Document ID: SEC-2014-2046-0001
Agency: sec
Document Type: Notice
Title: Applications: Elkhorn Investments, LLC and Elkhorn ETF Trust
Posted Date: 2014-12-08T05:00Z

[Federal Register Volume 79, Number 235 (Monday, December 8, 2014)]
[Proposed Rules]
[Pages 72718-72723]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28682]

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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.

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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 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'').

[[Page 72719]]

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\
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    \1\ The 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.
    \2\ All references to the term ``Adviser'' include successors-
in-interest to the Adviser. 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.
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    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.
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    \3\ For purposes of the request for relief, the term ``group of 
investment companies'' means any two or more investment companies, 
including closed-end investment companies and business development 
companies, 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 
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.
    \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.
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    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

[[Page 72720]]

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 Sub-Adviser (collectively, the ``Sub-
Adviser Group'').
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    \6\ A ``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.
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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 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\
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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 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 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.

[[Page 72721]]

    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\
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    \8\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement Financial Industry Regulatory Authority 
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 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 open-end 
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 open-end 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\
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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 Act. The Participation Agreement also 
will include this acknowledgement.
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    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that (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.
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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 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).
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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 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 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

[[Page 72722]]

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 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 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

[[Page 72723]]

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