ProFunds, et al.; Notice of Application, 76710-76714 [E6-21780]
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local CFCs often have identical codes
because of the independent assignment
process and the limits of the current
four-digit code structure. At the same
time, OPM has reclaimed all or part of
a code series in the past several years to
accommodate the ever-expanding list of
national/ international federations.
Consequently, redundant code
assignments can lead to the
misdirection of donor funds, as donor
choices in giving currently remain
limited to the national/international list
and to local charities located within the
employee’s designated duty station
campaign.
In recently issued CFC regulations, set
forth at 5 CFR Part 950, the OPM
Director has the authority, upon
implementation of appropriate
electronic technology, to remove the
restriction that limits donors to
contributing only to local charities
within their geographic campaign area,
based on their official duty station. A
first step in implementing electronic
technology that would allow donors to
contribute to local organizations in
other campaign areas is to make sure
that each organization has its own
unique code. Being able to identify all
participating charitable organizations by
a unique code will also allow OPM to
better monitor compliance with CFC
eligibility standards and sanctions
compliance requirements. In order to be
eligible to participate in the CFC, each
charitable organization must be
determined to be a tax-exempt public
charity under section 501(c)(3) of the
Internal Revenue Code. In order to
demonstrate compliance with this
eligibility standard, each charitable
organization must provide a copy of its
IRS determination letter. However,
many of the IRS determination letters
provided by charitable organizations are
dated at the time of the initial IRS
determination. That determination
could have been made many years prior
to the current CFC to which the
charitable organization is applying for
participation. To ensure that each
charitable organization meets the
501(c)(3) eligibility standard, OPM will
compare the applicant organization
against an IRS database to determine
that the charitable organization is still
recognized as a 501(c)(3) tax-exempt
public charity by the IRS. The newly
assigned unique codes will assist OPM
in identifying each charitable
organization against the IRS database. In
addition, OPM requires each charitable
organization participating in the CFC to
complete a certification that it is in
compliance with all statutes, Executive
orders, and regulations restricting or
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prohibiting U.S. persons from engaging
in transactions and dealings with
countries, entities or individuals subject
to economic sanctions administered by
the U.S. Department of the Treasury’s
Office of Foreign Assets Control
(OFAC). Currently, OPM checks each
participating national and international
organization against the OFAC list of
sanctioned organizations and requests
local campaigns to do the same. The
newly assigned unique codes will assist
OPM in performing this check against
the OFAC list for all national,
international, and local, organizations
participating in the CFC and relieve a
burden from the local campaigns.
U.S. Office of Personnel Management.
Linda M. Springer,
Director.
[FR Doc. E6–21904 Filed 12–20–06; 8:45 am]
BILLING CODE 6325–46–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27599; 812–13029]
ProFunds, et al.; Notice of Application
December 14, 2006.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the
‘‘Act’’) for exemption from sections
12(d)(1)(A) and (B) of the Act and under
sections 6(c) and 17(b) of the Act for an
exemption from section 17(a) of the Act.
AGENCY:
Summary of the Application: The
order would permit certain management
investment companies and unit
investment trusts registered under the
Act to acquire shares of certain openend management investment companies
and unit investment trusts registered
under the Act, including those that
operate as exchange-traded funds, that
are outside the same group of
investment companies as the acquiring
investment companies.
Applicants: ProFunds, Access One
Trust, ProShares Trust (‘‘ETF Trust,’’
and together with ProFunds and Access
One Trust, the ‘‘Trusts’’), ProShare
Advisors LLC (‘‘ProShare Advisors’’),
and ProFund Advisors LLC (‘‘ProFund
Advisors,’’ and together with ProShare
Advisors, the ‘‘Advisers’’).
Filing Dates: The application was
filed on October 7, 2003, and amended
on June 3, 2004, July 15, 2005, and
October 6, 2006. Applicants have agreed
to file an amendment during the notice
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period, the substance of which is
reflected in this notice.
Hearing or Notification of Hearing: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on January 8, 2007, 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–
1090; Applicants, 7501 Wisconsin
Avenue, Suite 1000, Bethesda, MD
20814.
John
Yoder, Senior Counsel, at (202) 551–
6878, or Michael W. Mundt, Senior
Special Counsel, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
FOR FURTHER INFORMATION CONTACT:
The
following is a summary of the
application. The complete application
may be obtained for a fee at the Public
Reference Desk, U.S. Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–0102
(telephone (202) 551–5850).
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Trusts are open-end
management investment companies
registered under the Act and are each
comprised of separate series (‘‘Funds’’)
that pursue distinct investment
objectives and strategies. Shares of
certain Funds of ProFunds and Access
One Trust are sold publicly to retail
investors, and shares of other such
Funds are sold to insurance company
separate accounts funding variable life
and variable annuity contracts. The
Funds of the ETF Trust (‘‘ETF Funds’’)
rely on an order from the Commission
that allows the ETF Funds to operate as
exchange-traded funds and to redeem
their shares in large aggregations
(‘‘Creation Units’’).1 Certain Funds
pursue their investment objectives
1 ProShares Trust, et al., Investment Company Act
Release Nos. 27323 (May 18, 2006) (notice) and
27394 (June 13, 2006) (order) (‘‘ETF Order’’).
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through a master-feeder arrangement in
reliance on section 12(d)(1)(E) of the
Act.2 ProFund Advisors is registered as
an investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and serves as
investment adviser to each Fund of
ProFunds and Access One Trust.
ProShare Advisors is registered as an
investment adviser under the Advisers
Act and serves as investment adviser to
each ETF Fund.
2. Applicants request relief to permit
registered management investment
companies and unit investment trusts
registered under the Act that are not
part of the same ‘‘group of investment
companies,’’ within the meaning of
section 12(d)(1)(G)(ii) of the Act, as the
Trusts (such management investment
companies are ‘‘Investing Management
Companies,’’ such unit investment
trusts are ‘‘Investing Trusts,’’ and
Investing Management Companies and
Investing Trusts are collectively ‘‘Funds
of Funds’’), to acquire shares of the
Funds in excess of the limits in section
12(d)(1)(A) of the Act, and to permit a
Fund, any principal underwriter for a
Fund, and any broker or dealer
registered under the Securities
Exchange Act of 1934 (‘‘Broker’’) to sell
shares of a Fund to a Fund of Funds in
excess of the limits of section
12(d)(1)(B) of the Act. Applicants
request that the relief apply to: (1) Each
open-end management investment
company or unit investment trust
registered under the Act that currently
or subsequently is part of the same
‘‘group of investment companies,’’
within the meaning of section
12(d)(1)(G)(ii) of the Act, as the Trusts
and is advised or sponsored by the
Advisers or any entity controlling,
controlled by, or under common control
with the Advisers (such open-end
management investment companies are
‘‘Open-end Funds,’’ such unit
investment trusts are ‘‘UIT Funds,’’ and
both Open-end Funds and UIT Funds
are ‘‘Funds’’); (2) each Fund of Funds
that enters into a Participation
Agreement (as defined below) with a
Fund to purchase shares of the Funds;
and (3) any principal underwriter to a
Fund or Broker selling shares of a
Fund.3
2 A Fund of Funds (as defined below) may not
invest in a Fund that serves as a feeder Fund unless
the feeder Fund is part of the same group of
investment companies as its corresponding master
fund.
3 All entities that currently intend to rely on the
requested order are named as applicants. Any other
entity that relies on the order in the future will
comply with the terms and conditions of the
application. A Fund of Funds may rely on the
requested order only to invest in the Funds and not
in any other registered investment company.
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3. Each Investing Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act and
registered as an investment adviser
under the Advisers Act or exempt from
registration (‘‘Fund of Funds Adviser’’).
A Fund of Funds Adviser may contract
with an investment adviser which meets
the definition of section 2(a)(20)(B) of
the Act (a ‘‘Subadviser’’). Each Investing
Trust will have a sponsor (‘‘Sponsor’’).
4. Applicants state that the Funds will
offer the Funds of Funds simple and
efficient investment vehicles to achieve
their asset allocation or diversification
objectives. Applicants state that the
Funds also provide high quality,
professional investment program
alternatives to Funds of Funds that do
not have sufficient assets to operate
comparable funds.
Applicants’ Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act, in
relevant part, 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, and any 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.
2. 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.
Applicants seek an exemption under
section 12(d)(1)(J) of the Act to permit
Funds of Funds to acquire shares of the
Funds in excess of the limits in section
12(d)(1)(A) of the Act, and a Fund, any
principal underwriter for a Fund and
any Broker to sell shares of a Fund to
a Fund of Funds in excess of the limits
of section 12(d)(1)(B) of the Act.
3. Applicants state that the proposed
arrangement and conditions will
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adequately address the policy concerns
underlying sections 12(d)(1)(A) and (B)
of the Act, which include concerns
about undue influence by a fund of
funds over underlying funds, excessive
layering of fees, and overly complex
fund structures. Accordingly, applicants
believe that the requested exemption is
consistent with the public interest and
the protection of investors.
4. Applicants believe that neither the
Fund of Funds nor a Fund of Funds
Affiliate would be able to exert undue
influence over the Funds.4 To limit the
control that a Fund of Funds may have
over a Fund, applicants propose a
condition prohibiting the Fund of Funds
Adviser or Sponsor, any person
controlling, controlled by, or under
common control with the Fund of
Funds Adviser or Sponsor, and any
investment company or issuer that
would be an investment company but
for sections 3(c)(1) or 3(c)(7) of the Act
that is advised or sponsored by the
Fund of Funds Adviser or Sponsor, or
any person controlling, controlled by, or
under common control with the Fund of
Funds Adviser or Sponsor (‘‘Fund of
Funds Advisory Group’’) from
controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to the
Subadviser, any person controlling,
controlled by or under common control
with the Subadviser, and any
investment company or issuer that
would be an investment company but
for section 3(c)(1) or 3(c)(7) of the Act
(or portion of such investment company
or issuer) advised or sponsored by the
Subadviser or any person controlling,
controlled by or under common control
with the Subadviser (‘‘Subadviser
Group’’). Applicants propose other
conditions to limit the potential for
undue influence over the Funds,
including that no Fund of Funds or
Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to an Open-end
Fund or sponsor to a UIT Fund) will
cause a Fund to purchase a security in
an offering of securities during the
existence of any underwriting or selling
syndicate of which a principal
underwriter is an Underwriting Affiliate
(‘‘Affiliated Underwriting’’). An
‘‘Underwriting Affiliate’’ is a principal
4 A ‘‘Fund of Funds Affiliate’’ is a Fund of Funds
Adviser, Subadviser, Sponsor, promoter, or
principal underwriter of a Fund of Funds, and any
person controlling, controlled by, or under common
control with any of those entities. A ‘‘Fund
Affiliate’’ is an investment adviser, sponsor,
promoter, or principal underwriter of a Fund, and
any person controlling, controlled by, or under
common control with any of those entities.
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underwriter in any underwriting or
selling syndicate that is an officer,
director, member of an advisory board,
Fund of Funds Advisor, Subadviser,
Sponsor, or employee of the Fund of
Funds, or a person of which any such
officer, director, member of an advisory
board, Fund of Funds Adviser,
Subadviser, Sponsor or employee is an
affiliated person. An Underwriting
Affiliate does not include a person
whose relationship to a Fund is covered
by section 10(f) of the Act.
5. Applicants do not believe that the
proposed arrangement will involve
excessive layering of fees. The board of
directors or trustees of each Investing
Management Company, including a
majority of the directors or trustees who
are not ‘‘interested persons’’ (within the
meaning of section 2(a)(19) of the Act)
(‘‘Disinterested Trustees’’), will find that
the advisory fees charged to the
Investing Management Company are
based on services provided that will be
in addition to, rather than duplicative
of, the services provided under the
advisory contract(s) of any Open-end
Fund in which the Investing
Management Company may invest. In
addition, a Fund of Funds Advisor,
trustee or Sponsor of a Fund of Funds
will waive fees otherwise payable to it
by the Fund of Funds, as applicable, in
an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by an
Open-end Fund under rule 12b–1 under
the Act) received from a Fund by the
Fund of Funds Advisor, trustee or
Sponsor or an affiliated person of the
Fund of Funds Adviser, trustee or
Sponsor, other than advisory fees paid
to the Fund of Funds Adviser, trustee or
Sponsor, or its affiliated person by an
Open-end Fund, in connection with the
investment by the Fund of Funds in the
Fund. Applicants also state that with
respect to registered separate accounts
that invest in a Fund of Funds, no sales
load will be charged at the Fund of
Funds level or at the Fund level. Other
sales charges and service fees, as
defined in Rule 2830 of the Conduct
Rules of the National Association of
Securities Dealers, Inc. (‘‘NASD’’), if
any, will only be charged at the Fund of
Funds level or at the Fund level, not
both. With respect to other investments
in a Fund of Funds, any sales charges
and/or service fees charged with respect
to shares of the Fund of Funds will not
exceed the limits applicable to a fund of
funds as set forth in Rule 2830 of the
NASD Conduct Rules.
6. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that no Fund may
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acquire 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 section 12(d)(1)(E)
of the Act, an exemptive order that
allows the Fund to purchase shares of
an affiliated money market fund for
short-term cash management purposes
or rule 12d1–1 under the Act.
Applicants also represent that to ensure
that the Funds of Funds comply with
the terms and conditions of the
requested relief from section 12(d)(1) of
the Act, a Fund of Funds must enter
into a participation agreement between
a Trust, on behalf of the relevant Funds,
and the Funds of Funds (‘‘Participation
Agreement’’) before investing in a Fund
beyond the limits imposed by section
12(d)(1)(A). The Participation
Agreement will require the Fund of
Funds to adhere to the terms and
conditions of the requested order. The
Participation Agreement will include an
acknowledgment from the Fund of
Funds that it may rely on the requested
order only to invest in the Funds and
not in series of any other registered
investment company. The Participation
Agreement will further require each
Fund of Funds that exceeds the 5% or
10% limitations in sections
12(d)(1)(A)(ii) and (iii) of the Act to
disclose in its prospectus that it may
invest in the Funds, and to disclose, in
‘‘plain English,’’ in its prospectus the
unique characteristics of the Fund of
Funds investing in the Funds, including
but not limited to the expense structure
and any additional expenses of
investing in the Funds. Each Fund of
Funds also will comply with the
disclosure requirements set forth in
Investment Company Act Release No.
27399 (June 20, 2006).
7. Applicants also note that a Fund
may choose to reject a direct purchase
by a Fund of Funds. To the extent that
a Fund of Funds purchases shares of an
ETF Fund in the secondary market, the
ETF Fund would still retain its ability
to reject purchases of its shares through
its decision to enter into the
Participation Agreement prior to any
investment by a Fund of Funds in
excess of the limits of section
12(d)(1)(A).
B. Section 17(a)
1. Section 17(a) of the Act generally
prohibits sales or purchases of securities
between a registered investment
company and any affiliated person of
the company. Section 2(a)(3) of the Act
defines an ‘‘affiliated person’’ of another
person to include any person 5% or
more of whose outstanding voting
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securities are directly or indirectly
owned, controlled, or held with power
to vote by the other person.
2. Applicants seek relief from section
17(a) to permit a Fund that is an
affiliated person of a Fund of Funds
because the Fund of Funds holds 5% or
more of the Fund’s shares to sell its
shares to and redeem its shares from a
Fund of Funds.5 Applicants believe that
any proposed transactions directly
between Funds and Funds of Funds will
be consistent with the policies of each
Fund and Fund of Funds. The
Participation Agreement will require
any Fund of Funds that purchases
shares from a Fund to represent that the
purchase of shares from the Fund by a
Fund of Funds will be accomplished in
compliance with the investment
restrictions of the Fund of Funds and
will be consistent with the investment
policies set forth in the Fund of Funds’
registration statement.6
3. Section 17(b) of the Act authorizes
the Commission to grant an order
permitting a transaction otherwise
prohibited by section 17(a) if it finds
that (i) The terms of the proposed
transaction are fair and reasonable and
do not involve overreaching on the part
of any person concerned; (ii) the
proposed transaction is consistent with
the policies of each registered
investment company involved; and (iii)
the proposed transaction is consistent
with the general purposes of the Act.
Section 6(c) of the Act permits the
Commission to exempt any person or
transactions from any provision of the
Act if such exemption is necessary or
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act.
4. Applicants submit that the
proposed arrangement satisfies the
standards for relief under sections 17(b)
and 6(c) of the Act. Applicants state that
the terms of the arrangement are fair and
5 Applicants acknowledge that receipt of any
compensation by (a) an affiliated person of a Fund
of Funds, or an affiliated person of such person, for
the purchase by the Fund of Funds 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 a Fund of Funds is subject to
section 17(e) of the Act. The Participation
Agreement also will include this acknowledgment.
6 To the extent that purchases and sales of shares
of an ETF Fund occur in the secondary market and
not through principal transactions directly between
a Fund of Funds and an ETF 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 an ETF Fund to a Fund
of Funds and redemptions of those shares. The
requested relief is also intended to cover the in-kind
transactions that would accompany such sales and
redemptions, as described in the application for the
ETF Order.
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reasonable and do not involve
overreaching. Applicants note that any
consideration paid for the purchase or
redemption of shares directly from a
Fund will be based on the net asset
value of the Fund. Applicants state that
the proposed arrangement will be
consistent with the policies of each
Fund of Funds and Fund and with the
general purposes of the Act.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The members of a Fund of Funds
Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of a Subadviser
Group will not control (individually or
in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. If,
as a result of a decrease in the
outstanding voting securities of a Fund,
the Fund of Funds Advisory Group or
the Subadviser Group, each in the
aggregate, becomes a holder of more
than 25% of the outstanding voting
securities of a Fund, it (except for any
member of the Fund of Funds Advisory
Group or Subadviser Group that is a
separate account) will vote its shares of
the Fund in the same proportion as the
vote of all other holders of the Fund’s
shares. This condition does not apply to
the Subadviser Group with respect to a
Fund for which the Subadviser or a
person controlling, controlled by, or
under common control with the
Subadviser acts as the investment
adviser within the meaning of section
2(a)(20)(A) of the Act (in the case of an
Open-end Fund) or as the sponsor (in
the case of a UIT Fund). A registered
separate account will seek voting
instructions from its contract holders
and will vote its shares in accordance
with the instructions received and will
vote those shares for which no
instructions were received in the same
proportion as the shares for which
instructions were received. An
unregistered separate account will
either (i) Vote its shares of the Fund in
the same proportion as the vote of all
other holders of the Fund’s shares; or
(ii) seek voting instructions from its
contract holders and vote its shares in
accordance with the instructions
received and vote those shares for
which no instructions were received in
the same proportion as the shares for
which instructions were received.
2. No Fund of Funds or Fund of
Funds Affiliate will cause any existing
or potential investment by the Fund of
Funds in shares of a Fund to influence
the terms of any services or transactions
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between the Fund of Funds or a Fund
of Funds Affiliate and the Fund or a
Fund Affiliate.
3. The board of directors or trustees of
an Investing Management Company,
including a majority of the Disinterested
Trustees, will adopt procedures
reasonably designed to assure that the
Fund of Funds Adviser and any
Subadviser are conducting the
investment program of the Investing
Management Company without taking
into account any consideration received
by the Investing Management Company
or a Fund of Funds Affiliate from a
Fund or a Fund Affiliate in connection
with any services or transactions.
4. Once an investment by a Fund of
Funds in the securities of an Open-end
Fund exceeds the limit in section
12(d)(1)(A)(i) of the Act, the board of
trustees of the Open-end Fund
(‘‘Board’’), including a majority of the
Disinterested Trustees, will determine
that any consideration paid by the
Open-end Fund to a Fund of Funds or
a Fund of Funds Affiliate in connection
with any services or transactions: (a) Is
fair and reasonable in relation to the
nature and quality of the services and
benefits received by the Open-end
Fund; (b) is within the range of
consideration that the Open-end Fund
would be required to pay to another
unaffiliated entity in connection with
the same services or transactions; and
(c) does not involve overreaching on the
part of any person concerned. This
condition does not apply with respect to
any services or transactions between an
Open-end Fund and its investment
adviser(s), or any person controlling,
controlled by, or under common control
with such investment adviser(s).
5. No Fund of Funds or Fund of
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to an Open-end Fund or sponsor
to a UIT Fund) will cause a Fund to
purchase a security in any Affiliated
Underwriting.
6. The Board of an Open-end Fund,
including a majority of the Disinterested
Trustees, will adopt procedures
reasonably designed to monitor any
purchases of securities by the Open-end
Fund in an Affiliated Underwriting once
an investment by a Fund of Funds in the
securities of the Fund exceeds the limit
in section 12(d)(1)(A)(i) of the Act,
including any purchases made directly
from an Underwriting Affiliate. The
Board of the Open-end Fund will review
these purchases periodically, but no less
frequently than annually, to determine
whether the purchases were influenced
by the investment by the Fund of Funds
in the Open-end Fund. The Board of the
Open-end Fund will consider, among
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other things, (i) Whether the purchases
were consistent with the investment
objectives and policies of the Open-end
Fund; (ii) how the performance of
securities purchased in an Affiliated
Underwriting compares to the
performance of comparable securities
purchased during a comparable period
of time in underwritings other than
Affiliated Underwritings or to a
benchmark such as a comparable market
index; and (iii) whether the amount of
securities purchased by the Open-end
Fund in Affiliated Underwritings and
the amount purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board of the Open-end Fund will take
any appropriate actions based on its
review, including, if appropriate, the
institution of procedures designed to
assure that purchases of securities in
Affiliated Underwritings are in the best
interests of shareholders.
7. The Open-end Fund will maintain
and preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by a Fund of Funds
in the securities of the Open-end Fund
exceeds the limit in 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
Open-end Fund were made.
8. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A) of the Act, the Fund of
Funds and the Fund will execute a
Participation Agreement stating,
without limitation, that their boards of
directors or trustees and their
investment advisers, or sponsors and
trustees, as applicable, understand the
terms and conditions of the order and
agree to fulfill their responsibilities
under the order. At the time of its
investment in shares of an Open-end
Fund in excess of the limit in section
12(d)(1)(A)(i), a Fund of Funds will
notify the Open-end Fund of the
investment. At such time, the Fund of
Funds will also transmit to the Openend Fund a list of the names of each
Fund of Funds Affiliate and
Underwriting Affiliate. The Fund of
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21DEN1
sroberts on PROD1PC70 with NOTICES
76714
Federal Register / Vol. 71, No. 245 / Thursday, December 21, 2006 / Notices
Funds will notify the Open-end Fund of
any changes to the list of the names as
soon as reasonably practicable after a
change occurs. The Fund and the Fund
of Funds will maintain and preserve a
copy of the order, the agreement and, in
the case of an Open-end Fund, 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.
9. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company,
including a majority of the Disinterested
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
Open-end Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
10. A Fund of Funds Adviser, or
trustee or Sponsor of a Fund of Funds,
as applicable, will waive fees otherwise
payable to it by the Fund of Funds in
an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by an
Open-end Fund under rule 12b–1 under
the Act) received from a Fund by the
Fund of Funds Adviser, trustee, or
Sponsor, or an affiliated person of the
Fund of Funds’ Adviser, trustee or
Sponsor, other than any advisory fees
paid to the Fund of Funds’ Adviser,
trustee or Sponsor or its affiliated
person, by an Open-end Fund, in
connection with the investment by the
Fund of Funds in the Fund. Any
Subadviser will waive fees otherwise
payable to the Subadviser, directly or
indirectly, by the Investing Management
Company in an amount at least equal to
any compensation received from a Fund
by the Subadviser, or an affiliated
person of the Subadviser, other than any
advisory fees paid to the Subadviser or
its affiliated person by an Open-end
Fund, in connection with the
investment by the Investing
Management Company in the Fund
made at the direction of the Subadviser.
In the event that the Subadviser waives
fees, the benefit of the waiver will be
passed through to the Investing
Management Company.
11. With respect to registered separate
accounts that invest in a Fund of Funds,
no sales load will be charged at the
Fund of Funds level or at the Fund
level. Other sales charges and service
VerDate Aug<31>2005
17:01 Dec 20, 2006
Jkt 211001
fees, as defined in Rule 2830 of the
Conduct Rules of the NASD, if any, will
only be charged at the Fund of Funds
level or at the Fund level, not both.
With respect to other investments in a
Fund of Funds, any sales charges and/
or service fees charged with respect to
shares of the Fund of Funds will not
exceed the limits applicable to a fund of
funds as set forth in Rule 2830 of the
NASD Conduct Rules.
12. No Fund will acquire 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 section
12(d)(1)(E) of the Act, an exemptive
order that allows a Fund to purchase
shares of an affiliated money market
fund for short-term cash management
purposes or rule 12d1–1 under the Act.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6–21780 Filed 12–20–06; 8:45 am]
BILLING CODE 8011–01–P
remove references relating to an expired
mediation pilot program and reposition
certain provisions of the rule. In
addition, the proposed amendments
codify certain existing mediation
procedures. The text of the proposed
rule change is available on the NYSE’s
Web site (https://www.nyse.com), at the
NYSE’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
NYSE included statements concerning
the purpose of and basis for the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
NYSE has prepared summaries, set forth
in sections A, B, and C below, of the
most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54917; File No. SR–NYSE–
2006–45]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change
Relating to Amendments to Exchange
Rule 638 Concerning Mediation
December 11, 2006.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on June 22,
2006, the New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission the proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
NYSE. 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 Exchange is proposing
amendments to Rule 638 concerning
mediation. The amendments are, in
part, housekeeping in nature as they
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
Mediation is offered by the Exchange
to parties, on a voluntary basis, both
before and after an arbitration claim has
been filed. A neutral, impartial
individual, who serves as the mediator,
facilitates discussion of the issues in an
attempt to reach a settlement. The
mediator does not render a decision.
In 1998, the Exchange adopted, on a
pilot basis, Rule 638 to provide for
mandatory mediation in all intraindustry disputes and voluntary
mediation in all customer disputes for
claims of $500,000 or more. As an
incentive for parties to use mediation,
the pilot program provided for the
Exchange to pay the mediator’s fee, up
to $500 for a single mediation session of
up to four hours. In December 2000, the
pilot was amended to lower the
threshold for customer disputes to
$250,000. The Exchange’s experience
with the pilot led to the conclusion that
mediation is most successful when
parties enter into it of their own accord.
For this reason, the pilot was allowed to
expire on January 31, 2003. Thereafter,
the Exchange adopted the current
mediation rules that provide for
voluntary mediation pending
arbitration, as well as prior to
arbitration.
The proposal would remove
references to the expired pilot program.
The proposed amendments would also
codify certain existing mediation
procedures, including that: (1) The
E:\FR\FM\21DEN1.SGM
21DEN1
]]>Agencies
[Federal Register Volume 71, Number 245 (Thursday, December 21, 2006)]
[Notices]
[Pages 76710-76714]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-21780]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27599; 812-13029]
ProFunds, et al.; Notice of Application
December 14, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (the ``Act'') for exemption from
sections 12(d)(1)(A) and (B) of the Act and under sections 6(c) and
17(b) of the Act for an exemption from section 17(a) of the Act.
-----------------------------------------------------------------------
Summary of the Application: The order would permit certain
management investment companies and unit investment trusts registered
under the Act to acquire shares of certain open-end management
investment companies and unit investment trusts registered under the
Act, including those that operate as exchange-traded funds, that are
outside the same group of investment companies as the acquiring
investment companies.
Applicants: ProFunds, Access One Trust, ProShares Trust (``ETF
Trust,'' and together with ProFunds and Access One Trust, the
``Trusts''), ProShare Advisors LLC (``ProShare Advisors''), and ProFund
Advisors LLC (``ProFund Advisors,'' and together with ProShare
Advisors, the ``Advisers'').
Filing Dates: The application was filed on October 7, 2003, and
amended on June 3, 2004, July 15, 2005, and October 6, 2006. Applicants
have agreed to file an amendment during the notice period, the
substance of which is reflected in this notice.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on January 8, 2007, 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 20549-1090; Applicants, 7501 Wisconsin
Avenue, Suite 1000, Bethesda, MD 20814.
FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202)
551-6878, or Michael W. Mundt, Senior Special Counsel, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-0102 (telephone (202) 551-5850).
Applicants' Representations
1. The Trusts are open-end management investment companies
registered under the Act and are each comprised of separate series
(``Funds'') that pursue distinct investment objectives and strategies.
Shares of certain Funds of ProFunds and Access One Trust are sold
publicly to retail investors, and shares of other such Funds are sold
to insurance company separate accounts funding variable life and
variable annuity contracts. The Funds of the ETF Trust (``ETF Funds'')
rely on an order from the Commission that allows the ETF Funds to
operate as exchange-traded funds and to redeem their shares in large
aggregations (``Creation Units'').\1\ Certain Funds pursue their
investment objectives
[[Page 76711]]
through a master-feeder arrangement in reliance on section 12(d)(1)(E)
of the Act.\2\ ProFund Advisors is registered as an investment adviser
under the Investment Advisers Act of 1940 (``Advisers Act'') and serves
as investment adviser to each Fund of ProFunds and Access One Trust.
ProShare Advisors is registered as an investment adviser under the
Advisers Act and serves as investment adviser to each ETF Fund.
---------------------------------------------------------------------------
\1\ ProShares Trust, et al., Investment Company Act Release Nos.
27323 (May 18, 2006) (notice) and 27394 (June 13, 2006) (order)
(``ETF Order'').
\2\ A Fund of Funds (as defined below) may not invest in a Fund
that serves as a feeder Fund unless the feeder Fund is part of the
same group of investment companies as its corresponding master fund.
---------------------------------------------------------------------------
2. Applicants request relief to permit registered management
investment companies and unit investment trusts registered under the
Act that are not part of the same ``group of investment companies,''
within the meaning of section 12(d)(1)(G)(ii) of the Act, as the Trusts
(such management investment companies are ``Investing Management
Companies,'' such unit investment trusts are ``Investing Trusts,'' and
Investing Management Companies and Investing Trusts are collectively
``Funds of Funds''), to acquire shares of the Funds in excess of the
limits in section 12(d)(1)(A) of the Act, and to permit a Fund, any
principal underwriter for a Fund, and any broker or dealer registered
under the Securities Exchange Act of 1934 (``Broker'') to sell shares
of a Fund to a Fund of Funds in excess of the limits of section
12(d)(1)(B) of the Act. Applicants request that the relief apply to:
(1) Each open-end management investment company or unit investment
trust registered under the Act that currently or subsequently is part
of the same ``group of investment companies,'' within the meaning of
section 12(d)(1)(G)(ii) of the Act, as the Trusts and is advised or
sponsored by the Advisers or any entity controlling, controlled by, or
under common control with the Advisers (such open-end management
investment companies are ``Open-end Funds,'' such unit investment
trusts are ``UIT Funds,'' and both Open-end Funds and UIT Funds are
``Funds''); (2) each Fund of Funds that enters into a Participation
Agreement (as defined below) with a Fund to purchase shares of the
Funds; and (3) any principal underwriter to a Fund or Broker selling
shares of a Fund.\3\
---------------------------------------------------------------------------
\3\ All entities that currently intend to rely on the requested
order are named as applicants. Any other entity that relies on the
order in the future will comply with the terms and conditions of the
application. A Fund of Funds may rely on the requested order only to
invest in the Funds and not in any other registered investment
company.
---------------------------------------------------------------------------
3. Each Investing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
and registered as an investment adviser under the Advisers Act or
exempt from registration (``Fund of Funds Adviser''). A Fund of Funds
Adviser may contract with an investment adviser which meets the
definition of section 2(a)(20)(B) of the Act (a ``Subadviser''). Each
Investing Trust will have a sponsor (``Sponsor'').
4. Applicants state that the Funds will offer the Funds of Funds
simple and efficient investment vehicles to achieve their asset
allocation or diversification objectives. Applicants state that the
Funds also provide high quality, professional investment program
alternatives to Funds of Funds that do not have sufficient assets to
operate comparable funds.
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act, in relevant part, 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, and
any 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.
2. 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. Applicants seek an exemption under section
12(d)(1)(J) of the Act to permit Funds of Funds to acquire shares of
the Funds in excess of the limits in section 12(d)(1)(A) of the Act,
and a Fund, any principal underwriter for a Fund and any Broker to sell
shares of a Fund to a Fund of Funds in excess of the limits of section
12(d)(1)(B) of the Act.
3. Applicants state that the proposed arrangement and conditions
will adequately address the policy concerns underlying sections
12(d)(1)(A) and (B) of the Act, which include concerns about undue
influence by a fund of funds over underlying funds, excessive layering
of fees, and overly complex fund structures. Accordingly, applicants
believe that the requested exemption is consistent with the public
interest and the protection of investors.
4. Applicants believe that neither the Fund of Funds nor a Fund of
Funds Affiliate would be able to exert undue influence over the
Funds.\4\ To limit the control that a Fund of Funds may have over a
Fund, applicants propose a condition prohibiting the Fund of Funds
Adviser or Sponsor, any person controlling, controlled by, or under
common control with the Fund of Funds Adviser or Sponsor, and any
investment company or issuer that would be an investment company but
for sections 3(c)(1) or 3(c)(7) of the Act that is advised or sponsored
by the Fund of Funds Adviser or Sponsor, or any person controlling,
controlled by, or under common control with the Fund of Funds Adviser
or Sponsor (``Fund of Funds Advisory Group'') from controlling
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. The same prohibition would apply to the Subadviser,
any person controlling, controlled by or under common control with the
Subadviser, and any investment company or issuer that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act (or
portion of such investment company or issuer) advised or sponsored by
the Subadviser or any person controlling, controlled by or under common
control with the Subadviser (``Subadviser Group''). Applicants propose
other conditions to limit the potential for undue influence over the
Funds, including that no Fund of Funds or Fund of Funds Affiliate
(except to the extent it is acting in its capacity as an investment
adviser to an Open-end Fund or sponsor to a UIT Fund) will cause a Fund
to purchase a security in an offering of securities during the
existence of any underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated Underwriting'').
An ``Underwriting Affiliate'' is a principal
[[Page 76712]]
underwriter in any underwriting or selling syndicate that is an
officer, director, member of an advisory board, Fund of Funds Advisor,
Subadviser, Sponsor, or employee of the Fund of Funds, or a person of
which any such officer, director, member of an advisory board, Fund of
Funds Adviser, Subadviser, Sponsor or employee is an affiliated person.
An Underwriting Affiliate does not include a person whose relationship
to a Fund is covered by section 10(f) of the Act.
---------------------------------------------------------------------------
\4\ A ``Fund of Funds Affiliate'' is a Fund of Funds Adviser,
Subadviser, Sponsor, promoter, or principal underwriter of a Fund of
Funds, and any person controlling, controlled by, or under common
control with any of those entities. A ``Fund Affiliate'' is an
investment adviser, sponsor, promoter, or principal underwriter of a
Fund, and any person controlling, controlled by, or under common
control with any of those entities.
---------------------------------------------------------------------------
5. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. The board of directors or trustees
of each Investing Management Company, including a majority of the
directors or trustees who are not ``interested persons'' (within the
meaning of section 2(a)(19) of the Act) (``Disinterested Trustees''),
will find that the advisory fees charged to the Investing Management
Company are based on services provided that will be in addition to,
rather than duplicative of, the services provided under the advisory
contract(s) of any Open-end Fund in which the Investing Management
Company may invest. In addition, a Fund of Funds Advisor, trustee or
Sponsor of a Fund of Funds will waive fees otherwise payable to it by
the Fund of Funds, as applicable, in an amount at least equal to any
compensation (including fees received pursuant to any plan adopted by
an Open-end Fund under rule 12b-1 under the Act) received from a Fund
by the Fund of Funds Advisor, trustee or Sponsor or an affiliated
person of the Fund of Funds Adviser, trustee or Sponsor, other than
advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor, or
its affiliated person by an Open-end Fund, in connection with the
investment by the Fund of Funds in the Fund. Applicants also state that
with respect to registered separate accounts that invest in a Fund of
Funds, no sales load will be charged at the Fund of Funds level or at
the Fund level. Other sales charges and service fees, as defined in
Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. (``NASD''), if any, will only be charged at
the Fund of Funds level or at the Fund level, not both. With respect to
other investments in a Fund of Funds, any sales charges and/or service
fees charged with respect to shares of the Fund of Funds will not
exceed the limits applicable to a fund of funds as set forth in Rule
2830 of the NASD Conduct Rules.
6. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Fund may
acquire 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
section 12(d)(1)(E) of the Act, an exemptive order that allows the Fund
to purchase shares of an affiliated money market fund for short-term
cash management purposes or rule 12d1-1 under the Act. Applicants also
represent that to ensure that the Funds of Funds comply with the terms
and conditions of the requested relief from section 12(d)(1) of the
Act, a Fund of Funds must enter into a participation agreement between
a Trust, on behalf of the relevant Funds, and the Funds of Funds
(``Participation Agreement'') before investing in a Fund beyond the
limits imposed by section 12(d)(1)(A). The Participation Agreement will
require the Fund of Funds to adhere to the terms and conditions of the
requested order. The Participation Agreement will include an
acknowledgment from the Fund of Funds that it may rely on the requested
order only to invest in the Funds and not in series of any other
registered investment company. The Participation Agreement will further
require each Fund of Funds that exceeds the 5% or 10% limitations in
sections 12(d)(1)(A)(ii) and (iii) of the Act to disclose in its
prospectus that it may invest in the Funds, and to disclose, in ``plain
English,'' in its prospectus the unique characteristics of the Fund of
Funds investing in the Funds, including but not limited to the expense
structure and any additional expenses of investing in the Funds. Each
Fund of Funds also will comply with the disclosure requirements set
forth in Investment Company Act Release No. 27399 (June 20, 2006).
7. Applicants also note that a Fund may choose to reject a direct
purchase by a Fund of Funds. To the extent that a Fund of Funds
purchases shares of an ETF Fund in the secondary market, the ETF Fund
would still retain its ability to reject purchases of its shares
through its decision to enter into the Participation Agreement prior to
any investment by a Fund of Funds in excess of the limits of section
12(d)(1)(A).
B. Section 17(a)
1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and any
affiliated person of the company. Section 2(a)(3) of the Act defines an
``affiliated person'' of another person to include any person 5% or
more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote by the other person.
2. Applicants seek relief from section 17(a) to permit a Fund that
is an affiliated person of a Fund of Funds because the Fund of Funds
holds 5% or more of the Fund's shares to sell its shares to and redeem
its shares from a Fund of Funds.\5\ Applicants believe that any
proposed transactions directly between Funds and Funds of Funds will be
consistent with the policies of each Fund and Fund of Funds. The
Participation Agreement will require any Fund of Funds that purchases
shares from a Fund to represent that the purchase of shares from the
Fund by a Fund of Funds will be accomplished in compliance with the
investment restrictions of the Fund of Funds and will be consistent
with the investment policies set forth in the Fund of Funds'
registration statement.\6\
---------------------------------------------------------------------------
\5\ Applicants acknowledge that receipt of any compensation by
(a) an affiliated person of a Fund of Funds, or an affiliated person
of such person, for the purchase by the Fund of Funds 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 a Fund of
Funds is subject to section 17(e) of the Act. The Participation
Agreement also will include this acknowledgment.
\6\ To the extent that purchases and sales of shares of an ETF
Fund occur in the secondary market and not through principal
transactions directly between a Fund of Funds and an ETF 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 an ETF Fund to a Fund of Funds and redemptions of those
shares. The requested relief is also intended to cover the in-kind
transactions that would accompany such sales and redemptions, as
described in the application for the ETF Order.
---------------------------------------------------------------------------
3. Section 17(b) of the Act authorizes the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
it finds that (i) The terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (ii) the proposed transaction is consistent with the
policies of each registered investment company involved; and (iii) the
proposed transaction is consistent with the general purposes of the
Act. Section 6(c) of the Act permits the Commission to exempt any
person or transactions from any provision of the Act if such exemption
is necessary or appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the Act.
4. Applicants submit that the proposed arrangement satisfies the
standards for relief under sections 17(b) and 6(c) of the Act.
Applicants state that the terms of the arrangement are fair and
[[Page 76713]]
reasonable and do not involve overreaching. Applicants note that any
consideration paid for the purchase or redemption of shares directly
from a Fund will be based on the net asset value of the Fund.
Applicants state that the proposed arrangement will be consistent with
the policies of each Fund of Funds and Fund and with the general
purposes of the Act.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The members of a Fund of Funds Advisory Group will not control
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. The members of a Subadviser Group will not control
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a decrease in the outstanding
voting securities of a Fund, the Fund of Funds Advisory Group or the
Subadviser Group, each in the aggregate, becomes a holder of more than
25% of the outstanding voting securities of a Fund, it (except for any
member of the Fund of Funds Advisory Group or Subadviser Group that is
a separate account) will vote its shares of the Fund in the same
proportion as the vote of all other holders of the Fund's shares. This
condition does not apply to the Subadviser Group with respect to a Fund
for which the Subadviser or a person controlling, controlled by, or
under common control with the Subadviser acts as the investment adviser
within the meaning of section 2(a)(20)(A) of the Act (in the case of an
Open-end Fund) or as the sponsor (in the case of a UIT Fund). A
registered separate account will seek voting instructions from its
contract holders and will vote its shares in accordance with the
instructions received and will vote those shares for which no
instructions were received in the same proportion as the shares for
which instructions were received. An unregistered separate account will
either (i) Vote its shares of the Fund in the same proportion as the
vote of all other holders of the Fund's shares; or (ii) seek voting
instructions from its contract holders and vote its shares in
accordance with the instructions received and vote those shares for
which no instructions were received in the same proportion as the
shares for which instructions were received.
2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in shares of a
Fund to influence the terms of any services or transactions between the
Fund of Funds or a Fund of Funds Affiliate and the Fund or a Fund
Affiliate.
3. The board of directors or trustees of an Investing Management
Company, including a majority of the Disinterested Trustees, will adopt
procedures reasonably designed to assure that the Fund of Funds Adviser
and any Subadviser are conducting the investment program of the
Investing Management Company without taking into account any
consideration received by the Investing Management Company or a Fund of
Funds Affiliate from a Fund or a Fund Affiliate in connection with any
services or transactions.
4. Once an investment by a Fund of Funds in the securities of an
Open-end Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act,
the board of trustees of the Open-end Fund (``Board''), including a
majority of the Disinterested Trustees, will determine that any
consideration paid by the Open-end Fund to a Fund of Funds or a Fund of
Funds Affiliate in connection with any services or transactions: (a) Is
fair and reasonable in relation to the nature and quality of the
services and benefits received by the Open-end Fund; (b) is within the
range of consideration that the Open-end Fund would be required to pay
to another unaffiliated entity in connection with the same services or
transactions; and (c) does not involve overreaching on the part of any
person concerned. This condition does not apply with respect to any
services or transactions between an Open-end Fund and its investment
adviser(s), or any person controlling, controlled by, or under common
control with such investment adviser(s).
5. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to an
Open-end Fund or sponsor to a UIT Fund) will cause a Fund to purchase a
security in any Affiliated Underwriting.
6. The Board of an Open-end Fund, including a majority of the
Disinterested Trustees, will adopt procedures reasonably designed to
monitor any purchases of securities by the Open-end Fund in an
Affiliated Underwriting once an investment by a Fund of Funds in the
securities of the Fund exceeds the limit in section 12(d)(1)(A)(i) of
the Act, including any purchases made directly from an Underwriting
Affiliate. The Board of the Open-end Fund will review these purchases
periodically, but no less frequently than annually, to determine
whether the purchases were influenced by the investment by the Fund of
Funds in the Open-end Fund. The Board of the Open-end Fund will
consider, among other things, (i) Whether the purchases were consistent
with the investment objectives and policies of the Open-end Fund; (ii)
how the performance of securities purchased in an Affiliated
Underwriting compares to the performance of comparable securities
purchased during a comparable period of time in underwritings other
than Affiliated Underwritings or to a benchmark such as a comparable
market index; and (iii) whether the amount of securities purchased by
the Open-end Fund in Affiliated Underwritings and the amount purchased
directly from an Underwriting Affiliate have changed significantly from
prior years. The Board of the Open-end Fund will take any appropriate
actions based on its review, including, if appropriate, the institution
of procedures designed to assure that purchases of securities in
Affiliated Underwritings are in the best interests of shareholders.
7. The Open-end Fund will maintain and preserve permanently in an
easily accessible place a written copy of the procedures described in
the preceding condition, and any modifications to such procedures, and
will maintain and preserve for a period of not less than six years from
the end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings once an investment by a Fund of Funds in the securities
of the Open-end Fund exceeds the limit in 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 Open-end Fund were made.
8. Before investing in a Fund in excess of the limits in section
12(d)(1)(A) of the Act, the Fund of Funds and the Fund will execute a
Participation Agreement stating, without limitation, that their boards
of directors or trustees and their investment advisers, or sponsors and
trustees, as applicable, understand the terms and conditions of the
order and agree to fulfill their responsibilities under the order. At
the time of its investment in shares of an Open-end Fund in excess of
the limit in section 12(d)(1)(A)(i), a Fund of Funds will notify the
Open-end Fund of the investment. At such time, the Fund of Funds will
also transmit to the Open-end Fund a list of the names of each Fund of
Funds Affiliate and Underwriting Affiliate. The Fund of
[[Page 76714]]
Funds will notify the Open-end Fund of any changes to the list of the
names as soon as reasonably practicable after a change occurs. The Fund
and the Fund of Funds will maintain and preserve a copy of the order,
the agreement and, in the case of an Open-end Fund, 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.
9. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Investing Management
Company, including a majority of the Disinterested 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 Open-end Fund in which the Investing Management Company may invest.
These findings and their basis will be recorded fully in the minute
books of the appropriate Investing Management Company.
10. A Fund of Funds Adviser, or trustee or Sponsor of a Fund of
Funds, as applicable, will waive fees otherwise payable to it by the
Fund of Funds in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by an Open-end
Fund under rule 12b-1 under the Act) received from a Fund by the Fund
of Funds Adviser, trustee, or Sponsor, or an affiliated person of the
Fund of Funds' Adviser, trustee or Sponsor, other than any advisory
fees paid to the Fund of Funds' Adviser, trustee or Sponsor or its
affiliated person, by an Open-end Fund, in connection with the
investment by the Fund of Funds in the Fund. Any Subadviser will waive
fees otherwise payable to the Subadviser, directly or indirectly, by
the Investing Management Company in an amount at least equal to any
compensation received from a Fund by the Subadviser, or an affiliated
person of the Subadviser, other than any advisory fees paid to the
Subadviser or its affiliated person by an Open-end Fund, in connection
with the investment by the Investing Management Company in the Fund
made at the direction of the Subadviser. In the event that the
Subadviser waives fees, the benefit of the waiver will be passed
through to the Investing Management Company.
11. With respect to registered separate accounts that invest in a
Fund of Funds, no sales load will be charged at the Fund of Funds level
or at the Fund level. Other sales charges and service fees, as defined
in Rule 2830 of the Conduct Rules of the NASD, if any, will only be
charged at the Fund of Funds level or at the Fund level, not both. With
respect to other investments in a Fund of Funds, any sales charges and/
or service fees charged with respect to shares of the Fund of Funds
will not exceed the limits applicable to a fund of funds as set forth
in Rule 2830 of the NASD Conduct Rules.
12. No Fund will acquire 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 section 12(d)(1)(E) of the Act, an exemptive order
that allows a Fund to purchase shares of an affiliated money market
fund for short-term cash management purposes or rule 12d1-1 under the
Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-21780 Filed 12-20-06; 8:45 am]
BILLING CODE 8011-01-P
