[Federal Register Volume 79, Number 242 (Wednesday, December 17, 2014)]
[Notices]
[Pages 75194-75197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29501]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31372; File No. 812-14333]
ACAP Strategic Fund and SilverBay Capital Management LLC; Notice
of Application
December 11, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from sections 18(c)
and 18(i) of the Act, under sections 6(c) and 23(c)(3) of the Act for
an exemption from rule 23c-3 under the Act, and for an order pursuant
to section 17(d) of the Act and rule 17d-1 under the Act.
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SUMMARY: Applicants request an order to permit certain registered
closed-end management investment companies to issue multiple classes of
shares and to impose asset-based distribution fees and early withdrawal
charges (``EWCs'').
Applicants: ACAP Strategic Fund (``Initial Fund'') and SilverBay
Capital Management LLC (``Adviser'').
DATES: Filing Dates: The application was filed on July 15, 2014, and
amended on November 5, 2014 and December 8, 2014.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail.
Hearing requests should be received by the Commission by 5:30 p.m.
on January 5, 2015 and should be accompanied by proof of service on the
applicants, in the form of an affidavit, or, for lawyers, a certificate
of service. Pursuant to rule 0-5 under the Act, hearing requests should
state the nature of the writer's interest, any facts bearing upon the
desirability of a hearing on the matter, the reason for the request,
and the issues contested. Persons who wish to be notified of a hearing
may request notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090; Applicants: 350 Madison Avenue,
9th Floor, New York, NY 10017.
FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel,
at (202) 551-6812, or David P. Bartels, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.
[[Page 75195]]
Applicants' Representations
1. The Initial Fund is a Delaware statutory trust that is
registered under the Act as a non-diversified, closed-end management
investment company. The Initial Fund's investment objective is to
achieve maximum capital appreciation. The Initial Fund pursues this
objective by investing its assets primarily in equity securities of
U.S. and foreign companies that the Adviser believes are well
positioned to benefit from demand for their products or services,
including companies that can innovate or grow rapidly relative to their
peers in their markets. The Initial Fund also pursues its objective by
effecting short sales of securities when the Adviser believes that the
market price of a security is above its estimated intrinsic or
fundamental value.
2. The Adviser is a Delaware limited liability company and is
registered as an investment adviser under the Investment Advisers Act
of 1940. The Adviser serves as investment adviser to the Initial Fund.
3. Applicants seek an order to permit the Initial Fund to issue
multiple classes of shares, each having its own fee and expense
structure, and to impose EWCs and asset-based distribution fees with
respect to certain classes.
4. Applicants request that the order also apply to any
continuously-offered registered closed-end management investment
company that has been previously organized or that may be organized in
the future for which the Adviser or any entity controlling, controlled
by, or under common control with the Adviser, or any successor in
interest to any such entity,\1\ acts as investment adviser and which
operates as an interval fund pursuant to rule 23c-3 under the Act or
provides periodic liquidity with respect to its shares pursuant to rule
13e-4 under the Securities Exchange Act of 1934 (``Exchange Act'')
(each a ``Future Fund,'' and together with the Initial Fund, the
``Funds'').\2\
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\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\ Any Fund relying on this relief in the future will do so in
a manner consistent with the terms and conditions of the
application. Applicants represent that each entity presently
intending to rely on the requested relief is listed as an applicant.
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5. The Initial Fund is currently making a continuous public
offering of its common shares following the effectiveness of its
initial registration statement. Applicants state that additional
offerings by any Fund relying on the order may be on a private
placement or public offering basis. Shares of the Funds will not be
listed on any securities exchange nor quoted on any inter-dealer
quotation system. Applicants do not expect there to be a secondary
trading market for shares of the Funds. The minimum initial investment
in the Initial Fund by an investor is $100,000, subject to reduction at
the discretion of an investor's broker, dealer, or other financial
intermediary, but not below $50,000. Shares of the Initial Fund may be
purchased only by investors who certify to the Initial Fund or its
agents that they have a net worth (in the case of a natural person or
with assets held jointly with a spouse) of more than $2 million,
excluding the value of the primary residence of such person and any
debt secured by such property (up to the current market value of the
residence).
6. If the requested relief is granted, the Initial Fund intends to
redesignate its common shares as ``Class A Shares'' and anticipates
commencing a continuous offering of Class W Shares. The Initial Fund's
Class A Shares will be subject to a front-end sales load based on the
amount invested and will also be subject to a shareholder servicing fee
and other expenses. The Initial Fund's Class W Shares will be subject
to other expenses, but will not be subject to an asset-based
distribution fee. Currently, Class A Shares and Class W Shares will not
be subject to an EWC. However, applicants state that Class A Shares and
other classes may, in the future, be subject to an EWC. Shares that are
not subject to an EWC when purchased will not subsequently be subject
to an EWC.
7. Applicants state that, from time to time, the Initial Fund may
create additional classes of shares, the terms of which may differ from
the Class A and Class W Shares in the following respects: (i) The
amount of fees permitted by different distribution plans; (ii) voting
rights with respect to a distribution plan of a class; (iii) different
class designations; (iv) the impact of any class expenses directly
attributable to a particular class of shares allocated on a class basis
as described in the application; (v) any differences in dividends and
net asset value resulting from differences in fees under a distribution
plan or in class expenses; (vi) any EWC or other sales load structure;
and (vii) exchange or conversion privileges of the classes as permitted
under the Act.
8. Applicants state that the Initial Fund has adopted a fundamental
policy to repurchase a specified percentage of its shares (no less than
5%) at net asset value on a quarterly basis. Such repurchase offers
will be conducted pursuant to rule 23c-3 under the Act. Each of the
other Funds will likewise adopt fundamental investment policies in
compliance with rule 23c-3 and make quarterly repurchase offers to its
shareholders or provide periodic liquidity with respect to its shares
pursuant to rule 13e-4 under the Exchange Act.\3\ Any repurchase offers
made by the Funds will be made to all holders of shares of each such
Fund.
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\3\ Applicants submit that rule 23c-3 and Regulation M under the
Exchange Act permit an interval fund to make repurchase offers to
repurchase its shares while engaging in a continuous offering of its
shares pursuant to Rule 415 under the Securities Act of 1933.
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9. Applicants represent that any asset-based service and
distribution fees for each class of shares will comply with the
provisions of NASD Rule 2830(d) (``NASD Sales Charge Rule'').\4\
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 is required for open-end
funds, each Fund will disclose its expenses in shareholder reports, and
disclose any arrangements that result in breakpoints in or elimination
of sales loads in its prospectus.\5\ In addition, applicants will
comply with applicable enhanced fee disclosure requirements for funds
of funds, including registered funds of hedge funds.\6\
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\4\ Any reference to the NASD Sales Charge Rule includes any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority (``FINRA'').
\5\ See Shareholder Reports and Quarterly Portfolio Disclosure
of Registered Management Investment Companies, Investment Company
Act Release No. 26372 (Feb. 27, 2004) (adopting release) (requiring
open-end investment companies to disclose fund expenses in
shareholder reports); and Disclosure of Breakpoint Discounts by
Mutual Funds, Investment Company Act Release No. 26464 (June 7,
2004) (adopting release) (requiring open-end investment companies to
provide prospectus disclosure of certain sales load information).
\6\ Fund of Funds Investments, Investment Company Act Rel. Nos.
26198 (Oct. 1 2003) (proposing release) and 27399 (Jun. 20, 2006)
(adopting release). See also Rules 12d1-1, et seq. of the Act.
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10. Each of the Funds will comply with any requirements that the
Commission or FINRA may adopt 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 investment company
shares, and regarding prospectus disclosure of sales loads and revenue
sharing arrangements, as if those requirements applied to the Fund. In
addition, each Fund will contractually require that any distributor of
the Fund's shares comply
[[Page 75196]]
with such requirements in connection with the distribution of such
Fund's shares.
11. Each Fund will allocate all expenses incurred by it among the
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 distribution fees, service fees,
and any other incremental expenses of that class. Expenses of the Fund
allocated to a particular class of 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 Act
as if it were an open-end investment company.
12. Applicants state that each Fund may impose an EWC on shares
submitted for repurchase that have been held less than a specified
period and may waive the EWC for certain categories of shareholders or
transactions to be established from time to time. Applicants state that
each of the Funds will apply the EWC (and any waivers or scheduled
variations of the EWC) uniformly to all shareholders in a given class
and consistently with the requirements of rule 22d-1 under the Act as
if the Funds were open-end investment companies.
13. Each Fund operating as an interval fund pursuant to rule 23c-3
under the Act 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 investment
companies or (ii) other registered closed-end investment companies that
comply with rule 23c-3 under the Act and continuously offer their
shares at net asset value, that are in the Fund's group of investment
companies (collectively, ``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 amount of the repurchase offer amount
for such Fund as specified in rule 23c-3 under the Act. Any exchange
option will comply with rule 11a-3 under the Act, as if the Fund were
an open-end investment company subject to rule 11a-3. In complying with
rule 11a-3, each Fund will treat an EWC as if it were a contingent
deferred sales load (``CDSL'').
Applicants' Legal Analysis
Multiple Classes of Shares
1. Section 18(c) of the Act provides, in relevant part, that a
closed-end investment company may not issue or sell any senior security
if, immediately thereafter, the company has outstanding more than one
class of senior security. Applicants state that the creation of
multiple classes of shares of the Funds 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.
2. Section 18(i) of the Act 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 multiple classes of shares of the Funds
may violate section 18(i) of the Act because each class would be
entitled to exclusive voting rights with respect to matters solely
related to that class.
3. 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 provision of the Act, or from any
rule thereunder, if and to the extent 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 request an exemption under section
6(c) from sections 18(c) and 18(i) to permit the Funds to issue
multiple classes of shares.
4. Applicants submit that the proposed allocation of expenses and
voting rights among multiple classes is equitable and will not
discriminate against any group or class of shareholders. Applicants
submit that the proposed arrangements would permit a Fund to facilitate
the distribution of its shares and provide investors with a broader
choice of shareholder services. Applicants assert that the proposed
closed-end investment company multiple class structure does not raise
the concerns underlying section 18 of the Act to any greater degree
than open-end investment companies' multiple class structures that are
permitted by rule 18f-3 under the Act. Applicants state that each Fund
will comply with the provisions of rule 18f-3 as if it were an open-end
investment company.
Early Withdrawal Charges
1. Section 23(c) of the Act provides, in relevant part, that no
registered closed-end investment company will 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 Act permits a registered closed-end
investment company (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 Act provides that an
interval fund may 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) provides that the Commission may issue an order
that would permit a closed-end 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 the
Funds to impose EWCs on shares of the Funds submitted for repurchase
that have been held for less than a specified period.
5. Applicants state that the EWCs they intend to impose are
functionally similar to CDSLs imposed by open-end investment companies
under rule 6c-10 under the Act. Rule 6c-10 permits open-end 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 and state that the same policy considerations support
imposition of EWCs in the interval fund context. In addition,
applicants state that EWCs may be necessary for the distributor to
recover distribution costs. Applicants represent that any EWC imposed
by the Funds will comply with rule 6c-10 under the Act as if the rule
were applicable to closed-end investment companies. The Funds will
disclose EWCs in accordance with the requirements of Form N-1A
concerning CDSLs. Applicants further state that the Funds will apply
the EWC (and any waivers or scheduled variations of the EWC) uniformly
to all shareholders in a given class and consistently with the
[[Page 75197]]
requirements of rule 22d-1 under the Act.
Asset-Based Distribution Fees
1. Section 17(d) of the Act prohibits 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 joint arrangement in which
the investment company participates in contravention of Commission
regulations. Rule 17d-1 provides that no joint transaction covered by
the rule may be effected 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 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 Act provides an exemption from section
17(d) and rule 17d-1 to permit open-end investment companies to enter
into distribution arrangements pursuant to rule 12b-1 under the Act.
Applicants request an order under section 17(d) and rule 17d-1 under
the Act to the extent necessary to permit the Fund to impose asset-
based distribution fees. Applicants have agreed to comply with rules
12b-1 and 17d-3 as if those rules applied to closed-end 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 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 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' institution of asset-based distribution fees is
consistent with the provisions, policies and purposes of the Act and
does not involve participation on a basis different from or less
advantageous than that of other participants. Applicants therefore
believe that the requested relief meets the standards of section 6(c)
of the Act.
Applicants' Condition
Applicants agree that any order granting the requested relief will
be subject to the following condition:
Each Fund relying on the order will comply with the provisions of
rules 6c-10, 12b-1, 17d-3, 18f-3, 22d-1, and, where applicable, 11a-3
under the Act, as amended from time to time, as if those rules applied
to closed-end management investment companies, and will comply with the
NASD Sales Charge Rule, as amended from time to time, as if that rule
applied to all closed-end management investment companies.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29501 Filed 12-16-14; 8:45 am]
BILLING CODE 8011-01-P