fundamentals primarily in the southeastern United
States and Texas; (c) acquire assets significantly below replacement
costs; (d) implement a value-add program to increase returns to
shareholders; and (e) own assets that provide lifestyle amenities and
upgraded living spaces to low and moderate income renters.
4. NXRT OP was organized as a Delaware limited partnership and is
wholly-owned by NXRT REIT. NXRT OP was formed solely to implement the
Spin-Off Transaction and the subsequent operation of NXRT REIT's
business on a tax-efficient basis.
5. NXRT LLC was organized as a Delaware limited liability company
and is wholly-owned by Freedom REIT. NXRT LLC was formed solely to
implement the Spin-Off Transaction on a tax-efficient basis.
6. NHF Adviser was organized as a Delaware limited liability
company and is registered as an investment adviser under the Investment
Advisers Act of 1940 (``Advisers Act''). NHF Adviser is wholly-owned by
an affiliate of Highland Capital Management, L.P. (``Highland'').
Highland is also registered as an investment adviser under the Advisers
Act. NHF Adviser currently acts as the investment adviser to NHF
pursuant to an investment advisory agreement (the ``NHF Advisory
Agreement'') between NHF and NHF Adviser. NHF Adviser employs portfolio
management team members that currently manage Freedom REIT's portfolio.
7. NXRT Adviser was organized as a Delaware limited partnership and
is registered as an investment adviser under the Advisers Act and is a
wholly-owned subsidiary of NHF Adviser. Following the Spin-Off
Transaction, NXRT Adviser will serve as the investment adviser to NXRT
REIT pursuant to an investment advisory agreement (``NXRT Advisory
Agreement''). Following the Spin-Off Transaction, the portfolio
management team members that currently manage Freedom REIT's portfolio
will advise NXRT REIT as employees of NXRT Adviser.
8. NHF's current prospectus sets forth a non-fundamental policy of
investing at least 80% of NHF's assets in loans, bonds, debt
obligations, and structured products under normal market conditions.
NHF may invest up to 20% of its assets in other types of investments
(the ``20% Limit''). Accordingly, NHF limits its investment in Freedom
REIT to 20% of its total assets, or approximately $252 million as of
December 31, 2014. As of that date, the value of the Multifamily
Properties held by Freedom REIT was approximately $238 million, or
approximately 19% of the total assets of NHF. Based on additional
multifamily properties under contract and expected to close in the
first quarter of 2015, Freedom REIT is expected to approach the 20%
Limit in the first quarter of 2015, at which time NHF will be unable to
make additional investments in Freedom REIT.
9. Without the consummation of the Spin-Off Transaction, NHF would
be unable to invest in additional multifamily real estate properties
for the benefit of its shareholders, and NHF Adviser would likely have
to liquidate Freedom REIT's Multifamily Properties over time in order
to maximize shareholder value. NHF Adviser believes the terms that NHF
would realize in connection with any such liquidation would be
significantly less favorable to NHF shareholders than if the
Multifamily Properties were spun-off in the Spin-Off Transaction.
10. To enable NHF's shareholders to determine whether and to what
extent they will have exposure to multifamily real estate, the NHF
Board (``NHF Board''), including a majority of the trustees who are not
interested persons \2\ (as defined in section 2(a)(19) of the Act) (the
``Independent Trustees'') of NHF, has approved the Spin-Off
Transaction, subject to the issuance of the requested order and the
approval of a majority of the outstanding voting securities (as defined
in section 2(a)(42) of the Act) of NHF of the NXRT Advisory Agreement.
If the required approvals are obtained, NHF will cause: (a) Freedom
REIT to contribute the Multifamily Properties to NXRT LLC; (b) Freedom
REIT to distribute all of its membership interests in NXRT LLC to NHF;
and (c) NXRT LLC to merge with NXRT OP, a wholly-owned subsidiary of
NXRT REIT. NXRT REIT's acquisition of the Multifamily Properties will
be consistent with its investment goals, policies, and restrictions.
NHF will distribute all of the NXRT REIT shares on the Effective Date
to NHF shareholders (with the Freedom REIT's contribution of the
Multifamily Properties to NXRT LLC, the distribution of the membership
interests of NXRT LLC to NHF, the merger of NXRT LLC with NXRT OP and
the execution of the NXRT Advisory Agreement, collectively, the ``Spin-
Off Transaction'').
---------------------------------------------------------------------------
\2\ An ``interested person'' is defined under section 2(a)(19)
of the Act to include, among other things, ``any affiliated person''
of an investment company. Under section 2(a)(3) of the Act, an
``affiliated person'' of another person means (A) any person
directly or indirectly owning, controlling, or holding with power to
vote, 5 per centum or more of whose outstanding voting securities of
such other person; (B) any person 5 per centum or more of whose
outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote, by such other person; (C) any
person directly or indirectly controlling, controlled by, or under
common control with, such other person; (D) any officer, director,
partner, copartner, or employee of such other person; (E) if such
other person is an investment company, any investment adviser
thereof or any member of an advisory board thereof; and (F) if such
other person is an unincorporated investment company not having a
board of directors, the depositor thereof.
---------------------------------------------------------------------------
11. Each NHF shareholder will receive a pro rata distribution of
NXRT REIT shares based upon the number of NHF shares that each
shareholder owns on the distribution record date. If such distribution
had occurred on December 31, 2014, the aggregate fair value of the
shares of NXRT REIT distributed to NHF shareholders would have been
$238 million.
12. The Advisers believe that the Spin-Off Transaction offers the
most cost-effective and efficient means by which NHF shareholders can
be given the opportunity to choose for themselves whether, and to what
extent, they will continue NXRT REIT's multifamily property investment
strategy by continuing to hold the NXRT REIT shares they receive in the
Spin-Off Transaction. At the same time, the Spin-Off Transaction
creates a cost-effective way for NHF shareholders who are not
interested in having as much exposure to the multifamily real estate
market to receive immediate liquidity for all or a portion of such
assets.
13. The Spin-Off Transaction will not be consummated unless and
until each of the following approvals is obtained: (a) The NHF Board
and a majority of the
[[Page 7652]]
Independent Trustees will approve the NXRT Advisory Agreement at an in-
person meeting of the NHF Board that complies with the procedural
requirements of section 15 of the Act; (b) NHF shareholder approval of
the NXRT Advisory Agreement will be sought at a special meeting of NHF
shareholders anticipated to be held in March 2014; and (c) the board of
directors of NXRT REIT (``NXRT Board''), including a majority of the
directors who are not interested persons (as defined in section
2(a)(19) of the Act) (the ``Independent Directors'') of NXRT, will
ratify and approve the NXRT Advisory Agreement in accordance with the
requirements of section 15(c) of the Act, and NXRT Adviser and NXRT
REIT will comply with section 15 of the Act, as provided in the
Condition below.
14. The NHF Board, including its Independent Trustees, has
considered that the Spin-Off Transaction should result in the following
benefits to NHF shareholders: (a) NXRT REIT shares will be issued to
investors at a lower transaction cost than is typically the case for a
newly organized REIT because there will be no underwriting discounts or
commissions incurred by NHF, NXRT REIT, or any shareholder thereof in
connection with the Spin-Off Transaction; (b) NHF shareholders will not
incur incremental investment advisory fees relating to the management
of the Multifamily Properties as a result of the Spin-Off Transaction,
neither of the Advisers is entitled to receive, either before or after
the Spin-Off Transaction, a performance-based incentive fee,
internalization fee, or any ``break-up'' or termination fees under
their respective investment advisory contracts and the NXRT Advisory
Agreement will contain the same terms for reimbursement of
administrative costs and out-of-pocket expenses incurred by NXRT
Adviser and its affiliates as are currently in place for NHF and NHF
Adviser; (c) neither NHF Adviser nor NXRT Adviser will receive any
compensation other than fees under the NHF Advisory Agreement or the
NXRT Advisory Agreement in connection with the Spin-Off Transaction;
(d) although NXRT REIT will not be an investment company regulated
under the Act, NXRT REIT will commit in its articles of incorporation
that it will not enter into an investment advisory agreement unless
that agreement complies with section 15 of the Act and has been
approved in compliance with section 15(c) of the Act and any applicable
rules thereunder or published guidance of the Commission or its staff;
(e) the Independent Directors will not overlap with the Independent
Trustees; (f) the Spin-Off Transaction is not expected to increase or
decrease the aggregate net assets of NHF and NXRT REIT; and (g) NHF
shareholders will be able to maintain, increase or decrease their
exposure to the multifamily property market by holding, buying, or
selling, respectively, shares of NXRT REIT.
15. The NXRT Advisory Agreement will be approved by a majority of
the NXRT Board, as well as by a majority of the Independent Directors,
at an in-person meeting called for such purpose. That agreement will
have an initial term of up to two years, and will continue thereafter
only if such continuance is approved in accordance with section 15(c)
of the Act. Any material change in the terms of the NXRT Advisory
Agreement will require the approval of a majority of the outstanding
voting securities (as defined in section 2(a)(42) of the Act) of NXRT
REIT, and the NXRT Advisory Agreement will terminate in the event of
its assignment (as defined in section 2(a)(4) of the Act). The NXRT
Advisory Agreement will be terminable by the board or shareholders of
NXRT REIT at any time on 60 days' notice without penalty. NXRT REIT's
articles of incorporation will also require that a majority of its
directors be Independent Directors.
16. NHF Adviser believes that holding the Multifamily Properties in
NXRT REIT instead of NHF may benefit shareholders by reducing a
discount that may be attributable to such assets. NHF shares, like
shares of many registered closed-end funds, have traded at a discount
to net asset value (``NAV''). As of January 30, 2015, NHF shares were
trading at a 14.3% discount to NAV, whereas REIT shares generally trade
closer to their NAVs than registered closed-end funds such as NHF.
Based upon historical and current relative trading values in the
secondary market for REITs and closed-end funds, the Advisers
anticipate that NXRT REIT common stock will trade at or near its
implied NAV after the Spin-Off Transaction. If the common stock of NXRT
REIT trades at its implied NAV following the Spin-Off Transaction, NHF
shareholders would, in effect, have eliminated the discount on a
portion of their NHF shares. In addition, the discount at which many
closed-end fund shares trade limits a closed-end fund's ability to
raise incremental capital for investment, including investments
necessary to fund capital expenditures in multifamily properties. NXRT
REIT may be better able to realize the value of the Multifamily
Properties than would NHF, absent the Spin-Off Transaction. The
Applicants believe the Spin-Off Transaction is the most cost-effective
and efficient way to maximize value to NHF shareholders from the
Multifamily Properties.
17. Counsel has advised NXRT REIT that the distribution of shares
of NXRT REIT to NHF shareholders likely will be a taxable event for NHF
shareholders, but NHF Adviser estimates that the tax impact of the
Spin-Off Transaction is likely to be modest. The realization of certain
taxable gains at NHF are expected to be substantially offset by
existing capital loss carry-forwards, scheduled to expire starting in
2015, to the extent that the Multifamily Properties have been held for
more than one year. Any gain not offset by such capital loss carry-
forwards will be recognizable by NHF shareholders to the extent it
exceeds undistributed net income. Distributing such gains may permit
NHF to avoid paying or to reduce federal excise tax on undistributed
income. The NHF Board, including the Independent Trustees, has
considered the potential tax consequences of the Spin-Off Transaction
and has determined that the significant benefits of the Spin-Off
Transaction outweigh the adverse tax consequences to NHF and its
shareholders, particularly because such tax consequences are expected
to be minimal.
18. The costs of organizing NXRT REIT and effecting the
distribution of NXRT REIT shares to NHF shareholders, including the
fees and expenses of counsel and accountants and printing, listing and
registration fees, the costs of soliciting NHF's shareholders' approval
of the Transaction, and the costs incurred in connection with this
Application, are estimated to be approximately $3 million. These
expenses will be borne ratably by NHF and NXRT REIT, with such expense
allocations subject to the approval of the Independent Trustees and
Independent Directors. A portion of this amount represents costs that
would have been incurred directly or indirectly in the ordinary course
of operations by NHF. NXRT REIT will incur operating expenses on an
ongoing basis, including investment advisory fees and legal, auditing,
transfer agency, and custody expenses that, when aggregated with the
fees payable by NHF for similar services after the Spin-Off
Transaction, should be approximately the same as, or slightly higher
(due to marginal duplication) than, the fees currently payable by NHF
for such services. Under the terms of the NXRT Advisory Agreement, NXRT
Adviser will not receive any fees for investment advisory
[[Page 7653]]
services prior to the Effective Date. If the Spin-Off Transaction is
not completed by March 31, 2015, NHF will be obligated to pay
approximately $5 million in additional fees and expenses to the Federal
Home Loan Mortgage Corporation when the mortgages on the Multifamily
Properties are assigned.
Applicants' Legal Analysis
1. Applicants request an order under section 17(b) of the Act
granting an exemption from section 17(a) of the Act and under section
17(d) of the Act and rule17d-1 thereunder permitting certain joint
transactions.
2. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and an affiliated
person of that investment 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 voting securities are
directly or indirectly owned controlled or held with the 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. Each of Freedom REIT and NXRT REIT may be viewed as an
affiliated person of NHF under section 2(a)(3) because NHF will own,
directly or indirectly, 100% of the outstanding voting securities of
each prior to the consummation of the Spin-Off Transaction. Each of
Freedom REIT and NXRT REIT may also be viewed as an affiliated person
of NHF to the extent that they may be deemed to be under common control
by virtue of having investment advisers that are under common control.
As a result of the affiliation between NHF and each of Freedom REIT and
NXRT REIT, section 17(a)(1) could be deemed to prohibit (a) Freedom
REIT's contribution of the Multifamily Properties to NXRT REIT for
shares issued by NXRT REIT and (b) Freedom REIT's distribution to NHF
of the NXRT REIT shares, and section 17(a)(2) could be deemed to
prohibit NXRT REIT from purchasing the Multifamily Properties in
consideration for shares issued by NXRT REIT.
3. Applicants request an exemption pursuant to section 17(b) of the
Act from the provisions of section 17(a) to permit the Applicants to
effect the Spin-Off Transaction. Section 17(b) authorizes the
Commission to issue such an exemptive order if the Commission finds
that the terms of the proposed transaction are fair and reasonable and
do not involve overreaching on the part of any persons concerned, and
the proposed transaction is consistent with the policy of each
registered investment company and the general purposes of the Act.
4. Applicants assert that the terms of the Spin-Off Transaction,
including the consideration to be paid or received, are fair and
reasonable and do not involve overreaching by any person concerned.
Applicants state that the proposed contribution by Freedom REIT of the
Multifamily Properties to NXRT REIT in exchange for shares of NXRT REIT
common stock will not change the fair value of such assets as
determined by NHF Adviser in accordance with the valuation policies
established by, and subject to the supervision of, the NHF Board. Such
valuations will be passed upon by the NHF Board and NXRT REIT Board
(including the Independent Trustees and Independent Directors,
respectively, thereon) on a business day to be selected by the NHF
Board (the ``Valuation Date''). As noted above, it is anticipated that
such assets will consist largely of the Multifamily Properties, which
have been held by Freedom REIT, on average, for several fiscal quarters
and the valuation of which is well understood by NHF Adviser and the
NHF Board. The shares of NXRT REIT that will be distributed to the NHF
shareholders pro rata in the Spin-Off Transaction will be valued based
on the value of NXRT REIT's assets.
5. The Spin-Off Transaction will be consistent with the investment
policies of NHF and NXRT REIT, as will be fully disclosed to
shareholders of NHF in the proxy statement seeking NHF shareholder
approval of the NXRT Advisory Agreement (``Proxy Statement'') and as
disclosed by NXRT REIT in its registration statement on Form 10. The
Proxy Statement that will be used to solicit the approval of NHF's
shareholders for the NXRT Advisory Agreement will describe the
investment objectives and policies of NHF and NXRT REIT, the management
of NXRT REIT, and the terms of the Spin-Off Transaction. The Proxy
Statement will be used to solicit the approval of NHF's shareholders of
the Spin-Off Transaction at shareholder meeting to take place following
the issuance of the requested order. NHF's shareholders will have the
opportunity to vote after having received all material disclosure
concerning the NXRT Advisory Agreement. The Spin-Off Transaction will
not change the underlying assets owned by current NHF shareholders.
However, following the Spin-Off Transaction certain of such assets, the
Multifamily Properties, will be held through a REIT not regulated under
the Act. The remaining assets will continue to be held through NHF, a
closed-end management investment company regulated under the Act.
6. The Applicants assert that the proposed Spin-Off Transaction is
being proposed to benefit NHF and its shareholders. The NHF Board and
the NXRT Board, including a majority of each's Independent Trustees and
Independent Directors, respectively, have each determined that
participation in the Spin-Off Transaction is in the best interests of
NHF and NXRT REIT, as applicable, and that the interests of the
existing stockholders of NHF will not be diluted as a result of
effecting the Spin-Off Transaction. Such findings, and the basis upon
which the findings were made, will be recorded fully in the minute
books of NHF and NXRT REIT.
7. Applicants also seek an order under section 17(d) of the Act and
rule 17d-1 thereunder. Section 17(d) of the Act and rule 17d-1
thereunder generally prohibit, among other things, transactions in
which a registered investment company and any affiliated person of such
a company may be deemed to be acting jointly and as principal. In
passing on applications for these orders, rule 17d-1 provides that the
Commission will consider whether the participation of the investment
company is consistent with the provisions, policies and purposes of the
Act, and the extent to which the participation is on a basis different
from or less advantageous than that of the other participants.
Applicants request an order pursuant to rule 17d-1 to the extent that
the participation of the Applicants in the Spin-Off Transaction may be
deemed to constitute a prohibited joint transaction.
8. Applicants state that the Spin-Off Transaction will not place
any of NHF, NXRT REIT or existing NHF shareholders in a position less
advantageous than that of any other participant in the Spin-Off
Transaction. The value of NHF's assets transferred to NXRT REIT (and
the shares of NXRT REIT stock received in return) will be based on
their fair values as determined by the Advisers and the Boards of the
Funds on the Valuation Date in accordance with the requirements of the
Act and pursuant to valuation policies and procedures adopted by the
Boards of NHF and NXRT REIT. The NXRT REIT shares will be distributed
to NHF's shareholders, leaving such shareholders in the same investment
posture immediately following the Spin-Off Transaction as before,
subject only to the allocation of transaction costs and expenses and
changes in the market
[[Page 7654]]
prices of the underlying assets subsequent to the Spin-Off Transaction.
9. Applicants assert that the Spin-Off Transaction is being
proposed to benefit NHF shareholders. The advisory fees for NXRT REIT
will be substantially similar to those paid by NHF prior to the Spin-
Off Transaction, and neither Adviser nor any affiliated person of NHF
or NXRT REIT will receive additional fees on a consolidated basis
solely as a result of the Spin-Off Transaction. The Board of NHF has
determined that the prospective benefits to the Advisers would be
marginal compared to the prospective benefits to NHF shareholders. In
addition, by consummating the Spin-Off Transaction, NHF would enable
its shareholders to receive securities without the costs associated
with a public offering.
Applicants' Condition
NXRT REIT will commit in its articles of incorporation that it will
comply with section 15 of the Act as if it were an investment company
registered under the Act, and that it will not enter into an investment
advisory agreement unless that agreement complies with section 15 of
the Act and any applicable rules thereunder or published guidance of
the Commission or its staff.
For the Commission, by the Division of Investment Management,
under delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2015-02796 Filed 2-10-15; 8:45 am]
BILLING CODE 8011-01-P
