72718 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 

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 

sections 6(c), discussed above, and 

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 openend 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 

requirements of rule 22d–1 under the 

Act. 

Asset-Based Distribution Fees 

1. Section 17(d) of the Act and rule 

17d–1 under the Act prohibit an 

affiliated person of a registered 

investment company or an affiliated 

person of such person, acting as 

principal, from participating in or 

effecting any transaction in connection 

with any joint enterprise or joint 

arrangement in which the investment 

company participates unless the 

Commission issues an order permitting 

the transaction. In reviewing 

applications submitted under section 

17(d) and rule 17d–1, the Commission 

considers whether the participation of 

the investment company in a joint 

enterprise or joint arrangement is 

consistent with the provisions, policies 

and purposes of the 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’ 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 closedend management investment 

companies. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–28648 Filed 12–5–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

31363; 812–14264] 

Elkhorn Investments, LLC and Elkhorn 

ETF Trust; Notice of Application 

December 2, 2014. 

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 

‘‘Act’’) for exemptions from sections 

12(d)(1)(A), (B), and (C) of the Act, 

under sections 6(c) and 17(b) of the Act 

for an exemption from section 17(a) of 

the Act, and under section 6(c) of the 

Act for an exemption from rule 12d1– 

2(a) under the Act. 

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 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 Act to invest in 

certain financial instruments. 

APPLICANTS: Elkhorn Investments, LLC 

(‘‘Adviser’’) and Elkhorn ETF Trust 

(‘‘Trust’’). 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 72719 

1The Applicants request that the order apply not 

only to any existing series of the Trust, but that the 

order also extend 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 Act, as the Trust and are 

advised by the Adviser or any other investment 

adviser controlling, controlled by, or under 

common control with the Adviser (together with the 

series of the Trust, each series a ‘‘Fund,’’ and 

collectively, the ‘‘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. 

2All references to the term ‘‘Adviser’’ include 

successors-in-interest to the Adviser. A successorin-interest is limited to an entity that results from 

a reorganization into another jurisdiction or a 

change in the type of business organization. 

3For purposes of the request for relief, the term 

‘‘group of investment companies’’ means any two 

or more investment companies, including closedend investment companies and business 

development companies, that hold themselves out 

to investors as related companies for purposes of 

investment and investor services. 

4Certain of the Underlying Funds may be 

registered under the 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 

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. 

5Applicants 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. 

FILING DATES: The application was filed 

on January 9, 2014, and amended on 

May 30, 2014, and October 10, 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 December 26, 2014, and 

should be accompanied by proof of 

service on applicants, in the form of an 

affidavit or, for lawyers, a certificate of 

service. Pursuant to rule 0–5 under the 

Act, hearing requests should state the 

nature of the writer’s interest, any facts 

bearing upon the desirability of a 

hearing on the matter, the reason for the 

request, and the issues contested. 

Persons who wish to be notified of a 

hearing may request notification by 

writing to the Commission’s Secretary. 

ADDRESSES: Brent J. Fields, Secretary, 

U.S. Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. Adviser 

and Trust, 207 Reber Street, Suite 201, 

Wheaton, IL 60187. 

FOR FURTHER INFORMATION CONTACT: Jean 

E. Minarick, Senior Counsel, at (202) 

551–6811, or Daniele Marchesani, 

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 Act and organized as a 

Massachusetts business trust. The Trust 

intends to have multiple series 

(‘‘Funds’’) which pursue distinct 

investment objectives and strategies.1

The Adviser, a Delaware limited 

liability company, is a registered 

investment adviser under the 

Investment Advisers Act of 1940. The 

Adviser, or an entity controlling, 

controlled by, or under common control 

with the Adviser, will serve as the 

investment adviser to each of the 

Funds.2

3. Applicants request relief to the 

extent necessary to permit: (a) A 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,’’ and 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 Act to exempt applicants 

from section 17(a) to the extent 

necessary to permit Underlying Funds 

organized as open-end management 

investment companies and UITs to sell 

their shares to Funds of Funds and 

redeem their shares from Funds of 

Funds. 

4. Applicants also request an 

exemption under section 6(c) from rule 

12d1–2 under the Act to permit any 

existing or future Fund of Funds that 

relies on section 12(d)(1)(G) of the Act 

(‘‘Section 12(d)(1)(G) Fund of Funds’’) 

and that otherwise complies with rule 

12d1–2 under the 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 Act (‘‘Other Investments’’). 

Applicants’ Legal Analysis 

A. Section 12(d)(1) 

1. Section 12(d)(1)(A) of the 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 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 

mstockstill on DSK4VPTVN1PROD with NOTICES

72720 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 

6A ‘‘Fund of Funds Affiliate’’ is the Adviser, 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. 

7An ‘‘Underwriting Affiliate’’ is a principal 

underwriter in any underwriting or selling 

syndicate that is an officer, director, trustee, 

advisory board member, investment adviser, subadviser 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 Act. 

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 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 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 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 

Act. 

3. 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. 

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 Adviser and any person 

controlling, controlled by or under 

common control with the Adviser, 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 Act advised or sponsored by the 

Adviser or any person controlling, 

controlled by or under common control 

with the Adviser (collectively, the 

‘‘Group’’) from controlling (individually 

or in the aggregate) an Unaffiliated Fund 

within the meaning of section 2(a)(9) of 

the Act. The same prohibition would 

apply to any other investment adviser 

within the meaning of section 

2(a)(20)(B) of the Act to a Fund of Funds 

(‘‘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 

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 SubAdviser (collectively, the ‘‘Sub-Adviser 

Group’’). 

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 SubAdviser 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 Act will vote its 

shares of the Unaffiliated Closed-End 

Investment Company in the manner 

prescribed by section 12(d)(1)(E) of the 

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

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 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 

(each, a ‘‘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 Act 

by declining to execute the Participation 

Agreement with the Fund of Funds. In 

addition, an Unaffiliated Investment 

Company (other than an ETF or 

Unaffiliated Closed-End Investment 

Company 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, solely upon notice to a 

Fund of Funds, an Unaffiliated 

Investment Company could terminate a 

Participation Agreement with the Fund 

of Funds effective at the end of the 

notice period specified in the 

Participation Agreement. 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 72721 

8Any references to NASD Conduct Rule 2830 

include any successor or replacement Financial 

Industry Regulatory Authority rule to NASD 

Conduct Rule 2830. 

9Applicants 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 Act. The Participation 

Agreement also will include this acknowledgement. 

10Applicants note that a Fund of Funds generally 

would purchase and sell shares of an Underlying 

Fund that operates as an ETF 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 

Act, of an ETF to purchase or redeem shares from 

the ETF. Applicants are not seeking relief from 

section 17(a) for, and the requested relief will not 

apply to, transactions where an ETF 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 is also an 

investment adviser to the Fund of Funds. 

Applicants note that a Fund of Funds will purchase 

and sell shares of an Underlying Fund that is a 

closed-end fund through secondary market 

transactions at market prices rather than through 

principal transactions with the closed-end fund. 

Accordingly, applicants are not requesting section 

17(a) relief with respect to principal transactions 

with closed-end funds (including business 

development companies). 

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 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 

Adviser 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 Act) received from 

an Unaffiliated Fund by the Adviser, or 

an affiliated person of the Adviser, other 

than any advisory fees paid to the 

Adviser or an affiliated person of the 

Adviser 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

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 

the Act in excess of the limits contained 

in section 12(d)(1)(A) of the Act, except 

in certain circumstances identified in 

condition 12 below. 

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 the Funds of 

Funds and the Affiliated Funds may be 

deemed to be under the common control 

of the Adviser and, therefore, affiliated 

persons of one another. Applicants also 

state that the Funds of Funds and the 

Underlying Funds organized as openend management investment companies 

and UITs 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 Underlying Funds organized as openend management investment companies 

and UITs to the Funds of Funds and the 

purchase of those shares from the Funds 

of Funds by such Underlying Funds 

(through redemptions) could be deemed 

to violate section 17(a).9

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 (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 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 transactions are 

reasonable and fair and do not involve 

overreaching. Applicants state that the 

terms upon which an Underlying Fund 

that is an open-end management 

investment company 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 Act.10

Applicants also state that the proposed 

transactions will be consistent with the 

policies of each Fund of Funds and 

Underlying Fund, and with the general 

purposes of the Act. 

C. Other Investments by Section 

12(d)(1)(G) Funds of Funds 

1. Section 12(d)(1)(G) of the 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 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 

Act, government securities, and shortterm 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 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 Act. 

2. Rule 12d1–2 under the Act permits 

a registered open-end investment 

company or a registered UIT that relies 

on section 12(d)(1)(G) of the Act to 

acquire, in addition to securities issued 

by another registered investment 

company in the same group of 

investment companies, government 

mstockstill on DSK4VPTVN1PROD with NOTICES

72722 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 

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 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 Act. For the 

purposes of rule 12d1–2, ‘‘securities’’ 

means any security as defined in section 

2(a)(36) of the Act. 

3. Applicants state that the proposed 

arrangement would comply with rule 

12d1–2 under the 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 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 Act 

was intended to address. 

4. Consistent with its fiduciary 

obligations under the 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 

A. 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: 

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. 

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 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 Act 

will vote its shares of the Unaffiliated 

Closed-End Investment Company in the 

manner prescribed by section 

12(d)(1)(E) of the 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 SubAdviser 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 SubAdviser 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 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 its 

Adviser and any Sub-Adviser to the 

Fund of Funds are 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 Investment Company or 

Unaffiliated Trust or any Unaffiliated 

Fund Affiliate of such Unaffiliated 

Investment Company or Unaffiliated 

Trust 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 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 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 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 72723 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

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 interests 

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 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 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 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 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 Adviser 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 Act) 

received from an Unaffiliated Fund by 

the Adviser, or an affiliated person of 

the Adviser, other than any advisory 

fees paid to the Adviser 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 Act, in excess of 

the limits contained in section 

12(d)(1)(A) of the Act, except to the 

extent that such Underlying Fund: (a) 

Acquires such securities in compliance 

with section 12(d)(1)(E) of the Act and 

either is 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 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. 

B. Other Investments by Section 

12(d)(1)(G) Funds of Funds 

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: 

1. Applicants will comply with all 

provisions of rule 12d1–2 under the 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. 2014–28682 Filed 12–5–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73716; File No. SR– 

NYSEArca–2014–134] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of Proposed 

Rule Change Relating to Listing and 

Trading the following Series of IndexIQ 

Active ETF Trust Under NYSE Arca 

Equities Rule 8.600: IQ Wilshire 

Alternative Strategies ETF 

December 2, 2014. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on 

November 18, 2014, NYSE Arca, Inc. 

(the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed 

with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the selfregulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

mstockstill on DSK4VPTVN1PROD with NOTICES