[Federal Register Volume 79, Number 43 (Wednesday, March 5, 2014)]
[Notices]
[Pages 12532-12535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-04800]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30969; File No. 812-14282]


Hatteras Alternative Mutual Funds Trust, et al., Notice of 
Application

February 27, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act, as well as from certain 
disclosure requirements.

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Summary of Application: Applicants request an order that would permit 
them to enter into and materially amend sub-advisory agreements with 
Wholly-Owned Sub-Advisers (as defined below) and Non-Affiliated Sub-
Advisers (as defined below) without shareholder approval and would 
grant relief from certain disclosure requirements. The order would 
supersede a prior order that granted relief with respect to non-
affiliated sub-advisers and from certain disclosure requirements 
(``Prior Order'').\1\
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    \1\ AIP Alternative Strategies Funds and Alternative Investment 
Partners LLC, Investment Company Act Release Nos. 26284 (Dec. 4, 
2003) (notice) and 26318 (Jan. 5, 2004) (order).

Applicants: Hatteras Alternative Mutual Funds Trust (``HAMFT'') (f/k/a/
AIP Alternative Strategies Funds), Underlying Funds Trust (``UFT'') 
(HAMFT and UFT, each, a ``Trust'' and, together, the ``Trusts''), and 
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Scotland Acquisition, LLC, d/b/a Hatteras Funds, LLC (``Adviser'').

DATES: Filing Dates: The application was filed on February 21, 2014.

Hearing or Notification of Hearing: An order granting the application 
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 March 24, 2014 and should be accompanied by proof of service on 
applicants, in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090. Applicants: 8540 Colonnade 
Center Drive, Suite 401, Raleigh, NC 27615.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873, 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 an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Each Trust is organized as a Delaware statutory trust and is 
registered under the Act as an open-end management investment company. 
Each Trust currently is comprised of five separate series of shares 
(each, a ``Series''), each with its own distinct investment objective, 
strategies, policies and restrictions. The Series of HAMFT pursue their 
respective investment objectives by investing substantially all of 
their assets in one or more of the Series of UFT pursuant to section 
12(d)(1)(G) of the Act. The Adviser, a Delaware limited liability 
company, is a wholly-owned subsidiary of RCS Advisory Services, LLC, 
which is an operating subsidiary of RCS Capital

[[Page 12533]]

Corporation.\2\ The Adviser is registered as an investment adviser 
under the Investment Advisers Act of 1940 (``Advisers Act'').\3\ Any 
future Adviser will also be registered as an investment adviser under 
the Advisers Act.
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    \2\ The term ``Adviser'' includes (a) Scotland Acquisition, LLC, 
d/b/a/Hatteras Funds, LLC and (b) any entity controlling, controlled 
by or under common control with, Scotland Acquisition, LLC, d/b/a 
Hatteras Funds, LLC or its successors. For the purposes of the 
requested order, ``successor'' is limited to an entity that results 
from a reorganization into another jurisdiction or a change in the 
type of business organization.
    \3\ Applicants request that the relief apply to applicants, as 
well as to any future Series and any other existing or future 
registered open-end management investment company or series thereof 
that: (a) Is advised by the Adviser; (b) uses the manager of 
managers structure described in the application (``Manager of 
Managers Structure''); and (c) complies with the terms and 
conditions of the application (``Sub-Advised Series''). All 
registered open-end management investment companies that currently 
intend to rely on the requested order are named as applicants. Any 
entity that relies on the requested order will do so only in 
accordance with the terms and conditions contained in the 
application. If the name of any Sub-Advised Series contains the name 
of a Sub-Adviser, the name of the Adviser that serves as the primary 
adviser to the Sub-Advised Series, or a trademark or trade name that 
is owned by that Adviser, will precede the name of the Sub-Adviser.
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    2. The Adviser will serve as the investment adviser to each Series 
pursuant to an investment advisory agreement with the applicable Trust 
(``Investment Advisory Agreement'').\4\ The Investment Advisory 
Agreement has been approved, or will be approved, by the board of 
trustees of the applicable Trust (``Board''),\5\ including a majority 
of the members of the Board who are not ``interested persons,'' as 
defined in section 2(a)(19) of the Act, of the applicable Trust, of a 
Series or the Adviser (``Independent Trustees'') and by the 
shareholders of the relevant Series as required by sections 15(a) and 
15(c) of the Act and rule 18f-2 thereunder. The terms of the Investment 
Advisory Agreement comply with section 15(a) of the Act.
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    \4\ On October 1, 2013, RCS Capital Corporation and the Adviser 
entered into an asset purchase agreement (``Purchase Agreement'') 
with Hatteras Alternative Mutual Funds, LLC (``HAMF'') (f/k/a AIP 
Alternative Investment Partners LLC), the current investment adviser 
to the Trusts. Under the Purchase Agreement, the Adviser will 
purchase from HAMF, and HAMF will sell to the Adviser, substantially 
all the assets related to the business and operations of HAMF (the 
``Transfer''). The consummation of the Transfer is subject to 
various conditions, including shareholder approval of the Investment 
Advisory Agreements between the Adviser and the applicable Trust. 
The requested order would supersede the Prior Order following the 
consummation of the Transfer.
    \5\ The term ``Board'' also includes the board of trustees or 
directors of a future Series.
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    3. Under the terms of the Investment Advisory Agreement, the 
Adviser, subject to the supervision of the Board, will provide 
continuous investment management of the assets of each Series. The 
Adviser will periodically review each Series' investment objective, 
policies and strategies, and based on the need of a Series may 
recommend changes to the investment objective, policies and strategies 
of the Series for consideration by the Board. For its services to each 
Series under the Investment Advisory Agreement, the Adviser will 
receive an advisory fee from that Series based on the average daily net 
assets of that Series. The Investment Advisory Agreement provides that 
the Adviser may, subject to the approval of the Board, including a 
majority of the Independent Trustees, and the shareholders of the 
applicable Series (if required), delegate portfolio management 
responsibilities of all or a portion of the assets of a Series to a 
Sub-Adviser.\6\
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    \6\ As used herein, a ``Sub-Adviser'' for a Series is: (a) An 
indirect or direct ``wholly-owned subsidiary'' (as such term is 
defined in the Act) of the Adviser for that Series; (b) a sister 
company of the Adviser for that Series that is an indirect or direct 
``wholly-owned subsidiary'' (as such term is defined in the Act) of 
the same entity that, indirectly or directly, wholly owns the 
Adviser (each of (a) and (b), a ``Wholly-Owned Sub-Adviser'' and 
collectively, the ``Wholly-Owned Sub-Advisers''); or (c) an 
investment sub-adviser for that Series that is not an ``affiliated 
person'' (as such term is defined in section 2(a)(3) of the Act) of 
the applicable Series, the applicable Trust, or the Adviser, except 
to the extent that an affiliation arises solely because the Sub-
Adviser serves as a sub-adviser to a Series (each, a ``Non-
Affiliated Sub-Adviser'').
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    4. Applicants request an order to permit the Adviser, subject to 
the approval of the Board, including a majority of the Independent 
Trustees, to, without obtaining shareholder approval: (i) Select Sub-
Advisers to manage all or a portion of the assets of a Series and enter 
into Sub-Advisory Agreements (as defined below) with the Sub-Advisers; 
and (ii) materially amend Sub-Advisory Agreements with the Sub-
Advisers.\7\ The requested relief will not extend to any sub-adviser, 
other than a Wholly-Owned Sub-Adviser, who is an affiliated person, as 
defined in section 2(a)(3) of the Act, of the Sub-Advised Series, of 
the Trust, or of the Adviser, other than by reason of serving as a sub-
adviser to one or more of the Sub-Advised Series (``Affiliated Sub-
Adviser'').
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    \7\ Shareholder approval will continue to be required for any 
other sub-adviser change (not otherwise permitted by rule or other 
action of the Commission or staff) and material amendments to an 
existing sub-advisory agreement with any sub-adviser other than a 
Non-Affiliated Sub-Adviser or a Wholly-Owned Sub-Adviser (all such 
changes referred to as ``Ineligible Sub-Adviser Changes'').
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    5. Pursuant to the terms of the Investment Advisory Agreement, the 
Adviser will have overall responsibility for the management and 
investment of each Series' assets. These responsibilities include 
recommending the removal or replacement of Sub-Advisers, determining 
the portion of that Sub-Advised Series' assets to be managed by any 
given Sub-Adviser and reallocating those assets as necessary from time 
to time.
    6. The Adviser will enter into sub-advisory agreements with various 
Sub-Advisers (``Sub-Advisory Agreements'') to provide investment 
management services to the Sub-Advised Series. The terms of the Sub-
Advisory Agreements will comply with the requirements of section 15(a) 
of the Act and will be approved by the Board, including a majority of 
the Independent Trustees, in accordance with sections 15(a) and 15(c) 
of the Act and rule 18f-2 thereunder. The specific day-to-day 
investment decisions for each applicable Series will be made by that 
Series' Sub-Adviser, which has discretionary authority to invest the 
assets or a portion of the assets of that Series subject to the general 
supervision of the Adviser and the Board. The Adviser will compensate 
each Sub-Adviser out of the advisory fees paid to the Adviser under the 
Investment Advisory Agreement; in the future, Sub-Advised Series may 
directly pay advisory fees to the Sub-Advisers.
    7. Sub-Advised Series will inform shareholders of the hiring of a 
new Sub-Adviser pursuant to the following procedures (``Notice and 
Access Procedures''): (a) Within 90 days after a new Sub-Adviser is 
hired for any Sub-Advised Series, that Sub-Advised Series will send its 
shareholders either a Multi-Manager Notice or a Multi-Manager Notice 
and Multi-Manager Information Statement; \8\ and (b) the Sub-Advised 
Series will make the Multi-Manager Information Statement available on 
the Web site identified in

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the Multi-Manager Notice no later than when the Multi-Manager Notice 
(or Multi-Manager Notice and Multi-Manager Information Statement) is 
first sent to shareholders, and will maintain it on that Web site for 
at least 90 days thereafter. In the circumstances described in the 
application, a proxy solicitation to approve the appointment of new 
Sub-Advisers provides no more meaningful information to shareholders 
than the proposed Multi-Manager Information Statement. Applicants state 
that each Board would comply with the requirements of sections 15(a) 
and 15(c) of the Act before entering into or amending a Sub-Advisory 
Agreement.
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    \8\ A ``Multi-Manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Securities 
Exchange Act of 1934 (``Exchange Act''), and specifically will, 
among other things: (a) Summarize the relevant information regarding 
the new Sub-Adviser; (b) inform shareholders that the Multi-Manager 
Information Statement is available on a Web site; (c) provide the 
Web site address; (d) state the time period during which the Multi-
Manager Information Statement will remain available on that Web 
site; (e) provide instructions for accessing and printing the Multi-
Manager Information Statement; and (f) instruct the shareholder that 
a paper or email copy of the Multi-Manager Information Statement may 
be obtained, without charge, by contacting the Sub-Advised Series.
    \\A ``Multi-Manager Information Statement'' will meet the 
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 
14A under the Exchange Act for an information statement, except as 
modified by the order to permit Aggregate Fee Disclosure (as defined 
below). Multi-Manager Information Statements will be filed with the 
Commission via the EDGAR system.
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    8. Applicants also request an order exempting the Sub-Advised 
Series from certain disclosure obligations that may require each Sub-
Advised Series to disclose fees paid by the Adviser to each Sub-
Adviser. Applicants seek relief to permit each Sub-Advised Series to 
disclose (as a dollar amount and a percentage of the Sub-Advised 
Series' net assets): (a) The aggregate fees paid to the Adviser and any 
Wholly-Owned Sub-Advisers; (b) the aggregate fees paid to Non-
Affiliated Sub-Advisers; and (c) the fee paid to each Affiliated Sub-
Adviser (collectively, the ``Aggregate Fee Disclosure'').

Applicants' Legal Analysis

    1. Section 15(a) of the Act states, in part, that it is unlawful 
for any person to act as an investment adviser to a registered 
investment company ``except pursuant to a written contract, which 
contract, whether with such registered company or with an investment 
adviser of such registered company, has been approved by the vote of a 
majority of the outstanding voting securities of such registered 
company.'' Rule 18f-2 under the Act provides that each series or class 
of stock in a series investment company affected by a matter must 
approve that matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(a)(3) of Form N-1A requires a registered 
investment company to disclose in its statement of additional 
information the method of computing the ``advisory fee payable'' by the 
investment company, including the total dollar amounts that the 
investment company ``paid to the adviser (aggregated with amounts paid 
to affiliated advisers, if any), and any advisers who are not 
affiliated persons of the adviser, under the investment advisory 
contract for the last three fiscal years.''
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to a registered investment company to comply with Schedule 14A under 
the Exchange Act. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 
22(c)(9) of Schedule 14A, taken together, require a proxy statement for 
a shareholder meeting at which the advisory contract will be voted upon 
to include the ``rate of compensation of the investment adviser,'' the 
``aggregate amount of the investment adviser's fee,'' a description of 
the ``terms of the contract to be acted upon,'' and, if a change in the 
advisory fee is proposed, the existing and proposed fees and the 
difference between the two fees.
    4. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of a registered investment 
company's registration statement and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
a registered investment company to include in its financial statement 
information about the investment advisory fees.
    5. Section 6(c) of the Act provides that the Commission by order 
upon application may conditionally or unconditionally exempt any 
person, security, or transaction or any class or classes of persons, 
securities, or transactions from any provisions of the Act, or from any 
rule thereunder, 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. 
Applicants state that their requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Adviser, 
subject to the review and approval of the Board, to select the Sub-
Advisers that are suited to achieve the Series' investment objective. 
Applicants assert that, from the perspective of the shareholder, the 
role of the Sub-Adviser is substantially equivalent to the role of the 
individual portfolio managers employed by an investment adviser to a 
traditional investment company. Applicants believe that permitting the 
Adviser to perform the duties for which the shareholders of the Sub-
Advised Series are paying the Adviser--the selection, supervision and 
evaluation of the Sub-Adviser--without incurring unnecessary delays or 
expenses is appropriate in the interest of the Series' shareholders and 
will allow the Series to operate more efficiently. Applicants state 
that the Investment Advisory Agreement will continue to be fully 
subject to section 15(a) of the Act and rule 18f-2 under the Act and 
approved by the Board, including a majority of the Independent 
Trustees, in the manner required by sections 15(a) and 15(c) of the 
Act. Applicants are not seeking an exemption with respect to the 
Investment Advisory Agreement.
    7. Applicants assert that disclosure of the individual fees that 
the Adviser or Sub-Advised Series would pay to the Sub-Advisers would 
not serve any meaningful purpose. Applicants contend that the primary 
reasons for requiring disclosure of individual fees paid to Sub-
Advisers are to inform shareholders of expenses to be charged by a 
particular Sub-Advised Series and to enable shareholders to compare the 
fees to those of other comparable investment companies. Applicants 
believe that the requested relief satisfies these objectives because 
the advisory fee paid to the Adviser, or the Aggregate Fee Disclosure, 
in the case of a Sub-Advised Series that directly compensates a Sub-
Adviser, will be fully disclosed and, therefore, shareholders will know 
what the Sub-Advised Series' fees and expenses are and will be able to 
compare the advisory fees a Sub-Advised Series is charged to those of 
other investment companies. Applicants assert that the requested 
disclosure relief would benefit shareholders of the Sub-Advised Series 
because it would improve the Adviser's ability to negotiate the fees 
paid to Sub-Advisers. Applicants state that the Adviser may be able to 
negotiate rates that are below a Sub-Adviser's ``posted'' amounts if 
the Adviser is not required to disclose the Sub-Advisers' fees to the 
public. Applicants submit that the relief requested to use Aggregate 
Fee Disclosure will encourage Sub-Advisers to negotiate lower sub-
advisory fees with the Adviser if the lower fees are not required to be 
made public.
    8. For the reasons discussed above, applicants submit that the 
requested relief meets the standards for relief under section 6(c) of 
the Act. Applicants state that the operation of the Sub-Advised Series 
in the manner described in the application must be approved by 
shareholders of a Sub-Advised Series before that Sub-Advised Series may 
rely on the requested relief. In addition, applicants state that the 
proposed conditions to the requested relief are designed to address any 
potential conflicts of interest, including any posed by the use of 
Wholly-Owned Sub-Advisers, and provide that shareholders are informed 
when new Sub-Advisers are hired. Applicants assert that conditions 6, 
7, 9, 10 and 11 are designed to provide the Board with sufficient 
independence and the resources and information it needs to

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monitor and address any conflicts of interest with affiliated persons 
of the Adviser, including Wholly-Owned Sub-Advisers. Applicants state 
that, accordingly, they believe the requested relief 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' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Sub-Advised Series may rely on the order requested in 
the application, the operation of the Sub-Advised Series in the manner 
described in the application, including the hiring of Wholly-Owned Sub-
Advisers, has been, or will be, approved by, a majority of the Sub-
Advised Series' outstanding voting securities, as defined in the Act, 
or in the case of a Sub-Advised Series whose public shareholders 
purchase shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the sole initial shareholder 
before offering the Sub-Advised Series' shares to the public.
    2. The prospectus for each Sub-Advised Series will disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. Each Sub-Advised Series will hold itself out to the public 
as employing the Manager of Managers Structure. Each prospectus will 
prominently disclose that the Adviser has the ultimate responsibility, 
subject to oversight by the Board, to oversee the Sub-Advisers and 
recommend their hiring, termination and replacement.
    3. The Adviser will provide general management services to each 
Sub-Advised Series, including overall supervisory responsibility for 
the general management and investment of the Sub-Advised Series' 
assets, and, subject to review and approval by the Board, the Adviser 
will: (a) Set the Sub-Advised Series' overall investment strategies; 
(b) evaluate, select, and recommend Sub-Advisers to manage all or a 
portion of the Sub-Advised Series' assets; and (c) implement procedures 
reasonably designed to ensure that the Sub-Advisers comply with a Sub-
Advised Series' investment objectives, policies and restrictions. 
Subject to review by the Board, the Adviser will (a) when appropriate, 
allocate and reallocate the Sub-Advised Series' assets among multiple 
Sub-Advisers; and (b) monitor and evaluate the performance of Sub-
Advisers.
    4. A Sub-Advised Series will not make any Ineligible Sub-Adviser 
Changes without the approval of the shareholders of the applicable Sub-
Advised Series.
    5. A Sub-Advised Series will inform shareholders of the hiring of a 
new Sub-Adviser within 90 days after the hiring of the new Sub-Adviser 
pursuant to the Notice and Access Procedures.
    6. At all times, at least a majority of the Board will be 
Independent Trustees, and the selection and nomination of new or 
additional Independent Trustees will be placed within the discretion of 
the then-existing Independent Trustees.
    7. Independent Legal Counsel, as defined in rule 0-1(a)(6) under 
the Act, will continue to be engaged to represent the Independent 
Trustees. The selection of such counsel will be within the discretion 
of the then-existing Independent Trustees.
    8. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Sub-Advised Series basis. The information will reflect the impact 
on profitability of the hiring or termination of any sub-adviser during 
the applicable quarter.
    9. Whenever a sub-adviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    10. Whenever a sub-adviser change is proposed for a Sub-Advised 
Series with an Affiliated Sub-Adviser or a Wholly-Owned Sub-Adviser, 
the Board, including a majority of the Independent Trustees, will make 
a separate finding, reflected in the applicable Trust's Board minutes, 
that such change is in the best interests of the Sub-Advised Series and 
its shareholders and does not involve a conflict of interest from which 
the Adviser or the Affiliated Sub-Adviser or Wholly-Owned Sub-Adviser 
derives an inappropriate advantage.
    11. No trustee or officer of the Trusts or of a Sub-Advised Series 
or any partner, director, manager or officer of the Adviser will own 
directly or indirectly (other than through a pooled investment vehicle 
that is not controlled by such person) any interest in a Sub-Adviser 
except for: (a) Ownership of interests in the Adviser or any entity, 
other than a Wholly-Owned Sub-Adviser, that controls, is controlled by, 
or is under common control with the Adviser; or (b) ownership of less 
than 1% of the outstanding securities of any class of equity or debt of 
a publicly traded company that is either a Sub-Adviser or an entity 
that controls, is controlled by, or is under common control with a Sub-
Adviser.
    12. Each Sub-Advised Series will disclose the Aggregate Fee 
Disclosure in its registration statement.
    13. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that in the order requested 
in the application, the requested order will expire on the effective 
date of that rule.
    14. For Sub-Advised Series that pay fees to a Sub-Adviser directly 
from fund assets, any changes to a Sub-Advisory Agreement that would 
result in an increase in the total management and advisory fees payable 
by a Sub-Advised Series will be required to be approved by the 
shareholders of the Sub-Advised Series.

    For the Comission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04800 Filed 3-4-14; 8:45 am]
BILLING CODE 8011-01-P