Axonic Alternative Income Fund and Axonic Capital LLC, 28375-28379 [2019-12883]
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Federal Register / Vol. 84, No. 117 / Tuesday, June 18, 2019 / Notices
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1 under the Act to permit a registered
closed-end investment company to
make periodic distributions of long-term
capital gains more frequently than
permitted by section 19(b) or rule
19b–1.
APPLICANTS: Vertical Capital Income
Fund (the ‘‘Fund’’), a diversified closedend investment company registered
under the Act and organized as a
statutory trust under the laws of
Delaware, and Oakline Advisors, LLC
(‘‘Oakline’’) (together with the Fund, the
‘‘Applicants’’), registered under the
Investment Advisers Act of 1940,
organized as a limited liability company
under the laws of Delaware, and serving
as investment adviser to the Fund.1
FILING DATES: The application was filed
on February 5, 2019, and amended on
May 28, 2019.
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 July 8, 2019, and should
be accompanied by proof of service on
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: The Commission: Secretary,
U.S. Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
Applicants: c/o JoAnn Strasser,
Thompson Hine LLP, 41 S. High St.,
17th Floor, Columbus, OH 43215, and
Stanton Eigenbrodt, Executive Vice
President, Chief Legal Officer, Chief
Compliance Officer and Secretary,
Oakline Advisors, LLC, 14675 Dallas
Parkway, Suite 600, Dallas, TX 75254.
1 Applicants request that the order also apply to
each other registered closed-end investment
company advised or to be advised in the future by
Oakline or by an entity controlling, controlled by,
or under common control (within the meaning of
section 2(a)(9) of the Act) with Oakline (including
any successor in interest) (each such entity,
including Oakline, an ‘‘Adviser’’) that in the future
seeks to rely on the order (such investment
companies, together with the Fund, are collectively
the ‘‘Funds’’ and, individually, a ‘‘Fund’’). A
successor in interest is limited to entities that result
from a reorganization into another jurisdiction or a
change in the type of business organization.
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FOR FURTHER INFORMATION CONTACT:
Laura L. Solomon, Senior Counsel at
(202) 551–6915, or Kaitlin C. Bottock,
Branch Chief, at (202) 551–6825
(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
website 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.
Summary of the Application
1. Section 19(b) of the Act generally
makes it unlawful for any registered
investment company to make long-term
capital gains distributions more than
once every twelve months. Rule 19b–1
under the Act limits to one the number
of capital gain dividends, as defined in
section 852(b)(3)(C) of the Internal
Revenue Code of 1986 (‘‘Code,’’ and
such dividends, ‘‘distributions’’), that a
registered investment company may
make with respect to any one taxable
year, plus a supplemental distribution
made pursuant to section 855 of the
Code not exceeding 10% of the total
amount distributed for the year, plus
one additional capital gain dividend
made in whole or in part to avoid the
excise tax under section 4982 of the
Code.
2. Applicants believe that investors in
certain closed-end funds may prefer an
investment vehicle that provides regular
current income through a fixed
distribution policy (‘‘Distribution
Policy’’). Applicants propose that the
Fund be permitted to adopt a
Distribution Policy, pursuant to which
the Fund would distribute periodically
to its stockholders a fixed percentage of
the market price of the Fund’s common
stock at a particular point in time or a
fixed percentage of net asset value
(‘‘NAV’’) at a particular time or a fixed
amount per share of common stock, any
of which may be adjusted from time to
time.
3. Applicants request an order under
section 6(c) of the Act granting an
exemption from section 19(b) of the Act
and rule 19b-1 to permit a Fund to
distribute periodic capital gain
dividends (as defined in section
852(b)(3)(C) of the Code) as frequently
as twelve times in any one taxable year
in respect of its common stock and as
often as specified by, or determined in
accordance with the terms of, any
preferred stock issued by the Fund.
Section 6(c) of the Act provides, in
relevant part, that the Commission may
exempt any person or transaction from
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any provision of the Act to the extent
that 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 state that any order
granting the requested relief will be
subject to the terms and conditions
stated in the application, which
generally are designed to address the
concerns underlying section 19(b) and
rule 19b-1, including concerns about
proper disclosures and shareholders’
understanding of the source(s) of a
Fund’s distributions and concerns about
improper sales practices. Among other
things, such terms and conditions
require that (1) the board of directors or
trustees of the Fund (the ‘‘Board’’)
review such information as is
reasonably necessary to make an
informed determination of whether to
adopt the proposed Distribution Policy
and that the Board periodically review
the amount of the distributions in light
of the investment experience of the
Fund, and (2) that the Fund’s
shareholders receive appropriate
disclosures concerning the
distributions.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–12779 Filed 6–17–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33508; File No. 812–14968]
Axonic Alternative Income Fund and
Axonic Capital LLC
June 13, 2019.
Securities and Exchange
Commission (the ‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of an application for an order
pursuant to section 6(c) of the
Investment Company Act of 1940 (the
‘‘1940 Act’’) for an exemption from
sections 18(a)(2), 18(c), and 18(i) of the
1940 Act, pursuant to section 6(c) and
23(c) of the 1940 Act for an exemption
from rule 23c–3 under the 1940 Act, and
for an order pursuant to section 17(d) of,
and rule 17d–1 under, the 1940 Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
registered closed-end management
investment companies to issue multiple
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classes of shares of beneficial interest
(‘‘Shares’’) and to impose asset-based
service and/or distribution fees and
early withdrawal charges.
APPLICANTS: Axonic Alternative Income
Fund (the ‘‘Initial Fund’’) and Axonic
Capital LLC (the ‘‘Adviser’’).
FILING DATES: The application was filed
on October 24, 2018, and amended and
restated on March 8, 2019, and June 11,
2019.
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 July 8, 2019, and should
be accompanied by proof of service on
applicants, in the form of an affidavit or,
for lawyers, a certificate of service.
Pursuant to rule 0–5 under the 1940
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;
Applicants, c/o Jess Saypoff, Esq.,
Axonic Capital LLC, 390 Park Avenue,
15th Floor, New York, New York 10022,
with copies to Douglas P. Dick, Esq. and
Stephen T. Cohen, Esq., Dechert LLP,
1900 K Street NW, Washington, DC
20006.
FOR FURTHER INFORMATION CONTACT:
Edward J. Rubenstein, Senior Special
Counsel, at (202) 551–6854, or Nadya B.
Roytblat, Assistant Director, at (202)
551–6825 (Division of Investment
Management, Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained by searching the
Commission’s website, at https://
www.sec.gov/search/search.htm, using
the application’s file number or the
applicant’s name, or by calling the
Commission at (202) 551–8090.
Applicants’ Representations
1. The Initial Fund is a newly
organized Delaware statutory trust that
is registered under the 1940 Act as a
closed-end management investment
company and classified as a nondiversified investment company. The
Initial Fund’s investment objective is to
seek total return.
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2. The Adviser, a Delaware organized
limited liability company, is registered
as an investment adviser under the
Investment Advisers Act of 1940. The
Adviser serves as investment adviser to
the Initial Fund.
3. The applicants seek an order to
permit the Initial Fund to offer investors
multiple classes of Shares with varying
sales loads and asset-based service and/
or distribution fees and to impose early
withdrawal charges.
4. Applicants request that the order
also apply to any other registered
closed-end management investment
company that conducts a continuous
offering of its shares, existing now or in
the future, for which the Adviser, its
successors,1 or any entity controlling,
controlled by, or under common control
with the Adviser, or its successors, acts
as investment adviser, and which
provides periodic liquidity with respect
to its Shares through tender offers
conducted in compliance with either
rule 23c–3 under the 1940 Act or rule
13e–4 under the Securities Exchange
Act of 1934 (the ‘‘1934 Act’’) (each such
closed-end management investment
company a ‘‘Future Fund’’ and, together
with the Initial Fund, each a ‘‘Fund,’’
and collectively the ‘‘Funds’’).2
5. The Initial Fund currently issues a
single class of Shares (the ‘‘Initial Class
Shares’’). The Initial Class Shares are
currently being offered on a continuous
basis pursuant to a registration
statement under the Securities Act of
1933 at their net asset value per share.
The Initial Fund, as a closed-end
management investment company, does
not continuously redeem Shares as does
an open-end management investment
company. Shares of the Initial Fund are
not listed on any securities exchange
and do not trade on an over-the-counter
system. Applicants do not expect that
any secondary market will ever develop
for the Shares.
6. If the requested relief is granted, the
Initial Fund intends to offer multiple
classes of Shares, such as the Initial
Class Shares and a new Share class (the
‘‘New Class Shares’’), or any other
classes. Because of the different
distribution fees, shareholder services
fees, and any other class expenses that
may be attributable to the different
classes, the net income attributable to,
1 A successor in interest is limited to an entity
that results from a reorganization into another
jurisdiction or a change in the type of business
organization.
2 The Initial Fund and any Future Fund relying
on the requested relief will do so in a manner
consistent with the terms and conditions of the
application. Applicants represent that any person
presently intending to rely on the requested relief
is listed as an applicant.
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and any dividends payable on, each
class of Shares may differ from each
other from time to time.
7. Applicants state that, from time to
time, the Board of a Fund may create
and offer additional classes of Shares, or
may vary the characteristics described
of the Initial Class and New Class
Shares, including without limitation, in
the following respects: (1) The amount
of fees permitted by a distribution and
service plan as to such class; (2) voting
rights with respect to a distribution and
service plan as to such class; (3)
different class designations; (4) the
impact of any class expenses directly
attributable to a particular class of
Shares allocated on a class basis as
described in the application; (5)
differences in any dividends and net
asset values per Share resulting from
differences in fees under a distribution
and service plan or in class expenses;
(6) any early withdrawal charge or other
sales load structure; and (7) any
exchange or conversion features, as
permitted under the 1940 Act.
8. Applicants state that, in order to
provide some liquidity to shareholders,
the Initial Fund is structured as an
‘‘interval fund’’ and makes quarterly
offers to repurchase between five
percent and twenty-five percent of its
outstanding Shares at net asset value,
pursuant to rule 23c–3 under the 1940
Act, unless such offer is suspended or
postponed in accordance with
regulatory requirements. Any other
investment company that intends to rely
on the requested relief will provide
periodic liquidity to shareholders in
accordance with either rule 23c–3 under
the 1940 Act or rule 13e–4 under the
1934 Act.
9. Applicants represent that any assetbased distribution and servicing fee of a
Fund will comply with the provisions of
Rule 2341 of the Rules of the Financial
Industry Regulatory Authority (‘‘FINRA
Rule 2341’’).3 Applicants also represent
that each Fund will disclose in its
prospectus the fees, expenses, and other
characteristics of each class of Shares
offered for sale by the prospectus, as is
required for open-end, multiple class
funds under Form N–1A. As if it were
an open-end management investment
company, each Fund will disclose fund
expenses borne by shareholders during
the reporting period in shareholder
reports,4 and describe in its prospectus
any arrangements that result in
3 Any references to FINRA Rule 2341 include any
successor or replacement rule that may be adopted
by FINRA.
4 Shareholder Reports and Quarterly Portfolio
Disclosure of Registered Management Investment
Companies, Investment Company Act Release No.
26372 (Feb. 27, 2004) (adopting release).
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breakpoints in, or elimination of, sales
loads.5 In addition, applicants will
comply with applicable enhanced fee
disclosure requirements for fund of
funds, including registered funds of
hedge and private equity funds.6
10. Each Fund and its distributor (the
‘‘Distributor’’) will also comply with
any requirements that may be adopted
by the Commission or FINRA regarding
disclosure at the point of sale and in
transaction confirmations about the
costs and conflicts of interest arising out
of the distribution of open-end
management investment company
shares, and regarding prospectus
disclosure of sales loads and revenue
sharing arrangements as if those
requirements apply to the Fund and the
Distributor. Each Fund or the
Distributor will contractually require
that any other distributor of the Fund’s
Shares comply with such requirements
in connection with the distribution of
Shares of the Fund.
11. All expenses incurred by a Fund
will be allocated among its various
classes of Shares based on the net assets
of the Fund attributable to each class,
except that the net asset value and
expenses of each class will reflect the
expenses associated with the
distribution and service plan of that
class (if any), shareholder services fees
attributable to a particular class
(including transfer agency fees, if any),
and any other incremental expenses of
that class. Expenses of a Fund allocated
to a particular class of the Fund’s Shares
will be borne on a pro rata basis by each
outstanding Share of that class.
Applicants state that each Fund will
comply with the provisions of rule 18f–
3 under the 1940 Act as if it were an
open-end management investment
company.
12. Applicants state that the Initial
Fund does not intend to offer any
exchange privilege or conversion
feature, but any such privilege or feature
introduced in the future by a Fund will
comply with rule 11a–1, rule 11a–3, and
rule 18f–3 as if the Fund were an openend management investment company.
13. Applicants state that the Initial
Fund does not currently impose, nor
does it currently intend to impose, an
early withdrawal charge. In the future,
however, a Fund may impose an early
withdrawal charge on shares submitted
for repurchase that have been held less
5 Disclosure of Breakpoint Discounts by Mutual
Funds, Investment Company Act Release No. 26464
(June 7, 2004) (adopting release).
6 Fund of Funds Investments, Investment
Company Act Release Nos. 26198 (Oct. 1, 2003)
(proposing release) and 27399 (Jun. 20, 2006)
(adopting release). See also rules 12d1–1, et seq. of
the 1940 Act.
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than a specified period. Each Fund may
waive the early withdrawal charges on
repurchases for certain categories of
shareholders or transactions to be
established from time to time.
Applicants state that each Fund will
apply the early withdrawal charge (and
any waivers or scheduled variations of
the early withdrawal charge) uniformly
to all shareholders in a given class and
consistently with the requirements of
rule 22d–1 under the 1940 Act as if the
Fund were an open-end management
investment company.
14. The Initial Fund, operating as an
interval fund pursuant to rule 23c–3
under the 1940 Act, does not presently
intend to, but a Fund (including the
Initial Fund in the future) may, offer its
shareholders an exchange feature under
which the shareholders of the Fund
may, in connection with the Fund’s
periodic repurchase offers, exchange
their Shares of the Fund for shares of
the same class of (i) registered open-end
management investment companies or
(ii) other registered closed-end
investment companies that comply with
rule 23c–3 under the 1940 Act and
continuously offer their shares at net
asset value, that are in the Fund’s group
of investment companies (collectively,
the ‘‘Other Funds’’). Shares of a Fund
operating pursuant to rule 23c–3 that
are exchanged for shares of Other Funds
will be included as part of the
repurchase offer amount for such Fund
as specified in rule 23c–3 under the
1940 Act. Any exchange option will
comply with rule 11a–3 under the 1940
Act, as if the Fund were an open-end
management investment company
subject to rule 11a–3. In complying with
rule 11a–3 under the 1940 Act, each
Fund will treat an early withdrawal
charge as if it were a contingent deferred
sales load (a ‘‘CDSL’’).7
15. Applicants state that the Initial
Fund does not currently, nor does it
currently intend to, impose a repurchase
fee, but may do so in the future.8 If a
Fund charges a repurchase fee, Shares of
the Fund will be subject to a repurchase
fee at a rate of no greater than two
percent of the shareholder’s repurchase
proceeds if the interval between the date
of purchase of the Shares and the
7 A CDSL, assessed by an open-end fund pursuant
to Rule 6c–10 under the 1940 Act, is a distributionrelated charge payable to the distributor. Pursuant
to the requested order, the early withdrawal charge
will likewise be a distribution-related charge
payable to the distributor as distinguished from a
repurchase fee which is payable to a Fund.
8 Unlike a distribution-related charge, the
repurchase fee is payable to the Fund to
compensate long-term shareholders for the
expenses related to shorter-term investors, in light
of the Fund’s generally longer-term investment
horizons and investment operations.
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valuation date with respect to the
repurchase of those Shares is less than
one year. Repurchase fees, if charged,
will equally apply to all classes of
Shares of the Fund, consistent with
section 18 of the 1940 Act and rule 18f–
3 thereunder. To the extent a Fund
determines to waive, impose scheduled
variations of, or eliminate a repurchase
fee, it will do so consistently with the
requirements of rule 22d–1 under the
1940 Act as if the repurchase fee were
a CDSL and as if the Fund were a
registered open-end management
investment company. In addition, the
Fund’s waiver of, scheduled variation
in, or elimination of the repurchase fee
will apply uniformly to all shareholders
of the Fund regardless of class.
Applicants’ Legal Analysis
Multiple Classes of Shares
1. Section 18(a)(2)(A) and (B) makes it
unlawful for a registered closed-end
management investment company to
issue a senior security that is a stock
unless (a) immediately after such
issuance it will have an asset coverage
of at least 200% and (b) provision is
made to prohibit the declaration of any
distribution upon its common stock, or
the purchase of any such common stock,
unless in every such case such senior
security has at the time of the
declaration of any such distribution, or
at the time of any such purchase, an
asset coverage of at least 200% after
deducting the amount of such
distribution or purchase price, as the
case may be. Applicants state that the
creation of multiple classes of Shares of
the Funds may violate section 18(a)(2)
because the Funds may not meet section
18(a)(2)’s requirements with respect to a
class of Shares that may be a senior
security.
2. Section 18(c) of the 1940 Act
provides, in relevant part, that a
registered closed-end management
investment company may not issue or
sell any senior security which is a stock
if immediately thereafter the company
will have outstanding more than one
class of senior security that is a stock.
Applicants state that the creation of
multiple classes of Shares of a Fund
may be prohibited by section 18(c), as
a class may have priority over another
class as to payment of dividends
because shareholders of different classes
would pay different fees and expenses.
3. Section 18(i) of the 1940 Act
generally provides that each share of
stock issued by a registered management
investment company will be a voting
stock and have equal voting rights with
every other outstanding voting stock.
Applicants state that permitting
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multiple classes of Shares of a Fund
may violate section 18(i) of the 1940 Act
because each class would be entitled to
exclusive voting rights with respect to
matters solely related to that class.
4. Section 6(c) of the 1940 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 the 1940 Act, or from
any rule or regulation under the 1940
Act, if and to the extent that 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 1940 Act.
Applicants request an exemption under
section 6(c) from sections 18(a)(2), 18(c),
and 18(i) to permit the Funds to issue
multiple classes of Shares.
5. Applicants submit that the
proposed allocation of expenses relating
to distribution and voting rights is
equitable and will not discriminate
against any group or class of
shareholders. Applicants submit that
the proposed arrangements would
permit each Fund to facilitate the
distribution of its Shares and provide
investors with a broader choice of
shareholder options. Applicants assert
that the proposed closed-end
management investment company
multiple class structure does not raise
the concerns underlying section 18 of
the 1940 Act to any greater degree than
open-end management investment
companies’ multiple class structures
that are permitted by rule 18f–3 under
the 1940 Act. Applicants state that each
Fund will comply with the provisions of
rule 18f–3 as if it were an open-end
management investment company.
Early Withdrawal Charges
1. Section 23(c) of the 1940 Act
provides, in relevant part, that no
registered closed-end management
investment company shall purchase
securities of which it is the issuer,
except: (a) On a securities exchange or
other open market; (b) pursuant to
tenders, after reasonable opportunity to
submit tenders given to all holders of
securities of the class to be purchased;
or (c) under other circumstances as the
Commission may permit by rules and
regulations or orders for the protection
of investors.
2. Rule 23c–3 under the 1940 Act
permits an interval fund to make
repurchase offers of between five and
twenty-five percent of its outstanding
shares at net asset value at periodic
intervals pursuant to a fundamental
policy of the interval fund. Rule 23c–
3(b)(1) under the 1940 Act permits an
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interval fund to deduct from repurchase
proceeds only a repurchase fee, not to
exceed two percent of the proceeds, that
is paid to the interval fund and is
reasonably intended to compensate the
fund for expenses directly related to the
repurchase.
3. Section 23(c)(3) of the 1940 Act
provides that the Commission may issue
an order that would permit a closed-end
management investment company to
repurchase its shares in circumstances
in which the repurchase is made in a
manner or on a basis that does not
unfairly discriminate against any
holders of the class or classes of
securities to be purchased.
4. Applicants request relief under
section 6(c), discussed above, and
section 23(c)(3) from rule 23c–3 to the
extent necessary for each Fund to
impose early withdrawal charges on
shares of the Fund submitted for
repurchase that have been held for less
than a specified period.
5. Applicants state that the early
withdrawal charges they intend to
impose are functionally similar to
CDSLs imposed by open-end
management investment companies
under rule 6c–10 under the 1940 Act.
Rule 6c–10 permits open-end
management investment companies to
impose CDSLs, subject to certain
conditions. Applicants note that rule
6c–10 is grounded in policy
considerations supporting the
employment of CDSLs where there are
adequate safeguards for the investor.
Applicants state that these same policy
considerations support imposition of
early withdrawal charges in the interval
fund context, and are a solid basis for
the Commission to grant exemptive
relief to permit interval funds to impose
early withdrawal charges. In addition,
applicants state that early withdrawal
charges may be necessary for the Fund’s
Distributor to recover distribution costs
from shareholders who exit their
investments early. Applicants represent
that any early withdrawal charge
imposed by a Fund will comply with
rule 6c–10 under the 1940 Act as if the
rule were applicable to closed-end
management investment companies.
Each Fund will disclose early
withdrawal charges in accordance with
the requirements of Form N–1A
concerning CDSLs.
Asset-Based Service and/or Distribution
Fees
1. Section 17(d) of, and rule 17d–1
under, the 1940 Act prohibit an
affiliated person of a registered
investment company, or an affiliated
person of such person, acting as
principal, from participating in or
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effecting any transaction in connection
with any joint enterprise or other joint
arrangement in which the investment
company participates unless the
Commission issues an order permitting
the transaction. In reviewing
applications submitted under section
17(d) and rule 17d–1, the Commission
considers whether the participation of
the investment company in a joint
enterprise or joint arrangement is
consistent with the provisions, policies,
and purposes of the 1940 Act, and the
extent to which the participation is on
a basis different from or less
advantageous than that of other
participants.
2. Rule 17d–3 under the 1940 Act
provides an exemption from section
17(d) and rule 17d–1 to permit openend management investment companies
to enter into distribution arrangements
pursuant to rule 12b–1 under the 1940
Act. Applicants request an order under
section 17(d) of, and rule 17d–1 under,
the 1940 Act, to the extent necessary, to
permit each Fund to impose asset-based
service and/or distribution fees (in a
manner similar to rule 12b–1 fees for an
open-end management investment
company). Applicants have agreed to
comply with rules 12b–1 and 17d–3 as
if those rules apply to closed-end
management investment companies,
which they believe will resolve any
concerns that might arise in connection
with a Fund financing the distribution
of its Shares through asset-based service
and/or distribution fees.
For the reasons stated above,
applicants submit that the exemptions
requested under section 6(c) are
necessary and appropriate in the public
interest and are consistent with the
protection of investors and the purposes
fairly intended by the policy and
provisions of the 1940 Act. Applicants
further submit that the relief requested
pursuant to section 23(c)(3) will be
consistent with the protection of
investors and will insure that applicants
do not unfairly discriminate against any
holders of the class of securities to be
purchased. Finally, applicants state that
the Funds’ imposition of asset-based
service and/or distribution fees is
consistent with the provisions, policies,
and purposes of the 1940 Act and does
not involve participation on a basis
different from or less advantageous than
that of other participants.
Applicants’ Condition
Applicants agree that any order
granting the requested relief will be
subject to the following condition:
Each Fund relying on the requested order
will comply with the provisions of rules 6c–
10, 12b–1, 17d–3, 18f–3, 22d–1 and, where
E:\FR\FM\18JNN1.SGM
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Federal Register / Vol. 84, No. 117 / Tuesday, June 18, 2019 / Notices
applicable, 11a–3 under the 1940 Act, as
amended from time to time or replaced, as if
those rules applied to closed-end
management investment companies, and will
comply with FINRA Rule 2341, as amended
from time to time, as if that rule applies to
all closed-end management investment
companies.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–12883 Filed 6–17–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86095; File No. SR–
NASDAQ–2019–049]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Amend the Definition of Family
Member in Listing Rule 5605(a)(2) for
Purposes of the Definition of
Independent Director
June 12, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 29,
2019, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to modify the
definition of a ‘‘Family Member’’ for
purposes of Listing Rule 5605(a)(2).
The text of the proposed rule change
is set forth below. Proposed new
language is italicized.
The Nasdaq Stock Market Rules
*
*
*
*
*
5605. Board of Directors and
Committees
jbell on DSK3GLQ082PROD with NOTICES
(a) Definitions
(1) No change.
(2) ‘‘Independent Director’’ means a
person other than an Executive Officer
or employee of the Company or any
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
17:23 Jun 17, 2019
Jkt 247001
other individual having a relationship
which, in the opinion of the Company’s
board of directors, would interfere with
the exercise of independent judgment in
carrying out the responsibilities of a
director. For purposes of this rule,
‘‘Family Member’’ means a person’s
spouse, parents, children,[ and] siblings,
[whether by blood, marriage or
adoption, or anyone residing in ]
mothers and fathers-in-law, sons and
daughters-in-law, brothers and sistersin-law, and anyone (other than domestic
employees) who shares such person’s
home. The following persons shall not
be considered independent:
(A)–(G) No change.
*
*
*
*
*
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Nasdaq is proposing to modify the
definition of a ‘‘Family Member’’ for
purposes of director independence
under Listing Rule 5605(a)(2) to exclude
stepchildren by reverting to the
language of the rule before it was
paraphrased. Currently, the rule
provides that ‘‘children . . . by
marriage,’’ or stepchildren, are
considered Family Members. Nasdaq
believes this category was added to the
definition of a Family Member
inadvertently and that such an
expansion of the definition is
unwarranted.
Rule 5605(a) provides a list of certain
relationships that preclude a board from
finding that a director is independent.
These objective measures provide
transparency to investors and
companies, facilitate uniform
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
28379
application of the rules, and ease
administration. Nasdaq’s rules preclude
a director from being considered
independent if the director has a Family
Member who (i) accepted any
compensation from the Company in
excess of $120,000 during any period of
twelve consecutive months within the
three years preceding the determination
of independence (with certain
exceptions); 3 (ii) is, a partner in, or a
controlling Shareholder or an Executive
Officer of, any organization to which the
Company made, or from which the
Company received, payments for
property or services in the current or
any of the past three fiscal years that
exceed 5% of the recipient’s
consolidated gross revenues for that
year, or $200,000, whichever is more
(with certain exceptions); 4 (iii) is,
employed as an Executive Officer of
another entity where at any time during
the past three years any of the Executive
Officers of the Company served on the
compensation committee of such other
entity; 5 or (iv) is, a current partner of
the Company’s outside auditor, or was
a partner or employee of the Company’s
outside auditor who worked on the
Company’s audit at any time during any
of the past three years.6 Nasdaq’s rules
also preclude a director from being
considered independent if such director
is a Family Member of an individual
who is, or at any time during the past
three years was, employed by the
Company as an Executive Officer.7
Currently, for purposes of Nasdaq
Rules, Family Member means a person’s
spouse, parents, children and siblings,
whether by blood, marriage or adoption,
or anyone residing in such person’s
home.8 This definition includes
stepchildren, as they are ‘‘children by
. . . marriage.’’
When Nasdaq first adopted this rule
in 1999, Family Member was defined as
a person’s spouse, parents, children,
siblings, mother-in-law, father-in-law,
brother-in-law, sister-in-law, and
anyone who resides in such person’s
home.9 The rule was subsequently
amended to include sons-in-law and
daughters-in-law in the definition of a
Family Member.10 At that point, the
New York Stock Exchange’s (‘‘NYSE’’)
definition of an ‘‘immediate family
3 Listing
Rule 5605(a)(2)(B).
Rule 5605(a)(2)(D).
5 Listing Rule 5605(a)(2)(E).
6 Listing Rule 5605(a)(2)(F).
7 Listing Rule 5605(a)(2)(C).
8 Listing Rule 5605(a)(2).
9 See Securities Exchange Act Release No. 41982
(October 6, 1999), 64 FR 55510 (October 13, 1999).
10 See Securities Exchange Act Release No. 42231
(December 14, 1999), 64 FR 71523 (December 21,
1999).
4 Listing
E:\FR\FM\18JNN1.SGM
18JNN1
]]>Agencies
[Federal Register Volume 84, Number 117 (Tuesday, June 18, 2019)]
[Notices]
[Pages 28375-28379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12883]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33508; File No. 812-14968]
Axonic Alternative Income Fund and Axonic Capital LLC
June 13, 2019.
AGENCY: Securities and Exchange Commission (the ``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of an application for an order pursuant to section 6(c) of
the Investment Company Act of 1940 (the ``1940 Act'') for an exemption
from sections 18(a)(2), 18(c), and 18(i) of the 1940 Act, pursuant to
section 6(c) and 23(c) of the 1940 Act for an exemption from rule 23c-3
under the 1940 Act, and for an order pursuant to section 17(d) of, and
rule 17d-1 under, the 1940 Act.
SUMMARY OF APPLICATION: Applicants request an order to permit certain
registered closed-end management investment companies to issue multiple
[[Page 28376]]
classes of shares of beneficial interest (``Shares'') and to impose
asset-based service and/or distribution fees and early withdrawal
charges.
Applicants: Axonic Alternative Income Fund (the ``Initial Fund'') and
Axonic Capital LLC (the ``Adviser'').
Filing Dates: The application was filed on October 24, 2018, and
amended and restated on March 8, 2019, and June 11, 2019.
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 July 8, 2019, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the 1940 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; Applicants, c/o Jess Saypoff,
Esq., Axonic Capital LLC, 390 Park Avenue, 15th Floor, New York, New
York 10022, with copies to Douglas P. Dick, Esq. and Stephen T. Cohen,
Esq., Dechert LLP, 1900 K Street NW, Washington, DC 20006.
FOR FURTHER INFORMATION CONTACT: Edward J. Rubenstein, Senior Special
Counsel, at (202) 551-6854, or Nadya B. Roytblat, Assistant Director,
at (202) 551-6825 (Division of Investment Management, Chief Counsel's
Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained by searching the
Commission's website, at https://www.sec.gov/search/search.htm, using
the application's file number or the applicant's name, or by calling
the Commission at (202) 551-8090.
Applicants' Representations
1. The Initial Fund is a newly organized Delaware statutory trust
that is registered under the 1940 Act as a closed-end management
investment company and classified as a non-diversified investment
company. The Initial Fund's investment objective is to seek total
return.
2. The Adviser, a Delaware organized limited liability company, is
registered as an investment adviser under the Investment Advisers Act
of 1940. The Adviser serves as investment adviser to the Initial Fund.
3. The applicants seek an order to permit the Initial Fund to offer
investors multiple classes of Shares with varying sales loads and
asset-based service and/or distribution fees and to impose early
withdrawal charges.
4. Applicants request that the order also apply to any other
registered closed-end management investment company that conducts a
continuous offering of its shares, existing now or in the future, for
which the Adviser, its successors,\1\ or any entity controlling,
controlled by, or under common control with the Adviser, or its
successors, acts as investment adviser, and which provides periodic
liquidity with respect to its Shares through tender offers conducted in
compliance with either rule 23c-3 under the 1940 Act or rule 13e-4
under the Securities Exchange Act of 1934 (the ``1934 Act'') (each such
closed-end management investment company a ``Future Fund'' and,
together with the Initial Fund, each a ``Fund,'' and collectively the
``Funds'').\2\
---------------------------------------------------------------------------
\1\ A successor in interest is limited to an entity that results
from a reorganization into another jurisdiction or a change in the
type of business organization.
\2\ The Initial Fund and any Future Fund relying on the
requested relief will do so in a manner consistent with the terms
and conditions of the application. Applicants represent that any
person presently intending to rely on the requested relief is listed
as an applicant.
---------------------------------------------------------------------------
5. The Initial Fund currently issues a single class of Shares (the
``Initial Class Shares''). The Initial Class Shares are currently being
offered on a continuous basis pursuant to a registration statement
under the Securities Act of 1933 at their net asset value per share.
The Initial Fund, as a closed-end management investment company, does
not continuously redeem Shares as does an open-end management
investment company. Shares of the Initial Fund are not listed on any
securities exchange and do not trade on an over-the-counter system.
Applicants do not expect that any secondary market will ever develop
for the Shares.
6. If the requested relief is granted, the Initial Fund intends to
offer multiple classes of Shares, such as the Initial Class Shares and
a new Share class (the ``New Class Shares''), or any other classes.
Because of the different distribution fees, shareholder services fees,
and any other class expenses that may be attributable to the different
classes, the net income attributable to, and any dividends payable on,
each class of Shares may differ from each other from time to time.
7. Applicants state that, from time to time, the Board of a Fund
may create and offer additional classes of Shares, or may vary the
characteristics described of the Initial Class and New Class Shares,
including without limitation, in the following respects: (1) The amount
of fees permitted by a distribution and service plan as to such class;
(2) voting rights with respect to a distribution and service plan as to
such class; (3) different class designations; (4) the impact of any
class expenses directly attributable to a particular class of Shares
allocated on a class basis as described in the application; (5)
differences in any dividends and net asset values per Share resulting
from differences in fees under a distribution and service plan or in
class expenses; (6) any early withdrawal charge or other sales load
structure; and (7) any exchange or conversion features, as permitted
under the 1940 Act.
8. Applicants state that, in order to provide some liquidity to
shareholders, the Initial Fund is structured as an ``interval fund''
and makes quarterly offers to repurchase between five percent and
twenty-five percent of its outstanding Shares at net asset value,
pursuant to rule 23c-3 under the 1940 Act, unless such offer is
suspended or postponed in accordance with regulatory requirements. Any
other investment company that intends to rely on the requested relief
will provide periodic liquidity to shareholders in accordance with
either rule 23c-3 under the 1940 Act or rule 13e-4 under the 1934 Act.
9. Applicants represent that any asset-based distribution and
servicing fee of a Fund will comply with the provisions of Rule 2341 of
the Rules of the Financial Industry Regulatory Authority (``FINRA Rule
2341'').\3\ Applicants also represent that each Fund will disclose in
its prospectus the fees, expenses, and other characteristics of each
class of Shares offered for sale by the prospectus, as is required for
open-end, multiple class funds under Form N-1A. As if it were an open-
end management investment company, each Fund will disclose fund
expenses borne by shareholders during the reporting period in
shareholder reports,\4\ and describe in its prospectus any arrangements
that result in
[[Page 28377]]
breakpoints in, or elimination of, sales loads.\5\ In addition,
applicants will comply with applicable enhanced fee disclosure
requirements for fund of funds, including registered funds of hedge and
private equity funds.\6\
---------------------------------------------------------------------------
\3\ Any references to FINRA Rule 2341 include any successor or
replacement rule that may be adopted by FINRA.
\4\ Shareholder Reports and Quarterly Portfolio Disclosure of
Registered Management Investment Companies, Investment Company Act
Release No. 26372 (Feb. 27, 2004) (adopting release).
\5\ Disclosure of Breakpoint Discounts by Mutual Funds,
Investment Company Act Release No. 26464 (June 7, 2004) (adopting
release).
\6\ Fund of Funds Investments, Investment Company Act Release
Nos. 26198 (Oct. 1, 2003) (proposing release) and 27399 (Jun. 20,
2006) (adopting release). See also rules 12d1-1, et seq. of the 1940
Act.
---------------------------------------------------------------------------
10. Each Fund and its distributor (the ``Distributor'') will also
comply with any requirements that may be adopted by the Commission or
FINRA regarding disclosure at the point of sale and in transaction
confirmations about the costs and conflicts of interest arising out of
the distribution of open-end management investment company shares, and
regarding prospectus disclosure of sales loads and revenue sharing
arrangements as if those requirements apply to the Fund and the
Distributor. Each Fund or the Distributor will contractually require
that any other distributor of the Fund's Shares comply with such
requirements in connection with the distribution of Shares of the Fund.
11. All expenses incurred by a Fund will be allocated among its
various classes of Shares based on the net assets of the Fund
attributable to each class, except that the net asset value and
expenses of each class will reflect the expenses associated with the
distribution and service plan of that class (if any), shareholder
services fees attributable to a particular class (including transfer
agency fees, if any), and any other incremental expenses of that class.
Expenses of a Fund allocated to a particular class of the Fund's Shares
will be borne on a pro rata basis by each outstanding Share of that
class. Applicants state that each Fund will comply with the provisions
of rule 18f-3 under the 1940 Act as if it were an open-end management
investment company.
12. Applicants state that the Initial Fund does not intend to offer
any exchange privilege or conversion feature, but any such privilege or
feature introduced in the future by a Fund will comply with rule 11a-1,
rule 11a-3, and rule 18f-3 as if the Fund were an open-end management
investment company.
13. Applicants state that the Initial Fund does not currently
impose, nor does it currently intend to impose, an early withdrawal
charge. In the future, however, a Fund may impose an early withdrawal
charge on shares submitted for repurchase that have been held less than
a specified period. Each Fund may waive the early withdrawal charges on
repurchases for certain categories of shareholders or transactions to
be established from time to time. Applicants state that each Fund will
apply the early withdrawal charge (and any waivers or scheduled
variations of the early withdrawal charge) uniformly to all
shareholders in a given class and consistently with the requirements of
rule 22d-1 under the 1940 Act as if the Fund were an open-end
management investment company.
14. The Initial Fund, operating as an interval fund pursuant to
rule 23c-3 under the 1940 Act, does not presently intend to, but a Fund
(including the Initial Fund in the future) may, offer its shareholders
an exchange feature under which the shareholders of the Fund may, in
connection with the Fund's periodic repurchase offers, exchange their
Shares of the Fund for shares of the same class of (i) registered open-
end management investment companies or (ii) other registered closed-end
investment companies that comply with rule 23c-3 under the 1940 Act and
continuously offer their shares at net asset value, that are in the
Fund's group of investment companies (collectively, the ``Other
Funds''). Shares of a Fund operating pursuant to rule 23c-3 that are
exchanged for shares of Other Funds will be included as part of the
repurchase offer amount for such Fund as specified in rule 23c-3 under
the 1940 Act. Any exchange option will comply with rule 11a-3 under the
1940 Act, as if the Fund were an open-end management investment company
subject to rule 11a-3. In complying with rule 11a-3 under the 1940 Act,
each Fund will treat an early withdrawal charge as if it were a
contingent deferred sales load (a ``CDSL'').\7\
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\7\ A CDSL, assessed by an open-end fund pursuant to Rule 6c-10
under the 1940 Act, is a distribution-related charge payable to the
distributor. Pursuant to the requested order, the early withdrawal
charge will likewise be a distribution-related charge payable to the
distributor as distinguished from a repurchase fee which is payable
to a Fund.
---------------------------------------------------------------------------
15. Applicants state that the Initial Fund does not currently, nor
does it currently intend to, impose a repurchase fee, but may do so in
the future.\8\ If a Fund charges a repurchase fee, Shares of the Fund
will be subject to a repurchase fee at a rate of no greater than two
percent of the shareholder's repurchase proceeds if the interval
between the date of purchase of the Shares and the valuation date with
respect to the repurchase of those Shares is less than one year.
Repurchase fees, if charged, will equally apply to all classes of
Shares of the Fund, consistent with section 18 of the 1940 Act and rule
18f-3 thereunder. To the extent a Fund determines to waive, impose
scheduled variations of, or eliminate a repurchase fee, it will do so
consistently with the requirements of rule 22d-1 under the 1940 Act as
if the repurchase fee were a CDSL and as if the Fund were a registered
open-end management investment company. In addition, the Fund's waiver
of, scheduled variation in, or elimination of the repurchase fee will
apply uniformly to all shareholders of the Fund regardless of class.
---------------------------------------------------------------------------
\8\ Unlike a distribution-related charge, the repurchase fee is
payable to the Fund to compensate long-term shareholders for the
expenses related to shorter-term investors, in light of the Fund's
generally longer-term investment horizons and investment operations.
---------------------------------------------------------------------------
Applicants' Legal Analysis
Multiple Classes of Shares
1. Section 18(a)(2)(A) and (B) makes it unlawful for a registered
closed-end management investment company to issue a senior security
that is a stock unless (a) immediately after such issuance it will have
an asset coverage of at least 200% and (b) provision is made to
prohibit the declaration of any distribution upon its common stock, or
the purchase of any such common stock, unless in every such case such
senior security has at the time of the declaration of any such
distribution, or at the time of any such purchase, an asset coverage of
at least 200% after deducting the amount of such distribution or
purchase price, as the case may be. Applicants state that the creation
of multiple classes of Shares of the Funds may violate section 18(a)(2)
because the Funds may not meet section 18(a)(2)'s requirements with
respect to a class of Shares that may be a senior security.
2. Section 18(c) of the 1940 Act provides, in relevant part, that a
registered closed-end management investment company may not issue or
sell any senior security which is a stock if immediately thereafter the
company will have outstanding more than one class of senior security
that is a stock. Applicants state that the creation of multiple classes
of Shares of a Fund may be prohibited by section 18(c), as a class may
have priority over another class as to payment of dividends because
shareholders of different classes would pay different fees and
expenses.
3. Section 18(i) of the 1940 Act generally provides that each share
of stock issued by a registered management investment company will be a
voting stock and have equal voting rights with every other outstanding
voting stock. Applicants state that permitting
[[Page 28378]]
multiple classes of Shares of a Fund may violate section 18(i) of the
1940 Act because each class would be entitled to exclusive voting
rights with respect to matters solely related to that class.
4. Section 6(c) of the 1940 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 the 1940
Act, or from any rule or regulation under the 1940 Act, if and to the
extent that 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 1940 Act.
Applicants request an exemption under section 6(c) from sections
18(a)(2), 18(c), and 18(i) to permit the Funds to issue multiple
classes of Shares.
5. Applicants submit that the proposed allocation of expenses
relating to distribution and voting rights is equitable and will not
discriminate against any group or class of shareholders. Applicants
submit that the proposed arrangements would permit each Fund to
facilitate the distribution of its Shares and provide investors with a
broader choice of shareholder options. Applicants assert that the
proposed closed-end management investment company multiple class
structure does not raise the concerns underlying section 18 of the 1940
Act to any greater degree than open-end management investment
companies' multiple class structures that are permitted by rule 18f-3
under the 1940 Act. Applicants state that each Fund will comply with
the provisions of rule 18f-3 as if it were an open-end management
investment company.
Early Withdrawal Charges
1. Section 23(c) of the 1940 Act provides, in relevant part, that
no registered closed-end management investment company shall purchase
securities of which it is the issuer, except: (a) On a securities
exchange or other open market; (b) pursuant to tenders, after
reasonable opportunity to submit tenders given to all holders of
securities of the class to be purchased; or (c) under other
circumstances as the Commission may permit by rules and regulations or
orders for the protection of investors.
2. Rule 23c-3 under the 1940 Act permits an interval fund to make
repurchase offers of between five and twenty-five percent of its
outstanding shares at net asset value at periodic intervals pursuant to
a fundamental policy of the interval fund. Rule 23c-3(b)(1) under the
1940 Act permits an interval fund to deduct from repurchase proceeds
only a repurchase fee, not to exceed two percent of the proceeds, that
is paid to the interval fund and is reasonably intended to compensate
the fund for expenses directly related to the repurchase.
3. Section 23(c)(3) of the 1940 Act provides that the Commission
may issue an order that would permit a closed-end management investment
company to repurchase its shares in circumstances in which the
repurchase is made in a manner or on a basis that does not unfairly
discriminate against any holders of the class or classes of securities
to be purchased.
4. Applicants request relief under section 6(c), discussed above,
and section 23(c)(3) from rule 23c-3 to the extent necessary for each
Fund to impose early withdrawal charges on shares of the Fund submitted
for repurchase that have been held for less than a specified period.
5. Applicants state that the early withdrawal charges they intend
to impose are functionally similar to CDSLs imposed by open-end
management investment companies under rule 6c-10 under the 1940 Act.
Rule 6c-10 permits open-end management investment companies to impose
CDSLs, subject to certain conditions. Applicants note that rule 6c-10
is grounded in policy considerations supporting the employment of CDSLs
where there are adequate safeguards for the investor. Applicants state
that these same policy considerations support imposition of early
withdrawal charges in the interval fund context, and are a solid basis
for the Commission to grant exemptive relief to permit interval funds
to impose early withdrawal charges. In addition, applicants state that
early withdrawal charges may be necessary for the Fund's Distributor to
recover distribution costs from shareholders who exit their investments
early. Applicants represent that any early withdrawal charge imposed by
a Fund will comply with rule 6c-10 under the 1940 Act as if the rule
were applicable to closed-end management investment companies. Each
Fund will disclose early withdrawal charges in accordance with the
requirements of Form N-1A concerning CDSLs.
Asset-Based Service and/or Distribution Fees
1. Section 17(d) of, and rule 17d-1 under, the 1940 Act prohibit an
affiliated person of a registered investment company, or an affiliated
person of such person, acting as principal, from participating in or
effecting any transaction in connection with any joint enterprise or
other joint arrangement in which the investment company participates
unless the Commission issues an order permitting the transaction. In
reviewing applications submitted under section 17(d) and rule 17d-1,
the Commission considers whether the participation of the investment
company in a joint enterprise or joint arrangement is consistent with
the provisions, policies, and purposes of the 1940 Act, and the extent
to which the participation is on a basis different from or less
advantageous than that of other participants.
2. Rule 17d-3 under the 1940 Act provides an exemption from section
17(d) and rule 17d-1 to permit open-end management investment companies
to enter into distribution arrangements pursuant to rule 12b-1 under
the 1940 Act. Applicants request an order under section 17(d) of, and
rule 17d-1 under, the 1940 Act, to the extent necessary, to permit each
Fund to impose asset-based service and/or distribution fees (in a
manner similar to rule 12b-1 fees for an open-end management investment
company). Applicants have agreed to comply with rules 12b-1 and 17d-3
as if those rules apply to closed-end management investment companies,
which they believe will resolve any concerns that might arise in
connection with a Fund financing the distribution of its Shares through
asset-based service and/or distribution fees.
For the reasons stated above, applicants submit that the exemptions
requested under section 6(c) are necessary and appropriate in the
public interest and are consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the 1940
Act. Applicants further submit that the relief requested pursuant to
section 23(c)(3) will be consistent with the protection of investors
and will insure that applicants do not unfairly discriminate against
any holders of the class of securities to be purchased. Finally,
applicants state that the Funds' imposition of asset-based service and/
or distribution fees is consistent with the provisions, policies, and
purposes of the 1940 Act and does not involve participation on a basis
different from or less advantageous than that of other participants.
Applicants' Condition
Applicants agree that any order granting the requested relief will
be subject to the following condition:
Each Fund relying on the requested order will comply with the
provisions of rules 6c-10, 12b-1, 17d-3, 18f-3, 22d-1 and, where
[[Page 28379]]
applicable, 11a-3 under the 1940 Act, as amended from time to time
or replaced, as if those rules applied to closed-end management
investment companies, and will comply with FINRA Rule 2341, as
amended from time to time, as if that rule applies to all closed-end
management investment companies.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12883 Filed 6-17-19; 8:45 am]
BILLING CODE 8011-01-P
