On June 29, 2015, the staff of the SEC issued a no-action letter to Grant Park Multi Alternative Strategies Fund, which operates as a fund-of-funds, stating that it would not recommend enforcement action under Sections 12(d)(1)(A) and (B) of the 1940 Act if the Fund invests in assets that might not be considered securities under the 1940 Act, in addition to shares of underlying funds.

Funds are limited in their ability to acquire securities of other funds by Section 12(d)(1)(A) of the 1940 Act, which 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)(G) of the 1940 Act provides that Section 12(d)(1)(A) will not apply to securities of an acquired company purchased by an acquiring company if, among other things, (i) the acquiring company and the acquired company are part of the same group of investment companies (“affiliated funds”), and (ii) the acquiring company holds only securities of affiliated funds, government securities and short-term paper. Rule 12d1-2, in turn, broadens the scope of permissible investments for a fund-of-funds relying on Section 12(d)(1)(G), enabling it to invest, among other things, in any types of securities (as defined by the 1940 Act) that are consistent with its investment policies; however, certain types of derivatives and other assets, including real estate, futures contracts and other financial instruments, may not fall within the 1940 Act’s definition of “securities.” Thus, the Grant Park Fund sought no-action assurance from the staff to have greater flexibility in meeting its investment objectives by investing in derivatives and other financial instruments that might not be securities as defined by the 1940 Act.

In granting the no-action relief, the staff referenced the amendments to Rule 12d1-2 proposed by the SEC in 2008, which were intended to permit, among other things, a fund-of-funds relying on Section 12(d)(1)(G) to invest in assets, such as real estate, futures contracts and other financial instruments, that might not qualify as securities under the 1940 Act. The staff noted that the SEC had issued, and has continued to issue, exemptive orders providing the relief that would have been codified in the proposed Rule 12d1-2 amendments and that such greater flexibility to invest in assets that might not be securities under the 1940 Act does not appear to present any additional concerns that Section 12(d)(1) (G) was intended to address. In the incoming letter, the Grant Park Fund also argued that its request was consistent with the rationale behind these exemptive orders.

The No-Action Letter is available at: http://www.sec.gov/divisions/investment/noaction/2015/northernlights-fund-trust-063015.htm