[Federal Register Volume 76, Number 193 (Wednesday, October 5, 2011)]
[Notices]
[Pages 61769-61772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-25678]
[[Page 61769]]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29825; 812-13575]
Destra Capital Investments LLC and Destra Unit Investment Trust;
Notice of Application
September 29, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (``Act'') for an exemption from
sections 12(d)(1)(A), (B), and (C) of the Act and under sections 6(c)
and 17(b) of the Act for an exemption from section 17(a) of the Act.
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SUMMARY OF THE APPLICATION: Destra Capital Investments LLC (the
``Depositor''), Destra Unit Investment Trust (the ``Trust''), on behalf
of itself and any existing and future series, and any future registered
unit investment trust (``UIT'') sponsored by the Depositor (or an
entity controlling, controlled by or under common control with the
Depositor) and their respective series (the future UITs, together with
the Trust, are collectively the ``Trusts,'' the series of the Trusts
are the ``Series,'' and the Trusts together with the Depositor are
collectively, the ``Applicants''), request an order to permit each
Series to acquire shares of registered investment companies or series
thereof (the ``Funds'') both within and outside the same group of
investment companies, and to permit any Funds that are open-end
companies (``Open-end Funds''), their principal underwriters and any
broker or dealer registered under the Securities Exchange Act of 1934
(``Broker'') to sell such shares to a Series.
Applicants: The Depositor and the Trust.
Filing Dates: The application was filed on September 15, 2008, and
amended on June 1, 2011, and September 23, 2011.
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 October 24, 2011, and should be accompanied by proof of service
on applicants in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090; Applicants, 901 Warrenville
Road, Suite 15, Lisle, IL 60532.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 551-6817, or Daniele Marchesani, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
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 http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust is a UIT registered under the Act. Each Series will be
a series of a Trust and will offer units for sale to the public
(``Units'').\1\ Each Series will be created pursuant to a trust
agreement which will incorporate by reference a master trust agreement
between the Depositor and a financial institution that satisfies the
criteria in section 26(a) of the Act (the ``Trustee''). The Depositor
is a broker dealer registered under the Securities Exchange Act of 1934
(``Exchange Act'') and member of the Financial Industry Regulatory
Authority, Inc. (``FINRA'').
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\1\ All existing entities that currently intend to rely on the
requested order are named as applicants. Any other entity that
relies on the order in the future will comply with the terms and
conditions of the application.
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2. Applicants request relief to permit a Series to invest in Funds
that are (a) part of the same ``group of investment companies'' (as
that term is defined in section 12(d)(1)(G) of the Act) as the Series
(``Affiliated Funds''), and (b) not part of the same group of
investment companies as the Series (``Unaffiliated Funds''). An
Unaffiliated Fund that is a UIT is referred to as an ``Unaffiliated
Underlying Trust.'' An Unaffiliated Fund that is a closed-end or open-
end management investment company is referred to as an ``Unaffiliated
Underlying Fund''. Certain of the Funds may be registered as an open-
end investment company or a UIT, but have received exemptive relief in
order that their shares may be traded at ``negotiated prices'' on a
national securities exchange in the same manner as other equity
securities (the ``Exchange-traded Funds''). Shares of Exchange-traded
Funds and closed-end Funds will be deposited in a Series at prices
which are based on the market value of the securities, as determined by
an evaluator. The Depositor will not have discretion as to when
portfolio securities of a Series will be sold, except that the
Depositor is authorized to sell securities in extremely limited
circumstances described in the Series' prospectus. Applicants state
that the Depositor is not obligated to maintain a secondary market for
Units of each Series, but may seek to do so in the future. Other
broker-dealers may or may not maintain a secondary market for Units of
a Series.
3. Applicants state that the requested relief will provide
investors with a practical, cost-efficient means of investing in a
diversified portfolio of securities of investment companies that has
been professionally selected by the Depositor.
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the value of the total assets of
the acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, any principal underwriter
therefor, and any broker or dealer registered under the Exchange Act,
from selling the shares of the investment company to another investment
company if the sale will cause the acquiring company to own more than
3% of the acquired company's voting stock, or if the sale will cause
more than 10% of the acquired company's voting stock to be owned by
investment companies generally. Section 12(d)(1)(C) prohibits an
investment company, other investment companies having the same
investment adviser, and companies controlled by such investment
companies, from acquiring more than 10% of the outstanding voting stock
of a registered closed-end management investment company.
2. Section 12(d)(1)(G) provides, in relevant part, that section
12(d)(1) will not apply to securities of a registered
[[Page 61770]]
open-end investment company or UIT acquired by a registered UIT if the
acquired company and the acquiring company are part of the same group
of investment companies, provided that certain other requirements
contained in section 12(d)(1)(G) are met. Applicants state that they
may not rely on section 12(d)(1)(G) because a Series will invest in
Unaffiliated Funds and other securities in addition to Affiliated
Funds.
3. Section 12(d)(1)(J) of the Act provides that the Commission may
exempt any person, security, or transaction, or any class or classes of
persons, securities or transactions, from any provision of section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors. Applicants seek an exemption under section
12(d)(1)(J) to permit a Series to purchase or acquire shares of the
Funds in excess of the percentage limitations of section 12(d)(1)(A)
and (C) and the Open-end Funds, their principal underwriters and any
Broker to sell their shares to the Series in excess of Section
12(d)(1)(B).
4. Applicants state that the proposed arrangement will not give
rise to the policy concerns underlying sections 12(d)(1)(A), (B), and
(C), which include concerns about undue influence by a fund of funds
over underlying funds, excessive layering of fees, and overly complex
fund structures. Accordingly, applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
5. Applicants state that the concern about undue control does not
arise with respect to a Series' investment in Affiliated Funds, as
reflected in section 12(d)(1)(G) of the Act. Applicants also state that
the proposed arrangement will not result in undue influence by a Series
or its affiliates over Unaffiliated Funds. Applicants have agreed that
(a) the Depositor, (b) any person controlling, controlled by or under
common control with the Depositor, and (c) any investment company and
any issuer that would be an investment company but for section 3(c)(1)
or 3(c)(7) of the Act, sponsored or advised by the Depositor (or any
person controlling, controlled by or under common control with the
Depositor) (collectively, the ``Group'') will not control (individually
or in the aggregate) an Unaffiliated Fund within the meaning of section
2(a)(9) of the Act. Applicants also note that conditions 2, 3, 5 and 6
set forth below will address the concern about undue influence with
respect to the Unaffiliated Funds.
6. As an additional assurance that an Unaffiliated Underlying Fund
understands the implications of an investment by a Series under the
requested order, prior to a Series' investment in the Unaffiliated
Underlying Fund in excess of the limit in section 12(d)(1)(A)(i), the
Series and the Unaffiliated Underlying Fund will execute an agreement
stating, without limitation, that the Depositor and Trustee and the
board of directors or trustees of the Unaffiliated Underlying Fund and
the investment adviser(s) of the Unaffiliated Underlying Fund,
understand the terms and conditions of the order and agree to fulfill
their responsibilities under the order (``Participation Agreement'').
Applicants note that an Unaffiliated Underlying Fund, including a
closed-end Fund or an Exchange-traded Fund, may choose to reject an
investment from the Series by declining to execute the Participation
Agreement.
7. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. Applicants state that any sales
charges and/or service fees (as those terms are defined in Rule 2830 of
the Conduct Rules of the NASD, Inc. (``NASD Conduct Rules'') charged
with respect to Units of a Series will not exceed the limits applicable
to a fund of funds as set forth in Rule 2830 of the NASD Conduct
Rules.\2\ In addition, the Trustee or Depositor will waive fees
otherwise payable to it by the Series in an amount at least equal to
any compensation (including fees paid pursuant to any plan adopted by
an Unaffiliated Underlying Fund under rule 12b-1 under the Act)
received from an Unaffiliated Fund by the Trustee or Depositor, or an
affiliated person of the Trustee or Depositor, other than any advisory
fees paid to the Trustee or Depositor or its affiliated person by an
Unaffiliated Underlying Fund, in connection with the investment by the
Series in the Unaffiliated Fund.
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\2\ With respect to purchasing closed-end Fund or Exchange-
traded Fund shares, a Series may incur the customary brokerage
commissions associated with purchasing any equity security on the
secondary market.
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8. Applicants state that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A), except to the extent
permitted by exemptive relief from the Commission permitting the Fund
to purchase shares of other investment companies for short-term cash
management purposes. Applicants also represent that a Series'
prospectus and sales literature will contain concise, ``plain English''
disclosure designed to inform investors of the unique characteristics
of the trust of funds structure, including, but not limited to, its
expense structure and the additional expenses of investing in Funds.
B. Section 17(a)
1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and any
affiliated person of the company. Section 2(a)(3) of the Act defines an
``affiliated person'' of another person to include (a) Any person
directly or indirectly owning, controlling, or holding with power to
vote, 5% or more of the outstanding voting securities of the other
person; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote by the other person; and (c) any person directly or
indirectly controlling, controlled by, or under common control with the
other person.
2. Applicants state that a Series and an Affiliated Fund might be
deemed to be under the common control of the Depositor or an entity
controlling, controlled by, or under common control with the Depositor.
Applicants also state that a Series and a Fund might become
``affiliated persons'' if the Series acquires more than 5% of the
Fund's outstanding voting securities. The sale or redemption by a Fund
of its shares to or from a Series therefore could be deemed to be a
principal transaction prohibited by Section 17(a) of the Act.\3\
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\3\ Applicants state that to the extent purchases and sales of
shares of an Exchange-traded Fund occur in the secondary market (and
not through principal transactions directly between a Series and an
Exchange-traded Fund), relief from Section 17(a) would not be
necessary. The requested relief is intended to cover, however,
transactions directly between Exchange-traded Funds and a Series.
Applicants are not seeking relief from Section 17(a) for, and the
requested relief will not apply to, transactions where an Exchange-
traded Fund could be deemed an affiliated person, or an affiliated
person of an affiliated person, of a Series because the investment
adviser to the Exchange-traded Fund or an entity controlling,
controlled by or under common control with the investment adviser is
also a depositor to the Series. In addition, the request for relief
does not cover principal transactions with closed-end Funds.
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3. Section 17(b) of the Act authorizes the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
it finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c)
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the proposed transaction is consistent with the general purposes of the
Act. Section 6(c) of the Act permits the Commission to exempt any
person or transactions from any provision of the Act if such exemption
is necessary or appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the Act.
4. Applicants submit that the proposed transactions satisfy the
standards for relief under sections 17(b) and 6(c) of the Act.
Applicants state that the terms of the proposed transactions are fair
and reasonable and do not involve overreaching. Applicants note that
the consideration paid for the sale and redemption of shares of the
open-end Funds and Funds that are UITs will be based on the net asset
values of the Funds. Finally, Applicants state that the proposed
transactions will be consistent with the policies of each Series and
Fund, and with the general purposes of the Act.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. The members of the Group will not control (individually or in
the aggregate) an Unaffiliated Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a decrease in the outstanding
voting securities of an Unaffiliated Fund, the Group, in the aggregate,
becomes a holder of more than 25% of the outstanding voting securities
of the Unaffiliated Fund, the Group will vote its shares of the
Unaffiliated Fund in the same proportion as the vote of all other
holders of the Unaffiliated Fund's shares.
2. No Series or its Depositor, promoter, principal underwriter, or
any person controlling, controlled by, or under common control with any
of those entities (each, a ``Series Affiliate'') will cause any
existing or potential investment by the Series in an Unaffiliated Fund
to influence the terms of any services or transactions between the
Series or Series Affiliate and the Unaffiliated Fund or its investment
adviser(s), sponsor, promoter, principal underwriter, or any person
controlling, controlled by, or under common control with any of those
entities.
3. Once an investment by a Series in the securities of an
Unaffiliated Underlying Fund exceeds the limit in section
12(d)(1)(A)(i) of the Act, the board of directors or trustees of the
Unaffiliated Underlying Fund, including a majority of the disinterested
board members, will determine that any consideration paid by the
Unaffiliated Underlying Fund to the Series or Series Affiliate in
connection with any services or transactions: (a) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Unaffiliated Underlying Fund; (b) is within
the range of consideration that the Unaffiliated Underlying Fund would
be required to pay to another unaffiliated entity in connection with
the same services or transactions; and (c) does not involve
overreaching on the part of any person concerned. This condition does
not apply with respect to any services or transactions between an
Unaffiliated Underlying Fund and its investment adviser(s), or any
person controlling, controlled by, or under common control with such
investment adviser(s).
4. The Trustee or Depositor will waive fees otherwise payable to it
by the Series in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by an
Unaffiliated Underlying Fund under rule 12b-1 under the Act) received
from an Unaffiliated Fund by the Trustee or Depositor, or an affiliated
person of the Trustee or Depositor, other than any advisory fees paid
to the Trustee or Depositor or its affiliated person by an Unaffiliated
Underlying Fund, in connection with the investment by a Series in the
Unaffiliated Fund.
5. No Series or Series Affiliate (except to the extent it is acting
in its capacity as an investment adviser to an Unaffiliated Underlying
Fund or sponsor to an Unaffiliated Underlying Trust) will cause an
Unaffiliated Fund to purchase a security in an offering of securities
during the existence of any underwriting or selling syndicate of which
a principal underwriter is the Depositor or a person of which the
Depositor is an affiliated person (each, an ``Underwriting Affiliate,''
except any person whose relationship to the Unaffiliated Fund is
covered by section 10(f) of the Act is not an Underwriting Affiliate).
An offering of securities during the existence of an underwriting or
selling syndicate of which a principal underwriter is an Underwriting
Affiliate is an ``Affiliated Underwriting.''
6. The board of an Unaffiliated Underlying Fund, including a
majority of the disinterested board members, will adopt procedures
reasonably designed to monitor any purchases of securities by the
Unaffiliated Underlying Fund in an Affiliated Underwriting once an
investment by a Series in the securities of the Unaffiliated Underlying
Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including
any purchases made directly from an Underwriting Affiliate. The board
of the Unaffiliated Underlying Fund will review these purchases
periodically, but no less frequently than annually, to determine
whether the purchases were influenced by the investment by the Series
in the Unaffiliated Underlying Fund. The board of the Unaffiliated
Underlying Fund will consider, among other things: (a) Whether the
purchases were consistent with the investment objectives and policies
of the Unaffiliated Underlying Fund; (b) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (c) whether the
amount of securities purchased by the Unaffiliated Underlying Fund in
Affiliated Underwritings and the amount purchased directly from an
Underwriting Affiliate have changed significantly from prior years. The
board of the Unaffiliated Underlying Fund will take any appropriate
actions based on its review, including, if appropriate, the institution
of procedures designed to assure that purchases of securities in
Affiliated Underwritings are in the best interests of shareholders.
7. An Unaffiliated Underlying Fund will maintain and preserve
permanently in an easily accessible place a written copy of the
procedures described in the preceding condition, and any modifications
to such procedures, and will maintain and preserve for a period of not
less than six years from the end of the fiscal year in which any
purchase in an Affiliated Underwriting occurred, the first two years in
an easily accessible place, a written record of each purchase of
securities in Affiliated Underwritings once an investment by a Series
in the securities of the Unaffiliated Underlying Fund exceeds the limit
of section 12(d)(1)(A)(i) of the Act, setting forth from whom the
securities were acquired, the identity of the underwriting syndicate's
members, the terms of the purchase, and the information or materials
upon which the determinations of the board of the Unaffiliated
Underlying Fund were made.
8. Before investing in an Unaffiliated Underlying Fund in excess of
the limit in section 12(d)(1)(A)(i), each Series and the Unaffiliated
Underlying Fund will execute a Participation Agreement stating, without
limitation, that the Depositor and Trustee and the board of directors
or trustees of the Unaffiliated
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Underlying Fund and the investment adviser(s) to the Unaffiliated
Underlying Fund, understand the terms and conditions of the order and
agree to fulfill their responsibilities under the order. At the time of
its investment in shares of an Unaffiliated Underlying Fund in excess
of the limit in section 12(d)(1)(A)(i), a Series will notify the
Unaffiliated Underlying Fund of the investment. At such time, the
Series also will transmit to the Unaffiliated Underlying Fund a list of
the names of each Series Affiliate and Underwriting Affiliate. The
Series will notify the Unaffiliated Underlying Fund of any changes to
the list of names as soon as reasonably practicable after a change
occurs. The Unaffiliated Underlying Fund and the Series will maintain
and preserve a copy of the order, the Participation Agreement, and the
list with any updated information for the duration of the investment,
and for a period of not less than six years thereafter, the first two
years in an easily accessible place.
9. Any sales charges and/or service fees charged with respect to
Units of a Series will not exceed the limits applicable to a fund of
funds as set forth in Rule 2830 of the NASD Conduct Rules.
10. No Fund will acquire securities of any other investment company
or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess
of the limits contained in section 12(d)(1)(A) of the Act, except to
the extent permitted by exemptive relief from the Commission permitting
the Fund to purchase shares of other investment companies for short-
term cash management purposes.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25678 Filed 10-4-11; 8:45 am]
BILLING CODE 8011-01-P