[Federal Register Volume 79, Number 164 (Monday, August 25, 2014)]
[Notices]
[Pages 50716-50718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20091]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31218; 812-14251]
Persimmon Capital Management LP and Northern Lights Fund Trust
III; Notice of Application
August 19, 2014.
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act and rule 18f-2 under the Act.
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SUMMARY OF APPLICATION: Applicants request an order that would permit
them to enter into and materially amend subadvisory agreements without
shareholder approval.
APPLICANTS: Persimmon Capital Management LP (the ``Adviser'') and
Northern Lights Fund Trust III (the ``Trust'').
FILING DATES: The application was filed on December 16, 2013 and
amended on April 17, 2014. Applicants have agreed to file an amendment
during the notice period, the substance of which is reflected in this
notice.
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 September 15, 2014, and should be accompanied by proof of
service on the 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: The Trust: Northern
Lights Fund Trust III, 17605 Wright Street, Omaha, NE 68130; The
Adviser: Persimmon Capital Management LP, 1777 Sentry Parkway West,
Gwynedd Hall, Suite 102, Blue Bell, PA 19422.
FOR FURTHER INFORMATION CONTACT: Kieran G. Brown, Senior Counsel, at
(202) 551-6773, 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 http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust is organized as a Delaware statutory trust and is
registered as an open-end management investment company with multiple
series. Each series of the Trust has its own investment objective,
policies and restrictions, and each is managed by various advisers and
subadvisers.\1\
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\1\ The Persimmon Long/Short Fund (the ``Persimmon Fund'') is a
series of the Trust and is the only existing Fund (defined below)
that currently intends to rely on the requested order. Applicants
also request relief with respect to any existing or future
registered open-end management investment company or series thereof
that (a) is advised by the Adviser, including the Adviser's
successors and any entity controlling, controlled by or under common
control with the Adviser (included in the term ``Adviser''); (b)
uses the manager-of-managers structure (``Manager of Managers
Structure'') described in the application; and (c) complies with the
terms and conditions of the application (together with the Persimmon
Fund, the ``Funds'' and each, individually, a ``Fund''). The only
existing investment company that currently intends to rely on the
requested order, the Trust, is named as an applicant. For purposes
of the requested order, ``successor'' is limited to an entity that
results from a reorganization into another jurisdiction or a change
in the type of organization.
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2. The Adviser is a Delaware limited partnership registered as an
investment adviser under the Investment Advisers Act of 1940
(``Advisers Act''). The Adviser serves as the investment adviser of the
Persimmon Fund. The Adviser provides investment management services to
the Persimmon Fund pursuant to an investment advisory agreement with
the Trust (the ``Advisory Agreement'').\2\ The terms of the Advisory
Agreement comply with section 15(a) of the Act. The Advisory Agreement
was approved by the board of trustees of the Trust (the ``Board''; the
term ``Board'' also includes the board of trustees or directors of a
future Fund), including by a majority of the trustees who are not
``interested persons'' (as defined in section 2(a)(19) of the Act) of
the Trust or Adviser (the ``Independent Trustees''), and was approved
by the initial shareholder of the Persimmon Fund in the manner required
by sections 15(a) and (c) of the Act and rule 18f-2 thereunder.\3\
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\2\ The Adviser will enter into substantially similar investment
advisory agreements to provide investment management services to
future Funds (``Future Advisory Agreements''). The terms of Future
Advisory Agreements will comply with Section 15(a) of the Act, and
Future Advisory Agreements will be approved by shareholders and by
the Board, including a majority of the Independent Trustees, in the
manner required by Sections 15(a) and 15(c) of the Act and rule 18f-
2 thereunder. Applicants are not seeking any exemptions with respect
to Future Advisory Agreements. References to any Advisory Agreement
or Advisory Agreements include Future Advisory Agreements as they
pertain to future Funds.
\3\ Applicants are not seeking any exemptions with respect to
the Advisory Agreements.
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3. Under the terms of the Advisory Agreement, the Adviser is
responsible for the overall management of the Persimmon Fund's business
affairs and selecting investments in accordance with the Persimmon
Fund's investment objectives, policies and restrictions. For the
investment management services that it provides to the Funds, the
Adviser receives the fee specified in the Advisory Agreements. In
addition, pursuant to the Advisory Agreement, the Adviser may retain
one or more subadvisers (each, a ``Subadviser'') for the purpose of
managing all or a portion of the assets of the Persimmon Fund. Pursuant
to its authority under the Advisory Agreements, the Adviser intends to
enter into subadvisory agreements (the ``Subadvisory Agreements'') with
certain unaffiliated
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Subadvisers to provide investment advisory services to the Funds. Each
Subadvisory Agreement will be approved by the Board, including by a
majority of the Independent Trustees in accordance with Sections 15(a)
and 15(c) of the Act. In addition, the Subadvisory Agreements will
comply fully with the requirements of Sections 15(a) and 15(c) of the
Act other than the shareholder approval required under Section 15(a).
Each Subadviser to a Fund will be an ``investment adviser,'' as defined
in section 2(a)(20)(B) of the Act, and registered as an investment
adviser under the Advisers Act or will not be subject to registration
under such Act.\4\
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\4\ If the name of any Fund contains the name of a Subadviser,
the name of the Adviser will precede the name of the Subadviser.
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4. The Adviser will supervise the management and investment
programs and operations of the Funds and evaluate the abilities and
performance of other money management firms in order to identify
appropriate Subadvisers for the Fund's investment strategy. After a
Subadviser is selected, the Adviser will continuously supervise and
monitor the Subadviser's performance and periodically recommend to the
Board which Subadvisers should be retained or released. Neither the
Trust nor the Funds will be responsible for paying subadvisory fees to
any Subadviser. The Adviser will compensate the Subadvisers for a Fund
out of the advisory fees that are paid to the Adviser under the
applicable Advisory Agreement.
5. Applicants request an order to permit the Adviser, subject to
the approval of the Board), to do the following without obtaining
shareholder approval: (a) Select certain unaffiliated Subadvisers to
manage all or a portion of the assets of the Persimmon Fund or future
Funds pursuant to Subadvisory Agreements, and (b) materially amend
Subadvisory Agreements with the Subadvisers. Each Fund's prospectus has
contained or will contain, at all times following the approval of the
Manager of Managers Structure, the disclosure required by condition 2
below.
6. The requested relief will not extend to any subadviser that is
an affiliated person, as defined in section 2(a)(3) of the Act, of the
Trust, a Fund or the Adviser (other than by reason of serving as a
subadviser to one or more Funds) (``Affiliated Subadviser'').
7. The Funds will inform shareholders of the hiring of a new
Subadviser pursuant to the following procedures (``Modified Notice and
Access Procedures''): (a) Within 90 days after a new Subadviser is
hired for any Fund, that Fund will send its shareholders either a
Multi-manager Notice or a Multi-manager Notice and Multi-manager
Information Statement, as applicable; \5\ and (b) the Fund will make
the Multi-manager Information Statement available on the Web site
identified in the Multi-manager Notice no later than when the Multi-
manager Notice (or Multi-manager Notice and Multi-manager Information
Statement) is first sent to shareholders, and will maintain it on that
Web site for at least 90 days.
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\5\ The ``Multi-manager Notice'' will be modeled on a Notice of
Internet Availability as defined in rule 14a-16 under the Securities
Exchange Act of 1934 (``Exchange Act''), and specifically will,
among other things: (a) Summarize the relevant information regarding
the new Subadviser; (b) inform shareholders that the Multi-manager
Information Statement is available on a Web site; (c) provide the
Web site address; (d) state the time period during which the Multi-
manager Information Statement will remain available on that Web
site; (e) provide instructions for accessing and printing the Multi-
manager Information Statement; and (f) instruct the shareholder that
a paper or email copy of the Multi manager Information Statement may
be obtained, without charge, by contacting the Funds. A ``Multi-
manager Information Statement'' will meet the requirements of
Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under the
Exchange Act for an information statement. Multi-manager Information
Statements will be filed electronically with the Commission via the
EDGAR system.
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Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to act as an investment adviser to a registered
investment company except pursuant to a written contract that has been
approved by the vote of a majority of the company's outstanding voting
securities. Rule 18f-2 under the Act provides that each series or class
of securities in a series investment company affected by a matter must
approve that matter if the Act requires shareholder approval.
2. Section 6(c) 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 provisions of the Act, or
from any rule thereunder, 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. Applicants state that the requested relief meets this standard for
the reasons discussed below.
3. Applicants assert that the requested relief is consistent with
the protection of investors. Primary responsibility for management of
the Funds, including the selection and supervision of the Subadvisers,
is vested in the Adviser, subject to the oversight of the Board.
Applicants state that from the perspective of the investor, the role of
the Subadvisers with respect to the Funds is substantially equivalent
to the role of the individual portfolio managers employed by the
Adviser for a Fund's assets managed by the Adviser. Both the portfolio
managers and the Subadvisers are concerned principally with the
selection of portfolio investments in accordance with each Fund's
respective investment objectives and policies and have no significant
supervisory, management or administrative responsibilities with respect
to the Funds. Applicants state that requiring shareholder approval of
each Subadvisory Agreement would impose costs and unnecessary delays on
the Funds, and may preclude the Adviser from acting promptly in a
manner considered advisable by the Board. Applicants note that the
Advisory Agreements and any subadvisory agreement with an Affiliated
Subadviser will remain subject to sections 15(a) and (c) of the Act and
rule 18f-2 thereunder.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Fund may rely on the requested order, the operation of
the Fund in the manner described in the application will be approved by
a majority of the Fund's outstanding voting securities, as defined in
the Act, or in the case of a Fund whose public shareholders purchase
shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the initial shareholder(s) before
offering shares of that Fund to the public.
2. Each Fund relying on the requested order will disclose in its
prospectus the existence, substance, and effect of any order granted
pursuant to the application. Each Fund will hold itself out to the
public as utilizing the Manager of Managers Structure. The prospectus
will prominently disclose that the Adviser has ultimate responsibility
(subject to oversight by the Board) to oversee the Subadvisers and
recommend their hiring, termination, and replacement.
3. Funds will inform shareholders of the hiring of a new Subadviser
within 90 days after the hiring of the new Subadviser pursuant to the
Modified Notice and Access Procedures.
4. The Adviser will not enter into a subadvisory agreement with any
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Affiliated Subadviser without such agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
5. At all times, at least a majority of the Board will be
Independent Trustees, and the nomination of new or additional
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
6. Whenever a subadviser change is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Board minutes, that such change is in the best interests of the Fund
and its shareholders, and does not involve a conflict of interest from
which the Adviser or the Affiliated Subadviser derives an inappropriate
advantage.
7. The Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of each Fund's assets and, subject to review
and approval of the Board, will: (a) Set each Fund's overall investment
strategies; (b) evaluate, select and recommend Subadvisers to manage
all or a part of each Fund's assets; (c) allocate and, when
appropriate, reallocate each Fund's assets among one or more
Subadvisers; (d) monitor and evaluate the performance of Subadvisers;
and (e) implement procedures reasonably designed to ensure that the
Subadvisers comply with each Fund's investment objective, policies and
restrictions.
8. No trustee or officer of the Trust or a Fund, or 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 Subadviser, except for (a) ownership
of interests in the Adviser or any entity 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 any publicly traded company that is either a Subadviser or an
entity that controls, is controlled by, or is under common control with
a Subadviser.
9. Any new Subadvisory Agreement or any amendment to an existing
Advisory Agreement or Subadvisory Agreement that directly or indirectly
results in an increase in the aggregate advisory fee rate payable by
the Fund will be submitted to the Fund's shareholders for approval.
10. In the event the Commission adopts a rule under the Act
providing substantially similar relief to that in the order requested
in the application, the requested order will expire on the effective
date of that rule.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20091 Filed 8-22-14; 8:45 am]
BILLING CODE 8011-01-P