Grail Advisors, LLC and Grail Advisors' Alpha ETF Trust; Notice of Application, 80457-80464 [E8-31089]
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Federal Register / Vol. 73, No. 251 / Wednesday, December 31, 2008 / Notices
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(3) holding 5 percent or more, or more
than 25 percent, of the shares of one or
more Affiliated Funds.
9. Applicants contend that no useful
purpose would be served by prohibiting
the affiliated persons or second tier
affiliates of a Fund as described above
from purchasing or redeeming Creation
Units through ‘‘in-kind’’ transactions.
The purchase and redemption of
Creation Units of each Fund is on the
same terms for all investors, whether or
not such investor is an affiliate. In each
case, Creation Units are sold and
redeemed by the Trust at their NAV.
The Deposit Securities and Redemption
Securities will be valued in the same
manner as the securities in the Fund
portfolio. Accordingly, applicants
believe the proposed transactions
described above meet the section 17(b)
standards for relief because the terms of
such proposed transactions are
reasonable and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transactions will be consistent with the
policies of each Fund and with the
general purposes of the Act.
Applicants’ Conditions
The applicants agree that any order of
the Commission granting the requested
relief will be subject to the following
conditions:
1. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or mutual
fund. Each Fund’s Prospectus will
prominently disclose that the Fund is an
actively managed exchange-traded fund.
Each Prospectus will prominently
disclose that the Shares are not
individually redeemable shares and will
disclose that the owners of the Shares
may acquire those Shares from the Fund
and tender those Shares for redemption
to the Fund in Creation Units only. Any
advertising material that describes the
purchase or sale of Creation Units or
refers to redeemability will prominently
disclose that the Shares are not
individually redeemable and that
owners of the Shares may acquire those
Shares from the Fund and tender those
Shares for redemption to the Fund in
Creation Units only.
2. Each Fund’s Prospectus will clearly
disclose that, for purposes of the Act,
Shares are issued by a registered
investment company and that the
acquisition of Shares by investment
companies and companies relying on
sections 3(c)(1) or 3(c)(7) of the Act is
subject to the restrictions of section
12(d)(1) of the Act.
3. The Web site for the Funds, which
will be publicly accessible at no charge,
will contain the following information,
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on a per Share basis, for each Fund: (a)
The prior Business Day’s NAV and the
reported closing price, and a calculation
of the premium or discount of the
closing price against such NAV; and (b)
data in chart format displaying the
frequency distribution of discounts and
premiums of the daily closing price
against the NAV, within appropriate
ranges, for each of the four previous
calendar quarters (or for the life of the
Fund, if shorter).
4. The Prospectus and annual report
for each Fund will also include: (a) The
information listed in condition 3(b), (i)
in the case of the Prospectus, for the
most recently completed year (and the
most recently completed quarter or
quarters, as applicable) and (ii) in the
case of the annual report, for the
immediately preceding five years (or for
the life of the Fund, if shorter), and (b)
the cumulative total return and the
average annual total return based on
NAV and closing price, calculated on a
per Share basis for one-, five- and tenyear periods (or life of the Fund, if
shorter).
5. As long as the Funds operate in
reliance on the requested order, the
Shares of the Funds will be listed on a
Listing Market.
6. On each Business Day, before
commencement of trading in Shares on
a Fund’s Listing Market, the Fund will
disclose on its Web site the identities
and weightings of the component
securities and other assets held by the
Fund that will form the basis for the
Fund’s calculation of NAV at the end of
the Business Day.
7. The Advisor or any Subadvisor,
directly or indirectly, will not cause any
Authorized Participant (or any investor
on whose behalf an Authorized
Participant may transact with the Fund)
to acquire any Deposit Security for the
Fund through a transaction in which the
Fund could not engage directly.
8. The requested order will expire on
the effective date of any Commission
rule under the Act that provides relief
permitting the operation of actively
managed exchange-traded funds.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–31086 Filed 12–30–08; 8:45 am]
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80457
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28571; 812–13440]
Grail Advisors, LLC and Grail
Advisors’ Alpha ETF Trust; Notice of
Application
December 23, 2008.
AGENCY: Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, and
under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1)
and (a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
Grail Advisors, LLC
(‘‘Adviser’’) and Grail Advisors’ Alpha
ETF Trust (‘‘Trust’’).
SUMMARY OF APPLICATION: Applicants
request an order that permits: (a) Series
of certain open-end management
investment companies to issue shares
(‘‘Shares’’) redeemable in large
aggregations only (‘‘Creation Units’’); (b)
secondary market transactions in Shares
to occur at negotiated market prices; (c)
certain series to pay redemption
proceeds, under certain circumstances,
more than seven days from the tender of
Shares for redemption; (d) certain
affiliated persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
FILING DATES: The application was filed
on October 17, 2007 and amended on
August 1, 2008. Applicants have agreed
to file an amendment during the notice
period, the substance of which is
reflected in this notice.
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 January 15, 2009, 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
APPLICANTS:
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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: William M. Thomas,
Grail Advisors, LLC, One Ferry
Building, Suite 255, San Francisco, CA
94111.
FOR FURTHER INFORMATION CONTACT: Jaea
F. Hahn, Senior Counsel, at (202) 551–
6870 or Marilyn Mann, 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 for a fee at the
Commission’s Public Reference Desk,
100 F Street, NE., Washington, DC
20549–0102 (tel. 202–551–5850).
Applicants’ Representations
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1. The Trust is organized as a
Delaware statutory trust and will be
registered as an open-end management
investment company under the Act. The
Trust will offer one initial series, Grail
U.S. Value Fund (‘‘Initial Fund’’). The
Initial Fund’s investment objective will
be to provide long-term capital growth
by investing primarily in U.S. equity
securities.
2. Applicants request that the order
apply to the Initial Fund and any
additional series of the Trust and other
open-end investment management
companies or series thereof, that may be
created in the future (‘‘Future Funds’’).1
Any Future Fund will be (a) advised by
the Adviser or an entity controlling,
controlled by, or under common control
with the Adviser, and (b) comply with
the terms and conditions of the
application. Future Funds may invest in
U.S. equity or fixed income securities,
foreign equity or fixed income securities
(‘‘Foreign Funds’’), or a combination of
U.S. and foreign equity or fixed income
securities. The Initial Fund and Future
Funds, including the Foreign Funds,
together are the ‘‘Funds.’’ Each Fund
will operate as an actively managed
exchange-traded fund (‘‘ETF’’).
3. The Adviser, a Delaware limited
liability company, is registered as an
1 All entities that currently intend to rely on the
order are named as applicants. Any other entity that
relies on the order in the future will comply with
the terms and conditions of the application. A Fund
of Funds (as defined below) may rely on the order
only to invest in Funds and not in any other
registered investment company.
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investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and will serve as
investment adviser to each Fund. The
Adviser expects to enter into a subadvisory agreement with one or more
investment advisers each of which will
serve as an adviser to a Fund (each, a
‘‘Sub-Adviser’’). Each Sub-Adviser will
be registered under the Advisers Act.
Each Fund will have a distributor
(‘‘Distributor’’) that will be registered as
a broker-dealer under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’)
and will serve as the principal
underwriter for the Fund.
4. Shares of the Funds will be sold at
a price of between $20 and $100 per
Share in Creation Units of 50,000
Shares. All orders to purchase Creation
Units must be placed with the
Distributor by or through a party that
has entered into an agreement with the
Trust and the Distributor (‘‘Authorized
Participant’’). An Authorized
Participant must be either: (a) A brokerdealer or other participant in the
continuous net settlement system of the
National Securities Clearing Corporation
(‘‘NSCC’’), a clearing agency registered
with the Commission, or (b) a
participant in the Depository Trust
Company (‘‘DTC,’’ and such participant,
‘‘DTC Participant’’). Shares of each
Fund generally will be sold in Creation
Units in exchange for an in-kind deposit
by the purchaser of a portfolio of
securities designated by the Adviser (the
‘‘Deposit Securities’’), together with the
deposit of a relatively small specified
cash payment (‘‘Balancing Amount’’).
The Balancing Amount is an amount
equal to the difference between (a) the
net asset value (‘‘NAV’’) per Creation
Unit of the Fund and (b) the total
aggregate market value per Creation
Unit of the Deposit Securities.2
Applicants state that in some
circumstances it may not be practicable
or convenient for a Fund to operate
exclusively on an ‘‘in-kind’’ basis. The
Trust reserves the right to permit, under
certain circumstances, a purchaser of
Creation Units to substitute cash in lieu
2 In addition to the list of names and amount of
each security constituting the current Deposit
Securities, it is intended that, on each day that a
Fund is open, including as required by section 22(e)
of the Act (‘‘Business Day’’), the Balancing Amount
effective as of the previous Business Day, per
outstanding Share of each Fund, will be made
available. The Exchange intends to disseminate,
every 15 seconds, during regular trading hours,
through the facilities of the Consolidated Tape
Association, an approximate amount per Share
representing the sum of the estimated Balancing
Amount effective through and including the
previous Business Day, plus the current value of the
Deposit Securities, on a per Share basis.
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of depositing some or all of the requisite
Deposit Securities.
5. An investor purchasing a Creation
Unit from a Fund will be charged a fee
(‘‘Transaction Fee’’) to prevent the
dilution of the interests of the remaining
shareholders resulting from costs in
connection with the purchase of
Creation Units.3 The maximum
Transaction Fees relevant to each Fund
will be fully disclosed in the prospectus
(‘‘Prospectus’’) or statement of
additional information (‘‘SAI’’) of such
Fund. All orders to purchase Creation
Units will be placed with the Distributor
by or through an Authorized Participant
and it will be the Distributor’s
responsibility to transmit such orders to
the Trust. The Distributor also will be
responsible for delivering the
Prospectus to those persons purchasing
Creation Units, and for maintaining
records of both the orders placed with
it and the confirmations of acceptance
furnished by it. In addition, the
Distributor will maintain a record of the
instructions given to the Trust to
implement the delivery of Shares.
6. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
Shares will be listed and traded on a
national securities exchange as defined
in section 2(a)(26) of the Act
(‘‘Exchange’’). It is expected that one or
more member firms of a listing
Exchange will be designated to act as a
specialist and maintain a market for
Shares on the Exchange (the
‘‘Specialist’’), or if Nasdaq or a similar
electronic Exchange is the listing
Exchange, one or more member firms
will act as a market maker (‘‘Market
Maker’’) and maintain a market for
Shares.4 Prices of Shares trading on an
Exchange will be based on the current
bid/offer market. Shares sold in the
secondary market will be subject to
customary brokerage commissions and
charges.
7. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs
(which could include institutional
3 Where a Fund permits a purchaser to substitute
cash in lieu of depositing a portion of the requisite
Deposit Securities, the purchaser may be assessed
a higher Transaction Fee to cover the cost of
purchasing such Deposit Securities, including
brokerage costs, and part or all of the spread
between the expected bid and the offer side of the
market relating to such Deposit Securities.
4 If Shares are listed on the Nasdaq, no particular
Market Maker will be contractually obligated to
make a market in Shares, although Nasdaq’s listing
requirements stipulate that at least two Market
Makers must be registered as Market Makers in
Shares to maintain the listing. Registered Market
Makers are required to make a continuous, twosided market at all times or be subject to regulatory
sanctions.
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investors). The Specialist, or Market
Maker, in providing a fair and orderly
secondary market for the Shares, also
may purchase Creation Units for use in
its market-making activities. Applicants
expect that secondary market
purchasers of Shares will include both
institutional investors and retail
investors.5 Applicants expect that the
price at which the Shares trade will be
disciplined by arbitrage opportunities
created by the ability to continually
purchase or redeem Creation Units at
their NAV, which should ensure that
the Shares will not trade at a material
discount or premium in relation to their
NAV.
8. Shares will not be individually
redeemable, and owners of Shares may
acquire those Shares from a Fund, or
tender such Shares for redemption to
the Fund, in Creation Units only. To
redeem, an investor will have to
accumulate enough Shares to constitute
a Creation Unit. Redemption orders
must be placed by or through an
Authorized Participant. An investor
redeeming a Creation Unit generally
will receive (a) a portfolio of securities
designated to be delivered for Creation
Unit redemptions on the date that the
request for redemption is submitted
(‘‘Redemption Securities’’) and (b) a
‘‘Cash Redemption Payment,’’
consisting of an amount calculated in
the same manner as the Balancing
Amount, although the actual amount of
the Cash Redemption Payment may
differ from the Balancing Amount if the
Redemption Securities are not identical
to the Deposit Securities on that day. An
investor may receive the cash equivalent
of a Redemption Security in certain
circumstances, such as if the investor is
constrained from effecting transactions
in the security by regulation or policy.6
A redeeming investor may pay a
Transaction Fee, calculated in the same
manner as a Transaction Fee payable in
connection with purchases of Creation
Units.
9. Applicants state that in accepting
Deposit Securities and satisfying
5 Shares will be registered in book-entry form
only. DTC or its nominee will be the registered
owner of all outstanding Shares. DTC or DTC
Participants will maintain records reflecting
beneficial owners of Shares.
6 Applicants state that a cash-in-lieu amount will
replace any ‘‘to-be-announced’’ (‘‘TBA’’) transaction
that is listed as a Deposit Security or Redemption
Security of any Fund. A TBA transaction is a
method of trading mortgage-backed securities where
the buyer and seller agree upon general trade
parameters such as agency, settlement date, par
amount and price. The actual pools delivered
generally are determined two days prior to the
settlement date. The amount of substituted cash in
the case of TBA transactions will be equivalent to
the value of the TBA transaction listed as a Deposit
Security or Redemption Security.
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redemptions with Redemption
Securities, the relevant Funds will
comply with the federal securities laws,
including that the Deposit Securities
and Redemption Securities are sold in
transactions that would be exempt from
registration under the Securities Act.7
As a general matter, the Deposit
Securities and Redemption Securities
will correspond pro rata to the securities
held by each Fund, although
Redemption Securities received on
redemption may not always be identical
to Deposit Securities deposited in
connection with the purchase of
Creation Units for the same day.
10. Neither the Trust nor any
individual Fund will be marketed or
otherwise held out as an ‘‘open-end
investment company’’ or a ‘‘mutual
fund.’’ Instead, each Fund will be
marketed as an ‘‘actively-managed
exchange-traded fund.’’ All marketing
materials that describe the method of
obtaining, buying or selling Shares, or
refer to redeemability, will prominently
disclose that Shares are not individually
redeemable and that the owners of
Shares may purchase or redeem Shares
from a Fund in Creation Units only. The
same approach will be followed in the
SAI, shareholder reports and investor
educational materials issued or
circulated in connection with the
Shares. The Funds will provide copies
of their annual and semi-annual
shareholder reports to DTC Participants
for distribution to beneficial owners of
Shares.
11. The Funds’ Web site, which will
be publicly available prior to the public
offering of Shares, will include the
Prospectus and other information about
the Funds that is updated on a daily
basis, including the mid-point of the
bid-ask spread at the time of the
calculation of NAV (‘‘Bid/Ask Price’’).
On each Business Day, before the
commencement of trading in Shares on
the Exchange, each Fund will disclose
the identities and quantities of the
securities (‘‘Portfolio Securities’’) and
other assets held in the Fund portfolio
that will form the basis for the Fund’s
calculation of NAV at the end of the
Business Day.8
7 In accepting Deposit Securities and satisfying
redemptions with Redemption Securities that are
restricted securities eligible for resale pursuant to
rule 144A under the Securities Act, the relevant
Funds will comply with the conditions of rule
144A, including in satisfying redemptions with
such rule 144A eligible restricted Redemption
Securities. The Prospectus will also state that an
Authorized Participant that is not a ‘‘Qualified
Institutional Buyer’’ as defined in rule 144A under
the Securities Act will not be able to receive, as part
of a redemption, restricted securities eligible for
resale under rule 144A.
8 Applicants note that under accounting
procedures followed by the Funds, trades made on
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80459
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act granting an
exemption from sections 2(a)(32),
5(a)(1), 22(d) and 22(e) of the Act and
rule 22c–1 under the Act; and under
sections 6(c) and 17(b) of the Act
granting an exemption from sections
17(a)(1) and (a)(2) of the Act; and under
section 12(d)(1)(J) for an exemption
from sections 12(d)(1)(A) and (B) of the
Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that 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. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) 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 section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately a proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit each Fund, as a series of an
open-end management investment
the prior Business Day (‘‘T’’) will be booked and
reflected in NAV on the current Business Day (‘‘T
+ 1’’). Accordingly, the Funds will be able to
disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV
calculation at the end of the Business Day.
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company, to issue Shares that are
redeemable in Creation Units only.
Applicants state that investors may
purchase Shares in Creation Units from
each Fund and redeem Creation Units
from each Fund. Applicants further
state that because the market price of
Shares will be disciplined by arbitrage
opportunities, investors should be able
to sell Shares in the secondary market
at prices that do not vary substantially
from their NAV.
Section 22(d) of the Act and Rule 22c–
1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security, which is
currently being offered to the public by
or through a principal underwriter,
except at a current public offering price
described in the prospectus. Rule 22c–
1 under the Act generally requires that
a dealer selling, redeeming, or
repurchasing a redeemable security do
so only at a price based on its NAV.
Applicants state that secondary market
trading in Shares will take place at
negotiated prices, not at a current
offering price described in the
prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain that
while there is little legislative history
regarding section 22(d), its provisions,
as well as those of rule 22c–1, appear to
have been designed to (a) prevent
dilution caused by certain risklesstrading schemes by principal
underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers
resulting from sales at different prices,
and (c) assure an orderly distribution of
investment company shares by
eliminating price competition from
dealers offering shares at less than the
published sales price and repurchasing
shares at more than the published
redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Shares does not
involve the Funds as parties and cannot
result in dilution of an investment in
Shares, and (b) to the extent different
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prices exist during a given trading day,
or from day to day, such variances occur
as a result of third-party market forces,
such as supply and demand. Therefore,
applicants assert that secondary market
transactions in Shares will not lead to
discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because arbitrage
activity will ensure that the difference
between the market price of Shares and
their NAV remains narrow.
Section 22(e)
7. Section 22(e) of the Act generally
prohibits a registered investment
company from suspending the right of
redemption or postponing the date of
payment of redemption proceeds for
more than seven days after the tender of
a security for redemption. Applicants
state that settlement of redemptions for
the Foreign Funds is contingent not
only on the settlement cycle of the
United States market, but also on
currently practicable delivery cycles in
local markets for underlying foreign
securities held by the Foreign Funds.
Applicants state that local market
delivery cycles for transferring Shares to
redeeming investors, coupled with local
market holiday schedules, will, under
certain circumstances, require a delivery
process longer than seven calendar days
for Foreign Funds. Applicants request
relief under section 6(c) of the Act from
section 22(e) to allow the Foreign Funds
to pay redemption proceeds up to 14
calendar days after the tender of any
Creation Units for redemption. Except
as disclosed in the relevant Foreign
Fund’s Prospectus and/or SAI,
applicants expect that each Foreign
Fund will be able to deliver redemption
proceeds within seven days.9 With
respect to future Foreign Funds,
applicants seek the same relief from
section 22(e) only to the extent that
circumstances similar to those described
in the application exist.
8. Applicants state that section 22(e)
was designed to prevent unreasonable
and unforeseen delays in the payment of
redemption proceeds. Applicants assert
that the requested relief will not lead to
the problems that section 22(e) was
designed to prevent. Applicants state
that the SAI will disclose those local
holidays (over the period of at least one
year following the date of the SAI), if
any, that are expected to prevent the
delivery of redemption proceeds in
9 Rule 15c6–1 under the Exchange Act requires
that most securities be settled within three business
days of the trade. Applicants acknowledge that no
relief obtained from the requirements of section
22(e) will affect any obligations applicants may
have under rule 15c6–1.
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seven calendar days, and the maximum
number of days needed to deliver the
proceeds for the relevant Foreign Fund.
Applicants are not seeking relief from
section 22(e) with respect to Foreign
Funds that do not effect creations and
redemptions of Creation Units in-kind.
Section 12(d)(1)
9. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring shares of an
investment company if the securities
represent more than 3% of the total
outstanding voting stock of the acquired
company, more than 5% of the total
assets of the acquiring company, or,
together with the securities of any other
investment companies, more than 10%
of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, or any other broker or
dealer from selling its shares 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 if the sale
will cause more than 10% of the
acquired company’s voting stock to be
owned by investment companies
generally.
10. Applicants request that the order
permit certain investment companies
registered under the Act to acquire
Shares beyond the limitations in section
12(d)(1)(A) and permit the Funds, any
principal underwriter for the Funds,
and any broker or dealer registered
under the Exchange Act (‘‘Brokers’’), to
sell Shares beyond the limitations in
section 12(d)(1)(B). Applicants request
that these exemptions apply to: (1) any
Fund that is currently or subsequently
part of the same ‘‘group of investment
companies’’ as the Initial Fund within
the meaning of section 12(d)(1)(G)(ii) of
the Act as well as any principal
underwriter for the Funds and any
Brokers selling Shares of a Fund to a
Fund of Funds (as defined below); and
(2) each management investment
company or unit investment trust
registered under the Act that is not part
of the same ‘‘group of investment
companies’’ as the Funds within the
meaning of section 12(d)(1)(G)(ii) of the
Act and that enters into a FOF
Participation Agreement (as defined
below) with a Fund (such management
investment companies are referred to
herein as ‘‘Investing Management
Companies,’’ such unit investment
trusts are referred to herein as
‘‘Investing Trusts,’’ and Investing
Management Companies and Investing
Trusts are ‘‘Funds of Funds’’). Funds of
Funds do not include the Funds. Each
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Investing Trust will have a sponsor
(‘‘Sponsor’’) and each Investing
Management Company will have an
investment adviser within the meaning
of Section 2(a)(20)(A) of the Act (‘‘Fund
of Funds Adviser’’) that does not
control, is not controlled by or under
common control with the Adviser. Each
Investing Management Company may
also have one or more investment
advisers within the meaning of Section
2(a)(20)(B) of the Act (each, a ‘‘Fund of
Funds Sub-Adviser’’).
11. Applicants assert that the
proposed transactions will not lead to
any of the abuses that section 12(d)(1)
was designed to prevent. Applicants
submit that the proposed conditions to
the requested relief address the
concerns underlying the limits in
section 12(d)(1), which include
concerns about undue influence,
excessive layering of fees and overly
complex structures.
12. Applicants believe that neither the
Fund of Funds nor a Fund of Funds
Affiliate would be able to exert undue
influence over the Funds.10 To limit the
control that a Fund of Funds may have
over a Fund, applicants propose a
condition prohibiting the Fund of Funds
Adviser or Sponsor; any person
controlling, controlled by, or under
common with the Fund of Funds
Adviser or Sponsor; and any investment
company or issuer that would be an
investment company but for sections
3(c)(1) or 3(c)(7) of the Act that is
advised or sponsored by the Fund of
Funds Adviser or advised or sponsored
by the Sponsor, or any person
controlling, controlled by, or under
common control with the Fund of
Funds Adviser or Sponsor (‘‘Fund of
Funds’’ Advisory Group’’) from
controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any Fund of
Funds Sub-Adviser; any person
controlling, controlled by, or under
common control with the Fund of
Funds Sub-Adviser; and any investment
company or issuer that would be an
investment company but for section
3(c)(1) or 3(c)(7) of the Act (or portion
of such investment company or issuer)
advised or sponsored by the Fund of
Funds Sub-Adviser or any person
controlling, controlled by, or under
10 A ‘‘Fund of Funds Affiliate’’ is a Fund of Funds
Adviser, Fund of Funds Sub-Adviser, Sponsor,
promoter, and principal underwriter of a Fund of
Funds, and any person controlling, controlled by,
or under common control with any of those entities.
A ‘‘Fund Affiliate’’ is the Adviser, any Sub-Adviser,
promoter or principal underwriter of a Fund, or any
person controlling, controlled by, or under common
control with any of these entities.
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common control with the Fund of
Funds Sub-Adviser (‘‘Fund of Funds’’
Sub-Advisory Group’’).
13. Applicants propose other
conditions to limit the potential for
undue influence over the Funds,
including that no Fund of Funds or
Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to a Fund) will cause
a Fund to purchase a security in any
offering of securities during the
existence of any underwriting or selling
syndicate of which a principal
underwriter is an Underwriting Affiliate
(‘‘Affiliated Underwriting’’). An
‘‘Underwriting Affiliate’’ is a principal
underwriter in any underwriting or
selling syndicate that is an officer,
director, member of an advisory board,
Fund of Funds Adviser, Fund of Funds
Sub-Adviser, employee or Sponsor of a
Fund of Funds, or a person of which
any such officer, director, member of an
advisory board, Fund of Funds Adviser,
Fund of Funds Sub-Adviser, employee,
or Sponsor is an affiliated person
(except any person whose relationship
to the Fund is covered by section 10(f)
of the Act is not an Underwriting
Affiliate).
14. Applicants do not believe that the
proposed arrangement will involve
excessive layering of fees. The board of
directors or trustees of each Investing
Management Company, including a
majority of the disinterested directors or
trustees, before approving any advisory
contract under section 15 of the Act,
will be required to determine that the
advisory fees charged to the Investing
Management Company are based on
services provided that will be in
addition to, rather than duplicative of,
the services provided under the
advisory contract(s) of any Fund in
which the Investing Management
Company may invest. In addition, the
Fund of Funds Adviser, trustee of an
Investing Trust (‘‘Trustee’’) or Sponsor,
as applicable, will waive fees otherwise
payable to it by the Fund of Funds in
an amount at least equal to any
compensation received from a Fund by
the Fund of Funds Adviser, Trustee or
Sponsor, or an affiliated person of the
Fund of Funds Adviser, Trustee or
Sponsor (other than any advisory fees),
in connection with the investment by
the Fund of Funds in the Funds.
Applicants also state that any sales
charges and/or service fees charged with
respect to shares of a Fund of Funds
will not exceed the limits applicable to
a fund of funds set forth in Conduct
Rule 2830 of the NASD (‘‘Rule 2830’’).
15. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
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80461
Applicants note that a Fund will be
prohibited from acquiring securities of
any investment company, or of any
company relying on section 3(c)(1) or
3(c)(7) of the Act, in excess of the limits
contained in section 12(d)(1)(A) of the
Act.
16. To ensure that a Fund of Funds is
aware of the terms and conditions of the
requested order, the Fund of Funds
must enter into an agreement with the
respective Funds (‘‘FOF Participation
Agreement’’). The FOF Participation
Agreement will include an
acknowledgement from the Fund of
Funds that it may rely on the order only
to invest in the Funds and not in any
other investment company. The FOF
Participation Agreement will further
require any Fund of Funds that exceeds
the 5% or 10% limitations in section
12(d)(1)(A)(ii) and (iii) to disclose in its
prospectus that it may invest in ETFs
and disclose, in ‘‘plain English,’’ in its
prospectus the unique characteristics of
the Fund of Funds investing in
investment companies, including but
not limited to the expense structure and
any additional expenses of investing in
investment companies.
Sections 17(a)(1) and (2) of the Act
17. Section 17(a)(1) and (2) of the Act
generally prohibit an affiliated person of
a registered investment company, or an
affiliated person of such a person
(‘‘second tier affiliate’’), from selling any
security to or purchasing any security
from the company. Section 2(a)(3) of the
Act defines ‘‘affiliated person’’ to
include any person directly or indirectly
owning, controlling, or holding with
power to vote 5% or more of the
outstanding voting securities of the
other person and any person directly or
indirectly controlling, controlled by, or
under common control with, the other
person. Section 2(a)(9) of the Act
provides that a control relationship will
be presumed where one person owns
more than 25% of another person’s
voting securities. The Funds may be
deemed to be controlled by the Adviser
or an entity controlling, controlled by or
under common control with the Adviser
and hence affiliated persons of each
other. In addition, the Funds may be
deemed to be under common control
with any other registered investment
company (or series thereof) advised by
the Adviser or an entity controlling,
controlled by or under common control
with the Adviser (an ‘‘Affiliated Fund’’).
Applicants state that because the
definition of ‘‘affiliated person’’
includes any person owning 5% or more
of an issuer’s outstanding voting
securities, every purchaser of a Creation
Unit will be affiliated with the Fund so
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long as fewer than twenty Creation
Units are in existence, and any
purchaser that owns more than 25% of
a Fund’s outstanding Shares will be
affiliated with a Fund.
18. Applicants request an exemption
from section 17(a) under sections 6(c)
and 17(b), to permit in-kind purchases
and redemptions by persons that are
affiliated persons or second tier
affiliates of the Funds solely by virtue
of one or more of the following: (1)
Holding 5% or more, or more than 25%,
of the outstanding Shares of the Trust or
one or more Funds; (2) an affiliation
with a person with an ownership
interest described in (1); or (3) holding
5% or more, or more than 25%, of the
shares of one or more Affiliated Funds.
Applicants also request an exemption in
order to permit each Fund to sell Shares
to and redeem Shares from, and engage
in the in-kind transactions that would
accompany such sales and redemptions
with, any Fund of Funds of which it is
an affiliated person or second tier
affiliate.11
19. Applicants contend that no useful
purpose would be served by prohibiting
affiliated persons or second tier
affiliates of a Fund from purchasing or
redeeming Creation Units through ‘‘inkind’’ transactions. The deposit
procedure for in-kind purchases and the
redemption procedure for in-kind
redemptions will be the same for all
purchases and redemptions. Deposit
Securities and Redemption Securities
will be valued under the same objective
standards applied to valuing Portfolio
Securities. Therefore, applicants state
that in-kind purchases and redemptions
will afford no opportunity for the
affiliated persons and second tier
affiliates described above to effect a
transaction detrimental to the other
holders of Shares. Applicants also
believe that in-kind purchases and
redemptions will not result in abusive
self-dealing or overreaching by these
persons of the Fund.
20. Applicants also submit that the
sale of Shares to and redemption of
Shares from a Fund of Funds satisfies
the standards for relief under sections
17(b) and 6(c) of the Act. Applicants
note that the consideration paid for the
purchase or received for the redemption
of Shares directly from a Fund by a
Fund of Funds (or any other investor)
will be based on the NAV of the Shares.
In addition, the securities received or
transferred by the Fund in connection
with the purchase or redemption of
11 Although applicants believe that most Fund of
Funds will purchase and sell Shares in the
secondary market, a Fund of Funds might seek to
transact in Shares directly with a Fund.
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Jkt 217001
Shares will be valued in the same
manner as the Fund’s Portfolio
Securities and thus the transactions will
not be detrimental to the Fund of Funds.
Applicants also state that the proposed
transactions will be consistent with the
policies of each Fund of Funds and
Fund and with the general purposes of
the Act.
Applicants’ Conditions
The applicants agree that any order of
the Commission granting the requested
relief will be subject to the following
conditions:
A. Actively Managed Exchange-Traded
Fund Relief
1. The requested order will expire on
the effective date of any Commission
rule under the Act that provides relief
permitting the operation of actively
managed exchange-traded funds.
2. Each Fund’s Prospectus will clearly
disclose that, for purposes of the Act,
Shares are issued by a registered
investment company and that the
acquisition of Shares by investment
companies and companies relying on
sections 3(c)(1) or 3(c)(7) of the Act is
subject to the restrictions of section
12(d)(1) of the Act, except as permitted
by an exemptive order that permits
registered investment companies to
invest in a Fund beyond the limits in
section 12(d)(1), subject to certain terms
and conditions, including that the
registered investment company enter
into a FOF Participation Agreement
with the Fund regarding the terms of the
investment.
3. As long as a Fund operates in
reliance on the requested order, the
Shares of the Fund will be listed on an
Exchange.
4. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. Each Fund’s Prospectus and
advertising materials will prominently
disclose that the Fund is an actively
managed exchange-traded fund. Each
Prospectus will prominently disclose
that the Shares are not individually
redeemable shares and will disclose that
the owners of the Shares may acquire
those Shares from the Fund and tender
those Shares for redemption to the Fund
in Creation Units only. Any advertising
material that describes the purchase or
sale of Creation Units or refers to
redeemability will prominently disclose
that the Shares are not individually
redeemable and that owners of the
Shares may acquire those Shares from
the Fund and tender those Shares for
redemption to the Fund in Creation
Units only.
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5. The Web site for the Trust, which
is and will be publicly accessible at no
charge, will contain the following
information, on a per Share basis, for
each Fund: (a) The prior Business Day’s
NAV and the Bid/Ask Price, and a
calculation of the premium or discount
of the Bid/Ask Price against such NAV;
and (b) data in chart format displaying
the frequency distribution of discounts
and premiums of the daily Bid/Ask
Price against the NAV, within
appropriate ranges, for each of the four
previous calendar quarters (or for the
life of the Fund, if shorter).
6. The Prospectus and annual report
for each Fund will also include: (a) The
information listed in condition A.5(b),
(i) in the case of the Prospectus, for the
most recently completed year (and the
most recently completed quarter or
quarters, as applicable) and (ii) in the
case of the annual report, for the
immediately preceding five years (or for
the life of the Fund, if shorter), and (b)
the cumulative total return and the
average annual total return based on
NAV and Bid/Ask Price calculated on a
per Share basis for one-, five- and tenyear periods (or for the life of the Fund,
if shorter).
7. No Adviser or Sub-Adviser, directly
or indirectly, will cause any Authorized
Participant (or any investor on whose
behalf an Authorized Participant may
transact with the Fund) to acquire any
Deposit Security for the Fund through a
transaction in which the Fund could not
engage directly.
8. On each Business Day, before
commencement of trading in Shares on
the Fund’s listing Exchange, the Fund
will disclose on its Web site the
identities and quantities of the Portfolio
Securities and other assets held by the
Fund that will form the basis for the
Fund’s calculation of NAV at the end of
the Business Day.
B. Section 12(d)(1) Relief
1. The members of the Fund of Funds’
Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of the Fund of
Funds’ Sub-Advisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a
decrease in the outstanding voting
securities of a Fund, the Fund of Funds’
Advisory Group or the Fund of Funds’
Sub-Advisory Group, each in the
aggregate, becomes a holder of more
than 25 percent of the outstanding
voting securities of a Fund, it will vote
its Shares of the Fund in the same
proportion as the vote of all other
holders of the Fund’s Shares. This
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condition does not apply to the Fund of
Funds’ Sub-Advisory Group with
respect to a Fund for which the Fund of
Funds Sub-Adviser or a person
controlling, controlled by or under
common control with the Fund of
Funds Sub-Adviser acts as the
investment adviser within the meaning
of section 2(a)(20)(A) of the Act.
2. No Fund of Funds or Fund of
Funds Affiliate will cause any existing
or potential investment by the Fund of
Funds in a Fund to influence the terms
of any services or transactions between
the Fund of Funds or a Fund of Funds
Affiliate and the Fund or a Fund
Affiliate.
3. The board of directors or trustees of
an Investing Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
assure that the Fund of Funds Adviser
and any Fund of Funds Sub-Adviser are
conducting the investment program of
the Investing Management Company
without taking into account any
consideration received by the Investing
Management Company or a Fund of
Funds Affiliate from a Fund or a Fund
Affiliate in connection with any services
or transactions.
4. Once an investment by a Fund of
Funds in the securities of a Fund
exceeds the limit in section
l2(d)(1)(A)(i) of the Act, the board of
trustees (‘‘Board’’) of a Fund, including
a majority of the disinterested Board
members, will determine that any
consideration paid by the Fund to the
Fund of Funds or a Fund of Funds
Affiliate in connection with any services
or transactions: (i) Is fair and reasonable
in relation to the nature and quality of
the services and benefits received by the
Fund; (ii) is within the range of
consideration that the Fund would be
required to pay to another unaffiliated
entity in connection with the same
services or transactions; and (iii) does
not involve overreaching on the part of
any person concerned. This condition
does not apply with respect to any
services or transactions between a Fund
and its investment adviser(s), or any
person controlling, controlled by or
under common control with such
investment adviser(s).
5. The Fund of Funds Adviser, or
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Fund of Funds in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund under rule 12b–l
under the Act) received from a Fund by
the Fund of Funds Adviser, or Trustee
or Sponsor of the Investing Trust, or an
affiliated person of the Fund of Funds
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Jkt 217001
Adviser, or Trustee or Sponsor of the
Investing Trust, other than any advisory
fees paid to the Fund of Funds Adviser,
or Trustee or Sponsor of the Investing
Trust, or its affiliated person by the
Fund, in connection with the
investment by the Fund of Funds in the
Fund. Any Fund of Funds Sub-Adviser
will waive fees otherwise payable to the
Fund of Funds Sub-Adviser, directly or
indirectly, by the Investing Management
Company in an amount at least equal to
any compensation received from a Fund
by the Fund of Funds Sub-Adviser, or
an affiliated person of the Fund of
Funds Sub-Adviser, other than any
advisory fees paid to the Fund of Funds
Sub-Adviser or its affiliated person by
the Fund, in connection with the
investment by the Investing
Management Company in the Fund
made at the direction of the Fund of
Funds Sub-Adviser. In the event that the
Fund of Funds Sub-Adviser waives fees,
the benefit of the waiver will be passed
through to the Investing Management
Company.
6. No Fund of Funds or Fund of
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to a Fund) will cause a Fund to
purchase a security in an Affiliated
Underwriting.
7. The Board of the Fund, including
a majority of the disinterested Board
members, will adopt procedures
reasonably designed to monitor any
purchases of securities by the Fund in
an Affiliated Underwriting, once an
investment by a Fund of Funds in the
securities of the Fund exceeds the limit
of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly
from an Underwriting Affiliate. The
Board will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Fund of Funds in the
Fund. The Board will consider, among
other things: (i) Whether the purchases
were consistent with the investment
objectives and policies of the Fund; (ii)
how the performance of securities
purchased in an Affiliated Underwriting
compares to the performance of
comparable securities purchased during
a comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (iii)
whether the amount of securities
purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
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80463
appropriate, the institution of
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders.
8. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by a Fund of Funds
in the securities of the Fund exceeds the
limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities
were acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
9. Before investing in a Fund in
excess of the limit in section
12(d)(1)(A), a Fund of Funds will
execute a FOF Participation Agreement
with the Fund stating that their
respective boards of directors or trustees
and their investment Advisers, or
Trustee and Sponsor, as applicable,
understand the terms and conditions of
the order, and agree to fulfill their
responsibilities under the order. At the
time of its investment in Shares of a
Fund in excess of the limit in section
12(d)(1)(A)(i), a Fund of Funds will
notify the Fund of the investment. At
such time, the Fund of Funds will also
transmit to the Fund a list of the names
of each Fund of Funds Affiliate and
Underwriting Affiliate. The Fund of
Funds will notify the Fund of any
changes to the list as soon as reasonably
practicable after a change occurs. The
Fund and the Fund of Funds will
maintain and preserve a copy of the
order, the FOF Participation Agreement,
and the list with any updated
information for the duration of the
investment and for a period of not less
than six years thereafter, the first two
years in an easily accessible place.
10. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company,
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
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Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to a Fund of Funds as
set forth in Rule 2830.
12. No Fund will acquire securities of
an investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–31089 Filed 12–30–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–28570; File No. 812–13402]
Sun Life Assurance Company of
Canada (U.S.), et al., Notice of
Application
December 23, 2008.
pwalker on PROD1PC71 with NOTICES
AGENCY: Securities and Exchange
Commission (the ‘‘Commission’’).
ACTION: Notice of application for an
order of approval pursuant to Section
26(c) of the Investment Company Act of
1940, as amended (the ‘‘Act’’), and an
order of exemption pursuant to Section
17(b) of the Act from Section 17(a) of
the Act.
Applicants: Sun Life Assurance
Company of Canada (U.S.) (‘‘Sun Life
U.S.’’), Sun Life Insurance and Annuity
Company of New York (‘‘Sun Life
N.Y.’’) (together with Sun Life U.S., the
‘‘Companies’’), Sun Life of Canada
(U.S.) Variable Account F (‘‘Account
F’’), Sun Life of Canada (U.S.) Variable
Account G (‘‘Account G’’), Sun Life of
Canada (U.S.) Variable Account I
(‘‘Account I’’), Sun Life (N.Y.) Variable
Account C (‘‘Account C’’), Sun Life
(N.Y.) Variable Account D (‘‘Account
D’’), and Sun Life (N.Y.) Variable
Account J (‘‘Account J’’) (collectively,
the ‘‘Applicants’’). Applicants, together
with Sun Capital Advisers Trust (‘‘Sun
Capital Trust’’) are ‘‘Section 17(b)
Applicants.’’
Summary of Application: Applicants
seek an order approving the proposed
substitutions (the ‘‘Substitutions’’)
under certain variable life insurance
policies and variable annuity contracts
(‘‘Contracts’’) of Class VC shares of the
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Jkt 217001
Lord Abbett Growth and Income
Portfolio and the Lord Abbett Mid-Cap
Value Portfolio of Lord Abbett Series
Fund, Inc. (‘‘LA Series’’), and
Administrative Class shares of the
PIMCO High Yield Portfolio and the
PIMCO Low Duration Portfolio of the
PIMCO Variable Insurance Trust with
Initial Class shares of the following
portfolios of Sun Capital Trust,
respectively: The SC Lord Abbett
Growth & Income Fund, the SC
Goldman Sachs Mid Cap Value Fund,
the SC PIMCO High Yield Fund, and the
SC Goldman Sachs Short Duration
Fund. Section 17(b) Applicants also
seek an order pursuant to Section 17(b)
of the Act to permit certain in-kind
transactions in connection with the
Substitutions.
Filing Date: The application was
originally filed on July 9, 2007, and an
amended and restated application was
filed on December 18, 2008.
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 Secretary of
the Commission and serving Applicants
with a copy of the request, personally or
by mail. Hearing requests must be
received by the Commission by 5:30
p.m. on January 21, 2009, 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 requester’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 Secretary of the
Commission.
ADDRESSES: The Commission: Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090; Applicants: c/o Maura A.
Murphy, Esq., Sun Life Assurance
Company of Canada (U.S.), One Sun
Life Executive Park, Wellesley Hills,
Massachusetts 02481.
FOR FURTHER INFORMATION CONTACT:
Rebecca A. Marquigny, Senior Counsel,
or Joyce M. Pickholz, Branch Chief,
Office of Insurance Products, Division of
Investment Management, at (202) 551–
6795.
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application is
available for a fee from the Public
Reference Branch of the Commission,
100 F Street, NE., Washington, DC
20549 (202–551–8090).
Applicants’ and Section 17
Applicants’ Representations and
Conditions:
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
1. Sun Life U.S. is a stock life
insurance company ultimately
controlled by Sun Life Financial Inc.
(‘‘Sun Life Financial’’), a Canadian
reporting company under the Securities
Exchange Act of 1934 (the ‘‘1934 Act’’).
Sun Life U.S. is the depositor and
sponsor of Account F, Account G, and
Account I.
2. Account F is registered as a unit
investment trust (File No. 811–05846);
its interests are offered through
Contracts (the ‘‘Account F Contracts’’)
registered under the Securities Act of
1933 (‘‘1933 Act’’) on Form N–4 (File
Nos. 033–41628, 333–37907, 333–
05227, 333–30844, 333–31248, 333–
41438, 333–74844, 333–82957, 333–
83362, 333–83364, 333–83516, 333–
115536, and 333–115525). Similarly,
Account G, registered as a unit
investment trust (File No. 811–07837)
offers its interests through Contracts (the
‘‘Account G Contracts’’) registered
under the 1933 Act on Form N–6 (File
Nos. 333–65048, 333–13087, and 333–
111688). Account I, registered as a unit
investment trust (File No. 811–09137)
also offers its interests through
Contracts (the ‘‘Account I Contracts’’)
registered under the 1933 Act on Form
N–6 (File Nos. 333–68601, 333–100831,
333–59662, 333–100829, 333–94359,
333–143353, 333–143354, and 333–
144628).
3. Sun Life N.Y., a wholly owned
subsidiary of Sun Life U.S., is a stock
life insurance company and is the
depositor and sponsor of Account C,
Account D, and Account J.
4. Account C, a registered unit
investment trust (File No. 811–04440),
also offers its interests through certain
Contracts (the ‘‘Account C Contracts’’)
registered under the 1933 Act on Form
N–4 (File Nos. 333–05037, 333–67864,
333–119151, 333–119154, 333–100474,
333–107983, 333–99907, and 333–
100475). Similarly, Account D,
registered as a unit investment trust
(File No. 811–04633) offers its interests
through Contracts (the ‘‘Account D
Contracts’’) registered under the 2933
Act on Form N–6 (File Nos. 333–
105437, 333–105438, and 333–105441).
Account J, registered as a unit
investment trust (File No. 811–21937)
also offers its interests through
Contracts (the ‘‘Account J Contracts’’)
registered under the 1933 Act on Form
N–6 (File Nos. 333–136433 and 333–
136435).
5. All of the Contracts involved in the
Substitutions (a) reserve the right to
substitute shares of one portfolio for
shares of another; (b) permit transfers of
contract value among the subaccounts
pursuant to the limitations of the
particular Contract, (c) impose or
E:\FR\FM\31DEN1.SGM
31DEN1
]]>Agencies
[Federal Register Volume 73, Number 251 (Wednesday, December 31, 2008)]
[Notices]
[Pages 80457-80464]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-31089]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28571; 812-13440]
Grail Advisors, LLC and Grail Advisors' Alpha ETF Trust; Notice
of Application
December 23, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the
Act, and under sections 6(c) and 17(b) of the Act for an exemption from
sections 17(a)(1) and (a)(2) of the Act, and under section 12(d)(1)(J)
for an exemption from sections 12(d)(1)(A) and (B) of the Act.
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Applicants: Grail Advisors, LLC (``Adviser'') and Grail Advisors' Alpha
ETF Trust (``Trust'').
Summary of Application: Applicants request an order that permits: (a)
Series of certain open-end management investment companies to issue
shares (``Shares'') redeemable in large aggregations only (``Creation
Units''); (b) secondary market transactions in Shares to occur at
negotiated market prices; (c) certain series to pay redemption
proceeds, under certain circumstances, more than seven days from the
tender of Shares for redemption; (d) certain affiliated persons of the
series to deposit securities into, and receive securities from, the
series in connection with the purchase and redemption of Creation
Units; and (e) certain registered management investment companies and
unit investment trusts outside of the same group of investment
companies as the series to acquire Shares.
Filing Dates: The application was filed on October 17, 2007 and amended
on August 1, 2008. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected in this notice.
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 January 15, 2009, 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
[[Page 80458]]
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: William M. Thomas,
Grail Advisors, LLC, One Ferry Building, Suite 255, San Francisco, CA
94111.
FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202)
551-6870 or Marilyn Mann, 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 for a fee at the
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC
20549-0102 (tel. 202-551-5850).
Applicants' Representations
1. The Trust is organized as a Delaware statutory trust and will be
registered as an open-end management investment company under the Act.
The Trust will offer one initial series, Grail U.S. Value Fund
(``Initial Fund''). The Initial Fund's investment objective will be to
provide long-term capital growth by investing primarily in U.S. equity
securities.
2. Applicants request that the order apply to the Initial Fund and
any additional series of the Trust and other open-end investment
management companies or series thereof, that may be created in the
future (``Future Funds'').\1\ Any Future Fund will be (a) advised by
the Adviser or an entity controlling, controlled by, or under common
control with the Adviser, and (b) comply with the terms and conditions
of the application. Future Funds may invest in U.S. equity or fixed
income securities, foreign equity or fixed income securities (``Foreign
Funds''), or a combination of U.S. and foreign equity or fixed income
securities. The Initial Fund and Future Funds, including the Foreign
Funds, together are the ``Funds.'' Each Fund will operate as an
actively managed exchange-traded fund (``ETF'').
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\1\ All entities that currently intend to rely on the order are
named as applicants. Any other entity that relies on the order in
the future will comply with the terms and conditions of the
application. A Fund of Funds (as defined below) may rely on the
order only to invest in Funds and not in any other registered
investment company.
---------------------------------------------------------------------------
3. The Adviser, a Delaware limited liability company, is registered
as an investment adviser under the Investment Advisers Act of 1940
(``Advisers Act'') and will serve as investment adviser to each Fund.
The Adviser expects to enter into a sub-advisory agreement with one or
more investment advisers each of which will serve as an adviser to a
Fund (each, a ``Sub-Adviser''). Each Sub-Adviser will be registered
under the Advisers Act. Each Fund will have a distributor
(``Distributor'') that will be registered as a broker-dealer under the
Securities Exchange Act of 1934 (``Exchange Act'') and will serve as
the principal underwriter for the Fund.
4. Shares of the Funds will be sold at a price of between $20 and
$100 per Share in Creation Units of 50,000 Shares. All orders to
purchase Creation Units must be placed with the Distributor by or
through a party that has entered into an agreement with the Trust and
the Distributor (``Authorized Participant''). An Authorized Participant
must be either: (a) A broker-dealer or other participant in the
continuous net settlement system of the National Securities Clearing
Corporation (``NSCC''), a clearing agency registered with the
Commission, or (b) a participant in the Depository Trust Company
(``DTC,'' and such participant, ``DTC Participant''). Shares of each
Fund generally will be sold in Creation Units in exchange for an in-
kind deposit by the purchaser of a portfolio of securities designated
by the Adviser (the ``Deposit Securities''), together with the deposit
of a relatively small specified cash payment (``Balancing Amount'').
The Balancing Amount is an amount equal to the difference between (a)
the net asset value (``NAV'') per Creation Unit of the Fund and (b) the
total aggregate market value per Creation Unit of the Deposit
Securities.\2\ Applicants state that in some circumstances it may not
be practicable or convenient for a Fund to operate exclusively on an
``in-kind'' basis. The Trust reserves the right to permit, under
certain circumstances, a purchaser of Creation Units to substitute cash
in lieu of depositing some or all of the requisite Deposit Securities.
---------------------------------------------------------------------------
\2\ In addition to the list of names and amount of each security
constituting the current Deposit Securities, it is intended that, on
each day that a Fund is open, including as required by section 22(e)
of the Act (``Business Day''), the Balancing Amount effective as of
the previous Business Day, per outstanding Share of each Fund, will
be made available. The Exchange intends to disseminate, every 15
seconds, during regular trading hours, through the facilities of the
Consolidated Tape Association, an approximate amount per Share
representing the sum of the estimated Balancing Amount effective
through and including the previous Business Day, plus the current
value of the Deposit Securities, on a per Share basis.
---------------------------------------------------------------------------
5. An investor purchasing a Creation Unit from a Fund will be
charged a fee (``Transaction Fee'') to prevent the dilution of the
interests of the remaining shareholders resulting from costs in
connection with the purchase of Creation Units.\3\ The maximum
Transaction Fees relevant to each Fund will be fully disclosed in the
prospectus (``Prospectus'') or statement of additional information
(``SAI'') of such Fund. All orders to purchase Creation Units will be
placed with the Distributor by or through an Authorized Participant and
it will be the Distributor's responsibility to transmit such orders to
the Trust. The Distributor also will be responsible for delivering the
Prospectus to those persons purchasing Creation Units, and for
maintaining records of both the orders placed with it and the
confirmations of acceptance furnished by it. In addition, the
Distributor will maintain a record of the instructions given to the
Trust to implement the delivery of Shares.
---------------------------------------------------------------------------
\3\ Where a Fund permits a purchaser to substitute cash in lieu
of depositing a portion of the requisite Deposit Securities, the
purchaser may be assessed a higher Transaction Fee to cover the cost
of purchasing such Deposit Securities, including brokerage costs,
and part or all of the spread between the expected bid and the offer
side of the market relating to such Deposit Securities.
---------------------------------------------------------------------------
6. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded on a national securities exchange as defined in section
2(a)(26) of the Act (``Exchange''). It is expected that one or more
member firms of a listing Exchange will be designated to act as a
specialist and maintain a market for Shares on the Exchange (the
``Specialist''), or if Nasdaq or a similar electronic Exchange is the
listing Exchange, one or more member firms will act as a market maker
(``Market Maker'') and maintain a market for Shares.\4\ Prices of
Shares trading on an Exchange will be based on the current bid/offer
market. Shares sold in the secondary market will be subject to
customary brokerage commissions and charges.
---------------------------------------------------------------------------
\4\ If Shares are listed on the Nasdaq, no particular Market
Maker will be contractually obligated to make a market in Shares,
although Nasdaq's listing requirements stipulate that at least two
Market Makers must be registered as Market Makers in Shares to
maintain the listing. Registered Market Makers are required to make
a continuous, two-sided market at all times or be subject to
regulatory sanctions.
---------------------------------------------------------------------------
7. Applicants expect that purchasers of Creation Units will include
institutional investors and arbitrageurs (which could include
institutional
[[Page 80459]]
investors). The Specialist, or Market Maker, in providing a fair and
orderly secondary market for the Shares, also may purchase Creation
Units for use in its market-making activities. Applicants expect that
secondary market purchasers of Shares will include both institutional
investors and retail investors.\5\ Applicants expect that the price at
which the Shares trade will be disciplined by arbitrage opportunities
created by the ability to continually purchase or redeem Creation Units
at their NAV, which should ensure that the Shares will not trade at a
material discount or premium in relation to their NAV.
---------------------------------------------------------------------------
\5\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
DTC or DTC Participants will maintain records reflecting beneficial
owners of Shares.
---------------------------------------------------------------------------
8. Shares will not be individually redeemable, and owners of Shares
may acquire those Shares from a Fund, or tender such Shares for
redemption to the Fund, in Creation Units only. To redeem, an investor
will have to accumulate enough Shares to constitute a Creation Unit.
Redemption orders must be placed by or through an Authorized
Participant. An investor redeeming a Creation Unit generally will
receive (a) a portfolio of securities designated to be delivered for
Creation Unit redemptions on the date that the request for redemption
is submitted (``Redemption Securities'') and (b) a ``Cash Redemption
Payment,'' consisting of an amount calculated in the same manner as the
Balancing Amount, although the actual amount of the Cash Redemption
Payment may differ from the Balancing Amount if the Redemption
Securities are not identical to the Deposit Securities on that day. An
investor may receive the cash equivalent of a Redemption Security in
certain circumstances, such as if the investor is constrained from
effecting transactions in the security by regulation or policy.\6\ A
redeeming investor may pay a Transaction Fee, calculated in the same
manner as a Transaction Fee payable in connection with purchases of
Creation Units.
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\6\ Applicants state that a cash-in-lieu amount will replace any
``to-be-announced'' (``TBA'') transaction that is listed as a
Deposit Security or Redemption Security of any Fund. A TBA
transaction is a method of trading mortgage-backed securities where
the buyer and seller agree upon general trade parameters such as
agency, settlement date, par amount and price. The actual pools
delivered generally are determined two days prior to the settlement
date. The amount of substituted cash in the case of TBA transactions
will be equivalent to the value of the TBA transaction listed as a
Deposit Security or Redemption Security.
---------------------------------------------------------------------------
9. Applicants state that in accepting Deposit Securities and
satisfying redemptions with Redemption Securities, the relevant Funds
will comply with the federal securities laws, including that the
Deposit Securities and Redemption Securities are sold in transactions
that would be exempt from registration under the Securities Act.\7\ As
a general matter, the Deposit Securities and Redemption Securities will
correspond pro rata to the securities held by each Fund, although
Redemption Securities received on redemption may not always be
identical to Deposit Securities deposited in connection with the
purchase of Creation Units for the same day.
---------------------------------------------------------------------------
\7\ In accepting Deposit Securities and satisfying redemptions
with Redemption Securities that are restricted securities eligible
for resale pursuant to rule 144A under the Securities Act, the
relevant Funds will comply with the conditions of rule 144A,
including in satisfying redemptions with such rule 144A eligible
restricted Redemption Securities. The Prospectus will also state
that an Authorized Participant that is not a ``Qualified
Institutional Buyer'' as defined in rule 144A under the Securities
Act will not be able to receive, as part of a redemption, restricted
securities eligible for resale under rule 144A.
---------------------------------------------------------------------------
10. Neither the Trust nor any individual Fund will be marketed or
otherwise held out as an ``open-end investment company'' or a ``mutual
fund.'' Instead, each Fund will be marketed as an ``actively-managed
exchange-traded fund.'' All marketing materials that describe the
method of obtaining, buying or selling Shares, or refer to
redeemability, will prominently disclose that Shares are not
individually redeemable and that the owners of Shares may purchase or
redeem Shares from a Fund in Creation Units only. The same approach
will be followed in the SAI, shareholder reports and investor
educational materials issued or circulated in connection with the
Shares. The Funds will provide copies of their annual and semi-annual
shareholder reports to DTC Participants for distribution to beneficial
owners of Shares.
11. The Funds' Web site, which will be publicly available prior to
the public offering of Shares, will include the Prospectus and other
information about the Funds that is updated on a daily basis, including
the mid-point of the bid-ask spread at the time of the calculation of
NAV (``Bid/Ask Price''). On each Business Day, before the commencement
of trading in Shares on the Exchange, each Fund will disclose the
identities and quantities of the securities (``Portfolio Securities'')
and other assets held in the Fund portfolio that will form the basis
for the Fund's calculation of NAV at the end of the Business Day.\8\
---------------------------------------------------------------------------
\8\ Applicants note that under accounting procedures followed by
the Funds, trades made on the prior Business Day (``T'') will be
booked and reflected in NAV on the current Business Day (``T + 1'').
Accordingly, the Funds will be able to disclose at the beginning of
the Business Day the portfolio that will form the basis for the NAV
calculation at the end of the Business Day.
---------------------------------------------------------------------------
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e)
of the Act and rule 22c-1 under the Act; and under sections 6(c) and
17(b) of the Act granting an exemption from sections 17(a)(1) and
(a)(2) of the Act; and under section 12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that 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.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) 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 section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit each Fund, as a series of
an open-end management investment
[[Page 80460]]
company, to issue Shares that are redeemable in Creation Units only.
Applicants state that investors may purchase Shares in Creation Units
from each Fund and redeem Creation Units from each Fund. Applicants
further state that because the market price of Shares will be
disciplined by arbitrage opportunities, investors should be able to
sell Shares in the secondary market at prices that do not vary
substantially from their NAV.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security, which is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in the prospectus, and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers resulting from sales at different prices, and (c) assure
an orderly distribution of investment company shares by eliminating
price competition from dealers offering shares at less than the
published sales price and repurchasing shares at more than the
published redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve the Funds as parties and cannot result in dilution of
an investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because arbitrage activity will ensure that the
difference between the market price of Shares and their NAV remains
narrow.
Section 22(e)
7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
state that settlement of redemptions for the Foreign Funds is
contingent not only on the settlement cycle of the United States
market, but also on currently practicable delivery cycles in local
markets for underlying foreign securities held by the Foreign Funds.
Applicants state that local market delivery cycles for transferring
Shares to redeeming investors, coupled with local market holiday
schedules, will, under certain circumstances, require a delivery
process longer than seven calendar days for Foreign Funds. Applicants
request relief under section 6(c) of the Act from section 22(e) to
allow the Foreign Funds to pay redemption proceeds up to 14 calendar
days after the tender of any Creation Units for redemption. Except as
disclosed in the relevant Foreign Fund's Prospectus and/or SAI,
applicants expect that each Foreign Fund will be able to deliver
redemption proceeds within seven days.\9\ With respect to future
Foreign Funds, applicants seek the same relief from section 22(e) only
to the extent that circumstances similar to those described in the
application exist.
---------------------------------------------------------------------------
\9\ Rule 15c6-1 under the Exchange Act requires that most
securities be settled within three business days of the trade.
Applicants acknowledge that no relief obtained from the requirements
of section 22(e) will affect any obligations applicants may have
under rule 15c6-1.
---------------------------------------------------------------------------
8. Applicants state that section 22(e) was designed to prevent
unreasonable and unforeseen delays in the payment of redemption
proceeds. Applicants assert that the requested relief will not lead to
the problems that section 22(e) was designed to prevent. Applicants
state that the SAI will disclose those local holidays (over the period
of at least one year following the date of the SAI), if any, that are
expected to prevent the delivery of redemption proceeds in seven
calendar days, and the maximum number of days needed to deliver the
proceeds for the relevant Foreign Fund. Applicants are not seeking
relief from section 22(e) with respect to Foreign Funds that do not
effect creations and redemptions of Creation Units in-kind.
Section 12(d)(1)
9. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other broker or dealer from selling its shares 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 if the sale
will cause more than 10% of the acquired company's voting stock to be
owned by investment companies generally.
10. Applicants request that the order permit certain investment
companies registered under the Act to acquire Shares beyond the
limitations in section 12(d)(1)(A) and permit the Funds, any principal
underwriter for the Funds, and any broker or dealer registered under
the Exchange Act (``Brokers''), to sell Shares beyond the limitations
in section 12(d)(1)(B). Applicants request that these exemptions apply
to: (1) any Fund that is currently or subsequently part of the same
``group of investment companies'' as the Initial Fund within the
meaning of section 12(d)(1)(G)(ii) of the Act as well as any principal
underwriter for the Funds and any Brokers selling Shares of a Fund to a
Fund of Funds (as defined below); and (2) each management investment
company or unit investment trust registered under the Act that is not
part of the same ``group of investment companies'' as the Funds within
the meaning of section 12(d)(1)(G)(ii) of the Act and that enters into
a FOF Participation Agreement (as defined below) with a Fund (such
management investment companies are referred to herein as ``Investing
Management Companies,'' such unit investment trusts are referred to
herein as ``Investing Trusts,'' and Investing Management Companies and
Investing Trusts are ``Funds of Funds''). Funds of Funds do not include
the Funds. Each
[[Page 80461]]
Investing Trust will have a sponsor (``Sponsor'') and each Investing
Management Company will have an investment adviser within the meaning
of Section 2(a)(20)(A) of the Act (``Fund of Funds Adviser'') that does
not control, is not controlled by or under common control with the
Adviser. Each Investing Management Company may also have one or more
investment advisers within the meaning of Section 2(a)(20)(B) of the
Act (each, a ``Fund of Funds Sub-Adviser'').
11. Applicants assert that the proposed transactions will not lead
to any of the abuses that section 12(d)(1) was designed to prevent.
Applicants submit that the proposed conditions to the requested relief
address the concerns underlying the limits in section 12(d)(1), which
include concerns about undue influence, excessive layering of fees and
overly complex structures.
12. Applicants believe that neither the Fund of Funds nor a Fund of
Funds Affiliate would be able to exert undue influence over the
Funds.\10\ To limit the control that a Fund of Funds may have over a
Fund, applicants propose a condition prohibiting the Fund of Funds
Adviser or Sponsor; any person controlling, controlled by, or under
common with the Fund of Funds Adviser or Sponsor; and any investment
company or issuer that would be an investment company but for sections
3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by the Fund
of Funds Adviser or advised or sponsored by the Sponsor, or any person
controlling, controlled by, or under common control with the Fund of
Funds Adviser or Sponsor (``Fund of Funds'' Advisory Group'') from
controlling (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. The same prohibition would apply
to any Fund of Funds Sub-Adviser; any person controlling, controlled
by, or under common control with the Fund of Funds Sub-Adviser; and any
investment company or issuer that would be an investment company but
for section 3(c)(1) or 3(c)(7) of the Act (or portion of such
investment company or issuer) advised or sponsored by the Fund of Funds
Sub-Adviser or any person controlling, controlled by, or under common
control with the Fund of Funds Sub-Adviser (``Fund of Funds'' Sub-
Advisory Group'').
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\10\ A ``Fund of Funds Affiliate'' is a Fund of Funds Adviser,
Fund of Funds Sub-Adviser, Sponsor, promoter, and principal
underwriter of a Fund of Funds, and any person controlling,
controlled by, or under common control with any of those entities. A
``Fund Affiliate'' is the Adviser, any Sub-Adviser, promoter or
principal underwriter of a Fund, or any person controlling,
controlled by, or under common control with any of these entities.
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13. Applicants propose other conditions to limit the potential for
undue influence over the Funds, including that no Fund of Funds or Fund
of Funds Affiliate (except to the extent it is acting in its capacity
as an investment adviser to a Fund) will cause a Fund to purchase a
security in any offering of securities during the existence of any
underwriting or selling syndicate of which a principal underwriter is
an Underwriting Affiliate (``Affiliated Underwriting''). An
``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director, member
of an advisory board, Fund of Funds Adviser, Fund of Funds Sub-Adviser,
employee or Sponsor of a Fund of Funds, or a person of which any such
officer, director, member of an advisory board, Fund of Funds Adviser,
Fund of Funds Sub-Adviser, employee, or Sponsor is an affiliated person
(except any person whose relationship to the Fund is covered by section
10(f) of the Act is not an Underwriting Affiliate).
14. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. The board of directors or trustees
of each Investing Management Company, including a majority of the
disinterested directors or trustees, before approving any advisory
contract under section 15 of the Act, will be required to determine
that the advisory fees charged to the Investing Management Company are
based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Investing Management Company may invest. In
addition, the Fund of Funds Adviser, trustee of an Investing Trust
(``Trustee'') or Sponsor, as applicable, will waive fees otherwise
payable to it by the Fund of Funds in an amount at least equal to any
compensation received from a Fund by the Fund of Funds Adviser, Trustee
or Sponsor, or an affiliated person of the Fund of Funds Adviser,
Trustee or Sponsor (other than any advisory fees), in connection with
the investment by the Fund of Funds in the Funds. Applicants also state
that any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to a
fund of funds set forth in Conduct Rule 2830 of the NASD (``Rule
2830'').
15. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any investment company, or of
any company relying on section 3(c)(1) or 3(c)(7) of the Act, in excess
of the limits contained in section 12(d)(1)(A) of the Act.
16. To ensure that a Fund of Funds is aware of the terms and
conditions of the requested order, the Fund of Funds must enter into an
agreement with the respective Funds (``FOF Participation Agreement'').
The FOF Participation Agreement will include an acknowledgement from
the Fund of Funds that it may rely on the order only to invest in the
Funds and not in any other investment company. The FOF Participation
Agreement will further require any Fund of Funds that exceeds the 5% or
10% limitations in section 12(d)(1)(A)(ii) and (iii) to disclose in its
prospectus that it may invest in ETFs and disclose, in ``plain
English,'' in its prospectus the unique characteristics of the Fund of
Funds investing in investment companies, including but not limited to
the expense structure and any additional expenses of investing in
investment companies.
Sections 17(a)(1) and (2) of the Act
17. Section 17(a)(1) and (2) of the Act generally prohibit an
affiliated person of a registered investment company, or an affiliated
person of such a person (``second tier affiliate''), from selling any
security to or purchasing any security from the company. Section
2(a)(3) of the Act defines ``affiliated person'' to include any person
directly or indirectly owning, controlling, or holding with power to
vote 5% or more of the outstanding voting securities of the other
person and any person directly or indirectly controlling, controlled
by, or under common control with, the other person. Section 2(a)(9) of
the Act provides that a control relationship will be presumed where one
person owns more than 25% of another person's voting securities. The
Funds may be deemed to be controlled by the Adviser or an entity
controlling, controlled by or under common control with the Adviser and
hence affiliated persons of each other. In addition, the Funds may be
deemed to be under common control with any other registered investment
company (or series thereof) advised by the Adviser or an entity
controlling, controlled by or under common control with the Adviser (an
``Affiliated Fund''). Applicants state that because the definition of
``affiliated person'' includes any person owning 5% or more of an
issuer's outstanding voting securities, every purchaser of a Creation
Unit will be affiliated with the Fund so
[[Page 80462]]
long as fewer than twenty Creation Units are in existence, and any
purchaser that owns more than 25% of a Fund's outstanding Shares will
be affiliated with a Fund.
18. Applicants request an exemption from section 17(a) under
sections 6(c) and 17(b), to permit in-kind purchases and redemptions by
persons that are affiliated persons or second tier affiliates of the
Funds solely by virtue of one or more of the following: (1) Holding 5%
or more, or more than 25%, of the outstanding Shares of the Trust or
one or more Funds; (2) an affiliation with a person with an ownership
interest described in (1); or (3) holding 5% or more, or more than 25%,
of the shares of one or more Affiliated Funds. Applicants also request
an exemption in order to permit each Fund to sell Shares to and redeem
Shares from, and engage in the in-kind transactions that would
accompany such sales and redemptions with, any Fund of Funds of which
it is an affiliated person or second tier affiliate.\11\
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\11\ Although applicants believe that most Fund of Funds will
purchase and sell Shares in the secondary market, a Fund of Funds
might seek to transact in Shares directly with a Fund.
---------------------------------------------------------------------------
19. Applicants contend that no useful purpose would be served by
prohibiting affiliated persons or second tier affiliates of a Fund from
purchasing or redeeming Creation Units through ``in-kind''
transactions. The deposit procedure for in-kind purchases and the
redemption procedure for in-kind redemptions will be the same for all
purchases and redemptions. Deposit Securities and Redemption Securities
will be valued under the same objective standards applied to valuing
Portfolio Securities. Therefore, applicants state that in-kind
purchases and redemptions will afford no opportunity for the affiliated
persons and second tier affiliates described above to effect a
transaction detrimental to the other holders of Shares. Applicants also
believe that in-kind purchases and redemptions will not result in
abusive self-dealing or overreaching by these persons of the Fund.
20. Applicants also submit that the sale of Shares to and
redemption of Shares from a Fund of Funds satisfies the standards for
relief under sections 17(b) and 6(c) of the Act. Applicants note that
the consideration paid for the purchase or received for the redemption
of Shares directly from a Fund by a Fund of Funds (or any other
investor) will be based on the NAV of the Shares. In addition, the
securities received or transferred by the Fund in connection with the
purchase or redemption of Shares will be valued in the same manner as
the Fund's Portfolio Securities and thus the transactions will not be
detrimental to the Fund of Funds. Applicants also state that the
proposed transactions will be consistent with the policies of each Fund
of Funds and Fund and with the general purposes of the Act.
Applicants' Conditions
The applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
A. Actively Managed Exchange-Traded Fund Relief
1. The requested order will expire on the effective date of any
Commission rule under the Act that provides relief permitting the
operation of actively managed exchange-traded funds.
2. Each Fund's Prospectus will clearly disclose that, for purposes
of the Act, Shares are issued by a registered investment company and
that the acquisition of Shares by investment companies and companies
relying on sections 3(c)(1) or 3(c)(7) of the Act is subject to the
restrictions of section 12(d)(1) of the Act, except as permitted by an
exemptive order that permits registered investment companies to invest
in a Fund beyond the limits in section 12(d)(1), subject to certain
terms and conditions, including that the registered investment company
enter into a FOF Participation Agreement with the Fund regarding the
terms of the investment.
3. As long as a Fund operates in reliance on the requested order,
the Shares of the Fund will be listed on an Exchange.
4. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Each Fund's Prospectus
and advertising materials will prominently disclose that the Fund is an
actively managed exchange-traded fund. Each Prospectus will prominently
disclose that the Shares are not individually redeemable shares and
will disclose that the owners of the Shares may acquire those Shares
from the Fund and tender those Shares for redemption to the Fund in
Creation Units only. Any advertising material that describes the
purchase or sale of Creation Units or refers to redeemability will
prominently disclose that the Shares are not individually redeemable
and that owners of the Shares may acquire those Shares from the Fund
and tender those Shares for redemption to the Fund in Creation Units
only.
5. The Web site for the Trust, which is and will be publicly
accessible at no charge, will contain the following information, on a
per Share basis, for each Fund: (a) The prior Business Day's NAV and
the Bid/Ask Price, and a calculation of the premium or discount of the
Bid/Ask Price against such NAV; and (b) data in chart format displaying
the frequency distribution of discounts and premiums of the daily Bid/
Ask Price against the NAV, within appropriate ranges, for each of the
four previous calendar quarters (or for the life of the Fund, if
shorter).
6. The Prospectus and annual report for each Fund will also
include: (a) The information listed in condition A.5(b), (i) in the
case of the Prospectus, for the most recently completed year (and the
most recently completed quarter or quarters, as applicable) and (ii) in
the case of the annual report, for the immediately preceding five years
(or for the life of the Fund, if shorter), and (b) the cumulative total
return and the average annual total return based on NAV and Bid/Ask
Price calculated on a per Share basis for one-, five- and ten-year
periods (or for the life of the Fund, if shorter).
7. No Adviser or Sub-Adviser, directly or indirectly, will cause
any Authorized Participant (or any investor on whose behalf an
Authorized Participant may transact with the Fund) to acquire any
Deposit Security for the Fund through a transaction in which the Fund
could not engage directly.
8. On each Business Day, before commencement of trading in Shares
on the Fund's listing Exchange, the Fund will disclose on its Web site
the identities and quantities of the Portfolio Securities and other
assets held by the Fund that will form the basis for the Fund's
calculation of NAV at the end of the Business Day.
B. Section 12(d)(1) Relief
1. The members of the Fund of Funds' Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of the Fund of Funds' Sub-
Advisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding voting securities of a Fund, the Fund
of Funds' Advisory Group or the Fund of Funds' Sub-Advisory Group, each
in the aggregate, becomes a holder of more than 25 percent of the
outstanding voting securities of a Fund, it will vote its Shares of the
Fund in the same proportion as the vote of all other holders of the
Fund's Shares. This
[[Page 80463]]
condition does not apply to the Fund of Funds' Sub-Advisory Group with
respect to a Fund for which the Fund of Funds Sub-Adviser or a person
controlling, controlled by or under common control with the Fund of
Funds Sub-Adviser acts as the investment adviser within the meaning of
section 2(a)(20)(A) of the Act.
2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in a Fund to
influence the terms of any services or transactions between the Fund of
Funds or a Fund of Funds Affiliate and the Fund or a Fund Affiliate.
3. The board of directors or trustees of an Investing Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to assure that the
Fund of Funds Adviser and any Fund of Funds Sub-Adviser are conducting
the investment program of the Investing Management Company without
taking into account any consideration received by the Investing
Management Company or a Fund of Funds Affiliate from a Fund or a Fund
Affiliate in connection with any services or transactions.
4. Once an investment by a Fund of Funds in the securities of a
Fund exceeds the limit in section l2(d)(1)(A)(i) of the Act, the board
of trustees (``Board'') of a Fund, including a majority of the
disinterested Board members, will determine that any consideration paid
by the Fund to the Fund of Funds or a Fund of Funds Affiliate in
connection with any services or transactions: (i) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Fund; (ii) is within the range of
consideration that the Fund would be required to pay to another
unaffiliated entity in connection with the same services or
transactions; and (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Fund and its investment adviser(s),
or any person controlling, controlled by or under common control with
such investment adviser(s).
5. The Fund of Funds Adviser, or Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Fund of Funds in an
amount at least equal to any compensation (including fees received
pursuant to any plan adopted by a Fund under rule 12b-l under the Act)
received from a Fund by the Fund of Funds Adviser, or Trustee or
Sponsor of the Investing Trust, or an affiliated person of the Fund of
Funds Adviser, or Trustee or Sponsor of the Investing Trust, other than
any advisory fees paid to the Fund of Funds Adviser, or Trustee or
Sponsor of the Investing Trust, or its affiliated person by the Fund,
in connection with the investment by the Fund of Funds in the Fund. Any
Fund of Funds Sub-Adviser will waive fees otherwise payable to the Fund
of Funds Sub-Adviser, directly or indirectly, by the Investing
Management Company in an amount at least equal to any compensation
received from a Fund by the Fund of Funds Sub-Adviser, or an affiliated
person of the Fund of Funds Sub-Adviser, other than any advisory fees
paid to the Fund of Funds Sub-Adviser or its affiliated person by the
Fund, in connection with the investment by the Investing Management
Company in the Fund made at the direction of the Fund of Funds Sub-
Adviser. In the event that the Fund of Funds Sub-Adviser waives fees,
the benefit of the waiver will be passed through to the Investing
Management Company.
6. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in an Affiliated Underwriting.
7. The Board of the Fund, including a majority of the disinterested
Board members, will adopt procedures reasonably designed to monitor any
purchases of securities by the Fund in an Affiliated Underwriting, once
an investment by a Fund of Funds in the securities of the Fund exceeds
the limit of section 12(d)(1)(A)(i) of the Act, including any purchases
made directly from an Underwriting Affiliate. The Board will review
these purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Fund of Funds in the Fund. The Board will consider, among other
things: (i) Whether the purchases were consistent with the investment
objectives and policies of the Fund; (ii) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (iii) whether the
amount of securities purchased by the Fund in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders.
8. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings once an investment by a Fund of Funds in the securities
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities were acquired, the identity of
the underwriting syndicate's members, the terms of the purchase, and
the information or materials upon which the Board's determinations were
made.
9. Before investing in a Fund in excess of the limit in section
12(d)(1)(A), a Fund of Funds will execute a FOF Participation Agreement
with the Fund stating that their respective boards of directors or
trustees and their investment Advisers, or Trustee and Sponsor, as
applicable, understand the terms and conditions of the order, and agree
to fulfill their responsibilities under the order. At the time of its
investment in Shares of a Fund in excess of the limit in section
12(d)(1)(A)(i), a Fund of Funds will notify the Fund of the investment.
At such time, the Fund of Funds will also transmit to the Fund a list
of the names of each Fund of Funds Affiliate and Underwriting
Affiliate. The Fund of Funds will notify the Fund of any changes to the
list as soon as reasonably practicable after a change occurs. The Fund
and the Fund of Funds will maintain and preserve a copy of the order,
the FOF Participation Agreement, and the list with any updated
information for the duration of the investment and for a period of not
less than six years thereafter, the first two years in an easily
accessible place.
10. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Investing Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Investing
[[Page 80464]]
Management Company may invest. These findings and their basis will be
recorded fully in the minute books of the appropriate Investing
Management Company.
11. Any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to a
Fund of Funds as set forth in Rule 2830.
12. No Fund will acquire securities of an investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-31089 Filed 12-30-08; 8:45 am]
BILLING CODE 8011-01-P
