ARK ETF Trust, et al.; Notice of Application, 20253-20260 [2014-08131]

Download as PDF Federal Register / Vol. 79, No. 70 / Friday, April 11, 2014 / Notices unless it displays a currently valid OMB control number. The public may view the background documentation for this information collection at the following Web site, www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Shagufta_ Ahmed@omb.eop.gov; and (ii) Thomas Bayer, Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 100 F Street NE., Washington, DC 20549 or send an email to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: April 4, 2014. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–08004 Filed 4–10–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 31009; 812–14172] ARK ETF Trust, et al.; Notice of Application April 7, 2014. Securities and Exchange Commission (the ‘‘Commission’’). ACTION: Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ‘‘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 (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. AGENCY: ARK ETF Trust (the ‘‘Trust’’), ARK Investment Management LLC (the ‘‘Adviser’’) and Foreside Fund Services, LLC (the ‘‘Foreside Fund Services’’). SUMMARY: Summary of Application: Applicants request an order that permits: (a) Actively-managed series of the Trust 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 after the tender of Creation Units for redemption; (d) certain tkelley on DSK3SPTVN1PROD with NOTICES APPLICANTS: VerDate Mar<15>2010 18:55 Apr 10, 2014 Jkt 232001 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; (e) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire Shares; and (f) certain series to perform creations and redemptions of Creation Units in-kind in a master-feeder structure. DATES: Filing Dates: The application was filed on June 25, 2013, and amended on December 2, 2013, March 12, 2014, and March 28, 2014. 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 April 28, 2014, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer’s interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. Applicants: ARK Investment Management LLC, 104 Olmstead Hill Road, Wilton, Connecticut 06897. FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at (202) 551–6826 or David P. Bartels, Branch Chief, at (202) 551–6821 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Applicants’ Representations 1. The Trust is registered as an openend management investment company under the Act and is organized as a Delaware statutory trust. The Trust will offer Funds (as defined below), each of which, or its respective Master Fund (as defined below), will have distinct investment strategies and will attempt PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 20253 to achieve its investment objective by utilizing an active management strategy. 2. ARK Investment Management LLC, a Delaware limited liability company, is, and any other Adviser will be, registered as an investment adviser under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). The Adviser will be the investment adviser to each Fund, or its respective Master Fund (as defined below), and will, in each case, possess full discretionary investment authority with respect to the Fund or its respective Master Fund (as defined below), or discrete portions of a Fund or its respective Master Fund (as defined below) that includes the ability to appoint sub-advisers (each, a ‘‘SubAdviser’’) to a Fund or its respective Master Fund (as defined below). Any Sub-Adviser will be registered or not subject to registration under the Advisers Act. Foreside Fund Services, a Delaware limited liability company is, and any other Distributor will be, registered as a broker-dealer (‘‘Broker’’) under the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’).1 A Distributor will serve as the principal underwriter and distributor for each of the Funds. 3. Applicants request that the order apply to future series of the Trust or of any other open-end investment company that may be created in the future that, in each case, (a) is an actively managed exchange-traded fund (‘‘ETF’’), (b) is advised by ARK Investment Management LLC or an entity controlling, controlled by, or under common control with ARK Investment Management LLC (each such entity or any successor entity thereto, an ‘‘Adviser’’) 2 and (c) complies with the terms and conditions of the application (individually a ‘‘Fund,’’ and collectively, the ‘‘Funds’’).3 4. The Funds, or their respective Master Funds, may invest in equity securities or fixed income securities traded in the U.S. or non-U.S. markets. Funds, or their respective Master Funds, that invest in equity securities or fixed income securities traded in the U.S. or non-U.S. markets are ‘‘Global Funds.’’ Funds, or their respective Master Funds, 1 For purposes of the requested order, the term ‘‘Distributor’’ shall include any other entity that acts as the distributor and principal underwriter of the Creation Units of Shares of the Funds in the future and complies with the terms and conditions of the application. 2 For the purposes of the requested order, ‘‘successor’’ is limited to an entity that would result from a reorganization into another jurisdiction or a change in the type of business organization. 3 All entities that currently intend to rely on the order are named as applicants. Any entity that relies on the order in the future will comply with the terms and conditions of the application. E:\FR\FM\11APN1.SGM 11APN1 20254 Federal Register / Vol. 79, No. 70 / Friday, April 11, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES that invest solely in foreign equity securities or foreign fixed income securities are ‘‘Foreign Funds.’’ The Funds, or their respective Master Funds, may also invest in ‘‘Depositary Receipts’’ 4 and may engage in TBA Transactions (defined below). Applicants further state that, in order to implement each Fund’s investment strategy, the Adviser and/or SubAdvisers of a Fund may review and change the securities, or instruments, or other assets or positions held by the Fund, or its respective Master Fund (‘‘Portfolio Positions’’) daily.5 5. Applicants also request that any exemption under section 12(d)(1)(J) of the Act from sections 12(d)(1)(A) and (B) apply to: (i) Any Fund; (ii) any Acquiring Fund (as defined below); and (iii) any Brokers selling Shares of a Fund to an Acquiring Fund or any principal underwriter of a Fund. A management investment company or unit investment trust registered under the Act that is not part of the same ‘‘group of investment companies’’ as the Fund within the meaning of section 12(d)(1)(G)(ii) of the Act and that acquires Shares of a Fund in excess of the limits of Section 12(d)(1)(A) of the Act is referred to as an ‘‘Acquiring Management Company’’ or an ‘‘Acquiring Trust,’’ respectively, and the Acquiring Management Companies and Acquiring Trusts are referred to collectively as ‘‘Acquiring Funds.’’ 6 6. Applicants further request that the order permit a Fund to operate as a feeder fund (‘‘Feeder Fund’’) (‘‘MasterFeeder Relief’’). Under the order, a Feeder Fund would be permitted to acquire shares of another registered investment company in the same group of investment companies having 4 Depositary Receipts are typically issued by a financial institution (a ‘‘Depositary’’) and evidence ownership in a security or pool of securities that have been deposited with the Depositary. A Fund (or its respective Master Fund) will not invest in any Depositary Receipts that the Adviser or any Sub-Adviser deems to be illiquid or for which pricing information is not readily available. No affiliated persons of applicants or any Sub-Adviser will serve as the Depositary for any Depositary Receipts held by a Fund (or its respective Master Fund). 5 If a Fund (or its respective Master Fund) invests in derivatives, then (a) the Fund’s board of trustees or directors (for any entity, the ‘‘Board’’) will periodically review and approve the Fund’s (or, in the case of a Feeder Fund, its Master Fund’s) use of derivatives and how the Fund’s investment adviser assesses and manages risk with respect to the Fund’s (or, in the case of a Feeder Fund, its Master Fund’s) use of derivatives and (b) the Fund’s disclosure of its (or, in the case of a Feeder Fund, its Master Fund’s) use of derivatives in its offering documents and periodic reports will be consistent with relevant Commission and staff guidance. 6 An Acquiring Fund may rely on the order only to invest in a Fund and not in any other registered investment company. VerDate Mar<15>2010 18:55 Apr 10, 2014 Jkt 232001 substantially the same investment objectives as the Feeder Fund (‘‘Master Fund’’) beyond the limitations in section 12(d)(1)(A) of the Act,7 and the Master Fund, and any principal underwriter for the Master Fund, would be permitted to sell shares of the Master Fund to the Feeder Fund beyond the limitations in section 12(d)(1)(B) of the Act. Applicants request that the MasterFeeder Relief apply to any Feeder Fund, any Master Fund and any principal underwriter for the Master Funds selling shares of a Master Fund to a Feeder Fund. Applicants state that creating an exchange-traded feeder fund may be preferable to creating entirely new series for several reasons, including avoiding additional overhead costs and economies of scale for the Feeder Funds.8 Applicants assert that, while certain costs may be higher in a masterfeeder structure and there may possibly be lower tax efficiencies for the Feeder Funds, the Feeder Funds’ Board will consider any such potential disadvantages against the benefits of economies of scale and other benefits of operating within a master-feeder structure. 7. A Creation Unit will consist of at least 25,000 Shares and applicants expect that the trading price of a Share will range from $20 to $100. All orders to purchase Creation Units must be placed with the Distributor by or through an ‘‘Authorized Participant,’’ which is either (a) a Broker or other participant in the Continuous Net Settlement System of the National Securities Clearing Corporation (‘‘NSCC’’, and such process the ‘‘NSCC Process’’), or (b) a participant in the Depository Trust Company (‘‘DTC,’’ such participant ‘‘DTC Participant’’ and such process the ‘‘DTC Process’’), which, in either case, has executed an agreement with the Distributor with respect to the purchase and redemption of Creation Units. 8. In order to keep costs low and permit each Fund to be as fully invested as possible, Shares will be purchased and redeemed in Creation Units and generally on an in-kind basis.9 Except where the purchase or redemption will 7 A Feeder Fund managed in a master-feeder structure will not make direct investments in any security or other instrument other than the securities issued by its respective Master Fund. 8 In a master-feeder structure, the Master Fund, rather than the Feeder Fund, would invest its portfolio in compliance with the order. There would be no ability by Fund shareholders to exchange shares of Feeder Funds for shares of another feeder series of the Master Fund. 9 Feeder Funds will redeem shares from the appropriate Master Fund and then deliver to the redeeming shareholder the applicable redemption payment. PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 include cash under the limited circumstances specified below, purchasers will be required to purchase Creation Units by making an in-kind deposit of specified instruments (‘‘Deposit Instruments’’), and shareholders redeeming their Shares will receive an in-kind transfer of specified instruments (‘‘Redemption Instruments’’).10 On any given Business Day 11 the names and quantities of the instruments that constitute the Deposit Instruments and the names and quantities of the instruments that constitute the Redemption Instruments will be identical, and these instruments may be referred to, in the case of either a purchase or a redemption, as the ‘‘Creation Basket.’’ In addition, the Creation Basket will correspond pro rata to the positions in a Fund’s portfolio (including cash positions),12 except: (a) In the case of bonds, for minor differences when it is impossible to break up bonds beyond certain minimum sizes needed for transfer and settlement; (b) for minor differences when rounding is necessary to eliminate fractional shares or lots that are not tradeable round lots 13; or (c) TBA Transactions,14 short positions and other positions that cannot be transferred in kind 15 will be excluded from the Creation Basket.16 If there is a difference between the NAV attributable to a Creation Unit and the aggregate market value of the Creation Basket exchanged for the Creation Unit, the party conveying instruments with the 10 The Funds must comply with the federal securities laws in accepting Deposit Instruments and satisfying redemptions with Redemption Instruments, including that the Deposit Instruments and Redemption Instruments are sold in transactions that would be exempt from registration under the Securities Act of 1933 (‘‘Securities Act’’). In accepting Deposit Instruments and satisfying redemptions with Redemption Instruments that are restricted securities eligible for resale pursuant to Rule 144A under the Securities Act, the Funds will comply with the conditions of Rule 144A. 11 Each Fund will sell and redeem Creation Units on any day that the Trust is open, including as required by section 22(e) of the Act (each, a ‘‘Business Day’’). 12 The portfolio used for this purpose will be the same portfolio used to calculate the Fund’s net asset value (‘‘NAV’’) for that Business Day. 13 A tradeable round lot for a security will be the standard unit of trading in that particular type of security in its primary market. 14 A TBA Transaction is a method of trading mortgage-backed securities. In a TBA Transaction, the buyer and seller agree on general trade parameters such as agency, settlement date, par amount and price. 15 This includes instruments that can be transferred in kind only with the consent of the original counterparty to the extent the Fund does not intend to seek such consents. 16 Because these instruments will be excluded from the Creation Basket, their value will be reflected in the determination of the Balancing Amount (defined below). E:\FR\FM\11APN1.SGM 11APN1 tkelley on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 70 / Friday, April 11, 2014 / Notices lower value will also pay to the other an amount in cash equal to that difference (the ‘‘Balancing Amount’’). 9. Purchases and redemptions of Creation Units may be made in whole or in part on a cash basis, rather than in kind, solely under the following circumstances: (a) To the extent there is a Balancing Amount, as described above; (b) if, on a given Business Day, a Fund announces before the open of trading that all purchases, all redemptions or all purchases and redemptions on that day will be made entirely in cash; (c) if, upon receiving a purchase or redemption order from an Authorized Participant, a Fund determines to require the purchase or redemption, as applicable, to be made entirely in cash; (d) if, on a given Business Day, a Fund requires all Authorized Participants purchasing or redeeming Shares on that day to deposit or receive (as applicable) cash in lieu of some or all of the Deposit Instruments or Redemption Instruments, respectively, solely because: (i) Such instruments are not eligible for transfer through either the NSCC Process or DTC Process; or (ii) in the case of Global Funds and Foreign Funds, such instruments are not eligible for trading due to local trading restrictions, local restrictions on securities transfers or other similar circumstances; or (e) if a Fund permits an Authorized Participant to deposit or receive (as applicable) cash in lieu of some or all of the Deposit Instruments or Redemption Instruments, respectively, solely because: (i) Such instruments are, in the case of the purchase of a Creation Unit, not available in sufficient quantity; (ii) such instruments are not eligible for trading by an Authorized Participant or the investor on whose behalf the Authorized Participant is acting; or (iii) a holder of Shares of a Global Fund or Foreign Fund would be subject to unfavorable income tax treatment if the holder receives redemption proceeds in kind.17 10. Each Business Day, before the open of trading on a national securities exchange, as defined in section 2(a)(26) of the Act (a ‘‘Listing Market’’), on which Shares are listed and traded, each Fund will cause to be published through the NSCC the names and quantities of the instruments comprising the Creation Basket, as well as the estimated Balancing Amount (if any), for that day. The published Creation Basket will apply until a new Creation Basket is announced on the following Business 17 A ‘‘custom order’’ is any purchase or redemption of Shares made in whole or in part on a cash basis in reliance on clause (e)(i) or (e)(ii). VerDate Mar<15>2010 18:55 Apr 10, 2014 Jkt 232001 Day, and there will be no intra-day changes to the Creation Basket except to correct errors in the published Creation Basket. The Listing Market will disseminate, every 15 seconds throughout the regular trading hours, through the facilities of the Consolidated Tape Associate, an estimated NAV, which is an amount per Share representing the current value of the Portfolio Positions that were publicly disclosed prior to the commencement of trading in Shares on the Listing Market. 11. Each Fund will recoup the settlement costs charged by NSCC and DTC by imposing a fee (the ‘‘Transaction Fee’’) on investors purchasing or redeeming Creation Units.18 Where a Fund permits an inkind purchaser or redeemer to deposit or receive cash in lieu of one or more Deposit or Redemption Instruments, the purchaser or redeemer may be assessed a higher Transaction Fee to offset the cost of buying or selling those particular Deposit or Redemption Instruments. In all cases, such Transaction Fees will be limited in accordance with requirements of the Commission applicable to management investment companies offering redeemable securities. All orders to purchase Creation Units must be placed with the Distributor by or through an Authorized Participant and the Distributor will transmit such orders to the Funds. The Distributor will be responsible for maintaining records of both the orders placed with it and the confirmations of acceptance furnished by it. 12. 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 at negotiated prices on a Listing Market and it is expected that the relevant Listing Market will designate one or more member firms to maintain a market for the Shares.19 The price of 18 Applicants are not requesting relief from section 18 of the Act. Accordingly, a Master Fund may require a Transaction Fee payment to cover expenses related to purchases or redemptions of the Master Fund’s shares by a Feeder Fund only if it requires the same payment for equivalent purchases or redemptions by any other feeder fund. Thus, for example, a Master Fund may require payment of a Transaction Fee by a Feeder Fund for transactions for 20,000 or more shares so long as it requires payment of the same Transaction Fee by all feeder funds for transactions involving 20,000 or more shares. 19 If Shares are listed on The NASDAQ Stock Market LLC (‘‘Nasdaq’’) or a similar electronic Listing Market (including NYSE Arca, Inc.), one or more member firms of that Listing Market will act as market maker (a ‘‘Market Maker’’) and maintain a market for Shares trading on that Listing Market. On Nasdaq, no particular Market Maker would be contractually obligated to make a market in Shares. However, the listing requirements on Nasdaq PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 20255 Shares trading on a Listing Market will be based on a current bid-offer in the secondary market. Purchases and sales of Shares in the secondary market will not involve a Fund and will be subject to customary brokerage commissions and charges. 13. Applicants expect that purchasers of Creation Units will include institutional investors and arbitrageurs. Applicants expect that secondary market purchasers of Shares will include both institutional and retail investors.20 Applicants believe that the structure and operation of the Funds will be designed to enable efficient arbitrage and, thereby, minimize the probability that Shares will trade at a material premium or discount to a Fund’s NAV. 14. 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 must accumulate enough Shares to constitute a Creation Unit. Redemption requests must be placed by or through an Authorized Participant. As discussed above, redemptions of Creation Units will generally be made on an in-kind basis, subject to certain specified exceptions under which redemptions may be made in whole or in part on a cash basis, and will be subject to a Transaction Fee. 15. Neither a Trust nor any Fund will be advertised or marketed or otherwise held out as a traditional open-end investment company or mutual fund. Instead, each Fund will be marketed as an ‘‘actively-managed exchange-traded fund.’’ All marketing materials that describe the features or method of obtaining, buying, or selling Creation Units, or Shares traded on a Listing Market, or refer to redeemability, will prominently disclose that Shares are not individually redeemable and that the owners of Shares may acquire those Shares from a Fund or tender those Shares for redemption to the Fund in Creation Units only. 16. The Trust’s Web site (‘‘Web site’’), which will be publicly available prior to the offering of Shares, will include each stipulate that at least two Market Makers must be registered in Shares to maintain a listing. Registered Market Makers are required to make a continuous two-sided market or subject themselves to regulatory sanctions. No Market Maker will be an affiliated person, or an affiliated person of an affiliated person, of the Funds, except within the meaning of section 2(a)(3)(A) or (C) of the Act due solely to ownership of Shares. 20 Shares will be registered in book-entry form only. DTC or its nominee will be the registered owner of all outstanding Shares. Beneficial ownership of Shares will be shown on the records of DTC or DTC Participants. E:\FR\FM\11APN1.SGM 11APN1 20256 Federal Register / Vol. 79, No. 70 / Friday, April 11, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES Fund’s prospectus (‘‘Prospectus’’), statement of additional information (‘‘SAI’’), and summary prospectus, if used. The Web site will contain, on a per Share basis for each Fund, the prior Business Day’s NAV and the market closing price or mid-point of the bid/ask spread at the time of calculation of such NAV (‘‘Bid/Ask Price’’), and a calculation of the premium or discount of the market closing price or the Bid/ Ask Price against such NAV. On each Business Day, prior to the commencement of trading in Shares on a Listing Market, each Fund shall post on the Web site the identities and quantities of the Portfolio Positions held by the Fund, or its respective Master Fund, that will form the basis for the calculation of the NAV at the end of that Business Day.21 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 (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 21 Under accounting procedures followed by the Fund, 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. VerDate Mar<15>2010 18:55 Apr 10, 2014 Jkt 232001 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 the Trust to register as an openend management investment company and issue Shares that are redeemable in Creation Units only.22 Applicants state that investors may purchase Shares in Creation Units from each Fund and that Creation Units will always be redeemable in accordance with the provisions of the Act. 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 materially 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 that 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.23 22 The Master Funds will not require relief from sections 2(a)(32) and 5(a)(1) because the Master Funds will issue individually redeemable securities. 23 The Master Funds will not require relief from section 22(d) or rule 22c–1 because shares of the Master Funds will not trade at negotiated prices in the secondary market. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 5. Applicants state 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) to prevent dilution caused by certain riskless-trading schemes by principal underwriters and contract dealers, (b) to prevent unjust discrimination or preferential treatment among buyers and (c) to ensure an orderly distribution system of shares by contract dealers by eliminating price competition from non-contract dealers who could offer investors shares at less than the published sales price and who could pay investors a little more than the published redemption price. 6. Applicants assert that the protections intended to be afforded by Section 22(d) and rule 22c–1 are adequately addressed by the proposed methods for creating, redeeming and pricing Creation Units and pricing and trading Shares. 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 thirdparty market forces but do not occur as a result of unjust or discriminatory manipulation. Finally, applicants assert that competitive forces in the marketplace should ensure that the margin between NAV and the price for the Shares in the secondary market remains narrow. Section 22(e) of the Act 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 observe that the settlement of redemptions of Creation Units of the Foreign and Global Funds is contingent not only on the settlement cycle of the U.S. securities markets but also on the delivery cycles present in foreign markets for underlying foreign Portfolio Positions in which those Funds invest. Applicants have been advised that, under certain circumstances, the delivery cycles for transferring Portfolio Positions to redeeming investors, coupled with local market holiday schedules, will require a delivery process of up to fifteen (15) calendar days. Applicants therefore request relief from section 22(e) in order to provide payment or satisfaction of redemptions within a longer number of calendar days as required for such payment or satisfaction in the principal local E:\FR\FM\11APN1.SGM 11APN1 Federal Register / Vol. 79, No. 70 / Friday, April 11, 2014 / Notices markets where transactions in the Portfolio Positions of each Foreign and Global Fund customarily clear and settle, but in all cases no later than fifteen (15) days following the tender of a Creation Unit.24 8. Applicants state that section 22(e) was designed to prevent unreasonable, undisclosed or unforeseen delays in the actual payment of redemption proceeds. Applicants assert that the protections intended to be afforded by Section 22(e) are adequately addressed by the proposed method and securities delivery cycles for redeeming Creation Units. Applicants state that allowing redemption payments for Creation Units of a Fund to be made within a maximum of fifteen (15) calendar days 25 would not be inconsistent with the spirit and intent of section 22(e).26 Applicants represent that each Fund’s Prospectus and/or SAI will identify those instances in a given year where, due to local holidays, more than seven calendar days, up to a maximum of fifteen (15) calendar days, will be needed to deliver redemption proceeds and will list such holidays. Applicants are not seeking relief from section 22(e) with respect to Foreign and Global Funds that do not effect redemptions inkind. tkelley on DSK3SPTVN1PROD with NOTICES Section 12(d)(1) of the Act 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 24 Applicants acknowledge that no relief obtained from the requirements of Section 22(e) of the Act will affect any obligations that it may otherwise have under Rule 15c6–1 under the Exchange Act. Rule 15c6–1 requires that most securities transactions be settled within three business days of the trade date. 25 Certain countries in which a Fund may invest have historically had settlement periods of up to 15 calendar days. 26 Other feeder funds invested in any Master Fund are not seeking, and will not rely on, the section 22(e) relief requested herein. VerDate Mar<15>2010 18:55 Apr 10, 2014 Jkt 232001 owned by investment companies generally. 10. Applicants request relief to permit Acquiring Funds to acquire Shares in excess of the limits in section 12(d)(1)(A) of the Act and to permit the Funds, their principal underwriters and any Broker to sell Shares to Acquiring Funds in excess of the limits in section 12(d)(l)(B) of the Act. 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. 11. Applicants submit that their proposed conditions address concerns regarding the potential for undue influence. To limit the control that an Acquiring Fund may have over a Fund, applicants propose a condition prohibiting the adviser of an Acquiring Management Company (‘‘Acquiring Fund Advisor’’), sponsor of an Acquiring Trust (‘‘Sponsor’’), any person controlling, controlled by, or under common control with the Acquiring Fund Advisor 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 Acquiring Fund Advisor, the Sponsor, or any person controlling, controlled by, or under common control with the Acquiring Fund Advisor or Sponsor (‘‘Acquiring Fund’s 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 subadviser to an Acquiring Fund (‘‘Acquiring Fund Sub-Advisor’’), any person controlling, controlled by or under common control with the Acquiring Fund Sub-Advisor, 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 (or portion of such investment company or issuer) advised or sponsored by the Acquiring Fund Sub-Advisor or any person controlling, controlled by or under common control with the Acquiring Fund Sub-Advisor (‘‘Acquiring Fund’s Sub-Advisory Group’’). 12. Applicants propose a condition to ensure that no Acquiring Fund or Acquiring Fund Affiliate 27 (except to 27 An ‘‘Acquiring Fund Affiliate’’ is any Acquiring Fund Advisor, Acquiring Fund SubAdvisor, Sponsor, promoter and principal underwriter of an Acquiring Fund, and any person controlling, controlled by or under common control with any of these entities. ‘‘Fund Affiliate’’ is an investment adviser, promoter, or principal underwriter of a Fund or any person controlling, PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 20257 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 offering of securities during the existence of an 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, Acquiring Fund Advisor, Acquiring Fund Sub-Advisor, employee or Sponsor of the Acquiring Fund, or a person of which any such officer, director, member of an advisory board, Acquiring Fund Advisor, Acquiring Fund Sub-Advisor, 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). 13. Applicants propose several conditions to address the potential for layering of fees. Applicants note that the Board of any Acquiring Management Company, including a majority of the directors or trustees who are not ‘‘interested persons’’ within the meaning of section 2(a)(19) of the Act (for any Board, the ‘‘Independent Trustees’’), will be required to find that the advisory fees charged under the contract are based on services provided that will be in addition to, rather than duplicative of, services provided under the advisory contract of any Fund in which the Acquiring Management Company may invest. Applicants also state that any sales charges and/or service fees charged with respect to shares of an Acquiring Fund will not exceed the limits applicable to a fund of funds as set forth in NASD Conduct Rule 2830.28 14. 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 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, except to the extent permitted by exemptive relief from the Commission permitting the Fund to purchase shares of other investment companies for short-term cash management purposes. 15. To ensure that an Acquiring Fund is aware of the terms and conditions of the requested order, the Acquiring controlled by or under common control with any of these entities. 28 Any reference to NASD Conduct Rule 2830 includes any successor or replacement rule that may be adopted by the Financial Industry Regulatory Authority. E:\FR\FM\11APN1.SGM 11APN1 20258 Federal Register / Vol. 79, No. 70 / Friday, April 11, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES Funds must enter into an agreement with the respective Funds (‘‘Acquiring Fund Agreement’’). The Acquiring Fund Agreement will include an acknowledgement from the Acquiring Fund that it may rely on the order only to invest in a Fund and not in any other investment company. 16. Applicants also are seeking relief from sections 12(d)(1)(A) and 12(d)(1)(B) to the extent necessary to permit the Feeder Funds to perform creations and redemptions of Shares inkind in a master-feeder structure. Applicants assert that this structure is substantially identical to traditional master-feeder structures permitted pursuant to the exception provided in section 12(d)(1)(E) of the Act. Section 12(d)(1)(E) provides that the percentage limitations of sections 12(d)(1)(A) and (B) will not apply to a security issued by an investment company (in this case, the shares of the applicable Master Fund) if, among other things, that security is the only investment security held in the investing fund’s portfolio (in this case, the Feeder Fund’s portfolio). Applicants believe the proposed masterfeeder structure complies with section 12(d)(1)(E) because each Feeder Fund will hold only investment securities issued by its corresponding Master Fund; however, the Feeder Funds may receive securities other than securities of its corresponding Master Fund if a Feeder Fund accepts an in-kind creation. To the extent that a Feeder Fund may be deemed to be holding both shares of the Master Fund and other securities, applicants request relief from sections 12(d)(1)(A) and (B). The Feeder Funds would operate in compliance with all other provisions of section 12(d)(1)(E). Section 17(a) of the Act 17. Section 17(a) of the Act generally prohibits an affiliated person of a registered investment company, or an affiliated person of such person (‘‘Second Tier Affiliates’’), 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 defines ‘‘control’’ as ‘‘the power to exercise a controlling influence over the management or policies’’ of the fund and provides that a control relationship will be presumed where one person owns more than 25% of another VerDate Mar<15>2010 18:55 Apr 10, 2014 Jkt 232001 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’’). 18. Applicants request an exemption under sections 6(c) and 17(b) of the Act from sections 17(a)(1) and 17(a)(2) of the Act to permit in-kind purchases and redemptions of Creation Units from the Funds by persons that are affiliated persons or Second Tier Affiliates of the Funds solely by virtue of one or more of the following: (a) Holding 5% or more, or more than 25%, of the Shares of a Trust of one or more Funds; (b) having an affiliation with a person with an ownership interest described in (a); or (c) 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 Acquiring Fund of which the Fund is an affiliated person or Second-Tier Affiliate.29 19. Applicants assert that no useful purpose would be served by prohibiting such affiliated persons or Second Tier Affiliates from making in-kind purchases or in-kind redemptions of Shares of a Fund in Creation Units. Both the deposit procedures for in-kind purchases of Creation Units and the redemption procedures for in-kind redemptions will be the same for all purchases and redemptions. Deposit Instruments and Redemption Instruments will be valued in the same manner as those Portfolio Positions 29 Applicants anticipate that most Acquiring Funds will purchase Shares in the secondary market and will not purchase or redeem Creation Units directly from a Fund. To the extent that purchases and sales of Shares occur in the secondary market and not through principal transactions directly between an Acquiring Fund and a Fund, relief from section 17(a) would not be necessary. However, the requested relief would apply to direct sales of Shares in Creation Units by a Fund to an Acquiring Fund and redemptions of those Shares in Creation Units. The requested relief is intended to cover transactions that would accompany such sales and redemptions. Applicants are not seeking relief from section 17(a) for, and the requested relief will not apply to, transactions where a Fund could be deemed an affiliated person, or an affiliated person of an affiliated person of an Acquiring Fund because an investment adviser to the Funds is also an investment adviser to that Acquiring Fund. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 currently held by the relevant Funds, or their respective Master Funds, and the valuation of the Deposit Instruments and Redemption Instruments will be made in an identical manner regardless of the identity of the purchaser or redeemer. Applicants do not believe that in-kind purchases and redemptions will result in abusive self-dealing or overreaching of the Fund. 20. Applicants also submit that the sale of Shares to and redemption of Shares from an Acquiring Fund satisfies the standards for relief under sections 17(b) and 6(c) of the Act. Applicants note that any consideration paid for the purchase or redemption of Shares directly from a Fund will be based on the NAV of the Fund. 30 The Acquiring Fund Agreement will require any Acquiring Fund that purchases Creation Units directly from a Fund to represent that the purchase will be in compliance with its investment restrictions and consistent with the investment policies set forth in its registration statement. 21. In addition, to the extent that a Fund operates in a master-feeder structure, applicants also request relief permitting the Feeder Funds to engage in in-kind creations and redemptions with the applicable Master Fund. Applicants state that the request for relief described above would not be sufficient to permit such transactions because the Feeder Funds and the applicable Master Fund could also be affiliated by virtue of having the same investment adviser. However, applicants believe that in-kind creations and redemptions between a Feeder Fund and a Master Fund advised by the same investment adviser do not involve ‘‘overreaching’’ by an affiliated person. Applicants represent that such transactions will occur only at the Feeder Fund’s proportionate share of the Master Fund’s net assets, and the distributed securities will be valued in the same manner as they are valued for the purposes of calculating the applicable Master Fund’s NAV. Further, all such transactions will be effected with respect to pre-determined securities and on the same terms with respect to all investors. Finally, such transaction would only occur as a result of, and to effectuate, a creation or redemption transaction between the Feeder Fund and a third-party investor. 30 Applicants acknowledge that the receipt of compensation by (a) an affiliated person of an Acquiring Fund, or an affiliated person of such person, for the purchase by the Acquiring Fund of Shares of a Fund or (b) an affiliated person of a Fund, or an affiliated person of such person, for the sale by the Fund of its Shares to an Acquiring Fund, may be prohibited by section 17(e)(1) of the Act. The Acquiring Fund Agreement also will include this acknowledgment. E:\FR\FM\11APN1.SGM 11APN1 Federal Register / Vol. 79, No. 70 / Friday, April 11, 2014 / Notices Applicants state that, in effect, the Feeder Fund will serve as a conduit through which creation and redemption orders by Authorized Participants will be effected. 22. Applicants believe that: (a) With respect to the relief requested pursuant to section 17(b), the proposed transactions are fair and reasonable, and do not involve overreaching on the part of any person concerned, the proposed transactions are consistent with the policy of each Fund and, where applicable, Acquiring Fund, and the proposed transactions are consistent with the general purposes of the Act; and (b) with respect to the relief requested pursuant to section 6(c), the requested exemption for the proposed transactions is 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. tkelley on DSK3SPTVN1PROD with NOTICES Applicants’ Conditions 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. Neither the Trust nor any Fund will be advertised or marketed as an openend investment company or mutual fund. 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. The Web site, which is and will be publicly accessible at no charge, will contain, on a per Share basis for each Fund, the prior Business Day’s NAV and the market closing price or the Bid/Ask Price, and a calculation of the premium or discount of the market closing price or Bid/Ask Price against such NAV. 3. As long as a Fund operates in reliance on the requested order, its Shares will be listed on a Listing Market. 4. On each Business Day, before commencement of trading in Shares on a Fund’s Listing Market, the Fund will disclose on the Web site the identities and quantities of the Portfolio Positions held by the Fund, or its respective Master Fund, that will form the basis for the Fund’s calculation of NAV at the end of the Business Day. 5. The Adviser or any Sub-Advisers, directly or indirectly, will not cause any Authorized Participant (or any investor VerDate Mar<15>2010 18:55 Apr 10, 2014 Jkt 232001 on whose behalf an Authorized Participant may transact with the Fund) to acquire any Deposit Instrument for a Fund, or its respective Master Fund, through a transaction in which the Fund, or its respective Master Fund, could not engage directly. 6. The requested relief to permit ETF operations 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, other than the Master-Feeder Relief. B. Section 12(d)(1) Relief 7. The members of an Acquiring Fund’s Advisory Group will not control (individually or in the aggregate) a Fund, or its respective Master Fund, within the meaning of section 2(a)(9) of the Act. The members of an Acquiring Fund’s Sub-Advisory Group will not control (individually or in the aggregate) a Fund, or its respective Master 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 Acquiring Fund’s Advisory Group or the Acquiring Fund’s SubAdvisory 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 that Fund’s Shares. This condition does not apply to the Acquiring Fund’s Sub-Advisory Group with respect to a Fund, or its respective Master Fund, for which the Acquiring Fund Sub-Advisor or a person controlling, controlled by, or under common control with the Acquiring Fund Sub-Advisor acts as the investment adviser within the meaning of section 2(a)(20)(A) of the Act. 8. No Acquiring Fund or Acquiring Fund Affiliate will cause any existing or potential investment by the Acquiring Fund in a Fund to influence the terms of any services or transactions between the Acquiring Fund or an Acquiring Fund Affiliate and the Fund, or its respective Master Fund, or a Fund Affiliate. 9. The Board of an Acquiring Management Company, including a majority of the Independent Trustees, will adopt procedures reasonably designed to ensure that the Acquiring Fund Advisor and any Acquiring Fund Sub-Advisor are conducting the investment program of the Acquiring Management Company without taking into account any consideration received by the Acquiring Management Company or an Acquiring Fund Affiliate from a Fund, or its respective Master Fund, or PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 20259 a Fund Affiliate in connection with any services or transactions. 10. Once an investment by an Acquiring Fund in the Shares of a Fund exceeds the limits in section l2(d)(1)(A)(i) of the Act, the Board of the Fund, or its respective Master Fund, including a majority of the Independent Trustees, will determine that any consideration paid by the Fund, or its respective Master Fund, to an Acquiring Fund or an Acquiring Fund 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, or its respective Master 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, or its respective Master Fund, and its investment adviser(s), or any person controlling, controlled by or under common control with such investment adviser(s). 11. No Acquiring Fund or Acquiring Fund Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Fund) will cause the Fund, or its respective Master Fund, to purchase a security in any Affiliated Underwriting. 12. The Board of a Fund, or its respective Master Fund, including a majority of the Independent Trustees, will adopt procedures reasonably designed to monitor any purchases of securities by the Fund, or its respective Master Fund, in an Affiliated Underwriting, once an investment by an Acquiring Fund 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 of the Fund will review these purchases periodically, but no less frequently than annually, to determine whether the purchases were influenced by the investment by the Acquiring Fund in the Fund. The Board of the Fund will consider, among other things: (i) Whether the purchases were consistent with the investment objectives and policies of the Fund, or its respective Master 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 E:\FR\FM\11APN1.SGM 11APN1 tkelley on DSK3SPTVN1PROD with NOTICES 20260 Federal Register / Vol. 79, No. 70 / Friday, April 11, 2014 / Notices securities purchased by the Fund, or its respective Master Fund, in Affiliated Underwritings and the amount purchased directly from an Underwriting Affiliate have changed significantly from prior years. The Board of the Fund will take any appropriate actions based on its review, including, if appropriate, the institution of procedures designed to ensure that purchases of securities in Affiliated Underwritings are in the best interest of shareholders of the Fund. 13. Each Fund, or its respective Master 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 an Acquiring Fund 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 determinations of the Board of the Fund were made. 14. Before investing in Shares of a Fund in excess of the limits in section 12(d)(1)(A), each Acquiring Fund and the Fund will execute an Acquiring Fund Agreement stating, without limitation, that their Boards and their investment adviser(s), or their Sponsors or trustees (‘‘Trustee’’), as applicable, understand the terms and conditions of the requested order, and agree to fulfill their responsibilities under the requested order. At the time of its investment in Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), an Acquiring Fund will notify the Fund of the investment. At such time, the Acquiring Fund will also transmit to the Fund a list of the names of each Acquiring Fund Affiliate and Underwriting Affiliate. The Acquiring Fund will notify the Fund of any changes to the list of the names as soon as reasonably practicable after a change occurs. The Fund and the Acquiring Fund will maintain and preserve a copy of the requested order, the Acquiring Fund 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. VerDate Mar<15>2010 18:55 Apr 10, 2014 Jkt 232001 15. The Acquiring Fund Advisor, Trustee or Sponsor, as applicable, will waive fees otherwise payable to it by the Acquiring Fund in an amount at least equal to any compensation (including fees received pursuant to any plan adopted under rule 12b-l under the Act) received from the Fund, or its respective Master Fund, by the Acquiring Fund Advisor, Trustee or Sponsor, or an affiliated person of the Acquiring Fund Advisor, Trustee or Sponsor, other than any advisory fees paid to the Acquiring Fund Advisor, Trustee or Sponsor, or its affiliated person by the Fund, or its respective Master Fund, in connection with the investment by the Acquiring Fund in the Fund. Any Acquiring Fund Sub-Advisor will waive fees otherwise payable to the Acquiring Fund SubAdvisor, directly or indirectly, by the Acquiring Management Company in an amount at least equal to any compensation received from a Fund, or its respective Master Fund, by the Acquiring Fund Sub-Advisor, or an affiliated person of the Acquiring Fund Sub-Advisor, other than any advisory fees paid to the Acquiring Fund SubAdvisor or its affiliated person by the Fund, or its respective Master Fund, in connection with any investment by the Acquiring Management Company in the Fund made at the direction of the Acquiring Fund Sub-Advisor. In the event that the Acquiring Fund SubAdvisor waives fees, the benefit of the waiver will be passed through to the Acquiring Management Company. 16. Any sales charges and/or service fees charged with respect to shares of an Acquiring Fund will not exceed the limits applicable to a fund of funds as set forth in NASD Conduct Rule 2830. 17. No Fund, or its respective Master Fund, will acquire securities of any other 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, except to the extent (i) the Fund, or its respective Master Fund, acquires securities of another investment company pursuant to exemptive relief from the Commission permitting the Fund, or its respective Master Fund, to acquire securities of one or more investment companies for short-term cash management purposes or (ii) the Fund acquires securities of the Master Fund pursuant to the Master–Feeder Relief. 18. Before approving any advisory contract under section 15 of the Act, the Board of of each Acquiring Management Company, including a majority of the Independent Trustees, will find that the advisory fees charged under such advisory contract are based on services PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 provided that will be in addition to, rather than duplicative of, the services provided under the advisory contract(s) of any Fund, or its respective Master Fund, in which the Acquiring Management Company may invest. These findings and their basis will be recorded fully in the minute books of the appropriate Acquiring Management Company. For the Commission, by the Division of Investment Management, under delegated authority. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–08131 Filed 4–10–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71886; File No. SR–DTC– 2014–04] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Effect Changes to the DTC Settlement Service Guide Relating to the Automated Customer Account Transfer Service of National Securities Clearing Corporation April 7, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 28, 2014, The Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change described in Items I, II and III below, which Items have been prepared primarily by DTC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change consists of conforming changes to the DTC Settlement Service Guide (the ‘‘Guide’’) 3 with respect to proposed changes in the Automated Customer Account Transfer Service (‘‘ACATS’’) of its affiliate, National Securities Clearing Corporation (‘‘NSCC’’).4 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The Guide is available at https://www.dtcc.com/ ∼/media/Files/Downloads/legal/service-guides/ Settlement.ashx. 4 Terms not defined herein have the meaning set forth in DTC’s Rules & Procedures (the ‘‘Rules’’) available at https://www.dtcc.com/en/legal/rulesand-procedures.aspx. 2 17 E:\FR\FM\11APN1.SGM 11APN1

Agencies

[Federal Register Volume 79, Number 70 (Friday, April 11, 2014)]
[Notices]
[Pages 20253-20260]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08131]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31009; 812-14172]


ARK ETF Trust, et al.; Notice of Application

April 7, 2014.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``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 (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:  ARK ETF Trust (the ``Trust''), ARK Investment Management 
LLC (the ``Adviser'') and Foreside Fund Services, LLC (the ``Foreside 
Fund Services'').
SUMMARY: Summary of Application: Applicants request an order that 
permits: (a) Actively-managed series of the Trust 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 after the 
tender of Creation Units 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; (e) certain registered management investment companies and unit 
investment trusts outside of the same group of investment companies as 
the series to acquire Shares; and (f) certain series to perform 
creations and redemptions of Creation Units in-kind in a master-feeder 
structure.

DATES: Filing Dates: The application was filed on June 25, 2013, and 
amended on December 2, 2013, March 12, 2014, and March 28, 2014.

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 April 28, 2014, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549. Applicants: ARK Investment Management 
LLC, 104 Olmstead Hill Road, Wilton, Connecticut 06897.

FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at 
(202) 551-6826 or David P. Bartels, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. The Trust is registered as an open-end management investment 
company under the Act and is organized as a Delaware statutory trust. 
The Trust will offer Funds (as defined below), each of which, or its 
respective Master Fund (as defined below), will have distinct 
investment strategies and will attempt to achieve its investment 
objective by utilizing an active management strategy.
    2. ARK Investment Management LLC, a Delaware limited liability 
company, is, and any other Adviser will be, registered as an investment 
adviser under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). The Adviser will be the investment adviser to each Fund, or its 
respective Master Fund (as defined below), and will, in each case, 
possess full discretionary investment authority with respect to the 
Fund or its respective Master Fund (as defined below), or discrete 
portions of a Fund or its respective Master Fund (as defined below) 
that includes the ability to appoint sub-advisers (each, a ``Sub-
Adviser'') to a Fund or its respective Master Fund (as defined below). 
Any Sub-Adviser will be registered or not subject to registration under 
the Advisers Act. Foreside Fund Services, a Delaware limited liability 
company is, and any other Distributor will be, registered as a broker-
dealer (``Broker'') under the Securities Exchange Act of 1934 (the 
``Exchange Act'').\1\ A Distributor will serve as the principal 
underwriter and distributor for each of the Funds.
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    \1\ For purposes of the requested order, the term 
``Distributor'' shall include any other entity that acts as the 
distributor and principal underwriter of the Creation Units of 
Shares of the Funds in the future and complies with the terms and 
conditions of the application.
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    3. Applicants request that the order apply to future series of the 
Trust or of any other open-end investment company that may be created 
in the future that, in each case, (a) is an actively managed exchange-
traded fund (``ETF''), (b) is advised by ARK Investment Management LLC 
or an entity controlling, controlled by, or under common control with 
ARK Investment Management LLC (each such entity or any successor entity 
thereto, an ``Adviser'') \2\ and (c) complies with the terms and 
conditions of the application (individually a ``Fund,'' and 
collectively, the ``Funds'').\3\
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    \2\ For the purposes of the requested order, ``successor'' is 
limited to an entity that would result from a reorganization into 
another jurisdiction or a change in the type of business 
organization.
    \3\ All entities that currently intend to rely on the order are 
named as applicants. Any entity that relies on the order in the 
future will comply with the terms and conditions of the application.
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    4. The Funds, or their respective Master Funds, may invest in 
equity securities or fixed income securities traded in the U.S. or non-
U.S. markets. Funds, or their respective Master Funds, that invest in 
equity securities or fixed income securities traded in the U.S. or non-
U.S. markets are ``Global Funds.'' Funds, or their respective Master 
Funds,

[[Page 20254]]

that invest solely in foreign equity securities or foreign fixed income 
securities are ``Foreign Funds.'' The Funds, or their respective Master 
Funds, may also invest in ``Depositary Receipts'' \4\ and may engage in 
TBA Transactions (defined below). Applicants further state that, in 
order to implement each Fund's investment strategy, the Adviser and/or 
Sub-Advisers of a Fund may review and change the securities, or 
instruments, or other assets or positions held by the Fund, or its 
respective Master Fund (``Portfolio Positions'') daily.\5\
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    \4\ Depositary Receipts are typically issued by a financial 
institution (a ``Depositary'') and evidence ownership in a security 
or pool of securities that have been deposited with the Depositary. 
A Fund (or its respective Master Fund) will not invest in any 
Depositary Receipts that the Adviser or any Sub-Adviser deems to be 
illiquid or for which pricing information is not readily available. 
No affiliated persons of applicants or any Sub-Adviser will serve as 
the Depositary for any Depositary Receipts held by a Fund (or its 
respective Master Fund).
    \5\ If a Fund (or its respective Master Fund) invests in 
derivatives, then (a) the Fund's board of trustees or directors (for 
any entity, the ``Board'') will periodically review and approve the 
Fund's (or, in the case of a Feeder Fund, its Master Fund's) use of 
derivatives and how the Fund's investment adviser assesses and 
manages risk with respect to the Fund's (or, in the case of a Feeder 
Fund, its Master Fund's) use of derivatives and (b) the Fund's 
disclosure of its (or, in the case of a Feeder Fund, its Master 
Fund's) use of derivatives in its offering documents and periodic 
reports will be consistent with relevant Commission and staff 
guidance.
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    5. Applicants also request that any exemption under section 
12(d)(1)(J) of the Act from sections 12(d)(1)(A) and (B) apply to: (i) 
Any Fund; (ii) any Acquiring Fund (as defined below); and (iii) any 
Brokers selling Shares of a Fund to an Acquiring Fund or any principal 
underwriter of a Fund. A management investment company or unit 
investment trust registered under the Act that is not part of the same 
``group of investment companies'' as the Fund within the meaning of 
section 12(d)(1)(G)(ii) of the Act and that acquires Shares of a Fund 
in excess of the limits of Section 12(d)(1)(A) of the Act is referred 
to as an ``Acquiring Management Company'' or an ``Acquiring Trust,'' 
respectively, and the Acquiring Management Companies and Acquiring 
Trusts are referred to collectively as ``Acquiring Funds.'' \6\
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    \6\ An Acquiring Fund may rely on the order only to invest in a 
Fund and not in any other registered investment company.
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    6. Applicants further request that the order permit a Fund to 
operate as a feeder fund (``Feeder Fund'') (``Master-Feeder Relief''). 
Under the order, a Feeder Fund would be permitted to acquire shares of 
another registered investment company in the same group of investment 
companies having substantially the same investment objectives as the 
Feeder Fund (``Master Fund'') beyond the limitations in section 
12(d)(1)(A) of the Act,\7\ and the Master Fund, and any principal 
underwriter for the Master Fund, would be permitted to sell shares of 
the Master Fund to the Feeder Fund beyond the limitations in section 
12(d)(1)(B) of the Act. Applicants request that the Master-Feeder 
Relief apply to any Feeder Fund, any Master Fund and any principal 
underwriter for the Master Funds selling shares of a Master Fund to a 
Feeder Fund. Applicants state that creating an exchange-traded feeder 
fund may be preferable to creating entirely new series for several 
reasons, including avoiding additional overhead costs and economies of 
scale for the Feeder Funds.\8\ Applicants assert that, while certain 
costs may be higher in a master-feeder structure and there may possibly 
be lower tax efficiencies for the Feeder Funds, the Feeder Funds' Board 
will consider any such potential disadvantages against the benefits of 
economies of scale and other benefits of operating within a master-
feeder structure.
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    \7\ A Feeder Fund managed in a master-feeder structure will not 
make direct investments in any security or other instrument other 
than the securities issued by its respective Master Fund.
    \8\ In a master-feeder structure, the Master Fund, rather than 
the Feeder Fund, would invest its portfolio in compliance with the 
order. There would be no ability by Fund shareholders to exchange 
shares of Feeder Funds for shares of another feeder series of the 
Master Fund.
---------------------------------------------------------------------------

    7. A Creation Unit will consist of at least 25,000 Shares and 
applicants expect that the trading price of a Share will range from $20 
to $100. All orders to purchase Creation Units must be placed with the 
Distributor by or through an ``Authorized Participant,'' which is 
either (a) a Broker or other participant in the Continuous Net 
Settlement System of the National Securities Clearing Corporation 
(``NSCC'', and such process the ``NSCC Process''), or (b) a participant 
in the Depository Trust Company (``DTC,'' such participant ``DTC 
Participant'' and such process the ``DTC Process''), which, in either 
case, has executed an agreement with the Distributor with respect to 
the purchase and redemption of Creation Units.
    8. In order to keep costs low and permit each Fund to be as fully 
invested as possible, Shares will be purchased and redeemed in Creation 
Units and generally on an in-kind basis.\9\ Except where the purchase 
or redemption will include cash under the limited circumstances 
specified below, purchasers will be required to purchase Creation Units 
by making an in-kind deposit of specified instruments (``Deposit 
Instruments''), and shareholders redeeming their Shares will receive an 
in-kind transfer of specified instruments (``Redemption 
Instruments'').\10\ On any given Business Day \11\ the names and 
quantities of the instruments that constitute the Deposit Instruments 
and the names and quantities of the instruments that constitute the 
Redemption Instruments will be identical, and these instruments may be 
referred to, in the case of either a purchase or a redemption, as the 
``Creation Basket.'' In addition, the Creation Basket will correspond 
pro rata to the positions in a Fund's portfolio (including cash 
positions),\12\ except: (a) In the case of bonds, for minor differences 
when it is impossible to break up bonds beyond certain minimum sizes 
needed for transfer and settlement; (b) for minor differences when 
rounding is necessary to eliminate fractional shares or lots that are 
not tradeable round lots \13\; or (c) TBA Transactions,\14\ short 
positions and other positions that cannot be transferred in kind \15\ 
will be excluded from the Creation Basket.\16\ If there is a difference 
between the NAV attributable to a Creation Unit and the aggregate 
market value of the Creation Basket exchanged for the Creation Unit, 
the party conveying instruments with the

[[Page 20255]]

lower value will also pay to the other an amount in cash equal to that 
difference (the ``Balancing Amount'').
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    \9\ Feeder Funds will redeem shares from the appropriate Master 
Fund and then deliver to the redeeming shareholder the applicable 
redemption payment.
    \10\ The Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the Securities Act of 1933 (``Securities 
Act''). In accepting Deposit Instruments and satisfying redemptions 
with Redemption Instruments that are restricted securities eligible 
for resale pursuant to Rule 144A under the Securities Act, the Funds 
will comply with the conditions of Rule 144A.
    \11\ Each Fund will sell and redeem Creation Units on any day 
that the Trust is open, including as required by section 22(e) of 
the Act (each, a ``Business Day'').
    \12\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's net asset value (``NAV'') for 
that Business Day.
    \13\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \14\ A TBA Transaction is a method of trading mortgage-backed 
securities. In a TBA Transaction, the buyer and seller agree on 
general trade parameters such as agency, settlement date, par amount 
and price.
    \15\ This includes instruments that can be transferred in kind 
only with the consent of the original counterparty to the extent the 
Fund does not intend to seek such consents.
    \16\ Because these instruments will be excluded from the 
Creation Basket, their value will be reflected in the determination 
of the Balancing Amount (defined below).
---------------------------------------------------------------------------

    9. Purchases and redemptions of Creation Units may be made in whole 
or in part on a cash basis, rather than in kind, solely under the 
following circumstances: (a) To the extent there is a Balancing Amount, 
as described above; (b) if, on a given Business Day, a Fund announces 
before the open of trading that all purchases, all redemptions or all 
purchases and redemptions on that day will be made entirely in cash; 
(c) if, upon receiving a purchase or redemption order from an 
Authorized Participant, a Fund determines to require the purchase or 
redemption, as applicable, to be made entirely in cash; (d) if, on a 
given Business Day, a Fund requires all Authorized Participants 
purchasing or redeeming Shares on that day to deposit or receive (as 
applicable) cash in lieu of some or all of the Deposit Instruments or 
Redemption Instruments, respectively, solely because: (i) Such 
instruments are not eligible for transfer through either the NSCC 
Process or DTC Process; or (ii) in the case of Global Funds and Foreign 
Funds, such instruments are not eligible for trading due to local 
trading restrictions, local restrictions on securities transfers or 
other similar circumstances; or (e) if a Fund permits an Authorized 
Participant to deposit or receive (as applicable) cash in lieu of some 
or all of the Deposit Instruments or Redemption Instruments, 
respectively, solely because: (i) Such instruments are, in the case of 
the purchase of a Creation Unit, not available in sufficient quantity; 
(ii) such instruments are not eligible for trading by an Authorized 
Participant or the investor on whose behalf the Authorized Participant 
is acting; or (iii) a holder of Shares of a Global Fund or Foreign Fund 
would be subject to unfavorable income tax treatment if the holder 
receives redemption proceeds in kind.\17\
---------------------------------------------------------------------------

    \17\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis in reliance on clause 
(e)(i) or (e)(ii).
---------------------------------------------------------------------------

    10. Each Business Day, before the open of trading on a national 
securities exchange, as defined in section 2(a)(26) of the Act (a 
``Listing Market''), on which Shares are listed and traded, each Fund 
will cause to be published through the NSCC the names and quantities of 
the instruments comprising the Creation Basket, as well as the 
estimated Balancing Amount (if any), for that day. The published 
Creation Basket will apply until a new Creation Basket is announced on 
the following Business Day, and there will be no intra-day changes to 
the Creation Basket except to correct errors in the published Creation 
Basket. The Listing Market will disseminate, every 15 seconds 
throughout the regular trading hours, through the facilities of the 
Consolidated Tape Associate, an estimated NAV, which is an amount per 
Share representing the current value of the Portfolio Positions that 
were publicly disclosed prior to the commencement of trading in Shares 
on the Listing Market.
    11. Each Fund will recoup the settlement costs charged by NSCC and 
DTC by imposing a fee (the ``Transaction Fee'') on investors purchasing 
or redeeming Creation Units.\18\ Where a Fund permits an in-kind 
purchaser or redeemer to deposit or receive cash in lieu of one or more 
Deposit or Redemption Instruments, the purchaser or redeemer may be 
assessed a higher Transaction Fee to offset the cost of buying or 
selling those particular Deposit or Redemption Instruments. In all 
cases, such Transaction Fees will be limited in accordance with 
requirements of the Commission applicable to management investment 
companies offering redeemable securities. All orders to purchase 
Creation Units must be placed with the Distributor by or through an 
Authorized Participant and the Distributor will transmit such orders to 
the Funds. The Distributor will be responsible for maintaining records 
of both the orders placed with it and the confirmations of acceptance 
furnished by it.
---------------------------------------------------------------------------

    \18\ Applicants are not requesting relief from section 18 of the 
Act. Accordingly, a Master Fund may require a Transaction Fee 
payment to cover expenses related to purchases or redemptions of the 
Master Fund's shares by a Feeder Fund only if it requires the same 
payment for equivalent purchases or redemptions by any other feeder 
fund. Thus, for example, a Master Fund may require payment of a 
Transaction Fee by a Feeder Fund for transactions for 20,000 or more 
shares so long as it requires payment of the same Transaction Fee by 
all feeder funds for transactions involving 20,000 or more shares.
---------------------------------------------------------------------------

    12. 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 at negotiated prices on a Listing Market and it is expected 
that the relevant Listing Market will designate one or more member 
firms to maintain a market for the Shares.\19\ The price of Shares 
trading on a Listing Market will be based on a current bid-offer in the 
secondary market. Purchases and sales of Shares in the secondary market 
will not involve a Fund and will be subject to customary brokerage 
commissions and charges.
---------------------------------------------------------------------------

    \19\ If Shares are listed on The NASDAQ Stock Market LLC 
(``Nasdaq'') or a similar electronic Listing Market (including NYSE 
Arca, Inc.), one or more member firms of that Listing Market will 
act as market maker (a ``Market Maker'') and maintain a market for 
Shares trading on that Listing Market. On Nasdaq, no particular 
Market Maker would be contractually obligated to make a market in 
Shares. However, the listing requirements on Nasdaq stipulate that 
at least two Market Makers must be registered in Shares to maintain 
a listing. Registered Market Makers are required to make a 
continuous two-sided market or subject themselves to regulatory 
sanctions. No Market Maker will be an affiliated person, or an 
affiliated person of an affiliated person, of the Funds, except 
within the meaning of section 2(a)(3)(A) or (C) of the Act due 
solely to ownership of Shares.
---------------------------------------------------------------------------

    13. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Applicants expect 
that secondary market purchasers of Shares will include both 
institutional and retail investors.\20\ Applicants believe that the 
structure and operation of the Funds will be designed to enable 
efficient arbitrage and, thereby, minimize the probability that Shares 
will trade at a material premium or discount to a Fund's NAV.
---------------------------------------------------------------------------

    \20\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
Beneficial ownership of Shares will be shown on the records of DTC 
or DTC Participants.
---------------------------------------------------------------------------

    14. 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 
must accumulate enough Shares to constitute a Creation Unit. Redemption 
requests must be placed by or through an Authorized Participant. As 
discussed above, redemptions of Creation Units will generally be made 
on an in-kind basis, subject to certain specified exceptions under 
which redemptions may be made in whole or in part on a cash basis, and 
will be subject to a Transaction Fee.
    15. Neither a Trust nor any Fund will be advertised or marketed or 
otherwise held out as a traditional open-end investment company or 
mutual fund. Instead, each Fund will be marketed as an ``actively-
managed exchange-traded fund.'' All marketing materials that describe 
the features or method of obtaining, buying, or selling Creation Units, 
or Shares traded on a Listing Market, or refer to redeemability, will 
prominently disclose that Shares are not individually redeemable and 
that the owners of Shares may acquire those Shares from a Fund or 
tender those Shares for redemption to the Fund in Creation Units only.
    16. The Trust's Web site (``Web site''), which will be publicly 
available prior to the offering of Shares, will include each

[[Page 20256]]

Fund's prospectus (``Prospectus''), statement of additional information 
(``SAI''), and summary prospectus, if used. The Web site will contain, 
on a per Share basis for each Fund, the prior Business Day's NAV and 
the market closing price or mid-point of the bid/ask spread at the time 
of calculation of such NAV (``Bid/Ask Price''), and a calculation of 
the premium or discount of the market closing price or the Bid/Ask 
Price against such NAV. On each Business Day, prior to the commencement 
of trading in Shares on a Listing Market, each Fund shall post on the 
Web site the identities and quantities of the Portfolio Positions held 
by the Fund, or its respective Master Fund, that will form the basis 
for the calculation of the NAV at the end of that Business Day.\21\
---------------------------------------------------------------------------

    \21\ Under accounting procedures followed by the Fund, 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.
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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 (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 the Trust to register as 
an open-end management investment company and issue Shares that are 
redeemable in Creation Units only.\22\ Applicants state that investors 
may purchase Shares in Creation Units from each Fund and that Creation 
Units will always be redeemable in accordance with the provisions of 
the Act. 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 materially from their NAV.
---------------------------------------------------------------------------

    \22\ The Master Funds will not require relief from sections 
2(a)(32) and 5(a)(1) because the Master Funds will issue 
individually redeemable securities.
---------------------------------------------------------------------------

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 that 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.\23\
---------------------------------------------------------------------------

    \23\ The Master Funds will not require relief from section 22(d) 
or rule 22c-1 because shares of the Master Funds will not trade at 
negotiated prices in the secondary market.
---------------------------------------------------------------------------

    5. Applicants state 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) to prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) to prevent unjust discrimination or preferential treatment 
among buyers and (c) to ensure an orderly distribution system of shares 
by contract dealers by eliminating price competition from non-contract 
dealers who could offer investors shares at less than the published 
sales price and who could pay investors a little more than the 
published redemption price.
    6. Applicants assert that the protections intended to be afforded 
by Section 22(d) and rule 22c-1 are adequately addressed by the 
proposed methods for creating, redeeming and pricing Creation Units and 
pricing and trading Shares. 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 but do 
not occur as a result of unjust or discriminatory manipulation. 
Finally, applicants assert that competitive forces in the marketplace 
should ensure that the margin between NAV and the price for the Shares 
in the secondary market remains narrow.

Section 22(e) of the Act

    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 
observe that the settlement of redemptions of Creation Units of the 
Foreign and Global Funds is contingent not only on the settlement cycle 
of the U.S. securities markets but also on the delivery cycles present 
in foreign markets for underlying foreign Portfolio Positions in which 
those Funds invest. Applicants have been advised that, under certain 
circumstances, the delivery cycles for transferring Portfolio Positions 
to redeeming investors, coupled with local market holiday schedules, 
will require a delivery process of up to fifteen (15) calendar days. 
Applicants therefore request relief from section 22(e) in order to 
provide payment or satisfaction of redemptions within a longer number 
of calendar days as required for such payment or satisfaction in the 
principal local

[[Page 20257]]

markets where transactions in the Portfolio Positions of each Foreign 
and Global Fund customarily clear and settle, but in all cases no later 
than fifteen (15) days following the tender of a Creation Unit.\24\
---------------------------------------------------------------------------

    \24\ Applicants acknowledge that no relief obtained from the 
requirements of Section 22(e) of the Act will affect any obligations 
that it may otherwise have under Rule 15c6-1 under the Exchange Act. 
Rule 15c6-1 requires that most securities transactions be settled 
within three business days of the trade date.
---------------------------------------------------------------------------

    8. Applicants state that section 22(e) was designed to prevent 
unreasonable, undisclosed or unforeseen delays in the actual payment of 
redemption proceeds. Applicants assert that the protections intended to 
be afforded by Section 22(e) are adequately addressed by the proposed 
method and securities delivery cycles for redeeming Creation Units. 
Applicants state that allowing redemption payments for Creation Units 
of a Fund to be made within a maximum of fifteen (15) calendar days 
\25\ would not be inconsistent with the spirit and intent of section 
22(e).\26\ Applicants represent that each Fund's Prospectus and/or SAI 
will identify those instances in a given year where, due to local 
holidays, more than seven calendar days, up to a maximum of fifteen 
(15) calendar days, will be needed to deliver redemption proceeds and 
will list such holidays. Applicants are not seeking relief from section 
22(e) with respect to Foreign and Global Funds that do not effect 
redemptions in-kind.
---------------------------------------------------------------------------

    \25\ Certain countries in which a Fund may invest have 
historically had settlement periods of up to 15 calendar days.
    \26\ Other feeder funds invested in any Master Fund are not 
seeking, and will not rely on, the section 22(e) relief requested 
herein.
---------------------------------------------------------------------------

Section 12(d)(1) of the Act

    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 relief to permit Acquiring Funds to acquire 
Shares in excess of the limits in section 12(d)(1)(A) of the Act and to 
permit the Funds, their principal underwriters and any Broker to sell 
Shares to Acquiring Funds in excess of the limits in section 
12(d)(l)(B) of the Act. 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.
    11. Applicants submit that their proposed conditions address 
concerns regarding the potential for undue influence. To limit the 
control that an Acquiring Fund may have over a Fund, applicants propose 
a condition prohibiting the adviser of an Acquiring Management Company 
(``Acquiring Fund Advisor''), sponsor of an Acquiring Trust 
(``Sponsor''), any person controlling, controlled by, or under common 
control with the Acquiring Fund Advisor 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 
Acquiring Fund Advisor, the Sponsor, or any person controlling, 
controlled by, or under common control with the Acquiring Fund Advisor 
or Sponsor (``Acquiring Fund's 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 sub-adviser 
to an Acquiring Fund (``Acquiring Fund Sub-Advisor''), any person 
controlling, controlled by or under common control with the Acquiring 
Fund Sub-Advisor, 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 (or 
portion of such investment company or issuer) advised or sponsored by 
the Acquiring Fund Sub-Advisor or any person controlling, controlled by 
or under common control with the Acquiring Fund Sub-Advisor 
(``Acquiring Fund's Sub-Advisory Group'').
    12. Applicants propose a condition to ensure that no Acquiring Fund 
or Acquiring Fund Affiliate \27\ (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 offering of securities during the existence 
of an 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, Acquiring Fund Advisor, Acquiring Fund Sub-
Advisor, employee or Sponsor of the Acquiring Fund, or a person of 
which any such officer, director, member of an advisory board, 
Acquiring Fund Advisor, Acquiring Fund Sub-Advisor, 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).
---------------------------------------------------------------------------

    \27\ An ``Acquiring Fund Affiliate'' is any Acquiring Fund 
Advisor, Acquiring Fund Sub-Advisor, Sponsor, promoter and principal 
underwriter of an Acquiring Fund, and any person controlling, 
controlled by or under common control with any of these entities. 
``Fund Affiliate'' is an investment adviser, promoter, or principal 
underwriter of a Fund or any person controlling, controlled by or 
under common control with any of these entities.
---------------------------------------------------------------------------

    13. Applicants propose several conditions to address the potential 
for layering of fees. Applicants note that the Board of any Acquiring 
Management Company, including a majority of the directors or trustees 
who are not ``interested persons'' within the meaning of section 
2(a)(19) of the Act (for any Board, the ``Independent Trustees''), will 
be required to find that the advisory fees charged under the contract 
are based on services provided that will be in addition to, rather than 
duplicative of, services provided under the advisory contract of any 
Fund in which the Acquiring Management Company may invest. Applicants 
also state that any sales charges and/or service fees charged with 
respect to shares of an Acquiring Fund will not exceed the limits 
applicable to a fund of funds as set forth in NASD Conduct Rule 
2830.\28\
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    \28\ Any reference to NASD Conduct Rule 2830 includes any 
successor or replacement rule that may be adopted by the Financial 
Industry Regulatory Authority.
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    14. 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 
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, except to the 
extent permitted by exemptive relief from the Commission permitting the 
Fund to purchase shares of other investment companies for short-term 
cash management purposes.
    15. To ensure that an Acquiring Fund is aware of the terms and 
conditions of the requested order, the Acquiring

[[Page 20258]]

Funds must enter into an agreement with the respective Funds 
(``Acquiring Fund Agreement''). The Acquiring Fund Agreement will 
include an acknowledgement from the Acquiring Fund that it may rely on 
the order only to invest in a Fund and not in any other investment 
company.
    16. Applicants also are seeking relief from sections 12(d)(1)(A) 
and 12(d)(1)(B) to the extent necessary to permit the Feeder Funds to 
perform creations and redemptions of Shares in-kind in a master-feeder 
structure. Applicants assert that this structure is substantially 
identical to traditional master-feeder structures permitted pursuant to 
the exception provided in section 12(d)(1)(E) of the Act. Section 
12(d)(1)(E) provides that the percentage limitations of sections 
12(d)(1)(A) and (B) will not apply to a security issued by an 
investment company (in this case, the shares of the applicable Master 
Fund) if, among other things, that security is the only investment 
security held in the investing fund's portfolio (in this case, the 
Feeder Fund's portfolio). Applicants believe the proposed master-feeder 
structure complies with section 12(d)(1)(E) because each Feeder Fund 
will hold only investment securities issued by its corresponding Master 
Fund; however, the Feeder Funds may receive securities other than 
securities of its corresponding Master Fund if a Feeder Fund accepts an 
in-kind creation. To the extent that a Feeder Fund may be deemed to be 
holding both shares of the Master Fund and other securities, applicants 
request relief from sections 12(d)(1)(A) and (B). The Feeder Funds 
would operate in compliance with all other provisions of section 
12(d)(1)(E).

Section 17(a) of the Act

    17. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such person (``Second Tier Affiliates''), 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 
defines ``control'' as ``the power to exercise a controlling influence 
over the management or policies'' of the fund and 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'').
    18. Applicants request an exemption under sections 6(c) and 17(b) 
of the Act from sections 17(a)(1) and 17(a)(2) of the Act to permit in-
kind purchases and redemptions of Creation Units from the Funds by 
persons that are affiliated persons or Second Tier Affiliates of the 
Funds solely by virtue of one or more of the following: (a) Holding 5% 
or more, or more than 25%, of the Shares of a Trust of one or more 
Funds; (b) having an affiliation with a person with an ownership 
interest described in (a); or (c) 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 Acquiring Fund of which 
the Fund is an affiliated person or Second-Tier Affiliate.\29\
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    \29\ Applicants anticipate that most Acquiring Funds will 
purchase Shares in the secondary market and will not purchase or 
redeem Creation Units directly from a Fund. To the extent that 
purchases and sales of Shares occur in the secondary market and not 
through principal transactions directly between an Acquiring Fund 
and a Fund, relief from section 17(a) would not be necessary. 
However, the requested relief would apply to direct sales of Shares 
in Creation Units by a Fund to an Acquiring Fund and redemptions of 
those Shares in Creation Units. The requested relief is intended to 
cover transactions that would accompany such sales and redemptions. 
Applicants are not seeking relief from section 17(a) for, and the 
requested relief will not apply to, transactions where a Fund could 
be deemed an affiliated person, or an affiliated person of an 
affiliated person of an Acquiring Fund because an investment adviser 
to the Funds is also an investment adviser to that Acquiring Fund.
---------------------------------------------------------------------------

    19. Applicants assert that no useful purpose would be served by 
prohibiting such affiliated persons or Second Tier Affiliates from 
making in-kind purchases or in-kind redemptions of Shares of a Fund in 
Creation Units. Both the deposit procedures for in-kind purchases of 
Creation Units and the redemption procedures for in-kind redemptions 
will be the same for all purchases and redemptions. Deposit Instruments 
and Redemption Instruments will be valued in the same manner as those 
Portfolio Positions currently held by the relevant Funds, or their 
respective Master Funds, and the valuation of the Deposit Instruments 
and Redemption Instruments will be made in an identical manner 
regardless of the identity of the purchaser or redeemer. Applicants do 
not believe that in-kind purchases and redemptions will result in 
abusive self-dealing or overreaching of the Fund.
    20. Applicants also submit that the sale of Shares to and 
redemption of Shares from an Acquiring Fund satisfies the standards for 
relief under sections 17(b) and 6(c) of the Act. Applicants note that 
any consideration paid for the purchase or redemption of Shares 
directly from a Fund will be based on the NAV of the Fund. \30\ The 
Acquiring Fund Agreement will require any Acquiring Fund that purchases 
Creation Units directly from a Fund to represent that the purchase will 
be in compliance with its investment restrictions and consistent with 
the investment policies set forth in its registration statement.
---------------------------------------------------------------------------

    \30\ Applicants acknowledge that the receipt of compensation by 
(a) an affiliated person of an Acquiring Fund, or an affiliated 
person of such person, for the purchase by the Acquiring Fund of 
Shares of a Fund or (b) an affiliated person of a Fund, or an 
affiliated person of such person, for the sale by the Fund of its 
Shares to an Acquiring Fund, may be prohibited by section 17(e)(1) 
of the Act. The Acquiring Fund Agreement also will include this 
acknowledgment.
---------------------------------------------------------------------------

    21. In addition, to the extent that a Fund operates in a master-
feeder structure, applicants also request relief permitting the Feeder 
Funds to engage in in-kind creations and redemptions with the 
applicable Master Fund. Applicants state that the request for relief 
described above would not be sufficient to permit such transactions 
because the Feeder Funds and the applicable Master Fund could also be 
affiliated by virtue of having the same investment adviser. However, 
applicants believe that in-kind creations and redemptions between a 
Feeder Fund and a Master Fund advised by the same investment adviser do 
not involve ``overreaching'' by an affiliated person. Applicants 
represent that such transactions will occur only at the Feeder Fund's 
proportionate share of the Master Fund's net assets, and the 
distributed securities will be valued in the same manner as they are 
valued for the purposes of calculating the applicable Master Fund's 
NAV. Further, all such transactions will be effected with respect to 
pre-determined securities and on the same terms with respect to all 
investors. Finally, such transaction would only occur as a result of, 
and to effectuate, a creation or redemption transaction between the 
Feeder Fund and a third-party investor.

[[Page 20259]]

Applicants state that, in effect, the Feeder Fund will serve as a 
conduit through which creation and redemption orders by Authorized 
Participants will be effected.
    22. Applicants believe that: (a) With respect to the relief 
requested pursuant to section 17(b), the proposed transactions are fair 
and reasonable, and do not involve overreaching on the part of any 
person concerned, the proposed transactions are consistent with the 
policy of each Fund and, where applicable, Acquiring Fund, and the 
proposed transactions are consistent with the general purposes of the 
Act; and (b) with respect to the relief requested pursuant to section 
6(c), the requested exemption for the proposed transactions is 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act.

Applicants' Conditions

    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. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end investment company or mutual fund. 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. The Web site, which is and will be publicly accessible at no 
charge, will contain, on a per Share basis for each Fund, the prior 
Business Day's NAV and the market closing price or the Bid/Ask Price, 
and a calculation of the premium or discount of the market closing 
price or Bid/Ask Price against such NAV.
    3. As long as a Fund operates in reliance on the requested order, 
its Shares will be listed on a Listing Market.
    4. On each Business Day, before commencement of trading in Shares 
on a Fund's Listing Market, the Fund will disclose on the Web site the 
identities and quantities of the Portfolio Positions held by the Fund, 
or its respective Master Fund, that will form the basis for the Fund's 
calculation of NAV at the end of the Business Day.
    5. The Adviser or any Sub-Advisers, 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 Instrument for a Fund, or its respective Master Fund, through a 
transaction in which the Fund, or its respective Master Fund, could not 
engage directly.
    6. The requested relief to permit ETF operations 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, other than the Master-Feeder Relief.

B. Section 12(d)(1) Relief

    7. The members of an Acquiring Fund's Advisory Group will not 
control (individually or in the aggregate) a Fund, or its respective 
Master Fund, within the meaning of section 2(a)(9) of the Act. The 
members of an Acquiring Fund's Sub-Advisory Group will not control 
(individually or in the aggregate) a Fund, or its respective Master 
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 
Acquiring Fund's Advisory Group or the Acquiring Fund's 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 
that Fund's Shares. This condition does not apply to the Acquiring 
Fund's Sub-Advisory Group with respect to a Fund, or its respective 
Master Fund, for which the Acquiring Fund Sub-Advisor or a person 
controlling, controlled by, or under common control with the Acquiring 
Fund Sub-Advisor acts as the investment adviser within the meaning of 
section 2(a)(20)(A) of the Act.
    8. No Acquiring Fund or Acquiring Fund Affiliate will cause any 
existing or potential investment by the Acquiring Fund in a Fund to 
influence the terms of any services or transactions between the 
Acquiring Fund or an Acquiring Fund Affiliate and the Fund, or its 
respective Master Fund, or a Fund Affiliate.
    9. The Board of an Acquiring Management Company, including a 
majority of the Independent Trustees, will adopt procedures reasonably 
designed to ensure that the Acquiring Fund Advisor and any Acquiring 
Fund Sub-Advisor are conducting the investment program of the Acquiring 
Management Company without taking into account any consideration 
received by the Acquiring Management Company or an Acquiring Fund 
Affiliate from a Fund, or its respective Master Fund, or a Fund 
Affiliate in connection with any services or transactions.
    10. Once an investment by an Acquiring Fund in the Shares of a Fund 
exceeds the limits in section l2(d)(1)(A)(i) of the Act, the Board of 
the Fund, or its respective Master Fund, including a majority of the 
Independent Trustees, will determine that any consideration paid by the 
Fund, or its respective Master Fund, to an Acquiring Fund or an 
Acquiring Fund 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, or its 
respective Master 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, or its respective Master Fund, and its investment 
adviser(s), or any person controlling, controlled by or under common 
control with such investment adviser(s).
    11. No Acquiring Fund or Acquiring Fund Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to a Fund) 
will cause the Fund, or its respective Master Fund, to purchase a 
security in any Affiliated Underwriting.
    12. The Board of a Fund, or its respective Master Fund, including a 
majority of the Independent Trustees, will adopt procedures reasonably 
designed to monitor any purchases of securities by the Fund, or its 
respective Master Fund, in an Affiliated Underwriting, once an 
investment by an Acquiring Fund 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 of the Fund 
will review these purchases periodically, but no less frequently than 
annually, to determine whether the purchases were influenced by the 
investment by the Acquiring Fund in the Fund. The Board of the Fund 
will consider, among other things: (i) Whether the purchases were 
consistent with the investment objectives and policies of the Fund, or 
its respective Master 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

[[Page 20260]]

securities purchased by the Fund, or its respective Master Fund, in 
Affiliated Underwritings and the amount purchased directly from an 
Underwriting Affiliate have changed significantly from prior years. The 
Board of the Fund will take any appropriate actions based on its 
review, including, if appropriate, the institution of procedures 
designed to ensure that purchases of securities in Affiliated 
Underwritings are in the best interest of shareholders of the Fund.
    13. Each Fund, or its respective Master 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 an Acquiring Fund 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 determinations of the Board of the Fund were made.
    14. Before investing in Shares of a Fund in excess of the limits in 
section 12(d)(1)(A), each Acquiring Fund and the Fund will execute an 
Acquiring Fund Agreement stating, without limitation, that their Boards 
and their investment adviser(s), or their Sponsors or trustees 
(``Trustee''), as applicable, understand the terms and conditions of 
the requested order, and agree to fulfill their responsibilities under 
the requested order. At the time of its investment in Shares of a Fund 
in excess of the limit in section 12(d)(1)(A)(i), an Acquiring Fund 
will notify the Fund of the investment. At such time, the Acquiring 
Fund will also transmit to the Fund a list of the names of each 
Acquiring Fund Affiliate and Underwriting Affiliate. The Acquiring Fund 
will notify the Fund of any changes to the list of the names as soon as 
reasonably practicable after a change occurs. The Fund and the 
Acquiring Fund will maintain and preserve a copy of the requested 
order, the Acquiring Fund 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.
    15. The Acquiring Fund Advisor, Trustee or Sponsor, as applicable, 
will waive fees otherwise payable to it by the Acquiring Fund in an 
amount at least equal to any compensation (including fees received 
pursuant to any plan adopted under rule 12b-l under the Act) received 
from the Fund, or its respective Master Fund, by the Acquiring Fund 
Advisor, Trustee or Sponsor, or an affiliated person of the Acquiring 
Fund Advisor, Trustee or Sponsor, other than any advisory fees paid to 
the Acquiring Fund Advisor, Trustee or Sponsor, or its affiliated 
person by the Fund, or its respective Master Fund, in connection with 
the investment by the Acquiring Fund in the Fund. Any Acquiring Fund 
Sub-Advisor will waive fees otherwise payable to the Acquiring Fund 
Sub-Advisor, directly or indirectly, by the Acquiring Management 
Company in an amount at least equal to any compensation received from a 
Fund, or its respective Master Fund, by the Acquiring Fund Sub-Advisor, 
or an affiliated person of the Acquiring Fund Sub-Advisor, other than 
any advisory fees paid to the Acquiring Fund Sub-Advisor or its 
affiliated person by the Fund, or its respective Master Fund, in 
connection with any investment by the Acquiring Management Company in 
the Fund made at the direction of the Acquiring Fund Sub-Advisor. In 
the event that the Acquiring Fund Sub-Advisor waives fees, the benefit 
of the waiver will be passed through to the Acquiring Management 
Company.
    16. Any sales charges and/or service fees charged with respect to 
shares of an Acquiring Fund will not exceed the limits applicable to a 
fund of funds as set forth in NASD Conduct Rule 2830.
    17. No Fund, or its respective Master Fund, will acquire securities 
of any other 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, except to the extent (i) the Fund, or its 
respective Master Fund, acquires securities of another investment 
company pursuant to exemptive relief from the Commission permitting the 
Fund, or its respective Master Fund, to acquire securities of one or 
more investment companies for short-term cash management purposes or 
(ii) the Fund acquires securities of the Master Fund pursuant to the 
Master-Feeder Relief.
    18. Before approving any advisory contract under section 15 of the 
Act, the Board of of each Acquiring Management Company, including a 
majority of the Independent Trustees, will find that the advisory fees 
charged under such advisory 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, or its respective 
Master Fund, in which the Acquiring Management Company may invest. 
These findings and their basis will be recorded fully in the minute 
books of the appropriate Acquiring Management Company.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08131 Filed 4-10-14; 8:45 am]
BILLING CODE 8011-01-P
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