[Federal Register Volume 84, Number 93 (Tuesday, May 14, 2019)]
[Notices]
[Pages 21365-21368]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09843]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33470; 812-14975]
Ellington Income Opportunities Fund, et al.
May 8, 2019.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of an application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from sections
18(a)(2), 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.
Summary of Application: Applicants request an order to permit certain
registered closed-end management investment companies to issue multiple
classes of shares and to impose asset-based distribution and/or service
fees, early withdrawal charges (``EWCs''), and early repurchase fees.
The order would supersede the prior order.\1\
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\1\ Princeton Private Equity Fund and Princeton Fund Advisors,
LLC, Investment Co. Act Rel. 31512 (March 25, 2015) (Notice) and
31562 (April 22, 2015) (Order) (the ``PPIAF Order'').
Applicants: Ellington Income Opportunities Fund (the ``Ellington
Fund''), Princeton Private Investments Access Fund (the ``Princeton
Fund,'' and together with the Ellington Fund, the ``Initial Funds''),
Princeton Fund Advisors, LLC (the ``Investment Adviser''), and
Ellington Global Asset Management, LLC (the ``Sub-Adviser,'' and
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together with the Investment Adviser, the ``Investment Advisers'').
Filing Dates: The application was filed on November 13, 2018 and
amended on April 16, 2019.
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 June 3, 2019, 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
[[Page 21366]]
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: Ellington Income
Opportunities Fund and Princeton Private Investments Access Fund, c/o
Princeton Fund Advisors, LLC, 8000 Norman Center Drive, Suite 630,
Minneapolis, Minnesota 55437, Princeton Fund Advisors, LLC, 8000 Norman
Center Drive, Suite 630, Minneapolis, Minnesota 55437, and Ellington
Global Asset Management, LLC, 53 Forest Avenue, Suite 301, Old
Greenwich, Connecticut 06870.
FOR FURTHER INFORMATION CONTACT: Hae-Sung Lee, Senior Counsel, at (202)
551-7345, or Trace W. Rakestraw, Branch Chief, at (202) 551-6825
(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 website 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 Ellington Fund is a newly-formed Delaware statutory trust
that is registered under the Act as a continuously offered, non-
diversified, closed-end management investment company.
2. The Princeton Fund is a Delaware business trust that is
registered under the Act as a closed-end, non diversified, management
investment company.
3. The Investment Adviser, a Delaware limited liability company, is
registered as an investment adviser under the Investment Advisers Act
of 1940 (``Advisers Act''). The Investment Adviser serves as investment
adviser to the Initial Funds.
4. The Sub-Adviser, a Delaware limited liability company, is
registered as an investment adviser under the Advisers Act. The Sub-
Advisor serves as the investment sub-adviser to the Ellington Fund.
5. The applicants seek an order to permit the Funds (as defined
below) to issue multiple classes of shares of beneficial interest, each
having its own fee and expense structure and to impose EWCs, asset-
based distribution and/or service fees with respect to certain classes.
6. 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
Adviser, or any entity controlling, controlled by, or under common
control with the Investment Adviser, or any successor in interest to
any such entity,\2\ acts as investment adviser and which operates as an
interval fund pursuant to rule 23c-3 under the Act or provides periodic
liquidity with respect to its shares pursuant to rule 13e-4 under the
Securities Exchange Act of 1934 (``Exchange Act'') (each, a ``Future
Fund'' and together with the Initial Funds, the ``Funds'').\3\
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\2\ 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.
\3\ Any Fund relying on this relief in the future will do so in
a manner consistent with the terms and conditions of the
application. Applicants represent that each entity presently
intending to rely on the requested relief is listed as an applicant.
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7. Ellington Fund's Class M shares are currently being offered in
private transactions on a continuous basis at net asset value per
Share. The Ellington Fund reserves the right to conduct a public
offering of shares under the Securities Act of 1933, as amended
(``Securities Act''). Applicants state that additional offerings by any
Fund relying on the order may be on a private placement or public
offering basis. Shares of the Funds are not expected to be listed on
any securities exchange, nor quoted on any quotation medium and the
Funds do not expect there to be a secondary trading market for their
shares.
8. If the requested relief is granted, the Ellington Fund may
continuously offer Class A shares, Class C shares, Class I shares, and
Class M shares, with each class having its own fee and expense
structure. Class M Shares of the Ellington Fund are not subject to a
front-end sales charge. Class M shares will not be subject to an EWC.
The Funds may in the future offer additional classes of shares and/or
another sales charge structure.
9. The Princeton Fund's shares are currently offered in private
transactions on a continuous basis at their net asset value per share,
plus if applicable, any upfront sales load. The Princeton Fund's shares
are only offered to individuals or entities that are ``accredited
investors'' within the meaning of Regulation D of the Securities Act.
The Princeton Fund currently relies on the PPIAF Order to offer
multiple classes of shares, and each class has its own fee and expense
structure. The Princeton Fund offers seven classes of shares designated
as ``Class A'', ``Class I'', ``Class AA'', ``Class II'', ``Class C'',
``Class T'' and ``Class L''.
10. Applicants state that, from time to time, the Initial Funds may
create additional classes of shares, the terms of which may differ from
Class A, Class AA, Class C, Class I, Class II, Class T, Class L, and
Class M shares in the following respects: (i) The amount of fees
permitted by different distribution plans or different service fee
arrangements; (ii) voting rights with respect to a distribution or
service plan of a 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) any differences in dividends and net asset value
resulting from differences in fees under a distribution plan or in
class expenses; (vi) any EWC or other sales load structure; and (vii)
exchange or conversion privileges of the classes as permitted under the
Act.
11. Applicants state that the Ellington Fund has adopted a
fundamental policy to repurchase a specified percentage of its shares
(no less than 5% and no more than 25%) at net asset value on a
quarterly basis, and each repurchase pricing shall occur no later than
the 14th day after the repurchase request deadline, or the next
business day if the 14th is not a business day. Such repurchase offers
will be conducted pursuant to rule 23c-3 under the Act. The Princeton
Fund provides periodic liquidity with respect to its shares pursuant to
rule 13e-4 under the Exchange Act. Each of the other Funds will
likewise adopt fundamental investment policies and make quarterly
repurchase offers to its shareholders in compliance with rule 23c-3 or
will provide periodic liquidity with respect to its shares pursuant to
rule 13e-4 under the Exchange Act.\4\ Any repurchase offers made by the
Funds will be made to all holders of shares of each such Fund as of the
selected record date.
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\4\ Applicants submit that rule 23c-3 and Regulation M under the
Exchange Act permit an interval fund to make repurchase offers to
repurchase its shares while engaging in a continuous offering of its
shares pursuant to Rule 415 under the Securities Act.
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12. Applicants represent that any asset-based service and/or
distribution fees for each class of shares of the Funds will comply
with the provisions of FINRA Rule 2341 (``FINRA Sales Charge
Rule'').\5\ Applicants also represent that each Fund will disclose in
its
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prospectus the fees, expenses and other characteristics of each class
of shares offered for sale by the prospectus, as is required for open-
end multiple class funds under Form N-1A.\6\ As is required for open-
end funds, each Fund will disclose its expenses in shareholder reports,
and describe any arrangements that result in breakpoints in, or
elimination of, sales loads in its prospectus.\7\ In addition,
applicants will comply with applicable enhanced fee disclosure
requirements for fund of funds, including registered funds of hedge
funds.\8\
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\5\ Any reference in the application to the FINRA Sales Charge
Rule includes any successor or replacement to the FINRA Sales Charge
Rule.
\6\ In all respects other than class by class disclosure, each
Fund will comply with the requirements of Form N-2.
\7\ See Shareholder Reports and Quarterly Portfolio Disclosure
of Registered Management Investment Companies, Investment Company
Act Release No. 26372 (Feb. 27, 2004) (adopting release) (requiring
open-end investment companies to disclose fund expenses in
shareholder reports); and Disclosure of Breakpoint Discounts by
Mutual Funds, Investment Company Act Release No. 26464 (June 7,
2004) (adopting release) (requiring open-end investment companies to
provide prospectus disclosure of certain sales load information).
\8\ Fund of Funds Investments, Investment Company Act Rel. Nos.
26198 (Oct. 1, 2003) (proposing release) and 27399 (Jun. 20, 2006)
(adopting release). See also Rules 12d1-1, et seq. of the Act.
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13. Each of the Funds 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 loads and revenue
sharing arrangements, as if those requirements applied to the Fund. In
addition, each Fund will contractually require that any distributor of
the Fund's shares comply with such requirements in connection with the
distribution of such Fund's shares.
14. Each Fund will allocate all expenses incurred by it among the
various classes of shares based on the net assets of the Fund
attributable to each class, except that the net asset value and
expenses of each class will reflect the expenses associated with the
distribution and/or service plan of that class, service fees, and any
other incremental expenses of that class. Expenses of a Fund allocated
to a particular class of shares will be borne on a pro rata basis by
each outstanding share of that class. Applicants state that each Fund
will comply with the provisions of rule 18f-3 under the Act as if it
were an open-end investment company.
15. Applicants state that each Fund may impose an EWC on shares
submitted for repurchase that have been held less than a specified
period and may waive the EWC for certain categories of shareholders or
transactions to be established from time to time. Applicants state that
each Fund 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 as if
the Funds were open-end investment companies.
16. Applicants state that shares of a Fund may be subject to an
early repurchase fee (``Early Repurchase Fee'') at a rate of no greater
than 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 Fees will
apply equally to all classes of shares of a Fund, consistent with
section 18 of the Act and rule 18f-3 thereunder. To the extent a 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 as if the Early Repurchase Fee were a
contingent deferred sales load (``CDSL'') and as if the Fund were an
open-end investment company 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 regardless of class.
Applicants state that the Princeton Fund is the only Initial Fund that
charges an Early Repurchase Fee.
17. Each Fund operating as an interval fund pursuant to rule 23c-3
under the Act may offer its shareholders an exchange feature under
which the shareholders of the Fund may, in connection with the Fund's
periodic repurchase offers, exchange their shares of the Fund for
shares of the same class of (i) registered open-end investment
companies or (ii) other registered closed-end investment companies that
comply with rule 23c-3 under the Act and continuously offer their
shares at net asset value, that are in the Fund's group of investment
companies (collectively, ``Other Funds''). Shares of a Fund operating
pursuant to rule 23c-3 that are exchanged for shares of Other Funds
will be included as part of the amount of the repurchase offer amount
for such Fund as specified in rule 23c-3 under the Act. Any exchange
option will comply with rule 11a-3 under the Act, as if the Fund were
an open-end investment company subject to rule 11a-3. In complying with
rule 11a-3, each Fund will treat an EWC as if it were a CDSL.
Applicants' Legal Analysis
Multiple Classes of Shares
1. Section 18(a)(2) of the Act provides that a closed-end
investment company may not issue or sell a senior security that is a
stock unless certain requirements are met. Applicants state that the
creation of multiple classes of shares of the Funds may violate section
18(a)(2) because the Funds may not meet such requirements with respect
to a class of shares that may be a senior security.
2. 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.
3. 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.
4. 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 or regulation under the Act, 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(a)(2), 18(c) and 18(i) to permit the
Funds to issue multiple classes of shares.
5. Applicants submit that the proposed allocation of expenses
relating to distribution and/or services 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
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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.
Early Withdrawal Charges
1. Section 23(c) of the Act provides, in relevant part, that no
registered closed-end investment company shall 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 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 permits an interval
fund to 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 section 6(c), discussed above,
and section 23(c)(3) from rule 23c-3 to the extent necessary for the
Funds to impose an EWC 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 open-end 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.
Asset-Based Distribution and/or Service 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 and/or service 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 and/or service 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' imposition of asset-based distribution and/or service
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
FINRA Sales Charge Rule, 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.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09843 Filed 5-13-19; 8:45 am]
BILLING CODE 8011-01-P