80 FR 46372 - Little Harbor MultiStrategy Composite Fund and Little Harbor Advisors, LLC; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 149 (August 4, 2015)

[Federal Register Volume 80, Number 149 (Tuesday, August 4, 2015)]
[Notices]
[Pages 46372-46375]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-19014]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31726; File No. 812-14395]


Little Harbor MultiStrategy Composite Fund and Little Harbor 
Advisors, LLC; Notice of Application

July 28, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from sections 18(c) 
and 18(i) of the Act, under sections 6(c) and 23(c)(3) of the Act for 
an exemption from rule 23c-3 under the Act, and for an order pursuant 
to section 17(d) of the Act and rule 17d-1 under the Act.

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Summary of Application:  Applicants request an order to permit certain 
registered closed-end management investment companies to issue multiple 
classes of shares (``Shares'') and to impose asset-based distribution 
and service fees and deferred sales charges (``Deferred Sales 
Charges'').

Applicants:  Little Harbor MultiStrategy Composite Fund (``MSC Fund'') 
and Little Harbor Advisors, LLC (``Investment Manager'').

Filing Dates:  The application was filed on December 2, 2014, and 
amended on April 10, 2015 and June 17, 2015.

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

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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 August 
24, 2015 and should be accompanied by proof of service on the 
applicants, in the form of an affidavit, or, for lawyers, a certificate 
of service. Pursuant to rule 0-5 under the Act, hearing requests should 
state the nature of the writer's interest, any facts bearing upon the 
desirability of a hearing on the matter, the reason for the request, 
and the issues contested. Persons who wish to be notified of a hearing 
may request notification by writing to the Commission's Secretary. 
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, 30 Doaks Lane, 
Marblehead, MA 01945.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 551-6876 or Mary Kay Frech, 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 MSC Fund is a Delaware statutory trust registered under the 
Act as a non-diversified, closed-end management investment company. The 
MSC Fund's investment objective is to realize long-term, risk-adjusted 
returns that are attractive as compared to those returns of traditional 
public equity and fixed-income markets. The MSC Fund may invest in U.S. 
and non-U.S. equities of companies with any market capitalization, 
fixed income securities of any quality, currencies, derivative 
instruments, futures contracts, options on futures contracts, and 
commodities.
    2. The Investment Manager is a Delaware limited liability company 
and is registered as an investment adviser under the Investment 
Advisers Act of 1940. The Investment Manager serves as the investment 
manager to the MSC Fund. Foreside Financial Services, LLC, a broker 
registered under the Securities Exchange Act of 1934 (``Exchange Act'') 
currently serves as the principal underwriter of the MSC Fund 
(``Distributor''). In the future, the Distributor may be an affiliated 
person, as defined in section 2(a)(3) of the Act, of the Investment 
Manager.
    3. Applicants seek an order to permit the MSC Fund to issue 
multiple classes of Shares, with varying sales charges, and/or asset-
based distribution and/or service fees, and Deferred Sales Charges.
    4. Applicants request that the order also apply to any continuously 
offered registered closed-end management investment company existing 
now or in the future for which the Investment Manager or any entity 
controlling, controlled by, or under common control with the Investment 
Manager, or any successor in interest to such entity,\1\ serves as 
investment adviser and which either operates as an ``interval fund'' 
pursuant to rule 23c-3 under the Act (each, an ``Interval Fund'') or 
provides periodic liquidity with respect to its Shares pursuant to rule 
13e-4 under the Exchange Act (each, a ``New Fund,'' and together with 
the MSC Fund, the ``Funds'').\2\
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    \1\ A successor in interest is limited to an entity that results 
from a reorganization of the entity under the laws of another 
jurisdiction or in a change in the form of business organization.
    \2\ Any Fund relying on the requested relief will do so in a 
manner consistent with the terms and conditions of the application. 
Applicants represent that any person presently intending to rely on 
the order requested is listed as an applicant.
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    5. Since February 1, 2015, the MSC Fund has made a continuous 
public offering of its single, undesignated class of Shares (the 
``Initial Class'').\3\ Shares of the MSC Fund currently are not offered 
or traded in a secondary market and are not listed on any securities 
exchange or quoted on any quotation medium. Applicants do not expect 
there to be a secondary trading market for any Fund Shares.
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    \3\ Shares of the MSC Fund are currently, and in the future will 
be, sold only to investors who meet the definition of ``accredited 
investor'' in Regulator D under the Securities Act of 1933.
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    6. The MSC Fund anticipates that Initial Class Shares will continue 
to be offered at net asset value, subject to a front-end sales load in 
addition to the current service fee. The MSC Fund and each New Fund 
propose to offer at least two, and perhaps more than two, classes of 
Shares. Shares of each new class will be offered at net asset value, 
and may be subject to a front-end sales load or a Deferred Sales 
Charge, and/or an asset-based distribution and/or service fee, and/or 
any early repurchase fee (``Early Repurchase Fee'').\4\ Because of the 
different distribution fees, shareholder service fees, and any other 
class expenses that may be attributable to the different classes, the 
net income attributable to, and any dividends payable on, each class of 
Shares may differ from each other from time to time. As a result, the 
net asset value per Share of the classes may differ over time.
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    \4\ Shares may be subject to an Early Repurchase Fee at a rate 
of 2% of the aggregate net asset value of a shareholder's Shares 
repurchased by the Fund if the interval between the date of purchase 
of the Shares and the valuation date with respect to the repurchase 
of those Shares is less than one year. Any Early Repurchase Fee 
imposed by a Fund will apply to all classes of Shares of the Fund, 
consistent with section 18 of the Act and rule 18f-3 thereunder. To 
the extent the Fund determines to waive, impose scheduled variations 
of, or eliminate any Early Repurchase Fee, it will do so 
consistently with the requirements of rule 22d-1 under the Act and 
the Fund's waiver of, scheduled variation in, or elimination of, any 
such Early Repurchase Fee will apply uniformly to all shareholders 
of the Fund.
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    7. Applicants state that, from time to time, a Fund may create and 
offer additional classes of Shares of the Fund, or may vary the 
characteristics of its Shares in the following respects: (i) The amount 
of fees permitted by a Distribution Plan \5\ and/or service plan as to 
such class; (ii) voting rights with respect to a Distribution Plan and/
or service plan as to such class; (iii) different class designations; 
(iv) the impact of any class expenses directly attributable to a 
particular class of Shares allocated on a class basis as described in 
the application; (v) differences in any dividends and net asset values 
per Share resulting from differences in fees under a Distribution Plan 
and/or service plan or in class expenses; (vi) any sales load 
structure; and (vii) any conversion features, as permitted under the 
Act.
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    \5\ Distribution fees with respect to any class of Shares of a 
Fund would be paid pursuant to a plan of distribution adopted by the 
Fund with respect to the applicable class in compliance with rules 
12b-1 and 17d-3 under the Act, as if those rules applied to closed-
end management investment companies (a ``Distribution Plan'').
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    10. Each Fund and its Distributor will comply with any requirements 
that the Commission or FINRA may adopt regarding disclosure at the 
point of sale and in transaction confirmations about the costs and 
conflicts of interest arising out of the distribution of open-end 
investment company shares, and regarding prospectus disclosure of sales 
charges and revenue sharing arrangements, as if those requirements 
applied to the Fund and the Distributor. In addition, each Fund or its 
Distributor will contractually require that any other distributor of 
the Fund's Shares comply with such requirements in connection with the 
distribution of Shares of the New Fund.
    11. Each Fund will allocate all expenses incurred by it among its 
various classes of Shares based on the respective net assets of the 
Fund attributable to each such class, except

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that the net asset value and expenses of each class will reflect the 
fees associated with the Distribution Plan of that class (if any), 
shareholder service fees attributable to a particular class (including 
transfer agency fees, if any), and any other incremental expenses of 
that class. Expenses of a Fund, respectively allocated to a particular 
class of the Fund's Shares, will be borne on a pro rata basis by each 
outstanding Share of that class. Applicants state that the Fund will 
comply with the provisions of rule 18f-3 under the Act as if it were an 
open-end investment company.
    12. Applicants state that the Interval Funds may impose Deferred 
Sales Charges on Shares submitted for repurchase that have been held 
less than a specified period and may waive the Deferred Sales Charge 
for certain categories of shareholders or transactions to be 
established from time to time. Applicants represent that each Interval 
Fund would apply the Deferred Sales Charge (and any waivers or 
scheduled variations of the Deferred Sales Charge) uniformly to all 
shareholders in a given class and consistently with the requirements of 
rule 22d-1 under the Act as if the Interval Fund were an open-end 
investment company.
    13. Each Interval Fund may offer its shareholders an exchange 
feature under which the shareholders of the Interval Fund may, in 
connection with such Interval Fund's repurchase offers, exchange their 
Shares of the Interval Fund for Shares of the same class of (i) 
registered open-end investment companies or (ii) other Funds that 
continuously offer their Shares at net asset value, and that in either 
case are in the Interval Fund's group of investment companies 
(collectively, ``Other Funds''). Shares of an Interval Fund that are 
exchanged for Shares of Other Funds will be included as part of the 
amount of the repurchase offer amount for such Interval Fund as 
specified in rule 23c-3 under the Act. Any exchange option will comply 
with rule 11a-1, 11a-3 and rule 18f-3 under the Act, as if the Interval 
Fund were an open-end investment company. In complying with rule 11a-3, 
each Interval Fund will treat any Deferred Sales Charge as if it were a 
contingent deferred sales charge (``CDSC'').

Applicants' Legal Analysis

Multiple Classes of Shares

    1. Section 18(c) of the Act provides, in relevant part, that a 
closed-end investment company may not issue or sell any senior security 
if, immediately thereafter, the company has outstanding more than one 
class of senior security. Applicants state that the creation of 
multiple classes of Shares of the Funds may be prohibited by section 
18(c), as a class may have priority over another class as to payment of 
dividends because shareholders of different classes would pay different 
fees and expenses.
    2. Section 18(i) of the Act provides that each share of stock 
issued by a registered management investment company will be a voting 
stock and have equal voting rights with every other outstanding voting 
stock. Applicants state that multiple classes of Shares of the Funds 
may violate section 18(i) of the Act because each class would be 
entitled to exclusive voting rights with respect to matters solely 
related to that class.
    3. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or any class or classes of persons, 
securities or transactions from any provision of the Act, or from any 
rule thereunder, if and to the extent such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act. Applicants request an exemption under section 
6(c) from sections 18(c) and 18(i) to permit the Funds to issue 
multiple classes of Shares.
    4. Applicants submit that the proposed allocation of expenses and 
voting rights among multiple classes is equitable and will not 
discriminate against any group or class of shareholders. Applicants 
submit that the proposed arrangements would permit a Fund to facilitate 
the distribution of its Shares and provide investors with a broader 
choice of shareholder services. Applicants assert that the proposed 
closed-end investment company multiple class structure does not raise 
the concerns underlying section 18 of the Act to any greater degree 
than open-end investment companies' multiple class structures that are 
permitted by rule 18f-3 under the Act. Applicants state that each Fund 
will comply with the provisions of rule 18f-3 as if it were an open-end 
investment company.

Deferred Sales Charge

    1. Section 23(c) of the Act provides, in relevant part, that no 
registered closed-end investment company will purchase securities of 
which it is the issuer, except: (a) On a securities exchange or other 
open market; (b) pursuant to tenders, after reasonable opportunity to 
submit tenders given to all holders of securities of the class to be 
purchased; or (c) under such 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 Interval 
Funds to impose a Deferred Sales Charge on Shares submitted for 
repurchase that have been held for less than a specified period.
    5. Applicants state that the Deferred Sales Charge they intend to 
impose is functionally similar to a CDSC imposed by an open-end 
investment company under rule 6c-10 under the Act. Rule 6c-10 permits 
open-end investment companies to impose CDSCs, subject to certain 
conditions. Applicants note that rule 6c-10 is grounded in policy 
considerations supporting the employment of CDSCs where there are 
adequate safeguards for the investor and state that the same policy 
considerations support imposition of Deferred Sales Charges in the 
interval fund context. In addition, applicants state that Deferred 
Sales Charges may be necessary for the distributor to recover 
distribution costs. Applicants represent that any Deferred Sales Charge 
imposed by the Interval Funds will comply with rule 6c-10 under the Act 
as if that rule were applicable to closed-end investment companies. 
Each Interval Fund will disclose Deferred Sales Charges in accordance 
with the requirements of Form N-1A concerning CDSCs. Applicants further 
state that each Interval Fund will apply the Deferred Sales Charge (and 
any waivers or scheduled variations of the Deferred

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Sales Charge) 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 service and/or 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.
    3. 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) is consistent with the protection of 
investors and insures that applicants do not unfairly discriminate 
against any holders of the class or classes of securities to be 
purchased. Finally, applicants submit that the requested relief meets 
the standards for relief in section 17(d) of the Act and rule 17d-1 
thereunder. Applicants state that the Funds' imposition 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:
    Applicants will comply with the provisions of rules 6c-10, 12b-1, 
17d-3, 18f-3, and 22d-1 under the Act, as amended from time to time or 
replaced, as if those rules applied to closed-end management investment 
companies, and will comply with the NASD Conduct Rule 2830, as amended 
from time to time, as if that rule applied to all closed-end management 
investment companies.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19014 Filed 8-3-15; 8:45 am]
BILLING CODE 8011-01-P