[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1522-1527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00226]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31407; 812-14355]
Forum Funds II, et al.; Notice of Application
January 6, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (the ``1940 Act'') for exemptions
from sections 12(d)(1)(A), (B), and (C) of the 1940 Act, under sections
6(c) and 17(b) of the 1940 Act for an exemption from section 17(a) of
the 1940 Act, and under section 6(c) of the 1940 Act for an exemption
from rule 12d1-2(a) under the 1940 Act.
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Summary of the Application: Applicants request an order that would (a)
permit certain registered open-end management investment companies that
operate as ``funds of funds'' to acquire shares of certain registered
open-end management investment companies, registered closed-end
management investment companies, business development companies as
defined by section 2(a)(48) of the 1940 Act (``business development
companies''), and registered unit investment trusts that are within or
outside the same group of investment companies as the acquiring
investment companies and (b) permit certain registered open-end
management investment companies relying on rule 12d1-2 under the 1940
Act to invest in certain financial instruments.
Applicants: Forum Funds II (``Trust''), Full Circle Advisors, LLC
(``Initial Advisor'') and Foreside Fund Services, LLC (the
``Distributor'').
Filing Dates: The application was filed August 29, 2014, and amended
on November 4, 2014, November 12, 2014, December 17, 2014, and December
24, 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 February 2, 2015, 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: Forum Funds II,
Three Canal Plaza, Suite 600, Portland, Maine 04101; Full Circle
Advisors, LLC, 102 Greenwich Avenue, 2nd Floor, Greenwich, CT 06830;
Foreside Fund Services LLC, Three Canal Plaza, Suite 300, Portland, ME
04101.
FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202)
551-6819, 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.
Applicants' Representations
1. The Trust is an open-end management company registered under the
1940 Act and organized as a Delaware statutory trust. The Trust may
offer multiple series.\1\
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\1\ The Applicants request that the order apply not only to the
series of the Trust advised by the Initial Adviser, The BDC Income
Fund, but also to any future series of the Trust and any other
existing or future registered open-end management investment
companies and any series thereof that are part of the same ``group
of investment companies'', as defined in section 12(d)(1)(G)(ii) of
the 1940 Act, as The BDC Income Fund and are, or may in the future
be, advised by the Initial Advisor or any other investment adviser
controlling, controlled by, or under common control with the Initial
Advisor (together with The BDC Income Fund, each series a ``Fund,''
and collectively, ``Funds''). All 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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[[Page 1523]]
2. The Initial Advisor, a Delaware limited liability company, is a
registered investment adviser under the Investment Advisers Act of 1940
(the ``Advisers Act''). The Initial Advisor, or an entity controlling,
controlled by, or under common control with the Initial Advisor,
serves, or will serve, as the investment adviser to each of the
Funds.\2\ The Advisor may enter into sub-advisory agreements with one
or more additional investment advisers to act as ``Sub-Advisers'' with
respect to particular Funds (each, a ``Sub-Adviser''). The Distributor
is a Broker (as defined below) and serves as the existing Fund's
principal underwriter and distributor.
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\2\ All references to the term ``Full Circle Advisors, LLC''
include any successors in interest to Full Circle Advisors, LLC. A
successor is limited to an entity that results from a reorganization
into another jurisdiction or a change in the type of business
organization. The term ``Advisor'' includes (i) the Initial Advisor
and (ii) any entity controlling, controlled by, or under common
control with the Initial Advisor that serves as investment adviser
to the Funds.
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3. Applicants request relief to the extent necessary to permit: (a)
Each Fund (each, a ``Fund of Funds,'' and collectively, the ``Funds of
Funds'') to acquire shares of registered open-end management investment
companies (each an ``Unaffiliated Open-End Investment Company''),
registered closed-end management investment companies, business
development companies (each registered closed-end management investment
company and each business development company, an ``Unaffiliated
Closed-End Investment Company'' and, together with the Unaffiliated
Open-End Investment Companies, the ``Unaffiliated Investment
Companies''), and registered unit investment trusts (``UITs'') (the
``Unaffiliated Trusts,'' collectively with the Unaffiliated Investment
Companies, the ``Unaffiliated Funds''), in each case, that are not part
of the same ``group of investment companies'' as the Funds of Funds;
\3\ (b) the Unaffiliated Funds, their principal underwriters and any
broker or dealer registered under the Securities Exchange Act of 1934
(the ``1934 Act'') (``Broker'') to sell shares of such Unaffiliated
Funds to the Funds of Funds; (c) the Funds of Funds to acquire shares
of other registered investment companies, including open-end management
investment companies and series thereof, closed-end management
investment companies and UITs, as well as business development
companies (if any), in the same group of investment companies as the
Funds of Funds (collectively, the ``Affiliated Funds,'' and, together
with the Unaffiliated Funds, the ``Underlying Funds''); \4\ and (d) the
Affiliated Funds, their principal underwriters and any Broker to sell
shares of the Affiliated Funds to the Funds of Funds.\5\ Applicants
also request an order under sections 6(c) and 17(b) of the 1940 Act to
exempt applicants from section 17(a) to the extent necessary to permit
Underlying Funds organized as open-end investment companies
(``Underlying Open-End Investment Companies'') and UITs (``Underlying
UITs'') to sell their shares to Funds of Funds and redeem their shares
from Funds of Funds.
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\3\ For purposes of the request for relief, the term ``group of
investment companies'' means any two or more registered investment
companies, including closed-end investment companies and BDCs, that
hold themselves out to investors as related companies for purposes
of investment and investor services.
\4\ Certain of the Underlying Funds may be registered under the
1940 Act as either UITs or open-end management investment companies
and have obtained exemptions from the Commission necessary to permit
their shares to be listed and traded on a national securities
exchange at negotiated prices and, accordingly, to operate as
exchange-traded funds (collectively, ``ETFs'' and each, an ``ETF'').
In addition, certain of the Underlying Funds may in the future
pursue their investment objectives through a master-feeder
arrangement in reliance on section 12(d)(1)(E) of the 1940 Act. In
accordance with condition 12, a Fund of Funds may not invest in an
Underlying Fund that operates as a feeder fund unless the feeder
fund is part of the same ``group of investment companies'' as its
corresponding master fund or the Fund of Funds. If a Fund of Funds
invests in an Affiliated Fund that operates as a feeder fund and the
corresponding master fund is not within the same ``group of
investment companies'' as the Fund of Funds and Affiliated Fund, the
master fund would be an Unaffiliated Fund for purposes of the
application and its conditions.
\5\ Applicants state that they do not believe that investments
in business development companies present any particular
considerations or concerns that may be different from those
presented by investments in registered closed-end investment
companies. In addition, Applicants represent that the Funds of Funds
will not invest in reliance on the order in BDCs or closed-end
investment companies that are not listed and traded on a national
securities exchange.
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4. Applicants also request an exemption under section 6(c) from
rule 12d1-2 under the 1940 Act to permit any existing or future Fund of
Funds that relies on section 12(d)(1)(G) of the 1940 Act (``Section
12(d)(1)(G) Fund of Funds'') and that otherwise complies with rule
12d1-2 under the 1940 Act, to also invest, to the extent consistent
with its investment objective(s), policies, strategies and limitations,
in other financial instruments that may not be securities within the
meaning of section 2(a)(36) of the 1940 Act (``Other Investments'').
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the 1940 Act, in relevant part, 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 total assets of
the acquiring company. Section 12(d)(1)(B) of the 1940 Act prohibits a
registered open-end investment company, its principal underwriter, and
any Broker from selling the investment company's shares 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 from acquiring any security issued by a
registered closed-end investment company if such acquisition would
result in the acquiring company, any other investment companies having
the same investment adviser, and companies controlled by such
investment companies, collectively, owning more than 10% of the
outstanding voting stock of the registered closed-end investment
company.
2. Section 12(d)(1)(J) 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
section 12(d)(1) if the exemption is consistent with the public
interest and the protection of investors. Applicants request an
exemption under section 12(d)(1)(J) of the 1940 Act from the
limitations of sections 12(d)(1)(A), (B) and (C) to the extent
necessary to permit: (i) The Funds of Funds to acquire shares of
Underlying Funds in excess of the limits set forth in section
12(d)(1)(A) and (C) of the 1940 Act; and (ii) the Underlying Funds,
their principal underwriters and any Broker to sell shares of the
Underlying Funds to the Funds of Funds in excess of the limits set
forth in section 12(d)(1)(B) of the 1940 Act.
3. Applicants state that the proposed arrangement will not give
rise to the policy concerns underlying sections
[[Page 1524]]
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.
4. Applicants submit that the proposed structure will not result in
the exercise of undue influence by a Fund of Funds or its affiliated
persons over the Underlying Funds. Applicants assert that the concern
about undue influence does not arise in connection with a Fund of
Funds' investment in the Affiliated Funds because they are part of the
same group of investment companies. To limit the control a Fund of
Funds or Fund of Funds Affiliate \6\ may have over an Unaffiliated
Fund, applicants propose a condition prohibiting the Advisor and any
person controlling, controlled by or under common control with the
Advisor, and any investment company and any issuer that would be an
investment company but for section 3(c)(1) or section 3(c)(7) of the
1940 Act advised or sponsored by the Advisor or any person controlling,
controlled by or under common control with the Advisor (collectively,
the ``Group'') from controlling (individually or in the aggregate) an
Unaffiliated Fund within the meaning of section 2(a)(9) of the 1940
Act. The same prohibition would apply to any Sub-Adviser and any person
controlling, controlled by or under common control with the Sub-
Adviser, and any investment company or issuer that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the 1940 Act
(or portion of such investment company or issuer) advised or sponsored
by the Sub-Adviser or any person controlling, controlled by or under
common control with the Sub-Adviser (collectively, the ``Sub-Adviser
Group'').
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\6\ A ``Fund of Funds Affiliate'' is the Advisor, any Sub-
Adviser, promoter or principal underwriter of a Fund of Funds, as
well as any person controlling, controlled by or under common
control with any of those entities. An ``Unaffiliated Fund
Affiliate'' is an investment adviser(s), sponsor, promoter or
principal underwriter of any Unaffiliated Fund or any person
controlling, controlled by or under common control with any of those
entities.
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5. With respect to closed-end Underlying Funds, applicants note
that although closed-end funds may not be unduly influenced by a
holder's right of redemption, closed-end Underlying Funds may be unduly
influenced by a holder's ability to vote a large block of stock. To
address this concern, applicants submit that, with respect to a Fund's
investment in an Unaffiliated Closed-End Investment Company, (i) each
member of the Group or Sub-Adviser Group that is an investment company
or an issuer that would be an investment company but for section
3(c)(1) or 3(c)(7) of the 1940 Act will vote its shares of the
Unaffiliated Closed-End Investment Company in the manner prescribed by
section 12(d)(1)(E) of the 1940 Act and (ii) each other member of the
Group or Sub-Adviser Group will vote its shares of the Unaffiliated
Closed-End Investment Company in the same proportion as the vote of all
other holders of the same type of such Unaffiliated Closed-End
Investment Company's shares. Applicants state that, in this way, an
Unaffiliated Closed-End Investment Company will be protected from undue
influence by a Fund of Funds through the voting of the Unaffiliated
Closed-End Investment Company's shares.
6. Applicants propose other conditions to limit the potential for
undue influence over the Unaffiliated Funds, including that no Fund of
Funds or Fund of Funds Affiliate (except to the extent it is acting in
its capacity as an investment adviser to an Unaffiliated Investment
Company or sponsor to an Unaffiliated 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 an Underwriting Affiliate (``Affiliated
Underwriting'').\7\
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\7\ An ``Underwriting Affiliate'' is a principal underwriter in
any underwriting or selling syndicate that is an officer, director,
trustee, advisory board member, investment adviser, sub-adviser or
employee of the Fund of Funds, or a person of which any such
officer, director, trustee, investment adviser, sub-adviser, member
of an advisory board or employee is an affiliated person. An
Underwriting Affiliate does not include any person whose
relationship to an Unaffiliated Fund is covered by section 10(f) of
the 1940 Act.
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7. To further ensure that an Unaffiliated Investment Company
understands the implications of a Fund of Funds' investment under the
requested exemptive relief, prior to its investment in the shares of an
Unaffiliated Investment Company in excess of the limit of section
12(d)(1)(A)(i) of the 1940 Act, a Fund of Funds and the Unaffiliated
Investment Company will execute an agreement stating, without
limitation, that each of their boards of directors or trustees (for any
entity, the ``Board'') and their investment advisers understand the
terms and conditions of the order and agree to fulfill their
responsibilities under the order (the ``Participation Agreement'').
Applicants note that an Unaffiliated Investment Company (including an
ETF or an Unaffiliated Closed-End Investment Company) would also retain
its right to reject any initial investment by a Fund of Funds in excess
of the limits in section 12(d)(1)(A)(i) of the 1940 Act by declining to
execute the Participation Agreement with the Fund of Funds. In
addition, an Unaffiliated Investment Company (other than an ETF or
closed-end fund whose shares are purchased by a Fund of Funds in the
secondary market) will retain its right at all times to reject any
investment by a Fund of Funds. Finally, subject solely to the giving of
notice to a Fund of Funds and the passage of a reasonable notice
period, an Unaffiliated Fund (including an ETF or an Unaffiliated
Closed-End Investment Company) could terminate a Participation
Agreement with the Fund of Funds.
8. Applicants state that they do not believe that the proposed
arrangement will result in excessive layering of fees. The Board of
each Fund of Funds, including a majority of the trustees who are not
``interested persons'' within the meaning of section 2(a)(19) of the
1940 Act (the ``Independent Trustees''), will find that the management
or advisory fees charged under a Fund of Funds' advisory contract are
based on services provided that are in addition to, rather than
duplicative of, services provided under the advisory contract(s) of any
Underlying Fund in which the Fund of Funds may invest. In addition, the
Advisor will waive fees otherwise payable to it by a Fund of Funds in
an amount at least equal to any compensation (including fees received
pursuant to any plan adopted by an Unaffiliated Investment Company
under rule 12b-1 under the 1940 Act) received from an Unaffiliated Fund
by the Advisor, or an affiliated person of the Advisor, other than any
advisory fees paid to the Advisor or an affiliated person of the
Advisor by the Unaffiliated Investment Company, in connection with the
investment by the Fund of Funds in the Unaffiliated Fund.
9. Applicants further state that any sales charges and/or service
fees charged with respect to shares of a Fund of Funds will not exceed
the limits applicable to funds of funds set forth in in rule 2830 of
the Conduct Rules of the NASD (``NASD Conduct Rule 2830'').\8\
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\8\ Any references to NASD Conduct Rule 2830 include any
successor or replacement FINRA rule to NASD Conduct Rule 2830.
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10. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Underlying
Fund will acquire securities of any other investment company or company
relying on section 3(c)(1) or 3(c)(7) of
[[Page 1525]]
the 1940 Act in excess of the limits contained in section 12(d)(1)(A)
of the 1940 Act, except in certain circumstances identified in
condition 12 below.
B. Section 17(a)
1. Section 17(a) of the 1940 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 1940 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 the Funds of Funds and the Affiliated
Funds may be deemed to be under the common control of the Advisor and,
therefore, affiliated persons of one another. Applicants also state
that the Funds of Funds and the Underlying Funds may also be deemed to
be affiliated persons of one another if a Fund of Funds owns 5% or more
of the outstanding voting securities of one or more of such Underlying
Funds. Applicants state that the sale of shares by the Underlying Open-
End Investment Companies or Underlying UITs to the Funds of Funds and
the purchase of those shares from the Funds of Funds by the Underlying
Open-End Investment Companies or Underlying UITs (through redemptions)
could be deemed to violate section 17(a).\9\
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\9\ Applicants acknowledge that receipt of any compensation by
(a) an affiliated person of a Fund of Funds, or an affiliated person
of such person, for the purchase by the Fund of Funds of shares of
an Underlying Fund or (b) an affiliated person of an Underlying
Fund, or an affiliated person of such person, for the sale by the
Underlying Fund of its shares to a Fund of Funds may be prohibited
by section 17(e) (1) of the 1940 Act. The Participation Agreement
also will include this acknowledgement.
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3. Section 17(b) of the 1940 Act authorizes the Commission to grant
an order permitting a transaction otherwise prohibited by section 17(a)
if it finds that (i) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (ii) the proposed transaction is consistent with the
policies of each registered investment company concerned; and (iii) the
proposed transaction is consistent with the general purposes of the
1940 Act. Section 6(c) of the 1940 Act permits the Commission to exempt
any person or transactions from any provision of the 1940 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 1940 Act.
4. Applicants submit that the proposed transactions satisfy the
standards for relief under sections 17(b) and 6(c) of the 1940 Act.
Applicants state that the terms of the transactions are reasonable and
fair and do not involve overreaching. Applicants state that the terms
upon which an Underlying Fund will sell its shares to or purchase its
shares from a Fund of Funds will be in accordance with the rules and
regulations under the 1940 Act.\10\ Applicants also state that the
proposed transactions will be consistent with the policies of each Fund
of Funds and any Underlying Fund, and with the general purposes of the
1940 Act.
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\10\ Applicants note that a Fund of Funds generally would
purchase and sell shares of an Underlying Fund that operates as an
ETF or a closed-end fund through secondary market transactions
rather than through principal transactions with the Underlying Fund.
Applicants nevertheless request relief from sections 17(a)(1) and
(2) to permit each Fund of Funds that is an affiliated person, or an
affiliated person of an affiliated person, as defined in section
2(a)(3) of the 1940 Act, of an ETF or a closed-end fund to purchase
or redeem shares from the ETF or closed-end fund. Applicants are not
seeking relief from section 17(a) for, and the requested relief will
not apply to, transactions where an ETF or a closed-end fund could
be deemed an affiliated person, or an affiliated person of an
affiliated person, of a Fund of Funds because an investment adviser
to the ETF or an entity controlling, controlled by or under common
control with the investment adviser to the ETF or closed-end fund is
also an investment adviser to the Fund of Funds.
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C. Other Investments by Section 12(d)(1)(G) Funds of Funds
1. Section 12(d)(1)(G) of the 1940 Act provides that section
12(d)(1) will not apply to securities of an acquired company purchased
by an acquiring company if: (i) The acquiring company and acquired
company are part of the same ``group of investment companies,'' as
defined in section 12(d)(1)(G)(ii) of the 1940 Act; (ii) the acquiring
company holds only securities of acquired companies that are part of
the same ``group of investment companies,'' as defined in section
12(d)(1)(G)(ii) of the 1940 Act, government securities, and short-term
paper; (iii) the aggregate sales loads and distribution-related fees of
the acquiring company and the acquired company are not excessive under
rules adopted pursuant to section 22(b) or section 22(c) of the 1940
Act by a securities association registered under section 15A of the
1934 Act or by the Commission; and (iv) the acquired company has a
policy that prohibits it from acquiring securities of registered open-
end management investment companies or registered UITs in reliance on
section 12(d)(1)(F) or (G) of the 1940 Act.
2. Rule 12d1-2 under the 1940 Act permits a registered open-end
investment company or a registered UIT that relies on section
12(d)(1)(G) of the 1940 Act to acquire, in addition to securities
issued by another registered investment company in the same group of
investment companies, government securities, and short-term paper: (1)
Securities issued by an investment company that is not in the same
group of investment companies, when the acquisition is in reliance on
section 12(d)(1)(A) or 12(d)(1)(F) of the 1940 Act; (2) securities
(other than securities issued by an investment company); and (3)
securities issued by a money market fund, when the investment is in
reliance on rule 12d1-1 under the 1940 Act. For the purposes of rule
12d1-2, ``securities'' means any security as defined in section
2(a)(36) of the 1940 Act.
3. Applicants state that the proposed arrangement would comply with
rule 12d1-2 under the 1940 Act, but for the fact that the Section
12(d)(1)(G) Funds of Funds may invest a portion of their assets in
Other Investments. Applicants request an order under section 6(c) of
the 1940 Act for an exemption from rule 12d1-2(a) to allow the Section
12(d)(1)(G) Funds of Funds to invest in Other Investments. Applicants
assert that permitting a Section 12(d)(1)(G) Fund of Funds to invest in
Other Investments as described in the application would not raise any
of the concerns that section 12(d)(1) of the 1940 Act was intended to
address.
4. Consistent with its fiduciary obligations under the 1940 Act, a
Section 12(d)(1)(G) Fund of Funds' Board will review the advisory fees
charged by the Section 12(d)(1)(G) Fund of Funds' investment adviser(s)
to ensure that the fees are based on services provided that are in
addition to, rather than duplicative of, services provided pursuant to
the advisory agreement of any investment company in which the Section
12(d)(1)(G) Fund of Funds may invest.
Applicants' Conditions
Investments by Funds of Funds in Underlying Funds
Applicants agree that the order granting the requested relief to
permit Funds of Funds to invest in Underlying Funds shall be subject to
the following conditions:
[[Page 1526]]
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 1940 Act. The members of a Sub-Adviser Group will not
control (individually or in the aggregate) an Unaffiliated Fund within
the meaning of section 2(a)(9) of the 1940 Act. With respect to a
Fund's investment in an Unaffiliated Closed-End Investment Company, (i)
each member of the Group or Sub-Adviser Group that is an investment
company or an issuer that would be an investment company but for
section 3(c)(1) or 3(c)(7) of the 1940 Act will vote its shares of the
Unaffiliated Closed-End Investment Company in the manner prescribed by
section 12(d)(1)(E) of the 1940 Act and (ii) each other member of the
Group or Sub-Adviser Group will vote its shares of the Unaffiliated
Closed-End Investment Company in the same proportion as the vote of all
other holders of the same type of such Unaffiliated Closed-End
Investment Company's shares. If, as a result of a decrease in the
outstanding voting securities of any other Unaffiliated Fund, the Group
or a Sub-Adviser Group, each in the aggregate, becomes a holder of more
than 25 percent of the outstanding voting securities of such
Unaffiliated Fund, then the Group or the Sub-Adviser 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. This condition
will not apply to a Sub-Adviser Group with respect to an Unaffiliated
Fund for which the Sub-Adviser or a person controlling, controlled by,
or under common control with the Sub-Adviser acts as the investment
adviser within the meaning of section 2(a)(20)(A) of the 1940 Act (in
the case of an Unaffiliated Investment Company) or as the sponsor (in
the case of an Unaffiliated Trust).
2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in an
Unaffiliated Fund to influence the terms of any services or
transactions between the Fund of Funds or a Fund of Funds Affiliate and
the Unaffiliated Fund or an Unaffiliated Fund Affiliate.
3. The Board of each Fund of Funds, including a majority of the
Independent Trustees, will adopt procedures reasonably designed to
ensure that the Advisor and any Sub-Adviser to the Fund of Funds is
conducting the investment program of the Fund of Funds without taking
into account any consideration received by the Fund of Funds or Fund of
Funds Affiliate from an Unaffiliated Fund or an Unaffiliated Fund
Affiliate in connection with any services or transactions.
4. Once an investment by a Fund of Funds in the securities of an
Unaffiliated Investment Company exceeds the limit of section
12(d)(1)(A)(i) of the 1940 Act, the Board of the Unaffiliated
Investment Company, including a majority of the Independent Trustees,
will determine that any consideration paid by the Unaffiliated
Investment Company to a Fund of Funds or a Fund of Funds 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 Investment Company; (b) is within
the range of consideration that the Unaffiliated Investment Company
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 Investment Company and its investment adviser(s), or any
person controlling, controlled by, or under common control with such
investment adviser(s).
5. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to an
Unaffiliated Investment Company or sponsor to an Unaffiliated Trust)
will cause an Unaffiliated Fund to purchase a security in any
Affiliated Underwriting.
6. The Board of an Unaffiliated Investment Company, including a
majority of the Independent Trustees, will adopt procedures reasonably
designed to monitor any purchases of securities by the Unaffiliated
Investment Company in an Affiliated Underwriting once an investment by
a Fund of Funds in the securities of the Unaffiliated Investment
Company exceeds the limit of section 12(d)(1)(A)(i) of the 1940 Act,
including any purchases made directly from an Underwriting Affiliate.
The Board of the Unaffiliated Investment Company will review these
purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Fund of Funds in the Unaffiliated Investment Company. The Board of
the Unaffiliated Investment Company will consider, among other things:
(a) Whether the purchases were consistent with the investment
objectives and policies of the Unaffiliated Investment Company; (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
Investment Company in Affiliated Underwritings and the amount purchased
directly from an Underwriting Affiliate have changed significantly from
prior years. The Board of the Unaffiliated Investment Company will take
any appropriate actions based on its review, including, if appropriate,
the institution of procedures designed to ensure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders.
7. Each Unaffiliated Investment Company 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 an Affiliated Underwriting once an investment by a Fund
of Funds in the securities of an Unaffiliated Investment Company
exceeds the limit of section 12(d)(1)(A)(i) of the 1940 Act, setting
forth (1) the party from whom the securities were acquired, (2) the
identity of the underwriting syndicate's members, (3) the terms of the
purchase, and (4) the information or materials upon which the
determinations of the Board of the Unaffiliated Investment Company were
made.
8. Prior to its investment in shares of an Unaffiliated Investment
Company in excess of the limit set forth in section 12(d)(1)(A)(i) of
the 1940 Act, the Fund of Funds and the Unaffiliated Investment Company
will execute a Participation Agreement stating, without limitation,
that their Boards and their investment advisers 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 Investment Company in excess of the limit set forth in
section 12(d)(1)(A)(i), a Fund of Funds will notify the Unaffiliated
Investment Company of the investment. At such time, the Fund of Funds
will also transmit to the Unaffiliated Investment Company a list of the
names of each Fund of Funds Affiliate and Underwriting Affiliate. The
Fund of Funds will notify the
[[Page 1527]]
Unaffiliated Investment Company of any changes to the list as soon as
reasonably practicable after a change occurs. The Unaffiliated
Investment Company and the Fund of Funds 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. Before approving any advisory contract under section 15 of the
1940 Act, the Board of each Fund of Funds, including a majority of the
Independent Trustees, shall find that the advisory fees charged under
the advisory contract are based on services provided that are in
addition to, rather than duplicative of, services provided under the
advisory contract(s) of any Underlying Fund in which the Fund of Funds
may invest. Such finding, and the basis upon which the finding was
made, will be recorded fully in the minute books of the appropriate
Fund of Funds.
10. The Advisor will waive fees otherwise payable to it by a Fund
of Funds in an amount at least equal to any compensation (including
fees received pursuant to any plan adopted by an Unaffiliated
Investment Company pursuant to rule 12b-1 under the 1940 Act) received
from an Unaffiliated Fund by the Advisor, or an affiliated person of
the Advisor, other than any advisory fees paid to the Advisor or its
affiliated person by the Unaffiliated Investment Company, in connection
with the investment by the Fund of Funds in the Unaffiliated Fund. Any
Sub-Adviser will waive fees otherwise payable to the Sub-Adviser,
directly or indirectly, by the Fund of Funds in an amount at least
equal to any compensation received by the Sub-Adviser, or an affiliated
person of the Sub-Adviser, from an Unaffiliated Fund, other than any
advisory fees paid to the Sub-Adviser or its affiliated person by the
Unaffiliated Investment Company in connection with the investment by
the Fund of Funds in the Unaffiliated Fund made at the direction of the
Sub-Adviser. In the event that the Sub-Adviser waives fees, the benefit
of the waiver will be passed through to the Fund of Funds.
11. Any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to
funds of funds set forth in NASD Conduct Rule 2830.
12. No Underlying Fund will acquire securities of any other
investment company or company relying on section 3(c)(1) or 3(c)(7) of
the 1940 Act, in excess of the limits contained in section 12(d)(1)(A)
of the 1940 Act, except to the extent that such Underlying Fund: (a)
Acquires such securities in compliance with section 12(d)(1)(E) of the
1940 Act and is either an Affiliated Fund or is in the same ``group of
investment companies'' as its corresponding master fund; (b) receives
securities of another investment company as a dividend or as a result
of a plan of reorganization of a company (other than a plan devised for
the purpose of evading section 12(d)(1) of the 1940 Act); or (c)
acquires (or is deemed to have acquired) securities of another
investment company pursuant to exemptive relief from the Commission
permitting such Underlying Fund to: (i) Acquire securities of one or
more investment companies for short-term cash management purposes or
(ii) engage in inter-fund borrowing and lending transactions.
Other Investments by Section 12(d)(1)(G) Funds of Funds
In addition, Applicants agree that the order granting the requested
relief to permit Section 12(d)(1)(G) Funds of Funds to invest in Other
Investments shall be subject to the following condition:
13. Applicants will comply with all provisions of rule 12d1-2 under
the 1940 Act, except for paragraph (a)(2) to the extent that it
restricts any Section 12(d)(1)(G) Fund of Funds from investing in Other
Investments as described in the application.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2015-00226 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P