Hartford Schroders Opportunistic Income Fund and Hartford Funds Management Company, LLC

Citation84 FR 45810
Record Number2019-18819
Published date30 August 2019
SectionNotices
CourtSecurities And Exchange Commission
Federal Register, Volume 84 Issue 169 (Friday, August 30, 2019)
[Federal Register Volume 84, Number 169 (Friday, August 30, 2019)]
                [Notices]
                [Pages 45810-45812]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2019-18819]
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                SECURITIES AND EXCHANGE COMMISSION
                [Investment Company Act Release No. 33610; File No. 812-15004]
                Hartford Schroders Opportunistic Income Fund and Hartford Funds
                Management Company, LLC
                August 27, 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) 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 service and distribution
                fees, and early withdrawal charges (``EWCs'').
                Applicants: Hartford Schroders Opportunistic Income Fund (the ``Initial
                Fund'') and Hartford Funds Management Company, LLC (the ``Adviser'').
                Filing Dates: The application was filed on February 25, 2019 and
                amended on May 29, 2019 and July 29, 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 September 23, 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 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: Hartford Schroders
                Opportunistic Income Fund and Hartford Funds Management Company, LLC,
                690 Lee Road, Wayne, Pennsylvania 19087.
                FOR FURTHER INFORMATION CONTACT: Bradley Gude, Senior Counsel, at
                (202) 551-5590, 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 Initial Fund is a Delaware statutory trust that is
                registered under the Act as a diversified, closed-end management
                investment company. The Initial Fund's investment objective will be to
                provide current income and long-term return consistent with
                preservation of capital.
                 2. The Adviser is a Delaware limited liability company registered
                as an investment adviser under the Investment Advisers Act of 1940. The
                Adviser will serve as investment adviser to the Initial Fund.
                 3. The applicants seek an order to permit the Initial Fund to issue
                multiple classes of shares, each having its own fee and expense
                structure, and to impose asset-based distribution and service fees, and
                EWCs.
                 4. Applicants request that the order also apply to any continuously
                offered registered closed-end management investment company that has
                been previously organized or that may be organized in the future for
                which the Adviser or any entity controlling, controlled by, or under
                common control with the Adviser, or any successor in interest to any
                such entity,\1\ 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 Fund, the ``Funds'').\2\
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                 \1\ 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.
                 \2\ Any Fund relying on this relief in the future will do so in
                compliance 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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                 5. The Initial Fund will make a continuous public offering of its
                shares. 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 will not be listed on any securities exchange, nor
                quoted on any quotation medium. The Funds do not expect there to be a
                secondary trading market for their shares.
                 6. If the requested relief is granted, the Initial Fund may also
                offer additional classes of shares in the future, with each class
                having its own fee and expense structure.
                 7. Applicants state that, from time to time, the Funds may create
                additional classes of shares, the terms of which may differ from the
                initial class pursuant to and in compliance with rule 18f-3 under the
                Act.
                 8. Applicants state that the Initial Fund will adopt a fundamental
                policy to repurchase a specified percentage of its shares (no less than
                5% and not more than 25%) at net asset value on a periodic basis. Such
                repurchase offers will be conducted pursuant to rule 23c-3 under the
                Act.\3\ Each Future Fund will likewise adopt a fundamental investment
                policy in compliance with
                [[Page 45811]]
                rule 23c-3 and make periodic repurchase offers to its shareholders, or
                provide periodic liquidity with respect to its shares pursuant to rule
                13e-4 under the Exchange Act. Any repurchase offers made by the Funds
                will be made to all holders of shares of each such Fund.
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                 \3\ 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 of 1933.
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                 9. Applicants represent that any asset-based service and/or
                distribution fees for each class of shares will comply with the
                provisions of FINRA Rule 2341 (``Sales Charge Rule'').\4\ Applicants
                also represent that each Fund will disclose in its 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. 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.\5\ In addition, applicants will comply with
                applicable enhanced fee disclosure requirements for fund of funds,
                including registered funds of hedge funds.\6\
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                 \4\ Any reference to the Sales Charge Rule includes any
                successor or replacement rule that may be adopted by the Financial
                Industry Regulatory Authority (``FINRA'').
                 \5\ 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).
                 \6\ 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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                 10. 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 each 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.
                 11. 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 of the Funds 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.
                 12. 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 contingent
                deferred sales load (``CDSL'').
                Applicants' Legal Analysis
                Multiple Classes of Shares
                 1. Section 18(a)(2) of the Act makes it unlawful for a closed-end
                investment company to issue 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
                registered closed-end investment company may not issue or sell any
                senior security that is stock if, immediately thereafter, the company
                has outstanding more than one class of senior security that is stock.
                Section 18(g) of the Act defines ``senior security'' that is stock as
                ``any stock of a class having priority over any other class as to
                distribution of assets or payment of dividends.'' Applicants state that
                the creation of multiple classes of Shares of a Fund proposed herein
                may result in Shares of a class having ``priority over [another] class
                as to . . . payment of dividends,'' and being deemed a ``senior
                security,'' because shareholders of different classes may pay different
                distribution fees, different shareholder services fees, and any other
                expense (as described elsewhere this Notice). Accordingly, applicants
                state that the creation of multiple classes of Shares of a Fund with
                different fees and expenses may be prohibited by section 18(c).
                 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 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 securities 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.
                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)
                [[Page 45812]]
                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 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. A Fund will not impose
                a repurchase fee on investors who purchase and tender their shares.
                 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 EWCs 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 Service and 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 Funds to impose asset-
                based service and 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 service and 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) 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
                service and 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:
                 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
                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.
                Jill M. Peterson,
                Assistant Secretary.
                [FR Doc. 2019-18819 Filed 8-29-19; 8:45 am]
                BILLING CODE 8011-01-P
                

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