
[Federal Register Volume 76, Number 184 (Thursday, September 22, 2011)]
[Notices]
[Pages 58850-58851]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24331]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29790; File No. 812-13890]


Highland Capital Management, L.P., et al.; Notice of Application

September 15, 2011.

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 rule 12d1-2(a) 
under the Act.

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Summary of Application: Applicants request an order to permit open-end 
management investment companies relying on rule 12d1-2 under the Act to 
invest in certain financial instruments.
    Applicants: Highland Capital Management, L.P. (``HCM''), Highland 
Funds Asset Management, L.P. (``HFAM''), Highland Funds I (``HFI'') and 
Highland Funds II (``HFII'').
    Filing Dates: The application was filed on April 8, 2011, and 
amended on August 15, 2011, and September 15, 2011.
    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 October 11, 2011, 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, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090; Applicants: NexBank Tower, 13455 Noel 
Road, Suite 800, Dallas, TX 75240.

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, Office of Investment Company 
Regulation).

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. HFI is organized as a Delaware statutory trust and HFII as a 
Massachusetts unincorporated business trust (HFI and HFII, collectively 
the ``Trusts''). Each is registered under the Act as an open-end 
management investment company. HCM is organized as a Delaware limited 
partnership and is registered as an investment adviser under the 
Investment Advisers Act of 1940, as amended (``Advisers Act''). HCM 
currently serves as investment adviser to a number of registered 
investment companies, including HFI. HFAM is organized as a Delaware 
limited partnership and is registered as an investment adviser under 
the

[[Page 58851]]

Advisers Act. HFAM currently serves as investment adviser to HFII.
    2. Applicants request the exemption to the extent necessary to 
permit any series of the Trusts and any other existing or future 
registered open-end management investment company or series thereof 
that (i) is advised by HCM, HFAM or any person controlling, controlled 
by, or under common control with HCM or HFAM (any such adviser or HCM 
or HFAM, an ``Adviser''); \1\ (ii) is in the same group of investment 
companies as defined in section 12(d)(1)(G) of the Act as the Trusts; 
(iii) invests in other registered open-end management investment 
companies (``Underlying Funds'') in reliance on section 12(d)(1)(G) of 
the Act; and (iv) is also eligible to invest in securities (as defined 
in section 2(a)(36) of the Act) in reliance on rule 12d1-2 under the 
Act (each a ``Fund of Funds''), to also invest, to the extent 
consistent with its investment objectives, policies, strategies and 
limitations, in financial instruments that may not be securities within 
the meaning of section 2(a)(36) of the Act (``Other Investments'').\2\ 
Applicants also request that the order exempt any entity, including any 
entity controlled or under common control with an Adviser, that now or 
in the future acts as principal underwriter, or broker or dealer (if 
registered under the Securities Exchange Act of 1934, as amended 
(``Exchange Act'')), with respect to the transactions described in the 
application.
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    \1\ Any other Adviser also will be registered under the Advisers 
Act.
    \2\ Every existing entity that currently intends to rely on the 
requested order is named as an applicant. Any entity that relies on 
the requested order in the future will do so only in accordance with 
the terms and condition in the application.
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    3. Consistent with its fiduciary obligations under the Act, each 
Fund of Funds' board of trustees will review the advisory fees charged 
by the Fund of Funds' Adviser to ensure that they 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 Fund of Funds may invest.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company (``acquiring company'') may acquire securities of 
another investment company (``acquired company'') if such securities 
represent more than 3% of the acquired company's outstanding voting 
stock or more than 5% of the acquiring company's total assets, or if 
such securities, together with the securities of other investment 
companies, represent more than 10% of the acquiring company's total 
assets. Section 12(d)(1)(B) of the Act provides that no registered 
open-end investment company may sell its securities to another 
investment company if the sale will cause the acquiring company to own 
more than 3% of the acquired company's voting stock, or cause more than 
10% of the acquired company's voting stock to be owned by investment 
companies and companies controlled by them.
    2. Section 12(d)(1)(G) of the Act provides, in part, that section 
12(d)(1) will not apply to securities of an acquired company purchased 
by an acquiring company if: (i) The acquired company and acquiring 
company are part of the same group of investment companies; (ii) the 
acquiring company holds only securities of acquired companies that are 
part of the same group of investment companies, 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 Exchange Act, as amended, or by the Commission; and (iv) the 
acquired company has a policy that prohibits it from acquiring 
securities of registered open-end investment companies or registered 
unit investment trusts in reliance on section 12(d)(1)(F) or (G) of the 
Act.
    3. Rule 12d1-2 under the Act permits a registered open-end 
investment company or a registered unit investment trust 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 securities, and short-term paper: (i) 
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; (ii) securities (other 
than securities issued by an investment company); and (iii) 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.
    4. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction from any provision of the Act, or 
from any rule under 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 policies and 
provisions of the Act.
    5. Applicants state that the Funds of Funds will comply with Rule 
12d1-2 under the Act, but for the fact that the 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 Funds of Funds to invest in Other 
Investments while investing in Underlying Funds. Applicants assert that 
permitting the Funds of Funds to invest in Other Investments as 
described in the application would not raise any of the concerns that 
the requirements of section 12(d)(1) were designed to address.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    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 
Fund of Funds from investing in Other Investments as described in the 
application.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-24331 Filed 9-21-11; 8:45 am]
BILLING CODE 8011-01-P


